PRGX Global, Inc. Announces Fourth Quarter and Full Year 2013 Financial Results

Operating Highlights

• Q4 2013 Recovery Audit Services – Americas revenue of $30.7M, an increase of 2.2% over Q4 2012
• Q4 2013 Recovery Audit Services – Americas Adjusted EBITDA of $10.8M, an increase of 12.6% over Q4 2012
• Adjusted EBITDA as a percentage of revenue increased from 14.75% in FY 2012 to 15.0% in FY 2013 on declining revenue
• Q4 2013 Recovery Audit Services – Europe/Asia-Pacific revenue of $12.6M, an increase of 5.3% over Q3 2013

ATLANTA, Feb. 24, 2014 (GLOBE NEWSWIRE) -- PRGX Global, Inc. (Nasdaq:PRGX), the world's leading provider of recovery audit services and the pioneer in Profit Discovery™, today announced its unaudited financial results for the fourth quarter and year ended December 31, 2013.

Ron Stewart, the Company's president and chief executive officer, commented, "Since being named CEO in mid-November, I have undertaken a thorough review of our operations, meeting with our business leaders and professionals, as well as with many of our clients throughout the world. I am pleased to report that PRGX remains fundamentally sound and is well-positioned to capitalize on the strength of our core recovery audit practice. Boasting a client base that includes 16 of the top 20 global retailers, coupled with a growing roster of commercial clients, I am excited about what the future holds for PRGX."

Mr. Stewart continued, "Highlights for the quarter include solid performance delivered by our core Recovery Audit Services – Americas segment. At the same time, New Services was adversely affected by a severe, but anticipated, decline in Healthcare Claims Recovery Audit revenue and by continued softness in Profit Optimization. Although I am disappointed with our overall decline in revenue in the fourth quarter, I am pleased to report that we achieved strong Adjusted EBITDA growth as a percentage of revenue during the period. Our ability to deliver favorable Adjusted EBITDA results despite significant headwinds reflects the underlying strength of our business."

Mr. Stewart concluded, "To achieve long-term success, we are taking decisive actions to overcome many of the issues that negatively impacted the fourth quarter. At the center of this effort, we are focused on achieving profitable growth in all areas of our business, not just in our core recovery audit services. We will alter our approach and/or exit those businesses, or sub-segments of those businesses, where we are unable to achieve attractive EBITDA and return on invested capital objectives. To that end, we have withdrawn from the current CMS Medicare RAC rebid process. While we are not exiting the healthcare claims recovery audit business, we have determined that Medicare RAC is not consistent with our long-term objectives. We are also restructuring our Europe/Asia-Pacific recovery audit practice to improve our focus on business development and profitability. Similarly, we are reviewing our Profit Optimization business to determine the most effective way to drive profitability, which we expect to achieve by the end of 2014."

Consolidated Results for Three Months Ended December 31, 2013

Consolidated revenue for the fourth quarter of 2013 was $46.5 million compared to $53.1 million in the same prior year period. After adjusting for changes in foreign exchange rates, consolidated fourth quarter revenue in 2013 decreased 11.5% compared to the same period in 2012.

Recovery Audit Services – Americas revenue for the fourth quarter of 2013 increased 2.2% to $30.7 million compared to $30.0 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 increased by 3.9% compared to 2012.

Recovery Audit Services – Europe Asia/Pacific revenue for the fourth quarter of 2013 decreased 13.8% to $12.6 million compared to $14.7 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 decreased by 14.0% compared to 2012.

New Services revenue for the fourth quarter of 2013 decreased 61.9% to $3.2 million compared to $8.5 million in the same period in the prior year. The New Services segment represents Healthcare Claims Recovery Audit services and our Profit Optimization services.

Total cost of revenue for the fourth quarter of 2013 was $29.7 million compared to $34.4 million in the fourth quarter of 2012. This result included decreases in our Recovery Audit Services – Europe Asia/Pacific segment driven by the expanded use of our Next-Generation Recovery Audit service model and cost reductions in our Healthcare Claims Recovery Audit business. SG&A for the fourth quarter of 2013 was $14.5 million, or 31.1% of revenue, compared to $14.0 million, or 26.3% of revenue, in the fourth quarter of 2012. Depreciation and amortization expenses were $3.3 million in the fourth quarter of 2013 compared to $4.3 million in the fourth quarter of 2012.

The Company recorded fourth quarter 2013 asset impairment charges of $4.2 million related to internally developed software assets. These charges resulted from the decision to withdraw from the Medicare RAC rebid process and from planned changes to the Company's recovery audit delivery processes.

Net loss for the fourth quarter of 2013 was $(6.4) million, or $(0.22) per basic and diluted share, compared to net income of $1.5 million, or $0.06 per basic and diluted share, for the same period in 2012. The fourth quarter 2013 net loss includes impairment charges of $4.2 million for certain long-lived assets with no comparable charges for the same period in the prior year. The fourth quarter of 2012 includes a net tax benefit of $0.3 million that primarily resulted from the release of a portion of the reserves held for uncertain tax positions. The 2012 release of a portion of the reserves held for uncertain tax positions also included a reversal of related interest accruals, resulting in negative interest expense of $0.6 million in the fourth quarter of 2012. Net cash provided by operating activities for the fourth quarter of 2013 was $8.1 million compared to $6.5 million in the fourth quarter of 2012.

