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spk11: Good day and welcome to the Accela Technologies third quarter 2022 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Vince Condoviti. Please go ahead, sir.
spk03: Thank you, Chuck, and good evening, everyone. Welcome to our earnings call to discuss our third quarter results for the period ended September 30th, 2022. Our earnings release and presentation were posted to the IR section of our website. Speakers on today's call are Par Chadha, Executive Chairman, and Srikanth Sautar, our Chief Financial Officer. Today's agenda will be as follows. Par will provide an overview of our results and update you on our strategic initiatives. Srikanth will then walk you through our financial performance for the quarter, and then we will take your questions. We've been in communication with many investors via Speak Up, and we hope that you're finding it useful. I also wanted to mention that we are accepting questions ahead of our Fireside Chat with PAR on November 30th. You can propose questions up until the day before Thanksgiving on fireside.excelotech.com. Some of the matters we will discuss in today's call are forward-looking and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties are set forth in our press release. I'll turn the call over to Par, our executive chairman. Par?
spk02: Good evening, and thanks for joining our Q3 business update. I shared my strategy and objectives for the company when I stepped into this role a little over a year ago. The macro environment was different then. We have completed some of our objectives, added a few new ones, and adjusted a few to stay nimble and focused on our mission, changing from market exuberance to our reality. We have evolved, and so has our mantra. Today it is converting actions into results. I'd like to turn to slide number three. I want to share seven highlights for this quarter and set the stage for Q4 and 2023. Number one, our European business will go public following the business combination at a value of $220 million with Accella remaining as the majority stockholder. We look forward to sharing more on this over the coming months. Number two, our Serve the Shareholder initiative aligns all of our stakeholders. We are pleased that we have set aside 70 million of 2026 senior notes to begin with. It's never enough, but let's call it a good start. These are some of the examples of how the funds we raised in equity markets have been deployed. This is an important topic, and I will provide some more color on the next slide. Number three, our revenue was lowered this quarter due to several factors, including network outage, currency translation, transition revenue, and tight job markets. These events combined with the changing macro environment require us to recheck our business models and assumptions. And we have been doing just that. And I'll share the steps we have taken to address these. In short, while we're on the right track, we do not need to get ahead of the events that impacted us or could impact us in future. Number four, I want to emphasize the importance of our strategic decision to pivot to work from anywhere or WFA, which we adopted some time ago. We didn't know at the time that inflation, low unemployment, rising costs, and yes, strong dollar will impact us the way it did. I'm so glad that we adopted WFA when we did. Our actions to offset these impacts are tracking to reach approximately 40.5 million of operational improvements estimated in 2023. I'll cover that in more detail over the next coming slides. Number five, we are having a decent conversion of our pipeline into contracts. TCV came in at $87 million. I'm not happy that only a small amount of our contract wins have converted into revenue in this quarter. So no surprise, our focus has gotten even sharper on converting this into revenue as soon as practical. Number six, our SMB SaaS business continues to show stellar growth. It's nice to see this is rubbing into our enterprise business as well. We see demand rising there too. I primarily am referring to DMR at DrySign. And as we launch our next SaaS platforms, we have a few more platforms, as you know, and we'll benefit from lessons we have learned and our experienced team. Number seven, we continue to fix and strengthen our balance sheet with help from our shareholders, of course. As you know, in this regard, we still have some more work to do. Primarily, our focus for now has shifted to performance, converting actions into results. Let's turn to slide number four. We have raised a substantial amount of equity capital, and let me walk you through how we have used it, prudently between investing in the business and balancing between our stakeholders. Look at the sum of the parts analysis. We own 100% of Accela BPA. In addition, we estimate the value of other assets to be over 600 million. Yes, 617.5 million plus whatever equity value you want to allocate to Accella BPA. Our shareholders own these assets. The bottom line is that Accella is trading far below its intrinsic value. We plan to address this by focusing on performance as fixing this gap is of utmost importance. Let's turn to slide number five. Let me walk through six items that have impacted our revenue. Historically, our Q3 is a seasonally soft quarter. That aside, the total negative impact in Q3 was $26.6 million, which was offset by revenue growth in Q3 of $7.2 million and $4.6 million of cleared backlog from Q2. We were also impacted by currency translation to the tune of approximately $7 million Net-net revenue was down 15.2 million. Let us turn to slide six. Some more color on revenue. As I mentioned, we're seeing stable TCV conversion from pipeline into new contracts. We need to get our renewals up and but we are very satisfied with the recurring revenue at 98%. We're seeing healthy growth in healthcare and legal segments. We do have businessmen in XBP that's part of ITPS segment that as they convert into revenue will start to show as revenue growth as well. Despite the macro headwinds, Conversations with our customers remain robust and demand