Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2018 | Aug. 08, 2018 | |
Document Documentand Entity Information [Abstract] | ||
Entity Registrant Name | Performant Financial Corporation | |
Entity Central Index Key | 1,550,695 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2018 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 51,943,714 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 7,977 | $ 21,731 |
Restricted cash | 1,788 | 1,788 |
Trade accounts receivable, net of allowance for doubtful accounts of $0 and $35, respectively | 15,592 | 12,494 |
Prepaid expenses and other current assets | 3,218 | 12,678 |
Income tax receivable | 5,602 | 6,839 |
Total current assets | 34,177 | 55,530 |
Property, equipment, and leasehold improvements, net | 20,667 | 20,944 |
Identifiable intangible assets, net | 4,458 | 4,864 |
Goodwill | 81,572 | 81,572 |
Deferred income taxes | 815 | 468 |
Other assets | 1,013 | 1,058 |
Total assets | 142,702 | 164,436 |
Current liabilities: | ||
Current maturities of notes payable, net of unamortized debt issuance costs of $141 and $171, respectively | 2,059 | 2,029 |
Accrued salaries and benefits | 4,670 | 4,569 |
Accounts payable | 1,634 | 1,518 |
Other current liabilities | 4,051 | 3,347 |
Deferred revenue | 1,440 | 0 |
Estimated liability for appeals | 873 | 18,817 |
Net payable to client | 0 | 12,800 |
Total current liabilities | 14,727 | 43,080 |
Notes payable, net of current portion and unamortized debt issuance costs of $2,611 and $3,245, respectively | 38,089 | 38,555 |
Deferred income taxes | 396 | 0 |
Other liabilities | 3,118 | 2,476 |
Total liabilities | 56,330 | 84,111 |
Commitments and contingencies | ||
Stockholders’ equity: | ||
Common stock, $0.0001 par value. Authorized, 500,000 shares at June 30, 2018 and December 31, 2017; issued and outstanding 51,920 and 51,085 shares at June 30, 2018 and December 31, 2017, respectively | 5 | 5 |
Additional paid-in capital | 73,642 | 72,459 |
Retained earnings | 12,725 | 7,861 |
Total stockholders’ equity | 86,372 | 80,325 |
Total liabilities and stockholders’ equity | $ 142,702 | $ 164,436 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 0 | $ 35 |
Debt issuance costs (current) | 141 | 171 |
Debt issuance costs notes payable (non current) | $ 2,611 | $ 3,245 |
Common Stock, par value (USD per share) | $ 0.0001 | $ 0.0001 |
Common Stock, authorized shares (shares) | 500,000,000 | 500,000,000 |
Common Stock, issued shares (shares) | 51,920,000 | 51,085,000 |
Common Stock, outstanding shares (shares) | 51,920,000 | 51,085,000 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Income Statement [Abstract] | ||||
Revenues | $ 31,336 | $ 35,907 | $ 88,357 | $ 69,016 |
Operating expenses: | ||||
Salaries and benefits | 22,305 | 20,450 | 44,086 | 41,146 |
Other operating expenses | 12,399 | 16,082 | 35,419 | 29,523 |
Total operating expenses | 34,704 | 36,532 | 79,505 | 70,669 |
(Loss) income from operations | (3,368) | (625) | 8,852 | (1,653) |
Interest expense | (1,141) | (1,618) | (2,411) | (3,224) |
Interest income | 7 | 0 | 13 | 0 |
(Loss) income before (benefit from) provision for income taxes | (4,502) | (2,243) | 6,454 | (4,877) |
(Benefit from) provision for income taxes | (911) | 197 | 1,590 | 522 |
Net (loss) income | $ (3,591) | $ (2,440) | $ 4,864 | $ (5,399) |
Net (loss) income per share | ||||
Basic (USD per share) | $ (0.07) | $ (0.05) | $ 0.09 | $ (0.11) |
Diluted (USD per share) | $ (0.07) | $ (0.05) | $ 0.09 | $ (0.11) |
Weighted average shares | ||||
Basic (shares) | 51,643 | 50,579 | 51,483 | 50,443 |
Diluted (shares) | 51,643 | 50,579 | 53,501 | 50,443 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Statement of Comprehensive Income [Abstract] | ||||
Net (loss) income | $ (3,591) | $ (2,440) | $ 4,864 | $ (5,399) |
Other comprehensive income: | ||||
Foreign currency translation adjustment | (1) | (2) | 0 | (5) |
Comprehensive (loss) income | $ (3,592) | $ (2,442) | $ 4,864 | $ (5,404) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Cash flows from operating activities: | ||
Net income (loss) | $ 4,864 | $ (5,399) |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||
Loss on disposal of assets | 43 | 10 |
Impairment of goodwill and intangible assets | 0 | 1,081 |
Release of net payable to client related to contract termination | (9,860) | 0 |
Release of estimated liability for appeals due to termination of contract | (17,932) | 0 |
Derecognition of subcontractor receivable for appeals due to termination of contract | 5,535 | 0 |
Derecognition of subcontractor receivable for overturned claims | 1,536 | 0 |
Allowance for doubtful accounts for subcontractor receivable | 1,868 | 0 |
Depreciation and amortization | 5,113 | 5,668 |
Deferred income taxes | 49 | 667 |
Stock-based compensation | 1,589 | 2,290 |
Interest expense from debt issuance costs | 664 | 696 |
Interest expense paid in kind | 0 | 217 |
Changes in operating assets and liabilities: | ||
Trade accounts receivable | (3,098) | 217 |
Prepaid expenses and other current assets | 521 | (1,806) |
Income tax receivable | 1,237 | (610) |
Other assets | 45 | (1) |
Accrued salaries and benefits | 101 | 194 |
Accounts payable | 116 | 87 |
Deferred revenue and other current liabilities | 2,144 | (221) |
Estimated liability for appeals | (12) | (126) |
Net payable to client | (2,940) | 30 |
Other liabilities | 641 | (71) |
Net cash (used in) provided by operating activities | (7,776) | 2,923 |
Cash flows from investing activities: | ||
Purchase of property, equipment, and leasehold improvements | (4,473) | (4,253) |
Net cash used in investing activities | (4,473) | (4,253) |
Cash flows from financing activities: | ||
Repayment of notes payable | (1,100) | (11,285) |
Debt issuance costs paid | 0 | (296) |
Taxes paid related to net share settlement of stock awards | (591) | (339) |
Proceeds from exercise of stock options | 186 | 31 |
Net cash used in financing activities | (1,505) | (11,889) |
Effect of foreign currency exchange rate changes on cash | 0 | (5) |
Net decrease in cash, cash equivalents and restricted cash | (13,754) | (13,224) |
Cash, cash equivalents and restricted cash at beginning of period | 23,519 | 40,484 |
Cash, cash equivalents and restricted cash at end of period | 9,765 | 27,260 |
Supplemental disclosures of cash flow information: | ||
Cash paid for income taxes | 82 | 439 |
Cash paid for interest | $ 1,748 | $ 2,328 |
Organization and Description of
Organization and Description of Business | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Organization and Description of Business | Organization and Description of Business (a) Basis of Presentation and Organization The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary (consisting only of normal recurring adjustments) for a fair presentation of our and our subsidiaries’ financial position at June 30, 2018 , the results of our operations for the three and six months ended June 30, 2018 and 2017 and cash flows for the six months ended June 30, 2018 and 2017 . 