Q3 2022 Exela Technologies Inc Earnings Call
Good day and welcome to <unk> Technologies' third quarter 2022 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question.
You May press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. <unk>. Please go ahead Sir.
Thank you Chuck and good evening, everyone welcome to our earnings call to discuss our third quarter results for the period ended September 30th 2022, our earnings release and presentation were posted to the IR section of our website speakers on today's call are part charter exactly chairman and frequent sort or our chief financial officer.
Today's agenda will be as follows Paul will provide an overview of our results and I'll take you on our strategic initiatives Shrikant will then walk you through our financial performance for the quarter and it will take and then we will take your questions.
Then communicate with many investors via speak up we hope that you are finding it useful I also wanted to mention that we are accepting questions ahead of our fireside chat with par on November 30th she can propose questions up until the day before Thanksgiving on fire side at <unk> Dot com.
Some of the matters, we will discuss in today's call are forward looking and involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those in such forward looking statements.
The risks and uncertainties are set forth in our press release.
I'll turn the call over to par our executive chairman.
Good evening and thanks for joining our Q3 business update.
I shared my strategy and objectives objectives for the company when I stepped into this role a little over a year ago.
The macro environment was different then.
We have completed some of her objectives added a few new ones.
And adjusted it for you to stay nimble and focused on our mission.
Changing from market Zooborns.
Do a reality.
We have evolved.
And so has our mantra today it is converting action into results.
I'd like to turn to slide number three.
Why don't share seven highlight for this quarter and set the stage for Q4 and 2023.
Number one.
Our European business will go public following the business combination.
At a value of $220 million with excel are remaining as the majority stockholder.
We look forward to sharing more on this over the coming months.
Number two.
Our third the shareholder initiative aligned all of our stakeholders.
We are pleased that we have set aside 70 million up 2026.
In your notes to begin with.
It's never enough, but let's call it a good start.
These are some of the examples of how the funds we raised in equity markets have been deployed.
This is an important important topic and I will provide some more color on the next slide.
Number three.
Revenue was lower this quarter due to several factors <unk>.
Including <unk>.
Network outage.
See translation.
<unk> revenue.
And tight job.
Markets.
These events combined with the changing macro environment.
Require us to re check our business model and assumptions.
And we have been doing just that and I'll share the steps we have taken to address.
These.
In short while we are on the right track, we do not need to get ahead of the events.
That impacted us.
Or could impact us in future.
Number four.
I want to emphasize the importance of our strategic decision to pivot.
The work for many of you there.
Or WSI, which we adopted some time ago.
We didn't know at the time that inflation low unemployment.
The rising cost and yet strong dollar will impact us the way it did.
I'm, so glad to be adopted wf paid when we did.
Our actions to often offset these into impact.
Tracking to reach approximately 45 million of operational improvements.
Estimated in 2023.
I'll cover that in more detail.
Over the coming slides.
Number five.
Having it we're having a decent conversion of pipeline into contract in.
In Q3.
GCB.
Came in at $87 million.
I'm not happy that only a small amount of our contract wins have converted into revenue in this quarter.
So no surprise.
Focus has gotten even sharper on converting this into revenue as soon as practical.
Number six.
Our.
SMB SaaS business.
<unk> to show a stellar growth.
Nice to see this is rubbing into our enterprise business as well.
We see demand rising there too.
I, primarily I'm, referring to DMR and drive that.
And as we launch our next set of platforms.
We have a few more platform as you know and we'll benefit from lessons.
Learn.
And our experienced team.
Number seven we continued to fix and strengthen our balance sheet.
With help from our shareholders of course.
As you know in this regard we still have some more work to do.
Primarily.
Our focus.
Now has shifted to performance.
And then working action into results.
Let's turn to slide number four.
We have raised a substantial amount of equity capital.
And let me walk you through how we've used it.
Prudently between investing in the business.
And balancing between our stakeholders.
Look at the sum of the parts analysis, we own 100%.
Hello BPA.
In addition, we estimate the value of other assets to be over $600 million.
Yes, 617 5 million plus.
Whatever equity value you want to allocate to excel or BPA.
Our shareholders on these assets.
The bottomline is that accelerated trading far below its intrinsic value.
We plan to address this by focusing on performance.
As fixing this.
This gap is up.
Most important.
Let's turn to slide number five.
Let me walk through six items that have impacted our revenue.
Historically, our Q3 is a seasonally soft quarter.
That aside the total negative impact in Q3 was $26 6 million.
Which was offset by.
Revenue growth in Q3 of $7 2 million.
And.
$4 6 million or.
Cleared backlog.
From Q2.
We were also impacted by currency translation.
To the tune of approximately $7 million.
Net net revenue was down $15 2 million.
Let us turn to slide six.
Some more color on revenue.
As I mentioned, we're seeing.
Stable <unk> conversion.
From pipeline into new contract wins.
We need to get our renewals up.
And but we are very satisfied with the recurring revenue at 98%.
We're seeing healthy growth in health care and legal segments.
We do have business in <unk>, that's part of <unk> segment.
