Performant Financial Corporation Announces Financial Results for Fourth Quarter and Full Year 2012

Performant Financial Corporation Announces Financial Results for Fourth
Quarter and Full Year 2012

LIVERMORE, Calif., Feb. 28, 2013 (GLOBE NEWSWIRE) -- Performant Financial
Corporation (Nasdaq:PFMT), a leading provider of technology-enabled recovery
and related analytics services in the United States, today reported the
following financial results for its fourth quarter and fiscal year ended
December 31, 2012:

Fourth Quarter Financial Highlights

  *Revenues increased to $56.0 million, year-over-year growth of 31.3%
  *Adjusted EBITDA increased to $17.4 million, compared to the prior year
    period of $14.4 million, year-over-year growth of 20.8%
  *Net income increased to $6.0 million, resulting in earnings per diluted
    share (EPS) of $0.12 compared to a net loss of $0.10 in the prior year
    period
  *Adjusted net income increased to $7.1 million, year-over-year growth of
    8.6% - Adjusted earnings per diluted share (Adj. EPS) was $0.15 compared
    to $0.15 in the prior year period

Full Year 2012 Financial Highlights

  *Revenues increased to $210.1 million, from $163.0 million in 2011, growth
    of 28.9%
  *Adjusted EBITDA increased to $69.6 million, growth of 20.4% compared to
    the prior year period of $57.8 million
  *Net income increased to $23.0 million, from $12.4 million in 2011, growth
    of 85.5% - earnings per diluted share (EPS) was $0.44 compared to $0.13 in
    the prior year period
  *Adjusted net income increased to $30.6 million, year-over-year growth of
    22.7% - Adjusted earnings per diluted share (Adj. EPS) was $0.64 compared
    to $0.55 in 2011

Fiscal 2012 Fourth Quarter Results

Lisa Im, Performant Financial's Chief Executive Officer said, "We delivered
strong revenue growth in both Student Lending and Healthcare, despite the
challenges presented by the Department of Education's system conversion and
the temporary suspension of some of our healthcare audit and recovery
activities as a result of Hurricane Sandy. This performance is a testament to
our proprietary technology platform, our differentiated operating model and
our ability to continually execute on our business plan. The Healthcare market
again delivered the strongest growth and accounted for approximately 28% of
the company's total revenues during the fourth quarter, relative to about 3%
only two years ago in the fourth quarter of 2010. Finally, we recently
announced a new strategic partnership with Magellan Healthcare and the award
of a new payment recapture contract with the Department of Education. These
events highlight the adaptability of our analytics and recovery services
platform to new markets."

Student Lending revenues grew 11.4% during the fourth quarter to $34.2 million
from $30.7 in the prior year period.Student Loan Placement Volume (defined
below) during the quarter totaled $2.2 billion, an increase of 45.1% compared
to the prior year period. This is primarily a result of a significant increase
in placements from the Department of Education as a system conversion project
had impacted placement volumes from the Department dating back to September of
2011. During the fourth quarter, we received placements of approximately $1.1
billion from the Department of Education, compared to placements of less than
$200 million during the third quarter of 2012.

Healthcare revenues grew 119.1% during the fourth quarter to $15.7 million
from $7.1 million in the prior year period. Our Net Claim Recovery Volume
(defined below) during the quarter was $138.4 million, compared to $62.8
million in the prior year period.Other revenues grew 27.4% during the fourth
quarter to $6.1 million from $4.8 million in the prior year period.

As of December 31, 2012, the Company had cash and cash equivalents of
approximately $37.8 million.

Full Year Fiscal 2012 Results

Revenues for the full year ended December 31, 2012 were$210.1 million, an
increase of 28.9% compared to$163.0 millionin the prior year period.
Student Lending revenues grew 8.1% to $132.4 million from $122.6 million in
2011.Student Loan Placement Volume totaled $5.8 billion, a decrease of 7.6%
compared to the prior year, primarily due to the system conversion at the
Department of Education, which has delayed placements to us and all other
recovery vendors as well as our decision to terminate a marginally profitable
contract with a commercial bank client. Healthcare revenues grew 154.1% to
$54.7 million from $21.5 million in the prior year. Our Net Claim Recovery
Volume was $482.2 million, compared to $188.5 million in the prior year.Other
revenues grew 21.3% to $22.9 million from $18.9 million in the prior year,
largely related to a new default-aversion service contract that commenced in
May 2012.

