Steel Connect Reports Second Quarter Fiscal 2024 Financial Results
- Net revenue decreased by 15.2% in Q2 2024 compared to the previous year.
- Net income showed a significant improvement from a loss to a profit in Q2 2024.
- Adjusted EBITDA decreased by $0.9 million in Q2 2024 compared to the same period last year.
- Total debt remained stable at $12.9 million, while net cash was at $263.5 million as of January 31, 2024.
- None.
Insights
The reported decline in net revenue and adjusted EBITDA for Steel Connect, Inc. reflects a contraction in the company's operational performance, particularly in the computing and consumer electronics markets. The decrease in net revenue by 15.2% and 17.4% for the respective quarters, alongside a decrease in adjusted EBITDA, suggests a potential challenge in maintaining market share or facing pricing pressures. While the increase in net income is a positive indicator, it is essential to scrutinize the sources of this income. The significant contribution from 'Other gains, net', primarily due to investment gains and interest income, indicates that operational efficiency may not be the sole driver of profitability.
From a liquidity perspective, the substantial cash and cash equivalents balance presents a strong buffer for operational needs. However, the increase in capital expenditures, as a percentage of net revenue, may warrant attention to ensure that these investments are poised to generate future revenue growth. The reported figures highlight the importance of monitoring the company's strategic initiatives to bolster its core business segments and improve operational margins.
The reported financial results provide insight into the broader market dynamics within the technology sector. Steel Connect's performance, particularly the reduction in volumes from existing clients in computing and consumer electronics, may reflect broader industry trends such as market saturation or shifts in consumer demand. The partial offset by new business and program starts indicates an attempt to diversify the client base and adapt to changing market conditions.
The increase in gross profit margin, despite a decrease in gross profit, suggests an improvement in cost management or a favorable shift in sales mix. It is important to assess whether these margin improvements can be sustained in the face of ongoing market volatility and competitive pressures. The company's ability to navigate these challenges and leverage its liquidity to invest in areas of growth will be critical in determining its long-term market position.
The financial results of Steel Connect, Inc. must be contextualized within the current economic environment. The decrease in net revenue and adjusted EBITDA could be symptomatic of macroeconomic factors such as reduced consumer spending or increased competition. The insignificant impact of foreign exchange rates on revenues and costs suggests that the company is not heavily exposed to currency risk, which can be favorable in a volatile forex market.
The company's operational performance, including the management of SG&A expenses and the strategic deployment of capital expenditures, reflects its response to economic pressures. The focus on maintaining liquidity and managing debt, as evidenced by the fair value of outstanding debt and available borrowing capacity, indicates a cautious approach to financial management in uncertain economic times. The ability to generate free cash flow, despite a reported negative figure in the most recent quarter, will be vital for sustaining operations and pursuing growth opportunities without over-reliance on external financing.
Second Quarter 2024 Results
-
Net revenue totaled
$43.0 million $50.8 million -
Net income was
$5.3 million $0.5 million -
Net income available to common stockholders was
$4.8 million $1.1 million -
Adjusted EBITDA* was
$3.7 million $4.6 million -
Net cash provided by operating activities was
$0.1 million -
Free Cash Flow* totaled
$(1.1) million -
Total debt was
$12.9 million $263.5 million
Six-Month Fiscal Year-to-Date Financial Results
-
Net revenue totaled
$84.4 million $102.1 million -
Net income was
$9.8 million $4.4 million -
Net income available to common stockholders was
$8.7 million $3.4 million -
Adjusted EBITDA* was
$7.5 million $11.9 million -
Net cash provided by operating activities was
$6.7 million -
Free Cash Flow* totaled
$5.0 million
* See reconciliations of these non-GAAP measurements to the most directly comparable GAAP measures included in the financial tables. See also "Note Regarding Use of Non-GAAP Financial Measurements" below for the definitions of these non-GAAP measures.
Results of Operations
The financial information and discussion that follows below are for the Company's operations.
Due to the application of pushdown accounting in connection with the exchange transaction ("Exchange Transaction") on May 1, 2023 with Steel Partners Holdings L.P. (“Steel Partners”), the Company’s consolidated financial statements include a black line division between the two distinct periods to indicate the application of two different bases of accounting, which may not be comparable, between the periods presented. The pre-exchange period through April 30, 2023, is referred to as the "Predecessor" period. The post-exchange period, May 1, 2023, and onward, includes the impact of pushdown accounting and is referred to as the "Successor" period.
