Exela Technologies(XELA) - 2024 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements The company reported significant net losses and deficits for Q2 and H1 2024, with a substantial stockholders' deficit and working capital deficit, leading to a going concern warning Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Cash and cash equivalents | $30,327 | $23,341 | | Total current assets | $156,601 | $181,208 | | Total assets | $587,953 | $636,337 | | Total current liabilities | $411,029 | $394,882 | | Total liabilities | $1,496,687 | $1,495,172 | | Total stockholders' deficit | $(908,734) | $(858,835) | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $245,653 | $272,938 | $504,464 | $546,558 | | Operating profit (loss) | $(2,354) | $11,224 | $(2,283) | $4,324 | | Net loss | $(26,905) | $(30,886) | $(52,478) | $(76,322) | | Loss per share (Basic and diluted) | $(4.40) | $(5.19) | $(8.66) | $(14.40) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(16,926) | $(54,741) | | Net cash (used in) provided by investing activities | $(3,087) | $24,478 | | Net cash provided by financing activities | $3,776 | $38,561 | | Net (decrease) increase in cash | $(15,893) | $8,443 | - The company concluded substantial doubt about its ability to continue as a going concern, based on $52.5 million net losses for H1 2024, $16.9 million net operating cash outflow, a $254.4 million working capital deficit, and a $2.13 billion accumulated deficit[17] Notes to the Condensed Consolidated Financial Statements The notes detail significant accounting policies, revenue disaggregation, debt restructuring, and contingent liabilities, including a troubled debt restructuring in July 2023, a $4.7 million lawsuit liability, and a potential BPA Business spin-off Revenue by Segment (in thousands) | Segment | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | ITPS | $156,840 | $184,990 | $332,980 | $378,698 | | HS | $62,935 | $63,608 | $127,787 | $126,650 | | LLPS | $25,878 | $24,340 | $43,697 | $41,210 | | Total | $245,653 | $272,938 | $504,464 | $546,558 | - In July 2023, the company exchanged $956.0 million of existing notes for $764.8 million of new notes, a troubled debt restructuring that generated $780.0 million of cancellation of debt income for tax purposes, eliminating $624.0 million in net operating losses[55][58] Long-Term Debt Outstanding (in thousands) | Debt Instrument | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total debt | $1,068,975 | $1,060,609 | | Less: Current portion | $(53,723) | $(30,029) | | Long-term debt, net | $1,015,252 | $1,030,580 | - The company accrued $4.7 million for a breach of contract claim from ASG Technologies Group, Inc. following a February 2024 court ruling[101] - On July 1, 2024, the company announced a potential spin-off of its Business Process Automation (BPA) business, which could be deemed a "Fundamental Change" triggering special conversion rights for Series A Preferred Stockholders[162][163] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 10.0% YoY revenue decline in Q2 2024 to exiting unpredictable contracts, while net loss improved due to reduced interest expense, though liquidity remains a major concern Q2 2024 vs Q2 2023 Results of Operations (in thousands) | Metric | Q2 2024 | Q2 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $245,653 | $272,938 | $(27,285) | (10.0)% | | Operating (Loss) / Profit | $(2,354) | $11,224 | $(13,578) | (121.0)% | | Net Loss | $(26,905) | $(30,886) | $3,981 | (12.9)% | - The 15.2% decrease in ITPS revenue for Q2 2024 was primarily due to the company's strategic exit from unpredictable and non-recurring contracts, alongside a $2.0 million decline from the June 2023 sale of the high-speed scanner business[185] - Interest expense decreased by 48.7% to $23.1 million in Q2 2024 from $45.1 million in Q2 2023, mainly due to amortization of a debt exchange premium and lower interest costs following the July 2023 notes exchange[192] Adjusted EBITDA Reconciliation (Non-GAAP, in thousands) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net Loss | $(26,905) | $(30,886) | | EBITDA | $13,256 | $31,631 | | Adjusted EBITDA | $13,719 | $22,490 | - The company's liquidity is constrained by a $254.4 million working capital deficit as of June 30, 2024, and late filings resulted in the loss of S-3 eligibility, eliminating a key source of equity financing[222][228] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes to its market risk during the first six months of 2024, referring to its 2023 Form 10-K for detailed disclosures - There have been no material changes to the Company's market risk during the first six months of 2024[269] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2024, due to material weaknesses in internal control over financial reporting, despite fair financial statement presentation - The company's Executive Chairman and Interim Chief Financial Officer concluded that disclosure controls and procedures were not effective as of the end of the period, due to material weaknesses in internal control over financial reporting described in the 2023 Form 10-K[272] - Despite the material weaknesses, management concluded that the condensed consolidated financial statements are fairly presented in all material respects in conformity with U.S. GAAP[272] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in a shareholder derivative action related to its 2020 financial restatement and is pursuing a business interruption insurance claim for a 2022 network outage - The company is facing a shareholder derivative action stemming from the same factual allegations related to its 2020 financial restatement that were the subject of a previously settled securities class action lawsuit[276] - Following a 2022 network outage, the company submitted an insurance claim for $44.6 million, received $10.8 million in 2023, settled with one excess insurer for an additional $3.6 million on August 9, 2024, and continues litigation with the remaining insurer[277] Item 1A. Risk Factors The company faces significant risks including potential Nasdaq delisting due to MVLS non-compliance, requiring a BPA Business spin-off by October 25, 2024, which itself could trigger substantial dilution for common stockholders - The company risks Nasdaq delisting for failing to meet the $35 million market value of listed securities (MVLS) requirement, with continued listing contingent on completing a spin-off of its BPA Business by October 25, 2024[281] - The potential spin-off could be considered a "Fundamental Change," allowing Series A Preferred Stockholders to convert their holdings into common stock at a favorable rate, potentially resulting in substantial dilution where preferred holders could receive up to 85% of the company's common stock on a fully-diluted basis[284] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchases of Equity Securities. The company's 2022 Share Buyback Program, authorizing up to 50,000 shares, saw no repurchases during the six months ended June 30, 2024, with 48,213 shares remaining authorized - No shares were repurchased under the company's 2022 Share Buyback Program during the six months ended June 30, 2024, with authorization remaining for up to 48,213 additional shares[285][286]