Press Release

Mar 7, 2019

PRGX Global, Inc. Announces Fourth Quarter and Full Year 2018 Financial Results

ATLANTA, March 07, 2019 (GLOBE NEWSWIRE) -- PRGX Global, Inc. (Nasdaq: PRGX), a global leader in Recovery Audit and Spend Analytics services, today announced its unaudited financial results for the fourth quarter and year ended December 31, 2018.  

Highlights

  • Revenue from continuing operations of $49.6 million for the fourth quarter of 2018, representing growth of 5.4% year-over-year (8.1% on a constant dollar basis), the tenth consecutive quarter of growth
  • Net Income from continuing operations for the fourth quarter of $5.9 million for 2018, representing growth of 5.0% year-over-year
  • Adjusted EBITDA from continuing operations of $10.9 million for the fourth quarter of 2018, representing growth of 16.9% year-over-year (23.4% on a constant dollar basis)
  • Providing 2019 annual guidance of year-over-year revenue growth in the range of 8% to 10% and Adjusted EBITDA growth in the range of 14% to 18%
 
    For the Three Months Ended December 31,
    2018 2017 % Change
  Selected Financial Data (dollars in thousands)      
  Revenue       
  Recovery Audit Services - Americas  32,244 31,481 2.4 %
  Recovery Audit Services - Europe/Asia-Pacific  15,863 14,931 6.2 %
  Adjacent Services  1,526 662 130.5 %
  Total  49,633 47,074 5.4 %
  Net income from continuing operations  5,933 5,652 5.0 %
       
  Non-GAAP Financial Measures      
  Adjusted EBITDA from continuing operations  10,869 9,300 16.9 %
     
    For the Twelve Months Ended December 31,
    2018 2017 % Change
  Selected Financial Data (dollars in thousands)      
  Revenue       
  Recovery Audit Services - Americas  115,920 113,122 2.5 %
  Recovery Audit Services - Europe/Asia-Pacific  49,526 44,372 11.6 %
  Adjacent Services  6,330 4,126 53.4 %
  Total  171,776 161,620 6.3 %
  Net income from continuing operations  3,351 4,556 -26.4 %
       
  Non-GAAP Financial Measures      
  Adjusted EBITDA from continuing operations  24,673 21,345 15.6 %
   

“2018 was another strong year for PRGX.  We delivered growth in revenue and Adjusted EBITDA for the third year in a row, while growing our sales pipeline, enhancing our technology platform, expanding our go-to-market team and significantly increasing our contract compliance and UK audit teams.  Further, our fourth quarter revenue reached the highest level in five years.  I was especially pleased with the continued progress in our Adjacent Services segment,” said Ron Stewart, president and chief executive officer.

“Looking ahead, we have great confidence in our growth trajectory for the coming year. We enter 2019 with expected incremental revenue from engagements signed in 2018, several early wins in 2019, and a robust pipeline of additional new business opportunities.  Based on our strong momentum, we are projecting 2019 year-over-year revenue growth in the range of 8% to 10% and Adjusted EBITDA growth in the range of 14% to 18%,” concluded Stewart.

Consolidated Results from Continuing Operations for the Three Months Ended December 31, 2018

Consolidated revenue from continuing operations for the fourth quarter of 2018 was $49.6 million, compared to $47.1 million for the same period in 2017, an increase of 5.4%.  Fourth quarter 2018 revenue from the Recovery Audit Services segments was $48.1 million compared to $46.4 million in the prior year, and from the Adjacent Services segment was $1.5 million compared to $0.7 million in 2017.  On a constant dollar basis adjusted for changes in foreign exchange rates, revenue increased by 8.1% in the fourth quarter of 2018 compared to the same period in the prior year.  

Total cost of revenue from continuing operations for the fourth quarter of 2018 was $26.5 million, or 53.4% of revenue, compared to $26.7 million, or 56.8% of revenue, for the same period in the prior year, representing a 3.4% improvement as a percentage of revenue.

Selling, general and administrative expenses from continuing operations for the fourth quarter of 2018 were $13.9 million compared to $12.8 million in the prior year period. 

