Press Release

Aug 9, 2018

PRGX Global, Inc. Announces Second Quarter 2018 Financial Results

ATLANTA, Aug. 09, 2018 (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 second quarter ended June 30, 2018.  

“We continued our strong performance in the second quarter, delivering our eighth straight quarter of year-over-year revenue and adjusted EBITDA growth.  Revenue from continuing operations in the second quarter grew over 9% and adjusted EBITDA from continuing operations grew over 17%. Also noteworthy in the second quarter was year-over-year revenue growth of over 47% in Adjacent Services. We are pleased with our second quarter results, achieving growth in every service line and in each region,” said Ron Stewart, president and chief executive officer.

“Our new business pipeline is strong and growing, providing continued momentum into the back half of 2018.  Since the beginning of the year we have added more than 20 new clients and secured more than 25 service expansions in existing clients.  Given our strong performance in the first half of the year and positive outlook for the remainder of the year, we remain on track to meet our 2018 guidance of year-over-year revenue growth in the range of 8% to 10% and adjusted EBITDA growth in the range of 17% to 22%," concluded Stewart.

Consolidated Results from Continuing Operations for the Three Months Ended June 30, 2018

Consolidated revenue from continuing operations for the second quarter of 2018 was $42.1 million, compared to $38.5 million for the same period last year, an increase of 9.3%.  Second quarter 2018 revenue from the Recovery Audit Services segments was $40.4 million compared to $37.3 million in the prior year, and from the Adjacent Services segment was $1.7 million compared to $1.2 million in 2017.   On a constant dollar basis adjusted for changes in foreign exchange rates, consolidated revenue from continuing operations increased by 8.5% in the second quarter of 2018, compared to the same period in the prior year.  On a constant dollar basis, revenue from the Recovery Audit Services segments increased 7.2% and revenue from the Adjacent Services segment increased 49.3% for the second quarter of 2018 compared to the same period in 2017.

Total cost of revenue from continuing operations for the second quarter of 2018 was $27.4 million, or 65.0% of revenue, compared to $25.6 million, or 66.5% of revenue, in the same period last year, an improvement of approximately 150 basis points in gross margin as a percentage of revenue.

Selling, general and administrative expenses from continuing operations for the second quarter of 2018 were $12.8 million, compared to $11.4 million in the prior year period.  The increase in SG&A expenses for this period was primarily attributable to planned investments in our product development organization and global go-to-market team.

Consolidated net loss from continuing operations for the second quarter of 2018 was $2.9 million, or a negative $0.13 per basic and diluted share, compared to net loss of $0.3 million, or a negative $0.01 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 second quarter of 2018 was $4.1 million, or 9.7% of revenue, compared to Adjusted EBITDA of $3.5 million, or 9.0% of revenue, in the second quarter of 2017, an increase of 17.4%.   Schedule 3 attached to this press release provides a reconciliation of net loss to each of EBIT (Earnings Before Interest and Taxes), EBITDA and Adjusted EBITDA.

Consolidated Results from Continuing Operations for the Six Months Ended June 30, 2018

Consolidated revenue from continuing operations for the six months ended June 30, 2018 was $78.8 million, compared to $72.1 million for the same period last year, an increase of 9.3%.  For the six months ended June 30, 2018, revenue from the Recovery Audit Services segments was $76.3 million compared to $69.5 million in the prior year, and from the Adjacent Services segment was $2.5 million compared to $2.5 million in 2017.  On a constant dollar basis adjusted for changes in foreign exchange rates, consolidated revenue from continuing operations increased by 7.2% in the six months ended June 30, 2018, compared to the same period in the prior year.  On a constant dollar basis, revenue from the Recovery Audit Services segments increased 7.6% and revenue from the Adjacent Services segment decreased 3.1% for the for the six months ended June 30, 2018 compared to the same period in 2017. 

Total cost of revenue from continuing operations for the six months ended June 30, 2018 was $52.2 million, or 66.2% of revenue, compared to $48.6 million, or 67.5% of revenue, in the same period last year, an improvement of approximately 130 basis points in gross margin as a percentage of revenue.

