Table of Contents

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 March 31, 2014
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)
 
 
Registrant ’ s 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 April 25, 2014 were 30,071,462 .


Table of Contents

PRGX GLOBAL, INC.
FORM 10-Q
For the Quarter Ended March 31, 2014
INDEX
 
 
Page No.
Part I.  Financial Information
 
Part II.  Other Information
 

Table of Contents

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 March 31,
 
 
2014
 
2013
Revenue
 
$
37,901

 
$
45,101

Operating expenses:
 
 
 
 
Cost of revenue
 
27,467

 
30,184

Selling, general and administrative expenses
 
11,341

 
11,934

Depreciation of property and equipment
 
1,682

 
2,008

Amortization of intangible assets
 
903

 
1,276

Total operating expenses
 
41,393

 
45,402

Operating loss
 
(3,492
)
 
(301
)
Foreign currency transaction (gains) losses on short-term intercompany balances
 
15

 
357

Interest expense (income), net
 
54

 
(217
)
Loss before income taxes
 
(3,561
)
 
(441
)
Income tax expense
 
113

 
56

Net loss
 
$
(3,674
)
 
$
(497
)
 
 
 
 
 
Basic earnings (loss) per common share (Note B)
 
$
(0.12
)
 
$
(0.02
)
 
 
 
 
 
Diluted earnings (loss) per common share (Note B)
 
$
(0.12
)
 
$
(0.02
)
Weighted-average common shares outstanding (Note B) :
 
 
 
 
Basic
 
30,159

 
28,770

 
 
 
 
 
Diluted
 
30,159

 
28,770



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

 
 
Three Months Ended March 31,
 
 
2014
 
2013
Net loss
 
$
(3,674
)
 
$
(497
)
Foreign currency translation adjustments
 
(70
)
 
(484
)
Comprehensive loss
 
$
(3,744
)
 
$
(981
)




See accompanying Notes to Condensed Consolidated Financial Statements.

1
Table of Contents

PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
 
March 31, 2014
 
December 31, 2013
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents (Note E)
 
$
45,697

 
$
43,700

Restricted cash
 
126

 
57

Receivables:
 
 
 
 
Contract receivables, less allowances of $1,924 in 2014 and $1,996 in 2013:
 
 
 
 
Billed
 
25,121

 
28,175

Unbilled
 
6,290

 
9,904

 
 
31,411

 
38,079

Employee advances and miscellaneous receivables, less allowances of $294 in 2014 and $402 in 2013
 
1,703

 
2,242

Total receivables
 
33,114

 
40,321

Prepaid expenses and other current assets
 
3,814

 
3,917

Total current assets
 
82,751

 
87,995

Property and equipment
 
55,146

 
58,796

Less accumulated depreciation and amortization
 
(41,956
)
 
(44,802
)
Property and equipment, net
 
13,190

 
13,994

Goodwill
 
13,691

 
13,686

Intangible assets, less accumulated amortization of $33,669 in 2014 and $32,717 in 2013
 
12,693

 
13,582

Noncurrent portion of unbilled receivables
 
816

 
1,379

Other assets
 
2,253

 
2,193

Total assets
 
$
125,394

 
$
132,829

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
Accounts payable and accrued expenses
 
$
7,640

 
$
10,809

Accrued payroll and related expenses
 
13,991

 
15,415

Refund liabilities
 
6,053

 
6,597

Deferred revenue
 
1,822

 
1,512

Business acquisition obligations
 
—

 
3,156

Total current liabilities
 
29,506

 
37,489

Noncurrent refund liabilities
 
847

 
950

Other long-term liabilities
 
574

 
562

Total liabilities
 
30,927

 
39,001

 
 
 
 
 
Commitments and contingencies (Note H)
 


 


 
 
 
 
 
Shareholders’ equity (Note B):
 
 
 
 
Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares; 30,093,546 shares issued and outstanding as of March 31, 2014 and 29,367,439 shares issued and outstanding as of December 31, 2013
 
301

 
294

Additional paid-in capital
 
609,182

 
604,806

Accumulated deficit
 
(517,060
)
 
(513,386
)
Accumulated other comprehensive income
 
2,044

 
2,114

Total shareholders’ equity
 
94,467

 
93,828

Total liabilities and shareholders’ equity
 
$
125,394

 
$
132,829


See accompanying Notes to Condensed Consolidated Financial Statements.

2
Table of Contents

PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(3,674
)
 
$
(497
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
2,585

 
3,284

Amortization of deferred loan costs
 
16

 
46

Stock-based compensation expense
 
1,021

 
1,318

Deferred income taxes
 
(209
)
 
(45
)
Foreign currency transaction (gains) losses on short-term intercompany balances
 
15

 
357

Changes in operating assets and liabilities:
 
 
 
 
Restricted cash
 
(69
)
 
(64
)
Billed receivables
 
3,055

 
5,163

Unbilled receivables
 
4,177

 
1,507

Prepaid expenses and other current assets
 
706

 
(313
)
Other assets
 
1

 
20

Accounts payable and accrued expenses
 
(3,192
)
 
(2,359
)
Accrued payroll and related expenses
 
(1,453
)
 
(6,985
)
Refund liabilities
 
(647
)
 
(273
)
Deferred revenue
 
309

 
279

Noncurrent compensation obligations
 
184

 
197

Other long-term liabilities
 
87

 
(786
)
Net cash provided by operating activities
 
2,912

 
849

Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment, net of disposal proceeds
 
(844
)
 
(2,207
)
Net cash used in investing activities
 
(844
)
 
(2,207
)
Cash flows from financing activities:
 
 
 
 
Repayments of long-term debt
 
—

 
(750
)
Payment of deferred loan costs
 
(80
)
 
—

Restricted stock repurchased from employees for withholding taxes
 
(5
)
 
(430
)
Proceeds from option exercises
 
2,183

 
336

Payments of deferred acquisition consideration
 
(1,978
)
 
(1,656
)
Net proceeds from issuance of common stock
 
—

 
4,118

Repurchase of common stock
 
(40
)
 
—

Net cash provided by financing activities
 
80

 
1,618

 
 
 
 
 
Effect of exchange rates on cash and cash equivalents
 
(151
)
 
(279
)
Net increase (decrease) in cash and cash equivalents
 
1,997

 
(19
)
 
 
 
 
 
Cash and cash equivalents at beginning of period
 
43,700

 
37,806

Cash and cash equivalents at end of period
 
$
45,697

 
$
37,787

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
19

 
$
71

Cash paid during the period for income taxes, net of refunds received
 
$
948

 
$
294




See accompanying Notes to Condensed Consolidated Financial Statements.

3
Table of Contents
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 period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 .
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 Footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2013 .
Beginning with the first quarter of 2014, we present the former New Services segment as two separate segments: Adjacent Services, which were formerly referred to as Profit Optimization services, and Healthcare Claims Recovery Audit Services. We have revised the presentation of our operating segments and related information in Note D - Operating Segments and Related Information .
Beginning with the third quarter of 2013, we present fair value adjustments to acquisition-related contingent consideration as an adjustment to our segment measure — earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") as presented in Note D - Operating Segments and Related Information .  We now include these fair value adjustments in the Adjusted EBITDA calculation in the "Acquisition-related charges (benefits)" line, which we renamed from "Acquisition transaction costs and acquisition obligations classified as compensation." Accordingly, we have revised the presentation of our Adjusted EBITDA calculation for all relevant prior periods.
Unbilled Receivables
A significant portion of the unbilled receivables presented in the Condensed Consolidated Balance Sheets (Unaudited) relate to our Healthcare Claims Recovery Audit Services as we generally cannot invoice the prime contractors for whom we operate as a subcontractor under the Medicare RAC program until cash is collected by the prime contractors. These unbilled receivables, net of the related reserves, were $3.5 million and $5.6 million as of March 31, 2014 and December 31, 2013 , respectively. As of May 2, 2014, we billed $2.5 million of the unbilled receivables relating to the Medicare RAC program that were outstanding as of March 31, 2014 .
New Accounting Standards
A summary of the new accounting standard issued by the Financial Accounting Standards Board (“FASB”) and included in the Accounting Standards Codification (“ASC”) that applies to PRGX is set forth below:
FASB ASC Update No. 2014-08 . In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360)—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. ASU 2014-08 is effective for annual periods beginning on or after December 15, 2014. We do not expect the adoption of ASU No. 2014-08 to have a material impact on our consolidated results of operations, financial position or cash flows.

