Second Quarter 2024 Results
- Net revenue totaled $43.0 million, as compared to $50.8 million
in the same period of the prior fiscal year.
- Net income was $5.3 million, as compared to a net loss of $0.5
million in the same period of the prior fiscal year.
- Net income available to common stockholders was $4.8 million,
as compared to a net loss available to common stockholders of $1.1
million in the same period of the prior fiscal year.
- Adjusted EBITDA* was $3.7 million, as compared to $4.6 million
in the same period of the prior fiscal year.
- Net cash provided by operating activities was $0.1
million.
- Free Cash Flow* totaled $(1.1) million.
- Total debt was $12.9 million; Net Cash* totaled $263.5
million.
Six-Month Fiscal Year-to-Date Financial Results
- Net revenue totaled $84.4 million, as compared to $102.1
million in the same period of the prior fiscal year.
- Net income was $9.8 million, as compared to $4.4 million in the
same period of the prior fiscal year.
- Net income available to common stockholders was $8.7 million,
as compared to $3.4 million in the same period of the prior fiscal
year.
- Adjusted EBITDA* was $7.5 million, as compared to $11.9 million
in the same period of the prior fiscal year.
- Net cash provided by operating activities was $6.7
million.
- Free Cash Flow* totaled $5.0 million.
* 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.
Steel Connect, Inc. (the "Company") (NASDAQ: STCN) today
announced financial results for its second quarter ended January
31, 2024.
Results of Operations
The financial information and discussion that follows below are
for the Company's operations.
Due to the application of pushdown accounting in connection with
the exchange transaction ("Exchange Transaction") on May 1, 2023
with Steel Partners Holdings L.P. (“Steel Partners”), the Company’s
consolidated financial statements include a black line division
between the two distinct periods to indicate the application of two
different bases of accounting, which may not be comparable, between
the periods presented. The pre-exchange period through April 30,
2023, is referred to as the "Predecessor" period. The post-exchange
period, May 1, 2023, and onward, includes the impact of pushdown
accounting and is referred to as the "Successor" period.
As it relates to the results of operations, while the Successor
period and the Predecessor period are distinct reporting periods,
the effects of the change of control for financial statement
purposes did not have a material impact on the comparability of our
results of operations between the periods, unless otherwise noted
related to the impact from pushdown accounting.
Successor
Predecessor
Successor
Predecessor
Three Months Ended January
31,
Three Months Ended January
31,
Six Months Ended January
31,
Six Months Ended January
31,
2024
2023
2024
2023
(in thousands)
Net revenue
$
43,045
$
50,781
$
84,386
$
102,140
Net income (loss)
5,346
(526
)
9,782
4,431
Net income (loss) available to common
stockholders
$
4,809
$
(1,063
)
$
8,709
$
3,357
Adjusted EBITDA*
$
3,701
$
4,631
$
7,458
$
11,912
Adjusted EBITDA margin*
8.6
%
9.1
%
8.8
%
11.7
%
Net cash provided by operating
activities
78
1,336
6,661
9,588
Additions to property and equipment
(1,148
)
(318
)
(1,700
)
(866
)
Free cash flow*
$
(1,070
)
$
1,018
$
4,961
$
8,722
*
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.
