Performant Financial Corp. :PFMT-US: Earnings Analysis: Q3, 2016 By the Numbers : November 8, 2016

Performant Financial Corp. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Performant Financial Corp. – ExlService Holdings, Inc. and ARC Document Solutions, Inc. (EXLS-US and ARC-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 31.20 million, Net Earnings of USD -0.72 million.
  • Gross margins narrowed from 6.96% to 0.56% compared to the same period last year, operating (EBITDA) margins now 0.56% from 15.38%.
  • Year-on-year change in operating cash flow of -102.34% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 38.51 41.05 38.28 38.07 31.2
Revenue Growth (%YOY) -2.86 3.42 -0.73 -7.73 -18.99
Earnings (mil) -0.31 2.2 0.08 1.48 -0.72
Earnings Growth (%YOY) 34.45 192.27 101.82 103.44 -127.71
Net Margin (%) -0.82 5.35 0.21 3.88 -2.29
EPS -0.01 0.04 0 0.03 -0.01
Return on Equity (%) -1.4 9.54 0.34 6.15 -2.94
Return on Assets (%) -0.5 3.56 0.14 2.67 -1.3

Access our Ratings and Scores for Performant Financial Corp.

Market Share Versus Profits

Revenues History
Earnings History

PFMT-US‘s change in revenue this period compared to the same period last year of -18.99% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that PFMT-US is holding onto its market share. Also, for comparison purposes, revenues changed by -18.07% and earnings by -148.41% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 6.96% to 0.56%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 15.38% to 0.56% in this time frame. For comparison, gross margins were 11.24% and EBITDA margins were 20.22% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

PFMT-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 84.40 days from 128.28 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

PFMT-US‘s change in operating cash flow of -102.34% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 6.96% to 0.56% and (2) one-time items that contributed to a decrease in pretax margins from 1.41% to -5.41%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Performant Financial Corp.

Company Profile

Performant Financial Corp. provides technology-enabled recovery and related analytics services in the United States. It also provides technology workflow management solutions for various governments, healthcare and financial services markets. The company services include detection of fraud, waste and abuse. Its focus is on audit and recovery services through its proprietary technology platform and combined with data analytics. The company services helps to identify and recover delinquent or defaulted assets and improper payments for both government and private clients. Performant Financial was founded in 1976 and is headquartered in Livermore, CA.

CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of PFMT-US.