PFMT - Earnings call transcript Q3 2018 | Performant Healthcare, Inc.

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Operator

Greetings, and welcome to Performant Financial Corporation Third Quarter 2018 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Richard Zubek, Vice President of Investor Relations. Thank you.

You may begin.

Richard Zubek

operator. you, Thank everyone. Good afternoon, you earnings should result. copy now, received have for the the release XXXX of company’s By a third quarter

If website. copy Relations you Executive Officer. led a on Chief have Investor the Lisa is Im, portion call Today’s available our will be of not,

described Before I are uncertainties, are guidance forward-looking the to These statements would the remind of and that some in financial we comments including made with call. materially those Actual our to filings begin, subject including risks may the results during on from like the you today’s company’s call, statements. described those SEC. differ

addition, undertake or Lisa Also, all In today not to of update as call non-GAAP financial to this any table the revised would expectations. to measures based during are forward-looking circumstances directly most all discussed reconciled forward-looking the made new the does turn measures and call Lisa? the now company are comparable statements release. in GAAP statements on to our Im. I like press attached to over

Lisa Im

joining Rich. for And Good everyone. our for thank morning call. you you, earnings Thank us

results If more the you please financial financial the on third website haven’t that our through quarter find our in detailed walks form. packet already, for

error unit two per an for economics; contracts helps XXXX, clarify and start on We we additional how rate items. their also the be illustrative found two, have republished our maturity which achieve up, posted One, charge CERT CMS’ and website. which can when also have they

approximately in $X recovery both necessary for are also the revenue timing shortfall $X.X year. QX EBITDA directly was And care million, of results $X XXX beginning X.X% $XX.X which by timing, are $X.X and EBITDA. revenue shortfalls, were down was EBITDA Adjusted prior delays and on reported million, contract a forecast of obtaining begin health for larger in prior adjusted which million related QX. versus year specific $X.X a about results of the below $XXX,XXX of we QX. loss impactful million revenue internal versus our in to Both which million, QX, was care These start-up. QX in down For due adjusted a was result revenue our contract. to clearances our in of correct million About in contracts. work to should a employees is customer couple the delays delay six-week more approximately

further, business. and contracts I’d clarification Before provide like relationships large our we on how results our in work cover QX some to typically

XX-plus new five approaching over on and deep-seated with relationships that total years customers, years. CMS, the within We student of working businesses XX the have with our clients commercial focus industry relationships years within our experience even lending are

state larger, these a start-up business means year, expanded margins. with then year of during a loss success, our maturity contracts As year. they and really three Those many and have relationships customers term this first require But two. that Most which our we would investment incur an steady large not it’s contracts. result begin break profitable turn even of of in long-term longer to until contracts year in the reach will that

year. We recovery businesses, have our across care for so are year health loss we many in still and a one will this contracts

to anticipated expenses variable business the time brunt into owe headcount bear revenue we building our falling we by one for various in of clients not the frame have our during we factors, two Additionally, QX, delays the while health mean and to contracts in in we could What our this external in have recovery. behind that us QX. to had due is three in and of in major care reasons,

QX solid. We aside, we across these our growth implemented. delays have QX are the businesses we that our of show our expect of their some contracts our in These XXXX, $XXX XX% revenue growth revenue, of to October, all and largest for anticipate our are been very will are with margin. million point industry, continue as which in to that will pleased However, XXXX over business as underlies sequential of QX clients goal in growth fundamentals in