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 ended December 31, 2017, 2016, and 2015. The Company is a leading provider of technology-enabled audit, recovery, and analytics services in the United States. The Company's services help identify improper payments, and in some markets, restructure and recover delinquent or defaulted assets and improper payments for both government and private clients across different markets. The Company's clients typically operate in complex and regulated environments and outsource their recovery needs in order to reduce losses on billions of dollars of defaulted student loans, improper healthcare payments and delinquent state tax and federal treasury receivables. The Company generally provides services on an outsourced basis, where we handle many or all aspects of the clients’ various processes. The Company's consolidated financial statements include the operations of Performant Financial Corporation (PFC), its wholly-owned subsidiary Performant Business Services, Inc., and its wholly-owned subsidiaries Performant Recovery, Inc. (Recovery), Performant Technologies, Inc., and Performant Europe Ltd. PFC is a Delaware corporation headquartered in California and was formed in 2003. Performant Business Services, Inc. is a Nevada corporation founded in 1997. Recovery is a California corporation founded in 1976. Performant Technologies, Inc. is a California corporation 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 assets, goodwill, estimated liability for appeals, accrued expenses, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Our actual results could differ from those estimates. (b) Revenues, Accounts Receivable, and Estimated Liability for Appeals The Company derives its revenues primarily from providing recovery services. Revenues are recognized when control of these services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company determines revenue recognition through the following steps: • Identification of the contract with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, the performance obligations are satisfied The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company’s contracts generally contain a single performance obligation, delivered over time as a series of services that are substantially the same and have the same pattern of transfer to the client, as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For contracts with multiple performance obligations, the Company would allocate the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct service in the contract. The Company determines the standalone selling prices by taking into consideration the value of the services being provided, the client type and how similar services are priced in other contracts on a standalone basis. The Company’s contracts are composed primarily of variable consideration. Fees earned under the Company’s recovery service contracts consist primarily of contingency fees based on a specified percentage of the amount the Company enables its clients to recover. The contingency fee percentage for a particular recovery depends on the type of recovery or claim facilitated. In certain contracts the Company can earn additional performance-based consideration determined based on its performance relative to the client’s other contractors providing similar services. Revenue from contingency fees earned upon recovery of funds is generally recognized as amounts are invoiced based on either the ‘as-invoiced’ practical expedient when such amounts reflect the value of the services completed to-date, or an output measure based on milestones which is used to measure progress of the satisfaction of its performance obligation. The Company estimates any performance-based variable consideration 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. 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 awards are considered variable and may be constrained by the Company until there is not a risk of a material reversal. For contracts that contain a refund right, these amounts are considered variable consideration and the Company estimates its refund liability for each claim and recognizes revenue net of such estimate. The following table presents revenue disaggregated by category (in thousands) for the three and six months ended June 30, 2018 and 2017 : Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 (in thousands) (in thousands) Student Lending: Great Lakes Higher Education Guaranty Corporation $ 7,611 $ 15,210 $ 17,650 $ 24,655 All Other Guaranty Agencies 9,917 12,249 18,983 27,353 Total of Student Lending 17,528 27,459 36,633 52,008 Healthcare: CMS RAC and MSP 3,496 66 32,600 148 Commercial 2,599 2,022 4,809 3,587 Total of Healthcare 6,095 2,088 37,409 3,735 Other: 7,713 6,360 14,315 13,273 Total Revenues $ 31,336 $ 35,907 $ 88,357 $ 69,016 The Company generally either applies the as-invoiced practical expedient where its right to consideration corresponds directly to its right to invoice its clients, or the variable consideration allocation exception where the variable consideration is attributable to one or more, but not all, of the services promised in a series of distinct services that form part of a single performance obligation. As such the Company has elected the optional exemptions related to the as-invoiced practical expedient and the variable consideration allocation exception whereby the disclosure of the amount of transaction price allocated to the remaining performance obligations is not required. The Company has applied the as-invoiced practical expedient and the variable allocation exception to have an average remaining duration of less than a year. The Company determined that it does not have any costs related to obtaining or fulfilling a contract that are recoverable and as such, these contract costs are expensed as incurred. The Company has contract assets of $1.4 million and $1.6 million as of June 30, 2018 and December 31, 2017, respectively. The contract assets relate to the Company’s rights to consideration for services completed during the six months ended June 30, 2018 but not invoiced at the reporting date. Contract assets are recorded to accounts receivable when the rights become unconditional and amounts are invoiced. Contract assets are included in Trade accounts receivable in the consolidated balance sheets. The Company has contract liabilities of $1.4 million as of June 30, 2018 and none as of December 31, 2017. The Company’s contract liability relates to an advance recovery commission payment received from a customer during the first quarter of 2018, for which the Company anticipates revenue to be recognized as services are delivered. Contract liabilities are included in Deferred revenue in the consolidated balance sheets. Revenue is recognized upon the collection of defaulted loan and debt payments. Loan rehabilitation revenue is recognized when the rehabilitated loans are sold (funded) by clients. Incentive revenue is recognized upon receipt of official notification of incentive award from customers. Under the Company’s Medicare Secondary Payer, or MSP, contract with Centers for Medicare and Medicaid Services, or CMS, the Company recognizes revenues when insurance companies or other responsible parties remit payment to reimburse CMS for claims for which they are responsible, and the remittance has been applied in the CMS database. Under the Company’s Medicare Recovery Audit Contractor, or RAC, contract with CMS, the Company recognizes revenues when the healthcare provider has paid CMS for a given claim or has agreed to an offset against other claims by the provider. Providers have the right to appeal a claim and may pursue additional appeals if the initial appeal is found in favor of CMS. The Company accrues an estimated liability for appeals at the time revenue is recognized based on the Company's estimate of the amount 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 June 30, 2018 , a total of $0.6 million was presented as an allowance against revenue, representing the Company’s estimate of claims audited under the CMS contract that may be overturned. In addition to the $0.6 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 $0.9 million has been presented in the caption estimated liability for appeals at June 30, 2018 . At December 31, 2017, the total appeals-related liability was $18.8 million . The $0.9 million balance at June 30, 2018 and $18.8 million at December 31, 2017, represent the Company’s best estimate of the probable amount of losses related to appeals of claims for which commissions were previously collected. To the extent that required payments by the Company exceed the amount accrued, revenues in the applicable period would be reduced by the amount of the excess. The 