Exhibit 99.1
Performant Financial Corporation Announces Solid Operating and Financial Results in Third Quarter 2012
Livermore, California, November 5, 2012 – Performant Financial Corporation (Nasdaq: PFMT), a leading provider of technology-enabled recovery and related analytics services in the United States, today reported the following financial results for its quarter ended September 30, 2012:
Third Quarter Highlights
| • | Revenues increased to $53.4 million, growth of 27.1% compared to the prior year period |
| • | Net income increased to $6.4 million, growth of 23.6% compared to the prior year period – earnings per diluted share (EPS) was $0.13 compared to $0.08 in the prior year period |
| • | Adjusted net income increased to $8.1 million, growth of 16.3% compared to the prior year period – adjusted earnings per diluted share (Adjusted EPS) was $0.17 compared to $0.16 in the prior year period |
| • | Adjusted EBITDA increased to $18.3 million, growth of 15.0% compared to the prior year period, with an adjusted EBITDA margin of 34.2% |
Fiscal 2012 Third Quarter Results
Revenues for the fiscal third quarter were $53.4 million, an increase of 27.1% compared to $42.0 million in the prior year period. Net income for the third quarter of fiscal 2012 was $6.4 million, resulting in EPS of $0.13, compared to $5.2 million, or $0.08 per diluted share, in the prior year period. Adjusted net income for the third quarter of 2012 was $8.1 million, resulting in Adjusted EPS of $0.17, compared to $7.0 million, or $0.16 per diluted share, in the prior year period. The increase in net income and adjusted net income was largely due to strong revenue growth. Adjusted EBITDA for the third quarter was $18.3 million as compared to $15.9 million in the third quarter of 2011.
Student Lending revenues grew 2.5% during the third quarter to $33.0 million from $32.1 in the prior year period. Student Loan Placement Volume (defined below) during the quarter totaled $1.3 billion, a decrease of 16.9% compared to the prior year period primarily due to the ongoing system conversion at the Department of Education, which has delayed placements to us and all other recovery vendors. Placements received from the Department of Education have accelerated since the end of the third quarter with total placements for the month of October exceeding $600 million.
Healthcare revenues grew 170.8% during the third quarter to $13.5 million from $5.0 million in the prior year period. Our Net Claim Recovery Volume (defined below) during the quarter was $119.2 million, compared to $43.7 million in the prior year period. Other revenues grew 42.9% during the third quarter to $6.9 million from $4.8 million in the prior year period primarily due to a new default-aversion service contract that commenced in May of this year.
Lisa Im, Performant Financial’s Chief Executive Officer said, “Through our differentiated operating model and technology platform we achieved robust revenue, adjusted EBITDA and EPS growth. We operate in several large markets with strong growth profiles and during the third quarter we performed up to our expectations in all of the markets in which we provide our services. The Healthcare market delivered the strongest growth and continues to develop into a larger portion of our business. Finally, we are very excited to have completed our initial public offering in August, which provides our company with greater financial flexibility for future growth opportunities as we move forward.”
As of September 30, 2012, the Company had cash and cash equivalents of approximately $32.2 million.
Fiscal 2012 Nine Month Results
Revenues for the nine months ended September 30, 2012 were $154.1 million, an increase of 28.1% compared to $120.3 million in the prior year period. Student Lending revenues grew 6.9% to $98.2 million from $91.8 in the prior year period. Student Loan Placement Volume totaled $3.6 billion, a decrease of 24.2% compared to the prior year period, primarily due to the ongoing system conversion at the Department of Education, which has delayed placements to us and all other recovery vendors, as well as our decision to terminate a marginally profitable contract with a commercial bank client. Healthcare revenues grew 171.4% to $39.1 million from $14.4 million in the prior year period. Our Net Claim Recovery Volume was $343.8 million, compared to $125.7 million in the prior year period. Other revenues grew 19.2% to $16.8 million from $14.1 million in the prior year period, largely related to the new default-aversion service contract.
