EXELA TECHNOLOGIES, INC. You should read the following discussion and analysis together with our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q. Among other things, the condensed consolidated financial statements include more detailed information regarding the basis of presentation for the financial data than included in the following discussion. Amounts in thousands ofUnited States dollars.
Forward Looking Statements
Certain statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this quarterly report are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as "may", "should", "would", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential", "seem", "seek", "continue", "future", "will", "expect", "outlook" or other similar words, phrases or expressions. These forward-looking statements include statements regarding our industry, future events, estimated or anticipated future results and benefits, future opportunities forExela , and other statements that are not historical facts. These statements are based on the current expectations ofExela management and are not predictions of actual performance. These statements are subject to a number of risks and uncertainties regardingExela's businesses and actual results may differ materially. The factors that may affect our results include, among others: the impact of political and economic conditions on the demand for our services; the impact of the COVID-19 pandemic; the impact of a data or security breach; the impact of competition or alternatives to our services on our business pricing and other actions by competitors; our ability to address technological development and change in order to keep pace with our industry and the industries of our customers; the impact of terrorism, natural disasters or similar events on our business; the effect of legislative and regulatory actions inthe United States and internationally; the impact of operational failure due to the unavailability or failure of third-party services on which we rely; the effect of intellectual property infringement; and other factors discussed in this quarterly report and our Annual Report under the heading "Risk Factors", and otherwise identified or discussed in this quarterly report. You should consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on such statements, which speak only as of the date of this quarterly report. It is impossible for us to predict new events or circumstances that may arise in the future or how they may affect us. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this quarterly report. We are not including the information provided on any websites that may be referenced herein as part of, or incorporating such information by reference into, this quarterly report. In addition, forward-looking statements provide our expectations, plans or forecasts of future events and views as of the date of this quarterly report. We anticipate that subsequent events and developments may cause our assessments to change. These forward-looking statements should not be relied upon as representing our assessments as of any date subsequent to the date of this quarterly report.
Overview
Exela Technologies, Inc. ("Exela ," the "Company", "we" or "us") is a global business process automation leader leveraging a global footprint and proprietary technology to help turn the complex into the simple through user friendly software platforms and solutions that enable our customers' digital transformation. We have decades of expertise earned from serving more than 4,000 customers worldwide, including many of the world's largest enterprises and over 60% of the Fortune® 100, in many mission critical environments across multiple industries, including banking, healthcare, insurance and manufacturing. Our technology-enabled solutions allow global organizations to address critical challenges resulting from the massive amounts of data obtained and created through their daily operations. Our solutions address the life cycle of transaction processing and enterprise information management, from enabling payment gateways and data exchanges across multiple systems, to matching inputs against contracts and handling exceptions, to ultimately depositing payments and distributing communications. Through cloud-enabled platforms, built on a configurable stack of automation modules, and approximately 17,000 employees operating in 21 countries,Exela rapidly deploys integrated technology and operations as an end-to-end digital journey partner.
We believe our process expertise, information technology capabilities and operational insights enable our customers' organizations to more efficiently and effectively execute transactions, make decisions, drive revenue and
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profitability, and communicate critical information to their employees, customers, partners, and vendors. Our solutions are location agnostic, and we believe the combination of our hybrid hosted solutions and global work force in theAmericas , EMEA andAsia offers a meaningful differentiation in the industries we serve and services we provide.
History
We are a former special purpose acquisition company that completed our initial public offering onJanuary 22, 2015 . InJuly 2017 ,Exela , formerly known asQuinpario Acquisition Corp. 2 ("Quinpario"), completed its acquisition ofSourceHOV Holdings, Inc. ("SourceHOV") andNovitex Holdings, Inc. ("Novitex") pursuant to the business combination agreement datedFebruary 21, 2017 ("Novitex Business Combination"). In conjunction with the completion of theNovitex Business Combination, Quinpario was renamedExela Technologies, Inc. The Novitex Business Combination was accounted for as a reverse merger for whichSourceHOV was determined to be the accounting acquirer. Outstanding shares ofSourceHOV were converted into our Common Stock, presented as a recapitalization, and the net assets of Quinpario were acquired at historical cost, with no goodwill or other intangible assets recorded. The acquisition ofNovitex was treated as a business combination under ASC 805 and was accounted for using the acquisition method. The strategic combination ofSourceHOV andNovitex formedExela , which is one of the largest global providers of information processing solutions based on revenues.
Our Segments
Our three reportable segments are Information & Transaction Processing Solutions
("ITPS"), Healthcare Solutions ("HS"), and Legal & Loss Prevention Services
("LLPS"). These segments are comprised of significant strategic business units
that align our TPS and EIM products and services with how we manage our
business, approach our key markets and interact with our customers based on
their respective industries.
ITPS: Our largest segment, ITPS, provides a wide range of solutions and services
designed to aid businesses in information capture, processing, decisioning and
distribution to customers primarily in the financial services, commercial,
public sector and legal industries. Our major customers include many leading
banks, insurance companies, and utilities, as well as hundreds of federal, state
and government entities. Our ITPS offerings enable companies to increase
availability of working capital, reduce turnaround times for application
processes, increase regulatory compliance and enhance consumer engagement.
HS: HS operates and maintains a consulting and outsourcing business specializing
in both the healthcare provider and payer markets. We serve the top healthcare
insurance payers and hundreds of healthcare providers.
LLPS: Our LLPS segment provides a broad and active array of support services in connection with class action, bankruptcy labor, claims adjudication and employment and other legal matters. Our customer base consists of corporate counsel, government attorneys, and law firms.
