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Edited Transcript of PRGX earnings conference call or presentation 7-Mar-19 10:00pm GMT

Q4 2018 PRGX Global Inc Earnings Call

ATLANTA Mar 14, 2019 (Thomson StreetEvents) -- Edited Transcript of PRGX Global Inc earnings conference call or presentation Thursday, March 7, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kurt J. Abkemeier

PRGX Global, Inc. - CFO, Treasurer & Controller

* Ronald E. Stewart

PRGX Global, Inc. - President, CEO & Director

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Conference Call Participants

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* Alexander Peter Paris

Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst

* Huang Howe

Barrington Research Associates, Inc., Research Division - Senior Investment Analyst & Research Analyst

* Zachary Cummins

B. Riley FBR, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the PRGX Global, Inc. Fourth Quarter and Full Year Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to turn the conference over to your host, Mr. Kurt Abkemeier. Sir, you may begin.

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Kurt J. Abkemeier, PRGX Global, Inc. - CFO, Treasurer & Controller [2]

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Thank you, Valerie, and good afternoon, or evening, or morning to each of you around the world.

Let us note at the outset that certain statements in this conference call may be considered forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These statements include statements relating to management's views with respect to future events and financial performance that are based on management's current expectations and beliefs and are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. For additional information on these factors, please refer to PRGX Global Inc.'s filings with the Securities and Exchange Commission, including, but not limited to, its reports on Forms 10-K and 10-Q. PRGX undertakes no duty to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

This presentation also contains references to certain non-GAAP financial measures such as EBIT, EBITDA and adjusted EBITDA, metrics that we use internally to measure our operating performance. A reconciliation between these non-GAAP measures and net income or loss to the most directly comparable GAAP measure is available under the Investor Relations portion of our website at prgx.com.

I will now turn the call over to Ron.

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [3]

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Thanks, Kurt, and welcome, everyone, to the fourth quarter 2018 earnings conference call. 2018 was a good year at PRGX. We delivered our third straight year of revenue and adjusted EBITDA growth led by our strong results in our U.K. Recovery Audit business, a meaningful increase in Contract Compliance revenue globally and an impressive growth in our Adjacent Services segment.

We delivered on our 2018 commitments to further build out our very important technology platforms and to expand our global go-to market teams. On the technology side, we made impressive strides in building our state-of-the-market Big Data technology platform, which we refer to internally as DX3, and we launched our Technology Solutions Group, establishing an experienced and qualified SaaS product development team. The Technology Solutions Group, or TSG team, is fully operational within the business, is accelerating the delivery of our next-generation Recovery Audit and Source-To-Pay solutions and is tightly integrated with DX3. DX3, along with our Source-To-Pay solutions, will fundamentally change how we deliver services to our clients. We expect our efforts in this area will enable us to increase revenues by expanding the scope of our audits, accelerating our service delivery while lowering our cost to serve. The primary objective is to increase revenues through expanded market share and increase service offerings and to improve our operating and EBITDA margins. We made considerable progress towards this objective in 2018, and we'll increase our efforts in 2019.

During 2018, we expanded our audit teams in the U.K. and the United States to respond to our growing Recovery Audit and Contract Compliance client base. We also grew and upgraded our global go-to-market team and achieved impressive results, closing 120 new deals, the largest number during my tenure as CEO. One of our key objectives going into 2018 was to infuse a sales culture into PRGX. We are experiencing positive growth in both contracts signed and in the sales opportunity pipeline.

Our Recovery Audit business continued its growth trend in 2018 while reflecting improved profitability and serving as the primary engine for new client acquisition. We were particularly pleased with the results in our Europe retail Recovery Audit business where we achieved 17% year-over-year growth, primarily driven by the realization of revenue from significant client wins in 2017 and 2018. Many of these engagements have been a springboard into meaningful Adjacent Services contracts. This is a testament to our data-led strategy of expanding services from a foundation built on strong Recovery Audit performance and data access.

