UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~September 30, 2017~~March 31, 2023



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

For the transition period from to

Commission File Number: 001-35628

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 8, 2023 was ~~50,961,377.~~

75,505,108.

Table of Contents

PERFORMANT FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2023

INDEX


				Page
PART I—Financial Information

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

Item 1.	Consolidated Financial Statements
		Consolidated Balance Sheets ~~September 30, 2017 (unaudited)~~— March 31, 2023 and December 31, ~~2016~~2022 (unaudited)		1
		Consolidated Statements of Operations — Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (unaudited)		2
		Consolidated Statements of ~~Comprehensive Income (Loss)~~Changes in Stockholders' Equity — Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (unaudited)		3
		Consolidated Statements of Cash Flows ~~Nine~~— Three Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (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		14
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		2925
Item 4.		Disclosure Controls and Procedures		2926

PART II—Other Information				3027

Item 1.		Legal Proceedings		3027
Item 1A.		Risk Factors		3027
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		4037
Item 3.		Defaults Upon Senior Securities		4037
Item 4.		Mine Safety Disclosures		4037
Item 5.		Other Information		4037
Item 6.		Exhibits		4138
Signatures				4239

Table of Contents

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)


	September 30, 2017		December 31, 2016			March 31, 2023		December 31, 2022
	(Unaudited)					(Unaudited)
Assets					Assets
Current assets:					Current assets:
Cash and cash equivalents	$	23,179	$	32,982	Cash and cash equivalents	$	12,335	$	23,384
Restricted cash	—		7,502		Restricted cash	81		81
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					Trade accounts receivable	15,636		15,794
Contract assets					Contract assets	8,993		11,460

Prepaid expenses and other current assets	14,222		12,686		Prepaid expenses and other current assets	3,623		3,665
Income tax receivable	1,454		2,027		Income tax receivable	3,083		3,123

Total current assets	51,345		72,012		Total current assets	43,751		57,507
Property, equipment, and leasehold improvements, net	21,393		23,735		Property, equipment, and leasehold improvements, net	10,527		10,897
Identifiable intangible assets, net	5,066		5,895

Goodwill	81,572		82,522		Goodwill	47,372		47,372
Deferred income taxes	3,534		—

Right-of-use assets					Right-of-use assets	794		2,057
Other assets	897		914		Other assets	1,194		1,000
Total assets	$	163,807	$	185,078	Total assets	$	103,638	$	118,833
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, net of unamortized debt issuance costs of $58 and $17, respectively					Current maturities of notes payable, net of unamortized debt issuance costs of $58 and $17, respectively	$	1,192	$	983
Accrued salaries and benefits	5,640		4,315		Accrued salaries and benefits	5,818		6,938
Accounts payable	1,052		628		Accounts payable	971		1,262
Other current liabilities	3,860		4,409		Other current liabilities	2,017		2,252
Estimated liability for appeals	19,145		19,305
Net payable to client	12,669		13,074

Contract liabilities					Contract liabilities	—		438
Estimated liability for appeals and disputes					Estimated liability for appeals and disputes	863		1,106
Lease liabilities					Lease liabilities	623		1,228
Total current liabilities	43,878		51,469		Total current liabilities	11,484		14,207
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
Notes payable, net of current portion and unamortized debt issuance costs of $484 and $316, respectively					Notes payable, net of current portion and unamortized debt issuance costs of $484 and $316, respectively	10,016		18,184

Lease liabilities					Lease liabilities	189		1,076
Other liabilities	2,099		2,356		Other liabilities	887		881
Total liabilities	84,778		98,833		Total liabilities	22,576		34,348
Commitments and contingencies
Commitments and contingencies (note 3 and note 4)					Commitments and contingencies (note 3 and note 4)
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, 2023 and December 31, 2022 respectively; issued and outstanding 75,505 and 75,505 shares at March 31, 2023 and December 31, 2022, respectively					Common stock, $0.0001 par value. Authorized, 500,000 shares at March 31, 2023 and December 31, 2022 respectively; issued and outstanding 75,505 and 75,505 shares at March 31, 2023 and December 31, 2022, respectively	7		7
Additional paid-in capital	71,684		65,650		Additional paid-in capital	143,059		142,261
Retained earnings	7,340		20,590
Accumulated deficit					Accumulated deficit	(62,004)		(57,783)
Total stockholders’ equity	79,029		86,245		Total stockholders’ equity	81,062		84,485
Total liabilities and stockholders’ equity	$	163,807	$	185,078	Total liabilities and stockholders’ equity	$	103,638	$	118,833

See accompanying notes to consolidated financial statements.

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PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
	2017			2016			2017			2016				2023		2022
Revenues	$	29,744		$	31,195		$	98,760		$	107,548		Revenues	$	25,729	$	27,083
Operating expenses:													Operating expenses:
Salaries and benefits	20,494			18,710			61,640			60,107			Salaries and benefits	22,449		20,439
Other operating expenses	13,496			12,311			43,019			40,401			Other operating expenses	7,069		8,131

Total operating expenses	33,990			31,021			104,659			100,508			Total operating expenses	29,518		28,570
Income (loss) from operations	(4,246		)	174			(5,899		)	7,040
Loss from operations													Loss from operations	(3,789)		(1,487)
Gain on sale of certain recovery contracts													Gain on sale of certain recovery contracts	3		—

Interest expense	(2,459		)	(1,863		)	(5,683		)	(6,136		)	Interest expense	(414)		(155)
Income (loss) before provision for (benefit from) income taxes	(6,705		)	(1,689		)	(11,582		)	904
Provision for (benefit from) income taxes	1,146			(974		)	1,668			62
Net income (loss)	$	(7,851	)	$	(715	)	$	(13,250	)	$	842
Net income (loss) per share

Loss before provision for income taxes													Loss before provision for income taxes	(4,200)		(1,642)
Provision for income taxes													Provision for income taxes	21		31
Net loss													Net loss	$	(4,221)	$	(1,673)
Net loss per share													Net loss per share
Basic	$	(0.15	)	$	(0.01	)	$	(0.26	)	$	0.02		Basic	$	(0.06)	$	(0.02)
Diluted	$	(0.15	)	$	(0.01	)	$	(0.26	)	$	0.02		Diluted	$	(0.06)	$	(0.02)
Weighted average shares													Weighted average shares
Basic	50,852			50,200			50,581			49,974			Basic	75,505		69,873
Diluted	50,852			50,200			50,581			50,401			Diluted	75,505		69,873

See accompanying notes to consolidated financial statements.

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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, 2023									Three Months Ended March 31, 2022
	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	75,705	$	7	$	142,261	$	(57,783)	84,485		69,281	$	7	$	133,662	$	(51,246)	$	82,423

Stock-based compensation expense	—	—		798		—		798		—	—		558		—		558
Proceeds from exercise of stock options	—	—		—		—		—		3,863	—		5,563		—		5,563


Net loss	—	—		—		(4,221)		(4,221)		—	—		—		(1,673)		(1,673)
Balances at end of period	75,705	$	7	$	143,059	$	(62,004)	$	81,062	73,144	$	7	$	139,783	$	(52,919)	$	86,871

See accompanying notes to consolidated financial statements.

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PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(4,221)	$	(1,673)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Loss on disposal of assets and impairment of long-lived assets	32		(17)

Depreciation and amortization	1,247		1,102
Right-of-use assets amortization	1,263		475

Stock-based compensation	798		558
Interest expense from debt issuance costs	35		24


Gain on sale of certain recovery contracts	(3)		—

Changes in operating assets and liabilities:
Trade accounts receivable	158		971
Contract assets	2,467		(762)
Prepaid expenses and other current assets	42		(864)
Income tax receivable	40		74
Other assets	(194)		(2)
Accrued salaries and benefits	(1,120)		(2,541)
Accounts payable	(291)		67
Contract liabilities and other current liabilities	(673)		(1,815)

Estimated liability for appeals, disputes, and refunds	(243)		281
Lease liabilities	(1,492)		(536)
Other liabilities	6		7
Net cash used in operating activities	(2,149)		(4,651)
Cash flows from investing activities:
Purchase of property, equipment, and leasehold improvements	(909)		(700)
Proceeds from sale of certain recovery contracts	3		—

Net cash used in investing activities	(906)		(700)
Cash flows from financing activities:
Repayment of notes payable	(7,750)		(125)

Debt issuance costs paid	(244)		(2)

Proceeds from exercise of warrants	—		5,563




Net cash (used in) provided by financing activities	(7,994)		5,436
Net increase in cash, cash equivalents and restricted cash	(11,049)		85
Cash, cash equivalents and restricted cash at beginning of period	23,465		19,550
Cash, cash equivalents and restricted cash at end of period	$	12,416	$	19,635
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:
Cash and cash equivalents	$	12,335	$	17,432
Restricted cash	81		2,203
Total cash, cash equivalents and restricted cash at end of period	$	12,416	$	19,635






Supplemental disclosures of cash flow information:
Cash paid (received) for income taxes	$	5	$	1
Cash paid for interest	$	582	$	176

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)~~

Cash paid for income taxes $ 540
$ 3,976
Cash paid for interest $ 2,835
$ 4,797

See accompanying notes to consolidated financial statements.

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PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Notes Toto 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~~

(a) Basis of Presentation and Organization

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. ~~Generally Accepted Accounting Principles, or U.S. GAAP,~~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 interim unaudited ~~interim~~consolidated 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, 2023, and December 31, 2022,the results of our operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022, and cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022. 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.~~2022.

~~The~~Performant Financial Corporation (the Company, "we", or "our") is a leading provider of technology-enabled audit, recovery and analytics services in the United ~~States.~~States with a focus in the healthcare payment integrity services industry. The ~~Company's~~Company works with healthcare payers through claims auditing and eligibility-based (also known as coordination-of-benefits or COB) 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 clients~~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 also has a call center which serves clients with multifaceted consumer engagement needs. The Company historically worked in recovery markets such as defaulted student loans, ~~improper healthcare payments~~tax receivables, and ~~delinquent state tax and federal treasury receivables. The Company generally provides services on an outsourced basis, where we handle many or all aspects of the clients’ various processes.~~commercial recovery.

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

The Company is managed and operated as one 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, ~~intangible~~contract assets, goodwill, right-of-use assets, estimated liability for appeals ~~accrued expenses,~~and disputes, lease liabilities, other liabilities, provision for income taxes, and disclosure of contingent ~~assets and~~ liabilities at the date of the consolidated financial statements, and the reported amounts of revenues.

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

The Company derives its revenues primarily from providing audit, recovery, and ~~expenses during the reporting periods. Our actual results could differ from those estimates.~~


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

~~Revenue is~~analytics services. Revenues are recognized upon completion of these services for its customers, in an amount that reflects the ~~collection~~consideration the Company expects to be entitled to in exchange for those services.

The Company determines revenue recognition through the following steps:

•Identification of ~~defaulted loan~~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 ~~debt payments. Loan rehabilitation~~

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

Table of Contents

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 ~~recognized when~~probable.

The Company’s contracts generally contain a single performance obligation, delivered over time as a series of services that are substantially the ~~rehabilitated loans~~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 ~~sold (funded) by clients. Incentive revenue is recognized upon receipt~~composed primarily of ~~official notification of incentive award from customers. Under~~variable consideration. Fees earned under the Company’s ~~Medicare Recovery Audit Contractor,~~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 ~~RAC,~~claim facilitated.

The Company 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 our 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 availability and reliability of data. The Company reviews the constraint on variable consideration at least quarterly. While the Company believes the estimates made are reasonable and appropriate, different assumptions and estimates could materially impact the amount of variable consideration recognized.

For contracts that contain a refund right, the Company estimates its refund liability for each claim, as needed, 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 ~~Centers~~performance obligations that have an average remaining duration of less than a year.

For healthcare claims audit contracts, the Company may recognize revenue upon delivering its findings from claims audits, when sufficient reliable information is available to the Company for ~~Medicare and Medicaid Services,~~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 ~~CMS,~~COB contracts, the Company recognizes revenue when insurance companies or other responsible parties have remitted payments to its clients.

For customer care / outsourced services clients, the Company recognizes revenues based on the volume of processed transactions or the quantity of labor hours provided.

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The following table presents revenue disaggregated by category (in thousands) for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Eligibility-based	$	12,480	$	14,215
Claims-based	10,412		9,149
Healthcare Total	22,892		23,364
Recovery (1)	19		118
Customer Care / Outsourced Services	2,818		3,601
Total Revenues	$	25,729	$	27,083

(1)Represented defaulted student loans and tax receivables markets, which substantially concluded in 2021.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in cash used in operating activities in the consolidated statements of cash flows. The Company determines the allowance for doubtful accounts by specific identification. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was $0 as of March 31, 2023 and December 31, 2022.

Contract assets were $9.0 million and $11.5 million as of March 31, 2023 and December 31, 2022, respectively. Contract assets relate to the Company’s rights to consideration for services completed during the respective years, but not invoiced at 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 it has earned from completed claims audit findings submitted to healthcare clients. The decrease in contract assets resulted from invoiced amounts offset by additional consideration earned for services provided to healthcare clients during the period.

Contract assets are recorded to accounts receivable when the Company's right to payment becomes unconditional, which is generally when healthcare ~~provider has~~providers have paid ~~CMS~~our clients. There was no impairment loss related to contract assets for the three months ended March 31, 2023 and 2022.

The Company had contract liabilities of $0.0 million and $0.4 million as of March 31, 2023 and December 31, 2022, respectively. The Company’s contract liabilities relate to certain reimbursable costs due to a ~~given claim or has agreed to an offset against other claims by the provider. Providers~~healthcare client.

Healthcare providers of our clients 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 (COB) 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~~and disputes was $0.9 million as of ~~the amount~~March 31, 2023 and $1.1 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~~2022. This represents the Company’s best estimate of the amount probable ~~amount~~ of ~~losses related to appeals of claims for which commissions were previously collected. In addition~~being refunded to the ~~$19.1 million amount accrued at September 30, 2017,~~Company’s healthcare clients.

At March 31, 2023, the Company ~~estimates that it is reasonably possible that it could be required~~had capitalized costs to ~~pay an additional amount up~~fulfill a contract of $0.2 million in prepaid expenses and other current assets. Amortization of such capitalized costs to ~~approximately $5.4 million as a result of potentially successful appeals. To~~fulfill was immaterial for 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 Decemberthree months ended March 31, ~~2016 was $0.2 million.~~2023.


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

~~The Company nets outstanding accounts receivable invoices from an audit~~(c) Prepaid Expenses 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, 2017 and DecemberOther Current Assets

At March 31, ~~2016, respectively, represent the excess of payables for overturned audits. The Company expects that the net payable to client balance will be paid to the client within the next twelve months.~~


~~(d)~~	~~Prepaid Expenses and Other Current Assets~~

~~At September 30, 2017,~~2023, prepaid expenses and other current assets ~~includes $5.6~~were $3.6 million ~~of amounts estimated~~and included approximately $2.0 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, $1.2 million for prepaid insurance, and $0.4 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, 2022, prepaid expenses and other current assets ~~includes a net receivable of~~were $3.7 million and included approximately $1.5 million related to prepaid software licenses and maintenance agreements, $1.8 million for ~~subcontractor fees~~prepaid insurance, and $0.4 million for ~~already overturned audits refundable~~various other prepaid expenses.

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(d) Impairment of Goodwill and Long-Lived Assets

The balance of goodwill was $47.4 million as of March 31, 2023 and $47.4 million as of December 31, 2022, which was net of accumulated impairment loss of $34.2 million. Goodwill is reviewed for impairment at least annually in December or as certain events or conditions arise during the year. 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~~2023 and ~~other current~~2022.

Long-lived 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~~and intangible assets that are subject to ~~the Company once the Company refunds its fees to the client as prime contractor.~~


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

~~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 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~~three months ended ~~September 30, 2017, an impairment expense of $1.1 million was recognized to account for the write-off of goodwill~~March 31, 2023 and intangible assets in one of our subsidiaries, Performant Europe Ltd., due to the Company's decision to wind down activity in this business. The expense has been included in other operating expenses in the consolidated statements of operations. There2022, there was no ~~impairment expense~~impairment.

(e) Other Current Liabilities

As of March 31, 2023, other current liabilities primarily included $1.7 million for ~~goodwill~~services received for which we have not received an invoice, and ~~long-lived assets~~$0.3 million for ~~the nine months ended September 30, 2016.~~


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

~~On August 3, 2017, $6.0 million of restricted cash was paid to the administrative agent for the benefit of the lenders~~estimated workers' compensation claims incurred but not reported, third party fees, and accrued interest under our ~~Prior~~ Credit ~~Agreement. At September 30, 2017, and at~~Agreement (Note 3). As of December 31, ~~2016, restricted cash~~2022, other current liabilities primarily included ~~in current assets~~$1.8 million for services received for which we have not received an invoice, and $0.5 million for accrued interest under our Credit Agreement, estimated workers' compensation claims incurred but not reported and third party fees and equipment financing payables.

