Market Overview

STARTEK Reports Second Quarter 2018 Results

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Startek, Inc. (NYSE:SRT), a global provider of business process
outsourcing services, is reporting financial results for the second
quarter ended June 30, 2018, and providing an update on its recently
completed strategic combination with Aegis.

Startek Second Quarter 2018 Summary (vs. year-ago quarter)

  • Total revenue was $59.7 million compared to $74.0 million.
  • Gross profit was $5.2 million compared to $9.0 million, with gross
    margin of 8.8% compared to 12.1%.
  • Net loss was $3.7 million or $(0.23) per share, compared to net income
    of $0.6 million or $0.03 per share.
  • Adjusted EBITDA* was $0.7 million compared to $4.4 million.

Subsequent Event: Key Highlights of Combination with Aegis

  • On July 20, 2018, Startek completed its strategic combination with
    Capital Square Partners (CSP) portfolio company, Aegis, to create a
    global BPO platform with differentiation, scale and a diverse customer
    base
  • Combined 2017 revenue of approximately $700 million and adjusted
    EBITDA of approximately $50 million
  • Top three customers now represent less than 30% of total revenue
    compared to 53% for Startek in 2017.
  • Synergies expected to drive incremental $30 million in EBITDA by 2020
    through enhanced revenue growth and cost savings.
  • Startek shareholders own approximately 45% of the combined company,
    while CSP owns approximately 55%.

Management Commentary

"The combination of STARTEK and Aegis has created a truly global
platform with more than 50,000 employees operating in 13 countries and
servicing six continents," said Lance Rosenzweig, president & global CEO
of Startek. "This provides unprecedented benefits to all stakeholders,
including clients, shareholders and employees.

"Our clients will reap the benefit of our global reach and access to new
markets, multi-lingual offerings and technology-led innovations. Our
shareholders can expect the diversification of our client base, added
scale and operational synergies to enhance margins and profitability,
while providing considerable cross-sell opportunities to accelerate
growth. And our employees will now become part of an even larger
organization with vast opportunities for professional development.

"The timing of this combination was also important given the challenges
to Startek's business over the last year. In the second quarter, the
company continued to work through lower volumes and lost programs from
its top wireless clients, which impacted both revenue and profitability.
The wireless industry continues to face disruption, which has resulted
in a rapidly evolving environment for service providers. These soft
volumes were partially offset by strong growth from cable/media and
retail clients, as well as the early benefit of ramping one of the
large, strategic client wins announced earlier in the year. Going
forward, we expect our combined business to be much less volatile, as no
one client will represent more than 10% of revenue.

"We still have plenty of work ahead to replace the lost wireless
programs and to integrate talent, experience, products and services
across the combined organization. It will take several quarters to
realize the benefits of our new global scale and footprint.
Nevertheless, I strongly believe that our combined resources will enable
world-class customer support for clients and produce operational
synergies throughout the organization, which will drive growth and
enhance profitability down the road. The opportunities ahead for Startek
are just beginning, and I look forward to leading the team and all
stakeholders into this next chapter of growth."

Second Quarter 2018 Financial Results

Total revenue in the second quarter was $59.7 million compared to $74.0
million in the year-ago quarter. The decrease was primarily due to lower
call volumes and lost programs from the company's wireless clients,
partially offset by new business and growth from existing clients.

Gross margin in the second quarter was 8.8% compared to 12.1% in the
year-ago quarter, with the decline primarily due to the aforementioned
lower wireless volumes and lost programs, as well as discounted training
related to on-boarding a new client.

Selling, general and administrative (SG&A) expenses were $7.0 million
compared to $8.2 million in the year-ago quarter. As a percentage of
revenue, SG&A was 11.7% compared to 11.0%.

Net loss for the second quarter was $3.7 million or $(0.23) per share,
compared to net income of $0.6 million or $0.03 per share in the
year-ago quarter. Adjusted net loss* in the second quarter was $2.2
million compared to adjusted net income of $1.0 million.

Adjusted EBITDA* in the second quarter was $0.7 million compared to $4.4
million in the year-ago quarter. The decline was primarily due to the
aforementioned factors impacting revenue and gross margin.

At June 30, 2018, the company's cash position was $1.3 million compared
to $1.5 million at December 31, 2017. Startek closed the quarter with a
$27.7 million balance on its $50 million credit facility compared to
$19.1 million outstanding at December 31, 2017.

*A non-GAAP measure defined below

Conference Call and Webcast Details

Startek management will hold a conference call today at 4:30 p.m.
Eastern time to discuss its second quarter 2018 results and recently
completed strategic combination with Aegis. The conference call will be
followed by a question and answer period.

Date: Tuesday, August 7, 2018
Time: 4:30 p.m. Eastern time (2:30
p.m. Mountain time)
Toll-free dial-in number: (844) 239-5283
International
dial-in number: (574) 990-1022
Conference ID: 1739269

During the call, Startek management will refer to a supplementary slide
presentation, which will be available for download in the Investors
section of the company's website.

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
Liolios Group at (949) 574-3860.

The conference call will also be broadcast live and available for replay here.

