美國
證券交易委員會
華盛頓特區20549
表格
（標記一）
根據1934年證券交易法第13或15(d)條，本季度報告 |
截至期間結束
or
| 根據1934年證券交易法第13或15（d)條的轉型報告 |
過渡期從 到
委員會備案號碼：
（依據其憲章指定的註冊名稱）
| ||
(或其他司法管轄區的州 | （IRS僱主 | |
(主要領導機構的地址) | (郵政編碼) |
登記人的電話號碼，包括區號:(
根據法案第12(b)條註冊證券：
每種類別的證券 |
| 交易代碼 |
| 註冊在每個交易所的名稱： |
The | ||||
| 該 |
請用複選標記指示註冊公司（1）是否在過去12個月內（或註冊公司要求提交此類報表的更短期間）已提交證券交易法案第13或15（d）條規定的所有報告，並且（2）是否在過去90天內一直受到此類提交要求的約束。☒
請用複選標記表示，註冊者在過去12個月內（或註冊者需要提交此類文件的較短期間內）是否按照《規章S-t第405條（本章第232.405條）》要求遞交了每份互動數據文件。 ☒
請用複選標記表示，註冊者是大型加速歸檔者、加速歸檔者、非加速歸檔者還是較小的報告公司。請參閱《交易所法》第120億.2條中對「大型加速歸檔者」、「加速歸檔者」、「較小的報告公司」和「新興成長公司」的定義。
大型加速文件者☐ | 如果是新興增長公司，請勾選是否註冊人選擇不使用執行交易所第13（a）條規定所提供的任何新的或修訂的財務會計準則的推遲過渡期。 ☐☐ | 小型報表公司 | |
新興成長公司 |
如果公司無法符合證券交易法第13(a)條規定，使用延長過渡期來遵守任何新的或修訂的財務會計準則，請在複選框中指示。
用複選標記表示註冊申報者是否爲外殼公司（如《法案》規則120億.2所定義）。
截至2024年11月6日，註冊商擁有
XBP 歐洲 持股, 股份有限公司
彙編的綜合資產負債表
截至2024年9月30日和2023年12月31日
（以千美元計，除股票和每股金額外）
（未經審計）
九月三十日， | 12月31日， | |||||
| 2024 |
| 2023 | |||
資產 |
|
|
|
| ||
流動資產 |
|
|
|
| ||
現金及現金等價物 | $ | | $ | | ||
應收賬款，減去2024年4月30日和2024年1月31日的信用損失準備，分別爲 |
| |
| | ||
淨存貨 |
| |
| | ||
預付費用和其他流動資產 |
| |
| | ||
持有待售的流動資產 |
| |
| | ||
總流動資產 |
| |
| | ||
減：累計折舊淨額爲 $5,350 的固定資產和設備 |
| |
| | ||
經營租賃使用權資產，淨值 |
| |
| | ||
商譽 |
| |
| | ||
無形資產-淨額 |
| |
| | ||
遞延所得稅資產 |
| |
| | ||
其他非流動資產 | | | ||||
待售非流動資產 |
| — |
| | ||
資產總額 | $ | | $ | | ||
負債和股東赤字 |
|
|
|
| ||
負債 |
|
|
|
| ||
流動負債 |
|
|
|
| ||
應付賬款 | $ | | $ | | ||
| |
| | |||
應計負債 |
| |
| | ||
應計的薪酬和福利 |
| |
| | ||
客戶存款 |
| |
| | ||
遞延收入 |
| |
| | ||
融資租賃負債的流動部分 |
| |
| | ||
經營租賃負債流動部分 |
| |
| | ||
長期負債的流動部分 | | | ||||
待售的流動負債 |
| |
| | ||
流動負債合計 |
| |
| | ||
關聯方應付款項 |
| |
| | ||
長期負債淨額 |
| |
| | ||
金融租賃負債，減去流動部分 |
| — |
| | ||
養老金責任 |
| |
| | ||
經營租賃負債，淨值超過流動資產 |
| |
| | ||
其他長期負債 | | | ||||
持有待售的非流動負債 |
| — |
| | ||
負債總額 | $ | | $ | | ||
承諾和或可能負債 (注13) |
|
|
|
| ||
股東權益虧損 |
|
|
|
| ||
優先股票，每股面值$0.000025- |
| — |
| — | ||
普通股，面值$ |
| |
| | ||
股票認購應收款項。 |
| |
| — | ||
累積赤字 |
| ( |
| ( | ||
其他全部權益方法積累的損失： |
|
|
|
| ||
外幣翻譯調整 |
| ( |
| ( | ||
未實現的養老金精算增益，扣除稅款 |
| |
| | ||
其他綜合損益累計額 |
| ( |
| ( | ||
股東赤字總額 |
| ( |
| ( | ||
負債總額和股東權益虧損總額 | $ | | $ | | ||
附註是這些簡明綜合財務報表的一部分。
3
XBP歐洲控股公司，Inc。
簡明的彙總操作表
截至2024年和2023年9月30日的三個和九個月
(以美元千爲單位，除每股份額和每股金額外)
（未經審計）
截至2023年9月30日的三個月 | 截至2023年9月30日的九個月 | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
營業收入，淨額 | $ | | $ | | $ | | $ | | ||||
關聯方收入，淨額 |
| |
| |
| |
| | ||||
營業成本（不包括折舊和攤銷） |
| |
| |
| |
| | ||||
關聯方銷售成本 |
| |
| |
| |
| | ||||
銷售、一般及管理費用（不包括折舊及攤銷） |
| |
| |
| |
| | ||||
關聯方費用 |
| |
| |
| |
| | ||||
折舊和攤銷 |
| |
| |
| |
| | ||||
營業利潤 |
| |
| |
| |
| | ||||
其他費用（收益），淨額 |
|
|
|
|
|
|
|
| ||||
利息費用，淨額 |
| |
| |
| |
| | ||||
關聯方利息費用（收入），淨額 |
| |
| |
| |
| ( | ||||
匯率期貨損失（收益），淨額 |
| |
| ( |
| |
| | ||||
權證責任公允價值變動 |
| ( |
| — |
| ( |
| — | ||||
養老金收入，淨額 |
| ( |
| ( |
| ( |
| ( | ||||
稅前淨利潤（虧損） |
| |
| ( |
| ( |
| | ||||
所得稅費用 |
| |
| |
| |
| | ||||
持續經營中的淨損失 | ( | ( | ( | ( | ||||||||
終止業務的淨損失，扣除所得稅 | ( | ( | ( | ( | ||||||||
淨損失 | $ | ( | $ | ( | $ | ( | $ | ( | ||||
每股虧損: |
|
|
|
|
|
|
|
|
|
| ||
基本和攤薄 - 繼續經營 | $ | ( | $ | ( | $ | ( | $ | ( | ||||
基本和稀釋 - 停止運營 | ( | ( | ( | ( | ||||||||
基礎和稀釋 | $ | ( | $ | ( | $ | ( | $ | ( | ||||
附註是這些簡明綜合財務報表的一部分。
4
5
XBP Europe Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
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)
Accumulated Other | |||||||||||||||||||||||
Comprehensive Loss | |||||||||||||||||||||||
Unrealized | |||||||||||||||||||||||
Foreign | Pension | ||||||||||||||||||||||
Currency | Actuarial | ||||||||||||||||||||||
Common Stock | Additional | Net Parent | Translation |
| Losses, | Accumulated | Total | ||||||||||||||||
| Shares |
| Amount |
| Paid in Capital |
| Investment |
| Adjustment |
| net of tax |
| Deficit |
| Deficit | ||||||||
Balances at December 31, 2022 |
| — | $ | — | $ | — | $ | ( | $ | ( | $ | ( | $ | — | $ | ( | |||||||
Net loss January 1, 2023 to March 31, 2023 |
| — |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( | |||||||
Foreign currency translation adjustment | — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||||
Net unrealized pension actuarial losses, net of tax | — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Balances at March 31, 2023 | — | $ | — | $ | — | $ | ( | $ | ( | $ | ( | $ | — | $ | ( | ||||||||
Net loss April 1, 2023 to June 30, 2023 | — | — | — | ( | — | — | — | ( | |||||||||||||||
Classification adjustment | — | — | — | ( | | — | — | — | |||||||||||||||
Foreign currency translation adjustment | — |
| — |
| — |
| — |
| ( |
| — |
| — | ( | |||||||||
Net unrealized pension actuarial losses, net of tax | — |
| — |
| — |
| — |
| — |
| ( |
| — | ( | |||||||||
Balances at June 30, 2023 | — | $ | — | $ | — | $ | ( | $ | | $ | ( | $ | — | $ | ( | ||||||||
Net loss July 1, 2023 to September 30, 2023 | — | — | — | ( | — | — | — | ( | |||||||||||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | |||||||
Net unrealized pension actuarial losses, net of tax |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||||
Balances at September 30, 2023 |
| — | $ | — | $ | — | $ | ( | $ | | $ | ( | $ | — | $ | ( | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
The accompanying notes are an integral part of these condensed consolidated financial statements
XBP Europe Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
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)
Accumulated Other | |||||||||||||||||||||||
Comprehensive Loss | |||||||||||||||||||||||
Unrealized | |||||||||||||||||||||||
Foreign | Pension | ||||||||||||||||||||||
Currency | Actuarial | ||||||||||||||||||||||
Common Stock | Additional | Net Parent | Translation |
| Gains, | Accumulated | Total | ||||||||||||||||
Shares |
| Amount |
| Paid in Capital |
| Investment |
| Adjustment |
| net of tax |
| Deficit |
| Deficit | |||||||||
Balances at December 31, 2023 | | $ | | $ | — | $ | — | $ | ( | $ | | $ | ( | $ | ( | ||||||||
Net loss January 1, 2024 to March 31, 2024 |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | |||||||
Net unrealized pension actuarial gains, net of tax |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||||
Balances at March 31, 2024 |
| | $ | | $ | — | $ | — | $ | ( | $ | | $ | ( | $ | ( | |||||||
Net loss April 1, 2024 to June 30, 2024 | — | — | — | — | — | — | ( | ( | |||||||||||||||
Equity-based compensation | — | — | | — | — | — | — | | |||||||||||||||
Foreign currency translation adjustment | — | — | — | — | | — | — | | |||||||||||||||
Net unrealized pension actuarial gains, net of tax | — |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||||
Balances at June 30, 2024 | | $ | | $ | | $ | — | $ | ( | $ | | $ | ( | $ | ( | ||||||||
Net loss July 1, 2024 to September 30, 2024 | — | — | — | — | — | — | ( | ( | |||||||||||||||
Equity-based compensation | — | — | | — | — | — | — | | |||||||||||||||
Foreign currency translation adjustment | — | — | — | — | ( | — | — | ( | |||||||||||||||
Net unrealized pension actuarial gains, net of tax |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||||
Balances at September 30, 2024 |
| | $ | | $ | | $ | — | $ | ( | $ | | $ | ( | $ | ( | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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 | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
| |||
Depreciation |
| |
| | ||
Amortization of intangible assets |
| |
| | ||
Impairment of goodwill | | — | ||||
Credit loss expense |
| |
| | ||
Changes in fair value of warrant liability | ( | — | ||||
Stock-based compensation expense | | — | ||||
Unrealized foreign currency losses |
| |
| | ||
Change in deferred income taxes |
| ( |
| ( | ||
Change in operating assets and liabilities |
|
|
| |||
Accounts receivable |
| |
| | ||
Inventories |
| |
| | ||
Prepaid expense and other assets |
| ( |
| | ||
Accounts payable |
| ( |
| ( | ||
Related parties payable |
| ( |
| ( | ||
Accrued expenses and other liabilities |
| ( |
| | ||
Deferred revenue |
| |
| | ||
Customer deposits |
| |
| ( | ||
Net cash provided by (used in) operating activities |
| ( |
| | ||
Cash flows from investing activities |
|
|
| |||
Purchase of property, plant and equipment |
| ( |
| ( | ||
Additions to internally developed software | ( | — | ||||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities |
|
|
| |||
Borrowings under secured borrowing facility |
| — |
| | ||
Principal repayment on borrowings under secured borrowing facility |
| ( |
| ( | ||
Borrowings under 2024 Term Loan A Facility | | — | ||||
Borrowings under 2024 Term Loan B Facility | | — | ||||
Borrowings under 2024 Revolving Credit Facility | | — | ||||
Cash paid for debt issuance costs | ( | — | ||||
Principal payments on 2024 Term Loan A Facility | ( | — | ||||
Principal payments on 2024 Term Loan B Facility | ( | — | ||||
Principal payments on long-term obligations | ( | ( | ||||
Proceeds from Secured Credit Facility |
| |
| — | ||
Principal payments on finance leases |
| ( |
| ( | ||
Net cash provided by (used in) financing activities |
| |
| ( | ||
Effect of exchange rates on cash and cash equivalents |
| ( |
| ( | ||
Net increase (decrease) in cash and cash equivalents |
| |
| ( | ||
Cash and equivalents, beginning of period, including cash from discontinued operations |
| |
| | ||
Cash and equivalents, end of period, including cash from discontinued operations | $ | | $ | | ||
Supplemental cash flow data: |
|
|
|
| ||
Income tax payments, net of refunds received |
| |
| | ||
Interest paid |
| |
| | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
XBP Europe Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands of United States dollars except share and per share amounts)
(Unaudited)
1.General
XBP Europe Holdings, Inc. (the “Company” or “XBP Europe”) is a pan-European integrator of bills, payments and related solutions and services seeking to enable digital transformation of businesses. The Company’s name — “XBP” — stands for “exchange for bills and payments” and reflects the Company’s strategy to facilitate connections between buyers and suppliers to optimize clients’ bills and payments and related digitization processes. XBP believes its business ultimately advances digital transformation, improves market-wide liquidity, and encourages sustainable business practices.
The Company provides business process management solutions with proprietary software suites and deep domain expertise, serving as a technology and operations partner for its clients’ strategic journeys and streamlining their complex, disconnected payment processes. The Company serves over
These condensed consolidated financial statements should be read in conjunction with the below notes and the notes to the consolidated financial statements as of and for the year ended December 31, 2023 included in the XBP Europe annual report on Form 10-K for such period (the “2023 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024 and available at the SEC’s website at http://www.sec.gov.
The accompanying condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X under the Securities Act of 1933, as amended (the “Securities Act”), as they apply to interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These accounting principles require the Company to use estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from the Company’s estimates.
The condensed consolidated financial statements are unaudited, but include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim period. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.