Comparison of the Second Quarter and Six Months Ended January
31, 2024 and 2023
Successor
Predecessor
Successor
Predecessor
Three Months Ended January
31,
Three Months Ended January
31,
Six Months Ended January
31,
Six Months Ended January
31,
(unaudited in
thousands)
2024
2023
Fav (Unfav) ($)
2024
2023
Fav (Unfav) ($)
Net revenue
$
43,045
$
50,781
$
(7,736
)
$
84,386
$
102,140
$
(17,754
)
Cost of revenue
(31,698
)
(37,719
)
6,021
(61,564
)
(74,813
)
13,249
Gross profit
11,347
13,062
(1,715
)
22,822
27,327
(4,505
)
Gross profit percentage
26.4
%
25.7
%
—
27.0
%
26.8
%
—
Selling, general and administrative
(8,732
)
(10,459
)
1,727
(17,527
)
(20,845
)
3,318
Amortization
(893
)
—
(893
)
(1,768
)
—
(1,768
)
Interest expense
(249
)
(848
)
599
(496
)
(1,674
)
1,178
Other gains (losses), net
4,067
(2,627
)
6,694
7,616
402
7,214
Total costs and expenses
(37,505
)
(51,653
)
14,148
(73,739
)
(96,930
)
23,191
Income (loss) before income taxes
5,540
(872
)
6,412
10,647
5,210
5,437
Income tax (expense) benefit
(194
)
346
(540
)
(865
)
(779
)
(86
)
Net income (loss)
$
5,346
$
(526
)
$
5,872
$
9,782
$
4,431
$
5,351
Net Revenue
Net revenue for the second quarter decreased $7.7 million, or
15.2%, as compared to the same period in the prior fiscal year.
This decrease in net revenue was primarily driven by lower volumes
associated with existing clients in the computing and consumer
electronics markets, offset partially by new business revenue and
new program starts with clients in the consumer electronics
market.
Net revenue for the six months ended January 31, 2024 decreased
$17.8 million, or 17.4%, as compared to the six months ended
January 31, 2023. This decrease in net revenue was primarily driven
by lower volumes associated with existing clients in the computing
and consumer electronics markets, partially offset by new business
revenue and new program starts with clients in the consumer
electronics market. Fluctuations in foreign currency exchange rates
had an insignificant impact on net revenues for the three and six
month periods ended January 31, 2024 and 2023, respectively.
Cost of Revenue
Total cost of revenue decreased by $6.0 million or 16.0% for the
second quarter, as compared to the same period in the prior fiscal
year. This was primarily driven by a decrease in materials procured
on behalf of our clients of $6.9 million as a result of lower sales
volumes associated with existing clients in the computing and
consumer electronics markets. The decrease in cost of materials was
partially offset by increases in labor costs for new business
revenue in the consumer electronics market.
Total cost of revenue decreased by $13.2 million or 17.7% for
the six months ended January 31, 2024, as compared to the six
months ended January 31, 2023. This was primarily driven by a
decrease in materials procured on behalf of our clients of $12.8
million as a result of lower sales volumes associated with clients
in the computing and consumer electronics markets. Fluctuations in
foreign currency exchange rates had an insignificant impact on cost
of revenues for the three and six month periods ended January 31,
2024 and 2023, respectively.
Gross Profit Margin
Gross profit decreased $1.7 million or 13.1% in the second
quarter as compared to the same period in the prior fiscal year
primarily due to the lower sales volume discussed above. Gross
profit percentage increased 70 basis points to 26.4% from 25.7% in
the second quarter as compared to the same period in the prior
fiscal year, primarily due to changes in customer sales mix.
Gross profit decreased $4.5 million or 16.5% in the six months
ended January 31, 2024 as compared to the six months ended January
31, 2023, primarily driven by lower sales volume discussed above.
The gross profit percentage remained relatively unchanged from the
prior period. Fluctuations in foreign currency exchange rates had
an insignificant impact on the Company's gross margin for the three
and six month periods ended January 31, 2024 and 2023,
respectively.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses during
the second quarter decreased by approximately $1.7 million or 16.5%
as compared to the same period in the prior fiscal year due to
Corporate-level activity, which decreased by $1.4 million primarily
due to a decrease in legal and other professional fees.
SG&A expenses decreased by approximately $3.3 million or
15.9% during the six months ended January 31, 2024 as compared to
the six months ended January 31, 2023. SG&A expenses for
ModusLink Corporation ("Supply Chain") decreased by $0.8 million
primarily due to bad debt expense recorded for a client in the
consumer products industry during the six months ended January 31,
2023 that did not reoccur during the six months ended January 31,
2024. Corporate-level activity decreased by $2.5 million, primarily
due to a decrease in legal and other professional fees.
