Richard Zubek - IR Lisa Im - CEO Hakan Orvell - CFO Jeff Haughton - EVP.

Rick Eskelsen - Wells Fargo Anjaneya Singh - Credit Suisse Michael Tarkan - Compass Point Denny Galindo - Morgan Stanley Toby Wann - Obsidian Group Oscar Turner - SunTrust Michael Cohen - Opportunistic Research.

Greetings, and welcome to the Performant Financial Second 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.

I'd now like to the conference over to your host Richard Zubek with Investor Relations. Thank you. 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 second quarter 2015 results. If you have not, a copy is available on our Web site www.performantcorp.com. Today's speakers are Lisa Im, Chief Executive Officer and Hakan Orvell, 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 the risks and uncertainties including those described in our 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'd now like to turn the call over to Lisa Im.

Lisa?.

Thanks Rich. Good afternoon everyone and thank you joining us for our earnings call. Revenue and adjusted EBITDA were sequentially higher in Q2 as we continue to focus on executing on our productivity target, ramping up our commercial healthcare business and managing our expenses.

Compared to last year, our revenues and adjusted EBITDA were lower, which is consistent with our guidance, and is reflective of the transition period attributable to the ongoing delay in the CMS contract renewal process, and the guaranty agency rehabilitation fee reduction that took effect in July 2014.

Students lending revenue was up 14% sequentially, but lower on a year-over-year basis due to the rehabilitation fee reduction and an increase in the number of borrowers who are choosing IBR rehabilitation versus loan consolidation.

The Department of Education has not updated its status on new contract award, but we believe that it is still their objective to announce awards in the near term.

The last placement we received from them was just prior to the contract expiration in April of 2015 and at this point, we do not anticipate receiving new placements from the Department of Education until the award of a new contract.

Our results on recovery of student loan, size of managed portfolio and strong regulatory compliance program, which we believe is a distinction in our service to client position us well for a recompete award.

Furthermore, the Department of Education routinely conduct audit on its vendors and comparative data they provided indicates that from a compliance perspective, we are in the best of three grouping.

However, going forward each month that passed us without student loan placements from the Department of Education will have a negative impact on our results roughly nine months later potentially prolonging a transitional time period in student lending.

Our healthcare revenues in the second quarter were close to those in the first quarter as a slight increase in revenues from commercial healthcare customers was offset by a slight decrease in Medicare revenue.

In addition to the commercial healthcare clients, we are implementing, this period has been very active with a number of opportunities we are pursuing in the commercial healthcare space that leverage our Medicare expertise, cost integrity audit capabilities and our proprietary technology.

These opportunities range from large commercial payers to midsize payers and reflect a significant effort we have focused on executing our strategy of aggressively growing our commercial healthcare business and diversifying our revenue.

We believe that the next several months will give the clear picture of how those opportunities can translate into revenue in 2016 and we are excited about the momentum. As it pertains to the CMS contract renewal process effective June 4, 2015, CMS has withdrawn the request for quotes for the next round of recovery auditor contract.

CMS has indicated that it plans to update the statement of work and release new request for quote shortly. Lastly, we are also pleased to tell you that we have received our closing letter from the Consumer Financial Protection Bureau or CFPB, regarding our Civil Investigative Demand or CID, which began in April of 2013 that we previously disclosed.

As expected, the CFPB has determined that no enforcement actions are necessary and the CID is closed. With that, I would like to the turn the call over Hakan to walk you through the financials.

Hakan?.

Thank you, Lisa, and good afternoon, everyone. Today we are reporting results for the second quarter with revenues of $41.3 million, net income of $726,000 or $0.01 per share and adjusted EBITDA of $8.4 million.

Beginning with our students lending business revenues totaled $31 million a decline of $9.1 million compared to the second quarter of last year. During the quarter, the Department of Education accounted for $10.5 million of revenues while guaranty agencies generated $20.5 million.

