NASDAQ:PFMT Performant Financial Q3 2023 Earnings Report Earnings HistoryForecast Performant Financial EPS ResultsActual EPS-$0.01Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/APerformant Financial Revenue ResultsActual Revenue$29.96 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/APerformant Financial Announcement DetailsQuarterQ3 2023Date11/7/2023TimeN/AConference Call DateTuesday, November 7, 2023Conference Call Time5:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Performant Financial Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 7, 2023 ShareLink copied to clipboard.There are 4 speakers on the call. Operator00:00:00Good afternoon, ladies and gentlemen, and welcome to the Performant Financial Corp. Third Quarter 2023 Earnings Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Tuesday, August 8, 2023. Operator00:00:21I would now like to turn the conference over to John Bazzuto, Head of Investor Relations. Please go ahead. Speaker 100:00:27Thank you, operator. Good afternoon, everyone. By now, you should have received a copy of the earnings release for the company's Q3 2023 results. If you have not, a copy is available on the Investor Relations portion of our website. On today's call will be Simeon Cole, Chief Executive Officer and Rohit Ramchandani, Chief Financial Officer. Speaker 100:00:47Before 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 I would now like to turn the call over to Simeon Cole. Speaker 100:01:33Simeon Cole? Speaker 200:01:35Thank you, John. Good afternoon, everyone, and thank you for joining us for our earnings call. During the Q3 of 2023, we continue to see our vision As a pure play healthcare organization come to fruition, we are driven by a singular purpose and that is to transform the healthcare ecosystem by addressing over $300,000,000,000 in payment integrity waste. Our mission is to partner with payers to develop innovative solutions that redirect these funds toward enhancing patient care and well-being. This past quarter, that translated into successful completion of another 12 commercial implementations, while contributing strong top and bottom line growth. Speaker 200:02:17One of the key reasons for our success has been our ability to attract and retain top talent. We shifted our culture and values as we transition from a from a debt recovery business to a healthcare organization, taking care to share our corporate vision, which has attracted the best in the business. Our roster now includes experienced leaders from large national payers, government programs, healthcare providers and other healthcare focused technology organizations. The galvanizing quality amongst this team is the desire to make a difference. We've all personally witnessed this waste and we understand that by strategizing and reducing it, we can significantly redirect these funds toward improving patient care. Speaker 200:03:03Our team has forged strong partnerships as our mission resonates with the broader healthcare community. In the Q3, we had the pleasure of presenting alongside Priority Health to highlight the value of Performant's partnership with CAQH. As a reminder, the partnership with CAQH gives Performant access to extensive eligibility data, which Supplemented with our proprietary data and services provides differentiated value and more material ROI to our mutually supported clients. Building on our client centric approach, in the Q3, we hosted Performant's 2nd Customer Advisory Board. This Board was established to connect key clients with peers to facilitate discussions on common pain points and create actionable solutions. Speaker 200:03:53This 3 day meeting was incredibly successful with increased engagement and feedback such as hearing about how pain points of other health plans gave participants momentum to move internal health plan initiatives forward. We are proud of the partnership we have built with industry leaders and clients and much of that success hinges on our results driven team. This approach has led to a strong sales pipeline. In the Q3, we completed 12 commercial implementations, bringing our 2023 total to date to 34 compared to 21 implementations in all of 2022. This feat could not be achieved without instituting Significant operational rigor into our implementation process. Speaker 200:04:38As we shared on previous calls, one of our initiatives is to improve efficiency and reduce the time to market for our implementations. You can see through the 1st three quarters we have performed well. The greater efficiency that we drive toward our path to revenue, the more we can focus our resources on scaling and innovating. Our sales strategy has been focused on growth in the commercial market as we estimate that well over half of payment integrity waste lies within managed care organizations. Our success within these commercial markets continues to be evidenced by our strong cadence of implementation. Speaker 200:05:16One of many effective strategies has been to target commercial clients in jurisdictions where we already have a government presence. Our government presence has been our long standing backbone as we manage 3 of 5 CMS RAC regions, the Health and Human Services OIG contract and the CMS Medicare Secondary Payer CRC contract. Looking holistically at our government business, We have a strong federal presence in both claims and eligibility based services. In early October, we announced our first State Medicaid win, further bolstering our government backbone. The New York State Medicaid Recovery Audit contract was awarded based on an open and competitive RFP process. Speaker 200:06:01Performant demonstrated that it would deliver the best value and quality And a key catalyst to us winning this contract was our ability to consistently perform and innovate for our long standing federal government partners. It should be noted that the incumbent vendor has filed a protest. And as a result, the New York State OSC will render a determination on the protest in the coming months. We have experienced working through similar situations as earlier this year, CMS affirmed their decision to choose Performant as their RAC Region 2 contractor after a protest from the incumbent vendor. Similar to RAC Region 