Performant Financial Corporation Q2 Revenue Down 28%; Expects ED Announcement in September

Performant Financial Corporation (PFMT), one of the Department of Education’s Private Collection Agencies, yesterday announced financial results for its second quarter ended June 30, 2015. The company also hosted a conference call to discuss the results.

Second Quarter Financial Highlights

• Total revenues of $41.3 million, compared to $57.4 million in the prior year period, down 28%
• Adjusted EBITDA of $8.4 million, compared to $16.7 million in the prior year period
• Adjusted net income of $2.3 million, or $0.05 per diluted share, compared to $7.2 million and $0.14 per diluted share, respectively, in the prior year period

• Student lending revenue in Q2 was $31 million. Revenue attributed to the guaranty agencies was $20.5 million (vs. $20.5 million in Q2 of 2014) or roughly 48% of the total revenue for the company. Q2 revenue attributed to the ED contract was $10.5 million (vs. $14.6 million in Q2 of 2014) or roughly 25% of the total revenue for the company.
• Student loan placement volumes during the quarter totaled $1.7 billion, which was down $200 million from the prior year. Note: Placement volumes were not broken down between guaranty agencies and ED.

The earnings report and press release provides the raw numbers.  The investor’s conference call provides additional color. As noted in our May 8, 2015 article on Q1 results, Performant’s earnings reports and investor’s conference call provides the ARM industry with a detailed view of the company’s experience with the Department of Education contract.

Highlights from the Conference Call

Lisa Im, Performant’s Chief Executive Officer offered the following:

1)      The company has not received a new placement from the Department of Education (ED) since the end of April, 2015. But, the last placement was larger than “normal.”

2)      ED conducts compliance audits on their vendors.  Comparative data provided by ED shows that, from a compliance perspective, the company was in the “best of 3 grouping.”

3)      The company has recently received a closing letter from the Consumer Financial Protection Bureau (CFPB) advising the company that they were closing their investigation of the company (an investigation that began with an April, 2013 Civil Investigative Demand (CID). The CFPB determined that no Enforcement Actions were necessary and the CID was closed.

4)      The company believes it likely that the ED RFP award will be announced by the end of September, 2015.

5)      The company feels strongly that “compliance” will be a significant factor in the ultimate ED vendor selection process and that the company is well positioned for contract selection from a compliance perspective.

6)      Once the ED contract selections are announced placements are likely to start more quickly than in the prior contract award as the company already has and maintains its Authorization to Operate (ATO) for the ED contract.

A replay of the conference call will be available through August 12, 2015, accessible by dialing 877-870-5176 (domestic), or 858-384-5517 (international). The passcode for the replay is 13614535. The replay of the conference call is also available on the Investor Relations section of the Company’s website at: investors.performantcorp.com

insideARM Perspective

Performant’s quarterly earnings report and conference call is always interesting to the ARM industry. As the only public company in the space, they provide the only “peak under the covers” to the business of collecting guaranteed student loans and the Department of Education.

Management’s insights into the ED RFP are particularly relevant as Performant is a long-time ED contractor and they provide the only public commentary on the status of the ED RFP. We have talked to other ED contractors over the past several weeks and are unable to obtain any public comment on the status of the RFP.  insideARM suspects that other agencies in the “hunt” for the ED contract would love to believe that Performant management is correct and the RFP decision will, in fact, be announced by the end of September.