Exela Technologies Inc. Q1 2023 Earnings Call
Speaker 2: Welcome to the Excella Technology Bank, First Quarter, 2023 Financial Results Conference call. All participants will be in listen only mode. Should you need assistance please ignore conference specialists by pressing the star key followed by the...
Speaker 2: I would now like to turn the conference over to Vince Condaviti investor relations. Please go ahead.
Speaker 3: Thanks Kate. Thank you for joining us for our first quarter 2023 conference call. Our earnings release presentation was posted to the IRS section of our website. Speakers on today's call are Parr-Chodd, Executive Chairman and Sree Khan Sorter, our Chief Financial Officer.
Speaker 3: Today's agenda will be similar to previous calls. I will provide an overview of our results and Srikant will walk you through our financial performance.
Speaker 3: We expect this call to last under an hour. Some of these 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. Such risks and uncertainties are set forth in our press release.
Speaker 3: So, without further ado, I'll turn the call over to our Executive Chairman, Par. Par? Hello to everybody and thanks for dialing into our call.
Speaker 4: We are excited about the progress that Excela has made.
Speaker 4: I look forward to sharing.
Speaker 4: some of the highlights from our Q1.
Speaker 4: That will...
Speaker 4: eventually become part of the value chain for all of our shareholders.
Speaker 4: Kindly look at slide number three.
Speaker 4: We have talked about this and walked through this slide before. I would like to call out one important change.
Speaker 4: We have talked about this and walked through this slide before. I would like to call out one important change.
Speaker 4: In the bottom, it says approximately 15,000 employees.
Speaker 4: This number a year ago.
Speaker 4: Well, it's about 17,000.
Speaker 4: However, the important message here is not be 15,000 employees.
Speaker 4: is that we are prepared with a substantial amount of flex capacity because of the business model that we have chosen so that we are prepared for growth as needed.
Speaker 4: Let's look at slide number four.
Speaker 4: continue to jog along.
Speaker 4: Europe
Speaker 4: Our business there has been renamed as XBT Europe and it reaches
Speaker 4: the majority of the population in some of the key markets.
Speaker 4: One highlight. you
Speaker 4: from Europe that happened after Q1 was closed. So we won...
Speaker 4: Europe , one of the largest transaction deals in its history.
Speaker 4: Let's look at slide number five.
Speaker 4: If you look at the bottom right hand.
Speaker 4: We started our industry coverage.
Speaker 4: by being called…
Speaker 4: art vendor
Speaker 4: vendor. And look at the top left hand.
Speaker 4: We are now being named leader three times.
Speaker 4: So in migration and recognition of our services over time.
Speaker 4: and I look forward to adding.
Speaker 4: One more and very near term.
Speaker 4: recognition as a leader.
Speaker 4: And I look forward to the day.
Speaker 4: with setup with the hot vendor or the major contender.
Speaker 4: or a major player will be leaders.
Speaker 4: If you would kindly turn to.
Speaker 4: … This…
Speaker 4: In this slide, I will cover some of the highlights from our keyword.
Speaker 5: a revenue group
Speaker 4: by 2.5% over sequential quarter.
Speaker 4: our margin at least.
Speaker 4: our margin also improved.
Speaker 6: And.
Speaker 4: Partly because of the savings. We've talked about savings.
Speaker 4: and the improvement plans.
Speaker 4: improvement plans which totaled.
Speaker 4: Between 65 and 75 million dollars for 2023.
Speaker 4: So the margin improvement is both the quality of revenue.
Speaker 4: But also partially due to the flow through that we are beginning to see through.
Speaker 4: Almost 240 bits, increase of growth profit margins.
Speaker 4: over the fully air-2010-2 months.
Speaker 6: payroll
Speaker 4: which is another
Speaker 4: way to look at this.
Speaker 4: this reduced
Speaker 4: by 5.5 it.
Speaker 4: And year over year, it will do 3.5.
Speaker 4: So that tells us there is still some stagnant costs that we are going to take out as the year progresses and our flow through will rise. The geography of our capex is changing.
Speaker 4: software licenses things we built
Speaker 4: the cloud. So, operating expense.
Speaker 4: to ten million dollars.
Speaker 4: dollars. But at the same time our
Speaker 4: to 1.5% in Q1. That is going to stay this way for all of 2020.
Speaker 7: income.
Speaker 4: because OPEX is just in a different part of the geography of our...
Speaker 4: of our financial profit and loss statement.
We did good.
We want 64.9 million of TCB.
64.9 million of GCB. And.
We want a lot of logos. Let's look at slide number seven.
We continue to have stable conversion from pipeline.
We remain stable on the recurring revenue at 98%.
And our this is the last steps
This is the last steps, DMRs and S&D.
That translates to about.
translates to about 243 logos.
Many of them are SMB logos.
macroeconomic environment that we are seeing today. My historical experience is...
macroeconomic environment that we are seeing today. My historical experience is that our business
and businesses like ours.
And businesses like others.
grow because our customers outsource more of their
grow because our customers outsource more of their needs.
digital assets solutions in the works
assets, solutions, and networks. Very exciting stuff.
and calls.
