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Startek Reports Quarterly Financial Results

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Startek, Inc. (NYSE:SRT), a global provider of customer experience
management, is reporting financial results for the quarter and nine
months ended December 31, 2018.

Financial Results

The results presented for the quarter ended December 31, 2018 include
both Startek and Aegis results from October 1, 2018 to December 31,
2018. As a result of the reverse acquisition accounting for the Startek
and Aegis business combination on July 20, 2018, the results presented
for the quarter ended September 30, 2018 include Startek results from
July 20, 2018 to September 30, 2018, combined with Aegis results from
July 1, 2018 to September 30, 2018. The results presented for the
quarter ended December 31, 2017 include only Aegis results from October
1, 2017 to December 31, 2017. The balance sheet results presented for
March 31, 2018 include only Aegis results as well.

The business combination of Startek and Aegis resulted in a change in
fiscal year-end from December 31 to March 31, which is the fiscal
year-end of Aegis. On October 5, 2018, the Startek Board of Directors
voted to change the fiscal year-end back to December 31. The company
will file a transitional report on Form 10-KT for the nine months ended
December 31, 2018.

Total revenue for the quarter increased 5% to $158.6 million compared to
$151.5 million in the quarter ended September 30, 2018, and was up 21%
compared to $130.7 million in the quarter ended December 31, 2017.

Gross profit for the quarter increased 10% to $25.1 million compared to
$22.8 million in the quarter ended September 30, 2018, and was up 72%
compared to $14.5 million in the quarter ended December 31, 2017.

Gross margin was 15.8% during the quarter compared to 15.0% in the
quarter ended September 30, 2018 and 11.1% in the quarter ended December
31, 2017.

Selling, general and administrative (SG&A) expenses were $21.9 million
compared to $22.8 million in the quarter ended September 30, 2018, and
$7.1 million in the year-ago quarter. As a percentage of revenue, SG&A
was 13.8% compared to 15.1% in the quarter ended September 30, 2018 and
5.5% in the year-ago quarter.

Net loss attributable to Startek shareholders for the quarter was $9.7
million or $(0.26) per share, compared to a net loss of $10.9 million or
$(0.32) per share in the quarter ended September 30, 2018, and a net
loss of $2.4 million or $(0.12) per share in the year-ago quarter.

Adjusted EBITDA* for the quarter increased 40% to $11.4 million compared
to $8.1 million in the quarter ended September 30, 2018. Adjusted
EBITDA* for the year-ago quarter was $12.3 million.

At December 31, 2018, the company's cash position was $24.6 million
compared to $20.5 million at September 30, 2018 and $22.9 million at
March 31, 2018. Startek closed the quarter with gross debt of $185.7
million compared to $178.3 million at September 30, 2018 and $151.0
million outstanding at March 31, 2018.

*A non-GAAP measure defined below.

Management Commentary

"The Startek and Aegis integration is largely complete and led to a very
strong quarter of both operational performance and business
development," said Lance Rosenzweig, president & global CEO of Startek.
"We also continued to make strides in diversifying our vertical
concentration and revenue mix despite the ongoing headwinds in global
telecom. In fact, as a result of our growing next-gen retail client
base, we experienced some of the strongest holiday volumes ever seen by
the company.

"Our post-merger integration team continues to identify cost synergies,
while also executing on cross-sell opportunities with our expanded
geography and service capabilities. Given several new client programs
and an accelerating pipeline, we added to our capacity with the opening
of a third delivery campus in Honduras in early 2019.

"Subsequent to the quarter, we strengthened our board of directors with
the appointments of Julie Schoenfeld and Albert Aboody, each of whom
brings unique and relevant skill sets to the board. Julie is a proven
technology executive with decades of experience in leading growth
companies, while Albert is an accounting industry veteran who served as
a senior partner at KPMG for most of his career.

