PERFORMANT FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



~~Delaware~~

	~~20-0484934~~
Delaware		20-0484934
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Performant Financial Corporation

333 North Canyons Parkway

Livermore, CA 94551

(925) 960-4800

(Address, including zip code and telephone number, including area code of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated ~~filer”,~~filer,” “accelerated ~~filer” and~~filer,” “smaller reporting ~~company”~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange ~~Act). (Check one):~~

Act.

Large accelerated filer

Accelerated filer

Emerging growth company

☐

~~Large accelerated filer~~

~~Accelerated filer~~

Non-accelerated filer

Smaller reporting company

x☒

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

x ~~Emerging growth company~~

o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, par value $.0001 per share	PFMT	The Nasdaq Stock Market LLC

The number of shares of Common Stock outstanding as of ~~November 13, 2017~~May 14, 2021 was ~~50,961,377.~~

55,249,883.

Table of Contents

PERFORMANT FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, ~~2017~~2020

INDEX


				Page
PART I—Financial Information

			~~Page~~
~~PART I—Financial Information~~

Item 1.	Consolidated Financial Statements
		Consolidated Balance Sheets ~~September 30, 2017~~March 31, 2021 (unaudited) and December 31, ~~2016~~2020		1
		Consolidated Statements of Operations Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (unaudited)		2
		Consolidated Statements of ~~Comprehensive Income (Loss)~~Changes in Stockholders' Equity Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (unaudited)		3
		Consolidated Statements of Cash Flows ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (unaudited)		4
		Notes to Consolidated Financial Statements ~~Three and Nine Months Ended September 30, 2017 and 2016~~ (unaudited)		65
Item 2.		Management's D~~iscussion~~Discussion and Analysis of Financial Condition and Results of Operations		1415
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		2928
Item 4.		Disclosure Controls and Procedures		2928

PART II—Other Information				3029

Item 1.		Legal Proceedings		3029
Item 1A.		Risk Factors		3029
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		4038
Item 3.		Defaults Upon Senior Securities		4038
Item 4.		Mine Safety Disclosures		4038
Item 5.		Other Information		4038
Item 6.		Exhibits		4139
Signatures				4240

Table of Contents

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

See accompanying notes to consolidated financial statements.

Table of Contents

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

See accompanying notes to consolidated financial statements.

Table of Contents

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated ~~Statements~~Statement of ~~Comprehensive Income (Loss)~~Changes in Stockholders’ Equity

(In thousands)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) $ (7,851 ) $ (715 ) $ (13,250 ) $ 842
Other comprehensive income:
Foreign currency translation adjustment 1
(1 ) (4 ) 24
Comprehensive income (loss) $ (7,850 ) $ (716 ) $ (13,254 ) $ 866


	Three Months Ended March 31, 2021									Three Months Ended March 31, 2020
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total		Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total
	Shares	Amount								Shares	Amount
Balances at beginning of period	54,764	$	5	$	82,933	$	(40,958)	$	41,980	53,900	$	5	$	80,589	$	(26,969)	$	53,625
Common stock issued under stock plans, net of shares withheld for employee taxes	61	—		(23)		—		(23)		122	—		(84)		—		(84)
Stock-based compensation expense	—	—		649		—		649		—	—		691		—		691

Net loss	—	—		—		(4,439)		(4,439)		—	—		—		(12,484)		(12,484)
Balances at end of period	54,825	$	5	$	83,559	$	(45,397)	$	38,167	54,022	$	5	$	81,196	$	(39,453)	$	41,748

See accompanying notes to consolidated financial statements.

Table of Contents

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended
September 30,
2017 2016
Cash flows from operating activities:
Net income (loss) $ (13,250 ) $ 842
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss on disposal of assets 67
12
Impairment of goodwill and intangible assets 1,081
—
Depreciation and amortization 8,381
10,098
Deferred income taxes 667
(2,455 )
Stock-based compensation 3,027
3,546
Interest expense from debt issuance costs 989
874
Write-off unamortized debt issuance costs 1,049
468
Interest expense paid in kind 331
—
Changes in operating assets and liabilities:
Trade accounts receivable (1,006 ) 7,656
Prepaid expenses and other current assets (1,536 ) 55
Income tax receivable 573
(658 )
Other assets 17
22
Accrued salaries and benefits 1,325
3,757
Accounts payable 424
152
Other current liabilities (547 ) (2,210 )
Income taxes payable —
(895 )
Estimated liability for appeals (160 ) 438
Net payable to client (405 ) (981 )
Other liabilities (257 ) (230 )
Net cash provided by operating activities 770
20,491
Cash flows from investing activities:
Purchase of property, equipment, and leasehold improvements (5,408 ) (5,529 )
Net cash used in investing activities (5,408 ) (5,529 )
Cash flows from financing activities:
Repayment of notes payable (55,513 ) (29,307 )
Restricted cash for repayment of notes payable 7,502
(7,507 )
Debt issuance costs paid (858 ) (800 )
Taxes paid related to net share settlement of stock awards (382 ) (261 )
Proceeds from exercise of stock options 90
333
Borrowings from notes payable 44,000
—
Income tax benefit from employee stock options —
103
Payment of purchase obligation —
(427 )
Net cash used in financing activities (5,161 ) (37,866 )
Effect of foreign currency exchange rate changes on cash (4 ) 24
Net decrease in cash and cash equivalents (9,803 ) (22,880 )
Cash and cash equivalents at beginning of period 32,982
71,182
Cash and cash equivalents at end of period $ 23,179
$ 48,302
Non-cash financing activities:
Recognition of warrant issued in debt financing $ 3,302
$ —
Supplemental disclosures of cash flow information:

~~Table of Contents~~

~~PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES~~

~~Consolidated Statements of Cash Flows~~

~~(In thousands)~~

~~(Unaudited)~~

See accompanying notes to consolidated financial statements.

Table of Contents

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements

~~For the Three and Nine Months Ended September 30, 2017 and 2016~~

(Unaudited)

1. Organization and Description of Business

(a) Basis of Presentation and Organization

The accompanying unaudited consolidated financial statements have been prepared in accordance with ~~U.S. Generally Accepted Accounting Principles,~~accounting principles generally accepted in the United States of America, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary (consisting only of normal recurring adjustments) for a fair presentation of our ~~and our subsidiaries’~~ financial position at ~~September 30, 2017,~~March 31, 2021, and the results of our operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 and cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016.~~2020. Interim financial statements are prepared on a basis consistent with our annual consolidated financial statements. The interim financial statements included herein should be read in conjunction with the consolidated financial statements and related notes included in our annual report on Form 10-K for the ~~years~~year ended December 31, ~~2016, 2015, and 2014.~~2020.

~~The Company~~Performant Financial Corporation (the "Company" or "we") is a leading provider of technology-enabled audit, recovery, and analytics services in the United ~~States.~~States with a focus in the healthcare industry. The ~~Company's~~Company works with healthcare payers through claims auditing and eligibility-based (also known as coordination-of-benefits) services ~~help~~to identify improper ~~payments, and~~payments. The Company engages clients in ~~some markets, restructure and recover delinquent or defaulted assets and improper payments for~~ both government and ~~private clients across different~~commercial markets. The ~~Company's~~Company also has a call center which serves clients with complex consumer engagement needs. Clients of the Company typically operate in complex and highly regulated environments and ~~outsource~~contract for their ~~recovery~~payment integrity needs in order to reduce losses on ~~billions of dollars of~~improper healthcare payments. The Company historically worked in recovery markets such as defaulted student loans, ~~improper healthcare payments and delinquent state tax and~~ federal treasury ~~receivables. The Company generally provides services on an outsourced basis, where we handle many or all aspects~~receivables, and commercial recovery. However, with the ongoing impact of the ~~clients’ various processes.~~COVID-19 pandemic in 2020, and the continued pause on student loan recovery work through 2021, the Company announced on March 29, 2021, that it has signed an agreement to sell certain of its non-healthcare recovery contracts to a buyer that specializes in outsourced receivables solutions and that it does not plan to renew or restart existing contracts, nor pursue new non-healthcare recovery opportunities.

The Company's consolidated financial statements include the operations of Performant Financial Corporation ~~(PFC)~~(Performant), its ~~wholly owned subsidiary~~wholly-owned subsidiaries Premiere Credit of North America, LLC (Premiere) and Performant Business Services, Inc. (PBS), and ~~its wholly owned~~PBS's wholly-owned subsidiaries Performant Recovery, Inc. (Recovery), and Performant Technologies, ~~Inc., and~~LLC (PTL). Performant ~~Europe Ltd. PFC~~ is a Delaware corporation headquartered in California and was formed in 2003. Premiere is an Indiana limited liability company acquired by Performant ~~Business Services, Inc.~~on August 31, 2018. PBS is a Nevada corporation founded in 1997. Recovery is a California corporation founded in 1976. ~~Performant Technologies, Inc.~~PTL is a California ~~corporation~~limited liability company that was originally formed in 2004. All ~~significant~~ intercompany balances and transactions have been eliminated in consolidation.

The Company is managed and operated as ~~one~~1 business, with a single management team that reports to the Chief Executive Officer.

The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, primarily accounts receivable, contract assets, intangible assets, goodwill, right-of-use assets, deferred revenue, estimated liability for appeals, ~~accrued expenses,~~disputes, and refunds, lease liabilities, other liabilities, deferred income taxes and income tax expense (benefit), and disclosure of contingent ~~assets and~~ liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Our actual results could differ from those estimates.

~~Revenue~~(b) Liquidity

The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates that the Company will be able to realize assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to any adjustments that would be necessary should the Company be required to liquidate its assets. The ability of the Company to continue to fund its business plans is dependent upon realizing sufficient cash flows in the future. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

The Company believes that its forecasted results will be sufficient to fund the Company’s current operations, for at least a year from the issuance of these consolidated financial statements. While the Company believes its financial projections are attainable, there can be no assurances that the financial results will be recognized in a timeframe necessary to meet the Company’s ongoing cash requirements. To address the Company’s liquidity needs, specifically the $60 million of loans outstanding at March 31, 2021, the Company has the option to extend the maturity of the loans for 2 additional one-year periods, subject to the satisfaction of customary conditions, including certain financial covenants. If the Company fails to satisfy the conditions required to exercise the option to extend the maturity of the loans, the full balance of the loans will come due on August 11, 2021, at which time, the Company may not have sufficient cash resources to satisfy its debt obligations and the Company may not be able to continue its operations as planned.

(c) Revenues, Accounts Receivable, Contract Assets, Contract Liabilities, Estimated Liability for Appeals, Disputes and Refunds

The Company derives its revenues primarily from providing audit and recovery services. Revenues are recognized when control of these services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

The Company determines revenue recognition through the following steps:

•Identification of the contract with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract; and

•Recognition of revenue when, or as, the performance obligations are satisfied.

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company’s contracts generally contain a single performance obligation, delivered over time as a series of services that are substantially the same and have the same pattern of transfer to the client, as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct.

The Company’s contracts are composed primarily of variable consideration. Fees earned under the Company’s audit and recovery service contracts consist primarily of contingency fees based on a specified percentage of the amount the Company enables its clients to recover. The contingency fee percentage for a particular recovery depends on the type of recovery or claim facilitated. In certain contracts, the Company can earn additional performance-based bonuses determined based on its performance relative to the client’s other contractors providing similar services.

