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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 0-28000
 PRGX Global, Inc.
(Exact name of registrant as specified in its charter) 
Georgia 58-2213805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Galleria Parkway 30339-5986
Suite 100 (Zip Code)
Atlanta, Georgia
 
(Address of principal executive offices) 
Registrants telephone number, including area code: (770779-3900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  
¨  Large accelerated filer
Accelerated filer
¨  Non-accelerated filer     
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  




Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valuePRGXNasdaq Global Select Market
Common shares of the registrant outstanding at July 31, 2020 were 23,612,686.



PRGX GLOBAL, INC.
FORM 10-Q
For the Quarter Ended June 30, 2020
INDEX
 
 Page No.
Part I. Financial Information
Part II. Other Information



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 Three Months
Ended June 30,
Six Months
Ended June 30,
 2020201920202019
Revenue, net $39,011  $41,974  $75,850  $80,778  
Operating expenses:
Cost of revenue20,584  26,312  43,118  51,547  
Selling, general and administrative expenses14,726  15,748  28,190  29,665  
Depreciation of property, equipment and software assets1,965  2,381  4,106  4,584  
Amortization of intangible assets828  872  1,657  1,734  
Total operating expenses38,103  45,313  77,071  87,530  
Operating income (loss) from continuing operations908  (3,339) (1,221) (6,752) 
Foreign currency transaction (gains) losses on short-term intercompany balances(819) (77) 637  129  
Interest expense, net303  592  645  1,065  
Other loss (income)2  11  2  (8) 
       Income (loss) from continuing operations before income tax1,422  (3,865) (2,505) (7,938) 
Income tax expense1,004  311  960  479  
Net income (loss) from continuing operations$418  $(4,176) $(3,465) $(8,417) 
Discontinued operations:
Loss from discontinued operations$  $(103) $  $(258) 
Net loss from discontinued operations$  $(103) $  $(258) 
Net income (loss)$418  $(4,279) $(3,465) $(8,675) 
Basic income (loss) per common share (Note 2):
Basic income (loss) from continuing operations$0.02  $(0.18) $(0.15) $(0.37) 
Basic loss from discontinued operations      (0.01) 
Total basic income (loss) per common share$0.02  $(0.18) $(0.15) $(0.38) 
Diluted income (loss) per common share (Note 2):
Diluted income (loss) from continuing operations$0.02  $(0.18) $(0.15) $(0.37) 
Diluted loss from discontinued operations      (0.01) 
Total diluted income (loss) per common share$0.02  $(0.18) $(0.15) $(0.38) 
Weighted-average common shares outstanding (Note 2):
Basic22,606  22,763  22,542  22,687  
Diluted22,716  22,763  22,542  22,687  
See accompanying Notes to Condensed Consolidated Financial Statements.
1


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
 Three Months
Ended June 30,
Six Months
Ended June 30,
 2020201920202019
Net income (loss)$418  $(4,279) $(3,465) $(8,675) 
Foreign currency translation adjustments, net of tax748  (269) (1,200) 244  
Comprehensive income (loss)$1,166  $(4,548) $(4,665) $(8,431) 

See accompanying Notes to Condensed Consolidated Financial Statements.
2


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
June 30,December 31,
20202019
ASSETS
Current assets:
Cash and cash equivalents$21,061  $14,982  
Restricted cash123  46  
Receivables:
Contract receivables, less allowances of $1,379 in 2020 and $1,781 in 2019
Billed32,748  38,201  
Unbilled3,312  4,911  
36,060  43,112  
Employee advances and miscellaneous receivables, net740  704  
Total receivables36,800  43,816  
Prepaid expenses and other current assets4,062  5,582  
Total current assets62,046  64,426  
Property, equipment and software66,950  63,557  
Less accumulated depreciation and amortization(47,813) (45,811) 
Property, equipment and software, net19,137  17,746  
Operating lease right-of-use assets (Note 9)11,044  10,969  
Goodwill14,962  15,070  
Intangible assets, less accumulated amortization of $48,206 in 2020 and $47,097 in 2019
9,714  11,506  
Unbilled receivables865  1,282  
Deferred income taxes3,636  3,921  
Other assets531  546  
Total assets$121,935  $125,466  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses$2,094  $4,326  
Accrued payroll and related expenses14,070  12,951  
Current portion of operating lease liabilities (Note 9)4,077  3,717  
Refund liabilities4,152  4,513  
Deferred revenue1,970  2,217  
Current portion of debt (Note 5)  17  
Total current liabilities26,363  27,741  
Long-term debt (Note 5)36,650  36,603  
Long-term operating lease liabilities (Note 9)7,368  7,435  
Refund liabilities21  9  
Deferred income taxes (Note 8)628  628  
Total liabilities71,030  72,416  
Commitments and contingencies (Note 7)
Shareholders’ equity (Note 2):
Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares; 23,612,686 shares issued and outstanding at June 30, 2020 and 23,369,433 shares issued and outstanding at December 31, 2019
236  234  
Additional paid-in capital584,922  582,404  
Accumulated deficit(532,641) (529,176) 
Accumulated other comprehensive loss(1,612) (412) 
Total shareholders’ equity50,905  53,050  
Total liabilities and shareholders' equity$121,935  $125,466  
See accompanying Notes to Condensed Consolidated Financial Statements.
3


