EXHIBIT 99.1
PRG-SCHULTZ ANNOUNCES PRELIMINARY FIRST QUARTER 2006 FINANCIAL RESULTS
ATLANTA--(BUSINESS WIRE)--May 8, 2006--PRG-Schultz International, Inc. (Nasdaq:
PRGX), the world's largest recovery audit firm, today announced its preliminary
unaudited financial results for first quarter ended March 31, 2006.
Highlights of Financial Results
o Net loss for the first quarter was $10.6 million or ($.17) per basic and
diluted share, subject to the final calculation of the fair value of the
new securities issued in connection with the exchange of the Company's
4.75% Convertible Subordinated Notes due 2006. Using preliminary fair value
calculations, the net loss for the quarter includes a non-cash charge of
$10.3 million resulting from the exchange. Any change to the preliminary
fair value calculations will result in a non-cash adjustment to the
reported net loss for the quarter. The net loss for the quarter also
includes a non-cash charge of $0.3 million related to stock option
compensation and a charge of $0.4 million for severance and other charges
related to the previously announced operational restructuring. This
preliminary net loss for the first quarter 2006 compares to a net loss of
$4.9 million, or ($.08) per basic and diluted share for the same period in
2005, which included a charge of $0.2 million related to the Company's
evaluation of its strategic alternatives.
o Adjusted EBITDA for the first quarter was $6.6 million compared to $1.9
million in the first quarter of 2005. The 2006 first quarter adjusted
EBITDA is earnings before interest, taxes, depreciation and amortization
(EBITDA) excluding a $0.3 million non-cash charge related to stock option
expense, and a $0.4 million charge for severance and other charges
associated with the operational restructuring. Adjusted EBITDA for the
first quarter of 2005 excludes a loss of $0.4 million related to
discontinued operations (Schedule 3 provides a reconciliation of net
earnings (loss) to each of EBITDA and adjusted EBITDA).
o Consolidated revenue for the first quarter of 2006 was $65.5 million, a
decline of 12.8% compared to $75.1 million for the first quarter of 2005.
Cost of Revenue and SG&A expenses combined were $62.2 million for the first
quarter, down 19.5% compared to the same period in 2005.
Other Key First Quarter Events
o The Company successfully completed an exchange offer for its $125 million
of 4.75% Convertible Subordinated Notes due 2006. As a result of the
Exchange Offer, virtually all of the outstanding convertible notes were
exchanged for (a) $51.6 million in principal amount of 11.0% Senior Notes
Due 2011, (b) $59.8 million in principal amount of 10.0% Senior Convertible
Notes Due 2011, and (c) 124,530 shares, or $14.9 million liquidation
preference, of 9.0% Senior Series A Convertible Participating Preferred
Stock.
o The Company entered into a new senior secured credit facility which
includes a $25 million term loan and up to $20 million in revolving loan
borrowings. A portion of the net proceeds of the term loan were used to
repay all outstanding borrowings under the Company's prior senior credit
facility with Bank of America, which were approximately $1.6 million, and
all outstanding amounts under a prior bridge loan between the Company and
certain holders of its Convertible Subordinated Notes, which were
approximately $10.1 million.
"The first quarter of 2006 was a turning point for our company," said James B.
McCurry, chairman, president and chief executive officer. "The operational
restructuring we initiated last fall began to show dividends, allowing us to
significantly increase our quarterly EBITDA compared to last year. The
successful completion of the exchange offer and the closing of a new credit
facility provide us with the liquidity we need to run our business. New
projects, such as the contract to audit Medicare spending in California, began
to gain significant traction. The turnaround at PRG-Schultz is definitely off
and running."
Liquidity
At March 31, 2006 the Company had cash and cash equivalents of $18.3 million and
had no borrowings against its revolving credit facility. Total debt at quarter
end included the $25 million variable rate term loan due 2010, $0.5 million of
the 4.75% convertible notes due 2006, $51.6 million in principal amount of 11.0%
Senior Notes Due 2011, and $59.8 in principal amount of 10.0% Senior Convertible
Notes Due 2011.
About PRG-Schultz International, Inc.
