Performant Healthcare Inc (PHLT) 2015 Q1 法說會逐字稿

Greetings and welcome to the Performant Financial first quarter 2015 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is my pleasure to introduce your host, Richard Zubek with Investor Relations. Thank you. Mr. Zubek, you may begin.

Thank you, operator. Good afternoon, everyone. By now you should have received a copy of the earnings release for the Company's first quarter 2015 results. If you have not, a copy is available on our website www.performantcorp.com. Today's speakers are Lisa Im, Chief Executive Officer; and Hakan Orvell, 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. Also, 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 Lisa Im. Lisa?

Thanks, Rich. Good afternoon, everyone, and thank you for joining us for our earnings call. For Q1, we reported overall revenues and adjusted EBITDA of $38.6 million and $4.1 million representing year-over-year declines of approximately $20 million and $13.3 million respectively. These results are consistent with our more recent guidance and are primarily attributable to the ongoing delay in the CMS contract renewal process and guarantee agency rehabilitation fee reductions that took effect in the second half of 2014. Although we anticipate Q1 will be the softest quarter of 2015, there are a number of strong data points we will cover on today's call that give us confidence about our ability to meet or even exceed our previously provided financial guidance for 2015.

Furthermore, we have been aggressively executing on our business strategy to drive performance despite the industry headwinds, including we are demonstrating our ability to grow in new areas and we are doing just that in the commercial healthcare space, which I will talk about in a minute. We are aggressively increasing our productivity. For example during the first quarter our student lending productivity, defined as the number of borrowers entering rehabilitation agreements, increased materially over plan as a result of workflow improvements we have implemented over the last several months. Finally, we completed a meaningful cost reduction which combined with our increased student lending productivity are expected to have a strong positive impact to our results in the back part of this year.

For the quarter, student lending revenues were $27.1 million. This is approximately $12 million lower from the first quarter of 2014, of which pricing reductions accounted for about $5 million and $7 million of the decrease resulted primarily from borrowers choosing IBR rehabilitations versus loan consolidations, which will serve as a tailwind to support our rehabilitation revenues in the fourth quarter of 2015. As a reminder, our guarantee agency clients incorporated the use of income based repayment as a means to rehabilitate defaulted borrowers effective July 1, 2014. This allows many more borrowers to qualify for affordable rehabilitation payments. Beginning in the second half of this year, we anticipate this will help mitigate the revenue declines resulting from the changes to the rehabilitation fee structure from our guarantee agency clients and volume growth and productivity will help offset fee decreases.

The Department of Education previously advised us of their intention to issue extensions to one or more vendors after April 21, 2015. We understand that five vendors did receive an extension. As yet, we do not have confirmation from the Department of Education nor have we received an extension. However, we have received placements through April 21, which are well over the sequential and prior year quarters. We believe that the Department of Education will announce the new contract awards in the very near future and we do not believe that the lack of an extension means that we are less likely to receive one of the new contract awards. Our results on the most important measures for such selection, recovery of student loans and size of managed portfolio, position us well for a recompete award.

As we think about 2015 results, it is important to understand that we received a record high level of student loan placements in Q1. These placements totaled $2.2 billion and are a result of increases from a number of clients, including Department of Education, and represent an increase in placements of 28% from Q4 2014 and 51% from Q1 of 2014. As I said earlier, we also saw a strong above plan increase in rehabilitation productivity. The combination of both increased Q1 placements and strong Q1 recovery productivity will have a complementary impact, which support our student lending results in the latter part of 2015 and provide momentum into 2016. Switching to healthcare where our total healthcare revenues in the first quarter of 2015 were $5.3 million, which is down $8.3 million versus the prior year period.

This difference is a reflection of the wind down of the original CMS contract, but is partially offset by stronger revenues from our commercial healthcare customers. Within our commercial healthcare business, we continue to strengthen our market position and expand our pipeline of new clients and have started to realize sound revenue growth. Commercial healthcare revenues were $2.1 million in the first quarter. Recently we announced that Cambia Health Solutions; a member of the Blue Cross Blue Shield Association serving over 2 million members operating in Oregon, Idaho, Utah, and Washington; selected Performant to audit its durable medical equipment, home health and hospice, and home infusion claims.