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Table of Contents
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 earnings (loss) per common share for the three months ended March 31, 2014 and 2013 (in thousands, except per share data):
 
 
 
Three Months Ended March 31,
Basic earnings (loss) per common share:
 
2014
 
2013
Numerator:
 
 
 
 
Net loss
 
$
(3,674
)
 
$
(497
)
 
 
 
 
 
Denominator:
 
 
 
 
Weighted-average common shares outstanding
 
30,159

 
28,770

 
 
 
 
 
Basic earnings (loss) per common share
 
$
(0.12
)
 
$
(0.02
)

 
 
Three Months Ended March 31,
Diluted earnings (loss) per common share:
 
2014
 
2013
Numerator:
 
 
 
 
Net loss
 
$
(3,674
)
 
$
(497
)
 
 
 
 
 
Denominator:
 
 
 
 
Weighted-average common shares outstanding
 
30,159

 
28,770

 Incremental shares from stock-based compensation plans
 
—

 
—

Denominator for diluted earnings (loss) per common share
 
30,159

 
28,770

 
 
 
 
 
Diluted earnings (loss) per common share
 
$
(0.12
)
 
$
(0.02
)
Weighted-average shares outstanding excludes antidilutive shares underlying options that totaled 2.4 million shares and antidilutive Performance Units issuable under the Company's 2006 Management Incentive Plan that totaled less than 0.1 million shares from the computation of diluted earnings (loss) per common share for the three months ended March 31, 2014 . Weighted-average shares outstanding excludes antidilutive shares underlying options that totaled 2.9 million shares and anti-dilutive Performance Units related to the Company's 2006 Management Incentive Plan that totaled 0.1 million from the computation of diluted earnings (loss) per common share for the three months ended March 31, 2013 . As a result of the net loss for the three months ended March 31, 2014 and March 31, 2013 , all shares underlying stock options and Performance Units were considered antidilutive. The number of common shares we used in the basic and diluted earnings (loss) per common share computations include nonvested restricted shares of 0.7 million and 0.8 million for the three months ended March 31, 2014 and 2013 , respectively, and nonvested restricted share units that we consider to be participating securities of 0.2 million for both the three months ended March 31, 2014 and 2013 .
On December 11, 2012, we closed a public offering of 6,249,234 shares of our common stock, which consisted of 2,500,000 shares sold by us and 3,749,234 shares sold by certain selling shareholders, at a price to the public of $6.39 per share. The net proceeds to us from the public offering, after deducting underwriting discounts and commissions and offering expenses, were $14.7 million . We did not receive any proceeds from the sale of shares by the selling shareholders. In addition, the underwriters elected to exercise an overallotment option for an additional 687,385 shares, and completed the additional sale on January 8, 2013. The net proceeds to us from the overallotment, after deducting underwriting discounts and commission and offering expenses, were $4.1 million .
In partial satisfaction of a business acquisition obligation, we issued 187,620 shares of our common stock having a value of $1.3 million in the three months ended March 31, 2014 and 217,155 shares of our common stock having a value of $1.4 million in the three months ended March 31, 2013.

5
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note C – Stock-Based Compensation
The Company currently has three stock-based compensation plans under which awards have been granted: (1) the Stock Incentive Plan; (2) the 2006 Management Incentive Plan (“2006 MIP”); and (3) 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, 2013 .
2008 EIP 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. There were no stock option grants during the three months ended March 31, 2014. The following table summarizes stock option grants during the three months ended March 31, 2013 :
Grantee
Type
 
# of
Options
Granted
 
Vesting Period
 
Weighted
Average
Exercise Price
 
Weighted
Average Grant
Date Fair Value
2013
 
 
 
 
 
 
 
 
Director group
 
7,122

 
1 year or less
 
$
6.83

 
$
2.35

Director group
 
17,092

 
3 years
 
$
6.83

 
$
3.76

Employee group
 
5,000

 
3 years
 
$
6.83

 
$
3.65

Employee inducement (1)
 
20,000

 
3 years
 
$
7.14

 
$
3.81

 
(1)
The Company granted non-qualified performance-based stock options outside its existing stock-based compensation plans in the first quarter of 2013 to one employee in connection with the employee joining the Company.
Nonvested stock awards, including both restricted stock and restricted stock units, 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 vest in equal annual increments over the vesting period, which typically is three years for employees and one year for directors. There were no nonvested stock awards (restricted stock and restricted stock units) granted during the three months ended March 31, 2014. The following table summarizes nonvested stock awards granted during the three months ended March 31, 2013 :
 
Grantee
Type
 
# of Shares
Granted
 
Vesting Period
 
Weighted
Average Grant
Date Fair Value
2013
 
 
 
 
 
 
Director group
 
7,122

 
1 year or less
 
$
6.83

Director group
 
17,092

 
3 years
 
$
6.83

Employee group
 
5,000

 
3 years
 
$
6.83

Employee inducement (1)
 
20,000

 
3 years
 
$
7.14

 
(1)
The Company granted nonvested performance-based stock awards (restricted stock) outside its existing stock-based compensation plans in the first quarter of 2013 to one employee in connection with the employee joining the Company.
2006 MIP Performance Units
On June 19, 2012, seven senior officers of the Company were granted 154,264 Performance Units under the 2006 MIP, comprising all 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 2013, an aggregate of 93,664 Performance Units were settled by four current executive officers and two former executive officers, and 16,524 Performance Units were forfeited by one former executive officer. Such settlements resulted in the issuance of 56,197 shares of common stock and cash payments totaling $0.2 million . As of March 31, 2014 , a total of 44,076 Performance Units were outstanding, none of which were vested. There was no settlement of Performance Units during the three months ended March 31, 2014 .

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

Selling, general and administrative expenses for the three months ended March 31, 2014 and 2013 include $1.0 million and $1.3 million , respectively, related to stock-based compensation charges. At March 31, 2014 , there was $5.5 million of unrecognized stock-based compensation expense related to stock options, restricted stock awards, restricted stock unit awards, and Performance Unit awards which we expect to recognize over a weighted-average period of 1.7  years.
Note D – Operating Segments and Related Information
Beginning with the first quarter of 2014, we present the former New Services segment as two separate segments: Adjacent Services, which were formerly referred to as Profit Optimization services, and Healthcare Claims Recovery Audit Services. We now conduct our operations through the following four 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 (formerly known as Profit Optimization services) represents data transformation and financial advisory services.
Healthcare Claims Recovery Audit Services represents recovery audit services for healthcare claims, which consist primarily of services provided under subcontracts related to the Medicare Recovery Audit Contractor program.
Additionally, Corporate Support includes the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the four reportable segments.
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.

7
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Segment information for the three months ended March 31, 2013 has been revised to reflect the change in reportable segments. Segment information for the three months ended March 31, 2014 and 2013 (in thousands) is as follows:
 
 
 
Recovery
Audit
Services –
Americas
 
Recovery Audit
Services –
Europe/Asia-
Pacific
 
Adjacent
Services
 
Healthcare Claims Recovery Audit Services
 
Corporate
Support
 
Total
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
24,798

 
$
9,702

 
$
2,283

 
$
1,118

 
$
—

 
$
37,901

 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
 
 
 
 
 
 
 
$
(3,674
)
Income tax expense
 
 
 
 
 
 
 
 
 
 
 
113

Interest expense, net
 
 
 
 
 
 
 
 
 
 
 
54

EBIT
 
$
4,084

 
$
101

 
$
(1,574
)
 
$
(2,006
)
 
$
(4,112
)
 
(3,507
)
Depreciation of property and equipment
 
1,256

 
146

 
160

 
120

 
—

 
1,682

Amortization of intangible assets
 
500

 
307

 
96

 
—

 
—

 
903

EBITDA
 
5,840

 
554

 
(1,318
)
 
(1,886
)
 
(4,112
)
 
(922
)
Foreign currency transaction (gains) losses on short-term intercompany balances
 
110

 
(73
)
 
—

 
—

 
(22
)
 
15

Acquisition-related charges
 
—

 
—

 
19

 
—

 
—

 
19

Transformation severance and related expenses
 
8

 
79

 
143

 
155

 
—

 
385

Stock-based compensation
 
—

 
—

 
—

 
—

 
1,021

 
1,021

Adjusted EBITDA
 
$
5,958

 
$
560

 
$
(1,156
)
 
$
(1,731
)
 
$
(3,113
)
 
$
518


 
 
Recovery
Audit
Services –
Americas
 
Recovery Audit
Services –
Europe/Asia-
Pacific
 
Adjacent
Services
 
Healthcare Claims Recovery Audit Services
 
Corporate
Support
 
Total
Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
26,242

 
$
11,017

 
$
3,943

 
$
3,899

 
$
—

 
$
45,101

 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
 
 
 
 
 
 
 
$
(497
)
Income tax expense
 
 
 
 
 
 
 
 
 
 
 
56

Interest income, net
 
 
 
 
 
 
 
 
 
 
 
(217
)
EBIT
 
$
5,454

 
$
441

 
$
(311
)
 
$
(850
)
 
$
(5,392
)
 
(658
)
Depreciation of property and equipment
 
1,368

 
112

 
155

 
373

 
—

 
2,008

Amortization of intangible assets
 
698

 
396

 
182

 
—

 
—

 
1,276

EBITDA
 
7,520

 
949

 
26

 
(477
)
 
(5,392
)
 
2,626

Foreign currency transaction (gains) losses on short-term intercompany balances
 
52

 
306

 
—

 
—

 
(1
)
 
357

Acquisition-related charges (benefits)
 
10

 
(732
)
 
56

 
—

 
—

 
(666
)
Stock-based compensation
 
—

 
—

 
—

 
—

 
1,318

 
1,318

Adjusted EBITDA
 
$
7,582

 
$
523

 
$
82

 
$
(477
)
 
$
(4,075
)
 