Net income for the full year was$23.0 million, or EPS of $0.44 on a fully
diluted basis, compared to$12.4 millionor EPS of $0.13on a fully diluted
basis in 2011. Adjusted EBITDA for 2012 was $69.6 million as compared to $57.8
million in 2011. Adjusted net income for 2012 was$30.6 million, resulting
in adjusted EPS of$0.64 on a fully diluted basis. This compared to$25.0
million or$0.55per fully diluted share in 2011.

Terms used in this Press Release

Student Loan Placement Volume refers to the dollar volume of defaulted student
loans first placed with us during the specified period by public and private
clients for recovery. Placement Volume allows us to measure and track trends
in the amount of inventory our clients in the student lending market are
placing with us during any period. The revenue associated with the recovery of
a portion of these loans may be recognized in subsequent accounting periods,
which assists management in estimating future revenues and in allocating
resources necessary to address current Placement Volumes.

Net Claim Recovery Volume refers to the dollar volume of improper Medicare
claims that we have recovered for CMS during the applicable period net of any
amount that we have reserved to cover appeals by healthcare providers. We are
paid recovery fees as a percentage of this recovered claim volume. We
calculate this metric by dividing our claim recovery revenue by our Claim
Recovery Fee Rate (the weighted-average percentage of our fees compared to
amounts recovered by CMS). This metric shows trends in the volume of improper
payments within our region and allows management to measure our success in
finding these improper payments, over time.

Earnings Conference Call

The Company will hold a conference call to discuss its fourth quarter and full
year results today at 5:00 p.m. Eastern. A live webcast of the call may be
accessed over the Internet from the Company's Investor Relations website at
investors.performantcorp.com. Participants should follow the instructions
provided on the website to download and install the necessary audio
applications. The conference call is also available by dialing 877-941-4774
(domestic) or 480-629-9760 (international) and entering passcode
4592716.Participants should ask for the Performant Financial fourth quarter
earnings conference call.

A replay of the live conference call will be available beginning approximately
one hour after the call.The replay will be available on the Company's website
or by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international) and
entering the replay passcode 4592716.The telephonic replay will be available
until 11:59 pm (Eastern Time), March 7, 2013

Interested investors and other parties may also listen to a simultaneous
webcast of the live conference call by logging onto the Investor Relations
section of the Company's website at investors.performantcorp.com. The on-line
replay will be available on the website immediately following the call.

About Performant Financial
Corporation

Performant Financial Corporation is a leading provider of technology-enabled
recovery and related analytics services. The Company's services help identify
and recover delinquent or defaulted assets and improper payments for various
government, healthcare and financial services markets in the United States.
The Company was founded in 1976 and is headquartered in Livermore, California.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, to supplement our consolidated financial statements,
the company presents adjusted EBITDA and adjusted net income.These measures
are not in accordance with generally accepted accounting principles (GAAP) and
accordingly reconciliations of adjusted EBITDA and adjusted net income to net
income determined in accordance with GAAP are included in the "Reconciliation
of Non-GAAP Results" table at the end of this press release. We have included
adjusted EBITDA and adjusted net income in this press release because they are
key measures used by our management and board of directors to understand and
evaluate our core operating performance and trends and to prepare and approve
our annual budget. Accordingly, we believe that adjusted EBITDA and adjusted
net income provide useful information to investors and analysts in
understanding and evaluating our operating results in the same manner as our
management and board of directors. Our use of adjusted EBITDA and adjusted net
income has limitations as an analytical tool and should not be considered in
isolation or as a substitute for analysis of our results as reported under
GAAP. In particular, many of the adjustments to our GAAP financial measures
reflect the exclusion of items, specifically interest, tax and depreciation
and amortization expenses, equity-based compensation expense and certain other
non-operating expenses, that are recurring and will be reflected in our
financial results for the foreseeable future. In addition, these measures may
be calculated differently from similarly titled non-GAAP financial measures
used by other companies, limiting their usefulness for comparison purposes.

