PRG-Schultz Announces Fourth Quarter and Fiscal Year 2008 Financial Results

PRG-Schultz International, Inc. (Nasdaq: PRGX), the world's largest recovery audit firm, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2008.

Highlights of Financial Results

• Net earnings for the 2008 fourth quarter were $7.3 million, or $0.33 per basic share and $0.31 per diluted share, compared to a net loss of $(4.0 million), or $(0.19) per basic and diluted share for the same period in 2007. The fourth quarter 2008 net earnings included a $2.8 million credit for stock-based compensation and $1.4 million of foreign currency losses on intercompany balances. These intercompany balances result primarily from transfer pricing charges to the Company’s foreign subsidiaries. The stock-based compensation credit resulted from the quarterly remeasurement of the Company’s liability-classified stock-based compensation awards to fair value. The fair value of these awards is based on the market price of the Company’s common stock as of the end of the quarter and the market price declined during the fourth quarter of 2008. The fourth quarter 2007 net loss included an $8.6 million charge for stock-based compensation, most of which resulted from the issuance of additional performance units in accordance with the anti-dilution provisions of the Company’s 2006 Management Incentive Plan. The 2007 fourth quarter net loss also included a charge of $9.4 million related to the early extinguishment of debt, a gain on discontinued operations of $0.5 million, and $0.1 million of foreign currency gains on intercompany balances.
• Adjusted EBITDA for the 2008 fourth quarter was $9.5 million compared to $17.3 million of adjusted EBITDA for the same period in 2007. The 2008 fourth quarter adjusted EBITDA is earnings (loss) from continuing operations before interest, taxes, depreciation and amortization (EBITDA) excluding the $2.8 million credit for stock-based compensation and the $1.4 million of foreign currency losses on intercompany balances. The comparable adjusted EBITDA amount for the fourth quarter of 2007 excludes from EBITDA for such period the charge of $8.6 million related to stock-based compensation and the $0.1 million of foreign currency gains on intercompany balances. (Schedule 3 attached to this press release provides a reconciliation of net earnings (loss) to each of EBITDA and adjusted EBITDA).
• Consolidated revenue for the fourth quarter of 2008 was $48.6 million, a decrease of 23.8% compared to $63.8 million for the same period in 2007. The 2007 amount includes revenue earned from auditing Medicare payments in California which were significant in the fourth quarter ended December 31, 2007. Cost of revenue and SG&A expenses combined were $39.0 million for the 2008 fourth quarter, down 31.1% compared to the same period in 2007.
• Net earnings for 2008 were $19.6 million, or $0.90 per basic share and $0.85 per diluted share, which included $2.2 million of stock-based compensation expense and $2.7 million of foreign currency losses on intercompany balances. This compares to net earnings of $13.1 million, or $1.04 per basic and diluted share for 2007, which included a gain on discontinued operations of $20.2 million, virtually all of which was attributable to the divestiture of the Meridian business in May 2007, a $9.4 million loss on the early extinguishment of debt, a $1.6 million charge related to the exit of a portion of the Company’s headquarters office space, $21.0 million of stock-based compensation expense which was also mostly attributable to the issuance of additional performance units in accordance with the anti-dilution provisions of the Company’s 2006 Management Incentive Plan, and $1.2 million of foreign currency gains on intercompany balances.
• Adjusted EBITDA for 2008 was $36.5 million compared to $46.0 million of adjusted EBITDA for 2007. The 2008 adjusted EBITDA excludes the charge of $2.2 million for stock-based compensation and the $2.7 million of foreign currency losses on intercompany balances. The comparable adjusted EBITDA amount for 2007 excludes the $19.9 million gain on the sale of the Meridian business, earnings from discontinued operations of $0.3 million, the $9.4 million loss on the early extinguishment of debt, the $1.6 million lease exit restructuring charge, the $21.0 million of stock-based compensation charges and the $1.2 million of foreign currency gains on intercompany balances.
• Consolidated revenue in 2008 was $195.7 million compared to $227.4 million for 2007, a decline of 13.9%. Cost of revenue and SG&A expenses combined were $169.4 million for 2008, down 18.6% compared to 2007.

Liquidity

At December 31, 2008 the Company had cash and cash equivalents of $26.7 million and had no borrowings against its revolving credit facility. Total debt outstanding at year-end was $19.6 million and included a $19.0 million outstanding balance on a variable rate term loan due 2011 and a $0.6 million capital lease obligation. During the fourth quarter of 2008 the Company repurchased 429,378 shares of its common stock at an average per share price of $3.93.

"I am excited to begin my tenure at PRG-Schultz at a time when the company’s turnaround is complete, its balance sheet is strong, and with the results that we announce today, the company has posted three consecutive years of positive EBITDA and cash flow,” said Romil Bahl, president and chief executive officer. "While challenges exist in the core business, especially in the current economic environment, we are bullish about our capabilities and the opportunities to develop and offer adjacent services that will provide additional tangible value to our strong base of clients.”

Fourth Quarter Earnings Call

As previously announced, management will hold a conference call tomorrow morning at 8:30 AM (EST) to discuss the Company’s fourth quarter 2008 financial results. To access the conference call, listeners in the U.S. and Canada should dial 800-260-8140 at least 5 minutes prior to the start of the conference. Listeners outside the U.S. and Canada should dial 617-614-3672. To be admitted to the call, listeners should use passcode 19202725. A replay of the call will be available approximately one hour after the conclusion of the live call, extending through April 3, 2009. To directly access the replay, dial 888-286-8010 (U.S. and Canada) or 617-801-6888 (outside the U.S. and Canada). The passcode for the replay is 67500982.

This teleconference will also be audiocast on the Internet at www.prgx.com (click on "Events” under "Investor Relations”). A replay of the audiocast will be available at the same location on www.prgx.com beginning approximately one hour after the conclusion of the live audiocast, extending through April 3, 2009. Please note that the Internet audiocast is "listen-only." Microsoft Windows Media Player is required to access the live audiocast and the replay and can be downloaded from www.microsoft.com/windows/mediaplayer.

About PRG-Schultz International, Inc.

Headquartered in Atlanta, PRG-Schultz International, Inc. 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.

Non-GAAP Financial Measures

EBITDA and adjusted EBITDA are both "non-GAAP financial measures" presented as supplemental measures of our performance. They are not 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 measure similar to adjusted EBITDA is used in the restrictive covenants contained in the Company’s secured credit facility. 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, as described above, the adjustments may vary from period to period and 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 to this press release provides a reconciliation of net earnings (loss) to each of EBITDA and adjusted EBITDA.

Forward Looking Statements

In addition to historical information, this press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include both implied and express statements regarding the Company’s financial condition, its performance in the accounts payable recovery audit business, the Company’s capabilities and its opportunities to develop and offer adjacent services to its clients. Such forward looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from the historical results or from any results expressed or implied by such forward-looking statements. Risks that could affect the Company’s future performance include revenues that do not meet expectations or justify costs incurred, the Company’s ability to develop material sources of new revenue in addition to revenues from its core accounts payable services, changes in the market for the Company’s services, the Company’s ability to retain existing personnel, potential legislative and regulatory changes applicable to the Medicare recovery audit contractor program, uncertainty in the credit markets, 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, please see the Company’s filings with the Securities and Exchange Commission, including its Form 10-K filed on March 12, 2008. The Company disclaims any obligation or duty to update or modify these forward-looking statements.