Performant Financial Corporation Announces Financial Results for Third Quarter 2013

Performant Financial Corporation Announces Financial Results for Third Quarter
2013

LIVERMORE, Calif., Nov. 7, 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 third quarter ended September 30,
2013:

Third Quarter Financial Highlights -

  *Revenues of $76.8 million, year-over-year growth of 43.8%
  *Adjusted EBITDA of $31.7 million, compared to $18.3 million in the prior
    year period
  *Net income of $15.5 million, resulting in earnings per diluted share of
    $0.31, compared to net income of $6.4 million or $0.13 per fully diluted
    share in the prior year period
  *Adjusted net income of $16.6 million, resulting in adjusted earnings per
    diluted share of $0.34, compared to adjusted net income of $8.1 million or
    $0.17 in the prior year period

Fiscal 2013 Third Quarter Results

Student Lending revenues represented 56.5% of total revenues and grew 31.5%
during the third quarter to $43.4 million from $33.0 million in the prior year
period. Student Loan Placement Volume (defined below) during the quarter
totaled $2.1 billion, an increase of 63.7% compared to the prior year period.

Healthcare revenues increased 109.6% during the third quarter to $28.3 million
from $13.5 million in the prior year period. The third quarter benefitted from
the automated processing of claims involving PIP providers, which contributed
approximately $10.0 million to revenues. Our Net Claim Recovery Volume
(defined below) during the quarter was $251.3 million, compared to $119.1
million in the prior year period.

Other revenues during the third quarter were $5.1 million.

As of September 30, 2013, the Company had cash and cash equivalents of
approximately $69.6 million.

Lisa Im, Performant Financial's Chief Executive Officer said, "Our third
quarter performance was stronger than anticipated. The favorable timing of
over $2.1 billion in loan placements that we received late in 2012 benefitted
our Student Lending business. We also saw strong results in our Healthcare
business, as we reported Net Claim Recovery Volume in the third quarter that
exceeded what we reported for the first two quarters of 2013 combined.
Although there continues to be uncertainty related to the timing of pending
CMS and Department of Education contract awards and our Medicare audit
activities are restricted in the near-term as a result of contract transition
procedures implemented by CMS, we are confident in our position and we are
continuing our efforts to evolve and expand our business overall."

Business Outlook

Following the strong third quarter, the Company is revising its 2013 full year
revenue forecast to $253 - $257 million up from our previous estimate of $247
- $252 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 third 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 10000620.
Participants should ask for the Performant Financial third quarter earnings
conference call.

A replay of the live conference call will be available beginning approximately
three 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 10000620. The telephonic
replay will be available until 11:59 pm (Eastern Time), November 14, 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)
                                                   September 30, December 31,
                                                   2013          2012
Assets                                              (Unaudited)   
Current assets:                                                  
Cash and cash equivalents                           $69,554     $37,843
Trade accounts receivable, net of allowance for                  
doubtful accounts of $53 and $65, respectively
and estimated allowance for appeals of $1,997 and  30,593        23,044
$1,199, respectively
Deferred income taxes                               6,331         3,798
Prepaid expenses and other current assets           2,756         2,876
Debt issuance costs, current portion                1,073         1,125
Total current assets                                110,307       68,686
Property, equipment, and leasehold improvements,    24,323        20,669
net
Identifiable intangible assets, net                 33,445        36,244
Goodwill                                            81,572        81,572
Debt issuance costs, net                            3,049         3,844
Other assets                                        613           730
Total assets                                        $253,309      $211,745
                                                                
Liabilities and Stockholders' Equity                             
Liabilities:                                                     
Current liabilities:                                             
Current maturities of notes payable                 $10,763     $11,040
Accrued salaries and benefits                       10,537        9,288
Accounts payable                                    1,799         1,403
Other current liabilities                           6,461         8,252
Income taxes payable                                6,229         430
Deferred revenue                                    --            2,187
Estimated liability for appeals                     12,697        4,378
Total current liabilities                           48,486        36,978
Notes payable, net of current portion               125,232       136,729
Deferred income taxes                               12,660        11,271
Other liabilities                                   1,898         2,694
Total liabilities                                   188,276       187,672
                                                                
Commitments and contingencies                                    
Stockholders' equity:                                            
Common stock, $0.0001 par value. Authorized,
500,000 shares at September 30, 2013 and December
31, 2012; issued and outstanding 48,159 and 45,392  4             4
shares at September 30, 2013 and December 31, 2012,
respectively
Additional paid-in capital                          48,460        35,970
Retained earnings (deficit)                         16,569        (11,901)
Total stockholders' equity                         65,033        24,073
Total liabilities and stockholders' equity         $253,309    $211,745
                                                                


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
                                                                
                                    Three Months Ended  Nine Months Ended
                                     September 30,      September 30,
                                    2013      2012      2013       2012
Revenues                             $76,808 $53,400 $195,326 $154,099
Operating expenses:                                              
Salaries and benefits                25,060    21,003    72,942     59,426
Other operating expenses             23,563    18,240    65,314     53,053
Total operating expenses             48,623    39,243    138,256    112,479
Income from operations               28,185    14,157    57,070     41,620
Debt extinguishment costs            --        --        --         (3,679)
Interest expense                     (2,863)   (3,175)   (8,752)    (9,329)
Interest income                      --        2         --         64
Income before provision for income   25,322    10,984    48,318     28,676
taxes
Provision for income taxes           9,868     4,601     19,848     11,698
Net income                           $15,454 $6,383  $28,470  $16,978
Accrual for preferred stock          --        --        --         2,038
dividends
Net income available to common       $15,454 $6,383  $28,470  $14,940
shareholders
                                                                
