Q1 2022 Startek Inc Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss our techs financial results for the first quarter ended March 31 2020 to.
Joining us today are star text global CEO for right now the company's global CFO , Ms sheet Shah and the company's head of business transformation Ronald July .
Following their remarks, we'll 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 of the Federal Securities laws. These statements are based on information currently available to us and are subject to various risks.
And uncertainties that could cause actual results to differ materially Jacek 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 star text does not undertake the responsibility to update any forward looking statements.
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 investors section of our website I would like to remind everyone that a webcast replay of today's call will be.
Payable via the investors section of the company's website at Www Dot Star Tech Dot Com now I would like to turn the call over to Star text Global CEO Barack Wow, Sir. Please proceed.
Thank you Kate.
Good afternoon, everyone and thank you all for joining.
Like always I first want to recognize all of our hardworking Scottish widows.
Who are helping us become.
Global customer experience solutions provider.
We don't.
We would not have been able to accomplish the progress we've made.
Embarking on our transformation.
The invigorate growth across our organization.
Thank you all for your dedication to this company.
Our first quarter efforts were heavily focused on investing in our field.
Technology ecosystem to drive organic growth in our key verticals.
And explore new relationships with new clients.
Through our efforts, we experienced year on year revenue Coke.
Increased number of services to new digital partnerships.
Improved upon our overall platform to support new opportunities within the industry.
Early in the quarter.
With the backdrop of inflationary pressures.
Cause our customers to develop unique solutions.
Rising wages and cost of services.
We've focused on creating an open dialogue to address customer needs.
Worked to find the best combination of services for each unique client.
And we I treated our desire.
Strategic customer relationships, not just valuing them as revenue streams.
As such we made the difficult decision to creation stepped back from a contract we had declined operating e-commerce.
[noise] Dolby value working alongside them, we wanted to channel efforts into opportunities that we could make a long term impact and in the medium term.
Margin accretive and that would be cool.
This decision led to a temporary decline in the <unk>.
How much would be good.
Do you fully expect to make up the loss with continuing growth.
Other clients in this way.
Okay.
Our financial and business services vertical.
Continued to perform well this quarter, we saw year on year Coke.
And we are expecting strong performance throughout the year from this segment as we deepen our relationships with existing clients and cultivate new logos.
In telecom we had.
Drove year on year growth by doubling our efforts to deepen and grow our existing client relationships.
Yeah.
As I mentioned in a previous interactions we are now fully ramped with our client in South Africa.
And we continue to win new lines of business with another large telecom client.
We also began to see improvement in our travel and hospitality sector as some of our clients prepared to normalized volumes.
Back to pre Covid levels.
This sector is soft compared to pre COVID-19 levels, but we believe it has begun to trend in the right direction.
Despite the organic growth that we experienced through the quarter.
We said to revoke our existing pipeline and I am confident that it is now stronger than ever.
Like I alluded to earlier.
Brought in several sales members in our U S territory.
That has the expertise and experience to aggressively go out.
And then to find new client relationships.
Our new sales team has deep domain expertise in the specific vertical that you wanted to strategically cool.
These efforts are part of a larger overall strategy to revamp our sales ecosystem.
One of the three pillars.
The fight for growth within our company.
We will continue to refine our strategy, but you can expect us to be highly focused on realizing more revenue opportunities within our U S territory.
I am excited and optimistic with our wins this quarter.
And therefore confident that the sales pipeline and courage.
As we discussed on our last call.
<unk> also augmented our capabilities and our infrastructure and cyber security front.
We will continue to identify and prioritize and invest.
Invest within our technology and cyber security areas.
And then ongoing effort to remain prepared for any malicious attacks against our platform.
We also worked and developed digital partnerships to increase our overall capabilities.
And then product offering too.
To further grow our platform to offer cutting edge and relevant solutions to our clients.
These added digital solutions allowed us to enter new RFP.
And has strengthened our overall reach to tackle new.
Emerging opportunities.
A key strategy around our transformation into a digital first.
