UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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 March 31, 20212022
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,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.) |
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(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 ☒ No ☐
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 ☒ No ☐
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 ☐ No ☒
As of April 30, 2021,28, 2022, there were 40,784,67340,296,021 shares of Common Stock outstanding.
STARTEK, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q
PART I - FINANCIAL INFORMATION | ||
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ITEM 1. | FINANCIAL STATEMENTS | Page |
| Consolidated | |
| Consolidated Balance Sheets as of March 31, | |
| Consolidated | |
| Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, | |
| Note 1 Overview and Basis of Preparation | |
Note 2 Summary of Significant Accounting Policies | 9 | |
Note 3 Goodwill and Intangible Assets | 12 | |
Note 4 Revenue | 13 | |
Note 5 Net | 15 | |
Note 6 Impairment Losses and Restructuring / Exit cost | 15 | |
Note 7 Derivative Instruments | 16 | |
Note 8 Fair Value Measurements | ||
Note 9 Debt | ||
Note 10 Share-Based Compensation | ||
Note 11 Accumulated Other Comprehensive Loss | ||
Note 12 Segment Reporting | ||
Note 13 Leases | ||
Note 14 Investment in Equity-Accounted Investees | 24 | |
Note 15 Common Stock | 25 | |
Note | 26 | |
Note 17 Subsequent Events | 26 | |
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 | |
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PART II - OTHER INFORMATION | ||
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ITEM 1. | Legal proceeding | |
ITEM 1A. | Risk Factors | |
ITEM 2. | Unregistered sales of equity securities and use of proceeds | 32 |
ITEM 3. | Defaults upon senior securities | 32 |
ITEM 4. | Mine safety disclosure | 32 |
ITEM 5. | Other Information | |
ITEM 6. | Exhibits | |
SIGNATURES |
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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 Form 10-K for the fiscal year ended December 31, 20202021 filed with the Securities and Exchange Commission ("SEC") on March 16, 202114, 2022 and this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.2022. Unless otherwise noted in this report, any description of "us," "we," or "our," refers to StarTek,Startek, Inc. ("Startek") and its subsidiaries.
CHANGE IN FILING STATUS
In accordance with the SEC's expanded definition of Smaller Reporting Companies effective September 10, 2018, Startek qualifies for Smaller Reporting Company status. As such, it has decided to take advantage of the relief provided from Part 1, Item 3.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(In thousands, except per share amounts)data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenue | 163,495 | 161,177 | ||||||
Warrant contra revenue | (425 | ) | (278 | ) | ||||
Net Revenue | $ | 163,070 | $ | 160,899 | ||||
Cost of services | (138,383 | ) | (140,841 | ) | ||||
Gross profit | $ | 24,687 | $ | 20,058 | ||||
Selling, general and administrative expenses | (14,171 | ) | (17,255 | ) | ||||
Impairment losses and restructuring/exit cost | (1,898 | ) | (24,322 | ) | ||||
Operating income / (loss) | $ | 8,618 | $ | (21,519 | ) | |||
Share of loss of equity-accounted investees | (14 | ) | (8 | ) | ||||
Interest expense, net | (13,769 | ) | (3,506 | ) | ||||
Exchange gain / (loss), net | 212 | 1,928 | ||||||
Loss before income taxes | $ | (4,953 | ) | $ | (23,105 | ) | ||
Income tax expense | (4,902 | ) | (2,876 | ) | ||||
Net loss | $ | (9,855 | ) | $ | (25,981 | ) | ||
Net income / (loss) | ||||||||
Net income attributable to non-controlling interests | 2,300 | 576 | ||||||
Net loss attributable to Startek shareholders | (12,155 | ) | (26,557 | ) | ||||
Net loss per common share - basic and diluted | (0.30 | ) | (0.69 | ) | ||||
Weighted average common shares outstanding - basic and diluted | 40,592 | 38,528 |
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Revenue | 167,317 | 163,495 | ||||||
Warrant adjustment | 0 | (425 | ) | |||||
Net revenue | $ | 167,317 | $ | 163,070 | ||||
Cost of services | (146,260 | ) | (138,383 | ) | ||||
Gross profit | $ | 21,057 | $ | 24,687 | ||||
Selling, general and administrative expenses | (15,881 | ) | (14,171 | ) | ||||
Impairment losses and restructuring/exit cost | (1,407 | ) | (1,898 | ) | ||||
Operating income | $ | 3,769 | $ | 8,618 | ||||
Share of loss of equity-accounted investees | (8 | ) | (14 | ) | ||||
Interest expense, net and other income | (974 | ) | (13,769 | ) | ||||
Foreign exchange gains (losses), net | (408 | ) | 212 | |||||
Income (loss) before tax expense | $ | 2,379 | $ | (4,953 | ) | |||
Tax expenses | (2,093 | ) | (4,902 | ) | ||||
Net income (loss) | $ | 286 | $ | (9,855 | ) | |||
Net income (loss) | ||||||||
Net income attributable to noncontrolling interests | $ | 1,529 | $ | 2,300 | ||||
Net loss attributable to Startek shareholders | $ | (1,243 | ) | $ | (12,155 | ) | ||
Net loss per common share | ||||||||
Basic net loss attributable to Startek shareholders | $ | (0.03 | ) | $ | (0.30 | ) | ||
Diluted net loss attributable to Startek shareholders | $ | (0.03 | ) | $ | (0.30 | ) | ||
Weighted average common shares outstanding | ||||||||
Basic | 40,338 | 40,592 | ||||||
Diluted | 40,338 | 40,592 |
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)data)
(Unaudited)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Net loss | $ | (9,855 | ) | $ | (25,981 | ) | ||||||||||
Net income attributable to non-controlling interests | 2,300 | 576 | ||||||||||||||
Net income (loss) | $ | 286 | $ | (9,855 | ) | |||||||||||
Net income attributable to noncontrolling interests | 1,529 | 2,300 | ||||||||||||||
Net loss attributable to Startek shareholders | (12,155 | ) | (26,557 | ) | (1,243 | ) | (12,155 | ) | ||||||||
Other comprehensive (loss) / income, net of taxes: | ||||||||||||||||
Other comprehensive income (loss), net of taxes: | ||||||||||||||||
Foreign currency translation adjustments | (1,092 | ) | (4,392 | ) | 548 | (1,092 | ) | |||||||||
Change in fair value of derivative instruments | 8 | (672 | ) | 0 | 8 | |||||||||||
Pension amortization | (384 | ) | 396 | (1,137 | ) | (384 | ) | |||||||||
Other comprehensive loss | $ | (1,468 | ) | $ | (4,668 | ) | $ | (589 | ) | $ | (1,468 | ) | ||||
Other comprehensive (loss) / income, net of taxes | ||||||||||||||||
Other comprehensive (loss) / income attributable to non-controlling interests | (69 | ) | 163 | |||||||||||||
Other comprehensive loss attributable to Startek shareholders | (1,399 | ) | (4,831 | ) | ||||||||||||
Other comprehensive income (loss), net of taxes | ||||||||||||||||
Other comprehensive loss attributable to non-controlling interests | (655 | ) | (69 | ) | ||||||||||||
Other comprehensive income (loss) attributable to Startek shareholders | 66 | (1,399 | ) | |||||||||||||
$ | (1,468 | ) | $ | (4,668 | ) | $ | (589 | ) | $ | (1,468 | ) | |||||
Comprehensive (loss) / income | ||||||||||||||||
Comprehensive income (loss) | ||||||||||||||||
Comprehensive income attributable to non-controlling interests | 2,231 | 739 | 874 | 2,231 | ||||||||||||
Comprehensive loss attributable to Startek shareholders | (13,554 | ) | (31,388 | ) | (1,177 | ) | (13,554 | ) | ||||||||
$ | (11,323 | ) | $ | (30,649 | ) | $ | (303 | ) | $ | (11,323 | ) |
See Notes to Consolidated Financial Statements.
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
March 31, | December 31, | March 31, | December 31, | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | 57,665 | 44,507 | 43,302 | 47,940 | ||||||||||||
Restricted cash | 6,981 | 6,052 | 8,946 | 7,456 | ||||||||||||
Trade accounts receivable, net | 69,712 | 83,560 | ||||||||||||||
Trade accounts receivables, net | 85,542 | 106,937 | ||||||||||||||
Unbilled revenue | 57,530 | 49,779 | 67,266 | 50,074 | ||||||||||||
Prepaid and other current assets | 12,328 | 14,542 | 17,720 | 12,611 | ||||||||||||
Total current assets | $ | 204,216 | $ | 198,440 | $ | 222,776 | $ | 225,018 | ||||||||
Non-current assets | ||||||||||||||||
Property, plant and equipment, net | 34,353 | 34,225 | 32,332 | 34,168 | ||||||||||||
Operating lease right-of-use assets | 65,396 | 69,376 | 59,299 | 63,012 | ||||||||||||
Intangible assets, net | 97,879 | 100,440 | 87,531 | 90,092 | ||||||||||||
Goodwill | 183,397 | 183,397 | 183,397 | 183,397 | ||||||||||||
Investment in equity-accounted investees | 25,096 | 111 | 31,680 | 31,688 | ||||||||||||
Deferred tax assets, net | 4,042 | 5,294 | 4,731 | 3,664 | ||||||||||||
Prepaid expenses and other non-current assets | 16,605 | 13,370 | 10,805 | 11,436 | ||||||||||||
Total non-current assets | $ | 426,768 | $ | 406,213 | $ | 409,775 | $ | 417,457 | ||||||||
Total assets | $ | 630,984 | $ | 604,653 | $ | 632,551 | $ | 642,475 | ||||||||
Liabilities and Shareholders' Equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Trade accounts payables | 14,457 | 20,074 | 8,169 | 11,916 | ||||||||||||
Accrued expenses | 58,026 | 57,118 | 53,706 | 53,203 | ||||||||||||
Short term debt | 5,230 | 15,505 | 3,535 | 3,611 | ||||||||||||
Current maturity of long term debt | 2,412 | 2,180 | 10,216 | 6,241 | ||||||||||||
Current maturity of operating lease obligation | 18,724 | 19,327 | ||||||||||||||
Current maturity of operating lease liabilities | 24,052 | 24,393 | ||||||||||||||
Other current liabilities | 45,130 | 39,987 | 44,236 | 48,265 | ||||||||||||
Total current liabilities | $ | 143,979 | $ | 154,191 | $ | 143,914 | $ | 147,629 | ||||||||
Non-current liabilities | ||||||||||||||||
Long term debt | 165,116 | 118,315 | 155,771 | 160,175 | ||||||||||||
Operating lease liabilities | 48,697 | 52,052 | 40,745 | 44,263 | ||||||||||||
Other non-current liabilities | 18,490 | 15,498 | 21,563 | 19,562 | ||||||||||||
Deferred tax liabilities, net | 17,194 | 17,715 | 18,244 | 17,526 | ||||||||||||
Total non-current liabilities | $ | 249,497 | $ | 203,580 | $ | 236,323 | $ | 241,526 | ||||||||
Total liabilities | $ | 393,476 | $ | 357,771 | $ | 380,237 | $ | 389,155 | ||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 40,781,804 and 40,453,462 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 408 | 405 | ||||||||||||||
Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 40,953,221 and 40,893,396 shares issued as of March 31, 2022, and December 31, 2021, respectively | 410 | 409 | ||||||||||||||
Additional paid-in capital | 290,646 | 288,700 | 292,104 | 291,537 | ||||||||||||
Accumulated deficit | (97,698 | ) | (85,543 | ) | (85,286 | ) | (84,043 | ) | ||||||||
Treasury stock, 672,176 and 412,769 shares as of March 31, 2022, and December 31, 2021, respectively, at cost | (3,183 | ) | (1,912 | ) | ||||||||||||
Accumulated other comprehensive loss | (8,685 | ) | (7,286 | ) | (10,621 | ) | (10,687 | ) | ||||||||
Equity attributable to Startek shareholders | $ | 184,671 | $ | 196,276 | $ | 193,424 | $ | 195,304 | ||||||||
Non-controlling interests | 52,837 | 50,606 | 58,890 | 58,016 | ||||||||||||
Total stockholders’ equity | $ | 237,508 | $ | 246,882 | $ | 252,314 | $ | 253,320 | ||||||||
Total liabilities and stockholders’ equity | $ | 630,984 | $ | 604,653 | $ | 632,551 | $ | 642,475 |
See Notes to Consolidated Financial Statements.