Merger/Business Combination with CF Acquisition Corp. VIII
The Company was a special purpose acquisition company called CF Acquisition Corp. VIII (“CF VIII”) prior to the closing of a business combination (the “Business Combination”) on November 29, 2023. Pursuant to that certain Agreement and Plan of Merger, dated October 9, 2022 (the “Merger Agreement”) whereby XBP Europe, Inc., a Delaware corporation, and an indirect subsidiary of Exela Technologies, Inc., a Delaware corporation (“ETI”), became a wholly owned subsidiary of CFV III. In connection with the consummation of the Business Combination, the Company changed its name from CF VIII to “XBP Europe Holdings, Inc.” The Business Combination was accounted for as a reverse capitalization in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). Under this method of accounting, CF VIII was treated as the “acquired” company for financial reporting purposes with XBP Europe surviving as a direct wholly-owned subsidiary of CF VIII.
9
Divesture
During the third quarter of fiscal year 2024, the Company determined that its certain on-demand printing operations 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 assets and liabilities were retrospectively reclassified as assets and liabilities held for sale. See Note 3 - Discontinued Operations of the notes to condensed consolidated financial statements.
2.Reverse Recapitalization
As discussed in Note 1, on November 29, 2023, the Company consummated a business combination pursuant to the Merger Agreement. The Business Combination was accounted for as a Reverse Recapitalization, rather than a business combination, for financial accounting and reporting purposes. Accordingly, XBP Europe was deemed the accounting acquirer (and legal acquiree) and CF VIII was treated as the accounting acquiree (and legal acquirer). Under this method of accounting, the reverse recapitalization was treated as the equivalent of XBP Europe issuing stock for the net assets of CF VIII, accompanied by a recapitalization. XBP Europe has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:
| ● | XBP Europe pre-combination stockholder has the majority of the voting power in the post-Business Combination company; |
| ● | XBP Europe’s stockholder has the ability to appoint a majority of the Company’s board of directors (the “Board”); |
| ● | XBP Europe’s management team is the management team of the post-Business Combination company; |
| ● | XBP Europe’s prior operations is comprised of the ongoing operations of the post-Business Combination company; |
| ● | XBP Europe is the larger entity based on historical revenues and business operations; and |
| ● | The post-Business Combination company has assumed XBP Europe’s operating name. |
The net assets of CF VIII are stated at historical cost, with no incremental goodwill or other intangible assets recorded for the effects of the Business Combination. The consolidated assets, liabilities, and results of operations prior to the Business Combination are those of XBP Europe. The shares and corresponding capital amounts and earnings per share available for common stockholders, prior to the Business Combination, have been retroactively restated.
Upon closing of the Business Combination, the Company received net proceeds of $
Transaction costs consist of directors and officers liability insurance cost, legal and professional fees, and other fees relating to the consummation of the Business Combination. The Company incurred $
Immediately after giving effect to the Business Combination, there were
10
3.Discontinued Operations
The Company classifies assets as held-for-sale (“disposal group”) in the period when all of the relevant criteria to be classified as held for sale are met. These criteria include management’s commitment to sell the disposal group in its present condition and the sale being deemed probable of being completed within one year. Assets held for sale are reported at the lower of their carrying value or fair value less cost to sell. The fair values of disposal groups are estimated using accepted valuation techniques, including indicative listing prices. The Company considers historical experience, guidance received from third parties, and all information available at the time the estimates are made to derive fair value. Any loss resulting from the measurement is recognized in the period when the held for sale criteria are met. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the initial carrying value of the disposal group. Assets held-for-sale are not amortized or depreciated.
As of September 30, 2024, certain on-demand printing operations of the Company met the criteria for classification as held for sale and accordingly, was measured at the lower of their carrying value or its fair value less costs to sell. The Company recorded an impairment charge of $
The results of the disposable group are presented as discontinued operations in the condensed consolidated statements of operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Impairment loss was recorded during the three and nine months ended September 30, 2024, in impairment of assets in the condensed consolidated statements of operations. Further, the Company has reclassified the assets and liabilities of the disposable group as assets and liabilities held for sale in the condensed consolidated statements of balance sheets for all periods presented. The condensed consolidated statements of cash flows are presented on a consolidated basis for both continuing operations and discontinued operations. Unless otherwise noted, reference within the notes to condensed consolidated financial statements relates to continuing operations.
The financial results of the disposable group are presented as loss from discontinued operations, net of income taxes on the Company’s condensed consolidated statements of operations. The following table presents the major components of financial results of the Company’s disposable group for the periods presented:
11
Three months ended September 30, | Nine months ended September 30, | |||||||||||
(dollars in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Revenue, net | $ | | $ | | $ | | $ | | ||||
Cost of revenue (exclusive of depreciation and amortization) |
| |
| |
| |
| | ||||
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
| |
| |
| |
| | ||||
Related party expense |
| |
| |
| |
| | ||||
Depreciation and amortization |
| |
| |
| |
| | ||||
Impairment of goodwill (1) |
| |
| — |
| |
| — | ||||
Operating loss |
| ( |
| ( |
| ( |
| ( | ||||
Other expense, net |
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| |
| |
| |
| | ||||
Foreign exchange losses, net |
| |
| |
| |
| | ||||
Net loss from discontinuing operations before income taxes |
| ( |
| ( |
| ( |
| ( | ||||
Income tax expense |
| |
| — |
| |
| — | ||||
Net loss from discontinuing operations, net of income taxes | $ | ( | $ | ( | $ | ( | $ | ( | ||||
| (1) | During the third quarter of 2024, the Company recorded $ |
As of September 30, 2024, the assets and liabilities of the disposable group are classified as current in the Company’s condensed consolidated balance sheets, as it is probable that the sale will occur within one year. The following table represents the aggregated carrying amounts of classes of assets and liabilities that are classified as discontinued operations on the condensed consolidated balance sheets for the periods presented:
September 30, | |||
(dollars in thousands) |
| 2024 | |
ASSETS |
|
| |
Current assets |
|
| |
Cash and cash equivalents | $ | | |
Accounts receivable, net of allowance for credit losses of $ |
| | |
Inventories, net |
| | |
Prepaid expenses and other current assets |
| | |
Property, plant and equipment, net of accumulated depreciation of $ | | ||
Operating lease right-of-use assets, net |
| | |
Total current assets held for sale | $ | | |
LIABILITIES |
|
| |
Current liabilities |
|
| |
Accounts payable | $ | | |
Accrued liabilities |
| | |
Accrued compensation and benefits |
| | |
Customer deposits |
| | |
Current portion of finance lease liabilities |
| | |
Current portion of operating lease liabilities |
| | |
Total current liabilities held for sale | $ | | |
12
December 31, | |||
(dollars in thousands) |
| 2023 | |
ASSETS |
|
| |
Current assets |
|
| |
Cash and cash equivalents | $ | | |
Accounts receivable, net of allowance for credit losses of $ |
| | |
Inventories, net |
| | |
Prepaid expenses and other current assets |
| | |
Total current assets held for sale | $ | | |
Property, plant and equipment, net of accumulated depreciation of $ | $ | | |
Operating lease right-of-use assets, net |
| | |
Goodwill |
| | |
Deferred income tax assets | | ||
Other noncurrent assets | | ||
Total noncurrent assets held for sale | $ | | |
LIABILITIES |
|
| |
Current liabilities |
|
| |
Accounts payable | $ | | |
Accrued liabilities |
| | |
Accrued compensation and benefits |
| | |
Customer deposits |
| | |
Current portion of finance lease liabilities |
| | |
Current portion of operating lease liabilities |
| | |
Total current liabilities held for sale | $ | | |
Operating lease liabilities, net of current portion |
| | |
Total noncurrent liabilities held for sale | $ | | |
The following table presents significant non-cash items and capital expenditures of discontinued operations for the periods presented:
Nine months ended September 30, | ||||||
(dollars in thousands) |
| 2024 |
| 2023 | ||
Depreciation |
| $ | | $ | | |
Impairment of goodwill | | — | ||||
Credit loss expense (income) | | ( | ||||
Unrealized foreign currency losses |
| | — | |||
Purchase of property, plant and equipment |
| $ | ( | $ | ( | |
4.New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Effective January 1, 2024, the Company adopted ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements. The FASB-issued guidance clarifies the accounting for leasehold improvements associated with common control leases by requiring that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term), as long as the lessee controls the use of the underlying asset through a lease. Additionally, leasehold improvements
13
associated with common control leases should be accounted for as a transfer between entities under common control through an adjustment to equity, if, and when, the lessee no longer controls the use of the underlying asset. The adoption had no impact on the Company’s consolidated results of operations, cash flows, financial position or disclosures.
Recently Issued Accounting Pronouncements
In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements-Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which modifies the disclosure and presentation requirements of a variety of US GAAP codification topics by aligning them with the SEC Regulation S-X or S-K, which are rules about the form and content of financial reports. The provisions of this ASU are contingent upon when the SEC removes the related disclosure provisions from Regulation S-X and S-K. This guidance is effective for the Company no later than June 30, 2027 and is not expected to have a material impact on the Company’s consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires retrospective disclosure of significant segment expenses and other segment items on an annual and interim basis. Additionally, it requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”). This ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that adopting this standard will have on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an annual tabular effective tax rate reconciliation disclosure including information for specified categories and jurisdiction levels, as well as, disclosure of income taxes paid, net of refunds received, disaggregated by federal, state/local, and significant foreign jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that adopting this standard will have on its consolidated financial statements.
5.Summary of Significant Accounting Policies
The information presented below supplements the Significant Accounting Policies information presented in the 2023 Form 10-K.
Stock-Based Compensation
The Company accounts for all equity-classified awards under stock-based compensation plans at their “fair value.” This fair value is measured at the fair value of the awards at the grant date and recognized as compensation expense on a straight-line basis over the vesting period. The fair value of the awards on the grant date is determined using the stock price on the respective grant date in the case of restricted stock units and using an option pricing model in the case of stock options. The Company accounts for forfeitures as they occur. The expense resulting from share-based payments is recorded in selling, general and administrative expense in the condensed consolidated statements of operations.
Revenue Recognition
The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. Revenue is measured as the amount of consideration that is expected to receive in exchange for transferring goods or providing services. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. All of the Company’s material sources of revenue are derived from contracts with customers, primarily relating to the provision of business and transaction processing services and sales of recurring software licenses and professional services within each of the Company’s segments. The Company does not have any significant extended payment terms, as payment for invoices issued is received shortly after goods are delivered or services are provided.
14
Nature of Services
The primary performance obligations are to stand ready to provide various forms of business processing services, consisting of a series of distinct services that are substantially the same and have the same pattern of transfer over time, and accordingly are combined into a single performance obligation. The Company’s promise to its customers is typically to perform an unknown or unspecified quantity of tasks and the consideration received is contingent upon the customers’ use (i.e., number of transactions processed, requests fulfilled, etc.); as such, the total transaction price is variable. The variable fees are allocated to the single performance obligation charged to the distinct service period in which the Company performs the service.
Revenue from the sale of recurring software licenses is recognized ratably over the contractual term, unless perpetual licenses are granted or a noncancelable license is granted for a nonrefundable fee, which are recognized at a point in time. Professional services revenue consists of implementation services for new customers, or implementations of new products for existing customers. Professional services are typically sold on a time-and-materials basis and billed monthly based on actual hours incurred.
Revenue from the sale of hardware solutions is recognized on a point in time basis and related maintenance are recognized ratably over the contractual term.
Disaggregation of Revenues
The following tables disaggregate revenue from contracts by geographic region for the three and nine months ended September 30, 2024 and 2023:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
(dollars in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
France | $ | | $ | | $ | | $ | | ||||
Germany |
| |
| |
| |
| | ||||
United Kingdom |
| |
| |
| |
| | ||||
Sweden |
| |
| |
| |
| | ||||
Other |
| |
| |
| |
| | ||||
Total Revenue, net | $ | | $ | | $ | | $ | | ||||
Contract Balances
The following table presents contract assets, contract liabilities and contract costs recognized at September 30, 2024 and December 31, 2023:
September 30, | December 31, | |||||
(dollars in thousands) |
| 2024 |
| 2023 | ||
Accounts receivable, net | $ | | $ | | ||
Deferred revenues |
| |
| | ||
Customer deposits |
| |
| | ||
Costs to obtain and fulfill a contract | $ | | $ | | ||
Accounts receivable, net includes $
Deferred revenues relate to payments received in advance of performance under a contract. A significant portion of this balance relates to maintenance contracts or other service contracts where the Company received payments for upfront conversions or implementation activities which do not transfer a service to the customer but rather are used in fulfilling the related performance obligations that transfer over time. The advance consideration received from customers
15
is deferred over the contract term. The Company recognized revenue of $
Costs incurred to obtain and fulfill contracts are deferred and presented as part of intangible assets, net and expensed on a straight-line basis over the estimated benefit period. These costs represent incremental external costs or certain specific internal costs that are directly related to the contract acquisition or fulfillment and can be separated into two principal categories: contract commissions and fulfillment costs. Applying the practical expedient in ASC 340-40-25-4, the incremental costs of obtaining contracts are recognized as an expense when incurred if the amortization period would have been one year or less. These costs are included in selling, general and administrative expenses. The effect of applying this practical expedient was not material.
Customer deposits consist primarily of amounts received from customers in advance for postage. These advanced postage deposits are used to cover the costs associated with postage, with the corresponding postage revenue being recognized as services are performed.
Performance Obligations
At the inception of each contract, the Company assesses the goods and services promised in the Company’s contracts and identifies each distinct performance obligation. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts. For the majority of the Company’s business and transaction processing service contracts, revenues are recognized as services are provided based on an appropriate input or output method, typically based on the related labor or transactional volumes.
Certain of the Company’s contracts have multiple performance obligations, including contracts that combine software implementation services with post-implementation customer support. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which the Company estimates the expected costs of satisfying a performance obligation and adds an appropriate margin for that distinct good or service. The adjusted market approach is also used whereby the Company estimates the price that customers in the market would be willing to pay. In assessing whether to allocate variable consideration to a specific part of the contract, the Company considers the nature of the variable payment and whether it relates specifically to its efforts to satisfy a specific part of the contract. Certain of the Company’s software implementation performance obligations are satisfied at a point in time, typically when customer acceptance is obtained.
When evaluating the transaction price, the Company analyzes, on a contract-by-contract basis, all applicable variable considerations. The nature of the Company’s contracts gives rise to variable consideration, including volume discounts, contract penalties, and other similar items that generally decrease the transaction price. These amounts are estimated based on the expected amount to be provided to customers and reduce revenues recognized. The Company does not anticipate significant changes to its estimates of variable consideration.
Reimbursements from customers, such as postage costs, are included in revenue, while the related costs are included in cost of revenue.