CX organization is to have strategic partnerships that give us access to the latest digital tools.
Part of this strategy.
Entered into partnerships with Chris.
Yes powered noise cancellation solutions provider.
Ensure that we can deliver superior voice based experience.
Employees clients and customers.
While our company is poised for growth.
To ensure that we are continuing to operate within a lean and efficient structure.
As a continuation of our effort.
<unk> been executing on a number of right sizing initiatives to go along with our growth strategy.
This includes optimizing various locations across the globe.
And working with our employees to develop the best solution following evolving hybrid work environment.
We are seeing positive conversations with our client involving a hybrid structure.
We have developed solutions that work for both our people and that customers.
As a work environment continues to evolve.
We want to be able to offer the same high quality solutions.
Our clients have come to expect from us.
Being able to provide these solutions in variable work environment.
Yeah.
Furthermore, we have been evaluating our physical centers around the world.
<unk> been taking steps to ensure that we're maximizing the utility out of each location.
These initiatives are still in preliminary stages. So you won't see the tangible benefits in our cost structure just yet.
So we expect to begin seeing some of these benefits towards the later quarters of this year.
We have the momentous quarter here at static and I am very proud of the progress that we've made to position the company for future opportunities.
I want to reiterate that our work done this quarter, because all about finding new ways to grow starting.
While we achieved incremental topline growth our focus is on driving sustainable growth.
Only possible by optimizing our core operations and procedures.
I would now like to turn the call over to initial shock to provide further details on our first quarter financial results.
After admission concludes his review of our financial performance.
He's going to turn the call over to <unk> head of transformation Ron Gillette.
Provide more insight into our strategic initiatives for the remainder of the year and beyond.
Thank you all of us for joining.
And I'll be happy to answer any questions you may have during the Q&A session.
At the end of this call.
Michelle.
Ill now pass the call over to you. Thank you.
Thank you Bob.
Good afternoon all.
Starting on the top line.
Net revenue in Q1.
Increased to $167 3 million compared to $163 1 million.
Good quarter.
On a constant currency basis.
<unk> increased by four 9% compared to the Goldcorp.
This year over year growth reflects continuing the performance plan.
That's our telecom and financial and business that is what they can.
Our growth in geographies, such as India, and India also contributed to the year over year revenue increase.
Gross profit was $21 1 million compared to $24 7 million.
Year ago quarter.
Gross margin was 12, 6% compared to 15, 1%.
Good quarter.
Which was primarily attributable to the wage increases due to inflationary pressures.
Well as higher spending in our expanded technology and cyber security infrastructure.
It's worth mentioning that we proactively increased wages to further support our employees within this inflationary environment and.
And we now offer a medium range of dollar.
14.
In the U S.
Selling general and administrative.
G&A expenses for the first quarter increased to $15 9 million compared to $14 2 million.
A low quarter.
As a percentage of revenue.
Jamie was nine 5% compared to eight 7% in the year ago quarter.
Our investments in high performing sales.
Listening marketing and agility to drive growth impacted our SG&A in the first quarter.
Net loss.
We're able to contact shoulder for Q1 was $1 2 million or three cents per share.
Compared to a loss of $12 2 million <unk> <unk> per share in the year ago quarter.
Adjusted net income.
Suitable to thank shareholders for Q1 was $1 9 million or <unk> <unk> per diluted share compared to $1 7 million or <unk> <unk> per diluted share in the year.
Good quarter.
Adjusted EBITDA in the first quarter was $13 7 million compared to $18 million.
Good quarter.
As a percentage of revenue adjusted EBITDA was eight 2% compared to 11, 1%.
Good quarter.
The decrease is primarily on account of increase in investments in our sales marketing and digital team.
Well as the impact of greater discipline due to inflationary pressures.
From a balance sheet perspective at the mine.
Today's Australia, a little cash and restricted cash balances.
At $52 2 million compared to $55 4 million.
31st 2021.
Total debt at March 31st our liquidity was $169 5 million compared to $117 million at December 31st 2021.
