XBP Europe Holdings, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed April 1, 2024. The filing identifies the registrant as XBP Europe Holdings, Inc. (Nasdaq: XBP), following its November 2023 business combination.
Business context
The company provides bills and payments processing, business-process automation, software, and related services, primarily in Europe. It serves more than 2,000 clients and reports two segments: Bills & Payments and Technology. Banking and financial-services clients generated 51% of 2023 revenue. The business combination was accounted for as a reverse recapitalization; the company received $5.2 million of net proceeds.
Financial performance
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $166.6 million | $180.5 million |
| Operating loss | $4.2 million | $2.0 million |
| Net loss | $11.0 million | $7.9 million |
| Net loss per share, basic and diluted | $0.49 | $0.36 |
| Operating cash flow | $(1.5) million | $9.9 million |
| Capital expenditures | $2.3 million | $6.4 million |
| Cash and cash equivalents at year-end | $6.9 million | $7.5 million |
| Total debt | $16.6 million | $19.4 million |
Revenue declined 7.7% (8.4% at constant currency). Bills & Payments revenue fell 11.0% to $121.9 million, mainly due to completed one-time projects, lower volumes, and a client contract ending. Technology revenue rose 2.5% to $44.7 million, supported by software licenses and implementation services. Segment profit, defined as revenue less cost of revenue before depreciation and amortization, was $39.0 million versus $43.7 million; the corresponding margin was approximately 23.4% versus 24.2%. Consolidated cost of revenue increased to 76.6% of revenue from 75.8%.
Adjusted EBITDA, a non-GAAP measure, was $11.6 million versus $14.5 million; margin was approximately 7.0% versus 8.0%. The company reported a $4.2 million operating loss and higher interest expense, which rose to $5.2 million from $3.1 million. Restructuring and related expenses were $6.7 million in the Adjusted EBITDA reconciliation; disclosed restructuring charges were $4.5 million, compared with $0.3 million in 2022.
Liquidity, debt, and material changes
Current assets were $49.9 million and current liabilities were $82.1 million at year-end, a current ratio of approximately 0.61. Total liabilities were $115.3 million, compared with total assets of $102.7 million; stockholders’ deficit was $12.6 million. Debt was $16.6 million, including $3.9 million current and $12.8 million long-term; a separate $1.5 million related-party note payable was also reported. The company had less than $0.1 million available under its revolving credit facilities at December 31, 2023.
Management said cash, cash equivalents, and expected financing cash flows should meet working-capital and capital-expenditure needs for at least 12 months, while warning that additional capital may be needed if cash and operating sources prove insufficient. Planned capital expenditures for the next 12 months are approximately $1.5–$2.5 million. Operating cash flow moved from positive $9.9 million to negative $1.5 million. Year-end cash decreased by $0.6 million, notwithstanding a $3.9 million favorable effect from exchange rates.
The company converted its receivables-backed borrowing arrangement to non-recourse factoring in September 2023, accounting for it as an off-balance-sheet sale; $6.8 million of invoices were factored during 2023. The UK subsidiary was in compliance with debt covenants at year-end. Certain revolving facilities were extended in March 2024 to April 30, 2025; the property-related term loan matures in 2027. Management expects covenant compliance over the following 12 months, but notes estimates are uncertain.
Outlook, risks, and unusual items
- No quantitative revenue, profit, or EBITDA guidance is provided. Management describes plans to expand cross-selling, pursue new clients and public-sector opportunities, and develop offerings including XBP Omnidirect and Reaktr.ai. Reaktr.ai, focused on cybersecurity, data modernization, cloud management, and generative AI, was announced in January 2024; investment and market rollout were planned during 2024.
- Management cites uncertain sustained profitability, declining revenue, client contract termination and renewal risk, pricing and cost pressures, long sales and implementation cycles, competition, and reliance on banking and finance clients. One top-10 client ended its contract in April 2023; several other large contracts were up for renewal.
- The company depends on majority owner Exela Technologies, Inc. (ETI) for certain services and licensed intellectual property. The filing notes ETI’s substantial doubt about its ability to continue as a going concern, creating potential risk to services and support on which XBP relies.
- Liquidity risks include limited borrowing availability and potential difficulty raising additional financing. Equity issuance is subject to approval rights in specified circumstances. ETI and Cantor together held approximately 92.4% of shares as of March 28, 2024, contributing to limited public float and potential trading volatility.
- A French subsidiary faces claims by former employees following facility closures. The company accrued $2.2 million for the matter at year-end and had paid $1.1 million pending appeal; settlement discussions and court proceedings continued. A separate prior arbitration dispute was settled for $8.9 million, with $0.9 million remaining accrued at year-end.
- The company recorded $0.6 million of warrant-liability fair-value gain following the business combination. The company reported no material cybersecurity threat in 2023. It did not include management’s internal-control-over-financial-reporting assessment in this filing because of the newly public-company transition; it expects to provide one for 2024. The auditor issued an unqualified opinion on the financial statements but did not audit or opine on internal control effectiveness.
Most important facts for investors to verify
- Whether revenue declines stabilize, particularly in Bills & Payments, and whether terminated or renewed client contracts affect volumes and margins.
- Whether operating cash flow improves and management’s 12-month liquidity assessment holds, given the low current ratio and minimal undrawn revolver availability.
- Debt maturities, covenant headroom, factoring costs and terms, and the effect of related-party balances and ETI’s financial condition on XBP.
- Potential total exposure and resolution of the French former-employee litigation, and the timing and findings of the company’s first management report on internal financial controls.
- Effects of major-shareholder control, lock-up expirations and resales on public float, trading liquidity, and access to capital.