"Looking ahead, we will continue to identify revenue and cost synergies,
while focusing our business development efforts in high-growth verticals
such as technology, financial services, next-gen retail, healthcare and
travel. We also expect to ramp our technology investments in 2019, while
reducing our net debt position and strengthening the balance sheet.
Given our strengthening sales pipeline, we remain well positioned to
execute on our growth initiatives and look forward to carrying this
momentum through the year."

Conference Call and Webcast Details

Startek management will hold a conference call today at 5:00 p.m.
Eastern time to discuss its quarterly financial results. The conference
call will be followed by a question and answer period.

Date: Wednesday, March 13, 2019
Time: 5:00 p.m. Eastern time
Toll-free
dial-in number: (844) 239-5283
International dial-in number: (574)
990-1022
Conference ID: 6268337

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 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 8:00 p.m.
Eastern time on the same day through March 20, 2019.

Toll-free replay number: (855) 859-2056
International replay
number: (404) 537-3406
Replay ID: 6268337

About Startek

Startek is a leading global provider of business process outsourcing
solutions. The company provides customer experience management, back
office and technology services to corporations around the world across a
range of industries. Operating under the Startek and Aegis brands, the
company has approximately 47,500 outsourcing experts across 58 delivery
campuses worldwide that are committed to enhancing the customer
experience for clients. Services include omnichannel 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 Definitive
Proxy Statement filed with the Securities and Exchange Commission on
June 13, 2018, 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
CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 
    Three Months Ended
December 31,
   

Nine Months Ended
December 31, 2018

 

Successor*
November 22, 2017 to
March 31, 2018

   

Predecessor*
April 01, 2017 to
November 21, 2017

2018   2017  
Revenue $ 158,585   $ 130,667 $ 420,317 $ 169,957 $ 310,120
Cost of services $ 133,504     116,119   $ 355,591     $ 143,918   $ 265,770
Gross profit 25,081 14,548 64,726 26,039 44,350
Selling, general and administrative expenses 21,945 7,124 60,020 15,925 32,105
Transaction related fees 3,138 3,712 7,036 7,994 107
Impairment losses and restructuring charges, net 1,341       3,962     1,868  
Operating income (loss) (1,343 ) 3,712 (6,292 ) 252 12,138
Share of profit of equity affiliates 94 134 115 76 996
Interest and other expense, net 3,979     2,317   12,529     3,858   4,581
Income (loss) before income taxes (5,229 ) 1,529 (18,706 ) (3,530 ) 8,553
Income tax expense 2,383     1,722   3,570     1,305   3,178
Net income (loss) $ (7,611 )   $ (193 ) $ (22,276 )   $ (4,835 ) $ 5,375
Net income (loss) attributable to non-controlling interests 2,091 2,184 2,036 1,980 2,712
Net income (loss) attributable to Startek shareholders $ (9,702 )   $ (2,377 ) $ (24,312 )   $ (6,815 ) $ 2,663
 
Net income (loss) per common share - basic $ (0.26 ) $ (0.12 ) $ (0.80 ) $ (0.33 ) $ 0.13
Weighted average common shares outstanding - basic 37,105 20,600 30,518 20,600 20,600
 
Net income (loss) per common share - diluted $ (0.26 ) $ (0.12 ) $ (0.80 ) $ (0.33 ) $ 0.13
Weighted average common shares outstanding - diluted 37,105 20,600 30,518 20,600 20,600

* The consolidated financial statements for March 2018 has been prepared
on "Successor" and "Predecessor" basis. For periods prior to the ESMHL
and its Subsidiaries acquisition by Aegis, the company is referred to as
the "Predecessor" and for periods after the acquisition, it is referred
to as the "Successor."