Adjusted EBITDA for the fourth quarter of 2013 was $6.9 million compared to $8.0 million for the same period in 2012. The 2013 fourth quarter Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization (EBITDA) excluding impairment charges of $4.2 million for certain long-lived assets, a charge of $2.5 million related to stock-based compensation, $1.8 million of transformation severance and related expenses, a $0.4 million charge for acquisition-related charges, and less than $0.1 million of foreign currency losses on short-term intercompany balances. Beginning in the third quarter of 2013, the Company now includes fair value adjustments to contingent consideration from acquisitions in its calculation of Adjusted EBITDA for all periods presented, and has renamed the line item "acquisition obligations classified as compensation" on Schedule 3 as "acquisition-related charges (benefits)." The comparable Adjusted EBITDA amount for the fourth quarter of 2012 excludes from EBITDA for such period a $1.8 million charge for stock-based compensation, $1.1 million of transformation severance and related expenses, a less than $0.1 million credit for acquisition-related benefits, $0.4 million of wage claim costs and $0.2 million of foreign currency gains 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 Year Ended December 31, 2013

Consolidated revenue for the year ended December 31, 2013 decreased 6.4% to $195.2 million, compared to $208.5 million in the prior year. After adjusting for changes in foreign exchange rates, 2013 revenue decreased 5.6% compared to 2012.

Recovery Audit Services – Americas revenue for the year ended December 31, 2013 decreased 2.5% to $118.6 million compared to $121.6 million in the prior year. On a constant dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services – Americas revenue decreased by 1.4% compared to 2012.

Recovery Audit Services – Europe Asia/Pacific revenue for the year ended December 31, 2013 decreased 13.7% to $46.4 million compared to $53.8 million in the prior year. On a constant dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services – Europe Asia/Pacific revenue decreased by 13.1% compared to 2012.

New Services revenue for the year ended December 31, 2013 decreased 8.9% to $30.1 million compared to $33.1 million in the prior year. Revenue from New Services represented 15.4% of consolidated revenue in the year ended December 31, 2013 compared to 15.9% of consolidated revenue in 2012.

Total cost of revenue for the year ended December 31, 2013 was $122.5 million compared to $134.4 million in 2012. Cost of revenue was 62.8% of revenue for the year, an improvement from 64.5% in 2012. Cost of revenue as a percentage of revenue in the Recovery Audit Services – Americas segment improved from 52.8% in 2012 to 51.1% in 2013 and in the Recovery Audit Services – Europe/Asia-Pacific segment deteriorated slightly from 77.6% in 2012 to 79.2% in 2013 due primarily to lower revenue in 2013.

SG&A for the year ended December 31, 2013 was $52.8 million, or 27.0% of revenue, compared to $52.5 million, or 25.2% of revenue in 2012. Depreciation and amortization expenses were $13.2 million for the year ended December 31, 2013 compared to $14.3 million in the prior year.

Net loss for the year ended December 31, 2013 was $(0.2) million, or $(0.01) per basic and diluted share, compared to net income of $5.4 million, or $0.21 per basic and diluted share, for 2012. The 2013 net loss includes impairment charges of $4.2 million for certain long-lived assets with no comparable charges for the prior year. Net cash provided by operating activities for the year ended December 31, 2013 was $18.4 million compared to $18.8 million in 2012.

Adjusted EBITDA for the year ended December 31, 2013 was $29.4 million compared to $30.8 million in 2012. For the year ended December 31, 2013, Adjusted EBITDA was earnings before interest, taxes, depreciation and amortization (EBITDA) excluding impairment charges of $4.2 million for certain long-lived assets, a charge of $6.3 million related to stock-based compensation, $2.5 million of transformation severance and related expenses, a $0.6 million charge for acquisition-related charges, and less than $0.1 million of foreign currency gains on short-term intercompany balances. The comparable Adjusted EBITDA amount for the year ended December 31, 2012 excludes from EBITDA for such period a $6.3 million charge for stock-based compensation, $2.1 million of transformation severance and related expenses, a $0.2 million credit for acquisition-related benefits, $1.0 million of wage claim costs, and $0.4 million of foreign currency gains 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 December 31, 2013, the Company had unrestricted cash and cash equivalents of $43.7 million, no borrowings against its revolving credit facility, and no bank debt outstanding.

Stock Repurchase Program

The Company also announced today that its Board of Directors has approved a stock repurchase program. Under the terms of the program, the Company may repurchase up to $10 million of its common stock from time to time through March 31, 2015. The timing and amount of repurchases, if any, will depend upon the Company's stock price, economic and market conditions, regulatory requirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time. The Company currently has approximately 29.9 million shares of common stock outstanding.

Fourth 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 fourth quarter and full year 2013 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 50661751.

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 March 31, 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 recovery audit services. With over 1,700 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.

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.

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 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 business and its Profit Optimization business, and the expected benefits of the Company's redesigned recovery audit service delivery model. 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 13, 2013. The Company disclaims any obligation or duty to update or modify these forward-looking statements.