2, we will actively engage in the protest to validate New York State's decision that performance drives the best overall value for the state's Medicaid RAC program. Speaker 200:06:50We are very excited about this win and the opportunity to prove ourselves in the state Medicaid market. Looking at the macro landscape, we have 2 impactful trends to address. First is the end of the public health emergency as of May 11 this year and the second is the continued uptick and normalization of healthcare utilization. During the PHE, CMS restricted us from requesting claims With a COVID-nineteen or certain other related codes, such as those with a respiratory designation, the end of this emergency now gives us There was a chance we get a look back at claims that were historically excluded during the PHE itself. However, that does not seem likely at Operator00:07:43this stage. Speaker 200:07:45The normalization of healthcare services and costs is another macro tailwind As we've seen many for profit payers and providers report that healthcare utilization has normalized as elective procedures have returned and pricing has begun to catch up to the cost structure. We have also seen a shift towards outpatient procedures. These macro trends bode well for us The majority of our revenue is predicated on contingency fees of client savings that we identify. As cost of services increase, Performance savings dollars and associated contingency fees should also increase. Additionally, Many of our audit products support outpatient procedures neatly aligning us with these macro trends. Speaker 200:08:31Turning to our results. Healthcare revenues in the Q3 of 2023 grew 21% year over year, mainly driven by our commercial clients. Our eligibility based revenue grew 38% as new clients and contracts ramped. In particular, We saw significant growth in our commercial clients as our mature government contract was a drag in the overall eligibility growth rate. Our claims or audit based revenue was flat in the quarter. Speaker 200:09:00The government relationships were a drag on the performance due to the impacts from the PHE. There are two factors at play here. 1st, looking at the comparable prior year period, although we were unable to audit more Recent restricted claims, we enjoyed the benefit of the 3 year look back. This means we were able to audit those restricted claims that had dates of service prior to the PHE. In the current year, that 3 year look back funnel has become non existent, which drives a more difficult year over year comparison. Speaker 200:09:35This is further exacerbated by the timing ramp. By way of example, For available claims that had a date of service on May 12, we wouldn't be able to see and request those claims until July at the earliest to then go through the audit and validation process before any revenue could be recognized. We believe we will start to see this revenue normalize towards the end of the Q4. On a positive government note, EMS RAC Region 2 is now operational and began to generate revenue in the Q3. We were able to implement this contract incredibly quickly as we commenced work in November of last year and we are already generating initial revenues. Speaker 200:10:18Our speed to market has become a competitive differentiator as we prove our clients' ROI thesis. Once again, in our claims based business, commercial led the way as contracts ramped and efficiency gains took shape. For instance, when working with more seasoned clients, we often employ the analogy of evaluating adapting the factory's workflow. Even if a particular workflow has been in place for years, we aim to approach it with a fresh perspective, Seeking opportunities to enhance the overall efficiency. We undertook this process earlier in the year for a select group of larger audit based clients, And we are already witnessing the dividends it pays through the optimization of workflows, data feeds and client collaboration and communication. Speaker 200:11:06In aggregate, despite some of the short term macro impacts of our government work, we are encouraged by the growth prospects for these contracts. Government contracts serve as performance backbone given their size, visibility and extended term. They also bolster our credibility when selling We have made the transition to a pure play healthcare organization while navigating the dynamic COVID-nineteen landscape. The investments we've made to build our talented workforce and streamline processes are yielding substantial return, enabling us to not only foster new business opportunities, but also execute on existing client expansion. With that, I'll hand it over to Rohit Ramchandani, our Chief Financial Officer, for a discussion of our financials. Speaker 200:12:02Rohit? Speaker 100:12:04Thanks, Sim. As Sim shared, we are excited about these new business plans and our execution on existing business. Our pure play healthcare strategy continues to bear fruit as we grow these revenues, especially with our commercial clients. We did see some sluggishness in our government accounts, but do not expect this to continue as we believe macro trends will swing in our favor. This is in addition to ramping CMS RAC Region 2 alongside being awarded the New York State Medicaid RAC contract. Speaker 100:12:35We remain confident in our overall strategy toward achieving our long term goals. With that, let's dive into the quarter's results. Our results in the Q3 of 2023 reflect our successful efforts to scale our operations. Total company revenues in the quarter were $30,000,000 which included healthcare revenues of $28,500,000 setting yet another performance record for quarterly healthcare market revenues. Our customer care outsourced services This business accounted for $1,500,000 of revenue during the quarter, a decline of $2,100,000 from last year, which is in line with our expectations for this business. Speaker 100:13:15Federal student loan repayments officially restarted on September 1, and we are seeing positive volume demands associated with this restart. We expect these revenues to grow moderately next year and could show potential beyond that depending on sustained demand. As a reminder, while our strategic focus remains on the healthcare markets, this