Q3 2023 Performant Financial Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the performance Financial Corp, third quarter 2023 earnings Conference call.
At this time all lines are in the study.
Alright.
Following the presentation, we will conduct a question and answer session.
This call is being recorded on Tuesday August eight.
For Q2 Q3.
I will now like to turn the conference over to John <unk> head of Investor Relations. 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 third quarter 2023 years old.
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 Brocade, where I'm trying dining chief financial officer.
Before we begin I'd like to remind you that some of the comments made on today's call, including our financial guidance.
Forward looking statements.
The 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.
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 to Sidney Inkle fin. Thank.
Thank you John and good afternoon, everyone and thank you for joining us for our earnings call.
During the third quarter of 2023, we continue to see our vision as a pure play health care organization come to fruition.
We are driven by a singular purpose and that is to transform the health care ecosystem by addressing over 300 billion.
Payment integrity waste.
Our mission is to partner with payers to develop innovative solutions that redirect these funds toward enhancing patient care and wellbeing.
This past quarter that translated into successful completion of another 12 commercial implementations, while contributing strong top and bottom line growth.
One 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 debt recovery business to a health care organization.
Taking care to share our corporate vision, which has attracted the best in the business.
Foster now includes experienced leaders from large national payers government programs health care providers and other health care focused technology organizations.
The galvanizing quality amongst this team has the desire to make a difference we are all personally witnessed this waste and we understand that by strategizing and reducing it we can significantly redirect these funds toward improving patient care.
Our team has forged strong partnerships as our mission resonates with the broader health care community in the third quarter, we had the pleasure of presenting alongside Priory health to highlight the value of performance partnership with C. Ecu H <unk>.
As a reminder, the partnership with <unk> H gifts performance access to extensive eligibility data, which supplemented with our proprietary data and services provides differentiated value and more material rois for our mutually supported clients.
Building on our client centric approach in the third quarter, we hosted performance second customer Advisory Board.
This board was established to connect key clients with peers to facilitate discussions on common pain points and create actionable solutions with <unk>.
Three day meeting was incredibly successful with increased engagement and feedback such as hearing about how pinpoints of other health plans gave participants momentum to move internal health plan initiatives forward.
We're proud of the partnership we have built with industry leaders and clients and much of that success hinges on a results driven team.
This approach has led to a strong sales pipeline in the third quarter. We completed 12 commercial implementations, bringing our 2023 total to date to 34 compared to 21 implementations and all of 2022.
This fee cannot be achieved without instituting significant operational rigor into our implementation process as 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 first three quarters, we have performed well.
The greater efficiency that we drive toward our pass through 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 in payment integrity waste lies within managed care organizations. Our success within these commercial markets continues to be evidenced by our strong cadence of implementation.
One of many effective strategies has been to target commercial clients in jurisdictions, where we already have our government presence. Our government presence has been our long standing backbone as we manage three of five CMS rack regions.
And human services <unk> 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 performance 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 longstanding federal government part.
It should be noted that the incumbent vendor has filed a protest and as a result, the New York State OFC will render a determination on the protest in the coming months, we have experience working through similar situations as earlier this year <unk> affirmed their decision to choose performance as their rack region to contractor.
After a protest from the incumbent vendor.
Similar to rack region too we will actively engage in the protest to validate New York State the schism that performance drives the best overall value for the state's Medicaid rack program. We are very excited about this win and the opportunity to prove ourselves in the state Medicaid market.
Looking at the macro landscape, we have two impactful trends to address <unk>.
<unk> is the end of the public health emergency as of May 11th of this year and the second is the continued uptick in normalization of health care utilization.
During the phe.
CMS restricted us from requesting claims with a COVID-19 or certain other related codes such as those with a respiratory designation.
And of this emergency now gives us the ability to select claim codes previously restricted by the phe that we believe contain a payment error.
There was a chance we'd get a look back at claims that were historically excluded during the phe itself. However that does not seem likely at this stage.
The normalization of health care services and cost is another macro tailwind as we've seen many for profit payers and providers report that health care 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, but the majority of our revenue is predicated on contingency fees of client savings that we identified as cost of services increase performance savings dollars in associated contingency fees should also increase Additionally, many of our audit.
<unk> support outpatient procedures neatly aligning us with these macro trends.
Turning to our results.
Care revenues in the third quarter 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. It was a drag.
And the overall eligibility growth rate our.
Our claims or at a base revenue was flat in the quarter. The government relationships were a drag on the performance due to the impacts from a phe.
There are two factors at play here first looking at the comparable prior year period, Although we were unable to audit more recent restricted claims we enjoyed the benefit of the three year look back. This means we were able to audit those restricted claims that had dates of service prior to the P. H E.
In the current year that three year look back funnel has become nonexistent, which drives a more difficult year over year comparison.
This is further exacerbated by the timing ramp by way of example for available claims that had a data service on May 12, we wouldn't be able to see and request those claims until July at the earliest and then go through the audit validation process before any revenue could be recognized.
We believe we will start to see this revenue normalized towards the end of the fourth quarter.
On a positive government note yes.
This was primarily driven by increase in head count and salaries to support the record number of implementation in 2023.
This is great for the long term growth trajectory.
Initially impact margins.
Our adjusted EBITDA for the quarter was positive $1 8 million or approximately $2 1 million ahead of the prior year.
This was slightly ahead of expectations as we saw the benefit of some of the eligibility revenue pulled forward.
Reflecting our continued scale we.
