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spk01: Good day and welcome to the Accela Technology fourth quarter 2022 financial results. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist 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 a touch-tone phone. 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 Vince Condavidi. Please go ahead.
spk02: Thank you, Dave, and thank you, everyone, for dialing in to discuss our fourth quarter annual results for the period ended December 31st, 2022. Earlier, our earnings release and presentation were posted to our website. Speakers on today's call are Par Chadha, Executive Chairman, and Srikanth Sotar, our Chief Financial Officer. Today's agenda will be similar to previous calls. Paul will provide an overview of our results and update you on our strategic initiatives, and Srikanth will walk you through our financial performance. We've been in communication with many investors via SpeakUp, and we hope that you're finding it useful. We expect this call to last under an hour. 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 the to those in such forward-looking statements. Such written uncertainties are set forth in our press release. And with that, I'll turn over the call to Par, our Executive Chairman. Par?
spk04: Thank you. Good evening, and thanks for dialing into our call. We managed to accomplish many of our objectives that we set out for 2022. However, I'll be remiss in not pointing out this was a very challenging year for us. Through all this, we maintained our focus to make operational improvements and balance sheet improvements. I'll cover that along with jury content in some more detail in our presentation today. Let's start with slide number three. Let me call out some highlights for our shareholders familiar with Accella and our new shareholders. Accella is a leader in business process management solution with 1.1 billion in revenue, proven track record in many of the services we offer, referenceable customers, I'd like to point out some of the stats have changed. Because we adopted work from anywhere business model, it has led to some positive reduction of operating facilities worldwide. We also were able to reduce our overall headcount. Now we stand at 16,000 people strong. We added some new services that you see in the box on the right, data science and analytics, hyper automation, work from anywhere, finance and accounting are some of the additional services that were smaller that are beginning to grow. These investments we hope will add to our profitable revenue growth in future periods. And that's an example of our award-winning services solutions from our customers. Let's switch to slide number four. We are proud of the fact XBP Europe solutions reach most of the populations in key markets. Our goal in 2023 and beyond is to leverage the foundation we have built over many years for further profitable growth. More on that later also. Let's switch to, let's look at slide number five. Many of the industrial research organizations that cover our industry are beginning to cover Accela over the last several years since we went public. In that period, we have won many awards, recognitions, and some of our services are moving up in the food chain, into the box, sometimes referred as the magic quadrant. Our goal, focus, is to achieve more of the solution of services into the box. It's a very important endorsement of our strategic value proposition and that we are confirmation that we are on the right path. This extra seal of approval is also important for our new customers acquisitions and for our existing customers as they look to vendors for new service offerings. You can count on us to keep this in our focus. Let's look at slide number six, please. Our revenue for 2022 came in at $1.077 billion. And our EBDA, adjusted EBDA, came in at $139.9 million. 