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spk05: Good morning and welcome to the Excella Technologies second quarter 2023 financial results conference call. 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 your touchtone phone. Please note this event is being recorded. I would like now to turn the conference over to Vince Condoviti, Vice President of Corporate Development. Please go ahead.
spk04: Thanks, Alan, and thank you for joining our second quarter 2023 conference call. As per usual practice, our earnings release and presentation are posted to the IR section of 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. PAR will provide an overview of our results, and Srikanth will walk you through our financial performance. We expect this call to last less than half an hour. Some of the matters we will discuss today's call are forward-looking and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially. Thoughts for risks and uncertainties are set forth in our press release. So, without further ado, I'll turn over the call to PAR, our Executive Chairman.
spk01: Thanks, Vin. Our improving metrics in the second quarter are a result of many factors, but certain ones stand above all. Focus on cost management, debt reduction, and our value propositions for services solutions enhanced by evolving AI. Our results speak for themselves and I'll walk you through a few slides that highlight them. Let's turn to slide number three. For shareholders who are new to Accela, let's do a quick walkthrough of Accela at a glance. We are approximately a $1.1 billion business process automation leader with presence in over 20 countries We're in key markets and key industries, for example, banking, insurance, and commercial industries, serving some of the most recognized brands in the world, and with 15,500-plus employees strong. Let's turn to slide number four. We branded our European business as XBP Europe, as many of you already know. A proxy was recently filed, and that can be found by searching with the ticker symbol CFFE. And if you're interested to learning more about this, that proxy contains a lot of details about this business. XBPs should start trading independently under the symbol XBP on NASDAQ in the coming weeks. The key message from the slide I'd like to emphasize is that our customers trust us with processing essential and key services. With that, let's turn to slide number five. I have to admit, it's very satisfying to be recognized by industry leaders, industry research organizations, Of course, being named a leader is the best reward and I hope in the coming quarters, we convert some of the others to leaders. Let's turn to slide number six of select Q2 highlights. Our second quarter revenue was $272.9 million. It was higher by 2.3% year-over-year. Our gross margins saw another quarter of improvement to 22.4% and up 3.8% year-over-year. our adjusted EBDA margins were the highest in the last seven quarters and came in at 15.1%, but not the highest we have achieved in the past. So we have more work to do. Our headcount grew to 15,549 from 15,108 sequentially, A rising headcount is related to rebalancing of our operations across geographies. More importantly, we are also making additional investments in many functional areas by adding people to strengthen our foundation. Almost two years ago, when I stepped into this role, we had too much debt, a lot of debt. I emphasize in my new role, mission to reduce it. In July of this year, we were able to finally complete another key milestone and reduce our long-term third-party held debt by almost one half. Telus subsidiary, XBP Europe, as I mentioned, will be listed shortly in the coming weeks. And it will trade as a majority-owned subsidiary of Accela Technologies Inc., the parent, with its own management team and the board. Let's turn to slide number seven. It's not a secret that we have been through a rough patch. Our teams have navigated the rough waters and continue to win new business from existing logos and added some new logos. We did lose some business and did not win some that we were highly qualified for. Our focus now is to leverage our foundation and focus on growth as a key objective as well. I'm not satisfied with our sales, and we have potential to do more as we enter calmer waters. Before I hand off to Shrikant, our CFO, I would like to re-emphasize that we'll remain focused on cost management, debt reduction, and expanding our value proposition. Thank you, Par.
