Q1 2021 Startek Inc Earnings Call
[music].
Good afternoon, everyone and thank you for participating in today's conference call to discuss <unk> financial results for the first quarter ended March 31, 2021.
Joining us today are star checks executive Chairman and global CEO of Pirates in group, two and the company's CFO because sure Echo.
Following their remarks, well open the call for your questions before we can see new people 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 of the federal Securities laws.
These statements are based on information currently available to us and are subject to volume risks and uncertainties that could cause actual results to differ materially.
<unk> 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.
<unk> 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, yes, we consult the amounts back to the closest GAAP based measurement.
The reconciliations can be found in the earnings release on the investors section of their website.
I would like to remind everyone that the web cast replay of today's call will be available via the investors section of the company's website at www Dot start Chegg Dot com now I would like to turn the call over to start six executive Chairman and global CEO of Parasang Gupta Sir please.
Go ahead.
Thank you. She now good afternoon, everyone and thank you all for joining.
Before we discuss our first quarter performance I'd like to share our deepest condolences to the families in India and around the world, they're still contending with the tragic consequences of the COVID-19 pandemic. These.
These are difficult and heartbreaking times and I taught hard with everyone who's struggling with COVID-19 themselves, whereas it lost a loved one to the virus both over the past year and during the most recent outbreaks.
With the pandemic resurging across certain geographies, we are focused on protecting the health and safety of our employees, while flexibly addressing our clients' evolving needs access to the vaccine and the pace of broader recovery remains largely uneventful worldwide and the progress on both fronts is still.
Very difficult to predict.
About 65 per cent of our global team is working remotely to date.
We will continue making the necessary optimizations towards fully established started cloud infrastructure and the propulsion suffer look force remote or on campus to prioritize the safety and productivity.
This focus on operational flexibility and efficiencies has underscored our work throughout 2021 so far.
Even though the first quarter represents a seasonally soft period for our business. We had a record first quarter revenue since the combination of startup and ages we.
We reported increased net revenues year over ear and generated strong growth across gross profit gross margin and adjusted EBITDA as we continue to prudently manage our costs and support our workforce and global client base. We are proud to have built a strong strategic and financial found.
Asian from which to propel our progress through the remainder of the year.
Deal wins in our e-commerce vertical have remained strong, though they're not as elevated as day, there during Q4 and peak holiday seasons.
As with this broader macro economy recovery I mentioned earlier, the recovery at brick and mortar retail travel and hospitality verticals are also uneven and likely to remain so for the near future. The fact that we are still largely operating in an environment driven by remote and hybrid work has also properties.
Demand strength in some of our key client verticals like health care cable and media within health care in particular, we had especially honored to now be supporting the COVID-19 assistant programs throughout the United States.
Services have been instrumental in helping our clients and debt and customers get across to the resources. They need during this dynamic and difficult times.
The coming months, we will continue working to ensure that this access becomes even more seamless and widespread.
We are making strong progress with our strategy growth initiatives. So far in 2021 all while preserving the health continue with tea and productivity of our global workforce.
Our team has demonstrated incredible resilience and adaptability since the onset of the pandemic both in servicing our customers and how they have used an optimized our platform in support of our continued growth I'll have more to say on this a bit later in the call about some of our strategic and technological initiatives.
Including the progress we have made with our investment in CSS car.
But before I discuss that further I would like to turn the call to our CFO Costa Rica to walk you through the first quarter financial performance in greater detail.
Gus.
Thank you a book.
Good afternoon, everyone.
I can do every day.
Net revenue in Q1 increased to 150 people on 1 million come back we want to keep on 9 million, Indiana book.
Awesome.
Yep.
All right.
Continued client demand spin.
But let me, but they're not E Commerce Alcan cable then maybe on what people.
As a book just mentioned.
You can be strong through the quarter like you wanted one up on stuff.
On a constant currency basis net debt.
By coupon Clipper fan.
Compared to the order book.
Gross profit for Q1 day.
One 7 million compared to let people on 1 million in the year ago.
Got.
Gross margin increased 50 basis.
This one.
Pinpoint one person on paper.
Well, one 5% from the yellow book author.
