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.

Discontinued Operations

As of December 31, 2015, the Company discontinued its Healthcare Claims Recovery Audit ("HCRA") services business. 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. One of the third-party Medicare RAC-related contracts has been settled and the results are reflected in these financial statements. The Company will continue to incur certain expenses until the remaining Medicare RAC contracts are concluded. Associated with the discontinued HCRA services business, the Company has an accrued liability for outstanding Medicare RAC appeals of approximately $2.0 million and a receivable of approximately $1.7 million for unpaid claims as of June 30, 2019. The HCRA services business is reported as Discontinued Operations in accordance with GAAP.

The following table presents the discontinued operations of the HCRA services business in the Consolidated Statement of Operations, for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue, net	$	—		$	157		$	—		$	157
Cost of sales	96			183			245			512
Selling, general and administrative expense	7			—			13			3
Depreciation and amortization	—			—			—			1
Loss from discontinued operations before income taxes	$	(103	)	$	(26	)	$	(258	)	$	(359	)
Income tax expense	—			—			—			—
Net loss from discontinued operations	$	(103	)	$	(26	)	$	(258	)	$	(359	)

The following table presents the discontinued operations of the HCRA services business in the Consolidated Statements of Cash Flows, for the six months ended June 30, 2019 and 2018 (in thousands):



	Six Months Ended June 30,
	2019			2018
Net cash used in operating activities	$	(258	)	$	(359	)
Net cash used in investing activities	—			—
Net cash provided by financing activities	—			—
Decrease in cash and cash equivalents	$	(258	)	$	(359	)

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 six months ended June 30, 2019 and 2018 (in thousands) is as follows:



	Recovery Audit Services – Americas			Recovery Audit Services – Europe/Asia- Pacific			Adjacent Services			Corporate Support			Total
Three Months Ended June 30, 2019
Revenue, net	$	28,935		$	11,836		$	1,203		$	—		$	41,974
Net loss from continuing operations													(4,176		)
Income tax expense													311
Interest expense, net													592
EBIT	$	6,960		$	1,877		$	(2,914	)	$	(9,196	)	$	(3,273	)
Depreciation of property, equipment and software	1,919			182			280			—			2,381
Amortization of intangible assets	438			48			386			—			872
EBITDA	$	9,317		$	2,107		$	(2,248	)	$	(9,196	)	$	(20	)
Other loss	1			—			—			10			11
Foreign currency transaction (gains) losses on short-term intercompany balances	(106		)	(99		)	6			122			(77		)
Transformation, severance, and other expenses	250			122			605			303			1,280
Stock-based compensation	—			—			—			1,662			1,662
Adjusted EBITDA	$	9,462		$	2,130		$	(1,637	)	$	(7,099	)	$	2,856



	Recovery Audit Services – Americas		Recovery Audit Services – Europe/Asia- Pacific		Adjacent Services			Corporate Support			Total
Three Months Ended June 30, 2018
Revenue, net	$	28,912	$	11,445	$	1,745		$	—		$	42,102
Net loss from continuing operations											(2,880		)
Income tax expense											189
Interest expense, net											486
EBIT	$	4,598	$	1,669	$	(1,058	)	$	(7,414	)	$	(2,205	)
Depreciation of property, equipment and software	1,719		206		435			—			2,360
Amortization of intangible assets	436		38		390			—			864
EBITDA	$	6,753	$	1,913	$	(233	)	$	(7,414	)	$	1,019
Other loss (income)	—		56		—			(51		)	5
Foreign currency transaction losses (gains) on short-term intercompany balances	149		905		13			(187		)	880
Transformation, severance, and other expenses	486		472		—			357			1,315
Stock-based compensation	—		—		—			873			873
Adjusted EBITDA	$	7,388	$	3,346	$	(220	)	$	(6,422	)	$	4,092



	Recovery Audit Services – Americas			Recovery Audit Services – Europe/Asia- Pacific		Adjacent Services			Corporate Support			Total
Six Months Ended June 30, 2019
Revenue, net	$	56,308		$	21,595	$	2,875		$	—		$	80,778
Net loss from continuing operations												(8,417		)
Income tax expense												479
Interest expense, net												1,065
EBIT	$	12,964		$	2,190	$	(5,059	)	$	(16,968	)	$	(6,873	)
Depreciation of property, equipment and software	3,681			344		559			—			4,584
Amortization of intangible assets	876			85		773			—			1,734
EBITDA	$	17,521		$	2,619	$	(3,727	)	$	(16,968	)	$	(555	)
Other loss (income)	1			9		—			(18		)	(8		)
Foreign currency transaction (gains) losses on short-term intercompany balances	(179		)	300		—			8			129
Transformation, severance, and other expenses	378			245		623			731			1,977
Stock-based compensation	—			—		—			3,046			3,046
Adjusted EBITDA	$	17,721		$	3,173	$	(3,104	)	$	(13,201	)	$	4,589



	Recovery Audit Services – Americas		Recovery Audit Services – Europe/Asia- Pacific		Adjacent Services			Corporate Support			Total
Six Months Ended June 30, 2018
Revenue, net	$	54,870	$	21,472	$	2,481		$	—		$	78,823
Net loss from continuing operations											(5,208		)
Income tax expense											976
Interest expense, net											884
EBIT	$	10,323	$	3,217	$	(2,779	)	$	(14,109	)	$	(3,348	)
Depreciation of property, equipment and software	2,616		348		619			—			3,583
Amortization of intangible assets	773		99		780			—			1,652
EBITDA	$	13,712	$	3,664	$	(1,380	)	$	(14,109	)	$	1,887
Other loss (income)	—		105		—			(88		)	17
Foreign currency transaction losses (gains) on short-term intercompany balances	206		676		4			(226		)	660
Transformation, severance, and other expenses	549		1,015		68			357			1,989
Stock-based compensation	—		—		—			2,818			2,818
Adjusted EBITDA	$	14,467	$	5,460	$	(1,308	)	$	(11,248	)	$	7,371