Operating Segments and Related Information

12 Months Ended

Dec. 31, 2016

Segment Reporting [Abstract]

Operating Segments and Related Information

OPERATING SEGMENTS AND RELATED INFORMATION

We conduct our operations through three reportable segments:

Recovery Audit Services – Americas represents recovery audit services (other than HCRA services) provided in the United States of America (“U.S.”), Canada and Latin America.

Recovery Audit Services – Europe/Asia-Pacific represents recovery audit services provided in Europe, Asia and the Pacific region.

Adjacent Services represents data transformation, spend analytics, PRGX OPTIX and SIM services, and associated advisory services.

We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportable segments in Corporate Support.

During the fourth quarter of 2015, PRGX entered into agreements with third parties to fulfill its Medicare recovery audit contractor ("RAC") program subcontract obligations to audit Medicare payments and provide support for claims appeals and assigned its remaining Medicaid contract to another party. The Company will continue to incur certain expenses while the current Medicare RAC contracts are still in effect. As part of discontinuing the HCRA business, the Company increased its accrual for outstanding Medicare RAC appeals liability by approximately $2.1 million. The HCRA services business has been reported as Discontinued Operations in accordance with US GAAP.

Discontinued operations information for the years ended December 31, 2016, 2015 and 2014 (in thousands) is as follows: 

Results of Discontinued Operations (in thousands)	Years Ended December 31,
	2016		2015		2014
Revenue, net	(14	)	1,266		2,640
Cost of sales	1,112		4,743		5,069
Selling, general and administrative expense	184		1,253		2,207
Depreciation and amortization	14		35		191
Pretax loss from discontinued operations	(1,324	)	(4,765	)	(4,827	)
Income tax expense	—		—		—
Net loss from discontinued operations	(1,324	)	(4,765	)	(4,827	)

We evaluate the performance of our reportable segments based upon revenue and measures of profit or loss we refer to as EBITDA and Adjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation and amortization (“EBITDA”), and then further adjusted for unusual and other significant items that management views as distorting the operating results of the various segments from period to period. Such adjustments include restructuring charges, stock-based compensation, bargain purchase gains, acquisition-related charges and benefits (acquisition transaction costs, acquisition obligations classified as compensation, and fair value adjustments to acquisition-related contingent consideration), tangible and intangible asset impairment charges, certain litigation costs and litigation settlements, certain severance charges and foreign currency transaction gains and losses on short-term intercompany balances viewed by management as individually or collectively significant. We do not have any inter-segment revenue.

Segment information for the years ended December 31, 2016, 2015 and 2014 (in thousands) is as follows:

	Recovery Audit Services – Americas		Recovery Audit Services – Europe/Asia- Pacific		Adjacent Services			Corporate Support			Total
2016
Revenue, net	$	99,861	$	37,335	$	3,648		$	—		$	140,844
Net income from continuing operations											$	2,229
Income tax expense											1,242
Interest income, net											(153		)
EBIT	$	25,476	$	6,455	$	(4,617	)	$	(23,996	)	3,318
Depreciation of property and equipment	3,750		529		754			—			5,033
Amortization of intangible assets	1,477		—		355			—			1,832
EBITDA	30,703		6,984		(3,508		)	(23,996		)	10,183
Foreign currency transaction (gains) losses on short-term intercompany balances	31		107		17			(71		)	84
Transformation severance and related expenses	517		312		258			242			1,329
Other income	—		—		(121		)	—			(121		)
Stock-based compensation	—		—		—			5,123			5,123
Adjusted EBITDA	$	31,251	$	7,403	$	(3,354	)	$	(18,702	)	$	16,598
Capital expenditures	$	4,393	$	600	$	894		$	—		5,887
Allocated assets	$	47,690	$	14,813	$	10,532		$	—		$	73,035
Unallocated assets:
Cash and cash equivalents	—		—		—			15,723			15,723
Restricted cash	—		—		—			47			47
Deferred income taxes	—		—		—			2,269			2,269
Prepaid expenses and other assets	—		—		—			800			800
Discontinued operations	—		—		—			1,600			1,600
Total assets	$	47,690	$	14,813	$	10,532		$	20,439		$	93,474

