Q1 2022 Performant Financial Corp Earnings Call
Good day and welcome to the performing financial Corp, first quarter 2022 earnings Conference call all participants will be in a listen only mode.
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After todays presentation, there will be an opportunity to ask questions to join the question queue Press Star then one on a touchtone phone to remove yourself from the queue Press Star then two. Please also note. This event is being recorded and I would now like to turn the conference over to Richard. Please go ahead.
Thank you operator, good afternoon, everyone by now you should have received a copy of the earnings release for the company's first quarter 'twenty 'twenty. Two 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, Simeon Cole, President and Rohit or I'm trying to any senior 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, 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 gap.
GAAP measures in the table 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. Our results in the first quarter are indicative of the potential that our health care business can achieve and it should be noted that these solid results were despite some remaining COVID-19 limitations. We've previously discussed.
In addition to our strong results from the first quarter. We wanted to highlight award of the H H S. O Y G idea to contract as well as the C. M S, reaching two recovery audit contract.
Both awards are statements when get reinforced our differentiated approach that's a nice performance at the leading provider of health care payment integrity services.
As always I want to acknowledge our hard working team members, who have made the transformation to a pure play health care organization a reality.
And for your continued hard work and dedication.
With that I'll turn things over to Indian coal to discuss first quarter and other initiatives in greater detail.
Got it.
Thanks Lisa.
Good afternoon, everyone and.
In the first quarter of 2022, we reported our strongest ever first quarter for health care revenues driven by the continued growth from our fully implemented statements of work as well as contributions from some of the 33 program implementations, we've announced over the past five quarters.
Overall, we reported healthcare revenue of $23 4 million, an increase of over 75% when compared to the same period last year.
We are excited about our continued strong results and how we're tracking against both our near and long term growth strategies, but.
But we cannot fully predict the future of Covid we.
We're currently optimistic that the headwinds and related audit restrictions will continue to abate alongside the sustained rebound in core utilization rates.
As Lisa mentioned I would like to highlight two contract awards from the first quarter.
The first is the H H S. A y G. IV IQ contract for medical review and consulting services, which given the timing of this award we discussed on our last earnings call. The second is the eight and a half year award for region two of the Medicare recovery audit program.
Region to encompasses 14 states in our central and South Central part of the country to include Texas and Illinois.
It should be noted however that the incumbent vendor filed a protest and as a result.
The award is currently under review by CMS. So before we can take any further action we need to let the review process play out.
Once everything is resolved, we expect to gain a better understanding of Cms's implementation timing.
Cadence to ramp audit volume.
This information will help us to better project revenue and EBIT potential for 'twenty 'twenty three in the years to follow.
As part of implementing a new region, we must establish joint operating agreements and data share connections, where the number of Medicare systems and contractors.
In parallel we will need to conduct extensive provider outreach to inform providers about the change new procedures audit topics timelines.
These activities are additive to more traditional efforts, we engage while implementing any new customer or statement of work.
As we contemplate these tasks and depending on the outcome of Cms's review, we currently hope to get the contract operationalized in 2022 with revenues commencing in 2023.
We know folks are eager for more details and I hope. This information provides some helpful context about the process and anticipated next steps.
We are honored and encouraged by this additional rack contract award.
Not only do we believe this further validates our differentiated capabilities.
It also increases our expertise and the growing Medicare market and significantly expands our view of the U S provider and supplier landscape.
Taken together, we believe this further establishes performance as a leading provider of payment integrity services.
Our highly innovative technology platform is attractive to both new and existing health plans.
As demonstrated by our expanding sales and implementation pipelines.
We do anticipate that the new rack award, we will increase our necessary hiring targets and <unk>.
<unk> for the remainder of 2022 weeks.
We've continued to retool, our recruiting strategies, particularly as it relates to skilled nurses and coders, who are key for these types of contract implementations.
That being said, we acknowledge that we will need to hire at a faster pace. We remain focused on adapting to what continues to be a challenging hiring market. The one we currently believe will ease as the year progresses.