Headquartered in Atlanta, PRG-Schultz International, Inc. (PRG) is the world's
leading recovery audit 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.
Preliminary Net Loss Results
As noted above, the first quarter 2006 net loss results contained in this press
release are preliminary, as the Company is still in the process of finalizing
the calculation of the fair value, and related accounting treatment, of the new
securities issued during the first quarter in connection with the exchange of
the Company's 4.75% Convertible Subordinated Notes due 2006 and completing its
customary quarterly closing and review procedures, including the completion of a
review of its quarterly results by its independent accountants. At the time of
this release, the Company cannot determine the likelihood of a change to the
preliminary fair value of the new securities issued in the exchange, or related
accounting treatment, and therefore the final first quarter net loss. Any change
in the preliminary non-cash charge associated with the Company's exchange of its
4.75% Convertible Subordinated Notes due 2006 will change the Company's reported
net loss, but is not expected to impact EBITDA or adjusted EBITDA. The Company
expects that its final first quarter 2006 net loss results will be announced on
or before May 15, 2006.
Non-GAAP Financial Measures
EBITDA and adjusted EBITDA are both "non-GAAP financial measures" presented as
supplemental measures of our performance. They are not required by, or presented
in accordance with, accounting principles generally accepted in the United
States, or GAAP. The Company believes these measures provide additional
meaningful information in evaluating the Company's performance over time, and
that the rating agencies and a number of lenders use EBITDA and similar measures
for similar purposes. In addition, a number of restrictive covenants related to
the Company's credit facilities use measures similar to adjusted EBITDA.
However, EBITDA and adjusted EBITDA have limitations as analytical tools, and
you should not consider them in isolation, or as substitutes for analysis of our
results as reported under GAAP. In addition, in evaluating EBITDA and adjusted
EBITDA, you should be aware that in the future we will incur expenses such as
those used in calculating these measures. Our presentation of these measures
should not be construed as an inference that our future results will be
unaffected by unusual or nonrecurring items. Schedule 3 provides a
reconciliation of net earnings (loss) to each of EBITDA and adjusted EBITDA.
Forward Looking Statements
This press release includes certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, in addition to
historical information. Such statements include both implied and express
statements regarding the Company's financial position and liquidity, potential
success of the Company's operational restructuring plan, expected savings
resulting therefrom and the ability to successfully complete the Company's
operational turnaround (including plans to streamline the Company's
organization). If the Company is unable to successfully complete its operational
restructuring and turnaround plans, the Company may be unable to pay its debts
as they come due or continue funding its operations and may be forced to seek
protection from its creditors. Other risks that could affect the Company's
future performance include the Company's ability to retain personnel, changes in
the market for the Company's services, client bankruptcies, loss of major
clients, and other risks generally applicable to the Company's business. For a
discussion of other risk factors that may impact the Company's business and the
success of its restructuring plan, please see the Company's Form 10-K filed with
the Securities and Exchange Commission on March 23, 2006. 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
Ended March 31,
----------------------
2006 2005
---------- ----------
Revenues $ 65,538 $ 75,147
Cost of revenues 46,279 48,595
---------- ----------
Gross margin 19,259 26,552
Selling, general and administrative expenses 15,872 28,578
Operational restructuring expenses 408 0
---------- ----------
Operating income (loss) 2,979 (2,026)
Interest expense, net (2,602) (1,810)
Loss on financial restructuring (10,343) 0
---------- ----------
Earnings (loss) from continuing operations
before income taxes and discontinued
operations (9,966) (3,836)
Income tax expense (benefit) 650 687
---------- ----------
Earnings (loss) from continuing operations
before discontinued operations (10,616) (4,523)
Discontinued operations:
Earnings (loss) from discontinued
operations, net of taxes 49 (373)
---------- ----------
Net earnings (loss) $ (10,567) $ (4,896)
========== ==========
Basic and diluted earnings (loss) per share:
Loss from continuing operations before
discontinued operations $ (0.17) $ (0.07)
Discontinued operations - (0.01)
---------- ----------
Net earnings (loss) $ (0.17) $ (0.08)
========== ==========
Weighted average shares outstanding:
Basic 62,113 61,976
========== ==========
Diluted 62,113 61,976
========== ==========
Certain reclassifications have been made to the 2005 amounts
to conform to the presentation in 2006.
