Attached files

file filename
EX-32.1 - EX-32.1 - PRGX GLOBAL, INC.ex3212016q3.htm
EX-31.2 - EX-31.2 - PRGX GLOBAL, INC.ex3122016q3.htm
EX-31.1 - EX-31.1 - PRGX GLOBAL, INC.ex3112016q3.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 0-28000
 PRGX Global, Inc.
(Exact name of registrant as specified in its charter) 
Georgia
 
58-2213805
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
600 Galleria Parkway
 
30339-5986
Suite 100
 
(Zip Code)
Atlanta, Georgia
 
 
(Address of principal executive offices)
 
 
Registrants telephone number, including area code: (770) 779-3900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
¨  Large accelerated filer
ý
Accelerated filer
¨  Non-accelerated filer     (Do not check if a smaller reporting company)
¨
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
Common shares of the registrant outstanding at November 4, 2016 were 21,804,173.




PRGX GLOBAL, INC.
FORM 10-Q
For the Quarter Ended September 30, 2016
INDEX
 
 
Page No.
Part I. Financial Information
 
Part II. Other Information
 




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Revenue
 
$
35,137

 
$
33,365

 
$
101,661

 
$
103,345

Operating expenses:
 
 
 
 
 
 
 
 
Cost of revenue
 
22,367

 
23,507

 
67,444

 
70,785

Selling, general and administrative expenses
 
9,883

 
8,284

 
28,351

 
25,413

Depreciation of property and equipment
 
1,376

 
1,255

 
3,824

 
3,828

Amortization of intangible assets
 
393

 
517

 
1,182

 
2,017

Total operating expenses
 
34,019

 
33,563

 
100,801

 
102,043

Operating income (loss)
 
1,118

 
(198
)
 
860

 
1,302

Foreign currency transaction (gains) losses on short-term intercompany balances
 
(165
)
 
654

 
(976
)
 
1,930

Interest (income), net
 
(14
)
 
(8
)
 
(55
)
 
(103
)
Other (income) loss
 
(168
)
 
1,612

 
(140
)
 
1,612

Income (loss) from continuing operations before income tax
 
1,465

 
(2,456
)
 
2,031

 
(2,137
)
Income tax expense (benefit)
 
(685
)
 
421

 
(21
)
 
1,172

Net income (loss) from continuing operations
 
$
2,150

 
$
(2,877
)
 
$
2,052

 
$
(3,309
)
 
 
 
 
 
 
 
 
 
Discontinued Operations:
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations
 
$
133

 
$
(532
)
 
$
(914
)
 
$
(1,961
)
Other (income) loss
 

 

 

 

Income tax expense (benefit)
 

 

 

 

Net income (loss) from discontinued operations
 
$
133

 
$
(532
)
 
$
(914
)
 
$
(1,961
)
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
2,283

 
$
(3,409
)
 
$
1,138

 
$
(5,270
)
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share (Note B)
 
 
 
 
 
 
 
 
Basic earnings (loss) from continuing operations
 
$
0.10

 
$
(0.11
)
 
$
0.09

 
$
(0.13
)
Basic earnings (loss) from discontinued operations
 
0.01

 
(0.03
)
 
(0.04
)
 
(0.07
)
Total basic earnings (loss) per common share
 
$
0.11

 
$
(0.14
)
 
$
0.05

 
$
(0.20
)
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per common share (Note B)
 
 
 
 
 
 
 
 
Diluted earnings (loss) from continuing operations
 
$
0.10

 
$
(0.11
)
 
$
0.09

 
$
(0.13
)
Diluted earnings (loss) from discontinued operations
 
0.01

 
(0.03
)
 
(0.04
)
 
(0.07
)
Total diluted earnings (loss) per common share
 
$
0.11

 
$
(0.14
)
 
$
0.05

 
$
(0.20
)
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding (Note B):
 
 
 
 
 
 
 
 
Basic
 
21,847

 
25,167

 
22,084

 
26,015

Diluted
 
21,874

 
25,167

 
22,114

 
26,015




1



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income (loss)
 
$
2,283

 
$
(3,409
)
 
$
1,138

 
$
(5,270
)
Foreign currency translation adjustments
 
(242
)
 
(844
)
 
(729
)
 
(692
)
Comprehensive income (loss)
 
$
2,041

 
$
(4,253
)
 
$
409

 
$
(5,962
)

See accompanying Notes to Condensed Consolidated Financial Statements.

2


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
 
September 30,
2016
 
December 31,
2015
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
13,170

 
$
15,122

Restricted cash
 
99

 
48

Receivables:
 
 
 
 
Contract receivables, less allowances of $942 in 2016 and $930 in 2015:
 
 
 
 
Billed
 
26,654

 
26,576

Unbilled
 
1,819

 
1,967

 
 
28,473

 
28,543

Employee advances and miscellaneous receivables, less allowances of $564 in 2016 and $681 in 2015
 
1,710

 
1,740

Total receivables
 
30,183

 
30,283

Prepaid expenses and other current assets
 
3,657

 
2,323

Total current assets
 
47,109

 
47,776

Property and equipment
 
63,473

 
59,747

Less accumulated depreciation
 
(51,242
)
 
(48,167
)
Property and equipment, net
 
12,231

 
11,580

Goodwill
 
11,712

 
11,810

Intangible assets, less accumulated amortization of $35,850 in 2016 and $35,708 in 2015
 
5,477

 
6,684

Noncurrent portion of unbilled receivables
 
822

 
656

Deferred income taxes
 
2,864

 
1,361

Other assets
 
505

 
524

Total assets
 
$
80,720

 
$
80,391

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
Accounts payable and accrued expenses
 
$
6,968

 
$
5,966

Accrued payroll and related expenses
 
11,049

 
11,278

Refund liabilities
 
7,892

 
7,887

Deferred revenue
 
804

 
965

Other current liabilities
 
39

 
39

Total current liabilities
 
26,752

 
26,135

Noncurrent refund liabilities
 
791

 
752

Other long-term liabilities
 
1,866

 
1,089

Total liabilities
 
29,409

 
27,976

Commitments and contingencies (Note G)
 


 


Shareholders’ equity (Note B):
 
 
 
 
Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares; 21,804,173 shares issued and outstanding at September 30, 2016 and 22,681,656 shares issued and outstanding at December 31, 2015
 
218

 
227

Additional paid-in capital
 
574,028

 
575,532

Accumulated deficit
 
(523,000
)
 
(524,138
)
Accumulated other comprehensive income
 
65

 
794

Total shareholders’ equity
 
51,311

 
52,415

Total liabilities and shareholders’ equity
 
$
80,720

 
$
80,391


See accompanying Notes to Condensed Consolidated Financial Statements.