Like today.
Let's look at slide number eight.
Some of the corporate actions, fee corporate actions that are underway.
As you know, we have the special meeting of the shareholders.
at 10 a.m. today. I promise you it will not be adjourned.
We'll publish the results.
as early as today, but more likely, the bonus.
compliance and the filing we have to do. More likely it will be tomorrow.
More likely it will be tomorrow.
And.
We have been working on…
We have been working on the value creation.
Strengthening of the balance sheet, improvement of our liquidating.
These translate to –
These translate to the tree.
projects, and some more that are not mentioned here.
projects and some more that are not mentioned here. For example, Project Nia.
We have a sale process underway for that. The bankers are working hard to get that process.
not only underway, but reach its final destination. Our XDP Europe transaction, we continue to drive it forward. We hope to hear those results.
when it reaches its final destination.
when it reaches its final destination. And also a very important...
Part of addressing our 2023 and maturities, but also getting, expanding our liquidity.
of trending and balance initiatives like the recapitalization.
of Xela Technologies BPA is one of our largest subsidiary inside of the public company Xela Technologies Inc.
We continue to make, continue to discuss, make progress.
with a select group of lenders, which we announced.
of lenders, which we announced on March 30, 2012.
sharing and speaking to you as some of these initiatives get completed.
With this highlight of the left eye, I will hand it off to a...
Srikanth, our Chief Financial Officer.
Srikanth, our Chief Financial Officer. Over to you, Srikanth.
Thank you, Bhar. Good morning, everyone, and thanks for joining us on this call.
I will cover our consolidated results and segment revenue for the first quarter 2023 performance. And as we have done in the past, we are reporting both gap and non-gap numbers.
The cancellations are in our filings and in the appendix of the presentation. Let's start with slide number 10 to look at select financial performance highlights for Q1 of 2023.
In line with our internal projections, revenue for the quarter was 273.6 million.
higher by 6.7 million or 2.5% sequentially, and lower by 5.8 million or 2.1% year over year.
On a constant currency basis, revenue was down 90 basis points or by 2.6 billion year over year.
Gross profit was 57.1 million, up 9 million sequentially, and up 1.2 million year over year.
We also saw the largest improvement in operating income.
the best in the preceding four quarters, primarily driven by improved gross profit.
S.G.N.E. and in turn Ibede was negatively impacted by transaction costs of approximately 5 million related to recap, X-DV-R, and ETI. I just said Ibede was 34.7 million for the quarter, and I just said Ibede on margin of 12.7% was down 4% year over year.
Of the 65 to 75 million of cost savings from annual improvements estimated in 2023, approximately 30 million of annual run rate savings is beginning to flow through our reported financials.
Turning to slide 11, I will cover the broad trends in the income statement.
I'll discuss comparisons that are sequential quarter as well as year over year.
Let's begin with ITPS. ITPS revenue was down 11.3 million or 5.5% for Q1 year over year, and higher by 8.9 million or 4.8% sequentially compared to Q4.
Revenue on our ITPS segments was impacted by lower volumes and currency translation flux year over year.
and built-in payments business. On a year-over-year basis, the growth margin on ITPS segment was impacted by our growth investment for expansion of services and cloud operations and was down approximately 15%.
For sequential quarter, Q1 over Q4, gross margin improved by 22.6%, primarily due to the flow-through of savings and in indicate stability.
This is primarily driven by continued acceptance of solutions and services and higher volumes from existing customers. Sequentially the revenue was lower by 3.5% or 2.3 million due to seasonality impact. Growth margins for the healthcare solutions experienced growth, 65.3% for Q1 year over year and 6.8% sequentially. Growth margin was higher as compared to 2022, mainly due to automation related productivity improvements.
to lower bench costs we incurred during the first quarter and first half of 2022.
Growth margin on our LLPS segment was higher by 22.6% year over year and 36.5% sequentially on relatively flat revenue primarily due to savings and better cost management.
Our growth investments for expansion of services and cloud operations are expected to impact our growth margins and a portion of our electricity be done.
As GNX passes in Q1 totaled 44.4 million higher by 1.3 million or 3.1% year over year, and higher by 5.5 million sequentially.
The increase was primarily attributable to higher professional fees related to transactions as discussed earlier.
Year over year, employee-related costs as well as other infrastructure costs were lower by approximately $3 million.
Operating loss for Q1 2023 was 6.9 million compared with operating loss of 7.3 million in Q1 of 2022.
As highlighted on the prior slide, this improvement in operating income as compared to the last four quarters is primarily driven by savings flow-through and improvements in gross margins and our cost structure. As highlighted on the prior slide, this improvement in operating income as compared to the last
EBITDA for Q1 of 2023 was 18 million compared to 3.5 million in Q1 of 2022. EBITDA margin for Q1 2023 was 6.6 percent compared to the 1.3 percent in Q1 of 2022.
