Press Release

Nov 1, 2018

PRGX Global, Inc. Announces Third Quarter 2018 Financial Results

ATLANTA, Nov. 01, 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 three and nine months ended September 30, 2018.  

"We are pleased to report our ninth consecutive quarter of year-over-year revenue and adjusted EBITDA growth from continuing operations.  Revenue increased approximately 4% on a year-over-year constant dollar basis, with growth in both adjacent services and recovery audit. Adjacent services had a particularly strong quarter, growing more than 155% on a year-over-year constant dollar basis.  We also benefited from increasing operating leverage, with adjusted EBITDA increasing over 3% on a year-over-year constant dollar basis, including the considerable investment in our sales, marketing and product development resources.  Our comparative results are particularly impressive given our strong growth in revenue and adjusted EBITDA in the third quarter last year and over $2 million of delayed revenue in our recovery audit business, all of which we expect to recognize in the fourth quarter,” said Ron Stewart, president and chief executive officer. 

“As promised, our investment in sales and marketing has provided significant momentum across all service lines and geographies.  Year-to-date we have already added more new clients and closed over 85 engagements with more projected total contract value than in all of 2017, including two large advisory engagements and the second largest SaaS agreement signed in the company’s history. Given our continuing strong performance, 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 September 30, 2018

Consolidated revenue from continuing operations for the third quarter of 2018 was $43.3 million, compared to $42.5 million for the same period last year, an increase of 2.0%.  Third quarter 2018 revenue from the Recovery Audit Services segments was $41.0 million compared to $41.5 million in the prior year, and from the Adjacent Services segment was $2.3 million compared to $0.9 million in 2017.   On a constant dollar basis adjusted for changes in foreign exchange rates, consolidated revenue from continuing operations increased by 3.6% in the third 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 0.2% and revenue from the Adjacent Services segment increased 155.6% for the third quarter of 2018 compared to the same period in 2017. 

Total cost of revenue from continuing operations for the third quarter of 2018 was $26.1 million, or 60.4% of revenue, compared to $26.7 million, or 62.8% of revenue, in the same period last year, an improvement of approximately 240 basis points in gross margin as a percentage of revenue.

Selling, general and administrative expenses from continuing for the third quarter of 2018 were $12.5 million, compared to $12.2 million in the prior year period.  The increase in SG&A expenses for this period was primarily attributable to planned investments in our global go-to-market teams and product development organization.

Consolidated net income from continuing operations for the third quarter of 2018 was $2.6 million, or $0.11 per basic and diluted share, compared to net income of $0.7million, or $0.05 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 third quarter of 2018 was $6.4 million, or 14.9% of revenue, compared to Adjusted EBITDA of $6.4 million, or 15.1% of revenue, in the third quarter of 2017.   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 Nine Months Ended September 30, 2018

Consolidated revenue from continuing operations for the nine months ended September 30, 2018 was $122.1 million, compared to $114.5 million for the same period last year, an increase of 6.6%.  For the nine months ended September 30, 2018, revenue from the Recovery Audit Services segments was $117.3 million compared to $111.1 million in the prior year, and from the Adjacent Services segment was $4.8 million compared to $3.5 million in 2017.  On a constant dollar basis adjusted for changes in foreign exchange rates, consolidated revenue from continuing operations increased by 5.8% in the nine months ended September 30, 2018, compared to the same period in the prior year.  On a constant dollar basis, revenue from the Recovery Audit Services segments increased 4.8% and revenue from the Adjacent Services segment increased 36.9% for the for the nine months ended September 30, 2018 compared to the same period in 2017. 

Total cost of revenue from continuing operations for the nine months ended September 30, 2018 was $78.3 million, or 64.1% of revenue, compared to $75.3 million, or 65.7% of revenue, in the same period last year, an improvement of approximately 160 basis points in gross margin as a percentage of revenue.

SG&A expenses from continuing operations for the nine months ended September 30, 2018 were $36.6 million, compared to $34.1 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 nine months ended September 30, 2018 was $2.6 million, or a negative $0.12 per basic and diluted share, compared to a net loss of $1.1 million, or a negative $0.05 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 nine months ended September 30, 2018 was $13.8 million, or 11.3% of revenue, compared to Adjusted EBITDA of $12.0 million, or 10.5% 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 provided by operating activities for the third quarter of 2018 was $3.1 million compared to net cash provided of $2.3 million for the third quarter of the prior year.  For the nine months ended September 30, 2018, net cash used by operating activities was $3.4 million compared to net cash provided of $3.6 million for the same period in the prior year. 