Turning to the Americas. We had considerable success in expanding our audit position in several major clients. We moved from the secondary audit position to primary in 2 major North American clients. Even more significantly, in Q4, we signed an agreement to outsource the full audit for a top 10 retailer in North America. This means that we will be performing both primary and secondary audits for this client. We expect to begin seeing the revenue impact from this relationship starting in Q4 of 2019. We are actively pursuing similar Recovery Audit outsourced engagements with other major retailers.

Our commercial Recovery Audit business also continued to grow with strength in our Pacific region. We added 24 new commercial Recovery Audit clients around the world in 2018 and expect to realize revenues from these new clients in 2019. As I stated on previous calls, we feel that the largest opportunity for new client acquisition and audit scope expansion is in this service line. In addition to the growth of new clients, we continue to make strides expanding our existing commercial client base from both a geographic and service line perspective. The collaboration between our Contract Compliance business and our traditional Recovery Audit business is proving successful as we were able to expand the scope of our existing Recovery Audit Services in geographies as well as getting into more complex supplier audits at our existing clients.

I mentioned our channel partnership with a large global consulting firm on previous calls. I am happy to report that this relationship is expanding, and we are planning for an increase in the number of clients served in 2019. We've also experienced traction with several existing clients in the areas of payment analytics, spend analytics and sourcing opportunity identification.

We achieved meaningful expansion in our global Contract Compliance business in 2018, growing revenues 13% compared to 2017 on a constant-dollar basis. We added 18 new Contract Compliance clients in 2018, over half of which came from existing PRGX audit clients. We feel confident in continued revenue growth for 2019 based on expanding client engagements and a robust backlog of claims in various stages of settlement negotiations. Our strong pipeline of new Contract Compliance opportunities going into 2019 remain strong, and we are seeing growing demand from our clients to increase the number of contracts under audit. We invested an additional Contract Compliance headcount during 2018 to meet the increasing demand for services and expect this investment to yield positive revenue and EBITDA growth in 2019.

Adjacent Services had a very good year as well, growing fourth quarter revenue 131% over the prior year and 55% for the full year compared to 2017. We signed 20 new Adjacent Services contracts in 2018, almost all of which came from existing Recovery Audit clients. We're off to a strong start in 2019 with several early wins and a promising pipeline of in-process opportunities.

In our Q3 call, we announced 2 significant data-led sourcing engagements based on our data classification analytics solution and procurement diagnostics. These engagements are progressing well, having identified a number of significant savings opportunities for these clients, which we expect to begin generating revenue in late Q1 and into Q2. We have recently expanded the number of client engagements in this area with several more in the pipeline. To support these new client engagements, we brought on additional staffing in Q4 and into Q1. And we expect to continue to hire ahead of the curve in order to service these sourcing engagements.

Our suite of services continues to differentiate us in the marketplace. In the past month, we have had numerous meetings with senior client executives across finance, procurement and merchandising to present our breadth of capabilities across Source-To-Pay. Our story is resonating in the marketplace. Clients and prospects are seeing us in a new light, and we're starting -- and starting to come to us for help in solving strategic issues.

So Q4 was our largest revenue quarter in my tenure as CEO, with revenue from continuing operations very close to $50 million. We had several million dollars of additional claims revenue we fully expected to recognize in Q4, which got pushed to 2019, either because our clients extended the supplier negotiation time line or rolled our claims forward for internal reasons. We expect to recover the majority of this revenue shortfall in Q1, with the remainder coming through later this year.

This delay in claims realization, along with negative effects of currency fluctuations, which Kurt will describe in detail later, caused us to come up short of our revenue guidance for the year. While disappointing from a guidance standpoint, 2018 was an outstanding year on many fronts, and the underlying growth prospects for the company remained strong. 2018 ending work-in-process claims inventories grew by a double-digit percentage over 2017, indicating strong productivity and continued growth expectation.

As many of you know, delays in claim conversion by our clients are not unusual in the traditional Recovery Audit service model. We are highly dependent on clients reviewing and approving our claims and, in many cases, reaching agreement with their suppliers before we can recognize revenue. This is why we are focused on moving our service model from a post-audit service performed months or even years after the payment transaction to a much more accelerated and integrated service model. We expect this service model will increase claim conversion rates, lower our cost to deliver audits and reduce supplier abrasion, which ultimately translates into higher revenues and improved margins.

