SGS Stream Global Services,

Stream Global Services, Inc., (NYSE AMEX: SGS), a leading global business process outsourcing (BPO) service provider specializing in customer relationship management and business process outsourcing services for many Fortune 1000 companies, today announced consolidated financial results for the three months and year ended December 31, 2010. Today Stream filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2010 with the Securities and Exchange Commission.

CEO Commentary

Kathryn Marinello, Chairman and Chief Executive Officer of Stream said, "We are delighted with our top line results for the fourth quarter. We continue to see strong demand for our services as demonstrated by our 10.4% growth in year-over-year revenue for the fourth quarter. Internally, we are very focused on improving our operational performance by motivating and rewarding our employees to deliver strong results for our clients, and our stakeholders alike."

Fourth Quarter 2010 Financial Highlights

• Revenue for the quarter ended December 31, 2010 was a record $223 million, an increase of $21 million, or 10.4%, from the same period last year. Revenue for the fourth quarter increased over the third quarter of 2010 by approximately $26 million. The growth in revenue was due to a combination of new clients and expansion of services provided to existing clients.
• Gross Profit for the quarter ended December 31, 2010 increased $5 million, or 6.0%, over the same period in 2009. The fourth quarter also absorbed the full year expense for the agent bonus program for the year of approximately $3 million, as an agent plan was not enacted until the fourth quarter and, accordingly, the gross profit percentage for the fourth quarter reflects this expense for the full year.
• Income From Operations for the quarter ended December 31, 2010 was $2 million compared to a loss of $12 million for the same period in 2009. The improvement in operating income primarily reflects approximately $8 million less in severance, restructuring and other charges in the fourth quarter, as well as the impact of increased revenue in 2010, and cost synergies realized from the acquisition of eTelecare on October 1, 2009.
• Net loss was $9 million for the quarter ended December 31, 2010, compared to a net loss of $21 million for the same period in 2009.
• Adjusted Pro Forma Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) of $23 million for the fourth quarter of 2010 increased from both the fourth quarter of 2009 ($17 million) and the third quarter of 2010 ($22 million).

Full Year 2010 Financial Highlights

• Revenue for the full year ended December 31, 2010 was $800 million, an increase of $215 million, or 36.8%, compared to 2009. The growth in revenue was primarily due to the acquisition of eTelecare that closed on October 1, 2009. Gross profit percentage for the full year 2010 was 41.1% compared to 41.5% for 2009.
• Operating income percentage for 2010 was (1.8%) compared to (0.9%) for 2009. The decrease was primarily due to increased amortization of intangibles related to the acquisition of eTelecare.
• Net loss was $53 million for the full-year ended December 31, 2010, compared to net loss of $29 million in 2009.
• Adjusted EBITDA was approximately the same as the prior year, $72 million in 2010 and $73 million in 2009.

Americas Region

Revenue generated from our Americas region, which includes the United States, Canada, the Philippines, India, Costa Rica, Nicaragua, Dominican Republic and El Salvador, was $163 million for the fourth quarter of 2010 compared to $144 million for the fourth quarter of 2009 and $588 million for the full year ended December 31, 2010 compared to $372 million for the prior year.

Gross profit generated by the Americas region for the fourth quarter of 2010 was $67 million ($60 million for the fourth quarter of 2009), with a gross margin of 41.1% (41.7% for the fourth quarter of 2009), and for the full year ended December 31, 2010, $248 million ($156 million for the prior year), with a gross margin of 42.2% (41.9% for the prior year).

EMEA Region

Revenue generated from our EMEA region, which includes Europe, the Middle East and Africa, for the fourth quarter of 2010 was $60 million ($57 million for the fourth quarter of 2009), and for the full year ended December 31, 2010 was $212 million ($213 million for the prior year). On a constant currency basis, EMEA would have reported higher revenue of $4.5 million for the fourth quarter of 2010 and $8.1 million for the full year ended December 31, 2010, respectively.

Gross profit generated by the EMEA region for the fourth quarter of 2010 was $22 million with a gross margin of 36.7% million ($24 million and 42.1%, respectively, for the fourth quarter of 2009), and for the full year ended December 31, 2010 was $80 million with a gross margin of 37.8% ($87 million and 40.9%, respectively, for the prior year). The decrease in the gross profit percentage from the prior year was primarily due to a decline in the financial performance of our service center in South Africa and, accordingly, during the fourth quarter an impairment charge of $1.8 million was recorded relative to this facility.

