Executive Summary

Q2 2023 delivered sequential margin improvement and year-over-year top-line growth: revenue $272.9M (+2.3% YoY), gross margin 22.3% (+380 bps YoY; +140 bps sequential), and adjusted EBITDA $40.9M (+12.1% YoY; +17.8% sequential) .
Operating income swung to $11.2M vs $(20.9)M YoY on cost control and a gain from an asset sale; net loss narrowed to $(30.9)M vs $(79.2)M YoY .
Management reiterated focus on debt reduction (long-term liabilities cut to ~$792M from $1.608B since 2021) and set near‑term targets: revenue growth 2–3%, adjusted EBITDA margin 10–13%, capex ~1.5% of revenue; noted no additional cash interest on bonds payable in 2023 with flexibility to defer ~50% in 2024 .
Potential catalysts: execution of debt repurchases (up to $250M face at ~40% discount), progress listing XBP Europe, and AI‑enabled solution wins (DAG growth +17.2% YoY) .

What Went Well and What Went Wrong

What Went Well

Gross margin expansion and adjusted EBITDA set recent highs: gross margin 22.3% (+380 bps YoY), adjusted EBITDA margin 15.0% (+130 bps YoY; +230 bps sequential). CFO: “adjusted EBITDA…15%, up 130 bps YoY and up 230 bps sequentially” .
Healthcare and LLPS segments strong: HS revenue +12.8% YoY with margin up 716 bps; LLPS revenue +19.5% YoY with Q2 gross margin 38.3% (+1,124 bps YoY). Management attributes HS margin gains to “automation enabled productivity improvements” and workforce management .
Strategic progress on balance sheet: long‑term liabilities cut to ~$792M; management emphasized the ability to repurchase notes at a discount and highlighted no cash interest on bonds for 2023 .

What Went Wrong

ITPS segment declined: revenue $185.0M (−2.6% YoY), pressured by lower volumes, portfolio rebalancing, attrition, and FX .
Revenue mix and macro headwinds persist: management cited a “challenging” climate and lost RFPs during a “rough patch”; despite improvements, the sales environment remains tough .
Nasdaq non‑compliance notice due to late 10‑Q filing (Q2 2023); company expects to regain compliance, but introduces procedural risk .

Financial Results

Consolidated Performance vs Prior Periods

Metric	Q4 2022	Q1 2023	Q2 2023
Revenue ($USD Millions)	$267.0	$273.6	$272.9
Gross Profit ($USD Millions)	$48.1	$57.2	$60.9
Gross Margin (%)	18.0%	20.9%	22.3%
SG&A ($USD Millions)	$38.9	$44.4	$32.0
Operating Income (Loss) ($USD Millions)	$(153.1)	$(6.9)	$11.2
EBITDA ($USD Millions)	$(135.8)	$18.0	$31.6
EBITDA Margin (%)	(50.9)%	6.6%	11.6%
Adjusted EBITDA ($USD Millions)	$35.5	$34.7	$40.9
Adjusted EBITDA Margin (%)	13.3%	12.7%	15.0%

Notes: Prepared remarks referenced gross margin of 22.4% and adjusted EBITDA margin 15.1%; press release schedules show 22.3% and 15.0% respectively .

EPS and Net Income

Metric	Q2 2022	Q1 2023	Q2 2023
Net Loss ($USD Millions)	$(79.2)	$(45.4)	$(30.9)
Loss per Share (Basic & Diluted) ($USD)	$(643.71)	$(0.05)	$(5.19)

Share count changes and corporate actions drove large YoY EPS swings; management presented metrics on both GAAP and non‑GAAP bases .

Segment Revenue Breakdown

Segment	Q2 2022 ($M)	Q1 2023 ($M)	Q2 2023 ($M)
Information & Transaction Processing Solutions (ITPS)	$190.0	$193.7	$185.0
Healthcare Solutions (HS)	$56.4	$63.0	$63.6
Legal & Loss Prevention Services (LLPS)	$20.4	$16.9	$24.3
Total Revenue	$266.8	$273.6	$272.9

KPIs and Other Items

KPI	Q2 2023	Prior Period/Context
New TCV Wins ($M)	$106.2	Renewal TCV $32.8
Gross Profit ($M) and Margin	$60.9; 22.3%	+$11.4M YoY; +380 bps YoY; +140 bps seq
Adjusted EBITDA ($M) and Margin	$40.9; 15.0%	+12.1% YoY; +230 bps seq
SG&A as % of Revenue	11.7%	Down from 18.8% YoY; includes $6.5M gain on sale of high‑speed scanner business
Capex (% of Revenue)	1.4%	Q1 2023: 1.1%
Headcount	15,549	15,108 prior quarter
Long‑Term Liabilities	~$792M (post July 2023)	From $1.608B (June 2021)
Nasdaq Compliance	Non‑compliance notice due to late 10‑Q; plan to regain compliance