But as they convert into revenue will flow will start to show.
Revenue growth as well.
Despite the macro headwinds.
Conversations with our customers remained robust.
And demand continues to improve.
Cros.
Various segments.
The network outage.
We talked.
<unk> talked about in the Q2 call is largely behind us.
However, we are having some lingering impacts in our discussions with customers.
We are a mission critical vendor to our customers.
And it's important to showcase our leadership in solutions.
And resiliency of our solutions to acknowledge concerns.
All of our customers.
We are having many successful monetization with our customers as well.
Our objective remains to put us in a position to.
To grow pipeline and ultimately win more business.
Let us turn to slide number seven.
I touched on this earlier.
And over the next few slides.
I will highlight the actions we have taken for operational improvements to grow our margins and used tools in our control.
We manage our business.
What a bedrock.
We have examined.
Continuing to examine our performance across all functions.
And we have taken steps.
To align the size.
Reduced where appropriate and acted based on performance.
Fix.
Ultimately, we are prepared for a better outcome with a reduction in overall overall cost.
Backed by W that pay we have the potential to accomplish this goal.
For example on slide number eight.
We began to implement.
Our <unk> solutions during the pandemic.
But quickly saw the solutions could help mitigate it.
Inflationary environment tight job market and rising costs to address the impact we're seeing.
We took this initiative to extend expand our team.
Cross current and additional geographies.
Now <unk>.
49% of our employees work from anywhere they want whenever they want.
Our authorization platform.
Now it is targeting to reach 30 kind of 30000 workers by the end.
2022.
You asked what will this allow us to do.
Well I say prepare for at least at a lower cost by complementing our existing team members.
Many additional good things happen too.
This enables much larger usage.
Off cloud is many I'm, sorry has met as well <unk>.
Majority of our team is using cloud to this as many additional causes the add on effect.
Another benefit as we turn to slide number nine.
This permits.
To shed real estate cost.
All geographies and allow us to consolidate smaller locations into bigger locations as well.
At the beginning of that.
Beginning of Q3, we had two 8 million square feet.
Our goal is to.
In Q2 thousand 23.
Come down to 217 million square feet.
Not an easy task task, but made possible by WSI.
I want to share with many of you already know the salary of our employees.
Is by far the largest expense.
We had also addressing this expense.
By blending work from anywhere.
And.
To reduce real estate expense.
And physical expense.
This all leads to.
The key question.
How much infrastructure in our data centers is affected by this we spent over $30 million on software and hardware maintenance.
Including over $30 million in real estate cost.
That's just the lease cost not not including all the other cost expenses that come with leasing ability.
No surprise this expense is under the lens as well.
Upon successful completion of migration to cloud.
This $60 million of costs start to become less important maybe even secondary.
And start coming down as the real estate starts.
Starts to come down.
We may have to pay a onetime cost to exit some buildings.
But savings materially favor the decision.
One decision to pivot to WSJ there'll be made during pandemic.
It has enabled us to become.
More nimble and a better organization.
Better organization for not just us, but also for our customers.
Let me add up the current benefit of these actions on slide 10.
These five initiatives total over $40 million and operational improvements.
I assure you we're not done.
And my experience will continue to find more.
Previously unknown operational improvements across all functions.
I'm glad we adopted.
W. Two initially protect our employees.
And embarked on a mission to Uber right of workforce.
It is just beginning to flow through.
And we will benefit in 2023.
Our goal is to reach and cross the inflection point absolutely.
Possible.
Our months or these days is converting actions into reality.
And as a result.
Reflecting our current reality.
Many thanks to our shareholders lenders employees and many others.
And with that Sharon.
<unk> accomplished CFO , please take it away.
Thank you Bob.
And thanks to everyone for joining us this evening.
We filed our Q3 2022 10-Q, along with the restated audited consolidated financial statements.
Form 10-K for the year ended December 31 2021.
The origin really filed 10-K on March 16th 2022.
I will cover our.
Quarter results and provide an update on our growth and balance sheet initiatives.
And then following up with the discussion on the restatement.
As we have done in the past we are reporting both GAAP and non-GAAP numbers.
The cancellations or in our filings and in the appendix of the presentation.
Let me walk you through the third quarter of 2022 financial performance on Slide 12.
On a reported basis revenue was 264 million down five 4% year over year and $271 million on a constant currency basis down two 9% year over year.
On a consolidated basis.
Revenue for the quarter was adversely impacted by $7 million from currency translation change.
$15 1 million from transition revenue and contract losses.
$4 5 million impact from network outage on contracted revenue.
Was positively offset by revenue growth of $7 2 million and $4 1 million of cleared backlog.
These very busy.
The details of these are on slide five.
Additionally, we were not able to capture approximately $4 6 million of revenue during the quarter due to continued staffing shortage.
Let's quickly look at our segment revenue performance for the quarter.
Revenue for our <unk> segment was $185 3 million a decrease of 11% from $208 3 million in third quarter of 2021.
The decrease was primarily due to the factors described earlier.
