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 periodquarter ended September 30, 2022March 31, 2023
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-12793
StarTek, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 84-1370538 |
(State or other jurisdiction of | (I.R.S. employer |
incorporation or organization) | Identification No.) |
|
|
4610 South Ulster Street, |
|
Suite 150, Denver, Colorado | 80237 |
(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 October 31, 2022,May 5, 2023, there were 40,280,72540,323,930 shares of Common Stock outstanding.
STARTEK, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q
PART I - FINANCIAL INFORMATION | ||
|
|
|
ITEM 1. | FINANCIAL STATEMENTS | Page |
| Consolidated Statement of Income (Loss) and Other Comprehensive Income (Loss) for the Three | |
| Consolidated Balance Sheets as of | |
| Consolidated Statement of Cash Flows for the | |
| Consolidated Statement of Stockholders' Equity for the Three | |
| Note 1 Overview and Basis of Preparation | |
| Note 2 Summary of Significant Accounting Policies | ||
| Note | ||
| Note 3B Discontinued Operations and Held for Sale- Argentina | 16 | |
| Note 4 | ||
| Note 5 Revenue | 19 | |
| Note 6 Net Income / (Loss) Per Share | ||
| Note | ||
| Note 8 | ||
| 22 | ||
| Note | 22 | |
| Note 10 Debt | 23 | |
| Note | 24 | |
| Note 12 Accumulated Other Comprehensive Loss | 24 | |
| Note 13 Segment Reporting | 25 | |
| Note 14 Leases | 26 | |
| Note 15 Common Stock | ||
| Note 16 | ||
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | |
ITEM 4. | Controls and Procedures | |
|
|
|
PART II - OTHER INFORMATION | ||
|
|
|
ITEM 1. | Legal proceeding | |
ITEM 1A. | Risk Factors | |
| ITEM 2. | Unregistered sales of equity securities and use of proceeds | 34 |
ITEM 3. | Defaults upon senior securities | 34 |
| ITEM 4. | Mine safety disclosure | 34 |
ITEM 5. | Other Information | |
ITEM 6. | Exhibits | |
SIGNATURES |
| |
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the following:
• | certain statements, including possible or assumed future results of operations, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; |
• | any statements regarding the prospects for our business or any of our services; |
• | any statements preceded by, followed by or that include the words “may,” “will,” “should,” “seeks,” “believes,” “expects,” “anticipates,” “intends,” “continue,” “estimate,” “plans,” “future,” “targets,” “predicts,” “budgeted,” “projections,” “outlooks,” “attempts,” “is scheduled,” or similar expressions; and |
• | other statements regarding matters that are not historical facts. |
Our business and results of operations are subject to risks and uncertainties, many of which are beyond our ability to control or predict. Because of these risks and uncertainties, actual results may differ materially from those expressed or implied by forward-looking statements, and investors are cautioned not to place undue reliance on such statements, which speak only as of the date thereof. Important factors that could cause actual results to differ materially from our expectations and may adversely affect our business and results of operations, include, but are not limited to, those items described herein or set forth in the Form 10-K for the fiscal year ended December 31, 20212022 filed with the Securities and Exchange Commission ("SEC") on March 14, 202228, 2023 and this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.March 31, 2023. Unless otherwise noted in this report, any description of "us," "we," or "our," refers to Startek, Inc. ("Startek") and its subsidiaries.
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 share and per share data)
(Unaudited)
Three Months Ended March 31, | ||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | 2023 | 2022 | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Revenue | 163,135 | 172,948 | 498,093 | 525,879 | 92,089 | 101,092 | ||||||||||||||||||
Warrant adjustment | - | (161 | ) | - | (991 | ) | ||||||||||||||||||
Net revenue | $ | 163,135 | $ | 172,787 | $ | 498,093 | $ | 524,888 | ||||||||||||||||
Cost of services | (140,018 | ) | (151,264 | ) | (437,192 | ) | (454,124 | ) | (79,129 | ) | (87,302 | ) | ||||||||||||
Gross profit | $ | 23,117 | $ | 21,523 | $ | 60,901 | $ | 70,764 | 12,960 | 13,790 | ||||||||||||||
Selling, general and administrative expenses | (16,523 | ) | (13,099 | ) | (46,147 | ) | (39,568 | ) | (10,287 | ) | (11,962 | ) | ||||||||||||
Impairment losses and restructuring/exit cost | (998 | ) | (85 | ) | (3,150 | ) | (1,964 | ) | (317 | ) | 5 | |||||||||||||
Operating income | $ | 5,596 | $ | 8,339 | $ | 11,604 | $ | 29,232 | ||||||||||||||||
Operating income (loss) | 2,356 | 1,833 | ||||||||||||||||||||||
Share of income (loss) of equity accounted investee | 297 | (46 | ) | 4,122 | (1 | ) | - | (8 | ) | |||||||||||||||
Interest expense, net and other income | (2,767 | ) | (2,236 | ) | (5,844 | ) | (18,489 | ) | ||||||||||||||||
Interest expense and other income (expense), net | (2,077 | ) | (1,730 | ) | ||||||||||||||||||||
Foreign exchange gains (losses), net | 976 | (533 | ) | 650 | 42 | 72 | (224 | ) | ||||||||||||||||
Income before tax expense | $ | 4,102 | $ | 5,524 | $ | 10,532 | $ | 10,784 | ||||||||||||||||
Tax expense | (1,838 | ) | (2,402 | ) | (5,354 | ) | (9,397 | ) | ||||||||||||||||
Net income | $ | 2,264 | $ | 3,122 | $ | 5,178 | $ | 1,387 | ||||||||||||||||
Income (loss) from continuing operations before tax expenses | 351 | (129 | ) | |||||||||||||||||||||
Tax expenses | (909 | ) | (638 | ) | ||||||||||||||||||||
Income (loss) from continuing operations, net of tax (A) | (558 | ) | (767 | ) | ||||||||||||||||||||
Income (loss) before income tax expenses from discontinued operations | 3,661 | 2,508 | ||||||||||||||||||||||
Tax expenses of discontinued operations | (1,184 | ) | (1,455 | ) | ||||||||||||||||||||
Income (loss) from discontinued operations, net of tax (B) | 2,477 | 1,053 | ||||||||||||||||||||||
Net income (loss) (A+B) | 1,919 | 286 | ||||||||||||||||||||||
Net income (loss) | ||||||||||||||||||||||||
Net income attributable to noncontrolling interests | 2,021 | 3,046 | 4,311 | 6,581 | ||||||||||||||||||||
Income (loss) from continuing operations (A) | ||||||||||||||||||||||||
Income (loss) attributable to noncontrolling interests | - | - | ||||||||||||||||||||||
Income (loss) attributable to Startek shareholders | (558 | ) | (767 | ) | ||||||||||||||||||||
| (558 | ) | (767 | ) | |||||||||||||||||||||
Income (loss) from discontinued operations (B) | ||||||||||||||||||||||||
Income (loss) attributable to noncontrolling interests | 2,589 | 1,529 | ||||||||||||||||||||||
Income (loss) attributable to Startek shareholders | (112 | ) | (476 | ) | ||||||||||||||||||||
| 2,477 | 1,053 | |||||||||||||||||||||||
Net income (loss) (A+B) | ||||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interests | 2,589 | 1,529 | ||||||||||||||||||||||
Net income (loss) attributable to Startek shareholders | 243 | 76 | 867 | (5,194 | ) | (670 | ) | (1,243 | ) | |||||||||||||||
| 1,919 | 286 | |||||||||||||||||||||||
Net income (loss) per common share | ||||||||||||||||||||||||
Net income (loss) per common share from continuing operations | ||||||||||||||||||||||||
Basic net income (loss) attributable to Startek shareholders | (0.01 | ) | (0.02 | ) | ||||||||||||||||||||
Diluted net income (loss) attributable to Startek shareholders | (0.01 | ) | (0.02 | ) | ||||||||||||||||||||
Net income (loss) per common share from discontinued operations | ||||||||||||||||||||||||
Basic net income (loss) attributable to Startek shareholders | (0.00 | ) | (0.01 | ) | ||||||||||||||||||||
Diluted net income (loss) attributable to Startek shareholders | (0.00 | ) | (0.01 | ) | ||||||||||||||||||||
Net income (loss) per common share from continuing and discontinued operations | ||||||||||||||||||||||||
Basic net income (loss) attributable to Startek shareholders | $ | 0.01 | $ | 0.00 | $ | 0.02 | $ | (0.13 | ) | (0.01 | ) | (0.03 | ) | |||||||||||
Diluted net income (loss) attributable to Startek shareholders | $ | 0.01 | $ | 0.00 | $ | 0.02 | $ | (0.13 | ) | (0.01 | ) | (0.03 | ) | |||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||||||
Basic | 40,326 | 40,788 | 40,316 | 40,723 | 40,321 | 40,338 | ||||||||||||||||||
Diluted | 40,333 | 41,094 | 40,354 | 40,723 | 40,321 | 40,338 | ||||||||||||||||||
See Notes to Consolidated Financial Statements.
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net income | $ | 2,264 | $ | 3,122 | $ | 5,178 | $ | 1,387 | ||||||||
Net income attributable to non-controlling interests | 2,021 | 3,046 | 4,311 | 6,581 | ||||||||||||
Net income (loss) attributable to Startek shareholders | 243 | 76 | 867 | (5,194 | ) | |||||||||||
Other comprehensive income (loss), net of taxes | ||||||||||||||||
Foreign currency translation adjustments | (3,701 | ) | (179 | ) | (7,090 | ) | (2,147 | ) | ||||||||
Change in fair value of derivative instruments | - | - | - | 8 | ||||||||||||
Pension amortization | 143 | (669 | ) | (543 | ) | (1,090 | ) | |||||||||
Other comprehensive loss | $ | (3,558 | ) | $ | (848 | ) | $ | (7,633 | ) | $ | (3,229 | ) | ||||
Other comprehensive income (loss), net of taxes | ||||||||||||||||
Other comprehensive loss attributable to noncontrolling interest | (23 | ) | (374 | ) | (397 | ) | (443 | ) | ||||||||
Other comprehensive loss attributable to Startek shareholders | (3,535 | ) | (474 | ) | (7,236 | ) | (2,786 | ) | ||||||||
| $ | (3,558 | ) | $ | (848 | ) | $ | (7,633 | ) | $ | (3,229 | ) | |||||
Comprehensive income (loss) | ||||||||||||||||
Comprehensive income attributable to noncontrolling interests | 1,998 | 2,672 | 3,914 | 6,138 | ||||||||||||
Comprehensive loss attributable to Startek shareholders | (3,292 | ) | (398 | ) | (6,369 | ) | (7,980 | ) | ||||||||
| $ | (1,294 | ) | $ | 2,274 | $ | (2,455 | ) | $ | (1,842 | ) | ||||||
See Notes to Consolidated Financial Statements.
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 51,703 | 47,940 | ||||||
Restricted cash | 9,628 | 7,456 | ||||||
Trade accounts receivables, net | 69,955 | 106,937 | ||||||
Unbilled revenue | 76,699 | 50,074 | ||||||
Prepaid and other current assets | 15,714 | 12,611 | ||||||
Total current assets | $ | 223,699 | $ | 225,018 | ||||
Non-current assets | ||||||||
Property, plant and equipment, net | 28,895 | 34,168 | ||||||
Operating lease right-of-use assets | 44,841 | 63,012 | ||||||
Intangible assets, net | 82,347 | 90,092 | ||||||
Goodwill | 183,397 | 183,397 | ||||||
Investment in equity-accounted investees | 35,810 | 31,688 | ||||||
Deferred tax assets, net | 5,137 | 3,664 | ||||||
Prepaid expenses and other non-current assets | 8,208 | 11,436 | ||||||
Total non-current assets | $ | 388,635 | $ | 417,457 | ||||
Total assets | $ | 612,334 | $ | 642,475 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Trade accounts payables | 11,820 | 11,916 | ||||||
Accrued expenses | 51,223 | 53,203 | ||||||
Short term debt | 4,721 | 3,611 | ||||||
Current maturity of long term debt | 22,353 | 6,241 | ||||||
Current maturity of operating lease liabilities | 20,496 | 24,393 | ||||||
Other current liabilities | 42,375 | 48,265 | ||||||
Total current liabilities | $ | 152,988 | $ | 147,629 | ||||
Non-current liabilities | ||||||||
Long term debt | 142,515 | 160,175 | ||||||
Operating lease liabilities | 28,176 | 44,263 | ||||||
Other non-current liabilities | 20,553 | 19,562 | ||||||
Deferred tax liabilities, net | 17,312 | 17,526 | ||||||
Total non-current liabilities | $ | 208,556 | $ | 241,526 | ||||
Total liabilities | $ | 361,544 | $ | 389,155 | ||||
Stockholders’ equity | ||||||||
Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 41,065,522 and 40,893,396 shares issued as of September 30, 2022, and December 31, 2021, respectively | 411 | 409 | ||||||
Additional paid-in capital | 293,096 | 291,537 | ||||||
Accumulated deficit | (83,176 | ) | (84,043 | ) | ||||
Treasury stock, 782,902 and 412,769 shares as of September 30, 2022, and December 31, 2021, respectively, at cost | (3,548 | ) | (1,912 | ) | ||||
Accumulated other comprehensive loss | (17,923 | ) | (10,687 | ) | ||||
Equity attributable to Startek shareholders | $ | 188,860 | $ | 195,304 | ||||
Non-controlling interest | 61,930 | 58,016 | ||||||
Total stockholders’ equity | $ | 250,790 | $ | 253,320 | ||||
Total liabilities and stockholders’ equity | $ | 612,334 | $ | 642,475 | ||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Net income (loss) (A+B) | 1,919 | 286 | ||||||
Net income (loss) attributable to non-controlling interests | 2,589 | 1,529 | ||||||
Net income (loss) attributable to Startek shareholders | (670 | ) | (1,243 | ) | ||||
Other comprehensive income (loss), net of taxes from continuing operations: | ||||||||
Foreign currency translation adjustments | (124 | ) | 546 | |||||
Pension amortization | 124 | 64 | ||||||
Other comprehensive income (loss) from continuing operations | - | 610 | ||||||
Other comprehensive income (loss), net of taxes from discontinued operations: | ||||||||
Foreign currency translation adjustments | - | 1 | ||||||
Pension amortization | 1,125 | (1,200 | ) | |||||
Other comprehensive income (loss) from discontinuing operations | 1,125 | (1,199 | ) | |||||
Other comprehensive income (loss) from continuing and discontinuing operations | 1,125 | (589 | ) | |||||
Other comprehensive income (loss), net of taxes from continuing operations | ||||||||
Attributable to noncontrolling interest | - | - | ||||||
Attributable to Startek shareholders | - | 610 | ||||||
| - | 610 | |||||||
Other comprehensive income (loss), net of taxes from discontinued operations | ||||||||
Attributable to noncontrolling interests | 614 | (655 | ) | |||||
Attributable to Startek shareholders | 511 | (544 | ) | |||||
| 1,125 | (1,199 | ) | ||||||
Comprehensive income (loss) from continuing and discontinuing operations | ||||||||
Attributable to noncontrolling interests | 3,203 | 874 | ||||||
Attributable to Startek shareholders | (159 | ) | (1,177 | ) | ||||
| 3,044 | (303 | ) | ||||||
See Notes to Consolidated Financial Statements.
