Q4 2023 Exela Technologies Inc Earnings Call
Operator: Good day, and welcome to the Exela Technologies Earnings Update. All participants will be in a listen-only mode. Should you need assistance, please signal a 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 a touchtone phone. To withdraw your question, please press star then two. Also, please limit yourself to one question and one follow-up. Please note this event is being recorded. I would now like to turn the conference over to Vince Kondaveeti, Head of Investor Relations. Please go ahead. Thank you, Dave, and good afternoon.
Good day and welcome to the X L. S technologies earnings update all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
I ask a question you May press Star then one on a touchtone phone to withdraw your question. Please press Star then two also please limit yourself to one question and one follow up.
Speaker Change: Please note. This event is being recorded I would now like to turn the conference over to Vince Condo Betty head of Investor Relations. Please go ahead.
Speaker Change: Thank you, Dave and good afternoon, welcome to our earnings call to discuss our fourth quarter and full year results for the period ended December 31 2023.
Vincent Kondaveeti: Welcome to our earnings call to discuss our fourth quarter and four-year results for the period ended December 31st, 2021. Our presentation has been posted to the Investor Relations section of our website.
Speaker Change: Presentation has been posted to the IR section of our website.
Vincent Kondaveeti: Speakers on today's call are Parth Chadha, Executive Chairman, and Matt Brown, our Interim Chief Financial Officer. Today's agenda will be as follows. Paul will provide an overview of our results and update you on our strategic initiatives. Matt will then walk you through some financials. And finally, we will end with Q&A.
Speaker Change: Speakers on today's call are Archrock, Ben Sherman Nutbrown, our interim Chief Financial Officer, today's agenda will be as follows Paul's divide and overview of our results and update you on our strategic initiatives that will then walk you through some financial metrics finally, we'll end with Q&A.
Vincent Kondaveeti: We expect this call to last well under an hour. 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 conditions. Such risk uncertainties are set forth in our presentation. So with that, I'll turn the call over to Peter.
Speaker Change: Got it.
Speaker Change: Call to last well under it out some of the matters. We will discuss in today's call are forward looking and involve 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 presentation. So with that I'll turn it over the call at par our executive chairman.
Parvinder S. Chadha: Good evening, and thank you everyone for joining our Q4 and full year 2023 business update call. We ended the year with many positives, but as always, there's more work to be done. Exela is in motion.
Par: Thank you Ben.
Par: Good evening and thanks, everyone for joining.
Executive Chairman: Q4, and full year 2023 business update call.
Executive Chairman: We ended the year with many positive, but as always there's more work to be done.
Speaker Change: Charlotte is in motion.
Parvinder S. Chadha: We have said in the past, our goal is to convert actions into results. We are poised to do just that. May I suggest everybody take a look at slide number four?
Speaker Change: We have said in the past our goal is to convert.
Speaker Change: Action into results.
We are poised to do just that.
Speaker Change: Mary you suggest.
Mary: Everybody take a look at slide number four.
Mary: Yeah.
Parvinder S. Chadha: It's my pleasure to share some highlights of Q4 and Full Year 2023. Some of the accomplishments, key accomplishments that we did in 2023. Well, we did accomplish many, but not all. Our revenue for 2023 was 1.06, or Brilliant. It was lower by 1.2% year over year.
Mary: It's my pleasure to share some highlights of Q4.
Mary: And full year 2023.
Mary: Some of the accomplishments.
Mary: Accomplishments that we did in 2023.
Well, we did accomplish many but not all.
Mary: Our revenue.
For 2022 was 1.064 billion.
Mary: It was lower by one 2% year over year.
Parvinder S. Chadha: Some of the revenue decline was due to network outage in 2022 and also due to the sale of our high-speed scanner business. Our accelerators worked hard and won incremental business, even from Witch of Dark Cloud. We expanded some existing customer contracts. It is all helping to mitigate some of the revenue decline. We were... Our efforts to work with the industry research organization were also well-received and paid off. We received several recognitions from some of the best industry research organizations that cover us. This speaks to the strength and value proposition of our business model. Our customers like it. And it's nice to also have the growing recognition of experts.
Mary: Some of the revenue decline was due to network outage in 2022.
Mary: And also due to the sale of our high speed scanner business.
Mary: Our accelerators worked hard and won incremental business.
Mary: Even with some dark clouds.
Mary: We expanded some existing customer contracts.
Mary: This all helped.
Mary: Mitigate some of the revenue declines.
We were.
Mary: Our efforts to work with the industry Research organization were also well received and paid off.
Mary: We received several recognitions.
Mary: From the.
Mary: Some of the best industry research organization that cover us.
Mary: This speaks to the strength and value proposition of our business model.