Forward Looking Statements

This press release contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements regarding our ability to execute our business plan and to perform
successfully under a strategic partnership and contract in new end markets.
These forward-looking statements are based on current expectations, estimates,
assumptions and projections that are subject to change and actual results may
differ materially from those expressed in or implied by the forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, the high level of revenue concentration among
our five largest customers, that many of our customer contracts are not
exclusive and do not provide for committed business volumes, that we face
significant competition in all of our markets, that the U.S. federal
government accounts for a significant portion of our revenues, that future
legislative and regulatory changes may have significant effects on our
business, failure of our or third parties' operating systems and technology
infrastructure could disrupt the operation of our business and the threat of
breach of our security measures or failure or unauthorized access to
confidential data that we possess. More information about potential factors
that could affect the Company's financial condition and operating results or
the results expressed in or implied by any forward-looking statements is
included from time to time in the "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" sections of the
Company's Report on Form 10-Q for the quarter ended September 30, 2012 filed
with the SEC. The forward-looking statements are made as of the date of this
press release and the company does not undertake to update any forward-looking
statements to conform these statements to actual results or revised
expectations.

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)

Assets                                               December 31, December 31,
                                                     2012         2011
                                                                (Restated)
Current assets:                                                  
Cash and cash equivalents                            $37,843    $20,004
Trade accounts receivable, net of allowance for
doubtful accounts of $65 and $77, respectively and   23,044       19,398
estimated allowance for appeals of $1,199 and $484,
respectively
Deferred income taxes                                6,732        5,348
Prepaid expenses and other current assets            2,876        3,292
Debt issuance costs, current portion                 1,125        595
Total current assets                                 71,620       48,637
Property, equipment, and leasehold improvements, net 20,669       14,915
Identifiable intangible assets, net                  36,244       36,516
Goodwill                                             81,572       81,572
Debt issuance costs                                  3,844        0
Other assets                                         730          659
Total assets                                         $214,679     $182,299
Liabilities, Redeemable Preferred Stock and                      
Stockholders' Equity (Deficit)
Liabilities:                                                     
Current liabilities:                                             
Current maturities of notes payable                  $11,040    $8,134
Accrued salaries and benefits                        9,288        7,138
Accounts payable                                     1,403        60
Other current liabilities                            8,252        8,475
Income taxes payable                                 430          470
Deferred revenue                                     2,187        2,214
Estimated liability for appeals                      4,378        450
Total current liabilities                            36,978       26,941
Notes payable, net of current portion                136,729      87,051
Line of credit, drawn                                0            8,198
Deferred compensation                                0            1,761
Deferred income taxes                                14,205       14,647
Other liabilities                                    2,694        1,158
Total liabilities                                    190,606      139,756
Commitments and contingencies                                    
                                                                
Redeemable preferred stock                          
Series A convertible preferred stock, $0.0001 par
value. Authorized, 50,000 and 18,000 shares; issued  0            58,248
and outstanding, 0 and 5,296 shares at December 31,
2012 and 2011, respectively
                                                                
Stockholders' equity (deficit):                                  
Due from stockholders                                0            (2,266)
Common stock, $0.0001 par value. Authorized, 500,000
and 60,000 shares at December 31, 2012 and 2011,
respectively; issued and outstanding 45,392 and      4            4
37,667 shares at December 31, 2012 and 2011,
respectively
Additional paid-in capital                           35,970       19,371
Accumulated deficit                                  (11,901)     (32,814)
Total stockholders' equity (deficit)                24,073       (15,705)
Total liabilities, redeemable preferred stock, and   $214,679   $182,299
stockholders' equity (deficit)
                                                                
The number of Series A convertible preferred shares
outstanding, Series A convertible preferred stock,
the number of common shares outstanding, Common                  
stock, and Additional paid-in capital have been
restated to give effect to the two-for-one
split.See Note 1 for additional information.

