FollowA bit of caution is advised regarding PRGX after a look into the first quarter. It’s due to the EBITDA estimates for this year as the company PRGX, might take some more time to overcome the challenges present in the first quarter. Estimates are now lowered for 2014 and 2015 adjusted EBITDA estimated by $1 million each to $26 million and $33 million thus presenting a $0.02 reduction of the 2014 and 2015 EPS estimates to $0.14 and $0.39. On the upside it is believed that PRGX is aggressively repurchasing shares. It would not be unlikely if the company completed their entire $20 million share repurchase authority this year. This just might be what’s needed to offset the effect on EPS from the EBITDA estimate reductions forecast.
There are three factors here that have to be addressed and overcome regarding the first quarter. The first being what the company disclosed that they’ll be changing from a first pass reviewer to a second pass reviewer with a certain client. That client is believed to be the same that company PRGX had a delivery issue with in the first quarter in the year 2013. This issue was reportedly due to technology failure that called for the company to reprocess its data. This technology issue brought about the concern regarding this change to second pass reviewer. It was in mid 2014 that the change to second pass reviewer and the revenue for PRGX might be similar but it depends on the timing lag of the second half of 2014. This is because PRGX will have to be patient for the first pass reviewer to get through claims in order to get a chance to work on the claims for that customer. So this means we’ll see the majority of the impact from this switch from first to second and so on in the second half of the year.
The second issue is the company had a large projecting in the works regarding commercial recover audit business in the second half of 2013 which created a problematic comparison to confront this year. The third issue the company’s citing pressure on its progression to the recover audit business more than it had done previously. The company’s management communication during its last conference call is a signpost that it recently had agreed to a price reduction of a large client which will be slowing of the business. It’s believed the company’s management guidance for 2014 that assumed EBITDA would flatten in the core recovery audit business also included the effect of these factors. All that being said, it appears a downside to all this than an upside to the target specified. It’s these factors that bring about the reason for caution to be applied.