3


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
1,138

 
$
(5,270
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
5,017

 
5,875

Amortization of deferred loan costs
 

 
(100
)
Stock-based compensation expense
 
3,224

 
4,530

Loss on sale of assets/investments
 

 
1,561

Deferred income taxes
 
(1,475
)
 
61

Foreign currency transaction (gains) losses on short-term intercompany balances
 
(976
)
 
1,930

Changes in operating assets and liabilities:
 
 
 
 
Restricted cash
 
(51
)
 
(45
)
Billed receivables
 
(451
)
 
6,843

Unbilled receivables
 
(18
)
 
1,815

Prepaid expenses and other current assets
 
(1,274
)
 
211

Other assets
 
(44
)
 
(40
)
Accounts payable and accrued expenses
 
1,287

 
(822
)
Accrued payroll and related expenses
 
(35
)
 
(2,861
)
Refund liabilities
 
44

 
(581
)
Deferred revenue
 
(161
)
 
(645
)
Other long-term liabilities
 
(51
)
 
(99
)
Net cash provided by operating activities
 
6,174

 
12,363

Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment, net of disposal proceeds
 
(4,648
)
 
(3,169
)
Net cash used in investing activities
 
(4,648
)
 
(3,169
)
Cash flows from financing activities:
 
 
 
 
Restricted stock repurchased from employees for withholding taxes
 
(218
)
 
(311
)
Proceeds from option exercises
 
132

 
45

Repurchase of common stock
 
(3,762
)
 
(17,261
)
Net cash used in financing activities
 
(3,848
)
 
(17,527
)
Effect of exchange rates on cash and cash equivalents
 
370

 
(1,729
)
Net decrease in cash and cash equivalents
 
(1,952
)
 
(10,062
)
 
 
 
 
 
Cash and cash equivalents at beginning of period
 
15,122

 
25,735

Cash and cash equivalents at end of period
 
$
13,170

 
$
15,673

Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
40

 
$
51

Cash paid during the period for income taxes, net of refunds received
 
$
1,068

 
$
734


See accompanying Notes to Condensed Consolidated Financial Statements.

4

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note A – Basis of Presentation
The accompanying Condensed Consolidated Financial Statements (Unaudited) of PRGX Global, Inc. and its wholly owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Except as otherwise indicated or unless the context otherwise requires, “PRGX,” “we,” “us,” “our” and the “Company” refer to PRGX Global, Inc. and its subsidiaries. For further information, refer to the Consolidated Financial Statements and Notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015.
New Accounting Standards
A summary of the new accounting standards issued by the Financial Accounting Standards Board (“FASB”) and included in the Accounting Standards Codification (“ASC”) that apply to PRGX is set forth below:

FASB ASC Update No. 2016-09 - In March 2016, the FASB issued Accounting Standards Update 2016-09, Stock Compensation (Topic 718). The standard requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The standard also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the standard allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The standard will become effective for the Company beginning January 1, 2017 with early adoption permitted. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.
FASB ASC Update No. 2016-05 - In March 2016, the FASB issued Accounting Standards Update 2016-05, Derivatives and Hedging (Topic 815). The standard clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The standard will become effective for the Company beginning January 1, 2018. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

FASB ASC Update No. 2016-02 - In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842). The standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The standard requires lessors to classify leases as either sales-type, finance or operating. A sales-type lease occurs if the lessor transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards or control, an operating lease results. The standard will become effective for the Company beginning January 1, 2019. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.



5

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note B – Earnings (Loss) Per Common Share
The following tables set forth the computations of basic and diluted loss per common share for the three and nine months ended September 30, 2016 and 2015 (in thousands, except per share data):
 
Three Months Ended September 30,
Nine Months Ended September 30,
Basic and diluted earnings (loss) per common share:
2016
2015
2016
2015
Numerator:
 
 
 
 
Net earnings (loss) from continuing operations:
$
2,150

$
(2,877
)
$
2,052

$
(3,309
)
Net earnings (loss) from discontinued operations:
$
133

$
(532
)
$
(914
)
$
(1,961
)
 
 
 
 
 
Denominator:
 
 
 
 
Weighted-average basic common shares outstanding:
21,847

25,167

22,084

26,015

Effect of dilutive securities from stock-based compensation plans
27


30


Weighted-average diluted common shares outstanding:
21,874

25,167

22,114

26,015

 
 
 
 
 
Basic earnings (loss) per common share from continuing operations:
$
0.10

$
(0.11
)
$
0.09

$
(0.13
)
Basic earnings (loss) per common share from discontinued operations:
$
0.01

$
(0.03
)
$
(0.04
)
$
(0.07
)
Total basic earnings (loss) per common share
$
0.11

$
(0.14
)
$
0.05

$
(0.20
)
Diluted earnings (loss) per common share from continuing operations:
$
0.10

$
(0.11
)
$
0.09

$
(0.13
)
Diluted earnings (loss) per common share from discontinued operations:
$
0.01

$
(0.03
)
$
(0.04
)
$
(0.07
)
Total diluted earnings (loss) per common share
$
0.11

$
(0.14
)
$
0.05

$
(0.20
)
For those periods presented that generated a net loss, basic and diluted net loss per share is the same, as any additional common stock and equivalents would be anti-dilutive. For the three months ended September 30, 2016, weighted-average common shares outstanding excludes from the computation of diluted earnings (loss) per common share anti-dilutive shares underlying options that totaled 2.8 million shares and anti-dilutive shares underlying restricted stock units totaling 2.7 million. For the nine months ended September 30, 2016, weighted-average common shares outstanding excludes from the computation of diluted earnings (loss) per common share anti-dilutive shares underlying options that totaled 2.8 million and anti-dilutive shares underlying restricted stock units totaling 2.0 million. For the three and nine months ended September 30, 2015, weighted-average common shares outstanding excludes from the computation of diluted earnings (loss) per common share anti-dilutive shares underlying options that totaled 3.6 million.
We repurchased 21,998 shares of our common stock during the three months ended September 30, 2016 for $0.1 million, and 903,544 shares of our common stock during the nine months ended September 30, 2016 for $3.8 million. We repurchased 1,735,277 shares of our common stock during the three months ended September 30, 2015 for $6.9 million, and 3,912,037 shares of our common stock during the nine months ended September 30, 2015 for $17.3 million.
Pursuant to exercises of outstanding stock options, we issued no shares of our common stock in the three months ended September 30, 2016 and 46,896 shares of our common stock having a value of less than $0.1 million in the nine months ended September 30, 2016. We issued no shares of our common stock in the three months ended September 30, 2015 and 12,863 shares of our common stock having a value less than $0.1 million in the nine months ended September 30, 2015.


6

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note C – Stock-Based Compensation
Awards were outstanding in the relevant periods pursuant to two Company stock-based compensation plans: (1) the 2006 Management Incentive Plan (“2006 MIP”) and (2) the 2008 Equity Incentive Plan (“2008 EIP”) (collectively, the “Plans”). We describe the Plans in the Company’s Annual Report on Form 10–K for the fiscal year ended December 31, 2015. For all periods presented herein, awards outside the Plans are referred to as inducement awards.
2008 EIP Awards and Inducement Awards
Stock options granted under the 2008 EIP generally have a term of seven years and vest in equal annual increments over the vesting period, which typically is three years for employees and one year for directors. The following table summarizes stock option grants during the nine months ended September 30, 2016 and 2015:
Grantee
Type
 
# of
Options
Granted
 
Vesting Period
 
Weighted
Average
Exercise Price
 
Weighted
Average Grant
Date Fair Value
2016
 
 
 
 
 
 
 
 
Director
 
175,000

 
1 year or less
 
$
5.04

 
$
2.72

Employee inducements (1)
 
60,000

 
3 years
 
$
4.79

 
$
2.88

 
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
Director
 
249,273

 
1 year or less
 
$
4.49

 
$
2.44

Director
 
17,092

 
3 years
 
$
3.99

 
$
1.33

Employee inducements (2)
 
135,000

 
3 years
 
$
5.51

 
$
1.42

 
(1)
The Company granted non-qualified stock options outside its existing stock-based compensation plans in the first nine months of 2016 in connection with an employee joining the Company.
(2)
The Company granted non-qualified stock options outside its existing stock-based compensation plans in the first nine months of 2015 to three employees in connection with the employees joining the Company.

