Le Lézard
Classified in: Science and technology, Business, Covid-19 virus
Subject: EARNINGS

Steel Connect Reports Fourth Quarter Financial Results


Steel Connect, Inc. (the "Company") (NASDAQ: STCN) today announced financial results for its fourth quarter and fiscal year ended July 31, 2020.

Three Months Ended
July 31,

 

 

 

Fiscal year ended
July 31,

2020

 

2019

 

($ in thousands)

 

2020

 

2019

$

164,857

 

 

$

204,471

 

 

Net revenue

 

$

782,813

 

 

$

819,830

 

(360

)

 

(37,981

)

 

Net loss

 

(5,284

)

 

(66,727

)

(897

)

 

(38,513

)

 

Net loss attributable to common stockholders

 

(7,413

)

 

(68,856

)

24,872

 

 

14,760

 

 

Adjusted EBITDA*

 

86,931

 

 

65,451

 

15.1

%

 

7.2

%

 

Adjusted EBITDA margin*

 

11.1

%

 

8.0

%

11,573

 

 

24,465

 

 

Net cash provided by operating activities

 

71,624

 

 

20,849

 

593

 

 

2,699

 

 

Additions to property and equipment

 

12,070

 

 

14,539

 

10,980

 

 

21,766

 

 

Free cash flow*

 

59,554

 

 

6,310

 

*

 

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.

The Company continues to evaluate the global risks and the slowdown in business activity related to COVID-19, including the potential impacts on its employees, customers, suppliers and financial results. The severity of the impact on the Company's business beyond fiscal year 2020 will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the continued disruption to the demand for our businesses' products and services, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted. For the fiscal year ended July 31, 2020, COVID-19 required temporary closures of certain of ModusLink's facilities. Additionally, although IWCO Direct operated as an essential business, it had reduced operating levels and labor shifts due to lower sales volume. As of the date of this earnings release, all of the Company's facilities were open and able to operate at normal capacities. Additionally, to help mitigate the financial impact of the COVID-19 pandemic, the Company initiated cost reduction actions, including the waiver of board fees, hiring freezes, staffing and force reductions, Company-wide salary reductions, bonus payment deferrals and temporary 401(k) match suspension. The Company has fully restored the prior salary reductions; however, management continues its focus on cash management and liquidity, which includes elimination of discretionary spending, aggressive working capital management, strict approvals for capital expenditures and borrowing from its revolving credit facilities, if needed, as a precautionary measure to preserve financial flexibility. The Company will evaluate further actions if circumstances warrant.

"I am extremely proud of the dedication of our employees during the COVID-19 pandemic as we delivered on our promises to our customers while meeting all health and safety protocols," said Warren Lichtenstein, Executive Chairman and Interim Chief Executive Officer of the Company. "Our continued focus on cost reduction measures and cash management have allowed us to improve our EBITDA and drastically reduce the losses for the year, despite the reduced revenue. As we start the new fiscal year, IWCO Direct's demand continues to strengthen, and ModusLink continues to see strong demand due to shifting consumer behavior as a result of the pandemic; however, we anticipate ModusLink's volumes will decline in fiscal year 2021 as we continue to rationalize our customer base. We remain vigilant and will continue to thoughtfully manage our operations to strengthen our company for near-term success and long-term growth."

Results of Operations

Comparison of the Fourth Quarter and Fiscal Year Ended July 31, 2020 and 2019

 

 

Three Months Ended July 31,

 

Fiscal Year Ended July 31,

 

2020

 

2019

 

2020

 

2019

 

(unaudited)

Net revenue:

 

 

 

 

 

 

 

Products

$

89,956

 

 

$

124,355

 

 

$

444,360

 

 

$

486,902

 

Services

74,901

 

 

80,116

 

 

338,453

 

 

332,928

 

Total net revenue

164,857

 

 

204,471

 

 

782,813

 

 

819,830

 

Cost of revenue

124,863

 

 

167,345

 

 

619,854

 

 

670,100

 

Gross profit margin

24.3

%

 

18.2

%

 

20.8

%

 

18.3

%

Selling, general and administrative

23,997

 

 

62,376

 

 

103,261

 

 

144,078

 

Amortization of intangible assets

6,536

 

 

7,277

 

 

27,255

 

 

30,446

 

Interest expense

7,544

 

 

9,616

 

 

33,969

 

 

41,951

 

All other (income) expenses, net

388

 

 

(4,875

)

 

(2,159

)

 

(4,646

)

Total costs and expenses

163,328

 

 

241,739

 

 

782,180

 

 

881,929

 

Income (loss) before income taxes

1,529

 

 

(37,268

)

 

633

 

 

(62,099

)

Income tax expense

1,889

 

 

713

 

 

5,917

 

 

4,670

 

Gains on investments in affiliates, net of tax

?