Our healthcare solutions segment revenue totaled 61 million, a 13% increase on a year over year basis from 54 million in the year ago period.
The strength in revenue is.
Led by our customers' continued acceptance of our solutions and services.
Our legal and loss prevention.
Segment revenue was $17 8 million or five 3% increase on a year over year basis from $16 9 million driven by steady project based business.
Gross profit for the third quarter was $46 2 million down $21 3 million or 31, 6% year over year.
Gross profit and margins were impacted due to inflation digest market investment in bench costs, and then broke outage.
Gross profit margin for the third quarter was 17, 5% down 668 bps from Q3 of the prior year and down 160 basis points sequentially due to a number of factors previously highlighted.
SG&A for the third quarter totaled $44 4 million up slightly up $1 1 million year over year, and lower by $5 8 million sequentially and representing 16, 8% of sales.
<unk> was impacted by network outage related costs and continue to carry professional fees, including certain nonrecurring transaction related costs.
Adjusted EBITDA was 31 8 million down 12, 5% from the $36 4 million in the prior year period and down by 12, 7% sequentially.
Our adjusted EBITDA margin for the third quarter was 12, 1% down 90 basis points from 13% in the third quarter of 2021 and down 161 basis points sequentially.
On a GAAP basis, I would like to highlight two noncash items.
Had a material impact on the comparative three months net income year over year.
Both of which are neutral to adjusted EBITDA.
One as a result of the interim impairment analysis at September 32022, the company recorded an impairment charge of $29 6 million to goodwill relating to our <unk> segment.
Number two three months ended September 32021, which is the last year.
Benefited from a gain on early extinguishment of debt of $28 1 million in connection with the repurchase.
With the repurchase notes and senior secured term loan.
Before moving to the next slide I would like to highlight some of the key items from prior slides discussed by par on the initiatives to address the performance of the company.
Cable T CB conversion from sales pipeline, despite macro headwinds just encouraging from a revenue perspective.
And initiatives.
Gross margin and operating income improvement in 2023, including Colo and price increases rent reduction executed annual savings and additional savings underway, our actions to address rising cost and improving margins.
Let's turn to slide 13, and discuss the balance sheet.
So encapsulate the slide our goal is to focus on near term results to expand liquidity.
We paid off all of our lifeblood is due in 2022 by extinguishing the Waldorf and appraisal action for a total of $163 million.
Our blended coupon rate is 11, one 4% and we are considering adding a term loan of additional 30% to 35 billion of liquidity.
Before opening up for the Q&A I'll provide an update on the restatement of our prior period financial results.
Earlier this evening the company restated its audited consolidated financial statements and the 2021 Form 10-K for the year ended December 31st 2021, which was originally filed with SEC on March 16 2022.
I would like to highlight three important facts.
Plus there was no impact of the restatement on our reported revenue net income and adjusted EBITDA.
Second <unk>.
No impact or changes to our cash balances or cash flow statement.
Third the only change to our financial statements was the reclassification of the securitization personally from long term to current from the restated balance sheet as of December 31, 2021.
Additionally, the restatement does not have an effect on retained earnings or other confidence ubiquity.
Yeah.
Core share amounts disclosed in the origin will report.
The restatement our license from the inclusion of disclosure related to the existence of substantial doubt about the entities the ability to continue as a going concern under the standards Subtopic.
Topic two of 540 ongoing concern.
Yes Amendment includes reissued audit reports from KPMG LLP, the company's independent registered public accounting firm due to the restatement.
A result of the issuance of an amended audit report, including a growing concern explanation paragraphs.
Under one of the company's borrowing facilities would have become current and we reclassified from long term to current and the restated balance sheet as of December 31st 2021.
Please refer to the explanatory note on the filed 10-K for additional details including changes to the financial statements for the fiscal year ended December 31 2021.
Note that each of the quarterly filings in 2022 includes a going concern football and basketball.
Once again, thank you for joining the call I will turn this over to Chuck.
To open it up towards the Q&A.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two we ask that you. Please limit yourself to one question and one follow up.
And at this time, we will pause momentarily to assemble our roster.
Yes.
And the first question will come from Zach Cummins with B Riley FBR. Please go ahead.
Yes, hi, good evening, Thanks for taking my questions. Thanks forgotten part for taking the time.
My question is really centered around the balance sheet I guess I'll just make it a two part question here, but how.
How are you thinking about available liquidity and options that you have to continue to address the balance sheet between now and year end and then also just dovetailing off of that.
Can you talk about the rationale behind trying to lift the ex VP Europe business and the public markets and really how does that helping you address some of the current challenges on your balance sheet.
Sure.
Yes, maybe I'll kick that off.
Exactly.
Yeah.
As we have.
I covered in my talk.
Our.
Values.
Intrinsic dislocation, Nevada, new one.
The primary reason is that we are preparing.
For <unk>.
Taking some of our assets.
And making them.
We value the public markets.
They are on basis and this is an example of that.
It's not really meant.
To address your question, but it's meant to address the long term value of this company that presents.
Your question about the balance sheet or our need for liquidity.
