EXHIBIT 99.1
PRG-SCHULTZ REPORTS SECOND QUARTER 2005 FINANCIAL RESULTS
ATLANTA--(BUSINESS WIRE)--July 28, 2005--PRG-Schultz International, Inc.
(Nasdaq:PRGX), the world's largest recovery audit firm, today announced
financial results for the second quarter 2005.
Second Quarter 2005 Highlights
-- Revenues totaled $80.6 million
-- Revenues from Accounts Payable Services totaled $68.2 million
-- Revenues from Meridian VAT Reclaim totaled $12.4 million
-- Diluted loss per share from continuing operations was ($0.10)
for the quarter compared with diluted loss per share from
continuing operations of ($0.01) during the second quarter of
2004
-- Loss for the quarter was higher than the range provided on
July 20, 2005 due to a change in the treatment of the
accounting for the retirement benefits for John Cook and
Jack Toma
-- Of the expenses included in the results from continuing
operations, $4.3 million of expenses, or $0.07 per share,
pertained to the following:
-- $3.5 million associated with the Company's obligation for
retirement benefits for John Cook and Jack Toma pursuant
to their separation from the Company
-- $0.3 million of costs relating to the Company's analysis
of strategic alternatives
-- $0.5 million of costs relating to the Company's
implementation of strategic cost reduction initiatives
-- Cost of revenue was 65.7% of revenues as compared to 62.5% in
the second quarter of 2004. U.S. cost of revenue was 62.2% of
U.S. revenues, as compared to 62.7% in the second quarter of
2004. (See Schedule 7 for a reconciliation of total revenues
and cost of revenues)
-- Net earnings (loss) was (7.8%) of revenues for the quarter,
compared to (2.2%) a year ago.
-- Earnings before interest, taxes, depreciation and amortization
(EBITDA) was ($0.1) million, or (0.2%) of revenues for the
quarter. (See Schedule 6 for a reconciliation of net earnings
(loss) to EBITDA, a non-GAAP financial measure)
James Moylan, Chief Financial Officer of PRG-Schultz, said, "Total revenues for
the second quarter came in lower than we had anticipated due in large part to
client specific issues concentrated in the U.K. that resulted in slower than
anticipated conversion of claims to revenue and a shortfall in commercial
revenue also in the U.K. More generally, the Company is currently working to
refocus on operational and financial performance across the organization."
Second Quarter 2005 Financial Results
Revenues for the second quarter of 2005 totaled $80.6 million, compared to $90.4
million in the second quarter of 2004. Revenues from Accounts Payable Services
totaled $68.2 million for the quarter compared to $76.8 million a year ago.
Revenues from the Company's U.S. Accounts Payable Services operations were $41.8
million, compared to $48.3 million in the second quarter of 2004. The reduction
in revenues was primarily attributable to a reduction in revenue from certain
large U.S. retail audits. Revenues from the Company's International Accounts
Payable service operations were $26.4 million, compared to $28.5 million in the
second quarter of 2004, due in large part to client specific issues concentrated
in the U.K. that resulted in a slower than anticipated conversion of claims to
revenue and a shortfall in commercial revenue in the U.K. Revenues from Meridian
VAT Reclaim for the second quarter of 2005 were $12.4 million, compared to $13.6
million a year ago.
Cost of revenue was $53.0 million, or 65.7% of revenues for the second quarter
of 2005, compared to $56.5 million, or 62.5% of revenues in the same period last
year.
Net loss for the second quarter of 2005 was ($6.3) million, or ($0.10) per
share, compared to net loss of ($2.0) million, or ($0.03) per share, in the 2004
period. This loss is greater than the range indicated in the Company's July 20,
2005 press release, due to the determination that all costs associated with the
retirement benefits for John Cook, former Chairman, President and Chief
Executive Officer, and Jack Toma, former Vice Chairman, pursuant to their
separation from the Company, should be expensed as of the end of the second
quarter of 2005. These expenses amounted to $3.5 million for the quarter.
Results in the second quarter of 2005 also included $0.5 million relating to
previously disclosed strategic cost reduction initiatives, and $0.3 million of
costs relating to the Company's analysis of strategic alternatives.
The Company recorded tax expense of $0.4 million for the quarter, which reflects
accruals on international operations. No U.S. tax credit was provided against
the loss. Net loss from continuing operations for the second quarter of 2005 was
($6.3) million, or ($0.10) per diluted share, compared to a net loss of ($0.9)
million, or ($0.01) per diluted share, during the second quarter of 2004.