These amounts represent declines of $4.1 million and $5 million respectively when compared to the second quarter of 2014.

As we previously discussed, there were a number of items that can impact the student lending revenues including fluctuations in loan placements, the reduced loan rehabilitation pricing structures that would put in place by our GA clients effective July 1, 2014, and the increased documentation requirements to qualify borrowers with a rehabilitation process.

In addition, the recent market shift from borrowers utilizing loan restructuring to rehabilitation as a result of the increasing use of income-based repayment as an essence resulted in a shift in the timing of revenue recognition as loan rehabilitation fees required 9 months of timely payments.

On a sequential basis student lending revenue is up $3.9 million or 14% from the first quarter. This is primarily a result of the increase in borrowers participating in income based rehabilitation programs with our guaranty agency client.

Also we refocused some of our production staff on assisting in completing the documentation requirements which in essence accelerated roughly $1 million of revenue into Q2 that we would have otherwise recognized in the second half of 2015.

During the second quarter student loan placements were $1.7 billion down from $1.9 billion in the second quarter of 2014. A decrease is primarily a result of receiving DoE placements only through April of this year when our DoE contract expires.

As Lisa mentioned, we do not anticipate receiving new placements until the reaward of a new contract, which will impact us next year. We were however, encouraged that the DoE placements in April were sizable as $618 million representing 37% of our total loan placements for the quarter.

Combined with a very strong first quarter, loan placements in the first half of 2015 increased 16% compared to the prior period providing positive momentum for later of this year. Our healthcare revenues were $5.3 million compared to $11.3 million in the second quarter of last year.

Revenue from our work with the centers for Medicare and Medicaid was $3 million down from $10.6 million in the prior year period due to the current limited audit scope. Our commercial healthcare business continues to gain traction generating $2.2 million in the second quarter an increase of $1.5 million from the prior year period.

Revenues from other markets in the second quarter were $5.1 million compared to $6 million in the prior year period. The decrease is due to the completion of the previously noted tax amnesty project as well as a piece of business not renewed due to unfavorable pricing.

Moving to our expenses, salaries and benefits expense in the second quarter was $22.1 million, a decrease of 9% compared to $24.3 million in the prior year period primarily due to completed cost reduction initiative.

Other operating expense for the quarter was $15.5 million, a decrease of 24% compared to the second quarter of 2014 primarily due to borrowing related cost and other completed cost reduction initiatives. We are focused on improving our productivity executing on our business development initiatives and thoughtfully engaging in expense restructuring.

As we have discussed previously a significant portion of expenses are highly variable in nature and in such there are other adjustments that can be made as necessary to achieve our objective. We are balancing this with a focus on building long-term revenue.

For the second quarter of 2015, our reported net income was $726,000 or $0.01 per share compared to $5.9 million or $0.12 per diluted share in the prior year period. Adjusted net income in the second quarter was $2.3 million or $0.05 per diluted share compared to $7.2 million or $0.14 per diluted share in the prior year period.

Fully diluted weighted average outstanding shares were 50 million shares in the second quarter of 2015. Our adjusted EBITDA in the second quarter was $8.4 million compared to $16.7 million in the same period last year. Adjusted EBITDA margin was 20.3%.

Our effective annual tax rate during the second quarter was 34.5% compared to 41.8% in the same period last year. Cash flows from operating activities in the second quarter were $12.1 million. Turning to the balance sheet as of June 30, 2015, we had cash and cash equivalents of $76.1 million.

Our total outstanding debt as of June 30, 2015 was $100.1 million; the sequential decrease in outstanding debt of $11.7 million reflects continued payments on our long-term debt. Now, I will turn the call back to Lisa for some concluding remarks..

Thanks Hakan. Our reported results in the second quarter do not fully reflect the hard work and considerable efforts from our employees. For the first half of this year, our employee productivity remained solid. And we continued to focus on delivering results to our clients prioritizing regulatory compliance and expense control.