These reclassifications include the reclassification of
certain business units as discontinued operations.
SCHEDULE 2
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
March 31, December 31,
2006 2005
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 18,265 $ 11,848
Restricted cash 3,495 3,096
Receivables:
Contract receivables 42,045 53,199
Employee advances and miscellaneous
receivables 2,400 2,737
------------ ------------
Total receivables 44,445 55,936
Funds held for client obligations 31,701 32,479
Prepaid expenses and other current
assets 3,561 3,180
------------ ------------
Total current assets 101,467 106,539
Property and equipment 15,311 17,453
Goodwill 4,600 4,600
Intangible assets 24,100 24,447
Other assets 13,083 9,023
------------ ------------
$ 158,561 $ 162,062
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Convertible notes $ 467 $ 466
Obligation for client payables 31,701 32,479
Accounts payable and accrued expenses 32,671 34,103
Accrued payroll and related expenses 35,058 44,031
Deferred revenue 4,958 4,583
------------ ------------
Total current liabilities 104,855 115,662
Convertible notes - 123,601
Senior notes 45,394 -
Senior convertible notes 50,699 -
Other debt obligations 25,000 16,800
Deferred compensation 990 1,388
Other long-term liabilities 6,934 6,976
------------ ------------
Total liabilities 233,872 264,427
------------ ------------
Mandatorily redeemable participating
preferred stock 14,987 -
Shareholders' equity (deficit):
Common stock 68 68
Additional paid-in capital 517,590 494,826
Accumulated deficit (561,286) (550,719)
Accumulated other comprehensive income 2,243 2,400
Less treasury stock at cost (48,710) (48,710)
Unamortized portion of compensation
expense (203) (230)
------------ ------------
Total shareholders' equity (deficit) (90,298) (102,365)
------------ ------------
$ 158,561 $ 162,062
============ ============
SCHEDULE 3
PRG-Schultz International, Inc. and Subsidiaries
Reconciliation of Net Earnings (Loss) to Adjusted EBITDA
(Amounts in thousands)
(Unaudited)
Three Months
Ended March 31,
----------------------
2006 2005
---------- ----------
Reconciliation of net loss to adjusted EBITDA:
- ----------------------------------------------
Net earnings (loss) $(10,567) $(4,896)
Adjust for:
Earnings (loss) from discontinued
operations 49 (373)
---------- ----------
Earnings (loss) from continuing operations (10,616) (4,523)
Adjust for:
Income taxes 650 687
Interest 2,602 1,810
Loss on financial restructuring 10,343 -
Depreciation and amortization 2,856 3,937
---------- ----------
EBITDA 5,835 1,911
---------- ----------
Operational restructuring expenses 408 -
Non-cash FAS 123R compensation 340 -
---------- ----------
Adjusted EBITDA $6,583 $1,911
========== ==========
EBITDA and adjusted EBITDA are both "non-GAAP financial measures" presented as
supplemental measures of our performance. They are not required by, or presented
in accordance with, accounting principles generally accepted in the United
States, or GAAP. The company believes these measures provide additional
meaningful information in evaluating the company's performance over time, and
that the rating agencies and a number of lenders use EBITDA and similar measures
for similar purposes. In addition, a number of restrictive covenants related to
the company's credit facilities use measures similar to EBITDA. However, EBITDA
and adjusted EBITDA have limitations as analytical tools, and you should not
consider them in isolation, or as substitutes for analysis of our results as
reported under GAAP. In addition, in evaluating EBITDA and adjusted EBITDA, you
should be aware that in the future we will incur expenses such as those used in
calculating these measures. Our presentation of these measures should not be
construed as an inference that our future results will be unaffected by unusual
or nonrecurring items.
CONTACT: PRG-Schultz International, Inc., Atlanta
Peter Limeri, 770-779-6464
www.prgx.com
SOURCE: PRG-Schultz International, Inc.