As it relates to the results of operations, while the Successor period and the Predecessor period are distinct reporting periods, the effects of the change of control for financial statement purposes did not have a material impact on the comparability of our results of operations between the periods, unless otherwise noted related to the impact from pushdown accounting.
|
Successor |
Predecessor |
Successor |
Predecessor |
||||||||||||||
|
Three Months Ended January 31, |
Three Months Ended January 31, |
Six Months Ended January 31, |
Six Months Ended January 31, |
||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||||
|
(in thousands) |
|||||||||||||||||
Net revenue |
$ |
43,045 |
|
$ |
50,781 |
|
$ |
84,386 |
|
$ |
102,140 |
|
||||||
Net income (loss) |
|
5,346 |
|
|
(526 |
) |
|
9,782 |
|
|
4,431 |
|
||||||
Net income (loss) available to common stockholders |
$ |
4,809 |
|
$ |
(1,063 |
) |
$ |
8,709 |
|
$ |
3,357 |
|
||||||
Adjusted EBITDA* |
$ |
3,701 |
|
$ |
4,631 |
|
$ |
7,458 |
|
$ |
11,912 |
|
||||||
Adjusted EBITDA margin* |
|
8.6 |
% |
|
9.1 |
% |
|
8.8 |
% |
|
11.7 |
% |
||||||
Net cash provided by operating activities |
|
78 |
|
|
1,336 |
|
|
6,661 |
|
|
9,588 |
|
||||||
Additions to property and equipment |
|
(1,148 |
) |
|
(318 |
) |
|
(1,700 |
) |
|
(866 |
) |
||||||
Free cash flow* |
$ |
(1,070 |
) |
$ |
1,018 |
|
$ |
4,961 |
|
$ |
8,722 |
|
||||||
* |
See reconciliations of these non-GAAP measurements to the most directly comparable GAAP measures included in the financial tables. See also "Note Regarding Use of Non-GAAP Financial Measurements" below for the definitions of these non-GAAP measures. |
Comparison of the Second Quarter and Six Months Ended January 31, 2024 and 2023
|
Successor |
|
|
Predecessor |
|
|
|
Successor |
|
|
Predecessor |
|
|
||||||||||||
|
Three Months Ended January 31, |
|
|
Three Months Ended January 31, |
|
|
|
Six Months Ended January 31, |
|
|
Six Months Ended January 31, |
|
|
||||||||||||
|
(unaudited in thousands) |
||||||||||||||||||||||||
|
|
2024 |
|
|
|
|
2023 |
|
|
Fav (Unfav) ($) |
|
|
2024 |
|
|
|
|
2023 |
|
|
Fav (Unfav) ($) |
||||
Net revenue |
$ |
43,045 |
|
|
|
$ |
50,781 |
|
|
$ |
(7,736 |
) |
|
$ |
84,386 |
|
|
|
$ |
102,140 |
|
|
$ |
(17,754 |
) |
Cost of revenue |
|
(31,698 |
) |
|
|
|
(37,719 |
) |
|
|
6,021 |
|
|
|
(61,564 |
) |
|
|
|
(74,813 |
) |
|
|
13,249 |
|
Gross profit |
|
11,347 |
|
|
|
|
13,062 |
|
|
|
(1,715 |
) |
|
|
22,822 |
|
|
|
|
27,327 |
|
|
|
(4,505 |
) |
Gross profit percentage |
|
26.4 |
% |
|
|
|
25.7 |
% |
|
|
— |
|
|
|
27.0 |
% |
|
|
|
26.8 |
% |
|
|
— |
|
Selling, general and administrative |
|
(8,732 |
) |
|
|
|
(10,459 |
) |
|
|
1,727 |
|
|
|
(17,527 |
) |
|
|
|
(20,845 |
) |
|
|
3,318 |
|
Amortization |
|
(893 |
) |
|
|
|
— |
|
|
|
(893 |
) |
|
|
(1,768 |
) |
|
|
|
— |
|
|
|
(1,768 |
) |
Interest expense |
|
(249 |
) |
|
|
|
(848 |
) |
|
|
599 |
|
|
|
(496 |
) |
|
|
|
(1,674 |
) |
|
|
1,178 |
|
Other gains (losses), net |
|
4,067 |
|
|
|
|
(2,627 |
) |
|
|
6,694 |
|
|
|
7,616 |
|
|
|
|
402 |
|
|
|
7,214 |
|
Total costs and expenses |
|
(37,505 |
) |
|
|
|
(51,653 |
) |
|
|
14,148 |
|
|
|
(73,739 |
) |
|
|
|
(96,930 |
) |
|
|
23,191 |
|
Income (loss) before income taxes |
|
5,540 |
|
|
|
|
(872 |
) |
|
|
6,412 |
|
|
|
10,647 |
|
|
|
|
5,210 |
|
|
|
5,437 |
|
Income tax (expense) benefit |
|
(194 |
) |
|
|
|
346 |
|
|
|
(540 |
) |
|
|
(865 |
) |
|
|
|
(779 |
) |
|
|
(86 |
) |
Net income (loss) |
$ |
5,346 |
|
|
|
$ |
(526 |
) |
|
$ |
5,872 |
|
|
$ |
9,782 |
|
|
|
$ |
