Third Quarter 2023 Results
- Net revenue from continuing operations totaled $46.1 million,
as compared to $51.5 million in the same period in the prior
year.
- Net income from continuing operations was $3.0 million, as
compared to net loss from continuing operations of $9.7 million in
the same period in the prior year.
- Net income attributable to common stockholders was $2.5
million, as compared to net income attributable to common
stockholders of $29.7 million in the same period in the prior
year.
- Adjusted EBITDA* was $5.2 million, as compared to $0.9 million
in the same period in the prior year.
- Net cash used in operating activities was $0.6 million.
- Free Cash Flow* totaled $(1.0) million.
- Total debt, net of unamortized discounts and issuance costs,
was $11.5 million; Net Debt* totaled $(48.8) million.
Nine-Month Fiscal Year-to-Date Financial Results
- Net revenue from continuing operations totaled $148.3 million,
as compared to $150.2 million in the same period in the prior
year.
- Net income from continuing operations was $7.5 million, as
compared to net loss from continuing operations of $12.2 million in
the same period in the prior year.
- Net income attributable to common stockholders was $5.9
million, as compared to net loss attributable to common
stockholders of $13.9 million in the same period in the prior
year.
- Adjusted EBITDA* was $17.1 million, as compared to $3.3 million
in the same period in the prior year.
- Net cash provided by operating activities was $9.0
million.
- Free Cash Flow* totaled $7.7 million.
Other Developments
- On May 1, 2023, Steel Connect, Inc. and Steel Partners Holdings
L.P ("Steel Partners"), completed an exchange transaction in which
Steel Partners and certain of its affiliates transferred certain
marketable securities to Steel Connect, Inc. in exchange for 3.5
million shares of Series E Convertible Preferred Stock of Steel
Connect.
Steel Connect, Inc. (the "Company") (NASDAQ: STCN) today
announced financial results for its third quarter ended April 30,
2023.
Recent Developments
On May 1, 2023, the Company and Steel Partners transferred
certain marketable securities held by Steel Partners and certain of
its affiliates to the Company in exchange for 3.5 million shares of
Series E Convertible Preferred Stock of Steel Connect (the
"Exchange Transaction"). Following recent approval by the Steel
Connect stockholders pursuant to NASDAQ Marketplace Rules, the
Series E Convertible Preferred Stock is convertible into an
aggregate of 184.9 million shares of Steel Connect common stock,
par value $0.01 per share, and will vote together with the Steel
Connect common stock and participate in any dividends paid on the
Steel Connect common stock, in each case on an as-converted basis.
Upon conversion of the Series E Convertible Preferred Stock, the
Steel Partners Group would hold approximately 85% of the
outstanding equity interests of Steel Connect.
The Exchange Transaction will be accounted for as of May 1,
2023, which is the date the consideration was exchanged between the
Company and Steel Partners.
Results of Operations
The financial information and discussion that follows below are
for the Company's operations.
