StarTek, Inc. ("STARTEK") (NYSE:SRT), a provider of business process outsourcing services, has reported financial results for the second quarter ended June 30, 2016.
Second Quarter 2016 Highlights (vs. year-ago quarter where applicable)
- Total revenue increased 16% to $73.7 million, with top ten client revenue up 4% to $47.5 million
- Gross margin increased 110 basis points to 9.5%
- Net loss improved to $1.7 million or $(0.11) per share, compared to $5.1 million or $(0.33) per share
- Adjusted EBITDA (a non-GAAP measure defined below) increased 455% to $2.3 million
- Generated $4.5 million in free cash flow (a non-GAAP measure defined below) compared to $(2.2) million cash used
- Added $7.7 million of new business (annual contract value) by expanding new and current client engagements
- Appointed Cory White to Chief of Sales and Marketing
Management Commentary
“We continued to execute on our strategic growth initiatives during the second quarter - winning new business, improving capacity utilization and optimizing existing client contracts,” said Chad Carlson, CEO of STARTEK. “These were accomplished despite Q2 being our seasonally slowest quarter of the year. In fact, these improvements have led to another quarter of margin expansion and nearly $9 million in free cash flow year to date. We also won $7.7 million in new business from both new and existing clients, largely driven by re-tooling the STARTEK Advantage System with improved processes and messaging, as well as appointing industry veteran Cory White to Chief of Sales and Marketing.
“Looking towards the second half of 2016, we will continue to focus on our growth initiatives while properly aligning capacity with demand. The fundamentals of the business are strong and we remain focused on attaining consistent profitability and growth.”
Second Quarter 2016 Financial Results
Total revenue in the second quarter of 2016 increased 16% to $73.7 million from $63.5 million in the second quarter of 2015. This was attributable to full quarter contribution from ACCENT, which was acquired on June 1, 2015, as well as new client wins, growth from existing clients and contract optimizations.
Gross margin in the second quarter of 2016 increased 110 basis points to 9.5% compared to 8.4% in the year-ago quarter, driven by the added scale from ACCENT and increased capacity utilization.
Selling, general and administrative (SG&A) expenses decreased to $8.1 million compared to $8.6 million in the year-ago quarter, primarily due to ACCENT related overhead incurred in the second quarter of 2015, as well as the cost reduction initiatives and IT platform migration completed late in 2015. As a percentage of revenue, SG&A decreased 250 basis points to 11.0% compared to 13.5% in the year-ago quarter.
Net loss for the quarter improved to $1.7 million or $(0.11) per share, compared to $5.1 million or $(0.33) per share in the year-ago quarter.
Adjusted EBITDA in the second quarter increased 455% to $2.3 million compared to $0.4 million in the year-ago quarter. The increase was due to the aforementioned new client wins, current client expansions, cost reduction initiatives and partial contribution from ACCENT.
Free cash flow in the second quarter increased significantly to $4.5 million compared to $(2.2) million cash used in the year-ago quarter.
At June 30, 2016, the company’s cash position was $1.3 million compared to $2.6 million at December 31, 2015. STARTEK also closed the quarter with a balance outstanding of $23.5 million on its $50 million credit facility compared to $32.2 million outstanding at December 31, 2015, a 27% debt reduction.
Conference Call and Webcast Details
STARTEK will hold a conference call today at 5:00 p.m. Eastern time to discuss its second quarter 2016 results. Management will host the conference call, followed by a question and answer period.
Date: Tuesday, August 9, 2016
Time: 5:00 p.m. Eastern time (3:00
p.m. Mountain time)
Toll-free dial-in number: 1-844-239-5283
International
dial-in number: 1-574-990-1022
Conference ID: 53161309
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 1-949-574-3860.
The conference call will be broadcast live and available for replay via the investor relations section of the STARTEK website. A replay of the conference call will be available after 7:30 p.m. Eastern time on the same day through August 16, 2016.
Toll-free replay number: 1-855-859-2056
International replay
number: 1-404-537-3406
Replay ID: 53161309
About STARTEK
STARTEK strives to be the most trusted BPO service provider delivering comprehensive contact center and customer engagement solutions. Our employees, whom we call Brand Warriors, are enabled and empowered to promote and protect our clients’ brands. For over 25 years, these Brand Warriors have been committed to making a positive impact for our clients’ business results, enhancing the customer experience while reducing costs for our clients. With the latest technology in the BPO industry and our STARTEK Advantage System, our Brand Warriors instill customer loyalty through a variety of multi-channel customer interactions, including voice, chat, email and IVR. Our service offerings include sales support, order processing, customer care and receivables management and customer analytics. For more information, 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. In addition, factors related to our acquisition of ACCENT that may cause actual results to differ include our ability to integrate the organizations to recognize expected financial benefits and synergies and our ability to retain employees and customers of the acquired business. 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, 2015 filed with the Securities and Exchange Commission, for further information on risks and uncertainties that could affect STARTEK's business, financial condition and results of operation.