Similar to our top line growth.
With a module.
Volume growth was in Atlanta, and a group of every day.
Imagine what he said.
Our Q1 gross profit includes benefits I'm going to run up about $2 million on them.
DNA with the selling general and administrative expenses for Q1 were $14 2 million.
The sequential and year over year.
On paper, the pinpoint 2 million in Q4, and $17 3 million on the water Park.
As a percentage of revenue.
<unk> improved to eight 7%.
One 7% in the year ago.
Parker.
This reflects the ongoing benefits of the cost reduction we haven't been on people with a lot depending on.
And we expect SG&A.
To remain at current levels moving forward.
Net loss attributable to stock achievable for Q1 improved to $1 2 million on.
A loss of 30 cents per share.
Compared to a net loss attributable to a $26 six linden on.
A lot of 69 cents per share growth.
Parker.
Our net loss this quarter is net of one time charges.
Expenses associated with the debt refinancing we completed in February of this year.
We also had a few one off tax from something that caught up.
With the year ago quarter net loss included an approximate $22 7 million goodwill impairment, but I'm on.
Due to COVID-19 related forecasted declines from Aqua.
Adjusted EBITDA in Q1 and free.
92%.
$18 million compared to 10 5 million and they get a book.
Got it.
As a percentage of revenue adjusted EBITDA increased 11, 1%, which was up.
This is 161 type of thing and the water book.
The increase was primarily driven by net.
They book.
I've been expansion on cost reduction as well as women than men.
Good day.
From a balance sheet perspective at March 31, 2021 at fashion district of cash.
$64 6 million on paper.
51 6 million at December 31.
With the increased working capital net working capital improvements during the quarter.
Total debt at March 31, 2021 was 170 coupons 8 million compared to one 6 million at December 31 Gram per claim.
Net debt at March 31, 2021 was $108 1 million compared to 85 on 4 million at December 31 2020.
The increase primarily reflects the use of proceeds of our recent debt financing for leap day.
EBIT senior debt facility and fully as well as making pretty big investments Inc.
Yes.
Even after an increase exhausted after the refinancing on.
Net leverage on a trailing 12 month basis continues to remain at Vandenberg.
We continue to book Oh, we continue to remain comfortable with our liquidity position.
Dance per day, and a focus on prudently managing opex and G&A expenses and other costs.
The optimum efficiency of our operations.
This concludes my prepared remarks, I will now handle the call back to us.
Our book or what.
Yeah.
Yeah.
Yeah.
Our group.
Hi, sorry, thank.
Thank you that got shot before we open the call for questions I'd like to spend some time briefly reviewing our progress with both our existing started cloud platform and our recent investment in CSS.
We have continued to drive success with both and we view that the key drivers for our growth objectives for the year ahead.
Having established started cloud as our remote work infrastructure over the past 12 months, we have continued to optimize this platform through implementing additional cloud computing I do.
So as management and automation services further enhancing the seamless less off our operations.
Visa Force I include integration with Microsoft Azure.
On the AWS capabilities.
We have a short debt of platforms has the most efficient and up to date in the face with both agents back end work and our platform's customer facing operations.
Through this added functionality and the work we have done on the platform to date, we have achieved elasticity and not start a cloud service. We have established a secure and high tech enabled platform with video monitoring strong data connections among agent desktops and other key elements that ensure optimal productivity.
On connectivity.
On our workforce.
In addition, we recently entered into a partnership with automation anywhere leader in robotic process automation that will help us strengthen our AI powered RP capabilities across our customer experience value chain.
This enhanced functionality will provide technical guidance testing development of software bots, and complementary RP of training and support across our global customer and business processes.
In turn this will allow us to drive increased productivity for both our platform and our agents all while more effectively managing costs and turnaround time.
As a quick note on our overall hybrid and remote work plan. We continue to view the long term proportion of agents we have on campus.
Agents, who we work remotely as a 75 per cent and 25 per cent split respectively, especially given ongoing struggles with the pandemic in certain key geographies visibility on when we can reach these numbers on a sustained basis remains challenged and as I stated earlier on the call providing the ballot.