spk00: Good morning, everyone. Thanks for joining us on this call. I will cover our consolidated results and segment gross margin performance for our second quarter of 2023. As we have done in the past, we are reporting both GAAP and non-GAAP numbers. Our cancellations are in the appendix of the presentation. Let's turn to slide nine to look at select financial performance highlights for Q2 of 2023. In line with our internal projections, revenue for the quarter was $272.9 million, higher by $6.2 million, or 2.3% year-over-year, and lower by $0.7 million, or 0.2% sequentially. On a constant currency basis, the revenue was up 2.5%, or by 6.6 million year over year. Gross profit was 60.9 million, up 11.4 million year over year, and up by 3.7 million sequentially. Margins improved to 22.3%, or 380 bits year over year, and up 140 bits sequentially. Adjusted EBITDA was 40.9 million, up 12.1% year-over-year, and up 17.8% sequentially. And adjusted EBITDA margin for the quarter was 15%, up 130 bps year-over-year, and up 230 bps sequentially. Moving on to slide 10, I will cover our Q2 2023 performance in some more detail. ITPS revenue was lower by 5 million or 2.6% for Q2 year-over-year and lower by 16.3 million or 4.1% year-to-date year-over-year. Revenue on our ITPS segment was impacted by lower volumes, customers rebalancing portfolios, attrition, and currency translation flux. We experienced revenue growth on our digital assets group, which we call as DAX, within the ITPS. growing at 17.2% in Q2 year-over-year and 7.1% year-to-date year-over-year. On a year-over-year basis, the gross margin on ITPS segment is being impacted by our growth investments for expansion of services and cloud operations. However, better cost management and productivity improvements helped stabilize the gross margins on this segment, even with lower revenues. 18.5% for year-to-date 2023 compared to 18.9% for year-to-date 2023, lower by 39 bps. Gross margin was up 73 bps sequentially. Healthcare solution segment revenue was higher by 7.2 million or 12.8% for Q2 year-over-year and higher by 13.7 million or 12.1% year-to-date year-over-year. Revenue growth in this segment is primarily driven by higher volumes from our new and existing customers. We posted strong gross profit improvement, 55.5% for Q2 year-over-year and 60.2% year-to-date year-over-year, and gross margin growth of 716 bits for Q2 year-over-year and 780 bits for year-to-date year-over-year. Gross profits and gross margin for the healthcare solution segment was higher as compared to 2022, mainly due to savings from automation-enabled productivity improvements and better workforce management to lower the bench costs incurred during the first quarter and first year of 2022. LLPS segment revenue was higher by 4 million, or 19.5%, for Q2 year-over-year, and higher by 3 million, or 8%, year-to-date year-over-year. Revenue growth in this segment is driven by higher demand for services. Q2 2023 gross margin was 38.3% for this segment, up 1,124 BIPs year-over-year, and year-to-date 2023, the margins were 36.4%, up 982 BIPs year-over-year. SG&A expenses in Q2 totaled $32 million. lower by 18.2 million, or 36.2% year-over-year, and year-to-date 2023 SG&A expense was lower by 16.8 million, or 18% year-over-year. The decrease was primarily attributable to better cost management, resulting in lower employee-related costs and lower professional fees. In Q2, we recorded a gain of 6.5 million on sale of high-speed scanner business, SG&A expense decreased as a percentage of revenues to 11.7% for Q2 of 2023 as compared to 18.8% for Q2 of 2022. Operating income for Q2 2023 was $11.2 million compared with operating loss of $20.9 million in Q2 of 2022. That's an improvement of $32.1 million year over year. EBITDA for Q2 2023 was 31.6 million compared to an EBITDA loss of 17.6 million in Q2 of 2022. EBITDA margin for Q2 2023 was 11.6% compared to negative 6.6% in Q2 of 2022. As discussed earlier, adjusted EBITDA for Q2 2023 was 40.9 million, an increase of 12.1% compared to 36.5 million in Q2 of 2022. Adjusted EBITDA margin for Q2 2023 was 15%, an increase of 131 basis points from 13.7% in Q2 of 2022, and an increase of 230 basis points sequentially from 12.7% in Q1 of 2023. Turning to slide 11, this slide highlights the completed strategic actions thus far to reduce debt and interest expense to achieve a sustainable balance sheet for the companies. The chart shows the absolute reduction in long-term liability from 1.608 billion in June of 2021 to 792 million after the completion of the exchange offer for 2026 notes in July of 2023. I wanted to also highlight that Accela does not have any additional cash interest on bonds to be paid in 2023. and we have the flexibility to defer nearly 50% of the cash interest in 2024. We have the ability to repurchase up to $250 million of notes for up to $150 million, in other words, at a 40% discount. We also raised a $40 million loan on July 11 with a 2026 maturity. Let us turn to slide 12 and go over our near-term and long-term outlook. These offer some guideposts for those modeling our business. A near-term revenue growth target of 2% to 3% with a long-term goal of 5% with a greater focus on AI solutions and services. Adjusted EBITDA targets of 10% to 13% in the near term and approximately 15% in the long term. We'll continue to invest in growth with a growth OPEX investment of approximately $10 million annually in the near term and a target capex of 1.5% of annual revenue. In closing, we're pleased to see actual results in line to better than our internal modeling. This concludes our financial review for Q2 of 2023. With that, Alan, let's open the line for any questions.