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Operating Activities | ||||||||||||||||
Net loss | (9,855 | ) | (25,981 | ) | ||||||||||||
Net income (loss) | $ | 286 | $ | (9,855 | ) | |||||||||||
Adjustments to reconcile net loss to net cash generated from operating activities: | ||||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 6,803 | 7,093 | 7,588 | 6,803 | ||||||||||||
Impairment of goodwill | 0 | 22,708 | ||||||||||||||
Profit on sale of property, plant and equipment | (53 | ) | 0 | (31 | ) | (53 | ) | |||||||||
Provision for doubtful accounts | 63 | 154 | (66 | ) | 63 | |||||||||||
Amortisation of debt issuance cost | 2,670 | 378 | ||||||||||||||
Amortization of debt issuance costs (including loss on extinguishment of debt) | 146 | 11,241 | ||||||||||||||
Amortisation of call option premium | 360 | 120 | ||||||||||||||
Warrant contra revenue | 425 | 278 | 0 | 425 | ||||||||||||
Share-based compensation expense | 280 | 291 | 428 | 280 | ||||||||||||
Deferred income taxes | 558 | 1,879 | (306 | ) | 558 | |||||||||||
Share of loss of equity-accounted investees | 14 | 8 | 8 | 14 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade accounts receivable | 12,848 | 4,503 | ||||||||||||||
Trade accounts receivables | 21,603 | 12,848 | ||||||||||||||
Prepaid expenses and other assets | (8,844 | ) | (7,658 | ) | (21,398 | ) | (5,964 | ) | ||||||||
Trade accounts payable | (5,447 | ) | (4,722 | ) | ||||||||||||
Trade accounts payables | (3,717 | ) | (5,447 | ) | ||||||||||||
Income taxes, net | 2,727 | (672 | ) | 130 | 2,727 | |||||||||||
Accrued expenses and other current liabilities | 4,908 | 12,287 | ||||||||||||||
Accrued expenses and other liabilities | (4,467 | ) | 4,908 | |||||||||||||
Net cash generated from operating activities | $ | 7,097 | $ | 10,546 | $ | 564 | $ | 18,668 | ||||||||
Investing Activities | ||||||||||||||||
Purchases of property, plant and equipment | (2,922 | ) | (2,884 | ) | ||||||||||||
Purchase of property, plant and equipment | (1,902 | ) | (2,922 | ) | ||||||||||||
Investment in equity-accounted investees | (25,000 | ) | 0 | 0 | (25,000 | ) | ||||||||||
Payments for call option premium | 0 | (3,000 | ) | |||||||||||||
Net cash used in investing activities | $ | (27,922 | ) | $ | (2,884 | ) | $ | (1,902 | ) | $ | (30,922 | ) | ||||
Financing Activities | ||||||||||||||||
Proceeds from the issuance of common stock | 1,244 | 43 | 140 | 1,244 | ||||||||||||
Proceeds from (payments on) long term debt | 44,702 | (4,200 | ) | |||||||||||||
Proceeds from (payments on) other debt, net | (10,609 | ) | 4,578 | |||||||||||||
Net cash generated from financing activities | $ | 35,337 | $ | 421 | ||||||||||||
Proceeds from long term debt (net of debt issuance cost paid to lenders) | 0 | 156,525 | ||||||||||||||
Payments on long term debt | 0 | (117,600 | ) | |||||||||||||
Payments for loan fees related to long term debt | 0 | (2,794 | ) | |||||||||||||
(Payments on) proceeds from other borrowings, net | (643 | ) | (10,609 | ) | ||||||||||||
Common stock repurchase | (1,271 | ) | 0 | |||||||||||||
Net cash generated from/ (used in) financing activities | $ | (1,774 | ) | $ | 26,766 | |||||||||||
Net increase in cash and cash equivalents | $ | 14,512 | $ | 8,083 | ||||||||||||
Net increase (decarese) in cash and cash equivalents | (3,112 | ) | 14,512 | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (425 | ) | (1,052 | ) | (36 | ) | (425 | ) | ||||||||
Cash and cash equivalents and restricted cash at beginning of period | 50,559 | 32,626 | 55,396 | 50,559 | ||||||||||||
Cash and cash equivalents and restricted cash at end of period | $ | 64,646 | $ | 39,657 | $ | 52,248 | $ | 64,646 | ||||||||
Components of cash and cash equivalents and restricted cash | ||||||||||||||||
Balances with banks | 57,665 | 27,795 | ||||||||||||||
Balance with banks | 43,302 | 57,665 | ||||||||||||||
Restricted cash | 6,981 | 11,862 | 8,946 | 6,981 | ||||||||||||
Total cash and cash equivalents and restricted cash | $ | 64,646 | $ | 39,657 | $ | 52,248 | $ | 64,646 | ||||||||
Supplemental disclosure of Cash Flow Information | ||||||||||||||||
Cash paid for Interest and other finance costs | 14,443 | 1,988 | ||||||||||||||
Supplemental disclosure of cash flow information | ||||||||||||||||
Cash paid for interest and other finance costs | 2,131 | 14,443 | ||||||||||||||
Cash paid for income taxes | 1,652 | 963 | 2,170 | 1,652 | ||||||||||||
Supplemental disclosure of non-cash activities | ||||||||||||||||
Non-cash warrant contra revenue | 425 | 278 | 0 | 425 | ||||||||||||
Non-cash share-based compensation expenses | 280 | 291 | 428 | 280 |
See Notes to Consolidated Financial Statements.
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Common Stock | Other Items of OCI | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Additional paid-in | Accumulated | Foreign currency | Change in fair value of | Unrecognised | Equity attributable to Startek | Non-controlling | Total stockholders' | Common Stock | Treasury Stock | Other Items of OCI | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
capital | deficit | translation | derivative instruments | pension cost | shareholders | interest | equity | Shares | Amount | Shares | Amount | Additional paid-in capital | Accumulated deficit | Foreign currency translation | Change in fair value of derivative instruments | Unrecognised pension cost | Equity attributable to Startek shareholders | Non-controlling interest | Total stockholders' equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 40,893,396 | $ | 409 | 412,769 | $ | (1,912 | ) | $ | 291,537 | $ | (84,043 | ) | $ | (6,816 | ) | $ | 0 | $ | (3,871 | ) | $ | 195,304 | $ | 58,016 | $ | 253,320 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 59,825 | 1 | 0 | 0 | 139 | 0 | 0 | 0 | 0 | 140 | 0 | 140 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expenses | - | 0 | - | 0 | 428 | 0 | 0 | 0 | 0 | 428 | 0 | 428 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | - | 0 | - | 0 | 0 | (1,243 | ) | 0 | 0 | 0 | (1,243 | ) | 1,529 | 286 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | 0 | - | 0 | 0 | 0 | 548 | 0 | (482 | ) | 66 | (655 | ) | (589 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | 0 | 0 | 259,407 | (1,271 | ) | 0 | 0 | 0 | 0 | 0 | (1,271 | ) | 0 | (1,271 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 40,953,221 | $ | 410 | 672,176 | $ | (3,183 | ) | $ | 292,104 | $ | (85,286 | ) | $ | (6,268 | ) | $ | 0 | $ | (4,353 | ) | $ | 193,424 | $ | 58,890 | $ | 252,314 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 40,453,462 | $ | 405 | $ | 288,700 | $ | (85,543 | ) | $ | (4,529 | ) | $ | (8 | ) | $ | (2,749 | ) | $ | 196,276 | $ | 50,606 | $ | 246,882 | 40,453,462 | $ | 405 | 0 | $ | 0 | $ | 288,700 | $ | (85,543 | ) | $ | (4,529 | ) | $ | (8 | ) | $ | (2,749 | ) | $ | 196,276 | $ | 50,606 | $ | 246,882 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 328,342 | 3 | 1,241 | 0 | 0 | 0 | 0 | 1,244 | 0 | 1,244 | 328,342 | 3 | 0 | 0 | 1,241 | 0 | 0 | 0 | 0 | 1,244 | 0 | 1,244 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expenses | - | 0 | 280 | 0 | 0 | 0 | 0 | 280 | 0 | 280 | - | 0 | - | 0 | 280 | 0 | 0 | 0 | 0 | 280 | 0 | 280 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrant expenses | - | 0 | 425 | 0 | 0 | 0 | 0 | 425 | 0 | 425 | - | 0 | - | 0 | 425 | 0 | 0 | 0 | 0 | 425 | 0 | 425 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | - | 0 | 0 | (12,155 | ) | 0 | 0 | 0 | (12,155 | ) | 2,300 | (9,855 | ) | - | 0 | - | 0 | 0 | (12,155 | ) | 0 | 0 | 0 | (12,155 | ) | 2,300 | (9,855 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss for the period | - | 0 | 0 | 0 | (1,092 | ) | 8 | (315 | ) | (1,399 | ) | (69 | ) | (1,468 | ) | - | 0 | - | 0 | 0 | 0 | (1,092 | ) | 8 | (315 | ) | (1,399 | ) | (69 | ) | (1,468 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 40,781,804 | $ | 408 | $ | 290,646 | $ | (97,698 | ) | $ | (5,621 | ) | $ | 0 | $ | (3,064 | ) | $ | 184,671 | $ | 52,837 | $ | 237,508 | 40,781,804 | $ | 408 | 0 | $ | 0 | $ | 290,646 | $ | (97,698 | ) | $ | (5,621 | ) | $ | 0 | $ | (3,064 | ) | $ | 184,671 | $ | 52,837 | $ | 237,508 | |||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 38,525,636 | $ | 385 | $ | 276,827 | $ | (46,145 | ) | $ | (4,568 | ) | $ | 475 | $ | (1,929 | ) | $ | 225,045 | $ | 46,739 | $ | 271,784 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transition period adjustment pursuant to ASU 2019-08 | - | 0 | 413 | (413 | ) | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 16,088 | 0 | 43 | 0 | 0 | 0 | 0 | 43 | 0 | 43 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expenses | - | 0 | 291 | 0 | 0 | 0 | 0 | 291 | 0 | 291 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrant expenses | - | 0 | 278 | 0 | 0 | 0 | 0 | 278 | 0 | 278 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | - | 0 | 0 | (26,557 | ) | 0 | 0 | 0 | (26,557 | ) | 576 | (25,981 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss for the period | - | 0 | 0 | 0 | (4,392 | ) | (672 | ) | 233 | (4,831 | ) | 163 | (4,668 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2020 | 38,541,724 | $ | 385 | $ | 277,852 | $ | (73,115 | ) | $ | (8,960 | ) | $ | (197 | ) | $ | (1,696 | ) | $ | 194,269 | $ | 47,478 | $ | 241,747 |
As of March 31, 2022 and December 31, 2021, there were 40,281,045 and 40,480,627 shares outstanding respectively of Common Stock, net off treasury stock.
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 20212022
(In thousands, except share and per share data)
(Unaudited)
1. OVERVIEW AND BASIS OF PREPARATION
Unless otherwise noted in this report, any description of "us," "we," or "our," refers to StarTek,Startek, Inc. and its subsidiaries (the "Company"). Financial information in this report is presented in U.S. dollars.
Business
Startek is a leading global provider of technology-enabled business process management solutions. The Company provides omni-channel customer experience, digital transformation, and technology services to some of the finest brands globally. Startek is committed to impacting clients’ business outcomes by focusing on enhancing customer experience and digital enablement across all touch pointstouchpoints and channels. Startek has more than 42,00043,000 CX experts globally spread across 4638 delivery campuses in 13 countries. The Company services over 220190 clients across various industries such as Banking and Financial Services, Insurance, Technology, Telecom, Healthcare, Travel and Hospitality, Consumer Goods, Retail, and Energy and Utilities.
The Company offers a repository of digital and omnichannel solutions based on decades of experience in driving growth by putting the customer at the center of our business. Because no one solution fits all, we have crafted solution delivery to suit a various industries. Startek has delivery campuses across India, United States, Malaysia, Philippines, Australia, South Africa, Canada, Honduras, Jamaica, Kingdom of Saudi Arabia, Argentina, Peru, and Sri Lanka.
Basis of preparation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US-GAAP"U.S. 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 US-GAAPU.S. GAAP for complete financial statements.
These consolidated 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 yearfull-year results.
The consolidated financial statements reflectinclude the financial resultsaccounts of Startek, Inc and its 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 on consolidation. Where our ownership of a subsidiary was less than 100%, the non-controlling interest is reported in our consolidated balance sheet. The non-controlling interest in our consolidated net income is reported as "Net income (loss) attributable to non-controlling interests" in our consolidated statement of income (loss).