(f) New Accounting Pronouncements

In February 2020, the Financial Accounting Standards Board (FASB) issued ASU 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 ~~our consolidated balance sheet was $0.0 million and $7.5 million, respectively.~~


~~(g)~~	~~New Accounting Pronouncements~~

~~Recently Adopted Accounting Standards~~

~~In November 2015, the FASB issued~~Effective Date Related to Accounting Standards Update ~~(ASU) 2015-17, "Income Taxes~~No. 2016-02, Leases (Topic ~~740): Balance Sheet Classification of Deferred Taxes"~~("842).” This ASU ~~2015-17"), which simplifies~~provides updated guidance on how an entity should measure credit losses on financial instruments, including trade receivables, held at the reporting ~~requirements of deferred taxes~~date. The amendments make each Topic easier to understand and easier to apply by ~~requiring all organizations to classify all deferred tax assets~~eliminating inconsistencies and ~~liabilities, along with any related valuation allowance, as noncurrent. The guidance is~~providing clarifications. It also addresses transition and open effective date information for Topic 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 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 expenseentities 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, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. This new standard requires retrospective adoption, with a provision for impracticability. We have not adopted this guidance early and are currently evaluating the effect on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test 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 is effective for annual reporting periods, and interim periods with goodwill impairment tests within thosefiscal years beginning after December 15, 2019, except for Smaller Reporting Companies. This ASU is effective for the Company for fiscal years, and ~~early~~interim periods within those fiscal years, beginning after December 15, 2022. The Company's adoption ~~is permitted for testing periods after January 1, 2017. We have not adopted~~of this ~~guidance early and are currently evaluating the effect~~ASU had no impact on our ~~consolidated~~ financial ~~statements.~~position, results of operations, or cash flows.

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2. Property, Equipment, and Leasehold Improvements

Property, equipment, and leasehold improvements consist of the following at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 (in thousands):

September 30,
2017 December 31,
2016
Land $ 1,122
$ 1,122
Building and leasehold improvements 6,223
6,203
Furniture and equipment 5,706
5,656
Computer hardware and software 70,615
67,861
83,666
80,842
Less accumulated depreciation and amortization (62,273 ) (57,107 )
Property, equipment and leasehold improvements, net $ 21,393
$ 23,735


	March 31, 2023		December 31, 2022

Building and leasehold improvements	3,703		3,785
Furniture and equipment	3,085		3,094
Computer hardware and software	77,737		76,906
	84,525		83,785
Less accumulated depreciation and amortization	(73,998)		(72,888)
Property, equipment and leasehold improvements, net	$	10,527	$	10,897

Depreciation and amortization expense ~~of property, equipment and leasehold improvements~~ was ~~$2.5~~$1.2 million and ~~$2.4~~$1.1 million for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively, $7.7~~2022, respectively.

3. Notes Payable

As of March 31, 2023 and December 31, 2022, $11.8 million and ~~$7.3~~$19.5 million, ~~for~~respectively, was outstanding under the ~~nine months ended September 30, 2017~~Company's credit agreement with MUFG Union Bank, N.A. (the Credit Agreement). The Company’s interest rate under the Credit Agreement at March 31, 2023 and ~~2016,~~December 31, 2022 was 8.5% and 7.5%, respectively.

~~3. Credit Agreement~~

On ~~March 19, 2012, we, through our wholly owned subsidiary,~~December 17, 2021, the Company entered into a ~~$147.5~~Credit Agreement with MUFG Union Bank, N.A. The Credit Agreement includes a $20 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 Aterm loan ~~that matured and~~commitment, which was fully ~~paid in March 2017, (ii)~~advanced at closing and a ~~$79.5 million Term B loan that matures in June 2018, and (iii) a $11.0~~$15 million revolving ~~credit facility~~loan commitment. Subject to certain customary exceptions, the obligations under the Credit Agreement are, or will be, guaranteed by each of the Company’s existing and future, direct or indirect, domestic subsidiaries. The obligations of the Company under the Credit Agreement are secured by liens on substantially all of the assets of the Company and each of its domestic subsidiaries that ~~expired and was fully paid in~~are guarantors under the Credit Agreement.

On March ~~2017. On June 28, 2012, we amended~~13, 2023, the Company entered into a First Amendment to the Credit Agreement (the “First Amendment”) to amend 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~~terminate the revolving loan commitment in full and to establish 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 December 31, 2024 for the ~~Term B loan to June 19, 2018.~~ term loan. As a result of ~~this extension, regularly scheduled quarterly amortization payments of $247,500 were also extended through March 31, 2018,~~the First Amendment to the Credit Agreement, the Company does not have any further borrowing capacity under the Credit Agreement. In connection with the ~~remaining~~First Amendment, the Company voluntarily prepaid $7.5 million of the outstanding principal of the term loan.

Pursuant to the Credit Agreement, after giving effect to the First Amendment described above, the Company is required to repay the aggregate outstanding principal amount ~~due on~~of the ~~June 19, 2018 maturity date. Interest on the Term B~~term 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 with ECMC Group, Inc. (the “New Credit Agreement”). The New Credit Agreement ~~provides for a term loan facility~~ in ~~the initial~~quarterly installments commencing March 31, 2022 in an amount that would result in amortization 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 Additional Term Loans may 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, we entered into Amendment No. 1 to the New Credit Agreement to extend the initial interest payment due date to December 31, 2017. Approximately $2 million of contingent reimbursement obligations with respect to outstanding but undrawn letters of credit remain outstanding under the Prior Credit Agreement, however, those contingent reimbursement obligations will remain cash collateralized with the administrative agent.

~~prepayments for excess cash flow, we will also be required to offer to prepay~~term loan principal under the ~~Loans~~Credit Agreement with the net cash proceeds ~~of certain asset dispositions and with the issuance of debt not otherwise permitted under the New Credit Agreement. Except~~received in connection with ~~a change of control~~certain specified events, including certain asset sales, casualty and ~~the payment of a 1% premium, we will not be permitted~~condemnation events (subject to ~~voluntarily prepay the Loans until after the first anniversary~~customary reinvestment rights). Any remaining outstanding principal balance of the ~~Closing Date. We will~~term loan under the Credit Agreement is repayable on the maturity date. Amounts repaid or prepaid by the Company with respect to the term loan under the Credit Agreement cannot be ~~permitted~~reborrowed.

Under the Credit Agreement, after giving effect to ~~prepay~~ the ~~Loans during~~First Amendment described above, the ~~second year after~~term loan generally may bear interest based on term SOFR (the secured overnight financing right) or an annual base rate, as applicable, plus an applicable margin based on the ~~Closing Date~~Company’s leverage ratio each quarter that may range between 2.50% per annum and 4.00% per annum, in the case of term SOFR loans and between 1.50% per annum and 3.00% per annum in the case of base rate loans. The SOFR rate was approximately 4.5% as of March 31, 2023. In addition, a commitment fee based on the unused availability if ~~accompanied by a prepayment premium~~there are outstanding revolving loan commitments is also payable which may vary from 0.30% per annum to 0.50% per annum, also based on the Company’s leverage ratio, however, the revolving commitment was terminated in connection with the First Amendment described above.

Table of ~~1%. Thereafter, we will be permitted to prepay the Loans without any prepayment premium.~~Contents

The ~~New~~ Credit Agreement contains certain ~~restrictive~~customary representations, warranties, and affirmative and negative covenants of the Company and its subsidiaries that restrict the Company’s and its subsidiaries’ ability to take certain actions, including, incurrence of indebtedness, creation of liens, making certain investments, mergers or consolidations, dispositions of assets, assignments, sales or transfers of equity in subsidiaries, repurchase or redemption of capital stock, entering into certain transactions with affiliates, or changing the nature of the Company’s business. The Credit Agreement, after giving effect to the First Amendment described above, also contains financial covenants, which ~~became effective on~~require the ~~Closing Date. Such covenants require, among other things, that we meet~~Company to maintain, as of the last day of each fiscal quarter commencing (a) as of September 30, 2023, a ~~minimum~~total leverage ratio of not greater than (i) 10.00 to 1.00, (b) as of December 31, 2023 and as of the last day of each fiscal quarter thereafter, (i) a total leverage ratio of not greater than 2.50 to 1.00, and (ii) a fixed charge coverage ratio of ~~0.5~~not less than 1.20 to ~~1.0 through~~1.00 and (c) prior to the earlier December 31, ~~2019, 1.0~~2023 and the date that the Company’s leverage ratio is not greater than 2.50 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), 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 the fifth anniversary of the Closing Date. In addition, we will be required to maintain, a maximum total debt to EBITDA ratio of 6.00 to 1.00. The New Credit Agreement also contains covenants that will restrict the Company1.00 and its ~~subsidiaries’ ability~~fixed charge coverage ratio is not less than 1.20 to ~~incur certain types or amounts~~1.00, a minimum amount of ~~indebtedness, incur liens on certain assets, make material changes~~unrestricted cash subject to a perfected security interest in ~~corporate structure or~~favor of MUFG Union Bank, N.A. more specifically set forth in 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.

Credit Agreement. The obligations under the ~~New~~ Credit Agreement ~~are secured by substantially all~~may be accelerated or the commitments terminated upon the occurrence of ~~our United States domestic subsidiaries' assets~~events of default under the Credit Agreement, which include payment defaults, defaults in the performance of affirmative and ~~are guaranteed by~~negative covenants, the ~~Company~~inaccuracy of representations or warranties, bankruptcy and ~~its United States domestic subsidiaries,~~insolvency related defaults, cross defaults to other material indebtedness, defaults arising in connection with changes in control, and other customary events of default.

Other than the ~~Borrower.~~

~~As a result~~terms relating to the First Amendment as set forth above, the terms of ~~our entry into our New~~the original Credit Agreement with MUFG Union Bank, N.A. remain in full force and ~~the repayment of all amounts owed under the Prior Credit Agreement, we wrote off~~effect.

Outstanding 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~~obligations were as follows (in thousands):


	March 31, 2023		December 31, 2022
Principal amount	$	11,750	$	19,500
Less unamortized discount and issuance costs	(541)		(333)
Notes payable, net of unamortized discount and issuance costs	11,209		19,167
Less current maturities, net of unamortized discount and issuance costs	(1,193)		(983)
Long-term notes payable, net of current maturities and unamortized discount and issuance costs	$	10,016	$	18,184

The following is a schedule, by years, of maturities of notes payable as of March 31, 2023 (in thousands):


Year Ending December 31,	Amount
Remainder of 2023	$	750
2024	11,000



Total notes payable	$	11,750

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

In consideration for, and concurrently with, the extension 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 GAAP for the most recent fiscal quarter) with an exercise price of $1.92 per share. Upon our election to borrow any of the Additional Term Loans, we will be required to issue additional warrants at the same 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 GAAP for the most recent fiscal quarter) for each $1,000,000 of such Additional Term Loans.4. Leases

The Company has accounted for this warrant as an equity instrument since the Warrant is indexed to the Company’s common shares and meets the criteria for classification in shareholders’ equity. The relative fair value of the Warrant on the date of issuance was approximately $3.3 million and is treated as a discount to the debt. This amount will be amortized to interest expense under the effective interest method over the life of the Term Loan, which is a period of 36 months. The Company estimated the value of the Warrant using the Black-Scholes model. The key assumptions used to value the Warrant are as follows:

Exercise price $ 1.92
Share price on date of issuance $ 1.85
Volatility 50.0 %
Risk-free interest rate 1.83 %
Expected dividend yield — %
Contractual term (in years) 5

In addition, at the closing of the Term Loan, the Company paid transaction costs of $0.6 million, which were recorded as a discount on the debt and will be amortized to interest expense using the effective interest method over the life of the initial Term Loan, which is a period of 36 months.

~~Outstanding debt obligations are as follows (in thousands):~~

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~~

~~We have~~ entered into various non-cancelable operating lease agreements for ~~certain of our~~ office facilities and equipment with ~~original~~ lease periods expiring between ~~2017~~2023 and ~~2022.~~2026. Certain of these arrangements have free rent periods ~~and /or~~and/or escalating rent payment ~~provisions, and we recognize~~provisions. As such, the Company recognizes rent expense under such arrangements on a straight-line ~~basis. In October 2017, we renewed our~~basis in accordance with U.S. GAAP. Some leases include options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The 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~~$0.3 million and ~~$0.7~~$0.5 million for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively,~~2022, respectively.

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

March 31,
2023

March 31,
2022

Weighted Average Remaining Lease Term (in years)

1.4

2.4

Weighted Average Discount Rate

5.2%

6.4%

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

$0.2 million

$0.6 million

The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2023 (in thousands):


Year Ending December 31,	Amount
Remainder of 2023	$	602
2024	157
2025	82
2026	3


Total undiscounted cash flows	$	844
Less imputed interest	(32)
Present value of lease liabilities	$	812

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

(a) Stock Options

Total stock-based compensation expense charged as salaries and benefits expense in the consolidated statements of operations was ~~$0.7~~$0.8 million and ~~$1.2~~$0.6 million for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively, and $3.0 million and $3.5 million for the nine months ended September 30, 2017 and 2016,~~2022 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, 2023:


	Outstanding Options	Weighted average exercise price per share		Weighted average remaining contractual life (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	250,000	$	10.31	0.90	$	20
Granted	—	—			—
Forfeited	(96,000)	13.39			—
Exercised	—	—			—
Outstanding at March 31, 2023	154,000	$	8.39	1.10	$	17
Vested, exercisable, expected to vest(1) at March 31, 2023	154,000	$	8.39	1.10	$	17
Exercisable at March 31, 2023	154,000	$	8.39	1.10	$	17

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

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


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

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. As of March 31, 2023, all options have vested and there was no unrecognized compensation costs.

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(b) Restricted Stock Units and Performance Stock Units

The following table summarizes restricted stock unit and performance stock unit activity for the ~~nine~~three months ended ~~September 30, 2017:~~

Number of Awards
Weighted
average
grant date fair value
per share
Outstanding at December 31, 2016 2,060,240
$ 2.70
Granted 1,481,252
2.41
Forfeited (371,800 ) 2.98
Expired (40,500 ) 2.57
Vested and converted to shares, net of units withheld for taxes (533,872 ) 2.73
Units withheld for taxes (209,743 ) 2.73
Outstanding at September 30, 2017 2,385,577
$ 2.46
Expected to vest at September 30, 2017 2,266,348
$ 2.46
March 31, 2023:


	Number of Awards	Weighted average grant date fair value per share
Outstanding at December 31, 2022	3,904,606	$	2.85
Granted	16,000	3.23
Forfeited	(28,898)	3.29
Vested and converted to shares, net of units withheld for taxes	—

Outstanding at March 31, 2023	3,891,708	$	2.85
Expected to vest at March 31, 2023	3,427,154	$	2.85

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~~between one toyear and four years.

As of March 31, 2023, there was approximately $7.5 million of total unrecognized compensation cost related to unvested restricted stock units granted to employees. This unrecognized compensation cost is expected to be recognized over an estimated weighted-average amortization period of approximately 2.9 years.

6. Income Taxes

~~Our~~The Company's effective income tax rate changed to ~~a negative rate of (14.4)~~(1)% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 from ~~6.9%~~(2)% for the ~~nine~~three months ended ~~September 30, 2016. The decrease in~~March 31, 2022. Similar to March 31, 2022, the primary driver of the effective income tax rate is ~~primarily due to more significant~~the 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, 2023, for which no benefit is recognized due to valuation allowance.

~~We file~~The Company files income tax returns with the U.S. federal government and various state jurisdictions. ~~We operate~~The Company operates in a number of state and local jurisdictions, most of which have never audited our records. Accordingly, ~~we are~~the Company is subject to state and local income tax examinations based upon the various statutes of limitations in each jurisdiction. For tax years before ~~2014,~~2018, the Company is ~~no longer~~ subject to ~~Federal~~examination and ~~certain other state tax examinations. We are currently being examined~~assessment to the extent of net operating losses carryback refunds requested. The Company has an ongoing federal examination by the ~~Franchise Tax Board of California~~Internal Revenue Service for the 2018 tax ~~years 2011 through 2014.~~year.

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

For the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, 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, 2023 and ~~nine months ended September 30, 2017, and the three months ended September 30, 2016, dilutive common share equivalents have been excluded, and~~2022, 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~~

Table of ~~diluted earnings per share because their effect would be anti-dilutive.~~Contents

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


	Three Months Ended March 31,
	2023	2022
Weighted average shares outstanding – basic	75,505	69,873
Dilutive effect of stock options	—	—
Weighted average shares outstanding – diluted	75,505	69,873

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Weighted average shares outstanding – basic 50,852
50,200
50,581
49,974
Dilutive effect of stock options —
—
—
427
Weighted average shares outstanding – diluted 50,852
50,200
50,581
50,401
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share, as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (shares in thousands):


	Three Months Ended March 31,
	2023	2022
Options to purchase common stock	154	1,529
RSUs	3,892	2,950
Warrants outstanding	—	2,447
Total	4,046	6,926

8. Subsequent Events

~~We have~~The Company has 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.

