10-Q/A 1 xela-20190331x10qa.htm 10-Q/A xela_Current_Folio_10Q-A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10‑Q/A


   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

Or

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission file number: 001‑36788


EXELA TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware

47‑1347291

(State of or other Jurisdiction
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

 

 

2701 E. Grauwyler Rd.
Irving, TX

75061

(Address of Principal Executive
Offices)

(Zip Code)

 

Registrant's Telephone Number, Including Area Code: (844) 935-2832

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, Par Value $0.0001 per share

XELA

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer    

Accelerated Filer   

Non-Accelerated Filer     

Smaller Reporting Company   

 

Emerging Growth Company     

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes   No 

As of May 8, 2019 the registrant had 150,142,955 shares of Common Stock outstanding.

 

 

 

 

 


 

Explanatory Note

 

This Amendment No. 1 to the Quarterly Report on Form 10-Q/A (the “Amendment”) of Exela Technologies, Inc. (the “Company”) is being filed to amend the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2019, which was originally filed with the Securities and Exchange Commission on May 10, 2019 (the “Original Filing”).  The Amendment corrects a scrivener’s error in the presentation of the ‘Balance sheet location’ table in Note 4, Leases, in the Notes to the Condensed Consolidated Financial Statement, to change the line item ‘Finance lease right-of-use asset, net (including property, plant and equipment, net)’ by replacing 17,351 in the Original Filing with 30,265 for March 31, 2019. For the convenience of the reader, the Amendment restates in its entirety the remainder of Original Filing, and no other changes have been made.


 

Exela Technologies, Inc.

Form 10-Q

For the quarterly period ended March 31, 2019

TABLE OF CONTENTS

 

 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

 

 

Condensed Consolidated Financial Statements

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 

1

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 

2

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March31, 2019 and 2018 

3

 

 

Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2019 and 2018 

4

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 

5

 

 

Notes to the Condensed Consolidated Financial Statements 

6

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

26

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

35

 

 

Item 4. Internal Controls and Procedures 

36

 

 

PART II — OTHER INFORMATION 

 

 

 

Item 1. Legal Proceedings 

36

 

 

Item 1A. Risk Factors 

37

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

37

 

 

Item 3. Defaults Upon Senior Securities 

37

 

 

Item 4. Mine Safety Disclosures 

37

 

 

Item 5. Other Information 

38

 

 

Item 6. Exhibits 

38

 

 

3


 

Exela Technologies, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of March 31, 2019 and December 31, 2018

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

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2019

    

2018

 

Assets

 

 

  

 

 

  

 

Current assets

 

 

  

 

 

  

 

Cash and cash equivalents

 

$

8,262

 

$

25,615

 

Restricted cash

 

 

4,998

 

 

18,239

 

Accounts receivable, net of allowance for doubtful accounts of $5,913 and $4,359 respectively

 

 

278,064

 

 

270,812

 

Inventories, net

 

 

16,321

 

 

16,220

 

Prepaid expenses and other current assets

 

 

25,330

 

 

25,015

 

Total current assets

 

 

332,975

 

 

355,901

 

Property, plant and equipment, net of accumulated depreciation of $163,199 and $154,060 respectively

 

 

129,621

 

 

132,986

 

Operating lease right-of-use asset, net

 

 

100,727

 

 

 —

 

Goodwill

 

 

708,285

 

 

708,258

 

Intangible assets, net

 

 

397,412

 

 

407,021

 

Deferred income tax assets

 

 

16,202

 

 

16,225

 

Other noncurrent assets

 

 

17,667

 

 

19,391

 

Total assets

 

$

1,702,889

 

$

1,639,782

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity (Deficit)

 

 

  

 

 

  

 

Liabilities

 

 

  

 

 

  

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

90,924

 

$

99,853

 

Related party payables

 

 

6,184

 

 

7,735

 

Income tax payable

 

 

4,898

 

 

1,996

 

Accrued liabilities

 

 

63,138

 

 

66,008

 

Accrued compensation and benefits

 

 

57,961

 

 

54,583

 

Accrued interest

 

 

23,928

 

 

49,071

 

Customer deposits

 

 

28,410

 

 

