PRGX PRGX Global Inc

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 and six months ended June 30, 2020.

Quarterly Highlights

• Revenue of $39.0 million, which was negatively impacted by approximately $0.7 million from a strengthening U.S. dollar compared to the same period last year
• Net income from continuing operations of $0.4 million compared to a loss of $4.2 million in the same period last year
• Adjusted EBITDA from continuing operations of $7.6 million, the highest second quarter Adjusted EBITDA in seven years and a 165% increase compared to the second quarter of 2019
• Increasing 2020 annual guidance for Adjusted EBITDA to a revised range of $29 million to $30 million

	For the Three Months Ended June 30,											For the Six Months Ended June 30,
Selected Financial Data (dollars in thousands)	2020				2019				% Change			2020				2019				% Change
Revenue
Recovery Audit Services - Americas	$	26,962			$	28,935			-6.8	%		$	53,185			$	56,308			-5.5	%
Recovery Audit Services - Europe/Asia-Pacific	11,157				11,836				-5.7	%		20,942				21,595				-3.0	%
Adjacent Services	892				1,203				-25.9	%		1,723				2,875				-40.1	%
Total	$	39,011			$	41,974			-7.1	%		$	75,850			$	80,778			-6.1	%
Net income (loss) from continuing operations	418				(4,176		)		110.0	%		(3,465		)		(8,417		)		58.8	%
Non-GAAP Financial Measures
Adjusted EBITDA from continuing operations	$	7,555			$	2,856			164.5	%		$	11,023			$	4,589			140.2	%

“We continue to deliver on our promises of fiscal discipline, improved productivity, and expanded operating leverage in 2020. We achieved another milestone in the second quarter of 2020, delivering our highest second quarter Adjusted EBITDA in seven years.  More than 75 percent of our revenue comes from clients engaged in providing essential goods and services, and our clients continue to look to PRGX to help them generate working capital during this challenging pandemic period. Our employees around the world stepped up to the challenge of working remotely to deliver strong results for the quarter. I am very pleased with our improved financial performance in the second quarter and over the last several quarters, and am confident that we can continue to deliver strong results going forward,” said Ron Stewart, President and Chief Executive Officer.

“In the second quarter we continued rolling out our next generation global audit platform which is strategically important to enabling additional margin improvement and increased audit revenue. Based on strong operating results in the first half of the year and further revenue generation opportunities from our solid client base and robust audit operations productivity, we are increasing the lower end of our 2020 Adjusted EBITDA guidance and establishing a revised range of $29 million to $30 million. We also continue to expect a significant improvement in free cash flow compared to 2019,” concluded Stewart.

Unaudited Consolidated Results from Continuing Operations for the Three Months Ended June 30, 2020

Consolidated revenue for the second quarter of 2020 was $39.0 million, compared to $42.0 million for the same period in 2019, a decrease of 7.1%. Second quarter 2020 revenue from the Recovery Audit Services segments was $38.1 million compared to $40.8 million in the second quarter of the prior year, and from the Adjacent Services segment was $0.9 million compared to $1.2 million in 2019. On a constant dollar basis adjusted for changes in foreign exchange rates, revenue decreased by 5.4% in the second quarter of 2020 compared to the same period in the prior year.

Total cost of revenue from continuing operations for the second quarter of 2020 was $20.6 million, or 52.8% of revenue, compared to total cost of revenue from continuing operations of $26.3 million, or 62.7% of revenue, for the same period in the prior year.

Selling, general and administrative expenses from continuing operations for the second quarter of 2020 were $14.7 million compared to selling, general and administrative expenses from continuing operations of $15.7 million in the prior year period.

Consolidated net income from continuing operations for the second quarter of 2020 was $0.4 million, or $0.02 per basic and diluted share, compared to consolidated net loss from continuing operations of $4.2 million, or $(0.18) per basic and diluted share, for the same period in 2019.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) from continuing operations for the second quarter of 2020 was $7.6 million, or 19.4% of revenue, compared to Adjusted EBITDA from continuing operations of $2.9 million, or 6.8% of revenue, for the second quarter of 2019, an increase of $4.7 million or 164.5%.

Schedule 4 attached to this press release provides a reconciliation of net income (loss) to each of Earnings Before Interest and Taxes (EBIT), Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA.

Unaudited Consolidated Results from Continuing Operations for the Six Months Ended June 30, 2020

Consolidated revenue for the six months ended June 30, 2020 was $75.9 million, compared to $80.8 million for the same period in 2019, a decrease of 6.1%. For the six months ended June 30, 2020, revenue from the Recovery Audit Services segments was $74.1 million compared to $77.9 million in the prior year, and from the Adjacent Services segment was $1.7 million compared to $2.9 million in 2019. On a constant dollar basis adjusted for changes in foreign exchange rates, revenue decreased by 4.4% for the six months ended June 30, 2020 compared to the same period in the prior year.

