Good day, and welcome to the Exela Technologies, Inc. Fourth Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. .

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

Thank you. Good morning, everyone, and welcome to the Exela Technologies Fourth Quarter and Full Year 2020 Conference Call. I'm joined today by Ron Cogburn, Exela's Chief Executive Officer; and Shrikant Sortur, our Chief Financial Officer. Following prepared remarks made by Ron and Shrikant, we'll take your questions.

Today's conference is being broadcast live via webcast, which is available on the Investor Relations page of Exela's website at exelatech.com. A replay of this call will be available through March 23, 2021. Information to access the replay is listed in today's press release, which is also available on the Investor Relations page of Exela's website. .

During today's call, Exela will make certain statements regarding future events and financial performance that may be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These statements reflect management's current beliefs, assumptions and expectations as of today, March 16, 2021, and are subject to a number of factors that could cause actual results to differ materially from those statements.

We undertake no obligation to update any statements to reflect the events that occur after this call, and actual results could differ materially from any forward-looking statements.

For more information, please refer to the risk factors discussed in Exela's most recent filed periodic report on Form 10-K, along with today's press release and the company's other filings with the SEC. Copies are available from the SEC or the Investor Relations page of Exela's website. .

During today's call, we'll refer to certain non-GAAP financial measures. We believe these non-GAAP financial measures provide additional information on how management views the operating performance of our business. Reconciliations between GAAP and non-GAAP results we discuss on today's call can be found on the Investor Relations page of our website.

Please note, the presentation that accompanies this conference call is also accessible on the Investor Relations page of our website. .

I would now like to turn the call over to Ron Cogburn, CEO. Ron, please go ahead. .

Good morning, and thanks, everyone, for joining us on our fourth quarter and full year 2020 call. We're going to provide a brief business update today and highlight a few of the key takeaways from 2020 and Exela Technologies overall. .

With the current climate and dynamic events in our world today, we are witnessing digital drive hypergrowth between B2B and B2C, which is leaving the traditional networks far behind.

Exela is well positioned in this environment, leaning on our extensive investment in technology based on the business rules of our customers' processes and the industry guidelines. Exela Technologies is further enhanced by our multiple patents in process, robotics and cognitive automation.

With over 4,000 customers, including 60% of the Fortune 100, Exela's customers rely on our fully deployed technology stack across banking, insurance, health care, financial services for payments and bills and intelligent data processing and management and communications. .

the exit of about $147 million of nonstrategic transition revenue, approximately $90 million of impact from COVID-19 and of course, our noncore asset sales. .

Our Digital Asset Group continues to scale, representing now 8% of our total revenue in 2020. We added $182 million of ACV in 2020, along with 14 new customers with TCV in excess of $1 million each. In early 2021, our revenue has stabilized.

And we are seeing positive sentiment in our industry segments, except for public sector, which has lagged a little bit because of the switch of the new administration. We're very pleased to have recently announced a new 10-year $90 million contract to provide a cloud-based automation service through our PCH Global platform to a major U.S. insurer. .

So let's discuss our earnings for a second. Most of the variance between the 2020 adjusted EBITDA is due to lower revenue, coupled with the biggest change being the professional fees and expenses. Exela plans to reduce those in 2021.

Exela has $174 million of cost savings in our execution pipeline with incremental cash realization of $38 million expected in 2021 due to the recently completed actions. .

With respect to key initiatives, in 2020, we completed noncore asset sales worth $50 million, and we continue to pursue additional sales of businesses that are not complementary to our long-term strategy. The remaining $100 million to $150 million of noncore asset sales are in progress.

Exela continues to eliminate the lagging trapped costs from the nonstrategic transition revenue roll-off, which we expect to exit by the end of this year. .

With respect to the balance sheet improvements, our liquidity was $108 million as of December 31, 2020, and $61 million as of March 12, 2021, including the outflow of our semiannual interest payments on our bonds.

Yesterday, we announced an equity capital raise of $27 million as part of our recent endeavors to expand our investor base and visibility into the equity capital markets after years of anonymity.

We intend to use those proceeds to add to liquidity to the balance sheet to pursue cloud-hosted technology and BPO-type deals that we just won and prepare the company for growth and the return of the pre-COVID-19 volumes in 2021. .

Our liquidity levels, now get this, our liquidity levels are now higher than they were 3 years ago at December 31, 2017, after including the $53 million capacity under the existing securitization facility that remains undrawn but is subject to the loan and security agreement dated December 10, 2020.

