Startek Reports Third Quarter 2023 Financial Results

Published

- The Go-Private Transaction with Capital Square Partners Is Expected to Close by End Of 2023 -

DENVER , Nov. 9, 2023 /PRNewswire/ -- Startek, Inc. (NYSE:SRT) ("Startek" or the "Company"), a global customer experience (CX) solutions provider, is reporting financial results for the third quarter ended September 30, 2023. As a result of current and planned divestitures, the Company has classified Middle East and Argentina operations as 'Held for Sale and Discontinued Operations'. Accordingly net revenue, gross profit, gross margin, SG&A expenses and adjusted EBITDA are reported for the continuing operations and net income, EPS, adjusted net income/(loss) and adjusted EPS are reported after consolidating continuing and discontinued operations.

Startek Logo

 

Third Quarter 2023 Financial Summary ($ in millions, excl. margin items)

Q3 2023

Q3 2022

Change

Revenue

93.63

94.88

(1.32) %

Gross Profit

12.49

14.57

(14.28) %

Gross Margin

13.34 %

15.36 %

(202)bps

SG&A Expenses

10.32

12.99

(20.55) %

Adjusted EBITDA [3]

8.94

9.54

(6.29) %

Net Income (Loss) [1]

(24.23)

0.24

(10,195.83) %

EPS[1]

(0.60)

0.01

(6,100.00) %

Adjusted Net Income [2], [3]

11.83

5.67

108.64 %

Adjusted EPS[2], [3]

0.29

0.14

142.86 %

[1] Reflects net income (loss) and EPS attributable to Startek shareholders.

[2] Reflects Adjusted net income and adjusted EPS attributable to Startek shareholders.

[3] Refer to the reconciliation of GAAP to Non-GAAP financial measures.

 

Third Quarter 2023 Financial Summary

Net revenue in the third quarter was $93.63 million compared to $94.88 million in the year-ago quarter. The slight decrease was primarily due to foreign currency movement of certain currencies relative to the US Dollar. The Company also saw some softness in volume across certain clients within the Company's international footprint which was largely offset by ramp-up of new clients won in the past few quarters. On a constant currency basis, net revenue increased 2.04% compared to the year-ago quarter.

Gross profit in the third quarter was $12.49 million compared to $14.57 million in the year-ago quarter. Gross margin was 13.34% compared to 15.36% in the year-ago quarter. The decline in gross profit and gross margin was primarily driven by the aforementioned lower volumes which led to a mismatch in staffing levels.

Selling, general and administrative (SG&A) expenses in the third quarter declined to $10.32 million compared to $12.99 million in the year-ago quarter. The SG&A expense for both the periods include non-recurring costs related to the merger transaction. Adjusting for these costs, as a percentage of revenue, SG&A decreased to 10.70% compared to 12.20% in the year-ago quarter. The improvement was primarily due to operational efficiency across the board.

Adjusted EBITDA* in the third quarter was $8.94 million compared to $9.54 million in the year-ago quarter. The decrease is primarily attributable to the aforementioned decline in net revenue, as well as currency exchange losses during the period.

Net income (loss) attributable to Startek shareholders in the third quarter was $(24.23) million or $(0.60) per share, compared to a net income of $0.24 million or $0.01 per share in the year-ago quarter. The decline was primarily a result of a $19.6 million non-cash impairment charge on goodwill due to change in the forecasts considering the aforementioned decline in revenue. This represents income (loss) attributable to Startek shareholders from continuing operations of $(24.60) million in Q3 2023 and $0.13 million in Q3 2022, along with income (loss) attributable to Startek shareholders from discontinued operations of $0.37 million in Q3 2023 and $0.11 million in Q3 2022.

Adjusted net income* in the third quarter increased 108.64% to $11.83 million or $0.29 per diluted share, compared to an adjusted net income* of $5.67 million or $0.14 per diluted share in the year-ago quarter. This represents adjusted net income (loss) from continuing operations of $11.34 million in Q3 2023 and $4.60 million in Q3 2022, along with adjusted net income (loss) from discontinued operations of $0.48 million in Q3 2023 and $1.07 million in Q3 2022.