As of December 31, 2021, 31,2020,the consolidated balance sheet included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by US-GAAP.U.S. GAAP. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 20202021.
The figures for the corresponding previous year have been regrouped/reclassified wherever necessary, to make them comparable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, intangibles, impairment of goodwill, valuation allowances for deferred tax assets, leases, and provision for doubtful debts and restructuring costs. Management believes that the estimates used in the preparation of the consolidated financial statements are reasonable, and management has made assumptions about the possible effects of the novel coronavirus (“COVID-19”) pandemic on critical and significant accounting estimates.reasonable. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any changes in estimates are adjusted prospectively in the Company’s consolidated financial statements.
Revenue
The Company utilizes a five-step process given in ASC 606, for revenue recognition that focuses on the transfer of control, rather than the transfer of risks and rewards. It also provided additional guidance on accounting for contract acquisition and fulfillment costs. Refer to Note 4 on "Revenue from Contracts with Customers""Revenue" for further information.
Leases
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 sheet. Finance leases are included in property plant and equipment, long-term debt, accrued expenses, and other current liabilities in our consolidated balance sheet.
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 the 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 to exercise that option. Lease expense is recognized on a straight-line basis over the lease term.
ASC 842 requires an entity to apply the guidance on impairment of long-lived assets in ASC 360 to right-of-use assets. Therefore, right-of-use assets must be monitored for impairment, like other long-lived nonfinancial assets, regardless of whether the lease is an operating lease or a finance lease. When impairment indicators exist, an asset (asset group) should be tested to determine whether there is an impairment.
The Company elected the practical expedient permitted under the transition guidance under Topic 842, which among other matters, allowed the Company (i) not to apply the recognition requirements to short-term leases (leases with a lease term of 12 months or less), (ii) not to reassess whether any expired or existing contracts are or contain leases, (iii) not to reassess the lease classification for any expired or existing leases, and (iv) not to reassess initial direct costs for any existing leasesleases. Refer to Note 13, "Leases" for additional information.
We have lease agreements with lease and non-lease components, which are generally accounted for separately.
Rent discounts and deferment of rent which were received due to COVID-
Business Combinations
The Company accounts for business combinations 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.
Goodwill and Intangible Assets
Goodwill represents the cost of acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased. Goodwill is not amortized but is tested for impairment at least on an annual basis on December 31, based on a number of factors, including operating results, business plans, and future cash flows. The Company performs an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Based on the assessment of events or circumstances, the Company performs a quantitative assessment of goodwill impairment if it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, based on the quantitative impairment analysis, the carrying value of a reporting unit exceeds the fair value of reporting units, an impairment loss is recognized in an amount equal to the excess. In addition, the Company performs a quantitative assessment of goodwill impairment between annual tests if an event occurs or circumstances change that would be more likely than not reduce the fair value of a reporting unit below its carrying amount. Refer to Note 3 for information and related disclosures.
Intangible assets acquired in a business combination were recorded at fair value at the 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. Refer Note 3 on "Goodwill and Intangible assets" for further information.
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 where it operates as required by USU.S. GAAP. Under ASC 830-10-45-12, an economy must be classified as highly inflationary when the cumulative three-year rate exceeds 100%. Considering the inflation data of Argentina, the Company has considered Argentina to be highly inflationary beginning on July 1, 2018. In accordance with ASC 830, the functional currency of the Argentina business has been changed to USD, which requires re-measurement of the local books to USD. Exchange gains and losses are recorded through net income instead of through other comprehensive income as had been done historically. Translation adjustments from periods prior to the change in functional currency were not removed from equity.
Investment in equity-accounted investees
Investment in equity-accountedequity accounted investee is an entity over which the Company has significant influence and which is neither a subsidiary nor a joint arrangement. Significant influence is the power to participate in the investee's financial and operating policy decisions of the investee but is not control or joint control over those policies.
Investment in equity-accounted investee isequity accounted investees are accounted for using equity method of accounting. Under the equity method, the investment in equity-accountedequity accounted investee is initially recognized at cost and adjusted thereafter for the post acquisition changes in the Company’s share of net assets of the equity-accountedequity accounted investees. Goodwill relating to investment in equity-accountedequity accounted investees, if any, is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.
In case of Limited Partnerships Investments, there is a specific SEC staff guidance which is included in ASC 323-30-S99-1 which provides that investments in all limited partnerships should be accounted for pursuant to paragraph 970-323-25-6. That guidance requires the use of the equity method unless the investor's interest "is so minor that the limited partner may have virtually no influence over partnership operating and financial policies."
The consolidated statement of income reflects the Company’s share of the results of operations of the equity-accountedequity accounted investees. When there has been a change recognized directly in the equity of the equity-accountedequity accounted investees, the Company recognizes its share of any changes and discloses this, when applicable, in the statement of stockholders' equity. Unrealized gains and losses resulting from transactions between the Company and the equity- accounted investmentequity accountedinvestment are eliminated to the extent of the interest in the equity-accountedequity accounted investees. The Company’s share of profit/loss of equity-accounted investeesequity accounted investee is shown on the face of the consolidated statement of income/income (loss).
The financial statements of the equity-accounted investeeequity accounted investees are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company. After application of the equity method, the ompanyCompany determines at each reporting date whether there is any objective evidence that the investment in equity-accounted investeesequity accounted investee is impaired, if there has been an other than a temporary decline in carrying value. If this is the case, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in the ‘share'share of profit/profit (loss) of equity-accounted investeesequity accounted investee in the consolidated statement of income (loss)'.
Refer to Note 14, "Investment in Equity-Accounted Investees" for additional information and related disclosures.
Stock-Based Compensation
We recognize expenseexpenses related to all share-based payments to employees, including grants of employee stock options, based on the grant-date fair values amortized straight-line over the period during which the employees are required to provide services in exchange for the equity instruments. We include an estimate of forfeitures when calculating compensation expense.expenses. We use the Black-Scholes method for valuing stock-based awards. See Note 10, “Share-Based Compensation” for further information.
Common Stock Warrant Accounting
We account for common stock warrants as equity instruments, based on the specific terms of our warrant agreement. For more information refer to Note 10, "Share-Based Compensation."
Consolidated Cash Flow Statement
The Company has aligned the cash flow for comparable period for rectifications made in the previous year to presentation of certain transactions arising from the debt re-financing and payment of call option premium.
In Q22021 a correction was made to present the payment of $3 million for call option to acquire a controlling stake in CSS Corp., as a reduction from cash flows from investing activities instead of the earlier presentation where such amount was reduced from cash flows from operating activities in Q12021. Further, in Q42021, a correction was made to present the payment of an amount of $8.5 million paid and expensed in the income statement, as debt issuance cost, as a reduction from cash flows from financing activities and a corresponding increase in cash flows from operating activities.
The effect of both the above reclassifications is an increase in cash flows from operating activities by $11.5 million and a corresponding decline in cash flows from investing activities and in cash flows from financing activities by $3 million and $8.5 million, respectively.
The Company has evaluated and concluded that the above corrections were not qualitatively material on previously filed quarterly consolidated financial statements. The above presentation errors within the consolidated statements of cash flows did not impact net income, comprehensive income, earnings per share, total equity, or the balance sheet and also detailed footnotes giving details related to both transactions have been given in all quarters and in the annual financial statements for the year ended December 31, 2021. Also, these presentation errors did not impact Company’s debt covenants, its net debt position, segment reporting and cash and cash equivalents.
Restructuring Charges
On an ongoing basis, management assesses the profitability and utilization of our facilities and in some cases, management has chosen to close facilities. Severance payments that occur from reductions in the workforce are in accordance with our post-employment policy and/or statutory requirements that are communicated to all employees; therefore, severance liabilities are recognized when termination of employment is communicated to the employee(s). Other liabilities for costs associated with an exit or disposal activity are recognized when the liability is incurred, instead of upon commitment to an exit plan. A significant assumption used in determining the amount of the estimated liability for closing a facility is the estimated liability for future lease payments on vacant facilities. We determine our estimate of sublease payments based on our ability to successfully negotiate early termination agreements with landlords, a third-party broker, or management’s assessment of our ability to sublease the facility based upon the market conditions in which the facility is located. If the assumptions regarding early termination and the timing and amounts of sublease payments prove to be inaccurate, we may be required to record additional losses, or conversely, a future gain. Refer to Note 6, "Impairment Losses and Restructuring/Exit cost" for additional information.
Reserves/Contingencies for Litigation and Other Matters
We are involved in few claims and legal actions, such as wage and hour, wrongful termination, and other employment-related claims, that arise in the ordinary course of business, some of which may be covered by insurance. The outcomes of these actions are not predictable, but we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity, or capital resources. We record an accrual for legal contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss. However, if there is a significant increase in the number of these claims, or if we incur greater liabilities than we currently anticipate under one or more claims, it could materially and adversely affect our business, financial condition, results of operations and cash flows.
Recent Accounting Pronouncements
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) ("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-saleavailable-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, 2022, and interim periods therein for smaller reporting companies. We do not expectare currently evaluating the adoptionimpact of ASU 2016-13 will have a material impactthe new guidance on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional expedients and exceptions to the guidance in USU.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The guidance is effective upon issuance and generally can be applied through December 31, 2022. This amendment shall apply to term loan obtained by the Company which are linked to LIBOR. The Company is still inclosely monitoring the processmarket and the announcements from the bank managing the transition to new benchmark interest rates for its term loan benchmarked to LIBOR. Based on announcements by bank, the transition will take effect. The Company is not expecting any material financial impact of assessingtransition from LIBOR to alternative benchmark rates on its floating rate borrowings linked to LIBOR.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This standard is effective for annual periods beginning after December 15, 2021 and should be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.adopting ASU 2021-10 within its Form 10-K for the fiscal year 2022.
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The carrying value of goodwill is allocated to reporting units as follows:
Reporting Units | March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | ||||||||||||
Americas | 64,315 | 64,315 | 64,315 | 64,315 | ||||||||||||
India | 12,554 | 12,554 | 12,554 | 12,554 | ||||||||||||
Malaysia | 47,543 | 47,543 | 47,543 | 47,543 | ||||||||||||
Saudi Arabia | 54,840 | 54,840 | 54,840 | 54,840 | ||||||||||||
South Africa | 0 | 0 | ||||||||||||||
Argentina | 0 | 0 | ||||||||||||||
Australia | 4,145 | 4,145 | 4,145 | 4,145 | ||||||||||||
Total | $ | 183,397 | $ | 183,397 | $ | 183,397 | $ | 183,397 |
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 Goodwill was allocated to new reporting units using a relative fair value allocation approach. We performed a quantitative assessment to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value.
The assumptions used in the analysis are based on the Company’s internal budget. The Company projectedprojects revenue, operating margins, and cash flows for a period of five years and appliedapplies a perpetual long-term growth rate using discounted cash flows (DCF) method. These assumptions are reviewed annually as part of management’s budgeting and strategic planning cycles. These estimates may differ from actual results. In arriving at its forecasts, the Company considered past experience, economic trends and inflation, and industry and market trends, including the outbreak of COVID-19. The projections also took into account factors such as the expected impact from new client wins and expansion from existing clients businesses and efficiency initiatives, and the maturity of the markets in which each business operates.
As of March 31, 2022 and December 31, 2021, 2021,based on the qualitativemanagement assessment, we concluded that there is no0 impairment of goodwill.
