EX-99.1 2 g08690exv99w1.htm EX-99.1 PRESS RELEASE DATED AUGUST 1, 2007 EX-99.1 PRESS RELEASE DATED AUGUST 1, 2007
 

PRESS RELEASE
FOR IMMEDIATE RELEASE
PRG-Schultz Announces Second Quarter 2007 Financial Results
ATLANTA, August 1, 2007 — PRG-Schultz International, Inc. (Nasdaq: PRGX), the world’s largest recovery audit firm, today announced its unaudited financial results for the second quarter and six months ended June 30, 2007.
Highlights of Financial Results
  •   Net earnings for the 2007 second quarter were $18.6 million or $2.02 per basic and diluted share, compared to a net loss of $3.6 million, or $(0.62) per basic and diluted share for the same period in 2006. The second quarter 2007 net earnings included a gain on the sale of the Company’s Meridian business unit of approximately $19.5 million, earnings from discontinued operations of $0.2 million and a $2.7 million charge for stock-based compensation. The second quarter 2006 net loss included a charge of $0.4 million for stock-based compensation and an operational restructuring charge of $1.6 million.
 
  •   Adjusted EBITDA for the 2007 second quarter was $8.2 million compared to $5.5 million of adjusted EBITDA for the same period in 2006. The 2007 second quarter adjusted EBITDA is earnings (loss) from continuing operations before interest, taxes, depreciation and amortization (EBITDA) excluding the $2.7 million charge for stock-based compensation. Adjusted EBITDA also does not include the $19.5 million gain on the sale of the Meridian business and the earnings from discontinued operations of $0.2 million. The comparable adjusted EBITDA amount for the second quarter of 2006 excludes from EBITDA for such period the charge of $0.4 million related to stock-based compensation and an operational restructuring charge of $1.6 million. (Schedule 3 attached to this press release provides a reconciliation of net earnings (loss) to each of EBITDA and adjusted EBITDA).
 
  •   Consolidated revenue for the second quarter of 2007 was $53.3 million, a decrease of 3.3% compared to $55.1 million for the same period in 2006. Cost of Revenue and SG&A expenses combined were $49.4 million for the 2007 second quarter, down 6.3% compared to the same period in 2006.
 
  •   Net earnings for the first six months of 2007 were $20.1 million or $2.26 per basic and diluted share, which included the gain on the sale of the Meridian business of $19.5 million, earnings from discontinued operations of $0.3 million, and $5.4 million of stock-based compensation expense. This compares to a net loss of $13.9 million, or $(2.27) per basic and diluted share for the same period in 2006, which included earnings from discontinued operations of $1.2 million, a $10.1 million non-cash charge related to the Company’s financial restructuring, a charge of $0.7 million related to stock-based compensation, and $2.0 million of restructuring charges.

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  •   Adjusted EBITDA for the six months ended June 30, 2007 was $19.1 million compared to $10.4 million of adjusted EBITDA for the same period in 2006. The 2007 adjusted EBITDA excludes the $19.5 million gain on the sale of the Meridian business, earnings from discontinued operations of $0.3 million, and the $5.4 million stock-based compensation charge. The comparable adjusted EBITDA amount for the first six months of 2006 excludes the earnings from discontinued operations of $1.2 million, the non-cash charge of $10.1 million related to the Company’s financial restructuring, a charge of $0.7 million related to stock-based compensation, and an operational restructuring charge of $2.0 million.
 
