Startek Reports Quarterly Financial Results

Company has Taken Swift Measures to Counter the Impact from COVID-19

GREENWOOD VILLAGE, Colo.--()--Startek, Inc. (NYSE:SRT), a global provider of customer experience management solutions, is reporting financial results for the quarter ended March 31, 2020.

Management Commentary

“Since the onset of the pandemic, we have continued to prioritize our employees’ health and safety while providing ongoing support for our clients,” said Aparup Sengupta, Executive Chairman and Global CEO of Startek. “As a global company, the degree of COVID-19 related impacts to our business has varied by geography. However, I can proudly state that we have taken very effective measures to partially offset the impact of this unprecedented challenge faced by the world.

“Beginning in late March, we experienced sudden lockdowns and movement restrictions which impacted our operations. We quickly enabled employees to work from home in many of our geographies after gaining approval from clients and other regulatory authorities. As more economies begin to reopen, we are preparing our delivery campuses to operate efficiently with proper safety and social distancing standards. However, we plan to remain flexible with our business operations until we are certain of what the new normal will be.”

Rajiv Ahuja, President of Startek added, “The demand from our clients remains very strong, particularly within our largest verticals, such as telecom, e-commerce, media/cable, and healthcare. As we look ahead, like most businesses around the world, we cannot predict the full impact from COVID-19, as the aftermath from the pandemic and its effect on the global economy remains uncertain. Nevertheless, we expect to continue adapting to the new environment accordingly, with a key focus on cost controls and managing adequate liquidity.

“I am incredibly proud of our team for their hard work and dedication to serving our clients despite the various challenges we have faced, and our deepest condolences go to all the families dealing with the health and economic consequences of this tragic pandemic.”

First Quarter 2020 Financial Results

Net revenue for the quarter was $160.9 million compared to $161.1 million in the first quarter of 2019. Net revenue in the first quarter was impacted by the COVID-19 lockdowns in most geographies.

Gross profit in the first quarter was $20.1 million compared to $27.2 million in the year ago quarter. Gross margin was 12.5% compared to 16.9% in the year ago quarter. Lower gross margins was primarily driven by higher costs relative to revenues as a result of the COVID-19 lockdowns in geographies such as India, Philippines and Honduras.

Selling, general and administrative (SG&A) expenses decreased to $17.3 million compared to $24.1 million in the year-ago quarter. As a percentage of revenue, SG&A improved 420 basis points to 10.7% compared to 14.9% in the year-ago quarter as the company has implemented a series of cost reductions over the last 12 months. This is also reflected in the sequential decline in SG&A costs over the last three quarters.

Net loss attributable to Startek shareholders for the quarter was $26.6 million or $(0.69) per share, compared to a net loss of $3.3 million or $(0.09) per share in the year-ago quarter. Net loss in the first quarter of 2020 included an approximate $22.7 million goodwill impairment primarily due to COVID-19 related forecasted declines in the Company’s business in India, South Africa, and Australia.

Adjusted net loss* in the first quarter of 2020 was $0.7 million, or $(0.02) per share, compared to an adjusted net loss* of $0.3 million or $(0.01) in the first quarter of 2019.

Adjusted EBITDA* for the quarter was $10.5 million compared to $10.9 million in the year-ago quarter.

At March 31, 2020, cash and restricted cash increased to $39.7 million compared to $32.6 million at December 31, 2019. Total debt at the end of the quarter was $175.2 million compared to $174.9 million at the end of 2019. This resulted in a reduction of net debt to $135.5 million compared to $142.1 million. The company continues to focus on ensuring adequate liquidity for future needs and is comfortable with its cash balance today.

*A non-GAAP measure defined below.

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: Wednesday, June 10, 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: 3042088

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 June 17, 2020.

Toll-free replay number: (855) 859-2056
International replay number: (404) 537-3406
Replay ID: 3042088

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 49 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-K for the fiscal year ended December 31, 2019, as filed with the 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 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

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

Three Months Ended March 31,

2020

 

2019

Revenue

161,177

161,142

Warrant contra revenue

(278)

-

Net Revenue

160,899

161,142

Cost of services

(140,841)

(133,928)

Gross profit

20,058

27,214

Selling, general and administrative expenses

(17,255)

(24,079)

Impairment losses and restructuring/exit cost

(24,322)

(1,129)

Acquisition related cost

-

35

Operating (loss) income

(21,519)

2,042

Share of (loss) / profit of equity accounted investees

(8)

342

Interest expense, net

(3,506)

(4,465)

Exchange gain / (loss), net

1,928

(691)

Loss before income taxes

(23,105)

(2,772)

Income tax expense

2,876

385

Net loss

(25,981)

(3,157)

Net income attributable to non-controlling interests

576

189

Net loss attributable to Startek shareholders

(26,557)

(3,346)

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

(4,392)

567

Change in fair value of derivative instruments

(672)

(65)

Pension amortization

396

176

Comprehensive loss

(30,649)

(2,479)

Comprehensive income attributable to non-controlling interests

739

276

Comprehensive loss attributable to Startek shareholders

(31,388)

(2,755)

