XBP Europe Holdings Inc.

11/12/2024 | Press release | Distributed by Public on 11/12/2024 16:21

XBP Europe Holdings, Inc. Reports Third Quarter 2024 Results Form 8 K

XBP Europe Holdings, Inc. Reports Third Quarter 2024 Results

November 12, 2024

Third Quarter Highlights

● Revenue of $35.4 million, decrease of 5.6% year-over-year and increase of 5.5% sequentially
● Gross margin increased to 32.6%, a 800 bps increase year-over-year and 1,300 bps increase sequentially
● Operating profit of $2.5 million, an increase of $2.2 million year-over-year and $3.8 million sequentially
● Net loss of $2.8 million includes $0.7 million of FX losses, a decrease of $0.1 million year-over-year and $2.0 million sequentially
● Adjusted EBITDA from continuing operations of $4.8 million, an increase of $2.6 million year-over-year and $3.6 million sequentially
● Announced plans to divest on-demand printing operation

LONDON, UK and Santa Monica, CA, November 12, 2024 (GLOBE NEWSWIRE) - XBP Europe Holdings, Inc. ("XBP Europe" or "the Company") (NASDAQ: XBP), a pan-European integrator of bills, payments, and related solutions and services seeking to enable the digital transformation of its clients, announced today its financial results for the quarter ended September 30, 2024.

"Our focus on expanding technology sales and cost structure optimization contributed to our performance in the quarter. Our backlog is rising, and we are ramping up prudently and as fast as we can. We expect these efforts to result in a continued top and bottom line improvement. We are additionally excited by opportunities available to us as a result of being selected for the UK government's G-cloud 14 framework" said Andrej Jonovic, Chief Executive Officer of XBP Europe.

● Revenue: Total Revenue was $35.4 million, a decline of 5.6% year-over-year and an increase of 5.5% sequentially, primarily due to completion of projects, lower volumes, and client contract ends, offset by positive impact of new business, some of which is in early stage of ramp.
● Bills & Payments segment revenue was $24.6 million, a decline of 3.1% year-over-year, primarily attributable to lower postage revenue, lower volumes and client contract ends, offset by the positive impact of newly won business, some of which is in early stage of ramp.
● Technology segment revenue was $10.8 million, a decrease of 10.8% year-over-year, largely due to lower license sales offset by implementation and professional services revenue.
● Operating Profit: Operating Profit was $2.5 million, compared to $0.3 million in 3Q 2023. This was driven primarily by higher gross margins coupled with SG&A improvement. Our operating expenses include costs associated with accelerated migration to the cloud.
● Net Loss: Net loss was $2.8 million, compared with a net loss of $2.9 million in 3Q 2023. The year-over-year decrease was primarily driven by higher Operating Profit, offset by higher Income tax expense and interest expense.
● Adjusted EBITDA(1): Adjusted EBITDA from Continuing Operations was $4.8 million, an increase of $2.6 million or 116% compared to $2.2 million in 3Q 2023. Adjusted EBITDA margin was 13.7%, an increase of 770 basis points from 6.0% in 3Q 2023.
● Capital Expenditures: Capital expenditures were 2.0% of revenue compared to 0.7% of revenue in 3Q 2023, with the increase primarily due to higher investments for growth during the quarter versus a year ago.
● Adequate Liquidity: The Company's cash and cash equivalents totaled $7.8 million as of September 30, 2024 and additional funding available under secured borrowing facilities including the €15 million factoring facility.

Other Highlights:

● Pending Divestiture: During the third quarter of fiscal year 2024, the Company determined that its certain on-demand printing operation met the criteria to be classified as a discontinued operation, and, as a result, disposable group's historical financial results are reflected in the Company's condensed consolidated financial statements as discontinued operations and are presented separately from continuing operations. On a YTD basis, this business had Revenue of approximately $6.8 million and negative Adjusted EBITDA of approximately $3.3 million.

