Exela Technologies(XELA) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 2019 was $390.2 million, with a constant currency revenue of $394.6 million, reflecting a year-over-year decline of 4.9% on an as-reported basis [15][44] - Adjusted EBITDA for the quarter totaled $69.4 million, a decrease of 1% year-over-year, with adjusted EBITDA margins improving by 70 basis points to 17.8% [49][56] - Total liquidity improved by $39.4 million sequentially to reach $97.5 million at the end of Q2 [15][54] Business Line Data and Key Metrics Changes - ITPS segment revenue was $309.2 million, down 6.3% year-over-year, primarily due to low-margin contract exits [44] - Healthcare Solutions segment grew 12.6% year-over-year to $63.4 million, consistent with expectations based on investments in this segment [45] - Legal and Loss Prevention segment revenue totaled $17.6 million, declining 26.4% year-over-year due to event-driven and project-based revenue fluctuations [45] Market Data and Key Metrics Changes - Revenue from Europe represented 18% of total revenue, while the Americas accounted for 82% in the first half of 2019 [39] - The company reported a diversified revenue base, with 35% of revenue coming from the top 20 customers, who have an average tenure of over 16 years [39] Company Strategy and Development Direction - The company is focused on transforming its business through automation and technology, aiming to improve gross margins across various segments [11][32] - The strategy includes optimizing headcount geographically, increasing headcount in Asia while reducing it in North America and Europe [33] - The company is pursuing additional opportunities for market penetration through its Digital Now suite of solutions [42] Management's Comments on Operating Environment and Future Outlook - Management updated 2019 revenue guidance to $1.59 billion to $1.61 billion and adjusted EBITDA guidance to $290 million to $300 million, reflecting higher visibility into the base business [13][56] - The company expressed confidence in its transformation efforts, indicating that approximately 60% to 70% of revenue is already at a 30% gross margin or higher [32] Other Important Information - Optimization and restructuring expenses totaled $18.7 million in Q2, with $17.6 million related to process transformation [51] - The company generated $10.2 million of net cash during the quarter, ending with a cash balance of $23.4 million [53] Q&A Session Summary Question: Can we talk about the guidance for a second? - Management acknowledged the lowered guidance and expressed confidence in achieving growth in the second half, citing improvements in pipeline and business processes [61] Question: Can you provide some color on what makes up the 35% to 40% of revenue? - Management explained that this portion includes lower-margin segments like mailroom logistics and print reprographics, which are targeted for digital transformation to improve margins [75] Question: Can you provide color on the lower revenue in the legal segment? - Management noted that the legal segment's revenue has been affected by fewer large notification projects compared to the previous year, but they remain confident in the pipeline [77]