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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: opportunities~~our ability to generate revenue following long implementation periods associated with new customer contracts; the high level of revenue concentration among our largest customers; our client relationships and ~~expectations~~our ability to maintain such client relationships; many of our customer contracts are subject to periodic renewal, are not exclusive, do not provide for ~~growth~~committed business volumes; downturns in ~~the student lending, healthcare~~domestic or global economic conditions and other ~~markets;~~macroeconomic factors; our ability to generate sufficient cash flows to fund our ongoing operations and other liquidity needs; our ability to hire and retain employees with specialized skills that are required for our healthcare business; anticipated trends and challenges in our business and competition in the markets in which we operate; the impact of COVID-19 on our ~~client relationships~~business and ~~our ability to maintain such client relationships;~~operations, opportunities and expectations for the markets in which we operate; our ability to maintain compliance with the covenants in our debt agreements; 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~~failure of our ~~appeals reserve;~~or third parties' operating systems and technology infrastructure could disrupt our operation and the threat of breach of the Company's security measures or failure or unauthorized access to confidential data that we possess; 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.

Overview

We provide technology-enabled audit, recovery, and ~~related~~ analytics services in the United ~~States. Our~~States primarily to the healthcare industry. We work with healthcare payers through claims auditing and eligibility-based (also known as coordination-of-benefits or COB) 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 clients across different~~commercial markets. 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 defaulted student loans,~~ improper healthcare ~~payments and delinquent state tax and federal treasury and other receivables.~~payments. We ~~generally provide our services on an outsourced basis, where we handle many or all aspects of our clients’ various processes.~~also have a call center which serves clients with complex consumer engagement needs.

Our revenue model is generally success-based as we earn fees based 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.~~recover from our audits. Our services do not require ~~any~~ significant upfront investments by our clients and we offer our clients the opportunity to recover significant funds that may otherwise be 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,~~

COVID-19 Pandemic Update

We continue to face uncertainty around the breadth and duration of business disruptions related to the COVID-19 pandemic, 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 ~~model does not require significant capital expenditures~~operations that we determine are in the best interests of our employees and ~~we do not purchase loans~~clients, or ~~obligations.~~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 2023 and beyond cannot be estimated at this point.

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

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Sources of Revenues

We derive a substantial portion of our revenues from services ~~for clients in a variety of different markets. These markets include student lending and healthcare, as well as our other markets which include, but are not limited~~provided to ~~delinquent state taxes and federal Treasury and other receivables.~~

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~~

We derive the majority of our revenues from the recovery of student loans. These 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, or GAs. In addition, we have a long history of also providing recovery services to the Department of Education. However, in December 2016, the Department of Education awarded contracts for student loan recovery services to seven contractors and 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~~healthcare market. We also derive revenues ~~associated with~~from our outsourced call center services.


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Eligibility-based	$	12,480	$	14,215
Claims-based	10,412		9,149
Healthcare Total	22,892		23,364
Recovery (1)	19		118
Customer Care / Outsourced Services	2,818		3,601
Total Revenues	$	25,729	$	27,083

(1)Represents revenues derived from 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~~tax 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 student loan services for three additional 30-day periods. In September 2017, we entered into a contract with Navient, who is now servicing the Great Lakes portfolio, to act as a recovery subcontractor for Navient. Under this arrangement, we expect to start recovery services for approximately 25% of the Great Lakes portfolio, and we believe we will have the opportunity to increase this percentage based on our performance. This contract also provides us with the right to service a small portion of an additional portfolio managed by Navient. This contract has no set term, and Navient has the right to terminate the contract at will.

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.~~markets.

Healthcare Revenues

We derive revenues from ~~the healthcare market from our commercial healthcare contracts and our RAC contracts. For clients in~~ both commercial and government clients by providing healthcare ~~markets, we are responsible for identifying incorrectly paid claims through both complex~~payment integrity services, which include claims-based 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.~~eligibility-based services. Revenues earned under claims-based contracts in the healthcare ~~contracts~~market are driven by ~~the identification of~~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 or COB, 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 ~~we identify that are~~ recovered byas a result of our ~~clients. We currently recognize revenue when the provider pays our client or incurs an offset against future claims.~~efforts. The revenues we recognize are net of our estimate of claims that ~~we believe~~ may be overturned by appeal or disputed following payment by the provider.

OnFor 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 $22.9 million for the three months ended March 31, 2023 compared to revenues of $23.4 million from our healthcare services during for the three months ended March 31, 2022.

In October 5, 2017, ~~we announced that~~ we were awarded the national exclusive Medicare Secondary Payer, Commercial ~~Repayment~~Payment Center ~~(CRC)~~(MSP) contract by the ~~Centers~~centers for Medicare and ~~Medicaid.~~ Medicaid Services (CMS). In December 2022, we were re-awarded this MSP contract, which commenced in March 2023. This contract has a six-year term, consisting of one base year and five additional one-year options.

Under this ~~agreement,~~MSP contract, we are responsible for coordination-of-benefits claims, 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.

~~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,~~In 2016, CMS awarded two new ~~RAC~~Medicare Recovery Audit Contractor (RAC) contracts ~~and we received RAC contracts~~to us, 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~~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. While~~on a nation-wide basis.

In March 2021, CMS re-awarded the Region 1 RAC contract to us after a competitive procurement process. This contract has an eight-and-a-half year term.

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In January 2022, we were awarded the indefinite delivery, indefinite quantity contract by the U.S. Department of Health and Human Services, Office of the Inspector General (HHS OIG), which has a base term of one year and four additional one-year options, the first of which has been exercised. Under this contract, we provide medical review and consultative services associated with the oversight activities of the HHS OIG, primarily assessing services and claims for Medicare fee-for-service payments for Part A and Part B. This contract was awarded via a full-and-open competitive procurement.

In November 2022, we were re-awarded the Medicare RAC contract for Region 2. This contract allows us to audit payments under Medicare’s Part A and ~~recovery activity under~~Part B for all provider types other than DMEPOS and home health and hospice within a 14 state region in the ~~new contracts commenced in April 2017, there is uncertainty regarding~~Midwest and South. This contract was initially awarded to us through a procurement process on March 24, 2022, and following a voluntary corrective action process that was initiated by CMS, the agency re-affirmed its initial contract award. This contract has an initial eight-and-a-half year term.

Recently, we have expanded the scope of ~~audit~~services that we provide to our healthcare clients, and we continue to implement new programs for existing and new healthcare clients. We believe this growth trend should continue as our suite of payment integrity services and our customer relationships continue to mature. We currently anticipate that our healthcare revenues will ~~be permitted by CMS under~~drive the ~~new RAC contracts. In connection with the wind down~~majority of our overall revenue growth.

Recovery Revenues

During 2021, we sold certain of our non-healthcare recovery contracts and decided not to renew or restart existing contracts in the recovery market, nor pursue new non-healthcare recovery contracts. Accordingly, revenues from recovery markets such as defaulted student loans and tax receivables were minimal.

Customer Care / Outsourced Services Revenues

We derive our revenues from first ~~RAC contract, CMS adopted a series of contract transition procedures~~party call center 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 audit 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.

~~Other~~

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.services. Our revenues for these services include contingency fees, fees based on dedicated headcount toand tasks completed on behalf of our ~~clients and hosted technology licensing fees.~~clients.

Costs and Expenses

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~~

Table of ~~Placement Volume~~Contents

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 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. Due to the upfront costs we incur in connection with the implementation of new contracts, which may not be recoverable in the event of contract termination, and the delays we face in recognizing initial revenue from any such new contracts, our profitability can be negatively impacted by any delays associated with new contract implementations. Our clients may also experience delays in obtaining approvals or managing protests from unsuccessful bidders or delays associated with system implementations, as we had experienced before with certain clients. 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 need to scale back our operations or alter our business plans, either of which could have ~~the right~~a negative effect on future revenues that we may earn under any such new client or new contract engagements.

Claims Recovery Volume

The number of claims that we are allowed or permitted to audit on behalf of our healthcare clients within our claims-based services has a direct impact on our revenues. Most of our contracts in our claims-based services permit our clients to unilaterally ~~set and increase or reduce~~change the ~~volume~~amount of ~~defaulted student loans or other receivables~~claims that we ~~service~~are able to audit on the client’s behalf at any given time. ~~In addition, many~~Further, the type and scale of claims which are deemed permissible for us to audit by certain of our ~~recovery contracts for student loans and other receivables~~healthcare clients may change from time-to-time. Non-permissible claims may result from client product lines which are ~~not exclusive, with~~determined by our clients ~~retaining multiple service~~to be out of scope of our audit services, claims related to excluded providers ~~to service portions of their portfolios. Accordingly, the number of delinquent student loans~~or excluded provider groups, changes in policy, or other ~~receivables that are placed~~factors such as geographies disrupted by natural disasters or a global pandemic like the COVID-19 pandemic. For example, the COVID-19 pandemic has had a negative impact on overall hospital utilization rates in the United States. This negative impact on overall hospital utilization rates has caused delays with ~~us may vary from time to time,~~the healthcare industry as a whole, which ~~may have~~in turn has had a ~~significant effect~~negative impact on our healthcare business.

The level of claims volume provided by our healthcare clients also impacts the ~~amount and timing of our revenues. We believe the major factors that influence the number of placements~~revenues we ~~receive~~earn 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.~~eligibility-based services. To the extent the claim recovery volume that we ~~perform well under our existing contracts and differentiate our services from those~~are allowed or permitted to audit on behalf 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~~healthcare clients ~~and other potential clients. Further, delays in placement volume, as well as acceleration of placement volume, from~~is negatively impacted by any of ~~our large clients may cause~~the factors set forth above, our revenues and ~~operating~~ results ~~to vary from quarter to quarter.~~

~~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.operations will be adversely impacted.

Contingency Fees

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 theChanges in contingency fee ~~rate that we receive for rehabilitating student loans~~percentages set by ~~approximately 13% effective March 1, 2013.~~

~~Further, the Department~~our clients may have a material effect on our revenues and results 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.operations.

Regulatory Matters

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 audit 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, ~~the passage~~in March 2020, CMS paused medical review activities under our two RAC contracts as a result of the ~~Student Aid and Fiscal Responsibility Act, or SAFRA,~~COVID-19 pandemic, which were later resumed in 2010 had the effect of transferring the origination of all government-supported student loans to 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 for which we are no longer a contractor (subject to resolution of our recently upheld protest). August 2020.

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.

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Client ~~Retention~~Contract Cancellation or Non-Renewal

Our revenues from the student loan market depend on our ability to maintain 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%We derive a substantial portion of our revenues ~~and they collectively accounted for 55%~~from contracts with a limited number of our ~~total revenues in each year. Our contract with the Department of Education, which generated 16%~~largest clients. Substantially all 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,contracts (i) entitle 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~~penalty and (ii) are subject to competitive procurement or renewal processes from time to time. Our revenues could decline if we lose one ~~of our other significant clients, including if one~~or more of our significant clients, ~~is consolidated by~~either due to a contract cancellation or our inability to be awarded a new contract in connection with a competitive renewal process. Further, our revenues could be negatively impacted if one or more of our significant clients decides to limit the amount of claims that we are allowed to audit or reduces the level of placements provided under an ~~entity that does not use our services,~~existing contract, or if the terms of compensation for our services change under any existing contracts, or if ~~there is a reduction in the level of placements provided by~~ any of ~~these~~our significant clients is acquired by an entity that does not wish to continue use 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.services.

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.

Revenue Recognition

~~The majority~~We derive our revenues primarily from providing audit, recovery, and analytics services. Revenues are recognized upon completion of these services for our customers, in an amount that reflects the consideration we 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 audit and recovery 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.

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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.

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.

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.

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

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in cash used in operating activities in the consolidated statements of cash flows. The Company determines the allowance for doubtful accounts by specific identification. Account balances are charged off against the allowance after all means of collection have been ~~satisfied. Under~~exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was $0 as of March 31, 2023 and December 31, 2022.

Contract assets totaled $9.0 million and $11.5 million as of March 31, 2023 and December 31, 2022, respectively. Contract assets relate to our ~~RAC contracts with CMS,~~right to consideration for services completed but not invoiced at the reporting date, and receipt of payment is conditional upon factors other than the passage of time. Contract assets primarily consist of commissions that we ~~recognize revenues~~estimate we have earned from completed claims audit findings submitted to healthcare clients. The increase in contract assets resulted from additional consideration earned for services provided to our healthcare clients, offset by invoiced amounts.

Contract assets are recorded to accounts receivable when our right to payment becomes unconditional, which is generally when healthcare providers or payers have paid our clients. There was no impairment loss related to contract assets for the ~~healthcare provider has paid CMS for~~three months ended March 31, 2023 and 2022.

Contract liabilities totaled $0.0 million and $0.4 million as of March 31, 2023 and December 31, 2022, respectively. Our contract liabilities related to certain reimbursable costs due to a ~~claim or has agreed to an offset against other claims by the provider.~~ client.

Healthcare providers of our clients have the right to appeal ~~a claim~~claims audit findings and may pursue additional ~~level of~~ appeals if the initial appeal is found in favor of ~~CMS. We accrue an~~healthcare clients. For coordination-of-benefits contracts, insurance companies or other responsible parties may dispute our 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 our estimate of the amount of revenue probable of being returned to CMS following successful appeal based on historical data~~ and other trends relating to such appeals. In addition, if our estimate of liability for appeals with respect to revenues recognized during a prior period changes, we increase or decrease the estimated liability for appeals in the current period.

This estimated liability for appeals is an offset to revenues on our income statement. Resolution of appeals can take a very long time to resolve and there is a significant backlog in the system for resolving appeals, as over the course of our existing RAC contract, healthcare providers have increased their pursuit of appeals beyond the first and second levels of appeal to the third level of appeal, where cases are heard by administrative law judges, or ALJs. In our experience, decisions at the third level of appeal are the least favorable as ALJs exercise greater discretion and there is less predictability in the ALJ decisions as compared to appeals at the first or second levels. This increase of ALJ appeals and backlog of claims at the third level of appeal is the primary reason our total estimated liability for appeals (consisting of the estimated liability for appeals plus the contra-accounts-receivable estimated allowance for appeals) has remained at a consistent level despite decreasing revenue from CMS. The balance of the estimated liability for appeals remained at $18.8disputes was $0.9 million as of ~~September 30, 2017 primarily due to the relatively slow pace of the decisions at the ALJ level. In addition to the $18.8~~March 31, 2023 and $1.1 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 is therefore $19.1 million at September 30, 2017.

~~The $19.1 million balance~~ as of ~~September 30, 2017,~~December 31, 2022. This represents our best estimate of the amount probable ~~amount~~ of ~~losses related~~being refunded to ~~appeals~~our healthcare clients.

As of ~~claims for which commissions were previously collected. We estimate that it is reasonably possible that~~March 31, 2023, we ~~could be required~~had capitalized costs to pay up to an additional approximately $5.4 million as a result of potentially successful appeals. To the extent that required payments by us related to successful appeals exceed the amount accrued, revenues in the applicable period would be reduced by the amount of the excess.

~~In May 2014, the Financial Accounting Standards Board (“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 on or after December 15, 2017, including interim periods within that reporting period, with the option to early adopt the standard for annual periods beginning on or after December 15, 2016.

We are currently in the process of finalizing our assessment of the impact from the adoption of this guidance on our consolidated financial statements. As part of this process, we are considering our major revenue streams and evaluating our significant contracts therein for potential changes in the amounts and timing of revenue recognition under the new guidance. Based on the work performed to date, we have determined that the following areas are of primary focus: consideration of termination rights and resulting impact on the duration offulfill a contract ~~applicability~~ of ~~treatment as variable consideration for refund rights~~$0.2 million in prepaid expenses and ~~certain incentive payments, including the impact~~other current assets. Amortization of ~~constraints, applicability of the variable~~

consideration allocation exception to allocate purchase consideration to performance obligations considered to be a series, and ability to use the ‘right to invoice’ practical expedient for measuring satisfaction of performance obligations within certain contracts. We are also in the process of finalizing our evaluation of our various commission and bonus programs to identify costs that may be subject to potential deferral and amortization assuch capitalized costs to obtain a contract. In addition, we are evaluating the disclosure requirements of the new guidance, subject to the above determinations on areas most likely to be impacted by our adoption. We expect to have our evaluation, including the selection of an adoption method, completed by the end of 2017. We will adopt the new revenue recognition guidance in the first quarter of 2018.

~~Goodwill~~

We periodically review the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether an impairment may exist. GAAP requires that goodwill and certain intangible assets not subject to amortization be assessed annually for impairment using fair value measurement techniques.

We assess goodwill for impairment on an annual basis as of November 30 of each year or more frequently if an event occurs or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. We have the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If we can support the conclusion that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then we would not need to perform the two-step impairment test. If we cannot support such a conclusion, or we do not elect to perform the qualitative assessment, then the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. We performed a qualitative assessment of whether it is more likely than not that the reporting unit fair value is less than its carrying amount as of June 30, 2017, and concluded that based on our decision to wind down the activity of Performant Europe Ltd., the fair value is more likely than not less than its carrying amount. Accordingly, the goodwill balancefulfill was immaterial for the healthcare audit acquisition was $0.9 million, and we recognized a goodwill impairment loss of this amount as of June 30, 2017. Based on our qualitative analysis, there was no need to perform an additional impairment test. We performed a qualitative assessment of whether it is more likely than not that the reporting unit fair value is less than its carrying amount as of September 30, 2017, and concluded that there was no need to perform an impairment test.