EBITDA for the second quarter of 2005 totaled ($0.1) million, or (0.2%) of
revenues, compared to $4.5 million, or 5% of revenues, in the second quarter of
2004. (See Schedule 6 for a reconciliation of net earnings (loss) to EBITDA, a
non-GAAP financial measure).
Schedule 4 provides summary financial results from continuing operations for the
second quarters of 2005 and 2004 by operating segment.
Cash Flow, DSOs and Capital Expenditures
Net cash used in operating activities for the second quarter of 2005 was ($6.5)
million, compared to ($2.8) million in the second quarter of 2004. Company-wide,
Days Sales Outstanding (DSOs) at the end of the second quarter of 2005 stood at
51 days, compared to 47 days a year ago.
Capital expenditures totaled approximately $1.6 million for the second quarter
of 2005, compared to $3.2 million in the same period a year ago.
First Six Months 2005 Financial Results
Revenues for the first six months of 2005 totaled $157.1 million, compared to
$178.1 million in the first six months of 2004. Revenues from Accounts Payable
Services and Meridian VAT totaled $134.5 million and $22.6 million,
respectively, for the first six months of 2005, compared to $155.9 million and
$22.2 million, respectively, for the first six months of 2004.
Net loss for the first six months of 2005 was ($11.2) million, or ($0.18) per
diluted share, compared to net earnings of $2.9 million, or $0.05 per diluted
share, in the first six months of 2004. Net loss from continuing operations for
the first six months of 2005 was ($11.4) million, or a loss of ($0.18) per
diluted share. This compares to net loss from continuing operations of ($4.2)
million, or ($0.07) per diluted share, in the first six months of 2004.
EBITDA for the first six months of 2005 totaled $1.3 million, or 0.8% of
revenues, compared to $5.3 million, or 3.0% of revenues, in the first six months
of 2004. (See Schedule 6 for a reconciliation of net earnings (loss) to EBITDA,
a non-GAAP financial measure.)
Schedule 5 provides summary financial results from continuing operations for the
first six months of 2005 and 2004 by operating segment.
Cash Flow and Capital Expenditures
Net cash used in operating activities for the six months ended June 30, 2005,
was approximately ($9.1) million, compared to cash provided by operating
activities of $2.5 million in the same period of 2004. The reduction of
restricted cash in the prior year, the payment of the ALMA settlement in the
first quarter of this year and lower deferred revenue balances were the primary
factors in the change in cash flow performance.
Capital expenditures totaled approximately $3.5 million for the first six months
of 2005, compared to $7.4 million in the same period a year ago.
Bank Credit Facility
The Company's bank credit facility currently offers total potential availability
of $30 million, limited by the Company's accounts receivable balance. At present
the facility has actual total availability of about $25 million. There was $12
million borrowed under this facility at June 30, 2005, and the Company is using
$4 million in the form of a letter of credit as collateral in its VAT business.
Consequently, approximately $9 million was available under the facility as of
June 30, 2005. As of July 27, 2005, approximately $7 million was available under
the facility.
The Company has met its covenants under the agreement for the second quarter.
However, the Company expects that it will not meet its covenants as of the end
of the third quarter. The Company is currently working with its bank to reach a
mutually acceptable solution that will allow the Company to continue to borrow
under the facility beyond the third quarter.
Settlement in Class Action Lawsuit
At a hearing on May 26, 2005, the United States District Court for the Northern
District of Georgia approved the terms of the Settlement entered into with the
plaintiffs in the Company's securities litigation. The Settlement had no
financial impact in the second quarter of 2005 and does not require any further
financial contribution by the Company.
Discontinued Operations
There were no results from Discontinued Operations for the quarter ended June
30, 2005, compared to a loss of ($1.0) million, or ($0.02) per share, in the
year earlier period. The 2004 amount reflected additional provision to settle
certain of the buyer's warranty claims related to the ALMA sale. Results from
Discontinued Operations for the six months ended June 30, 2005 were a gain of
$0.2 million compared to a gain of $7.1 million, or $0.12 per share, in the six
months ended June 30, 2004. The 2005 gain relates to royalties from the sale of
the Logistics Management Services business. The 2004 gain primarily represents
the after-tax gain on the sale of the Communications Services Operations.
Outlook Update
As announced on July 20, 2005, given the Company's previously disclosed ongoing
review of its financial forecast for the balance of 2005 and 2006, and in light
of the recent management changes, PRG-Schultz will not be providing forward
guidance at this time and has withdrawn its previously issued guidance with
respect to 2005.
Conference Call and Webcast Information
PRG-Schultz will hold a conference call today, July 28, 2005, at 10:00 a.m. ET.
