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 email@example.com
Performant Financial Corporation Announces Financial Results for Second Quarter 2013
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