~~Impairments of Depreciable Intangible Assets~~

The balance of depreciable intangible assets was $5.1 million as of September 30, 2017. We evaluate depreciable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Depreciable intangible assets consist of client contracts and related relationships, and are being amortized over their estimated useful life, which is generally 20 years. We evaluate the client contracts intangible at the individual contract level. The recoverability of such assets 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 the assets are considered to be impaired, the 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 ninethree months ended September 30, 2017, an impairment expense of $0.1 million was recognized to account for the impairment charge in Performant Europe Ltd. due to the Company's decision to wind down this subsidiary, and has been included in other operating expenses in the consolidated statements of operations. For the year ended DecemberMarch 31, 2016, an impairment expense of $15.4 million was recognized relating to the Department of Education customer relationship and was presented as a separate caption in the consolidated statements of operations.2023.

Recent Accounting Pronouncements

See ~~"Recent~~"New Accounting Pronouncements" in Note ~~1(g)~~1(f) of the Consolidated Financial Statements included in Part I - Item 1 of this report.

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Results of Operations

Three Months Ended ~~September 30, 2017~~March 31, 2023 compared to the Three Months Ended ~~September 30, 2016~~March 31, 2022

The following table represents our historical operating results for the periods presented:


	Three Months Ended September 30,												Three Months Ended March 31,
	2017			2016			$ Change			% Change			2023		2022		$ Change		% Change
	(in thousands)												(in thousands)
Consolidated Statement of Operations Data:												Consolidated Statement of Operations Data:
Revenues	$	29,744		$	31,195		$	(1,451	)	(5	)%	Revenues	$	25,729	$	27,083	$	(1,354)	(5)	%
Operating expenses:												Operating expenses:
Salaries and benefits	20,494			18,710			1,784			10	%	Salaries and benefits	22,449		20,439		2,010		10	%
Other operating expenses	13,496			12,311			1,185			10	%	Other operating expenses	7,069		8,131		(1,062)		(13)	%

Total operating expenses	33,990			31,021			2,969			10	%	Total operating expenses	29,518		28,570		948		3	%
Income (loss) from operations	(4,246		)	174			(4,420		)	(2,540	)%	Income (loss) from operations	(3,789)		(1,487)		(2,302)		(155)	%
Gain on sale of certain recovery contracts												Gain on sale of certain recovery contracts	3		—		3		100	%

Interest expense	(2,459		)	(1,863		)	596			32	%	Interest expense	(414)		(155)		(259)		(167)	%
Loss before provision for (benefit from) income taxes	(6,705		)	(1,689		)	5,016			297	%
Provision for (benefit from) income taxes	1,146			(974		)	2,120			218	%

Loss before provision for income taxes												Loss before provision for income taxes	(4,200)		(1,642)		(2,558)		156	%
Provision for income taxes												Provision for income taxes	21		31		10		32	%
Net loss	$	(7,851	)	$	(715	)	$	7,136		998	%	Net loss	$	(4,221)	$	(1,673)	$	(2,548)	(152)	%

Revenues

~~Revenues~~Total revenues were ~~$29.7~~$25.7 millionfor the three months ended ~~September 30, 2017,~~March 31, 2023, a decrease of approximately $1.4 million, or 5%, compared to total revenues of ~~$31.2~~$27.1 million for the three months ended ~~September 30, 2016.~~March 31, 2022.

~~Student lending~~Healthcare revenues were ~~$19.8~~$22.9 million for the three months ended ~~September 30, 2017,~~March 31, 2023, representing a decrease of ~~$4.0~~$0.5 million, or ~~17%~~2%, compared to the three months ended ~~September 30, 2016. The decrease was primarily a result of the reduction of revenues~~March 31, 2022. Revenues from ~~the Department of Education as we have not received new placements of student loans from the Department of Education since our contact expired in April 2015.~~

~~Healthcare revenues were $2.6 millionfor~~eligibility-based services during the three months ended ~~September 30, 2017,~~March 31, 2023 were $12.5 million, or 12% lower than the three months ended March 31, 2022. Revenues from claims-based services during the three months ended March 31, 2023 were $10.4 million, or 14% higher than the three months ended March 31, 2022. The overall decrease in healthcare revenues was primarily attributable to a decrease in the volume of claims within our eligibility-based services during the quarter, partially offset by growth from our claims-based and eligibility-based services from our implemented statements of work as well as new program implementations.

Customer Care / Outsourced Services revenues were approximately $2.8 million, representing a decrease of ~~$0.4~~$0.8 million, or ~~13%~~22%, compared to the three months ended ~~September 30, 2016. This decrease~~March 31, 2022. The change was due ~~primarily~~ to ~~the wind down of~~a decrease in demand for our ~~first RAC contract and that we have not yet recognized significant revenues under our new RAC contracts.~~outsourced services.

Salaries and Benefits

Salaries and benefits expense was ~~$20.5~~$22.4 million for the three months ended ~~September 30, 2017,~~March 31, 2023, an increase of ~~$1.8~~$2.0 million, or 10%, compared to salaries and benefits expense of ~~$18.7~~$20.4 million for the three months ended ~~September 30, 2016.~~March 31, 2022. The increase in salaries and benefits expense was primarily ~~due~~driven by an increase in both salaries and headcount related to ~~increased headcount.~~continued expansion in our healthcare business during the period.

Other Operating Expenses

Other operating expenses were ~~$13.5~~$7.1 million for the three months ended ~~September 30, 2017, an increase of $1.2 million, or 10%,~~March 31, 2023, compared to ~~other operating expenses of $12.3~~$8.1 million for the three months ended ~~September 30, 2016. The increase~~March 31, 2022. This decrease in other operating expenses was primarily due to ~~higher third party collection fees.~~a decrease of certain reimbursable costs due to a client, lower communication and postage expenses, and a decrease in lease expenses.

~~Income (loss)~~

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Loss from Operations

~~Loss~~As a result of the factors described above, loss from operations was ~~$4.2~~$3.8 million for the three months ended ~~September 30, 2017,~~March 31, 2023, compared to ~~income~~loss from operations of $1.5 million for the three months ended March 31, 2022. This increase of $2.3 million in loss from operations during the three months ended March 31, 2023 was driven primarily by a decrease in total revenues, and an increase in total operating expenses due primarily to the increase in salaries and benefits during the period, partially offset by a decrease in other operating expenses.

Interest Expense

Interest expense was $0.4 million during the three months ended March 31, 2023, compared to $0.2 million for the three months ended ~~September 30, 2016,~~March 31, 2022, representing an increase of approximately $0.2 million. This increase in interest expense is primarily due to a ~~decrease of $4.4 million or 2,540%. The decrease was primarily the result of lower revenues and increased salaries and benefits and other operating expenses.~~

~~Interest Expense~~

~~Interest expense was $2.5 million for~~higher interest rate during the three months ended September 30, 2017, compared to $1.9 million for the three months ended September 30, 2016. Interest expense increased by approximately $0.6 million or 32% due to a $1.0 million write-off of our unamortized debt issuance costs under our Prior Credit Agreement.March 31, 2023.

Income Taxes

We recognized an income tax expense of ~~$1.1 million~~$21 thousand for the three months ended ~~September 30, 2017,~~March 31, 2023, compared to an income tax ~~benefit~~expense of ~~$1.0 million~~$31 thousand for the three months ended ~~September 30, 2016.~~March 31, 2022. Our effective income tax rate ~~decreased to a negative rate of (17.1)~~was (1)% and (2)% for the three months ended ~~September 30, 2017, from 57.7% for~~March 31, 2023 and 2022, respectively. Similar to the three months ended ~~September 30, 2016. The decrease in~~March 31, 2022, the primary driver of our effective income tax rate is ~~primarily due to more significant~~the overall losses ~~from operations generated in the three months ended September 30, 2017 for which no tax benefit is recognized compared to the income tax benefit recorded on the loss~~ from operations for the three months ended ~~September 30, 2016.~~March 31, 2023 for which no benefit is recognized due to recognition of a full valuation allowance.

Net Loss

As a result of the factors described above, net loss was ~~$7.9~~$4.2 million for the three months ended ~~September 30, 2017,~~March 31, 2023, which represented an increase in net loss of ~~$7.1~~approximately $2.5 million, or ~~998%~~152%, compared to net loss of ~~$0.7~~$1.7 million for the three months ended ~~September 30, 2016.~~March 31, 2022.

~~Nine Months Ended September 30, 2017 compared to the Nine Months Ended September 30, 2016~~

~~The following table represents our historical operating results for the periods presented:~~

Nine Months Ended September 30,
2017 2016 $ Change % Change
(in thousands)
Consolidated Statement of Operations Data:
Revenues $ 98,760
$ 107,548
$ (8,788 ) (8 )%
Operating expenses:
       Salaries and benefits 61,640
60,107
1,533
3 %
       Other operating expenses 43,019
40,401
2,618
6 %
Total operating expenses 104,659
100,508
4,151
4 %
Income (loss) from operations (5,899 ) 7,040
(12,939 ) (184 )%
       Interest expense (5,683 ) (6,136 ) (453 ) (7 )%
Income (loss) before provision for (benefit from) income taxes (11,582 ) 904
(12,486 ) (1,381 )%
       Provision for income taxes 1,668
62
1,606
2,590 %
Net income (loss) $ (13,250 ) $ 842
$ (14,092 ) (1,674 )%

~~Revenues~~

~~Revenues were $98.8 million for the nine months ended September 30, 2017, a decrease~~Table of ~~approximately 8%, compared to revenues of $107.5 million for the nine months ended September 30, 2016.~~Contents

Student lending revenues were $71.8 million for the nine months ended September 30, 2017, representing a decrease of $10.4 million, or 13%, compared to the nine months ended September 30, 2016. The decrease was primarily a result of the reduction of revenues from the Department of Education due to the lack of placements of new student loans from the Department of Education since our contract expired in April 2015, which was partially offset by an increase in the number of borrowers that are participating in the rehabilitation programs with our Guaranty Agency clients.

Healthcare revenues were $6.4 million for the nine months ended September 30, 2017, representing a decrease of $2.7 million, or 30%, compared to the nine months ended September 30, 2016. This decrease was due primarily to the CMS RAC

~~contract transition, partially offset by an approximately $1.5 million increase in revenues from commercial healthcare customers.~~

~~Salaries and Benefits~~

Salaries and benefits expense was $61.6 million for the nine months ended September 30, 2017, an increase of $1.5 million, or 3%, compared to salaries and benefits expense of $60.1 million for the nine months ended September 30, 2016. This increase in salaries and benefits expense was primarily due to increased headcount.

~~Other Operating Expenses~~

Other operating expenses were $43.0 million for the nine months ended September 30, 2017, an increase of $2.6 million, or 6%, compared to other operating expenses of $40.4 million for the nine months ended September 30, 2016. The increase in other operating expenses was primarily due to higher outside services consulting expenses and third party collection fees, which was offset by lower amortization related to a $15.4 million Department of Education customer relationship intangible impairment charge in 2016.

~~Income (Loss) from Operations~~

Loss from operations was $5.9 million for the nine months ended September 30, 2017, compared to income from operations of $7.0 million for the nine months ended September 30, 2016, representing a decrease of $12.9 million which was primarily due to the reduction in revenues as discussed above.

~~Interest Expense~~

Interest expense was $5.7 million for the nine months ended September 30, 2017, compared to $6.1 million for the nine months ended September 30, 2016. Interest expense decreased $0.5 million due to repayments of principal under our previous credit agreement, resulting in a lower outstanding balance.

~~Income Taxes~~

We recognized an income tax expense of $1.7 million for the nine months ended September 30, 2017, compared to an income tax expense of $0.1 million for the nine months ended September 30, 2016. Our effective income tax decreased to a negative rate of (14.4)% for the nine months ended September 30, 2017, from 6.9% for the nine months ended September 30, 2016. The decrease in the effective tax rate is primarily due to more significant 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 months ended September 30, 2016.

~~Net Income (Loss)~~

As a result of the factors described above, net loss was $13.3 million for the nine months ended September 30, 2017, which represented a decrease of $14.1 million, or 1,674% compared to net income of $0.8 million for the nine months ended September 30, 2016.

Adjusted EBITDA and Adjusted Net Income

To provide investors with additional information regarding our financial results, we have disclosed in the table below adjusted EBITDA and adjusted net income, both of which are ~~non-GAAP~~non-U.S. GAAP financial measures. We have provided a reconciliation below of adjusted EBITDA to net income and adjusted net income to net income, the most directly comparable U.S. GAAP financial measure to these ~~non-GAAP~~non-U.S. GAAP financial measures.

We have included adjusted EBITDA and adjusted net income in this report because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends and to prepare and approve our annual budget. Accordingly, we believe that adjusted EBITDA and adjusted net income provide useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and board of directors.

Our use of adjusted EBITDA and adjusted net income has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

•adjusted EBITDA does not reflect interest expense on our indebtedness;

•adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•adjusted EBITDA does not reflect tax payments;

•adjusted EBITDA and adjusted net income do not reflect the potentially dilutive impact of equity-based compensation;

•adjusted EBITDA and adjusted net income do not reflect the impact of certain non-operating expenses resulting from matters we do not consider to be indicative of our core operating performance; and

•other companies may calculate adjusted EBITDA and adjusted net income differently than we do, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA and adjusted net income alongside other financial performance measures, including net income and our other U.S. GAAP results. The following tables present a reconciliation of adjusted EBITDA and adjusted net income for each of the periods indicated:

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Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(in thousands) (in thousands)
Adjusted EBITDA:
Net income (loss) $ (7,851 ) $ (715 ) $ (13,250 ) $ 842
Provision for (benefit from) income taxes 1,146
(974 ) 1,668
62
Interest expense 2,459
1,863
5,683
6,136
Transaction expenses ⁽¹⁾
132
—
576
—
Restructuring and other expenses ⁽⁵⁾
—
26
—
309
Depreciation and amortization 2,713
3,292
8,381
10,098
Impairment of goodwill and customer relationship ⁽³⁾
—
—
1,081
—
Stock-based compensation 737
1,206
3,027
3,546
Adjusted EBITDA $ (664 ) $ 4,698
$ 7,166
$ 20,993

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(in thousands) (in thousands)
Adjusted Net Income (Loss):
Net income (loss) $ (7,851 ) $ (715 ) $ (13,250 ) $ 842
Transaction expenses ⁽¹⁾
132
—
576
—
Stock-based compensation 737
1,206
3,027
3,546
Amortization of intangibles ⁽²⁾
203
931
691
2,800
Impairment of goodwill and customer relationship ⁽³⁾
—
—
1,081
—
Deferred financing amortization costs ⁽⁴⁾
1,343
324
2,039
1,342
Restructuring and other expenses ⁽⁵⁾
—
26
—
309
Tax adjustments ⁽⁶⁾
(966 ) (995 ) (2,966 ) (3,199 )
Adjusted Net Income (Loss) $ (6,402 ) $ 777
$ (8,802 ) $ 5,640


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Adjusted EBITDA:
Net income (loss)	$	(4,221)	$	(1,673)
Provision for income taxes	21		31
Interest expense (1)	414		155

Stock-based compensation	798		558
Depreciation and amortization	1,247		1,102



Severance expenses (3)	63		142
Other (4)	(1)		$	4



Adjusted EBITDA	$	(1,679)	$	319


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Adjusted Net Income (Loss):
Net income (loss)	$	(4,221)	$	(1,673)
Stock-based compensation	798		558

Amortization of debt issuance costs (2)	35		24



Severance expenses (3)	63		142
Other (4)	(1)		$	4



Tax adjustments (5)	(246)		(200)
Adjusted net income (loss)	$	(3,572)	$	(1,145)


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Adjusted Net Income (Loss) Per Diluted Share:
Net income (loss)	$	(4,221)	$	(1,673)
Plus: Adjustment items per reconciliation of adjusted net income (loss)	649		528
Adjusted net income (loss)	$	(3,572)	$	(1,145)
Adjusted net income (loss) per diluted share	$	(0.05)	$	(0.02)
Diluted average shares outstanding	75,505		69,873


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


~~(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%.~~

(1)Represents interest expense and amortization of debt issuance costs related to our Credit Agreement.

(2)Represents amortization of debt issuance costs related to our Credit Agreement.

(3)Represents severance expenses incurred in connection with a reduction in force for our non-healthcare recovery services.

(4)Represents professional fees related to strategic corporate development activities and gain on sale of certain non-healthcare recovery contracts in prior years.

(5)Represents tax adjustments assuming a marginal tax rate of 27.5% at full profitability.

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Liquidity and Capital Resources

Our primary ~~source~~sources of liquidity ~~is cash on hand and~~are cash flows from ~~operations.~~operations, and cash and cash equivalents on hand. Cash and cash equivalents, ~~totaled $23.2 million as of September 30, 2017,~~which includes restricted cash and consists primarily of cash on deposit with ~~banks. Due~~banks, totaled $12.4 million as of March 31, 2023 compared to our operating cash flows and our existing cash and cash equivalents and our ability to restructure both our variable and fixed expenses, we believe that we have the ability to meet our working capital and capital expenditure needs for the foreseeable future.