Nonvested stock awards, including both restricted stock and restricted stock units, granted under the 2008 EIP generally are nontransferable until vesting and the holders are entitled to receive dividends with respect to the nonvested shares. Prior to vesting, the grantees of restricted stock are entitled to vote the shares, but the grantees of restricted stock units are not entitled to vote the shares. Generally, nonvested stock awards with time-based vesting criteria vest in equal annual increments over the vesting period, which typically is three years for employees and one year for directors. Nonvested stock awards with performance-based vesting criteria vest in accordance with specific performance criteria associated with the awards.













7

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes nonvested stock awards granted during the nine months ended September 30, 2016 and 2015:
Grantee
Type
 
# of Shares
Granted
 
Vesting Period
 
Weighted
Average Grant
Date Fair Value
2016
 
 
 
 
 
 
Employee group (1)
 
1,250,750

 
2 years
 
$
4.88

Employee inducements (2)
 
100,000

 
2 years
 
$
4.94

 
 
 
 
 
 
 
2015
 
 
 
 
 
 
Director
 
4,273

 
1 year or less
 
$
4.02

Director
 
17,092

 
3 years
 
$
3.99

Employee group (3)
 
2,448,333

 
2 years
 
$
3.99

Employee inducements (4)
 
10,000

 
3 years
 
$
5.29

 
(1)
The Company granted nonvested performance-based stock awards (restricted stock units) in the first six months of 2016 to five executive officers, three senior business leaders and certain other employees.
(2)
The Company granted nonvested performance-based stock awards (restricted stock units) outside its existing stock-based compensation plans in the second and third quarters of 2016 to three employees in connection with the employees joining the Company.
(3)
The Company granted nonvested performance-based stock awards (restricted stock units) in the first quarter of 2015 to eight executive officers totaling 1,325,000 units. During the third quarter of 2015, the company granted nonvested performance-based stock awards (restricted stock units) to key employees totaling 1,123,333 units.
(4)
The Company granted nonvested stock awards (restricted stock) outside its existing stock-based compensation plans in the first quarter of 2015 to two employees in connection with the employees joining the Company.
2006 MIP Performance Units
On June 19, 2012, seven executive officers of the Company were granted 154,264 Performance Units under the 2006 MIP, comprising all of the then remaining available awards under the 2006 MIP. The awards had an aggregate grant date fair value of $1.2 million and vest ratably over three years. Upon vesting, the Performance Units will be settled by the issuance of Company common stock equal to 60% of the number of Performance Units being settled and the payment of cash in an amount equal to 40% of the fair market value of that number of shares of common stock equal to the number of Performance Units being settled. During the six months ended June 30, 2015, an aggregate of 16,530 Performance Units were settled, which resulted in the issuance of 9,918 shares of common stock and cash payments of less than $0.1 million. All Performance Units were settled as of June 2015. For further information regarding the Performance Units, refer to Note 11 in the Company's Form 10-K for the year ended December 31, 2015.
Performance-Based Restricted Stock Units
On August 3, 2016, a senior leader of the Company was granted 10,000 PBUs outside of the existing stock-based compensation plan as an inducement for employment. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 43% of the number of PBUs being settled and the payment of cash in an amount equal to the fair market value of that number of shares of common stock equal to 57% of the number of PBUs being settled. The PBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of the PBUs will become vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).
On June 27, 2016, certain employees of the Company were granted 641,750 performance-based restricted stock units (“PBUs”) under the 2008 EIP. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 40% of the number of PBUs being settled and the payment of cash in an amount equal to the fair market value of that number of shares of common stock equal to 60% of the number of PBUs being settled. The PBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performance level, 100% of the PBUs will become vested and payable; and at the

8

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

maximum performance level, 150% of the PBUs will become vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).
On June 20, 2016, a senior leader of the Company was granted 30,000 PBUs outside of the existing stock-based compensation plan as an inducement for employment. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 40% of the number of PBUs being settled and the payment of cash in an amount equal to the fair market value of that number of shares of common stock equal to 60% of the number of PBUs being settled. The PBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of the PBUs will become vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).
On May 5, 2016, an executive officer of the Company was granted 60,000 PBUs outside of the existing stock-based compensation plan as an inducement for employment. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 43% of the number of PBUs being settled and the payment of cash in an amount equal to the fair market value of that number of shares of common stock equal to 57% of the number of PBUs being settled. The PBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of the PBUs will become vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).
On March 31, 2016, five executive officers and three other senior leaders of the Company were granted 609,000 PBUs under the 2008 EIP. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 43% of the number of PBUs being settled and the payment of cash in an amount equal to the fair market value of that number of shares of common stock equal to 57% of the number of PBUs being settled. The PBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of the PBUs will become vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).
On September 28, 2015, certain employees of the Company were granted 1,208,333 PBUs under the 2008 EIP. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 25% of the number of PBUs being settled and the payment of cash in an amount equal to 75% of the fair market value of that number of shares of common stock equal to the number of PBUs being settled. The PBUs vest and become payable based on the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2016. At the threshold performance level, 35% of the PBUs will become vested and payable and at the target performance level, 100% of the PBUs will become vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 100% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).
On March 30, 2015, eight executive officers of the Company were granted 1,325,000 performance-based restricted stock units (“PBUs”) under the 2008 EIP. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 50% of the number of PBUs being settled and the payment of cash in an amount equal to 50% of the fair market value of that number of shares of common stock equal to the number of PBUs being settled. The PBUs vest and become payable based on the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2016. At the threshold performance level, 35% of the PBUs will become

9

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

vested and payable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 200% of the PBUs will become vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 200% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).
Stock Appreciation Rights

On April 27, 2016, the Company's Chief Executive Officer was granted stock appreciation rights (“SARs”) covering 200,000 shares of the Company’s common stock under the 2008 EIP. The SARs were issued with an initial value per share equal to $4.71. The SARs will vest and become payable in cash in a lump sum (net of applicable withholdings) on June 30, 2018, subject to the Chief Executive Officer’s continued employment through such date. Upon vesting, the Company will pay an amount equal to the excess of (i) the fair market value, as of June 30, 2018, of the shares of the Company’s common stock with respect to the SARs that have become vested and payable over (ii) the aggregate initial value of such SARs.
On August 3, 2016, a senior leader of the Company was granted 10,000 PBUs outside of the existing stock-based compensation plan as an inducement for employment. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 43% of the number of PBUs being settled and the payment of cash in an amount equal to the fair market value of that number of shares of common stock equal to 57% of the number of PBUs being settled. The PBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of the PBUs will become vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).
Selling, general and administrative expenses for the three months ended September 30, 2016 and 2015 include $1.4 million related to stock-based compensation charges. Selling, general and administrative expenses for the nine months ended September 30, 2016 and 2015 include $3.2 million and $4.5 million, respectively, related to stock-based compensation charges. At September 30, 2016, there was $6.6 million of unrecognized stock-based compensation expense related to stock options, restricted stock awards and restricted stock unit awards, which we expect to recognize over a weighted-average period of 1.21 years. The unrecognized stock-based compensation expense related to restricted stock unit awards with performance vesting criteria is based on our estimate of both the number of shares of the Company's common stock that will ultimately be issued and cash payments that will be made when the restricted stock units are settled.

