Performant Financial (PFMT) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues for Q3 2021 were $20.6 million, down from $36.9 million in the prior year period, primarily due to a decline in recovery-related activities [13] - Healthcare revenues reached $20 million, marking a 14% year-over-year growth compared to $17 million in Q3 2020, and represented the largest quarter ever in the healthcare market excluding a specific prior quarter [13][14] - Adjusted EBITDA for Q3 was $2.7 million, down from $3.8 million in the prior year period, reflecting efforts to balance operating expenses while investing in healthcare operations [13] - Operating expenses were $28.5 million, a decrease of $5.9 million compared to Q3 of last year, driven by reduced recovery revenues [16] Business Line Data and Key Metrics Changes - Healthcare revenue grew 14% year-over-year and 7.5% sequentially, driven by an increase in audit volumes and successful implementation of new programs [8][14] - Claims-based auditing revenue was $7.3 million, an increase of nearly 80% over the $4.1 million in Q3 2020, and higher than the $7 million reported in Q2 2021 [14] - Revenue from eligibility services was approximately $12.7 million, a decrease from $13.5 million in Q3 2020 but higher than $11.6 million in Q1 2021 [14] Market Data and Key Metrics Changes - The healthcare payer integrity market is described as large, growing, and well-structured, with the company gaining market share through client-centric services [5] - Despite rising vaccination rates, COVID-19 continues to impact hospital core utilization rates, affecting claims volumes and revenue [5][6] Company Strategy and Development Direction - The company is transitioning into a predominantly healthcare payment integrity provider, focusing on capturing additional market share and signing new clients [7] - New implementations and expansions are planned, including a competitive selection process for a national payer, indicating a strong growth trajectory [11][12] - The company is investing in technology and workflows to drive efficiencies and accelerate onboarding processes for new clients [28] Management's Comments on Operating Environment and Future Outlook - Management anticipates further headwinds in Q4 2021 and into 2022 due to labor shortages and COVID-19 related challenges, but remains optimistic about long-term growth prospects [10][34] - The company updated its 2021 healthcare revenue guidance to a range of $77 million to $80 million, with expectations of nearly double-digit EBITDA [10] Other Important Information - The company completed an equity offering in August 2021, resulting in net proceeds of approximately $42 million, which will be used for working capital and debt refinancing [16] Q&A Session Summary Question: Can you provide more color around margins for the core healthcare business in the quarter? - Management clarified that the guidance provided was for the entire company, not just the healthcare segment, and they do not have segment reporting on individual profitability [20] Question: Will the recovery business step down again in Q4? - Management anticipates revenue in Q4 but expects another step down along the way to zero [21] Question: What is the current capacity for revenue growth given hiring constraints? - Management indicated aggressive hiring plans to support growth, but noted challenges in sourcing qualified applicants due to industry conditions [22][23] Question: Are margins more favorable for smaller private payers? - Management confirmed that smaller payers present greater opportunities for expanded offerings and favorable margins [26] Question: What are the plans to accelerate investments for quicker onboarding and product development? - Management is looking for ways to compress onboarding cycles and invest in technology to drive efficiencies [28] Question: What is driving the expected growth in Q4? - Growth is attributed to the ramping of new opportunities and scaling existing clients [30] Question: How significant were the delays in claims and eligibility processing? - Management noted that while KPIs remain healthy, certain clients slowed their collection cadence, impacting revenue timing [33][34] Question: Can you discuss market share dynamics? - Management highlighted that the payment integrity market has consolidated, providing opportunities for the company to gain market share [37]