With all such initiatives, including the in-progress asset sale, our goal is to take our surplus cash and opportunistically take advantage and reduce our debt service. We are creating value for our investors to become neutral to cash flow-generating company on a levered basis in the near future.

As a reminder, in Q4, we entered into $145 million 5-year term loan to refinance our existing AR securitization facility. And last but not least, we engaged UBS to pursue alternatives to strengthen the balance sheet. .

So overall, it has been a very busy year for Exela. I want to thank our entire team around the world for their dedication to our customers and Exela's success, especially in this challenging year.

We have a lot of work to do, but I'm encouraged by the strong progress that we're making and confident that we have the right strategy in place for continued improvement in 2021. .

Now let's look at Slide #5. With a proven track record and global presence in more than 50 countries, let me highlight the current and the emerging solutions that we offer. Around the treasury functions, you have liquidity solutions such as procure to pay, order to cash and expense management.

We have payment technologies and services like XBP, which we talked about at the fireside chat with the Cowen analyst and some of their guests. My favorite, human capital management, this is our own platform we developed to replace Workday. We had up to 10,000 employees on Workday at one point.

Of course, health care, both payer and provider; then work-from-anywhere technologies and services, which we developed last year as a result of the pandemic. All this sits on a foundation of information management and communications. We see good opportunities with existing and new customers for each of these solutions in 2020 and beyond. .

Banking and financial services, along with health care and commercial, represent Exela's largest industry segments by revenue, and they comprise $142 billion of this mammoth $207 billion total addressable market. We only just scratched the surface, penetrating about 1% of our growing addressable market. .

Now let's turn to Slide #7. Diversification in revenue and industries served is a significant strength of Exela. With most of our revenue in the U.S., we are well positioned to ride the tailwinds of the economic recovery post the pandemic.

With low customer concentration and focus on the industries that have the strongest projected CAGRs like the banking, financial service, insurance and health care, our digital foundations are well positioned for growth. .

Now let's turn to Slide #8. Exela is an integral part of the essential critical supply chain infrastructure across the U.S. and Europe.

Exela's services and products enhance or facilitate better efficiency, touching everything from communications to commercial facilities, providing critical essential services in finance, energy, the government, health care and information technology. Our digital foundation and our resilient business model was really tested during the global pandemic.

And while we executed well, and we earned the respect of our customers who view us as partners, we've also learned many valuable lessons that will serve us well in the near term. .

Now let's look at Slide #9. Exela's technology and services touch the majority of the population in the U.S., now just think about that for a second, as well as over 80% of all noncard network payments made in Ireland, 100% of the giro payments made in Sweden and significant volumes payments made in the U.K. as well.

I want to call out 3 statistics to take away from this slide. First, all U.S. taxpayers who file nonelectronic taxes or paper taxes and the subsequent payments made by or to the IRS are processed through Exela's remittance technology platform.

Second, with over 200 million subscribers in health care and 20 million veterans, we process over 700,000 claims a day. Third, Exela processes over $1 trillion in deposits each year. .

Now let's look at Slide #10 for a moment. One of the secrets to Exela's ability to navigate through the pandemic well has been our long-tenured customers. With an average tenure of 15 years, we have partnered through many economic cycles, like the one we're in now, and renewals continually expanding our wallet share with these customers.

These logos would include the top banks, insurance companies, health care and governmental agencies. .

Let's look at Slide #11. The ability to remain a trusted partner and to expand the wallet share with the customers for more than a decade is enabled by the solution set in our continuous innovation.

We are building digital roads between our customers' old legacy platforms and the emerging standards to address their needs in the future and allow our customers to embrace a digital world.

This is the foundation Exela was built upon, which will enable us to capitalize on significant untapped potential within our customer -- existing customer base and a large addressable market. .

Let's look at Slide 12. Another proof point of our strong client partnership as well as our resilient model through the COVID-19 can be found on Slide 12. Despite the macro pressures of the pandemic, our new business wins as a percentage of our total revenue in 2020 remained in line with our historical trends at about 27%.

Now if you look at the bottom half of the slide, you'll see that the new business won and the renewals in Q4 represented a high point for the year, reflecting the positive momentum in our business which I referenced earlier. .

Now let's turn to Slide #13. Exela has come through the headwinds of this global pandemic storm a stronger company, demonstrating our agile business model. We were able to mitigate gross margin impacts in contrast to the flex in the revenue as our customers began to pivot to digital or work-from-anywhere models.

Even as we experienced a slight dip in productivity levels from a global perspective, we were able to move over 10,000 employees to our work-from-anywhere platforms, continuing to meet customers' expectations all along the way.

