PRG-Schultz Announces Third Quarter 2008 Financial Results

PRG-Schultz International, Inc. (Nasdaq: PRGX), the world's largest recovery audit firm, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2008.

Highlights of Financial Results

• Net earnings for the 2008 third quarter were $4.2 million, or $0.19 per basic share and $0.18 per diluted share, compared to a net loss of $3.0 million, or $(0.31) per basic and diluted share for the same period in 2007. The third quarter 2008 net earnings included a $0.4 million charge for stock-based compensation and $1.8 million of foreign currency losses on intercompany balances. These intercompany balances, which have built up over time, result from transfer pricing charges to the Company’s foreign subsidiaries that occur as part of the Company’s tax strategy. The third quarter 2007 net loss included a $6.9 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 third quarter net loss also included an operational restructuring charge of $1.6 million related to the Company’s successful sub-leasing and exit of approximately 25% of its headquarters office space and $0.5 million of foreign currency gains on intercompany balances.
• Adjusted EBITDA for the 2008 third quarter was $9.2 million compared to $10.2 million of adjusted EBITDA for the same period in 2007. The 2008 third quarter adjusted EBITDA is earnings (loss) from continuing operations before interest, taxes, depreciation and amortization (EBITDA) excluding the $0.4 million charge for stock-based compensation and the $1.8 million of foreign currency losses on intercompany balances. The comparable adjusted EBITDA amount for the third quarter of 2007 excludes from EBITDA for such period the charge of $6.9 million related to stock-based compensation, the operational restructuring charge of $1.6 million and the $0.5 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 third quarter of 2008 was $49.2 million, a decrease of 7.6% compared to $53.2 million for the same period in 2007. Cost of Revenue and SG&A expenses combined were $43.3 million for the 2008 third quarter, down 15.2% compared to the same period in 2007.
• Net earnings for the first nine months of 2008 were $12.3 million, or $0.57 per basic share and $0.54 per diluted share, which included $5.0 million of stock-based compensation expense and $1.3 million of foreign currency losses on intercompany balances. This compares to net earnings of $17.1 million, or $1.80 per basic and diluted share for the same period in 2007, which included the previously reported gain on the sale of the Meridian business of $19.5 million, earnings from discontinued operations of $0.3 million, the $1.6 million lease exit restructuring charge, $12.3 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 $1.1 million of foreign currency gains on intercompany balances.
• Adjusted EBITDA for the nine months ended September 30, 2008 was $26.9 million compared to $28.7 million of adjusted EBITDA for the same period in 2007. The 2008 nine-month adjusted EBITDA excludes the charge of $5.0 million for stock-based compensation and the $1.3 million of foreign currency losses on intercompany balances. The comparable adjusted EBITDA amount for the first nine months of 2007 excludes the $19.5 million gain on the sale of the Meridian business, earnings from discontinued operations of $0.3 million, the $1.6 million lease exit restructuring charge, the $12.3 million of stock-based compensation charges and the $1.1 million of foreign currency gains on intercompany balances.
• Consolidated revenue in the first nine months of 2008 was $147.1 million compared to $163.6 million for the same period in 2007. Cost of Revenue and SG&A expenses combined were $130.4 million for the first nine months of 2008, down 13.9% compared to the same period in 2007.

Liquidity

At September 30, 2008 the Company had cash and cash equivalents of $22.8 million and had no borrowings against its revolving credit facility. Total debt outstanding at quarter-end was $20.9 million and included a $20.3 million outstanding balance on a variable rate term loan due 2011 and a $0.6 million capital lease obligation.

"We continue to experience improved performance in our core accounts payable recovery audit business,” said James B. McCurry, chairman, president and chief executive officer. "Year over year revenues from accounts payable recovery audit were up for the second quarter in a row, with both U.S. and international markets experiencing revenue increases for the third quarter.”

CEO Transition Plan

As disclosed in the company’s August 19, 2008 press release, Mr. McCurry advised the Board of Directors of his intention to resign from the Company. Mr. McCurry has subsequently informed the Board that he will be resigning as of November 30, 2008 in order to assume the position of chief executive officer of a privately-held company. Patrick G. Dills, currently the Company’s Presiding Director, will serve as the Company’s interim chairman, president and chief executive officer until Mr. McCurry’s successor is hired.

"Once again the Board would like to thank Jim for his many contributions to PRG-Schultz,” said Dills, who also serves as the leader of the Board’s CEO search committee. "We look forward to bringing the search for the Company’s new CEO to a successful conclusion, hopefully in the very near future.”

Third Quarter Earnings Call

As previously announced, management will hold a conference call tomorrow morning at 8:30 AM (EDT) to discuss the Company’s third quarter 2008 financial results. To access the conference call, listeners in the U.S. and Canada should dial 800-599-9816 at least 5 minutes prior to the start of the conference. Listeners outside the U.S. and Canada should dial 617-847-8705. To be admitted to the call, listeners should use passcode 37620809. A replay of the call will be available approximately one hour after the conclusion of the live call, extending through November 30, 2008. 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 40481581.

This teleconference will also be audiocast on the Internet at www.prgx.com (click on "(NASDAQ: PRGX)” 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 November 30, 2008. 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, and Mr. McCurry’s resignation and the status of the search for his successor. 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 the Company’s ability to locate a qualified successor to Mr. McCurry and retain existing personnel, revenues that do not meet expectations or justify costs incurred, the Company’s ability to develop material sources of revenue in addition to its core accounts payable services, changes in the market for the Company’s services, client bankruptcies, loss of major clients, the risk that the Company may not participate in the proposed national rollout of the Medicare recovery audit program or that the national rollout will be significantly delayed, 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.