EXHIBIT NUMBER 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
PRG-SCHULTZ REPORTS FIRST QUARTER 2003 FINANCIAL RESULTS
EPS FROM CONTINUING OPERATIONS
IN LINE WITH PREVIOUS EXPECTATIONS; REVENUES IMPACTED BY WEAKNESS
IN US ACCOUNTS PAYABLE BUSINESS;
CASH FLOW FROM OPERATIONS INCREASED 55%
ATLANTA, APRIL 28, 2003 - PRG-Schultz International, Inc. (Nasdaq: PRGX) today
announced financial results for the first quarter 2003, updated its 2003
full-year outlook and provided an outlook for the second quarter 2003.
FIRST QUARTER 2003 FINANCIAL HIGHLIGHTS
o Earnings from continuing operations were $0.07 per diluted share.
o Revenues totaled $100.6 million:
o Revenues from Accounts Payable Services totaled $84.5 million.
o Revenues from Other Ancillary Services totaled $16.1 million.
o Operating income margin was 9.1% of revenues for the quarter, compared to
9.9% a year ago.
o EBITDA margin (equivalent to operating income margin of 9.1% of revenues
plus depreciation and amortization of 4.1% of revenues) was 13.2% of
revenues for the quarter, compared to 14.6% (equivalent to operating income
margin of 9.9% of revenues plus depreciation and amortization of 4.7% of
revenues) a year ago.
o Cash flow from operating activities increased to $12.7 million for the
three months ended March 31, 2003, from $8.2 million for the same period a
year ago.
o The Company incurred approximately $0.8 million, or $0.01 per diluted share
in expenses associated with the integration of its US Accounts Payable
Services operations.
John Cook, chairman and chief executive officer of PRG-Schultz stated, "We are
pleased that we met our earnings objectives despite weakness in our US Accounts
Payable Services revenues. Our international Accounts Payable Services business
performed substantially in line with our expectations, and we continue to expect
strong international growth for the remainder of 2003 and beyond. Furthermore,
revenues and earnings from Meridian VAT Reclaim were significantly higher than
planned due to unexpected volumes of cash-basis revenue collections from certain
VAT authorities, yielding higher than expected results overall for Other
Ancillary Services. We are also pleased that we generated strong cash flow from
operations of $12.7 million for the quarter, representing an increase of 55%
over the same period last year and that we further executed on our share
repurchase program."
The Company noted that while revenues from US Commercial accounts approached the
Company's previous expectations, it encountered significant and unexpected
difficulties in US Retail accounts late during the quarter, with billings in the
month of March falling significantly short of expectations. Although claim
production volumes remained substantially intact, conversion of claims to
revenues was significantly impacted by widespread caution on the part of many of
the Company's clients. Several large clients revisited their respective internal
claim processing and submission guidelines in light of the highly publicized
inquiries by the Securities and Exchange Commission and other governmental
entities concerning the accounting for vendor-supplied promotional allowances.
This development was recognized late in the quarter due, in part, to the rapid
nature of its unfolding.
FIRST QUARTER 2003 FINANCIAL RESULTS
Revenues for the first quarter of 2003 totaled $100.6 million, compared to
$110.3 million in the first quarter of 2002. Revenues from Accounts Payable
Services and Other Ancillary Services totaled $84.5 million and $16.1 million,
respectively, for the quarter compared to $97.5 million and $12.8 million,
respectively, a year ago. The year-over-year decrease of approximately 13% in
Accounts Payable Services revenues was due to a decrease in revenues from the
Company's US Accounts Payable Services operations, which declined approximately
22% year-over-year. Revenues from the Company's international Accounts Payable
5
Services operations increased approximately 15%. Revenues from Other Ancillary
Services increased 26% year-over-year, due to the generation of the
higher-than-expected revenues in the Company's Meridian VAT Reclaim business, as
well as year-over-year increases in revenues from the Communications Services
business.
Reported earnings from continuing operations for the first quarter of 2003 were
$4.3 million, or $0.07 per diluted share, compared to $5.4 million, or $0.08 per
diluted share, in the first quarter of 2002. As required under generally
accepted accounting principles, after-tax interest and amortization expense
related to the Company's convertible notes of approximately $1.0 million has
been added back to earnings from continuing operations for the purpose of
calculating diluted earnings per share for both the first quarter of 2003 and
the first quarter of 2002. Correspondingly, the approximately 16.1 million
common shares into which the convertible notes can be exchanged have been added
to the diluted share count for both the first quarter of 2003 and the first
quarter of 2002.