SG&A expenses from continuing operations for the six months ended June 30, 2018 were $24.1 million, compared to $22.0 million in the prior year period.  The increase in SG&A expenses for this period was primarily attributable to planned investments in our product development organization and global go-to-market team.

Consolidated net loss from continuing operations for the six months ended June 30, 2018 was $5.2 million, or $0.23 per basic and diluted share, compared to a net loss of $2.2 million, or $0.10 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 six months ended June 30, 2018 was $7.4 million, or 9.4% of revenue, compared to Adjusted EBITDA of $5.6 million, or 7.8% of revenue, for the same period in the prior year.  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.

Cash Flow and Liquidity

Net cash used by operating activities for the second quarter of 2018 was $3.5 million compared to net cash provided of $4.6 million in the second quarter of the prior year, and net cash used was $6.5 million for the six months ended June 30, 2018 compared to net cash provided of $1.3 million in the same period in the prior year. 

At June 30, 2018, the Company had unrestricted cash and cash equivalents of $9.7 million, and borrowings of $17.6 million against its $35.0 million revolving credit facility. During the second quarter of 2018, the Company borrowed $4 million from its revolving credit facility to pay contingent consideration related to a prior acquisition.

Second 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 second quarter 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 9099844.

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 September 30, 2018. 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 75% of the top 20 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, PRGX 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, the Company's execution of its business strategy, the sustainability and predictability of the Company’s growth, the Company’s sales pipeline, and the Company's expectations regarding its 2018 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.

This news release was distributed by GlobeNewswire, www.globenewswire.com

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   Six Months
        Ended June 30,   Ended June 30,
        2018   2017   2018   2017
                     
Revenue, net     $   42,102   $   38,510   $   78,823   $   72,079
Operating expenses:                  
  Cost of revenue       27,389     25,605     52,186     48,631
  Selling, general and administrative expenses     12,809     11,424     24,073     21,960
  Depreciation of property and equipment       2,360     1,109     3,583     2,329
  Amortization of intangible assets       864     722     1,652     1,444
  Total operating expenses       43,422     38,860     81,494     74,364
                     
  Operating loss from continuing operations       (1,320)     (350)     (2,671)     (2,285)
                     
Foreign currency transaction losses (gains)                  
  on short-term intercompany balances       880     (957)     660     (1,509)
Interest expense, net       486     48     884     85
Other loss (income)       5     5     17     (194)
  (Loss) income from continuing operations before income taxes   (2,691)     554     (4,232)     (667)
                     
Income tax expense       189     879     976     1,506
                     
  Net loss from continuing operations     $   (2,880)   $   (325)   $   (5,208)   $   (2,173)
                     
Discontinued operations:                  
Loss from discontinued operations       (26)     (349)     (359)     (685)
Income tax expense       -      -      -      - 
  Net loss from discontinued operations       (26)     (349)     (359)     (685)
                     
  Net loss     $   (2,906)   $   (674)   $   (5,567)   $   (2,858)
                     
Basic loss per common share:                  
Basic loss from continuing operations     $   (0.13)   $   (0.01)   $   (0.23)   $   (0.10)
Basic loss from discontinued operations       -      (0.02)     (0.01)     (0.03)
Total basic loss per common share     $   (0.13)   $   (0.03)   $   (0.24)   $   (0.13)
                     
Diluted loss per common share:                  
Diluted loss from continuing operations     $   (0.13)   $   (0.01)   $   (0.23)   $   (0.10)
Diluted loss from discontinued operations       -      (0.02)     (0.01)     (0.03)
Total diluted loss per common share     $   (0.13)   $   (0.03)   $   (0.24)   $   (0.13)
                     
Weighted average common shares outstanding:                
  Basic       23,283     22,227     22,930     22,087
  Diluted       23,283     22,227     22,930     22,087
                     


 
SCHEDULE 2
PRGX Global, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
                   
                   
                   
                   
              June 30,   December 31,
              2018   2017
                   
      ASSETS 
Current assets:            
  Cash and cash equivalents     $   9,731   $   18,823
  Restricted cash         159     51
  Receivables:            
    Contract receivables, net       38,152     38,767
    Employee advances and miscellaneous receivables, net     1,358     1,665
      Total receivables       39,510     40,432
                   
  Prepaid expenses and other current assets     4,348     4,608
      Total current assets       53,748     63,914
                   
