Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 2018
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-12793
StarTek, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 84-1370538 | |
(State or other jurisdiction of | (I.R.S. employer | |
incorporation or organization) | Identification No.) | |
6200 South Syracuse Way, Suite | ||
Greenwood Village, Colorado | 80111 | |
(Address of principal executive offices) | (Zip code) |
(303) 262-4500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | SRT | New York Stock Exchange, Inc. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of October 31, 2018,July 29, 2019, there were 37,060,55838,460,155 shares of Common Stock outstanding.
TABLE OF CONTENTS FORM 10-Q PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Page Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended Condensed Consolidated Balance Sheets as of Condensed Consolidated Statements of Cash Flows for the Six Months Ended Condensed Consolidated Statement of Stockholders' equity for the Three and Six Months Ended Notes to Condensed Consolidated Financial Statements (Unaudited) ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ITEM 4. Controls and Procedures PART II - OTHER INFORMATION ITEM 1. ITEM 1A. Risk Factors ITEM 3. ITEM 5. Other Information ITEM 6. Exhibits SIGNATURES NOTE ABOUT FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the following: certain statements, including possible or assumed future results of operations, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; any statements regarding the prospects for our business or any of our services; any statements preceded by, followed by or that include the words “may,” “will,” “should,” “seeks,” “believes,” “expects,” “anticipates,” “intends,” “continue,” “estimate,” “plans,” “future,” “targets,” “predicts,” “budgeted,” “projections,” “outlooks,” “attempts,” “is scheduled,” or similar expressions; and other statements regarding matters that are not historical facts. Our business and results of operations are subject to risks and uncertainties, many of which are beyond our ability to control or predict. Because of these risks and uncertainties, actual results may differ materially from those expressed or implied by forward-looking statements, and investors are cautioned not to place undue reliance on such statements, which speak only as of the date thereof. Important factors that could cause actual results to differ materially from our expectations and may adversely affect our business and results of operations, include, but are not limited to, those items described herein or set forth in the CHANGE IN FILING STATUS In accordance with the SEC's expanded definition of Smaller Reporting Companies effective September 10, 2018, ITEM 1. FINANCIAL STATEMENTS STARTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED (In thousands, except per share (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Revenue Warrant contra revenue Net Revenue Cost of services Gross profit Selling, general and administrative expenses Restructuring and other merger related cost Operating income Share of profit of associates Interest expense, net Exchange gain / (losses), net Loss before income taxes Income tax expense Net loss Net income/(loss) attributable to non-controlling interests Net loss attributable to Startek shareholders Other comprehensive income (loss), net of tax: Foreign currency translation adjustments Change in fair value of derivative instruments Pension amortization Comprehensive loss Comprehensive income attributable to non-controlling interests Comprehensive loss attributable to Startek shareholders Net loss per common share - basic and diluted See Notes to Consolidated Financial Statements. CONDENSED CONSOLIDATED BALANCE (In thousands, except share data) (Unaudited) As of June 30, As of December 31, 2019 2018 ASSETS Current assets: Cash and cash equivalents Restricted cash Trade accounts receivable, net Unbilled Revenue Prepaid and other current assets Total current assets Property, plant and equipment, net Operating lease Right-of-use assets Intangible assets, net Goodwill Investment in associates Deferred tax assets, net Prepaid expenses and other non-current assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Trade accounts payable Accrued expenses and other current liabilities Short term debt Current maturity of long term debt Current maturity of operating lease liabilities Current maturity of finance lease obligations Total current liabilities Long term debt Operating lease liabilities Other non-current liabilities Deferred tax liabilities, net Total liabilities Commitments and contingencies Stockholders’ equity: Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 38,452,111 and 37,446,323 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Equity attributable to Startek shareholders Non-controlling interest Total stockholders’ equity Total liabilities and stockholders’ equity See Notes to Consolidated Financial Statements. CONDENSED CONSOLIDATED (In thousands) (Unaudited) Six Months Ended June 30, 2019 2018 Operating Activities Net loss Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization Profit on sale of property, plant and equipment Provision for doubtful accounts Warrant contra revenue Share-based compensation expense Deferred income taxes Share of profit of affiliates Changes in operating assets and liabilities: Trade accounts receivable Prepaid expenses and other assets Accounts payable Income taxes, net Accrued and other liabilities Net cash (used in) provided by operating activities Investing Activities Purchases of property, plant and equipment Distributions received from associates Net cash used in investing activities Financing Activities Proceeds from the issuance of common stock Payments on long term debt Proceeds from (payments on) other debt, net Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash at beginning of period Cash and cash equivalents and restricted cash at end of period Components of cash and cash equivalents and restricted cash Balances with banks Restricted cash Total cash and cash equivalents and restricted cash See Notes to Consolidated Financial Statements. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (In thousands, except share data) (Unaudited) Common Stock Additional Accumulated other comprehensive Accumulated Equity attributable to Startek Non-controlling Total stockholders' Shares Amount capital loss deficit shareholders interest equity NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, (In thousands, except share and per share data) (Unaudited) 1. OVERVIEW AND BASIS OF Unless otherwise noted in this report, any description of "us," "we," or "our," refers to StarTek, Inc. and its subsidiaries (the "Company"). Financial information in this report is presented in U.S. dollars. Business Startek is a global business process outsourcing company Startek has proven results for the multiple services we provide, including sales, order management and provisioning, customer care, technical support, receivables management, and retention programs. We manage programs using a variety of multi-channel customer interactions, including voice, chat, email, social media and back-office support. Startek has facilities in India, United States, Malaysia, Philippines, Australia, South Africa, Canada, Honduras, Jamaica, Kingdom of Saudi Arabia, Argentina, Peru and Sri Lanka. We operate in a single operating segment providing business outsourcing solutions in the customer experience management space. On July 20, 2018, Company completed the In addition, on July 20, 2018, in connection with the consummation of the Aegis Transactions, the Company and the Aegis Stockholder entered into a Stockholders Agreement, pursuant to which the Company and the Aegis Stockholder agreed to, among other things: (i) certain rights, duties and obligations of the Aegis Stockholder and the Company as a result of the transactions contemplated by the Transaction Agreement and (ii) certain aspects of the management, operation and governance of the Company after consummation of the Aegis Transactions. On December 13, 2018, the Company, and Aegis Stockholder, entered into a Securities Purchase Agreement, pursuant to which Aegis Stockholder purchased, and the Company issued and sold, 368,098 shares of Common Stock at a purchase price of $6.52 per share, or a total purchase price of $2,400, taking its holding to approximately 56% of the On May 17, 2019, the Company Basis of The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (" These financial statements reflect all adjustments (consisting only of normal recurring entries, except as noted) which, in the opinion of management, are necessary for fair presentation. The results of operations for interim periods are not necessarily indicative of full year results. The consolidated balance sheet as of 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements reflect the financial results of all subsidiaries that are more than 50% owned and over which the Company exerts control. When the Company does not have majority ownership in an entity but exerts significant influence over that entity, the Company accounts for the entity under the equity method of accounting. All intercompany balances are eliminated Use of Estimates The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and Revenue On April 1, 2018, the Company adopted Accounting Standards Codification 606, Consistent with the modified retrospective method of adoption, the Company has not adjusted prior period amounts which continue to be reported in accordance with the Company’s historic revenue accounting policy and principles. Leases On January 1, 2019, the Company adopted Accounting Standards Codification 842, Leases, (Topic 842)withthe transition approach. However, the Company has accounted the lease for the comparable periods as per the Accounting Standards Codification 840. We determine if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets, current maturity of operating lease liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property plant and equipment, long-term debt, accrued expenses and other current liabilities in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the balance lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the date of initial application on determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. The Company accounts for business Goodwill and Intangible Assets Goodwill Intangible assets acquired in a business combination Foreign Currency Matters The Company has operations in Argentina and its functional currency has historically been the Argentine Peso. The Company monitors inflation rates in countries in which it operates as required by US GAAP. Under ASC 830-10-45-12, an economy must be classified as highly inflationary when the cumulative three-year rate exceeds 100%. In May 2018, a discussion document prepared by the Center for Audit Quality SEC Regulations Committee and its International Practices Task Force describes inflation data for Argentina through April 2018. Considering this data and more recent data for May 2018, all of the three-year cumulative inflation rates commonly used to evaluate Argentina’s inflation currently exceed 100%. Therefore, the Company Stock-Based Compensation We recognize expense related to all share-based payments to employees, including grants of employee stock options, based on the Common Stock Warrant Accounting We account for common stock warrants as equity instruments, based on the specific terms of our warrant agreement. For more Recent Accounting Pronouncements In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-14, In June 2016, FASB issued In 3. BUSINESS ACQUISITIONS Aegis Transactions On July 20, 2018, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of Aegis from the Aegis Stockholder in exchange for the issuance of 20,600,000 shares of the Common Stock in the Aegis Transactions. Concurrently, the Aegis Stockholder purchased 166,667 newly issued shares of the Common Stock at a price of $12 per share for a total cash payment of In accordance with ASC 805, Business Combinations, the transaction was accounted for as a reverse acquisition. As such, Aegis is considered to be the accounting acquirer. Therefore, Aegis’ historical financial statements replace the Company’s historical financial statements following the completion of the Aegis Transactions, and the results of operations of both companies will be included in the Company’s financial statements for all periods subsequent to July 20, 2018. The estimated fair value of the purchase consideration is calculated based on the Company's stock price as it is considered to be more reliably determinable than the fair value of Aegis' private stock. Consideration is calculated based on the Company's closing stock price of $6.81 on July 20, 2018. The following table Amount Stock consideration (number of shares outstanding immediately prior the closing date) Closing share price on July 20, 2018 Total allocable purchase price Amount Cash and cash equivalents Other current assets Property, plant and equipment, net Identifiable intangible assets Goodwill Other non-current assets Current liabilities Non-current liabilities Preliminary purchase price The goodwill recognized was attributable primarily to the acquired workforce, increased utilization of our global delivery platform and other synergistic benefits. Goodwill from this acquisition is not expected to be deductible for tax purposes. 