Mary: Our customers like it.
Mary: And it's nice to also have the growing recognition of the experts.
Parvinder S. Chadha: All of the hard work we put in in 2022, we started to see benefits in 2022. Business and Cost Management Focus continues, and we have much more to accomplish. For example, gross margins in 2023 improved by $31 million. How is that?
All of the hard work we put in.
In 2022.
Mary: Are you starting to see benefits in 2023.
Mary: Business and cost management focus.
Mary: 10 years, and we have much more to accomplish.
Mary: For example, gross margins.
Mary: In 2023 improved by $31 million.
Mary: Oh.
Parvinder S. Chadha: In prior calls, we've talked about automation. And that's what has allowed us to deliver $1.2 less revenue with $1,900, or 11.8% less employees. That means that strategy, of automation, and doing more with less is working. I will just give it to you for just 60 minutes.
Mary: In prior calls we've talked about automation.
Mary: And that's what has allowed us to deliver.
Mary: One point to less revenue with 1900.
Mary: Or 11.8 person less employees.
That means our strategy.
Mary: Automation and then doing more with less is working.
Mary: Our adjusted EBITDA was.
Mary: But just $60 million.
Parvinder S. Chadha: We did have a fair amount of expenses related to 2026, when the exchange is completed, in 2023 in the summer, also FBB Europe, etc. However, we were successful in reducing our debt. We built in some flexibility in our documentation. We also completed the listing of XBP Europe, which now trades on NASDAQ under XDP. Let's take a look at slide number five. The message... I would like to leave on this slide a strategy that paid off well in 2023 and continues to pay off in 2024. I really see no reason to change what's working.
Mary: We did have a fair amount of expenses related to.
Mary: 2026.
Mary: Debt exchanged or completed.
Mary: In 2023 and the summer.
Mary: Also SVP Europe expenses.
We were successful in reducing our debt we.
Mary: We built in some flexibility.
Mary: Documentation.
Mary: We also completed the listing Opex VP, Europe, which now trades.
Mary: On NASDAQ a direct C P.
Mary: Let's take a look at slide number five.
Mary: The message.
Mary: I would like to leave on this slide.
Mary: As a strategy that paid off.
Mary: Well in 2023.
Mary: Continues in 2024, I really see no reason to change what's working.
Parvinder S. Chadha: So we plan to just forge ahead. We did well by optimizing revenue and cost, and we'll continue to go down this path and make more progress in 2024. We won $198 million in annual contract value in the past year. Our renewal rates were impacted, partly by the 2022 event that I mentioned before, to serve our customers better.
Mary: So we plan to just forged ahead.
Mary: We did good by optimizing revenue and costs.
Mary: And we will continue to go down this path and make more progress in 2024.
Mary: We have 198 million.
Mary: Annual contract value.
Mary: In the past year.
Mary: Our our renewal rates were impacted.
Mary: Archie by the 2022 event that I have mentioned before.
Mary: Because some of our customers better.
Parvinder S. Chadha: We continue to make investments. These investments are broad. We have made investments in people, and we will continue to invest more in automation. We are doing many things to improve the user experience, such that our customers make it easy for them to do business with us. We're making investments, as Matt will talk about in his talk, in cloud operations, and, of course, in AI. We want to expand our wallet share. To do that, we are also adding new services to our newer growth initiatives. One is FAO Services; in other words, it's reactor.ai.
Mary: We continue to make investments.
Mary: These investments are broad we have made investments in people.
Mary: We continue to invest more in automation.
Mary: We are doing many things to improve the user experience.
Mary: But so that our customers.
Mary: Make it easy for them to do business with us.
Mary: We're making investments as Matt will talk about in his talk and cloud operations.
Mary: And of course, yes in artificial intelligence and AI.
Mary: We want to expand our wallet share to do that we are also adding new services.
Mary: Sure.
Mary: Newer growth initiatives.
Mary: One is that fail services.
Mary: Reactor Dot AI.
Parvinder S. Chadha: We've included links to these services that are available on their respective websites. These are very exciting areas for growth for us. Check them out.
Mary: We have included links to the services that are available on their respective <unk>.
Mary: Right.
Mary: He is a very exciting areas for growth for us check them out we are very excited about our solutions.
Parvinder S. Chadha: We are very excited about our solution, and we are grateful. Arkeen, and grateful to our customers. We want to be a very valuable solution partner on our customers' journey, not just in digital but also now in AI-enabled services, with that strategic update. I'll hand over the floor to Matt Brown, who has done a great job. After Matt is finished with his talk, We'll open it up for Q&A. Take it away, Matt.
Mary: And we are grateful to.
Mary: Our team.
Mary: And grateful to our customers.