Revenues
ITPS revenues are primarily generated from a transaction based pricing model for the various types of volumes processed, licensing and maintenance fees for technology sales, and a mix of fixed management fee and transactional revenue for document logistics and location services. HS revenues are primarily generated from a transaction based pricing model for the various types of volumes processed for healthcare payers and providers. LLPS revenues are primarily based on time and materials pricing as well as through transactional services priced on a per item basis.
People
We draw on the business and technical expertise of our talented and diverse global workforce to provide our customers with high-quality services. Our business leaders bring a strong diversity of experience in our industry and a track record of successful performance and execution.
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As ofMarch 31, 2022 , we had approximately 17,000 employees globally, with 53% located inAmericas and EMEA, and the remainder located primarily inIndia ,the Philippines andChina . Costs associated with our employees represent the most significant expense for our business. We incurred personnel costs of$132.9 million and$139.5 million for the three months endedMarch 31, 2022 and 2021, respectively. The majority of our personnel costs are variable and incurred only while we are providing our services. Key Performance Indicators
We use a variety of operational and financial measures to assess our performance. Among the measures considered by our management are the following:
? Revenue by segment; ? EBITDA; and ? Adjusted EBITDA Revenue by segment We analyze our revenue by comparing actual monthly revenue to internal projections and prior periods across our operating segments in order to assess performance, identify potential areas for improvement, and determine whether our segments are meeting management's expectations.
EBITDA and Adjusted EBITDA
We view EBITDA and Adjusted EBITDA as important indicators of performance of our
consolidated operations. We define EBITDA as net income, plus taxes, interest
expense, and depreciation and amortization. We define Adjusted EBITDA as EBITDA
plus optimization and restructuring charges, including severance and retention
expenses; transaction and integration costs; other non-cash charges, including
non-cash compensation, (gain) or loss from sale or disposal of assets, and
impairment charges; and management fees and expenses. See "-Other Financial
Information (Non-GAAP Financial Measures)" for more information and a
reconciliation of EBITDA and Adjusted EBITDA to net loss, the most directly
comparable financial measure calculated and presented in accordance with GAAP.
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Results of Operations
Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021 :
Three Months Ended March 31,
2022 2021 Change % Change
Revenue:
ITPS $ 205,007 $ 231,875 $ (26,868) (11.59)%
HS 56,596 51,093 5,503 10.77%
LLPS 17,795 17,088 707 4.14%
Total revenue 279,398 300,056 (20,658) (6.88)%
Cost of revenue (exclusive of
depreciation and amortization):
ITPS 163,586 185,502 (21,916) (11.81)%
HS 46,731 35,818 10,913 30.47%
LLPS 13,187 11,267 1,920 17.04%
Total cost of revenues 223,504 232,587 (9,083) (3.91)%
Selling, general and administrative
expenses (exclusive of depreciation
and amortization) 43,040 41,885 1,155 2.76%
Depreciation and amortization 18,212 19,599 (1,387) (7.08)%
Related party expense 1,987 1,707 280 16.40%
Operating profit (loss) (7,345) 4,278 (11,623) (271.69)%
Interest expense, net 39,760 43,131 (3,371) (7.82)%
Debt modification andextinguishment costs (gain), net 884 -
884 100.00%
Sundry expense, net 307 213 94 44.13%
Other expense, net 6,159 152 6,007 3951.97%
Net loss before income taxes (54,455) (39,218) (15,237) 38.85%
Income tax benefit (expense) (2,501) 18 (2,519) (13994.44)%
Net loss $ (56,956) $ (39,200) $ (17,756) 45.30%
Revenue
For the three months ended March 31, 2022 , our revenue on a consolidated basis
decreased by $20.7 million , or 6.9%, to $279.4 million from $300.1 million for
the three months ended March 31, 2021 . We experienced revenue decline in ITPS
segment and revenue growth in HS and LLPS segments. Our ITPS, HS, and LLPS
segments constituted 73.4%, 20.3%, and 6.4% of total revenue, respectively, for
the three months ended March 31, 2022 , compared to 77.3%, 17.0%, and 5.7%,
respectively, for the three months ended March 31, 2021 . The revenue changes by
reporting segment were as follows:
ITPS- For the three months ended March 31, 2022 , revenue attributable to our
ITPS segment decreased by $26.9 million , or 11.6% compared to the same period in
the prior year. The majority of this revenue decline is attributable to exiting
contracts and statements of work from certain customers with revenue that we
believe was unpredictable, non-recurring and were not a strategic fit to
Company's long-term success or unlikely to achieve the Company's long-term
target margins ("transition revenue") in addition to lower transaction volumes
as a result of COVID-19. ITPS segment revenue was also impacted adversely by
$3.7 million attributable to the depreciation of the Euro and U.K. pound
sterling against the U.S. dollar during the three months ended March 31, 2022 ,
compared to the three months ended March 31, 2021
HS- For the three months ended March 31, 2022 , revenue attributable to our HS
segment increased by $5.5 million , or 10.8% compared to the same period in the
prior year primarily due to higher volumes from our new and existing healthcare
customers.
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LLPS- For the three months ended March 31, 2022 , revenue attributable to our
LLPS segment increased by $0.7 million , or 4.1% compared to the same period in
the prior year primarily due to an increase in project based engagements in
legal claims administration services.