$
3,635




8
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note E – Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less from date of purchase. We place our temporary cash investments with high credit quality financial institutions. At times, certain investments may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit or otherwise may not be covered by FDIC insurance. Some of our cash and cash equivalents are held at banks in jurisdictions outside the U.S. that have restrictions on transferring such assets outside of these countries on a temporary or permanent basis. Such restricted net assets are not significant in comparison to our consolidated net assets.
Our cash and cash equivalents included short-term investments of approximately $25.6 million as of March 31, 2014 and $24.6 million as of December 31, 2013 , of which approximately $4.8 million and $4.4 million , respectively, were held at banks outside of the United States, primarily in Brazil and Canada.
Note F – Debt
On January 19, 2010, we entered into a four -year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facility initially consisted of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust term loan required quarterly principal payments of $0.8 million beginning in March 2010, and a final principal payment of $3.0 million due in January 2014 that we paid in December 2013. The SunTrust 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.
On January 17, 2014, we entered into an amendment of the SunTrust credit facility that increased the committed revolving credit facility from $15.0 million to $25.0 million , lowered the applicable margin to a fixed rate of 1.75% , eliminated the provision limiting availability under the revolving credit facility based on eligible accounts receivable and extended the scheduled maturity of the revolving credit facility to January 16, 2015 (subject to earlier termination as provided therein). As of March 31, 2014 , we had no outstanding borrowings under the SunTrust revolver. With the provision of a fixed applicable margin of 1.75% per the amendment of the SunTrust credit facility, the interest rate that would have applied at March 31, 2014 had any borrowings been outstanding was approximately 1.90% . We also must pay a commitment fee of 0.5%  per annum, payable quarterly, on the unused portion of the $25.0 million SunTrust revolving credit facility.
Prior to the January 2014 amendment to the SunTrust credit facility, amounts available under the SunTrust revolver were based on eligible accounts receivable and other factors. Interest on both the revolver and term loan was payable monthly and accrued at an index rate using the one-month LIBOR rate, plus an applicable margin as determined by the loan agreement. The applicable interest rate margin varied from 2.25%  per annum to 3.5%  per annum, dependent on our consolidated leverage ratio, and was determined in accordance with a pricing grid under the SunTrust loan agreement.
The SunTrust credit facility requires, as of the end of each fiscal quarter, the Company to have achieved Consolidated Adjusted EBITDA (as defined in the agreement) of at least $22.5 million for the immediately preceding four quarters. As of March 31, 2014, the Company's Consolidated Adjusted EBITDA for the preceding four quarters was $22.2 million, and therefore the Company was not in compliance with the covenant, although there were no amounts outstanding under the credit facility as of that date. On May 8, 2014, the Company entered into an amendment of the SunTrust credit facility that provided a waiver of the non-compliance with the minimum Consolidated Adjusted EBITDA covenant for the quarter ended March 31, 2014 and reduced the minimum Consolidated Adjusted EBITDA requirement to $18.0 million. The amendment also authorized a $10.0 million increase to the Company's stock repurchase program, bringing the total amount of its common stock that the Company may repurchase under the program to $20.0 million .
Note G – 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 repaid the remaining balance of our bank debt in December 2013, and had no debt outstanding as of March 31, 2014 . We consider the factors used in determining the fair value of debt to be Level 3 inputs (significant unobservable inputs).
We had no business acquisition obligations as of March 31, 2014 , and as of December 31, 2013 had $3.2 million of business acquisition obligations representing the fair value of deferred consideration and earn-out payments estimated to be due as of that date. We determine the estimated fair values based on our projections of future revenue and profits or other factors used in the calculation of the ultimate payment to be made. The discount rate that we use to value the liability is based on

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

specific business risk, cost of capital, and other factors. We consider these factors to be Level 3 inputs (significant unobservable inputs).
Note H – 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.
Note I – 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.
In the three months ended March 31, 2013, we partially offset these foreign income taxes by reversing $0.4 million of accruals made in prior years for uncertain tax positions. 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.
Note J – Subsequent Events
On May 8, 2014, the Company entered into an amendment of the SunTrust credit facility that provided a waiver of the non-compliance with the minimum Consolidated Adjusted EBITDA covenant for the quarter ended March 31, 2014, reduced the minimum Consolidated Adjusted EBITDA requirement to $18.0 million , and increased the total amount of common stock that the Company may repurchase under the stock repurchase program by $10.0 million to $20.0 million . Through May 9, 2014, the Company repurchased a total of 202,700 shares under this program through open-market transactions for an aggregate purchase price of $1.3 million .


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We conduct our operations through four reportable segments: Recovery Audit Services – Americas, Recovery Audit Services – Europe/Asia-Pacific, Adjacent Services and H ealthcare Claims Recovery Audit Services. The Recovery Audit Services – Americas segment represents recovery audit services (other than Healthcare Claims 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 (other than Healthcare Claims Recovery Audit services) we provide in Europe, Asia and the Pacific region. The Adjacent Services segment, which was formerly referred to as Profit Optimization services, represents data transformation and financial advisory services. The Healthcare Claims Recovery Audit Services segment represents recovery audit services that involve the identification of overpayments and underpayments made by healthcare payers to healthcare providers such as hospitals and physicians’ practices, which consist primarily of services provided under subcontracts related to the Medicare Recovery Audit Contractor program. We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the four 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. 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. For some services we provide, such as certain of our Adjacent Services, we earn our compensation in the form of a flat 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 not have a significant adverse impact on our liquidity, and we have taken steps to mitigate any adverse impact of an economic downturn on our revenue and overall financial health. These steps include devoting substantial efforts to develop a lower cost service delivery model to enable us to more cost effectively serve our clients. Further, we continue to pursue our ongoing growth strategy to expand our business beyond our core recovery audit services to retailers by growing the portion of our business that provides recovery audit services to enterprises other than retailers and growing our Adjacent Services segment. Our Healthcare Claims Recovery Audit Services segment primarily includes services we provide as a subcontractor to three of the four prime contractors in the Medicare Recovery Audit Contractor program (the “Medicare RAC program”) of the Centers for Medicare and Medicaid Services (“CMS”).

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Despite the factors noted above and the strategies we have employed to mitigate the impact of macroeconomic issues on our business, our revenue was impacted negatively in the three months of 2014 by a number of factors. We experienced delays in claim approvals at certain clients and a delayed audit start at a large legacy client, and had a weak backlog for our Adjacent Services coming into 2014. Also, auditing under the current Medicare RAC program contracts is winding down and we anticipate that revenue in our Healthcare Claims Recovery Audit Services segment will continue to decline throughout 2014 with minimal amounts in the second half of 2014 given this wind-down and our withdrawal from the Medicare RAC rebid process earlier this year.
We believe that these challenges will result in a decline in our revenue for the year ending December 31, 2014 compared to our 2013 results. Although we expect to incur losses in our Healthcare Claims Recovery Audit Services due to the significant revenue declines, we believe that reductions in our core business operating costs and corporate overhead will offset a significant portion of the revenue declines in the remainder of our 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.
Results of Operations
The following table sets forth the percentage of revenue represented by certain items in the Company’s Condensed Consolidated Statements of Operations (Unaudited) for the periods indicated:
 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Revenue
 
100.0
 %
 
100.0
 %
Operating expenses:
 
 
 
 
Cost of revenue
 
72.5

 
66.9

Selling, general and administrative expenses
 
29.9

 
26.5

Depreciation of property and equipment
 
4.4

 
4.5

Amortization of intangible assets
 
2.4

 
2.8

Total operating expenses
 
109.2

 
100.7

Operating loss
 
(9.2
)
 
(0.7
)
 
 
 
 
 
Foreign currency transaction (gains) losses on short-term intercompany balances
 
0.1

 
0.8

Interest expense (income), net
 
0.1

 
(0.5
)
Loss before income taxes
 
(9.4
)
 
(1.0
)
Income tax expense
 
0.3

 
0.1

 
 
 
 
 
Net loss
 
(9.7
)%
 
(1.1
)%


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Three Months Ended March 31, 2014 Compared to the Corresponding Period of the Prior Year
Revenue. Revenue was as follows (in thousands):
 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Recovery Audit Services – Americas
 