Three Months Ended
April 30
Nine Months Ended April
30,
2023
2022
2023
2022
(in thousands)
Net revenue
$
46,142
$
51,548
$
148,283
$
150,223
Net income (loss) from continuing
operations
3,029
(9,695
)
7,460
(12,163
)
Net income (loss) attributable to common
stockholders
$
2,510
$
29,663
$
5,867
$
(13,882
)
Adjusted EBITDA*
$
5,233
$
938
$
17,145
$
3,318
Adjusted EBITDA margin*
11.3
%
1.8
%
11.6
%
2.2
%
Net cash (used in) provided by operating
activities
(588
)
(2,544
)
9,000
(5,267
)
Additions to property and equipment
(445
)
(316
)
(1,311
)
(1,142
)
Free cash flow*
$
(1,033
)
$
(2,860
)
$
7,689
$
(6,409
)
* 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
Comparison of the Third Quarter and Nine Months Ended April
30, 2023 and 2022
Three Months Ended
April 30,
Nine Months Ended April
30,
2023
2022
Fav (Unfav) ($)
2023
2022
Fav (Unfav) ($)
(unaudited, $ in
thousands)
(unaudited, $ in
thousands)
Net revenue
$
46,142
$
51,548
(5,406
)
$
148,283
$
150,223
(1,940
)
Cost of revenue
(33,218
)
(42,303
)
9,085
(108,031
)
(120,672
)
12,641
Gross profit
12,924
9,245
3,679
40,252
29,551
10,701
Gross profit margin
28.0
%
17.9
%
1010 bpts
27.1
%
19.7
%
740 bpts
Selling, general and administrative
(12,619
)
(9,214
)
(3,405
)
(33,463
)
(28,899
)
(4,564
)
Interest expense
(914
)
(848
)
(66
)
(2,588
)
(2,359
)
(229
)
Other gains, net
4,489
2,154
2,335
4,889
1,614
3,275
Total costs and expenses
(9,044
)
(7,908
)
(1,136
)
(31,162
)
(29,644
)
(1,518
)
Income (loss) from continuing operations
before income taxes
3,880
1,337
2,543
9,090
(93
)
9,183
Income tax expense
(851
)
(11,032
)
10,181
(1,630
)
(12,070
)
10,440
Net income (loss) from continuing
operations
$
3,029
$
(9,695
)
$
12,724
$
7,460
$
(12,163
)
$
19,623
Net Revenue
During the three months ended April 30, 2023, net revenue
decreased by approximately $5.4 million. The decrease in net
revenue during the three months ended April 30, 2023 as compared to
the same period in the prior year was primarily driven by $4.6
million lower net revenue associated with certain clients in the
computing and consumer electronics markets and the medical devices
electronics markets due to lower demand, and loss of certain
programs, partially offset by new business revenue.
During the nine months ended April 30, 2023, net revenue
decreased by approximately $1.9 million as compared to the same
period in the prior year. This decrease in net revenue was driven
by overall lower volumes associated with clients in the computing
and consumer electronics markets as compared to the same period in
the prior year. Fluctuations in foreign currency exchange rates had
an insignificant impact on the Company's net revenues for the three
and nine month periods ended April 30, 2023 and 2022,
respectively.
Cost of Revenue
Total cost of revenue decreased by $9.1 million for the three
months ended April 30, 2023, as compared to the same period in the
prior year, primarily driven by a decrease in cost of materials as
a result of the decrease in the amount of materials procured on
behalf of Supply Chain clients. Cost of revenue for the three
months ended April 30, 2023 included materials procured on behalf
of our Supply Chain clients of $16.2 million, as compared to $24.3
million for the same period in the prior year, a decrease of $8.1
million. The remaining $1.0 million decrease is driven by lower
labor costs, such as a decrease in salaries and wages and
production costs, and a decrease in buildings and facilities
costs.
Cost of revenue decreased by $12.6 million for the nine months
ended April 30, 2023, as compared to the same period in the prior
year, driven by the decrease in cost of materials as a result of
the decrease in net revenue discussed above. Cost of revenue for
the nine months ended April 30, 2023 included materials procured on
behalf of our Supply Chain clients of $56.6 million, as compared to
$69.1 million for the same period in the prior year, a decrease of
$12.5 million, driven by overall lower volumes and lower costs on
programs launched in the prior year period along with lower
material costs related to programs that ended during the current
year period. Fluctuations in foreign currency exchange rates had an
insignificant impact on the Company's cost of revenue for the three
and nine month periods ended April 30, 2023 and 2022,
respectively.
Gross Profit Margin
Gross profit percentage for the current quarter increased 1,010
basis points, to 28.0% as compared to 17.9% in the prior year
quarter, driven largely by changes in customer sales mix and the
decrease in cost of revenue discussed above.
Gross profit percentage for the nine months ended April 30, 2023
increased 740 basis points, to 27.1% as compared to 19.7% for the
nine months ended April 30, 2022, driven largely by changes in
customer sales mix and the decrease in cost of revenue discussed
above. Fluctuations in foreign currency exchange rates had an
insignificant impact on Supply Chain's gross margin for the three
and nine month periods ended April 30, 2023 and 2022,
respectively.