Getting to an accelerated service model and providing meaningful Source-To-Pay analytics requires a much more robust and responsive data technology platform. Last quarter, we introduced DX3, our next-generation high-performance Big Data platform. This platform is an intelligent, efficient and high-speed platform to ingest and process millions of disparate client files containing structured and unstructured data. We believe this platform provides a significant competitive advantage for all of PRGX services and solutions. The DX3 platform is designed to perform audits in a much faster, integrated way and to leverage powerful analytics and insights on a real-time basis. This platform is important for PRGX for a number of reasons: first is the speed of complex data ingestion and processing, second is faster and more timely delivery of audit and analytics services; and finally, its lower cost to serve. We have begun converting our client data and associated processing logic onto this platform and expect to have the bulk of our clients' data conversion to the new platform by the end of the year.

To continue on our growth trajectory, we are continuing to make strategic investments in our business. We have a number of important objectives and key investment areas for 2019. First, we will continue to focus on our core business of Recovery Audit to continue to expand scope, add new audit topics, expand market share and improve operating margins in all audit service offerings. We will continue to invest in audit transformation and continued innovations that move us closer to the transaction, in certain cases, before the transaction occurs, which will yield higher value for our clients. Our audit strategy group has made great strides in driving innovation, revenue growth and cost efficiencies over the past 3 years. We expect to continue to grow audit revenue while increasing our margins in the business.

Second, we are investing in further establishing our brand in the market and evolving our lead and demand-generation capabilities. We want to define and own the area of data-led Source-To-Pay leakage, and we'll be building our marketing organization to drive and enable our global go-to market efforts. We will also be expanding our global go-to-market team to further increase coverage and have new business impact.

Next, as mentioned earlier, the conversion of our core data to DX3 and the -- and achieving the realization of this platform is a very high priority in 2019. We have a detailed plan we are executing against to complete data conversion and begin driving revenues through this platform by the end of the year. Closely tied to the DX3 objectives, we have a robust list of strategic technology and Source-To-Pay solutions under development in 2019, which will incorporate various AI initiatives. We are building the majority of our applications to take advantage of the DX3 data infrastructure, and we expect that the revenue and margin impact from these applications will start to materialize in the back half of this year and accelerate in 2020.

Finally, in addition to investing in our internal technology development and audit acceleration and innovation, we will continue to pursue strategic acquisitions where it makes sense. Consistent with our previous direction, we are primarily interested in companies in our industry that provide talented resources, access to attractive clients, innovative audit capabilities and/or geographic expansion. Secondly, we're interested in relevant Source-To-Pay technologies, which add to our base of value-creating applications or accelerate the realization of Source-To-Pay technology platform.

As you can tell from my comments, I am very bullish about the future and our prospects for 2019. 2018 was an excellent year on many fronts. And as already mentioned, we fully expect 2019 to be another year of steady growth. We entered the year with a very good carryover from agreements signed in 2018, some early important contract wins in January and February and a strong pipeline of opportunities across all of our service offerings.

Before handing it over to Kurt to review the financial results for Q4 and the year, I want to share a recent change we made at the board level. Joe Whitters has decided to step down as Chairman and will continue to serve as a member of the Board of Directors. Greg Owens has been appointed as Executive Chairman. We appreciate all of Joe's contributions and leadership as a member of our board. Joe has been an outstanding Chairman, and we appreciate his contributions over the past 4 years. Greg has been on the board for 4 years and has a deep and successful history in leading and growing technology businesses. As Executive Chairman, he will be spending a significant amount of time working with me on strategy, organization and other key areas.

Now turning to our financial performance. I want to first of all thank Pete Limeri for his support and contribution as Interim CFO over the last 5 months. He has been a real asset to the team and provided excellent leadership during this period. In early January, Kurt Abkemeier joined PRGX as our Chief Financial Officer. Kurt has an impressive and relevant background as well as a strong reputation for high performance and integrity. Kurt has 25-plus year -- has a 25-plus year career in Finance starting as a research sell-side analyst, much like some of you on the call, at JPMorgan and then transitioning into executive and senior finance and strategy roles within recurring revenue businesses, most recently, in enterprise software businesses, which have some commonality with PRGX. Kurt had a lot to take on over the last 2 months, and I look forward to his leadership, not only in the finance area but to the greater overall effort of PRGX, as we continue to transform the company and achieve our strategy of data-led Source-To-Pay value realization for our clients and higher return on invested capital for our investors.