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except share data)
Common Stock
SharesAmountAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Shareholders' Equity
Balance at March 31, 202023,595,079  $236  $583,161  $(533,059) $(2,360) $47,978  
Net income—  —  —  418  —  418  
Foreign currency translation adjustments—  —  —  —  748  748  
Issuances of common stock:
Restricted share awards30,769      —  —    
Restricted shares remitted by employees for taxes(27,977)   (115) —  —  (115) 
Restricted stock unit settlement17,519  —  —  —  —    
Forfeited restricted share awards(2,704) —  —  —  —    
Stock-based compensation expense—  —  1,876  —  —  1,876  
Balance at June 30, 202023,612,686  $236  $584,922  $(532,641) $(1,612) $50,905  
Balance at March 31, 201923,438,058  $234  $581,356  $(519,852) $(508) $61,230  
Net loss—  —  —  (4,279) —  (4,279) 
Foreign currency translation adjustments—  —  —  —  (269) (269) 
Issuances of common stock:
Restricted share awards183,403  2  (2) —  —    
Restricted shares remitted by employees for taxes(38,304)   (246) —  —  (246) 
Stock option exercises35,319  —  170  —  —  170  
Restricted stock unit settlement17,517  —  —  —  —    
Forfeited restricted share awards(24,590) —  —  —  —    
Stock-based compensation expense—  —  1,704  —  —  1,704  
Balance at June 30, 201923,611,403  $236  $582,982  $(524,131) $(777) $58,310  

See accompanying Notes to Condensed Consolidated Financial Statements.






4


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except share data)

Common Stock
SharesAmountAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Shareholders' Equity
Balance at December 31, 201923,369,433  $234  $582,404  $(529,176) $(412) $53,050  
Net loss—  —  —  (3,465) —  (3,465) 
Foreign currency translation adjustments—  —  —  —  (1,200) (1,200) 
Issuances of common stock:
Restricted share awards429,269  4  (4) —  —    
Restricted shares remitted by employees for taxes(112,020) (1) (397) —  —  (398) 
Restricted stock unit settlement61,521  —  —  —  —    
Forfeited restricted share awards(31,655) —  —  —  —    
Repurchase of common stock(103,862) (1) (283) —  —  (284) 
Stock-based compensation expense—  —  3,202  —  —  3,202  
Balance at June 30, 202023,612,686  $236  $584,922  $(532,641) $(1,612) $50,905  
Balance at December 31, 201823,186,258  $232  $582,574  $(515,456) $(1,021) $66,329  
Net loss—  —  —  (8,675) —  (8,675) 
Foreign currency translation adjustments—  —  —  —  244  244  
Issuances of common stock:
Restricted share awards516,955  5  (5) —  —    
Restricted shares remitted by employees for taxes(99,885) (1) (749) —  —  (750) 
Stock option exercises45,380  —  221  —  —  221  
Performance-based restricted stock unit settlement203,524  2  (2) —  —  —  
Restricted stock unit settlement27,516  —  —  —  —    
Forfeited restricted share awards(24,590) —  —  —  —    
Repurchase of common stock(243,755) (2) (2,226) (2,228) 
Stock-based compensation expense—  —  3,169  —  —  3,169  
Balance at June 30, 201923,611,403  $236  $582,982  $(524,131) $(777) $58,310  

