Good afternoon, and welcome to the Exela Technologies Second Quarter Conference Call. [Operator Instructions] And please do note that today's event is being recorded..

I would now like to turn the conference over to Will Maina of Investor Relations. Please go ahead. .

Thanks, Will. Good afternoon, and welcome to the Exela Technologies Second Quarter and Year-to-Date 2017 Conference Call where we will be discussing our pro forma financial results for Exela's second quarter and 6-months ended June 30, 2017. .

This afternoon's call will begin with comments from Ron Cogburn, our Chief Executive Officer; followed by Jim Reynolds, Chief Financial Officer. We'll then turn the call over to questions. .

A replay of this call will be available until August 16. Information to access the replay is listed in today's press release, which is available on our website under the Investor Relations section. As a reminder, today's conference call is also being broadcast live via webcast. .

Before we begin, I'd like to remind everyone that during today's call, we'll be making forward-looking statements regarding future events and financial performance. These forward-looking statements are subject to known and unknown risks and uncertainties. Exela cautions that these statements are not guarantees of future performance.

All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call. Please refer to the company's filings with the SEC for factors that could cause our actual results to differ materially from any forward-looking statements. .

During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations of non-GAAP to net GAAP measures (sic) [ GAAP measures ] and certain additional information are also included in today's press release and presentation. .

The press release is posted on Exela's IR website. Please note there is also a presentation that accompanies this conference call and is also accessible in the IR section of our website. .

With that, let me turn the call over to Ron Cogburn, our CEO. .

Thanks, Will, and thanks to everyone for joining us today on our second quarter 2017 conference call. .

This is our first call as a new public company following the successful combination of SourceHOV and Novitex to form Exela Technologies.

I also want to take this opportunity to recognize the hard work and the dedication of our approximately 23,000 employees around the globe who have earned the confidence of our clients in making Exela a global leader in our industry. .

I would also like to highlight the fact that the financial results we will discuss today reflect pro forma combined company results for the reporting period ending June 30, prior to the July 12, 2017, closing of the business combination between SourceHOV and Novitex. .

Let's turn to Slide #6. We have a summary of our second quarter 2017 results. Overall, we are very pleased with our performance, which reflects strong EBITDA and cash flow generation. More specifically, total pro forma revenue for the second quarter was $350 million.

We generated pro forma adjusted EBITDA of $83 million, representing EBITDA margin of 23.6%. We generated pro forma free cash flow of $75 million or approximately 91% of EBITDA. .

We are on track to deliver identified business combination savings. We currently expect pro forma full year 2017 revenue and EBITDA to be in the previously indicated range. Jim Reynolds, our Chief Financial Officer, will review our results in greater detail later in the discussion.

But before turning the call over to Jim and since this is our first quarterly call with public investors, I thought it would be helpful to provide an overview of Exela as well as highlights of our management initiatives. .

Let's all turn to Slide #7. As I mentioned, Exela was formed through the business combination of SourceHOV, a leader in platform-based enterprise information management and transaction processing solutions; and Novitex, a leading provider of document management and digital business process services.

Combined, these 2 businesses create a leading global provider of single-source, end-to-end enterprise information management and transaction processing solutions, serving over 3,500 customers across 50 countries. In 2016, Exela generated $1.4 billion of pro forma revenue and $350 million of pro forma adjusted EBITDA. .

In addition to the complementary services and solutions brought together by SourceHOV and Novitex, we believe we have meaningfully expanded our combined company's addressable market opportunity. As I mentioned, Exela serves 3,500 clients, including more than 60% of the Fortune 100, into which we can sell a more comprehensive suite of solutions.

Our clients include top 10 U.S. banks, 9 of the top 10 U.S. insurance companies, the top 5 health care insurance payers and the top 5 U.S. telecom companies. Exela is positioned well to benefit from significant whitespace opportunity, which will enable us to cross-sell and to upsell our combined solutions and services into our existing client base. .

From an operational standpoint, we have completed the reorganization and integration of our management, our sales, marketing, legal, operations, technology and human resource functions. I'm very pleased with the progress we have made so far on our integration efforts, which is a testament of our great global team and the experienced management.

From a cost synergy perspective, we are on track to deliver merger synergies of the prior communicated $37.5 million over the next 12 months. .

We are optimistic that the business combination will enable us to further scale in the market while at the same time drive significant operational efficiencies that will expand our profitability.

We work with some of the largest companies in the world and plan to extend our strong market position through a number of growth initiatives, which lever our technology-enabled solutions, deep domain expertise and strong global employee base. .

Let's turn to Slide #8 now. Exela serves a very large and growing global business process outsourcing or BPO market. Based on third-party research, we estimate that our total addressable market is approximately $420 billion.