 

 

?

 

 

?

 

 

42

 

Net loss

$

(360

)

 

$

(37,981

)

 

$

(5,284

)

 

$

(66,727

)

Net Revenue

Total net revenue for the fourth quarter ended July 31, 2020 decreased $39.6 million, or 19.4%, as compared to the fourth quarter of 2019, primarily due to lower volumes in our Direct Marketing and Supply Chain segments due to the COVID-19 pandemic.

Total net revenue for the fiscal year ended July 31, 2020 decreased $37.0 million, or 4.5%, as compared to fiscal 2019. The decline in revenue in the Direct Marketing segment was primarily due to lower volumes due to the COVID-19 pandemic. Revenue for the Supply Chain segment increased primarily due to increased volume from a client in the computing market.

Cost of Revenue

Cost of revenue for the fourth quarter decreased $42.5 million, or 25.4%, as compared to the fourth quarter of 2019, primarily due to declines in labor and material costs in both the Direct Marketing and Supply Chain segments.

Cost of revenue for the 2020 fiscal year decreased $50.2 million, or 7.5%, as compared to fiscal 2019, also due to declines in labor and material costs in both the Direct Marketing and Supply Chain segments.

The increase in gross profit margin during both the fourth quarter and 2020 fiscal year is attributable to our focus on customer rationalization to improve profitability, as well as cost reduction initiatives in both segments to offset the impact of COVID-19.

Selling, General and Administrative

Selling, general and administrative expenses for the fourth quarter decreased $38.4 million, or 61.5%, as compared to the fourth quarter of 2019, primarily due to a $32.1 million charge for accrued taxes in the Direct Marketing segment in the prior year period that did not recur, as well as cost reduction initiatives in both segments to offset the impact of COVID-19.

Selling, general and administrative expenses for the 2020 fiscal year decreased $40.8 million, or 28.3%, as compared to fiscal 2019, primarily due to the $32.1 million charge in the prior fiscal year for accrued taxes that did not recur, as well as cost reduction initiatives in both segments to offset the impact of COVID-19.

Amortization of Intangible Assets

Amortization of intangibles assets for the fourth quarter and 2020 fiscal year decreased $0.7 million, or 10.2%, and $3.2 million, or 10.5%, respectively, as compared to the same periods in the prior year, due to lower amortization expense with respect to our customer relationship intangible asset.

Interest Expense

Interest expense for the fourth quarter and 2020 fiscal year decreased $2.1 million, or 21.5%, and $8.0 million, or 19.0%, respectively, as compared to the same periods in the prior year, due to the maturity and settlement of the Company's 5.25% Convertible Senior Notes on March 1, 2019.

All Other (Income) Expenses, Net

All other income, net for the fourth quarter decreased $5.3 million, or 108.0%, as compared to the fourth quarter of 2019, primarily due to the derecognition of accrued pricing liabilities in the Supply Chain segment in the fourth quarter of 2019.

All other income, net for the 2020 fiscal year decreased $2.5 million, or 53.5%, as compared to fiscal 2019, primarily due to the derecognition of accrued pricing liabilities in the Supply Chain segment, partially offset by $0.6 million in additional realized foreign exchange gains in the Supply Chain segment.

Income Tax Expense

Income tax expense for the fourth quarter increased $1.2 million, 164.9%, as compared to the fourth quarter of 2019, due to a $0.7 million increase for uncertain tax positions and a $0.5 million tax provision adjustment recorded in 2020 to reflect our final 2019 tax returns.

Income tax expense for the 2020 fiscal year increased $1.2 million, 26.7%, as compared to fiscal 2019, due to increased income in foreign jurisdictions and other discreet tax adjustments.

Additions to Property and Equipment (Capital Expenditures)

Capital expenditures for the fourth quarter totaled $0.6 million, or 0.4% of net revenue, as compared to $2.7 million, or 1.3% of net revenue, for the fourth quarter of 2019. For the 2020 fiscal year, capital expenditures were $12.1 million, or 1.5% of net revenue, as compared to $14.5 million, or 1.8% of net revenue, for fiscal 2019.