On September 30, 2023, cash and restricted cash was $40.84 million[1] compared to $72.40 million as at December 31, 2022. The decrease in cash balance was driven by the utilization of the proceeds from the strategic transactions to prepay debt. Total debt as at September 30, 2023, was $77.67 million compared to $175.91 million as at December 31, 2022, and net debt at September 30, 2023, was $36.83 million[2] compared to $103.51 million as at December 31, 2022.

On April 24, 2023, the Board of Directors approved an authorization to repurchase up to $20 million of the Company's common stock from time to time in accordance with the requirements of the Securities and Exchange Commission. During the three months ended September 30, 2023, the Company repurchased 14,011 shares at an average cost of $2.87 per share.

*A non-GAAP measure defined below.

Subsequent Event and Conference Call 

On October 10, 2023, Startek announced that it entered into a definitive agreement to be acquired by funds managed by Capital Square Partners ("CSP") in an all-cash transaction with a total enterprise value of approximately $217 million and total equity value of approximately $174 million. Under the terms of the agreement, CSP will acquire all shares of Startek common stock not already owned by CSP for $4.30 per share in cash.

The transaction is expected to close before the end of calendar year 2023, subject to the satisfaction of customary closing conditions. The transaction is not subject to any financing contingency. Upon completion of the transaction, Startek will no longer trade on the New York Stock Exchange and will become a private company.

As a result of the definitive agreement and upcoming plans to become a private company, Startek management will not be hosting a conference call to discuss the third quarter results.

[1] Cash balance excluding restricted cash at September 30, 2023 amounted to $36.72 million as compared to $22.46 million on December 31, 2022.[2] Net debt excluding restricted cash balance at September 30, 2023 was $40.95 million compared to $153.45 million on December 31, 2022.

About Startek

Startek is a leading global provider of technology-enabled customer experience (CX) solutions. The Company provides omnichannel CX, digital transformation, and technology services to some of the world's leading brands. Startek is committed to impacting clients' business outcomes by focusing on enhancing CX and digital enablement across all touch points and channels. Startek has more than 35,000 employees delivering services in 11 countries. The Company services over 145 clients across a range of industries such as banking and financial services, insurance, technology, telecoms, healthcare, travel and hospitality, consumer goods, retail and energy and utilities.  

To learn more visit www.startek.com and follow us on LinkedIn @Startek. 

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, 2022, as filed with the Securities and Exchange Commission (SEC) on March 28, 2023, 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 SEC, 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.

Investor Relations

Cody CreeGateway Group, Inc.(949) 574-3860SRT@gateway-grp.com

Media Relations

Neha IyerStartekneha.iyer@startek.com  

 

 

EK, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Revenue

93,629

94,878

276,915

292,117

Cost of services

(81,141)

(80,311)

(239,782)

(253,182)

Gross profit

12,488

14,567

37,133

38,935

Selling, general and administrative expenses

(10,322)

(12,990)

(31,429))

(34,350)

Impairment (losses)/ reversals and restructuring/exit cost

(24,894)

(37)

(24,769))

(110)

Operating income (loss)

(22,728)

1,540

(19,065))

4,475

Share of income (loss) of equity accounted investee

-

297

-

4,122

Interest expense and other income (expense), net

(1,998)

(1,999)

(5,657)

(5,044)

Foreign exchange gains (losses), net

(308)

1,208

109

1,114

Income (loss) from continuing operations before tax expenses

(25,034)

1,046

(24,613)

4,667

Tax expenses

437

(913)

(573)

(2,854)

Income (loss) from continuing operations, net of tax (A)

(24,597)

133

(25,186)

1,813

Income (loss) before income tax expenses from discontinued operations

367

3,056

3,118

5,865

Pre-tax gain on disposal

-

-

11,666

-

Tax expenses of discontinued operations

-

(925)

(5,374)