The following table presents the changes in goodwill during the three months ended March 31, 2021 2022and year ended December 31, 2020:2021:
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Opening balance | 183,397 | 219,341 | 183,397 | 183,397 | ||||||||||||
Impairment | 0 | (35,944 | ) | 0 | 0 | |||||||||||
Ending balance | $ | 183,397 | $ | 183,397 | $ | 183,397 | $ | 183,397 |
Intangible Assets
The following table presents our intangible assets:
As of March 31, 2021 | As of March 31, 2022 | |||||||||||||||||||||||||||||||
Gross Intangibles | Accumulated Amortization | Net Intangibles | Weighted Average Amortization Period (years) | Gross Intangibles | Accumulated Amortization | Net Intangibles | Weighted Average Amortization Period (years) | |||||||||||||||||||||||||
Customer relationships | 66,220 | 17,675 | 48,545 | 6.5 | 66,220 | 23,273 | 42,947 | 6.5 | ||||||||||||||||||||||||
Brand | 49,500 | 12,312 | 37,188 | 7.1 | 49,500 | 15,978 | 33,522 | 7.1 | ||||||||||||||||||||||||
Trademarks | 13,210 | 2,375 | 10,835 | 7.5 | 13,210 | 3,256 | 9,954 | 7.5 | ||||||||||||||||||||||||
Other intangibles | 2,130 | 819 | 1,311 | 4.9 | 2,130 | 1,022 | 1,108 | 4.9 | ||||||||||||||||||||||||
$ | 131,060 | $ | 33,181 | $ | 97,879 | $ | 131,060 | $ | 43,529 | $ | 87,531 | |||||||||||||||||||||
As of December 31, 2020 | ||||||||||||||||||||||||||||||||
Gross Intangibles | Accumulated Amortization | Net Intangibles | Weighted Average Amortization Period (years) | |||||||||||||||||||||||||||||
Customer relationships | 66,220 | 16,289 | 49,931 | 6.5 | ||||||||||||||||||||||||||||
Brand | 49,500 | 11,408 | 38,092 | 7.1 | ||||||||||||||||||||||||||||
Trademarks | 13,210 | 2,155 | 11,055 | 7.5 | ||||||||||||||||||||||||||||
Other intangibles | 2,130 | 768 | 1,362 | 4.9 | ||||||||||||||||||||||||||||
$ | 131,060 | $ | 30,621 | $ | 100,440 |
As of December 31, 2021 | ||||||||||||||||
Gross Intangibles | Accumulated Amortization | Net Intangibles | Weighted Average Amortization Period (years) | |||||||||||||
Customer relationships | 66,220 | 21,887 | 44,333 | 6.5 | ||||||||||||
Brand | 49,500 | 15,074 | 34,426 | 7.1 | ||||||||||||
Trademarks | 13,210 | 3,036 | 10,174 | 7.5 | ||||||||||||
Other intangibles | 2,130 | 971 | 1,159 | 4.9 | ||||||||||||
$ | 131,060 | $ | 40,968 | $ | 90,092 |
As of March 31, 2021,2022, based on the qualitative assessment, we concluded there is 0 impairment ofon the Company's intangible assets.
Expected future amortization of intangible as of March 31, 2021 2022is as follows:
Years Ending December 31, | Amount | |||||||
Remainder of 2021 | 7,762 | |||||||
2022 | 10,350 | |||||||
Years ending December 31, | Amount | |||||||
Remainder of 2022 | 7,762 | |||||||
2023 | 10,306 | 10,306 | ||||||
2024 | 10,252 | 10,252 | ||||||
2025 | 10,252 | 10,252 | ||||||
2026 | 9,490 | |||||||
Thereafter | 48,957 | 39,469 |
The Company follows a five-step process in accordance with ASC 606, for revenue recognition that focuses on the transfer of control, rather than the transfer of risks and rewards.
Contracts with Customers
All of the Company's revenues are derived generally from written contracts with our customers. Generally speaking, ourOur contracts document our customers' intentagreement 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 most of our customers is a calendar month, with a few customers specifying a fiscal month. Our payment terms vary by client and generally range from due upon receipt to 60-90 days.
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 obligation 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.
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.
Revenue Recognition Methods
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.
We are generally entitled to invoice for our services on a monthly basis. We invoice according to the hourly and/or per transactionper-transaction rates stated in each 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 the 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 this method consistently. The bonus or penalty calculated is generally approved by the client prior to billing (and revenue being recognized). The unbilled revenue, where the right to invoice has not accrued is recognized based on service delivery estimate.
Practical expedients and exemptions
Because the Company’s contracts are essentially month-to-month, we have elected the following practical expedients:
• | ASC 606-10-50-14 exempts companies from the 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, |
• | 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 in the amount to which the entity has a right to invoice. |
Disaggregated Revenue
Revenues by our clients' industry verticals for the three months ended March 31, 2021 2022and 20202021 respectively:
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
Vertical: | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Telecom | 51,674 | 55,697 | 56,051 | 51,674 | ||||||||||||
E-commerce & Consumer | 26,102 | 25,958 | 20,526 | 26,102 | ||||||||||||
Media & Cable | 25,794 | 23,194 | 16,942 | 25,794 | ||||||||||||
Healthcare & Education | 17,687 | 13,448 | ||||||||||||||
Financial & Business Services | 15,450 | 13,439 | 16,695 | 15,450 | ||||||||||||
Travel & Hospitality | 10,497 | 15,803 | 13,515 | 10,497 | ||||||||||||
Healthcare & Education | 11,463 | 17,687 | ||||||||||||||
Technology, IT & Related Services | 5,081 | 5,050 | 5,345 | 5,081 | ||||||||||||
All other segments | 11,210 | 8,588 | ||||||||||||||
Gross Revenue | 163,495 | 161,177 | ||||||||||||||
Less: Warrant Contra Revenue | (425 | ) | (278 | ) | ||||||||||||
Net Revenue | $ | 163,070 | $ | 160,899 | ||||||||||||
Other verticals | 26,780 | 11,210 | ||||||||||||||
Gross revenue | 167,317 | 163,495 | ||||||||||||||
Less: Warrant contra revenue | 0 | (425 | ) | |||||||||||||
Net revenue | $ | 167,317 | $ | 163,070 |
5. NET GAININCOME / (LOSS) PER SHARE
Basic earnings per common share isare computed based on our weighted average number of common shares outstanding. Diluted earnings per share isare 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.
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.
For three months ended March 31, 2021 2022and 2020,2021, the following number of shares were used in the computation of basic/basic and diluted earnings per share calculation (in thousands):
Three months ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Shares used in basic earnings per share calculation: | 40,592 | 38,528 | ||||||||||||||
Shares used in basic earnings per share calculation | 40,338 | 40,592 | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options | 0 | 0 | 0 | 0 | ||||||||||||
Restricted stock/Deferred stock units | 0 | 0 | 0 | 0 | ||||||||||||
Total effects of dilutive securities | 0 | 0 | 0 | 0 | ||||||||||||
Shares used in dilutive earnings per share calculation: | 40,592 | 38,528 | ||||||||||||||
Shares used in dilutive earnings per share calculation | 40,338 | 40,592 |
The Company always maintained Startek's 2008 Equity Incentive Plan (see Note 10, "Share-based compensation and employee benefit plans"compensation" for more information).
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Anti-dilutive securities: | ||||||||||||||||
Stock options | 2,099 | 2,316 | 3,030 | 2,099 |
6. IMPAIRMENT LOSSES & RESTRUCTURING/EXIT COST
Impairment Loss
As of March 31, 2021,2022, based on the qualitativemanagement assessment, we concluded there is 0 impairment of goodwill.
Restructuring / Exit Cost
The table below summarizes the balance of accrued restructuring cost, voluntary/involuntary termination costs, and other acquisition relatedexit-related costs, which are included in other accrued liabilities in our consolidated balance sheet. The changes during the three months ended March 31, 2021 2022and the year ended December 31, 202131,2020..
Employee related | Facilities related | Total | ||||||||||
Balance as of December 31, 2021 | 480 | 155 | 635 | |||||||||
Accruals/(reversals) | 1,232 | 175 | 1,407 | |||||||||
Payments | (1,160 | ) | (266 | ) | (1,426 | ) | ||||||
Balance as of March 31, 2022 | $ | 552 | $ | 64 | $ | 616 |
Employee related | Facilities related | Total | Employee related | Facilities related | Total | |||||||||||||||||||
Balance as of December 31, 2020 | $ | 0 | $ | 25 | $ | 25 | ||||||||||||||||||
Balance at December 31, 2020 | 0 | 25 | 25 | |||||||||||||||||||||
Accruals/(reversals) | 1,870 | 28 | 1,898 | 3,519 | 193 | 3,712 | ||||||||||||||||||
Payments | (670 | ) | (53 | ) | (723 | ) | (3,039 | ) | (63 | ) | (3,102 | ) | ||||||||||||
Balance as of March 31, 2021 | $ | 1,200 | $ | 0 | $ | 1,200 | ||||||||||||||||||
Employee related | Facilities related | Total | ||||||||||||||||||||||
Balance at December 31, 2019 | $ | 1,326 | $ | 514 | $ | 1,840 | ||||||||||||||||||
Accruals/(reversals) | 1,499 | 356 | 1,855 | |||||||||||||||||||||
Payments | (2,825 | ) | (845 | ) | (3,670 | ) | ||||||||||||||||||
Balance at December 31, 2020 | $ | 0 | $ | 25 | $ | 25 | ||||||||||||||||||
Balance at December 31, 2021 | $ | 480 | $ | 155 | $ | 635 |
Employee related
In 2021,2022, the Company has closed onefew of its facilities in Canada,Argentina, where we have terminated service of number of employees. We have also offered a voluntary retirement plan to certain employees in one other geography. We have recognized a provision for employee-related costs regarding the above voluntary / involuntary termination. We expect to pay the remaining termination costs of $1,200$552 by the end of the fourth quarter of 2022.
Facility related
In 2022, the Company has recognized provision for the remaining costs associated with the lease that has been surrendered in Argentina. We expect to pay the remaining termination costs of $64 by the end of the second quarter of 2021.2022.
Cash flow hedges
Our locations in Canada and the Philippines primarily serve US-based clients. The revenues from these clients are billed and collected in US Dollars, but the expenses related to these revenues are paid in Canadian Dollars and Philippine Pesos. We enterhad entered 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 covercovered periods commensurate with expected exposure, generally three to twelve months. We havehad elected to designate our derivatives as cash flow hedges to associate the hedges' results with forecasted expenses.
The Company had terminated all cash flow hedges contracts early in April, 2020 due to a change in counterparty relationship, hence balance as onAs of March 31,31,2022 and 2021, is nil.there were no derivative contract in effect.
Gain (Loss) Recognized in AOCI, net of tax | Gain (Loss) Recognized in AOCI, net of tax | Gain (loss) reclassified from AOCI into Income | Gain (loss) reclassified from AOCI into Income | |||||||||||||
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
Cash flow hedges: | ||||||||||||||||
Foreign exchange contracts | $ | 0 | $ | 0 | $ | 0 | $ | 8 |
Gain (Loss) Recognized in AOCI, net of tax | Gain (Loss) Recognized in AOCI, net of tax | Gain/ (Loss) Reclassified from AOCI into Income | Gain/ (Loss) Reclassified from AOCI into Income | |||||||||||||
Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | |||||||||||||
Cash flow hedges: | ||||||||||||||||
Foreign exchange contracts | 0 | (860 | ) | 8 | 188 |
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,Derivatives and Hedging. These contracts generally do not exceed 3 years in duration.
Unrealized gains and losses and changes in fair value of these derivatives are recognized as incurred in Exchange gains (losses), net in the consolidated statement of income (loss). The following table presents these amounts for the three months ended March 31, 2021 and 2020:
Derivatives not designated under ASC 815 | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2020 | ||||||
Foreign currency forward contracts | $ | 0 | $ | 1,771 | ||||
Interest rate swap | $ | 0 | $ | (340 | ) |
The Company had terminated all derivative (non-designated hedge) contracts in November, 2020 and realized and accounted for gain and loss on settlement of contracts in consolidated statement of income (loss).
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 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 use significant assumptions. These unobservable inputs reflect our own estimates of assumptions that market participants would use in pricing the asset or liability:
Derivative Instruments
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.
As onof March 31, 2022 and December 31,2021,31, the Company has settled all derivative contracts, hence2021, there arewere no derivative assets and liabilities.
The below table presents details of the Company's debt:
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Short term debt | ||||||||||||||||
Working capital facilities | 5,230 | 15,506 | 3,535 | 3,611 | ||||||||||||
Current portion of long term debt | ||||||||||||||||
Current maturity of long term loan | 0 | 0 | 8,250 | 4,125 | ||||||||||||
Current maturity of equipment loan | 1,889 | 1,664 | 1,667 | 1,682 | ||||||||||||
Current maturity of finance lease obligations | 523 | 516 | 299 | 434 | ||||||||||||
Total | $ | 7,642 | $ | 17,686 | $ | 13,751 | 9,852 | |||||||||
Long term debt | ||||||||||||||||
Term loan, net of debt issuance costs | 162,302 | 114,930 | 154,564 | $ | 158,543 | |||||||||||
Equipment loan | 2,521 | 2,955 | 1,207 | 1,632 | ||||||||||||
Finance lease obligations | 293 | 430 | ||||||||||||||
Total | $ | 165,116 | $ | 118,315 | $ | 155,771 | $ | 160,175 |
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 $30 million for a number of working capital products. These facilities bear interest at benchmark rate plus margins between 3.0% and 4.5% and are due on demand. These facilities are collateralized by various Company assets and have a total outstanding balance of $5.2$3.5 million as of March 31, 2021.2022.
