Aiming to improve its liquidity, the business process automation leader Exela Technologies, Inc. (NASDAQ: XELA) is looking to decrease its debts while enhancing performance according to its executive chairman Par Chadha. Meanwhile, XELA secured a $48 million contract – larger than the company’s market cap – which raises the question if XELA stock is undervalued. With XELA being at risk of delisting, the company plans to hold a special stockholders meeting on May 5th to vote for a potential reverse split. As XELA is also set to report its Q1 earnings on May 11th, XELA stock could be one to watch over the coming weeks.
XELA Stock News
Through its software and services, XELA provides a suite of multi-industry solutions addressing finance and accounting, human capital management, as well as legal management. At the same time, XELA offers industry-specific solutions for banking, healthcare, insurance, and the public sector.
Based on this, XELA shows significant growth potential since it already provides its services to more than 4000 customers across 50 countries in addition to serving 60% of Fortune 100 companies. Moreover, XELA’s solutions are popular in the banking industry as it processes over $1 trillion in deposits annually for more than 100 banks across the world including the top 10 US banks.
Overall, XELA applies its business process automation services to a range of industries. But its Exchange for Bills and Payments segment is the largest revenue contributor for its ITPS accounting segment which generated $874.2 million. This division has secured a number of high-value contracts over the last few months which could help offset the company’s substantial debt.
Secured Contracts
Considering the popularity of the company’s solutions, XELA recently closed a contract with the French National Insurance Fund to utilize the company’s PCH Global platform to accelerate the agency’s digital transformation process. This contract has the potential to boost XELA’s financials since its initial total contract value is $2.5 million but it could grow to more than $4.5 million over its 4-year period. This contract could also help XELA secure similar deals in the future since the company’s cost-saving solutions may appeal to new audiences due to the high levels of inflation across Europe.
In addition to this, XELA secured a 5-year contract with Austria’s National Railway Company (ÖBB) for a total contract value of $2.5 million. As part of this project, XELA will deploy its full digital payment platform that is able to decipher invoices across more than 13 languages. The company is also seeing repeat business from some returning customers such as a 5-year renewal with a leading Irish bank for a contract valued at $19 million.
XELA also signed 3-year contracts with two new customers worth $18.3 million. The solutions provided to these new customers will utilize several of XELA’s platforms including payment processing, collaborative workflow, as well as digital mailroom.
While all of these are valuable deals, XELA secured an extremely profitable contract for its Exchange for Bills and Payments (XBP) solution with a new customer for $136 million over three years. By allowing consumers and businesses to communicate and transact more efficiently, this solution has allowed XELA to become a leader in bills and payment processing.
Thanks to these multi-year, lucrative contracts, XELA could be a valuable investment for those bullish on this space.
Raising Funds
However, despite the company’s valuable contracts, XELA has been struggling financially due to its high levels of debt. For this reason, XELA launched its Capital Development Strategy to provide value to shareholders by negotiating and reducing its debt as well as repurchasing shares. Currently, the company is aiming to reduce its debt from around $1.35 billion to $1 billion after successfully reducing its debt from $1.56 billion in 2019 to around $1.35 billion. This strategy also included initiating sale processes for a number of its assets that are expected to generate more than $200 million in revenues.
On that note, XELA recently received an acquisition offer for a $200 million revenue business unit. While the company has not responded to this offer yet, XELA is actively negotiating with several parties regarding additional acquisition offers. With the company evaluating these offers and other strategic alternatives, XELA stock could be valued higher if the company successfully reduces its debt.
In addition, XELA closed a three-year $150 million financing facility with PNC Bank. This new facility will replace the company’s current securitization facility which will save the company $6 million in interest annually based on the current borrowing levels of 4%. As the company continues moving forward with this strategy, XELA could be in a better position financially thanks to these cost-saving measures.
Share Retirement
As for its share repurchase plans, XELA offered its shareholders the opportunity to exchange 100 million common shares for up to $125 million. According to this offer, units of 20 common shares could be exchanged for one series B preferred share with a liquidation preference of $25 per share. The tendered shares would then be retired – reducing the OS by 20.6%. With this in mind, XELA successfully completed this offer with 41.6 million shares tendered. The company has also discussed using the capital raised from its asset sales to initiate a share buyback in the future.
Potential NASDAQ Delisting
Meanwhile, XELA had been facing the risk of being delisted since it was out of compliance with the NASDAQ’s listing requirements. To reach compliance, XELA performed a 1:20 reverse share split which triggered a sell-off for the stock. The company was likely denied an extension and was forced to execute the reverse split on July 26th in order to meet the minimum 10 trading days above $1 before its August 8th deadline.
While many had been hoping XELA could be a short squeeze candidate, the CEO’s decision to execute a reverse split has led many shareholders to abandon the stock. However, in the long term, the reverse split will put the company in a better position since it is now compliant with the exchange.
After the reverse split, XELA has a float of roughly 21.1 million shares however the company has already started issuing approximately 64.8 million shares of common stock.
*Updated February 2nd, 2023
Exposure To The AI Sector
With OpenAI’s ChatGPT bot witnessing major success, the AI sector has been heating up thanks to its applications’ benefits for businesses. Given that business automation is at the core of the company’s operations, many investors are anticipating news from the company regarding ChatGPT integrations which could send XELA stock soaring. While the company has not shared any news regarding such integrations, XELA stock could be one to watch closely as it could be an AI sympathy play.
