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.
Restatement
As described in additional detail in the Explanatory Note to its 2021 Form 10-KA, the Company restated its audited consolidated financial statements in the 2021 Form 10-K for the year endedDecember 31, 2021 . Previously filed quarterly reports on Form 10-Q for the first two fiscal quarters in the fiscal year endedDecember 31, 2022 have not been amended for the restated consolidated balance sheet as ofDecember 31, 2021 as affected by the restatement. See Note 21, Restatement of Previously Issued Financial Statements, of the Notes to the consolidated financial statements in the 2021 Form 10-KA for the impact of the restatement. These condensed consolidated financial statements include restated consolidated balance sheet as ofDecember 31, 2021 .
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 the 2022 network outage, cyber incidents such as 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 on Form 10-K for the fiscal year endedDecember 31, 2021 endingDecember 31, 2021 (as amended, the "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
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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 16,500 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 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 an 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 ("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. OnJuly 25, 2022 , we effected a one-for-twenty reverse split of our issued and outstanding shares of our Common Stock. At the effective time of the reverse split, every twenty (20) shares of Common Stock issued and outstanding were automatically combined into one (1) share of issued and outstanding Common Stock, without any change in the par value per share. Our Common Stock began trading on The Nasdaq Capital Market on a Reverse Stock Split-adjusted basis onJuly 26, 2022 . There was no change in our ticker symbol as a result of the Reverse Stock Split. All information related to Common Stock, stock options, restricted stock units, warrants and earnings per share have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.
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 transaction processing and enterprise information management
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 local 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.
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HS: HS operates and maintains an 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, 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.
As ofSeptember 30, 2022 , we had approximately 16,500 employees globally, with 54% located in theAmericas 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$136.0 million and$130.4 million for the three months endedSeptember 30, 2022 and 2021, respectively. We incurred personnel costs of$405.5 million and$395.7 million for the nine months endedSeptember 30, 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
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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.
Results of Operations
Three Months EndedSeptember 30, 2022 Compared to Three Months EndedSeptember 30, 2021 : Three Months Ended September 30, 2022 2021 Change % Change Revenue: ITPS $ 185,309 $ 208,304$ (22,995) (11.04)% HS 60,955 53,995 6,960 12.89% LLPS 17,774 16,930 844 4.99% Total revenue 264,038 279,229 (15,191) (5.44)% Cost of revenue (exclusive of depreciation and amortization): ITPS 157,269 157,721 (452) (0.29)% HS 48,316 41,945 6,371 15.19% LLPS 12,257 12,065 192 1.59% Total cost of revenues 217,842 211,731 6,111 2.89% Selling, general and administrative expenses (exclusive of depreciation and amortization) 44,369 43,244 1,125 2.60% Depreciation and amortization 17,737 19,094 (1,357) (7.11)% Impairment of goodwill and other intangible assets 29,565 - 29,565 100.00% Related party expense 2,016 2,744 (728) (26.53)% Operating profit (loss) (47,491) 2,416 (49,907) (2065.69)% Interest expense, net 40,897 41,757 (860) (2.06)% Debt modification and extinguishment costs (gain), net (4,696) (28,070) 23,374 (83.27)% Sundry expense, net 781 136 645 474.26% Other expense (income), net (1,115) 366 (1,481) (404.64)% Net loss before income taxes (83,358) (11,773) (71,585) 608.04% Income tax expense (1,924) (1,441) (483) 33.52% Net loss$ (85,282) $ (13,214) $ (72,068) 545.39% Revenue For the three months endedSeptember 30, 2022 , our revenue on a consolidated basis decreased by$15.2 million , or 5.4%, to$264.0 million as compared to$279.2 million for the three months endedSeptember 30, 2021 . We experienced revenue decline in our ITPS segment of$23.0 million and revenue increases in our HS and LLPS segments of$7.0 million and$0.8 million respectively. Our ITPS, HS, and LLPS segments constituted 70.2%, 23.1%, and 6.7% of total revenue, respectively, compared to 74.6%, 19.3%, and 6.1% for the three months endedSeptember 30, 2021 . The revenue changes