STARTEK, INC. AND SUBSIDIARIES | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Revenue | $ | 73,733 | $ | 63,464 | $ | 151,769 | $ | 127,117 | ||||||||
| Cost of services | 66,722 | 58,152 | 136,369 | 115,688 | ||||||||||||
| Gross profit | 7,011 | 5,312 | 15,400 | 11,429 | ||||||||||||
| Selling, general and administrative expenses | 8,120 | 8,582 | 15,901 | 16,643 | ||||||||||||
| Restructuring charges | 158 | 1,536 | 170 | 2,343 | ||||||||||||
| Operating (loss) | (1,267 | ) | (4,806 | ) | (671 | ) | (7,557 | ) | ||||||||
| Interest and other (expense), net | (371 | ) | (100 | ) | (811 | ) | (337 | ) | ||||||||
| (Loss) before income taxes | (1,638 | ) | (4,906 | ) | (1,482 | ) | (7,894 | ) | ||||||||
| Income tax expense | 46 | 163 | 171 | 350 | ||||||||||||
| Net (Loss) | $ | (1,684 | ) | $ | (5,069 | ) | $ | (1,653 | ) | $ | (8,244 | ) | ||||
| Net income (loss) per common share - basic and diluted | (0.11 | ) | (0.33 | ) | (0.11 | ) | (0.53 | ) | ||||||||
| Weighted average shares outstanding - basic and diluted | 15,719 | 15,523 | 15,709 | 15,470 | ||||||||||||
STARTEK, INC. AND SUBSIDIARIES | |||||||
| June 30, 2016 | December 31, 2015 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 1,254 | $ | 2,626 | |||
| Trade accounts receivable, net | 52,539 | 57,940 | |||||
| Other current assets | 3,190 | 3,452 | |||||
| Total current assets | 56,983 | 64,018 | |||||
| Property, plant and equipment, net | 25,080 | 30,364 | |||||
| Other assets | 19,083 | 20,422 | |||||
| Total assets | $ | 101,146 | $ | 114,804 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities | $ | 50,659 | $ | 62,434 | |||
| Other liabilities | 8,883 | 10,445 | |||||
| Total liabilities | 59,542 | 72,879 | |||||
| Total stockholders’ equity | 41,604 | 41,925 | |||||
| Total liabilities and stockholders' equity | $ | 101,146 | $ | 114,804 | |||
STARTEK, INC. AND SUBSIDIARIES | ||||||||
| Six Months Ended June 30, | ||||||||
| 2016 | 2015 | |||||||
| Operating Activities | ||||||||
| Net loss | $ | (1,653 | ) | $ | (8,244 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 6,304 | 6,288 | ||||||
| Share-based compensation expense | 825 | 913 | ||||||
| Amortization of deferred gain on sale leaseback transaction | — | (114 | ) | |||||
| Changes in operating assets & liabilities and other, net | 4,108 | 1,179 | ||||||
| Net cash provided by operating activities | 9,584 | 22 | ||||||
| Investing Activities | ||||||||
| Purchases of property, plant and equipment | (594 | ) | (5,209 | ) | ||||
| Proceeds from sale of assets | 13 | 982 | ||||||
| Cash paid for acquisition of businesses | (414 | ) | (18,760 | ) | ||||
| Net cash used in investing activities | (995 | ) | (22,987 | ) | ||||
| Financing Activities | ||||||||
| Other financing, net | (10,049 | ) | 23,969 | |||||
| Net cash (used in) provided by financing activities | (10,049 | ) | 23,969 | |||||
| Effect of exchange rate changes on cash | 88 | 84 | ||||||
| Net (decrease) increase in cash and cash equivalents | (1,372 | ) | 1,088 | |||||
| Cash and cash equivalents at beginning of period | $ | 2,626 | $ | 5,306 | ||||
| Cash and cash equivalents at end of period | $ | 1,254 | $ | 6,394 | ||||
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 and Free Cash Flow. 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.
The Company defines non-GAAP Adjusted EBITDA as net income (loss) plus income tax expense (benefit), interest expense (income), impairment losses and restructuring charges, depreciation and amortization expense, (gains) losses on disposal of assets and share-based compensation expense. 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 helps investors and analysts assess the strength and performance of our ongoing operations.
Management believes that measures that exclude impairment losses and restructuring charges or other non-recurring items permit a more meaningful comparison and understanding of our operating performance for the current, past or future periods.