Total cost of revenue from continuing operations for the six months ended June 30, 2020 was $43.1 million, or 56.8% of revenue, compared to total cost of revenue from continuing operations of $51.5 million, or 63.8% of revenue, for the same period in the prior year.

Selling, general and administrative expenses from continuing operations for the six months ended June 30, 2020 were $28.2 million compared to selling, general and administrative expenses from continuing operations of $29.7 million in the prior year period.

Consolidated net loss from continuing operations for the six months ended June 30, 2020 was $3.5 million, or $(0.15) per basic and diluted share, compared to consolidated net loss from continuing operations of $8.4 million, or $(0.37) per basic and diluted share, for the same period in 2019.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) from continuing operations for the six months ended June 30, 2020 was $11.0 million, or 14.5% of revenue, compared to Adjusted EBITDA from continuing operations of $4.6 million, or 5.7% of revenue, for the same period in 2019, an increase of $6.4 million or 140.2%.

Schedule 4 attached to this press release provides a reconciliation of net income (loss) to each of EBIT, EBITDA and Adjusted EBITDA.

Cash Flow and Liquidity

Net cash provided by operating activities for the second quarter of 2020 was $7.0 million, compared to net cash used by operating activities of $0.1 million in the second quarter of the prior year and net cash provided by operating activities was $12.3 million for the six months ended June 30, 2020 compared to net cash used of $2.4 million in the same period in the prior year.

At June 30, 2020, the Company had unrestricted cash and cash equivalents of $21.1 million, and borrowings of $37.0 million against its $60.0 million revolving credit facility.

Guidance

For 2020, Adjusted EBITDA from continuing operations is expected to be in the range of $29 million to $30 million.

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 2020 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 9289271.

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, 2020. 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 helps companies spot value in their source-to-pay processes that other sophisticated solutions didn’t get to before. Having identified more than 300 common points of leakage, we help companies reach wider, dig deeper, and act faster to get more value out of their source-to-pay data. We pioneered this industry nearly 50 years ago, and today we help clients in more than 30 countries take back $1.2 billion in annual cash flow. It’s why 75% of top global retailers and a third of the largest companies in the Fortune 500 rely on us. For additional information on PRGX, please visit www.prgx.com.

Forward-Looking StatementsIn 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, and the Company’s expectations regarding its 2020 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 impact of the COVID-19 pandemic on the Company or its clients, 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 execute on its profitability improvement efforts, 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 4 to this press release provides a reconciliation of net income (loss) to each of EBIT, EBITDA and Adjusted EBITDA.

CONTACT: PRGX Global, Inc.investor-relations@prgx.comPhone: 770-779-3011

SCHEDULE 1PRGX Global, Inc. and SubsidiariesCondensed Consolidated Statements of Operations(Amounts in thousands, except per share data)(Unaudited)

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Revenue, net	$	39,011			$	41,974			$	75,850			$	80,778
Operating expenses:
Cost of revenue	20,584				26,312				43,118				51,547
Selling, general and administrative expenses	14,726				15,748				28,190				29,665
Depreciation of property, equipment and software assets	1,965				2,381				4,106				4,584
Amortization of intangible assets	828				872				1,657				1,734
Total operating expenses	38,103				45,313				77,071				87,530
Operating income (loss) from continuing operations	908				(3,339		)		(1,221		)		(6,752		)
Foreign currency transaction (gains) losses on short-term intercompany balances	(819		)		(77		)		637				129
Interest expense, net	303				592				645				1,065
Other loss (income)	2				11				2				(8		)
Income (loss) from continuing operations before income tax	1,422				(3,865		)		(2,505		)		(7,938		)
Income tax expense	1,004				311				960				479
Net income (loss) from continuing operations	$	418			$	(4,176	)		$	(3,465	)		$	(8,417	)
Discontinued operations:
Loss from discontinued operations	—				(103		)		—				(258		)
Income tax expense	—				—				—				—
Net loss from discontinued operations	—				(103		)		—				(258		)
Net income (loss)	$	418			$	(4,279	)		$	(3,465	)		$	(8,675	)
Basic income (loss) per common share:
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:
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:
Basic	22,606				22,763				22,542				22,687
Diluted	22,716				22,763				22,542				22,687

SCHEDULE 2PRGX Global, Inc. and SubsidiariesCondensed Consolidated Balance Sheets(Amounts in thousands)(Unaudited)