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWSBALANCE SHEET
(In thousands)thousands, except share data)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Operating activities | ||||||||
Net income | $ | 5,178 | $ | 1,387 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 22,139 | 20,398 | ||||||
Profit on sale of property, plant and equipment | (221 | ) | (37 | ) | ||||
Provision for doubtful accounts | (115 | ) | 23 | |||||
Amortization of debt issuance costs (including loss on extinguishment of debt) | 426 | 11,455 | ||||||
Amortization of call option premium | 1,080 | 360 | ||||||
Warrant contra revenue | - | 991 | ||||||
Share-based compensation expense | 1,213 | 932 | ||||||
Deferred income taxes | (2,279 | ) | 1,838 | |||||
Share of (income) loss of equity-accounted investees | (4,122 | ) | 1 | |||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts receivables | 30,534 | 13,120 | ||||||
Prepaid expenses and other assets | (32,243 | ) | (11,968 | ) | ||||
Trade accounts payable | 669 | (13,409 | ) | |||||
Income taxes, net | (337 | ) | (602 | ) | ||||
Accrued expenses and other liabilities | (598 | ) | 6,543 | |||||
Net cash provided by operating activities | $ | 21,324 | $ | 31,032 | ||||
Investing activities | ||||||||
Purchase of property, plant and equipment, net | (10,994 | ) | (13,358 | ) | ||||
Investment in equity-accounted investees | - | (25,000 | ) | |||||
Payments for call option premium | - | (3,000 | ) | |||||
Proceeds from equity-accounted investees | - | 102 | ||||||
Net cash used in investing activities | $ | (10,994 | ) | $ | (41,256 | ) | ||
Financing activities | ||||||||
Proceeds from the issuance of common stock | 348 | 1,434 | ||||||
Proceeds from long term debt (net of debt issuance cost paid to lenders) | - | 156,525 | ||||||
Payments of long term debt | - | (117,600 | ) | |||||
Payments for loan fees related to long term debt | - | (2,794 | ) | |||||
Proceeds from a line of credit, net | 1,110 | - | ||||||
Payments of other borrowings, net | (1,784 | ) | (13,145 | ) | ||||
Common stock repurchases | (1,636 | ) | (329 | ) | ||||
Net cash (used in) / provided by financing activities | $ | (1,962 | ) | $ | 24,091 | |||
Net increase in cash and cash equivalents | 8,368 | 13,867 | ||||||
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (2,433 | ) | (952 | ) | ||||
Cash and cash equivalents and restricted cash at beginning of period | 55,396 | 50,559 | ||||||
Cash and cash equivalents and restricted cash at end of period | $ | 61,331 | $ | 63,474 | ||||
Components of cash and cash equivalents and restricted cash | ||||||||
Balances with banks | 51,703 | 56,840 | ||||||
Restricted cash | 9,628 | 6,634 | ||||||
Total cash and cash equivalents and restricted cash | $ | 61,331 | $ | 63,474 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest and other finance cost | 7,775 | 19,985 | ||||||
Cash paid for income taxes | 7,699 | 7,884 | ||||||
Supplemental disclosure of non-cash activities | ||||||||
Non-cash warrant contra revenue | - | 991 | ||||||
Non-cash share-based compensation expenses | 1,213 | 932 | ||||||
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 15,770 | 22,457 | ||||||
Restricted cash | 9,172 | 49,946 | ||||||
Trade accounts receivables, net | 48,141 | 47,138 | ||||||
Unbilled revenue | 26,373 | 24,207 | ||||||
Prepaid expenses and other current assets | 14,556 | 9,159 | ||||||
Assets classified as held for sale | 205,883 | 202,831 | ||||||
Total current assets | 319,895 | 355,738 | ||||||
Non-current assets | ||||||||
Property, plant and equipment, net | 22,784 | 22,945 | ||||||
Operating lease right-of-use assets | 38,842 | 36,450 | ||||||
Intangible assets, net | 77,184 | 79,745 | ||||||
Goodwill | 120,505 | 120,505 | ||||||
Deferred tax assets, net | 3,347 | 2,771 | ||||||
Prepaid expenses and other non-current assets | 6,794 | 7,889 | ||||||
Total non-current assets | 269,456 | 270,305 | ||||||
Total assets | 589,351 | 626,043 | ||||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Trade accounts payables | 5,783 | 2,428 | ||||||
Accrued expenses | 30,470 | 29,707 | ||||||
Short term debt | 14,878 | 14,267 | ||||||
Current maturity of long term debt | 48,854 | 120,466 | ||||||
Current maturity of operating lease liabilities | 15,403 | 14,492 | ||||||
Other current liabilities | 19,014 | 17,615 | ||||||
Liabilities classified as held for sale | 86,953 | 89,486 | ||||||
Total current liabilities | 221,355 | 288,461 | ||||||
Non-current liabilities | ||||||||
Long term debt | 66,943 | 41,175 | ||||||
Operating lease liabilities | 27,895 | 26,651 | ||||||
Other non-current liabilities | 2,801 | 2,682 | ||||||
Deferred tax liabilities, net | 15,451 | 15,508 | ||||||
Total non-current liabilities | 113,090 | 86,016 | ||||||
Total liabilities | 334,445 | 374,477 | ||||||
Stockholders’ equity | ||||||||
Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 41,133,224 and 41,098,456 shares issued as of March 31, 2023 and December 31, 2022 respectively. | 411 | 411 | ||||||
Additional paid-in capital | 293,869 | 293,472 | ||||||
Accumulated deficit | (87,073 | ) | (86,302 | ) | ||||
Treasury stock, 839,214 shares as of March 31, 2023 and December 31, 2022, at cost | (3,749 | ) | (3,749 | ) | ||||
Accumulated other comprehensive loss | (15,547 | ) | (16,058 | ) | ||||
Equity attributable to Startek shareholders | 187,911 | 187,774 | ||||||
Non-controlling interest | 66,995 | 63,792 | ||||||
Total stockholders’ equity | 254,906 | 251,566 | ||||||
Total liabilities and stockholders’ equity | 589,351 | 626,043 | ||||||
See Notes to Consolidated Financial Statements.
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Operating activities | ||||||||
Income from continuing and discontinued operations | 1,919 | 286 | ||||||
less: Income (loss) from discontinued operations, net of tax | 2,477 | 1,053 | ||||||
Income (loss) from continuing operations, net of tax | (558 | ) | (767 | ) | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 5,238 | 5,831 | ||||||
Profit on sale of property, plant and equipment | (1 | ) | (19 | ) | ||||
Provision/(reversal) for doubtful accounts | 196 | (56 | ) | |||||
Amortization of debt issuance costs (including loss on extinguishment of debt) | 40 | 146 | ||||||
Amortization of call option premium | - | 360 | ||||||
Mark to market gain on derivative instrument | (87 | ) | - | |||||
Share-based compensation expense | 380 | 428 | ||||||
Deferred income taxes | (209 | ) | (80 | ) | ||||
Share of income (loss) of equity accounted investee | - | 8 | ||||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts receivables (including unbilled revenue) | (3,634 | ) | 5,533 | |||||
Prepaid expenses and other assets | (3,553 | ) | (3,815 | ) | ||||
Trade accounts payable | 3,333 | (1,004 | ) | |||||
Income taxes, net | (342 | ) | (917 | ) | ||||
Accrued expenses and other liabilities | 1,710 | (5,727 | ) | |||||
Net cash generated from/used in by operating activities from continuing operations | 2,513 | (77 | ) | |||||
Net cash generated from/used in operating activities from discontinued operations | (6,425 | ) | 1,586 | |||||
Net cash generated from operating activities | (3,912 | ) | 1,509 | |||||
Investing activities | ||||||||
Purchase of property, plant and equipment and intangible assets, net | (2,525 | ) | (1,576 | ) | ||||
Net cash generated from/used in investing activities from continuing operations | (2,525 | ) | (1,576 | ) | ||||
Net cash generated from/used in investing activities from discontinued operations | (3,518 | ) | (1,271 | ) | ||||
Net cash generated from/used in investing activities | (6,043 | ) | (2,847 | ) | ||||
Financing activities | ||||||||
Proceeds from the issuance of common stock | 17 | 140 | ||||||
Payments of long term debt | (45,466 | ) | - | |||||
Proceeds from a line of credit, net | 594 | - | ||||||
Payments of other borrowings, net | (418 | ) | (558 | ) | ||||
Common stock repurchases | - | (1,271 | ) | |||||
Net cash generated from/used in financing activities from continuing operations | (45,273 | ) | (1,689 | ) | ||||
Net cash generated from/used in financing activities from discontinued operations | (132 | ) | (84 | ) | ||||
Net cash generated from/used in financing activities | (45,405 | ) | (1,773 | ) | ||||
Net increase in cash and cash equivalents | (55,360 | ) | (3,111 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (272 | ) | (37 | ) | ||||
Cash and cash equivalents and restricted cash at beginning of period | 115,146 | 55,396 | ||||||
Cash and cash equivalents and restricted cash at end of period | 59,514 | 52,248 | ||||||
Less: Cash and cash equivalents from discontinued operations | (34,572 | ) | (23,368 | ) | ||||
Cash and cash equivalents and restricted cash of continuing operations at end of period | 24,942 | 28,880 | ||||||
Components of cash and cash equivalents and restricted cash | ||||||||
Balances with banks | 15,770 | 25,834 | ||||||
Restricted cash | 9,172 | 3,046 | ||||||
Total cash and cash equivalents and restricted cash | 24,942 | 28,880 | ||||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest and other finance cost | 3,759 | 2,313 | ||||||
Cash paid for income taxes | 1,103 | 1,675 | ||||||
Supplemental disclosure of non-cash activities | ||||||||
Non-cash share-based compensation expenses | 380 | 428 | ||||||
See Notes to Consolidated Financial Statements.
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Common Stock | Treasury Stock | Other Items of OCI | ||||||||||||||||||||||||||||||||||||||||||||||
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 June 30, 2022 | 40,996,566 | $ | 410 | 692,176 | $ | (3,246 | ) | $ | 292,615 | $ | (83,419 | ) | $ | (10,205 | ) | $ | - | $ | (4,183 | ) | $ | 191,972 | $ | 59,932 | $ | 251,904 | ||||||||||||||||||||||
Issuance of common stock | 68,956 | 1 | - | - | 101 | - | - | - | - | 102 | - | 102 | ||||||||||||||||||||||||||||||||||||
Share-based compensation expenses | - | - | - | - | 380 | - | - | - | - | 380 | - | 380 | ||||||||||||||||||||||||||||||||||||
Warrant adjustment | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | 243 | - | - | - | 243 | 2,021 | 2,264 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | - | - | - | (3,701 | ) | - | 166 | (3,535 | ) | (23 | ) | (3,558 | ) | ||||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | 90,726 | (302 | ) | - | - | - | - | - | (302 | ) | - | (302 | ) | |||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 41,065,522 | $ | 411 | 782,902 | $ | (3,548 | ) | $ | 293,096 | $ | (83,176 | ) | $ | (13,906 | ) | $ | - | $ | (4,017 | ) | $ | 188,860 | $ | 61,930 | $ | 250,790 | ||||||||||||||||||||||
Balance at June 30, 2021 | 40,796,179 | $ | 408 | - | $ | - | $ | 291,401 | $ | (90,813 | ) | $ | (6,497 | ) | $ | - | $ | (3,101 | ) | $ | 191,398 | $ | 54,072 | $ | 245,470 | |||||||||||||||||||||||
Issuance of common stock | 63,559 | 1 | - | - | 150 | - | - | - | - | 151 | - | 151 | ||||||||||||||||||||||||||||||||||||
Share-based compensation expenses | - | - | - | - | 341 | - | - | - | - | 341 | - | 341 | ||||||||||||||||||||||||||||||||||||
Warrant expense | - | - | - | - | 161 | - | - | - | - | 161 | - | 161 | ||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | 76 | - | - | - | 76 | 3,046 | 3,122 | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | (179 | ) | - | (295 | ) | (474 | ) | (374 | ) | (848 | ) | |||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | 57,759 | (329 | ) | - | - | - | - | - | (329 | ) | - | (329 | ) | |||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 40,859,738 | $ | 409 | 57,759 | $ | (329 | ) | $ | 292,053 | $ | (90,737 | ) | $ | (6,676 | ) | $ | - | $ | (3,396 | ) | $ | 191,324 | $ | 56,744 | $ | 248,068 | ||||||||||||||||||||||
Nine months ended | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 40,893,396 | $ | 409 | 412,769 | $ | (1,912 | ) | $ | 291,537 | $ | (84,043 | ) | $ | (6,816 | ) | $ | - | $ | (3,871 | ) | $ | 195,304 | $ | 58,016 | $ | 253,320 | ||||||||||||||||||||||
Issuance of common stock | 172,126 | 2 | - | - | 346 | - | - | - | - | 348 | - | 348 | ||||||||||||||||||||||||||||||||||||
Share-based compensation expenses | - | - | - | - | 1,213 | - | - | - | - | 1,213 | - | 1,213 | ||||||||||||||||||||||||||||||||||||
Warrant adjustment | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | 867 | - | - | - | 867 | 4,311 | 5,178 | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | (7,090 | ) | - | (146 | ) | (7,236 | ) | (397 | ) | (7,633 | ) | |||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | 370,133 | $ | (1,636 | ) | - | - | - | - | - | (1,636 | ) | - | (1,636 | ) | ||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 41,065,522 | $ | 411 | 782,902 | $ | (3,548 | ) | $ | 293,096 | $ | (83,176 | ) | $ | (13,906 | ) | $ | - | $ | (4,017 | ) | $ | 188,860 | $ | 61,930 | $ | 250,790 | ||||||||||||||||||||||
Balance at December 31, 2020 | 40,453,462 | $ | 405 | - | $ | - | $ | 288,700 | $ | (85,543 | ) | $ | (4,529 | ) | $ | (8 | ) | $ | (2,749 | ) | $ | 196,276 | $ | 50,606 | $ | 246,882 | ||||||||||||||||||||||
Issuance of common stock | 406,276 | 4 | - | - | 1,430 | - | - | - | - | 1,434 | - | 1,434 | ||||||||||||||||||||||||||||||||||||
Share-based compensation expenses | - | - | - | - | 932 | - | - | - | - | 932 | - | 932 | ||||||||||||||||||||||||||||||||||||
Warrant expense | - | - | - | - | 991 | - | - | - | - | 991 | - | 991 | ||||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | (5,194 | ) | - | - | - | (5,194 | ) | 6,581 | 1,387 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | - | - | - | (2,147 | ) | 8 | (647 | ) | (2,786 | ) | (443 | ) | (3,229 | ) | |||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | 57,759 | (329 | ) | - | - | - | - | - | (329 | ) | - | (329 | ) | |||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 40,859,738 | $ | 409 | 57,759 | $ | (329 | ) | $ | 292,053 | $ | (90,737 | ) | $ | (6,676 | ) | $ | - | $ | (3,396 | ) | $ | 191,324 | $ | 56,744 | $ | 248,068 | ||||||||||||||||||||||
Common stock | Treasury Stock | Additional paid in capital | Accumulated earnings (deficit) | Other items of OCI | Non controlling interest | Total equity | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Foreign currency translation | Change in fair value of derivative instruments | Unrecognised pension cost | Total | |||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 41,098,456 | 411 | 839,214 | (3,749 | ) | 293,472 | (86,302 | ) | (11,781 | ) | - | (4,277 | ) | 187,774 | 63,792 | 251,566 | ||||||||||||||||||||||||||||||||
Transition period adjustment pursuant to ASC 326, net of tax | - | - | - | - | - | (101 | ) | - | - | - | (101 | ) | - | (101 | ) | |||||||||||||||||||||||||||||||||
Issuance of common stock | 34,768 | - | - | - | 17 | - | - | - | - | 17 | - | 17 | ||||||||||||||||||||||||||||||||||||
Share-based compensation expenses | - | - | - | - | 380 | - | - | - | - | 380 | - | 380 | ||||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | - | - | - | - | - | (558 | ) | - | - | - | (558 | ) | - | (558 | ) | |||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations | - | - | - | - | - | (112 | ) | - | - | - | (112 | ) | 2,589 | 2,477 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) from continuing operations | - | - | - | - | - | - | (124 | ) | - | 124 | - | - | - | |||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) from discontinued operations | - | - | - | - | - | - | - | - | 511 | 511 | 614 | 1,125 | ||||||||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 41,133,224 | 411 | 839,214 | (3,749 | ) | 293,869 | (87,073 | ) | (11,905 | ) | - | (3,642 | ) | 187,911 | 66,995 | 254,906 | ||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 40,893,396 | 409 | 412,769 | (1,912 | ) | 291,537 | (84,043 | ) | (6,816 | ) | - | (3,871 | ) | 195,304 | 58,016 | 253,320 | ||||||||||||||||||||||||||||||||
Issuance of common stock | 59,825 | 1 | - | - | 139 | - | - | - | - | 140 | - | 140 | ||||||||||||||||||||||||||||||||||||
Share-based compensation expenses | - | - | - | - | 428 | - | - | - | - | 428 | - | 428 | ||||||||||||||||||||||||||||||||||||
Net income (loss) from continuing operations | - | - | - | - | - | (767 | ) | - | - | - | (767 | ) | - | (767 | ) | |||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations | - | - | - | - | - | (476 | ) | - | - | - | (476 | ) | 1,529 | 1,053 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) from Continuing operations | - | - | - | - | - | - | 546 | - | 64 | 610 | - | 610 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) from discontinued operations | - | - | - | - | - | - | 1 | - | (545 | ) | (544 | ) | (655 | ) | (1,199 | ) | ||||||||||||||||||||||||||||||||
Repurchase of common stock | - | - | 259,407 | (1,271 | ) | - | - | - | - | - | (1,271 | ) | - | (1,271 | ) | |||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 40,953,221 | 410 | 672,176 | (3,183 | ) | 292,104 | (85,286 | ) | (6,269 | ) | - | (4,352 | ) | 193,424 | 58,890 | 252,314 | ||||||||||||||||||||||||||||||||
As of September 30,March 31, 2023 and March 31, 2022, and December 31, 2021, there were 40,282,62040,294,010 and 40,480,62740,281,045 shares outstanding respectively of Common Stock, net off treasury stock.
