Fourth Quarter 2023 Results
- Net revenue from continuing operations totaled $40.8 million,
as compared to $53.0 million in the prior year.
- Net income from continuing operations was $8.1 million, as
compared to $2.9 million in the prior year.
- Net income attributable to common stockholders was $7.6
million, as compared to $0.8 million in the prior year.
- Adjusted EBITDA* was $10.6 million, as compared to $4.7 million
in the prior year.
- Net cash provided by operating activities was $8.5
million.
- Free Cash Flow* totaled $5.3 million.
- Total debt was $12.5 million; Net Debt* totaled $(108.9)
million.
Fiscal Year 2023 Financial Results
- Net revenue from continuing operations totaled $189.1 million,
as compared to $203.3 million in the prior year.
- Net income from continuing operations was $15.6 million, as
compared to net loss from continuing operations of $9.3 million in
the prior year.
- Net income attributable to common stockholders was $13.5
million as compared to net loss attributable to common stockholders
of $13.1 million in the prior year.
- Adjusted EBITDA* was $27.7 million, as compared to $8.0 million
in the prior year.
- Net cash used in operating activities was $17.5 million.
- Free Cash Flow* totaled $15.4 million.
Other Developments
- On June 21, 2023 the previously announced reverse/forward stock
split was effective. The split effected a 1-for-3,500 reverse stock
split of the common stock (the “Reverse Stock Split”), followed
immediately by a 375-for-1 forward stock split of the common stock
(the “Forward Stock Split,” and, together with the Reverse Stock
Split, the “Reverse/Forward Stock Split”). Accordingly, all share
and per-share amounts for the current period and prior periods have
been adjusted to reflect the Reverse/Forward Stock Split.
- As of July 31, 2023, the Company had disposed of all its
interest in Aerojet common stock. The majority of Aerojet common
stock was purchased when L3 Harris closed its merger with Aerojet.
The Company received total net proceeds of $207.8 million in
exchange for all of its Aerojet shares. As of July 31, 2023, the
Company had received $53.3 million in cash and had a receivable of
$154.5 million for proceeds receivable, which was received in
August 2023.
Steel Connect, Inc. (the "Company") (NASDAQ: STCN) today
announced financial results for its fourth quarter and fiscal year
ended July 31, 2023.
Results of Operations
The financial information and discussion that follows below are
for the Company's operations. References herein to the "three
months ended July 31, 2023" or the "fourth quarter" are the
Successor period, May 1, 2023 through July 31, 2023. References
herein to the “fiscal year ended July 31, 2023” or the “fiscal year
2023” combine the operational results before and after May 1, 2023
to enhance the comparability of such information to the prior
fiscal year.
The Company elected to apply pushdown accounting as of May 1,
2023 as a result of the Exchange Transaction (the "Exchange
Transaction") with Steel Partners ("Steel Partners", "SPLP"). The
application of pushdown accounting uses Steel Partners' basis of
accounting, which reflects the fair market value of the Company’s
assets and liabilities at the date of the Exchange Transaction. As
a result, the Company has reflected the required pushdown
accounting adjustments in its consolidated financial statements.
Due to the application of pushdown accounting, 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 through July 31, 2023, includes the impact of
pushdown accounting and is referred to as the "Successor"
period.
