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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 0-28000
 PRGX Global, Inc.
(Exact name of registrant as specified in its charter) 
Georgia   58-2213805
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
600 Galleria Parkway   30339-5986
Suite 100   (Zip Code)
Atlanta, Georgia
 
(Address of principal executive offices)  
Registrants telephone number, including area code: (770) 779-3900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  
¨  Large accelerated filer
Accelerated filer
¨  Non-accelerated filer     
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  




Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, no par value PRGX Nasdaq Global Select Market
Common shares of the registrant outstanding at July 31, 2020 were 23,612,686.



PRGX GLOBAL, INC.
FORM 10-Q
For the Quarter Ended June 30, 2020
INDEX
 
  Page No.
Part I. Financial Information
1
1
2
3
4
6
7
Part II. Other Information



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
  Three Months
Ended June 30,
Six Months
Ended June 30,
  2020 2019 2020 2019
Revenue, net $ 39,011    $ 41,974    $ 75,850    $ 80,778   
Operating expenses:
Cost of revenue 20,584    26,312    43,118    51,547   
Selling, general and administrative expenses 14,726    15,748    28,190    29,665   
Depreciation of property, equipment and software assets 1,965    2,381    4,106    4,584   
Amortization of intangible assets 828    872    1,657    1,734   
Total operating expenses 38,103    45,313    77,071    87,530   
Operating income (loss) from continuing operations 908    (3,339)   (1,221)   (6,752)  
Foreign currency transaction (gains) losses on short-term intercompany balances (819)   (77)   637    129   
Interest expense, net 303    592    645    1,065   
Other loss (income)   11      (8)  
       Income (loss) from continuing operations before income tax 1,422    (3,865)   (2,505)   (7,938)  
Income tax expense 1,004    311    960    479   
Net income (loss) from continuing operations $ 418    $ (4,176)   $ (3,465)   $ (8,417)  
Discontinued operations:
Loss from discontinued operations $ —    $ (103)   $ —    $ (258)  
Net loss from discontinued operations $ —    $ (103)   $ —    $ (258)  
Net income (loss) $ 418    $ (4,279)   $ (3,465)   $ (8,675)  
Basic income (loss) per common share (Note 2):
Basic income (loss) from continuing operations $ 0.02    $ (0.18)   $ (0.15)   $ (0.37)  
Basic loss from discontinued operations —    —    —    (0.01)  
Total basic income (loss) per common share $ 0.02    $ (0.18)   $ (0.15)   $ (0.38)  
Diluted income (loss) per common share (Note 2):
Diluted income (loss) from continuing operations $ 0.02    $ (0.18)   $ (0.15)   $ (0.37)  
Diluted loss from discontinued operations —    —    —    (0.01)  
Total diluted income (loss) per common share $ 0.02    $ (0.18)   $ (0.15)   $ (0.38)  
Weighted-average common shares outstanding (Note 2):
Basic 22,606    22,763    22,542    22,687   
Diluted 22,716    22,763    22,542    22,687   
See accompanying Notes to Condensed Consolidated Financial Statements.
1


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
  Three Months
Ended June 30,
Six Months
Ended June 30,
  2020 2019 2020 2019
Net income (loss) $ 418    $ (4,279)   $ (3,465)   $ (8,675)  
Foreign currency translation adjustments, net of tax 748    (269)   (1,200)   244   
Comprehensive income (loss) $ 1,166    $ (4,548)   $ (4,665)   $ (8,431)  