Thank you for your time covered.
And here is I think it's slide number 13 that we plan to add.
Additional term loan capacity, 30% to $35 million.
And when you combine that with our equity that we raised.
In.
October and we May raise.
We will have runway for addressing any near term needs.
Sure.
Missed any please feel free to add.
No you've covered at par.
I guess.
The additional point properties that is a little bit more color into that would be that.
As you probably saw the team on the slide as it reflects the.
Hi.
Downstream to convert actions into results.
Our focus is on making operational improvements and good morning that into liquidity.
That's the key thing that I called out.
Understood and I guess Im just trying to squeeze in one more just just around your margins going here.
I appreciate all the cost efforts that you've taken to reduce the overall footprint and drive better margins.
Just given the current revenue headwinds that we've seen in the past couple of quarters I mean, when do you anticipate we should see some of these cost reductions start to translate into more stabilized gross margin performance going forward.
The expectations, obviously has to be covered again on the presentation. Zach the expectation is it will start coming to fruition in Q4, but to pick up that's going to be more pronounced in 2023 and onwards.
Before I talk extensively about that Theres, a couple of other data points that I'd, probably point out that's not apparent.
Let's take the example of our healthcare solutions segment, while the focus probably has been on the revenue decline on ATP S and some of the margin compression stair healthcare solutions is a good example, where we're doing really well and in particular, let's look at Q3, whether it was sequential quarter.
Year over year or year to date year over year, all three we had revenue gains in health care solutions.
And when we started off this year from a margin perspective specific to the health care business.
Or that segment in.
In Q4, and Q1, we saw margin compression there.
And is that while it may not be apparent on on on the.
Quarterly financials.
Preston from a from it.
Earnings perspective, if you look at our 10-Q was for each of the three quarters, whether you wanted to find it.
In 2022 Health care solutions went from in Q1, 17, three 4% margins to 18, 9% in Q2 and Q3 20 <unk>. The reason I called this out is when we look at a consolidated basis and look at the margin compressions.
There is a positive story, though whether it's health care solutions are a L. P. S. While we are still not at the 2021 margin levels.
Both segments are seeing a margin improvement every quarter this year.
Understood I appreciate the additional color you provided there and nice to see the rebound in performance for health care solutions, but.
Best of luck with the rest of the quarter and then looking forward to reconnecting soon thanks.
Thanks for your question Zach.
Okay and if you have a question. Please press Star then one our next question will come from <unk> Klein with Avenue Capital Group. Please go ahead.
Hey, guys. Thanks for taking the call I think Zack kind of addressed one in or want to ask my questions first one on the balance sheet it looks like.
Thanks for answering my question, which is it's great to have cleaned out 22.
Just didn't want to reload liquidity it sounds like you're already starting to take actions post quarter end, you've already started raising more capital and Youll continue to do so.
So that you can continue to deal with your 'twenty three.
Issues as well.
Is there anything else to add there that you didn't cover was that that was going to kind of be my first question.
Yes sure.
Go ahead, Bob sure sure sounds I Couldnt hear it the last part, but if you did go ahead yeah.
Yeah first of all Randall again, thanks for the question Marshall part that's an observation.
The question and the answer that we had for Zach.
Guests from I think from a number perspective would be covered it.
You can probably provide more of our business color in terms of what's in store I guess rentals questions is more around that.
Well I'll just jump I'll just jump in was what was going to be my second question here, which is more on the business outlook. So you've talked about Q3 is a bit of a seasonal low typically you went through all these issues around the network outage, the new business ramp up on the on the wind et cetera.
I guess directionally on the revenue side and again that you may have already asked or answered this with Zach, but it sounds like the inflection point for revenue as well as margin is happening kind of as we speak right I mean kind of Q4 ish and then by definition more into 2023.
Is that again kind of a quick summary of what you were trying to articulate.
That is correct, Brian well that'll be our expectation, obviously to execute and where does the PSS be covered in part also mentioned in his presentation, we would like to see the pace of pipeline converting into revenue pick up.
This quarter for example, we did see some <unk>.
Delays in customer Decisioning, even as we were working on.
Getting back up from the network outage in back.
So yes.
In summary, yes, that's our expectation rental.
I would add.
With a 98% recurring revenue.
As we look into Q4.
And $7 million that we converted as new business.
Approximately 2%.
So.
With the pipeline that we have already won converted into business.
We just need to get make sure that we don't have any obstacles like.
Shortage of people.
Type of self paced for us to succeed.
Our Q3 <unk>.
The new numbers.
Obviously, the goal is to do better than that.
But.
Looks like we are in a good position as we are.
Because we are in Q4.
Got it okay.
That's good for me guys. Thanks, Good luck.
No new surprises get in the way you guys can execute on that thanks, everyone.
Thanks, Thanks for the question Greg.
This concludes our question and answer session I would like to turn the conference back over to Mr. Vince <unk> for any closing remarks. Please go ahead.
Thanks, Chuck and thanks for everyone for dialing into the call. We look forward to you joining our fireside chat with par and please enter your questions and we'll talk to you then thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Good day and welcome to the <unk> technologies third quarter 2022 financial results Conference call.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone and talk to.