Segment Revenue and Profitability:

Three months ended September 30, 2024

Bills & Payments

Technology

Total

Revenue, net

$

24,555

$

10,845

$

35,400

Cost of revenue

19,402

4,446

23,848

Segment Gross Profit

5,153

6,399

11,552

Three months ended September 30, 2023

Bills & Payments

Technology

Total

Revenue, net

$

25,344

$

12,152

$

37,496

Cost of revenue

22,604

5,637

28,241

Segment Gross Profit

2,740

6,515

9,255

Below is the note referenced above:

(1)

Adjusted EBITDA is a non-GAAP measure. A reconciliation of Adjusted EBITDA is attached to this release.

Supplemental Investor Presentation

An investor presentation relating to our third quarter 2024 performance is available at investors.xbpeurope.com. This information has also been furnished to the SEC in a current report on Form 8-K.

About Non-GAAP Financial Measures

This press release includes constant currency, EBITDA and Adjusted EBITDA, each of which is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). XBP Europe believes that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial performance, results of operations and liquidity and allows investors to better understand the trends in our business and to better understand and compare our results. XBP Europe's board of directors and management use constant currency, EBITDA and Adjusted EBITDA to assess XBP Europe's financial performance, because it allows them to compare XBP Europe's operating performance on a consistent basis across periods by removing the effects of XBP Europe's capital structure (such as varying levels of debt and interest expense, as well as transaction costs resulting from the combination with CF Acquisition Corp. VIII. on November 29, 2023). Adjusted EBITDA also seeks to remove the effects of restructuring and related expenses and other similar non-routine items, some of which are outside the control of our management team. Restructuring expenses are primarily related to the implementation of strategic actions and initiatives related to right sizing of the business. All of these costs are variable and dependent upon the nature of the actions being implemented and can vary significantly driven by business needs. Accordingly, due to that significant variability, we exclude these charges since we do not believe they truly reflect our past, current or future operating performance. The constant currency presentation excludes the impact of fluctuations in foreign currency exchange rates. We calculate constant currency revenue on a constant currency basis by converting our current-period local currency revenue using the exchange rates from the corresponding prior-period and compare these adjusted amounts to our corresponding prior period reported results. XBP Europe does not consider these non-GAAP measures in isolation or as an alternative to liquidity or financial measures determined in accordance with GAAP. A limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in XBP Europe's financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures and therefore the basis of presentation for these measures may not be comparable to similarly-titled measures used by other companies. These non-GAAP financial measures are not required to be uniformly applied, are not audited and should not be considered in isolation or as substitutes for results prepared in accordance with GAAP. Net loss is the GAAP measure most directly comparable to the non-GAAP measures presented here. For reconciliation of the comparable GAAP measures to these non-GAAP financial measures, see the schedules attached to this release.

Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act, including certain financial forecasts and projections. All statements other than statements of historical fact contained in this press release, including statements as to future results of operations and financial position, revenue and other metrics planned products and services, business strategy and plans, objectives of management for future operations of XBP Europe, market size and growth opportunities, competitive position and technological and market trends, are forward-looking statements. Some of these forward-looking statements can be identified by the use of forward-looking words, including "may," "should," "expect," "intend," "will," "estimate," "anticipate," "believe," "predict," "plan," "targets," "projects," "could," "would," "continue," "forecast" or the negatives of these terms or variations of them or similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. All forward-looking statements are based upon estimates, forecasts and assumptions that, while considered reasonable by XBP Europe and its management, as the case may be, are inherently uncertain and many factors may cause the actual results to differ materially from current expectations which include, but are not limited to: (1) the outcome of any legal proceedings that may be instituted against XBP Europe or others and any definitive agreements with respect thereto; (2) the inability to meet the continued listing standards of Nasdaq or another securities exchange; (3) the risk that the business combination disrupts current plans and operations of XBP Europe and its