 
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 
    As of December 31,     As of March 31,
2018 2018
ASSETS
Current assets:
Cash and cash equivalents $ 16,617 $ 17,693
Restricted cash 7,952 5,226
Trade accounts receivable, net 107,836 63,138
Prepaid expenses and other current assets 60,985   66,179
Total current assets 193,390 152,236
Property, plant and equipment, net 42,242 36,726
Intangible assets, net 126,384 103,888
Goodwill 225,450 153,368
Other non-current assets $ 17,173   $ 20,423
Total assets $ 604,639   $ 466,641
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities 145,358 117,966
Deferred tax liabilities 18,901 17,711
Long term debt 152,100 127,133
Accrued expenses and other non-current liabilities 11,907   9,686
Total liabilities 328,266   272,496
Equity attributable to Startek shareholders 231,017 146,693
Non-controlling interest 45,356   47,452
Total stockholders' equity 276,373   194,145
Total liabilities and stockholders' equity $ 604,639   $ 466,641
 
 
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

   

Nine months ended
December 31, 2018

   

Successor *
November 22, 2017 to
March 31, 2018

   

Predecessor *
April 01, 2017 to
November 21, 2017

Operating Activities
Net income (loss) $ (22,276 ) $ (4,835 ) $ 5,375
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 20,462 8,184 11,603
Provision for doubtful accounts 2,253 216 158
Impairment of PPE 483
Share-based compensation expense 674
Deferred income taxes 7 (909 ) (74 )
Share of profit of equity affiliates (115 ) (76 ) (996 )
Unrealised exchange gains and losses (net) (639 ) 230
Changes in operating assets and liabilities:
Trade accounts receivable, net (10,982 ) (3,995 ) 5,392
Prepaid expenses and other assets 1,643 12,599 (21,507 )
Trade accounts payable (669 ) (702 ) 4,459
Income taxes, net (4,475 ) (1,951 ) (2,775 )
Accrued and other liabilities 14,503   (13,571 ) 18,410  
Net cash provided by (used in) operating activities 1,508   (5,679 ) 20,275  
Investing Activities
Purchases of property, plant and equipment, net (7,690 ) (1,490 ) (7,587 )
Proceeds/(Payment) for margin money deposits (2,865 ) (2,044 ) 544
Payment for acquisition, net of cash acquired (258,643 )
Proceeds from equity-accounted investee 48 1,438
Cash acquired in Aegis Transactions 1,496      
Net cash used in investing activities (9,011 ) (262,177 ) (5,605 )
Financing Activities
Proceeds from the issuance of common stock 4,605 153,910
Proceeds (payments) on long term debt (4,200 ) 132,730 (1,233 )
Dividends paid (3,137 ) (8,750 )
Proceeds from other debts, net 10,555   (1,414 ) 915  
Net cash provided by financing activities 7,823   285,226   (9,068 )
Net increase in cash and cash equivalents 320 17,370 5,602
Effect of exchange rate changes on cash and cash equivalents (1,396 ) 323 (30 )
Cash and cash equivalents at beginning of period $ 17,693 $ $ 15,785
Cash and cash equivalents at end of period $ 16,617   $ 17,693   $ 21,357  

* The consolidated financial statements for March 2018 has been prepared
on "Successor" and "Predecessor" basis. For periods prior to the ESMHL
and its Subsidiaries acquisition by Aegis, the company is referred to as
the "Predecessor" and for periods after the acquisition, it is referred
to as the "Successor."


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

(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 Operating income (loss)
plus Impairment losses and restructuring charges, net, Depreciation and
amortization expense, Share-based compensation expense, Transaction
related fees, 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.

       

Three Months Ended
December 31,

Nine Months Ended
December 31,

2018     2017 2018     2017
Operating Income (Loss) $ (1,343 ) $ 3,712 $ (6,292 ) $ 13,437
Transaction related fees $ 3,138 $ 3,712 $ 7,036 $ 3,712
Impairment losses and restructuring charges, net $ 1,341 $ 3,962
Depreciation and amortization expenses $ 7,819 $ 4,839 $ 20,462 $ 13,538
Share-based compensation expenses $ 425 $ 674
Adjusted EBITDA $ 11,380 $ 12,263 $ 25,842 $ 30,687

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