Startek Reports Record Fourth Quarter and Full Year 2020 Financial Results

-  Continued Operational Momentum Drives Strongest Levels of Quarterly Revenue, Gross Profit and Adjusted EBITDA in Company History

- Recently Completed Debt Refinancing and Strategic Investment in CSS to Accelerate Digital Initiatives and Bolster Foundation for Growth

GREENWOOD VILLAGE, CO March 15, 2021 - Startek, Inc. (NYSE:SRT) ("Startek" or the "Company"), a global provider of customer experience management solutions, is reporting financial results for the fourth quarter and full year ended December 31, 2020.

 

Fourth Quarter 2020 Financial Highlights ($ in millions, excl. margin items)

 

 

Q4 2020

Q3 2020

Q4 2019

Net Revenue

$174.5

$162.7

$171.6

Gross Profit

$30.9

$22.9

$27.6

Gross Margin

17.7%

14.1%

16.1%

SG&A Expenses

$15.3

$14.9

$19.4

Net Income/(Loss)[1]

$(7.6)

$0.4

$(5.3)

    Adjusted Net Income[2]

$8.8

$3.3

$5.8

Adjusted EBITDA[2]

$23.3

$15.6

$16.8

[1] Reflects net income (loss) attributable to Startek shareholders.

[2] Refer to the note below about Non-GAAP financial measures.

 

Full Year 2020 Financial Highlights ($ in millions, excl. margin items)

 

 

2020

2019

Net Revenue

$640.2

$657.9

Gross Profit

$89.6

$110.9

Gross Margin

14.0%

16.9%

SG&A Expenses

$62.1

$91.4

Net Income/(Loss)

$(39.0)

$(15.0)

Adjusted Net Income

$8.5

$4.7

    Adjusted EBITDA

$58.2

$52.1

Management Commentary

  

“We generated record results during the fourth quarter with solid growth across nearly every key financial metric,” said Aparup Sengupta, Executive Chairman and Global CEO of Startek. “While Q4 is historically our strongest quarter of the year, we further benefitted from seasonality trends within our existing client base, including robust e-commerce tailwinds around the holiday season. This performance, coupled with our consistent focus on cost management, allowed us to drive sequential and year-over-year improvements in gross margin and adjusted EBITDA, which also benefitted from $2.7 million of government grants in Q4. Overall, our team demonstrated incredible adaptability and execution in 2020 despite one of the most challenging global operating environments we have ever faced.

 

“As we entered 2021, we further strengthened our commitment to enhancing the flexibility of our platform. Subsequent to the fourth quarter, we completed a $185 million debt refinancing that allows us to extend our debt maturities and enhance our overall liquidity position. With this reinforced balance sheet, we can comprehensively support our current operations while capitalizing on strategic opportunities to drive long-term, accretive growth.

 

“The recent minority investment we made in CSS Corp. (CSS) represents one such accretive opportunity that will also advance our ramping digital initiatives. CSS is a robust IT services company providing mission-critical AI, automation, analytics, cloud and digital solutions to a growing technology customer base across five continents. Given the success of our Startek Cloud omnichannel platform in 2020, we continue to view our digital services as a key long-term driver of both future revenue growth and margin expansion. Our investment in CSS accelerates our digitization initiatives and marks an important inflection point for Startek.

 

“Looking ahead to the rest of 2021, we are proud to have built such a strong foundation to continue driving operational efficiencies and enhancing our suite of services around the globe. We are grateful for the dedication of our team and the deep support of our shareholders as we further execute on our strategic growth plans.”    

 

Fourth Quarter 2020 Financial Results

 

Net revenue in the fourth quarter increased to $174.5 million compared to $171.6 million in the year-ago quarter. The increase was driven by elevated demand and seasonal strength within the Company’s existing client network. On a constant currency basis, net revenue increased 4.7% compared to the prior year period.

 

Gross profit in the fourth quarter increased by 11.7% to $30.9 million compared to $27.6 million in the year-ago quarter. Gross margin increased 160 basis points to 17.7% compared to 16.1% in the year-ago quarter. The increase was primarily driven by the aforementioned strength within Startek’s existing client base and a greater revenue mix of high-margin digital services. The margin expansion was also aided by incremental grants of $2.7 million received in the fourth quarter.

 

Selling, general and administrative (SG&A) expenses in the fourth quarter decreased to $15.3 million compared to $19.4 million in the year-ago quarter. As a percentage of revenue, SG&A improved 250 basis points to 8.8% compared to 11.3% in the year-ago quarter as a result of the continued cost reductions the Company has implemented over the past several quarters and in response to COVID-19.

 

Net loss attributable to Startek shareholders in the fourth quarter was $7.6 million or $(0.19) per share, compared to a net loss of $5.3 million or $(0.14) per share in the year-ago quarter. Net loss in the fourth quarter of 2020 included an approximate $13.2 million goodwill impairment from COVID-19 related forecasted declines in the Company’s business in India, South Africa, and Australia and in Argentina owing primarily to the devaluation of the local currency.  