Overall, we are excited by our record results and growth within all lines of our health care business and our significant momentum in both our sales and implementation pipelines.
Combined with our ongoing platform innovation and expanded product offerings, we remain focused on executing our growth strategy, while continuing to pursue the finest talent in the industry.
With that I'll hand, it over to Rohit, Russia, Dani, our senior Vice President of finance and strategy for a discussion of the financials rohit.
Thanks, Tim as Tim mentioned, the first quarter of 2022 was a strong quarter for performance. We reported total revenues of $27 1 million, which included health care revenues of $23 4 million, our largest first quarter of health care revenues in our history.
We are also excited to note that trailing 12 months healthcare revenues are currently north of $85 million as well.
Our total customer care outsourced services revenues were $3 6 million for the quarter, which was flat when compared to the first quarter of last year consistent with our expectations.
The primary service that we offer within our customer care market continues to be impacted by the federal student loan payment Pos which was set to expire April 30th 2022 but has since been extended to August 31 of 2022. This marks the sixth time to date. This has been pushed back by the federal government.
As we mentioned on our last call. Although we did not expect to report recovery based revenues in 'twenty to 'twenty. Two we acknowledged that there could be some de minimis spillover into the first quarter. Accordingly total non health plan revenue recovery revenue in the first quarter of 2022 with 0.1 billion. We continued progress through 2022.
This number to eventually go to zero.
Adjusted EBITDA in the first quarter was zero point $3 million compared to a lawsuit Euro point 2 million in the prior year period.
We would expect them to have lower EBITDA in Q1 due to the seasonality impacts as well as the continued investment in our growth initiatives.
With our strong revenue performance in tandem with the hiring challenges we continue to face EBITA for the quarter. It was actually ahead of management expectations.
As we look to the rest of the year, we anticipate that our operating expenses will increase in connection with catching up on hiring and continued new contract implementations.
Within health care revenues claims space also known as claims auditing revenues in the first quarter of 2022 were $9 $2 million, an increase of over 70% of the $5 4 million in the first quarter of 2021, representing growth both from new implementations as well as volume increases from earlier depressed levels.
We maintain our expectation to continue seeing healthy growth trend for the claims based revenues into the rest of 2022 based on the opportunities available to us.
Revenue from our eligibility services for the first quarter, 'twenty, 'twenty, two or $14 $2 million, representing roughly an 80% increase from the $7 9 million in the first quarter of 2021, we.
We anticipate continued growth in our eligibility services in 2022 as well.
Deflated.
Based on our CMS eligibility work being closer to a mature state and the opportunities in front of us.
While we currently anticipate balanced growth trends in all our health care product offerings over a multi year spend we do recognize that each year may look different.
Coming off the five implementations announced in the prior quarter. We had another five in the first quarter of 2020 to a nice start as we look to build upon our implementations from 2021 and prior.
Well then expenses operating expenses in the first quarter were $28 6 million, which was $5 9 million more compared to Q1 of last year, primarily driven by decreases in operating expenses related to the steepening of activity, even in a recovery market and offset by continued investment into our health care market. Specifically the addition of <unk>.
Human capital, which we expect to increase our expense and capital levels.
Last quarter, I mentioned that we expected cash usage in 2022 to be in the range of $4 million to $8 million, which would leave us ample flexibility between cash on the balance sheet and revolver availability to pursue additional product development and where larger our organic opportunities.
Given the award of rack, reaching two in tandem with some product development opportunities ahead of US we anticipate that our cash usage may range higher and we will look to amend this range as needed after the contact contract sorry protest has been resolved.
Even beyond this potential increase spend we expect to retain flexibility between cash on the balance sheet and our revolver for further organic opportunities that may present themselves.
Given our achievements in the first quarter and known opportunities ahead of US. We believe we can execute upon we are quite pleased with how we are tracking towards both our current and your expectation and more importantly, our long term goals, we remain optimistic about improving trends in core utilization and the return to normal from Covid, but do it in all of that said some of the law.