Guidance Changes

Metric	Period	Previous Guidance (Q1 2023 call)	Current Guidance (Q2 2023 call)	Change
Revenue Growth	Near‑term	Low single digits	2–3% near‑term; 5% long‑term	Raised/clarified near‑term range
Adjusted EBITDA Margin	Near‑term	Improve ~200 bps in 2023	10–13% near‑term; ~15% long‑term	Framed explicit ranges
Capex (% of Revenue)	2023/Near‑term	~1.5%	Target ~1.5%	Maintained
Growth OpEx Investment	Near‑term	~$10M in 2023	~$10M annually near‑term	Maintained
Debt Reduction Actions	2023	Target $250–$500M reduction	Ability to repurchase up to $250M notes for ~$150M; raised $40M loan due 2026	Implementation detail advanced
Cash Interest on Bonds	2023–2024	Not specified	None in 2023; deferral ~50% in 2024 possible	New disclosure/positive

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2022)	Previous Mentions (Q1 2023)	Current Period (Q2 2023)	Trend
AI/Technology initiatives	Investment in cloud ops, data science; margin pressure in ITPS	Reiterated cloud investments; capex shift to OpEx	“Value proposition…enhanced by evolving AI” and DAG +17.2% YoY	Positive momentum, AI emphasis
Macro/Operating environment	Inflation, tight job market, network outage impacts	Revenue stability improving; cost savings flowing through	Sales environment “challenging,” but BPA seen as contrarian benefit	Stabilizing; cautious tone
Debt/Balance sheet	Target $250–$500M reduction; extinguished ~$296M in 2022	Continued recap efforts; transaction costs in SG&A	Long‑term liabilities ≈$792M; no 2023 bond cash interest; repurchase capacity	Progressing
Europe/XBP Europe	Listing plans; broad reach	Won large transactional deal; XBP Europe progress	XBP Europe listing “in coming weeks” (NASD symbol XBP)	Nearing milestone
Regulatory/Listing	—	—	Nasdaq non‑compliance notice; intent to file 10‑Q quickly	Procedural risk, addressing
Segment mix	ITPS margin pressure; HS growth	HS seasonality; ITPS improvement seq; LLPS margin gains	HS and LLPS strong; ITPS down YoY on volumes/rebalancing/attrition/FX	Mixed; HS/LLPS strong, ITPS soft

Management Commentary

Executive Chairman Par Chadha: “Our improving metrics…stand above all - focus on cost management, debt reduction and the value proposition of our services and solutions enhanced by evolving AI” .
CFO Shrikant Sortur: “Adjusted EBITDA…15%, up 130 bps year-over-year and up 230 bps sequentially…We recorded a gain of $6.5 million on sale of high-speed scanner business” .
On debt actions: “Exela does not have any additional cash interest on bonds to be paid in 2023…flexibility to defer nearly 50% of the cash interest in 2024…ability to repurchase up to $250 million of notes for up to $150 million” .
On sales environment: “Business climate still remains challenging…BPA is contrarian…customers…look for variable cost” .

Q&A Highlights

Sales environment and pipeline: Management acknowledged lost RFPs during prior “rough patch,” but expects BPA demand to support wins and renewals .
Healthcare margin sustainability: CFO noted automation-driven productivity improvements and workforce management as key drivers; current trends seen as a baseline subject to seasonality .
Balance sheet options: Management is pursuing debt repurchases and other actions but deferred specifics; reiterated contractual ability to buy debt at discount and continued focus on deleveraging .

Estimates Context

Wall Street (S&P Global) consensus estimates for Q2 2023 were unavailable due to missing CIQ mapping for XELA; therefore, we cannot present revenue/EPS vs consensus comparison. Values would normally be retrieved from S&P Global.*
Implication: Without published consensus, analyst models may need to incorporate reported margins and segment trajectories; the sequential improvement in adjusted EBITDA margin and HS/LLPS strength could drive upward adjustments to profitability assumptions .
*Values retrieved from S&P Global (consensus unavailable due to mapping).

Key Takeaways for Investors

Sequential operating improvement with gross margin expansion and adjusted EBITDA margin reaching 15.0%; continued cost discipline and mix improvements underpin momentum .
Segment divergence persists: strength in Healthcare and LLPS offsets ITPS pressure from volumes, customer rebalancing, attrition, and FX; monitor ITPS stabilization and DAG growth as an internal tailwind .
Balance sheet catalysts: near‑term absence of bond cash interest, potential deferral in 2024, and discounted debt repurchases are material de‑risking levers; watch for execution updates .
Corporate actions: XBP Europe listing progress could unlock value and improve strategic flexibility; track timing and any capital market implications .
Procedural risk: Nasdaq non‑compliance notice tied to 10‑Q timing; management intends to cure—monitor filings and any listing updates .
Modeling considerations: Capex at ~1.5% of revenue and ~$10M growth OpEx annually are consistent investment run‑rates; leverage AI productivity gains particularly in Healthcare margins .
Near‑term trading: Positive narrative around margins and deleveraging may support sentiment; lacking consensus comparisons, stock reaction will hinge on debt actions and XBP milestones alongside sustained profitability execution .

Exela Technologies, Inc. (XELA)·Q2 2023 Earnings Summary