  •   Consolidated revenue in the first six months of 2007 was $110.3 million compared to $110.9 million for the same period in 2006. Cost of Revenue and SG&A expenses combined were $100.3 million for the first six months of 2007, down 5.9% compared to the same period in 2006.
Liquidity
At June 30, 2007 the Company had cash and cash equivalents of $29.6 million and had no borrowings against its revolving credit facility. Total principal amount of debt outstanding at quarter-end was $108.9 million, a reduction of $21.4 million compared to the debt outstanding at the beginning of the quarter. The reduction in debt during the quarter was the result of the Company’s paying off the remaining $15.4 million balance on its term loan and the conversion of $5.9 million principal amount of outstanding Senior Convertible Notes Due 2011 into approximately 903,000 shares of common stock.
Debt outstanding at the end of the second quarter included $51.5 million in principal amount of 11.0% Senior Notes Due 2011, $56.1 million in principal amount of 10.0% Senior Convertible Notes Due 2011, and $1.3 million of capital lease obligations. In addition, the Company had 9.0% Series A preferred stock outstanding at quarter-end with an aggregate liquidation preference of $8.3 million, which is mandatorily redeemable in 2011. The aggregate liquidation preference on the Series A preferred stock decreased by $0.6 million during the quarter, the net result of an increase of $0.2 million from the accretion of unpaid dividends and the conversion of Series A preferred shares representing $0.8 million in liquidation preference into approximately 296,000 shares of common stock.
“We continued our forward momentum during the second quarter, registering our sixth successive quarter of year-over-year increase in adjusted EBITDA,” said James B. McCurry, chairman, president and chief executive officer. “During the quarter we reduced our total debt outstanding while increasing our cash on hand, and we sharpened our strategic focus by successfully divesting our Meridian business unit. We also made significant progress in our initiative to pioneer recovery audit in Medicare, with proceeds from our contract to audit Medicare spending in California making an important contribution to our revenue for the quarter.”

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Second Quarter Earnings Call
As previously announced, management will hold a conference call at 8:30 AM (EDT) tomorrow to discuss its 2007 second quarter and first half financial results. Please use the following Internet link to pre-register and view important information about this conference call. Pre-registering is not required but is recommended as it will provide registered listeners with immediate entry into the call and will facilitate the timely start of the conference. Pre-registration only takes a few minutes and may be done at anytime, including up to and after the call start time. To pre-register, please click PRGX Q2 2007 Conference Call Pre-Registration or go to https://www.theconferencingservice.com/prereg/key.process?key=PP6FGWMW4.
As an alternative to Internet pre-registration, listeners in the U.S. and Canada may be placed into the call by an operator, by dialing +1 888-713-4209 at least 5 minutes prior to the start of the conference. Listeners outside the U.S. and Canada should dial 617-213-4863. To be admitted to the call, listeners should use passcode 57935336. A replay of the call will be available one hour after the conclusion of the live call, extending through August 31, 2007. To directly access the replay, dial +1 888-286-8010 (U.S. and Canada) or 617-801-6888 (outside the U.S. and Canada). The passcode for the replay is 31282757.
This teleconference will also be audiocast on the Internet at www.prgx.com (click on “(NASDAQ: PRGX)” under “Investor Relations”) or click PRGX Investor Relations. A replay of the audiocast will be available at the same location beginning one hour after the conclusion of the live audiocast, extending through August 31, 2007. 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 http://www.microsoft.com/windows/windowsmedia/download
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. Management uses these measures in evaluating the Company’s financial performance and believes that providing investors with this information provides greater transparency and insight into management’s assessment and analysis of that performance. Additionally, rating agencies and a number of lenders, including the Company’s secured lenders, use measures similar to EBITDA and adjusted EBITDA

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to assess the Company’s performance. 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 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 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 and liquidity, the existence and continuation of the Company’s forward momentum, the sharpening of the Company’s strategic focus, and the Company’s significant progress in its initiative to pioneer recovery audit in Medicare. 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 the Company’s ability to retain personnel, Medicare audit revenues that do not meet expectations or justify costs incurred, the Company’s ability to replace the declining revenues from its core accounts payable services, changes in the market for the Company’s services, 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 and the success of its restructuring plan, please see the Company’s filings with the Securities and Exchange Commission, including its Form 10-K filed on March 23, 2007. The Company disclaims any obligation or duty to update or modify these forward-looking statements.
Contact: PRG-Schultz International, Inc.
Peter Limeri
770-779-6464

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SCHEDULE 1
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
                                 
    THREE MONTHS     SIX MONTHS  
    ENDED JUNE 30,     ENDED JUNE 30,  
    2007     2006     2007     2006  
Revenues
   $ 53,315     $ 55,141     $ 110,345     $ 110,856  
Cost of revenues
     34,872       39,943       72,113       79,723  
 