Consolidated net income from continuing operations for the fourth quarter of 2018 was $5.9 million, or $0.26 per basic and diluted share, compared to net income of $5.7 million, or $0.26 per basic and diluted share, for the same period in 2017.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) from continuing operations for the fourth quarter of 2018 was $10.9 million, or 21.9% of revenue, compared to Adjusted EBITDA of $9.3 million, or 19.8% of revenue, for the fourth quarter of 2017, an increase of $1.6 million or 16.9%.  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.  On a constant dollar basis adjusted for changes in foreign exchange rates, Adjusted EBITDA increased by 23.4% in the fourth quarter of 2018 compared to the same period in the prior year.  

Consolidated Results from Continuing Operations for the Year Ended December 31, 2018

Consolidated revenue from continuing operations for the year ended December 31, 2018 was $171.8 million, compared to $161.6 million in 2017, an increase of 6.3%. Revenue from the Recovery Audit Services segments was $165.4 million compared to $157.5 million in the prior year, and from the Adjacent Services segment was $6.3 million compared to $4.1 million in 2017. On a constant dollar basis adjusted for changes in foreign exchange rates, revenue increased by 6.5% for the year ended December 31, 2018, compared to the prior year.

Total cost of revenue from continuing operations for the year ended December 31, 2018 was $104.8 million, or 61.0% of revenue, compared to $102.1 million, or 63.1% of revenue, in 2017, an improvement of 2.1% as a percentage of revenue.

Selling, general and administrative expenses from continuing operations for the year ended December 31, 2018 were $50.5 million, compared to $46.9 million in the prior year.  

Consolidated net income from continuing operations for the year ended December 31, 2018 was $3.4 million, or $0.14 per basic and diluted share, compared to net income of $4.6 million, or $0.21 per basic and diluted share, for the prior year.

Adjusted EBITDA from continuing operations for the year ended December 31, 2018 was $24.7 million, or 14.4% of revenue, compared to Adjusted EBITDA of $21.3 million, or 13.2% of revenue, for the prior year, an increase of $3.3 million or 15.6%.  Schedule 3 attached to this press release provides a reconciliation of net income (loss) to each of EBIT, EBITDA and Adjusted EBITDA.  On a constant dollar basis adjusted for changes in foreign exchange rates, Adjusted EBITDA increased by 17.7% for the year ended December 31, 2018, compared to the same period in the prior year.

Cash Flow and Liquidity

Net cash provided by operating activities for the fourth quarter of 2018 was $6.0 million, compared to $9.9 million in the fourth quarter of the prior year, and $2.4 million for the year ended December 31, 2018 compared to $13.5 million in in the prior year. 

At December 31, 2018, the Company had unrestricted cash and cash equivalents of $14.0 million, and borrowings of $21.6 million against its $30.0 million revolving credit facility.

Stock Repurchase Program

Since the February 2014 announcement of the Company’s stock repurchase program, as of December 31, 2018, the Company has repurchased 9.1 million shares.  The Company repurchased approximately 0.4 million shares of its outstanding common stock for an aggregate cost of $4.1 million in the year ended December 31, 2018.   

Fourth Quarter Earnings Call

As previously announced, management will hold a conference call later today at 5:00 PM (Eastern time) to discuss the Company’s fourth quarter and full year 2018 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 4791596.

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 June 30, 2019. 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/en-us/downloads.

About PRGX

PRGX Global, Inc. is a global leader in Recovery Audit and Spend Analytics services.  With over 1,500 employees, the Company serves clients in more than 30 countries and provides its services to 80% of the top 15 global retailers and over 25% of the top 50 companies in the Fortune 500. PRGX delivers more than $1 billion in cash flow improvement for its clients each year.  The creator of the recovery audit industry more than 40 years ago, PRGX continues to innovate through technology and expanded service offerings.  In addition to Recovery Audit, the Company provides Contract Compliance, Spend Analytics and Supplier Information Management services to improve clients’ financial performance and manage risk. For additional information on PRGX, please visit 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 and the Company’s expectations regarding its 2019 financial performance.   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, 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. 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.

