EXHIBIT 99.1
PRG-Schultz Announces Third-Quarter 2005 Results
Reports Progress in Financial Restructuring
ATLANTA--(BUSINESS WIRE)--Nov. 9, 2005--PRG-Schultz International, Inc. (Nasdaq:
PRGX - News), the world's largest recovery audit firm, today announced financial
results for the third quarter 2005. In addition, the company provided a progress
update on the financial restructuring process that was initiated during the
quarter.
Revenues were $67.7 million, down 20.5% compared to $85.1 million for the third
quarter of 2004. Net loss for the quarter was ($20.8) million, or ($0.34) per
diluted share, compared to net earnings of $0.5 million, or $0.01 per diluted
share for the third quarter of 2004. The quarter's results included a charge of
$7.9 million, or $0.13 per share, associated with a major expense restructuring
that was initiated during the quarter. Earnings (loss) before interest, taxes,
depreciation and amortization (EBITDA) were ($14.6) million compared to $6.6
million for the third quarter of 2004. EBITDA for the quarter was also reduced
by the $7.9 million restructuring charge.
A number of significant actions were taken by the company during the quarter
with the objectives of improving operating results and strengthening the
company's financial health. James B. McCurry was appointed President and Chief
Executive Officer, effective July 25, 2005, replacing John M. Cook, who retired
as Chairman and Chief Executive Officer. Management initiated a major expense
restructuring that is expected to provide annualized savings of approximately
$42 million. The company also began a process to obtain additional financing,
improve its liquidity and strengthen its balance sheet. It retained the
investment banking firm Rothschild, Inc. to advise it during the process.
"We have acted rapidly to turn the company's financial performance around and to
provide a financial structure that provides the resources and time needed for
the turnaround to be successful," said James B. McCurry, PRG-Schultz's President
and Chief Executive Officer. "We are bringing expenses into alignment with the
size and nature of our business in order to restore our operating profits, and
we are focusing our organizational resources on our most important clients and
most promising new audit services in order to stabilize our revenue."
Third Quarter 2005 Operating Results
Revenues from Accounts Payable Services were $58.0 million for the quarter, down
23.3% from $75.6 million during the same quarter last year. Revenues from
Meridian VAT Reclaim increased to $9.7 million, compared to $9.5 million a year
ago.
Within Accounts Payable Services, revenues from U.S. operations declined 31.8%
to $34.7 million compared to $50.9 million in the same quarter of 2004. Revenues
from international operations were $23.3 million, down 5.9% compared to $24.8
million in the third quarter of 2004. Within international operations, revenue
increases in Canada and Latin America were more than offset by a revenue decline
in the United Kingdom.
Cost of revenue (COR) for Accounts Payable Services was 75.0% of revenues for
the third quarter of 2005 compared to 64.0% of revenues in the third quarter of
the prior year.
Total selling, general and administrative expenses (S,G&A) were 41.3% of
revenues, compared to 33.4% of revenues for the same period last year. The
higher costs and expenses as a percentage of sales compared to last year
resulted from the fact that the 20.5% decline in revenues was not accompanied by
a commensurate reduction in either COR or S,G&A. Management initiated a major
expense reduction program during the quarter that is expected to provide
annualized savings of approximately $42 million.
Meridian revenues for the third quarter of 2005 increased $0.2 million, to $9.7
million, compared to the same quarter a year ago. Cost of revenue for Meridian
was 68.0% of revenue compared to 61.8% for the prior year quarter.
Cash Flow and Capital Expenditures
Net cash used in operating activities for the third quarter of 2005 was ($1.5)
million, compared to ($1.1) million in the third quarter of 2004. Net borrowings
on the company's bank credit facility were down slightly to $12.4 million at
September 30, 2005, compared to $12.5 million at the end of the second quarter.
Capital expenditures totaled approximately $1.5 million for the third quarter of
2005, compared to $1.9 million in the same period last year.
Bank Credit Facility and Convertible Notes
The company has a bank credit facility with Bank of America that offers total
potential availability of $30 million, limited by the company's accounts
receivable balance. The facility currently has maximum borrowing capacity of
about $21 million. With $12.4 million borrowed under the facility, including
$0.4 million in the form of a letter of credit, the company had $8.0 million
available under the facility as of September 30, 2005.
The company also has $125 million principal amount of convertible notes
outstanding. Although the company currently has borrowing capacity under its
credit facility, it projects that it will be unable to make the $3.0 million
interest payment to the convertible note holders that is due November 28, 2005.