Term loan
On February 18, 2021, the Company completed a debt refinancing with a newly secured $185 million senior debt facility, comprising a $165 million term loan and a $20 million revolving credit facility. Under the new senior debt, borrowings will bear a tiered interest rate based on the Company’s consolidated net leverage ratio and is initially set at LIBOR plus 450 basis points.
The term loan facility amortizes 2.5% on the date that is 21, and 24 months from closing, 3.75% on the date that is 27, 30, 33, and 36 months from closing, 5.0% on the date that is 39, 42, 45, 48 and 51 months from closing, 10% on the date that is 54 months from closing and 15% on the date that is 57 months from closing and balance will be paid on the closure of term loan.
On February 22, 2021, the Company used proceeds from the above facilities agreement to prepay and terminate the existing credit facility made available to it under that certain Amended and Restated Senior Term and Revolving Facilities Agreement, dated October 27, 2017.
Principal payments due on the term loan are as follows:
Years | Amount | Amount | ||||||
Remainder of 2021 | 0 | |||||||
2022 | 4,125 | |||||||
Remainder of 2022 | 4,125 | |||||||
2023 | 22,688 | 22,688 | ||||||
2024 | 30,938 | 30,937 | ||||||
2025 | 57,750 | 57,750 | ||||||
2026 | 49,500 | 49,500 | ||||||
Total | $ | 165,000 | $ | 165,000 |
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.
TheIn 2021, the Company incurred a debt issuance costs of $11.3 million in connection with the new term loan. As per ASC 470, accounting guidance on term loan extinguishment, the Company has expensed off the debt issuance cost of $8.5 million paid to the lenders towards the new term loan and $2.5 million remaining unamortisedunamortized debt issuance cost of the old term loan in interest expenses,expense, net in the consolidated statementsstatement of income (loss).
In connection with Debt issuance costs paid to the Company’s counsel and other third parties of $2.8 million is being amortized over the period of the new term loan, theloan. The balance unamortized debt issuanceportion of such costs as of March 31, 20212022, amountamounted to $2.7$2.2 million paid to third parties are netwhich has been netted off against long termlong-term debt on the consolidated balance sheet.
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 March 31, 2022, the Company was in compliance with all financial covenants.
Following table presents the changes in debt issuance cost during the three months ended March 31, 2021 2022and the year ended December 31, 2020:2022:
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Opening balance | $ | 2,670 | $ | 4,125 | 2,332 | 2,670 | ||||||||||
Add: Debt issuance cost (refinancing of term loan) | 11,269 | 0 | 0 | 11,269 | ||||||||||||
Less: Expensed out (ASC 470 - extinguishment or modification) | (10,937 | ) | 0 | - | (10,937 | ) | ||||||||||
Less: Amortisation of debt issuance cost | (304 | ) | (1,455 | ) | ||||||||||||
Less: Amortization of debt issuance cost | (146 | ) | (670 | ) | ||||||||||||
Closing balance | $ | 2,698 | $ | 2,670 | 2,186 | 2,332 |
Non-recourse factoring
We have entered into factoring agreements with financial institutions to sell certain of our accounts receivable under non-recourse agreements. Under the arrangement, the Company sells the trade receivables on a non-recourse basis and accounts for the transactions as sales of receivables. The applicable receivables are removed from the Company's consolidated balance sheet when the Company receives the cash proceeds. We do not service any factored accounts after the factoring has occurred. We utilize factoring arrangements as part of our financing formanagement of working capital. The balance of funds received from factored receivables under these agreements was $26.4$17.8 million and $21.6 million as of March 31, 2021.2022 and December 31, 2021, respectively.
BMO Equipment Loan
On December 27, 2018, the Company executed an agreement to secure a loan against US and Canadian assets for $2.06 million at the interest of 7.57% per annum, to be repaid over 2.5 years. The loan was funded in January 2019. The amount outstanding as atof March 31, 2022 31,2021is $0.4$0.025 million.
Equipment Loan
On November 02,2, 2020, the Company executed Master Equipment Finance Agreement to finance the purchase of equipment for $4 million at the interest of 5.27% per annum with a maturity date 34 months after the date of first utilization of equipment loan. AmortizationThe amount outstanding as of the equipment loan starts from a date falling in April 2021March 31, 2022 i.e. 4 months from the first utilization of the loan.is $2.8 million.
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.
Amazon Warrant
On January 23, 2018, Startek entered into the Amazon Transaction Agreement, pursuant to which we agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly ownedwholly-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. On May 17, 2019, the Company issued and sold 692,520 shares of Common Stock to certain investors at a price per share of $7.48. The Warrant contains certain anti-dilution provisions and as a result of such offering, the total number of shares issuable to Amazon was adjusted from 4,000,000 to 4,002,964 and the exercise price of the Warrant was adjusted from $9.96 per share to $9.95 per share. On June 29, 2020, the Company issued and sold 1,540,041 shares of Common Stock to CSP Victory Limited at a price per share of $4.87 per share. As a result of such transaction, the total number of shares issuable to Amazon has been adjusted from 4,002,964 to 4,006,051 and the exercise price of the Warrant was adjusted from $9.95 per share to $9.94 per share. 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 a service contract. Since no vesting event occurred in the commercial arrangements.
Thefiscal year first2021 tranche of 425,532 Warrant Shares vested uponand we do not anticipate additional vesting in the execution ofnear future, 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 orCompany had not accrued 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 Warrant Shares are exercisable through January 23, 2026.
The second tranche of 212,766 Warrant Shares vested on May 31, 2019. The amount of contra revenue attributed to these Warrant Shares is $730.
The third tranche of 212,953 Warrant Shares vested on Feb 29,2020. The amount of contra revenue attributed to these Warrant Shares is $278 after adjusting the impact of $413 towards adoption of ASU 2019-08 on January 01, 2020 and $565 towards accrual till December 31, 2019, respectively using initial grant-date fair value.
The fourth tranche of 213,162 Warrant Shares vested on Dec 31, 2020. The amount of contra revenue attributed to these Warrant Shares is $1,257 using initial grant-date fair value.
Asas per ASC 606,606. the Company has accrued $ 425 till March 31, 2021 using initial grant-date fair value.
The contra-revenue and equity are estimated and recorded, using the Monte Carlo pricing model, when performance completion is probable, with adjustments in each reporting period until performance is complete in conformance with ASC 606 and ASC 718 requirements.
The Warrant provides for net share settlement that will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price if elected by the holders. 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.
Share-based compensation
Our share-based compensation arrangements include grants of stock options, restricted stock units and deferred stock units under the StarTek,Startek, Inc. 2008 Equity Incentive Plan and our Employee Stock Purchase Plan. The compensation expense that has been charged against income for the three months ended March 31, 20212022, was $280$428 and is included in selling, general and administrative expense. As of March 31, 2021,2022, there was $1,451$3,590 of total unrecognized compensation expense related to non-vested stock options, which is expected to be recognized over a weighted-average period of 2.172.5 years.
11. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists 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, 2020 | $ | (4,529 | ) | $ | (8 | ) | $ | (2,749 | ) | $ | (7,286 | ) | $ | (3,071 | ) | $ | (10,357 | ) | ||||||
Foreign currency translation | (1,092 | ) | 0 | 0 | (1,092 | ) | 0 | (1,092 | ) | |||||||||||||||
Reclassification to operations | 0 | 8 | 0 | 8 | 0 | 8 | ||||||||||||||||||
Unrealized losses | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Pension remeasurement | 0 | 0 | (315 | ) | (315 | ) | (69 | ) | (384 | ) | ||||||||||||||
Balance at March 31, 2021 | $ | (5,621 | ) | $ | 0 | $ | (3,064 | ) | $ | (8,685 | ) | $ | (3,140 | ) | $ | (11,825 | ) |
Foreign Currency Translation Adjustment | Defined Benefit Plan | Equity attributable to Startek shareholders | Non-controlling interests | Total | ||||||||||||||||
Balance at December 31, 2021 | (6,816 | ) | (3,871 | ) | (10,687 | ) | (3,887 | ) | (14,574 | ) | ||||||||||
Foreign currency translation | 548 | 0 | 548 | 0 | 548 | |||||||||||||||
Reclassification to operations | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Pension remeasurement | 0 | (482 | ) | (482 | ) | (655 | ) | (1,137 | ) | |||||||||||
Balance at March 31, 2022 | $ | (6,268 | ) | $ | (4,353 | ) | $ | (10,621 | ) | $ | (4,542 | ) | $ | (15,163 | ) |
The Company provides business process outsourcing services (“BPO”) to clients in various industries 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 Global Chief Executive Officer (CEO), who has been identified as the Chief Operating Decision Maker ("CODM"), reviews financial information mainly on a geographical basis.
Our operating business model is focused on the geographies in which we operate. Our CODM reviews the performance and makes resource allocation geography wise,geography-wise, hence the geographical level represents the operating segments of Startek Inc.
We report our results of operations in Six6 reportable segments, as follows:
a) Americas
b) India and Sri Lanka
c) Malaysia
d) Middle East
e) Argentina & Peru
f) Rest of World
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Revenue: | ||||||||||||||||
Americas | 63,925 | 68,168 | 45,415 | 63,925 | ||||||||||||
India & Sri Lanka | 21,482 | 24,252 | 27,961 | 21,482 | ||||||||||||
Malaysia | 14,965 | 11,885 | 11,280 | 14,965 | ||||||||||||
Middle East | 43,240 | 34,517 | 58,687 | 43,240 | ||||||||||||
Argentina & Peru | 8,159 | 10,208 | 8,305 | 8,159 | ||||||||||||
Rest of World | 11,299 | 11,869 | 15,669 | 11,299 | ||||||||||||
Total | $ | 163,070 | $ | 160,899 | $ | 167,317 | $ | 163,070 |
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Operating income (loss): | ||||||||||||||||
Americas | 1,895 | 926 | (2,319 | ) | 1,895 | |||||||||||
India & Sri Lanka | (1,228 | ) | (695 | ) | 3,467 | (1,228 | ) | |||||||||
Malaysia | 4,414 | 1,635 | 2,026 | 4,414 | ||||||||||||
Middle East | 5,741 | 1,617 | 4,300 | 5,741 | ||||||||||||
Argentina & Peru | (43 | ) | 16 | (2,320 | ) | (43 | ) | |||||||||
Rest of World | 399 | 272 | 1,676 | 399 | ||||||||||||
Segment operating income | $ | 11,178 | $ | 3,771 | 6,830 | 11,178 | ||||||||||
Startek consolidation adjustments | ||||||||||||||||
Goodwill impairment | 0 | 22,708 | ||||||||||||||
Private offer transaction cost | (500 | ) | 0 | |||||||||||||
Intangible amortization | 2,560 | 2,582 | (2,561 | ) | (2,560 | ) | ||||||||||
Total operating income | $ | 8,618 | $ | (21,519 | ) | $ | 3,769 | $ | 8,618 |
A single client accounted for 19%18% and 17%19% of the consolidated total net revenue during the three months ended March 31, 20212022 and 2020,2021, respectively.