Net debt excluding restricted cash at March 31st started releasing was $126 2 million compared to $1 1 million at December 31st May 'twenty one.
In addition.
We repurchased an aggregate of 259407 shares of our common stock under our repurchase plan during the first quarter and then average cost on dollar for dollar related functions.
As a reflection of our confidence we have in our overall growth strategy.
This concludes my prepared remarks, I will turn the call over to Ron.
Thanks, Mitra I'm going to use the time to discuss our strategic focus going forward.
The rest of 2022 is going to be centered around capitalizing on a robust sales pipeline and continuing our efforts to evolve further and optimize our core operations.
With our revamped sales pipeline now stronger than ever we expect to be able to.
The benefit.
On the <unk>.
New and emerging markets. We have identified we will also continue to invest in our sales ecosystem, which includes our ongoing investments in senior sales personnel as well as in our marketing and branding initiatives.
As a leading solutions provider and customer experience, we want to be able to communicate our unique digital first capabilities to the world and cement ourselves and the industry with a great brand.
Our marketing team will continue to find ways to drive brand content in front of the eyes of our target audience and.
And utilizing this activity our growing sales team will be able to target key clientele for emerging customer opportunities.
Throughout the rest of the year, we expect to grow our sales team by hiring several domain experts in the U S.
Specifically target key clients in that territory.
As we have said in past calls we remained focus on driving additional digital partnerships throughout the year.
We will continue to have conversations with our clients to solve the revolving problems with innovative solutions.
We operate in a fast paced evolving space and we are constantly looking for ways to find the most cutting edge and level relevant.
Product offerings to our clients to do so we will continue to drive new digital partnerships with emerging providers around the globe.
This will not only help us retain our position as a leading solutions provider, but also allow us to expand into spaces. We currently.
Are unable to such as predictive and prescriptive analytics cusp.
Customer journey design and insights.
<unk> experience as a service.
These initiatives all revolve around putting our company in the best position to grow and we will begin to capitalize on these efforts throughout the year.
Earlier in the call <unk> mentioned that we have taken several steps to examine the correct right sizing actions that we expect to take throughout 2022.
I want to reiterate that we are.
We're continuously reviewing the ways to operate this company to ensure we are performing at an optimal level.
We are disciplined in our cost structure and no amount of growth will take us away from this principle.
So it's a work environment is continuing to evolve.
Further into a hybrid system, we want to make sure that we are taking the right steps to offer people the right solutions that works for us and for our clients.
This involves us looking carefully into our physical centers to find areas that are underutilized and potentially ready for consolidation.
We will be able to offer more specifics about the impact and benefits of these efforts towards the second part of the year.
Our approach is simple.
Wanted to capitalize on the opportunities that we have set up for ourselves while investing heavily into the future.
I want to reiterate that we anticipate seeing limited growth in our bottom line for the near term.
With the work that we're focused on.
We are looking to position Star Trek for long term success, and we are willing to invest in ourselves to do so.
We believe that there is still a lot of untapped potential in this space we operate in.
And we have a strong foundation in place to pursue these opportunities.
We remain as confident as ever in our company's position and our ability to drive long term value to our shareholders.
With that we'll now open the call for questions operator over to you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw from your question can you. Please press Star then two.
My first question comes from Chris Howe Barrington Research. Please go ahead.
Good morning, everyone and.
Good afternoon, and thank you for taking my question, sorry long day.
I wanted to start off just on some of Ron's comments.
That were just mentioned.
About the cost structure and looking at the physical.
As it is now.
As we think about these benefits, which should start sometime in the second half.
Can you talk about.
I'll provide some additional detail.
What's underneath this plan.
What portion of these benefits are known and what portion would you describe as dynamic.
Or not known at this juncture, but we'll need some time to develop.
I would presume theres some portion that is known versus.
Having some time to develop.
Sure I'm happy to take that.
<unk>.
A request on the initiatives that Michelle can provide some specific numbers.
