- Filing Preliminary Proxy Materials with the
Management Commentary
“The first quarter was arguably the most strategically significant quarter in the Company’s history,” said
“And in March, we announced a strategic transaction with an affiliate of
“Over the past several years, we have made great progress toward diversifying the business into new verticals and adding many new clients,” stated Mr. Carlson. “I cannot overstate the level to which these two accomplishments de-risk the company going forward and position
“Following this release, we are filing our preliminary proxy statement which contains a more detailed description of the transaction and related information. We expect to be in a position to close the transaction in the third quarter. At that time, we anticipate bringing in some new members of senior management to lead the combined organization, headlined by the addition of industry veteran
First Quarter 2018 Financial Results
Total revenue in the first quarter was
Gross margin in the first quarter was 8.2% compared to 12.9% in the year-ago quarter, with the decline primarily due to the warrants issued in January, and the associated contra revenue accounting adjustment, upon the multi-year strategic alignment with one of the most innovative and customer-focused companies in the world, partially offset by higher-margin from new and existing business.
During the first quarter, lower volumes and lost programs from wireless clients led to lower revenue and profitability. However, despite lower volumes from these customers, the high-grading initiatives from 2017 began to show, especially in domestic sites. Though domestic segment revenue was down
Selling, general and administrative (SG&A) expenses were
Net loss for the first quarter was
Adjusted EBITDA* in the first quarter was
Free cash flow* in the first quarter was
At
*A non-GAAP measure defined below
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About
Additional Information about the Transactions and Where to Find It
This communication is being made in part in respect of the transactions between
Participants in the Solicitation
Report on Form 10-K for the year ended
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, INC. AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||
(In thousands, except per share data) |
||||||||||
(Unaudited) |
||||||||||
Three Months Ended March 31, | ||||||||||
2018 | 2017 | |||||||||
Revenue | $ | 69,114 | $ | 77,652 | ||||||
Warrant contra revenue | (2,500 | ) | — | |||||||
Net revenue | 66,614 | 77,652 | ||||||||
Cost of services | 61,156 | 67,638 | ||||||||
Gross profit | 5,458 | 10,014 | ||||||||
Selling, general and administrative expenses | 8,558 | 7,882 | ||||||||
Transaction related fees | 1,887 | — | ||||||||
Impairment losses and restructuring charges, net | 4,453 | — | ||||||||
Operating income (loss) | (9,440 | ) | 2,132 | |||||||
Interest and other expense, net | (438 | ) | (367 | ) | ||||||
Income (loss) before income taxes | (9,878 | ) | 1,765 | |||||||
Income tax expense (benefit) | 148 | (28 | ) | |||||||
Net income (loss) | $ | (10,026 | ) | $ | 1,793 | |||||
Net income (loss) per common share - basic | $ | (0.62 | ) | $ | 0.11 | |||||
Weighted average common shares outstanding - basic | 16,195 | 15,815 | ||||||||
Net income (loss) per common share - diluted | $ | (0.62 | ) | $ | 0.11 | |||||
Weighted average common shares outstanding - diluted | 16,195 | 16,995 | ||||||||
STARTEK, INC. AND SUBSIDIARIES | |||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
(In thousands) |
|||||||||
(Unaudited) |
|||||||||
March 31, 2018 | December 31, 2017 | ||||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 1,196 | $ | 1,456 | |||||
Trade accounts receivable, net | 54,087 | 53,052 | |||||||
Other current assets | 2,757 | 3,641 | |||||||
Total current assets | 58,040 | 58,149 | |||||||
Property, plant and equipment, net | 17,508 | 19,943 | |||||||
Other long-term assets | 15,603 | 17,906 | |||||||
Total assets | $ | 91,151 | $ | 95,998 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
Current liabilities | $ | 24,072 | $ | 25,948 | |||||
Other liabilities | 27,977 | 23,111 | |||||||
Total liabilities | 52,049 | 49,059 | |||||||
Total stockholders’ equity | 39,102 | 46,939 | |||||||
Total liabilities and stockholders’ equity | $ | 91,151 | $ | 95,998 | |||||
STARTEK, INC. AND SUBSIDIARIES | ||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
(In thousands) |
||||||||||
(Unaudited) |
||||||||||
|
||||||||||
Three Months Ended March 31, | ||||||||||
2018 | 2017 | |||||||||
Operating Activities | ||||||||||
Net income (loss) | $ | (10,026 | ) | $ | 1,793 | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||
Depreciation and amortization | 2,643 | 2,962 | ||||||||
Share-based compensation expense | 262 | 229 | ||||||||
Warrant contra revenue | $ | 2,500 | — | |||||||
Changes in operating assets & liabilities and other, net | 1,003 | 2,199 | ||||||||
Net cash (used in) provided by operating activities | $ | (3,618 | ) | $ | 7,183 | |||||
Investing Activities | ||||||||||
Purchases of property, plant and equipment | (1,944 | ) | (1,113 | ) | ||||||
Proceeds from sale of assets | — | 342 | ||||||||
Net cash used in investing activities | $ | (1,944 | ) | $ | (771 | ) | ||||
Financing Activities | ||||||||||
Other financing, net | 5,099 | (6,075 | ) | |||||||
Net cash provided by (used in) financing activities | $ | 5,099 | $ | (6,075 | ) | |||||
Effect of exchange rate changes on cash | 203 | (12 | ) | |||||||
Net (decrease) increase in cash and cash equivalents | (260 | ) | 325 | |||||||
Cash and cash equivalents at beginning of period | $ | 1,456 | $ | 1,039 | ||||||
Cash and cash equivalents at end of period | $ | 1,196 | $ | 1,364 | ||||||
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands)
(Unaudited)
This press release contains references to the non-GAAP financial measures of Adjusted EBITDA, Free cash flow, 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, and Warrant contra revenue. 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 March 31, | ||||||||||||
2018 | 2017 | |||||||||||
Net income (loss) | $ | (10,026 | ) | $ | 1,793 | |||||||
Income tax expense (benefit) | 148 | (28 | ) | |||||||||
Impairment losses and restructuring charges, net | 4,453 | — | ||||||||||
Interest expense | 391 | 418 | ||||||||||
Depreciation and amortization expense | 2,643 | 2,962 | ||||||||||
Share-based compensation expense | 262 | 229 | ||||||||||
Transaction related fees | 1,887 | — | ||||||||||
Warrant contra revenue | 2,500 | — | ||||||||||
Adjusted EBITDA | $ | 2,258 | $ | 5,374 | ||||||||
Free cash flow:
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.