The Company generally either applies the as-invoiced practical expedient where its right to consideration corresponds directly to its right to invoice its clients, or the variable consideration allocation exception where the variable consideration is attributable to one or more, but not all, of the services promised in a series of distinct services that form part of a single performance obligation. As such, the Company has elected the optional exemptions related to the as-invoiced practical expedient and the variable consideration allocation exception, whereby the disclosure of the amount of transaction price allocated to the remaining performance obligations is not required.

The Company estimates variable consideration only if it can reasonably measure the progress toward complete satisfaction of the performance obligation using an output method based on reliable information, and recognizes such revenue over the performance period only if it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Any change made to the measure of progress toward complete satisfaction of the Company’s performance obligation is recorded as a change in estimate. The Company exercises judgment to estimate the amount of constraint on variable consideration based on the facts and circumstances of the relevant contract operations and the availability and reliability of data. Although the Company believes the estimates made are reasonable and appropriate, different assumptions and estimates could materially impact the amount of variable consideration.

For contracts that contain a refund right, these amounts are considered variable consideration and the Company estimates its refund exposure and recognizes revenue net of such estimate.

Under certain contracts, consideration can include periodic performance-based bonuses which can be awarded based on the Company’s performance under the specific contract. These performance-based bonuses are considered variable and may be constrained by the Company until there is not a risk of a significant reversal.

The Company has applied the as-invoiced practical expedient or the variable consideration allocation exception to contracts with performance obligations that have an average remaining duration of less than a year.

For certain recovery contracts, revenue is recognized ~~upon~~when the ~~collection~~clients collect on amounts owed to them as a result of ~~defaulted~~the Company’s services. For student loan ~~and debt payments. Loan~~recovery services, loan rehabilitation revenue is recognized when the rehabilitated loans are ~~sold (funded)~~funded by clients. ~~Incentive revenue is~~Bonuses are recognized upon receipt of official notification of ~~incentive award~~bonus awards from customers. ~~Under~~

For healthcare claims-based audit contracts, the ~~Company’s Medicare Recovery Audit Contractor,~~Company may recognize revenue upondelivering the results of claims audits, when sufficient reliable information is available to the Company for estimating the variable consideration earned based on an output metric that reasonably measures the Company's satisfaction of its performance obligation.

For eligibility-based or ~~RAC, contract with Centers for Medicare and Medicaid Services,~~coordination-of-benefits contracts, the Company recognizes revenue when insurance companies or ~~CMS,~~other responsible parties have remitted payments to its clients.

For customer care / outsourced services clients, the Company recognizes revenues ~~when~~based on the ~~healthcare provider has paid CMS~~volume of processed transactions or the quantity of labor hours provided.

The following table presents revenue disaggregated by category for ~~a given claim or has agreed to an offset~~the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
	2021		2020
	(in thousands)


Healthcare	13,286		17,524
Recovery (1)	14,491		24,265
Customer Care / Outsourced Services	3,613		4,099
Total Revenues	$	31,390	$	45,888

(1)Represents student lending, state and municipal tax authorities, IRS and Department of Treasury markets, as well as Premiere Credit of North America.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the allowance for doubtful accounts by specific identification. Account balances are charged off against ~~other claims by~~ the ~~provider. Providers~~allowance after all means of collection have been exhausted and the potential for recovery is consider remote. The allowance for doubtful accounts was $49 thousand at March 31, 2021 and December 31, 2020.

Healthcare providers have the right to appeal ~~a claim~~claims audit findings and may pursue additional appeals if the initial appeal is found in favor of ~~CMS. The Company accrues an~~healthcare clients. For coordination-of-benefits contracts, insurance companies or other responsible parties may dispute the Company’s findings regarding our clients not being the primary payer of healthcare claims. Total estimated liability for appeals, ~~at the time revenue is recognized based on the Company's estimate~~disputes, and refunds was $4.4 million as of ~~the amount~~March 31, 2021 and $1.0 million as of revenue probable of being refunded to CMS following successful appeal. In addition, if the Company's estimate of the liability for appeals with respect to revenues recognized during a prior period changes, the Company increases or decreases current period accruals based on such change in estimated liability. At September 30, 2017, a total of $18.8 million was presented as an allowance against revenue, representing the Company’s estimate of claims audited under the CMS contract that may be overturned. Of this, none was related to accounts receivable and $18.8 million was related to commissions which had already been received. In addition to the $18.8 million related to the RAC contract with CMS, the Company has accrued $0.3 million of additional estimated liability for appeals related to other healthcare contracts. The total accrued liability for appeals of $19.1 million has been presented in the

~~caption estimated liability for appeals at September 30, 2017. At~~ December 31, ~~2016, the total appeals-related liability was $19.3 million. The $19.1 million balance at September 30, 2017 and $19.3 million at December 31, 2016, represent~~2020. This represents the Company’s best estimate of the amount probable ~~amount~~ of ~~losses~~being refunded to the Company’s healthcare clients. The $4.4 million liability includes a $3.3 million refund accrual to a healthcare client related to ~~appeals~~eligibility-based services, which is expected to be offset by the client against future commissions.

The Company determined that it does not have any material costs related to obtaining or fulfilling a contract that are recoverable and as such, these contract costs are generally expensed as incurred.

Contract assets was $4.7 million and $4.5 million as of March 31, 2021 and December 31, 2020, respectively. Contract assets relate to the ~~$19.1 million amount accrued~~Company’s rights to consideration for services completed, but not invoiced at ~~September 30, 2017,~~the reporting date, and receipt of payment is conditional upon factors other than the passage of time. Contract assets primarily consist of commissions the Company estimates ~~that~~ it has earned from completed claims audit findings submitted to healthcare clients. Generally, the Company’s right to payment occurs when contract assets are recorded to accounts receivable when the rights become unconditional, which is ~~reasonably possible that it could be required~~generally healthcare providers have paid our healthcare clients. There was no impairment loss related to ~~pay an additional amount up to approximately $5.4~~contract assets for the three months ended March 31, 2021.

Contract liabilities was $0.5 million and $0.9 million as ~~a result~~ of potentially successful appeals. To the extent that required payments by the Company exceed the amount accrued, revenues in the applicable period would be reduced by the amount of the excess. The zero allowance against accounts receivable at September 30, 2017 resulted from no customer receivables existing in an aged position which required a specific reserve; while the allowance at DecemberMarch 31, ~~2016 was $0.2 million.~~

The Company nets outstanding accounts receivable invoices from an audit and recovery contract against payables for overturned audits. The overturned audits are netted against current fees due on the invoice to the client when they are processed by the client’s system. The “Net payable to client” balance of $12.7 million and $13.1 million at September 30, 20172021 and December 31, ~~2016,~~2020, respectively, ~~represent~~and are included in deferred revenue on the ~~excess of payables~~consolidated balance sheets. The Company’s contract liabilities mainly relate to an advance recovery commission payment received from a client, for ~~overturned audits. The~~which the Company ~~expects that the net payable~~anticipates revenue to ~~client balance will~~ be ~~paid to the client within the next twelve months.~~recognized as services are delivered.

(d) Prepaid Expenses and Other Current Assets

At ~~September 30, 2017,~~March 31, 2021, prepaid expenses and other current assets ~~includes $5.6~~were $3.7 million ~~of amounts estimated~~and included approximately $1.9 million related to ~~become due from subcontractors. The Company employs subcontractors to audit claims as part of an audit & recovery contract,~~prepaid software licenses and ~~to the extent that audits by these subcontractors are overturned on appeal, the fees associated with such claims are contractually refundable to the Company.~~maintenance agreements, $1.0 million for prepaid insurance, and $0.8 million for various other prepaid expenses. At ~~September 30, 2017, the receivable associated with estimated future overturns of subcontractor audits was $5.6 million. In addition, at September 30, 2017,~~December 31, 2020, prepaid expenses and other current assets ~~includes a net receivable of $3.7~~were $3.8 million and included approximately $1.8 million related to prepaid software licenses and maintenance agreements, $1.4 million for ~~subcontractor fees~~prepaid insurance, and $0.6 million for ~~already overturned audits refundable~~various other prepaid expenses.

(e) Impairment of Goodwill and Long-Lived Assets

The balance of goodwill was $47.4 million as of March 31, 2021 and December 31, 2020. Goodwill is reviewed for impairment at least annually in December or as certain events or conditions arise. The Company may first assess qualitative factors for indicators of impairment to determine whether it is necessary to perform the quantitative goodwill impairment test. In performing the quantitative assessment of goodwill, if the carrying value of the Company, ~~once~~as one reporting unit, exceeds its fair value, goodwill is considered impaired. The amount of impairment loss is measured as the difference between the carrying value and the fair value of the reporting unit.

Impairment testing is based upon the best information available and estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. Significant assumptions and estimates are required, including, but not limited to, our market capitalization, projecting future cash flows and other assumptions, to estimate the fair value of the reporting unit. Although the Company ~~refunds its fees~~believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact the amount of impairment. Based on management’s analysis, there was no impairment to ~~the client~~goodwill as ~~prime contractor. By comparison, at December~~of March 31, ~~2016, prepaid expenses~~2021.

Long-lived assets and ~~other current~~intangible assets ~~included $5.7 million of estimated future overturns of subcontractor audits, as well as a net receivable of $3.7 million for subcontractor fees for already overturned audits refundable~~that are subject to ~~the Company once the Company refunds its fees to the client as prime contractor.~~

~~Goodwill and long-lived assets~~amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. ~~If such assets are considered to be impaired, the~~There was no impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. For the nine months ended September 30, 2017, an impairment expense of $1.1 million was recognized to account for the write-off of goodwill and intangible assets ~~in one~~and a $0.6 million non-cash impairment charge to long-lived assets as of ~~our subsidiaries, Performant Europe Ltd., due to the Company's decision to wind down activity in this business. The expense has been~~March 31, 2021, included in other operating ~~expenses in the consolidated statements of operations. There was no impairment expense~~expenses.

(f) Other Current Liabilities

At March 31, 2021, other current liabilities primarily included $3.6 million for ~~goodwill~~services received for which we have not received an invoice, $0.3 million for estimated workers' compensation claims incurred but not reported, and ~~long-lived assets~~$0.2 million for ~~the nine months ended September 30, 2016.~~

~~On August 3, 2017, $6.0 million of restricted cash was paid to the administrative agent for the benefit of the lenders under our Prior Credit Agreement.~~third party fees. At ~~September 30, 2017, and at~~ December 31, ~~2016, restricted cash~~2020, other current liabilities primarily included ~~in current assets on our consolidated balance sheet was $0.0~~$3.4 million for services received for which we have not received an invoice, $0.2 million for estimated workers' compensation claims incurred but not reported, and ~~$7.5~~$0.2 million ~~respectively.~~for 3rd party fees and equipment financing payables.

(g) New ~~Accounting Pronouncements~~

~~Recently Adopted~~ Accounting ~~Standards~~Pronouncements

In ~~November 2015,~~December 2019, the FASB issued ~~Accounting Standards Update (ASU) 2015-17,~~ASU 2019-12, "Income Taxes (Topic 740): ~~Balance Sheet Classification of Deferred~~Simplifying the Accounting for Income Taxes"(". This ASU ~~2015-17"), which~~clarifies and simplifies ~~the reporting requirements of deferred~~accounting for income taxes by ~~requiring all organizations to classify all deferred~~eliminating certain exceptions for intra-period tax ~~assets~~allocation principles and ~~liabilities, along with any related valuation allowance, as noncurrent. The guidance~~the methodology for calculating income tax rates in an interim period, among other updates. This ASU is effective for public companies with annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We adopted ASU-2015-17 during our first quarter of 2017 on a prospective basis.