Operating income (EBIT) totaled $9.2 million, or 9.1% of revenues, compared to
$10.9 million, or 9.9% of revenues, in the same period a year ago. Earnings
before interest, taxes, depreciation and amortization (EBITDA) for the first
quarter of 2003 totaled $13.3 million, or 13.2% of revenues, compared to $16.1
million, or 14.5% of revenues, in the first quarter of 2002. EBITDA is the
equivalent of operating income (EBIT) of $9.2 million plus depreciation and
amortization of $4.1 million for the first quarter of 2003 and $10.9 million
plus depreciation and amortization of $5.2 million for the first quarter of
2002.
Effective January 1, 2002, the Company implemented SFAS 142, "Goodwill and Other
Intangible Assets." SFAS 142 requires that an intangible asset with a finite
life be amortized over its useful life and that an intangible asset with an
infinite life and goodwill not be amortized but evaluated for impairment. During
the second quarter of 2002, the Company and its advisors completed the required
transitional testing and determined that $28.3 million goodwill pertaining to
the Other Ancillary Services segment was impaired as of January 1, 2002. In
accordance with generally accepted accounting principles, this non-cash
impairment charge in the amount of $17.2 million on an after-tax basis was
recorded as a cumulative effect of a change in accounting principle, retroactive
to January 1, 2002.
During the first quarter of 2003, the Company recorded an after-tax gain from
discontinued operations of $0.3 million to reflect receipt of a portion of the
revenue-based royalty from the sale of the Logistics Management Services segment
in October 2001 as adjusted for certain expenses accrued as part of the
estimated loss on the sale of the segment. During the first quarter of 2002, the
Company recorded a non-cash, after-tax gain from discontinued operations of $2.3
million, as required by generally accepted accounting principles, to return the
accounting for the previously discontinued operations to the historical cost
basis.
Schedule 3 provides summary financial results from continuing operations for the
first quarter 2003 and 2002 by operating segment. Schedule 4 provides a
reconciliation of EBITDA and Operating Income.
CASH FLOW, DSOS AND CAPITAL EXPENDITURES
Net cash from operating activities for the three months ended March 31, 2003
improved to approximately $12.7 million, compared to $8.2 million in 2002.
Company-wide, Days Sales Outstanding (DSOs) for the first quarter of 2003 stood
at 53 days, unchanged from a year ago. DSOs for Accounts Payable Services were
61 days, compared to 56 days a year ago. Company-wide DSOs were lower than those
for Accounts Payable Services, as two of the three business units which comprise
the Other Ancillary Services reporting segment are on the cash basis of revenue
recognition in accordance with Securities and Exchange Commission guidance.
Capital expenditures totaled approximately $3.5 million for the first quarter of
2003, compared to $5.7 million in the same period a year ago. Capital
expenditures were significantly higher for the full year 2002 than the Company
estimates for 2003 due to the acquisition and integration of HS&A, as well as
the relocation of the Company's corporate headquarters in 2002. The Company
continues to expect capital expenditures in 2003 to be in the range of $13 - $15
million.
6
SHARE REPURCHASES
On October 28, 2002, the Company announced that its Board of Directors
authorized the repurchase of up to $50.0 million of PRG-Schultz common shares.
Purchases may be made in the open market or in privately negotiated transactions
from time to time and will depend on market conditions, business opportunities
and other factors. During the first quarter 2003, the Company repurchased
688,300 shares for approximately $5.0 million. The Company funded the purchases
and anticipates funding future purchases through a combination of cash flow from
operations and borrowings under the Company's senior bank credit facility. There
remains approximately $37.5 million of share repurchases available under the
authorization.
Included in this authorization is the possibility of the Company exercising its
second option to purchase up to approximately 1.45 million shares from an
affiliate of PRG-Schultz director Howard Schultz, as previously announced in
August 2002. This second option expires on May 9, 2003.
CLIENT BANKRUPTCY
On April 1, 2003, one of the Company's larger US Accounts Payable clients filed
for Chapter 11 Bankruptcy Reorganization. During the quarter ended March 31,
2003, the Company received $5.5 million in payments on account from this client.
A portion of these payments might be recoverable as "preference payments" under
United States bankruptcy laws. It is not possible at this point to estimate
whether a claim for repayment will ever be asserted and, if so, whether and to
what extent it may be successful. Accordingly, neither the Company's financial
statements for the quarter ended March 31, 2003, nor its forward-looking
guidance contained herein include any expense provision with respect to this
matter. Should a preference payment claim be asserted against the Company, the
Company will vigorously defend against it.