With stronger execution in the first months, we are adjusting our prior 2015 guidance at this time to the higher end of our revenue range of $150 million to $160 million and increasing adjusted EBITDA outlook from between $20 million and $22 million to $21 million to $23 million.

From a quarterly result standpoint, we anticipate Q3 to be similar to Q1 and Q4 to pattern Q2 primarily due to fluctuations in student loan placements and productivity in prior periods. With that, I would like to open the call up for questions..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Ed Caso with Wells Fargo. Please proceed..

All right. Good evening. It's actually Rick Eskelsen on for Ed. First question, just – hoping you can kind of level set us on where we are with the RAC contract. You did talk about how they have hold back on the request for quote.

So just kind of where are we in terms of timeframe of when you think this could move forward both on the overall RAC piece and then also on the DME piece? Thanks..

Thank you, Rick. It's Lisa. With respect to the contract process as I mentioned earlier, the original request for quote – to RFQ has been withdrawn from CMS. They do expect to send out a new RFQ shortly. We believe it's probably in the next few months.

In the meantime, there are very clear indications from CMS that they do not want another pause of work on the contract. So believe it is their intent to continue to extend this in a more meaningful way to extend this -- the whole contract in a more meaningful way. As we continue to move through their procurement process.

It's possible that a new RFQ could be protested, but again, we believe that CMS' intent clearly is to have us continue, not just what the current scope that we believe that that it is their desire to actually expand the scope and have a fuller program..

And so in the meantime should we looking for kind of a similar $3 million per quarter type number for the RAC revenue until we get more clarity on that RFQ?.

I would say that that's appropriate right now Rick. And again, as Lisa mentioned we are optimistic that there is going to be some increase in scope. In the meantime let's stick to the $3 million a quarter..

Okay.

And then just switching over the commercial side of things just curious for kind of your thoughts on how the healthcare payer market consolidation could impact your ability to penetrate the market either positively or negatively – what sort of opportunities could it unlock for you guys?.

Rick, I'm going to actually turn the question over to Jeff Haughton, he is one of my EVPs in the healthcare operation is one of the areas that actually falls under Jeff.

So Jeff?.

Yes. Rick that's a great question. So we are obviously watching those situations play out. And it will be interesting to see as the situations play out if those transactions actually close.

I think the good news is certainly as we look at our revenues now and what we are forecasting to bring in and the dialog that frankly we are having with the number of large payers in the space in terms of existing business as well as new business opportunities. We really don't think there is a lot at risk of what we are doing now.

And that's something that as you look at M&A deal, you certainly want to be mindful of, but we don't feel like there is risk that any of this consolidation impacts the business that again we are either executing on ours – plan on executing in the near term.

I think from an opportunity perspective, as we look to continue to flush out our product suite and really become a kind of one stop shop if you will for a number of these products for these commercial payers.

I think that aligns well with a large payer space and with some of these combination activities we are certainly – these companies on a combined basis are going to look to maximize as much cost savings as they can from a cost integrity perspective and we think we are going to be well positioned to play that out.

I think further to the opportunity to us is – in all of these potential combinations that have been announced, we have relationships with all of the competing parties and in a couple of them we have more fully flushed out relationships where frankly we think there could be some upside to us in terms of accelerating relationships and dialogs with some of the participants where we have kind of initial conversations, but haven't really expanded out into a full product set that's been developed.

So again, it's something we are very mindful of. We think there is some opportunity for us and we don't think there is any near term risk to us in terms of existing products..

Thanks. And then just the last one maybe for Hakan. If you can just for the revenue guidance you are now expecting to hit the high-end, you can kind of just level set us where the components are – you said $3 million per quarter roughly for the Medicare RAC side.

I believe I saw in the release and in your comments that the commercial is still on track for the $10 million, so just – what are your expectations for the pieces of student lending, I guess is the question? Thank you..