CONTACT: PRGX Global, Inc.
investor-relations@prgx.com
Phone: 770-779-3011


 
SCHEDULE 1        
PRGX Global, Inc. and Subsidiaries        
Condensed Consolidated Statements of Operations        
(Amounts in thousands, except per share data)        
(Unaudited)        
               
               
  Three Months   Twelve Months
  Ended December 31,   Ended December 31,
    2018       2017       2018       2017  
               
Revenue, net of refund liabilities $   49,633     $   47,074     $   171,776     $   161,620  
Operating expenses:              
Cost of revenue     26,493         26,746         104,825         102,052  
Selling, general and administrative expenses     13,862         12,792         50,456         46,941  
Depreciation of property, equipment and software assets     2,074         1,107         7,370         4,569  
Amortization of intangible assets     871         1,468         3,395         3,634  
Acquisition-related adjustments loss (income)      12         (2,283 )       (1,628 )       (2,283 )
Total operating expenses     43,312         39,830         164,418         154,913  
               
Operating income from continuing operations     6,321         7,244         7,358         6,707  
               
Foreign currency transaction losses (gains)              
on short-term intercompany balances     272         (263 )       1,002         (2,190 )
Interest expense, net     363         1,312         1,663         1,539  
Other loss (income)     5         17         21         (160 )
Income from continuing operations before income taxes     5,681         6,178         4,672         7,518  
               
Income tax (benefit) expense     (252 )       526         1,321         2,962  
               
Net income from continuing operations $   5,933     $   5,652     $   3,351     $   4,556  
               
Discontinued operations:              
Income (loss) from discontinued operations     1,926         (343 )       1,242         (1,372 )
Income tax expense     -          -          -          -   
Net income (loss) from discontinued operations     1,926         (343 )       1,242         (1,372 )
               
Net income $   7,859     $   5,309     $   4,593     $   3,184  
               
Basic income (loss) per common share:              
Basic income from continuing operations $   0.26     $   0.26     $   0.14     $   0.21  
Basic income (loss) from discontinued operations   0.08       (0.02 )     0.06       (0.06 )
Total basic income per common share $   0.34     $   0.24     $   0.20     $   0.15  
               
Diluted income (loss) per common share:              
Diluted income from continuing operations $   0.26     $   0.26     $   0.14     $   0.21  
Diluted income (loss) from discontinued operations   0.08       (0.02 )     0.06       (0.06 )
Total diluted income per common share $   0.34     $   0.24     $   0.20     $   0.15  
               
Weighted average common shares outstanding:              
Basic     23,036         22,017         22,811         21,937  
Diluted     23,619         22,303         23,434         22,111  
               

 

 

 
SCHEDULE 2
PRGX Global, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
         
         
         
         
    December 31,   December 31,
      2018       2017  
         
  ASSETS               
Current assets:        
 Cash and cash equivalents $   13,973     $   18,823  
 Restricted cash       46         51  
 Receivables:        
 Contract receivables, net     46,865         38,767  
 Employee advances and miscellaneous receivables, net     567         1,665  
 Total receivables     47,432         40,432  
         
 Prepaid expenses and other current assets       3,144         4,608  
 Total current assets     64,595         63,914  
         
Property, equipment and software, net       22,028         17,478  
Goodwill       17,531         17,648  
Intangible assets, net       14,945         18,478  
Deferred income taxes       2,895         1,538  
Other assets       2,169         1,162  
 Total assets  $   124,163     $   120,218  
         
         
  LIABILITIES AND SHAREHOLDERS' EQUITY              
Current liabilities:        
 Accounts payable and accrued expenses   $   7,515     $   8,548  
 Accrued payroll and related expenses       15,073         13,078  
 Refund liabilities       6,497         7,864  
 Deferred revenue       2,428         1,431  
 Current portion of long-term debt       21,601         48  
 Current portion of long-term incentive compensation liability       -          5,116  
 Current portion of business acquisition obligations       4,162         3,759  
 Total current liabilities     57,276         39,844  
         
Long-term debt       -          13,526  
Business acquisition obligations       -          5,135  
Refund liabilities       100         957  
Other long-term liabilities       458         442  
 Total liabilities     57,834         59,904  
         
Shareholders' equity:        
 Common stock       232         224  
 Additional paid-in capital     582,574         580,032  
 Accumulated deficit       (515,456 )       (520,049 )
 Accumulated other comprehensive income       (1,021 )       107  
 Total shareholders' equity     66,329         60,314  
         
 Total liabilities and shareholders' equity  $   124,163     $   120,218  
         

 