10

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note D – Operating Segments and Related Information

We conduct our operations through the following three reportable segments:
Recovery Audit Services – Americas represents recovery audit services (other than Healthcare Claims Recovery Audit services) provided in the United States of America (“U.S.”), Canada and Latin America.
Recovery Audit Services – Europe/Asia-Pacific represents recovery audit services (other than Healthcare Claims Recovery Audit services) provided in Europe, Asia and the Pacific region.
Adjacent Services represents data transformation, data analytics and associated advisory services.
Additionally, Corporate Support includes the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportable segments.
During the fourth quarter of 2015, PRGX entered into agreements with third parties to fulfill its Medicare recovery audit contractor ("RAC") program subcontract obligations to audit Medicare payments and provide support for claims appeals and assigned its remaining Medicaid contract to another party. The Company will continue to incur certain expenses while the current Medicare RAC contracts are still in effect. As a result, the Healthcare Claims Recovery Audit services business has been reported as Discontinued Operations in accordance with US GAAP.

Discontinued operations information for the three months ended September 30, 2016 and 2015 is as follows:
Results of Discontinued Operations (in thousands)
Three Months Ended September 30,
2016
2015
Revenue, net
$
5

$
558

Cost of sales
(128
)
880

Selling, general and administrative expense
(4
)
203

Depreciation and amortization
4

7

Gain (loss) from discontinued operations before income taxes
133

(532
)
Income tax expense


Net gain (loss) from discontinued operations
$
133

$
(532
)

Discontinued operations information for the nine months ended September 30, 2016 and 2015 is as follows:
Results of Discontinued Operations (in thousands)
Nine Months Ended September 30,
2016
2015
Revenue, net
$
(11
)
$
999

Cost of sales
712

2,300

Selling, general and administrative expense
180

630

Depreciation and amortization
11

30

Loss from discontinued operations before income taxes
(914
)
(1,961
)
Income tax expense


Net loss from discontinued operations
$
(914
)
$
(1,961
)





11

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

We evaluate the performance of our reportable segments based upon revenue and measures of profit or loss we refer to as EBITDA and Adjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation and amortization (“EBITDA”), and then further adjusted for unusual and other significant items that management views as distorting the operating results of the various segments from period to period. Such adjustments include restructuring charges, stock-based compensation, bargain purchase gains, acquisition-related charges and benefits (acquisition transaction costs, acquisition obligations classified as compensation, and fair value adjustments to acquisition-related contingent consideration), tangible and intangible asset impairment charges, certain litigation costs and litigation settlements, certain severance charges and foreign currency transaction gains and losses on short-term intercompany balances viewed by management as individually or collectively significant. We do not have any inter-segment revenue.
Segment information for the three and nine months ended September 30, 2016 and 2015 (in thousands) is as follows:
 


Recovery
Audit
Services –
Americas

Recovery Audit
Services –
Europe/Asia-
Pacific

Adjacent
Services

Corporate
Support

Total
Three Months Ended September 30, 2016










Revenue

$
25,719



$
8,736



$
682



$


$
35,137













Net income from continuing operations









$
2,150

Income tax (benefit)









(685
)
Interest (income), net









(14
)
EBIT

$
7,371



$
1,274



$
(1,089
)


$
(6,105
)

$
1,451

Depreciation of property and equipment

935



141



300





1,376

Amortization of intangible assets

373






20





393

EBITDA

$
8,679



$
1,415



$
(769
)


$
(6,105
)

$
3,220

Other (income) loss
 




(168
)


 
(168
)
Foreign currency transaction (gains) losses on short-term intercompany balances

120



(227
)


1



(59
)

(165
)
Transformation severance and related expenses

95



188



139



(2
)

420

Stock-based compensation










1,424


1,424

Adjusted EBITDA

$
8,894



$
1,376



$
(797
)


$
(4,742
)

$
4,731



12

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 
 
Recovery
Audit
Services –
Americas
 
Recovery Audit
Services –
Europe/Asia-
Pacific
 
Adjacent
Services
 
Corporate
Support
 
Total
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
23,981

 
$
8,052

 
$
1,332

 
$

 
$
33,365

 
 
 
 
 
 
 
 
 
 
 
Net (loss) from continuing operations
 
 
 
 
 
 
 
 
 
$
(2,877
)
Income tax expense
 
 
 
 
 
 
 
 
 
421

Interest (income), net
 
 
 
 
 
 
 
 
 
(8
)
EBIT
 
$
5,255

 
$
365

 
$
(2,373
)
 
$
(5,711
)
 
$
(2,464
)
Depreciation of property and equipment
 
947

 
148

 
160

 

 
1,255

Amortization of intangible assets
 
437

 
47

 
33

 

 
517

EBITDA
 
$
6,639

 
$
560

 
$
(2,180
)
 
$
(5,711
)
 
$
(692
)
Other (income) loss
 

 

 
1,612

 

 
1,612

Foreign currency transaction (gains) losses on short-term intercompany balances
 
393

 
287

 
(714
)
 
688

 
654

Transformation severance and related expenses
 
101

 

 

 
272

 
373

Stock-based compensation
 

 

 

 
1,381

 
1,381

Adjusted EBITDA
 
$
7,133

 
$
847

 
$
(1,282
)
 
$
(3,370
)
 
$
3,328

 
 
Recovery
Audit
Services –
Americas
 
Recovery Audit
Services –
Europe/Asia-
Pacific
 
Adjacent
Services
 
Corporate
Support
 
Total
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
72,408

 
$
26,683

 
$
2,570

 
$

 
$
101,661

 
 
 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
 
 
 
 
 
 
 
 
$
2,052

Income tax expense (benefit)
 
 
 
 
 
 
 
 
 
(21
)
Interest (income), net
 
 
 
 
 
 
 
 
 
(55
)
EBIT
 
$
17,364

 
$
4,032

 
$
(2,645
)
 
$
(16,775
)
 
$
1,976

Depreciation of property and equipment
 
2,863

 
379

 
582

 

 
3,824

Amortization of intangible assets
 
1,118

 

 
64

 

 
1,182

EBITDA
 
$
21,345

 
$
4,411

 
$
(1,999
)
 
$
(16,775
)
 
$
6,982

Other (income) loss
 

 

 
(140
)
 

 
(140
)
Foreign currency transaction (gains) losses on short-term intercompany balances
 
(108
)
 
(787
)
 
(7
)
 
(74
)
 
(976
)
Transformation severance and related expenses
 
516

 
284

 
138

 
241

 
1,179

Stock-based compensation
 

 

 

 
3,224

 
3,224

Adjusted EBITDA
 
$
21,753

 
$
3,908

 
$
(2,008
)
 
$
(13,384
)
 
$
10,269


13

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 
 
Recovery
Audit
Services –
Americas
 
Recovery Audit
Services –
Europe/Asia-
Pacific
 
Adjacent
Services
 
Corporate
Support
 
Total
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
71,748

 
$
27,307

 
$
4,290

 
$

 
$
103,345

 
 
 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
 
 
 
 
 
 
 
 
$
(3,309
)
Income tax expense
 
 
 
 
 
 
 
 
 
1,172

Interest (income), net
 
 
 
 
 
 
 
 
 
(103
)
EBIT
 
$
15,838

 
$
1,719

 
$
(5,019
)
 
$
(14,778
)
 
$
(2,240
)
Depreciation of property and equipment
 
2,895

 
454

 
479

 

 
3,828

Amortization of intangible assets
 
1,319

 
600

 
98

 

 
2,017

EBITDA
 
$
20,052

 
$
2,773

 
$
(4,442
)
 
$
(14,778
)
 
$
3,605

Other income (loss)
 

 

 
1,612

 

 
1,612

Foreign currency transaction (gains) losses on short-term intercompany balances
 
651

 
1,359

 
7

 
(87
)
 