*Total face value of common stock issued during the three months ended March 31, 2023 is $0.35.
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022March 31, 2023
(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, 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 touchpoints and channels. Startek has more than 44,00032,000 employees globally, spread across 36 delivery campuses in 13 countries. 11 countries. The Company services over 170140 clientsacross various industries such as Banking and Financial Services, Insurance, Technology, Telecom, Healthcare, Travel and Hospitality, Consumer Goods, Retail, Media & Cable, E-commerce 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 noone solution fits all, we have crafted solution delivery to suit a variety of 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.
During the previous year, the Company had classified Middle East and Argentina operations as 'Held for Sale and Discontinued Operations' and accordingly discussion in the business section pertains to continuing operations of the Company.
Basis of preparation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and instructions to Form 10-Q10-Q and Article 10 of Regulation S-X.S-X. Accordingly, they do not include all information and footnotes required by U.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-year results.
The consolidated financial statements includereflects the accountsfinancial results of Startek, Incall subsidiaries that are more than 50% owned and its subsidiaries 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 attributable to non-controlling interests" in our consolidated statement of income (loss).
As of December 31, 2021, 2022, 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 U.S. GAAP. As such, the information included in this quarterly report on Form 10-Q10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K10-K for the year ended December 31, 2021.2022.
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, 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 assumption about the possible effect of the global macroeconomic conditions, including heightened inflation, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, labor shortages & challenges in supply chain, have the potential to negatively impact the Company. There current macroeconomic conditions may continue or aggravate and could cause the United States economy or other global economies to experience an economic slowdown or recession. We anticipate our business and operations could be materially adversely affected by a prolonged recession in the United States or other major global economy. Although these estimates and assumptions 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-stepfive-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 45 on "Revenue" for further information.
Allowance for Expected Credit Losses
The Company maintains an allowance for current expected credit losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses which are adjusted to current market and economic conditions and a reasonable and supportable forecast. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Refer Note 5 on "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 non-financial 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 leases. Refer to Note 13, "Leases" for additional information.
We have lease agreements with lease and non-lease components, which are generally accounted for separately.
Property, Plant and Equipment |
Property, plant, and equipment, are stated at depreciated cost. Additions and improvement activities are capitalized. Maintenance and repairs are expensed as incurred. Assets held under finance leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Depreciation and amortization is computed using the straight-line method based on their estimated useful lives, as follows: |
Estimated Useful Life | |||
Buildings and building improvements | 3-20 years | ||
Telephone and computer equipment | 3-10 years | ||
Furniture, fixtures, and miscellaneous equipment | 3-15 years | ||
Software | 1-7 years |
We depreciate leasehold improvements associated with operating leases over the shorter of 15 years or remaining life of the lease. Amortization expense related to assets recorded under capital leases is included in depreciation and amortization expense. |
Impairment of Long-Lived Assets |
The Company evaluates potential impairments of long-lived assets when it determines that the carrying value of a long-lived asset maynot be recoverable based upon the existence of one or more indicators of impairment (for examples, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group, a significant decrease in the market price of a long-lived asset or asset group, a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life), we evaluate the projected undiscounted cash flows related to the assets. If these cash flows are less than the carrying values of the assets, we measure the impairment based on the excess of the carrying value of the long-lived asset over the long-lived asset’s fair value. Our projections contain assumptions pertaining to anticipated levels of utilization and revenue that may or maynot be under contract but are based on our experience and/or projections received from our customers. |
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
Goodwill |
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 the reporting unit, 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 more likely than not reduce the fair value of a reporting unit below its carrying amount. Refer Note 4, "Goodwill and Intangible Assets" and Note 7, "Impairment Losses and Restructuring/Exit cost" 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.
Intangible Assets |
We amortize all acquisition-related intangible assets that are subject to amortization using the straight-line method over the estimated useful life based on economic benefit as follows: |
Estimated Useful Life | |||
Customer Relationship | 8 - 13.5 years | ||
Brand | 13.5 years | ||
Trademarks | 15 years | ||
Developed Technology | 5 years |
We perform a review of intangible assets to determine if facts and circumstances indicate that the useful life is shorter than we had originally estimated or that the carrying amount of assets maynot be recoverable. If such facts and circumstances exist, we assess recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. Intangible assets acquired in a business combination were recorded at fair value at acquisition date using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over the estimated useful lives and are reviewed for impairment if indicators of impairment arise. Refer Note 4, "Goodwill and Intangible Assets" for information and related disclosures. |
Foreign Currency MattersFair Value Measurements
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 U.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.
The carrying value of our cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and restructuring liabilities approximate fair value because of their short-term nature. Our debt has a variable interest rate, so the carrying amount approximates fair value because interest rates on these instruments approximate the interest rate on debt with similar terms available to us. |
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk. |
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The levels of the fair value hierarchy are described below: |
Level 1 - Quoted prices for identical instruments traded in active markets. |
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. |
Level 3 - Unobservable inputs that cannot be supported by market activity and that are significant to the fair value of the asset or liability, such as the use of certain pricing models, discounted cash flow models and similar techniques that use significant assumptions. These unobservable inputs reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. |
Refer to Note 9, “Fair Value Measurements,” for additional information on how we determine fair value for our assets and liabilities. |
Investment in equity-accounted investees
Cash and cash equivalents and restricted cash |
We consider cash equivalents to be short-term, highly liquid investments readily convertible to known amounts of cash and so near their maturity at purchase that they present insignificant risk of changes in value because of changes in interest rates. Restricted cash consists of margin money deposit that is contractually restricted as to usage or withdrawal. |
Investment in equity 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 financial and operating policy decisions of the investee but is not control or joint control over those policies.
Investment in equity accounted investees are accounted for using equity method of accounting. Under the equity method, the investment in equity 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 accounted investees. Goodwill relating to investment in equity 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 accounted investees. When there has been a change recognized directly in the equity of the equity 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 investment are eliminated to the extent of the interest in the equity accounted investees. The Company’s share of income (loss) of equity accounted investee is shown on the face of the consolidated statement of income (loss).
The financial statements of the equity 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 Company determines at each reporting date whether there is any objective evidence that the investment in equity accounted investee is impaired, if there has been 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 of income (loss) of equity 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 expenses 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 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
Borrowing costs |
Borrowing costs include interest as well as ancillary costs such as amortization of financing fees or charges and premium or discount on the borrowings. Borrowing costs (loan processing fee) are capitalized and amortized in the consolidated statement of income using effective interest method. Refer to Note 10, "Debt" for further information and disclosures. |
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.
Interest and dividend income |
Interest revenue is recognized on an accrual basis taking into account the interest rates applicable to the financial assets. |
Dividend income is recognized when the Company’s right to receive such income is established by the reporting date. |
In the fourth quarter of 2021, a correction was made to present the payment of an amount of $8,475 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 the above reclassifications are an increase in cash flows from operating activities by $8,475 and a corresponding decline in cash flows from financing activities by $8,475.
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 related to the transaction 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.
Government grants and subsidies |
Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received, and the Company will comply with all attached conditions. Government grants received on capital expenditure are generally deducted in arriving at the carrying amount of the asset purchased. Grants for revenue expenditure are netted against the cost incurred by the Company. Where retention of a government grant is dependent on the Company satisfying certain criteria, it is initially recognized as deferred income. When the criteria for retention have been satisfied, the deferred income balance is netted against the asset purchased. Government grant in the nature of export incentive is recognized as revenue. |
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-partythird-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 6,7, "Impairment Losses and Restructuring/Exit cost" for additional information.
Derivative Instruments and Hedging Activities
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 inIn the ordinary course of business, somethe Company uses certain derivative financial instruments to reduce business risks which arise from its exposure to foreign exchange and interest rate fluctuations associated with borrowings (cash flow hedges). When the Company opts to undertake hedge accounting, the Company documents, at the inception of the hedging transaction, the economic relationship between hedging instruments and hedged items including whether the hedging instrument is expected to offset changes in cash flows or fair values of hedged items. The Company documents its risk management objective and strategy for undertaking various hedge transactions at the inception of each hedge relationship. Derivatives are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged and the type of hedge relationship designated.
Cash flow hedges that qualify for hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges, is recognised through OCI and as cash flow hedging reserve within equity, limited to the cumulative change in fair value of the hedged item on a present value basis from the inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in the Statement of Income (loss). Amounts accumulated in equity are reclassified to the Statement of Income (loss).
Derivatives that are not designated as hedges
When derivative contracts to hedge risks are not designated as hedges, the gains or losses on subsequent measurement of such contracts are recognised through Consolidated Statement of Income (loss). |
Presentation |
The entire fair value of a derivative contract is classified as a noncurrent asset or liability when the remaining maturity of the contract exceeds 12 months; it is classified as a current asset or liability when the remaining maturity of the contract does not exceed 12 months. Refer to Note 8 "Derivative Instruments" to the financial statements for more details.
Foreign Currency Matters
The Company has operations in Argentina (classified as discontinued operations) and its functional currency has historically been the Argentine Peso. The Company monitors inflation rates in countries where it operates as required by U.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 may be covered by insurance. 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.
Income Taxes |
Income taxes are accounted for under the asset and liability method. Deferred income taxes reflect net effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. We are subject to foreign income taxes on our foreign operations. We are required to estimate our income taxes in each jurisdiction in which we operate. This process involves estimating our actual current tax exposure, together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. The tax effects of these temporary differences are recorded as deferred tax assets or deferred tax liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statement of income (loss) in the period during which such rates are enacted. We record a valuation allowance when it is more likely than not that we will not realize the net deferred tax assets in a certain jurisdiction. |
We consider all available evidence to determine whether it is "more likely than not" that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods) and projected taxable income in assessing the validity of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. In order to fully realize the U.S. deferred tax assets, we will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code. |
We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration or not subject to taxation in the US or in the local country. Within consolidated retained earnings are undistributed after-tax earnings from certain non-U.S. subsidiaries that are not indefinitely reinvested. Generally, the earnings of our foreign subsidiaries become subject to taxation based on certain provisions in U.S. or local tax law under certain circumstances. |
Employee benefits |
Contributions to defined contribution plans are charged to consolidated statements of operations in the period in which services are rendered by the covered employees. Current service costs for defined benefit plans are accrued in the period to which they relate. The liability in respect of defined benefit plans is calculated annually by the Company using the projected unit credit method. Prior service cost, if any, resulting from an amendment to a plan is recognized and amortized over the remaining period of service of the covered employees. The Company recognizes its liabilities for compensated absences dependent on whether the obligation is attributable to employee services already rendered, relates to rights that vest or accumulate and payment is probable and estimable. |
The Company records annual amounts relating to its defined benefit plans based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return, compensation increases and turnover rates. The Company reviews its assumptions on quarterly basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions. |
Stock-Based Compensation
We recognize expenses 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 expenses. We use the Black-Scholes method for valuing stock-based awards. See Note 11, “Share-Based Compensation” for further information.
Net Income (Loss) Per Share |
Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. For the purposes of calculating diluted earnings per share, the treasury stock method is used for stock-based awards except where the results would be anti-dilutive. When a net loss is reported, potentially issuable common shares are generally excluded from the computation of diluted earnings per share as their effect would be anti-dilutive. Refer to Note 6, "Net Income/ (Loss) Per Share" for additional information. |
Assets Held for Sale and Discontinued Operations
The outcomes of these actions are not predictable, but we do not believe thatCompany reports the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations liquidity,of a business as discontinued operations if a disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the business is sold and classified as held for sale, in accordance with the criteria of Accounting Standard Codification ("ASC") Topic 205-20 "Presentation of Financial Statements - Discontinued Operations" and ASC Topic 360-10 "Impairment and Disposal of Long Lived Assets". The results of discontinued operations are reported in Income from Discontinued Operations, net of tax in the accompanying Consolidated Statement of Income for the current and prior period and include any gain 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 estimateloss recognized on closing, or adjustment of the carrying amount or estimated fair value less cost to sell. If the carrying amount of the loss. However, if therebusiness exceeds its estimated fair value less cost to sell, a loss is recognized. Assets and liabilities related to a significant increasebusiness classified as held for sale are segregated in the numbercurrent and prior-period balance sheet. All assets and liabilities of these claims,the operations classified as held for sale are disclosed as current assets and liabilities in the current year and previous year classification has been retained. The Company allocate interest cost on Debt that is required to be repaid as a result of disposal to discontinued operations. Interest cost on Corporate Debt not directly attributable to discontinued operations is allocated between continuing and discontinued operations in the ratio mentioned in ASC 205-20-45-7 which as follows:
Net assets to be sold or if we incur greater liabilities than we currently anticipate under onediscontinued less debt that is required to be paid as a result of the disposal /
The sum of total net assets of the entity plus debt other than: 1) debt of the discontinued operations that will be assumed by the buyer; 2) debt that is required to be paid as a result of the disposal transaction; and 3) debt that can be directly attributable to other operations of the entity.