34,235

 

Deferred revenue

 

 

19,966

 

 

16,504

 

Obligation for claim payment

 

 

46,063

 

 

56,002

 

Current portion of finance lease obligations

 

 

15,961

 

 

17,498

 

Current portion of operating lease obligations

 

 

27,368

 

 

 —

 

Current portion of long-term debt

 

 

32,821

 

 

29,237

 

Total current liabilities

 

 

417,622

 

 

432,722

 

Long-term debt, net of current maturities

 

 

1,336,152

 

 

1,306,423

 

Finance lease obligations, net of current portion

 

 

27,231

 

 

26,738

 

Pension liability

 

 

25,514

 

 

25,269

 

Deferred income tax liabilities

 

 

12,439

 

 

11,212

 

Long-term income tax liability

 

 

3,158

 

 

3,024

 

Operating lease right-of-use liability, net of current portion

 

 

78,290

 

 

 —

 

Other long-term liabilities

 

 

6,747

 

 

15,400

 

Total liabilities

 

 

1,907,153

 

 

1,820,788

 

Commitment and Contingencies (Note 9)

 

 

  

 

 

  

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

  

 

 

  

 

Common stock, par value of $0.0001 per share; 1,600,000,000 shares authorized; 152,692,140 shares issued and 150,142,955 outstanding at March 31, 2019 and December 31, 2018

 

 

15

 

 

15

 

Preferred stock, par value of $0.0001 per share; 20,000,000 shares authorized; 4,569,233 shares issued and outstanding at March 31, 2019 and December 31, 2018

 

 

 1

 

 

 1

 

Additional paid in capital

 

 

482,018

 

 

482,018

 

Less: common stock held in treasury, at cost; 2,549,185 shares at March 31, 2019 and December 31, 2018

 

 

(10,342)

 

 

(10,342)

 

Equity-based compensation

 

 

44,529

 

 

41,731

 

Accumulated deficit

 

 

(707,787)

 

 

(678,563)

 

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(3,173)

 

 

(6,565)

 

Unrealized pension actuarial losses, net of tax

 

 

(9,525)

 

 

(9,301)

 

Total accumulated other comprehensive loss

 

 

(12,698)

 

 

(15,866)

 

Total stockholders’ deficit

 

 

(204,264)

 

 

(181,006)

 

Total liabilities and stockholders’ deficit

 

$

1,702,889

 

$

1,639,782

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1


 

Exela Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

For the Three Months Ended March 31, 2019 and 2018

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

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2019

    

2018

Revenue

 

$

403,765

 

$

393,167

Cost of revenue (exclusive of depreciation and amortization)

 

 

306,882

 

 

293,792

Selling, general and administrative expenses

 

 

49,949

 

 

45,595

Depreciation and amortization

 

 

28,020

 

 

38,019

Related party expense

 

 

994

 

 

1,105

Operating income

 

 

17,920

 

 

14,656

Other expense (income), net:

 

 

 

 

 

 

Interest expense, net

 

 

38,899

 

 

38,017

Sundry expense (income), net

 

 

2,531

 

 

(64)

Other income, net

 

 

1,677

 

 

(3,328)

Net loss before income taxes

 

 

(25,187)

 

 

(19,969)

  Income tax (expense) benefit

 

 

(4,720)

 

 

(4,025)

Net loss

 

$

(29,907)

 

$

(23,994)

Cumulative dividends for Series A Preferred Stock

 

 

(914)

 

 

(914)

Net loss attributable to common stockholders

 

$

(30,821)

 

$

(24,908)

Loss per share:

 

 

 

 

 

 

Basic and diluted

 

$

(0.21)

 

$

(0.16)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2


 

Exela Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

For the Three Months Ended March 31, 2019 and 2018

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

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2019

    

2018

Net Loss

 

$

(29,907)

 

$

(23,994)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

3,392

 

 

(268)

Unrealized pension actuarial gains (losses), net of tax

 

 

(224)

 

 

(403)

Total other comprehensive loss, net of tax

 

$

(26,739)

 

$

(24,665)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

3


 

Exela Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

For the Three Months Ended March  31, 2019 and 2018

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other
Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

Pension

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

Actuarial

 