4,431 |
|
|
$ |
5,351 |
|
Net Revenue
Net revenue for the second quarter decreased
Net revenue for the six months ended January 31, 2024 decreased
Cost of Revenue
Total cost of revenue decreased by
Total cost of revenue decreased by
Gross Profit Margin
Gross profit decreased
Gross profit decreased
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses during the second quarter decreased by approximately
SG&A expenses decreased by approximately
Amortization Expense
Amortization expense of
Interest Expense
Interest expense during the three and six months ended January 31, 2024 decreased
Other Gains (Losses), Net
Other gains, net are primarily composed of investment gains (losses), fair value remeasurement gains (losses), foreign exchange gains (losses), interest income, and sublease income.
The Company recorded
The Company recorded
Income Tax (Expense) Benefit
During the second quarter, the Company recorded income tax expense of approximately
During the six months ended January 31, 2024, the Company recorded income tax expense of approximately
Net Income
Net income for the second quarter increased
Net income for the six months ended January 31, 2024 increased
Additions to Property and Equipment (Capital Expenditures)
Capital expenditures for the second quarter totaled
Capital expenditures for the six months ended January 31, 2024 totaled
Adjusted EBITDA
Adjusted EBITDA decreased
Adjusted EBITDA decreased
Liquidity and Capital Resources
As of January 31, 2024, the Company had cash and cash equivalents of
As of January 31, 2024, the fair value of outstanding debt was
About Steel Connect, Inc.
Steel Connect, Inc. is a holding company whose wholly-owned subsidiary, ModusLink Corporation, serves the supply chain management market.
ModusLink is an end-to-end global supply chain solutions and e-commerce provider serving clients in markets such as consumer electronics, communications, computing, medical devices, software and retail. ModusLink designs and executes critical elements in its clients' global supply chains to improve speed to market, product customization, flexibility, cost, quality and service. These benefits are delivered through a combination of industry expertise, innovative service solutions, and integrated operations, proven business processes, an expansive global footprint and world-class technology. ModusLink also produces and licenses an entitlement management solution powered by its enterprise-class Poetic software, which offers a complete solution for activation, provisioning, entitlement subscription, and data collection from physical goods (connected products) and digital products. ModusLink has an integrated network of strategically located facilities in various countries, including numerous sites throughout
– Financial Tables Follow –
Steel Connect, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands) |
|||||
|
Successor |
||||
|
January 31, 2024 |
|
July 31, 2023 |
||
|
(unaudited) |
|
|
||
ASSETS |
|
|
|
||
Current assets: |
|
|
|
||
Cash and cash equivalents |
$ |
276,422 |
|
$ |
121,372 |
Accounts receivable, trade, net |
|
29,179 |
|
|
28,616 |
Inventories, net |
|
7,742 |
|
|
8,569 |
Funds held for clients |
|
2,479 |
|
|
2,031 |
Prepaid expenses and other current assets |
|
5,550 |
|
|
158,686 |
Total current assets |
|
321,372 |
|
|
319,274 |
Property and equipment, net |
|
4,433 |
|
|
3,698 |
Operating lease right-of-use assets |
|
24,813 |
|
|
27,098 |
Investments |
|
3,174 |
|
|
— |
Other intangible assets, net |
|
32,821 |
|
|