2003 OUTLOOK
The Company noted that it is lowering its revenue and earnings expectations for
2003, reflecting the revenue shortfall in the first quarter and the challenges
the Company is experiencing in its US Retail business, including anticipated
future revenue losses as a result of the bankruptcy of one of the Company's
larger clients. The Company expects, however, to maintain its estimates with
respect to operating income and EBITDA as a percentage of revenues. The Company
continues to expect strong revenue growth from its international operations of
18% - 22% and our current outlook continues to reflect overall growth in our
diluted earnings per share from continuing operations of approximately 45% - 60%
as well as increased operating cash flow in 2003 over 2002.
Full-year 2003
For the full-year 2003, total revenues from continuing operations are expected
to range from $445 - $455 million. Revenues from Accounts Payable Services are
estimated to range from $386 - $396 million. Revenues from Other Ancillary
Services are estimated to approximate $59 million.
Diluted earnings per share from continuing operations are expected to range from
$0.58 - $0.64 in 2003.
The Company anticipates generating operating income in the range of $75 - $80
million, or approximately 17% - 18% of revenues in 2003. EBITDA, which equals
operating income plus depreciation and amortization (currently estimated to be
approximately $18 million for 2003), is expected to be in the range of $93 - $98
million, or 21% - 22% of revenues.
Second Quarter 2003
For the second quarter 2003, total revenues from continuing operations are
expected to range from $106 - 109 million. Revenues from Accounts Payable
Services are estimated to range from $89 - 92 million. Revenues from Other
Ancillary Services are estimated to approximate $17 million.
Diluted earnings per share from continuing operations are expected to
approximate $0.09 - $0.10 in the second quarter of 2003.
The Company noted that, compared to 2002, it expects a greater portion of annual
revenues and earnings for 2003 to be generated in the second half of the year,
which is more representative of the Company's historical experience.
7
CONFERENCE CALL AND WEBCAST INFORMATION
PRG-Schultz will hold a conference call today, April 28, 2003 at 10 a.m. ET.
Listeners in the U.S. and Canada should dial 800.374.0518 at least 5 minutes
prior to the start of the conference. Listeners outside the U.S. or Canada
should dial 706.643.1837. To access the conference call, provide the leader's
name 'John Cook', reference the Company, and provide the passcode 'PRGX.'
The teleconference will also be audiocast on the Internet at www.prgx.com.
Microsoft Windows Media Player is required to access the audiocast and can be
downloaded from www.microsoft.com/windows/mediaplayer.
ABOUT PRG-SCHULTZ INTERNATIONAL, INC.
Headquartered in Atlanta, PRG-Schultz International, Inc. (PRG-Schultz) is the
world's leading provider of recovery audit services. PRG-Schultz employs
approximately 3,500 employees, providing clients in over 40 countries with
insightful value to optimize and expertly manage their business transactions.
Using proprietary software and expert audit methodologies, PRG-Schultz industry
specialists review client invoices, purchase orders, receiving documents,
databases, and correspondence files to recover lost profits due to overpayments
or under-deductions. PRG-Schultz is retained on a pay-for-performance basis,
receiving a percentage of each dollar recovered.
