Exela Applied sciences, Inc. (XELA) This autumn 2023 Earnings Name Transcript

Exela Applied sciences, Inc. (NASDAQ:XELA) This autumn 2023 Outcomes Convention Name April 17, 2024 4:30 PM ET

Firm Individuals

Vince Kondaveeti – Head of Investor Relations
Par Chadha – Government Chairman
Matt Brown – Interim Chief Monetary Officer

Convention Name Individuals

Craig Carlozzi – Algebris

Operator

Good day, and welcome to the Exela Applied sciences earnings replace. [Operator Instructions]. Please observe, this occasion is being recorded.

I’d now like to show the convention over to Vince Kondaveeti, Head of Investor Relations. Please go forward.

Vince Kondaveeti

Thanks, Dave, and good afternoon. Welcome to our earnings name to debate our fourth quarter and full yr outcomes for the interval ended December 31, 2023. Our presentation has been posted to the IR part of our web site. Audio system on at present’s name are Par Chadha, Government Chairman; and Matt Brown, our Interim Chief Monetary Officer.

At the moment’s agenda shall be as follows: Par will present an outline of our outcomes and replace you on our strategic initiatives. Matt will then stroll you thru some monetary metrics. And at last, we’ll finish with Q&A. We count on this name to final properly beneath an hour.

Among the issues we’ll talk about in at present’s name are ahead trying and contain plenty of dangers, uncertainties and different components that would trigger precise outcomes to vary materially from these in such forward-looking statements. Such dangers and uncertainties are set forth in our presentation.

So with that, I am going to flip over the decision to Par, our Government Chairman.

Par Chadha

Thanks, Vin. Good night, and thanks, everybody, for becoming a member of our This autumn and full yr 2023 enterprise replace name. We ended the yr with many positives, however as all the time, there’s extra work to be achieved. Exela is in movement. We now have mentioned up to now, our purpose is to transform actions into outcomes. We’re poised to do exactly that.

Could I recommend everyone check out Slide #4. It is my pleasure to share some highlights of This autumn and full yr 2023. Among the accomplishments — key accomplishments that we did in 2023. Whereas we did accomplish many however not all, our income for 2023 was $1.064 billion. It was decrease by 1.2% year-over-year. Among the income decline was on account of community outage in 2022 and in addition as a result of sale of our high-speed scanner enterprise.

Our accelerators labored arduous and gained incremental enterprise even with some darkish clouds. We expanded some current buyer contracts. This all helped mitigate among the income declines.

We had been — our efforts to work with the trade analysis group had been additionally properly obtained and paid off. We obtained a number of recognitions from the — among the finest trade analysis group that cowl us. This speaks to the power and worth proposition of our enterprise mannequin. Our prospects prefer it and it is good to even have the rising recognition of the consultants. The entire arduous work we put in, in 2022, we began to see advantages in 2023.

Enterprise and value administration focus continues, and we’ve got rather more to perform. For instance, gross margins in 2023 improved by $31 million. All this — in prior calls, we have talked about automation. And that is what has allowed us to ship 1.2% much less income with 1,900 or 11.8% much less staff. Which means our technique of automation and delivering extra with much less is working.

Our adjusted EBITDA was simply $60 million. We did have a good quantity of bills associated to 2026 debt change that accomplished in 2023 in the summertime, additionally XBP Europe bills. We had been profitable in lowering our debt. We inbuilt some flexibility in our documentation. We additionally accomplished the itemizing of XBP Europe, which now trades on NASDAQ beneath XBP.

Let’s check out Slide #5. A message I wish to go away on this slide is our technique that paid off whereas in 2023, continues in 2024. I actually see no cause to vary what’s working. So we plan to simply forge forward. We did good by optimizing income and value and we’ll proceed to go down this path and make extra progress in 2024.

We gained $198 million in annual contract worth up to now yr. Our renewal charges had been impacted partly by the 2022 occasion that I’ve talked about earlier than. To serve our prospects higher, we proceed to make investments. These investments are broad. We now have made investments in folks.

We proceed to speculate extra in automation. We’re doing many issues to enhance the person expertise such that our prospects make it straightforward for them to do enterprise with us. We’re making investments, as Matt will speak about in his speak in cloud operations. And naturally, sure, in synthetic intelligence in AI.

We need to broaden our pockets share. To do this, we’re additionally including new companies. Two of our newer development initiatives, one is FAO companies, one other one is [reactor.ai]. We have included hyperlinks to those companies which might be accessible on their respective web sites. These are very thrilling areas for development for us. Examine them out. We’re very enthusiastic about our options. And we’re grateful to our workforce and grateful to our prospects. We need to be a really precious resolution associate with our prospects’ journey, not in simply digital but in addition now in AI-enabled companies.

