Exela Technologies(XELA) - 2022 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial information for the period, including statements and detailed notes Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Exela Technologies, Inc. and its subsidiaries for the three months ended March 31, 2022 and 2021, including balance sheets, statements of operations, comprehensive loss, stockholders' deficit, and cash flows, along with detailed notes explaining significant accounting policies, debt, equity, and other financial information Condensed Consolidated Balance Sheets This chapter provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets | Metric | March 31, 2022 (Unaudited) | December 31, 2021 (Audited) | | :------------------------------------------------------------------------------------------------ | :--------------------------- | :-------------------------- | | Assets | | | | Total current assets | $322,543 | $279,891 | | Total assets | $1,071,403 | $1,037,023 | | Liabilities and Stockholders' Equity (Deficit) | | | | Total current liabilities | $514,960 | $499,893 | | Total liabilities | $1,678,701 | $1,703,795 | | Total stockholders' deficit | $(607,298) | $(666,772) | - Total assets increased by $34.38 million from December 31, 2021, to March 31, 2022, primarily driven by an increase in cash and cash equivalents and restricted cash[7] - Total liabilities decreased by $25.09 million, while total stockholders' deficit improved by $59.47 million, indicating a reduction in overall financial obligations and an improvement in equity position[7] Condensed Consolidated Statements of Operations This chapter presents the company's financial performance over a period, including revenues, expenses, and net loss Condensed Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $279,398 | $300,056 | | Operating profit (loss) | $(7,345) | $4,278 | | Net loss before income taxes | $(54,455) | $(39,218) | | Net loss | $(56,956) | $(39,200) | | Net loss attributable to common stockholders | $(57,895) | $(38,304) | | Basic and diluted loss per share | $(0.17) | $(0.76) | - Revenue decreased by $20.66 million (6.88%) year-over-year[10] - Operating profit shifted from a gain of $4.28 million in Q1 2021 to a loss of $7.35 million in Q1 2022[10] - Net loss attributable to common stockholders increased from $(38.30) million in Q1 2021 to $(57.90) million in Q1 2022, but basic and diluted loss per share improved from $(0.76) to $(0.17) due to a significant increase in weighted average common shares outstanding[10][32] Condensed Consolidated Statements of Comprehensive Loss This chapter details the company's comprehensive loss, including net loss and other comprehensive income or loss items Condensed Consolidated Statements of Comprehensive Loss | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(56,956) | $(39,200) | | Foreign currency translation adjustments | $1,477 | $100 | | Unrealized pension actuarial gains (losses), net of tax | $308 | $(157) | | Total other comprehensive loss, net of tax | $(55,171) | $(39,257) | - Total other comprehensive loss increased from $(39.26) million in Q1 2021 to $(55.17) million in Q1 2022, primarily driven by the higher net loss[13] - Foreign currency translation adjustments showed a gain of $1.48 million in Q1 2022, compared to $0.10 million in Q1 2021[13] Condensed Consolidated Statements of Stockholders' Deficit This chapter outlines changes in the company's stockholders' deficit, reflecting equity transactions and accumulated losses Condensed Consolidated Statements of Stockholders' Deficit | Metric | March 31, 2022 | December 31, 2021 | | :------------------------------------------------------------------------------------------------ | :------------- | :---------------- | | Common Stock Shares Outstanding | 484,557,092 | 265,194,961 | | Common Stock Amount | $59 | $37 | | Additional Paid in Capital | $953,364 | $838,853 | | Accumulated Deficit | $(1,589,384) | $(1,532,428) | | Total Stockholders' Deficit | $(607,298) | $(666,772) | - Common Stock shares outstanding significantly increased from 265.19 million at December 31, 2021, to 484.56 million at March 31, 2022, primarily due to the issuance of Common Stock from at-the-market offerings[17][29] - Additional paid-in capital increased by $114.51 million, reflecting new equity issuances[17] - Total stockholders' deficit improved from $(666.77) million to $(607.30) million, despite an increase in accumulated deficit, driven by the increase in additional paid-in capital[17] Condensed Consolidated Statements of Cash Flows This chapter summarizes the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(44,045) | $(63,925) | | Net cash used in investing activities | $(8,407) | $(2,281) | | Net cash provided by financing activities | $86,417 | $19,736 | | Net increase (decrease) in cash and cash equivalents | $33,915 | $(46,571) | | Cash, restricted cash, and cash equivalents, End of period | $81,975 | $23,738 | - Net cash used in operating activities decreased by $19.88 million, indicating improved operational cash management[20][246] - Net cash provided by financing activities significantly increased by $66.68 million, primarily due to proceeds from at-the-market equity offerings[20][248] - The company experienced a net increase in cash and cash equivalents of $33.92 million in Q1 2022, a reversal from a net decrease of $46.57 million in Q1 2021[20] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. General This note addresses the company's going concern assumption and management's actions to improve liquidity - The company's financial statements are prepared assuming it will continue as a going concern, despite a history of net losses, operating cash outflows, working capital deficits, and significant interest payments on long-term debt[25][26] - Management has taken actions to improve liquidity, including completing the Revolver Exchange, amending the BRCC Facility to extend maturity and provide additional liquidity, and raising $174.6 million from equity and debt sales in Q1 2022[27][34] - The company has filed shelf-registration statements to raise an additional $1 billion through equity and debt, but substantial doubt about its ability to continue as a going concern remains due to factors outside its control, such as market and economic conditions[28] - Diluted EPS calculations exclude convertible preferred stock, warrants, and restricted stock units because their effects were anti-dilutive due to net losses[29][30][31] 2. New Accounting Pronouncements This note outlines the adoption and evaluation of new accounting pronouncements and their impact on financial reporting - The company adopted ASU No. 2021-05 (Leases), ASU No. 2021-04 (Earnings Per Share, Debt, Compensation, Derivatives and Hedging), and ASU No. 2020-06 (Debt with Conversion and Other Options) effective January 1, 2022, with no material impact on its consolidated financial statements[39][40][41][42] - The company is currently evaluating the impact of recently issued ASU No. 2021-08 (Business Combinations) and ASU No. 2016-13 (Financial Instruments – Credit Losses), which are effective for fiscal years beginning after December 15, 2022[43][44] 3. Significant Accounting Policies This note describes the company's key accounting policies, particularly regarding revenue recognition and deferred revenues - Revenue is recognized in accordance with ASC 606, primarily from business and transaction processing services, with most contracts having a single performance obligation and variable consideration allocated to the service period[46][47][48] Revenue Disaggregation by Segment and Geographic Region (Three Months Ended March 31) | Segment/Region | 2022 Revenue ($ thousands) | 2021 Revenue ($ thousands) | | :--------------- | :------------------------- | :------------------------- | | ITPS (U.S.A.) | $148,344 | $172,924 | | HS (U.S.A.) | $56,596 | $51,093 | | LLPS (U.S.A.) | $17,795 | $17,088 | | EMEA | $51,978 | $54,209 | | Other | $4,685 | $4,742 | | Total | $279,398 | $300,056 | - Deferred revenues, primarily from maintenance and service contracts, amounted to $19.15 million as of March 31, 2022, with $8.9 million recognized as revenue during the quarter[50][51] Estimated Remaining Fixed Consideration for Unsatisfied Performance Obligations | Period | Amount ($ thousands) | | :--------------- | :------------------- | | Remainder of 2022 | $35,014 | | 2023 | $35,725 | | 2024 | $31,152 | | 2025 | $28,316 | | 2026 | $570 | | 2027 and thereafter | — | | Total | $130,777 | 4. Intangible Assets and Goodwill This note details the company's intangible assets and goodwill, including changes and segment allocation Intangible Assets, Net (as of March 31, 2022 and December 31, 2021) | Intangible Asset Type | March 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :-------------------- | :--------------------------- | :---------------------------- | | Customer relationships | $183,314 | $192,157 | | Developed technology | $816 | $941 | | Trade names | $5,325 | $5,300 | | Outsource contract costs | $2,176 | $2,328 | | Internally developed software | $20,272 | $21,296 | | Assembled workforce | $839 | $1,118 | | Purchased software | $20,953 | $21,399 | | Total Intangibles, net | $233,695 | $244,539 | - Total intangible assets, net, decreased by $10.84 million from December 31, 2021, to March 31, 2022, primarily due to amortization of customer relationships and internally developed software[62] Goodwill by Reporting Segment (as of March 31, 2022 and December 31, 2021) | Segment | March 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------ | :--------------------------- | :---------------------------- | | ITPS | $252,560 | $252,672 | | HS | $86,786 | $86,786 | | LLPS | $18,865 | $18,865 | | Total | $358,211 | $358,323 | - Goodwill remained largely stable, with a slight decrease of $0.11 million in the ITPS segment due to currency translation adjustments[66] 5. Long-Term Debt and Credit Facilities This note provides a comprehensive overview of the company's long-term debt, credit facilities, and related transactions - The company's senior secured term loan, initially $350.0 million, was repriced in 2018 and further increased by incremental term loans in 2018 and 2019, all maturing on July 12, 2023[67][73][74][77][78] - A Private Exchange in December 2021 converted $212.1 million of Term Loans into $84.3 million cash and $127.8 million of 2026 Notes, reducing outstanding term loans to $88.1 million as of March 31, 2022[82][83] - The $100.0 million Revolving Credit Facility was exchanged in March 2022 for $50.0 million cash and $50.0 million of 2026 Notes, resulting in a debt extinguishment cost of $0.2 million[85][86] - The 2023 Notes, initially $1.0 billion, were largely exchanged in a Public Exchange in October 2021 for cash and 2026 Notes, leaving $22.8 million outstanding as of March 31, 2022[88][89][90][91] - The 2026 Notes, bearing 11.5% interest and maturing July 12, 2026, had $885.7 million outstanding as of March 31, 2022, including $81.5 million sold in Q1 2022 and $50.0 million issued for the Revolver Exchange[94][95] - The BRCC Facility, initially $75.0 million and later increased to $115.0 million, had $92.3 million outstanding as of March 31, 2022, after a $22.7 million repayment in Q1 2022[99][102] Long-Term Debt Outstanding (as of March 31, 2022 and December 31, 2021) | Debt Instrument | March 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------------------ | :--------------------------- | :---------------------------- | | Other | $29,804 | $29,296 | | Term loan under first lien credit agreement | $85,085 | $89,585 | | Senior secured 2023 notes | $22,651 | $22,616 | | Senior secured 2026 notes | $885,725 | $801,306 | | Secured borrowings under BRCC Facility | $92,325 | $115,000 | | Secured borrowings under Securitization Facility | $91,947 | $91,947 | | Revolver | — | $99,477 | | Total debt | $1,207,537 | $1,249,227 | | Less: Current portion of long-term debt | $(138,664) | $(144,828) | | Long-term debt, net of current maturities | $1,068,873 | $1,104,399 | 6. Income Taxes This note details the company's income tax expense and effective tax rate, explaining variances from statutory rates - The company recorded an income tax expense of $2.5 million for the three months ended March 31, 2022, compared to an income tax benefit of less than $0.1 million for the same period in 2021[112] - The effective tax rate (ETR) for Q1 2022 was (4.6)%, differing from the U.S. statutory rate of 21.0% due to permanent tax adjustments, state and local expenses, foreign operations, and valuation allowances[113] 7. Employee Benefit Plans This note describes the company's unfunded pension plans and the associated net periodic benefit costs - The company operates unfunded pension plans in Germany, the U.K., Norway, and for Asterion International Group, with no new employees registered under these plans[117][118][119][120][122] Net Periodic Benefit Cost (Three Months Ended March 31) | Component | 2022 ($ thousands) | 2021 ($ thousands) | | :-------------------------- | :----------------- | :----------------- | | Service cost | $16 | $19 | | Interest cost | $517 | $424 | | Expected return on plan assets | $(772) | $(605) | | Amortization of prior service cost | $56 | $45 | | Amortization of net loss | $688 | $838 | | Net periodic benefit cost | $505 | $721 | - Employer contributions to pension plans were $0.7 million in Q1 2022, down from $0.9 million in Q1 2021[125] 8. Commitments and Contingencies This note outlines the company's significant commitments and contingencies, including legal settlements and contingent obligations - The Appraisal Action, settled for $63.4 million in December 2021, had an outstanding balance of $24.5 million as of March 31, 2022, after a $40.0 million payment[129][301] - An adverse arbitration order in Finland was settled for $8.8 million in May 2021, with a net outstanding balance of $2.9 million as of March 31, 2022[130] - The company has contingent obligations from customer contracts, but does not expect them to have a material adverse effect on financial statements[131] 9. Fair Value Measurement This note presents the fair value measurements for the company's financial instruments, including long-term debt and liabilities - The fair value of long-term debt was estimated at approximately 70.0% of the principal balance for secured term loans and 2023 notes, and 50.0% for 2026 notes as of March 31, 2022[132] - The true-up guarantee liability related to the Revolver Exchange is a Level 3 fair value