Mary: One of the very valuable solution partner with our customers journey, not just digital but also now in AI enabled services.
Mary: With that strategic update.
Mary: I'll hand over the floor to Matt Brown, who has done a great job.
Matt Brown: After magis finish two in his talk.
Matt Brown: We'll open it up for Q&A.
Matt Brown: Thanks, Mark. Good afternoon, everyone.
Matt Brown: Take it away.
Matt Brown: Thanks, Bart and good afternoon, everyone. This is Matt Brown interim CFO.
Matt Brown: This is Matt Brown, Interim CFO. We reported revenues of $1.064 billion for 2023, reflecting a slight decrease of 1.2% year-over-year. At the segment level, ITPS declined by 4%, offset by growth in our healthcare solutions and legal and loss prevention services segments by approximately 5% and 11%, respectively. ITPS' decline was primarily driven by the sale of our high-speed scanner manufacturing and maintenance business in June of 2023. Impact from the 2022 network outage and lost renewals.
Matt Brown: We reported revenues of 1.064 billion for 2023, reflecting a slight decrease of one 2% year over year at the segment level Icts declined by 4% offset by growth in our health care solutions, and legal and loss prevention services segments by approximately 5% and 11% respectively.
Matt Brown: I think he has decline was primarily driven by the sale of our high speed scanner manufacturing and maintenance business in June of 'twenty three.
Matt Brown: Impact from the 2022 network outage and lost renewals.
Matt Brown: However, offset by continued cross-sell and 130 new logo wins, Q4FY23, while down 0.9% year over year, grew sequentially by 4.5% quarter over quarter, primarily driven by a large new logo and growth in our top customers. Full year gross margins improved by 31 million year-over-year and by 310 basis points. Profit improvement was driven primarily by increased automation, headcount reductions of approximately 1,900 employees, and reduced administrative spend. Cost savings are partially offset by investments in talent and cost migration from CapEx, which is down $10 million year over year, moving to OpEx as we shift from our data center infrastructure to cloud computing.
Matt Brown: Offset by continued cross sell and a 130 new logo wins.
Matt Brown: Q4, FY 'twenty, three well down 9% year over year grew sequentially by four 5% quarter over quarter, primarily driven by a large new logos and growth in our top customers.
Matt Brown: Full year gross margins improved by $31 million year over year to 310 basis point profit improvement was driven primarily by increased automation headcount reductions of approximately 1900 employees and reduced administrative spend.
Cost savings are partially offset by investments in talent and.
And cost migration from Capex, which is down 10 million year over year moving to Opex as we ship from our data center infrastructure to cloud computing.
Matt Brown: We have made good progress on savings initiatives but still have significant opportunity for margin improvement in 2024. Our net loss narrowed to $124.4 million, an improvement of $291.4 million compared to the prior year. And cash flow from operations turned positive in 2023, with more than $90 million in improvement over 2022. In our EBITDA reconciliation, you can see our walk to $60 million in adjusted EBITDA, removing non-operating gains and adding back transaction and certain one-time costs.
Matt Brown: We've made good progress on savings initiatives still have significant opportunity for margin improvement in 2024.
Matt Brown: Our net loss narrowed to $124 4 million, an improvement of $291 4 million compared to the prior year and cash flow from operations turned positive in 2023 with more than $90 million improvement over 22.
Matt Brown: And our EBITDA reconciliation you can see our walk to $60 million and adjusted EBITDA, removing non operational gains and adding back transaction and certain one time costs.
Matt Brown: We've simplified our EBITDA adjustments and are not including APAC for optimization and restructuring or any historically recurring costs or savings initiatives. For 2022 versus 23, our year over year adjustments are coming down significantly, and our EBITDA and cash EBITDA are converging. I'll point out that the drop in Q4 EBITDA was primarily driven by a number of charges we took for litigation settlement, bad debt reserves, and dark facilities. On the balance sheet, we achieved a significant reduction in current liabilities year over year by over $115 million. We saw partial benefit in 2023 with a $25 million reduction in overall interest expense. Our Q4 interest expense is down nearly 40% year over year.
Matt Brown: For fighter EBITDA adjustments or not including FX for optimization and restructuring or any historically recurring costs or savings initiatives.
Matt Brown: For 2022 versus 23, our year over year adjustments are coming down significantly and our EBITDA and cash EBITDAR converging I'll point out that the drop in Q4, EBITDA was primarily driven by a number of charges. We've taken for litigation settlement bad debt reserves and dark facilities.
Matt Brown: On the balance sheet, we achieved a significant reduction in current liabilities year over year by over 115 million. We saw partial benefit in 2023 with a $25 million reduction in overall interest expense. Our Q4 interest expense was down nearly 40% year over year.