And the resources necessary to keep on workforce safe on productivity unproductive remains our top priority.
We have started an engagement and discussion with CFS to find areas of collaboration and leverage each other's physical reach and technology prowess to enhance our services to our clients in a mutually beneficial manner. We will continue to share more about our progress in the coming months.
As we look ahead in the rest of 2021 I'm proud of our team's hard work to continue advancing our operational momentum and drive additional efficiencies throughout our organization and we will remain focused on further progressing our growth in the months ahead, we have remained.
Sealant through some of the most difficult macroeconomic conditions, we have ever faced and we will continue to support our team and our clients and customers we serve as they collectively book towards recovery.
So I think our channel this will be a now for us to open the call for questions.
Alright. So at this time you feel like to ask a question. Please press Star then the number one on your telephone keypad. She should anyone need assistance at any time, Please press star zero and an operator will assist you.
Yeah.
Yeah.
Yes.
Okay.
Yeah.
Yeah.
First question comes from the line of Zach Cummins from B Riley fewer in our lives.
Yeah, Hi, Thanks for taking my question I may have missed this commentary, but on the cash can you tell me you'd kind of the benefit that you got from the government grant in this quarter going down to the adjusted EBITDA line.
Yeah, Hi Tech.
We were benefited by about 2 million downloads.
It came from government grants.
Understood and is it in Pennsylvania for that to continue in the coming quarters or is this viewed as more of a kind of a one off thing.
I'll look better.
Hard to predict.
For example in Q4 EBITDA from banks from the government.
To give guidance as an indicator from from had been talking to them, we do get to the banks and things like that.
On the shelf electrical.
Why is that.
What we expect from RBC.
As we move forward.
But again like I said the pumping is difficult.
Understood and just just given some of the challenges we've seen in India here in the recent months, especially with the rise in COVID-19 cases have you seen any impacts to your business or our ability to conduct operations.
On your hybrid model in place.
Oh, it's a very good question, then I will give a guarded on sort of because as you know I'm in the mood in the nation is varies from there in the sense that there has been rising COVID-19 cases, but the good news is that our operating team have done a phenomenal job on two fronts. One is to ensure that the murata.
All of the employees are high and we have given them that you can get the best of both words, which means that even if you are unable to come to office, we have a technology by virtue of which you can work from home at the same time you can support your clients. So we have been able to provide this elasticity to the work force and therefore today, we clearly believe that with.
Almost 60% 65 per cent of a work force at home are.
We are in a position to continue to serve our customers now. The question is what happens if there is more severity. So from a technology standpoint, we already are.
Oh, we have enabled ourselves to go as much as one one so do indoor work from home infrastructure, but currently the way I'm seeing is that there is a less likelihood that the government will do.
Kind of caught up lunch locked down which will impact our agents' ability to come to work and the other thing I also wanted to point out is that we are considered as one of the essential services. So even the hypothetically if everything is shut down and in some other places it is public transport day shut down our.
So we're able to come to work because they have a special task called the essential services pass so that kind of helps for us to continue to work with them on or in which we are working.
Got it that's helpful. And then in terms of just looking at the demand across your different verticals on a corner I mean can you go through it and see.
Yes, our outline some of the areas, where you're seeing opportunities and continued strength versus maybe some verticals.
Have been impacted by day by.
By the changing environment here in recent weeks.
See there is a there is a behavior on the verticals that is always there, but I don't predict on a quarter on quarter basis as to how those verticals on 40, because we had been working with some of those verticals, especially some of these customers for a long period of time and some of them for more than a decade, but in terms of Paulo.
I can clearly tell you that E. Commerce are definitely there is a lot of tailwind that we see not as heightened as what it was during the holiday season, but that is something we are very bullish and we believe that there.
There is a possibility for us to gain momentum with some of our clients. We are clearly seeing a theres a lot of uptake on the health care, especially the COVID-19 assistance program, which is kind of a federal work that we have got so that is also a possibility for us to see growth that so clearly I'm seeing that up in pandemic situation. What has happened is y.
Some of the sectors have remained muted for example, the brick and mortar and the hospitality and travel and airlines verticals, but in some of the stuff like Oh ecommerce and anything to do with cloud based stuff, even I T and some other technology related services and there's somebody new wins that we have.