For care our up up health last sequentially. commercial XX% XX% year million $X.X revenues QX versus XXXX, of were and

large implementation we process of have in we XXXX. As health care October, completed commercial expected the of which programs, the

timing due payer would now been an external are clients work, where this which TPL and investment are factors or to fee be the to which are experienced Two of knew for in in the resolved. of the we contracts organizations. we year, QX, liability, large third-party While services, similar contract large the commercial contracts delays have secondary these these Medicare in

very of of these excited whereby one clients. back great is our the recovery, types to strengths really are contracts, We which these come our about as process dollars is

margins As we which to normalize, very will continue see we XXXX beyond. look and to and improving growth XXXX, healthy and that with are and into QX into a we starting believe business

build We is ramping to also continued well. which the MSPCRC contract, momentum in

our is and $X.X is revenue $X.X QX, the only contract. million million. basically revenues were this just QX QX under period, for For Year-to-date, which

the On of Region we began CMS under audit I QX V work XXXX. and contracts programs, recovery our during

rates QX site on rates on close taxpayers claim we rates, RAC payments these are in respectively, of XX limit program, CMS own XXXX. A and error our $X.X our under and believe revenue, be XX.X%, XXXX. is Investor close and timing statistics to data regain in DME paid all is has the is to yet Premiere, billion which the XX.X% made to can we and error that at means half request every CERT this Medicare we respectively, $X.X below early were remains Recovery, CMS’ are in level. and error at pretty due of days. estimated X.X% per error not to which audit will but during scaled you XXXX. XX.X% billion, B program, slightly our Despite for Part including from monitoring for $XX.X see was As website and provided, error fairly The for high every the remained revenue this the to which expectations, billion table research rate means document costing largely in volumes Part

federal that we not was estimated. required. did work of under months report earnest almost in this for we delayed by the were process am to example, happy that I because one while October. contracts that engaged, our meaningful in on, And employees employees contract six For special keep is clearances work we going but had have to our started

growth Moreover, our strategic provide and both with the forward. programs forward, positive into XXXX Family we ECMC key nongovernment As look for we in markets be as Education relationship a Program. government about should Loan Federal think and opportunities factor,

placements were lending or a of or plus XX% QX down thanQX $XXX student XXXX. million than $XXX quarter, in $X.X higher million revenues revenues and plus the which million lending XX% Student from or or Great This the decrease QX in of of million, For million largely higher business below $XXX due Lakes. about $XX.X was to XX% year. $X.X million is prior XXXX,

is of X% up sequentially. of In management their our Great mid-XXXX other category, comprised IRS versus As were revenues which agreement last of search $X.X care, in terminated us Lakes customer full solution. tax, and a and million with up XX% portfolio servicing a revenue reminder, year

will business, into external were delays we double-digit to maturity similar client were pattern, X cost three. of year margins expectations six growth year, to We start as increase due in being year key October, XXXX. These health QX. working of service, and in IRS $X.X year million best by our growth modeled $XXX,XXX X care due than feverishly two during higher a see $XXX,XXX are us results expenses to to continue to follow productivity been year, several QX weeks when was our versus X.X% QX followed achieve strong care we to contracts contracts. bit Expenses a than these which prior double-digit of other year revenue higher with recovery and we higher all in employees invested customer an $XX.X into The provide contracts our That million and expect resolved clients However, contract our grow and with and tax of are our believe in below beyond. X the state investment has X, in XXXX. QX and about of and or

of business, XXXX. had EBITDA, adjusted mentioned previously the described, our Also, a care higher we QX. revenue $X.X external delays which prior QX our full year year. net for and earlier, caused as customer as in versus revenue million delays, EBITDA result the to guidance of a loss situation expenses and in revising are Our we delays Due experienced

$XX.X and anticipate be between and and $XXX and Including $XXX and contract RAC $XX by $XX EBITDA for outlook reserve Excluding $X.X million be impact of the $XX.X revenue million $XXX the for revenue adjusted to million, range in the reserve between million XXXX EBITDA million release, range revenues a now EBITDA of to million adjusted respectively, to from in which release, impact $XXX for the million positively to we $X.X loss million. and the is million. is CMS million, our

we support contract or XXXX, revenue year large several and of remainder investment the will to For increase contracts, one of to the growth. continue

capital our one want guiding of with renegotiated confidence anticipation to business lender, of our largest in are the investments we we is in reiterate also this year, have net We to loss EBITDA longer-term Although contracts. growth these who a our we large strategy. in clients,

in in about longer two quarters, achieving large margins. and business to we of under is that, in we the I’d a us in of revenue care as XXXX, can beyond will with which the believe growth $XXX six take very growing in strong health for And have confidence to diversify growth $XX Our see we business business to of strengthen revenue Performant like in year the especially enter million. investments as XXXX growth with mid year with the contracts. term. made diversified we for target line, we up XX% covenant room And credit fund feel questions. our grow and XXXX our of look capital the a significant open million. and We total have target release good in believe business, to to that to our the fundamentals we And call million revenue, XXXX every several We $XXX a agreement our of access excess that

