Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 26, 2019
 
 
Performant Financial Corporation
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
Delaware
 
001-35628
 
20-0484934
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
333 North Canyons Parkway
Livermore, California 94551
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (925) 960-4800
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02
Results of Operations and Financial Condition.
On March 26, 2019 Performant Financial Corporation issued a press release announcing financial results for its quarter and year ended December 31, 2018. The full text of the press release is furnished as Exhibit 99.1.
The information furnished in this Form 8-K, including the exhibit attached, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and it shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
 
Item 9.01
Financial Statements and Exhibits.
(d)
Exhibits
 
 
99.1

  





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: March 26, 2019
 
 
 
 
 
 
PERFORMANT FINANCIAL CORPORATION
 
 
By:
 
/s/ Ian Johnston
 
 
Ian Johnston
 
 
Chief Accounting Officer


Exhibit


Performant Financial Corporation Announces Financial Results for Fourth Quarter and Full Year 2018

Livermore, Calif., March 26, 2019 - 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 fourth quarter and full year ended December 31, 2018:

Fourth Quarter Financial Highlights

Total revenues of $39.8 million, compared to $33.3 million in the prior year period, up 19.5%
Net loss of $5.3 million or $(0.10) per diluted share, compared to net income of $0.5 million, or $0.01 per diluted share, in the prior year period
Adjusted EBITDA of $2.5 million, compared to $2.0 million in the prior year period
Adjusted net loss of $0.4 million, or $(0.01) per diluted share, compared to adjusted net income of $1.3 million or $0.02 per diluted share, in the prior year period

Full Year 2018 Financial Highlights

Total revenues of $155.7 million, compared to $132.0 million in 2017, growth of 18.0%
Net loss of $8.0 million, or $(0.15) per diluted share, compared to net loss of $12.7 million, or $(0.25) per diluted share, in 2017
Adjusted EBITDA of $(5.2) million, compared to $9.2 million in 2017
Adjusted net loss of $14.3 million, or $(0.27) per diluted share, compared to adjusted net loss of $7.5 million, or $(0.15) per diluted share, in 2017


Fourth Quarter 2018 Results

Student lending revenues in the fourth quarter were $18.0 million, a decrease of 20.0% from $22.5 million in the prior year period. Reduced revenues from Great Lakes Higher Education Guaranty Corporation accounted for this decrease year over year, with revenues of $5.5 million in the fourth quarter of 2018, compared to $11.5 million in the prior year period. All other Guaranty Agencies accounted for revenues of $12.5 million in the fourth quarter of 2018, compared to $11.0 million in the prior year period. Student loan placement volume (defined below) during the quarter totaled $431.7 million, compared to $549.0 million in the prior year period.

Healthcare revenues in the fourth quarter were $11.1 million, up from $3.6 million in the prior year period. Medicare audit recovery and Medicare as Secondary Payer Commercial Repayment Center revenues were $5.1 million in the fourth quarter, an increase of $4.6 million from the prior year period. Commercial healthcare clients contributed revenues of $6.0 million in the fourth quarter of 2018, an increase of $2.8 million from the prior year period.

Other revenues in the fourth quarter were $10.7 million, up from $7.2 million in the prior year period. This increase is due to the growth in our outsourced customer services contract work.

Net loss for the fourth quarter of 2018 was $5.3 million, or $(0.10) per share on a fully diluted basis, compared to net income of $0.5 million or $0.01 per share on a fully diluted basis in the prior year period. Adjusted EBITDA for the fourth quarter of 2018 was $2.5 million as compared to $2.0 million in the prior year period. Adjusted net loss for the fourth quarter of 2018 was $0.4 million, or $(0.01) per share on a fully diluted basis. This compares to adjusted net income of $1.3 million, or $0.02 per fully diluted share in the prior year period.

Full Year 2018 Results

Revenues for the full year ended December 31, 2018 were $155.7 million, an increase of 18.0% compared to $132.0 million in 2017.  Student lending revenues declined 29.5% to $66.5 million from $94.3 million in 2017. Student Loan Placement Volume totaled $2.6 billion as compared to $2.8 billion in 2017. Healthcare revenues increased 460.0% to $56.0 million from $10.0 million in the prior year. Other revenues increased 19.9% to $33.2 million from $27.7 million in 2017.