M seals are remaining cautious and expectations for utilization rates, driven by Covid uncertainty and uncertainty in the macro fears of an ever connected world.
That being said we are pleased to amend our views on health care revenue and believe that we can achieve $92 million to $96 million in health care market revenues for 2022 with customer care market revenues being flat to slightly down.
We do currently find it prudent to leave our EBITA guidance intact at $2 million to $4 million for 2022 until we can gain further clarity on the timing and ramp speed up the rack, reaching two contract to provide a more informed update.
We're very encouraged by our Q1 2022 results and continued growth out of US we've learned from our past experience that our greatest success will be continuing to stem from our main food chain from remaining focused on the long term goals and we are committed to scaling our operations and working through our implementation funnel false bolstering additional growth opportunities via development and sales efforts.
By all accounts. This was a strong start to the year. Our long term strategy remains intact and we are very excited about the future.
Operator would you please open up the lines for questions.
Yeah.
We will now begin the question and answer session.
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We will pause momentarily to assemble our roster.
And the first question comes from Tayo Bowser with Lake Street Capital markets. Please go ahead.
Great. Thank you good evening, everyone. Thanks for all the updates and congratulations on another great quarter.
Maybe I'll start with the guidance so I'm glad to see you bump up the health care guidance.
Can you talk a little bit about.
You know cadence throughout the year.
I know, you've obviously provided full year, but what was Q1, a particularly strong quarter.
We see some strength from the recently implemented new projects.
Are we anticipating any contracts to expire throughout this year and I'm just trying to understand if Q1 was kind of an outsized quarter and things might be.
Kicked out and then back up just trying to understand the cadence. Thank you.
Yeah. Kyle this is really a good question I do think that we as we mentioned we were pleased with our results in Q1 I think.
<unk> seen some bump from from the increase in utilization rates kind of late Q3 early Q4 of last year.
And just seeing some good execution in terms of the cadence for the rest of the year.
I think we still see it the same way we spoke about last quarter, where you will see a lot of the sequential growth in the back half of the year.
With the first half kind of representing smaller amounts so I think youre, describing it well in terms of what you're expecting.
Okay got it and then.
You know to the extent you can share if you're comfortable sharing.
Should we anticipate any.
Are your contracts to expire this year to kind of offset the acceleration of these new contracts that are ramping.
I do not believe we have any any larger contracts expiring. This year I would remind the way our health care contracts some work, particularly on the commercial side.
They're generally on an auto or or sort of recurring renewals.
And don't have committed claims volumes so contract expiry is not necessarily something we manage to.
Okay got it and maybe to that point. So in terms of like volume limits, maybe we can switch over to that <unk> contract.
Maybe this is a question for Stan.
Would love to hear any sort of thoughts on how that's progressing.
The types of interactions you've had or their volume limit.
Types of projects just kind of.
Yeah, I love, a little bit more color around that.
Sure.
Yeah. So it's still a little too early Kyle for us to give too much insight in terms of particulars, although I will tell you.
But the concept of limits with EOG contract is different and as we think about a traditional contingency audit contract.
<unk> really has the the purview of of all of the programs for CMS and so theyre looking at it from a bit of a different lens and as we reminded folks last time. This is a fixed fee for all our services and so we will essentially support the agency.
I'm, sorry, HHS, AIG, where where they see fit in terms of some of their key.
Key areas of priority. So we are in the midst of our operational logging the contract and our efforts are well underway.
So as I think we talked about it in the last quarter.
We see this as an opportunity to operationalize the contract in 'twenty two possibly some late revenue in Q4, but really see it as a 'twenty 'twenty three revenue event.
Got it and then just lastly, if I may.
And I know you can't talk too much about a region to an appeal process going on but I'm just kind of curious.
What this appeal process typically looks like I know every case is different.