subsidiaries; (4) the inability to recognize the anticipated benefits of the business combination, which may be affected by, among other things, competition, the ability of XBP Europe and its subsidiaries to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees; (5) costs related to the business combination; (6) changes in applicable laws or regulations; (7) the possibility that XBP Europe or any of its subsidiaries may be adversely affected by other economic, business and/or competitive factors; (8) risks related to XBP Europe's potential inability to achieve or maintain profitability and generate cash; (9) the impact of the COVID-19 pandemic, including any mutations or variants thereof, and its effect on business and financial conditions; (10) volatility in the markets caused by geopolitical and economic factors; (11) the ability of XBP Europe to retain existing clients; (12) the potential inability of XBP Europe to manage growth effectively; (13) the ability to recruit, train and retain qualified personnel, and (14) other risks and uncertainties set forth in the sections entitled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" in the Annual Reports on Form 10-K filed on April 1, 2024 and, our subsequent quarterly reports on Form 10-Q and our current reports on Form 8-K as filed with the Securities and Exchange Commission (the "SEC"). These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Nothing in this press release should be regarded as a representation by any person that the forward-looking statements set forth herein will be achieved or that any of the contemplated results of such forward-looking statements will be achieved. Readers should not place undue reliance on forward-looking statements, which speak only as of the date they are made. XBP Europe gives no assurance that either XBP Europe or any of its subsidiaries will achieve its expected results. XBP Europe undertakes no duty to update these forward-looking statements, except as otherwise required by law.

About XBP Europe

XBP Europe is a pan-European integrator of bills, payments and related solutions and services seeking to enable digital transformation of its more than 2,000 clients. The Company's name - 'XBP' stands for 'exchange for bills and payments' and reflects the Company's strategy to connect buyers and suppliers, across industries, including banking, healthcare, insurance, utilities and the public sector, to optimize clients' bills and payments and related digitization processes. The Company provides business process management solutions with proprietary software suites and deep domain expertise, serving as a technology and services partner for its clients. Its cloud-based structure enables it to deploy its solutions across the European market, along with the Middle East and Africa. The physical footprint of XBP Europe spans 15 countries and 32 locations and a team of approximately 1,500 individuals. XBP Europe believes its business ultimately advances digital transformation, improves market wide liquidity by expediting payments, and encourages sustainable business practices. For more information, please visit: www.xbpeurope.com.

For more XBP Europe news, commentary, and industry perspectives, visit: https://www.xbpeurope.com/

And please follow us on social:

X: https://X.com/XBPEurope

LinkedIn: https://www.linkedin.com/company/xbp-europe/

The information posted on XBP Europe's website and/or via its social media accounts may be deemed material to investors. Accordingly, investors, media and others interested in XBP Europe should monitor XBP Europe's website and its social media accounts in addition to XBP Europe's press releases, SEC filings and public conference calls and webcasts.

Investor and/or Media Contacts:

[email protected]

XBP Europe Holdings, Inc.

Condensed Consolidated Balance Sheets

As of September 30, 2024 and December 31, 2023

(in thousands of United States dollars except share and per share amounts)

September 30,

December 31,

2024

2023

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

7,770

$

6,537

Accounts receivable, net of allowance for credit losses of $1,435 and $1,183, respectively

24,576

30,238

Inventories, net

4,056

4,045

Prepaid expenses and other current assets

6,912

6,550

Current assets held for sale

4,197

2,497

Total current assets

47,511

49,867

Property, plant and equipment, net of accumulated depreciation of $42,707 and $39,876, respectively

12,284

12,811

Operating lease right-of-use assets, net

6,726

5,206

Goodwill

23,281

22,823

Intangible assets, net

1,274

1,498

Deferred income tax assets

7,689

6,811

Other noncurrent assets

882

705

Noncurrent assets held for sale

-

3,018

Total assets

$

99,647

$

102,739

LIABILITIES AND STOCKHOLDERS' DEFICIT

LIABILITIES

Current liabilities

Accounts payable

$

11,271

$

13,281

Related party payables

5,523

13,350

Accrued liabilities

22,152

23,850

Accrued compensation and benefits

16,623

16,268

Customer deposits

723

323

Deferred revenue

6,500

6,004

Current portion of finance lease liabilities

26

91

Current portion of operating lease liabilities

2,118

1,562

Current portion of long-term debts

5,047

3,863

Current liabilities held for sale

4,529

3,479

Total current liabilities

74,512

82,071

Related party notes payable

1,559

1,542

Long-term debt, net of current maturities

26,406

12,763

Finance lease liabilities, net of current portion

-

23

Pension liabilities

11,430

12,208

Operating lease liabilities, net of current portion

4,781

3,785

Other long-term liabilities

1,720

1,635

Noncurrent liabilities held for sale

-

1,280

Total liabilities

$

120,408

$

115,307

Commitments and Contingencies (Note 12)

