Performant Q1 Earnings Provide Insight on Student Loan Collections

Performant Financial Corporation (PFMT), one of the Department of Education’s Private Collection Agencies, yesterday announced financial results for its first quarter ended March 31, 2015. The company also hosted a conference call to discuss the results.

First Quarter Highlights

Total revenues of $38.6 million, representing a year-over-year decrease of 34.2%
Net loss of $4.4 million, resulting in a net loss per diluted share of $0.09, compared to net income of $6.3 million, or $0.13 per diluted share, in the prior year period
Adjusted EBITDA of $4.1 million, compared to $17.4 million in the prior year period
Adjusted net loss of $0.5 million, or $0.01 per diluted share, compared to adjusted net income of $7.6 million and $0.15 per diluted share, respectively, in the prior year period

The earnings report provides interested parties with a rare view into the financial significance of contracts to collect delinquent student loans with the various student loan guaranty agencies and the Department of Education (ED).

Q1 revenue attributed to the guaranty agencies was $15.3 million (vs. $27.5 million in Q1 of 2014) or roughly 40% of the total revenue for the company. Q1 revenue attributed to the ED contract was $11.7 million (vs. $11.9 million in Q1 of 2014) or roughly 30% of the total revenue for the company.

Student loan placement volumes during the quarter totaled $2.2 billion, which was up $700 million from the prior year and up $500 million from the fourth quarter of 2014. Note: Placement volumes were not broken down between guaranty agencies and ED.

During the conference call Lisa Im, Performant’s Chief Executive Officer, provided commentary regarding the changes in student loan borrower behavior patterns based upon Income Based Repayment (IBR) options that came into effect in July of 2014. Ms. Im indicated that the IBR changes had negatively impacted revenue in Q1 as more borrowers moved from loan consolidations into loan rehabilitation programs (loan consolidations generate immediate fees, while loan rehabilitations defer revenue recognition by at least 9 months). Ms. Im stated that the company had adapted to the change, had a very productive Q1 in rehabilitation setups and expects to see a significant increase in student loan revenue beginning in late Q3 and early Q4.

During the Q/A portion of the call investors asked Ms. Im several questions about the status of the ED contract, the ED RFP, and the litigation initiated by 5 companies against ED for wrongful termination of their contracts. She confirmed that the company did not receive an extension on their current ED contract, but was not one of the 5 companies that were terminated by ED. Management remains optimistic about the likelihood of being selected under the current RFP and believes ED will make their selections in the near future.

The conference call was recorded and is available to the public by dialing 877-870-5176 and entering the passcode 13608052.

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