Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good afternoon, everyone and thank you for participating in today's conference call to discuss Starteks financial results for the quarter ended December 31st 2019, joining us today, or Starteks, chairman and CEO upper roofs, and good stuff the company CFO Ramesh come off and the company's global Sea, Oh, Oh Rajiv.
Oh, yeah following their remarks, well open the call for your questions before we continue we would like to remind all participants that the discussion today may contain certain statements, which are forward looking in nature pursuant to the safe Harbor provisions. The federal Securities laws. These statements are based on information currently available to us and are subject to various risks and uncertainties.
It could cause actual results to differ materially Startek advises all those listening to this call to review the latest 10-Q and 10-K posted on its website for a summary of these risks and uncertainties Startek does not undertake the responsibility to update any forward looking statements. Further the discussion today may include some non-GAAP measures.
In accordance with regulation G. The company has reconciled these amounts back to the closest GAAP based measurement. The reconciliations can be found in the earnings release on the Investor section of their website I would like to remind everyone that a webcast replay of today's call will be available via the investors section of the company's website at www Dot startek.
Dotcom now I'd like to turn the call over to Starteks, Chairman and CEO E. L. Upper Roop Finkelstein Sir Please proceed.
Thank you very much UGI good afternoon, everyone and thank you all for joining.
Our exceptional fourth quarter results reflect the strength often now fully integrated company since our combination with agents, we have driven consistent improvements to our business quarter after quarter, especially in the second half of 2019 as we made key additions to our leadership team.
<unk> 19 was a first full year as a consolidated company and we are proud of the work that we have done to drive synergies and become an industry leader in the global customer experience management space.
During the fourth quarter, we focused on better leveraging our global presence through improved operating efficiencies and implementing new quality control procedures across all different geographies seems rather people, who just joined our team.
Global Sea all last summer, we have been optimizing our service capabilities throughout every region we serve.
In fact during the quarter, we established a centralized what you will command center that monitors our customer service activity around the world 24 seven.
These capability in short the offer customers received the same high quality experience no moderate Doreen D night on location.
Rajiv leadership already is driving material improvements in our business and even hear from him later on the call for more details on what he and his team have been up due to.
To further optimize our customers experience, we have been working to expand facilities offerings to include higher margin digital solutions using insights from analytics and artificial intelligence on digital capabilities will center on predicting and managing customer experience. The one thing short that we got at the forefront of driving innovation to better.
Still looked lines and these digital initiatives will help on the Delaware on that.
Regarding blind diversification, we continue to execute on strategy laid out there with a boss several quarters, we're highly focused on adding new clients that can accelerate our growth both by Upselling services and geographies and also organically by nature of our clients on growth.
For new clients, we continue to target exciting companies in high good verticals like technology Nexgen read deal financial services, Strobl education, and healthcare in Fuck Health care presents a significant near term opportunity for us as we're seeing strong levels of interest from prospects across the globe.
For was 51 of the execution on the non telco verticals accounted for 62% of the revenue in calendar 2019 up significantly from 51% in 2018.
As a reminder, while 40 gig concentration is useful data point, it's important to note that we are not opposed to targeting more established verticals like telco and cable media as long as flying disposition for high growth such as the recently signed you could telco provider, we highlighted on a last quarterly update.
To do more stuff, where you live telco verticals with him in stable. However, we do continue to see softness we talked telco business in India, we have taken steps to mitigate the impact, including our decision not to renew and engagement with one off on low margin Indian telco Klein during Q4.
We will continue working to improve our margins in that region as opposed to choosing unprofitable revenue.
As we have stayed in the past we want to serve as a strategic Boston talked lines and help them achieve their customer goals rather than merely served as a vendor with traditional calls into services Startek is at its best when bought drug with the right to companies companies that are growing and seeking a truly differentiated experience for customers.
This mindset across the stock organization needs driving the improvement we have seen in operations technology, and ultimately got growth and profitability.
Before commenting further I would now like to turn on color what do our CFO rubbish come up to take you through the Starteks financials results for the quarter Ramesh.
