Performant Financial Corporation (PFMT) has reported substantial growth in its first-quarter earnings for 2024, with a notable double-digit increase in year-over-year revenue. The company has successfully implemented 10 new programs with existing clients, which are projected to contribute $5 million to $6 million in annualized revenue. Performant's eligibility and clinical audit businesses have grown by 7% and 19%, respectively.
The acquisition of RecordsOne is set to enhance the company's audit workflow processes. Despite incurring operating expenses of $31.3 million, largely due to record implementations and sales and marketing, the company's adjusted EBITDA was slightly ahead of expectations at negative $1.2 million. Performant maintains its full-year guidance, projecting healthcare revenues between $117 million and $120 million, and total company revenue in the range of $124 million to $129 million.
Key Takeaways
- Performant Financial Corporation reported significant revenue growth in Q1 2024.
- The company launched 10 new programs, expected to generate $5 million to $6 million annually.
- Revenue growth was recorded at 7% in the eligibility business and 19% in the clinical audit business.
- The acquisition of RecordsOne is aimed at improving audit workflow efficiency.
- Performant maintains its 2024 revenue guidance, with healthcare revenues estimated at $117 million to $120 million and total revenue at $124 million to $129 million.
Company Outlook
- Performant anticipates continued growth throughout 2024.
- The company is focused on expanding margins through scaling and efficiency gains.
- A positive adjusted EBITDA inflection point is expected later in the year, with a cash inflection point to follow in the next year.
Bearish Highlights
- Operating expenses for the quarter rose to $31.3 million due to increased spending on implementations and sales and marketing.
- The company reported a negative adjusted EBITDA of $1.2 million for the quarter.
Bullish Highlights
- All 10 program implementations were with existing clients, reinforcing the company's strong value proposition.
- The acquisition of RecordsOne is expected to improve efficiency and support growth.
Misses
- Despite the overall positive performance, the company did experience a negative adjusted EBITDA, albeit slightly ahead of expectations.
Q&A highlights
- The company plans to enhance its selection process using machine learning, large language models, and natural language processing.
- Performant clarified that while technology will streamline the review process, it is not intended to completely replace nurses and coders.
- The eligibility segment, particularly on the government side, has stabilized after significant growth, with a new contract starting in Q1 2023.
Performant Financial Corporation's first-quarter earnings call indicated strong performance and strategic initiatives aimed at sustaining growth and improving operational efficiency. The company's commitment to leveraging advanced technologies such as machine learning and natural language processing underscores its dedication to innovation while maintaining a client-centric approach. With a solid foundation and clear strategic direction, Performant Financial Corporation remains optimistic about its future opportunities and continued success in the evolving healthcare landscape.
InvestingPro Insights
Performant Financial Corporation's (PFMT) first-quarter earnings for 2024 reflect a company in growth mode, yet the InvestingPro data and tips reveal a more nuanced picture. The company's market cap stands at $218.45 million, indicative of its size within the industry. Despite the positive revenue growth reported in the article, analysts have revised their earnings downwards for the upcoming period, suggesting that challenges may lie ahead.
InvestingPro Tips indicate that while Performant operates with a moderate level of debt and its liquid assets exceed short-term obligations, providing some financial stability, analysts do not anticipate the company will be profitable this year. This aligns with the negative adjusted EBITDA reported in the article and underscores the importance of the company's strategic initiatives to improve operational efficiency.
From a valuation standpoint, the P/E ratio is currently negative at -29.60, reflecting the market's expectations of future earnings and the company’s current lack of profitability over the last twelve months. The company's price/book ratio as of the last twelve months ending Q4 2023 stands at 2.71, which can offer investors insight into how the market values the company's net assets.
For readers interested in a deeper dive into Performant's financial health and future prospects, InvestingPro provides additional insights and metrics. There are currently 6 additional InvestingPro Tips available for PFMT, which can be accessed at https://www.investing.com/pro/PFMT. For those looking to subscribe, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enriching your investment research with valuable, real-time data and analytics.