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 consider remote. The allowance for doubtful account was $0 thousand and $35 thousand at June 30, 2018 and December 31, 2017, respectively. (c) Net Payable to Client The Company nets outstanding accounts receivable invoices from an audit and recovery contract against payables for overturned audits. The overturned audits are netted against current fees due on the invoice to the client when they are processed by the client’s system. As a result of the 2009 CMS Region A contract termination on January 31, 2018, the “Net payable to client” balance was $0.0 million as of June 30, 2018 . The "Net payable to client" balance of $12.8 million at December 31, 2017 represents the excess of payables for overturned audits. (d) Prepaid Expenses and Other Current Assets At June 30, 2018 , prepaid expenses and other current assets includes $0.0 million of amounts due from subcontractors which consists of gross receivable of $1.7 million offset by $1.7 million allowance for doubtful accounts. The Company employs subcontractors to audit claims as part of an audit & recovery contract, 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. At June 30, 2018 , the receivable associated with estimated future overturns of subcontractor audits was $0.0 million as a result of the 2009 CMS Region A contract termination on January 31, 2018 and net receivable from subcontractor fees for already overturned audits was $0.0 million . By comparison, at December 31, 2017, prepaid expenses and other current assets included $5.6 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 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 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. The balance of goodwill was $81.6 million as of June 30, 2018 and December 31, 2017. For the six months ended June 30, 2017, an impairment expense of $1.1 million was recognized to account for the write-off of goodwill 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. There was no impairment expense for goodwill and long-lived assets for the six months ended June 30, 2018 . (f) Restricted Cash At June 30, 2018 and at December 31, 2017, restricted cash included in current assets on our consolidated balance sheet was $1.8 million and $1.8 million , respectively. (g) New Accounting Pronouncements Recently Adopted Accounting Standards 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. The Company adopted this guidance and it did not have any impact on our consolidated financial statements. 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 supersedes 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 Company adopted Topic 606 as of January 1, 2018, utilizing the full retrospective method of transition. The Company applied Topic 606 retrospectively for all reporting periods presented before January 1, 2018, the date of the initial application. There was no impact of adopting Topic 606 on the Company’s 2017 and 2016 consolidated financial statements. Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under Accounting Standards Codification Topic 840 Leases. The guidance is effective for our fiscal year beginning January 1, 2019 and should be applied using a modified retrospective approach. Early adoption is permitted. The Company plans to adopt this new standard in the first quarter of our fiscal 2019. The Company continues to evaluate the effect of adopting this guidance on the consolidated financial statements and related disclosures. Upon adoption, the Company will recognize right-of-use assets and operating lease liabilities on the consolidated balance sheets, which will increase the total assets and total liabilities. However, in July 2018 the FASB issued ASU No. 2018-11, Targeted Improvements , which provides us with the option to apply the new leasing standard to all open leases as of the adoption date. The Company has not adopted this guidance early and continues to evaluate the accounting, transition, and disclosure requirements of this standard. 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 those years, beginning after December 15, 2019, and early adoption is permitted for testing periods after January 1, 2017. We have not adopted this guidance early and are currently evaluating the effect on our consolidated financial statements. |
Property, Equipment, and Leaseh
Property, Equipment, and Leasehold Improvements | 6 Months Ended |
Jun. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Property, Equipment, and Leasehold Improvements | Property, Equipment, and Leasehold Improvements Property, equipment, and leasehold improvements consist of the following at June 30, 2018 and December 31, 2017 (in thousands): June 30, December 31, Land $ 1,122 $ 1,122 Building and leasehold improvements 6,618 6,410 Furniture and equipment 5,791 5,763 Computer hardware and software 75,899 72,044 89,430 85,339 Less accumulated depreciation and amortization (68,763 ) (64,395 ) Property, equipment and leasehold improvements, net $ 20,667 $ 20,944 Depreciation expense of property, equipment and leasehold improvements was $2.3 million and $2.7 million for the three months ended June 30, 2018 and 2017 , respectively, $4.7 million and $5.2 million for the six months ended June 30, 2018 and 2017 , respectively. |
Credit Agreement
Credit Agreement | 6 Months Ended |
Jun. 30, 2018 | |
Debt Disclosure [Abstract] | |
Credit Agreement | Credit Agreement On August 7, 2017, we, through our wholly-owned subsidiary Performant Business Services, Inc. (the "Borrower"), entered into a credit agreement with ECMC Group, Inc. (the “Credit Agreement”). The Credit Agreement provides for a term loan facility in the initial amount of $44 million (the “Initial Term Loan”) and for up to $15 million of additional term loans (“Additional Term Loans”; and together with the Initial Term Loan, the “Loans”) which 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 our prior credit agreement with Madison Capital Funding LLC as administrative agent (the "Prior Credit Agreement"). On September 29, 2017, we entered into Amendment No. 1 to the Credit Agreement to extend the initial interest payment due date to December 31, 2017. 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. Our annual interest rate at June 30, 2018 was 7.6% . We will be required to pay 5% of the original principal balance of the Loans annually in quarterly installments beginning March 31, 2018, and to offer to make mandatory prepayments of the Loans with a percentage of our excess cash flow which may vary between 75% and 0% depending on our total debt to EBITDA ratio. In addition to mandatory prepayments for excess cash flow, we will also be required to offer to prepay the Loans with the net cash proceeds of certain asset dispositions and with the issuance of debt not otherwise permitted under the Credit Agreement. Except in connection with a change of control and the payment of a 1% premium, we will not be permitted to voluntarily prepay the Loans until after the first anniversary of the Closing Date. We will be permitted to prepay the Loans during the second year after the Closing Date if accompanied by a prepayment premium of 1% . Thereafter, we will be permitted to prepay the Loans without any prepayment premium. The Credit Agreement contains certain restrictive financial covenants which became effective on the Closing Date. Such covenants require, among other things, that we meet a minimum fixed charge coverage ratio of 0.5 to 1.0 through December 31, 2019, 1.0 to 1.0 through June 30, 2020 (or until December 31, 2020 if the maturity date of the Loans is extended until the fourth anniversary of the Closing Date), 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 Credit Agreement also contains covenants that will restrict the Company and its subsidiaries’ ability to incur certain types or amounts of indebtedness, incur liens on certain assets, make