A replay of the conference call will be available after 7:30 p.m.
Eastern time on the same day through August 14, 2018.

Toll-free replay number: (855) 859-2056
International replay
number: (404) 537-3406
Replay ID: 1739269

About Startek

Startek is a leading global provider of Customer Experience Management
through business process outsourcing (BPO) services and technology
services to corporations across a range of industries. Operating under
the Startek and Aegis brands, the company has more than 50,000 support
experts across 66 contact center locations worldwide that are committed
to enhancing the customer experience for clients. This is accomplished
through a variety of multi-channel customer interactions, including
voice, chat, email and IVR. The company also provides sales support,
order processing, receivables management and social media analytics to
power 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. These factors include, but are not limited
to, risks relating to our reliance on a limited number of significant
customers, lack of minimum purchase requirements in our contracts, the
concentration of our business in the communications industry, lack of
wide geographic diversity, maximization of capacity utilization, foreign
currency exchange risk, risks inherent in the operation of business
outside of the United States, ability to hire and retain qualified
employees, increases in labor costs, management turnover and retention
of key personnel, trends affecting companies' decisions to outsource
non-core services, reliance on technology and computer systems,
including investment in and development of new and enhanced technology,
increases in the cost of telephone and data services, unauthorized
disclosure of confidential client or client customer information or
personally identifiable information, compliance with regulations
governing protected health information, our ability to acquire and
integrate complementary businesses, compliance with our debt covenants,
ability of our largest stockholder to affect decisions and stock price
volatility, difficulties with the successful integration and realization
of the anticipated benefits or synergies from the Aegis transaction, and
the risk that the consummation of the transaction could have an adverse
effect on Startek's ability to retain customers and retain and hire key
personnel. Readers are encouraged to review Item 1A. - Risk Factors and
all other disclosures appearing in the Company's Form 10-K for the year
ended December 31, 2017 filed with the SEC and in other filings with the
SEC, for further information on risks and uncertainties that could
affect Startek's business, financial condition and results of operation.
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

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Revenue $ 59,717 $ 73,979 $ 128,831 $ 151,631
Warrant contra revenue     (2,500 )  
Net revenue 59,717 73,979 126,331 151,631
Cost of services 54,491   64,992   115,646   132,630  
Gross profit 5,226 8,987 10,685 19,001
Selling, general and administrative expenses 6,990 8,171 15,549 16,053
Transaction related fees 1,020 2,907
Impairment losses and restructuring charges, net 512   412   4,965   412  
Operating income (loss) (3,296 ) 404 (12,736 ) 2,536
Interest and other expense, net (392 ) 84   (830 ) (283 )
Income (loss) before income taxes (3,688 ) 488 (13,566 ) 2,253
Income tax expense (benefit) 17   (66 ) 165   (94 )
Net income (loss) $ (3,705 ) $ 554   $ (13,731 ) $ 2,347  
 
Net income (loss) per common share - basic $ (0.23 ) $ 0.03 $ (0.85 ) $ 0.15
Weighted average common shares outstanding - basic 16,214 15,916 16,204 15,866
 
Net income (loss) per common share - diluted $ (0.23 ) $ 0.03 $ (0.85 ) $ 0.14
Weighted average common shares outstanding - diluted 16,214 17,247 16,204 17,127
 
       

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 
June 30, 2018 December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 1,336 $ 1,456
Trade accounts receivable, net 51,812 53,052
Other current assets 3,394   3,641
Total current assets 56,542 58,149
Property, plant and equipment, net 16,265 19,943
Other long-term assets 15,273   17,906
Total assets $ 88,080   $ 95,998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 22,622 $ 25,948
Other liabilities 30,209   23,111
Total liabilities 52,831   49,059
Total stockholders' equity 35,249   46,939
Total liabilities and stockholders' equity $ 88,080   $ 95,998
 
       

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Operating Activities
Net income (loss) $ (3,705 ) $ 554 $ (13,731 ) $ 2,347
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,293 2,771 4,936 5,733
Share-based compensation expense 224 301 487 530
Warrant contra revenue $ $ 2,500
Changes in operating assets & liabilities and other, net (18 ) 375   984   2,574  
Net cash (used in) provided by operating activities $ (1,206 ) $ 4,001 $ (4,824 ) $ 11,184
 
Investing Activities
Purchases of property, plant and equipment (1,030 ) (941 ) (2,972 ) (2,054 )
Proceeds from sale of assets       342  
Net cash used in investing activities $ (1,030 ) $ (941 ) $ (2,972 ) $ (1,712 )
 
Financing Activities
Other financing, net 2,350   (2,549 ) 7,449   (8,624 )
Net cash provided by (used in) financing activities $ 2,350 $ (2,549 ) $ 7,449 $ (8,624 )
Effect of exchange rate changes on cash 26   14   227   2  
Net increase (decrease) in cash and cash equivalents 140 525 (120 ) 850
Cash and cash equivalents at beginning of period $ 1,196   $ 1,364   $ 1,456   $ 1,039  
Cash and cash equivalents at end of period $ 1,336   $ 1,889   $ 1,336   $ 1,889  
 

STARTEK, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES

(In thousands)
(Unaudited)

This press release contains references to the non-GAAP financial
measures of Adjusted EBITDA, Adjusted gross profit, and Adjusted net
income (loss). Reconciliation of these non-GAAP measures to their
comparable GAAP measures are 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 (benefit), Impairment losses and restructuring
charges, net, Interest expense, Depreciation and amortization expense,
Share-based compensation expense, Fees and expenses related to the
transactions, Warrant contra revenue, less gain on sale of assets.
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.