With that strategic replace, I am going to hand over the ground to Matt Brown, who has achieved a fantastic job. After Matt is completed together with his speak, we’ll open it up for Q&A. Take it away, Matt.

Matt Brown

Thanks, Par, and good afternoon, everybody. That is Matt Brown, Interim CFO. We reported revenues of $1.064 billion for 2023, reflecting a slight lower of 1.2% year-over-year. On the phase stage, ITPS declined by 4%, offset by development in our Healthcare Options and Authorized and Loss Prevention Providers segments by roughly 5% and 11%, respectively. ITPS decline was primarily pushed by the sale of our high-speed scanner manufacturing and upkeep enterprise in June of ’23, impression from the 2022 community outage and loss renewals, offset by continued cross-sell and 130 new brand wins.

This autumn FY ’23 had been down 0.9% year-over-year, grew sequentially by 4.5% quarter-over-quarter, primarily pushed by a big new brand and development in our prime prospects.

Full yr gross margins improved by $31 million year-over-year or 310 foundation factors. Revenue enchancment was pushed primarily by elevated automation, headcount reductions of roughly 1,900 staff and decreased administrative spend.

Price financial savings are partially offset by investments in expertise and value migration from CapEx, which is down $10 million year-over-year, shifting to OpEx as we ship from our knowledge middle infrastructure to cloud computing. We now have made good progress on financial savings initiatives however nonetheless have vital alternative for margin enchancment in 2024.

Our web loss narrowed to $124.4 million, an enchancment of $291.4 million in comparison with the prior yr. And money circulation from operations turned optimistic in 2023, with greater than $90 million in enchancment over ’22.

In our EBITDA reconciliation, you’ll be able to see our stroll to $60 million in adjusted EBITDA eradicating nonoperational positive factors and including again transaction and sure onetime prices. We have simplified our EBITDA changes and aren’t together with add-backs for optimization and restructuring or any traditionally recurring prices or financial savings initiatives.

For 2022 versus ’23, our year-over-year changes are coming down considerably and our EBITDA and money EBITDA are converging. I am going to level out that the drop in This autumn EBITDA was primarily pushed by plenty of expenses we have taken for litigation settlement, dangerous debt reserves and darkish amenities.

On the steadiness sheet, we achieved a big discount in present liabilities year-over-year by over $115 million. Whereas we noticed a partial profit in 2023 with a $25 million discount in general curiosity expense, our This autumn curiosity expense is down almost 40% year-over-year.

In 2024, our focus stays on driving income stabilization, margin enchancment and strategic development initiatives. We’re optimistic in regards to the alternatives forward, particularly with our investments in rising development areas.

In closing, I need to categorical my gratitude to our devoted workforce, our prospects and our buyers for his or her continued help. We’re executing diligently on our path to restoration and development, and we sit up for sharing our progress within the coming quarters.

Thanks, and we’ll now open the road up for questions.

Query-and-Reply Session

Operator

[Operator Instructions] The primary query comes from Craig Carlozzi with Algebris.

Craig Carlozzi

It has been some time since we have heard your company imaginative and prescient. I assume, firstly, are you able to speak about the place liquidity is and the way you are feeling about liquidity and levers you’ll be able to pull to probably enhance liquidity, asset gross sales or actually the way you see bridging the money circulation wants of the enterprise to the purpose the place operationally, the enterprise is within the place to maintain itself.

Par Chadha

Matt, if it is okay, perhaps I am going to kick it off, and you’ll add to it.

Matt Brown

Certain.

Par Chadha

Okay. Craig, thanks for asking the query. Historical past is a good — we imagine in historical past, and it is a good way to have a look at what we’ve got achieved up to now to foretell what we’ll do sooner or later. This final yr, we didn’t actually increase any fairness. We now have beneath the enterprise, take down a number of the servicing of the debt in utilizing each, as Matt identified, improve in our money circulation and — however we stayed inside our swimlanes.

And right now, we’re — we’ve got — though we’ve got many levers to drag and we’ll proceed to each broaden liquidity and pull levers. However it is going to be untimely for us to speak about what we’ll do and after we will do right now.

Operator

This concludes our question-and-answer session. I wish to flip the convention again over to Par Chadha for any closing remarks.

Par Chadha

I am very grateful to all of our stakeholders, staff, prospects and I want everyone a really completely satisfied Wednesday and the remainder of the week and sit up for masking and discussing Q1 ends in the following coming few weeks. Thanks very a lot.

Operator

The convention has now concluded. Thanks for attending at present’s presentation. Chances are you’ll now disconnect.