material changes in corporate structure or the nature of its business, dispose of material assets, engage in a change in control transaction, make certain foreign investments, enter into certain restrictive agreements, or engage in certain transactions with affiliates. The obligations under the Credit Agreement are secured by substantially all of our United States domestic subsidiaries' assets and are guaranteed by the Company and its United States domestic subsidiaries, other than the Borrower. As a result of our entry into our Credit Agreement, and the repayment of all amounts owed under the Prior Credit Agreement, we wrote off debt issuance costs related to the Prior Credit Agreement of approximately $1.0 million in August 2017. Scheduled payments under the Agreement for the next five years and thereafter are as follows (in thousands): Year Ending December 31, Amount Remainder of 2018 $ 1,100 2019 2,200 2020 39,600 2021 — 2022 — Thereafter — Total $ 42,900 The Company made principal payments of $0.6 million and $1.1 million for the quarter and six months ending June 30, 2018 , respectively. In consideration for, and concurrently with, the extension of the Initial Term Loan in accordance with the terms of the 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. 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 is being 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 are being 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): June 30, 2018 Principal amount $ 42,900 Less: unamortized discount and debt issuance costs (2,752 ) Loan payable less unamortized discount and debt issuance costs 40,148 Less: current maturities (2,059 ) Long-term loan payable, net of current maturities $ 38,089 |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 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 2018 and 2025 . Certain of these arrangements have free rent periods and /or escalating rent payment provisions, and we recognize rent expense under such arrangements on a straight-line basis. Future minimum rental commitments under non-cancelable leases as of June 30, 2018 are as follows (in thousands): Year Ending December 31, Amount Remainder of 2018 $ 1,411 2019 3,072 2020 3,035 2021 2,141 2022 1,710 Thereafter 2,190 Total $ 13,559 Operating lease expense was $ 0.9 million and $0.7 million for the three months ended June 30, 2018 and 2017 , respectively, and was $1.8 million and $1.4 million for the six months ended June 30, 2018 and 2017 , respectively. |
Stock-based Compensation
Stock-based Compensation | 6 Months Ended |
Jun. 30, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-based Compensation | Stock-based Compensation (a) Stock Options Total stock-based compensation expense charged as salaries and benefits expense in the consolidated statements of operations was $1.0 million and $1.2 million for the three months ended June 30, 2018 and 2017 , respectively, and was $1.6 million and $2.3 million for the six months ended June 30, 2018 and 2017 , respectively. The following table shows stock option activity for the six months ended June 30, 2018 : Outstanding Options Weighted average exercise price per share Weighted average remaining contractual life (Years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2017 2,936,198 $ 8.21 4.48 $ 360 Granted — — Forfeited (142,644 ) 10.35 Exercised (268,750 ) 0.69 Outstanding at June 30, 2018 2,524,804 $ 8.89 4.39 $ 252 Vested, exercisable, expected to vest (1) at June 30, 2018 2,521,127 $ 8.90 4.39 $ 252 Exercisable at June 30, 2018 2,451,252 $ 9.06 4.32 $ 240 (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 years . (b) Restricted Stock Units and Performance Stock Units The following table summarizes restricted stock unit and performance stock unit activity for the six months ended June 30, 2018 : Number of Awards Weighted average grant date fair value per share Outstanding at December 31, 2017 2,591,587 $ 2.39 Granted 1,773,536 2.80 Forfeited (122,950 ) 2.37 Vested and converted to shares, net of units withheld for taxes (566,383 ) 2.37 Units withheld for taxes (213,684 ) 2.37 Outstanding at June 30, 2018 3,462,106 $ 2.61 Expected to vest at June 30, 2018 3,289,001 $ 2.61 Restricted stock units and performance stock units granted under the Performant Financial Corporation Amended and Restated 2012 Stock Incentive Plan generally vest over periods ranging from one to four years . |
Income Taxes
Income Taxes | 6 Months Ended |
Jun. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes Our effective income tax rate changed to 24.6% for the six months ended June 30, 2018 from (10.7)% for the six months ended June 30, 2017 . The increase in the effective tax rate is primarily due to the increase in forecasted net deferred tax liability after valuation allowance for which an income tax expense was recorded and the resulting impact that the separate state taxes have on the forecasted rate applied to year to date income for the six months ended June 30, 2018 compared to the loss from operations for the six months ended June 30, 2017 for which no benefit was recognized. We file income tax returns with the U.S. federal government and various state jurisdictions. We operate in a number of state and local jurisdictions, most of which have never audited our records. Accordingly, we are subject to state and local income tax examinations based upon the various statutes of limitations in each jurisdiction. For tax years before 2014, the Company is no longer subject to Federal and certain other state tax examinations. We are currently being examined by the Franchise Tax Board of California for tax years 2011 through 2014 and reviewed by the Minnesota Department of Revenue for the tax years 2014 through 2016. |
Earnings per Share
Earnings per Share | 6 Months Ended |
Jun. 30, 2018 | |
Earnings Per Share [Abstract] | |
Earnings per Share | Earnings per Share For the three and six months ended June 30, 2018 and 2017 , basic income per share is calculated by dividing net income by the sum of the weighted average number of shares of Common Stock outstanding during the period. Diluted income per share is calculated by dividing net income by the weighted average number of shares of 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. 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 June 30, 2018, and the three and six months ended June 30, 2017, dilutive common share equivalents have been excluded, and 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, performance stock units and warrants from the calculation of diluted earnings per share when the combined exercise price, unamortized fair value and excess tax benefits of the options exceed the average market price of the Company's common stock because their effect would be anti-dilutive. For the six months ended June 30, 2018, the Company excluded 3,011,546 options from the calculation of diluted earnings per share because their effect would be anti-dilutive. The following table reconciles the basic to diluted weighted average shares outstanding using the treasury stock method (shares in thousands): Three Months Ended Six Months Ended 2018 2017 2018 2017 Weighted average shares outstanding – basic 51,643 50,579 51,483 50,443 Dilutive effect of stock options — — 2,018 — Weighted average shares outstanding – diluted 51,643 50,579 53,501 50,443 |
Subsequent Events
Subsequent Events | 6 Months Ended |