 

 

 

Total

 

 

Common Stock

 

Preferred Stock

 

Treasury Stock

 

Additional

 

Equity-Based

 

Translation

 

Losses,

 

Accumulated

 

Stockholders'

 

  

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

Paid in Capital

  

Compensation

  

Adjustment

  

net of tax

  

Deficit

  

Deficit

Balances at January 1, 2018

 

150,529,151

 

$

15

 

6,194,233

 

$

 1

 

49,300

 

$

(249)

 

$

482,018

 

$

34,085

 

$

(194)

 

$

(11,054)

 

$

(514,628)

 

$

(10,006)

Implementation of ASU 2014-09 (Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,419)

 

 

(1,419)

Net loss January 1 to March 31, 2018

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(23,994)

 

 

(23,994)

Equity-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

959

 

 

 —

 

 

 —

 

 

 —

 

 

959

Foreign currency translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(268)

 

 

 —

 

 

 —

 

 

(268)

Net realized pension actuarial gains, net of tax

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(403)

 

 

 —

 

 

(403)

Preferred shares converted to common

 

1,986,767

 

 

 —

 

(1,625,000)

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balances at March 31, 2018

 

152,515,918

 

$

15

 

4,569,233

 

 

 1

 

49,300

 

$

(249)

 

$

482,018

 

$

35,044

 

$

(462)

 

$

(11,457)

 

$

(540,041)

 

$

(35,131)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other
Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

Pension

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

Actuarial

 

 

 

 

Total

 

 

Common Stock

 

Preferred Stock

 

Treasury Stock

 

Additional

 

Equity-Based

 

Translation

 

Losses,

 

Accumulated

 

Stockholders'

 

  

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

Paid in Capital

  

Compensation

  

Adjustment

  

net of tax

  

Deficit

  

Deficit

Balances at January 1, 2019

 

150,142,955

 

$

15

 

4,569,233

 

$

 1

 

2,549,185

 

$

(10,342)

 

$

482,018

 

$

41,731

 

$

(6,565)

 

$

(9,301)

 

$

(678,563)

 

$

(181,006)

Implementation of ASU 2016-02 (Note 4)

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

683

 

 

683

Net loss January 1 to March 31, 2019

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(29,907)

 

 

(29,907)

Equity-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

2,798

 

 

 —

 

 

 —

 

 

 —

 

 

2,798

Foreign currency translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,392

 

 

 —

 

 

 —

 

 

3,392

Net realized pension actuarial gains, net of tax

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(224)

 

 

 —

 

 

(224)

Balances at March 31, 2019

 

150,142,955

 

$

15

 

4,569,233

 

$

 1

 

2,549,185

 

$

(10,342)

 

$

482,018

 

$

44,529

 

$

(3,173)

 

$

(9,525)

 

$

(707,787)

 

$

(204,264)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

Exela Technologies, Inc. and Subsidiaries

Condensed Consolidated Statement of Cash Flows

For the Three Months Ended March 31, 2019 and 2018

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2019

    

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

 

$

(29,907)

 

$

(23,994)

 

Adjustments to reconcile net loss

 

 

 

 

 

 

 

Depreciation and amortization

 

 

28,020

 

 

38,019

 

Original issue discount and debt issuance cost amortization

 

 

2,852

 

 

2,595

 

Provision for doubtful accounts

 

 

800

 

 

481

 

Deferred income tax provision

 

 

1,076

 

 

835

 

Share-based compensation expense

 

 

2,798

 

 

959

 

Foreign currency remeasurement

 

 

35

 

 

(323)

 

Loss on sale of assets

 

 

 9

 

 

253

 

Fair value adjustment for interest rate swap

 

 

1,677

 

 

(3,328)

 

Change in operating assets and liabilities, net of effect from acquisitions

 

 

  

 

 

  

 

Accounts receivable

 

 

(8,742)

 

 

(10,876)

 

Prepaid expenses and other assets

 

 

(632)

 

 

(5,567)

 

Accounts payable and accrued liabilities

 

 

(33,574)

 

 

(18,864)

 

Related party payables

 

 

(1,551)

 

 

(273)

 

Net cash used in operating activities

 