4. GOODWILL AND INTANGIBLE ASSETS Goodwill As of June 30, 2019, the carrying value of goodwill relating to business acquisitions is $226,505. The carrying value of goodwill is allocated to reporting units is as follows: Reporting Units Amount Aegis StarTek Ending balance, June 30, 2019 We perform a goodwill impairment analysis at least annually (in the fourth quarter of each year) unless indicators of impairment exist in interim periods. The assumptions used in the analysis are based on the Company’s internal budget. The Company projected revenue, operating margins and cash flows for a period of five years, and applied a perpetual long-term growth rate thereafter. These assumptions are reviewed annually as part of management’s budgeting and strategic planning cycles. These estimates may differ from actual results. The values assigned to each of the key assumptions reflect the management’s past experience as their assessment of future trends, and are consistent with external/internal sources of information. As of The following table presents the changes in goodwill during the period: Amount Opening balance, December 31, 2018 Measurement period adjustments Ending balance, June 30, 2019 Intangible Assets The following table presents our intangible assets as of Gross Intangibles Accumulated Amortization Net Intangibles Weighted Average Amortization Period (years) Customer relationships Brand Trademarks Other intangibles Expected future amortization of intangible assets as of Years Ending December 31, Amount Remainder of 2019 2020 2021 2022 2023 Thereafter 5. REVENUE The company follows a five-step process in accordance with ASC 606, for revenue recognition that focuses on transfer of control, rather than transfer of risks and rewards. Contracts with Customers All of the Company's revenues are derived from written contracts with our customers. Generally speaking, our contracts document our customers' intent to utilize our services and the relevant terms and conditions under which our services will be provided. Our contracts generally do not contain minimum purchase requirements nor do they include termination penalties. Our customers may generally cancel our contract, without cause, upon written notice (generally ninety days). While our contracts do have stated terms, because of the facts stated above, they are accounted for on a month-to-month basis. Our contracts give us the right to bill for services rendered during the period, which for the majority of our customers is a calendar month, with a few customers specifying a fiscal month. Performance Obligations We have identified one main performance obligation for which we invoice our customers, which is to stand ready to provide care services for our customers’ clients. A stand-ready obligation is a promise that a customer will have access to services as and when the customer decides to use them. Ours is considered a stand-ready Our stand-ready obligation involves outsourcing of the entire customer care life cycle, including: The identification, operation, management and maintenance of facilities, IT equipment, and IT and telecommunications infrastructure Management of the entire human resources function, including recruiting, hiring, training, supervising, evaluating, coaching, retaining, compensating, providing employee benefits programs, and disciplinary activities These activities are all considered an integral part of the production activities required in the service of standing ready to accept calls as and when they are directed to us by our clients. Because our customers receive and consume the benefit of our services as they are performed and we have the contractual right to invoice for services performed to date, we have concluded that our performance obligation is satisfied over time. Accordingly, we recognize revenue for our services in the month they are performed. This is consistent with our prior revenue recognition model. We are generally entitled to invoice for our services on a monthly basis. We invoice according to the hourly and/or per transaction rates stated in Practical expedients and exemptions Because the Company’s contracts are essentially month-to-month, we have elected the following ASC 606-10-50-14 exempts companies from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less ASC 340-40-25-4 allows companies to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. ASC 606-10-32-2A allows an entity to make an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added, and some excise taxes) ASC 606-10-55-18 allows an entity that has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the entity may recognize revenue Disaggregated Revenue Revenues by our clients' industry vertical for the Three Months Ended June 30, Six Months Ended June 30, Vertical: 2019 2018 2019 2018 Telecom E-commerce & Consumer Financial & Business Services Media & Cable Travel & Hospitality Healthcare & Education Technology, IT & Related Services All other segments Gross Revenue 6. NET Basic net When a net loss is reported, potentially issuable common shares are excluded from the computation of diluted earnings per share as their effect would be anti-dilutive. In connection with the Aegis Transactions, the Company maintained Startek's 2008 Equity Incentive Plan (see Note 11, "Share-based compensation and employee benefit plans" for more information). For the three and six Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Anti-dilutive securities: Stock options 7. The table below summarizes the balance of accrued restructuring Employee related Facilities related Total Balance as of December 31, 2018 Accruals/(reversals) Payments Balance as of June 30, 2019 Employee related In 2018, in conjunction with the closing of the Aegis Transactions, we eliminated a number of positions which were considered redundant, under a company-wide restructuring plan. We In March 2019, the Company has closed one of its sites in Argentina. Upon closure, the Company eliminated a number of positions which were considered redundant and recognized provision for employee related costs and we expect to pay the remaining costs of $144 by the end of fourth quarter 2019. Facilities related In 2018, in conjunction with the closing of the Aegis Transactions, we terminated various leases in the United States and the Philippines. We Upon closure of site in Argentina, the Company 8. DERIVATIVE INSTRUMENTS Cash flow hedges Our locations in Canada and the Philippines primarily serve US-based clients. The revenues Unrealized gains and losses are recorded in accumulated other comprehensive income (“AOCI”) and will be re-classified to The following table shows the notional amount of our foreign exchange cash flow hedging instruments as of Local Currency Notional Amount U.S. Dollar Notional Amount Philippine Peso Derivative assets and liabilities associated with our hedging activities are measured at gross fair value as described in Note 9, "Fair Value Measurements," and are included in prepaid expense and other current assets and accrued expenses and other current liabilities in our condensed consolidated balance sheets, respectively. Non-designated hedges We have also entered into foreign currency range forward contracts and interest swap contract as required by our lenders. These hedges are not designated hedges under ASC 815, Unrealized gains and losses and changes in fair value of these derivatives are recognized as incurred in Exchange gains (losses), net in the Derivatives not designated under ASC 815 For the Three Months Ended June 30, 2019 For the Three Months Ended June 30, 2018 For the Six Months Ended June 30, 2019 For the Six Months Ended June 30, 2018 Foreign currency forward contracts Interest rate swap 9. FAIR VALUE MEASUREMENTS The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The levels of the fair value hierarchy are described below: Level 1 - Quoted prices for identical instruments traded in active markets. Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 - Unobservable inputs that cannot be supported by market activity and that are significant to the fair value of the asset, liability, or equity such as the use of certain pricing models, discounted cash flow models and similar techniques that use significant assumptions. These unobservable inputs reflect our own estimates of assumptions that market participants would use in pricing the asset or The values of our derivative instruments are derived from pricing models using inputs based upon market information, including contractual terms, market prices and yield curves. The inputs to the valuation pricing models are observable in the market, and as such the derivatives are classified as Level 2 in the fair value hierarchy. The following tables set forth our assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy. These balances are included in Other current assets and Other current liabilities, respectively, on our balance sheet. As of June 30, 2019 Level 1 Level 2 Level 3 Total Assets: Foreign exchange contracts Total fair value of assets measured on a recurring basis Liabilities: Interest rate swap Foreign exchange contracts Total fair value of liabilities measured on a recurring basis As of December 31, 2018 Level 1 Level 2 Level 3 Total Assets: Foreign exchange contracts Total fair value of assets measured on a recurring basis Liabilities: Interest rate swap Foreign exchange contracts Total fair value of liabilities measured on a recurring basis 10. DEBT The below table presents details of the Company's debt: June 30, 2019 December 31, 2018 Short term debt and current portion of long term debt Working capital facilities Term loan Finance lease obligations Total Long term debt Term loan, net of debt issuance costs Equipment loan Secured revolving credit facility Finance lease obligations Total Working capital facilities The Company has a number of working capital facilities in various countries in which it operates. These facilities provide for a combined borrowing capacity of approximately Term loan On October 27, 2017, the Company entered into a Senior Term Agreement ("Term loan") to provide funding for the acquisition of ESM Principal payments due on the term loan are as follows: Years Amount 2019 2020 2021 2022 The Term loan has a floating interest rate of USD LIBOR plus 4.5% annually for the first year and thereafter the margin will range between 3.75% and 4.5% subject to certain financial ratios. In connection with the Term loan, the Company incurred issuance costs of Secured revolving credit facility The Company has a secured revolving credit facility which is effective through March 2022. Under this agreement, we may borrow the lesser of the borrowing base calculation and $50 million. As long as no default has occurred and with lender consent, we may increase the maximum availability to $70 million in $5 million As of June 30, 2019, we had $33.9 million of outstanding borrowings and our remaining borrowing capacity was $8.46 million. Our borrowings bear interest at one-month LIBOR plus 1.50% to 1.75%, depending on current availability. We BMO Equipment Loan On December 27, 2018, the Company executed an agreement to secure a loan against US and Canadian assets in the amount of $1.79 million at the interest of 7.57% per annum, to be Finance lease obligations From time to time and when management believes it to be advantageous, we may enter into other arrangements to finance the purchase or construction of capital assets. 11. SHARE-BASED COMPENSATION Amazon Warrant On January 23, 2018, The first tranche of 425,532 Warrant Shares vested upon the execution of the Amazon Transaction Agreement. The remainder of the Warrant Shares will vest in various tranches based on Amazon’s payment of up to $600 million to us or any of our affiliates in connection with the receipt by Amazon or any of its affiliates of commercial services from us or any of our affiliates. The exercise price for all Warrant Shares At June 30, 2019, the second tranche of The Warrant provides for net share settlement that, if elected by the holders, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Warrant provides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. Vested Warrant Shares are classified as equity instruments. Because the Warrant contains performance criteria (i.e. aggregate purchase levels) which Amazon and/or any of its affiliates must achieve for the Warrant Shares to vest, as detailed above, the final measurement date for each tranche of the Warrant Shares is the date on which performance is completed. Prior to the final measurement date, when achievement of the performance criteria has been deemed probable, a reduction in revenue equal to the percentage of completion to date will be recognized. The fair value of the Warrant Shares will be adjusted at each reporting period until they are earned. Share-based compensation Our share-based compensation arrangements include grants of stock options, restricted stock units and deferred stock units under the StarTek, Inc. 2008 Equity Incentive Plan and our Employee Stock Purchase Plan. The compensation expense that has been charged against income for the six months ended June 30, 2019 was $781, and is included in selling, general and administrative expense. As of June 30, 2019, there was $1,544 of total unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 2.04 years. 12. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss consisted of the following items: Foreign Currency Translation Adjustment Derivatives Accounted for as Cash Flow Hedges Defined Benefit Plan Equity attributable to Startek shareholders Non- controlling interests Total Balance at December 31, 2018 Foreign currency translation Unrealized losses Pension remeasurement Balance at June 30, 2019 13. SEGMENT AND GEOGRAPHICAL INFORMATION The Company provides business process outsourcing services (“BPO”) to clients in a variety of Based on our evaluation of the facts and circumstances, the Company has concluded that it has a single operating and reportable segment (BPO), and two reporting units (Aegis and Startek). The Group prepares its geographical information in conformity with the accounting policies adopted for preparing and presenting the consolidated financial statements of the Group as a whole. Revenues by geography, based on the location of the Company's delivery centers for the three and six months Three Months Ended June 30, For the Six Months Ended June 30, 2019 2018 2019 2018 Revenue: India Middle East Malaysia Argentina United States Australia Philippines Rest of World Total Property, plant and As on As on Property, plant and equipment, net: India Middle East Malaysia Argentina United States Australia Philippines Rest of World Total 14. LEASES We have operating and finance leases for service centers, corporate offices and certain equipment. Our leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases for up to 3-5 years, and some of which include options to terminate the leases within 1 year. The components of lease expense were as follows: Six months ended June 30, 2019 Operating lease cost Finance lease cost: Amortization of right-of-use assets Interest on lease liabilities Total finance lease cost Supplemental cash flow information related to leases was as follows: Six months ended June 30, 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases Operating cash flow from finance leases Financing cash flows from finance leases Right-of-use assets obtained in exchange for lease obligations: Operating leases Finance lease Supplemental balance sheet information related to leases was as follows: As of June 30, 2019 Operating Leases Operating lease right-of-use assets Operating Lease Liablities-Current Operating Lease Liablities-Non-Current Total operating lease liabilities Finance Leases Property and equipment, at cost Accumulated depreciation Property and equipment, at net Finance Lease Obligation-Current Finance Lease Obligation-Non Current Total finance lease liabilities As of June 30, 2019 Weighted average remaining lease term Operating leases Finance leases Weighted average discount rate Operating leases Finance leases Maturities of lease liabilities were as follows: Operating leases Finance leases Year ending December, 31 Remaining of 2019 2020 2021 2022 2023 Thereafter Total lease payments Less imputed interest Total 15. SUBSEQUENT EVENT We plan to transition the The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report. BUSINESS DESCRIPTION AND OVERVIEW Startek is a Startek has We operate in a single operating segment providing business outsourcing solutions in the customer experience management space. SIGNIFICANT DEVELOPMENTS None RESULTS OF OPERATIONS — THREE MONTHS ENDED JUNE 30, 2019 AND 2018 Pursuant to the completion of the Aegis As a result, the financials discussed below are not strictly comparable as the financials for the three-month period ended June 30, 2018 Revenue Our revenues for the quarter ended The three-month period ended June 30, 2018 For the Three Months Ended June 30, 2019 Pro Forma For the Three Months Ended June 30, 2018 Revenues Warrant Contra Revenue Net Revenue Our net revenues for the three-month period ended June 30, 2019 was $160,553 compared to $169,940 for the three-month period ended June 30, 2018 on a pro forma basis. The breakdown of our revenues from various industry verticals for three-month period ended June 30, 2019 and three-month period ended June 30, 2018 on a pro forma basis is as follows: Verticals: Telecom E-commerce & Consumer Financial & Business Services Media & Cable Travel & Hospitality Healthcare & Education Technology, IT & Related Services All other segments Gross Revenue Excluding Warrant Contra Revenue, the $9,387 decline in revenue was driven by We have been successful in our strategy to diversify outside of telecommunication vertical which contributed around 41% of our revenue for the quarter as compared to 48% for the comparable quarter last year. We continue to focus on providing value added services to our telecom clients and shifting our business mix towards the premium market rather than the mass market. We have been growing steadily in the e-commerce and consumer industry with our existing customers continue to increase their business with us. We continue to grow new business lines from our large clients in the media and cable industry vertical. Our revenue growth in the three-month period ended June 30, 2019 as compared to the Cost of services Overall, Cost of services as a percentage of revenue For the Three Months Ended June 30, 2019 As percentage of Revenue 2019 2018 2019 2018 Wages and benefits Rent expense Depreciation and amortization Other Total % Wages and benefits For the Rent expense:Rent expense as a percentage of revenue increased Depreciation and amortization: Other expense includes technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs In aggregate, gross profit as a percentage of revenue for the Selling, general and administrative expenses Selling, general and administrative expenses (SG&A) as a percentage of revenue increased from Restructuring and other merger related costs Restructuring and other merger related costs totaled $746 for the three-month period ended June 30, 2019. This primarily relates to the restructuring of our U.S. operations where we closed one delivery center and restructure cost of employee severance. Interest and other cost totaled $4,026 for the three-month period ended June 30, 2019, compared to $3,273 for the three-month period ended June 30, 2018. The Income tax expense Income tax expense for the RESULTS OF OPERATIONS — SIX MONTHS ENDED Pursuant to the completion of the Aegis acquisition on July 20, 2018, the Aegis Stockholder became the holder of 20,766,667 shares of Common Stock, representing approximately 55% of the outstanding Common Stock. For accounting purposes, the Aegis acquisition is treated as a reverse acquisition and Aegis is considered the accounting acquirer. Accordingly, Aegis’ historical financial statements replace the Company’s historical financial statements following the completion of the Aegis Transactions, and the results of operations of both companies will be included in the Company’s financial statements for all periods following the completion of the Aegis Transactions. The historical financial information presented for the periods and dates prior to July 20, 2018 is that of Aegis, and for periods subsequent to July 20, 2018 is that of the combined company. As a result, the financials discussed below are not strictly comparable as the financials for the six-month period ended June 30, 2018 Revenue Our revenues for the six-month period ended The six-month period ended June 30, 2018 includes only Aegis while the current six-month period ended June 30, 2019 includes both Startek and Aegis. In order to promote a better understanding of the overall results of the combined business, we are providing below pro forma revenues for the six-month period ended June 30, 2018 combining the revenues for Aegis and Startek. The financial information presented below is presented for illustrative purposes only and does not purport to represent what the results of operations would actually have been had the combination of Aegis and Startek occurred on January 1, 2018, or to project the combined results of operations for any future periods. For Six Months Ended June 30, 2019 Pro Forma For Six Months Ended June 30, 2018 Revenues $ 322,425 $ 354,149 Warrant Contra Revenue (730) (2,500 ) Net Revenue 321,695 351,649 Our net revenues for the six-month period ended June 30, 2019 was $321,695 compared to $351,649 for the six-month period ended June 30, 2018 on a pro forma basis. The breakdown of our revenues from various industry verticals for six-month period ended June 30, 2019 and six-month period ended June 30, 2018 on a pro forma basis is as follows: For Six Months Ended June 30, 2019 Pro Forma For Six Months Ended June 30, 2018 Verticals: Telecom $ 130,245 $ 179,213 E-commerce & Consumer 48,719 38,565 Financial & Business Services 26,565 32,158 Media & Cable 45,344 34,588 Travel & Hospitality 33,889 27,781 Healthcare & Education 18,881 15,346 Technology, IT & Related Services 5,896 6,270 All other segments 12,886 20,228 Gross Revenue 322,425 354,149 Excluding Warrant Contra Revenue, the $29,954 decrease in revenue was driven by lower telecom revenues in the We have been successful in our strategy to diversify outside of We have been growing steadily in the e-commerce and consumer industry with our existing customers continue to increase their business with us. We continue to grow new business lines from our large clients in the media and cable industry vertical. Our revenue growth in the current six-month period ended June 30, 2019 as compared to the six-month period ended June 30, 2018 Cost of services Overall, Cost of services as a percentage of revenue For the Six Months Ended June 30, 2019 As percentage of Revenue 2019 2018 2019 2018 Wages and benefits Rent expense Depreciation and amortization Other Total Wages and benefits For the six-month period ended Rent expense:Rent expense as a percentage of revenue increased Depreciation and amortization: Other expense includes technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs In aggregate, gross profit as a percentage of revenue for the six-month period ended Selling, general Selling, general and administrative expenses (SG&A) as a percentage of revenue increased from Restructuring and other merger related Restructuring and other merger related costs Interest expense, net Interest and Income tax expense Income tax expense for the six-month period ended LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are cash flows generated by operating activities, our working capital facilities, and term debt. We have historically utilized these resources to finance our operations and make capital expenditures associated with capacity expansion, upgrades of information technologies and service offerings, and business acquisitions. Due to the timing of our collections of receivables due from our major customers, we have historically needed to draw on our working capital facilities periodically for ongoing working capital needs. Cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash held by the Company and all its foreign subsidiaries was $25,908 and $24,569 as at June 30, 2019 and December 31, 2018, respectively. Under current tax laws and regulations, if cash and cash equivalents Cash flows from operating activities For the six-month period ended June 30, 2019 and 2018 we reported net cash flows generated from Cash flows used in investing activities For the Cash flows generated from For the six-month period ended June 30, 2019 and 2018 we reported net cash Debt For more information, refer to Note 10, "Debt," to our unaudited condensed consolidated financial statements included in Item 1, "Financial Statements." CONTRACTUAL OBLIGATIONS There were no material changes in our contractual obligations during the OFF-BALANCE SHEET ARRANGEMENTS We have no material off-balance sheet transactions, unconditional purchase obligations or similar instruments, and we are not a guarantor of any other entities’ debt or other financial obligations. VARIABILITY OF OPERATING RESULTS We have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors, many of which are outside our control, including: (i) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients; (ii) changes in the volume of services provided to CRITICAL ACCOUNTING POLICIES AND ESTIMATES In preparing our consolidated financial statements in conformity with Please refer to Note As Evaluation of disclosure controls and procedures. Changes in internal controls over financial reporting. Other than the None. None. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURE Not applicable. None. INDEX OF EXHIBITS Exhibit Incorporated Herein by Reference No. Exhibit Description Form Exhibit Filing Date 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* 101* The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited), (ii) Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018, (iii) Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (Unaudited) and (iv) Notes to Consolidated Financial Statements (Unaudited) * Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. STARTEK, INC. By: /s/ Lance Rosenzweig Date: Lance Rosenzweig President and (principal executive officer) By: /s/ Ramesh Kamath Date: Ramesh Kamath Chief Financial Officer (principal financial and accounting officer) 31PART I - FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTSPageSeptemberJune 30, 2019 and 2018 and 2017 (Unaudited)SeptemberJune 30, 20182019 (Unaudited) and MarchDecember 31, 2018 (Audited)SeptemberJune 30, 2019 and 2018 and 2017 (Unaudited)SeptemberJune 30, 2019 and 2018 (Unaudited)Legal proceeding ITEM 2. Unregistered sales of equity securities and use of proceeds Defaults upon senior securities ITEM 4. Controls and ProceduresMine safety disclosure PART II - OTHER INFORMATIONITEM 1A.Risk FactorsITEM 2.Unregistered Sales of Equity Securities and Use of ProceedsITEM 6.ExhibitsSIGNATURESDefinitive Proxy StatementForm 10-KT for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission ("SEC") on June 13, 2018,March 14, 2019, the Quarterly report on Form 8-K/A filed with SEC on October 5, 201810-Q for the quarter ended March 31, 2019, and this Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2018.2019. Unless otherwise noted in this report, any description of "us," "we," or "our," refers to StarTek, Inc. ("STARTEK"Startek") and its subsidiaries.STARTEKStartek now qualifies for Smaller Reporting Company status. As such, it has decided to take advantage of the relief provided from ItemsPart 1, Item 3. and 1A.STATEMENTSSTATEMENT OF COMPREHENSIVE INCOME (LOSS)data)amounts) $ 161,283 $ 110,223 $ 322,425 $ 225,318 (730 ) - (730 ) - $ 160,553 $ 110,223 $ 321,695 $ 225,318 132,993 93,340 266,921 187,278 27,560 16,883 54,774 38,040 24,936 15,257 49,015 29,663 746 - 1,839 6,257 1,878 1,626 3,920 2,120 662 (25 ) 1,003 39 (4,026 ) (3,273 ) (8,492 ) (7,402 ) 14 (1,868 ) (677 ) (3,146 ) (1,472 ) (3,540 ) (4,246 ) (8,389 ) 730 234 1,113 565 $ (2,202 ) $ (3,774 ) $ (5,359 ) $ (8,954 ) 1,392 (66 ) 1,581 906 (3,594 ) (3,708 ) (6,940 ) (9,860 ) 32 (2,518 ) 599 (3,185 ) 413 - 348 - (236 ) (483 ) (60 ) (780 ) $ (1,993 ) $ (6,775 ) $ (4,472 ) $ (12,919 ) 1,281 (284 ) 1,556 549 (3,274 ) (6,491 ) (6,028 ) (13,468 ) $ (0.10 ) $ (0.18 ) $ (0.18 ) $ (0.48 ) Weighted average common shares outstanding - basic and diluted 37,779 20,600 37,779 20,600 (Unaudited) Three Months Ended September 30, Six Months Ended September 30, 2018 2017 2018 2017 Revenue $ 151,509 $ 119,819 $ 261,732 $ 233,817 Cost of services 128,747 99,762 222,087 196,265 Gross profit 22,762 20,057 39,645 37,552 Selling, general and administrative expenses 22,818 14,219 38,075 27,827 Transaction related fees 3,898 — 3,898 — Impairment losses and restructuring charges, net 2,621 — 2,621 — Operating income (loss) (6,575 ) 5,838 (4,949 ) 9,725 Share of profit of affiliates 47 137 22 874 Interest expense, net (4,114 ) (1,343 ) (7,387 ) (2,379 ) Exchange gains (losses), net 705 (272 ) (1,163 ) 134 Income (loss) before income taxes (9,937 ) 4,360 (13,477 ) 8,354 Income tax expense 953 1,505 1,187 2,429 Net income (loss) $ (10,890 ) $ 2,855 $ (14,664 ) $ 5,925 Net income (loss) attributable to non-controlling interests 11 481 (55 ) 1,536 Net income (loss) attributable to Startek shareholders $ (10,901 ) $ 2,374 $ (14,609 ) $ 4,389 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (2,341 ) (476 ) (4,565 ) (904 ) Change in fair value of derivative instruments (562 ) — (562 ) — Pension amortization $ (483 ) (567 ) $ (966 ) (1,134 ) Comprehensive income (loss) $ (14,276 ) $ 1,812 $ (20,757 ) $ 3,887 Comprehensive income (loss) attributable to non-controlling interests 11 481 (55 ) 1,536 Comprehensive income (loss) attributable to Startek shareholders $ (14,287 ) $ 1,331 $ (20,702 ) $ 2,351 Net income (loss) per common share - basic $ (0.32 ) $ 0.11 $ (0.54 ) $ 0.21 Weighted average common shares outstanding - basic 33,812 20,767 27,289 20,767 Net income (loss) per common share - diluted $ (0.32 ) $ 0.11 $ (0.54 ) $ 0.21 Weighted average common shares outstanding - diluted 33,812 20,767 27,289 20,767 SHEETS $ 15,452 $ 16,617 10,456 7,952 107,646 107,836 49,265 42,135 17,567 18,850 $ 200,386 $ 193,390 39,638 42,242 72,079 - 116,026 121,336 226,505 225,450 1,767 2,097 6,116 5,048 18,153 15,076 $ 680,670 $ 604,639 $ 24,810 $ 26,886 77,621 84,881 28,295 21,975 14,000 9,800 22,000 - 1,074 1,816 $ 167,800 $ 145,358 148,726 152,100 51,400 - 14,279 11,907 18,586 18,901 $ 400,791 $ 328,266 — — $ 384 $ 374 275,284 267,317 (4,634 ) (5,547 ) (38,067 ) (31,127 ) $ 232,967 $ 231,017 46,912 45,356 $ 279,879 $ 276,373 $ 680,670 $ 604,639 (Unaudited) September 30, March 31, 2018 2018 ASSETS Current assets: Cash and cash equivalents $ 14,133 $ 17,693 Restricted cash 6,392 5,226 Trade accounts receivable, net 145,156 110,545 Prepaid expenses and other current assets 19,462 18,772 Total current assets $ 185,143 $ 152,236 Property, plant and equipment, net 35,784 25,814 Deferred income tax assets, net 4,354 4,481 Intangible assets, net 139,158 110,320 Goodwill 240,553 153,368 Investment in affiliates 10,877 10,911 Prepaid expenses and other non-current assets 12,412 9,511 Total assets $ 628,281 $ 466,641 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 24,898 $ 20,672 Accrued expenses and other current liabilities 81,328 70,263 Short term debt 28,010 23,871 Current tax liabilities, net 673 3,160 Total current liabilities $ 134,909 $ 117,966 Deferred income tax liabilities, net 17,026 17,711 Long term debt 150,336 127,133 Accrued expenses and other non-current liabilities 9,976 9,686 Total liabilities $ 312,247 $ 272,496 Commitments and contingencies — — Stockholders’ equity: Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 37,060,558 and 20,766,667 shares issued and outstanding at September 30, 2018 and March 31, 2018, respectively $ 371 $ 208 Additional paid-in capital 296,185 153,702 Accumulated other comprehensive loss (6,495 ) (402 ) Accumulated deficit (21,425 ) (6,815 ) Equity attributable to Startek shareholders $ 268,636 $ 146,693 Non-controlling interest 47,398 47,452 Total stockholders’ equity $ 316,034 $ 194,145 Total liabilities and stockholders’ equity $ 628,281 $ 466,641 STATEMENTSSTATEMENT OF CASH FLOWS $ (5,359 ) $ (8,954 ) 14,631 10,749 (223 ) - 1,169 412 730 - 781 - (1,224 ) (1,203 ) (1,003 ) (39 ) (1,218 ) 2,934 (7,677 ) 17,303 (2,091 ) (1,565 ) (2,663 ) (1,508 ) (1,280 ) (14,985 ) $ (5,427 ) $ 3,144 (7,302 ) (2,353 ) 1,329 18 $ (5,973 ) $ (2,335 ) 6,466 - (4,200 ) (1,400 ) 10,513 (3,290 ) $ 12,779 $ (4,690 ) 1,379 (3,881 ) (40 ) (27 ) 24,569 21,601 $ 25,908 $ 17,693 15,452 10,986 10,456 6,707 $ 25,908 $ 17,693 (Unaudited) Six Months Ended September 30, 2018 2017 Operating Activities Net income (loss) $ (14,664 ) $ 5,925 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 12,643 8,699 Provision for doubtful accounts 1,726 242 Share-based compensation expense 249 — Deferred income taxes (366 ) (98 ) Share of profit of affiliates (22 ) (874 ) Changes in operating assets and liabilities: Trade accounts receivable (1,586 ) (6,824 ) Prepaid expenses and other assets (2,937 ) (3,538 ) Accounts payable (690 ) 2,718 Income taxes, net (3,759 ) (997 ) Accrued and other liabilities 9,865 1,508 Net cash provided by operating activities 459 6,761 Investing Activities Purchases of property, plant and equipment (4,511 ) (7,555 ) Distributions received from affiliates — 1,315 Cash acquired in Aegis Transactions 1,496 — Net cash used in investing activities (3,015 ) (6,240 ) Financing Activities Proceeds from the issuance of common stock 115 — Proceeds (payments) on long term debt (2,800 ) 664 Proceeds from other debts, net 4,089 3,589 Net cash provided by financing activities 1,404 4,253 Effect of exchange rate changes on cash and cash equivalents and restricted cash (1,242 ) (36 ) Net (decrease) increase in cash and cash equivalents and restricted cash (2,394 ) 4,738 Cash and cash equivalents and restricted cash at beginning of period $ 22,919 $ 19,511 Cash and cash equivalents and restricted cash at end of period $ 20,525 $ 24,249
paid-in Three months ended Balance at March 31, 2019 37,561,744 $ 375 $ 268,256 $ (4,955 ) $ (34,473 ) $ 229,203 $ 45,631 $ 274,834 Issuance of common stock 890,367 9 5,942 - - 5,951 - 5,951 Warrant expenses - - 730 - - 730 - 730 Share-based compensation expenses - - 356 - - 356 - 356 Net income (loss) - - - - (3,594 ) (3,594 ) 1,392 (2,202 ) Other comprehensive loss for the period - - - 321 - 321 (111 ) 210 Balance at June 30, 2019 38,452,111 $ 384 $ 275,284 $ (4,634 ) $ (38,067 ) $ 232,967 $ 46,912 $ 279,879 Balance at March 31, 2018 20,600,100 $ 206 $ 153,704 $ (402 ) $ (6,815 ) $ 146,693 $ 47,452 $ 194,145 Issuance of common stock - - - - - - - - Net income (loss) - - - - (3,708 ) (3,708 ) (66 ) (3,774 ) Other comprehensive loss for the period - - - (2,783 ) - (2,783 ) (218 ) (3,001 ) Balance at June 30, 2018 20,600,100 $ 206 $ 153,704 $ (3,185 ) $ (10,523 ) $ 140,202 $ 47,168 $ 187,370 Six months ended Balance at December 31, 2018 37,446,323 $ 374 $ 267,317 $ (5,547 ) $ (31,127 ) $ 231,017 $ 45,356 $ 276,373 Issuance of common stock 1,005,788 10 6,456 - - 6,466 - 6,466 Warrant expenses - - 730 - - 730 - 730 Share-based compensation expenses - - 781 - - 781 - 781 Net income (loss) - - - - (6,940 ) (6,940 ) 1,581 (5,359 ) Other comprehensive loss for the period - - - 913 - 913 (25 ) 888 Balance at June 30, 2019 38,452,111 $ 384 $ 275,284 $ (4,634 ) $ (38,067 ) $ 232,967 $ 46,912 $ 279,879 Balance at December 31, 2017 20,600,100 $ 206 $ 153,704 $ 717 $ (663 ) $ 153,964 $ 46,619 $ 200,584 Issuance of common stock - - - - - - - - Net income (loss) - - - - (9,860 ) (9,860 ) 906 (8,954 ) Other comprehensive loss for the period - - - (3,902 ) - (3,902 ) (357 ) (4,259 ) Balance at June 30, 2018 20,600,100 $ 206 $ 153,704 $ (3,185 ) $ (10,523 ) $ 140,202 $ 47,168 $ 187,370 (Unaudited) Common Stock Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Equity attributable to Startek shareholders Non-controlling interest Total stockholders' equity Shares Amount Balance, March 31, 2018 20,766,667 $ 208 $ 153,702 $ (402 ) $ (6,815 ) $ 146,693 $ 47,452 $ 194,145 Purchase accounting entries due to the Aegis Transactions 16,226,392 162 142,119 (396 ) — 141,885 — 141,885 Common stock issued 67,499 1 115 — — 116 — 116 Share-based compensation — — 249 — — 249 — 249 Changes to other comprehensive loss — — — (5,697 ) — (5,697 ) — (5,697 ) Net loss — — — — (14,609 ) (14,609 ) (55 ) (14,664 ) Balance, September 30, 2018 37,060,558 $ 371 $ 296,185 $ (6,495 ) $ (21,425 ) $ 268,636 $ 47,398 $ 316,034 SEPTEMBER2018(Unaudited)PRESENTATIONSTARTEKoperating in thirteen countriesthat provides omnichannel customer interactions, technology and employing over 45,000 employees worldwide, serving over 250 clientsback-office support solutions for some of the world’s most iconic brands in a variety of industries. previously announced acquisition of all of the issued and outstanding shares of capital stock of CSP Alpha Midco Pte Ltd, a Singapore private limited company (“Aegis”), from CSP Alpha Holdings Parent Pte Ltd, a Singapore private limited company (the “Aegis Stockholder”), in exchange for the issuance of 20,600,000 shares of common stock of the Company, par value $.01 per share (the “Common Stock”). Concurrently, the Aegis Stockholder purchased 166,667 newly issued shares of Common Stock at a price of $12 per share for a total cash payment of $2,000,000.$2,000. As a result of the consummation of such transactions (the “Aegis Transactions”), the Aegis Stockholder became the holder of 20,766,667 shares of Common Stock, representing approximately 55% of the outstanding Common Stock. For accounting purposes, the Aegis Transactions are treated as a reverse acquisition and Aegis is considered the accounting acquirer. Accordingly, Aegis’ historical financial statements replace the Company’s historical financial statements following the completion of the Aegis Transactions, and the results of operations of both companies will be included in the Company’s financial statements for all periods following the completion of the Aegis Transactions.Please see Note 3, "Business Acquisitions," for further information.Fiscal year endUpon filing8-K/A on October 5, 2018,Company’s outstanding Common Stock (the “2018 Equity Offering”). The Company used the fiscal year end ofproceeds for general corporate purposes.was changed backentered into a Stock Purchase Agreement with the Aegis stockholder and certain additional investors, pursuant to December 31 by the Board of Directors. Therefore,which the Company will be filingissued and sold 692,520 shares of Common Stock at a transitional report form 10-KT forpurchased price of $7.48 per share, or a total purchase price of $5,180 (the “ 2019 Equity Offering”). The Aegis stockholder purchased 100,267 shares of Common Stock in the nine months ended December 31, 2018. As a result, some of the future financial information presented herein will be based on a December 31 year end.presentationGAAP"US-GAAP") for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAPUS-GAAP for complete financial statements.MarchDecember 31, 2018, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.US-GAAP. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and of Aegis included in our Annual Report on Form 8-K/A filed with10-KT for the Securities and Exchange Commission on October 5,nine months period ended December 31, 2018.inon consolidation. Where our ownership of a subsidiary was less than 100%, the non-controlling interest is reported onin our Condensed Consolidated Balance Sheets. The non-controlling interest in our consolidated net income is reported as "Net income (loss) attributable to non-controlling interests" onin our Condensed Consolidated Statements of Comprehensive Income (Loss). These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Form 8-K/A10-KT for the fiscal yearnine months period ended MarchDecember 31, 2018 filed with the SEC on October 5, 2018.andimpairment of goodwill, purchase price allocations, revenue recognition, reservesprovision for doubtful receivables, valuation allowances for deferred tax assets, the valuation of derivative financial instruments, measurements of stock-based compensation, assets and obligations related to employee benefits, lease termination liabilities, restructuring costs, and income tax uncertainties and. Topic 606 replaces numerous industry specific requirements and converges using the accounting guidance on revenue recognition with International Financial Reporting Standards 15 (IFRS 15).modified retrospective method. Topic 606 utilizes a five-step process, for revenue recognition that focuses on transfer of control, rather than transfer of risks and rewards. It also provided additional guidance on accounting for contract acquisition and fulfillment costs. Refer Note 5 on "Revenue from Contracts with Customers" for further information.acquisitionscombinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations, by recognizing identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquired business at their fair values. The excess of the cost of the acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Acquisition related costs are expensed as incurred.iswas recorded at fair value at acquisition date and not amortized but is reviewed for impairment at least annually or more frequently if impairment indicators arise. Our goodwill is allocated by reporting unit and is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, that the fair value of the reporting unit is "more likely than not" less than the carrying amount or if significant changes related to the reporting unit have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. WeThe Company can elect to forgo the qualitative assessment and perform the quantitative test.If the carrying amount of a reporting unit exceeds its fair value, "Step 1" is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. This step compares the implied fair value of goodwill with thecarrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess.The implied fair value of goodwill is determined by assigning the fair value of the reporting unit to all the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. We have elected to perform the annual impairment assessment for goodwill in the fourth quarter.arewere recorded at fair value at acquisition date using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over the estimated useful lives and are reviewed for impairment at least annually, or more frequently if indicators of impairment arise.will considerhas considered Argentina to be highly inflationary beginning on July 1, 2018. In accordance with ASC 830, the functional currency of the Argentina business will behas been changed to USD, which will requirerequires remeasurement of the local books to USD. Exchange gains and losses will beis recorded through net income as opposed to through other comprehensive income as had been done historically. Translation adjustments from prior periods will not be removed from equity.postretirementpost retirement benefit plans. The new guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020.2020. The Company is evaluating the impact of the adoption of ASU No. 2018-14 on its financial statement disclosures.In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for stranded tax effects in accumulated other comprehensive income resulting from the U.S. Tax Cuts and Jobs Act to be reclassified to retained earnings. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the impact of adopting the new standard.In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) ("ASU 2017-12"), Targeted Improvements to Accounting for Hedging Activities. The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifyinghedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. We do not expect the adoption of ASU 2017-12 will have a material impact on our consolidated financial statements.In July 2017, FASB issued a two-part ASU, No. 2017-11, I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception ("ASU 2017-11"). Part I of this ASU addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this ASU addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. In conjunction with the Amazon transaction agreement, we adopted this ASU in January 2018. Adoption resulted in treatment of the warrants as equity in our consolidated financial statements.In May 2017, FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718) ("ASU 2017-09"), Scope of Modification Accounting. The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the following are met: 1. The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; 2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and 3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. We adopted this ASU in January 2018.In January 2017, FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) ("ASU 2017-04"), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements.ASU 2016-13, ("ASU 2016-13"),Measurement of Credit Losses on Financial Instruments. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard will replace today's "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. We do not expect the adoption of ASU 2016-13this standards will have a material impact on our consolidated financial statements.February 2016, FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). These amendments require the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC 840 “Leases”. These amendments also require qualitative disclosures along with specific quantitative disclosures. These amendments are effective for fiscal years beginning after December 15,August 2018, including interim periods within those fiscal years. Early application is permitted. Entities are required to apply the amendments at the beginning of the earliest period presented using a modified retrospective approach. We are currently evaluating the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements, and we anticipate that adoption of ASU 2016-02 will have an impact to the financial statement presentation of right of use asset, lease liability, amortization expense, and lease expense.In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 amendsNo. 2018-13, “Disclosure Framework— Changes to the guidanceDisclosure Requirements for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards.Fair Value Measurement.” The ASU implements a five-step processmodifies the disclosure requirements with respect to fair value measurements. The ASU is effective for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards.the Company beginning January 1, 2020, including interim periods in fiscal year 2020. Early adoption is permitted. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of moneyCompany is considered in the transaction price, and allowing estimatesprocess of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2017. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We have completed our assessment ofassessing the impact of Topic 606this ASU on its consolidated results of operations, cash flows, financial position and have concluded that our historical revenue recognition practices are in compliance with the new standard. However, we have included additional qualitative and quantitative disclosures about our revenues as is required by Topic 606. We utilized the Modified Retrospective transition method. Please refer to Note 5 "Revenue" for additional information.disclosures.$2 million.$2,000. As a result of the consummation of the Aegis Transactions, the 2018 Equity Offering and the 2019 Equity Offering, the Aegis Stockholder now holds 20,766,66721,235,032 shares of the Common Stock, which is equivalent to approximately 55% of the total outstanding Common Stock.Because the Aegis Transactions are considered a reverse acquisition, thesummarizedpresents the purchase price and the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date. These estimates are preliminary, pending final evaluation of certain assets, and therefore are subject to revisions that may result in adjustments to the values presented below: 16,226,392 $ 6.81 $ 110,502 $ 1,496 46,094 15,930 28,960 64,337 3,204 (22,540 ) (26,979 ) $ 110,502 Amount Stock consideration $ 140,286 Cash consideration 2,000 Total allocable purchase price $ 142,286 Amount Cash and cash equivalents $ 1,496 Other current assets 46,570 Property, plant and equipment, net 15,930 Identifiable intangible assets 34,570 Goodwill 87,185 Other non-current assets 3,204 Current liabilities (20,663 ) Non-current liabilities (26,006 ) Preliminary purchase price $ 142,286 From July 20, 2018 through September 30, 2018 Revenues $ 45,521 Net loss $ (4,629 ) The following table presents the unaudited pro forma information assuming the Aegis Transactions occurred on April 1, 2017. The unaudited pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on that date: For the Three Months Ended September 30, For the Six Months Ended September 30, 2018 2017 2018 2017 Revenues $ 163,930 $ 189,191 $ 333,870 $ 377,168 Net income (loss) $ (8,909 ) $ (2,632 ) $ (16,225 ) $ 2,601 Net income (loss) per common share - basic $ (0.26 ) $ (0.13 ) $ (0.59 ) $ 0.13 Weighted average common shares outstanding - basic 33,812 20,767 27,289 20,767 Net income (loss) per common share - diluted $ (0.26 ) $ (0.13 ) $ (0.59 ) $ 0.13 Weighted average common shares outstanding - diluted 33,812 20,767 27,289 20,767 These amounts have been calculated to reflect the additional amortization that would have been incurred assuming the Aegis Transactions occurred on April 1, 2017, together with the consequential tax effects.Transaction related fees of approximately $3,898 and $3,898, comprised of transaction and integration costs, are identified separately on our consolidated statements of comprehensive income (loss) for the three and six months ended September 30, 2018, respectively.ESM Holding Limited and SubsidiariesOn November 22, 2017, Aegis acquired ESM Holdings Limited ("ESM") and its subsidiaries, which provides business process outsourcing services for total consideration of $280,000. The acquisition was funded with cash of $153,910 and a $140,000 five year term loan. 162,168 64,337 $ 226,505 GoodwillMarch 31, 2018,June 30, 2019, based on the qualitative assessment, we concluded that goodwill was not impaired. In addition, no indicators of impairment exist as of September 30, 2018. $ 225,450 1,055 $ 226,505 Amount Opening balance, March 31, 2018 $ 153,368 Acquisition during the period 87,185 Ending balance, September 30, 2018 $ 240,553 SeptemberJune 30, 2018.2019: $ 65,050 $ 7,796 $ 57,254 6.5 49,500 5,885 43,615 7.1 14,410 910 13,500 7.5 2,100 443 1,657 4.9 $ 131,060 $ 15,034 $ 116,026 Gross Intangibles Accumulated Amortization Net Intangibles Weighted Average Amortization Period (years) Customer relationships $ 70,660 $ 3,785 $ 66,875 10.8 Brand 49,500 3,143 46,357 13.5 Trademarks 14,410 189 14,221 7.6 Other intangibles 2,100 92 2,008 3.2 Software 12,890 3,193 9,697 3.0 $ 149,560 $ 10,402 $ 139,158 $ — SeptemberJune 30, 20182019 is as follows: $ 5,084 10,277 10,277 10,277 10,236 69,875 Years Ending December 31, Amount Remainder of 2018 $ 3,808 2019 14,498 2020 13,128 2021 11,779 2022 11,706 Thereafter 84,239 On April 1, 2018, the Company adopted Accounting Standards Codification 606, Revenue from Contracts with Customers, (Topic 606). Topic 606 replaces numerous industry specific requirements and converges the accounting guidance on revenue recognition with International Financial Reporting Standards 15 (IFRS 15). Topic 606 utilizes It also provided additional guidance on accounting for contract acquisition and fulfillment costs.We have completed our assessment of the impact of Topic 606 and have concluded that our historical revenue recognition, contract acquisition cost, and fulfillment cost practices are in compliance with the new standard. However, we have included additional qualitative and quantitative disclosures about our revenues as is required by Topic 606.The Company has unbilled revenue of $42,930 and $47,407 as of September 30, 2018 and March 31, 2018, respectively, which is included in Trade accounts receivable, net.obligationsobligation because the delivery of the underlying service (that is, receiving customer contact and performing the associated care services) is outside of our control or the control of our customer.According to our contracts, wetheeach contract for the various activities we perform. Some contracts include opportunities to earn bonuses or include parameters under which we will incur penalties related to performance in any given month. Bonus or penalty amounts are based on the current month’s performance. Formulas are included in the contracts for calculation of any bonus or penalty. There is no other performance in future periods that will impact the bonus or penalty calculation in the current period. We estimate the amount of the bonus or penalty using the “most likely amount” method and we apply thisDisaggregated RevenueIntable,practical expedients:is disaggregatedin the amount to which the entity has a right to invoice.threeThree and sixSix months Septemberended June 30, 2019 and 2018, and 2017, respectively: 64,421 58,412 130,245 124,761 24,375 7,950 48,719 16,063 13,245 12,941 26,565 28,182 23,587 2,691 45,344 6,008 17,375 13,366 33,889 27,007 8,352 2,301 18,881 4,945 3,458 1,346 5,896 2,822 6,470 11,216 12,886 15,530 161,283 110,223 322,425 225,318 Less: Warrant Contra Revenue (730 ) - (730 ) - Net Revenue $ 160,553 $ 110,223 $ 321,695 $ 225,318 Three Months Ended September 30, Six Months Ended September 30, Vertical: 2018 2017 2018 2017 Telecom $ 71,457 $ 76,682 $ 133,306 $ 151,592 Retail & E-Commerce 25,746 12,927 40,461 24,715 Media, Publishing and Entertainment 16,604 3,043 19,671 5,950 Financial services 9,017 8,349 18,090 14,718 Healthcare 5,396 1,976 7,216 3,868 Transport and Logistics 3,342 1,941 6,741 3,671 Other 19,947 14,901 36,247 29,303 Total $ 151,509 $ 119,819 $ 261,732 $ 233,817 INCOME (LOSS)LOSS PER SHAREincome (loss)loss per common share is computed based on our weighted average number of common shares outstanding. Diluted earnings per share is computed based on our weighted average number of common shares outstanding plus the effect of dilutive stock options, non-vested restricted stock, and deferred stock units, using the treasury stock method. month periodsmonths ended SeptemberJune 30, 2017, there were no dilutive securities as2019, the accounting acquirer did not historically have stock compensation programs. Therefore, basic and diluted weighted average number of commonfollowing shares outstanding for these periods are the same number.For the three and six month periods ended September 30, 2018, 5 and 298 shares, respectively, were not included in the computation of diluted earnings per share because we reported a net loss and the effect would have been anti-dilutive.anti-dilutive (in thousands): 2,628 - 2,628 - IMPAIRMENT LOSSESRESTRUCTURING AND RESTRUCTURING CHARGESImpairment LossesNo impairment losses were incurred during the six months ended September 30, 2018.Restructuring Chargescosts,and other merger related cost, which is included in other accrued liabilities in our consolidated balance sheets, and the changes during the six months ended SeptemberJune 30, 2018: 2019: $ 760 $ 2,267 $ 3,027 1,742 97 1,839 (1,685 ) (1,406 ) (3,091 ) $ 817 $ 958 $ 1,775 Employee-related Facilities-related Total Balance as of March 31, 2018 $ — $ 1,868 $ 1,868 Accruals 2,360 1,087 3,447 Payments (998 ) (496 ) (1,494 ) Balance as of September 30, 2018 $ 1,362 $ 2,459 $ 3,821 Employee-related chargesestablished reservesrecognized provision for employee related costs of $2,360 across a number of geographies. Wegeographies and we expect to pay the remaining costs of $673 by the end of third quarter 2019.Facilities-related chargesestablished a reserverecognized provision for the remaining costs associated with the leases in the amount of $1,087.leases. We expect to pay the remaining costs of $849 by the end of the first quarter of 2021.The Company has ceased operations in the United Kingdom. recorded a reserverecognized provision for the remainingfacility related costs associated with the lease of $1,868. Weand we expect to pay the remaining costs of $109 by the end of the secondfourth quarter of 2019.offrom these clients is billed and collected in US Dollars, but the expenses related to these revenues are paid in Canadian Dollars and Philippine Pesos. We enter into derivative contracts, in the form of forward contracts and range forward contracts (a transaction where both a call option is purchased and a put option is sold) to mitigate this foreign currency exchange risk. The contracts cover periods commensurate with expected exposure, generally three to twelve months. We have elected to designate our derivatives as cash flow hedges in order to associate the results of the hedges with forecasted expenses.SeptemberJune 30, 20182017,2018, our cash flow hedges were highly effective and hedge ineffectiveness was not material.SeptemberJune 30, 2018:2019: 2,764,000,014 52,227,335 $ 52,227,335 Local Currency Notional Amount U.S. Dollar Notional Amount Canadian Dollar 5,100 $ 3,986 Philippine Peso 1,342,000 24,915 $ 28,901 RealizedCondensed Consolidated Statements of Comprehensive Income (Loss). The following table presents these amounts for the three and six months ended SeptemberJune 30, 2019 and 2018: $ 342 $ - $ 315 $ - $ (405 ) $ (14 ) $ (630 ) $ (14 ) Derivatives not designated under ASC 815 For the Three Months Ended September 30, 2018 For the Six Months Ended September 30, 2018 Foreign currency range forward contracts $ 1,046 $ 1,046 Interest rate swap $ 13 $ 13 liability.liability: $ — $ 1,812 $ — $ 1,812 $ — $ 1,812 $ — $ 1,812 $ — $ 665 $ — $ 665 $ — $ 100 $ — $ 100 $ — $ 765 $ — $ 765 $ — $ 1,388 $ — $ 1,388 $ — $ 1,388 $ — $ 1,388 $ — $ 31 $ — $ 31 $ — $ 276 $ — $ 276 $ — $ 307 $ — $ 307 As of September 30, 2018 Level 1 Level 2 Level 3 Total Assets: Foreign exchange contracts $ — $ 1,128 $ — $ 1,128 Total fair value of assets measured on a recurring basis $ — $ 1,128 $ — $ 1,128 Liabilities: Interest rate swap $ — $ 27 $ — $ 27 Foreign exchange contracts $ — $ 682 $ — $ 682 Total fair value of liabilities measured on a recurring basis $ — $ 709 $ — $ 709 As of March 31, 2018 Level 1 Level 2 Level 3 Total Liabilities: Interest rate swap $ — $ 14 $ — $ 14 Total fair value of liabilities measured on a recurring basis $ — $ 14 $ — $ 14 $ 28,295 $ 21,975 14,000 9,800 1,074 1,816 $ 43,369 $ 33,591 $ 112,810 $ 120,462 1,796 - 33,921 31,152 199 486 $ 148,726 $ 152,100 September 30, 2018 March 31, 2018 Short term debt and current portion of long term debt Working capital facilities $ 17,782 $ 12,813 Term loan $ 8,400 $ 6,215 Capital lease obligations $ 1,828 $ 28 Other — 4,815 Total short term debt $ 28,010 $ 23,871 Long term debt Term loan, net of debt issuance costs $ 122,955 $ 127,119 Secured revolving credit facility $ 26,504 $ — Capital lease obligations $ 877 $ 14 Total long term debt $ 150,336 $ 127,133 $29$33.6 million for a number of working capital products. These facilities bear interest at Marginal Cost of Funds lending rates ("MCLR")benchmark rate plus margins between 0.8%3.0% and 3.6%4.5% and are due on demand. These facilities are collateralized by various Company assets and have a total outstanding balance of $10.6$28.3 million as of SeptemberJune 30, 2018.A $10 million Senior Revolving Credit Facility was established in connection with the Senior Term Agreement entered into on October 27, 2017, described below. This revolving facility has an outstanding balance of $7.2 million as of September 30, 2018 and bears interest at a rate of USD LIBOR plus 4.5% annually for the first year and thereafter the margin will range between 3.75% and 4.5% subject to certain financial ratios.AcquisitionHoldings Limited and its subsidiaries in the amount of $140 million for a 5five year term. The Term loan was fully funded on November 22, 2017 and is to be repaid based on a predetermine quarterly repayment schedule beginning six months after the first utilization date. 5,600 16,800 21,000 88,200 $ 131,600 The Term loan is subject to certain covenants, whereby the Company is required to meet certain financial ratios and obligations on a quarterly basis. As of September 30, 2018, the Company was in compliance with all financial covenants.