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Edited Transcript of PRGX earnings conference call or presentation 9-Aug-18 9:00pm GMT

Q2 2018 PRGX Global Inc Earnings Call

ATLANTA Aug 25, 2018 (Thomson StreetEvents) -- Edited Transcript of PRGX Global Inc earnings conference call or presentation Thursday, August 9, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deborah M. Schleicher

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

* Kevin D. Liu

B. Riley FBR, Inc., Research Division - Senior Analyst of Software and Business Services

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q2 2018 PRGX Global Inc. Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Debbie Schleicher, Chief Financial Officer. Please go ahead.

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Deborah M. Schleicher, PRGX Global, Inc. - CFO, Treasurer & Controller [2]

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Thank you very much, Sarah. We are here today for our PRGX Second Quarter 2018 Conference Call. Welcome to the call and greetings from Atlanta, Georgia. This is my first earnings call with PRGX, and I'm pleased to be here. And I'm looking forward to working together with Ron and the executive team to drive increased value for the company.

Before I turn the call over to Ron Stewart, our CEO, please note that certain statements in this conference call contain forward-looking statements intended to qualify under the safe harbor provision 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.

Important factors that can cause actual results to differ include, but are not limited to, those stated in PRGX filings with the Securities and Exchange Commission, including, but not limited to, its reports on Form 10-K and 10-Q. All forward-looking statements are based on information available to PRGX at the date of this call, and 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 loss to 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, Debbie, and welcome, everyone, to the Second Quarter 2018 Earnings Conference Call. We completed the first half of the year with strong results, achieving our eighth consecutive quarter of revenue and EBITDA growth, while continuing to invest in technology development, sales and marketing and new client revenue expansion. For the quarter, revenue grew over 9% and adjusted EBITDA from continuing operations grew over 17% on a year-over-year basis.

Our growth was led by our North America Retail Audit business, which grew 12% year-over-year; and our Adjacent Services business, which grew 47% compared to the same period in 2017.

Our Recovery Audit business continues to deliver, with year-over-year growth in each region and service line in Q2. Our new and existing clients are taking advantage of the investments we have made in our data delivery platform, and continued enhancements to our proprietary audit processes and technology tools. We also continue to attract a very talented and highly experienced group of audit professionals working for PRGX across the world that helped us maintain the pace of continuous innovation our clients have come to expect.

Adjacent Services had a strong quarter, as we are beginning to recognize the benefit of our SaaS analytics applications integrated with our Source-To-Pay advisory services. The pipeline in this segment is strong, and we expect to announce additional wins in the near future. As we look ahead, we remain focused on accelerating revenue growth and expanding our EBITDA margins.

Let me take a minute and tell you why I'm confident that we can get this done.

First, in our Recovery Audit business, we continued to evolve the business past our traditional retail audit roots. We have invested significantly in the past 2 years on the underlying technology to provide our clients far better access, insight and ultimately, control over their Source-To-Pay business processes. We are winning against significant competitors based on our ability to rapidly process data at far faster rates than we were able to deliver even 2 years ago. We believe, as our strategy and capabilities evolve from post audit to accelerated audit to integrated audit, and then ultimately, to real-time and preventative audit, each step will bring incremental revenue. These innovations allow us to audit not only more efficiently, but also more thoroughly, which we believe will expand our current scope of work from existing clients as well as attract new clients, both in larger and midsized markets.

Our Contract Compliance service offering continues to be a market leader. We serve a diverse set of industries in a very global way, including our retail client base. For example, we recently were awarded the global contract compliance work for a major oil and gas company over a large accounting firm due to our innovative approach and ability to serve this client globally in a consistent manner. Expansion of clients and contracts in this service line is slower to revenue, as conversion of compliance findings takes longer than our traditional Recovery Audit Services.