Thank you approve.
Jumping right into those drugs.
Net revenue for the quarter increased 8% to 171.6 million, that's compared to one for skewed point Sixmillion in the fourth quarter off 29 Jean.
The increased growth driven by growth in E. Commerce is good and holiday Wadhams.
Well goes this from a little below industry, nor the fourth quarter, whose totally the strongest quarter of the youre due to seasonality. So it would not be appropriate we expect.
Level total revenues sequentially in quarter, one granted Wendy.
Gross profit for the quarter increased 10%.
27.6 million as compared to 25.1 billion in the quarter ended December 2018.
Gross margin up 30 basis points grew 16.1% as compared to 15.8 person in the quarter Yodle Goldcorp.
Our margins continue to benefit from our focus on stronger employee inside utilization across our global footprint.
Margins also continued to improve as a result of positioning started.
The premium for wider which enables us to come on stronger pricing.
Selling general and administrative do is your India expenses decreased to 19.4 million.
As compared to 21.9 million into you ought to go portal.
As a percentage of revenue.
As Judy improved 250 basis points to 11.3% as compared to 13.8 person into your Goldcorp, though.
The improvement driven by little lower spin on traveling communication Pablo legal and other costs.
Net loss attributable to start picture when it goes for the quarter was 5.3 million or 14 cents per share as compared to a net loss of 9.7 million or 26 cents push it do you have to go Costco.
Net loss in the fourth quarter offering to 19 includes Oh 7.1 million good Lilly badman, largely pertaining to Argentina, and South Africa.
Although net loss improved this quarter, we would have been gap balls or do I do not being for the goodwill impairment below the operating like.
To reflect these nonoperating impacts adjusted net income for the quarter of couldn't feel the fourth quarter of couldn't be 19 was 5.8 million also Vincenzo should as compared to an adjusted net loss of 6.9 million or 19 cents will ship in the fourth quarter off when do you.
Adjusted EBITDA for the portal.
Could you use 48% to 16.8 million compared to 11.4 million into your Goldcorp, though I.
As a percentage of revenue.
Adjusted EBITDA increased by 260 basis 0.29, 0.8%.
From as compared to 7.2 per se.
As mentioned earlier I'd be boom and should reflect the culmination of executing our various initiatives over the last year, including can Washington office sales pipeline group synergies and operational efficiency.
From a balance sheet perspective, I'd December 31.
Oh gosh in distributed cash increased to 13.6 million as compared to 24.6 billion I was on December 31, who's going to one eight on net debt at the end of 29, Pete was reduced to 174.8 million, that's compared to 185.7 billion at the end of 28.
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Which resulted in a reduction of net debt, who won 42.2 million as compared to 161.1.
Note that our December 29, P. net debt exclusive 9.8 million effect third customer receivables on the nonrecourse basis.
This concludes my prepared remarks, I'll now turn the call or did you did you.
Thank you rubbish.
Since joining us starting in the middle of 29 being one of my top priorities has been it'll take a long hard look at the processes and competencies exercises in the organization.
Having developed deeper understanding of the two I have gone about theme park deconstructing portions of the organization and end up going about reconstructing the doing what's best practices in place.
Through this process over the last two quarters, we have created immense operational momentum and I'm extremely pleased with the improvement that we have made so far.
The nuclear so far business is centered around the client driven geography led focus ensuring that regardless of which gone off the blue collar originate strong we strives to be create a consistent in water loss experience for our customers.
One called her time, all adding up to over <unk> billion moments of truth.
I thought through mentioned earlier, we've established a centralized watching globally come on center this quarter to keep track of our customer experience dish touch points all across our network.
With this we can more fully aligned our operational standards and global best practices.
Implementation of technology like this will position us well financing and further defining our global clients management model in times to go.
We have also added a lot of horsepower in sales operations and other resources going it all focused on driving revenue as well as margin by creating new digital value added products for our customers and I now feel very confident that the U.S. set up for continued success in 2020 by Bill.
Laying out what I referred to as our Dream D.
Deem that is committed to defining the future.