34,589 |
Goodwill |
|
22,785 |
|
|
22,785 |
Other assets |
|
3,317 |
|
|
3,737 |
Total assets |
$ |
412,715 |
|
$ |
411,181 |
|
|
|
|
||
LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY |
|
|
|
||
Current liabilities: |
|
|
|
||
Accounts payable |
$ |
25,463 |
|
$ |
26,514 |
Accrued expenses |
|
21,936 |
|
|
26,774 |
Funds held for clients |
|
2,445 |
|
|
1,949 |
Current lease obligations |
|
9,027 |
|
|
7,973 |
Convertible note payable |
|
12,903 |
|
|
— |
Other current liabilities |
|
3,843 |
|
|
4,544 |
Total current liabilities |
|
75,617 |
|
|
67,754 |
Convertible note payable |
|
— |
|
|
12,461 |
Long-term lease obligations |
|
16,135 |
|
|
19,161 |
Other long-term liabilities |
|
5,867 |
|
|
5,442 |
Total long-term liabilities |
|
22,002 |
|
|
37,064 |
Total liabilities |
|
97,619 |
|
|
104,818 |
|
|
|
|
||
Contingently redeemable preferred stock |
|
237,739 |
|
|
237,739 |
|
|
|
|
||
Total stockholders' equity |
|
77,357 |
|
|
68,624 |
Total liabilities, contingently redeemable preferred stock and stockholders' equity |
$ |
412,715 |
|
$ |
411,181 |
Steel Connect, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) |
|||||||||||||||||
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
||||||||
|
Three Months Ended January 31, |
|
|
Three Months Ended January 31, |
|
Six Months Ended January 31, |
|
|
Six Months Ended January 31, |
||||||||
|
|
2024 |
|
|
|
|
2023 |
|
|
|
2024 |
|
|
|
|
2023 |
|
Net revenue |
$ |
43,045 |
|
|
|
$ |
50,781 |
|
|
$ |
84,386 |
|
|
|
$ |
102,140 |
|
Cost of revenue |
|
31,698 |
|
|
|
|
37,719 |
|
|
|
61,564 |
|
|
|
|
74,813 |
|
Gross profit |
|
11,347 |
|
|
|
|
13,062 |
|
|
|
22,822 |
|
|
|
|
27,327 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative |
|
8,732 |
|
|
|
|
10,459 |
|
|
|
17,527 |
|
|
|
|
20,845 |
|
Amortization |
|
893 |
|
|
|
|
— |
|
|
|
1,768 |
|
|
|
|
— |
|
Total operating expenses |
|
9,625 |
|
|
|
|
10,459 |
|
|
|
19,295 |
|
|
|
|
20,845 |
|
Operating income |
|
1,722 |
|
|
|
|
2,603 |
|
|
|
3,527 |
|
|
|
|
6,482 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
||||||||
Interest income |
|
3,499 |
|
|
|
|
332 |
|
|
|
6,718 |
|
|
|
|
476 |
|
Interest expense |
|
(249 |
) |
|
|
|
(848 |
) |
|
|
(496 |
) |
|
|
|
(1,674 |
) |
Other gains (losses), net |
|
568 |
|
|
|
|
(2,959 |
) |
|
|
898 |
|
|
|
|
(74 |
) |
Total other income (loss) |
|
3,818 |
|
|
|
|
(3,475 |
) |
|
|
7,120 |
|
|
|
|
(1,272 |
) |
Income (loss) before income taxes |
|
5,540 |
|
|
|
|
(872 |
) |
|
|
10,647 |
|
|
|
|
5,210 |
|
Income tax expense (benefit) |
|
194 |
|
|
|
|
(346 |
) |
|
|
865 |
|
|
|
|
779 |
|
Net income (loss) |
|
5,346 |
|
|
|
|
(526 |
) |
|
|
9,782 |
|
|
|
|
4,431 |
|
Less: Preferred dividends on Series C redeemable preferred stock |
|
(537 |
) |
|
|
|
(537 |
) |
|
|
(1,073 |
) |
|
|
|
(1,074 |
) |
Net income (loss) available to common stockholders |
$ |
4,809 |
|
|
|
$ |
(1,063 |
) |
|
$ |
8,709 |
|
|
|
$ |
3,357 |
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income (loss) per common shares - basic |
$ |
0.18 |
|
|
|
$ |
(0.16 |
) |
|
$ |
0.33 |
|
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income (loss) per common shares - diluted |
$ |
0.18 |
|
|
|
$ |
(0.16 |
) |
|
$ |
0.33 |
|
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average number of common shares outstanding - basic |
|
6,211 |
|
|
|
|
6,448 |
|
|
|
6,205 |
|
|
|
|
6,442 |
|
Weighted-average number of common shares outstanding - diluted |
|
26,083 |
|
|
|
|
6,448 |
|
|
|
26,075 |
|
|
|
|
6,496 |
|