One of our key imperatives for 2018 was to significantly expand our global sales and marketing organization. Since the beginning of the year, we have added 19 new sales and marketing professionals around the world, and expect to add several more in the months ahead. While it will take some time to get these new people up to speed and productive, we have seen positive results year-to-date in 2018, adding to over 20 new clients and expanding our scope of services in more than 25 existing clients. Of particular note, is our recent success in partnership with a major global consulting firm, where we are serving 2 significant new clients to transform Source-To-Pay processes and capabilities. We believe these types of channel partnerships will be a meaningful and long-term source of new client expansion and revenue growth.

Our renew business opportunity pipeline remains strong and growing. While the majority of our new business pipeline continues to be related to Recovery Audit Services, we have a growing number of SaaS and advisory opportunities. I expect this momentum to increase going forward as our new salespeople come up to speed and investments in brand marketing and lead generation start to bear fruit.

We expect the growth in both our core business as well as newer services will enable EBITDA growth while we continue to invest in sales and marketing, technology, automation and core data infrastructure. This investment is critical to meeting our revenue growth goals. Additionally, we expect to continue operating our business with financial and operating discipline to drive further adjusted EBITDA and operating margin improvement. Our strategy to focus on the core business, investing in market-leading technologies and audit process reengineering, and to extend our services to include technology-led Source-To-Pay visibility and process improvement solutions is working.

We have a compelling

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helping our clients realize incremental value from their Source-To-Pay data. We are growing revenue, increasing EBITDA and maintaining the financial flexibility to invest in our internal growth initiatives and make additional acquisitions, which add new client logos and talent, and accelerate the pace of innovation at PRGX.

I'll now turn the call over to Debbie, to provide more financial and operational details on the quarter.

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Deborah M. Schleicher, PRGX Global, Inc. - CFO, Treasurer & Controller [4]

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Thank you, Ron. I will begin by reviewing our financial result from continuing operations for the quarter ended June 30, 2018, compared to the same period at 2017.

As Ron said, this was a very good quarter. Here are a few of our highlights from our revenue results. Consolidated revenue from continuing operations for the 3 months ended June 30, 2018, was $42.1 million, an increase of $3.6 million or 9.3% compared to the second quarter of 2017. On a constant dollar basis, adjusted for changes in foreign currency exchange rates, consolidated revenue from continuing operations for the second quarter of 2018 increased $3.2 million or 8.5% compared to the same quarter in 2017. This is our eighth consecutive quarter of year-over-year revenue growth.

We had growth in each region and service line. What was exciting about our second quarter was our ability to demonstrate meaningful growth in Recovery Audit and Adjacent Services. Our Global Recovery Audit business had year-over-year growth of 8.1%, which is 7.2% on a constant dollar basis. And Adjacent Services had year-over-year growth of 47.4%, 49.3% on a constant dollar basis.

Our acquisition of the C&CA business was completed in Q1 of 2017. So our Q2 2018 Recovery Audit Revenue growth was all organic.

Revenue from each of our reporting segments was as follows: Recovery Audit Services - Americas revenue was $28.9 million compared to revenue of $26.6 million in Q2 of 2017, an increase of approximately $2.3 million or 8.9%. On a constant dollar basis, Q2 2018 Recovery Audit - Americas revenue grew by 8.9% compared to the prior year quarter. Within the same -- within the segment, U.S. retail growth was particularly strong, growing 13.2% year-over-year in Q2 on a constant dollar basis. This result shows continuing strength in our largest revenue segment from both online and traditional retailers, and we expect continued momentum through the end of 2018 and going forward.

Recovery Audit Services - Europe/Asia-Pacific revenue was $11.4 million compared to revenue of $10.8 million in the second quarter of 2017, representing growth of approximately $0.6 million or 6.2%. On a constant dollar basis, Q2 2018 revenue for this segment grew by 3.1%, compared to the same quarter of the prior year.

The expected revenue from recent wins in the U.K. and Europe was not a significant factor in Q2 revenues, but should start to show impact in the second half of 2018.

