Earnings call transcript: Performant Financial sees 22% revenue growth in Q1 2025

Performant Financial Corp. reported a robust first quarter for 2025, with total revenues reaching $33.3 million, marking a 22% increase compared to the same period last year. The company also achieved a positive adjusted EBITDA of $3.3 million, a significant turnaround from the negative $1.2 million recorded in Q1 2024. Despite these positive results, the company’s stock price remained unchanged in the latest trading session.

Key Takeaways

• Performant Financial’s Q1 2025 revenue grew by 22% year-over-year.
• The company achieved a positive adjusted EBITDA of $3.3 million.
• Stock price remained stable post-earnings announcement.
• Raised full-year revenue guidance to $133-$135 million.
• Continued focus on AI and NLP technologies with Project Touring.

Company Performance

Performant Financial’s performance in Q1 2025 highlights its strong position in the healthcare payment integrity market. The company reported a 38% year-over-year growth in claims-based revenue, reaching $17.1 million, and a 20% increase in eligibility revenue, totaling $16.1 million. These results underscore the company’s ability to capitalize on the growing demand for fraud, waste, and abuse prevention services in the healthcare sector.

Financial Highlights

• Total revenues: $33.3 million (22% YoY growth)
• Claims-based revenue: $17.1 million (38% YoY growth)
• Eligibility revenue: $16.1 million (20% YoY growth)
• Adjusted EBITDA: $3.3 million (vs. -$1.2 million in Q1 2024)
• Positive cash flow: $1.4 million (vs. -$3.6 million in prior year)

Outlook & Guidance

Performant Financial has raised its full-year revenue guidance to a range of $133-$135 million and increased its adjusted EBITDA guidance to $9-$10 million. The company expects to maintain positive adjusted EBITDA in each quarter and aims for positive free cash flow by the end of 2025 or early 2026. These projections reflect the company’s confidence in its strategic initiatives and market positioning.

Executive Commentary

CEO Simeon Cole emphasized the urgency of healthcare payment integrity services, stating, "The demand for healthcare payment integrity services... has never been more urgent." CFO Rohit Ramchandani highlighted the company’s financial stability, noting, "We’ve entered a new phase in our business evolution where we currently anticipate each quarter to be EBITDA positive."

Risks and Challenges

• Potential market saturation in healthcare payment integrity services.
• Dependence on commercial payers amidst rising patient acuity and utilization.
• The need to continuously innovate with AI and NLP technologies to maintain a competitive edge.
• Economic uncertainties that could impact state Medicaid markets.

Performant Financial’s Q1 2025 results demonstrate its solid financial footing and strategic focus on innovation and market expansion. The company’s positive outlook and raised guidance indicate a promising trajectory for the remainder of the year.

Full transcript - Performant Financial Corp BATS (PFMT) Q1 2025:

Conference Operator: Good afternoon, ladies and gentlemen, and welcome to the Performant Healthcare Inc. First Quarter twenty twenty five 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, 05/08/2025.

I would now like to turn the conference over to John Buzzuto, Head of Investor Relations. Please go ahead, sir.

John Buzzuto, Head of Investor Relations, Performant Healthcare: 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 five 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 Cole, Chief Executive Officer and Rohit Ramchandani, 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, 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 Cole. Tim?

Simeon Cole, Chief Executive Officer, Performant Healthcare: Thank you, John. Good afternoon, everyone, and thank you for joining us for our first quarter twenty twenty five 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 3,000,000 a significant improvement compared to an adjusted EBITDA loss of $1,200,000 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’ll 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 is 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 U. S.

Healthcare system. Our strategy is clearly resonating. By advancing our technology and prioritizing client centric partnerships, we’ve 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’ve implemented to streamline and accelerate our implementation process. At steady state, these implementations are expected to contribute 4,500,000.0 to $5,000,000 in annualized revenue. We’re 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 performance 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’ve 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’d like to provide an update on the recent CMS RAC RFP for Regions 3 Through 5. 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 V, 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 five 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 can 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 longstanding 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’re 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 performance 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 deliver. 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’ve rapidly built the data assets and capabilities needed to compete effectively in this 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’ve successfully displaced longstanding legacy vendors and significantly expanded our footprint among commercial clients. More recently, we’ve 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’s gratifying to see those investments materialize. This strategy has driven a record front log of commercial programs and marked a major milestone with our first state Medicaid contract in New York.