So now I'll turn the call over to Kurt. Kurt?

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Kurt J. Abkemeier, PRGX Global, Inc. - CFO, Treasurer & Controller [4]

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Thank you for those kind words, Ron. As Ron noted, this is my first quarterly earnings call as a CFO here at PRGX. I have big shoes to fill, taking over from Pete Limeri, and I hope to be able to provide the same levels of insights that he has over his lengthy tenure at the company. I look forward to keeping you updated on the company's financial performance and hopefully meeting with many of you in person over the next few weeks and months. With that said, let's dive right in.

Consolidated revenue from continuing operations for the fourth quarter of 2018 was $49.6 million, an increase of 5.4% compared to the fourth quarter of 2017 and, for the full year of 2018, was $171.8 million, an increase of 6.3% compared to 2017. These were the strongest results in the last 5 years. Due to the general strengthening of the dollar relative to the currencies of our international operations, revenues were adversely impacted by approximately $600,000 for the fourth quarter of 2018 compared to the exit point of the third quarter of 2018 and by approximately $2.7 million for the full year of 2018 compared to 2017 due to the deterioration of exchange rates throughout the year. I would like to note that this $2.7 million figure that represents the cumulative impact of the currency headwind due to the weakness of foreign currencies largely comprises the difference between our reported revenue and the low end of our revenue guidance range.

In addition to this negative impact from foreign currency changes, if some claims had not pushed from 2018 into 2019, revenue results would have been even higher than that explained by the depreciation and foreign exchange rates. I think it's very important to understand that there were 2, not just 1, reasons for the difference in the actual revenue performance relative to expectations. I'm going to digress a bit here to provide a little more insight into this impact of currency rate changes.

Our international operations represent approximately 40% of our revenue. So this has a pretty material impact on our results. The vast majority of the foreign currencies of our international operations depreciated during the fourth quarter of 2018 as well as over the entire year, with the British pound and Canadian dollar, our 2 biggest non-U. S. dollar operations, declining materially. When foreign currencies depreciate relative to the U.S. dollar, this creates a headwind for any company reporting results of foreign operations in U.S. dollars. I want to call this out here as this has been relatively under -- a relatively underappreciated headwind in my opinion as it relates to PRGX for the fourth quarter of 2018, the full year results of 2018 as well as for what it implies for 2019. And I will come back to this point a few times during my commentary.

I'm going to pivot back to my specific commentary on the quarter now that I've provided some insight on the impact of currency fluctuations. As for particular call-outs not related to currency, Recovery Audit in Europe and APAC was relatively strong due to large client wins and market share gains in late 2017 and early 2018. Incremental revenues from these wins started to materialize late in 2018 and will continue into 2019. We're very pleased with the state of the business, especially in the U.K., and look forward to continuing to expand our influence in this part of the world.

Recovery Audit in Americas revenues were basically flat compared to 2017, primarily due to the delay of Q4 claims realization, which will push into 2019. We do expect many of these delayed claims to be picked up during the first quarter of 2019 with some of it being realized during the rest of the year. When it comes to realizing revenue on claims, as many of you who have followed the company know, it often takes a lot of coordination not only between PRGX and our clients but also between our clients and their suppliers. This complexity in coordination of all these parties can complicate the timing and resolution of claims settlements, which typically gets resolved, albeit sometimes after causing delays. Suffice it to say, we're not seeing any general dropoff in claims being resolved or a generation of claims. We exited 2018 with a solid pipeline of -- with claims we have to start the year.

As for Adjacent Services, while it may have an uneven trajectory forward on a quarterly basis, we do expect it to continue to grow year-over-year at a healthy rate. This is an emerging line of business and, as it develops, we'll have results that maybe a bit choppy due to larger projects that are not necessarily recurring in nature. We're adding clients, we're adding more services, we're retaining our clients in the space and we're increasingly using the SaaS tools that we believe are the future value generators for the company.

