Press release

Performant Financial Corporation Announces Financial Results for Second Quarter 2020

0
Sponsored by Businesswire

Performant Financial Corporation (Nasdaq: PFMT), (the “Company”), 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, 2020:

Second Quarter Financial Highlights

  • Total revenues of $33.8 million, compared to revenues of $35.8 million in the prior year period
  • Net loss of approximately $7.2 million, or $(0.13) per diluted share, compared to a net loss of $6.4 million, or $(0.12) per diluted share, in the prior year period. Included in the net loss for the current period was a non-cash impairment to goodwill of $8.0 million
  • Adjusted net loss, excluding the non-cash goodwill charge was $0.7 million, or $(0.01) per diluted share, compared to an adjusted net loss of $6.5 million or $(0.12) per diluted share in the prior year period
  • Adjusted EBITDA of $4.3 million, compared to $(2.5) million in the prior year period

Second Quarter 2020 Results

Total revenues in the second quarter were $33.8 million, a decrease of 5.6% from revenues of $35.8 million in the prior year period. Healthcare revenues in the second quarter of 2020 were $14.6 million, an increase of 57.0% from revenues of $9.3 million in the prior year period. Recovery revenues in the second quarter were $16.2 million, a decrease of $5.9 million, or 26.7% from revenues of $22.1 million in the prior year period. Revenues from our Customer Care / Outsourced Services in the second quarter were $3.0 million, a decrease of $1.4 million from the prior year period.

The Company recorded a non-cash impairment to goodwill of $8.0 million as of June 30, 2020. This is mainly due to the decrease in the Company’s stock price and associated market capitalization. There has been significant negative impact to the global economy and the public securities markets as a result of the COVID-19 pandemic since March 2020. As a result, the Company’s goodwill is at elevated risk of additional impairment should there be further decline in the Company’s stock price and associated market capitalization, which may result in a potentially material non-cash charge to earnings.

Net loss for the second quarter of 2020 was $7.2 million, or $(0.13) per share on a diluted basis, compared to net loss of $6.4 million or $(0.12) per share on a diluted basis in the prior year period. Adjusted net loss for the second quarter of 2020 was $0.7 million, resulting in $(0.01) per share on a diluted basis. This compares to an adjusted net loss of $6.5 million or $(0.12) per diluted share in the prior year period. Adjusted EBITDA for the second quarter of 2020 was $4.3 million as compared to $(2.5) million in the prior year period.

As of June 30, 2020, the Company had cash, cash equivalents and restricted cash of approximately $16.8 million.

Business Commentary and Outlook

“The safety and well-being of our associates has been our top priority during this pandemic, as a result, during the second quarter we successfully transitioned almost all our personnel, approximately 1,200 employees, to work remotely, and access to our physical sites was restricted to personnel who were required to perform critical business continuity activities. Through these and other proactive efforts, we performed relatively well throughout a challenging second quarter to ensure as much operational continuity as possible,” stated Lisa Im, CEO of Performant.

“Despite the various COVID-19 related challenges, our Healthcare business continues to grow, and our prospects within the Healthcare market continue to be promising. We are thankful for the trust our new and existing clients have demonstrated in us, and we are gratified that our solid reputation is yielding significant wins in both the audit and eligibility markets,” concluded Im.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, to supplement our consolidated financial statements, the Company presents adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per diluted share. 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 (loss) to net income (loss) 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 (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 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.

Earnings Conference Call

The Company will hold a conference call to discuss its second quarter 2020 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 13707774. The telephonic replay will be available approximately three hours after the call, through August 18, 2020.

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 (loss), and adjusted EBITDA in 2020 and beyond. 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 material adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition as well as on the business operations and financial performance of many of our customers, that the Company may not have sufficient cash flows from operations to fund ongoing operations and other liquidity needs, that the Company’s indebtedness could adversely affect its business and financial condition and could reduce the funds available for other purposes and the failure to comply with covenants contained in its credit agreement could result in an event of default that could adversely affect its results of operations, that the Company faces a long period to implement a new contract which may result in the incurrence of expenses before the receipt of revenues from new client relationships, 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 the Company may not be able to manage its potential growth effectively, that the Company faces significant competition in all of its markets, 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 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, 2019 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,

2020

 

December 31,

2019

 

(Unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

15,211

 

 

$

3,373

 

Restricted cash

1,622

 

 

1,622

 

Trade accounts receivable, net of allowance for doubtful accounts of $518 and $237, respectively

20,593

 

 

27,170

 

Contract assets

977

 

 

1,339

 

Prepaid expenses and other current assets

3,220

 

 

3,329

 

Income tax receivable

2,024

 

 

164

 

Total current assets

43,647

 

 

36,997

 