7.7% revenue drop, while revenue dropped only 4% if you exclude the impact of rising costs, including inflation, tight job market, business mix, rising dollar, which was very negative against us this past year, and one-time events. I refer to the network outage that we suffered in the middle of the year. Our annual revenue, I'm sorry, our adjusted EBDA was materially impacted as well to the tune of $33.4 million. In addition to the cost management that we shared with you earlier in the quarter, the first quarter of this year, the operational improvements we are working on in the range of 65 to 75 million are primarily meant to improve our earnings over 2021 for 2022. However, the macro events and the one-time events made our actions less potent. With these actions still continuing, we hope to do better in 2023 and restore our adjusted EBDA percentage to historical levels. That means prior to 2022, when our margins were much better. In 2022, our ITPS and healthcare services segment both demonstrated good wins for our services. Healthcare segment grew 10.9%, while ITPS was lower by 12.9%. We are very, we are particularly happy with the progress our digital assets portfolio continues to make. I'll cover that in a little more detail further in my presentation. It's hard not to as they continue to clock higher growth rates. It's a good example of value we offer and of course, the success of digital marketing. As you know, we filed the merger proxy with SEC for pending merger with NASDAQ and the NASDAQ listing for our XPP Europe business and look forward to unlocking the value that will accrue to our shareholders. We continue to be the largest holder owner of that issue by a subsidiary Excel Intermediate, we added a little more in the first quarter of 2023 by purchasing some of the 2023 notes. The other very important item to note is that we, in 2022, reduced our debt by $141 million. But the total amount of debt we either purchased or distinguished or modified was over $296 million, broken up into $162.9 million that was due in 2022 and $133.3 million that was due in 2022. Considering the macro rent, this was not an easy task. but we accomplished and there is more for us to do. Let's switch to slide number eight. What's our objective for 2023? Our goal for 2023 is to reduce our debt in the range of 250 to 500 million. This is incremental reduction to what we did in 2022. We are in discussion with certain lenders to accomplish this. With the support of Accela entities, we will be able to accomplish a smaller quantum of production. However, with the support of our lenders, we can accomplish a much larger quantum of production. That's our goal. And if we succeed, we would have achieved our objective of having a sustainable balance sheet for Accela Intermediate. As many of you know, but it's important to highlight, this is the only entity in Accela remaining with high leverage, as all other Accela entities are almost debt-free. Let's switch to slide number nine. I'd like to emphasize that our shareholders own both the box on the left and the right. The difference on the box on the right is that it alone has a value of about 390 million and is materially debt-free. And the box on the left, which also you as our shareholders own, our goal there is to enable the company to reduce the debt that's carried by the Accela Intermediate, as I mentioned in my previous slide, which will enable us to start marching towards reducing the deep, deep discount, the deep intrinsic value discount our company suffers. We have much to do to accomplish this. And I hope to share with you those, as shared with those results, as we progress through this year. Let's look at slide number 10. These are impressive numbers, and our goal for 2023 is to finally achieve growth, both in revenue and our adjusted EBITDA. I would be remiss if I did not say barring any new wins. I do not want to visit the hazards of the past three years. where best laid plans were modified or we were not able to meet due to pandemic and many other issues. Let's look at slide number 11. We've done an extensive, as you can see on this slide, extensive amount of work to improve our operations. In summary, our estimate is between 65 to 75 million in savings. We anticipate material amount of these savings will flow through in 2023. In my experience, there is always some movement. And if Mr. Murphy, who struck each of the last three years, does not strike we hope to accomplish a turnaround, both in our operating performance, as well as reduction of interest and reduction of the quantum of debt within the fellow intermediate that has a lot of debt outstanding. I do expect some of these savings will roll into 2024. Our strategic goal with these actions is to get back on track before, where we were before the pandemic and the economic uncertainty that took us off the course. With that, I will hand over to our CFO, Shiri Kansorkar, to discuss additional details about our financials And I'll join you back for questions later.
