Performant Financial Corporation Announces Financial Results for First Quarter 2013

Performant Financial Corporation Announces Financial Results for First Quarter
2013

LIVERMORE, Calif., May 9, 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 fiscal first quarter ended March 31, 2013:

First Quarter Financial Highlights

  *Revenues of $49.4 million, year-over-year growth of 7.6%
  *Adjusted EBITDA of $11.4 million, compared to $13.7 million in the prior
    year period
  *Net income of $1.8 million, resulting in earnings per diluted share of
    $0.04, compared to net income of $2.5 million or $0.02 per fully diluted
    share in the prior year period
  *Adjusted net income of $4.0 million, resulting in adjusted earnings per
    diluted share of $0.08 compared to adjusted net income of $5.7 million or
    $0.12 in the prior year period

Fiscal 2013 First Quarter Results

Lisa Im, Performant Financial's Chief Executive Officer said, "We successfully
executed on our strategy during the first quarter despite challenges in our
Medicare recovery and audit operations primarily due to our inability to audit
certain healthcare providers in the fourth quarter following Hurricane Sandy,
which negatively impacted our Healthcare results. Student Lending revenues
drove continued growth in the quarter, revenues grew 14.1% during the first
quarter to $33.3 million from $29.2 in the prior year period. Student Loan
Placement Volume (defined below) during the quarter totaled $1.7 billion, an
increase of 74.2% compared to the prior year period. This is primarily a
result of more normalized placements from the Department of Education and a
steady increase in placements from our Guaranty Agency clients.

As previously discussed, and directly related to Hurricane Sandy, healthcare
revenues declined 14.8% during the first quarter to $10.3 million from $12.1
million in the prior year period. Our Net Claim Recovery Volume (defined
below) during the quarter was $90.4 million, compared to $106.1 million in the
prior year period. Other revenues grew 25.1% during the first quarter to $5.8
million from $4.6 million in the prior year period.

As of March 31, 2013, the Company had cash and cash equivalents of
approximately $39.3 million.

Business Outlook

Based on our current operating performance and expectations under a
steady-state environment, we are reaffirming our revenue forecast of $252 -
$265 million," said Im. "This estimate, of course, assumes that we are
successful in maintaining our position as the Medicare RAC contractor in
Region A and that our audit and recovery activities are not significantly
impacted by transition procedures adopted by CMS in connection with the
contract re-bidding process. Should the transition procedures limit our
ability to request additional documentation from providers from late May until
September, a scenario that we do not expect given the likelihood that CMS will
seek to minimize disruption due to the volume of improper payments at stake,
we estimate that our 2013 revenues could be adversely affected in the range of
$10 -15 million."

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 first quarter 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 877-941-2068
(domestic) or 480-629-9712 (international) and entering passcode 4613880.
Participants should ask for the Performant Financial first 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 4613880.The telephonic replay will be available
until 11:59 pm (Eastern Time), May 16, 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
estimates of our expected revenues and adjusted EBITDA for 2013 and the
effects of contract transition procedures on our 2013 revenues. 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-K for the year ended December 31, 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)
                                                      March       December 31,
                                                     31,         2012
                                                      2013
Assets                                                (Unaudited) 
                                                                
Cash and cash equivalents                             $39,347   $37,843
Trade accounts receivable, net of allowance for
doubtful accounts of $53 and $65, respectively and    19,424      23,044
estimated allowance for appeals of $371 and $1,199,
respectively
Deferred income taxes                                 3,798       3,798
Prepaid expenses and other current assets             3,258       2,876
Income tax receivable                                 2,092       0
Debt issuance costs, current portion                  1,108       1,125
Total current assets                                  69,027      68,686
Property, equipment, and leasehold improvements, net  21,450      20,669
Identifiable intangible assets, net                   35,312      36,244
Goodwill                                              81,572      81,572
Debt issuance costs, net                              3,578       3,844
Other assets                                          709         730
Total assets                                          $211,648   $211,745
                                                                
Liabilities and Stockholders' Equity                             
Liabilities:                                                     
Current liabilities:                                             
Current maturities of notes payable                   $11,040   $11,040
Accrued salaries and benefits                         6,149       9,288
Accounts payable                                      1,436       1,403
Other current liabilities                             6,062       8,252
Income taxes payable                                  0           430
Deferred revenue                                      1,278       2,187
Estimated liability for appeals                       6,509       4,378
Total current liabilities                             32,474      36,978
Notes payable, net of current portion                 133,969     136,729
Deferred income taxes                                 11,271      11,271
Other liabilities                                     2,417       2,694
Total liabilities                                     180,131     187,672
                                                                
Commitments and contingencies                                    
                                                                
Stockholders' equity:                                 
Common stock, $0.0001 par value. Authorized, 500,000
shares at March 31, 2013 and December 31, 2012;       4           4
issued and outstanding 46,721 and 45,392 shares at
March 31, 2013 and December 31, 2012, respectively
Additional paid-in capital                            41,593      35,970
Accumulated deficit                                   (10,080)    (11,901)
Total stockholders' equity                           31,517      24,073
Total liabilities and stockholders' equity           $211,648  $211,745

                                                                 
PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

                                                        Three Months Ended
                                                         March 31,
                                                        2013      2012
                                                                 