 
Net loss per common share - basic and diluted

(0.69)

(0.09)

Weighted average common shares outstanding - basic and diluted

38,528

37,522

STARTEK, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

March 31,

 

December 31,

2020

 

2019

ASSETS
Current assets:
Cash and cash equivalents

27,795

20,464

Restricted cash

11,862

12,162

Trade accounts receivable, net

100,152

108,479

Unbilled Revenue

40,586

41,449

Prepaid and other current assets

19,516

12,008

Total current assets

199,911

194,562

Property, plant and equipment, net

34,133

37,507

Operating lease Right-of-use assets

79,370

73,692

Intangible assets, net

108,225

110,807

Goodwill

196,633

219,341

Investment in associates

477

553

Deferred tax assets, net

3,009

5,251

Prepaid expenses and other non-current assets

15,568

16,370

Total assets

637,326

658,083

 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable

20,004

25,449

Accrued expenses and other current liabilities

89,600

82,598

Short term debt

32,387

26,491

Current maturity of long term debt

18,666

17,601

Current maturity of operating lease liabilities

20,761

19,677

Current maturity of finance lease obligations

750

632

Total current liabilities

182,168

172,448

Long term debt

123,387

130,144

Operating lease liabilities

59,404

54,341

Other non-current liabilities

12,881

11,140

Deferred tax liabilities, net

17,739

18,226

Total liabilities

395,579

386,299

Commitments and contingencies

Stockholders’ equity:
Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 38,541,724 and 38,525,636 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

385

385

Additional paid-in capital

277,852

276,827

Accumulated other comprehensive loss

(10,853)

(6,022)

Accumulated deficit

(73,115)

(46,145)

Equity attributable to Startek shareholders

194,269

225,045

Non-controlling interest

47,478

46,739

Total stockholders’ equity

241,747

271,784

Total liabilities and stockholders’ equity

637,326

658,083

STARTEK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

Three Months Ended March 31,

2020

 

2019

Operating Activities
Net loss

$ (25,981)

$ (3,157)

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

7,093

7,304

Impairment of goodwill

22,708

0

Profit on sale of property, plant and equipment

-

(251)

Provision for doubtful accounts

154

630

Warrant contra revenue

278

-

Share-based compensation expense

291

425

Deferred income taxes

1,879

(659)

Share of profit of associates

8

(342)

Changes in operating assets and liabilities:
Trade accounts receivable

4,503

4,384

Prepaid expenses and other assets

(7,658)

(8,789)

Trade accounts payable

(4,722)

(79)

Income taxes, net

(672)

(948)

Accrued expenses and other current liabilities

12,287

1,105

Net cash (used in) / generated from operating activities

$ 10,168

$ (377)

 
Investing Activities
Purchases of property, plant and equipment

(2,884)

(3,495)

Net cash used in generated investing activities

$ (2,884)

$ (3,495)

 
Financing Activities
Proceeds from the issuance of common stock

43

515

Payments on long term debt

(4,200)

(1,400)

Proceeds from (payments on) other debt, net

4,956

6,102

Net cash generated from financing activities

$ 799

$ 5,217

Net increase in cash and cash equivalents

8,083

1,345

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

(1,052)

(226)

Cash and cash equivalents and restricted cash at beginning of period

32,626

24,569

Cash and cash equivalents and restricted cash at end of period

$ 39,657

$ 25,688

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

27,795

14,595

Restricted cash

11,862

11,093

Total cash and cash equivalents and restricted cash

$ 39,657

$ 25,688

STARTEK, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(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, Impairment losses and restructuring/exit cost, Share-based compensation expense and Warrant contra revenue. 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 March

2020

 

 

2019

 

Net Loss

(25,981

)

(3,157

)

Income tax expense

2,876

 

385

 

Interest and other expense, net

1,586

 

4,814

 

Depreciation and amortization expense

7,093

 

7,304

 

Impairment losses and restructuring/exit cost

24,322

 

1,093

 

Share-based compensation expense

291

 

425

 

Warrant contra revenue

278

 

-

 

Adjusted EBITDA

10,465

 

10,864

 

 
 
Adjusted EPS:

Three Months Ended March

2020

 

 

2019

 

Loss attributable to Startek shareholders

(26,557

)

(3,346

)

Add: Share based Compensation

291

 

425

 

Add: Amortization of Intangible assets

2,582

 

2,628

 

Add: Share warrant expense

278

 

-

 

Add: Deferred tax adjustment on Retained earning

-

 

-

 

Add: Impairment losses and restructuring/exit cost

22,708

 

-

 

 
Adjusted net income / (loss) attributable to Startek shareholder

(698

)

(293

)

 
Weighted average common shares outstanding - Basic & Diluted

38,528

 

37,522

 

 
Adjusted EPS

(0.02

)

(0.01

)

 

Contacts

Investor Relations
Sean Mansouri, CFA
Gateway Investor Relations
(949) 574-3860
investor@startek.com

Release Summary

Startek Reports Quarterly Financial Results

Contacts

Investor Relations
Sean Mansouri, CFA
Gateway Investor Relations
(949) 574-3860
investor@startek.com