I think what you wanted to understand was the extent of identification if you will.
<unk>.
Areas of optimization that we have identified.
That would be a correct way of summarizing your question.
Yes, that's correct.
I would presume that some there is theres a checklist.
Things to accomplish as we move through the year, while some will be discovered.
As you go about your optimization strategy.
Sure.
So we are looking at various buckets and I think this.
Clearly a dynamic process.
Because.
Right, because if we did that.
When we looked at our situation last towards the end of last year as well going into FY 'twenty two.
Is a dynamic process because one needs to look at not just where business volumes up.
But also look at technology initiatives that we're putting in place to optimize our delivery structure.
And Ron talked about partnerships.
Which is clearly very high up from a priority perspective.
So at this stage.
What we noticed for the first quarter, we had identified aspects towards the end of last year.
And as we talk to clients, it's as I mentioned, it's a dynamic process as we talk to clients.
If you're getting feedback from them and working out which are the areas. We can optimize the decade in terms of real estate.
Hi.
Infrastructure.
The teams we have in terms of what other areas can be involved with.
And therefore, our strategy around.
Our fixed costs and indirect costs will continue to evolve.
And to accrete extent will be guided by the ongoing discussions with our clients.
Now if you recall, we did the same.
And have lost.
Last year.
And <unk> talked about that going into this into this year and we are already working on that at this point and I think as we get more clarity, we should be able to share more.
More details with you but.
Underlying principle that Ron talked about.
Is ensuring that we.
All right size the organization.
So that all opportunities arising from that and all the benefits arising from that.
Effectively be.
Focused on the three pillars of growth that we had identified and talked about at the end of.
No.
Last financial year.
Yeah.
Okay, that's perfect and the reasoning or rationale behind that question. What's the lead me to my next question.
When you talked about gross profit in the quarter.
And the impact that wage inflation add on gross profits.
You also made many key hires that impacted the SG&A line.
First off can you talk about.
Employee turnover in this environment.
What's your rate of attrition and how has that impacted your hiring goals.
And if we think about my last question.
Yeah.
You talked about the benefits that will eventually happen.
While we also consider the ongoing inflation.
As you shift more to an optimized footprint.
And let's say if inflation were to.
Leslie at some juncture in the future.
Is there a way to think about what margin for the company could look like.
In a more normal environment.
Sure I can I think I can start that and then we can have more specific.
Iran has shipped an ankle to add an uncle is also our head of corporate planning for Scott, obviously, working very closely with us.
Frontline teams.
So you see one of the things that we talked about.
And one of the elements of optimization for instance.
It is.
The infrastructure the cloud infrastructure.
And you've also got the on Prem infrastructure.
So apart from looking at <unk>.
Facilities, and I kind of just kind of laboring under point I made earlier.
We also critically looking at are there any overlap for instance in the IP infrastructure can those be optimized.
Based on the guidance our clients are giving us.
Some clients are talking about getting back to work from.
Site.
Those are very comfortable with the systems that we have developed so one is to optimize the to minimize the overlap.
That's something that is underway and that is part of the dynamic process that I talked about in response to your last question.
In terms of where things stand with respect to investments I would say at senior levels.
Especially with the new hires that we're looking at in the key areas our key priority areas.
But tenure has been I'm happy to say that our turnover has been relatively low.
For instance.
<unk> built up a sales team.
Alright, we had gotten.
<unk> gotten a few sales leaders in this quarter.
B B kind of bulked up on our marketing team and Ron talked about the initiatives on <unk>.
Brian that out in the market with customers.
Substantially strengthened our pre sales and solution team.
Lead generation team.
And the digital solution and capabilities and partnerships team. So a lot of investment has gone in a cost areas.
And I'm happy to say that the attrition that PFC and these areas, although I must admit that this is a war for talent.
Has been relatively low.
We've had some attrition in areas for instance.
From an operational perspective, we may have consolidated.
And we are looking closely at how do we ensure that we don't lose.
Quote unquote, the tribal knowledge that we have gained.
