Press Release


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Aug 08,2017

Performant Financial Corporation Announces Financial Results for Second Quarter 2017

Performant Also Announces Refinancing of Credit Agreement

LIVERMORE, Calif.
, Aug. 08, 2017 (GLOBE NEWSWIRE) -- Performant Financial Corporation (Nasdaq:PFMT), a leading provider of technology-enabled recovery and related analytics services in the United States, today reported the following financial results for its second quarter ended June 30, 2017:

Second Quarter Financial Highlights

  • Total revenues of $35.9 million, compared to revenues of $38.1 million in the prior year period, down 5.8%
  • Net loss of $2.4 million, or $(0.05) per diluted share, compared to a net income of $1.5 million, or $0.03 per diluted share, in the prior year period
  • Adjusted EBITDA of $5.0 million, compared to adjusted EBITDA of $8.9 million in the prior year period
  • Adjusted net loss of $0.5 million, or $(0.01) per diluted share, compared to an adjusted net income of $2.9 million or $0.06 per diluted share in the prior year period
 

Second Quarter 2017 Results

Student lending revenues in the second quarter were $27.5 million, a decrease of 4.5% from revenues of $28.8 million in the prior year period. Our Guaranty Agency clients and the U.S. Department of Education accounted for revenues of $26.2 million and $1.3 million, respectively, in the second quarter of 2017, compared to $21.8 million and $7.0 million in the prior year period.  Student loan placement volume (defined below) during the quarter totaled $0.9 billion, compared to $1.3 billion in the prior year period.

Healthcare revenues in the second quarter were $2.1 million, down from $3.4 million in the prior year period. Medicare audit recovery revenues were $0.1 million in the second quarter, a decrease of $2.2 million from the prior year period, as the Company's recovery activities are just beginning on the two new RAC contracts awarded to the Company for Region 1 and Region 5. Commercial healthcare clients contributed revenues of $2.0 million, an increase of $0.9 million or 81.8% from the prior year period.

Other revenues in the second quarter were $6.4 million, up from $5.9 million in the prior year period.

As of June 30, 2017, the Company had cash and cash equivalents of approximately $21.3 million.

The Company also announced that it has entered into an agreement to refinance its existing credit facility with a new facility that will initially provide a senior secured term loan of $44 million.  The new facility also provides the Company with the ability to draw down up to an additional $15 million of senior secured term loans within 2 years.  The new credit facility is expected to close this week.  The initial term loan will have a three-year maturity with two, one year extension options available to the Company, subject to customary conditions.  In connection with the closing of the initial $44 million term loan, the Company will issue to the lender warrants to purchase up to 3,863,326 shares of Company common stock, representing approximately 7.5% of the diluted common stock outstanding.  These warrants will have an exercise price of $1.92 per share, which is based on the volume weighted average price of the Company’s shares for a representative period prior to entering into the new credit facility.  If the Company draws down on the additional term loans, it will issue the lender additional warrants at the same exercise price to purchase 77,267 shares for each $1 million of additional borrowings.  Approximately $38.0 million of the proceeds from the new term loan and $6 million of restricted cash will be used to repay all outstanding amounts under the prior credit agreement.

Business Outlook

“As we look ahead, our focus remains on executing on contracts, growing share with our clients, and effectively managing ongoing expenses.  We are excited to have a lender partner who knows our business and shares an interest in creating shareholder value, and we look forward to executing strategically to achieve that objective. Our competitive differentiation continues to be: overarching client-centric focus, a compelling service value proposition, consumer sensitivity and deep commitment to regulatory compliance.  For 2017, we are reiterating our guidance for revenue in the range of $125-145 million with adjusted EBITDA in the range of $10-13 million," concluded Im.

Terms used in this Press Release

Student Loan Placement Volume refers to the dollar volume of defaulted student loans first placed with us during the specified period by public and private clients for recovery. Placement Volume allows us to measure and track trends in the amount of inventory our clients in the student lending market are placing with us during any period. The revenue associated with the recovery of a portion of these loans may be recognized in subsequent accounting periods, which assists management in estimating future revenues and in allocating resources necessary to address current Placement Volumes.

Earnings Conference Call

The Company will hold a conference call to discuss its second quarter results today at 5:00 p.m. Eastern.  A live webcast of the call may be accessed on the Investor Relations section of the Company’s website at investors.performantcorp.com. The conference call is also available by dialing 877-705-6003 (domestic) or 201-493-6725 (international).