1,930

Transformation severance and related expenses
 
265

 
268

 
30

 
308

 
871

Stock-based compensation
 

 

 

 
4,530

 
4,530

Adjusted EBITDA
 
$
20,968

 
$
4,400

 
$
(2,793
)
 
$
(10,027
)
 
$
12,548



14

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note E – Debt
On January 19, 2010, we entered into a four-year revolving credit and term loan agreement (the “2010 Credit Agreement”) with SunTrust Bank (“SunTrust”). Subsequent modifications of the 2010 Credit Agreement were entered into with SunTrust. Most recently, on December 23, 2014, we entered into an amended and restated revolving credit agreement (the “Credit Facility”) with SunTrust. The Credit Facility is guaranteed by the Company and all of its material domestic subsidiaries and secured by substantially all of the assets of the Company.
The amount available for borrowing under the Credit Facility is $20.0 million, and as of September 30, 2016 we had no outstanding borrowings. With the Credit Facility provision of a fixed applicable margin of 1.75% plus a specified index rate based on one-month LIBOR, the interest rate that would have applied at September 30, 2016 had any borrowings been outstanding was approximately 2.27%. We also must pay a commitment fee of 0.25% per annum, payable quarterly, on the unused portion of the Credit Facility.
The Credit Facility includes customary affirmative, negative, and financial covenants binding on the Company, including delivery of financial statements and other reports, maintenance of existence, and transactions with affiliates. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets or declare or pay dividends on its capital stock. The financial covenants included in the Credit Facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximum leverage and net funded debt ratios for the Company and a minimum fixed charge coverage ratio, and also require the Company to maintain minimum consolidated earnings before interest, taxes, depreciation and amortization. In addition, the Credit Facility includes customary events of default. The Company was in compliance with the covenants in its Credit Facility as of September 30, 2016.
On November 1, 2016, the Company borrowed $4.5 million under the Credit Facility to close the acquisition of Lavante. The Company also intends to utilize the Credit Facility in order to close the acquisition of substantially all of the assets of Cost & Compliance Associates, LLC, which is expected to occur later in the fourth quarter of 2016 (See Note I - Subsequent Events for details).
 
Note F – Fair Value of Financial Instruments
We state cash equivalents at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled services, accounts payable, deferred revenue and other accrued liabilities reasonably approximate fair market value due to the nature of the financial instrument and the short term maturity of these items.
We had no debt outstanding as of September 30, 2016 and December 31, 2015. We will consider the factors used in determining the fair value of debt to be Level 3 inputs (significant unobservable inputs) in future periods.
Note G – Commitments and Contingencies
Legal Proceedings
We are party to a variety of legal proceedings arising in the normal course of business. While the results of these proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our financial position, results of operations or cash flows.

15

PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note H – Income Taxes
Reported income tax expense in each period primarily results from taxes on the income of foreign subsidiaries. The effective tax rates generally differ from the expected tax rate due primarily to the Company’s deferred tax asset valuation allowance on the domestic earnings and taxes on income of foreign subsidiaries.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service in the U.S. and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
We apply a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We refer to GAAP for guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. In accordance with FASB ASC 740, our policy for recording interest and penalties associated with tax positions is to record such items as a component of income before income taxes. A number of years may elapse before a particular tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments also varies by tax jurisdiction.
The tax benefit for the three months ended September 30, 2016 is primarily generated by the adjustment of the deferred tax asset valuation allowance at certain foreign subsidiaries.

Note I – Subsequent Events
On October 6, 2016, the Company entered into an Asset Purchase Agreement with Cost & Compliance Associates, LLC, Cost & Compliance Associates Limited (collectively, “C&CA” or the “Sellers”) and Robert F. Donohue, pursuant to which the Company agreed to purchase substantially all of the assets of C&CA . C&CA is engaged in the business of marketing and providing accounts payable recovery audit services, contract compliance audit services and related advisory and data analytics services to commercial enterprises. The closing of the transactions contemplated by the Purchase Agreement is subject to certain closing conditions, including obtaining various third party consents.
Under the terms of the Asset Purchase Agreement, the Company will pay up to $11.0 million in cash at closing subject to a calculation based on the extent to which specified third party consents are obtained and a customary working capital adjustment. The Company may be required to pay earnout consideration in cash over a period of two years, based on the performance of the acquired businesses following closing. The aggregate consideration to be paid to the Sellers under the terms of the Asset Purchase Agreement cannot exceed $18.0 million.
On October 31, 2016, the Company completed the acquisition of Lavante, Inc. ("Lavante") pursuant to an Agreement and Plan of Merger with Lavante, PointGuard Ventures I, L.P. and Krish Panu, as Stockholder Representative, pursuant to which the Company acquired Lavante for a purchase price of $4.25 million in cash as adjusted for Lavante's current working capital and as further adjusted for amounts withheld for potential future payment to Lavante stockholders upon the receipt of specified third party consents and waivers. Under the terms of the Agreement and Plan of Merger, the Company also may be required to pay earnout consideration in cash based on revenue received by PRGX and its subsidiaries (including Lavante) from SIM services from closing through December 31, 2018.
Lavante is a software-as-a-service-based procure-to-pay supplier information management (SIM) and recovery audit services firm, based in San Jose, California.


16


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
PRGX Global, Inc. is a global leader in recovery audit and spend analytics services. We conduct our operations through three reportable segments: Recovery Audit Services – Americas, Recovery Audit Services – Europe/Asia-Pacific and Adjacent Services. The Recovery Audit Services – Americas segment represents recovery audit services we provide in the U.S., Canada and Latin America. The Recovery Audit Services – Europe/Asia-Pacific segment represents recovery audit services we provide in Europe, Asia and the Pacific region. The Adjacent Services segment includes advisory and analytics (data transformation and cost harmonization) and Supplier Information Management ("SIM") services. We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportable segments in Corporate Support.
Recovery auditing is a business service focused on finding overpayments created by errors in payment transactions, such as missed or inaccurate discounts, allowances and rebates, vendor pricing errors, erroneous coding and duplicate payments. Recovery audit services are part of the broader Procure-to-Pay (“P2P”) services market space, focused on the payment side of the P2P market.
Generally, we earn our recovery audit revenue by identifying overpayments made by our clients, assisting our clients in recovering the overpayments from their vendors, and collecting a specified percentage of the recoveries from our clients as our fee. The fee percentage we earn is based on specific contracts with our clients that generally also specify: (a) time periods covered by the audit; (b) the nature and extent of services we are to provide; and (c) the client’s responsibilities to assist and cooperate with us. Clients generally recover claims by either taking credits against outstanding payables or future purchases from the relevant vendors, or receiving refund checks directly from those vendors. The manner in which a claim is recovered by a client is often dictated by industry practice. In addition, many clients establish client-specific procedural guidelines that we must satisfy prior to submitting claims for client approval. Our recovery audit business also includes contract compliance services which focus on auditing supplier billings against large and complex services, construction and licensing contracts. Such services include verification of the accuracy of third party reporting, appropriateness of allocations and other charges in cost or revenue sharing types of arrangements, adherence to contract covenants and other risk mitigation requirements and numerous other reviews and procedures to assist our clients with proper monitoring and enforcement of the obligations of their contractors. For some services we provide, such as certain of our services in our Adjacent Services segment, we earn our compensation in the form of a fixed fee, a fee per hour, or a fee per other unit of service.
We earn the vast majority of our recovery audit revenue from clients in the retail industry due to many factors, including the high volume of transactions and the complicated pricing and allowance programs typical in this industry. Changes in consumer spending associated with economic fluctuations generally impact our recovery audit revenue to a lesser degree than they affect individual retailers due to several factors, including:
Diverse client base – our clients include a diverse mix of discounters, grocery, pharmacy, department and other stores that tend to be impacted to varying degrees by general economic fluctuations, and even in opposite directions from each other depending on their position in the market and their market segment;
Motivation – when our clients experience a downturn, they frequently are more motivated to use our services to recover prior overpayments to make up for relatively weaker financial performance in their own business operations;
Nature of claims – the relationship between the dollar amount of recovery audit claims identified and client purchases is non-linear. Claim volumes are generally impacted by purchase volumes, but a number of other factors may have an even more significant impact on claim volumes, including new items being purchased, changes in discount, rebate, marketing allowance and similar programs offered by vendors and changes in a client’s or a vendor’s information processing systems; and
Timing – the client purchase data on which we perform our recovery audit services is historical data that typically reflects transactions between our clients and their vendors that took place 3 to 15 months prior to the data being provided to us for audit. As a result, we generally experience a delayed impact from economic changes that varies by client and the impact may be positive or negative depending on the individual clients’ circumstances.
While the net impact of the economic environment on our recovery audit revenue is difficult to determine or predict, we believe that for the foreseeable future, our revenue will remain at a level that will allow us to continue investing in our growth strategy. Included in our growth strategy are our investments in technology platforms and improved operational processes within our retail recovery audit business. In addition, we continue to pursue the expansion of our business beyond retail recovery audit services by growing the portion of our business that provides recovery audit services to enterprises other than retailers; growing our contract compliance service offerings; expanding into new industry verticals, such as resources; and