We believe that we are well positioned in this market to continue growing our share, particularly in the higher-growth end markets of financial services and health care where we have a strong client presence.

Exela offers end-to-end, multi-industry and industry-specific technology-enabled solutions, built on our proprietary technology platforms enabling our skilled knowledge workforce. .

We are one of the largest global providers of transaction processing solutions and enterprise information management. We integrate knowledge platforms and technology-enabled services with proven processes and industry expertise to provide an end-to-end delivery model, turning data into outcomes.

Our solutions combine multi-industry and industry-specific enterprise information management platforms, deployed either on premise or in the cloud, with decades of experience. We manage data, and we automate mission-critical business processes to aid in digital transformation. .

Moving to Slide #9. I want to highlight the global presence of Exela and why we think this is important to our overall strategy. As you can see from this slide, Exela has a large global footprint. We have presence in over 50 countries and operations in 15 countries through which we can serve our clients.

Our clients include large multinational companies that also have a strong global footprint. Yet today, approximately 91% of Exela's business mix is in the Americas. Moving forward, this is a key priority of ours to capitalize on this significant whitespace opportunity for Exela. .

Let's turn to Slide #10. I touched on this point earlier, but I think it this slide really illustrates the strength of our diversified model. Again, we serve over 3,500 customers around the world and over 60% of the Fortune 100.

Many of these customers are marquee names in global banking and financial services, insurance, health care, telecom, retail and public sector. Exela has a highly diversified client base across multiple industries with low client concentration.

We enjoy long-standing relationships with our clients, which speaks to the stickiness and the deeply integrated nature of our business. Over 50% of our revenue is based in financial services and health care, which have strong industry tailwinds. .

Let's turn to Slide #11. I would like to close with our plan to drive continued profit growth into the future. As I mentioned before, we serve a large growing global BPO market. Overall, we believe we are well positioned to take advantage of the ongoing growth in this industry, driven by the continued shift toward outsourced BPO spend. .

The following are specific initiatives that we have launched. First, we will focus on delivering against our identified merger cost-saving synergies, and we will continue to seek additional opportunities for cost efficiencies.

As a part of this strategy, we will leverage SourceHOV's proprietary in-house technologies and platforms to displace a large portion of Novitex third-party vendors, which we expect will drive sustainable cost efficiencies. .

Second, we will focus on leveraging our deeply embedded relationship as trusted partners with our clients to cross-sell our solutions throughout our global footprint. We see this as a significant growth opportunity.

In fact, we already are witnessing this growth potential in our pipeline as multiple clients started asking SourceHOV and Novitex to bid as Exela prior to the close. .

Third, we plan to further emphasize our bundled service offerings and our single-vendor solutions to offer the best ROI for our clients. We believe our ability to provide a single-source solution sets us apart in the market and is already beginning to resonate with our clients. .

Fourth, we will enhance the client experience and increase operational leverage through scale. .

Finally, we will focus on our -- currently on driving the benefits of the combined companies. We will continue to also seek accretive M&A opportunities. .

In summary, we're excited about the breadth of opportunities that Exela's diversified business model and differentiated technology-based solutions provide us as we expand our market presence and continue to drive long-term shareholder value creation. .

And now I would like to turn it over to Jim Reynolds who will discuss our financial results in greater detail.

Jim?.

Thanks, Ron. Please note, as part of our second quarter 10-Q filing, we have furnished additional information, including unaudited Q2 2017 SourceHOV Holdings' financial statements, including stand-alone MD&A, and have filed Novitex' unaudited Q2 2017 financial statements.

As the merger was completed in Q3, we plan to provide more complete financial results when we report our third quarter 2017 results in November. .

I will now provide a review of our pro forma second quarter and half year results. I will then discuss our capital allocation strategy. .

We report our revenue results across 3 segments. The first and our largest segment is the Information and Transaction Processing Solutions or what we call ITPS. The second segment is Healthcare Solutions or HS and includes a broad range of solutions for health care payers and providers.

Our third segment is Legal & Loss Prevention Services or LLPS, which comprises of processing and administration of legal claim settlements. .

Turning to Slide 15. You'll see our second quarter and first half 2017 pro forma revenue and EBITDA results for the total company and our segment revenue details. Total revenue for the second quarter of 2017 was $350 million.

With respect to the segment mix, ITPS revenue was $270 million, HS revenue was $58 million, and LLPS revenue was approximately $22 million. .

Total revenue for the 6 months year to date was at $712 million. ITPS segment revenue was $550 million, HS revenue was $117 million, and LLPS was approximately $45 million. .

