Q3 2020 Performant Financial Corp Earnings Call

Greetings welcome to performing financial Corporation third quarter 2020 earnings call.

This time, all participants are in a listen only mode.

Anyone should require operator during the conference. Please press star zero on your telephone keypad. Please.

Please note this conference is being recorded.

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

Thank you operator, and good afternoon, everyone. By now you should have received a copy of the earnings release for our third quarter 2020 results. If you have not a copy is available on the Investor Relations portion of our website on today's call will be Lisa Im Chief Executive Officer, and broken <unk>, Vice President of finance and strategy.

Before we begin I'd like to remind you that some of the comments made on today's call are forward. Looking these statements are subject to risks and uncertainties, including those described in our filings with the <unk> actual results may differ materially from those described during the call.

In addition, any 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 in the table attached to our press release I would now like to turn the call over.

Lisa Lisa.

Thank you rich good afternoon, everyone and thank you for joining us for our earnings call.

The third quarter, we started to see the first time ever returned to normal operations.

Start with the COVID-19 pandemic, we resumed auditing operations for a majority of our commercial health care clients in August.

Really the CMS RAC program also reopened under certain restrictions.

Lastly, our IRS and Treasury work is also back up and running.

So while the full extent of the pandemic effect in our operational and financial performance will depend on future development. We are encouraged by strong progress to date.

With that and I am proud of the commitments that have been demonstrated by our exceptional associates and their focus on servicing our clients to the highest standards possible.

Without your focus and efforts, we would not be where we are today.

Thank you for all that you do and for your continued contribution to performance.

As you know our health care business is split between claims and eligibility based offerings.

<unk> color coordination of benefits for third party liability claims.

As a result of the pandemic a few of our health care audit customers have asked us to place short term pause it on her activities earlier, this year, which directly impacted our results in the third quarter.

I am pleased to report that these temporary pauses largely ended during the third quarter and we have we started aggressively hiring and recruiting individual as part of our re ramping effort in order to prepare to service those accounts to the highest standards possible.

However, it is important to recognize that we will incur additional expenses. That's a part of our re branding effort, but we don't anticipate the revenue to show until Q1 2021.

The overall cost to the healthcare system as a result of COVID-19 has been astounding <unk>.

Industry experts believe that hospital in the U.S. in the aggregate than the estimated 550 million per month.

That's just childcare housing and medical screening and treatment during the pandemic to support their frontline workers.

Additionally, the American Hospital Association estimates that hospitals have already spent an additional 2.4 billion one ppt between March and June of this year.

Well, it's unclear how much of this expense will ultimately be passed on to the patient some health care industry experts are projecting that the medical cost trend for 2021 with a projected percentage increase in the cost to treat patients for one year to the next.

Assuming benefits remained the same increase somewhere between 4% and 10%.

That's the second rate continued to rise across the country. It is still not currently possible to predict the long term overall impact the COVID-19 pandemic on our business.

So I for our health care business. However is that when the pandemic isn't evidently under more control, we expect the pent up demand in medical care such as he left there were not.

Emergency outpatient procedures will increase their opportunity to identify savings for health care payer clients.

It is estimated that the COVID-19 pandemic has led to record job losses, which in turn means that individuals are also losing their employer provided health insurance coverage.

However, many of these individuals will likely end up on Medicaid or subsidised policies to where they see a exchange I think unemployment rate in October is still double the rate for February of this year. We view these as being enduring shifts in coverage that present, a positive opportunity for audit as CEO.

The offering.

As we see the positive macro trends and continue to invest in the double digit growth in our health care market revenues. We are also proud to have higher top market talent into our key positions. These leaders have come from companies in the healthcare industry and their addition to perform it attests to our meaningful growth and brand awareness.

Yes.

Shifting now to the recovery operations.

Although this business has been more adversely impacted by the pandemic remain focused on building a strong diversified business on our core strengths of analytics innovation compliance audit.

Audit and recovery.

Based upon these unique strength and value proposition to our clients. We believe we can capitalize on future market opportunities.

As it stands today, we have resumed activity with existing borrowers on behalf of our guarantee agency clients on a limited basis there.

Hartmut vegetation related clients are expected to read too full activity at the start of 2021, and we continue to monitor for any further congressional changes to that timing.

Lastly, substantially all of our work with the IRS and Treasury Department has been restarted on a remote basis.

As it relates to our work with the IRS, we resubmitted our re bid for the new Iraqi contract last week and expect the contract award announcements in February 2021.