16
Transaction Price Allocated to the Remaining Performance Obligations
In accordance with optional exemptions available under ASC 606, the Company did not disclose the value of unsatisfied performance obligations for (a) contracts with an original expected length of one year or less, and (b) contracts for which variable consideration relates entirely to an unsatisfied performance obligation, which comprise the majority of the Company’s contracts. The Company has certain non-cancellable contracts where a fixed monthly fee is received in exchange for a series of distinct services that are substantially the same and have the same pattern of transfer over time, with the corresponding remaining performance obligations as of September 30, 2024 in each of the future periods below:
(dollars in thousands) |
| ||
$ | | ||
| | ||
| | ||
| | ||
Total | $ | |
Net Loss per Share
Earnings per share (“EPS”) is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, using the more dilutive of the two-class method and if-converted method in the period of earnings. The two-class method is an earnings allocation method that determines earnings per share (when there are earnings) for common stock and participating securities. The if-converted method assumes all convertible securities are converted into common stock. Diluted EPS excludes all dilutive potential shares of common stock if their effect is anti-dilutive.
As the Company experienced net losses for the periods presented, the Company did not include the effect of
The components of basic and diluted EPS are as follows:
| Three months ended | Nine months ended | ||||||||||
September 30, | September 30, | |||||||||||
(dollars in thousands, except share and per share amounts) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Net loss from continuing operations attributable to common stockholders (A) | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss from discontinuing operations attributable to common stockholders (B) | ( | ( | ( | ( | ||||||||
Net loss attributable to common stockholders (C) | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average common shares outstanding – basic and diluted (D) |
| |
| |
| |
| | ||||
Income (Loss) Per Share: |
|
|
|
|
|
|
|
| ||||
Basic and diluted - continuing operations (A/D) | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Basic and diluted - discontinuing operations (B/D) | ( | ( | ( | ( | ||||||||
Basic and diluted (C/D) | $ | ( | $ | ( | $ | ( | $ | ( | ||||
17
6.Inventories
Inventories, net consist of the following:
September 30, | December 31, | |||||
(dollars in thousands) |
| 2024 |
| 2023 | ||
Finished goods | $ | | $ | | ||
Allowance for obsolescence |
| ( |
| ( | ||
Total inventories, net | $ | | $ | | ||
Finished goods inventory includes $
7.Accounts Receivable
Accounts receivable, net consist of the following:
September 30, | December 31, | |||||
(dollars in thousands) |
| 2024 |
| 2023 | ||
Billed receivables | $ | | $ | | ||
Unbilled receivables |
| |
| | ||
Less: Allowance for credit losses |
| ( |
| ( | ||
Total accounts receivable, net | $ | | $ | | ||
Unbilled receivables represent balances recognized as revenue that have not been billed to the customer. The Company allowance for doubtful accounts is based on a policy developed by historical experience and management judgment. Adjustments to the allowance for credit losses may occur based on market conditions or specific client circumstances.
The following table describes the changes in the allowance for expected credit losses for the nine months ended September 30, 2024 (all related to accounts receivables):
(dollars in thousands) |
|
| |
Balance at January 1, 2024 of the allowance for expected credit losses | $ | | |
Change in the provision for expected credit losses for the period |
| | |
Balance at September 30, 2024 of the allowance for expected credit losses | $ | |
18
8.Property, Plant and Equipment, Net
Property, plant, and equipment, which include assets recorded under finance leases, are stated at cost less accumulated depreciation, and amortization, and consist of the following:
| Expected Useful Lives |
| September 30, | December 31, | ||||
(dollars in thousands) |
| (in Years) |
| 2024 |
| 2023 | ||
Buildings and improvements |
| $ | | $ | | |||
Leasehold improvements |
| Shorter of life of improvement or lease term |
| |
| | ||
Machinery and equipment |
|
| |
| | |||
Computer equipment and software |
|
| |
| | |||
Furniture and Fixtures |
|
| |
| | |||
Finance lease right-of use assets |
| Shorter of life of the asset or lease term |
| |
| | ||
| |
| | |||||
Less: Accumulated depreciation and amortization |
| ( |
| ( | ||||
Total property, plant and equipment, net | $ | | $ | | ||||
Depreciation expense related to property, plant and equipment was $
9.Intangible Assets and Goodwill
Intangible Assets
Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization and consists of the following:
Weighted | |||||||||||
Average | September 30, 2024 | ||||||||||
Remaining | Gross | ||||||||||
Useful Life | Carrying | Accumulated | Intangible Asset, | ||||||||
(dollars in thousands) |
| (in Years) |
| Amount (a) |
| Amortization |
| net | |||
Customer relationships |
| $ | | $ | ( | $ | | ||||
Internally developed software | | ( | | ||||||||
Outsource contract costs |
|
| |
| ( |
| | ||||
Total intangibles, net | $ | | $ | ( | $ | | |||||
Weighted | |||||||||||
Average | December 31, 2023 | ||||||||||
Remaining | Gross | ||||||||||
Useful Life | Carrying | Accumulated | Intangible Asset, | ||||||||
(dollars in thousands) |
| (in Years) |
| Amount (a) |
| Amortization |
| net | |||
Customer relationships |
| $ | | $ | ( | $ | | ||||
Outsource contract costs |
|
| |
| ( |
| | ||||
Total intangibles, net | $ | | $ | ( | $ | | |||||
| (a) | Amounts include intangibles acquired in business combinations and asset acquisitions |
Aggregate amortization expense related to intangibles was $
19
Estimated intangibles amortization expense for the next five years consists of the following:
Estimated | |||
Amortization | |||
(dollars in thousands) |
| Expenses | |
Remainder of 2024 | $ | | |
2025 |
| | |
2026 | | ||
2027 |
| | |
2028 and thereafter | | ||
Total | $ | | |
Goodwill
The Company’s operating segments are significant strategic business units that align its products and services with how it manages its business, approach the markets and interacts with customers. The Company is organized into
Goodwill by reporting segment consists of the following:
Balances at | Currency | Balances at | ||||||||||||||||
January 1, | Translation | September 30, | ||||||||||||||||
(dollars in thousands) |
| 2024 |
| Additions |
| Disposals |
| Impairments |
| Adjustments |
| 2024 | ||||||
Bills and Payments | $ | | $ | — | $ | — | $ | — | $ | | $ | | ||||||
Technology |
| |
| — |
| — |
| — |
| |
| | ||||||
Total | $ | | $ | — | $ | — | $ | — | $ | | $ | | ||||||
Balances at | Currency | Balances at | ||||||||||||||||
January 1, | Translation | December 31, | ||||||||||||||||
(dollars in thousands) |
| 2023 |
| Additions |
| Disposals |
| Impairments |
| Adjustments |
| 2023 | ||||||
Bills and Payments | $ | | $ | — | $ | — | $ | — | $ | | $ | | ||||||
Technology |
| |
| — |
| — |
| — |
| |
| | ||||||
Total | $ | | $ | — | $ | — | $ | — | $ | | $ | | ||||||
10.Debt
Secured Borrowing Facility
On August 25, 2020, certain entities entered into an agreement wherein amounts due from clients were pledged to a third party, in exchange for a borrowing facility in amounts up to a total of €
On September 15, 2023, the relevant entities entered into an amendment to the Secured Borrowing Facility (the “Amended Factoring Agreement”) to convert the existing arrangement into a non-recourse factoring program wherein an unrelated third party (the “Factor”) shall provide financing to certain subsidiaries of the Company by purchase of certain approved and partially approved accounts receivables (as defined in the Amended Factoring Agreement) up to a maximum amount of €
20
the level of approval. The relevant entities shall have no continuing involvement in the transferred accounts receivable, other than collection and administrative responsibilities and, once sold, the accounts receivable shall no longer be available to satisfy creditors of the relevant entities.
The Company accounted for the transactions under the Amended Factoring Agreement as a sale under ASC 860, Transfers and Servicing, and treats it as an off-balance sheet arrangement. Net funds received from the transfers reflect the face value of the account less a fee, which is recorded as an increase to cash and a reduction to accounts receivable outstanding in the condensed consolidated balance sheets. The Company reports the cash flows attributable to the sale of account receivables to the Factor and the cash receipts from collections made on behalf of and paid to the Factor under the Amended Factoring Agreement, on a net basis as trade accounts receivables in cash flows from operating activities in the Company’s condensed consolidated statements of cash flows.
As of September 30, 2024, the Company’s outstanding factored accounts receivable amounted to $
2019 Credit Agreement
In October 2019, a wholly-owned UK subsidiary of XBP Europe (the “UK Subsidiary”) entered into a secured credit agreement (the “2019 Credit Agreement”) with HSBC UK Bank plc (“HSBC”) for a £
The 2019 Credit Agreement contains financial covenants including, but not limited to (a) a Combined Cashflow Coverage Ratio, which measures the ratio of (i) Combined Cashflow and (ii) Debt Service defined as finance charges in addition to mandatory repayments in respect to the 2019 Credit Agreement, (b) Combined Interest Coverage Ratio, which measures the ratio of (i) Combined EBITDA to (ii) Combined Finance Charges, (c) a Combined Total Net Leverage Ratio, which measures the ratio of (i) Combined Net Indebtedness in respect to the last day of the most recent period to (ii) EBITDA, (d) Guaranteed Intragroup Balances, (e) the Loan to Market Value defined as the Facility A Loan outstanding to the market value of the property in each case, as defined in the 2019 Credit Agreement. The term “Combined” refers to the UK Subsidiary and its wholly-owned subsidiaries.
The 2019 Credit Agreement and indenture governing the Secured Credit Facility contains limitations on the ability of the UK subsidiary to effect mergers and change of control events as well as certain other limitations, including limitations on: (i) the declaration and payment of dividends or other restricted payments (ii) substantial changes of the
21
general nature of the business, (iii) acquisition of a company, (iv) enter a joint venture, (v) or effect a dormant subsidiary to commence trading or cease to satisfy the criteria of a dormant subsidiary.
The UK Subsidiary’s obligations under the 2019 Credit Agreement are jointly and severally guaranteed by certain of its existing and future direct and indirectly wholly owned subsidiaries. The 2019 Credit Agreement and the 2022 Committed Facility Agreement (defined below) contain cross default provisions which relate to the UK Subsidiary and its subsidiaries, but not any other entities within the consolidated group.
At inception, borrowings under the Secured Credit Facility bore interest at a rate per annum equal to the LIBOR plus the applicable margin of
In June 2020, the UK Subsidiary entered into an amendment to the 2019 Credit Agreement, to provide an additional aggregate principal amount of £
The maturity of the Revolving Working Capital Loan Facility has since been extended on various dates subject to compliance with financial covenants. On May 10, 2024 the maturity was further extended to August 31, 2025. During the nine months ended September 30, 2024, the Company has repaid outstanding amount of $
As of December 31, 2023, the UK Subsidiary was in compliance with all affirmative and negative covenants under the 2019 Credit Agreement, including any financial covenants, pertaining to its financing arrangements.
2022 Committed Facility Agreement
In May 2022, the UK Subsidiary entered into a committed facility agreement (the “2022 Committed Facility Agreement”) with HSBC, which includes a term loan for £
The 2022 Committed Facility Agreement contains financial covenants including, but not limited to (a) a Combined Debt Service Coverage Ratio, which measures the cashflow less dividends, net capital expenditure, and taxation relative to the debt service for that relevant period, (b) interest cover, which measures EBITDA relative to the aggregate of (i) interest charges and (ii) interest element of finance leases in any relevant period, (c) Total Net Debt to EBITDA, which measures the total net debt relative to EBITDA for any relevant period, and (d) loan to market value, which measures the loan as a percentage of the aggregate market value of the Property. The term “Combined” refers to the UK subsidiary and its wholly-owned subsidiaries.
22
As of December 31, 2023, the UK Subsidiary was in compliance with all affirmative and negative covenants under the 2022 Committed Facility Agreement, including any financial covenants pertaining to its financing arrangements.
2024 Facilities Agreement
In June 2024, XBP Europe, Inc. a wholly-owned subsidiary of the Company, together with certain other subsidiaries (the “XBP Group”), entered into a Facilities Agreement (the “2024 Facilities Agreement”) with HSBC for a £
The Company used the 2024 Term Loan Facilities to repay in full all outstanding indebtedness under the 2019 Credit Agreement, 2020 Credit Agreement and 2022 Committed Facility Agreement. The Company incurred $
The 2024 Facilities Agreement contains financial covenants including, but not limited to, (i) requiring the maintenance of a consolidated total leverage ratio of not greater than
The 2024 Facilities Agreement and indenture governing the 2024 Secured Credit Facilities contains certain affirmative and negative covenants limiting on the ability of the XBP Group to effect mergers and change of control events as well as certain other limitations, including limitations on (i) incurrence of additional indebtedness or liens, (ii) dispositions of assets, (iii) substantial changes of the general nature of the business, (iv) entering into restrictive agreements, (v) making certain investments, loans, advances, guarantees and acquisitions, (vi) prepaying certain indebtedness, (vii) the declaration and payment of dividends or other restricted payments, (viii) engaging in transactions with affiliates, or (ix) amending certain material documents.
Except as otherwise provided by applicable law, all obligations under the 2024 Facilities Agreement are jointly and severally unconditionally guaranteed by each member of the XBP Group.
Borrowings under the 2024 Term Loan A Facility, the 2024 Term Loan B Facility and 2024 Revolving Credit Facility bear interest at a rate per annum equal to the SONIA plus the applicable margin of
During the nine months ended September 30, 2024, the Company has drawn $
During the three and nine months ended September 30, 2024, the Company repaid $
23
of September 30, 2024, the outstanding balance of the 2024 Term Loan A Facility and the 2024 Term Loan B Facility was $
As of September 30, 2024, the Company has drawn £
The Company may, at any time, prepay the principal of the 2024 Senior Credit Facilities. Each prepayment shall be accompanied by the payment of accrued interest, without any premium or penalty. However, the Company is limited to a maximum of
As of September 30, 2024, the XBP Group was in compliance with all affirmative and negative covenants under the 2024 Facilities Agreement, including any financial covenants, pertaining to its financing arrangements. The Company continually monitors its compliance with such covenants. The Company believes it will remain in compliance with all such covenants for the next twelve months; however, due to the inherent uncertainty, management’s estimates of the achievement of its financial covenants may change in the future.
