Attached files
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| 8-K - 8-K - Performant Financial Corp | a8k06302017.htm |
Exhibit 99.1
Performant Financial Corporation Announces Financial Results for Second Quarter 2017
Performant Also Announces Refinancing of Credit Agreement
Livermore, Calif., August 8, 2017 - 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.
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)
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.