Q2 2020 Performant Financial Corp Earnings Call

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Greetings and welcome to the pro forma financial Corp, second quarter 2020 earnings call.

This time, all participants are in listen only mode.

Question answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Please note that this conference is being recorded.

I will now turn the conference over to our host Richard Zubek of Investor Relations. Thank you you may begin.

Thank you operator, good afternoon, everyone by now you should have received a copy of the earnings release, the company's second quarter 2020 results.

Not a copy is available on the Investor relations portion.

On today's call will be at least chief Executive officer underground trend on.

Vice President finance and strategy.

For weekend I'd like to remind you that some of the comments made on todays call.

Our financial guidance or forward looking statements. These statements are subject to risks and uncertainties, including those described in the company's filings with the FCC.

Well 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 circumstance or revised expectation.

Oh, so 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 lets turn call over totally Sam Lisa.

Thank you rich.

Good afternoon, everyone and thank you for joining us for earnings call.

Since early March the cope with 19 pandemic has disrupted many facets of our lives and daily activities.

Throughout this unprecedented times, we strive to ensure the stick to our associates and their family Walkable I do not work environment that meet the strict security requirements of our client demand.

To date, we continue to require both personnel to work remotely. So all of our amazing associates. Thank you for your tireless efforts and commitment to our company without your dedication our success would not have been possible.

On the health care front, our coordination of benefits eligibility business continues its strong performance and experienced market will impact as a result of cobot 19.

That's anticipated our Arctic volumes decreased in Q2, I see a bad and other commercial health plan understandably pause auditing and suspended recoveries during the quarter.

However, as of today the majority of our commercial programs have received auditing and we anticipate the few remaining class will follow suit in late August.

In terms of our rack, reaching its want and spot contract CMS has publicly announced a restart audits and later August we're currently working with CMS to better understand the restart the cadence.

Despite the various coca challenges, our health care business continues to experience dramatic growth.

The quarter, we achieved 58% year over year, crocus, bringing our year to date growth to 76% versus prior year.

Additionally, our implementation and new opportunity pipeline or at an all time high.

A significant growth consists of both existing clients procuring additional audit and eligibility offering that's well, let's records success in attracting new clients, most electing to limit multiple corbett offering.

We are thankful for the trust our existing clients have demonstrated enough.

Just as we believe that are solid reputation is yielding significant wins over competitors.

Okay audit eligibility markets.

Finally, we are making solid progress in recruiting exceptional industry talent to our health care business actually accelerate our efforts to expand audit eligibility offering.

Attracting days well respected industry leaders further underscores performance growth as a recognized leader in claims cost management and our reputation as being a trusted partner to our clients.

With respect to a recovery business since the onset of the pandemic I love, our clients, including federal and state governments requested that we implement a complete stoppage <unk> outbound recovery services, which had a negative impact on our operating result into second quarter.

However, many of these temporary stoppages have since been lifted and we have already received recovery efforts on the majority of these contracts.

Furthermore, we anticipate being fully operational or all of our non student lending recovery contract before the end of the third quarter.

For student lending recovery contracts as a result, all the Corrado virus aid relief and economic Security Act with a care Act the U.S. Federal government funded payments they should accrue interest of stopped involuntary collection of payments or which garnishment for student loans originated.

By the department of Education.

Based on the new member wrapped up on continued student loan payment release during the cobot 19th pandemic. What's your issued by the Secretary of Education on August 820, 20. This caused is expected to last through December 31 2020.

During this time student loan revenue and related cash flows will continue because the earn revenue for a number of months from existing is process bar work, we hit dilatation agreements.

Further well not mandated by the care Sac Oliver guarantee agency clients, who administer the federal family Education loan program.

Largely complying with the provisions of the act.

With the exception all counting missed payments toward qualification for longer hit dilatation.

Given the impact of the carriers that other decisions from other quite [laughter] bend, our recovery activities, we for a little more the 500 employees to date.

We continue to aggressively manage expenses in response to the way clients are managing through the unprecedented time.

There continues to be significant uncertainty around the breadth and duration of business disruption related to cope with Nike pandemic its impact on the U.S. economy, and the ongoing business operation of our clients.

We actively monitor the impacts of the cold stacking pandemic and they take further actions to alter our business operations.

But today, it's still difficult to estimate the full impact of the cobot Nike pandemic onto the results of our operations financial condition or liquidity for fiscal year 2020 and beyond.

In Q2, 2020, we reported revenue of 33.8 million a decline of about 6% versus Q2, 2019, which was entirely related to the Q2 work stoppage to our recovery business as a result, Oh, the cobot 1910 dynamic.

However, as evidence of the progress we have made at our focus on operating efficiencies. During Q2 2020, we reported positive EBITDA of more than $4 million compared to an EBITDA loss of more than 2.5 million into second quarter of last year.

We have worked hard to increase operational improvements in our non student lending recovery efficiency as well as that coordination of benefits eligibility operation.