During the first quarter 2017, the Company adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" (ASU 2016-09) on a prospective basis. As a result of the adoption, the Company recognized $84 thousand of income tax expense for the nine months ended September 30, 2017. These tax benefits, or shortfalls, were historically recorded in equity. In addition, cash flows related to excess tax benefits, or shortfalls, are now classified as an operating activity. Cash paid on employees’ behalf related to shares withheld for tax purposes is classified as a financing activity, consistent with prior year’s presentation.

~~Recently Issued Accounting Standards~~

In May 2014, the FASB issued an ASU that amends the FASB ASC by creating a new Topic 606, "Revenue from Contracts with Customers". The new guidance will supersede the revenue recognition requirements in Topic 605, "Revenue Recognition", and most industry-specific guidance on revenue recognition throughout the Industry Topics of the Codification. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply a five step model for recognizing and measuring revenue from contracts with customers. In addition, an entity should disclose sufficient qualitative and quantitative information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new revenue recognition guidance, including subsequent amendments, is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with the option to early adopt the standard for annual periods beginning after December 15, 2016. We have not adopted this guidance early and are currently evaluating the effect on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases”, which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. This new guidance is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. We have not adopted this guidance early and are currently evaluating the effect on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments” which provides guidance on the presentation of certain cash receipts and cash payments in the statement of cash flows in order to reduce diversity in existing practice. This new guidance is effective for annual reporting periods,fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017, and~~2020, with early adoption is permitted. ~~This new standard requires retrospective~~The Company’s adoption ~~with a provision for impracticability. We have not adopted this guidance early and are currently evaluating the effect~~of ASU 2019-12 as of January 1, 2021 had no material impact on our ~~consolidated~~ financial ~~statements.~~position, results of operations, or cash flows.

In ~~January 2017,~~February 2020, the FASB issued ASU ~~2017-04, "Simplifying~~2020-02, “Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842).” This ASU provides updated guidance on how an entity should measure credit losses on financial instruments, including trade receivables, held at the ~~Test~~reporting date. The amendments make each Topic easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. It also addresses transition and open effective date information for Goodwill Impairment" to simplify the goodwill impairment testing process. The new standard eliminates Step 2 of the goodwill impairment test. If a company determines in Step 1 of the goodwill impairment test that the carrying value of goodwill is less than the fair value, an impairment in that amount should be recorded to the income statement, rather than proceeding to Step 2. This new guidance isTopic 842. ASU 2016-13, ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2020-02 (collectively, “ASC 326”) are effective for ~~annual reporting periods, and interim periods with goodwill impairment tests within those~~public entities for fiscal years beginning after December 15, 2019, except for Smaller Reporting Companies. This ASU is effective for the Company for fiscal years, and ~~early adoption~~interim periods within those fiscal years, beginning after December 15, 2022.

In March 2020, the FASB issued ASU No 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. ASU 2020-04 is ~~permitted for testing periods after January 1, 2017. We~~effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company does not expect ASU 2020-04 to have ~~not adopted this guidance early and are currently evaluating the~~a material effect on ~~our consolidated~~the Company’s current financial ~~statements.~~position, results of operations or financial statement disclosures.

2. Property, Equipment, and Leasehold Improvements

Property, equipment, and leasehold improvements consist of the following at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 (in thousands):

Depreciation expense of property, equipment and leasehold improvements was ~~$2.5~~$1.0 million and ~~$2.4~~$1.5 million for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, respectively, $7.7 million and $7.3 million for the nine months ended September 30, 2017 and 2016,~~2020, respectively.

On March 19, 2012, we, through our wholly owned subsidiary, entered into a $147.5 million credit agreement, as amended and restated, with Madison Capital Funding LLC as administrative agent, ING Capital LLC as syndication agent, and other lenders party thereto (as amended, the "Prior Credit Agreement"). The senior credit facility consists of (i) a $57.0 million Term A loan that matured and was fully paid in March 2017, (ii) a $79.5 million Term B loan that matures in June 2018, and (iii) a $11.0 million revolving credit facility that expired and was fully paid in March 2017. On June 28, 2012, we amended the Credit Agreement to increase the amount of our borrowings under our Term B loan by $19.5 million.

On November 4, 2014, February 19, 2016, July 26, 2016, October 27, 2016, and March 22, 2017, the Prior Credit Agreement was further amended to, among other things, modify a number of existing covenants and add new covenants requiring the Company to maintain a minimum cash balance, comply with an interest coverage ratio and achieve minimum EBITDA levels. On May 3, 2017, we further amended the credit agreement (the "Eighth Amendment") to extend the maturity date of the Term B loan to June 19, 2018. As a result of this extension, regularly scheduled quarterly amortization payments of $247,500 were also extended through March 31, 2018, with the remaining outstanding principal amount due on the June 19, 2018 maturity date. Interest on the Term B loan charged under the credit agreement was also increased by 3.00% per annum, however the amount of such increased interest was payable in kind. Pursuant to the Eighth Amendment, the quarterly and annual financial reporting covenants were also modified to require that the Company’s financial statements not contain a qualification, if required by GAAP, with respect to our ability to continue as a going concern.

On August 7, 2017, we, through our wholly-owned subsidiary Performant Business Services, Inc. ~~(the "Borrower")~~, entered into a ~~new~~ credit agreement (as amended, the “Credit Agreement”) with ECMC Group, ~~Inc. (the “New Credit Agreement”). The New~~Inc, as the lender. Before the amendment described below, the Credit Agreement ~~provides~~provided for a term loan facility in the initial amount of $44 million (the “Initial Term Loan”) and for up to $15 million of additional term loans (“Additional Term Loans”; and together with the Initial Term Loan, the “Loans”) which original Additional Term Loans ~~may~~were initially able to be drawn until the second anniversary of the funding of the Initial Term Loans, subject to the satisfaction of customary conditions. On August ~~11, 2017, the Initial Term Loan was advanced (the "Closing Date") and the proceeds were applied to repay all outstanding amounts under the Prior Credit Agreement. On September 29, 2017,~~31, 2018, we entered into Amendment No. 12 to the ~~New~~ Credit Agreement to among other things (i) extend the ~~initial interest payment due~~maturity date of the Initial Term Loan and any Additional Term Loans by one year to ~~December 31, 2017. Approximately $2~~August 2021, (ii) increase the commitment for Additional Term Loans from $15 million to $25 million, (iii) extend the period during which Additional Term Loans were able to have been borrowed by one year to August 2020 and, (iv) not require compliance with the financial covenants in the Credit Agreement during the six fiscal quarters following our acquisition of Premiere.

As of March 31, 2021, $60.0 million was outstanding under the ~~Prior~~ Credit ~~Agreement, however, those contingent reimbursement obligations will remain cash collateralized with~~Agreement. While this amount is classified in current liabilities, the ~~administrative agent.~~

~~The~~maturity of the Loans will ~~mature on~~be extended through August 11, 2022 if the ~~third anniversary of the Closing Date, however~~Fifth Amendment becomes effective, and we will ~~have~~retain an option to further extend the ~~option to~~maturity date for an additional one year period. If the Fifth Amendment does not become effective, we may extend the maturity of the Loans for ~~two~~2 additional ~~one year~~one-year periods, in each case, subject to the satisfaction of customary conditions.

The Loans ~~will~~ bear interest at the one-month LIBOR rate (subject to a 1% per annum floor) plus a margin which may vary from 5.5% per annum to 10.0% per annum based on our total debt to EBITDA ratio. ~~The Initial Term Loans will initially bear~~Our annual interest rate was 6.5% at ~~LIBOR plus 7.0% per annum.~~March 31, 2021 and December 31, 2020. We ~~will be~~are required to pay 5% of the original principal balance of the Loans annually in quarterly installments ~~beginning March 31, 2018,~~(subject to adjustment in the event of any prepayment made in connection with the Fifth Amendment) and ~~to offer~~ to make mandatory prepayments of the Loans with a percentage of our excess cash flow which may vary between 75% and 0% depending on our total debt to EBITDA ~~ratio. In addition to mandatory~~

~~prepayments for excess cash flow, we will also be required to offer to prepay the Loans with~~ratio and from the net cash proceeds of certain asset dispositions and ~~with the issuance of~~ debt not otherwise permitted under the ~~New~~ Credit ~~Agreement. Except~~Agreement, in each case, subject to the lender's right to decline to receive such payments. If we make a prepayment of $6.0 million in connection with ~~a change of control and~~ the ~~payment of a 1% premium,~~Fifth Amendment we will not be ~~permitted~~required to ~~voluntarily prepay~~make mandatory prepayment on account of excess cash flow for the ~~Loans until after the first anniversary of the Closing Date. We will be permitted to prepay the Loans during the second~~fiscal year ~~after the Closing Date if accompanied by a prepayment premium of 1%. Thereafter,~~ended December 31, 2020, however we will be ~~permitted~~required to ~~prepay~~make a mandatory prepayment of at least $6.0 million on account of excess cash flow for the ~~Loans without~~fiscal year ending December 31, 2021, subject to reduction in accordance with the Credit Agreement for any ~~prepayment premium.~~other prepayments made prior the end of such fiscal year.

The ~~New~~ Credit Agreement contains certain ~~restrictive~~ financial covenants, which ~~became effective on the Closing Date. Such covenants~~ require, ~~among other things,~~ that ~~we meet~~we: (1) achieve a minimum fixed charge coverage ratio (A) prior to the effectiveness of ~~0.5~~the Fifth Amendment, of 1.0 to 1.0 through December 31, ~~2019, 1.0 to 1.0 through June 30,~~ 2020 ~~(or until December 31, 2020 if the maturity date of the Loans is extended until the fourth anniversary of the Closing Date),~~and 1.25 to 1.0 through June 30, 2021, ~~if the maturity date of the Loans is extended until the fourth anniversary of the Closing Date~~ and ~~1.25 to 1.0~~ through June 30, 2022 if the maturity date of the Loans is extended until August 2022; and (B) on and after the ~~fifth anniversary~~effectiveness of the ~~Closing Date. In addition, we will be required~~Fifth Amendment; of 0.75 to 1.0 through December 31, 2021, 1.0 to 1.0 through June 30, 2022, and 1.25 to 1.0 thereafter and (2) maintain a maximum total debt to EBITDA ratio (A) prior to the effectiveness of the Fifth Amendment, of 6.00 to ~~1.00.~~1.00; and (B) on and after the effectiveness of the Fifth Amendment, of 8.0 to 1.0 through June 30, 2021, of 7.0 to 1.0 through September 30, 2021 and 6.0 to 1.0 thereafter. The ~~New~~ Credit Agreement also contains covenants that ~~will~~ restrict the ~~Company~~Company's and its subsidiaries’ ability to incur certain types or amounts of indebtedness, incur liens on certain assets, make material changes in corporate structure or the nature of its business, dispose of material assets, engage in a change in control transaction, make certain foreign investments, enter into certain restrictive agreements, or engage in certain transactions with affiliates. The Credit Agreement also contains various customary events of default, including with respect to change of control of the Company or its ownership of the Borrower.

The obligations under the ~~New~~ Credit Agreement are secured by substantially all of our ~~United States domestic~~ subsidiaries' assets and are guaranteed by the Company and its ~~United States domestic~~ subsidiaries, other than the ~~Borrower.~~

As a result of our entry into our New Credit Agreement, and the repayment of all amounts owed under the Prior Credit Agreement, we wrote off debt issuance costs related to the Prior Credit Agreement of approximately $1.0 million in August 2017.

~~Scheduled payments under the Agreement for the next five years and thereafter are as follows (in thousands):~~

Year Ending December 31, Amount
Remainder of 2017 $ —
2018 2,200
2019 2,200
2020 39,600
2021 —
Thereafter —
Total $ 44,000
borrowers.

