Second Quarter 2023 Results
- Net revenue from continuing operations totaled $50.8 million,
as compared to $54.3 million in the prior year.
- Net loss from continuing operations was $0.5 million, as
compared to net loss from continuing operations of $1.5 million in
the prior year.
- Net loss attributable to common stockholders was $1.1 million,
as compared to net loss attributable to common stockholders of
$23.5 million in the prior year.
- Adjusted EBITDA* was $4.6 million, as compared to $1.8 million
in the prior year.
- Net cash provided by operating activities was $1.3
million.
- Free Cash Flow* totaled $1.0 million.
- Total debt, net of unamortized discounts and issuance costs,
was $12.0 million; Net Debt* totaled $(47.5) million.
Six-Month Fiscal Year-to-Date Financial Results
- Net revenue from continuing operations totaled $102.1 million,
as compared to $98.7 million in the prior year.
- Net income from continuing operations was $4.4 million, as
compared to net loss from continuing operations of $2.5 million in
the prior year.
- Net income attributable to common stockholders was $3.4
million, as compared to net loss attributable to common
stockholders of $43.5 million in the prior year.
- Adjusted EBITDA* was $11.9 million, as compared to $2.4 million
in the prior year.
- Net cash provided by operating activities was $9.6
million.
- Free Cash Flow* totaled $8.7 million.
Steel Connect, Inc. (the "Company") (NASDAQ: STCN) today
announced financial results for its second quarter ended January
31, 2023.
Results of Operations
The financial information and
discussion that follows below are for the Company's operations.
Three Months Ended
January 31,
Six Months Ended
January 31,
2023
2022
2023
2022
(in thousands)
Net revenue
$
50,781
$
54,322
$
102,140
$
98,676
Net (loss) income from continuing
operations
(526)
(1,486)
4,431
(2,469)
Net (loss) income attributable to common
stockholders
$
(1,063)
$
(23,514)
$
3,357
$
(43,545)
Adjusted EBITDA*
$
4,631
$
1,754
$
11,912
$
2,381
Adjusted EBITDA margin*
9.1 %
3.2 %
11.7 %
2.4 %
Net cash provided by (used in) operating
activities
1,336
1,098
9,588
(2,722)
Additions to property and equipment
(318)
(463)
(866)
(826)
Free cash flow*
$
1,018
$
635
$
8,722
$
(3,548)
* 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 Second Quarter and Six Months Ended January
31, 2023 and 2022
Three Months Ended
January 31,
Six Months Ended
January 31,
2023
2022
Fav (Unfav) ($)
2023
2022
Fav (Unfav) ($)
(unaudited, $ in
thousands)
(unaudited, $ in
thousands)
Net revenue
$50,781
$54,322
(3,541)
$102,140
$98,676
3,464
Cost of revenue
(37,719)
(43,421)
5,702
(74,813)
(78,369)
3,556
Gross profit
13,062
10,901
2,161
27,327
20,307
7,020
Gross profit margin
25.7%
20.1%
—
26.8%
20.6%
—
Selling, general and administrative
(10,459)
(9,994)
(465)
(20,845)
(18,829)
(2,016)
Restructuring
—
(856)
856
—
(856)
856
Interest expense
(848)
(750)
(98)
(1,674)
(1,512)
(162)
Other (losses) gains, net
(2,627)
(64)
(2,563)
402
(541)
943
Total costs and expenses
(13,934)
(11,664)
(2,270)
(22,117)
(21,738)
(379)
(Loss) income from continuing operations
before income taxes
(872)
(763)
(109)
5,210
(1,431)
6,641
Income tax benefit (expense)
346
(723)
1,069
(779)
(1,038)
259
Net (loss) income from continuing
operations
$(526)
$(1,486)
$960
$4,431
$(2,469)
$6,900
Net Revenue
Net revenue from continuing operations for the second quarter
decreased $3.5 million, or 6.5%, as compared to the same period in
the prior year. The decrease in net revenue was driven by lower
volumes associated with clients in the computing and consumer
electronics markets during the three months ended January 31, 2023
as compared to the same period in the prior year. Fluctuations in
foreign currency exchange rates had an insignificant impact on the
Supply Chain segment's net revenues for the three months ended
January 31, 2023, as compared to the same period in the prior
year.