While this contract is expected to have a fairly small impact to total revenues in 2015 because it is in ramp up mode, it is further evidence of our ability to expand our service offering in the commercial healthcare market. We're excited about the ongoing potential of our commercial business and are actively working to expand our work with other payers that would allow us to add work as we identify opportunities to reduce costs for these clients. Unfortunately at this time, there are no meaningful updates regarding the timing of the new CMS recovery audit contract award.

With that, I'd like to turn the call over to Hakan to walk you through the financials. Hakan?

Thank you, Lisa, and good afternoon, everyone. Today we are reporting results for the first quarter with revenues of approximately $38.6 million, net loss of $4.4 million or a loss of $0.09 per share, and adjusted EBITDA of $4.1 million. In an effort to provide you with greater visibility into our results, going forward we have decided to provide you with a breakdown of our topline results within both our student lending and healthcare businesses. Beginning with our student lending business, revenues totaled $27.1 million, a decline of $12.4 million compared to the first quarter of last year. During the quarter, the Department of Education accounted for $11.7 million of revenues while guarantee agencies generated $15.3 million. These amounts represent declines of $200,000 and $12.2 million respectively when compared to the first quarter of 2014.

As we discussed in our last call, we expected our student lending revenues to be negatively impacted by the revised loan rehabilitation pricing structures put in place by our DA clients effective last July, the increased documentation requirements to qualify borrowers for the rehabilitation process, and the movement from loan restructuring fees to rehabilitation fees. This is in essence a shift in revenue recognition as loan rehabilitation fees require nine months of timely payment. During the first quarter, student loan placements were $2.2 billion, which is a significant increase from the $1.4 billion we received in the first quarter of 2014 and $1.7 billion in placements we received in the fourth quarter of 2014.

Placements were strong from both the Department of Education, which accounted for 48% of the loan placements, as well as guarantee agencies where we received high placements from a number of our clients. We are encouraged by the strong level of loan placements and productivity in the first quarter and the positive implications it should have on our operating results for the second half of 2015. Our healthcare revenues in the first quarter were $5.3 million compared to $13.6 million in the first quarter of last year. Revenue from our work with the centers of Medicare and Medicaid was $3.2 million while our commercial healthcare business generated $2.1 million. During the first quarter of 2014, we generated $13.2 million from our work with CMS and at that time, no meaningful commercial healthcare revenue.

As you can see, the decrease in healthcare revenues continues to primarily be a function of the debate CMS contract renewal process. Revenues from other markets in the first quarter were $6.2 million compared to $5.6 million in the prior year period. This increase is primarily the result of a tax amnesty program we conducted in Q4 2014 and Q1 2015. Moving to our expenses. Salaries and benefits expense in the first quarter were $23.7 million, a decrease of 4.3% compared to $24.8 million in the prior year period primarily due to reduced staffing related to the RAC contract. Other operating expense for the quarter was $19.2 million, a decrease of 5.3% compared to the first quarter of 2014 primarily due to volume related cost. We are focused on improving our productivity, executing on our business development initiatives, and thoughtfully engaging in expense restructuring.

We completed an additional cost restructuring initiative during the quarter and reduced staffing in non-production areas including a number of management positions. We included the associated termination cost in adjusted EBITDA. We also executed on aligning other cost to the current revenue levels. As we have discussed previously, a significant portion of our expenses are highly variable in nature and as such, there are other adjustments that can be made if necessary to achieve our objectives. We are balancing this with a focus on building long-term revenue. We're currently on track with our plan and expectations for the year. Additionally, we have a number of addbacks to bank covenant calculations that provides us with further cushion.

This benefit in Q1 was approximately $3 million and we will have this benefit for several quarters. As a result, we are comfortable with our ability to maintain compliance with our bank covenants during this transitional period in our business and preferably do so without taking actions that are harmful to our growth initiatives. For the first quarter of 2015, our reported net loss was $4.4 million or a loss of $0.09 per share compared to net income of $6.3 million or $0.13 per diluted share in the prior year period. Adjusted net loss in the first quarter was $0.5 million or a loss of $0.01 per diluted share compared to adjusted net income of $7.6 million or $0.15 per diluted share in the prior year period.