Debt Outstanding
As of September 30, 2024, and December 31, 2023, the following debt instruments were outstanding:
September 30, | December 31, | |||||
(dollars in thousands) |
| 2024 |
| 2023 | ||
2024 Term Loan A Facility(1) | $ | | $ | — | ||
2024 Term Loan B Facility(2) | | — | ||||
Term loan | — | | ||||
2024 Revolving Credit Facility(3) | | — | ||||
Revolvers(4) | | | ||||
Secured borrowings under Securitization Facility |
| — |
| | ||
Total debt |
| |
| | ||
Less: Current portion of long-term debt |
| |
| | ||
Long-term debt, net of current maturities | $ | | $ | | ||
| (1) | Net of unamortized debt issuance costs of $ |
| (2) | Net of unamortized debt issuance costs of $ |
| (3) | Net of unamortized debt issuance costs of $ |
| (4) | Includes $ |
11.Income Taxes
The Company applies an estimated annual effective tax rate (“ETR”) approach for calculating tax provision for interim periods, as required under GAAP. The Company recorded an income tax expense of $
The Company’s ETR from continuing operations of
24
impacted by uncertain tax benefits, permanent tax adjustments, foreign tax rates that differ from the U.S. federal statutory rate, valuation allowances on a portion of the Company’s foreign deferred tax assets that are not more likely than not to be realized and remeasurement of existing uncertain tax positions.
For the three and nine months ended September 30, 2023, the Company’s ETR from continuing operations of (
During the nine months ended September 30, 2024, the Company's liability for unrecognized tax benefits (including interest and penalties) increased by $
As of September 30, 2024, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for the year ended December 31, 2023.
12.Employee Benefit Plans
U.K. Pension Plan
German Pension Plan
XBP Europe’s subsidiaries in Germany, Exela Technologies ECM Solutions GmbH, provides pension benefits to certain retirees. Employees eligible for participation include all employees who started working for the Company or its predecessors prior to September 30, 1987 and have finished a qualifying period of at least
Norway Pension Plan
The Company’s subsidiary in Norway provides pension benefits to eligible retirees and eligible dependents. Employees eligible for participation include all employees who were more than
25
registered under this plan and the pension obligation for the existing participants of the plan is calculated based on actual salary of the participants at the earlier of two dates, the participants leaving the Company or April 30, 2018.
Asterion Pension Plan
In 2018, Exela Technologies Holding GmbH (through the Asterion Business Combination), acquired the obligation to provide pension benefits to eligible retirees and eligible dependents. Employees eligible for participation included all full-time regular employees who were more than
Tax Effect on Accumulated Other Comprehensive Loss
As of September 30, 2024, and December 31, 2023, the Company had actuarial gain of $
Pension and Postretirement Expense
The components of the net periodic benefit cost are as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
(dollars in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Service cost | $ | | $ | | $ | | $ | | ||||
| |
| |
| |
| | |||||
| ( |
| ( |
| ( |
| ( | |||||
Amortization | ||||||||||||
| — |
| |
| — |
| | |||||
| |
| |
| |
| | |||||
Net periodic benefit cost | $ | | $ | | $ | | $ | | ||||
The Company records pension interest cost within interest expense, net. Expected return on plan assets, amortization of prior service costs, and amortization of net losses are recorded within pension income, net. Service cost is recorded within cost of revenue.
Employer Contributions
XBP Europe’s funding of employer contributions is based on governmental requirements and differs from those methods used to recognize pension expense. The Company made contributions of $
13.Commitments and Contingencies
Litigation
The Company is, from time to time, involved in certain legal proceedings, inquiries, claims and disputes, which arise in the ordinary course of business. Although management cannot predict the outcomes of these matters, management does not believe these actions will have a material, adverse effect on our condensed consolidated balance sheets, condensed consolidated statements of operations or condensed consolidated statements of cash flows.
26
Company Subsidiary Litigation
A group of
In March 2023,
The Company has appealed against the decision (and paid the amount of $
The substantive hearing was held on February 16, 2024 and a decision was made at the end of June 2024.
The Company reached a number of settlements with a certain number of claimants prior to the decision of the court and approximately $
Contract-Related Contingencies
The Company has certain contingent obligations that arise in the ordinary course of providing services to its customers. These contingencies are generally the result of contracts that require the Company to comply with certain performance measurements or the delivery of certain services to customers by a specified deadline. The Company believes the adjustments to the transaction price, if any, under these contract provisions will not result in a significant revenue reversal or have a material adverse effect on the Company’s condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statement of comprehensive loss or condensed consolidated statements of cash flows.
14.Fair Value Measurement
Fair Value of Financial Instruments
The carrying amount of assets and liabilities including cash and cash equivalents, accounts receivable, accounts payable and current portion of long-term debt approximated their fair value as of September 30, 2024 and December 31, 2023, due to the relative short maturity of these instruments. The fair values of the Company’s loans and receivables under the factoring arrangement entered into by subsidiaries of the Company are equal to the carrying values. Property and equipment, intangible assets, capital lease obligations, and goodwill are not required to be re-measured to fair value on a recurring basis. These assets are evaluated for impairment if certain triggering events occur. If such evaluation indicates that impairment exists, the respective asset is written down to its fair value.
As of September 30, 2024 and December 31, 2023, the Company determined the fair value of Private Warrants’ liability as $
27
condensed consolidated balance sheets under Level 3 fair value measurement using the Black-Scholes option pricing model.
The significant unobservable inputs used in the fair value of the Private Warrants liability are assumptions related to the inputs of exercise price, fair value of the underlying common stock, risk-free interest rate, expected term, expected volatility, and expected dividend yield. Significant increases (decreases) in the discount rate would have resulted in a lower (higher) fair value measurement. Significant increases (decreases) in the forecasted financial information would have resulted in a higher (lower) fair value measurement. For all significant unobservable inputs used in the fair value measurement of the Level 3 liabilities, a change in one of the inputs would not necessarily result in a directionally similar change in the fair value.
The following table reconciles the beginning and ending balances of net assets and liabilities classified as Level 3:
September 30, | |||
(dollars in thousands) | 2024 | ||
Balance at beginning of period | $ | | |
| ( | ||
Balance at end of period | $ | | |
15.Stock-Based Compensation
XBP Europe 2024 Stock Incentive Plan
On June 13, 2024, the stockholders of XBP Europe approved and adopted XBP Europe’s 2024 Stock Incentive Plan (the “XBP 2024 Equity Plan”) at XBP Europe’s 2024 Annual Meeting of Stockholders. Under the XBP 2024 Equity Plan, subject to adjustment for certain changes in capitalization or other corporate events, XBP Europe is authorized to issue up to
Restricted Stock Unit
Restricted stock unit awards generally vest ratably over a less than a year to three (
A summary of restricted stock unit activities under the XBP 2024 Equity Plan for the nine months ended September 30, 2024 is summarized in the following table:
Average | |||||||
Weighted | Remaining | ||||||
Number | Average Grant | Contractual Life | |||||
| of Units |
| Date Fair Value |
| (Years) | ||
Granted |
| | $ | | |||
Forfeited |
| — |
| — | |||
Vested |
| — |
| — | |||
Outstanding Balance as of September 30, 2024 | | $ | |
| |||
28
Options
Under the XBP 2024 Equity Plan, stock options are granted at a price per share not less than
Average | ||||||||||
Weighted | Weighted | Remaining | ||||||||
Average Grant | Average | Vesting Period | ||||||||
| Outstanding |
| Date Fair Value |
| Exercise Price |
| (Years) | |||
Granted |
| |
| $ | |
| $ | |||
Exercised |
| — | — | |||||||
Forfeited |
| — | — | |||||||
Expired | — | — | ||||||||
Outstanding Balance as of September 30, 2024(1) |
| |
| $ | |
| $ | |
| |
| (1) |
As of September 30, 2024, there was $
16.Warrants
As of September 30, 2024, the Company had the following common stock warrants outstanding:
| Warrants |
| Exercise Price |
| Issuance Date |
| Expiration | |
Private Placement Warrants |
| |
| |
| 3/11/2021 |
| 11/29/2028 |
Forward Purchase Warrants |
| |
| |
| 3/11/2021 |
| 11/29/2028 |
Public Warrants |
| |
| |
| 3/11/2021 |
| 11/29/2028 |
Total |
| |
|
|
|
|
|
|
Public Warrants
The Public Warrants qualify for the derivative scope exception under ASC 815 and are therefore classified as equity on the condensed consolidated balance sheets. They may only be exercised for a whole number of shares at a price of $
The Company may redeem the outstanding Public Warrants if the price per share of common stock equals or exceeds $
| ● | in whole and not in part; |
| ● | at a price of $ |
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| ● | upon not less than |
| ● | if, and only if, the closing price of the Common stock equals or exceeds $ |
If and when the Public Warrants become redeemable by us, we may not exercise our redemption right if the issuance of shares of Common Stock upon exercise of the Public Warrants is not exempt from registration or qualification under applicable state blue sky laws or we are unable to effect such registration or qualification.
Private Warrants
The Private Warrants meet the definition of a derivative, however they don’t meet the equity scope exception in ASC 815 and are therefore classified as a liability. The Private Warrants are identical to the Public Warrants, except that so long as they are held by Cantor or any Permitted Transferees, as applicable, the Private Warrants (i) may be exercised for cash or on a cashless basis, (ii) may not be transferred, assigned or sold until thirty (
Upon exercise of each of the Public Warrants and Private Warrants, the exercise price and number of shares of Common Stock issuable may be adjusted in certain circumstances including in the event of a stock dividend, a consolidation, combination, reverse stock split or reclassification of shares of Common Stock.
17.Stockholders’ Deficit
Preferred Stock — The Company is authorized to issue
Common Stock — The Company is authorized to issue
18.Restructuring
The Company periodically takes actions to improve operating efficiencies, typically in connection with rationalizing the cost structure of the Company. The Company’s footprint and headcount reductions and organizational integration actions relate to discrete, unique restructuring events, primarily reflected in approved plans for reductions in force.
In the fourth quarter of 2023, the Company’s management approved a restructuring plan to realign the Company’s business and strategic priorities by rightsizing its workforce in certain regions.
The Company’s restructuring activity and balance of the restructuring liability is as follows:
| September 30, |
| December 31, | |||
(dollars in thousands) | 2024 |
| 2023 | |||
Balance at beginning of the period | $ | | $ | | ||
| |
| | |||
Payment of benefits |
| ( |
| ( | ||
Balance at end of the period | $ | | $ | | ||
30
As of September 30, 2024 and December 31, 2023, the current portion of the restructuring liability was $
19.Related Parties
The components of related party expense in the condensed consolidated statements of operations are summarized as follows:
| Three months ended |
| Nine months ended | |||||||||
September 30, | September 30, | |||||||||||
(dollars in thousands) | 2024 |
| 2023 | 2024 |
| 2023 | ||||||
Related party shared services | $ | | $ | | $ | | $ | | ||||
Related party royalty |
| — |
| |
| — |
| | ||||
Related party service fee |
| |
| |
| |
| | ||||
Total related party expense | $ | | $ | | $ | | $ | | ||||
Historically, the Company has been managed and operated in the ordinary course of business with other affiliates of ETI. Accordingly, certain shared costs have been allocated to the Company and reflected as expenses in the condensed consolidated financial statements.
Sales of Products and Services
During the historical periods presented, the Company sold products and services to non-XBP Europe subsidiaries of ETI. Revenue, net in the condensed consolidated statements of operations include sales to affiliates of ETI of less than $
Purchases
During the historical periods presented, the Company purchased high-speed scanners and related products from non-XBP Europe subsidiaries of ETI. These purchases totaled $
Shared Service Center Costs
The historical costs and expenses reflected in our financial statements include costs for certain shared service functions historically provided by the non-XBP Europe subsidiaries of the Company’s parent, ETI, including, but not limited to accounting and finance, IT and business process operations. Where possible, these charges were allocated based on full-time equivalents (FTE’s), formal agreements between XBP Europe and subsidiaries of ETI, or other allocation methodologies that Management determined to be a reasonable reflection of the utilization of services provided or the benefit received by XBP Europe and all costs of operating XBP Europe during the periods presented.
The allocated shared service expenses and general corporate expenses incurred pursuant to the Services Agreement for the three months ended September 30, 2024 and 2023 were $
In the opinion of management of ETI and the Company, the expense and cost allocations have been determined on a basis considered to be a reasonable reflection of the utilization of services provided or the benefit received by the Company during 2024 and 2023. The amounts that would have been, or will be incurred, on a stand-alone basis could differ from the amounts allocated due to economies of scale, difference in management judgment, a requirement for more or fewer employees or other factors. Management does not believe, however, that it is practicable to estimate what
31
these expenses would have been had the Company operated as an independent entity, including any expenses associated with obtaining any of these services from unaffiliated entities. In addition, the future results of operations, financial position and cash flows could differ materially from the historical results presented herein.
Royalty Expenses
During the historical periods presented, subsidiaries of the Company’s parent, ETI, charged royalty fees for allowing the Company to use tradenames and trademarks owned by subsidiaries of ETI. The Company incurred royalty expense of $
Service Fee
During the historical periods presented, subsidiaries of ETI provided management services to the Company in exchange for a management fee. These management services included provision of legal, human resources, corporate finance, and marketing support. The management fee was calculated based on a weighted average of total external revenue, headcount and total assets attributable to the Company. On October 9, 2022 the management fee was terminated when the Merger Agreement was entered into and was replaced by the related party service fee pursuant to the Services Agreement, which reduced the fee and modified the services provided. Services provided under Annex A of the Services Agreement include sales of certain hardware, operations delivery, finance, accounting, human resource and technology support services. The Company incurred total fees of $
Note Receivable
The Company entered into an Intercompany Loan Agreement with an affiliate of ETI on January 1, 2016, where the Company agreed to lend up to €
Notes Payable
The Company entered into
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Further, the Company entered into another
Related Party Payables and Related Party Notes Payables Balances with Affiliates
Related party payables and related party notes payables balances with affiliates as of September 30, 2024 and December 31, 2023 were as follows:
September 30, 2024 | December 31, 2023 | |||||||||||
(dollars in thousands) | Related party payables |
| Related party notes payable | Related party payables |
| Related party notes payable | ||||||
ETI | $ | | $ | | $ | | $ | | ||||
20.Segment Information
The Company’s operating segments are significant strategic business units that align its products and services with how it manages its business, approaches the markets and interacts with its clients. The Company is organized into
Bills and Payments
The Bills & Payments business unit primarily focuses on optimizing how bills and payments are processed by businesses of all sizes and industries. It offers automation of Accounts Payable (“AP”) and Accounts Receivables (“AR”) processes and through its platform, XBP, seeks to integrate buyers and suppliers across Europe. This business unit also includes our digital transformation revenue, which is both project based and recurring.
Technology
The Technology business unit primarily focuses on sales of recurring software licenses and related maintenance, hardware solutions and related maintenance and professional services.