Successor
Predecessor
Predecessor
Combined-
Predecessor
Three Months Ended July
31,
Three Months Ended July
31,
August 1, 2022 to April
30,
Period from August 1, 2022
through July 31,
Fiscal Year Ended July
31,
2023
2022
2023
2023
2022
(in thousands)
Net revenue
$
40,804
$
53,049
$
148,283
$
189,087
$
203,272
Net income (loss) from continuing
operations
8,149
2,909
7,460
15,609
(9,256)
Net income (loss) attributable to common
stockholders
$
7,612
$
767
$
5,867
$
13,480
$
(13,097)
Adjusted EBITDA*
$
10,560
$
4,696
$
17,145
$
27,706
$
8,012
Adjusted EBITDA margin*
25.9 %
8.9 %
11.6 %
14.7 %
3.9 %
Net cash provided by (used in) operating
activities
$
8,523
$
2,133
$
9,000
$
17,523
$
(3,134)
Additions to property and equipment
(807)
(343)
(1,311)
(2,118)
(1,485)
Free cash flow*
$
5,250
$
1,790
$
7,689
$
15,405
$
(4,619)
* 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 Fourth Quarter and Fiscal Year Ended July
31, 2023 and 2022
Three Months Ended July
31,
2023
2022
Fav (Unfav) ($)
% Change
(unaudited, $ in
thousands)
Net revenue
$
40,804
$
53,049
$
(12,245)
(23.1)%
Cost of revenue
(29,749)
(41,064)
11,315
27.6%
Gross profit
11,055
11,985
(930)
(7.8)%
Gross profit margin
27.1%
22.6%
—
4.5%
Selling, general and administrative
(8,523)
(11,474)
2,951
25.7%
Amortization
(911)
—
(911)
(100.0)%
Interest expense
(265)
(761)
496
65.2%
Other gains, net
6,395
2,477
3,918
158.2%
Total costs and expenses
(33,053)
(50,822)
17,769
35.0%
Income from continuing operations before
income taxes
7,751
2,227
5,524
248.0%
Income tax benefit
398
682
(284)
(41.6)%
Net income from continuing operations
$
8,149
$
2,909
$
5,240
180.1%
Fiscal Year Ended July
31,
2023
2022
Fav (Unfav) ($)
% Change
(unaudited, $ in
thousands)
Net revenue
$
189,087
$
203,272
(14,185)
(7.0)%
Cost of revenue
(137,780)
(161,736)
23,956
14.8%
Gross profit
51,307
41,536
9,771
23.5%
Gross profit margin
27.1%
20.4%
—
6.7%
Selling, general and administrative
(41,986)
(40,373)
(1,613)
(4.0)%
Amortization
(911)
—
(911)
(100.0)%
Interest expense
(2,853)
(3,120)
267
8.6%
Other gains, net
11,284
4,089
7,195
176.0%
Total costs and expenses
(172,246)
(201,140)
28,894
14.4%
Income from continuing operations before
income taxes
16,841
2,132
14,709
689.9%
Income tax expense
(1,232)
(11,388)
10,156
89.2%
Net income (loss) from continuing
operations
$
15,609
$
(9,256)
$
24,865
268.6%
Net Revenue
Net revenue from continuing operations for the fourth quarter
decreased $12.2 million, or 23.1%, as compared to the same period
in the prior year. This decrease in net revenue was primarily
driven by lower volumes associated with clients in the computing
and consumer electronics markets. Also contributing to the decrease
was the exit of a customer in the medical devices electronics
market. Fluctuations in foreign currency exchange rates had an
insignificant impact on the Supply Chain segment's net revenues for
the fourth quarter, as compared to the same period in the prior
year.
Net revenue from continuing operations for the fiscal year ended
July 31, 2023 decreased $14.2 million, or 7.0%, as compared to the
same period in the prior year, primarily driven by lower volumes,
lower demand and loss of certain programs in the medical devices
electronics markets. Fluctuations in foreign currency exchange
rates had an insignificant impact on the net revenue for the
combined fiscal year ended July 31, 2023, as compared to the same
period in the prior year.
Cost of Revenue
Cost of revenue from continuing operations for the fourth
quarter decreased $11.3 million, or 27.6%, as compared to the same
period in the prior year, primarily due to a $9.9 million decrease
in materials procured on behalf of clients as a result of lower
sales volume. The Company's gross margin percentage increased by
450 basis points to 27.1%, as compared to 22.6% for the same period
in the prior year, primarily due to a higher percentage of value
added revenue in comparison to total net revenue. Fluctuations in
foreign currency exchange rates had an insignificant impact on the
Supply Chain segment's cost of revenue for the fourth quarter, as
compared to the same period in the prior year.