 

Adjusted net income* in the fourth quarter increased 50% to $8.8 million or $0.22 per diluted share, compared to adjusted net income* of $5.8 million or $0.15 per diluted share in the year-ago quarter.

 

Adjusted EBITDA* in the fourth quarter increased 38.5% to $23.3 million compared to $16.8 million in the year-ago quarter. The increase was primarily driven by the aforementioned revenue growth and margin expansion, cost reductions, and approximately $2.7 million in incremental benefits related to government grants.

 

On December 31, 2020, cash and restricted cash was $50.6 million compared to $56.6 million at September 30, 2020. The decrease was largely driven by increased capital expenditures in this quarter relative to previous quarters. Total debt at December 31, 2020 remained flat at $136.0 million compared to September 30, 2020, and net debt at December 31, 2020 was $85.4 million compared to $79.4 million at September 30, 2020.

 

Full Year 2020 Financial Results

 

Net revenue in 2020 was $640.2 million compared to $657.9 million in 2019. The decrease was driven by adverse movements in foreign currency during the year. On a constant currency basis, net revenue increased 0.9% compared to the prior year. The COVID-19 impact on revenue during the first half of 2020 was offset by new wins and elevated seasonal demand in the second half of the year.

 

Gross profit in 2020 was $89.6 million compared to $110.9 million in 2019. Gross margin was 14.0% compared to 16.9% in 2019. The decrease was primarily driven by higher costs relative to revenues in geographies that were heavily impacted by COVID-19 related lockdowns.

 

Selling, general and administrative (SG&A) expenses in 2020 decreased significantly to $62.1 million compared to $91.4 million in 2019. As a percentage of revenue, SG&A improved 420 basis points to 9.7% compared to 13.9% in 2019 as a result of the company’s sustained cost reductions over the last 12 months and in response to COVID-19.

 

Net loss attributable to Startek shareholders in 2020 was $39.0 million or $(0.99) per share, compared to a net loss of $15.0 million or $(0.39) per share in 2019. Net loss in 2020 included an approximate $35.9 million goodwill impairment charge accounted in the first quarter and in the fourth quarter due to COVID-19 related forecasted declines in the Company’s business in India, South Africa, Australia and in Argentina owing primarily to the devaluation of the local currency.

 

Adjusted net income* in 2020 increased to $8.5 million or $0.22 per diluted share, compared to adjusted net income* of $4.7 million or $0.12 per diluted share in 2019.

 

Adjusted EBITDA* in 2020 increased 11.7% to $58.2 million compared to $52.1 million in 2019. The increase was primarily driven by the Company’s aforementioned cost reductions and continued focus on prudent expense management, as well as the $2.7 million incremental grant benefit in Q4.

 

*A non-GAAP measure defined below.

 

Debt Refinancing and Capital Allocation

 

Subsequent to the fourth quarter, CSP Alpha Holdings Pte. Ltd., a wholly-owned subsidiary of Startek, successfully completed a debt refinancing with a newly secured $185 million senior debt facility, comprising a $165 million term loan and a $20 million revolving credit facility. The term loan bears a moratorium on principal repayment for 21 months and will amortize quarterly thereafter, beginning in November 2022. The loan is subject to certain standardized financial covenants. The proceeds of this loan was used to repay in full the previous senior debt facility and to also make the strategic investment in CSS.

 

On February 25, 2021, Startek announced a strategic investment in CSS, comprising a $30 million contribution in a limited partnership managed by Startek’s majority shareholder, Capital Square Partners, to acquire both an indirect beneficial interest of approximately 26% in CSS, as well as an option to acquire a controlling stake. The option to acquire a majority stake in CSS is at the sole discretion of Startek, and the Company has no obligation to do so.

 

Conference Call and Webcast Details

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

 

Date: Monday, March 15, 2021

Time: 5:00 p.m. Eastern time

Toll-free dial-in number: (844) 239-5283

International dial-in number: (574) 990-1022

Conference ID: 4245717

 

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 Gateway Investor Relations at (949) 574-3860. The conference call will be broadcast live and available for replay here, as well as in the investor relations section of the company’s website at www.startek.com.

 

A telephonic replay of the conference call will also be available after 8:00 p.m. Eastern time on the same day through March 22, 2021.

 

Toll-free replay number: (855) 859-2056

International replay number: (404) 537-3406

Replay ID: 4245717

 

About Startek

Startek is a global provider of tech-enabled business process management solutions. The company provides omni-channel customer experience, digital transformation, and technology services to some of the finest brands globally. Startek is committed to impacting clients’ business outcomes by focusing on enhancing customer experience and digital & AI enablement across all touch points and channels. Startek has more than 42,000 CX experts spread across 46 delivery campuses in 13 countries. The company services over 220 clients across a range of industries such as Banking and Financial Services, Insurance, Technology, Telecom, Healthcare, Travel & Hospitality, Ecommerce, Consumer Goods, Retail, and Energy & Utilities. 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 Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission (SEC) on March 12, 2020, 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

Sean Mansouri, CFA

Gateway Investor Relations

(949) 574-3860

SRT@gatewayir.com