Now one of the benefits from this showed us that with 10,000 folks working from home, did we need all of the sticks and bricks in real estate? The answer is, we see about 35% of our real estate that we'll be able to rationalize and to step out of this coming year. .

Our revenue from these license and subscription platforms, digital platforms, reached over $100 million in 2020, which strengthened the relationship with our customer, expanded higher gross margins and strengthened the backlog on the revenue because these type of contracts tend to be 5- to 10-year contracts, which is what we saw with our new win.

And they include the renewals, the annual maintenance and the support services. .

So in summary, we met our Q4 and 2020 revenue guidance. Our positive momentum in 2021 is bolstered by the gradual improvement from the impacts of the COVID-19 pandemic and the growth of our emerging solutions such -- that we delivered by the Digital Asset Group.

We have been successful with our strategy to exit noncore, low-margin transition revenue and remain on track to exit trapped costs associated with that business. We have executed against over $170 million of recurring cost savings.

Finally, we've continued to make progress on strengthening our balance sheet and our financial flexibility, and we remain focused on continuous improvement. Looking ahead, we are excited about the opportunities that we see for profitable growth, driven by our technology-led business process automation solutions and the available TAM. .

With that, I'd like to turn the call over to Shrikant Sortur, our CFO, to discuss the numbers in more detail.

Shrikant?.

Thank you, Ron. Good morning, and thank you all for joining us. As we have done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. .

Let's start on Slide 16, which we believe provides a good snapshot of our business model and hopefully provides you with some increased insights into our business.

Starting from the left, ITPS, which is our largest reporting segment at just over $1 billion in revenue, includes finance and accounting solutions, remittance, mortgage processing, our tax business, KYC-AML, print and mail, et cetera. Of this, $104 million is comprised of our Digital Asset Group revenue.

The remaining approximately $900 million is broken into 2 groups but the UCS or united communications services (sic) [ unified communication services ] representing about $350 million of 2020 revenue. This business does bulk printing of bills.

The remaining portion of ITPS represents approximately $550 million of revenue and includes bulk processing and reconciliation of bills to be ingested in customer ERP systems and then processing of payments as well as on-site business from our legacy Novitex Group. The average gross margin of ITPS is about 19% and growing.

The revenue model on this segment is primarily transaction-based pricing as well as annual licensing and fixed management fees with contracts averaging 3 years. .

Next, our Healthcare Solutions segment services include PCH, which is our cloud-based claims processing gateway; paper claim processing and nonpaper claim works like adjudication or enrollment; coding and other provider services. This segment generated $219 million in revenues and gross margin of about 27% in 2020.

The revenue model on this segment is similar to the revenue model on ITPS, which is primarily transaction-based pricing as well as annual licensing with contracts averaging 3 years. Of the $219 million, about $65 million is provider, and $155 million is payer business. .

Lastly, our Legal and Loss Prevention Services segment includes legal claims settlements, notification services and revenue recovery services. With approximately $68 million in 2020 revenue or about 5% of our total revenue, gross margin in this business averages about 29% on a time and material basis. .

Shifting to Slide 17, let's review our fourth quarter 2020 results. Revenue for the fourth quarter totaled $314.1 million, an increase of 2.9% sequentially and a decline of 20.2% year-over-year. As Ron mentioned, we exceeded our prior guidance for the fourth quarter.

On a constant currency basis, Q4 revenue was $310 million, representing a decline of 21.2%. .

Our pruning certain customer contracts and statements of work which were not a strategic fit to Exela's vision, which we refer to as transition revenue; second, negative volume impacts due to COVID-19 pandemic; and third, revenue contribution from our strategic sale of noncore assets.

When excluding pass-through postage and postage handling revenue with either 0 or nominal margin, our total revenue was $260 million, up 2.2% sequentially and down 19.6% year-over-year. .

Our gross profit margin for the fourth quarter was down 120 basis points year-over-year to 18.8%, primarily due to noncash charges related to a facility exit as part of our savings initiative, partially offset by better cost and capacity management and reduction of stranded costs attributable to transition revenue.

Q4 gross profit margin declined sequentially due to noncash charges due to a facility exit, business mix change, year-end accrual of paid time-off charges related to carryover of vacation time and benefits in Q3 related to CARES Act credits. SG&A expenses for Q4 totaled $45.9 million, down 7.6% year-over-year and represented 14.6% of sales. .

Shifting to EBITDA and adjusted EBITDA. In Q4 of 2020, we had an EBITDA loss of $8.6 million compared to a loss of $234.5 million in the prior year period.