Yes. We expect that student lending is going to be the driver for driving the – our guidance up to the higher end. As we talked about last quarter, we had a significant demand of that production increase in Q1 and also strong placements from our student lending clients in Q1 that helped drive a strong performance in Q4.

So that's where really the improvement it is coming from..

And is it more on the – I mean based on this quarter, it looks like tomorrow in the GA side, is that, are you expecting that strength to continue or was some of that stuff – the million that was pulled forward that you talked about?.

I mean as we look at for the year, we expect that the GA area is where we are going to have the improvement. And what we are seeing and we saw that here in Q2 is that the increased volume of borrowers that are participating on to the IBR, the income based rehabilitation process that started in July of last year as you recall.

And that the volume impact is what we saw here in Q2 and we expect to see that here going forward as well..

Great. Thank you very much..

Thank you. Our next question comes from the line of – from Anjaneya Singh with Credit Suisse. Please proceed..

Hi. Thanks for taking my questions. I just wanted to focus back on the guidance, appreciate some of the comments you made just now. But hoping you can parse that out a bit, it seems if I look at the run rate for the first half it already implies that you will hit the top end of the range if it mirrors this type of performance.

And you are bullish on sort of the impact from the placements and the productivity at Q1.

So I’m hoping you can just talk a little bit about which factors are leading you to assume sequentially flattish back half despite these upside or tailwinds?.

Sure. As we stated in the opening remarks that we expect that Q3 is going to be a softer quarter than Q2. It’s going to pretty much mirror Q1, and then again, Q4 to be similar to Q2. One of the key things as we look at why Q3 is going to softer than what we saw here in Q2 is the productivity challenge that we experienced in Q4 of last year.

And again, that is based on the new documentation requirements and so forth that went into effect. Our productivity was not on par of what we have been historically and more – again, as we look at Q1 what we saw the improvement in Q1. So we will seal that revenue decline in Q3, but again, then expect an improvement in Q4..

Okay. Got it.

And on the expense side of the equation, it was down both – for both types of expenses nicely from the last few quarters, could you talk about what took place at 2Q to account for this – this was just some of the restructuring initiative at Q1 you discussed or was there something else and is this sort of a reasonable run rate to think about going forward for these levels of revenue?.

Yes. To your first question as it relates to the cost initiatives that we executed on in Q1 that is a primary driver of the lower offering cost that we are seeing here this quarter primarily that decline is in salaries that relate in.

So going forward, we expect that as you look at the following quarter to be at similar cost levels as it relates to Q4 there are some volume related cost that we will incur based on the higher expected revenue that we expect to generate in Q4, so with a bit of an up tick in cost in Q4..

Understood.

And two quick ones, any update on the Cambia contract ramp, is that something that is being implemented along the pace you had originally envisioned, I realize a little bit longer of an implementation, but just any update on that?.

Yes. So its Jeff, I will take that one. So on Cambia, we are implemented, it is a good working relationship, and so we are often running on that business. But this is the first time that they have done the desktop audit.

And we are working with them to make sure that as we move forward with this process that they understand the process – that we understand what their objectives are and that ultimately how it's been run and coordinated with their providers, it's all done in a way that that makes sense for them and certainly makes sense for what we are trying to do which is to bring cost savings to them.

So that's a long winded way of saying we are implemented, we feel very good about that momentum, we feel good about the relationship and it will make some time – over time to see how we can ramp it up to volume levels that are acceptable to them and make sense for their business..

Okay. Got it. I realize this is tiny but couldn’t help it notice the transaction expenses in the quarter, is that related to the PHX transaction, is there something else on the works and along those lines, if you can just give an indication of your M&A pipeline as much as you are able to and in a sense of what we should be expecting there? Thank you..

The expense that you saw here in Q2, again, it was tiny related to PHX and at this point, we have no further expense that we expect from an M&A perspective here in the near term..