Property, plant and equipment, net by geography based on the location of the assets isare presented below:
As on | As on | As of | As of | |||||||||||||
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Property, plant and equipment, net: | ||||||||||||||||
Americas | 14,111 | 14,455 | 10,275 | 11,335 | ||||||||||||
India & Sri Lanka | 8,669 | 8,069 | 9,132 | 8,712 | ||||||||||||
Malaysia | 3,441 | 3,749 | 2,799 | 2,818 | ||||||||||||
Middle East | 5,195 | 4,736 | 6,246 | 7,461 | ||||||||||||
Argentina & Peru | 1,133 | 1,257 | 1,292 | 1,453 | ||||||||||||
Rest of World | 1,804 | 1,959 | 2,588 | 2,389 | ||||||||||||
Total | $ | 34,353 | $ | 34,225 | $ | 32,332 | $ | 34,168 |
We have operating and finance leases for service centers, corporate offices, and certain equipments.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:
Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
Operating lease cost | 6,809 | 7,259 | $ | 5,863 | $ | 6,809 | ||||||||||
Finance lease cost: | ||||||||||||||||
Amortization of right-of-use assets | 185 | 327 | 143 | 185 | ||||||||||||
Interest on lease liabilities | 17 | 43 | 60 | 17 | ||||||||||||
Total Finance lease cost | $ | 202 | $ | 370 | ||||||||||||
Total finance lease cost | $ | 203 | $ | 202 |
Supplemental cash flow information related to leases was as follows:
Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
Operating cash flows from operating leases | 6,782 | 7,183 | 5,979 | 6,782 | ||||||||||||
Operating cash flow from finance leases | 17 | 43 | 60 | 17 | ||||||||||||
Financing cash flows from finance leases | 203 | 116 | 135 | 203 | ||||||||||||
Right-of-use assets obtained in exchange for lease obligations: | ||||||||||||||||
Operating leases | 2,003 | 13,558 | 1,491 | 2,003 | ||||||||||||
Finance leases | 0 | 0 | 0 | 0 |
Supplemental balance sheet information related to leases was as follows:
As of March 31, 2021 | As of December 31, 2020 | As of March 31, 2022 | As of December 31, 2021 | |||||||||||||
Operating leases | ||||||||||||||||
Operating lease right-of-use assets | $ | 65,396 | $ | 69,376 | $ | 59,299 | $ | 63,012 | ||||||||
Operating lease liabilities - Current | 18,724 | 19,327 | 24,052 | 24,393 | ||||||||||||
Operating lease liabilities - Non-current | 48,697 | 52,052 | 40,745 | 44,263 | ||||||||||||
Total operating lease liabilities | $ | 67,421 | $ | 71,379 | $ | 64,797 | $ | 68,656 | ||||||||
Finance Leases | ||||||||||||||||
Property and equipment, at cost | 4,351 | 4,351 | 4,124 | 4,128 | ||||||||||||
Accumulated depreciation | (3,208 | ) | (3,010 | ) | (3,725 | ) | (3,641 | ) | ||||||||
Property and equipment, at net | $ | 1,143 | $ | 1,341 | $ | 399 | $ | 487 | ||||||||
Finance lease liabilities - Current | 523 | 516 | 299 | 434 | ||||||||||||
Finance lease liabilities - Non-current | 293 | 430 | 0 | 0 | ||||||||||||
Total finance lease liabilities | $ | 816 | $ | 946 | $ | 299 | $ | 434 |
Weighted average remaining lease term | As of March 31, 2021 | As of December 31, 2020 | As of March 31, 2022 | As of December 31, 2021 | ||||||||||||
Operating leases (in years) | 4.00 yrs | 4.18 yrs | 3.42 years | 3.58 years | ||||||||||||
Finance leases (in years) | 0.67 yrs | 0.92 yrs | 0.00 years | 0.00 years | ||||||||||||
Weighted average discount rate | ||||||||||||||||
Operating leases | 6.87 | % | 6.90 | % | 6.9 | % | 6.8 | % | ||||||||
Finance leases | 6.01 | % | 6.00 | % | 0.0 | % | 0.0 | % |
MaturitiesThe following table reconciles the undiscounted cash flows for the Company’s finance and operating leases as ofMarch 31, 2022, to the finance and operating lease liabilities were as follows:recorded on the Company’s balance sheet:
Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||
Year ending December 31, | ||||||||||||||||
Remainder of 2021 | 22,556 | 428 | ||||||||||||||
2022 | 16,902 | 442 | ||||||||||||||
Remainder of 2022 | 19,266 | 304 | ||||||||||||||
2023 | 13,117 | 0 | 21,390 | 0 | ||||||||||||
2024 | 10,922 | 0 | 17,274 | 0 | ||||||||||||
2025 | 4,837 | 0 | 9,546 | 0 | ||||||||||||
2026 | 2,846 | 0 | ||||||||||||||
Thereafter | 2,853 | 0 | 2,101 | 0 | ||||||||||||
Total Lease payments | $ | 71,187 | $ | 870 | ||||||||||||
Total lease payments | 72,423 | 304 | ||||||||||||||
Less imputed interest | (3,766 | ) | (54 | ) | (7,626 | ) | (5 | ) | ||||||||
Total | $ | 67,421 | $ | 816 | $ | 64,797 | $ | 299 |
14. INVESTMENT IN EQUITY-ACCOUNTED INVESTEES
Following are the entity wise details of equity-accounted investees:
% of ownership interest | Carrying amount | |||||||||||||||||||||||||||||||
Name of entity | % of ownership interest | Carrying amount | March 31, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||
March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||
a) CSS Corp LP | 62.50 | % | 0.00 | % | 24,988 | 0 | 61.35 | % | 61.35 | % | 31,680 | 31,688 | ||||||||||||||||||||
b) Immaterial associates | 108 | 111 | - | 0 | ||||||||||||||||||||||||||||
Carrying amount of investment in equity-accounted investees | $ | 25,096 | $ | 111 | 31,680 | 31,688 | ||||||||||||||||||||||||||
March 31, 2021 | March 31, 2020 | |||||||||||||||||||||||||||||||
Aggregate amounts of the group’s share of loss of equity-accounted investees (a+b) | $ | (14 | ) | $ | (8 | ) |
Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||
Aggregate amounts of the group’s share of profit/ (loss) of equity-accounted investees | (8 | ) | (14 | ) |
a) CSS Corp LP
On February 25, 2021, the Company announced a $25 million strategic minority investment in CSS Corp. (“CSS”), a new-age IT services and technology support solutions company that harnesses the power of AI, automation, analytics, cloud, and digital to address customer needs. Through this investment, Startek acquired an indirect beneficial interest in CSS of approximately 26%, with Capital Square Partners (“CSP” or “CSP Fund”), a Singapore basedSingapore-based Private Equity Fund Manager, and the Company’s majority shareholder, acquiring the majority controlling stake.
The Company and CSP Alpha Holdings Pte. Ltd., a subsidiary of the Company, participated in this transaction by (i) contributing $25 million to acquire approximately 62.5%* in CSS Corp LP, and (ii) paying $5 million to CSP Management Limited to acquire certain call options. These call options to acquire a controlling stake in CSS are only exercisable by the Company during the period from August 19, 2022, to April 19, 2023, without any obligation and are currently considered to be not substantive.
*Subsequently reduced to 61.35%
The Company has assessed CSS Corp LP to be a variable interest entity (‘VIE’) and per ASC 810-10-25-44 concluded that it is not the primary beneficiary. Amongst other factors, the Company’s basis of this conclusion is that it lacks the power to direct or control any significant activities of the VIE and that the design and structure of the VIE waswere not specifically for the benefit of the Company. Further, CSS Corp LP’s objectives as an investment company is an extension of the investment activities of CSP Fund. The Company has accordingly, accounted for this transaction under the equity-accounted investee method of accounting in accordance with ASC 323-30-S999S99-1. The Company's share of profit/loss of equity-accounted investee is accounted under the “equity method” as per which the share of profit/(loss) of equity-accounted investee has been added to the cost.
Summarized financial position | As of March 31, 2021 | As of December 31, 2020 | |||||||||||
Summarised financial position | |||||||||||||
March 31, 2022 | December 31, 2021 | ||||||||||||
Current assets | 5 | 0 | 42 | 42 | |||||||||
Non-current assets | 40,000 | 0 | 51,690 | 51,690 | |||||||||
Current and non-current liabilities | (25 | ) | 0 | (93) | (80) | ||||||||
Net assets | $ | 39,980 | $ | 0 | 51,639 | 51,652 | |||||||
Reconciliation to carrying amounts | As of March 31, 2021 | As of December 31, 2020 | |||||||||||
Opening net assets | 0 | 0 | |||||||||||
Acquired during the year | 40,000 | 0 | |||||||||||
Share of loss of equity-accounted investee | (20 | ) | 0 | ||||||||||
Other comprehensive income | 0 | 0 | |||||||||||
Closing net assets | $ | 39,980 | $ | 0 | |||||||||
Company share in % | 62.50 | % | 0.00 | % | 61.35% | 61.35% | |||||||
Company share | 24,988 | 0 | 31,680 | 31,688 | |||||||||
Carrying amount of investment in equity-accounted investee | $ | 24,988 | $ | 0 | 31,680 | 31,688 | |||||||
Reconciliation to carrying amounts | |||||||||||||
March 31, 2022 | December 31, 2021 | ||||||||||||
Opening net assets | 31,688 | - | |||||||||||
Acquired during the year | - | 25,000 | |||||||||||
Share of profit (loss) of equity-accounted investees | (8) | 6,688 | |||||||||||
Other comprehensive income | - | - | |||||||||||
31,680 | 31,688 | ||||||||||||
Summarized statement of comprehensive income | March 31, 2021 | March 31, 2020 | Summarized statement of comprehensive income | ||||||||||
Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||||
Revenue | 0 | 0 | - | - | |||||||||
Other income | - | - | |||||||||||
Expenses | (20 | ) | 0 | (13) | (20) | ||||||||
Loss for the period | (20 | ) | 0 | ||||||||||
Other comprehensive income for the period | 0 | 0 | |||||||||||
Total comprehensive loss for the period | $ | (20 | ) | $ | 0 | ||||||||
Net income | (13) | (20) | |||||||||||
Other comprehensive income | - | - | |||||||||||
Total comprehensive income for the period | (13) | (20) | |||||||||||
Aggregate amounts of the Company share of loss of equity-accounted investee | $ | (12 | ) | $ | 0 | Aggregate amounts of the Company share of loss of equity-accounted investee | (8) | (12) |
b) Individually immaterial associates
The Company hashad individually immaterial investments in equity accountedequity-accounted investee in Australia. It has 33.33% interest in Queensland Partnership Group Pty. Ltd and 16.67% interest in Services Queensland Partnership in Australia. The Company's share of profit/loss of equity accountedequity-accounted investee, is accounted under the “equity method” as per which the share of profit of equity accountedequity-accounted investee hashad been added to the cost. In 2021 the Company had realized carrying amounts related to investment in individually immaterial associates.
March 31, 2021 | March 31, 2020 | |||||||
Carrying amount of individually immaterial investment in equity-accounted investee | 108 | 111 | ||||||
Aggregate amounts of individually immaterial share of: | ||||||||
Loss of equity-accounted investee | (2 | ) | (8 | ) | ||||
Other comprehensive income for the period | 0 | 0 | ||||||
Aggregate amounts of the Company share of loss of equity-accounted investee | $ | (2 | ) | $ | (8 | ) |
March 31, 2022 | December 31, 2021 | |||||||
Carrying amount of individually immaterial investment in equity-accounted investee | 0 | 0 |
Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||
Aggregate amounts of share of: | ||||||||
Loss of equity-accounted investee | 0 | (2 | ) | |||||
Other comprehensive income | 0 | 0 | ||||||
0 | (2 | ) |
Share Repurchase Plan
In the year 2004, the Company had announced the “Repurchase plan” that authorized the Company to repurchase up-to $ 25 million of common stock. The program will remain in effect until the same is terminated by the Board of Director’s and will allow the Company to repurchase common stock from time to time on the open market either via block trades or privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs or other means at times and in such amounts as management deems appropriate and will be funded from our working capital or other financing alternatives. Repurchases will be implemented by the Chief Financial Officer consistent with the guidelines adopted by the board of directors and will depend on market conditions and other factors. Pursuant to the Board of Directors (BOD) meeting held on August 26, 2021, the Board of Director’s approved the Company to carry out a stock repurchase in line with 2004 “Repurchase plan’ up-to $ 2 million. Further in board meeting held on December 14, 2021 the Board of Director’s approved additional $2 million towards a stock repurchase plan.
Our stock repurchase programs are intended to programmatically offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, to make opportunistic and programmatic repurchases of our common stock to reduce our outstanding share count. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. Our stock repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, the shares withheld for taxes associated with the vesting of restricted stock, other corporate considerations and CFO’s determination as to the appropriate use of our cash.
During the three months ended March 31, 2022, we repurchased an aggregate of 259,407 shares of our common stock under our repurchase plan at an average cost of $4.88 per share.
Stock repurchase activity during the three months ended March 31, 2022 was as follows:
Period Ended | Total number of shares purchased | Average price paid per share (1) | Total number of shares purchased as part of publicly announced program | Maximum dollar value that may yet to be purchased under program |
January 31, 2022 | 130,803 | 5.08 | 130,803 | 1,432,822 |
February 28, 2022 | 75,865 | 4.90 | 75,865 | 1,061,426 |
March 31, 2022 | 52,739 | 4.36 | 52,739 | 831,229 |
Total | 259,407 | 259,407 |
1. Excludes broker commission.
16. PRIVATE OFFER TRANSACTION COST
On January 17, 2022, the Company announced that the board of directors has formed a special committee of independent directors that is authorized, among other things, to evaluate the non-binding proposal, dated December 20, 2021, by CSP Management Limited (“CSP”) to acquire all outstanding shares of common stock of Startek that it does not already beneficially own for $5.40 in cash per share. The special committee has engaged legal and financial advisors to assist in its consideration of the proposal. CSP is currently the beneficial owner of approximately 56% of the outstanding common stock of Startek. The special committee has appointed Foros Securities LLC as a financial advisor in connection with private offer and the Company incurred total expenses of $500 during the quarter ended March 31, 2022 which is included in selling, general and administrative expenses.
