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Startek Reports Third Quarter 2020 Financial Results

Business Wire India

- Sequential Quarterly Improvements Across Key Financial Metrics Demonstrate Continued Progress of Recovery -

- Focus on Cost Management and Digital Optimization Drives Strong Operational Momentum - 


Startek, Inc. (NYSE:SRT), a global provider of customer experience management solutions, is reporting financial results for the third quarter ended September 30, 2020.

 

Third Quarter 2020 Financial Highlights ($ in millions)

 

 

Q3 2020

Q2 2020

Q3 2019

Net Revenue

$162.7

$142.2

$164.6

Gross Profit

$22.9

$15.8

$28.5

Gross Margin

14.1%

11.1%

17.3%

SG&A Expenses

$14.9

$14.6

$22.9

Net Income/(Loss)1

$0.4

$(5.2)

$(2.8)

Adjusted EBITDA2

$15.6

$8.8

$13.4


Management Commentary

 

“Our third quarter performance demonstrates our continued progress in recovering from the pandemic and further improving operational efficiency,” said Aparup Sengupta, Executive Chairman and Global CEO of Startek. “We drove sequential quarterly improvements across all key financial metrics, as well as significant year-over-year growth on the bottom line. Further, we are operating at close to full strength relative to pre-COVID levels, with over 90% of our global workforce now active in either remote or on-campus environments. I am proud of our team’s agility and deep commitment to maintaining the quality and continuity of our services during this challenging period.

 

“The operational improvements and digital initiatives we have implemented over the past several quarters have allowed us to expand our scope of work within our core verticals and launch several new client programs, all while maintaining a keen focus on cost management. This has been further supported by continued robust demand in the e-commerce and healthcare sectors, where clients are increasingly leveraging our differentiated, rapidly evolving digital solutions. Our recently introduced StarCloud omnichannel platform also continues to provide a seamless and secure customer experience for our clients by enabling remote work environments for our teams across the globe.

 

“Looking ahead, we expect our digital initiatives to be a key driver of both future revenue growth and operating leverage, as we believe the hybrid remote work structure is here to stay for the long-term. As such, we have recently reduced our physical capacity by nearly 10%. We remain well prepared for a resurgence in COVID-19 cases within any of our geographies, as we now have the flexibility to quickly pivot operations with our StarCloud technology. With a strong foundation in place, we believe we are in the early innings of the next phase of growth for Startek as we look to carry our momentum into next year.”

 

Third Quarter 2020 Financial Results

 

Net revenue in the third quarter was $162.7 million compared to $164.6 million in the third quarter of 2019. The slight decrease was driven by depreciation of the Argentina Peso & the Indian Rupees, warrant contra revenue and the continued impact of COVID-19 lockdowns and lower active workforce in certain geographies. On a constant currency basis, net revenue increased 3.5% compared to the prior year period.

 

Gross profit in the third quarter was $22.9 million compared to $28.5 million in the year-ago quarter. Gross margin was 14.1% compared to 17.3% in the year ago quarter. The decrease was primarily driven by higher outsourcing, contract, maintenance and communication expenses, partially offset by lower travelling and recruitment costs.

 

Selling, general and administrative (SG&A) expenses in the third quarter decreased to $14.9 million compared to $22.9 million in the year-ago quarter. As a percentage of revenue, SG&A improved 480 basis points to 9.1% compared to 13.9% in the year-ago quarter as a result of the cost reductions the company has implemented over the last 12 months and in response to COVID-19.

 

Net income attributable to Startek shareholders in the third quarter increased significantly to $0.4 million or $0.01 per diluted share, compared to a net loss of $2.8 million or $(0.07) per share in the year-ago quarter. The increase was driven by prudent expense management throughout the organization.

 

Adjusted net income* in the third quarter increased significantly to $3.3 million, or $0.08 per diluted share, compared to an adjusted net loss* of $0.5 million or $(0.01) per share in the year-ago quarter.

 

Adjusted EBITDA* in the third quarter increased 16.8% to $15.6 million compared to $13.4 million in the year-ago quarter. The increase was primarily driven by the aforementioned cost reductions and focus on prudent expense management.

 

On September 30, 2020, cash and restricted cash increased slightly to $56.6 million compared to $56.4 million at June 30, 2020. The increase is primarily the result of continued tight control over costs and accounts payable and deferred principal debt payments. Total debt at the end of the quarter reduced to $136.0 million compared to $149.9 million at June 30, 2020, primarily due to lower drawdowns of the revolver and working capital facilities. As a result, net debt at September 30, 2020 reduced to $79.4 million compared to $93.5 million at June 30, 2020. Per conditions of the company’s Restated Senior Debt agreement, Startek plans to make a $4.2 million principal repayment in November that was previously deferred.