That's an encompass with consistent good performance under our current contract we're confident with our position in response to this request cookbook.

At the end of the day. It is the continued hard work and dedication of our team that has driven our strong workforce will result in the midst of considerable uncertainty and disruption resulting from COVID-19.

In Q3 of 2020, we had revenue growth of 1% versus Q3 of 2019 and positive EBITDA of nearly $4 million compared to an EBITDA loss of more than 3 million in the third quarter of last year.

With that I'd like to turn the call over to Rohit, Rob said, Donny, our vice President of Finance and strategy to walk you through the financial results for the quarter in more detail.

I'll hit.

Thanks, Lisa in Q3 of 2020, we reported revenues of 36.2 million, which was inline with our internal projections and up 1.1% versus the prior year period.

Adjusted EBITDA in the third quarter was 3.8 million compared to a loss of 3.1 million in the prior year period, and a 7.1% increase sequentially.

Health care revenues in the third quarter of 2020 totaled 17.6 million, which was 63% higher than it wasn't in the third quarter of last year and represents over 20% growth on a sequential basis.

Overall, our health care activities are all going strong and we are getting and even in some cases exceeding our internal keep yes.

We are very excited by these trends and our focus on further no results in both our current and future product offerings.

However, as Lisa noted there has been an impact from cover 90, Mark on it and.

And the cadence of our clients audit findings has been slow to return to the previous normal. We anticipate this will have a dampening effect on the piece of revenues from our work efforts, but should be caught up by the first quarter of 2021.

Total recovery revenue in Q3 was 15.4 million a decrease of 26% as compared to the third quarter of last year and 4% lower sequentially, primarily due to the continued negative impact from Colby. Thanks Pete.

As a reminder, as a result of the krona burst eat relief not common Security Act Harris at U.S. government suspended payments she used to paying interest on stock involuntary collection payments, such as which functions for student loans originated by the department of education.

This positive activity is expected to last through the end of year and the status of which we will continue to monitor.

[noise] Standalone revenue and related cash flows that were already in the funnel prior to the start of Covidien products are expected to continue throughout the remainder of 2020, because we earn revenue for a number of months from existing in process bar rehabilitation agreements.

That said as we approach the end of the fourth quarter 2020, we expect to see leasing revenues thinking to significantly decline a pipeline of peace.

Expenses in the third quarter were 34.3 million a decrease from 41.7 million more importantly, the third quarter of 2019 and decreasing cost for mostly due to our improved productivity operating efficiencies and reduced head count.

I mentioned, we are actively hiring within health care to support the continued growth and does anticipate an increase in operating expenses in the fourth quarter with that I'd like to turn the call back over to Lisa Lisa.

[laughter].

Thanks, Rohit, despite the turbulent year due to the disruption caused by cold with 19, we have continued to report solid results. The third quarter of 2020 marks the fourth consecutive quarter of positive adjusted EBITDA and continuing positive net income when you pull out the non operational non.

Cash goodwill impairments in the past few quarters.

Although we achieved good performance, we believe that with continued investment we can deliver improved results as we ramp on our couch that were temporarily suspended due to the pandemic as well as through growth in new business offerings.

Analysts forecast that Medicare advantage will continue to be the fastest growing segments of the commercial insurance market. We recently announced our successful launch a premium accuracy, a Medicare secondary pair service for Medicare advantage plans.

Premium accuracy is another example of our mission to be the leading health care payment integrity provider in North America Yeah.

The identification of other insurance coverage and the application of private people to complex with large dollars at risk.

In fact within the first two months of implementing a national Medicare advantage plans.

Definitely contracted over 4 million covered lives and identified over 2 million in premiums to be restored.

Parents have taken notice of our results and our inquiry more about our offerings that they are looking for trusted partners to ensure that they are receiving the most accurate premium for their Medicare advantage population.

We believe that by applying the lessons that we have learned through this pandemic.

Modifier operation to adopt our tech business, the new technology and workforce strategies I.

I believe we are going to come out of this leaner and better positioned for whatever the future holds we've.

We remain confident in our long term success and believe that our prospects remain strong.

Lastly, I want to thank our employees for their significant efforts patients. So the flexibility during these times.

I also want to thank our clients for letting us serve them.

And front line and other social workers, who are putting their lives on the line for the rest of us can stay safe.

Thank you for joining our earnings call today.

And ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.