$
24,798

 
$
26,242

Recovery Audit Services – Europe/Asia-Pacific
 
9,702

 
11,017

Adjacent Services
 
2,283

 
3,943

Healthcare Claims Recovery Audit Services
 
1,118

 
3,899

Total
 
$
37,901

 
$
45,101

Total revenue decreased for the three months ended March 31, 2014 by $7.2 million , or 16.0% , compared to the same period in 2013 .
Below is a discussion of our revenue for our four reportable segments.
Recovery Audit Services – Americas revenue decreased by $1.4 million , or 5.5% , for the first quarter of 2014 compared to the first quarter of 2013 . One of the factors contributing to changes in our reported revenue is the strength of the U.S. dollar relative to foreign currencies. Changes in the average value of the U.S. dollar relative to foreign currencies impact our reported revenue. On a constant dollar basis, adjusted for changes in foreign exchange (“FX”) rates, revenue for the first quarter of 2014 decreased by 3.3% compared to a decrease of 5.5% as reported.
In addition to the impact of the change in FX rates, the year over year net decrease in our Recovery Audit Services – Americas revenue in the three months ended March 31, 2014 was due to a number of factors. Revenue at our existing clients declined 6.9% in the three -month period primarily due to claim approval delays at several clients and a delayed audit start in a large legacy client that we believe will be resolved in the next few quarters, as well as lower revenue from another significant retail client that has increased its internal resources and is identifying more claims itself, and, to a lesser extent, lower contingency fee rates at a few other clients. Partially offsetting these declines, revenue increased 1.4% in the three -month period due to new clients. Revenue from discontinued clients had a negligible impact for the three months ended March 31, 2014 .
Recovery Audit Services – Europe/Asia-Pacific revenue decreased by $1.3 million , or 11.9% , for the three months ended March 31, 2014 compared to the same period in 2013 . The changes in the strength of the U.S. dollar relative to foreign currencies in Europe, Asia and the Pacific region positively impacted reported revenue for the first quarter compared to the same period in 2013. On a constant dollar basis, adjusted for changes in FX rates, revenue decreased by 14.6% during the first three months of 2014 compared to a decrease of 11.9% as reported. The 14.6% net decrease on a constant dollar basis for the three-month period included net decreases in revenue of 19.1% attributable to existing clients, 5.0% attributable to cyclical clients and 2.2% attributable to discontinued clients and clients that entered administration, partially offset by an increase of 11.7% attributable to new clients. Revenue from existing clients declined primarily due to claim approval delays at a significant retail client, fewer claims identified and delays in claim approvals at continuing clients, and declines at several commercial clients where audits are cyclical in nature.
Adjacent Services revenue decreased by $1.7 million , or 42.1% , for the three months ended March 31, 2014 compared to the same period in 2013 . We generate Adjacent Services revenue from our data transformation and financial advisory services. The decrease in Adjacent Services revenue in the three-month period is primarily due to a weak backlog of projects at the beginning of 2014 compared to 2013.
Healthcare Claims Recovery Audit Services revenue decreased by $2.8 million , or 71.3% , for the three months ended March 31, 2014 compared to the same period in 2013 . We generate our Healthcare Claims Recovery Audit Services revenue primarily from our participation in the Medicare RAC program. The decrease in revenue in the three-month period is primarily due to additional restrictions imposed on all Medicare RAC program contractors severely impacting our revenue and causing a decline in revenue. As disclosed in our Form 10-K for the year ended December 31, 2013, we have withdrawn from the Medicare RAC program rebid process, and auditing under the current Medicare RAC program contracts is winding down. We anticipate that revenue in our Healthcare Claims Recovery Audit Services segment will continue to decline throughout 2014 with minimal amounts in the second half of 2014 given this wind-down.

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Cost of Revenue (“COR”). COR consists principally of 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, fixed auditor salaries, compensation paid to various types of hourly support staff and salaries for operational and client service managers for our recovery audit 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 March 31,
 
 
2014
 
2013
Recovery Audit Services – Americas
 
$
14,635

 
$
14,350

Recovery Audit Services – Europe/Asia-Pacific
 
7,417

 
9,022

Adjacent Services
 
3,035

 
3,200

Healthcare Claims Recovery Audit Services
 
2,380

 
3,612

Total
 
$
27,467

 
$
30,184

COR as a percentage of revenue for Recovery Audit Services – Americas was 59.0% and 54.7% for the three months ended March 31, 2014 and 2013 , respectively. The increase in COR as a percentage of revenue for the three months ended March 31, 2014 compared to the same period in 2013 is primarily due to the fixed portion of our costs not decreasing in line with the lower revenue, and personnel we added to expand our service offerings into new industry segments.
COR as a percentage of revenue for Recovery Audit Services – Europe/Asia-Pacific was 76.4% and 81.9% for the three months ended March 31, 2014 and 2013 , respectively. The decrease in COR as a percentage of revenue primarily resulted from cost reductions, primarily compensation, in our European operations as we continue to implement our service delivery model changes in that geographic region. COR declined 17.8% in the three months ended March 31, 2014 compared to the same period in 2013 .
The higher COR as a percentage of revenue for Recovery Audit Services – Europe/Asia-Pacific ( 76.4% for the first quarter of 2014 ) compared to Recovery Audit Services – Americas ( 59.0% for the first quarter of 2014 ) is primarily due to differences in service delivery models, scale and geographic fragmentation. The Recovery Audit Services – Europe/Asia-Pacific segment generally 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.
COR as a percentage of revenue for Adjacent Services was 132.9% and 81.2% for the three months ended March 31, 2014 and 2013 , respectively. The increase in COR as a percentage of revenue for Adjacent Services is primarily due to the decrease in revenue in this segment. COR declined 5.2% in the three months ended March 31, 2014 compared to the same period in 2013 due to cost reduction measures we implemented, and we anticipate that these measures will have a greater impact on COR in the remainder of 2014.
Healthcare Claims Recovery Audit Services COR relates primarily to costs associated with the Medicare RAC program subcontracts. COR as a percentage of revenue for Healthcare Claims Recovery Audit Services was 212.9% and 92.6% for the three months ended March 31, 2014 and 2013 , respectively. The increase in COR as a percentage of revenue for Healthcare Claims Recovery Audit Services is primarily due to the decrease in revenue in this segment, partially offset by reductions in personnel and related costs.
Selling, General and Administrative Expenses (“SG&A”). SG&A expenses of the Recovery Audit Services, Adjacent Services, and Healthcare Claims Recovery Audit Services segments 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. 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.

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SG&A expenses were as follows (in thousands):
 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Recovery Audit Services – Americas
 
$
4,213

 
$
4,320

Recovery Audit Services – Europe/Asia-Pacific
 
1,804

 
740

Adjacent Services
 
566

 
717

Healthcare Claims Recovery Audit Services
 
624

 
764

Subtotal for reportable segments
 
7,207

 
6,541

Corporate Support
 
4,134

 
5,393

Total
 
$
11,341

 
$
11,934

Recovery Audit Services – Americas SG&A decreased by $0.1 million , or 2.5% , for the three months ended March 31, 2014 from the comparable period in 2013 .
Recovery Audit Services – Europe/Asia-Pacific SG&A increased $1.1 million , or 143.8% , for the three months ended March 31, 2014 compared to the same period in 2013 . This increase is primarily due to the 2013 period including fair value adjustments recorded to reduce the acquisition-related contingent consideration payable for a prior acquisition and the reversal of provisions for bad debts, as well as higher payroll and related costs we incurred to help accelerate the service delivery model changes in Europe.
Adjacent Services SG&A decreased $0.2 million , or 21.1% , in the three months ended March 31, 2014 compared to the same period in 2013 . The decrease in the three-month period is primarily due to the 2013 period including provisions for bad debt expense and the 2014 period including reversals of similar provisions.
Healthcare Claims Recovery Audit Services SG&A decreased $0.1 million , or 18.3% , in the three months ended March 31, 2014 compared to the same period in 2013 . This decrease is primarily due to the 2013 period including costs we incurred in connection with the proposal we submitted in April 2013 for a new contract in the Medicare RAC program, with no similar costs in the 2014 period.
Corporate Support SG&A decreased $1.3 million , or 23.3% , for the three months ended March 31, 2014 compared to the same period in 2013 . This decrease is primarily due to lower stock-based compensation expense and lower payroll and related expenses in the 2014 period resulting from our cost containment efforts.
Depreciation of property and equipment. Depreciation of property and equipment was as follows (in thousands):
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Recovery Audit Services – Americas
 
$
1,256

 
$
1,368

Recovery Audit Services – Europe/Asia-Pacific
 
146

 
112

Adjacent Services
 
160

 
155

Healthcare Claims Recovery Audit Services
 
120

 
373

Total
 
$
1,682

 
$
2,008

The overall decrease in depreciation relates primarily to lower depreciable asset balances resulting from the impairment charges we recorded in the fourth quarter of 2013. We expect similar year over year decreases on a quarterly basis through the remainder of 2014.

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Amortization of intangible assets. Amortization of intangible assets was as follows (in thousands):
 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Recovery Audit Services – Americas
 
$
500

 
$
698

Recovery Audit Services – Europe/Asia-Pacific
 
307

 
396

Adjacent Services
 
96

 
182

Total
 
$
903

 
$
1,276

The decrease in amortization expense is primarily due to the 2013 period including greater amortization of intangible assets recorded in connection with our acquisitions completed over the last few years. Unless we complete additional acquisitions in 2014, we expect amortization expense to continue to decrease in 2014.
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 March 31, 2014 and 2013 , we recorded foreign currency transaction losses of less than $0.1 million and $0.4 million , respectively, on short-term intercompany balances.
Net Interest Expense (Income). Net interest expense was $0.1 million for the three months ended March 31, 2014 and net interest income for the three months ended March 31, 2013 was $0.2 million . Net interest income in the three months ended March 31, 2013 is primarily due to the reversal of $0.6 million of accruals made in prior years for interest on uncertain tax positions. Excluding this item, the decrease in net interest expense in the three months ended March 31, 2014 is due to lower interest expense associated with business acquisition obligations, lower accruals for interest on uncertain tax positions and lower interest expense on debt outstanding than in the comparable 2013 period.
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. Reported income tax expense for the three months ended March 31, 2014 and 2013 primarily results from taxes on the income of certain of our foreign subsidiaries. We also recorded the reversal of $0.4 million of accruals made in previous years for uncertain tax positions in the three months ended March 31, 2013.
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 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.

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Reconciliations of net loss to each of EBIT, EBITDA and Adjusted EBITDA for the periods included in this report are as follows (in thousands):
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Net loss
 
$
(3,674
)
 
$
(497
)
Income tax expense
 
113

 
56

Interest expense (income), net
 
54

 
(217
)
EBIT
 
(3,507
)
 
(658
)
Depreciation of property and equipment
 
1,682

 
2,008

Amortization of intangible assets
 
903

 
1,276

EBITDA
 
(922
)
 
2,626

Foreign currency transaction (gains) losses on short-term intercompany balances
 
15

 
357

Acquisition-related charges (benefits)
 
19

 
(666
)
Transformation severance and related expenses
 
385

 
—

Stock-based compensation
 
1,021

 
1,318

Adjusted EBITDA
 
$
518

 
$
3,635

Acquisition-related charges (benefits) increased $0.7 million for the three months ended March 31, 2014 compared to the same period in 2013 . This increase is primarily due to the 2013 period including fair value adjustments recorded to change the expected contingent consideration payable for a prior acquisition.
Transformation severance and related expenses increased $0.4 million for the three months ended March 31, 2014 compared to the same period in 2013 . Transformation severance and related expenses fluctuate with the implementation of the phases of our Next-Generation Recovery Audit service delivery model and no such costs were incurred during the three months ended March 31, 2013.
Stock-based compensation decreased $0.3 million , or 22.5% , for the three months ended March 31, 2014 compared to the same period in 2013 . This decrease is primarily due to the 2013 period including expenses for stock awards for certain executives that separated from the Company subsequent to the first quarter of 2013, with no corresponding expenses in the 2014 period.