Operator

question-and-answer Our you. first will Tarkan ahead. Michael thank be Instructions] this At Please go Point. Compass [Operator from time from is conducting we Great, a question session.

Michael Tarkan

about EBITDA my about as taking just kind think to a in to questions. XXXX. could a consolidated we be start little XXXX and frame And what early you’re as growth I know for to there any bit to targets? Thanks color Lisa, in relates thinking flattish? then of in be line And And growth expecting kind trajectory how each we XXXX? it that, level business mentioned how maybe then you it’s but And the to for? in then on XXXX? growth going looking do Is XXXX still your of

Lisa Im

Michael. Hi

think on we As business, the guidance all you call, know, growth about providing our for do when health growth this see in in we’re care. of businesses, but XXXX we particularly overall

really this example, Just if some you the we saw to three to probably like what through, seeing just started come as in revenue about addition we more of an think quarters we’re annualized see going revenue, something MSP so close year. to contract,

expect to be of double-digit strong growth, which I think is So care. in going that growth a we kind health do

growth. we we grow – the last of see – do to of year, expect kind larger quarters. of we have lower of single some and low then recovery, something with trend, cycling to larger next has we kind And double-digit we but contracts, of couple of customer as over investments, but the business it expect cycling care we of a our see in to know, on couple see in a you couple As

term look better So we we see our growth. folks two charts investment But the longer you still certainly contracts investment going to opportunity see of a from – the we posted, but look in like are and year we’re contract do what should that understand the year bit just see still to revenue help potential some there’s large to revenue two. at side, very very, very invest contract, as has we that large, on

we’re start XXXX. and to guidance? expect contracts basis, margins on then those on margins those more margins any again, those sort start XXXX. earlier of don’t to we think what on So start we into say until hit we I Does we really help as fully should to without we comment, then think And for seeing the normalized longer-term head see that we going giving a specific enter

Michael Tarkan

That’s a Will the way, company, ramping to constraint of seems you’re just little delays balance along potential helpful. do process? get picture, It how think smaller revenues do because there’s really like it’s how these – you were a you about whether public How the you do balance? potential Just contracts? investments for upfront. the But do capital. the big best of all to ramp you in these to million [indiscernible] just bit full their $XX needed growth to need

Lisa Im

this some think year, world. with these to year, faster. that clients earlier of were And time that the the about obviously That implementation believe their I happen live a we and don’t perfect we working delays of we on not line, said, just think necessarily certainly, our delays through clients in external believe lot a having we they these would in weather as that were we anticipated.

so external just from their et cetera. that clients industries, the examples we of – longer. approvals And that’s And gave are some serviced getting having took

obviously So work clients because have – with line. and time was it our it’s we challenge a their to

think the it’s time anticipated. we much clients as Anticipating of the difficult capital. – sort growth closer I increase to we had did at through end get this tried to to roll lines But implemented. get our we QX, that, hard timely very of our what

implemented. into year, are we in as in we and XXXX don’t of – nearly fully contracts quarter coming now the we As as not be XXXX, nearly at think what fourth sort these the will look this of saw because that investment sort

be start can So to we going we yes, higher – and get business going costs to from revenues increase variable so start our to we’re continue push that higher these to more clients, work we’re as forward of to we year. to the that to XXXX, through was this they’re start what not look volumes going is in it providing all But investment, we the as us. as

Michael Tarkan

heard just one, I make last then so sure And correctly. thanks. Okay, I it

no can of start So out the there end the the delays we there’s lot been real October, so there were these and of rectified, not but of anticipated, a have as initiatives now ramping delays contracts?

