Stream Global Services, Inc., (NYSE AMEX: SGS), a leading global
business process outsource (BPO) service provider specializing in
customer relationship management and business process outsourcing
services for Fortune 1000 companies, today announced consolidated
financial results for the three and six months ended June 30,
2011. On August 3, 2011 Stream also filed its Quarterly Report
on Form 10-Q with the Securities and Exchange Commission for the
quarter ended June 30, 2011.
CEO Commentary
Kathryn Marinello, Chairman and Chief Executive Officer of
Stream, said, “We are pleased to report our third consecutive
quarter of increased revenue and Adjusted EBITDA when compared to
the same quarter in the prior year. We continue to see strong
demand for our services as demonstrated by the 12% growth in
year-over-year revenue for the quarter. Our focused efforts on
improving our operational performance by optimizing our cost
structure and motivating and rewarding our employees again yielded
results as demonstrated by our 33% improvement in year-over-year
Adjusted EBITDA.”
Second Quarter 2011 Financial Highlights
- Revenue for the quarter ended
June 30, 2011 was $206 million, an increase of $22 million, or
12%, from the same period last year. The growth in revenue was due
to a combination of new clients won in 2010, expansion with
existing clients and approximately $7 million due to fluctuations
in currency exchange rates. During the first six-months of 2011,
Stream has signed an estimated $80 million, on an annualized basis
once fully ramped, of revenue with both new and existing
clients.
- Gross profit increased approximately $8
million, or 11%, over the prior year second quarter. Although the
Gross Profit percentage was 40% for both 2011 and 2010, for the
second quarter of 2011 Stream incurred significant unpaid training
costs primarily related to the launch of new programs. We also
incurred approximately $1 million for an agent bonus program in the
second quarter 2011, which was not in effect the second quarter
2010.
- Income (Loss) From Operations Excluding
Severance, restructuring and other charges, net for the quarter
ended June 30, 2011 was a loss of $0.4 million versus a loss
of $7 million for the same period in 2010. The improvement reflects
higher gross profit earned on the increased revenue and a relative
decline in Selling, General and Administrative expenses from 35% of
revenue for the second quarter 2010 to 33% of revenue for the
second quarter of 2011. Stream incurred $3 million of unpaid
training costs during the second quarter of 2011 versus $2 million
the prior year quarter and $1 million for the first quarter of
2011.For the first six-months of 2011, Income (Loss) From
Operations Excluding Severance, restructuring and other charges,
net was income of $7 million, an increase of $15 million from a
loss of $8 million in the prior year period. Net loss was $16
million and $18 million for the three and six months ended
June 30, 2011 versus a net loss of $22 million and $32 million
for the same periods in 2010.
- Cash flow from operating activities for
the second quarter 2011 was $16 million, an increase of $28 million
from the prior year period. Days Sales Outstanding declined from 80
days at June 30, 2010 to 70 days at June 30, 2011.
- Free Cash Flow (operating cash flow
less additions to equipment and fixtures and capital lease
financing) for the quarter and six months ended June 30, 2011
was $3 million and $23 million, respectively, an increase of $21
million and $28 million over the prior year periods.
- Adjusted Earnings before Interest,
Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $15
million for the second quarter of 2011, an increase of $4 million
from the second quarter of 2010 ($11 million.) On a year-over-year
constant currency basis, our Adjusted EBITDA would have been higher
by approximately $0.7 million had there been no change in global
currency rates.
Americas Region
Revenue generated from our Americas region, which includes the
United States, Canada, the Philippines, India, Costa Rica,
Nicaragua, the Dominican Republic and El Salvador, was $146 million
and $300 million for the three and six months ended June 30,
2011 ($136 million and $279 million for the same periods in the
prior year, respectively).
Gross profit generated by the Americas region was $62 million
and $132 million for the three and six months ended June 30,
2011 ($56 million and $120 million for the same periods in prior
year). The gross margin percentage for the three and six months
ended June 30, 2011 was 43% and 44% (41% and 43% for the same
periods in the prior year).