Property and equipment, net       19,163     17,478
Goodwill           17,591     17,648
Intangible assets, net       16,773     18,478
Deferred income taxes       1,378     1,538
Other assets         1,726     1,162
       Total assets      $   110,379   $   120,218
                   
                   
      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:            
  Accounts payable and accrued expenses   $   7,263   $   8,548
  Accrued payroll and related expenses     10,239     13,078
  Refund liabilities         8,499     7,864
  Deferred revenue       1,795     1,431
  Current portion of long-term debt     48     48
  Current portion of long-term incentive compensation liability     998     5,116
  Current portion of business acquisition obligations     5,444     3,759
      Total current liabilities       34,286     39,844
                   
Long-term debt         17,543     13,526
Business acquisition obligations     -      5,135
Refund liabilities         287     957
Other long-term liabilities       461     442
      Total liabilities       52,577     59,904
                   
Shareholders' equity:          
  Common stock         235     224
  Additional paid-in capital       583,468     580,032
  Accumulated deficit       (525,616)     (520,049)
  Accumulated other comprehensive income     (285)     107
      Total shareholders' equity     57,802     60,314
                   
       Total liabilities and shareholders' equity    $   110,379   $   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   Six Months
      Ended June 30,   Ended June 30,
      2018   2017   2018   2017
Reconciliation of net income (loss) to EBIT, EBITDA              
  and Adjusted EBITDA:              
                   
Net loss $   (2,906)   $   (674)   $   (5,567)   $   (2,858)
                   
  Income tax expense   189     879     976     1,506
  Interest expense, net   486     48     884     85
                   
EBIT     (2,231)     253     (3,707)     (1,267)
                   
  Depreciation of property and equipment   2,360     1,113     3,584     2,333
  Amortization of intangible assets   864     722     1,652     1,444
                   
EBITDA   993     2,088     1,529     2,510
                   
  Foreign currency transaction losses (gains)              
  on short-term intercompany balances   880     (957)     660     (1,509)
  Transformation severance and related              
  expenses   1,315     314     1,989     899
  Other loss (income)   5     5     17     (194)
  Stock-based compensation   873     1,688     2,818     3,254
                   
Adjusted EBITDA $   4,066   $   3,138   $   7,013   $   4,960
                   
Adjusted EBITDA from continuing operations $   4,092   $   3,484   $   7,371   $   5,641
Adjusted EBITDA from discontinued operations $   (26)   $   (346)   $   (358)   $   (681)
                   
                   
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     Six Months 
         Ended June 30,     Ended June 30, 
        2018   2017   2018   2017
 Cash flows from operating activities:               
   Net loss  $   (2,906)   $   (674)   $   (5,567)   $   (2,858)
                     
   Adjustments to reconcile net loss to net cash               
      used in operating activities:               
        Depreciation and amortization    3,224     1,833     5,235     3,773
        Amortization of deferred debt costs    24     20     32     20
        Deferred income taxes    -      -      169     - 
        Stock-based compensation expense    873     1,688     2,818     3,254
        Foreign currency transaction losses (gains) on               
        short-term intercompany balances    880     (957)     660     (1,509)
        Long-term incentive compensation payout    -      -      (5,380)    
        (Increase) decrease in receivables    (6,018)     117     (118)     2,154
        Increase (decrease) in accounts payable, accrued               
        payroll and other accrued expenses    96     4,436     (5,609)     282
        Other, primarily changes in assets and liabilities    316     (1,846)     1,280     (3,840)
       Net cash (used in) provided by operating activities    (3,511)     4,617     (6,480)     1,276
                     
 Cash flows from investing activities:               
    Acquistion of businesses, net of cash acquired    -      12     19     (10,128)
    Purchases of property and equipment, net of disposals    (2,807)     (2,549)     (5,327)     (4,049)
       Net cash used in investing activities    (2,807)     (2,537)     (5,308)     (14,177)
                     
 Cash flows from financing activities:               
    Net borrowings under line of credit    4,000     -      4,000     10,000
    Payment of earnout liability related to business acquisitions    (4,000)     -      (4,000)     - 
    Other, net    785     222     1,957     604
       Net cash provided by financing activities    785     222     1,957     10,604
                     