continues to improve across various segments. The network outage that we talked about in the Q2 call is largely behind us. However, we are having some lingering impacts in our discussions with customers. We are a mission-critical vendor to our customers And it's important to showcase our leadership and solutions and resiliency of our solutions to assuage concerns of our customers. We're having many successful conversations with our customers as well. Our objective remains to put us in a position to grow pipeline and not ultimately win more business. Let us turn to slide number seven. I touched on this earlier and over the next few slides I will highlight the actions we have taken for operational improvements to grow our margins and use tools in our control to manage our business. What a better outcome. We've examined and continue to examine our performance across all functions and we have taken steps to align the size, reduced weight appropriate, and acted based on performance to fix. Ultimately, we are prepared for a better outcome with a reduction in overall costs. Backed by WFA, we have the potential to accomplish this goal. For example, on slide number eight, we began to implement our WFH solutions during the pandemic, but quickly saw that solutions could help mitigate the inflationary environment, tight job markets, and rising costs to address the impact we were seeing. We took this initiative to expand our team across current and additional geographies. Now, 49% of our employees work from anywhere they want and whenever they want. Our Uberization platform now is targeting to reach 30,000 workers by the end of 2022. You ask, what will this allow us to do? Well, I say prepare for a feast at a lower cost by complimenting our existing team members. Many additional good things happen too. This enables much larger usage of cloud as many, I'm sorry, as when majority of our team is using cloud tools. This has many additional positive add-on effects. Another benefit, as we turn to slide number nine, This permits to shed real estate cost in all geographies and allow us to consolidate smaller locations into bigger locations as well. At the beginning of Q3, we had 2.8 million square feet. Our goal is to, in Q2023, come down to 2.17 million square feet. not an easy task, but made possible by WFA. I want to share what many of you already know. The salary of an employee is by far the largest expense. We are also addressing this expense by blending work from anywhere and reduced real estate expense and physical expense This all leads to the key question of how much infrastructure in our data centers is affected by this. We spend over $30 million on software and hardware maintenance, including over $30 million in real estate costs. That's just the least cost, not including all the other cost expenses that come with leasing a building. No surprise, this expense is under the lens as well. Upon successful completion of migration to cloud, this $60 million of cost start to become less important, maybe even secondary, and start coming down as the real estate starts to come down. We may have to pay one-time cost to exit some buildings, but savings materially favor the decision. One decision to pivot to WFA that we made during pandemic has enabled us to become more nimble and a better organization. Better organizations for not just us, but also for our customers. Let me add up the current benefit of these actions. On slide 10, These five initiatives total over 40 million in operational improvements. I assure you, we're not done. In my experience, we'll continue to find more previously unknown operational improvements across all functions. I'm glad we adopted WFA to initially protect our employees, and embarked on a mission to uberize our workforce. It is just beginning to flow through and will benefit in 2023. Our goal is to reach and cross the inflection point as soon as possible. Our mantra these days is converting actions into reality, into results, reflecting our current reality. Many thanks to our shareholders, lenders, employees, and many others. And with that, Chirikant, our CFO, please take it away.
spk16: Thank you, Parth. And thanks to everyone for joining us this evening. We filed our Q3 2022 10-Q along with the restated audited consolidated financial statements in Form 10-KA for the year ended December 31st, 2021. to amend the originally filed 10-K on March 16th of 2022. I will cover our third quarter results and provide an update on our growth and balance sheet initiatives first, and then follow it up with the discussion on the restatement. As we've done in the past, we're reporting both GAAP and non-GAAP numbers. Reconciliations are in our filings and in the appendix of the presentation. Let me walk you through the third quarter 2022 financial performance on slide 12. On a reported basis, revenue was $264 million down 5.4% year-over-year and $271 million on a constant currency basis, down 2.9% year-over-year. On a consolidated basis, revenue for the quarter was adversely impacted by $7 million from the currency translation change $15.1 million from transition revenue and contract losses, and $4.5 million impact from network outage on contracted revenue, and was positively offset by revenue growth of $7.2 million and $4.1 million of cleared backlog. The details of these are on slide five. Additionally, we were not able to capture approximately $4.6 million of revenue during the quarter due to continued staffing shortage. Let's quickly look at our segment revenue performance for the quarter. Revenue for our ITPS segment was 185.3 million, a decrease of 11% from 208.3 million in the third quarter of 2021. The decrease was primarily due to the factors described earlier. Our healthcare solution segment revenue totaled 61 million, a 13% increase on a year-over-year basis from 54 million in the year-ago period. The strength in revenue is led by our customers' continued acceptance of our solutions and services. Our legal and loss prevention service segment revenue was $17.8 million, a 5.3% increase on a year-over-year basis from $16.9 million