Steel Connect, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) |
||||||||
|
Successor |
|
|
Predecessor |
||||
|
Six Months Ended January 31, |
|
|
Six Months Ended January 31, |
||||
|
|
2024 |
|
|
|
|
2023 |
|
Cash flows from operating activities: |
|
|
|
|
||||
Net income |
$ |
9,782 |
|
|
|
$ |
4,431 |
|
Adjustments to reconcile net income to cash flows from operating activities: |
|
|
|
|
||||
Depreciation |
|
885 |
|
|
|
|
924 |
|
Amortization of finite-lived intangible assets |
|
1,768 |
|
|
|
|
— |
|
Amortization of deferred financing costs |
|
— |
|
|
|
|
24 |
|
Accretion of debt discount |
|
— |
|
|
|
|
1,056 |
|
Share-based compensation |
|
297 |
|
|
|
|
355 |
|
Non-cash lease expense |
|
4,479 |
|
|
|
|
4,488 |
|
Bad debt expense |
|
— |
|
|
|
|
964 |
|
Other (gains) losses, net |
|
(898 |
) |
|
|
|
74 |
|
Changes in operating assets and liabilities: |
|
|
|
|
||||
Accounts receivable, net |
|
(802 |
) |
|
|
|
2,734 |
|
Inventories, net |
|
640 |
|
|
|
|
(493 |
) |
Prepaid expenses and other current assets |
|
(1,449 |
) |
|
|
|
(1,536 |
) |
Accounts payable and accrued expenses |
|
(4,868 |
) |
|
|
|
(1,016 |
) |
Refundable and accrued income taxes, net |
|
(510 |
) |
|
|
|
(845 |
) |
Other assets and liabilities |
|
(2,663 |
) |
|
|
|
(1,572 |
) |
Net cash provided by operating activities |
|
6,661 |
|
|
|
|
9,588 |
|
Cash flows from investing activities: |
|
|
|
|
||||
Purchases of investments |
|
(5,519 |
) |
|
|
|
— |
|
Proceeds from sales of investments |
|
157,468 |
|
|
|
|
— |
|
Additions of property and equipment |
|
(1,700 |
) |
|
|
|
(866 |
) |
Proceeds from the disposition of property and equipment |
|
— |
|
|
|
|
16 |
|
Net cash provided by (used in) investing activities |
|
150,249 |
|
|
|
|
(850 |
) |
Cash flows from financing activities: |
|
|
|
|
||||
Preferred dividend payments |
|
(1,073 |
) |
|
|
|
(1,074 |
) |
Repayments on capital lease obligations |
|
— |
|
|
|
|
(38 |
) |
Net cash used in financing activities |
|
(1,073 |
) |
|
|
|
(1,112 |
) |
Net effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
(339 |
) |
|
|
|
1,110 |
|
Net increase in cash, cash equivalents and restricted cash |
|
155,498 |
|
|
|
|
8,736 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
123,403 |
|
|
|
|
58,045 |
|
Cash, cash equivalents and restricted cash, end of period |
$ |
278,901 |
|
|
|
$ |
66,781 |
|
|
|
|
|
|
||||
Cash and cash equivalents, end of period |
$ |
276,422 |
|
|
|
$ |
62,427 |
|
Restricted cash for funds held for clients, end of period |
|
2,479 |
|
|
|
|
4,354 |
|
Cash, cash equivalents and restricted cash, end of period |
$ |
278,901 |
|
|
|
$ |
66,781 |
|
Steel Connect, Inc. and Subsidiaries Segment Data (in thousands) (unaudited) |
|||||||||||||||||
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
||||||||
|
Three Months Ended January 31, |
|
|
Three Months Ended January 31, |
|
Six Months Ended January 31, |
|
|
Six Months Ended January 31, |
||||||||
|
|
2024 |
|
|
|
|
2023 |
|
|
|
2024 |
|
|
|
|
2023 |
|
|
(Unaudited) |
||||||||||||||||
Net revenue: |
|
|
|
|
|
|
|
|
|
||||||||
Supply Chain |
$ |
43,045 |
|
|
|
$ |
50,781 |
|
|
$ |
84,386 |
|
|
|
$ |
102,140 |
|
Total segment net revenue |
|
43,045 |
|
|
|
|
50,781 |
|
|
|
84,386 |
|
|
|
|
102,140 |
|
Operating income: |
|
|
|
|
|
|
|
|
|
||||||||
Supply Chain |
|
3,065 |
|
|
|
|
5,388 |
|
|
|
5,740 |
|
|
|
|
11,238 |
|
Total segment operating income |
|
3,065 |
|
|
|
|
5,388 |
|
|
|
5,740 |
|
|
|
|
11,238 |
|
Corporate-level activity |
|
(1,343 |
) |
|
|
|
(2,785 |
) |
|
|
(2,213 |