See accompanying Notes to Condensed Consolidated Financial Statements.
2


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
June 30, December 31,
2020 2019
ASSETS
Current assets:
Cash and cash equivalents $ 21,061    $ 14,982   
Restricted cash 123    46   
Receivables:
Contract receivables, less allowances of $1,379 in 2020 and $1,781 in 2019
Billed 32,748    38,201   
Unbilled 3,312    4,911   
36,060    43,112   
Employee advances and miscellaneous receivables, net 740    704   
Total receivables 36,800    43,816   
Prepaid expenses and other current assets 4,062    5,582   
Total current assets 62,046    64,426   
Property, equipment and software 66,950    63,557   
Less accumulated depreciation and amortization (47,813)   (45,811)  
Property, equipment and software, net 19,137    17,746   
Operating lease right-of-use assets (Note 9) 11,044    10,969   
Goodwill 14,962    15,070   
Intangible assets, less accumulated amortization of $48,206 in 2020 and $47,097 in 2019
9,714    11,506   
Unbilled receivables 865    1,282   
Deferred income taxes 3,636    3,921   
Other assets 531    546   
Total assets $ 121,935    $ 125,466   
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,094    $ 4,326   
Accrued payroll and related expenses 14,070    12,951   
Current portion of operating lease liabilities (Note 9) 4,077    3,717   
Refund liabilities 4,152    4,513   
Deferred revenue 1,970    2,217   
Current portion of debt (Note 5) —    17   
Total current liabilities 26,363    27,741   
Long-term debt (Note 5) 36,650    36,603   
Long-term operating lease liabilities (Note 9) 7,368    7,435   
Refund liabilities 21     
Deferred income taxes (Note 8) 628    628   
Total liabilities 71,030    72,416   
Commitments and contingencies (Note 7)
Shareholders’ equity (Note 2):
Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares; 23,612,686 shares issued and outstanding at June 30, 2020 and 23,369,433 shares issued and outstanding at December 31, 2019
236    234   
Additional paid-in capital 584,922    582,404   
Accumulated deficit (532,641)   (529,176)  
Accumulated other comprehensive loss (1,612)   (412)  
Total shareholders’ equity 50,905    53,050   
Total liabilities and shareholders' equity $ 121,935    $ 125,466   
See accompanying Notes to Condensed Consolidated Financial Statements.
3


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except share data)
Common Stock
Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Shareholders' Equity
Balance at March 31, 2020 23,595,079    $ 236    $ 583,161    $ (533,059)   $ (2,360)   $ 47,978   
Net income —    —    —    418    —    418   
Foreign currency translation adjustments —    —    —    —    748    748   
Issuances of common stock:
Restricted share awards 30,769    —    —    —    —    —   
Restricted shares remitted by employees for taxes (27,977)   —    (115)   —    —    (115)  
Restricted stock unit settlement 17,519    —    —    —    —    —   
Forfeited restricted share awards (2,704)   —    —    —    —    —   
Stock-based compensation expense —    —    1,876    —    —    1,876   
Balance at June 30, 2020 23,612,686    $ 236    $ 584,922    $ (532,641)   $ (1,612)   $ 50,905   
Balance at March 31, 2019 23,438,058    $ 234    $ 581,356    $ (519,852)   $ (508)   $ 61,230   
Net loss —    —    —    (4,279)   —    (4,279)  
Foreign currency translation adjustments —    —    —    —    (269)   (269)  
Issuances of common stock:
Restricted share awards 183,403      (2)   —    —    —   
Restricted shares remitted by employees for taxes (38,304)   —    (246)   —    —    (246)  
Stock option exercises 35,319    —    170    —    —    170   
Restricted stock unit settlement 17,517    —    —    —    —    —   
Forfeited restricted share awards (24,590)   —    —    —    —    —   
Stock-based compensation expense —    —    1,704    —    —    1,704   
Balance at June 30, 2019 23,611,403    $ 236    $ 582,982    $ (524,131)   $ (777)   $ 58,310   

See accompanying Notes to Condensed Consolidated Financial Statements.






4


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except share data)

Common Stock
Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Shareholders' Equity
Balance at December 31, 2019 23,369,433    $ 234    $ 582,404    $ (529,176)   $ (412)   $ 53,050   
Net loss —    —    —    (3,465)   —    (3,465)  
Foreign currency translation adjustments —    —    —    —    (1,200)   (1,200)  
Issuances of common stock:
Restricted share awards 429,269      (4)   —    —    —   
Restricted shares remitted by employees for taxes (112,020)   (1)   (397)   —    —    (398)  
Restricted stock unit settlement 61,521    —    —    —    —    —   
Forfeited restricted share awards (31,655)   —    —    —    —    —   
Repurchase of common stock (103,862)   (1)   (283)   —    —    (284)  
Stock-based compensation expense —    —    3,202    —    —    3,202   
Balance at June 30, 2020 23,612,686    $ 236    $ 584,922    $ (532,641)   $ (1,612)   $ 50,905   
Balance at December 31, 2018 23,186,258    $ 232    $ 582,574    $ (515,456)   $ (1,021)   $ 66,329   
Net loss —    —    —    (8,675)   —    (8,675)  
Foreign currency translation adjustments —    —    —    —    244    244   
Issuances of common stock:
Restricted share awards 516,955      (5)   —    —    —   
Restricted shares remitted by employees for taxes (99,885)   (1)   (749)   —    —    (750)  
Stock option exercises 45,380    —    221    —    —    221   
Performance-based restricted stock unit settlement 203,524      (2)   —    —    —   
Restricted stock unit settlement 27,516    —    —    —    —    —   
Forfeited restricted share awards (24,590)   —    —    —    —    —   
Repurchase of common stock (243,755)   (2)   (2,226)   (2,228)  
Stock-based compensation expense —    —    3,169    —    —    3,169   
Balance at June 30, 2019 23,611,403    $ 236    $ 582,982    $ (524,131)   $ (777)   $ 58,310   