Full transcript - Performant Financial Corp (PFMT) Q1 2024:
Operator: Greetings ladies and gentlemen and welcome to Performant Financial Corporation's First Quarter 2024 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Tuesday, May 7th, 2024. I would now like to turn the conference over to Jon Bozzuto, Head of Investor Relations. Please go ahead.
Jon Bozzuto: Thank you, operator. Good afternoon everyone. By now you should have received a copy of the earnings release for the company's first quarter 2024 results. If you have not, a copy is available on the Investor Relations portion of our website. On today's call we will be we'll be Simeon Kohl, Chief Executive Officer; and Rohit Ramchandani, Chief Financial 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 Simeon Kohl. Sim?
Simeon Kohl: Thank you, Jon. Good afternoon everyone and thank you for joining us for our earnings call. We are pleased with our first quarter results and are encouraged by our prospects which gives us the confidence to reiterate expectations for the remainder of the year. I will share our operational accomplishments and then Rohit will walk you through our financial results. Our double-digit year-over-year revenue growth as well as our double-digit implementations for the first quarter of 2024 are result of the consistent execution of our growth strategy. We recognize that we need to be innovative and disciplined in order to penetrate our large addressable market. Quarter of our strategy has been our client centric and technology-driven approach. I will dive into each as we highlight our first-quarter results. Being client-centric at Performant means that we partner with our clients to build and optimize payment integrity programs tailored to their respective needs today and into the future. Our commitment to partnership as the market shifts and evolves has led to Performant having completed 10 new implementations in the first quarter collectively expected to generate between $5 million and $6 million of revenue on an annualized basis and all 10 implementations were additional opportunities within existing clients. I often tell our team that acquiring new clients is certainly rewarding, but expansion within existing clients is a testament to the value of our services and our ability to cultivate enduring partnerships. Our consistent cadence of implementations is proof that our client-centric approach and results-driven culture are effectively serving our clients. Partnering with clients to navigate the complexities of the healthcare industries lies at the heart of Performant's value proposition. When navigating the Payment Integrity landscape, numerous factors influence decision-making. Amongst these is the recent change healthcare outage, a complex challenge that disproportionately strained the payer/provider relationship. Throughout this period of instability, we worked with our clients to delicately navigate the situation, while also minimizing provider abrasion. We continue to see evidence that the impact of the outage on Performant should be temporary. Certain products that are introduced early in the claim life cycle experienced several weeks of decreased volume but then return to normal levels as claims processing restarted. For some clients, we can quickly catch up on volumes. For others, we would redeploy resources to work aged inventory to minimize impact and there may be a few that will take longer for us to catch up on production volumes. Our Eligibility business continues to perform well with growth of 7% in the first quarter. Certain commercial clients have shown significant expansion in addition to new clients coming on board. Our MSP premium solution, which supports Medicare Advantage programs and identifying the most suitable payer, has seen noticeable success in this industry challenges. Medicare Advantage has faced many industry headwinds including adjustments to star ratings and reduction in Medicare Advantage reimbursement rates, with each putting additional pressure on MCOs operating Medicare Advantage plans. Demonstrating our client-centric approach, we quickly identified this challenge for certain of our MCO partners by leveraging our MSP premium solution as an avenue to further contain costs. Furthermore, our expansion into cost avoidance solutions within the Eligibility business has proven successful leveraging our robust data assets and expertise and in response to clients requesting that we coordinate benefits earlier in the payment cycle, we've successfully launched new cost avoidance offerings to the commercial market. Our ability to work closely with clients to understand their evolving needs has been instrumental in driving our growth. I am confident that this strategic approach will continue to reap dividends as the performance story progresses, while