) |
|
|
|
(4,756 |
) |
Total operating income |
|
1,722 |
|
|
|
|
2,603 |
|
|
|
3,527 |
|
|
|
|
6,482 |
|
Total other income (expense), net |
|
3,818 |
|
|
|
|
(3,475 |
) |
|
|
7,120 |
|
|
|
|
(1,272 |
) |
Income (loss) before income taxes |
$ |
5,540 |
|
|
|
$ |
(872 |
) |
|
$ |
10,647 |
|
|
|
$ |
5,210 |
|
Steel Connect, Inc. and Subsidiaries Reconciliation of Non-GAAP Measures to GAAP Measures (in thousands) (unaudited) |
|||||||||||||||||
EBITDA and Adjusted EBITDA Reconciliations: |
|||||||||||||||||
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
||||||||
|
Three Months Ended January 31, |
|
|
Three Months Ended January 31, |
|
Six Months Ended January 31, |
|
|
Six Months Ended January 31, |
||||||||
|
|
2024 |
|
|
|
|
2023 |
|
|
|
2024 |
|
|
|
|
2023 |
|
Net income (loss) |
$ |
5,346 |
|
|
|
$ |
(526 |
) |
|
$ |
9,782 |
|
|
|
$ |
4,431 |
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest income |
|
(3,499 |
) |
|
|
|
(332 |
) |
|
|
(6,718 |
) |
|
|
|
(476 |
) |
Interest expense |
|
249 |
|
|
|
|
848 |
|
|
|
496 |
|
|
|
|
1,674 |
|
Income tax expense (benefit) |
|
194 |
|
|
|
|
(346 |
) |
|
|
865 |
|
|
|
|
779 |
|
Depreciation |
|
450 |
|
|
|
|
465 |
|
|
|
885 |
|
|
|
|
924 |
|
Amortization |
|
893 |
|
|
|
|
— |
|
|
|
1,768 |
|
|
|
|
— |
|
EBITDA |
|
3,633 |
|
|
|
|
109 |
|
|
|
7,078 |
|
|
|
|
7,332 |
|
|
|
|
|
|
|
|
|
|
|
||||||||
Strategic consulting and other related professional fees |
|
— |
|
|
|
|
181 |
|
|
|
— |
|
|
|
|
832 |
|
Executive severance and employee retention |
|
— |
|
|
|
|
(34 |
) |
|
|
— |
|
|
|
|
(150 |
) |
Restructuring and restructuring-related expense |
|
125 |
|
|
|
|
— |
|
|
|
125 |
|
|
|
|
— |
|
Share-based compensation |
|
160 |
|
|
|
|
178 |
|
|
|
297 |
|
|
|
|
355 |
|
Loss on sale of long-lived assets |
|
1 |
|
|
|
|
— |
|
|
|
1 |
|
|
|
|
16 |
|
Unrealized foreign exchange losses, net |
|
366 |
|
|
|
|
4,240 |
|
|
|
317 |
|
|
|
|
3,728 |
|
Other non-cash gains, net |
|
(584 |
) |
|
|
|
(43 |
) |
|
|
(360 |
) |
|
|
|
(201 |
) |
Adjusted EBITDA |
$ |
3,701 |
|
|
|
$ |
4,631 |
|
$ |
7,458 |
|
|
$ |
11,912 |
|
||
|
|
|
|
|
|
|
|
|
|
||||||||
Net revenue |
$ |
43,045 |
|
|
|
$ |
50,781 |
|
$ |
84,386 |
|
|
$ |
102,140 |
|
||
Adjusted EBITDA margin |
|
8.6 |
% |
|
|
|
9.1 |
% |
|
|
8.8 |
% |
|
|
|
11.7 |
% |
Free Cash Flow Reconciliation: |
|||||||||||||||||
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
||||||||
|
Three Months Ended January 31, |
|
|
Three Months Ended January 31, |
|
Six Months Ended January 31, |
|
|
Six Months Ended January 31, |
||||||||
|
2024 |
|
|
2023 |
|
2024 |
|
|
2023 |
||||||||
Net cash provided by operating activities |
$ |
78 |
|
|
|
$ |
1,336 |
|
|
$ |
6,661 |
|
|
|
$ |
9,588 |
|
Additions to property and equipment |
|
(1,148 |
) |
|
|
|
(318 |
) |
|
|
(1,700 |
) |
|
|
|
(866 |
) |
Free cash flow |
$ |
(1,070 |
) |
|
|
$ |
1,018 |
|
|
$ |
4,961 |
|
|
|
$ |
8,722 |
|
Net Cash (Debt) Reconciliation: |
|||||||
|
Successor |
||||||
|
January 31, 2024 |
|
July 31, 2023 |
||||
Total debt, net |
|
(12,903 |
) |
|
|
(12,461 |
) |
Cash and cash equivalents |
|
276,422 |
|
|
|
121,372 |
|
Net cash |
$ |
263,519 |
|
|
$ |
108,911 |
|
Note Regarding Use of Non-GAAP Financial Measurements