Adjusted EBITDA for the fourth quarter was $37.2 million, down from $53 million in the prior year period, primarily reflecting lower gross profit and partially offset by continued cost saving realization and lower O&R charges. Our adjusted EBITDA margin for the fourth quarter of 2020 was 11.8%.

And excluding pass-through revenues, adjusted EBITDA margin was 14.3%. .

pruning of transition revenue representing approximately $147 million, COVID-related impacts to volumes of approximately $75 million, and revenue contribution from strategic sales of noncore assets. From a segment perspective, ITPS revenue totaled $1.01 billion in the year, a decline of 18.6%.

Healthcare Solutions revenue was $219 million, down 14.7%, and LLPS revenue totaled $68.4 million. Excluding pass-through revenue with 0 or nominal margin and the low-margin client exit, our fiscal 2020 revenue totaled $1.06 billion, a decline of 17.3%. .

We successfully eliminated approximately $147 million of transition revenue by the end of 2020 and expect to complete this process during the first quarter of 2021.

We also continued to expect to remove the standard costs associated with the transition revenue by the end of 2021 and will continue to see a delayed positive impact on our gross margins from declining transition revenue as costs take a bit more time to exit the business. .

Gross margin was 20.8% in 2020, down approximately 80 basis points compared to 2019, impacted by the top line performance and the noncash facility exit charges in Q4 that I just mentioned, partially offset by our ongoing transformation and cost-saving initiatives, including the elimination of trapped costs.

A key callout here is that despite a $270 million decline in our 2020 total revenue, our gross profit in 2020 declined by only $69 million, reflecting our focus in cost containment and exiting noncore low-margin business. .

SG&A for 2019 totaled $186.1 million, down 6.4% year-over-year and represented 14.4% of revenue, reflecting savings realization, partially offset by higher professional and advisory fees. Operating loss was $16.4 million in 2020 compared with operating loss of $321.5 million (sic) [ $321.2 million ] in 2019.

The improvement in our operating loss was mainly attributable to no noncash goodwill and trade name impairment charges in 2020 compared with the $349.6 million of such costs recognized in 2019 as well as lower SG&A and D&A expenses. .

EBITDA for 2020 was $102.9 million. Adjusted EBITDA for the full year 2020 total $173.4 million compared to the $254.8 million in 2019. Adjusted EBITDA margin in 2020 was 13.4%. Our adjusted EBITDA margin, excluding pass-through revenue and low-margin client exit, was 16.3% in 2020. .

Now let's touch upon our balance sheet and liquidity. As discussed in the past, the company had originally targeted $150 million to $200 million of sale proceeds from certain noncore assets. Since then, we have completed divestitures of $50 million to date as part of the announced plan.

The remaining $100 million to $150 million asset sale remain in progress. We'll continue to explore and implement additional actions to improve our liquidity.

This includes our plan to complete additional asset sales as targeted, accelerating the alignment of our business to a traditionally working capital-light model and executing against our planned cost savings initiatives, including cutting stranded expenses associated with our transition revenue. .

As Ron mentioned, we recently announced an equity offering to add another $27 million to the balance sheet to further boost liquidity to pursue cloud-hosted technology and BPO-type deals to prepare the company for growth and the return of 20 -- COVID volumes in 2021.

Our global liquidity was $108 million as of December 21, 2020, and $61 million as of March 12, 2021, after including the outflow of our semiannual interest payment on our bonds. We believe this is sufficient liquidity even after making the $50 million interest coupon for the senior secured notes.

In Q4, we entered into $145 million 5-year term loan to refinance our existing AR securitization facility. Our total net debt as of December 31, 2020, was $1.4 billion, as determined in accordance with the company's credit agreement. .

Moving to Slide 19. With revenue visibility typically at 90% due to our recurring revenue model, 2020 renewals experienced the headwinds of the pandemic. With a strong backlog and our ability to retain our customers by meeting stringent SLAs, we served as a trusted partner in our company's (sic) [ customers' ] digital journey.

We believe our renewal rates will rebound to 90% in 2021. .

$136 million attributable to the head count rationalization and increased automation, $13 million to vendor consolidation and efficiencies and $25 million to lease improvements.

These cost improvements, combined with the continued exit of stranded costs associated with transition revenue, will help drive our gross margin and EBITDA margin improvement in 2021 and beyond. .

I would now like to close by discussing our 2021 guidance, which is detailed on Slide 21. For the full year 2021, we expect total revenue to be in the range of $1.25 billion to $1.39 billion.

