Business Overview and Historical Perspective
Exela Technologies, Inc. (NASDAQ:XELA) is a global leader in business process automation (BPA), leveraging a diverse suite of technologies and a vast global workforce to help organizations streamline operations, enhance customer experiences, and drive digital transformation. With a rich history spanning decades and a presence in over 20 countries, Exela has established itself as a trusted partner for enterprises seeking to navigate the evolving business landscape.
Exela’s origins can be traced back to 2017, when the company was formed through the strategic combination of SourceHOV Holdings, Inc. and Novitex Holdings, Inc. This transformative merger brought together two industry powerhouses, creating a formidable player in the BPA space. The company was originally established as Quinpario Acquisition Corp. 2, a special purpose acquisition company that completed its initial public offering in 2015. In July 2017, Quinpario acquired SourceHOV and Novitex, and was subsequently renamed Exela Technologies, Inc. The acquisition of Novitex was treated as a business combination, while the acquisition of SourceHOV was accounted for as a reverse merger, with SourceHOV determined to be the accounting acquirer.
This strategic combination formed Exela into one of the largest global providers of information processing solutions based on revenues. Over the years, Exela has continued to strengthen its position, making strategic acquisitions and expanding its service offerings to meet the ever-changing needs of its diverse customer base.
One of Exela’s key strengths lies in its ability to leverage cutting-edge technologies, including cloud-enabled platforms, automation modules, and a global workforce of approximately 12,600 employees. This hybrid approach allows the company to deliver integrated solutions that address the full life cycle of transaction processing and enterprise information management, from enabling payment gateways and data exchanges to handling exceptions and distributing communications.
In June 2023, Exela completed the sale of its high-speed scanner business, which was part of its ITPS segment. This transaction resulted in a pre-tax gain of $7.2 million for the company. Exela disposed of $16.5 million of goodwill related to the high-speed scanner business as part of this sale.
Despite its growth and strategic positioning, Exela has faced some challenges over the years, including a history of net losses and net operating cash outflows. In 2022, the company experienced a network security incident that impacted its operational and IT systems, leading to lost revenue and incremental costs. Exela submitted an insurance claim for $44.6 million related to the incident and has since settled a portion of this claim.
Financial Performance and Liquidity
Exela’s financial performance, while impacted by the challenges of the past few years, has shown signs of improvement. In the latest reported quarter (Q3 2024), the company generated revenue of $269.17 million, a 6.3% increase compared to the same period in the previous year. However, the company continued to report a net loss of $24.94 million, reflecting the ongoing need to address operational and strategic priorities.
For the full fiscal year 2023, Exela reported revenue of $1,064.1 million and a net loss of $124.4 million. The company’s operating cash flow (OCF) for 2023 was $3.56 million, while free cash flow (FCF) was negative at -$8.34 million.
In the most recent quarter (Q3 2024), Exela saw improvements in its cash flow metrics, with OCF of $4.71 million and FCF of $4.36 million. This represents a positive trend in the company’s ability to generate cash from its operations.
Despite these near-term financial headwinds, Exela has taken proactive steps to strengthen its liquidity and financial position. As of September 30, 2024, the company had $45.61 million in cash, restricted cash, cash equivalents, and cash included in assets of the disposal group held for sale. Additionally, the company has access to a $150 million securitization facility and a $51 million BRCC revolving credit facility, which provide additional liquidity and flexibility. As of September 30, 2024, $29 million of accounts receivable were pledged as collateral under the securitization facility.
Exela’s debt profile has also been a focus of attention, with the company actively managing its long-term obligations. As of September 30, 2024, the company’s total debt stood at $1.08 billion, with a net debt position of $1.04 billion. The company has been diligently working to refinance and restructure its debt, aiming to optimize its capital structure and reduce interest expenses.
The company’s liquidity position is further reflected in its current ratio of 0.35 and quick ratio of 0.31, indicating potential challenges in meeting short-term obligations. The debt-to-equity ratio stands at -1.21, highlighting the significant leverage in the company’s capital structure.
Segmental Performance and Diversification
Exela operates through three reportable segments: Information Transaction Processing Solutions (ITPS), Healthcare Solutions (HS), and Legal and Loss Prevention Services (LLPS). These segments align with the company’s strategic focus on enabling digital transformation and delivering tailored solutions to various industries.
The ITPS segment, which accounted for 71.3% of total revenue in the latest quarter, provides a wide range of information capture, processing, and distribution services to customers in the financial services, commercial, public sector, and legal industries. For the three months ended September 30, 2024, revenue attributable to the ITPS segment increased by $19.81 million, or 11.5%, compared to the same period in the prior year. This growth was primarily driven by existing contracts and statements of work from certain customers. However, for the nine months ended September 30, 2024, ITPS segment revenue decreased by $25.91 million, or 4.7%, mainly due to exiting contracts and statements of work from certain customers with unpredictable and non-recurring revenue, as well as the impact of the high-speed scanner business sale.
The HS segment, representing 21.8% of revenue, operates and maintains an outsourcing business specializing in both the healthcare provider and payer markets. For the three months ended September 30, 2024, HS segment revenue decreased by $3.31 million, or 5.3%, primarily due to lower volume from existing customers. The nine-month period also saw a slight decline of 1.2% in HS segment revenue.