Following the fourth quarter, we appointed a new global head of sales, Rick Fannie and a new Chief Technology Officer, B S. Van de <unk>, each bring unique and relevant skill set to our organization.
Rick was a founding team member at aegis.
And that's significant experience in maintaining strong customer relationships and driving sales growth.
Yeah, Randy we joined US recently at Sea deal has a very strong background in managing.
We'll likely Netbooks, having worked in the past for many worthless organization.
Well the most block we have completed the build out of our robust team focused on driving savings and creating value added digital products very soon.
We wouldn't be enough position to announce the latest addition to our executive team, a new chief information and digital officer.
This expanded team will help us bolster our pipeline with high growth companies and drive innovation to better serve offline.
At this point I would like to Boston called back to approve for his closing remarks.
Approved.
Thank you very much Rajiv I appreciate that as I mentioned earlier, our goal is to positions topic as one of the premier global customer experience providers for hi, crush companies and we have never had a stronger foundation to get us here.
The majority of our team is in place our sales pipeline is filled with high growth prospects. Our global footprint is optimized and technology infrastructure has been refined and conditioned to create innovative digital solutions to further differentiate starting.
As a value added partner.
Yep proud of the momentum being built for Twentytwenty, but we all know there's still work to be done to achieve our ambitious goals are becoming a billion dollar corporation down the road with strong double digit adjusted <unk> EBITDA margins.
Before opening up the call for Q any I would want to express my deepest gondola answers for all the families affected by tragic Colby 19 outbreak.
We are monitoring the situation closely and while it's certainly remains a global concerned the outbreak hot had put surely no effect on our operations to date, we plan to provide updates accordingly, as we learn more.
Oh that aside we will now open the call for questions.
At this time, if he would like to ask a question. Please press Star then the number one on your telephone keypad should anyone need assistance at any time. Please press star Zero and then operator will assist you.
Our first question comes from the line a Mark Argento from Lake Street. Your line is now open.
Hey, guys. This is John on for Mark. Thanks for taking my question first just surrounding the krona virus I guess anymore color you can provide there and he said no impact within your organization, but any wyness sites with potential clients or or or verticals that could be more impacted than other and out of that you know within.
The quarter you touched on some of the vertical diversification could you kind of Peel back the onion, a little bit more there on where you're seeing the most strength.
And then third you know you talk about kind of becoming a full technology strategy partner because if you could maybe go through an example of what that looks like outside of just the call center relationship with with one of your clients that would be helpful. Thank you guys.
Sure. Thank you very much on and I was just give you the answer to your questions first of all Oh on the current of wireless I can only tell you that I don't know what I don't know because the whole world is trying to figure out what's going on.
But I can just Lee Oh someone for expedient self managed you've got 24 seven operations, we understand that many times disasters happen then that are Breakages then it outages we have handled so many storms that you have handled in our lifetime and.
Being in Philippines, and so many other places we have seen all of that once we have learned and we're also going to constantly monitoring as to what needs to be done at this point in time is to use a patients and signs by that I mean that we'd have to what we call. It is deploy a containment strategy and I'll ask rajiv to share more on that.
But the fundamental pieces of that is we have kind of boot on yeah airports like scanning and monitoring system in the most of our centers as we speak on it has been deployed invasion side of course, but it is getting deployed globally, oh by putting in for its scanners and ensuring that all the employees.
Communicated to you would you like to quickly give some highlights off some of the execution that we have done on that and on the balance question I will answer a fuel cells.
Shopping approved.
So first step that we took was obviously imposing a global travel ban that was part of our containment strategy.
Next thing we've done is across most of our site.
We've deployed or Tom will scanners as well as digital that come on that does which can take temperatures for a temperature readings for anybody entering the site. This is not restricted only two employees, but it's also to stricter do visitors as well as windows. A we've also gone and put a split location bother.
C, which means a ship to start coming in and he resource units ships coming in in a in split shifts so as to try and contain any potential outbreak. If at all that is something that 'cause detected.
