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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 September 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 October 30, 2020 were 23,561,493.



PRGX GLOBAL, INC.
FORM 10-Q
For the Quarter Ended September 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 September 30,
Nine Months
Ended September 30,
  2020 2019 2020 2019
Revenue, net $ 41,532  $ 42,290  $ 117,382  $ 123,068 
Operating expenses:
Cost of revenue 20,813  25,539  63,931  77,086 
Selling, general and administrative expenses 13,751  13,544  41,941  43,209 
Depreciation of property, equipment and software assets 1,295  2,648  5,401  7,232 
Amortization of intangible assets 830  864  2,487  2,598 
Impairment charges 553  —  553  — 
Acquisition-related adjustment income —  (250) —  (250)
Total operating expenses 37,242  42,345  114,313  129,875 
Operating income (loss) from continuing operations 4,290  (55) 3,069  (6,807)
Foreign currency transaction (gains) losses on short-term intercompany balances (418) 905  219  1,034 
Interest expense, net 216  376  861  1,441 
Other loss (income) (4)
      Income (loss) from continuing operations before income tax 4,490  (1,340) 1,985  (9,278)
Income tax expense 1,456  202  2,416  681 
Net income (loss) from continuing operations $ 3,034  $ (1,542) $ (431) $ (9,959)
Discontinued operations:
Income from discontinued operations $ —  $ 900  $ —  $ 642 
Net income from discontinued operations $ —  $ 900  $ —  $ 642 
Net income (loss) $ 3,034  $ (642) $ (431) $ (9,317)
Basic income (loss) per common share (Note 2):
Basic income (loss) from continuing operations $ 0.13  $ (0.07) $ (0.02) $ (0.44)
Basic income from discontinued operations —  0.04  —  0.03 
Total basic income (loss) per common share $ 0.13  $ (0.03) $ (0.02) $ (0.41)
Diluted income (loss) per common share (Note 2):
Diluted income (loss) from continuing operations $ 0.13  $ (0.07) $ (0.02) $ (0.44)
Diluted income from discontinued operations —  0.04  —  0.03 
Total diluted income (loss) per common share $ 0.13  $ (0.03) $ (0.02) $ (0.41)
Weighted-average common shares outstanding (Note 2):
Basic 22,695  22,770  22,597  22,715 
Diluted 23,018  22,770  22,597  22,715 
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 September 30,
Nine Months
Ended September 30,
  2020 2019 2020 2019
Net income (loss) $ 3,034  $ (642) $ (431) $ (9,317)
Foreign currency translation adjustments, net of tax 414  (275) (786) (31)
Comprehensive income (loss) $ 3,448  $ (917) $ (1,217) $ (9,348)

See accompanying Notes to Condensed Consolidated Financial Statements.
2


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
September 30, December 31,
2020 2019
ASSETS
Current assets:
Cash and cash equivalents $ 22,625  $ 14,982 
Restricted cash 121  46 
Receivables:
Contract receivables, less allowances of $1,391 in 2020 and $1,781 in 2019
Billed 35,977  38,201 
Unbilled 2,786  4,911 
38,763  43,112 
Employee advances and miscellaneous receivables, net 995  704 
Total receivables 39,758  43,816 
Prepaid expenses and other current assets 3,586  5,582 
Total current assets 66,090  64,426 
Property, equipment and software 69,832  63,557 
Less accumulated depreciation and amortization (49,266) (45,811)
Property, equipment and software, net 20,566  17,746 
Operating lease right-of-use assets (Note 9) 10,226  10,969 
Goodwill 15,027  15,070 
Intangible assets, less accumulated amortization of $49,369 in 2020 and $47,097 in 2019
8,963  11,506 
Unbilled receivables 1,065  1,282 
Deferred income taxes 3,689  3,921 
Other assets 519  546 
Total assets $ 126,145  $ 125,466 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,462  $ 4,326 
Accrued payroll and related expenses 17,148  12,951 
Current portion of operating lease liabilities (Note 9) 4,117  3,717 
Refund liabilities 4,443  4,513 
Deferred revenue 1,821  2,217 
Current portion of debt (Note 5) —  17 
Total current liabilities 31,991  27,741 
Long-term debt (Note 5) 30,673  36,603 
Long-term operating lease liabilities (Note 9) 6,482  7,435 
Refund liabilities 64 
Deferred income taxes (Note 8) 628  628 
Total liabilities 69,838  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; 23,561,493 shares issued and outstanding at September 30, 2020 and 23,369,433 shares issued and outstanding at December 31, 2019
236  234 
Additional paid-in capital 586,876  582,404 
Accumulated deficit (529,607) (529,176)
Accumulated other comprehensive loss (1,198) (412)
Total shareholders’ equity 56,307  53,050 
Total liabilities and shareholders' equity $ 126,145  $ 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 June 30, 2020 23,612,686  $ 236  $ 584,922  $ (532,641) $ (1,612) $ 50,905 
Net income —  —  —  3,034  —  3,034 
Foreign currency translation adjustments —  —  —  —  414  414 
Issuances of common stock:
Restricted shares remitted by employees for taxes (1,052) —  (5) —  —  (5)
Restricted stock unit settlement 1,626  —  —  —  —  — 
Forfeited restricted share awards (51,767) —  —  —  —  — 
Stock-based compensation expense —  —  1,959  —  —  1,959 
Balance at September 30, 2020 23,561,493  $ 236  $ 586,876  $ (529,607) $ (1,198) $ 56,307 
Balance at June 30, 2019 23,611,403  $ 236  $ 582,982  $ (524,131) $ (777) $ 58,310 
Net loss —  —  —  (642) —  (642)
Foreign currency translation adjustments —  —  —  —  (275) (275)
Issuances of common stock:
Restricted shares remitted by employees for taxes (1,817) —  (10) —  —  (10)
Restricted stock unit settlement 1,626  —  —  —  —  — 
Forfeited restricted share awards (39,574) —  —  —  —  — 
Repurchase of common stock (369,088) (4) (1,980) —  —  (1,984)
Stock-based compensation expense —  —  541  —  —  541 
Balance at September 30, 2019 23,202,550  $ 232  $ 581,533  $ (524,773) $ (1,052) $ 55,940 

