PRGX Global, Inc. Announces Second Quarter 2011 Financial Results

Operating Highlights

• Achieved seventh consecutive quarter of year-over-year revenue growth
• Q2 revenues of $50.7M; H1 revenues of $101.4M represents 17% growth over H1 2010
• Achieved third consecutive quarter of year-over-year Adj. EBITDA growth
• Q2 Adj. EBITDA of $5.6M; H1 Adj. EBITDA of $11.1M represents 43% growth over H1 2010

ATLANTA, July 25, 2011 (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 second quarter ended June 30, 2011.

"I am pleased to report our seventh consecutive quarter of year-over-year growth, with revenues of more than $50 million, up more than 11% over the previous year's second quarter," said Romil Bahl, president and chief executive officer. "Achieving more than $50 million in revenue for the third consecutive quarter is especially notable given the individually significant claims and client audit accelerations that occurred in the Americas during Q1. This quarter marks, yet again, how much the business has strengthened over the past two years."

Continued Bahl, "Our recovery audit teams continue to demonstrate success in the field with strong renewal rates globally and some impressive wins, especially in Europe/Asia-Pacific. The New Services segment more than doubled quarterly revenue over the previous year, with projects underway at large clients across our Spend Optimization, Fraud Monitoring and Profit Performance client value propositions. And the Healthcare team continues to ramp up its CMS Medicare RAC program work. Altogether, our teams are executing our strategy and building a platform for sustainable growth."

Discussion of Consolidated Results for Three Months Ended June 30, 2011

Consolidated revenues for the second quarter of 2011 increased 11.4% to $50.7 million compared to $45.5 million in the same prior year period. After adjusting for changes in foreign exchange rates, consolidated second quarter revenues in 2011 increased 6.0% compared to the same period in 2010.

Total cost of revenues was $34.5 million in the second quarter of 2011 compared to $30.9 million in the same period last year. Gross margin in the second quarter of 2011 was 31.9%, compared to 32.0% in the second quarter of 2010 and 31.8% in the first quarter of 2011. SG&A for the second quarter of 2011 was $12.3 million compared to $10.3 million in the second quarter of 2010 and $12.4 million in the first quarter of 2011. The increase in SG&A in the second quarter of 2011 over the 2010 period was primarily due to strategic hires to support New Services, severance and other costs related to the Company's service delivery model transformation, and incentive compensation accruals.

Net earnings for the second quarter of 2011 were $0.7 million, or $0.03 per basic and diluted share, compared to net earnings of $0.04 million, or $0.00 per basic and diluted share for the same period in 2010. Net cash provided by operating activities for the three months ended June 30, 2011 was $4.0 million compared to $3.1 million in the second quarter of 2010.

Adjusted EBITDA for the second quarter of 2011 was $5.6 million compared to $5.4 million for the same period in 2010. For the second quarter of 2011, Adjusted EBITDA was earnings before interest, taxes, depreciation and amortization (EBITDA), excluding a charge of $1.3 million related to stock-based compensation, $0.4 million of foreign currency gains on intercompany balances, $0.3 million of charges incurred as part of the Company's service delivery model transformation, and a $0.1 million charge for acquisition obligations classified as compensation. Comparable Adjusted EBITDA for the second quarter of 2010 excluded a $1.1 million charge for stock-based compensation, $1.1 million of foreign currency losses on intercompany balances, and a $0.2 million charge for acquisition obligations classified as compensation. (Schedule 3 attached to this press release provides a reconciliation of net earnings (loss) to each of EBITDA and Adjusted EBITDA.)

"Our third consecutive quarter of year-over-year Adjusted EBITDA growth is another indication of the strengthening of the new PRGX. As planned, our previously announced $20 million investment program is nearly complete, and the results are starting to show. Our global recovery audit business has delivered $2.5 million in additional Adjusted EBITDA in the first half of 2011 over the previous year, in part due to our delivery model redesign efforts reducing our cost-to-serve. And while our New Services segment overall is still approaching break-even, several of the underlying services are already profitable. All in all, these results represent the power of our broader range of services which is helping us bring more value to clients, win in the marketplace and deliver with more consistency for our investors," concluded Bahl.

Discussion of Segment Results for Three Months Ended June 30, 2011

Recovery Audit Services – Americas revenues decreased 6.6% for the second quarter of 2011 to $27.9 million compared to $29.9 million in the same period last year. On a constant dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services – Americas second quarter 2011 revenues decreased 8.8% compared to 2010's second quarter. A portion of this decrease is attributable to audit accelerations that benefited the first quarter of 2011.