In addition to the financial measures prepared in accordance with generally accepted accounting principles, the Company uses EBITDA, Adjusted EBITDA, Free Cash Flow and Net Cash (Debt), all of which are non-GAAP financial measures, to assess its performance. EBITDA represents earnings (losses) before interest income, interest expense, income tax expense (benefit), depreciation, and amortization. We define Adjusted EBITDA as net income (loss) excluding net charges related to interest income, interest expense, income tax expense (benefit), depreciation, amortization, strategic consulting and other related professional fees, executive severance and employee retention, restructuring and restructuring-related expense, share-based compensation, (gain) loss on sale of long-lived assets, impairment of long-lived assets, unrealized foreign exchange (gains) losses, net, and other non-cash (gains) losses, net. The Company defines Free Cash Flow as net cash provided by (used in) operating activities less additions to property and equipment, and defines Net Cash (Debt) as the sum of total debt, excluding reductions for unamortized discounts and issuance costs, less cash and cash equivalents.
We believe that providing these non-GAAP measurements to investors is useful, as these measures provide important supplemental information of our performance to investors and permit investors and management to evaluate the operating performance of our business. These measures provide useful supplemental information to management and investors regarding our operating results as they exclude certain items whose fluctuation from period-to-period do not necessarily correspond to changes in the operating results of our business. We use EBITDA and Adjusted EBITDA in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of Directors, determining a component of certain incentive compensation for executive officers and other key employees based on operating performance, determining compliance with certain covenants in the Company's credit facilities, and evaluating short-term and long-term operating trends in our core business. We use Free Cash Flow to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a useful measure of cash flows since purchases of property and equipment are a necessary component of ongoing operations, and similar to the use of Net Cash (Debt), assists management with its capital planning and financing considerations.
We believe that these non-GAAP financial measures assist in providing an enhanced understanding of our underlying operational measures to manage our core businesses, to evaluate performance compared to prior periods and the marketplace, and to establish operational goals. Further, we believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. These non-GAAP financial measures should not be considered in isolation or as a substitute for financial information provided in accordance with
Some of the limitations of EBITDA and Adjusted EBITDA include:
- EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
- EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
- EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;
- EBITDA and Adjusted EBITDA do not reflect historical capital expenditures or future requirements for capital expenditures or contractual commitments;
- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and
- other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.
In addition, Net Cash (Debt) assumes the Company's cash and cash equivalents can be used to reduce outstanding debt without restriction, while Free Cash Flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures and excludes the Company's remaining investing activities and financing activities, including the requirement for principal payments on the Company's outstanding indebtedness.