Moving on from revenue commentary. Gross profit and gross margin from continuing operations continued to improve when measured on an annual basis, with margins continuing a multiyear streak of expansion. Gross profit for the fourth quarter was $23.1 million, an increase of about 14% from the fourth quarter of 2017. And gross margin for the fourth quarter was 46.6%, an expansion of about 340 basis points from the fourth quarter of 2017. Much of this is due to continued process improvements. Improvements that we look to continue to build upon, especially as we ramp up client data with DX3. We believe DX3 can provide leverage in a number of ways, including process improvements that can enhance gross margin.

As for adjusted EBITDA. Adjusted EBITDA and adjusted EBITDA margins from continuing operations when measured on an annual basis, as was the case with gross profit and gross margin, to continue a multiyear streak of expansion. For 2018, adjusted EBITDA was $24.7 million, an increase of about 15.6% on an as-reported basis compared to

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or 18% on a constant-dollar basis, which I note was within the previously provided adjusted EBITDA guidance range. And adjusted EBITDA margin was 14.4% of revenue, an expansion of about 210 basis points from 2017.

For the fourth quarter of 2018, adjusted EBITDA was $10.9 million, an increase of about 17% from the fourth quarter of 2017. And adjusted EBITDA margin was 21.9% of revenue, an expansion of about 210 basis points from the fourth quarter of 2017. Similar to my earlier comments on revenue, due to the changes in exchange rates, adjusted EBITDA was adversely impacted by approximately $500,000 during the quarter of 2018 relative to the exit point of the third quarter and by approximately $1 million for the full year of 2018 relative to 2017.

As for net income. Net income from continuing operations for 2018 was $3.4 million compared to $4.6 million in 2017, while net income from continuing operations for the fourth quarter of 2018 was $5.9 million, an increase of 5% over the fourth quarter of 2017 and with 12% of revenue, consistent with last year's percentage.

Moving on to the balance sheet and cash flow statement. We ended the year with $14 million in cash and equivalents, $21.6 million in debt and $47.4 million of net accounts receivable. As general commentary, we had a modestly larger uptick in accounts receivable during the fourth quarter of 2018 compared to the fourth quarter of 2017 as well as the third quarter of 2018. This was due to 3 factors: first, growth in revenues overall as we've hit the highest level of revenue in the last 5 years; second, revenues being relatively skewed towards the end of the period in the fourth quarter of 2018, which makes it more unlikely to realize intra-period -- the collection of intra-period revenue; and third, a general lengthening in payment terms among our clients, which has been a longer-term trend. As for capital expenditures, there were $2.5 million in the fourth quarter of 2018 and $10.4 million for 2018.

As for guidance, we're establishing the following guidance for 2019. For revenue, growth of 8% to 10% over reported revenue of $171.8 million in 2018. This would imply a range of $185.5 million to $189 million as translated in absolute terms. As for adjusted EBITDA, growth of 14% to 18% over reported adjusted EBITDA of $24.7 million in 2018. This would imply a range of $28.1 million to $29.1 million as translated in absolute terms.

It is worth noting a few things about these guidance figures. First, currency exchange rates generally decreased relative to the U.S. dollar during 2018, which means there's a general headwind of about $2 million in revenue to overcome in 2019 in order to achieve these guidance figures. Second, to the extent that currencies move during 2019, we will provide more insights into how this may impact our as-reported results. Those are some pretty solid growth objectives for 2019, and the team here will be working hard to deliver on those targets.

We've got a solid foundation to build on here at PRGX. Our nearly 50-year heritage has established a strong reputation with our clients, our client suppliers as well as our competitors. We are working hard to transform the company and pivot our expertise from our traditional Recovery Audit areas of strength to newer technology-driven areas in the Source-To-Pay space. And I look forward to providing leadership to help drive that transformation and pivot so we can maximize shareholder value.

And with that, I'd like to hand the call back to the operator for Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Alex Paris of Barrington Research.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [2]

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Kurt, welcome to the company. Welcome to the first conference call as CFO.