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 —  —  —  (431) —  (431)
Foreign currency translation adjustments —  —  —  —  (786) (786)
Issuances of common stock:
Restricted share awards 429,269  (4) —  —  — 
Restricted shares remitted by employees for taxes (113,072) (1) (402) —  —  (403)
Restricted stock unit settlement 63,147  (1) —  —  — 
Forfeited restricted share awards (83,422) (1) —  —  — 
Repurchase of common stock (103,862) (1) (283) —  —  (284)
Stock-based compensation expense —  —  5,161  —  —  5,161 
Balance at September 30, 2020 23,561,493  $ 236  $ 586,876  $ (529,607) $ (1,198) $ 56,307 
Balance at December 31, 2018 23,186,258  $ 232  $ 582,574  $ (515,456) $ (1,021) $ 66,329 
Net loss —  —  —  (9,317) —  (9,317)
Foreign currency translation adjustments —  —  —  —  (31) (31)
Issuances of common stock:
Restricted share awards 516,955  (5) —  —  — 
Restricted shares remitted by employees for taxes (101,702) (1) (759) —  —  (760)
Stock option exercises 45,380  —  221  —  —  221 
Performance-based restricted stock unit settlement 203,524  (2) —  —  — 
Restricted stock unit settlement 29,142  —  —  —  —  — 
Forfeited restricted share awards (64,164) —  —  —  —  — 
Repurchase of common stock (612,843) (6) (4,206) (4,212)
Stock-based compensation expense —  —  3,710  —  —  3,710 
Balance at September 30, 2019 23,202,550  $ 232  $ 581,533  $ (524,773) $ (1,052) $ 55,940 

See accompanying Notes to Condensed Consolidated Financial Statements
5


PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30,
  2020 2019
Cash flows from operating activities:
Net loss $ (431) $ (9,317)
Adjustments to reconcile net loss to net cash provided by operating activities:
Impairment charges 553  — 
Depreciation and amortization 7,888  9,830 
Operating lease right-of-use asset expense 3,100  3,363 
Amortization of deferred loan costs 71  121 
Noncash interest expense 205  707 
Stock-based compensation expense 5,155  3,573 
Change in fair value of contingent consideration —  (250)
Foreign currency transaction losses on short-term intercompany balances 219  1,034 
Deferred income taxes 250 
Changes in operating assets and liabilities
Billed receivables 1,760  8,796 
Unbilled receivables 2,343  551 
Prepaid expenses and other current assets 1,726  (980)
Operating lease liabilities (2,912) (3,264)
Other assets (30) (60)
Accounts payable and accrued expenses (1,405) (4,117)
Accrued payroll and related expenses 4,216  (3,514)
Refund liabilities 19  (2,437)
Deferred revenue (378) (832)
Net cash provided by operating activities 22,349  3,208 
Cash flows from investing activities:
Purchases of property, equipment and software, net of disposal proceeds (8,321) (11,679)
Net cash used in investing activities (8,321) (11,679)
Cash flows from financing activities:
Repayments of credit facility (44,000) (8,000)
Proceeds from credit facility 38,000  22,400 
Payment of deferred loan costs —  (394)
Payment of earnout liability related to business acquisitions —  (4,229)
Restricted stock repurchased from employees for withholding taxes (404) (760)
Repurchases of common stock (284) (4,212)
Proceeds from option exercises —  221 
Net cash (used in) provided by financing activities (6,688) 5,026 
Effect of exchange rates on cash and cash equivalents 378  663 
Net increase (decrease) in cash, cash equivalents and restricted cash 7,718  (2,782)
Cash, cash equivalents and restricted cash at beginning of period 15,028  14,019 
Cash, cash equivalents and restricted cash at end of period $ 22,746  $ 11,237 
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,014  $ 728 
Cash paid during the period for income taxes, net of refunds received $ 1,486  $ 2,118 

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 nine-month periods ended September 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 September 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 September 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 September 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 nine months ended September 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 September 30, 2020. The Company will continue to monitor the collectability of its accounts receivable balances.
The Company has received an immaterial amount of COVID-19-related rent concessions for certain office space leases during the nine months ended September 30, 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 nine months ended September 30, 2020 and 2019 (in thousands, except per share data):
Three Months
Ended September 30,
Nine Months
Ended September 30,
2020 2019 2020 2019
Numerator:
Net income (loss) from continuing operations $ 3,034  $ (1,542) $ (431) $ (9,959)
Net income from discontinued operations $ —  $ 900  $ —  $ 642 
Denominator:
Weighted-average common shares outstanding 22,695  22,770  22,597  22,715 
Effect of dilutive securities from stock-based compensation plans 323  —  —  — 
Weighted-average diluted common shares outstanding 23,018  22,770  22,597  22,715 
Basic net income (loss) per common share from continuing operations $ 0.13  $ (0.07) $ (0.02) $ (0.44)
Basic net income per common share from discontinued operations —  0.04  —  0.03 
Total basic net income (loss) per common share $ 0.13  $ (0.03) $ (0.02) $ (0.41)
Diluted income (loss) per common share from continuing operations $ 0.13  $ (0.07) $ (0.02) $ (0.44)
Diluted income per common share from discontinued operations —  0.04  —  0.03 
Total diluted income (loss) per common share $ 0.13  $ (0.03) $ (0.02) $ (0.41)
Anti-dilutive securities excluded from diluted net income (loss) per share calculation 3,713  3,960  4,036  3,960 

(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 nine months ended September 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 nine months ended September 30, 2020 (in thousands, except number of awards):
9

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

Nine Months Ended September 30, 2020
# of Awards Granted Grant Date Fair Value
Restricted stock 429,269  $ 1,830 
Restricted stock units 142,076  562 
PBUs 659,301  2,828 
1,230,646  $ 5,220 