Net loss for the full year was $8.0 million, or $(0.15) per share on a fully diluted basis, compared to net loss of $12.7 million or $(0.25) per share on a fully diluted basis in 2017. Adjusted EBITDA for 2018 was ($5.2 million) as compared to





$9.2 million in 2017.   Adjusted net loss for 2018 was $14.3 million, or $(0.27) per fully diluted share. This compares to adjusted net loss of $7.5 million or $(0.15) per fully diluted share in 2017.

As of December 31, 2018, the Company had cash, cash equivalents and restricted cash of approximately $7.3 million.

Business Commentary and 2019 Outlook

“During 2018, we made significant progress on many of our key initiatives, increased our investment to support contract and revenue growth and acquired Premiere Credit of North America, which further strengthened our long-standing relationship with ECMC.”

“Finally, we are providing full year 2019 revenue guidance of $158 to $168 million and and adjusted EBITDA to be a loss of between $2 million to $6 million. We are excited for 2019 and beyond as our larger contracts begin to transition out of the heavy investment phase and become sources for greater profitability that strengthen our business in the mid to longer term.” concluded Lisa Im, CEO of Performant.

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. These measures are not in accordance with accounting principles generally accepted in the United States of America (US GAAP) and accordingly reconciliations of adjusted EBITDA and adjusted net income to net income determined in accordance with US 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 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 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 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 US GAAP. In particular, many of the adjustments to our US 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.

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 fourth quarter and full year 2018 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 13688455. The telephonic replay will be available approximately three hours after the call, through April 2, 2019.

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.

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, net income and adjusted EBITDA in 2019. 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, the high level of revenue concentration among the Company's largest customers and any termination in the Company’s relationship with any of our significant clients would result in a material decline in our revenues, that many of the Company's customer contracts are subject to periodic renewal, are not exclusive, do not provide for committed business volumes and may be changed or terminated unilaterally and on short notice, that there can be no assurance that the Company is able to retain its new contract with the Department of Education as the result of the protests filed by unsuccessful bidders, 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 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, 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.


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







PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
 
 
 
 
Assets
December 31,
2018
 
December 31,
2017
Current assets:
 
 
 
Cash and cash equivalents
$
5,462

 
$
21,731

Restricted cash
1,813

 
1,788

Trade accounts receivable, net of allowance for doubtful accounts of $22 and $35, respectively
20,879

 
12,494

Prepaid expenses and other current assets
3,420

 
12,678

Income tax receivable
179

 
6,839

Total current assets
31,753

 
55,530

Property, equipment, and leasehold improvements, net
22,255

 
20,944

Identifiable intangible assets, net
1,160

 
4,864

Goodwill
81,572

 
81,572

Deferred income taxes

 
468

Other assets
1,019

 
1,058

Total assets
$
137,759

 
$
164,436

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current maturities of notes payable to related party, net of unamortized discount and debt issuance costs of $126 and $171, respectively
$
2,224

 
$
2,029

Accrued salaries and benefits
5,759

 
4,569

Accounts payable
1,402

 
1,518

Other current liabilities
3,414

 
3,347

Deferred revenue
1,078

 

Estimated liability for appeals
210

 
18,817

Net payable to client

 
12,800

Total current liabilities
14,087

 
43,080

Notes payable to related party, net of current portion and unamortized discount and debt issuance costs of $2,345 and $3,245, respectively
41,105

 
38,555

Deferred income taxes
22

 

Earnout payable
1,936

 

Other liabilities
3,383

 
2,476

Total liabilities
60,533

 
84,111

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value. Authorized, 500,000 shares at December 31, 2018 and 2017, respectively; issued and outstanding, 52,999 and 51,085 shares at December 31, 2018 and 2017, respectively
5

 
5

Additional paid-in capital
77,370

 
72,459

Retained earnings (accumulated deficit)
(149
)
 
7,861

Total stockholders’ equity
77,226

 
80,325

Total liabilities and stockholders’ equity
$
137,759

 
$
164,436







PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Revenues
$
39,730

 
$
33,289

 
$
155,668

 
$
132,049

Operating expenses:
 
 
 
 
 
 
 
Salaries and benefits
27,782

 
20,551

 
96,144

 
82,191

Other operating expenses
12,409

 
13,925

 
58,333

 
55,863

Impairment of goodwill and intangible assets
2,988

 

 
2,988

 
1,081

Total operating expenses
43,179

 
34,476

 
157,465

 
139,135

Loss from operations
(3,449
)
 
(1,187
)
 
(1,797
)
 
(7,086
)
Interest expense
(1,165
)
 