During the course, <unk> economic impact a challenging environment during the second quarter due to cope with 19.

We still performed relatively well versus last year and I guess are left in it.

With that I'd like to turn the call over to Rohit ramp Centanni, our vice President finance that strategy to walk you through the financial results out the quarter in more detail.

Good.

Thanks, Lisa and two of 2020, we reported revenues of 33.8 million and adjusted EBITDA of 4.39.

There are two loss of 2.5 million in the prior year period.

Year to date revenues for the first time 2020, more 79.7 million and adjusted EBITDA was 11.4 million. This compares to revenues of 70.7 million in an adjusted EBITDA loss of 6.6 million in the first half was 29.

From an EBITDA perspective, we have outperformed our original expectations from the first off of the year setting us up well for navigating the continued impacts of Kobin 19.

Oh, no our health care revenues in the second quarter of 2020 totaled 14.6 billion, an increase of 57% over the second quarter of last year. Additionally, on a year to date basis health care revenues of totaled 32.1 million increase of nearly 76% compared to the first half 2019, we are.

Quite excited to see this continued growth to be at both our on it and coordination of benefits market, leading health care services.

Our coordination of benefits revenues in the second quarter grew by over 100% on a year over year basis, while our audit based health care revenues in the second corner maintained year over year in spite of being toxic overnight.

As we noted during our earnings call last quarter, a few healthcare customers initiate and short term pauses on audit activities, which just had a near term impact on our results.

As Lisa mentioned the majority of our commercial auditing operations have resumed and we anticipate the rest restart in coming weeks.

Total recovery revenue in Q2 was 16.2 million or 27% decline as compared to the second quarter of last year.

We believe that due to the negative impact of policies to our recovery operations. Our second quarter recovery results are representative of these impacts from Covidien team.

These possible recovery operations, which were driven by the tariffs that resulted in the furloughing them over 500 employees, which wasn't is expected to yield monkey savings of approximately one and I hopped million dollars.

However, as we've noted out today, we have already resumed most smirnoff student lending recovery operations via both performance and Premier brands and as such we're hospital reports that we are currently recalling a good portion of these furloughed employees dr. positions.

Our results in the second quarter were additionally impacted by a non cash non operational goodwill impairment charge of $8 million. This charge is primarily due to the decrease in our stock price sensitive market capitalization.

Isn't significant negative impact on the global economy, and the public securities markets due to the Coven 19 pandemic since March of 2020.

As such our goodwill maybe increased risk of additional impairment should there be a further decline our stock price and associated market capitalization, which may result in a potential material non cash non operational charge to earnings.

Excluding that goodwill impairment charge expenses in the second quarter was 31.2 million a decrease of 8.9 million. Some a second quarter 2019, decreasing costs were primarily due to our reduced head count from the furloughs as well as improved productivity in operating efficiencies.

With that I'd like to turn the call back over to Lisa before we open it up to your questions Lisa.

Thanks, Rob hit in recent weeks, we've seen other businesses, we opened their offices that storefronts and the almost as quickly close once again, it's heightens protective measures to where we implemented by governmental authorities to counteract the sudden increasing Britt said infection as well as number of deaths related just pandemic as a result in.

Currently possible to ascertain are predicted overall long term impact of cobot 19 pandemic on our business.

However, we are encouraged by the strong performance of our health care contract and anticipate investing further in the growth that this business.

We believe that over the next few years, they will continue to strengthen and be a key driver of our business in the longer term.

Furthermore, we believe that most petrochemical related pauses in operations will be allowed to reactivate over the course of the third and fourth quarters up this year.

That's it progressed through the remainder of 2020, we will be nimble and continue to adapt our strategy, while still providing our clients at the highest level of service in this environment.

One such example is that we have begun to actively review our physical footprint across the country as remote workforce has become a more accepted norm.

Although we are not reinstating quantitative guidance for the 2020 year at this time, we remain confident in our operational trajectory and reiterate our commitment to reporting positive adjusted EBITDA results for this year.

Lastly, I want to thank our employees once again for their significant efforts patient flexibility during these times.

I also wanted to ask our frontline and other essential workers are putting their lives on the line. So the rest of this can stay safe.

With that we'd like to open up the call and take your questions.

Thank you.

At this time will be conducting the question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad. That's a starkey followed by the number one counter telephone keypad a confirmation toma indicate that your line is in the question Q you May press Star too if you would like to remove your question from the Q4 participants do you think speaker equipment, it may be necessary to pick up your head.

Set before pressing the star keys, one moment, please while we pull for questions. Thank you.

Ladies and gentlemen, there appears to be no request for questions I will turn it back to management for closing remarks. Thank you.

Thank you operator.

Once again, they want to thank our clients for the opportunity to serve them at our associates for your continued commitment and your best efforts. They want to thank our shareholders for your continued success and again emphasize our gratitude to they central workers for all that Youre doing this unprecedented time. Thank you for setting this time with us.

Thank you. This concludes todays conference all parties may disconnect have a good day.