(2,500)

Income (loss) from discontinued operations, net of tax (B)

367

2,131

9,410

3,365

Net income (loss) (A+B)

(24,230)

2,264

(15,776)

5,178

Income (loss) from continuing operations (A)

Income (loss) attributable to noncontrolling interests

-

-

-

-

Income (loss) attributable to Startek shareholders

(24,597)

133

(25,186)

1,813

(24,597)

133

(25,186)

1,813

Income (loss) from discontinued operations (B)

Income (loss) attributable to noncontrolling interests

-

2,021

2,589

4,311

Income (loss) attributable to Startek shareholders

367

110

6,821

(946)

367

2,131

9,410

3,365

Net income (loss) (A+B)

Net income (loss) attributable to noncontrolling interests

-

2,021

2,589

4,311

Net income (loss) attributable to Startek shareholders

(24,230)

243

(18,365)

867

(24,230)

2,264

(15,776)

5,178

Net income (loss) per common share from continuing operations

Basic net income (loss) attributable to Startek shareholders

(0.61)

0.01

(0.62)

0.04

Diluted net income (loss) attributable to Startek shareholders

(0.61)

0.01

(0.62)

0.04

Net income (loss) per common share from discontinued operations

Basic net income (loss) attributable to Startek shareholders

0.01

0.00

0.17

(0.02)

Diluted net income (loss) attributable to Startek shareholders

0.01

0.00

0.17

(0.02)

Net income (loss) per common share from continuing and discontinued operations

Basic net income (loss) attributable to Startek shareholders

(0.60)

0.01

(0.45)

0.02

Diluted net income (loss) attributable to Startek shareholders

(0.60)

0.01

(0.45)

0.02

Weighted average common shares outstanding

Basic

40,298

40,326

40,300

40,316

Diluted

40,298

40,333

40,300

40,354

 

 

STARTEK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

 September 30,

2023

2022

2023

2022

Net income (loss) (A+B)

(24,230)

2,264

(15,776)

5,178

Net income (loss) attributable to noncontrolling interests

-

2,021

2,589

4,311

Net income (loss) attributable to Startek shareholders

(24,230)

243

(18,365)

867

Other comprehensive income (loss), net of taxes from continuing operations:

Foreign currency translation adjustments

(1,053)

(3,701)

(3,578)

(7,089)

Pension amortization

-

184

124

184

Other comprehensive income (loss) from continuing operations

(1,053)

(3,517)

(3,454)

(6,905)

Other comprehensive income (loss), net of taxes from discontinued operations:

Foreign currency translation adjustments

-

-

(50)

(1)

Pension amortization

-

(41)

4,187

(727)

Other comprehensive income (loss) from discontinued operations

-

(41)

4,137

(728)

Other comprehensive income (loss) from continuing and discontinued operations

(1,053)

(3,558)

683

(7,633)

Other comprehensive income (loss), net of taxes from continuing operations

Attributable to noncontrolling interest

-

-

-

-

Attributable to Startek shareholders

(1,053)

(3,517)

(3,454)

(6,905)

(1,053)

(3,517)

(3,454)

(6,905)

Other comprehensive income (loss), net of taxes from discontinued operations

Attributable to noncontrolling interests

-

(23)

614

(397)

Attributable to Startek shareholders

-

(18)

3,523

(331)

-

(41)

4,137

(728)

Comprehensive income (loss) from continuing and discontinued operations

Attributable to noncontrolling interests

-

1,998

3,203

3,914

Attributable to Startek shareholders

(25,283)

(3,292)

(18,296)

(6,370)

(25,283)

(1,294)

(15,093)

(2,456)

 

 