(1,289
)
 
(4,699
)
 
(6,972
)
Interest income
9

 
4

 
28

 
4

Loss before provision for (benefit from) income taxes
(4,605
)
 
(2,472
)
 
(6,468
)
 
(14,054
)
Provision for (benefit from) income taxes
660

 
(2,993
)
 
1,542

 
(1,325
)
Net income (loss)
$
(5,265
)
 
$
521

 
$
(8,010
)
 
$
(12,729
)
 
 
 
 
 
 
 
 
Net income (loss) per share
 
 
 
 
 
 
 
Basic
$
(0.10
)
 
$
0.01

 
$
(0.15
)
 
$
(0.25
)
Diluted
$
(0.10
)
 
$
0.01

 
$
(0.15
)
 
$
(0.25
)
Weighted average shares
 
 
 
 
 
 
 
Basic
52,991

 
51,004

 
52,064

 
50,688

Diluted
52,991

 
51,599

 
52,064

 
50,688







PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Twelve Months Ended
 
December 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(8,010
)
 
$
(12,729
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Loss on disposal of assets
44

 
67

Release of net payable to client related to contract termination
(9,860
)
 

Release of estimated liability for appeals due to termination of contract
(18,531
)
 

Derecognition of subcontractor receivable for appeals due to termination of contract
5,535

 

Derecognition of subcontractor receivable for overturned claims
1,536

 

Provision for doubtful account for subcontractor receivable
1,868

 

Impairment of goodwill and intangible assets
2,988

 
1,081

Depreciation and amortization
10,234

 
10,888

Deferred income taxes
490

 
3,733

Stock-based compensation
2,750

 
3,740

Interest expense from debt issuance costs
1,221

 
1,336

Earnout mark-to-market
(218
)
 

Write-off of unamortized debt issuance costs

 
1,049

Interest expense paid in kind

 
331

Changes in operating assets and liabilities:
 
 
 
Trade accounts receivable
(6,695
)
 
(1,010
)
Prepaid expenses and other current assets
895

 
8

Income tax receivable
6,660

 
(4,812
)
Other assets
69

 
(148
)
Accrued salaries and benefits
220

 
254

Accounts payable
(445
)
 
890

Deferred revenue and other current liabilities
(657
)
 
(1,062
)
Estimated liability for appeals
(76
)
 
(488
)
Net payable to client
(2,940
)
 
(274
)
Other liabilities
773

 
120

Net cash provided by (used in) operating activities
(12,149
)
 
2,974

Cash flows from investing activities:
 
 
 
Purchase of property, equipment, and leasehold improvements
(7,645
)
 
(7,259
)
Premiere Credit of North America, LLC cash acquired
2,285

 

Net cash used in investing activities
(5,360
)
 
(7,259
)
Cash flows from financing activities:
 
 
 
Repayment of notes payable
(2,200
)
 
(55,513
)
Debt issuance costs paid
(27
)
 
(934
)
Taxes paid related to net share settlement of stock awards
(663
)
 
(385
)
Proceeds from exercise of stock options
187

 
155

Borrowings from notes payable
4,000

 
44,000

Net cash provided by (used in) financing activities
1,297

 
(12,677
)
Effect of foreign currency exchange rate changes on cash
(32
)
 
(3
)
Net decrease in cash, cash equivalents and restricted cash
(16,244
)
 
(16,965
)
Cash, cash equivalents and restricted cash at beginning of year
23,519

 
40,484

Cash, cash equivalents and restricted cash at end of year
$
7,275

 
$
23,519

Non-cash investing activities:
 
 
 
Recognition of contingent consideration in acquisition
$
2,154

 
$






Non-cash financing activities:
 
 
 
Recognition of shares issued in acquisition
$
2,420

 
$

Recognition of warrant issued in debt financing
$
249

 
$
3,302

Supplemental disclosures of cash flow information:
 
 
 
Cash paid (received) for income taxes
$
(6,228
)
 
$
(353
)
Cash paid for interest
$
3,477

 
$
4,284

Reconciliation of the consolidated statements of cash flows to the consolidated balance sheets:
 
 
 
Cash and cash equivalents
$
5,462

 
$
21,731

Restricted cash
$
1,813

 
$
1,788

Total cash, cash equivalents and restricted cash at end of period
$
7,275

 
$
23,519







PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Adjusted Earnings Per Diluted Share:
 
 
 
 
 
 
 
Net income (loss)
$
(5,265
)
 