Cost of Revenue
For the three months endedMarch 31, 2022 , our cost of revenue decreased by$9.1 million , or 3.9%, compared to the three months endedMarch 31, 2021 . Costs in our ITPS segment decreased by$21.9 million , or 11.8%, primarily attributable to the corresponding decline in revenues. HS segment costs increased by$10.9 million , or 30.5% primarily due to increases in employee-related cost on account of higher headcount (bench costs) to meet our customer forecasts. LLPS segment cost of revenue increased by$1.9 million , or 17.0%. The decrease in cost of revenues on a consolidated basis was primarily due to a decrease in employee-related costs of$7.8 million , lower infrastructure and maintenance costs of$1.6 million and lower pass through costs of$1.9 milling and higher other operating costs of$2.2 million . The lower costs were attributable to improved cost and capacity management and corresponding lower revenue during the three months endedMarch 31, 2022 .
Cost of revenue for the three months ended
Selling, General and Administrative Expenses
SG&A expenses increased$1.2 million , or 2.8%, to$43.0 million for the three months endedMarch 31, 2022 , compared to$41.9 million for the three months endedMarch 31, 2021 . The increase was primarily attributable to higher employee related costs by$1.6 million , higher travel costs of$0.7 million , higher infrastructure, maintenance and operating costs of$0.3 million , offset by lower legal and professional fees of$1.4 million . SG&A expenses increased as a percentage of revenues to 15.4% for the three months endedMarch 31, 2022 as compared to 14.0% for the three months endedMarch 31, 2021 .
Depreciation & Amortization
Total depreciation and amortization expense was$18.2 million and$19.6 million for the three months endedMarch 31, 2022 and 2021, respectively. The decrease in total depreciation and amortization expense by$1.4 million was primarily due to a reduction in depreciation expense as a result of the expiration of the lives of assets acquired in prior periods and decrease in intangibles amortization expense due to end of useful lives for certain intangible assets during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . Related Party Expenses
Related party expense was
Interest Expense
Interest expense was
Debt modification and extinguishment costs (gain), net
The Company recorded a debt extinguishment cost of$0.2 million in connection with partial prepayment of$50.0 million in cash on$100.0 million senior secured revolving facility maturingJuly 12, 2022 during the three months endedMarch 31, 2022 . Apart from this,$0.7 million of exit fee paid on the partial prepayment of BRCC Term Loan was treated as a debt extinguishment cost. 38 Table of Contents Sundry Expense, net
The increase in expense by less than
Other Expense, net
Other expense, net was$6.2 million for the three months endedMarch 31, 2022 compared to other expense, net of 0.2 million for the three months endedMarch 31, 2021 . We remeasured our true-up guarantee obligation under the Revolver Exchange as ofMarch 31, 2022 and accrued an additional$6.2 million of true-up liability based on the market price for the 2026 Notes in Other expense, net.
Income Tax Expense (Benefit)
The Company recorded income tax expense of$2.5 million for the three months endedMarch 31, 2022 and an income tax benefit of less than$0.1 million for the three months endedMarch 31, 2021 . The tax expense for the three months endedMarch 31, 2022 is higher than the three months endedMarch 31, 2021 largely due to year-over-year increase in profitability in non-US jurisdictions.
Other Financial Information (Non-GAAP Financial Measures)
We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income, plus taxes, interest expense, and depreciation and amortization. We define Adjusted EBITDA as EBITDA plus optimization and restructuring charges, including severance and retention expenses; transaction and integration costs; other non-cash charges, including non-cash compensation, (gain) or loss from sale or disposal of assets, and impairment charges; and management fees and expenses. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP. Additionally, our credit agreement requires us to comply with certain EBITDA related metrics.
Note Regarding Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA are not financial measures presented in accordance
with GAAP. We believe that the presentation of these non GAAP financial measures
will provide useful information to investors in assessing our financial
performance and results of operations as our board of directors and management
use EBITDA and Adjusted EBITDA to assess our financial performance, because it
allows them to compare our operating performance on a consistent basis across
periods by removing the effects of our capital structure (such as varying levels
of interest expense), asset base (such as depreciation and amortization) and
items outside the control of our management team. Net loss is the GAAP measure
most directly comparable to EBITDA and Adjusted EBITDA. Our non GAAP financial
measures should not be considered as alternatives to the most directly
comparable GAAP financial measure. Each of these non GAAP financial measures has
important limitations as analytical tools because they exclude some but not all
items that affect the most directly comparable GAAP financial measures. These
non GAAP financial measures are not required to be uniformly applied, are not
audited and should not be considered in isolation or as substitutes for results
prepared in accordance with GAAP. Because EBITDA and Adjusted EBITDA may be
defined differently by other companies in our industry, our definitions of these
non GAAP financial measures may not be comparable to similarly titled measures
of other companies, thereby diminishing their utility.
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Three months Ended
The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net loss, the most directly comparable GAAP measure, for the three months endedMarch 31, 2022 and 2021. Three Months Ended March 31, 2022 2021 Net Loss$ (56,956) $ (39,200) Taxes 2,501 (18) Interest expense 39,760 43,131 Depreciation and amortization 18,212 19,599 EBITDA 3,517 23,512 Optimization and restructuring expenses (1) 6,837 5,367 Transaction and integration costs (2) 3,704 4,648 Non-cash equity compensation (3) 317 387 Other charges including non-cash (4) 13,233 12,027 Loss/(Gain) on sale of assets (5) (115) (302) Debt modification and extinguishment costs (gain), net 884 - Loss/(Gain) on derivative instruments (6)
- (125) Contract costs (7) 7,751 952 Adjusted EBITDA$ 36,128 $ 46,466
Adjustment represents net salary and benefits associated with positions,
current vendor expenses and existing lease contracts that are part of the
1. on-going savings and productivity improvement initiatives in process
transformation, customer transformation and post-merger or acquisition
integration.