If a business is classified as held for sale after the balance sheet but before the financial statements are issued or more claims, it could materiallyare available to be issued, the business continues to be classified as held and adversely affectused in those financial statements when issued or when available to be issued.
Refer “Note 3A & 3B – "Discontinued Operations and Held for Sale" in our business,consolidated financial condition, results of operationsstatements included elsewhere in this report for additional information and cash flows.disclosures.
Changes in Accounting Policies
Except as described below, the Company has applied accounting policies consistently to all periods presented in these consolidated financial statements. The Company adopted ASC Topic 326, Financial Instruments—Credit Losses (“Topic326”), effective January 1, 2023. As a result of the Company’s adoption of this new standard, current expected credit losses(“CECL”) are measured using lifetime “expected credit loss” methodology, replacing the incurred loss model that recognized losses only when they became probable and estimable. The Company changed its accounting policy for recognition and measurement of CECL as detailed below. Topic 326 is applicable to financial assets measured at amortized cost. It requires historical loss data to be adjusted to reflect changes in asset-specific considerations, current conditions and reasonable and supportable forecasts of future economic conditions. To analyse credit losses on financial assets, the Company applied aging Schedule method to determine expected credit losses. The Company applied Topic 326 using the modified retrospective transition approach, which involves recognizing the cumulative effect of initial adoption of Topic 326 as an adjustment to its opening retained earnings as of January 1, 2023.Therefore, comparative information prior to the adoption date has not been adjusted.
Recent Accounting Pronouncements
In June 2016, March 2020,FASB issued ASU 2016No.2020-13, Financial Instruments - Credit Losses04, Reference Rate Reform (Topic 326848) ("ASU 2016-13"), Measurement of Credit Losses on Financial Instruments. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard will replace today's "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for annual periods beginning after December 15, 2022, and interim periods therein for smaller reporting companies. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
In March 2020, the FASB issued ASU No.2020-04, “Facilitation: Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and London Inter-Bank Offered Rate (“LIBOR”). The ASU provides practical expedients and exceptions to the guidance infor applying U.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”)contracts, hedging relationships, 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 contractstransactions 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 isamendments are elective and are effective upon issuance for all entities through December 31, 2022. In December 2022, FASB issued ASU No.2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, to defer the sunset date of Topic 848 until December 31, 2024. The Company is still in the process of assessing the impact of this ASU 2020-04.
3A. Discontinued Operations and generally canHeld for Sale - Contact Center Company
On November 10, 2022, the Company has accepted a final offer by Arabian Internet and Communications Services Company (Solutions) to acquire Startek’s indirect 51% ownership interest in its subsidiary Contact Center Company (CCC), which is the Company’s joint venture that operates in the Kingdom of Saudi Arabia. After consideration of the relevant facts, the Company concluded the assets and liabilities of its CCC component met the criteria for classification as held for sale. The Company concluded that the actual and proposed disposal activities represented a strategic shift that will have a major effect on the Company’s operations and financial results and qualified for presentation as discontinued operations in accordance with FASB Accounting Standards Codification (ASC) 205-20. Accordingly, the financial results of the CCC are presented in the Consolidated Statements of Operations as discontinued operations for all periods presented. Current and non-current assets and liabilities of the business not sold as of the balance sheet date are presented in the Consolidated Balance Sheet as current assets and liabilities held for sale for both periods presented. Interest expense on term loans allocated to discontinued operations represents interest expenses on term loans which were required to be applied through settled upon the sale of the CCC. CCC was forming part of the 'Middle East' segment in the consolidated financial statements for the period ended March 31, 2022.
Subsequently, on January 11, 2023, the Company entered into a definitive Sale and Purchase Agreement with Solutions. The Sale and Purchase Agreement provided for a transaction based on an enterprise value for CCC of $ 120 million (SAR 450 million), on a debt free and cash free basis, to be paid in cash at closing, subject to the adjustments set forth in the Sale and Purchase Agreement. The transaction has been approved by the General Authority for Competition (GAC) in the Kingdom of Saudi Arabia and the Company has also obtained consent from its lenders.
On April 3, 2023, the Company completed its sale of ownership interest in “CCC” to “Solutions”. At closing, the Company received cash proceeds of approximately $68.9 million subject to true-up working capital adjustments to the amount paid on the closing date and tax payable on the transaction. Under the Sale and Purchase Agreement, the Company will act as a guarantor for the obligations of its indirect subsidiary that owns the Company’s interests in CCC.
The following table summarizes the income statement information of discontinued operations:
Statement of income (loss) | Three Months Ended March 31, | |||||||
2023 | 2022 | |||||||
Revenue | 64,364 | 58,687 | ||||||
Cost of services | (54,889 | ) | (51,672 | ) | ||||
Gross profit | 9,475 | 7,015 | ||||||
Selling, general and administrative expenses | (3,117 | ) | (2,684 | ) | ||||
Impairment losses and restructuring/exit cost | (4 | ) | (30 | ) | ||||
Operating income | 6,354 | 4,301 | ||||||
Interest expense and other income (expense), net* | (1,174 | ) | (611 | ) | ||||
Foreign exchange gains (losses), net | (10 | ) | (6 | ) | ||||
Income before tax expenses | 5,170 | 3,684 | ||||||
Tax expenses | (1,184 | ) | (1,455 | ) | ||||
Net income | 3,986 | 2,229 | ||||||
*includes allocated interest.
The following table summarizes the carrying values of the assets and liabilities classified as held for sale in our consolidated balance sheet:
March 31, 2023 | December 31, 2022 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 28,284 | 38,002 | ||||||
Restricted cash | 5,735 | 4,374 | ||||||
Trade accounts receivables, net | 33,853 | 24,794 | ||||||
Unbilled revenue | 46,434 | 43,322 | ||||||
Prepaid and other current assets | 4,696 | 5,971 | ||||||
Total current assets | 119,002 | 116,463 | ||||||
Non-current assets | ||||||||
Property, plant and equipment, net | 4,449 | 3,656 | ||||||
Operating lease right-of-use assets | 11,289 | 12,184 | ||||||
Goodwill | 54,840 | 54,840 | ||||||
Deferred tax assets, net | 4,880 | 4,914 | ||||||
Prepaid expenses and other non-current assets | 3,670 | 3,127 | ||||||
Total non-current assets | 79,128 | 78,721 | ||||||
Total assets classified as held for sale in the consolidated balance sheet | 198,130 | 195,184 | ||||||
Liabilities | ||||||||
Current liabilities | ||||||||
Trade accounts payables | 3,927 | 658 | ||||||
Accrued expenses | 15,992 | 19,467 | ||||||
Current maturity of operating lease liabilities | 6,283 | 6,752 | ||||||
Other current liabilities | 28,912 | 36,129 | ||||||
Total current liabilities | 55,114 | 63,006 | ||||||
Non-current liabilities | ||||||||
Operating lease liabilities | 4,211 | 4,702 | ||||||
Other non-current liabilities | 17,053 | 11,817 | ||||||
Deferred tax liabilities, net | 2,908 | 2,734 | ||||||
Total non-current liabilities | 24,172 | 19,253 | ||||||
Total liabilities classified as held for sale in the consolidated balance sheet | 79,286 | 82,259 | ||||||
Net cash flows attributable to the discontinued operations: | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
Net cash generated from/used in operating activities | (5,652 | ) | 3,699 | |||||
Net cash used in investing activities | (3,513 | ) | (1,280 | ) | ||||
Net cash (used in) / provided by financing activities | - | - | ||||||
Net Cash Inflow | (9,165 | ) | 2,419 | |||||
3B. Discontinued Operations and Held for Sale - Argentina
On December 31,2022. This amendment shall apply14, 2022, the Company has entered into an engagement letter with M/S Estudio A & L LLC (‘the Firm’) pursuant to any term loan obtainedwhich the Firm would serve as a non-exclusive advisor in connection with the potential sale of Aegis Argentina. The Firm will perform services for the Company such as advice on the structure, negotiation strategy, valuation analyses, financial terms, and other financial matters etc. If required, the Firm will assist the Company in preparing a brief memorandum, for distribution to potential buyers, describing the Company and its business, operations, properties, financial condition, and prospects. The Firm to negotiate and execute on its behalf and/or the Company’s behalf confidentiality agreements with potential parties to a Transaction and to deliver confidential memoranda or other data furnished to the Firm by the Company which is linkedfor distribution to LIBOR.such parties. During the first quarter, the Company entered into discussions with potential buyers. The discussions are still ongoing and the Company expects to enter in diligence phase in near future.
After consideration of the relevant facts, the Company concluded the assets and liabilities of Argentina met the criteria for classification as held for sale. The Company is closely monitoringconcluded the marketactual and proposed disposal activities represented a strategic shift that will have a major effect on the announcements fromCompany’s operations and financial results and qualified for presentation as discontinued operations in accordance with FASB Accounting Standards Codification (ASC) 205-20. Accordingly, the bank managingfinancial results of the transition to new benchmark interest ratesArgentina are presented in the Consolidated Statements of Operations as discontinued operations for its term loan benchmarked to LIBOR. Based on announcements by bank,all periods presented. Current and non-current assets and liabilities of the transition will take effect. business not sold as of the balance sheet date are presented in the Consolidated Balance Sheet as current assets and liabilities held for sale for both periods presented. Argentina was forming part of the 'Argentina and Peru' segment in the consolidated financial statements for the period ended March 31, 2022.
The Company is not expecting any material financial impactfollowing table summarizes the income statement information of transition from LIBOR to alternative benchmark rates on its floating rate borrowings linked to LIBOR.discontinued operations:
Statement of income (loss) | Three Months Ended March 31, | |||||||
| 2023 | 2022 | |||||||
Revenue | 6,134 | 7,538 | ||||||
Cost of services | (6,255 | ) | (7,991 | ) | ||||
Gross profit (loss) | (121 | ) | (453 | ) | ||||
Selling, general and administrative expenses | (467 | ) | (530 | ) | ||||
Impairment losses and restructuring/exit cost | (1,341 | ) | (1,382 | ) | ||||
Operating income (loss) | (1,929 | ) | (2,365 | ) | ||||
Interest expense and other income (expense), net | 534 | 1,367 | ||||||
Foreign exchange gains (losses), net | (114 | ) | (178 | ) | ||||
Income (loss) | (1,509 | ) | (1,176 | ) | ||||
Tax expense | - | - | ||||||
Net (loss) | (1,509 | ) | (1,176 | ) | ||||
In November 2021,
The following table summarizes 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 accountedcarrying values of the assets and liabilities classified as held 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 adopting ASU 2021-10 within its Form 10-K for the fiscal year 2022.sale in our consolidated balance sheet as:
March 31, 2023 | December 31, 2022 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 553 | 367 | ||||||
Trade accounts receivables, net | 2,524 | 2,483 | ||||||
Unbilled revenue | 1,444 | 1,320 | ||||||
Prepaid and other current assets | 1,806 | 1,988 | ||||||
Total current assets | 6,327 | 6,158 | ||||||
Non-current assets | ||||||||
Property, plant and equipment, net | 859 | 854 | ||||||
Operating lease right-of-use assets | 552 | 620 | ||||||
Prepaid expenses and other non-current assets | 15 | 15 | ||||||
Total non-current assets | 1,426 | 1,489 | ||||||
Total assets classified as held for sale in the consolidated balance sheet | 7,753 | 7,647 | ||||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Trade accounts payables | 199 | 307 | ||||||
Accrued expenses | 3,039 | 1,951 | ||||||
Short term debt | 154 | 325 | ||||||
Current maturity of operating lease liabilities | 394 | 398 | ||||||
Other current liabilities | 2,583 | 2,674 | ||||||
Total current liabilities | 6,369 | 5,655 | ||||||
Non-current liabilities | ||||||||
Operating lease liabilities | 163 | 226 | ||||||
Other non-current liabilities | 1,135 | 1,346 | ||||||
Total non-current liabilities | 1,298 | 1,572 | ||||||
Total liabilities classified as held for sale in the consolidated balance sheet | 7,667 | 7,227 | ||||||
March 31, 2023 | March 31, 2022 | |||||||
Net cash generated from / used in operating activities | (773 | ) | (2,113 | ) | ||||
Net cash generated from / used in investing activities | (5 | ) | 9 | |||||
Net cash generated from / used in financing activities | (132 | ) | (84 | ) | ||||
Net Cash outflow | (910 | ) | (2,188 | ) | ||||
3.4. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The carrying value of goodwill is allocated to reporting units as follows:
Reporting Units: | September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | ||||||||||||
Americas | 64,315 | 64,315 | 60,128 | 60,128 | ||||||||||||
India | 12,554 | 12,554 | 12,554 | 12,554 | ||||||||||||
Malaysia | 47,543 | 47,543 | 43,678 | 43,678 | ||||||||||||
Saudi Arabia | 54,840 | 54,840 | ||||||||||||||
Australia | 4,145 | 4,145 | 4,145 | 4,145 | ||||||||||||
Total | $ | 183,397 | $ | 183,397 | 120,505 | 120,505 | ||||||||||
We perform a goodwill impairment analysis at least annually (in the fourth quarter of each year) unless indicators of impairment exist in interim periods. The assumptions used in the analysis are based on the Company’s internal budget. The Company projects revenue, operating margins, and cash flows for a period of five years and applies 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.
As of September 30,2022,March 31, 2023, based on the qualitative assessment, we concluded that there is no impairment of goodwill.
The following table presents the changes in goodwill during the ninethree months ended September 30, 2022March 31, 2023 and year ended December 31, 2021:2022:
September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Opening balance | 183,397 | 183,397 | 120,505 | 128,557 | ||||||||||||
Impairment | - | - | - | (8,052 | ) | |||||||||||
Closing balance | $ | 183,397 | $ | 183,397 | 120,505 | 120,505 | ||||||||||
Intangible Assets
The following table presents our intangible assets:
As of September 30, 2022 | As of March 31, 2023 | |||||||||||||||||||||||||||||||
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 | 26,077 | 40,143 | 6.5 | 66,220 | 28,871 | 37,349 | 6.5 | ||||||||||||||||||||||||
Brand | 49,500 | 17,816 | 31,684 | 7.1 | 49,500 | 19,643 | 29,857 | 7.1 | ||||||||||||||||||||||||
Trademarks | 13,210 | 3,696 | 9,514 | 7.5 | 13,210 | 4,137 | 9,073 | 7.5 | ||||||||||||||||||||||||
Other intangibles | 2,130 | 1,124 | 1,006 | 4.9 | 2,130 | 1,225 | 905 | 4.9 | ||||||||||||||||||||||||
| $ | 131,060 | $ | 48,713 | $ | 82,347 | 131,060 | 53,876 | 77,184 | ||||||||||||||||||||||||
As of December 31, 2021 | As of December 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 | 21,887 | 44,333 | 6.5 | 66,220 | 27,484 | 38,736 | 6.5 | ||||||||||||||||||||||||
Brand | 49,500 | 15,074 | 34,426 | 7.1 | 49,500 | 18,740 | 30,760 | 7.1 | ||||||||||||||||||||||||
Trademarks | 13,210 | 3,036 | 10,174 | 7.5 | 13,210 | 3,917 | 9,293 | 7.5 | ||||||||||||||||||||||||
Other intangibles | 2,130 | 971 | 1,159 | 4.9 | 2,130 | 1,174 | 956 | 4.9 | ||||||||||||||||||||||||
| $ | 131,060 | $ | 40,968 | $ | 90,092 | 131,060 | 51,315 | 79,745 | ||||||||||||||||||||||||
As of September 30, 2022, March 31,2023 based on the management assessment, we concluded that there is no impairment on the Company's intangible assets.