Matt Brown: In 2024, our focus remains on driving revenue stabilization, margin improvement, and strategic growth initiatives. We are optimistic about the opportunities ahead, especially with our investments in emerging growth areas. In closing, I want to express my gratitude to our dedicated team, our customers, and our investors for their continued support. We are executing diligently on our path to recovery and growth, and we look forward to sharing our progress in the coming quarters. Thank you, and we will now open the line up for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone.
Matt Brown: In 2024, our focus remains on driving revenue stabilization margin improvement and strategic growth initiatives. We are optimistic about the opportunities ahead, especially with our investments in emerging growth areas.
Speaker Change: In closing I wanted to express my gratitude to our dedicated team our customers and our investors for their continued support we are executing diligently on a path to recovery and growth and we look forward to sharing our progress in the coming quarters.
Speaker Change: Thank you and we'll now open the lineup for questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.
Operator: 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.
Operator: If at any time your question has been answered and you would like to withdraw your question, please press star and then 2. Also, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. At this time, we are not asking any questions. This concludes our question and answer session. I would like to turn the conference back over to Parvinder Chadha for any, oh, we have a question. The first question comes from Craig. [inaudible] Algebra, Please go ahead. Yeah,
Speaker Change: At any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then to also please limit yourself to one question and one follow up.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: At this time, we're showing no questions.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to par charter for any.
Speaker Change: We have a question.
Speaker Change: The first question comes from Craig.
Hello, Zee with.
Speaker Change: Algebras.
Craig: Please go ahead.
Craig: Yeah, guys, thanks for holding the call. And, you know, it's been a while since we heard your corporate vision. I guess first and foremost, can you talk about where liquidity is and how you feel about liquidity and levers you can pull to potentially improve liquidity, asset sales, or, or really how you see bridging the cash flow needs of the business to the point where operationally the business is in a position to sustain itself. Thank you.
Yeah, Hey, guys, thanks for holding the call and.
Craig: Yes, it's been awhile since we heard your corporate vision.
I guess first and foremost.
Speaker Change: Can you talk about where liquidity is and how you feel about liquidity and leverage you can pull to potentially improve liquidity asset sales are a really how you see bridging the.
Speaker Change: So the cash flow needs of the business.
Speaker Change: To the point where operationally.
Speaker Change: And the place to sustain itself.
Speaker Change: Yeah.
Parvinder S. Chadha: Matt, if it's okay, maybe I can kick it off and you can add to it. Sure. Craig, thank you for asking the question. You know, history is great. We believe in history, and it's a great way to look at what we have done in the past to predict what we'll do in the future.
Massive hits: Massive hits, Okay, maybe I'll kick it off and you can add to it.
Massive hits: Yes.
Massive hits: Okay.
Speaker Change: Craig Thank you for asking the question.
Speaker Change: History is a great we believe and history and it's a great way to look at what we've done in the past to predict what we will do in the future.
Parvinder S. Chadha: This last year, we did not really raise any equity. We have, under the business, taken down a lot of the servicing of the debt, using both, as Matt pointed out, an increase in our cash flow, but we stayed within our swim lanes. And at this time, although we have many levers to pull, and we will continue to vote, expand liquidity, and pull levers, it will be premature for us to talk about what we will do and when we will do it at this time.
Speaker Change: This last year, we did not really raise any equity we have.
Speaker Change: Under the business take down a lot of.
Speaker Change: The <unk>.
Speaker Change: And the servicing of the debt.
Speaker Change: And using.
Speaker Change: Both as Matt pointed out.
Speaker Change: Cash flow.
Speaker Change: But we stayed within a certain lanes.
Speaker Change: Uh huh.
Speaker Change: And at this time.
Speaker Change: We have although we have many levers to pull.
Speaker Change: And we will continue to.
Speaker Change: Vault <unk>.
Speaker Change: <unk> liquidity and pull levers.
Speaker Change: But it would be premature for us to talk about what we will do and when we will do it.
Speaker Change: This time.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Parvinder Chadha for any closing remarks.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to park charter for any closing remarks.
Okay.
Parvinder S. Chadha: I'm very grateful to all of our stakeholders, employees, and customers, and I wish everybody a very happy Wednesday and the rest of the weekend. I look forward to covering and discussing Q1 results in the next few weeks. Thank you very much.
Park Charter: I'm very.
Park Charter: <unk> talked to all of our stakeholders employees.
Park Charter: Customers.
Park Charter: And.
Park Charter: And I wish everybody, a very happy Wednesday, and the rest of the weekend look.
Park Charter: We look forward to covering and discussing Q1 results.
Park Charter: In the next coming few weeks thank.
Speaker Change: Thank you very much.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.