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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 months ended March 31, 2014 and 2013 is as follows (in thousands):
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Recovery Audit Services – Americas
 
$
5,958

 
$
7,582

Recovery Audit Services – Europe/Asia-Pacific
 
560

 
523

Adjacent Services
 
(1,156
)
 
82

Healthcare Claims Recovery Audit Services
 
(1,731
)
 
(477
)
Subtotal for reportable segments
 
3,631

 
7,710

Corporate Support
 
(3,113
)
 
(4,075
)
Total
 
$
518

 
$
3,635

Recovery Audit Services – Americas Adjusted EBITDA decreased $1.6 million , or 21.4% , for the three months ended March 31, 2014 compared to the same period in 2013 . This decrease resulted from a decrease in revenue and an increase in COR, partially offset by lower SG&A expenses.
Recovery Audit Services – Europe/Asia-Pacific Adjusted EBITDA increased by less than $0.1 million , or 7.1% , for the three months ended March 31, 2014 compared to the same period in 2013 . The increase is due to greater reductions in COR than revenue, partially offset by higher SG&A expenses other than acquisition-related charges (benefits) in the first quarter of 2014 compared to the first quarter of 2013.
Adjacent Services Adjusted EBITDA decreased $1.2 million for the three months ended March 31, 2014 , compared to the same period in 2013 . This decrease is primarily due to the decrease in revenue in this segment with lower decreases in COR and SG&A expenses.
Healthcare Claims Recovery Audit Services Adjusted EBITDA decreased $1.3 million , or 262.9% , for the three months ended March 31, 2014 compared to the same period in 2013 . This decrease is primarily due to the decrease in revenue in this segment with lower decreases in COR and SG&A expenses.
Corporate Support Adjusted EBITDA improved by $1.0 million , or 23.6% , for the three months ended March 31, 2014 compared to the same period in 2013 . This improvement is due to lower payroll and related expenses in the 2014 period.
Liquidity and Capital Resources
As of March 31, 2014 , we had $45.7 million in cash and cash equivalents and no borrowings outstanding against the $25.0 million of availability under our revolving credit facility.
Operating Activities. Net cash provided by operating activities was $2.9 million and $0.8 million during the three months ended March 31, 2014 and 2013 , respectively. These amounts consist of two components, specifically, net loss adjusted for certain non-cash items (such as depreciation, amortization, stock-based compensation expense, and deferred income taxes) and changes in assets and liabilities, primarily working capital, as follows (in thousands):
 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Net loss
 
$
(3,674
)
 
$
(497
)
Adjustments for certain non-cash items
 
3,428

 
4,960

 
 
(246
)
 
4,463

Changes in operating assets and liabilities
 
3,158

 
(3,614
)
Net cash provided by operating activities
 
$
2,912

 
$
849


The change in net cash provided by operating activities primarily resulted from changes in operating assets and liabilities, partially offset by the higher net loss from the 2014 period. The most significant of the changes in operating activities were

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lower payments made in the 2014 period for incentive compensation than were made in the 2013 period. We include an itemization of these changes in our Condensed Consolidated Statements of Cash Flows (Unaudited) in Item 1 of this Form 10-Q.
Investing Activities. Net cash used for property and equipment capital expenditures was $0.8 million and $2.2 million during the three months ended March 31, 2014 and 2013 , respectively. These capital expenditures primarily related to investments we made to upgrade our information technology infrastructure and enhance our Next-Generation Recovery Audit service delivery model.
Capital expenditures are discretionary and we currently expect full year 2014 capital expenditures to approximate the full year 2013 levels. We may alter our capital expenditure plans should we experience changes in our operating results which cause us to adjust our operating plans.
Financing Activities. Net cash provided by financing activities was $0.1 million and $1.6 million for the three months ended March 31, 2014 and 2013 , respectively. The decrease in net cash provided by financing activities in the three months ended March 31, 2014 compared to same period in 2013 is primarily due to the $4.1 million of net proceeds we received from the issuance of common stock in January 2013 with no comparable financing activity in the 2014 period. This issuance related to the exercise of the overallotment option for an additional 685,375 shares by the underwriters of our December 2012 public offering (see Common Stock Offering below). We made mandatory payments of $0.8 million on our term loan in the three -month period ending March 31, 2013 , but had no debt outstanding and no required debt payments in the three-month period ending March 31, 2014 . Proceeds from stock option exercises were $2.2 million and $0.3 million for the three months ended March 31, 2014 and 2013 , respectively. Payments of deferred acquisition consideration of $2.0 million and $1.7 million during the three months ended March 31, 2014 and 2013 , respectively, include earn-out payments we made relating to the acquisition of Business Strategy, Inc. and deferred compensation relating to the acquisition of Etesius Limited.
Secured Credit Facility
On January 19, 2010, we entered into a four -year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facility initially consisted of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust term loan required quarterly principal payments of $0.8 million beginning in March 2010, and a final principal payment of $3.0 million due in January 2014 that we paid in December 2013. The SunTrust 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.
On January 17, 2014, we entered into an amendment of the SunTrust credit facility that increased the committed revolving credit facility from $15.0 million to $25.0 million , lowered the applicable margin to a fixed rate of 1.75% , eliminated the provision limiting availability under the revolving credit facility based on eligible accounts receivable and extended the scheduled maturity of the revolving credit facility to January 16, 2015 (subject to earlier termination as provided therein). As of March 31, 2014 , we had no outstanding borrowings under the SunTrust revolver. With the provision of a fixed applicable margin of 1.75% per the amendment of the SunTrust credit facility, the interest rate that would have applied at March 31, 2014 had any borrowings been outstanding was approximately 1.90% . We also must pay a commitment fee of 0.5%  per annum, payable quarterly, on the unused portion of the $25.0 million SunTrust revolving credit facility.
Prior to the January 2014 amendment to the SunTrust credit facility, amounts available under the SunTrust revolver were based on eligible accounts receivable and other factors. Interest on both the revolver and term loan was payable monthly and accrued at an index rate using the one-month LIBOR rate, plus an applicable margin as determined by the loan agreement. The applicable interest rate margin varied from 2.25%  per annum to 3.5%  per annum, dependent on our consolidated leverage ratio, and was determined in accordance with a pricing grid under the SunTrust loan agreement.
The SunTrust credit facility requires, as of the end of each fiscal quarter, the Company to have achieved Consolidated Adjusted EBITDA (as defined in the agreement) of at least $22.5 million for the immediately preceding four quarters. As of March 31, 2014, the Company's Consolidated Adjusted EBITDA for the preceding four quarters was $22.2 million, and therefore the Company was not in compliance with the covenant, although there were no amounts outstanding under the credit facility as of that date. On May 8, 2014, the Company entered into an amendment of the SunTrust credit facility that provided a waiver of the non-compliance with the minimum Consolidated Adjusted EBITDA covenant for the quarter ended March 31, 2014 and reduced the minimum Consolidated Adjusted EBITDA requirement to $18.0 million. The amendment also authorized a $10.0 million increase to the Company's stock repurchase program, bringing the total amount of its common stock that the Company may repurchase under the program to $20.0 million .

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We believe that we will have sufficient borrowing capacity and cash generated from operations to fund our capital and operational needs for at least the next twelve months.
Common Stock Offering
On December 11, 2012, we closed our public offering of 6,249,234 shares of our common stock, which consisted of 2,500,000 shares sold by us and 3,749,234 shares sold by certain selling shareholders, at a price to the public of $6.39 per share. The net proceeds to us from the public offering, after deducting underwriting discounts and commissions and offering expenses, were $14.7 million . We did not receive any proceeds from the sale of shares by the selling shareholders. In addition, the underwriters elected to exercise an overallotment option for an additional 687,385 shares, and we completed the sale of these additional shares on January 8, 2013. The net proceeds to us from the exercise of the overallotment option, after deducting underwriting discounts and commission and offering expenses, were $4.1 million .
Stock Repurchase Program
On February 21, 2014, our Board of Directors authorized a stock repurchase program under which we may repurchase up to $10.0 million of our common stock from time to time through March 31, 2015. On March 25, 2014, our Board of Directors authorized a $10.0 million increase to the stock repurchase program, bringing the total amount of its common stock that the Company may repurchase under the program to $20.0 million. The timing and amount of repurchases, if any, will depend upon the Company’s stock price, economic and market conditions, regulatory requirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time.
For the three months ended March 31, 2014, we repurchased 6,700 shares under this plan for less than $0.1 million. These shares were retired and accounted for as a reduction to Shareholders' equity in the Condensed Consolidated Balance Sheet (Unaudited). Direct costs incurred to acquire the shares are included in the total cost of the shares.
Off-Balance Sheet Arrangements
As of March 31, 2014 , the Company did not have any material off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of the SEC’s Regulation S-K.
Critical Accounting Policies
We describe the Company’s significant accounting policies in Note 1 of Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 . We consider certain of these accounting policies to be “critical” to the portrayal of the Company’s financial position and results of operations, as they require the application of significant judgment by management. As a result, they are subject to an inherent degree of uncertainty. We identify and discuss these “critical” accounting policies in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 . Management bases its estimates and judgments on historical experience and on various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, management evaluates its estimates and judgments, including those considered “critical”. Management has discussed the development, selection and evaluation of accounting estimates, including those deemed “critical,” and the associated disclosures in this Form 10-Q with the Audit Committee of the Board of Directors.