STARTEK, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

September 30,

December 31,

2023

2022

Assets

Current assets

Cash and cash equivalents

36,718

22,457

Restricted cash

4,122

49,946

Trade accounts receivables, net

41,144

47,138

Unbilled revenue

27,109

24,207

Prepaid expenses and other current assets

14,045

9,159

Assets classified as held for sale

7,783

202,831

Total current assets

130,921

355,738

Non-current assets

Property, plant and equipment, net

25,932

22,945

Operating lease right-of-use assets

27,478

36,450

Intangible assets, net

72,023

79,745

Goodwill

100,857

120,505

Deferred tax assets, net

3,126

2,771

Prepaid expenses and other non-current assets

9,148

7,889

Total non-current assets

238,564

270,305

Total assets

369,485

626,043

Liabilities and Stockholders' Equity

Current liabilities

Trade accounts payables

8,696

2,428

Accrued expenses

31,470

29,707

Short term debt

10,643

14,267

Current maturity of long term debt

12,269

120,466

Current maturity of operating lease liabilities

15,120

14,492

Other current liabilities

21,067

17,615

Liabilities classified as held for sale

6,365

89,486

Total current liabilities

105,630

288,461

Non-current liabilities

Long term debt

54,755

41,175

Operating lease liabilities

20,111

26,651

Other non-current liabilities

3,279

2,682

Deferred tax liabilities, net

15,274

15,508

Total non-current liabilities

93,419

86,016

Total liabilities

199,049

374,477

Stockholders' equity

Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 41,209,497 and 41,098,456 shares issued as of September 30, 2023 and December 31, 2022 respectively.

412

411

Additional paid-in capital

294,725

293,472

Accumulated deficit

(104,768)

(86,302)

Treasury stock, 905,204 and 839,214 shares as of September 30, 2023 and December 31, 2022 respectively, at cost

(3,944)

(3,749)

Accumulated other comprehensive loss

(15,989)

(16,058)

Equity attributable to Startek shareholders

170,436

187,774

Non-controlling interest

-

63,792

Total stockholders' equity

170,436

251,566

Total liabilities and stockholders' equity

369,485

626,043

 

 

STARTEK, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30,

2023

2022

Operating activities

Income from continuing and discontinued operations

(15,776)

5,178

less: Income (loss) from discontinued operations, net of tax

9,410

3,365

Income (loss) from continuing operations, net of tax

(25,186)

1,813

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

16,420

16,856

Impairment of goodwill

19,648

-

Impairment of right-of-use assets

4,391

-

Profit on sale of property, plant and equipment

(41)

(166)

Provision/(reversal) for doubtful accounts

(472)

(112)

Amortization of debt issuance costs (including loss on extinguishment of debt)

120

426

Amortization of call option premium

-

1,080

Mark to market gain on derivative instrument

(314)

-

Share-based compensation expense

1,138

1,213

Deferred income taxes

(428)

(1,101)

Share of income (loss) of equity accounted investee

-

(4,122)

Changes in operating assets and liabilities:

Trade accounts receivables (including unbilled revenue)

766

(1,119)

Prepaid expenses and other assets

(3,979)

(2,289)

Trade accounts payable

6,386

2,391

Income taxes, net

(4,351)

150

Accrued expenses and other liabilities

(1,181)

(4,216)

Net cash generated from/used in by operating activities from continuing operations

12,917

10,804

Net cash generated from/used in operating activities from discontinued operations

(7,691)

11,464

Net cash generated from/used in operating activities

5,226

22,268

Investing activities

Purchase of property, plant and equipment and intangible assets, net

(10,677)

(9,645)

Proceeds from sale of discontinued operations, net of cash disposed

35,782

-

Net cash generated from/used in investing activities from continuing operations

25,105

(9,645)

Net cash generated from/used in investing activities from discontinued operations

(3,616)

(2,294)

Net cash generated from/used in investing activities

21,489

(11,939)

Financing activities

Proceeds from the issuance of common stock

116

348

Payments of long term debt

(93,466)

-

Payment from a line of credit, net

(3,569)

1,110

Payments of other borrowings, net

(1,272)

(2,319)

Common stock repurchases

(195)

(1,636)

Net cash generated from/used in financing activities from continuing operations

(98,386)

(2,497)

Net cash generated from/used in financing activities from discontinued operations

(325)