Selling, General and Administrative
Selling, general and administrative expenses ("SG&A") during
the three months ended April 30, 2023 increased by approximately
$3.4 million as compared to the same period in the prior year
primarily due to higher professional and legal fees for Corporate
related to the exchange transaction with Steel Partners Holdings
L.P. (“Steel Holdings”). SG&A expenses during the three months
ended April 30, 2023 for the Supply Chain segment did not change
significantly as compared to the same period in the prior year.
SG&A expenses during the nine months ended April 30, 2023
increased by approximately $4.6 million as compared to the same
period in the prior year. Corporate-level activity increased $4.5
million primarily due to higher professional and legal fees related
to the Exchange Transaction with Steel Holdings. SG&A expenses
during the nine months ended April 30, 2023 for the Supply Chain
segment did not change significantly as compared to the same period
in the prior year. Fluctuations in foreign currency exchange rates
did not have a significant impact on selling, general and
administrative expenses for the three and nine months ended April
30, 2023, 2022, respectively.
Interest Expense
Total interest expense increased by $0.1 million and $0.2
million during the three and nine months ended April 30, 2023,
respectively, as compared to the same periods in the prior year,
primarily due to higher interest expense related to accretion of
the discount on the 7.50% convertible senior note with Steel
Holdings.
Other Gains, Net
During the three months ended April 30, 2023 and 2022, the
Company recorded Other gains, net of $4.5 million and $2.2 million,
respectively.
Other gains, net for the three months ended April 30, 2023 was
primarily due to: (1) $1.9 million gain from proceeds received from
the sale of an investment in Tallan, Inc., (2) $1.4 million
settlement with a client; (3) $0.5 million interest income; and (4)
$0.3 million foreign exchange gains. Other gains, net for the three
months ended April 30, 2022 was primarily due to foreign exchange
gains.
During the nine months ended April 30, 2023 and 2022, the
Company recorded Other gains, net of $4.9 million and $1.6 million,
respectively.
Other gains, net for the nine months ended April 30, 2023 was
primarily due to: (1) $1.9 million gain from proceeds received from
the sale of an investment in Tallan, Inc., (2) $1.4 million
settlement with a client, (3) $0.9 million interest income; and (4)
$0.8 million sublease income. These gains were partially offset by
$0.5 million foreign exchange losses. Other gains, net for the nine
months ended April 30, 2022 was primarily due to $1.0 million
foreign exchange gains, and $0.5 million sublease income.
Income Tax Expense
During the three months ended April 30, 2023, the Company
recorded income tax expense of approximately $0.9 million as
compared to $11.0 million in income tax expense for the same period
in the prior fiscal year. The decrease in income tax expense is
primarily due to the tax effect of the IWCO disposal during the
three months ended April 30, 2022.
During the nine months ended April 30, 2023, the Company
recorded income tax expense of approximately $1.6 million as
compared to $12.1 million for the same period in the prior fiscal
year. The decrease in income tax expense is primarily due to the
tax effect of the IWCO disposal during the nine months ended April
30, 2022.
Net Income (Loss) From Continuing Operations
Net income from continuing operations for the three months ended
April 30, 2023 increased $12.7 million as compared to the same
period in the prior fiscal year, driven by the $10.2 million
favorable change in income taxes. Refer to discussion above for
further details.
Net income (loss) from continuing operations for the nine months
ended April 30, 2023 increased $19.6 million, as compared to the
same period in the prior year. The increase in net income from
continuing operations is primarily due to the increase in gross
profit and a decrease in income tax expense. Refer to explanations
above for further details regarding specific increases or
decreases.
Additions to Property and Equipment (Capital
Expenditures)
Capital expenditures for the third quarter totaled $0.4 million,
or 1.0% of net revenue, as compared to $0.3 million, or 0.6% of net
revenue, for the same period in the prior year.
Capital expenditures for the nine months ended April 30, 2023
totaled $1.3 million, or 0.9% of net revenue, as compared to $1.1
million, or 0.8% of net revenue, for the same period in the prior
year.
Adjusted EBITDA
Adjusted EBITDA increased $4.3 million, or 457.9%, for the third
quarter as compared to the same period in the prior year, primarily
due to an increase in net income from continuing operations of
$12.7 million, along with increases in adjustments for strategic
consulting and other related professional fees of $3.6 million and
unrealized foreign exchange gains of $2.0 million, offset by
decreases in adjustments related to income tax expense of $10.2
million and other non-cash gains of $3.3 million.