See accompanying notes to consolidated financial statements.



PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
                                                              
                          Three Months Ended        Twelve Months Ended
                           December 31,              December 31,
                          2012         2011         2012         2011
                                      (Restated)               (Restated)
Revenues                   $ 55,974    $42,641    $ 210,073   $ 162,974
Operating expenses:                                            
Salaries and benefits      23,576      16,645      83,002      67,082
Other operating expenses   18,252      14,006      71,305      49,199
Impairment of trade name   --         13,400      --          13,400
Total operating expenses   41,828      44,051      154,307     129,681
Income from operations     14,146      (1,410)     55,766      33,293
Debt extinguishment costs  --         --         (3,679)     --
Interest expense           (3,085)     (3,317)     (12,414)    (13,530)
Interest income            --         31          64          125
Income before provision    11,061      (4,696)     39,737      19,888
for income taxes
Provision for income taxes 5,088       (2,323)     16,786      7,516
Net income (loss)          $5,973     $(2,373)   $22,951    $12,372
Accrual for preferred      --         1,710       2,038       6,495
stock dividends
Net income available to    $5,973     $(4,083)   $20,913    $5,877
common shareholders
Net income per share
attributable to common                             
shareholders
Basic                      $0.13      $(0.10)    $0.48      $0.14
Diluted                   $0.12      $(0.10)    $0.44      $0.13
Weighted average shares                                        
Basic                      45,366      42,963      43,985      42,962
Diluted                    48,812      42,963      47,599      45,742
                                                              
Net income per share attributable to common shareholders and weighted average
shares outstandinghave been restated to give effect to the two-for-one
split.



PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                             Twelve Months Ended December 31,
                                             2012             2011
Cash flows from operating activities:                         
Net income                                    $22,951        $12,372
Adjustments to reconcile net income to net                    
cash provided by operating activities:
Loss on disposal of asset                     53              --
Depreciation, amortization and impairment of  9,503           21,166
intangible assets
Write-off of unamortized debt issuance costs  335             --
Deferred income taxes                         (1,826)         (9,640)
Stock option compensation                     1,614           120
Interest expense from debt issuance costs and 1,272           1,254
amortization of discount note payable
Interest income on notes receivable from      (57)            (108)
stockholders
Changes in operating assets and liabilities:                  
Trade accounts receivable                     (3,646)         (5,392)
Prepaid expenses and other current assets     416             (94)
Other assets                                  (71)            372
Accrued salaries and benefits                 2,150           2,542
Accounts payable                              1,343           (3)
Other current liabilities                     (1,223)         5,184
Income taxes payable                          (40)            --
Deferred revenue                              (27)            2,214
Estimated liability for appeals               3,928           450
Other liabilities                             330             (1,452)
Net cash provided by operating activities     37,005          28,985
Cash flows from investing activities:                         
Purchase of property, equipment, and          (11,356)        (6,111)
leasehold improvements
Purchase of perpetual software license and    (837)           --
computer equipment
Net cash used in investing activities         (12,193)        (6,111)
Cash flows from financing activities:                         
Borrowing under notes payable                 156,000         --
Borrowing under line of credit                4,500           --
Redemption of preferred stock                 (60,286)        --
Repayment of notes payable                    (103,416)       (13,948)
Repayment of line of credit                   (12,698)        --
Debt issuance costs paid                      (3,074)         --
Proceeds from exercise of stock options       175             --
Proceeds from issuance of stock               12,624          --
Receipt from stockholders                     2,323           --
Income tax benefit from employee stock        615              --
options
Payment to stockholders                       (1,761)         --
Purchase of treasury stock                    (1,225)         --
Payment of purchase obligation                (750)           --
Net cash used in financing activities         (6,973)         (13,948)
Net increase (decrease) in cash and cash      17,839          8,926
equivalents
Cash and cash equivalents at beginning of     20,004          11,078
year
Cash and cash equivalents at end of year      $37,843        $20,004
                                                             