$7,270$7.3 million which are net against the Term loan on the balance sheet. Unamortized debt issuance costs as of SeptemberJune 30, 20182019 amount to $5,845.increments. Weincrements, and we may request letters of credit in an aggregate amount equal to the lesser of the borrowing base calculation (minus outstanding advances) and $5,000.$5 million. The borrowing base is generally defined as 95% of our eligible accounts receivable less certain reserves.will pay letterhave entered into factoring agreements with financial institutions to sell certain of credit fees equalour accounts receivable under non-recourse agreements. These transactions are accounted for as a reduction in accounts receivable because the agreements transfer effective control over and risk related to the applicable margin timesreceivables to the daily maximumbuyers. We do not service any factored accounts after the factoring has occurred. We utilize factoring arrangements as part of our financing for working capital. The aggregate gross amount availablefactored under these agreements was $3.01 million for six months ended June 30, 2019.drawn under all letters of credit outstanding and a monthly unused fee at a rate per annum of 0.25% on the aggregate unused commitment. As of September 30, 2018, outstanding letters of credit totaled $893.agreement contains standard affirmative and negative covenants that may limit or restrict our ability to sell assets, incur additional indebtedness and engageloan was funded in mergers and acquisitions. We are required to maintain a minimum consolidated fixed charge coverage ratio of 1.00:1.00, if a reporting trigger period commences. We were in compliance with applicable covenants as of September 30, 2018.As of September 30, 2018, we had $26,504 of outstanding borrowings and our remaining borrowing capacity was $13,642.CapitalJanuary 2019.Employee compensationOur share-based compensation arrangements include grants of stock options, restricted stock units and deferred stock units under the StarTek, Inc. 2008 Equity Incentive Plan and our Employee Stock Purchase Plan. The compensation expense that has been charged against income for such awards was $249 and $249 for the three and six months ended September 30, 2018, respectively, and $0 and $0 for the three and six months ended September 30, 2017, respectively, and is included in selling, general and administrative expenses. As of September 30, 2018, there was $2,234 of total unrecognized compensation expense related to nonvested awards, which is expected to be recognized over a weighted-average period of 2.71 years.weStartek entered into athe Amazon Transaction Agreement, (the “Amazon Transaction Agreement”) with Amazon.com, Inc. (“Amazon”), pursuant to which we agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon (“NV Investment”), a warrant (the “Warrant”) to acquire up to 4,000,000 shares (the “Warrant Shares”) of our common stock, par value $0.01 per share (“Common Stock”), subject to certain vesting events. As a result of an anti-dilution adjustment that was triggered by the 2019 Equity Offering, total number of shares issuable to Amazon have been adjusted from 4,000,000 to 4,002,964. We entered into the Amazon Transaction Agreement in connection with commercial arrangements between us and any of our affiliates and Amazon and/or any of its affiliates pursuant to which we and any of our affiliates provide and will continue to provide commercial services to Amazon and/or any of its affiliates. The vesting of the Warrant shares, described below, is linked to payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the commercial arrangements.will bewas originally $9.96 per share.share but was adjusted to $9.95 per share as a result of an anti-dilution adjustment that was triggered by the 2019 Equity Offering. The Warrant Shares are exercisable through January 23, 2026. AsSeptember 30, 2018 no additional212,766 Warrant Shares havehas vested. $ (3,989 ) $ (15 ) $ (1,543 ) $ (5,547 ) $ (1,243 ) $ (6,790 ) 599 - - 599 - 599 - 348 - 348 - 348 - - (34 ) (34 ) (25 ) (59 ) $ (3,390 ) $ 333 $ (1,577 ) $ (4,634 ) $ (1,268 ) $ (5,902 ) Foreign Currency Translation Adjustment Derivatives Accounted for as Cash Flow Hedges Defined Benefit Plan Total Balance at March 31, 2018 $ (110 ) $ — $ (292 ) $ (402 ) Foreign currency translation (4,565 ) — — (4,565 ) Reclassification to operations — 37 — 37 Unrealized losses — (599 ) — (599 ) Remeasurement of defined benefit plan obligation — — (966 ) (966 ) Balance at September 30, 2018 $ (4,675 ) $ (562 ) $ (1,258 ) $ (6,495 ) Reclassifications outaccumulated other comprehensive lossindustries and geographical locations. Our approach is focused on providing our clients with the best possible combination of services and delivery locations to meet our clients' needs in the best and most efficient manner. Our Chief Executive Officer, who has been identified as the Chief Operating Decision Maker ("CODM"), reviews financial information mainly on a consolidated basis.ended SeptemberJune 30, 2019 and 2018, is presented below: 27,074 33,382 54,421 66,316 34,216 29,741 65,334 61,989 16,117 13,862 33,196 28,352 10,203 15,675 21,314 32,018 24,437 - 54,181 - 6,599 8,627 13,956 18,435 20,617 - 33,426 - 21,290 8,936 45,867 18,208 $ 160,553 $ 110,223 $ 321,695 $ 225,318 2017equipment, net by geography based on the location of the assets is presented below:
June 30, 2019
December 31, 2018 12,121 13,287 5,509 6,507 4,803 5,058 1,401 1,341 4,461 5,349 272 345 1,987 2,835 9,084 7,520 $ 39,638 $ 42,242 $ 15,441 985 43 1,028 Item Amount reclassified Affected line item in the Condensed Consolidated Statements of Comprehensive Income (loss) Three Months Ended September 30, Six Months Ended September 30, 2018 2017 2018 2017 (Gains) losses: Foreign exchange contracts $ (35 ) — $ (35 ) — Cost of services Foreign exchange contracts $ (2 ) — $ (2 ) — Selling, general and administrative expenses Remeasurement of defined benefit plan obligation $ (483 ) (567 ) $ (966 ) (1,134 ) Cost of services Total reclassifications for the period $ (520 ) $ (567 ) $ (1,003 ) $ (1,134 ) 15,235 43 1,251 72,079 - $ 72,079 22,000 51,400 $ 73,400 11,364 (9,323 ) $ 2,041 1,074 199 $ 1,273 4.19 yrs 2.83 yrs 7.50 % 6.01 % 13. SEGMENT AND GEOGRAPHICAL INFORMATION $ 26,264 $ 886 19,245 362 12,298 63 9,710 8 6,601 - 11,810 - $ 85,928 $ 1,319 (12,528 ) (46 ) $ 73,400 $ 1,273 Withcloseremaining commercial Aegis branding to Startek over the coming quarters to better reflect our combined business and bring uniformity across geographies. Any accounting implications on the carrying values and amortization periods of the Aegis Transactions, the Company has experienced a changerelated intangible assets recognized in past periods would be formally evaluated in the Chief Operating Decision Maker (CODM). With that change and several others, the Company is in the processupcoming quarter.The Company operates in thirteen countries. The following table presents revenue by geography for the three and six months September 30, 2018 and 2017. For the Three Months Ended September 30, For the Six Months Ended September 30, 2018 2017 2018 2017 Revenue: India $ 31,674 $ 34,689 $ 64,488 $ 66,012 Middle East $ 30,838 $ 35,891 $ 60,930 $ 72,756 Malaysia $ 14,652 $ 11,706 $ 28,773 $ 22,513 Argentina $ 12,489 $ 19,120 $ 28,402 $ 37,267 United States $ 22,475 $ — $ 22,475 $ — Australia $ 8,457 $ 9,315 $ 17,343 $ 17,459 Philippines $ 13,235 $ — $ 13,235 $ — Rest of World $ 17,689 $ 9,098 $ 26,086 $ 17,810 Total $ 151,509 $ 119,819 $ 261,732 $ 233,817 STARTEKcustomer engagementglobal business process outsourcing ("BPO")company that provides omnichannel customer interactions, technology and back-office support solutions for some of the world’s most iconic brands in a variety of vertical markets. Operating under the Startek brand, we help these large global companies connect emotionally with their customers, solve issues, and improve net promoter scores and other customer-facing performance metrics. Through consulting and analytics services, provider resulting fromtechnology-led innovation, and engagement solutions powered by the combinationscience of STARTEKdialogue, we deliver personalized experiences at the point of conversation between our clients and Aegis (as described below). The combined businesstheir customers across every interaction channel and phase of the customer journey.over 45,000 employeesproven results for the multiple services we provide, including sales, order management and a significant presence across 66 locations in thirteen countries and six continents, deliveringprovisioning, customer care, solutionstechnical support, receivables management, and retention programs. We manage programs using a variety of multi-channel customer interactions, including voice, chat, email, social media and back-office support.became a wholly owned subsidiary of STARTEKacquisition on July 20, 2018, and is a worldwide provider of customer experience management, which includes BPO services such as customer lifecycle management (“CLM”) services and back-office services, technology services and social media analytics. Aegis helps the world’s leading companies improve their customer experience and operational efficiency through a unique combination of technological innovation, operational expertise and actionable insights. Aegis also provides digital solutions to their clients, such as AegisLISAn, an end-to-end digital management platform and a social media tracker that helps their clients harness the full potential of social platforms, keep up with real-time trends driving their businesses and deliver real-world results.Aegis’ CLM service offering is specialized in managing the entire lifecycle of customer care from sales-related prospecting to customer care, technical support and collection services. In their back-office services offering, Aegis provides finance and accounting services, human resource processing services (“HR Processing”) and spend management services. Aegis also provides technology services such as system integration services related to unified communications, networking and contact center technologies. Aegis follows a “right-shoring” approach, which is providing their clients with services from the best jurisdiction, whether a local jurisdiction or off-shore, depending on each client’s specific needs and the mix of skills and cost of labor in each location.SIGNIFICANT DEVELOPMENTSOn March 14, 2018 we entered into a Transaction Agreement, which was subsequently amended by the parties on July 3, 2018 (as so amended, the “Aegis Transaction Agreement”), with CSP Alpha Midco Pte Ltd, a Singapore private limited company (“Aegis”), and CSP Alpha Holdings Parent Pte Ltd, a Singapore private limited company (the “Aegis Stockholder”). Pursuant to the Aegis Transaction Agreement, we, Aegis and the Aegis Stockholder agreed to, among other things: (1)became the saleholder of all of the issued and outstanding20,766,667 shares of the common stock of Aegis by the Aegis Stockholder to us; (2) the issuance of 20,600,000 shares, as may be adjusted for stock splits, consolidation and other similar corporate events, of our common stock in consideration of such sale; (3) the amendment of our Restated Certificate of Incorporation, as amended from time to time, in order to effect such issuance; and (4) in addition to the transactions set forth above, the purchase at the closing of 166,667 additional shares of our common stock by the Aegis Stockholder, for $2 million at a price of $12 per share, subject to adjustment as set forth in the Aegis Transaction Agreement.The closing of the transactions contemplated by the Aegis Transaction Agreement occurred on July 20, 2018. As a result, Aegis became a wholly-owned subsidiary of us and the Aegis Stockholder holdsCommon Stock, representing approximately 55% of ourthe outstanding common stock.The transaction was accounted for underCommon Stock. For accounting purposes, the purchase method of accountingAegis acquisition is treated as a reverse acquisition. Accordingly, for accounting and financial reporting purposes, the Company was treated as the acquired company,acquisition and Aegis was treated asis considered the acquiring company.accounting acquirer. Accordingly, Aegis’ historical financial statements replace the Company’s historical financial statements following the completion of the Aegis Transactions, and the results of operations of both companies will be included in the Company’s financial statements for all periods following the completion of the Aegis Transactions. The historical financial information presented for the periods and dates prior to July 20, 2018 is that of Aegis, and for periods subsequent to July 20, 2018 is that of the mergedcombined company.RESULTS OF