Okay. Great. Thanks a lot..

Thank you. Our next question comes from the line of Michael Tarkan with Compass Point. Please proceed..

Thanks.

Just get this one leisurely, Lisa you mentioned that you are hopeful that the head contract is announced soon, I'm just wondering if you had any kind of color around that the latest we heard I think was maybe by the end of September is that consistent with your expectation?.

That's what we believe. Michael, there is a process that Department of Education is undertaking and we believe that process will play out and that is there targeted timeframe..

Okay. Thanks. And then just I mean – is your sense that when the contract is in fact awarded assuming you guys are on it that you would start immediately thereafter with placements and it wouldn't be necessarily a big sort of intermediate ramp up period. And I know that there is this delay between April 22 and by this time the contract is awarded.

But just kind of curious how quickly you can get started on that?.

We think based on conversations with folks at the department is that, it's their intent and I think they are aware of all of the investment that we put into first of all getting an ATO years ago, and then obviously, maintaining them and continuing to focus on technology and physical security in the program.

And I think that's a big part of the start-up question. So we believe based on what we know today that that Department of Education is targeting a quick start for we think vendors who have an ATO..

Okay.

With the five vendors that are – will be receiving new volume from that, have you had any discussions with them around potentially subservicing some of their work load?.

No. We have not..

Okay..

And again, I think part of that Michael was just a transition time was anticipated to be a very short transition time. As you know earlier in the year all indications from the department were that the award was dividend. And so this has been a longer delay I think similar pay dividend anticipated..

Okay. And then I guess just one last one, little separate, but that we are sort of a month after the new fee structure went into place from Department of Education, have you seen any kind of impact on your revenue from that new fee structure – from the fixed fee structure? Thank you..

I would say at this time Mike that still a TBD, we are obviously working to maximize our productivity and enhance the volume. But, that's still a TBD. That was reflected in the guidance that we gave for the rest of the year..

Okay.

But, you still expect a little bit of pressure just on a fee level by the move going to fix from variable, is that fair?.

That is fair, yes..

Thank you..

Thank you. Our next question comes from the line of Denny Galindo with Morgan Stanley. Please proceed..

Good afternoon. Overall, looking at GA volumes that defaults are up around 4% or so, I don't know if you said exactly how fast your replacements are growing in that group, I think you gave us the Department of Education piece, but not the year-over-year.

But, our placement at the GA is growing faster than this, slower than this or what kind of guidance can you give us and how fast those GA placements can grow?.

Let me first provide you with the stats here through the first six months. So we have received placements from our GA clients of approximately 2.3 billion this year. As you look at the comparable period last year we received that 1.8 billion. So again, that's an increase of about 16% year-over-year for the first six months..

Okay. That sounds pretty good based on kind of the overall default rates.

Is this – how long you are expecting this kind of increase in place since the last, or we were kind of expecting maybe this year and next year would be the peak but that sounds like a pretty strong growth there? Do you have any sense of how long they can grow this rate?.

Well, I think for us it will depend on guaranty and fee consolidation as well I think as you know, we have strategic relationship with the large guaranty agencies we service them for many years. And our clients' objective as you know is kind of our top priority.

But, as we look at what happens in that industry, it hard to specify what we think the increases will be, but we do believe that there will continue to be consolidation of smaller maybe mid-sized guaranty agencies against the large ones. And we do have strong strategic relationships with both..

Was their consolidation in that 16% number?.

Yes. There was some of that, yes. So that's part of it. And then the other part, I mean we are focused – these are performance driven contracts and again, we are very focused on driving a strong performance, which gives us ability to increase our share of the placements from the guaranty agencies as well.

That's a third component that pays into the placements..

Okay. That's helpful. And then on the last contract, there was a little bit of ramp up, again, you are hoping that the – between winning the contract and then getting the first placements and you are hoping that ATO will work this time and then you will be able to start up pretty quickly.