Whenever we are finding the reading still be up beyond the miscible limits as laid down by E. W. Internal guidelines. The individuals are being directed to the nearest hospitals, which have the adequate testing facilities there being a once they have the testing, which typically takes about.
72 hours.
Boats to come back if the individual is found to be beyond the miscible limits. A then it's important time that is immediately oh put into place.
We've been limited a large gatherings, we've stopped meetings, where we had a large number of people are getting together a weird encouraging the use of technology.
So a number of Ah Ah mock UN drawn or somewhere else like initiatives that have been putting up most of them in line with the whr guidelines that have been issued and and you know happy to state that at this point widened out why isn't it seems to be spreading that nobody rapid base none of the 44.
At 45000 employees that we have spread across cookie in different countries up not a signal case reported so far.
Approved back to you.
Sure and on the digital transformation that you're working on is that many people talk of digital and he I, but we want to work on something that is substantial and it's meaningful and has oh a value proposition for our customers and that's very critical that we always I strongly believe that you have to believe.
Bill doesn't organization, which is customer inside then organization outside.
As opposed to that what were doing is we believe that we are in the business of managing moments of truth, So which is customer experience.
Hi, Justin space around that is go deeper into a into those conversational nuggets and find out what's going on in the enterprise and get a sentiment off the organization that we are looking for both in terms of how many are happy how many a neutral how many are unhappy and do some more mining it on that I mean dumps are becoming a balance sheet bachner I'll give you want.
Example, you wanted me to cite an example, let's say you are an organization and you have multiple service lines and let's say you <unk> you provide a broadband. So there's you also have a consumer the deal. So there is you have let's say I kind of a bandwidth. So this you have a digital streaming so this.
Many of these organizations out there there's the built this oh service offerings and have taken them to the marketplace. They have isolated silos. So for instance, the final subscriber for all these three services and when I call from one sub is time in the company does not know that I am also a buyer and I'm a prestigious customer who has bought the other services.
So that unification, which is required to give a single view off a customer and the share of wallet that customer has in domzalski brand.
Is that time surprisingly missing and those are some of the areas, which I call is adjacencies around the moments of truth that I'm 40 to doing a conversation that you're working on and our technology team is going with value propositions that some of those engineering.
Solutions that can be quickly solved instead of going through a grand design approach in making those making this happen and in addition to that we are not chief Digital officer as it comes in and we had been in conversation with some of our internal team that is working on creating a analytics around customer conversation and I find out.
Insights about what is going on within the brand or not everything is to do with the agent and the conversation needs to do with some internal insight about the brand. So pricing policies are real brands, a billing systems. Other brands technology shoes, all those things are getting collated and we will be able to create dashboards for.
Our companies and for our clients along those lines. So those are some of the vision that we have on a digital site.
So so that's a the long answer to up the cities of questions that you asked John.
[noise] and obviously, if I mean really <unk>.
Sure Scott.
John just to further clarify a what approval is just say I'm going to leave our digital strategy rather than adopt a body shop. Unlike approach.
We basically identified a good working closely with the five belows, which are a omni channel support social media speech analytics analytics and RP. So deals a fight for those that are cutting digital strategy is based off and a duty to your last question, which is.
You know what impact have you seen in terms of volume.
Typically the industries that are that I think would get hit the most given where we are a would probably be a travel hospitality airlines et cetera. Fortunately, we do not have too much of an exposure to these industries in fact as some of the other industries that are that we are dealing with.
I haven't done seen a slight pickup because as people stay at home or you know we've seen a there's a tendency to shop more online. So while you probably will start picking up in a fault lines that are dealing in the online retail space. So as of now not seeing any kind of one material.
Volume softness that we need to be worried about.
Awesome very helpful guys. Thanks for taking the time and congrats on the quarter.
Thank you. Thank you John.
Thank you. Our next question comes from the line of Zach Cummins from B. Riley FBR. Your line is now open <unk>, Yeah, hi, Thanks for taking my questions and congrats on a strong quarter here in terms of the new executive appointments for head of sales and Chief Technology Officer.