$23.5 million as of December 31, 2022. The ~~$9.8~~$11.1 million decrease in the balance of our cash and cash equivalents from December 31, ~~2016,~~2022 to March 31, 2023, was primarily due to $8.0 million used in financing activities, $2.1 million used in operating activities, and $0.9 million used in investing activities. The $8.0 million in cash used in financing activities was primarily the result of $7.5 million in prepayment of outstanding principal ~~repayments~~in connection with an amendment to our Credit Agreement.

On December 17, 2021, we entered into the Credit Agreement with MUFG Union Bank, N.A. The Credit Agreement originally included a $20 million term loan commitment, which was fully advanced at closing, and a $15 million revolving loan commitment, which was undrawn as of ~~$55.5~~March 31, 2023. On March 13, 2023, we entered into a First Amendment to the Credit Agreement to amend the Credit Agreement to, among other things, terminate the revolving loan commitment in full and to establish a new maturity date of December 31, 2024 for the term loan. In connection with the First Amendment to the Credit Agreement, we voluntarily prepaid $7.5 million of the outstanding principal of the term loan.

Our Credit Agreement contains, and any agreements to refinance our debt likely will contain, certain financial covenants, including the maintenance of minimum fixed charge coverage ratio and total debt to EBITDA ratio, as well as restrictive covenants that require us to limit our ability to incur additional debt, including to finance future operations or other capital needs, and to engage in other activities that we may believe are in our long-term ~~debt offset by new debt~~best interests, including to dispose of ~~$44.0 million.~~or acquire assets. We are in compliance with our covenants under the Credit Agreement. However, conditions may change for a variety of reasons in the future that may affect our ability to maintain compliance with our financial or restrictive covenants. Our failure to comply with these financial covenants or the restrictive covenants may result in an event of default, which, if not cured or waived, could accelerate the maturity of our indebtedness or result in modifications to our credit terms.

Cash flows from operating activities

Cash ~~provided by~~used in operating activities was ~~$0.8~~$2.1 million for the ~~nine~~three months ended ~~September 30, 2017, and included an increase~~March 31, 2023, primarily as a result of the net loss, a decrease in accrued salaries and benefits, ~~of $1.3 million.~~offset by a decrease in contract assets during the period. Cash ~~provided by~~used in operating activities inwas $4.7 million for the ~~nine~~three months ended ~~September 30, 2016 was $20.5 million.~~March 31, 2022, primarily as a result of changes in accrued salaries and benefits and contract liabilities and other current liabilities during the period.

Cash flows from investing activities

Cash used in investing activities of ~~$5.4~~$0.9 million for the ~~nine~~three months ended ~~September 30, 2017 was mainly for~~March 31, 2023 primarily related to capital expenditures ~~related to~~for information technology, data storage, hardware, telecommunication systems and security enhancements to our information technology systems. Cash used in investing activities infor the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2022 was ~~$5.5 million.~~$0.7 million, which was used primarily for similar cash expenditure purposes as set forth above.

Cash flows from financing activities

Cash used in financing activities of ~~$5.2~~$8.0 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 was primarily attributable to repayments of ~~principal~~notes payable during the period. Cash provided by financing activities for the three months ended March 31, 2022 was $5.4 million, primarily attributable to $5.6 million in proceeds from the exercise of ~~$55.5 million on long-term debt under our Prior Credit Agreement, which was~~warrants by ECMC, offset by ~~a $44.0 million increase in borrowings from notes payable under our New Credit Agreement and $7.5~~$0.1 million in repayments of ~~principal from restricted cash. Cash used in financing activities in the nine months ended September 30, 2016 was $37.9 million.~~notes payable.

Restricted Cash

~~On August 3, 2017, $6.0 million~~As of March 31, 2023, restricted cash included in current assets on our consolidated balance sheet was ~~paid~~$0.1 million.

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Notes Payable

On December 17, 2021, we entered into the Credit Agreement with MUFG Union Bank, N.A. The Credit Agreement originally included a $20 million term loan commitment, which was fully advanced at closing and a $15 million revolving loan commitment. Subject to certain customary exceptions, the ~~administrative agent for~~obligations under the ~~benefit~~Credit Agreement are, or will be, guaranteed by each of ~~the lenders~~our existing and future, direct or indirect, domestic subsidiaries that are guarantors under ~~our Prior~~the Credit Agreement. ~~As of September 30, 2017, we had $0.0 million in restricted cash.~~

~~Estimated liability for appeals and net payable to client~~

The September 30, 2017 balances of $19.1 million and $12.7 million for the estimated liability for appeals and the net payable to client, respectively, represent obligations that we expect to pay in the near term, although it is difficult to predict the precise timing of the associated cash outflows as they are dependent on the processing and resolution of audit appeals.

~~Long-term Debt~~

On March ~~19, 2012,~~13, 2023, 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 amendedFirst Amendment to the Credit Agreement to ~~increase~~amend 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~~terminate the revolving loan commitment in full and to establish 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 December 31, 2024 for the ~~Term B loan to June 19, 2018.~~term loan. As a result of ~~this extension, regularly scheduled quarterly amortization payments~~the First Amendment to the Credit Agreement, we do not have any further borrowing capacity under the Credit Agreement.

As of ~~$247,500 were also extended through~~ March 31, ~~2018,~~2023, $11.8 million was outstanding under the Credit Agreement. The Company’s annual interest rate at March 31, 2023 was 8.5%. In connection with the ~~remaining~~First Amendment described above, we voluntarily prepaid $7.5 million of the outstanding principal of the term loan.

Pursuant to the Credit Agreement, after giving effect to the First Amendment described above, we are required to repay the aggregate outstanding principal amount ~~being due on~~of the ~~June 19, 2018 maturity date. Interest on the Term B~~term loan ~~charged~~ under the credit agreement was also increased by 3.00% per annum, however the amount of such increased interest will be 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 with ECMC Group, Inc. (the “New Credit Agreement”). The New Credit Agreement ~~provides for a term loan facility~~ in ~~the initial~~quarterly installments which commenced on March 31, 2022 in an amount that would result in amortization 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 Additional Term

Loans may 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, we entered into Amendment No. 1 to the New Credit Agreement to extend the initial interest payment due date to December 31, 2017. Approximately $2 million of contingent reimbursement obligations with respect to outstanding but undrawn letters of credit remain outstanding under the Prior Credit Agreement, however, those contingent reimbursement obligations will remain cash collateralized with the administrative agent.

The Loans will mature on the third anniversary of the Closing Date, however we will have the option to extend the maturity of the Loans for two additional one year periods, 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 interest at LIBOR plus 7.0% per annum. We will be required to pay 5%(a) 2.5% of the original term loan principal ~~balance~~in the first full year following commencement of amortization, (b) 5.0% of the ~~Loans annually~~original term loan principal in ~~quarterly installments~~the second full year following commencement of amortization, and ~~to offer to~~(c) 10% of the original term loan principal in the third full year following commencement of amortization. In addition, we must 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 prepayterm loan principal under the ~~Loans~~Credit Agreement with the net cash proceeds ~~of certain asset dispositions and with the issuance of debt not otherwise permitted under the New Credit Agreement. Except~~received in connection with ~~a change of control~~certain specified events, including certain asset sales, casualty and ~~the payment of a 1% premium, we will not be permitted~~condemnation events (subject to ~~voluntarily prepay the Loans until after the first anniversary~~customary reinvestment rights). Any remaining outstanding principal balance of the ~~Closing Date. We will~~term loan under the Credit Agreement is repayable on the maturity date. Amounts repaid or prepaid with respect to the term loan under the Credit Agreement cannot be ~~permitted~~reborrowed.

Under the Credit Agreement, after giving effect to ~~prepay~~ the ~~Loans during~~First Amendment described above, the ~~second year after~~term loan generally may bear interest based on term SOFR (the secured overnight financing right) or an annual base rate, as applicable, plus an applicable margin based on our leverage ratio each quarter that may range between 2.50% per annum and 4.00% per annum in the ~~Closing Date~~case of term SOFR loans, and between 1.50% per annum and 3.00% per annum in the case of base rate loans. In addition, a commitment fee based on unused availability if ~~accompanied by a prepayment premium of 1%. Thereafter, we will be permitted~~there are outstanding revolving loan commitments is also payable which may vary from 0.30% per annum to ~~prepay~~0.50% per annum, also based on our leverage ratio, however, the ~~Loans without any prepayment premium.~~revolving commitment was terminated in connection with the First Amendment described above.

The ~~New~~ Credit Agreement contains certain ~~restrictive~~customary representations, warranties, and affirmative and negative covenants by us and our subsidiaries that restrict the Company’s and its subsidiaries’ ability to take certain actions, including, incurrence of indebtedness, creation of liens, making certain investments, mergers or consolidations, dispositions of assets, assignments, sales or transfers of equity in subsidiaries, repurchase or redemption of capital stock, entering into certain transactions with affiliates, or changing the nature of the Company’s business. The Credit Agreement, after giving effect to the First Amendment described above, also contains financial covenants, which ~~became effective on~~require us to maintain, as of the ~~Closing Date. Such covenants, will require, among other things, that we meet~~last day of each fiscal quarter commencing (a) as of September 30, 2023, a ~~minimum~~total leverage ratio of not greater than 10.00 to 1.00, (b) as of December 31, 2023 and as of the last day of each fiscal quarter thereafter, (i) a total leverage ratio of not greater than 2.50 to 1.00, and (ii) a fixed charge coverage ratio of ~~0.5~~not less than 1.20 to ~~1.0 through~~1.00 and (c) prior to the earlier December 31, ~~2019, 1.0~~2023 and the date that the Company’s leverage ratio is not greater than 2.50 to ~~1.0 through June 30, 2020 (or until December 31, 2020 if~~1.00 and its fixed charge coverage ratio is not less than 1.20 to 1.00, a minimum amount of unrestricted cash subject to a perfected security interest in favor of MUFG Union Bank more specifically set forth in the maturity date of the Loans is extended until the fourth anniversary of the Closing Date), 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 the fifth anniversary of the Closing Date. In addition, we will be required to maintain a maximum total debt to EBITDA ratio of 6.00 to 1.00. The New Credit Agreement also contains covenants that will restrict our and our 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.

Agreement. The obligations under the ~~New~~ Credit Agreement ~~are secured by substantially all~~may be accelerated or the commitments terminated upon the occurrence of ~~our United States domestic subsidiaries’ assets and are guaranteed by~~events of default under the ~~Company and its United States domestic subsidiaries, other than the Borrower.~~

~~As a result of our entry into our New~~ Credit Agreement, which include payment defaults, defaults in the performance of affirmative and negative covenants, the ~~repayment~~inaccuracy of ~~all amounts owed under the Prior Credit Agreement, we wrote off debt issuance costs~~representations or warranties, bankruptcy and insolvency related defaults, cross defaults to ~~the Prior Credit Agreement~~other material indebtedness, defaults arising in connection with changes in control, and other customary events of ~~approximately $1.0 million in August 2017.~~default.

The New Credit Agreement also requires us to meet certain financial covenants, including maintaining a total debt to EBITDA ratio and a fixed charge coverage ratio, as such terms are defined in our credit agreement. These financial covenants are tested at the end of each year, quarter or month, as applicable. The table below further describes these financial covenants, as well as our current status under these covenants as of September 30, 2017.



~~Financial Covenant~~	~~Covenant~~ ~~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~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold or issue financial instruments for trading purposes. We conduct all of our business in U.S. currency and therefore do not have any material direct foreign currency risk. We do have exposure to changes in interest rates with respect to the borrowings under our senior secured credit facility, which bear interest at a variable rate based on ~~LIBOR.~~SOFR. For example, if the interest rate on our borrowings increased 100 basis points (1%) ~~from the credit facility floor of 1.0%~~, our annual interest expense would increase by approximately ~~$0.4~~$0.1 million.

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While we currently hold our excess cash in an operating account, in the future we may invest all or a portion of our excess cash in short-term investments, including money market accounts, where returns may reflect current interest rates. As a result, market interest rate changes may impact our interest expense and interest income. This impact, if applicable, will depend on variables such as the magnitude of interest rate changes and the level of our borrowings under our credit facility or excess cash balances.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and the Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable not absolute, assurance of achieving the desired control objectives. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing internal controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Management, with the participation of our Chief Executive Officer and our Chief Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, ~~as of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer~~ and ~~Chief Accounting Officer~~ concluded that our disclosure controls and procedures were ~~functioning effectively~~not effective at the reasonable assurance level as of ~~September 30, 2017.~~March 31, 2023.

As described in Item 9A of our Annual Report on the Form 10-K for the year ended December 31, 2022, management identified control deficiencies related to the design and operation of information technology general controls (“ITGCs”) around user access and change management for certain information technology (“IT”) systems which resulted in a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness did not result in any material misstatement of our consolidated financial statements for the periods presented. Subsequent to the identification of the material weakness, we performed supplemental procedures and found no evidence of improper changes or changes with direct or consequential impact on internal controls over financial reporting.

We have started the process of designing and implementing effective internal control measures to improve the Company’s internal controls over financial reporting and to remediate this material weakness. Our efforts include modifying ITGCs over user access and change management, enhancing our documentation to evidence execution of these ITGCs, and implementing additional controls designed to detect issues that could arise over users with elevated access rights. We are planning to complete such enhancements in 2023.

We believe that these actions, collectively, will remediate the material weakness. However, the material weakness cannot be considered remediated until the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot provide assurance that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Changes in Internal Control over Financial Reporting

~~There was~~Other than the information provided above, there were no ~~change~~changes in our internal control over financial reporting that occurred during the first quarter ~~ended September 30, 2017,~~of 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in various legal proceedings that arise from our normal business operations. These actions generally ~~derive~~derived from ~~our~~ student loan recovery services we provided historically, and generally assert claims for violations of the Fair Debt Collection Practices Act or similar federal and state consumer credit laws. While litigation is inherently unpredictable, we believe that none of these legal proceedings, individually or collectively, will have a material adverse effect on our financial condition or our results of operations.

ITEM 1A. RISK FACTORS

Our business, financial condition, results of operations and liquidity are subject to various risks and uncertainties, including those described below, and as a result, the trading price of our common stock could decline.

Risks Related to Our Business

We typically face a long period to start up a new contract which may cause us to incur expenses before we receive revenues from new clients or new contract relationships.

If we are successful in obtaining an engagement with a new client or a new contract with an existing client, we typically have a long implementation period in which the services are planned in detail and we integrate our technology, processes and resources with the client’s operations. If we enter into a contract with a new client, we typically will not receive revenues until implementation is completed and work under the contract actually begins, which can be a substantial period of time. Our clients may also experience delays in obtaining approvals or managing protests from unsuccessful bidders, or delays associated with technology or system implementations, such as the delays experienced with the implementation of our RAC contracts with CMS. We incur significant expenses associated with new contracts before we receive corresponding revenues under any such new contract, because we operate under a model in which we generally hire employees to provide services to a new client once a contract is signed and otherwise incur significant upfront implementation expenses. If we are not able to pay the upfront expenses for commencing new contracts out of cash from operations or availability of cash on hand or borrowings under our lending arrangements, we may be required to scale back our operations or alter our business plans to account for cash shortages, either of which could prevent us from earning future revenues under any such new client or contract engagements. Further, if we are not successful in maintaining contractual commitments after the expenses we incur during our typically long implementation cycle, our cash flows and results of operations could be adversely affected.

Revenues generated from a limited number of our ~~three~~ largest clients ~~represented 55%~~represent a substantial majority of our ~~revenues in both 2016 and 2015 and our relationships with two of these clients, the Department of Education and Great Lakes Higher Education Guaranty Corporation, have been terminated.~~revenues. Any termination of or deterioration in our relationship with any of our ~~other~~ significant clients would result in a ~~further~~ decline in our revenues.

We ~~have derived~~derive a substantial ~~majority~~portion of our revenues from a limited number of ~~clients, including the Department of Education, and several Guaranty Agencies. Revenues from~~ our ~~three~~ largest clients represented 55% of our revenues for the year ended December 31, 2016 and 55% of our revenues for the year ended December 31, 2015. The Department of Education was responsible for approximately 16% of our revenues for the year ended December 31, 2016 and the Department of Education announced in December 2016 that we were not selected as one of the contractors under its new student loan recovery contract. While our protest of this contract decision was recently upheld by the GAO, there is no assurance that this decision will result in our ultimately obtaining a contract award. The Department of Education has 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. During 2016, we had numerous relationships with GAs in the U.S. including Great Lakes Higher Education Guaranty Corporation and Pennsylvania Higher Education Assistance Authority, which were responsible for 24% and 16%, respectively, of our revenues for the year ended December 31, 2016. On June 15, 2017, we received a 30-day termination notice, with respect to our contract with Great Lakes Higher Education Guaranty Corporation. The termination of this contract was based on Great Lakes’ 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.

