Title

Presentation

Performant Healthcare, Inc. beats earnings expectations. Reported EPS is $0.02, expectations were $-0.02.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Performant Healthcare, Inc. First Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, May 8, 2025. I would now like to turn the conference over to Jon Bozzuto, Head of Investor Relations. Please go ahead, sir.

Jon Bozzuto: Thank you, operator. Good afternoon, everyone. By now, you should have received a copy of the earnings release for the company’s first quarter 2025 results. If you have not, a copy is available on the Investor Relations portion of our website. Joining me on today’s call are Simeon Kohl, Chief Executive Officer, and Rohit Ramchandani, Chief Financial Officer. Before we begin, I would 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.

Please note Page three of our earnings release, which covers forward-looking statements. Rather than reading that section aloud, we incorporate it by reference into our prepared remarks. 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 Simeon Kohl. Simeon?

Simeon Kohl: Thank you, Jon. Good afternoon, everyone, and thank you for joining us for our first quarter 2025 earnings call. Earlier this afternoon, we reported outstanding first quarter results, which reflect 29% healthcare revenue growth compared to the same quarter of 2024, and a positive adjusted EBITDA of over $3 million, a significant improvement compared to an adjusted EBITDA loss of $1.2 million in the same quarter last year. Driven by strong revenue growth across both government and commercial clients along with a disciplined focus on cost management, these results underscore the company’s unwavering commitment to driving growth and delivering value to our shareholders. This strong performance gives us increased confidence to adjust our full-year guidance, which Rohit will discuss in more detail later in this call.

I will begin by sharing our operational progress, followed by Rohit, who will walk you through our financial results and updated guidance. Our business and the broader healthcare industry are at a critical inflection point. The demand for healthcare payment integrity services, particularly those aimed at addressing fraud, waste, and abuse, has never been more urgent. This imperative has become a central focus in national discussions surrounding healthcare cost containment and the long-term sustainability of the US healthcare system. Our strategy is clearly resonating. By advancing our technology and prioritizing client-centric partnerships, we have deepened relationships and further established ourselves as a trusted partner, especially as payers face rising costs and growing complexities across the healthcare system.

In addition to our strong financial performance in the first quarter, we continue to prioritize strategic investments aimed at winning new business and driving sustainable, profitable, long-term growth. During the quarter, we implemented 13 commercial programs, a record number of implementations in a single quarter for us. This reflects a strong blend of expansion within existing clients and new client wins, along with the operational improvements we have implemented to streamline and accelerate our implementation process. At steady state, these implementations are expected to contribute $4.5 to $5 million in annualized revenue.

Simeon Kohl: We are encouraged to see early signs that our sales and implementation cycles are normalizing after the industry-wide disruptions experienced in 2024. The commercial market remains Performant’s largest opportunity, particularly as commercial payers continue to face a challenging landscape marked by rising patient acuity and increased utilization. In this environment, our technology-driven and client-centric approach resonates well, as evidenced by the continued expansion of our commercial pipeline. Looking ahead, we commenced the New York State Medicaid RAC implementation early in the second quarter. While still in the early stages, this implementation is progressing nicely, and we continue to anticipate double-digit annualized revenue at steady state.

As we have noted previously, we are excited to demonstrate our capabilities in the state Medicaid market, which we believe has a strong appetite for new partners who can help drive meaningful savings. Continuing with our government business, I would like to provide an update on the recent CMS RAC RFP for regions three through five. As a reminder, Performant remains committed to a growth strategy that is both sustainable and profitable. While Performant was not selected in this particular procurement, two of the three regions represented net new opportunities, and the one region we previously held, region five, primarily involved low-dollar DME, home health, and hospice claims, which have historically generated lower margins. Finally, as a reminder, the wind down of RAC Region 5 revenues was already contemplated in our beginning-of-year guidance.