The LLPS segment, contributing 6.9% of revenue, offers a broad array of support services in connection with class action settlement administration, claims adjudication, labor, employment, and other legal matters. For the three months ended September 30, 2024, LLPS segment revenue decreased by $0.45 million, or 2.4%, due to a decrease in project-based engagements. However, the nine-month period saw a 3.4% increase in LLPS segment revenue, driven by an increase in project-based engagements in legal claims administration services.
Exela’s diversified business model has been a key factor in its resilience, as the company can leverage its expertise across multiple industries and mitigate the impact of fluctuations in any single market or segment.
Geographic Performance
Exela’s operations are primarily located in the United States, with some international presence in EMEA and other regions. Approximately 85% of the company’s revenue is generated in the US, with the remaining 15% coming from EMEA and other international markets. This geographic distribution highlights the company’s strong foothold in the US market while also showcasing its potential for international expansion.
Transformation and Strategic Initiatives
In recent years, Exela has been at the forefront of a transformative journey, focused on enhancing its operational efficiency, driving digital innovation, and aligning its service offerings with the evolving needs of its customers. The company has made significant investments in cloud-based technologies, automation, and AI-powered solutions to streamline its operations and deliver more value to its clients.
One of Exela’s strategic initiatives is the development of its Reaktr.ai brand, which provides a comprehensive suite of cybersecurity, data modernization, and multi-cloud management services enabled by AI. This venture positions the company at the forefront of the rapidly growing cyber, data, and generative AI landscape, addressing the increasing demand for advanced technological solutions.
Additionally, Exela has explored the potential spin-off of its business process automation (BPA) business, which includes the HS and LLPS segments, as well as a portion of the ITPS segment. This move, if executed, would allow the company to sharpen its focus and maximize shareholder value by creating two distinct, publicly traded entities.
In November 2023, Exela completed the merger of its European business with CF Acquisition Corp. VIII, forming a new publicly-traded company called XBP Europe Holdings, Inc. (XBP), which Exela majority owns. This strategic move is expected to enhance the company’s focus on its European operations and create new growth opportunities in the region.
Competitive Landscape and Industry Trends
The business process automation industry is highly competitive, with Exela facing both global and regional players. The company competes on the basis of its technological capabilities, domain expertise, and ability to deliver cost-effective and customized solutions. Key competitors include Accenture, Cognizant, Genpact, and Conduent, among others.
The BPA industry is undergoing a significant transformation, driven by the accelerating adoption of digital technologies, the increasing demand for process optimization and automation, and the growing emphasis on enhancing customer experiences. Exela’s strategic investments in cloud-based platforms, AI, and data analytics position the company to capitalize on these industry trends and strengthen its competitive advantage.
Risks and Challenges
Exela, like any global enterprise, faces a range of risks and challenges that could impact its long-term growth and profitability. These include:
Cybersecurity Threats: As a provider of critical enterprise solutions, Exela is exposed to the risk of cyber attacks and data breaches, which could result in reputational damage and financial consequences.
Regulatory Compliance: Exela operates in highly regulated industries, such as healthcare and finance, and must navigate an evolving regulatory landscape to ensure compliance across its global operations.
Talent Acquisition and Retention: The company’s success is heavily dependent on its ability to attract, develop, and retain top talent in the fields of technology, domain expertise, and process optimization.
Macroeconomic Conditions: Fluctuations in global economic conditions, including changes in consumer spending, can impact Exela’s financial performance and the demand for its services.
Delisting from Nasdaq: On November 6, 2024, Exela was notified by Nasdaq that its common stock and Series B Preferred Stock would be delisted, and trading was suspended on November 8, 2024. The securities began trading on the OTC Pink market under the symbols XELA and XELAP. This delisting could impact the company’s visibility to investors and potentially affect its ability to raise capital in the future.
Exela’s management team is actively addressing these challenges through strategic initiatives, risk management frameworks, and ongoing investments in the company’s technological capabilities and human capital.
Conclusion
Exela Technologies (NASDAQ:XELA) is a forward-thinking global leader in the business process automation industry, leveraging a powerful combination of technology, expertise, and a vast workforce to drive digital transformation for its customers. Despite the challenges faced in recent years, including financial headwinds and the recent delisting from Nasdaq, the company has demonstrated resilience and a commitment to reinventing itself to capitalize on emerging industry trends.
With a diversified business model, strategic initiatives such as the Reaktr.ai brand and the merger of its European business, and a focus on enhancing operational efficiency and financial discipline, Exela is positioning itself to navigate the evolving landscape. The company’s ability to grow revenue in its core ITPS segment, coupled with its efforts to optimize its portfolio and improve cash flow, indicates potential for future growth.
However, Exela must continue to address its financial challenges, including its debt burden and profitability issues, while also adapting to its new status as an OTC-traded company. The success of these efforts, along with the company’s ability to leverage its technological capabilities and global presence, will be crucial in determining Exela’s long-term value proposition for its shareholders and its position in the competitive business process automation market.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.