Net revenue from continuing operations for the six months ended
January 31, 2023 increased $3.5 million, or 3.5%, as compared to
the same period in the prior year. This increase in net revenue was
driven by overall higher volume associated with clients in the
computing and consumer electronics markets as compared to the same
period in the prior year, as well as new business revenue.
Fluctuations in foreign currency exchange rates had an
insignificant impact on the Supply Chain segment's net revenues for
the six months ended January 31, 2023, as compared to the same
period in the prior year.
Cost of Revenue
Cost of revenue from continuing operations for the second
quarter decreased $5.7 million, or 13.1%, as compared to the same
period in the prior year, primarily due to a decrease in cost of
materials as a result of the decrease in net revenue discussed
above. Cost of revenue for the three months ended January 31, 2023
included materials procured on behalf of our Supply Chain clients
of $21.1 million, as compared to $25.7 million for the same period
in the prior year, a decrease of $4.6 million, driven by lower
volumes for clients in the computing and consumer electronics
market. The remaining $1.1 million decrease is driven by lower
labor costs, such as a decrease in salaries and wages and
production costs and due to severance charges in the three months
ended January 31, 2022 that did not recur.
Cost of revenue from continuing operations for the six months
ended January 31, 2023 decreased $3.6 million, or 4.5%, as compared
to the same period in the prior year, primarily driven by a
decrease in cost of materials. Cost of revenue for the six months
ended January 31, 2023 included materials procured on behalf of our
Supply Chain clients of $40.4 million, as compared to $44.7 million
for the same period in the prior year, a decrease of $4.3 million
driven by lower material costs related to services launched in the
prior year period along with lower material costs related to
programs that ended during the current year period. This decrease
is partially offset by a $0.7 million increase in higher labor
costs as a result of overall higher revenue volume.
Gross Profit Margin
Gross profit percentage for the current quarter increased 560
basis points, to 25.7% as compared to 20.1% in the prior year
quarter, driven by higher value added revenue for a major client in
the computing and consumer electronics market and to a lesser
extent the impact of severance charges in the three months ended
January 31, 2022 that did not recur. Fluctuations in foreign
currency exchange rates had an insignificant impact on Supply
Chain's gross margin for the three months ended January 31, 2023 as
compared to the same period in the prior year.
Gross profit percentage for the six months ended January 31,
2023 increased 620 basis points, to 26.8% as compared to 20.6% for
the six months ended January 31, 2022, driven by higher value added
revenue from a major client in the computing and consumer
electronics market. Fluctuations in foreign currency exchange rates
had an insignificant impact on Supply Chain's gross margin for the
six months ended January 31, 2023.
Selling, General and Administrative
Selling, general and administrative expenses during the three
months ended January 31, 2023 increased by approximately $0.5
million as compared to the same period in the prior year due to an
increase in legal fees for Corporate-level activity. Selling,
general and administrative expenses during the three months ended
January 31, 2023 for the Supply Chain segment did not change
significantly as compared to the same period in the prior year.
Fluctuations in foreign currency exchange rates did not have a
significant impact on selling, general and administrative expenses
for the three months ended January 31, 2023 as compared to the same
period in the prior year.
Selling, general and administrative expenses during the six
months ended January 31, 2023 increased by approximately $2.0
million as compared to the same period in the prior year. Selling,
general and administrative expenses for the Supply Chain segment
increased $1.0 million primarily due to bad debt expense recorded
for a client in the consumer products industry in first quarter of
fiscal year 2023. Corporate-level activity increased $1.0 million
primarily due to an increase in legal and other professional fees.
Fluctuations in foreign currency exchange rates did not have a
significant impact on selling, general and administrative expenses
for the six months ended January 31, 2023, as compared to the same
period in the prior year.
Restructuring
During the fiscal year ended July 31, 2021, ModusLink
implemented a strategic plan to reorganize its sales function and
the e-Business operations. The restructuring charges associated
with this plan were primarily composed of employee termination
costs. In November 2021, ModusLink amended its strategic plan to
include reorganizing its supply chain operations and recorded a
restructuring charge of approximately $0.9 million during the three
and six months ended January 31, 2022. There were no restructuring
costs recorded during the three or six months ended January 31,
2023, which is driving the decrease in costs for both periods.
