UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 11, 2020
 
 
Performant Financial Corporation
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
Delaware
 
001-35628
 
20-0484934
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
333 North Canyons Parkway
Livermore, California 94551
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (925) 960-4800
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))











Item 2.02
Results of Operations and Financial Condition.

On August 11, 2020, Performant Financial Corporation issued a press release announcing financial results for its quarter ended June 30, 2020. The full text of the press release is furnished as Exhibit 99.1.
The information furnished in this Form 8-K, including the exhibit attached, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and it shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
Item 9.01
Financial Statements and Exhibits.
(d)
Exhibits
 
 
99.1

  





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 11, 2020
 
 
 
 
 
 
PERFORMANT FINANCIAL CORPORATION
 
 
By:
 
/s/ Ian Johnston
 
 
Ian Johnston
 
 
Chief Accounting Officer


Exhibit
Exhibit 99.1

Performant Financial Corporation Announces Financial Results for Second Quarter 2020

Livermore, Calif., August 11, 2020 - Performant Financial Corporation (Nasdaq: PFMT), (the "Company"), a leading provider of technology-enabled recovery and related analytics services in the United States, today reported the following financial results for its second quarter ended June 30, 2020:

Second Quarter Financial Highlights

Total revenues of $33.8 million, compared to revenues of $35.8 million in the prior year period
Net loss of approximately $7.2 million, or $(0.13) per diluted share, compared to a net loss of $6.4 million, or $(0.12) per diluted share, in the prior year period. Included in the net loss for the current period was a non-cash impairment to goodwill of $8.0 million
Adjusted net loss, excluding the non-cash goodwill charge was $0.7 million, or $(0.01) per diluted share, compared to an adjusted net loss of $6.5 million or $(0.12) per diluted share in the prior year period
Adjusted EBITDA of $4.3 million, compared to $(2.5) million in the prior year period

Second Quarter 2020 Results

Total revenues in the second quarter were $33.8 million, a decrease of 5.6% from revenues of $35.8 million in the prior year period. Healthcare revenues in the second quarter of 2020 were $14.6 million, an increase of 57.0%from revenues of $9.3 million in the prior year period. Recovery revenues in the second quarter were $16.2 million, a decrease of $5.9 million, or 26.7% from revenues of $22.1 million in the prior year period. Revenues from our Customer Care / Outsourced Services in the second quarter were $3.0 million, a decrease of $1.4 million from the prior year period.

The Company recorded a non-cash impairment to goodwill of $8.0 million as of June 30, 2020. This is mainly due to the decrease in the Company’s stock price and associated market capitalization. There has been significant negative impact to the global economy and the public securities markets as a result of the COVID-19 pandemic since March 2020. As a result, the Company’s goodwill is at elevated risk of additional impairment should there be further decline in the Company’s stock price and associated market capitalization, which may result in a potentially material non-cash charge to earnings.

Net loss for the second quarter of 2020 was $7.2 million, or $(0.13) per share on a diluted basis, compared to net loss of $6.4 million or $(0.12) per share on a diluted basis in the prior year period. Adjusted net loss for the second quarter of 2020 was $0.7 million, resulting in $(0.01) per share on a diluted basis. This compares to an adjusted net loss of $6.5 million or $(0.12) per diluted share in the prior year period. Adjusted EBITDA for the second quarter of 2020 was $4.3 million as compared to $(2.5) million in the prior year period.

As of June 30, 2020, the Company had cash, cash equivalents and restricted cash of approximately $16.8 million.

Business Commentary and Outlook

“The safety and well-being of our associates has been our top priority during this pandemic, as a result, during the second quarter we successfully transitioned almost all our personnel, approximately 1,200 employees, to work remotely, and access to our physical sites was restricted to personnel who were required to perform critical business continuity activities. Through these and other proactive efforts, we performed relatively well throughout a challenging second quarter to ensure as much operational continuity as possible,” stated Lisa Im, CEO of Performant.

