XELAW - Exela Technologies Inc. Reports Preliminary Third Quarter 2022 Results

November, 14 2022 04:34 PM Exela Technologies Inc. Warrant

Revenue of $264 million, a decline of 5.4% from Q3 2021
Net loss of $85 million
Exela’s European business signed a deal to go public through a merger with CF Acquisition Corp. VIII based on a $220 million valuation
Won $87M TCV ⁽¹⁾ in Q3; record YTD in new business wins
Small-and-Medium-Sized Business (“SMB”) continues strong growth with DMR ⁽²⁾ customers growing 227% and DrySign® users growing 1,244% over Q3 2021
Gross margin and operating income improvements in place for 2023

Conference call scheduled for November 14, 2022 at 6:00 PM ET

IRVING, Texas, Nov. 14, 2022 (GLOBE NEWSWIRE) -- Exela Technologies, Inc. (“Exela” or the “Company”) (NASDAQ: XELA, XELAP), a global business process automation (“BPA”) leader, announced today its financial results for the third quarter ended September 30, 2022.

“Since stepping into my current role over a year ago, we have completed many of the objectives laid out; however, our intrinsic value remains deeply discounted. Our business is positioned for operational leverage with conversion of the pipeline into contract wins, stable renewals, and significant operational improvements. In light of the macro environment, we are focused on converting actions into results,” said Par Chadha, Executive Chairman of Exela.

Third Quarter Business Highlights

Exela’s European business signed a deal to go public through a merger with CF Acquisition Corp. VIII based on a $220 million valuation. Exela will be the majority owner of the merged public company
Exela Technologies, Inc. subsidiaries own $298M principal amount of the 2026 Senior Notes issued by Exela Intermediate, LLC
Revenue lower by $15.2M due to network outage, currency translation, transition revenue ⁽³⁾ , other customer losses and tight job markets
Strategic decision to adopt work from anywhere model is reaching inflection; approximately $40.5M in operational improvements estimated in 2023
Won $87M TCV in Q3; record YTD in new business wins
Digital Asset platforms DMR grew 227% and DrySign ^® 1,244% over Q3 2021
Eliminated over $163M in liabilities due in 2022; Revolver and Appraisal Action payoff completed in Q3

Third Quarter Highlights

Revenue: Revenue for Q3 2022 was $264.0 million, a decline of 5.4% compared to $279.2 million in Q3 2021.
- Revenue for the Information and Transaction Processing Solutions (“ITPS”) segment was $185.3 million, a decline of 11% year-over-year, primarily due to network outage impacting contracted revenues ⁽⁴⁾ , currency translation, transition revenue and staffing shortages.
- Healthcare Solutions revenue was $61.0 million, an increase of 13.0% year-over-year, led by continuing acceptance of our solutions and services.
- Legal and Loss Prevention Services revenue was $17.8 million, an increase of 5.3% year-over-year.

Operating income / loss : Operating loss for Q3 2022 was $47.5 million, compared with operating income of $2.4 million in Q3 2021. The year over year change was due to the gross profit decline of $21.3 million and goodwill impairment charge of $29.6 million.

Net Loss: Net loss for Q3 2022 was $85.3 million, compared with a net loss of $13.2 million in Q3 2021. In addition to the changes in the operating loss and goodwill impairment, the year over year increase in net loss was due to a $23.4 million decline in non-cash debt modification and extinguishment gain.
- EBITDA ⁽⁵⁾ : EBITDA for Q3 2022 was ($24.7) million compared to $49.1 million in Q3 2021. EBITDA margin for Q3 2022 was (9.4%) compared to 17.6% in Q3 2021.
- Adjusted EBITDA ⁽⁶⁾ : Adjusted EBITDA for Q3 2022 was $31.8 million, a decrease of 12.5% compared to $36.4 million in Q3 2021. Adjusted EBITDA margin for Q3 2022 was 12.1%, a decrease of 98 basis points from 13.0% in Q3 2021 and down from 13.7% in Q2 2022.