Our current estimates assume the normalization of pre-COVID volumes, renewal rates to return to historical levels pre-COVID and continued momentum in new -- winning new business.

We currently expect gross margin in 2021 to be between 23% and 25%, reflecting improved operating leverage resulting from the normalization of volumes to pre-COVID levels and increased productivity of existing employee base and higher utilization of production infrastructure. .

We expect adjusted EBITDA margin to be between 16% and 17%, reflecting higher gross margin as well as improved operating leverage resulting from the scaling of revenue with minimal additions to production infrastructure and reduction in professional and legal expenses due to normalization of capital structure.

Finally, we expect CapEx levels of approximately 1% of revenue, in line with historical levels, and working capital to be in line with historical levels and recent trends. .

I'd like to thank you very much for your time today. With that, operator, please open the call for questions. .

[Operator Instructions] Our first question comes from Trent Porter with Nuveen. .

I guess I wanted to start with 3, and then I'll get back in queue. The first one, I think O&R for the year was $45 million, $46 million.

And so how should we be thinking about O&R next year? Does it continue to decline?.

My next question, I wanted to better understand the sequential EBITDA margin -- adjusted EBITDA margin variance. You talked about professional fees and other noncash, but it looks like other noncash was added back.

So are we just talking about professional fees that were not added back?.

And then my final question, I just wanted to clarify that the $178 million of cost savings in progress.

If I look at your 16% to 17% EBITDA margin guidance for 2021, I think -- am I thinking correctly that, that reflects $38 million of that $178 million being achieved in 2021?.

And then if I could just tack on, are we done with the transition revenue going forward? That's it for me. .

Trent, first of all, thanks for the questions. Good to be talking to you again. First, O&R charges, we expect on O&R charges in 2021 to be lesser than 2020. We have not guided to a specific number.

But as you can see, with the guidance that we've given out for adjusted EBITDA margins to improve to 16% to 17% levels, the assumption/factor in there is for lesser O&R, which is, in other words to say, savings will convert to actual cash EBITDA. So answer is lower O&R charges than 2020 in 2021. .

Second, your question on sequential adjusted EBITDA between Q3 and Q4, lower by $11.5 million. Net-net, that's an impact of the changes to gross profit in Q3 versus Q4, even though revenues were higher sequentially Q3 to Q4.

As I discussed on my prepared remarks, we had one-timers or exceptions in our gross margin for Q4, namely the noncash accelerated depreciation for an exit of a lease facility, approximately $3.7 million impact there. And then second is the revenue mix.

We have an impact of revenue mix, a share of lower-margin revenue in Q4, which is related to the seasonality. That impacted the gross margins. The third one, there was a higher year-end accrual for PTO for carryover of vacation time. Interestingly enough, in a COVID world, you tend to see a lot of employees not use their PTO hours.

And therefore, the carryover impacted us even as we compare to the last year. These were the 3 or 4 elements that impacted the gross -- profit margins Q3 to Q4. We expect it to rebound in Q1. And... .

I'm sorry. .

No problem. You had 2 more. The $178 million, you read that right. As you can imagine, these are identified savings initiatives from identification to execution to flow-through. So as you rightly interpreted, $38 million of those were already executed. And we'll see the flow-through in 2021.

The timing of the rest will depend on how quickly we pulled it together and execute and see the flow-through come through. So that's the right way to look at it. .

And the fourth one, Trent, you asked me... .

I think just the transition revenue. I think we're done actually on that stuff. .

Yes. Transition revenue, we are done with the bulk of it. At the beginning of last year, we had said approximately $150 million. As you probably heard from Ron and my remarks, right now, we are tracking to $147 million. There's going to be some more tail-off in Q1.

But from a transition perspective, it's still in that ballpark range, maybe another $5 million, $10 million, along those lines, $150 million to $160 million still. So in Q1, we should be done with the transition revenue. .

Okay. Just at the -- I think you'll probably slap me down for asking this one. But the UBS engagement, certainly, your posture doesn't sound like you're targeting a distressed exchange. And we've already talked about -- you've already talked about the asset sales. So just -- I don't want to put words on your mouth.

Are you able to say anything else about sort of where you're going with this?.

Yes. I can give you a high-level overview. But more importantly, I think the -- where we want to probably call out is since end of 2019 and right throughout 2020, we've been fairly consistent with what our goal is, right? It's being focused on liquidity and improving our liquidity and cash flows. That's part of our capital allocation policy.

We have stated this multiple times in the recent past. We want to get to a stage where we're cash flow neutral or cash flow positive in the near term. .