In addition, the company's financial performance during the third quarter did
not meet several financial covenants in its credit facility. The company is
addressing these problems. It has entered into a forbearance agreement with its
bank that, among other things, provides that the bank will not exercise certain
of its rights and remedies as a result of the financial covenant defaults and
certain additional technical defaults and allows the company continued use of
the credit facility provided that the company obtains financing sufficient to
retire the credit facility. The forbearance agreement expires no sooner than
December 23, 2005 and no later than March 31, 2006 (subject to terms and
conditions as described in the company's Form 10-Q for the third quarter ended
September 30, 2005 as filed with the SEC today). The company has also initiated
a process to obtain additional financing and to restructure its financial
obligations.
Restructuring of Financial Obligations
In order to facilitate the process of obtaining additional financing, improving
the company's liquidity and strengthening its balance sheet, the company
retained Rothschild, Inc. to advise the company in evaluating its financial
alternatives. As a part of this process, the company's Board of Directors has
now formed a special committee to oversee the financial restructuring. In
addition, an ad hoc committee of convertible note holders was recently organized
to negotiate the terms of a potential restructuring of the company's 4 3/4%
convertible notes due November 26, 2006.
On November 7, Peter Limeri joined the company's executive team in the role of
Chief Restructuring Officer. Mr. Limeri most recently served as Chief Financial
Officer and Chief Operating Officer at Nationwide Furniture Inc., a portfolio
company of Sun Capital Partners. Prior to that he served as Chief Financial
Officer of Anderson Press, Inc. which experienced a significant business
turnaround during his tenure. Before joining Anderson, he served as Vice
President-Finance of Cluett American where he was part of the team that led the
company's financial restructuring and business turnaround. "We are extremely
pleased to have someone with Pete's hands-on business turnaround experience join
our team," said McCurry. "His years of successful experience at transforming and
rejuvenating companies will be of tremendous value to the turnaround already in
progress at PRG-Schultz."
About PRG-Schultz International, Inc.
Headquartered in Atlanta, PRG-Schultz International, Inc. (PRG) is the world's
leading profit improvement firm, providing clients throughout the world 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.
Non-GAAP Financial Measures
Included in this press release are certain "non-GAAP financial measures," which
are measures of the company's historical or estimated future performance that
are different from measures calculated and presented in accordance with GAAP,
within the meaning of applicable SEC rules, the company believes are useful to
investors. EBITDA represents consolidated earnings (loss) before interest
expense, income taxes, depreciation and amortization. The company believes
EBITDA provides useful information to investors about the company's financial
condition and results of operations because EBITDA is helpful for evaluating the
company's performance. The company also believes that the rating agencies and a
number of lenders use EBITDA for those purposes and a number of restrictive
covenants related to the company's credit facility use measures similar to
EBITDA used in this release. Schedule 6 provides a reconciliation of net
earnings (loss) to EBITDA.
Forward Looking Statements
Statements made in this news release that look forward in time, including
statements regarding the company's need for and ability to obtain future
financing, anticipated future expense savings, the ability to negotiate
successfully with its convertible note holders, the ability to improve the
company's financial performance, liquidity and strengthen its balance sheet, and
the ability to restore the company's profitability and stabilize revenue,
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: risks involved in any contract negotiation
in addition to risks associated with reversing decreasing revenue and cash flow
trends. Should the company be unable to obtain alternate sources of financing,
the company may be unable to pay its debts as they come due or fund its
operations. Should the company be unable to make scheduled interest payments on
its $125 million outstanding convertible notes within the grace periods
provided, the trustee or holders of the notes could accelerate payment of the
notes. Negotiations with the noteholders are subject to the risks facing all
contract negotiations, including the possibility that the parties will be unable
to reach an agreement. If the company is unable to refinance the notes, it would
be not be able to pay the accelerated amounts due without substantial additional
financing, and the likelihood of obtaining such additional financing in the near
future is remote. Furthermore, the company believes it is likely that it will
need additional financing before year-end. There is no guarantee that the
company will be able to raise additional financing on acceptable terms, if at
all. Anticipated future expense savings may not be realized as anticipated or
could have unexpected adverse effects on the company's revenue stream. 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 Form 10-K as filed with the Securities and Exchange Commission on
March 16, 2005 and Form 10-Qs as filed May 10, 2005 and August 9, 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2005 2004 2005 2004
---------- -------- --------- ---------
Revenues $67,708 $85,137 $224,793 $263,192
Cost of revenues 50,096 54,249 153,405 168,372
Selling, general and
administrative expenses 27,944 28,425 88,157 94,875