Capital Expenditures: Capital expenditures for Q3 2022 were 1.7% of revenue compared to 1.3% of revenue in Q3 2021.

Maintaining financial flexibility : Raised a total of $67.6 million in gross proceeds from equity offerings in Q3 2022. Total debt ⁽⁷⁾ increased by $18.6 million compared to Q2 2022.

Below are the notes referenced above:
(1) Total Contract Value
( 2 ) Digital Mailroom
( 3 ) Represents revenue from exiting contracts and statements of work with certain customers that we believe was unpredictable, non-recurring and were not a strategic fit to the Company’s long-term success or unlikely to achieve the Company’s long-term target margins.
( 4 ) In late June 2022, the Company experienced a network security incident impacting certain of the Company’s operational and information technology systems. The Company immediately took steps to isolate the impact and prevent additional systems from being affected, including taking large parts of its network offline as a precaution and thereby disrupting some access to our applications and services by our employees and customers. The Company’s systems recovery efforts are complete, and the Company’s operations are fully functional, however, the incident did result in some loss of revenue in the end of the second quarter and in the third quarter as well as certain incremental costs, some of which is expected to continue.
( 5 ) EBITDA is a non-GAAP measure. A reconciliation of EBITDA to Net Loss determined in accordance with GAAP is attached to this release.
( 6 ) Adjusted EBITDA is a non-GAAP measure. A reconciliation of Adjusted EBITDA to Net Loss determined in accordance with GAAP is attached to this release.
( 7 ) Total debt includes all long-term debt and interest-bearing current liabilities

Earnings Conference Call and Audio Webcast
Exela will host a conference call to discuss its third quarter 2022 financial results at 6:00 PM ET on November 14, 2022. To access this call, dial 833-255-2831 or +1-412-902-6724 (international).

A replay will be available through November 21, 2022 at 877-344-7529 or +1-412-317-0088 (international). The replay passcode is 7071365. A replay will also be archived on the Exela investor relations website at http://investors.exelatech.com .

Exela invites all investors to ask questions that they would like addressed on the conference call. We ask investors to submit questions via email to IR@exelatech.com .

A live webcast of this conference call will be available on the “Investors” page of the Company’s website ( www.exelatech.com ). A supplemental slide presentation that accompanies this call and webcast can be found on the investor relations website ( http://investors.exelatech.com/ ) and will remain available after the call.

About Exela
Exela Technologies is a business process automation (BPA) leader, leveraging a global footprint and proprietary technology to provide digital transformation solutions enhancing quality, productivity, and end-user experience. With decades of experience operating mission-critical processes, Exela serves a growing roster of more than 4,000 customers throughout 50 countries, including over 60% of the Fortune® 100. Utilizing foundational technologies spanning information management, workflow automation, and integrated communications, Exela’s software and services include multi-industry, departmental solution suites addressing finance and accounting, human capital management, and legal management, as well as industry-specific solutions for banking, healthcare, insurance, and the public sector. Through cloud-enabled platforms, built on a configurable stack of automation modules, and approximately 16,500 employees operating in 21 countries, Exela rapidly deploys integrated technology and operations as an end-to-end digital journey partner.

Find out more at www.exelatech.com

To automatically receive Exela financial news by e-mail, please visit the Exela Investor Relations website, http://investors.exelatech.com/ , and subscribe to E-mail Alerts.