The awards granted in the nine months ended September 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 September 30, 2020, there were approximately 1.9 million shares available for future grant under the 2017 EICP.
Stock-based compensation expense for the three months ended September 30, 2020 and 2019 was $2.0 million and $0.5 million, respectively, and $5.2 million and $3.6 million for the nine months ended September 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 September 30, 2020, there was $7.0 million of unrecognized stock-based compensation expense related to the Company's outstanding equity awards which will be recognized over approximately 1.5 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 nine months ended September 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 nine months ended September 30, 2019 (in thousands):
Three Months Ended September 30, Nine Months
Ended September 30,
2019 2019
Revenue, net $ —  $ — 
Cost of sales (907) (662)
Selling, general and administrative expense 20 
Depreciation and amortization —  — 
Income from discontinued operations before income taxes $ 900  $ 642 
Income tax expense —  — 
Net income from discontinued operations $ 900  $ 642 
The following table presents the discontinued operations of the HCRA services business in the Consolidated Statements of Cash Flows, for the nine months ended September 30, 2019 (in thousands):
Nine Months Ended September 30,
2019
Net cash used in operating activities $ (148)
Net cash (used in) provided by investing activities — 
Net cash (used in) provided by financing activities — 
Decrease in cash and cash equivalents $ (148)
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 nine months ended September 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 September 30, 2020
Revenue, net $ 28,026  $ 12,651  $ 855  $ —  $ 41,532 
Net income from continuing operations 3,034 
Income tax expense 1,456 
Interest expense, net 216 
EBIT $ 10,478  $ 5,648  $ (348) $ (11,072) $ 4,706 
Depreciation of property, equipment and software 1,120  162  13  —  1,295 
Amortization of intangible assets 408  43  379  —  830 
EBITDA $ 12,006  $ 5,853  $ 44  $ (11,072) $ 6,831 
Impairment charges —  —  553  —  553 
Other loss —  —  — 
Foreign currency transaction (gains) losses on short-term intercompany balances (116) (735) (9) 442  (418)
Transformation, severance, and other expenses 48  199  —  175  422 
Stock-based compensation —  —  —  1,959  1,959 
Adjusted EBITDA from continuing operations $ 11,938  $ 5,317  $ 588  $ (8,494) $ 9,349 
Recovery
Audit
Services –
Americas
Recovery Audit
Services –
Europe/Asia-
Pacific
Adjacent
Services
Corporate
Support
Total
Three Months Ended September 30, 2019
Revenue, net $ 29,987  $ 10,803  $ 1,500  $ —  $ 42,290 
Net loss from continuing operations (1,542)
Income tax expense 202 
Interest expense, net 376 
EBIT $ 6,596  $ 1,261  $ (1,027) $ (7,794) $ (964)
Depreciation of property, equipment and software 2,191  176  281  —  2,648 
Amortization of intangible assets 437  41  386  —  864 
EBITDA $ 9,224  $ 1,478  $ (360) $ (7,794) $ 2,548 
Other loss (income) (1)
Foreign currency transaction losses (gains) on short-term intercompany balances 97  864  10  (66) 905 
Transformation, severance, and other expenses 654  140  331  733  1,858 
Acquisition-related adjustment income —  —  —  (250) (250)
Stock-based compensation —  —  —  527  527 
Adjusted EBITDA from continuing operations $ 9,976  $ 2,481  $ (18) $ (6,847) $ 5,592 





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
Nine Months Ended September 30, 2020
Revenue, net $ 81,211  $ 33,593  $ 2,578  $ —  $ 117,382 
Net loss from continuing operations (431)
Income tax expense 2,416 
Interest expense, net 861 
EBIT $ 23,851  $ 11,513  $ (186) $ (32,332) $ 2,846 
Depreciation of property, equipment and software 4,835  486  80  —  5,401 
Amortization of intangible assets 1,224  126  1,137  —  2,487 
EBITDA $ 29,910  $ 12,125  $ 1,031  $ (32,332) $ 10,734 
Impairment charges —  —  553  —  553 
Other loss —  —  — 
Foreign currency transaction losses (gains) on short-term intercompany balances 604  (613) (5) 233  219 
Transformation, severance, and other expenses 1,063  588  127  623  2,401 
Investigation and settlement of employment matter —  —  —  1,306  1,306 
Stock-based compensation —  —  —  5,155  5,155 
Adjusted EBITDA from continuing operations $ 31,577 $ 12,100 $ 1,706 $ (25,011) $ 20,372




Recovery Audit Services – Americas Recovery Audit Services – Europe/Asia- Pacific Adjacent Services Corporate Support Total
Nine Months Ended September 30, 2019
Revenue, net $ 86,295  $ 32,398  $ 4,375  $ —  $ 123,068 
Net loss from continuing operations (9,959)
Income tax expense 681 
Interest expense, net 1,441 
EBIT $ 19,560  $ 3,451  $ (6,086) $ (24,762) $ (7,837)
Depreciation of property, equipment and software 5,872  520  840  —  7,232 
Amortization of intangible assets 1,313  126  1,159  —  2,598 
EBITDA $ 26,745  $ 4,097  $ (4,087) $ (24,762) $ 1,993 
Other loss (income) (15) (4)
Foreign currency transaction (gains) losses on short-term intercompany balances (82) 1,164  10  (58) 1,034 
Transformation, severance, and other expenses 1,032  385  954  1,464  3,835 
Acquisition-related adjustment income —  —  —  (250) (250)
Stock-based compensation —  —  —  3,573  3,573 
Adjusted EBITDA from continuing operations $ 27,697  $ 5,654  $ (3,122) $ (20,048) $ 10,181 
13

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 September 30, 2020, there was $31.0 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 $29.0 million as of September 30, 2020. Based on the terms of the BOA Credit Facility, on September 30, 2020 the applicable interest rate (inclusive of the applicable interest rate margin) for LIBOR daily floating rate loans (the only type outstanding on September 30, 2020) was approximately 1.90%. As of September 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.