Interest Expense
Total interest expense increased by $0.1 million and $0.2
million during the three and six months ended January 31, 2023,
respectively, as compared to the same periods in the prior year,
primarily due to higher interest expense related to accretion of
the discount on the SPHG Note.
Other (Losses) Gains, Net
The $2.6 million increase in other losses, net during the three
months ended January 31, 2023 compared to the same period in the
prior year primarily relates to $3.3 million of foreign exchange
losses recorded for the three months ended January 31, 2023
compared to $0.3 million of foreign exchange losses recorded for
the same period in the prior year. The increase in foreign exchange
losses is primarily driven by unrealized losses incurred,
particularly for changes in the China Renminbi and the Singapore
Dollar.
The $0.9 million increase in other gains (losses), net is
primarily driven by $0.5 million increase in interest income, and
$0.4 million increase in sublease income in the six months ended
January 31, 2023 as compared to the same period in the prior year.
Foreign exchange gains (losses) did not change significantly as
compared to the same period in the prior year.
Income Tax Benefit (Expense)
During the three months ended January 31, 2023, the Company
recorded an income tax benefit of approximately $0.3 million as
compared to $0.7 million in income tax expense for the same period
in the prior fiscal year. The decrease in income tax expense is
primarily due to lower taxable income in foreign jurisdictions, as
compared to the prior year period.
During the six months ended January 31, 2023, the Company
recorded income tax expense of approximately $0.8 million as
compared to $1.0 million for the same period in the prior fiscal
year. The decrease in income tax expense is primarily due to lower
taxable income in foreign jurisdictions, as compared to the prior
year period.
Net (Loss) Income From Continuing Operations
Net loss from continuing operations for the three months ended
January 31, 2023 decreased $1.0 million as compared to the same
period in the prior fiscal year, driven by the $1.1 million
favorable change in income taxes. Refer to discussion above for
further details.
Net income from continuing operations for the six months ended
January 31, 2023 increased $6.9 million, as compared to the same
period in the prior year. The increase in net income from
continuing operations is primarily due to the increase in gross
profit, a decrease in restructuring and income tax expense, and an
increase in other gains, net, partially offset by an increase in
SG&A expenses. Refer to explanations above for further details
regarding specific increases or decreases.
Additions to Property and Equipment (Capital
Expenditures)
Capital expenditures for the second quarter totaled $0.3
million, or 0.6% of net revenue, as compared to $0.5 million, or
0.9% of net revenue, for the same period in the prior year.
Capital expenditures for the six months ended January 31, 2023
totaled $0.9 million, or 0.8% of net revenue, as compared to $0.8
million, or 0.8% of net revenue, for the same period in the prior
year.
Adjusted EBITDA
Adjusted EBITDA increased $2.9 million, or 164.0%, for the
second quarter as compared to the same period in the prior year,
primarily due to an increase in net income from continuing
operations.
Adjusted EBITDA increased $9.5 million, or 400.3%, for the six
months ended January 31, 2023 as compared to the same period in the
prior year. The increase is primarily due to increase in net income
from continuing operations of $6.9 million.
Liquidity and Capital Resources
As of January 31, 2023, the Company had cash and cash
equivalents of $62.4 million and ModusLink had readily available
borrowing capacity of $11.9 million under its revolving credit
facility with Umpqua Bank.
As of January 31, 2023, total debt outstanding, net of
unamortized discounts and issuance costs, was $12.0 million, which
was comprised of $14.9 million outstanding on the 7.50% Convertible
Senior Note due March 1, 2024, less associated unamortized
discounts and issuance costs, as well as unamortized deferred
financing costs on the Umpqua Revolver.
About Steel Connect, Inc.
Steel Connect, Inc. is a holding company whose wholly-owned
subsidiary, ModusLink Corporation, serves the supply chain
management market.