“Despite the various COVID-19 related challenges, our Healthcare business continues to grow, and our prospects withing the Healthcare market continue to be promising. We are thankful for the trust our new and existing clients have demonstrated in us, and we are gratified that our solid reputation is yielding significant wins in both the audit and eligibility markets,” concluded Im.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, to supplement our consolidated financial statements, the Company presents adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per diluted share. These measures are not in accordance with accounting principles generally accepted in the United States of America (US GAAP) and accordingly reconciliations of adjusted EBITDA and adjusted net income (loss) to net income (loss) determined in accordance with US 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 (loss) 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 (loss) 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 (loss) 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 US GAAP. In particular, many of the adjustments to our US 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.

Earnings Conference Call

The Company will hold a conference call to discuss its second quarter 2020 results today at 5:00 p.m. Eastern. A live webcast of the call may be accessed on the Investor Relations section of the Company’s website at investors.performantcorp.com. The conference call is also available by dialing 877-705-6003 (domestic) or 201-493-6725 (international).

A replay of the call will be available on the Company's website or by dialing 844-512-2921 (domestic) or 412-317-6671 (international) and entering the passcode 13707774. The telephonic replay will be available approximately three hours after the call, through August 18, 2020.

About Performant Financial Corporation

Performant helps government and commercial organizations enhance revenue and contain costs by preventing, identifying and recovering waste, improper payments and defaulted assets. Performant is a leading provider of these services in several industries, including healthcare, student loans and government. Performant has been providing recovery audit services for more than nine years to both commercial and government clients, including serving as a Recovery Auditor for the Centers for Medicare and Medicaid Services.

Powered by a proprietary analytic platform and workflow technology, Performant also provides professional services related to the recovery effort, including reporting capabilities, support services, customer care and stakeholder training programs meant to mitigate future instances of improper payments. Founded in 1976, Performant is headquartered in Livermore, California.




Forward Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our outlook for revenues, net income (loss), and adjusted EBITDA in 2020 and beyond. 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 the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the material adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition as well as on the business operations and financial performance of many of our customers, that the Company may not have sufficient cash flows from operations to fund ongoing operations and other liquidity needs, that the Company’s indebtedness could adversely affect its business and financial condition and could reduce the funds available for other purposes and the failure to comply with covenants contained in its credit agreement could result in an event of default that could adversely affect its results of operations, that the Company faces a long period to implement a new contract which may result in the incurrence of expenses before the receipt of revenues from new client relationships, the high level of revenue concentration among the Company's largest customers and any termination in the Company’s relationship with any of our significant clients would result in a material decline in our revenues, that many of the Company's customer contracts are subject to periodic renewal, are not exclusive, do not provide for committed business volumes and may be changed or terminated unilaterally and on short notice, that the Company may not be able to manage its potential growth effectively, that the Company faces significant competition in all of its markets, that continuing limitations on the scope of our audit activity under our RAC contracts have significantly reduced our revenue opportunities with this client, that the U.S. federal government accounts for a significant portion of the Company's revenues, that future legislative and regulatory changes may have significant effects on the Company's business, that failure of the Company's or third parties' operating systems and technology infrastructure could disrupt the operation of the Company's business and the threat of breach of the Company's security measures or failure or unauthorized access to confidential data that the Company possesses. More information on potential factors that could affect the Company's financial condition and operating results 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 annual report on Form 10-K for the year ended December 31, 2019 and subsequently filed reports on Forms 10-Q and 8-K. 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.


Contact Information
Richard Zubek
Investor Relations
925-960-4988
investors@performantcorp.com


PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)

 
June 30,
2020
 
December 31,
2019
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
15,211

 
$
3,373

Restricted cash
1,622

 
1,622

Trade accounts receivable, net of allowance for doubtful accounts of $518 and $237, respectively
20,593

 
27,170

Contract assets
977

 
1,339

Prepaid expenses and other current assets
3,220

 
3,329

Income tax receivable
2,024

 
164

Total current assets
43,647

 
36,997

Property, equipment, and leasehold improvements, net
18,010

 
18,769

Identifiable intangible assets, net
807

 
925

Goodwill
47,372

 
74,372

Right-of-use assets
5,559

 
6,834

Other assets
1,155

 
975

Total assets
$
116,550

 
$
138,872

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current maturities of notes payable to related party, net of unamortized debt issuance costs of $91 and $130, respectively
$
3,359

