GlobeNewswire Inc | Jul 28, 2020 04:01PM EDT

July 28, 2020

ATLANTA, July 28, 2020 (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 and six months ended June30, 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,SelectedFinancialData 2020 2019 %Change 2020 2019 %Change(dollars inthousands) Revenue RecoveryAudit $ 26,962 $ 28,935 -6.8 % $ 53,185 $ 56,308 -5.5 %Services -AmericasRecoveryAuditServices - 11,157 11,836 -5.7 % 20,942 21,595 -3.0 %Europe/Asia-PacificAdjacent 892 1,203 -25.9 % 1,723 2,875 -40.1 %ServicesTotal $ 39,011 $ 41,974 -7.1 % $ 75,850 $ 80,778 -6.1 %Net income(loss) from 418 (4,176 ) 110.0 % (3,465 ) (8,417 ) 58.8 %continuingoperations Non-GAAPFinancial MeasuresAdjustedEBITDA from $ 7,555 $ 2,856 164.5 % $ 11,023 $ 4,589 140.2 %continuingoperations

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 June30, 2020

Consolidated revenue for the second quarter of 2020 was $39.0million, compared to $42.0million for the same period in 2019, a decrease of 7.1%. Second quarter 2020 revenue from the Recovery Audit Services segments was $38.1million compared to $40.8million in the second quarter of the prior year, and from the Adjacent Services segment was $0.9million compared to $1.2million 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 $20.6million, or 52.8% of revenue, compared to total cost of revenue from continuing operations of $26.3million, 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 $15.7million in the prior year period.

Consolidated net income from continuing operations for the second quarter of 2020 was $0.4million, or $0.02 per basic and diluted share, compared to consolidated net loss from continuing operations of $4.2million, 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 $7.6million, or 19.4% of revenue, compared to Adjusted EBITDA from continuing operations of $2.9million, or 6.8% of revenue, for the second quarter of 2019, an increase of $4.7million 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 June30, 2020

Consolidated revenue for the six months ended June 30, 2020 was $75.9million, compared to $80.8million 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 $74.1million compared to $77.9million in the prior year, and from the Adjacent Services segment was $1.7million compared to $2.9million 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 $43.1million, or 56.8% of revenue, compared to total cost of revenue from continuing operations of $51.5million, 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 $29.7million in the prior year period.

