Q4 2020 Performant Financial Corp Earnings Call
Greetings and welcome to the performing Financial Corp Corp.
Fourth quarter 2020 earnings call at this time, all participants on a listen only mode. A question and 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.
Please note this conference is being recorded.
Now I'll turn the conference over to your host Richard Zubaie, especially 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 company's fourth quarter and full year 'twenty 'twenty 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 brokered Ramachandra Arnie, Vice President of finance and strategy.
Four we begin I'd like to remind you that some of the comments made on today's call are forward looking statements. These statements are subject to risks and uncertainties, including those described in our filings with the SEC.
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 on non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the tables attached to our press release I would now like to turn the call over to Lisa Lisa.
Thank you rich and good afternoon, everyone and thank you for joining us for our earnings call coming into 2020, we were on course to report a transformative year. Following multiple years of hard work transitioning performance from our company's deriving its success.
Small number of larger coffee contracts into a highly dynamic company with diversified health care offerings.
We've previously shared during investor meetings as well as on our Investor website, the multiyear investments required to bring major contracts to steady state margins.
With those years of investment completed on the share gains that we have grown across our markets. We had line of sight to exceptional 'twenty 'twenty results.
The impact of the global pandemic brought material disruption, we were still able to report a very strong year.
In the fourth quarter, we had revenues of over $40 million.
And adjusted EBITDA of $5 $1 million.
Both of these figures are lower as compared to the fourth quarter of 2019 due to the impact depends on the cat on a recovery business.
However, the resiliency of our business as seen in our full year 'twenty 'twenty results as we reported revenues of nearly $156 million with corresponding adjusted EBITDA of over $20 million.
This is the first time, we have reported annual adjusted EBITDA in excess of $20 million since 2016.
This compares to revenue of $150 million and a negative EBITDA of over $3 million in 2019.
Our results in 2020 are a testament to our exceptional work force and their steadfast commitment to our clients even in the face of numerous destruction.
To all our associates. Thank you for helping us reach these successes and for bringing their very best each and every day.
While we are happy with our results. We also know the potential that exists and what our results could be in a COVID-19 trading environment.
While the pandemic depressed operational results across all of our business our health care operations were less impacted in 2020, and the majority of our health care contracts resumed operations by September of 2020.
Furthermore, I'm happy to report that many of our health care clients are expanding their scope of services and we continued to win new contracts, but with competitive procurement we've.
We believe this growth trend will continue as our suite of payment integrity services further matures at scale.
More specifically, we launched 10, new health care programs during the fourth quarter on 2020. These implementations represent a mix of new logos on the expansion of both audit and eligibility services within existing clients.
As we look forward, we have a steady pipeline of implementations for much of 2021 with a similarly diverse mix of new clients and expansion of services within our current customers.
Overall revenue from our healthcare business in 2020 increased nearly 60% over 2019 and accounted for almost half of our total revenue in 2020. This marks a dramatic increase from 2017, when our health care business accounted for just 7.5 per cent of our total revenue.
Going forward, we anticipate that our health care business will drive the majority of overall company revenue and gross.
On firstly, our recovery operations accounted for 47 per cent of total revenue less than half of total company revenues for the first time due to the continued growth on the health care business as well as COVID-19 related impacts.
Okay revenues continued to grow at a strong rate, we anticipate that the recovery business revenues will continue to decline for the foreseeable future.
As a reminder, some of our recovery clients, including federal and state governments requested that we implement the complete stoppage over outbound recovery services.
In that span multiple quarters of 2020, which had a negative impact on our operating results.
Due to these continued delays within our recovery business, we took the necessary steps to furlough employees from contracts it sounds ways to reduce our expense footprint.
Such as moving our work force fully remote with the exception of a handful of essential employees.
These policies on activity and Furloughing employees did not negatively impacts on revenues and related cash flows during 2020, because we earned net news for a number of months from existing and processed borrower rehabilitation agreements.
However, the prolonged student loan payment policy is expected to have significant impact on our year over year recovery revenue results in 2021.
With that I'd like to turn the call over to Rohit mentioned on our C.
On your Vice President of financial strategy to walk you through the results of the quarter Mohit.
Thanks Lisa.
As Lisa mentioned in the fourth quarter of 2020, we reported revenues of $40 million, which was in line with our internal projections and 9% lower versus the prior year period.
Notably this includes almost $20 million in health care market revenues for the quarter.
Adjusted EBITDA in the fourth quarter was $5 1 million compared to 615 in the prior year period, and $3 8 million in the third quarter of this year for.
For the full year 2020, we reported revenue of $155 9 million.
Average revenue per $150 4 million for the full year 2019 and increase per cent.