Expected future amortization of intangible assets as of September 30, 2022March 31, 2023 is as follows:
Year ending December 31, | Amount | Amount | ||||||
Remainder of 2022 | 2,586 | |||||||
2023 | 10,306 | |||||||
Remainder of 2023 | 7,786 | |||||||
2024 | 10,252 | 10,252 | ||||||
2025 | 10,252 | 10,252 | ||||||
2026 | 9,490 | 9,490 | ||||||
2027 | 8,549 | |||||||
Thereafter | 39,461 | 30,855 | ||||||
The Company follows a five-stepfive-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. Our contracts document our customers' agreement 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 60-9060-90 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 entitled to invoice for our services on a monthly basis. We invoice according to the hourly and/or per-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 |
• | ASC |
• | ASC |
• | ASC |
Disaggregated Revenue
Revenues by our clients' industry verticals for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 respectively:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
Vertical | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | ||||||||||||||||||
Telecom | 57,819 | 56,676 | 174,565 | 161,961 | 23,985 | 24,343 | ||||||||||||||||||
E-commerce & Consumer | 20,589 | 22,434 | 59,966 | 74,757 | 15,996 | 20,143 | ||||||||||||||||||
Financial & Business Services | 18,013 | 17,161 | 52,312 | 48,374 | 13,379 | 13,135 | ||||||||||||||||||
Media & Cable | 12,269 | 22,863 | 45,139 | 72,435 | 13,966 | 15,351 | ||||||||||||||||||
Travel & Hospitality | 14,228 | 12,027 | 41,238 | 33,066 | 11,699 | 12,272 | ||||||||||||||||||
Healthcare & Education | 7,522 | 15,315 | 26,348 | 73,020 | 6,646 | 8,633 | ||||||||||||||||||
Technology, IT & Related Services | 4,308 | 5,125 | 14,765 | 15,064 | 3,271 | 3,619 | ||||||||||||||||||
Other verticals | 28,387 | 21,347 | 83,760 | 47,202 | 3,147 | 3,596 | ||||||||||||||||||
Gross revenue | 163,135 | 172,948 | 498,093 | 525,879 | ||||||||||||||||||||
Less: Warrant contra revenue | - | (161 | ) | - | (991 | ) | ||||||||||||||||||
Net revenue | $ | 163,135 | $ | 172,787 | $ | 498,093 | $ | 524,888 | ||||||||||||||||
Revenue | 92,089 | 101,092 |
| |||||||||||||||||||||
Allowance for expected credit losses
On January 1, 2023, the Company adopted ASC Topic 326, ‘Financial Instruments-Credit Losses’. Accounts receivables, unbilled revenue and other financial assets are in the scope for which assessment is made. In calculating expected credit loss, the Company also considered past payment and recovery trends, and other related information for its customers to estimate the probability of default in the future.
As a result of adoption of ASC 326, the Company recognized an incremental allowance for credit losses on its accounts receivable and unbilled revenue, resulting in decrease in these assets by $135, increase in deferred tax assets by $34 and a corresponding decrease in retained earnings by $101 as on January 1, 2023.
As of March 31, 2023 | As of December 31, 2022 | |||||||
Trade accounts receivables and Unbilled Revenue | 77,877 | 74,377 | ||||||
Less: Allowance for expected credit loss | (3,363 | ) | (3,032 | ) | ||||
Trade accounts receivables and Unbilled Revenue | 74,514 | 71,345 | ||||||
The movement in allowance for current expected credit loss on Trade accounts receivables and Unbilled revenue for the period ended March 31, 2023 and December 31, 2022, is as follows:
As of March 31, 2023 | ||||
Balance at the beginning of the period | 3,032 | |||
Transition period adjustment pursuant to ASC 326 | 135 | |||
Additions during the period | 196 | |||
Balance at the end of the period | 3,363 | |||
5.6. NET INCOME / (LOSS) PER SHARE
Basic earnings per common share are computed based on our weighted average number of common shares outstanding. Diluted earnings per share are 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 and nine months ended September 30,March 31, 2023 and 2022, and 2021, the following number of shares were used in the computation of basic and diluted earnings per share calculation (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Shares used in basic earnings per share calculation | 40,326 | 40,788 | 40,316 | 40,723 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options | 7 | 306 | 38 | - | ||||||||||||
Restricted stock/Deferred stock units | - | - | - | - | ||||||||||||
Total effects of dilutive securities | 7 | 306 | 38 | - | ||||||||||||
Shares used in dilutive earnings per share calculation | 40,333 | 41,094 | 40,354 | 40,723 | ||||||||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Shares used in basic earnings per share calculation | 40,321 | 40,338 | ||||||
Effect of dilutive securities: | ||||||||
Stock options | - | - | ||||||
Restricted stock/Deferred stock units | - | - | ||||||
Total effects of dilutive securities | - | - | ||||||
Shares used in dilutive earnings per share calculation | 40,321 | 40,338 | ||||||
The Company always maintained Startek's 2008 Equity Incentive Plan (see Note 10, "Share-based compensation" for more information).
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Anti-dilutive securities | ||||||||||||||||||||||||
Stock options | 2 | 48 | - | 2,077 | 2,231 | 3,030 | ||||||||||||||||||
6.7. IMPAIRMENT LOSSES & RESTRUCTURING/EXIT COST
Impairment Loss
As of September 30, 2022, March 31, 2023, based on the qualitative assessment, we concluded there is no impairment of goodwill.
Restructuring / Exit Cost
The table below summarizes the balance of accrued restructuring cost, voluntary/involuntary termination costs, and other exit-related costs, which are included in other accrued liabilities in our consolidated balance sheet. Changes during the nine months ended September 30, 2022 and the year ended December 31, 2021
Employee related | Facilities related | Total | ||||||||||
Balance on December 31, 2021 | 480 | 155 | 635 | |||||||||
Accruals/(reversal) | 2,810 | 340 | 3,150 | |||||||||
Payments | (2,747 | ) | (495 | ) | (3,242 | ) | ||||||
Balance as of September 30, 2022 | $ | 543 | $ | - | $ | 543 | ||||||
Employee related | Facilities related | Total | ||||||||||
Balance on December 31, 2022 | 39 | - | 39 | |||||||||
Accruals/(reversals) | 317 | - | 317 | |||||||||
Payments | (356 | ) | - | (356 | ) | |||||||
Balance as of March 31, 2023 | - | - | - | |||||||||
Employee related | Facilities related | Total | Employee related | Facilities related | Total | |||||||||||||||||||
Balance on December 31, 2020 | - | 25 | 25 | |||||||||||||||||||||
Accruals/(reversal) | 3,519 | 193 | 3,712 | |||||||||||||||||||||
Balance on December 31, 2021 | 310 | 155 | 465 | |||||||||||||||||||||
Accruals/(reversals) | 551 | 111 | 662 | |||||||||||||||||||||
Payments | (3,039 | ) | (63 | ) | (3,102 | ) | (822 | ) | (266 | ) | (1,088 | ) | ||||||||||||
Balance on December 31, 2021 | $ | 480 | $ | 155 | $ | 635 | ||||||||||||||||||
Balance on December 31, 2022 | 39 | - | 39 | |||||||||||||||||||||
Employee related
Employee related The Company has terminated service of number of employees working in Peru and U.S. as a part of restructuring activities and recognized a severance cost regarding those terminations. |
In 2022, the Company has closed few of its facilities in Argentina and Philippines, where we have terminated service of number of employees. We have recognized a provision for employee-related costs regarding the above termination. We expect to pay the remaining termination costs of $543 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. Termination costs relating to the lease have been fully paid during the third quarter of 2022.��
Cash flowNon-designated 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 hadIn October 2022, we entered into derivativeinterest rate cap contracts in the formas required by our lenders. The duration of forwardthese contracts is until May 2024.These hedges are not designated hedges under ASC 815, Derivatives 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 covered periods commensurate with expected exposure, generally three to twelve months. We had elected to designate our derivatives as cash flow hedges to associate the hedges' results with forecasted expenses.Hedging.
AsUnrealized gains and losses and changes in fair value of September 30, 2022 these derivatives are recognized as incurred in 'Interest expense and 2021, there were no derivative contractother income (expense), net' in effect.Consolidated Statement of Income (loss). The following table presents these amounts for the three months ended March 31, 2023 and March 31, 2022.
| Gain (Loss) Recognized in AOCI, net of tax | Gain (loss) reclassified from AOCI into Income | |||||||||||||||
Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||||||||
Cash flow hedges | ||||||||||||||||
Foreign exchange contracts | $ | - | $ | - | $ | - | $ | 8 | ||||||||
Derivatives not designated under ASC 815 | For Three Months Ended March 31, 2023 | For Three Months Ended March 31, 2022 | ||||||
Mark to Market gain on Interest rate cap | 87 | - | ||||||
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 of September 30, 2022 The following tables set forth our assets and/or liabilities measured at fair value on a recurring basis by level within the fair value hierarchy. These balances are included in 'Prepaid and December 31,2021, there were no derivative assets and liabilities.Other current assets' and/or 'Other current liabilities', respectively, on our balance sheet.
As of March 31, 2023 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Interest rate cap | - | - | - | - | ||||||||||||
Total fair value of assets measured on a recurring basis | - | - | - | - | ||||||||||||
Liabilities: | ||||||||||||||||
Interest rate cap | - | (26 | ) | - | (26 | ) | ||||||||||
Total fair value of liabilities measured on a recurring basis | - | (26 | ) | - | (26 | ) | ||||||||||
As of December 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Interest rate cap | - | - | - | - | ||||||||||||
Total fair value of assets measured on a recurring basis | - | - | - | - | ||||||||||||
Liabilities: | ||||||||||||||||
Interest rate cap | - | (113 | ) | - | (113 | ) | ||||||||||
Total fair value of liabilities measured on a recurring basis | - | (113 | ) | - | (113 | ) | ||||||||||
The below table presents details of the Company's debt:
September 30, 2022 | December 31, 2021 | As of March 31, 2023 | As of December 31, 2022 | |||||||||||||
Short term debt | ||||||||||||||||
Working capital facilities | 4,721 | 3,611 | 14,878 | 14,267 | ||||||||||||
Current portion of long term debt | ||||||||||||||||
Current maturity of term loan | 20,625 | 4,125 | 48,000 | 119,194 | ||||||||||||
Current maturity of equipment loan | 1,685 | 1,682 | 854 | 1,272 | ||||||||||||
Current maturity of finance lease obligations | 43 | 434 | ||||||||||||||
Total | $ | 27,074 | 9,852 | 63,732 | 134,733 | |||||||||||
Long term debt | ||||||||||||||||
Term loan, net of debt issuance costs | 142,469 | $ | 158,543 | 66,943 | 41,175 | |||||||||||
Equipment loan | 46 | 1,632 | ||||||||||||||
Total | $ | 142,515 | $ | 160,175 | 66,943 | 41,175 | ||||||||||
WorkingTerm Loan and 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 $32$28 million for a number of working capital products. These facilities bear interest at benchmark rate plus margins between 3.0%2.0% and 4.5% and are due on demand. These facilities are collateralized by various Companycompany assets and have a total outstanding balance of $4.7$14.8 million as of September 30, 2022.March 31, 2023.
Term loan
On February 18, 2021, Under the Senior debt arrangement, the Company completed a debt refinancing with a newlyhas secured $185 million senior debt facility, comprising a $165 million term loan and a $20 million revolving credit facility.of $165 million. Under the new senior debt, borrowingsarrangement, the term loan 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 | |||
Remainder of 2022 | 4,125 | |||
2023 | 22,688 | |||
2024 | 30,937 | |||
2025 | 57,750 | |||
2026 | 49,500 | |||
Total | $ | 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%LIBOR plus 375 to 450 basis points, subject to certain financial ratios. The Company is required to meet these financial ratios on a quarterly basis. As of March 31, 2023, the Company was in compliance with all financial covenants. The Adjusted Leverage (total net debt / adjusted EBITDA) in respect of the most recently completed relevant period was less than 2.25, hence the applicable margin was set at 375 basis points.
On January 10, 2023, the Company has made a prepayment of $41.3 million against senior debt by utilising the proceeds received from redemption of interest in CSS Corp LP, according to clause 8.3 of the facilities agreement, in addition to the scheduled installment of $4.1 million, thus totaling to $45.4 million during the quarter.
On April 3, 2023, an indirect subsidiary of the Company completed its previously announced sale of the Company’s indirect 51 percent ownership interest in CCC to Solutions. In accordance with the requirements of the facilities agreement, the Company was required to apply the proceeds received from the CCC disposal towards prepayment of the Company’s senior term loan facility. Gross proceeds received were $68.9 million. Which is subject to true up working capital adjustments and tax payable on the transaction.
The Company had filed a consent request with the lenders under its facilities agreement relating to the application of $55 million of the proceeds arising out of the Company's disposal of its ownership interest in CCC, which was accepted by the lenders on April 19, 2023. As per the accepted consent request, the proceeds received pursuant to the disposal of CCC will be utilised in the following order of priority: (i) firstly, prepayment of the outstanding Revolving Facility Loans of an amount of $7 million (together with accrued and unpaid interest then outstanding on the Revolving Facility Loans), (ii) secondly, (in relation to the Term Loans) prepayment in full of the four (4) Repayment Instalments which would otherwise fall due on May 22, 2023, August 22, 2023, November 22, 2023 and February 22, 2024 (together with accrued and unpaid interest then outstanding on the Term Loans), and (iii) lastly, (in relation to the Term Loans) the balance proceeds from the CCC disposal to be applied against the remaining eight (8) repayment instalments on a pro rata basis.
In 2021, the Company incurred debt issuance costs of $11.3 million in connection with the new term loan. As per ASC 470, accounting guidance on term loan extinguishment,April 2023, the Company has expensed offapplied $55 million of the proceeds in making a prepayment of $48 million against the senior debt and $7 million against the revolving credit facilities.