Your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Mr. Vince <unk>. Please go ahead Sir.
Thank you Chuck and good evening, everyone welcome to our earnings call to discuss our third quarter results for the period ended September 32022, our earnings release and presentation were posted to the IR section of our website speakers on today's call are part charter executive Chairman and <unk>, Our Chief Financial Officer.
Today's agenda will be as follows Paul will provide an overview of our results and I'll take you on our strategic initiatives Shrikant will then walk you through our financial performance for the quarter and it will take and then we will take your questions.
We didn't communicate with many investors via speak up we hope that you are finding it useful I also wanted to mention that we are accepting questions ahead of our fireside chat with par on November 30th you can propose questions up until the day before Thanksgiving on fire side at <unk> Dot com.
Some of the matters, we will discuss in today's call are forward looking and involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those in such forward looking statements.
Such risks and uncertainties are set forth in our press release.
I'll turn the call over to par our executive chairman.
Sure.
Good evening and thanks for joining our Q3 business update.
I shared my strategy and objectives objectives for the company.
When I stepped into this role little over a year ago.
The macro environment.
Different thing.
We have completed some of our objectives added a few new ones.
And adjusted issue to stay nimble and focused on our mission.
Changing from market Zale brands.
Our reality.
We are involved in.
So as our mantra today it is converting action into results.
Electric cars.
Turn to slide number three.
Why don't share seven highlights for this quarter and set the stage for Q4 and 2023.
Number one.
Our European business will go public.
The business combination.
At a value of $220 million with excel remaining as the majority stockholder.
We look forward to sharing more on this over the coming months.
Number two.
Our third the shareholder initiative aligned.
All of our stakeholders.
We are pleased that we have set aside $70 million 2026.
Senior notes to begin with.
It's never enough, but let's call it a good start.
These are some of the examples of how the funds we raised in equity markets have been deployed.
This is an important important topic and I will provide some more color on the next slide.
Number three our revenue was lower this quarter due to several factors.
Including net.
Network outage.
Translation.
<unk> revenue.
Tight job.
Markets.
These events combined with the changing macro environment.
Require us to re check our business model and assumptions.
And we have been doing just that and I'll share the steps we have taken to address.
These.
In short while we're on the right track, we do not need to get ahead of the events.
That impacted us.
Or could impact us in future.
Number four.
I want to emphasize the importance of our strategic decision to pivot.
The work for many of you there.
Or WSI, which we adopted some time ago.
We didn't know at the time that inflation low unemployment.
The rising cost and yet strong dollar will impact us the way it did.
I'm, so glad to be adopted WSI when we did.
Our actions to offset offset this impact.
Tracking to reach approximately 45 million of operational improvements.
Estimated in 2023.
I'll cover that in more detail.
And over the next coming slide.
Number five.
We are having we are having a decent conversion of our pipeline into contract in.
In Q3 <unk>.
<unk>.
Came in at $87 million.
I am not happy that only a small amount of our contract wins have converted into revenue in this quarter.
So no surprise, our focus has gotten even sharper on converting this into revenue as soon as practical.
Number six.
Our.
SMB SaaS business.
<unk> continues to show a stellar growth.
Nice to see this is rubbing into our enterprise business as well.
We see demand rising there too.
Primarily I am referring to DMR dry style.
And as we launch our next set of platforms. We have a few more platform as you know and we will benefit from lessons we have learned.
And our experienced team.
Number seven we.
We need to fix and strengthen our balance sheet.
With help from our shareholders of course.
As you know in this regard we still have some more work to do.
Primarily.
Our focus.
Now has shifted to performance.
Converting action into results.
Let's turn to slide number four.
We have raised a substantial amount of equity capital.
Let me walk you through how we've used it.
Prudently between investing in the business and.
And balancing between our stakeholders.
Look at some of the park for analysis, we own 100%.
<unk> BPA.
In addition, we estimate the value of other assets to be over $600 million.
Yes, 617 5 million plus.
Whatever equity value you want to allocate to excel a BPA.
Our shareholders on these assets.
The bottom line is that accelerated trading far below its intrinsic value.
We plan to address this by focusing on performance.
Fixing.
This gap is of utmost importance.
Let's turn to slide number five.
Let me walk through six items that have impacted our revenue.
Historically, our Q3 is a seasonally soft quarter.
That aside.
Total negative impact in Q3 was $26 6 million.
Which was offset by.
Revenue growth in Q3 of $7 2 million.
And.
$4 6 million.
Cleared backlog from Q2.
We were also impacted by currency translation.
To the tune of approximately $7 million.
Net net revenue was down $15 2 million.
Let us turn to slide six.
Some more color on revenue.
As I mentioned, we're seeing.
Stable PCV conversion.
From pipeline into new contract wins.
We need to get our renewals up.
And but we are very satisfied with the recurring revenue at 98%.
We're seeing healthy growth in healthcare and legal segments.
We do have business in SPP, that's part of <unk> segment.
