Company Drives Consistent Month-over-Month
Improvements During the Quarter
Remains Comfortable with Liquidity Position;
Active Workforce Back to 80% of Pre-COVID Levels
Startek, Inc. (NYSE:SRT), a global provider of customer
experience management solutions, is reporting financial results for
the second quarter ended June 30, 2020.
Management Commentary
“As we navigated COVID-19 related headwinds across our
geographies, we emerged from the second quarter as a stronger, more
efficient organization,” said Aparup Sengupta, Executive Chairman
and Global CEO of Startek. “Our global command center has enabled
us to maintain the quality and continuity of our operations around
the world, and across our business, we have driven consistent
month-over-month improvements on both the top and bottom-line since
the lows of the pandemic in April.
“We have been closely monitoring the fluctuating status of
lockdowns and reopenings across our operating regions. With the
priority of keeping our entire global team safe and healthy, we
moved swiftly to get 40,000+ team members to either work from
home—through our new ‘StarCloud’ remote work capabilities—or in one
of our delivery campuses, which adhere to strict social distancing
and recommended health guidelines. Approximately 80% of our
workforce is active today compared to just 60% in mid-April, and I
am incredibly proud of our team’s flexibility and effectiveness in
completing this pivot.
“An emerging trend from clients and prospects in response to the
pandemic has been the adoption of digital services, particularly
across high-growth verticals that are experiencing tailwinds from
the COVID-19 environment. We are seeing positive momentum with
clients in industries such as healthcare, e-commerce, and even
cable/media in the wake of elevated consumer demand. Targeting
these verticals has been a consistent part of our strategy, even
predating the pandemic, so we have been well-equipped for this
opportunity. As our clients’ businesses evolve, we are committed to
helping their digital capabilities evolve with them.
“Although we have limited visibility on the effects of the
pandemic going forward, we are well-positioned to continue our
recovery and maintain a high level of active workforce. If some of
our geographies go back into lockdown, we are now much better
equipped for remote work through our StarCloud technology. We plan
to maintain prudent cost controls, as reflected by our fourth
consecutive quarter of SG&A reductions, and we remain
comfortable with our liquidity position as we navigate through this
dynamic environment.”
Second Quarter 2020 Financial Results
Net revenue for the quarter was $142.2 million compared to
$160.6 million in the second quarter of 2019. Net revenue in the
second quarter was impacted by the COVID-19 lockdowns and lower
active workforce in most geographies.
Gross profit in the second quarter was $15.8 million compared to
$27.6 million in the year ago quarter. Gross margin was 11.1%
compared to 17.2% in the year ago quarter. The lower gross margin
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 $14.6 million compared to $24.9 million in the
year-ago quarter. As a percentage of revenue, SG&A improved 520
basis points to 10.3% compared to 15.5% in the year-ago quarter as
the company has implemented a series of cost reductions over the
last 12 months and in response to COVID-19. This marks the 4th
consecutive quarter of SG&A reductions.
Net loss attributable to Startek shareholders for the quarter
was $5.2 million or $(0.14) per share, compared to a net loss of
$3.6 million or $(0.10) per share in the year-ago quarter. The
decline was driven by the aforementioned impacts from COVID-19
lockdowns.
Adjusted net loss* in the second quarter of 2020 was $2.6
million, or $(0.07) per share, compared to an adjusted net loss* of
$0.1 million or $(0.00) per share in the second quarter of
2019.
Adjusted EBITDA* for the quarter was $8.8 million compared to
$11.0 million in the year-ago quarter.
On June 30, 2020, cash and restricted cash increased to $56.4
million compared to $39.7 million at March 31, 2020. The increase
is primarily the result of tight control over costs and accounts
payable that resulted in working capital improvements, deferred
principal debt payments and a $7.5 million equity raise completed
in June 2020. Total debt at the end of the quarter reduced to
$149.9 million compared to $175.2 million at March 31, 2020,
primarily due to the closure of its ABL facility and repayment of
loans from the proceeds of non-recourse factoring. As a result, net
debt at June 30, 2020 reduced to $93.5 million compared to $135.5
million at March 31, 2020.
Senior Term Loan and Revolving Credit Facility
Amendment
Subsequent to the quarter, Startek entered into an amendment
agreement for its senior term loan and revolving credit facility.
The agreement continues to provide for a $140 million term loan
facility along with a $20 million revolving credit facility.