How do we do this? Gross margin improvements, business mix and profitable revenue growth, right? That's what the transition revenue exit is all about. That's starting to show itself in a positive way for us. We'll have to reap all of the benefits in 2021.

And lastly, navigating all of the COVID headwinds that we have, right?.

With that as the backdrop, be it from a liquidity perspective, be it our stated objective of additional financing sources or noncore asset sales or all of that, it has come to fruition in certain ways. UBS engagement was to explore additional strategic ways to strengthen our balance sheet. We have a couple of work streams with them that are open.

And when there's progress or when there are significant milestones, we'll certainly share future updates. .

[Operator Instructions] Our next question comes from David Foropoulos with Unum. .

Yes. I guess, my one question is just a follow-up from the last question. If you just kind of wanted to bridge the -- I know there's some one-timers, but you pulled some one-timers out. So apparently, there were some onetime benefits in Q3's EBITDA margin or EBITDA number, and then there were some headwinds.

Can you give us any clarity, a little bit better, on if we want to look at that Q3 to Q4 apples-to-apples, how do we think about that on the EBITDA line or gross margin or gross profit margin, whatever is easier for you?.

Sure. Thanks, David. Let's see. I'm trying to articulate a better answer for you. .

I mean, there's a 420 basis point decline in EBITDA margin quarter-over-quarter despite having higher revs. I mean, is there any way you can bridge that 420 basis points? That's the question. .

Yes. So the 4 items that I probably discussed, 3 or 4 items that I discussed, that's the exact bridge for the 4.5% or 450 basis points, right? We have not broken out the details, other than I can give you the indication that the noncash facility exit depreciation -- accelerated depreciation we took was for $3.7 million.

The 2 other things that I touched upon, the year-end PTO accrual, that and the CARES Act credit that we benefited in Q3 and not repeated in Q4, these 3 are the main items. And then, as I said, business mix, there was an element of lower margin pickup in Q4 revenues than we had anticipated.

So together, these 4 items are what make up for the 4.5% swing in gross margins. .

And those aren't included -- those items aren't included in the noncash other charges you added back to adjusted EBITDA? I guess that's my question, too, on part of that.

You see what I'm saying? Is that not added back in that $31.4 million?.

Yes. Obviously, the -- yes, the facility exit, yes. But we cannot add back, whether it's the CARES Act credit, that then [ becomes the ] floor. Yes, you cannot add back those, right? With the PTO accruals, these are items that you cannot add back. .

Okay. Great. Great. And that was a second -- another question I had, too, is I know you had some liquidity benefits last year from the CARES Act. I think it was, I don't know, $25 million, $30 million of liquidity benefits. Can you talk about the potential impact on cash flows? I think you have to pay that back over a period of time.

Is that something that's going to hit you in 2021 in terms of cash flows? Or can you -- any color there would be appreciated. .

Sure. This is something that you'll find a very pointed disclosure in 10-K. Specific to the deferral of the CARES Act, it's $14 million. So in theory -- not in theory, we need to be paying back approximately $7 million each in 2021 and 2022. Again, that's a high-level answer, David. More specific disclosures in the 10-K that will follow. .

Our next question comes from Allen Kato with Beach Point Capital. .

First, can you just repeat the breakdown of ITPS you gave at the beginning? I just want to make sure I have that down right. .

Sure.

You want that in terms of the revenue split that I talked about, Allen?.

Yes. .

Yes. Let's talk about 2020 ITPS, approximately $1 billion in annual revenue for 2020. $104 million of that is the Digital Assets Group base revenue, digital revenue. The rest, $900 million we talked about, $350 million or $360 million of united communication services, bulk print, you could call it, print and mail.

And the rest, $550 million, comprises of our F&A and our on-site services. .

For the payment processing -- invoice processing?.

Yes. Payment processing, remittance, all of our BPO business, that's a wider bucket. The third bucket is a wider bucket for the $550 million. .

Got it. Got it. And then on the EBITDA reconciliation for the fourth quarter, I saw the other charges was listed as, I think the other caller alluded to, about $31 million.

You know what the breakdown is of cash and noncash within that?.

Yes. This -- hold on, sorry. Let me think about it. There's a number of noncash -- Allen, I'm just jogging my mind just to see if it would be an [ MNPA ] or if it's something that we have given in the past or not. I'll give a couple of pointers. That includes the $3.7 million of accelerated depreciation that I talked about.

It includes a litigation reserve we have for approximately $9.6 million or so. And it includes -- I would say a large portion of it is noncash. .

