Stream Global Services, Inc., (NYSE AMEX: SGS), a leading global
business process outsource (BPO) service provider specializing in
customer relationship management including technical support and
sales programs for Fortune 1000 companies, today announced
consolidated financial results for the three and nine months ended
September 30, 2011. On November 2, 2011 Stream also filed
its Quarterly Report on Form 10-Q with the Securities and Exchange
Commission for the quarter ended September 30, 2011.
CEO Commentary
Kathryn Marinello, Chairman and Chief Executive Officer of
Stream, said, “We are pleased to report our fourth 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 6% growth in
year-over-year revenue for the quarter. As a result of our belief
in continued customer demand for our services, this quarter we
invested approximately $17 million to build out our facilities and
enhance our infrastructure. Our efforts to improve our operational
performance by optimizing our cost structure and motivating and
rewarding our employees are again yielding results as this quarter
we realized positive Income From Operations versus Losses from
Operations in prior periods.”
Third Quarter 2011 Financial Highlights
- Revenue for the quarter ended
September 30, 2011 was $208 million, an increase of $11
million, or 6%, from the same period last year. The growth in
revenue was due to a combination of new clients won in 2010 and
2011, expansion with existing clients and approximately $5 million
due to fluctuations in currency exchange rates. During the first
nine months of 2011, Stream has signed an estimated $136 million,
on an annualized basis once fully ramped, of revenue with both new
and existing clients.
- Gross profit increased approximately $2
million, or 2%, over the prior year third quarter. The Gross Profit
percentage was 41% for 2011 and 42% for 2010 as a result of
incurring approximately $4 million more than the prior period in
unpaid training costs related to the launch of new programs. We
also incurred approximately $1 million for an agent bonus program
in the third quarter 2011, which was not in effect the third
quarter 2010.
- Income From Operations Excluding
Severance, restructuring and other charges, net for the quarter
ended September 30, 2011 was $3 million versus $1 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 33.5% of revenue
for the third quarter 2010 to 31.8% of revenue for the third
quarter of 2011. This improvement is largely the result of our
profit improvement programs in 2011. For the first nine-months of
2011, Income (Loss) From Operations Excluding Severance,
restructuring and other charges was income of $10 million, an
increase of $17 million from the comparable loss of $7 million in
the prior year period.
- Net loss was $10 million and $28
million for the three and nine months ended September 30, 2011
versus a net loss of $13 million and $45 million for the same
periods in 2010.
- Cash flow from operating activities for
the third quarter 2011 was $5 million, a decrease of $5 million
from the prior year period largely due to severance payments of $4
million made in the quarter. Days Sales Outstanding improved from
78 days at September 30, 2010 to 69 days at September 30,
2011.
- Free Cash Flow (operating cash flow
less additions to equipment and fixtures and new capital lease
financing) for the third quarter was outflows of $12 million and
for the nine months ended September 30, 2011 was inflows of
$12 million. The third quarter’s Free Cash Flow reflects an
increase in capital expenditures to expand capacity and payment of
severance costs.
- Adjusted Earnings before Interest,
Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $20
million for the third quarter of 2011, an increase of $1 million
from the third quarter of 2010 ($19 million.) On a year-over-year
constant currency basis, our Adjusted EBITDA would have been higher
by approximately $1 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, El Salvador and China, was $149
million and $449 million for the three and nine months ended
September 30, 2011 ($146 million and $425 million for the same
periods in the prior year, respectively).
Gross profit generated by the Americas region was $64 million
and $196 million for the three and nine months ended
September 30, 2011 ($63 million and $182 million for the same
periods in prior year). The gross margin percentage for the three
and nine months ended September 30, 2011 was 43% and 44% (43%
for the both 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 nine months ended
September 30, 2011 was $59 million and $178 million,
respectively ($51 million and $152 million for the same periods in
the prior year).