measurement, based on estimated obligations[133] Fair Value Measurements (as of March 31, 2022) | Financial Instrument | Carrying Amount ($ thousands) | Fair Value ($ thousands) | | :------------------- | :---------------------------- | :----------------------- | | Long-term debt | $1,068,873 | $616,269 | | True-up guarantee liability | $23,585 | $23,585 | | Goodwill | $358,211 | $358,211 | 10. Stock-Based Compensation This note details the company's stock-based compensation plans, including RSU and stock option activity - The 2018 Stock Incentive Plan was amended to increase authorized shares from 2.77 million to 17.85 million[135] Restricted Stock Unit Activity (Three Months Ended March 31, 2022) | Metric | Number of Units | Average Grant Date Fair Value | | :-------------------------------- | :-------------- | :---------------------------- | | Outstanding Balance as of Dec 31, 2021 | 1,369,008 | $1.75 | | Vested | (1,283,507) | $(1.73) | | Outstanding Balance as of Mar 31, 2022 | 85,501 | $2.02 | - The majority of RSUs vested in Q1 2022 were net-share settled, with $0.2 million paid for employee tax obligations[138] Stock Option Activity (Three Months Ended March 31, 2022) | Metric | Outstanding | Weighted Average Exercise Price | | :-------------------------------- | :---------- | :------------------------------ | | Outstanding Balance as of Dec 31, 2021 | 1,445,299 | $11.78 | | Forfeited | (24,933) | | | Outstanding Balance as of Mar 31, 2022 | 1,420,366 | $11.77 | - Total unrecognized compensation expense for stock-based awards was $0.8 million as of March 31, 2022[141] - Market Performance Units, granted to the Executive Chairman, were reclassified to equity from liability upon shareholder approval of the 2018 Plan amendment, with $2.4 million in unrecognized compensation expense remaining[142][145][146][147] 11. Stockholders' Equity This note provides details on the company's stockholders' equity, including common stock, preferred stock, and warrants - As of March 31, 2022, there were 484,557,092 shares of Common Stock outstanding, an increase from 265,194,961 shares at December 31, 2021[150] Common Stock At-The-Market Sales Program Proceeds (May 2021 - March 2022) | Program | Period | Shares Sold | Average Price Per Share | Gross Proceeds ($ million) | Net Proceeds ($ million) | | :-------------------- | :-------------------- | :---------- | :---------------------- | :------------------------- | :----------------------- | | Common ATM Program–1 | May 28 - July 1, 2021 | 49,423,706 | $2.008 | $99.3 | $95.7 | | Common ATM Program–2 | June 30 - Sep 2, 2021 | 57,580,463 | $2.603 | $149.9 | $144.4 | | Common ATM Program–3 | Oct 6, 2021 - Mar 31, 2022 | 334,875,948 | $0.747 | $250.0 | $241.0 | - Series A Preferred Stock holders are entitled to cumulative dividends at 10% per annum, with $13.2 million in accumulated unpaid dividends as of March 31, 2022[155] - Series B Preferred Stock was issued in March 2022 through a share exchange offer, with 900,328 shares outstanding and convertible into 18,066,582 shares of Common Stock[157][158][159] - The company holds 2,451,706 shares of Common Stock in treasury, including shares from a buyback program and those returned in connection with the Appraisal Action[163][164] - As of March 31, 2022, there were warrants outstanding to purchase 15,565,152 shares of Common Stock, including IPO warrants expiring July 12, 2022, and private placement warrants expiring September 19, 2026[165][168][171] 12. Related-Party Transactions This note discloses transactions and balances with affiliated entities, including marketing fees and service agreements - The company incurred $1.5 million in marketing fees to Rule 14, LLC, an HGM portfolio company, and $0.3 million for data capture and technology services from HOV Services, Ltd. for the three months ended March 31, 2022[173][175] Payable and Receivable/Prepayment Balances with Affiliates (as of March 31, 2022 and December 31, 2021) | Affiliate | March 31, 2022 (Receivables/Prepaid Expenses) | March 31, 2022 (Payables) | December 31, 2021 (Receivables/Prepaid Expenses) | December 31, 2021 (Payables) | | :------------------ | :-------------------------------------------- | :------------------------ | :----------------------------------------------- | :--------------------------- | | HOV Services, Ltd | $691 | — | $708 | — | | Rule 14 | — | $1,466 | — | $1,483 | | HGM | $28 | — | $7 | — | | Oakana | — | $9 | — | $1 | | Total | $719 | $1,475 | $715 | $1,484 | 13. Segment and Geographic Area Information This note provides financial information disaggregated by the company's operating segments and geographic regions - The company operates in three segments: Information & Transaction Processing Solutions (ITPS), Healthcare Solutions (HS), and Legal & Loss Prevention Services (LLPS)[180] Segment Profit (Three Months Ended March 