STOCKHOLDERS' DEFICIT

Preferred stock, par value of $0.0001 per share; 10,000,000 shares authorized; none issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

-

-

Common Stock, par value of $0.0001 per share; 200,000,000 shares authorized; 30,166,102 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

30

30

Additional paid in capital

885

-

Accumulated deficit

(21,039)

(11,339)

Accumulated other comprehensive loss:

Foreign currency translation adjustment

(1,609)

(1,416)

Unrealized pension actuarial gains, net of tax

972

157

Total accumulated other comprehensive loss

(637)

(1,259)

Total stockholders' deficit

(20,761)

(12,568)

Total liabilities and stockholders' deficit

$

99,647

$

102,739

XBP Europe Holdings, Inc.

Condensed Consolidated Statements of Operations

For the three and nine months ended September 30, 2024 and 2023

(in thousands of United States dollars except share and per share amounts)

(Unaudited)

Three months ended September 30,

Nine months ended September 30,

2024

2023

2024

2023

Revenue, net

$

35,330

$

37,429

$

106,770

$

116,248

Related party revenue, net

70

67

217

163

Cost of revenue (exclusive of depreciation and amortization)

23,841

28,229

78,769

85,531

Related party cost of revenue

7

12

35

75

Selling, general and administrative expenses (exclusive of depreciation and amortization)

6,818

6,846

19,785

21,448

Related party expense

1,421

1,316

3,527

3,589

Depreciation and amortization

804

745

2,387

2,207

Operating profit

2,509

348

2,484

3,561

Other expense (income), net

Interest expense, net

1,820

1,246

4,698

3,641

Related party interest expense (income), net

23

5

64

(1)

Foreign exchange losses (gains), net

668

(530)

2,016

405

Changes in fair value of warrant liability

(5)

-

(45)

-

Pension income, net

(435)

(200)

(1,278)

(589)

Net income (loss) before income taxes

438

(173)

(2,971)

105

Income tax expense

1,664

1,046

2,666

1,523

Net loss from continuing operations

(1,226)

(1,219)

(5,637)

(1,418)

Net loss from discontinuing operations, net of income taxes

(1,543)

(1,668)

(4,063)

(4,533)

Net loss

$

(2,769)

$

(2,887)

$

(9,700)

$

(5,951)

Loss per share:

Basic and diluted - continuing operations

$

(0.04)

$

(0.05)

$

(0.19)

$

(0.06)

Basic and diluted - discontinuing operations

(0.05)

(0.08)

(0.13)

(0.21)

Basic and diluted

$

(0.09)

$

(0.13)

$

(0.32)

$

(0.27)

XBP Europe Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2024 and 2023

(in thousands of United States dollars)

(Unaudited)

Nine months ended September 30,

2024

2023

Cash flows from operating activities

Net loss

$

(9,700)

$

(5,951)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation

2,265

2,662

Amortization of intangible assets

554

289

Impairment of goodwill

87

-

Credit loss expense

249

271

Changes in fair value of warrant liability

(45)

-

Stock-based compensation expense

885

-

Unrealized foreign currency losses

1,976

215

Change in deferred income taxes

(761)

(357)

Change in operating assets and liabilities

Accounts receivable

5,741

2,874

Inventories

163

326

Prepaid expense and other assets

(855)

1,125

Accounts payable

(2,555)

(2,599)

Related parties payable

(8,350)

(2,246)

Accrued expenses and other liabilities

(1,428)

4,758

Deferred revenue

280

790

Customer deposits

340

(414)

Net cash provided by (used in) operating activities

(11,154)

1,743

Cash flows from investing activities

Purchase of property, plant and equipment

(1,124)

(2,254)

Additions to internally developed software

(317)

-

Net cash used in investing activities

(1,441)

(2,254)

Cash flows from financing activities

Borrowings under secured borrowing facility

-

87,769

Principal repayment on borrowings under secured borrowing facility

(79)

(90,357)

Borrowings under 2024 Term Loan A Facility

3,830

-

Borrowings under 2024 Term Loan B Facility

11,413

-

Borrowings under 2024 Revolving Credit Facility

15,425

-

Cash paid for debt issuance costs

(734)