Our next question comes from Jerry Wang with Carlyle. .

Just wanted to triple check on the ITPS low margin exit. You mentioned that there was $147 million that will be taken out in the year.

Should I think about that as, call it, $37 million or $38 million in the fourth quarter and then maybe another $37 million or $38 million in the first quarter of '21?.

Transition revenue, okay. First of all, Jerry, thanks for the question.

Come again on the comparators? Q4 to Q4, did you mean Q4 to Q4? Did you mean sequential?.

Yes. Just the $147 million breakdown, I'm thinking about it as, call it, 1/4, 1/4, 1/4, 1/4, like 1/4, 1/4, 1/4, 1/4, so about, call it, $37 million, $38 million a quarter of that revenue. So I just want to look at... .

Yes. Yes. I got it. .

Fourth quarter '19 to fourth quarter '20. And I just wanted to see how much of it is the COVID-19 impact versus the impact of you exiting these lower cost -- lower-margin contracts. .

Got it. Got it. Quarter-to-quarter, the $79.5 million, overall, I'm talking about overall, I'm not focusing just on ITPS, $79.5 million transition impact is approximately $35 million, Jerry. And COVID impact is $20 million and then asset sale, another $10-or-so million. .

Okay. Got it.

And then you expect another, call it, $35 million or so in the first quarter?.

Yes. That's why I had a follow-up... .

When you're done?.

Yes. No, that's why I had a follow-up for you, right? So the way you look at it, sequentially, Q3 to Q4 transition revenue impact is under $5 million, right? Because you've already taken -- we've already -- we're comparing it year-over-year. So we have had approximately $30 million when you compare to respective prior year quarters.

But sequential quarters, it's not $30 million, right? It's not $30 million incremental. On that point, Jerry, if you're looking at Q4 to Q1, transition revenue will not be at $35 million levels. It will be high single digits or low teens. .

Okay. Okay. And then health care, I would have expected more of a pop in the fourth quarter.

Was that just timing-related? Or could you provide a little bit more color there on health care?.

Yes. Absolutely. Ron briefly touched upon it when he talked about the change in administration or the public sector softness that we saw in Q4. One of our larger customers, we received lesser volumes than we had anticipated. I don't know if we can assign it to COVID.

It could be the change in administration or some other factor, but that's the key driver for the softness in health care volumes Q3 versus Q4. .

Our next question comes from [ Alex Stevenson ] with GLG. .

Could you please break down the liquidity? At the end of December, there was $107.8 million. How much of that is cash? How much of that is undrawn facilities? And what's your sort of available facilities you have in place? You sort of refi-ed the AR facility and paid back the $83 million out of the $140 million new loan.

So just wondering the capacity of that, that you have left? And lastly on that, what are the conditions for you to receive the remaining $53 million from, again, that December loan of $145 million?.

Sure. Thanks, [ Alex ].

You -- since you asked specifically for December 31, the breakdown is $63 million in cash balance, available borrowings of $26 million, and then the $108 million buildup is, we are allowed to add back certain fees under -- the definition is, as per the third amendment to our credit agreement, we are allowed to add back the agent -- certain fees.

That's $19 million. That's there in the last slide of the presentation, the breakup is there. That's what makes the $108 million, $63 million plus $26 million plus $19 million. .

To your follow-up on the AR and availability, just a quick pointer, originally, our facility works on a different kind of a borrowing base schema where we could have availability under the facility, but the latest December AR securitization is in the term loan type of a facility.

So whatever we have drawn is what we have, no additional availability there. .

And then for the last question that you had, the $53 million committed and undrawn under the existing securitization facility, the terms -- the conditions of the terms are listed out in the LSA. Feel free to check out our 8-K. You'll have more details on what those conditions are. .

Sure.

The available $26 million you mentioned, is that part of the AR facility?.

Not in the United States. It's part of a global availability in some of our other facilities internationally. .

Our next question comes from Tom Radionov with Corre. .

Just a quick follow-up on liquidity and then one on ITPS. On liquidity, I'm looking at the $60.7 million number on the last page of the presentation, the number as of March 12.

I just wanted to make sure, one, that does include -- just reading the footnote, that does include $20 million add-back? So should I be taking that $60.7 million and sort of thinking about it, this $40.7 million, before the proceeds from the equity? And then related to that also, when doing that calc, do I need to be backing out the $35 million liquidity block that I think you put in place when you did the last amendment to the term loan credit agreement?.