Fully diluted weighted average outstanding shares were 49.4 million shares in the first quarter of 2015. Our adjusted EBITDA in the first quarter was $4.1 million compared to $17.4 million in the same period last year. Our effective annual tax rate during the first quarter was 34.7% compared to 41.6% in the same period last year. Cash flow from operating activities for the quarter ended March 31, 2015 were $1.5 million. Turning to the balance sheet. As of March 31, 2015, we had cash and cash equivalents of $77.3 million. Our total outstanding debt as of March 31 was $109.3 million. The sequential decrease in outstanding debt reflects continued payments on our long-term debt.

With that, let me now turn the call back to Lisa for some concluding remarks.

Thanks, Hakan. Our reported results in the first quarter do not fully reflect the hard work and considerable effort from our employees. In our student lending operation, we had one of the busiest and most productive quarters in our Company's history. We helped more borrowers enter rehabilitation agreements in Q1 than any other quarter in the Company's history. As I alluded to earlier, this performance is above our plan levels and should positively impact 2015 fourth quarter results. We are not adjusting our prior 2015 guidance at this time, which was revenue of $150 million to $160 million and adjusted EBITDA between $20 million and $22 million. However, if we continue to execute above plan, we should see above plan positive impact in the quarters to come. Moreover, as Hakan stated, coming out of Q1 we are even more comfortable with our ability to achieve results that are appropriately above our bank covenants and position us for continued growth.

With that, I'd like to open up the call for questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Edward Caso, Wells Fargo.

Can you just remind us, it sounded like you haven't gotten any placements since April 21, what the lag factor is? I thought it was like six months or so and you talked about an uptick in the outlook in Q4, but wouldn't that be about the time that the placements would roll off as far as benefit was concerned?

Actually no, Ed, and I'm going to let Hakan speak to the specific timeline because I think you've got some of the details behind that.

I mean if you look at the rehabilitation process, it's a nine month process and so as you look at the placements that we received here during this quarter and there were significant placements that we received here during Q1, that will have the benefit as we look at the latter part of this year. And as it relates specifically to the Ed placements, we received a large placement as scheduled in April and again they place with us twice a quarter so typically right at the end of the month. So, that's what we are still waiting for word on as for as when the May placement would be made.

Okay. And can you remind us, was the durable medical equipment category that was announced, wasn't it for RAC? Can you update us on that?

I think in our last call we updated to the best of our knowledge, which is we filed the protest. It is under corrective action, but we've heard nothing else from it. So, it's still undecided at the time, Ed. But I think as we mentioned in today's call, the contract awards that we have with Cambia is really specifically on durable medical equipment, home health hospice, and home infusion claims. So, I think when we show our results that are pretty compelling, we're able to gain traction in the market.

Michael Tarkan, Compass Point.

Thanks for the new disclosures around the underlying revenue items. Just firstly on the cost reduction, can you quantify the impact of that? I know you had the breakout and what had affected this quarter but just overall, how much expense savings you expect to receive?

So, let me make a couple of comments first. As we have stated previously with you all, our costs are highly variable in nature and we can quickly make adjustments as necessary to achieve our objectives. But we've been thoughtful with this again with an eye of making sure that we are not impacting our long-term revenue growth. But as we compare our total costs in Q1 versus last year, they are lower by about $6 million and again that's adjusting for obviously the lower revenue trends that we have seen as of late. Specifically as we look at Q1, we executed on additional reductions in operating expenses of approximately $3 million from an annualized perspective and again this will benefit us in future quarters. Salaries and related, that represented about $2.5 million of this reduction.

Moving on to student lending revenue, it sounds like things are running a little bit ahead of expectations. I know you don't want to update guidance right now, but with the large placements in the first quarter, I know it takes nine months; but is it fair to say that if things go according to plan that the student lending revenue won't necessarily be down 20% year-over-year?

I think that's a fair assumption, yes. I mean this was a significant placement that we received that will benefit us not only as we look at Q4, but also give us momentum into Q1.

