Executive Summary

Q2 2024 delivered double-digit growth: total revenue $29.4M (+15% YoY) and healthcare revenue $27.9M (+17% YoY), with positive adjusted EBITDA of $0.5M; diluted EPS was $(0.04) .
Management reiterated FY2024 guidance: healthcare revenue $117–$122M, total revenue $124–$129M, adjusted EBITDA $4–$5M, citing strong commercial implementations and RAC Region 2 ramp; Q2 results were “ahead of expectations” per CFO .
Claims-based services were the growth engine (~$13.7M, ~~+40% YoY), while eligibility-based services were steady (~~$14.3M, ~+1% YoY); customer care revenues fell slightly to $1.4M .
Catalysts: reaffirmed guidance and positive EBITDA; expanding commercial implementations (10 in Q2; 20 YTD worth ~$9M annualized at steady state) and AI-driven efficiency (Project Turing/RecordsOne) .
Wall Street consensus via S&P Global was unavailable for PFMT; internal commentary characterized Q2 as ahead of expectations .

What Went Well and What Went Wrong

What Went Well

Strong revenue growth and profitability momentum: healthcare revenue +17% YoY to $27.9M and positive adjusted EBITDA of $0.5M; “results ahead of expectations” and guidance reaffirmed .
Claims-based services accelerated: ~$13.7M in Q2, roughly +40% YoY, driven by commercial scale and CMS RAC Region 2 ramp .
Execution on growth initiatives: 10 Q2 implementations (20 YTD) expected to contribute ~$9M annualized at steady state, plus integration of AI RecordsOne tech into Project Turing to improve audit accuracy/efficiency .

What Went Wrong

Net loss persisted: GAAP net loss $(3.0)M (EPS $(0.04)), though improved YoY from $(4.0)M (EPS $(0.05)) .
Eligibility-based services growth muted (+~1% YoY to $14.3M), with MSP government eligibility now at steady-state; customer care revenue declined to $1.4M .
External headwinds: more conservative federal oversight during election cycle and Change Healthcare outage causing slower client decision-making and isolated delays (though long-term impact expected to be limited) .

Financial Results

Metric	Q2 2023	Q4 2023	Q1 2024	Q2 2024
Total Revenue ($USD Millions)	$25.5	$32.6	$27.3	$29.4
Healthcare Revenue ($USD Millions)	$23.9	$31.1	$25.8	$27.9
Net Income (Loss) ($USD Millions)	$(4.0)	$1.3	$(4.0)	$(3.0)
Diluted EPS ($USD)	$(0.05)	$0.02	$(0.05)	$(0.04)
Adjusted EBITDA ($USD Millions)	$(1.3)	$4.5	$(1.2)	$0.5
Adjusted EBITDA Margin (%)	-5.1% (Adj. EBITDA/Rev)	13.9%	-4.5%	1.9%

Segment revenue breakdown:

Segment	Q2 2023	Q4 2023	Q1 2024	Q2 2024
Eligibility-based ($USD Millions)	$14.1	$16.4	$13.4	$14.3
Claims-based ($USD Millions)	$9.8	$14.7	$12.4	$13.7
Healthcare Total ($USD Millions)	$23.9	$31.1	$25.8	$27.9
Customer Care/Outsourced Services ($USD Millions)	$1.5	$1.4	$1.5	$1.4
Company Total ($USD Millions)	$25.5	$32.6	$27.3	$29.4

KPIs and operational metrics:

KPI	Q4 2023	Q1 2024	Q2 2024
Commercial implementations (count)	41 in 2023 (annual)	10 (all within existing clients)	10 (added 2 new clients)
Annualized revenue from 2024 implementations	n/a	~$5–$6M (Q1 cohort)	~$9M YTD at steady state
CMS RAC Region 2	Operational/ramping	Scaling; steady state expected late 2025	Continued ramp, scaling
Adjusted net income (loss) ($M)	$3.6 (Q4)	$(3.0)	$(2.0)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Healthcare Revenue	FY 2024	$117–$122M (May 7)	$117–$122M (Aug 7)	Maintained
Total Company Revenue	FY 2024	$124–$129M (May 7)	$124–$129M (Aug 7)	Maintained
Adjusted EBITDA	FY 2024	$4–$5M (May 7)	$4–$5M (Aug 7)	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2023 and Q1 2024)	Current Period (Q2 2024)	Trend
AI/Technology (Project Turing, RecordsOne)	Announced RecordsOne tech asset acquisition; target efficiency and margin scale	Integration “progressing according to plan”; AI improves claim selection and audit workflow; positive early margin impact	Strengthening execution; broader applicability across workflows
Commercial implementations	41 in 2023; pipeline strong	10 in Q1 (existing clients) ; 10 in Q2; 2 new clients; ~$9M YTD annualized	Sustained cadence; building revenue leverage
Government programs (CMS RAC Region 2)	Operationalized; expected steady state late 2025	Continued ramp; caution on conservative oversight near election	Growth with short-term oversight headwind
State Medicaid (NY RAC/TPL)	NY award overturned on technicality; RFPs reissued; pursuing RAC/TPL	NY rebid decision expected early Sept; implementation early next year; multiple state RFPs pursued	Pipeline broadening; timelines in sight
Change Healthcare outage	Temporary impact to early claim lifecycle; expected limited long-term effect	Slower client decisions and isolated delays, minimal operational disruption to date	Manageable; monitoring downstream impacts
Data security posture	Robust controls, certifications (HITRUST, SOC, SOX, CMS audits) highlighted	Reinforced multilayer security approach	Consistent focus, supports client trust

Management Commentary

“Our healthcare revenue once again enjoyed strong double-digit year over year growth, driven by an increase in commercial client implementations and the continued ramp under our CMS RAC Region 2 contract.” — CEO Simeon Kohl .
“We remain encouraged to reiterate our expectation of 2024 healthcare revenues in the range of $117 million to $122 million, total Company revenues to be in the range of $124 million to $129 million, and adjusted EBITDA in the range of $4 million to $5 million.” — CFO Rohit Ramchandani .
“The RecordsOne technology…integrates into our audit workflow, improving the accuracy and efficiency of our medical auditors…We remain highly encouraged by the prospects of this powerful AI technology.” — CEO Simeon Kohl .
“We are pleased to report an adjusted EBITDA of $0.5 million in the second quarter…We are excited to reaffirm our guidance for revenues and profitability.” — CFO Rohit Ramchandani .

Q&A Highlights

State Medicaid pipeline: NY rebid decision expected early September; implementation early next year; multiple other states in RFP process .
Election-cycle oversight: agencies more conservative, leading to delays and sensitivities; long-term commitment to payment accuracy expected regardless of outcome .
Project Turing/RecordsOne: early value in claim selection and efficiency; iterative rollout prioritizing highest ROI areas .
Capacity scaling: current macro allows adequate hiring; can support current implementation cadence; significantly higher volumes would lean on completing Project Turing .
Margin profile: commercial and government margins seen as generally similar at scale given rules efficacy balance .

Estimates Context

S&P Global Wall Street consensus estimates were unavailable for PFMT via our source during this review window; management stated Q2 results were “ahead of expectations” and reaffirmed FY guidance .
Implication: Absent published consensus, near-term estimate revisions may anchor to reaffirmed guidance and stronger claims-based revenue ramp; watch for sell-side updates post-Q2.

Key Takeaways for Investors

Revenue trajectory intact: Q2 revenue $29.4M (+15% YoY) and healthcare $27.9M (+17% YoY), with claims-based strength and minimal operational disruption from external outages .
Profitability inflecting: positive adjusted EBITDA ($0.5M) and management targeting 20%+ adjusted EBITDA margins at $150–$160M healthcare revenue; near-term EBITDA and cash flow inflection points outlined .
Execution durability: 10 Q2 implementations (20 YTD) and $9M annualized at steady state support 2H revenue leverage; watch sequential EBITDA margin gains as cohorts mature .
Government exposure manageable: RAC Region 2 ramp continues; election-cycle oversight is a transient headwind per management .
AI as margin lever: Project Turing/RecordsOne integration is improving audit efficiency and claim selection quality—key to scaling margins without sacrificing growth .
Guidance reaffirmed: FY2024 healthcare $117–$122M, total $124–$129M, adjusted EBITDA $4–$5M; any beat/raise in Q3/Q4 would be a catalyst .
Trading setup: With internal expectations exceeded and guidance reiterated, focus on claims-based momentum, state Medicaid wins (NY decision timeline), and sequential margin progression as near-term stock drivers .

Non-GAAP note: Adjusted EBITDA and adjusted net income exclude interest, taxes, depreciation and amortization, stock-based compensation, severance, and certain non-operating items; reconciliations provided in the press releases .

Performant Financial Corp (PFMT)·Q2 2024 Earnings Summary