The Asia-Pacific Commercial business had a particularly strong second quarter, with year-over-year constant dollar growth of over 300%. Our performance in the Asia-Pacific region is a great example of growth from our investment in sales and marketing, and solid execution from our audit teams. Ron has previously spoken of our top-notch team of sales and audit professionals in that region, and they certainly delivered this quarter.

Adjacent Services revenue for the quarter ended June 30, 2018, was $1.7 million, compared to $1.2 million for the same period in 2017, an increase of 47.4%. The majority of this growth in Q2 relates to the previously announced customer wins, powered by the PRGX OPTIX SaaS suite, which include both OPTIX subscriptions and advisory services engagements that use our OPTIX analytic tools. We expect to see several other advisory and OPTIX analytics engagement, which have been signed, or we expect to be signed, ramp up and start generating revenue.

Next, I will give an overview of adjusted EBITDA results and then discuss detail about the year-over-year comparisons for gross margin and SG&A.

Adjusted EBITDA from continuing operations for the 3 months ended June 30, 2018, was $4.1 million, or 9.7% of revenue, which was a $0.6 million, or 17.4% increase compared to the same period in the prior year. I want to point out that adjusted EBITDA for Adjacent Services was close to breakeven for the quarter, which shows meaningful improvement over prior quarters. However, since this segment is emerging, we plan to continue vesting to accelerate future revenue growth.

Our gross margin from continuing operations was $14.2 million, or 35% of revenue in the second quarter of 2018, compared to $12.9 million or 33.5% of revenue in the second quarter of 2017.

Our gross margin, as a percentage of revenue for the 3 months ended June 30, 2018, improved by 144 basis points compared to the same period in 2017.

On a constant dollar basis, excluding transformation cost, gross margin as a percentage of revenue for the 3 months ended June 30, 2018, improved 315 basis points compared to the 3 months ended June 30, 2017.

This year-over-year margin improvement demonstrates our progress in driving top line growth, while increasing operating leverage.

On a constant dollar basis, and excluding transformation cost, our revenue grew by $6 million in Q2 over Q1 of this year, and over 56% of that incremental revenue flowed through to gross margin. Additional margin improvement remains a high strategic priority, which we expect to achieve through advanced data processing technologies, along with audit automation and support tools.

Ron will discuss more on our investments and improving operating margins later in this call.

Total SG&A expenses from continuing operations, excluding transformation and stock-based compensation expenses, were $11.7 million, or 27.9% of revenue in the second quarter of 2018, compared to $9.7 million or 25.2% of revenue in the same period of the prior quarter -- of the prior year on a constant dollar basis.

The year-over-year increase is largely due to the increased investment in the global sales and marketing organization and our advanced data processing infrastructure as well as the formation and start-up of our SaaS product strategy and development team, which we call, our Digital Solutions Group. We anticipate continued investment in these important areas that Ron outlined as key 2018 imperatives in the 2017 Q4 call on March 1. We are pleased with the progress we're making in these areas.

Depreciation and amortization expenses from continuing operations for the second quarter of 2018 were $2.4 million compared to $1.1 million in the prior year. The increase relates primarily to amortization of software tools, which have been placed into service and are driving improved operating efficiencies as well as providing the ability to scale as we expand both our audit -- both our Recovery Audit business and Adjacent Services business.

For the quarter ended June 30, 2018, we had a net loss from continuing operations of $2.9 million or a negative $0.13 per basic and diluted share compared to a net loss of $0.3 million or negative $0.01 per basic and diluted share for the same period in 2017. Approximately $0.04 of the net loss per basic and diluted share resulted from the impact of foreign currency.

The current quarter net loss includes relatively higher expenses for depreciation, transformation expenses, foreign currency transaction losses on short-term intercompany balances and interest expense, which are partially offset by lower income tax expense compared to the same period in 2017.

Next, I would like to quickly cover the highlights from continuing operations for the 6-month period ended June 30, 2018.