driven by steady project-based business. Gross profit for the third quarter was $46.2 million, down $21.3 million, or 31.6% year-over-year, Gross profit and margins were impacted due to inflation, tight job market, investment in bench costs, and network outage. Gross profit margin for the third quarter was 17.5%, down 668 bps from Q3 of the prior year, and down 106 basis points sequentially due to a number of factors previously highlighted. SG&A for the third quarter totaled $44.4 million, up $1.1 million year-over-year. and lower by 5.8 million sequentially and representing 16.8% of sales. SG&E was impacted by network outage-related costs and continues to carry professional fees, including certain non-recurring transaction-related costs. Adjusted EBITDA was 31.8 million, down 12.5% from the 36.4 million in the prior year period and down by 12.7% sequentially, Our adjusted EBITDA margin for the third quarter was 12.1%, down 98 basis points from 13% in the third quarter of 2021, and down 161 basis points sequentially. On a GAAP basis, I would like to highlight two non-cash items that had a material impact on the comparative three months net income year over year, both of which are neutral to adjusted EBITDA. As a result of the interim impairment analysis at September 30, 2022, the company recorded an impairment charge of $29.6 million to Goodwill relating to our ITPS segment. Number two, three months ended September 30, 2021, which is the last year. It benefited from a gain on early extinguishment of debt of $28.1 million in connection with the repurchase, excuse me, with the repurchase note and senior secure term loan. Before moving to the next slide, I would like to highlight some of the key items from prior slides discussed by PAR on the initiatives to address the performance of the company. Cable TCV conversion from sales pipeline, despite macro headwinds, is encouraging from a revenue perspective. And initiatives for gross margin and operating income improvement in 2023, including COLA and price increases Rent reduction, executed annual savings, and additional savings underway are actions to address rising costs and improving margins. Let's turn to slide 13 and discuss the balance sheet. To encapsulate the slide, our goal is to focus on near-term results to expand liquidity. We paid off all of our liabilities due in 2022 by extinguishing the revolver in appraisal action for a total of $163 million. Our blended coupon rate is 11.14% and we are considering adding a term loan of additional 30 to 35 million of liquidity. Before opening up for the Q&A, I will provide an update on the restatement of our prior period financial results. Earlier this evening, the company restated its audited consolidated financial statements in the 2021 Form 10-K for the year ended December 31st, 2021, which was originally filed with SEC on March 16th of 2022. I would like to highlight three important facts. First, there was no impact of the restatement on our reported revenue, net income, and adjusted EBITDA. Second, there was no impact or changes to our cash balances or cash flow statement. Third, The only change to a financial statement was a reclassification of the securitization facility from long-term to current in the restated balance sheet as of December 31, 2021. Additionally, the restatement does not have an effect on retained earnings or other components of equity, net assets, or poor share amounts disclosed in the original report. The restatement arises from the inclusion of disclosure related to the existence of substantial doubt about the entity's ability to continue as a going concern under the standards of ASC Subtopic 20540 on going concern. The amendment includes reissued audit reports from KPMG LLP, the company's independent registered public accounting firm, due to the restatement. As a result of the issuance of an amended audit report including a going concern explanatory paragraph, indebtedness under one of the company's borrowing facilities would have become current and we reclassified it from long-term to current in the restated balance sheet as of December 31, 2021. Please refer to the explanatory note on the filed 10-K-A for additional details, including changes to the financial statement footnotes for the fiscal year ended December 31, 2021. Note that each of the quarterly filings in 2022 includes the growing concern footnote as well. Once again, thank you for joining the call. I will turn this over to Chuck to open it up for the Q&A.
spk11: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up.
spk07: And at this time, we'll pause momentarily to assume our roster.
spk11: And the first question will come from Zach Cummings with B. Reilly FBR. Please go ahead.
spk10: Hi. Good evening. Thanks for taking my questions. Thanks for taking the time. My question is really centered around the balance sheet. I guess I'll just make it a two-part question here. How are you thinking about available liquidity and options that you have to continue to address the balance sheet between now and year end? And then also just dovetailing off of that, can you talk about the rationale behind trying to list the XBP Europe business in the public markets? And really, how is that helping you address some of the current challenges on your balance sheet? Thanks.
spk06: Sure, Zach.
spk02: Maybe I kick that off. Zach, as I covered in my talk, our values, the intrinsic dislocation in the value, one of the primary reasons is that we are preparing for taking some of our assets and making them revalue the public markets on their own basis, and this is an example of that. It's not really meant to address your question, but it's meant to address the long-term value this company represents. Your question about the balance sheet or our need for liquidity, I think Srikanth covered in his I think it's slide number 13 that we plan to add additional term loan capacity of 30 to 35 million. And when you combine that with our equity that we raised in October, and we may raise, we will have runway for addressing any near-time needs. Sure, if I missed any, please feel free to add.
