PRG-Schultz Announces Third Quarter 2009 Financial Results

  PRG-Schultz Announces Third Quarter 2009 Financial Results  Business Wire  ATLANTA -- November 03, 2009  PRG-Schultz International, Inc. (Nasdaq: PRGX), the world's largest recovery audit firm, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2009.  Third Quarter Results  Net earnings for the 2009 third quarter were $6.4 million, or $0.27 per basic and diluted share, compared to net earnings of $4.2 million, or $0.19 per basic share and $0.18 per diluted share for the same period in 2008. The third quarter 2009 net earnings included before tax charges of $1.5 million related to stock-based compensation, $0.7 million of foreign currency gains on intercompany balances and a $2.8 million bargain purchase gain on the previously reported acquisition of First Audit Partners LLP completed on July 16, 2009. The third quarter 2008 net earnings included before tax charges of $0.4million for stock-based compensation and $1.8 million of foreign currency losses on intercompany balances.  Adjusted EBITDA for the 2009 third quarter was $7.4 million compared to $9.2 million of adjusted EBITDA for the same period in 2008. The 2009 third quarter adjusted EBITDA is earnings before interest, taxes, depreciation and amortization (EBITDA) excluding the $1.5 million charge related to stock-based compensation, the $0.7 million of foreign currency gains on intercompany balances and the $2.8 bargain purchase gain on the acquisition of First Audit Partners LLP. The comparable adjusted EBITDA amount for the third quarter of 2008 excludes from EBITDA for such period the $0.4 million charge for stock-based compensation and the $1.8 million of foreign currency losses on intercompany balances. (Schedule 3 attached to this press release provides a reconciliation of net earnings to each of EBITDA and adjusted EBITDA).  Consolidated revenue for the third quarter of 2009 was $45.3 million, a decrease of $3.9 million, or 7.9%, compared to $49.2 million for the same period in 2008. On a constant dollar basis, adjusted for changes in foreign currency exchange rates, 2009 third quarter revenue declined 4.3% compared to the same period in 2008.  “We were pleased with our ability to perform relatively well during the third quarter despite the trying economic circumstances impacting the majority of our retail clients,” said Romil Bahl, president and chief executive officer. “As we initiate execution of our recently announced growth strategy, we are excited about the possibilities for the future.”  Year to Date Results  Net earnings for the first nine months of 2009 were $13.3 million, or $0.59 per basic share and $0.57 per diluted share, compared to net earnings of $12.3 million, or $0.57 per basic share and $0.54 per diluted share for the same period in 2008. The first nine months of 2009 net earnings included before tax charges of $2.5 million related to stock-based compensation, $0.7 million related to a previously reported litigation settlement, $1.8 million of foreign currency gains on intercompany balances and the $2.8 million bargain purchase gain. The first nine months of 2008 net earnings included before tax charges of $5.0million for stock-based compensation and $1.3 million of foreign currency losses on intercompany balances.  Adjusted EBITDA for the nine months ended September 30, 2009 was $20.2 million compared to $26.9 million of adjusted EBITDA for the same period in 2008. The 2009 nine-month adjusted EBITDA excludes the $2.5 million charge for stock-based compensation, the $0.7 million charge related to the litigation settlement, the $1.8 million of foreign currency gains on intercompany balances and the $2.8 million bargain purchase gain. The comparable adjusted EBITDA amount for the first nine months of 2008 excludes the $5.0 million stock-based compensation charge and the $1.3 million of foreign currency losses on intercompany balances.  Consolidated revenue in the first nine months of 2009 was $130.0 million, a decrease of $17.1 million, or 11.6%, compared to $147.1 million for the same period in 2008. On a constant dollar basis, adjusted for changes in foreign currency exchange rates, revenue in the first three quarters of 2009 declined 4.7% compared to the same period in 2008.  Liquidity  At September 30, 2009, the Company had cash and cash equivalents of $27.3 million and had no borrowings against its revolving credit facility. Total debt outstanding at quarter-end was $15.7 million, which included a $15.4 million outstanding balance on a variable rate term loan due 2011 and a $0.3 million capital lease obligation.  Third 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 third quarter 2009 financial results. To access the conference call, listeners in the U.S. and Canada should dial 866-825-3308 at least 5 minutes prior to the start of the conference. Listeners outside the U.S. and Canada should dial 617-213-8062. To be admitted to the call, listeners should use passcode 84149506. A replay of the call will be available approximately two hours after the conclusion of the live call, extending through December 3, 2009. To directly 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 57411485.  This teleconference will also be audiocast on the Internet at www.prgx.com (click on “Events” under “Investor Relations”). 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 3, 2009. 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 PRG-Schultz International, Inc.  Headquartered in Atlanta, PRG-Schultz International, Inc. is the world's leading recovery audit firm, providing clients throughout the world with insightful value to optimize and expertly manage their business transactions. Using proprietary software and expert audit methodologies, PRG industry specialists review client purchases and payment information to identify and recover overpayments.  