ModusLink is an end-to-end global supply chain solutions and
e-commerce provider serving clients in markets such as consumer
electronics, communications, computing, medical devices, software
and retail. ModusLink designs and executes critical elements in its
clients' global supply chains to improve speed to market, product
customization, flexibility, cost, quality and service. These
benefits are delivered through a combination of industry expertise,
innovative service solutions, and integrated operations, proven
business processes, an expansive global footprint and world-class
technology. ModusLink also produces and licenses an entitlement
management solution powered by its enterprise-class Poetic
software, which offers a complete solution for activation,
provisioning, entitlement subscription, and data collection from
physical goods (connected products) and digital products. ModusLink
has an integrated network of strategically located facilities in
various countries, including numerous sites throughout North
America, Europe and Asia.
– Financial Tables Follow –
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands)
January 31, 2023
July 31, 2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
62,427
$
53,142
Accounts receivable, trade, net
37,180
40,083
Inventories, net
8,916
8,151
Funds held for clients
4,354
4,903
Prepaid expenses and other current
assets
5,223
3,551
Total current assets
118,100
109,830
Property and equipment, net
3,493
3,534
Operating lease right-of-use assets
30,538
19,655
Other assets
3,981
4,730
Total assets
$
156,112
$
137,749
LIABILITIES, CONTINGENTLY
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
32,805
$
30,553
Accrued expenses
25,632
28,396
Funds held for clients
4,323
4,903
Current lease obligations
7,665
6,466
Other current liabilities
15,031
13,482
Total current liabilities
85,456
83,800
Convertible note payable
12,104
11,047
Long-term lease obligations
22,904
12,945
Other long-term liabilities
5,222
3,983
Total long-term liabilities
40,230
27,975
Total liabilities
125,686
111,775
Contingently redeemable preferred
stock
35,180
35,180
Preferred stock, $0.01 par value per
share. 4,965,000 shares authorized at January 31, 2023 and July 31,
2022; zero shares issued and outstanding at January 31, 2023 and
July 31, 2022
—
—
Common stock, $0.01 par value per share.
Authorized 1,400,000,000 shares; 60,784,589 issued and outstanding
shares at January 31, 2023; 60,529,558 issued and outstanding
shares at July 31, 2022
607
605
Additional paid-in capital
7,479,719
7,479,366
Accumulated deficit
(7,489,960)
(7,493,317)
Accumulated other comprehensive income
4,880
4,140
Total stockholders' deficit
(4,754)
(9,206)
Total liabilities, contingently redeemable
preferred stock and stockholders' deficit
$
156,112
$
137,749
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended
January 31,
Six Months Ended
January 31,
2023
2022
2023
2022
Net revenue
$
50,781
$
54,322
$
102,140
$
98,676
Cost of revenue
37,719
43,421
74,813
78,369
Gross profit
13,062
10,901
27,327
20,307
Operating expenses:
Selling, general and administrative
10,459
9,994
20,845
18,829
Restructuring
—
856
—
856
Total operating expenses
10,459
10,850
20,845
19,685
Operating income
2,603
51
6,482
622
Other income (expense):
Interest income
332
1
476
5
Interest expense
(848)
(750)
(1,674)
(1,512)
Other losses, net
(2,959)
(65)
(74)
(546)
Total other expense
(3,475)
(814)
(1,272)
(2,053)
(Loss) income from continuing
operations before income taxes
(872)
(763)
5,210
(1,431)
Income tax (benefit) expense
(346)
723
779
1,038
Net (loss) income from continuing
operations
(526)
(1,486)
4,431
(2,469)
Net loss from discontinued operations
—
(21,491)
—
(40,002)
Net (loss) income
(526)
(22,977)
4,431
(42,471)
Less: Preferred dividends on redeemable
preferred stock
(537)
(537)
(1,074)
(1,074)
Net (loss) income attributable to
common stockholders
$
(1,063)
$
(23,514)
$
3,357
$
(43,545)
Net (loss) income per common shares -
basic
Continuing operations
$
(0.02)
$
(0.03)
$
0.06
$
(0.06)
Discontinued operations
—
(0.36)
—
(0.67)
Net (loss) income attributable to common
stockholders
$
(0.02)
$
(0.39)
$
0.06
$
(0.73)
Net (loss) income per common shares -
