PRGX Global, Inc. Announces Third Quarter 2015 Financial Results

ATLANTA, Oct. 27, 2015 (GLOBE NEWSWIRE) — PRGX Global, Inc. (Nasdaq:PRGX), the world’s leading provider of accounts payable recovery audit services, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2015.

“After two quarters of solid Adjusted EBITDA performance in 2015, we experienced several challenges which impacted our third quarter financial results. However, our core recovery audit business remains strong as we continue to build and invest in our growth platforms,” said Ron Stewart, president and chief executive officer.

“While claims production in the core business increased year-over-year, we experienced delays in converting claims to revenue. Additionally, a large client bankruptcy and lags in onboarding several new clients impacted our revenue for the quarter. The EBITDA impact of this revenue decline was partially offset by our consistently improving cost management performance,” continued Mr. Stewart.

“We are encouraged by the meaningful engagements underway in all three of our growth platforms and the other significant adjacent services opportunities under development with several of our large clients. In anticipation of significant future revenue streams we invested approximately $1.8 million in these services during the quarter,” concluded Mr. Stewart.

Consolidated Results for the Three Months Ended September 30, 2015

Consolidated revenue for the third quarter of 2015 was $33.9 million, compared to $43.0 million for the same period last year, a decrease of 21.2%. Adjusted for changes in foreign exchange rates, consolidated third quarter 2015 revenue decreased 15.7% compared to the same period in 2014. Excluding the Chicago-based consulting business divested in October 2014 and the Healthcare Claims Recovery Audit (“HCRA”) business, which the Company is in the process of exiting, and adjusted for changes in foreign exchange rates, consolidated third quarter 2015 revenue decreased 13.7% compared to the same period in 2014.

Total operating expenses for the third quarter of 2015 were $34.6 million, compared to $41.5 million, in the same period last year, a decrease of $6.9 million, which represents a 16.6% improvement. This decrease in total operating expenses was primarily driven by improving operational processes while right-sizing the Company’s cost structure.

Total cost of revenue for the third quarter of 2015 was $24.4 million, or 71.9% of revenue, compared to $28.7 million, or 66.7% of revenue, in the same period last year, for a 7.8% increase as a percentage of revenue.

SG&A expenses for the third quarter of 2015 were $8.5 million, compared to $10.5 million in same period last year, an improvement of 19.1%.

Consolidated net loss for the third quarter of 2015 was $(3.4) million, or $(0.14) per basic and diluted share, compared to a net loss of $(0.2) million, or $(0.01) per basic and diluted share, for the same period in 2014. Included in the third quarter 2015 net loss is $0.6 million of foreign currency transaction losses on intercompany balances, compared to $1.2 million of such losses for the same period in 2014.  Also included in the third quarter 2015 net loss is a non-cash loss of $1.6 million on the sale of certain non-core assets related to a document service offering purchased as part of the Business Strategy, Inc. acquisition in 2011.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) for the third quarter of 2015 was $3.3 million, or 9.7% of revenue, compared to Adjusted EBITDA of $5.6 million, or 13.1% of revenue, in the third quarter 2014. Improvements in the Company’s cost management performance partially offset the impact of the decline in consolidated revenue on Adjusted EBITDA.  Schedule 3 attached to this press release provides a reconciliation of net income (loss) to each of EBIT (Earnings Before Interest and Taxes), EBITDA and Adjusted EBITDA.

Net cash provided by operating activities for the third quarter of 2015 was $4.9 million, compared to $1.3 million in the third quarter of the prior year.

Consolidated Results for the Nine Months Ended September 30, 2015

Consolidated revenue for the nine months ended September 30, 2015 was $104.3 million, compared to $122.9 million for the same period last year, a decrease of 15.1%. Adjusted for changes in foreign exchange rates, consolidated revenue for the nine months ended September 30, 2015 decreased 9.6% compared to the same period in 2014. Excluding the Chicago-based consulting business divested in October 2014 and HCRA, and adjusted for changes in foreign exchange rates, consolidated revenue for the nine months ended September 30, 2015 decreased 6.3% compared to the same period in 2014.

Total operating expenses for the nine months ended September 30, 2015 were $105.0 million, compared to $126.4 million in the same period last year, a decrease of $21.4 million, which represents a 16.9% improvement.

Total cost of revenue for the nine months ended September 30, 2015 was $73.1 million, or 70.0% of revenue, compared to $87.5 million, or 71.2% of revenue, in the same period last year, for a 1.7% improvement as a percentage of revenue.