Jun. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events On August 9, 2018, the Company and ECMC Holdings Corporation (“ECMC Holdings”) entered into an Agreement for Purchase of LLC Membership Interests (the “Purchase Agreement”), pursuant to which the Company has agreed to acquire from ECMC Holdings all of the outstanding membership interests in Premiere Credit of North America, LLC (“Premiere”), a provider of asset recovery services to clients in the student loan, government, healthcare and commercial markets. As consideration for the purchase, at closing the Company will issue to ECMC Holdings 1,000,000 shares of its common stock and will be obligated to issue to ECMC Holdings additional shares of common stock over the five year period following the closing (not to exceed 2,591,824 shares in the aggregate) based on revenues associated with the Premiere business in each year. The Company estimates that it would issue approximately an additional 1,000,000 shares over the five year period if eligible revenues in each year are at the target level. The closing of the Premiere acquisition is subject to the satisfaction or waiver of customary closing conditions. At the closing of the Premiere acquisition, the Company’s subsidiary, Performant Recovery, Inc., will also enter into an amended collection services agreement with Educational Credit Management Corporation, an affiliate of ECMC Holdings, to be its primary student loan recovery vendor. Educational Credit Management Corporation, a Guaranty Agency and existing client of the Company, holds one of the largest student loan portfolios. The Company’s subsidiary, Performant Business Services, Inc. (the “Borrower”) will also amend its existing Credit Agreement, dated August 7, 2017, with ECMC Group, Inc., another affiliate of ECMC Holdings, to, among other things (i) extend the maturity date of the initial term loan and any additional term loans by one year to August 2021, (ii) expand the delayed draw term loan commitment from $15 million to $25 million , (iii) extend the period during which delayed draw term loans can be borrowed by one year to August 2020, and (iv) relieve the Borrower from its obligation to comply with the financial covenants in the Credit Agreement during the six fiscal quarters following the Premiere acquisition. We have evaluated subsequent events through the date these consolidated financial statements were issued and there are no other events that have occurred that would require adjustments or disclosures to our consolidated financial statements. |
Organization and Description 15
Organization and Description of Business (Policies) | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Organization | Basis of Presentation and Organization The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary (consisting only of normal recurring adjustments) for a fair presentation of our and our subsidiaries’ financial position at June 30, 2018 , the results of our operations for the three and six months ended June 30, 2018 and 2017 and cash flows for the six months ended June 30, 2018 and 2017 . 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 ended December 31, 2017, 2016, and 2015. The Company is a leading provider of technology-enabled audit, recovery, and analytics services in the United States. The Company's services help identify improper payments, and in some markets, restructure and recover delinquent or defaulted assets and improper payments for both government and private clients across different markets. The Company's clients typically operate in complex and regulated environments and outsource their recovery needs in order to reduce losses on billions of dollars of defaulted student loans, improper healthcare payments and delinquent state tax and federal treasury receivables. The Company generally provides services on an outsourced basis, where we handle many or all aspects of the clients’ various processes. The Company's consolidated financial statements include the operations of Performant Financial Corporation (PFC), its wholly-owned subsidiary Performant Business Services, Inc., and its wholly-owned subsidiaries Performant Recovery, Inc. (Recovery), Performant Technologies, Inc., and Performant Europe Ltd. PFC is a Delaware corporation headquartered in California and was formed in 2003. Performant Business Services, Inc. is a Nevada corporation founded in 1997. Recovery is a California corporation founded in 1976. Performant Technologies, Inc. is a California corporation 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 assets, goodwill, estimated liability for appeals, accrued expenses, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Our actual results could differ from those estimates. |
Revenues, Accounts Receivable, and Estimated Liability for Appeals | Revenues, Accounts Receivable, and Estimated Liability for Appeals The Company derives its revenues primarily from providing recovery services. Revenues are recognized when control of these services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company determines revenue recognition through the following steps: • Identification of the contract with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, the performance obligations are satisfied The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company’s contracts generally contain a single performance obligation, delivered over time as a series of services that are substantially the same and have the same pattern of transfer to the client, as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For contracts with multiple performance obligations, the Company would allocate the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct service in the contract. The Company determines the standalone selling prices by taking into consideration the value of the services being provided, the client type and how similar services are priced in other contracts on a standalone basis. The Company’s contracts are composed primarily of variable consideration. Fees earned under the Company’s recovery service contracts consist primarily of contingency fees based on a specified percentage of the amount the Company enables its clients to recover. The contingency fee percentage for a particular recovery depends on the type of recovery or claim facilitated. In certain contracts the Company can earn additional performance-based consideration determined based on its performance relative to the client’s other contractors providing similar services. Revenue from contingency fees earned upon recovery of funds is generally recognized as amounts are invoiced based on either the ‘as-invoiced’ practical expedient when such amounts reflect the value of the services completed to-date, or an output measure based on milestones which is used to measure progress of the satisfaction of its performance obligation. The Company estimates any performance-based variable consideration 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. 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 awards are considered variable and may be constrained by the Company until there is not a risk of a material reversal. For contracts that contain a refund right, these amounts are considered variable consideration and the Company estimates its refund liability for each claim and recognizes revenue net of such estimate. The following table presents revenue disaggregated by category (in thousands) for the three and six months ended June 30, 2018 and 2017 : Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 (in thousands) (in thousands) Student Lending: Great Lakes Higher Education Guaranty Corporation $ 7,611 $ 15,210 $ 17,650 $ 24,655 All Other Guaranty Agencies 9,917 12,249 18,983 27,353 Total of Student Lending 17,528 27,459 36,633 52,008 Healthcare: CMS RAC and MSP 3,496 66 32,600 148 Commercial 2,599 2,022 4,809 3,587 Total of Healthcare 6,095 2,088 37,409 3,735 Other: 7,713 6,360 14,315 13,273 Total Revenues $ 31,336 $ 35,907 $ 88,357 $ 69,016 The Company generally either applies the as-invoiced practical expedient where its right to consideration corresponds directly to its right to invoice its clients, or the variable consideration allocation exception where the variable consideration is attributable to one or more, but not all, of the services promised in a series of distinct services that form part of a single performance