This shift allows us to redeploy resources toward higher-value opportunities within our expanding and more profitable commercial business, where we continue to see significant demand and compelling margins. Our federal government business continues to be a cornerstone of our strategic focus. We maintain a strong presence in this space, anchored by long-standing relationships with CMS and HHS. This includes our work across two RAC regions, where we deliver audit services in 25 states, our nationwide Medicare secondary payer contract, through which we provide comprehensive eligibility and recovery services, and our national contract with the HHS Office of Inspector General. CMS remains the gold standard in policy, compliance, and payment integrity, and we are proud to be a trusted partner in supporting and advancing those priorities.

As we consider the evolving actions and policies of the current administration, Performant is fortunate that our mission to reduce fraud, waste, and abuse within healthcare aligns closely with the administration’s focus. We are beginning to see signs, including a rebound in government revenue, that rhetoric is translating into action, an encouraging signal for the future. To conclude on the political front, I want to emphasize that Performant’s core offerings remain effective and relevant across all economic cycles. We deliver immediate and easily measurable ROI for our clients. Accordingly, we believe our services should be viewed as a staple, particularly during periods of economic pressure when cost savings and operational efficiencies become even more critical.

As an organization, we remain focused on controlling what we can, beginning with actively listening to our clients and continuously improving the solutions we offer. A key aspect of our client-centric culture is our ability to collaborate closely with partners, adapting and evolving our offerings based on their needs and feedback. Take eligibility, for example, the newer of our two lines of business, which contributed 48% of revenue this quarter and grew 20% year over year. Since signing our first eligibility client in 2017, we have rapidly built the data assets and capabilities needed to compete effectively in the space, but our objective goes beyond competing. We aim to lead by delivering the highest quality results in the market. This commitment has driven us to implement rigorous checks and balances that ensure unmatched accuracy and reliability.

As a result, we have successfully displaced long-standing legacy vendors and significantly expanded our footprint among commercial clients. More recently, we have leaned into data enrichment, working with clients to improve the completeness and accuracy of their data. This not only drives better outcomes but also enables us to flag eligibility issues earlier in the payment cycle, which reduces administrative burden and improves efficiency for our clients. Our ongoing investments in innovation are driving progress across both of our core businesses and continue to distinguish Performant as a leader in the healthcare payment integrity space. Our strong first-quarter results and the upward revision to our guidance reflect the success of our growth strategy.

We have meticulously invested in strategic initiatives that we believe position us for success, and it is gratifying to see those investments materialize. This strategy has driven a record backlog of commercial programs and marked a major milestone with our first state Medicaid contract in New York. We are achieving strategic wins across every segment of our business while maintaining a clear focus on improving near-term profitability and advancing toward our long-term margin objectives. In closing, I want to extend my heartfelt gratitude to our team for their unwavering dedication. Their efforts have delivered meaningful savings and valuable insights for our clients, proving that we are on the right path. With that, I will hand it over to Rohit Ramchandani, our Chief Financial Officer, for a discussion of the financials.

Rohit Ramchandani: Thanks, Simeon. We are happy to report a strong quarter of results and a promising start to the year. The implementation wins we have discussed over the past several years are translating to tangible results. In the first quarter of 2025, total company revenues were $33.3 million, delivering impressive year-over-year growth of 22%. As a reminder, we no longer see the need to break out healthcare as a separate revenue stream. The growth and focus of our organization is healthcare payment integrity, and the legacy customer care runoff results were immaterial in the quarter. If you were to exclude the $1.5 million of customer care revenue from the same prior year quarter, revenue grew almost 30%. Our claims-based business, also known as claims auditing, led the way with revenues of $17.1 million in the quarter, showing 38% year-over-year growth.

In the commercial audit space, we successfully won new business, implemented that business, and scaled that business, translating to real savings and results for our clients. As Simeon mentioned, our technology-focused and client-centric approach resonates deeply with our commercial clients, and we are well-positioned to continue to deliver strong results for this cohort. The CMS RAC regions have also shown volume rebound in the quarter, providing initial validation of our expectation of a reversal of some of the volume headwinds we saw last year. We remain optimistic that CMS is properly prioritizing the RAC program considering the administration’s overarching initiatives to reduce fraud, waste, and abuse. Moving to eligibility, revenue for the quarter was $16.1 million, representing an increase of roughly 20% in comparison to last year.