About Non-GAAP Financial Measures: This press release includes constant currency, EBITDA and Adjusted EBITDA, each of which is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Exela believes that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial performance, results of operations and liquidity and allows investors to better understand the trends in our business and to better understand and compare our results. Exela’s board of directors and management use constant currency, EBITDA and Adjusted EBITDA to assess Exela’s financial performance, because it allows them to compare Exela’s operating performance on a consistent basis across periods by removing the effects of Exela’s capital structure (such as varying levels of debt and interest expense, as well as transaction costs resulting from the combination of Quinpario Acquisition Corp. 2, SourceHOV Holdings, Inc. and Novitex Holdings, Inc. on July 12, 2017 (the “Novitex Business Combination”) and capital markets-based activities). Adjusted EBITDA also seeks to remove the effects of integration and related costs to achieve the savings, any expected reduction in operating expenses due to the Novitex Business Combination, asset base (such as depreciation and amortization) and other similar non-routine items outside the control of our management team. Optimization and restructuring expenses and merger adjustments are primarily related to the implementation of strategic actions and initiatives related to the Novitex Business Combination. All of these costs are variable and dependent upon the nature of the actions being implemented and can vary significantly driven by business needs. Accordingly, due to that significant variability, we exclude these charges since we do not believe they truly reflect our past, current or future operating performance. The constant currency presentation excludes the impact of fluctuations in foreign currency exchange rates. We calculate constant currency revenue and Adjusted EBITDA on a constant currency basis by converting our current-period local currency financial results using the exchange rates from the corresponding prior-period and compare these adjusted amounts to our corresponding prior period reported results. Exela does not consider these non-GAAP measures in isolation or as an alternative to liquidity or financial measures determined in accordance with GAAP. A limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in Exela’s financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures and therefore the basis of presentation for these measures may not be comparable to similarly-titled measures used by other companies. These non-GAAP financial measures are not required to be uniformly applied, are not audited and should not be considered in isolation or as substitutes for results prepared in accordance with GAAP. Net loss is the GAAP measure most directly comparable to the non-GAAP measures presented here. For reconciliation of the comparable GAAP measures to these non-GAAP financial measures, see the schedules attached to this release.

Forward-Looking Statements: Certain statements included in this press release are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as “may”, “should”, “would”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “seem”, “seek”, “continue”, “future”, “will”, “expect”, “outlook” or other similar words, phrases or expressions. These forward-looking statements include statements regarding our industry, future events, estimated or anticipated future results and benefits, future opportunities for Exela, and other statements that are not historical facts. These statements are based on the current expectations of Exela management and are not predictions of actual performance. These statements are subject to a number of risks and uncertainties, including without limitation the network outage described in this press release and those discussed under the heading “Risk Factors” in our Annual Report and in subsequent filings with the Securities and Exchange Commission. In addition, forward-looking statements provide Exela’s expectations, plans or forecasts of future events and views as of the date of this communication. Exela anticipates that subsequent events and developments will cause Exela’s assessments to change. These forward-looking statements should not be relied upon as representing Exela’s assessments as of any date subsequent to the date of this press release.

For more Exela news, commentary, and industry perspectives, visit:

Website: https://investors.exelatech.com/

Twitter: @ExelaTech

LinkedIn: /exela-technologies

Facebook: @exelatechnologies

Instagram: @exelatechnologies

The information posted on the Company's website and/or via its social media accounts may be deemed material to investors. Accordingly, investors, media and others interested in the Company should monitor the Company's website and its social media accounts in addition to the Company's press releases, SEC filings and public conference calls and webcasts.

Investor and/or Media Contacts:
Vincent Kondaveeti
E: vincent.kondaveeti@exelatech.com

Mary Beth Benjamin
E: IR@exelatech.com

Source: Exela Technologies, Inc.


Exela Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
As of September 30, 2022 and December 31, 2021
(in thousands of United States dollars except share and per share amounts)









September 30,

December 31,


2022

2021


(Unaudited)

(Audited)




(Restated)
Assets






Current assets






Cash and cash equivalents

$
10,401


$
20,775

Restricted cash


34,402



27,285

Accounts receivable, net of allowance for doubtful accounts of $5,930 and $6,049, respectively


93,600



184,102

Related party receivables and prepaid expenses


504



715

Inventories, net


17,234



15,215

Prepaid expenses and other current assets


28,551



31,799

Total current assets


184,692



279,891

Property, plant and equipment, net of accumulated depreciation of $201,650 and $196,683, respectively


68,788



73,449

Operating lease right-of-use assets, net


44,943



53,937

Goodwill


328,071



358,323

Intangible assets, net


211,659



244,539

Deferred income tax assets


1,279



2,109

Other noncurrent assets


25,839



24,775

Total assets

$
865,271


$
1,037,023








Liabilities and Stockholders' Equity (Deficit)