Cost of revenue from continuing operations for the fiscal year
ended July 31, 2023 decreased $24.0 million, or 14.8%, as compared
to the same period in the prior year, primarily due to a $22.4
million decrease in materials procured on behalf of clients. The
Company's gross margin percentage increased by 670 basis points to
27.1% from 20.4% in the fiscal year ended July 31, 2023, primarily
due to an increase in value added revenue of $8.2 million, driven
by clients in the computing and consumer electronics markets.
Fluctuations in foreign currency exchange rates had an
insignificant impact on the Supply Chain segment's cost of revenue
for the fiscal year ended July 31, 2023, as compared to the prior
fiscal year.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses for
the fourth quarter decreased $3.0 million, or 25.7%, as compared to
the same period in the prior year. The decrease in SG&A
expenses is primarily due to lower Corporate-activity costs of $3.2
million, as a result of the majority of the Corporate-activity
costs associated with the Exchange Transaction being incurred prior
to the fourth quarter in fiscal year 2023. Fluctuations in foreign
currency exchange rates had an insignificant impact on SG&A
expenses for the fourth quarter, as compared to the same period in
the prior year.
SG&A expenses for the fiscal year ended July 31, 2023
increased by approximately $1.6 million or 4.0%, as compared to the
same period in the prior year, primarily due to Corporate-level
activity. Corporate-level activity increased by $1.3 million,
primarily due to an increase in professional and legal fees related
to the Exchange Transaction. Fluctuations in foreign currency
exchange rates had an insignificant impact on SG&A expenses for
the fiscal year ended July 31, 2023, as compared to the prior
fiscal year.
Amortization Expense
Amortization expense for the fourth quarter and for the fiscal
year ended July 31, 2023 was $0.9 million and was driven by the
recognition of intangible assets in connection with the application
of pushdown accounting as a result of the Exchange Transaction. The
Exchange Transaction closed on May 1, 2023, and as such, there was
no activity for the fourth quarter or fiscal year ended July 31,
2022.
Interest Expense
Total interest expense for the fourth quarter decreased by $0.5
million or 65.2% as compared to the same period in the prior year.
The decrease is a result of no discount amortization booked to
interest expense on the Company’s outstanding 7.50% Convertible
Note due September 1, 2024 (the "SPHG Note") in the fourth quarter.
As a result of the Exchange Transaction, the Company will measure
the SPHG Note at fair value on a recurring basis prospectively.
Total interest expense for the fiscal year ended July 31, 2023
remained relatively flat compared to the fiscal year ended July 31,
2022.
Other Gains, Net
Other gains, net for the fourth quarter were approximately $6.4
million. Other gains, net included gains of $5.1 million realized
gains on the disposition of the Aerojet shares received in the
Exchange Transaction, as well as $0.7 million of interest income
received on money market funds. Other gains, net for the three
months ended July 31, 2022 were approximately $2.5 million, which
included gains of $0.9 million from the derecognition of accrued
pricing liabilities in the Supply Chain segment, and $1.3 million
in net realized and unrealized foreign exchange gains in the Supply
Chain segment.
Other gains, net for the fiscal year ended July 31, 2023 and the
fiscal year ended July 31, 2022 were $11.3 million and $4.1
million, respectively. Other gains, net for the fiscal year ended
July 31, 2023 was primarily due to: (1) $5.1 million realized gains
on the disposition of the Aerojet shares received in the Exchange
Transaction, (2) $2.3 million gain from proceeds received from the
sale of an investment in Tallan, Inc., (3) $1.6 million interest
income on money market funds, (4) $1.4 million settlement with a
client, and (5) $1.0 million sublease income. This activity was
partially offset by $0.5 million unrealized loss on the fair value
remeasurement of the SPHG Note. Other gains, net for the fiscal
year ended July 31, 2022 included: (1) net realized and unrealized
foreign exchange gains of $2.4 million, (2) gains of $0.9 million
from the derecognition of accrued pricing liabilities, and (3) $0.7
million of sublease income.