also providing a welcome product diversification and growth to offset the gross headwind of our long-standing CMS MSP contract. Demand for our clinical audit business has been strong with a 19% increase in the first quarter, through continued scaling of commercial client implementations and our CMS RAC Region 2 contract. We continue to capitalize on efficiency gains in this segment of our business. In previous quarters we have discussed reconfiguring the factory workflow with larger audit based clients to optimize workflows, data exchanges and client collaboration and communication. This effort began with a select group of clients, primarily with readmission audits. Encouraged by the outcomes, we've expanded our Scope to include outpatient audits as well. The strategic shift not only enhances our operational efficiency, but also offers our clients a more streamlined experience, enabling them to optimize their allocation of resources. Turning to technology, I'm excited to welcome the RecordsOne team's performance. Cutting Edge Technology has been core to both performance identity and strategy. And while our existing technology uses machine learning to effectively manage and score large clusters of data, the addition of RecordsOne technology incorporates more advanced AI Technology that uses large language models and natural language processing. We've previously piloted and licensed this technology to enhance our audit workflow process and quickly realize its potential to improve our accuracy and efficiency. The use case today centers around our ability to ingest and score large amounts of claims identifying those with a higher likelihood of findings and equally as important those without. We are also exploring how natural language processing may improve the speed and accuracy with which our audit teams review medical records. Today, nurses and coders spend a significant amount of time, combing through data necessary to assess clinical outcomes. We believe this technology will empower our clinical teams to review claims and extract pertinent information more quickly. We see numerous strategic benefits from bringing this technology in-house. We believe being able to, coupled with technology with performance rich data assets should provide numerous opportunities to expand the technology well beyond its current scope. And perhaps more importantly, we can now guide the development of this new AI platform to align with performance existing technology roadmap. Our core plants principles of client-centricity and technology-enabled solutions have driven results and afforded us unique credibility in this industry. We continue to make significant inroads with commercial payers, our largest opportunity. We have also expanded our operations and bolstered our credibility to can be competitive in the State Medicaid market, a new space for performance and one with significant upside. This new State market opportunity is only made possible through well proven solutions, highly adaptable workflows and a robust information security infrastructure that our clients can rely on. Our ability to compete was illustrated by one of the largest State Medicaid RAC programs, New York awarding us their Medicaid recovery audit contract in October 2023. While the award was protested and ultimately overturned, the decision to do so it was not based on performance capabilities or qualifications. It was a technicality relating to a reference, that we cited in our proposal. The good news however, is that New York State has decided to reissue -- reissue all three cost containment RFPs, including the RAC, TPL and Subrogation. We are actively pursuing the RAC and TPL opportunities, applying the lessons learned from our original proposal submissions. While the protest outcome was unfortunate, we're confident in our ability to demonstrate the value of our services and overall partnership to New York State, once again. Meanwhile, we continue to pursue other state RFPs. And we maintain significant enthusiasm for the potential this market holds. Our commitment to client centricity and innovative technology is the bedrock on which performance value proposition stands. These principles are not just integral to our culture, that have also been instrumental in driving our strong first quarter growth a trend we anticipate continuing throughout 2024. It's crucial to note, that financial metrics are just one aspect of our growth narrative. Our strategic approach has improved our efficiency. We've implemented new opportunities for future growth and are aggressively pursuing new market opportunities. I'm excited about our present standing and the promising trajectory we're charting for the future. With that I'll hand it over to Rohit Ramchandani, our Chief Financial Officer for a discussion of the financials. Rohit?