                        
Gross margin
     18,443       15,198       38,232       31,133  
 
                                
Selling, general and administrative expenses
     14,486       12,737       28,168       26,803  
Operational restructuring expenses
     —       1,580       —       1,988  
 
                        
 
                                
Operating income
     3,957       881       10,064       2,342  
 
                                
Interest expense, net
     4,749       4,292       8,890       6,859  
Loss on financial restructuring
     —       —       —       10,129  
 
                        
 
                                
Earnings (loss) from continuing operations before income taxes and discontinued operations
     (792 )     (3,411 )     1,174       (14,646 )
 
                                
Income taxes
     344       190       875       454  
 
                        
 
                                
Earnings (loss) from continuing operations before discontinued operations
     (1,136 )     (3,601 )     299       (15,100 )
 
                                
Discontinued operations:
                                
Operating income, net of taxes
     227       196       315       916  
Gain (loss) on disposal
     19,460       (240 )     19,460       245  
 
                        
Earnings (loss) from discontinued operations, net of taxes
     19,687       (44 )     19,775       1,161  
 
                        
 
                                
Net earnings (loss)
   $ 18,551     $ (3,645 )   $ 20,074     $ (13,939 )
 
                        
 
                                
Basic and diluted earnings (loss) per common share:
                                
Earnings (loss) from continuing operations
   $ (0.15 )   $ (0.61 )   $ 0.00     $ (2.45 )
Earnings (loss) from discontinued operations
     2.17       (0.01 )     2.26       0.18  
 
                        
Net earnings (loss)
   $ 2.02     $ (0.62 )   $ 2.26     $ (2.27 )
 
                        
 
                                
Weighted average common shares outstanding:
                                
Basic
     9,093       6,388       8,733       6,300  
 
                        
Diluted
     9,093       6,388       8,733       6,300  
 
                        
     Certain reclassifications have been made to the 2006 amounts to conform to the presentation in 2007.
     These reclassifications include the presentation of the Meridian reporting segment as discontinued operations.

 

SCHEDULE 2
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
                 
    June 30,     December 31,  
    2007     2006  
ASSETS
               
Current assets:
                
Cash and cash equivalents
   $ 29,582     $ 30,228  
Restricted cash
     175       139  
Receivables:
                
Contract receivables
     36,399       39,703  
Employee advances and miscellaneous receivables
     370       2,534  
 
            
Total receivables
     36,769       42,237  
 
                
Prepaid expenses and other current assets
     3,105       2,092  
Current assets of discontinued operations
     2,031       52,320  
 
            
Total current assets
     71,662       127,016  
 
                
Property and equipment
     7,533       8,810  
Goodwill
     4,600       4,600  
Intangible assets
     22,369       23,062  
Other assets
     8,269       11,058  
Noncurrent assets of discontinued operations
     —       4,121  
 
            
Total assets
   $ 114,433     $ 178,667  
 
            
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
                
 
                
Current liabilities:
                
Current portions of debt obligations
   $ 581     $ 750  
Accounts payable and accrued expenses
     19,149       17,959  
Accrued payroll and related expenses
     25,572       37,224  
Refund liabilities and deferred revenue
     10,567       10,657  
Current liabilities of discontinued operations
     —       55,208  
 
            
Total current liabilities
     55,869       121,798  
 
                
Senior notes
     44,464       43,796  
Senior convertible notes
     60,491       68,030  
Other debt obligations
     719       25,096  
Noncurrent compensation obligations
     8,824       5,859  
Other long-term liabilities
     7,136       7,372  
 
            
Total liabilities
     177,503       271,951  
 
            
 
                
Mandatorily redeemable participating preferred stock
     8,254       11,199  
 
                
Shareholders’ equity (deficit):
                
Common stock
     105       84  
Additional paid-in capital
     525,939       513,920  
Accumulated deficit
     (552,074 )     (571,818 )
Accumulated other comprehensive income
     3,416       2,041  
Treasury stock at cost
     (48,710 )     (48,710 )
 
            
Total shareholders’ equity (deficit)
     (71,324 )     (104,483 )
 
            
 
                
Total liabilities and shareholders’ equity (deficit)
   $ 114,433     $ 178,667  
 
            
2006 balances have been reclassified to present the assets and liabilities of the Meridian reporting
segment as those of discontinued operations. Meridian was sold in May 2007.