Consolidated net loss from continuing operations for the six months ended June 30, 2020 was $3.5million, or $(0.15) per basic and diluted share, compared to consolidated net loss from continuing operations of $8.4million, 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 $11.0million, or 14.5% of revenue, compared to Adjusted EBITDA from continuing operations of $4.6million, or 5.7% of revenue, for the same period in 2019, an increase of $6.4million 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 $7.0million, compared to net cash used by operating activities of $0.1million 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 $21.1million, and borrowings of $37.0 million against its $60.0million 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 Companys 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.combeginning 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 theirsource-to-payprocesses that other sophisticated solutions didnt 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 theirsource-to-paydata. We pioneered this industry nearly 50 years ago, and today we help clients in more than 30 countries take back$1.2 billionin annual cash flow. Its 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 visitwww.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 Companys overall condition and growth prospects, and the Companys 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 Companys 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 Companys ability to develop material sources of new revenue in addition to revenue from its core recovery audit services, changes in the market for the Companys services, the Companys ability to retain and attract qualified personnel, the Companys ability to execute on its profitability improvement efforts, the Companys ability to integrate recent and future acquisitions, uncertainty in the credit markets, the Companys ability to maintain compliance with its financial covenants, client bankruptcies, loss of major clients, and other risks generally applicable to the Companys business. For a discussion of other risk factors that may impact the Companys business, please see the Companys 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 allnon-GAAPfinancial measures presented as supplemental measures of the Companys performance. They are not presented in accordance with accounting principles generally accepted inthe 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 Companys 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 Companys 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 Companys 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 Six Months Ended June 30, Ended June 30, 2020 2019 2020 2019Revenue, 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 14,726 15,748 28,190 29,665 administrative expensesDepreciation of property, 1,965 2,381 4,106 4,584 equipment and software assetsAmortization of intangible 828 872 1,657 1,734 assetsTotal operating expenses 38,103 45,313 77,071 87,530 Operating income (loss) from 908 (3,339 ) (1,221 ) (6,752 )continuing operationsForeign currency transaction(gains) losses on short-term (819 ) (77 ) 637 129 intercompany balancesInterest expense, net 303 592 645 1,065 Other loss (income) 2 11 2 (8 )Income (loss) from continuing 1,422 (3,865 ) (2,505 ) (7,938 )operations before income taxIncome tax expense 1,004 311 960 479 Net income (loss) from $ 418 $ (4,176 ) $ (3,465 ) $ (8,417 )continuing operationsDiscontinued operations: Loss from discontinued ? (103 ) ? (258 )operationsIncome tax expense ? ? ? ? Net loss from discontinued ? (103 ) ? (258 )operations Net income (loss) $ 418 $ (4,279 ) $ (3,465 ) $ (8,675 ) Basic income (loss) per common share:Basic income (loss) from $ 0.02 $ (0.18 ) $ (0.15 ) $ (0.37 )continuing operationsBasic loss from discontinued ? ? ? (0.01 )operationsTotal basic income (loss) per $ 0.02 $ (0.18 ) $ (0.15 ) $ (0.38 )common shareDiluted income (loss) per common share:Diluted income (loss) from $ 0.02 $ (0.18 ) $ (0.15 ) $ (0.37 )continuing operationsDiluted loss from ? ? ? (0.01 )discontinued operationsTotal diluted income (loss) $ 0.02 $ (0.18 ) $ (0.15 ) $ (0.38 )per common shareWeighted 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, December 31, 2020 2019ASSETS 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 Six Months Ended June 30, 30, 2020 2019 2020 2019Cash flows from operating activities:Net income (loss) $ 418 $ (4,279 ) $ (3,465 ) $ (8,675 )Adjustments to reconcile netincome (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 1,043 1,113 2,195 2,248 asset expenseAmortization of deferred loan 24 61 48 117 costsNoncash interest expense 298 ? 643 ? Stock-based compensation 1,876 1,662 3,196 3,046 expenseForeign currency transaction(gains) losses on short-term (819 ) (77 ) 637 129 intercompany balancesDeferred income taxes ? ? 338 ? Changes in operating assets and liabilitiesBilled receivables (581 ) 2,180 4,550 6,593 Unbilled receivables (166 ) (1,790 ) 2,018 (851 )Prepaid expenses and other (1,145 ) (1,812 ) 1,438 (1,296 )current assetsOperating lease liabilities (970 ) ? (1,979 ) ? Other assets 11 (462 ) (53 ) (1,567 )Accounts payable and accrued 1,910 118 (3,890 ) (2,930 )expensesAccrued payroll and related 2,085 (32 ) 1,326 (4,970 )expensesRefund liabilities 85 223 (270 ) (314 )Deferred revenue 177 (247 ) (224 ) (292 )Net cash provided by (used 7,039 (89 ) 12,271 (2,444 )in) operating activitiesCash flows from investing activities:Purchases of property,equipment and software, net (3,103 ) (3,199 ) (5,620 ) (7,640 )of disposal proceedsNet cash used in investing (3,103 ) (3,199 ) (5,620 ) (7,640 )activitiesCash 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 ? (47 ) ? (394 )costsPayment of earnout liabilityrelated to business ? ? ? (479 )acquisitionsRestricted stock repurchasedfrom employees for (115 ) (246 ) (398 ) (750 )withholding taxesRepurchases of common stock ? ? (284 ) (2,228 )Proceeds from option ? 170 ? 221 exercisesNet cash (used in) provided (8,115 ) 2,877 (682 ) 7,770 by financing activitiesEffect of exchange rates on 49 (225 ) 187 (55 )cash and cash equivalentsNet (decrease) increase incash, cash equivalents and (4,130 ) (636 ) 6,156 (2,369 )restricted cashCash, cash equivalents andrestricted cash at beginning 25,314 12,286 15,028 14,019 of periodCash, cash equivalents andrestricted cash at end of $ 21,184 $ 11,650 $ 21,184 $ 11,650 periodSupplemental disclosure of cash flow information:Cash paid during the period $ 345 $ 60 $ 716 $ 385 for interestCash paid during the periodfor income taxes, net of $ 640 $ 859 $ 804 $ 1,638 refunds received

