PRGX Global, Inc. Announces Second Quarter 2014 Financial

ATLANTA, July 28, 2014 (GLOBE NEWSWIRE) -- PRGX Global, Inc. (Nasdaq: PRGX ), the world's leading provider of accounts payable recovery audit services and the pioneer in Profit Discovery ™, today announced its unaudited financial results for the second quarter ended June 30, 2014.

"The PRGX Global team bounced back during the quarter to deliver solid results, increasing revenue nearly 11% over the first quarter," said Ron Stewart, president and chief executive officer. "Compared to Q1, our core recovery audit business increased revenue by 14% and increased Adjusted EBITDA by 49%. Leading the way was our Europe/Asia-Pacific team, recording strong sequential and year-over-year revenue and Adjusted EBITDA growth."

"Outside of our core business, our Adjacent Services business delivered improved Adjusted EBITDA compared to Q1 on comparable revenue. And finally, our Healthcare Claims Recovery Audit segment continues to be challenged as we wind down our obligations related to the Medicare RAC subcontracts," continued Mr. Stewart.

"We are starting to see elements of our strategy take effect. This includes continuing to drive process standardization in our core business and moving more work to our global shared service centers, thereby improving efficiencies and reducing costs. The expansion of our audit capabilities into targeted industries and geographies is also bearing fruit, especially in the Oil & Gas industry, where we've built a significant backlog of work. In addition, key projects started near the end of the quarter have us excited about the promise of Adjacent Services and we remain focused on our goal of achieving profitability in this portion of our business by year end," concluded Mr. Stewart.

Consolidated Results for the Three Months Ended June 30, 2014

Consolidated revenue for the second quarter of 2014 decreased 16.4% to $42.0 million compared to $50.2 million in the same prior year period. After adjusting for changes in foreign exchange rates, consolidated second quarter revenue in 2014 decreased 17.2% compared to the same period in 2013.

Recovery Audit Services – Americas revenue for the second quarter of 2014 decreased 8.0% to $27.0 million compared to $29.4 million in the same period in the prior year. On a constant dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services – Americas revenue for the second quarter of 2014 decreased by 7.2% compared to the same period in 2013. Most of this reduction is the result of the rate and scope reductions at several large clients, as previously communicated. Further, while there has been a significant increase in contract compliance claims production, conversion of these claims to revenue has been delayed.

Recovery Audit Services – Europe/Asia-Pacific revenue for the second quarter of 2014 increased 15.0% to $12.4 million compared to $10.8 million in the same period in the prior year. On a constant dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services – Europe/Asia-Pacific revenue for the second quarter of 2014 increased by 9.1% compared to the same period in 2013. The majority of this increase is due to audit growth in key clients in Australia and improved claim conversion within Europe.

Adjacent Services revenue for the second quarter of 2014 was $2.3 million compared to $3.1 million in the same period in the prior year. The majority of this decrease was expected as the Company continues to rationalize and refine its offerings in this segment.

Healthcare Claims Recovery Audit Services revenue for the second quarter of 2014 was $0.3 million compared to $6.9 million in the same period in the prior year. This expected decrease in revenue was primarily attributable to the substantial reduction in auditing as part of the Medicare RAC program.

Total cost of revenue for the second quarter of 2014 was $29.9 million, or 71.3% of revenue, compared to $32.5 million, or 64.8% of revenue, in the same period last year. Nearly half of this margin erosion was due to the wind down of the Medicare RAC program, with the remainder due to the decline in revenue in the other segments as well as our investment in our Contract Compliance services. SG&A for the second quarter of 2014 was $11.0 million compared to $11.6 million in the same period last year, a decrease of $0.6 million. Excluding transformation severance and related expenses, the year over year decrease in SG&A expenses for the quarter was $1.5 million. Depreciation and amortization expenses were $2.5 million in the second quarter of 2014 compared to $3.4 million in the prior year second quarter.

Net loss for the second quarter of 2014 was $(1.5) million, or $(0.05) per basic and diluted share, compared to net income of $1.8 million, or $0.06 per basic and diluted share, for the same period in 2013. Net cash provided by operating activities for the second quarter of 2014 was $2.9 million compared to net cash used in operating activities of $4.0 million in the second quarter of 2013.

Adjusted EBITDA for the second quarter of 2014 was $3.8 million compared to $8.0 million of Adjusted EBITDA for the same period in 2013, a decline of $4.2 million, of which $3.5 million is attributable to Healthcare Claims Recovery Audit Services. Second quarter 2014 Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization (EBITDA) excluding a charge of $1.0 million related to stock-based compensation, $1.6 million of transformation severance and related expenses, a $0.2 million charge for acquisition-related charges, and $0.2 million of foreign currency gains on short-term intercompany balances. The comparable Adjusted EBITDA amount for the second quarter of 2013 excludes from EBITDA for such period a $1.2 million charge related to stock-based compensation, $0.6 million of transformation severance and related expenses, a $0.2 million charge for acquisition-related charges, and $0.2 million of foreign currency losses on short-term intercompany balances. 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.

Consolidated Results for the Six Months Ended June 30, 2014

Consolidated revenue for the six months ended June 30, 2014 decreased 16.2% to $79.9 million compared to $95.3 million in the same prior year period. After adjusting for changes in foreign exchange rates, consolidated revenue for the six months ended June 30, 2014 decreased 16.3% compared to the same period in 2013.