 

SCHEDULE 3
PRG-Schultz International, Inc. and Subsidiaries
Reconciliation of Net Earnings (Loss) to EBITDA and Adjusted EBITDA
(Amounts in thousands)
(Unaudited)
                                 
    Three Months     Six Months  
    Ended June 30,     Ended June 30,  
    2007     2006     2007     2006  
Reconciliation of net earnings (loss) to EBITDA and to Adjusted EBITDA:
                                
 
                                
Net earnings (loss)
   $ 18,551     $ (3,645 )   $ 20,074     $ (13,939 )
 
Adjust for:
                                
Earnings (loss) from discontinued operations
     19,687       (44 )     19,775       1,161  
 
                        
 
                                
Earnings (loss) from continuing operations
     (1,136 )     (3,601 )     299       (15,100 )
 
Adjust for:
                                
Income taxes
     344       190       875       454  
Interest
     4,749       4,292       8,890       6,859  
Loss on financial restructuring
     —       —       —       10,129  
Depreciation and amortization
     1,553       2,672       3,564       5,339  
 
                        
 
                                
EBITDA
     5,510       3,553       13,628       7,681  
 
                        
 
                                
Operational restructuring expenses
     —       1,580       —       1,988  
Stock-based compensation
     2,695       367       5,429       734  
 
                        
 
                                
Adjusted EBITDA
   $ 8,205     $ 5,500     $ 19,057     $ 10,403  
 
                        
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. Management uses these measures in evaluating the Company’s financial performance and believes that providing investors with this information provides greater transparency and insight into management’s assessment and analysis of that performance. Additionally, rating agencies and a number of lenders, including the Company’s secured lenders, use measures similar to EBITDA and adjusted EBITDA to assess the Company’s performance. 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 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 4
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
                                 
    Three Months     Six Months  
    Ended June 30,     Ended June 30,  
    2007     2006     2007     2006  
Cash flows from operating activities:
                                
 
                                
Net earnings (loss)
   $ 18,551     $ (3,645 )   $ 20,074     $ (13,939 )
Earnings (loss) from discontinued operations
     19,687       (44 )     19,775       1,161  
 
                        
Earnings (loss) from continuing operations
     (1,136 )     (3,601 )     299       (15,100 )
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by (used in) operations:
                                
Loss on financial restructuring
     —       —       —       10,129  
Depreciation and amortization
     1,553       2,672       3,564       5,339  
Stock-based compensation expense
     2,695       367       5,429       734  
Amortization of debt discounts and deferred costs
     1,511       333       2,003       578  
(Increase) decrease in receivables
     750       (510 )     6,939       11,753  
Increase (decrease) in accounts payable, accrued payroll and other accrued expenses
     4,676       149       (10,639 )     (8,073 )
Other, primarily changes in assets and liabilities
     (1,621 )     (50 )     (1,158 )     982  
 
                        
Net cash provided by (used in) operating activities
     8,428       (640 )     6,437       6,342  
 
                        
 
                                
Cash flows from investing activities — purchases of property and equipment, net of disposals
     (781 )     (156 )     (1,139 )     (408 )
 
                        
 
                                
Net cash provided by (used in) financing activities
     (15,586 )     —       (25,369 )     (831 )
 
                        
 
                                
Cash flows from discontinued operations
     19,152       (218 )     19,069       723  
 
                        
 
                                
Effect of exchange rates on cash and cash equivalents
     168       970       356       1,030  
 
                        
 
                                
Net increase (decrease) in cash and cash equivalents
     11,381       (44 )     (646 )     6,856  
 
                                
Cash and cash equivalents at beginning of period
     18,201       15,261       30,228       8,361  
 
                        
 
                                
Cash and cash equivalents at end of period
   $ 29,582     $ 15,217     $ 29,582     $ 15,217