2. Represents costs incurred related to transactions for completed or
contemplated transactions during the period.
3. Represents the non-cash charges related to restricted stock units and options
that vested during the year under the 2018 Stock Incentive Plan.
Represents fair value adjustments to deferred revenue and deferred rent
4. accounts established as part of purchase accounting and other non-cash
charges. Other charges include severance, retention bonus, facility
consolidation and other transition costs.
5. Represents a loss/(gain) recognized on the disposal of property, plant, and
equipment and other assets.
6. Represents the impact of changes in the fair value of an interest rate swap
entered into during the fourth quarter of 2017.
7. Represents costs incurred on new projects, contract start-up costs and project
ramp costs.
Liquidity and Capital Resources
Overview
Under ASC Subtopic 205-40, Presentation of Financial Statements-Going Concern
("ASC 205-40"), the Company has the responsibility to evaluate whether
conditions and/or events raise substantial doubt about its ability to meet its
future financial obligations as they become due within one year after the date
that the financial statements are issued. The following conditions raised
substantial doubt about our ability to continue as a going concern: a history of
net losses, net operating cash outflows, working capital deficits and
significant cash payments for interest on our long-term debt. The Company has
undertaken and completed several plans and actions to improve our available cash
balances, liquidity or cash generated from operations, over the twelve month
period from the date these financial statements are issued. Going concern
matters are more fully discussed in Note 1, General.
At March 31, 2022 , cash and cash equivalents totaled $82.0 million including
restricted cash of $ 43.7 million and we had an approved borrowing capacity of a
maximum of $51.0 million under our BRCC Revolver which, the Company anticipates,
will become fully available in the course of 2022, of which $10.0 million is
currently available to the Company.
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We currently expect to spend approximately
As ofMarch 31, 2022 and in comparison toDecember 31, 2021 , the Company has reduced debt by$35.7 million including liabilities under Appraisal Action. With an objective to increase free cash flows and in order to maintain sufficient liquidity to support profitable growth, the Company is pursuing further reduction in debt and repricing of existing debt. The Company will continue to pursue the sale of certain non-core businesses that are not central to the Company's long-term strategic vision and invest in acquisition of businesses that enhance the value proposition. There can be no assurances that any of these initiatives will be consummated or will achieve its desired result. OnMarch 26, 2020 , theDelaware Court of Chancery entered a judgment against one of our subsidiaries in the amount of$57.7 million inclusive of costs and interest arising out of the petition for appraisal pursuant to 8 Del. C. § 262 in theDelaware Court of Chancery , captionedManichaean Capital, LLC , et al. v.SourceHOV Holdings, Inc. , C.A. No. 2017 0673 JRS (pursuant to which former stockholders ofSourceHOV sought, among other things, a determination of the fair value of their 10,304SourceHOV shares at the time of the Novitex Business Combination) (the "Appraisal Action"). OnDecember 31, 2021 , we agreed to settle the Appraisal Action along with a separate case brought by the same plaintiffs for$63.4 million . Accordingly as ofDecember 31, 2021 , the Company accrued a liability of$63.4 million for these matters, all of which is expected to be paid during the first half of 2022 ($40.0 million having already been paid as ofMarch 31, 2022 ). OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company has implemented favorable provisions of the CARES Act, including the refundable payroll tax credits and the deferment of employer social security payments. At the end of 2021, the Company paid a portion of the deferred employer social security due as perIRS guidance. The remaining balance of deferred employer social security taxes will be paid by the end of fiscal 2022. The Company has utilized recently enacted COVID-19 relief measures in various European jurisdictions, including permitted deferrals of certain payroll, social security and value added taxes. At the end of 2021, the Company paid a portion of these deferred payroll taxes, social security and value added taxes. The remaining balance of deferred payroll taxes, social security and value added taxes will be paid by the end of fiscal 2022 as per deferment timeline. OnDecember 17, 2020 , certain subsidiaries of the Company entered into a$145.0 million securitization facility with a five year term (the "Securitization Facility"). OnDecember 17, 2020 the Company made the initial borrowing of approximately$92.0 million under the Securitization Facility and used a portion of the proceeds to repay previous securitization facility, which terminated on such date. The Company used the remaining proceeds for general corporate purposes. OnMarch 15, 2021 , the Company, entered into a securities purchase agreement with certain accredited institutional investors pursuant to which the Company issued and sold to ten accredited institutional investors in a private placement an aggregate of 9,731,819 unregistered shares of the Company's Common Stock at a price of$2.75 per share and an equal number of warrants, generating gross proceeds to the Company of$26.8 million .Cantor Fitzgerald acted as underwriter in connection with such sale of unregistered securities and received a placement fee of 5.5% of gross proceeds in connection with such service. In selling the shares without registration, the Company relied on exemptions from registration available under Section 4(a)(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. Each private placement warrant entitles the holder to purchase one share of Common Stock, will be exercisable at an exercise price of$4.00 per share beginning onSeptember 19, 2021 and will expire onSeptember 19, 2026 . OnMay 27, 2021 , the Company entered into an At Market Issuance Sales Agreement ("First ATM Agreement") withB. Riley Securities, Inc. ("B. Riley") andCantor Fitzgerald & Co. ("Cantor"), as distribution agents under which the Company may offer and sell shares of the Company's Common Stock from time to time