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Forward-Looking Statements
Some of the information in this Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which statements involve substantial risks and uncertainties including, without limitation, statements regarding: (1) future results of operations or of the Company’s financial condition, (2) the adequacy of the Company’s current working capital and other available sources of funds, (3) the Company's goals and plans for the future, including its strategic initiatives and growth opportunities, (4) expectations regarding future revenue trends, and (5) the expected impact of the Company’s decision to withdraw from the Medicare RAC program rebid process. All statements that cannot be assessed until the occurrence of a future event or events should be considered forward-looking. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue” or similar words. Risks and uncertainties that may potentially impact these forward-looking statements include, without limitation, those set forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and its other periodic reports filed with the Securities and Exchange Commission. The Company disclaims any obligation or duty to update or modify these forward-looking statements.
There may be events in the future, however, that the Company cannot accurately predict or over which the Company has no control. The risks and uncertainties listed in this section, as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of any of the events denoted above as risks and uncertainties and elsewhere in this Form 10-Q could have a material adverse effect on our business, financial condition and results of operations.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Market Risk. Our reporting currency is the U.S. dollar, although we transact business in various foreign locations and currencies. As a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we provide our services. Our operating results are exposed to changes in exchange rates between the U.S. dollar and the currencies of the other countries in which we operate. When the U.S. dollar strengthens against other currencies, the value of foreign functional currency revenue decreases. When the U.S. dollar weakens, the value of the foreign functional currency revenue increases. Overall, we are a net receiver of currencies other than the U.S. dollar and, as such, benefit from a weaker dollar. We therefore are adversely affected by a stronger dollar relative to major currencies worldwide. During the three months ended March 31, 2014 , we recognized $0.3 million of operating income from operations located outside the U.S., virtually all of which was originally accounted for in currencies other than the U.S. dollar. Upon translation into U.S. dollars, such operating income would increase or decrease, assuming a hypothetical 10% change in weighted-average foreign currency exchange rates against the U.S. dollar, by less than $0.1 million for the three months ended March 31, 2014 . We currently do not have any arrangements in place to hedge our foreign currency risk.
Interest Rate Risk . Our interest income and expense are sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on our cash equivalents as well as interest paid on amounts outstanding under our revolving credit facility, if any. We had $25.0 million of borrowing availability under our revolving credit facility as of March 31, 2014 , but had no amounts drawn under the revolving credit facility as of that date. Interest on our revolving credit facility is payable monthly and accrues at an index rate using the one-month LIBOR rate plus an applicable margin of 1.75%. Assuming full utilization of the revolving credit facility, a hypothetical 100 basis point change in interest rates applicable to the revolver would result in an approximate $0.3 million change in annual pre-tax income.

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Item 4. Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2014 .
There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1. 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.
Item 1A. Risk Factors
There have been no material changes in the risks facing the Company as described in the Company’s Form 10-K for the year ended December 31, 2013 .
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company’s current credit facility prohibits the payment of any cash dividends on the Company’s capital stock.
The following table sets forth information regarding the purchases of the Company’s equity securities made by or on behalf of the Company or any affiliated purchaser (as defined in Exchange Act Rule 10b-18) during the three-month period ended March 31, 2014 :
 
2014
 
Total Number
of Shares
Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (a)
 
Maximum Approximate
Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
 
 
 
 
 
 
 
 
(millions of dollars)
January 1 - January 31
 
—

 
$
—

 
—

 
$
—

February 1 - February 28
 
—

 
$
—

 
—

 
$
—

March 1 - March 31
 
6,700

 
$
5.94

 
6,700

 
$
20.0

 
 
6,700

 
$
5.94

 
6,700

 
 
 

(a)
On February 21, 2014, our Board of Directors authorized a stock repurchase program under which we may repurchase up to $10.0 million of our common stock from time to time through March 31, 2015. On March 25, 2014, our Board of Directors authorized a $10.0 million increase to the stock repurchase program, bringing the total amount of its common stock that the Company may repurchase under the program to $20.0 million. The timing and amount of repurchases, if any, will depend upon the Company’s stock price, economic and market conditions, regulatory requirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time. Through May 9, 2014, the Company repurchased a total of 202,700 shares under this program through open-market transactions for an aggregate purchase price of $1.3 million.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On May 8, 2014, the Company entered into an amendment of the SunTrust credit facility that provided a waiver of the non-compliance with the minimum Consolidated Adjusted EBITDA covenant for the quarter ended March 31, 2014, reduced the minimum Consolidated Adjusted EBITDA requirement to $18.0 million , and increased the total amount of common stock that the Company may repurchase under the stock repurchase program by $10.0 million to $20.0 million .

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Item 6. Exhibits

Exhibit
Number
  
Description
3.1

  
Restated Articles of Incorporation of the Registrant, as amended and corrected through August 11, 2006 (restated solely for the purpose of filing with the Commission) (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on August 17, 2006).
 
 
3.1.1

  
Articles of Amendment of the Registrant effective January 20, 2010 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on January 25, 2010).
 
 
3.2

  
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on December 11, 2007).
 
 
4.1

  
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 10-K for the year ended December 31, 2001).
 
 
4.2

  
See Restated Articles of Incorporation and Bylaws of the Registrant, filed as Exhibits 3.1 and 3.2, respectively.
 
 
 
10.1

 
Fifth Loan Documents Modification Agreement and Waiver, entered into as of May 8, 2014, by and among the Borrowers, the Guarantors and the Lender.
 
 
 
10.2

 
Employment Agreement dated April 24, 2014, by and between Michael Cochrane and the Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on April 29, 2014).
 
 
 
31.1

  
Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended March 31, 2014.
 
 
31.2

  
Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended March 31, 2014.
 
 
32.1

  
Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended March 31, 2014.
 
 
 
101

 
The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, formatted in Extensible Business Reporting Language (“XBRL”): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Loss, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
PRGX GLOBAL, INC.
 
 
 
May 12, 2014
By:
 
/s/ Ronald E. Stewart
 
 
 
Ronald E. Stewart
 
 
 
President, Chief Executive Officer, Director
(Principal Executive Officer)
 
 
 
May 12, 2014
By:
 
/s/ Robert B. Lee
 
 
 
Robert B. Lee
 
 
 
Chief Financial Officer and Treasurer
(Principal Financial Officer)

26


EXHIBIT 10.1


FIFTH LOAN DOCUMENTS MODIFICATION AGREEMENT AND WAIVER
THIS FIFTH LOAN DOCUMENTS MODIFICATION AGREEMENT AND WAIVER (this “ Amendment and Waiver ”) is made and entered into as of the 8 th day of May, 2014, by and among PRGX GLOBAL, INC., a Georgia corporation formerly known as PRG-Schultz International, Inc. (“ PRGX ”), PRGX USA, INC., a Georgia corporation formerly known as PRG-Schultz USA, Inc. (“ PRG-USA ”) (PRGX and PRG-USA are each individually, a “ Borrower ”, and collectively, the “ Borrowers ”), each of the Subsidiaries of PRGX listed on Schedule A hereto (each such Subsidiary individually, a “ Guarantor ” and collectively, the “ Guarantors ”), and SUNTRUST BANK, as Administrative Agent, the sole Lender and Issuing Bank.
BACKGROUND STATEMENT
WHEREAS, Borrowers have entered into that certain Revolving Credit and Term Loan Agreement, dated as of January 19, 2010 (as may have been and may be subsequently amended, restated, supplemented or otherwise modified from time-to-time, the “ Credit Agreement ”; all capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement), with the Administrative Agent, the issuing bank thereunder and the lenders from time to time party thereto (the “ Lenders ”); and
WHEREAS, Guarantors and Administrative Agent have entered into that certain Subsidiary Guaranty Agreement, dated as of January 19, 2010 (as may have been and may be subsequently amended, restated, supplemented or otherwise modified from time-to-time, the “ Subsidiary Guaranty Agreement ”); and
WHEREAS, Borrowers and Guarantors have entered into various other instruments, agreements, documents and writings in connection with the Credit Agreement and the Subsidiary Guaranty Agreement (as may have been and may be subsequently amended, restated, supplemented or otherwise modified from time-to-time, collectively, the “ Loan Documents ”); and
WHEREAS, pursuant to Section 6.3 of the Credit Agreement, Borrowers are required to maintain, as of the last day of each Fiscal Quarter, Consolidated Adjusted EBITDA for the four Fiscal Quarters then ended of not less than $22,500,000; and
WHEREAS, Borrowers have failed to maintain the required Consolidated Adjusted EBITDA for the four Fiscal Quarters ending March 31, 2014, in accordance with Section 6.3, resulting in an Event of Default under the Credit Agreement (the “ Minimum Consolidated Adjusted EBITDA Covenant Default ”, and together with any other Default or Event of Default that exists solely as a result of the Minimum Consolidated Adjusted EBITDA Covenant Default, collectively, the “ Specified Defaults ”); and
WHEREAS, Administrative Agent, the Issuing Bank and the Lenders, as a result of the Specified Defaults, are legally entitled to, among other things, (i) pursue and enforce the remedies more specifically set forth in the Loan Documents with respect to the collateral securing the Loans more specifically described in the Credit Agreement and the other Loan Documents (the “ Collateral ”), (ii) pursue and enforce the remedies more specifically set forth in the Subsidiary Guaranty Agreement and (iii) pursue and enforce any and all of its remedies against Borrowers and Guarantors as are otherwise more specifically set forth in the Credit Agreement and the other Loan Documents, or as is otherwise permitted under applicable law or equity (collectively, the “ Remedies ”); and
WHEREAS, Administrative Agent, the Issuing Bank and the Lenders have agreed to (i) provide a one-time waiver of the Specified Defaults and (ii) modify certain provisions of the Credit Agreement, as