diluted
Continuing operations
$
(0.02)
$
(0.03)
$
0.06
$
(0.06)
Discontinued operations
—
(0.36)
—
(0.67)
Net (loss) income attributable to common
stockholders
$
(0.02)
$
(0.39)
$
0.06
$
(0.73)
Weighted-average number of common shares
outstanding - basic
60,178
59,748
60,129
60,027
Weighted-average number of common shares
outstanding - diluted
60,178
59,748
60,637
60,027
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Six months ended January
31,
2023
2022
Cash flows from operating activities:
Net income (loss)
$
4,431
$
(42,471)
Less: Loss from discontinued operations,
net of tax
—
(40,002)
Income (loss) from continuing
operations
4,431
(2,469)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation
924
1,175
Amortization of deferred financing
costs
24
68
Accretion of debt discount
1,056
800
Share-based compensation
355
408
Non-cash lease expense
4,488
4,720
Bad debt expense (recovery)
964
(3)
Other losses, net
74
759
Changes in operating assets and
liabilities:
Accounts receivable, net
2,734
(6,665)
Inventories, net
(493)
(1,661)
Prepaid expenses and other current
assets
(1,536)
(476)
Accounts payable and accrued expenses
(1,016)
5,633
Refundable and accrued income taxes,
net
(845)
(319)
Other assets and liabilities
(1,572)
(4,692)
Net cash provided by (used in) operating
activities
9,588
(2,722)
Cash flows from investing activities:
Additions to property and equipment
(866)
(826)
Proceeds from the disposition of property
and equipment
16
—
Net cash used in investing activities
(850)
(826)
Cash flows from financing activities:
Payments of preferred dividends
(1,074)
(1,074)
Repayments on capital lease
obligations
(38)
(36)
Net cash used in financing activities
(1,112)
(1,110)
Net effect of exchange rate changes on
cash and cash equivalents
1,110
(395)
Net increase in cash, cash equivalents and
restricted cash
8,736
(5,053)
Cash, cash equivalents and restricted
cash, beginning of period
58,045
66,329
Cash, cash equivalents and restricted
cash, end of period
$
66,781
$
61,276
Cash and cash equivalents, end of
period
$
62,427
$
55,641
Restricted cash for funds held for
clients, end of period
4,354
5,635
Cash, cash equivalents and restricted
cash, end of period
$
66,781
$
61,276
Cash flows from discontinued
operations:
Operating activities
$
—
$
(20,446)
Investing activities
—
(6,363)
Financing activities
—
(3,000)
Net cash used in discontinued
operations
$
—
$
(29,809)
Steel Connect, Inc. and
Subsidiaries
Segment Data
(in thousands)
(unaudited)
Three Months Ended
January 31,
Six Months Ended
January 31,
2023
2022
2023
2022
(Unaudited)
Net revenue:
Supply Chain
$
50,781
$
54,322
$
102,140
$
98,676
50,781
54,322
102,140
98,676
Operating income:
Supply Chain
5,388
2,374
11,238
4,347
Total segment operating income
5,388
2,374
11,238
4,347
Corporate-level activity
(2,785)
(2,323)
(4,756)
(3,725)
Total operating income
2,603
51
6,482
622
Total other expense, net
(3,475)
(814)
(1,272)
(2,053)
(Loss) income before income taxes
$
(872)
$
(763)
$
5,210
$
(1,431)
Steel Connect, Inc. and
Subsidiaries
Reconciliation of Non-GAAP
Measures to GAAP Measures
(in thousands)
(unaudited)
EBITDA and Adjusted EBITDA
Reconciliations:
Three Months Ended
January 31,
Six Months Ended
January 31,
2023
2022
2023
2022
Net (loss) income from continuing
operations
$
(526)
$
(1,486)
$
4,431
$
(2,469)
Interest income
(332)
(1)
(476)
(5)
Interest expense
848
750
1,674
1,512
Income tax (benefit) expense
(346)
723
779
1,038
Depreciation
465
545
924
1,175
EBITDA
109
531
7,332
1,251
Strategic consulting and other related
professional fees
181
212
832
346
Executive severance and employee
retention
(34)
356
(150)
356
Restructuring and restructuring-related
expense
—
856
—
856
Share-based compensation
178
217
355
408
Loss on sale of long-lived assets
—
1
16
1
Unrealized foreign exchange losses
(gains), net
4,240
(363)
3,728
(804)
Other non-cash gains, net
(43)
(56)
(201)
(33)
Adjusted EBITDA
$
4,631
$
1,754
$
11,912
$
2,381
Net revenue
$
50,781
$
54,322
$
102,140
$
98,676
Adjusted EBITDA margin
9.1 %
3.2 %
11.7 %
2.4 %
Free Cash Flow Reconciliation:
Three Months Ended
January 31,
Six Months Ended
January 31,
2023
2022
2023
2022