They are showing good momentum of growth to us. So therefore, what we have done is we've been able to create an organization that is on the one hand elastic in nature and is.
Having the ability to service are the sectors that are in the growth mode. So we are on both fronts at the same time, we are keeping a high watch on some of the sectors that are seeing some softness.
But clearly we believe that our we are.
We have prepared and are much better than what we were last year. If I may just summarize.
Yeah.
Understood and then just final question from me in terms of your early initiatives with <unk>.
Excuse me could you just give us an update on in terms of how things are progressing just very early stages on your collaborative efforts with them.
Yeah, I think just to repeat what I said last time cirrhosis has a very unique capability of doing what do you call is that technology is support for some of the finest companies who are largely cloud based on with some of the customers. They are almost sole source provider. So.
That actually brings in the deep expertise of doing tech support on both onshore as well as offshore so take support ease as you know in the customer experience value chain is increasingly going to increase and you and I talking or doing Microsoft team meetings on zoom calls art, though we're trying to automate things. These are on.
All of the being driven by a deep tech companies and these deep tech companies are consumer facing at times and therefore day is obviously on naturals need for a lot of our support services sold. So that's what's here says does so our collaborative effort is to take the advantage of that expert.
Is that they have and they in turn can collaborate with us to see the deep expertise we have offered our understanding on the depth of the consumer experience radio.
So on these two front I think we have joined a ourselves at a front end to go to some of the customers are and work with them deeply.
And we are clearly seeing that day is a huge amount of opportunity to take this collaboration ahead of us.
Really excited so this is a very price to a capability that we have right now and the capability that is now in motion is the front end of collaborating on in.
In some of the specific deals or in some of the market facing activities that we're doing in terms of gaining more traction with customers.
Understood well, thanks for taking my questions on and best of luck in the coming quarter.
Thanks Zack.
Yes.
Next question comes from the line of Omar Salmonella from starts Inc. Your line is now open.
Hey, guys how are you.
Hi, Omar how are you doing.
I'm good thank you.
First question on how does that I noticed I think.
Free cash might have touched on it but it's got a little bit hard to get them to.
To hear him.
On the tax expense seemed a much higher than usual I was wondering if you could provide a little color there.
Yeah, Hi.
Hi on my apologies.
Okay.
Yes.
So you're right that I could spend for this quarter.
Hi.
From bank of typically every quarter, we have an active.
And two on household.
On the AR this quarter behind on how your backlog.
Because.
From a deferred tax asset.
Oh, well on all of them.
We now believe that the book.
Then obviously look pretty good guidance forward, therefore, what type of work.
Provision for that book, one on the big chunk of the book.
You know I wasn't as non controlling interest likelihood or not.
Jordan also reported the highest possible.
And therefore, we have to make at least what we shouldn't do it will.
These two factors on the bigger one I'll touch on a few of them.
We don't expect a comfortable moving forward.
Okay understood Congress should be back to the one day.
And on that level.
Yeah.
Okay. Good deal okay.
Okay, and then I wanted to congratulate you guys. On this is a really great EBIT not EBITDA number that you achieved on this quarter and and an EBITDA margin at 11%.
To the extent that you can.
Can you talk about how you see capacity utilization rates evolve throughout this year, and maybe why and what would that mean in terms of EBITDA and cash flow.
See this capacity utilization now suddenly got a new definition, what capacity you'll be talking off or were talking on the chairs in the living room or are we talking of the chairs in our centers. So this is everybody is grappling with that but up.
To give you a very precise answer we'd clearly are now.
Almost set of capacity agnostic bottle, we're thinking ourselves that we have an asset which is a which is a capacity, which the customers can use but at the same time, we now have the whole one's day in which we can really go ahead and spread our wings a in terms of the processes that we have put in place the entire hire to retire process.
Touchless activities off hiring and are executing training. These are game changing stuff that we have done in terms of deploying does start a cloud platform and we are adding some more capabilities on.
On that front, so we clearly see that the entire functionality of our progress will be how do we manage and effectively manage these customer experience our moments of truth at the same time, how we are growing with our existing customers and how we're onboarding new deals so on that front Oh, we have clearly seen.