EMEA Region
Revenue generated from our EMEA region, which includes Europe,
the Middle East and Africa, for the three and six months ended
June 30, 2011 was $60 million and $118 million ($48 million
and $101 million for the same periods in the prior year).
Gross profit generated by the EMEA region for the three and six
months ended June 30, 2011 was $20 million and $41 million,
with a gross margin of 33% and 35%, respectively ($17 million and
$38 million with a gross margin percentage of 35% and 38%,
respectively, for the same periods in the prior year).
Selling, General and Administrative Expense
Selling, general and administrative expenses, which includes
non-agent service center costs, was $67 million (33% of revenue)
during the three months ended June 30, 2011 and $64 million
(35% of revenue ) during the same period in 2010. This percentage
decrease is a result of management focus on cost controls,
including the impact of a reduction in our workforce during second
quarter.
Liquidity and Capital Resources
At June 30, 2011, cash and cash equivalents, excluding
restricted cash, was $24 million, up from $18 million at year-end.
During the quarter ended June 30, 2011 we repurchased
3.7 million shares of our Common Stock for an aggregate
purchase price of $12 million. The balance on the revolving line of
credit after the repurchase was $19 million at June 30, 2011
versus $25 million at December 31, 2010. At June 30,
2011, the Company had in excess of $50 million of availability
under its revolving line of credit.
Stream will hold a conference call for investors on
August 4, 2011 at 9:00 AM EDT. Investors can participate by
calling 888-516-2435 or 719-457-2652 (for callers outside the US)
and reference pass code 9657274.
About Stream Global Services:
Stream Global Services is a leading global business process
outsource (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
capable of supporting over 35 languages across 50 locations in 23
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 its 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 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
(Unaudited)
(In thousands, except per share
amounts)
Three Months EndedJune
30,
Six Months EndedJune 30,
2011 2010
2011 2010 Revenue $
206,139 $ 183,904 $ 418,830 $ 380,479 Direct cost of revenue
124,148 110,283 246,102
222,866 Gross profit 81,991 73,621 172,728 157,613
Operating expenses: Selling, general and administrative
expenses 67,235 63,954 136,037 132,520 Severance, restructuring and
other charges, net 6,272 3,364 6,146 4,972 Depreciation expense
10,766 11,246 20,958 22,465 Amortization expense 4,394
5,290 8,787 10,500
Total operating expenses 88,667 83,854
171,928 170,457 Income
(loss) from operations (6,676 ) (10,233 ) 800 (12,844 )
Interest expense 7,144 7,530 14,404 15,132 Foreign currency
transaction loss 165 1,978 1,410
430 Loss before provision for income
taxes (13,985 ) (19,741 ) (15,014 ) (15,562 ) Provision for income
taxes 1,893 1,764 2,959
3,574 Net loss $ (15,878 ) $ (21,505 ) $
(17,973 ) $ (31,980 ) Net loss per share: Basic and diluted $ (0.20
) $ (0.27 ) $ (0.23 ) $ (0.40 ) Shares used in computing per share
amounts: Basic and diluted 79,006 80,567 79,566 80,289
STREAM GLOBAL SERVICES, INC.