 

(37,139)

 

 

(20,083)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

  

 

 

  

 

Purchase of property, plant and equipment

 

 

(5,572)

 

 

(5,957)

 

Additions to internally developed software

 

 

(1,879)

 

 

(1,092)

 

Additions to outsourcing contract costs

 

 

(5,561)

 

 

(1,596)

 

Proceeds from sale of assets

 

 

 7

 

 

 2

 

Net cash used in investing activities

 

 

(13,005)

 

 

(8,643)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

  

 

 

  

 

Repurchases of common stock

 

 

(2,872)

 

 

 —

 

Proceeds from financing obligation

 

 

566

 

 

1,863

 

Cash paid for equity issue costs

 

 

 —

 

 

(7,500)

 

Net borrowings under factoring agreement

 

 

1,118

 

 

 —

 

Borrowings from revolver and swing-line loan

 

 

51,000

 

 

25,000

 

Repayments from revolver and swing-line loan

 

 

(21,000)

 

 

(25,000)

 

Principal payments on finance lease obligations

 

 

(5,077)

 

 

(4,803)

 

Principal payments on long-term obligations

 

 

(4,153)

 

 

(2,947)

 

Net cash provided by (used in) financing activities

 

 

19,582

 

 

(13,387)

 

Effect of exchange rates on cash

 

 

(32)

 

 

55

 

Net decrease in cash and cash equivalents

 

 

(30,594)

 

 

(42,058)

 

Cash, restricted cash, and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

 

43,854

 

 

81,489

 

End of period

 

$

13,260

 

$

39,431

 

 

 

 

 

 

 

 

 

Supplemental cash flow data:

 

 

 

 

 

 

 

Income tax payments, net of refunds received

 

$

1,356

 

$

1,053

 

Interest paid

 

 

60,573

 

 

66,192

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

Assets acquired through right-of-use arrangements

 

 

4,097

 

 

4,432

 

Accrued capital expenditures

 

 

809

 

 

1,101

 

 

Note: Amounts may not foot due to rounding.


 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

5


 

Exela Technologies, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands of United States dollars except share and per share amounts or unless otherwise noted)

(Unaudited)

1.     General

These condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements as of and for the year ended December 31, 2018 included in the Exela Technologies, Inc. (the "Company," "Exela," "we," "our" or "us") annual report on Form 10-K for such period (the “2018 Form 10-K”).

The accompanying condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America ("GAAP") and with the instructions to Form 10-Q and Rule 10-01 of Securities and Exchange Commission ("SEC") Regulation S-X 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 us 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 our estimates.

The condensed consolidated financial statements are unaudited, but in our opinion 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.

Net Loss per Share

Earnings per share ("EPS") is computed by dividing net loss available to holders of the Company's common stock, par value $0.0001 per share (“Common Stock”) 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 or if-converted method in periods of earnings. The two-class method is an earnings allocation method that determines earnings per share for Common Stock and participating securities. As the Company experienced net losses for the periods presented, the impact of the Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”) was calculated based on the if-converted method. Diluted EPS excludes all dilutive potential of shares of Common Stock if their effect is anti-dilutive.

For the three months ended March 31, 2019 outstanding shares of the Series A Preferred Stock, if converted would have resulted in an additional 5,586,344 shares of Common Stock outstanding, but were not included in the computation of diluted loss per share as their effects were anti-dilutive.

The Company was originally incorporated July 12, 2017 as a special purpose acquisition company under the name Quinpario Acquisition Corp 2 (“Quinpario”). The Company has not included the effect of 35,000,000 warrants sold in the Quinpario Initial Public Offering (“IPO”) in the calculation of net income (loss) per share. Warrants are considered anti-dilutive and excluded when the exercise price exceeds the average market value of the Company’s Common Stock price during the applicable period.