spk16: No, you covered it, Par. I guess, yeah, the additional point probably is that, is a little bit more color into that would be that, as you probably saw, the theme on the slide is it reflects the height, focus, and attention to convert actions into results. Our focus is on making operational improvements and converting that into liquidity. I guess that's the key thing that I'll call out.
spk10: Understood. And I guess I'll just try to squeeze in one more, just around your margins going here. I appreciate all the cost efforts that you've taken to reduce your overall footprint and drive better margins. Just given the current revenue headwinds that we've seen the past couple of quarters, when do you anticipate we should see some of these cost reductions start to translate into more stabilized gross margin performance going forward?
spk16: The expectations obviously has to be covered again on the presentation, Zach. The expectation is it'll start coming to fruition in Q4, but the pickup is going to be more pronounced in 2023 and onwards. Before I talk extensively about that, there's a couple of other data points that I probably will point out that's not apparent. Let's take the example of our healthcare solutions segment. While the focus probably has been on the revenue decline on ITPS and some of the margin compressions there, healthcare solutions is a good example where we're doing really well. And in particular, let's look at Q3. Whether it was sequential quarter, year over year, or year to date, year over year, all three, we had revenue gains in healthcare solutions. And when we started off this year from a margin perspective, specific to the healthcare business, or that segment, In Q4 and Q1, we saw margin compression there. And Zach, while it may not be apparent on the quarterly financials we pressed in from an earnings perspective, if you look at our 10 Qs for each of the three quarters, what you're going to find is in 2022, healthcare solutions went from, in Q1, 17.4% margins, to 18.9% in Q2, and Q3, 20.7%. The reason I call this out is when we look at a consolidated basis and look at the margin compressions, there is a positive story there. Whether it's healthcare solutions or LLPS, while we are still not at the 2021 margin levels, those both segments are seeing a margin improvement every quarter this year.
spk10: Understood. Well, I appreciate the additional color provided there, and nice to see the rebound in performance for healthcare solutions. But best of luck with the rest of the quarter, and looking forward to reconnecting soon. Thanks. Thanks for your question, Zach.
spk11: Again, if you have a question, please press star, then 1. Our next question will come from Randall Klein with Avenue Capital Group. Please go ahead.
spk09: Hey, guys. Thanks for taking the call. I think Zach... kind of addressed one or one and a half of my questions. The first one on the balance sheet, it looks like the answer to my question, which is, you know, it's great that you cleaned out 22. You know, I assume you want to reload liquidity. It sounds like you're already starting to take actions post-quarter end. You've already started raising more capital, and you'll continue to do so, so that you can continue to deal with your 23, you know, issues as well. I mean, I don't know if there's anything else to add there that you didn't cover with Zach, but that was going to be my first question.
spk02: Yeah, go ahead, Parth. I couldn't hear the last part, but if you did, please go ahead.
spk15: Yeah, first of all, Randall, again, thanks for the question.
spk16: More so, Parth, as an observation of the question and the answer that we had for Zach, I guess from, you know, I think from a number perspective, we covered it. you can probably provide more of a business color in terms of what's in store. I guess Randall's question is more around that.
spk09: I'll just jump to what's going to be my second question, which is more on the business outlook. So you've talked about Q3 is a bit of a seasonal low typically. You went through all these issues around the network outage, the new business ramp up on the winds, et cetera. I guess directionally on the revenue side, And again, you may have already asked or answered this with Zach, but it sounds like, you know, the inflection point for revenue as well as margin is happening kind of as we speak, right? I mean, kind of Q4-ish and then by definition more into 2023. Is that, again, kind of a quick summary of what you're trying to articulate?
spk16: That is correct, Randall. That will be our expectation. Obviously, to execute and convert is the key, as we covered and Par also mentioned in his presentation. We would like to see the pace of pipeline converting into revenue pickup. This quarter, for example, we did see some delays in customer decisioning, even as we were working on getting back up from the network outage impact. So, yes. In summary, yes, that's our expectation, Randall.
spk02: I would add, with the 98% recurring revenue, as we look into Q4, in $7 million that we converted as new business, that's approximately 2%. With the pipeline that we have already won, converted into business, we just need to make sure that we don't have any obstacles like shortage of people, type of stuff that we faced for us to exceed our Q3 revenue numbers. Obviously, the goal is to do better than that, but looks like we are in a good position as we are in Q4.
spk09: Okay. That's good for me, guys. Thanks. Good luck. I hope no new surprises get in the way. You guys can execute on that. Thanks, everyone.
spk13: Thanks. Thanks for your question. Thank you.
spk11: This concludes our question and answer session. I would like to turn the conference back over to Mr. Vince Condoviti for any closing remarks. Please go ahead.
spk03: Thanks, Chuck, and thanks for everyone for dialing in to the call. We look forward to you joining our fireside chat with PAR, and please enter your questions, and we'll talk to you then. Thank you very much.