Consolidated Condensed Balance
Sheet
(In thousands)
June
30,2011(unaudited)
December 31,2010 Assets: Current assets: Cash
and cash equivalents $ 23,792 $ 18,489 Accounts receivable, net
158,170 180,211 Other current assets 36,145 37,190
Total current assets 218,107 235,890 Equipment and fixtures,
net 80,177 80,859 Goodwill, intangible assets, and other long-term
assets 321,924 331,236 Total assets $ 620,208
$ 647,985 Liabilities and Stockholders’ Equity:
Current liabilities $ 125,586 $ 118,608 Revolving Line of Credit
18,868 24,506 Long-term debt 193,689 192,693 Long-term capital
lease obligations 8,561 10,491 Deferred income taxes 21,930 21,838
Other long-term liabilities 18,288 20,131
Total liabilities 386,922 388,267 Stockholders’ equity
233,286 259,718 Total liabilities and
stockholders’ equity $ 620,208 $ 647,985
STREAM GLOBAL SERVICES,
INC.Consolidated Condensed Statement of Cash Flows
(In thousands)
(Unaudited)
Three Months EndedJune
30,
Six Months EndedJune 30, 2011 2010
2011 2010 Operating Activities: Net loss $ (15,878 )
$ (21,504 ) $ (17,973 ) $ (31,980 ) Adjustments to reconcile net
loss to net cash provided by operating activities:
Depreciation and amortization 15,160 16,537 29,745 32,965 Other
non-cash expenses 1,429 2,874 3,015 5,420 Changes in operating
assets and liabilities 15,293 (9,932 )
28,022 (1,113 ) Net cash provided by operating
activities $ 16,004 $ (12,025 ) $ 42,809 $ 5,292
Investing Activities: Additions to equipment
and fixtures $ (11,620 ) $ (3,715 ) $ (16,721 ) $ (6,491 )
Net cash used in investing activities $ (11,620 ) $ (3,715 ) $
(16,721 ) $ (6,491 ) Net cash used in financing activities $
(5,280 ) $ 16,288 $ (22,267 ) $ 8,804 Effect of exchange rates on
cash and cash equivalents (126 ) (678 ) 1,482 (1,091 ) Net increase
in cash and cash equivalents $ (1,022 ) $ (130 ) $ 5,303 $ 6,514
Cash and cash equivalents, beginning of period $ 24,814 $ 20,925 $
18,489 $ 14,928 Cash and cash equivalents, end of period $ 23,792 $
20,795 $ 23,792 $ 21,442 Supplemental Item: Capital lease financing
$ 1,617 $ 2,482 $ 2,668 $ 3,765
STREAM GLOBAL SERVICES, INC.
Reconciliation of GAAP to Non-GAAP
Income from Operations Excluding Severance, restructuring and other
charges, net
(Unaudited)
(In thousands)
Three Months EndedJune
30,
Six Months EndedJune 30, 2011
2010 2011 2010
Operating Income as shown on a GAAP basis $ (6,676 ) $
(10,233 ) $ 800 $ (12,844 ) Severance, restructuring and other
charges, net 6,272 3,364 6,146
4,972 Income (Loss) From Operations Excluding
Severance, restructuring and other charges, net $ (404 ) $ (6,869 )
$ 6,946 $ (7,872 )
Reconciliation of GAAP to Non-GAAP
Adjusted EBITDA
(Unaudited)
(In thousands)
Three Months EndedJune
30,
Six Months EndedJune 30, 2011
2010 2011 2010
Operating Income as shown on a GAAP basis $ (6,676 ) $ (10,233 ) $
800 $ (12,844 ) Add (deduct) items to reconcile to non-GAAP
Adjusted EBITDA: Depreciation and amortization 15,160 16,536 29,745
32,965 Transaction, severance, closure related expenses, net 6,272
3,708 6,146 5,758 Stock based compensation expense 492
1,442 1,237 2,771
Adjusted EBITDA $ 15,248 $ 11,453 $ 37,928 $ 28,650
Reconciliation of Cash Flow to
Operations to Free Cash Flow
(Unaudited)
(In thousands)
Three Months EndedJune
30,
Six Months EndedJune 30, 2011
2010 2011
2010 Cash flows from operations $ 16,004 $ (12,025 )
$ 42,809 $ 5,292 Add (deduct) items to reconcile to non-GAAP Free
Cash Flow Additions to equipment and fixtures (11,620 ) (3,715 )
(16,721 ) (6,491 ) Capital lease financing (1,617 )
(2,482 ) (2,668 ) (3,765 ) Free Cash Flow $
2,767 $ (18,222 ) $ 23,420 $ (4,964 )
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