Gross profit generated by the EMEA region for the three and nine
months ended September 30, 2011 was $21 million and $62
million, with a gross margin of 36% and 35%, respectively ($21
million and $58 million with a gross margin percentage of 40% 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 $66 million (31.8% of revenue)
during the three months ended September 30, 2011 and $66
million (33.5% of revenue ) during the same period in 2010. This
percentage decrease is a result of management focus on cost
controls, including the impact of reductions in our workforce
earlier in 2011.
Liquidity and Capital Resources
At September 30, 2011, cash and cash equivalents, excluding
restricted cash, was $21 million, up from $18 million at
December 31, 2010. The balance on the revolving line of credit
was $28 million at September 30, 2011 versus $25 million at
December 31, 2010. At September 30, 2011, the Company had
in excess of $46 million of availability which could be drawn at
any time under its revolving line of credit.
Stream will hold a conference call for investors on
November 3, 2011 at 9:00 AM EDT. Investors can participate by
calling 800-288-8961 or 612-332-0345 (for callers outside the
US).
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 EndedSeptember
30, Nine Months EndedSeptember 30,
2011 2010 2011
2010 Revenue $ 207,996 $ 197,146 $
626,825 $ 577,625 Direct cost of revenue 122,909
114,001 369,010 336,868
Gross profit 85,087 83,145 257,815 240,757 Operating
expenses: Selling, general and administrative expenses 66,202
66,001 202,238 198,522 Severance, restructuring and other charges,
net 2,449 3,746 8,595 8,716 Depreciation expense 11,455 11,226
32,413 33,691 Amortization expense 4,393 5,130
13,180 15,630 Total
operating expenses 84,499 86,103
256,426 256,559 Income (loss) from
operations 588 (2,958 ) 1,389 (15,802 ) Interest expense
7,250 7,751 21,656 22,881 Foreign currency transaction loss (gain)
2,713 (1,220 ) 4,122 (788
) Loss before provision for income taxes (9,375 ) (9,489 )
(24,389 ) (37,895 ) Provision for income taxes 378
3,091 3,337 6,665
Net loss $ (9,753 ) $ (12,580 ) $ (27,726 ) $ (44,560 )
Net loss per share: Basic and diluted $ (0.13 ) $ (0.16 ) $
(0.35 ) $ (0.56 ) Shares used in computing per share amounts: Basic
and diluted 76,393 80,070 78,493 79,861
STREAM GLOBAL SERVICES, INC.
Consolidated Condensed Balance
Sheets
(In thousands)
(Unaudited)
September 30,2011
December 31,2010
Assets: Current assets: Cash and cash equivalents $ 21,370 $
18,489 Accounts receivable, net 160,599 180,211 Other current
assets 33,398 37,190 Total current assets
215,367 235,890 Equipment and fixtures, net 83,918 80,859 Goodwill,
intangible assets, and other long-term assets 314,334
331,236 Total assets $ 613,619 $ 647,985
Liabilities and Stockholders’ Equity: Current liabilities $ 131,616
$ 118,608 Revolving line of credit 27,660 24,506 Debt, net of
discounts 194,048 192,693 Capital lease obligations 10,361 10,491
Deferred income taxes 22,299 21,838 Other long-term liabilities
15,317 20,131 Total liabilities 401,301
388,267 Stockholders’ equity 212,318 259,718
Total liabilities and stockholders’ equity $ 613,619 $
647,985
STREAM GLOBAL SERVICES, INC.