Debt, we have grown and at the same time, we have been able to optimize the journey, which we embarked on more than 12 months ago. So they have kind of a proxy fight and we are seeing the results from that.
So I'm I'm clearly seeing debt in such times. So it is very important for us to understand that some of the elements that drive value for all organizations is how do you manage consumer experience and are you at the forefront of managing and particularly managing your consumer experience.
And we operate in that value chain. So therefore, there is an element of non discretionary spend and more focus in the areas, where our customers are working and we are right at that platform.
Intersection so I clearly see that we are in the right spot, though the times are really bad.
Okay.
In terms of in terms of the Telecom segment, specifically you know lately when it comes to be P. O business is kind of seen a stagnant or declining business I was wondering if you could.
Tell us how you see this sector going forward for four star tick specifically.
Well, we have a lot of telecom customers and obviously they will there is there is a little bit of volatility debt, but I have a very contrarian thinking debt today. If you look at the entire nation. If you look at the country. The entire nation is running on the telecom backbone with the remote work.
So when you have more customers save the average time that we are spending on either our home network on our phones is that leaves gone up between five to six times. So the more usage happens it leads to more encounters a problem and therefore additional calls and additional opportunities for our customers, who we helped so therefore clearly.
I'm seeing that while there will be volatility on a quarterly basis.
Technology, and telecom, especially telecom companies will continue to have a very critical.
Element in our lives today.
And and I always see C and I always predict in addition to the numbers.
What is happening in the marketplace is that are we have clearly seen that now telecom sector. While it was softening, but now it has got a lease of life and now there's a lot of activity happening many of the telecom providers are not only working on voice day working on data and some of them are really.
At five G. So I clearly see that debt is an opportunity.
To give you a long story short I mean, we have by and large stabilized our revenues and from there on we clearly see that there is a possibility of growth.
Very good good to hear okay, I could not help but notice.
A sentence in your press release that basically said that the strong start to the year has positioned us to deliver robust growth from the current fiscal year. I was wondering if you if you're willing to define robust for us in terms of the type of range.
Anything that you can add in terms of that color.
See robust is I will again, just go back to what I said last time and if you want more color I'll just give you that color I said last time in the quarterly call that Ah I can only talk about debt, we believe free behave and we become so I'll just reiterate that I believe I mean that we are focusing on the central pillar of customer XP.
And so on it is actually having multiple wings wing of Digitization on the one front. The other front is about globalization, how do you manage consumer experience across the globe citizen solving citizens from offshore a foreigner, serving citizens and variability with day in the elasticity on so that's the same.
Interest pillar that we are focusing and we believe in that and that's going to grow.
And of course, the behavior that we are talking off is the focus on growth focus on optimization focus on efficiency.
Become is the result, so if I have to use the word robust. It means that we have a very strong will as a management team and where there's a real days away I mean, so if you can if I can use very loosely realize I sit on them for robust I think that's that's the best I can say.
Okay good enough okay.
And then my last question.
I would like to ask you about your thoughts regarding the stock valuation you have now shown three pretty solid quarters in a row in terms of EBITDA and cash flow yet the stock trades on a very low six times our trailing.
Trailing 12 months EBITDA multiple and an even lower four times next 12 months estimated EBITDA multiple.
You know with a very positive commentary that we're better at least on I'm hearing.
Regarding revenue growth margin expansion so.
You know your thoughts on on the sharp.
I guess in my mind undervaluation of the stock in and how do you how do you get potential investors to appreciate the story the hidden value on and the potential returns going forward.
Well, it's a hard question for me to answer because I cannot have a commentary on in effect about a weird weird bring whatever is required to be done in terms of taking our our story out to a larger set of people.
We are hiding our investor relationship person directly who is going to.
Dig the narrative on the stories to a larger audience. So I think those are the stuff of work that we can do in terms of what are the elements of telling our stories and more than telling our story is doing it right and and editing that whatever we have planned we have done that and that is unfolding.
And after that the how the market reacts is a function of how.
The stock goes and how.
What is the level of floor, what is the level of a.