If we are not ultimately successful in obtaining a new contract award from the Department of Education in the bid re-evaluation process referred to above, our business will become even more dependent on our business relationships with our GA clients and there is no assurance that we will be able to maintain these relationships. Allclients. Substantially all of our contracts (i) entitle our clients to unilaterally terminate their contractual relationship with us at any time without penalty and (ii) are subject to competitive procurement or renewal processes from time to time. Further, substantially all of our contracts allow our clients to unilaterally change the amount of work available to us. If one of our largest clients terminates any of our existing contracts, or chooses not to renew an existing contract in connection with a competitive procurement or renewal process, our revenues and results of operations may be materially harmed. Further, if one of our significant clients decides to limit the amount of claims that we are ~~subject~~allowed to ~~periodic renewal and re-bidding processes and if we lose one of these clients~~audit or if the terms of compensation for our ~~relationships with~~services change or if there is a reduction in the level of placements provided by any of these clients, ~~become less favorable to us,~~ our revenues ~~would~~could decline, which would harm our business, financial condition and results of operations. Lastly, our revenues could be adversely affected if one of our significant clients is acquired by an entity that does not wish to continue to use our services.

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Many of our contracts with our clients ~~for the recovery of student loans and other receivables~~ are not exclusive and do not commit our clients to provide specified volumes of business. In addition, the terms of these contracts may be changed unilaterally and on short notice by our clients. As a consequence, there is no assurance that we will be able to maintain our revenues and operating results.

~~Substantially all~~Many of our existing contracts for the recovery of student loans and other receivables, which represented approximately 94% of our revenues for the nine months ended September 30, 2017 and 92% of our revenues in the year ended December 31, 2016, enable our clients to ~~unilaterally~~ terminate their contractual relationship with us at any time without penalty, potentially leading to loss of business or renegotiation of terms. These include our contracts with Great Lakes Higher Education Guaranty Corporation and Pennsylvania Higher Education Assistance Authority, which were responsible for 24% and 16%, respectively, of our revenues for the year ended December 31, 2016. As stated above, in June 2017, Great Lakes Higher Education Guaranty Corporation gave us notice of the termination of our contract. Further, most of our contracts ~~in these markets~~ allow our clients to unilaterally change the ~~volume~~amount of ~~loans and other receivables that are placed with~~work available to us or the

payment terms at any given time. In addition, ~~most~~many of our contracts are not exclusive, with our clients retaining multiple service providers with whom we must continue to compete for ~~placements of loans or other obligations.~~additional work. Therefore, despite our contractual relationships with our clients, our contracts do not provide assurance that we will generate a minimum amount of revenues or that we will receive a specific volume of ~~placements.~~

~~Our revenues~~work. For example, in March 2020, CMS paused medical review activities under our then current RAC contracts related to the COVID-19 pandemic, which were later resumed in August 2020. This pause in medical review activities under our RAC contracts had a negative impact on our 2020 and ~~operating~~2021 results ~~would be negatively affected if our student loan and receivables clients, which include our five largest clients in 2016 and four~~of operations. If any of our ~~five largest~~ clients ~~in 2015, reduce the volume of student loan placements provided to us,~~ modify ~~the~~ terms of service, including the success fees we are able to earn, ~~upon recovery of defaulted student loans,~~ or any of these clients establish more favorable relationships with our competitors. For example, effective July 1, 2015, the Department of Education implemented a fixed fee of $1,710 payable for each loan that is rehabilitated in place of a recovery fee that historically had been based on a percentage of the balance of the rehabilitated loan. Further, in December 2016, the Department of Education announced the award of seven new contracts and we did not receive one of the new 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. Whilecompetitors, our protest of this contract decision was recently upheld by the GAO, there is no assurance that this decision will result in our ultimately obtaining a contract award. If we are not successful in obtaining a contract award from the Department of Education through this process, the volume of student loan placements to us will be significantly harmed, which will result in a material negative impact on our results of operations and cash flows and our ability to repay or refinance our indebtedness.

The Department of Education, our longstanding and significant client, recently announced that we would not receive a new contract for the recovery of student loans. While we were successful with the protest we filed in connection with the original contract decision, if we are not successful in obtaining a contract award from the Department of Education through this process, our results of operations and cash flows will be harmed and it will be more difficult for us to repay or refinance our indebtedness.

We have had a more than 25 year relationship with the Department of Education as a key contractor in the recovery of student loans and this relationship has been responsible for a significant portion of our annual revenues. Ourfuture revenues from the Department of Education were $21.9 million in 2016, $37.9 million in 2015 and $53.2 million in 2014, representing 15.5%, 23.8% and 27.2% of our revenues, respectively. Further, we expected the Department of Education to become an increasingly important client because all federally-supported student loans have been originated by the Department of Education since 2010, meaning that there will be no further growth in student loans held by the GAs. Our most recent contract with the Department of Education expired in April 2015, and we have not received new placements of student loans from the Department of Education since that time pending the award of new contracts.

In December 2016, the Department of Education announced the award of seven new contracts and we did not receive one of the new 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 this 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 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.

Over the course of our first RAC contract, there has been an increase in the number of appeals by healthcare providers to the third, or ALJ, level of appeal relating to claims we have audited, and there can be no assurance that our estimated liability for such appeals will be adequate.

Under our RAC contract with CMS, we recognize revenues when the healthcare provider has paid CMS for a claim or has agreed to an offset against other claims by the provider. Healthcare providers have the right to appeal a claim and may pursue additional levels of appeal if the initial appeal is found in favor of CMS. We accrue an estimated liability for appeals at the time revenue is recognized based on our estimate of the amount of revenue probable of being refunded to CMS following successful appeal based on historical data and other trends relating to such appeals. In addition, if our estimate of liability for appeals with respect to revenues recognized during a prior period changes, we increase or decrease the estimated liability reserve in the current period. Over the course of our first RAC contract, healthcare providers have increased their pursuit of appeals beyond the first and second levels of appeal to the third level of appeal, where cases are heard by administrative law judges, or ALJs. In our experience, decisions at the third level of appeal are the least favorable as ALJs exercise greater discretion and there is less predictability in the ALJ decisions as compared to appeals at the first or second levels. The pursuit

of third level appeals by healthcare providers has also resulted in a backlog of claims at that level of appeal. This increase of ALJ appeals and backlog of claims at the third level of appeal is the primary reason our total estimated liability for appeals (consisting of the estimated liability for appeals plus the contra-accounts-receivable estimated allowance for appeals) has grown from a balance of $16.4 million at December 31, 2013 to $18.6 million as of December 31, 2014 to $19.0 million as of both December 31, 2015, and December 31, 2016, and decreased to $18.8 million as of September 30, 2017. Our estimates for our appeal reserve are subject to uncertainties, and accordingly we may underestimate the number of successful appeals or the financial impact of successful appeals in a given year or period. To the extent that the amount of commissions that we are required to return to CMS as a result of successful appeals exceeds our estimated appeals reserve, our revenues in the applicable period will be reduced by the amount of such excess. If we underestimate the amount of commissions that are subject to successful appeal, our revenues in future periods could be adversely affected. In addition, each of the subcontractors we engaged to assist in the recovery services under our RAC contract are similarly obligated to refund fees that they received from claims that are later overturned on appeal. To the extent any of our subcontractors fail to refund amounts that are due upon an appeal relating to claims that they were responsible for, we may be obligated to pay such amounts directly to CMS, which could have a material impact on our financial position.

Further, in August 2014 CMS offered 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 these settlement offers related to claims for which recovery auditors have already been paid under the first RAC contracts remain uncertain at this time. Any payments we are required to make to CMS under our first RAC contract in connection with such settlement offers may be significant and in excess of the amount we have reserved for appeals, which could have a material negative impact our financial position and liquidity.

Limitations on the scope of recovery services we can provide under our new RAC contract will have a material impact on our revenues and these limitations may continue under the newly awarded RAC contracts.

Our ability to make claims under the first RAC contract was limited during each of the last three years by restrictions imposed on the scope of our audit activities and by contract transition rules announced by CMS that involved periodic suspension of audit activities. These limitations had a material adverse effect on our revenues and operating results. Our revenues from CMS during the nine months ended September 30, 2017 were $1.0 million compared to $5.2 million during the same period in 2016. While we have been awarded two new RAC contracts, we are uncertain about the scope of permitted audit and if the scope of audit is not increased, our revenues and the value of the new RAC contracts will be constrained. In addition, we expect there will be an approximately four to six-month period from the date that we are permitted to start performing recovery services until we start to recognize revenues under our new RAC contracts. Accordingly, the start date of April 2017 for the new RAC contracts means that these new contracts will not have a significant impact on our 2017 revenues, although we will incur related start-up expenses in 2017.

Our ability to derive revenues under our ~~new RAC~~current healthcare contracts will depend in part on the number and types of potentially improper claims that we are allowed to audit or otherwise pursue by ~~CMS,~~our clients, and our results of operations may be harmed if the scope of claims that we are allowed to pursue and be compensated for is limited.

~~Under~~Our revenues under our current healthcare contracts depend in part on the number and types of potentially improper claims that we are allowed to audit or otherwise pursue on behalf of our clients. For example, under CMS’s Medicare recovery audit program, RAC contractors have not been permitted to seek the recovery of an improper claim unless that particular type of claim has been pre-approved by CMS to ensure compliance with applicable Medicare payment policies, as well as national and local coverage determinations. As work under the first RAC contract progressed, CMS placed increasing restrictions on the scope of audits permitted by RAC contractors and ~~has~~these restrictions have not ~~indicated that those restrictions will be~~been relaxed ~~when work commences~~ under ~~the newly awarded~~our current RAC contracts. Accordingly, the long-term growth of ~~the~~ revenues we derive under our ~~two newly awarded~~three existing RAC contracts, or any additional contracts we may enter into with CMS, will ~~also~~ depend ~~in significant part~~ on ~~the scope of potentially improper claims that we are allowed to pursue.~~

In particular, in September 2013, CMS implemented rules that prevent RAC contractors from being able to review and audit (i) whether inpatient care delivered to patients with hospital stays lasting less than two midnights was medically necessary and therefore deserving of the higher reimbursement levels under Medicare Part A or (ii) whether inpatient treatment was medically necessary for admissions spanning more than two midnights. In connection with these restrictions, hospitals cannot bill CMS for outpatient services on hospital stays lasting less than two midnights during such period. Fees associated with recoveries initiated by us based upon improper claims for inpatient reimbursement of these short stays had represented a substantial portion of the revenues we have earned under our RAC contract. The continued suspension of this type of review activity has had and may continue to have a material adverse effect on our future healthcare revenues and operating results, depending on a variety of factors including, among other things, CMS’s evaluation of provider compliance with the new rules, the rules ultimately adopted by CMS with respect to medical necessity reviews of Medicare reimbursement claims associated

~~with short stay inpatient admissions and, more generally,~~ the scope of improper claims that CMS allows us to pursue and our ability to successfully identify improper claims within the permitted scope.

~~We face significant competition in connection with obtaining, retaining~~In addition, our commercial healthcare clients also have the ability to unilaterally restrict or expand the type and ~~performing under~~volume of claims we are allowed to audit or otherwise provide services. Any future limitations on the type or volume of claims that we are permitted to audit or otherwise review on behalf of our ~~client contracts, and an inability to compete effectively~~clients in the ~~future~~healthcare market could ~~harm our relationships with our clients, which would~~have a material negative impact ~~our ability to maintain our revenues and operating results.~~

We operate in very competitive markets. In providing our services to the student loan and other receivables markets, we face competition from many other companies. Initially, we compete with these companies to be one of typically several firms engaged to provide recovery services to a particular client and, if we are successful in being engaged, we then face continuing competition from the client’s other retained firms based on the client’s benchmarking of the recovery rates of its several vendors. In addition, those recovery vendors who produce the highest recovery rates from a client often will be allocated additional placements and in some cases additional success fees. Accordingly, maintaining high levels of recovery performance, and doing so in a cost-effective manner, are important factors in our ability to maintain and grow our revenues and net income and the failure to achieve these objectives could harm our business, financial condition and results of operations. Some of our current and potential competitors in the markets in which we operate may have greater financial, marketing, technological or other resources than we do. The ability of any of our competitors and potential competitors to adopt new and effective technology to better serve our markets may allow them to gain market strength. Increasing levels of competition in the future may result in lower recovery fees, lower volumes of contracted recovery services or higher costs for resources. Any inability to compete effectively in the markets that we serve could adversely affect our business, financial condition and results of operations.

The U.S. federal government accounts for a significant portion of our revenues, and any loss of business from, or change in our relationship with, the U.S. federal government would result in a significant decrease in our revenues and operating results.

We have historically derived and are likely to continue to derive a significant portion of our revenues from the U.S. federal government. For the year ended December 31, 2016, revenues under contracts with the U.S. federal government accounted for approximately 24% of our total revenues. The continuation and exercise of renewal options on government contracts and any new government contracts are, among other things, contingent upon the availability of adequate funding for the applicable federal government agency. Changes in federal government spending could directly affect our financial performance.

For example, 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 from 18.5% to 16.0% of the outstanding loan balance, the amount that GAs can charge borrowers 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 of approximately 25.0% in the contingency fee percentage that we receive from the GAs for assisting in the rehabilitation of defaulted student loans. The loss of business from the U.S. federal government, or significant policy changes or financial pressures within the agencies of the U.S. federal government that we serve would result in a significant decrease in our revenues, which would adversely affect our business, financial condition and results of operations.

~~Future legislative or regulatory changes affecting the markets in which we operate could impair our business and operations.~~

The two principal markets in which we provide our recovery services, government-supported student loans and the Medicare program, are a subject of significant legislative and regulatory focus and we cannot anticipate how future changes in government policy may affect our business and operations. For example, SAFRA significantly changed the structure of the government-supported student loan market by assigning responsibility for all new government-supported student loan originations to the Department of Education, rather than originations by private institutions and backed by one of 30 government-supported GAs. This legislation, and any future changes in the legislation and regulations that govern these markets, may require us to adapt our business to the new circumstances and we may be unable to do so in a manner that does not adversely affect our business and operations.

The reduction in the number of government-supported student loans originated by our GA clients may result in a lower amount of student loans that we are able to rehabilitate, and may result in the consolidation among the GAs, either of which would decrease our revenues.

As a result of SAFRA, which terminated the ability of the GAs to originate government-supported student loans, the overall number of defaulted student loans that we are able to service on behalf of our GA clients has begun to decline. Further, we are seeing a larger amount of defaulted student loans within our GA client portfolios that have previously been rehabilitated, which, according to current regulations, prevents us from rehabilitating any such student loan for a second time. This overall reduction in the number of defaulted student loans in our GA client portfolios, and the larger percentage of defaulted student loans that have been previously rehabilitated, may result in a decreased revenues from our GA clients, which could negatively impact our business, financial condition and results of operations.

Further, some have speculated that there may be consolidation among the remaining GAs. This speculation has heightened as a result of the reduction of fees that the GAs will receive for rehabilitating student loans as a result of the Bipartisan Budget Act of 2013. If GAs that are our clients are combined with GAs with whom we do not have a relationship, we could suffer a loss of business. Two of our GA clients were each responsible for more than 10% of our total revenues in the year ended December 31, 2016: Great Lakes Higher Education Guaranty Corporation and Pennsylvania Higher Education Assistance Authority were responsible for 24% and 16%, respectively, of revenues for the year ended December 31, 2016. The consolidation of our GA clients with others and the failure to provide recovery services to the consolidated entity could decrease our revenues, which could negatively impact our business, financial condition and results of operations.

~~Our results of operations may fluctuate on a quarterly or annual basis and cause volatility in the price of our stock.~~

Our revenues and operating results could vary significantly from period-to-period and may fail to match our past performance because of a variety of factors, some of which are outside of our control. Any of these factors could cause the price of our common stock to fluctuate. Factors that could contribute to the variability of our operating results include:

~~the amount of defaulted student loans and other receivables that our clients place with us for recovery;~~

~~the timing of placements of student loans and other receivables which are entirely in the discretion of our clients;~~

~~the schedules of government agencies for awarding contracts including the result of our recent successful appeal against the Department of Education’s contract award decision;~~

~~our ability to successfully identify improper Medicare claims and the number and type of potentially improper claims that CMS authorizes us to pursue under our RAC contact;~~

~~the loss or gain of significant clients or changes in the contingency fee rates or other significant terms of our business arrangements with our significant clients;~~

~~technological and operational issues that may affect our clients and regulatory changes in the markets we service; and~~

~~general industry and macroeconomic conditions.~~

~~Downturns in domestic or global economic conditions and other macroeconomic factors could harm our business and results of operations.~~

Various macroeconomic factors influence our business and results of operations. These include the volume of student loan originations in the United States, together with tuition costs and student enrollment rates, the default rate of student loan borrowers, which is impacted by domestic and global economic conditions, rates of unemployment and similar factors, and the growth in Medicare expenditures resulting from changes in healthcare costs. For example, during the global financial crisis beginning in 2008, the market for securitized student loan portfolios was disrupted, resulting in delays in the ability of some GA clients to resell rehabilitated student loans and, as a result, delays our ability to recognize revenues from these rehabilitated loans. Changes in the overall economy could lead to a reduction in overall recovery rates by our clients, which in turn could adversely affect our business, financial condition and results of operations.

