PRGX management shared the view of the company to its first quarter earnings and their way of protecting their revenue during our recent meeting.
Our meeting with the management team was focused on the first quarter earnings of the management, given the estimates for the year along with the challenges the institution had undertaken during the first quarter. The management honestly defined its first quarter a not-so indicator of their strength. The decline in revenue (7.4% year-over-year) for the first quarter is primarily due TO delayed audit start and several large claims. The said downfall also affected the EBITDA estimates for the following second and third quarters.
The management stated that it will probably take the company to survive the challenges presented by the prior quarter. Responsively, the company lowered EBITDA estimates ($26 million for 2014 and $33 million for 2015) by 1%. According to the team, the downtrend is a reduction by $0.02 from the EPS estimates ($0.14 for 2014 and $0.39 for 2015). The impact of the estimate reductions may easily be counteracted given the fact that PRGX is repurchasing shares assertively. There is no surprise if the repurchasing of shares ($20 million in amount, 10% of the stock) will be completed this very year.
As we spoke to the management, they also conveyed their troubles of time delays in the first quarter’s three main issues. The first issue relates to the company switching to being a second-pass reviewer at a big partner. The impact of the failure traced in first quarter of 2013 (technology failure that caused data reprocessing) may be the reason of the switch. Secondly, a comparison of 2013’s second half to that of 2014 may be difficult as well according to the management. PRGX had a commercial recovery audit business project prior this 2014. Discrepancies between the revenues may be at large. Lastly, pricing pressure has been declared by the company as driven by the opposing current for its core recovery audit business. A drag on the business may be plain as price reduction at a large client has been called for by PRGX.
The management described the first quarter downfall unexpected. Despite the guidance for 2014 from the management, a downside can still be traced for the year. The management then declared a decrease of $1 million this year for its projection. They believe more cautious estimates for the year will save the company from the first quarter’s troubles at the very least.