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TMCNet:  Startek Reports Quarterly Financial Results

[November 06, 2019]

Startek Reports Quarterly Financial Results

Startek, Inc. (NYSE:SRT), a global provider of customer experience management solutions, is reporting financial results for the quarter ended September 30, 2019.

Financial Results

The results presented for the quarter ended September 30, 2019 and June 30, 2019 include both Startek and Aegis financial results. As a result of the reverse acquisition accounting for the Startek and Aegis business combination on July 20, 2018, the results presented for the quarter ended September 30, 2018 include Startek financial results from July 20, 2018 to September 30, 2018, combined with Aegis financial results from July 1, 2018 to September 30, 2018.

Total revenue for the quarter increased 3% to $164.6 million compared to $160.6 million in the quarter ended June 30, 2019 and was up 9% compared to $151.5 million in the quarter ended September 30, 2018.

Gross profit for the quarter increased 3% to $28.5 million compared to $27.6 million in the quarter ended June 30, 2019, and was up 25% compared to $22.8 million in the quarter ended September 30, 2018.

Gross margin increased 10 basis points to 17.3% during the quarter compared to 17.2% in the quarter ended June 30, 2019, and increased 230 basis points compared to 15.0% in the quarter ended September 30, 2018.

Selling, general and administrative (SG&A) expenses were $22.9 million compared to $24.9 million in the quarter ended June 30, 2019, and $22.8 million in the year-ago quarter. As a percentage of revenue, SG&A improved to 13.9% compared to 15.5% in the quarter ended June 30, 2019 and 15.1% in the year-ago quarter.

Net loss attributable to Startek shareholders for the quarter was $2.8 million or $(0.07) per share, compared to a net loss of $3.6 million or $(0.10) per share in the quarter ended June 30, 2019, and a net loss of $10.9 million or $(0.32) per share in the year-ago quarter.

Adjusted EBITDA* for the quarter increased 21% to $13.4 million compared to $11.0 million in the quarter ended June 30, 2019, and increased 64% compared to $8.1 million in the year-ago quarter.

*A non-GAAP measure defined below.

Management Commentary

"Our third quarter was one of the strongest in Startek history, with record levels of revenue, gross margin and adjusted EBITDA since last year's business combination with Aegis," said Lance Rosenzweig, president & global CEO of Startek. "The work we have put in over the last year to integrate with Aegis, drive synergies, enhance our operating model, and convert our sales pipeline are all translating into material improvements in our business.

"During the quarter, we rebranded Aegis and are now officially going to market globally as Startek. Both Startek and Aegis have built a reputation for delivering exceptional customer experiences (CX) for the world's finest brands, and we will continue to do so under the unified Startek brand with more than 45,000 CX experts across 13 countries and six continents.

"As we close out the year and look to 2020, we will continue to focus on serving as a value-added partner to our clients, and not merely a vendor delivering outsourced support. We will also continue building upon our client diversification strategy, which is primarily targeting prospects in high-growth verticals such as education, financial services, healthcare and next-gen retail, but also growth companies in established verticals like global telecom or media and cable. Our global sales pipeline is robust, and the best years for Startek are right in front of us."

Conference Call and Webcast Details

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

Date: Wednesday, November 6, 2019
Time: 5:00 p.m. Eastern time
Toll-free dial-in number: (844) 239-5283
International dial-in number: (574) 990-1022
Conference ID: 8491158

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 also be broadcast live and available for replay here.

A replay of the conference call will be available after 8:00 p.m. Eastern time on the same day through November 13, 2019.

Toll-free replay number: (855) 859-2056
International replay number: (404) 537-3406
Replay ID: 8491158

About Startek

Startek is a leading global provider of technology-enabled business process outsourcing solutions. The company provides omni-channel customer experience management, back office and technology services to corporations around the world across a range of industries. The company has more than 45,000 outsourcing experts across 54 delivery campuses worldwide that are committed to delivering transformative customer experience for clients. Services include omni-channel customer care, customer acquisition, order processing, technical support, receivables management and analytics through automation, voice, chat, email, social media and IVR, resulting in superior business results for its clients. 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-KT for the fiscal year ended December 31, 2018, as filed with the SEC on March 14, 2019, 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 Securities and Exchange Commission, 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 OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 

Three Months Ended September 30,

 

Nine Months Ended September 30,

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

164,630

 

151,509

 

487,054

 

376,827

 

Warrant contra revenue

-

 

-

 

(730

)

-

 

Net Revenue

164,630

 

151,509

 

486,324

 

376,827

 

Cost of services

(136,142

)

(128,747

)

(403,064

)

(316,025

)

Gross profit

28,488

 

22,762

 

83,260

 

60,802

 

Selling, general and administrative expenses

(22,926

)

(22,818

)

(71,938

)

(52,480

)

Restructuring and other acquisition related cost

(220

)

(6,519

)

(2,058

)

(12,776

)

Operating income/ (loss)

5,342

 

(6,575

)

9,264

 

(4,454

)

Share of profit / (loss) of associates

(16

)

47

 

988

 

86

 

Interest expense, net

(3,372

)

(4,114

)

(11,864

)

(11,518

)

Exchange gain / (loss), net

(1,880

)

705

 

(2,558

)

(2,441

)

Profit/(Loss) before income taxes

74

 

(9,937

)

(4,170

)

(18,327

)

Income tax expense

3,436

 

953

 

4,550

 

1,519

 

Net loss

(3,362

)

(10,890

)

(8,720

)

(19,846

)

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

(575

)

11

 

1,007

 

916

 

Net loss attributable to Startek shareholders

(2,787

)