But, maybe you can discuss why you would do it labor working these contracts, can you shift people between guys work in the GA placements and the DoE contracts pretty seamlessly or is it something kind of specialization that would occur that would make somebody not be able to move between the two?.

Yes. It's Jeff. Let me take that one first and Lisa and Hakan can jump in.

So we do have flexibility in terms of where we can direct some of those resources and we have been working through that already this year to maximize kind of efficiency in terms of where we think we are going to need the most bang for the buck in terms of what those resource is focused on.

And we do think we have continued flexibility to do that and that's within our recovery business and also applies to some of the stuff we do on our other revenue streams related to some of our Performant Technology business as well.

Now, ultimately depending on the timing of the ED placement, what that means, we all perhaps just be mindful of overall cost and make sure that how we allocate head count really is efficient in generating the revenue that we wanted to.

But, I would say we do have a number of levers that we have fold and can continue to pull to make sure that we got the work place – the work force in the right place at the right time and we are going to continue to monitor that throughout the rest of this year and into 2016..

And then to your question about the ATO, the reason why the last contract was a bit delayed and implementation from the ATO was no vendors actually had the ATO. So that the contract that started 6 plus years ago that was one where everyone as to get their ATO for the first time.

And the incumbent vendor is on the contract – on the Department of Education contract today obviously have maintained and have continued to meet the standards of the ATO as they have gone up over the years. So we – that's the reason for the difference in view of this contract start versus last contract start..

Okay. That's helpful.

And then just lastly on the new education contract, is there any update on your thinking about how many contracts might be awarded and they were saying eight at one point and maybe all 17, whether you win, any kind of clarity there on which direction then I would be headed?.

We don't have a firm number, but -- and they have not conveyed a number where earlier as you know in the public Q&A they did eight. We do believe, however, Department of Education is very focused on compliance.

On regulatory compliance specifically as it relates to student loans as though our belief is that that Department of Education will look to a number of vendors whom they believe can meet those regulatory requirements and so we think again student loan experience and recovery and managing and working with the defaulted borrowers to better their situation is going to be a key criteria in terms of selection and just aren't that many vendors with that level of experience..

And just lastly on that.

With the eight contracts I know that they have performance metrics that used to be disclosed, are you guys definitely within the top eight if they were to choose eight as a cut-off or are you kind of more in the bubble?.

The selection process is not just based on actual recovery and by the way, we feel good about where we are in terms of competitive position.

But, the selection criteria will be based on not just recovery on Department of Education, but on all federally guaranteed student loans, how we work through borrowers, the size of portfolio that we managed and a very significant focus on compliance.

As far as criteria will be different from just – the recovery numbers that are competitive were published by Department of Education. We also think that compliance is going to be a very big factor in the contract that will be renewed as well..

That's it for me. Thank you..

Thanks..

Thank you. Our next question comes from line of Toby Wann with Obsidian Group. Please proceed..

Hey, hi. Good afternoon.

Quick question, on the DoE contract, is it safe to assume that there is a due process procedure that is similar to the RAC contract in the event that somebody does decide to protest; I mean is that anything that we needed to be even thinking about in the back of our mind at all?.

There certainly is a process. But, we believe based on the procurement modifications that have been made is very specific criteria that have been added to the decision-making process. The Department of Education has been very clear in terms of structural support for how they intend to select the vendors.

We believe that is a very smart way to run the procurement and they are – we believe that they will be in a good position to address any protest in a very expedient manner..

Okay. Thank you. And then one last one, adjusted EBITDA prior guidance some how missed that and can't seem to find it among notes anywhere, so housekeeping item..

Yes. The fair guidance was $20 million to $22 million..

Okay. Thank you..

Okay..

Thank you. Our next question comes from the line of Oscar Turner with SunTrust. Please proceed..

Good afternoon. Thanks for taking my questions.