SG&A expenses for the nine months ended September 30, 2015 were $26.0 million, compared to $31.5 million in same period last year, an improvement of 17.4%.

Consolidated net loss for the nine months ended September 30, 2015 was $(5.3) million, or $(0.20) per basic share and diluted share, compared to a net loss of $(5.4) million, or $(0.18) per basic and diluted share, for the same period in 2014. Included in the net loss for the nine months ended September 30, 2015 is $1.9 million of foreign currency transaction losses on intercompany balances, compared to $1.1 million of such losses for the same period in 2014. Also included in the net loss for the nine months ended September 30, 2015, is the previously mentioned non-cash net loss of $1.6 million on the sale of certain non-core assets related to a document service offering purchased as part of the Business Strategy, Inc. acquisition in 2011.

Adjusted EBITDA for the nine months ended September 30, 2015 was $11.3 million, or 10.8% of revenue, compared to Adjusted EBITDA of $9.9 million, or 8.1% of revenue, in the same period in the prior year. This represents a 34.2% year-over-year improvement in nine month Adjusted EBITDA as a percentage of revenue. Schedule 3 attached to this press release provides a reconciliation of net income (loss) to each of EBIT, EBITDA and Adjusted EBITDA.

Net cash provided by operating activities for the nine months ended September 30, 2015 was $12.4 million, compared to $7.1 million in the same period in the prior year.

Liquidity

At September 30, 2015, the Company had unrestricted cash and cash equivalents of $15.7 million, no borrowings against its $20.0 million revolving credit facility, and no bank debt outstanding.

Stock Repurchase Program

During the third quarter of 2015 the Company repurchased 1.7 million shares of its outstanding common stock for an aggregate cost of $6.9 million completing the previously announced $40 million repurchase program. Since the February 2014 announcement of the Company’s stock repurchase program, the Company has repurchased 7.5 million shares, or 25.0% of its common stock outstanding on the date of the announcement. Earlier this month, the Company’s Board of Directors approved a $10 million increase in the program and extended the duration of the program to December 31, 2016. As of October 23, 2015, the Company had 22.9 million shares of common stock outstanding.

Third Quarter Earnings Call

As previously announced, management will hold a conference call later this morning at 8:30 AM (Eastern time) to discuss the Company’s third quarter 2015 financial results. To access the conference call, listeners in the U.S. and Canada should dial (877) 755-7423 at least 5 minutes prior to the start of the conference. Listeners outside the U.S. and Canada should dial (678) 894-3069. To be admitted to the call, listeners should use passcode 62978652.

This teleconference will also be audiocast on the Internet at www.prgx.com (click on “Events & Presentations” under “Investors”). A replay of the audiocast will be available at the same location on www.prgx.com beginning approximately two hours after the conclusion of the live audiocast, extending through January 31, 2016. Please note that the Internet audiocast is “listen-only.” Microsoft Windows Media Player is required to access the live audiocast and the replay and can be downloaded from www.microsoft.com/windows/mediaplayer.

About PRGX Global, Inc.

Headquartered in Atlanta, Georgia, PRGX Global, Inc. is the world’s leading provider of accounts payable recovery audit services. With over 1,400 employees, the Company operates and serves clients in more than 30 countries and provides its services to over 75% of the top 20 global retailers. For additional information, please visit PRGX at www.prgx.com.

Forward-Looking Statements

In addition to historical information, this press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include both implied and express statements regarding the Company’s overall condition and growth prospects, the strength of the Company’s core recovery audit business, and the Company’s investments in, and opportunities associated with, its growth platforms. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from the historical results or from any results expressed or implied by such forward-looking statements. Risks that could affect the Company’s future performance include revenue that does not meet expectations or justify costs incurred, the Company’s ability to develop material sources of new revenue in addition to revenue from its core recovery audit services, changes in the market for the Company’s services, the Company’s ability to retain and attract qualified personnel, changes to Medicare and Medicaid recovery audit contractor programs and the effects of the Company’s decision to withdraw from the Medicare RAC rebid process, the Company’s ability to integrate recent and future acquisitions, uncertainty in the credit markets, the Company’s ability to maintain compliance with its financial covenants, client bankruptcies, loss of major clients, and other risks generally applicable to the Company’s business. For a discussion of other risk factors that may impact the Company’s business, please see the Company’s filings with the Securities and Exchange Commission, including its Form 10-K filed on March 13, 2015. The Company disclaims any obligation or duty to update or modify these forward-looking statements.