Additional Non-GAAP Financial Measures

Adjusted EBITDA for the fourth quarter and 2020 fiscal year increased $10.1 million, or 68.5%, and $21.5 million, or 32.8%, respectively, as compared to the same periods in the prior year, primarily due to improved gross profit and related gross profit margin improvement, as well as lower selling, general and administrative expenses resulting from our continued focus on cost reduction initiatives.

Liquidity and Capital Resources

As of July 31, 2020, the Company had cash and cash equivalents of $75.9 million. As of July 31, 2020, ModusLink and IWCO Direct had a readily available borrowing capacity of $4.4 million and $25.0 million, respectively, under their credit facilities.

As of July 31, 2020, total debt outstanding was $386.9 million, which was comprised of a $372.0 million term loan due December 15, 2022 and a $14.9 million 7.50% Convertible Senior Note due March 1, 2024.

About Steel Connect, Inc.

Steel Connect, Inc. is a diversified holding company with two wholly-owned subsidiaries, IWCO Direct Holdings, Inc. and ModusLink Corporation, that serve the direct marketing and supply chain management markets, respectively.

IWCO Direct delivers highly-effective data-driven marketing solutions for its customers, which represent some of the largest and most respected brands in the world in markets such as insurance, financial services and multiple system operators (cable or direct broadcasting satellite TV systems). Its full range of services includes strategy, creative and execution for omnichannel marketing campaigns, along with one of the industry's most sophisticated postal logistics programs for direct mail. Through its Mail-Gard® division, IWCO Direct also offers business continuity and disaster recovery services to protect against unexpected business interruptions, along with providing print and mail outsourcing services. IWCO Direct was named one of the largest direct mail production providers in North America, with the largest platform of continuous digital print technology and a growing direct marketing agency service. IWCO Direct's solutions enable customers to improve customer lifetime value, which in turn, has led to longer customer relationships. The company is ISO/IEC 27001 Information Security Management System (ISMS) certified through BSI, reflecting its commitment to data security.

ModusLink is a leader in global supply chain business process management 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 with sites 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)
(unaudited)

 

 

July 31,
2020

 

July 31,
2019

Assets:

 

 

 

Cash and cash equivalents

$

75,887

 

 

$

32,548

 

Accounts receivable, trade, net

93,072

 

 

112,141

 

Inventories, net

15,354

 

 

23,674

 

Funds held for clients

18,755

 

 

13,516

 

Prepaid expenses and other current assets

20,475

 

 

31,445

 

Total current assets

223,543

 

 

213,324

 

Property and equipment, net

79,678

 

 

91,268

 

Goodwill

257,128

 

 

257,128

 

Other intangible assets, net

135,263

 

 

162,518

 

Operating right-of-use assets

56,140

 

 

?

 

Other assets

7,420

 

 

7,325

 

Total assets

$

759,172

 

 

$

731,563

 

 

 

 

 

Liabilities:

Accounts payable

$

70,002

 

 

$

85,898

 

Accrued expenses

111,380

 

 

112,658

 

Funds held for clients

18,755

 

 

13,516

 

Current portion of long-term debt

5,527

 

 

5,732

 

Current lease obligations

14,318

 

 

127

 

Other current liabilities

29,950

 

 

38,919

 

Total current liabilities

249,932

 

 

256,850

 

Convertible note payable

8,054

 

 

7,432

 

Long-term debt, excluding current portion

365,468

 

 

368,505

 

Long-term lease obligations

43,211

 

 

?

 

Other long-term liabilities

8,509

 

 

10,898

 

Total liabilities

675,174

 

 

643,685

 

 

 

 

 

Contingently redeemable preferred stock

35,180

 

 

35,186

 

 

 

 

 

Total stockholders' equity

48,818

 

 

52,692

 

 

 

 

 

Total liabilities, contingently redeemable preferred stock and stockholders' equity

$

759,172

 

 

$

731,563

 

Steel Connect, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

 

 

Three Months Ended July 31,

 

Fiscal Year Ended July 31,

 

2020

 

2019

 

Fav (Unfav)

 

2020

 

2019

 

Fav (Unfav)

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

Products

$

89,956

 

 

$

124,355

 

 

(27.7

)%

 

$

444,360

 

 

$

486,902

 

 

(8.7

)%

Services

74,901

 

 

80,116

 

 

(6.5

)%

 

338,453

 

 

332,928

 

 

1.7

%

Total net revenue

164,857

 

 

204,471

 

 