business does generate a positive contribution margin with limited distraction. We understand that standalone companies in a similar space operate with single digit margins and would expect the same from our work. Revenue from our eligibility services within Healthcare for the Q3 were $18,200,000 representing an increase of roughly 38%. Speaker 100:13:57As Fin mentioned, commercial clients led the way. New client limitations showed well and frankly ahead of expectations with some revenue pulled forward from the 4th We also performed well with existing clients as they continue to scale our services, benefited from the continued diversification of our offerings and enjoy the quality of our data with our purpose built technology platform. We expect that these positive results to continue with our commercial clients as we feel we have a best in class offering and our implementation cadence supports that. Within our claims based business, also known as claims auditing, Revenues in the Q3 of 2023 were $10,300,000 which was roughly flat year over year. Commercial operations continue to perform well As existing implementations scaled in line with our expectation and we achieved significant efficiency gains. Speaker 100:14:50As Sen mentioned, our existing government auditing contracts were impacted by macro factors related to the PHE, which created a difficult year over year comparison. We currently do not expect these factors to persist beyond the current year as the PHA limitations are behind us. In addition to the macro types Turning, we have 3 positive long term growth drivers on the government side. First is the quick implementation of CMS RAC Region 2. As Fin mentioned, we generated initial revenues for this contract in the Q3 and we expect volumes to continue to grow and eventually hit steady state in late 2025. Speaker 100:15:282nd, our contributions from the HHS LIG contract. This contract is project based and while we have completed some initial projects, We are just kicking off the true growth trajectory for this relationship. And finally, our recent win for the State of New York Medicaid RAC contract. Once the protest review process plays out and is resolved and assuming we are awarded the final contract, we expect to gain a better understanding the implementation pipeline and cadence to ramp the audit volume. This information will help us to better project revenue and contribution margin for the years to follow. Speaker 100:16:05In addition to these government catalysts, we implemented 12 new commercial opportunities in the 3rd quarter. This brings us through the 1st 9 months to a total of 34 commercial client implementations. Approximately half are new and half are with existing clients We're adding services and expanding scope. We estimate that these 34 implementations will drive approximately $16,000,000 and annualized revenues at steady state. The unit level economics of these contracts generally mean that we are operating negative margins in the 1st year, The 2nd year we are breakeven and in the 3rd year we are at positive contribution margins. Speaker 100:16:43We believe that these commercial implementations plus the backbone provided by our government contracts set us up well for long term sustained growth. Our ambitious growth plans are supported by capital infusion, and I'm delighted to state that our refinance of our previous credit agreement is now complete. Wells Fargo has shown strong commitment by offering a $25,000,000 revolving credit facility. This restructure alleviates specific onerous covenants and allows us to manage our business with greater flexibility. We have significant opportunity and momentum in the healthcare payment integrity space and the flexibility provided under our new credit agreement allows us to continue to pursue sizable client wins. Speaker 100:17:27We are confident that we have the capital structure in place to support our short term cash needs, while balancing the long term growth of this business. Shifting to operating expenses, these represented $30,600,000 in the 3rd quarter were $1,100,000 higher compared to the Q3 of last year. This was primarily driven by increasing headcount and salaries to support the record number of implementations in 2023. This is great for the long term growth trajectory, though it does initially impact margins. Our adjusted EBITDA for the quarter was positive $1,800,000 or approximately $2,100,000 ahead of the prior year. Speaker 100:18:08This was slightly ahead of expectations as we saw the benefit of some of the eligibility revenue pulled forward, but ultimately reflected of continued scale. We anticipate the Healthcare business to experience its typical seasonality as we continue to drive sequential revenue and EBITDA growth in 2023. We maintain our strategy to grow margins through scale and efficiency gains. To give you an example of an operational efficiency initiative, We recently instituted an extra layer of analytics and natural language processing into our chart selection and review process Through a subset of our claims auditing work, this process accomplishes 2 things. 1st, We have a better hit rate on the charts ultimately selected and reviewed. Speaker 100:18:54And secondly, nurses and claim reviewers are able to expedite their review processes to review additional claims each day. We feel confident reiterating our guidance for 2023 Healthcare Revenues to be in the range of 105,000,000 to $110,000,000 full company revenue between $111,750,000 to $118,000,000 and for the full year 2023 adjusted EBITDA to be in the range of $2,000,000 to $5,000,000 which reflects our ongoing investment and growth initiatives alongside improved operational efficiencies. Given where we are in the year, we do have stronger visibility into achieving the lower to midpoint of the range. Given some of the external factors that have influenced our business both upward and downward, we are maintaining the broader range of possibilities. Our primary goal remains the long term expansion of both revenue and EBITDA. Speaker 100:19:50If you had told me 3 years ago that our most significant challenge We'll be executing a new CMS RAC region as well as our 1st state Medicaid win on top of our continued