Net income for the period was $17.0 million, or EPS of $0.32 on a fully diluted basis, compared to $14.7 million or EPS of $0.22 on a fully diluted basis in the prior year period. Adjusted net income for the period was $23.5 million, resulting in Adjusted EPS of $0.50 on a fully diluted basis. This compared to $18.4 million or $0.41 per fully diluted share in the prior year period. Adjusted EBITDA for the year-to-date period was $52.2 million as compared to $43.3 million in the same period last year.
Terms used in this Press Release
Student Loan Placement Volume refers to 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 revenue associated with the recovery of a portion of these loans may be recognized in subsequent accounting periods, which assists management in estimating future revenues and in allocating resources necessary to address current Placement Volumes.
Net Claim Recovery Volume refers to the dollar volume of improper Medicare claims that we have recovered for CMS during the applicable period net of any amount that we have reserved to cover appeals by healthcare providers. We are paid recovery fees as a percentage of this recovered claim volume. We calculate this metric by dividing our claim recovery revenue by our Claim Recovery Fee Rate. This metric shows trends in the volume of improper payments within our region and allows management to measure our success in finding these improper payments, over time.
Earnings Conference Call
The Company will hold a conference call to discuss its third quarter results at 5:00 p.m. Eastern. A live webcast of the call may be accessed over the Internet from the Company’s Investor Relations website at investors.performantcorp.com. Participants should follow the instructions provided on the website to download and install the necessary audio applications. The conference call is also available by dialing 877-941-2068 (domestic) or 480-629-9712 (international) and entering passcode 4570368. Participants should ask for the Performant Financial third quarter earnings conference call.
A replay of the live conference call will be available approximately one hour after the call. The replay will be available on the Company’s website or by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international) and entering the replay passcode 4570368. The telephonic replay will be available until 11:59 pm (Eastern Time), November 12, 2012.
About Performant Financial Corporation
Performant Financial Corporation is a leading provider of technology-enabled recovery and related analytics services. The Company’s services help identify and recover delinquent or defaulted assets and improper payments for various government, healthcare and financial services markets in the United States. The Company was founded in 1976 and is headquartered in Livermore, California.
Note Regarding Use of Non-GAAP Financial Measures
In this press release, to supplement our consolidated financial statements, the company presents the following non-GAAP measures: adjusted EBITDA and adjusted net income. These measures are not in accordance with generally accepted accounting principles (GAAP) and accordingly reconciliations of adjusted EBITDA and adjusted net income to net income determined in accordance with GAAP are included in the “Reconciliation of Non-GAAP Results” table at the end of this press release. We have included adjusted EBITDA and adjusted net income in this press release 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 should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items, specifically interest, tax and depreciation and amortization expenses, equity-based compensation expense and certain other non-operating expenses, that are recurring and will be reflected in our financial results for the foreseeable future. In addition, these measures may be calculated differently from similarly titled non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.
FORWARD-LOOKING STATEMENTS
This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future financial performance, the effect of the completion of the technology transition by the Department of Education, the effect of our operating model and technology platform on our financial results, the relative strength of our third quarter results, and the impact of our initial public offering on our financial flexibility. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change and actual results may differ materially from the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the high level of revenue concentration among our five largest customers, that many of our customer contracts are not exclusive and do not provide for committed business volumes, that we face significant competition in all of our markets, that the U.S. federal government accounts for a significant portion of our revenues, that future legislative and regulatory changes may have significant effects on our business, failure of our or third parties’ operating systems and technology infrastructure could disrupt the operation of our business and the threat of breach of our security measures or failure or unauthorized access to confidential data that we possess . More information on potential factors that could affect the Company’s financial condition and operating results is included from time to time in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Registration Statement on Form S-1 relating to its initial public offering and its Form 10-Q for the quarter ended September 30, 2012 to be filed with the SEC. The forward-looking statements are made as of the date of this press release and the company does not undertake to update any forward-looking statements to conform these statements to actual results or revised expectations.