That they can work into revenue will flow.
We'll start to show.
AD revenue growth as well.
Despite the macro headwinds.
Conversations with our customers remained robust.
And demand continues to improve.
Cros.
Various segments.
The network outage.
We talked.
<unk> talked about in the Q2 call is largely behind us.
However, we are having some lingering impacts in our discussions with customers.
We are a mission critical vendor to our customers.
And it's important to showcase our leadership in solutions.
And resiliency of our solutions to acknowledge concerns.
All of our customers.
We are having many successful monetization with our customers as well.
Our objective remains to put us in a position to.
The growth pipeline and ultimately win more business.
Let us turn to slide number seven.
I touched on this earlier.
And over the next few slides.
I will highlight the actions we have taken for operational improvements to grow our market and used tools in our control.
To manage our business.
But a better rock.
We have examined.
Continue to examine our performance.
Across all functions.
And we have taken steps.
To align the size.
Reduced where appropriate and acted based on performance.
<unk>.
Ultimately, we are prepared for a better outcome with a reduction in overall overall.
Backed by W. Assay, we have the potential to accomplish this goal.
For example on slide number eight.
We began to implement.
Our <unk> solutions during the pandemic.
But quickly saw the solutions could help mitigate it.
Inflationary environment tight job market and rising costs to address the impact we're seeing.
We took this initiative to extend expand our team.
Cross correct in additional geographies.
Now.
49% of our employees work from anywhere they want whenever they want.
Our authorization platform.
Now, let us targeting to reach 30, count 30000 workers by the end.
2022.
You at what will this allow us to do.
Well I say prepare for at least at a lower cost by complementing our existing team members.
Many additional good things happen too.
This enables much larger usage.
Off cloud is many I'm, sorry has met as where the majority of our team is using cloud to this.
As many additional positive add on effect.
Another benefit as we turn to slide number nine.
This permits.
Real estate cost.
In all geographies and allow us to consolidate smaller locations into bigger locations as well.
At the beginning of a.
Beginning of Q3, we had $2 8 million square feet.
Our goal is to.
In Q2 thousand 23.
Come down to one 7 million square feet.
Not an easy task, but made possible by W. P.
I want to share with many of you already know the salary of our employees.
Is by far our largest expense.
We are also addressing this expense by.
By blending work from anywhere.
And.
To reduce real estate expense.
And physical expense.
This all leads to.
The key question.
How much infrastructure in our data centers is affected by this we spent over $30 million on software and hardware maintenance.
Including over $30 million in real estate cost.
That's just the lease cost not not including all the other cost expenses that come with leasing ability.
No surprise this expense is under the lens as well.
Upon successful completion of migration to cloud.
This $60 million of costs start to become less important maybe even secondary.
And start coming down as the real estate starts.
Starts to come down.
We may have to pay a onetime cost to exit some buildings.
But savings materially favor the decision.
One decision to pivot to WSI will be made during pandemic.
Has enabled us to become.
More nimble and a better organization.
Better organization for not just us, but also for our customers.
Let me add up the current benefit of these actions on slide 10.
These five initiatives total over $40 million and operational improvements.
I assure you we're not done.
And my experience will continue to find more previously unknown operational improvements across all functions.
I'm glad we adopted.
The FAA to initially protect our employees.
And embarked on a mission to override of workforce.
It is just beginning to flow through.
We will benefit in 2023.
Our goal is to reach and cross the inflection point as well.
Possible.
Our months are these days.
Converting actions into reality.
And as a result.
Reflecting our current reality.
Many thanks to our shareholders lenders employees, and many others and with that Sharon.
<unk> accomplished CFO , please take it away.
Thank you Buck.
And thanks to everyone for joining us this evening.
We filed our Q3 2022 10-Q, along with the restated audited consolidated financial statements.
Form 10-K for the year ended December 31st 2021.
Amanda Originary file 10-K on March 16th 2022.
I will cover our quarter results.
I'll provide an update on our growth and balance sheet initiatives.
And then following up with the discussion on the restatement.
As we have done in the past.
Porting, both GAAP and non-GAAP numbers.
The cancellations or in our filings and the appendix of the presentation.
Let me walk you through the third quarter 2022 financial performance on Slide 12.
On a reported basis revenue was 264 million down five 4% year over year and $271 million on a constant currency basis down two 9% year over year.
On a consolidated basis.
Revenue for the quarter was adversely impacted by $7 million from currency translation change.
A $10 1 million from transition revenue and contract losses.
$4 5 million impact from network outage on contracted revenue.
It was positively offset by revenue growth of $7 2 million and $4 1 million of cleared backlog.
These very busy the details of these are on slide five.
Additionally, we were not able to capture approximately $4 6 million of revenue during the quarter due to continued staffing shortage.
Let's quickly look at our segment revenue performance for the quarter.
Revenue for our <unk> segment was $185 3 million a decrease of 11% from $208 3 million in third quarter of 2021.
Decrease was primarily due to the factors described earlier.