We’re 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’ll hand it over to Rohit Ramshandani, our Chief Financial Officer for a discussion of the financials. Rohit?

Rohit Ramchandani, Chief Financial Officer, Performant Healthcare: Thanks, Sam. We’re 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 twenty twenty five, total company revenues were $33,300,000 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 $1,500,000 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 $17,100,000 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 Cyn 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 $16,100,000 representing an increase of roughly 20% in comparison to last year. Commercial clients contributed significantly in the quarter as we effectively operationalize key partnerships. We also saw some of the eligibility likeness from 2024 manifest into our early twenty twenty five 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 Sim 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 4,500,000.0 to $5,000,000 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 $18,000,000 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 opportunities 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 percent 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 to our business.

Moving on, operating expenses were about $33,000,000 in the quarter or roughly $2,000,000 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 touring. 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 twenty twenty six, if not sooner. Project touring remains a key focus in our longer term margin improvement strategy. We’re 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’re excited to streamline our processes and set new standards for efficiency and accuracy. This becomes even more impactful in light of the record implementations in front log ahead of us. We’re very pleased to report positive adjusted EBITDA of $3,300,000 in the first quarter in comparison to an adjusted EBITDA loss of $1,200,000 in the first quarter of twenty twenty four. 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’ve 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 $1,400,000 of cash flow in the quarter versus a negative $3,600,000 in the comparable prior year quarter. These results combined with our positive outlook strengthens 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 has 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 gives us confidence to do so. Accordingly, we are raising the bottom end of our revenue guidance to $133,000,000 bringing our full year revenue guidance to a range of 133 to $135,000,000 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 five previously contemplated in our guidance as Fin mentioned. From a profitability standpoint, we are pleased to increase our adjusted EBITDA guidance to $9,000,000 to $10,000,000 At the midpoint of this range, this more than doubles our twenty twenty four 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 V 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 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, could you please open up the lines for questions?

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You. Your first question comes from Anderson Shock with B. Riley Securities.

Anderson Shock, Analyst, B. Riley Securities: Congrats on a really strong quarter. So first on the claims based 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, Chief Financial Officer, Performant Healthcare: I understand. Good to hear from you and thanks. Good question. I think the main driver of that would be probably the mix of implementations. One to two years ago, we’re waiting a little more towards the claims based business.

In general, I think we’ve 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 are sort of mature and long standing CMS contract within eligibility does serve as a bit of a growth anchor at our current size.

Anderson Shock, Analyst, B. Riley Securities: Okay, got it. And then on your adjusted EBITDA guidance, so I mean, you’ve grown adjusted EBITDA sequentially over the past four quarters. And I guess this guidance is kind of implying a decline in the middle of the year for what it sounds like. I guess you just walk me through, like, big of a decline should we expect from the, I guess, in the middle of the year?

Rohit Ramchandani, Chief Financial Officer, Performant Healthcare: Yeah, so I think we’re still committed, I think, as we said, to having a positive adjusted EBITDA every quarter. So I don’t anticipate you’re going to see any losses and it will be a little bit of a view and that’s going to be driven by that investment into that New York RAC implementation alongside our others the decline of Region 5. So I don’t think you’ll see it start flirting with zero, but it will you a bit as we go through the year.

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

Rohit Ramchandani, Chief Financial Officer, Performant Healthcare: Absolutely. We’re so I think as we look at it in terms of those initial product integrations, we’re seeing that happen as soon as this quarter. And so I think we’ve got a good plan ahead of us and a lot of that will start operationalizing across 2025, which will then lend itself to a higher efficiency and it’s part of what’s going be driving that expanded EBITDA margin both in our guidance and continued expectation into the next year.

Anderson Shock, Analyst, B. Riley Securities: Okay, great. That’s helpful. Thank you for taking our questions and congrats again on the great quarter.

Rohit Ramchandani, Chief Financial Officer, Performant Healthcare: Thank you.

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

Simeon Cole, Chief Executive Officer, Performant Healthcare: Thank you, operator, and thanks, everyone, who joined today’s call. I’d like to thank our nearly 1,000 team members for all their hard work this quarter and as well as our investors for their continued support. We’re 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.

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

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