by reporting segment were as follows: ITPS- For the three months endedSeptember 30, 2022 , revenue attributable to our ITPS segment decreased by$23.0 million , or 11.0% compared to the same period in the prior year. This revenue decline is attributable to exiting contracts and statements of work with certain customers 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") and other customer losses. In addition, staffing shortages and network outage from prior quarter impacted revenue during the quarter. The reported ITPS segment revenue decline was also impacted by$7.0 million from currency conversion attributable to the depreciation of the Euro andU.K. pound sterling against theU.S. dollar during the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 . 42
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HS- For the three months endedSeptember 30, 2022 , revenue attributable to our HS segment increased by$7.0 million , or 12.9% compared to the same period in the prior year primarily driven by higher volumes from our healthcare payer customers. LLPS- For the three months endedSeptember 30, 2022 , revenue attributable to our LLPS segment increased by$0.8 million , or 5.0% 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 endedSeptember 30, 2022 , our direct costs increased by$6.1 million , or 2.9%, compared to the three months endedSeptember 30, 2021 . Costs in our ITPS segment decreased by$0.5 million or 0.3% primarily attributable to the corresponding decline in revenues offset by higher wage inflation. HS segment costs increased by$6.4 million , or 15.2% primarily due to increases in employee-related cost on account of higher headcount in HS (bench costs) to meet our customer forecasts. LLPS segment cost of revenue increased by$0.2 million , or 1.6%. The increase in cost of revenues on a consolidated basis was primarily due to an increase in employee-related costs of$4.6 million , higher pass through costs of$3.9 million , lower infrastructure and maintenance costs of$1.2 million and lower operating costs of$1.5 million .
Cost of revenue as a percentage of revenue for the three months ended
Selling, General and Administrative Expenses
SG&A expenses increased by$1.1 million , or 2.6%, to$44.4 million for the three months endedSeptember 30, 2022 , compared to$43.2 million for the three months endedSeptember 30, 2021 . The increase was primarily attributable to higher employee related costs by$2.5 million , higher infrastructure and other costs of$1.2 million , higher travel costs of$0.5 million offset by lower legal and professional fees of$3.1 million ,. SG&A expenses increased as a percentage of revenues to 16.8% for the three months endedSeptember 30, 2022 as compared to 15.5% for the three months endedSeptember 30, 2021 .
Depreciation & Amortization
Total depreciation and amortization expense was
Impairment of
Impairment of goodwill and other intangible assets for the three months endedSeptember 30, 2022 was$29.6 million . During the three months endedSeptember 30, 2022 , the Company made an evaluation based on factors such as changes in the Company's growth rate and recent trends in the Company's market capitalization, and concluded that a triggering event for an interim impairment analysis had occurred in the third quarter of 2022. As a result of the interim impairment analysis atSeptember 30, 2022 , the Company recorded an impairment charge of$29.6 million , including taxes to goodwill relating to ITPS.
Related Party Expenses
Related party expense was
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Interest Expense
Interest expense was
Sundry Expense, net
The net change in sundry expense of
Other Expense (Income), net
Other income, net was
Income Tax Expense
We had an income tax expense of$1.9 million for the three months endedSeptember 30, 2022 compared with an income tax expense of$1.4 million for the three months endedSeptember 30, 2021 . The change in income taxes was primarily attributable to our change in judgment in 2022 related to the realizability of deferred tax assets in certain state and foreign jurisdictions. Nine Months EndedSeptember 30, 2022 Compared to Nine Months EndedSeptember 30, 2021 : Nine Months Ended September 30, 2022 2021 Change % Change Revenue: ITPS $ 580,320$ 657,438 $ (77,118) (11.73)% HS 173,940 161,292 12,648 7.84% LLPS 55,946 53,564 2,382 4.45% Total revenue 810,206 872,294 (62,088) (7.12)% Cost of revenue (exclusive of depreciation and amortization): ITPS 477,559 499,892 (22,333) (4.47)% HS 140,767 116,736 24,031 20.59% LLPS 40,297 36,770 3,527 9.59% Total cost of revenues 658,623 653,398 5,225 0.80% Selling, general and administrative expenses (exclusive of depreciation and amortization) 137,604 121,519 16,085 13.24% Depreciation and amortization 53,942 58,113 (4,171) (7.18)% Impairment of goodwill and other intangible assets 29,565 - 29,565 100.00% Related party expense 6,189 7,199 (1,010) (14.03)% Operating profit (loss) (75,717) 32,065 (107,782) (336.14)% Interest expense, net 122,928 127,755 (4,827) (3.78)% Debt modification and extinguishment costs (gain), net 4,305 (28,070) 32,375 (115.34)% Sundry expense (income), net 347 (438) 785 (179.22)% Other expense, net 12,419 1,169 11,250 962.36% Net loss before income taxes (215,716) (68,351) (147,365) 215.60% Income tax expense (5,721) (3,430) (2,291) 66.79% Net loss$ (221,437) $ (71,781) $ (149,656) 208.49% 44 Table of Contents Revenue
