Exela Technologies Inc (XELA) Q1 2024 Earnings Call Transcript Highlights: Revenue Decline Amid Margin Improvements

Despite a drop in revenue, Exela Technologies Inc (XELA) shows significant margin improvements and strong customer retention in Q1 2024.

Summary
  • Revenue: $258.8 million, down 5.4% year-over-year or 4.3% pro forma for the sale of the high-speed scanner business.
  • Information and Transaction Processing Solutions (ITPS) Revenue: Declined by 9% year-over-year; down 3% sequentially due to the loss of a $27 million low margin contract renewal.
  • Healthcare Solutions Revenue: Up 3% year-over-year; up 4% sequentially with continued volume increases.
  • Legal and Loss Prevention Services (LLPS) Revenue: Up 6% year-over-year; down 12% sequentially due to project fluctuations.
  • Gross Margin: 22%, up 107 basis points year-over-year.
  • Healthcare Solutions Margin: Up 296 basis points year-over-year.
  • LLPS Margin: Up 242 basis points year-over-year.
  • SG&A: Down 43 basis points year-over-year, primarily driven by reductions in legal and professional fees.
  • Net Loss: $25.6 million, an improvement of $20 million year-over-year.
  • Adjusted EBITDA: $12.9 million.
  • Current Liabilities: Down 23% year-over-year.
  • Interest Expense: Down 52% year-over-year.
  • Unrestricted Cash: Approximately $10 million after interest payment.
  • Contract Renewal Rate: 96% in Q1.
  • New Logo Wins: 85 in Q1.
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Release Date: May 28, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • First quarter gross margins improved by 107 basis points year-over-year.
  • Healthcare solutions and legal and loss prevention services segments grew by approximately 3% and 6%, respectively.
  • SG&A expenses decreased by 43 basis points year-over-year, driven by reductions in legal and professional fees.
  • Net loss improved by $20 million year-over-year, mainly due to lower interest and debt expenses.
  • Achieved a 96% renewal rate in Q1 along with 85 new logo wins, indicating strong customer retention and acquisition.

Negative Points

  • First quarter revenues declined by 5.4% year-over-year.
  • Information and transaction processing solutions segment saw a 9% year-over-year decline.
  • Sequentially, IPTS was down 3% in Q1 due to the loss of a $27 million low margin contract renewal.
  • Legal and loss prevention services segment was down 12% due to project fluctuations.
  • Unrestricted cash in Q1 was approximately $10 million, indicating limited liquidity.

Q & A Highlights

Q: Can you provide more details on the revenue decline in the Information and Transaction Processing Solutions (ITPS) segment?
A: Matthew Brown, Interim CFO: The ITPS segment saw a 9% year-over-year decline, primarily due to the loss of a $27 million low-margin contract renewal. Sequentially, ITPS was down 3% in Q1.

Q: What drove the growth in the Healthcare Solutions and Legal and Loss Prevention Services (LLPS) segments?
A: Matthew Brown, Interim CFO: Healthcare Solutions grew by 4% due to continued volume increases, while LLPS grew by 6% year-over-year. However, LLPS was down 12% sequentially due to project fluctuations.

Q: How did gross margins perform in Q1, and what were the contributing factors?
A: Matthew Brown, Interim CFO: Q1 gross margins were 22%, up 107 basis points year-over-year. The improvement was driven by automation and operational leverage, with Healthcare and LLPS margins up 296 basis points and 242 basis points, respectively. ITPS margins remained relatively flat.

Q: What cost-saving measures have been implemented, and what impact have they had?
A: Matthew Brown, Interim CFO: SG&A expenses are down 43 basis points year-over-year, mainly due to reductions in legal and professional fees. We have also consolidated over 100,000 square feet of real estate and have an additional 340,000 square feet in process.

Q: Can you elaborate on the company's liquidity position and financing initiatives?
A: Matthew Brown, Interim CFO: Unrestricted cash in Q1 was approximately $10 million after making our interest payment. Cash flow from operations continues to improve, and we are progressing various financing initiatives in parallel to expand liquidity.

Q: What are the company's strategic priorities for 2024?
A: Matthew Brown, Interim CFO: Our focus remains on driving revenue stabilization, margin improvement, and strategic growth initiatives. We are optimistic about achieving our objectives this year, improving profitability, and enhancing liquidity.

Q: How has the company's customer retention and new business acquisition performed?
A: Matthew Brown, Interim CFO: We achieved a 96% renewal rate in Q1 and secured 85 new logo wins, indicating revenue stabilization and growth opportunities despite the loss of a large customer contract.

Q: What are the key financial highlights and lowlights for Q1 2024?
A: Matthew Brown, Interim CFO: Key highlights include a gross margin improvement and a reduction in current liabilities by 23% and interest expense by 52% year-over-year. A significant lowlight was the exit of a $27 million contract, but we are seeing stabilization and growth opportunities.

Q: What are the company's plans for capital expenditure and operational expenditure?
A: Matthew Brown, Interim CFO: We are shifting from CapEx to OpEx as we move our data center infrastructure to the cloud. This transition is part of our broader strategy to drive efficiency and cost savings.

Q: How has the company's net loss and adjusted EBITDA performed year-over-year?
A: Matthew Brown, Interim CFO: We reported a net loss of $25.6 million, an improvement of $20 million year-over-year, mainly driven by lower interest and debt expense. Adjusted EBITDA was $12.9 million, and we expect continued margin improvement throughout the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.