Adjusted EBITDA increased $13.8 million, or 416.7%, for the nine
months ended April 30, 2023 as compared to the same period in the
prior year. The increase is primarily due to an increase in net
income from continuing operations of $19.6 million, along with
increases in adjustments of $6.5 million change from unrealized
foreign exchange gains to unrealized foreign exchange losses and
$4.1 million in strategic consulting and other related professional
fees, offset by decreases in adjustments related to (i) income tax
expense of $10.4 million; (ii) other non-cash gains of $3.4
million; (iii) restructuring and executive severance and employee
retention costs of $1.4 million; and (iv) interest income of $0.9
million.
Liquidity and Capital Resources
As of April 30, 2023, the Company had cash and cash equivalents
of $62.7 million and ModusLink had readily available borrowing
capacity of $11.9 million under its revolving credit facility with
Umpqua Bank.
As of April 30 2023, total debt outstanding, net of unamortized
discounts and issuance costs, was $11.5 million, which was
comprised of $13.9 million outstanding on the 7.50% Convertible
Senior Note due September 1, 2024, less associated unamortized
discounts and issuance costs, as well as unamortized deferred
financing costs on the Umpqua Revolver.
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 North
America, Europe and Asia.
– Financial Tables Follow –
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands)
April 30, 2023
July 31, 2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
62,738
$
53,142
Accounts receivable, trade, net
36,948
40,083
Inventories, net
6,919
8,151
Funds held for clients
3,158
4,903
Prepaid expenses and other current
assets
4,985
3,551
Total current assets
114,748
109,830
Property and equipment, net
3,401
3,534
Operating lease right-of-use assets
28,892
19,655
Other assets
3,899
4,730
Total assets
$
150,940
$
137,749
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
26,290
$
30,553
Accrued expenses
29,154
28,396
Funds held for clients
3,064
4,903
Current lease obligations
7,994
6,466
Other current liabilities
13,760
13,482
Total current liabilities
80,262
83,800
Convertible note payable
11,586
11,047
Long-term lease obligations
21,260
12,945
Other long-term liabilities
5,546
3,983
Total long-term liabilities
38,392
27,975
Total liabilities
118,654
111,775
Series C redeemable preferred stock, $0.01
par value per share. 35,000 shares authorized, issued and
outstanding at April 30, 2023 and July 31, 2022
35,175
35,180
Series C convertible preferred stock,
$0.01 par value per share. 4,965,000 shares authorized at April 30,
2023 and July 31, 2022; zero shares issued and outstanding at April
30, 2023 and July 31, 2022
—
—
Common stock, $0.01 par value per share.
Authorized 1,400,000,000 shares; 60,942,460 issued and outstanding
shares at April 30, 2023; 60,529,558 issued and outstanding shares
at July 31, 2022
609
605
Additional paid-in capital
7,479,891
7,479,366
Accumulated deficit
(7,487,450
)
(7,493,317
)
Accumulated other comprehensive income
4,061
4,140
Total stockholders' deficit
(2,889
)
(9,206
)
Total liabilities, redeemable preferred
stock and stockholders' deficit
$
150,940
$
137,749
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended
April 30,
Nine Months Ended April
30,
2023
2022
2023
2022
Net revenue
$
46,142
$
51,548
$
148,283
$
150,223
Cost of revenue
33,218
42,303
108,031
120,672
Gross profit
12,924
9,245
40,252
29,551
Operating expenses:
Selling, general and administrative
12,619
9,214
33,463
28,899
Total operating expenses
12,619
9,214
33,463
28,899
Operating income
305
31
6,789
652
Other income (expense):
Interest income
452
3
928
9
Interest expense
(914
)
(848
)
(2,588
)
(2,359
)
Other gains, net
4,037
2,151
3,961
1,605
Total other income (expense)
3,575
1,306
2,301
(745
)
Income (loss) from continuing
operations before income taxes
3,880
1,337
9,090
(93
)
Income tax expense
851
