Exela Technologies(XELA) - 2024 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements Unaudited financials for Q3 2024 show a challenging financial position, net loss, and substantial going concern doubt Condensed Consolidated Balance Sheets As of September 30, 2024, total assets decreased, liabilities increased, and the stockholders' deficit worsened Condensed Consolidated Balance Sheet Summary (in thousands USD) | Balance Sheet Item | Sep 30, 2024 (Unaudited) | Dec 31, 2023 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $139,085 | $181,208 | | Total Assets | $566,966 | $636,337 | | Total Current Liabilities | $401,845 | $394,882 | | Total Liabilities | $1,503,148 | $1,495,172 | | Total Stockholders' Deficit | ($936,182) | ($858,835) | Condensed Consolidated Statements of Operations Q3 2024 revenue increased with wider net loss, while nine-month revenue decreased but net loss narrowed Statement of Operations Summary (in thousands USD) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $269,168 | $253,125 | $773,632 | $799,683 | | Operating Profit | $3,193 | $2,065 | $910 | $6,389 | | Interest Expense, net | $23,446 | $24,708 | $67,663 | $113,980 | | Net Loss | ($24,937) | ($23,108) | ($77,415) | ($99,430) | | Net Loss Attributable to Common Stockholders | ($26,388) | ($25,298) | ($81,530) | ($105,865) | Condensed Consolidated Statements of Cash Flows Nine-month operating cash outflow improved, while investing and financing activities shifted to cash usage Cash Flow Summary for Nine Months Ended Sep 30 (in thousands USD) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($12,218) | ($37,972) | | Net cash (used in) provided by investing activities | ($5,766) | $21,259 | | Net cash (used in) provided by financing activities | ($3,703) | $17,193 | | Net (decrease) increase in cash | ($21,539) | $427 | Notes to the Condensed Consolidated Financial Statements Notes highlight substantial going concern doubt due to recurring losses, negative cash flows, and Nasdaq delisting - The company has concluded that substantial doubt exists about its ability to continue as a going concern, based on net losses ($77.4M), operating cash outflow ($12.2M), a working capital deficit ($262.8M), and an accumulated deficit ($2,158.7M)[19] - Management's plans to address the going concern issue include cost savings and new financing or debt restructuring, though execution is uncertain[20] - On November 8, 2024, the company's common stock was delisted by Nasdaq and began trading on the OTC Pink market[181] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2024 revenue growth, nine-month decline, precarious liquidity, significant debt, and Nasdaq delisting Results of Operations Q3 2024 revenue grew with increased net loss, while nine-month revenue fell but net loss improved Q3 2024 vs Q3 2023 Performance (in thousands USD) | Metric | Q3 2024 | Q3 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $269,168 | $253,125 | $16,043 | 6.3% | | Operating Profit | $3,193 | $2,065 | $1,128 | 54.6% | | Net Loss | ($24,937) | ($23,108) | ($1,829) | 7.9% | Nine Months 2024 vs 2023 Performance (in thousands USD) | Metric | Nine Months 2024 | Nine Months 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $773,632 | $799,683 | ($26,051) | (3.3)% | | Operating Profit | $910 | $6,389 | ($5,479) | (85.8)% | | Net Loss | ($77,415) | ($99,430) | $22,015 | (22.1)% | - The decrease in net loss for the nine-month period was primarily driven by a $46.3 million (40.6%) reduction in net interest expense, from $114.0 million in 2023 to $67.7 million in 2024[229] Liquidity and Capital Resources The company faces significant liquidity challenges, including a $262.8 million working capital deficit and going concern doubt - The company has a working capital deficit of $262.8 million as of September 30, 2024, an increase of $49.1 million from year-end 2023[245] - The company's securitization facility is a key source of liquidity, de-recognizing $377.1 million of accounts receivable in the first nine months of 2024[250] - The company is pursuing further debt reduction, repricing, and non-core asset sales to increase free cash flow and maintain liquidity[251] Other Financial Information (Non-GAAP Financial Measures) Adjusted EBITDA decreased in both Q3 and the nine-month period, with a recent definition change affecting comparability Reconciliation of Net Loss to Adjusted EBITDA (in thousands USD) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | ($24,937) | ($23,108) | ($77,415) | ($99,430) | | EBITDA | $16,310 | $17,805 | $41,714 | $67,403 | | Adjusted EBITDA | $14,636 | $19,296 | $41,219 | $56,356 | - The company has changed its Adjusted EBITDA definition, no longer adding back certain expenses, with prior period figures restated for comparability[236] Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the company's market risk during the nine months ended September 30, 2024 - There have been no material changes to the Company's market risk during the nine months ended September 30, 2024[293] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses, but a remediation plan is underway - The company's Executive Chairman and Interim CFO concluded that disclosure controls and procedures were not effective as of the end of the period[295] - The ineffectiveness is attributed to material weaknesses in internal control over financial reporting described in the 2023 Form 10-K[295] - A remediation plan is being implemented to address material weaknesses, but remediation requires effective control operation for a sufficient period[297] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in several legal matters, including a shareholder derivative action, an insurance claim, and a new SEC investigation - A shareholder derivative action related to the 2020 financial restatement is ongoing, with an undetermined outcome[300] - The company is pursuing a lawsuit against excess-layer insurers for further losses from a 2022 network security incident, having settled for $3.6 million with two insurers[301] - On November 12, 2024, the SEC initiated a formal investigation into the 2022 network outage, with an unpredictable outcome at this early stage[302] Item 1A. Risk Factors A new risk factor addresses the Nasdaq delisting, which moved the stock to the OTC Pink market, potentially reducing liquidity - A new risk factor was added to address the delisting of the company's securities from Nasdaq[304][305] - On November 8, 2024, the company's common stock and Series B Preferred Stock began trading on the OTC Pink market, potentially reducing liquidity and future financing[307] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchases of Equity Securities No shares were repurchased under the 2022 Share Buyback Program during the nine months ended September 30, 2024 - No shares were repurchased under the 2022 Share Buyback Program during the nine months ended September 30, 2024[308] Share Repurchase Activity (Q3 2024) | Period | Number of Shares Purchased | Average Price Paid per Share | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | July 2024 | 0 | $0 | 48,213 | | August 2024 | 0 | $0 | 48,213 | | September 2024 | 0 | $0 | 48,213 |