First, revenue grew $6.7 million or 9.4% compared to the same period in 2017.

On a constant dollar basis, revenue grew 7.2% over this period. Adjusted EBITDA grew 30.7%, which is 24.3% on a constant dollar basis for the first 6 months of 2018, compared to the same period in 2017.

Our gross margin as a percentage of revenue improved by 126 basis points, comparing the first 6 months of 2018 with the same period in 2017.

On a constant dollar basis, excluding transformation cost, gross margin as a percentage of revenue improved 271 basis points in the 6 months ended June 30, 2018, compared to the first 6 months of 2017.

I will now highlight certain balance sheet and cash flow information. Our balance sheet and liquidity remains strong. As of June 30, 2018, we had net unrestricted cash and cash equivalents of $9.7 million and had $17.6 million of borrowings against our $35 million revolving credit facility.

Net cash used in operating activities for the second quarter of 2018 was $3.5 million compared to net cash provided by operating activities of $4.6 million in the second quarter of the prior year.

The increase in the use of cash in the second quarter of 2018, compared to the second quarter of 2017, related primarily to a $6 million increase in contract receivables at the end of the second quarter compared to the end of the first quarter of 2018.

This increase in AR resulted in part from the timing of billing cycles during Q2 of 2018, as there was more revenue invoice in the latter part of Q2 versus the last part of Q1 of 2018, which hadn't been collected by quarter-end. The contract receivable balances between Q1 and Q2 of 2017 were at similar levels, so this delay in cash received versus revenue did not occur in Q2 of 2017.

Capital expenditures on property and equipment were $2.8 million for the quarter ended June 30, 2018, which is relatively consistent with $2.6 million of CapEx in Q2 2017.

Before I conclude, I wanted to share that I see many opportunities where I can build on my technology and services industry expertise, to help create value for the company. I believe that the business has great momentum, from both its existing product lines and the many new products that the company has, and is developing, and I have enjoyed my first few months as the CFO.

Now I will turn it back over to Ron, who will share more detail about why we are excited about our opportunity at PRGX.

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

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As you can see, we have another solid quarter. More importantly, we continue to evolve the business into a growth vehicle, using technology innovations and deep process expertise to deliver significant cost savings for our clients and provide greater return on their investment with us.

We began this transformation journey 4.5 years ago, with the underlying belief that our Recovery Audit business built over 48 years was a good one, but needed significant investment to drive value for our clients in this new technology-driven global environment.

We've made meaningful investments in our core technology infrastructure, our SaaS Source-To-Pay application and audit tools, and in our people and audit processes to transform our business. We believe we have regained our position as the highest-performing and most-efficient Recovery Audit firm in the world, growing 8 straight quarters and reversing nearly 15 years of decline.

We are competing very effectively with the major consulting and accounting firms and our single biggest competitor just exited the U.K. market.

While we are obviously pleased with our performance over the past 2 years, we're even more excited about the future.

There are 3 major reasons for this bullishness. Let me take a few minutes and walk you through these reasons. First, we live and thrive in a real and sustainable place relative to meaningful value creation for our clients. We refer to this space as the enterprise leakage zone, which sits above ERP at the global enterprise level for our clients.

People always ask me, isn't ERP going to eliminate the need for Recovery Audit and third-party spend analytic services? We firmly believe the answer is no, primarily due to the 2 universal realities of ERP. Most of our clients don't have a single integrated ERP system. They have multiple. Many times dozens and sometimes hundreds. For most companies, ERP is not really enterprise-level, and while highly effective and important in managing transactional control and accuracy for these large companies, the lack of a true enterprise-level integration, along with a massive complexity of Source-To-Pay processes in these global companies leaves 5% to 10%, or even more leakage across the enterprise.

