Performant Financial Corporation (NASDAQ:PFMT) is a leading provider of technology-enabled payment integrity services to the healthcare industry. The company supports payers in identifying, preventing, and recovering waste and improper payments by leveraging advanced analytics, proprietary data assets, and innovative technology solutions.
Business Overview
Performant's core business revolves around two primary service offerings: eligibility-based services, also known as coordination-of-benefits (COB), and claims-based services, which include the audit and identification of improperly paid claims. The company works with leading national and regional healthcare payers, serving both government and commercial markets.In the eligibility-based services segment, Performant leverages its data assets and matching technologies to identify situations where a client's member has other forms of insurance coverage, allowing the client to recover payments from the appropriate primary payer. The claims-based services segment focuses on auditing and identifying improper payments within healthcare claims, enabling clients to recover overpayments.
Performant's revenue model is primarily success-based, as the company earns contingency fees based on the aggregate amount of funds it enables its clients to recover. This aligns the company's objectives with those of its clients, as Performant only generates revenue when it successfully identifies and recovers improper payments.
Financial Performance
For the full year 2023, Performant reported annual revenue of $113.7 million, a net loss of $7.5 million, annual operating cash flow of $3.9 million, and annual free cash flow of -$0.3 million. The company's revenue was primarily driven by its healthcare segment, which accounted for $103.6 million, or 91% of total revenue.In the first quarter of 2024, Performant reported total revenue of $27.3 million, a 6% increase compared to the same period in the prior year. Healthcare revenue, which includes both eligibility-based and claims-based services, grew 13% year-over-year to $25.8 million. The company's customer care and outsourced services segment generated $1.5 million in revenue, a 46% decrease from the prior-year period.
Within the healthcare segment, the eligibility-based services business grew 7% year-over-year to $13.4 million, driven by strong performance from commercial clients and the continued success of the company's Medicare Secondary Payer (MSP) premium solution. The claims-based services business, which includes the company's Medicare Recovery Audit Contractor (RAC) contracts, increased 19% to $12.4 million.
Performant's adjusted EBITDA for the first quarter of 2024 was -$1.2 million, an improvement of $0.5 million compared to the same period in the prior year. The company's focus on operational efficiency and technology investments, such as the acquisition of RecordsOne's natural language processing capabilities, are expected to drive margin expansion going forward.
Guidance and Outlook
For the full year 2024, Performant is guiding for healthcare revenue to be in the range of $117 million to $122 million and total company revenue to be between $124 million and $129 million. The company also expects to generate adjusted EBITDA of $4 million to $5 million for the full year.Performant's management team is confident in the company's ability to continue executing on its growth strategy, driven by its focus on client-centric solutions and technology-enabled innovations. The company's strong implementation momentum, with 10 new statements of work signed with existing clients in the first quarter, is expected to contribute to the company's revenue growth throughout 2024.
Risks and Challenges
While Performant has demonstrated solid growth in its healthcare business, the company faces several risks and challenges that investors should consider. These include the potential for client contract terminations or non-renewals, changes in regulatory environments that could impact the company's service offerings, and the ability to effectively integrate and leverage new technologies, such as the recently acquired RecordsOne assets.Additionally, Performant's reliance on a limited number of large clients, particularly in the government sector, exposes the company to concentration risk. The loss of a significant client or changes to the terms of these client relationships could have a material adverse effect on Performant's financial performance.