(10,901

)

(9,727

)

(20,762

)

 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments

(1,899

)

(2,049

)

(1,299

)

(5,528

)

Change in fair value of derivative instruments

(298

)

(562

)

50

 

(562

)

Pension amortization

(9

)

(483

)

(70

)

(1,263

)

Comprehensive loss

(5,568

)

(13,984

)

(10,039

)

(27,199

)

Comprehensive income (loss) attributable to non-controlling interests

(594

)

(251

)

962

 

297

 

Comprehensive loss attributable to Startek shareholders

(4,974

)

(13,733

)

(11,001

)

(27,496

)

 
Net loss per common share - basic and diluted

(0.07

)

(0.32

)

(0.26

)

(0.76

)

Weighted average common shares outstanding - basic and diluted

38,467

 

33,812

 

38,011

 

27,289

 

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
 

September 30,

December 31,

2019

 

2018

 

ASSETS
Current assets:
Cash and cash equivalents

17,795

 

16,617

 

Restricted cash

10,582

 

7,952

 

Trade accounts receivable, net

105,574

 

107,836

 

Unbilled Revenue

42,814

 

42,135

 

Prepaid and other current assets

15,082

 

18,850

 

Total current assets

191,847

 

193,390

 

Property, plant and equipment, net

35,745

 

42,242

 

Operating lease Right-of-use assets

66,647

 

-

 

Intangible assets, net

113,410

 

121,336

 

Goodwill

226,513

 

225,450

 

Investment in associates

1,739

 

2,097

 

Deferred tax assets, net

5,052

 

5,048

 

Prepaid expenses and other non-current assets

18,761

 

15,076

 

Total assets

659,714

 

604,639

 

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable

20,965

 

26,886

 

Accrued expenses and other current liabilities

79,805

 

84,881

 

Short term debt

25,213

 

21,975

 

Current maturity of long term debt

16,900

 

9,800

 

Current maturity of operating lease liabilities

19,838

 

-

 

Current maturity of finance lease obligations

658

 

1,816

 

Total current liabilities

163,379

 

145,358

 

Long term debt

141,632

 

152,100

 

Operating lease liabilities

47,782

 

-

 

Other non-current liabilities

12,581

 

11,907

 

Deferred tax liabilities, net

19,562

 

18,901

 

Total liabilities

384,936

 

328,266

 

Commitments and contingencies - -
Stockholders' equity:
Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 38,483,025 and 37,446,323 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

385

 

374

 

Additional paid-in capital

275,750

 

267,317

 

Accumulated other comprehensive loss

(6,821

)

(5,547

)

Accumulated deficit

(40,854

)

(31,127

)

Equity attributable to Startek shareholders

228,460

 

231,017

 

Non-controlling interest

46,318

 

45,356

 

Total stockholders' equity

274,778

 

276,373

 

Total liabilities and stockholders' equity

659,714

 

604,639

 

STARTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
(Unaudited)
 

Nine Months Ended September 30,

2019

 

2018

 

Operating Activities
Net loss

$ (8,720

)

$ (19,846

)

Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization

22,056

 

18,668

 

Profit on sale of property, plant and equipment

(223

)

-

 

Provision for doubtful accounts

1,238

 

2,100

 

Warrant contra revenue

730

 

-

 

Share-based compensation expense

1,151

 

249

 

Deferred income taxes

209

 

(1,284

)

Share of profit of associates

(988

)

(86

)

Changes in operating assets and liabilities:
Trade accounts receivable

(1,529

)

3,406

 

Prepaid expenses and other assets

(950

)

5,864

 

Trade accounts payable

(5,236

)

796

 

Income taxes, net

(2,267

)

(5,494

)

Accrued expenses and other current liabilities

1,150

 

(158

)

Net cash provided by operating activities

$ 6,621

 

$ 4,215

 

 
Investing Activities
Purchases of property, plant and equipment

(9,027

)

(7,430

)

Cash and cash equivalents acquired on reverse acquisition

-

 

1,496

 

Distributions received from associates

1,317

 

22

 

Net cash used in investing activities

$ (7,710

)

$ (5,912

)

 
Financing Activities
Proceeds from the issuance of common stock

6,563

 

115

 

Payments on long term debt

(7,000

)

(2,800

)

Proceeds from (payments on) other debt, net

5,831

 

4,577

 

Net cash provided by financing activities

$ 5,394

 

$ 1,892

 

Net increase (decrease) in cash and cash equivalents

4,305

 

195

 

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

(497

)

(1,271

)

Cash and cash equivalents and restricted cash at beginning of period

24,569

 

21,601

 

Cash and cash equivalents and restricted cash at end of period

$ 28,377

 

$ 20,525

 

 
Components of cash and cash equivalents and restricted cash
Balances with banks

17,795

 

14,133

 

Restricted cash

10,582

 

6,392

 

Total cash and cash equivalents and restricted cash

$ 28,377

 

$ 20,525

 

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.

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Net Loss

(3,362

)

(10,890

)

(8,720

)

(19,846

)

Income tax expense

3,436

 

953

 

4,550

 

1,519

 

Interest and other expense, net

5,268

 

3,362

 

13,434

 

13,873

 

Depreciation and amortization expense

7,425

 

7,919

 

22,056

 

18,668

 

Restructuring and other merger related cost

220

 

6,519

 

2,058

 

12,776

 

Share-based compensation expense

370

 

249

 

1,151

 

249

 

Warrant contra revenue

-

 

-

 

730

 

-

 

Adjusted EBITDA

13,357

 

8,112

 

35,259

 

27,239

 

 


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