31) | Segment | 2022 Revenue ($ thousands) | 2022 Cost of Revenue ($ thousands) | 2022 Segment Profit ($ thousands) | 2021 Revenue ($ thousands) | 2021 Cost of Revenue ($ thousands) | 2021 Segment Profit ($ thousands) | | :------ | :------------------------- | :------------------------------- | :------------------------------ | :------------------------- | :------------------------------- | :------------------------------ | | ITPS | $205,007 | $163,586 | $41,421 | $231,875 | $185,502 | $46,373 | | HS | $56,596 | $46,731 | $9,865 | $51,093 | $35,818 | $15,275 | | LLPS | $17,795 | $13,187 | $4,608 | $17,088 | $11,267 | $5,821 | | Total | $279,398 | $223,504 | $55,894 | $300,056 | $232,587 | $67,469 | - Total segment profit decreased by $11.58 million (17.16%) year-over-year[184] 14. Subsequent Events This note reports significant events occurring after the balance sheet date, including debt repayments and new financing facilities - On April 1, 2022, the company repaid $20.0 million of the BRCC Facility, and on May 9, 2022, the maturity of the BRCC Facility was extended to June 10, 2023[186] - On May 6, 2022, the company secured a three-year receivables financing facility of up to $150.0 million from PNC Bank to replace its existing Securitization Facility[187] - On May 6, 2022, the company agreed to issue an additional $20.0 million in 2026 Notes as collateral for the true-up mechanism in the Revolver Exchange[189] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Exela Technologies' financial condition and results of operations for the three months ended March 31, 2022, compared to the same period in 2021. It covers an overview of the business, segment performance, key financial metrics, and a detailed analysis of liquidity and capital resources, including debt management and future financing plans Forward Looking Statements This section contains forward-looking statements subject to various risks and uncertainties, cautioning against undue reliance - The report contains forward-looking statements regarding industry trends, future results, and opportunities, which are subject to risks and uncertainties including economic conditions, COVID-19 impact, data breaches, competition, and regulatory actions[192] - Readers are cautioned not to place undue reliance on these statements, as actual results may differ materially, and the company undertakes no obligation to update them[192] Overview This section provides a high-level overview of Exela Technologies as a global business process automation leader - Exela Technologies is a global business process automation leader, serving over 4,000 customers, including 60% of the Fortune® 100, with technology-enabled solutions for transaction processing and enterprise information management[193] - The company leverages cloud-enabled platforms and approximately 17,000 employees across 21 countries to provide end-to-end digital journey solutions[193] History This section outlines the formation of Exela Technologies through key acquisitions in July 2017 - Exela Technologies was formed in July 2017 through the acquisition of SourceHOV Holdings, Inc. and Novitex Holdings, Inc. by Quinpario Acquisition Corp. 2, which was renamed Exela Technologies, Inc[196] - The business combination established Exela as one of the largest global providers of information processing solutions[197] Our Segments This section describes Exela's three reportable segments: ITPS, HS, and LLPS, and their primary services - Exela operates in three reportable segments: Information & Transaction Processing Solutions (ITPS), Healthcare Solutions (HS), and Legal & Loss Prevention Services (LLPS)[198] - ITPS is the largest segment, providing solutions for information capture, processing, and distribution to financial services, commercial, public sector, and legal industries[199] - HS specializes in consulting and outsourcing for healthcare providers and payers, while LLPS offers support services for class action, bankruptcy, and other legal matters[200] Revenues (description) This section details the revenue recognition models for each of Exela's operating segments - ITPS revenues are primarily transaction-based, with licensing, maintenance fees, and a mix of fixed management and transactional revenue[201] - HS revenues are mainly transaction-based for healthcare payers and providers[201] - LLPS revenues are based on time and materials pricing and transactional services[201] People This section provides information on Exela's global employee base and significant personnel costs - As of March 31, 2022, Exela had approximately 17,000 employees globally, with 53% in the Americas and EMEA, and the remainder primarily in India, the Philippines, and China[204] - Personnel costs are the most significant expense, totaling $132.9 million for Q1 2022, down from $139.5 million in Q1 2021[205] Key