$
521

 
$
(8,010
)
 
$
(12,729
)
Plus: Adjusted items per reconciliation of adjusted net income
4,889

 
760

 
(6,306
)
 
5,208

Adjusted Net Income (Loss)
$
(376
)
 
$
1,281

 
$
(14,316
)
 
$
(7,521
)
 
 
 
 
 
 
 
 
Adjusted Earnings Per Diluted Share
(0.01
)
 
0.02

 
(0.27
)
 
(0.15
)
Diluted average shares outstanding
52,991

 
51,599

 
52,064

 
50,688

 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Adjusted EBITDA:
 
 
 
 
 
 
 
Net income (loss)
$
(5,265
)
 
$
521

 
$
(8,010
)
 
$
(12,729
)
Provision for (benefit from) income taxes
660

 
(2,993
)
 
1,542

 
(1,325
)
Interest expense
1,165

 
1,289

 
4,699

 
6,972

Interest income
(9
)
 
(4
)
 
(28
)
 
(4
)
Transaction expenses (1)

 

 

 
576

Depreciation and amortization
2,633

 
2,507

 
10,234

 
10,888

Impairment of goodwill and intangible assets (4)
2,988

 

 
2,988

 
1,081

CMS Region A contract termination (6)

 

 
(19,415
)
 

Stock based compensation
347

 
713

 
2,750

 
3,740

Adjusted EBITDA
$
2,519

 
$
2,033

 
$
(5,240
)
 
$
9,199

 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Adjusted Net Income (Loss):
 
 
 
 
 
 
 
Net income (loss)
$
(5,265
)
 
$
521

 
$
(8,010
)
 
$
(12,729
)
Transaction expenses (1)

 

 

 
576

Stock based compensation
347

 
713

 
2,750

 
3,740

Amortization of intangibles (2)
3,150

 
207

 
3,758

 
898

Impairment of goodwill and intangible assets (4)
2,988

 

 
2,988

 
1,081

Deferred financing amortization costs (3)
258

 
346

 
1,221

 
2,385

CMS Region A contract termination (6)

 

 
(19,415
)
 

Tax adjustments (5)
(1,854
)
 
(506
)
 
2,392

 
(3,472
)
Adjusted Net Income (Loss)
$
(376
)
 
$
1,281

 
$
(14,316
)
 
$
(7,521
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 







We are providing the following preliminary estimates of our financial results for the year ended December 31, 2019:
 
 
Year Ended
 
 
December 31,
2018
 
December 31,
2019
 
 
Actual
 
Estimate
Adjusted EBITDA:
 
 
 
 
Net income (loss)
 
$
(8,010
)
 
$ (18,460) to (26,445)

Provision for (benefit from) income taxes
 
1,542

 
(500) to 500

Interest expense
 
4,699

 
5,500 to 6,500

Interest income
 
(28
)
 
(40) to (55)

Depreciation and amortization
 
10,234

 
9,500 to 10,500

Impairment of goodwill and customer relationship (4)
 
2,988

 

CMS Region A contract termination (6)
 
(19,415
)
 

Stock-based compensation
 
2,750

 
2,000 to 3,000

Adjusted EBITDA
 
$
(5,240
)
 
$ (2,000) to (6,000)



(1) Represents costs and expenses related to the refinancing of our indebtedness.
(2) Represents amortization of capitalized expenses related to the acquisition of Performant by an affiliate of Parthenon Capital Partners in 2004, an acquisition in the first quarter of 2012 to enhance our analytics capabilities, and an acquisition of Premiere Credit of North America, LLC in the third quarter of 2018.
(3) Represents amortization of capitalized financing costs related to our Credit Agreement for 2018 and 2017, and amortization of capitalized financing costs related to our Prior Credit Agreement for 2017.
(4) Represents intangible assets impairment charges related to Great Lakes customer relationship in 2018 and impairment charges related to our Performant Europe Ltd. subsidiary in 2017.
(5) Represents tax adjustments assuming a marginal tax rate of 27.5% for 2018, and 40% for 2017.
(6) Represents the net impact of the termination of our 2009 CMS Region A contract during 2018, comprised of release of an aggregate of $28.4 million of the estimated liability for appeals and the net payable to client balances into revenue, net of derecognition of $9.0 million of prepaid expenses and other current assets, with a charge to other operating expenses, reflecting accrued receivables associated with amounts due from subcontractors for decided and yet-to-be decided appeals.