And Mike, the other benefit in student lending also is as we talked about in last call, we had some disruption to productivity for a few months while we figured out how to retool our process for the new regulatory requirements that came into effect July 1 of 2014. And it's a good time to do that, but what we saw in Q1 also in terms of overall productivity on a just per person basis, we saw a great productivity improvement which we hope will continue, we believe will continue; but we want to see some continuance of that before we feel comfortable that we've got complete traction on that.

And then lastly and I know it's a fluid situation, but do you have any sense as to when this Ed contract may get awarded? We were hearing second quarter as a possibility now that the protests that have been dismissed. And then along those lines, any sense as to how many vendors will be included under the new contract? Thank you.

On the award, we also have heard the same thing you've heard that they would like to award in the second quarter as soon as possible. I do believe that GAO site shows that one of the protests will be ruled on May 11. Certainly GAO could rule earlier than that, but that is the drop-dead date. We believe that if it goes to that date that the Department of Ed would like to make the awards shortly thereafter. We do not know how many awards Department of Ed intends to make. We can speculate as to what their objectives are and we believe just based on their really very recent and heavy focus on compliance and experience working with students, we believe that they will be very selective in the vendors whom they choose with again compliance being a very heavy focus.

Understood. Thank you.

Anjaneya Singh, Credit Suisse.

First off, just wanted to touch on student loans again. I guess had you anticipated this level of student loan placement volume in Q1? It seems like you're pretty optimistic on the back half of the year on IBR and productivity and you also commented that this would be the softest quarter of the year. Wondering if you can just help us understand why you're keeping guidance as is, perhaps if you can help us understand what sort of risks may prevent you from executing on or above plan?

As Lisa mentioned earlier, what we are looking for is to again see continuing momentum and traction on the productivity increases that we have and at this point, we feel good about the traction that we're having, we feel good about the revenue trends we're seeing. But we're holding off on making any changes to guidance at this particular time. But again, feel very good about the momentum that we're seeing and the positive impact that this large placement in particular will have in the latter part of the year.

And rolling into 2016 because when we only look at placement timing, we didn't get it all in January, the case throughout the quarter was different clients placing at different times of the quarter. So, we do anticipate continued productivity. We just wanted to make sure that we have the process completely dialed in and feeling very good about our productivity levels having increased on a more long-term basis. So, we're seeing good improvement. We feel very good about productivity in the first quarter and we think our employees have worked very, very hard and it shows; but we'd like to continue to see some strong results as we move through I think probably at least the next few months.

In addition to that, I think what we're seeing is while on the healthcare side we're seeing kind of good traction there both on the RAC side the revenues coming through as expected and then as you look at also on the commercial healthcare, we saw a meaningful increase versus prior quarter. So, again really feeling good about the traction that we're seeing with the commercial healthcare growth and being on plan for expectations here for the year.

Got it. Also on expenses just to go back on that and I realize you've seen a nice decrease in expenses year-over-year, but it seems like the past three quarters expenses have been pretty flat. Could you just help us reconcile that? Have you run through your course of efficiencies? How much more do you think can be rationalized at this stage?

What you're looking at on the expense side is there is some extraordinary costs that are in this quarter versus prior so maybe we [cannot] talk about it in the Q1 expenses versus last quarter being Q4. So the expenses were up about $2.3 million, about $1.9 million of that relates to the contemplated acquisition that we have and is an adjustment to the EBITDA. But then also as we look at this particular quarter in Q1 based on the strong production activity that we had, we had additional incentive compensation of about $600,000 and we also from a timing perspective we had payroll taxes that are more frontloaded in the year. So as you compare Q4 to Q1, then you get an impact there of about an additional $400,000 and so that's about $1 million worth of what I would say extraordinary cost in Q1 that not necessarily will materialize for future quarters. And then we also have the restructuring charge based on the reductions that we did during Q1 of $700,000 that is incorporated into the operating cost for Q1. So again, a few moving parts that we are looking at there in total operating cost.

Okay, got it. One final one for me. On the commercial healthcare plans, could you just update us on what their ramp looks like? I think you had mentioned that they did about $700,000 in revenue in January, wondering how the rest of Q1 unfolded, perhaps some early Q2 trends if you could share? And what sort of margins are they contributing to the business at this stage. If you can speak to it on a quantitative basis perhaps just on a higher level trying to get a sense of their margins versus that of your business in a more normalized state?