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

Three Months Six Months Ended June 30, Ended June 30, 2020 2019 2020 2019Reconciliation 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, 1,965 2,381 4,106 4,584 equipment and software assetsAmortization of intangible 828 872 1,657 1,734 assetsEBITDA 4,518 (123 ) 3,903 (813 )Foreign currency transaction(gains) losses on short-term (819 ) (77 ) 637 129 intercompany balancesTransformation, severance, and 672 1,280 1,979 1,977 other expensesInvestigation and settlement 1,306 ? 1,306 ? of employment matterOther 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 $ 7,555 $ 2,856 $ 11,023 $ 4,589 continuing operationsAdjusted EBITDA from $ ? $ (103 ) $ ? $ (258 )discontinued operations

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 Companys 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 Companys 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 Six Months Ended June 30, Ended June 30, 2020 2019 Change 2020 2019 ChangeRevenue, net Recovery AuditServices - $ 26,962 $ 28,935 $ (1,973 ) $ 53,185 $ 56,308 $ (3,123 )AmericasRecovery AuditServices - 11,157 11,836 (679 ) 20,942 21,595 (653 )Europe/Asia-PacificAdjacent 892 1,203 (311 ) 1,723 2,875 (1,152 )ServicesTotal $ 39,011 $ 41,974 $ (2,963 ) $ 75,850 $ 80,778 $ (4,928 )Cost of revenueRecovery AuditServices - $ 14,346 $ 16,076 $ (1,730 ) $ 30,334 $ 31,939 $ (1,605 )AmericasRecovery AuditServices - 5,742 7,189 (1,447 ) 11,999 13,915 (1,916 )Europe/Asia-PacificAdjacent 496 3,047 (2,551 ) 785 5,693 (4,908 )ServicesTotal $ 20,584 $ 26,312 $ (5,728 ) $ 43,118 $ 51,547 $ (8,429 )Selling,general and administrativeexpensesRecovery AuditServices - $ 1,712 $ 3,647 $ (1,935 ) $ 4,227 $ 7,026 $ (2,799 )AmericasRecovery AuditServices - 1,545 2,639 (1,094 ) 2,549 4,752 (2,203 )Europe/Asia-PacificAdjacent (40 ) 398 (438 ) (53 ) 909 (962 )ServicesCorporate 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 )Depreciationof property,equipment and softwareassetsRecovery AuditServices - $ 1,777 $ 1,919 $ (142 ) $ 3,715 $ 3,681 $ 34 AmericasRecovery AuditServices - 155 182 (27 ) 324 344 (20 )Europe/Asia-PacificAdjacent 33 280 (247 ) 67 559 (492 )ServicesTotal $ 1,965 $ 2,381 $ (416 ) $ 4,106 $ 4,584 $ (478 )Amortizationof intangible assetsRecovery AuditServices - $ 408 $ 438 $ (30 ) $ 816 $ 876 $ (60 )AmericasRecovery AuditServices - 41 48 (7 ) 83 85 (2 )Europe/Asia-PacificAdjacent 379 386 (7 ) 758 773 (15 )ServicesTotal $ 828 $ 872 $ (44 ) $ 1,657 $ 1,734 $ (77 )Operating income (loss)Recovery AuditServices - $ 8,719 $ 6,855 $ 1,864 $ 14,093 $ 12,786 $ 1,307 AmericasRecovery AuditServices - 3,674 1,778 1,896 5,987 2,499 3,488 Europe/Asia-PacificAdjacent 24 (2,908 ) 2,932 166 (5,059 ) 5,225 ServicesCorporate (11,509 ) (9,064 ) (2,445 ) (21,467 ) (16,978 ) (4,489 )Total $ 908 $ (3,339 ) $ 4,247 $ (1,221 ) $ (6,752 ) $ 5,531 AdjustedEBITDA from continuingoperationsRecovery AuditServices - $ 11,231 $ 9,462 $ 1,769 $ 19,639 $ 17,721 $ 1,918 AmericasRecovery AuditServices - 4,051 2,130 1,921 6,783 3,173 3,610 Europe/Asia-PacificAdjacent 483 (1,637 ) 2,120 1,118 (3,104 ) 4,222 ServicesCorporate (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.