Accordingly, senior term loan principal repayment schedule has been revised as below:
Years | Amount | |||
Remainder of 2023* | 48,000 | |||
2024 | 18,403 | |||
2025 | 42,940 | |||
2026 | 6,067 | |||
Total | 115,410 | |||
* Paid on April 21, 2023
Debt issuance cost of $8.5 million paid torepresents the lenders towards the new term loan and $2.5 million remaining unamortized debt issuance cost of the old term loan in interest expense, net in the consolidated statement of income (loss). Debt issuance costsamount paid to the Company’s counsel and other third parties of $2.8 million isand was being amortized over the period of the new term loan. The balance unamortized portion of such costs as of September 30, 2022, amounted to $1.9 million which has been netted off against long-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 September 30, 2022, the Company was in compliance with all financial covenants.
Following table presents the changes in debt issuance cost during the ninethree months ended September 30, 2022March 31, 2023 and the year ended December 31, 2021:2022:
September 30, 2022 | December 31, 2021 | |||||||
Opening balance | 2,332 | 2,670 | ||||||
Add: Debt issuance cost (refinancing of term loan) | - | 11,269 | ||||||
Less: Expensed out (ASC 470 - extinguishment or modification) | - | (10,937 | ) | |||||
Less: Amortization of debt issuance cost | (426 | ) | (670 | ) | ||||
Closing balance | 1,906 | 2,332 | ||||||
March 31, 2023 | December 31, 2022 | |||||||
Opening balance | 507 | 2,332 | ||||||
Less: Amortization of debt issuance cost* | (40 | ) | (1,825 | ) | ||||
Closing balance | 467 | 507 | ||||||
*includes one time amortisation of $1,260 during period ended December 31, 2022.
Equipment Loan
On November 2, 2020, the Company executed Master Equipment Finance Agreement to finance 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. The amounts outstanding as at March 31, 2023 is $0.9 million.
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 management offinancing for working capital. The Company hasbalance of funds received from factored receivables of $15.8under these agreements was 17.5 million and $21.618.09 million as of September 30,2022March 31, 2023 and December 31, 2021 under these agreements .2022 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 and fully repaid in May 2022.
Equipment Loan
On November 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. The amount outstanding as of September 30, 2022 is $1.7 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.
10.11. SHARE-BASED COMPENSATION
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-owned subsidiary of Amazon, a warrant (the “Warrant”) to acquire up to 4,000,000 shares of our common stock, subject to certain vesting events. The vesting of the Warrant shares is linked to payments made by Amazon or its affiliates pursuant to a service contract. Since no vesting event occurred in the fiscal year 2021 and we do not anticipate additional vesting in the near future, the Company had not accrued any contra revenue as per ASC 606.
Share-based compensation
Our share-based compensation arrangements include grants of stock options, restricted stock units and deferred stock units under the Startek, Inc. 2008 Equity Incentive Plan and our Employee Stock Purchase Plan. The compensation expense that has been charged against income for the ninethree months ended September 30, 2022, March 31, 2023, was $1,213380 and is included in selling, general and administrative expense. As of September 30, 2022, March 31, 2023, there was $2,7302,178 million of total unrecognized compensation expense related to non-vested stock options, which is expected to be recognized over a weighted-average period of 2.32.02 years.
11.12. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following items:
Foreign Currency Translation Adjustments | Defined Benefit Plan | Equity attributable to Startek shareholders | Non-controlling interests | Total | ||||||||||||||||
Balance on December 31, 2021 | (6,816 | ) | (3,871 | ) | (10,687 | ) | (3,887 | ) | (14,574 | ) | ||||||||||
Foreign currency translation | (7,090 | ) | - | (7,090 | ) | - | (7,090 | ) | ||||||||||||
Reclassification to operations | - | - | - | - | - | |||||||||||||||
Pension amortization | - | (146 | ) | (146 | ) | (397 | ) | (543 | ) | |||||||||||
Balance at September 30, 2022 | $ | (13,906 | ) | $ | (4,017 | ) | $ | (17,923 | ) | $ | (4,284 | ) | $ | (22,207 | ) | |||||
Foreign Currency Translation Adjustments | Defined Benefit Plan | Equity attributable to Startek shareholders | Non-controlling interests | Total | ||||||||||||||||
Balance on December 31, 2022 | (11,781 | ) | (4,277 | ) | (16,058 | ) | (4,601 | ) | (20,659 | ) | ||||||||||
Continuing Operations | ||||||||||||||||||||
Foreign currency translation | (124 | ) | - | (124 | ) | - | (124 | ) | ||||||||||||
Pension amortization* | - | 124 | 124 | - | 124 | |||||||||||||||
Discontinued Operations | ||||||||||||||||||||
Pension amortization* | - | 511 | 511 | 614 | 1,125 | |||||||||||||||
Balance at March 31, 2023 | (11,905 | ) | (3,642 | ) | (15,547 | ) | (3,987 | ) | (19,534 | ) | ||||||||||
*Pension amortisation is net of tax impact of $97 and $128 in respect of continued and discontinued operations respectively.
12.13. SEGMENT REPORTINGAND GEOGRAPHICAL INFORMATION
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, hence the geographical level represents the operating segments of Startek Inc.
We report our results ofthe Company. In the previous year with operations in sixMiddle east and Argentina being considered as held for sale and discontinued operations, we identified following geographies as reportable segments, as follows:segments;
a) Americas
b) India and Sri Lanka
c) Malaysia
d) Middle East Australia
e) Argentina & PeruSouth Africa
f) Rest of World
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Revenue | ||||||||||||||||||||||||
Americas | 39,444 | 54,743 | 126,811 | 203,348 | 44,477 | 45,415 | ||||||||||||||||||
India & Sri Lanka | 27,888 | 29,471 | 82,112 | 75,032 | 23,247 | 27,961 | ||||||||||||||||||
Malaysia | 11,357 | 12,721 | 34,068 | 41,502 | 10,582 | 11,280 | ||||||||||||||||||
Middle East | 59,939 | 54,829 | 181,680 | 143,783 | ||||||||||||||||||||
Argentina & Peru | 9,269 | 9,758 | 26,895 | 27,060 | ||||||||||||||||||||
Australia | 8,988 | 9,480 | ||||||||||||||||||||||
South Africa | 4,766 | 6,190 | ||||||||||||||||||||||
Rest of World | 15,238 | 11,265 | 46,527 | 34,163 | 29 | 766 | ||||||||||||||||||
Total | $ | 163,135 | $ | 172,787 | $ | 498,093 | $ | 524,888 | 92,089 | 101,092 | ||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Operating income (loss) | ||||||||||||||||||||||||
Americas | (230 | ) | (5,070 | ) | (2,865 | ) | 2,194 | 2,125 | (2,319 | ) | ||||||||||||||
India & Sri Lanka | 1,281 | 3,621 | 5,925 | 4,987 | 238 | 3,467 | ||||||||||||||||||
Malaysia | 3,173 | 3,873 | 7,778 | 11,701 | 2,890 | 2,026 | ||||||||||||||||||
Middle East | 4,793 | 7,086 | 11,197 | 15,836 | ||||||||||||||||||||
Argentina & Peru | (614 | ) | 557 | (3,883 | ) | 121 | ||||||||||||||||||
Australia | 560 | 1,101 | ||||||||||||||||||||||
South Africa | 227 | 1,178 | ||||||||||||||||||||||
Rest of World | 1,207 | 874 | 3,800 | 2,138 | (1,123 | ) | (559 | ) | ||||||||||||||||
Segment operating income | 9,610 | 10,941 | 21,952 | 36,977 | 4,917 | 4,894 | ||||||||||||||||||
Startek consolidation adjustments | ||||||||||||||||||||||||
Private offer transaction cost | (1,411 | ) | - | (2,603 | ) | - | - | (500 | ) | |||||||||||||||
Intangible amortization | (2,603 | ) | (2,602 | ) | (7,745 | ) | (7,745 | ) | (2,561 | ) | (2,561 | ) | ||||||||||||
Total operating income | $ | 5,596 | $ | 8,339 | $ | 11,604 | $ | 29,232 | 2,356 | 1,833 | ||||||||||||||
A single client in the Americas segment accounted for 16% and 19%10% of the consolidated total net revenue during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and 18% each during the nine months ended September 30, 2022 and 2021.respectively.
Property, plant and equipment, net by geography based on the location of the assets are presented below:
As of | As of | |||||||
March 31, 2023 | December 31, 2022 | |||||||
Property, plant and equipment, net | ||||||||
Americas | 8,912 | 9,718 | ||||||
India & Sri Lanka | 9,465 | 8,340 | ||||||
Malaysia | 2,208 | 2,390 | ||||||
Australia | 729 | 829 | ||||||
South Africa | 1,322 | 1,508 | ||||||
Rest of World | 148 | 160 | ||||||
Total | 22,784 | 22,945 | ||||||
| As of | As of | |||||||
| September 30, 2022 | December 31, 2021 | |||||||
Property, plant and equipment, net | ||||||||
Americas | 10,163 | 11,335 | ||||||
India & Sri Lanka | 9,084 | 8,712 | ||||||
Malaysia | 2,539 | 2,818 | ||||||
Middle East | 3,893 | 7,461 | ||||||
Argentina & Peru | 1,200 | 1,453 | ||||||
Rest of World | 2,016 | 2,389 | ||||||
Total | $ | 28,895 | $ | 34,168 | ||||
Investment in Equity Accounted Investees
On February 25, 2021, the Company had made a $25 million strategic investment in CSS Corp LPLLP (“an Investment Limited Liability Partnership”), and the Company accounted this investment under the equity accounted investee method of accounting in accordance with ASC 323-30-S99-1.323-30-S99-1. The CODM receives a partnership statement of CSS Corp LP on quarterly basis and evaluates the carrying value of the investment in equity accounted investees. The carrying valueOn December 27, 2022, the Company had redeemed its investment in CSS Corp LP and received proceeds of $45.6 million and recognized a gain on sale of investment as on September 30, 2022 is $35,810, Refer Note 14 "Investment in equity-accounted investees" for more details.of $8.4 million.
We have operating and finance leases for service centers, corporate offices, and certain equipment. Our leases have remaining lease terms of 1 year to 109 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 September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |||||||||||||||||||
Operating lease cost | $ | 10,995 | $ | 6,022 | $ | 16,858 | $ | 19,310 | 4,380 | 5,289 | ||||||||||||||
Finance lease cost | ||||||||||||||||||||||||
Amortization of right-of-use assets | 237 | 207 | 380 | 546 | 38 | 140 | ||||||||||||||||||
Interest on lease liabilities | 8 | 13 | 68 | 45 | - | 60 | ||||||||||||||||||
Total finance lease cost | $ | 245 | $ | 220 | $ | 448 | $ | 591 | 38 | 200 | ||||||||||||||
Supplemental cash flow information related to leases was as follows:
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||
Operating cash flows from operating leases | 17,896 | 19,085 | 4,987 | 5,867 | ||||||||||||
Operating cash flow from finance leases | 68 | 45 | - | 60 | ||||||||||||
Financing cash flows from finance leases | 391 | 387 | - | 123 | ||||||||||||
Right-of-use assets obtained in exchange for lease obligations | ||||||||||||||||
Operating leases | 2,501 | 4,990 | 5,986 | 1,491 | ||||||||||||
Finance leases | - | - | - | - | ||||||||||||
Supplemental balance sheet information related to leases was as follows:
As of September 30, 2022 | As of December 31, 2021 | As of March 31, 2023 | As of December 31, 2022 | |||||||||||||
Operating leases | ||||||||||||||||
Operating lease right-of-use assets | $ | 44,841 | $ | 63,012 | 38,842 | 36,450 | ||||||||||
Operating lease liabilities - Current | 20,496 | 24,393 | 15,403 | 14,492 | ||||||||||||
Operating lease liabilities - Non-current | 28,176 | 44,263 | 27,895 | 26,651 | ||||||||||||
Total operating lease liabilities | $ | 48,672 | $ | 68,656 | 43,298 | 41,143 | ||||||||||
Finance Leases | ||||||||||||||||
Property and equipment, at cost | 4,112 | 4,128 | 1,509 | 1,509 | ||||||||||||
Accumulated depreciation | (3,867 | ) | (3,641 | ) | (1,509 | ) | (1,471 | ) | ||||||||
Property and equipment, at net | $ | 245 | $ | 487 | - | 38 | ||||||||||
Finance lease liabilities - Current | 43 | 434 | ||||||||||||||
Finance lease liabilities - Non-current | - | - | ||||||||||||||
Total finance lease liabilities | $ | 43 | $ | 434 | ||||||||||||
Weighted average remaining lease term | As of September 30, 2022 | As of December 31, 2021 | As of March 31, 2023 | As of December 31, 2022 | ||||||||||||
Operating leases (in years) | 3.14 years | 3.58 years | 2.75 years | 2.60 years | ||||||||||||
Finance leases (in years) | 0.00 years | 0.00 years | 0.00 years | 0.00 years | ||||||||||||
Weighted average discount rate | ||||||||||||||||
Operating leases | 6.9 | % | 6.8 | % | 6.2 | % | 6.0 | % | ||||||||
Finance leases | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
The following table reconciles the undiscounted cash flows for the Company’s finance and operating leases as of September 30, 2022, March 31, 2023, to the finance and operating lease liabilities recorded on the Company’s balance sheet:
Operating Leases | Finance Leases | |||||||
Year ending December 31, | ||||||||
Remainder of 2022 | 5,986 | 43 | ||||||
2023 | 19,183 | - | ||||||
2024 | 15,180 | - | ||||||
2025 | 9,083 | - | ||||||
2026 | 2,620 | - | ||||||
Thereafter | 2,101 | - | ||||||
Total lease payments | 54,153 | 43 | ||||||
Less: Imputed interest | (5,481 | ) | - | |||||
Total present value to lease liabilities | $ | 48,672 | $ | 43 | ||||
14. INVESTMENT IN EQUITY-ACCOUNTED INVESTEES
Following are the entity wise details of equity-accounted investees:
% of ownership interest | Carrying amount | |||||||||||||||
Name of entity | September 30, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | ||||||||||||
a) CSS Corp LP | 61.35 | % | 61.35 | % | 35,810 | 31,688 | ||||||||||
b) Immaterial associates | - | - | ||||||||||||||
Carrying amount of investment in equity-accounted investees | 35,810 | 31,688 | ||||||||||||||
Three months ended September 30, 2022 | Three months ended September 30, 2021 | Nine months ended September 30, 2022 | Nine months ended September 30, 2021 | |||||||||||||
Aggregate amounts of the group’s share of income (loss) of equity-accounted investees | 297 | (46 | ) | 4,122 | (1 | ) | ||||||||||
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-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 were 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-S99-1. The Company's share of income (loss) of equity-accounted investee is accounted under the “equity method” as per which the share of income (loss) of equity-accounted investee has been added to the cost.