Non-GAAP Financial Measures

EBIT, EBITDA and Adjusted EBITDA are all “non-GAAP financial measures” presented as supplemental measures of the Company’s performance. They are not presented in accordance with accounting principles generally accepted in the United States, or GAAP. The Company believes these measures provide additional meaningful information in evaluating its performance over time, and that the rating agencies and a number of lenders use EBITDA and similar measures for similar purposes. In addition, a measure similar to Adjusted EBITDA is used in the restrictive covenants contained in the Company’s secured credit facility. However, EBIT, EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of the Company’s results as reported under GAAP. In addition, in evaluating EBIT, EBITDA and Adjusted EBITDA, you should be aware that, as described above, the adjustments may vary from period to period and in the future the Company will incur expenses such as those used in calculating these measures. The Company’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items. Schedule 3 to this press release provides a reconciliation of net income (loss) to each of EBIT, EBITDA and Adjusted EBITDA.

SCHEDULE 1
PRGX Global, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
                     
               
  Three Months   Nine Months
  Ended September 30,   Ended September 30,
    2015       2014       2015       2014  
               
Revenue   $   33,923     $   42,988     $   104,344     $   122,870  
Operating expenses:              
Cost of revenue     24,387         28,681         73,085         87,457  
Selling, general and administrative expenses     8,487         10,492         26,043         31,505  
Depreciation of property and equipment     1,262         1,428         3,858         4,696  
Amortization of intangible assets     517         895         2,017         2,700  
Total operating expenses     34,653         41,496         105,003         126,358  
                     
Operating income (loss)     (730 )       1,492         (659 )       (3,488 )
                     
Foreign currency transaction (gains) losses on short-term intercompany balances     654         1,221         1,930         1,073  
Interest expense (income), net     (8 )       (44 )       (103 )       (33 )
Other (income) loss     1,612         –          1,612         –   
Income (loss) before income taxes     (2,988 )       315         (4,098 )       (4,528 )
                     
Income tax expense     421         554         1,172         853  
                     
Net income (loss) $   (3,409 )   $   (239 )   $   (5,270 )   $   (5,381 )
                     
Basic earnings (loss) per common share $   (0.14 )   $   (0.01 )   $   (0.20 )   $   (0.18 )
Diluted earnings (loss) per common share $   (0.14 )   $   (0.01 )   $   (0.20 )   $   (0.18 )
                     
Weighted average common shares outstanding:              
Basic       25,167         27,744         26,015         29,203  
Diluted     25,167         27,744         26,015         29,203  
                     

SCHEDULE 2
PRGX Global, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
                   
                   
              September 30,   December 31,
                2015       2014  
                   
ASSETS
Current assets:           
Cash and cash equivalents     $   15,673     $   25,735  
Restricted cash          98         53  
Receivables:          
Contract receivables, net       25,543         35,182  
Employee advances and miscellaneous receivables, net       1,781         1,993  
Total receivables         27,324         37,175  
                   
Prepaid expenses and other current assets       3,141         3,421  
Total current assets         46,236         66,384  
                   
Property and equipment, net         11,340         12,220  
Goodwill             11,589         13,036  
Intangible assets, net         7,131         9,439  
Deferred income taxes         234         36  
Other assets           1,419         1,667  
Total assets      $   77,949     $   102,782  
                   
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:            
Accounts payable and accrued expenses   $   6,437     $   7,397  
Accrued payroll and related expenses       12,103         15,415  
Refund liabilities and deferred revenue       6,047         7,566  
Other current liabilities         254         –   
Total current liabilities       24,841         30,378  
                   
Other long-term liabilities         1,934         1,418  
Total liabilities         26,775         31,796  
                   
Shareholders’ equity:          
Common stock           229         268  
Additional paid-in capital         576,256         590,067  
Accumulated deficit         (526,182 )       (520,912 )
Accumulated other comprehensive income       871         1,563  
Total shareholders’ equity       51,174         70,986  
                   
Total liabilities and shareholders’ equity    $   77,949     $   102,782  
                   

SCHEDULE 3
PRGX Global, Inc. and Subsidiaries
Reconciliation of Net Income (Loss) to EBIT, EBITDA and Adjusted EBITDA
(Amounts in thousands)
(Unaudited)
                     
                     
        Three Months   Nine Months
        Ended September 30,   Ended September 30,
          2015       2014       2015       2014  
Reconciliation of net loss to EBIT, EBITDA and Adjusted EBITDA:                
                     
