Startek Reports Third Quarter 2023 Financial Results

- 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.

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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 Cree
Gateway Group, Inc.
(949) 574-3860
SRT@gateway-grp.com

Media Relations

Neha Iyer
Startek
neha.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 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 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




15,036




13,602



















Discontinued Operations

















a) Argentina

















Income (loss) attributable to Startek shareholders



368




(844)




(2,052)




(3,116)


Impairment losses and restructuring cost



116




961




2,084




3,010


Adjusted net income (loss)



484




117




32




(106)



















b) CCC

















Income (loss) attributable to Startek shareholders



-




951




8,872




2,168


Impairment losses and restructuring cost



-




-




3




30


Other non recurring costs / (Income)



-




-




(7,477)




-


Adjusted net income (loss)



-




951