Company Overview
XBP Europe Holdings, Inc. (NASDAQ:XBP) is a pan-European integrator of bills, payments, and related solutions and services, seeking to enable the digital transformation of its clients. The company has a rich history spanning over 45 years, tracing its roots back to the 1995 merger between Texas-based BancTec, Inc. and Recognition International, Inc. Over the decades, XBP Europe has grown its footprint and expanded its geographic and client reach across Europe, including through strategic acquisitions such as Asterion International and Drescher Full-Service Versand in 2018.
XBP Europe's digital foundation was developed to deliver fully outsourced solutions to address current and evolving client needs. The company hosts its products both on client premises and as a SaaS offering in the cloud, providing clients with flexible options based on their preferences. XBP Europe's primary source of revenue stems from transactions processed by its products, including bills and payments processing, which constitutes the dominant part of revenue in the larger Bills & Payments reporting segment. The company also generates revenue from the sale of recurring software licenses and professional services, perpetual software licenses, as well as hardware solutions and related maintenance, which make up the Technology reporting segment.
History and Expansion
The company's subsidiaries and predecessor entities have been serving clients in the European marketplace since the 1970s. In 2018, Exela Technologies, Inc. (ETI) further expanded XBP Europe's geographic and client reach across Europe through the acquisitions of Asterion International and Drescher Full-Service Versand. This expanded XBP Europe's footprint to 15 countries with 32 locations.
XBP Europe has faced some challenges over the years, including a legal dispute in 2020 related to the closure of two production sites in France. A group of 71 former employees brought a claim against a XBP Europe subsidiary, filing complaints with the Labor Court. This litigation is still ongoing, with XBP Europe having accrued $2.2 million in related liabilities as of December 31, 2023, which was reduced to $1.1 million as of September 30, 2024, based on the estimate of the range of possible losses.
Products and Services
The company's industry-agnostic and cross-departmental suite of products center around finance and accounting (F&A) solutions and services, comprising the XBP Platform, Request to Pay, enterprise information management, Digital Mailroom, business process management and workflow automation, and integrated communication services. XBP Europe also offers core industry solutions for the banking and financial services sector, and has rolled out a suite of Work From Anywhere (WFA) applications with enterprise software for connectivity and productivity to enable remote work, a response to the COVID-19 pandemic.
Workforce and Global Presence
As of September 30, 2024, XBP Europe had approximately 1,500 employees, including 147 part-time employees, across 16 countries – 14 across Europe and in Morocco, as well as the U.S., where the company's chief executive officer and chief financial officer are located. The company's continued success is driven by its people, with its operation centers located in areas where the value proposition it offers is attractive relative to other local opportunities, resulting in an engaged, educated multi-lingual workforce that can make a meaningful global contribution from their local marketplace. XBP Europe serves over 2,000 clients across Europe, the Middle East and Africa (EMEA) region.
Recent Developments
In November 2023, XBP Europe completed a business combination with CF Acquisition Corp. VIII, a special purpose acquisition company (SPAC), and began trading on the Nasdaq Stock Market under the ticker symbols XBP and XBPEW. This transaction has provided the company with additional resources to fuel its growth and expansion plans.
Financials
XBP Europe's financial performance has been mixed in recent quarters. For the fiscal year 2023, the company reported revenue of $166.6 million and a net loss of $11.0 million. For the nine months ended September 30, 2024, the company reported revenue of $106.99 million, a decrease of 8.1% year-over-year (9.2% on a constant currency basis).
In the most recent quarter (Q3 2024), XBP Europe reported revenue of $35.33 million, a decrease of 5.6% year-over-year. This decline was primarily driven by lower postage revenue, lower volumes, and client contract ends, partially offset by the positive impact of newly won business. The net loss for Q3 2024 was $1.23 million, a slight improvement of $0.1 million year-over-year, primarily due to improved gross margin.
The Bills & Payments segment, which constituted 69.4% of XBP's total net revenue for Q3 2024, saw a revenue decline of 3.1% year-over-year to $24.6 million. The Technology segment, accounting for 30.6% of total net revenue, experienced a more significant decline of 10.8% year-over-year to $10.8 million, primarily due to lower license sales, partially offset by higher implementation and professional services revenue.
Gross margin for the nine-month period ended September 30, 2024 was 23.0%, a slight increase from 22.9% in the prior-year period. Cost of revenue decreased by 15.6% to $23.9 million in Q3 2024, compared to $28.2 million in the prior year period, primarily due to reduced costs in the Bills & Payments segment and a change in revenue mix within the Technology segment.
Selling, general and administrative (SG&A) expenses remained relatively flat at $6.8 million in Q3 2024, with a slight decrease primarily due to cost optimization initiatives, partially offset by increased investments in the sales team.
The company reported a net loss of $9.70 million for the nine months ended September 30, 2024, which included $2.02 million in foreign exchange losses and $0.88 million in non-cash equity compensation. Adjusted EBITDA from continuing operations for the nine-month period was $8.98 million, compared to $10.96 million in the prior-year period.
Liquidity
As of September 30, 2024, XBP Europe reported cash and cash equivalents of $7.77 million. The company's debt-to-equity ratio stood at -1.92, while its current ratio and quick ratio were 0.64 and 0.58, respectively.
In June 2024, XBP Europe completed a comprehensive financing agreement with HSBC, which refinanced the company's existing indebtedness and provided up to $33 million of incremental liquidity. This transaction has strengthened the company's balance sheet and provided additional resources to fund its growth initiatives. The agreement includes a $12 million revolving credit facility.
For Q3 2024, the company reported operating cash flow (OCF) of -$8.02 million and free cash flow (FCF) of -$9.14 million.
Strategic Initiatives
One notable development in 2024 was XBP Europe's decision to divest its certain on-demand printing operations, which met the criteria to be classified as a discontinued operation. This strategic move aligns with the company's focus on its core bills, payments, and related solutions and services business.
Growth Opportunities and Future Outlook
Looking ahead, XBP Europe continues to see opportunities for growth, having been awarded several notable contracts in 2023 and 2024, including a multi-year, $40 million agreement with His Majesty's Passport Office (HMPO) in the UK for a nationwide digitization project. The company has also been selected as a supplier on a large-scale framework for sourcing data processing and payments services with AGIRC-ARRCO, a confederation of private-sector pension funds in France, with an estimated cumulative total value of over €25 million.
Additionally, XBP Europe has been approved as a Confirmation of Payee (CoP) Aggregator by Pay.UK, which allows the company to join the CoP service and pass those benefits to its clients, further strengthening its position as a leading provider of CoP services. The company has also been awarded a place on the UK government's G-Cloud 14 framework, which will enable it to provide cloud-based services to public sector organizations in the UK.
Despite the mixed financial results in recent quarters, XBP Europe's long-term growth prospects remain promising, driven by its strategic focus on enabling the digital transformation of its clients, its diversified service offerings, and its expanding footprint across Europe. The company's recent financing and contract wins provide a solid foundation for future growth and value creation.