OPERATIONS — THREE MONTHS ENDED SEPTEMBERAND 2017SeptemberJune 30, 20182019 increased by 26.4%46.3% to $151.5 million$161,283 as compared to $119.8 million$110,223 for the three-month period ended SeptemberJune 30, 2017.2018. The increase in revenues is largely due to the consolidation of Startek with Aegis from July 20, 2018, offset by foreign currency exchange rate fluctuations of the Argentine Peso and Indian Rupee againstthe U.S. dollar. These fluctuations negatively impacted our revenues by $13.5 million, or 11.3%, for the three months ended September 30, 2018.Revenues increased across most of our verticals, including Retail & E-commerce, Media, Publishing & Entertainment, Healthcare and Transport & Logistics. This was partly offset by a reduction in revenues from our Telecommunications vertical.Our revenues are presented by region in the following table: Three Months Ended September 30, 2018 Increase/(Decrease) over 2017 Geography: 2018 2017 India $ 31,674 $ 34,689 (8.7 )% Middle East 30,838 35,891 (14.1 )% Malaysia 14,652 11,706 25.2 % Argentina 12,489 19,120 (34.7 )% United States 22,475 — 100.0 % Australia 8,457 9,315 (9.2 )% Philippines 13,235 — 100.0 % Rest of World 17,689 9,098 94.4 % Total $ 151,509 $ 119,819 26.4 % India, while our revenue in US dollars decreased by 8.7%, the reduction was due to the depreciation of the Rupee relative to the US dollars. The revenue in Rupees increased by 1.4% for the three month period ended September 30, 2018 compared to the quarter ended SeptemberJune 30, 2017. Our India business caters to most2019, there was a warrant contra revenue of $730 on account of vesting of the telecommunications service providers in India. Currently,second tranche of Amazon warrants. The Net Revenue for the telecommunications industry in India is going through a significant disruption duequarter ended June 30, 2019, after adjusting the warrant contra revenue, stood at $160,553 which was an increase of 45.7% as compared to the recent entry of a large conglomerate in the telecommunications industry that has been aggressively gaining market share from the incumbents, both in the private sector and the public sector. The fall in revenues due to the overall decline in volumes of the incumbent players is offset by the incremental volumes from this new player. Additionally, we continue to gain a higher share of business from clients in other sectors like Travel & Hospitality and E-commerce.In the Middle East, our revenues declined primarily due to the reduction in volumes from one of our telecommunications client.In Malaysia, we continue to experience significant growth across the board. The revenue increased by 25.2%$110,223 for the three-month period ended SeptemberJune 30, 2018.compared to the quarter ended September 30, 2017. We added new clients in the Transport & Logistics vertical and also added new lines of business with existing clients across various industry sectors.In Argentina,includes only Aegis while the revenue, incurrent three-month period ended June 30, 2019 includes both Startek and Aegis. In order to promote a better understanding of the US dollars,overall results of the combined business, we are providing below pro forma revenues for the three-month period ended SeptemberJune 30, 2018 decreasedcombining the revenues for Aegis and Startek. The financial information presented below is presented for illustrative purposes only and does not purport to represent what the results of operations of operations would actually have been had the combination of Aegis and Startek occurred on January 1, 2018, or to project the combined results of operations for any future periods. $ 161,283 $ 169,940 (730 ) - 160,553 169,940 For the Three Months Ended June 30, 2019 Pro Forma For the Three Months Ended June 30, 2018 $ 64,421 $ 82,326 24,375 19,695 13,245 15,104 23,587 16,958 17,375 13,766 8,352 6,844 3,458 3,001 6,470 12,246 161,283 169,940 Less: Warrant Contra Revenue (730 ) - Net Revenue $ 160,553 $ 169,940 34.7%, the reduction was only duehigh base in the Americas telecom segment revenues in the previous period.depreciationthree-month period ended June 30, 2018 was also impacted negatively by fluctuations in foreign exchange particularly that of the Argentine Pesopeso, South African rand and Australian dollar relative to the US dollar. In local currency terms, our revenues have increased by 19.6% for the three month period ended September 30, 2018 compared to the quarter ended September 30, 2017. Our pricing to our customers is adjusted annually to consider the impactRevenue in the United States has been included for the period July 20, 2018 through September 30, 2018 in accordance with the accounting treatment consequent to the Aegis Transactions.In Australia, while the revenue in US Dollars for the three month period ended September 30, 2018 decreased by 9.2%, the reduction was partly due to the depreciation in Australian Dollars relative to the US Dollar. In local currency terms, our revenues decreased by 5.8%. This was mainly due to the reduction in volumes in our key clients in Australia.Revenue in the Philippines has been included for the period July 20, 2018 through September 30, 2018 in accordance with the accounting treatment consequent to the Aegis Transactions.Rest of World is comprised of our operations in Jamaica, Honduras, Canada, South Africa, Peru, United Kingdom and Sri Lanka. The overall revenue from these regions increased by 94.4% for the three-month period ended September 30, 2018 compared tothe quarter ended September 30, 2017. This is primarily due to the inclusion of revenues from Jamaica, Honduras and Canada for the period July 20, 2018 through September 30, 2018.increaseddecreased to 85.0%82.8% for the three-month period ended SeptemberJune 30, 20182019 as compared to 83.3%84.7% for the three-month period ended SeptemberJune 30, 2017. Wages2018. Employee wages and benefits, Depreciationbenefit expense, rent expense and amortizationdepreciation and rent costsamortization are the most significant costs for the Company, representing 72.6%76.2%, 4.5%5.9% and 4.3%4.1% of total Cost of services, respectively. The breakdown of Cost of services is listed in the table below: Three Months Ended September 30, 2018 Increase/(Decrease) over 2017 2018 2017 Wages and benefits $ 93,513 $ 75,995 23.1 % Rent expense 5,492 3,810 44.1 % Depreciation and amortization 5,855 3,127 87.2 % Other 23,887 16,830 41.9 % Total $ 128,747 $ 99,762 29.1 % $ 101,397 $ 73,179 63.2 % 66.4 % 7,895 3,522 4.9 % 3.2 % 5,435 3,790 3.4 % 3.4 % 18,266 12,850 11.4 % 11.7 % $ 132,993 $ 93,341 82.8 % 84.7 The impact of wage inflation andAegis Transactions were partly offset by the depreciation in the Argentine Peso and the Indian Rupee relative to the US Dollar, thereby leading to an increase of 23.1% in Employee Benefit expenses for the three monththree-month period ended SeptemberJune 30, 2018 compared to the three month period ended September 30, 2017.For the three months period ended September 30, 2018,2019, wages and benefits as a percentage of revenues reduceddecreased to 61.7% as63.2%, compared to 63.4%66.4% for the quarter ended September 30, 2017. The Company continues to strategically move away from low-margin mass market business in the telecommunications industry to high-margin premium business.Rent expense: Rent expense increased 44.1% from $3.8 million for the three month period ended September 30, 2017 to $5.5 million for the three month period ended SeptemberJune 30, 2018. This was primarily due to our ongoing strategy to diversify into more value added premium services and high margin verticals and away from telecommunication. While doing so we were able to mitigate the Aegis Transactions, partly offset byimpact of the depreciationincrease in the Argentine Peso and the Indian Rupee relative to the US Dollar.marginally to 3.6%4.9% for the quarterthree-month period ended SeptemberJune 30, 2018 as2019, compared to 3.2% for three-month period ended June 30, 2018. The increase was largely due to the combination of Startek with Aegis since the rent cost as a percentage of sales is higher for the legacy Startek business taking the consolidated rent costs as a percentage of sales higher. We also added a new site in Jamaica in this quarter ended September 30, 2017.increased 87.2%as a percentage of revenue for the three monththree-month period ended SeptemberJune 30, 20182019 remained flat at 3.4% as compared to the quarter ended September 30, 2017 from $3.1 million to $5.9 million. The depreciation and amortization charge3.4% for the quarterthree-month period ended SeptemberJune 30, 2018 includes $1.9 million for the amortization of the newly acquired intangible assets as part of the Aegis Transactions.increaseddecreased from 14.0%11.7% to 15.8%11.4%.As a result, The decrease was largely due to cost optimization and rationalization efforts undertaken by the Company post the merger between Startek and Aegis.three monththree-month period ended SeptemberJune 30, 2018 decreased2019 increased to 15.0%17.2% as compared to 16.7%15.3% for the three monththree-month period ended SeptemberJune 30, 2017.11.9%13.8% in the three monththree-month period ended SeptemberJune 30, 20172018 to 15.1%15.5% in the three monththree-month period ended SeptemberJune 30, 2019. The increase is largely driven by the Aegis Transaction and the related costs of employees in the United States, which, as a percentage of sales for legacy Startek, is higher relative to legacy Aegis. As part of the Company-wide restructuring exercise, we have taken steps to rationalize costs.
Interest expense, netSG&A expenses were $22.8 million in the three month period ended September 30, 2018, up by $8.6 million compared to the previous period. The increase is primarily due to the Aegis Transactions. The SG&A expenses for the three month period ended September 30, 2018 also included a one time charge of $0.6 million for bonus and severance paid to certain executives.Transaction related feesAcquisition related costs totaled $3.9 million for the three month period ended September 30, 2018. These consist of professional and advisory fees related to the Aegis Transactions.Impairment losses and restructuring costs, netImpairment losses and restructuring costs, net totaled $2.6 million for the three month period ended September 30, 2018. $2.2 million is due to the elimination of certain positions at various locations under a company wide restructuring plan and another $0.4 million resulting from the closure of one of our site in the United States.Interest expense, netInterest expense, net increased to $4.1 million in the three month period ended September 30, 2018 compared to $1.3 million in the three month period ended September 30, 2017. The increase is primarily due to interest expense is on our term debt and revolving line of credit facilities.Exchange gains (losses), netExchange gains (losses), net represents the impact of the re-measurement of our non-functional currency assets and liabilities and the related foreign exchange contracts. We recorded a net foreign exchange gain of $0.7 million in the three month period ended September 30, 2018 compared to a loss of $0.3 million in the three month period ended September 30, 2017.three monththree-month period ended SeptemberJune 30, 20182019 was $1.0 million$730, compared to $1.5 million$234 for the three monththree-month period ended SeptemberJune 30, 2017. Income tax expense is primarily related to our India, Malaysia, South Africa and Argentina operations. The decrease in tax expense is primarily due to the depreciation of the Argentine Peso and Indian Rupee relative to the US Dollar. We have tax holidays in Honduras and Jamaica, and for certain facilities in the Philippines.SEPTEMBERJUNE 30, 2019 AND 2018AND 2017SeptemberJune 30, 20182019 increased by 11.9%43.1% to $261.7 million$322,425 as compared to $233.8 million$225,318 for the six-month period ended SeptemberJune 30, 2017.2018. The increase in revenues is largely due to the consolidation of Startek with Aegis from July 20, 2018, offset by foreign currency exchange rate fluctuationsAegis. In the six-months ended June 30, 2019, there was a warrant contra revenue of $730 on account of vesting of the Argentine Peso and Indian Rupee against the U.S. dollar. These fluctuations negatively impacted our revenues by $21.7 million, or 9.3%,second tranche of Amazon warrants. The net Revenue for the six monthssix-months ended SeptemberJune 30, 2018.Revenues increased across most2019, after adjusting the warrant contra revenue, stood at $321,695 which was an increase of our verticals, including Retail & E-commerce, Media, Publishing & Entertainment, Healthcare and Transport & Logistics. This was partly offset by a reduction in revenues from our Telecommunications vertical.Our revenues are presented by region in the following table: Six Months Ended September 30, 2018 Increase/(Decrease) over 2017 Geography: 2018 2017 India $ 64,488 $ 66,012 (2.3 )% Middle East 60,930 72,756 (16.3 )% Malaysia 28,773 22,513 27.8 % Argentina 28,402 37,267 (23.8 )% United States 22,475 — 100.0 % Australia 17,343 17,459 (0.7 )% Philippines 13,235 — 100.0 % Rest of World 26,086 17,810 46.5 % Total $ 261,732 $ 233,817 11.9 % In India, while the revenue in the US dollars decreased by 2.3%, the reduction was due to the depreciation of the Rupee relative to the US dollar. The revenues in Rupees increased by 3.9% year over year.In the Middle East, our revenues declined primarily due to the reduction in volumes from one of our telecommunications client.In Malaysia, the revenue for the six month period ended September 30, 2018 in Malaysian Ringgit grew 19.6%42.8% as compared to $255,318 for the previoussix-month period ended June 30, 2018. Less: Warrant Contra Revenue (730) (2,500) Net Revenue $ 321,695 351,649 US dollars saw an increaseAmericas, India and other countries as well as due to foreign exchange impact mainly in Argentina and India.27.8%. We continue to see growth in business across industries and clients in Malaysia. We are among the few outsourcing players in Malaysia with multi-lingual capabilities. We added new clients in the Transport & Logistics and E-Commerce verticals and also grew business fromtelecommunication vertical which contributed around 40% of our existing key client.In Argentina, revenue for the six-month period ended SeptemberJune 30, 2019 as compared to 51% for the comparable period last year. We continue to focus on providing value added services to