At September 30, 2018, the Company had unrestricted cash and cash equivalents of $10.6 million, and borrowings of $17.6 million against its $35.0 million revolving credit facility.

Stock Repurchase Program

The Company’s Board of Directors recently approved a $15 million increase (to $75 million) in the Company’s stock repurchase program and extended the duration of the program to December 31, 2019. Since the February 2014 announcement of the program, the Company has repurchased 8.6 million shares of its common stock for an aggregate cost of $44.5 million.  As of October 26, 2018, the Company had approximately 23.6 million shares of common stock outstanding.

Third 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 third 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 7434559.

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 December 31, 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 Company’s expected revenue from client engagements, 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   Nine Months
        Ended September 30,   Ended September 30,
          2018       2017       2018       2017  
                     
Revenue, net     $   43,320     $   42,467     $   122,143     $   114,546  
Operating expenses:                  
  Cost of revenue         26,146         26,675         78,332         75,306  
  Selling, general and administrative expenses     12,521         12,189         36,594         34,149  
  Depreciation of property and equipment         1,713         1,133         5,296         3,462  
  Amortization of intangible assets         872         722         2,524         2,166  
  Acquisition-related adjustment (income) loss       (1,640 )       -          (1,640 )       -   
  Total operating expenses         39,612         40,719         121,106         115,083  
                     
  Operating income (loss) from continuing operations     3,708         1,748         1,037         (537 )
                     
Foreign currency transaction losses (gains) on short-term intercompany balances         70         (418 )       730         (1,927 )
Interest expense, net         416         142         1,300         227  
Other loss (income)         (1 )       17         16         (177 )
  Income (loss) from continuing operations before income taxes     3,223         2,007         (1,009 )       1,340  
                     
Income tax expense         597         930         1,573         2,436  
                     
  Net income (loss) from continuing operations   $   2,626     $   1,077     $   (2,582 )   $   (1,096 )
                     
Discontinued operations:                  
Loss from discontinued operations         (325 )       (344 )       (684 )       (1,029 )
Income tax expense         -          -          -          -   
  Net loss from discontinued operations         (325 )       (344 )       (684 )       (1,029 )
                     
  Net income (loss)     $   2,301     $   733     $   (3,266 )   $   (2,125 )
                     
Basic income (loss) per common share:                  
Basic income (loss) from continuing operations   $   0.11     $   0.05     $   (0.12 )   $   (0.05 )
Basic loss from discontinued operations         (0.01 )       (0.02 )       (0.02 )       (0.05 )
Total basic income (loss) per common share   $   0.10     $   0.03     $   (0.14 )   $   (0.10 )
                     
Diluted income (loss) per common share:                  
Diluted income (loss) from continuing operations $   0.11     $   0.05     $   (0.11 )   $   (0.05 )
Diluted loss from discontinued operations         (0.01 )       (0.02 )       (0.03 )       (0.05 )
Total diluted income (loss) per common share   $   0.10     $   0.03     $   (0.14 )   $   (0.10 )
                     
Weighted average common shares outstanding:              
  Basic         23,558         22,498         23,142         22,225  
  Diluted         24,207         22,761         23,142         22,225  
                     

 

 
SCHEDULE 2
PRGX Global, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
                   
                   
                   
                   
              September 30,   December 31,
              2018     2017  
                   
ASSETS
Current assets:            
  Cash and cash equivalents     $   10,483     $   18,823  
  Restricted cash           110         51  
  Receivables:            
    Contract receivables, net       37,553         38,767  
    Employee advances and miscellaneous receivables, net       1,446         1,665  
      Total receivables         38,999         40,432  
                   
  Prepaid expenses and other current assets       3,660         4,608  
      Total current assets         53,252         63,914  
                   
Property and equipment, net         19,999         17,478  
Goodwill             17,569         17,648  
Intangible assets, net         15,870         18,478  
Deferred income taxes         1,398         1,538  
Other assets           1,729         1,162  
       Total assets      $   109,817     $   120,218  
                   