Liabilities






Current liabilities






Accounts payable

$
80,783


$
61,744

Related party payables


1,698



1,484

Income tax payable


1,178



3,551

Accrued liabilities


52,795



113,519

Accrued compensation and benefits


52,925



60,860

Accrued interest


29,430



10,075

Customer deposits


18,278



17,707

Deferred revenue


15,681



16,617

Obligation for claim payment


50,780



46,902

Current portion of finance lease liabilities


4,902



6,683

Current portion of operating lease liabilities


13,127



15,923

Current portion of long-term debts


195,043



236,775

Total current liabilities


516,620



591,840

Long-term debt, net of current maturities


909,506



1,012,452

Finance lease liabilities, net of current portion


7,276



9,156

Pension liabilities, net


23,165



28,383

Deferred income tax liabilities


14,046



11,594

Long-term income tax liabilities


2,757



3,201

Operating lease liabilities, net of current portion


34,573



41,170

Other long-term liabilities


4,888



5,999

Total liabilities


1,512,831



1,703,795

Commitments and Contingencies (Note 8)













Stockholders' equity (deficit)






Common Stock, par value of $0.0001 per share; 1,600,000,000 shares authorized; 80,173,342 shares issued and 80,050,757 shares outstanding at September 30, 2022 and 13,382,333 shares issued and 13,259,748 shares outstanding at December 31, 2021


142



37

Preferred stock, $0.0001 par value per share, 20,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively






Series A Preferred Stock, 2,778,111 shares issued and outstanding at September 30, 2022 and December 31, 2021


1



1

Series B Preferred Stock, 3,029,900 shares issued and outstanding at September 30, 2022 and 0 shares issued and outstanding at December 31, 2021


-



-

Additional paid in capital


1,072,322



838,853

Less: Common Stock held in treasury, at cost; 122,585 shares at September 30, 2022 and December 31, 2021


(10,949
)


(10,949
)
Equity-based compensation


56,676



56,123

Accumulated deficit


(1,753,865
)


(1,532,428
)
Accumulated other comprehensive loss:






Foreign currency translation adjustment


(2,875
)


(7,463
)
Unrealized pension actuarial losses, net of tax


(9,012
)


(10,946
)
Total accumulated other comprehensive loss


(11,887
)


(18,409
)
Total stockholders' deficit


(647,560
)


(666,772
)
Total liabilities and stockholders' deficit

$
865,271


$
1,037,023


Exela Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 2022 and 2021
(in thousands of United States dollars except share and per share amounts)
(Unaudited)















Three Months Ended September 30,

Nine Months Ended September 30,


2022

2021

2022

2021
Revenue

$
264,038


$
279,229


$
810,206


$
872,294

Cost of revenue (exclusive of depreciation and amortization)


217,842



211,731



658,623



653,398

Selling, general and administrative expenses (exclusive of depreciation and amortization)


44,369



43,244



137,604



121,519

Depreciation and amortization


17,737



19,094



53,942



58,113

Impairment of goodwill and other intangible assets


29,565



-



29,565



-

Related party expense


2,016



2,744



6,189



7,199

Operating profit (loss)


(47,491
)


2,416



(75,717
)


32,065

Other expense (income), net:












Interest expense, net


40,897



41,757



122,928



127,755

Debt modification and extinguishment costs (gain), net


(4,696
)


(28,070
)


4,305



(28,070
)
Sundry expense (income), net


781



136



347



(438
)
Other expense (income), net


(1,115
)


366



12,419



1,169

Net loss before income taxes


(83,358
)


(11,773
)


(215,716
)


(68,351
)
Income tax expense


(1,924
)


(1,441
)


(5,721
)


(3,430
)
Net loss

$
(85,282
)

$
(13,214
)

$
(221,437
)

$
(71,781
)
Dividend equivalent on Series A Preferred Stock related to beneficial conversion feature







Cumulative dividends for Series A Preferred Stock


(908
)