 

*A non-GAAP measure defined below.

 
_______________

1

 

Reflects net income (loss) attributable to Startek shareholders.

2

 

Refer to the note below about Non-GAAP financial measures.

Conference Call and Webcast Details

 

Startek management will hold a conference call today at 5:00 p.m. Eastern time to discuss its financial results. The conference call will be followed by a question and answer period.

 

Date: Monday, November 9, 2020
Time: 5:00 p.m. Eastern time
Toll-free dial-in number: (844) 239-5283
International dial-in number: (574) 990-1022
Conference ID: 6192319

 

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at (949) 574-3860.

 

The conference call will be broadcast live and available for replay here, as well as in the investor relations section of the company’s website at www.startek.com.

 

A telephonic replay of the conference call will also be available after 8:00 p.m. Eastern time on the same day through November 16, 2020.

 

Toll-free replay number: (855) 859-2056
International replay number: (404) 537-3406
Replay ID: 6192319

 

About Startek

 

Startek is a global provider of tech-enabled business process management solutions. The company provides omni-channel customer experience, digital transformation, and technology services to some of the finest brands globally. Startek is committed to impacting clients’ business outcomes by focusing on enhancing customer experience and digital & AI enablement across all touch points and channels. Startek has more than 40,000 CX experts spread across 46 delivery campuses in 13 countries. The company services over 250 clients across a range of industries such as Banking and Financial Services, Insurance, Technology, Telecom, Healthcare, Travel & Hospitality, Ecommerce, Consumer Goods, Retail, and Energy & Utilities. To learn more about Startek’s global solutions, please visit www.startek.com.

 

Forward-Looking Statements

 

The matters regarding the future discussed in this news release include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are intended to be identified in this document by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should” and similar expressions. As described below, such statements are subject to a number of risks and uncertainties that could cause Startek's actual results to differ materially from those expressed or implied by any such forward-looking statements. Readers are encouraged to review risk factors and all other disclosures appearing in the Company's Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission (SEC) on March 12, 2020, as well as other filings with the SEC, for further information on risks and uncertainties that could affect Startek's business, financial condition and results of operation. Copies of these filings are available from the SEC, the Company’s website or the Company’s investor relations department. Startek assumes no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date herein.

 

STARTEK, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

 

(In thousands, except per share amounts)

 

(Unaudited)

         

 

 

Three Months Ended

 

September 30,

 

Nine Months Ended

 

September 30,

 

 

2020

 

2019

 

2020

 

2019

Revenue

 

 

163,097

 

 

 

164,630

 

 

 

466,926

 

 

 

487,054

 

Warrant contra revenue

 

 

(410

)

 

 

-

 

 

 

(1,173

)

 

 

(730

)

Net Revenue

 

 

162,687

 

 

 

164,630

 

 

 

465,753

 

 

 

486,324

 

Cost of services

 

 

(139,808

)

 

 

(136,142

)

 

 

(407,003

)

 

 

(403,064

)

Gross profit

 

 

22,879

 

 

 

28,488

 

 

 

58,750

 

 

 

83,260

 

Selling, general and administrative expenses

 

 

(14,876

)

 

 

(22,926

)

 

 

(46,774

)

 

 

(71,938

)

Impairment losses and restructuring/exit cost

 

 

12

 

 

 

(220

)

 

 

(24,545

)

 

 

(2,069

)

Acquisition related cost

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11

 

Operating Income/ (Loss)

 

 

8,015

 

 

 

5,342

 

 

 

(12,569

)

 

 

9,264

 

Share of (loss) / profit of equity accounted investees

 

 

(5

)

 

 

(16

)

 

 

(25

)

 

 

988

 

Interest expense, net

 

 

(3,988

)

 

 

(3,372

)

 

 

(10,684

)

 

 

(11,864

)

Exchange loss, net

 

 

(621

)

 

 

(1,880

)

 

 

(331

)

 

 

(2,558

)

Income /(Loss) before income taxes

 

 

3,401

 

 

 

74

 

 

 

(23,609

)

 

 

(4,170

)

Income tax expense

 

 

1,649

 

 

 

3,436

 

 

 

5,808

 

 

 

4,550

 

Net lncome / (Loss)

