“The PRGX Global team bounced back during the quarter to deliver solid results, increasing revenue nearly 11 percent over the first quarter,” said Ron Stewart, president and CEO. “Compared to Q1, our core recovery audit business increased revenue by 14 percent and increased Adjusted EBITDA by 49 percent. Leading the way was our Europe/Asia-Pacific team, recording strong sequential and year-over-year revenue and Adjusted EBITDA growth. Outside of our core business, our Adjacent Services business delivered improved Adjusted EBITDA compared to Q1 on comparable revenue. And finally, our Healthcare Claims Recovery Audit segment continues to be challenged as we wind down our obligations related to the Medicare RAC subcontracts.”
“We are starting to see elements of our strategy take effect. This includes continuing to drive process standardization in our core business and moving more work to our global shared service centers, thereby improving efficiencies and reducing costs. The expansion of our audit capabilities into targeted industries and geographies is also bearing fruit, especially in the Oil & Gas industry, where we’ve built a significant backlog of work. In addition, key projects started near the end of the quarter have us excited about the promise of Adjacent Services and we remain focused on our goal of achieving profitability in this portion of our business by year end,” Stewart concluded.
Consolidated revenue for the second quarter of 2014 decreased 16.4 percent to $42 million compared to $50.2 million in the same prior year period. After adjusting for changes in foreign exchange rates, consolidated 2Q revenue in 2014 decreased 17.2 percent compared to the same period in 2013.
Recovery Audit Services - Americas revenue for 2Q 2014 decreased 8 percent to $27 million compared to $29.4 million in the same period in the prior year. On a constant dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services – Americas revenue for 2Q 2014 decreased by 7.2 percent compared to the same period in 2013. Most of this reduction is the result of the rate and scope reductions at several large clients, as previously communicated. Further, while there has been a significant increase in contract compliance claims production, conversion of these claims to revenue has been delayed.
Recovery Audit Services - Europe/Asia-Pacific revenue for 2Q 2014 increased 15 percent to $12.4 million compared to $10.8 million in the same period in the prior year. On a constant dollar basis, adjusted for changes in foreign exchange rates, Recovery Audit Services - Europe/Asia-Pacific revenue for 2Q 2014 increased by 9.1 percent compared to the same period in 2013. The majority of this increase is due to audit growth in key clients in Australia and improved claim conversion within Europe.
Adjacent Services revenue for 2Q 2014 was $2.3 million compared to $3.1 million in the same period in 2013. The majority of this decrease was expected as the company continues to rationalize and refine its offerings in this segment.
Health care Claims Recovery Audit Services revenue for 2Q 2014 was $300,000 compared to $6.9 million in the same period in the prior year. This expected decrease in revenue was primarily attributable to the substantial reduction in auditing as part of the Medicare RAC program.
Total cost of revenue for 2Q 2014 was $29.9 million, or 71.3 percent of revenue, compared to $32.5 million, or 64.8 percent of revenue, in the same period last year. Nearly half of this margin erosion was due to the wind down of the Medicare RAC program, with the remainder due to the decline in revenue in the other segments as well as our investment in our Contract Compliance services. SG&A for 2Q 2014 was $11 million compared to $11.6 million in the same period last year, a decrease of $600,000. Excluding transformation severance and related expenses, the year over year decrease in SG&A expenses for the quarter was $1.5 million. Depreciation and amortization expenses were $2.5 million in 2Q 2014 compared to $3.4 million in the prior year 2Q.
Net loss for 2Q 2014 was $1.5 million, or five cents per basic and diluted share, compared to net income of $1.8 million, or six cents per basic and diluted share, for the same period in 2013. Net cash provided by operating activities for 2Q 2014 was $2.9 million compared to net cash used in operating activities of $4 million in 2Q 2013.
Adjusted EBITDA for 2Q 2014 was $3.8 million compared to $8 million of Adjusted EBITDA for the same period in 2013, a decline of $4.2 million, of which $3.5 million is attributable to Health care Claims Recovery Audit Services. Second quarter 2014 Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization excluding a charge of $1 million related to stock-based compensation, $1.6 million of transformation severance and related expenses, a $200,000 charge for acquisition-related charges and $200,000 of foreign currency gains on short-term intercompany balances. The comparable Adjusted EBITDA amount for 2Q of 2013 excludes from EBITDA for such period a $1.2 million charge related to stock-based compensation, $600,000 of transformation severance and related expenses, a $200,000 charge for acquisition-related charges and $200,000 of foreign currency losses on short-term intercompany balances.