Performance Indicators This section identifies the key performance indicators, including revenue by segment, EBITDA, and Adjusted EBITDA, used by management - Management uses revenue by segment, EBITDA, and Adjusted EBITDA to assess performance[206][207][208] - Adjusted EBITDA is defined as EBITDA plus optimization and restructuring charges, transaction and integration costs, other non-cash charges, and management fees[207] Results of Operations This section analyzes the company's consolidated financial performance for the period, detailing revenue, expenses, and net loss Consolidated Results of Operations (Three Months Ended March 31) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | Change ($ thousands) | % Change | | :------------------------------------------------------------------------------------------------ | :----------------- | :----------------- | :------------------- | :------- | | Revenue | $279,398 | $300,056 | $(20,658) | (6.88)% | | Cost of revenue (exclusive of depreciation and amortization) | $223,504 | $232,587 | $(9,083) | (3.91)% | | Selling, general and administrative expenses (exclusive of depreciation and amortization) | $43,040 | $41,885 | $1,155 | 2.76% | | Depreciation and amortization | $18,212 | $19,599 | $(1,387) | (7.08)% | | Related party expense | $1,987 | $1,707 | $280 | 16.40% | | Operating profit (loss) | $(7,345) | $4,278 | $(11,623) | (271.69)% | | Interest expense, net | $39,760 | $43,131 | $(3,371) | (7.82)% | | Debt modification and extinguishment costs (gain), net | $884 | — | $884 | 100.00% | | Sundry expense, net | $307 | $213 | $94 | 44.13% | | Other expense, net | $6,159 | $152 | $6,007 | 3951.97% | | Net loss before income taxes | $(54,455) | $(39,218) | $(15,237) | 38.85% | | Income tax benefit (expense) | $(2,501) | $18 | $(2,519) | (13994.44)% | | Net loss | $(56,956) | $(39,200) | $(17,756) | 45.30% | - Consolidated revenue decreased by $20.7 million (6.9%) due to declines in the ITPS segment, partially offset by growth in HS and LLPS[210] - ITPS revenue decreased by $26.9 million (11.6%) due to exiting non-strategic contracts, lower transaction volumes from COVID-19, and adverse foreign currency translation[210] - HS revenue increased by $5.5 million (10.8%) due to higher volumes from new and existing healthcare customers[210] - LLPS revenue increased by $0.7 million (4.1%) due to increased project-based engagements in legal claims administration[212] - Cost of revenue decreased by $9.1 million (3.9%), primarily from lower employee-related costs and improved cost management, but increased as a percentage of revenue from 77.5% to 80.0%[213][214][215] - SG&A expenses increased by $1.2 million (2.8%) due to higher employee-related and travel costs, rising to 15.4% of revenues[216] - Net loss increased by $17.76 million (45.3%) to $(56.96) million, driven by a shift from operating profit to loss and higher other expenses[209] - Other expense, net, increased significantly by $6.01 million, primarily due to an additional $6.2 million accrual for the true-up guarantee obligation under the Revolver Exchange[223] Other Financial Information (Non-GAAP Financial Measures) This section reconciles non-GAAP financial measures like EBITDA and Adjusted EBITDA to net loss, explaining their use - EBITDA and Adjusted EBITDA are used as key performance indicators, with Adjusted EBITDA including adjustments for optimization, restructuring, transaction, integration, and non-cash charges[225] EBITDA and Adjusted EBITDA Reconciliation (Three Months Ended March 31) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | | :------------------------------------------ | :----------------- | :----------------- | | Net Loss | $(56,956) | $(39,200) | | Taxes | $2,501 | $(18) | | Interest expense | $39,760 | $43,131 | | Depreciation and amortization | $18,212 | $19,599 | | EBITDA | $3,517 | $23,512 | | Optimization and restructuring expenses | $6,837 | $5,367 | | Transaction and integration costs | $3,704 | $4,648 | | Non-cash equity compensation | $317 | $387 | | Other charges including non-cash | $13,233 | $12,027 | | Loss/(Gain) on sale of assets | $(115) | $(302) | | Debt modification and extinguishment costs (gain), net | $884 | — | | Loss/(Gain) on derivative instruments | — | $(125) | | Contract costs | $7,751 | $952 | | Adjusted EBITDA | $36,128 | $46,466 | - Adjusted EBITDA decreased by $10.34 million (22.25%) from $46.47 million in Q1 2021 to $36.13 million in Q1 2022[230] Liquidity and Capital Resources This section discusses the company's financial liquidity, capital management, debt reduction efforts, and future financing plans - The company faces substantial doubt about its ability to continue as a going concern due to net losses, operating cash outflows, working capital deficits, and significant debt interest payments[232] - As of March 31, 2022, cash and cash