See accompanying Notes to Condensed Consolidated Financial Statements
5


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
  2020 2019
Cash flows from operating activities:
Net loss $ (3,465)   $ (8,675)  
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 5,763    6,318   
Operating lease right-of-use asset expense 2,195    2,248   
Amortization of deferred loan costs 48    117   
Noncash interest expense 643    —   
Stock-based compensation expense 3,196    3,046   
Foreign currency transaction losses on short-term intercompany balances 637    129   
Deferred income taxes 338    —   
Changes in operating assets and liabilities
Billed receivables 4,550    6,593   
Unbilled receivables 2,018    (851)  
Prepaid expenses and other current assets 1,438    (1,296)  
Operating lease liabilities (1,979)   —   
Other assets (53)   (1,567)  
Accounts payable and accrued expenses (3,890)   (2,930)  
Accrued payroll and related expenses 1,326    (4,970)  
Refund liabilities (270)   (314)  
Deferred revenue (224)   (292)  
Net cash provided by (used in) operating activities 12,271    (2,444)  
Cash flows from investing activities:
Purchases of property, equipment and software, net of disposal proceeds (5,620)   (7,640)  
Net cash used in investing activities (5,620)   (7,640)  
Cash flows from financing activities:
Repayments of credit facility (38,000)   (3,000)  
Proceeds from credit facility 38,000    14,400   
Payment of deferred loan costs —    (394)  
Payment of earnout liability related to business acquisitions —    (479)  
Restricted stock repurchased from employees for withholding taxes (398)   (750)  
Repurchases of common stock (284)   (2,228)  
Proceeds from option exercises —    221   
Net cash (used in) provided by financing activities (682)   7,770   
Effect of exchange rates on cash and cash equivalents 187    (55)  
Net increase (decrease) in cash, cash equivalents and restricted cash 6,156    (2,369)  
Cash, cash equivalents and restricted cash at beginning of period 15,028    14,019   
Cash, cash equivalents and restricted cash at end of period $ 21,184    $ 11,650   
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 716    $ 385   
Cash paid during the period for income taxes, net of refunds received $ 804    $ 1,638   

See accompanying Notes to Condensed Consolidated Financial Statements.
6

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


(1) 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 ("GAAP") for interim financial information and with the instructions for the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP 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 and six-month periods ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
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 the related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Significant Accounting Policies
A summary of the Company's significant accounting policies is included in Note 1 of the “Notes to Consolidated Financial Statements” contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The Company did not experience any significant changes during the quarter ended June 30, 2020 in any of the Critical Accounting Policies from those contained in the Company's Form 10-K for the year ended December 31, 2019. 