14

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

Long-term debt as of September 30, 2020 and December 31, 2019 consists of the following (in thousands):
As of
September 30, 2020
As of
December 31, 2019
Credit facility(1)
$ 31,000  $ 37,000 
DFC (2)
(327) (397)
Net credit facility 30,673  36,603 
Finance lease obligations(1)
—  17 
Total debt 30,673  36,620 
Less: Current portion of long-term debt —  17 
Long-term debt, excluding current portion $ 30,673  $ 36,603 
(1)Principal portion of long-term debt. Refer to Future Commitments table below for principal payments to be made on long-term debt.
(2)DFC refers to deferred financing costs related to the Company's long-term debt.
Future Commitments
The following is a summary of the combined principal maturities of all long-term debt and principal payments to be made under the Company’s credit facility for each of the fiscal years presented in the table below (in thousands):
Year Ending December 31,
2020 $ — 
2021 — 
2022 — 
2023 — 
2024 31,000 
Total $ 31,000 
(6) Fair Value of Financial Instruments
The Company records cash equivalents at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled receivables, 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.
The Company records bank debt, if any, as of the period end date based on the effective borrowing rate and repayment terms when originated. The Company had $31.0 million in bank debt outstanding as of September 30, 2020 and $37.0 million in bank debt outstanding as of December 31, 2019. The Company believes the carrying value of the bank debt approximates its fair value. The Company considers the factors used in determining the fair value of this debt to be Level 3 inputs (significant unobservable inputs).
The Company reviews the carrying value of capitalized software development costs for impairment whenever events and circumstances indicate that the carrying value of the asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, we will recognize an impairment loss equal to the amount by which the carrying value exceeds the fair value of the asset. During the third quarter of 2020, as a result of this evaluation, it was determined that previously capitalized internally developed software was impaired and was no longer expected to provide future value. Accordingly, the Company recorded an impairment charge of $0.6 million.
The Company states certain assets at fair value on a nonrecurring basis as required by GAAP. Generally, these assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.

15

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

(7) Commitments and Contingencies
Legal Proceedings
The Company is 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 the Company's financial position, results of operations or cash flows.
(8) 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.
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 the Company has several subsidiaries, both domestic and foreign, that have current year and actual year-to-date losses on which the Company cannot take a tax benefit because these subsidiaries have recorded a valuation allowance against their deferred tax assets. For those subsidiaries that report income and do not have a valuation allowance, the Company is required to record income tax expense.
Significant judgment is required in evaluating the Company's uncertain tax positions and determining its provision for income taxes. In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service in the U.S. and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.
The Company applies a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. PRGX refers to GAAP for guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. In accordance with FASB ASC 740, the Company's policy for recording interest and penalties associated with tax positions is to record such items as a component of income before income taxes. A number of years may elapse before a tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments also varies by tax jurisdiction.
16

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

(9) Leases
The Company primarily leases office space and certain office equipment using noncancelable operating leases. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the implicit rate is not readily determinable in most of the Company's lease agreements, the Company uses its estimated secured incremental borrowing rate, which takes into consideration the relevant term of the underlying lease, in determining the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease terms. Certain of our lease agreements include variable lease payments, primarily related to common area maintenance, insurance and taxes. The variable portion of payments is not included in the initial measurement of the right-of-use asset or lease liability due to the uncertainty of the payment amount and are recorded as lease expense in the period incurred.
The Company's leases have original lease periods expiring between 2020 and 2027, which may include the option to extend the lease when it is reasonably certain the Company will exercise that option. The Company does not have lease agreements with residual value guarantees, sale leaseback terms or material restrictive covenants.
The components of lease expense, lease term and discount rate are as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Operating lease cost $ 1,100  $ 1,168  $ 3,287  $ 3,616 
Short-term lease cost 17  30  51  72 
Variable lease cost 314  387  686  841 
Sublease income (12) (20) (48) (55)
Total lease cost $ 1,419  $ 1,565  $ 3,976  $ 4,474 

    As of September 30, 2020 and December 31, 2019, the weighted average remaining lease term and weighted average discount rate for the Company's operating leases were as follows:
September 30, 2020 December 31, 2019
Weighted Average Remaining Lease Term 3.5 years 3.5 years
Weighted Average Discount Rate 3.5  % 4.1  %

The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2020 (in thousands):
Operating Leases
The remainder of 2020 $ 1,116 
2021 4,304 
2022 2,262 
2023 1,562 
2024 1,140 
Thereafter 840 
Total undiscounted cash flows 11,224 
Less imputed interest (625)
Present value of lease liabilities $ 10,599 





17

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



Supplemental cash flow information related to the Company's operating leases are as follows (in thousands):
Nine Months
Ended September 30,
2020 2019
Non-cash activity:
Right-of-use assets obtained in exchange for operating lease obligations $ 2,358  $ 14,479 
Operating cash flows:
Cash paid for amounts included in the measurement of lease liabilities $ 3,324  $ 3,322 

18


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Some of the information in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on 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 the expected impact of the global COVID-19 pandemic; future results of operations or the Company’s financial condition; the adequacy of the Company’s current working capital and other available sources of funds for capital expenditures and otherwise; the Company's goals and plans for the future, including its strategic initiatives and growth opportunities; and expectations regarding future revenue and growth trends. 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. Forward-looking statements are based on our beliefs as well as assumptions based on information currently available to us, including financial and operational information, the volatility of our stock price, and current competitive conditions. 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, 2019 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 whether as a result of new information, future events or otherwise, except as may be required by law.
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 Quarterly Report on 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 Quarterly Report on Form 10-Q could have a material adverse effect on our business, financial condition and results of operations.
You should read the following discussion and analysis in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 and our other periodic reports filed with the Securities and Exchange Commission and the condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

Except as otherwise indicated or unless context otherwise requires, “PRGX”, “we,” “us,” “our” and the "Company” refer to PRGX Global, Inc. and its subsidiaries.
Impact of COVID-19
    In March 2020, the World Health Organization categorized COVID-19, the disease resulting from a novel strain of coronavirus, as a global pandemic, which continues to spread worldwide, including in the United States, several European countries and throughout Asia. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, and these mitigation measures have adversely impacted the U.S. and global economy, leading to reduced consumer and business spending, reduced economic activity and disruptions and volatility in the U.S. and global capital markets. There was not a significant negative impact on our financial results from the COVID-19 pandemic for the three and nine months ended September 30, 2020. While the Company received an immaterial amount of COVID-19-related rent concessions for certain office space leases in the second quarter of 2020 and has deferred qualified payroll and other taxes as permitted under the Coronavirus Aid, Relief, and Economic Security Act ("CARES ACT"), we are unable to reasonably estimate the impact that the ongoing global COVID-19 pandemic may have on our business operations and financial condition.