Recovery Audit Services – Americas revenue for the six months ended June 30, 2014 decreased 6.8% to $51.8 million compared to $55.6 million in the same period in the prior year. On a constant dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services – Americas revenue for the six month period decreased by 5.4% compared to the same period in 2013.

Recovery Audit Services – Europe/Asia-Pacific revenue for the six months ended June 30, 2014 increased 1.4% to $22.1 million compared to $21.8 million in the same period in the prior year. On a constant dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services – Europe/ Asia-Pacific revenue for the six month period decreased by 2.7% compared to the same period in 2013.

Adjacent Services revenue for the six months ended June 30, 2014 was $4.6 million compared to $7.1 million in the same period in the prior year.

Healthcare Claims Recovery Audit Services revenue for the six months ended June 30, 2014 was $1.4 million compared to $10.8 million in the same period in the prior year.

Total cost of revenue for the six months ended June 30, 2014 was $58.8 million, or 73.6% of revenue, compared to $64.1 million, or 67.2% of revenue, in the same period in the prior year. Over half of this margin erosion was due to the wind down of the Medicare RAC program, with the remainder due to the decline in revenue in the other segments as well as our investment in our Contract Compliance services. SG&A for the six months ended June 30, 2014 was $21.0 million compared to $22.2 million in the same period in the prior year, a decline of $1.2 million. Excluding transformation severance and related expenses, the year over year decrease in SG&A expenses for the six month period was $2.1 million. Depreciation and amortization expenses were $5.1 million for the six months ended June 30, 2014 compared to $6.6 million in the same period in the prior year.

Net loss for the six months ended June 30, 2014 was $(5.1) million, or $(0.17) per basic and diluted share, compared to net income of $1.3 million, or $0.05 per basic and diluted share, in the same period in the prior year. Net cash provided by operating activities for the six months ended June 30, 2014 was $5.9 million compared to net cash used in operating activities of $3.1 million in the same period in the prior year.

Adjusted EBITDA for the six months ended June 30, 2014 was $4.3 million compared to $11.7 million of Adjusted EBITDA for the same period in 2013, a decline of $7.4 million, of which $4.7 million is attributable to Healthcare Claims Recovery Audit Services. For the six months ended June 30, 2014, Adjusted EBITDA was earnings before interest, taxes, depreciation and amortization (EBITDA) excluding a charge of $2.0 million related to stock-based compensation, $1.9 million of transformation severance and related expenses, a $0.2 million charge for acquisition-related charges, and $0.1 million of foreign currency gains on short-term intercompany balances. The comparable Adjusted EBITDA amount for the six months ended June 30, 2013 excludes from EBITDA for such period a $2.5 million charge related to stock-based compensation, $0.6 million of transformation severance and related expenses, a $0.5 million credit for acquisition-related benefits, and $0.6 million of foreign currency losses on short-term intercompany balances. Schedule 3 attached to this press release provides a reconciliation of net income (loss) to each of EBIT, EBITDA and Adjusted EBITDA.

Liquidity

At June 30, 2014, the Company had unrestricted cash and cash equivalents of $36.4 million, no borrowings against its revolving credit facility, and no bank debt outstanding.

Stock Repurchase Program

During the second quarter of 2014 the Company repurchased 1.7 million shares of its outstanding common stock for an aggregate cost of $11.0 million. From the February 2014 announcement of the Company's current stock repurchase program through July 25, 2014, the Company has repurchased 2.2 million shares, or 7.2% of its common stock outstanding on the date of the announcement, for an aggregate cost of $14.1 million. As of July 25, 2014, the Company had 28.0 million shares of common stock outstanding.

Second Quarter Earnings Call

As previously announced, management will hold a conference call tomorrow morning at 8:30 AM (Eastern time) to discuss the Company's second quarter 2014 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 69055483.

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, 2014. Please note that the Internet audiocast is "listen-only." Microsoft Windows Media Player is required to access the live audiocast and the replay and can be downloaded from www.microsoft.com/windows/mediaplayer .

About PRGX Global, Inc.

Headquartered in Atlanta, Georgia, PRGX Global, Inc. is the world's leading provider of accounts payable recovery audit services. With over 1,600 employees, the Company operates and serves clients in more than 30 countries and provides its services to over 75% of the top 20 global retailers. PRGX is also pioneering Profit Discovery, a unique combination of audit, analytics and advisory services that improves client financial performance. For additional information, please visit PRGX at www.prgx.com .

Forward-Looking Statements

In addition to historical information, this press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include both implied and express statements regarding the Company's overall condition and growth prospects, anticipated plans and financial results for the remainder of 2014, the strength of the Company's core recovery audit business, the Company's decision to withdraw from the Medicare RAC rebid process, the long term business objectives for the Company, including its Healthcare Claims Recovery Audit Services business and its Adjacent Services business. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from the historical results or from any results expressed or implied by such forward-looking statements. Risks that could affect the Company's future performance include revenue that does not meet expectations or justify costs incurred, the Company's ability to develop material sources of new revenue in addition to revenue from its core recovery audit services, changes in the market for the Company's services, the Company's ability to retain and attract qualified personnel, changes to Medicare and Medicaid recovery audit contractor programs and the effects of the Company's decision to withdraw from the Medicare RAC rebid process, the Company's ability to integrate recent and future acquisitions, uncertainty in the credit markets, the Company's ability to maintain compliance with its financial covenants, client bankruptcies, loss of major clients, and other risks generally applicable to the Company's business. For a discussion of other risk factors that may impact the Company's business, please see the Company's filings with the Securities and Exchange Commission, including its Form 10-K filed on March 14, 2014. 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.

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