XELA Stock Price Up 83% – Good Time to Buy XELA Stock?

The price of Exela Technologies stock is up 83% this week following the completion of an at-the-market offering through which the company raised $100 million for its operations. Meanwhile, the firm announced this morning that it is seeking to raise another $150 million, ear-marking the proceeds obtained from these sales for general corporate purposes.

Other positive developments that may have lifted the stock price this week include the dismissal of a class-action lawsuit brought up against the company by a shareholder regarding the postponement of the release of Exela’s 2019 annual report and other similar matters.

Even though at-the-market share offerings are commonly dilutive, the company’s ability to raise money seems to be encouraging investors about what could happen to the business in the future now that the firm has managed to gather more resources to stay afloat.

However, Exela is a highly indebted business and its financial situation seems fragile. The following article takes a closer look at the firm’s historical performance to show what may come next for the firm upon securing this important cash inflow.

Exela Technologies Stock – technical analysis

A closer look at Exela’s price action shows that the stock left behind a bullish price gap yesterday as a result of elevated trading volumes. A total of 404 million shares exchanged hands yesterday as the firm completed its $100 million at-the-market offering. Such daily volumes exceeded the daily average by around 100 times.

Meanwhile, the stock is up 5% today as well although it is settling below its intraday highs of $3.11 per share.

Although this liquidity injection has come at a crucial moment for Exela, the outlook for the firm remains bearish amid the business poor fundamentals. In this regard, the company is displaying a sustained track record of major net losses along with a seemingly unbearable amount of debt that could eventually lead to its bankruptcy.

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Exela Technologies Stock – fundamental analysis

Exela Technologies is a Texas-based provider of business process automation software that serves clients in multiple industries including financial services, insurance, and energy. The company employs around 18,700 people for its operations and, prior to these share offerings, it had a market capitalization of around $94 million.

The company’s revenues have grown from $650 million in 2014 to $1.29 billion by the end of last year even though the pandemic seems to have affected Exela’s top-line result as revenues declined 17% in 2020 compared to the year before.

Meanwhile, Exela’s gross profit margins have been deteriorating during the same period, moving from 30.6% back in 2014 to 21.1% last year. Moreover, EBITDA margins have also come down from their 2016 peak of 13.55% to 3.06% last year.

Despite its positive top-line profitability, Exela has been reported net losses every single year since 2014, including a $178.5 million loss last year and a $509.1 million loss in 2019.

The company has managed to remain afloat by issuing a significant number of shares, with the number of shares outstanding jumping from 21.34 million in 2015 to 59.19 million by the end of the first quarter of 2021. This number excludes the latest $100 million at-the-market offering the company has completed while the firm is planning another $150 million offering to be completed soon.

The company’s long-term debt stood at $1.51 billion by the end of the first three months of 2021 on total assets of $1.1 billion that include $639 million in goodwill and intangibles. Of those, customer relationships have been valued at $220 million while the company’s ITPs business segment is being carried at a book value of $253 million – this being the largest intangible asset the company currently holds.

Among the long-term debt instruments held by the firm, we find $1 billion in senior secure notes expiring in 2023 that carry a 10% annual interest rate. The next coupon payment for these notes will be distributed on 15 July and this $100 million share offering may have provided the cash the company needs to complete this payment.

Meanwhile, although a liquidity injection such as the one resulting from these share offerings will definitely help the business in staying afloat, solvency remains a big concern as the company exhibits high levels of interest-bearing debt along with a severely low interest coverage ratio.

During the first quarter of 2021, the firm paid $43 million in interest expenses while it generated only $4.3 million in operating profits.

The firm’s 10-Q filing covering this period shows that there are “substantial doubts” about the firm’s ability to continue operating as is amid liquidity constraints.

Investors should be aware that the company’s track record of net losses could endanger Exela’s ability to remain in business despite these latest liquidity injections.

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