Adjusted EBITDA from the full year 2020 was $20 4 million compared to an adjusted EBITDA loss of $3 2 million from 2019.
Overall, our operations benefitted as key investments.
Their contracts begin to achieve stronger contribution margins, including future growth potential and as other mid tier ones continued to build as well.
The health care revenues of $18 9 million in the fourth quarter of 2020 represented 32% growth compared to the fourth quarter of last year.
The continued increase reflects positive strides we've made relative to the aforementioned investments across our health care operations and the continued expansion of both of our payment integrity lines of business on it and eligibility for coordination of benefits.
Which also enjoyed some seasonal uptick in recoveries as providers and carriers look to clear their books before the end of the year.
From a full year 2020, healthcare revenues were $68 5 million or an increase of 58% year over year compared to the 2019 healthcare revenues of $43 3 million. We're very excited about the progress we've made in driving growth in our health care market as Lisa mentioned these health care markets now represent almost half.
From a revenue stream versus just seven 5% three years ago, and we anticipate this trend will continue as we continue to channel our investments into the health care payment integrity offerings.
Hello recovery revenues in the fourth quarter were $17 5 million down 31% relative to the fourth quarter of last year.
On the full year 2020, we reported recovery revenues of $73 4 million or a decrease of 18% versus 2019.
As Lisa reminded us our recovery business was adversely impacted by the Covid pandemic during 2020.
Following the passage of the Coronavirus aid relief and economic Security Act also known as the Cares Act in March of 2020 day U S. Federal government suspended payments east accruing interest and stopped involuntary collection of payments such as wage garnishment for students along for student loans originated by the department of Education.
This policy was subsequently followed by our guarantee agency clients and other clients to varying degrees.
Of note the U S. Federal government collections stoppage has been extended through September of 2021.
While we were able to continue to recognize student unrelated revenue throughout 2020 due to our existing in process bar rehabilitation agreements, we have not process any material new loan rehabilitation or student loan related revenues.
Topics order went into effect.
As a result, as we look ahead to 2021, we anticipate on approximately 40% to 50% of our annual recovery revenue will be adversely impacted.
However, our long term overall diversification strategy will help offset these potential declines we've made traction in growing our diversified consumer and commercial debt service offerings, evidenced by student loans no longer representing the supermajority of recovery range.
Given our continued operations and expectations.
With growth in our health care markets as mentioned earlier, we expect those to drive an increasing majority on financial results and investment going forward.
Operating expenses in the fourth quarter of $36 3 million were $9 8 million lower than the prior year period. The decrease in costs were mostly due to our reduced head count our commitment to improving our productivity and thoughtfully engaging in expense restructuring.
With that I'd like to turn the call back over to Lisa before we open it up to your questions Lisa.
Lisa.
Thanks, Rohit pandemic change the world Forever changes happened to country economy.
Please people and companies.
If we reflect back on 2020 as much as we want to say Q, let's get twenty-twenty behind us.
We know that 2021 is it going back to pre pandemic normal forever changed if the world as we knew it.
One of those changes is how the public will perceive us as a company going forward based on the demonstrated gains that we've made in the health care industry. We have made the decision to focus our long term strategy on growing this business.
Have already successfully taking share from long term industry incumbents and proven the superior nature of our technology platform. Even if we are in a second or third position behind those incumbents.
And on industry that continues to undergo consolidation, we are well positioned as the leading independent health care payment integrity provider.
Long before the pandemic and the cares act on a recovery work with defaulted student loan borrowers has steadily been shrinking.
<unk> only accelerated this process.
Well, it's premature at this moment to share specifics, we are working on a multi part solution for our recovery business that we believe would result in our ability to continue driving our investment capital toward the health care markets and it's true.
On the desktop for all Cup for the company and all of our clients and our employees.
As we look ahead beyond an expectation of continuing to report positive EBITDA for the full here, we are not providing a more detailed outlook for 2021.
Spearheaded by the continued impacts from COVID-19, there's still too much uncertainty with respect to our recovery operations in order to provide a meaningful outlook.
We're confident about the long term prospects of performance and believe that we will continue to grow and scale our business in the coming years.
With that we'd like to open up the call for questions.
And at this time, we'll be conducting a question and answer session.
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One moment, please while we poll for questions.
Okay.
Yeah.
Yes.
Okay.
And it looks like there are no questions from the Q&A session and I will now turn the call over to management for closing remarks.
Thank you operator.
Thank you for being with US today on our earnings call. We want to again, thank our associates for their continued efforts we want to thank our shareholders for your continued support and of course, thank our clients for letting US continue to serve you and of course, our essential workers for all that you have done. Thank you again for being with us.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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