Restructuring expenses 7,922 0 7,922 0
---------- -------- --------- ---------
Operating income (loss) (18,254) 2,463 (24,691) (55)
Interest expense (2,249) (2,253) (6,369) (6,793)
Interest income 160 120 409 416
---------- -------- --------- ---------
Earning (loss) from
continuing operations
before income taxes and
discontinued operations (20,343) 330 (30,651) (6,432)
Income tax 715 125 1,814 (2,445)
---------- -------- --------- ---------
Earnings (loss) from
continuing operations
before discontinued
operations (21,058) 205 (32,465) (3,987)
Discontinued operations:
Gain on disposal of
discontinued operations
including operating
results for phase-out
period, net of income
taxes 260 260 479 7,349
---------- -------- --------- ---------
Net earnings (loss) $(20,798) $465 $(31,986) $3,362
========== ======== ========= =========
Basic earnings (loss) per
share:
Loss from continuing
operations before
discontinued operations $(0.34) $0.00 $(0.52) $(0.07)
Discontinued operations - 0.01 - 0.12
---------- -------- --------- ---------
Net earnings (loss) $(0.34) $0.01 $(0.52) $0.05
========== ======== ========= =========
Diluted earnings (loss) per
share:
Loss from continuing
operations before
discontinued operations $(0.34) $0.00 $(0.52) $(0.07)
Discontinued operations - 0.01 - 0.12
---------- -------- --------- ---------
Net earnings (loss) $(0.34) $0.01 $(0.52) $0.05
========== ======== ========= =========
Weighted average shares
outstanding:
Basic 62,029 61,808 62,001 61,734
========== ======== ========= =========
Diluted 62,029 62,108 62,001 61,734
========== ======== ========= =========
SCHEDULE 2
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
September 30, December 31,
2005 2004
-------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $9,988 $12,596
Restricted cash 3,369 120
Receivables:
Contract receivables 38,843 59,745
Employee advances and miscellaneous
receivables 3,130 3,490
-------------- ------------
Total receivables 41,973 63,235
-------------- ------------
Funds held for client obligations 21,193 30,920
Prepaid expenses and other current
assets 5,361 4,129
Deferred income taxes 1,951 1,951
-------------- ------------
Total current assets 83,835 112,951
Property and equipment 20,719 26,473
Goodwill 170,642 170,684
Intangible assets 29,193 30,232
Other assets 3,420 3,827
-------------- ------------
Total assets $307,809 $344,167
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank credit facility $12,400 $-
Obligation for client payables 21,193 30,920
Accounts payable and accrued expenses 21,934 26,626
Accrued payroll and related expenses 41,482 41,791
Deferred revenue 3,423 6,466
Convertible notes, net of unamortized
discount of $1,157 123,843 -
-------------- ------------
Total current liabilities 224,275 105,803
Convertible notes, net of unamortized
discount of $1,714 - 123,286
Deferred compensation 1,447 2,195
Deferred income taxes 4,201 4,201
Other long-term liabilities 4,678 5,098
-------------- ------------
Total liabilities 234,601 240,583
-------------- ------------
Shareholders' equity:
Preferred stock - -
Common stock 68 68
Additional paid-in capital 495,275 493,532
Accumulated deficit (374,965) (342,979)
Accumulated other comprehensive income 2,340 1,740
Less treasury stock at cost (48,710) (48,710)
Unearned portion of restricted stock (800) (67)
-------------- ------------
Total shareholders' equity 73,208 103,584
-------------- ------------
Total liabilities and
shareholders' equity $307,809 $344,167
============== ============
SCHEDULE 3
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Nine Months Ended
September 30,
---------------------------------
2005 2004
--------- --------
Cash flows from operating activities:
Net earnings(loss) $(31,986) $3,362
Gain on disposal of discontinued operations (479) (7,349)
--------- --------
Loss from continuing operations (32,465) (3,987)
Adjustments to reconcile loss from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 12,198 13,374
Restricted stock compensation expense 279 (23)
Gain on sale of property and equipment - 161
Deferred compensation expense (748) (558)
Deferred income taxes - (5,542)
Income tax benefit (effect) relating to stock
option exercises (41) 11
Changes in operating assets and liabilities:
Restricted cash (3,243) (217)
Receivables 20,392 2,486
Prepaid expenses and other current assets (1,327) (1,203)
Other assets (549) (131)
Accounts payable and accrued expenses (3,023) (4,550)
Accrued payroll and related expenses 723 916
Deferred revenue (2,414) 348
Other long-term liabilities (420) 397
--------- --------
Net cash provided by (used in)
operating activities (10,638) 1,482
--------- --------
Cash flows from investing activities:
Purchase of property and equipment, net of sale
proceeds (5,058) (9,294)
Proceeds from sale of certain discontinued
operations - 19,116
--------- --------
Net cash provided by (used in)
investing activities (5,058) 9,822
--------- --------
Cash flows from financing activities:
Net borrowing( repayments) of debt 12,400 (23,700)
Payments for issuance costs on convertible
notes - (21)
Net proceeds from common stock issuances 772 767
--------- --------
Net cash provided by (used in)
financing activities 13,172 (22,954)
--------- --------
Net cash (used in) provided by discontinued
operations 487 (1,146)
Effect of exchange rate changes on cash and cash
equivalents (571) (127)
--------- --------
Net change in cash and cash
equivalents (2,608) (12,923)
Cash and cash equivalents at beginning of period 12,596 26,658
--------- --------
Cash and cash equivalents at end of period $9,988 $13,735
========= ========
SCHEDULE 4
PRG-Schultz International, Inc. and Subsidiaries
Summary Operating Segment Results from Continuing Operations
(Unaudited)
Three Months Ended September 30,
(Amounts in thousands, except per share data)
2005 2004
--------------------------- -------------------------
$ % Rev. $ % Rev.