534

Net cash generated from/used in financing activities

(98,711)

(1,963)

Net increase in cash and cash equivalents

(71,995)

8,366

Effect of exchange rate changes on cash and cash equivalents and restricted cash

(1,142)

(2,432)

Cash and cash equivalents and restricted cash at beginning of period

115,146

55,396

Cash and cash equivalents and restricted cash at end of period

42,008

61,330

Less: Cash and cash equivalents from discontinued operations

(1,168)

(33,358)

Cash and cash equivalents and restricted cash of continuing operations at end of period

40,840

27,972

Components of cash and cash equivalents and restricted cash

Balances with banks

36,718

22,267

Restricted cash

4,122

5,705

Total cash and cash equivalents and restricted cash

40,840

27,972

Supplemental disclosure of cash flow information

Cash paid for interest and other finance cost

8,442

7,071

Cash paid for income taxes

5,024

3,619

Supplemental disclosure of non-cash activities

Non-cash share-based compensation expenses

1,138

1,213

 

 

STARTEK, INC. AND SUBSIDIARIESRECONCILIATION 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 income (loss) plus Income tax expense, Share of income (loss) of equity-accounted investees, Interest expense and other income (expense), net, Depreciation and amortization expense, Impairment losses and restructuring cost, Share-based compensation expense, Foreign exchange gains (losses), net, Merger transaction costs, Transaction related costs, CSS option amortization and other non-recurring costs (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 the ongoing operations that we believe are 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, 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

September 30,

Nine Months Ended

September 30,

2023

2022

2023

2022

Continuing Operations

Net income (loss)

(24,597)

133

(25,186)

1,813

Tax expense

(437)

913

573

2,854

Share of income (loss) of equity accounted investee

-

(297)

-

(4,122)

Interest expense and other income (expense), net

1,998

1,999

5,657

5,045

Foreign exchange (gains) losses, net

308

(1,208)

(109)

(1,114)

Depreciation and amortization expense

5,885

5,812

16,420

16,855

Meger transaction cost

304

1,411

304

2,603

Impairment losses and restructuring cost

24,894

37

24,769

110

Share-based compensation expense

369

380

1,138

1,213

Other non recurring costs / (Income)

216

-

1,316

-

CSS option amortisation

-

360

-

1,080

Adjusted EBITDA

8,940

9,540

24,882

26,337

Discontinued Operations

a) Argentina

Net income (loss)

368

(844)

(2,052)

(3,116)

Interest expense and other income (expense), net

(406)

(124)

(2,415)

(1,399)

Foreign exchange gains (losses), net

350

233

706

445

Depreciation and amortization expense

-

146

-

439

Impairment losses and restructuring cost

404

961

3,570

3,010

Adjusted EBITDA

716

372

(191)

(621)

b) CCC

Net income (loss)

-

2,972

11,462

6,480

Tax expense

-

924

5,374

2,499

Interest expense and other income (expense), net

-

890

1,174

2,198

Foreign exchange gains (losses), net

-

5

10

20

Depreciation and amortization expense

-

1,622

-

4,844

Impairment losses and restructuring cost

-

-

4

30

Other non recurring costs / (Income)

-

-

(11,666)

-

Adjusted EBITDA

-

6,413

6,358

16,071

Adjusted EBITDA from discontinued operations (a+b)

716

6,785

6,167

15,450

Adjusted EBITDA from continuing and discontinued operations

9,656

16,325

31,049

41,787

 

 

Adjusted EPS:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2023

2022

2023

2022

Continuing Operations

Income (loss) attributable to Startek shareholders

(24,597)

133

(25,186)

1,813

Share based compensation expense

186

380

664

1,213

Amortization of intangible assets, net of tax

1,310

2,279

4,507

6,783

Merger transaction cost

177

1,411

177

2,603

Impairment losses and restructuring cost

14,535

37

14,458

110

Other non recurring costs / (Income)

84

-

768

-

CSS option amortisation

-

360

-

1,080

Adjusted net income

11,343

4,600