obligation. As such the Company has elected the optional exemptions related to the as-invoiced practical expedient and the variable consideration allocation exception whereby the disclosure of the amount of transaction price allocated to the remaining performance obligations is not required. The Company has applied the as-invoiced practical expedient and the variable allocation exception to have an average remaining duration of less than a year. The Company determined that it does not have any costs related to obtaining or fulfilling a contract that are recoverable and as such, these contract costs are expensed as incurred. The Company has contract assets of $1.4 million and $1.6 million as of June 30, 2018 and December 31, 2017, respectively. The contract assets relate to the Company’s rights to consideration for services completed during the six months ended June 30, 2018 but not invoiced at the reporting date. Contract assets are recorded to accounts receivable when the rights become unconditional and amounts are invoiced. Contract assets are included in Trade accounts receivable in the consolidated balance sheets. The Company has contract liabilities of $1.4 million as of June 30, 2018 and none as of December 31, 2017. The Company’s contract liability relates to an advance recovery commission payment received from a customer during the first quarter of 2018, for which the Company anticipates revenue to be recognized as services are delivered. Contract liabilities are included in Deferred revenue in the consolidated balance sheets. Revenue is recognized upon the collection of defaulted loan and debt payments. Loan rehabilitation revenue is recognized when the rehabilitated loans are sold (funded) by clients. Incentive revenue is recognized upon receipt of official notification of incentive award from customers. Under the Company’s Medicare Secondary Payer, or MSP, contract with Centers for Medicare and Medicaid Services, or CMS, the Company recognizes revenues when insurance companies or other responsible parties remit payment to reimburse CMS for claims for which they are responsible, and the remittance has been applied in the CMS database. Under the Company’s Medicare Recovery Audit Contractor, or RAC, contract with CMS, the Company recognizes revenues when the healthcare provider has paid CMS for a given claim or has agreed to an offset against other claims by the provider. Providers have the right to appeal a claim and may pursue additional appeals if the initial appeal is found in favor of CMS. The Company accrues an estimated liability for appeals at the time revenue is recognized based on the Company's estimate of the amount 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. |
Net Payable to Client | Net Payable to Client The Company nets outstanding accounts receivable invoices from an audit and recovery contract against payables for overturned audits. The overturned audits are netted against current fees due on the invoice to the client when they are processed by the client’s system. |
Prepaid Expenses and Other Current Assets | Prepaid Expenses and Other Current Assets At June 30, 2018 , prepaid expenses and other current assets includes $0.0 million of amounts due from subcontractors which consists of gross receivable of $1.7 million offset by $1.7 million allowance for doubtful accounts. The Company employs subcontractors to audit claims as part of an audit & recovery contract, 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. |
Impairment of Goodwill and Long-Lived Assets | Impairment of Goodwill and Long-Lived Assets Goodwill and long-lived assets 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. |
Restricted Cash | Restricted Cash At June 30, 2018 and at December 31, 2017, restricted cash included in current assets on our consolidated balance sheet was $1.8 million and $1.8 million , respectively. |
New Accounting Pronouncements | New Accounting Pronouncements Recently Adopted Accounting Standards 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. The Company adopted this guidance and it did not have any impact on our consolidated financial statements. 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 supersedes 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 Company adopted Topic 606 as of January 1, 2018, utilizing the full retrospective method of transition. The Company applied Topic 606 retrospectively for all reporting periods presented before January 1, 2018, the date of the initial application. There was no impact of adopting Topic 606 on the Company’s 2017 and 2016 consolidated financial statements. Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under Accounting Standards Codification Topic 840 Leases. The guidance is effective for our fiscal year beginning January 1, 2019 and should be applied using a modified retrospective approach. Early adoption is permitted. The Company plans to adopt this new standard in the first quarter of our fiscal 2019. The Company continues to evaluate the effect of adopting this guidance on the consolidated financial statements and related disclosures. Upon adoption, the Company will recognize right-of-use assets and operating lease liabilities on the consolidated balance sheets, which will increase the total assets and total liabilities. However, in July 2018 the FASB issued ASU No. 2018-11, Targeted Improvements , which provides us with the option to apply the new leasing standard to all open leases as of the adoption date. The Company has not adopted this guidance early and continues to evaluate the accounting, transition, and disclosure requirements of this standard. 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 those years, beginning after December 15, 2019, and early adoption is permitted for testing periods after January 1, 2017. We have not adopted this guidance early and are currently evaluating the effect on our consolidated financial statements. |
Organization and Description 16
Organization and Description of Business (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Schedule of Disaggregated Revenue by Category | The following table presents revenue disaggregated by category (in thousands) for the three and six months ended June 30, 2018 and 2017 : Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 (in thousands) (in thousands) Student Lending: Great Lakes Higher Education Guaranty Corporation $ 7,611 $ 15,210 $ 17,650 $ 24,655 All Other Guaranty Agencies 9,917 12,249 18,983 27,353 Total of Student Lending 17,528 27,459 36,633 52,008 Healthcare: CMS RAC and MSP 3,496 66 32,600 148 Commercial 2,599 2,022 4,809 3,587 Total of Healthcare 6,095 2,088 37,409 3,735 Other: 7,713 6,360 14,315 13,273 Total Revenues $ 31,336 $ 35,907 $ 88,357 $ 69,016 |
Property, Equipment, and Leas17
Property, Equipment, and Leasehold Improvements (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property, Equipment, and Leasehold Improvements | Property, equipment, and leasehold improvements consist of the following at June 30, 2018 and December 31, 2017 (in thousands): June 30, December 31, Land $ 1,122 $ 1,122 Building and leasehold improvements 6,618 6,410 Furniture and equipment 5,791 5,763 Computer hardware and software 75,899 72,044 89,430 85,339 Less accumulated depreciation and amortization (68,763 ) (64,395 ) Property, equipment and leasehold improvements, net $ 20,667 $ 20,944 |
Credit Agreement (Tables)
Credit Agreement (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Debt Disclosure [Abstract] | |
Schedule of Credit Agreement Payments | Scheduled payments under the Agreement for the next five years and thereafter are as follows (in thousands): Year Ending December 31, Amount Remainder of 2018 $ 1,100 2019 2,200 2020 39,600 2021 — 2022 — Thereafter — Total $ 42,900 |
Schedule of Warrant Valuation | 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 |
