Business Wire | Aug 10, 2020 04:05PM EDT

Startek Reports Second Quarter 2020 Financial Results

Aug. 10, 2020

GREENWOOD VILLAGE, Colo.--(BUSINESS WIRE)--Aug. 10, 2020--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 Six Months Ended June 30, 30,

2020 2019 2020 2019

Revenue 142,652 161,283 303,829 322,425

Warrant contra (485 ) (730 ) (763 ) (730 )revenue

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, generaland administrative (14,644 ) (24,936 ) (31,899 ) (49,015 )expenses

Impairment lossesand restructuring/ (235 ) (721 ) (24,557 ) (1,850 )exit cost

Acquisition related - (25 ) - 11 cost

Operating (Loss) / 934 1,878 (20,585 ) 3,920 Income

Share of (loss) /profit of equity (12 ) 662 (20 ) 1,003 accounted investees

Interest expense, (3,190 ) (4,026 ) (6,696 ) (8,492 )net

Exchange gain / (1,637 ) 14 291 (677 )(loss), net

Loss before income (3,905 ) (1,472 ) (27,010 ) (4,246 )taxes

Income tax expense 1,283 730 4,159 1,113

Net loss (5,188 ) (2,202 ) (31,169 ) (5,359 )



Net (Loss) / income

Net incomeattributable to 29 1,392 605 1,581 non-controllinginterests

Net lossattributable to (5,217 ) (3,594 ) (31,774 ) (6,940 )Startekshareholders



Net loss per commonshare - basic and (0.14 ) (0.10 ) (0.82 ) (0.18 )diluted

Weighted averagecommon shares 38,614 37,779 38,571 37,779 outstanding - basicand diluted



STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)



Three Months Ended Six Months Ended June June 30, 30,

2020 2019 2020 2019

Net Loss (5,188 ) (2,202 ) (31,169 ) (5,359 )

Net income attributable to 29 1,392 605 1,581 noncontrolling interests

Net loss attributable to (5,217 ) (3,594 ) (31,774 ) (6,940 )Startek shareholders



Other comprehensive (loss) / income, net of taxes:

Foreign currency 727 32 (3,665 ) 599 translation adjustments

Change in fair value of (8 ) 413 (680 ) 348 derivative instruments

Pension amortization (3,026 ) (236 ) (2,630 ) (60 )

Comprehensive (loss) / (2,307 ) 209 (6,975 ) 887 income



Other comprehensive (loss) / income, net of taxes

Other comprehensive (loss)/ income attributable to (1,787 ) (111 ) (1,624 ) (25 )noncontrolling interest

Other comprehensive (loss)/ income attributable to (520 ) 320 (5,351 ) 912 Startek shareholders

(2,307 ) 209 (6,975 ) 887

Comprehensive (loss) / income

Comprehensive incomeattributable to (1,758 ) 1,281 (1,019 ) 1,556 noncontrolling interests

Comprehensive lossattributable to Startek (5,737 ) (3,274 ) (37,125 ) (6,028 )shareholders

(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 401 385 38,525,636 shares issued and outstanding at June30, 2020 and December 31, 2019, respectively

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 $ 48,397 $ (5,427 )activities



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 $ (16,640 ) $ 12,779 activities

Net increase in cash and cash equivalents 24,288 1,379

Effect of exchange rate changes on cash and cash (497 ) (40 )equivalents and restricted cash

Cash and cash equivalents and restricted cash at 32,626 24,569 beginning of period

Cash and cash equivalents and restricted cash at end $ 56,417 $ 25,908 of period



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 Six Months Ended June 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, 3,202 3,364 6,716 7,489 net

Exchange gain/(loss), net 1,637 (14 ) (291 ) 677

Depreciation and amortization 7,234 7,328 14,328 14,631 expense

Impairment losses and 235 746 24,557 1,839 restructuring cost

Share-based compensation (82 ) 356 209 781 expense

Warrant contra revenue 485 730 763 730

Adjusted EBITDA 8,806 11,038 19,272 21,901

Adjusted EPS:

Three Months Ended Six Months Ended June June

2020 2019 2020 2019

Profit attributable to (5,217 ) (3,594 ) (31,774 ) (6,940 )Startek shareholders

Add: Share based (82 ) 356 209 781 compensation expense

Add: Amortization of 2,260 2,428 4,522 4,739 intangible assets

Add: Warrant contra 485 730 763 730 revenue

Add: Goodwill impairment - - 22,708 - loss



Adjusted net income / (2,554 ) (80 ) (3,572 ) (690 )(loss) (non-GAAP)



Weighted average commonshares outstanding - Basic 38,614 37,779 38,571 37,779 & Diluted



Adjusted EPS - Basic & (0.07 ) (0.00 ) (0.09 ) (0.02 )Diluted

View source version on businesswire.com: https://www.businesswire.com/news/home/20200810005733/en/

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