| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies (a) Organization and Basis of Presentation Performant Financial Corporation (the "Company", "we", or "our") supports healthcare payers in identifying, preventing, and recovering waste and improper payments by leveraging advanced technology, analytics and proprietary data assets. The Company works with leading national and regional healthcare payers to provide eligibility-based, also known as coordination-of-benefits (COB) services, as well as claims-based services, which includes the audit and identification of improperly paid claims. The Company is a leading provider of these services in both government and commercial healthcare markets. The Company also provides advanced reporting capabilities, support services, customer care, and stakeholder training programs designed to mitigate future instances of improper payments. The Company’s consolidated financial statements include the operations of Performant Financial Corporation (Performant), its wholly-owned subsidiary Performant Business Services, Inc. (PBS), and PBS's wholly-owned subsidiaries Performant Recovery, Inc. (PRI), dba Performant Healthcare Solutions, and Performant Technologies, LLC (PTL). Performant is a Delaware corporation headquartered in California and was formed in 2003. PBS is a Nevada corporation founded in 1997. PRI is a California corporation founded in 1976. PTL is a California limited liability company that was formed in 2004. All 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. (b) Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Company consolidates entities in which it has a controlling financial interest, and as of December 31, 2023 and 2022 for the accompanying reporting periods, all of the Company’s subsidiaries are 100% owned. All intercompany balances and transactions have been eliminated in consolidation. (c) Use of Estimates in the Preparation of Consolidated Financial Statements 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 revenues and expenses during the reporting periods and the reported amounts of assets and liabilities, primarily accounts receivable, contract assets, goodwill, right-of-use assets, contract liabilities, estimated liability for appeals and disputes, lease liabilities, other liabilities, provision for (benefit from) income taxes, and disclosure of contingent liabilities at the date of the consolidated financial statements. Actual results may differ from amounts presently estimated. (d) Cash and Cash Equivalents Cash and cash equivalents include demand deposits. The Company deposits cash and cash equivalents with high credit quality financial institutions and believes that any amounts in excess of insurance limitations to be at minimal risk. Cash and cash equivalents held at these accounts are currently insured by the Federal Deposit Insurance Corporation (FDIC) up to a maximum of $250,000. The Company's credit loss exposure in the event of failure of these financial institutions is represented by the difference between the FDIC limit and the total amounts on deposit. The Company collects monies on behalf of certain clients. Cash is often held on behalf of the clients in various trust accounts and is subsequently remitted to the clients based on contractual agreements. Cash held in these trust accounts for contracting agencies is not included in the Company’s assets (Note 9(a)). (e) Restricted Cash At December 31, 2023 and 2022, restricted cash included in current assets on our consolidated balance sheet was $0.1 million and $0.1 million, respectively, held in the form of certificates of deposit, which serve as collateral for letters of credit that were primarily associated with the recovery business. The Company’s restricted cash is held with high credit quality financial institutions and believes any amounts in excess of the FDIC limit to be at minimal risk. (f) Property, Equipment, and Leasehold Improvements Property, equipment, and leasehold improvements are stated at cost, net of accumulated depreciation. Furniture and equipment are depreciated using the straight-line method over estimated useful lives ranging from 5 to 7 years. Buildings are depreciated using the straight-line method over 31.5 years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease. Computer software and computer hardware are depreciated using the straight-line method over 3 years and 5 years, respectively. Maintenance and repairs are charged to expense as incurred. Improvements that extend the useful lives of assets are capitalized. When property is sold or retired, the cost and the related accumulated depreciation are removed from the consolidated balance sheet and any gain or loss from the transaction is included in the consolidated statements of operations. (g) Goodwill The carrying amount of goodwill was $47.4 million as of December 31, 2023 and 2022, both of which were net of accumulated impairment loss of $34.2 million. Goodwill represents the excess of purchase price and related costs over the fair value assigned to the net assets of businesses acquired. Goodwill is reviewed for impairment annually in December, or more frequently if certain events or conditions arise during the year. There was no goodwill impairment for the years ended December 31, 2023 and 2022. The Company may first assess qualitative factors for indicators of impairment to determine whether it is necessary to perform the quantitative goodwill impairment test. In performing the quantitative goodwill test, if the carrying value of the Company, as one reporting unit, exceeds its fair value, goodwill is considered impaired. The amount of impairment loss is measured as the difference between the carrying value and the fair value of the reporting unit. Impairment testing is based upon the best information available including our market capitalization and estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. Significant assumptions and estimates are required, including, but not limited to, projecting future cash flows, determining appropriate discount rates and terminal growth rates, and other assumptions, to estimate the fair value of the reporting unit, inclusive of goodwill. Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact the amount of impairment. (h) Impairment of Long-Lived Assets 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. (i) System Developments The Company follows the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 350-40, Internal-Use Software , which specifies that costs incurred during the application stage of development should be capitalized. All other costs are expensed as incurred. During 2023 and 2022, costs of $3.4 million and $2.3 million, respectively, were capitalized for projects in the application stage of development. Amortization expense for completed projects during 2023 and 2022 were $4.3 million and $3.4 million, respectively. (j) Debt Issuance Costs Debt issuance costs represent loan and legal fees paid in connection with the issuance of long-term debt. Debt issuance costs associated with the Company’s secured revolving loan are deferred and amortized to interest expense over the term of the related loan using the straight-line method and are presented in assets on the Company’s consolidated balance sheet. For the term loan, debt issuance costs were deducted from current and long-term loan payable and amortized to interest expense under the effective interest method in accordance with key terms of the credit agreement. (k) Revenues, Accounts Receivable, Contract Assets, Contract Liabilities, Estimated Liability for Appeals and Disputes The Company generally derives its revenues primarily from providing audit, recovery, and analytics services. Revenues are recognized upon completion of these services for 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. Certain of the Company’s contracts contain more than one performance obligation and are delivered as of a point in time. The Company’s contracts are composed primarily of variable consideration. Fees earned under the Company’s 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. The Company may apply 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 or the variable consideration allocation exception to contracts with performance obligations that have an average remaining duration of less than one year. The Company estimates variable consideration only if it can reasonably measure the progress toward complete satisfaction of the performance obligation using an output method based on reliable information, and recognizes such revenue over the performance period only if it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Any change made to the measure of progress toward complete satisfaction of our performance obligation is recorded as a change in estimate. The Company exercises judgment to estimate the amount of constraint on variable consideration based on the facts and circumstances of the relevant contract operations and the availability and reliability of data. The Company reviews the constraint on variable consideration quarterly. While the Company believes the estimates made are reasonable and appropriate, different assumptions and estimates could materially impact the amount of variable consideration recognized. For healthcare claims audit contracts, the Company may recognize revenue upon delivering its findings from claims audits to its clients, when sufficient reliable information is available for estimating the variable consideration earned. For eligibility-based or COB contracts, the Company may recognize revenue upon delivering its findings to its clients' counterparties (insurance companies or other responsible parties that appear to have primary responsibility to pay the claims). For contracts that contain a refund right, the Company estimates its refund liability for each claim, as needed, and recognizes revenue net of such estimate. Under certain contracts, consideration can include periodic performance-based bonuses which can be awarded based on the Company’s performance under the specific contract. These performance-based bonuses are considered variable and may be constrained by the Company until there is not a risk of a significant reversal. For customer care / outsourced services clients, the Company recognizes revenues based on the volume of processed transactions or the quantity of labor hours provided. The following table presents revenue disaggregated by category for the years ended December 31, 2023 and 2022 (in thousands): Years Ended December 31, 2023 2022 Eligibility-based $ 61,179 $ 53,284 Claims-based 45,265 41,382 Healthcare Total $ 106,444 $ 94,666 Recovery 33 241 Customer Care / Outsourced Services 7,266 14,277 Total Revenues $ 113,743 $ 109,184 For the years ended December 31, 2023 and 2022, the Company had three and two different clients, respectively, with revenues that exceeded 10% of the Company’s total revenues. The dollar amount and percent of total revenue of each of the three clients are summarized in the table below (in thousands): Year Ended December 31, 2023 Year Ended December 31, 2022 Rank Revenue Percent of Rank Revenue Percent of 1 $49,902 44% 1 $58,155 53% 2 $15,718 14% 2 $12,004 11% 3 $11,867 10% Accounts receivable from the top three clients were 68% of total trade accounts receivable at December 31, 2023, of which these clients comprised 33%, 20%, and 15% of total trade receivables. Accounts receivable from the top two customers were 47% of total trade receivables at December 31, 2022, of which one of these customers comprised 47% of total trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in cash provided by (used in) operating activities in the consolidated statements of cash flows. The Company determines the allowance for credit losses for its trade accounts receivables. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for credit losses was $0 for December 31, 2023 and 2022, respectively. Contract assets were $10.9 million and $11.5 million as of December 31, 2023 and December 31, 2022, respectively. Contract assets relate to the Company’s rights to consideration for services completed but not invoiced at the reporting date, and receipt of payment is conditional upon factors other than the passage of time. Contract assets primarily consist of commissions the Company estimates it has earned from claims audit findings submitted to healthcare clients. Contract assets are recorded to accounts receivable when the Company's right to payment becomes unconditional, which is generally when healthcare providers have paid our clients. There was no impairment loss related to contract assets for the years ended December 31, 2023 and 2022. The Company had contract liabilities of $0.5 million as of December 31, 2023 and $0.4 million as of December 31, 2022. Healthcare providers of our clients have the right to appeal claims audit findings and may pursue additional appeals if the initial appeal is found in favor of healthcare clients. For coordination-of-benefits, insurance companies or other responsible parties may dispute the Company’s findings regarding our clients not being the primary payer of healthcare claims. Total estimated liability for appeals and disputes was $0.6 million and $1.1 million as of December 31, 2023 and 2022, respectively. This represents the Company’s best estimate of the amount