Listeners in the U.S. and Canada should dial +1 888-396-0289 at least 5-10
minutes prior to the start of the conference. Listeners outside the U.S. or
Canada should dial 773-799-3995. To be admitted to the call, verbally supply the
passcode "PRGX." This information is required to join the call. A playback of
the call will be available one hour after the conclusion of the live call,
extending until midnight on August 11, 2005. To directly access the replay, dial
+1 866-507-6388 (U.S./Canadian participants) or 203-369-1894 (international
participants).
This teleconference will also be audiocast on the Internet at www.prgx.com (go
to the Investor Relations home page). Please note that the audiocast is
"listen-only." Microsoft Windows Media Player is required to access the
audiocast and can be downloaded from www.microsoft.com/windows/mediaplayer.
A copy of this press release is also available at www.prgx.com under the heading
"Investor Relations - News."
About PRG-Schultz International, Inc.
Headquartered in Atlanta, PRG-Schultz International, Inc. (PRG) is the world's
leading profit improvement firm. PRG employs approximately 2,800 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 industry specialists review client purchases and
payment information to identify and recover overpayments.
Forward Looking Statements
Statements made in this news release that look forward in time, including
statements regarding the Company's negotiations under its credit facility,
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 inherent risks involved in any contract negotiation.
Should the Company violate the financial covenants of its senior credit facility
and be unable to continue to borrow under it, it will have to seek alternate
sources of financing, and there is no guarantee that such financing will be
available on acceptable terms, if at all. In addition, a default and
acceleration under the senior credit facility would result in a cross-default
under and could result in an acceleration of the Company's approximately $125
million outstanding convertible notes. In such an instance, the Company would
seek to refinance the notes, but there is no guarantee that it would be able to
do so on acceptable terms, if at all. For a discussion of other risk factors
that may be impact the Company's business, please see our Securities and
Exchange Commission filings, including the Company's Forms 10-K and 10-Q as
filed with the Securities and Exchange Commission on March 16, 2005 and May 10,
2005. The Company disclaims any obligation or duty to update or modify these
forward-looking statements.
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,
----------------- -------------------
2005 2004 2005 2004
-------- -------- --------- ---------
Revenues $80,563 $90,406 $157,085 $178,055
Cost of revenues 52,955 56,494 103,309 114,123
Selling, general and
administrative expenses 31,427 33,244 60,213 66,450
-------- -------- --------- ---------
Operating income (loss) (3,819) 668 (6,437) (2,518)
Interest expense (2,193) (2,263) (4,120) (4,540)
Interest income 132 115 249 296
-------- -------- --------- ---------
Loss from continuing operations
before income taxes and
discontinued operations (5,880) (1,480) (10,308) (6,762)
Income tax expense (benefit) 412 (563) 1,099 (2,570)
-------- -------- --------- ---------
Loss from continuing operations
before discontinued operations (6,292) (917) (11,407) (4,192)
Discontinued operations:
Gain (loss) on disposal of
discontinued operations
including operating results
for phase-out period, net
of income taxes - (1,033) 219 7,089
-------- -------- --------- ---------
Net earnings (loss) $(6,292) $(1,950) $(11,188) $2,897
======== ======== ========= =========
Basic earnings (loss) per share:
Loss from continuing
operations before
discontinued operations $(0.10) $(0.01) $(0.18) $(0.07)
Discontinued operations - (0.02) - 0.12
-------- -------- --------- ---------
Net earnings (loss) $(0.10) $(0.03) $(0.18) $0.05
======== ======== ========= =========
Diluted earnings (loss) per
share:
Loss from continuing
operations before
discontinued operations $(0.10) $(0.01) $(0.18) $(0.07)
Discontinued operations - (0.02) - 0.12
-------- -------- --------- ---------
Net earnings (loss) $(0.10) $(0.03) $(0.18) $0.05
======== ======== ========= =========
Weighted average shares
outstanding:
Basic 61,997 61,700 61,987 61,697
======== ======== ========= =========
Diluted 61,997 61,700 61,987 61,697
======== ======== ========= =========
SCHEDULE 2
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
June 30, December
31,
2005 2004
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $12,242 $12,596
Restricted cash 278 120
Receivables:
Contract receivables 45,489 57,514
Employee advances and miscellaneous
receivables 4,497 3,490
--------- ---------
Total receivables 49,986 61,004
--------- ---------
Funds held for client obligations 20,109 30,920