successful commercial growth plans, I would have found it hard to believe. Over the past 3 years, that's truly been remarkable to see our strategic wins in expanding our market presence. Now our primary focus is the continued expansion of that presence and evaluating opportunities for enhancing our efficiency, particularly within our workflow processes. I am pleased with our results as we delivered a solid quarter of financial and operational performance, reflecting the strength of our healthy and diversified business mix. Operator, will you please open up the lines for questions? Operator00:21:13Our first question is from George Sutton of Craig Hallum. Please go ahead. Speaker 300:21:22Thank you, guys. Nice to see the results. So I wondered if we could have a broader Medicaid State RFP discussion, we've obviously seen 2 awarded. We've got one coming next month in Texas. Can we talk about how other states look? Speaker 300:21:41And this is obviously a trend that has begun and it's seemingly in your favor. Just Wanted to make sure I understood what your expectations are for Medicaid RFPs over the next 12 to 18 months? Speaker 200:21:55Hey, George, it's Timmy. Look, it's a bit hard to determine. I think to your point, We have certainly seen some positive momentum in terms of the states recognizing that they really need to focus On their cost containment initiatives, I think there's been some pressure from CMS and HHS and OMB that, that, that needs to happen. There's been some waivers that have been expiring and there's been some oversight that's just that the states could do a better job with their rack based And so we're excited about that. We think that obviously parallels well with our efforts into the space and with the recent win. Speaker 200:22:35Our teams are trying to understand timing. It's just a little bit hard to predict. As you stated, there's one currently out there right now for an RFP that we're Paging in, but I think safe to say, with the win in New York State, we are super excited about our prospects to leverage that As we think about other opportunities. Speaker 300:22:57Now New York State was awarded in 3 parts. You One of those parts. And the protest participants won the other two pieces, If I believe correctly, do they put the entirety of that award back up on the shelf for The protest or is it simply the piece here? And coincidentally, I assume you have not done a protest on the Eligibility piece that you were not part of? Speaker 200:23:33Correct. Correct on both fronts. The protest Only relates to the RAC award that Performant won, and Performant did not pursue any other protests With the procurement broadly. Speaker 300:23:50So one other question on the RAC Region 2, as you're You've gone through the process of implementation there. And as you go out into those States that from a commercial perspective where you now are connected to all the payers. Can you just talk about The opportunities that you're seeing that may not have existed before you had all that connectivity and presence in those states? Speaker 200:24:19Yes. Look, we've talked about this. I've said it in my prepared remarks. The backbone of our business is that Relationship, the broad relationship we have with CMS, as we think about the spend and what CMS controls That $4,300,000,000,000 spend and a third of it runs through CMS either through the fee for service programs or through their contribution to Managed Care or Managed Medicaid Programs, clearly our partnership with CMS and now HHS and obviously now the state, It really resonates with the commercial plans. And so we have seen great success in our original award of RAC Region 1. Speaker 200:25:00We've seen success in terms of how we leverage that in that particular jurisdiction, being able to talk to some of The payers in that region let them know that we have good visibility to policy from CMS. We're closely aligned. We have significant investment in that jurisdiction and understanding provider behaviors, etcetera. So similar to how Medicare Advantage plans recognize performance, Value and experience with the CMS, we feel the same in terms of Medicaid Managed Care Plans and how they closely align with Medicaid agencies. And so We anticipate that we'll see similar value and they'll recognize similar value, if you will, in our expanding Medicaid experience and especially those plans located in New York. Speaker 200:25:44So net net, we continue to use that as one of our key go to market strategies from a sales standpoint. And I think just the win in the Medicaid space in New York is just going to prove to help us as we continue to pursue Medicaid Managed Payer Plans. Great. Thanks, guys. Sure. Operator00:26:09Thank you very much. So we have no further questions in the queue at this time. And I would like to turn the call back to the CEO, Mr. Srian Cole, for some closing remarks. Speaker 200:26:20Thank you, operator. In closing, look, I'd just like to express my gratitude to all of you. Q3 was an exceptional quarter for Performant, And it wouldn't have been possible without unwavering dedication to our vision, our corporate values by our incredible employees and And frankly, our trust of our valued shareholders, the sport has been instrumental in enabling Performant to execute our pure play healthcare strategy and to maintain our focus on long term success. So thank you all once again. Operator00:26:53Thank you very much, sir. Ladies and gentlemen, this concludes today's teleconference.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallPerformant Financial Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Performant Financial Earnings HeadlinesEarnings call transcript: Performant Healthcare Q4 2024 highlights growthMarch 14, 2025 | investing.comPerformant Financial Corp’s Positive Earnings Call Highlights GrowthMarch 13, 2025 | tipranks.comTrump’s treachery Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 27, 2025 | Porter & Company (Ad)Performant Healthcare sees FY25 revenue $131M-$135M, consensus $134.47MMarch 12, 2025 | markets.businessinsider.comPerformant Healthcare, Inc. (PHLT)March 1, 2025 | finance.yahoo.comCraig-Hallum Sticks to Its Buy Rating for Performant Healthcare (PHLT)February 28, 2025 | markets.businessinsider.comSee More Performant Financial Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Performant Financial? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Performant Financial and other key companies, straight to your email. Email Address About Performant FinancialPerformant Financial (NASDAQ:PFMT) provides technology-enabled audit, recovery, and analytics services in the United States. The company identifies improper payments resulting from incorrect coding, procedures that were not medically necessary, incomplete documentation or claims submitted based on outdated fee schedules, and coverage discrepancies; and provides first party call center and other outsourced services. The company also offers Performant Insight that provides various services, such as post- and pre-payment audit of healthcare claims, detection of fraud, waste and abuse of healthcare claims, coordination of benefits, and pharmacy fraud detection services. It offers services to government and commercial healthcare markets. The company was formerly known as DCS Holdings, Inc. and changed its name to Performant Financial Corporation in 2005. Performant Financial Corporation was founded in 1976 and is headquartered in Plantation, Florida.View Performant Financial ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 4 speakers on the call. Operator00:00:00Good afternoon, ladies and gentlemen, and welcome to the Performant Financial Corp. Third Quarter 2023 Earnings Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Tuesday, August 8, 2023. Operator00:00:21I would now like to turn the conference over to John Bazzuto, Head of Investor Relations. Please go ahead. Speaker 100:00:27Thank you, operator. Good afternoon, everyone. By now, you should have received a copy of the earnings release for the company's Q3 2023 results. If you have not, a copy is available on the Investor Relations portion of our website. On today's call will be Simeon Cole, Chief Executive Officer and Rohit Ramchandani, Chief Financial Officer. Speaker 100:00:47Before 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 I would now like to turn the call over to Simeon Cole. Speaker 100:01:33Simeon Cole? Speaker 200:01:35Thank you, John. Good afternoon, everyone, and thank you for joining us for our earnings call. During the Q3 of 2023, we continue to see our vision As a pure play healthcare organization come to fruition, we are driven by a singular purpose and that is to transform the healthcare ecosystem by addressing over $300,000,000,000 in payment integrity waste. Our mission is to partner with payers to develop innovative solutions that redirect these funds toward enhancing patient care and well-being. This past quarter, that translated into successful completion of another 12 commercial implementations, while contributing strong top and bottom line growth. Speaker 200:02:17One of the key reasons for our success has been our ability to attract and retain top talent. We shifted our culture and values as we transition from a from a debt recovery business to a healthcare organization, taking care to share our corporate vision, which has attracted the best in the business. Our roster now includes experienced leaders from large national payers, government programs, healthcare providers and other healthcare focused technology organizations. The galvanizing quality amongst this team is the desire to make a difference. We've all personally witnessed this waste and we understand that by strategizing and reducing it, we can significantly redirect these funds toward improving patient care. Speaker 200:03:03Our team has forged strong partnerships as our mission resonates with the broader healthcare community. In the Q3, we had the pleasure of presenting alongside Priority Health to highlight the value of Performant's partnership with CAQH. As a reminder, the partnership with CAQH gives Performant access to extensive eligibility data, which Supplemented with our proprietary data and services provides differentiated value and more material ROI to our mutually supported clients. Building on our client centric approach, in the Q3, we hosted Performant's 2nd Customer Advisory Board. This Board was established to connect key clients with peers to facilitate discussions on common pain points and create actionable solutions. Speaker 200:03:53This 3 day meeting was incredibly successful with increased engagement and feedback such as hearing about how pain points of other health plans gave participants momentum to move internal health plan initiatives forward. We are proud of the partnership we have built with industry leaders and clients and much of that success hinges on our results driven team. This approach has led to a strong sales pipeline. In the Q3, we completed 12 commercial implementations, bringing our 2023 total to date to 34 compared to 21 implementations in all of 2022. This feat could not be achieved without instituting Significant operational rigor into our implementation process. Speaker 200:04:38As we shared on previous calls, one of our initiatives is to improve efficiency and reduce the time to market for our implementations. You can see through the 1st three quarters we have performed well. The greater efficiency that we drive toward our path to revenue, the more we can focus our resources on scaling and innovating. Our sales strategy has been focused on growth in the commercial market as we estimate that well over half of payment integrity waste lies within managed care organizations. Our success within these commercial markets continues to be evidenced by our strong cadence of implementation. Speaker 200:05:16One of many effective strategies has been to target commercial clients in jurisdictions where we already have a government presence. Our government presence has been our long standing backbone as we manage 3 of 5 CMS RAC regions, the Health and Human Services OIG contract and the CMS Medicare Secondary Payer CRC contract. Looking holistically at our government business, We have a strong federal presence in both claims and eligibility based services. In early October, we announced our first State Medicaid win, further bolstering our government backbone. The New York State Medicaid