Rohit Ramchandani: Thanks, Sim. As Sim mentioned, we are encouraged by our results in the first quarter of 2024. Total company revenues in the quarter were $27.3 million, which included healthcare revenues of $25.8 million. Our customer care outsourced services business accounted for $1.5 million of the revenue during the quarter, a decline from last year, which is in line with our expectations for this business. We expect this business to remain flat to the first quarter results in the second quarter. Last quarter, we spoke about this business having the potential to grow but we remain conservative with our expectations as we are beholding to a turbulent regulatory environment within this market. Turning to healthcare. Our first quarter revenues grew roughly 13% year-over-year, displaying all around solid growth. Our eligibility markets within healthcare for the first quarter were $13.4 million of revenues, representing an increase of roughly 7%. Commercial clients led the way, as Sim highlighted, through the adoption and scale of newer products that are relevant to market trends. These helped to offset the eligibility growth anchor of our longstanding CMS MSP contract. We expect overall positive results to continue as we feel we have a best-in-class offering, especially within our commercial clients, as we leverage learnings from our long-term government relationships. Within our claims base business, also known as claims auditing, revenues in the first quarter of 2024 were $12.4 million, representing an increase of almost 20%. Commercial operations continued to perform well as existing implementations scaled in line with our expectations. Government in particular also performed well, as CMS RAC Region 2 continues to grow. As I've previously noted, we expect this contract to hit steady state in late 2025. We believe that all of our claims based offerings will continue to bear fruit of efficiency efforts from our project touring initiative, which itself will be further bolstered from our latest venture of adding natural language processing technology through the acquisition of technology assets from Records 1. We maintain our enthusiasm for commercial growth having implemented 10 opportunities in the first quarter with a robust schedule still ahead. As Sim mentioned, all 10 are new statements of work with existing clients. We have previously detailed that our most significant opportunity lies within commercial clients, with a great deal of our growth strategy stemming from a land-and-expand approach. We have existing relationships with five of the top seven commercial plans, and we believe it's a strong validation of our continued value proposition that all 10 implementations this quarter came from existing clients. Our implementation momentum is promising, with these Q1 implementations carrying an estimated annual contract value of $5 million to $6 million. We maintain our outlook for the 2024 implementations to match or surpass the estimated annual contract value from those that we did in 2023 of $18 million. In addition to revenue growth, we maintain our commitment to expand margins through scale and efficiency gains. I'm encouraged by the early pace of our IT teams and the project touring initiative. And as Sim discussed, the conversion of Records 1 from a partner into a key technology asset for performance healthcare solutions. I won't rehash the details of that technology, but I do want to touch on the dynamics of the acquisition. As I stated on the fourth quarter call, project touring included IT improvements to increase efficiency as we intentionally expand spend in the short-term to streamline and reduce our overall IT footprint in the long-term. This acquisition fits squarely into that strategy to ultimately make our workflows more efficient. We have strategically structured this deal to fit within our capital needs and ultimately feel comfortable having financed the transaction between our cash on hand and current credit facility with Wells Fargo, without sacrificing the ability to continue tackling organic growth opportunities. Shifting to operating expenses. These represented $31.3 million in the first quarter or roughly $2 million higher compared to the first quarter of last year. This was primarily driven by increased spend to scale our record implementations as well as investments into sales and marketing to drive further growth. Our adjusted EBITDA for the quarter was negative 1.2 million or approximately 0.5 million ahead of the prior year period. This was slightly ahead of expectations led by revenue growth. We feel confident reiterating our guidance for 2024 healthcare revenues to be in the range of $117 million to $120 million. Total company revenue to be between $124 million and $129 million, and for the full year adjusted EBITDA to be in the range of $4 million to $5 million. As mentioned last quarter between project touring and our investments in the sales and business development, we are still on track to add $3 million to $3.5 million in discrete increased operating spend on top of our typical investments into contract implementations. We continue to have a strong pipeline of sales and implementations ahead of us and we are excited to reap the expanded opportunities and scale efficiencies that will come from these tactical investments. We made the decision three years ago to become a pure-play healthcare company and we expect to hit an adjusted EBITDA inflection point later this year and a cash inflection point in the next. We were diligent to renegotiate our revolving credit facility that would safely support our growth efforts until we flipped into self-sustaining cash flows. We continue to feel confident about our ability to increase revenue and expand our footprint with our market positioning and capital structure we have today. Operator, would you please open up the line for questions.
Operator: Thank you. [Operator Instructions] Our first question is from George Sutton with Craig-Hallum Capital Group. Please proceed.
George Sutton: Thank you, guys. Nice results. So you mentioned that all 10 of your implementations this quarter were existing clients. Can you just talk about what that means relative to your speed to revenues and you're incrementally spend less for what normally would be new clients?
Simeon Kohl: Rohit, you want to take that?
Rohit Ramchandani: Sure. So in terms of -- I'll take the second part of the question first. Yes, you're correct. There would be a little less incremental spend compared to a net new implementation. And that's as a reminder for folks because there's less than work in terms of that initial IT integration we would have to deal and that initial IT and integration, skipping would then also save us a little bit of time. But I wouldn't view it as anything massively faster just given the dynamic of some of the larger clients we're working with on this.