33
The chief operating decision maker reviews segment profit to evaluate operating segment performance and determine how to allocate resources to operating segments. “Segment profit” is defined as revenue less cost of revenue (exclusive of depreciation and amortization). The Company does not allocate selling, general, and administrative expenses, depreciation and amortization, interest expense and foreign exchange losses, net. The Company manages assets on a total company basis, not by operating segment, and therefore asset information and capital expenditures by operating segments are not presented.
In accordance with applicable accounting guidance, the results of the disposable group are presented as discontinued operations in the condensed consolidated statements of operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. See Note 3 - Discontinued Operations of the notes to condensed consolidated financial statements.
A reconciliation of segment profit to net loss before income taxes is presented below.
| Three months ended September 30, 2024 | ||||||||
(dollars in thousands) | Bills & Payments |
| Technology |
| Total | ||||
Revenue, net (including related party revenue of $ | $ | | $ | | $ | | |||
Cost of revenue (including related party cost of revenue of $ |
| |
| |
| | |||
Segment profit |
| |
| |
| | |||
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
|
|
| | |||||
|
|
| | ||||||
Depreciation and amortization |
|
|
| | |||||
Interest expense, net |
|
|
| | |||||
Related party interest expense, net |
|
|
| | |||||
Foreign exchange losses, net |
|
|
| | |||||
Changes in fair value of warrant liability |
|
|
| ( | |||||
Pension income, net |
|
|
| ( | |||||
Net income before income taxes |
|
| $ | | |||||
| Three months ended September 30, 2023 | ||||||||
(dollars in thousands) | Bills & Payments |
| Technology |
| Total | ||||
Revenue, net (including related party revenue of $ | $ | | $ | | $ | | |||
Cost of revenue (including related party cost of revenue of $ |
| |
| |
| | |||
Segment profit |
| |
| |
| | |||
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
|
|
| | |||||
|
|
| | ||||||
Depreciation and amortization |
|
|
| | |||||
Interest expense, net |
|
|
| | |||||
Related party interest income, net |
|
|
| | |||||
Foreign exchange gains, net |
|
|
| ( | |||||
Pension income, net |
|
|
| ( | |||||
Net loss before income taxes |
|
| $ | ( | |||||
34
| Nine months ended September 30, 2024 | ||||||||
(dollars in thousands) | Bills & Payments |
| Technology |
| Total | ||||
Revenue, net (including related party revenue of $ | $ | | $ | | $ | | |||
Cost of revenue (including related party cost of revenue of $ |
| |
| |
| | |||
Segment profit |
| |
| |
| | |||
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
|
|
| | |||||
|
|
| | ||||||
Depreciation and amortization |
|
|
| | |||||
Interest expense, net |
|
|
| | |||||
Related party interest expense, net |
|
|
| | |||||
Foreign exchange losses, net |
|
|
| | |||||
Changes in fair value of warrant liability |
|
|
| ( | |||||
Pension income, net |
|
|
| ( | |||||
Net loss before income taxes |
|
| $ | ( | |||||
| Nine months ended September 30, 2023 | ||||||||
(dollars in thousands) | Bills & Payments |
| Technology |
| Total | ||||
Revenue, net (including related party revenue of $ | $ | | $ | | $ | | |||
Cost of revenue (including related party cost of revenue of $ |
| |
| |
| | |||
Segment profit |
| |
| |
| | |||
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
|
|
| | |||||
|
|
| | ||||||
Depreciation and amortization |
|
|
| | |||||
Interest expense, net |
|
|
| | |||||
Related party interest income, net |
|
|
| ( | |||||
Foreign exchange losses, net |
|
|
| | |||||
Pension income, net |
|
|
| ( | |||||
Net income before income taxes |
|
| $ | | |||||
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q. Among other things, the condensed consolidated financial statements include more detailed information regarding the basis of presentation for the financial data than included in the following discussion. Amounts in thousands of United States dollars.
Unless otherwise indicated or the context otherwise requires, references in this section to “we,” “our,” “us,” “XBP Europe, “the Company” and similar terms are to XBP Europe Inc. and its subsidiaries before the Business Combination, and to XBP Europe Holdings, Inc. following consummation of the Business Combination, except where the context requires otherwise.
Unless otherwise noted, this Management’s Discussion and Analysis of Financial Condition and Results of Operations relates solely to our continuing operations and does not include the operations of our certain on-demand printing operations. See “Pending Divestiture” below and Note 3 - Discontinued Operations of the notes to condensed consolidated financial statements for additional information about the disposable group.
Forward Looking Statements
Certain statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this quarterly report are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as “may”, “should”, “would”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “seem”, “seek”, “continue”, “future”, “will”, “expect”, “outlook” or other similar words, phrases or expressions. These forward-looking statements include statements regarding our industry, future events, estimated or anticipated future results and benefits, future opportunities for XBP Europe, and other statements that are not historical facts. These statements are based on the current expectations of XBP Europe management and are not predictions of actual performance. These statements are subject to a number of risks and uncertainties regarding XBP Europe’s businesses and actual results may differ materially. The factors that may affect our results include, among others: the impact of political and economic conditions on the demand for our services; cyber incidents such as a data or security breach; the impact of competition or alternatives to our services on our business pricing and other actions by competitors; our ability to address technological development and change in order to keep pace with our industry and the industries of our customers; the impact of terrorism, natural disasters or similar events on our business; the effect of legislative and regulatory actions in the United States and internationally; the impact of operational failure due to the unavailability or failure of third-party services on which we rely; the effect of intellectual property infringement; and other factors discussed in this quarterly report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Form 10-K”) under the heading “Risk Factors”, and otherwise identified or discussed in this quarterly report. You should consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on such statements, which speak only as of the date of this quarterly report. It is impossible for us to predict new events or circumstances that may arise in the future or how they may affect us. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this quarterly report. We are not including the information provided on any websites that may be referenced herein as part of, or incorporating such information by reference into, this quarterly report. In addition, forward-looking statements provide our expectations, plans or forecasts of future events and views as of the date of this quarterly report. We anticipate that subsequent events and developments may cause our assessments to change. These forward-looking statements should not be relied upon as representing our assessments as of any date subsequent to the date of this quarterly report.
Overview
The Company is a pan-European integrator of bills, payments and related solutions and services seeking to enable digital transformation of our clients. The Company serves over 2,000 clients of varying sizes and across multiple
36
industries and geographies. We believe our business ultimately advances digital transformation, improves market-wide liquidity, and encourages sustainable business practices.
The Company’s digital foundation was developed to deliver fully outsourced solutions to address current and evolving client needs. The Company hosts its products both on client premises and as a SaaS offering in the cloud. These offerings, along with several hybrid solutions are available to clients based on the client’s needs and preferences. When distributing its licenses, the Company offers a flexible model, whereby clients may choose among licenses covering a maximum number of transactions, multi-year term licenses with flexible renewal options, perpetual licenses, or per user subscriptions.
The Company’s primary source of revenue stems from transactions processed by its products, including bills and payments processing and constitutes the dominant part of revenue in our larger, Bills & Payments reporting segment. Other sources of revenue include the sale of recurring software licenses and professional services, perpetual software licenses, as well as hardware solutions and related maintenance and constitute our other, Technology reporting segment. The Company offers an industry-agnostic and cross-departmental suite of products, which center around finance and accounting (“F&A”) solutions and services comprised of the XBP Platform, Request to Pay, enterprise information management, Digital Mailroom, business process management and workflow automation, and integrated communication services. The Company also offers core industry solutions for the banking and financial services sector, and has, as a consequence of the COVID-19 pandemic, rolled out a suite of Work From Anywhere (“WFA”) applications with enterprise software for connectivity and productivity to enable remote work.
The continued success of the Company’s business is driven by its people. Its operation centers are located in areas where the value proposition the Company offers is attractive relative to other local opportunities, resulting in an engaged, educated multi-lingual workforce that is able to make a meaningful global contribution from their local marketplace. As of September 30, 2024, the Company had approximately 1,500 employees (of which 147 were part-time employees) across 16 countries (14 across Europe and in Morocco as well as the U.S., where our chief executive officer and chief financial officer are located).
History
XBP Europe, Inc. was incorporated in Delaware on September 28, 2022 to facilitate the Business Combination. On November 30, 2023, following the closing of the Business Combination, it became a wholly owned subsidiary of the Company, and the Company’s shares started trading on the Nasdaq Stock Market under the ticker “XBP” and its warrants started trading on the Nasdaq Stock Market under the ticker symbol “XBPEW”. Together with its subsidiaries, the Company constitutes a collection of entities, which have comprised the core European business of ETI since the 1995 merger between Texas-based BancTec, Inc. and Recognition International, Inc. The Company’s subsidiaries and predecessor entities have been serving clients in the European marketplace for over 45 years. In 2018, through the acquisitions of Asterion International and Drescher Full-Service Versand, ETI further expanded its geographic and client reach across Europe.
Pending Divestiture
As of September 30, 2024, certain on-demand printing operations of the Company met the criteria to be disclosed as discontinued operations in the third quarter of fiscal year 2024. See Note 3 - Discontinued Operations of the notes to condensed consolidated financial statements for additional information on discontinued operations.
Key Factors Affecting Company’s Business
The Company believes that its performance and future success depend upon several factors that present significant opportunities for us but also pose risks and challenges discussed in our 2023 Form 10-K under the heading “Risk Factors.”
37
Our Segments
Our two reportable segments are Bills & Payments and Technology. These segments are comprised of significant strategic business units that align our products and services with how we manage our business, approach our key markets and interact with our clients based on their respective industries.
Bills and Payments: The Bills & Payments business unit primarily focuses on optimizing how bills and payments are processed by businesses of all sizes and industries. The Company offers automation of AP and AR processes and through an integrated platform, seeks to integrate buyers and suppliers across Europe. This business unit also includes our digital transformation revenue, which is both project based and recurring.
Technology: The Technology business unit primarily focuses on sales of recurring and perpetual software licenses and related maintenance, hardware solutions and related maintenance and professional services.
Key Performance Indicators
We use a variety of operational and financial measures to assess our performance. Among the measures considered by our management are the following:
| ● | Revenue by segment; |
| ● | Gross profit by segment; and |
| ● | Adjusted EBITDA (which is a non-GAAP financial measure). |
Revenue by segment
We analyze our revenue by comparing actual monthly revenue to internal projections and prior periods across our operating segments in order to assess performance, identify potential areas for improvement, and determine whether segments are meeting management’s expectations.
Gross profit by segment
The Company defines Gross Profit as revenue less cost of revenue (exclusive of depreciation and amortization). The Company uses Gross Profit by segment to assess financial performance at the segment level.
Non-GAAP Financial Measures
To supplement its financial data presented on a basis consistent with GAAP, this report contains certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA. The Company has included these non-GAAP financial measures because they are financial measures used by management to evaluate the Company’s core operating performance and trends, to make strategic decisions regarding the allocation of capital and new investments. These measures exclude certain expenses that are required under GAAP. The Company excludes these items because they are non-recurring or non-cash expenses that are determined based in part on the Company’s underlying performance.
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss), plus taxes, interest expense, and depreciation and amortization. We define Adjusted EBITDA as EBITDA plus restructuring and related expenses, related party management fee and royalties, foreign exchange gains or losses, changes in fair value of warrant liability, and non-recurring transaction costs incurred in connection with the Business Combination.
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Note Regarding Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial performance and results of operations as our board of directors and management use EBITDA and Adjusted EBITDA to assess our financial performance, because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and items outside the control of our management team. Net income/loss is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measures. 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. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
The following tables present a reconciliation of EBITDA and Adjusted EBITDA to our net loss from continuing operations, the most directly comparable GAAP measure, for the three and nine months ended September 30, 2024 and 2023:
Three months ended |
| Nine months ended | ||||||||||
September 30, | September 30, | |||||||||||
(dollars in thousands) | 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Net loss from continuing operations | $ | (1,226) | $ | (1,219) |
| $ | (5,637) | $ | (1,418) | |||
Income tax expense | 1,664 |
| 1,046 | 2,666 |
| 1,523 | ||||||
Interest expense including related party interest expense, net | 1,843 |
| 1,251 | 4,762 |
| 3,640 | ||||||
Depreciation and amortization | 804 |
| 745 | 2,387 |
| 2,207 | ||||||
EBITDA from continuing operations | 3,085 |
| 1,823 | 4,178 |
| 5,952 | ||||||
Restructuring and related expenses(1) | 316 |
| 309 | 793 |
| 1,523 | ||||||
Employee litigation matter(2) | 57 | 64 | 1,078 | 409 | ||||||||
Related party management fee and royalties | — |
| 334 | — |
| 1,131 | ||||||
Foreign exchange losses, net | 668 |
| (530) | 2,016 |
| 404 | ||||||
Non-cash equity compensation(3) | 725 | — | 885 | — | ||||||||
Changes in fair value of warrant liability | (5) | — | (45) | — | ||||||||
Transaction Fees(4) | — |
| 244 | 79 |
| 1,545 | ||||||
Adjusted EBITDA from continuing operations | $ | 4,846 | $ | 2,244 | $ | 8,984 | $ | 10,964 | ||||
| (1) | Adjustment represents costs associated with restructuring, including employee severance and vendor and lease termination costs. |
| (2) | Represents litigation settlement and associated expenses incurred in connection with the Company subsidiary litigation. See Note 13 – Commitments and Contingencies for more details. |
| (3) | Represents the non-cash charges related to restricted stock units and options. |
| (4) | Represents transaction costs incurred as part of the Business Combination. |
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The following tables present a reconciliation of EBITDA and Adjusted EBITDA to our net loss from discontinuing operations, the most directly comparable GAAP measure, for the three and nine months ended September 30, 2024 and 2023:
Three months ended |
| Nine months ended | ||||||||||
September 30, | September 30, | |||||||||||
(dollars in thousands) | 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Net loss from discontinuing operations, net of income taxes | $ | (1,543) | $ | (1,668) |
| $ | (4,063) | $ | (4,533) | |||
Income tax expense | 72 | — | 72 | — | ||||||||
Interest expense, net | 3 |
| 19 | 18 |
| 64 | ||||||
Depreciation and amortization | 135 |
| 350 | 432 |
| 744 | ||||||
EBITDA from discontinuing operations | (1,333) |
| (1,299) | (3,541) |
| (3,725) | ||||||
Restructuring and related expenses(1) | — |
| — | — |
| 76 | ||||||
Related party service fees and royalties | — | — | — | 25 | ||||||||
Impairment of goodwill | 87 | — | 87 | — | ||||||||
Foreign exchange losses, net | 2 |
| 1 | 190 |
| 6 | ||||||
Adjusted EBITDA from discontinuing operations | $ | (1,244) | $ | (1,298) | $ | (3,264) | $ | (3,618) | ||||
| (1) | Adjustment represents costs associated with restructuring related to employee severance. |
Key Components of Revenue and Expenses
Revenue
The Company earns revenue from transactions processed using its products and services. In addition, the Company also sells recurring and perpetual software licenses, as well as maintenance and other professional services. Licensing options are flexible and clients can purchase a license covering a maximum number of transactions, multi-year term licenses with flexible renewal options and per-user subscriptions. The Company derives a majority of its revenue from transactions processing as well as from the sale of licenses and technology implementation services.