through the 41 Table of Contents Distribution Agents, acting as sales agent or principal. OnSeptember 30, 2021 , the Company entered into a second At Market Issuance Sales Agreement withB. Riley ,BNP Paribas Securities Corp. , Cantor,Mizuho Securities USA LLC andNeedham & Company, LLC , as distribution agents (together with the First ATM Agreement, the "ATM Agreement"). Sales of the shares of Common Stock under the ATM Agreement, will be in "at the market offerings" as defined in Rule 415 under the Securities Act, including, without limitation, sales made directly on or through the Nasdaq or on any other existing trading market for the Common Stock, as applicable, or to or through a market maker or any other method permitted by law, including, without limitation, negotiated transactions and block trades. Shares of Common Stock sold under the ATM Agreement are offered pursuant to the Company's Registration Statement on Form S-3 (File No. 333-255707), filed with theSEC onMay 3, 2021 , and declared effective onMay 12, 2021 (the "2021 Registration Statement"), and the prospectus datedMay 12, 2021 included in the 2021 Registration Statement and the related prospectus supplements for sales of shares of Common Stock
as
follows:
Weighted
Average
Number of Price Per Gross Net
Supplement Period Shares Sold Share Proceeds Proceeds
Prospectus supplement dated
million million
aggregate offering price ofJuly 1, 2021 up to$100.0 million ("Common ATM Program-1") Prospectus supplement dated June 30, 2021 57,580,463$2.603 $149.9 $144.4 June 30, 2021 with an and through million
million
aggregate offering price ofSeptember 2 , up to$150.0 million 2021 ("Common ATM Program-2") Prospectus supplement dated October 6, 334,875,948$0.747 $250.0 $241.0 September 30, 2021 with an 2021 through million
million
aggregate offering price ofMarch 31 , up to$250.0 million 2022 ("Common ATM Program-3") Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months
Ended
2022 2021 Change
Net cash used in operating activities $ (44,045) $ (63,925) $ 19,880
Net cash used in investing activities (8,407) (2,281) (6,126)
Net cash provided by financing activities 86,417 19,736 66,681
Subtotal 33,965 (46,470) 80,435
Effect of exchange rates on cash (50) (101) 51
Net increase (decrease) in cash and cash equivalents 33,915 (46,571) 80,486
Analysis of Cash Flow Changes between the three months ended
Operating Activities-The decrease of$19.9 million in net cash used in operating activities for the three months endedMarch 31, 2022 was primarily due to lower cash outflows from accounts receivable and cash inflow from accounts payable and accrued liabilities. This cash inflow is despite$40.0 million payment for the Appraisal Action made during the three months endedMarch 31, 2022 . This decrease in cash used in operating activities was partially offset by lower cash provided by operating profits. The operating profits decreased by$13.0 million excluding depreciation and amortization, primarily due to lower revenue and employees-related investments on account of higher headcount (bench costs) to meet our customer forecasts. Investing Activities-The increase of$6.1 million in net cash used in investing activities for the three months endedMarch 31, 2022 was primarily due to higher additions to property, plant and equipment, patents and development 42
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of internal software in 2022 offset by cash proceeds received from asset sales.
Property additions were primarily related to a purchase of the Company's
European headquarters in
Financing Activities- Cash provided by financing activities during the three months endedMarch 31, 2022 was$86.4 million , primarily as a result of$114.5 million of net proceeds from equity offerings offset by repayments of our senior secured revolving facility and BRCC Facility of$72.1 million . Cash provided by financing activities during the three months endedMarch 31, 2021 was$19.7 million , primarily as a result of$25.0 million of net proceeds from private placement of equity and$3.0 million borrowings from senior secured revolving facility offset by a net total of$9.1 million from other debt, repayments of our term loan, debt issuance costs and lease obligation payments.
Indebtedness
In connection with the Novitex Business Combination, we acquired debt facilities and issued notes totaling$1.4 billion . Proceeds from the indebtedness were used to pay off credit facilities existing immediately before the Novitex Business Combination. Senior Credit Facilities OnJuly 12, 2017 , subsidiaries of the Company entered into a FirstLien Credit Agreement with Royal Bank of Canada, Credit Suisse AG,Cayman Islands Branch, Natixis,New York Branch and KKR Corporate Lending LLC (the "Credit Agreement") providingExela Intermediate LLC , a wholly owned subsidiary of the Company, upon the terms and subject to the conditions set forth in the Credit Agreement, (i) a$350.0 million senior secured term loan maturingJuly 12, 2023 with an original issue discount of$7.0 million , and (ii) a$100.0 million senior secured revolving facility maturingJuly 12, 2022 (the "Revolving Credit Facility"). OnJuly 13, 2018 , we were able to refinance the$343.4 million of term loans then outstanding under the Credit Agreement (the "Repricing Term Loans") and borrowed an additional$30.0 million pursuant to incremental term loans (the "2018 Incremental Term Loans"). The proceeds of the 2018 Incremental Term Loans were used by the Company for general corporate purposes and to pay related fees and expenses. OnApril 16, 2019 , subsidiaries of the Company borrowed a further$30.0 million pursuant to incremental term loans (the "2019 Incremental Term Loans", and, together with the 2018 Incremental Terms Loans and Repricing Term Loans, the "Term Loans"). The proceeds of the 2019 Incremental Term Loans were used to replace cash spent for acquisitions, pay related fees, expenses and related borrowings for general corporate purposes. The Term Loans bear interest at a rate per annum of, at the borrower's option, either (a) a LIBOR rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a 1.0% floor, or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.5%, (ii) the prime rate and (iii) the one-month adjusted LIBOR plus 1.0%, in each case plus an applicable margin of 6.5% for LIBOR loans and 5.5% for base rate loans. The Term Loans will mature onJuly 12, 2023 . As ofMarch 31, 2022 , the interest rate applicable for the first lien senior secured term loan was 7.5%.