Fluctuations in foreign currency exchange rates did not have a
significant impact on SG&A expenses for the three and six month
periods ended January 31, 2024 and 2023, respectively.
Amortization Expense
Amortization expense of $0.9 million and $1.8 million for the
three and six months ended January 31, 2024, respectively, was
driven by the recognition of intangible assets in connection with
the application of pushdown accounting as a result of the Exchange
Transaction. As the Exchange Transaction closed on May 1, 2023,
there was no activity for the three and six month periods ended
January 31, 2023.
Interest Expense
Interest expense during the three and six months ended January
31, 2024 decreased $0.6 million and $1.2 million, respectively, as
compared to the three and six months ended January 31, 2023,
primarily due to the cessation of the amortization of the discount
on the 7.50% Convertible Senior Note due September 1, 2024 (the
“SPHG Note”) as of May 1, 2023, the date of the Exchange
Transaction.
Other Gains (Losses), Net
Other gains, net are primarily composed of investment gains
(losses), fair value remeasurement gains (losses), foreign exchange
gains (losses), interest income, and sublease income.
The Company recorded $4.1 million to Other gains, net for the
three months ended January 31, 2024, primarily due to: (1) $3.5
million interest income earned on money market funds and (2) $1.0
million of net realized and unrealized gains recognized on
investments in equity securities. This activity was partially
offset by $0.6 million in unrealized losses recognized as a result
of the fair value remeasurement of the SPHG Note at January 31,
2024. The Company recorded $2.6 million to Other losses, net, for
the three months ended January 31, 2023 primarily due to $3.3
million in foreign exchange net losses.
The Company recorded $7.6 million to Other gains, net for the
six months ended January 31, 2024, primarily due to: (1) $6.7
million interest income earned on money market funds and (2) $0.6
million of net realized and unrealized gains recognized on
investments in equity securities. This activity was offset
partially by $0.4 million unrealized losses recognized as a result
of the fair value remeasurement of the SPHG Note. The Company
recorded $0.4 million to Other gains, net, for the six months ended
January 31, 2023, primarily due to (1) $0.6 million sublease income
and (2) $0.5 million interest income earned on money market funds.
This activity was offset partially by $0.8 million foreign exchange
net losses.
Income Tax (Expense) Benefit
During the second quarter, the Company recorded income tax
expense of approximately $0.2 million as compared to a $0.3 million
income tax benefit for the same period in the prior fiscal year.
The change in income tax expense is primarily due to higher taxable
income in foreign jurisdictions, as compared to the prior fiscal
year.
During the six months ended January 31, 2024, the Company
recorded income tax expense of approximately $0.9 million as
compared to $0.8 million for the six months ended January 31, 2023.
The increase in income tax expense is primarily due to higher
taxable income in foreign jurisdictions for the six months ended
January 31, 2024 as compared to the six months ended January 31,
2023.
Net Income
Net income for the second quarter increased $5.9 million, as
compared to the same period in the prior fiscal year. The increase
in net income is largely driven by the $6.7 million favorable
change in activity recorded to Other gains (losses), net. Refer to
above explanations for further details.
Net income for the six months ended January 31, 2024 increased
$5.4 million, as compared to the six months ended January 31, 2023.
The increase in net income is primarily due to the $7.2 million
favorable change in activity recorded in Other gains, net. Lower
SG&A expenses also contributed to the increase in net income,
offset partially by lower gross profits. Refer to above
explanations for further details.
Additions to Property and Equipment (Capital
Expenditures)
Capital expenditures for the second quarter totaled $1.1
million, or 2.7% of net revenue, as compared to $0.3 million, or
0.6% of net revenue, for the same period in the prior fiscal
year.
Capital expenditures for the six months ended January 31, 2024
totaled $1.7 million, or 2.0% of net revenue, as compared to $0.9
million, or 0.8% of net revenue, for the six months ended January
31, 2023.