more specifically set forth herein , provided , however , that Borrowers and Guarantors fully comply with the provisions of this Amendment and Waiver; and
WHEREAS, Guarantors are willing to reaffirm the covenants, representations and warranties set forth in the Subsidiary Guaranty Agreement.
NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, Borrowers, Guarantors, Administrative Agent, the sole Lender and Issuing Bank agree as follows:
1. Acknowledgement by Borrowers and Guarantors of Specified Defaults . Borrowers and Guarantors hereby acknowledge the existence of the Specified Defaults, and the right of Administrative Agent, the Issuing Bank and the Lenders to pursue and enforce the Remedies.
2. Waiver . Upon Borrowers’ and Guarantors’ completion of the Conditions Precedent set forth in Paragraph 3 below, the Specified Defaults shall be deemed waived by Administrative Agent, the Issuing Bank and the Lenders.
3. Conditions Precedent . Notwithstanding any other provision of this Amendment and Waiver, and without affecting in any manner the rights of Administrative Agent, the sole Lender or the Issuing Bank hereunder, it is understood and agreed that this Amendment and Waiver shall not become effective, and the Loan Parties shall have no rights under this Amendment and Waiver, until: (i) Administrative Agent shall have received payment of an amendment and waiver fee in the amount of $7,500.00, (ii) Arnall Golden Gregory LLP, counsel to Administrative Agent, shall have received payment of its reasonable fees, charges and disbursements incurred in connection with this Amendment and Waiver in the amount of $3,750.00, and (iii) fully executed counterparts to this Amendment and Waiver from the Loan Parties.
4. Modification of Credit Agreement and Loan Documents . The Credit Agreement is hereby amended, effective as of the date hereof, as follows:
(i)
By deleting Section 6.3 in its entirety and replacing it with the following:
“The Borrowers will maintain, as of the last day of each Fiscal Quarter, commencing with the Fiscal Quarter ending June 30, 2014, Consolidated Adjusted EBITDA for the four Fiscal Quarters then ended of not less than $18,000,000.”
(ii)
By deleting Section 5.1(l) in its entirety and replacing it with the following:
“(l)      not later than the fifteenth (15 th ) day after the end of any month (ending after the Closing Date) in which PRGX made any stock redemptions, purchases and repurchases of its common stock, as permitted under Section 7.4(h) and Section 7.5(iii), a report (the “ Stock Repurchase Report ”), duly completed and certified by a Responsible Officer of the Borrowers’ Agent, detailing such stock redemptions, purchases and repurchases for such month just ended;”
(iii)
By deleting Section 7.4(h) in its entirety and replacing it with the following:
“(h)      To the extent permitted by Section 7.5(iii) , PRGX’s redemption, purchase or repurchase of its common stock pursuant to open-market purchases, privately negotiated transactions or otherwise, provided, however, that such redemptions,

2

6350634v4

purchases and repurchases do not exceed $20,000,000 in the aggregate in any Fiscal Year;”
(iv) By deleting clause (iii) of Section 7.5 in its entirety (up to but not including the immediately succeeding proviso) and replacing it with the following:
“(iii) the redemption, purchase or repurchase of PRGX’s common stock by PRGX pursuant to any open-market purchases, privately negotiated transactions or otherwise;”
Without limiting the generality of clause (i) of the sixth sentence of Section 1.4 of the Credit Agreement (or any corresponding provision of any other Loan Document), the terms of the Loan Documents are hereby amended, effective as of the date hereof, so that all references therein to the Credit Agreement shall refer to Credit Agreement as amended herein.
5. Ratification and Reaffirmation . Except as herein expressly modified or amended, all the terms and conditions of the Credit Agreement and the other Loan Documents are hereby ratified, affirmed, and approved. As of the date hereof, Borrowers hereby reaffirm and restate each and every warranty and representation set forth in any Loan Document, in each case except to the extent such warranty or representation expressly relates to an earlier date.
6. Reaffirmation of Guaranty . Guarantors hereby ratify, confirm, reaffirm and covenant that the Subsidiary Guaranty Agreement which they have executed is validly existing and binding against each of them under the terms of such Subsidiary Guaranty Agreement. Guarantors hereby reaffirm and restate, as of the date hereof, all covenants, representations and warranties set forth in the Subsidiary Guaranty Agreement, and specifically reaffirm that each of their obligations under the Subsidiary Guaranty Agreement extend and apply for all purposes to the Credit Agreement as amended hereby.
7. No Novation . The parties hereto hereby acknowledge and agree that this Amendment and Waiver shall not constitute a novation of the indebtedness evidenced by any of the Loan Documents, and further that the terms and provisions of the Loan Documents shall remain valid and in full force and effect except as be herein modified and amended.
8. For purposes of this Paragraph 8, the term “ Borrower Parties ” shall mean Borrowers and Guarantors collectively and the term “ Lender Parties ” shall mean Administrative Agent, Lenders and Issuing Bank, and shall include each of their respective predecessors, successors and assigns, and each past and present, direct and indirect, parent, subsidiary and affiliated entity of each of the foregoing, and each past and present employee, agent, attorney‑in‑fact, attorney‑at‑law, representative, officer, director, shareholder, partner and joint venturer of each of the foregoing, and each heir, executor, administrator, successor and assign of each of the foregoing; references in this paragraph to “any” of such parties shall be deemed to mean “any one or more” of such parties; and references in this sentence to “each of the foregoing” shall mean and refer cumulatively to each party referred to in this sentence up to the point of such reference. Each Borrower and each Guarantor hereby acknowledges, represents and agrees: that, as of the date hereof, Borrowers and Guarantors have no defenses, setoffs, claims, counterclaims or causes of action of any kind or nature whatsoever with respect to the Credit Agreement, the Subsidiary Guaranty Agreement, the other Loan Documents or the Obligations, or with respect to any other documents or instruments now or heretofore evidencing, securing or in any way relating to the Obligations (all of said defenses, setoffs, claims, counterclaims or causes of action being hereinafter referred to as “ Loan Related Claims ”); that, to the extent that Borrowers or Guarantors may be deemed to have any Loan Related Claims as of the date hereof, Borrowers and Guarantors do hereby expressly waive, release and relinquish any and all such Loan Related Claims, whether or not known to or suspected by Borrowers and

3

6350634v4

Guarantors; that Borrowers and Guarantors shall not institute or cause to be instituted any legal action or proceeding of any kind based upon any Loan Related Claims; and that Borrowers and Guarantors shall indemnify, hold harmless and defend all Lender Parties from and against any and all Loan Related Claims and any and all losses, damages, liabilities and related reasonable expenses (including reasonable fees, charges and disbursements of any counsel for any Lender Parties) suffered or incurred by any Lender Parties as a result of any assertion or allegation by any Borrower Parties of any Loan Related Claims or as a result of any legal action related thereto, provided that such indemnity shall not , as to any Lender Parties, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from (i) the gross negligence or willful misconduct of such Lender Parties or (ii) a claim brought by any Borrower or Guarantor against any Lender Parties for breach in bad faith of such Lender Parties’ obligations under any Loan Document. Notwithstanding the foregoing provisions of this Paragraph 8, Borrowers and Guarantors make no such releases, representations, warranties, standstills or agreements with respect to any future Loan Related Claims.
9. Authority . Each Borrower and Guarantor hereby represents and warrants that the execution, delivery and performance of this Amendment and Waiver by it has been duly authorized by all necessary actions of each Borrower and Guarantor, and do not and will not violate any provision of law, or any writ, order or decree of any court or governmental authority or agency or any provision of the organizational documents of any Borrower or Guarantor, and do not and will not, with the passage of time or the giving of notice, result in a breach of, or constitute a default or require any consent under, or result in the creation of any Lien upon any property or assets of any Borrower or Guarantor pursuant to, any law, regulation, instrument or agreement to which any Borrower or Guarantor is a party or by which any Borrower or any Guarantor or any of their respective properties may be subject, bound or affected.
10. No Waiver or Implication . Borrowers and Guarantors hereby agree that, except as expressly set forth herein, nothing herein shall constitute a waiver by Administrative Agent or any Lender of any default, whether known or unknown, which may now exist under the Credit Agreement or any other Loan Document. Borrowers and Guarantors hereby further agree that no action, inaction or agreement by Administrative Agent or any Lender, including, without limitation, any extension, indulgence, waiver, consent or agreement of modification which may have occurred or have been granted or entered into (or which is now occurring or is being granted or entered into hereunder or otherwise) with respect to nonpayment of the Loans or any portion thereof, or with respect to matters involving security for the Loans, or with respect to any other matter relating to the Loans, shall require or imply any future extension, indulgence, waiver, consent or agreement by Administrative Agent or any Lender. Borrowers and Guarantors hereby acknowledge and agree that Administrative Agent and Lenders have made no agreement, and are in no way obligated, to grant any future extension, indulgence, waiver or consent with respect to the Loans or any matter relating to the Loans.
11. No Release of Collateral . Borrowers and Guarantors further acknowledge and agree that this Amendment and Waiver shall in no way occasion a release of any collateral held by Administrative Agent as security to or for the Loans, and that all collateral held by Administrative Agent as security to or for the Loans shall continue to secure the Loans.
12. Strict Compliance . Except as expressly modified hereby, Borrowers and Guarantors are hereby notified that Administrative Agent, the Issuing Bank and the Lenders demand that Borrowers and Guarantors strictly comply with the terms of this Amendment and Waiver, the Credit Agreement and the other Loan Documents, in each case, as amended hereby. This notice evidences the intent of Administrative Agent, the Issuing Bank and the Lenders to rely on the exact terms of this Amendment and Waiver and the Credit Agreement and the other Loan Documents, in each case, as amended hereby.