For the nine months endedSeptember 30, 2022 , our revenue on a consolidated basis decreased by$62.1 million , or 7.1%, to$810.2 million from$872.3 million for the nine months endedSeptember 30, 2021 . We experienced revenue decline in the ITPS segment and revenue growth in the HS and LLPS segments. Our ITPS, HS, and LLPS segments constituted 71.6%, 21.5%, and 6.9% of total revenue, respectively, for the nine months endedSeptember 30, 2022 , compared to 75.4%, 18.5%, and 6.1%, respectively, for the nine months endedSeptember 30, 2021 . The revenue changes by reporting segment were as follows: ITPS- For the nine months endedSeptember 30, 2022 , revenue attributable to our ITPS segment decreased by$77.1 million , or 11.7% compared to the same period in the prior year. This revenue decline is attributable to transition revenue and other customer losses. In addition, staffing shortages during the nine months endedSeptember 30, 2022 and continued impact from the network outage duringJune 2022 impacted revenue for the period. The reported ITPS segment revenue decline was also impacted by$16.9 million from currency conversion attributable to the depreciation of the Euro andU.K. pound sterling against theU.S. dollar during the nine months endedSeptember 30, 2022 , compared to the nine months endedSeptember 30, 2021 . HS- For the nine months endedSeptember 30, 2022 , revenue attributable to our HS segment increased by$12.6 million , or 7.8% compared to the same period in the prior year primarily due to higher volumes from our new and existing healthcare customers. LLPS- For the nine months endedSeptember 30, 2022 , revenue attributable to our LLPS segment increased by$2.4 million , or 4.4% 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 nine months endedSeptember 30, 2022 , our cost of revenue increased by$5.2 million , or 0.8%, compared to the nine months endedSeptember 30, 2021 . Costs in our ITPS segment decreased by$22.3 million , or 4.5%, primarily attributable to the corresponding decline in revenues offset by wages inflation. HS segment costs increased by$24.0 million , or 20.6% primarily due to increases in employee-related costs on account of higher headcount in HS (bench costs) to meet our customer forecasts. LLPS segment cost of revenue increased by$3.5 million , or 9.6%. Higher costs due to inflationary pressure during the nine months endedSeptember 30, 2022 and idle production costs due to the network outage in June impacted both ITPS and HS segments during the nine months endedSeptember 30, 2022 . The increase in cost of revenues on a consolidated basis was primarily due to an increase in employee-related costs of$1.8 million , higher operating costs of$3.6 million and higher travel costs of$0.5 million offset by lower pass through costs of$0.5 million and lower infrastructure and maintenance costs of$0.2 million .
Cost of revenue for the nine months ended
Selling, General and Administrative Expenses
SG&A expenses increased$16.1 million , or 13.2%, to$137.6 million for the nine months endedSeptember 30, 2022 , compared to$121.5 million for the nine months endedSeptember 30, 2021 . The increase was primarily attributable to higher employee related costs by$10.8 million , higher travel costs of$1.7 million , higher infrastructure, maintenance and operating costs of$4.5 million , higher legal and professional fees of$4.1 million offset by lower other SG&A expenses of$5.0 million . SG&A expenses increased as a percentage of revenues to 17.0% for the nine months endedSeptember 30, 2022 as compared to 13.9% for the nine months endedSeptember 30, 2021 . 45 Table of Contents Depreciation & Amortization Total depreciation and amortization expense was$53.9 million and$58.1 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The decrease in total depreciation and amortization expense by$4.2 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 nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 .
Impairment of
Impairment of goodwill and other intangible assets for the nine months endedSeptember 30, 2022 was$29.6 million . During the three months endedSeptember 30, 2022 , the Company made an evaluation based on factors such as changes in the Company's growth rate and recent trends in the Company's market capitalization, and concluded that a triggering event for an interim impairment analysis had occurred in the third quarter of 2022. As a result of the interim impairment analysis atSeptember 30, 2022 , the Company recorded an impairment charge of$29.6 million , including taxes to goodwill relating to ITPS.