Adjusted EBITDA
Adjusted EBITDA decreased $0.9 million, or 20.1%, for the second
quarter as compared to the same period in the prior fiscal year,
primarily due to lower operational net income.
Adjusted EBITDA decreased $4.5 million, or 37.4%, for the six
months ended January 31, 2024 as compared to the six months ended
January 31, 2023, primarily due to due to lower operational net
income.
Liquidity and Capital Resources
As of January 31, 2024, the Company had cash and cash
equivalents of $276.4 million and ModusLink had readily available
borrowing capacity of $11.9 million under its revolving credit
facility with Umpqua Bank.
As of January 31, 2024, the fair value of outstanding debt was
$12.9 million, which was comprised of $12.9 million principal
outstanding on the SPHG Note.
About Steel Connect, Inc.
Steel Connect, Inc. is a holding company whose wholly-owned
subsidiary, ModusLink Corporation, serves the supply chain
management market.
ModusLink is an end-to-end global supply chain solutions and
e-commerce provider serving clients in markets such as consumer
electronics, communications, computing, medical devices, software
and retail. ModusLink designs and executes critical elements in its
clients' global supply chains to improve speed to market, product
customization, flexibility, cost, quality and service. These
benefits are delivered through a combination of industry expertise,
innovative service solutions, and integrated operations, proven
business processes, an expansive global footprint and world-class
technology. ModusLink also produces and licenses an entitlement
management solution powered by its enterprise-class Poetic
software, which offers a complete solution for activation,
provisioning, entitlement subscription, and data collection from
physical goods (connected products) and digital products. ModusLink
has an integrated network of strategically located facilities in
various countries, including numerous sites throughout North
America, Europe and Asia.
– Financial Tables Follow –
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands)
Successor
January 31, 2024
July 31, 2023
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
276,422
$
121,372
Accounts receivable, trade, net
29,179
28,616
Inventories, net
7,742
8,569
Funds held for clients
2,479
2,031
Prepaid expenses and other current
assets
5,550
158,686
Total current assets
321,372
319,274
Property and equipment, net
4,433
3,698
Operating lease right-of-use assets
24,813
27,098
Investments
3,174
—
Other intangible assets, net
32,821
34,589
Goodwill
22,785
22,785
Other assets
3,317
3,737
Total assets
$
412,715
$
411,181
LIABILITIES, CONTINGENTLY
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
25,463
$
26,514
Accrued expenses
21,936
26,774
Funds held for clients
2,445
1,949
Current lease obligations
9,027
7,973
Convertible note payable
12,903
—
Other current liabilities
3,843
4,544
Total current liabilities
75,617
67,754
Convertible note payable
—
12,461
Long-term lease obligations
16,135
19,161
Other long-term liabilities
5,867
5,442
Total long-term liabilities
22,002
37,064
Total liabilities
97,619
104,818
Contingently redeemable preferred
stock
237,739
237,739
Total stockholders' equity
77,357
68,624
Total liabilities, contingently redeemable
preferred stock and stockholders' equity
$
412,715
$
411,181
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(in thousands, except per
share amounts)
(unaudited)
Successor
Predecessor
Successor
Predecessor
Three Months Ended
January 31,
Three Months Ended
January 31,
Six Months Ended
January 31,
Six Months Ended
January 31,
2024
2023
2024
2023
Net revenue