Our pro forma gross profit in the second quarter and year-to-date was $93 million and $193 million, respectively, representing a gross margin of 27% for both time periods. .

Pro forma adjusted EBITDA for the second quarter of 2017 was $83 million, representing an adjusted pro forma EBITDA margin of 24%. Finally, pro forma adjusted EBITDA for the first half of 2017 was $181 million, representing an adjusted pro forma EBITDA margin of 25%. .

Focusing for a moment on our merger-related cost synergies. As Ron mentioned, we are on track to deliver against our originally stated $37.5 million of annual cost synergies over the next 12 months. .

Now turning to Slide 16. For the first half of 2017, we generated $163 million of pro forma free cash flow, representing nearly 90% conversion of EBITDA. We calculate pro forma free cash flow as pro forma adjusted EBITDA less capital expenditures. Our strong free cash flow profile is due to our low-intensity CapEx model.

In the first half of 2017, our CapEx totaled $19 million or 2.6% of our total revenues, benefiting from our historical investments. .

Turning to the balance sheet. Following the completion of the business combination on July 12, 2017, the company had cash and total liquidity of $100 million and total debt of $1.35 billion, comprised of $1 billion of secured notes and $350 million secured term loan facility. .

Before moving to guidance, I would likely (sic) [ like ] to briefly review our capital allocation strategy. Our first priority for -- is for cash, after making the necessary investments to drive our growth initiatives, is to delever our balance sheet. Our long-term leverage target is around 3x, which we think is appropriate for our business.

Once there, we will seek accretive acquisitions over time. However, in the near term, we're focused on driving the combination benefits. Finally, we will consider dividends to shareholders based on internal hurdle rates of return once our leverage targets are achieved. .

Moving now to our full year 2017 financial guidance. We are on track to deliver identified business combination savings, and we currently expect pro forma full year 2017 revenue and EBITDA to be in the previously indicated range. .

In closing, I want to echo Ron's enthusiasm for the future of Exela. We are well positioned within a large and growing industry, serving a diverse client base and end markets with attractive growth opportunities. We have a strong financial model with significant achievable synergies.

I believe these attributes position us well for continued profit growth. .

Operator, we will now open up the call for questions. .

[Operator Instructions] And it looks like the first questioner today will be Joseph Foresi with Cantor Fitzgerald. .

I think given that it's your first call, I wanted to give you the opportunity to share with investors the top 2 or 3 methods you're focused on for driving shareholder value. .

Sure. So as part of my presentation, we have initiatives, and I call these management initiatives that we've launched. We believe that these will probably drive most of the shareholder value in the early days, but we have cost-saving synergies that we're focused on.

We're going to leverage the deep relationship we have, the trusted relationships as far as an upsell or a cross-sell opportunity. Thirdly, we're going to emphasize our bundled service offerings and our single-vendor solutions to offer the best ROI for our customers.

And we're going to enhance the client experience by having a combined sales force to operate through better leverage. And then we're going to focus on driving the benefits of the combined company as we seek to continue to look for other M&A. .

Got it.

And then I think you talked about, was it $37 million in synergies? Can you talk a little bit more about where those synergies are coming from? And can we expect more synergies potentially in the future?.

So the $37.5 million of synergies are what we consider low-hanging fruit. And they're broken into 3 buckets, which is headcount, facilities and vendors. About half of those overall synergies are headcount related. And as we said, we're looking to achieve those synergies within the first 12 months. .

Okay. And then lastly, maybe you can share with us any thoughts around any maybe long-term targets.

How should we think about this from a longer-term revenue growth and maybe margin perspective?.

Sure. Well, I think in a historical filing, we gave long-term guidance of revenue of 3% to 4% and EBITDA growth of 4% to 5%. This guidance is based on a lot of factors. Our -- over 50% of our revenue comes from health care and financial services. These industries have nice tailwinds associated with them.

And then we're also going to reap the benefit from Novitex. They made significant investments in mega centers that are underutilized that will help us drive incremental revenue and increased utilization. In addition, our margins will expand as we deliver on the combination savings. So it's... .

And the next questioner today will be Arun Seshadri with Crédit Suisse. .

Just wanted to understand, for -- on a pro forma basis, looks like revenue was down about 2 point.

[Audio Gap].

percent. It's pretty solid.

Just wanted to understand, for the various segments, is there any way you could give us year-over-year pro forma revenue for ITPS, HS and LLPS?.

So obviously, we've just put these companies together. Over the past month or so, we've been working very hard on pulling together additional information. And we're reviewing it to see what we'll be able to put out there in the coming days to give more color on historical performance.

Obviously, it's all pro forma, but we'd definitely look at doing something like that. .