None.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and financial condition should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 20202021 and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. All dollar amounts are presented in thousands other than per share data.
BUSINESS DESCRIPTION AND OVERVIEW
Startek is a leading global provider of technology-enabled business process management solutions. The Company provides omni-channelOmni-channel customer experience, digital transformation, and technology services to some of the finest brands globally. Startek is committed to impacting clients’ business outcomes by focusing on enhancing customer experience and digital enablement across all touch pointstouchpoints and channels. Startek has more than 42,000 CX experts globally spread43,000 employees located across 4638 delivery campuses in 13 countries. The Company services over 220190 clients across variousa range of industries such as Banking and Financial Services, Insurance, Technology, Telecom, Healthcare, Travelinsurance, technology, telecom, healthcare, travel and Hospitality, Consumer Goods, Retail,hospitality, consumer goods, retail, and Energyenergy and Utilities.
Startek manages over half a billion customer moments of truth each year for the world’s finest brands. We help these brands increase their revenues by enabling better experiences for their customers across multiple channels. As a leading provider of technology-enabled business process management solutions for major global brands—we drive business value through omni-channel customer experiences, digital transformation, and technology services.utilities.
SIGNIFICANT DEVELOPMENTS
Coronavirus
The global outbreak of the novel coronavirus (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. The pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets, and resulted in significant travel restrictions, mandated facility closures and shelter-in-place and social distancing orders in numerous jurisdictions around the world. Certain of our customer engagement centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels. In response to COVID-19, we have prioritized our employees' safety and well-being, business continuity for our clients, and supporting the efforts of governments around the world to contain the spread of the virus. In light of our commitment to help our clients as they navigate unprecedented business challenges while protecting the safety of our employees, we have taken numerous steps, and will continue to take further actions, to address the COVID-19 pandemic. We have taken additional measures to ensure safety of our employees in India who are facing a strong second wave of the Pandemic. We continue to work closely with our clients to support them as they implemented their contingency plans, helping them access our services and solutions remotely. In discussion with our clients, we continue to maintain many of our employees on a work-at-home model. The impact of COVID-19 in the first quarter of fiscal 2021 was not significant on the Company. The extent of the ultimate impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our operations within the expected parameters, will depend on future developments, including the duration and spread of the pandemic and related actions taken by the various governments to prevent disease spread, all of which remain uncertain and cannot be predicted.
Key matters pertaining to subsidiaries
Debt Refinancing
On February 18, 2021, CSP Alpha Holdings Pte. Ltd., a subsidiary of the Company entered into a new facility agreement that provided for a $165 million term loan facility and a $20 million revolving credit facility, in each case with a maturity date 60 months after the date of first utilization of the term loan facility. Amortization of the term loan starts from a date falling in November 2022, i.e. 21 months from the first utilization date of the loan. The term loan facility and the revolving loan facility each bear interest at a rate per annum equal to a LIBOR rate plus an applicable margin of between 3.75% and 4.50%, depending on an adjusted leverage ratio. The Facilities Agreement also contains financial covenants, including cash flow cover, adjusted leverage and limitations on capital expenditures. ING Bank N.V. and DBS Bank Ltd. served as underwriters for the new senior debt facility and were the lead lenders of the previous senior debt facility, which is now repaid in full.
On February 22, 2021, the Company used proceeds from the above facilities agreement to prepay and terminate the existing credit facility made available to it under that certain Amended and Restated Senior Term and Revolving Facilities Agreement, dated October 27, 2017.
Strategic Investment
On February 25, 2021, the Company has announced a strategic investment in CSS Corp. (“CSS”), a new-age IT services and technology support solutions company that harnesses the power of AI, automation, analytics, cloud and digital to address customer needs. Capital Square Partners (“CSP”), a Singapore based Private Equity Fund Manager and Startek’s majority shareholder, acquired a controlling stake in CSS on February 25, 2021. CSP Alpha Holdings Pte. Ltd., a subsidiary of the Company, participated in this transaction by contributing a total of $30 million in a limited partnership managed by CSP to acquire both an indirect beneficial interest of approximately 26% in CSS, as well as an option to acquire a controlling stake which is currently not exercisable. The option to acquire a majority stake in CSS is at the sole discretion of Startek, and the Company has no obligation to do so.
None.
RESULTS OF OPERATIONS — three months ended MaRChMarch 31, 20212022 AND 2021
Revenue
Our gross revenues for the three month periodmonths ended March 31, 20212022 increased by 1.44%2.3% to $163,495$167,317 as compared to $161,677$163,495 for the three month periodmonths ended March 31, 2020.2021.
Our net revenue for the quarter ended March 31, 20212022 and 2020:2021:
Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | |||||||
Revenues | 163,495 | 161,177 | ||||||
Warrant Contra Revenue | (425 | ) | (278 | ) | ||||
Net Revenue | $ | 163,070 | $ | 160,899 |
For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | |||||||
Revenues | 167,317 | 163,495 | ||||||
Warrant contra revenue | - | (425 | ) | |||||
Net revenue | $ | 167,317 | $ | 163,070 |
OurThe breakdown of our net revenues adjusted for warrant contra revenuefrom various segments for the three months ended March 31, 2022 and 2021 were slightlyis as follows:
Three Months Ended March 31, | ||||
2022 | 2021 | |||
Americas | 45,415 | 63,925 | ||
India and Sri Lanka | 27,961 | 21,482 | ||
Malaysia | 11,280 | 14,965 | ||
Middle East | 58,687 | 43,240 | ||
Argentina and Peru | 8,305 | 8,159 | ||
Rest of World | 15,669 | 11,299 | ||
Total | 167,317 | 163,070 |
Revenue in the Americas declined due to the termination of operations with one of our e-commerce clients and insourcing of part of the operations by a client in the media vertical. Decline is also vertical related to the covid vaccination program.
Revenue growth in India and Sri Lanka region was driven by deepening of our partnership with some of the largest digital native clients in this region. Our international operations delivered out of India also reported increase in volumes.
Revenue in Malaysia saw a decline due to the termination of the contract with the e-commerce client.
Our operation in the Middle East continues to deliver strong revenue growth at the back of scaling up of new logos won during the last year.
Our revenue in the Rest of World was higher at $163,070 compareddue to $160,899 for the three months ended March 31, 2020.ramp up with a telecom client in South Africa and addition of new client in Australia.
The breakdown of our net revenues from various industry verticals for three months ended March 31, 20212022 and 2021 is as follows:
Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | |||||||||||||||||||
Verticals: | ||||||||||||||||||||||||
Telecom | 32 | % | 35 | % | 56,051 | 51,674 | 34 | % | 32 | % | ||||||||||||||
E-commerce & Consumer | 16 | % | 16 | % | 20,526 | 26,102 | 13 | % | 16 | % | ||||||||||||||
Media & Cable | 16 | % | 14 | % | 16,942 | 25,794 | 10 | % | 16 | % | ||||||||||||||
Healthcare & Education | 11 | % | 8 | % | ||||||||||||||||||||
Financial & Business Services | 9 | % | 8 | % | 16,695 | 15,450 | 10 | % | 9 | % | ||||||||||||||
Travel & Hospitality | 6 | % | 10 | % | 13,515 | 10,497 | 8 | % | 6 | % | ||||||||||||||
Healthcare & Education | 11,463 | 17,687 | 7 | % | 11 | % | ||||||||||||||||||
Technology, IT & Related Services | 3 | % | 3 | % | 5,345 | 5,081 | 3 | % | 3 | % | ||||||||||||||
All other segments | 7 | % | 5 | % | ||||||||||||||||||||
Other verticals | 26,780 | 11,210 | 15 | % | 7 | % | ||||||||||||||||||
Gross revenue | 167,317 | 163,495 | ||||||||||||||||||||||
Less: Warrant contra revenue | - | (425 | ) | |||||||||||||||||||||
Net revenue | 167,317 | 163,070 |
The CompanyGrowth in telecom vertical was driven by the growth in our South Africa-based telecom client where we are now a strategic partner for their CX services. We saw stable to higher volumes across most other telecom clients.
Financial & Business services vertical continues to see softnessperform strongly as we strengthen our partnership with key clients in the telecom sector volumes in certain emerging geographies while our US telecom clients have rebound. In the e-commerce and consumer sector, wethese verticals.
We continue to see robust growth with our e-commerce clients across geographies. This growth is partially offset by the year-on-year declinesequential improvement in some of our brick and mortar retail and auto clients.
Whilevolume in the travel and hospitality sector is still reeling under COVID-led restrictions, local transport and logistics providers benefit from social distancing norms. The Company has won large dealsas activity in the healthcare sector relatedthese verticals trend to COVID-assistance programs which are driving the growth in the healthcare and education sector.normalize to pre-COVID levels.
Decline in revenues from the Media vertical was led by change in strategy with a key client who insourced part of their CX activities on the voice platform across vendors.
A contract was terminated by one of our clients from the e-commerce vertical which led to decline in revenues from this vertical. Our other clients in the Financial and Business services and media and cable sector continuethis vertical recorded impressive growth as we deploy customized solution to post year-on-year growth depicting our increased penetration with our clients in these sectors.them driving their CX strategy.
Cost of Servicesservices and Gross Profitgross profit
Overall, the cost of services as a percentage of revenue decreasedincreased to 87.4% for the three months ended March 31, 2022 compared to 84.9% for the three months ended March 31, 2021 compared to 87.5% for the three months ended March 31, 2020.2021. Employee expenses, rent costs, and Depreciationdepreciation and amortization are the most significant costs for the Company, representing 75.7%74.3%, 5.4%3.9%, and 4.4%4.6% of the total cost of services, respectively. The breakdown of the cost of services is listed in the table belowbelow:
Three Months Ended March 31, | As % of Revenue | Three Months Ended March 31, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||||||||
Employee Benefit Expenses | 104,746 | 106,389 | 64.2 | % | 66.1 | % | ||||||||||||||||||
Employee benefit expenses | 108,659 | 104,746 | ||||||||||||||||||||||
Rent expense | 7,484 | 8,083 | 4.6 | % | 5.0 | % | 5,770 | 7,484 | ||||||||||||||||
Depreciation and amortization | 6,154 | 5,621 | 3.8 | % | 3.5 | % | 6,681 | 6,154 | ||||||||||||||||
Other | 19,999 | 20,748 | 12.3 | % | 12.9 | % | 25,150 | 19,999 | ||||||||||||||||
Total | $ | 138,383 | $ | 140,841 | $ | 146,260 | $ | 138,383 |
Employee expenses: Our business heavily relies on our employees to provide professional services to our clients. Thus, our most significant costs are payments made to agents, supervisors, and trainers who are directly involved in delivering services to the clients.
Employee expenses as a percentage of revenues decreasedincreased to 64.2%64.9% for the current period as compared to 66.1%64.2% for the previous period. The decrease isincrease was driven by increasing diversificationwage adjustments led by inflationary pressures in some of our vertical mix towards new-age verticals like healthcare, media and cable and e-commerce. geographies.
Rent expense: Rent expense as a percentage of revenue decreased to 4.6%3.4% for the current period as compared to 5.0%4.6% for the previous period. Rent expense decreased dueThe decrease is partially driven by recognition of impairment charge on right-of-use assets related to the rationalization of centers during the pastoperating leases in a few quarters. The Company has consolidated capacity leading to better utilization rates and lower rent costs.geographies in December 2021.
Depreciation and amortization: Depreciation and amortization expense as a percentage of revenue for the current period was marginally higherincreased at 3.8%4.0% as compared 3.5%to 3.8% for the previous period.
Other expense includes recruitment, technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs marginally decreasedincreased to 15% from 12.9% to 12.3% primarily. The increase in the current period was led by investments in technology and cybersecurity infrastructure, higher insurance premium and higher outsourcing costs partly offset by lower utility and maintenance costs. The outsourcing expenses in the current quarter included a one-time expense of $4,895 due to lower travel, utilities and recruitment costs.certain sub-contracting costs related to a client in the Middle East.
As a result, gross profit as a percentage of revenue for the current period increaseddecreased to 15.1%12.6% as compared to 12.5%15.1% for the previous period.