I mean is there any material change in strategy from what you were doing throughout 2019 or what's really the goal here to build upon the success you've seen through 2019 and 2020 and beyond.
[music].
Yeah, the head of sales that I've part HM Global head of sales recruiting I mean, we wanted to get a what I strongly believe or two believed that dream team is to get entrepreneurs and just one employees are senior executives, so Rick or just to give a little bit of background has worked with before separately.
Sign was a an entrepreneur and residents who built ages and I can read that story of Hall aegis was built from a small company to a billion dollar organization. So Rick comes up with phenomenal experience and understanding of the North American market and Oh. He was also very close and he's an export in the healthcare system.
Them ecosystem off both beers and providers. So I think he will bring up those ah.
Verticals, which is not in trends, we are not in Princeton those verticals.
Frankly speaking on he's going to bring those to the table in terms of a chief technology officer and he is strictly he is going to bringing optimization. A you know global network. As you know I mean, we had what do you call. It is an age is part of the organization under starting part of documentation. So what we are.
Currently doing is we are trying to matti both of them and see where some of the synergies art and frankly speaking we are finding a lot of potential optimization that we can bring to be or for example, we by Microsoft license, both in India as well as in the U.S. So is there potential for us to really.
Deconstructed Rajiv seed and reconstruct and find that now we are buying.
X thousand more licenses and therefore, we have a large and negotiating Muslim secondly on these areas of technology reengineering that we might potentially doofus I'm off a client in the consumer expedient space I mean that he's a need for building.
Applications and Nike applications team, so that was existing so that deemed got augmented. So so those are some of the areas that you're working on largely to make a difference to our customers. The central team is how can we be very close the door customers make a difference to them because in this business. It is important for you to be a partner and not just a vendor.
Oh, so that has been our module and the management team that we have a kind of articulate it though we didn't enterprise and it has gone down the value chain Oh, we didn't enterprise.
And in terms of sales Ah, we clearly believe that though there are opportunities for a working or what do you called it smallest I sure and lot of clients are looking for a flexibility of onshore and offshore and having the ability to have to fungibility of movement across cultures and continents and started earlier.
As a company that was largely North America centric ages was the rest of the world centric. So now with these two coming together customers are liking the ability to really have a network, where they can actually move or a conversation or a cold or a process Oh, what do you call is anywhere anytime.
Just to give you. An example, I always used to give that I call. It around the world in eight minutes. So I'm not 80 days, a which means if somebody makes a call lets say, which is U.S. bound to which gets originated and he's let's see answered I buy somebody within the enterprise within the U.S.. So and then the part of the back.
Office book, basically goes to India, and some of the feet on speed work, probably happens or somewhere in the and your short enough and you're sure facility. So I mean, that's pretty much what happens internally within the organization. So that is so what we are bringing to the table and that is the story that.
Telling our customers that do you have the ability to now have a an organization that is helping you across cultures incontinence give you. The best of both wars give you the ability to reconfigure your pricing and reduce your total cost of ownership on the one hand, and also get an amazing experience at a faster lead by using the.
Die World at large.
Got it that's helpful. Appreciate that and rematch just a couple of quick questions are you for gross margin I mean really strong revenue in the corner, but we actually saw gross margin declined a little bit on a sequential basis. So can you talk about the drivers of that in and what are really your expectations for gross margin as we proceed forward from here.
The thought drivers for gross margin. One is this quarter, we heard an exception fast food cost of almost $40 million. So you know, it's hard to the revenue and because that starts.
Regarding a tall quote unquote.
So that's of course the season. The second reason on an open business meeting to ramp up both in this quote unquote or heard.
You heard to spend extra on <unk> costs, and sometimes feel a little bit more good reasons to join the impact of that was almost all between 402 half a million dollars and the last part is as is typical of the end of the euro.
Are you know for all their employee benefits that are available.
We need to have though.
Our children valuation done ball.
Because of for the variety of changes that occurred this year on the assumptions on interest rates.
I wanted to review et cetera.
That extra cost of almost a million dollars, we booked in quarter four if you netted all these off.
Then I will.