Related party revenue — Related party revenue consists of sales of the above products or services to related parties.
Costs and Expenses
Cost of revenue — Cost of revenue consists primarily of salaries and employee benefits, including performance bonuses, facility costs and cost of products.
Related party cost of revenue — Related party cost of revenue consists of the cost of the products or services purchased or acquired from related parties, plus a related party transfer pricing markup.
Selling, general and administrative expenses — Selling, general and administrative expenses consist primarily of administrative personnel and officers’ salaries and benefits including performance bonuses, legal and audit expenses, insurance, operating lease expenses (mainly facilities and vehicles) and other facility costs.
Related party expenses — Related party expenses primarily consist of the shared service cost, service fee, royalties and related party management fee which was replaced by the related party service fee in connection with the Business Combination.
Depreciation and amortization — Depreciation and amortization of intangible assets expenses consist of depreciation of property and equipment and amortization of client relationship asset.
Interest expense, net — Interest expense consists of interest related to pensions, debt, and finance leases.
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Related party interest expense — Related party interest expense consists of interest incurred on amounts due to related parties.
Foreign exchange losses, net — Foreign exchange losses, net is comprised of losses and gains due to foreign currency remeasurement that are netted together for reporting purposes.
Changes in fair value of warrant liability – Changes in fair value of warrant liability represents the mark-to-market fair value adjustments to the outstanding Private Warrants issued as part of the consummation of the Business Combination. The change in fair value of Private Warrants is primarily the result of the change in the underlying stock price of our stock used in the Black-Scholes option pricing model. The warrant is remeasured at the end of each subsequent reporting period.
Pension income, net — Pension income, net consists of expected return on employee benefit plan assets, amortization of prior service cost and amortization of net loss.
Income tax expense — Income taxes consist primarily of income taxes related to federal, and foreign jurisdictions in which the Company conducts its business. The Company maintains a full valuation allowance on net deferred tax assets for its U.S. federal taxes and certain foreign and state taxes as the Company has concluded that it is not more likely than not that the deferred assets will be utilized.
Results of Operations
Three months ended September 30, 2024 Compared to Three months ended September 30, 2023 (US dollars in thousands)
Three months ended September 30, | ||||||
| 2024 |
| 2023 | |||
Revenue: |
|
|
|
| ||
Bills and Payments | $ | 24,555 | $ | 25,344 | ||
Technology |
| 10,845 |
| 12,152 | ||
Revenue, net (including related party revenue of $0.1 million and $0.1 million, respectively) |
| 35,400 |
| 37,496 | ||
Cost of revenue: |
|
|
| |||
Bills and Payments |
| 19,402 |
| 22,604 | ||
Technology |
| 4,446 |
| 5,637 | ||
Total cost of revenue (including related party cost of revenue of $0.0 million and $0.0 million, respectively, exclusive of depreciation and amortization) |
| 23,848 |
| 28,241 | ||
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
| 6,818 |
| 6,846 | ||
Related party expense |
| 1,421 |
| 1,316 | ||
Depreciation and amortization |
| 804 |
| 745 | ||
Operating profit |
| 2,509 |
| 348 | ||
Interest expense, net |
| 1,820 |
| 1,246 | ||
Related party interest expense, net |
| 23 |
| 5 | ||
Foreign exchange losses (gains), net |
| 668 |
| (530) | ||
Changes in fair value of warrant liability | (5) | — | ||||
Pension income, net |
| (435) |
| (200) | ||
Net income (loss) before income taxes |
| 438 |
| (173) | ||
Income tax expense |
| 1,664 |
| 1,046 | ||
Net loss from continuing operations | $ | (1,226) | $ | (1,219) | ||
For the purposes of trend analysis, constant currency refers to the prevailing rate of the US dollar against relevant currencies for the quarter ended September 30, 2023.
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Revenue
For the three months ended September 30, 2024, our net revenue on a consolidated basis decreased by $2.1 million, or 5.6%, to $35.4 million (including related party revenue of $0.1 million) from $37.5 million (including related party revenue of $0.1 million) for the three months ended September 30, 2023. On a constant currency basis, net revenue declined by $2.8 million or 7.4%, offset by the positive impact of foreign currency accounting for $0.7 million or 1.8%.
Bills & Payments and Technology segments constituted 69.4%, and 30.6%, respectively, of our total net revenue for the three months ended September 30, 2024, compared to 67.6%, and 32.4%, respectively, for the three months ended September 30, 2023. The revenue changes by reporting segment were as follows:
Bills & Payments — Net revenue attributable to bills and payments segment was $24.6 million for the three months ended September 30, 2024, compared to $25.4 million for the three months ended September 30, 2023. The revenue decline of $0.8 million or 3.1%, is 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. On a constant currency basis, revenue declined by $1.2 million or 4.8%, offset by the positive impact of foreign currency accounting for $0.4 million or 1.7%.
Technology — For the three months ended September 30, 2024, net revenue attributable to the Technology segment decreased by $1.3 million or 10.8%, to $10.8 million from $12.1 million for the three months ended September 30, 2023. The revenue decline in the Technology segment was largely due to lower license sales offset by higher implementation and professional services revenue. On a constant currency basis, revenue decreased by $1.6 million or 12.8%, offset by the positive impact of foreign currency accounting for $0.3 million or 2.0%.
Cost of Revenue
For the three months ended September 30, 2024, the cost of revenue decreased by $4.4 million (including decrease in related party cost of $0.0 million), or 15.6%, compared to the three months ended September 30, 2023. Total cost of revenue decreased by $5.0 million or 17.7% on a constant currency basis, offset by the negative impact of foreign currency accounting for $0.6 million or 2.2%, when compared to the cost of revenue for the three months ended September 30, 2023.
In the Bills & Payments segments, the decrease was primarily attributable to reduced cost resulting from completed projects and optimization efforts. Costs to the Bills & Payments segment decreased by $3.2 million, or 14.2%. On a constant currency basis, cost of revenue at Bills & Payments segment declined by $3.7 million or 16.5%, offset by the negative impact of foreign currency accounting for $0.5 million or 2.4%.
The cost of revenue in the Technology segment decreased by $1.2 million, or 21.1%, primarily due to the change in the revenue mix within the Technology segment. On a constant currency basis, cost of revenue at the Technology segment decreased by $1.3 million or 22.5%, offset by the negative impact of foreign currency accounting for $0.1 million or 1.4%.
The decrease in cost of revenues as a percent of revenue on a consolidated basis was primarily due to a change in the revenue mix and executed savings initiative. Cost of revenue for the three months ended September 30, 2024 was 67.4% of revenue compared to 75.3% of revenue for the three months ended September 30, 2023.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A expenses”) slightly decreased by $28 thousand, or 0.4%, to $6.8 million for the three months ended September 30, 2024, compared to $6.8 million for the three months ended September 30, 2023. The decrease was primarily attributable by cost optimization initiatives, resulting in reduced operating lease and facility expenses, partially offset by increased investments in sales team for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. SG&A expenses increased as
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a percentage of revenue at 19.3% for the three months ended September 30, 2024 as compared to 18.3% for the three months ended September 30, 2023.
Related Party Expense
Related party expense was $1.4 million for the three months ended September 30, 2024 compared to $1.3 million for the three months ended September 30, 2023. The increase was primarily driven by the expansion of Center of Excellence (COE) during the current period, which involved consolidating financial processes to strengthen the controls framework.
Depreciation and Amortization
Total depreciation and amortization expense was $0.8 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively. The increase in total depreciation and amortization expense by $0.1 million was primarily due to an increase in amortization expense related to outsource contract costs during the three months ended September 30, 2024.
Interest Expense
Interest expense was $1.8 million for the three months ended September 30, 2024, compared to $1.2 million for the three months ended September 30, 2023, largely due to higher pension interest cost and an increase in borrowing costs due to an increase in relevant borrowing reference rates during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Related Party Interest Expense, Net
Related party interest expense, net was $23 thousand for the three months ended September 30, 2024 compared to related party interest expense, net of $5 thousand for the three months ended September 30, 2023.
Foreign Exchange Losses (Gains), net
Foreign exchange losses were $0.7 million for the three months ended September 30, 2024 compared to foreign exchange gains of $0.5 million for the three months ended September 30, 2023, primarily due to a higher unrealized exchange losses for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Changes in fair value of warrant liability
The change in fair value of warrant liability during the three months ended September 30, 2024 was a gain of $5 thousand. The change in fair value of warrant liability resulted from the remeasurement of the Private Warrant liability between June 30, 2024 and the end of the reporting period, September 30, 2024.
Pension Income, net
Pension income, net was $0.4 million for the three months ended September 30, 2024 compared to pension income, net of $0.2 million for the three months ended September 30, 2023. The increase in pension income was primarily due to an increase in pension-related income recorded in the three months ended September 30, 2024.
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Income Tax Expense
The Company had an income tax expense of $1.7 million for the three months ended September 30, 2024 compared to an income tax expense of $1.0 million for the three months ended September 30, 2023. The increase in the income tax expenses for the current period was primarily due to a remeasurement of existing uncertain tax positions in Germany, partially offset by decline in profitability in the Netherlands and Germany.
Nine months ended September 30, 2024 Compared to Nine months ended September 30, 2023 (US dollars in thousands)
Nine months ended September 30, | ||||||
| 2024 |
| 2023 | |||
Revenue: |
|
|
|
| ||
Bills and Payments | $ | 75,860 | $ | 82,857 | ||
Technology |
| 31,127 |
| 33,554 | ||
Revenue, net (including related party revenue of $0.2 million and $0.2 million, respectively) |
| 106,987 |
| 116,411 | ||
Cost of revenue: |
|
|
| |||
Bills and Payments |
| 64,854 |
| 71,138 | ||
Technology |
| 13,950 |
| 14,468 | ||
Total cost of revenue (including related party cost of revenue of $0.0 million and $0.1 million, respectively, exclusive of depreciation and amortization) |
| 78,804 |
| 85,606 | ||
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
| 19,785 |
| 21,448 | ||
Related party expense |
| 3,527 |
| 3,589 | ||
Depreciation and amortization |
| 2,387 |
| 2,207 | ||
Operating profit |
| 2,484 |
| 3,561 | ||
Interest expense, net |
| 4,698 |
| 3,641 | ||
Related party interest expense (income), net |
| 64 |
| (1) | ||
Foreign exchange losses, net |
| 2,016 |
| 405 | ||
Changes in fair value of warrant liability | (45) | — | ||||
Pension income, net |
| (1,278) |
| (589) | ||
Net (loss) income before income taxes |
| (2,971) |
| 105 | ||
Income tax expense |
| 2,666 |
| 1,523 | ||
Net loss from continuing operations | $ | (5,637) | $ | (1,418) | ||
For the purposes of trend analysis, constant currency refers to the prevailing rate of the US dollar against relevant currencies for the nine months ended September 30, 2023.
Revenue
For the nine months ended September 30, 2024, our net revenue on a consolidated basis decreased by $9.4 million, or 8.1%, to $107.0 million (including related party revenue of $0.2 million) from $116.4 million (including related party revenue of $0.2 million) for the nine months ended September 30, 2023. On a constant currency basis, net revenue declined by $10.6 million or 9.2%, offset by the positive impact of foreign currency accounting for $1.2 million or 1.1%.
Bills & Payments and Technology segments constituted 70.9%, and 29.1%, respectively, of our total net revenue for the nine months ended September 30, 2024, compared to 71.2%, and 28.8%, respectively, for the nine months ended September 30, 2023. The revenue changes by reporting segment were as follows:
Bills & Payments — Net revenue attributable to bills and payments segment was $75.9 million for the nine months ended September 30, 2024, compared to $82.9 million for the nine months ended September 30, 2023. The revenue decline of $7.0 million, or 8.4%, is primarily attributable to completion of projects, lower postage, lower
44
volumes and client contract ends, offset by the positive impact of newly won business, some of which is in early stage of ramp. On a constant currency basis, revenue declined by $7.8 million or 9.4%, offset by the positive impact of foreign currency accounting for $0.8 million or 1.0%.
Technology — For the nine months ended September 30, 2024, net revenue attributable to the Technology segment decreased by $2.4 million, or 7.2%, to $31.1 million from $33.5 million for the nine months ended September 30, 2023. The revenue decrease in the Technology segment was largely due to a lower volume of software licenses sold, partially offset by increase in technology implementation and professional services revenue. On a constant currency basis, revenue decreased by $2.8 million or 8.4%, offset by the positive impact of foreign currency accounted for $0.4 million or 1.2%.
Cost of Revenue
For the nine months ended September 30, 2024, the cost of revenue decreased by $6.8 million (including decrease in related party cost of $0.0 million), or 7.9%, compared to the nine months ended September 30, 2023. Total cost of revenue decreased by $7.9 million or 9.2% on a constant currency basis, offset by the negative impact of foreign currency of $1.1 million or 1.2%, when compared to the cost of revenue for the nine months ended September 30, 2023.
In the Bills & Payments segments, the decrease was primarily attributable to reduced cost resulting from completed projects and optimization efforts. Costs to the Bills & Payments segment decreased by $6.3 million, or 8.8%. On a constant currency basis, cost of revenue at Bills & Payments segment declined by $7.2 million or 10.1%, offset by the negative impact of foreign currency accounted for $0.9 million or 1.3%.
The cost of revenue in the Technology segment decreased by $0.5 million, or 3.6%, primarily due to the change in the revenue mix within the Technology segment. On a constant currency basis, cost of revenue at the Technology segment decreased by $0.6 million or 4.6%, offset by the negative impact of foreign currency accounted for $0.1 million or 1.0%.
The marginal increase in cost of revenues as a percent of revenue on a consolidated basis was primarily due to higher ramp cost during the current period. Cost of revenue for the nine months ended September 30, 2024 was 73.7% of revenue compared to 73.5% of revenue for the nine months ended September 30, 2023.