11,032
1,630
12,070
Net income (loss) from continuing
operations
3,029
(9,695
)
7,460
(12,163
)
Net income (loss) from discontinued
operations
—
39,895
—
(108
)
Net income (loss)
3,029
30,200
7,460
(12,271
)
Less: Preferred dividends on Series C
redeemable preferred stock
(519
)
(537
)
(1,593
)
(1,611
)
Net income (loss) attributable to
common stockholders
$
2,510
$
29,663
$
5,867
$
(13,882
)
Net income (loss) per common shares -
basic
Continuing operations
$
0.04
$
(0.17
)
$
0.10
$
(0.23
)
Discontinued operations
—
0.67
—
—
Net (loss) income attributable to common
stockholders
$
0.04
$
0.50
$
0.10
$
(0.23
)
Net income (loss) per common shares -
diluted
Continuing operations
$
0.04
$
(0.17
)
$
0.09
$
(0.23
)
Discontinued operations
—
0.67
—
—
Net (loss) income attributable to common
stockholders
$
0.04
$
0.50
$
0.09
$
(0.23
)
Weighted-average number of common shares
outstanding - basic
60,305
59,853
60,186
59,961
Weighted-average number of common shares
outstanding - diluted
78,695
59,853
78,559
59,961
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended April
30,
2023
2022
Cash flows from operating activities:
Net income (loss)
$
7,460
$
(12,271
)
Less: Loss from discontinued operations,
net of tax
—
108
Income (loss) from continuing
operations
7,460
(12,163
)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation
1,427
1,698
Amortization of deferred financing
costs
36
102
Accretion of debt discount
1,510
1,229
Share-based compensation
529
519
Non-cash lease expense
6,760
7,083
Bad debt expense (recovery)
1,136
(3
)
Other losses, net
(3,962
)
(1,605
)
Changes in operating assets and
liabilities:
Accounts receivable, net
2,933
(8,783
)
Inventories, net
1,440
(1,291
)
Prepaid expenses and other current
assets
(1,237
)
240
Accounts payable and accrued expenses
(3,886
)
2,076
Refundable and accrued income taxes,
net
(829
)
142
Other assets and liabilities
(4,317
)
5,489
Net cash provided by (used in) operating
activities
9,000
(5,267
)
Cash flows from investing activities:
Additions to property and equipment
(1,311
)
(1,142
)
Proceeds from the disposition of property
and equipment
166
—
Proceeds from sale of investment
1,881
—
Net cash provided by (used in) investing
activities
736
(1,142
)
Cash flows from financing activities:
Series C redeemable preferred stock
dividend payments
(1,593
)
(1,598
)
Repayments on capital lease
obligations
(38
)
(54
)
Repayments on convertible debt
(1,149
)
—
Net cash used in financing activities
(2,780
)
(1,652
)
Net effect of exchange rate changes on
cash and cash equivalents
895
(774
)
Net increase in cash, cash equivalents and
restricted cash
7,851
(8,835
)
Cash, cash equivalents and restricted
cash, beginning of period
58,045
66,329
Cash, cash equivalents and restricted
cash, end of period
$
65,896
$
57,494
Cash and cash equivalents, end of
period
$
62,738
$
49,914
Restricted cash for funds held for
clients, end of period
3,158
7,580
Cash, cash equivalents and restricted
cash, end of period
$
65,896
$
57,494
Cash flows from discontinued
operations:
Operating activities
$
—
$
(6,738
)
Investing activities
—
625
Financing activities
—
4,230
Net cash used in discontinued
operations
$
—
$
(1,883
)
Steel Connect, Inc. and
Subsidiaries
Segment Data
(in thousands)
(unaudited)
Three Months Ended
April 30,
Nine Months Ended April
30,
2023
2022
2023
2022
(Unaudited)
Net revenue:
Supply Chain
$
46,142
$
51,548
$
148,283
$
150,223
46,142
51,548
148,283
150,223
Operating income:
Supply Chain
5,249
1,548
16,488
5,894
Total segment operating income
5,249
1,548
16,488
5,894
Corporate-level activity
(4,944
)
(1,517
)
(9,699
)
(5,242
)
Total operating income
305
31
6,789
652
Total other income (expense), net
3,575
1,306
2,301
(745
)
Income (loss) before income taxes
$
3,880
$
1,337
$
9,090
$
(93
)
Steel Connect, Inc. and
Subsidiaries
Reconciliation of Non-GAAP
Measures to GAAP Measures
(in thousands)
(unaudited)
EBITDA and Adjusted EBITDA
Reconciliations:
Three Months Ended
April 30,
Nine Months Ended April
30,
2023
2022
2023
2022
Net income (loss) from continuing
operations
$
3,029
$
(9,695
)
$
7,460
$
(12,163
)
Interest income
(452
)
(3
)
(928
)
(9
)
Interest expense
914
848
2,588
2,359
Income tax expense
851
11,032
1,630
12,070
Depreciation
502
523
1,427
1,698
EBITDA
4,844
2,705
12,177
3,955
Strategic consulting and other related
professional fees
3,786
163
4,617
509
Executive severance and employee
retention
—
58
(150
)
414
Restructuring and restructuring-related
expense
97
118
97
974
Share-based compensation
174
111
529
519
(Gain) loss on sale of long-lived
assets
(145
)
2
(129
)
3
Unrealized foreign exchange (gains)
losses, net
(167
)
(2,127
)
3,561
(2,931
)
Other non-cash gains, net
(3,356
)
(92
)
(3,557
)
(125
)
Adjusted EBITDA
$
5,233
$
938
$
17,145
$
3,318
Net revenue
$
46,142
$
51,548
$
148,283
$
150,223
Adjusted EBITDA margin
11.3
%
1.8
%
11.6
%
2.2
%
Free Cash Flow Reconciliation:
Three Months Ended
April 30,
Nine Months Ended April
30,
2023
2022
2023
2022
Net cash (used in) provided by operating
activities
$
(588
)
$
(2,544
)
$
9,000
$
(5,267
)
Additions to property and equipment
(445
)
(316
)
(1,311
)
(1,142
)
Free cash flow
$
(1,033
)
$
(2,860
)
$
7,689
$
(6,409
)
Net Debt Reconciliation:
April 30, 2023
July 31, 2022
Total debt, net
$
11,543
$
10,968
Unamortized discounts and issuance
costs
2,397
3,972
Cash and cash equivalents
(62,738
)
(53,142
)
Net debt
$
(48,798
)
$
(38,202
)
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 Debt, all of which
are non-GAAP financial measures, to assess its performance. EBITDA
represents earnings from continuing operations before interest
income, interest expense, income tax (benefit) expense, and
depreciation. We define Adjusted EBITDA as net income (loss) from
continuing operations excluding net charges related to interest
income, interest expense, income tax expense, depreciation,
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, unrealized foreign exchange
(gains) losses, net, and other non-cash gains, net. The Company
defines Free Cash Flow as net cash (used in) provided by operating
activities less additions to property and equipment, and defines
Net 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 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 U.S. GAAP. These non-GAAP
financial measures may not be computed in the same manner as
similarly titled measures used by other companies
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 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
(such as the ongoing COVID-19 pandemic); 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; 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; increased
competition and technological changes in the markets in which the
Company competes; disruptions in or breaches of the Company’s
technology systems; failure to settle disputes and litigation on
terms favorable to the Company; challenges and risks arising from
the disposition of IWCO Direct, including the Company’s reliance on
the Supply Chain segment as its sole business; the Company's
ability to preserve and monetize its net operating losses; changes
in tax rates, laws or regulations; failure to maintain compliance
with Nasdaq’s continued listing requirements; potential conflicts
of interest arising from the interests of the members of the
Company’s board of directors in Steel Holdings and its affiliates;
potential restrictions imposed by its indebtedness; and potential
adverse effects from changes in interest rates and the phase-out of
LIBOR. 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 October
31, 2022. 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/20230612864277/en/
Investor Relations
Jennifer Golembeske 914-461-1276
investorrelations@steelconnectinc.com
Steel Connect (NASDAQ:STCN)
Gráfica de Acción Histórica
De Dic 2024 a Ene 2025
Steel Connect (NASDAQ:STCN)
Gráfica de Acción Histórica
De Ene 2024 a Ene 2025