                   
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:            
  Accounts payable and accrued expenses   $   5,518     $   8,548  
  Accrued payroll and related expenses       10,609         13,078  
  Refund liabilities         8,203         7,864  
  Deferred revenue         1,142         1,431  
  Current portion of long-term debt       48         48  
  Current portion of long-term incentive compensation liability       -          5,116  
  Current portion of business acquisition obligations       3,992         3,759  
      Total current liabilities       29,512         39,844  
                   
Long-term debt           17,549         13,526  
Business acquisition obligations       -          5,135  
Refund liabilities           263         957  
Other long-term liabilities         412         442  
      Total liabilities         47,736         59,904  
                   
Shareholders' equity:          
  Common stock           236         224  
  Additional paid-in capital         585,553         580,032  
  Accumulated deficit         (523,315 )       (520,049 )
  Accumulated other comprehensive income       (393 )       107  
      Total shareholders' equity       62,081         60,314  
                   
       Total liabilities and shareholders' equity    $   109,817     $   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   Nine Months
      Ended September 30,   Ended September 30,
      2018     2017     2018     2017  
Reconciliation of net income (loss) to EBIT, EBITDA and Adjusted EBITDA:              
                   
Net income (loss) $   2,301     $   733     $   (3,266 )   $   (2,125 )
                   
  Income tax expense     597         930         1,573         2,436  
  Interest expense, net     416         142         1,300         227  
                   
EBIT       3,314         1,805         (393 )       538  
                   
  Depreciation of property and equipment     1,713         1,135         5,297         3,468  
  Amortization of intangible assets     872         722         2,524         2,166  
                   
EBITDA     5,899         3,662         7,428         6,172  
                   
  Foreign currency transaction losses (gains) on short-term intercompany balances     70         (418 )       730         (1,927 )
  Acquisition-related adjustment (income) loss     (1,640 )       -          (1,640 )       -   
  Transformation severance and related expenses     439         692         2,428         1,592  
  Other (income) loss     (1 )       17         16         (177 )
  Stock-based compensation     1,341         2,107         4,159         5,362  
                   
Adjusted EBITDA $   6,108     $   6,060     $   13,121     $   11,022  
                   
Adjusted EBITDA from continuing operations $   6,433     $   6,402     $   13,804     $   12,045  
Adjusted EBITDA from discontinued operations $   (325 )   $   (342 )   $   (683 )   $   (1,023 )
                   
                   
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, 
      2018     2017     2018     2017  
Cash flows from operating activities:              
  Net income (loss) $ 2,301     $ 733     $ (3,266 )   $ (2,125 )
                   
  Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:              
    Depreciation and amortization   2,585       1,855       7,820       5,628  
    Amortization of deferred loan costs   21       57       53       77  
    Deferred income taxes   -       -       169       -  
    Stock-based compensation expense   1,341       2,107       4,159       5,362  
    Changes in fair value of contingent consideration   (1,640 )     -       (1,640 )     -  
    Foreign currency transaction losses (gains) on short-term intercompany balances   70       (418 )     730       (1,927 )
    Long-term incentive compensation payout   (998 )     -       (6,378 )     -  
    Decrease (increase) in receivables   668       (2,867 )     550       (714 )
    (Decrease) increase in accounts payable, accrued payroll and other accrued expenses   (613 )     (601 )     (6,222 )     (319 )
    Other, primarily changes in assets and liabilities   (743 )     1,416       537       (2,425 )
    Net cash provided by (used in) operating activities   2,992       2,282       (3,488 )     3,557  
                   
Cash flows from investing activities:              
  Purchases of property and equipment, net of disposals   (2,572 )     (2,390 )     (7,899 )     (6,433 )
  Acquistion of businesses, net of cash acquired   -       -       19       (10,128 )
    Net cash used in investing activities   (2,572 )     (2,390 )     (7,880 )     (16,561 )
                   
Cash flows from financing activities:              
  Net borrowings under line of credit   -       -       4,000       10,000  
  Payment of earnout liability related to business acquisitions   -       -       (4,000 )     -  
  Other, net   884       -       2,841       605  
    Net cash provided by financing activities   884       -       2,841       10,605  
                   