Selling, General and Administrative Expense

Selling, general and administrative expenses, which includes non-agent service center costs, was $67 million (30.0% of revenue) during the three months ended December 31, 2010 and $70 million (34.7% of revenue) during the same period in 2009. This decrease was primarily due to cost synergies realized from our integration of eTelecare.

Other Income and Expense

Other Income and Expense, consisting primarily of gains/losses on foreign currency and interest expense, for the three months ended December 31, 2010 was $7 million, a decrease of $3 million, or 30%, from the same period in 2009. The decrease was due to the acceleration of deferred loan costs in 2009 as part of the acquisition of eTelecare. Interest expense for the three months ended December 31, 2010 was $8 million. Net realized and unrealized foreign exchange gains and losses were a gain of approximately $0.7 million for the three months ended December 31, 2010 versus $0.3 for the prior year period.

Liquidity and Capital Resources

At December 31, 2010, cash and cash equivalents, excluding restricted cash was $18 million. Accounts receivable at December 31, 2010 was $180 million as compared to $176 million at December 31, 2009. Days sales outstanding were 73 days at December 31, 2010 versus 79 days at December 31, 2009. Total debt outstanding at December 31, 2010 was $237 million, which included $25 million drawn on the revolving line of credit and $193 million in 11.25% Senior Secured Notes, net of discount, and capital leases of $19 million. At December 31, 2010, we had approximately $69 million of availability under our revolving line of credit. For the quarter ended December 31, 2010 our cash in-flow from operating activities was $8 million versus a cash out-flow of $28 million for the same period in 2009.

Stream will hold a conference call for investors on March 3, 2011 at 9:00 AM ET. Investors can participate by calling 1-877-874-1567 and referencing passcode #2555713.

About Stream Global Services:

Stream Global Services is a leading global business process outsourcing (BPO) service provider specializing in customer relationship management services including sales, customer care and technical support for Fortune 1000 companies. Stream is a trusted partner to some of the world’s leading technology, computing, telecommunications, retail, entertainment/media, and financial services companies. Stream’s service programs are delivered through a set of standardized best practices and sophisticated technologies by a highly skilled multilingual workforce of over 30,000 employees with the ability to support 35 languages across 50 locations in 22 countries. Stream strives to expand its global presence and service offerings to increase revenue, improve operational efficiencies and drive brand loyalty for its clients. To learn more about the company and its complete service offering, please visit www.stream.com.

Safe Harbor:

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including forward-looking statements regarding our business expectations and objectives. These statements are neither promises nor guarantees, but involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including, without limitation, risks relating to the Company’s ability to maintain and win additional client business, continue to maintain its operating performance and margin expansion, continue to have sufficient capital to grow and maintain our business, retain the Company’s management team and effectively operate a global franchise across multiple jurisdictions plus other risks detailed in the Company’s filings with the U.S. Securities and Exchange Commission (“SEC”), including those discussed in the Company’s Annual report on Form 10-K for the year ended December 31, 2010.

Stream does not intend, and expressly disclaims any obligation, to update any forward-looking information contained in this release, even if its estimates change.

The required reconciliations and other disclosures for all non-GAAP measures used by the Company are set forth in a schedule attached to this press release and in the Current Report on Form 8-K furnished to the SEC on the date hereof.

Non-GAAP Financial Information:

This release contains non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of Stream’s performance or liquidity, should be considered in addition to, not as a substitute for, measures of Stream’s financial performance or liquidity prepared in accordance with GAAP. Non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how Stream defines non-GAAP financial measures in this release.

Stream's management uses the non-GAAP financial measures in the accompanying schedules to gain an understanding of Stream's comparative operating performance (when comparing such results with previous periods) and future prospects and excludes certain items from its internal financial statements for purposes of its internal budgets and financial goals. These non-GAAP financial measures are used by Stream's management in their financial and operating decision-making because management believes they reflect Stream's ongoing business in a manner that allows meaningful period-to-period comparisons. Stream's management believes that these non-GAAP financial measures provide useful information to investors and others in (a) understanding and evaluating Stream's current operating performance and future prospects in the same manner as management does, if they so choose, and (b) in comparing in a consistent manner Stream’s current financial results with its past financial results.