 

 

1,752

 

 

 

(3,362

)

 

 

(29,417

)

 

 

(8,720

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income/ (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Net income /(loss) attributable to non-controlling interests

 

 

1,385

 

 

 

(575

)

 

 

1,990

 

 

 

1,007

 

Net income/ (loss) attributable to Startek shareholders

 

 

367

 

 

 

(2,787

)

 

 

(31,407

)

 

 

(9,727

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain /(loss) per common share - basic

 

 

0.01

 

 

 

(0.07

)

 

 

(0.80

)

 

 

(0.26

)

Net gain /(loss) per common share - diluted

 

 

0.01

 

 

 

(0.07

)

 

 

(0.80

)

 

 

(0.26

)

Weighted average common shares outstanding - basic

 

 

40,275

 

 

 

38,467

 

 

 

39,143

 

 

 

38,011

 

Weighted average common shares outstanding - diluted

 

 

40,626

 

 

 

38,467

 

 

 

39,143

 

 

 

38,011

 

 

STARTEK, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

 

(In thousands, except per share amounts)

 

(Unaudited)

         

 

 

Three Months Ended

 

September 30,

 

Nine Months Ended

 

September 30,

 

 

2020

 

2019

 

2020

 

2019

Net Income / (Loss)

 

 

1,752

 

 

 

(3,362

)

 

 

(29,417

)

 

 

(8,720

)

Net income/ (Loss) attributable to non-controlling interests

 

 

1,385

 

 

 

(575

)

 

 

1,990

 

 

 

1,007

 

Net Income/ (Loss) attributable to Startek shareholders

 

 

367

 

 

 

(2,787

)

 

 

(31,407

)

 

 

(9,727

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) / income, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

936

 

 

 

(1,899

)

 

 

(2,729

)

 

 

(1,299

)

Change in fair value of derivative instruments

 

 

103

 

 

 

(298

)

 

 

(577

)

 

 

50

 

Pension amortization

 

 

774

 

 

 

(9

)

 

 

(1,856

)

 

 

(70

)

Comprehensive (loss) / income

 

 

1,813

 

 

 

(2,206

)

 

 

(5,162

)

 

 

(1,319

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) / income, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) / income attributable to non-controlling interest

 

 

413

 

 

 

(19

)

 

 

(1,211

)

 

 

(45

)

Other comprehensive (loss) / income attributable to Startek shareholders

 

 

1,400

 

 

 

(2,187

)

 

 

(3,951

)

 

 

(1,274

)

 

 

 

1,813

 

 

 

(2,206

)

 

 

(5,162

)

 

 

(1,319

)

Comprehensive (loss) / income

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss)/income attributable to non-controlling interests

 

 

1,798

 

 

 

(594

)

 

 

779

 

 

 

962

 

Comprehensive (loss)/ income attributable to Startek shareholders

 

 

1,767

 

 

 

(4,974

)

 

 

(35,358

)

 

 

(11,001

)

 

 

 

3,565

 

 

 

(5,568

)

 

 

(34,579

)

 

 

(10,039

)

 

STARTEK, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share data)

 

(Unaudited)

         

 

 

September 30,

 

December 31,

 

 

2020

 

2019

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

 

48,463

 

 

 

20,464

 

Restricted cash

 

 

8,122

 

 

 

12,162

 

Trade accounts receivable, net

 

 

77,767

 

 

 

108,479

 

Unbilled revenue

 

 

40,126

 

 

 

41,449

 

Prepaid and other current assets

 

 

12,612

 

 

 

12,008

 

Total current assets

 

 

187,090

 

 

 

194,562

 

Property, plant and equipment, net

 

 

34,423

 

 

 

37,507

 

Operating lease right-of-use assets

 

 

70,256

 

 

 

73,692

 

Intangible assets, net

 

 

103,042

 

 

 

110,807

 

Goodwill

 

 

196,633

 

 

 

219,341

 

Investment in associates

 

 

109

 

 

 

553

 

Deferred tax assets, net

 

 

2,782

 

 

 

5,251

 

Prepaid expenses and other non-current assets

 

 

13,140

 

 

 

16,370

 

Total assets

 

 

607,475

 

 

 

658,083

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Trade accounts payables

 

 

14,591

 

 

 

25,449

 

Accrued expenses

 

 

64,375

 

 

 

45,439

 

Short term debt

 

 

15,206

 

 

 

26,491

 

Current maturity of long term debt

 

 

19,142

 

 

 