Consolidated Condensed Statements of
Cash Flows
(In thousands)
(Unaudited)
Three Months EndedSeptember
30, Nine Months EndedSeptember 30,
2011 2010 2011
2010 Operating Activities: Net loss
$
(9,753
)
$
(12,580
)
$
(27,726
)
$
(44,560
)
Adjustments to reconcile net loss to net cash provided by operating
activities: Depreciation and amortization 15,848 16,356
45,593 49,321 Other non-cash expenses 2,569 4,194 5,585 9,614
Changes in operating assets and liabilities
(3,903
)
1,511 24,119 398
Net cash provided by operating activities $ 4,761 $ 9,481
$ 47,571 $ 14,773 Investing Activities:
Additions to equipment and fixtures
$
(10,106
)
$
(6,579
)
$
(26,827
)
$
(13,070
)
Net cash used in investing activities $ (10,106 ) $ (6,579 )
$ (26,827 ) $ (13,070 ) Net cash provided by (used in)
financing activities $ 5,721 $ (4,474 ) $ (16,546 ) $ 4,330 Effect
of exchange rates on cash and cash equivalents (2,798 )
1,574 (1,317 ) 483 Net
increase (decrease) in cash and cash equivalents $ (2,422 ) $ 2 $
2,881 $ 6,516 Cash and cash equivalents, beginning of period $
23,792 $ 21,442 $ 18,489 $ 14,928
Cash and cash equivalents, end of period $ 21,370 $
21,444 $ 21,370 $ 21,444
Supplemental Item: Capital lease financing $ 6,430 $ 851 $ 9,098 $
4,616
STREAM GLOBAL SERVICES, INC.
Reconciliation of GAAP to Non-GAAP
Income (Loss) from Operations Excluding Severance, restructuring
and other charges, net
(Unaudited)
(In thousands)
Three Months EndedSeptember
30, Nine Months EndedSeptember 30,
2011 2010 2011
2010 Operating Income (Loss) as shown on a GAAP basis
$ 588 $ (2,958 ) $ 1,389 $ (15,802 ) Severance, restructuring and
other charges, net 2,449 3,746 8,595
8,716 Income (Loss) From Operations Excluding
Severance, restructuring and other charges, net $ 3,037 $ 788 $
9,984 $ (7,086 )
Reconciliation of GAAP to Non-GAAP
Adjusted EBITDA
(Unaudited)
(In thousands)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2011 2010 2011
2010 Operating Income as shown on a GAAP basis
$ 588 $ (2,958 ) $ 1,389 $ (15,802 ) Add items to reconcile to
non-GAAP Adjusted EBITDA: Depreciation and amortization 15,848
16,356 45,593 49,321 Transaction, severance, closure related
expenses, net 2,449 4,462 8,595 10,221 Stock based compensation
expense 643 924 1,880 3,695
Adjusted EBITDA $ 19,528 $ 18,784 $ 57,457 $ 47,435
Reconciliation of Cash Flows from
Operations to Free Cash Flow
(Unaudited)
(In thousands)
Three Months EndedSeptember
30, Nine Months EndedSeptember 30,
2011 2010 2011
2010 Cash flows from operations $ 4,761
$ 9,481 $ 47,571 $ 14,773 Add (deduct) items to reconcile to
non-GAAP Free Cash Flow: Additions to equipment and fixtures
(10,106 ) (6,579 ) (26,827 ) (13,070 ) Capital lease financing
(6,430 ) (851 ) (9,098 ) (4,616 )
Free Cash Flow $ (11,775 ) $ 2,051 $ 11,646 $ (2,913 )
To conform with industry practice, Stream is presenting realized
gains (losses) on foreign exchange cash flow hedges as a component
of the hedged item, Direct Costs. The prior year results reflect
this reclassification as follows.
Direct Cost OperatingIncome
(Loss) AdjustedEBITDA
As reported for the three months ended
September 30, 2010
$ 113,946 $ (2,903 ) $ 21,870 Adjustment 55
(55 ) (3,086 )
Reclassified for the three months ended
September 30, 2010
$ 114,001 $ (2,958 ) $ 18,784
Direct Cost
OperatingIncome (Loss) AdjustedEBITDA
As reported for the nine months ended
September 30, 2010
$ 337,783 $ (16,717 ) $ 49,581 Adjustment (915 ) 915
(2,146 )
Reclassified for the nine months ended
September 30, 2010
$ 336,868 $ (15,802 ) $ 47,435
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