In consideration for, and concurrently with, the ~~extension~~origination of the Initial Term Loan in accordance with the terms of the ~~New~~ Credit Agreement, we issued a warrant to the lender to purchase up to an aggregate of 3,863,326 shares of the Company’s common stock (representing approximately up to 7.5% of our diluted common stock as calculated using the “treasury stock” method as defined under U.S. GAAP for the ~~most recent fiscal quarter)~~three month period ended June 30, 2017) with an exercise price of $1.92 per ~~share.~~ share (the "Exercise Price").

Upon ~~our election to borrow any~~borrowing of the Additional Term Loans, ~~we will be~~the Company was required to issue additional warrants at the same ~~exercise price~~Exercise Price to purchase up to an aggregate of 77,267 additional shares of common stock (which represents approximately 0.15% of our diluted common stock calculated using the “treasury stock” method as defined under U.S. GAAP for the ~~most recent~~ fiscal ~~quarter)~~quarter ended June 30, 2017) for each ~~$1,000,000~~$1.0 million of such Additional Term Loans. Similarly, upon the effectiveness of the Fifth Amendment and the extension of the maturity of the loans for an additional one year period, we will be required to issue additional warrants at the exercise price of $0.96 per share to purchase up to an aggregate of 515,110 additional shares of common stock of the Company and the “Exercise Price” for a portion of the existing warrants issued to ECMC to purchase 1,931,663 shares of common stock of the Company will be reduced from $1.92 to $0.96 per share. In addition, upon the effectiveness of the Fifth Amendment, we will be required to issue to ECMC 300,000 additional shares of common stock of the Company in connection with an amendment to that certain Agreement for Purchase of LLM Membership Interests between ECMC Holdings Corporation and the Company, dated as of August 9, 2018 (as amended), and the full satisfaction of certain earnouts pursuant to such agreement. If we extend maturity of the loans for an additional one year period, we will be required to issue additional warrants to ECMC at the exercise price of $0.96 per share, and to purchase up to an aggregate of 772,665 additional shares of common stock (which represent approximately 1.0% and 1.5% of our diluted common stock for the first extension exercised under the Fifth Amendment once it becomes effective, and second one year extension (if exercised), respectively, calculated using the “treasury stock” method as defined under U.S. GAAP for the fiscal quarter ended June 30, 2017).

The Company has accounted for ~~this warrant~~these warrants as an equity ~~instrument~~instruments since the ~~Warrant is~~warrants are indexed to the Company’s common shares and ~~meets~~meet the criteria for classification in shareholders’ equity. The relative fair ~~value~~values of the ~~Warrant on the date of issuance was approximately $3.3 million~~warrants are noted below and iswere treated as a discount to the associated debt. ~~This amount will be~~These amounts are being amortized to interest expense under the effective interest method over the life of the Term Loan and Additional Term Loans, respectively, which is a period of 3648 months. The Company estimated the value of the ~~Warrant~~warrants using the Black-Scholes model. The key information and assumptions used to value the ~~Warrant~~warrants are as follows:

In addition, at the closing of the Initial Term Loan, the Company paid transaction costs of $0.6 million, which were recorded as a discount on the debt and ~~will be~~are being amortized to interest expense using the effective interest method over the life of the ~~initial~~Initial Term Loan, which is a period of 3648 months.

Outstanding debt obligations are as follows (in thousands):


	March 31, 2021
Principal amount	$	60,000
Less: unamortized discount and debt issuance costs	(537)
Notes payable less unamortized discount and debt issuance costs	59,463
Less: current maturities, net of unamortized discount and debt issuance costs	0
Long-term notes payable, net of current maturities and unamortized discount and debt issuance costs	$	59,463

September 30, 2017
Principal amount $ 44,000
Less: unamortized discount and debt issuance costs (3,687 )
Loan payable less unamortized discount and debt issuance costs 40,313
Less: current maturities (1,512 )
Long-term loan payable, net of current maturities $ 38,801

4. ~~Commitments and Contingencies~~Leases

~~We have~~The Company has entered into various non-cancelable operating lease agreements for ~~certain of our~~ office facilities and equipment with original lease periods expiring between ~~2017~~2021 and ~~2022.~~2025. Certain of these arrangements have free rent periods ~~and /or~~and/or escalating rent payment ~~provisions, and~~provisions. As such, we recognize rent expense under such arrangements on a straight-line ~~basis. In October 2017, we renewed~~basis in accordance with U.S. GAAP. Some leases include options to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Our lease agreements ~~for office space for approximately 50,000 square feet in Livermore, California.~~

~~Future minimum rental commitments under non-cancelable leases as~~do not contain any material residual value guarantees or material restrictive covenants. Leases with an initial term of ~~September 30, 2017~~twelve months or less are ~~as follows (in thousands):~~

Year Ending December 31, Amount
Remainder of 2017 $ 393
2018 2,223
2019 2,158
2020 2,109
2021 1,377
Thereafter 933
Total $ 9,193
not recorded on the balance sheet.

Operating lease expense was $0.6 million and ~~$0.7~~$0.8 million for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, respectively,~~2020, respectively.

Supplemental cash flow and other information related to operating leases was ~~$2.0 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively.~~as follows:

March 31,
2021

March 31,
2020

Weighted Average Remaining Lease Term (in years)

2.8

3.3

Weighted Average Discount Rate

6.6%

6.3%

Cash paid for amounts included in the measurement of operating lease liabilities

$0.7 million

$0.8 million

The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2021 (in thousands):


Year Ending December 31,	Amount
Remainder of 2021	$	1,979
2022	1,939
2023	819
2024	585
2025	398
Thereafter	0
Total undiscounted cash flows	$	5,720
Less imputed interest	(542)
Present value of lease liabilities	$	5,178

5. ~~Stock-based~~Stock-Based Compensation

Total stock-based compensation expense charged as salaries and benefits expense in the consolidated statements of operations was ~~$0.7~~$0.6 million and ~~$1.2~~$0.7 million for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, respectively, and $3.0 million and $3.5 million for the nine months ended September 30, 2017 and 2016,~~2020, respectively.

The following table ~~shows~~sets forth a summary of the Company's stock option activity for the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2021:

Outstanding
Options

Weighted
average
exercise price
per share

Weighted
average
remaining
contractual life
(Years)

Aggregate
Intrinsic Value
(in thousands)
Outstanding at December 31, 2016 3,506,529
$ 7.32
5.04 $ 1,367
Granted —
—

Forfeited (159,310 ) 5.38

Exercised (188,959 ) 0.50

Outstanding at September 30, 2017 3,158,260
$ 7.83
4.41 $ 613
Vested, exercisable, expected to vest⁽¹⁾ at September 30, 2017
3,149,795
$ 7.83
4.41 $ 613
Exercisable at September 30, 2017 2,980,079
$ 7.98
4.24 $ 610


	Outstanding Options	Weighted average exercise price per share		Weighted average remaining contractual life (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020	1,815,561	$	10.31	1.92	$	0
Granted	0	0			—
Forfeited	(63,235)	9.57			—
Exercised	0	0			—
Outstanding at March 31, 2021	1,752,326	$	10.34	1.64	$	0
Vested and exercisable at March 31, 2021	1,752,326	$	10.34	1.64	$	0
Exercisable at March 31, 2021	1,752,326	$	10.34	1.64	$	0

The Company recognizes share-based compensation costs as expense on a straight-line basis over the option vesting period, which generally is four ~~to five~~ years.

(b) Restricted Stock Units and Performance Stock Units

grant date fair value

Restricted stock units and performance stock units granted under the Performant Financial Corporation Amended and Restated 2012 Stock Incentive Plan generally vest over periods ranging from one year to four years.

Our effective income tax rate changed to ~~a negative rate of (14.4)~~(1)% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 from ~~6.9%~~24% for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2020. The ~~decrease~~change in the effective tax rate is primarily ~~due to more significant~~driven by overall losses ~~from operations generated in the nine months ended September 30, 2017 for which no tax benefit is recognized compared to the income tax expense recorded on income~~ from operations for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2021 for which no benefit is recognized due to valuation allowance compared to the net operating loss (“NOL”) carryback benefit recorded as a result of the newly enacted provisions of the CARES Act for the three months ended March 31, 2020.

7. ~~Earnings~~Net Income (Loss) per Share

For the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, basic net income (loss) per share is calculated by dividing net ~~income~~loss by the sum of the weighted average number of shares of ~~Common Stock~~common stock outstanding during the period. Diluted ~~income~~earnings per share is calculated by dividing net income by the weighted average number of shares of ~~Common Stock~~common stock and dilutive common share equivalents outstanding during the period. Common share equivalents consist of stock options, restricted stock units, ~~and~~ performance stock ~~units.~~units, and warrants. When there is a loss in the period, dilutive common share equivalents are excluded from the calculation of diluted earnings per share, as their effect would be anti-dilutive. For example, for the three months ended March 31, 2021 and ~~nine months ended September 30, 2017, and the three months ended September 30, 2016, dilutive common share equivalents have been excluded, and~~2020, respectively, diluted weighted average shares outstanding are the same as basic average shares outstanding. When there is net income in the period, the Company excludes stock options, restricted stock units, ~~and~~ performance stock units and warrants from the calculation of diluted earnings per share when ~~the~~their combined exercise price and unamortized fair value ~~and excess tax benefits of the options exceed~~exceeds the average market price of the Company's common stock because their effect would be anti-dilutive. ~~For the nine months ended September 30, 2016, the Company excluded 4,559,511 options from the calculation of diluted earnings per share because their effect would be anti-dilutive.~~

The following table reconciles the basic to diluted weighted average shares outstanding using the treasury stock method (shares in thousands):

8. Subsequent Events

We have evaluated subsequent events through the date these consolidated financial statements ~~were issued~~are filed with the Securities and Exchange Commission and there are no other events that have occurred that would require adjustments or disclosures to our consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion in conjunction with our ~~condensed~~ consolidated financial statements (unaudited) and related notes included elsewhere in this report. This report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” under Item 1A of Part II of this report. In light of these risks, uncertainties and assumptions, the forward-looking events and trends discussed in this report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements include, but are not limited to, statements ~~about our:~~about: the impact of COVID-19 on our business and operations, opportunities and expectations for ~~growth~~the markets in ~~the student lending, healthcare and other markets;~~which we operate; anticipated trends and challenges in our business and competition in the markets in which we operate; our client relationships and our ability to maintain such client relationships; our ability to generate sufficient cash flows to fund our ongoing operations and other liquidity needs; our ability to maintain compliance with the covenants in our debt agreements; our ability to generate revenue following long implementation periods associated with new customer contracts; the adaptability of our technology platform to new markets and processes; our ability to invest in and utilize our data and analytics capabilities to expand our capabilities; ~~the sufficiency of our appeals reserve;~~ our growth strategy of expanding in our existing markets and considering strategic alliances or acquisitions; ~~our ability to meet our liquidity and working capital needs;~~ maintaining, protecting and enhancing our intellectual property; our expectations regarding future expenses; expected future financial performance; and our ability to comply with and adapt to industry regulations and compliance demands. The forward-looking statements in this report speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

We provide technology-enabled audit, recovery, and ~~related~~ analytics services in the United ~~States. Our~~States with a focus in the healthcare industry. We work with healthcare payers through claims auditing and eligibility-based (also known as coordination-of-benefits) services ~~help~~to identify improper ~~payments, and~~payments. We engage clients in ~~some markets, restructure and recover delinquent or defaulted assets and improper payments for~~ both government and ~~private~~commercial markets. We also have a call center which serves clients ~~across different markets.~~with complex consumer engagement needs. Our clients typically operate in complex and highly regulated environments and ~~outsource~~contract for their ~~recovery~~payment integrity needs in order to reduce losses on ~~billions of dollars of~~improper healthcare payments. We historically worked in recovery markets such as defaulted student loans, ~~improper healthcare payments and delinquent state tax and~~ federal treasury receivables, and ~~other receivables. We generally provide our services~~commercial recovery. However, with the ongoing impact of the COVID-19 pandemic in 2020, and the continued pause on student loan recovery work through 2021, we announced on March 29, 2021, that we have signed an ~~outsourced basis, where we handle many or all aspects~~agreement to sell certain of our ~~clients’ various processes.~~non-healthcare recovery contracts to a buyer that specializes in outsourced receivables solutions and that we do not plan to renew or restart existing contracts, nor pursue new non-healthcare recovery opportunities.