spk05: 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. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Zach Cummins of B. Reilly. Go ahead.
spk03: Hi, good morning. Thanks for taking my questions, and congrats on the solid results here in Q2. I just wanted to start off by asking about the overall sales environment right Par, I think you mentioned some challenges just in the overall broader environment, and maybe there was some business there that you thought that you were in line to win that maybe didn't go your way. So just curious on your overall thoughts on the sales environment right now.
spk01: Zach, good morning. What I referred to was when we were going through a rough patch, we were in lying to win some of the RFPs, but because of the rough patch, we were not able to win those. The business climate still remains challenging, but however, the business process automation, as I think I mentioned that in a couple of my other calls, is sort of contrarian, meaning people when they reduce, our customers when they reduce their headcount, They look for variable costs, which means companies like ours benefit from providing at-scale services during the periods of uncertainty in the macro environment. So I think we are going to see some good wins to help us grow our business. But our fundamental value proposition obviously is driving stability, recurring revenue, and as well as very high renewal rate. Thank you.
spk03: Understood. That's helpful. And Shrikant, I just had one question around gross margin. Can you talk about the improvements here in gross margin, specifically in the healthcare solution segment? And what's kind of the right baseline to think about for gross margin moving forward, depending on kind of seasonal fluctuations?
spk00: Hey, Zach, good morning. Thanks for the question. The current trends for the segment is probably a good baseline to go forward. Again, like you said, depending on seasonality as well. What's... What's pleasing for us, as I mentioned on my narrative, it's the savings related to the automation productivity improvements that's coming through for the healthcare segment more than anything else. So it goes back to the cost management and savings actions that we have in place this year that's resulting in the improved margins.
spk03: Understood. And final question for me is just really around some of your options to continue to strengthen the balance sheet and reduce debt. Nice to see you complete the debt exchange in early July, but can you just speak to some of the other options to continue to reduce debt on the balance sheet and maybe even any incremental update on potential asset sales?
spk01: Zach, we'll have to defer that question, answer to that question to a later date. There's a lot of things that we are doing, but I hate to get ahead of my skis. But needless to say, as Srikanth said, and he covered the slide number 11 about the debt reduction and an opportunity for us to purchase debt up to 250 million of debt. We are focused on... seeing if we can exercise that contractual ability. So I would say give us some time. It has been a lot of work for us to get this far and successfully navigate some really difficult waters. And we look forward to continuing to strengthen our balance sheet by reduction of debt and better cost management but also the value proposition of our services and solutions is going to help us as we go forward.
spk02: Understood. Well, thank you for taking my questions, and best of luck with the rest of the quarter. Thank you, Zach. Thank you. Thank you, Zach.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Par Chadha for any closing remarks.
spk01: I wish all of our shareholders a very good rest of the year or until we speak next. Thank you for joining us. Best.
spk02: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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