See accompanying Notes to Condensed Consolidated Financial Statements
5


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
 20202019
Cash flows from operating activities:
Net loss$(3,465) $(8,675) 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization5,763  6,318  
Operating lease right-of-use asset expense2,195  2,248  
Amortization of deferred loan costs48  117  
Noncash interest expense643    
Stock-based compensation expense3,196  3,046  
Foreign currency transaction losses on short-term intercompany balances637  129  
Deferred income taxes338    
Changes in operating assets and liabilities
Billed receivables4,550  6,593  
Unbilled receivables2,018  (851) 
Prepaid expenses and other current assets1,438  (1,296) 
Operating lease liabilities(1,979)   
Other assets(53) (1,567) 
Accounts payable and accrued expenses(3,890) (2,930) 
Accrued payroll and related expenses1,326  (4,970) 
Refund liabilities(270) (314) 
Deferred revenue(224) (292) 
Net cash provided by (used in) operating activities12,271  (2,444) 
Cash flows from investing activities:
Purchases of property, equipment and software, net of disposal proceeds(5,620) (7,640) 
Net cash used in investing activities(5,620) (7,640) 
Cash flows from financing activities:
Repayments of credit facility(38,000) (3,000) 
Proceeds from credit facility38,000  14,400  
Payment of deferred loan costs  (394) 
Payment of earnout liability related to business acquisitions  (479) 
Restricted stock repurchased from employees for withholding taxes(398) (750) 
Repurchases of common stock(284) (2,228) 
Proceeds from option exercises  221  
Net cash (used in) provided by financing activities(682) 7,770  
Effect of exchange rates on cash and cash equivalents187  (55) 
Net increase (decrease) in cash, cash equivalents and restricted cash6,156  (2,369) 
Cash, cash equivalents and restricted cash at beginning of period15,028  14,019  
Cash, cash equivalents and restricted cash at end of period$21,184  $11,650  
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$716  $385  
Cash paid during the period for income taxes, net of refunds received$804  $1,638  

See accompanying Notes to Condensed Consolidated Financial Statements.
6

Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1) Basis of Presentation
The accompanying Condensed Consolidated Financial Statements (Unaudited) of PRGX Global, Inc. and its wholly-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions for the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
Except as otherwise indicated or unless the context otherwise requires, “PRGX,” “we,” “us,” “our” and the “Company” refer to PRGX Global, Inc. and its subsidiaries. For further information, refer to the Consolidated Financial Statements and the related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Significant Accounting Policies
A summary of the Company's significant accounting policies is included in Note 1 of the “Notes to Consolidated Financial Statements” contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The Company did not experience any significant changes during the quarter ended June 30, 2020 in any of the Critical Accounting Policies from those contained in the Company's Form 10-K for the year ended December 31, 2019. 

COVID-19
In December 2019, a novel strain of coronavirus was first identified, and in March 2020, the World Health Organization categorized COVID-19, the disease resulting from this coronavirus strain, as a pandemic. To help control the spread of the virus and protect the health and safety of our employees and customers, many of the Company's teams worldwide have been working remotely since the middle of March.
The Company evaluates the recoverability of goodwill annually in the fourth quarter of each year or sooner if events or changes in circumstances indicate that the carrying amount may exceed its fair value. The impairment test performed in the fourth quarter of 2019 indicated significant excess fair value over carrying value for the Recovery Audit Services reporting units. The Company evaluated whether there were indicators of impairment as of June 30, 2020 as a result of COVID-19 conditions including deterioration in the macro-economic environment and the volatility in our share price. While there were negative macro-economic factors, the positive evidence outweighed the negative evidence of the fair value of our reporting units more likely than not exceeding the carrying amount of those units as of June 30, 2020. Further, since the negative financial impacts on the Company from the COVID-19 pandemic have not been significant to date, COVID-19 considerations do not significantly affect the assumptions underpinning our long-term revenue and cash flow growth rates, operating models and business strategies. Therefore, the Company did not consider the COVID-19 pandemic to require an interim quantitative goodwill impairment analysis. As a result, no impairment charges for goodwill and indefinite-lived intangible assets were recorded during the three and six months ended June 30, 2020.
The Company also evaluated its remaining assets, particularly accounts receivable. The allowance for doubtful accounts is calculated based on historical experience and various other information available. The Company also assessed incremental risks due to the COVID-19 pandemic on our customers' financial viability. The Company did not experience a significant deterioration of its accounts receivable portfolio during the quarter ended June 30, 2020. The Company will continue to monitor the collectability of its accounts receivable balances.
The Company received an immaterial amount of COVID-19-related rent concessions for certain office space leases in the second quarter of 2020. Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, the Company elected to treat COVID-19-related rent concessions as variable rent. While the Company is having ongoing conversations with landlords, it does not expect significant concessions for the remainder of the year.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on evaluation of the CARES Act, the Company is deferring qualified payroll and other tax payments as permitted by the CARES Act.
7

Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The full extent of the future impact of COVID-19 on the Company’s operations is uncertain. Such events, including a prolonged or recurring outbreak, are generally outside of our control and could have a material adverse impact on our business, operating results and financial conditions in future reporting periods.
Impact of Recently Issued Accounting Standards
A summary of the new accounting standards issued by the FASB and included in the Accounting Standards Codification ("ASC") that apply to PRGX is included below:
Adopted by the Company in Fiscal Year 2020
FASB ASU 2018-13 - In August 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies are required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. Certain provisions of the ASU must be applied retrospectively, while others must be applied prospectively. The Company adopted this ASU on January 1, 2020. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.
FASB ASU 2018-15 - In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this ASU prospectively on January 1, 2020. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
FASB ASU 2016-13 - In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those annual periods, and early adoption is permitted. The Company is currently evaluating the effect that the adoption of this standard will have on the Company's condensed consolidated financial statements.
FASB ASU 2019-12 - In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies accounting for income taxes, changes the accounting for certain income tax transactions and makes certain improvements to the codification. These amendments will be effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the new standard to determine the impact it will have on the Company’s condensed consolidated financial statements.
FASB ASU 2020-04 - In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) and other interbank offered rates. Companies may adopt this guidance at any time but no later than December 31, 2022. The Company is currently evaluating the new standard to determine the impact it will have on the Company’s condensed consolidated financial statements.





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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(2) Net Income (Loss) Per Common Share
The following table sets forth the computations of basic and diluted net income (loss) per common share for the three and six months ended June 30, 2020 and 2019 (in thousands, except per share data):
Three Months
Ended June 30,
Six Months
Ended June 30,
2020201920202019
Numerator:
Net income (loss) from continuing operations$418  $(4,176) $(3,465) $(8,417) 
Net loss from discontinued operations$  $(103) $  $(258) 
Denominator:
Weighted-average common shares outstanding22,606  22,763  22,542  22,687  
Effect of dilutive securities from stock-based compensation plans110        
Weighted-average diluted common shares outstanding22,716  22,763  22,542  22,687  
Basic net income (loss) per common share from continuing operations$0.02  $(0.18) $(0.15) $(0.37) 
Basic net loss per common share from discontinued operations      (0.01) 
Total basic net income (loss) per common share$0.02  $(0.18) $(0.15) $(0.38) 
Diluted income (loss) per common share from continuing operations$0.02  $(0.18) $(0.15) $(0.37) 
Diluted loss per common share from discontinued operations      (0.01) 
Total diluted income (loss) per common share$0.02  $(0.18) $(0.15) $(0.38) 
Anti-dilutive securities excluded from diluted net income (loss) per share calculation4,011  4,277  4,120  4,277  

(3) Stock-Based Compensation
The Company has two stock-based compensation plans under which outstanding equity awards have been granted, the 2008 Equity Incentive Plan ("2008 EIP") and the 2017 Equity Incentive Compensation Plan ("2017 EICP") (collectively, the "Plans"). No additional awards may be granted under the 2008 EIP. Awards granted outside of the Plans are referred to as inducement awards.
        During the three months ended June 30, 2020, equity awards were granted to non-employee directors, and in the six months ended June 30, 2020, equity awards were granted to non-employee directors and certain key employees. The awards included restricted stock, restricted stock units, and performance-based restricted stock units ("PBUs").
Summary of Grant Activity
        The following is a summary of grant activity for the three and six months ended June 30, 2020 (in thousands, except number of awards):
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)