FORWARD LOOKING STATEMENTS
Statements made in this news release which look forward in time involve risks
and uncertainties and are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such risks and uncertainties
include the following: (i) if the current economic slowdown worsens, our clients
may not make sufficient levels of purchases from which to deduct our claim
findings and we therefore may be unable to recognize anticipated revenues, (ii)
we may experience revenue losses or delays as a result of our clients' potential
revision of claim approval and claim processing guidelines, (iii) the bankruptcy
of any of our larger clients, or of any such clients' larger customers or
suppliers, could impair then-existing accounts receivable and reduce expected
future revenues from such clients, (iv) a portion of $5.5 million in payments on
account from a bankrupt client of the Company received during the quarter ended
March 31, 2003 might be recoverable as "preference payments" under United States
bankruptcy laws and, if so, would result in the recording of an expense
provision in the Company's financial statements, (v) modifications to auditor
compensation models may negatively impact employee retention, and therefore, our
ability to generate revenues, (vi) the businesses comprising the Other Ancillary
Services segment may require additional time and effort of Company executives
and additional Company resources to help them achieve desired profitability and
may distract management from its focus on the Company's core Accounts Payable
Services business, and there is no guarantee that the Company can operate these
businesses efficiently and profitably, (vii) we may not achieve anticipated
expense savings, (viii) we have violated our debt covenants in the past and may
inadvertently do so in the future, (ix) our past and future investments in
technology and e-commerce may not benefit our business, (x) our Accounts Payable
Services businesses may not grow as expected, and we may not be able to increase
the number of clients, particularly commercial clients, utilizing broad-scope
audits, (xi) our international expansion may prove unprofitable, and (xii) the
integration of our US Accounts Payable Services operations may adversely affect
our ability to generate anticipated revenues and profits and may not be
successful or may require more time, management attention or expense than we
currently anticipate. Other risks and uncertainties that may affect our business
include (i) the possibility of an adverse judgment in pending securities
litigation, (ii) potential timing issues that could delay revenue recognition,
(iii) future weakness in the currencies of countries in which we transact
business, (iv) changes in economic cycles, (v) competition from other companies,
(vi) changes in governmental regulations applicable to us, and other risk
factors discussed in our Securities and Exchange Commission filings, including
the Company's Form 10-K as filed with the Securities and Exchange Commission on
March 17, 2003. The Company disclaims any obligation or duty to update or modify
these forward-looking statements.
# # #
CONTACT: Leslie H. Kratcoski
Investor Relations
(770) 779-3099
8
SCHEDULE 1
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
-----------------------------------------
2003 2002
------------------- ------------------
Revenues $ 100,645 $ 110,286
Cost of revenues 61,930 63,248
Selling, general and administrative expenses 29,551 36,141
------------------- ------------------
Operating income 9,164 10,897
Interest (expense), net (2,212) (2,245)
------------------- ------------------
Earnings from continuing operations before income taxes,
discontinued operations and cumulative effect of
accounting change 6,952 8,652
Income taxes 2,607 3,287
------------------- ------------------
Earnings from continuing operations before discontinued
operations and cumulative effect of accounting change 4,345 5,365
Discontinued operations:
Gain on disposal / retention of discontinued operations,
net of income taxes 324 2,310
------------------- ------------------
Gain from discontinued operations 324 2,310
------------------- ------------------
Earnings before cumulative effect of accounting change 4,669 7,675
Cumulative effect of accounting change, net of income taxes - (17,208)
------------------- ------------------
Net earnings (loss) $ 4,669 $ (9,533)
=================== ==================
Basic earnings (loss) per share:
Earnings from continuing operations before discontinued
operations and cumulative effect of accounting change $ 0.07 $ 0.09
Discontinued operations - 0.04
Cumulative effect of accounting change - (0.29)
------------------- ------------------
Net earnings (loss) $ 0.07 (0.16)
=================== ==================
Diluted earnings (loss) per share:
Earnings from continuing operations before discontinued
operations and cumulative effect of accounting change $ 0.07 $ 0.08
Discontinued operations - 0.03
Cumulative effect of accounting change - (0.22)
------------------- ------------------
Net earnings (loss) $ 0.07 $ (0.11)
=================== ==================
Weighted average shares outstanding:
Basic 62,382 59,531
=================== ==================
Diluted 78,910 76,612
=================== ==================
SCHEDULE 2
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 19,223 $ 14,860
Receivables:
Contract receivables 58,840 69,976
Employee advances and miscellaneous receivables 2,652 3,600
----------------- -----------------
Total receivables 61,492 73,576
----------------- -----------------
Funds held for client obligations 17,431 9,043
Prepaid expenses and other current assets 3,846 4,068
Deferred income taxes 24,370 25,930
----------------- -----------------
Total current assets 126,362 127,477
Property and equipment 34,923 35,057
Goodwill 372,046 371,833
Intangible assets 35,748 36,214
Deferred income taxes 10,774 10,628
Other assets 4,488 4,571
----------------- -----------------
Total assets $ 584,341 $ 585,780
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 4,827 $ 5,527
Obligation for client payables 17,431 9,043
Accounts payable and accrued expenses 24,624 24,269
Accrued payroll and related expenses 38,382 50,411
Deferred revenue 5,063 2,665
----------------- -----------------
Total current liabilities 90,327 91,915
Long-term debt, excluding current installments 26,554 26,363
Convertible notes, net of unamortized discount of $3,290 in 2003 and
$3,509 in 2002 121,710 121,491
Deferred compensation 3,533 4,011
Other long-term liabilities 4,105 4,115
----------------- -----------------
Total liabilities 246,229 247,895
----------------- -----------------
Shareholders' equity:
Preferred stock - -
Common stock 67 67
Additional paid-in capital 492,072 491,894
Accumulated deficit (106,009) (110,678)
Accumulated other comprehensive loss (1,282) (1,601)
Less treasury stock at cost (46,210) (41,182)
Unearned portion of restricted stock (526) (615)
----------------- -----------------
Total shareholders' equity 338,112 337,885
----------------- -----------------
Total liabilities and shareholders' equity $ 584,341 $ 585,780
================= =================
SCHEDULE 3
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
SUMMARY OPERATING SEGMENT RESULTS FROM CONTINUING OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
(IN THOUSANDS EXCEPT EARNINGS PER SHARE DATA)
---------------------------------------------
2003 2002
---------------------------------------------
$ % REV. $ % REV.