First of all, if you look at the commercial healthcare revenue in Q1 we did about $2 million in revenue, Q4 we did $1 million so again we are very glad to see again a doubling of the revenue. And as we discussed in the last earnings call, we anticipate the commercial healthcare revenue to be around $10 million this year. It's in a growth mode so as you look at from a margin perspective, obviously we are incurring costs prior to recognizing revenue so we are not seeing the normalized margins that we expect here in the long term. But as we look at it overall, it's a positive margin, but again it's an investment phase that we are in right now as we're growing that healthcare revenue.

Understood. That's it from me for now. Thank you.

Denny Galindo, Morgan Stanley.

I just wanted to know if you have any more color on why the volumes were so high in education, is this more defaults that you're getting? Is it possible to getting a larger share from the DoE with some of the providers that lost their contracts in Q1 or maybe higher share the GAs? Is there any kind of color on the volume increase?

It's actually a little bit of all of what you mentioned. One is it definitely increased share. Secondly, as you astutely mentioned, Department of Education did end their relationship with five vendors so clearly some of that volume flow through as well. And then on the guarantee agency side, we have position, we have strong relationships, we have competitive improvements that we've made as well in our competitive contract; so we actually across the board are seeing very strong results. But Department of Education specifically were those items.

And then looking at that 44% drop in the GA revenue year-over-year, could you break that down on how much was fee changes, how much was potentially delayed revenue from the new IBR volume, and also I know you mentioned documentation delays last year? It sounds like $5 million was from pricing, I assume that that was all in GA and maybe some color on that drop there?

That's correct. The fee decrease that we experienced starting in July of last year was about $5 million in quarter. So, that's one component. And then as discussed in the last earnings call, we have had a shift of revenue whereby based on the IBR we have more borrowers opting for that passthrough in some of their defaulting status versus loan restructuring. So, that has been a meaningful shift that we've experienced here over the past quarters in that the loan restructuring process is much shorter rev rec cost that is usually between one to three months versus rehabilitation, which is a nine month process, you're looking at a shift of revenue there. So, those are two of the primary issues related to the drop in guarantee agency revenue that we saw this quarter versus the same quarter last year.

So, everything that was in the fee decrease was probably due to the shift of revenue from rehabilitation or to rehabilitation?

That's correct. And then as we mentioned as well, we've had the new documentation requirements that went into effect in July 1 as well so that's having a bit of a shift of revenue impact as well as we are going through the process of getting all that documentation in. So again, all of this is not lost revenue, but shifting revenue out.

Okay. I don't know, I had to hop off earlier, but did you mention the Medicare extension revenue? Is that expected to stay about the same for the year or should that drop off over the year or how do you think about the pace of that Medicare extension revenue quarter-to-quarter?

We had revenues, as I'm sure you heard, of just north of $3 million for this quarter and that's what we expect under the current scope for upcoming quarters as well. What we are in discussions with the (inaudible) is to see getting us a wider scope of auditing. But at this point, that scope has not been increased in any meaningful manner. So, I think the guidance that we gave earlier in the year is what we still expect.

Okay. And then lastly on the extensions that some of the other education providers received, is there any more color you can give us on some of the terms of those extensions that the other firms received in terms of how long were the extensions for or any other details there?

No, we have not actually been able to get the Department of Education to confirm that as yet. So, we're speculating and if we get anything in terms of communication from the Department of Ed, we'll certainly let you know.

Okay. That's it for me.

SK Prasad Borra, Goldman Sachs.

This is Jordan on for SK. Post the fall through of the PHX acquisition, what other options are you exploring in terms of diversifying your revenue stream?

Well, as you know, we're continuing to grow and our growth rate on healthcare is encouraging because again we're ramping up on many of these contracts, we're winning new contracts, we're also continuing to look at various different types of acquisitions and so an inorganic expansion is certainly not out of the picture. We're going to be very thoughtful and as we've stated in the past, make sure that it is good for shareholders. So, we're continuing to look at different ways that we can accelerate our growth in the market and expand our product services as well.