spk11: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
spk05: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
spk11: Good day and welcome to the Accela Technologies third quarter 2022 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Vince Condoviti. Please go ahead, sir.
spk03: Thank you, Chuck, and good evening, everyone. Welcome to our earnings call to discuss our third quarter results for the period ended September 30, 2022. Our earnings release and presentation were posted to the IR section of our website. Speakers on today's call are Parchata, Executive Chairman, and Srikanth Sautar, our Chief Financial Officer. Today's agenda will be as follows. PAR will provide an overview of our results and update you on our strategic initiatives. Srikanth will then walk you through our financial performance for the quarter, and then we will take your questions. We've been in communication with many investors via SpeakUp, and we hope that you're finding it useful. I also wanted to mention that we are accepting questions ahead of our Fireside Chat with PAR on November 30th. You can propose questions up until the day before Thanksgiving on fireside.excelotech.com. Some of the matters we will discuss in today's call are forward-looking and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties are set forth in our press release. I'll turn the call over to Par, our Executive Chairman. Par?
spk02: Good evening, and thanks for joining our Q3 Business Update. I shared my strategy and objectives for the company when I stepped into this role a little over a year ago. The macro environment was different then. We have completed some of our objectives, added a few new ones, and adjusted a few to stay nimble and focused on our mission, changing from market exuberance to our reality. We have evolved, and so has our mantra. Today it is converting actions into results. I'd like to turn to slide number three. I want to share seven highlights for this quarter and set the stage for Q4 and 2023. Number one, our European business will go public following the business combination at a valued of $220 million with Accela remaining as the majority stockholder. We look forward to sharing more on this over the coming months. Number two, our Serve the Shareholder initiative aligns all of our stakeholders. We are pleased that we have set aside $70 million of 2026 senior notes to begin with It's never enough, but let's call it a good start. These are some of the examples of how the funds we raised in equity markets have been deployed. This is an important topic, and I will provide some more color on the next slide. Number three, our revenue was lowered this quarter due to several factors, including network outage, currency translation, transition revenue, and tight job markets. These events combined with the changing macro environment require us to recheck our business models and assumptions. And we have been doing just that. And I'll share the steps we have taken to address these. In short, while we're on the right track, we do not need to get ahead of the events that impacted us or could impact us in future. Number four, I want to emphasize the importance of our strategic decision to pivot to work from anywhere or WFA, which we adopted some time ago. We didn't know at the time that inflation, low unemployment, rising costs, and yes, strong dollar will impact us the way it did. I'm so glad we adopted WFA when we did. Our actions to offset these impacts are tracking to reach approximately 40.5 million of operational improvements estimated in 2023. I'll cover that in more detail over the next coming slides. Number five, we are having a decent conversion of our pipeline into contracts. In Q3, GCV came in at $87 million. I'm not happy that only a small amount of our contract wins have converted into revenue in this quarter. So no surprise, our focus has gotten even sharper on converting this into revenue as soon as practical. Number six, our SMB SaaS business continues to show stellar growth. It's nice to see this is rubbing into our enterprise business as well. We see demand rising there too. I primarily am referring to DMR at DriveSign. And as we launch our next SaaS platforms, we have a few more platforms as you know and will benefit from lessons we have learned and our experienced team. Number seven, we continue to fix and strengthen our balance sheet with help from our shareholders of course. As you know in this regard we still have some more work to do. Primarily our focus for now, has shifted to performance, converting actions into results. Let's turn to slide number four. We have raised a substantial amount of equity capital, and let me walk you through how we have used it, brilliantly between investing in the business and balancing between our stakeholders. Look at the sum of the parts analysis. We own 100% of Accella BPA. In addition, we estimate the value of other assets to be over $600 million. Yes, $617.5 million plus whatever equity value you want to allocate to Accella BPA. Our shareholders own these assets. The bottom line is that Accella is trading far below its intrinsic value. We plan to address this by focusing on performance as fixing this gap is of utmost importance. Let's turn to slide number five. Let me walk through six items that have impacted our revenue. Historically, our Q3 is a seasonally soft quarter. That aside, the total negative impact in Q3 was 26.6 million, which was offset by revenue growth in Q3 of 7.2 million and 4.6 million of cleared backlog from Q2 We were also impacted by currency translation to the tune of approximately $7 million. Net-net revenue was down $15.2 million. Let us turn to slide six for more color on revenue. As I mentioned, we're seeing stable TCV conversion from pipeline into new contracts wins. We need to get our renewals up, but we are very satisfied with the recurring revenue at 98%. We're seeing healthy growth in healthcare and legal segments. We do have business in XBP that's part of ITPS segment that as they convert into revenue will start to show as revenue growth as well. Despite the macro