Overview

The Company is a pan-European integrator of bills, payments and related solutions and services seeking to enable digital transformation of its clients. The Company serves over 2,000 clients of varying sizes and across multiple industries and geographies. The Company’s digital foundation was developed to deliver fully outsourced solutions to address current and evolving client needs. The Company hosts its products both on client premises and as a SaaS offering in the cloud.

The Company’s primary source of revenue stems from transactions processed by its products, including bills and payments processing. Other sources of revenue include the sale of recurring software licenses and professional services, perpetual software licenses, as well as hardware solutions and related maintenance. The Company offers an industry-agnostic and cross-departmental suite of products, which center around finance and accounting solutions and services.

The continued success of the Company’s business is driven by its people. Its operation centers are located in areas where the value proposition the Company offers is attractive relative to other local opportunities, resulting in an engaged, educated multi-lingual workforce that is able to make a meaningful global contribution from their local marketplace.

History

XBP Europe, Inc. was incorporated in Delaware on September 28, 2022 to facilitate the Business Combination. On November 30, 2023, following the closing of the Business Combination, it became a wholly owned subsidiary of the Company, and the Company’s shares started trading on the Nasdaq Stock Market. The Company’s subsidiaries and predecessor entities have been serving clients in the European marketplace for over 45 years.

Key Factors Affecting Company’s Business

The Company’s performance and future success depend on several factors that present significant opportunities but also pose risks and challenges.

Our Segments

The Company has two reportable segments:

1. Bills & Payments: This segment primarily focuses on optimizing how bills and payments are processed by businesses of all sizes and industries. It also includes the Company’s digital transformation revenue.

2. Technology: This segment primarily focuses on sales of recurring and perpetual software licenses and related maintenance, hardware solutions and related maintenance, and professional services.

Key Performance Indicators

The Company uses the following key performance indicators to assess its performance:

• Revenue by segment
• Gross profit by segment
• Adjusted EBITDA (a non-GAAP financial measure)

Non-GAAP Financial Measures

To supplement its financial data presented on a GAAP basis, the Company uses EBITDA and Adjusted EBITDA as non-GAAP financial measures. These measures exclude certain expenses that are required under GAAP, as they are non-recurring or non-cash expenses determined based on the Company’s underlying performance.

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to the Company’s net loss from continuing operations for the three and nine months ended September 30, 2024 and 2023:

Key Components of Revenue and Expenses

Revenue:

• Transactions processed using the Company’s products and services
• Recurring and perpetual software licenses, maintenance, and professional services

Costs and Expenses:

• Cost of revenue (salaries, benefits, facility costs, cost of products)
• Selling, general and administrative expenses (personnel, legal, audit, insurance, facilities)
• Related party expenses (shared service cost, service fee, royalties)
• Depreciation and amortization
• Interest expense (debt, finance leases, pensions)
• Foreign exchange losses/gains
• Changes in fair value of warrant liability
• Pension income

Results of Operations

The Company’s revenue, cost of revenue, and profitability decreased in the three and nine months ended September 30, 2024 compared to the same periods in 2023, primarily due to lower transaction volumes, project completions, and lower license sales. The Company’s Adjusted EBITDA also decreased over these periods.

The Company’s cash flows used in operating activities increased in the nine months ended September 30, 2024 compared to the same period in 2023, largely due to a higher net loss and higher outflows from accrued expenses and other liabilities, and related party payable.

Liquidity and Capital Resources

As of September 30, 2024, the Company had $7.8 million in cash and cash equivalents. The Company expects to spend approximately $1.5 to $2.5 million on capital expenditures and capitalized contract costs over the next twelve months.

The Company has utilized COVID-19 relief measures in various European jurisdictions, including permitted deferrals of certain payroll, social security and value added taxes. The remaining balance of these deferred taxes is expected to be paid by April 2027, or later, as per the deferment timeline.

The Company believes its current cash, cash equivalents, and cash flows from financing activities are sufficient to meet its working capital and capital expenditure requirements for at least the next twelve months. However, the Company may need to raise additional capital in the future to fund its operations and execute on its business plan.

Indebtedness

The Company has various credit facilities, including a Secured Borrowing Facility, 2019 Credit Agreement, 2022 Committed Facility Agreement, and a new 2024 Facilities Agreement entered into in June 2024. The 2024 Facilities Agreement was used to repay the outstanding balances under the prior credit facilities.

The 2024 Facilities Agreement includes a £15.0 million and €10.5 million Secured Credit Facility, consisting of term loans and a revolving credit facility. This agreement contains financial covenants related to leverage, cash flow coverage, and interest coverage ratios.

As of September 30, 2024, the Company was in compliance with all covenants under its credit facilities.

Restructuring Activities

In the fourth quarter of 2023, the Company approved a restructuring plan to realign its business and strategic priorities by rightsizing its workforce in certain regions. The Company recognized restructuring charges as an operating expense in 2023.

Potential Future Transactions

The Company may explore and evaluate possible strategic transactions, such as joint ventures or business combinations, which may require additional financing. The Company may also pursue underwritten public offerings of its common stock held by certain stockholders.

Critical Accounting Estimates

The preparation of the Company’s financial statements requires the use of judgments and estimates, particularly related to revenue recognition, goodwill and intangible asset impairment, and income taxes. There have been no material changes to the critical accounting estimates disclosed in the 2023 Form 10-K.

Emerging Growth Company Status

The Company has elected to take advantage of the extended transition period for new or revised financial accounting standards as an emerging growth company. This may make it difficult to compare the Company’s financial results to other public companies.