(19.4

)%

 

782,813

 

 

819,830

 

 

(4.5

)%

Cost of revenue

124,863

 

 

167,345

 

 

25.4

%

 

619,854

 

 

670,100

 

 

7.5

%

Gross profit

39,994

 

 

37,126

 

 

7.7

%

 

162,959

 

 

149,730

 

 

8.8

%

Gross profit margin

24.3

%

 

18.2

%

 

 

 

20.8

%

 

18.3

%

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

23,997

 

 

62,376

 

 

61.5

%

 

103,261

 

 

144,078

 

 

28.3

%

Amortization of intangible assets

6,536

 

 

7,277

 

 

10.2

%

 

27,255

 

 

30,446

 

 

10.5

%

Loss on sale of property

?

 

 

571

 

 

100.0

%

 

?

 

 

485

 

 

100.0

%

Total operating expenses

30,533

 

 

70,224

 

 

56.5

%

 

130,516

 

 

175,009

 

 

25.4

%

Operating income (loss)

9,461

 

 

(33,098

)

 

128.6

%

 

32,443

 

 

(25,279

)

 

228.3

%

Other expenses, net

(7,932

)

 

(4,170

)

 

(90.2

)%

 

(31,810

)

 

(36,820

)

 

13.6

%

Income (loss) before income taxes

1,529

 

 

(37,268

)

 

104.1

%

 

633

 

 

(62,099

)

 

101.0

%

Income tax expense

1,889

 

 

713

 

 

(164.9

)%

 

5,917

 

 

4,670

 

 

(26.7

)%

Gains on investments in affiliates, net of tax

?

 

 

?

 

 

?

%

 

?

 

 

(42

)

 

(100.0

)%

Net loss

(360

)

 

(37,981

)

 

99.1

%

 

(5,284

)

 

(66,727

)

 

92.1

%

Less: Preferred dividends on redeemable preferred stock

(537

)

 

(532

)

 

(0.9

)%

 

(2,129

)

 

(2,129

)

 

?

%

Net loss attributable to common stockholders

$

(897

)

 

$

(38,513

)

 

97.7

%

 

$

(7,413

)

 

$

(68,856

)

 

89.2

%

Basic and diluted net loss per share attributable to common stockholders

$

(0.01

)

 

$

(0.63

)

 

98.4

%

 

$

(0.12

)

 

$

(1.13

)

 

89.4

%

Weighted average common shares used in basic and diluted loss per share

61,826

 

 

61,180

 

 

 

 

61,644

 

 

61,180

 

 

 

Steel Connect, Inc. and Subsidiaries
Segment Data
(in thousands)
(unaudited)

 

 

Three Months Ended
July 31,

 

Fiscal year ended
July 31,

 

2020

 

2019

 

2020

 

2019

Net revenue:

 

 

 

 

 

 

 

Direct Marketing

$

89,956

 

 

$

124,355

 

 

$

444,360

 

 

$

486,902

 

Supply Chain

74,901

 

 

80,116

 

 

338,453

 

 

332,928

 

 

$

164,857

 

 

$

204,471

 

 

$

782,813

 

 

$

819,830

 

Operating income (loss):

 

 

 

 

 

 

 

Direct Marketing

$

561

 

 

$

(25,924

)

 

$

12,940

 

 

$

(9,154

)

Supply Chain

9,144

 

 

(4,647

)

 

27,952

 

 

(3,822

)

Total segment operating income (loss)

9,705

 

 

(30,571

)

 

40,892

 

 

(12,976

)

Corporate-level activity

(244

)

 

(2,527

)

 

(8,449

)

 

(12,303

)

Total operating income (loss)

9,461

 

 

(33,098

)

 

32,443

 

 

(25,279

)

Total other expense

(7,932

)

 

(4,170

)

 

(31,810

)

 

(36,820

)

Income (loss) before income taxes

$

1,529

 

 

$

(37,268

)

 

$

633

 

 

$

(62,099

)

Steel Connect, Inc. and Subsidiaries
Reconciliation of Non-GAAP Measures to GAAP Measures
(in thousands)
(unaudited)

 

EBITDA and Adjusted EBITDA Reconciliations:

 

Three Months Ended
July 31,

 

Fiscal year ended
July 31,

 

2020

 

2019

 

2020

 

2019

Net loss

$

(360

)

 

$

(37,981

)

 

$

(5,284

)

 

$

(66,727

)

 

 

 

 

 

 

 

 