Summarized financial position | ||||||||
September 30, 2022 | December 31, 2021 | |||||||
Current assets | 34 | 42 | ||||||
Non-current assets | 58,447 | 51,690 | ||||||
Current and non-current liabilities | (111 | ) | (80 | ) | ||||
Net assets | 58,370 | 51,652 | ||||||
| - | - | |||||||
Company share in % | 61.35 | % | 61.35 | % | ||||
Company share | 35,810 | 31,688 | ||||||
Carrying amount of investment in equity-accounted investee | 35,810 | 31,688 | ||||||
Reconciliation to carrying amounts | ||||||||
September 30, 2022 | December 31, 2021 | |||||||
Opening net assets | 31,688 | - | ||||||
Acquired during the year | - | 25,000 | ||||||
Share of income of equity-accounted investees | 4,122 | 6,688 | ||||||
Other comprehensive income | - | - | ||||||
| 35,810 | 31,688 | |||||||
Summarized statement of comprehensive income | ||||||||||||||||
Three months ended September 30, 2022 | Three months ended September 30, 2021 | Nine months ended September 30, 2022 | Nine months ended September 30, 2021 | |||||||||||||
Revenue | - | - | - | - | ||||||||||||
Cost of services | - | - | - | - | ||||||||||||
Gross profit | - | - | - | - | ||||||||||||
Selling, general and administrative expenses | (5 | ) | (9 | ) | (39 | ) | (63 | ) | ||||||||
Operating loss | (5 | ) | (9 | ) | (39 | ) | (63 | ) | ||||||||
Unrealised gain on investment | 489 | (67 | ) | 6,757 | 72 | |||||||||||
Net income (loss) | 484 | (76 | ) | 6,718 | 9 | |||||||||||
Other comprehensive income | - | - | - | - | ||||||||||||
Total comprehensive income (loss) for the period | 484 | (76 | ) | 6,718 | 9 | |||||||||||
Aggregate amounts of the Company share of income (loss) of equity-accounted investee at 61.35% | 297 | (46 | ) | 4,122 | 6 | |||||||||||
b) Individually immaterial associates
The Company had individually immaterial investments in equity-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 income (loss) of equity-accounted investee, is accounted under the “equity method” as per which the share of income (loss) of equity-accounted investee had been added to the cost. In 2021 the Company had realized carrying amounts related to investment in individually immaterial associates.
Aggregate share of loss of immaterial associates was nil and $7 for three months ended and nine months ended September 30, 2021, respectively.
Operating Leases | ||||
Year ending December 31, | ||||
Remainder of 2023 | 13,725 | |||
2024 | 15,642 | |||
2025 | 9,588 | |||
2026 | 4,887 | |||
2027 | 3,136 | |||
Thereafter | 2,728 | |||
Total lease payments | 49,706 | |||
Less: Imputed interest | (6,408 | ) | ||
Total present value to lease liabilities | 43,298 | |||
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 10b5-110b5-1 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 ninethree months ended September 30,2022, weMarch 31, 2023, the Company had not repurchased an aggregate of 370,133 shares of our common stock under our repurchase plan at an average cost of $4.4 per share.
Stock repurchase activity during the nine months ended September 30,2022 was as follows:plan.
Period Ended | Total number of shares purchased | Average price paid per share (1) ($) | 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 | ||||||||||||
April 30, 2022 | - | - | - | 831,229 | ||||||||||||
May 31, 2022 | 20,000 | 3.15 | 20,000 | 768,156 | ||||||||||||
June 30, 2022 | - | - | - | 768,156 | ||||||||||||
July 31, 2022 | - | - | - | 768,156 | ||||||||||||
August 30, 2022 | - | - | - | 768,156 | ||||||||||||
September 30, 2022 | 90,726 | 3.31 | 90,726 | 468,158 | ||||||||||||
Total | 370,133 | 370,133 | ||||||||||||||
On April 24, 2023, the Board of Director's approved to replace the Original Repurchase Plan with a new plan pursuant to which the Company will be authorized to repurchase up to $20 millions of the Corporation’s common stock from time to time (the “New Repurchase Program”) in accordance with the requirements of the Securities and Exchange Commission, including but not limited to Rule 10b-18.
1. Excludes broker commission.None other than disclosed in Note 3A - "Discontinued Operations and Held for Sale - Contact Center Company", Note 10 - "Debt" and Note 15 "Common Stock".
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. On August 8, 2022, CSP issued a revised non-binding proposal to acquire all the shares of Startek for $4.65 per share in cash. The special committee has engaged legal and financial advisors to assist in its consideration of the proposal. The special committee has appointed Foros Securities LLC as a financial advisor in connection with private offer and the Company incurred total expenses of $1,411 and $2,603 during the three months and nine months ended September 30, 2022 which is included in selling, general and administrative expenses.
The committee had analyzed various factors such as forecast submitted by the Company, trading history of Startek stock, macroeconomic environment, etc. and determined that the proposed price at $4.65 is inadequate and not in the best interests of the shareholders of Startek. Further, on September 9, 2022, the special committee of its Board of Directors rejected the non-binding proposal by CSP. Since then, CSP has formally withdrawn their proposal and the special committee has been dissolved.
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, 20212022 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, 2021.2022. 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-channel customer experience,CX, digital transformation, and technology services to some of the finest brands globally.world’s leading brands. Startek is committed to impactingimpacting clients’ business outcomes by focusing on enhancing customer experienceCX and digital enablement across all touchpointstouch points and channels. Startek has more than44,000 32,000 employees located across 36 delivery campusesdelivering services in 1311 countries. The Company services over 170 140 c clientslients across a range of industries such as Banking and Financial Services, insurance, technology, telecom, healthcare, travel and hospitality, consumer goods, retail, media & cable, E-commerce and energy and utilities.
Startek manages over half a billion customer moments of truth each year for the world’s leading 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 omnichannel CX, digital transformation and technology services.
SIGNIFICANT DEVELOPMENTS
None.
Key Matters Pertaining to Subsidiaries
StrategicDivestitures
Sale of stake in Saudi Arabia:
On April 3, 2023, the Company completed its sale of ownership interest in CCC to Solutions. At closing, the Company received cash proceeds of approximately $68.9 million subject to true-up working capital adjustments to the amount paid on the closing date and tax payable on the transaction. Under the Sale and Purchase Agreement, the Company will act as a guarantor for the obligations of its indirect subsidiary that owns the Company’s interests in CCC. Refer to Note 3A for detailed information relating to sale of stake in Saudi Arabia.
RESULTS OF OPERATIONS — three months ended September 30,March 31, 2023 AND 2022 AND 2021
Revenue
Our gross revenues for the three months ended September 30, 2022March 31, 2023 decreased by 5.7%8.9% to $163,135$92,089 as compared to $172,948$101,092 for the three months ended September 30, 2021.March 31, 2022.
Our net revenue for the quarter ended September 30, 2022 and 2021:
For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | |||||||
Revenues | 163,135 | 172,948 | ||||||
Warrant contra revenue | - | (161 | ) | |||||
Net revenue | $ | 163,135 | $ | 172,787 | ||||
Our net revenues adjusted for warrant contra revenue for the three months ended September 30, 2022 decreased to $163,135 compared to $172,787 for the three months ended September 30, 2021.
The breakdown of our net revenues from various segments for the three months ended September 30,March 31, 2023 and 2022 and 2021 is as follows:
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Americas | 39,444 | 54,743 | 44,477 | 45,415 | ||||||||||||
India & Sri Lanka | 27,888 | 29,471 | 23,247 | 27,961 | ||||||||||||
Malaysia | 11,357 | 12,721 | 10,582 | 11,280 | ||||||||||||
Middle East | 59,939 | 54,829 | ||||||||||||||
Argentina & Peru | 9,269 | 9,758 | ||||||||||||||
Australia | 8,988 | 9,480 | ||||||||||||||
South Africa | 4,766 | 6,190 | ||||||||||||||
Rest of World | 15,238 | 11,265 | 29 | 766 | ||||||||||||
Total | 163,135 | 172,787 | 92,089 | 101,092 |
| |||||||||||
The decline in revenue in the Americas region is primarily due tofrom a cable client that insourced operations in 2022 was offset by increase in revenue across other clients and from the terminationramp up of operations with one of our clients in the media vertical that insourced its operations over the last two quarters. Revenue in the current period was also impacted as some of our clients offshored operations to our nearshore centers to lower cost of operations. We continue to see higher volumes with clients in the telecom and retail verticals.new cable client.
Revenue decrease in India and Sri Lanka region was due to strengtheninglower volumes with one of US Dollar against Indian Rupee.our hyper scale clients. We saw an increasecontinue to see strong momentum across other clients in year-on-year revenue in constant currency terms.the geography.
Revenue in Malaysia and Australia saw a marginal decline due to the termination of the contracttemporary lower volumes with the e-commerce client that happened at the end of fiscal 2021. We continue to grow operations across clients delivered out of Malaysia. Our operations with travel client delivered out of Malaysia continues to see strong revival in demand as many countries in the Asia pacific region are relaxing travel restrictions.some clients.
Our operation in the Middle East continues to deliver strongSouth Africa revenue growth at the back of scaling up of new clients won during the last year and the current year.
Our revenue in the Rest of World was higherdeclined due to continuous ramp-upslower volumes with our clients in South Africa and Australia.a domestic telecom major.
The breakdown of our net revenues from various industry verticals for three months ended September 30,March 31, 2023 and 2022 and 2021 is as follows:
For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | For Three Months Ended March 31, 2023 | For Three Months Ended March 31, 2022 | For Three Months Ended March 31, 2023 | For Three Months Ended March 31, 2022 | |||||||||||||||||||||||||
Verticals: | ||||||||||||||||||||||||||||||||
Telecom | 57,819 | 56,676 | 35 | % | 33 | % | 23,985 | 24,343 | 26 | % | 24 | % | ||||||||||||||||||||
E-commerce & Consumer | 20,589 | 22,434 | 13 | % | 13 | % | 15,996 | 20,143 | 17 | % | 20 | % | ||||||||||||||||||||
Financial & Business Services | 18,013 | 17,161 | 11 | % | 10 | % | 13,379 | 13,135 | 15 | % | 13 | % | ||||||||||||||||||||
Media & Cable | 12,269 | 22,863 | 8 | % | 13 | % | 13,966 | 15,351 | 15 | % | 15 | % | ||||||||||||||||||||
Travel & Hospitality | 14,228 | 12,027 | 9 | % | 7 | % | 11,699 | 12,272 | 13 | % | 12 | % | ||||||||||||||||||||
Healthcare & Education | 7,522 | 15,315 | 5 | % | 9 | % | 6,646 | 8,633 | 7 | % | 9 | % | ||||||||||||||||||||
Technology, IT & Related Services | 4,308 | 5,125 | 3 | % | 3 | % | 3,271 | 3,619 | 4 | % | 4 | % | ||||||||||||||||||||
Other verticals | 28,387 | 21,347 | 17 | % | 12 | % | 3,147 | 3,596 | 3 | % | 4 | % | ||||||||||||||||||||
Gross revenue | 163,135 | 172,948 | ||||||||||||||||||||||||||||||
Less: Warrant contra revenue | - | (161 | ) | |||||||||||||||||||||||||||||
Net revenue | 163,135 | 172,787 |
| |||||||||||||||||||||||||||||
Revenue | 92,089 | 101,092 | ||||||||||||||||||||||||||||||
GrowthTelecom vertical reported marginal declines in revenue in the current quarter compared to the prior period. This was led by lower volumes in India telecom vertical wasplayers and due to currency movements. Our large telecom clients continue to see growth driven by continuing ramps with ourimproved performance due to multiple digital interventions.
E-commerce vertical reported lower year-on-year revenue due to lower volumes in a hyper scale client in India. We continue to win more business in this segment, both from existing telecom clients across US and South Africa.new clients.
The Financial & Business services vertical continues to perform stronglysteadily as we strengthen our partnership with key clients in these verticals.
We continue to see year-on-year and sequential improvementThe decline in volume in the travel and hospitality sector as activity in these verticals trend to normalize to pre-COVID levels.
Decline in revenuesrevenue from the Media vertical was led by a change in strategy with a key client who insourced part of their CX activities earlier this year. This decline was offset by a ramp-up of with the new cable client that was won in the fourth quarter of the previous year.
A contractWhile the travel sector witnessed improvement in volumes and new wins, the year-on-year decline was terminated in 2021driven by one of our clients from the e-commerce vertical which led to year-on -yeartemporary decline in revenues from this vertical. We continue to expand our wallet share within our other clientsvolumes with one client in this vertical as we deploy customized solutions to them.Australia.
DeclineThe decline in revenue in the Healthcare & Education is primarily due to one-off COVID vaccination support program that the Company delivered in the previous period.shift of volumes to near shore and offshore delivery geographies.
Others include contracts with energy and utility, public sector enterprises and government entities where we have seen an increasea marginal decrease in revenues from existing andrevenues. The new contracts.
contract with the utility client has started ramping up in the current period.
Cost of services and gross profit
Overall, the cost of services as a percentage of revenue decreased to 85.8%85.9% for the three months ended September 30, 2022March 31, 2023 compared to 87.5%86.4% for the three months ended September 30, 2021.March 31, 2022. Employee expenses, rent costs, and depreciation and amortization are the most significant costs for the Company, representing 75.5%72.4%, 3.9%5.2%, and 4.8%6.6% of the total cost of services, respectively. The breakdown of the cost of services is listed in the table below:
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Employee benefit expenses | 105,696 | 114,468 | 57,312 | 64,010 | ||||||||||||
Rent expense | 5,416 | 7,074 | 4,081 | 4,871 | ||||||||||||
Depreciation and amortization | 6,669 | 6,394 | 5,226 | 5,793 | ||||||||||||
Other | 22,237 | 23,328 | 12,510 | 12,628 | ||||||||||||
Total | $ | 140,018 | $ | 151,264 | 79,129 | 87,302 | ||||||||||
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 decreased to 64.8%62.2% for the current period as compared to 66.2%63.3% for the previous period. This decrease was primarily driven by change in geography mix with higher revenues accruing from offshore and near shore delivery that have higher margins.
Rent expense: Rent expense as a percentage of revenue decreased to 3.3%4.4% for the current period as compared to 4.1%4.8% for the previous period. The decrease is driven by rationalization of brick-and-mortar sites across geographies as operations moved to our work from home model.
Depreciation and amortization: Depreciation and amortization expense as a percentage of revenue remains constant at 5.7% for the current period marginally increased at 4.1% as compared to 3.7% for the previous period. The increase was due to a lower revenue base in the current period relative to the previous period.
Other expenses include recruitment, technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs increased marginally to 13.6% from 13.5%12.5%. The declineincrease in absolute amount reflects cost optimization efforts taken across cost categories the savings from whichcurrent period was deployed inled by higher traveltraveling and conveyance, higher recruitment charges, higher insurance premium and higher outsourcing costs as we revert back to in-person client meetingspartly offset by lower utility and site visits.maintenance costs.
As a result, gross profit as a percentage of revenue for the current period increased to 14.2%14.1% as compared to 12.5%13.6% for the previous period.
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Gross revenue | 163,135 | 172,948 | ||||||||||||||
Warrant contra revenue | - | (161 | ) | |||||||||||||
Net revenue | 163,135 | 172,787 | ||||||||||||||
Revenue | 92,089 | 101,092 | ||||||||||||||
Cost of services | 140,018 | 151,264 | 79,129 | 87,302 | ||||||||||||
Gross profit | $ | 23,117 | $ | 21,523 | 12,960 | 13,790 | ||||||||||
Gross margin | 14.2 | % | 12.5 | % | 14.1 | % | 13.6 | % | ||||||||
Selling, general and administrative expenses
Selling, general and administrative expenses (SG&A) as a percentage of revenue increaseddecreased from 7.6%11.8% in the previous period to 10.1%11.2% in the current period. The increasedecrease in SG&A expenses was driven by investments made byis due to the Companyinclusion of certain one-time costs in its sales, marketing, and digital efforts. Thethe prior period. Adjusting for this, the SG&A costs forexpense during this quarter remained flat relative to the currentprior period include $1,411 incurred towards the take private transaction.