17


growing our Adjacent Services. We believe that our recovery audit business platform uniquely positions us to create value for clients and gives us a competitive advantage over other players in the broader P2P market for four fundamental reasons:

a)
We already have the data - we serve a large and impressive list of very large, multinational companies in our core recovery audit business, which requires access to and processing of these clients' detailed P2P data on a daily, weekly or at least periodic basis;
b)
We know the data and underlying processes - the work we do in recovery audit requires that we fully understand our clients’ systems, buying practices, receiving and payment procedures, as well as their suppliers’ contracting, performance and billing practices;
c)
We take a different perspective in analyzing the data - we look horizontally across our clients' processes and organizational structures versus vertically, which is how most companies are organized and Enterprise Resource Planning systems are designed; and
d)
Our contingent fee recovery audit value proposition minimizes our clients' cost of entry and truly aligns us with our clients.

We have processes in place to mitigate the financial impact arising from fluctuations in our businesses. These processes include reviewing and monitoring financial and operational results through our internal reporting, devoting substantial efforts to develop an improved service delivery model to enable us to more cost effectively serve our clients and maintaining the flexibility to control the compensation-related portions of our cost structure.
As our clients’ data volumes and complexity levels continue to grow, we are using our deep data management experience to develop new actionable insight solutions, as well as to develop custom analytics and data transformation services. Taken together, our deep understanding of our clients’ P2P data and our technology-based solutions provide multiple routes to help our clients achieve greater profitability. Our Adjacent Services business targets client functional and process areas where we have established expertise, enabling us to provide services to finance, merchandising and procurement executives to improve working capital, optimize purchasing leverage in vendor pricing negotiations, improve insight into product margin and true cost of goods for resale, identify and manage risks associated with vendor compliance, improve quality of vendor master data and improve visibility and diagnostics of direct and indirect spend. Our Adjacent Services include our global SIM services offering.

Discontinued Operations

As of December 31, 2015, the Company discontinued its Healthcare Claims Recovery Audit business. PRGX entered into agreements with third parties to fulfill its Medicare RAC program subcontract obligations to audit Medicare payments and provide support for claims appeals and assigned its remaining Medicaid contract to another party. The Company will continue to incur certain expenses while the current Medicare RAC contracts are still in effect. The discussions and financial results in this Report have been adjusted to reflect the discontinued business.

Non-GAAP Financial Measures
EBIT, EBITDA and Adjusted EBITDA are all “non-GAAP financial measures” presented as supplemental measures of the Company’s 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 its 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, EBIT, EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of the Company’s results as reported under GAAP. In addition, in evaluating EBIT, EBITDA and Adjusted EBITDA, you should be aware that, as described above, the adjustments may vary from period to period and in the future the Company will incur expenses such as those used in calculating these measures. The Company’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items. We include a reconciliation of net loss to each of EBIT, EBITDA and Adjusted EBITDA and a calculation of Adjusted EBITDA by segment below in “Adjusted EBITDA”.
Results of Operations from Continuing Operations
The following table sets forth the percentage of revenue represented by certain items in the Company’s Condensed Consolidated Statements of Operations from continuing operations (Unaudited) for the periods indicated:
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Revenue
 
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Operating expenses:
 
 
 
 
 
 
 
 
Cost of revenue
 
63.7

 
70.5

 
66.3

 
68.5

Selling, general and administrative expenses
 
28.1

 
24.8

 
27.9

 
24.6

Depreciation of property and equipment
 
3.9

 
3.8

 
3.8

 
3.7

Amortization of intangible assets
 
1.1

 
2.1

 
1.2

 
2.2

Total operating expenses
 
96.8

 
101.2

 
99.2

 
99.0

Operating income (loss)
 
3.2

 
(1.2
)
 
0.8

 
1.0

 
 
 
 
 
 
 
 
 
Foreign currency transaction losses (gains) on short-term intercompany balances
 
(0.5
)
 
2.0

 
(1.0
)
 
1.9

Interest income, net
 

 

 
(0.1
)
 
(0.1
)
Other income (loss)
 
(0.5
)
 
4.8

 
(0.1
)
 
1.6

Income (loss) before income taxes
 
4.2

 
(8.0
)
 
2.0

 
(2.4
)
Income tax expense
 
(1.9
)
 
1.3

 

 
1.1

 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
6.1
 %
 
(9.3
)%
 
2.0
 %
 
(3.5
)%
Three and Nine Months Ended September 30, 2016 Compared to the Corresponding Period of the Prior Year
Revenue. Revenue was as follows (in thousands):
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Recovery Audit Services – Americas
 
$
25,719

 
$
23,981

 
$
72,408

 
$
71,748

Recovery Audit Services – Europe/Asia-Pacific
 
8,736

 
8,052

 
26,683

 
27,307

Adjacent Services
 
682

 
1,332

 
2,570

 
4,290

Total
 
$
35,137

 
$
33,365

 
$
101,661

 
$
103,345

Consolidated revenue from continuing operations increased for the three months ended September 30, 2016 by $1.8 million, or 5.3%, compared to the same period in 2015. Total consolidated revenue from continuing operations decreased for the nine months ended September 30, 2016 by $1.7 million, or 1.6%, compared to the same period in 2015. On a constant dollar basis, adjusted for changes in foreign exchange ("FX") rates and excluding revenue associated with a large U.S. based customer that filed bankruptcy in the third quarter of 2015, consolidated revenue from continuing operations increased 7.4% for the three months ended September 30, 2016 and increased 1.7% for the nine months ended September 30, 2016 compared to the same periods in 2015.
Below is a discussion of our revenue for our three reportable segments.
Recovery Audit Services – Americas revenue increased by $1.7 million, or 7.2%, for the third quarter of 2016 compared to the third quarter of 2015. For the nine months ended September 30, 2016, revenue increased by $0.7 million, or 0.9%, compared to the same period in the prior year. On a constant dollar basis, adjusted for changes in FX rates and after reducing revenue in the 2015 periods to adjust for a large U.S. client who filed bankruptcy in August 2015, revenue increased by 7.3% for the third quarter of 2016 and increased 2.9% during the first nine months of 2016 compared to the corresponding periods in 2015. The 7.3% increase for the three-month period on a constant dollar basis, and adjusted for the large U.S. client bankruptcy, was due to a net increase of 8.6% for existing and new clients which was primarily the result of our continued investments in our technology platforms and our focus on operational improvements, which include the implementation at certain clients of