~~We may not be able to manage our potential growth effectively and our results of operations could be negatively affected.~~

Our newly awarded RAC contracts provide the potential opportunity to restore the growth in our business. However, our focus on growth and the expansion of our business may place additional demands on our management, operations and financial resources and will require us to incur additional expenses. We cannot be sure that we will be able to manage our

performance under any significant new contracts effectively. In order to successfully perform under any significant new contracts, our expenses will increase to recruit, train and manage additional qualified employees and subcontractors and to expand and enhance our administrative infrastructure and continue to improve our management, financial and information systems and controls. If we cannot manage our growth effectively, our expenses may increase and our results of operations could be negatively affected.

Our indebtedness could adversely affect our business and financial condition and reduce the funds available to us for other purposes, and our failure to comply with the covenants contained in our ~~credit agreement~~Credit Agreement could result in an event of default that could adversely affect our results of operations.

Our ability to make scheduled payments under our Credit Agreement and to fund our other liquidity needs depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our ~~control.~~control, such as the recent global economic downturn as the result of the COVID-19 pandemic. We cannot make assurances that we will maintain a level of cash flows from operating activities or other capital resources sufficient to permit us to pay the principal and interest on our indebtedness and to fund our other liquidity needs. If our cash flows and capital resources are insufficient to fund our debt service obligations and allow us to maintain compliance with the covenants under our ~~credit agreement~~Credit Agreement or to fund our other liquidity needs, we may be forced to reduce or delay capital expenditures, alter our business plans, curtail the services we provide to our current or future clients, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot ensure that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including our ~~credit agreement.~~Credit Agreement with MUFG Union Bank. If we cannot make scheduled payments on our debt, we will be in default and, as a result, our debt holders could declare all outstanding principal and interest to be due and payable, ~~the lenders under our credit agreement could terminate their commitments to lend us money~~ and foreclose against the assets securing our borrowings and we could be forced into bankruptcy or liquidation.

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Our ~~debt agreements contain,~~Credit Agreement contains, and any agreements to refinance our debt likely will contain, certain financial and restrictive covenants that limit our ability to incur additional debt, including to finance future operations or other capital needs, and to engage in other activities that we may believe are in our long-term best interests, including to dispose of or acquire assets. Our failure to comply with these covenants may result in an event of default, which, if not cured or waived, could accelerate the maturity of our indebtedness or result in modifications to our credit terms. If our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned.

The U.S. federal government accounts for a significant portion of our revenues, and any loss of business from, or change in our relationship with the U.S. federal government would result in a significant decrease in our revenues and operating results.

We have historically derived and are likely to continue to derive a significant portion of our revenues from the U.S. federal government. We currently hold five contracts with agencies of the U.S. federal government within our healthcare business. The continuation and exercise of renewal options on our U.S. federal government contracts and any new U.S. federal government contracts are, among other things, contingent upon succeeding within competitive bidding processes, changes in federal government spending, the availability of adequate funding for the applicable federal government agency, or other regulatory changes, such as the pause in activities under our RAC contracts in 2020 as a result of the COVID-19 pandemic, could adversely affect our financial performance. The loss of business from the U.S. federal government, or significant policy changes or financial pressures within the agencies of the U.S. federal government that we serve would result in a significant decrease in our revenues, which would adversely affect our business, financial condition and results of operations.

Downturns in domestic or global economic conditions and other macroeconomic factors could harm our business and results of operations.

Various macroeconomic factors influence our business and results of operations. These include overall healthcare spending in the U.S. and the volume of healthcare claims that we audit on behalf of our clients, which are both impacted by domestic and global economic conditions, rates of unemployment and similar factors, movements in interest rates, and changes in healthcare costs, governmental policies toward Medicare expenditures or the healthcare industry taken as a whole. Changes in the overall economy could lead to a reduction in overall recovery rates by our clients, which in turn could adversely affect our business, financial condition and results of operations. For example, our business and the businesses of our customers have been/were materially and adversely affected by recent inflationary trends and the impact of the COVID-19 pandemic which have caused, and may continue to cause, a slowdown in global economic activity, which has resulted in a significant negative impact on our financial condition and results of operations. Political tensions resulting in economic instability, such as due to military activity or civil hostilities among Russia and Ukraine and the related response, including sanctions or other restrictive actions, by the United States and/or other countries, or other similar events, may have an adverse impact on our business, financial condition, and results of operations.

We may not have sufficient cash flows from operations or availability of funds under our lending arrangements to fund our ongoing operations and our other liquidity needs, which could adversely affect our business and financial condition.

Our ability to fund our business plans, capital expenditures and to fund our other liquidity needs depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control and the availability of cash on hand and borrowings under our existing lending facility. As a result of the First Amendment to our Credit Agreement with MUFG Union Bank, which became effective March 13, 2023, we do not have any further borrowing capacity under the Credit Agreement. We cannot make assurances that we will maintain a level of cash flows from operating activities sufficient to permit us to fund our ongoing and planned business operations and to fund our other liquidity needs. If we are required to obtain borrowings to fund our ongoing or future business operations, there can be no assurance that we will be successful in obtaining such borrowings or upon terms that are acceptable to us. While we believe our financial projections are attainable, there can be no assurances that our financial results will be recognized in a timeframe necessary to meet our ongoing cash requirements. If our cash flows and capital resources are insufficient to fund our planned business operations or to fund our other liquidity needs, we may be forced to reduce or delay capital expenditures, alter our business plans, curtail the services we provide to our current or future clients, sell assets or operations, seek additional capital or restructure or refinance our indebtedness, any of which could have an adverse effect on our financial condition and results of operations.

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We may not be able to manage our potential growth effectively and our results of operations could be negatively affected.

We believe our RAC contracts, MSP CRC contract, and other commercial healthcare contracts continue to provide the opportunity for growth in our business. However, our focus on growth and the expansion of our healthcare and other businesses may place additional demands on our management, operations and financial resources and will require us to incur additional expenses. We cannot be sure that we will be able to manage our performance under any significant new contracts effectively. In order to successfully perform under any significant new contracts, our expenses will increase to recruit, train and manage additional qualified employees and subcontractors and to expand and enhance our administrative infrastructure and continue to improve our management, financial and information systems and controls. If we cannot manage our growth effectively, our expenses may increase, and our results of operations could be negatively affected.

The growth of our healthcare business will require us to hire and retain employees with specialized skills and failure to do so could harm our ability to grow our business.

The growth of our healthcare business will depend in part on our ability to recruit, train and manage additional qualified employees. Our healthcare-related operations require us to hire registered nurses and experts in Medicare coding. Finding, attracting and retaining employees with these skills is a critical component of providing our healthcare-related recovery and audit services, and our inability to staff these operations appropriately represents a risk to our healthcare service offering and associated revenues. An inability to hire qualified personnel, particularly to serve our healthcare clients, may restrain the growth of our business.

We face significant competition in connection with obtaining, retaining and performing under our client contracts, and an inability to compete effectively in the future could harm our relationships with our clients, which would impact our ability to maintain our revenues and operating results.

We operate in highly competitive markets and face significant competition from other companies in providing our services and sourcing contracts with new clients or new contracts with existing clients. Accordingly, maintaining high levels of service under our contracts, and doing so in a cost-effective manner, are important factors in our ability to maintain existing contracts and obtain new contracts and grow our revenues and net income. Any failure to achieve these objectives could result in the loss of existing contractual relationships either by a client’s decision to terminate existing contractual relationship or in connection with a competitive contract re-bidding process, or the inability to obtain new client contracts, any of which could harm our business, financial condition and results of operations. Some of our current and potential competitors in the markets in which we operate may have greater financial, marketing, technological or other resources than we do. The ability of any of our competitors and potential competitors to adopt new and effective technology to better serve our markets may allow them to gain market strength. Increasing levels of competition in the future could result in lower fees, lower volumes of contracted services or higher costs for resources. Any inability to compete effectively in the markets that we serve could adversely affect our business, financial condition and results of operations.

The novel coronavirus (COVID-19) pandemic has had and may continue to have a material adverse impact on our business, results of operations and financial condition, as well as on the operations and financial performance of many of our customers. We are unable to predict the extent to which the prolonged duration of COVID-19 pandemic as well as any new coronavirus variants, and associated impacts will continue to adversely impact our business, results of operations, and financial condition.

Our business and the businesses of our customers have been and may continue to be materially and adversely affected by the impact of the COVID-19 pandemic that has caused, and may continue to cause, the global slowdown in economic activity. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the COVID-19 pandemic’s impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategies and initiatives, remains uncertain and difficult to predict. Further, the ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited to: governmental and business actions that have been and continue to be taken in response to the pandemic; the impact of the COVID-19 pandemic and actions taken in response on global and regional economies and economic activity; the availability of federal, state or local funding programs; general economic uncertainty and financial market volatility; global economic conditions and levels of economic growth; and the pace of economic recovery when the COVID-19 pandemic subsides.

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Given the economic hardships caused as a result of the COVID-19 pandemic, certain of our customers have chosen and may continue to choose to delay the services that we provide, and additional customers may choose to similarly delay the audit and recovery services that we provide, either of which could have a material negative impact on our revenues and results of operations. In addition, the COVID-19 pandemic has also had a negative impact on overall hospital utilization rates in the United States. This negative impact on overall hospital utilization rates has caused delays with the healthcare industry as a whole, which in turn has had a negative impact on our healthcare business. Any additional disruptions to the services that we provide to our customers as a result of the COVID-19 pandemic or otherwise could result in a negative impact on our revenues and results of operations.

Further, a prolonged period of generating lower cash flows from operations as a result of the COVID-19 pandemic could adversely affect our financial condition and the achievement of our strategic objectives. Conditions in the financial and credit markets may also limit the availability of funding or increase the cost of funding, which could adversely affect our business, financial position and results of operations. While we believe our financial projections are attainable, there can be no assurances that our financial results will be recognized in a timeframe necessary to meet our ongoing cash requirements.

Our results of operations may fluctuate on a quarterly or annual basis and cause volatility in the price of our stock.

• the schedules of government agencies for awarding contracts;

• our ability to maintain contractual commitments after the expenses we incur during our typically long implementation cycle for new customer contracts;

• our ability to successfully identify improper Medicare claims and the number and type of potentially improper claims that CMS authorizes us to pursue under our RAC contracts;

• our ability to continue to generate revenues under our private healthcare contracts;

• the loss or gain of significant clients or changes in the contingency fee rates or other significant terms of our business arrangements with our significant clients;

• technological and operational issues that may affect our clients and regulatory changes in the markets we service; and

• general industry and macroeconomic conditions.

A failure of our operating systems or technology infrastructure, or those of our third-party vendors and subcontractors, could disrupt the operation of our business.

A failure of our operating systems or technology infrastructure, or those of our third-party vendors and subcontractors, could disrupt our operations. Our operating systems and technology infrastructure are susceptible to damage or interruption from various causes, including acts of God and other natural disasters, power losses, computer systems failures, Internet and telecommunications or data network failures, global health crises, operator error, computer viruses, losses of and corruption of data and similar events. The occurrence of any of these events could result in interruptions, delays or cessations in service to our clients, reduce the attractiveness of our recovery services to current or potential clients and adversely impact our financial condition and results of operations. While we have backup systems in many of our operating facilities, an extended outage of utility or network services may harm our ability to operate our business. Further, the situations we plan for and the amount of insurance coverage we maintain for losses as result of failures of our operating systems and infrastructure may not be adequate in any particular case.

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If our security measures are breached or fail and unauthorized access is obtained to our clients’ confidential data, our services may be perceived as insecure, the attractiveness of our ~~recovery~~ services to current or potential clients may be reduced, and we may incur significant liabilities.

Our ~~recovery~~ services involve the storage and transmission of confidential information relating to our clients and their customers, including health, financial, credit, payment and other personal or confidential information. Although our data security procedures are designed to protect against unauthorized access to confidential information, our computer systems, software and networks may be vulnerable to unauthorized access and disclosure of our clients’ confidential information. Further, we may not effectively adapt our security measures to evolving security risks, address the security and privacy concerns of existing or potential clients as they change over time, or be compliant with federal, state, and local laws and regulations with respect to securing confidential information. Unauthorized access to confidential information relating to our clients and their customers could lead to reputational damage which could deter our clients and potential clients from selecting

our ~~recovery~~ services, or result in termination of contracts with those clients affected by any such breach, regulatory action, and claims against us.

Our business is increasingly dependent on critical, complex, and interdependent information technology (IT) systems, including internet-based systems, some of which are managed or hosted by third parties, to support business processes as well as internal and external communications. The size and complexity of our IT systems make us potentially vulnerable to IT system breakdowns, malicious intrusion, and computer viruses, which may result in the impairment of our ability to operate our business effectively. In addition, having a significant portion of our employees work remotely due to the COVID-19 pandemic can strain our information technology infrastructure, which may affect our ability to operate effectively, may make us more susceptible to communications disruptions, and expose us to greater cybersecurity risks.

In the event of any unauthorized access to personal or other confidential information, we may be required to expend significant resources to investigate and remediate vulnerabilities in our security procedures, and we may be subject to fines, penalties, litigation costs, and financial losses that are either not insured against or not fully covered through any insurance maintained by us. If one or more of such failures in our security and privacy measures were to occur, our business, financial condition and results of operations could suffer.

~~Our business may be harmed if we lose members of our management team or other key employees.~~

We are highly dependent on members of our management team and other key employees and our future success depends in part on our ability to retain these people. Our inability to continue to attract and retain members of our management team and other key employees could adversely affect our business, financial condition and results of operations.

~~The growth of our healthcare business will require us to hire and retain employees with specialized skills and failure to do so could harm our ability to grow our business.~~

~~We rely on subcontractors to provide services to our clients and the failure of subcontractors to perform as expected could harm our business operations and our relationships with our clients.~~

We engage subcontractors to provide certain services to our clients. These subcontractors participate to varying degrees in our recovery activities with regards to all of the services we provide. While we believe that we perform appropriate due diligence before we hire subcontractors, our subcontractors may not provide adequate service or otherwise comply with the terms set forth in their agreements. In the event a subcontractor provides deficient performance to one or more of our clients, any such client may reduce the volume of services we are providing under an existing contract or may terminate the relevant contract entirely and we may face claims for breach of contract. Any such disruption in our relations with our clients as a result of services provided by any of our subcontractors could adversely affect our revenues and operating results.

If our software vendors or utility and network providers fail to deliver or perform as expected our business operations could be adversely affected.

Our recovery services depend in part on third-party providers, including software vendors and utility and network providers. Our ability to service our clients depends on these third-party providers meeting our expectations and contractual obligations in a timely and effective manner. Our business could be materially and adversely affected, and we might incur significant additional liabilities, if the services provided by these third-party providers do not meet our expectations or if they terminate or refuse to renew their relationships with us on similar contractual terms.

We are subject to extensive regulations regarding the use and disclosure of confidential personal information and failure to comply with these regulations could cause us to incur liabilities and expenses.

We are subject to a wide array of federal and state laws and regulations regarding the use and disclosure of confidential personal information and security. For example, the federal Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, and related state laws subject us to substantial restrictions and requirements with respect to the use and disclosure of the personal health information that we obtain in connection with our audit and recovery services under our contract with CMS and we must establish administrative, physical and technical safeguards to protect the confidentiality of this information. Similar protections extend to the type of personal financial and other information we acquire from our student loan, state tax and federal receivables clients. We are required to notify affected individuals and government agencies of data security breaches involving protected health and certain personally identifiable information. These laws and regulations also require that we develop, implement and maintain written, comprehensive information security programs containing safeguards that are appropriate to protect personally identifiable information or health information against unauthorized access, misuse, destruction or modification. Federal law generally does not preempt state law in the area of protection of personal information,

and as a result we must also comply with state laws and regulations. Regulation of privacy, data use and security requires that we incur significant expenses, which could increase in the future as a result of additional regulations, all of which adversely affects our results of operations. Failure to comply with these laws and regulations can result in penalties and in some cases expose us to civil lawsuits.

Our student loan recovery business is subject to extensive regulation and consumer protection laws and our failure to comply with these regulations and laws may subject us to liability and result in significant costs.

Our student loan recovery business is subject to regulation and oversight by various state and federal agencies, particularly in the area of consumer protection. The Fair Debt Collection Practices Act, or FDCPA, and related state laws provide specific guidelines that we must follow in communicating with holders of student loans and regulates the manner in which we can recover defaulted student loans. Some state attorney generals have been active in this area of consumer protection regulation. We are subject, and may be subject in the future, to inquiries and audits from state and federal regulators, as well as frequent litigation from private plaintiffs regarding compliance under the FDCPA and related state regulations. We are also subject to the Fair Credit Reporting Act, or FCRA, which regulates consumer credit reporting and may impose liability on us to the extent adverse credit information reported to a credit bureau is false or inaccurate. Our compliance with the FDCPA, FCRA and other federal and state regulations that affect our student loan recovery business may result in significant costs, including litigation costs. We may also become subject to regulations promulgated by the United States Consumer Financial Protection Bureau, or CFPB, which was established in July 2011 as part of the Dodd-Frank Act to, among other things, establish regulations regarding consumer financial protection laws. In addition, the CFPB has investigatory and enforcement authority with respect to whether persons are engaged in unlawful acts or practices in connection with the collection of consumer debts.