The Term Loans are jointly and severally, irrevocably and unconditionally
guaranteed by the nearly all of Company's
The borrower may voluntarily repay the Term Loans at any time, without prepayment premium or penalty, subject to customary "breakage" costs with respect to LIBOR rate loans. Other than as described above, the terms, conditions and covenants applicable to the Incremental Term Loans are consistent with the terms, conditions and covenants that were applicable to the Repricing Term Loans under the Credit Agreement. OnMay 18, 2020 , we amended the Credit Agreement to, among other things, extend the time for delivery of its audited financial statements for the year endedDecember 31, 2019 and its financial statements for the quarter ended 43
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March 31, 2020 . Pursuant to the amendment, we also agreed to amend the Credit Agreement to, among other things: restrict the borrower and its subsidiaries' ability to designate or invest in unrestricted subsidiaries; incur certain debt; create certain liens; make certain investments; pay certain dividends or other distributions on account of its equity interests; make certain asset sales or other dispositions (or utilize the proceeds of certain asset sales to reinvest in the business); or enter into certain affiliate transactions pursuant to the negative covenants under the Credit Agreement. In addition, pursuant to the amendment, the borrower under the Credit Agreement was required to maintain minimum Liquidity (as defined in the amendment) of$35.0 million . OnDecember 9, 2021 , in a separate transaction referred to as "Private Exchange" (outside of the Public Exchange as discussed below), subsidiaries of the Company agreed with three (3) of their Term Loan lenders to exchange$212.1 million of Term Loans under the Credit Agreement for$84.3 million in cash and in$127.8 million principal amount of new 11.500% First-Priority Senior Secured Notes due 2026 (the "2026 Notes"). In connection with the Private Exchange transaction, the exchanging lenders provided consents to amend the Credit Agreement to (i) eliminate all affirmative covenants, (ii) eliminate all negative covenants and (iii) eliminate certain events of default (other than events of default relating to payment obligations).
As a result of the Private Exchange, repurchases (as discussed below) and
periodic principal repayments,
Revolving Credit Facility; Letters of Credit
As ofDecember 31, 2021 , our$100 million Revolving Credit Facility was fully drawn taking into account letters of credit issued thereunder. As ofDecember 31, 2021 , there were outstanding irrevocable letters of credit totaling approximately$0.5 million under the Revolving Credit Facility. OnMarch 7, 2022 , subsidiaries of the Company entered into a Revolving Loan Exchange and Prepayment Agreement with Royal Bank of Canada, Credit Suisse AG,Cayman Islands Branch,KKR Corporate Lending LLC ,Granite State Capital Master Fund LP ,Credit Suisse Loan Funding LLC andRevolvercap Partners Fund LP exchanging$100.0 million of outstanding Revolving Credit Facility owed byExela Intermediate LLC , upon the terms and subject to the conditions set forth in the Revolver Exchange agreement, for (i)$50.0 million in cash, and (ii)$50.0 million of 2026 Notes (such exchange, the "Revolver Exchange" and such 2026 Notes, the "Exchange Notes"). The Exchange Notes are subject to a guarantee in the form of a true-up mechanism whereby the Company is responsible to make a payment to the holders of the Exchange Notes to true-up the shortfall below certain agreed thresholds if holders of the Exchange Notes sell their notes at a price below that threshold during agreed periods in 2022. The amounts payable under the true-up mechanism will be settled in cash payments to the holder of the Exchange Notes.
Senior Secured 2023 Notes
Upon the closing of the Novitex Business Combination onJuly 12, 2017 , subsidiaries of the Company issued$1.0 billion in aggregate principal amount of 10.0% First Priority Senior Secured Notes due 2023 (the "2023 Notes"). The 2023 Notes bear interest at a rate of 10.0% per year. We pay interest on the 2023 Notes onJanuary 15 andJuly 15 of each year, commencing onJanuary 15, 2018 . The 2023 Notes are jointly and severally, irrevocably and unconditionally guaranteed by the nearly all of Company'sU.S. subsidiaries, on a senior basis, as a primary obligors and not merely as a sureties. The 2023 Notes will mature onJuly 15, 2023 . OnOctober 27, 2021 , we launched an offer to exchange (the "Public Exchange") up to$225.0 million in cash and new 11.500% First-Priority Senior Secured Notes due 2026 (the "2026 Notes") issued by subsidiaries of the Company's for the outstanding 2023 Notes. The Public Exchange was for$900 in cash per$1,000 principal amount of 2023 Notes tendered subject to proration. The maximum amount of cash to be paid was$225.0 million and the offer was not subject to any minimum participation condition. In case of oversubscription to the cash offer, tendered 2023 Notes would be accepted for cash on a pro rata basis (as a single class). The balance of any tendered 2023 Notes not accepted for cash would be exchanged into 2026 Notes on the basis of$1,000 principal amount of new 2026 Notes for each$1,000 principal amount of outstanding 2023 Notes tendered. 44
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As of the expiration time of the Public Exchange,$912,660,000 aggregate principal amount, or approximately 91.3%, of the 2023 Notes were validly tendered pursuant to the Public Exchange. OnDecember 9, 2021 , upon the settlement of the Public Exchange,$662,660,000 aggregate principal amount of the 2026 Notes were issued and an aggregate$225.0 million in cash (plus accrued but unpaid interest) was paid to participating holders in respect of the validly tendered 2023 Notes. As a result of the Public Exchange and repurchases (as discussed below),$22.8 million aggregate principal amount of the 2023 Notes remains outstanding as ofMarch 31, 2022 . In conjunction with the Public Exchange, we also solicited consents to amend certain provisions in the indenture governing the 2023 Notes ("Notes Amendments"). OnDecember 1, 2021 , on receipt of the requisite consents to the Notes Amendments, the Company, andWilmington Trust, National Association , as trustee (the "2023 Notes Trustee"), entered into a third supplemental indenture (the "Third Supplemental Indenture") to the indenture, dated as ofJuly 12, 2017 (as amended and supplemented by (i) the first supplemental indenture, dated as ofJuly 12, 2017 and (ii) the second supplemental indenture, dated as ofMay 20, 2020 , the "2023 Notes Indenture") governing the outstanding 2023 Notes. The Third Supplemental Indenture amends the 2023 Notes Indenture and the 2023 Notes to eliminate substantially all of the restrictive covenants, eliminate certain events of default, modify covenants regarding mergers and consolidations and modify or eliminate certain other provisions, including certain provisions relating to future guarantors and defeasance, contained in the 2023 Notes Indenture and the 2023 Notes. In addition, all of the collateral securing the 2023 Notes was released pursuant to the Third Supplemental Indenture.
