Performant Financial Corporation Announces Financial Results for Second Quarter 2013

Performant Financial Corporation Announces Financial Results for Second
Quarter 2013

LIVERMORE, Calif., Aug. 8, 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 second quarter ended June 30, 2013:

Second Quarter Financial Highlights -

  *Revenues of $69.2 million, year-over-year growth of 26.1%
  *Adjusted EBITDA of $27.0 million, compared to $20.2 million in the prior
    year period
  *Net income of $11.2 million, resulting in earnings per diluted share of
    $0.23, compared to net income of $8.1 million or $0.16 per fully diluted
    share in the prior year period
  *Adjusted net income of $13.1 million, resulting in adjusted earnings per
    diluted share of $0.27, compared to adjusted net income of $9.7 million or
    $0.21 in the prior year period

Fiscal 2013 Second Quarter Results

Student Lending revenues represented 65% of total revenues and grew 24.7%
during the second quarter to $45.0 million from $36.1 in the prior year
period. Student Loan Placement Volume (defined below) during the quarter
totaled $1.3 billion, a decrease of 2.6% compared to the prior year period.

Healthcare revenues increased 33.2% during the second quarter to $18.0 million
from $13.5 million in the prior year period. The second quarter benefitted
from the delays in revenue production during the first quarter as a result of
the curtailment of some healthcare audit and claim activity due to Hurricane
Sandy, a temporary interruption in claim processing by our client. In
addition, automated processing of claims involving PIP providers began late in
the quarter and contributed approximately $3 million to revenues. Our Net
Claim Recovery Volume (defined below) during the quarter was $159.8 million,
compared to $118.6 million in the prior year period.

Other revenues grew 17.7% during the second quarter to $6.2 million from $5.2
million in the prior year period.

As of June 30, 2013, the Company had cash and cash equivalents of
approximately $51.3 million.

Lisa Im, Performant Financial's Chief Executive Officer said, "Our strong
results this quarter are a reflection of the success that we experienced
across all three of our businesses. We capitalized on favorable market
conditions and successfully executed our business strategy without being
impacted by the challenges we faced last quarter of Hurricane Sandy. We view
the resolution of the work stoppage under the current RAC contract, after one
month of not being able to send medical record requests as a positive.
However, limitations placed on claim type and volume as well as restrictions
on our ability to submit medical record requests to PIP providers serve as
temporary near-term headwinds, which is reflected in our revised full-year
guidance."

Business Outlook

Last quarter, the Company indicated that its full year top-line results could
be adversely affected by $10 to $15 million dollars should any prolonged
delays impact the Company's ability to request medical records from providers.
Given the restrictions related to PIP providers as part of the extension of
the current CMS RAC contract, and the temporary interruption in the Company's
ability to submit new medical record requests in July, combined with the
limitations CMS implemented related to claim volume and types, the Company is
revising its revenue forecast to $247 - $252 million from $252 - $265 million,
respectively.

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 second 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 877-407-9039
(domestic) or 201-689-8470 (international) and entering passcode 418246.
Participants should ask for the Performant Financial second 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 418246. The telephonic replay will be available
until 11:59 pm (Eastern Time), August 15, 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)
                                                     June 30,    December 31,
                                                      2013        2012
Assets                                                (Unaudited) 
Current assets:                                                  
Cash and cash equivalents                             $51,299   $37,843
Trade accounts receivable, net of allowance for
doubtful accounts of $53 and $65, respectively and    23,665      23,044
estimated allowance for appeals of $1,017 and $1,199,
respectively
Deferred income taxes                                 4,995       3,798
Prepaid expenses and other current assets             2,720       2,876
Income tax receivable                                 2,094       0
Debt issuance costs, current portion                  1,090       1,125
Total current assets                                  85,863      68,686
Property, equipment, and leasehold improvements, net  23,479      20,669
Identifiable intangible assets, net                   34,378      36,244
Goodwill                                              81,572      81,572
Debt issuance costs, net                              3,312       3,844
Other assets                                          673         730
Total assets                                          $229,277  $211,745
                                                                