We understand this very well, as we've been working in this leakage area for our entire 48-year history. And while ERP systems control and manage the majority of data, they don't have all the data required to provide full visibility to Source-To-Pay processes across the organization and a global supply chain. In some of our more complex audit clients, we extract transactional and supporting data from over 100 disparate internal and external sources. ERP is simply not broad enough and not flexible enough, and surely not responsive enough to meet the ever-changing environment that global companies live in. We aggregate and process data across the entire organization to identify and expose where this leakage occurs, and then assist our clients in recovering, correcting and preventing this leakage from occurring in the future.

Secondly, based on our incredible base of clients, our global footprint and our investments in technology, people and processes, we are well positioned to execute on this Source-To-Pay value leakage opportunity.

We believe our favorable competitive position will allow us to capitalize on this growing demand from global clients who are increasingly recognizing the value of improved Source-To-Pay processes.

Our competitive position starts with a great team of experts. We have the finest and most-knowledgeable men and women in our industry, working every day to create value for our clients.

I continue to be impressed with the individuals we are recruiting into our organization, including a number of senior-level additions since the beginning of this year, all of whom believe in our vision, and are committed to achieving our goals.

We also are building the right technology to go deeper and deeper into the Source-To-Pay data, provided by our clients. Not only do we receive a massive amount of spend data from our clients, this data comes in many different forms and levels of cleanliness. The critical tasks of aggregating, ingesting, cleansing, enriching, processing and mapping this data are extremely complex and traditionally require days and sometimes weeks to compile and process to support our audit and analytic services.

As we move to more acceleration and real-time integration of our services, it is essential that we process and deliver this data to our various services in much faster time frames, in certain cases, real time, or even before the leakage occurs. In the past, we have discussed our HIPER Big Data platform, which leverage powerful data processing technologies to significantly reduce the time required to process this data.

We are now building, and will soon begin to utilize our next-generation data processing platform that we expect to dramatically improve processing time and intelligence, far beyond our HIPER platform.

This is exciting technology, which we believe will vastly improve our speed-to-value delivery and enable new capabilities and services. We also expect this technology to enable us to accelerate and grow revenues and improve operating margins.

We have also invested heavily in audit strategy and advanced development initiatives over the past 3 years. We are continuing to invest in this area, expanding the scope of these teams to address every aspect of our audit services, primarily focused around acceleration and automation of audit processes, moving more and more towards real-time and preventative auditing.

We are also expanding audit scope and concepts to go deeper into contract compliance and payment assurance to -- which we expect to generate more recoveries for our clients and revenues for us. For example, we expanded our audit approach and scope with a large, multinational resources company earlier this year, and grew audit recoveries from approximately $20 million for the audit year 2017 to $60 million in the first quarter of audit year 2018 alone. We are expanding this audit approach and discipline to other clients and expect to see positive results going deeper into compliance audit across all areas of spend.

To make sure we continue to stay ahead of the curve, earlier this year, we announced the formation of our SaaS Digital Solutions Group, charged with defining, building and managing SaaS solutions in the Source-To-Pay space. This group is now fully staffed and working on a full plate of development initiatives.

As I mentioned earlier in my remarks, we have grown and transformed our global sales and marketing organization to more effectively sell the full suite of PRGX solutions. We are beginning to see the results as our pipeline is increasing and our win rate is improving.

The third reason I'm so bullish about PRGX's ability to grow revenues and expand EBITDA margins, is the whitespace I see in front of us. Our addressable market exceeds $8 billion, all focused around Recovery Audit Services and Source-To-Pay technology solutions. Our traditional focus has been in the Retail Recovery Audit segment, mostly targeted at the largest and most complex retailers in the world. This segment is fairly mature in the U.S., U.K. and parts of Europe, and our path to growth in these markets has been through expanding our scope of services in existing clients and winning market share from our competitors. For example, we significantly increased our market share in the U.K. over the last year through superior performance and broader service offerings.

In the retail segment, with our investments in automation, audit acceleration and expanded services, we believe we can also pick up market share through entrants into the middle market as well as new geographies, which have previously been resistant to the Recovery Audit practice.