Adjusted EBITDA:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net loss | $ | (1,684 | ) | $ | (5,069 | ) | $ | (1,653 | ) | $ | (8,244 | ) | ||||
| Income tax expense | 46 | 163 | 171 | 350 | ||||||||||||
| Interest expense | 371 | 621 | 729 | 928 | ||||||||||||
| Restructuring charges | 158 | 1,536 | 166 | 2,343 | ||||||||||||
| Depreciation and amortization expense | 3,074 | 3,252 | 6,304 | 6,288 | ||||||||||||
| Gain on sales of assets | (7 | ) | (507 | ) | (7 | ) | (507 | ) | ||||||||
| Share-based compensation expense | 336 | 417 | 825 | 913 | ||||||||||||
| Adjusted EBITDA | $ | 2,294 | $ | 413 | $ | 6,535 | $ | 2,071 | ||||||||
The Company defines non-GAAP free cash flow as Net cash provided by (used in) operating activities reduced by capital expenditures. We use free cash flow, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a more conservative measure of cash flows since capital expenditures are a necessary component of ongoing operations. Free cash flow is used in addition to and in conjunction with results presented in accordance with GAAP and free cash flow should not be relied upon to the exclusion of GAAP financial measures. Free cash flow reflects an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Management strongly encourages shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Free cash flow:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net cash provided by (used in) operating activities | $ | 4,720 | $ | (500 | ) | $ | 9,584 | $ | 22 | |||||||
| Less: capital expenditures | (183 | ) | (1,700 | ) | (594 | ) | (5,209 | ) | ||||||||
| Free Cash Flow | $ | 4,537 | $ | (2,200 | ) | $ | 8,990 | $ | (5,187 | ) | ||||||
Exhibit 99.2 | ||||||||||||||||||||||||||||||||
| Operating Results Scorecard | ||||||||||||||||||||||||||||||||
| As of June 30, 2016 | ||||||||||||||||||||||||||||||||
| Q1-15 | Q2-15 | Q3-15 | Q4-15 | 2015 | Q1-16 | Q2-16 | 2016 | |||||||||||||||||||||||||
| Revenue (millions) | ||||||||||||||||||||||||||||||||
| Domestic | $ | 35.6 | $ | 37.1 | $ | 44.6 | $ | 52.7 | $ | 169.9 | $ | 49.1 | $ | 46.3 | $ | 95.4 | ||||||||||||||||
| Offshore | $ | 20.3 | $ | 18.1 | $ | 17.1 | $ | 17.3 | $ | 72.9 | $ | 17.6 | $ | 17.1 | $ | 34.7 | ||||||||||||||||
| Nearshore | $ | 7.7 | $ | 8.2 | $ | 11.1 | $ | 12.3 | $ | 39.3 | $ | 11.3 | $ | 10.3 | $ | 21.6 | ||||||||||||||||
| Company Total | $ | 63.6 | $ | 63.4 | $ | 72.8 | $ | 82.3 | $ | 282.1 | $ | 78.0 | $ | 73.7 | $ | 151.7 | ||||||||||||||||
| Revenue % | ||||||||||||||||||||||||||||||||
| Domestic | 56.0 | % | 58.5 | % | 61.2 | % | 64.0 | % | 60.2 | % | 62.9 | % | 62.8 | % | 62.9 | % | ||||||||||||||||
| Offshore | 31.9 | % | 28.5 | % | 23.6 | % | 21.1 | % | 25.9 | % | 22.6 | % | 23.2 | % | 22.9 | % | ||||||||||||||||
| Nearshore | 12.1 | % | 13.0 | % | 15.2 | % | 14.9 | % | 13.9 | % | 14.5 | % | 14.0 | % | 14.2 | % | ||||||||||||||||
| Company Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
Gross Profit (millions) | ||||||||||||||||||||||||||||||||
| Domestic | $ | 2.4 | $ | 2.2 | $ | 0.3 | $ | 6.7 | $ | 11.6 | $ | 4.8 | $ | 3.3 | $ | 8.1 | ||||||||||||||||
| Offshore | $ | 2.5 | $ | 1.8 | $ | 1.2 | $ | 1.1 | $ | 6.7 | $ | 2.3 | $ | 2.5 | $ | 4.8 | ||||||||||||||||
| Nearshore | $ | 1.2 | $ | 1.3 | $ | 1.6 | $ | 1.9 | $ | 6.0 | $ | 1.3 | $ | 1.2 | $ | 2.5 | ||||||||||||||||
| Company Total | $ | 6.1 | $ | 5.3 | $ | 3.1 | $ | 9.7 | $ | 24.3 | $ | 8.4 | $ | 7.0 | $ | 15.4 | ||||||||||||||||
| Gross Profit % | ||||||||||||||||||||||||||||||||
| Domestic | 6.8 | % | 6.0 | % | 0.7 | % | 12.7 | % | 6.8 | % | 9.8 | % | 7.1 | % | 8.5 | % | ||||||||||||||||
| Offshore | 12.4 | % | 10.0 | % | 7.2 | % | 6.4 | % | 9.2 | % | 13.1 | % | 14.6 | % | 13.8 | % | ||||||||||||||||
| Nearshore | 15.4 | % | 15.6 | % | 14.5 | % | 15.8 | % | 15.3 | % | 11.5 | % | 11.7 | % | 11.6 | % | ||||||||||||||||
| Company Total | 9.6 | % | 8.4 | % | 4.3 | % | 11.8 | % | 8.6 | % | 10.8 | % | 9.5 | % | 10.2 | % | ||||||||||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20160809006276/en/
Contacts:
Investor Relations
Liolios
Cody
Slach, 949-574-3860
or
Sean Mansouri, 949-574-3860
investor@startek.com