Liabilities and Stockholders' Equity                             
Liabilities:                                                     
Current liabilities:                                             
Current maturities of notes payable                   $10,763   $11,040
Accrued salaries and benefits                         8,155       9,288
Accounts payable                                      2,045       1,403
Other current liabilities                             8,371       8,252
Income taxes payable                                  0           430
Deferred revenue                                      1,278       2,187
Estimated liability for appeals                       8,895       4,378
Total current liabilities                             39,507      36,978
Notes payable, net of current portion                 127,923     136,729
Deferred income taxes                                 11,573      11,271
Other liabilities                                     2,150       2,694
Total liabilities                                     181,153     187,672
                                                                
Commitments and contingencies                                    
                                                                
Stockholders' equity:                                            
Common stock, $0.0001 par value. Authorized, 500,000
shares at June 30, 2013 and December 31, 2012; issued
and outstanding 47,959 and 45,392 shares at June 30,  4           4
2013 and December 31, 2012,
respectively
Additional paid-in capital                            47,005      35,970
Retained earnings (deficit)                           1,115       (11,901)
Total stockholders' equity                            48,124      24,073
Total liabilities and stockholders' equity            $229,277  $211,745


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
                                                                
                                    Three Months Ended  Six Months Ended
                                     June 30,            June 30,
                                    2013      2012      2013       2012
Revenues                             $69,155 $54,821 $118,518 $100,699
Operating expenses:                                              
Salaries and benefits                23,900    19,782    47,882     38,423
Other operating expenses             22,883    18,672    41,751     34,813
Total operating expenses             46,783    38,454    89,633     73,236
Income from operations               22,372    16,367    28,885     27,463
Debt extinguishment costs            0         0         0          (3,679)
Interest expense                     (2,924)   (2,964)   (5,889)    (6,154)
Interest income                      0         31        0          62
Income before provision for income   19,448    13,434    22,996     17,692
taxes
Provision for income taxes           8,253     5,355     9,980      7,097
Net income                           $11,195 $8,079  $13,016  $10,595
Accrual for preferred stock          0         467       0          2,038
dividends
Net income available to common       $11,195 $7,612  $13,016  $8,557
shareholders
                                                                
Net income per share attributable to          
common shareholders
Basic                                $0.24   $0.18   $0.28    $0.20
Diluted                              $0.23   $0.16   $0.26    $0.18
                                                                
Weighted average shares                                          
Basic                                47,551    43,220    46,840     43,109
Diluted                              49,436    46,493    49,205     46,510


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                                          Six Months Ended
                                                          June 30,
Cash flows from operating activities:                      2013      2012
Net income                                                 $13,016 $10,595
Adjustments to reconcile net income to net cash provided            
by operating activities:
Depreciation and amortization                              5,138     4,557
Write-off of unamortized debt issuance costs               0         335
Deferred income taxes                                      (895)     (1,961)
Stock-based compensation                                   1,422     149
Interest expense from debt issuance costs and amortization 641       571
of discount note payable
Interest income on notes receivable from stockholders      0         (56)
Changes in operating assets and liabilities:                        
Trade accounts receivable                                  (621)     (5,469)
Prepaid expenses and other current assets                  156       7
Income tax receivable                                      (2,094)   0
Other assets                                               44        (52)
Accrued salaries and benefits                              (1,133)   (158)
Accounts payable                                           642       1,724
Other current liabilities                                  119       (766)
Income taxes payable                                       (430)     2,548
Deferred revenue                                           (909)     3,061
Estimated liability for appeals                            4,517     2,697
Other liabilities                                          (355)     1,050
Net cash provided by operating activities                  19,258    18,832
Cash flows from investing activities:                               
Purchase of property, equipment, and leasehold             (6,082)   (3,655)
improvements
Purchase of perpetual software license and computer        0         (837)
equipment
Net cash used in investing activities                      (6,082)   (4,492)
Cash flows from financing activities:                               
Borrowing under notes payable                              0         156,000
Borrowing under line of credit                             0         4,500
Redemption of preferred stock                              0         (60,286)
Repayment of notes payable                                 (9,083)   (97,896)
Repayment of line of credit                                0         (12,698)
Debt issuance costs paid                                   0         (3,056)
Proceeds from exercise of stock options                    1,441     28
Receipt from stockholder                                   0         53
Income tax benefit from employee stock options             8,172     0
Payment of purchase obligation                             (250)     (250)
Net cash provided by (used) in financing activities        280       (13,605)
Net increase (decrease) in cash and cash equivalents       13,456    735
Cash and cash equivalents at beginning of period           37,843    20,004
Cash and cash equivalents at end of period                 $51,299 $20,739
                                                                   