Perhaps the biggest whitespace I see for PRGX is in the commercial or nonretail market segment. This segment of the market is generally less mature than the retail segment from a recovery audit perspective and has traditionally been primarily focused on the more simplistic types of recovery topics.

We see significant opportunity to expand this segment in 3 ways: first, increasing revenues in existing clients by expanding audit scope and New Services; secondly, expanding into new clients in our existing geographies, pursuing both our large and middle market companies; and third, moving into new geographies where we've had limited presence or investment in the past.

We believe our growth is sustainable, and we expect to continue to invest while remaining focused on organic revenue growth and EBITDA expansion.

As you can tell, I remain very bullish about the prospects of PRGX and I'm confident in our 2018 guidance of year-over-year revenue growth in the range of 8% to 10% and adjusted EBITDA growth in the range of 17% to 22%.

With my comments complete, I will now turn it over to Sarah for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Alex Paris with 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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I have a few follow-up questions. First, I wanted to dive into the U.S. retail a little bit. You sort of answered my question to some degree in your final comments there, Ron, but the growth in U.S. retail is truly amazing. Having covered the company for more than 20 years, this is the most mature market that PRGX serves, and obviously, it bodes well for other markets and future growth. I'm curious about the online retailers you deal with. I guess first off, how big is U.S. retail as a percentage of Retail Audit - Americas? Just a ballpark or something like that.

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

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It's -- as you would imagine, the largest component. Definitely over 60%.

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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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Okay. And then that 60%, how big is online retailers versus traditional retailers?

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

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Well, we -- our online retailers would likely be in the faster-growing segment of that. It's still not the majority of the retail industry that we serve and I think our clients, as you know, are -- cover a number of the retail segment, but heavily in -- we're heavily positioned in big box and in grocery retailing. And -- but online retailing is a important and a fast-growing piece, but it's not the majority of it today.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [6]

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Okay. Well, still I appreciate that. So -- and again, Ron, you briefly addressed this in your closing comments. Investments in technology over the last few years, I presume, have expanded your total addressable market. At one point, and I don't know if these numbers are right, but as I recall, you wouldn't take on a retailer customer with less than $3 billion in revenue, and you wouldn't take on a grocery retailer with less than $1 billion in revenue because at the end of the day, it's the dollars that come out of that engagement to cover your fixed cost. So first off, I guess, is that true? Have you been able to go down market? Have you been able to expand that retailer market as a result of investments in technology?

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [7]

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The answer is that we have expanded the number of clients we serve and especially in grocery, where we have a large center of excellence that we're able to scale and bring new clients in more efficiently than we had in prior years. And then, obviously, leveraging technology, using common tools, those things have helped us to enter those markets and to be able to profitably deliver services to those clients. I also think that as we look at expanded services that many of those clients are very attractive to us, because many of them don't have the level of infrastructure that some of the bigger retailers have in some of the internal resources. So we see them as an important segment. I would say that we plan to emphasize that more as the technology evolves. As we add more automation and get more scale in our audit services, that will become even more attractive and we'll be able to go to smaller and smaller retailers.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [8]

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Great. And then shifting to international, specifically the U.K. With your largest competitor exiting that market, what sort of opportunities does that present for PRGX? Is there recruiting opportunities? Number one. Are there opportunities to take over clients? And when someone leaves the market like that, do they leave suddenly? Or do they fulfill contracts so this creates an opportunity for you down the road?