$
43,045
$
50,781
$
84,386
$
102,140
Cost of revenue
31,698
37,719
61,564
74,813
Gross profit
11,347
13,062
22,822
27,327
Operating expenses:
Selling, general and administrative
8,732
10,459
17,527
20,845
Amortization
893
—
1,768
—
Total operating expenses
9,625
10,459
19,295
20,845
Operating income
1,722
2,603
3,527
6,482
Other income (expense):
Interest income
3,499
332
6,718
476
Interest expense
(249
)
(848
)
(496
)
(1,674
)
Other gains (losses), net
568
(2,959
)
898
(74
)
Total other income (loss)
3,818
(3,475
)
7,120
(1,272
)
Income (loss) before income
taxes
5,540
(872
)
10,647
5,210
Income tax expense (benefit)
194
(346
)
865
779
Net income (loss)
5,346
(526
)
9,782
4,431
Less: Preferred dividends on Series C
redeemable preferred stock
(537
)
(537
)
(1,073
)
(1,074
)
Net income (loss) available to common
stockholders
$
4,809
$
(1,063
)
$
8,709
$
3,357
Net income (loss) per common shares -
basic
$
0.18
$
(0.16
)
$
0.33
$
0.52
Net income (loss) per common shares -
diluted
$
0.18
$
(0.16
)
$
0.33
$
0.52
Weighted-average number of common
shares outstanding - basic
6,211
6,448
6,205
6,442
Weighted-average number of common
shares outstanding - diluted
26,083
6,448
26,075
6,496
Steel Connect, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Successor
Predecessor
Six Months Ended
January 31,
Six Months Ended
January 31,
2024
2023
Cash flows from operating activities:
Net income
$
9,782
$
4,431
Adjustments to reconcile net income to
cash flows from operating activities:
Depreciation
885
924
Amortization of finite-lived intangible
assets
1,768
—
Amortization of deferred financing
costs
—
24
Accretion of debt discount
—
1,056
Share-based compensation
297
355
Non-cash lease expense
4,479
4,488
Bad debt expense
—
964
Other (gains) losses, net
(898
)
74
Changes in operating assets and
liabilities:
Accounts receivable, net
(802
)
2,734
Inventories, net
640
(493
)
Prepaid expenses and other current
assets
(1,449
)
(1,536
)
Accounts payable and accrued expenses
(4,868
)
(1,016
)
Refundable and accrued income taxes,
net
(510
)
(845
)
Other assets and liabilities
(2,663
)
(1,572
)
Net cash provided by operating
activities
6,661
9,588
Cash flows from investing activities:
Purchases of investments
(5,519
)
—
Proceeds from sales of investments
157,468
—
Additions of property and equipment
(1,700
)
(866
)
Proceeds from the disposition of property
and equipment
—
16
Net cash provided by (used in) investing
activities
150,249
(850
)
Cash flows from financing activities:
Preferred dividend payments
(1,073
)
(1,074
)
Repayments on capital lease
obligations
—
(38
)
Net cash used in financing activities
(1,073
)
(1,112
)
Net effect of exchange rate changes on
cash, cash equivalents and restricted cash
(339
)
1,110
Net increase in cash, cash equivalents and
restricted cash
155,498
8,736
Cash, cash equivalents and restricted
cash, beginning of period
123,403
58,045
Cash, cash equivalents and restricted
cash, end of period
$
278,901
$
66,781
Cash and cash equivalents, end of
period
$
276,422
$
62,427
Restricted cash for funds held for
clients, end of period
2,479
4,354
Cash, cash equivalents and restricted
cash, end of period
$
278,901
$
66,781
Steel Connect, Inc. and
Subsidiaries
Segment Data
(in thousands)
(unaudited)
Successor
Predecessor
Successor
Predecessor
Three Months Ended
January 31,
Three Months Ended
January 31,
Six Months Ended January
31,
Six Months Ended January
31,
2024
2023
2024
2023
(Unaudited)
Net revenue:
Supply Chain
$
43,045
$
50,781
$
84,386
$
102,140
Total segment net revenue
43,045
50,781
84,386
102,140
Operating income:
Supply Chain
3,065
5,388
5,740
11,238
Total segment operating income