Income Tax Benefit (Expense)
Income tax benefit for the fourth quarter was $0.4 million, as
compared to $0.7 million for the same period in the prior year.
Income tax expense for the fiscal year ended July 31, 2023
decreased $10.2 million, or 89.2%, as compared to the same period
in the prior year. The change in income tax benefit for the three
months ended July 31, 2023 as compared to the prior year period was
primarily due to the mix of earnings from our U.S. and foreign
jurisdictions. The decrease in income tax expense for the fiscal
year ended July 31, 2023 is primarily due to the income tax benefit
incurred during the fiscal year ended July 31, 2022 associated with
an increase in the valuation allowance recorded on deferred tax
assets as a result of the IWCO Direct disposal.
Net Income From Continuing Operations
Net income from continuing operations for the fourth quarter
increased $5.2 million, as compared to the same period in the prior
year. The increase in net income from continuing operations is
primarily due to: (1) increase in other gains, net of $3.9 million
and (2) lower SG&A expenses of $3.0 million. This activity was
partially offset by (1) $0.3 million unfavorable change in income
tax benefit and (2) $0.9 million in amortization expense incurred
in the fourth quarter as a result of pushdown accounting, with no
comparable activity in the prior year period. See above explanation
for further details.
Net income from continuing operations for the year ended July
31, 2023 increased $24.9 million, as compared to the same period in
the prior year. The increase in net income from continuing
operations is primarily due to: (1) $9.8 million increase in gross
profit primarily driven by lower cost of materials and an increase
in value added revenue, (2) $7.2 million increase in other gains,
net, and (3) $10.2 million decrease in income tax expense. This
activity was partially offset by $1.6 million increase in SG&A
expenses and $0.9 million in amortization expense incurred as a
result of pushdown accounting, with no comparable activity in the
prior year period.. See above explanations for further details.
Additions to Property and Equipment (Capital
Expenditures)
Capital expenditures for the fourth quarter totaled $0.8
million, or 2.0% 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 increased to $2.1 million, or 1.1% of net revenue for
the fiscal year ended July 31, 2023, from $1.5 million, or 0.7% of
net revenue, for the same period in the prior year.
Adjusted EBITDA
Adjusted EBITDA increased $5.9 million, or 124.9%, for the
fourth quarter as compared to the same period in the prior year,
primarily due to (1) an increase in net income from continuing
operations of $5.2 million, (2) a $1.4 million change from $0.6
million unrealized foreign exchange gains to $0.7 million
unrealized foreign exchange losses, and (3) $0.9 million in
amortization expense recognized in the fourth quarter as a result
of intangible assets booked as part of pushdown accounting. This
activity was partially offset by (1) $0.7 million increase in
interest income, (2) $0.6 million decrease in restructuring-related
expenses due to disposition of IWCO in fiscal 2022, and $0.5
million decrease in interest expense.
Adjusted EBITDA increased $19.7 million, or 245.8%, for the
fiscal year ended July 31, 2023, as compared to the same period in
the prior year, primarily due to: (1) an increase in net income
from continuing operations of $24.9 million, (2) a $7.9 million
change from unrealized foreign exchange gains of $3.6 million to
$4.3 million unrealized foreign exchange losses, and (3) a $3.7
million increase in strategic consulting and other related
professional fees, primarily due to the Exchange Transaction with
SPLP. This activity was partially offset by (1) a decrease in
income tax expense of $10.2 million, (2) increases in other
non-cash gains of $3.1 million, (3) increases in interest income of
$1.6 million and (4) decreases of $1.5 million in
restructuring-related expenses.