Net income (loss)   $   (3,409 )   $   (239 )   $   (5,270 )   $   (5,381 )
                     
Income tax expense       421         554         1,172         853  
Interest expense (income), net       (8 )       (44 )       (103 )       (33 )
                     
EBIT         (2,996 )       271         (4,201 )       (4,561 )
                     
Depreciation of property and equipment       1,262         1,428         3,858         4,696  
Amortization of intangible assets       517         895         2,017         2,700  
                     
EBITDA       (1,217 )       2,594         1,674         2,835  
                     
Foreign currency transaction (gains) losses on short-term intercompany balances       654         1,221         1,930         1,073  
Acquisition-related charges       –          –          –          249  
Transformation severance and related expenses       845         413         1,554         2,352  
Loss on sale/disposal of assets       1,612         –          1,612         –   
Stock-based compensation       1,381         1,405         4,530         3,409  
                     
Adjusted EBITDA   $   3,275     $   5,633     $   11,300     $   9,918  
                     
                     
                     
EBIT, EBITDA and Adjusted EBITDA are all “non-GAAP financial measures” presented as supplemental measures of our performance.  They are not presented in accordance with accounting principles generally accepted in the United States, or GAAP.  The Company believes these measures provide additional meaningful information in evaluating the Company’s performance over time, and that the rating agencies and a number of lenders use EBIT, EBITDA and similar measures for similar purposes. In addition, a measure similar to Adjusted EBITDA is used in the restrictive covenants contained in the Company’s secured credit facility. However, EBIT, EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. In addition, in evaluating EBIT, EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses such as those used in calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

SCHEDULE 4
PRGX Global, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
                     
                     
        Three Months   Nine Months
        Ended September 30,   Ended September 30,
          2015       2014       2015       2014  
Cash flows from operating activities:              
Net loss $   (3,409 )   $   (239 )   $   (5,270 )   $   (5,381 )
Adjustments to reconcile net loss to net cash provided by operating activities:              
Depreciation and amortization     1,779         2,323         5,875         7,396  
Amortization of deferred debt costs     (100 )       28         (100 )       67  
Loss on sale of assets     1,561         –          1,561         –   
Stock-based compensation expense     1,381         1,405         4,530         3,409  
Foreign currency transaction (gains) losses on short-term intercompany balances     654         1,221         1,930         1,073  
Decrease in receivables     2,265         (2,573 )       8,658         5,159  
Increase (decrease) in accounts payable, accrued payroll and other accrued expenses     1,479         (987 )       (3,683 )       (4,639 )
Other, primarily changes in assets and liabilities     (729 )       100         (1,138 )       46  
Net cash provided by operating activities     4,881         1,278         12,363         7,130  
                     
Cash flows from investing activities:              
Purchases of property and equipment, net of disposals     (972 )       (1,241 )       (3,169 )       (3,574 )
Net cash used in investing activities     (972 )       (1,241 )       (3,169 )       (3,574 )
                     
Cash flows from financing activities:              
Repurchase of common stock     (6,921 )       (9,002 )       (17,261 )       (20,000 )
Other, net     (31 )       142         (266 )       (90 )
Net cash (used in) provided by financing activities     (6,952 )       (8,860 )       (17,527 )       (20,090 )
                     
Effect of exchange rates on cash and cash equivalents     (966 )       (1,251 )       (1,729 )       (873 )
                     
Net (decrease) increase in cash and cash equivalents     (4,009 )       (10,074 )       (10,062 )       (17,407 )
                     
Cash and cash equivalents at beginning of period     19,682         36,367         25,735         43,700  
                     
Cash and cash equivalents at end of period $   15,673     $   26,293     $   15,673     $   26,293  
                     

SCHEDULE 5  
PRGX Global, Inc. and Subsidiaries  
Results by Operating Segment *  
(Amounts in thousands)  
(Unaudited)  
                             
                             
      Three Months Ended   Nine Months Ended  
      September 30,   September 30,  
                             
        2015       2014     Change     2015       2014     Change  
Revenue                          
Recovery Audit Services – Americas   $   23,981     $   28,550     $   (4,569 )   $   71,748     $   80,377     $   (8,629 )  
Recovery Audit Services – Europe/Asia-Pacific        8,052         10,708         (2,656 )       27,307         32,792         (5,485 )  
Adjacent Services       1,332         3,586         (2,254 )       4,290         8,150         (3,860 )  
Healthcare Claims Recovery Audit Services       558         144         414         999         1,551         (552 )  
Total   $   33,923     $   42,988     $   (9,065 )   $   104,344     $   122,870     $   (18,526 )  
                             