And finally, adjusted EBITDA for Q1 of 2023 was 34.7 million, a decrease of 4% compared to 36.1 million in Q1 of 2022. Adjusted EBITDA margin for Q1 2023 was 12.7%, a decrease of 25 basis points from 12.9% in Q1 of 2022.
Let's turn to slide 12 and go over our 2023 objectives. We would like to reiterate the three objectives for 2023, which we covered on our Q4 earnings call as well.
One, grow revenue in low single digits and improve adjusted EBITDA margin by 200 bits.
We expect our just-in-the-air bidet in 2023 to materially benefit from flow-through of savings actions.
Second, maintain growth investment, particularly in our cloud operations, while keeping our maintenance gap at 1.5%.
While we are focused on initiatives to improve gross margins and operating income, we are also investing in growth. In 2022, we invested approximately $11 million to expand our services in FAO, data science, technology and digital solutions, in addition to investments in strategic shift to cloud operations. by Decodoxfill Simon
We expect to invest approximately 10 million during 2023 as well.
These investments will provide improvements to Arbidda over time. CapEx for Q1 2023 was 1.1% of revenue.
Third, we will continue to focus on strategic actions to further reduce debt and interest expense.
expand liquidity, and achieve a sustainable balance sheet for the company. In closing, we are pleased to see actual results in line to better than our internal modeling.
Our teams are executing well on both growth and savings initiatives. This concludes our financial review for Q1 2023. With that, Kate, would you please open the line for Q&A?
We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then 2. We ask that you limit yourself to one question and one follow-up. We will pause momentarily to assemble our riser.
The first question comes from Zach Cummins of B. Riley Securities. Please go ahead.
Hi, good morning, Par and Shrikant. Thanks for taking my questions. Congrats on the margin improvements here in Q1. And just to that point, with gross margin, we're
Nice to see the sequential improvement, especially versus Q4. How do you think about the progression of that metric throughout this year, especially as you continue to stabilize that revenue base and see some of these cost actions flow through the P&L?
Let me take that first and then Pari can, yeah, go ahead. Please do, please do. Thank you.
expect the savings flow through to continue to provide improvements to gross margin. One other relevant point for Q1 potentially is we had discrete items including impacts from our growth investments as well as another example is from a Q1 perspective, we had a
the revenue mix sometimes tends to have lower margin revenue in Q1. So that's encouraging science for us to know that we can be on a path of furthering our gross margins.
in the following quarters. Sorry, you want to add, feel free to add the business perspective.
I think the revenue stability
recurring revenue at 98% as well as renewal.
and a pipeline that we're converting stably into TCB.
And Zak, the fact that we also won in Europe a large transaction, that's going to start entering into our revenue as early as 2021.
As late as third quarter, possibly. Maybe we get a month or so to benefit in Q2.
It gives us more...
more clarity on the revenue growth, which is why we are...
We'll be giving you guidance about losing the digit.
about losing the vision.
back by the 40 odd million in flow-through, 30 that we are beginning to see in Q1, but we think we can drive that further up towards 40. It's very, you know, it feels, it's very encouraging. So we are very good about it.
Yeah, got it. That's that's helpful. Appreciate the additional context. And just my one follow up question.
I'm not sure how much insight you could provide, but in terms of recapitalizing the balance sheet and addressing near-term maturities, any sort of updates you can provide along the sale process or how things are progressing along that front here to address these maturities here in the coming months.
So, there are two questions. One is the sale process.
and one is the recapitulation. You know, as I said in my talk, we are making progress on both.
Be
The sale of assets.
I would say with a small s, assets is progressing. Typically, these things appear to be not known if the resource management system or the owner pepper runs candyane or if a server or manager offers some kind of hint that the melodies go and fervFlora or if theUUA tries a track or if there is a Varricile voice or if the
where there's a lot of very hyperactivity across.
As you can imagine, the financial sponsors.
companies that are interested in this particular style of asset.
interested in this particular style of asset.
We hope to share more when we get to the finalization, but probably more in third quarter than in second quarter.
And the recapitulation, we first announced that on March 30th,
We continue to chug along and as we reach
as it gets converted into what we typically call offering memorandum.
We have selected the banks for the offering memorandum. We've got the lawyers. So we have lots of people working.
We have selected the banks for the offering memorandum. We've got the lawyers. So we have lots of people working. And you see those expenses hitting our
SDA to the tune of about $5 million in the first quarter. So I hope one of these days that they become instead of expenses.
They result in higher liquidity and the address and strengthen our balance sheet. I look forward to that day.
Thank you. Understood. Well, thanks for taking my questions and best of luck here with the rest of the quarter. Thank you very much.
Thank you. Understood. Well, thanks for taking my questions and best of luck here with the rest of the quarter. Thank you very much, Zach. Thanks.
There are no other questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Parr Shada for closing remarks.
Thank you everybody for joining our call. I encourage everybody to join us during in-quarter in our shareholder.
everybody for joining our call and I encourage everybody to join us during in quarter in our shareholder connect
and use our shareholder.
platform that we call Speak Up to send questions so we can remain engaged on items that are important to you. I am very grateful for your support and thank you for joining today and wish you a very happy day.