Related Party Expenses
Related party expense was
Interest Expense
Interest expense was
Debt modification and extinguishment costs (gain), net
Debt modification and extinguishment cost was$4.3 million for the nine months endedSeptember 30, 2022 compared to a gain of$28.1 million for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 , the Company recorded a debt extinguishment cost of$9.0 million in connection with partial prepayment of$50.0 million in cash on the$100.0 million senior secured revolving facility maturingJuly 12, 2022 during the nine months endedSeptember 30, 2022 and the exit fees paid on the partial prepayment of BRCC Term Loan was treated as a debt extinguishment cost offset by gain on extinguishment of debt of$5.3 million related to the notes that was part of the revolver exchange transaction. The Company recorded a gain on early extinguishment of debt of$28.1 million in connection with the repurchase of the Notes and Senior Secured Term Loan for a total of$89.6 million for the nine months endedSeptember 30, 2021 .
Sundry Expense (Income), net
Sundry expense, net was$0.3 million for the nine months endedSeptember 30, 2022 compared to sundry income, net of 0.4 million for the nine months endedSeptember 30, 2021 . The change over the prior year period was primarily attributable to exchange rate fluctuations on foreign currency transactions.
Other Expense, net
Other expense, net was$12.4 million for the nine months endedSeptember 30, 2022 compared to other expense, net of 1.2 million for the nine months endedSeptember 30, 2021 . The increase in expense was primarily attributable to remeasurement of our true-up guarantee obligation under the Revolver Exchange (as defined below) and accrual of true-up liability based on the market price for the 2026 Notes in Other expense, net. 46 Table of Contents Income Tax Expense
The Company recorded income tax expense of
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.
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 (the "Board") 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.
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 endedSeptember 30, 2022 and 2021. Three Months Ended September 30, 2022 2021 Net Loss$ (85,282) $ (13,214) Taxes 1,924 1,441 Interest expense 40,897 41,757 Depreciation and amortization 17,737 19,094 EBITDA (24,724) 49,078 Optimization and restructuring expenses (1) 6,252 4,695 Transaction and integration costs (2) 4,139 1,928 Non-cash equity compensation (3) (142) 539 Other charges including non-cash (4) 16,479 8,011 Loss/(Gain) on sale of assets (5) 54 (164) Debt modification and extinguishment costs (gain), net (4,696) (28,070) Loss/(Gain) on derivative instruments (1,091) - 47 Table of Contents Contract costs (6) 5,986 358
Impairment of goodwill and other intangible assets 29,565 - Adjusted EBITDA
$ 31,822 $ 36,375
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 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 costs incurred on new projects, contract start-up costs and
project ramp costs.
Nine 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 nine months endedSeptember 30, 2022 and 2021. Nine Months Ended September 30, 2022 2021 Net Loss$ (221,437) $ (71,781) Taxes 5,721 3,430 Interest expense 122,928 127,755 Depreciation and amortization 53,942 58,113 EBITDA (38,846) 117,517 Optimization and restructuring expenses (1) 19,659 14,990 Transaction and integration costs (2) 16,466 7,927 Non-cash equity compensation (3) 703 1,519 Other charges including non-cash (4) 54,509 20,417 Loss/(Gain) on sale of assets (5) 576 (2,604) Loss/(Gain) on business disposals (6) - 1,296 Debt modification and extinguishment costs (gain), net 4,305 (28,070) Loss/(Gain) on derivative instruments (7) (1,091) (125) Contract costs (8) 18,563 1,812 Litigation reserve - (925) Impairment of goodwill and other intangible assets 29,565 - Adjusted EBITDA $ 104,409$ 133,754
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 a loss/(gain) recognized on the disposal of noncore-business
assets.
(7) Represents the impact of changes in the fair value of an interest rate swap
entered into during the fourth quarter of 2017.
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(8) 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 September 30, 2022 , cash and cash equivalents totaled $44.8 million ,
including restricted cash of $34.4 million . We also had borrowing capacity of up
to $31.0 million under our $51.0 million BRCC Revolver which, the Company
anticipates, will become fully available in the course of 2022, of which $20.0
million was drawn by the Company as of September 30, 2022 .