Our revenue model is generally success-based as we earn fees on the aggregate correct audits and/or amount of ~~improper payments~~funds that we ~~identify on behalf of our clients that we either recover directly or~~ enable our clients to recover. Our services do not require any significant upfront investments by our clients and offer our clients the opportunity to recover significant funds otherwise lost. Because our model is based upon the success of our efforts, ~~and the dollars we enable our clients to recover,~~ our business objectives are aligned with those of our clients and we are generally not reliant on their spending budgets. Furthermore, our business model does not require significant capital ~~expenditures and~~as we do not purchase loans or obligations.

COVID-19 Pandemic Update

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic resulted in various unprecedented national and international measures in an effort to contain the spread of the virus, including restrictions on travel, quarantines, mandatory business shut-downs, shelter-in-place and related emergency orders. We took proactive actions early on to protect the health of our employees and their families, including curtailing business travel and encouraging videoconferencing whenever possible, requiring most personnel to work remotely and we restricted access to our offices to personnel who are required to perform critical business continuity activities.

While we continue to believe we have taken steps to function in a virtual or remote fashion as a result of the COVID-19 pandemic, the extent of the COVID-19 pandemic’s effect on our operational and financial performance will continue to depend on future developments, some of which are out of our control. Pursuant to the terms of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020, the U.S. Federal government suspended payments, ceased accruing interest, and stopped involuntary collections of payments (e.g., wage garnishments) for student loans owned by the Department of Education through September 30, 2020. The pause on our student loan recovery services has since been extended a few times, with the latest extension through September 30, 2021.

We continue to face uncertainty around the breadth and duration of business disruptions related to COVID-19 pandemic continues, as well as its impact on the U.S. economy, the ongoing business operations of our clients, and the results of our operations and financial condition. While our management team continues to actively monitor the impacts of the COVID-19 pandemic and may take further actions to our business operations that we determine are in the best interests of our employees and clients, or as required by federal, state, or local authorities, the continuing impact of the COVID-19 pandemic on our results of operations, financial condition, or liquidity for fiscal year 2021 and beyond cannot be estimated atthis point.

The following discussions are subject to the effects of the COVID-19 pandemic on our ongoing business operations.

We derive our revenues from services for clients in a variety of different markets. These markets include ~~student lending~~our two largest markets, healthcare and ~~healthcare,~~recovery, as well as our other markets which include but are not limited to outsourced call center services, delinquent state and federal taxes and federal ~~Treasury~~treasury and other receivables.


	Three Months Ended March 31,
	2021		2020
	(in thousands)


Healthcare	$	13,286	$	17,524
Recovery (1)	14,491		24,265
Customer Care / Outsourced Services	3,613		4,099
Total Revenues	$	31,390	$	45,888

(1)Represents student lending, state and municipal tax authorities, IRS and the Department of the Treasury markets, as well as Premiere Credit of North America.

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(in thousands) (in thousands)
Student Lending:
                Department of Education $ 635
$ 3,906
$ 3,579
$ 18,243
                Guaranty Agencies and Other 19,178
19,891
68,242
63,964
                            Total of Student Lending 19,813
23,797
71,821
82,207
Healthcare:
                CMS RAC 821
1,717
969
5,180
                Commercial 1,806
1,262
5,393
3,878
                            Total of Healthcare 2,627
2,979
6,362
9,058
Other: 7,304
4,419
20,577
16,283
Total Revenues $ 29,744
$ 31,195
$ 98,760
$ 107,548

~~Student Lending~~Healthcare

We derive revenues from both commercial and government clients by providing healthcare payment integrity services, which include claims-based and eligibility-based services. Revenues earned under claims-based contracts in the healthcare market are driven by auditing, identifying, and sometimes recovering improperly paid claims through both automated and manual review of such claims. Eligibility-based services, which may also be referred to as coordination-of-benefits, involve identifying and recovering payments in situations where our client should not be the primary payer of healthcare claims because a member has other forms of insurance coverage. We are paid contingency fees by our clients based on a percentage of the dollar amount of improper claims recovered as a result of our efforts. The revenues we recognize are net of our estimate of claims that we believe will be overturned by appeal or disputed following payment by the provider.

For our healthcare business, our business strategy is focused on utilizing our technology-enabled services platform to provide claims-based, eligibility-based, and analytical services for healthcare payers. Revenues from our healthcare services were $13.3 million for the three months ended March 31, 2021 compared to revenues of $17.5 million that we earned from our healthcare clients during the three months ended March 31, 2020.

In 2017, we were awarded the Medicare Secondary Payer Commercial Payment Center (MSP) contract by the Centers for Medicare and Medicaid Services(“CMS"). Under this agreement, we are responsible for coordination-of-benefits, which includes identifying and recovering payments in situations where Medicare should not be the primary payer of healthcare claims because a beneficiary has other forms of insurance coverage, such as through an employer group health plan or certain other payers.

In 2016, CMS awarded two new Medicare Recovery Audit Contractor (“RAC") contracts, for audit Regions 1 and 5. The RAC contract award for Region 1 allows us to continue our audit of payments under Medicare’s Part A and Part B for all provider types other than Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) and home health and hospice within an 11 state region in the Northeast and Midwest. The Region 5 RAC contract provides for the post-payment review of DMEPOS and home health and hospice claims nationally.

In March 2021, CMS re-awarded the Region 1 RAC contract after a competitive procurement process. The renewed contract has an 8.5-year term.

Many of our healthcare clients are expanding the scope of services that we provide, and during 2021, we continued to renew contracts by way of competitive procurement. We believe this growth trend will continue as our suite of payment integrity services further matures and scales. Going forward, we anticipate that our healthcare revenues will drive the majority of overall company revenue growth.

Historically, the recovery market revenues contributed a majority of our revenues. However, the COVID-19 pandemic had a significant impact on our recovery revenues. On March 29, 2021, we announced that we will continue to fulfill our current recovery contracts, but we do not plan to renew or restart existing contracts, nor pursue new non-healthcare recovery opportunities.

Recovery market revenues are derived from student lending, Internal Revenue Services (IRS), state and municipal tax authorities, the Department of the Treasury, and Premiere Credit of North America.

Since 2017, we have served as one of four companies to perform recovery services for the IRS under its private collection program. This program, authorized under a federal law, calls for the use of private companies to recover outstanding inactive tax receivables on the government's behalf. We were not selected as a provider in connection with the recent IRS procurement process for the contract renewal becoming effective in September 2021. The award is currently under protest by another bidder. In its original procurement letter, the IRS stated that technical factors, when combined, were more important than the commission rate, but the IRS has discretion and does not have to automatically grant an award to the bidder that submits a bid receiving the highest technical rating.

We also service the federal agency market, which consists of government debt subrogated to the Department of the Treasury by numerous different federal agencies, comprising a mix of commercial and individual obligations and a diverse range of receivables. These debts are managed by the Bureau of the Fiscal Service (formerly the Department of Financial Management Service), a bureau of the Department of the Treasury.

For state and municipal tax authorities, we analyze a portfolio of delinquent tax and other receivables placed with us, develop a recovery plan and execute a recovery process designed to maximize the recovery of funds. In some instances, we have also run state tax amnesty programs, which provide one-time relief for delinquent tax obligations, and other debtor management services for our clients. We currently have relationships with numerous state and municipal governments. Delinquent obligations are placed with us by our clients and we utilize a process that is similar to the student ~~loans. These~~loan recovery process for recovering these obligations.

Student lending revenues are contract-based and consist primarily of contingency fees based on a specified percentage of the amount we enable our clients to recover. Our contingency fee percentage for a particular recovery depends on the type of recovery facilitated. Our clients in the student loan recovery market mainly consist of several of the largest guaranty agencies, (GAs). In 2020, with the onset of the COVID-19 pandemic, student lending placement volumes reduced significantly, or ~~GAs. In addition, we have~~stopped altogether, as a ~~long history~~result of ~~also providing~~government mandates under the CARES Act to pause student lending recovery ~~services~~activities. We expect no additional placement volumes as a result of the most recent extension of the pause on student lending recovery activities to ~~the Department of Education. However, in December 2016, the Department of Education awarded contracts for student loan recovery services to seven contractors and~~September 30, 2021. While we were not a recipient of one of these contract awards. We, along with 19 other contractors who did not receive contract awards from the Department of Education, filed protests with the GAO regarding the Department of Education’s award of these contracts. In March 2017, the GAO upheld our protest. The Department of Education requested resubmittal of new contract proposals and is currently undergoing a re-evaluation process with respect to such proposals. The Department of Education has recently announced that it has completed its review and assessment for the award of the new contracts. However, we do not know when the awards of the new contracts will be made. Further, there may be appeals and challenges to the contract awards when granted, which could delay the actual start date for the new contracts. We have been one of the Department of Education’s unrestricted student loan recovery contractors for more than 20 years until our prior contract expired in April 2015.

We believe the size and the composition of our student loan inventory at any point provides us with a degree of revenue visibility for our student loan revenues. Based on data compiled from over two decades of experience with the recovery of defaulted student loans, at the time we receive a placement of student loans, we are able ~~to make a reasonably accurate estimate of the recovery outcomes likely to be derived from such placement and the revenues we are likely able to generate based on the anticipated recovery outcomes.~~

Our key metric in evaluating our student lending business is Placement Volume. Our Placement Volume represents the dollar volume of defaulted student loans first placed with us during the specified period by public and private clients for recovery. Placement Volume allows us to measure and track trends in the amount of inventory our clients in the student lending market are placing with us during any period. The revenues associated with the recovery of a portion of these loans may be recognized in subsequent accounting periods, which assists management in estimating future revenues and in allocating resources necessary to address current Placement Volumes.

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(in thousands) (in thousands)
Student Lending Placement Volume:
Department of Education $ —
$ —
$ —
$ 5,082
Guaranty Agencies and Other 647,088
678,910
2,221,748
2,539,998
Total Student Lending Placement Volume $ 647,088
$ 678,910
$ 2,221,748
$ 2,545,080

There are five potential outcomes to the student loan recovery process from which we generate revenues. These outcomes include: full repayment, recurring payments, rehabilitation, loan restructuring and wage garnishment. Of these five potential outcomes, our ability to rehabilitate defaulted student loans is the most significant component of our revenues in this market. Generally, a loan is considered successfully rehabilitated after the student loan borrower has made nine consecutive qualifying monthly payments and our client has notified us that it is recalling the loan. Once we have structured and implemented a repayment program for a defaulted borrower, we (i) earn a percentage of each periodic payment collected up to and including the final periodic payment prior to the loan being considered “rehabilitated” by our clients, and (ii) if the loan is “rehabilitated,” then we are paid a one-time percentage of the total amount of the remaining unpaid balance, except that beginning in July 2015, our contract with the Department of Education has provided for a fixed fee of $1,710 for each rehabilitated loan. The fees we are paid vary by recovery outcome as well as by contract. In addition, under our contracts with our GA clients, we generally recognize revenue when our GA clients rehabilitate and recall the loans which has been placed with us. At times, our GA clients may be delayed in recalling loans or may wait to rehabilitate loans based on events that are not in our control. For non-government-supported student loans we are generally only paid contingency fees on two outcomes: full repayment or recurring repayments. The table below describes our typical fee structure for each of these five outcomes.