XBP Europe
Currently, XELA is preparing to spin off its European business – XBP Europe, Inc. – through a SPAC merger where XBP agreed to merge into CF Acquisition Corp. VIII (NASDAQ: CFFE). This spin-off values XBP at an enterprise value of $220 million and is expected to close in the first half of 2023. Upon the closure of this deal, the combined company will be called XBP Europe Holdings, Inc. and will be listed on the NASDAQ under the ticker XBP. While this spin-off reduces the value of the company, it could be pivotal for XELA’s long-term prospects since the company would now be able to address its debt situation more efficiently. This could be the case since XELA would not carry the XBP-related debt on its balance sheet.
NASDAQ Delisting
While the company affected a reverse split to maintain its NASDAQ listing recently, XELA is once again at risk of being delisted for not meeting the minimum bid price listing requirements. As a result, XELA was provided until April 10 to regain compliance with the listing requirement. However, XELA’s PPS continued its downward spiral with the stock currently trading near all-time lows below $.1. For this reason, the NASDAQ decided to delist XELA stock from the exchange.
On that note, XELA filed an appeal and a hearing date is set for March 2 to decide on the company’s future listing on the NASDAQ. With this in mind, many investors are watching XELA stock since the stock could witness a dead cat bounce in the lead-up to the hearing. Considering that the stock has been witnessing an extremely high trading volume this week, XELA could be a profitable buy in the short term.
Bankruptcy Risk
Given its high debt load, XELA could file for bankruptcy as its revenue growth continues to decline. On that note, XELA’s subsidiary – Exela Intermediate, LLC – failed to make the semi-annual interest payments under its 11.5% first-priority senior secured notes due 2026 and 10% first-priority senior secured notes due 2023. With Intermediate now in a 30-day grace period to make the interest payments, the subsidiary is in advanced talks with third parties to provide it with the required funds to make these payments. Since Intermediate’s efforts to seek funding may not be successful, the subsidiary could be on track to default on its debt which could be an alarming sign for XELA’s prospects.
*Updated May 5th, 2023
Fireside Chat with XELA’s Executive Chairman
In a recent fireside chat with the company’s executive chairman Par Chadha, Chadha explained that the company aims to improve its liquidity by enhancing performance and decreasing debts. Chadha stated that XELA’s debts were reduced from $1.6 billion at the beginning of 2021 to around $1 billion at the end of 2022 and the company aims to decrease it even more to around $500 million this year. Moreover, Chadha disclosed that the company doesn’t have any plans to perform ATMs to improve its liquidity which could be a promising sign that the company may not dilute anytime soon.
Securing a New Contract
As of late, XELA secured a contract with a large infrastructure operator in Europe valued at $48 million and is set to last five years. This agreement will have XELA supplying its contractor with highly secure solutions from its Digital Assets Group including AI-led hyper-automation, recognition, archiving, and other industry-leading features.
Currently, XELA’s market cap is around $41.4 million, almost $7 million less than the value of its recently secured contract indicating that XELA’s stock might be undervalued and could have the potential to rise moving forward based on that contract alone.
Another Reverse Split
However, XELA remains a risky investment since the company received multiple noncompliance notices from Nasdaq which might lead to XELA stock being delisted soon. With the company looking to maintain its NASDAQ listing, XELA has a special stockholder meeting planned for May 5th to vote on a reverse split in the range of 1-for-100 to 1-for-200.
On that note, such a split won’t cause any dilution to the stock or the shares owned by current stockholders. Yet, after executing its last 1 for-20 reverse split on July 22nd, 2022, XELA’s stock price dropped 43%. With this in mind, XELA’s stock price could further decrease following the upcoming reverse split, putting the stock at a more enticing PPS before its potential recovery.
Upcoming Q1 2023 Earnings
XELA is to report its Q1 earnings on May 11th, where analysts expect it to report revenue of $291.7 million and an EPS of -0.36
XELA Stock Financials
In its 2022 annual report, XELA reported $721.9 million in assets, including $15 million in cash and equivalents. XELA witnessed a decline in assets from $1 billion, including $20.7 million in cash and equivalents in 2021. XELA’s liabilities declined YoY from $1.7 billion to $1.5 billion as its current liabilities decreased from $591.8 million to $510 million. Additionally, the company’s long-term debt decreased YoY from $1 billion to $942 million.
XELA’s revenues declined YoY from $1.1 billion to $1 billion and its operating profit decreased from $21.3 million to a loss of $228.7 million. Finally, XELA’s net loss widened YoY from $143.9 million to $415.5 million
Media Sentiment
@777Echo777 is averaging down on XELA stock.
@IPOARMY is interested in XELA’s reverse split vote.
Technical Analysis
XELA stock’s trend is bearish as it is currently trading in a downward channel.
Looking at the indicators, XELA stock is trading below the 21 MA, 50 MA, and 200 MA which is a bearish sign. The RSI is oversold at 27 and the MACD is bearish but is curling bullishly.
Fundamentally, XELA’s most recent catalyst was its $48 million contract while its two upcoming catalysts are the possible reverse split based on the voting during the upcoming stockholder meeting on May 5th and XELA’s upcoming Q1 earnings call on May 11th.
The XELA stock price could increase as it is currently trading near the lower trade line, in addition to the MACD curling bullishly and anticipating the RSI to recalibrate. A possible play would be an entry at the current price and taking profits on the retest of the upper trend line.
XELA Stock Forecast
Based on Chadha’s latest fireside chat, XELA could be improving its liquidity by enhancing performance and focusing on further decreasing its debt to around $500 million. XELA will most likely not be diluting in the near term as the company is not planning for any ATMs in the future. On the other hand, XELA securing a $48 million contract – which is higher than its current $41.4 market cap – could be an indicator that the stock is undervalued and might increase in price later on. With XELA’s upcoming stockholder meeting on May 5th to vote for a reverse split, in addition to its upcoming Q1 earnings on May 11th, XELA is a stock to keep an eye on over the coming weeks in light of these catalysts.
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