Senior Secured 2026 Notes
As of
During the three months endedMarch 31, 2022 , subsidiaries of the Company sold$81.5 million in aggregate of principal amount of the 2026 Notes generating net proceeds of$49.8 million . OnMarch 18, 2022 , the subsidiaries of the Company issued$50.0 million of the 2026 Notes to satisfy the exchange obligation under the Revolver Exchange. The 2026 Notes are guaranteed by certain subsidiaries of the Company. The 2026 Notes bear interest at a rate of 11.5% per year. We will pay interest on the 2026 Notes onJanuary 15 andJuly 15 of each year, commencing onJuly 15, 2022 . The 2026 Notes will mature onJuly 12, 2026 . On or afterDecember 1, 2022 , we may redeem the 2026 Notes in whole or in part from time to time, at a redemption price of 100%, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, prior toDecember 1, 2022 , we may redeem the 2026 Notes in whole or in part from time to time, at a redemption price equal to 100% of the principal amount of the 2026 Notes redeemed, plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. "Applicable Premium" means, with respect to any 2026 Note on any applicable redemption date, as determined by us, the greater of: (1) 1% of the then outstanding principal amount of the 2026 Note; and (2) the excess of: (a) the present value at such redemption date of (i) the redemption price of the 2026 Note, atDecember 1, 2022 plus (ii) all required interest payments due on the 2026 Note throughDecember 1, 2022 (excluding accrued but unpaid interest), computed using a discount rate equal to the treasury rate as of such redemption date plus 50 basis points; over (b) the then outstanding principal amount of the 2026 Note. Repurchases InJuly 2021 we commenced a debt buyback program to repurchase 2023 Notes and senior secured term loans under the Credit Agreement, which remains in place. During the year endedDecember 31, 2021 , we repurchased$64.5 million of the outstanding principal amount of our 2023 Notes for a net cash consideration of$48.4 million . During the year endedDecember 31, 2021 , we also repurchased$40.0 million of outstanding principal amount of Term Loans under the Credit Agreement for a net cash consideration of$22.8 million . These repurchases
resulted in an early
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extinguishment of the repurchased 2023 Notes and senior secured term loans. The Company did not repurchase any senior secured term loans and 2023 Notes during the three months endedMarch 31, 2022 .
BRCC Facility
OnNovember 17, 2021 ,GP2 XCV, LLC , a subsidiary of the Company ("GP2 XCV"), entered into a borrowing facility withB. Riley Commercial Capital, LLC pursuant to which the Company was able to borrow an original principal amount of$75.0 million , which was later increased to$115.0 million as ofDecember 7, 2021 (as the same may be amended from time to time, the "BRCC Term Loan"). OnMarch 31, 2022 , GP2 XCV entered into an amendment to the borrowing facility withB. Riley Commercial Capital, LLC pursuant to which the Company will be able to borrow up to$51.0 million under a separate revolving loan (the "BRCC Revolver", collectively with BRCC Term Loan, the "BRCC Facility"). There was$10.0 million of availability under this revolving facility as ofMarch 31, 2021 . The BRCC Facility is secured by a lien on all the assets of GP2 XCV and by a pledge of the equity of GP2 XCV. GP2 XCV is a bankruptcy-remote entity and as such its assets are not available to other creditors of the Company or any of its subsidiaries other than GP2 XCV. The BRCC Facility will mature onJune 10, 2023 . However, the BRCC Revolver is subject to certain automatic maturity extensions of six months, unlessB. Riley Commercial Capital, LLC or the Company notifies the other party about its election not to extend. In such event, the outstanding principal amount of the BRCC Revolver as of the maturity shall be due and payable in 12 equal installments on the last business day of each calendar month thereafter. Interest under the BRCC Facility accrues at a rate of 11.5% per annum and is payable quarterly on the last business day of each March, June, September and December. The purpose of BRCC Term Loan was to fund certain repurchases of Term Loan under the Credit Agreement and to provide funding for the Public Exchange transaction and Private Exchange transaction described above. The purpose of BRCC Revolver is to fund general corporate purposes.
