After the markets closed on Monday, February 24, PRGX (NASDAQ:PRGX) reported fourth-quarter results that we believe are better than they appear at first blush. The headline results show a revenue shortfall of about $3 million relative to the consensus and a GAAP loss per share of $0.22, which are far below the consensus of about $0.01. The shortfall was entirely attributable to the company’s new services segment and a noncash impairment charge.
More important than quarterly earnings, new CEO Ronald E. Stewart announced an increased focus on improving the company’s profitability and shareholder returns. As part of this strategy, PRGX announced that it is no longer pursuing the CMS Medicare RAC rebid, the board of directors authorized a $10 million share repurchase authorization (which represents about 5% of the market capitalization), the company is restructuring (i.e., cutting costs in) its European and Asian operations, and the company is undergoing a strategic review of its profit optimization business. The exit from the CMS rebid is probably the most significant change. In general, all of these moves represent a shift in the company’s focus, away from growth and toward improving shareholder returns and profitability.
The losses from the healthcare business will not go away immediately because the company has to support the existing contract through at least the middle of this year. PRGX should be able to much more aggressively manage down these costs now, however. We also expect investor focus to be on the company’s EBITDA excluding the new services segment, which was fairly strong this quarter.