My first question was on – it's a follow-up to the prior question on the EBITDA guidance, so your updated guidance implies a second half margin EBITDA margin of just 13% versus I think it was 16% in the first half even though looks like both expense categories came down significantly in the second quarter.

I was wondering is there a pick up in expenses that you are expecting in the second half..

Overall, again, as you look at the guidance that we gave. We expect that Q4 is going to be a stronger and again they are going to mirror pretty much Q2. Q3 is going to be a softer quarter.

So as you look at it, if we haven't focused on the operating cost, we expect that the operating costs are going to be pretty similar in the second half to the first half. But again, the difference is going to be on the revenue side..

Yes. Another thing I would add to that is, I think Hakan alluded to earlier, we do think there is going to be some additional spends on the healthcare side that's related to kind of tangible revenue that we can drive in the near term and really some of the head count to drive that.

So there is a little bit of that impact that I think you look at the expenses. And again, Hakan alluded to some of the increase in those expenses towards the back half of this year that's really what it's tied to..

Okay. Thanks. That's helpful. And then on student vending, I know Lisa, you talked about strong productive levels in the first half of the year, so how did the productivity levels in the second quarter compared to those in the first quarter.

And I mean just how much upside productivity levels do you think exists?.

So they were a little bit less than the second quarter, but again, largely as a result of some lesser inventory and while our cost are highly variable there is a certain amount of pool that we want to -- resource that we want to make sure continue to be focused on the business.

But, I will tell you that we are hitting our objective and we believe that we will continue to make our productivity gains through – again, what we are looking at is technology not just profits improvement, but technology tools that we can add on to our platform in order to enhance productivity consistently across the board, across clients and obviously, then it becomes a prominent part of the structure.

So we believe that there is continued opportunity for productivity increases and we obviously have to prioritize and we are looking on those..

Okay. Thanks. And then just on healthcare, you talked about CMS that you request for the quotes last month.

I may have missed this but did you provide any update the expectations for timing for the award?.

We think – it's our belief that CMS would likely get a new RFQs out in the next few months. And of course, there is a response time and then an award time. So typically the response time we are estimating it probably a month after the RFQs go out. And then the assessment and awards probably another 30 days after that.

So after the RFQ is provided, it's probably at least a 60-day process. But again, I think I want to reemphasize that CMS' intent really is to make sure there is no more pauses in the program and program itself can become even a more fuller program than what it is today.

And I think they are – they believe in the program and it's – again, it's clear to us that their intent is to have a consistent good programming integrity of wide Medicare spend..

Okay.

And so just based on that timeline looks like it will be December before the award is out?.

It's possible, yes..

Okay. Thank you..

Thank you. [Operator Instructions] Thank you. Our next question comes from the line of Michael Cohen with Opportunistic Research. Please proceed..

Hi, guys. Thanks for taking my questions.

First question, you alluded Lisa to I believe that the CMS contract will increase in scope and I thought I heard you say that you expect it to increase in tenure duration, am I correct in that? And can you expand on what you mean by a wider scope?.

Sure. We are in dialog with CMS with respect to additional audit that we would like to conduct. And they have been very open in those discussions. And again, my view on – from the client side is that they are very – they are very supportive of good program integrity around Medicare. So right now, we are working on a bit of a limited scope.

But, we do believe that it is the desire to open up the audit to other areas. And then with respect to the tenure of the contract, as you recall last year there was a pause in the program where we literally stopped our work. And then there was a softer start-up which is to state a limited scope which we are currently working.

We believe in terms of tenure that it's there intent not to have a pause. And that they will continue to have the program and their audit company continue to audit regardless of the procurement prospect..

Got you.

And so what would be the duration you would expect at the Medicare contract would have without pause so to speak?.

We think it's there intent to continue to run the program until the new contract are awarded and the awards are in the clear. So that could be into next year, if their awards are protested. But again, I believe it's their intent to continue to run this turn program, so we are not stopping and starting and stopping and starting..