Volatility that is there.
I'm I'm not having the wherewithal to answer that question to be honest [laughter] button [laughter], because I mean, I'm thinking I'm honestly you on you asked a question on at times do I not asked that question I ask that question, but I have resolved myself debt.
Keep on doing your hard work continued to build a great company some day sometime.
And maybe soon or maybe a little later people will appreciate that we are.
We are an unpolished, we were an unpolished diamonds than we are now sparkling like I started and we are aiming for the star we land up in them on how do we do that is not in my hands. It's in the hands of the investors, but are we we have two passionately Descartes story art pieces on strategy out to the marketplace.
And we are putting all efforts on that front.
Okay, well I appreciate the answer and I'm, sorry to put you on the spot a little bit.
I appreciate it and I wish you guys on the best of luck going forward.
Thank you Omar.
Right again, if you would like to ask a question. Please press star one on your telephone.
Next question comes from the line of Robbie Bamberger from Baird. Your line is now open.
Yeah. Thanks for taking my question.
Any way to really think about the sequential revenue growth throughout the year any reason to think that it shouldn't be similar to our recent history of maybe a little minor sequential Q2 decline and then a sequential bounce back in Q3 and Q4.
Yeah.
Yeah, I can take that and then we got can give you. Some color yeah that is a we have always seen the phenomena off are companies like a camel hump by menu you start with the quarter, one and then it dipped a little bit in quarter, two and in quarter three quarter four it goes up and debt again depths. So so that's that's that's the wave in this auction done.
It goes up.
But I think Q2 and a cute Q to Q2 as did generally softer than Q1. So that has been the trend that we've seen so far.
But however, I can only say that we have put together a lot of growth momentum in the organization and Oh, when I can only say that.
There's a lot of value there's a lot of hard work that is going on behind so the companies now on the momentum the how soft or call called big or how less it would be we will not be able to give any guidance at this point in time, but we are feeling fairly comfortable as we see the next year ahead of us.
Yeah.
That makes sense. Thank you and then just on any one off potential revenue would you would you consider any revenue that you got in the quarter, maybe one offer on sustainable and I guess, how much came from the COVID-19 assistance program on that you'd be able to kind of parse that out.
We have we have not got any specific one off program yet I'm on it is even if a one off program has come that's probably less than one per cent.
Okay great.
And then just on the overall pricing environment.
Our clients trying to lower prices now that I guess, you have a higher mix of at home employees or do they really understand that employees. You know can't go to the office and then they arent really trying to squeeze on price at all.
No I think frankly speaking that is not how customers Tang. Please remember we work with tier one customers and and also please remember that the day they are giving their most precious asset in our hands, which is their customers on so I always say that this is non core but it's critical.
We manage a critical process for a customer in the value chain of any any any of our clients. If you take a.
Dr Paranoid about that their customers on handle right. So it is like giving your baby to a boarding school I mean do you really large squeeze the boarding house with what the rates. They are charging what day one from US is that they want to us to have day shortens they want us to have the ability to perform they want us.
To have the equal amount of passion or more in terms of ensuring that there is continuing to your business are the kind of work the heroic work that we did in.
Creating this into work from home model and giving birth to the startup cloud. These are something incredible in fact, some of the customers have paid us more.
During the pandemic time than the normal rate I mean, we got calls from customers, saying that Hey, you know what can you do this for us at least because we are the volumes are going up and I know that you have been really.
Working with us closely will be more than happy to pay you more so those are some of the conversations that are we have seen so I do not see that customers are going to come back to us with the pricing pressure on of course, I mean, theyre on a volume discount and stuff like that which is in a non pandemic situation those are very valid commercial conversations.
But I have not seen anybody taking advantage of the situation.
In terms of squeezing price.
Okay, great. Thank you.
Well Chris. Thank this includes our question and answer session I would like to turn the call over back from Mr. Singh Gupta. Please proceed.
Thank you channel really appreciate your help and thank you all for joining US This afternoon and for your continued support of stocking I look forward to speaking with you next when we report our second quarter results.
Thank you ladies and gentlemen, you may now disconnect.
Okay.
Yeah.
[music].