Okay. And then on the tax rate, I saw that decline in the quarter, any update on optimizing your tax structure? Thank you.

Our effective tax rate, as you saw this quarter, is 34.7%. If you look at from an annual perspective, it's 36.6% and some of the impacts that we're dealing with this quarter was lower than the prior year is due to some of the minimum state taxes that some of the states have. And then also as you're looking at results that are lower, obviously that drives a lower tax rate as well.

Thank you.

Richard Close, Avondale Partners.

Just wanted to be clear on the Department of Education contracts or extensions. I believe you said there's five vendors have been extended in April and then also I believe you mentioned that there were five vendors with contracts that I guess terminated and then you're sitting in the middle here and haven't heard anything. So, are there other people that are in your boat as well or just maybe some additional details around that?

Yes, there are other vendors that are in a similar situation to us. To our knowledge, I believe there are seven other vendors that are similarly situated and we are still waiting to hear an official comment from Department of Education or communication. We have not yet had that.

Okay. And I hate to ask you to speculate on their thinking, but is there any reason off the top of your head that you think that maybe they would extend some and not others and what would be the thought process there?

I'm going to speculate that there's a transition in the contract management office. I think there were some decisions maybe set in notion that are just being carried out. We do believe and our work with the department has been consistent over 25 years. The Department of Education is logical about the way they want their borrowers treated, they are logical about the way they want to continue experienced vendors who are compliant and who have a focus on compliance and have a vast amount of experience working with defaulted student loan borrowers. And so, I would speculate that Department of Education historically has acted in a very rational and thoughtful manner with respect to continuing experienced vendors who can in a very compliant way service their defaulted borrowers. So, I am speculating that they will take some logical and rational views on how they continue vendors who have that kind of experience.

And then with respect to the compliance, do you have any statistics that rank you guys versus other vendors or anything like that that you can share with us?

We don't have statistics from the Department of Education. What we do have is a very focused compliance program in our organization. As you know, we've worked in this environment for decades and so we have a very, very heavy focus on compliance. We have internal compliance organization that audits all of our employees. We ensure that our scripting and our outreach with defaulted borrowers aligns with what our clients want from a brand standpoint as well as a compliance standpoint. We monitor CFPB, we have a very, very exhaustive and extensive compliance program. It's very important to us because we know it's important to our clients and Richard, we've worked with these clients many of them for over 30 years. But we don't have any published statistics that we are even privy to.

And just a clarification on the April 21 comment I think Hakan that you made so you're saying that you guys have received here in the second quarter, in April you received some placements. When would you expect the next placement to come, by the end of May or end of June?

We would expect something in June.

Okay. If we can shift to healthcare just a little bit. With respect to the pipeline on the commercial, is there any clarity or any additional details you can give us to hang our hat on with respect to the growth opportunities? It's a nice new contract that you were able to announce with Cambia, but anything else that you can talk to us about?

I think specifically related to contracts where as you know because we have the master servicing agreements with our large payers, we continue to develop statements of working contracts underneath those. We have many of them in production. The numbers that we feel good about this year are not new contracts we have to go get, but just implementation and continued execution. In the meantime we do have our sales folks very focused on outreach to the commercial payer market. As you can see from the announcement that we made with Cambia, certainly we have capabilities that we think are very compelling for payers so we're continuing to develop those. With respect to the master servicing agreements, we have not gotten approval to announce new contracts from our clients; but we can tell you that we're continuing to have [good] trend that we feel very good about as we move forward through this year and of course as we look beyond this year as well.

Okay. And final question just to be clear, Hakan, on maybe the one-timers in the quarter that you said wouldn't necessarily repeat going forward through the rest of this year; I think there was a $400,000 number, a $1 million number, $700,000, something along those lines. Does all that come out of G&A?

It will all come out of the salaries and related will be the $700,000, which is the restructuring charge that we took. And then as you look at payroll tax and the incentive compensation, that would be also out of salaries and related.

Okay. Thank you very much.

Oscar Turner, SunTrust.

My first question is just on the Cambia deal that you announced, was wondering what the ramping timetable is like for that deal?