3,065
5,388
5,740
11,238
Corporate-level activity
(1,343
)
(2,785
)
(2,213
)
(4,756
)
Total operating income
1,722
2,603
3,527
6,482
Total other income (expense), net
3,818
(3,475
)
7,120
(1,272
)
Income (loss) before income taxes
$
5,540
$
(872
)
$
10,647
$
5,210
Steel Connect, Inc. and
Subsidiaries
Reconciliation of Non-GAAP
Measures to GAAP Measures
(in thousands)
(unaudited)
EBITDA and Adjusted EBITDA
Reconciliations:
Successor
Predecessor
Successor
Predecessor
Three Months Ended
January 31,
Three Months Ended
January 31,
Six Months Ended January
31,
Six Months Ended January
31,
2024
2023
2024
2023
Net income (loss)
$
5,346
$
(526
)
$
9,782
$
4,431
Interest income
(3,499
)
(332
)
(6,718
)
(476
)
Interest expense
249
848
496
1,674
Income tax expense (benefit)
194
(346
)
865
779
Depreciation
450
465
885
924
Amortization
893
—
1,768
—
EBITDA
3,633
109
7,078
7,332
Strategic consulting and other related
professional fees
—
181
—
832
Executive severance and employee
retention
—
(34
)
—
(150
)
Restructuring and restructuring-related
expense
125
—
125
—
Share-based compensation
160
178
297
355
Loss on sale of long-lived assets
1
—
1
16
Unrealized foreign exchange losses,
net
366
4,240
317
3,728
Other non-cash gains, net
(584
)
(43
)
(360
)
(201
)
Adjusted EBITDA
$
3,701
$
4,631
$
7,458
$
11,912
Net revenue
$
43,045
$
50,781
$
84,386
$
102,140
Adjusted EBITDA margin
8.6
%
9.1
%
8.8
%
11.7
%
Free Cash Flow Reconciliation:
Successor
Predecessor
Successor
Predecessor
Three Months Ended
January 31,
Three Months Ended
January 31,
Six Months Ended January
31,
Six Months Ended January
31,
2024
2023
2024
2023
Net cash provided by operating
activities
$
78
$
1,336
$
6,661
$
9,588
Additions to property and equipment
(1,148
)
(318
)
(1,700
)
(866
)
Free cash flow
$
(1,070
)
$
1,018
$
4,961
$
8,722
Net Cash (Debt) Reconciliation:
Successor
January 31, 2024
July 31, 2023
Total debt, net
(12,903
)
(12,461
)
Cash and cash equivalents
276,422
121,372
Net cash
$
263,519
$
108,911
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 Cash (Debt), all of
which are non-GAAP financial measures, to assess its performance.
EBITDA represents earnings (losses) before interest income,
interest expense, income tax expense (benefit), depreciation, and
amortization. We define Adjusted EBITDA as net income (loss)
excluding net charges related to interest income, interest expense,
income tax expense (benefit), depreciation, amortization, strategic
consulting and other related professional fees, executive severance
and employee retention, restructuring and restructuring-related
expense, share-based compensation, (gain) loss on sale of
long-lived assets, impairment of long-lived assets, unrealized
foreign exchange (gains) losses, net, and other non-cash (gains)
losses, net. The Company defines Free Cash Flow as net cash
provided by (used in) operating activities less additions to
property and equipment, and defines Net Cash (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 Cash (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 Cash (Debt) assumes the Company's cash and cash
equivalents can be used to reduce outstanding debt without
restriction, while Free Cash Flow has limitations due to the fact
that it does not represent the residual cash flow available for
discretionary expenditures and excludes the Company's remaining
investing activities and financing activities, including the
requirement for principal payments on the Company's outstanding
indebtedness.
See reconciliations of these non-GAAP measures to the most
directly comparable GAAP measures included in the financial tables
of this release.
