Operating Segments and Related Information

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Operating Segments and Related Information

Operating Segments and Related Information

We conduct our operations through the following three reportable segments:

Recovery Audit Services – Americas represents recovery audit services (other than Healthcare Claims Recovery Audit services) provided in the United States of America (“U.S.”), Canada and Latin America.

Recovery Audit Services – Europe/Asia-Pacific represents recovery audit services (other than Healthcare Claims Recovery Audit services) provided in Europe, Asia and the Pacific region.

Adjacent Services represents data transformation, data analytics and associated advisory services.

Additionally, Corporate Support includes the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportable segments.

During the fourth quarter of 2015, PRGX entered into agreements with third parties to fulfill its Medicare recovery audit contractor ("RAC") program subcontract obligations to audit Medicare payments and provide support for claims appeals and assigned its remaining Medicaid contract to another party. The Company will continue to incur certain expenses while the current Medicare RAC contracts are still in effect. As a result, the Healthcare Claims Recovery Audit services business has been reported as Discontinued Operations in accordance with US GAAP.

Discontinued operations information for the three months ended September 30, 2016 and 2015 is as follows:

Results of Discontinued Operations (in thousands)
Three Months Ended September 30,	2016			2015
Revenue, net	$	5		$	558
Cost of sales	(128		)	880
Selling, general and administrative expense	(4		)	203
Depreciation and amortization	4			7
Gain (loss) from discontinued operations before income taxes	133			(532		)
Income tax expense	—			—
Net gain (loss) from discontinued operations	$	133		$	(532	)

Discontinued operations information for the nine months ended September 30, 2016 and 2015 is as follows:

Results of Discontinued Operations (in thousands)
Nine Months Ended September 30,	2016			2015
Revenue, net	$	(11	)	$	999
Cost of sales	712			2,300
Selling, general and administrative expense	180			630
Depreciation and amortization	11			30
Loss from discontinued operations before income taxes	(914		)	(1,961		)
Income tax expense	—			—
Net loss from discontinued operations	$	(914	)	$	(1,961	)

We evaluate the performance of our reportable segments based upon revenue and measures of profit or loss we refer to as EBITDA and Adjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation and amortization (“EBITDA”), and then further adjusted for unusual and other significant items that management views as distorting the operating results of the various segments from period to period. Such adjustments include restructuring charges, stock-based compensation, bargain purchase gains, acquisition-related charges and benefits (acquisition transaction costs, acquisition obligations classified as compensation, and fair value adjustments to acquisition-related contingent consideration), tangible and intangible asset impairment charges, certain litigation costs and litigation settlements, certain severance charges and foreign currency transaction gains and losses on short-term intercompany balances viewed by management as individually or collectively significant. We do not have any inter-segment revenue.

Segment information for the three and nine months ended September 30, 2016 and 2015 (in thousands) is as follows:

	Recovery Audit Services – Americas			Recovery Audit Services – Europe/Asia- Pacific				Adjacent Services				Corporate Support			Total
Three Months Ended September 30, 2016
Revenue	$	25,719		$	8,736			$	682			$	—		$	35,137
Net income from continuing operations															$	2,150
Income tax (benefit)															(685		)
Interest (income), net															(14		)
EBIT	$	7,371		$	1,274			$	(1,089	)		$	(6,105	)	$	1,451
Depreciation of property and equipment	935			141				300				—			1,376
Amortization of intangible assets	373			—				20				—			393
EBITDA	$	8,679		$	1,415			$	(769	)		$	(6,105	)	$	3,220
Other (income) loss	—		—	—			—	(168		)	—	—			(168		)
Foreign currency transaction (gains) losses on short-term intercompany balances	120			(227		)		1				(59		)	(165		)
Transformation severance and related expenses	95			188				139				(2		)	420
Stock-based compensation	—			—				—				1,424			1,424
Adjusted EBITDA	$	8,894		$	1,376			$	(797	)		$	(4,742	)	$	4,731

	Recovery Audit Services – Americas		Recovery Audit Services – Europe/Asia- Pacific		Adjacent Services			Corporate Support			Total
Three Months Ended September 30, 2015
Revenue	$	23,981	$	8,052	$	1,332		$	—		$	33,365
Net (loss) from continuing operations											$	(2,877	)
Income tax expense											421
Interest (income), net											(8		)
EBIT	$	5,255	$	365	$	(2,373	)	$	(5,711	)	$	(2,464	)
Depreciation of property and equipment	947		148		160			—			1,255
Amortization of intangible assets	437		47		33			—			517
EBITDA	$	6,639	$	560	$	(2,180	)	$	(5,711	)	$	(692	)
Other (income) loss	—		—		1,612			—			1,612
Foreign currency transaction (gains) losses on short-term intercompany balances	393		287		(714		)	688			654
Transformation severance and related expenses	101		—		—			272			373
Stock-based compensation	—		—		—			1,381			1,381
Adjusted EBITDA	$	7,133	$	847	$	(1,282	)	$	(3,370	)	$	3,328

	Recovery Audit Services – Americas			Recovery Audit Services – Europe/Asia- Pacific			Adjacent Services			Corporate Support			Total
Nine Months Ended September 30, 2016
Revenue	$	72,408		$	26,683		$	2,570		$	—		$	101,661
Net income (loss) from continuing operations													$	2,052
Income tax expense (benefit)													(21		)
Interest (income), net													(55		)
EBIT	$	17,364		$	4,032		$	(2,645	)	$	(16,775	)	$	1,976
Depreciation of property and equipment	2,863			379			582			—			3,824
Amortization of intangible assets	1,118			—			64			—			1,182
EBITDA	$	21,345		$	4,411		$	(1,999	)	$	(16,775	)	$	6,982
Other (income) loss	—			—			(140		)	—			(140		)
Foreign currency transaction (gains) losses on short-term intercompany balances	(108		)	(787		)	(7		)	(74		)	(976		)
Transformation severance and related expenses	516			284			138			241			1,179
Stock-based compensation	—			—			—			3,224			3,224
Adjusted EBITDA	$	21,753		$	3,908		$	(2,008	)	$	(13,384	)	$	10,269

	Recovery Audit Services – Americas		Recovery Audit Services – Europe/Asia- Pacific		Adjacent Services			Corporate Support			Total
Nine Months Ended September 30, 2015
Revenue	$	71,748	$	27,307	$	4,290		$	—		$	103,345
Net income (loss) from continuing operations											$	(3,309	)
Income tax expense											1,172
Interest (income), net											(103		)
EBIT	$	15,838	$	1,719	$	(5,019	)	$	(14,778	)	$	(2,240	)
Depreciation of property and equipment	2,895		454		479			—			3,828
Amortization of intangible assets	1,319		600		98			—			2,017
EBITDA	$	20,052	$	2,773	$	(4,442	)	$	(14,778	)	$	3,605
Other income (loss)	—		—		1,612			—			1,612
Foreign currency transaction (gains) losses on short-term intercompany balances	651		1,359		7			(87		)	1,930
Transformation severance and related expenses	265		268		30			308			871
Stock-based compensation	—		—		—			4,530			4,530
Adjusted EBITDA	$	20,968	$	4,400	$	(2,793	)	$	(10,027	)	$	12,548