Our healthcare solutions segment revenue totaled 61 million, a 13% increase on a year over year basis from 54 million in the year ago period.
The strength in revenue is.
Led by our customers' continued acceptance of our solutions and services.
Our legal and loss prevention services.
Segment revenue was $17 8 million or five 3% increase on a year over year basis from $16 9 million driven by steady project based business.
Gross profit for the third quarter was $46 2 million down $21 3 million or 31, 6% year over year.
Gross profit and margins were impacted due to inflation digest market investment in bench cost and network outage.
Gross profit margin for the third quarter was 17, 5% down 668 bps from Q3 of the prior year and down 160 basis points sequentially due to a number of factors previously highlighted.
SG&A for the third quarter totaled $44 4 million up slight up $1 1 million year over year, and lower by $5 8 million sequentially and representing 16, 8% of sales.
<unk> was impacted by network outage related costs and continue to carry professional fees, including certain nonrecurring transaction related costs.
Adjusted EBITDA was 31 8 million down 12, 5% from the $36 4 million in the prior year period and down by 12, 7% sequentially.
Our adjusted EBITDA margin for the third quarter was 12, 1% down 90 basis points from 13% in the third quarter of 2021 and down 161 basis points sequentially.
On a GAAP basis, I would like to highlight two noncash items that had a material impact on the comparative three months net income year over year.
Both of which are neutral to adjusted EBITDA.
One as a result of the interim impairment analysis at September 32022, the company recorded an impairment charge of $29 6 million to goodwill relating to our <unk> segment.
Number two three months ended September 32021, which is the last year.
<unk> benefited from a gain on early extinguishment of debt of $28 1 million in connection with the repurchase excuse me with the repurchase notes and senior secured term loan.
Before moving to the next slide I would like to highlight some of the key items from prior slides discussed by par on the initiative to address the performance of the company.
Cable T CB conversion from sales pipeline, despite macro headwinds is encouraging from a revenue perspective.
And initiate it.
Gross margin and operating income improvement in 2023, including Cola and price increases rent reduction.
<unk> annual savings and additional savings underway, our actions to address rising cost and improving margins.
Let's turn to slide 13, and discuss the balance sheet.
To encapsulate the slide our goal is to focus on near term results to expand liquidity.
We paid off all of our lifeblood is due in 2022 by extinguishing the Waldorf and appraisal action for a total of 163 million.
Our blended coupon rate is 11, one 4% and we are considering adding a term loan of additional 30% to 35 billion of liquidity.
Before opening up for the Q&A I'll provide an update on the restatement of our prior period financial results.
Earlier this evening the company restated its audited consolidated financial statements and the 2021 Form 10-K for the year ended December 31, 2021, which was originally filed with SEC on March 16th of 2022.
I would like to highlight three important facts.
Plus there was no impact of the restatement on our reported revenue net income and adjusted EBITDA.
Second there was no impact or changes to our cash balances the cash flow statement.
The only change to our financial statement was the reclassification of the securitization facility from long term to current from the restated balance sheet as of December 31st 2021.
Additionally, the restatement does not have an effect on retained earnings or other competence of liquidity.
Our core share amounts disclosed the origin will report.
The restatement our license from the inclusion of disclosure related to the existence of substantial doubt about the entities the ability to continue as a going concern under the standards of ASC.
Topic 205, 40 ongoing concern.
Yes Amendment includes reissued audit reports from KPMG LLP, the company's independent registered public accounting firm due to the restatement.
The result of the issuance of an amended audit report, including a growing concern explanate rhyparograph indebtedness under one of the company's borrowing facilities would have become current and we reclassified from long term to current and the restated balance sheet as of December 31st 2021.
Please refer to the explanatory note on the filed 10-K for additional details including changes to the financial statements for the fiscal year ended December 31 2021.
Note that each of the quarterly filings in 2022 includes a going concern footnote asphalt.
Once again, thank you for joining the call I will turn this over to Chuck.
To open it up towards the Q&A.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two we ask that you. Please limit yourself to one question and one follow up and at this time, we will pause momentarily to assemble our roster.
Uh huh.
And the first question will come from Zach Cummins with B Riley FBR. Please go ahead.
Yes, hi, good evening, Thanks for taking my questions. Thanks, sure cotton par for taking the time.
My question is really centered around the balance sheet I guess I'll just make it a two part question here, but how.
How are you thinking about available liquidity and options that you have to continue to address the balance sheet between now and year end and then also just dovetailing off of that.
Can you talk about the rationale behind trying to lift the ex VP Europe business and the public markets and really how does that helping you address some of the current challenges on your balance sheet.
Sure.
Yeah, maybe I'll kick that off.
Exactly.
Okay.
As we have.
I covered in my talk.
Our.
Values.
Transit dislocation, Nevada, new one.
The primary reason is that we are preparing for.
For <unk>.
Taking some of our assets.
And making them.
We value the public markets.
On basis and this is an example of that.
It's not really meant.
To address your question, but it's meant to address the long term value. This company that presents.
Your question about the balance sheet.
Our need for liquidity.
Thanks for your kind of covered in his I think it's.