-------------- ----------- ------------ -----------
Accounts Payable Services
- -------------------------
Revenues $57,968 $75,625
Operating income loss ($4,028) -6.9% $11,493 15.2%
-------------- ----------- ------------ -----------
Meridian VAT Reclaim
- --------------------
Revenues $9,740 $9,512
Operating income $1,065 10.9% $1,979 20.8%
-------------- ----------- ------------ -----------
Corporate Support
- -----------------
Operating loss ($15,291) -22.6% ($11,009) -12.9%
-------------- ----------- ------------ -----------
Total
- -----
Revenues $67,708 $85,137
Operating income (loss) ($18,254) -27.0% $2,463 2.9%
Earnings (loss) from continuing
operations ($21,058) -31.1% $205 0.2%
Diluted loss per share from
continuing operations $(0.34) $0.00
Diluted shares 62,029 62,108
-------------- ----------- ------------ -----------
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)
Nine Months Ended September 30,
(Amounts in thousands, except per share data)
----------------------------------------------
2005 2004
----------------------- -----------------------
$ % Rev. $ % Rev.
------------ -------- ------------ ---------
Accounts Payable Services
- -------------------------
Revenues $192,436 $231,460
Operating income $6,352 3.3% $29,853 12.9%
------------ -------- ------------ ---------
Meridian VAT Reclaim
- --------------------
Revenues $32,357 $31,732
Operating income $6,982 21.6% $8,026 25.3%
------------ -------- ------------ ---------
Corporate Support
- -----------------
Operating loss ($38,025) -16.9% ($37,934) -14.4%
------------ -------- ------------ ---------
Total
- -----
Revenues $224,793 $263,192
Operating loss ($24,691) -11.0% ($55) 0.0%
Loss from continuing operations ($32,465) -14.4% ($3,987) -1.5%
Diluted loss per share from
continuing operations $(0.52) $(0.07)
Diluted shares 62,001 61,734
------------ -------- ------------ ---------
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 Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
2005 2004 2005 2004
---------- -------- --------- ---------
Reconciliation of net loss to
EBITDA:
- -------------------------------
Net earnings (loss) $(20,798) $465 $(31,986) $3,362
Adjust for:
Earnings from discontinued
operations 260 260 479 7,349
---------- -------- --------- ---------
Earnings (loss) from
continuing operations (21,058) 205 (32,465) (3,987)
Adjust for:
Income taxes 715 125 1,814 (2,445)
Interest 2,089 2,133 5,960 6,377
Depreciation and amortization 3,613 4,093 11,362 11,934
---------- -------- --------- ---------
EBITDA $(14,641) $6,556 $(13,329) $11,879
========== ======== ========= =========
Total revenues $67,708 $85,137 $224,793 $263,192
EBITDA as % of Revenues -21.6% 7.7% -5.9% 4.5%
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 earnings (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 Nine Months
Ended September 30, Ended September 30,
--------------------------- ------------------------------
2005 2004 2005 2004
------------ ------------- -------------- --------------
Revenues:
U.S. Accounts Payable
Services $34,664 $50,864 $117,107 $150,247
International Accounts
Payable Services 23,304 24,761 75,329 81,212
Meridian VAT Reclaim 9,740 9,512 32,357 31,733
------------ ------------- -------------- --------------
Total revenues $67,708 $85,137 $224,793 $263,192
============ ============= ============== ===============
Cost of revenues:
U.S. Accounts Payable
Services $25,156 $29,914 $76,197 $91,841
International Accounts
Payable Services 18,312 18,459 56,990 58,185
Meridian VAT Reclaim 6,628 5,876 20,218 18,346
------------ ------------- -------------- --------------
Total cost of revenues $50,096 $54,249 $153,405 $168,372
============ ============= ============== ===============
Cost of revenues as a
percentage of revenue:
U.S. Accounts Payable
Services 72.6% 58.8% 65.1% 61.1%
International Accounts
Payable Services 78.6% 74.5% 75.7% 71.6%
Meridian VAT Reclaim 68.0% 61.8% 62.5% 57.8%
------------ ------------- -------------- --------------
Total cost of revenues as a
percentage of total revenue 74.0% 63.7% 68.2% 64.0%
============ ============= ============== ===============
Contact:
PRG-Schultz International, Inc.
James E. Moylan, Jr., 770-779-6605