A replay of the call will be available on the Company's website or by dialing 844-512-2921 (domestic) or 412-317-6671 (international) and entering the passcode 13666436. The telephonic replay will be available approximately three hours after the call, through August 15, 2017.

About Performant Financial Corporation

Performant helps government and commercial organizations enhance revenue and contain costs by preventing, identifying and recovering waste, improper payments and defaulted assets. Performant is a leading provider of these services in several industries, including healthcare, student loans and government. Performant has been providing recovery audit services for more than nine years to both commercial and government clients, including serving as a Recovery Auditor for the Centers for Medicare and Medicaid Services.

Powered by a proprietary analytic platform and workflow technology, Performant also provides professional services related to the recovery effort, including reporting capabilities, support services, customer care and stakeholder training programs meant to mitigate future instances of improper payments. Founded in 1976, Performant is headquartered in Livermore, California.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, to supplement our consolidated financial statements, the company presents adjusted EBITDA and adjusted net income/(loss). These measures are not in accordance with generally accepted accounting principles (GAAP) and accordingly reconciliations of adjusted EBITDA and adjusted net income/(loss) to net income/(loss) determined in accordance with GAAP are included in the “Reconciliation of Non-GAAP Results” table at the end of this press release. We have included adjusted EBITDA and adjusted net income/(loss) in this press release because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends and to prepare and approve our annual budget. Accordingly, we believe that adjusted EBITDA and adjusted net income/(loss) provide useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and board of directors. Our use of adjusted EBITDA and adjusted net income/(loss) has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items, specifically interest, tax and depreciation and amortization expenses, equity-based compensation expense and certain other non-operating expenses, that are recurring and will be reflected in our financial results for the foreseeable future. In addition, these measures may be calculated differently from similarly titled non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

Forward Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our outlook for revenues and adjusted EBITDA in 2017. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change and actual results may differ materially from the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, that the contracts with our large clients may be changed or terminated unilaterally and on short notice, that our contracts with two of our largest customers, Great Lakes Higher Education and the U.S. Department of Education, have been terminated, that while our protest of Department of Education contract award decision was upheld, there is no assurance that we will receive a new contract award from the Department of Education in the future, that continuing limitations on the scope of our audit activity under our RAC contracts have significantly reduced our revenue opportunities with this client, that the amount of commissions we are required to return to CMS due to successful appeals by providers could exceed our estimated appeals reserve, that we have significant indebtedness and may not be able to avoid a breach of the covenants and other provisions of our credit agreement which would cause us to be in default, that the Company faces significant competition in all of its markets, that the U.S. federal government accounts for a significant portion of the Company's revenues, that future legislative and regulatory changes may have significant effects on the Company's business, that failure of the Company's or third parties' operating systems and technology infrastructure could disrupt the operation of the Company's business and the threat of breach of the Company's security measures or failure or unauthorized access to confidential data that the Company possesses. More information on potential factors that could affect the Company's financial condition and operating results is included from time to time in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's annual report on Form 10-K for the year ended December 31, 2016, Form 10-Q for the quarter ended June 30, 2017 and subsequently filed reports on Forms 10-Q and 8-K. The forward-looking statements are made as of the date of this press release and the Company does not undertake to update any forward-looking statements to conform these statements to actual results or revised expectations.

 
PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
 
  June 30,
 2017
  December 31,
 2016
  (Unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 21,260     $ 32,982  
Restricted cash 6,000     7,502  
Trade accounts receivable, net of allowance for doubtful accounts of $0 and $224, respectively 11,267     11,484  
Deferred income taxes     5,331  
Prepaid expenses and other current assets 14,492     12,686  
Income tax receivable 2,637     2,027  
Total current assets 55,656     72,012  
Property, equipment, and leasehold improvements, net 22,805     23,735  
Identifiable intangible assets, net 5,269     5,895  
Goodwill 81,572     82,522  
Deferred income taxes 3,534      
Other assets 915     914  
Total assets $ 169,751     $ 185,078  
Liabilities and Stockholders’ Equity      
Current liabilities:      
Current maturities of notes payable, net of unamortized debt issuance costs of $29 and $1,294, respectively $ 1,071     $ 9,738  
Accrued salaries and benefits 4,509     4,315  
Accounts payable 715     628  
Other current liabilities 4,186     4,409  
Estimated liability for appeals 19,179     19,305  
Net payable to client 13,104     13,074  
Total current liabilities 42,764     51,469  
Notes payable, net of current portion and unamortized debt issuance costs of $1,136 and $272, respectively 41,878     43,878  
Deferred income taxes     1,130  
Other liabilities 2,285     2,356  
Total liabilities 86,927     98,833  
Commitments and contingencies      
Stockholders’ equity:      
Common stock, $0.0001 par value. Authorized, 500,000 shares at June 30, 2017 and December 31, 2016; issued and outstanding 50,785 and 50,234 shares at June 30, 2017 and December 31, 2016, respectively 5     5  
Additional paid-in capital 67,628     65,650  
Retained earnings 15,191     20,590  
Total stockholders’ equity 82,824     86,245  
Total liabilities and stockholders’ equity $ 169,751     $ 185,078  
               