Commercial clients contributed significantly in the quarter, as we effectively operationalized key partnerships. We also stopped some of the eligibility likeness from 2024 manifest into our early 2025 results. Our CMS MSP contract continues to perform as expected as well. We are excited to see our commercial diversification and growth strategy pay off as we see overall growth in eligibility revenues. Our commercial opportunity remains significant, and as Simeon mentioned, we have built a highly differentiated eligibility solution to be best in class, and we continue to grow into the market opportunity. Thinking about overall commercial limitations, in the first quarter, we implemented 13 commercial programs, which are expected to deliver $4.5 to $5 million in annualized revenue at steady state.

We got off to a great start as many of our commercial clients are returning to more normalized implementation patterns following the election year’s uncertainty and the change healthcare disruption. In the second quarter, our implementations team will be largely focused on implementing the New York State RAC contract. As a result, we do expect to see a temporary dip in commercial implementations. However, our full-year commercial expectations remain unchanged as we aim to meet or exceed the approximate $18 million of additional annualized steady state revenue from new implementations that we set in 2024. We are simply reallocating resources to ensure the successful implementation of this important state contract. Our pipeline remains robust, consisting of both land and expand with existing clients and net new client opportunities.

We continue to invest in winning new business and scaling our implementation processes. Briefly shifting our focus to the broader tariff situation, I would like to highlight that Performant is well insulated from tariff pressures. Our revenue is 100% domestic, and our general expense structure does not rely on foreign goods or services. And specific to our federal contracts, the cost structure is 100% domestic as is contractually required. As a result, we do not expect a material impact on our business. Moving on, operating expenses were about $33 million in the quarter, or roughly $2 million ahead when compared to the year-ago period. This increase was primarily driven by additional spending to operationalize and scale newer implementations as well as technology investments related to project Turing.

Of note, we spent less than we anticipated on the New York RAC implementation in the quarter, but I want to reiterate that this implementation remains on track and is currently estimated to hit initial revenues in early 2026, if not sooner. Project Turing remains a key focus in our longer-term margin improvement strategy. We are pursuing a multi-pronged effort that balances our near-term value and efficiency with long-term innovation. By integrating cutting-edge artificial intelligence and natural language processing technologies, we are excited to streamline our processes and set new standards for efficiency and accuracy. This becomes even more impactful in light of the record implementation and backlog ahead of us. We are very pleased to report positive adjusted EBITDA of $3.3 million in the first quarter in comparison to an adjusted EBITDA loss of $1.2 million in the first quarter of 2024.

Strong revenue growth along with continued efficiency gains were the main drivers of adjusted EBITDA outperformance, along with revenue growth for our aforementioned eligibility revenue expectations from 2024 that showed in Q1. Contributing to a higher margin profile in the mix. As I mentioned previously, we have entered a new phase in our business evolution where we currently anticipate each quarter to be EBITDA positive moving forward and achieve free cash flow generation. We were pleased to show a positive $1.4 million of cash flow in the quarter versus a negative $3.6 million in the comparable prior year quarter. These results, combined with our positive outlook, strengthen our expectation of achieving positive free cash flow as we look to the end of this year and into 2026.

We have been diligent about appropriately investing in our future while remaining mindful of our capital structure and adjusted EBITDA goals. We are pleased with how our business has progressed from an incremental expense perspective as we continue to balance revenue growth while driving higher margins. The hard work and sacrifice made by the Performant team have been incredible over the past two years, and I look forward to continuing to grow along this journey. Given the strong performance in the quarter, we are increasing both our full-year 2025 revenue and adjusted EBITDA guidance. The favorable first-quarter results, coupled with signs of the improving sales cycle and successful scaling of prior implementations, give us confidence to do so.