headwinds, conversations with our customers remain robust and demand continues to improve across various segments. The network outage that we talked about and the Q2 call is largely behind us. However, we are having some lingering impacts in our discussions with customers. We are a mission-critical vendor to our customers, and it's important to showcase our leadership and solutions and resiliency of our solutions to assuage concerns of our customers. We're having many successful with our customers as well. Our objective remains to put us in a position to grow pipeline and not ultimately win more business. Let us turn to slide number seven. I touched on this earlier, and over the next few slides, I will highlight the actions we have taken for operational improvements to grow our margins and use tools in our control to manage our business. What a better outcome. We've examined and continue to examine our performance across all functions. And we have taken steps to align the size, reduced where appropriate, and acted based on performance to fix. Ultimately, we are prepared for a better outcome with a reduction in overall costs. Backed by WFA, we have the potential to accomplish this goal. For example, on slide number eight, we began to implement our WFA solutions during the pandemic, but quickly saw that solutions could help mitigate the inflationary environment, tight job markets, and rising costs to address the impact we were seeing. We took this initiative to expand our team across current and additional geographies. Now, 49% of our employees work from anywhere they want and whenever they want. Our Uberization platform now is targeting to reach 30,000 workers by the end of 2022. You ask, what will this allow us to do? Well, I say prepare for a feast at a lower cost by complementing our existing team members. Many additional good things happen too. This enables much larger usage of cloud as many, I'm sorry, as when majority of our team is using cloud tools. as many additional positive add-on effects. Another benefit, as we turn to slide number nine, this permits to shed real estate cost in all geographies and allow us to consolidate smaller locations into bigger locations as well. At the beginning of Q3, we had 2.8 million square feet. Our goal is to, in 2023, come down to 2.17 million square feet. Not an easy task, but made possible by WFA. I want to share what many of you already know. The salary of an employee is by far the largest expense. work from anywhere and reduce real estate expense and physical expense this all leads to the key question of how much infrastructure in our data centers is affected by this we spend over 30 million on software and hardware maintenance including over 30 million in real estate costs That's just the lease cost, not including all the other cost expenses that come with leasing a building. No surprise, this expense is under the lens as well. Upon successful completion of migration to cloud, this $60 million of cost start to become less important, maybe even secondary, and start coming down as the real estate starts to come down. We may have to pay a one-time cost to exit some buildings, but savings materially favor the decision. One decision to pivot to WFA that we made during pandemic has enabled us to become more nimble and a better organization. Better organization for not just us, but also for our customers. Let me add up the current benefit of these actions. On slide 10, these five initiatives total over 40 million in operational improvements. I assure you, we're not done. In my experience, we'll continue to find more previously unknown operational improvements across all functions. I'm glad we adopted WFA to initially protect our employees and embark on a mission to Uberize our workforce. It is just beginning to flow through and will benefit in 2023. Our goal is to reach and cross the inflection point as soon as possible. Our mantra these days, is converting actions into reality, into results, reflecting our current reality. Many thanks to our shareholders, lenders, employees, and many others. And with that, Sherry Kant, our CFO, please take it away.
spk16: Thank you, Parth. And thanks to everyone for joining us this evening. We filed our Q3 2022 10Q along with the restated audited consolidated financial statements in form 10KA for the year ended December 31st, 2021 to amend the originally filed 10K on March 16th of 2022. I will cover our third quarter results and provide an update on our growth and balance sheet initiatives first, and then follow it up with the discussion on the restatement. As we've done in the past, reporting both GAAP and non-GAAP numbers. Reconciliations are in our filings and in the appendix of the presentation. Let me walk you through the third quarter 2022 financial performance on slide 12. On a reported basis, revenue was $264 million, down 5.4% year-over-year, and $271 million on a constant currency basis, down 2.9% year-over-year. On a consolidated basis, Revenue for the quarter was adversely impacted by $7 million from the currency translation change, $15.1 million from transition revenue and contract losses, and $4.5 million impact from network outage on contracted revenue, and was positively offset by revenue growth of $7.2 million and $4.1 million of cleared backlog. The details of these are on slide five. Additionally, we were not able to capture approximately 4.6 million of revenue during the quarter due to continued staffing shortage. Let's quickly look at our segment revenue performance for the quarter. Revenue for our ITPS segment was 185.3 million, a decrease of 11% from 208.3 million in the third quarter of 2021. The decrease was primarily due to the factors described earlier. Our healthcare solution segment revenue totaled 61 million, a 13% increase on a year-over-year basis from 54 million in the year-ago period. The strength in revenue is led by our customers' continued acceptance of our solutions and services. Our legal and loss prevention service segment revenue was 17.8 million, a 5.3% increase on a year-over-year basis from 16.9 million driven by steady project-based