Schedule of Outstanding Debt | Outstanding debt obligations are as follows (in thousands): June 30, 2018 Principal amount $ 42,900 Less: unamortized discount and debt issuance costs (2,752 ) Loan payable less unamortized discount and debt issuance costs 40,148 Less: current maturities (2,059 ) Long-term loan payable, net of current maturities $ 38,089 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Future Minimum Rental Commitments under Non-Cancelable Leases | Future minimum rental commitments under non-cancelable leases as of June 30, 2018 are as follows (in thousands): Year Ending December 31, Amount Remainder of 2018 $ 1,411 2019 3,072 2020 3,035 2021 2,141 2022 1,710 Thereafter 2,190 Total $ 13,559 |
Stock-based Compensation (Table
Stock-based Compensation (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of Stock Option Activity | The following table shows stock option activity for the six months ended June 30, 2018 : Outstanding Options Weighted average exercise price per share Weighted average remaining contractual life (Years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2017 2,936,198 $ 8.21 4.48 $ 360 Granted — — Forfeited (142,644 ) 10.35 Exercised (268,750 ) 0.69 Outstanding at June 30, 2018 2,524,804 $ 8.89 4.39 $ 252 Vested, exercisable, expected to vest (1) at June 30, 2018 2,521,127 $ 8.90 4.39 $ 252 Exercisable at June 30, 2018 2,451,252 $ 9.06 4.32 $ 240 (1) Options expected to vest reflect an estimated forfeiture rate. |
Schedule of Restricted Stock Activity | The following table summarizes restricted stock unit and performance stock unit activity for the six months ended June 30, 2018 : Number of Awards Weighted average grant date fair value per share Outstanding at December 31, 2017 2,591,587 $ 2.39 Granted 1,773,536 2.80 Forfeited (122,950 ) 2.37 Vested and converted to shares, net of units withheld for taxes (566,383 ) 2.37 Units withheld for taxes (213,684 ) 2.37 Outstanding at June 30, 2018 3,462,106 $ 2.61 Expected to vest at June 30, 2018 3,289,001 $ 2.61 |
Earnings per Share (Tables)
Earnings per Share (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Earnings Per Share [Abstract] | |
Schedule of Reconciliation of Basic to Diluted Weighted Average Shares | The following table reconciles the basic to diluted weighted average shares outstanding using the treasury stock method (shares in thousands): Three Months Ended Six Months Ended 2018 2017 2018 2017 Weighted average shares outstanding – basic 51,643 50,579 51,483 50,443 Dilutive effect of stock options — — 2,018 — Weighted average shares outstanding – diluted 51,643 50,579 53,501 50,443 |
Organization and Description 22
Organization and Description of Business - Narrative (Details) | 6 Months Ended | |||
Jun. 30, 2018USD ($)segment | Jun. 30, 2017USD ($) | Jan. 31, 2018USD ($) | Dec. 31, 2017USD ($) | |
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Contract assets | $ 1,400,000 | $ 1,600,000 | ||
Contract liabilities | $ 1,400,000 | 0 | ||
Number of operating segments | segment | 1 | |||
Alllowance against revenue | $ 600,000 | |||
Estimated allowance for appeals of healthcare contracts | 300,000 | |||
Estimated liability for appeals | 873,000 | 18,817,000 | ||
Allowance for doubtful accounts | 0 | 35,000 | ||
Current customer refund liability | 0 | 12,800,000 | ||
Allowance for doubtful accounts | 0 | 35,000 | ||
Goodwill | 81,572,000 | 81,572,000 | ||
Impairment of goodwill and intangible assets | 0 | $ 1,100,000 | ||
Restricted cash | 1,788,000 | 1,788,000 | ||
Prepaid Expenses and Other Current Assets | ||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Subcontractor receivables, net | 0 | 5,600,000 | ||
Gross receivables | 1,700,000 | |||
Allowance for doubtful accounts | 1,700,000 | |||
Subcontractor receivables for future overturned audits | $ 0 | |||
Estimated provider-favor receivables | $ 0 | |||
Subcontractor fees for overturned audits | $ 3,700,000 |
Organization and Description 23
Organization and Description of Business - Disaggregated Revenue by Category (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Disaggregation of Revenue [Line Items] | ||||
Total Revenues | $ 31,336 | $ 35,907 | $ 88,357 | $ 69,016 |
Total of Student Lending | ||||
Disaggregation of Revenue [Line Items] | ||||
Total Revenues | 17,528 | 27,459 | 36,633 | 52,008 |
Great Lakes Higher Education Guaranty Corporation | ||||
Disaggregation of Revenue [Line Items] | ||||
Total Revenues | 7,611 | 15,210 | 17,650 | 24,655 |
All Other Guaranty Agencies | ||||
Disaggregation of Revenue [Line Items] | ||||
Total Revenues | 9,917 | 12,249 | 18,983 | 27,353 |
Total of Healthcare | ||||
Disaggregation of Revenue [Line Items] | ||||
Total Revenues | 6,095 | 2,088 | 37,409 | 3,735 |
CMS RAC and MSP | ||||
Disaggregation of Revenue [Line Items] | ||||
Total Revenues | 3,496 | 66 | 32,600 | 148 |
Commercial | ||||
Disaggregation of Revenue [Line Items] | ||||
Total Revenues | 2,599 | 2,022 | 4,809 | 3,587 |
Other | ||||
Disaggregation of Revenue [Line Items] | ||||
Total Revenues | $ 7,713 | $ 6,360 | $ 14,315 | $ 13,273 |
Property, Equipment, and Leas24
Property, Equipment, and Leasehold Improvements - Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Property, Plant and Equipment [Abstract] | ||||
Depreciation and amortization expense of property, equipment and leasehold improvements | $ 2.3 | $ 2.7 | $ 4.7 | $ 5.2 |
Property, Equipment, and Leas25
Property, Equipment, and Leasehold Improvements - Summary (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Property, Plant and Equipment [Line Items] | ||
Property, equipment and leasehold improvements, gross | $ 89,430 | $ 85,339 |
Less accumulated depreciation and amortization | (68,763) | (64,395) |
Property, equipment and leasehold improvements, net | 20,667 | 20,944 |
Land | ||
Property, Plant and Equipment [Line Items] | ||
Property, equipment and leasehold improvements, gross | 1,122 | 1,122 |
Building and leasehold improvements | ||
Property, Plant and Equipment [Line Items] | ||
Property, equipment and leasehold improvements, gross | 6,618 | 6,410 |
Furniture and equipment | ||
Property, Plant and Equipment [Line Items] | ||
Property, equipment and leasehold improvements, gross | 5,791 | 5,763 |
Computer hardware and software | ||
Property, Plant and Equipment [Line Items] | ||
Property, equipment and leasehold improvements, gross | $ 75,899 | $ 72,044 |
Credit Agreement - Narrative (D
Credit Agreement - Narrative (Details) | Aug. 08, 2017USD ($)$ / sharesshares | Aug. 31, 2017USD ($) | Jun. 30, 2018USD ($)$ / shares | Jun. 30, 2020 | Jun. 30, 2018USD ($)$ / shares | Jun. 30, 2022 | Jun. 30, 2021 | Dec. 31, 2019 |
Line of Credit Facility [Line Items] | ||||||||
Write-off unamortized debt issuance costs | $ 1,000,000 | |||||||
Exercise price of warrants (USD per share) | $ / shares | $ 1.92 | $ 1.92 | ||||||
Value of warrants | $ 3,300,000 | |||||||
Amortization period | 36 months | |||||||
Issuance costs | $ 600,000 | |||||||
New Credit Agreement | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Quarterly payments of principal | $ 600,000 | $ 1,100,000 | ||||||
Floor rate (as a percent) | 1.00% | |||||||
Effective interest rate (as a percent) | 7.60% | 7.60% | ||||||
Periodic payment of principal (as a percent) | 5.00% | |||||||
Required premium for prepayments of lines of credit (as a percent) | 1.00% | |||||||
Warrants issued (shares) | shares | 3,863,326 | |||||||
Allotment for warrants purchased | $ 1,000,000 | |||||||
New Credit Agreement | Minimum | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Excess cash flow for prepayments of lines of credit (as a percent) | 0.00% | |||||||
Total debt to EBITDA ratio | 1 | |||||||
New Credit Agreement | Maximum | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Excess cash flow for prepayments of lines of credit (as a percent) | 75.00% | |||||||
Total debt to EBITDA ratio | 6 | |||||||