Selling, General and Administrative Expenses
SG&A expenses decreased by $1.6 million, or 7.8%, to $19.8 million for the nine months ended September 30, 2024, compared to $21.4 million for the nine months ended September 30, 2023. The decrease was primarily attributable to cost optimization initiatives, resulting in reduced operating lease and facility expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. SG&A expenses increased as a percentage of revenue at 18.5% for the nine months ended September 30, 2024 as compared to 18.4% for the nine months ended September 30, 2023.
Related Party Expense
Related party expense was $3.5 million for the nine months ended September 30, 2024 compared to $3.6 million for the nine months ended September 30, 2023. The decrease was primarily driven by the cost optimization initiatives taken during the current period, partially offset by increase in related party service fees.
Depreciation and Amortization
Total depreciation and amortization expense was $2.4 million and $2.2 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in total depreciation and amortization expense by $0.2 million was primarily due to an increase in amortization expense related to outsource contract costs during the nine months ended September 30, 2024.
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Interest Expense
Interest expense was $4.7 million for the nine months ended September 30, 2024, compared to $3.6 million for the nine months ended September 30, 2023, largely due to higher pension interest cost and an increase in borrowing costs due to an increase in relevant borrowing reference rates during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Related Party Interest Expense (Income), Net
Related party interest expense, net was less than $0.1 million for the nine months ended September 30, 2024 compared to related party interest income, net of $1 thousand for the nine months ended September 30, 2023.
Foreign Exchange Losses, net
Foreign exchange losses were $2.0 million for the nine months ended September 30, 2024 compared to foreign exchange losses of $0.4 million for the nine months ended September 30, 2023, primarily due to a higher unrealized exchange losses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Changes in fair value of warrant liability
The change in fair value of warrant liability during the nine months ended September 30, 2024 was a gain of $45 thousand. The change in fair value of warrant liability resulted from the remeasurement of the Private Warrant liability between December 31, 2023 and the end of the reporting period, September 30, 2024.
Pension Income, net
Pension income, net was $1.3 million for the nine months ended September 30, 2024 compared to pension income, net of $0.6 million for the nine months ended September 30, 2023. The increase in pension income was primarily due to an increase in pension-related income recorded in the nine months ended September 30, 2024.
Income Tax Expense
The Company had an income tax expense of $2.7 million for the nine months ended September 30, 2024 compared to an income tax expense of $1.5 million for the nine months ended September 30, 2023. The increase in the income tax expenses for the current period is higher than the same period last year due to a remeasurement of existing uncertain tax positions in Germany.
Liquidity and Capital Resources
Overview
At September 30, 2024 and December 31, 2023 cash and cash equivalents totaled $7.8 million and $6.5 million, respectively.
The Company currently expects to spend approximately $1.5 to $2.5 million on total capital expenditures and capitalizable contracts set-up cost over the next twelve months. The Company will continue to evaluate additional capital expenditure needs that may arise.
As of September 30, 2024, and in comparison to December 31, 2023, total debt increased by $14.8 million primarily due borrowings under the 2024 Senior Credit Facilities, partially offset by repayments of Revolving Credit Facilities and 2022 Committed Facility Agreement (See “Indebtedness” below).
The Company has utilized COVID-19 relief measures in various European jurisdictions, including permitted deferrals of certain payroll, social security and value added taxes. At the end of the third quarter 2024, the Company paid
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a significant portion of these deferred payroll taxes, social security and value added taxes. The remaining balance of deferred payroll taxes, social security and value added taxes is expected to be paid by April 2027, or later, as per deferment timeline as established by local laws and regulations.
The Company believes the current cash, cash equivalents and cash flows from financing activities are sufficient to meet the Company’s working capital and capital expenditure requirements for a period of at least twelve months. To the extent existing cash, cash from operations, and amounts available for borrowing are insufficient to fund future activities, the Company may need to raise additional capital. The Company may require funding for a variety of reasons, including, but not limited to, cost overruns for reasons outside of its control and it may experience slower sales than anticipated. If the Company’s current cash on hand is not sufficient to meet its financing requirements for the next twelve months, it may have to raise funds to allow it to continue to operate its business and execute on its business plan. The Company cannot be certain that funding will be available on acceptable terms or at all particularly given the amount of Company securities being offered, the terms of such securities and the potential duration of any offering. To the extent that the Company raises additional funds by issuing equity securities, its stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that may impact the Company’s ability to conduct business or return capital to investors. If the Company is unable to raise additional capital on acceptable terms, it may have to significantly scale back, delay or discontinue certain businesses, restrict its operations or obtain funds by entering into agreements on unattractive terms.
Cash Flows
Our condensed consolidated statements of cash flows include cash flows related to the disposable group. Significant non-cash items and capital expenditures of discontinued operations related to our disposable group are presented separately in Note 3 - Discontinued Operations of the notes to condensed consolidated financial statements in this Quarterly Report.
The following table summarizes our cash flows for the periods indicated:
Nine months ended September 30, | ||||||
(dollars in thousands) |
| 2024 |
| 2023 | ||
Net cash provided by (used in) operating activities |
| $ | (11,154) | $ | 1,743 | |
Net cash used in investing activities | (1,441) |
| (2,254) | |||
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) | ||
Analysis of Cash Flow Changes between the nine months ended September 30, 2024 and 2023
Operating Activities — Net cash used in operating activities was $11.2 million for the nine months ended September 30, 2024, compared to net cash provided by operating activities of $1.7 million for the nine months ended September 30, 2023. The increase of $12.9 million in cash used in operating activities was largely due to a higher net loss and higher outflows from accrued expenses and other liabilities, and related party payable.
Investing Activities — Net cash used in investing activities was $1.4 million for the nine months ended September 30, 2024, compared to net cash used in investing activities of $2.3 million for the nine months ended September 30, 2023. The decrease of $0.9 million in cash used in investing activities was primarily due to reduction in additions of property, plant and equipment during the nine months ended September 30, 2024.
The cash outflow of $1.4 million in investing activities for the nine months ended September 30, 2024 was primarily due to additions to property, plant and equipment during the period.
Financing Activities — Net cash provided by financing activities was $14.2 million for the nine months ended September 30, 2024, compared to net cash used in financing activities of $3.9 million for the nine months ended September 30, 2023. The increase of $18.1 million in cash provided by financing activities for the nine months ended
47
September 30, 2024 was primarily due to borrowings under the 2024 Senior Credit Facilities, partially offset by repayments of Revolving Credit Facilities and 2022 Committed Facility Agreement, and reduction in net borrowing under the securitization facility due to the entry into the Amended Factoring Agreement on September 15, 2023, which resulted in an off-balance sheet treatment of the Secured Borrowing Facility.
Indebtedness
Secured Borrowing Facility
On August 25, 2020, certain entities entered into an agreement wherein amounts due from clients were pledged to a third party, in exchange for a borrowing facility in amounts up to a total of €31.0 million (the “Secured Borrowing Facility”). The proceeds from the Secured Borrowing Facility were determined by the amounts invoiced to our clients. The amounts due from clients were recorded in accounts receivable and the amount due to the third party as a liability, presented under current portion of long-term debt on the condensed consolidated balance sheets. The cost of the Secured Borrowing Facility was 0.10% of newly assigned receivables with minimum of €0.1 million in annual fees and the Secured Borrowing Facility bore interest at Euribor rate plus 0.70% on the unpaid principal amount. The Company incurred interest expense of $0 and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, and $0 and $0.4 million for the nine months ended September 30, 2024 and 2023, respectively, related to the Secured Borrowing Facility. As of September 30, 2024 and December 31, 2023, the outstanding balances payable under the Secured Borrowing Facility were $0 and $0.1 million, respectively.
On September 15, 2023, the relevant entities entered into an amendment to the Secured Borrowing Facility (the “Amended Factoring Agreement”) to convert the existing arrangement into a non-recourse factoring program wherein an unrelated third party (the “Factor”) shall provide financing to certain subsidiaries of the Company by purchase of certain approved and partially approved accounts receivables (as defined in the Amended Factoring Agreement) up to a maximum amount of €15.0 million while assuming the risk of non-payment on the purchased accounts receivables up to the level of approval. The relevant entities shall have no continuing involvement in the transferred accounts receivable, other than collection and administrative responsibilities and, once sold, the accounts receivable shall no longer be available to satisfy creditors of the relevant entities.
The Company accounted for the transactions under the Amended Factoring Agreement as a sale under ASC 860, Transfers and Servicing, and treats it as an off-balance sheet arrangement. Net funds received from the transfers reflect the face value of the account less a fee, which is recorded as an increase to cash and a reduction to accounts receivable outstanding in the condensed consolidated balance sheets. The Company reports the cash flows attributable to the sale of account receivables to the Factor and the cash receipts from collections made on behalf of and paid to the Factor under the Amended Factoring Agreement, on a net basis as trade accounts receivables in cash flows from operating activities in the Company’s condensed consolidated statements of cash flows.
As of September 30, 2024, the Company’s outstanding factored accounts receivable amounted to $9.2 million pursuant to the Amended Factoring Agreement, representing the face value of the invoices. The Company recognizes factoring costs upon disbursement of funds. The Company incurred a loss on sale of accounts receivables including expenses pursuant to the Amended Factoring Agreement totaling approximately $0.3 million and $0.7 million for the three and nine months ended September 30, 2024, respectively, which is presented in selling, general and administrative expenses (exclusive of depreciation and amortization) on the condensed consolidated statements of operations.
2019 Credit Agreement
In October 2019, a wholly-owned UK subsidiary of XBP Europe (the “UK Subsidiary”) entered into a secured credit agreement (the “2019 Credit Agreement”) with HSBC UK Bank plc (“HSBC”) for a £9.0 million Secured Credit Facility (the “Secured Credit Facility”) consisting of (i) a secured Term Loan A facility in an aggregate principal amount of £2.0 million (the “Term Loan A Facility”), (ii) a secured Term Loan B facility in an aggregate principal amount of £2.0 million (the “Term Loan B Facility”), and (iii) a secured revolving credit facility in an aggregate principal amount of £5.0 million (the “Revolving Credit Facility”). On December 21, 2022, the UK Subsidiary
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amended its 2019 Credit Agreement, allowing the UK Subsidiary to affirm to extend the maturity of Term Loan A Facility and Term Loan B Facility to October 31, 2024 subject to compliance with financial covenants. On February 9, 2023, the UK Subsidiary amended its 2019 Credit Agreement, allowing the UK Subsidiary to extend the maturity of the Revolving Credit Facility to October 31, 2024 subject to compliance with financial covenants. The maturity of the Revolving Credit Facility has since been extended on various dates. On May 10, 2024, the maturity was further extended to August 31, 2025. During the nine months ended September 30, 2024, the Company has repaid outstanding amount of $1.7 million, $0.2 million, and $6.3 million under the Term Loan A Facility, the Term Loan B Facility, and the Revolving Credit Facility, respectively and accordingly wrote off the unamortized balance of less than $0.1 million of debt issuance cost related to the 2019 Credit Agreement. As of September 30, 2024, the Company had fully repaid the outstanding balance under the 2019 Credit Agreement. As of December 31, 2023, the outstanding balance of the Term Loan A Facility, the Term Loan B Facility, and the Revolving Credit Facility was $1.9 million, $0.4 million, and $6.4 million, respectively.
The 2019 Credit Agreement contains financial covenants including, but not limited to (a) a Combined Cashflow Coverage Ratio, which measures the ratio of (i) Combined Cashflow and (ii) Debt Service defined as finance charges in addition to mandatory repayments in respect to the 2019 Credit Agreement, (b) Combined Interest Coverage Ratio, which measures the ratio of (i) Combined EBITDA to (ii) Combined Finance Charges, (c) a Combined Total Net Leverage Ratio, which measures the ratio of (i) Combined Net Indebtedness in respect to the last day of the most recent period to (ii) EBITDA, (d) Guaranteed Intragroup Balances, (e) the Loan to Market Value defined as the Facility A Loan outstanding to the market value of the property in each case, as defined in the 2019 Credit Agreement. The term “Combined” refers to the UK Subsidiary and its wholly-owned subsidiaries.
The 2019 Credit Agreement and indenture governing the Secured Credit Facility contains limitations on the ability of the UK subsidiary to effect mergers and change of control events as well as certain other limitations, including limitations on: (i) the declaration and payment of dividends or other restricted payments (ii) substantial changes of the general nature of the business, (iii) acquisition of a company, (iv) enter a joint venture, (v) or effect a dormant subsidiary to commence trading or cease to satisfy the criteria of a dormant subsidiary.
The UK Subsidiary’s obligations under the 2019 Credit Agreement are jointly and severally guaranteed by certain of its existing and future direct and indirectly wholly owned subsidiaries. The 2019 Credit Agreement and the 2022 Committed Facility Agreement (defined below) contain cross default provisions which relate to the UK Subsidiary and its subsidiaries, but not any other entities within the consolidated group.
At inception, borrowings under the Secured Credit Facility bore interest at a rate per annum equal to the LIBOR plus the applicable margin of 2%, 2.5%, and 3% per annum for the Term Loan A Facility, the Term Loan B Facility, and the Revolving Credit Facility respectively. Effective October 29, 2021, borrowings under the Revolving Credit Facility bore interest at a rate per annum equal to the Sterling Overnight Index Average (“SONIA”) plus the applicable margin of 3%. Effective December 31, 2021, borrowings under the Term Loan A Facility and the Term Loan B Facility bore interest at a rate per annum equal to the SONIA plus the applicable margin of 2% and 2.5%, respectively.
In June 2020, the UK Subsidiary entered into an amendment to the 2019 Credit Agreement, to provide an additional aggregate principal amount of £4.0 million under a credit agreement (the “Revolving Working Capital Loan Facility” or “2020 Credit Agreement”) together with Revolving Credit Facility (the “Revolving Credit Facilities”). At the inception of the Revolving Working Capital Loan Facility, the borrowing bore an interest rate per annum equal to the LIBOR plus the applicable margin of 3.5% per annum. Effective March 31, 2023, borrowings under the Revolving Working Capital Loan Facility bore interest at a rate per annum equal to the SONIA plus the applicable margin of 3.5%.
The maturity of the Revolving Working Capital Loan Facility has since been extended on various dates subject to compliance with financial covenants. On May 10, 2024 the maturity was further extended to August 31, 2025. During the nine months ended September 30, 2023, the Company has repaid outstanding amount of $5.1 million under the 2020 Credit Agreement and accordingly wrote off the unamortized balance of less than $0.1 million of debt issuance cost realted to the 2020 Credit Agreement. As of September 30, 2024, the Company had fully repaid the outstanding balance under the 2020 Credit Agreement. As of December 31, 2023, the Revolving Working Capital Loan Facility had an outstanding principal balance of $5.1 million.