But at this point I would say there is.
There isn't anything from <unk>.
<unk> point of view.
The senior lenders that I'm, particularly concerned about.
Now as in terms of kind of I.
I think our margins.
The way adjusting our margins clearly is discussions with our customers as we look at.
Renegotiating our contracts as they come up for renewal. So my sense is that new.
Probably take a quarter or two for the margins to get back to the original levels that we had.
And therefore, I would think that.
Correct.
The <unk> dilution that you alluded to.
Probably more transitory in nature.
And this should smooth note as we have very focused discussions with our clients. Hence the point that I made earlier on looking at where we should be and what makes sense for us from medium term and long term perspective, because only if you have a strategic relationship with the client.
Can you actually think of having those conversations.
See if ron or initiatives or anything else to add to that.
I missed anything out.
Sure Bob.
As we look at the.
Part of your discussion also rose around inflation.
And how we see that going forward. So we've come through some pretty unusual inflationary times here.
And earlier, we had two.
Wage.
Increase.
Ages of the agents and other levels within the company because of the talent.
The issues out there and staffing.
<unk>.
<unk> stabilized with the improvement in the Covid situation, the inflationary pressures in North America and in other geographies around the world continue to be there.
I'm not sure how that's going to play out in the long term, but we responded well and worked well with our clients to address that.
Going in the past that brought us to where we are today.
We are hopeful that these inflationary pressures would subside in the future, but we will continue to work with our clients to do.
We were able to come to the right solution that allows us to staff and invest effectively to serve them and solve their needs going forward.
That's perfect and I certainly appreciate all the color I will hop back in the question queue to give others a chance.
The next question is from Ethan without B Riley. Please go ahead.
Hi, Thanks for taking my question.
First of all I was wondering if you could provide any updates on your.
Outstanding go private offer firm capital square partners concerned that it's been.
Almost three months since.
Our outside financial advisor to evaluate the deal I was wondering if you could provide any additional insight on that.
Yeah.
Sure you can.
At this stage.
All we can tell you is that the special committee was constituted.
And their advisers fresh fields and photos are still evaluating the situation.
They are looking at the business given the dynamics that I talked about so obviously theyre fine tuning the numbers.
Assessing the situation.
And we haven't formed the view as yet.
As soon as that.
Does that able to form debut.
Can really provide a lot more information.
But at this point fair to say that they're still evaluating the situation given everything.
And the industry and.
Environment around us.
Absolutely. Thanks <unk>.
Secondly, I was wondering if I'm correct in assuming that the wage inflation as the primary.
Driver of kind of lower gross margins here I was wondering if there were any other.
Elements that I should be worried about.
Not really it's been largely wage pressures.
On the one hand.
And of course, we've made some investments to right in terms of especially our cyber security.
Because I don't think any organization in the world can said desk completely cyber security proof.
Because.
The actors in that space also continued to get smarter.
So we will have to continue investing there.
I think that may have a temporary dip might present in a temporary dip in margins.
Going forward it can provide a far more stable and secure system for us.
So it's really those two attributes than anything else that has contributed to the decline in margins.
Thanks, and then last question I was wondering if you have seen.
Any early returns from.
Your.
Sales investments, so far and what that means for your option.
Okay.
Okay.
Sorry could you repeat that I think I missed the last part of your question.
I apologize.
Okay.
Yeah.
What kind of returns you are seeing yourself investment so far.
You know if you've seen any visibility into that and what that means in terms of new opportunities in your pipeline.
Sure.
Yes.
So you had some good wins and Thats what is very encouraging.
Now.
As we kind of we believe announcing those ones one.
Ink is dry.
So.
On the positive side.
I'm very encouraged to see new logos that we have won in this quarter.
And after almost gap two years in terms of new logos.
Barring some of the seasonal worked at record.
The wins that we've had are very encouraging.
And we've got almost 10, new logos in the first quarter.
Which is quite encouraging.
And that does suggest that our investments are in the right direction.
Most of our proposals now.