Property, equipment, and leasehold improvements, net

18,010

 

 

18,769

 

Identifiable intangible assets, net

807

 

 

925

 

Goodwill

47,372

 

 

74,372

 

Right-of-use assets

5,559

 

 

6,834

 

Other assets

1,155

 

 

975

 

Total assets

$

116,550

 

 

$

138,872

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Current maturities of notes payable to related party, net of unamortized debt issuance costs of $91 and $130, respectively

$

3,359

 

 

$

3,320

 

Accrued salaries and benefits

4,416

 

 

6,126

 

Accounts payable

1,397

 

 

2,532

 

Other current liabilities

2,423

 

 

3,576

 

Deferred revenue

1,062

 

 

83

 

Estimated liability for appeals and disputes

1,215

 

 

1,018

 

Lease liabilities

2,609

 

 

2,775

 

Total current liabilities

16,481

 

 

19,430

 

Notes payable to related party, net of current portion and unamortized debt issuance costs of $1,576 and $2,301, respectively

57,561

 

 

58,562

 

Deferred income taxes

35

 

 

35

 

Earnout payable

375

 

 

475

 

Lease liabilities

4,024

 

 

4,984

 

Other liabilities

3,041

 

 

1,761

 

Total liabilities

81,517

 

 

85,247

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Common stock, $0.0001 par value. Authorized, 500,000 shares at June 30, 2020 and December 31, 2019 respectively; issued and outstanding 54,462 and 53,900 shares at June 30, 2020 and December 31, 2019, respectively

5

 

 

5

 

Additional paid-in capital

81,680

 

 

80,589

 

Accumulated deficit

(46,652

)

 

(26,969

)

Total stockholders’ equity

35,033

 

 

53,625

 

Total liabilities and stockholders’ equity

$

116,550

 

 

$

138,872

 

 

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

2020

 

2019

Revenues

 

$

33,785

 

 

$

35,830

 

Operating expenses:

 

 

 

 

Salaries and benefits

 

22,166

 

 

28,929

 

Other operating expenses

 

9,042

 

 

11,211

 

Impairment of goodwill

 

8,000

 

 

 

Total operating expenses

 

39,208

 

 

40,140

 

Loss from operations

 

(5,423

)

 

(4,310

)

Interest expense

 

(2,031

)

 

(1,958

)

Interest income

 

6

 

 

11

 

Loss before provision for (benefit from) income taxes

 

(7,448

)

 

(6,257

)

Provision for (benefit from) income taxes

 

(249

)

 

142

 

Net loss

 

$

(7,199

)

 

$

(6,399

)

Net loss per share

 

 

 

 

Basic

 

$

(0.13

)

 

$

(0.12

)

Diluted

 

$

(0.13

)

 

$

(0.12

)

Weighted average shares

 

 

 

 

Basic

 

54,267

 

 

53,367

 

Diluted

 

54,267

 

 

53,367

 

 

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Six Months Ended

June 30,

 

2020

 

2019

Cash flows from operating activities:

 

 

 

Net loss

$

(19,683

)

 

$

(14,888

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

Loss on disposal of assets

25

 

 

 

Impairment of goodwill

27,000

 

 

 

Depreciation and amortization

2,795

 

 

4,557

 

Right-of-use assets amortization

1,275

 

 

1,335

 

Deferred income taxes

 

 

31

 

Stock-based compensation

1,340

 

 

1,218

 

Interest expense from debt issuance costs

763

 

 

543

 

Earnout mark-to-market

(162

)

 

(912

)

Changes in operating assets and liabilities:

 

 

 

Trade accounts receivable

6,577

 

 

2,217

 

Contract assets

362

 

 

 

Prepaid expenses and other current assets

109

 

 

(624

)

Income tax receivable

(1,860

)

 

179

 

Other assets

(180

)

 

(24

)

Accrued salaries and benefits

(1,710

)

 

(281

)

Accounts payable

(1,135

)

 

556

 

Deferred revenue and other current liabilities

(112

)

 

(341

)

Estimated liability for appeals and disputes

197

 

 

105

 

Lease liabilities

(1,126

)

 

(1,443

)

Other liabilities

1,279

 

 

117

 

Net cash provided by (used in) operating activities

15,754

 

 

(7,655

)

Cash flows from investing activities:

 

 

 

Purchase of property, equipment, and leasehold improvements

(1,943

)

 

(3,062

)

Net cash used in investing activities

(1,943

)

 

(3,062

)

Cash flows from financing activities:

 

 

 

Repayment of notes payable

(1,725

)

 

(1,150

)

Debt issuance costs paid

 

 

(25

)

Taxes paid related to net share settlement of stock awards

(248

)

 

(445

)