Slide number 13 that we plan to add.
Additional term loan capacity, 30% to $35 million.
And when you combine that with our equity that we raised.
In.
October and we May raise.
We will have runway for addressing any near term needs.
Sure you quantify.
Missed any please feel free to add.
No you've covered at par.
I guess.
The additional point properties that is a little bit more color into that would be that as you probably saw the team on the slide as it reflects the.
Hi.
Downstream to convert actions into results.
Our focus is on making operational improvements and good morning that into liquidity.
That's the key thing that I would call out.
Understood and I guess I'll just try to squeeze in one more just just around your margins going here.
I appreciate all the cost efforts that you've taken to reduce the overall footprint and drive better margins.
Just given the current revenue headwinds that we've seen the past couple of quarters I mean, when do you anticipate we should see some of these cost reductions start to translate into more stabilized gross margin performance going forward.
The expectations, obviously has to be covered again.
On the presentation Zach the expectation is it will start coming to fruition in Q4, but to pick up that's going to be more pronounced in 2023 and onwards.
Before I talk extensively about that Theres, a couple of other data points that I'd, probably point out that's not apparent.
Let's take the example of our healthcare solutions segment, while the focus probably has been on the revenue decline on <unk> and some of the margin compression stair health care solutions as good examples where we're doing really well and in particular, let's look at Q3, whether it was sequential quarter.
Year over year or year to date year over year, all three we had revenue gains in health care solutions.
And when we started off this year from a margin perspective specific to the health care business.
Or that segment in.
In Q4, and Q1, we saw margin compression there and Zack while it may not be apparent on on on the.
Quarterly financials.
<unk> centrum from it.
Earnings perspective, if you look at our 10-Q was for each of the three quarters, whether you wanted to find it.
In 2022 health care solutions went from in Q1 and $17 three 4% margins to 18, 9% in Q2, and Q3 20 <unk>. The reason I called this out.
When we look at a consolidated basis and look at the margin compressions.
There is a positive story, though whether it's health care solutions are a L. P. S. While we are still not at the 2021 margin levels goes both segments are seeing a margin improvement every quarter this year.
Understood I appreciate the additional color you provided there and nice to see the rebound in performance for health care solutions, but.
Best of luck with the rest of the quarter and then looking forward to reconnecting soon thanks.
Thanks for your question Zach.
Okay and if you have a question. Please press Star then one our next question will come from <unk> Klein with Avenue Capital Group. Please go ahead.
Hey, guys. Thanks for taking the call I think Zack kind of addressed one in or want to ask my questions first one on the balance sheet it looks like.
Answer to my question, which is it's great to be cleaned out 22.
I assume you want to reload liquidity it sounds like you're already starting to take actions post quarter end you have already started raising more capital and Youll continue to do so so that you can continue to deal with your 'twenty three.
Issues as well.
Is there anything else to add there that you didn't cover was so that was kind of it kind of be my first question.
Yes sure.
Go ahead Bob.
Sure, it's not that I couldnt hear it the last part, but if you did please go ahead.
Yes.
Yes first of all Randall again, thanks for the question Marshall part that's an observation.
The question and the answer that we had for Zach.
Guests from I think from a number perspective will be covered it you can probably provide more of our business color in terms of what's in store I guess rentals questions is more around that.
Well I'll just jump I'll just jump in was going to be my second question, which is more on the business outlook. So you've talked about Q3 is a bit of a seasonal low typically you went through all these issues around the network outage, the new business ramp up on the on the wind et cetera.
I guess directionally on the revenue side and again that you may have already asked or answered this with Zack, but it sounds like the inflection point for revenue as well as margin is happening kind of as we speak right I mean kind of Q4 ish and then by definition more into 2023.
Is that again kind of a quick summary of what you were trying to articulate.
That is correct, Brian well that'll be our expectation, obviously to execute and where does the key SB covered in part also mentioned in his presentation, we would like to see the pace of pipeline converting into revenue pick up.
Does this quarter for example, we did see some <unk>.
Delays in customer Decisioning, even as we were working on.
Getting back up from the network outage impact.
So yes.
In summary, yes, that's our expectation rental.
I would add.
With a 98% recurring revenue.
As we look into Q4.
And $7 million that we converted as new business.
That's approximately 2%.
So.
With the pipeline that we have already won converted into business.
We just need to make sure that we don't have any obstacles like.
Shortage of people.
Type of stuff doesn't taste for us to exceed.
Our Q3 revenue numbers.
Obviously, the goal is to do better than that.
But.
It looks like we are in a good position as of yet because we are in Q4.
Got it okay.
Thats good for me guys. Thanks, Good luck.
No new surprises get in the way you guys can execute on that thanks, everyone.
Thanks, Thanks for the question Greg.
Yeah.
This concludes our question and answer session I would now like to turn the conference back over to Mr. Vince <unk> for any closing remarks. Please go ahead.
Thanks, Chuck and thanks for everyone for dialing into the call.
Look forward to you joining our fireside chat with par and please enter your questions.
We will talk to you then thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.