Prepaid expenses and other current assets 6,585 4,129
Deferred income taxes 1,951 1,951
--------- ---------
Total current assets 91,151 110,720
Property and equipment 22,475 26,473
Goodwill 170,645 170,684
Intangible assets 29,539 30,232
Other assets 3,431 3,827
--------- ---------
Total assets $317,241 $341,936
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $12,500 $-
Obligation for client payables 20,109 30,920
Accounts payable and accrued expenses 17,755 24,395
Accrued payroll and related expenses 35,461 41,791
Deferred revenue 4,194 6,466
--------- ---------
Total current liabilities 90,019 103,572
Convertible notes, net of unamortized discount
of $1,397 in 2005 and $1,714 in 2004 123,603 123,286
Deferred compensation 1,428 2,195
Deferred income taxes 4,201 4,201
Other long-term liabilities 4,731 5,098
--------- ---------
Total liabilities 223,982 238,352
--------- ---------
Shareholders' equity:
Preferred stock - -
Common stock 68 68
Additional paid-in capital 495,597 493,532
Accumulated deficit (354,167) (342,979)
Accumulated other comprehensive income 1,635 1,740
Less treasury stock at cost (48,710) (48,710)
Unearned portion of restricted stock (1,164) (67)
--------- ---------
Total shareholders' equity 93,259 103,584
--------- ---------
Total liabilities and shareholders'
equity $317,241 $341,936
========= =========
SCHEDULE 3
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Six Months
Ended June 30,
------------------
2005 2004
--------- --------
Cash flows from operating activities:
Net earnings (loss) $(11,188) $2,897
Gain on disposal of discontinued
operations (219) (7,089)
--------- --------
Loss from continuing operations (11,407) (4,192)
Adjustments to reconcile loss from
continuing operations to net cash
provided by (used in) operating
activities:
Depreciation and amortization 8,250 8,787
Restricted stock compensation
expense 196 (35)
(Gain) Loss on sale of property and
equipment - 32
Deferred income taxes - (5,105)
Changes in operating assets and
liabilities:
Restricted cash securing letter
of credit obligation (157) 5,371
Receivables 10,051 6,562
Prepaid expenses and other
current assets (2,547) (1,536)
Other assets (343) (98)
Accounts payable and accrued
expenses (5,013) (4,147)
Accrued payroll and related
expenses (5,341) (2,893)
Deferred revenue (1,660) 67
Deferred compensation expense (767) (347)
Other long-term liabilities (367) 82
--------- --------
Net cash provided by (used in)
operating activities (9,105) 2,548
--------- --------
Cash flows from investing activities:
Purchase of property and equipment, net
of sale proceeds (3,542) (7,374)
Proceeds from sale of discontinued
operations - 19,116
--------- --------
Net cash provided by (used in)
investing activities (3,542) 11,742
--------- --------
Cash flows from financing activities:
Net borrowings (repayments) of debt 12,500 (19,500)
Payments for issuance costs on
convertible notes - (21)
Net proceeds from common stock
issuances 772 223
--------- --------
Net cash provided by (used in)
financing activities 13,272 (19,298)
--------- --------
Net cash provided by (used in)
discontinued operations 234 (1,589)
Effect of exchange rate changes on cash
and cash equivalents (1,213) (662)
--------- --------
Net change in cash and cash
equivalents (354) (7,259)
Cash and cash equivalents at beginning
of period 12,596 26,658
--------- --------
Cash and cash equivalents at end of period $12,242 $19,399
========= ========
SCHEDULE 4
PRG-Schultz International, Inc. and Subsidiaries
Summary Operating Segment Results from Continuing Operations
(Unaudited)
Three Months Ended June 30,
(Amounts in thousands, except per share data)
---------------------------------------
2005 2004
---------------------------------------
$ % Rev. $ % Rev.
- ---------------------------------------------------------------------
Accounts Payable Services
- -------------------------
Revenues $68,167 $76,756
Operating income $6,019 8.8% $8,089 10.5%
- ---------------------------------------------------------------------
Meridian VAT Reclaim
- --------------------
Revenues $12,396 $13,650
Operating income $3,230 26.1% $5,275 38.6%
- ---------------------------------------------------------------------
Corporate Support
- -----------------
Operating loss ($13,068) -16.2% ($12,696) -14.0%
- ---------------------------------------------------------------------
Total
- -----
Revenues $80,563 $90,406
Operating income (loss) ($3,819) -4.7% $668 0.7%
Loss from continuing
operations ($6,292) -7.8% ($917) -1.0%
Diluted loss per share from
continuing operations $(0.10) $(0.01)
Diluted shares 61,997 61,700
- ---------------------------------------------------------------------
Notes:
Corporate Support Operating Loss % shown as a % of Total Revenues
Loss from Continuing Operations and Diluted Loss Per Share from
Continuing Operations are prior to Earnings from Discontinued
Operations.
