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 [phone] at least 5 minutes prior to the start of the conference. Listeners outside the U.S. and Canada should dial [phone]. 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.
[e-mail]
Phone: [phone]

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.