	June 30, 2020				December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	21,061			$	14,982
Restricted cash	123				46
Receivables:
Contract receivables, net	36,060				43,112
Employee advances and miscellaneous receivables, net	740				704
Total receivables	36,800				43,816
Prepaid expenses and other current assets	4,062				5,582
Total current assets	62,046				64,426
Property, equipment and software, net	19,137				17,746
Operating lease right-of-use assets	11,044				10,969
Goodwill	14,962				15,070
Intangible assets, net	9,714				11,506
Deferred income taxes	3,636				3,921
Other assets	1,396				1,828
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 expenses	14,070				12,951
Current portion of operating lease liabilities	4,077				3,717
Refund liabilities	4,152				4,513
Deferred revenue	1,970				2,217
Current portion of long-term debt	—				17
Total current liabilities	26,363				27,741
Long-term debt	36,650				36,603
Long-term operating lease liabilities	7,368				7,435
Refund liabilities	21				9
Deferred income taxes	628				628
Total liabilities	71,030				72,416
Shareholders’ equity:
Common stock	236				234
Additional paid-in capital	584,922				582,404
Accumulated deficit	(532,641		)		(529,176		)
Accumulated other comprehensive income	(1,612		)		(412		)
Total shareholders’ equity	50,905				53,050
Total liabilities and shareholders’ equity	$	121,935			$	125,466

SCHEDULE 3PRGX Global, Inc. and SubsidiariesCondensed Consolidated Statements of Cash Flows(Amounts in thousands)(Unaudited)

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Cash flows from operating activities:
Net income (loss)	$	418			$	(4,279	)		$	(3,465	)		$	(8,675	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	2,793				3,253				5,763				6,318
Operating lease right-of-use asset expense	1,043				1,113				2,195				2,248
Amortization of deferred loan costs	24				61				48				117
Noncash interest expense	298				—				643				—
Stock-based compensation expense	1,876				1,662				3,196				3,046
Foreign currency transaction (gains) losses on short-term intercompany balances	(819		)		(77		)		637				129
Deferred income taxes	—				—				338				—
Changes in operating assets and liabilities
Billed receivables	(581		)		2,180				4,550				6,593
Unbilled receivables	(166		)		(1,790		)		2,018				(851		)
Prepaid expenses and other current assets	(1,145		)		(1,812		)		1,438				(1,296		)
Operating lease liabilities	(970		)		—				(1,979		)		—
Other assets	11				(462		)		(53		)		(1,567		)
Accounts payable and accrued expenses	1,910				118				(3,890		)		(2,930		)
Accrued payroll and related expenses	2,085				(32		)		1,326				(4,970		)
Refund liabilities	85				223				(270		)		(314		)
Deferred revenue	177				(247		)		(224		)		(292		)
Net cash provided by (used in) operating activities	7,039				(89		)		12,271				(2,444		)
Cash flows from investing activities:
Purchases of property, equipment and software, net of disposal proceeds	(3,103		)		(3,199		)		(5,620		)		(7,640		)
Net cash used in investing activities	(3,103		)		(3,199		)		(5,620		)		(7,640		)
Cash flows from financing activities:
Repayments of credit facility	(23,000		)		(3,000		)		(38,000		)		(3,000		)
Proceeds from credit facility	15,000				6,000				38,000				14,400
Payment of deferred loan costs	—				(47		)		—				(394		)
Payment of earnout liability related to business acquisitions	—				—				—				(479		)
Restricted stock repurchased from employees for withholding taxes	(115		)		(246		)		(398		)		(750		)
Repurchases of common stock	—				—				(284		)		(2,228		)
Proceeds from option exercises	—				170				—				221
Net cash (used in) provided by financing activities	(8,115		)		2,877				(682		)		7,770
Effect of exchange rates on cash and cash equivalents	49				(225		)		187				(55		)
Net (decrease) increase in cash, cash equivalents and restricted cash	(4,130		)		(636		)		6,156				(2,369		)
Cash, cash equivalents and restricted cash at beginning of period	25,314				12,286				15,028				14,019
Cash, cash equivalents and restricted cash at end of period	$	21,184			$	11,650			$	21,184			$	11,650
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	345			$	60			$	716			$	385
Cash paid during the period for income taxes, net of refunds received	$	640			$	859			$	804			$	1,638

SCHEDULE 4PRGX Global, Inc. and SubsidiariesReconciliation of Net Income (Loss) to EBIT, EBITDA and Adjusted EBITDA(Amounts in thousands)(Unaudited)