However, the amendments now provide Startek with a deferment of
principal payments until February 2021, and the revolving credit
facility has been increased from $20 million to $27.5 million. The
majority of financial covenants have also been waived for the
remainder of the year.
*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: Monday, August 10, 2020 Time: 5:00 p.m. Eastern time
Toll-free dial-in number: 1-800-954-1052 International dial-in
number: 1-212-231-2925 Conference ID: 21967515
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
August 17, 2020.
Toll-free replay number: 1-844-512-2921 International replay
number: 1-412-317-6671 Replay ID: 21967515
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 40,000 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
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (LOSS)
(In thousands, except per share
amounts)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Revenue
142,652
161,283
303,829
322,425
Warrant contra revenue
(485
)
(730
)
(763
)
(730
)
Net Revenue
142,167
160,553
303,066
321,695
Cost of services
(126,354
)
(132,993
)
(267,195
)
(266,921
)
Gross profit
15,813
27,560
35,871
54,774
Selling, general and administrative
expenses
(14,644
)
(24,936
)
(31,899
)
(49,015
)
Impairment losses and restructuring/exit
cost
(235
)
(721
)
(24,557
)
(1,850
)
Acquisition related cost
-
(25
)
-
11
Operating (Loss) / Income
934
1,878
(20,585
)
3,920
Share of (loss) / profit of equity
accounted investees
(12
)
662
(20
)
1,003
Interest expense, net
(3,190
)
(4,026
)
(6,696
)
(8,492
)
Exchange gain / (loss), net
(1,637
)
14
291
(677
)
Loss before income taxes
(3,905
)
(1,472
)
(27,010
)
(4,246
)
Income tax expense
1,283
730
4,159
1,113
Net loss
(5,188
)
(2,202
)
(31,169
)
(5,359
)
Net (Loss) / income
Net income attributable to non-controlling
interests
29
1,392
605
1,581
Net loss attributable to Startek
shareholders
(5,217
)
(3,594
)
(31,774
)
(6,940
)
Net loss per common share - basic and
diluted
(0.14
)
(0.10
)
(0.82
)
(0.18
)
Weighted average common shares outstanding
- basic and diluted
38,614
37,779
38,571
37,779
STARTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share
amounts)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Net Loss
(5,188
)
(2,202
)
(31,169
)
(5,359
)
Net income attributable to noncontrolling
interests
29
1,392
605
1,581
Net loss attributable to Startek
shareholders
(5,217
)
(3,594
)
(31,774
)
(6,940
)
Other comprehensive (loss) / income,
net of taxes:
Foreign currency translation
adjustments
727
32
(3,665
)
599
Change in fair value of derivative
instruments
(8
)
413
(680
)
348
Pension amortization
(3,026
)
(236
)
(2,630
)
(60
)
Comprehensive (loss) / income
(2,307
)
209
(6,975
)
887
Other comprehensive (loss) / income,
net of taxes
Other comprehensive (loss) / income
attributable to noncontrolling interest
(1,787
)
(111
)
(1,624
)
(25
)
Other comprehensive (loss) / income
attributable to Startek shareholders
(520
)
320
(5,351
)
912
(2,307
)
209
(6,975
)
887
Comprehensive (loss) / income
Comprehensive income attributable to
noncontrolling interests
(1,758
)
1,281
(1,019
)
1,556
Comprehensive loss attributable to Startek
shareholders
(5,737
)
(3,274
)
(37,125
)
(6,028
)
(7,495
)
(1,993
)
(38,144
)
(4,472
)
STARTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except share
data)
(Unaudited)
June 30,
December 31,
2020
2019
ASSETS
Current assets:
Cash and cash equivalents
47,451
20,464
Restricted cash
8,966
12,162
Trade accounts receivable, net
70,194
108,479
Unbilled revenue
40,181
41,449
Prepaid and other current assets
14,308
12,008
Total current assets
181,100
194,562
Property, plant and equipment, net
37,644
37,507
Operating lease right-of-use assets
77,437
73,692
Intangible assets, net
105,644
110,807
Goodwill
196,633
219,341
Investment in associates
109
553
Deferred tax assets, net
2,980
5,251
Prepaid expenses and other non-current
assets
17,113
16,370
Total assets
618,660
658,083
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Trade accounts payables
18,669
25,449
Accrued expenses
54,857
45,439
Short term debt
29,134
26,491
Current maturity of long term debt
9,863
18,233
Current maturity of operating lease
obligation