18


our audit acceleration programs and/or our audit maturity model. These programs are designed to improve audit performance and standardized processes and tools. These increases were partially offset by a decrease of 1.2% for exited clients. The 2.9% net increase for the nine month period on a constant dollar basis, and adjusted for the large U.S. client bankruptcy, was due to a net revenue increase of 3.4% for existing and new clients partially offset by a decrease of 0.5% for exited clients.
Recovery Audit Services – Europe/Asia-Pacific revenue increased by $0.7 million, or 8.5%, for the three months ended September 30, 2016 compared to the same period in 2015. For the nine months ended September 30, 2016, revenue decreased by $0.6 million, or 2.3%, compared to the same period in the prior year. On a constant dollar basis, adjusted for changes in FX rates, Recovery Audit Services - Europe/Asia-Pacific revenue increased by 14.8% for the third quarter of 2016 and increased by 3.1% during the first nine months of 2016 compared to the same periods in 2015. The 14.8% increase on a constant dollar basis for the three-month period included net increases in revenue of 16.8% for new and existing clients. These increases were partially offset by a net decrease in revenue of 2.0% attributable to exited clients. The 3.1% net increase in revenue on a constant dollar basis for the nine-month period included a net increase of 4.4% for new and existing clients, which was partially offset by a net decrease in revenue of 1.3% for exited clients.
Adjacent Services revenue decreased by $0.7 million, or 48.8%, for the three months ended September 30, 2016 and decreased $1.7 million, or 40.1%, for the nine months ended September 30, 2016 compared to the same periods in 2015. On a constant dollar basis, adjusted for changes in FX rates and excluding revenue for the 2015 periods from the document services business we sold in August 2015, Adjacent Services revenue decreased 34.2% for the third quarter of 2016 and 10.5% for the first nine months of 2016 compared to the same periods in 2015 due primarily to timing delays in the contracting process on several projects.
Cost of Revenue (“COR”). COR consists principally of fixed auditor salaries, compensation paid to various types of hourly support staff and salaries for operational managers, commissions and other forms of variable compensation we pay to our auditors based primarily on the level of overpayment recoveries and/or profit margins derived therefrom and client service managers for our recovery audit services and our Adjacent Services businesses. COR also includes other direct and indirect costs incurred by these personnel, including office rent, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. A significant portion of the components comprising COR is variable and will increase or decrease with increases or decreases in revenue.
COR was as follows (in thousands):
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Recovery Audit Services – Americas
 
$
14,787

 
$
15,139

 
$
44,737

 
$
45,272

Recovery Audit Services – Europe/Asia-Pacific
 
6,284

 
5,883

 
18,657

 
18,927

Adjacent Services
 
1,296

 
2,485

 
4,050

 
6,586

Total
 
$
22,367

 
$
23,507

 
$
67,444

 
$
70,785

COR as a percentage of revenue from continuing operations was 63.7% and 71.9% for the three months ended September 30, 2016 and 2015, respectively, and 66.3% and 70.0% for the nine months ended September 30, 2016 and 2015, respectively. The improvement of approximately 780 basis points in COR as a percentage of revenue for the third quarter of 2016 and approximately 400 basis points in COR as a percentage of revenue for the nine-month period of 2016 is primarily due to the increase in revenue and the positive financial impact of operational process improvements, partially offset by costs associated with senior leadership and audit staff personnel that were not in place in the prior periods.
COR as a percentage of revenue for Recovery Audit Services – Americas was 57.5% and 63.1% for the three months ended September 30, 2016 and 2015, respectively, and 61.8% and 63.1% for the nine months ended September 30, 2016 and 2015, respectively. The improvement in COR as a percentage of revenue for the three and nine months ended September 30, 2016 compared to the same periods in 2015 is primarily due to the increase in revenue for the three and nine month periods as well as the financial impact of our operational process improvements, partially offset by the costs associated with additional senior leadership and audit staff personnel that were not in place in the prior periods.
COR as a percentage of revenue for Recovery Audit Services – Europe/Asia-Pacific was 71.9% and 73.1% for the three months ended September 30, 2016 and 2015, respectively, and 69.9% and 69.3% for the nine months ended September 30, 2016 and 2015, respectively. The improvement in COR as a percentage of revenue for the quarter is due primarily to the increased revenue which was partially offset by costs associated with senior leadership and audit staff personnel that were not in place in the prior period.

19


COR as a percentage of revenue for Recovery Audit Services – Europe/Asia-Pacific is generally higher than COR as a percentage of revenue for Recovery Audit Services – Americas primarily due to differences in service delivery models, scale and geographic fragmentation. The Recovery Audit Services – Europe/Asia-Pacific segment generally has higher fixed costs as it serves fewer clients in each geographic market and on average generates lower revenue per client than those served by the Company’s Recovery Audit Services – Americas segment.

Adjacent Services COR relates primarily to our continued investments in service delivery, which consist mainly of fixed personnel costs. Adjacent Services COR as a percentage of revenue was 190.0% and 186.6% for the three months ended September 30, 2016 and 2015, respectively, and 157.6% and 153.5% for the nine months ended September 30, 2016 and 2015, respectively. Adjacent Services COR improved 47.8% and 38.5% in the three and nine months ended September 30, 2016, respectively, compared to the same periods in 2015 due primarily to the removal of costs associated with the document services business we sold in the third quarter of 2015, as well as reductions in the use of outside contractors.
Selling, General and Administrative Expenses (“SG&A”). SG&A expenses for all segments other than Corporate Support include the expenses of sales and marketing activities, information technology services and allocated corporate data center costs, human resources, legal, accounting, administration, foreign currency transaction gains and losses other than those relating to short-term intercompany balances and gains and losses on asset disposals. Corporate Support SG&A represents the unallocated portion of SG&A expenses which are not specifically attributable to our segment activities and include the expenses of information technology services, the corporate data center, human resources, legal, accounting, treasury, administration and stock-based compensation charges.
SG&A expenses were as follows (in thousands):
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016

2015
Recovery Audit Services – Americas
 
$
2,132

 
$
1,810

 
$
6,434

 
$
5,773

Recovery Audit Services – Europe/Asia-Pacific
 
1,265

 
1,322

 
4,402

 
4,248

Adjacent Services
 
321

 
129

 
666

 
527

Subtotal for reportable segments
 
3,718

 
3,261

 
11,502

 
10,548

Corporate Support
 
6,165

 
5,023

 
16,849

 
14,865

Total
 
$
9,883

 
$
8,284

 
$
28,351

 
$
25,413

Recovery Audit Services – Americas SG&A increased by $0.3 million, or 17.8%, for the three months ended September 30, 2016 and increased by $0.7 million, or 11.4%, for the nine months ended September 30, 2016 compared to the same periods in 2015. The increase for the three-month period is due primarily to increased sales personnel and adjustments to bad debt expense. The increase in the nine-month period is mainly due to an increased use of outside contractors and adjustments to bad debt expense.
Recovery Audit Services – Europe/Asia-Pacific SG&A decreased $0.1 million, or 4.3%, in the three months ended September 30, 2016 and increased $0.2 million, or 3.6%, in the nine months ended September 30, 2016 compared to the same periods in 2015. The three month period decrease is due mainly to the impact of FX rates. The increase for the nine month period is due mainly to additional facility costs and adjustments to bad debt expense.
Adjacent Services SG&A increased $0.2 million in the three months ended September 30, 2016 and increased $0.1 million in the nine months ended September 30, 2016 compared to the same periods in 2015.
Corporate Support SG&A increased $1.1 million, or 22.7%, for the three months ended September 30, 2016 and increased $2.0 million, or 13.3%, for the nine months ended September 30, 2016 compared to the same periods in 2015. These increases are primarily due to increases in legal expense, U.S. healthcare benefit costs and incentive compensation expenses. Partially offsetting these increased expenses were reductions in unallocated SG&A expenses.