probable of being refunded to the Company’s healthcare clients. The Company determined that it did not have any material costs related to obtaining or fulfilling a contract that are recoverable and as such, those contract costs were expensed as incurred. (l) Prepaid Expenses and Other Current Assets At December 31, 2023, prepaid expenses and other current assets were $3.7 million and included approximately $1.8 million related to prepaid software licenses and maintenance agreements, and $1.3 million for prepaid insurance. At December 31, 2022, prepaid expenses and other current assets were $3.7 million and included approximately $1.5 million related to prepaid software licenses and maintenance agreements, $1.8 million for prepaid insurance, and $0.4 million for various other prepaid expenses. (m) Other Current Liabilities At December 31, 2023, other current liabilities were $2.4 million and primarily included $2.1 million for services received for which we have not received an invoice. At December 31, 2022, other current liabilities were $2.3 million and primarily included $1.8 million for services received for which we have not received an invoice and, $0.5 million for accrued interest under the Company's prior credit agreement, estimated workers' compensation claims incurred but not reported, and third party fees and equipment financing payables. (n) Legal Expenses The Company recognizes legal fees related to litigation as they are incurred. (o) Fair Value Measurements The Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used when required to measure assets or liabilities at fair value. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. • Level 1 uses quoted prices in active markets for identical assets or liabilities. • Level 2 uses quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. • Level 3 uses significant unobservable inputs, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date. At December 31, 2023 and 2022, the Company had no assets or liabilities subject to fair value measurements on a recurring basis. The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value (in thousands): December 31, 2023 Carrying Level 1 Level 2 Level 3 Fair Value Assets: Cash and cash equivalents $ 7,252 $ 7,252 — — $ 7,252 Restricted cash 81 81 — — 81 Liabilities: Long term debt $ 5,000 — 0 5,000 — $ 5,000 December 31, 2022 Carrying Level 1 Level 2 Level 3 Fair Value Assets: Cash and cash equivalents $ 23,384 $ 23,384 — — $ 23,384 Restricted cash 81 81 — — 81 Liabilities: Long term debt $ 19,500 — $ 19,500 — $ 19,500 (p) Income Taxes The Company accounts for income taxes under the asset-and-liability method. Deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences between the carrying value of assets and liabilities for financial reporting purposes and taxation purposes. Deferred income tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The state and local tax jurisdictions in which the Company operates may change resulting in changes to the state tax rates and apportionment allocations used in calculating the tax rate applied to deferred income tax assets and liabilities. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest expense and penalties related to unrecognized tax benefits are recorded in income tax expense. (q) Stock-based Compensation The Company accounts for its employee stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation – Stock Compensation . FASB ASC Topic 718 requires that all employee stock-based compensation is recognized as a cost in the consolidated financial statements and that for equity-classified awards, such cost is measured at the grant date fair value of the award. FASB ASC Topic 718 also requires that excess tax benefits recognized in equity related to stock option exercises are reflected as financing cash inflows. There was no income tax benefit resulting from the exercise of stock options in both 2023 and 2022. (r) Loss per Share For the years ended December 31, 2023 and 2022, basic loss per share is calculated by dividing net loss attributable to common shareholders by the sum of the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares and dilutive common shares equivalents outstanding during the period. The Company’s common share equivalents consist of stock options, restricted stock units (RSUs), performance stock units, and warrants. When there is a loss in the period, dilutive common share equivalents are excluded from the calculation of diluted earnings per share, as their effect would be anti-dilutive. The following table reconciles the basic to diluted weighted average shares outstanding using the treasury stock method (shares in thousands): Years Ended December 31, 2023 2022 Weighted average shares outstanding – basic 76,156 72,937 Dilutive effect of common share equivalents — — Weighted average shares outstanding – diluted 76,156 72,937 Since the Company was in a loss position for both periods presented, basic net loss per share is the same as diluted net loss per share, as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (shares in thousands): Years Ended December 31, 2023 2022 Options to purchase common stock 72 250 RSUs 4,508 3,905 Total 4,580 4,155 (s) New Accounting Pronouncements In February 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-02, “Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842).” This ASU provides updated guidance on how an entity should measure credit losses on financial instruments, including trade receivables, held at the reporting date. The amendments make each Topic easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. It also addresses transition and open effective date information for Topic 842. ASU 2016-13, ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2020-02 (collectively, “ASC 326”) are effective for public entities for fiscal years beginning after December 15, 2019, except for Smaller Reporting Companies. This ASU is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company's adoption of this ASU on January 1, 2023, had no impact on our financial position, results of operations, or cash flows. In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures", which enhances income tax disclosure requirements for all entities by requiring specified categories and greater disaggregation within the rate reconciliation table, disclosure of income taxes paid by jurisdiction, and providing clarification on uncertain tax positions and related financial statement impacts. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is assessing the impact of this ASU, and upon adoption, may be required to include certain additional disclosures in the notes to its financial statements. |