~~Student Loan Recovery Outcomes~~
~~Full Repayment~~	~~Recurring Payments~~	~~Rehabilitation~~	~~Loan Restructuring~~	~~Wage Garnishment~~
~~• Repayment in full of the loan~~	~~• Regular structured payments, typically according to a renegotiated payment plan~~	~~• After a defaulted borrower has made nine consecutive recurring payments, the loan is eligible for rehabilitation~~	~~• Restructure and consolidate a number of outstanding loans into a single loan, typically with one monthly payment and an extended maturity~~	~~• If we are unable to obtain voluntary repayment, payments may be obtained through wage garnishment after certain administrative requirements are met~~

~~• We are paid a percentage of the full payment that is made~~	~~• We are paid a percentage of each payment~~	~~• We are paid based on a percentage of the overall value of the rehabilitated loan or for the Department of Education, a fixed fee~~	~~• We are paid based on a percentage of overall value of the restructured loan~~	~~• We are paid a percentage of each payment~~

For certain guaranty agency, or GA, clients, we have entered into Master Service Agreements, or MSAs. Under these agreements, clients provided their entire inventory of outsourced loans or receivables to us for recovery on an exclusive basis, in contrast with traditional contracts that are split among various service providers. In certain circumstances, we engage subcontractors to assist in the recovery of a portion of the client’s portfolio. We also receive success fees for the recovery of loans under MSAs and our revenues under MSA arrangements include fees earned by the activities of our subcontractors. On June 15, 2017, we received a termination notice from one of our significant GA clients, Great Lakes Higher Education Guaranty Corporation. The termination of this contract was based on Great Lake’s decision to bundle its student loan servicing work, a service that we currently do not provide, along with its student loan recovery work to a single third party vendor. Since we received the initial termination notice from Great Lakes, we received additional notices from Great Lakes to allow us to continue to ~~provide certain~~recognize student loan ~~services~~related revenue throughout 2020 due to our existing in-process borrower rehabilitation agreements, we have not processed many new loan rehabilitations since the pause went into effect. As a result, for ~~three additional 30-day periods. In September 2017,~~2021, we ~~entered into~~anticipate that there will be a ~~contract with Navient, who is now servicing the Great Lakes portfolio,~~significant reduction to ~~act as a~~our annual recovery ~~subcontractor for Navient. Under this arrangement, we expect to start recovery services for approximately 25%~~revenue.

In October 2014, the Department of Education announced a change in the structure for the payment of fees to recovery contractors upon rehabilitation of student loans under the existing recovery contract. The new fee structure provides for a fixed fee of $1,710 for each loan that is rehabilitated. Previously, the fee had been based on a percentage of the principal amount of the rehabilitated loan. The change to the fee structure became effective for student loans rehabilitated on or following July 1, 2015.

Further, the Bipartisan Budget Act of 2013 reduced the compensation paid to GAs for the rehabilitation of student loans, effective July 1, 2014. This “revenue enhancement” measure reduced the amount that GAs can charge borrowers from 18.5% to 16.0% of the outstanding loan balance, when a rehabilitated loan is sold by the GA and eliminated entirely the GAs retention of 18.5% of the outstanding loan balance as a fee for rehabilitation services. The reduction in compensation the GAs

~~receive resulted in a decrease in the contingency fee percentage that we receive from the GAs for assisting in the rehabilitation of defaulted student loans.~~

~~Healthcare~~Customer Care / Outsourced Services

We derive revenues from the healthcare market from our commercial healthcare contracts and our RAC contracts. For clients in both commercial and government healthcare markets, we are responsible for identifying incorrectly paid claims through both complex and automated forms of audit review. For our RAC contracts, we audit Medicare payments to detect improperly paid Part A and Part B Medicare claims. Revenues earned under the healthcare contracts are driven by the identification of improperly paid claims through both automated and manual review of such claims. We are paid contingency fees by our clients based on a percentage of the dollar amount of improper claims we identify that are recovered by our clients. We currently recognize revenue when the provider pays our client default aversion and/or ~~incurs an offset against future claims. The revenues we recognize are net of our estimate of claims that we believe may be overturned by appeal following payment by the provider.~~

~~On October 5, 2017, we announced that we were awarded the Medicare Secondary Payer Commercial Repayment Center (CRC) contract by the Centers for Medicare and Medicaid.~~ Under this agreement, we are responsible for identifying and recovering payments in situations where Medicare should not be the primary payer of healthcare claims because a beneficiary has other forms of insurance coverage, such as through an employer group health plan or certain other payers.

~~Our~~ first RAC contract was wound down and then terminated in 2016 in connection with CMS's plan to award new contracts. On October 26, 2016, CMS awarded new RAC contracts and we received RAC contracts for audit Regions 1 and 5. The RAC contract award for Region 1 allows us to continue our audit of payments under Medicare’s Part A and Part B for all provider types other than DMEPOS and home health and hospice within an 11 state region in the Northeast and Midwest. The Region 5 RAC contract provides for the post-payment review of DMEPOS and home health and hospice claims nationally. While audit and recovery activity under the new contracts commenced in April 2017, there is uncertainty regarding the scope of audit that will be permitted by CMS under the new RAC contracts. In connection with the wind down of our first RAC contract, CMS adopted a series of contract transition procedures and other restrictions, beginning in 2013, that limited the types of claims we are permitted to audit and our ability to request medical records for audit and CMS suspended our ability to perform any auditparty call center services for certain periods of time, thus materially adversely affecting our revenues under that contract. In May 2016, CMS announced that the recovery audit contractors would not be able to request documents from providers for audit after May 16, 2016 and would not be able to submit claims for improper payments after July 29, 2016, effectively terminating additional revenue generating activity under our first RAC contract. Revenues for the year ended December 31, 2016 from our first RAC contract were $5.7 million, compared with $12.5 million for 2015 and $29.2 million in 2014. To date we have not recognized significant revenues from the newly awarded RAC contracts meaning that these new contracts will not have a significant impact on 2017 revenues, although we have incurred start-up related expenses during 2017.

In connection with our first RAC contract, CMS announced a settlement offer to pay hospitals 68% of what they have billed Medicare to settle a backlog of pending appeals challenging Medicare's denials of reimbursement for certain types of short-term care. The implication of this settlement offer related to claims for which fees have already been paid to recovery auditors under existing RAC contracts is unclear at this time, but we may be obligated to repay certain amounts that we previously received from CMS depending on the final terms of any such settlement. We accrue an estimated liability for appeals based on the amount of commissions received which are subject to appeal and which we estimate are probable of being returned to providers following successful appeal. The $18.8 million balance as of September 30, 2017, represents our best estimate of the probable amount we may be required to refund related to appeals of claims for which commissions were previously collected. We estimate that it is reasonably possible that we could be required to pay an additional amount up to approximately $5.4 million as a result of potentially successful appeals in excess of the amount we accrued as of September 30, 2017.

In connection with the award of our first RAC contract, we outsourced certain aspects of our healthcare recovery process to three different subcontractors. Two of these subcontractors provided a specific service to us in connection with our claims recovery process, with the third subcontractor, whose services were terminated in December 2016, formerly providing all of the audit and recovery services for claims within a portion of our region. We recognize all of the revenues generated by the claims recovered through our subcontractor relationships, and we recognize the fees that we pay to these subcontractors in our expenses.

For our commercial healthcare business, our business strategy is focused on utilizing our technology-enabled services platform to provide audit, analytical, and in some cases, recovery services for private healthcare payors. We have entered into contracts with several private payors, although these contracts are in the early stage of implementation. Revenues from our

~~commercial healthcare~~ clients ~~were $1.8 million for the quarter ended September 30, 2017, compared to revenues of $1.3 million that we earned from our commercial healthcare clients in the quarter ended September 30, 2016.~~

We also derive revenues from the recovery of delinquent state taxes, and federal Treasury and other receivables, specialty administrative customer care functions, default aversion services for certain clients including financial institutions and the licensing of hosted technology solutions to certain clients. For our hosted technology services, we license our system and integrate our technology into our clients’ operations, for which we are paid a licensing fee. Our revenues for these services include contingency fees, fees based on dedicated headcount to our clients, and hosted technology licensing fees.

We generally report two categories of operating expenses: salaries and benefits and other operating expense. Salaries and benefits expenses consist primarily of salaries and performance incentives paid and benefits provided to our employees. Other operating ~~expense includes~~expenses include expenses related to our use of subcontractors, other production related expenses, including costs associated with data processing, retrieval of medical records, printing and mailing services, amortization and other outside services, as well as general corporate and administrative expenses. We expect a significant portion of our expenses to increase as we grow our business. However, we expect certain expenses, including our corporate and general administrative expenses, to grow at a slower rate than our revenues over the long term. As a result, we expect our overall expenses to modestly decline as a percentage of revenues.

Factors Affecting Our Operating Results

Our results of operations are influenced by a number of factors, including ~~allocation of placement volume,~~costs associated with commencing new contracts, claim recovery volume, contingency fees, regulatory matters, client ~~retention~~contract cancellation and macroeconomic factors.

~~Allocation~~Costs Associated with Commencing New Contracts

When we obtain an engagement with a new client or a new contract with an existing client, it typically takes a long period of ~~Placement~~time to plan our services in detail, which includes integrating our technology, processes and resources with the client’s operations and hiring new employees, before we receive any revenues from the new client or new contract. Our clients may also experience delays in obtaining approvals or managing protests from unsuccessful bidders, such as the lengthy protests on the Department of Education's contract procurement process in 2018, or delays associated with system implementations, such as the delays experienced with the implementation of our first RAC contracts with CMS. If we are not able to pay the upfront expenses out of cash from operations or availability of borrowings under our lending arrangements, we may scale back our operations or alter our business plans, either of which could prevent of us from earning future revenues under any such new client or new contract engagements.

Claim Recovery Volume

Our ~~clients have~~claims-based audit business reflects the ~~right~~scale of claims which are deemed permissible to ~~unilaterally set and increase~~audit by clients. Non-permissible claims may include client product lines which are determined to be out of scope, excluded providers or ~~reduce the volume of defaulted student loans~~provider groups, changes in policy, or other receivables that we service at any given time. In addition, many of our recovery contracts for student loans and other receivables are not exclusive, with our clients retaining multiple service providers to service portions of their portfolios. Accordingly, the number of delinquent student loans or other receivables that are placed with us may vary from time to time, which may have a significant effect on the amount and timing of our revenues. We believe the major factors that influence the number of placements we receive from our clients in the student loan market include our performance under our existing contracts and our ability to perform well against competitors for a particular client. To the extent that we perform well under our existing contracts and differentiate our services from those of our competitors, we may receive a relatively greater number of placements under these existing contracts and may improve our ability to obtain future contracts from these clients and other potential clients. Further, delays in placement volume,such as ~~well as acceleration of placement volume, from any of our large clients may cause our revenues and operating results to vary from quarter to quarter.~~geographies disrupted by natural disasters.