SCHEDULE 5
PRG-Schultz International, Inc. and Subsidiaries
Summary Operating Segment Results from Continuing Operations
(Unaudited)
Six Months Ended June 30,
(Amounts in thousands, except per share data)
---------------------------------------
2005 2004
---------------------------------------
$ % Rev. $ % Rev.
- ---------------------------------------------------------------------
Accounts Payable Services
- -------------------------
Revenues $134,468 $155,835
Operating income $10,847 8.1% $18,360 11.8%
- ---------------------------------------------------------------------
Meridian VAT Reclaim
- --------------------
Revenues $22,617 $22,220
Operating income $5,916 26.2% $6,047 27.2%
- ---------------------------------------------------------------------
Corporate Support
- -----------------
Operating loss ($23,200) -14.8% ($26,925) -15.1%
- ---------------------------------------------------------------------
Total
- -----
Revenues $157,085 $178,055
Operating loss ($6,437) -4.1% ($2,518) -1.4%
Loss from continuing
operations ($11,407) -7.3% ($4,192) -2.4%
Diluted loss per share from
continuing operations $(0.18) $(0.07)
Diluted shares 61,987 61,697
- ---------------------------------------------------------------------
Notes:
Corporate Support Operating Loss % shown as a % of Total Revenues
Loss from Continuing Operations and Diluted Loss Per Share from
Continuing Operations are prior to Earnings from Discontinued
Operations.
SCHEDULE 6
PRG-Schultz International, Inc. and Subsidiaries
Reconciliation of Net Earnings (Loss) to EBITDA
(Amounts in thousands)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2005 2004 2005 2004
---------- --------- --------- ----------
Reconciliation of net loss to
EBITDA:
- -----------------------------
Net earnings (loss) $(6,292) $(1,950) $(11,188) $2,897
Adjust for:
Earnings (loss) from
discontinued operations - (1,033) 219 7,089
---------- --------- --------- ----------
Loss from continuing
operations (6,292) (917) (11,407) (4,192)
Adjust for:
Income taxes 412 (563) 1,099 (2,570)
Interest 2,061 2,148 3,871 4,244
Depreciation and
amortization 3,690 3,868 7,749 7,841
---------- --------- --------- ----------
EBITDA $(129) $4,536 $1,312 $5,323
========== ========= ========= ==========
Total revenues $80,563 $90,406 $157,085 $178,055
EBITDA as % of Revenues -0.2% 5.0% 0.8% 3.0%
In this press release, the Company has provided a financial measure,
EBITDA, defined as earnings from continuing operations before taxes,
interest, depreciation and amortization disclosed herein. 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 operating performance of the Company's core business
activities. EBITDA is not provided as a measure of liquidity and
should not be viewed as such. EBITDA should not be considered in
isolation of, or as a substitute for, other measures for determining
operating performance that are calculated in accordance with GAAP.
This schedule provides a reconciliation of net loss to EBITDA in
accordance with Securities and Exchange Commission guidance.
SCHEDULE 7
PRG-Schultz International, Inc. and Subsidiaries
Reconciliation of Total Revenues and Cost of Revenues
(Amounts in thousands)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- -------------------
2005 2004 2005 2004
--------- ---------- --------- ---------
Revenues:
U.S. Accounts Payable
Services $41,739 $48,299 $82,443 $99,384
International Accounts
Payable Services 26,428 28,457 52,025 56,451
Meridian VAT Reclaim 12,396 13,650 22,617 22,220
--------- ---------- --------- ---------
Total revenues $80,563 $90,406 $157,085 $178,055
========= ========== ========= =========
Cost of revenues:
U.S. Accounts Payable
Services $25,982 $30,302 $51,041 $61,928
International Accounts
Payable Services 19,651 19,487 38,678 39,726
Meridian VAT Reclaim 7,322 6,705 13,590 12,469
--------- ---------- --------- ---------
Total cost of revenues $52,955 $56,494 $103,309 $114,123
========= ========== ========= =========
Cost of revenues as a percentage
of revenue:
U.S. Accounts Payable
Services 62.2% 62.7% 61.9% 62.3%
International Accounts
Payable Services 74.4% 68.5% 74.3% 70.4%
Meridian VAT Reclaim 59.1% 49.1% 60.1% 56.1%
--------- ---------- --------- ---------
Total cost of revenues
as a percentage of
revenue 65.7% 62.5% 65.8% 64.1%
========= ========== ========= =========
CONTACT: PRG-Schultz International, Inc.
James E. Moylan, Jr., 770-779-6605
SOURCE: PRG-Schultz International, Inc.