(822
)


(2,648
)


(724
)
Cumulative dividends for Series B Preferred Stock


(1,136
)


-



(2,528
)


-

Net loss attributable to common stockholders

$
(87,326
)

$
(14,036
)

$
(226,613
)

$
(72,505
)
Loss per share:












Basic and diluted

$
(1.38
)

$
(1.86
)

$
(6.41
)

$
(16.49
)


Exela Technologies, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30, 2022 and 2021
(in thousands of United States dollars except share and per share amounts)
(Unaudited)









Nine Months Ended September 30,


2022

2021
Cash flows from operating activities






Net loss

$
(221,437
)

$
(71,781
)
Adjustments to reconcile net loss






Depreciation and amortization


53,942



58,113

Original issue discount and debt issuance cost amortization


10,383



11,684

Debt modification and extinguishment costs (gain), net


(1,803
)


(28,070
)
Impairment of goodwill and other intangible assets


29,565



-

Provision for doubtful accounts


704



2,427

Deferred income tax provision


2,492



484

Share-based compensation expense


694



1,519

Unrealized foreign currency losses


(1,503
)


(604
)
Loss (Gain) on sale of assets


548



(112
)
Fair value adjustment for interest rate swap


-



(125
)
Change in operating assets and liabilities, net of effect from acquisitions






Accounts receivable


83,282



14,440

Prepaid expenses and other assets


(6,910
)


(4,329
)
Accounts payable and accrued liabilities


(37,004
)


(57,433
)
Related party payables


426



604

Additions to outsource contract costs


(330
)


(405
)
Net cash used in operating activities


(86,951
)


(73,588
)







Cash flows from investing activities






Purchase of property, plant and equipment


(14,208
)


(6,950
)
Additions to patents


(15
)


-

Additions to internally developed software


(2,710
)


(951
)
Proceeds from sale of assets


194



4,252

Net cash used in investing activities


(16,739
)


(3,649
)







Cash flows from financing activities






Proceeds from issuance of Common Stock from private placement


-



25,065

Proceeds from issuance of Common Stock from at the market offerings


245,073



249,169

Dividend paid on Series B Preferred Stock


(2,532
)


-

Repurchases of Common Stock for retirement


(487
)


-

Cash paid for equity issuance costs from at the market offerings


(8,480
)


(9,060
)
Borrowings under factoring arrangement and Securitization Facility


93,867



102,141

Principal repayment on borrowings under factoring arrangement and Securitization Facility


(186,245
)


(105,112
)
Cash paid for withholding taxes on vested RSUs


(138
)


-

Lease terminations


3



(125
)
Cash paid for debt issuance costs


(7,125
)


-

Principal payments on finance lease obligations


(4,342
)


(8,446
)
Borrowings from senior secured revolving facility and BRCC revolver


20,000



3,000

Repayments on senior secured revolving facility


(49,477
)


(55
)
Proceeds from issuance of 2026 Notes


80,620



-

Borrowings from other loans


7,500



8,537

Cash paid for debt repurchases


(4,712
)


(58,607
)
Repayment of BRCC term loan


(59,209
)


-

Principal repayments on senior secured term loans and other loans


(22,829
)


(28,512
)
Net cash provided by financing activities


101,487



177,995

Effect of exchange rates on cash


(1,054
)


(78
)
Net increase (decrease) in cash and cash equivalents


(3,257
)


100,680

Cash, restricted cash, and cash equivalents






Beginning of period


48,060



70,309

End of period

$
44,803


$
170,989

Supplemental cash flow data:






Income tax payments, net of refunds received

$
5,267


$
2,766

Interest paid


93,405



137,862

Noncash investing and financing activities:






Assets acquired through right-of-use arrangements


958



2,754

Leasehold improvements funded by lessor


-



125

Accrued capital expenditures


1,916



2,495


Exela Technologies Schedule 1: Third Quarter 2022 vs. Third Quarter 2021 Financial Performance (U naudited )