Non-GAAP Financial Measures  EBITDA and adjusted EBITDA are both "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 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 our 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 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 3 to this press release provides a reconciliation of net earnings 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, its outlook on the economic environment and its growth strategy and possibilities for the future.  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 services, changes in the market for the Company’s services, the Company’s ability to retain existing personnel, potential legislative and regulatory changes applicable to the Medicare recovery audit contractor program, uncertainty in the credit markets, 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, 2009. The Company disclaims any obligation or duty to update or modify these forward-looking statements.  SCHEDULE 1 PRG-Schultz International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Amounts in thousands, except per share data) (Unaudited)                                                                                                                                                              Three Months                  Nine Months                            Ended September 30,           Ended September 30,                             2009      2008              2009       2008                                                                       Revenues                   $ 45,321   $ 49,182           $ 130,044   $ 147,093 Cost of revenues            28,482    31,169            82,701     94,362      Gross margin            16,839     18,013             47,343      52,731                                                                       Selling, general and        11,893    12,139            32,911     36,006 administrative expenses                                                                            Operating income        4,946      5,874              14,432      16,725                                                                       Gain on bargain purchase    2,788     -                 2,788      -      Income before           7,734      5,874              17,220      16,725      interest and taxes                                                                       Interest expense, net       728       789               2,154      2,545                                                                            Earnings before         7,006      5,085              15,066      14,180      income taxes                                                                       Income taxes                605       879               1,767      1,872                                                                            Net earnings          $ 6,401    $ 4,206            $ 13,299    $ 12,308                                                                                                                                             Basic earnings per common  $ 0.27     $ 0.19             $ 0.59      $ 0.57 share                                                                       Diluted earnings per       $ 0.27     $ 0.18             $ 0.57      $ 0.54 common share                                                                       Weighted average common shares outstanding:      Basic                  23,404    21,919            22,735     21,726      Diluted                23,833    23,002            23,453     22,942  SCHEDULE 2 PRG-Schultz International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Amounts in thousands)                                                                                                                                                                                                                                                                                                                   September 30,        December 31,                                              2009                 2008                                              (Unaudited)                        ASSETS Current assets:     Cash and cash equivalents                $ 27,329             $ 26,688     Restricted cash                            317                  61     Receivables:          Contract receivables                  31,751               33,711          Employee advances and                544                285                miscellaneous receivables              Total receivables                 32,295               33,996                                                                        Prepaid expenses and other current        2,743              2,264         assets              Total current assets              62,684               63,009                                                                    Property and equipment, net                    7,519                7,901 Goodwill                                       4,600                4,600 Intangible assets, net                         24,866               18,968 Other assets                                  3,366              4,305                  Total assets                    $ 103,035           $ 98,783                                                                                                                                                       LIABILITIES AND SHAREHOLDERS'              EQUITY Current liabilities:     Current portions of debt obligations     $ 5,342              $ 5,314     Accounts payable and accrued expenses      11,170               16,275     Accrued payroll and related expenses       18,397               22,536     Refund liabilities and deferred            8,593                8,372     revenue     Acquisition obligations                   2,560              -                      Total current liabilities         46,062               52,497                                                                    Debt obligations                               10,320               14,331 Noncurrent compensation obligations            1,233                2,849 Other long-term liabilities                   7,108              6,396                  Total liabilities                