Lisa Im

that variables, fully apply Yes, of think as about all of correct. contracts to working. contract, contract, everybody a is And been who on resources we is Everybody October, implemented. is when those have

a But care, we might just of comp they – all now course, push it’s ramp in push folks And the contact. business. out we claims we that of revenue be then So implemented have that the ramp of working the October. of health as been up it that recovery, or as end of

Michael Tarkan

Thank Understood. you.

Operator

go is next Please question from ahead. Our William Brian from Hogan Blair.

Brian Hogan

Good morning.

Lisa Im

morning. are Good How you?

Brian Hogan

on you thanks. maybe doing can delayed low change caused delayed I Quickly you to revenue guidance that $XX the lower what the revenue that on was make I’m was delta guess, understand end. that the well, touch the that to sure million lower? on I quantify

Lisa Im

that But on delays to pretty some pretty The or either I Yes. we not, And plus revenue course, that a start, million on or much our were side. of to so, did are minus close in obviously, in QX. delayed million would was fair it through. comments, – anticipated about that we close anticipated pushing amount we earlier to, of $X revenue we in based revenue

fair it’s amount. So a

Brian Hogan

And happened, those a Is say, you I have, delays so if have assessment? captured wouldn’t fair guidance? would would that

Lisa Im

assessment. Yes, I think a fair that’s

Brian Hogan

All right.

covenant release know remarks, that obviously, just you – quarter have six six I a months on Moving what – sorry six the said prepared maybe in don’t you like quarters? or your to clarify or –

Lisa Im

larger with quarters. as strategy, company we the would our clients, we of our you And release one Yes, addition interest require equity knew know, as we some it investments. additional think about in in was of some lenders, our as And overall quarters six well. Six growth to covenant capital. that

I say, what companies not with, a been working that has it’s So supportive would have. lender – most privilege a

we feel for we that, this So starting six QX covenant and very good of in release full about year. have quarters,

Brian Hogan

going and the that forward nice. the line? about student your talk recovery quarter Is in recovery Premiere expectations loan line, true? that’s Okay, Can and in its contribution the and that’s you

Lisa Im

is line. loan it in Yes, the recovery student

that from September. to the month. in month was only was saw Just attributed keep – only of the was in we – mind, revenue It one QX, revenue a Premiere contribution, recovery it was of part revenue it only

So It not not was say $X.X huge close want contribution. And million, like – a I to it a earnings actually something to that. something number. material from an was it’s was it then a negative side,

set they business, So in that when nice I going in a able we we – management we think Premiere organization leverage took everything it’s the execute something $XXX,XXX, been operations, going about the put care on not businesses, a gate, not and being our together mind knew cost everything. with worked XX including savings we like some We we’re recovery since in platforms that’s health team one – the out and And keep to of that. the month in, commercial do differentiated against ability to haven’t just in to negative have days. to were get we

Brian Hogan

had maybe contribution $XX And moment, guess, right. the but still contribution like $XX million at in Right, then, provided to preliminary outlook being of revenue, I is you and fair? for XXXX million a that EBITDA

Lisa Im

think that’s recollecting a the assessment. Yes, we to I’m Premiere I deal. And when announced back think I fair

due will to sooner we But figure improve is team it we the again, on we’re what there we continued very be work as whether on were year. performance to of think that’s out margin our we but next the path did close best management opportunity the breakeven side than change estimating and walk course, could to I team, imperfect, anticipated. we that on with And happy diligence management know, as as as to to in, we we work of going additional put what only is that business, we not with we kind may and with. which we think. But but premier, as you

Brian Hogan

ramp-up right. touch ramp XXXX, steady you can course of the over health state then of then on One, your up contracts, a existing your care. All contracts? is contribution? But pipeline they the commercial as what And potential new of revenue