I would say if we look at these contracts, they have a rather lengthy implementation process and when we say implementation, that's also the time frame until we start recognizing revenue. So, we recognize revenue when in fact the recovery is made on the area that we have identified. So if you think about it from that perspective, it can be a four to six month period from the time we start working to when we recognize revenue. So as we stated earlier, we're excited about the growth that we are seeing and the additional businesses that we are winning in this area, but it's not expected to have a meaningful impact on our 2015 revenues

Okay. So four to six months would mean that it should show up in second half or how should I think about that?

Yes, that's correct. It will be towards the latter part of this year as we're ramping up on it.

Okay. And then just one question regarding the student loan business. I know during the first quarter I saw the Student Aid Bill of Rights announced by the President and just wondering does this potentially affect your student loan business in any way?

Not at this time. I think that announcement was geared more toward the undefaulted side. At this time, we're not seeing an impact and we don't anticipate an impact.

Okay. Thanks.

Toby Wann, Obsidian Research Group.

Couple of quick housekeeping items. What were the Medicare RAC placements this quarter?

The Medicare RAC, I mean what we are doing on that contract is that we are already being from a large pool so the CMS hasn't placed inventory with us, but we had a pool of claims that we are auditing against. And so again that pool is growing, however, the scope of auditing that we're doing is somewhat limited based on the current scope that we're operating on. The pool of claims that we're [dealing] against is still intact.

Okay. And then just a quick update on the timeline on the protests, when will that be finalized on the DME and home health region?

We don't know when it will be finalized. We don't have an indication of the date and there isn't a mandated deadline for CMS. So obviously as soon as we know anything, we'll let you all know.

Okay. Thanks very much.

Michael Cohen, Opportunistic Research.

Quick question, are you guys seeing any of the other service providers on the GA side dropping out on the basis of lighter revenue or lower payment rate?

We are actually not seeing other organizations drop off, but I think it was a very limited number of companies that really had extensive experience. So we don't necessarily track some of the smaller organizations, but of the larger folks who are operating guarantee agencies, we've not actually seen any dropping out.

Okay. And then just to clarify, I guess you had noted that you thought that there were seven entities that were in your same boat. If I just want to sort of go through the math of that. I think there were 22 providers before and were there five that had already been announced prior to April 1 or not announced, but had been extended before April 1 and then another five had been extended and then obviously there were five that were terminated. That would be the way to get to seven. Is that a correct read of the situation.

I'm sorry. So, take me through your numbers again; five, five?

There were 22 originally, correct?

Yes.

So five have been terminated so that would leave 17 and then you said there were five that were added that would be 12. But then have there been 10 that have been renewed altogether I guess is a better way of asking the question?

No. Because it's not public information, I cannot disclose the actual points, but there is a certain criteria for whether Department of Education would consider extending any business and so there are some vendors who would not fall into that bucket.

You mean that hadn't been terminated per se. So there were an additional group that they weren't terminated, but they weren't considered for the next round. Is that what you're saying?

Yes.

Okay. And then within that bucket of seven, obviously you don't have statistics that you can disclose, do you have any sense as to sort of whether you think you whether you fall at the upper end of the pecking order from a compliance standpoint if you think that's going to be the deciding factor?

We don't have any information on compliance and so we can't speak to that. We do have some information on some other performance and we believe that we are in the top end of that, yes.

Okay. That's great to hear. Last question, do you guys provide anywhere a breakout of the operating expenses by category in terms of whether it's by Medicare or whether it's by GA or whether it's by DoE related revenues?

We do not. We do not track those expenses separately by market.

Okay, great. Thanks for taking my questions.

There are no further questions at this time. I would like to turn the floor back over to management for closing remarks.

We want to thank you all for joining us again. We are again very pleased with where our productivity is heading. We believe that all of the hard work that we've done over the past few months, including the work of our employees, we hope that that will continue into the future. We're seeing very, very strong positive indications of that and feel like we've got some great momentum as we head into the back part of this year. As Hakan mentioned, we feel very comfortable with our ability to achieve results that are above our bank covenants and continue to position us for growth. So once again, thank you for joining us.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.