COVID-19
In December 2019, a novel strain of coronavirus was first identified, and in March 2020, the World Health Organization categorized COVID-19, the disease resulting from this coronavirus strain, as a pandemic. To help control the spread of the virus and protect the health and safety of our employees and customers, many of the Company's teams worldwide have been working remotely since the middle of March.
The Company evaluates the recoverability of goodwill annually in the fourth quarter of each year or sooner if events or changes in circumstances indicate that the carrying amount may exceed its fair value. The impairment test performed in the fourth quarter of 2019 indicated significant excess fair value over carrying value for the Recovery Audit Services reporting units. The Company evaluated whether there were indicators of impairment as of June 30, 2020 as a result of COVID-19 conditions including deterioration in the macro-economic environment and the volatility in our share price. While there were negative macro-economic factors, the positive evidence outweighed the negative evidence of the fair value of our reporting units more likely than not exceeding the carrying amount of those units as of June 30, 2020. Further, since the negative financial impacts on the Company from the COVID-19 pandemic have not been significant to date, COVID-19 considerations do not significantly affect the assumptions underpinning our long-term revenue and cash flow growth rates, operating models and business strategies. Therefore, the Company did not consider the COVID-19 pandemic to require an interim quantitative goodwill impairment analysis. As a result, no impairment charges for goodwill and indefinite-lived intangible assets were recorded during the three and six months ended June 30, 2020.
The Company also evaluated its remaining assets, particularly accounts receivable. The allowance for doubtful accounts is calculated based on historical experience and various other information available. The Company also assessed incremental risks due to the COVID-19 pandemic on our customers' financial viability. The Company did not experience a significant deterioration of its accounts receivable portfolio during the quarter ended June 30, 2020. The Company will continue to monitor the collectability of its accounts receivable balances.
The Company received an immaterial amount of COVID-19-related rent concessions for certain office space leases in the second quarter of 2020. Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, the Company elected to treat COVID-19-related rent concessions as variable rent. While the Company is having ongoing conversations with landlords, it does not expect significant concessions for the remainder of the year.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on evaluation of the CARES Act, the Company is deferring qualified payroll and other tax payments as permitted by the CARES Act.
7

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

The full extent of the future impact of COVID-19 on the Company’s operations is uncertain. Such events, including a prolonged or recurring outbreak, are generally outside of our control and could have a material adverse impact on our business, operating results and financial conditions in future reporting periods.
Impact of Recently Issued Accounting Standards
A summary of the new accounting standards issued by the FASB and included in the Accounting Standards Codification ("ASC") that apply to PRGX is included below:
Adopted by the Company in Fiscal Year 2020
FASB ASU 2018-13 - In August 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies are required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. Certain provisions of the ASU must be applied retrospectively, while others must be applied prospectively. The Company adopted this ASU on January 1, 2020. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.
FASB ASU 2018-15 - In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this ASU prospectively on January 1, 2020. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
FASB ASU 2016-13 - In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those annual periods, and early adoption is permitted. The Company is currently evaluating the effect that the adoption of this standard will have on the Company's condensed consolidated financial statements.
FASB ASU 2019-12 - In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies accounting for income taxes, changes the accounting for certain income tax transactions and makes certain improvements to the codification. These amendments will be effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the new standard to determine the impact it will have on the Company’s condensed consolidated financial statements.
FASB ASU 2020-04 - In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) and other interbank offered rates. Companies may adopt this guidance at any time but no later than December 31, 2022. The Company is currently evaluating the new standard to determine the impact it will have on the Company’s condensed consolidated financial statements.





8

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

(2) Net Income (Loss) Per Common Share
The following table sets forth the computations of basic and diluted net income (loss) per common share for the three and six months ended June 30, 2020 and 2019 (in thousands, except per share data):
Three Months
Ended June 30,
Six Months
Ended June 30,
2020 2019 2020 2019
Numerator:
Net income (loss) from continuing operations $ 418    $ (4,176)   $ (3,465)   $ (8,417)  
Net loss from discontinued operations $ —    $ (103)   $ —    $ (258)  
Denominator:
Weighted-average common shares outstanding 22,606    22,763    22,542    22,687   
Effect of dilutive securities from stock-based compensation plans 110    —    —    —   
Weighted-average diluted common shares outstanding 22,716    22,763    22,542    22,687   
Basic net income (loss) per common share from continuing operations $ 0.02    $ (0.18)   $ (0.15)   $ (0.37)  
Basic net loss per common share from discontinued operations —    —    —    (0.01)  
Total basic net income (loss) per common share $ 0.02    $ (0.18)   $ (0.15)   $ (0.38)  
Diluted income (loss) per common share from continuing operations $ 0.02    $ (0.18)   $ (0.15)   $ (0.37)  
Diluted loss per common share from discontinued operations —    —    —    (0.01)  
Total diluted income (loss) per common share $ 0.02    $ (0.18)   $ (0.15)   $ (0.38)  
Anti-dilutive securities excluded from diluted net income (loss) per share calculation 4,011    4,277    4,120    4,277   