Lisa Im

Just hand, nice that talk we a XXXX we’ll based more provide guidance. about pipeline that on so of we certainly in And contracts the contracts. we when have have

we contracts in implemented size. have a fairly good were that we really decent XXXX of that The handful about are feel that in good ones We large. the pipeline that are

really – provide with companies, of job a the work a do payers to recovery actually, one able few the you being very audit There and help And company that look with bring recovery a our types are really contracts care distinct clients, $XX I contracts, We these of depending differentiator, sort so we health at I our contracts, steady $XX are we these where on and between probably quickly each, for working think we very how really can care comments of need ramp that’s strong that have, does up many a with can’t different we providing service. million earlier care are to there on you recovery of just think and payers if health able state contract, There’s do, somewhere payers. them. a million fast that with can in services, that for companies clients how are great that for of mentioned and and on the example, kind we services I expand strength tell my a and being money. grow health in because, would

And opportunity contracts. so for big we think those there’s

once in that should fully upwards get $XX year, of range we them million mature. we would the the this ones I say, So implemented

Brian Hogan

collectively? or is said each You it

Lisa Im

would each. think I you, I could be tell that

we’re MSP still the about where think contract, example, you for are, and ramping. If we

health And contract year, I care know, a not large. we’re be. as that’s world recovery whole similarly, where health you significantly We’re a health about of a think going to that think good care is contract. is And we payer of we commercial example at think, in care, commercial as the next

for to clients of some think the pretty when think these you payers. us strong so we our set, some for add And the skill opportunities core value commercial about with there’s opportunity to

point, this Brian, early, just were So it’s year I would say, right, starting one. we because at

visibility be and going in So going those of total size. I contracts do but three, don’t have believe to four material sort are into year I forward,

Brian Hogan

is your I relation your talk in the out All it right. staffed ramping that crossed in to stats other there, relates on about dotted, then, and saw you contract know the how contract. I is been it performance Shifting that. up t expectations? get some the there? the has appropriately slow And IRS to all are to mixed think IRS you you and Can And I IRS all i there? part

Lisa Im

a Yes, I contract, mean, we’re IRS of start. slow our resources sort to continuing increase the deliberative to is which dedicated

most the the One the the program of probably say is criteria important, for I important, would the most compliance for IRS, piece.

and different we But audits companies multiple the best. our have that that say, don’t you guidance and the we published but quality, focus. quality was our IRS I numbers, given that individual I direction, including broken put – is out. sure were XXX% think by that we would same multiple, tell make to the – So will ensure was quality I

employees move best And we is of guideline. forward, process all have to newer quality contract. as a trained good under making the and staff in in place that service our ensure that we sure full same our on that then probably So

oversight important like that to are would the exceptionally now the going way we the an it’s frankly prioritized program program early. at think be from them go the of everyone to IRS, quality sure taxpayers early, was as to is what with the be to for in that is think And critics But and forward, the the Brian, the house. we program, we for So treated. we appropriate. for And looking part treated the make try particularly very it’s the of IRS

Brian Hogan

current is revenue CMS it – a RAC like nice in what having, at it quarter-over-quarter. reins. there? contract, least has the Shifting step the getting potential looked CMS, the up see steady about to guess I’m I what commentary is remarks Sure. prepared do your nice a And being in But some the potential just state to in the the what appreciate revenue you environment? of the I

Lisa Im

one below Well, year. it probably in of Part get they $XX the we’re changes environment current challenge, per at region, but if which something Region look per Those the our our will versus, year, health else have you million current through we someone environment, audit hoping V, DME is expenditures just this performance be smaller has national the say, we claim. significantly who think home contract. are as

is shoes, are you So comprised about if very crutches, what very, wheelchairs, think of, it’s DME orthotic low those claims kinds of dollar.

two contracts. CMS obviously, those as which with we get work – And create so to suppliers. at providers, a resources to claims to that lifted, of when are to in work around particularly takes to for working look the behind cap try contracts, X.X%, a we we both we DME of being it sure we’re with we’re lot create portion, with have don’t smart those want But and cap work we, really about the it. putting the work make the which We