our telecom clients and shifting our business mix towards the premium market rather than the mass market.decreased 23.8%, however, the reduction was primarily due to the depreciationalso impacted negatively by fluctuations in foreign exchange particularly that of the Argentine Pesopeso, South African rand, Australian dollar and Indian rupee relative to the US dollar. In local currency, our revenues have increased by 26.6% for the six-month period ended September 30, 2018 compared to the previous period. Our pricing to our customers is adjusted annually to consider the impact of inflation in the economy.Revenue in the United States has been included for the period July 20, 2018 through September 30, 2018 in accordance with the accounting treatment consequent to the Aegis Transactions.In Australia, while revenue in US Dollars for the six-month period ended September 30, 2018 decreased marginally by 0.7%, the reduction was due to the depreciation in Australian Dollars relative to the US Dollar. In local currency terms, our revenues increased by 0.1%.Revenue in the Philippines has been included for the period July 20, 2018 through September 30, 2018 in accordance with the accounting treatment consequent to the Aegis Transactions.Rest of World is comprised of our operations in Jamaica, Honduras, Canada, South Africa, Peru, United Kingdom and Sri Lanka. The overall revenue from these regions increased by 46.5% for the six-month period ended September 30, 2018 compared to the previous period. This is primarily due to the inclusion of revenues from Jamaica, Honduras and Canada for the period July 20, 2018 through September 30, 2018.increaseddecreased to 84.9%83.0% for the six-month period ended SeptemberJune 30, 20182019 as compared to 83.9%83.1% for the six-month period ended SeptemberJune 30, 2017. Wages2018. Employee wages and benefits, Depreciationbenefit expense, rent expense and amortizationdepreciation and rent costsamortization are the most significant costs for the Company, representing 75.1%75.8%, 4.3%5.9% and 4.1% of total Cost of services, respectively. The breakdown of Cost of services is listed in the table below: Six Months Ended September 30, 2018 Increase/(Decrease) over 2017 2018 2017 Wages and benefits $ 166,692 $ 149,272 11.7 % Rent expense 9,014 7,703 17.0 % Depreciation and amortization 9,645 6,049 59.4 % Other 36,736 33,241 10.5 % Total $ 222,087 $ 196,265 13.2 % $ 202,262 $ 144,409 62.9 % 64.1 % 15,693 7,921 4.9 % 3.5 % 10,865 9,311 3.4 % 4.1 % 38,101 25,637 11.8 % 11.4 % $ 266,921 $ 187,278 83.0 % 83.1 % cost items consist ofcosts are payments made to agents, supervisors, and trainers who are directly involved in delivering services to ourthe clients. The impact of wage inflation and incremental expenses from the Aegis Transactions were partly offset by the depreciation in the Argentine Peso and the Indian Rupee relative to the US Dollar, thereby leading to an increase of 11.7% in Wages and benefits for the six-month period ended September 30, 2018 compared to the six-month period ended September 30, 2017.SeptemberJune 30, 2018,2019, wages and benefits expenses as a percentage of revenues remained stable at 63.7%decreased to 62.9%, compared to 63.8% for the previous period. The Company continues to strategically move away from low-margin mass market business in the telecommunications industry to high-margin premium business.Rent expense: Rent expense increased 17.0% from $7.7 million64.1% for the six-month period ended September 30, 2017 to $9.0 million for the six month period ended SeptemberJune 30, 2018. This was primarily due to our ongoing strategy to diversify into more value-added premium services and high margin verticals and away from telecommunication. While doing so we were able to overcome the incremental expenses related toimpact of the Aegis Transactions, partly offset by the depreciationincrease in the Argentine Peso and the Indian Rupee relative to the US Dollar.marginally to 3.4%4.9% for the six-month period ended SeptemberJune 30, 2018 as2019, compared to 3.3%3.5% for six-month period ended SeptemberJune 30, 2017.increased 59.4%as a percentage of revenue for the six-month period ended SeptemberJune 30, 20182019 decreased to 3.4% as compared to the previous period from $6.0 million to $9.6 million. Depreciation and amortization4.1% for the six-month period ended SeptemberJune 30, 2018 includes $3.8 million for the amortization of the newly acquired intangible assets as part of the Aegis Transactions.decreased from 14.2%increased to 14.0%11.8% as compared to 11.4%.As The increase was driven largely by an increase in communication expense as a result, Grosspercentage of sales which was driven by the combination of Startek with Aegis.SeptemberJune 30, 2018 decreased2019 increased to 15.1%17.0% as compared to 16.1%16.9% for the six-monthSix-month period ended SeptemberJune 30, 2017.&and administrative expensesSG&A11.9%13.2% in the six-month period ended SeptemberJune 30, 20172018 to 14.5%15.2% in the six-month period ended SeptemberJune 30, 2018.2019. The SG&A expenses were $38.1 millionincrease is largely driven by the Aegis Transaction and the related costs of employees in the six-month period ended September 30, 2018, up by $10.2 million comparedUnited States, which, as a percentage of sales for legacy Startek, is higher relative to legacy Aegis. As part of the previous period. The increase in cost is primarilyCompany-wide restructuring exercise, we have taken steps to rationalize costs.to the incrementalcostsdue to the Aegis Transactions. The SG&A expensestotaled $1,839 for the six-month period ended SeptemberJune 30, 2018 also included a2019. This primarily relates to the restructuring of our U.S. and Latin America operations where we closed one time chargedelivery center each and restructure cost of $0.6 million for bonus and severance paid to certain executives.Transactionemployee severance. The acquisition related feesTransaction related fees totaled $3.9 millioncosts for the six-month period ended SeptemberJune 30, 2018. These consist2018 of professional and advisory fees related$6,257 relates to the acquisition of Aegis Transactions.Impairment lossesby Capital Square Partners.restructuring charges, netImpairment losses and restructuring charges, netother cost totaled $2.6 million$8,492 for the six-month period ended SeptemberJune 30, 2018. $2.2 million is due to the elimination of certain positions at various locations under a company-wide restructuring plan and another $0.4 million resulting from the closure of one of our sites in the United States.Share of profit of affiliatesThe profit from our associate company in Australia was $0.02 million in the six-month period ended September 30, 20182019, compared to $0.9 million in the six-month period ended September 30, 2017.Interest expense, netInterest expense increased to $7.4 million$7,402 for the six-month period ended SeptemberJune 30, 2018 compared to $2.4 million for the six-month period ended September 30, 2017.2018. The increase is primarily due to interest expense is on our term debt and revolving line of credit facilities.Exchange gains (losses), netExchange gains (losses), net represents the impact of the re-measurement of our non-functional currency assets and liabilities and the related foreign exchange contracts. We recorded a net foreign exchange loss of $1.2 million in the six-month period ended September 30, 2018 compared to a gain of $0.1 million in the six-month period ended September 30, 2017. The foreign exchange loss in the six-month period ended September 30, 2018 is due primarily to the depreciation in the Argentine Peso and Indian Rupee relative to the US Dollar.SeptemberJune 30, 20182019 was $1.2 million$1,113 compared to $2.4 million$565 for the six-month period ended SeptemberJune 30, 2017. Income tax expense is primarily related to our India, Malaysia, South Africa and Argentina operations. The decrease in tax is primarily due to the depreciation in the Argentine Peso and Indian Rupee relative to the US Dollar. We have tax holidays in Honduras and Jamaica, and for certain facilities in the Philippines.2018.We believe ourThe Company expects to meet all its debt obligations in a timely manner.cash from operationsheld outside the United States are distributed to the United States in the form of dividends or otherwise, we may be subject to additional U.S. income taxes and available credit will be sufficient to operate our business for the next twelve months.As of September 30, 2018, working capital totaled $50.2 million and the current ratio was 1.37:1, compared to working capital of $34.3 million and a current ratio of 1.29:1 as of March 31, 2018. The increase was primarily driven by the increase in Trade accounts receivable.Net cash provided by operating activities for the six months ended September 30, 2018 was $0.5 million, compared to $6.8 million for the six months ended September 30, 2017, primarily due to a net loss in first two quarters of 2018 compared to net income in first two quarters of 2017. foreign withholding taxes. can vary significantlyquarteroperating activities of $(5,427) and $3,144 respectively. The decrease was driven primarily by a decrease in cash flows related to quarter depending uponnet changes in operating assets and liabilities.timingsix-month period ended June 30, 2019 and 2018 we reported net cash used in investing activities of operating cash receipts$5,973 and payments, especially accounts receivable and accounts payable.forduring the six monthssix-month period ended September 30, 2018 of $3.0 million consisted of capital expenditures offset by cash acquired in the Aegis Transactions. This compares to net cash used in investing activities for the six months ended September 30, 2017 of $6.2 million, which2019 primarily consisted of capital expenditures offset by distributions receivedexpenditures.affiliates.Netfinancing activitiesprovided byflows generated from financing activities forof $12,779 and $(4,690) respectively. During the six monthssix-month period ended SeptemberJune 30, 2018 of $1.4 million consisted primarily of $4.1 million drawn2019 our net borrowings increased by $6,313 across our various borrowing arrangements and amounts raised from our lines of credit offset by $2.8 million of principal payments on debt. Net cash provided in financing activities for the six months ended September 30, 2017 of $4.3 million2019 Equity Offering was primarily drawn from our lines of credit and principal debt.threesix months ended SeptemberJune 30, 2018.principal clients; (iii) expiration or termination of client projects or contracts; (iv) timing of existing and future client product launches or service offerings; (v) seasonal nature of certain clients’ businesses; and (vi) variability in demand for our services by our clients depending on demand for their products or services, and/or depending on our performance.GAAP,US-GAAP, management must undertake decisions that impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions upon which accounting estimates are based. Management applies its best judgment based on its understanding and analysis of the relevant circumstances to reach these decisions. By their nature, these judgments are subject to an inherent degree of uncertainty. Accordingly, actual results may vary significantly from the estimates we have applied.12 of the Notes to the Consolidated Financial Statements in our Form 8-K/A10-KT for the year ended MarchDecember 31, 2018 for a complete description of our critical accounting policies and estimates.STARTEKStartek has now qualified for Smaller Reporting Company status, this disclosure is not required.SeptemberJune 30, 2018,2019, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of SeptemberJune 30, 2018,2019, our disclosure controls and procedures were effective and were designed to ensure that all information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.the Aegis Transactions as described elsewhere in this report.transaction. In connection with the Aegis Transactions,this, our internal controls over financial reporting are being integrated to incorporate the internal controls and internal control over financial reporting framework of Aegis. Such integration has resulted in changes in our internal control over financial reporting (as described in Rule 13a-15(f)13a - 15(f) under the Exchange Act) that have materially affected our internal controlcontrols over financial reporting. In particular, Grant Thornton India LLP communicatedreporting specifically in relation to accounting period end closure process and consolidation process. As a result of the Audit Committee ofremediation plan to address the material weakness raised by Plante Moran, PLCC in relation to SEC Financial Reporting process, accounting for significant and unusual transactions and the consolidation process, there are changes in our Board of Directors regarding inadequacy of internal controls over the financial statement close process of Aegis as it relates to accounting for complex, non-routine transactions. reporting.changes that haveremediation plan to mitigate the material weaknesses identified by Plante Moran, PLLC, additions and may continuemodifications to result from such integration,policies and controls over implementation of new lease standard, there has been no change in our internal controlcontrols over financial reporting (as described in Rule 13a-15(f)13a - 15(f) under the Exchange Act) during the quarter ended SeptemberJune 30, 20182019 that has materially affected or is reasonably likely to materiallyhave material affect our internal control over financial reporting.As STARTEK has now qualified for Smaller reporting company status, this disclosure is not required.Exhibit Incorporated Herein by Reference No. Exhibit Description Form Exhibit Filing Date 2.1 8-K 2.1 7/5/2018 2.2 8-K 2.1 7/20/2018 3.1 8-K 3.1 7/20/2018 10.1† 8-K 10.1 7/20/2018 10.2† 8-K 10.2 7/20/2018 10.3*† 10.4* 10.5* 10.6* 10.7* 31.1* 31.2* 32.1* 101* The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended September 30, 2018 and 2017 (Unaudited), (ii) Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and March 31, 2018, (iii) Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2018 and 2017 (Unaudited) and (iv) Notes to Consolidated Financial Statements *Filed with this Form 10-Q. †Management contract or compensatory plan or arrangementSTARTEK, INC. By:NovemberAugust 8, 20182019Chief Executive OfficerGlobal CEONovemberAugust 8, 20182019