 

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
    Three Months Ended
 June 30,
  Six Months Ended
 June 30,
    2017   2016   2017   2016
Revenues   $ 35,907     $ 38,074     $ 69,016     $ 76,353  
Operating expenses:                
Salaries and benefits   20,450     20,060     41,146     41,397  
Other operating expenses   16,082     13,733     29,523     28,090  
Total operating expenses   36,532     33,793     70,669     69,487  
Income (loss) from operations   (625 )   4,281     (1,653 )   6,866  
Interest expense   (1,618 )   (1,841 )   (3,224 )   (4,273 )
Income (loss) before provision for income taxes   (2,243 )   2,440     (4,877 )   2,593  
Provision for income taxes   197     963     522     1,036  
Net income (loss)   $ (2,440 )   $ 1,477     $ (5,399 )   $ 1,557  
Net income (loss) per share                
Basic   $ (0.05 )   $ 0.03     $ (0.11 )   $ 0.03  
Diluted   $ (0.05 )   $ 0.03     $ (0.11 )   $ 0.03  
Weighted average shares                
Basic   50,579     50,075     50,443     49,860  
Diluted   50,579     50,527     50,443     50,347  
                         

 

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
  Six Months Ended
 June 30,
Cash flows from operating activities: 2017   2016
Net income (loss) $ (5,399 )   $ 1,557  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Loss on disposal of assets 10     9  
Impairment of goodwill and intangible assets 1,081      
Depreciation and amortization 5,668     6,806  
Deferred income taxes 667     (1,247 )
Stock-based compensation 2,290     2,340  
Interest expense from debt issuance costs 696     550  
Write-off unamortized debt issuance costs     468  
Interest expense paid in kind 217      
Changes in operating assets and liabilities:      
Trade accounts receivable 217     6,359  
Prepaid expenses and other current assets (1,806 )   228  
Income tax receivable (610 )    
Other assets (1 )   8  
Accrued salaries and benefits 194     2,479  
Accounts payable 87     195  
Other current liabilities (221 )   268  
Income taxes payable     63  
Estimated liability for appeals (126 )   287  
Net payable to client 30     393  
Other liabilities (71 )   (110 )
Net cash provided by operating activities 2,923     20,653  
Cash flows from investing activities:      
Purchase of property, equipment, and leasehold improvements (4,253 )   (3,645 )
Net cash used in investing activities (4,253 )   (3,645 )
Cash flows from financing activities:      
Repayment of notes payable (11,285 )   (27,038 )
Debt issuance costs paid (296 )   (410 )
Restricted cash for repayment of notes payable 1,502     (7,511 )
Taxes paid related to net share settlement of stock awards (339 )   (205 )
Proceeds from exercise of stock options 31     330  
Income tax benefit from employee stock options     99  
Payment of purchase obligation     (292 )
Net cash used in financing activities (10,387 )   (35,027 )
Effect of foreign currency exchange rate changes on cash (5 )   25  
Net decrease in cash and cash equivalents (11,722 )   (17,994 )
Cash and cash equivalents at beginning of period 32,982     71,182  
Cash and cash equivalents at end of period $ 21,260     $ 53,188  
Supplemental disclosures of cash flow information:      
Cash paid for income taxes $ 439     $ 2,096  
Cash paid for interest $ 2,328     $ 3,258  
               

 

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, except per share amount)
(Unaudited)
 