20,223
19,677
Other current liabilities
39,089
37,159
Total current liabilities
171,835
172,448
Long term debt
110,923
130,144
Operating lease liabilities
58,251
54,341
Other non-current liabilities
17,935
11,140
Deferred tax liabilities, net
17,095
18,226
Total liabilities
376,039
386,299
Commitments and contingencies
—
—
Stockholders’ equity:
Common stock, 60,000,000 non-convertible
shares, $0.01 par value, authorized; 40,210,299 and 38,525,636
shares issued and outstanding at June 30, 2020 and December 31,
2019, respectively
401
385
Additional paid-in capital
286,205
276,827
Accumulated deficit
(78,332
)
(46,145
)
Accumulated other comprehensive loss
(11,373
)
(6,022
)
Equity attributable to Startek
shareholders
196,901
225,045
Non-controlling interest
45,720
46,739
Total stockholders’ equity
242,621
271,784
Total liabilities and stockholders’
equity
618,660
658,083
STARTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June
30,
2020
2019
Operating Activities
Net loss
$
(31,169
)
$
(5,359
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
14,328
14,631
Impairment of goodwill
22,708
-
Profit on sale of property, plant and
equipment
-
(223
)
Provision for doubtful accounts
889
1,169
Warrant contra revenue
763
730
Share-based compensation expense
209
781
Deferred income taxes
1,604
(1,224
)
Share of profit of associates
20
(1,003
)
Changes in operating assets and
liabilities:
Trade accounts receivable
34,022
(1,218
)
Prepaid expenses and other assets
(2,301
)
(7,677
)
Trade accounts payable
(5,920
)
(2,091
)
Income taxes, net
(2,314
)
(2,663
)
Accrued expenses and other current
liabilities
15,558
(1,280
)
Net cash (used in) / generated from
operating activities
$
48,397
$
(5,427
)
Investing Activities
Purchases of property, plant and
equipment
(7,864
)
(7,302
)
Proceeds from equity-accounted
investees
395
1,329
Net cash used in generated investing
activities
$
(7,469
)
$
(5,973
)
Financing Activities
Proceeds from the issuance of common
stock
8,009
6,466
Payments on long term debt
(4,200
)
(4,200
)
Proceeds from (payments on) other debt,
net
(20,449
)
10,513
Net cash (used in) / generated from
financing activities
$
(16,640
)
$
12,779
Net increase in cash and cash
equivalents
24,288
1,379
Effect of exchange rate changes on cash
and cash equivalents and restricted cash
(497
)
(40
)
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
$
56,417
$
25,908
Components of cash and cash equivalents
and restricted cash
Balances with banks
47,451
15,452
Restricted cash
8,966
10,456
Total cash and cash equivalents and
restricted cash
56,417
$
25,908
Supplemental disclosure of Cash Flow
Information
Cash paid for Interest and other finance
cost
6,440
8,200
Cash paid for income taxes
4,017
4,920
Non cash warrant contra revenue
763
730
Non cash share-based compensation
expenses
209
781
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
June
Six Months Ended June
2020
2019
2020
2019
Net Loss
(5,188
)
(2,202
)
(31,169
)
(5,359
)
Income tax expense
1,283
730
4,159
1,113
Interest and other expense, net
3,202
3,364
6,716
7,489
Exchange gain/(loss), net
1,637
(14
)
(291
)
677
Depreciation and amortization expense
7,234
7,328
14,328
14,631
Impairment losses and restructuring
cost
235
746
24,557
1,839
Share-based compensation expense
(82
)
356
209
781
Warrant contra revenue
485
730
763
730
Adjusted EBITDA
8,806
11,038
19,272
21,901
Adjusted EPS:
Three Months Ended
June
Six Months Ended June
2020
2019
2020
2019
Profit attributable to Startek
shareholders
(5,217
)
(3,594
)
(31,774
)
(6,940
)
Add: Share based compensation expense
(82
)
356
209
781
Add: Amortization of intangible assets
2,260
2,428
4,522
4,739
Add: Warrant contra revenue
485
730
763
730
Add: Goodwill impairment loss
-
-
22,708
-
Adjusted net income / (loss)
(non-GAAP)
(2,554
)
(80
)
(3,572
)
(690
)
Weighted average common shares outstanding
- Basic & Diluted
38,614
37,779
38,571
37,779
Adjusted EPS - Basic &
Diluted
(0.07
)
(0.00
)
(0.09
)
(0.02
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200810005733/en/
Investor Relations Sean Mansouri, CFA Gateway Investor
Relations (949) 574-3860 investor@startek.com
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