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Net income (loss) $ (3,705 ) $ 554 $ (13,731 ) $ 2,347
Income tax expense (benefit) 17 (66 ) 165 (94 )
Impairment losses and restructuring charges, net 512 412 4,965 412
Interest expense 391 414 782 832
Depreciation and amortization expense 2,293 2,771 4,936 5,733
Gain on sale of assets (29 ) (29 )
Share-based compensation expense 224 301 487 530
Transaction related fees 1,020 2,907
Warrant contra revenue     2,500    
Adjusted EBITDA $ 723   $ 4,386   $ 2,982   $ 9,760  
 

Adjusted gross profit:

The Company defines non-GAAP Adjusted gross profit as Gross profit plus
Warrant contra revenue. Below is a reconciliation of Gross profit to
Adjusted gross profit:

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Gross profit 5,226 8,987 10,685 19,001
Warrant contra revenue     (2,500 )
Adjusted gross profit $ 5,226   $ 8,987   $ 8,185   $ 19,001
 

Adjusted net income (loss):

The Company defines non-GAAP Adjusted net income (loss) as Net income
(loss) plus Warrant contra revenue, Impairment losses and restructuring
charges, net, and fees and expenses related to the Aegis and Amazon
transactions. Below is a reconciliation of Net income (loss) to Adjusted
net income (loss):

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Net income (loss) $ (3,705 ) $ 554 $ (13,731 )   $ 2,347
Warrant contra revenue (2,500 )
Impairment losses and restructuring charges, net 512 412 4,965 412
Transaction related fees 1,020     2,907  
Adjusted net income (loss) $ (2,173 ) $ 966   $ (8,359 ) $ 2,759
 
 
Operating Results Scorecard
As of June 30, 2018
                               
                                       
  Q1-17     Q2-17     Q3-17     Q4-17     2017 Q1-18     Q2-18     2018

Revenue (millions)

Domestic $ 44.4 $ 42.6 $ 41.1 $ 43.2 $ 171.2 $ 41.6 $ 34.0 $ 75.6
Offshore $ 21.1 $ 19.4 $ 17.8 $ 18.8 $ 77.1 $ 18.2 $ 17.0 $ 35.1
Nearshore $ 12.2 $ 12.1 $ 10.5 $ 9.7 $ 44.3 $ 9.4 $ 8.7 $ 18.1
Other $       $       $       $       $   $ (2.5 )     $       $ (2.5 )
Company Total $ 77.7       $ 74.0       $ 69.4       $ 71.6       $ 292.6   $ 66.6       $ 59.7       $ 126.3  
                                             

Revenue %

Domestic 57.1 % 57.5 % 59.2 % 60.3 % 58.5 % 62.4 % 56.9 % 59.8 %
Offshore 27.2 % 26.2 % 25.7 % 26.2 % 26.3 % 27.3 % 28.4 % 27.8 %
Nearshore 15.7 % 16.3 % 15.1 % 13.5 % 15.2 % 14.1 % 14.6 % 14.3 %
Other %     %     %     %     % (3.8 )%     %     (2.0 )%
Company Total 100.0 %     100.0 %     100.0 %     100.0 %     100.0 % 100.0 %     100.0 %     100.0 %
                                             

Gross Profit (millions)

Domestic $ 1.5 $ 2.6 $ 1.6 $ 1.6 $ 7.3 $ 2.5 $ 0.7 $ 3.2
Offshore $ 6.2 $ 4.3 $ 4.1 $ 4.2 $ 18.8 $ 5.3 $ 4.5 $ 9.8
Nearshore $ 2.3 $ 2.1 $ 1.5 $ 0.2 $ 6.2 $ 0.1 $ $ 0.2
Other $       $       $       $       $   $ (2.5 )     $       $ (2.5 )
Company Total $ 10.0       $ 9.0       $ 7.3       $ 6.0       $ 32.4   $ 5.5       $ 5.2       $ 10.7  
                                             

Gross Profit %

Domestic 3.4 % 6.0 % 4.0 % 3.7 % 4.3 % 6.1 % 2.1 % 4.2 %
Offshore 29.2 % 22.2 % 23.2 % 22.4 % 24.4 % 29.2 % 26.5 % 27.9 %
Nearshore 19.2 % 17.7 % 14.8 % 2.3 % 14.1 % 1.4 % 0.4 % 0.9 %
Other %     %     %     %     % 100.0 %     100.0 %     100.0 %
Company Total 12.9 %     12.1 %     10.6 %     8.4 %     11.1 % 8.2 %     8.8 %     8.5 %
 

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