Substantially revamped our offering and most proposals going out.
An integrated proposition around our digital offering and the impact that our digital offering will have.
Overall customer experience and call resolution mechanics et cetera.
So we're clearly seeing the benefits of that.
So obviously as you can imagine these do take time for the market to understand and appreciate and therefore as Ron mentioned integrating that with our.
Marketing effort so you.
You will increasingly see a lot more on our social media as we talk of our releases on our partnerships.
And the benefit of these partnerships actually provide to customers rather than just partnerships.
As an end in themselves.
So that's I mean, clearly from my perspective.
<unk>, a good pipeline that John alluded to.
The fact that we have won 10, new logos. This quarter I think all those from my point of view are very encouraging given that we've just about embarked on our journey of building.
Salesforce.
Does that help give you a sense of.
The kind of return.
Absolutely yes.
That's all for my questions. Thanks, again and best of luck.
Yes.
The next question is a follow up from Chris Howe of Barrington Research. Please go ahead.
Alright, Thanks for taking my questions again, Theres, one that stood out in my mind that I wanted to follow up on.
You mentioned the step back from our clients and the e-commerce vertical.
No.
Can you provide some more color.
And the decision to step back.
Is this reflective of a pricing situation.
And if it is can you talk about how delicate the pricing environment is.
Right now.
Okay.
But actually.
I can provide an overall context.
Yeah.
Pricing was only one factor that we took into account.
How do you look at a number of other related factors. So pricing is one aspect, which is why we wanted to ensure that.
We have a strategic relationship becomes quite critical.
The other challenges that we faced.
Can be.
Was that one.
No we didn't have a full from kind of volume forecast.
And there are no minimums in the environment does get a bit challenging.
<unk> got upfront Capex requirement.
And if you can see the margins from a trend perspective are going down.
It is where we talked about.
Strategic.
Our relationship and value add going forward.
It was really a combination of this rather than just a pricing attribute that we took into consideration. So the fact that we didn't have adequate visibility of volumes.
We didn't have any minimum guarantees.
The fact that we had to.
Incurred upfront capex.
And if you're including that if it's very specific capex, which is not interchangeable fungible with other clients.
And do you have.
Questions around pricing flexibility.
All of those put together.
Become really factors that have influenced our decision.
So and we've seen that all the conversations that we're having with our customers.
Is the point that Ron made.
We anticipated these trends.
And we've probably seen the kind of inflation, we haven't honestly seen for quite some time now which is why we have kind of proactively stepped up had conversations with customers worked out what can we do to.
Ensure that we can come up with win win solutions leveraging technology to be excellent recap.
All the more reason underpins the.
The need for investment into digital solutions.
Because to my mind Doctor only that will help us overcome some of the pressure that we see out there.
Just see if Ron and Michelle.
Yes.
If you want to add anything to that.
Just to provide some more color.
Bob I think you covered it well.
So the specific client and I think in a broader sense I will give our clients overall.
Overall, though a positive note in the.
Both of US clients and Star Tech event to experience this new environment of wage pressures in both learned through it and the dialogue has been in good overall positive.
And we.
We will continue to work on.
Work on ways to.
Two for both parties to control costs, where we can and then if not then we will.
I'll have to get into those discussions in the future hopefully not hopefully the worst is inflation is behind us.
Thanks, Ron and I would agree with that.
Yes.
Ben.
Very fortunate and have enjoyed working with them.
Factors I talked about essentially suggests that <unk> go back to the drawing board and see what can be too from a strategic relationship perspective.
Perfect. Thank you for taking my questions.
This concludes our question and answer session I would like to turn the call back over to Mr. Roth. Please proceed.
Sorry, I think I hope I was addressing my mute button, but it's clearly didn't believe in <unk>.
Thank you, Dave and thank you all for joining us this afternoon.
And for your continued support of static.
Look forward to speaking with you next when we report our second quarter results.
<unk> and gentlemen.
Thank you. Thank you ladies and gentlemen, you may now disconnect.
Thank you everyone.