Yes. You are thinking about it the right way, additional pointers for you being, you back out the $20 million, you get to $41 million. But feel free to factor in the $27 million that is coming in, in the next year or 2. So that's the point.

Or coming back to your -- backing out the $20 million and then looking at, okay, are we there for the $35 million, that is where the $20 million add-backs comes into play. The credit agreement liquidity includes the add-backs. Hope that helps, if you have to look at it that way. .

Got it. Okay. That's helpful. And then just a quick follow-up on ITPS, just trying to parse that number or that revenue breakdown in a slightly different way.

The $350 million, I think, united communications part of the business, should I think of that? Is that basically the legacy Novitex, the print and mail room business? Or is that legacy Novitex somewhere else, one?.

And then two, and I appreciate the color on this, within the rest -- within the bulk -- I guess, payment processing business, what portion of that is processing? And what's in the volume decline trends versus what you've been able to do from a price perspective there to sort of offset some of the volume declines?.

Okay. Let me -- there were 2 or 3 questions within that. Let me answer one by one. So Tom, even before I do that, just so that I am clear, the breakup for ITPS and all of these segments was to help everyone get a better understanding of the revenue mix because that's something that we often get asked.

I do not want the interpretation that this is a segment-based or business unit-based revenue that we track or have a certain color to it, which -- there's constraints within which I can tell you how much and what. .

With that as a backdrop, as you rightly pointed out, the Novitex side of the house, we call that Enterprise Solutions, by the way, it has 2 key components. One is the on-site business or the on-site services we provide to our customers. The other one is the, again, bulk print of mails or the UCS component.

So the $350 million UCS component does have legacy Novitex within it. And then on the other $550 million, that includes the on-site side of the Novitex component. And coming to the payment, I think that's where, as I indicated, that $550 million bucket, it includes our remittance. It includes our BPO business. It includes on-site.

It includes a few different elements to it. So each one of these has its own revenue model associated with it. So giving any further breakup would only make it kind of muddled. .

With that, the last one of your question, which is to do with the pricing element or what you asked about volumes, I was not really able to grasp it well. But what I can say is payment volumes, we are seeing it come back up, not obviously to the pre-COVID levels.

But as we said in our last earnings call as well, in Q3, Q4, we are seeing payment volumes rebound. .

Our next question comes from Amer Tiwana with Imperial Capital. .

My question is in trying to figure out your free cash flow breakeven, if I were to do some generic math here, the guidance -- adjusted EBITDA guidance seems like $200 million to $235-ish million.

At which point do you think you can get to that free cash breakeven if it's within that range?.

Sure. Sorry, I didn't catch your name.

What was it?.

Amer. .

Amer. Yes, Amer, good talking to you. Amer, you probably looked at the guidance, low end, high end. You probably looked at adjusted EBITDA percentages we have given and probably looked at our debt service and backed it out. And if that's the basis for your question, my answer is twofold.

Number one, if you talk -- if you take the low end of the revenue, low end of the adjusted EBITDA margins, and look at the debt service and our CapEx, et cetera, you potentially could come up with a math where there's a $10 million to $20 million of cash burn, so to speak, right? O&R is something that you need to factor for appropriately, something that -- it's not $45 million, that's for sure, not at 2020 levels.

.

That said, we wouldn't want to look at the low end at all, right? Not just the low end. Two-part answer to this. We are now looking at worst-case scenario, number one. Number two, even if you go to the midpoint, I think there is -- it is cash positive -- cash neutral/cash positive, that's number one.

Number two, and very importantly, as we have -- at least from a management perspective, over the last 3 to 4 quarters, what's been important and pleasing is we've been able to course correct.

We are more focused on day-to-day/weekly/monthly focus on what are the levers that we can pull, right? So long term, you can look at it and kind of interpret based on the guidance that at the low end or the worst-case scenario, there's a cash gap. But at this point in time, I don't think we are focused at looking at it in that way. .

This concludes our question-and-answer session. I would like to turn the conference back over to Ronald Cogburn for any closing remarks. .

Thanks. And we really appreciate the questions today and everybody participating. And I want to leave you with this thought. Many of you saw the recent $90 million win, and this was for the first cloud-based platform. We, at Exela, are witnessing a strategic shift in our business mix, and this is going to contribute to our profitability.

But some interesting things about that win that you probably maybe not recall, but this deal is with a cloud-based platform that we've had for years, one of our platforms, PCH Global. And the deal is 10 years, and it's $90 million. So stay tuned and look for more of these kinds of announcements in the near future.

Thanks, everybody, for joining our call, and we'll see you next quarter. Thank you. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..