Recovery Audit contract was awarded based on an open and competitive RFP process. Speaker 200:06:01Performant demonstrated that it would deliver the best value and quality And a key catalyst to us winning this contract was our ability to consistently perform and innovate for our long standing federal government partners. It should be noted that the incumbent vendor has filed a protest. And as a result, the New York State OSC will render a determination on the protest in the coming months. We have experienced working through similar situations as earlier this year, CMS affirmed their decision to choose Performant as their RAC Region 2 contractor after a protest from the incumbent vendor. Similar to RAC Region 2, we will actively engage in the protest to validate New York State's decision that performance drives the best overall value for the state's Medicaid RAC program. Speaker 200:06:50We are very excited about this win and the opportunity to prove ourselves in the state Medicaid market. Looking at the macro landscape, we have 2 impactful trends to address. First is the end of the public health emergency as of May 11 this year and the second is the continued uptick and normalization of healthcare utilization. During the PHE, CMS restricted us from requesting claims With a COVID-nineteen or certain other related codes, such as those with a respiratory designation, the end of this emergency now gives us There was a chance we get a look back at claims that were historically excluded during the PHE itself. However, that does not seem likely at Operator00:07:43this stage. Speaker 200:07:45The normalization of healthcare services and costs is another macro tailwind As we've seen many for profit payers and providers report that healthcare utilization has normalized as elective procedures have returned and pricing has begun to catch up to the cost structure. We have also seen a shift towards outpatient procedures. These macro trends bode well for us The majority of our revenue is predicated on contingency fees of client savings that we identify. As cost of services increase, Performance savings dollars and associated contingency fees should also increase. Additionally, Many of our audit products support outpatient procedures neatly aligning us with these macro trends. Speaker 200:08:31Turning to our results. Healthcare revenues in the Q3 of 2023 grew 21% year over year, mainly driven by our commercial clients. Our eligibility based revenue grew 38% as new clients and contracts ramped. In particular, We saw significant growth in our commercial clients as our mature government contract was a drag in the overall eligibility growth rate. Our claims or audit based revenue was flat in the quarter. Speaker 200:09:00The government relationships were a drag on the performance due to the impacts from the PHE. There are two factors at play here. 1st, looking at the comparable prior year period, although we were unable to audit more Recent restricted claims, we enjoyed the benefit of the 3 year look back. This means we were able to audit those restricted claims that had dates of service prior to the PHE. In the current year, that 3 year look back funnel has become non existent, which drives a more difficult year over year comparison. Speaker 200:09:35This is further exacerbated by the timing ramp. By way of example, For available claims that had a date of service on May 12, we wouldn't be able to see and request those claims until July at the earliest to then go through the audit and validation process before any revenue could be recognized. We believe we will start to see this revenue normalize towards the end of the Q4. On a positive government note, EMS RAC Region 2 is now operational and began to generate revenue in the Q3. We were able to implement this contract incredibly quickly as we commenced work in November of last year and we are already generating initial revenues. Speaker 200:10:18Our speed to market has become a competitive differentiator as we prove our clients' ROI thesis. Once again, in our claims based business, commercial led the way as contracts ramped and efficiency gains took shape. For instance, when working with more seasoned clients, we often employ the analogy of evaluating adapting the factory's workflow. Even if a particular workflow has been in place for years, we aim to approach it with a fresh perspective, Seeking opportunities to enhance the overall efficiency. We undertook this process earlier in the year for a select group of larger audit based clients, And we are already witnessing the dividends it pays through the optimization of workflows, data feeds and client collaboration and communication. Speaker 200:11:06In aggregate, despite some of the short term macro impacts of our government work, we are encouraged by the growth prospects for these contracts. Government contracts serve as performance backbone given their size, visibility and extended term. They also bolster our credibility when selling We have made the transition to a pure play healthcare organization while navigating the dynamic COVID-nineteen landscape. The investments we've made to build our talented workforce and streamline processes are yielding substantial return, enabling us to not only foster new business opportunities, but also execute on existing client expansion. With that, I'll hand it over to Rohit Ramchandani, our Chief Financial Officer, for a discussion of our financials. Speaker 200:12:02Rohit? Speaker 100:12:04Thanks, Sim. As Sim shared, we are excited about these new business plans and our execution on existing business. Our pure play healthcare strategy continues to bear fruit as we grow these revenues, especially with our commercial clients. We did see some sluggishness in our government accounts, but do not expect this to continue as we believe macro trends will swing in our favor. This is in addition to ramping CMS RAC Region 2 alongside being awarded the New York State Medicaid RAC contract. Speaker 100:12:35We remain confident in our overall strategy toward achieving our long term goals. With that, let's dive into the quarter's results. Our results in the Q3 of 2023 reflect our successful efforts to scale our operations. Total company revenues in