 

 SCHEDULE 3
PRGX Global, Inc. and Subsidiaries
Reconciliation of Net Income (Loss) to EBIT, EBITDA and Adjusted EBITDA
(Amounts in thousands)
(Unaudited)
               
               
  Three Months   Twelve Months
  Ended December 31,   Ended December 31,
    2018       2017       2018       2017  
Reconciliation of net income to EBIT, EBITDA              
 and Adjusted EBITDA:              
               
Net income $   7,859     $   5,309     $   4,593     $   3,184  
               
 Income tax (benefit) expense     (252 )       526         1,321         2,962  
 Interest expense, net     363         1,312         1,663         1,539  
               
EBIT     7,970         7,147         7,577         7,685  
               
 Depreciation of property, equipment and software assets     2,074         1,109         7,371         4,577  
 Amortization of intangible assets     871         1,468         3,395         3,634  
               
EBITDA     10,915         9,724         18,343         15,896  
               
 Foreign currency transaction losses (gains)              
 on short-term intercompany balances     272         (263 )       1,002         (2,190 )
 Acquisition-related adjustments loss (income)     12         (2,283 )       (1,628 )       (2,283 )
 Transformation and severance expenses     694         74         3,122         1,666  
 Other loss (income)     5         17         21         (160 )
 Stock-based compensation     897         1,690         5,056         7,052  
               
Adjusted EBITDA $   12,795     $   8,959     $   25,916     $   19,981  
               
Adjusted EBITDA from continuing operations $   10,869     $   9,300     $   24,673     $   21,345  
Adjusted EBITDA from discontinued operations $   1,926     $   (341 )   $   1,243     $   (1,364 )
               

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     Twelve Months 
   Ended December 31,     Ended December 31, 
    2018       2017       2018       2017  
 Cash flows from operating activities:               
 Net income $   7,859     $   5,309     $   4,593     $   3,184  
               
 Adjustments to reconcile net income to net cash 
   provided by operating activities: 
             
 Depreciation and amortization      2,946         2,575         10,766         8,203  
 Amortization of deferred loan costs      -         9         53         85  
 Deferred income taxes      (1,490 )       731         (1,321 )       731  
 Stock-based compensation expense      897         1,690         5,056         7,052  
 Changes in fair value of contingent consideration      12         (2,283 )       (1,628 )       (2,283 )
 Foreign currency transaction losses (gains) on               
  short-term intercompany balances      272         (263 )       1,002         (2,190 )
 Long-term incentive compensation payout      -         -         (6,378 )       -  
 Increase in receivables      (10,181 )       (3,705 )       (9,631 )       (4,418 )
 Increase in accounts payable, accrued               
  payroll and other accrued expenses      5,367         2,109         (855 )       1,790  
 Other, primarily changes in assets and liabilities      237         3,731         774         1,306  
 Net cash provided by operating activities      5,919         9,903         2,431         13,460  
               
 Cash flows from investing activities:               
 Purchases of property and equipment, net of disposals      (2,499 )       (2,922 )       (10,398 )       (9,355 )
 Acquistion of businesses, net of cash acquired      -         -         19         (10,128 )
 Net cash used in investing activities      (2,499 )       (2,922 )       (10,379 )       (19,483 )
               
 Cash flows from financing activities:               
 Net borrowings under line of credit      4,000         -         8,000         10,000  
 Payment of earnout liability related to business acquisitions      -         -         (4,000 )       -  
 Other, net     (3,807 )       378         (966 )       983  
 Net cash provided by financing activities      193         378         3,034         10,983  
               
 Effect of exchange rates on cash and cash equivalents      (123 )       (468 )       64         (1,860 )
               
 Net change in cash and cash equivalents      3,490         6,891         (4,850 )       3,100  
               
 Cash and cash equivalents at beginning of period      10,483         11,932         18,823         15,723  
               
 Cash and cash equivalents at end of period  $   13,973     $   18,823     $   13,973     $   18,823  
               

 

 

 
SCHEDULE 5
PRGX Global, Inc. and Subsidiaries
Results by Operating Segment *
(Amounts in thousands)
(Unaudited)
                           