Simeon Kohl: Yes, George, I think I think to Rohit's point -- again the effort that we go through with the net new clients in terms of the onboarding of the data, policies all those types of things that certainly -- the good news is much of that is accounted for when we think about these expansions within existing clients. But we still are kind of beholden to client ramp times making sure that they're going through quality checks et cetera. So it's definitely a bit faster than a net new client. But still things that we have to kind of go through those gates various quality gates.
George Sutton: So we were on a Priority Health webinar recently. They were very animated about the impact that they've seen from working with you on the middle market side. That's a new effort for you that we've talked about historically offering up a lot of new opportunities. Can you just give us an update on what the middle market opportunities look like here?
Rohit Ramchandani: Yes. Yes, specific priority. We too are excited. We have it's been a fantastic partnership. I think as we've talked about on a few prior calls that type of relationship where we're thinking about such a broad implementation of numerous opportunities. We're kind of working through that trying to perfect that but look having the opportunity to be able to showcase with other payers. The success that we're having clearly is helping in the sales pipeline. And so we're seeing other opportunities begin to emerge that are similar to priority in terms of expansive broad opportunities for different programs out of the gate versus a more traditional waterfall cadence. We're also seeing that just having the opportunity to talk about the dynamics of a mid-market plan and some of the real bespoke needs that they have and how those are not easily addressed by some of our large competitors that story is resonating as well. So in general the relationship is working quite well and it's definitely helping us as we think about leveraging our sales initiatives.
George Sutton: Okay. Then finally there were two things that you mentioned that sounded new to me that I just wanted a little more clarity on and that is increased and you've had certain clients increase their claim volumes. Just wanted a little bit more specificity there if you could? And then you mentioned new cost avoidance offerings. And I'm just if you can give us a sense of what kinds of offerings those are and what kind of impact could see?
Simeon Kohl: Yeah. So if you think about the new offerings that we have on the cost avoidance side, it's on the eligibility side. So today, a great majority of the eligibility offerings are where we identify claims that have been paid, but the wrong party ultimately paid the bill, right? So we identify, use our data assets, our matching technologies, to identify where there's other primary responsibility from another party. And then we go ahead and coordinate, making sure that we get those dollars back to our payer client. And so that's a process that we work through in kind of a post-paid environment. The cost avoidance is where, through those well-established data assets that we've now been building for the last few years, we can actually go out to plans and demonstrate, show them where there are other coverage for their members and sell that. We refer to it as flags. And so we can be proactive and be able to share that coverage with our payer clients. And so that allows them to actually coordinate the payments on the front end, and so you don't have to do this kind of pay and chase environment. And so, again, I think that's a testament to what we've been talking about, how our data assets are really growing and our matching technologies are becoming more and more proficient. So we're excited about that. It's a nice diversification in terms of the product offering on the eligibility side, a little bit quicker speed to revenue in terms of how we think about those solutions versus post-pay. So happy to see that. And I think the claims volume point that you bring up, it's really just kind of that expansion. As we think about broader opportunities within clients getting more access to different types of payments of, I'm sorry, spend, we're just seeing larger volumes of claims that we can look at as clients are expanding their opportunities for us to just audit more types of different claims.
George Sutton: I understand. Appreciate it. Thanks, guys.
Simeon Kohl: Yeah. Thank you.
Operator: Our next question is from Jacob Stephan with Lake Street Capital Markets. Please proceed.
Jacob Stephan: Hey, guys. Thanks for taking my questions. Congrats on the quarter as well. Maybe just to kind of elaborate further on the existing customer expansion versus kind of new commercial payers, could you just kind of talk about maybe what it's been historically in past quarters? It sounds like, this quarter was kind of the first one where we saw all 10 that were, I guess, expansion on existing clients?