Net Operating Loss Carryforwards
The Company's Restated Certificate of Incorporation (the
“Protective Amendment”) and Amended Tax Benefits Preservation Plan
(the “Tax Plan”) includes provisions designed to protect the tax
benefits of the Company's net operating loss carryforwards by
preventing certain transfers of our securities that could result in
an "ownership change" (as defined under Section 382 of the Internal
Revenue Code). The Protective Amendment generally restricts any
direct or indirect transfer if the effect would be to (i) increase
the direct, indirect or constructive ownership of any stockholder
from less than 4.99 percent to 4.99 percent or more of the shares
of common stock then outstanding or (ii) increase the direct,
indirect or constructive ownership of any stockholder owning or
deemed to own 4.99 percent or more of the shares of common stock
then outstanding. Pursuant to the Protective Amendment, any direct
or indirect transfer attempted in violation of the Protective
Amendment would be void as of the date of the prohibited transfer
as to the purported transferee (or, in the case of an indirect
transfer, the ownership of the direct owner of the shares would
terminate simultaneously with the transfer), and the purported
transferee (or in the case of any indirect transfer, the direct
owner) would not be recognized as the owner of the shares owned in
violation of the Protective Amendment (the "excess stock") for any
purpose, including for purposes of voting and receiving dividends
or other distributions in respect of such shares, or in the case of
options, receiving shares in respect of their exercise. Pursuant to
the Tax Plan and subject to certain exceptions, if a stockholder
(or group) becomes a 4.99-percent stockholder after adoption of the
Tax Plan, certain rights attached to each outstanding share of our
common stock would generally become exercisable and entitle
stockholders (other than the new 4.99-percent stockholder or group)
to purchase additional shares of the Company at a significant
discount, resulting in substantial dilution in the economic
interest and voting power of the new 4.99-percent stockholder (or
group). In addition, under certain circumstances in which the
Company is acquired in a merger or other business combination after
an non-exempt stockholder (or group) becomes a new 4.99-percent
stockholder, each holder of a right (other than the new
4.99-percent stockholder or group) would then be entitled to
purchase shares of the acquiring company's common stock at a
discount. For further discussion of the Company's tax benefits
preservation plan, please see the Company's filings with the
SEC.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Statements in this release that are not historical facts are hereby
identified as "forward-looking statements" for the purpose of the
safe harbor provided by Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements other than statements of historical
fact, including without limitation, those with respect to the
Company's goals, plans, expectations and strategies set forth
herein are forward-looking statements. The following important
factors and uncertainties, among others, could cause actual results
to differ materially from those described in these forward-looking
statements: changes in the Company’s relationships with significant
clients; fluctuations in demand for our products and services; the
Company’s ability to achieve and sustain operating profitability;
demand variability from clients without minimum purchase
requirements; general economic conditions and public health crises;
intense competition in the Company’s business; risks relating to
impairment, misappropriation, theft and credit-related issues with
respect to funds held for the Company’s clients; a decrease in our
key business sectors or a reduction in consumer demand; 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; disruptions in or
breaches of the Company’s technology systems; failure to settle
disputes and litigation on terms favorable to the Company; the
Company's ability to preserve and monetize its net operating
losses; changes in tax rates, laws or regulations; the vast
majority of the voting power of our capital stock is owned and
controlled by Steel Partners Holdings, L.P.; potential conflicts of
interest arising from the interests of the members of the Company’s
board of directors in Steel Holdings and its affiliates; risks
related to the reverse/forward stock split; potential restrictions
imposed by its indebtedness; and potential adverse effects from
changes in interest rates. For a detailed discussion of cautionary
statements and risks that may affect the Company's future results
of operations and financial results, please refer to the Company's
filings with the SEC, including, but not limited to, the risk
factors in the Company's Annual Report on Form 10-K filed with the
SEC on November 8, 2023. These filings are available on the
Company's Investor Relations website under the "SEC Filings"
tab.
All forward-looking statements are necessarily only estimates of
future results, and there can be no assurance that actual results
will not differ materially from expectations, and, therefore, you
are cautioned not to place undue reliance on such statements.
Further, any forward-looking statement speaks only as of the date
on which it is made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the
occurrence of unanticipated events.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240314005984/en/
Investor Relations Contact Jennifer Golembeske
914-461-1276 investorrelations@steelconnectinc.com
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