Liquidity and Capital Resources
As of July 31, 2023, the Company had cash and cash equivalents
of $121.4 million and ModusLink Corporation ("ModusLink") had
readily available borrowing capacity of $11.9 million under its
revolving credit facility with Umpqua Bank.
As of July 31, 2023, total debt outstanding was $12.5 million,
which was the fair value of the 7.50% Convertible Senior Note due
September 1, 2024.
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)
Successor
Predecessor
July 31, 2023
July 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
121,372
$
53,142
Accounts receivable, trade, net
28,616
40,083
Inventories, net
8,569
8,151
Funds held for clients
2,031
4,903
Prepaid expenses and other current
assets
158,686
3,551
Total current assets
319,274
109,830
Property and equipment, net
3,698
3,534
Operating lease right-of-use assets
27,098
19,655
Other intangible assets, net
34,589
—
Goodwill
22,785
—
Other assets
3,737
4,730
Total assets
$
411,181
$
137,749
LIABILITIES, CONTINGENTLY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
26,514
$
30,553
Accrued expenses
26,774
28,396
Funds held for clients
1,949
4,903
Current lease obligations
7,973
6,466
Other current liabilities
4,544
13,482
Total current liabilities
67,754
83,800
Convertible note payable
12,461
11,047
Long-term lease obligations
19,161
12,945
Other long-term liabilities
5,442
3,983
Total long-term liabilities
37,064
27,975
Total liabilities
104,818
111,775
Contingently redeemable preferred
stock
Series C contingently redeemable preferred
stock
35,006
35,180
Series E contingently redeemable preferred
stock
202,733
—
Total contingently redeemable preferred
stock
237,739
35,180
Total stockholders' equity (deficit)
68,624
(9,206)
Total liabilities, contingently redeemable
preferred stock and stockholders' equity
$
411,181
$
137,749
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(in thousands, except per
share amounts)
(Unaudited)
(Unaudited)
Successor
Predecessor
Predecessor
Combined-
Predecessor
Three Months Ended July
31,
Three Months Ended July
31,
August 1, 2022 to April
30,
Period from August 1, 2022
through July 31,
Fiscal Year Ended July
31,
2023
2022
2023
2023
2022
Net revenue
$
40,804
$
53,049
$
148,283
$
189,087
$
203,272
Cost of revenue
29,749
41,064
108,031
137,780
161,736
Gross profit
11,055
11,985
40,252
51,307
41,536
Operating expenses:
Selling, general and administrative
8,523
11,474
33,463
41,986
40,373
Amortization
911
—
—
911
—
Total operating expenses
9,434
11,474
33,463
42,897
40,373
Operating income
1,621
511
6,789
8,410
1,163
Other income (expense):
Interest income
707
50
928
1,635
58
Interest expense
(265)
(761)
(2,588)
(2,853)
(3,120)
Other gains, net
5,688
2,427
3,961
9,649
4,031
Total other income
6,130
1,716
2,301
8,431
969
Income from continuing operations
before income taxes
7,751
2,227
9,090
16,841
2,132
Income tax (benefit) expense
(398)
(682)
1,630
1,232
11,388
Net income (loss) from continuing
operations
8,149
2,909
7,460
15,609
(9,256)
Net loss from discontinued operations
—
(1,605)
—
—
(1,712)
Net income (loss)
8,149
1,304
7,460
15,609
(10,968)
Less: Preferred dividends on redeemable
preferred stock
(537)
(537)
(1,593)
(2,129)
(2,129)
Net income (loss) attributable to
common stockholders
$
7,612
$
767
$
5,867
$
13,480
$
(13,097)
Basic net income (loss) per share
attributable to common stockholders:
Continuing operations
$
0.29
$
0.37
$
0.91
$
0.52
$
(1.77)
Discontinued operations
—
(0.25)
—
—
(0.27)
