Performant Reports Net Loss in 4Q 2016

On Wednesday, March 1st, Performant Financial Corporation (PFMT), announced financial results for fourth quarter and full year 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. insideARM wrote about the announcement from ED regarding their selections for the new student loan debt collection contract (see here and here). Performant was not one of the companies selected.

Performant was one of the companies that had filed a protest with the GAO over the award.

Fourth Quarter Highlights

• Total revenues of $33.8 million, compared to $41.1 million in the prior year period, down 17.6%
• Net loss of $12.3 million or $(0.24) per diluted share, compared to net income of $2.2 million, or $0.04 per diluted share, in the prior year period
• Adjusted EBITDA of $4.9 million, compared to $9.8 million in the prior year period
• Adjusted net loss of $1.5 million, or $(0.03) per diluted share, compared to adjusted net income of $4.0 million or $0.08 per diluted share, in the prior year period

Full Year Highlights

• Total revenues of $141.4 million, compared to $159.4 million in 2015, down 11.3% 
• Net loss of $11.5 million, or $(0.23) per diluted share, compared to net loss of $1.8 million, or $(0.04) per diluted share, in 2015
• Adjusted EBITDA of $25.9 million, compared to $28.8 million in 2015, Adjusted net income of $4.1 million, or $0.08 per diluted share, compared to adjusted net income of $6.6 million, or $0.13 per diluted share, in 2015

 Student lending revenues in the fourth quarter were $27.4 million, a decrease of 16.7% from $32.8 million in the prior year period. The U.S. Department of Education and Guaranty Agencies accounted for revenues of $3.7 million and $23.7 million, respectively, in the fourth quarter of 2016, compared to $9.7 million and $23.2 million in the prior year period.  Student loan placement volume (defined below) during the quarter totaled $0.6 billion, compared to $0.9 billion in the prior year period.

Healthcare revenues in the fourth quarter were $2.3 million, down from $4.3 million in the prior year period. Medicare audit recovery revenues were $0.6 million in the fourth quarter, a decrease of $2.2 million from the prior year period, as the Company's recovery activities were effectively suspended between the expiration of the first Recovery Audit Contractor (RAC) contract in mid-2016 and the start-up of the two new RAC contracts awarded to the Company in October 2016.  The Company expects work under the new contracts to commence in April 2017.  Commercial healthcare clients contributed revenues of $1.8 million in the fourth quarter of 2016, an increase of $0.2 million from the prior year period.

In the press release that accompanied the earnings announcement Lis Im, Performant's Chief Executive Officer commented:

Although 2016 was another transitional period, as we awaited contracting decisions, we made aggressive expense management decisions and managed our business with the intent of maintaining a sustainable financial platform.

insideARM Perspective

Usually, the PFMT earnings conference call provides excellent perspective on the ED contract and recently, perspective on the IRS contract. But last week’s call was something of an exception. There was little guidance beyond the written press release.

On the ED contract and the PFMT GAO protest. The company only repeated what was provided in the press release: “The GAO’s decision on the Company's protest is expected in April 2017.” The significance of the ED contract is illustrated by the fact that even though the PFMT has not received any new placements from ED since April of 2015, the ED contract still accounted for revenues of $3.7 million in the fourth quarter.

On the IRS contract, management reiterated guidance from last quarter’s conference call. They do not expect those to have meaningful revenue contribution from the IRS contract in this startup year.