Typically, we are able to anticipate with reasonable accuracy the timing and volume of placements of defaulted student loans and other receivables based on historical patterns and regular communication with our clients. Occasionally, however, placements are delayed due to factors outside of our control.

Our revenues consist primarily of contract-based contingency fees. The contingency fee percentages that we earn are set by our clients or agreed upon during the bid process and may change from time to time either under the terms of existing contracts or pursuant to the terms of contract renewals. For example, the fees that we earned under our contractual arrangement with the Department of Education were subject to unilateral change by the Department of Education as a result of the Department of Education’s decision to have its recovery vendors promote IBR to defaulted student loans. In connection with the implementation of the IBR program, the Department of Education reduced the contingency fee rate that we receive for rehabilitating student loans by approximately 13% effective March 1, 2013.

Further, the Department of Education changed its fee structure to a fixed recovery fee of $1,710 for each rehabilitated loan, effective as of July 1, 2015. The fixed recovery fee is payable for each loan that is rehabilitated and replaced a recovery fee structure that historically had been based on a percentage of the balance of the rehabilitated loan.

Each of the markets which we serve is highly regulated. Accordingly, changes in regulations that affect the types of loans, receivables and claims that we are able to service or the manner in which any such delinquent loans, receivables and claims can be recovered will affect our revenues and results of operations. ~~For example,~~

Pursuant to the ~~passage~~terms of the ~~Student Aid~~CARES Act enacted in March 2020, the U.S. federal government suspended payments, ceased accruing interest, and ~~Fiscal Responsibility Act, or SAFRA, in 2010 had the effect~~stopped involuntary collections of ~~transferring the origination of all government-supported~~payments (e.g., wage garnishments) for student loans toowned by the Department of Education thereby ending all student loan originations guaranteed by the GAs. Loans guaranteed by the GAs represented approximately 70% of government-supported student loans originated in 2009. While the GAs will continue to service existing outstanding student loans for years to come, this legislation will over time shift the portfolio of defaulted student loans toward the Department of Education forthrough September 30, 2020, which ~~we are no longer a contractor (subject to resolution of our recently upheld protest).~~ was subsequently extended through September 30, 2021.

In addition, our entry into the healthcare market was facilitated by the passage of the Tax Relief and Health Care Act of 2006, which mandated CMS to contract with private firms to audit Medicare claims in an effort to increase the recovery of improper Medicare payments. Any changes to the regulations that affect the ~~student loan industry or the recovery of defaulted student loans or the~~ Medicare program ~~generally~~ or the audit and recovery of Medicare claims could have a significant impact on our revenues and results of operations.

Client ~~Retention~~Contract Cancellation

~~Our revenues from the student loan market depend on our ability to maintain~~ Substantially all of our contracts ~~with some of the largest providers of student loans. In 2016 and 2015, three providers of student loans each accounted for more than 10% of~~entitle our revenues and they collectively accounted for 55% of our total revenues in each year. Our contract with the Department of Education, which generated 16% of our revenues in 2016, expired in April 2015 and we were not selected as a vendor on the new contract announced in December 2016. We, along with 19 other contractors who did not receive contract awards from the Department of Education, filed protests regarding the Department of Education’s award of these contracts. In March 2017, our protest was upheld. The Department of Education requested resubmittal of new contract proposals and is currently undergoing a re-evaluation process with respect to such proposals. The Department of Education recently announced that it has completed its review and assessment for the award of the new contracts. However, we do not know when the award of the new contracts will be made. Further, there may be further appeals and challenges to the contract awards when granted, which could delay the actual start date for the new contracts. If we are not successful in obtaining a new contract as a result of a conclusive award process, the absence of a contract with the Department of Education will have a material adverse effect on our financial condition and results of operations in 2018 and beyond. Our contracts with our other large clients ~~entitle them~~ to unilaterally terminate their contractual relationship with us at any time without penalty. ~~In June 2017, one of our principal customers, Great Lakes Higher Education Guaranty Corporation, notified us that it is terminating our student loan recovery contract. If~~Our revenues could decline if we lose one or more of our ~~other~~ significant clients, including if one of our significant clients is ~~consolidated~~acquired by an entity that does not use our services, if the terms of compensation for our services change or if there is a reduction in the level of placements provided by any of these ~~clients, our revenues could decline.~~

The award of our two new RAC contracts in October 2016 has removed the uncertainty related to the retention of our relationship with CMS. However, while audit and recovery activity under the new contracts has commenced, the scope of our permitted audit activity remains uncertain. To date, we have not recognized significant revenues from the newly awarded RAC contracts.clients.

Macroeconomic Factors

Certain macroeconomic factors influence our business and results of operations. ~~These include the increasing volume of student loan originations in the U.S. as a result of increased tuition costs and student enrollment, the default rate of student loan borrowers,~~For example, the growth in Medicare expenditures or claims made to private healthcare providers resulting from ~~increasing~~changes in healthcare costs or the healthcare industry taken as a whole, as well as the fiscal budget tightening of federal, state and local governments as a result of general economic weakness and lower tax revenues.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted ~~accounting principles~~ in the United States, or U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and

assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period-to-period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

~~The majority~~ We derive our revenues primarily from providing recovery services and healthcare audit services. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration expect to be entitled to in exchange for those services.

We determine revenue recognition through the following steps:

•Identification of the contract with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract; and

•Recognition of revenue when, or as, the performance obligations are satisfied

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Our contracts generally contain a single performance obligation, delivered over time as a series of services that are substantially the same and have the same pattern of transfer to a client, as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct.

Our contracts are composed primarily of variable consideration. Fees earned under our recovery service and healthcare audit service contracts consist primarily of contingency fees based on a specified percentage of the amount we enable our clients to recover. The contingency fee ~~based.~~ percentage for a particular recovery depends on the type of recovery or claim facilitated. In certain contracts, we can earn additional performance-based consideration determined based on its performance relative to a client’s other contractors providing similar services.

We ~~recognize revenues on these contingency fee based contracts when third-party payors remit payments~~generally either apply the as-invoiced practical expedient, where our right to consideration corresponds directly to our right to invoice our clients, or ~~remit payments~~the variable consideration allocation exception, where the variable consideration is attributable to usone or more, but not all, of the services promised in a series of distinct services that form part of a single performance obligation. As such, we have elected the optional exemptions related to the as-invoiced practical expedient and the variable consideration allocation exception, whereby the disclosure of the amount of transaction price allocated to the remaining performance obligations is not required.

We estimate variable consideration only if we can reasonably measure our progress toward complete satisfaction of the performance obligation using an output method based on ~~behalf~~reliable information, and recognize such revenue over the performance period only if it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Any change made to the measure of progress toward complete satisfaction of our ~~clients,~~performance obligation is recorded as a change in estimate. We exercise judgment to estimate the amount of constraint on variable consideration based on the facts and ~~consequently,~~circumstances of the ~~contingency~~relevant contract operations and availability and reliability of data. Although we believe the estimates made are reasonable and appropriate, different assumptions and estimates could materially impact the amount of variable consideration.

Under certain contracts, consideration can include periodic performance-based bonuses which can be awarded based on our performance under the specific contract. These performance-based awards are considered variable and may be constrained by us until there is ~~deemed~~not a risk of a material reversal.

For contracts that contain a refund right, these amounts are considered variable consideration, and we estimate our refund liability for each claim and recognize revenue net of such estimate.


	September 30, 2017		December 31, 2016			March 31, 2021		December 31, 2020
	(Unaudited)					(Unaudited)
Assets					Assets
Current assets:					Current assets:
Cash and cash equivalents	$	23,179	$	32,982	Cash and cash equivalents	$	19,203	$	16,043
Restricted cash	—		7,502		Restricted cash	2,203		2,253
Trade accounts receivable, net of allowance for doubtful accounts of $0 and $224, respectively	12,490		11,484
Deferred income taxes	—		5,331
Trade accounts receivable, net of allowance for doubtful accounts of $49 and $49, respectively					Trade accounts receivable, net of allowance for doubtful accounts of $49 and $49, respectively	20,600		23,216
Contract assets					Contract assets	4,749		4,466
Prepaid expenses and other current assets	14,222		12,686		Prepaid expenses and other current assets	3,667		3,784
Income tax receivable	1,454		2,027		Income tax receivable	4,698		4,758
Total current assets	51,345		72,012		Total current assets	55,120		54,520
Property, equipment, and leasehold improvements, net	21,393		23,735		Property, equipment, and leasehold improvements, net	16,730		17,497
Identifiable intangible assets, net	5,066		5,895		Identifiable intangible assets, net	630		689
Goodwill	81,572		82,522		Goodwill	47,372		47,372
Deferred income taxes	3,534		—

Right-of-use assets					Right-of-use assets	4,536		5,043
Other assets	897		914		Other assets	1,021		1,106
Total assets	$	163,807	$	185,078	Total assets	$	125,409	$	126,227
Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:					Current liabilities:
Current maturities of notes payable, net of unamortized debt issuance costs of $138 and $1,294, respectively	$	1,512	$	9,738
Current maturities of notes payable to related party, net of unamortized debt issuance costs of $537 and $906, respectively					Current maturities of notes payable to related party, net of unamortized debt issuance costs of $537 and $906, respectively	$	59,463	$	59,957
Accrued salaries and benefits	5,640		4,315		Accrued salaries and benefits	9,598		8,799
Accounts payable	1,052		628		Accounts payable	865		407
Other current liabilities	3,860		4,409		Other current liabilities	4,128		3,841
Estimated liability for appeals	19,145		19,305
Net payable to client	12,669		13,074

Deferred revenue					Deferred revenue	466		867
Estimated liability for appeals, disputes, and refunds					Estimated liability for appeals, disputes, and refunds	4,373		1,014

Lease liabilities					Lease liabilities	2,264		2,327
Total current liabilities	43,878		51,469		Total current liabilities	81,157		77,212
Notes payable, net of current portion and unamortized debt issuance costs of $3,549 and $272, respectively	38,801		43,878
Deferred income taxes	—		1,130

Lease liabilities					Lease liabilities	2,914		3,442
Other liabilities	2,099		2,356		Other liabilities	3,171		3,593
Total liabilities	84,778		98,833		Total liabilities	87,242		84,247
Commitments and contingencies
Commitments and contingencies (note 3 and note 4)					Commitments and contingencies (note 3 and note 4)	0		0
Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.0001 par value. Authorized, 500,000 shares at September 30, 2017 and December 31, 2016; issued and outstanding 50,949 and 50,234 shares at September 30, 2017 and December 31, 2016, respectively	5		5
Common stock, $0.0001 par value. Authorized, 500,000 shares at March 31, 2021 and December 31, 2020 respectively; issued and outstanding 54,825 and 54,764 shares at March 31, 2021 and December 31, 2020, respectively					Common stock, $0.0001 par value. Authorized, 500,000 shares at March 31, 2021 and December 31, 2020 respectively; issued and outstanding 54,825 and 54,764 shares at March 31, 2021 and December 31, 2020, respectively	5		5
Additional paid-in capital	71,684		65,650		Additional paid-in capital	83,559		82,933
Retained earnings	7,340		20,590
Accumulated deficit					Accumulated deficit	(45,397)		(40,958)
Total stockholders’ equity	79,029		86,245		Total stockholders’ equity	38,167		41,980
Total liabilities and stockholders’ equity	$	163,807	$	185,078	Total liabilities and stockholders’ equity	$	125,409	$	126,227