business. Gross profit for the third quarter was $46.2 million, down $21.3 million, or 31.6% year-over-year. Gross profit and margins were impacted due to inflation, tight job market, investment in bench costs, and network outage. Gross profit margin for the third quarter was 17.5%, down 668 bps from Q3 of the prior year, and down 106 basis points sequentially due to a number of factors previously highlighted. SG&A for the third quarter totaled $44.4 million, up $1.1 million year over year, and lower by $5.8 million sequentially, and representing 16.8% of sales. SG&A was impacted by network outage-related costs and continues to carry professional fees, including certain non-recurring transaction-related costs. Adjusted EBITDA was $31.8 million, down 12.5% from the $36.4 million in the prior year period, and down by 12.7% sequentially. Our adjusted EBITDA margin for the third quarter was 12.1%, down 98 basis points from 13% in the third quarter of 2021, and down 161 basis points sequentially. On a gap basis, I would like to highlight two non-cash items that had a material impact on the comparative three months net income year over year, both of which are neutral to adjusted EBITDA. One, as a result of the interim impairment analysis at September 30, 2022, the company recorded an impairment charge of $29.6 million to Goodwill relating to our ITPS segment. Number two, three months ended September 30, 2021, which is the last year, It benefited from a gain on early extinguishment of debt of 28.1 million in connection with the repurchase, excuse me, with the repurchase note and senior secure term loan. Before moving to the next slide, I would like to highlight some of the key items from prior slides discussed by PAR on the initiatives to address the performance of the company. Cable TCV conversion from sales pipeline, despite macro headwinds, is encouraging from a revenue perspective. And initiatives for gross margin and operating income improvement in 2023, including COLA and price increases, rent reduction, executed annual savings, and additional savings underway, are actions to address rising costs and improving margins. Let's turn to slide 13 and discuss the balance sheet. To encapsulate the slide, our goal is to focus on near-term results to expand liquidity. We paid off all of our liabilities due in 2022 by extinguishing the revolver in appraisal action for a total of $163 million. Our blended coupon rate is 11.14%, and we are considering adding a term loan of additional $30 to $35 million of liquidity. Before opening up for the Q&A, I will provide an update on the restatement of our prior period financial results. Earlier this evening, the company restated its audited consolidated financial statements in the 2021 Form 10-K for the year ended December 31st, 2021, which was originally filed with SEC on March 16th of 2022. I would like to highlight three important facts. First, there was no impact of the restatement on our reported revenue, net income, and adjusted EBITDA. Second, there was no impact or changes to our cash balances or cash flow statement. Third, the only change to a financial statement was a reclassification of the securitization facility from long-term to current in the restated balance sheet as of December 31, 2021. Additionally, the restatement does not have an effect on retained earnings or other components of equity, net assets, or poor share amounts disclosed in the original report. The restatement arises from the inclusion of disclosure related to the existence of substantial doubt about the entity's ability to continue as a going concern under the standards of ASC Subtopic 20540 on going concern. The amendment includes reissued audit reports from KPMG LLP, the company's independent registered public accounting firm, due to the restatement. As a result of the issuance of an amended audit report including a going concern explanatory paragraph, indebtedness under one of the company's borrowing facilities would have become current and we reclassified it from long-term to current in the restated balance sheet as of December 31, 2021. Please refer to the explanatory note on the filed 10-K-A for additional details, including changes to the financial statement footnotes for the fiscal year ended December 31, 2021. Note that each of the quarterly filings in 2022 includes the going concern footnote as well. Once again, thank you for joining the call. I will turn this over to Chuck to open it up for the Q&A.
spk11: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up.
spk07: And at this time, we'll pause momentarily to assume our roster.
spk11: And the first question will come from Zach Cummings with B. Reilly FBR. Please go ahead.
spk10: Hi. Good evening. Thanks for taking my questions. Thanks for taking the time. My question is really centered around the balance sheet. I guess I'll just make it a two-part question here. How are you thinking about available liquidity and options that you have to continue to address the balance sheet between now and year end? And then also just dovetailing off of that, can you talk about the rationale behind trying to list the XBP Europe business in the public markets? And really, how is that helping you address some of the current challenges on your balance sheet? Thanks.
spk06: Sure, Zach. Here we go, baby.
spk02: Maybe I kick that off. Zach, as I covered in my talk, our values, there's an intrinsic dislocation in the value. One of the primary reasons is that we are preparing for taking some of our assets and making them revalue the public markets on their own basis, and this is an example of that. It's not really meant to address your question, but it's meant to address the long-term value this company represents. Your question about the balance sheet or our need for liquidity, I think Srikanth covered in his I think it's slide number 13 that we plan to add additional term loan capacity of 30 to 35 million. And when you combine that with our equity that we raised in October, and we may raise, we will have runway for addressing any near-time needs. Sure, if I missed any, please feel free to add.