Litigation may result in substantial costs of defense, damages or settlement, any of which could subject us to significant costs and expenses.

We are party to lawsuits in the normal course of business, particularly in connection with our student loan recovery services. For example, we are regularly subject to claims that we have violated the guidelines and procedures that must be followed under federal and state laws in communicating with consumer debtors. We may not ultimately prevail or otherwise be able to satisfactorily resolve any pending or future litigation, which may result in substantial costs of defense, damages or settlement. In the future, we may be required to alter our business practices or pay substantial damages or settlement costs as a result of litigation proceedings, which could adversely affect our business operations and results of operations.

~~We typically face a long period to implement a new contract which may cause us to incur expenses before we receive revenues from new client relationships.~~

If we are successful in obtaining an engagement with a new client or a new contract with an existing client, we typically have a subsequent long implementation period in which the services are planned in detail and we integrate our technology, processes and resources with the client’s operations. If we enter into a contract with a new client, we typically will not receive revenues until implementation is completed and work under the contract actually begins. Our clients may also experience delays in obtaining approvals or delays associated with technology or system implementations, such as the delays experienced with the implementation

Table of our first RAC contract with CMS due to an appeal by competitors who were unsuccessful in bidding on the contract. Because we generally begin to hire new employees to provide services to a new client once a contract is signed, we may incur significant expenses associated with these additional hires before we receive corresponding revenues under any such new contract. If we are not successful in maintaining contractual commitments after the expenses we incur during our typically long implementation cycle, our results of operations could be adversely affected.Contents

If we are unable to adequately protect our proprietary technology, our competitive position could be harmed, or we could be required to incur significant costs to enforce our rights.

The success of our business depends in part upon our proprietary technology platform. We rely on a combination of copyright, ~~patent,~~ trademark, and trade secret laws, as well as on confidentiality procedures and non-compete agreements, to establish and protect our proprietary technology rights. The steps we have taken to deter misappropriation of our proprietary technology may be insufficient to protect our proprietary information. In particular, we may not be able to protect our trade secrets, ~~know‑how~~know-how and other proprietary information adequately. Although we use reasonable efforts to protect this proprietary information and technology, our employees, consultants and other parties may unintentionally or willfully disclose our information or technology to competitors. Enforcing a claim that a third party illegally obtained and is using any of our proprietary information or technology is expensive and time consuming, and the outcome is unpredictable. We rely, in part, on ~~non‑disclosure,~~nondisclosure, confidentiality and invention assignment agreements with our employees, consultants and other parties to

protect our trade secrets, ~~know‑how~~know-how and other intellectual property and proprietary information. These agreements may not be ~~self‑executing,~~self-executing, or they may be breached, and we may not have adequate remedies for such breach. Moreover, third parties may independently develop similar or equivalent proprietary information or otherwise gain access to our trade secrets, ~~know‑how~~know-how and other proprietary information. Any infringement, misappropriation or other violation of our patents, trademarks, copyrights, trade secrets, or other intellectual property rights could adversely affect any competitive advantage we currently derive or may derive from our proprietary technology platform and we may incur significant costs associated with litigation that may be necessary to enforce our intellectual property rights.

Claims by others that we infringe their intellectual property could force us to incur significant costs or revise the way we conduct our business.

Our competitors protect their proprietary rights by means of patents, trade secrets, copyrights, trademarks and other intellectual property. Any party asserting that we infringe, misappropriate or violate their intellectual property rights may force us to defend ourselves, and potentially our clients, against the alleged claim. These claims and any resulting lawsuit, if successful, could be time-consuming and expensive to defend, subject us to significant liability for damages or invalidation of our proprietary rights, prevent us from operating all or a portion of our business or force us to redesign our services or technology platform or cause an interruption or cessation of our business operations, any of which could adversely affect our business and operating results. In addition, any litigation relating to the infringement of intellectual property rights could harm our relationships with current and prospective clients. The risk of such claims and lawsuits could increase if we increase the size and scope of our services in our existing markets or expand into new markets.

~~We may make acquisitions that prove unsuccessful, strain or divert our resources~~Risks Related to Regulations and ~~harm our results of operations and stock price.~~Legislation

We ~~may consider acquisitions of other companies~~identified a material weakness in our ~~industry~~internal control over financial reporting. If we are unable to remediate this material weakness, or if we experience additional material weaknesses or other deficiencies in ~~new markets. We~~the future, or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately or timely report our financial results, which could result in loss of investor confidence and adversely impact our stock price.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act and other applicable securities rules and regulations. In particular, we are subject to reporting obligations under Section 404 of the Sarbanes-Oxley Act that require us to include a management report on our internal control over financial reporting in our annual report, which contains management’s assessment of the effectiveness of our internal control over financial reporting, and are further required to adhere to the auditor attestation requirements with respect to the to the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act.

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Internal controls related to the operation of technology systems are critical to maintaining adequate internal control over financial reporting. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, during the fourth quarter of fiscal 2022, management identified a material weakness in the design and operation of internal control related to information technology general controls (ITGCs) in the areas of user access and program change-management over certain information technology (IT) systems that support our financial reporting processes. We have begun the process of designing and implementing measures to improve our internal controls over financial reporting and to remediate this material weakness. While there can be no assurance that our efforts will be successful, we plan to remediate this material weakness during fiscal 2023. Our ability to comply with the annual internal control report requirements will depend on the effectiveness of our financial reporting and data systems and controls across our company. We expect these systems and controls to involve significant expenditures and to may become more complex as our business grows. To effectively manage this complexity, we will need to continue to improve our operational, financial, and management controls, and our reporting systems and procedures. Our inability to successfully ~~complete~~remediate our existing or any ~~such acquisition~~future material weaknesses or other deficiencies in our internal control over financial reporting or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and ~~if completed, any such acquisition may~~cause us to fail to ~~achieve~~meet our financial reporting obligations or result in material misstatements in our financial statements, which could limit our liquidity and access to capital markets, adversely affect our business and investor confidence in our financial statements, and adversely impact our stock price.

Future legislative or regulatory changes affecting the ~~intended~~markets in which we operate could impair our business and operations.

The markets in which we operate are highly regulated, and any future changes in the regulatory landscape could have a material effect on our business and financial ~~results. We~~condition. For example, the Medicare program, is a subject of significant legislative and regulatory focus, and we cannot anticipate how future changes in government policy may ~~not be able~~affect our business and operations. Any future changes in the legislation and regulations that govern these markets, may require us to ~~successfully integrate any acquired businesses with~~adapt our ~~own~~business to the new circumstances and we may be unable to do so in a manner that does not adversely affect our business and operations.

We are subject to a wide array of federal and state laws and regulations regarding the use and disclosure of confidential personal information and security. For example, the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended, and related state laws subject us to substantial restrictions and requirements with respect to the use and disclosure of the personal health information that we obtain in connection with our contracts with CMS and we must establish administrative, physical and technical safeguards to protect the confidentiality of this information. Similar protections extend to the type of personal financial and other information we acquire from our student loan, state tax and federal receivables clients. We are required to notify affected individuals and government agencies of data security breaches involving protected health and certain personally identifiable information. These laws and regulations also require that we develop, implement and maintain written, comprehensive information security programs containing safeguards that are appropriate to protect personally identifiable information or health information against unauthorized access, misuse, destruction or modification. Federal law generally does not preempt state law in the area of protection of personal information, and as a result we must also comply with state laws and regulations. Regulation of privacy, data use and security require that we incur significant expenses, which could increase in the future as a result of additional regulations, all of which adversely affects our ~~standards, controls~~results of operations. Failure to comply with these laws and ~~policies. Further, acquisitions~~regulations can result in penalties and in some cases expose us to civil lawsuits.

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Our legacy student loan recovery business is subject to extensive regulation and consumer protection laws and our failure to comply with these regulations and laws may ~~place additional constraints~~subject us to liability and result in significant costs.

Our student loan recovery business is subject to regulation and oversight by various state and federal agencies, particularly in the area of consumer protection. The Fair Debt Collection Practices Act (FDCPA), and related state laws provide specific guidelines that we must follow in communicating with holders of student loans and regulates the manner in which we can recover defaulted student loans. Some state attorney generals have been active in this area of consumer protection regulation. We are subject, and may be subject in the future, to inquiries and audits from state and federal regulators, as well as frequent litigation from private plaintiffs regarding compliance under the FDCPA and related state regulations. We are also subject to the Fair Credit Reporting Act (FCRA), which regulates consumer credit reporting and may impose liability on us to the extent adverse credit information reported to a credit bureau is false or inaccurate. Our compliance with the FDCPA, FCRA and other federal and state regulations that affect our ~~resources by diverting the attention of our management from other~~student loan recovery business ~~concerns. Moreover, any acquisition~~ may result in ~~a potentially dilutive issuance~~significant costs, including litigation costs. We are also subject to regulations promulgated by the United States Consumer Financial Protection Bureau (CFPB), which, among other things, establishes regulations regarding consumer financial protection laws. In addition, the CFPB has investigatory and enforcement authority with respect to whether persons are engaged in unlawful acts or practices in connection with the collection of ~~equity securities, the incurrence of additional debt and amortization of expenses related~~consumer debts.

Risks Related to ~~intangible assets, all of which could adversely affect~~ our ~~results of operations and stock price.~~Common Stock

The price of our common stock could be volatile, and you may not be able to sell your shares at or above the public offering price.

Since our initial public offering in August 2012, the price of our common stock, as reported by NASDAQ Global Select Market, has ranged from a low sales price of ~~$1.50~~$0.54 on ~~March 16, 2017~~June 1, 2020 to a high sales price of $14.09 on March 4, 2013. The trading price of our common stock may be significantly affected by various factors, including: quarterly fluctuations in our operating results; the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; changes in investors’ and analysts’ perception of the business risks and conditions of our business; our ability to meet the earnings estimates and other performance expectations of financial analysts or investors; unfavorable commentary or downgrades of our stock by equity research analysts; changes in our capital structure, such as future issuances of debt or equity securities; our success or failure to obtain new contract awards; lawsuits threatened or filed against us; strategic actions by us or our competitors, such as acquisitions or restructurings; new legislation or regulatory actions; changes in our relationship with any of our significant clients; fluctuations in the stock prices of our peer companies or in stock markets in general; and general economic conditions.

Our significant stockholders have the ability to influence significant corporate activities and our significant stockholders' interests may not coincide with yours.

Prescott Group Management, L.L.C., First Light Asset Management, LLC, Parthenon Capital Partners, and ~~Invesco Ltd.~~Mill Road Capital Management LLC beneficially owned approximately ~~26.5%~~20.9%, 10.3%, 6.0% and ~~17.4%~~4.6% of our common stock, respectively, as of ~~September 30, 2017.~~March 31, 2023. As a result of their ownership, ~~Parthenon Capital Partners and Invesco Ltd.~~these significant stockholders have the ability to influence the outcome of matters submitted to a vote of stockholders and, through our board of directors, the ability to influence ~~decision‑~~decision making with respect to our business direction and policies. ~~Parthenon~~Mill Road Capital ~~Partners and Invesco Ltd.~~Management LLC currently has a representative sitting on our Board of Directors. These significant stockholders may have interests different from our other stockholders’ interests and may vote in a manner adverse to those interests. Matters over which ~~Parthenon Capital Partners and Invesco Ltd.~~these significant stockholders can, directly or indirectly, exercise influence include:

• mergers and other business combination transactions, including proposed transactions that would result in our

stockholders receiving a premium price for their shares;

• other acquisitions or dispositions of businesses or assets;

• incurrence of indebtedness and the issuance of equity securities;

• repurchase of stock and payment of dividends; and

• the issuance of shares to management under our equity incentive plans.

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In addition, even though Parthenon Capital Partners ~~has~~does not currently have a representative sitting on our Board of Directors, Parthenon Capital Partners does have a contractual right to designate a number of directors proportionate to its stock ~~ownership.~~ownership if and when Parthenon owns greater than 10% of our common stock. Further, under our amended and restated certificate of incorporation, Parthenon Capital Partners does not have any obligation to present to us, and Parthenon Capital Partners may separately pursue, corporate opportunities of which it becomes aware, even if those opportunities are ones that we would have pursued if granted the opportunity.

General Risks

We may undertake strategic transactions or other corporate restructuring that prove unsuccessful, strain or divert our resources and harm our results of operations and stock price.

We may consider strategic transactions or other corporate restructurings that could include the acquisition of other companies in our industry or in new markets, or the sale or divestiture of, or the wind down of existing portions of our business. We may not be able to successfully complete any such strategic transaction and, if completed, any such acquisition or divestiture may fail to achieve the intended financial results. We may not be able to successfully integrate any acquired businesses with our own and we may be unable to maintain our standards, controls and policies. Further, acquisitions may place additional constraints on our resources by diverting the attention of our management from other business concerns. Moreover, any acquisition may result in a potentially dilutive issuance of equity securities, the incurrence of additional debt, the amortization expenses related to intangible assets, and the potential impairment charges related to intangible assets or goodwill, all of which could adversely affect our results of operations and stock price. Further, despite any projected cost savings related to any proposed divestiture or wind down of any existing portion of our business, any such divestiture or wind down could result in an adverse effect on our revenues and results of operations.

Our business may be harmed if we lose members of our management team or other key employees.

Anti-takeover provisions contained in our certificate of incorporation and bylaws could impair a takeover attempt that our stockholders may find beneficial.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include the following provisions: establishing a classified board of directors so that not all members of our board are elected at one time; providing that directors may be removed by stockholders only for cause; authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock; limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting; limiting our ability to engage in certain business combinations with any “interested stockholder,” other than Parthenon Capital Partners, for a three-year period following the time that the stockholder became an interested stockholder; requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; requiring a super majority vote for certain amendments to our amended and restated certificate of incorporation and amended and restated bylaws; and limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on the board, to our board of directors then in office. These provisions, alone or together, could have the effect of delaying or deterring a change in control, could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Sale of Unregistered Securities~~None.

On August 7, 2017, in consideration for, and concurrently with, the extension of the loans in accordance with the terms of our new credit agreement with ECMC Group, Inc., we issued a warrant to ECMC to purchase up to an aggregate of 3,863,326 shares of the Company’s common stock (representing approximately up to 7.5% of the our diluted common stock as calculated using the “treasury stock” method as defined under GAAP for the most recent fiscal quarter) with an exercise price of $1.92 per share. The warrant was issued in a private placement exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. Upon our election to borrow any of the additional term loans under the new credit agreement, we will be required to issue additional warrants at the same exercise price to purchase up to an aggregate of 77,267 additional shares of common stock (which represents approximately 0.15% of the diluted common stock calculated using the “treasury stock” method as defined under GAAP for the most recent fiscal quarter) for each $1,000,000 of such additional term loans. Subsequent to the closing of our new credit agreement, we executed a registration rights agreement with ECMC Group, Inc. and we filed a registration statement to register the resale of shares of our common stock acquired upon exercise of the warrants described above.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

~~None~~Not Applicable.

ITEM 5. OTHER INFORMATION

~~None~~ None.

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ITEM 6. EXHIBITS

(A) Exhibits:


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


~~(1)~~104			~~The material~~Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.101).


~~(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.

(1)The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

(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.

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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PERFORMANT FINANCIAL CORPORATION

Date:

May 10, 2023

By:

/s/ Simeon M. Kohl

Simeon M. Kohl

Chief Executive Officer (Principal Executive Officer)

~~PERFORMANT FINANCIAL CORPORATION~~By:

/s/Rohit Ramchandani

~~Date:~~

~~November 13, 2017~~

Rohit Ramchandani

~~By:~~

~~/s/ Lisa Im~~

~~Lisa Im~~

Chief Financial Officer

~~Chief Executive Officer (Principal Executive Officer)~~

~~By:~~

~~/s/ Ian Johnston~~

~~Ian Johnston~~

~~Vice President and Chief Accounting Officer~~

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	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



Cash paid for income taxes	$	540	$	3,976
Cash paid for interest	$	2,835	$	4,797



	September 30, 2017			December 31, 2016
Land	$	1,122		$	1,122
Building and leasehold improvements	6,223			6,203
Furniture and equipment	5,706			5,656
Computer hardware and software	70,615			67,861
	83,666			80,842
Less accumulated depreciation and amortization	(62,273		)	(57,107		)
Property, equipment and leasehold improvements, net	$	21,393		$	23,735



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



Exercise price	$	1.92
Share price on date of issuance	$	1.85
Volatility	50.0		%
Risk-free interest rate	1.83		%
Expected dividend yield	—		%
Contractual term (in years)	5



	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



	Number of Awards		Weighted average grant date fair value per share
Outstanding at December 31, 2016	2,060,240		$	2.70
Granted	1,481,252		2.41
Forfeited	(371,800	)	2.98
Expired	(40,500	)	2.57
Vested and converted to shares, net of units withheld for taxes	(533,872	)	2.73
Units withheld for taxes	(209,743	)	2.73
Outstanding at September 30, 2017	2,385,577		$	2.46
Expected to vest at September 30, 2017	2,266,348		$	2.46