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [9]

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So first of all, we think the U.K. is obviously a very attractive market. It's a mature market in retail especially -- and we were, and have been able to add additional resources in there. Talent -- there's talent available in the market that will fit very well with our team. So it's been productive from that standpoint. And there's still some significant retailers in the market where we could improve our position, and we're planning to pursue more of that market. We also see the nonretail market in the U.K. as very attractive. Our C&CA acquisition opened up some excellent new clients for us that we have not served in the past in that nonretail market, and we think there's a lot more growth to be had in the U.K. And then Continental Europe, through France, Spain, the Netherlands, other parts of Europe are very attractive to us, and both on the retail and the commercial side. So we see a lot more of future growth in having people, having experienced, knowledgeable, talented people, it's going to be a key part of making that a reality.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [10]

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Great. And then, I guess my last question for now is, your revenues were in excess of my estimate and the consensus estimate. Your adjusted EBITDA was in line or better than estimates. EPS was below and the difference is, I think, primarily, transformation and severance, and related and then the FX losses versus my model, at least. Within the transitional and severance expenses, I assume a big chunk of that is due to the departure of your CFO. But what else is in there? Number one. And how truly nonrecurring are they?

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Deborah M. Schleicher, PRGX Global, Inc. - CFO, Treasurer & Controller [11]

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Yes. That's a -- it's an interesting question. It's made up of a few things, and yes, the departure of the CFO does relate to the company's strategy to be evolving to a tech company. Frankly, I have a tech and software background, and so there are some new skill sets that we're bringing into the organization and I'm only one example. Some of it has to do with our product development and IT team to meet the needs of the new company. We've had some changes there. Additionally, Ron just mentioned, we had some new opportunities in the U.K. and it's called 2PAY, if I'm pronouncing it correctly. There are laws that would require us, when we get big new contracts to bring on employees. And so it creates new severance issues, which could happen again, but isn't a normal part of our business, where when we win new work, we have to bring a bunch of employers along with us. And when we do, it's just like anything else. You take a look at the workforce and the talent, and we right size our organization and get the right talent on the contract. So that makes us the biggest piece of it. Actually what I -- the items that I just mentioned make up the biggest piece of it, not the last one, to clarify.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [12]

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Okay. And then I guess just my last question, and I'll get back in the queue. Ron, I think you mentioned in discussing the pipeline, that you got a number of new wins to announce soon. The -- are those the sort of new wins that you announce with the press release? Or will you just be discussing them on the next conference call?

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [13]

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They will be -- we plan to have some press release -- at least 1 or 2 press releases on some of these new wins, and there are -- several of them are similar sized to some of the ones we talked about in past, so we're encouraged with the activity in the market. And if you like, we're breaking through some of the paths that -- in that particular segment.

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Operator [14]

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Our next question comes from the line of Kevin Liu with B. Riley FBR.

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Kevin D. Liu, B. Riley FBR, Inc., Research Division - Senior Analyst of Software and Business Services [15]

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Can you hear me?

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [16]

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Yes.

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Deborah M. Schleicher, PRGX Global, Inc. - CFO, Treasurer & Controller [17]

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Yes.

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Kevin D. Liu, B. Riley FBR, Inc., Research Division - Senior Analyst of Software and Business Services [18]

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Okay. First question here, just on Adjacent Services, obviously very strong growth that you had both on a sequential and year-over-year basis. Can you just speak to whether any of that was tied to some onetime project work? Or is that predominantly reflective of all the SaaS deals you booked and you just may have done contributions through there much sooner?

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [19]

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Yes, Kevin. It's really both. We had several -- we had 4 SaaS recurring deals that are multiyear in that SaaS segment and we also had -- okay. Sorry. That's 3 of the SaaS contracts. I'm being corrected here. And then the other win was a -- more of an engagement using our OPTIX analytics tool. So that would be more of a project than an ongoing recurring kind of revenue stream. Looking ahead, I mentioned that we feel good about the pipeline. It's growing. We both -- we see both the recurring SaaS contract revenues in the pipeline as well as several important advisory initiatives that are using our OPTIX tools.

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Kevin D. Liu, B. Riley FBR, Inc., Research Division - Senior Analyst of Software and Business Services [20]

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Okay. And just turning to the strength in Americas. Obviously, very strong growth there as well and you talked about kind of the retail piece, which is also more mature. I was wondering if you could address kind of the gross margin in the Americas. Is that -- it was a little bit lower despite the strong revenue growth. Is that more a function of investing ahead in some of these other commercial opportunities that you have? Or was there something that happened to impact the quarter specifically?