spk16: No, you covered it, Par. I guess, yeah, the additional point probably is that, is a little bit more color into that would be that, as you probably saw, the theme on the slide is, it reflects the height, focus, attention to convert actions into results. Our focus is on making operational improvements and converting that into liquidity. I guess that's the key thing that I'll call out.
spk10: Understood. And I guess I'll just try to squeeze in one more, just around your margins going here. I appreciate all the cost efforts that you've taken to reduce your overall footprint and drive better margins. Just given the current revenue headwinds that we've seen the past couple of quarters, when do you anticipate we should see some of these cost reductions start to translate into more stabilized gross margin performance going forward?
spk16: The expectations obviously has to be covered again on the presentation, Zach. The expectation is it'll start coming to fruition in Q4, but the pickup is going to be more pronounced in 2023 and onwards. Before I talk extensively about that, there's a couple of other data points that I probably will point out that's not apparent. Let's take the example of our healthcare solutions segment. While the focus probably has been on the revenue decline on ITPS and some of the margin compressions there, healthcare solutions is a good example where we're doing really well. And in particular, let's look at Q3. Whether it was sequential quarter, year over year, or year to date, year over year, all three, we had revenue gains in healthcare solutions. And when we started off this year from a margin perspective, specific to the healthcare business, or that segment, In Q4 and Q1, we saw margin compression there. And Zach, while it may not be apparent on the quarterly financials we press in from an earnings perspective, if you look at our 10 Qs for each of the three quarters, what you're going to find is in 2022, healthcare solutions went from, in Q1, 17.4% margins, to 18.9% in Q2, and Q3, 20.7%. The reason I call this out is when we look at a consolidated basis and look at the margin compressions, there is a positive story there. Whether it's healthcare solutions or LLPS, while we are still not at the 2021 margin levels, those both segments are seeing a margin improvement every quarter this year.
spk10: Understood. Well, I appreciate the additional color provided there, and nice to see the rebound in performance for healthcare solutions. But best of luck with the rest of the quarter, and looking forward to reconnecting soon. Thanks. Thanks for your question, Zach.
spk11: Again, if you have a question, please press star, then 1. Our next question will come from Randall Klein with Avenue Capital Group. Please go ahead.
spk09: Hey, guys. Thanks for taking the call. I think Zach... kind of addressed one or one and a half of my questions. The first one on the balance sheet, it looks like the answer to my question, which is, you know, it's great that you cleaned out 22. You know, I assume you want to reload liquidity. It sounds like you're already starting to take actions post-quarter end. You've already started raising more capital, and you'll continue to do so, so that you can continue to deal with your 23, you know, issues as well. I mean, I don't know if there's anything else to add there that you didn't cover with Zach, but that was going to be my first question.
spk06: Yeah, go ahead, Par.
spk02: I couldn't hear the last part, but if you did, please go ahead.
spk15: Yeah, first of all, Randall, again, thanks for the question.
spk16: More so, Par, it was an observation of the question and the answer that we had for Zach. I guess from, you know, I think from a number perspective, we covered it. you can probably provide more of a business color in terms of what's in store. I guess Randall's question is more around that.
spk09: I'll just jump to what was going to be my second question, which is more on the business outlook. So you've talked about Q3 is a bit of a seasonal low typically. You went through all these issues around the network outage, the new business ramp up on the winds, et cetera. I guess directionally on the revenue side, And again, you may have already asked or answered this with Zach, but it sounds like, you know, the inflection point for revenue as well as margin is happening kind of as we speak, right? I mean, kind of Q4-ish and then by definition more into 2023. Is that, again, kind of a quick summary of what you're trying to articulate?
spk16: That is correct, Randall. That will be our expectation. Obviously, to execute and convert is the key, as we covered and Par also mentioned in his presentation. We would like to see the pace of pipeline converting into revenue pickup. You know, this quarter, for example, we did see some delays in customer decisioning, even as we were working on getting back up from the network outage impact. So, yes. In summary, yes, that's our expectation, Randall.
spk02: I would add, with the 98% recurring revenue, as we look into Q4, in $7 million that we converted as new business, that's approximately 2%. With the pipeline that we have already won, converted into business, we just need to make sure that we don't have any obstacles like shortage of people, type of stuff that we faced for us to exceed our Q3 revenue numbers. Obviously, the goal is to do better than that, but looks like we are in a good position as we are in Q4.
spk09: Okay. That's good for me, guys. Thanks. Good luck. I hope no new surprises get in the way. You guys can execute on that. Thanks, everyone.
spk13: Thanks. Thanks for your question. Thank you.
spk11: This concludes our question and answer session. I would like to turn the conference back over to Mr. Vince Condoviti for any closing remarks. Please go ahead.
spk03: Thanks, Chuck, and thanks for everyone for dialing in to the call. We look forward to you joining our fireside chat with PAR and please enter your questions and we'll talk to you then. Thank you very much.
spk11: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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