Liquidity is the availability of adequate amounts of cash with an enterprise to
meet its needs for cash requirements. As of September 30, 2022 , our working
capital deficit amounted to $243.3 million an increase of $23.3 million as
compared to working capital deficit of $220.0 million as of December 31, 2021 .
This increase in working capital deficit is primarily a result of decreases in
accounts receivables due to the sale of accounts receivables and increases in
accrued interest, accounts payable, and obligation for claim payment.
In the ordinary course of business, we enter into contracts and commitments that
obligate us to make payments in the future. These obligations include
borrowings, interest obligations, purchase commitments, operating and finance
lease commitments, employee benefit payments and taxes. Specifically, $55.8
million of BRCC Term Loan and $20.0 million outstanding under the BRCC Revolver
both mature in June 2023 . Also, maturing in July 2023 are $22.8 million
aggregate principal amount of the 2023 Notes and $77.8 million aggregate
principal amount of the Term Loans. The Company's Term Loans also require us to
make periodic principal repayments. See Note 5 - Long-Term Debt and Credit
Facilities, Note 7 - Employee Benefit Plans, and Note 8- Commitments and
Contingencies to our condensed consolidated financial statements herein for
further information on material cash requirements from known contractual and
other obligations.
We currently expect to spend approximately $15.0 to $20.0 million on total
capital expenditures over the next twelve months. We will continue to evaluate
additional capital expenditure needs that may arise due to changes in the
business model. Our future cash requirements will depend on many factors,
including our rate of revenue growth, our investments in strategic initiatives,
applications or technologies, operation centers and acquisition of complementary
businesses, which may require the use of significant cash resources and/or
additional financing.
On March 26, 2020 , the Delaware 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 the Delaware Court of Chancery , captioned Manichaean Capital, LLC , et al. v.
SourceHOV Holdings, Inc. , C.A. No. 2017 0673 JRS (pursuant to which former
stockholders of SourceHOV sought, among other things, a determination of the
fair value of their 10,304 SourceHOV shares at the time of the Novitex Business
Combination) (the "Appraisal Action"). On December 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 of December 31, 2021 , the Company accrued a
liability of $63.4 million for these matters, all of which had been paid as of
September 30, 2022 .
On March 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
49
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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 similarly utilized 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. 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 the acquisition of businesses that enhance the value proposition. The Company also plans to take further action to raise additional funds in the debt and equity capital markets. Based on our experience with the at-the-market programs and our knowledge of the Company and the financial market, we believe that we will be able to raise those additional funds. There can be no assurances, however, that any of these initiatives will be consummated or will achieve its desired result. 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. OnJune 17, 2022 , the Company repaid in full the loans outstanding under the Securitization Facility. The aggregate outstanding principal amount of loans under the Securitization Facility as of such date was approximately$91.9 million . OnJune 17, 2022 , the Company entered into an amended and restated receivables purchase agreement (the "Amended Receivables Purchase Agreement") under the Securitization Facility among certain of the Company's subsidiaries, its wholly-owned, "bankruptcy remote" special purpose subsidiaries ("SPEs") and certain global financial institutions ("Purchasers"). The Amended Receivables Purchase Agreement extends the term of the securitization facility such that the SPE may sell certain receivables to the Purchasers untilJune 17, 2025 . Under the Amended Receivables Purchase Agreement, transfers of accounts receivable from the SPEs are treated as sales and are accounted for as a reduction in accounts receivable because the agreement transfers effective control over and risk related to the accounts receivable to the Purchasers. As ofSeptember 30, 2022 , the Company has sold$90.2 million of its accounts receivable. Unsold accounts receivable of$42.1 million were pledged by the SPEs as collateral to the Purchasers as ofSeptember 30, 2022 . 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 486,591 unregistered shares of the Company's Common Stock at a price of$55.00 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$80.00 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 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 50