During the three months ended
Securitization Facility
OnDecember 17, 2020 , certain subsidiaries of Company closed on Securitization Facility with a five year term. The Securitization Facility provided for an initial funding of approximately$92.0 million supported by the receivables portion of the borrowing base and, subject to contribution, a further funding of approximately$53.0 million supported by inventory and intellectual property. OnDecember 17, 2020 we made the initial borrowing of approximately$92.0 million under the Securitization Facility and used a portion of the proceeds to repay$83.0 million of the aggregate outstanding principal amount of loans as ofDecember 17, 2020 under a previous$160.0 million accounts receivable securitization facility ("A/R Facility") and used the remaining proceeds for general corporate purposes. The initial documentation for the Securitization Facility includes (i) a Loan and Security Agreement (the "Securitization Loan Agreement"), dated as ofDecember 10, 2020 , by and among Exela Receivables 3, LLC (the "Securitization Borrower"), a wholly-owned indirect subsidiary of the Company, the lenders (each, a "Securitization Lender" and collectively the "Securitization Lenders"),Alter Domus (US), LLC , as administrative agent (the "Securitization Administrative Agent") and the Company, as initial servicer, pursuant to which the Securitization Lenders will make loans to the Securitization Borrower to be used to purchase receivables and related assets from the Securitization Parent SPE (as defined below), (ii) a First Tier Receivables Purchase and Sale Agreement (the, dated as ofDecember 17, 2020 , by and among Exela Receivables 3Holdco, LLC (the "Securitization Parent SPE"), a wholly-owned indirect subsidiary of the Company, and certain other indirect, wholly-owned subsidiaries of the Company listed therein (collectively, the "Securitization Originators"), and the Company, as initial servicer, pursuant to which each Securitization Originator has sold or contributed and will sell or contribute to the Securitization Parent SPE certain receivables and related assets in consideration for a combination of cash and equity in the Securitization Parent SPE, (iii) a Second Tier Receivables Purchase and Sale Agreement, dated as ofDecember 17, 2020 , by and among, the Securitization Borrower, the Securitization Parent SPE and the Company, as initial servicer, pursuant to which Securitization Parent SPE has sold or contributed and will sell or contribute to the Securitization Borrower certain 46
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receivables and related assets in consideration for a combination of cash and equity in the Securitization Borrower, (iv) the Sub-Servicing Agreement, dated as ofDecember 17, 2020 , by and among the Company and each Securitization Originator, (v) the Pledge and Guaranty, dated as of theDecember 10, 2020 , between the Securitization Parent SPE and the Administrative Agent, and (vi) the Performance Guaranty, dated as ofDecember 17, 2020 , between the Company, as performance guarantor, and the Securitization Administrative Agent (and together with all other certificates, instruments, UCC financing statements, reports, notices, agreements and documents executed or delivered in connection with the Securitization Loan Agreement, the "Securitization Agreements"). OnApril 11, 2021 , the Company amended the Securitization Loan Agreement and agreed to, among other things, extend the option to contribute inventory and intellectual property to the borrowing base fromApril 10, 2021 toSeptember 30, 2021 (which did not occur). The Securitization Borrower, the Company, the Securitization Parent SPE and the Securitization Originators provide customary representations and covenants under the Securitization Agreements. The Securitization Loan Agreement provides for certain events of default upon the occurrence of which the Securitization Administrative Agent may declare the facility's termination date to have occurred and declare the outstanding Securitization Loan and all other obligations of the Securitization Borrower to be immediately due and payable, however the Securitization Facility does not include an ongoing liquidity covenant like the A/R Facility and aligns reporting obligations with the Company's other material indebtedness agreements. The Securitization Borrower and Securitization Parent SPE were formed inDecember 2020 , and are consolidated into the Company's financial statements. The Securitization Borrower and Securitization Parent SPE are bankruptcy remote entities and as such their assets are not available to creditors of the Company or any of its subsidiaries. Each loan under the Securitization Facility bears interest on the unpaid principal amount as follows: (i) if a Base Rate Loan, at a rate per annum equal to (x) the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 0.50% and (c) the Adjusted LIBOR Rate (as defined in the Securitization Loan Agreement) plus 1.00%, plus (y) 8.75%; or (ii) if a LIBOR Rate Loan, at the Adjusted LIBOR Rate plus 9.75%. As ofMarch 31, 2022 , there were borrowings of$91.9 million outstanding under the Securitization Facility.
Potential Future Transactions
We may, from time to time explore and evaluate possible strategic transactions, which may include joint ventures, as well as business combinations or the acquisition or disposition of assets. In order to pursue certain of these opportunities, additional funds will likely be required. Subject to applicable contractual restrictions, to obtain such financing, we may seek to use cash on hand, borrowings under our revolving credit facilities, or we may seek to raise additional debt or equity financing through private placements or through underwritten offerings. There can be no assurance that we will enter into additional strategic transactions or alliances, nor do we know if we will be able to obtain the necessary financing for transactions that require additional funds on favorable terms, if at all. In addition, pursuant to the Registration Rights Agreement that we entered into in connection with the closing of the Novitex Business Combination, certain of our stockholders have the right to demand underwritten offerings of our Common Stock. We may from time to time in the future explore, with certain of those stockholders the possibility of an underwritten public offering of our Common Stock held by those stockholders. There can be no assurance as to whether or when an offering may be commenced or completed, or as to the actual size or terms of the offering.
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