Three Months Ended March 31, | ||||||||||||
2018 | 2017 | |||||||||||
Net cash (used in) provided by operating activities | $ | (3,618 | ) | $ | 7,183 | |||||||
Less: capital expenditures | (1,944 | ) | (1,113 | ) | ||||||||
Free cash flow | $ | (5,562 | ) | $ | 6,070 | |||||||
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 March 31, | |||||||||||
2018 | 2017 | ||||||||||
Gross profit | $ | 5,458 | $ | 10,014 | |||||||
Warrant contra revenue | 2,500 | — | |||||||||
Adjusted gross profit | $ | 7,958 | $ | 10,014 | |||||||
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
Three Months Ended March 31, | |||||||||||
2018 | 2017 | ||||||||||
Net income (loss) | $ | (10,026 | ) | $ | 1,793 | ||||||
Warrant contra revenue | 2,500 | — | |||||||||
Impairment losses and restructuring charges, net | 4,453 | — | |||||||||
Transaction related fees | 1,887 | — | |||||||||
Adjusted Net income (loss) | $ | (1,186 | ) | $ | 1,793 | ||||||
Exhibit 99.2 |
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Operating Results Scorecard | ||||||||||||||||||||||||||||
As of March 31, 2018 | ||||||||||||||||||||||||||||
Q1-17 | Q2-17 | Q3-17 | Q4-17 | 2017 | Q1-18 | 2018 | ||||||||||||||||||||||
Revenue (millions) |
||||||||||||||||||||||||||||
Domestic | $ | 44.4 | $ | 42.6 | $ | 41.1 | $ | 43.2 | $ | 171.2 | $ | 41.6 | $ | 41.6 | ||||||||||||||
Offshore | $ | 21.1 | $ | 19.4 | $ | 17.8 | $ | 18.8 | $ | 77.1 | $ | 18.2 | $ | 18.2 | ||||||||||||||
Nearshore | $ | 12.2 | $ | 12.1 | $ | 10.5 | $ | 9.7 | $ | 44.3 | $ | 9.4 | $ | 9.4 | ||||||||||||||
Other | $ | (2.5 | ) | $ | (2.5 | ) | ||||||||||||||||||||||
Company Total | $ | 77.7 | $ | 74.0 | $ | 69.4 | $ | 71.6 | $ | 292.6 | $ | 66.6 | $ | 66.6 | ||||||||||||||
Revenue % |
||||||||||||||||||||||||||||
Domestic | 57.1 | % | 57.5 | % | 59.2 | % | 60.3 | % | 58.5 | % | 62.4 | % | 62.4 | % | ||||||||||||||
Offshore | 27.2 | % | 26.2 | % | 25.7 | % | 26.2 | % | 26.3 | % | 27.3 | % | 27.3 | % | ||||||||||||||
Nearshore | 15.7 | % | 16.3 | % | 15.1 | % | 13.5 | % | 15.2 | % | 14.1 | % | 14.1 | % | ||||||||||||||
Other | (3.8 | )% | (3.8 | )% | ||||||||||||||||||||||||
Company Total | 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 | $ | 2.5 | ||||||||||||||
Offshore | $ | 6.2 | $ | 4.3 | $ | 4.1 | $ | 4.2 | $ | 18.8 | $ | 5.3 | $ | 5.3 | ||||||||||||||
Nearshore | $ | 2.3 | $ | 2.1 | $ | 1.5 | $ | 0.2 | $ | 6.2 | $ | 0.1 | $ | 0.1 | ||||||||||||||
Other | $ | (2.5 | ) | $ | (2.5 | ) | ||||||||||||||||||||||
Company Total | $ | 10.0 | $ | 9.0 | $ | 7.3 | $ | 6.0 | $ | 32.4 | $ | 5.5 | $ | 5.5 | ||||||||||||||
Gross Profit % |
||||||||||||||||||||||||||||
Domestic | 3.4 | % | 6.0 | % | 4.0 | % | 3.7 | % | 4.3 | % | 6.1 | % | 6.0 | % | ||||||||||||||
Offshore | 29.2 | % | 22.2 | % | 23.2 | % | 22.4 | % | 24.4 | % | 29.2 | % | 29.1 | % | ||||||||||||||
Nearshore | 19.2 | % | 17.7 | % | 14.8 | % | 2.3 | % | 14.1 | % | 1.4 | % | 1.1 | % | ||||||||||||||
Other | 100.0 | % | 100.0 | % | ||||||||||||||||||||||||
Company Total | 12.9 | % | 12.1 | % | 10.6 | % | 8.4 | % | 11.1 | % | 8.2 | % | 8.2 | % |
View source version on businesswire.com: https://www.businesswire.com/news/home/20180508006623/en/
Source:
Investor Relations
Liolios Group, Inc.
Sean Mansouri or Cody Slach
949-574-3860
investor@startek.com