18,233

 

Current maturity of operating lease obligation

 

 

18,649

 

 

 

19,677

 

Other current liabilities

 

 

39,854

 

 

 

37,159

 

Total current liabilities

 

 

171,817

 

 

 

172,448

 

Long term debt

 

 

101,626

 

 

 

130,144

 

Operating lease liabilities

 

 

52,854

 

 

 

54,341

 

Other non-current liabilities

 

 

17,378

 

 

 

11,140

 

Deferred tax liabilities, net

 

 

16,596

 

 

 

18,226

 

Total liabilities

 

 

360,271

 

 

 

386,299

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 40,288,453 and 38,525,636 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

403

 

 

 

385

 

Additional paid-in capital

 

 

287,221

 

 

 

276,827

 

Accumulated deficit

 

 

(77,965

)

 

 

(46,145

)

Accumulated other comprehensive loss

 

 

(9,973

)

 

 

(6,022

)

Equity attributable to Startek shareholders

 

 

199,686

 

 

 

225,045

 

Non-controlling interest

 

 

47,518

 

 

 

46,739

 

Total stockholders’ equity

 

 

247,204

 

 

 

271,784

 

Total liabilities and stockholders’ equity

 

 

607,475

 

 

 

658,083

 

 

STARTEK, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In thousands)

 

(Unaudited)

     

 

 

Nine Months Ended September 30,

 

 

2020

 

2019

Operating Activities

 

 

 

 

 

 

Net loss

 

$

(29,417

)

 

$

(8,720

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

21,279

 

 

 

22,056

 

Impairment of goodwill

 

 

22,708

 

 

 

-

 

Loss /(profit) on sale of property, plant and equipment

 

 

181

 

 

 

(223

)

Provision for doubtful accounts

 

 

2,089

 

 

 

1,238

 

Warrant contra revenue

 

 

1,173

 

 

 

730

 

Share-based compensation expense

 

 

447

 

 

 

1,151

 

Deferred income taxes

 

 

1,192

 

 

 

209

 

Share of loss / (profit) of equity accounted investees

 

 

25

 

 

 

(988

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable, net

 

 

26,171

 

 

 

(1,529

)

Prepaid expenses and other assets, current and noncurrent

 

 

(117

)

 

 

(950

)

Trade accounts payable

 

 

(10,155

)

 

 

(5,236

)

Income taxes, net

 

 

1,300

 

 

 

(2,267

)

Accrued expenses and other liabilities, current and noncurrent

 

 

27,421

 

 

 

1,150

 

Net cash generated from operating activities

 

$

64,297

 

 

$

6,621

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(10,141

)

 

 

(9,027

)

Proceeds from equity-accounted investees

 

 

429

 

 

 

1,317

 

Net cash used in investing activities

 

$

(9,712

)

 

$

(7,710

)

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

Proceeds from the issuance of common stock

 

 

8,379

 

 

 

6,563

 

Payments on long term debt

 

 

(4,200

)

 

 

(7,000

)

Proceeds from (payments on) other debt, net

 

 

(34,549

)

 

 

5,831

 

Net cash (used in) / generated from financing activities

 

$

(30,370

)

 

$

5,394

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

24,215

 

 

 

4,305

 

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

 

(256

)

 

 

(497

)

Cash and cash equivalents and restricted cash at the beginning of the period

 

 

32,626

 

 

 

24,569

 

Cash and cash equivalents and restricted cash at the end of the period

 

$

56,585

 

 

$

28,377

 

 

 

 

 

 

 

 

Components of cash and cash equivalents and restricted cash

 

 

 

 

 

 

Balances with banks

 

 

48,463

 

 

 

17,795

 

Restricted cash

 

 

8,122

 

 

 

10,582

 

Total cash and cash equivalents and restricted cash

 

$

56,585

 

 

$

28,377

 

 

 

 

 

 

 

 

Supplemental disclosure of Cash Flow Information

 

 

 

 

 

 

Cash paid for Interest and other finance cost

 

 

10,392

 

 

 

11,179

 

Cash paid for income taxes

 

 

2,752

 

 

 

6,740

 

Non cash warrant contra revenue

 

 

1,173

 

 

 

730

 

Non cash share-based compensation expenses

 

 

447

 

 

 

1,151

 

 

STARTEK, INC. AND SUBSIDIARIES

 

RECONCILIATION OF GAAP TO NON-GAAP MEASURE

 

(In thousands)

 

(Unaudited)

                         

This press release contains references to the non-GAAP financial measure of Adjusted EBITDA. Reconciliation of this non-GAAP measure to its comparable GAAP measure is included below. This non-GAAP information should not be construed as an alternative to the reported results determined in accordance with GAAP. It is provided solely to assist in an investor’s understanding of these items on the comparability of the Company’s operations.