Gross margin was roughly close to the previous quarter, but having said that as you can give us a is that some of these items. So would continue in the quarters.
How would you like into future quarters, you're movie going forward.
But I'm sure you can.
New York cancellations.
Understood and then on the flip side of that for best in a given its nice to see the savings in that line you're talking about the drivers there for your estimated savings in the quarter and what's the approach to continue to optimize that as we move forward.
What's the driver that's exactly what you have said.
First the news and this could do it spread across a multiple items and not just one item and doctors what pleases me quite a bit so that is savings on the power and fuel those savings on rentals travel those savings on even some employee cost going forward as a achievement.
Bruce mentioned I think people need to invest a lot more on the sales team and I would go into disappointed.
If that I spoke cost, but I know that a proof and the June myself. We're focused on every other line item of cost to prevent it from going beyond the control.
Understood I totally get good idea exactly be a good idea for me to all side and ER, which I.
I think Rajiv and I, though probably we don't shared with you is that we have now got a global spend management leader.
And he comes with the decades of experience a in understanding the entire landscape of the vendor ecosystem. As you know in this company. There's a lot of spend and then a lot of non-GAAP expense that also happens on a regular basis and I'm just going into the depth of those and creating what do you call is various forms of auctions and using.
Reverse auction a Japanese auction those optimizations have started happening.
And so those we strongly believe is going to bring a g. it down and whatever we save on the G.. We are going to deployed on the S, which is a sales and that's the way to go I mean, just stick at least to vestiges out off your organization and deployed that into sales and that will continue the growth momentum that we envision a in the future.
I understand that's helpful. Congrats on Q4 and a best of luck as we go through here in 2020.
Absolutely. Thank you very much.
Thank you. Our next question comes from the line of Omar Samalot. Your line is now open.
Hey, guys how are you.
Thanks, Omar How're you.
Good day, I really what what a wonderful quarter strong quarter quarter. After graduation strong unit, though.
Great job going back to you in any line increased cash flow continuing to pay down the debt a while still investing in the business really great well jumped on [noise].
And I wanted to also thank you for finally reporting a non-GAAP earnings per share I wasn't really very helpful and I've only been asking for it for about five years now so it's great to find overseas.
[laughter].
Uh-huh in our unit because you can say anything about capacity utilization rate, but that's a metric that you are the company has not been an occasion to touch but I was wondering where you out and died in that sense.
Yeah, So Oh Omar Hi. This is watching then I'll provide a little bit of color to it.
Just to give you a sense Q3 versus Q4, so that gives you a fairly oh.
You know.
I'm, giving you have a recent picture or be a in the Americas went up by almost 9% in terms of capacity utilization and ER and across the Philippines, which is one of our up growth geographies are we saw jump up close to about 10% or in our capacity.
Playstation.
We are as we move along that are that it we've already in fact announced.
Last late last week, a plans to shut down a center in a into get in the U.S., which is a in Grand junction in some of that was driven by the fact that or some of our clients wanting to move towards their locations.
So even though to be already announced actor and ER while of course, it would not lead to a capacity a increasing capacity utilization in the man that we would ideally like which is our new revenue coming in and that is why the utilization is going up backed up by giving up that center next quarter I'm.
Hoping we will be able to report to further increase in a utilization across the U.S. So I'm, just giving you a couple of data points or where are where.
Thank you.
At this time. This does conclude our question and answer session I when I like to turn the call over to Mr. Sengupta. Please proceed.
Okay. Thank you Judy and ER for your.
Patient a matter in conducting this oh meeting and really appreciate that for all your health and thank you all for joining this afternoon and for your continued support for Startek barring a travel restrictions due to the coffee 19 outbreak I'm looking forward to meeting you with many of our chandeliers and covering analyst some I'm on my next.
Strip to the U.S. up either this spring or whenever no maybe the U.S. opens and things become better if I don't see you then I look forward to speaking with you next time when we report our first quarter results. Thank you very much indeed, and Oh, what do you.
Operator.
Thank you ladies and gentlemen, you may now disconnect.
[noise].