- ------------------------------------------------------------------------------
ACCOUNTS PAYABLE SERVICES
Revenues $ 84,533 $ 97,498
Operating Income $ 15,927 18.9% $ 24,538 25.2%
- ------------------------------------------------------------------------------
OTHER ANCILLARY SERVICES
Revenues $ 16,112 $ 12,788
Operating Income $ 5,180 32.1% $ 2,559 20.0%
- ------------------------------------------------------------------------------
CORPORATE SUPPORT
Operating Income ($ 11,943) -11.9% ($ 16,200) -14.7%
- ------------------------------------------------------------------------------
TOTAL
Revenues $ 100,645 $ 110,286
Operating Income $ 9,164 9.1% $ 10,897 9.9%
Earnings from
Continuing Operations $ 4,345 4.3% $ 5,365 4.9%
Diluted Earnings Per Share from
Continuing Operations $ 0.07 $ 0.08
Diluted Shares 78,910 76,612
- ------------------------------------------------------------------------------
Note:
Earnings from Continuing Operations and Diluted Earnings Per Share From
Continuing Operations are prior to Earnings from Discontinued Operations (2002 &
2003) and Cumulative Effect of an Accounting Change (2002).
SCHEDULE 4
PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
SUMMARY EBITDA AND OPERATING INCOME FROM CONTINUING OPERATIONS RECONCILIATION
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS
ENDED MARCH 31,
2003 2002
- --------------------------------------------------------------------------------
ACCOUNTS PAYABLE SERVICES:
Operating Income $ 15,927 $ 24,538
Add-back:
Depreciation and Amortization $ 1,998 $ 1,716
- ----------------------------- ------------- -------------
EBITDA $ 17,925 $ 26,254
EBITDA as % of Accounts Payable Services Revenues 21.2% 26.9%
- --------------------------------------------------------------------------------
OTHER ANCILLARY SERVICES:
Operating Income $ 5,180 $ 2,559
Add-back:
Depreciation and Amortization $ 345 $ 356
- ----------------------------- ------------ -------------
EBITDA $ 5,525 $ 2,915
EBITDA as % of Other Ancillary Services Revenues 34.3% 22.8%
- --------------------------------------------------------------------------------
CORPORATE SUPPORT:
Operating Income $(11,943) $(16,200)
Add-back:
Depreciation and Amortization $ 1,820 $ 3,097
- ----------------------------- ------------ -------------
EBITDA $(10,123) $(13,103)
- --------------------------------------------------------------------------------
TOTAL COMPANY:
Operating Income $ 9,164 $ 10,897
Add-back:
Depreciation and Amortization $ 4,163 $ 5,169
- ----------------------------- ------------ -------------
EBITDA
$ 13,327 $ 16,066
EBITDA as % of Total Company Revenues 13.2% 14.6%
- --------------------------------------------------------------------------------
In this press release, the Company has provided a financial measure, EBITDA,
defined as earnings from continuing operations before interest, taxes,
depreciation and amortization. EBITDA is considered a 'non-GAAP' financial
measure within the meaning of Regulation G and may not be similar to EBITDA
measures employed by other companies. EBITDA is presented solely as a
supplemental disclosure because management believes it to be an effective
measure of the Company's core operating performance and the ability of the
Company's operations to contribute to its liquidity. EBITDA should not be
considered in isolation of or as a substitute for other measures for determining
operating performance or liquidity that are calculated in accordance with GAAP.
This schedule provides a reconciliation of EBITDA to operating income, the most
directly comparable GAAP measure.