Operating Segments and Related Information

The Company conducts its operations through the following three reportable segments:

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

Recovery Audit Services – Europe/Asia-Pacific represents recovery audit services (other than Healthcare Claims Recovery Audit services) provided in Europe, Asia and the Pacific region.

Adjacent Services represents data transformation, spend analytics, PRGX OPTIX®,supplier information management ("SIM") services and associated advisory services.

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

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. Revenue is recognized from historical claims when performance obligations are satisfied. The Company will continue to incur certain expenses and may realize additional revenue until the wind-down of this business is complete. As a result, the Healthcare Claims Recovery Audit services business has been reported as Discontinued Operations in accordance with GAAP.

The following table presents the discontinued operations of the Healthcare Claims Recovery Audit services business in the Consolidated Statement of Operations, for the three and nine months ended September 30, 2018 and 2017 (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenue, net of refund liabilities	$	—		$	—		$	157		$	—
Cost of sales	319			337			831			1,013
Selling, general and administrative expense	6			5			9			10
Depreciation and amortization	—			2			1			6
Loss from discontinued operations before income taxes	$	(325	)	$	(344	)	$	(684	)	$	(1,029	)
Income tax expense	—			—			—			—
Net loss from discontinued operations	$	(325	)	$	(344	)	$	(684	)	$	(1,029	)

The following table presents the discontinued operations of the Healthcare Claims Recovery Audit services business in the Consolidated Statements of Cash Flows, for the nine months ended September 30, 2018 and 2017 (in thousands):



	Nine Months Ended September 30,
	2018			2017
Net cash used in operating activities	$	(684	)	$	(1,023	)
Net cash used in investing activities	—			—
Net cash provided by financing activities	—			—
Decrease in cash and cash equivalents	$	(684	)	$	(1,023	)

The Company evaluates the performance of its reportable segments based upon revenue and measures of profit or loss referred to as EBITDA and Adjusted EBITDA. The Company defines 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. The Company does not have any inter-segment revenue.

Segment information for the three and nine months ended September 30, 2018 and 2017 (in thousands) is as follows:



	Recovery Audit Services – Americas			Recovery Audit Services – Europe/Asia- Pacific			Adjacent Services			Corporate Support			Total
Three Months Ended September 30, 2018
Revenue, net of refund liabilities	$	28,806		$	12,191		$	2,323		$	—		$	43,320
Net income from continuing operations													2,626
Income tax expense													597
Interest expense, net													416
EBIT	$	6,522		$	2,585		$	(847	)	$	(4,621	)	$	3,639
Depreciation of property and equipment	1,260			164			289			—			1,713
Amortization of intangible assets	445			37			390			—			872
EBITDA	$	8,227		$	2,786		$	(168	)	$	(4,621	)	$	6,224
Other (income) loss	(3		)	61			—			(59		)	(1		)
Foreign currency transaction (gains) losses on short-term intercompany balances	(78		)	177			10			(39		)	70
Transformation severance and related expenses	179			(16		)	(2		)	278			439
Acquisition-related adjustment (income) loss	—			—			—			(1,640		)	(1,640		)
Stock-based compensation	—			—			—			1,341			1,341
Adjusted EBITDA	$	8,325		$	3,008		$	(160	)	$	(4,740	)	$	6,433



	Recovery Audit Services – Americas			Recovery Audit Services – Europe/Asia- Pacific			Adjacent Services			Corporate Support			Total
Three Months Ended September 30, 2017
Revenue, net of refund liabilities	$	30,705		$	10,837		$	925		$	—		$	42,467
Net income from continuing operations													1,077
Income tax expense													930
Interest expense, net													142
EBIT	$	8,539		$	2,289		$	(2,026	)	$	(6,653	)	$	2,149
Depreciation of property and equipment	789			161			183			—			1,133
Amortization of intangible assets	329			—			393			—			722
EBITDA	$	9,657		$	2,450		$	(1,450	)	$	(6,653	)	$	4,004
Other (income) loss	(11		)	—			(2		)	30			17
Foreign currency transaction (gains) losses on short-term intercompany balances	(155		)	(377		)	(6		)	120			(418		)
Transformation severance and related expenses	49			360			260			23			692
Stock-based compensation	—			—			—			2,107			2,107
Adjusted EBITDA	$	9,540		$	2,433		$	(1,198	)	$	(4,373	)	$	6,402



	Recovery Audit Services – Americas			Recovery Audit Services – Europe/Asia- Pacific		Adjacent Services			Corporate Support			Total
Nine Months Ended September 30, 2018
Revenue, net of refund liabilities	$	83,676		$	33,663	$	4,804		$	—		$	122,143
Net loss from continuing operations												(2,582		)
Income tax expense												1,573
Interest expense, net												1,300
EBIT	$	16,845		$	5,802	$	(3,626	)	$	(18,730	)	$	291
Depreciation of property and equipment	3,876			512		908			—			5,296
Amortization of intangible assets	1,218			136		1,170			—			2,524
EBITDA	$	21,939		$	6,450	$	(1,548	)	$	(18,730	)	$	8,111
Other (income) loss	(3		)	166		—			(147		)	16
Foreign currency transaction losses (gains) on short-term intercompany balances	128			853		14			(265		)	730
Transformation severance and related expenses	728			999		66			635			2,428
Acquisition-related adjustment (income) loss	—			—		—			(1,640		)	(1,640		)
Stock-based compensation	—			—		—			4,159			4,159
Adjusted EBITDA	$	22,792		$	8,468	$	(1,468	)	$	(15,988	)	$	13,804



	Recovery Audit Services – Americas			Recovery Audit Services – Europe/Asia- Pacific			Adjacent Services			Corporate Support			Total
Nine Months Ended September 30, 2017
Revenue, net of refund liabilities	$	81,641		$	29,441		$	3,464		$	—		$	114,546
Net loss from continuing operations													(1,096		)
Income tax expense													2,436
Interest expense, net													227
EBIT	$	20,110		$	5,754		$	(5,681	)	$	(18,616	)	$	1,567
Depreciation of property and equipment	2,478			453			531			—			3,462
Amortization of intangible assets	986			—			1,180			—			2,166
EBITDA	$	23,574		$	6,207		$	(3,970	)	$	(18,616	)	$	7,195
Other (income) loss	(11		)	—			(195		)	29			(177		)
Foreign currency transaction (gains) losses on short-term intercompany balances	(396		)	(1,566		)	(10		)	45			(1,927		)
Transformation severance and related expenses	313			582			305			392			1,592
Stock-based compensation	—			—			—			5,362			5,362
Adjusted EBITDA	$	23,480		$	5,223		$	(3,870	)	$	(12,788	)	$	12,045