$ in million
Q3-2022
Q3-2021
Increase (Decrease) YoY ($ mn)
Increase (Decrease) YoY (%)

Q2-2022
Increase (Decrease) QoQ ($ mn)
Increase (Decrease) QoQ (%)









Information and Transaction Processing Solutions
185.3

208.3

(23.0
)
(11.0 %)

190.0

(4.7
)
(2.5 %)
Healthcare Solutions
61.0

54.0

7.0

13.0 %

56.4

4.6

8.2 %
Legal and Loss Prevention Services
17.8

16.9

0.9

5.3 %

20.4

(2.6
)
(12.7 %)
Total Revenue
264.0

279.2

(15.2
)
-5.4%

266.8

(2.7
)
-1.0%









Gross profit
46.2

67.5

(21.3
)
(31.6 %)

49.5

(3.3
)
(6.7 %)
Gross profit margin
17.5 %

24.2 %

(6.7%
)
-668 bps

18.6 %

(1.1%
)
-106 bps









SG&A
44.4

43.2

1.1

2.6 %

50.2

(5.8
)
(11.6 %)









Operating (loss) income
(47.5
)
2.4

(49.9
)
(2066.1 %)

(20.9
)
(26.6
)
127.4 %
Operating margin
(18.0%
)
0.9 %

(18.9%
)
-1885 bps

(7.8%
)
(10.2%
)
-1016 bps









Net income (loss)
(85.3
)
(13.2
)
(72.1
)
545.4 %

(79.2
)
(6.1
)
7.7 %
Net income margin
(32.3%
)
(4.7%
)
(27.6%
)
-2757 bps

(29.7%
)
(2.6%
)
-261 bps









EBITDA
(24.7
)
49.1

(73.8
)
(150.4 %)

(17.6
)
(7.1
)
40.2 %
EBITDA Margin
(9.4%
)
17.6 %

(26.9%
)
-2694 bps

(6.6%
)
(2.8%
)
-275 bps









Adjusted EBITDA
31.8

36.4

(4.6
)
-12.5%

36.5

(4.6
)
-12.7%
Adjusted EBITDA margin
12.1 %

13.0 %

(1.0%
)
-98 bps

13.7 %

(1.6%
)
-161 bps

Exela Technologies
Schedule 2: Reconciliation of Adjusted EBITDA and constant currency revenues

Reconciliation of Non-GAAP Financial Measures to GAAP Measures

Non-GAAP constant currency revenue reconciliation

Three months ended

($ in millions)

30-Sep-22

30-Sep-21

30-Jun-22

Revenues, as reported (GAAP)

$ 264.0

$ 279.2

$ 266.8

Foreign currency exchange impact ⁽¹⁾

7.0

6.2

Revenues, at constant currency (Non-GAAP)

$ 271.1

$ 279.2

$ 273.0

(1) Constant currency excludes the impact of foreign currency fluctuations and is computed by applying the average exchange rates for the three months and nine months ended September 30, 2021, to the revenues during the corresponding period in 2022.

Reconciliation of Adjusted EBITDA

Three months ended

($ in millions)

30-Sep-22

30-Sep-21

30-Jun-22

Net loss (GAAP)

($ 85.3

)

($ 13.2

)

($ 79.2

)

Interest expense

40.9

41.8

42.3

Taxes

1.9

1.4

1.3

Depreciation and amortization

17.7

19.1

18.0

EBITDA (Non-GAAP)

($ 24.7

)

$ 49.1

($ 17.6

)

Transaction and integration costs

4.1

1.9

8.6

Gain / loss on derivative instruments

(1.1

)

Other Charges / (gains)

47.2

(19.3

)

38.9

Sub-Total (Adj. EBITDA before O&R)

$ 25.6

$ 31.7

$ 29.9

Optimization and restructuring expenses

6.3

4.7

6.6

Adjusted EBITDA (Non-GAAP)

$ 31.8

$ 36.4

$ 36.5

Company Name:	Exela Technologies Inc. Warrant
Stock Symbol:	XELAW
Market:	OTC
Website:	exelatech.com