	Recovery Audit Services – Americas		Recovery Audit Services – Europe/Asia- Pacific		Adjacent Services			Corporate Support			Total
2015
Revenue, net	$	97,009	$	36,264	$	5,029		$	—		$	138,302
Net income from continuing operations											$	1,539
Income tax expense											369
Interest income, net											(190		)
EBIT	$	22,539	$	2,573	$	(5,131	)	$	(18,263	)	1,718
Depreciation of property and equipment	4,036		647		634			—			5,317
Amortization of intangible assets	1,728		600		130			—			2,458
EBITDA	28,303		3,820		(4,367		)	(18,263		)	9,493
Foreign currency transaction (gains) losses on short-term intercompany balances	807		1,533		12			(187		)	2,165
Transformation severance and related expenses	322		589		30			308			1,249
Other loss	—		—		1,191			—			1,191
Stock-based compensation	—		—		—			3,926			3,926
Adjusted EBITDA	$	29,432	$	5,942	$	(3,134	)	$	(14,216	)	$	18,024
Capital expenditures	$	3,669	$	543	$	270		$	—		$	4,482
Allocated assets	$	44,588	$	13,922	$	1,030		$	—		$	59,540
Unallocated assets:
Cash and cash equivalents	—		—		—			15,122			15,122
Restricted cash	—		—		—			48			48
Deferred loan cost								80			80
Deferred income taxes	—		—		—			1,361			1,361
Prepaid expenses and other assets	—		—		—			2,465			2,465
Discontinued operations	—		—		—			1,775			1,775
Total assets	$	44,588	$	13,922	$	1,030		$	20,851		$	80,391

	Recovery Audit Services – Americas		Recovery Audit Services – Europe/Asia- Pacific		Adjacent Services			Corporate Support			Total
2014
Revenue, net	$	106,533	$	44,319	$	10,700		$	—		$	161,552
Net loss from continuing operations											$	(2,699	)
Income tax expense											3,241
Interest income, net											(77		)
EBIT	$	21,066	$	2,772	$	(4,161	)	$	(19,212	)	465
Depreciation of property and equipment	4,711		592		722			—			6,025
Amortization of intangible assets	2,002		1,195		334			—			3,531
EBITDA	27,779		4,559		(3,105		)	(19,212		)	10,021
Foreign currency transaction (gains) losses on short-term intercompany balances	380		1,828		—			(205		)	2,003
Acquisition-related charges	—		—		249			—			249
Transformation severance and related expenses	1,348		1,285		418			589			3,640
Other loss	—		—		57						57
Stock-based compensation								4,532			4,532
Adjusted EBITDA	$	29,507	$	7,672	$	(2,381	)	$	(14,296	)	$	20,502
Capital expenditures	$	3,930	$	651	$	123		$	—		$	4,704
Allocated assets	$	50,252	$	18,556	$	4,596		$	—		$	73,404
Unallocated assets:
Cash and cash equivalents	—		—		—			25,735			25,735
Restricted cash	—		—		—			53			53
Deferred income taxes	—		—		—			41			41
Prepaid expenses and other assets	—		—		—			2,729			2,729
Discontinued operations	—		—		—			820			820
Total assets	$	50,252	$	18,556	$	4,596		$	29,378		$	102,782

The following table presents revenue by country based on the location of clients served (in thousands):

	Years Ended December 31,
	2016		2015		2014
United States	$	80,857	$	80,484	$	88,859
United Kingdom	17,501		19,540		23,817
Canada	14,531		12,388		15,851
France	6,934		6,186		8,508
Australia	7,354		6,111		5,762
Mexico	4,900		4,340		4,653
Brazil	1,169		1,223		3,050
New Zealand	979		596		1,353
Spain	964		1,019		1,275
Thailand	654		933		986
Hong Kong	824		864		903
Colombia	583		610		841
Other	3,594		4,008		5,694
	$	140,844	$	138,302	$	161,552

The following table presents long-lived assets by country based on the location of the asset (in thousands):

	December 31,
	2016		2015
United States	$	34,429	$	26,281
United Kingdom	2,047		2,939
All Other	1,074		1,297
	$	37,550	$	30,517

One client, The Kroger Co., accounted for approximately 11% of revenue from continuing operations in 2016, and no client accounted for 10% or more of revenue from continuing operations in 2015 or 2014.