Supplemental disclosures of cash flow information:                  
Cash paid for income taxes                                 $5,225  $6,510
Cash paid for interest                                     $5,195  $4,667
Cash paid as debt extinguishment                           $0      $3,344
Supplemental disclosure of non-cash investing and                   
financing activities:
Obligation payable to sellers of perpetual license         $0      $3,250
Issuance of common stock as part of debt issuance costs    $0      $2,796


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, Except Per Share amounts)
(Unaudited)
                                                                 
                                      Three Months Ended  Six Months Ended
                                      June 30,            June 30,
Reconciliation of Adjusted Earnings    2013      2012      2013      2012
Per Diluted Share:
Net income                             $11,195 $8,079  $13,016 $10,595
Less: Accrual for preferred dividends  —        (467)    —        (2,038)
Net income available to common         11,195   7,612    13,016   8,557
stockholders
Plus: Accrual for preferred dividends  —        467      —        2,038
Plus: Adjustment items per             1,917    1,613    4,049    4,749
reconciliation of adjusted net income
Adjusted net income                    $13,112 $9,692  $17,065 $15,344
                                                                 
Adjusted Earnings Per Diluted Share    0.27     0.21     $0.35   $0.33
                                                                 
Diluted avg shares outstanding         49,436   46,493   49,205   46,510
                                                                 
                                                                 
                                      Three Months Ended  Six Months Ended
                                      June 30,            June 30,
                                      2013      2012      2013      2012
Reconciliation of Adjusted EBITDA:                                
Net income                             $11,195 $8,079  $13,016 $10,595
Provision for income taxes             8,253    5,355    9,980    7,097
Interest expense                       2,924    2,964    5,889    6,154
Interest income                        —         (31)     —         (62)
Debt extinguishment costs^(1)          —         —         —         3,679
Secondary offering expense^(2)         1,269    —         2,893    —
Depreciation and amortization          2,629    2,343    5,138    4,557
Non-core operating expenses^(3)        —         18       —         47
Advisory fee^(4)                       —         1,400    —         1,709
Stock based compensation               710      97       1,422    149
                                                                 
Adjusted EBITDA                        $26,980 $20,225 $38,338 $33,925
                                                                 
                                      Three Months Ended  Six Months Ended
                                      June 30,            June 30,
                                      2013      2012      2013      2012
Reconciliation of Adjusted Net Income:                            
Net income                             $11,195 $8,079  $13,016 $10,595
Debt extinguishment costs^(1)          —         —         —         3,679
Secondary offering expense^(2)         1,269    —         2,893    —
Non-core operating expenses^(3)        —         18       —         47
Advisory fee^(4)                       —         1,400    —         1,709
Stock based compensation               710       97       1,422    149
Amortization of intangibles^(5)        933       934      1,866    1,809
Deferred financing amortization        282       239      567      521
costs^(6)
Tax adjustments^(7)                    (1,277)  (1,075)  (2,699)  (3,165)
                                                                 
Adjusted Net Income                    $13,112 $9,692  $17,065 $15,344

(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 in February and April 2013.

(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
 
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