(3) Stock-Based Compensation
The Company has two stock-based compensation plans under which outstanding equity awards have been granted, the 2008 Equity Incentive Plan ("2008 EIP") and the 2017 Equity Incentive Compensation Plan ("2017 EICP") (collectively, the "Plans"). No additional awards may be granted under the 2008 EIP. Awards granted outside of the Plans are referred to as inducement awards.
        During the three months ended June 30, 2020, equity awards were granted to non-employee directors, and in the six months ended June 30, 2020, equity awards were granted to non-employee directors and certain key employees. The awards included restricted stock, restricted stock units, and performance-based restricted stock units ("PBUs").
Summary of Grant Activity
        The following is a summary of grant activity for the three and six months ended June 30, 2020 (in thousands, except number of awards):
9

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

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
# of Awards Granted Grant Date Fair Value # of Awards Granted Grant Date Fair Value
Restricted stock 30,769    $ 120    429,269    $ 1,830   
Restricted stock units 123,076    480    142,076    562   
PBUs —    —    659,301    2,828   
153,845    $ 600    1,230,646    $ 5,220   
The awards granted in the three months ended June 30, 2020 had the following terms:
The restricted stock and restricted stock units vest one year from grant date.

The awards granted in the six months ended June 30, 2020 had the following terms:

398,500 shares of the restricted stock vest over three years in approximately equal annual installments and 30,769 shares of the restricted stock vest one year from grant date.
123,076 restricted stock units vest one year from grant date and 19,000 restricted stock units vest over three years in approximately equal annual installments.
The vesting of the PBUs is subject to the satisfaction of certain specified financial performance conditions for the two-year performance period ending on December 31, 2021. PBUs that vest will be settled in shares of the Company's common stock. Stock-based compensation expense for these PBUs is being recognized at the target level of financial performance, as if 100% of the awards will vest. The Company reevaluates this likelihood on a quarterly basis.

Additional Information

As of June 30, 2020, there were approximately 1.8 million shares available for future grant under the 2017 EICP.
Stock-based compensation expense for the three months ended June 30, 2020 and 2019 was $1.9 million and $1.7 million, respectively, and $3.2 million and $3.0 million for the six months ended June 30, 2020 and 2019, respectively, and is included in Selling, general and administrative expenses in the Company's Condensed Consolidated Statements of Operations. As of June 30, 2020, there was $8.6 million of unrecognized stock-based compensation expense related to the Company's outstanding equity awards which will be recognized over approximately 1.7 years.
10

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

(4) Operating Segments and Related Information
The Company conducts its operations through the following three reportable segments:
Recovery Audit Services – Americas represents 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 provided in Europe, Asia and the Pacific region.
Adjacent Services represents data transformation, spend analytics and associated advisory services.
The unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportable segments is included in Corporate Support.
Discontinued Operations
There was no activity in the Company's discontinued operations segment for the three and six months ended June 30, 2020. The following table presents the discontinued operations of the Healthcare Claims Recovery Audit ("HCRA") services business in the Consolidated Statements of Operations, for the three and six months ended June 30, 2019 (in thousands):
Three Months Ended June 30, Six Months
Ended June 30,
2019 2019
Revenue, net $ —    $ —   
Cost of sales 96    245   
Selling, general and administrative expense   13   
Depreciation and amortization —    —   
Loss from discontinued operations before income taxes $ (103)   $ (258)  
Income tax expense —    —   
Loss from discontinued operations $ (103)   $ (258)  
The following table presents the discontinued operations of the HCRA services business in the Consolidated Statements of Cash Flows, for the six months ended June 30, 2019 (in thousands):
Six Months Ended June 30,
2019
Net cash (used in) provided by operating activities $ (258)  
Net cash (used in) provided by investing activities —   
Net cash (used in) provided by financing activities —   
Decrease in cash and cash equivalents $ (258)  
The Company evaluates the performance of its reportable segments based upon revenue and measures of profit or loss referred to as EBITDA and Adjusted EBITDA. The Company defines 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. The Company does not have any inter-segment revenue.
11

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

Segment information for the three and six months ended June 30, 2020 and 2019 (in thousands) is as follows:
 