Proceeds from exercise of stock options

 

 

34

 

Borrowings from notes payable

 

 

11,000

 

Net cash (used in) provided by financing activities

(1,973

)

 

9,414

 

Net increase (decrease) in cash, cash equivalents and restricted cash

11,838

 

 

(1,303

)

Cash, cash equivalents and restricted cash at beginning of period

4,995

 

 

7,275

 

Cash, cash equivalents and restricted cash at end of period

$

16,833

 

 

$

5,972

 

 

 

 

 

Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:

 

 

 

Cash and cash equivalents

$

15,211

 

 

$

4,313

 

Restricted cash

1,622

 

 

1,659

 

Total cash, cash equivalents and restricted cash at end of period

$

16,833

 

 

$

5,972

 

Non-cash financing activities:

 

 

 

Recognition of warrants issued in debt financing

$

 

 

$

803

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

Cash received for income taxes

$

2,309

 

 

$

20

 

Cash paid for interest

$

3,495

 

 

$

2,551

 

 

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,

 

 

2020

 

2019

 

2020

 

2019

Adjusted EBITDA:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,199

)

 

$

(6,399

)

 

$

(19,683

)

 

$

(14,888

)

Provision for (benefit from) income taxes

 

(249

)

 

142

 

 

(4,123

)

 

313

 

Interest expense (1)

 

2,031

 

 

1,958

 

 

4,258

 

 

3,094

 

Interest income

 

(6

)

 

(11

)

 

(12

)

 

(22

)

Depreciation and amortization

 

1,255

 

 

2,245

 

 

2,795

 

 

4,557

 

Impairment of goodwill (5)

 

8,000

 

 

 

 

27,000

 

 

 

Earnout mark-to-market (6)

 

(162

)

 

(1,188

)

 

(162

)

 

(912

)

Stock-based compensation

 

649

 

 

719

 

 

1,340

 

 

1,218

 

Adjusted EBITDA

 

$

4,319

 

 

$

(2,534

)

 

$

11,413

 

 

$

(6,640

)

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2020

 

2019

 

2020

 

2019

Adjusted Net Income (Loss):

 

 

 

 

 

 

 

 

Net loss

 

$

(7,199

)

 

$

(6,399

)

 

$

(19,683

)

 

$

(14,888

)

Stock-based compensation

 

649

 

 

719

 

 

1,340

 

 

1,218

 

Amortization of intangibles (2)

 

59

 

 

52

 

 

118

 

 

111

 

Impairment of goodwill (5)

 

8,000

 

 

 

 

27,000

 

 

 

Deferred financing amortization costs (3)

 

381

 

 

311

 

 

763

 

 

543

 

Earnout mark-to-market (6)

 

(162

)

 

(1,188

)

 

(162

)

 

(912

)

Tax adjustments (4)

 

(2,455

)

 

29

 

 

(7,991

)

 

(264

)

Adjusted net income (loss)

 

$

(727

)

 

$

(6,476

)

 

$

1,385

 

 

$

(14,192

)

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2020

 

2019

 

2020

 

2019

Adjusted Net Income (Loss) Per Diluted Share:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,199

)

 

$

(6,399

)

 

$

(19,683

)

 

$

(14,888

)

Plus: Adjustment items per reconciliation of adjusted net income (loss)

 

6,472

 

 

(77

)

 

21,068

 

 

696

 

Adjusted net income (loss)

 

(727

)

 

(6,476

)

 

1,385

 

 

(14,192

)

Adjusted net income (loss) per diluted share

 

$

(0.01

)

 

$

(0.12

)

 

$

0.03

 

 

$

(0.27

)

Diluted avg shares outstanding (7)

 

54,267

 

 

53,367

 

 

54,259

 

 

53,214

 

(1)

Represents interest expense and amortization of issuance costs related to the refinancing of our indebtedness.

 

(2)

Represents amortization of intangibles related to the acquisition of Performant by an affiliate of Parthenon Capital Partners in 2004.

 

(3)

Represents amortization of capitalized financing costs related to our Credit Agreement.

 

(4)

Represents tax adjustments assuming a marginal tax rate of 27.5% at full profitability.

 

(5)

Represents a non-cash goodwill impairment charge in 2020 mainly due to the decrease of our market capitalization.

 

(6)

Represents the change from prior reporting periods in the fair value of the potential earnout consideration payable to ECMC group in connection with the Premiere acquisition.

 

(7)

While net loss for the six months ended June 30, 2020 is ($19,683), the computation of adjusted net income (loss) results in adjusted net income of $1,385. Therefore, the calculation of the adjusted net income per diluted share for the six months ended June 30, 2020 includes dilutive common share equivalents of 154 added to the basic weighted average shares of 54,105.