Contact Information
Richard Zubek
Investor Relations
925-960-4988
investors@performantcorp.com
PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
| December 31, 2011 | September 30, 2012 | |||||||
| (Restated) | ||||||||
| Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 20,004 | $ | 32,204 | ||||
Trade accounts receivable, net of allowance for doubtful accounts of $77 and $64, respectively and estimated allowance for appeals of $484 and $1,112, respectively | 19,398 | 24,132 | ||||||
Deferred income taxes | 5,348 | 5,132 | ||||||
Prepaid expenses and other current assets | 3,292 | 2,451 | ||||||
Income tax receivable | — | 800 | ||||||
Debt issuance costs, current portion | 595 | 1,140 | ||||||
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Total current assets | 48,637 | 65,859 | ||||||
Property, equipment, and leasehold improvements, net | 14,915 | 18,237 | ||||||
Identifiable intangible assets, net | 36,516 | 37,177 | ||||||
Goodwill | 81,572 | 81,572 | ||||||
Debt issuance costs | — | 4,112 | ||||||
Other assets | 659 | 671 | ||||||
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Total assets | $ | 182,299 | $ | 207,628 | ||||
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| Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Current liabilities: | ||||||||
Current maturities of notes payable | $ | 8,134 | $ | 11,040 | ||||
Accrued salaries and benefits | 7,138 | 6,344 | ||||||
Accounts payable | 60 | 1,578 | ||||||
Other current liabilities | 8,475 | 8,213 | ||||||
Income taxes payable | 470 | — | ||||||
Deferred revenue | 2,214 | 2,499 | ||||||
Estimated liability for appeals | 450 | 3,655 | ||||||
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Total current liabilities | 26,941 | 33,329 | ||||||
Notes payable, net of current portion | 87,051 | 139,489 | ||||||
Line of credit, drawn | 8,198 | — | ||||||
Deferred compensation | 1,761 | — | ||||||
Deferred income taxes | 14,647 | 14,604 | ||||||
Other liabilities | 1,158 | 2,890 | ||||||
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Total liabilities | 139,756 | 190,312 | ||||||
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Commitments and contingencies | ||||||||
Redeemable preferred stock | ||||||||
Series A convertible preferred stock, $0.0001 par value. Authorized, 18,000 and zero shares; issued and outstanding, 5,296 and 0 shares at December 31, 2011 and September 30, 2012, respectively | 58,248 | — | ||||||
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Stockholders’ deficit: | ||||||||
Due from stockholders | (2,266 | ) | — | |||||
Common stock, $0.0001 par value. Authorized, 60,000 and 500,000 shares at December 31, 2011and September 30, 2012, respectively; issued and outstanding 37,667 and 45,321 shares at December 31, 2011 and September 30, 2012, respectively | 4 | 4 | ||||||
Additional paid-in capital | 19,371 | 35,186 | ||||||
Accumulated deficit | (32,814 | ) | (17,874 | ) | ||||
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Total stockholders’ (deficit) equity | (15,705 | ) | 17,316 | |||||
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Total liabilities, redeemable preferred stock, and stockholders’ (deficit) equity | $ | 182,299 | $ | 207,628 | ||||
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The number of Series A convertible preferred shares outstanding, Series A convertible preferred stock, the number of common shares outstanding, Common stock, and Additional paid-in capital have been restated to give effect to the two-for-one split.
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, | |||||||||||||||
| 2011 | 2012 | 2011 | 2012 | |||||||||||||
Revenues | $ | 42,009 | $ | 53,400 | $ | 120,333 | $ | 154,099 | ||||||||
Operating expenses: | ||||||||||||||||
Salaries and benefits | 16,456 | 21,003 | 50,437 | 59,426 | ||||||||||||
Other operating expenses | 13,613 | 18,240 | 35,193 | 53,053 | ||||||||||||
Total operating expenses | 30,069 | 39,243 | 85,630 | 112,479 | ||||||||||||
Income from operations | 11,940 | 14,157 | 34,703 | 41,620 | ||||||||||||
Debt extingusihment costs | — | — | — | (3,679 | ) | |||||||||||
Interest expense | (3,366 | ) | (3,175 | ) | (10,213 | ) | (9,329 | ) | ||||||||
Interest income | 31 | 2 | 94 | 64 | ||||||||||||
Income before provision for income taxes | 8,605 | 10,984 | 24,584 | 28,676 | ||||||||||||
Provision for income taxes | 3,439 | 4,601 | 9,839 | 11,698 | ||||||||||||
Net income | $ | 5,166 | $ | 6,383 | $ | 14,745 | $ | 16,978 | ||||||||
Accrual for preferred stock dividends | 1,660 | — | 4,785 | 2,038 | ||||||||||||
Net income available to common shareholders | $ | 3,506 | $ | 6,383 | $ | 9,960 | $ | 14,940 | ||||||||
Net income per share attributable to common shareholders | ||||||||||||||||
Basic | $ | 0.08 | $ | 0.14 | $ | 0.23 | $ | 0.34 | ||||||||
Diluted | $ | 0.08 | $ | 0.13 | $ | 0.22 | $ | 0.32 | ||||||||
Weighted average shares | ||||||||||||||||
Basic | 42,962 | 44,337 | 42,962 | 43,519 | ||||||||||||
Diluted | 45,024 | 48,674 | 44,646 | 47,133 | ||||||||||||
Net income per share attributable to common shareholders and weighted average shares outstanding have been restated to give effect to the two-for-one split.
PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2011 | 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 14,745 | $ | 16,978 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Loss on disposal of asset | — | 52 | ||||||
Depreciation and amortization | 5,712 | 7,002 | ||||||
Write-off of unamortized debt issuance costs | — | 335 | ||||||
Deferred income taxes | — | 173 | ||||||
Stock option compensation | 83 | 883 | ||||||
Interest expense from debt issuance costs and amortization of discount note payable | 947 | 946 | ||||||
Interest income on notes receivable from stockholders | (80 | ) | (57 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts receivable | (3,216 | ) | (4,734 | ) | ||||
Prepaid expenses and other current assets | 1,937 | 841 | ||||||
Income tax receivable | — | (800 | ) | |||||
Other assets | 30 | (12 | ) | |||||
Accrued salaries and benefits | 1,141 | (794 | ) | |||||
Accounts payable | 363 | 1,518 | ||||||
Other current liabilities | 4,434 | (1,262 | ) | |||||
Income taxes payable | — | (90 | ) | |||||
Deferred revenue | — | 285 | ||||||
Estimated liability for appeals | — | 3,205 | ||||||
Other liabilities | (91 | ) | 306 | |||||
Net cash provided by operating activities | 26,005 | 24,775 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property, equipment, and leasehold improvements | (4,237 | ) | (7,355 | ) | ||||
Purchase of perpetual software license and computer equipment | — | (837 | ) | |||||
Net cash used in investing activities | (4,237 | ) | (8,192 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowing under notes payable | — | 156,000 | ||||||
Borrowing under line of credit | — | 4,500 | ||||||
Redemption of preferred stock | — | (60,286 | ) | |||||
Repayment of notes payable | (11,074 | ) | (100,656 | ) | ||||
Repayment of line of credit | — | (12,698 | ) | |||||
Debt issuance costs paid | — | (3,061 | ) | |||||
Proceeds from exercise of stock options | — | 137 | ||||||
Proceeds from issuance of stock | — | 12,844 | ||||||
Receipt from stockholders | — | 2,323 | ||||||
Payment to stockholders | — | (1,761 | ) | |||||
Purchase of treasury stock | — | (1,225 | ) | |||||
Payment of purchase obligation | — | (500 | ) | |||||
Net cash used in financing activities | (11,074 | ) | (4,383 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 10,694 | 12,200 | ||||||
Cash and cash equivalents at beginning of year | 11,078 | 20,004 | ||||||
Cash and cash equivalents at end of year | $ | 21,772 | $ | 32,204 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for income taxes | $ | 9,425 | $ | 12,415 | ||||
Cash paid for interest | 8,489 | 8,358 | ||||||
Cash paid as debt extinguisment | — | 3,344 | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Obligation to sellers of perpetual license | $ | — | $ | 3,250 | ||||
Issuance of common stock as part of debt issuance costs | — | 2,796 | ||||||
PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, Except Per Share amounts)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2012 | 2011 | 2012 | |||||||||||||
Reconciliation of Adjusted Earnings Per Diluted Share: | ||||||||||||||||
GAAP Net Income (‘000s) | $ | 5,166 | $ | 6,383 | $ | 14,745 | $ | 16,978 | ||||||||
Less: Accrual for Preferred Dividends | (1,660 | ) | — | (4,785 | ) | (2,038 | ) | |||||||||
GAAP net income available to common stockholders | 3,506 | 6,383 | 9,960 | 14,940 | ||||||||||||
