Exela Technologies(US:XELA)2019-05-12 12:21Financial Data and Key Metrics Changes - Revenue for Q1 2019 totaled $403.8 million, an increase of 2.7% compared to $393.2 million in Q1 2018. On a constant currency basis, revenue was $409.8 million, reflecting a 4.2% increase [25][10] - Adjusted EBITDA for the quarter was $74.1 million, up 6.5% year-over-year, with an adjusted EBITDA margin of 18.3%, an increase from 17.7% in Q1 2018 [31][10] - Gross margin for Q1 2019 was 24%, down from 25.3% in Q1 2018, primarily due to higher initial costs related to new revenue [29][10] Business Line Data and Key Metrics Changes - Revenue for the ITPS segment was $324.6 million, a 4.1% year-over-year increase, driven by the ramp-up of contracts using the Digital Now model [26] - The Healthcare Solutions segment grew 4.6% year-over-year, totaling $61.3 million, consistent with expectations [27] - The Legal and Loss Prevention segment saw a decline of 21.2% year-over-year to $17.8 million, attributed to the lack of large projects compared to the previous year [28] Market Data and Key Metrics Changes - At the end of Q1 2019, 83% of revenue was generated in the Americas, while 17% came from Europe, a shift from 90% and 10% respectively in Q1 2018 [25][22] - The company reported that its top 20 customers accounted for 36% of revenue, with the top 100 and top 200 customers representing 61% and 73% of revenue respectively [21] Company Strategy and Development Direction - The company aims to accelerate the digital transformation of its customers through its Digital Now strategy, which has been successful in winning new business [11][10] - Exela launched the Smart Office initiative to enhance user experience and integrate disconnected technologies in the workplace [16][10] - The company is focused on executing cost savings initiatives, with a target of achieving $56.4 million in identified savings during 2019 [15][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong pipeline for the remainder of 2019, expecting revenue to improve materially in the third and fourth quarters [12][38] - The company reaffirmed its full-year 2019 guidance, anticipating similar revenue in Q2 and significant growth later in the year [38][10] - Management acknowledged the challenges in the legal segment but indicated potential for growth in the second half of the year [49][10] Other Important Information - The company added approximately 929 full-time employees in Q1 2019, increasing total headcount to 22,976 [13][10] - Liquidity at the end of Q1 was $57.9 million, with total net debt at $1.459 billion [34][10] - Capital expenditures for the quarter were $13 million, or 3.2% of revenue, slightly higher due to the ramp-up of new revenue [36][10] Q&A Session Summary Question: Impact of M&A in the quarter - Management indicated that excluding low-margin contracts exited during the year, the organic growth rate was approximately 3% [45][46] Question: Performance of the legal segment - Management noted that the legal segment's revenue is project-based and lumpy, with expectations for growth in the second half of the year [48][49] Question: Pipeline growth due to Digital Now - Management reported that the growth in the pipeline year-over-year has almost doubled for opportunities related to Digital Now [54][55] Question: Synergies and savings initiatives - Management expects to realize a majority of the identified savings of $56.4 million during 2019, with a cautious approach to cash implementation [56][57] Question: Relationships with existing customers - Management highlighted the importance of existing customer relationships in driving new business and expanding service offerings [60][61] Question: Seasonality and revenue expectations - Management acknowledged typical softness in Q3 but expressed confidence in material growth in the back half of the year [64][65] Question: Legal division integration and growth - Management sees significant revenue synergy opportunities by integrating legal services with enterprise solutions [84][10] Question: Optimization and restructuring costs - Management clarified that optimization and restructuring charges are primarily related to headcount as the company transitions to a digital solution [87][88]