equivalents totaled $82.0 million, including $43.7 million in restricted cash, with $10.0 million currently available under the BRCC Revolver[233] - The company reduced debt by $35.7 million in Q1 2022 and plans further debt reduction, repricing, and potential sale of non-core businesses[237] - Net cash used in operating activities decreased by $19.9 million, while net cash provided by financing activities increased by $66.7 million, primarily from equity offerings[246][248][249] - The company may explore strategic transactions, including joint ventures, acquisitions, or dispositions, which may require additional debt or equity financing[284] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section outlines Exela Technologies' exposure to market risks, primarily from changes in interest rates and foreign currency exchange rates. It details the potential impact of these risks on the company's financial performance and its approach to managing them - As of March 31, 2022, the company had $1,251.4 million of debt outstanding with a weighted average interest rate of 11.1%[285] - A 1% increase or decrease in the weighted average interest rate would impact interest expense by approximately $12.5 million per year[285] - The company is exposed to foreign currency risks from intercompany loans and transactions denominated in non-functional currencies[289] - The company does not use derivatives for trading or speculative purposes[290] Item 4. Internal Controls and Procedures This section addresses the effectiveness of Exela Technologies' disclosure controls and procedures and internal control over financial reporting. It highlights the identified material weaknesses and the ongoing remediation efforts, while affirming the fair presentation of financial statements - The company's disclosure controls and procedures were deemed not effective as of March 31, 2022, due to material weaknesses in internal control over financial reporting[292] - Despite the material weaknesses, management concluded that the consolidated financial statements fairly present the company's financial position, results of operations, and cash flows[293] - A remediation plan is in place to address the identified material weaknesses, which will be considered remediated once controls operate effectively for a sufficient period[294] - There have been no material changes in internal control over financial reporting during Q1 2022[296] PART II — OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section details the significant legal proceedings involving Exela Technologies, including the Appraisal Action, a class action lawsuit, and a derivative action, providing updates on their status and the company's stance - The Appraisal Action, settled for $63.4 million in December 2021, had $40.0 million paid as of March 31, 2022, with the remaining balance expected in the first half of 2022[301] - A class action lawsuit alleging violations of the Exchange Act, stemming from financial restatements, was allowed to proceed after the company's motion to dismiss the amended complaint was denied[302] - A shareholder derivative action, consolidated with a similar case, alleges breach of fiduciary duty and other claims against current and former directors and officers, with the company asserting meritorious defenses[304] - Another shareholder derivative action filed in March 2022 alleges improper approval of the 2018 Stock Incentive Plan amendment, which the company believes would have minimal financial impact[306] Item 1A. Risk Factors This section refers readers to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, emphasizing that these risks, along with other unknown or immaterial risks, could materially affect the business, financial condition, and operating results - Readers should consider the risk factors described in the company's 2021 Annual Report on Form 10-K, as they could materially affect the business, financial condition, and operating results[307] - Additional risks not currently known or deemed immaterial may also adversely affect the company[307] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities to report for the period Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company Item 5. Other Information This section indicates that there is no other information to report for the period Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including certificates of designation, agreements, certifications, and XBRL-related documents - Key exhibits include the Certificate of Designations for Series B Preferred Stock, various amendments to the Secured Promissory Note with B. Riley Commercial Capital, LLC, and the Revolving Loan Exchange and Prepayment Agreement[316] - Certifications from the Principal Executive Officer and Principal Financial and Accounting Officer are included, as required by the Sarbanes-Oxley Act[316]