Basic net income (loss) per share
$
0.29
$
0.12
$
0.91
$
0.52
$
(2.04)
Diluted net income (loss) per share
attributable to common stockholders:
Continuing operations
$
0.29
$
0.37
$
0.89
$
0.52
$
(1.77)
Discontinued operations
—
(0.25)
—
—
(0.27)
Diluted net income (loss) per share
$
0.29
$
0.12
$
0.89
$
0.52
$
(2.04)
Weighted-average number of common units
outstanding - basic
6,177
6,423
6,449
6,027
6,425
Weighted-average number of common units
outstanding - diluted
27,960
6,463
8,417
25,894
6,425
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in thousands)
Successor
Predecessor
May 1 to July 31,
August 1, 2022 to April
30,
Fiscal Year Ended July
31,
2023
2023
2022
Cash flows from operating activities:
Net income (loss)
$
8,149
$
7,460
$
(10,968)
Loss from discontinued operations, net of
tax
—
—
1,712
Income (loss) from continuing
operations
8,149
7,460
(9,256)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation
456
1,427
2,220
Amortization of intangible assets
911
—
—
Amortization of deferred financing
costs
—
36
102
Accretion of debt discount
—
1,688
1,704
Share-based compensation
236
529
701
Deferred taxes
(250)
—
9,041
Non-cash lease expense
2,208
6,760
9,425
Bad debt expense (recovery)
(297)
1,136
(5)
Other (gains) losses, net
(5,687)
(3,962)
(4,087)
Non-cash impact of application of pushdown
accounting
8,079
—
—
Changes in operating assets and
liabilities:
Accounts receivable, net
8,409
2,933
(5,251)
Inventories, net
(1,567)
1,440
323
Prepaid expenses and other current
assets
905
(1,237)
1,065
Accounts payable and accrued expenses
(1,690)
(3,886)
801
Refundable and accrued income taxes,
net
(214)
(829)
(471)
Other assets and liabilities
(11,125)
(4,495)
(9,446)
Net cash provided by (used in) operating
activities
8,523
9,000
(3,134)
Cash flows from investing activities:
Additions to property and equipment
(807)
(1,311)
(1,485)
Proceeds from the disposition of property
and equipment
1
166
—
Proceeds from the sale of securities
53,644
1,881
—
Net cash provided by (used in) investing
activities
52,838
736
(1,485)
Cash flows from financing activities:
Series C redeemable preferred stock
dividend payments
(537)
(1,593)
(2,129)
Payment of deferred financing costs
—
(149)
(95)
Repayments on capital lease
obligations
—
(38)
(73)
Repayments on debt
(1,000)
(1,000)
—
Payments for fractional shares resulting
from the Reverse/Forward stock split
(2,288)
—
—
Net cash used in financing activities
(3,825)
(2,780)
(2,297)
Net effect of exchange rate changes on
cash and cash equivalents
(29)
895
(1,368)
Net increase (decrease) in cash, cash
equivalents and restricted cash
57,507
7,851
(8,284)
Cash, cash equivalents and restricted
cash, beginning of period
65,896
58,045
66,329
Cash, cash equivalents and restricted
cash, end of period
$
123,403
$
65,896
$
58,045
Cash flows from discontinued
operations:
Operating activities
$
—
$
—
$
(6,738)
Investing activities
—
—
625
Financing activities
—
—
4,230
Net cash (used in) provided by
discontinued operations
$
—
$
—
$
(1,883)
Steel Connect, Inc. and
Subsidiaries
Segment Data
(in thousands)
(Unaudited)
(Unaudited)
Successor
Predecessor
Predecessor
Combined-
Predecessor
Three Months Ended July
31,
Three Months Ended July
31,
August 1, 2022 to April
30,
Period from August 1, 2022
through July 31,
Fiscal Year Ended July
31,
2023
2022
2023
2023
2022
Net revenue:
Supply Chain
$
40,804
$
53,049
$
148,283
$
189,087
$
203,272
Total segment net revenue
$
40,804
$
53,049
$
148,283
$