Revenues                                                 $49,363 $45,878
Operating expenses:                                               
Salaries and benefits                                    23,982   18,641
Other operating expenses                                 18,868   16,141
Total operating expenses                                 42,850   34,782
Income from operations                                   6,513    11,096
Debt extinguishment costs                                —        (3,679)
Interest expense                                         (2,965)  (3,190)
Interest income                                          —        31
Income before provision for income taxes                 3,548    4,258
Provision for income taxes                               1,727    1,742
Net income (loss)                                        $1,821  $2,516
Accrual for preferred stock dividends                    —        1,571
Net income available to common shareholders              $1,821  $945
Net income per share attributable to common shareholders          
Basic                                                    $0.04   $0.02
Diluted                                                 $0.04   $0.02
Weighted average shares                                           
Basic                                                    46,121   42,985
Diluted                                                  49,007   46,225

                                                                   
PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

                                                          Three Months Ended
                                                           March 31,
                                                          2013      2012
Cash flows from operating activities:                               
Net income                                                 $1,821  $2,516
Adjustments to reconcile net income to net cash provided            
by operating activities:
Depreciation and amortization                             2,509    2,214
Write-off of unamortized debt issuance costs               —        335
Stock-based compensation                                   712      52
Interest expense from debt issuance costs and amortization 314      282
of discount note payable
Interest income on notes receivable from stockholders      —        (28)
Changes in operating assets and liabilities:                        
Trade accounts receivable                                  3,620    (4,911)
Prepaid expenses and other current assets                  (382)    806
Income tax receivable                                      (2,092)  —
Other assets                                               21       (35)
Accrued salaries and benefits                              (3,139)  (2,073)
Accounts payable                                           33       649
Other current liabilities                                  (2,190)  (1,586)
Income taxes payable                                       (430)    2
Deferred revenue                                           (909)    3,894
Estimated liability for appeals                            2,131    777
Other liabilities                                          (57)     (52)
Net cash provided by operating activities                  1,962    2,842
Cash flows from investing activities:                               
Purchase of property, equipment, and leasehold             (2,359)  (1,203)
improvements
Purchase of perpetual software license and computer        —        (760)
equipment
Net cash used in investing activities                      (2,359)  (1,963)
Cash flows from financing activities:                               
Borrowing under notes payable                              —        136,500
Borrowing under line of credit                             —        4,500
Redemption of preferred stock                              —        (43,973)
Repayment of notes payable                                 (2,760)  (95,185)
Repayment of line of credit                                —        (8,198)
Debt issuance costs paid                                   —        (2,235)
Proceeds from exercise of stock options                    735      20
Income tax benefit from employee stock options             4,176    —
Payment of purchase obligation                             (250)    —
Net cash provided by (used) in financing activities        1,901    (8,571)
Net increase (decrease) in cash and cash equivalents       1,504    (7,692)
Cash and cash equivalents at beginning of period           37,843   20,004
Cash and cash equivalents at end of period                 $39,347 $12,312
                                                                   
Supplemental disclosures of cash flow information:                  
Cash paid for income taxes                                 $1,550  $1,740
Cash paid for interest                                     $2,559  $2,912
Cash paid as debt extinguishment                           —        $3,344
Supplemental disclosure of non-cash investing and                   
financing activities:
Obligation payable to sellers of perpetual license         —        $3,250
Issuance of common stock as part of debt issuance costs    —        $2,796


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, Except Per Share amounts)
(Unaudited)
                                                                   
                                                          Three Months Ended
                                                          March 31,
Reconciliation of Adjusted Earnings Per Diluted Share:     2013      2012
Net income                                                 $1,821  $2,516
Less: Accrual for preferred dividends                      —        (1,571)
Net income available to common stockholders                1,821    945
Plus: Accrual for preferred dividends                      —        1,571
Plus: Adjustment items per reconciliation of adjusted net  2,132    3,136
income
Adjusted net income                                        $3,953  $5,652
                                                                   
Adjusted Earnings Per Diluted Share                        0.08     $0.12
                                                                   
Diluted avg shares outstanding                            49,007   46,225
                                                                   
                                                                   
                                                          Three Months Ended
                                                          March 31,
                                                          2013      2012
Reconciliation of Adjusted EBITDA:                                  
Net income                                                 $1,821  $2,516
Provision for income taxes                                 1,727    1,742
Interest expense                                           2,965    3,190
Interest income                                            —        (31)
Debt extinguishment costs^(1)                              —        3,679
Secondary offering expense^(2)                             1,624    --
Depreciation and amortization                              2,509    2,214
Non-core operating expenses^(3)                            —        29
Advisory fee^(4)                                           —        309
Stock based compensation                                   712      52
                                                                   
Adjusted EBITDA                                            $11,358 $13,700
                                                                   
                                                          Three Months Ended
                                                          March 31,
                                                          2013      2012
Reconciliation of Adjusted Net Income:                              
Net income                                                 $1,821  $2,516
Debt extinguishment costs^(1)                              —        3,679
Secondary offering expense^(2)                             1,624    —
Non-core operating expenses^(3)                            —        29
Advisory fee^(4)                                           —        309
Stock based compensation                                   712      52
Amortization of intangibles^(5)                            933      875
Deferred financing amortization costs^(6)                  285      282
Tax adjustments^(7)                                        (1,422)  (2,090)
                                                                   
Adjusted Net Income                                        $3,953  $5,652


(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 direct and incremental costs associated with the Company's
secondary offering.
(3) Represents costs related to strategic corporate development activities.
(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