Net cash provided by (used in) operating
activities
$
1,336
$
1,098
$
9,588
$
(2,722)
Additions to property and equipment
(318)
(463)
(866)
(826)
Free cash flow
$
1,018
$
635
$
8,722
$
(3,548)
Net Debt Reconciliation:
January 31, 2022
July 31, 2022
Total debt, net
$
12,048
$
10,968
Unamortized discounts and issuance
costs
2,892
3,972
Cash and cash equivalents
(62,427)
(53,142)
Net debt
$
(47,487)
$
(38,202)
Note Regarding Use of Non-GAAP Financial Measurements
In addition to the financial measures prepared in accordance
with generally accepted accounting principles, the Company uses
EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt, all of which
are non-GAAP financial measures, to assess its performance. EBITDA
represents earnings from continuing operations before interest
income, interest expense, income tax (benefit) expense, and
depreciation. We define Adjusted EBITDA as net (loss) income from
continuing operations excluding net charges related to interest
income, interest expense, income tax (benefit) expense,
depreciation, strategic consulting and other related professional
fees, executive severance and employee retention, restructuring and
restructuring-related expense, share-based compensation, loss on
sale of long-lived assets, unrealized foreign exchange losses
(gains), net, and other non-cash gains, 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
(such as the ongoing COVID-19 pandemic); intense competition in the
Company’s business; risks relating to impairment, misappropriation,
theft and credit-related issues with respect to funds held for the
Company’s clients; our ability to maintain adequate inventory
levels; our ability to raise or access capital in the future;
difficulties increasing operating efficiencies and effecting cost
savings; loss of essential employees or an inability to recruit and
retain personnel; the Company's ability to execute on its business
strategy and to achieve anticipated synergies and benefits from
business acquisitions; risks inherent with conducting international
operations, including the Company’s operations in Mainland China;
the risk of damage, misappropriation or loss of the physical or
intellectual property of the Company’s clients; increased
competition and technological changes in the markets in which the
Company competes; disruptions in or breaches of the Company’s
technology systems; failure to settle disputes and litigation on
terms favorable to the Company; challenges and risks arising from
the disposition of IWCO Direct, including the Company’s reliance on
the Supply Chain segment as its sole business; the Company's
ability to preserve and monetize its net operating losses; changes
in tax rates, laws or regulations; failure to maintain compliance
with Nasdaq’s continued listing requirements; potential conflicts
of interest arising from the interests of the members of the
Company’s board of directors in Steel Holdings and its affiliates;
potential restrictions imposed by its indebtedness; and potential
adverse effects from changes in interest rates and the phase-out of
LIBOR. For a detailed discussion of cautionary statements and risks
that may affect the Company's future results of operations and
financial results, please refer to the Company's filings with the
SEC, including, but not limited to, the risk factors in the
Company's Annual Report on Form 10-K filed with the SEC on October
31, 2022. These filings are available on the Company's Investor
Relations website under the "SEC Filings" tab.
All forward-looking statements are necessarily only estimates of
future results, and there can be no assurance that actual results
will not differ materially from expectations, and, therefore, you
are cautioned not to place undue reliance on such statements.
Further, any forward-looking statement speaks only as of the date
on which it is made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the
occurrence of unanticipated events.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230315005866/en/
Investor Relations Jennifer Golembeske 914-461-1276
investorrelations@steelconnectinc.com
Steel Connect (NASDAQ:STCN)
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