                         

Adjusted EBITDA:

The Company defines non-GAAP Adjusted EBITDA as Net loss plus Income tax expense, Interest and other expense, net, Depreciation and amortization expense, Restructuring and other acquisition related cost, Share-based compensation expense and Warrant contra revenue (if applicable). Management uses Adjusted EBITDA as a performance measure to analyze the performance of our business. Management believes that excluding these non-cash and other non-recurring items permits a more meaningful comparison and understanding of our strength and performance of our ongoing operations for our investors and analysts.

                         

Adjusted EPS:

Adjusted EPS is a non-GAAP financial measure presenting the earnings generated by our ongoing operations that we believe is useful to investors in making meaningful comparisons to other companies, although our measure of Adjusted EPS may not be directly comparable to similar measures used by other companies, and period-over-period comparisons. Adjusted EPS is defined as our diluted earnings per common share attributable to Startek shareholders adjusted to exclude the effects of the amortization of acquisition-related intangible assets, investments that investors may want to evaluate separately (such as based on fair value) and the impact of certain events, gains, losses or other charges that affect period-over-period comparisons. Acquisition-related intangible assets are recognized as a result of the application of Accounting Standards Codification Topic (“ASC”) 805, Business Combinations (such as customer relationships and Brand), and their amortization is significantly affected by the size and timing of our acquisitions.

                         

Adjusted EBITDA:

 

 

Three Months Ended

 

September 30,

 

Nine Months Ended

 

September 30,

 

 

2020

 

2019

 

2020

 

2019

Net Profit/(Loss)

 

 

1,752

 

 

 

(3,362

)

 

 

(29,417

)

 

 

(8,720

)

Income tax expense

 

 

1,649

 

 

 

3,436

 

 

 

5,808

 

 

 

4,550

 

Interest and other expense, net

 

 

3,993

 

 

 

3,388

 

 

 

10,708

 

 

 

10,876

 

Exchange loss, net

 

 

621

 

 

 

1,880

 

 

 

331

 

 

 

2,558

 

Depreciation and amortization expense

 

 

6,951

 

 

 

7,424

 

 

 

21,279

 

 

 

22,056

 

Impairment losses and restructuring cost

 

 

(12

)

 

 

220

 

 

 

24,545

 

 

 

2,058

 

Share-based compensation expense

 

 

238

 

 

 

370

 

 

 

447

 

 

 

1,151

 

Warrant contra revenue

 

 

410

 

 

 

-

 

 

 

1,173

 

 

 

730

 

Adjusted EBITDA

 

 

15,602

 

 

 

13,356

 

 

 

34,874

 

 

 

35,259

 

                         

Adjusted EPS:

 

 

Three Months Ended

 

September 30,

 

Nine Months Ended

 

September 30,

 

 

2020

 

2019

 

2020

 

2019

Profit/ (Loss) attributable to Startek shareholders

 

 

367

 

 

 

(2,787

)

 

 

(31,407

)

 

 

(9,727

)

Add: Share based compensation expense

 

 

238

 

 

 

370

 

 

 

447

 

 

 

1,151

 

Add: Amortization of intangible assets

 

 

2,279

 

 

 

1,962

 

 

 

6,801

 

 

 

6,701

 

Add: Warrant contra revenue

 

 

410

 

 

 

-

 

 

 

1,173

 

 

 

730

 

Add: Goodwill impairment loss

 

 

-

 

 

 

-

 

 

 

22,708

 

 

 

-

 

Adjusted net income / (loss) (non-GAAP)

 

 

3,294

 

 

 

(455

)

 

 

(277

)

 

 

(1,145

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - Basic & Diluted

 

 

40,275

 

 

 

38,467

 

 

 

39,143

 

 

 

38,011

 

Weighted average common shares outstanding - Diluted

 

 

40,626

 

 

 

38,467

 

 

 

39,143

 

 

 

38,011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS - Basic

 

 

0.08

 

 

 

(0.01

)

 

 

(0.01

)

 

 

(0.03

)

Adjusted EPS - Diluted

 

 

0.08

 

 

 

(0.01

)

 

 

(0.01

)

 

 

(0.03

)

 

 

 

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