Accordingly, we are raising the bottom end of our revenue guidance to $133 million, bringing our full-year revenue guidance to a range of $133 million to $135 million. Our revenue seasonality will show stronger year-over-year revenue growth in the first quarter, after which we do expect to see the impacts of the wind down of RAC Region 5, previously contemplated in our guidance as I mentioned. From a profitability standpoint, we are pleased to increase our adjusted guidance to $9 million to $10 million. At the midpoint of this range, this more than doubles our 2024 adjusted EBITDA. Our quarterly adjusted EBITDA cadence for the full year will now be more weighted to the first and fourth quarters. This can largely be attributed to the wind down of the RAC Region 5 and the increase in expense to ramp up New York State RAC.

Wrapping up, I would like to thank the team for delivering a strong set of results. The company is nicely positioned to continue to build, deliver value for our clients, invest prudently in our future, and scale our business to achieve longer-term margin targets. In addition to becoming self-funded, our first-quarter results are encouraging and give us confidence to increase our full-year 2025 guidance. We are excited about the momentum we have built. With that, operator, would you please open up the lines for questions? Thank you.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you use a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Anderson Shock with B. Riley Securities. Please go ahead.

Anderson Shock: Hey. Thank you for taking the questions, and congrats on a really strong quarter. So first, on the claims-based services revenue, it grew faster than the eligibility-based revenue this quarter. And I guess what was the main driver here? And how should we think about this revenue mix going forward?

Rohit Ramchandani: I understand. Good to hear from you, and thanks for the question. I think the main driver of that would be probably the mix of implementations one to two years ago, which were leaning a little more towards the claims-based business. In general, I think we have often said we expect some balanced growth across both sides of the business and do expect that to continue. And then I think the other side of it, right, is from what we can see and we publish annually, strong growth in the commercial eligibility business. And our sort of mature and long-standing CMS contract within eligibility does serve as a bit of a growth curve at our current size.

Anderson Shock: Okay. Got it. And then on your adjusted EBITDA guidance, so I mean, you have grown adjusted EBITDA sequentially over the past four quarters. And I guess this guidance kind of implies a decline in the middle of the year. From what it sounds like, I guess you just walk me through, like, how big of a decline should we expect from the, like, I guess, in the middle of the year?

Rohit Ramchandani: Yeah. So I think, you know, we are still committed, I think, as we said, to having a positive adjusted EBITDA every quarter. So I do not anticipate you are going to see any losses, and it will be a little bit of a view. And that is going to be driven by that investment of that New York RAC implementation alongside our others and the decline of Region 5. So I think you will see it, you know, start flirting with zero, but it will in you a bit as we go through the year.

Anderson Shock: Okay. Got it. And then on project Turing and some of the other tech initiatives, can you provide an update on the implementation progress? And I guess, you expect to start seeing ROI from these investments?

Rohit Ramchandani: Absolutely. We are, I think, as we look at it in terms of those initial product integrations, we are seeing that happen as soon as this quarter. And so I think we have got a good plan ahead of us, and a lot of that will start operationalizing across 2025. Which will then lend itself to higher efficiency in its part of what is going to be driving that expanded EBITDA margin. Both in our guidance and continued expectation into the next year.

Anderson Shock: Okay, great. That is helpful. Thank you for taking our questions and congrats again on the great quarter.

Rohit Ramchandani: Thank you.

Operator: There are no further questions at this time. I would now like to turn the call over to Simeon Kohl for closing remarks. Please go ahead, sir.

Simeon Kohl: Thank you, operator, and thanks, everyone, who joined today’s call. I would like to thank our nearly 1,000 team members for all their hard work this quarter, as well as our investors for their continued support. We are super pleased with our performance in the quarter, and we absolutely remain optimistic about the opportunities ahead. So thank you all again. We hope everyone has a great evening.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.