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and
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
Number of Average
Shares Price Per Gross Net
Supplement Period Sold Share Proceeds Proceeds
Prospectus supplement dated May 28, 2,471,185 $40.164 $99.3 $95.7
May 27, 2021 with an 2021 million million
aggregate offering price of through
up to $100.0 million ("Common July 1,
ATM Program-1") 2021
Prospectus supplement dated June 30, 2,879,023 $52.069 $149.9 $144.4
June 30, 2021 with an 2021 million million
aggregate offering price of through
up to $150.0 million ("Common September
ATM Program-2") 2, 2021
Prospectus supplement dated October 6, 16,743,797 $14.931 $250.0 $241.0
September 30, 2021 with an 2021 million million
aggregate offering price of through
up to $250.0 million ("Common March 31,
ATM Program-3") 2022
Prospectus supplement dated May 24, 58,283,108 $2.159 $125.8 $122.0
May 23, 2022 with an 2022 million million
aggregate offering price of through
up to $250.0 million ("Common September
ATM Program-4") 30, 2022
On August 10, 2022 , the Company's board of directors authorized a share buyback
program (the "2022 Share Buyback Program"), pursuant to which the Company was
authorized to repurchase, from time to time, up to 10,000,000 shares of its
Common Stock over next two-year period through various means, including, open
market transactions and privately negotiated transactions. The 2022 Share
Buyback Program does not obligate the Company to repurchase any shares. The
decision as to whether to repurchase any shares and the timing of repurchases
will be based on the price of the Company's Common Stock, general business and
market conditions and other investment considerations and factors. During the
three months ended September 30, 2022 , the Company repurchased and concurrently
retired 357,461 shares of Common Stock at an average share price of $1.348 per
share under the 2022 Share Buyback Program.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Nine Months
Ended
2022 2021 Change
Net cash used in operating activities $ (86,951) $ (73,588) $ (13,363)
Net cash used in investing activities (16,739) (3,649) (13,090)
Net cash provided by financing activities 101,487 177,995 (76,508)
Subtotal (2,203) 100,758 (102,961)
Effect of exchange rates on cash (1,054) (78) (976) Net increase (decrease) in cash and cash equivalents (3,257) 100,680 (103,937)
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Analysis of Cash Flow Changes between the nine months ended
Operating Activities-The increase of$13.0 million in net cash used in operating activities for the nine months endedSeptember 30, 2022 was primarily due to lower revenue, higher cash outflow on employees-related investments on account of higher headcount (bench costs) to meet our customer forecasts and$63.4 million payment for the Appraisal Action made during the nine months endedSeptember 30, 2022 . This increase in cash used in operating activities was partially offset by cash inflow from sale of accounts receivable, reduction in cash outflow from accounts payable and accrued liabilities and reduction in cash outflow for interest payments. Investing Activities-The increase of$13.1 million in net cash used in investing activities for the nine months endedSeptember 30, 2022 was primarily due to higher additions to property, plant and equipment, patents and development 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 Irish headquarters inDublin, Ireland . Financing Activities- Cash provided by financing activities during the nine months endedSeptember 30, 2022 was$101.5 million , primarily as a result of$236.5 million of net proceeds from equity offerings,$75.0 million of net proceeds from the issuance of 2026 Notes offset by net repayments of our senior secured revolving facility, Securitization Facility, BRCC Facility and senior secured term loans and other loans of$203.4 million and debt repurchases of$4.7 million . Cash provided by financing activities during the nine months endedSeptember 30, 2021 was$178.0 million , primarily as a result of$265.2 million of net proceeds from equity offerings offset by repayments of our term and other loans and debt repurchases of$87.1 million .
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 that matured onJuly 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 52 Table of Contents
plus an applicable margin of 6.5% for LIBOR loans and 5.5% for base rate loans.