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2019

    

2018

Net loss attributable to common stockholders (A)

 

$

(30,821)

 

$

(24,908)

Weighted average common shares outstanding - basic and diluted (B)

 

 

150,142,955

 

 

152,140,117

Loss Per Share:

 

 

 

 

 

 

Basic and diluted (A/B)

 

$

(0.21)

 

$

(0.16)

 

 

6


 

2.    New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) no. 2016-02, Leases (ASC 842). This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted this guidance effective January 1, 2019, under the modified retrospective transition method provided by ASU 2018-11 with the following practical expedients below:

·

Not to record the leases with an initial term of 12 months on the balance sheet; and

·

Not to reassess the (1) definition of a lease, (2) lease classification, and (3) initial direct costs for existing leases during transition.

The adoption had a material impact on the Company's unaudited consolidated balance sheets, but did not have a material impact on the Company's unaudited consolidated income statements and unaudited consolidated statements of cash flows. The most significant impact was the recognition of right-of-use assets and lease liabilities for operating leases, while the Company's accounting for finance leases remained substantially unchanged. See Note 4 for relevant disclosures.

 

Effective January 1, 2019 the Company adopted ASU no. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this ASU addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this ASU addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. The adoption had no impact on the Company's financial position, results of operations, and cash flows for the quarter ended March 31, 2019.

 

Effective January 1, 2019 the Company adopted ASU no. 2017-12, Derivatives and Hedging (Topic 815); Targeted Improvements to Accounting for Hedging Activities. The amendments in this ASU better align the risk management activities and financial reporting for these hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The adoption had no impact on the Company's financial position, results of operations, and cash flows for the quarter ended March 31, 2019.

Effective January 1, 2019 the Company adopted ASU no. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU address a narrow-scope financial reporting issue related to the tax effects that may become “stranded” in accumulated other comprehensive income (“AOCI”) as a result of the Tax Cuts and Jobs Act (“TCJA”). An entity may elect to reclassify the income tax effects of the TCJA on items within AOCI to retained earnings. The adoption had no impact on the Company's financial position, results of operations, and cash flows for the quarter ended March 31, 2019.

Effective January 1, 2019 the Company adopted ASU no. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting to amend the accounting for share-based payment awards issued to nonemployees. Under the revised guidance, the accounting for awards issued to nonemployees will be similar to the model for employee awards, except the ASU allows an entity to elect on an award-by-award basis to use

7


 

the contractual term as the expected term assumption in the option pricing model, and the cost of the grant is recognized in the same period(s) and in the same manner as if the grantor had paid cash. The adoption had no impact on the Company's financial position, results of operations, and cash flows for the quarter ended March 31, 2019.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU no. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently in the early stages of evaluating the impact that adopting this standard will have on the consolidated financial statements.

In August 2018, the FASB issued ASU no. 2018-13, Fair Value Measurement (Topic 820); which changes the fair value measurement disclosure requirements of ASC 820. The amendments in this ASU are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting. The FASB used the guidance in the Concepts Statement to improve the effectiveness of ASC 820’s disclosure requirements. The objective of the disclosure requirements in this subtopic is to provide users of financial statements with information about assets and liabilities measured at fair value in the statement of financial position or disclosed in the notes to financial statements. The ASU includes but is not limited to the valuation techniques and inputs that a reporting entity uses to arrive at its measures of fair value, including judgments and assumptions that the entity makes, the uncertainty in the fair value measurements as of the reporting date, and how changes in fair value measurements affect an entity’s performance and cash flows. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU.

In August 2018, the FASB issued ASU no. 2018-15, Intangibles, Goodwill, and Other - Internal Use Software (Subtopic 350-40): Customer's accounting for implementation costs incurred in a Cloud Computing Arrangement that is a service contract. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently in the early stages of evaluating the impact that adopting this standard will have on the consolidated financial statements.

 

3.     Significant Accounting Policies

The information presented below supplements the Significant Accounting Policies information presented in our 2018 Form 10-K, including Revenue Recognition for the adoption of ASC 606, which became effective January 1, 2018. See our 2018 Form 10-K for a description of our significant accounting policies in effect prior to the adoption of the new accounting standard.

8


 

Revenue Recognition

We account for revenue in accordance with ASC 606. 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 we expect 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 our material sources of revenue are derived from contracts with customers, primarily related to the provision of business and transaction processing services within each of our segments. We do not have any significant extended payment terms, as payment is received shortly after goods are delivered or services are provided.