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Kurt J. Abkemeier, PRGX Global, Inc. - CFO, Treasurer & Controller [3]

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Thank you.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [4]

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I might have a few questions on guidance. So revenue growth of 8% to 10% per year, based on Kurt's comments there, were not back to reading any worsening or improvement in the FX rate as of today. You said, Kurt, that you would update us as there were changes in currency going forward. I just want to make sure that that's correct. So we're -- assuming where we are today, the exchange rates today, 8% to 10% growth despite the headwind of...

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [5]

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$2 million.

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Kurt J. Abkemeier, PRGX Global, Inc. - CFO, Treasurer & Controller [6]

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Yes, that is correct.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [7]

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Yes. Okay. So at the midpoint of that guidance, that suggests an increase in absolute dollars of $15 million to $16 million or so. Where is that most likely to come from? It looks like Recovery Audit Europe, Asia has the greatest momentum, moving into the new year. And obviously, Adjacent Services, I suspect may have the highest growth rate, but not necessarily the highest contribution, in terms of dollars. So maybe what I'm asking is a little bit of color about contribution of the segments in 2019.

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [8]

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Sure. Sure. Well, first of all, the North America or the Americas for Q4 was -- had growth but it wasn't significant growth. And some of the claims that got pushed over to 2019, most of those were in the Americas. So I think you would see that coming on. And we've got some new scope of work, some -- I talked about some of our movement from secondary to primary, which will mostly come in the second half of the year. But I think we'll see nice growth in the Americas. We continue to perform very well. We've got good inventory of work in process for claims. And so I think our recovery -- our retail Recovery Audit business will do well. Secondly, Contract Compliance is -- has been something we've been investing in, and we've got -- we're expanding the number of clients, building a significant work-in-process inventory. And Alex, as you recall, from knowing our company well, these claims prove a little bit more challenging to settle. It takes time. And so -- but we think we're going to see nice growth on a broader foundation coming out of 2018. Adjacent Services, we continue to have nice pipeline there. We invested in the fourth quarter. We'll invest into Q1 on resources there. But we feel like we're going to get a nice bounce in revenues from the sourcing engagements plus some of the other work we're doing in advisory and some of the SaaS-based solutions. So I think you'll see a nice lift there, again, next year over this year. Europe, we picked up some new clients at the end of '17 and early '18. That came -- really started to have an impact in the latter part of '18. So you'll see -- you should see a nice -- a nicer comparison at least in the early part of the year from Europe. And so we're not seeing a lot of weakness as we sit here today across the board. And I think we're still -- we're going to look a lot in 2019 like we did in 2018 with slow, steady, sure and profitable growth, but we should have another good year.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [9]

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Great. Well, I'm surely not criticizing that guidance. That guidance suggests an acceleration in revenue growth in 2019. And based on your comments just now, it sounds like all 3 reporting segments will contribute to that growth.

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [10]

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That's the way we see it right now, Alex. As things evolve, we'll be sure to share the news.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [11]

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Okay. Great. And then continuing on with the guidance. The revenue or the adjusted EBITDA growth is even more impressive. Besides the increase in revenue, where else do you see leverage on the P&L? Is it cost of revenue? It looks like SG&A, with headcount additions and things like that, might not be the leverage point. It looks more so like cost of services. I'm just wondering where on the P&L we'll see leverage?

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Kurt J. Abkemeier, PRGX Global, Inc. - CFO, Treasurer & Controller [12]

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Yes, I think your intuition is right there, Alex, that we would see it more on cost of revenue there getting the leverage. That's where we've been getting the leverage over the last few years and the combination of probably some of the larger-scale deals, being able to get those efficiencies. And hopefully, as DX3 ramped, that's something where we would be moving some of the heavy lifting from people doing that work to machines doing it. So we would expect really more of it to be coming from cost of revenue.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [13]

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Okay. And then CapEx, which was $10.4 million in the year just completed. All your plans for strategic investments for 2019, where do you see CapEx for 2019?