Got you. And then you also alluded to developments -- potential developments on the private side I believe it could have a impact on 2016 revenues if I heard you correctly. Were you – was that based on relationships that you already have or was that based on sort of a pipeline of business development activity, what were you referring to there..

Jeff?.

Yes. Let me take that one. I guess the way I was summarizing it, we got a nice mix right now. So when Lisa talks about being encouraged and excited about kind of the momentum.

I say we have got a nice mix of clients that are – we are in the process of implementing and that should happen through the course of this year and into the back half of this year, which will really start – not impacting revenue until 2016. But we got that component through the commercial healthcare business.

We got clients now that are implemented but where we are working with them to ramp up the volume and expand the program and/or add new products to what we are providing for them now. So we are also focused on that.

And then specifically, look there is a number of opportunities that we are pursuing right now that I would characterize the culmination of months sometimes over a year of dialog, but are either RFP situations or competitive situations where we think there is going to be a relatively definitive timeline to understand where we are on those specific opportunities.

And I can trap that with some of the more open ended dialog we have had for some time – for periods of time that there is no kind of clear line and a stand in terms of when we are going to know where we stand.

There is a number of opportunities that as we look towards the back half of 2015, we think it will give us a good picture of what the new business is going to look like as we start to roll on and implement in 2016..

Great. That's helpful. And then last question, with regards to the conversation that you had with the DoE where they have given you some indication of this updated timeline relative to what we might have thought in a three, four weeks, five weeks, six weeks ago.

When did you speak with DoE most recently, when they had sort of made that clear to all the bidders that late September was likely to be the time horizon?.

They haven't publicized that date. So I don't know that there is something public that's sitting out on Department of Eds Web site or there hasn't been an all vendor follow or anything like that. But, we have had some dialog that indicates that is their target date..

Great.

And then – back to sort of within the context of sort of the decision criteria, you obviously made clear that compliance is going to be a significant factor, is that – does that make it a much higher bar for those bidders who have never done DoE work in the past?.

Yes. We absolutely believe that. The bar for regulatory compliance is very, very high on the Department of Education contract. And if there are companies that don't have that level of experience, we do not believe that their compliance program could meet the standards of Department of Education is expecting from vendors on the new contract..

Great. Thank you very much for taking my questions..

Thank you. Our next question comes from the line of Toby Wann with Obsidian Group. Please proceed..

Hey, thanks for taking the follow-up. Quickly I don't know I'm not to get too far out over our skis, I start to think about 2016 given the DoE contract pause and all of that, I mean how all we starting to think about 2016 and – I mean it's the first part of the year expected to be soft relative to typical run rate given the first half of this year.

And again, I'm not trying to get specific guidance or too far out of the skis here.

But, just kind of as we think about things going forward, we are half way through this year and when you start kind of think about 2016 as well?.

Yes. Toby that is accurate and as we look at the impact of the not receiving placements from Department of Education and as you look at our revenue Department of Education here in Q2 we generated approximately $10 million worth of revenue.

So in every period that as we look at it three months period without placements, I mean that is having a immediate impact as you look at the revenue loss into 2016, so nine months out.

So yes, we will have that based on the three months delay that we have experienced to-date and again, as we look at it every month going forward, we will have an impact in 2016..

Okay. Thank you.

And then any update on Region 5, I think you guys protested, I want it, if I remember correctly on the RAC contract and just kind of where that stands?.

Yes. Actually the Region 5 was also the RFQ was also canceled. The award was canceled. And so when CMS 3 releases RFQs we expect we just have to come back out in a newly invented form..

Thank you..

Thank you. We have no further questions in queue at this time. I'd like to turn the floor back over to management for any closing remarks..

Thank you. Our results in the first half of this year really represent a lot of hard work. And I want to thank our employees for their continued dedication. And I want to thank our clients for their continued opportunities to serve them. And thank you all for joining us today..

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