See reconciliations of these non-GAAP measures to the most directly comparable GAAP measures included in the financial tables of this release.
Net Operating Loss Carryforwards
The Company's Restated Certificate of Incorporation (the “Protective Amendment”) and Amended Tax Benefits Preservation Plan (the “Tax Plan”) includes provisions designed to protect the tax benefits of the Company's net operating loss carryforwards by preventing certain transfers of our securities that could result in an "ownership change" (as defined under Section 382 of the Internal Revenue Code). The Protective Amendment generally restricts any direct or indirect transfer if the effect would be to (i) increase the direct, indirect or constructive ownership of any stockholder from less than 4.99 percent to 4.99 percent or more of the shares of common stock then outstanding or (ii) increase the direct, indirect or constructive ownership of any stockholder owning or deemed to own 4.99 percent or more of the shares of common stock then outstanding. Pursuant to the Protective Amendment, any direct or indirect transfer attempted in violation of the Protective Amendment would be void as of the date of the prohibited transfer as to the purported transferee (or, in the case of an indirect transfer, the ownership of the direct owner of the shares would terminate simultaneously with the transfer), and the purported transferee (or in the case of any indirect transfer, the direct owner) would not be recognized as the owner of the shares owned in violation of the Protective Amendment (the "excess stock") for any purpose, including for purposes of voting and receiving dividends or other distributions in respect of such shares, or in the case of options, receiving shares in respect of their exercise. Pursuant to the Tax Plan and subject to certain exceptions, if a stockholder (or group) becomes a 4.99-percent stockholder after adoption of the Tax Plan, certain rights attached to each outstanding share of our common stock would generally become exercisable and entitle stockholders (other than the new 4.99-percent stockholder or group) to purchase additional shares of the Company at a significant discount, resulting in substantial dilution in the economic interest and voting power of the new 4.99-percent stockholder (or group). In addition, under certain circumstances in which the Company is acquired in a merger or other business combination after an non-exempt stockholder (or group) becomes a new 4.99-percent stockholder, each holder of a right (other than the new 4.99-percent stockholder or group) would then be entitled to purchase shares of the acquiring company's common stock at a discount. For further discussion of the Company's tax benefits preservation plan, please see the Company's filings with the SEC.
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this release that are not historical facts are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact, including without limitation, those with respect to the Company's goals, plans, expectations and strategies set forth herein are forward-looking statements. The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in these forward-looking statements: changes in the Company’s relationships with significant clients; fluctuations in demand for our products and services; the Company’s ability to achieve and sustain operating profitability; demand variability from clients without minimum purchase requirements; general economic conditions and public health crises; intense competition in the Company’s business; risks relating to impairment, misappropriation, theft and credit-related issues with respect to funds held for the Company’s clients; a decrease in our key business sectors or a reduction in consumer demand; our ability to maintain adequate inventory levels; our ability to raise or access capital in the future; difficulties increasing operating efficiencies and effecting cost savings; loss of essential employees or an inability to recruit and retain personnel; the Company's ability to execute on its business strategy and to achieve anticipated synergies and benefits from business acquisitions; risks inherent with conducting international operations, including the Company’s operations in Mainland China; the risk of damage, misappropriation or loss of the physical or intellectual property of the Company’s clients; disruptions in or breaches of the Company’s technology systems; failure to settle disputes and litigation on terms favorable to the Company; the Company's ability to preserve and monetize its net operating losses; changes in tax rates, laws or regulations; the vast majority of the voting power of our capital stock is owned and controlled by Steel Partners Holdings, L.P.; potential conflicts of interest arising from the interests of the members of the Company’s board of directors in Steel Holdings and its affiliates; risks related to the reverse/forward stock split; potential restrictions imposed by its indebtedness; and potential adverse effects from changes in interest rates. For a detailed discussion of cautionary statements and risks that may affect the Company's future results of operations and financial results, please refer to the Company's filings with the SEC, including, but not limited to, the risk factors in the Company's Annual Report on Form 10-K filed with the SEC on November 8, 2023. These filings are available on the Company's Investor Relations website under the "SEC Filings" tab.
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240314005984/en/
Investor Relations Contact
Jennifer Golembeske
914-461-1276
investorrelations@steelconnectinc.com
Source: Steel Connect, Inc.
FAQ
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