Simeon Kohl: Yeah. Look, I don't think that's anything that should be concerning by any stretch. It doesn't concern us whatsoever. I think as Rohit's talked about previously, there's ebbs and flows. We still see a consistent number of new logos that are working their way through the implementation pipeline as well into the sales pipeline. So no concern there. I think this just was one of those quarters that the moon and stars aligned, and whether it's priorities for implementations or what might you have there. But we've always seen a healthy amount of existing clients as per, as Rohit points out, the land and expand strategy. And when you have a relationship with, five of the seven top payers, there's a lot of covered lives there and a lot of opportunity to expand. So that's always going to be a big part of our strategy. So nothing to be concerned about. We definitely fully anticipate that we'll see a number of those new logos contribute to our portal implementations going forward.
Jacob Stephan: Yeah, understood. Okay. And then maybe just touching on records one here. Maybe more specifically, if you could kind of point to just a couple of the most important things here. What is this acquisition kind of when fully implemented into your business due for performance?
Rohit Ramchandani: Sure. So, look, we talk about quite a bit how technology is a significant differentiator for us. It has been for some time with our own stack that we use here, and the fact that performance continues to receive some of the highest quality scores in this space aligns well to the core objectives of payers that are really trying to make sure that they are protecting their dollars and at the same time not being too abrasive with their providers and their networks. And so having a technology that can select the claims that have the highest degree of likelihood that there's errors or billing issues is key in this space. You don't want to cast wide nets. You don't want to have appeal, high appeal overturns, et cetera. And for performance as a contingency vendor when we have key human capital invested, we have the same objective. We want to make sure that we aren't selecting claims that are coming in house that are not going to have a finding. That's just where we're investing human capital in areas that doesn't have a high yield. So we've always known have technology that can help us really improve those selections. I think records on, as Rohit points out, it's another level. It takes the machine learning that we've had for some time and through the leverage of large language models, natural language processing, we can up that game pretty dramatically to make sure that we really have best-in-class selection capability. And so as we think about that, we are bringing in claims that have a much higher degree of likelihood of a finding, which again, good for us, good for our payer clients. And then as we think about the technology moving forward, being able to leverage that technology to help us through the workflow. There are some things, as you think about natural language processing, where there are components of the workflow, components of the review that today, you have to use a human to execute that review. And this technology can help us in certain areas as we step through the review to actually execute it through technology to kind of lower the human capital I need to be very careful as I say that, right? I don't -- we're not yet in an environment where we're going to be using technology instead of nurses and coders to make a full review. There's a lot that has to happen in the industry, et cetera, before any of that is even possible. But there is components of that review that we can actually move to technology to lower our human capital investment.
Jacob Stephan: Okay. Yes. No, that's helpful. I guess just one last one for me here. The eligibility segment, it sounds like commercial continues to kind of excel lead the way there. But could you just kind of touch on the government side of eligibility based. What's kind of the -- I guess, what's going on there?
Rohit Ramchandani: Sure, so I can – Simeon, why don't you take a stab at that and then I'll provide some narrative?
Simeon Kohl: Yes. So what I was going to say is for that one, so we've had that relationship since 2017 and unique for other government contracts, it is truly a single contract as at the sole national vendor for it. And so if you look at some of the public reporting on the Medicare Trust and on that contract, you'll see that the recoveries grew a lot in those early years. We really brought our performance way to that relationship. But in the last year or so, it has leveled off a bit in terms of hitting more of a steady state. And there is more volumes and opportunities within that contract that could be unlocked. I think we've hit more of a steady state as what's available today on that contract, which then if you think about that year-over-year becomes a hindrance on a growth rate. And then the other thing I would just mention is that first contract ran from 2017 to 2022, and the new one took over near the end of Q1 of 2023. And so a new contract sort of new SLAs, new economics, et cetera, at play?
Jacob Stephan: Okay. Got it. Very helpful. I appreciate the color. Good luck, guys.
Simeon Kohl: Thank you.
Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to our CEO, Simeon Kohl for closing remarks.
Simeon Kohl: Thank you, operator. I'd like to express our gratitude to everyone who joined on today's call. I'd also like to thank our nearly 1,000 team members for all their hard work this quarter and our investors for their continued support. We are pleased with our performance in the quarter, and we remain optimistic about our opportunities ahead. So thanks again, and we look forward to providing everyone a progress on during the next quarter's call. Have a great evening, everyone.
Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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