20


Depreciation of property and equipment. Depreciation of property and equipment was as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016

2015
Recovery Audit Services – Americas
 
$
935

 
$
947

 
$
2,863

 
$
2,895

Recovery Audit Services – Europe/Asia-Pacific
 
141

 
148

 
379

 
454

Adjacent Services
 
300

 
160

 
582

 
479

Total
 
$
1,376

 
$
1,255

 
$
3,824

 
$
3,828

The increase in depreciation for the three months ended September 20, 2016 relates primarily to the mix and timing of our capital expenditures and the associated useful lives for such purchases. Depreciation for the nine months ended September 30, 2016 was flat when compared to the same period in 2015.
Amortization of intangible assets. Amortization of intangible assets was as follows (in thousands):
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016

2015
Recovery Audit Services – Americas
 
$
373

 
$
437

 
$
1,118

 
$
1,319

Recovery Audit Services – Europe/Asia-Pacific
 

 
47

 

 
600

Adjacent Services
 
20

 
33

 
64

 
98

Total
 
$
393

 
$
517

 
$
1,182

 
$
2,017

The decreases in amortization expense for the three and nine months ended September 30, 2016 compared to the same periods in 2015 are primarily due to the end of the finite lives of certain intangible assets and the disposition of intangible assets as a result of the sale of our document services business in the third quarter of 2015.
Foreign Currency Transaction (Gains) Losses on Short-Term Intercompany Balances. Foreign currency transaction gains and losses on short-term intercompany balances result from fluctuations in the exchange rates for foreign currencies and the U.S. dollar and the impact of these fluctuations, primarily on balances payable by our foreign subsidiaries to their U.S. parent. Substantial changes from period to period in foreign currency exchange rates may significantly impact the amount of such gains and losses. The strengthening of the U.S. dollar relative to other currencies results in recorded losses on short-term intercompany balances receivable from our foreign subsidiaries while the relative weakening of the U.S. dollar results in recorded gains. In the three months ended September 30, 2016, we recorded $0.2 million of foreign currency transaction gains on short-term intercompany balances and in the three months ended September 30, 2015, we recorded $0.7 million of foreign currency transaction losses on short-term intercompany balances. In the nine months ended September 30, 2016, we recorded $1.0 million of foreign currency transaction gains on short-term intercompany balances and in the nine months ended September 30, 2015 we recorded $1.9 million of losses on short-term intercompany balances.
Income Tax Expense. Our income tax expense amounts as reported in the accompanying Condensed Consolidated Financial Statements (Unaudited) do not reflect amounts that normally would be expected due to several factors. The most significant of these factors is that for U.S. tax reporting purposes we have net operating loss carryforwards and other tax attributes which created deferred tax assets on our balance sheet. We reduce our deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. Generally, these factors result in our recording no net income tax expense or benefit relating to our operations in the United States. The reported income tax benefit for the three and nine months ended September 30, 2016 was primarily the result of adjustments to net deferred assets in foreign entities. The income tax expense in the three and nine months ended September 30, 2015 primarily resulted from taxes on the income of certain of our foreign subsidiaries.
Adjusted EBITDA. We evaluate the performance of our reportable segments based upon revenue and measures of profit or loss we refer to as EBITDA and Adjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation and amortization (“EBITDA”), and then further adjusted for unusual and other significant items that management views as distorting the operating results of the various segments from period to period. Such adjustments include restructuring charges, stock-based compensation, bargain purchase gains, acquisition-related charges and benefits (acquisition transaction costs, acquisition obligations classified as compensation, and fair value adjustments to acquisition-related contingent consideration), tangible and intangible asset impairment charges, certain

21


litigation costs and litigation settlements, certain severance charges and foreign currency transaction gains and losses on short-term intercompany balances viewed by management as individually or collectively significant.
Reconciliations of net income (loss) to each of EBIT, EBITDA and Adjusted EBITDA for the periods included in this report are as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016

2015
Net income (loss)
 
$
2,283

 
$
(3,409
)
 
$
1,138

 
$
(5,270
)
Income tax expense
 
(685
)
 
421

 
(21
)
 
1,172

Interest (income), net
 
(14
)
 
(8
)
 
(55
)
 
(103
)
EBIT
 
$
1,584

 
$
(2,996
)
 
$
1,062

 
$
(4,201
)
Depreciation of property and equipment
 
1,381

 
1,262

 
3,835

 
3,858

Amortization of intangible assets
 
393

 
517

 
1,182

 
2,017

EBITDA
 
$
3,358

 
$
(1,217
)
 
$
6,079

 
$
1,674

Foreign currency transaction (gains) losses on short-term intercompany balances
 
(165
)
 
654

 
(976
)
 
1,930

Other (gains) losses
 
(168
)
 
 
 
(140
)
 
 
Transformation severance and related expenses
 
138

 
845

 
1,233

 
1,554

Loss on sale/disposal of assets
 

 
1,612

 

 
1,612

Stock-based compensation
 
1,424

 
1,381

 
3,224

 
4,530

Adjusted EBITDA
 
$
4,587

 
$
3,275

 
$
9,420

 
$
11,300

Transformation severance and related expenses decreased $0.7 million for the three months ended September 30, 2016 and $0.3 million for the nine months ended September 30, 2016 compared to the same periods in 2015. Transformation severance and related expenses fluctuate with staff reductions and lease expenses associated with vacating office space across all segments in order to reduce our cost structure.
Stock-based compensation was essentially unchanged for the three months ended September 30, 2016 compared to the prior year and decreased $1.3 million, or 28.8%, for the nine months ended September 30, 2016 compared to the same period in 2015 due to the reduced level of performance based restricted stock units granted in 2016.
We include a detailed calculation of Adjusted EBITDA by segment in Note D of “Notes to Consolidated Financial Statements” in Item 1 of this Form 10-Q. A summary of Adjusted EBITDA by segment for the three and nine months ended September 30, 2016 and 2015 is as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Recovery Audit Services – Americas
 
$
8,894

 
$
7,133

 
$
21,754

 
$
20,968

Recovery Audit Services – Europe/Asia-Pacific
 
1,376

 
847

 
3,908

 
4,400

Adjacent Services
 
(797
)
 
(1,282
)
 
(2,008
)
 
(2,793
)
Subtotal for reportable segments
 
9,473

 
6,698

 
23,654

 
22,575

Corporate Support
 
(4,742
)
 
(3,370
)
 
(13,384
)
 
(10,027
)
Total
 
$
4,731

 
$
3,328

 
$
10,270

 
$