    Three Months Ended
 June 30,
  Six Months Ended
 June 30,
    2017   2016   2017   2016
Adjusted Earnings Per Diluted Share:                
Net income (loss)   $ (2,440 )   $ 1,477     $ (5,399 )   $ 1,557  
Plus: Adjustment items per reconciliation of adjusted net income   1,955     1,435     2,999     3,306  
Adjusted net income (loss)   (485 )   2,912     (2,400 )   4,863  
Adjusted Earnings Per Diluted Share   $ (0.01 )   $ 0.06     $ (0.05 )   $ 0.10  
Diluted avg shares outstanding   50,579     50,527     50,443     50,347  
         
    Three Months Ended
 June 30,
  Six Months Ended
 June 30,
    2017   2016   2017   2016
Adjusted EBITDA:                
Net income (loss)   $ (2,440 )   $ 1,477     $ (5,399 )   $ 1,557  
Provision for income taxes   197     963     522     1,036  
Interest expense   1,618     1,841     3,224     4,273  
Transaction expenses (1)   444         444      
Restructuring and other expenses (5)       51         283  
Depreciation and amortization   2,894     3,416     5,668     6,806  
Impairment of goodwill and customer relationship (3)   1,081         1,081      
Stock-based compensation   1,187     1,136     2,290     2,340  
Adjusted EBITDA   $ 4,981     $ 8,884     $ 7,830     $ 16,295  
                                 
    Three Months Ended
 June 30,
  Six Months Ended
 June 30,
    2017   2016   2017   2016
Adjusted Net Income (Loss):                
Net income (loss)   $ (2,440 )   $ 1,477     $ (5,399 )   $ 1,557  
Transaction expenses (1)   444         444      
Stock-based compensation   1,187     1,136     2,290     2,340  
Amortization of intangibles (2)   217     933     488     1,869  
Impairment of goodwill and customer relationship (3)   1,081         1,081      
Deferred financing amortization costs (4)   330     272     696     1,018  
Restructuring and other expenses (5)       51         283  
Tax adjustments (6)   (1,304 )   (957 )   (2,000 )   (2,204 )
Adjusted Net Income (Loss)   $ (485 )   $ 2,912     $ (2,400 )   $ 4,863  
                                 

 

(1) Represents costs and expenses related to the refinancing of our existing indebtedness.

(2) Represents amortization of capitalized expenses related to the acquisition of Performant by an affiliate of Parthenon Capital Partners in 2004, and also an acquisition in the first quarter of 2012 to enhance our analytics capabilities.

(3) Represents goodwill and impairment charges related to our Performant Europe Ltd. subsidiary.

(4) Represents amortization of capitalized financing costs related to financing conducted in 2012 and costs related to the amendments of the terms of the note payable in 2014, 2016 and 2017.

(5) Represents restructuring costs and severance and termination expenses incurred in connection with termination of employees and consultants.

(6) Represents tax adjustments assuming a marginal tax rate of 40%.

 
 
PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, except per share amount)
(Unaudited)
 
We are providing the following preliminary estimates of our financial results for the year ended December 31, 2017:
 
    Six Months Ended   Year Ended
    June 30,
2017
  December 31,
2017
  December 31,
2016
  December 31,
2017
    Actual   Estimate   Actual   Estimate
Adjusted EBITDA:                
Net income (loss)   $ (5,399 )   $  (1,610) to (1,910)   $ (11,453 )   $ (7,009) to (7,309)
Provision for income taxes   522     (5,194) to (5,394)   (4,370 )   (4,672) to (4,872)
Interest expense   3,224     2,876 to 3,876   7,897     6,100 to 7,100
Transaction expenses (1)   444     56 to 556       500 to 1000
Restructuring and other expenses (5)           329      
Depreciation and amortization   5,668     5,082 to 6,082   13,380     10,750 to 11,750
Impairment of goodwill and customer relationship (3)   1,081         15,438     1,081  
Stock-based compensation   2,290     960 to 1,960   4,713     3,250 to 4,250
Adjusted EBITDA   $ 7,830     $  2,170 to 5,170   $ 25,934     $  10,000 to 13,000
                         

(1) Represents costs and expenses related to the refinancing of our existing indebtedness.

(3) Represents goodwill and impairment charges related to our Performant Europe Ltd. subsidiary.

(5) Represents restructuring costs and severance and termination expenses incurred in connection with termination of employees and consultants.

Contact Information
Richard Zubek
Investor Relations
925-960-4988
investors@performantcorp.com

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