Performant Announces Earnings Amid Continuing ED Uncertainty

Last Tuesday Performant Financial Corporation (PFMT), announced financial results for the second quarter of 2017. 

PFMT is one of the few publicly traded companies in the ARM space. The company has also historically been one of the Department of Education’s (ED) top performing private collection agencies. However, the firm’s contract with ED expired in April of 2015 and they have not received placements from ED since then.  ED has been a significant portion of the firm’s revenue and profits for years.

insideARM last wrote about the Department of Education (ED) RFP on August 3, 2017. In that article, we reported that ED had provided a current status report on the RFP “Do Over” that is currently in process.

Editor’s Note: See here for a link to an insideARM page that provides a history of our ED-related articles. The page is automatically updated as new stories are written.

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.

insideARM Perspective 

The conference call discussing the earnings announcement was fairly short.  Still, there were few interesting items. 

Regarding the new business ramp up for the IRS contract and CMS Recovery audits Lisa Im, PFMT Chairwoman and Chief Executive Officer, said:

“As we mentioned earlier, we began the start-up of the IRS recovery contract in both Region 1 and Region 5 CMS recovery audit contracts. While still in the very early stages, we believe these will be strong long-term programs. And in a time when federal government agencies are looking for ways to reduce expenses, these programs achieved that objective through generating returns with a success fee-based structure.”

When asked about the status of the ED RFP and the potential for awards to be announced yet this month, Ms. Im said:

“There is an insideARM article that came out today that probably puts a little bit better light and kind of bets on the fact that the August 25 date might be extended out further, based on the evaluations that they are doing and the process that Department of Education has put forward. So my best guess is that they probably will go longer than August 25. But I think we don't know until we get to that point.”

Finally, Ms. Im discussed the refinancing of the company’s credit facility:

“Early this year, we hired an investment bank and credit firm with substantial capital market lending and restructuring experience. With our adviser, we approached over 30 different financing sources. But given the current situation with the Department of Education and subsequently, the Great Lakes notice, it was very challenging to find a lending partner who could be flexible and competitive.

The Department of Education procurement process, on which we do not have a clear view on how -- or when it will be ultimately concluded, had become a strain on the arrangement with our current lending syndicate and on refinancing. Despite these challenges, this week we entered into a new credit facility with an affiliate of one of our existing clients that will fully refinance our existing indebtedness. The new credit facility provides for an initial senior secured term loan of $44 million and up to an additional $15 million of senior secured term loans that we may draw on within 2 years following the close of the initial term loan. The initial term loan is scheduled to close this week. And as I said, the proceeds from the initial $44 million term loan under this new credit facility will be used to repay all outstanding borrowings under our prior credit agreement. The new credit facility has a 3-year maturity with up to 2 1-year extension options.”

The refinancing should allow the company greater flexibility as it ramps up their new business, and, hopefully new business from an ED contract.