Recovery
Audit
Services –
Americas
Recovery Audit
Services –
Europe/Asia-
Pacific
Adjacent
Services
Corporate
Support
Total
Three Months Ended June 30, 2020
Revenue, net $ 26,962    $ 11,157    $ 892    $ —    $ 39,011   
Net income from continuing operations 418   
Income tax expense 1,004   
Interest expense, net 303   
EBIT $ 8,895    $ 4,426    $ 24    $ (11,620)   $ 1,725   
Depreciation of property, equipment and software 1,777    155    33    —    1,965   
Amortization of intangible assets 408    41    379    —    828   
EBITDA $ 11,080    $ 4,622    $ 436    $ (11,620)   $ 4,518   
Other loss —    —    —       
Foreign currency transaction (gains) losses on short-term intercompany balances (176)   (752)   —    109    (819)  
Transformation, severance, and other expenses 327    181    47    117    672   
Investigation and settlement of employment matter —    —    —    1,306    1,306   
Stock-based compensation —    —    —    1,876    1,876   
Adjusted EBITDA from continuing operations $ 11,231    $ 4,051    $ 483    $ (8,210)   $ 7,555   
Recovery
Audit
Services –
Americas
Recovery Audit
Services –
Europe/Asia-
Pacific
Adjacent
Services
Corporate
Support
Total
Three Months Ended June 30, 2019
Revenue, net $ 28,935    $ 11,836    $ 1,203    $ —    $ 41,974   
Net loss from continuing operations (4,176)  
Income tax expense 311   
Interest expense, net 592   
EBIT $ 6,960    $ 1,877    $ (2,914)   $ (9,196)   $ (3,273)  
Depreciation of property, equipment and software 1,919    182    280    —    2,381   
Amortization of intangible assets 438    48    386    —    872   
EBITDA $ 9,317    $ 2,107    $ (2,248)   $ (9,196)   $ (20)  
Other loss   —    —    10    11   
Foreign currency transaction (gains) losses on short-term intercompany balances (106)   (99)     122    (77)  
Transformation, severance, and other expenses 250    122    605    303    1,280   
Stock-based compensation —    —    —    1,662    1,662   
Adjusted EBITDA from continuing operations $ 9,462    $ 2,130    $ (1,637)   $ (7,099)   $ 2,856   






12

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







Recovery Audit Services – Americas Recovery Audit Services – Europe/Asia- Pacific Adjacent Services Corporate Support Total
Six Months Ended June 30, 2020
Revenue, net $ 53,185    $ 20,942    $ 1,723    $ —    $ 75,850   
Net loss from continuing operations (3,465)  
Income tax expense 960   
Interest expense, net 645   
EBIT $ 13,373    $ 5,865    $ 162    $ (21,260)   $ (1,860)  
Depreciation of property, equipment and software 3,715    324    67    —    4,106   
Amortization of intangible assets 816    83    758    —    1,657   
EBITDA $ 17,904    $ 6,272    $ 987    $ (21,260)   $ 3,903   
Other loss —    —    —       
Foreign currency transaction (gains) losses on short-term intercompany balances 720    122      (209)   637   
Transformation, severance, and other expenses 1,015    389    127    448    1,979   
Investigation and settlement of employment matter —    —    —    1,306    1,306   
Stock-based compensation —    —    —    3,196    3,196   
Adjusted EBITDA from continuing operations $ 19,639    $ 6,783    $ 1,118    $ (16,517)   $ 11,023   




13

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

Recovery Audit Services – Americas Recovery Audit Services – Europe/Asia- Pacific Adjacent Services Corporate Support Total
Six Months Ended June 30, 2019
Revenue, net $ 56,308    $ 21,595    $ 2,875    $ —    $ 80,778   
Net loss from continuing operations (8,417)  
Income tax expense 479   
Interest expense, net 1,065   
EBIT $ 12,964    $ 2,190    $ (5,059)   $ (16,968)   $ (6,873)  
Depreciation of property, equipment and software 3,681    344    559    —    4,584   
Amortization of intangible assets 876    85    773    —    1,734   
EBITDA $ 17,521    $ 2,619    $ (3,727)   $ (16,968)   $ (555)  
Other loss (income)     —    (18)   (8)  
Foreign currency transaction (gains) losses on short-term intercompany balances (179)   300    —      129   
Transformation, severance, and other expenses 378    245    623    731    1,977   
Stock-based compensation —    —    —    3,046    3,046   
Adjusted EBITDA from continuing operations $ 17,721    $ 3,173    $ (3,104)   $ (13,201)   $ 4,589   
14

