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Edited Transcript of PFMT earnings conference call or presentation 7-May-19 9:00pm GMT

Q1 2019 Performant Financial Corp Earnings Call

Livermore May 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Performant Financial Corp earnings conference call or presentation Tuesday, May 7, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lisa C. Im

Performant Financial Corporation - Chairman & CEO

* Richard Zubek

Performant Financial Corporation - IR Professional

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Presentation

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Operator [1]

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Greetings. Welcome to Performant Financial Corp's First Quarter 2019 Earnings Call. (Operator Instructions) Please note, this conference is being recorded.

I'll now turn the conference over to Richard Zubek with Investor Relations. Thank you. You may now begin.

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Richard Zubek, Performant Financial Corporation - IR Professional [2]

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Thank you, operator. Afternoon, everyone.

By now you should have received a copy of the earnings release for the company's first quarter 2019 results. If you have not, a copy is available on the Investor Relations portion of our website.

Today's call will be led by Lisa Im, Chief Executive Officer. Before we begin, I'd like to remind you that some of the comments made on today's call, including our financial guidance, are forward-looking statements. These statements are subject to risks and uncertainties, including those described in the company's filings with the SEC. Actual results may differ materially from those described during the call.

In addition, all forward-looking statements are made as of today, and the company does not undertake to update any forward-looking statements based on new circumstances or revised expectations. Also, all non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to our press release.

I would now like to turn the call over to Lisa Im. Lisa?

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Lisa C. Im, Performant Financial Corporation - Chairman & CEO [3]

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Thank you, Rich.

Good afternoon, everyone, and thank you for joining us for our earnings call. If you haven't already, please find the financial supplement on our website that walks through our 2019 first quarter financial results in more detailed form.

Our long-term strategy has always been to build a strong, diversified business on our core strength: analytics, innovation, compliance, audit and recovery. Where those capabilities combine and create unique strengths and value propositions to our clients, we believe we can win competitively and find solid market opportunities.

As we mentioned in the last earnings call, in 2018, we worked in earnest to ramp up new contracts including the Medicare Secondary Payer Commercial Repayment Center, or MSP CRC contract; several large commercial health care contracts and the IRS contract. We also reiterated that 2019 would be year 2 of many of these contracts, which requires investment and they don't achieve steady-state margins until 2020 or year 3.

Also, we'd like to note that for the purpose of comparing results to the first quarter of 2018, we are excluding a one-time favorable revenue impact of $27.8 million and expense of $9 million from closing out the CMS Region A contract in 2018, which impacted overall in health care revenues and expenses in Q1.

In Q1 of 2019, we reported revenues of nearly $35 million, which was in line with our internal projections and up over 19% versus the prior year period excluding the one-time $27.8 million reserve release in Q1 of 2018. Adjusted EBITDA in the first quarter was a loss of approximately $4 million compared to a loss of just over $3 million in the prior year period excluding the expense of $9 million from closing out the CMS Region A contract in 2018.

Overall health care revenues in the first quarter of 2019 totaled $10 million, which was nearly 190% higher than it was in Q1. CMS-related revenues in the first quarter were approximately $6 million compared to just over $1 million in the prior year period. It was an increase of over 350% year-over-year. Commercial health care revenues accounted for over $4 million in Q1 of 2019 compared to just $2 million last year.

We're very excited about the progress that we've made in driving growth in our health care markets. We continue to focus on executing both government and commercial contracts across various services including third-party liability. Additionally, during Q1, we began to implement a plan for ADR and personnel recruiting targets consistent with expanding the RAC Region 1 and Region 5 audits during 2019.

Total recovery revenue in Q1, which includes our student lending, tax, IRS and treasury markets as well as Premiere, was just over $21 million, which was approximately 2% lower than the first quarter of last year.

In Q1, Premiere revenue essentially offset the decrease in revenues from Great Lakes following their decision to terminate their portfolio management agreement with us in mid-2017 in search of a full servicing solution. Student lending revenue in Q1 was approximately $13 million versus approximately $19 million from the prior year period. The decline is wholly attributable to the wind down of our Great Lakes agreement. Lastly, our customer care and outsourced services revenue of $4.5 million were up 18.4% versus last year.

Q1 expenses of $42 million were $6 million higher than the prior year period, excluding the one-time $9 million of 2018 expense from the closeout of Region A contract. The increase in costs were mostly due to the Premiere annualization of expenses which was $7 million for Q1.

Overall, our results demonstrated our continued success in transitioning from a company that just a few years ago was heavily dependent on the student lending industry to one today that is diversifying its offerings and serves clients across the broad spectrum of industries, including health care agencies, state and federal taxing authorities, other federal agencies and commercial clients.

As we continue to diversify and drive more revenue and profitability from health care markets, we will also naturally shift how we discussed our business and operational results. For instance, our decision to introduce recovery markets in our prepared remarks as a source of revenue and have student lending be a part of that discussion instead of a stand-alone basis. Also, beginning with the second quarter, we will use the same revenue presentation in our press release as well.

Another change that we made this quarter was the decision to no longer provide student loan placement volume data on the call or in our press release. Although these figures are meaningful, we feel that they had more relevance when student lending markets accounted for a more sizable portion of our overall revenues. That said, for continuity purposes, we will still report the measures in our future 10-Qs and 10-Ks.

Finally, we are reiterating our 2019 revenue guidance of between $158 million to $168 million, and adjusted EBITDA to be a loss of between $2 million and $6 million.

As we stated on our last call, although we are guiding to a net EBITDA loss this year, we want to reiterate the longer-term confidence we have in our business strategy. Although we currently continue to invest in year 2 of many of our newer contracts, we continue to believe that these contracts will drive top line to the 2021 revenue target of $200 million.

With that, I'd like to open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) At this time, I will turn the floor back to Lisa Im for closing remarks.

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Lisa C. Im, Performant Financial Corporation - Chairman & CEO [2]

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Thank you, operator.

We want to thank you for joining us for our call today. We also want to thank our clients for letting us serve them this past quarter and our employees for bringing their best to Performant every day.

Thank you for joining us today.

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Operator [3]

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Thank you. This will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.