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Gross Revenue | 163,495 | 161,177 | ||||||
Less: Contra Revenue | (425 | ) | (278 | ) | ||||
Net Revenue | $ | 163,070 | $ | 160,899 | ||||
Cost of Services | (138,383 | ) | (140,841 | ) | ||||
Gross Profit | $ | 24,687 | $ | 20,058 | ||||
Gross Margin | 15.1 | % | 12.5 | % |
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Gross revenue | 167,317 | 163,495 | ||||||
Warrant contra revenue | - | (425 | ) | |||||
Net revenue | 167,317 | 163,070 | ||||||
Cost of services | 146,260 | 138,383 | ||||||
Gross profit | $ | 21,057 | $ | 24,687 | ||||
Gross margin | 12.6 | % | 15.1 | % |
Selling, general and administrative expenses
Selling, general and administrative expenses (SG&A) as a percentage of revenue decreasedincreased from 10.7%8.7% in the previous period to 8.7%9.5% in the current period. The reduction is as a resultincrease was led by investment in sales, digital and marketing functions. We are contesting certain class action suits and have taken appropriate provisions based on the current facts of various measures implementedthe case. The SG&A also includes costs pertaining to rationalize costs. Sequentially, SG&A expenses have remained stable.the advisors to the Special Committee of the Board of Directors in regards to the evaluation of the take private offer.
Impairment Losseslosses and Restructuring/Exit Cost, Netrestructuring/exit cost, net
Impairment losses and restructuring/exitsrestructuring costs, net totaled $1,898totalled $1,407 for the current period as compared to $24,322$1,898 for the previous period. The restructuring cost during the quarter include $1,381 towards the restructuring exercise underway in Argentina.
Interest expense, net, and other income
Interest expense, net, and other income totalled $974 for the current period as compared to $13,769 for the previous period. The expense for the first quarterprevious period included $11,269 towards the refinancing of 2021 primarily relates to employee related restructuring/exit expenses. There are no impairment chargesdebt undertaken in February 2021. Interest and other finance expenses during the current period. The expense for the previous period was $2,645. This was partly offset by income from treasury transactions of 2020 primarily relates to goodwill impairment losses of $22,708 and restructuring/exit expenses of $1,614.
Interest expense, net
Interest expense, net totaled $13,769 for the current period as compared to $3,506 for the previous period. The expense for the first quarter of 2021 comprises of upfront fees and interest expense on our term debt and revolving line of credit facilities.$1,504.
Income tax expense
Income tax expense for the current period was $4,902$2,093 compared to $2,876$4,902 for the previous period. The movement in the effective tax rate was primarily due to shifts in earnings among the various jurisdictions in which we operate.operate coupled with utilization of net operating losses for entities having taxable profit and valuation allowance as per the requirement of ASC 740. Additionally, the movement of funds between various geographies primarily to service our debt facilities also attractattracts withholding taxes.
RELATED PARTY DISCLOSURE
In 2018, a transaction bonus was payable to Mr. Aparup Sengupta (Chairman & Global CEO) for the successful completion of the Startek-Aegis merger. This was accrued in the financial statements for the year ended December 31, 2018 as “Acquisition related cost”. An amount of $500 has been paid during the year ended December 31, 2020 to Mr. Aparup Sengupta and balance $350 has been paid during this quarter.
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. We have also entered into factoring agreements with financial institutions to sell certain of our accounts receivables under non-recourse agreement. The Company expects to meet all its debt obligations including compliance with all financial covenants in a timely manner.
The Company entered into a newly secured $185 million senior debt facility during the quarter, comprising a $165 million term loan and a $20 million revolving credit facility. Under the new senior debt, Borrowings will bear a tiered interest rate, which is based on the Company’s consolidated net leverage ratio and is initially set at LIBOR plus 450 basis points. The term loan will have a moratorium on principal repayment for 21 months and will amortize quarterly thereafter, beginning November 2022. The loan is subject to certain standardized financial covenants. The Company fully repaid the amounts due under the old senior facilities from the proceeds of the proceeds of the new debt facility.
Cash and cash equivalents and restricted cash
As atof March 31, 2021,2022, cash, cash equivalents, and restricted cash held by the Company and all its foreign subsidiaries increaseddecreased by $14,087$3,148 to $64,646$52,248 compared to $50,559$55,396 as of December 31, 2020.2021. The restricted cash balance as atof March 31, 20212022 stood at $6,981$8,946 as compared to $6,052$7,456 as atof December 31, 2020.2021. The restricted cash pertains to the debt service reserve account (DSRA) that we have to maintain according to the Senior Term Agreement and for certain term deposits that need to be maintained in accordance with some of our lease and client agreements.
Cash flows from operating activities
For the three months ended March 31, 20212022 and 20202021 we reported net cash flows generated from operating activities of $7,097$564 and $10,546$18,668, respectively. The $3,449 increasedecrease in net cash flows from operating activities was due todriven by a net increasedecrease of $2,454 in cash flows from assets and liabilities, a $(22,029) decrease in non-cash reconciling items such as goodwill impairment, deferred tax expense, depreciation and amortization and warrant contra revenue, and a increase of $16,126$16,921 in net income.working capital.
Cash flows used in investing activities
For the three months ended March 31, 2021,2022, and 20202021, we reported net cash used in investing activities of $27,922$(1,902) and $2,884$(30,922) respectively. Net cash used in investing activities for current periods primarily consisted of strategictowards capital expenditure while the amount for the previous period includes $25,000 towards the investment in equity-accounted investeesCSS Corp and capital expenditure.$3,000 towards payment of call option premium.
Cash flows generated from financing activities
For the three months ended March 31, 20212022 and 20202021 we reported net cash flows used in and generated from financing activities of $35,337$(1,774) and $421,$26,766, respectively. During the three months ended March 31, 2021 our net borrowings increased by $34,093 mainly due to refinancing of senior term debt completed during the quarter. Theperiod. During the three months ended March 2022, the Company collected $1,244 from the issuancerepurchased an aggregate of common stock of the Company. 259,407 shares amounting to $1,271.
Debt
For more information, refer to Note 9, "Debt," to our consolidated financial statements included in Item 1, "Financial Statements."
CONTRACTUAL OBLIGATIONS
Smaller reporting companies are not required to provide the information required by this item.
OFF-BALANCE SHEET ARRANGEMENTS
Apart from certain non-recourse receivables factoring as mentioned in the Note 9 "Debt" of the notes to the consolidated financial statements, we have no other 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 clients; (iii) expiration or termination of client projects or contracts; (iv) timing of existing and future client product launches or service offerings; (v) seasonal and or temporary 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; (vii) Due to COVID- 19 pandemic. performance.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our consolidated financial statements in conformity with US-GAAP,U.S. 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. These judgments are subject to an inherent degree of uncertainty by their nature. Accordingly, actual results may vary significantly from the estimates we have applied.
Please refer to Note 2, "Summary of Significant Accounting Policies" of the Notes to the consolidated financial statements included in Item 1 for a complete description of our critical accounting policies and estimates..estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As Startek has qualified for Smaller Reporting Company status, this disclosure is not required.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures:
An evaluationAs of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in RulesRule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). We maintain disclosure controls and 15d-15(e)procedures designed to ensure that information required to be disclosed in reports filed or submitted by us under the Exchange Act) as of March 31, 2021 was carried outAct is recorded, processed, summarized and reported within time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the supervisionExchange Act is accumulated and with the participation of ourcommunicated to management, including our Chief Executive Officer and Chief Financial Officer.Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon thaton management's evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were ineffective as of March 31, 2021.
Management’s Report on Internal Control over Financial Reporting:
Management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such terms defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management with the participation of Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal controls over financial reporting as of March 31, 2021 based on the framework in “Internal Control-Integrated Framework”issued by Committee of Sponsoring Organizations of the Treadway Commission (2013). At December 31, 2020, management identified a material weakness in the operation of the Company’s internal controls over revenue recognition. In view of the existence of the material weakness and based on the assessment at the quarter end, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31 2021, our disclosure controls and procedures were ineffective. Notwithstandingeffective at the material weakness in internal control over financial reporting relating to revenue process disclosed below, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the consolidated financial statements present fairly in all material respects, our financial position, resultsreasonable assurance level as of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
A material weakness was identified in the operation of the Company’s internal financial controls over revenue recognition (and corresponding “unbilled revenue” asset) in certain reporting units. It was observed that for few customers the amount of revenue accrued in the books of accounts was on lower side than what was billed to those customers. Management carried out measurement adjustments in respect of discounts, penalties etc to revenue recognised in the books of account as the COVID 19 situation gave rise to uncertainties. However, these judgements were not adequately documented.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness described above did not result in any material misstatements to the company’s previously issued financial statements, nor in the financial statements disclosed in this form 10-Q.
Remediation Plan:
The Company’s management is committed to maintaining a strong internal control environment. In response to the identified material weakness, the management immediately performed a detailed root-cause analysis of the highlighted issues and implemented certain corrective actions.The management has redefined the revenue recognition process combining automation and manual controls wherever appropriate. Documentation underlying key judgments is enhanced and “review” controls are further strengthened to reflect appropriate accounting treatment. While the management has completed the implementation of the corrective actions, it will also monitor the effectiveness of the controls through continuous monitoringMarch 31, 2022.
Changes in Internal Control over Financial Reporting:
Subject to the above, there wereThere have been no changes in ourthe Company's internal control over financial reporting that occurred during the quarter ended March 31, 2021,2022 that have materially affected, or are reasonably likely to materially affect, ourthe Company's internal control over financial reporting.
None.
There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, except for the following
The recent Coronavirus or COVID-19 outbreak continues to expand and may adversely affect our financial condition and results of operations for 2021.
The recent government-imposed restrictions around the world have significantly impacted businesses and their workforces. Most of the geographies in which we operate have been affected by local lockdowns or restrictions on facilities access. Other geographies may be impacted as the coronavirus/COVID-19 spreads and/or existing restrictions may be extended/strengthened. At this point, it is impossible to predict the degree to which supply and demand for our outsourcing services will be affected and the duration of such impact. This uncertainty makes it challenging for management to estimate the future performance of our businesses. However, the impact of COVID-19 will have an adverse impact on our results of operations over the near to medium term.
Given the overall uncertainty and fluidity of the current global pandemic response, coupled with how various government-imposed limitations may translate into client service delivery constraints, the Company may identify additional risk factors going forward which will be provided in the Quarterly Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.In the year 2004, the Company had announced the “Repurchase plan” that authorized the Company to repurchase up-to $25 million of common stock. The program will remain in effect until the same is terminated by the Board of Directors and will allow the Company to repurchase common stock from time to time on the open market either via block trades or privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs or other means at times and in such amounts as management deems appropriate and will be funded from our working capital or other financing alternatives. Repurchases will be implemented by the Chief Financial Officer (CFO) consistent with the guidelines adopted by the Board of Directors and will depend on market conditions and other factors. Pursuant to the Board of Directors meeting held on August 26, 2021, the Board restricted the CFO from exceeding $2 million of repurchases with any purchases more than $2 million requiring Board review. Further in board meeting held on December 14, 2021 the Board of Director’s approved additional $2 million towards a stock repurchase plan.
During the three months ended March 31, 2022, we repurchased an aggregate of 259,407 shares of our common stock under our repurchase plan at an average cost of $4.88 per share. Additional information regarding the Company’s repurchases of common stock during the three months ended March 31, 2022 is set forth in Note 15 to the accompanying consolidated financial statements which is incorporated by reference into this Item 2.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
None.
INDEX OF EXHIBITS
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10.1 | Separation Agreement with Rajiv Ahuja dated March 31,2021 | Form 8-K | 10.1 | April 5, 2021 | Employment Agreement with Bharat Rao dated January 27, 2022 | 8-K | 10.1 | 2/1/2022 | ||||||||||||||||||
10.2 | Letter Agreement with Nishit Shah dated February 1, 2022 | 8-K | 10.1 | 2/16/2022 | ||||||||||||||||||||||
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| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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101* |
| The following materials are formatted in Extensible Business Reporting Language (iXBRL): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 2020(Unaudited), (ii) Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020, (iii) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (Unaudited) and (iv) Notes to Consolidated Financial Statements (Unaudited) |
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| The following materials are formatted in Extensible Business Reporting Language (Inline XBRL): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2022 and 2021(Unaudited), (ii) Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021, (iii) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (Unaudited) and (iv) Notes to Consolidated Financial Statements (Unaudited) |
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104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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| * | Filed with this Form 10-Q. |
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.
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