Performant Financial Corporation Announces Financial Results for Q2 2016

Last Thursday, Performant Financial Corporation (PFMT) announced financial results for second quarter ending June 30, 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 the Department 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, including this one.

Second Quarter Financial Highlights

• Total revenues of $38.1 million, compared to revenues of $41.3 million in the prior year period, down 8%
• Net income of $1.5 million, or $0.03 per diluted share, compared to a net income of $0.7 million, or $0.01 per diluted share, in the prior year period
• Adjusted EBITDA of $8.9 million, compared to adjusted EBITDA of $8.4 million in the prior year period
• Adjusted net income of $2.9 million, or $0.06 per diluted share, compared to an adjusted net income of $2.3 million or $0.05 per diluted share in the prior year period

Student lending revenues in the second quarter were $28.8 million, a decrease of 7.0% from $31.0 million in the prior year period. The U.S. Department of Education and Guaranty Agencies accounted for revenues of $7.0 million and $21.8 million, respectively, in the second quarter of 2016, compared to $10.5 million and $20.5 million in the prior year period.  Student loan placement volume (defined below) during the quarter totaled $1.3 billion, compared to $1.7 billion in the prior year period. This figure reflects the lack of placements from the Department of Education and a 24% increase in placement volume from Guaranty Agencies compared to the second quarter of 2015.

Other revenues in the second quarter were $5.9 million, up from $5.1 million in the prior year period.

Healthcare revenues in the second quarter were $3.4 million, down from $5.3 million in the prior year period, as the Company’s revenues in this sector continue to be adversely affected by significant limitations on the scope of recovery activities that have been imposed during the Centers for Medicare and Medicaid Services (“CMS”) contract transition. Medicare audit recovery revenues were $2.3 million in the second quarter, a decline of $0.7 million from the prior year period. Commercial healthcare clients contributed revenues of $1.1 million, a decrease of $1.1 million from the prior year period.

Other revenues in the second quarter were $5.9 million, up from $5.1 million in the prior year period.

insideARM Perspective

As noted above, PFMT has historically been one of the strongest performers on the ED contract, which they have been a part of for years.  However, they were not one of the five PCAs that received extensions in March of 2015. As a result, they have not received any new placements since April 2015.  However, without new placements for 15 months, ED revenues for the quarter were still $7.0 million. That number dramatically illustrates why so many ARM companies are participating in the ED RFP.

During the PFMT quarterly conference calls interested parties listen carefully for updates on the ED RFP. Management did not provide any newsworthy updates.

During the earnings call PFMT CEO Lisa Im briefly discussed the ED contract twice. During her introductory comments 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 Department of Education on when the contracts would be awarded, start or how many vendors they will select.”

During her closing comments regarding guidance for the rest of the year she said,

“As we mentioned last quarter, our guidance excludes the effect of any new Department of Education contracts in 2016 due to the uncertainty of the contract star date and the number of contracts to be awarded.”

Hakan Orvell, PFMT CFO, also mentioned the ED contract, commenting,

“While we remain optimistic, we have not heard any update regarding the timing of when the new contract will start up and when we might expect to receive new placements.”

It was an interesting conference call from one other perspective;  after the management presentation was complete, there was not a single question from the audience.