All of the foregoing non-GAAP financial measures have limitations. Specifically, the non-GAAP financial measures that exclude certain items do not include all items of income and expense that affect Stream's operations. Further, these non-GAAP financial measures are not prepared in accordance with GAAP, may not be comparable to non-GAAP financial measures used by other companies and do not reflect any benefit that such items may confer on Stream. Management compensates for these limitations by also considering Stream’s financial results in accordance with GAAP.

STREAM GLOBAL SERVICES, INC.

Consolidated Condensed Statements of Operations

(In thousands, except per share amounts)

   

 

Three Months EndedDecember 31, Year EndedDecember 31,   2010       2009     2010       2009   Revenue $ 222,548 $ 201,610 $ 800,173 $ 584,769 Direct cost of revenue   133,646     117,606     471,428     342,193     Gross profit   88,902     84,004     328,745     242,576       Operating expenses: Selling, general and administrative expenses 67,184 69,605 265,705 196,508 Severance, restructuring and other charges 3,182 11,274 11,899 15,191 Depreciation expense 11,375 11,616 45,066 25,595 Amortization expense   5,207     3,965     20,837     10,827     Total Operating expenses   86,948     96,460     343,507     248,121     Income (loss) from operations 1,954 (12,456 ) (14,762 ) (5,545 )   Other income and expense, net   7,142     10,406     28,321     18,646     Loss before provision for income taxes (5,188 ) (22,862 ) (43,083 ) (24,191 ) Provision (benefit) for income taxes   3,728     (1,932 )   10,392     4,382     Net loss   (8,916 )   (20,930 )   (53,475 )   (28,573 )   Preferred stock beneficial conversion feature, accretion and dividends   -     57,794     -     64,415     Net loss attributable to common shareholders   (8,916 )   (78,724 )   (53,475 )   (92,988 )   Net loss attributable to common shareholders per share: Basic and diluted loss per share $ (0.11 ) $ (0.99 ) $ (0.67 ) $ (3.46 )   Shares used in computing per share amounts: Basic and diluted shares 80,081 79,387 79,905 26,887

STREAM GLOBAL SERVICES, INC.

Consolidated Condensed Balance Sheet

(In thousands)

   

 

December 31,2010

December 31,2009

Assets: Current assets: Cash and cash equivalents $ 18,489 $ 14,928 Accounts receivable, net 180,211 175,557 Other current assets   37,190   36,901 Total current assets 235,890 227,386 Equipment and fixtures, net 80,859 96,816 Goodwill, intangible assets, and other long-term assets   331,236   356,621 Total assets $ 647,985 $ 680,823     Liabilities and Stockholders’ Equity: Current liabilities $ 118,608 $ 115,337 Long-term debt 217,199 206,880 Long-term capital lease obligations 10,491 11,279 Deferred income taxes 21,838 21,050 Other long-term liabilities   20,131   22,866 Total liabilities 388,267 377,412   Stockholders' equity   259,718   303,411 Total liabilities and stockholders’ equity $ 647,985 $ 680,823

STREAM GLOBAL SERVICES, INC.

Non-GAAP Financial Information

Pro Forma Combined Consolidated Condensed Statements of Operations

(Unaudited)

(In thousands)