the quarter were $30,000,000 which included healthcare revenues of $28,500,000 setting yet another performance record for quarterly healthcare market revenues. Our customer care outsourced services This business accounted for $1,500,000 of revenue during the quarter, a decline of $2,100,000 from last year, which is in line with our expectations for this business. Speaker 100:13:15Federal student loan repayments officially restarted on September 1, and we are seeing positive volume demands associated with this restart. We expect these revenues to grow moderately next year and could show potential beyond that depending on sustained demand. As a reminder, while our strategic focus remains on the healthcare markets, this business does generate a positive contribution margin with limited distraction. We understand that standalone companies in a similar space operate with single digit margins and would expect the same from our work. Revenue from our eligibility services within Healthcare for the Q3 were $18,200,000 representing an increase of roughly 38%. Speaker 100:13:57As Fin mentioned, commercial clients led the way. New client limitations showed well and frankly ahead of expectations with some revenue pulled forward from the 4th We also performed well with existing clients as they continue to scale our services, benefited from the continued diversification of our offerings and enjoy the quality of our data with our purpose built technology platform. We expect that these positive results to continue with our commercial clients as we feel we have a best in class offering and our implementation cadence supports that. Within our claims based business, also known as claims auditing, Revenues in the Q3 of 2023 were $10,300,000 which was roughly flat year over year. Commercial operations continue to perform well As existing implementations scaled in line with our expectation and we achieved significant efficiency gains. Speaker 100:14:50As Sen mentioned, our existing government auditing contracts were impacted by macro factors related to the PHE, which created a difficult year over year comparison. We currently do not expect these factors to persist beyond the current year as the PHA limitations are behind us. In addition to the macro types Turning, we have 3 positive long term growth drivers on the government side. First is the quick implementation of CMS RAC Region 2. As Fin mentioned, we generated initial revenues for this contract in the Q3 and we expect volumes to continue to grow and eventually hit steady state in late 2025. Speaker 100:15:282nd, our contributions from the HHS LIG contract. This contract is project based and while we have completed some initial projects, We are just kicking off the true growth trajectory for this relationship. And finally, our recent win for the State of New York Medicaid RAC contract. Once the protest review process plays out and is resolved and assuming we are awarded the final contract, we expect to gain a better understanding the implementation pipeline and cadence to ramp the audit volume. This information will help us to better project revenue and contribution margin for the years to follow. Speaker 100:16:05In addition to these government catalysts, we implemented 12 new commercial opportunities in the 3rd quarter. This brings us through the 1st 9 months to a total of 34 commercial client implementations. Approximately half are new and half are with existing clients We're adding services and expanding scope. We estimate that these 34 implementations will drive approximately $16,000,000 and annualized revenues at steady state. The unit level economics of these contracts generally mean that we are operating negative margins in the 1st year, The 2nd year we are breakeven and in the 3rd year we are at positive contribution margins. Speaker 100:16:43We believe that these commercial implementations plus the backbone provided by our government contracts set us up well for long term sustained growth. Our ambitious growth plans are supported by capital infusion, and I'm delighted to state that our refinance of our previous credit agreement is now complete. Wells Fargo has shown strong commitment by offering a $25,000,000 revolving credit facility. This restructure alleviates specific onerous covenants and allows us to manage our business with greater flexibility. We have significant opportunity and momentum in the healthcare payment integrity space and the flexibility provided under our new credit agreement allows us to continue to pursue sizable client wins. Speaker 100:17:27We are confident that we have the capital structure in place to support our short term cash needs, while balancing the long term growth of this business. Shifting to operating expenses, these represented $30,600,000 in the 3rd quarter were $1,100,000 higher compared to the Q3 of last year. This was primarily driven by increasing headcount and salaries to support the record number of implementations in 2023. This is great for the long term growth trajectory, though it does initially impact margins. Our adjusted EBITDA for the quarter was positive $1,800,000 or approximately $2,100,000 ahead of the prior year. Speaker 100:18:08This was slightly ahead of expectations as we saw the benefit of some of the eligibility revenue pulled forward, but ultimately reflected of continued scale. We anticipate the Healthcare business to experience its typical seasonality as we continue to drive sequential revenue and EBITDA growth in 2023. We maintain our strategy to grow margins through scale and efficiency gains. To give you an example of an operational efficiency initiative, We recently instituted an extra layer of analytics and natural language processing into our chart selection and review process Through a subset of our claims auditing work, this process accomplishes 2 things. 