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

(5) Debt
        On March 14, 2019, the Company, as co-borrower with PRGX USA, Inc. (“PRGX-USA” and, collectively with the Company, the "Borrowers"), a wholly-owned subsidiary that is the Company’s principal domestic operating subsidiary, entered into a five-year Credit Agreement (the “BOA Credit Facility”) with Bank of America, N.A. (“BOA”) and Synovus Bank as the initial lenders thereunder, and with BOA as the letter-of-credit issuer thereunder, as the swingline lender thereunder, and as the administrative agent (the “Administrative Agent”) for the lenders from time to time party thereto. The BOA Credit Facility consists of a $60.0 million senior revolving credit facility (the “Revolver”), with a $5.0 million subfacility for the issuance of letters of credit, and a $5.0 million swingline loan subfacility (the “Swingline Loan”). The BOA Credit Facility is guaranteed by each of PRGX’s direct and indirect domestic wholly-owned subsidiaries (other than PRGX-USA), except for certain immaterial domestic subsidiaries. None of PRGX’s direct or indirect foreign subsidiaries have guaranteed the BOA Credit Facility. The BOA Credit Facility is secured by substantially all of the assets of PRGX, PRGX-USA and each guarantor (including the equity interests in substantially all of the Company’s domestic subsidiaries and up to sixty-five percent (65%) of the equity interests of certain of the Company’s first-tier material foreign subsidiaries).
        The BOA Credit Facility will mature on March 14, 2024. Interest is payable quarterly in arrears. There are no prepayment penalties in the event the Company elects to prepay and terminate the BOA Credit Facility prior to its scheduled maturity date, subject to breakage and redeployment costs in certain limited circumstances.
        The Revolver bears interest at a rate per annum comprised of a specified index rate based on LIBOR plus an applicable interest rate margin determined under the BOA Credit Facility. For U.S. Dollar-denominated loans under the Revolver, at the option of the Borrowers, such loans shall bear interest at a rate per annum equal to (x) the LIBOR daily floating rate plus an applicable interest rate margin determined under the BOA Credit Facility or (y) the base rate plus the applicable interest rate margin, each as determined under the BOA Credit Facility. Although the Company does not anticipate the need for Swingline Loans, were any Swingline Loans to be made they would bear interest at the base rate plus the applicable interest rate margin for base rate loans, each as determined under the BOA Credit Facility. The applicable interest rate margin varies from 1.50% per annum to 2.25% per annum, for LIBOR daily floating rate loans, and from 0.50% per annum to 1.25% per annum, for loans based on the base rate, and in either case depending on the Company’s consolidated leverage ratio, and is determined in accordance with a pricing grid under the BOA Credit Facility.
        The BOA Credit Facility includes customary affirmative, negative, and financial covenants binding on the Company, including delivery of financial statements and other reports and maintenance of existence. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments and sell assets, but does provide for certain permitted repurchases of shares of its capital stock and the declaration and payment of certain dividends on its capital stock. The financial covenants included in the BOA Credit Facility set forth a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio for the Company, each which will be tested on a quarterly basis; and with the Company having the ability to increase the maximum leverage ratio for a limited time when needed in connection with permitted acquisitions. In addition, the BOA Credit Facility includes customary events of default.
        As of June 30, 2020, there was $37.0 million in debt outstanding under the BOA Credit Facility that will be due March 14, 2024. The amount available for additional borrowing under the BOA Credit Facility was $23.0 million as of June 30, 2020. Based on the terms of the BOA Credit Facility, on June 30, 2020 the applicable interest rate (inclusive of the applicable interest rate margin) for LIBOR daily floating rate loans (the only type outstanding on June 30, 2020) was approximately 2.18%. As of June 30, 2020, the Company was required to pay a commitment fee of 0.25% per annum, payable quarterly, on the unused portion of the BOA Credit Facility.











15

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

Long-term debt as of June 30, 2020 and December 31, 2019 consists of the following (in thousands):
As of
June 30, 2020
As of
December 31, 2019
Credit facility(1)
$ 37,000    $ 37,000   
DFC (2)
(350)