 
$
3,320

Accrued salaries and benefits
4,416

 
6,126

Accounts payable
1,397

 
2,532

Other current liabilities
2,423

 
3,576

Deferred revenue
1,062

 
83

Estimated liability for appeals and disputes
1,215

 
1,018

Lease liabilities
2,609

 
2,775

Total current liabilities
16,481

 
19,430

Notes payable to related party, net of current portion and unamortized debt issuance costs of $1,576 and $2,301, respectively
57,561

 
58,562

Deferred income taxes
35

 
35

Earnout payable
375

 
475

Lease liabilities
4,024

 
4,984

Other liabilities
3,041

 
1,761

Total liabilities
81,517

 
85,247

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value. Authorized, 500,000 shares at June 30, 2020 and December 31, 2019 respectively; issued and outstanding 54,462 and 53,900 shares at June 30, 2020 and December 31, 2019, respectively
5

 
5

Additional paid-in capital
81,680

 
80,589

Accumulated deficit
(46,652
)
 
(26,969
)
Total stockholders’ equity
35,033

 
53,625

Total liabilities and stockholders’ equity
$
116,550

 
$
138,872




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

 
 
Three Months Ended 
 June 30,
 
 
2020
 
2019
Revenues
 
$
33,785

 
$
35,830

Operating expenses:
 
 
 
 
Salaries and benefits
 
22,166

 
28,929

Other operating expenses
 
9,042

 
11,211

Impairment of goodwill
 
8,000

 

Total operating expenses
 
39,208

 
40,140

Loss from operations
 
(5,423
)
 
(4,310
)
Interest expense
 
(2,031
)
 
(1,958
)
Interest income
 
6

 
11

Loss before provision for (benefit from) income taxes
 
(7,448
)
 
(6,257
)
Provision for (benefit from) income taxes
 
(249
)
 
142

Net loss
 
$
(7,199
)
 
$
(6,399
)
Net loss per share
 
 
 
 
Basic
 
$
(0.13
)
 
$
(0.12
)
Diluted
 
$
(0.13
)
 
$
(0.12
)
Weighted average shares
 
 
 
 
Basic
 
54,267

 
53,367

Diluted
 
54,267

 
53,367




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

 
Six Months Ended 
 June 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(19,683
)
 
$
(14,888
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 
 
Loss on disposal of assets
25

 

Impairment of goodwill
27,000

 

Depreciation and amortization
2,795

 
4,557

Right-of-use assets amortization
1,275

 
1,335

Deferred income taxes

 
31

Stock-based compensation
1,340

 
1,218

Interest expense from debt issuance costs
763

 
543

Earnout mark-to-market
(162
)
 
(912
)
Changes in operating assets and liabilities:
 
 
 
Trade accounts receivable
6,577

 
2,217

Contract assets
362

 

Prepaid expenses and other current assets
109

 
(624
)
Income tax receivable
(1,860
)
 
179

Other assets
(180
)
 
(24
)
Accrued salaries and benefits
(1,710
)
 
(281
)
Accounts payable
(1,135
)
 
556

Deferred revenue and other current liabilities
(112
)
 
(341
)
Estimated liability for appeals and disputes
197

 
105

Lease liabilities
(1,126
)
 
(1,443
)
Other liabilities
1,279

 
117

Net cash provided by (used in) operating activities
15,754

 
(7,655
)
Cash flows from investing activities:
 
 
 
Purchase of property, equipment, and leasehold improvements
(1,943
)
 
(3,062
)
Net cash used in investing activities
(1,943
)
 
(3,062
)
Cash flows from financing activities:
 
 
 
Repayment of notes payable
(1,725
)
 
(1,150
)
Debt issuance costs paid

 
(25
)
Taxes paid related to net share settlement of stock awards
(248
)
 
(445
)
Proceeds from exercise of stock options

 
34

Borrowings from notes payable

 
11,000

Net cash (used in) provided by financing activities
(1,973
)
 
9,414

Net increase (decrease) in cash, cash equivalents and restricted cash
11,838

 
(1,303
)
Cash, cash equivalents and restricted cash at beginning of period
4,995

 
7,275

Cash, cash equivalents and restricted cash at end of period
$
16,833

 
$
5,972

 
 
 
 
Reconciliation of the Consolidated Statements of Cash Flows to the
Consolidated Balance Sheets:
 
