Exela Technologies, Inc. (XELA) Q4 2023 Earnings Call Transcript

Excella Technologies, Inc. (NASDAQ:XELA) 2023 Fourth Quarter Results Conference Call April 17, 2024, 4:30 PM ET

corporate participant

Vince Kondaveeti – Head of Investor Relations
Par Chadha – Executive Chairman
Matt Brown – Interim Chief Financial Officer (CFO)

conference call participants

Craig Carlozi – Algebra

Operator

hello. Welcome to the Exela Technologies Earnings Update. (Operator instructions). This event is being recorded.

I would now like to hand the meeting over to Vince Kondaveeti, our Director of Investor Relations. Please proceed.

Vince Condaviti

Thanks, Dave. Good afternoon. Welcome to our earnings call to discuss our fourth quarter and full year results for the period ended December 31, 2023. The presentation was published in the Investor Relations section of our website. The speaker on today’s call is President Par Chadha. and Matt Brown, interim Chief Financial Officer.

Today’s agenda is as follows: Par will provide an overview of the results and update you on strategic initiatives. Matt then walks you through some financial metrics. Then, we will conclude the Q&A. This call is expected to take less than an hour.

Some of the matters we will discuss on today’s call are forward-looking and involve various risks, uncertainties and other factors that could cause actual results to differ materially from those in such forward-looking statements. These risks and uncertainties are set forth in the presentation.

With that, I will hand the call over to Executive Chairman Par.

parchada

Thank you, Bean. hello. Thank you to everyone who joined our fourth quarter and full year 2023 business update call. We finished the year with many positive results, but as always, there is more work to be done. Excella is moving. We’ve said in the past that our goal is to translate actions into results. We are ready to do just that.

I would like everyone to take a look at slide #4. We are excited to share highlights from the fourth quarter and full year 2023. These are some of our key achievements in 2023. It achieved a lot, but not everything, and the 2023 profit was $1.064. 10 billion. It decreased by 1.2% compared to the same period last year. Some of the decline in revenue is due to network outages in 2022 and the sale of our high-speed scanner business.

Our accelerators worked hard and built incremental businesses despite dark clouds. We have expanded some of our existing customer contracts. This all helped alleviate some of the revenue decline.

Our efforts to collaborate with industry research institutes have also been well-received and paid off. We have received several recognitions from the top industrial research organizations that serve us. This speaks to the strength and value proposition of our business model. Our customers love it, and it’s great to see our professionals become more recognized. All the hard work we put in in 2022 will start to pay off in 2023.

The focus is on business and cost management and we have much more to achieve. For example, gross margin increased by $31 million in 2023. All of this — on the previous call, we talked about automation. This is what has enabled us to deliver 1.2% less revenue with 1,900 fewer employees, or 11.8% fewer employees. This means our strategy of automation and delivering more for less is working.

Adjusted EBITDA was just $60 million. We also incurred significant costs associated with the 2026 Debt Swap, which was completed in the summer of 2023, as well as XBP Europe costs. We have succeeded in reducing our debt. We’ve added some flexibility to the document. We also completed the listing of XBP Europe, which currently trades on NASDAQ as XBP.

Let’s look at slide #5. The message I want to leave on this slide is our strategy that paid off in 2023 and will continue in 2024. I really see no reason to change what’s working. So we plan to move forward. We have made good progress by optimizing our revenues and costs and will continue to make further progress along this path in 2024.

We won $198 million in annual contract value last year. Renewal rates were partially influenced by the aforementioned 2022 events. We are continuously investing to provide better service to our customers. These investments are extensive. We invested in people.

We continue to invest more in automation. We are working hard to improve our user experience to make it easier for our customers to transact with us. We’re making investments, as Matt will talk about in his talk on cloud operations. Of course it is. The same goes for artificial intelligence in AI.

We want to expand our wallet share. To this end, we are also adding new services. Two of our new growth initiatives are FAO Services and (reactor.ai). It contains links to services available on that website. This is a very exciting area for growth for us. Take a look. We are very excited about our solution. And thank you to our team and customers. We want to be an invaluable solutions partner for our customers’ journeys, not only in digital but now in AI-enabled services as well.