The Term Loans will mature on
The Term Loans are jointly and severally, irrevocably and unconditionally
guaranteed by the certain 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 endedMarch 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 here as the "Private Exchange" (as distinguished from the "Public Exchange" described 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, 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. As ofSeptember 30, 2022 , the Revolving Credit Facility had been prepaid and terminated as described below. 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 were subject to a guarantee in the form of a true-up mechanism whereby the Company was responsible to make a payment to the holders of the Exchange Notes if holders of the Exchange Notes sold their notes at a price below certain agreed thresholds during agreed periods in 2022. During the third quarter of 2022, the Company settled the true-up obligation with cash payments of$9.9 million and by permitting the holders of the Exchange Notes to keep the$21.0 million of principal amount of 2026 Notes previously placed as Collateral Notes constituting an issuance. In addition,$9.0 million of principal amount of 2026 Notes, which had been placed as 53
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Collateral Notes with the holders of the Exchange Notes, were sold by the
holders for a net proceeds of
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 guaranteed by certainU.S. subsidiaries of the Company. The 2023 Notes mature onJuly 15, 2023 . 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 ofSeptember 30, 2022 . 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. As of the expiration time of the Public Exchange,$912.7 million aggregate principal amount, or approximately 91.3%, of the 2023 Notes had been validly tendered pursuant to the Public Exchange. OnDecember 9, 2021 , upon the settlement of the Public Exchange,$662.7 million 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. 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 nine months endedSeptember 30, 2022 , subsidiaries of the Company sold$150.0 million in aggregate of principal amount of the 2026 Notes generating net proceeds of$75.0 million . OnMarch 18, 2022 , 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 certainU.S. 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 mature onJuly 12, 2026 . 54 Table of Contents 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 , the Company commenced a debt buyback program to repurchase senior secured indebtedness, which is ongoing. During the three and nine months endedSeptember 30, 2021 , we repurchased$54.5 million of our 2023 Notes for a net cash consideration of$40.2 million . The gain on early extinguishment of debt for the 2023 Notes during the three and nine months endedSeptember 30, 2021 totaled$13.7 million and is inclusive of$0.5 million and$0.2 million write off of original issue discount and debt issuance costs, respectively. During the three and nine months endedSeptember 30, 2021 , we also repurchased$35.1 million of the outstanding principal amount of our senior secured term loan under the Credit Agreement for a net cash consideration of$19.0 million . The gain on early extinguishment of debt for the senior secured term loan during the three and nine months endedSeptember 30, 2021 totaled$14.4 million and is inclusive of$0.4 million and$1.4 million write off of original issue discount and debt issuance costs, respectively. During the three and nine months endedSeptember 30, 2022 , we repurchased$15.0 million principal amount of Exchange Notes issued under the Revolver Exchange (as discussed above) for a net cash consideration of$4.7 million . The gain on early extinguishment of debt for the Exchange Notes during the three and nine months endedSeptember 30, 2022 totaled$5.3 million and is inclusive of$5.0 million and$0.1 million write off of original issue discount and debt issuance costs, respectively. 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 the BRCC Term Loan, the "BRCC Facility"). 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 our secured indebtedness 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. 55
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During the nine months endedSeptember 30, 2022 , we repaid$59.2 million of outstanding principal amount under the BRCC Term Loan along with$1.8 million of exit fees. As ofSeptember 30, 2022 , there were borrowings of$55.8 million and$20.0 million outstanding under the BRCC Term Loan and BRCC Revolver, respectively, maturingJune 10, 2023 . There was no availability under the BRCC Revolver as ofSeptember 30, 2022 .
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 documentation for the Securitization Facility included (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 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
56
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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%.
OnJune 17, 2022 , the Company repaid in full the loans outstanding under the Securitization Facility. The aggregate outstanding principal amount of loans under the Securitization Facility as of such date was approximately$91.9 million . The early termination of the Securitization Facility triggered a prepayment premium of$2.7 million and required payment of approximately$0.5 million and$1.3 million in respect of accrued interest and fees, respectively. All obligations under the Securitization Facility (other than contingent indemnification obligations that expressly survive termination) terminated upon repayment. The Securitization Facility was replaced by the Amended Receivables Purchase Agreement described below. OnJune 17, 2022 , the Company entered into an amended and restated receivables purchase agreement (the "Amended Receivables Purchase Agreement") under the Securitization Facility among certain of the Company's subsidiaries, its wholly-owned, "bankruptcy remote" special purpose subsidiaries ("SPEs") and certain global financial institutions ("Purchasers"). The Amended Receivables Purchase Agreement extends the term of the securitization facility such that the SPE may sell certain receivables to the Purchasers untilJune 17, 2025 . Under the Amended Receivables Purchase Agreement, transfers of accounts receivable from the SPEs are treated as sales and are accounted for as a reduction in accounts receivable because the agreement transfers effective control over and risk related to the accounts receivable to the Purchasers. The Company and related subsidiaries have no continuing involvement in the transferred accounts receivable, other than collection and administrative responsibilities and, once sold, the accounts receivable are no longer available to satisfy creditors of the Company or the related subsidiaries. As ofSeptember 30, 2022 , the Company has sold$90.2 million of its accounts receivable. These sales were transacted at 100% of the face value of the relevant accounts receivable, resulting in derecognition of the accounts receivable from the Company's condensed consolidated balance sheet. Unsold accounts receivable of$42.1 million were pledged by the SPEs as collateral to the Purchasers as ofSeptember 30, 2022 .
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 facility, 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 may 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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