Recovery Audit Services - Europe Asia/Pacific revenues for the second quarter of 2011 were $15.8 million compared to $13.0 million in the prior year's second quarter, an increase of 21.6%. On a constant-dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services – Europe Asia/Pacific second quarter 2011 revenues increased 7.7% compared to 2010.

New Services revenues for the 2011 second quarter were $7.1 million, more than 2.5 times the prior year's second quarter revenues of $2.7 million. The New Services segment now represents almost 14% of consolidated revenue.  

Discussion of Consolidated Results for Six Months Ended June 30, 2011

Consolidated revenues for the six months ended June 30, 2011 increased 16.8% to $101.4 million compared to $86.8 million in the same prior year period. After adjusting for changes in foreign exchange rates, consolidated revenues for the six months ended June 30, 2011 increased 12.8% compared to the same period in 2010.

Total cost of revenues was $69.1 million in the first half of 2011 compared to $60.8 million in the same period last year, yielding a gross margin of 31.9% in the first half of 2011 compared to 30.0% in the first half of 2010. SG&A for the six months ended June 30, 2011 was $24.7 million compared to $20.3 million in the same period in 2010. The increase in SG&A in the first half of 2011 was primarily due to strategic hires to support New Services, severance and other costs related to the Company's service delivery model transformation, and incentive compensation accruals.

Net earnings for the six months ended June 30, 2011 were $1.1 million, or $0.04 per basic and diluted share, compared to a net loss of ($3.4 million), or ($0.14) per basic and diluted share for the same period in 2010. The 2010 six month net loss was partially attributable to $1.7 million of foreign currency losses on intercompany balances and a $1.4 million debt extinguishment loss. Net cash provided by operating activities for the six months ended June 30, 2011 was $10.2 million compared to a ($0.3 million) use of cash in the same period in 2010. Most of this difference resulted from working capital improvements.

Adjusted EBITDA for the six months ended June 30, 2011 was $11.1 million compared to $7.8 million for the same period in 2010. For the first half of 2011, Adjusted EBITDA was earnings before interest, taxes, depreciation and amortization (EBITDA), excluding a charge of $2.2 million related to stock-based compensation, $0.9 million of foreign currency gains on intercompany balances, $1.1 million of charges incurred as part of the Company's service delivery model transformation, and a $0.2 million charge for acquisition obligations classified as compensation. Comparable Adjusted EBITDA for the first half of 2010 excluded a $1.9 million charge for stock-based compensation, $1.7 million of foreign currency losses on intercompany balances and a $0.2 million charge for acquisition obligations classified as compensation. (Schedule 3 attached to this press release provides a reconciliation of net earnings (loss) to each of EBITDA and Adjusted EBITDA.)

Liquidity

At June 30, 2011, the Company had unrestricted cash and cash equivalents of $22.9 million and had no borrowings against its revolving credit facility. Total debt outstanding at quarter end was $10.5 million, which represented the outstanding balance on a variable rate term loan due quarterly through 2014. 

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 2011 financial results. To access the conference call, listeners in the U.S. and Canada should dial 800-435-1261 at least 5 minutes prior to the start of the conference. Listeners outside the U.S. and Canada should dial 617-614-4076. To be admitted to the call, listeners should use passcode 87832798. A replay of the call will be available approximately two hours after the conclusion of the live call, extending through August 26, 2011. To access the replay, dial 888-286-8010 (U.S. and Canada) or 617-801-6888 (outside the U.S. and Canada). The passcode for the replay is 50573468.

This teleconference will also be audiocast on the Internet at www.prgx.com (click on "Audio Archives" 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 August 26, 2011. 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 more than 1,400 employees, the Company operates and serves clients in more than 30 countries and provides its services to over 75% of the top 30 global retailers. PRGX is also pioneering "profit discovery," a unique combination of audit, analytics and advisory services that improves client financial performance. Beyond its core retail practice, PRGX is actively pursuing initiatives to expand into new markets, most notably healthcare. For additional information, please visit PRGX at www.prgx.com.

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA are both "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, 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 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 earnings (loss) to each of 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 financial condition, growth strategy, investment program, business development efforts, service offerings and service delivery models. 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 revenues that do not meet expectations or justify costs incurred, the Company's ability to develop material sources of new revenue in addition to revenues from its core accounts payable 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, 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 16, 2011. The Company disclaims any obligation or duty to update or modify these forward-looking statements.