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As of December 31, 2023, the UK Subsidiary was in compliance with all affirmative and negative covenants under the 2019 Credit Agreement, including any financial covenants, pertaining to its financing arrangements.
2022 Committed Facility Agreement
In May 2022, the UK Subsidiary entered into a committed facility agreement (the “2022 Committed Facility Agreement”) with HSBC, which includes a term loan for £1.4 million to be used in refinancing a property owned by XBP Europe in Dublin, Ireland (the “Property”). At inception of the 2022 Committed Facility Agreement, the borrowing bore an interest rate equal to 3.5% per annum in addition to the Bank of England Base Rate. The maturity of the 2022 Committed Facility Agreement is May 2027. During the nine months ended September 30, 2024, the Company has repaid outstanding amount of $1.4 million under the 2022 Committed Facility Agreement. As of September 30, 2024, the Company had fully repaid the outstanding balance under the 2022 Committed Facility Agreement. As of December 31, 2023, the 2022 Committed Facility Agreement had an outstanding balance of $1.5 million.
The 2022 Committed Facility Agreement contains financial covenants including, but not limited to (a) a Combined Debt Service Coverage Ratio, which measures the cashflow less dividends, net capital expenditure, and taxation relative to the debt service for that relevant period, (b) interest cover, which measures EBITDA relative to the aggregate of (i) interest charges and (ii) interest element of finance leases in any relevant period, (c) Total Net Debt to EBITDA, which measures the total net debt relative to EBITDA for any relevant period, and (d) loan to market value, which measures the loan as a percentage of the aggregate market value of the Property. The term “Combined” refers to the UK subsidiary and its wholly-owned subsidiaries.
As of December 31, 2023, the UK Subsidiary was in compliance with all affirmative and negative covenants under the 2022 Committed Facility Agreement, including any financial covenants pertaining to its financing arrangements.
2024 Facilities Agreement
In June 2024, XBP Europe, Inc. a wholly-owned subsidiary of the Company, together with certain other subsidiaries (the “XBP Group”), entered into a Facilities Agreement (the “2024 Facilities Agreement”) with HSBC UK Bank plc (“HSBC”) for a £15.0 million and €10.5 million Secured Credit Facility consisting of (i) a single draw, secured Term Loan A facility in an aggregate principal amount of £3.0 million (the “2024 Term Loan A Facility”), (ii) a single draw, secured Term Loan B facility in an aggregate principal amount of €10.5 million (the “2024 Term Loan B Facility”, collectively with the 2024 Term Loan A Facility, the “2024 Term Loan Facilities”) and (iii) a multi-draw, multi-currency secured revolving credit facility in an aggregate principal amount of £12.0 million (the “2024 Revolving Credit Facility”), and, together with the 2024 Term Loan Facilities, (the “2024 Senior Credit Facilities”). The 2024 Term Loan Facilities mature on June 26, 2028 and the 2024 Revolving Credit Facility matures on June 26, 2027, with certain extension rights at the discretion of HSBC. An additional £14.0 million of credit under the 2024 Revolving Credit Facility may be made available at HSBC’s discretion for specific purposes as per the 2024 Facilities Agreement.
The Company used the 2024 Term Loan Facilities to repay in full all outstanding indebtedness under the 2019 Credit Agreement, 2020 Credit Agreement and 2022 Committed Facility Agreement. The Company incurred $1.6 million in debt issuance costs related to the 2024 Facilities Agreement.
The 2024 Facilities Agreement contains financial covenants including, but not limited to, (i) requiring the maintenance of a consolidated total leverage ratio of not greater than 2.50 to 1.00 (with step-downs to (a) 2.25 to 1.00 starting January 1, 2025 and (b) 2.00 to 1.00 starting January 1, 2026); (ii) a cash flow coverage ratio of at least 1.10:1.00; and (iii) a consolidated interest coverage ratio of not less than 4.00 to 1.00.
The 2024 Facilities Agreement and indenture governing the 2024 Secured Credit Facilities contains certain affirmative and negative covenants limiting on the ability of the XBP Group to effect mergers and change of control events as well as certain other limitations, including limitations on (i) incurrence of additional indebtedness or liens, (ii) dispositions of assets, (iii) substantial changes of the general nature of the business, (iv) entering into restrictive agreements, (v) making certain investments, loans, advances, guarantees and acquisitions, (vi) prepaying certain
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indebtedness, (vii) the declaration and payment of dividends or other restricted payments, (viii) engaging in transactions with affiliates, or (ix) amending certain material documents.
Except as otherwise provided by applicable law, all obligations under the 2024 Facilities Agreement are jointly and severally unconditionally guaranteed by each member of the XBP Group.
Borrowings under the 2024 Term Loan A Facility, the 2024 Term Loan B Facility and 2024 Revolving Credit Facility bear interest at a rate per annum equal to the SONIA plus the applicable margin of 3.25%, Euro Interbank Offered Rate (“EURIBOR”) plus the applicable margin of 3.25% and Reference Rate plus the applicable margin of 3.25%, respectively. “Reference Rate” for any period means (i) Secured Overnight Financing Rate (“SOFR”) for funds extended in U.S. Dollars; (ii) the EURIBOR, for funds extended in Euros; (iii) the SONIA, for funds extended in Pounds Sterling; and the Stockholm Interbank Offered Rate (“STIBOR”) for funds extended in Swedish Krona.
During the nine months ended September 30, 2024, the Company has drawn $3.9 million under 2024 Term Loan A Facility and $11.4 million under 2024 Term Loan B Facility, and repaid $8.2 million outstanding indebtedness under the 2019 Credit Agreement, $5.1 million outstanding indebtedness under the 2020 Credit Agreement and $1.4 million outstanding indebtedness under the 2022 Committed Facility Agreement. Accordingly, the Company wrote off the unamortized balance of less than $0.1 million of debt issuance costs related to the 2019 Credit Agreement and 2020 Credit Agreement.
During the three and nine months ended September 30, 2024, the Company repaid $0.2 million and $0.6 million of outstanding principal amount under the 2024 Term Loan A Facility and 2024 Term Loan B Facility, respectively. As of September 30, 2024, the outstanding balance of the 2024 Term Loan A Facility and the 2024 Term Loan B Facility was $3.8 million and $11.1 million, respectively. The principal amount drawn under the 2024 Term Loan A Facility shall be repaid in fifteen (15) equal quarterly installments of £150 thousands with the remaining outstanding principal amount of £750 thousands payable at maturity along with accrued and unpaid interest. The principal amount drawn under the 2024 Term Loan B Facility shall be repaid in fifteen (15) equal quarterly installments of €525 thousands with the remaining outstanding principal amount of €2.625 million payable at maturity along with accrued and unpaid interest.
As of September 30, 2024, the Company has drawn £12.0 million under 2024 Revolving Credit Facility in Euros currency. As of September 30, 2024, the outstanding balance under the 2024 Revolving Credit Facility was $15.8 million.
The Company may, at any time, prepay the principal of the 2024 Senior Credit Facilities. Each prepayment shall be accompanied by the payment of accrued interest, without any premium or penalty. However, the Company is limited to a maximum of four voluntary prepayments of the 2024 Revolving Credit Facility within any consecutive twelve-month period.
As of September 30, 2024, the XBP Group was in compliance with all affirmative and negative covenants under the 2024 Facilities Agreement, including any financial covenants, pertaining to its financing arrangements. The Company continually monitors its compliance with such covenants. The Company believes it will remain in compliance with all such covenants for the next twelve months; however, due to the inherent uncertainty, management’s estimates of the achievement of its financial covenants may change in the future.
Restructuring Activities
In the fourth quarter of 2023, the Company’s management approved a restructuring plan to realign the Company’s business and strategic priorities by rightsizing its workforce in certain regions. Costs and liabilities associated with management-approved restructuring activities are recognized when they are incurred. One-time employee termination costs are recognized at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Ongoing employee termination benefits are recognized as a liability when it is probable that a liability exists and the amount is reasonably estimable. Restructuring charges are recognized as an operating expense within the consolidated statements of operations for the year ended
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December 31, 2023 and related liabilities are recorded within accrued compensation and benefits on the consolidated balance sheets as of December 31, 2023. The Company periodically evaluates and, if necessary, adjusts its estimates based on currently available information.
Potential Future Transactions
We may, from time to time, explore and evaluate possible strategic transactions, which may include joint ventures, as well as business combinations or the acquisition or disposition of assets. In order to pursue certain of these opportunities, additional funds will likely be required. Subject to applicable contractual restrictions, to obtain such financing, we may seek to use cash on hand, or we may seek to raise additional debt or equity financing through private placements or through underwritten offerings. There can be no assurance that we will enter into additional strategic transactions or alliances, nor do we know if we will be able to obtain the necessary financing for transactions that require additional funds on favorable terms, if at all. In addition, pursuant to the Registration Rights Agreement that we entered into in connection with the closing of the Business Combination, certain of our stockholders have the right to demand underwritten offerings of our Common Stock. We may from time to time in the future explore, with certain of those stockholders the possibility of an underwritten public offering of our Common Stock held by those stockholders. There can be no assurance as to whether or when an offering may be commenced or completed, or as to the actual size or terms of the offering.
Critical Accounting Estimates
The preparation of financial statements requires the use of judgments and estimates. The critical accounting policies provide a better understanding of how the Company develops its assumptions and judgments about future events and related estimations and how they can impact the Company’s financial statements. A critical accounting estimate is one that requires subjective or complex estimates and assessments and is fundamental to the Company’s results of operations. The Company bases its estimates on historical experience and on various other assumptions it believes to be reasonable according to the current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company believes the current assumptions, judgments and estimates used to determine amounts reflected in the condensed consolidated financial statements are appropriate; however, actual results may differ under different conditions. This discussion and analysis should be read in conjunction with the Company’s condensed consolidated financial statements and related notes included elsewhere in this report. This discussion and analysis should be read in conjunction with the Company’s financial statements and related notes included elsewhere in this report. Refer to "Critical Accounting Estimates" contained in Part II, Item 7 of our 2023 Form 10-K for a complete discussion of critical accounting estimates. There have been no material changes to 2023 Form 10-K.
Emerging Growth Company Status
The Jumpstart our Business Startups Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.
The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare the Company’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and Qualitative Disclosure About Market Risk
There have been no material changes to the Company’s market risk during the nine months ended September 30, 2024. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2023 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgement in evaluating the cost-benefit relationship of possible controls and procedures. Based on such review and evaluation, our CEO and our CFO have concluded that as of September 30, 2024, our internal controls were not effective due to material weaknesses identified. The material weakness identified related to ineffective review controls over the financial statement closing process and order-to cash process including the review of new agreements and work orders.
In light of these material weaknesses and subsequent to the recent completion of the Business Combination, we have enhanced our review controls, added experienced people across order to cash sub-processes for managing critical control activities, and rationalized the controls framework to remove duplicate and redundant controls. We have also established a Center of Excellence (COE) by consolidating financial processes to strengthen the controls framework. The COE’s mission is to create appropriate finance structures, formalize lines of reporting and appoint competent personnel with defined roles and responsibilities to strengthen internal controls. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. We believe our efforts will enhance our controls relating to financial reporting, but we can offer no assurance that our controls will not require additional review and modification in the future as industry accounting practice may evolve over time.
Notwithstanding such material weaknesses in internal control over financial reporting, our management, including our CEO and CFO, has concluded that our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, and the condensed consolidated statements of operations, comprehensive loss and stockholders’ deficit for each of the three and nine months ended September 30, 2024 and September 30, 2023, and condensed consolidated statements of cash flows for each of the nine months ended September 30, 2024 and September 30, 2023, present fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Annual Report, in conformity with U.S. GAAP.
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Changes in Internal Controls over Financial Reporting
Other than as disclosed above, there was no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Subsidiary Litigation
A group of 71 former employees brought a claim against a subsidiary of the Company related to their dismissal resulting from the closure of two production sites in France in 2020. The employees filed complaints with the Labor Court on June 9, 2022. Conciliation hearings at the Labor Court were held on September 27, 2022, December 13, 2022, March 7, 2023, September 5, 2023 and November 14, 2023.
In March 2023, 67 claimants (after the in principle settlement was agreed with the first 4 claimants) filed an application for summary proceedings in respect of part of the claim for a total claim of $1.1 million. The summary proceedings hearing was held on April 11, 2023 and the court issued its decision on May 9, 2023 upholding all of the plaintiffs’ claims for a total amount of $1.1 million, however the court’s decision does not increase the Company’s anticipated exposure for the overall claim. The Company has appealed against the decision (and paid the amount of $1.1 million on November 10, 2023 pending the appeal), the appeal hearing was scheduled for September 9, 2024 and was held on November 4, 2024. The next hearing, pertaining only to 15 remaining claimants who have not concluded settlement agreements with the Company, is scheduled for January 13, 2025.
The substantive hearing was held on February 16, 2024 and a decision was made at the end of June 2024.
The Company reached a number of settlements with a certain number of claimants prior to the decision of the court and approximately $1.8 million was paid to such claimants in addition to the amounts paid as part of the summary proceedings. The court awarded $1.2 million to the claimants who had not settled before the court’s decision and, after the deduction of the amounts already paid to such claimants, $1.0 million remain to be paid by the Company. The Company will also be responsible for up to three months’ unemployment allowance paid to these claimants by the unemployment fund, which is not expected to significantly increase the Company’s total costs. The Company has appealed the decision. The Company accrued $1.1 million and $2.2 million in accrued liabilities on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively, based on the estimate of the range of possible losses.
Other
We are, from time to time, involved in other legal proceedings, inquiries, claims and disputes, which arise in the ordinary course of business. Although our management cannot predict the outcomes of these matters, our management believes these actions will not have a material, adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this quarterly report, you should carefully consider the risk factors described in Part I, “Item 1A. Risk Factors” in the 2023 Form 10-K, which could materially affect our business, financial condition and/or operating results. The risks described in those Risk Factors are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
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ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
(c) Director and Officer Trading Arrangements
During the nine-month period ended September 30, 2024, none of our directors or officers adopted or terminated a Rule
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PART IV
ITEM 6. EXHIBITS
Exhibit No. |
| Description |
|---|---|---|
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS | XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
* Filed or furnished herewith, as applicable. | ||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: | By: | /s/ Andrej Jonovic |
November 12, 2024 | Andrej Jonovic, Chief Executive Officer (Principal Executive Officer) | |
Dated: | By: | /s/ Dejan Avramovic |
November 12, 2024 | Dejan Avramovic, Chief Financial Officer (Principal Financial and Accounting Officer) |
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