Business Overview
PRGX Global, Inc., together with its subsidiaries, is a global leader in recovery audit and spend analytics, providing a suite of services targeted at our clients' source-to-pay ("S2P") business processes. At the heart of our services suite is the core capability of mining client data to deliver “actionable insights.” Actionable insights allow our clients to improve their cash flow and profitability by reducing costs, improving business processes and managing risks.
Our solutions include services and technologies for recovery audit, contract compliance and advanced analytics. We deliver services to hundreds of clients and serve clients in more than 30 countries. We conduct our operations through three reportable segments: Recovery Audit Services - Americas, Recovery Audit Services - Europe/Asia-Pacific and Adjacent Services. The Recovery Audit Services - Americas segment represents recovery audit services we provide in the U.S., Canada
19


and Latin America. The Recovery Audit Services - Europe/Asia-Pacific segment represents recovery audit services we provide in Europe, Asia and the Pacific region. Our Adjacent Services line of business includes our supplier information management (“SIM”) and deduction management solutions as well as S2P analytics tools offered as part of our Lumen Advanced Analytics suite. We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportable segments in Corporate Support.
Recovery auditing is a business service focused on finding overpayments created by errors in payment transactions, such as missed or inaccurate discounts, allowances and rebates, vendor pricing errors, erroneous coding and duplicate payments. Recovery audit services are part of the broader S2P services market space, focused on the payment side of the S2P market.
Generally, we earn our recovery audit revenue on a contingent fee basis by identifying overpayments made by our clients, assisting our clients in recovering the overpayments from their vendors, and collecting a specified percentage of the recoveries from our clients as our fee. The fee percentage we earn is based on specific contracts with our clients that generally also specify: (a) time periods covered by the audit; (b) the nature and extent of services we are to provide; and (c) the client’s responsibilities to assist and cooperate with us. Clients generally recover claims by either taking credits against outstanding payables or future purchases from the relevant vendors, or receiving refund checks directly from those vendors. The manner in which a claim is recovered by a client is often dictated by industry practice. In addition, many clients establish client-specific procedural guidelines that we must satisfy prior to submitting claims for client approval. Our recovery audit business also includes contract compliance services which focus on auditing complex supplier billings against large services, construction and licensing contracts, and is relevant to a large portion of our client base. Such services include verification of the accuracy of third-party reporting, appropriateness of allocations and other charges in cost or revenue sharing types of arrangements, adherence to contract covenants and other risk mitigation requirements and numerous other reviews and procedures to assist our clients with proper monitoring and enforcement of the obligations of their contractors. Services in our Adjacent Services segment can be project-based (advisory services), which are typically billed on a rates and hours basis, or subscription-based (typically SaaS offerings), which are typically billed on a monthly basis.
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 positions in the market and their market segments;
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 generally 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.

We have processes in place to mitigate the financial impact arising from fluctuations in our businesses. These processes include reviewing and monitoring financial and operational results through our internal reporting, devoting substantial efforts to develop an improved service delivery model to enable us to more cost effectively serve our clients, and maintaining the flexibility to control the compensation-related portions of our cost structure.

While the net impact of the economic environment on our recovery audit revenue is difficult to determine or predict, we believe that for the foreseeable future, our revenue will remain at a level that will allow us to continue investing in our growth strategy. Included in our growth strategy are our investments in developing and enhancing our technology platforms and improved operational processes within our recovery audit business. In addition, we continue to pursue the expansion of our business beyond retail recovery audit services by growing the portion of our business that provides recovery audit services to enterprises other than retailers; growing our contract compliance service offerings; expanding into new industry verticals, such as telecommunications, manufacturing and resources; and, in the longer term, growing our Adjacent Services which includes
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our advanced analytics solutions. We believe that our recovery audit business uniquely positions us to create value for clients and gives us a competitive advantage over other players in the broader S2P market for four fundamental reasons:

We already have the clients' spend data - we serve a large and impressive list of very large, multinational companies in our core recovery audit business, which requires access to and processing of these clients' detailed S2P data on a daily, weekly or at least periodic basis;
We know the clients' spend data and underlying processes - the work we do in recovery audit requires that we fully understand our clients’ systems, buying practices, receiving and payment procedures, as well as their suppliers’ contracting, performance and billing practices;
We take a different perspective in analyzing the clients' spend data - we look horizontally across our clients' processes and organizational structures versus vertically, which is how most companies are organized and enterprise resource planning systems are designed; and
Our contingent fee recovery audit value proposition minimizes our clients' cost of entry and truly aligns us with our clients.
As our clients’ data volumes and complexity levels continue to grow, we are using our deep data management experience to develop new actionable insight solutions, as well as to develop custom analytics. Taken together, our deep understanding of our clients’ S2P data and our technology-based solutions provide multiple routes to help our clients achieve greater profitability. Our Adjacent Services business targets client functional and process areas where we have established expertise, enabling us to provide services to finance, merchandising and procurement executives to improve working capital, reduce supplier discrepancies, optimize purchasing leverage in vendor pricing negotiations, improve insight into product margin and true cost of goods for resale, identify and manage risks associated with vendor compliance, improve quality of vendor master data and improve visibility and diagnostics of direct and indirect spend.
Looking ahead, we expect to continue the evolution of our business from its historical auditor-led recovery audit operation, to today’s data-driven, technology-led recovery audit, and advanced analytics solutions, to tomorrow’s next generation payment assurance solutions, which will provide access to software and enable services closer in time to or contemporaneous with the transaction. We believe this evolution will allow us to provide incremental value to our clients and ultimately transform our business from one primarily focused on post-transaction analysis, error identification and recovery, to one with its major emphasis on error prevention and S2P process efficiency.
We believe that for the foreseeable future, our revenue will remain at a level that will allow us to continue investing in our growth strategy, including developing and enhancing our technology platforms and improved operational processes within our recovery audit business. We have processes in place to mitigate the financial impact arising from fluctuations in our businesses. These processes include reviewing and monitoring financial and operational results through our internal reporting, devoting substantial efforts to develop an improved service delivery model to enable us to more cost-effectively serve our clients, and maintaining the flexibility to control the compensation-related portions of our cost structure.
We expect to continue our information technology and product development efforts to improve our services and solutions. We expect to continue investing in sales and marketing and will continue to assess the success and effectiveness of our sales and marketing efforts and the optimal level of sales and marketing investment for future periods. We also expect to adjust headcount in product development, data services, advisory services and recovery audit to support our services and client contracts. We believe that our investments in next generation recovery audit technology will further increase the operating leverage in our recovery audit platform in future years.
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Results of Operations from Continuing Operations
The discussions and financial results in this Item 2 reflect our results from continuing operations.
The following table sets forth the percentage of revenue represented by certain items in the Company’s Condensed Consolidated Statements of Operations (Unaudited) for the periods indicated:
 
  Three Months
Ended September 30,
Nine Months
Ended September 30,
  2020 2019 2020 2019
Revenue, net 100.0  % 100.0  % 100.0  % 100.0  %
Operating expenses:
Cost of revenue 50.1  60.4  54.5  62.6 
Selling, general and administrative expenses 33.1  32.0  35.7  35.1 
Depreciation of property, equipment and software 3.1  6.3  4.6  5.9 
Amortization of intangible assets 2.0  2.0  2.1  2.1 
Impairment charges 1.3  —  0.5  — 
Acquisition-related adjustment income —  (0.6) —  (0.2)
Total operating expenses 89.6  100.1  97.4  105.5 
Operating income (loss) from continuing operations 10.4  (0.1) 2.6  (5.5)
Foreign currency transaction (gains) losses on short-term intercompany balances (1.0) 2.1  0.2  0.8 
Interest expense, net
0.5  0.9  0.7  1.2 
  Net income (loss) from continuing operations before income tax 10.9  (3.1) 1.7  (7.5)
Income tax expense 3.5  0.5  2.1  0.6 
Net income (loss) from continuing operations 7.4  % (3.6) % (0.4) % (8.1) %
Three and Nine Months Ended September 30, 2020 Compared to the Corresponding Periods of the Prior Year
Revenue, net was as follows (in thousands):
 
  Three Months
Ended September 30,
Nine Months
Ended September 30,
  2020 2019 Change 2020 2019 Change
Recovery Audit Services – Americas $ 28,026  $ 29,987  (6.5) % $ 81,211  $ 86,295  (5.9) %
Recovery Audit Services – Europe/Asia-Pacific 12,651  10,803  17.1  % 33,593  32,398  3.7  %
Adjacent Services 855  1,500  (43.0) % 2,578  4,375  (41.1) %
Total $ 41,532  $ 42,290  (1.8) % $ 117,382  $ 123,068  (4.6) %

Consolidated revenue for the three months ended September 30, 2020 decreased 1.8% compared to the same period in 2019. Consolidated revenue for the nine months ended September 30, 2020 decreased 4.6% compared to the same period in 2019. Below is a discussion of our revenue for our three reportable segments.
Recovery Audit Services – Americas revenue decreased 6.5% and 5.9% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. Within the segment, revenue from the retail recovery audit and contract compliance businesses increased moderately for the three-month period while revenue declined for the nine-month period. Revenue from the commercial (non-retail) recovery audit business declined for both the three and nine-month periods.
Recovery Audit Services – Europe/Asia-Pacific revenue increased 17.1% and 3.7% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. Revenue from the retail recovery audit and commercial businesses in this segment increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. Revenue from the contract compliance business in this segment declined slightly for the three months ended September 30, 2020 and increased for the nine months ended September 30, 2020 compared to the same periods in 2019.
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Adjacent Services revenue decreased 43.0% and 41.1% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. The year-over-year decreases were primarily the result of management's decision to discontinue certain advisory projects.
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, our data services costs allocated to client projects, compensation paid to various types of hourly support staff and salaries for operational and client service managers for our recovery audit services and our Adjacent Services businesses. COR also includes other direct and indirect costs incurred by these personnel, including office rent, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. A significant portion of the components comprising COR is variable and will increase or decrease with increases or decreases in revenue. Since the timing of our recognition of recovery audit revenue is impacted by the timing of claims recovery by our clients, which can often take between two and four months for a typical recovery audit engagement and even longer for the more complex contract compliance engagements, our revenue growth may lag incremental variable COR as we grow.
COR was as follows (in thousands):
 
