PRGX Global, Inc. :PRGX-US: Earnings Analysis: Q2, 2017 By the Numbers : August 10, 2017

PRGX Global, Inc. reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of PRGX Global, Inc. – CBIZ, Inc., Paychex, Inc., Automatic Data Processing, Inc., Resources Connection, Inc. and DST Systems, Inc. (CBZ-US, PAYX-US, ADP-US, RECN-US and DST-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 38.51 million, Net Earnings of USD -0.33 million.
  • Gross margins narrowed from 29.04% to 28.76% compared to the same period last year, operating (EBITDA) margins now 3.85% from 6.35%.
  • Year-on-year change in operating cash flow of 695.07% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating (EBIT) margins contributed to decline in earnings, despite some positive contribution from one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 38.51 33.57 39.18 35.14 35.29
Revenue Growth (%YOY) 9.12 7.48 12.09 3.58 -5.36
Earnings (mil) -0.33 -1.85 0.18 2.15 -0.03
Earnings Growth (%YOY) -884.85 -2741.54 -96.35 163.07 -103.01
Net Margin (%) -0.84 -5.5 0.45 6.12 -0.09
EPS -0.03 -0.1 -0.01 0.1 -0.03
Return on Equity (%) -0.63 -3.55 0.34 4.3 -0.07
Return on Assets (%) -1.31 -7.42 0.77 10.88 -0.17

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Market Share Versus Profits

Revenues History
Earnings History

PRGX-US‘s change in revenue this period compared to the same period last year of 9.12% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that PRGX-US is holding onto its market share. Also, for comparison purposes, revenues changed by 14.72% and earnings by 82.40% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 29.04% to 28.76%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 6.35% to 3.85% in this time frame. For comparison, gross margins were 25.62% and EBITDA margins were 0.02% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

PRGX-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 29.55 days from 49.69 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

PRGX-US‘s change in operating cash flow of 695.07% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings fell, largely because of the narrowing in operating margins, which decreased from 1.78% to -0.91%. The decline in earnings probably would have been worse, were it not for some one-time items that improved pretax margins from 1.21% to 1.44%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

PRGX Global, Inc. is a business analytics and information services company. It operates through three reportable segments: Recovery Audit Services-Americas, Recovery Audit Services-Europe/Asia-Pacific, and Adjacent Services. The Recovery Audit Services -Americas segment provides recovery audit services in U.S., Canada and Latin America. The Recovery Audit Services-Europe/Asia-Pacific segment provides recovery audit services other than healthcare claims recovery audit services in Europe, Asia and the Pacific region. The Adjacent Services segment is provided to clients on a global basis. The company was founded in 1990 and is headquartered in Atlanta, GA.

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