    Three Months EndedDecember 31, Year EndedDecember 31,   2010       2009     2010       2009     Revenue $ 222,548 $ 201,610 $ 800,173 $ 797,004 Direct cost of revenue   133,290     117,480     469,138     454,117     Gross profit   89,258     84,130     331,035     342,887       Operating expenses: Selling, general and administrative expenses 67,020 69,553 264,416 276,315 Severance, restructuring and other charges 3,182 11,274 11,899 21,213 Depreciation expense and amortization expense   16,582     15,581     65,903     59,255     Total operating expenses 86,784 96,408 342,218 356,783   Income (loss) from operations   2,474     (12,278 )   (11,183 )   (13,896 )   Other income and expense, net   7,662     10,584     31,900     30,750     Loss before provision for income taxes (5,188 ) (22,862 ) (43,083 ) (44,646 ) Provision (benefit) for income taxes   3,728     (1,932 )   10,392     5,115     Net loss $ (8,916 ) $ (20,930 ) $ (53,475 ) $ (49,761 )     Adjusted Earnings Before Interest, Taxes, Depreciation & Amortization (“EBITDA”) Income (loss) from operations as shown above $ 2,474 $ (12,278 ) $ (11,183 ) $ (13,896 ) Depreciation and amortization expense 16,582 15,581 65,903 59,255 Transaction, one-time, restructuring and severance expenses 3,080 13,148 13,302 26,466 Stock-based compensation expense   989     711     4,684     1,242     Adjusted EBITDA $ 23,125   $ 17,162   $ 72,706   $ 73,067  

Note: The results above for the fiscal year ended December 31, 2009 represent the arithmetic combination of Stream’s and eTelecare’s historical operating results for the periods prior to the acquisition of eTelecare on October 1, 2009, with no historical purchase adjustments or consolidating entries, other than conforming adjustments to reflect items of revenue and expense on a consistent basis. The accompanying GAAP basis financial statements reflect the acquisition of eTelecare as of October 1, 2009 and the inclusion of the eTelecare busiess in Stream’s results of operations for periods subsequent to that date.

STREAM GLOBAL SERVICES, INC.

Reconciliation of GAAP to Non-GAAP Pro Forma Information

(Unaudited)

(In thousands)

    Three Months EndedDecember 31, Year EndedDecember 31,   2010     2009   2010       2009   Gross profit as shown on a GAAP basis $ 88,902 $ 84,004 $ 328,745 $ 242,576 Presenting realized foreign exchange gains (losses) on consistent basis with eTelecare 356 126 2,290 1,296 Inclusion of eTelecare in operating results for the period prior to acquisition   -     -     -     99,015    

Gross profit as shown on a proforma basis

$ 89,258   $ 84,130   $ 331,035   $ 342,887     Three Months EndedDecember 31, Year EndedDecember 31,   2010     2009     2010     2009   Operating expenses as shown on a GAAP basis $ 86,948 $ 96,460 $ 343,507 $ 248,121 Presenting realized foreign exchange (gains) losses on consistent basis with eTelecare (164 ) (52 ) (1,289 ) (529 ) Inclusion of eTelecare in operating results for the period prior to acquisition   -     -     -     109,191     Operating expenses as shown on a proforma basis $ 86,784   $ 96,408   $ 342,218   $ 356,783     Three Months EndedDecember 31, Year EndedDecember 31,   2010     2009     2010     2009   Other (income) expenses, net as shown on a GAAP basis $ 7,142 $ 10,406 $ 28,321 $ 18,646 Presenting realized foreign exchange gains (losses) on consistent basis with eTelecare 520 178 3,579 1,825 Inclusion of eTelecare in operating results for the period prior to acquisition   -     -     -     10,279     Other (income) expenses, net on a proforma basis $ 7,662   $ 10,584   $ 31,900   $ 30,750  

STREAM GLOBAL SERVICES, INC.

Reconciliation of GAAP to Non-GAAP Pro Forma Information

(Unaudited)

(In thousands)

    Three Months EndedDecember 31, Year EndedDecember 31,   2010       2009     2010       2009   Net Loss as shown on a GAAP basis $ (8,916 ) $ (20,930 ) $ (53,475 ) $ (28,573 ) Add (deduct) items to reconcile to non-GAAP Adjusted EBITDA: Provision for income taxes 3,728 (1,932 ) 10,392 4,382 Depreciation and amortization 16,582 15,581 65,903 59,255 Interest expense, net and financial costs 7,142 10,406 28,321 18,646 Realized foreign exchange gains 520 178 3,579 1,825 Transaction, one-time, restructuring and severance expenses 3,080 13,148 13,302 26,466 Stock based compensation expense 989 711 4,684 1,242 Operating income (loss) of eTelecare for the period prior to the acquisition on October 1, 2009   -     -     -     (10,176 )   Adjusted EBITDA $ 23,125   $ 17,162   $ 72,706   $ 73,067