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Kurt J. Abkemeier, PRGX Global, Inc. - CFO, Treasurer & Controller [14]

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We're not providing guidance for CapEx. But directionally, I would say that it would be elevated from where we are today. There is some technical debt that we're going to have to address within our network that hasn't been addressed in a while. And as we are working on more of the SaaS kind of tools that we think are going to propel our business, there's going to be a little bit more intensity there. And I think you've seen over the years, CapEx has lifted up some, and I would expect a similar kind of progression.

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Operator [15]

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Our next question comes from Zach Cummins of B. Riley FBR.

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Zachary Cummins, B. Riley FBR, Inc., Research Division - Analyst [16]

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Welcome aboard, Kurt. In terms of kind of the 4Q revenues being pushed out again, can you talk a little bit more in terms of that pushout and what really kind of drove that here at the end of the year and, really, your confidence in being able to secure all of that potential revenue as we go into 2019?

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [17]

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Sure. Sure. And so going into Q4, we keep a pretty meticulous tracking of what we're going to -- what we think we're going to convert. And we have a significant claims inventory that we track, and we know kind of what we expect to cover, and things that, as we get closer to a quarter, we work with our project teams and our client teams to confirm and, in certain cases, intercede if we need to have conversations with clients. And we have a very healthy inventory going into Q4 that we had a high degree of confidence in. And we get in the -- as you know, you've been following the company for a while and others, things happened with clients where, in one particular case, they entered into -- and this was on a very significant claim, over $1 million that -- or a set of claims over $1 million that they decided to bundle up into another year's audit and settle later in 2019. So they made an arrangement. Obviously, we were not -- we didn't have a seat at that table, but that was a decision that was made, which had an impact. But that was just one example. And then we had others where the clients decided at the end of the year that they had -- they wanted to move some of the claims into the next year for financial reasons, if they had met their budgets or their expectations in 2018 and were pushing it off into '19. That's a decision that they can make. And we had a number of situations like that. But I'd say, there were 4 or 5 situations that really did have the larger impact, and we track these very, very closely. And we know where we are, and we continue to track them into 2019.

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Kurt J. Abkemeier, PRGX Global, Inc. - CFO, Treasurer & Controller [18]

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And Zach, I'm just going to tack on to Ron's comments. I kind of have the benefit of being the newbie who has come in and have come across this type of business model for the first time, but I've seen plenty of other business models. And the part that I want to make sure that you and others on the call appreciate is that, with this revenue that we're talking about, this is work that we've already performed. So this revenue is not really going to be going away at all, it's just a matter of the complexities of realizing the timing. So compared to perhaps other companies that you might look at, where they do not necessarily hit a revenue number, that revenue might not ever come back around. It's lost to a competitor. That's not the case here. We've actually done the work, and it's just a matter of time. Does that help, Zach?

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Zachary Cummins, B. Riley FBR, Inc., Research Division - Analyst [19]

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Yes, that's helpful context. And Ron, can you talk a little bit more about some of your planned investments in the coming year. I know you mentioned you are maybe looking to really improve kind of your go-to-market capabilities and really expanding out on that Technology Solutions Group. So can you talk about kind of what you see as necessary areas of investment to really support the growth opportunities that you're seeing in the coming years?

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [20]