1st, We have a better hit rate on the charts ultimately selected and reviewed. Speaker 100:18:54And secondly, nurses and claim reviewers are able to expedite their review processes to review additional claims each day. We feel confident reiterating our guidance for 2023 Healthcare Revenues to be in the range of 105,000,000 to $110,000,000 full company revenue between $111,750,000 to $118,000,000 and for the full year 2023 adjusted EBITDA to be in the range of $2,000,000 to $5,000,000 which reflects our ongoing investment and growth initiatives alongside improved operational efficiencies. Given where we are in the year, we do have stronger visibility into achieving the lower to midpoint of the range. Given some of the external factors that have influenced our business both upward and downward, we are maintaining the broader range of possibilities. Our primary goal remains the long term expansion of both revenue and EBITDA. Speaker 100:19:50If you had told me 3 years ago that our most significant challenge We'll be executing a new CMS RAC region as well as our 1st state Medicaid win on top of our continued successful commercial growth plans, I would have found it hard to believe. Over the past 3 years, that's truly been remarkable to see our strategic wins in expanding our market presence. Now our primary focus is the continued expansion of that presence and evaluating opportunities for enhancing our efficiency, particularly within our workflow processes. I am pleased with our results as we delivered a solid quarter of financial and operational performance, reflecting the strength of our healthy and diversified business mix. Operator, will you please open up the lines for questions? Operator00:21:13Our first question is from George Sutton of Craig Hallum. Please go ahead. Speaker 300:21:22Thank you, guys. Nice to see the results. So I wondered if we could have a broader Medicaid State RFP discussion, we've obviously seen 2 awarded. We've got one coming next month in Texas. Can we talk about how other states look? Speaker 300:21:41And this is obviously a trend that has begun and it's seemingly in your favor. Just Wanted to make sure I understood what your expectations are for Medicaid RFPs over the next 12 to 18 months? Speaker 200:21:55Hey, George, it's Timmy. Look, it's a bit hard to determine. I think to your point, We have certainly seen some positive momentum in terms of the states recognizing that they really need to focus On their cost containment initiatives, I think there's been some pressure from CMS and HHS and OMB that, that, that needs to happen. There's been some waivers that have been expiring and there's been some oversight that's just that the states could do a better job with their rack based And so we're excited about that. We think that obviously parallels well with our efforts into the space and with the recent win. Speaker 200:22:35Our teams are trying to understand timing. It's just a little bit hard to predict. As you stated, there's one currently out there right now for an RFP that we're Paging in, but I think safe to say, with the win in New York State, we are super excited about our prospects to leverage that As we think about other opportunities. Speaker 300:22:57Now New York State was awarded in 3 parts. You One of those parts. And the protest participants won the other two pieces, If I believe correctly, do they put the entirety of that award back up on the shelf for The protest or is it simply the piece here? And coincidentally, I assume you have not done a protest on the Eligibility piece that you were not part of? Speaker 200:23:33Correct. Correct on both fronts. The protest Only relates to the RAC award that Performant won, and Performant did not pursue any other protests With the procurement broadly. Speaker 300:23:50So one other question on the RAC Region 2, as you're You've gone through the process of implementation there. And as you go out into those States that from a commercial perspective where you now are connected to all the payers. Can you just talk about The opportunities that you're seeing that may not have existed before you had all that connectivity and presence in those states? Speaker 200:24:19Yes. Look, we've talked about this. I've said it in my prepared remarks. The backbone of our business is that Relationship, the broad relationship we have with CMS, as we think about the spend and what CMS controls That $4,300,000,000,000 spend and a third of it runs through CMS either through the fee for service programs or through their contribution to Managed Care or Managed Medicaid Programs, clearly our partnership with CMS and now HHS and obviously now the state, It really resonates with the commercial plans. And so we have seen great success in our original award of RAC Region 1. Speaker 200:25:00We've seen success in terms of how we leverage that in that particular jurisdiction, being able to talk to some of The payers in that region let them know that we have good visibility to policy from CMS. We're closely aligned. We have significant investment in that jurisdiction and understanding provider behaviors, etcetera. So similar to how Medicare Advantage plans recognize performance, Value and experience with the CMS, we feel the same in terms of Medicaid Managed Care Plans and how they closely align with Medicaid agencies. And so We anticipate that we'll see similar value and they'll recognize similar value, if you will, in our expanding Medicaid experience and especially those plans located in New York. Speaker 200:25:44So net net, we continue to use that as one of our key go to market strategies from a sales standpoint. And I think just the win in the Medicaid space in New York is just going to prove to help us as we continue to pursue Medicaid Managed Payer Plans. Great. Thanks, guys. Sure. Operator00:26:09Thank you very much. So we have no further questions in the queue at this time. And I would like to turn the call back to the CEO, Mr. Srian Cole, for some closing remarks. Speaker 200:26:20Thank you, operator. In closing, look, I'd just like to express my gratitude to all of you. Q3 was an exceptional quarter for Performant, And it wouldn't have been possible without unwavering dedication to our vision, our corporate values by our incredible employees and And frankly, our trust of our valued shareholders, the sport has been instrumental in enabling Performant to execute our pure play healthcare strategy and to maintain our focus on long term success. So thank you all once again. Operator00:26:53Thank you very much, sir. Ladies and gentlemen, this concludes today's teleconference.Read morePowered by