Net income per share attributable to                             
common shareholders
Basic                                $0.32   $0.14   $0.60    $0.34
Diluted                              $0.31   $0.13   $0.58    $0.32
                                                                
Weighted average shares                                         
Basic                                48,050    44,337    47,247     43,519
Diluted                              49,556    47,811    49,315     47,164
                                                                
                                                                

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                                          Nine Months Ended
                                                          September 30,
Cash flows from operating activities:                      2013      2012
Net income                                                 $28,470 $16,978
Adjustments to reconcile net income to net cash provided            
by operating activities:
Loss on dispoal of asset                                   1         52
Depreciation and amortization                              7,840     7,002
Write-off of unamortized debt issuance costs               --       335
Deferred income taxes                                      (1,144)   173
Stock-based compensation                                   2,196     883
Interest expense from debt issuance costs and amortization 939       946
of discount note payable
Interest income on notes receivable from stockholders      --       (57)
Changes in operating assets and liabilities:                        
Trade accounts receivable                                  (7,549)   (4,734)
Prepaid expenses and other current assets                  120       841
Income tax receivable                                      --       (800)
Other assets                                               117       (12)
Accrued salaries and benefits                              1,249     (794)
Accounts payable                                           396       1,518
Other current liabilities                                  (1,791)   (1,262)
Income taxes payable                                       5,799     (470)
Deferred revenue                                           (2,187)   285
Estimated liability for appeals                            8,319     3,205
Other liabilities                                          (137)     306
Net cash provided by operating activities                  42,638    24,395
Cash flows from investing activities:                               
Purchase of property, equipment, and leasehold             (8,697)   (7,355)
improvements
Purchase of perpetual software license and computer        --       (837)
equipment
Net cash used in investing activities                      (8,697)   (8,192)
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                                 (11,774)  (100,656)
Repayment of line of credit                                --       (12,698)
Debt issuance costs paid                                   --       (3,061)
Proceeds from exercise of stock options                    1,653     137
Proceeds from issuance of stock                           --       12,844
Receipt from stockholder                                  --       2,323
Payment to stockholders                                    --       (1,761)
Purchase of treasury stock                                --       (1,225)
Income tax benefit from employee stock options             8,641     380
Payment of purchase obligation                             (750)     (500)
Net cash provided by (used) in financing activities        (2,230)   (4,003)
Net increase in cash and cash equivalents                  31,711    12,200
Cash and cash equivalents at beginning of period           37,843    20,004
Cash and cash equivalents at end of period                 $69,554 $32,204
Supplemental disclosures of cash flow information:                  
Cash paid for income taxes                                 $6,552  $12,415
Cash paid for interest                                     $7,796  $8,358
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  Nine Months Ended
                                      September 30,      September 30,
Reconciliation of Adjusted Earnings    2013      2012      2013      2012
Per Diluted Share:
Net income                             $15,454 $6,383  $28,470 $16,978
Less: Accrual for preferred dividends  --       --       --       (2,038)
Net income available to common         15,454   6,383    28,470   14,940
stockholders
Plus: Accrual for preferred dividends  --       --       --       2,038
Plus: Adjustment items per             1,193    1,764    5,242    6,514
reconciliation of adjusted net income
Adjusted net income                    $16,647 $8,147  $33,712 $23,492
                                                                 
Adjusted Earnings Per Diluted Share    $0.34   $0.17   $0.68   $0.50
                                                                 
Diluted avg shares outstanding        49,556   47,811   49,315   47,164
                                                                 
                                                                 
                                      Three Months Ended  Nine Months Ended
                                      September 30,      September 30,
                                      2013      2012      2013      2012
Adjusted EBITDA:                                                  
Net income                             $15,454 $6,383  $28,470 $16,978
Provision for income taxes             9,868    4,601    19,848   11,698
Interest expense                       2,863    3,175    8,752    9,329
Interest income                        --       (2)      --       (64)
Debt extinguishment costs^(1)          --       --       --       3,679
Secondary offering expense^(2)         --       --       2,893    --
Depreciation and amortization          2,702    2,445    7,840    7,002
Non-core operating expenses^(3)        --       --       --       47
Advisory fee^(4)                       --       932      --       2,641
Stock based compensation               774      734      2,196    883
                                                                 
Adjusted EBITDA                        $31,661 $18,268 $69,999 $52,193
                                                                 
                                      Three Months Ended  Nine Months Ended
                                      September 30,       September 30,
                                      2013      2012      2013      2012
Adjusted Net Income:                                              
Net income                             $15,454 $6,383  $28,470 $16,978
Debt extinguishment costs^(1)          --       --       --       3,679
Secondary offering expense^(2)         --       --       2,893    --
Non-core operating expenses^(3)        --       --       --       47
Advisory fee^(4)                       --       931      --       2,640
Stock based compensation               774      734      2,196    883
Amortization of intangibles^(5)        933      932      2,799    2,741
Deferred financing amortization        281      344      848      865
costs^(6)
Tax adjustments^(7)                    (795)    (1,177)  (3,494)  (4,341)
                                                                 
Adjusted Net Income                    $16,647 $8,147  $33,712 $23,492
                                                                 

    Represents debt extinguishment costs comprised of approximately $3.3
(1) 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 offerings in February and April 2013.
(3) Represents costs related to strategic corporate development activities.
    Represents expenses incurred under an advisory services agreement with
(4) Parthenon Capital Partners, which was terminated in April 2012, and the
    August 2012 expense of $0.9 million associated with a payment to a
    financial advisor as part of the Company's IPO
    Represents amortization of capitalized expenses related to the acquisition
(5) 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%.

TABLE

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