Plus: Accrual for Preferred Dividends | 1,660 | — | 4,785 | 2,038 | ||||||||||||
Plus: Adjustment items per Reconciliation of Adjusted Net Income | 1,836 | 1,765 | 3,645 | 6,515 | ||||||||||||
Adjusted Net Income | 7,002 | 8,148 | 18,390 | 23,493 | ||||||||||||
Adjusted Earnings Per Diluted Share | $ | 0.16 | $ | 0.17 | $ | 0.41 | $ | 0.50 | ||||||||
Diluted avg shares outstanding (‘000s) | 45,024 | 48,674 | 44,646 | 47,133 | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2012 | 2011 | 2012 | |||||||||||||
Reconciliation of Adjusted EBITDA: | ||||||||||||||||
Net income | $ | 5,166 | $ | 6,383 | $ | 14,745 | $ | 16,978 | ||||||||
Provision for income taxes | 3,439 | 4,601 | 9,839 | 11,698 | ||||||||||||
Interest expense | 3,366 | 3,175 | 10,213 | 9,329 | ||||||||||||
Interest income | (31 | ) | (2 | ) | (94 | ) | (64 | ) | ||||||||
Debt extinguishment costs(1) | — | — | — | 3,679 | ||||||||||||
Depreciation and amortization | 1,953 | 2,445 | 5,712 | 7,002 | ||||||||||||
Non-core operating expenses(2) | 1,856 | — | 2,438 | 47 | ||||||||||||
Advisory fee(3) | 109 | 932 | 326 | 2,641 | ||||||||||||
Stock based compensation | 28 | 734 | 83 | 883 | ||||||||||||
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Adjusted EBITDA | $ | 15,886 | $ | 18,268 | $ | 43,262 | $ | 52,193 | ||||||||
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Reconciliation of Adjusted Net Income: | ||||||||||||||||
Net income | $ | 5,166 | $ | 6,383 | $ | 14,745 | $ | 16,978 | ||||||||
Debt extinguishment costs(1) | — | — | — | 3,679 | ||||||||||||
Non-core operating expenses(2) | 1,856 | — | 2,438 | 47 | ||||||||||||
Advisory fee(3) | 109 | 932 | 326 | 2,641 | ||||||||||||
Stock based compensation | 28 | 734 | 83 | 883 | ||||||||||||
Amortization of intangibles(4) | 760 | 932 | 2,282 | 2,741 | ||||||||||||
Deferred financing amortization costs(5) | 307 | 344 | 946 | 865 | ||||||||||||
Tax adjustments(6) | (1,224 | ) | (1,177 | ) | (2,430 | ) | (4,341 | ) | ||||||||
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Adjusted Net Income | $ | 7,002 | $ | 8,148 | $ | 18,390 | $ | 23,493 | ||||||||
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| (1) | Represents debt extinguishment costs comprised of approximately $3.3 million of fees paid to lenders in connection with our new credit facility and approximately $0.3 million of unamortized debt issuance costs in connection with our old credit facility. |
| (2) | Represents professional fees and settlement costs related to strategic corporate development activities and a $1.2 million legal settlement in 2011. |
| (3) | Represents expenses incurred under an advisory services agreement with Parthenon Capital Partners, which was terminated in April 2012. |
| (4) | Represents amortization of capitalized expenses related to the acquisition of Performant by an affiliate of Parthenon Capital Partners in 2004, the impairment expense to reduce the carrying amount of the intangible asset due to our decision to terminate a client contract in 2009 and an acquisition in the first quarter of 2012 to enhance our analytics capabilities. |
| (5) | Represents amortization of capitalized financing costs related to debt offerings conducted in 2009, 2010 and 2012. |
| (6) | Represents tax adjustments assuming a marginal tax rate of 40%. |