Initial Term Loan | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Diluted common stock (as a percent) | 7.50% | |||||||
Exercise price of warrants (USD per share) | $ / shares | $ 1.92 | |||||||
Additional Term Loans | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Diluted common stock (as a percent) | 0.15% | |||||||
Stock value of warrants per term loan (shares) | shares | 77,267 | |||||||
London Interbank Offered Rate (LIBOR) | New Credit Agreement | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Basis spread on variable rate (as a percent) | 7.00% | |||||||
London Interbank Offered Rate (LIBOR) | New Credit Agreement | Minimum | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Basis spread on variable rate (as a percent) | 5.50% | |||||||
London Interbank Offered Rate (LIBOR) | New Credit Agreement | Maximum | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Basis spread on variable rate (as a percent) | 10.00% | |||||||
Scenario, forecast | New Credit Agreement | Minimum | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Interest coverage ratio | 1 | 1 | 1 | 0.5 | ||||
Scenario, forecast | New Credit Agreement | Maximum | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Interest coverage ratio | 1 | 1.25 | 1.25 | 1 | ||||
Line of Credit | Initial Term Loan | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Line of credit | $ 44,000,000 | |||||||
Line of Credit | Additional Term Loans | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Line of credit | $ 15,000,000 |
Credit Agreement - Scheduled Pa
Credit Agreement - Scheduled Payments (Details) $ in Thousands | Jun. 30, 2018USD ($) |
Line of Credit Facility [Line Items] | |
Total | $ 40,148 |
New Credit Agreement | |
Line of Credit Facility [Line Items] | |
Remainder of 2018 | 1,100 |
2,018 | 2,200 |
2,019 | 39,600 |
2,020 | 0 |
2,021 | 0 |
Thereafter | 0 |
Total | $ 42,900 |
Credit Agreement - Warrant Valu
Credit Agreement - Warrant Valuation (Details) | 6 Months Ended |
Jun. 30, 2018$ / shares | |
Debt Disclosure [Abstract] | |
Exercise price (USD per share) | $ 1.92 |
Share price on date of issuance (USD per share) | $ 1.85 |
Volatility (as a percent) | 50.00% |
Risk-free interest rate (as a percent) | 1.83% |
Expected dividend yield (as a percent) | 0.00% |
Contractual term (in years) | 5 years |
Credit Agreement - Outstanding
Credit Agreement - Outstanding Debt Obligations (Details) $ in Thousands | Jun. 30, 2018USD ($) |
Debt Disclosure [Abstract] | |
Principal amount | $ 42,900 |
Less: unamortized discount and debt issuance costs | (2,752) |
Total | 40,148 |
Less: current maturities | (2,059) |
Long-term loan payable, net of current maturities | $ 38,089 |
Commitments and Contingencies -
Commitments and Contingencies - Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Operating lease expense | $ 0.9 | $ 0.7 | $ 1.8 | $ 1.4 |
Commitments and Contingencies31
Commitments and Contingencies - Future Minimum Rental Commitments under Non-Cancelable Leases (Details) $ in Thousands | Jun. 30, 2018USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
Remainder of 2018 | $ 1,411 |
2,019 | 3,072 |
2,020 | 3,035 |
2,021 | 2,141 |
2,022 | 1,710 |
Thereafter | 2,190 |
Total | $ 13,559 |
Stock-based Compensation - Narr
Stock-based Compensation - Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total stock-based compensation expense | $ 1 | $ 1.2 | $ 1.6 | $ 2.3 |
Options | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Options vesting period | 4 years | |||
Minimum | Restricted Stock and Performance Stock Units | 2012 Equity Incentive Plan | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Options vesting period | 1 year | |||
Maximum | Restricted Stock and Performance Stock Units | 2012 Equity Incentive Plan | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Options vesting period | 4 years |
Stock-based Compensation - Stoc
Stock-based Compensation - Stock Option Activity (Details) - Options - USD ($) $ / shares in Units, $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Outstanding Options | ||
Balance at beginning of period (shares) | 2,936,198 | |
Granted (shares) | 0 | |
Forfeited (shares) | (142,644) | |
Exercised (shares) | (268,750) | |
Balance at end of period (shares) | 2,524,804 | 2,936,198 |
Vested (shares) | 2,521,127 | |
Exercisable (shares) | 2,451,252 | |
Weighted average exercise price per share | ||
Balance at beginning of period (USD per share) | $ 8.21 | |
Granted (USD per share) | 0 | |
Forfeited (USD per share) | 10.35 | |
Exercised (USD per share) | 0.69 | |
Balance at end of period (USD per share) | 8.89 | $ 8.21 |
Vested or expected to vest (USD per share) | 8.90 | |
Exercisable (USD per share) | $ 9.06 | |
Weighted average remaining contractual life (Years) | ||
Balance at beginning of period (USD per share) | 4 years 4 months 22 days | 4 years 5 months 23 days |
Balance at end of period (USD per share) | 4 years 4 months 22 days | 4 years 5 months 23 days |
Vested, exercisable, and expected to vest (USD per share) | 4 years 4 months 21 days | |
Exercisable (USD per share) | 4 years 3 months 24 days | |
Aggregate Intrinsic Value (in thousands) | ||
Balance at beginning of period | $ 360 | |
Balance at end of period | 252 | $ 360 |
Vested, exercisable, and expected to vest | 252 | |
Exercisable | $ 240 |
Stock-based Compensation - Rest
Stock-based Compensation - Restricted Stock and Performance Stock Units Activity (Details) - Restricted Stock and Performance Stock Units | 6 Months Ended |
Jun. 30, 2018$ / sharesshares | |
Number of Awards | |
Outstanding at beginning of period (shares) | shares | 2,591,587 |
Granted (shares) | shares | 1,773,536 |
Forfeited (shares) | shares | (122,950) |
Vested and converted to shares, net of units withheld for taxes (shares) | shares | (566,383) |
Units withheld for taxes (shares) | shares | (213,684) |
Outstanding at end of period (shares) | shares | 3,462,106 |
Expected to vest (shares) | shares | 3,289,001 |
Weighted average grant date fair value per share | |
Outstanding beginning of period (USD per share) | $ / shares | $ 2.39 |
Granted (USD per share) | $ / shares | 2.80 |
Forfeited (USD per share) | $ / shares | 2.37 |
Vested and converted to shares, net of units withheld for taxes (USD per share) | $ / shares | 2.37 |
Units withheld for taxes (USD per share) | $ / shares | 2.37 |
Outstanding end of period (USD per share) | $ / shares | 2.61 |
Expected to vest (USD per share) | $ / shares | $ 2.61 |
Income Taxes - Narrative (Detai
Income Taxes - Narrative (Details) | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Income Tax Disclosure [Abstract] | ||
Effective income tax rate (as a percent) | 24.60% | (10.70%) |
Earnings per Share - Narrative
Earnings per Share - Narrative (Details) | 6 Months Ended |
Jun. 30, 2018shares | |
Earnings Per Share [Abstract] | |
Antidilutive securities excluded (shares) | 3,011,546 |
Earnings per Share - Reconcilia
Earnings per Share - Reconciliation of Basic to Diluted Weighted Average Shares (Details) - shares shares in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Earnings Per Share [Abstract] | ||||
Weighted average shares outstanding – basic (shares) | 51,643 | 50,579 | 51,483 | 50,443 |
Dilutive effect of stock options (shares) | 0 | 0 | 2,018 | 0 |
Weighted average shares outstanding – diluted (shares) | 51,643 | 50,579 | 53,501 | 50,443 |
Subsequent Events - Narrative (
Subsequent Events - Narrative (Details) - Premiere Credit of North America - Subsequent Event - USD ($) $ in Millions | Aug. 09, 2018 | Aug. 08, 2018 |
Subsequent Event [Line Items] | ||
Stock issued pursuant to acquisition (shares) | 1,000,000 | |
Additional period of stock issuance pursuant to acquisition | 5 years | |
Maximum additional stock issuable pursuant to acquisition (shares) | 2,591,824 | |
Approximate additional stock issuable pursuant to acquisition (shares) | 1,000,000 | |
Delayed draw term loan commitment | $ 25 | $ 15 |