Okay, understood. And then Novitex, is there any way -- I think the revenue was up 5% year-over-year, very similar to what you saw in Q1.

But any way you can sort of give us a sense for, what was the relative contribution of the new Liberty Mutual contract in Q2 versus in Q1?.

So we talked about Liberty ramping up, but we really look at overall the revenue from a segment perspective, and they fall into the ITPS segment. So that's where a portion of our growth came through, was the Liberty contract. .

Okay, got it.

And then is there any way you could sort of give us some broad sense for, against the EBITDA numbers in the -- in your guidance, is there any way you could give us a sense for what -- how do you expect free cash flow to shape up and particularly working capital?.

Sure. So from a free cash flow, as you can see historically, we've generated, on a pro forma adjusted basis, approximately 90%. We don't -- as we stated, our CapEx is somewhere -- we see it being 3% in our guidance. We came in a bit lighter, but we think we're still around 3% of overall revenue.

So we continue to be CapEx light and generate a significant amount of cash. .

And the next questioner today will be Bryan Bergin with Cowen. .

Can you just talk broadly about early client feedback on the combined entity? Really, how are large clients receiving the bundled offerings you're proposing?.

Yes. Thanks, Bryan, for the question. The feedback has been very positive. Even in the early days post the announcement of the merger, we began to get inbound interest from the client base, some from Novitex, some from Source, asking us to consider proposing together because of their view that Exela would be a great value proposition. .

Okay.

Anything on the competitor front as well similarly? Do you see anything different there as you're really coming in with a different offering now?.

Not really. I mean, typically, our competitive landscape is the in-house operations, which we've begun to land and expand. And that's been our thesis all along. .

Okay.

And just your expectation on deleveraging as well as timing of it?.

So I think obviously, we've just been together now just less than a month, and the plan is to get to 3x. And I think the previous guidance we've mentioned is -- somewhere to 18 to 24 months is the plan. .

And the next questioner today will be Jeremy Skrezyna with Southpaw. .

Just quickly for me, it looks like, if I'm doing my math right, pro forma combined revenues were up about 7.7% year-over-year.

How much of that is organic? And how much of it is attributed to the acquisitions that Source did last September?.

So I think if you take a look, I think we've disclosed additional information within our stand-alone Source MD&A where you'll be able to find what it looks like from a stand-alone perspective versus pro forma. .

But would that -- does that reflect the -- I guess what I'm trying to figure out is, what's -- if we even just ignored Novitex and just looked at SourceHOV, then revenues were up maybe 9.5% year-over-year.

Can we tell how much of that was organic versus how much of it was attributed to the acquisitions from September, such as TransCentra?.

Yes. Well, TransCentra represented about $24.4 million of that increase. .

Okay, that's what I was getting at. All right, and then the last one for me.

On a combined basis, is it okay to -- if we just summed the cash from operating activities for both businesses, would that be basically what the pro forma combined entity would have generated for the quarter in terms of cash from operations?.

So I would say, yes, that's probably the best approach because you kind of take an A-plus-B approach with respect to the stand-alone results at this point in time from a historical basis. .

And the next questioner today will be Baffour Abedi with River Birch Capital. .

Just a couple of, I guess, housekeeping clarifying questions. So you talked about the $37.5 million of company's -- combined company synergies. But in the deal market and information there was probably another $26 million of identified -- independently -- well, I guess, there all SourceHOV identified savings that hadn't been implemented yet.

Should we assume those are still on track to be implemented to get us closer to that $70 million of pro forma synergies, I guess, that have been marketed?.

Yes. So the $70 million we marketed was combination synergies. We disclosed the $37.5 million of which we modeled for 2017 for the next 12 months. And then we also identified additional synergies up to that $70 million. .

Okay.

And so are those still on track for the 24-month time frame, with the vast majority in the first 9 months?.

Yes, they are. .

Okay. And then just can you just remind me on this, you've referenced a couple of times the revenue and EBITDA guidance that had been provided, which sounds like you're reiterating.

Can you just give me what those numbers were?.

So the revenue guidance was $1,450,000,000 to $1,550,000,000, and EBITDA was $350 million to $390 million -- $360 million, I'm sorry. .

$350 million to $360 million.

And this was for the 12 months post-closing, so through middle of next year? Or was it pro forma for 2017?.

This was on a pro forma basis for 2017. So let me give you -- I think you maybe didn't understand. It was $350 million to $390 million. .

To $390 million, not $360 million. .

Correct. .

Okay.

For pro forma 2017?.

Yes. .

Ladies and gentlemen, this will conclude the question-and-answer session and today's conference call. Thank you all for attending today's presentation, and you may now disconnect your lines..