64,723             76,073                                                                       Shareholders' equity:     Common stock                               232                  218     Additional paid-in capital                 561,770              559,359     Accumulated deficit                        (526,689 )           (539,988 )     Accumulated other comprehensive income    2,999              3,121                  Total shareholders' equity       38,312             22,710                                                                                    Total liabilities and           $ 103,035           $ 98,783                 shareholders' equity  SCHEDULE 3 PRG-Schultz International, Inc. and Subsidiaries Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA (Amounts in thousands) (Unaudited)                                                                                                                                                        Three Months                           Nine Months                   Ended September 30,                    Ended September 30,                     2009           2008                2009       2008 Reconciliation of net earnings to EBITDA    and to   adjusted    EBITDA:                                                                           Net earnings   $  6,401         $  4,206              $ 13,299     $ 12,308                                                                           Adjust for:    Income taxes      605              879                  1,767        1,872    Interest          728              789                  2,154        2,545    Depreciation    and              1,634          1,181               4,342      3,897    amortization                                                                           EBITDA           9,368          7,055               21,562     20,622                                                                           Foreign    currency    (gains) losses    on    intercompany      (678    )        1,801                (1,752 )     1,335    balances    Litigation        -                -                    650          -    settlement    Stock-based       1,496            377                  2,500        4,961    compensation    Gain on    bargain          (2,788  )       -                   (2,788 )    -    purchase                                                                           Adjusted       $  7,398        $  9,233              $ 20,172    $ 26,918    EBITDA                                                                                                                                                                                                                                                                                                                                                                       EBITDA and adjusted EBITDA are both "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 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 our results as reported under    GAAP. In addition, in evaluating 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 PRG-Schultz International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited)                                                                                                                                                             Three Months              Nine Months                            Ended September 30,       Ended September 30,                             2009       2008       2009        2008     Cash flows from operating activities:                                                                       Net earnings             $ 6,401      $ 4,206      $ 13,299      $ 12,308     Adjustments to     reconcile net earnings     to net cash provided     by operating     activities:       Gain on bargain        (2,788 )     -            (2,788  )     -       purchase       Depreciation and       1,634        1,181        4,342         3,897       amortization       Amortization of debt       discounts and          197          198          591           588       deferred costs       Stock-based            1,496        377          2,500         4,961       compensation expense       (Increase) decrease    (3,168 )     (4,161 )     2,903         4,514       in receivables       (Decrease) increase       in accounts payable,       accrued payroll and    (1,381 )     6,759        (11,738 )     (13,403 )       other accrued       expenses       Other, primarily       changes in assets     (611   )    (3,069 )    (1,869  )    (4,935  )       and liabilities       Net cash provided by  1,780      5,491      7,240       7,930          operating activities                                                                     Cash flows used in investing activities:   Business acquisition       (1,629 )     -            (1,629  )     -   Purchases of property   and equipment, net of     (656   )    (1,109 )    (2,065  )    (2,211  )   disposals       Net cash used in      (2,285 )    (1,109 )    (3,694  )    (2,211  )       investing activities                                                                     Net cash used in financing  (1,354 )    (1,321 )    (4,253  )    (25,015 ) activities                                                                     Effect of exchange rates on cash and cash            706        (425   )    1,348       (280    ) equivalents                                                                           Net increase       (decrease) in cash     (1,153 )     2,636        641           (19,576 )       and cash equivalents                                                                     Cash and cash equivalents   28,482     20,152     26,688      42,364   at beginning of period                                                                     Cash and cash equivalents  $ 27,329    $ 22,788    $ 27,329     $ 22,788   at end of period  Contact:  PRG-Schultz International, Inc. Robert Lee, 770-779-6464  
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