4

6350634v4

13. Counterparts . This Amendment and Waiver may be executed in one or more counterparts, each of which shall be deemed an original hereof and submissible into evidence and all of which together shall constitute one instrument.
14. Heading s. The headings of the paragraphs and other provisions hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Amendment and Waiver.
15. Successors and Assigns . This Amendment and Waiver shall be binding upon and inure to the benefit of Borrowers, Guarantors, Administrative Agent, Lenders, Issuing Bank and their respective heirs, successors and assigns, whether voluntary by act of the parties or involuntary by operation of law.
(Signatures on following page)


5

6350634v4

IN WITNESS WHEREOF, this Amendment and Waiver has been duly executed by the parties hereto as of the day and year first above written.
PRGX GLOBAL, INC., a Georgia corporation, formerly known as PRG-Schultz International, Inc.

By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 


[CORPORATE SEAL]


PRGX USA, INC., a Georgia corporation, formerly known as PRG-Schultz USA, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 


[CORPORATE SEAL]


PRGDS, LLC, a Georgia limited liability company

By:
/s/ Robert B. Lee
(SEAL)
Name:
Robert B. Lee
 
Title:
CFO
 


PRGFS, INC., a Delaware corporation

By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]

(Signatures continue on following page)



Fifth Loan Documents Modification Agreement and Waiver
6350634

PRG INTERNATIONAL, INC., a Georgia corporation



By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]



PRGTS, LLC, a Georgia limited liability company



By:
/s/ Robert B. Lee
(SEAL)
Name:
Robert B. Lee
 
Title:
CFO
 



PRGX ASIA, INC., a Georgia corporation, formerly known as The Profit Recovery Group Asia, Inc.



By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]



PRGX AUSTRALIA, Inc., a Georgia corporation, formerly known as PRG-Schultz Australia, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]

(Signatures continue on following page)



Fifth Loan Documents Modification Agreement and Waiver
6350634

PRGX BELGIUM, INC., a Georgia corporation, formerly known as PRG-Schultz Belgium, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]



PRGX BRASIL, LLC, a Georgia limited liability company, formerly known as PRG-Schultz Brasil, LLC



By:
/s/ Robert B. Lee
(SEAL)
Name:
Robert B. Lee
 
Title:
CFO
 



PRGX CANADA, LLC, a Georgia limited liability company, formerly known as PRG-Schultz Canada, LLC



By:
/s/ Robert B. Lee
(SEAL)
Name:
Robert B. Lee
 
Title:
CFO
 


PRGX EUROPE, INC., a Georgia corporation, formerly known as PRG-Schultz Europe, Inc.



By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]

(Signatures continue on following page)



Fifth Loan Documents Modification Agreement and Waiver
6350634

PRGX FRANCE, INC., a Georgia corporation, formerly known as PRG-Schultz France, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]



PRGX GERMANY, INC., a Georgia corporation, formerly known as The Profit Recovery Group Germany, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]



PRGX MEXICO, INC., a Georgia corporation, formerly known as The Profit Recovery Group Mexico, Inc.



By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]

(Signatures continue on following page)



Fifth Loan Documents Modification Agreement and Waiver
6350634

PRGX NETHERLANDS, INC., a Georgia corporation, formerly known as The Profit Recovery Group Netherlands, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]



PRGX NEW ZEALAND, INC., a Georgia corporation, formerly known as The Profit Recovery Group New Zealand, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]



PRGX PORTUGAL, INC., a Georgia corporation, formerly known as PRG-Schultz Portugal, Inc.



By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]

(Signatures continue on following page)



Fifth Loan Documents Modification Agreement and Waiver
6350634

PRGX SCANDINAVIA, INC., a Georgia corporation, formerly known as PRG-Schultz Scandinavia, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]


PRGX SPAIN, INC., a Georgia corporation, formerly known as The Profit Recovery Group Spain, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]


PRGX SWITZERLAND, INC., a Georgia corporation, formerly known as PRG-Schultz Switzerland, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]


PRGX TEXAS, INC., a Texas corporation, formerly known as HS&A Acquisition - UK, Inc.


By:
/s/ Robert B. Lee
 
Name:
Robert B. Lee
 
Title:
CFO
 

[CORPORATE SEAL]

(Signatures continue on following page)




Fifth Loan Documents Modification Agreement and Waiver
6350634

PRGX COMMERCIAL LLC, a Georgia limited liability company



By:
/s/ Robert B. Lee
(SEAL)
Name:
Robert B. Lee
 
Title:
CFO
 



(Signatures continue on following page)




Fifth Loan Documents Modification Agreement and Waiver
6350634

SUNTRUST BANK, as Administrative Agent, the sole Lender and Issuing Bank


By:
/s/ David West
 
Name:
David West
 
Title:
Vice President
 

(End of signatures)






Fifth Loan Documents Modification Agreement and Waiver
6350634

SCHEDULE A
TO FIFTH LOAN DOCUMENTS MODIFICATION AGREEMENT AND DEFAULT WAIVER

SUBSIDIARIES

1.
PRGDS, LLC, a Georgia limited liability company
2.
PRGFS, Inc., a Delaware corporation
3.
PRG International, Inc., a Georgia corporation
4.
PRGTS, LLC, a Georgia limited liability company
5.
PRGX Asia, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Asia, Inc.
6.
PRGX Australia, Inc., a Georgia corporation, formerly known as PRG-Schultz Australia, Inc.
7.
PRGX Belgium, Inc., a Georgia corporation, formerly known as PRG-Schultz Belgium, Inc.
8.
PRGX Brasil, LLC, a Georgia limited liability company, formerly known as PRG-Schultz Brasil, LLC
9.
PRGX Canada, LLC, a Georgia limited liability company, formerly known as PRG-Schultz Canada, LLC
10.
PRGX Europe, Inc., a Georgia corporation, formerly known as PRG-Schultz Europe, Inc.
11.
PRGX France, Inc., a Georgia corporation, formerly known as PRG-Schultz France, Inc.
12.
PRGX Germany, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Germany, Inc.
13.
PRGX Mexico, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Mexico, Inc.
14.
PRGX Netherlands, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Netherlands, Inc.
15.
PRGX New Zealand, Inc., a Georgia corporation, formerly known as The Profit Recovery Group New Zealand, Inc.
16.
PRGX Portugal, Inc., a Georgia corporation, formerly known as PRG-Schultz Portugal, Inc.
17.
PRGX Scandinavia, Inc., a Georgia corporation, formerly known as PRG-Schultz Scandinavia, Inc.
18.
PRGX Spain, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Spain, Inc.
19.
PRGX Switzerland, Inc., a Georgia corporation, formerly known as PRG-Schultz Switzerland, Inc.
20.
PRGX Texas, Inc., a Texas corporation, formerly known as HS&A Acquisition - UK, Inc.
21.
PRGX Commercial, LLC, a Georgia limited liability company




6350634v4


EXHIBIT 31.1
CERTIFICATION
I, Ronald E. Stewart, certify that:
1. I have reviewed this Form 10-Q of PRGX Global, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
 
 
 
 
May 12, 2014
 
 
 
By:
 
/s/ Ronald E. Stewart
 
 
 
 
 
 
Ronald E. Stewart
 
 
 
 
 
 
President, Chief Executive Officer, Director
(Principal Executive Officer)




EXHIBIT 31.2
CERTIFICATION
I, Robert B. Lee, certify that:
1. I have reviewed this Form 10-Q of PRGX Global, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
 
 
 
 
May 12, 2014
 
 
 
By:
 
/s/ Robert B. Lee
 
 
 
 
 
 
Robert B. Lee
 
 
 
 
 
 
Chief Financial Officer and Treasurer
(Principal Financial Officer)




EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PRGX Global, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald E. Stewart, President and Chief Executive Officer of the Company and I, Robert B. Lee, Chief Financial Officer and Treasurer, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of the undersigned’s knowledge: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
 
 
 
May 12, 2014
 
 
 
By:
 
/s/ Ronald E. Stewart
 
 
 
 
 
 
Ronald E. Stewart
 
 
 
 
 
 
President, Chief Executive Officer, Director
(Principal Executive Officer)
 
 
 
 
May 12, 2014
 
 
 
By:
 
/s/ Robert B. Lee
 
 
 
 
 
 
Robert B. Lee
 
 
 
 
 
 
Chief Financial Officer and Treasurer
(Principal Financial Officer)