Nature of Services

Our 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. Our promise to our 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. We allocate the variable fees to the single performance obligation charged to the distinct service period in which we have the contractual right to bill under the contract.

Disaggregation of Revenues

The following tables disaggregate revenue from contracts by geographic region and by segment for the three months ended March 31, 2019 and March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2019

 

2018

 

 

 

ITPS

 

 

HS

 

 

LLPS

 

 

ITPS

 

 

HS

 

 

LLPS

United States

 

$

250,908

 

$

61,343

 

$

17,842

 

$

269,939

 

$

58,632

 

$

22,598

Europe

 

 

66,678

 

 

 —

 

 

 —

 

 

35,283

 

 

 —

 

 

 —

Other

 

 

6,994

 

 

 —

 

 

 —

 

 

6,715

 

 

 —

 

 

 —

Total

 

$

324,580

 

$

61,343

 

$

17,842

 

$

311,937

 

$

58,632

 

$

22,598

 

 

Contract Balances

The following table presents contract assets and contract liabilities recognized at March 31, 2019 and December 31, 2018:

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2019

    

2018

Accounts receivable, net

 

$

278,064

 

$

270,812

Deferred revenues

 

 

20,322

 

 

16,940

Costs to obtain and fulfill a contract

 

 

21,964

 

 

18,624

Customer deposits

 

 

28,410

 

 

34,235

 

Accounts receivable, net includes $43.1 million and $39.5 million as of March 31, 2019 and December 31, 2018, respectively, representing amounts not billed to customers. We have accrued the unbilled receivables for work performed in accordance with the terms of contracts with customers.

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 we 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 is deferred over the

9


 

contract term. We recognized revenue of $6.4 million during the three months ended March 31, 2019 that had been deferred as of December 31, 2018.  

Costs incurred to obtain and fulfill contracts are deferred and expensed on a straight-line basis over the estimated benefit period. We recognized $2.2 million of amortization for these costs in the first three months of 2019 within depreciation and amortization expense. These costs represent incremental external costs or certain specific internal costs that are directly related to the contract acquisition or transition activities and can be separated into two principal categories: contract commissions and transition/set-up costs. Examples of such capitalized costs include hourly labor and related fringe benefits and travel costs. Applying the practical expedient in ASC 340-40-25-4, we recognize the incremental costs of obtaining contracts 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. The majority of the amounts recorded as of December 31, 2018 were used to pay for postage with the corresponding postage revenue being recognized during the three months ended March 31, 2019.

Performance Obligations

At the inception of each contract, we assess the goods and services promised in our contracts and identify each distinct performance obligation. The majority of our 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 our 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 our contracts have multiple performance obligations, including contracts that combine software implementation services with post-implementation customer support. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our 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 we estimate our expected costs of satisfying a performance obligation and add an appropriate margin for that distinct good or service. We also use the adjusted market approach whereby we estimate 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, we consider the nature of the variable payment and whether it relates specifically to its efforts to satisfy a specific part of the contract. Certain of our software implementation performance obligations are satisfied at a point in time, typically when customer acceptance is obtained.

When evaluating the transaction price, we analyze, on a contract-by-contract basis, all applicable variable consideration. The nature of our contracts give rise to variable consideration, including volume discounts, contract penalties, and other similar items that generally decrease the transaction price. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We do not anticipate significant changes to our estimates of variable consideration.

We include reimbursements from customers, such as postage costs, in revenue, while the related costs are included in cost of revenue.

Transaction Price Allocated to the Remaining Performance Obligations

In accordance with optional exemptions available under ASC 606, we did not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less, and (2) contracts for which variable consideration relates entirely to an unsatisfied performance obligation, which comprise the majority of our contracts. We have certain non-cancellable contracts where we receive a fixed monthly fee in exchange for a series of

10


 

distinct services that are substantially the same and have the same pattern of transfer over time, with the corresponding remaining performance obligations as of March 31, 2019 in each of the future periods below:

 

 

 

 

Estimated Remaining Fixed Consideration for Unsatisfied
Performance Obligations

 

    

 

 

Remainder of 2019

 

$

29,108

2020

 

 

23,170

2021

 

 

14,412

2022

 

 

5,389

2023

 

 

1,785