189,087
$
203,272
Operating income:
Supply Chain
3,328
5,424
16,488
19,816
11,318
Total segment operating income
3,328
5,424
16,488
19,816
11,318
Corporate-level activity
(1,707)
(4,913)
(9,699)
(11,406)
(10,155)
Total operating (loss) income
1,621
511
6,789
8,410
1,163
Total other income
6,130
1,716
2,301
8,431
969
Income before income taxes
$
7,751
$
2,227
$
9,090
$
16,841
$
2,132
Steel Connect, Inc. and
Subsidiaries
Reconciliation of Non-GAAP
Measures to GAAP Measures
(in thousands)
(unaudited)
EBITDA and Adjusted EBITDA
Reconciliations:
Successor
Predecessor
Predecessor
Combined-
Predecessor
Three Months Ended July
31,
Three Months Ended July
31,
August 1, 2022 to April
30,
Period from August 1, 2022
through July 31,
Fiscal Year Ended July
31,
2023
2022
2023
2023
2022
Net income (loss) from continuing
operations
$
8,149
$
2,909
$
7,460
$
15,609
$
(9,256)
Interest income
(707)
(50)
(928)
(1,635)
(59)
Interest expense
265
761
2,588
2,853
3,120
Income tax (benefit) expense
(398)
(682)
1,630
1,232
11,388
Depreciation
456
522
1,427
1,883
2,220
Amortization
911
0
0
911
0
EBITDA
8,676
3,460
12,177
20,853
7,413
Strategic consulting and other related
professional fees
1,427
1,834
4,617
6,043
2,343
Executive severance and employee
retention
—
81
(150)
(150)
495
Restructuring and restructuring-related
expense
(62)
539
97
35
1,513
Share-based compensation
236
182
529
765
701
(Gain) loss on sale of long-lived
assets
(1)
—
(129)
(129)
3
Unrealized foreign exchange (gains)
losses, net
742
(626)
3,561
4,304
(3,557)
Other non-cash (gains) losses, net
(458)
(774)
(3,557)
(4,015)
(899)
Adjusted EBITDA
$
10,560
$
4,696
$
17,145
$
27,706
$
8,012
Net revenue
$
40,804
$
53,049
$
148,283
$
189,087
$
203,272
Adjusted EBITDA margin
25.9 %
8.9 %
11.6 %
14.7 %
3.9 %
Free Cash Flow Reconciliation:
Successor
Predecessor
Predecessor
Combined-
Predecessor
Three Months Ended July
31,
Three Months Ended July
31,
August 1, 2022 to April
30,
Period from August 1, 2022
through July 31,
Fiscal Year Ended July
31,
2023
2022
2023
2023
2022
Net cash provided by (used in) operating
activities
$
8,523
$
2,133
$
9,000
$
17,523
$
(3,134)
Additions to property and equipment
(807)
(343)
(1,311)
(2,118)
(1,485)
Free cash flow
$
5,250
$
1,790
$
7,689
$
15,405
$
(4,619)
Net Debt Reconciliation:
Successor
Predecessor
July 31, 2023
July 31, 2022
Total debt, net
$
12,461
$
10,968
Unamortized discounts and issuance
costs
—
3,972
Cash and cash equivalents
(121,372)
(53,142)
Net debt
$
(108,911)
$
(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 (loss) from continuing operations before
interest income, interest expense, income tax expense, depreciation
and amortization of intangible assets. We define Adjusted EBITDA as
net income (loss) from continuing operations excluding net charges
related to interest income, interest expense, income tax (benefit)
expense, 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,
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 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;
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; 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; 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/20231107042296/en/
Investor Relations
Jennifer Golembeske 914-461-1276
investorrelations@steelconnectinc.com
Steel Connect (NASDAQ:STCN)
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De Dic 2024 a Ene 2025
Steel Connect (NASDAQ:STCN)
Gráfica de Acción Histórica
De Ene 2024 a Ene 2025