  Three Months
Ended September 30,
% of Revenue Nine Months
Ended September 30,
% of Revenue
  2020 2019 Change 2020 2019 2020 2019 Change 2020 2019
Recovery Audit Services – Americas $ 14,193  $ 17,201  (17.5) % 50.6  % 57.4  % $ 44,527  $ 49,140  (9.4) % 54.8  % 56.9  %
Recovery Audit Services – Europe/Asia-Pacific 6,324  6,661  (5.1) % 50.0  % 61.7  % 18,323  20,576  (10.9) % 54.5  % 63.5  %
Adjacent Services 296  1,677  (82.3) % 34.6  % 111.8  % 1,081  7,370  (85.3) % 41.9  % 168.5  %
Total $ 20,813  $ 25,539  (18.5) % 50.1  % 60.4  % $ 63,931  $ 77,086  (17.1) % 54.5  % 62.6  %
Recovery Audit Services - Americas COR decreased 17.5% and 9.4% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. The decreases in expense were primarily due to decreases in payroll expenses. COR as a percentage of revenue for Recovery Audit Services - Americas was 50.6% and 54.8% for the three and nine months ended September 30, 2020, respectively, compared to 57.4% and 56.9% for the three and nine months ended September 30, 2019. The improvement in COR as a percentage of revenue for both periods was primarily the result of a reduction in payroll expenses.
Recovery Audit Services - Europe/Asia-Pacific COR decreased 5.1% and 10.9% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. The decreases in expense were primarily due to decreases in payroll and travel expenses. COR as a percentage of revenue for Recovery Audit Services - Europe/Asia-Pacific was 50.0% and 54.5% for the three and nine months ended September 30, 2020, respectively, compared to 61.7% and 63.5% for the three and nine months ended September 30, 2019. The improvement in COR as a percentage of revenue for both periods was primarily the result of a reduction in payroll and travel expenses.
Adjacent Services COR decreased 82.3% and 85.3% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. The decreases in expense were primarily due to decreases in payroll expenses. COR as a percentage of revenue for Adjacent Services was 34.6% and 41.9% for the three and nine months ended September 30, 2020, respectively, compared to 111.8% and 168.5% for the three and nine months ended September 30, 2019. The improvement in COR as a percentage of revenue for both periods was primarily the result of a reduction in payroll expenses.
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Selling, General and Administrative Expenses (“SG&A”). SG&A expenses for all segments other than Corporate Support include the expenses of sales and marketing activities, information technology services and allocated corporate data center costs, human resources, legal, accounting, administration, foreign currency transaction gains and losses other than those relating to short-term intercompany balances and gains and losses on asset disposals. Corporate Support SG&A represents the unallocated portion of SG&A expenses which are not specifically attributable to our segment activities and include the expenses of information technology services, the corporate data center, human resources, legal, finance, executive management, accounting, treasury, administration, and stock-based compensation expense.
SG&A expenses were as follows (in thousands):
  Three Months
Ended September 30,
Nine Months
Ended September 30,
  2020 2019 Change 2020 2019 Change
Recovery Audit Services – Americas $ 1,943  $ 3,464  (43.9) % $ 6,170  $ 10,490  (41.2) %
Recovery Audit Services – Europe/Asia-Pacific 1,209  1,801  (32.9) % 3,758  6,553  (42.7) %
Adjacent Services (29) 172  (116.9) % (82) 1,081  (107.6) %
Subtotal for reportable segments 3,123  5,437  (42.6) % 9,846  18,124  (45.7) %
Corporate Support 10,628  8,107  31.1  % 32,095  25,085  27.9  %
Total $ 13,751  $ 13,544  1.5  % $ 41,941  $ 43,209  (2.9) %
Recovery Audit Services – Americas SG&A expenses decreased 43.9% and 41.2% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. The year-over-year decreases in SG&A expense were primarily due to decreases in payroll and travel expenses.
Recovery Audit Services – Europe/Asia-Pacific SG&A expenses decreased 32.9% and 42.7% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. The year-over-year decreases in SG&A expense were primarily due to decreases in bad debt expense, payroll and travel expenses.
Adjacent Services SG&A expenses decreased 116.9% and 107.6% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. The year-over-year decreases in SG&A expense were primarily due to decreases in payroll and various other operating expenses.
Corporate Support SG&A expenses increased 31.1% and 27.9% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. Corporate Support SG&A expenses include stock-based compensation of $2.0 million and $5.2 million for the three and nine months ended September 30, 2020, respectively. Excluding stock-based compensation expense, Corporate Support SG&A expenses increased for the three month period primarily as a result of an increase in bonus expense while expenses increased for the nine month period primarily as a result of an increase in bonus expense and costs incurred in connection with the investigation and settlement of claims raised by a former employee whose position was eliminated in the fourth quarter of 2019.
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Depreciation of property, equipment and software assets. Depreciation of property, equipment and software assets was as follows (in thousands):
  Three Months
Ended September 30,
Nine Months
Ended September 30,
  2020 2019 Change 2020 2019 Change
Recovery Audit Services – Americas $ 1,120  $ 2,191  (48.9) % $ 4,835  $ 5,872  (17.7) %
Recovery Audit Services – Europe/Asia-Pacific 162  176  (8.0) % 486  520  (6.5) %
Adjacent Services 13  281  (95.4) % 80  840  (90.5) %
Total $ 1,295  $ 2,648  (51.1) % $ 5,401  $ 7,232  (25.3) %
Depreciation expense decreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 due to a reduced level of capital expenditures and assets placed into service.
Amortization of intangible assets. Amortization of intangible assets was as follows (in thousands):
 
  Three Months
Ended September 30,
Nine Months
Ended September 30,
  2020 2019 Change 2020 2019 Change
Recovery Audit Services – Americas $ 408  $ 437  (6.6) % $ 1,224  $ 1,313  (6.8) %
Recovery Audit Services – Europe/Asia-Pacific 43  41  4.9  % 126  126  —  %
Adjacent Services 379  386  (1.8) % 1,137  1,159  (1.9) %
Total $ 830  $ 864  (3.9) % $ 2,487  $ 2,598  (4.3) %