We anticipate the health care business to experience the typical seasonality as we continue to drive sequential revenue growth in 2023.
We maintained our strategy to grow margins through scale and efficiency gains.
An example of an operational efficiency initiatives, 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 two things.
First we have a better hit rate on the chart ultimately collected and reviewed and secondly, nurses and claim of viewers are able to expedite the review processes.
Additional claims each day.
We feel confident reiterating our guidance for 2023 healthcare revenues to be in the range of $105 million to $110 million full company revenue between $111 $75 million to $118 million and for the full year 2023, adjusted EBITDA to be in the range of 2 million to 5 million.
Which reflects our ongoing investment in growth initiatives alongside improved operational efficiencies.
Given where we are in the year, we do have stronger visibility into achieving the lower to mid point of the range, but 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.
If you had told me three years ago that our most significant challenge would be executing a new CMS rack region as well as our first state Medicaid win on top of our continued successful commercial growth plans I would have found it hard to believe.
Over the past three years, that's truly been remarkable to see our strategic wins and 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 would you please open up the lines for questions.
Thank you Sir.
Ladies and gentlemen, we will now be conducting a question and answer session.
If you would like to ask a question. Please press star and then one on your Davidson keypad.
Yeah.
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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the stocking.
Our first question is from George Sutton of Craig.
Please go ahead.
Thank you guys nice to see the results. So I wondered if we could have a broader Medicaid.
State RFP discussion, we've obviously seen two awarded we've got one coming next month in Texas can we talked about.
How other states look and this is obviously a trend that has begun and its 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.
Hey, George Simeon.
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 theres been some pressure from CMS and HHS and OMB that.
But that needs to happen theres been some waivers.
Been expiring and Theres been some oversight that suggests that.
The states can do a better job with their with their rack based initiatives and so we're excited about that we think that obviously parallel as well with our efforts into this space and with the recent win our teams are trying to understand timing, it's just a little bit hard to predict as you stated there's one currently.
about how other states look and 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.
Out there right now for an RFP that were participating 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.
Hey, George look, it's it's a bit hard to determine. We, I think to your point.
Well New York State was awarded in three parts you won one of those parts and the protests are participant one the other two pieces is if I believe correctly.
We have certainly seen some positive momentum in terms of the states recognizing that they really need to focus. And I think that's a really important point.
on their cost containment initiatives. I think there's been some pressure from.
CMS and HHS and OMB that that needs to happen. There's been some waivers that have been expiring, and there's been some oversight that suggests that.
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 Florida.
the states could do a better job with their rack-based initiatives. And so we're excited about that. We think that obviously parallels well with our efforts into the space and with the recent win. Our 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 participating 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.
Correct correct on both fronts.
The protest only relates to the rack award that performance one.
And performance did not pursue any other protest with the procurements broadly.
So one other question on the rack region too.
Now, New York State was awarded in three parts, you won one of those parts, and the protest participants won the other two pieces, I believe correctly. Do they put the entirety of that award back up on the shelf or 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.
As you are.
You've gone through the process of implementation there.
As you go out into those states that are from a commercial perspective, where are 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.
Yeah 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 with CMS as we think about the spend and what CMS controls of that $4. Three trillion dollar spend in the third of it runs through CMS either through the fee for service programs or <unk>.
Correct. 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.
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 rack region one.
So, one other question on the RAC Region 2, as 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?
We'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 were closely aligned we have significant investment in that jurisdiction and understanding provider behaviors et cetera.
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 aligned with Medicaid agencies, and so we anticipate that we will see.
As we think about the spend and what CMS controls of that $4.3 trillion 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
Similar value and they'll recognize similar value if you will in our expanding Medicaid experience and especially those plants located in New York. So 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.
with CMS and now HHS and obviously now the state, it really resonates with the commercial plans. So we have seen great success in our original award of RAC Region 1. We'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 for closely aligned. We have significant investment in that jurisdiction and understanding provider behaviors, etc.
Going to prove to help us as we continue to pursue Medicaid managed care plans.
Great. Thanks, guys.
Sure.
Thank you very much.
That's where the accretions from the queue at this time I would like to turn to pull back to the CMS C codes with some closing remarks.
So, similar to how Medicare Advantage plans recognize performance, you know, 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. 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. 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 care plans.
Thank you operator in closing look I'd, just like to express my gratitude to all of you Q3 was an exceptional quarter for performance.
And it wouldn't have been possible without the unwavering dedication to our vision, our corporate values by our incredible employees and frankly, our trust of our valued shareholders. The sport has been instrumental in enabling performing to execute our pure play healthcare strategy and to maintain our focus on long term success. So thank you all once again.
<unk>.
Thank you very much.
Ladies and gentlemen, this concludes today's teleconference.
You may disconnect your lines at this time thank you.
Great, thanks guys.
Sure.
Sure.
Thank you very much.
So we have no further questions in the queue at this time and I would like to turn the floor back to the CEO Mr Sian Kong for some closing remarks.
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Thank you, operator. In closing, look, I just like to express my gratitude to all of you. Q3 was an exceptional quarter for performance, and it wouldn't have been possible without the unwavering dedication to our vision, our corporate values by our credible employees, and frankly, our trust of our valued shareholders. The sport has been instrumental in enabling performance to execute our pure play healthcare strategy and to maintain our focus on long-term success. So thank you all once again.
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Thank you very much. Ladies and gentlemen, this concludes today's chat conference.
You may disconnect your lines at this time. Thank you for your participation.
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