Performant Financial (PFMT) - 2021 Q1 - Quarterly Report

PART I Item 1. Consolidated Financial Statements The consolidated financial statements present the company's financial position, results of operations, and cash flows, noting a narrowed net loss and positive operating cash flow Consolidated Balance Sheets Total assets slightly decreased to $125.4 million while total liabilities increased to $87.2 million, leading to a decrease in stockholders' equity Consolidated Balance Sheets (In thousands) | Balance Sheet Items | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $125,409 | $126,227 | | Cash and cash equivalents | $19,203 | $16,043 | | Total current assets | $55,120 | $54,520 | | Goodwill | $47,372 | $47,372 | | Total Liabilities | $87,242 | $84,247 | | Current maturities of notes payable | $59,463 | $59,957 | | Estimated liability for appeals, disputes, and refunds | $4,373 | $1,014 | | Total current liabilities | $81,157 | $77,212 | | Total Stockholders' Equity | $38,167 | $41,980 | Consolidated Statements of Operations Revenues decreased to $31.4 million, but the net loss significantly narrowed to $4.4 million due to the absence of a prior-year goodwill impairment charge Consolidated Statements of Operations (In thousands, except per share) | Statement of Operations | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Revenues | $31,390 | $45,888 | | Total operating expenses | $34,446 | $60,025 | | Impairment of goodwill | $— | $19,000 | | Loss from operations | ($3,056) | ($14,137) | | Net loss | ($4,439) | ($12,484) | | Net loss per share (Basic & Diluted) | ($0.08) | ($0.23) | Consolidated Statements of Cash Flows Net cash from operating activities was $4.8 million, contributing to a $3.1 million increase in cash, cash equivalents, and restricted cash during the quarter Consolidated Statements of Cash Flows (In thousands) | Cash Flow Activities | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,822 | $7,221 | | Net cash used in investing activities | ($826) | ($1,073) | | Net cash used in financing activities | ($886) | ($947) | | Net increase in cash, cash equivalents and restricted cash | $3,110 | $5,201 | Notes to Consolidated Financial Statements The notes detail the company's strategic shift to healthcare, revenue recognition, debt, and a significant increase in estimated liabilities - The company is strategically shifting its focus to the healthcare industry, exiting non-healthcare recovery markets[23] Revenue by Category (In thousands) | Revenue by Category | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Healthcare | $13,286 | $17,524 | | Recovery | $14,491 | $24,265 | | Customer Care / Outsourced Services | $3,613 | $4,099 | | Total Revenues | $31,390 | $45,888 | - The estimated liability for appeals, disputes, and refunds significantly increased to $4.4 million as of March 31, 2021, including a $3.3 million refund accrual to a healthcare client[42] - The company had $60.0 million in principal outstanding under its Credit Agreement with an annual interest rate of 6.5% as of March 31, 2021[58][59][65] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic pivot to healthcare, the impact of COVID-19 on revenue, improved losses due to cost reductions, and liquidity management Overview and COVID-19 Impact The company is strategically focusing on healthcare services while exiting non-healthcare recovery, significantly impacted by the COVID-19 pandemic and CARES Act - The company announced plans to sell non-healthcare recovery contracts and exit that market to focus on healthcare[77] - The CARES Act suspended student loan recovery services through September 30, 2021, significantly reducing annual recovery revenue[80][96] Results of Operations Total revenues decreased by 32% to $31.4 million, but operating and net losses significantly improved due to cost reductions and the absence of a prior-year goodwill impairment Financial Metric (In thousands) | Financial Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $31,390 | $45,888 | (32)% | | Salaries and benefits | $24,090 | $28,805 | (16)% | | Other operating expenses | $10,356 | $12,220 | (15)% | | Impairment of goodwill | $— | $19,000 | (100)% | | Loss from operations | ($3,056) | ($14,137) | 78% | | Net loss | ($4,439) | ($12,484) | 64% | - The decrease in healthcare revenues was primarily due to a $3.3 million charge for a refund liability to a client[123] - Recovery revenues decreased primarily due to the COVID-19 pandemic causing customers to pause work on contracts[124] Liquidity and Capital Resources Liquidity is primarily from operating cash flows, with total cash increasing to $21.4 million, and the company relies on these flows to manage its $60.0 million outstanding debt - Cash, cash equivalents, and restricted cash totaled $21.4 million as of March 31, 2021, an increase of $3.1 million from year-end 2020[138] - The company has no remaining borrowing capacity under its Credit Agreement and relies on operating cash flows for funding[139] - The company expects to remain in compliance with debt covenants, but non-compliance could lead to default and debt acceleration[144] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure on its variable-rate credit facility, with no material foreign currency risk - The company's main market risk is interest rate risk from its variable-rate senior secured credit facility[157] - A 1% increase in the interest rate would result in an approximate $0.6 million increase in annual interest expense[157] Item 4. Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[160] - No material changes to internal control over financial reporting occurred during the quarter[161] PART II Item 1. Legal Proceedings The company is involved in legal proceedings primarily related to student loan recovery services, which management believes will not have a material adverse effect - The company is involved in legal proceedings primarily from student loan recovery services, asserting violations of consumer credit laws[163] - Management believes these legal proceedings will not materially adversely affect the company's financial condition or operations[163] Item 1A. Risk Factors This section outlines significant risks including the COVID-19 pandemic's impact, indebtedness, high client concentration, and reliance on federal government contracts - The COVID-19 pandemic has materially impacted business, especially due to the suspension of student loan recovery activities[165][167] - The company's indebtedness and restrictive covenants pose a significant risk, with non-compliance potentially leading to default and debt acceleration[169][170] - Significant client concentration risk exists, with the three largest clients representing 53% of 2020 revenues[174] - A significant portion of revenue, 49% in 2020, comes from the U.S. federal government, and loss of these contracts would significantly decrease revenues[180][181] Other Items This section covers standard disclosures, reporting no unregistered equity sales, no defaults on senior securities, and no mine safety disclosures - No unregistered sales of equity securities or use of proceeds were reported for the period[205] - No defaults upon senior securities, mine safety disclosures, or other information were reported for the period[206][207][208]