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Deborah M. Schleicher, PRGX Global, Inc. - CFO, Treasurer & Controller [21]

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It's a little bit of both. So there is incremental sales and marketing in our product development -- the product development team. And that does get allocated to the different segments. So there is more cost going to that segment because of those items. But additionally, in Q2, we had some variation in the timing of some employee-related expenses among the quarters. That really doesn't affect the year, but it did affect which quarters' expenses got grouped into. And so that did have an impact to reduce margins in Q2.

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Kevin D. Liu, B. Riley FBR, Inc., Research Division - Senior Analyst of Software and Business Services [22]

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Okay. Understood. And then just lastly, Debbie, I think you touched on this towards the end of your balance sheet statement items. But just -- could you walk through the receivables billed one more time? What was that tied to?

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Deborah M. Schleicher, PRGX Global, Inc. - CFO, Treasurer & Controller [23]

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Yes. It really has to do with timing of when we did our invoicing. We had a lot of revenue that became available to invoice towards the end of the quarter. And since it takes a while for the cash to come in, the revenue didn't turn into cash in kind of the same percentage as it did in the quarter before. So when you're looking at your cash flows for a quarter, if you've got sort of more normalized or even billing in the quarter before, and it's kind of clumped at the end in the second quarter, you're going to have more of your revenue that didn't turn into cash in the same period.

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Kevin D. Liu, B. Riley FBR, Inc., Research Division - Senior Analyst of Software and Business Services [24]

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Got it. And related to that, just curious if -- with the strength in the quarter and a lot of it being a bit back-end loaded, was that reflective of maybe a handful of large claims that you guys were able to get through the revenue line? Or was it more kind of broad-based strength?

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Deborah M. Schleicher, PRGX Global, Inc. - CFO, Treasurer & Controller [25]

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It really was our audit acceleration at a few of our larger U.S. retail clients that resulted in that growth.

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Operator [26]

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(Operator Instructions) We have a follow-up question from Alex Paris with Barrington Research.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [27]

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I just had one follow-up question. Again, talking about the pipeline of new business, looks good. I think, Ron, you also mentioned the potential for M&A. So I'm wondering what the M&A pipeline looks like, and what you're looking for in that endeavor.

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [28]

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Sure, Alex. There's a -- and we are actively looking at M&A opportunities, and we felt like the C&CA acquisition as a good example was a particularly powerful M&A activity for us, because it gave us access to new geography, some great talent, some clients. There are not a lot of C&CAs out there, but there are companies that we'd be very interested in, leveraging that either have strong talent, or they have capabilities that we perhaps can deliver on, and of course, clients. And then the other is technologies that could accelerate our offerings to our clients as we leverage our data platforms to drive more valuable services to our clients, or broader set of services to our clients. We continue to look at opportunities there. There are not a lot of Recovery Audit platforms out there, but there are some. And then as we look at Source-To-Pay technologies, there are a number of areas that we're very interested in, in extending either, relative to analytics, to machine learning, to other types of technology that could really accelerate some of our value to our clients.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [29]

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All right. And then how likely is it that you would do an acquisition in the balance of 2018? I mean, anything close is what I'm asking, I guess?

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [30]

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Yes. I'd hate to put that out there. We are looking at some, but I'd hesitate to give you an indication that we thought we'd get it closed this year.

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Operator [31]

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We have no further questions at this time. I would now like to turn the call back to Ron Stewart for any further remarks.

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Ronald E. Stewart, PRGX Global, Inc. - President, CEO & Director [32]

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Thanks, Sarah. And thanks to all of you for attending the call today. We surely look forward to speaking with you again in the future to share our Q3 results. Thanks for joining us. Bye-bye.

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Operator [33]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.