Performant Financial Corporation Announces Financial Results for First Quarter

Performant Financial Corporation (PFMT), yesterday announced financial results for first quarter ending March 31, 2016. The company also hosted a conference call to discuss the results.

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 the contract expired. The ED RFP remains in a delayed re-bidding process. (Editor’s note: See multiple prior insideARM stories on the delay in the ED RFP.)

First Quarter Financial Highlights

• Total revenues of $38.3 million, compared to $38.6 million in the prior year period, down 0.7%
• Net income of $80,000 or $0.00 per diluted share, compared to a net loss of $(4.4) million, or $(0.09) per diluted share, in the prior year period
• Adjusted EBITDA of $7.4 million, compared to $4.1 million in the prior year period
• Adjusted net income of $2.0 million, or $0.04 per diluted share, compared to an adjusted net loss of $(0.5) million or $(0.01) per diluted share, respectively, in the prior year period

Student lending revenues in the first quarter were $29.6 million, an increase of 9.5% from $27.1 million in the prior year period. ED and Guaranty Agencies accounted for revenues of $7.4 million and $22.3 million, respectively, in the first quarter of 2016, compared to $11.7 million and $15.3 million in the prior year period.  Student loan placement volume during the quarter totaled $0.6 billion, compared to $2.2 billion in the prior year period. This figure reflects the lack of placements from ED and fluctuations in placement volume from Guaranty Agencies.

Healthcare revenues in the first quarter were $2.7 million, down from $5.3 million in the prior year period, due primarily to significant limitations on the scope of recovery activities that have been imposed during the CMS contract transition. Medicare audit recovery revenues were $1.2 million in the first quarter, a decline of $2.0 million from the prior year period. Commercial healthcare clients contributed revenues of $1.5 million a decrease of $0.5 million from the prior year period.

Future Guidance

Based on year-to-date results, the company is reiterating its expectation to achieve 2016 revenue of $125 million to $135 million.

insideARM Perspective

Since PFMT is one of the few publicly traded companies in the ARM space, the earnings reports are always interesting.  The fact that PFMT has historically been a major player in the ED contract also provides a rare inside look into the magnitude of that contract. The earnings call is also always interesting as analysts probe senior management for more information about the company’s future and their key clients and prospects.

PFMT has had the ED contract for years.  However, they were not one of the five PCAs that received extensions in March of last year. As a result, they have not received any new placements since last April.  Still, without new placements for 12 months, ED revenues for the quarter were $7.4 million. That number dramatically illustrates why so many ARM companies are participating in the ED RFP.

During the earnings call PFMT CEO Lisa Im briefly discussed the ED contract. She stated, “On the Department of Education procurement update, the complete RFP responses were submitted at the end of February. At this time, there are no commitments from the Department of Education on when the contracts would be awarded, when they would start or how many vendors they will select. As we stated in our last call, we have excluded from our guidance the new Department of Education contract impact in 2016 due to uncertainty of contract start date and the number of contracts to be awarded.”

When asked about a potential IRS contract Ms. Im responded, “We’re actually not at liberty to discuss that. I think the opportunities will become clearer over the next coming months.”