Generally, we amortize the customer relationship and trademark intangible assets we record in connection with an acquisition on an accelerated basis over six years or longer, and we amortize non-compete agreements and trade names on a straight-line basis over five years or less. This methodology results in higher amortization immediately following an acquisition, and declining expense in subsequent periods.
Impairment charges. During the third quarter of 2020, we determined that previously capitalized internally developed software related to our deduction management solution was impaired and was no longer expected to provide future value. Accordingly, the Company recorded an impairment charge of $0.6 million to the Adjacent Services segment.
Acquisition-related adjustment income reflects an adjustment to the earnout consideration for a business acquired in 2017.
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 receivables from our foreign subsidiaries while the relative weakening of the U.S. dollar results in recorded gains. In the three and nine months ended September 30, 2020, we recorded foreign currency transaction gains of $0.4 million and losses of $0.2 million, respectively, on short-term intercompany balances compared to losses of $0.9 million and $1.0 million, respectively, for the same periods in 2019.
Interest Expense, net. Interest expense, net decreased $0.2 and $0.6 million, respectively, for the three and nine months ended September 30, 2020 compared to the same periods in 2019.
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 we have several subsidiaries both domestic and foreign that have current year and actual year-to-date losses on which we cannot take a tax benefit because these subsidiaries have recorded a valuation allowance against their deferred tax assets. For those subsidiaries that report income and do not have a valuation allowance, we are required to record income tax expense. Reported income tax expense for the three and nine months ended September 30, 2020 was $1.5 million and $2.4 million, respectively, and income tax expense for the three and nine months ended September 30, 2019 was $0.2 million and $0.7 million, respectively. Reported income tax expense primarily results from taxes on the income of certain of our foreign subsidiaries.
As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to the future realization of deferred tax assets.
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Non-GAAP Financial Measures

    We evaluate the performance of our operating 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 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.
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 ("GAAP"). We believe these measures provide additional meaningful information in evaluating our 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 our secured credit facility. However, EBIT, EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation, or as substitutes for analysis of our results as reported under GAAP. The adjustments impacting the calculations of EBIT, EBITDA and Adjusted EBITDA may vary from period to period and in the future, we expect to incur expenses of a similar nature such as those used in calculating these measures. Our presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items.
A reconciliation of consolidated net income (loss) to each of EBIT, EBITDA and Adjusted EBITDA for the periods presented in this report are as follows (in thousands):
EBIT, EBITDA, and Adjusted EBITDA
  Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 Change 2020 2019 Change
Net income (loss) $ 3,034  $ (642) (572.6) % $ (431) $ (9,317) (95.4) %
Income tax expense 1,456  202  620.8  % 2,416  681  254.8  %
Interest expense, net 216  376  (42.6) % 861  1,441  (40.2) %
EBIT 4,706  (64) (7453.1) % 2,846  (7,195) (139.6) %
Depreciation of property, equipment and software 1,295  2,648  (51.1) % 5,401  7,232  (25.3) %
Amortization of intangible assets 830  864  (3.9) % 2,487  2,598  (4.3) %
EBITDA 6,831  3,448  98.1  % 10,734  2,635  307.4  %
Impairment charges 553  —  100.0  % 553  —  100.0  %
Foreign currency transaction (gains) losses on short-term intercompany balances (418) 905  (146.2) % 219  1,034  (78.8) %
Acquisition-related adjustment income —  (250) (100.0) % —  (250) (100.0) %
Transformation, severance, and other expenses 422  1,858  (77.3) % 2,401  3,835  (37.4) %
Investigation and settlement of employment matter —  —  100.0  % 1,306  —  100.0  %
Other loss (income) (50.0) % (4) (200.0) %
Stock-based compensation 1,959  527  271.7  % 5,155  3,573  44.3  %
Adjusted EBITDA $ 9,349  $ 6,492  44.0  % $ 20,372  $ 10,823  88.2  %
Adjusted EBITDA from continuing operations $ 9,349  $ 5,592  67.2  % $ 20,372  $ 10,181  100.1  %

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Transformation, severance, and other expenses decreased $1.4 million for the three and nine months ended September 30, 2020, compared to the same periods in 2019. The year-over-year decreases were primarily the result of the elimination of fewer positions in the Company in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Transformation, severance, and other expenses fluctuate as we transform our business or adjust our cost structure.
Costs associated with the investigation and settlement of an employment matter were $1.3 million during the nine months ended September 30, 2020, all of which were incurred in the quarter ended June 30, 2020. The matter related to claims raised by a former employee whose position was eliminated during the fourth quarter of 2019. Independent counsel was retained and following the conclusion of the investigation, the matter was settled.
Stock-based compensation increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to higher compensation expense associated with our performance-based restricted stock units in the 2020 periods.
Adjusted EBITDA
We include a detailed calculation of Adjusted EBITDA by segment in Note 4 of “Notes to Consolidated Financial Statements” in Item 1 of this Form 10-Q. A summary of Adjusted EBITDA, from continuing operations by segment, for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands):
  Three Months Ended
September 30,
Nine Months Ended September 30,
  2020 2019 Change 2020 2019 Change
Recovery Audit Services – Americas $ 11,938  $ 9,976  19.7  % $ 31,577  $ 27,697  14.0  %
Recovery Audit Services – Europe/Asia-Pacific 5,317  2,481  114.3  % 12,100  5,654  114.0  %
Adjacent Services 588  (18) 3366.7  % 1,706  (3,122) 154.6  %
Subtotal for reportable segments 17,843  12,439  43.4  % 45,383  30,229  50.1  %
Corporate Support (8,494) (6,847) (24.1) % (25,011) (20,048) (24.8) %
Total $ 9,349  $ 5,592  67.2  % $ 20,372  $ 10,181  100.1  %
Adjusted EBITDA for the three and nine months ended September 30, 2020 increased 67.2% and 100.1%, respectively, compared to the same periods in 2019. Adjusted EBITDA as a percentage of revenue increased 9.3% and 9.1% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.
Recovery Audit Services – Americas Adjusted EBITDA increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. The improvements in Adjusted EIBTDA were primarily due to decreases in payroll expenses.
Recovery Audit Services – Europe/Asia-Pacific Adjusted EBITDA increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. The increases were primarily due to decreases in bad debt expense and payroll expenses.
Adjacent Services Adjusted EBITDA increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. The increases were primarily due to decreases in payroll expenses.
Corporate Support Adjusted EBITDA decreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. The decreases were primarily due to increases in selling, general and administrative expenses, including, for the nine-month period, the costs associated with the investigation and settlement of an employment matter.
Liquidity and Capital Resources and Financial Position
Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less from the 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 material to our cons