                           
    Three Months Ended     Twelve Months Ended
    December 31,     December 31,
                           
      2018       2017     Change       2018       2017     Change
Revenue, net of refund liabilities                        
  Recovery Audit Services - Americas $   32,244     $   31,481     $   763       $   115,920     $   113,122     $   2,798  
  Recovery Audit Services - Europe/Asia-Pacific      15,863         14,931         932           49,526         44,372         5,154  
  Adjacent Services     1,526         662         864           6,330         4,126         2,204  
  Total $   49,633     $   47,074     $   2,559       $   171,776     $   161,620     $   10,156  
                           
Cost of revenue                        
  Recovery Audit Services - Americas $   17,031     $   17,809     $   (778 )     $   69,897     $   68,963     $   934  
  Recovery Audit Services - Europe/Asia-Pacific      7,216         7,377         (161 )         27,767         26,930         837  
  Adjacent Services     2,246         1,560         686           7,161         6,159         1,002  
  Total $   26,493     $   26,746     $   (253 )     $   104,825     $   102,052     $   2,773  
                           
Selling, general and administrative expenses                    
  Recovery Audit Services - Americas $   3,103     $   2,090     $   1,013       $   11,849     $   9,410     $   2,439  
  Recovery Audit Services - Europe/Asia-Pacific      1,796         1,339         457           7,439         6,586         853  
  Adjacent Services     262         695         (433 )         1,685         3,735         (2,050 )
  Corporate**     8,713         6,385         2,328           27,855         24,927         2,928  
  Total $   13,874     $   10,509     $   3,365       $   48,828     $   44,658     $   4,170  
                           
Depreciation of property, equipment and software assets                  
  Recovery Audit Services - Americas $   1,669     $   687     $   982       $   5,545     $   3,165     $   2,380  
  Recovery Audit Services - Europe/Asia-Pacific      171         146         25           683         599         84  
  Adjacent Services     234         274         (40 )         1,142         805         337  
  Total $   2,074     $   1,107     $   967       $   7,370     $   4,569     $   2,801  
                           
Amortization of intangible assets                        
  Recovery Audit Services - Americas $   446     $   933     $   (487 )     $   1,664     $   1,919     $   (255 )
  Recovery Audit Services - Europe/Asia-Pacific      36         142         (106 )         172         142         30  
  Adjacent Services     389         393         (4 )         1,559         1,573         (14 )
  Healthcare Claims Recovery Audit Services     -          -          -            -              -   
  Total $   871     $   1,468     $   (597 )     $   3,395     $   3,634     $   (239 )
                           
Operating income (loss)                        
  Recovery Audit Services - Americas $   9,995     $   9,962     $   33       $   26,965     $   29,665     $   (2,700 )
  Recovery Audit Services - Europe/Asia-Pacific      6,644         5,927         717           13,465         10,115         3,350  
  Adjacent Services     (1,605 )       (2,260 )       655           (5,217 )       (8,146 )       2,929  
  Corporate     (8,713 )       (6,385 )       (2,328 )         (27,855 )       (24,927 )       (2,928 )
  Total $   6,321     $   7,244     $   (923 )     $   7,358     $   6,707     $   651  
                           
Adjusted EBITDA                        
  Recovery Audit Services - Americas $   12,326     $   11,582     $   744       $   35,118     $   35,062     $   56  
  Recovery Audit Services - Europe/Asia-Pacific      7,046         6,288         758           15,514         11,511         4,003  
  Adjacent Services     (982 )       (1,578 )       596           (2,450 )       (5,448 )       2,998  
  Corporate     (7,521 )       (6,992 )       (529 )         (23,509 )       (19,780 )       (3,729 )
  Total $   10,869     $   9,300     $   1,569       $   24,673     $   21,345     $   3,328  
                           


* The Recovery Audit Services - Americas segment represents recovery audit services provided in the United States, Canada and Latin America. The Recovery Audit Services - Europe/Asia-Pacific segment represents recovery audit services provided in Europe, Asia and the Pacific region. The Adjacent Services segment represents spend analytics and supplier information management services.

** Corporate - Includes acquisition-related adjustments of $12,000 loss that increased expenses in the three months ended December 31, 2018, and
of $1.6 million income that reduced expenses in the twelve months ended December 31, 2018.

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Source: PRGX Global, Inc.