 Effect of exchange rates on cash and cash equivalents    316     (967)     739     (556)
                     
       Net change in cash and cash equivalents    (5,217)     1,335     (9,092)     (2,853)
                     
 Cash and cash equivalents at beginning of period    14,948     11,535     18,823     15,723
                     
 Cash and cash equivalents at end of period  $   9,731   $   12,870   $   9,731   $  12,870
                     
                     


SCHEDULE 5
PRGX Global, Inc. and Subsidiaries
Results by Operating Segment *
(Amounts in thousands)
(Unaudited)
                           
                           
    Three Months Ended     Six Months Ended
    June 30,     June 30,
                           
    2018   2017   Change     2018   2017   Change
Revenue                        
  Recovery Audit Services - Americas $   28,912   $   26,553   $   2,359     $   54,870   $   50,936   $   3,934
  Recovery Audit Services - Europe/Asia-Pacific    11,445     10,773     672       21,472     18,604     2,868
  Adjacent Services   1,745     1,184     561       2,481     2,539     (58)
  Total $   42,102   $   38,510   $   3,592     $   78,823   $   72,079   $   6,744
                           
Cost of revenue                        
  Recovery Audit Services - Americas $   19,113   $   17,324   $   1,789     $   35,264   $   32,602   $   2,662
  Recovery Audit Services - Europe/Asia-Pacific    6,834     6,717     117       13,919     12,903     1,016
  Adjacent Services   1,442     1,564     (122)       3,003     3,126     (123)
  Total $   27,389   $   25,605   $   1,784     $   52,186   $   48,631   $   3,555
                           
Selling, general and administrative expenses                        
  Recovery Audit Services - Americas $   2,897   $   2,615   $   282     $   5,688   $   4,658   $   1,030
  Recovery Audit Services - Europe/Asia-Pacific    1,737     1,786     (49)       3,108     3,133     (25)
  Adjacent Services   523     959     (436)       854     2,130     (1,276)
  Corporate   7,652     6,064     1,588       14,423     12,039     2,384
  Total $   12,809   $   11,424   $   1,385     $   24,073   $   21,960   $   2,113
                           
Depreciation of property and equipment                        
  Recovery Audit Services - Americas $   1,719   $   779   $   940     $   2,616   $   1,689   $   927
  Recovery Audit Services - Europe/Asia-Pacific    206     152     54       348     292     56
  Adjacent Services   435     178     257       619     348     271
  Total $   2,360   $   1,109   $   1,251     $   3,583   $   2,329   $   1,254
                           
Amortization of intangible assets                        
  Recovery Audit Services - Americas $   436   $   328   $   108     $   773   $   657   $   116
  Recovery Audit Services - Europe/Asia-Pacific    38     -      38       99     -      99
  Adjacent Services   390     394     (4)       780     787     (7)
  Total $   864   $   722   $   142     $   1,652   $   1,444   $   208
                           
Operating income (loss)                        
  Recovery Audit Services - Americas $   4,747   $   5,507   $   (760)     $   10,529   $   11,330   $   (801)
  Recovery Audit Services - Europe/Asia-Pacific    2,630     2,118     512       3,998     2,276     1,722
  Adjacent Services   (1,045)     (1,911)     866       (2,775)     (3,852)     1,077
  Corporate   (7,652)     (6,064)     (1,588)       (14,423)     (12,039)     (2,384)
  Total $   (1,320)   $   (350)   $   (970)     $   (2,671)   $   (2,285)   $   (386)
                           
Adjusted EBITDA                        
  Recovery Audit Services - Americas $   7,388   $   6,802   $   586     $   14,467   $   13,940   $   527
  Recovery Audit Services - Europe/Asia-Pacific    3,346     2,354     992       5,460     2,790     2,670
  Adjacent Services   (220)     (1,293)     1,073       (1,308)     (2,672)     1,364
  Corporate   (6,422)     (4,379)     (2,043)       (11,248)     (8,417)     (2,831)
  Total $   4,092   $   3,484   $   608     $   7,371   $   5,641   $   1,730
                           
* 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 advisory analytics and supplier information management services.



 

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Source: PRGX Global, Inc.