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
	2017			2016			2017			2016				2021		2020
Revenues	$	29,744		$	31,195		$	98,760		$	107,548		Revenues	$	31,390	$	45,888
Operating expenses:													Operating expenses:
Salaries and benefits	20,494			18,710			61,640			60,107			Salaries and benefits	24,090		28,805
Other operating expenses	13,496			12,311			43,019			40,401			Other operating expenses	10,356		12,220
Impairment of goodwill													Impairment of goodwill	0		19,000
Total operating expenses	33,990			31,021			104,659			100,508			Total operating expenses	34,446		60,025
Income (loss) from operations	(4,246		)	174			(5,899		)	7,040
Loss from operations													Loss from operations	(3,056)		(14,137)
Interest expense	(2,459		)	(1,863		)	(5,683		)	(6,136		)	Interest expense	(1,346)		(2,227)
Income (loss) before provision for (benefit from) income taxes	(6,705		)	(1,689		)	(11,582		)	904
Interest income													Interest income	0		6
Loss before provision for (benefit from) income taxes													Loss before provision for (benefit from) income taxes	(4,402)		(16,358)
Provision for (benefit from) income taxes	1,146			(974		)	1,668			62			Provision for (benefit from) income taxes	37		(3,874)
Net income (loss)	$	(7,851	)	$	(715	)	$	(13,250	)	$	842
Net income (loss) per share
Net loss													Net loss	$	(4,439)	$	(12,484)
Net loss per share													Net loss per share
Basic	$	(0.15	)	$	(0.01	)	$	(0.26	)	$	0.02		Basic	$	(0.08)	$	(0.23)
Diluted	$	(0.15	)	$	(0.01	)	$	(0.26	)	$	0.02		Diluted	$	(0.08)	$	(0.23)
Weighted average shares													Weighted average shares
Basic	50,852			50,200			50,581			49,974			Basic	54,813		53,943
Diluted	50,852			50,200			50,581			50,401			Diluted	54,813		53,943


						Three Months Ended March 31,
Cash paid for income taxes	$	540	$	3,976
						2021		2020
Cash flows from operating activities:					Cash flows from operating activities:
Net loss					Net loss	$	(4,439)	$	(12,484)
Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Impairment of long-lived assets					Impairment of long-lived assets	636		0
Impairment of goodwill					Impairment of goodwill	0		19,000
Depreciation and amortization					Depreciation and amortization	1,016		1,540
Right-of-use assets amortization					Right-of-use assets amortization	507		599

Stock-based compensation					Stock-based compensation	649		691
Interest expense from debt issuance costs					Interest expense from debt issuance costs	369		382

Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Trade accounts receivable					Trade accounts receivable	2,616		(106)
Contract assets					Contract assets	(283)		138
Prepaid expenses and other current assets and other assets					Prepaid expenses and other current assets and other assets	117		(451)
Income tax receivable					Income tax receivable	60		(3,825)
Other assets					Other assets	85		(11)
Accrued salaries and benefits					Accrued salaries and benefits	799		1,550
Accounts payable					Accounts payable	458		475
Deferred revenue and other current liabilities					Deferred revenue and other current liabilities	(114)		171

Estimated liability for appeals, disputes, and refunds					Estimated liability for appeals, disputes, and refunds	3,359		151
Lease liabilities					Lease liabilities	(591)		(677)
Other liabilities					Other liabilities	(422)		78
Net cash provided by operating activities					Net cash provided by operating activities	4,822		7,221
Cash flows from investing activities:					Cash flows from investing activities:
Purchase of property, equipment, and leasehold improvements					Purchase of property, equipment, and leasehold improvements	(826)		(1,073)
Net cash used in investing activities					Net cash used in investing activities	(826)		(1,073)
Cash flows from financing activities:					Cash flows from financing activities:
Repayment of notes payable					Repayment of notes payable	(863)		(863)

Taxes paid related to net share settlement of stock awards					Taxes paid related to net share settlement of stock awards	(23)		(84)

Net cash used in financing activities					Net cash used in financing activities	(886)		(947)
Net increase in cash, cash equivalents and restricted cash					Net increase in cash, cash equivalents and restricted cash	3,110		5,201
Cash, cash equivalents and restricted cash at beginning of period					Cash, cash equivalents and restricted cash at beginning of period	18,296		4,995
Cash, cash equivalents and restricted cash at end of period					Cash, cash equivalents and restricted cash at end of period	$	21,406	$	10,196

Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:					Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:
Cash and cash equivalents					Cash and cash equivalents	$	19,203	$	8,574
Restricted cash					Restricted cash	2,203		1,622
Total cash, cash equivalents and restricted cash at end of period					Total cash, cash equivalents and restricted cash at end of period	$	21,406	$	10,196

Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid (received) for income taxes					Cash paid (received) for income taxes	$	432	$	(72)
Cash paid for interest	$	2,835	$	4,797	Cash paid for interest	$	977	$	1,845


	September 30, 2017			December 31, 2016				March 31, 2021		December 31, 2020
Land	$	1,122		$	1,122		Land	$	1,943	$	1,943
Building and leasehold improvements	6,223			6,203			Building and leasehold improvements	7,593		7,591
Furniture and equipment	5,706			5,656			Furniture and equipment	5,928		5,922
Computer hardware and software	70,615			67,861			Computer hardware and software	80,307		80,358
	83,666			80,842				95,771		95,814
Less accumulated depreciation and amortization	(62,273		)	(57,107		)	Less accumulated depreciation and amortization	(79,041)		(78,317)
Property, equipment and leasehold improvements, net	$	21,393		$	23,735		Property, equipment and leasehold improvements, net	$	16,730	$	17,497


					August 2017 Issuance	October 2018 Issuance	April 2019 Issuance	May 2019 Issuance	August 2019 Issuance	September 2019 Issuance
Exercise price	$	1.92		Exercise price	$1.92
Share price on date of issuance	$	1.85		Share price on date of issuance	$1.85	$1.93	$2.24	$1.75	$1.11	$1.10
Volatility	50.0		%	Volatility	50.0%	55.0%	57.5%		67.5%
Risk-free interest rate	1.83		%	Risk-free interest rate	1.83%	3.01%	2.31%	2.15%	1.53%	1.60%
Expected dividend yield	—		%	Expected dividend yield	0%
Contractual term (in years)	5			Contractual term (in years)	5
Number of shares				Number of shares	3,863,326	309,066	386,333	463,599	386,333
Relative fair value of each warrant				Relative fair value of each warrant	$3.3 million	$0.2 million	$0.4 million		$0.2 million



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net income (loss)	$	(7,851	)	$	(715	)	$	(13,250	)	$	842
Other comprehensive income:
Foreign currency translation adjustment	1			(1		)	(4		)	24
Comprehensive income (loss)	$	(7,850	)	$	(716	)	$	(13,254	)	$	866


~~(b)~~	~~Revenues, Accounts Receivable, and Estimated Liability for Appeals~~



Year Ending December 31,	Amount
Remainder of 2017	$	—
2018	2,200
2019	2,200
2020	39,600
2021	—
Thereafter	—
Total	$	44,000



	September 30, 2017
Principal amount	$	44,000
Less: unamortized discount and debt issuance costs	(3,687		)
Loan payable less unamortized discount and debt issuance costs	40,313
Less: current maturities	(1,512		)
Long-term loan payable, net of current maturities	$	38,801


~~(1)~~	~~Options expected to vest reflect an estimated forfeiture rate.~~


						Number of Awards	Weighted average grant date fair value per share
	Number of Awards		Weighted average grant date fair value per share
Outstanding at December 31, 2016	2,060,240		$	2.70
Outstanding at December 31, 2020					Outstanding at December 31, 2020	4,592,644	$	1.27
Granted	1,481,252		2.41		Granted	0	0
Forfeited	(371,800	)	2.98		Forfeited	(74,926)	1.52
Expired	(40,500	)	2.57
Vested and converted to shares, net of units withheld for taxes	(533,872	)	2.73		Vested and converted to shares, net of units withheld for taxes	(61,156)	1.49
Units withheld for taxes	(209,743	)	2.73		Units withheld for taxes	(20,662)	1.49
Outstanding at September 30, 2017	2,385,577		$	2.46
Expected to vest at September 30, 2017	2,266,348		$	2.46
Outstanding at March 31, 2021					Outstanding at March 31, 2021	4,435,900	$	1.26
Expected to vest at March 31, 2021					Expected to vest at March 31, 2021	4,228,500	$	1.21


	Three Months Ended March 31,
	2021		2020		$ Change		% Change
	(in thousands)
Consolidated Statement of Operations Data:
Revenues	$	31,390	$	45,888	$	(14,498)	(32)	%
Operating expenses:
Salaries and benefits	24,090		28,805		(4,715)		(16)	%
Other operating expenses	10,356		12,220		(1,864)		(15)	%
Impairment of goodwill	—		19,000		(19,000)		(100)	%
Total operating expenses	34,446		60,025		(25,579)		(43)	%
Loss from operations	(3,056)		(14,137)		11,081		78	%
Interest expense	(1,346)		(2,227)		881		40	%
Interest income	—		6		(6)		(100)	%
Loss before provision for (benefit from) income taxes	(4,402)		(16,358)		11,956		73	%
Provision for (benefit from) income taxes	37		(3,874)		(3,911)		101	%
Net income (loss)	$	(4,439)	$	(12,484)	$	8,045	64	%


~~(1)~~	~~Represents costs and expenses related to the refinancing of our existing indebtedness.~~


~~(a)~~	~~Basis of Presentation and Organization~~


~~(c)~~	~~Net Payable to Client~~


~~(e)~~	~~Impairment of Goodwill and Long-Lived Assets~~


~~(f)~~	~~Restricted Cash~~


~~(2)~~	Represents amortization of capitalized expenses related to the acquisition of Performant by an affiliate of Parthenon Capital Partners in 2004, and also an acquisition in the first quarter of 2012 to enhance our analytics capabilities.


~~(3)~~	~~Represents goodwill and impairment charges related to our Performant Europe Ltd. subsidiary.~~


~~(4)~~	~~Represents amortization of capitalized financing costs related to our New Credit Agreement, and the write-off of deferred financing costs related to our Prior Credit Agreement in August 2017.~~


~~(5)~~	~~Represents restructuring costs and severance and termination expenses incurred in connection with termination of employees and consultants.~~


~~(6)~~	~~Represents tax adjustments assuming a marginal tax rate of 40%.~~



~~Financial Covenant~~	~~Covenant~~ Table of Contents ~~Requirement~~	~~Actual Ratio at~~ ~~September 30, 2017~~
~~Total debt to EBITDA ratio (maximum)~~	~~6.00 to 1.00~~	~~3.39~~
~~Fixed charge coverage ratio (minimum)~~	~~0.5 to 1.0~~	~~0.94~~


Exhibit No.		Description

~~Exhibit No.~~		~~Description~~

~~10.1~~31.1	~~Amendment No. 1 to Credit Agreement, dated as of September 29, 2017, by and among Performant Business Services, Inc.~~

~~31.1~~	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)

31.2		Certification of the Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)

32.1⁽¹⁾		Certification of the Chief Executive Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2⁽¹⁾		Certification of the Principal Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS⁽²⁾		XBRL Instance Document

101.SCH⁽²⁾		XBRL Taxonomy Extension Scheme

101.CAL⁽²⁾		XBRL Taxonomy Extension Calculation Linkbase

101.DEF⁽²⁾		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB⁽²⁾		XBRL Taxonomy Extension Label Linkbase

101.PRE⁽²⁾		XBRL Taxonomy Extension Presentation Linkbase


~~(2)~~	In accordance with Rule 406T of Regulation S-T, the information furnished in these exhibits will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act or Exchange Act.