Interest income

(23

)

 

(11

)

 

(61

)

 

(528

)

Interest expense

7,544

 

 

9,616

 

 

33,969

 

 

41,951

 

Income tax expense

1,889

 

 

713

 

 

5,917

 

 

4,670

 

Depreciation

5,835

 

 

5,726

 

 

23,075

 

 

22,058

 

Amortization of intangible assets

6,536

 

 

7,277

 

 

27,255

 

 

30,446

 

EBITDA

21,421

 

 

(14,660

)

 

84,871

 

 

31,870

 

 

 

 

 

 

 

 

 

Strategic consulting and other related professional fees

(50

)

 

100

 

 

(50

)

 

722

 

Executive severance and employee retention

?

 

 

312

 

 

534

 

 

387

 

Restructuring and restructuring-related expense

(951

)

 

57

 

 

(27

)

 

57

 

Share-based compensation

139

 

 

93

 

 

720

 

 

1,267

 

Loss on sale of long-lived assets

369

 

 

571

 

 

414

 

 

485

 

Impairment of long-lived assets

?

 

 

2,546

 

 

?

 

 

3,015

 

Unrealized foreign exchange (gains) losses, net

1,224

 

 

(1,835

)

 

(48

)

 

(115

)

Other non-cash gains, net

(1,248

)

 

(4,494

)

 

(1,419

)

 

(4,265

)

Adjustments related to certain tax liabilities

3,968

 

 

32,070

 

 

1,936

 

 

32,070

 

Gains on investments in affiliates

?

 

 

?

 

 

?

 

 

(42

)

Adjusted EBITDA

$

24,872

 

 

$

14,760

 

 

$

86,931

 

 

$

65,451

 

 

 

 

 

 

 

 

 

Net revenue

$

164,857

 

 

$

204,471

 

 

$

782,813

 

 

$

819,830

 

Adjusted EBITDA margin

15.1

%

 

7.2

%

 

11.1

%

 

8.0

%

Free Cash Flow Reconciliation:

 

Three Months Ended
July 31,

 

Fiscal year ended
July 31,

 

2020

 

2019

 

2020

 

2019

Net cash provided by operating activities

$

11,573

 

 

$

24,465

 

 

$

71,624

 

 

$

20,849

 

Additions to property and equipment

(593

)

 

(2,699

)

 

(12,070

)

 

(14,539

)

Free cash flow

$

10,980

 

 

$

21,766

 

 

$

59,554

 

 

$

6,310

 

Net Debt Reconciliation:

 

July 31,
2020

 

July 31,
2019

Total debt, net

379,049

 

 

387,669

 

Unamortized discounts and issuance costs

7,863

 

 

8,396

 

Cash and cash equivalents

(75,887

)

 

(32,548

)

Net debt

311,025

 

 

363,517

 

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, non-GAAP financial measures, to assess its performance. EBITDA represents earnings (loss) before interest income, interest expense, income tax expense, depreciation and amortization of intangible assets. We define Adjusted EBITDA as net income (loss) excluding net charges related to interest income, interest expense, income tax expense, depreciation, amortization of intangible assets, 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, other non-cash (gains) losses, net, adjustments related to certain tax liabilities and (gains) losses on investments in affiliates. 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, net, prior to 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 segments. 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:

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 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). 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 Securities and Exchange Commission ("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: client or program losses; fluctuations in demand for our products and services; general economic conditions and public health crises (such as the ongoing coronavirus outbreak); demand variability with clients to which the Company sells on a purchase order basis rather than pursuant to contracts with minimum purchase requirements; risks inherent with conducting international operations; the Company's ability to execute on its business strategy and to achieve anticipated synergies and benefits from business acquisitions, including any cost reduction plans and the continued and increased demand for and market acceptance of its services, which could negatively affect the Company's ability to meet its revenue, operating income and cost savings targets, maintain and improve its cash position, expand its operations and revenue, lower its costs, improve its gross margins, reach and sustain profitability, reach its long-term objectives and operate optimally; increased competition and technological changes in the markets in which the Company competes; failure to realize expected benefits of restructuring and cost-cutting actions; difficulties integrating technologies, operations and personnel in accordance with the Company's business strategy; the Company's ability to preserve and monetize its net operating losses; failure to settle disputes and litigation on terms favorable to the Company; failure to maintain compliance with NASDAQ's continued listing requirements; and the Company's ability to repay indebtedness and potential adverse effects from 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 September 30, 2020. 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.


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