Cost of revenue                          
Recovery Audit Services – Americas   $   15,139     $   17,074     $   1,935     $   45,272     $   50,148     $   4,876    
Recovery Audit Services – Europe/Asia-Pacific        5,883         7,608         1,725         18,927         23,698         4,771    
Adjacent Services       2,485         3,284         799         6,586         9,168         2,582    
Healthcare Claims Recovery Audit Services       880         715         (165 )       2,300         4,443         2,143    
Total   $   24,387     $   28,681     $   4,294     $   73,085     $   87,457     $   14,372    
                             
Selling, general and administrative expenses                          
Recovery Audit Services – Americas   $   1,810     $   2,502     $   692     $   5,773     $   8,320     $   2,547    
Recovery Audit Services – Europe/Asia-Pacific        1,322         1,610         288         4,248         5,350         1,102    
Adjacent Services       129         326         197         527         1,838         1,311    
Healthcare Claims Recovery Audit Services       203         540         337         630         1,717         1,087    
Corporate       5,023         5,514         491         14,865         14,280         (585 )  
Total   $   8,487     $   10,492     $   2,005     $   26,043     $   31,505     $   5,462    
                             
Depreciation of property and equipment                          
Recovery Audit Services – Americas   $   947     $   1,111     $   164     $   2,895     $   3,612     $   717    
Recovery Audit Services – Europe/Asia-Pacific        148         150         2         454         445         (9 )  
Adjacent Services       160         145         (15 )       479         463         (16 )  
Healthcare Claims Recovery Audit Services       7         22         15         30         176         146    
Total   $   1,262     $   1,428     $   166     $   3,858     $   4,696     $   838    
                             
Amortization of intangible assets                          
Recovery Audit Services – Americas   $   437     $   500     $   63     $   1,319     $   1,501     $   182    
Recovery Audit Services – Europe/Asia-Pacific        47         299         252         600         911         311    
Adjacent Services       33         96         63         98         288         190    
Total   $   517     $   895     $   378     $   2,017     $   2,700     $   683    
                             
Operating income (loss)                          
Recovery Audit Services – Americas   $   5,648     $   7,363     $   (1,715 )   $   16,489     $   16,796     $   (307 )  
Recovery Audit Services – Europe/Asia-Pacific        652         1,041         (389 )       3,078         2,388         690    
Adjacent Services       (1,475 )       (265 )       (1,210 )       (3,400 )       (3,607 )       207    
Healthcare Claims Recovery Audit Services       (532 )       (1,133 )       601         (1,961 )       (4,785 )       2,824    
Corporate       (5,023 )       (5,514 )       491         (14,865 )       (14,280 )       (585 )  
Total   $   (730 )   $   1,492     $   (2,222 )   $   (659 )   $   (3,488 )   $   2,829    
                             
Adjusted EBITDA                          
Recovery Audit Services – Americas   $   7,133     $   9,018     $   (1,885 )   $   20,968     $   22,419     $   (1,451 )  
Recovery Audit Services – Europe/Asia-Pacific        847         1,497         (650 )       4,400         4,313         87    
Adjacent Services       (1,282 )       (6 )       (1,276 )       (2,793 )       (2,211 )       (582 )  
Healthcare Claims Recovery Audit Services       (53 )       (1,085 )       1,032         (1,248 )       (4,178 )       2,930    
Corporate       (3,370 )       (3,791 )       421         (10,027 )       (10,425 )       398    
Total   $   3,275     $   5,633     $   (2,358 )   $   11,300     $   9,918     $   1,382    
                             
* The Recovery Audit Services – Americas segment represents recovery audit services, excluding Healthcare Claims Recovery Audit Services, provided in the United States, Canada and Latin America. The Recovery Audit Services – Europe/Asia-Pacific segment represents recovery audit services, excluding Healthcare Claims Recovery Audit Services, provided in Europe, Asia and the Pacific region. The Adjacent Services segment represents financial advisory services and business analytics services. The Healthcare Claims Recovery Audit Services segment represents recovery audit services for healthcare claims, which consist primarily of services provided under subcontracts related to the Medicare Recovery Audit Contractor program.  
   

CONTACT: PRGX Global, Inc.
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Phone: 770-779-3011

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