Impairment losses and restructuring/exit cost, net
Impairment losses and restructuring costs, net totaled $998$317 for the current period as compared to $85$(5) for the previous period. The restructuring cost during the quarter include $960$185 and $132 towards the restructuring exercise underway in Argentina.Peru and Startek respectively.
Interest expense net, and other income (expense), net
Interest expense net, and other income (expense), net totaled $2,767$2,077 for the current period as compared to $2,236$1,730 for the previous period. The increase in interest expense was due to an increase in global rates and yields.
Income tax expense
Income tax expense for the current period was $1,838909compared to $2,402$638 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 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 attracts withholding taxes.
RESULTS OF OPERATIONS — Nine months ended September 30, 2022 AND 2021Income from Discontinued Operations
Discontinued operations include the results of operations for the CCC and Argentina business that are reported separately as discontinued operations in the Consolidated Statement of Income (loss).
RevenueResults of Operations of Saudi Arabia – March 31, 2023, and March 31, 2022
Our gross revenues for the nine months ended September 30, 2022 decreased by 5.3% to $498,093 as compared to $525,879 for the nine months ended September 30, 2021.
Our net revenue for the nine months ended September 30, 2022 and 2021:
| For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | |||||||
Revenues | 498,093 | 525,879 | ||||||
Warrant contra revenue | - | (991 | ) | |||||
Net revenue | $ | 498,093 | $ | 524,888 | ||||
Our net revenues adjusted for warrant contra revenueperiod March 31, 2023, was higher at $64,364 compared to $58,687 for the nine months ended September 30, 2022 decreased to $498,093 compared to $524,888 for the nine months ended September 30, 2021.
The breakdown of our net revenues from various segments for the nine months ended September 30, 2022 and 2021 is as follows:
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Americas | 126,811 | 203,348 | ||||||
India & Sri Lanka | 82,112 | 75,032 | ||||||
Malaysia | 34,068 | 41,502 | ||||||
Middle East | 181,680 | 143,783 | ||||||
Argentina & Peru | 26,895 | 27,060 | ||||||
Rest of World | 46,527 | 34,163 | ||||||
Total | 498,093 | 524,888 | ||||||
The decline in revenue in the Americas region is primarily due to high base impact in the previous year. Revenue in the previous period included short term government program relating to COVID vaccination that did not continue in the current year. The revenue decline was also driven by the termination of operations with one of our e-commerce clients and insourcing of operations by a client in the media vertical. This decline is partly offset by an increase in revenues from other clients primarily in the telecom and retail verticals.
Revenue growth in India and Sri Lanka region was driven by continuing ramp-up in operations with some of the largest digital native clients in this region. Our international operations delivered out of India also grew during the current period. Revenue in the current period was also negatively impacted due to appreciation of US Dollar relative to Indian Rupee.
Revenue in Malaysia saw a decline due to the termination of the contract with the e-commerce client at the end of the last fiscal year. Our operations with travel client delivered out of Malaysia saw a strong revival in demand.
March 31, 2022. Our operation in the Middle East saw continuity of government programs that was won during the Pandemic. The Company also secured new clients which continue to ramp up in the current year.
Our revenue in the Rest of World was higher due to ramp-ups with our clients in South Africa and Australia.
The breakdown of our net revenues from various industry verticals for nine months ended September 30, 2022 and 2021 is as follows:
For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | |||||||||||||
Verticals: | ||||||||||||||||
Telecom | 174,565 | 161,961 | 35 | % | 31 | % | ||||||||||
E-commerce & Consumer | 59,966 | 74,757 | 12 | % | 14 | % | ||||||||||
Financial & Business Services | 52,312 | 48,374 | 11 | % | 9 | % | ||||||||||
Media & Cable | 45,139 | 72,435 | 9 | % | 14 | % | ||||||||||
Travel & Hospitality | 41,238 | 33,066 | 8 | % | 6 | % | ||||||||||
Healthcare & Education | 26,348 | 73,020 | 5 | % | 14 | % | ||||||||||
Technology, IT & Related Services | 14,765 | 15,064 | 3 | % | 3 | % | ||||||||||
Other verticals | 83,760 | 47,202 | 17 | % | 9 | % | ||||||||||
Gross revenue | 498,093 | 525,879 | ||||||||||||||
Less: Warrant contra revenue | - | (991 | ) | |||||||||||||
Net revenue | 498,093 | 524,888 | ||||||||||||||
Growth in telecom vertical was driven by continuing ramp with our existing telecom clients across US and South Africa.
The Financial & Business services vertical continues to perform strongly as we strengthen our partnership with key clients in these verticals.
We continue to see year-on-year and sequential improvement in volume in the travel and hospitality sector as activity in these verticals trend to normalize to pre-COVID levels.
The decline in revenues from the Media vertical was led by change in strategy with a key client who insourced part of their CX activities earlier this year.
A contract was terminated in 2021 by one of our clients from the e-commerce vertical which led to year-on -year decline in revenues from this vertical. The decline in revenue was partially offset by new wins and expansion with our other clients in the e-commerce vertical.
Decline in revenue in the Healthcare & Education is primarily due to one-off COVID vaccination support program that the Company delivered in the previous period.
Others include contracts with public sector enterprises and government entities where we have seen an increase in revenues from existing and new contracts.
Cost of services and gross profit
Overall, the cost of services as a percentage of revenue increaseddecreased to 87.8%85.3% for the nine months ended September 30, 2022period March 31, 2023, compared to 86.5%88% for the nine months ended September 30, 2021. Employee expenses, rentperiod March 31, 2022. The decrease in costs and depreciation and amortization are the most significant costs for the Company, representing 75.1%, 3.8%, and 4.5% of the total cost of services, respectively.
The breakdown of the cost of services is listed in the table below:
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Employee Benefit Expenses | $ | 328,418 | $ | 345,349 | ||||
Rent expense | 16,748 | 22,031 | ||||||
Depreciation and amortization | 19,460 | 18,709 | ||||||
Other | 72,566 | 68,035 | ||||||
Total | $ | 437,192 | $ | 454,124 | ||||
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 servicesprimarily attributable to the clients.
Employeedecrease in employee expenses as a percentage of revenues increased to 65.9% for the current period as compared to 65.8% for the previous period. This increase was primarily driven by inflation-led wage increases implemented in the fourth quarter of 2021 and first quarter of 2022. The increase in costs was partially offset due to change in delivery mix with an increase in nearshore and offshore delivery.
Rent expense: Rent expense as a percentage of revenue decreased to 3.4% for the current period as compared to 4.2% for the previous period. The decline was driven by rationalization of some brick-and-mortar facilities across geographies as operations moved to our work from home model.
Depreciation and amortization: Depreciation and amortization expense as a percentage of revenue for the current period marginally increased at 3.9% as compared to 3.6% for the previous period. The increase was due to a lower revenue base in the current period relative to the previous period.
Other expenses include recruitment, technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs increased to 14.6% from 13.0%. This increase is majorly on account of increasedecrease in outsourcing cost for the current period, which includes certain cost for delivery of technology services to one of our clients in the Middle East.clients.
As a result, gross profit as a percentage of revenue for the current period decreasedincreased to 12.2%14.7% as compared to 13.5%12.0% for the previous period.
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Gross revenue | 498,093 | 525,879 | ||||||
Warrant contra revenue | - | (991 | ) | |||||
Net revenue | 498,093 | 524,888 | ||||||
Cost of services | 437,192 | 454,124 | ||||||
Gross profit | $ | 60,901 | $ | 70,764 | ||||
Gross margin | 12.2 | % | 13.5 | % | ||||
Selling, general and administrative expenses
Selling, general and administrative expenses (SG&A) as a percentage of revenue marginally increased from 7.5%4.6% in the previous period to 9.3%4.9% in the current period. The increase wasperiod due to lower base impact.
Results of Operations of Argentina – March 31, 2023, and March 31, 2022
Our revenue for the investments madeperiod March 31, 2023, was lower at $6,134 compared to $7,538 for the period March 31, 2022. The reduction in revenue was largely driven by significant depreciation of Argentine Peso relative to US Dollar.
Overall, the Companycost of services as a percentage of revenue decreased to strengthen sales, marketing, and digital verticals.102% for the period March 31, 2023, compared to 106% for the period March 31, 2022. The company also increased investmentsdecrease in upgrading our technology infrastructure, particularly relatedcosts is primarily attributable to security and cybersecurity aspects. The SG&Athe decrease in employee costs as per the collective bargaining agreement. This has resulted in a negative margin for the current period include $2,603 incurred towards the take private transaction.period.
Impairment lossesSelling, general and restructuring/exit cost, netadministrative expenses (SG&A) as a percentage of revenue slightly increase to 7.6%, compared to 7% for the period March 31, 2022.
Impairment losses and restructuring costs, net totaled $3,150$1,341 for the current period as compared to $1,964$1,381 for the previous period. The restructuring cost duringIt is primarily relating to severance payments made to employees and costs associated with the nine months include $3,010 towardsleases that has been surrendered in Argentina according to the restructuring exercise underway in Argentina.plan.
Interest expense, net, and other income
Interest expense, net, and other income totaled $5,844 for the current period as compared to $18,489 for the previous period. The expense for the previous period included $11,269 towards the refinancing of debt undertaken in February 2021. Adjusting for the cost of refinancing, the interest expense increased year-on-year due to an increase in global rates and yields.
Income tax expense
Income tax expense for the current period was $5,354 compared to $9,397 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 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 attracts withholding taxes.
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.
Cash and cash equivalents and restricted cash
As of September 30, 2022,March 31, 2023, cash, cash equivalents, and restricted cash held by the Company and all its foreign subsidiaries increaseddecreased by $5,935$47,461 to $61,331$24,942 compared to $55,396$72,403 as of December 31, 2021.2022. The restricted cash balance as of September 30, 2022March 31, 2023 stood at $9,628$9,172 as compared to $7,456$49,946 as of December 31, 2021.2022. 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. In January 2023, the Company made a prepayment of $41,340 towards the term loan.
Cash flows from operating activities
For the nine three months ended September 30,March 31, 2023 and 2022 and 2021 we reported net cash provided by / used in operating activities of $21,324$2,513 and $31,032,$(77), respectively. The decrease in net cash flows from operating activities was driven by decrease in non-cash reconciling items such as deferred tax expense, depreciation and amortization and warrant contra revenue of $17,840. This was partially offset by a net decrease of $4,341increase is majorly due to reduction in net working capital requirements and increase of $3,791 in net income.for the current period.
Cash flows used in investing activities
For the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, we reported net cash used in investing activities of $(10,994)$(2,525) and $(41,256)$(1,576) respectively. Net cash used in investing activities for current periods primarily towards capital expenditure while the amount for the previous period includes $25,000 towards the investment in CSS Corp and $3,000 towards payment of call option premium.expenditure.
Cash flows from financing activities
For the ninethree months ended September 30,March 31, 2023 and 2022 and 2021 we reported net cash flows (used in)used in and provided by financing activities of $(1,962)$(45,273) and $24,091,$(1,689), respectively. During the ninethree months ended September 30, 2021March 31, 2023 our net borrowings increaseddecreased mainly due to refinancingrepayment of senior term debt completed during the period. During the nine months ended September 30, 2022, the Company repurchased an aggregate of 370,133 shares amounting to $1,636.
Debt
For more information, refer to Note 9,10, "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 910 "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, 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. TheseBy their nature, these judgments are subject to an inherent degree of uncertainty by their nature.uncertainty. Accordingly, actual results may vary significantly from the estimates we have applied.
Please refer toWhile our significant accounting policies are described in more detail in Note 2, "Summary of Significant Accounting Policies" to our financial statements appearing elsewhere in Form 10-Q, we believe that the following accounting policy is most critical to the judgments and estimates used in the preparation of our financial statements.
Goodwill
Goodwill represents the cost of acquired businesses in excess of the Notesfair value of the identifiable tangible and intangible net assets purchased. Goodwill is tested for impairment at least on an annual basis on December 31, or as circumstances warrant based on several factors, including operating results, business plans and future cash flows. We perform an assessment of qualitative factors to determine whether the consolidated financial statements included in Item 1 forexistence of events or circumstances leads to a complete descriptiondetermination that it is more likely than not that the fair value of a reporting unit is less than it’s carrying amount. Based on our critical accounting policies and estimates.assessment of events or circumstances, we perform a quantitative assessment of goodwill impairment if it is determined that it is more likely than not that the fair value of a reporting unit is less than it’s carrying amount.
As of March 31, 2023, based on the qualitative assessment, we concluded that there is no impairment of goodwill.
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:
As 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 Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted by us under the Exchange Act 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 Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on management's evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022.March 31, 2023.
Changes in Internal Control over Financial Reporting:Reporting
There have been no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2022March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the 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, 2021.2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 ninethree months ended September 30, 2022, weMarch 31, 2023, the Company had not repurchased an aggregate of 370,133 shares of our common stock under our repurchase plan at an average cost of $4.4 per share. plan.
StockOn April 24, 2023, the Board of Director's approved to replace the Original Repurchase Plan with a new plan pursuant to which the Company will be authorized to repurchase activity duringup to $20 millions of the nine months ended September 30, 2022 was as follows:
Period Ended | Total number of shares purchased | Average price paid per share (1) ($) | 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 | |
| April 30, 2022 | - | - | - | 831,229 | |
May 31, 2022 | 20,000 | 3.15 | 20,000 | 768,156 | |
| June 30, 2022 | - | - | - | 768,156 | |
| July 31, 2022 | - | - | - | 768,156 | |
| August 30, 2022 | - | - | - | 768,156 | |
September 30, 2022 | 90,726 | 3.31 | 90,726 | 468,158 | |
Total | 370,133 | 370,133 | |||
(1) Excludes broker commissionCorporation’s common stock from time to time (the “New Repurchase Program”) in accordance with the requirements of the Securities and Exchange Commission, including but not limited to Rule 10b-18.
Additional information regarding the Company’s repurchases of common stock during the ninethree months ended September 30, 2022March 31, 2023 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
|
| |||||||||||
|
|
|
| |||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
|
| |||||||||||
Exhibit |
|
|
| Incorporated Herein by Reference | ||||||||
No. |
| Filing Description |
| Exhibit |
| Filing Date | ||||||
| 2.1 | Sale and Purchase Agreement, dated as of January 11, 2023 relating to sale of interest in Contact Center Company | 8K | 2.1 | April 7, 2023 | ||||||||
31.1* |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
| ||||
31.2* |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
| ||||
32.1* |
|
|
|
|
|
|
| |||||
101* |
| The following materials are formatted in Extensible Business Reporting Language (Inline XBRL): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022 (Unaudited), (ii) Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022, (iii) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited) and (iv) Notes to Consolidated Financial Statements (Unaudited) |
|
|
|
|
|
| ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||||||
|
| * | 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.
STARTEK, INC. |
| |
|
|
|
|
|
|
By: | /s/ Bharat Rao | Date: |
| Bharat Rao |
|
| Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
By: | /s/ Nishit Shah | Date: |
| Nishit Shah |
|
| Chief Financial Officer |
|