 
 
Cash and cash equivalents
$
15,211

 
$
4,313

Restricted cash
1,622

 
1,659

Total cash, cash equivalents and restricted cash at end of period
$
16,833

 
$
5,972

Non-cash financing activities:
 
 
 
Recognition of warrants issued in debt financing
$

 
$
803

 
 
 
 


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

 
Six Months Ended 
 June 30,
 
2020
 
2019
Supplemental disclosures of cash flow information:
 
 
 
Cash received for income taxes
$
2,309

 
$
20

Cash paid for interest
$
3,495

 
$
2,551




PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Results
(In thousands, except per share amount)
(Unaudited)

 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2020
 
2019
 
2020
 
2019
Adjusted EBITDA:
 
 
 
 
 
 
 
 
Net loss
 
$
(7,199
)
 
$
(6,399
)
 
$
(19,683
)
 
$
(14,888
)
Provision for (benefit from) income taxes
 
(249
)
 
142

 
(4,123
)
 
313

Interest expense (1)
 
2,031

 
1,958

 
4,258

 
3,094

Interest income
 
(6
)
 
(11
)
 
(12
)
 
(22
)
Depreciation and amortization
 
1,255

 
2,245

 
2,795

 
4,557

Impairment of goodwill (5)
 
8,000

 

 
27,000

 

Earnout mark-to-market (6)
 
(162
)
 
(1,188
)
 
(162
)
 
(912
)
Stock-based compensation
 
649

 
719

 
1,340

 
1,218

Adjusted EBITDA
 
$
4,319

 
$
(2,534
)
 
$
11,413

 
$
(6,640
)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2020
 
2019
 
2020
 
2019
Adjusted Net Income (Loss):
 
 
 
 
 
 
 
 
Net loss
 
$
(7,199
)
 
$
(6,399
)
 
$
(19,683
)
 
$
(14,888
)
Stock-based compensation
 
649

 
719

 
1,340

 
1,218

Amortization of intangibles (2)
 
59

 
52

 
118

 
111

Impairment of goodwill (5)
 
8,000

 

 
27,000

 

Deferred financing amortization costs (3)
 
381

 
311

 
763

 
543

Earnout mark-to-market (6)
 
(162
)
 
(1,188
)
 
(162
)
 
(912
)
Tax adjustments (4)
 
(2,455
)
 
29

 
(7,991
)
 
(264
)
Adjusted net income (loss)
 
$
(727
)
 
$
(6,476
)
 
$
1,385

 
$
(14,192
)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2020
 
2019
 
2020
 
2019
Adjusted Net Income (Loss) Per Diluted Share:
 
 
 
 
 
 
 
 
Net loss
 
$
(7,199
)
 
$
(6,399
)
 
$
(19,683
)
 
$
(14,888
)
Plus: Adjustment items per reconciliation of adjusted net income (loss)
 
6,472

 
(77
)
 
21,068

 
696

Adjusted net income (loss)
 
(727
)
 
(6,476
)
 
1,385

 
(14,192
)
Adjusted net income (loss) per diluted share
 
$
(0.01
)
 
$
(0.12
)
 
$
0.03

 
$
(0.27
)
Diluted avg shares outstanding (7)
 
54,267

 
53,367

 
54,259

 
53,214



(1)
Represents interest expense and amortization of issuance costs related to the refinancing of our indebtedness.
(2)
Represents amortization of intangibles related to the acquisition of Performant by an affiliate of Parthenon Capital Partners in 2004.
(3)
Represents amortization of capitalized financing costs related to our Credit Agreement.
(4)
Represents tax adjustments assuming a marginal tax rate of 27.5% at full profitability.
(5)
Represents a non-cash goodwill impairment charge in 2020 mainly due to the decrease of our market capitalization.
(6)
Represents the change from prior reporting periods in the fair value of the potential earnout consideration payable to ECMC group in connection with the Premiere acquisition.
(7)
While net loss for the six months ended June 30, 2020 is ($19,683), the computation of adjusted net income (loss) results in adjusted net income of $1,385. Therefore, the calculation of the adjusted net income per diluted share for the six months ended June 30, 2020 includes dilutive common share equivalents of 154 added to the basic weighted average shares of 54,105.