spk03: Thank you, Par. Thanks to everyone for joining us on this call. I will cover our consolidated results and segment revenue for our fourth quarter and full year 2022 performance and provide an update on our balance sheet improvement initiatives. As we've done in the past, we're reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let me begin on slide 13 with a look at the highlights. 2022 revenue was 1.08 billion, down 7.7% year-over-year on a reported basis, or approximately 4% down after excluding one-time events and currency impact. We have a stable revenue base with high recurring revenue and a large pipeline, which is encouraging. Q4 of 2022 revenue of 267 million was down 9.3% year over year and 7.3% on a constant currency basis. However, revenue on a sequential basis was up by 1.1%. Gross profit for the year 2022 was approximately 200 million or 18.5% of revenue and lower by 78 million year over year 2021. In 2022, we experienced rising costs impacting our margins, including inflation, high job market, business mix, and one-time events. Existed EBITDA of $139.9 million for the year was lower by $33.4 million over 2021. As briefly discussed, the implemented actions expected to achieve savings in the range of 65 to 75 million beginning in Q4 of 2022 and into 2023 gives us a good expectation that adjusted EBITDA in 2023 to materially benefit from flow through of these savings actions. Turning to slide 14, I will cover the broad trends on the income statement since there's a common theme across the scenarios on this slide. Let me begin with the healthcare solution segment that posted solid revenue growth for all three scenarios. We experienced revenue growth of 15.5% in Q4 year over year, 7.2% for sequential quarter, and 9.8% for the full year. This is primarily driven by continued acceptance of our solutions and services and higher volume from existing customers. Gross margins for the healthcare solutions also experienced growth, 55.1% for Q4 year-over-year and 20.8% sequentially. Gross margin was down by 11% for 2022 as compared to 2021, mainly due to the higher bench costs we incurred during the first half of the year. ICPS revenue was down by 14.7% and 12.5% for Q4 year-over-year. and 2022 year-over-year, respectively. Revenue on our ITPS segment was impacted by lower volumes, currency impact, staffing impact, and network outage-related one-time impact. Apart from cost inflation, our growth investments for expansion of services and cloud operations impacted the growth margin for the ITPS segment, which was down approximately by 35% year-over-year. For sequential quarter, though, Q4 over Q3, revenue was flat and gross margin improved by 2.4%, indicating stability as well as flow-through of savings beginning to come to fruition. Revenue and gross margins in the LLP segment remained relatively steady compared to prior years. SG&A expenses in 2020 totaled $176.5 million, higher by $6.7 million, or 4% year-over-year. The increase was primarily attributable to higher inquiry related and other cost inflation. Our operating loss and net loss on a gap basis and EBITDA on a non-gap basis for Q4 of 2022 as well as full year 2022 was adversely impacted by non-cash goodwill impairment charge of 142 million in Q4 and 171 million in total for 2022. Approximately 200 million of non-cash charges on the income statement accounted for the 273 million of change to net loss compared year-over-year 2022 versus 2021. Let's turn to slide 15 to discuss the segment revenue on a year-over-year basis. A quick look at our segment revenue performance for 2022 year-over-year with a summary revenue walk on this slide provides a better view of the revenue drivers on these segments. ITPS revenue was adversely impacted by approximately $23 million for the year due to currency translation, in addition to $13.6 million due to network outage impact. Net of these two impacts, the revenue decline on ITPS year-over-year was 8.3% as compared to the reported 12.5%. Healthcare segment had a strong year with new wins and higher volumes as discussed on the prior slide. Overall, our current revenue base is stable and diversified from a customer industry and geography standpoint. XLS diversified entrenched customer base along with a large pipeline and demand for our solutions and services serving large markets and our many years of investment positioned the company well. Let's turn to slide 16 and go over some of our growth investments in 2022 and beyond. While we are focused on initiatives to improve gross margins and operating income, we are also investing in growth. In 2022, we invested in approximately $11 million to expand our services in FAO, data science, technology, and digital solutions, in addition to investments into our strategic shift to cloud operations, all of which will provide improvements to our EBITDA over time. Our capital expenditure in 2022 was approximately $22 million and was 2% of our revenues. 2023 CapEx is estimated at 1.5%. Moving to slide 17, I'd like to discuss updates to our balance sheet initiatives, including debt levels. As briefly mentioned on one of the earlier slides, $296 million in aggregate debt was extinguished in 2022, and through the filing date, $163 million of which was due and paid off in 2022, an additional reduction of $133 million between term loans, BRCC term loan and repurchase of 2023 notes was completed in total. Our blended coupon rate at year end was 11.14%. Our focus for 2023 will be to further reduce debt and interest expense and achieve a sustainable balance sheet for the company. In closing, we would like to emphasize these three key objectives for 2023, which we covered on earlier slides. One, grow revenue and improve adjusted EBITDA. Second, maintain growth investments, particularly in our cloud operations, while keeping our maintenance capex at 1.5% levels. And third, target debt reduction in the range of $250 to $500 million by strategic actions in progress to improve our liquidity and reduce total debt, thereby reducing cash interest. Thank you for joining us today. With that, I open the line for questions.