-

Principal payments on 2024 Term Loan A Facility

(192)

-

Principal payments on 2024 Term Loan B Facility

(571)

-

Principal payments on long-term obligations

(15,256)

(690)

Proceeds from Secured Credit Facility

679

-

Principal payments on finance leases

(282)

(660)

Net cash provided by (used in) financing activities

14,233

(3,938)

Effect of exchange rates on cash and cash equivalents

(583)

(205)

Net increase (decrease) in cash and cash equivalents

1,055

(4,654)

Cash and equivalents, beginning of period, including cash from discontinued operations

6,905

7,473

Cash and equivalents, end of period, including cash from discontinued operations

$

7,960

$

2,819

Supplemental cash flow data:

Income tax payments, net of refunds received

424

1,112

Interest paid

1,869

1,309

XBP Europe Holdings, Inc.

Schedule 1: Reconciliation of Adjusted EBITDA and constant currency revenues

Reconciliation of Non-GAAP Financial Measures to GAAP Measures

Non-GAAP constant currency revenue reconciliation

Three Months ended September 30,

($ in thousands)

2024

2023

Revenues, as reported (GAAP)

35,400

37,496

Foreign currency exchange impact (1)

(688)

Revenues, at constant currency (Non-GAAP)

34,712

37,496

Reconciliation of Adjusted EBITDA from Continuing Operations

Three Months ended September 30,

($ in thousands)

2024

2023

Net loss from Continuing Operations (GAAP)

(1,226)

(1,219)

Income tax expense

1,664

1,046

Interest expense including related party interest expense, net

1,843

1,251

Depreciation and amortization

804

745

EBITDA from Continuing Operations (Non-GAAP)

3,085

1,823

Restructuring and related expenses (2)

316

309

Employment litigation matter (3)

57

64

Related party management fee and royalties

-

334

Foreign exchange losses, net

668

(530)

Non-cash equity compensation (4)

725

-

Changes in fair value of warrant liability

(5)

-

Transaction Fees (5)

-

244

Adjusted EBITDA from Continuing Operations (Non-GAAP) (6)

4,846

2,244

Reconciliation of Adjusted EBITDA from Discontinuing Operations

Three Months ended September 30,

($ in thousands)

2024

2023

Net loss from Discontinuing Operations, Net of Income Taxes (GAAP)

(1,543)

(1,668)

Income tax expense

72

-

Interest expense, net

3

19

Depreciation and amortization

135

350

EBITDA from Discontinuing Operations (Non-GAAP)

(1,333)

(1,299)

Restructuring and related expenses (7)

-

-

Related party service fees and royalties

-

-

Impairment of goodwill

87

-

Foreign exchange losses, net

2

1

Adjusted EBITDA from Discontinuing Operations (Non-GAAP) (6)

(1,244)

(1,298)

(1)

Constant currency excludes the impact of foreign currency fluctuations and is computed by applying the average exchange rates for the quarter ended September 30, 2023, to the revenues during the corresponding period in 2024.

(2)

Adjustment represents costs associated with restructuring, including employee severance and vendor and lease termination costs.

(3)

Represents the litigation settlement and associated expenses incurred in connection with the Company subsidiary litigation.

(4)

Represents the non-cash charges related to restricted stock units and options.

(5)

Represents transaction costs incurred as part of the Business Combination.

(6)

Supplemental financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the United States ("GAAP"). These non-GAAP financial measures should not be considered as alternatives to operating or net income or cash flows from operating activities, in each case determined in accordance with GAAP. These non-GAAP financial measures are among the indicators used by management to measure the performance of the

Company's operations, and also among the criteria upon which performance-based compensation may be based. Adjusted EBITDA also is used by our lenders for debt covenant compliance purposes.

Similar non-GAAP financial measures may be calculated differently by other companies, including other companies in our industry, limiting their usefulness as comparative measures. Because of these limitations, you should consider the non-GAAP financial measures alongside other performance measures and liquidity measures, including operating income, various cash flow metrics, net income and our other GAAP results.

(7)

Adjustment represents costs associated with restructuring related to employee severance.

Source: XBP Europe Holdings, Inc.