On Tuesday Performant Financial Corporation (PFMT), announced financial results for the first quarter of 2017. 

PFMT is one of the few publicly traded companies in the ARM space. The company has also historically been one of the Department of Education’s (ED) top performing private collection agencies. However, the firm’s contract with ED expired in April of 2015 and they have not received placements from ED since then. Last month ED had PFMT (and other agencies whose contracts expired in 2015) return all open inventory.

insideARM previously wrote about the December 2016 announcement from ED regarding their selections for the new student loan debt collection contract. Performant was not selected, and the company was among those that filed a protest with the GAO over the award. The GAO sustained their protest (and the protests of 11 other firms) in March of this year. In that decision, the GAO directed ED to reevaluate the RFP process.

The entire ED RFP process is tied up in multiple lawsuits at the Court of Federal Claims. insideARM wrote an extensive article on the protests and litigation on April 20, 2017.

First Quarter Highlights

  • Total revenues of $33.1 million, compared to revenues of $38.3 million in the prior year period, down 13.5%.
  • Net loss of $3.0 million, or $(0.06) per diluted share, compared to a net income of $0.1 million, or $0.00 per diluted share, in the prior year period.
  • Adjusted EBITDA of $2.8 million, compared to adjusted EBITDA of $7.4 million in the prior year period.
  • Adjusted net loss of $1.9 million, or $(0.04) per diluted share, compared to an adjusted net income of $2.0 million or $0.04 per diluted share in the prior year period.

In the press release that accompanied the earnings announcement PFMT commented on the quarter: 

"Despite ongoing challenges with the Department of Education and the old CMS recovery audit contracts, we made solid progress during the quarter by expanding our technology and services into new markets,” said Lisa Im, Performant Financial’s Chief Executive Officer. "Additionally, although we were encouraged by the GAO's decision to sustain both of our protests related to the Department of Education contract award, even if were we to receive a contract award in the very near term, we do not anticipate that it would have a material impact on our 2017 results." 

insideARM Perspective

Insights we gained from Tuesday's investor call: 

ED RFP

It was noted that during the quarter, without any new placements for 24 months, ED still accounted for $1.7 million of revenues. That number highlights why the ED contract is so desirable. Management commented on the ED RFP, protests and litigation. Hakan L. Orvell, PFMT - CFO, VP and Secretary said:

“As it relates of the Department of Education contract award, the GAO issued its decision in late March, sustaining both of our protests. It is still unclear what remedial action the Department will take, but the GAO determined that the process was flawed and recommended that the DOE, at a minimum, reevaluate the RFP process. Regardless, even with a very near-term contract award, we will not anticipate this contract to have a material impact on our 2017 results.”

Lisa Im, PFMT Chairwoman and CEO, later offered additional color on the ED opportunity when asked about strategic alternatives for the company as the ED RFP process continues to drag on. Im commented: 

“We actually should know probably a lot more in the very near future. We -- you've been following, I'm sure, and you've read through all the different court arguments and where the protests are. And the Department of Education, from what we have understood from publicly reported sources, is supposed to come up with a mitigation or a remediation plan by the 22nd of May. So, I think we're going to have -- we obviously want to wait and see what that is.” 

Treasury Contract 

On May 9, 2017 insideARM reported that PFMT was awarded a new contract with the United States Department of Treasury, Bureau of the Fiscal Service. Ms. Im provided a short statement on that positive news.

“We also won a re-compete of the Treasury contract. It's a 5-year term broken into annual renewals, similar to most other federal contracts. We are the only vendor to have served on this contract since its inception in 1997.”

IRS Collection Contract

PFMT was one of the four companies selected in September of 2016 to begin work on a new IRS private collection program. See our September 27, 2016 article here.  Ms. Im also commented on the IRS program.

“The IRS program is a pay-for in the Highway Transportation Bill, which targets a $2.4 billion return to the government within a 10-year time frame. With the IRS, we just started. So they started with very low volume and want to make sure the program is right. But the intent is, assuming all goes well, that there will be material increases in the folks whom we're allowed to contact over the next few months. So, we should certainly learn more as we get through this quarter, and we'll -- we can provide more information about how we think that's shaping up as we move through the first few months of both contracts. But we do expect revenue in the fourth quarter of this year.”

In short, though the first quarter was not particularly encouraging for PFMT, the company has positive momentum for additional revenue growth.  Much will depend upon the ramp up of the IRS program and the eventual outcome of the ED RFP saga.


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