spk01: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. Also, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Zach Cummins with B. Riley Securities. Please go ahead.
spk00: Yep. Hi, good afternoon. Thanks for taking my questions. And I guess my first one is really centered around your plans to reduce debt this year. I think laying out a target of $250 million to $500 million in debt reduction. I mean, can you give us a sense of some of the pathways to getting proceeds to meaningfully make a dent into your current balance sheet and reduce that overall debt?
spk04: Zach, yes. Shrikant, if you don't mind, I'll take that. Zach, we filed the 8K a couple of days ago, which has a highlight of the discussions, a term sheet that we've been discussing. It lays out the foundation of how we achieved that debt and what prices we achieved that debt. The components of that are One, if we were to execute on that plan, we would get approximately 20% of the amount of the quantum of debt reduction from the consenting lenders, including ETI entities that own the debt. Second is we have hired bankers. You'll recognize the name, which I won't share on the call today. We've hired banks. bankers to launch a sale process for one of our subsidiaries that's not part of the intermediate, the borrower, as we call it. And the goal for that would be for us to provide ETI to provide support from the proceeds from the sale of that asset, which will permit an additional purchase of debt at a pre-agreed price of approximately $250 million. So when you look at it combined, that discount of debt that we achieved and the purchase of that, and there are more details, so I won't cover all the details, but I would kindly refer you to see all the details that are listed in the 8 filing. I'm happy to take more questions on this topic if you want on a sidebar. giving others a chance to ask other questions.
spk00: Yeah, perfect. No, thanks, Par. That's appreciated. And just my one follow-up question is just around operational performance. I mean, nice to see the continued strength in terms of new business wins. I guess maybe this is geared towards Shrikant, but can you talk about some of the cost savings initiatives, appreciating that you broke out kind of the subcategories where you expect to realize some of these expenses and savings opportunities? But can you just give us a sense of how that should begin to flow through the income statement and the financials as we progress through 2023? Sure.
spk04: Yeah, sure, it's targeted at you. But if you want to talk about what they are and which stuff, I can fill in. So you take it.
spk03: Sure. I lead by a couple of data points and happy for you to take over from there. Zach, I think even from an ITPS perspective, one quick data point that I had pointed out sequentially, we had a marginal improvement in the gross margins for ITPS segment, right? That's indicative of the actions that we have started to take in Q4 of 2022 to flow through. That's one data point. Second one, obviously, there was a slide where we broke out. Our focus is really on automation-related savings and investment into cloud infrastructure. change the mix of how we do from a productivity perspective. And then, of course, real estate as well as other savings that we had listed. So, Par, feel free to add to that.
spk04: No, you covered it well. You covered it well. It's really the power of cloud operations and automation giving us an opportunity to undo the damage caused by The inflation, tight job markets, which have dramatically increased our cost, I mean, to the tune of about a little over $75 million in gross property dollars that we suffered in 2022, less than 2021. So the goal is to restore it back to those levels.
spk00: Great. Well, thanks for taking my questions, and best of luck in the coming quarter.
spk04: Thanks, Zach.
spk00: Thank you. Thank you.
spk01: Our next question comes from Nick Cedire with Accella. Please go ahead. That concludes our question and answer session. I would like to turn the conference back over to Vincent Fondavidi for any closing remarks.
spk02: Great. Thank you, everyone, for dialing in, and we appreciate you taking the time with us. And in closing, I'd like to thank everyone and look forward to updating you as you make progress throughout the year. Thank you very much. We'll talk soon.
spk04: Before we sign off, I'd like to also point out that we are going to hold another shareholder session, which will be hosted like the last time that we held in the late November or early December in the coming several weeks. Look forward to speaking to some of our shareholders and answering their direct questions in that since this was a very short Q&A, I hope we have a more integrated questions and able to address many of your questions. Thank you very much. Have a good one.
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