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Absolutely. And hopefully, I capture the strategic significance of our breakthroughs in this technology platform that I was referring to. And this is something we've been working towards for the last several years. And the idea of being able to have -- ingest this very complex disparate data, and enrich it, and make sense out of it, and construct it into patterns that are fed into the audit platforms or the analytics platforms is very, very challenging and difficult to do. And that's something that's a core competence of the business that we've been doing for a lot of years. But it's been a fairly, I'll call it -- it's automated to an extent, but there's a lot of manual intervention and computer operations to get there. And what this platform really does is it automates the ingestion and translation and harmonization integration of all this data in a much more efficient, rapid way, so that we can get to the data, we can get it processed and transformed much, much more quickly and into applications that generate value. And if we're going to really move to where we want to go on all of our services, which is much more real-time, integrated, in certain cases, preventative, I mean, that's really breakthrough stuff, whether we're talking about Recovery Audit, we're talking about analytics or other solutions. And that's what we've been working towards for the last few years. And we feel like we have broken through with the DX3. It's working, and we're moving data into it. So now we will continue to invest in that platform to expand the functionality. But we've got to move all our data into that. And the complex instructions of how this data has to be processed has to be entered and coded into the platform, which we're right in the middle of. But that's going to be a very significant undertaking in 2019, but we feel like it's really significant in terms of where we're going as a company. And then on top of that, the applications that are going to take advantage of it have to be integrated into the DX3 infrastructure, and we're building audit platforms that leverage that data and that can go across all of our audit services and then our analytics platforms, building them into DX3. Those are all things that we're going to be investing in, in 2019 to build out that platform so that we can deliver the promise of integrated, real-time data in a very, very effective and valuable way. So those are all technology investments this year that we're going to continue to make -- that we've been working on but will continue to make and increase those to some degree. And then as we think about go-to market, we haven't invested in marketing over the last couple of years because we've been busy building our business and where we're -- where we want to take it. And now we feel like it's time to really get positioned in marketing. We want to own this space of Source-To-Pay leakage, and we want to establish PRGX as a brand that is synonymous with that type of impact and that type of a value proposition and then expand and develop our sales force so that we can get out and meet with clients. This is -- this requires direct conversation, direct interaction, a lot of communication of how it works and where the value is, and we've got to have a sales force on the ground to get out and do that. So those are all things that are foundational and building towards where we want to be. And obviously, we'll see impact in 2019, but we're -- we've got big expectations beyond that.

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Operator [21]

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(Operator Instructions) Our next question comes from Chris Howe of Barrington Research.

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Huang Howe, Barrington Research Associates, Inc., Research Division - Senior Investment Analyst & Research Analyst [22]

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This is Chris Howe with Barrington Research. I just have one more question. It's somewhat related to what you may have already mentioned. But as we look at the sales force maturation in regard to the marketing and brand development initiatives and investments that you're pushing forward with, how should we think about where each segment sales pipeline is currently was a few years ago and where it's projected to go in 2019 and 2020?

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [23]

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Great. Great question. And I'd say, I think we were -- in Q3 earnings call, we talked about the number of deals and the bookings or the signed contracts, the expected value of signed contracts being very strong relative to where we were in '17, and we finished the year even stronger. So we are coming out of a very good year in terms of results from our sales organization and a pretty broad range of opportunities. We have the commercial segment, which probably yields the best growth opportunity as far as bringing in new logos and expanding scope of audit services. But we also have continued to increase market share and expand scope of revenue in retail, so both of those continue to be solid. There is not going to be the level of new business opportunity in retail that there is in commercial just simply because there's so many more commercial companies out there than retailers, and we've got a significant footprint in retail, as you know. But we think there's good pipeline on expanding the scope of services into Contract Compliance and into Adjacent Services. And we've got -- right now, I think -- we talked about 20 deals that we've signed and began executing in 2018. That pipeline is stronger than that today. And going into '19, we've already have a couple of nice wins early this year. And I expect it to continue. We really -- our team is really getting mature and really good in explaining what we do, in how we deliver value and differentiating from other options. And I expect that to continue. Contract Compliance, great momentum there, and we really want to evolve Contract Compliance into a much more continuous and automated process to try to make the resolution of these claims a lot easier and a lot quicker. So all those areas, we're pretty bullish on. I can't point to where I see most of the sales activity being, but we're kind of hitting across all cylinders. But you got to remember that our primary foot in the door, our opening salvo, tip of the spear is Recovery Audit. That's what were known for. That's where we excel. And we'll continue to enter and engage in new clients through -- primarily through Recovery Audit, not all the time but in many times. And so that's a big push for our lead generation in new business development. Does that help?

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Huang Howe, Barrington Research Associates, Inc., Research Division - Senior Investment Analyst & Research Analyst [24]

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It helps a lot.

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Operator [25]

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I'm showing no further questions at this time. I turn the conference back over to Ron Stewart, the CEO, for any closing remarks.

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [26]

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Thanks, Valerie. I want to thank all of you for attending today's earnings call. We will look forward to continuing our conversation on our Q1 earnings call coming up in the near future. Thank you.

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Operator [27]

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Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.