Effect of exchange rates on cash and cash equivalents   (552 )     (830 )     187       (1,392 )
                   
    Net change in cash and cash equivalents   752       (938 )     (8,340 )     (3,791 )
                   
Cash and cash equivalents at beginning of period   9,731       12,870       18,823       15,723  
                   
Cash and cash equivalents at end of period $ 10,483     $ 11,932     $ 10,483     $ 11,932  
                   

 

 
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,
                           
    2018     2017     Change     2018     2017     Change
Revenue                        
  Recovery Audit Services - Americas $   28,806     $   30,705     $   (1,899 )     $   83,676     $   81,641     $   2,035  
  Recovery Audit Services - Europe/Asia-Pacific      12,191         10,837         1,354           33,663         29,441         4,222  
  Adjacent Services     2,323         925         1,398           4,804         3,464         1,340  
  Total $   43,320     $   42,467     $   853       $   122,143     $   114,546     $   7,597  
                           
Cost of revenue                        
  Recovery Audit Services - Americas $   17,602     $   18,552     $   (950 )     $   52,866     $   51,154     $   1,712  
  Recovery Audit Services - Europe/Asia-Pacific      6,632         6,650         (18 )         20,551         19,553         998  
  Adjacent Services     1,912         1,473         439           4,915         4,599         316  
  Total $   26,146     $   26,675     $   (529 )     $   78,332     $   75,306     $   3,026  
                           
Selling, general and administrative expenses                        
  Recovery Audit Services - Americas $   3,058     $   2,662     $   396       $   8,746     $   7,320     $   1,426  
  Recovery Audit Services - Europe/Asia-Pacific      2,535         2,114         421           5,643         5,247         396  
  Adjacent Services     569         910         (341 )         1,423         3,040         (1,617 )
  Corporate**     4,719         6,503         (1,784 )         19,142         18,542         600  
  Total $   10,881     $   12,189     $   (1,308 )     $   34,954     $   34,149     $   805  
                           
Depreciation of property and equipment                        
  Recovery Audit Services - Americas $   1,260     $   789     $   471       $   3,876     $   2,478     $   1,398  
  Recovery Audit Services - Europe/Asia-Pacific      164         161         3           512         453         59  
  Adjacent Services     289         183         106           908         531         377  
  Total $   1,713     $   1,133     $   580       $   5,296     $   3,462     $   1,834  
                           
Amortization of intangible assets                        
  Recovery Audit Services - Americas $   445     $   329     $   116       $   1,218     $   986     $   232  
  Recovery Audit Services - Europe/Asia-Pacific      37         -          37           136         -          136  
  Adjacent Services     390         393         (3 )         1,170         1,180         (10 )
  Total $   872     $   722     $   150       $   2,524     $   2,166     $   358  
                           
Operating income (loss)                        
  Recovery Audit Services - Americas $   6,441     $   8,373     $   (1,932 )     $   16,970     $   19,703     $   (2,733 )
  Recovery Audit Services - Europe/Asia-Pacific      2,823         1,912         911           6,821         4,188         2,633  
  Adjacent Services     (837 )       (2,034 )       1,197           (3,612 )       (5,886 )       2,274  
  Corporate     (4,719 )       (6,503 )       1,784           (19,142 )       (18,542 )       (600 )
  Total $   3,708     $   1,748     $   1,960       $   1,037     $   (537 )   $   1,574  
                           
Adjusted EBITDA                        
  Recovery Audit Services - Americas $   8,325     $   9,540     $   (1,215 )     $   22,792     $   23,480     $   (688 )
  Recovery Audit Services - Europe/Asia-Pacific      3,008         2,433         575           8,468         5,223         3,245  
  Adjacent Services     (160 )       (1,198 )       1,038           (1,468 )       (3,870 )       2,402  
  Corporate     (4,740 )       (4,373 )       (367 )         (15,988 )       (12,788 )       (3,200 )
  Total $   6,433     $   6,402     $   31       $   13,804     $   12,045     $   1,759  
                           
* 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 a $1,640 acquisition-related adjustment that reduced expenses in the three months and nine months ended September 30, 2018.
                         

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Source: PRGX Global, Inc.