With this strategic update, I’m turning the reins over to Matt Brown, who has done a great job. After Matt’s talk, we’ll open it up for Q&A. Take it, Matt.

matte brown

Thanks, Pa, and hello everyone. My name is Matt Brown, and I’m interim CFO. We reported 2023 revenue of $1.064 billion, a slight decrease of 1.2% compared to the previous year. At the segment level, ITPS declined 4%, offset by growth in the Healthcare Solutions and Legal & Loss Prevention Services segments, which increased approximately 5% and 11%, respectively. The ITPS decline was primarily offset by the sale of our high-speed scanner manufacturing and maintenance business in June 2023, the impact of network outages and loss renewals in 2022, continued cross-selling and the acquisition of 130 new logos.

The fourth quarter of fiscal 2023 was down 0.9% year-over-year and grew 4.5% quarter-over-quarter, primarily driven by a large new logo and growth from top customers.

Full-year gross margin improved by $31 million, or 310 basis points (bps), compared to the prior year. The profit improvement was primarily driven by increased automation, reduction of approximately 1,900 employees and lower administrative costs.

Cost savings are partially offset by talent investments and CapEx cost migration. CapEx decreased by $10 million year-over-year due to a shift in OpEx as we transitioned from data center infrastructure to cloud computing. We have made good progress on our savings plan, but there is still significant opportunity for margin improvement in 2024.

Net loss was $124.4 million, an improvement of $291.4 million over the previous year. And cash flow from operations returned to positive in 2023, an improvement of more than $90 million over ’22.

By removing non-operating gains from the EBITDA adjustment and adding back the transaction and certain one-time costs, we can see that adjusted EBITDA reached $60 million. We have simplified our EBITDA reconciliation and do not include any add-ons for optimization and restructuring or any historically recurring cost or savings initiatives.

For 2022 and 2023, year-over-year adjustments are decreasing significantly and EBITDA and cash EBITDA are converging. I would note that the decline in EBITDA in the fourth quarter was primarily due to several charges we took on litigation settlements, loan loss reserves and dark facilities.

On our balance sheet, we achieved a significant reduction in current liabilities by more than $115 million compared to the previous year. Although we achieved a partial benefit in 2023 with a $25 million decrease in overall interest expense, our fourth quarter interest expense was down nearly 40% year-over-year.

In 2024, we remain focused on stabilizing revenues, improving margins and driving strategic growth initiatives. We are optimistic about the opportunities ahead, particularly through investments in emerging growth areas.

Lastly, I would like to thank our dedicated team, customers and investors for their continued support. We are diligently executing on our path to recovery and growth, and we look forward to sharing our progress in the coming quarters.

thank you Now I will reveal the question lineup.

Q&A session

Operator

(Operator Instructions) The first question came from Craig Carlozzi from Algebris.

Craig Carlozi

It’s been a while since I heard about the company’s vision. First of all, can you talk about where the liquidity is and how you think about liquidity and levers that can be pulled to potentially improve liquidity, asset sales, or actually bridging the cash flow needs of the business to the point where they’re operationally necessary? Can you? , the business is in a position to sustain itself.

parchada

Matt, if you don’t mind, I think I can start and you can add to it.

matte brown

confident.

parchada

great. Craig, thank you for your question. History is great. We believe in history. History is a great way to look at what we’ve done in the past and predict what we’ll do in the future. Last year we didn’t really raise capital. As Matt pointed out, we’ve used both increased cash flow through the business to pay down a lot of our debt, but we’ve stayed within our swim lane.

And at this point, we have a lot of levers to pull, and we’ll continue to expand liquidity and pull those levers. But at this point it would be premature to talk about what we will do and when we will do it.

Operator

This concludes the question and answer session. I would like to hand the meeting back to Par Chadha for closing remarks.

parchada

We are very grateful to all our stakeholders, employees and customers and hope everyone has a happy Wednesday and the rest of the week. We look forward to covering and discussing our first quarter results in the coming weeks. Thank you very much.

Operator

The meeting is now over. Thank you for attending today’s presentation. You can now disconnect.