But yeah, sorry, if I missed this but what's what's kind of the timing look like on these types of things.
Yeah, no and it's it's a it's really hard to perfectly handicap that but I think to give you. Some context right Cms's decision to review. The award is one of a number of scenarios following a protest very customary.
Don't have any additional color at this point in terms of that review, but we are confident with all aspects of our proposal.
It's the same differentiators and value seem that allowed us to secure the region. One compete last year remain unchanged and it look it's worth noting that we competed against many of the same vendors for that region. One contract that we competed here for for region too.
So CMS is going through its review I'm sure, we'll get line of sight to call. It. The next 30 days or so.
But it's just it's hard call to kind of handicap the ultimate timing.
But I know, it's an important contract for the agency and I'm sure. The current resources are going to work.
Expedited manner to try to get the award finalized.
Got it makes sense.
Great well I'll jump back in queue, Congrats again on the great quarter.
Thanks Kyle.
Yeah.
The next question comes from George Sutton with Craig Hallum. Please go ahead.
Thank you and nice results. So I wondered if we could talk about your pipeline relative to when you. When you get these very high profile wins with the HHS.
And then the rack announcements what happens to your pipeline at that point, you've got some activity and does that move things forward does that give increased encouragement to the folks you're talking two does it accelerate more things in your pipeline just wanted to get a better sense.
Yeah. Good question. So look I think any of these larger opportunities with with CMS HHS. They they always are pretty visible and.
It's something that the commercial clients watch pretty closely as I mentioned in my prepared remarks, giving us a broader landscape with these contracts, where we have greater visibility into providers and how they operate same thing with suppliers et cetera. So those are all benefits that we pick up and can create value for our commercial clients. So.
I think to your point there any any of these contracts that do expand that visibility and broaden our capabilities are I think value contributions that extend quite well into the commercial space. So.
It's definitely something that the sales teams.
Leverage and being able to tell the story and I think it certainly helps us with our with our pipeline and shifts.
Relative to the commercial space you, probably you saw anthem lost a large hospital in Maine.
Basically do an in house payment integrity.
Themselves can.
Can you talk about what that kind of a wash might mean for other commercial opportunities and.
Looking at this landscape.
Are you talking about.
I'm trying to bring the Pi services in house.
George Obviously, one thing a commercial player can do is have their own internal Ah yeah, and our belief is that you're winning these large deals that are very well documented very well researched and it makes a lot of sense for those to get turned over to you when you start to see.
It's a market where theyre, losing that's that seems to be an opportunity for you.
Yeah right. So if you think about what conducting a pie organization how to me that.
It's not a simple process, there's a lot of moving parts.
We see some of the health plans tackle some components of it maybe some of the deterministic components got data mining, we referred to it but running a comprehensive program integrity departments and having all of the resources and the skill sets and the scale that's required to support P. I N O. It's it's a difficult task.
That's what performance, obviously has been able to differentiate ourselves with our technology, our unique technology approach, an incredible deep bench of subject matter experts that come from.
Certainly different aspects of both payers and kind of the technology.
And so I think to some degree you'll still see payers tackle some components of it but when you think about prompt payment laws. Just as one example of the need to be able to get these reviews done in a timely manner make sure that you do it without provider abrasion.
It's a difficult task and I think that's what really gives performance and opportunity to provide these services across the whole multitude of payment plans health care plans from some of the smaller ones to the mid tiers to the large national plans in and certainly the things that we're doing with CMS summit on an absolute national scale.
Well, that's great as I look at my University of companies I don't see many that are likely to get better as the year goes on so.
Good luck.
We appreciate it.
We have no further questions. So this concludes our question and answer session I'll turn the conference back over to management for any closing remarks.
Thank you operator.
Once again, we want to thank our shareholders for their support.
Well I think our clients for letting us serve them. This past quarter, we're very excited about our growth and of course, our team members that perform at who bring their best to US every day and we want to thank you for the time they've spent with US this afternoon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.