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Reconciliation of net income (loss) to EBIT, EBITDA and Adjusted EBITDA:
Net income (loss)	$	418			$	(4,279	)		$	(3,465	)		$	(8,675	)
Income tax expense	1,004				311				960				479
Interest expense, net	303				592				645				1,065
EBIT	1,725				(3,376		)		(1,860		)		(7,131		)
Depreciation of property, equipment and software assets	1,965				2,381				4,106				4,584
Amortization of intangible assets	828				872				1,657				1,734
EBITDA	4,518				(123		)		3,903				(813		)
Foreign currency transaction (gains) losses on short-term intercompany balances	(819		)		(77		)		637				129
Transformation, severance, and other expenses	672				1,280				1,979				1,977
Investigation and settlement of employment matter	1,306				—				1,306				—
Other loss (income)	2				11				2				(8		)
Stock-based compensation	1,876				1,662				3,196				3,046
Adjusted EBITDA	$	7,555			$	2,753			$	11,023			$	4,331
Adjusted EBITDA from continuing operations	$	7,555			$	2,856			$	11,023			$	4,589
Adjusted EBITDA from discontinued operations	$	—			$	(103	)		$	—			$	(258	)

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 5PRGX Global, Inc. and SubsidiariesResults by Operating Segment *(Amounts in thousands)(Unaudited)

	Three Months Ended June 30,												Six Months Ended June 30,
	2020				2019				Change				2020				2019				Change
Revenue, net
Recovery Audit Services - Americas	$	26,962			$	28,935			$	(1,973	)		$	53,185			$	56,308			$	(3,123	)
Recovery Audit Services - Europe/Asia-Pacific	11,157				11,836				(679		)		20,942				21,595				(653		)
Adjacent Services	892				1,203				(311		)		1,723				2,875				(1,152		)
Total	$	39,011			$	41,974			$	(2,963	)		$	75,850			$	80,778			$	(4,928	)
Cost of revenue
Recovery Audit Services - Americas	$	14,346			$	16,076			$	(1,730	)		$	30,334			$	31,939			$	(1,605	)
Recovery Audit Services - Europe/Asia-Pacific	5,742				7,189				(1,447		)		11,999				13,915				(1,916		)
Adjacent Services	496				3,047				(2,551		)		785				5,693				(4,908		)
Total	$	20,584			$	26,312			$	(5,728	)		$	43,118			$	51,547			$	(8,429	)
Selling, general and administrative expenses
Recovery Audit Services - Americas	$	1,712			$	3,647			$	(1,935	)		$	4,227			$	7,026			$	(2,799	)
Recovery Audit Services - Europe/Asia-Pacific	1,545				2,639				(1,094		)		2,549				4,752				(2,203		)
Adjacent Services	(40		)		398				(438		)		(53		)		909				(962		)
Corporate	11,509				9,064				2,445				21,467				16,978				4,489
Total	$	14,726			$	15,748			$	(1,022	)		$	28,190			$	29,665			$	(1,475	)
Depreciation of property, equipment and software assets
Recovery Audit Services - Americas	$	1,777			$	1,919			$	(142	)		$	3,715			$	3,681			$	34
Recovery Audit Services - Europe/Asia-Pacific	155				182				(27		)		324				344				(20		)
Adjacent Services	33				280				(247		)		67				559				(492		)
Total	$	1,965			$	2,381			$	(416	)		$	4,106			$	4,584			$	(478	)
Amortization of intangible assets
Recovery Audit Services - Americas	$	408			$	438			$	(30	)		$	816			$	876			$	(60	)
Recovery Audit Services - Europe/Asia-Pacific	41				48				(7		)		83				85				(2		)
Adjacent Services	379				386				(7		)		758				773				(15		)
Total	$	828			$	872			$	(44	)		$	1,657			$	1,734			$	(77	)
Operating income (loss)
Recovery Audit Services - Americas	$	8,719			$	6,855			$	1,864			$	14,093			$	12,786			$	1,307
Recovery Audit Services - Europe/Asia-Pacific	3,674				1,778				1,896				5,987				2,499				3,488
Adjacent Services	24				(2,908		)		2,932				166				(5,059		)		5,225
Corporate	(11,509		)		(9,064		)		(2,445		)		(21,467		)		(16,978		)		(4,489		)
Total	$	908			$	(3,339	)		$	4,247			$	(1,221	)		$	(6,752	)		$	5,531
Adjusted EBITDA from continuing operations
Recovery Audit Services - Americas	$	11,231			$	9,462			$	1,769			$	19,639			$	17,721			$	1,918
Recovery Audit Services - Europe/Asia-Pacific	4,051				2,130				1,921				6,783				3,173				3,610
Adjacent Services	483				(1,637		)		2,120				1,118				(3,104		)		4,222
Corporate	(8,210		)		(7,099		)		(1,111		)		(16,517		)		(13,201		)		(3,316		)
Total	$	7,555			$	2,856			$	4,699			$	11,023			$	4,589			$	6,434

* 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 services, spend analytics and supplier information management services.