Supplemental disclosures of cash flow                         
information:
Cash paid for income taxes                    $18,037        $15,830
Cash paid for interest                        $11,178        $12,246
Cash paid as debt extinguishment              $3,344         $--
Supplemental disclosure of non-cash investing                 
and financing activities:
Note payable to sellers of perpetual license  $3,250         $--
Issuance of common stock as part of debt      $2,796         $--
issuance costs



PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, Except Per Share amounts)
(Unaudited)
                                                                 
                                    Three Months Ended   Twelve Months Ended
                                     December 31,        December 31,
Reconciliation of Adjusted Earnings  2012      2011       2012       2011
Per Diluted Share:
Net income (loss)                    $5,973  $(2,373) $22,951  $12,372
Less: Accrual for preferred          --       (1,710)   (2,038)   (6,495)
dividends
Net income available to common       5,973    (4,083)   20,913    5,877
stockholders
Plus: Accrual for preferred          --       1,710     2,038     6,495
dividends
                                                                 
Plus: Adjustment items per
reconciliation of adjusted net       1,177    8,954     7,692     12,599
income
Adjusted net income                  $7,150  $6,581   $30,643  $24,971
                                                                 
Adjusted Earnings Per Diluted Share  $0.15   $0.15    $0.64    $0.55
                                                                 
Diluted avg shares outstanding      48,812   42,963    47,599    45,742
                                                                 
                                    Three Months Ended   Twelve Months Ended
                                     December 31,        December 31,
                                    2012      2011       2012       2011
Reconciliation of Adjusted EBITDA:                                
Net income (loss)                    $5,973  $(2,373) $22,951  $12,372
Provision for income taxes           5,088    (2,323)   16,786    7,516
Interest expense                     3,085    3,317     12,414    13,530
Interest income                      --      (31)      (64)      (125)
Debt extinguishment costs^(1)        --      --       3,679     --
Impairment of trade name^(2)         --      13,400    --        13,400
Depreciation and amortization        2,503    2,054     9,505     7,766
Non-core operating expenses^(3)      --      110       47        2,548
Advisory fee^(4)                     --      308       2,641     634
Stock based compensation             731      37        1,614     120
                                                                 
Adjusted EBITDA                      $17,380 $14,499  $69,573  $57,761
                                                                 
                                    Three Months Ended   Twelve Months Ended
                                     December 31,        December 31,
                                    2012      2011       2012       2011
Reconciliation of Adjusted Net                                    
Income:
Net income (loss)                    $5,973  $(2,373) $22,951  $12,372
Debt extinguishment costs^(1)        --      --       3,679     --
Impairment of trade name^(2)         --      13,400    --       13,400
Non-core operating expenses^(3)      --      110       47        2,548
Advisory fee^(4)                     --      308       2,641     634
Stock based compensation             731      37        1,614     120
Amortization of intangibles^(5)      935      761       3,676     3,043
Deferred financing amortization      296      308       1,161     1,254
costs^(6)
Tax adjustments^(7)                  (785)    (5,970)   (5,126)   (8,400)
                                                                 
Adjusted Net Income                  $7,150  $6,581   $30,643  $24,971


(1) Represents debt extinguishment costs comprised of approximately $3.3
million of fees paid to lenders in connection with our new credit facility and
approximately $0.3 million of unamortized debt issuance costs in connection
with our old credit facility.
(2) Represents impairment expense to write off the carrying amount of the
trade name intangible asset due to the plan to retire the Diversified
Collection Services, Inc. trade name.
(3) Represents professional fees and settlement costs related to strategic
corporate development activities and a $1.2 million legal settlement in 2011.
(4) Represents expenses incurred under an advisory services agreement with
Parthenon Capital Partners, which was terminated in April 2012.
(5) Represents amortization of capitalized expenses related to the
acquisition of Performant by an affiliate of Parthenon Capital Partners in
2004, and also an acquisition in the first quarter of 2012 to enhance our
analytics capabilities.
(6) Represents amortization of capitalized financing costs related to debt
offerings conducted in 2009, 2010 and 2012.
(7) Represents tax adjustments assuming a marginal tax rate of 40%.

CONTACT: Richard Zubek
         Investor Relations
         925-960-4988
         investors@performantcorp.com
 
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