Brief Overview

Exela Technologies, Inc. (NASDAQ: XELA) provides transaction processing solutions, enterprise information management, document management, and digital business process services worldwide. The company operates through three segments: Information & Transaction Processing Solutions (ITPS), Healthcare Solutions (HS), and Legal & Loss Prevention Services (LLPS).

Information & Transaction Processing Solutions (ITPS)

The ITPS segment provides:

lending solutions for mortgages and auto loans
banking solutions for clearing, anti-money laundering, sanctions, and interbank cross-border settlement
property and casualty insurance solutions for origination, enrollments, claims processing, and benefits administration communications
public sector solutions for income tax processing, benefits administration, and records management.
payment processing and reconciliation, integrated receivable and payables management, document logistics, and location services, records management, and electronic storage of data/documents
software, hardware, professional services, and maintenance related to information and transaction processing automation.

Healthcare Solutions (HS)

The HS segment provides revenue cycle solutions, integrated accounts payable and accounts receivable, and information management for healthcare payer and provider markets.

Legal & Loss Prevention Services (LLPS)

The LLPS segment processes legal claims for class action and mass action settlement administrations, involving project management support, notification, and outreach to claimants; and collects, analyzes, and distributes settlement funds. It also offers data and analytical services in the area of litigation consulting, economic and statistical analysis, expert witness services, and revenue recovery services for delinquent accounts receivable.

First Quarter 2021 Financial Statements Highlights:

Revenue: 18% decline YoY driven by lower transaction volumes since mid-March as a result of COVID-19, pruning of transaction revenue, and strategic asset sales
COGS/ Margins: increased 2.53% on a YoY basis primarily due to better cost and capacity management and reduction of stranded costs attributable to transition revenue offset by non-cash restructuring reserve related to two facilities in France
SG&A: declined by 17% while also including higher professional fees and advisory costs in Q1 2021
Adjusted EBITDA margin: increased by 3.34% primarily due to lower SG&A expenses coupled with operating leverage and lower O&R (optimization and restructuring) charges
CapEx: $2M in Q1 2021 including additions to internally developed software representing ~0.8% of revenue

Financial Statement Analysis

Income Statement

The revenue growth rate seems to decline a little (1.71%), from $365.5K to $300.1K. However, both gross margin and profit margin are improving strongly even though the company has a decline in revenue growth. It shows that the company has good cost control, indicating an improvement in cost management.

Balance Sheet

The total asset growth rate is continuously declining due to the large amortization of goodwill and intangible assets. Moreover, the company has increased its cash & cash equivalents for business expansion purposes. One of the issues is that account receivable accounts for a large portion of total current assets. It is a dangerous signal to the company’s liquidity as those may become “bad money” or default in the future.

Another issue is the company has a large portion of good and intangible assets. Formerly, the company was merged with other firms, called SourceHOV lCC, Novitex Holdings, Inc, and Quinpario Acquisition Corp. Goodwill can be viewed as a premium paid for acquiring business due to various reasons (synergy, global expansion, business expansions, etc.). Generally speaking, you don’t want to invest in a company with a large amount of goodwill as 1) it will boost the company’s asset value in “a hypothetical way” because it can’t be easily verified whether the goodwill paid off later, and 2) it will be amortized continuously which lowers the company’s total asset value.

Moreover, the company has very good control over its current liability, however, its long-term liability becomes worse. The company continuously borrowed money and its long-term debt surged. Even though the company doesn’t need to worry about it in the near term, but eventually the company has to pay it off. Currently, we have seen the company has a continuous decline in its revenue growth. If the company doesn’t make any changes to improve its revenue growth, then the company might not be able to pay its long-term debt in the future.

Lastly, the shareholders are continuously losing value from the company. According to the company’s balance sheet, shareholders’ equity value is declining consistently. Definitely, shareholders don’t want to see this happening.

Comparable Analysis

Revenue: the company has the largest revenue among all companies, indicating the company has captured a large portion of the market and ability to generate more revenue in the future
Price/Revenue: the company has the lowest price/revenue ratio, indicating it is relatively undervalued.
Net Income: the company has the largest net loss. Combined with revenue, it shows that the company also has a large cost besides the large revenue.
Net Margins: the company has a relatively average net margin of -16.71%.
ROA: the company has a relatively high negative ROA ratio, indicating inefficient asset usage.
Beta: the company has a relatively high beta, indicating high volatility and risk compared to the market index (S&P 500).
Ownership: relatively high holdings from both institutional investors and insiders, indicating that both groups have good faith in the company in the long term.
Market Trend (LTM): the company has the largest stock price gain in terms of percentage of 136.69% in the LTM among all the competitors

Conclusion

The company’s stock price has been slowly increasing over the last few days. Its price went up ~23% yesterday. Currently, the company has raised $85M for reducing debt, improving internal operations, and funding future growth opportunities. However, the company is still in its early stage with large volatility (dropped 15% from its previous price as of the time of writing). We expect to see large jumps and declines in its stock price in terms of percentage due to its large volatility. Remember, buy low and sell high. Don’t let the market noises distract you from making the right decisions.

Source: https://investors.exelatech.com/static-files/b5fe2a04-c872-4a64-b486-6841820620c0