Region the DME, regular I then overall V lift of program, really to on is start do Medicaid the And what the sort the we so under don’t million rates and error $X term, huge should cap a CMS based we that maybe ought in the audit really shorter and benefit the But see in the lift believe, really to Region to on the believe cap, the one, program. we the of range. Fund, $X for on that opportunity Trust million somewhere the they current

at sure what we’re is integrity a than to not you trying call are me that best seeing that being with to program that trust, everyone but on service, So of only work Brian, the we and currently the like make good longer and taxpayers projected. keeps provide them, Medicare least else

we back get we fund. to that can So think

Brian Hogan

I agree. placement A the quick student placement volume loan one volumes. on –

volume going about I How about I in to step-up nice Lakes. you’ve from forward. And Premiere? maybe a Great quarter. would thought your going been And to this Lakes placement than much get just – Great it of I is with kind relationship what that? you’re more placements think tell getting? talk overall you Was that mean,

Lisa Im

Yes.

As Part more it’s we of giving earlier, contract, a get. of agencies. that is I who performance-driven, with strategic placements ECMC, – is better we on we largest one have mentioned the because, guaranty the obviously, perform relationship the

us Some of the relationship expect with because we is we to helpful. perform, is is perform obviously, that we do that be is, going going But to Brian, very And ECMC best expect believe to be clients. drive helpful. relationship, our back to service want Premiere. really possible think But we strategic and to our is they strategic to

As that how in I sell have business and grows have, we at numbers but the about also student the out think specifically, placement. program. loan in we don’t Premiere the broken level, Performant subgrowth

Brian Hogan

All Lakes? right. Anything from Great

Lisa Im

seeing a Lakes any not are We runs Great Navient are very specific directly contract. Navient. placements Great from Lakes, it’s from And those placements

– that contract. care and feed for. two has outperformance companies strong But where they think internal internal they on Navient have collection two is I that very

performance So it brings. – no And the future then see we’re matter that. leave how is, what we’re great just going our just to I’ll at

Brian Hogan

exploring they saga there is I out they saying several out then guess Yes. the I your ad ago. piece, put one we’re the weeks statement a new very I guess any newest end? decision updated court guess last And continues. thoughts the following on

Lisa Im

I thoughts any end. don’t updated on my have

companies is and not We a process kind – clean there live contract find they with. inherited can that up. to think into of of worthy those a there trying are We and one think were continue AD court, TV to Department bring that a they probably was show. to trying Education path of a saga, I or a that we think are of they in be companies. a definitely But process probably it courts

what things. going government of have agencies other climb kinds We of they’re seen try some through, these for to empathy out having

easy are I an So they easy solution. do. what answer. don’t supportive an to it’s it’s don’t we’re think think of trying I

So this that have point, at speculation process. really any or don’t I thoughts around

I try think to we’re see we be do. going what watch can. to as And they and supportive have to again,

Brian Hogan

really appreciate your Sure. Lisa, I time.

Lisa Im

much, so you Thank Brian.

Operator

turn the to there Ms. floor Im are any I’d for closing Instructions] like [Operator no back And over to further comment. questions.

Lisa Im

with for service. say, I their Thank trust will like want about feel even able really that today. in I you. to provide to our our call And quarter to and clients. being thank service our their as very and you our support we also, being on was expected, to the do having clients for always, than though I’d us quarter what contracts lower three we implemented four, good thank

our momentum from do growth As what very do toward forward confident of into to of of revenue million. we XXXX, margins XXXX see looks that these contracts. we that to we we be all see normalized like the businesses. target we revenue QX on after XXXX, driving feel go across And XX% expect we should time, look will at And about $XXX our as

So much. about passion your want very your and good commitment our your your to thank you going for employees feel as forward. well to I that bringing best I very bring Thank performance. and

Operator

today’s This teleconference. concludes

You time. your Thank your may disconnect lines at this you participation. for

Performant Healthcare (PHLT) 9 Nov 182018 Q3 Earnings call transcript