Q3 2022 Startek Inc Earnings Call

Good afternoon, everyone and thank you for participating in today's conference call to discuss to discuss Star Trek financials results for the third quarter ending September 32022, joining us today are a startup global CEO Brett row, The company see global CFO and she had Shah and the company's head of his business transformation Ronald you're right.

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.

<unk> advises all those who are listening to this call to review the latest 10-Q and 10-K posted on its website for a summary of these risks and uncertainty.

<unk> does not take undertake the responsibility to update any forward looking statements.

Further the discussion today may include some non-GAAP measures and according with regulation G. The company has reconciled these amounts back to the closest GAAP based measurements.

The reconciliations can be found in the earnings release on the investors 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 Star Tech Dot Com now I would like to turn the conference over to start Techs Global CEO , Brett route but please begin.

Thank you good afternoon, everyone and thank you all for joining.

In the third quarter, we capitalized on the momentum from our sales pipeline.

Digital partnerships and focused on delivering a higher proportion of nearshore and offshore services to our clients.

The continuing efforts from our sales and marketing teams and the investments we have made into our sales pipeline.

A secure and new clients during the quarter.

Expanding this topic footprint across our core verticals and market segments.

Our sales and delivery teams continue to work closely to retain client accounts and make inroads into new business opportunities.

Despite persistent macroeconomic headwinds we have been able to add 28, new clients year to date.

A significant proportion of service delivery for the eight new logos one in this quarter will be delivered from near shore or offshore centers.

Limiting our focus of driving growth to our bottom line through higher margin offerings.

Amongst the new client wins and a large cable operator in the U S.

Our leading edge you get there in India.

Large multinational ecommerce platform.

A large Asia based airline and a provider of global audio streaming services.

Despite facing headwinds in the broader economy, including a $5 million foreign exchange related impact, resulting in year over year compression in our topline results.

Expanding our margins and made progress in several strategic initiatives that we expect to flow into our P&L next year.

Over the last three quarters, we have identified three strategic pillars anchored outlook that we believe will position starting on a sustained path of growth profitability and delivering superior customer experience.

Our strategic pillars, strengthening our sales ecosystem.

Improving our technology platform through digital partnerships.

And delivering world class service to close collaboration with our clients.

We delivered strong segment performance during the quarter with revenue growth in the Middle East, India and Australia.

Growth in India was driven by continuing ramp ups in operation with some of our largest digital clients in the region.

We have replaced competitors within many client accounts and increased our wallet share.

The back of a consistent track record of superior performance.

Revenue from the Americas region declined during the quarter due to the termination of operations with our clients and the media vertical.

We continue to perform well across each of our industry verticals and in quarter three.

It's continuing ramp ups within existing telecom clients across the U S and South Africa.

The improvement in volume.

Accounts in the travel and hospitality sector.

We didn't know financial and business services and travel and hospitality vertical as we entered into several expanded contracts with existing clients to grow our services.

Our brand awareness campaigns over the past several quarters has been very well received.

Increasing interest in our customer experience.

Digital solutions supporting the growth of our pipeline.

Yes.

Delighted to be recognized.

A leader in the global.

U S ISG provider lens quadrant reports.

Contact center customer experience services 2022 four.

Our transformative digital.

<unk> solution suite.

We were also recognized as one off.

Only 14 truly global CX solution providers by the Everest group.

I feel very positive about these developments and recognize the efforts of our teams across areas to provide best in class.

Customer service solutions.

To our clients so that they get done deliver engaging experiences for their customers.

In our second pillar, we successfully fostered new digital partnerships to enhance our technology portfolio and.

Value added capabilities.

Our digital capabilities and cutting edge technology platform enable us to provide impactful insights to our clients needs insight and ensure that we become trusted partners, creating measurable value.

<unk> results in additional business opportunities.

More.

Digital solution amplify the capabilities of our agents to deliver superior service.

Ensuring effective brand stewardship for our clients.

Enabling us to optimize our delivery costs.

Throughout the quarter, we secured several new partnerships.

And initiated pilot programs designed to continue to elevate the quality of our services.

Our recently announced partnership with Avaya allows static pool.

Leverage the one cloud platform to deliver a combined technology.

And CX service solution to our clients globally.

Okay.

Our partnership with Avaya be aimed to support small and medium sized businesses as well as emerging enterprises with market, leading CX delivered through a bunch of people.

Technology and data solutions.

We are evaluating a subscription based model that allows us.

Faster rollout time and reduces the total cost of ownership and driving better return on investment for our clients.

By combining the static age.

<unk> AI solution without industry, leading <unk> technology platform partnerships, we have created a best in class modular and scalable platform.

With our clients and associates.

We will continue to invest in both our IP creation.

And tap into innovation ecosystem to continuously bring innovative next gen solutions to market.

Lastly, as we grow globally. It is essential that we continue to collaborate closely with our clients to identify potential areas of optimization and provide actionable insights.

Towards this goal.

Partnered with the leading telecom providers to leverage an AI based tool.

To reduce the speed to proficiency.

And significantly enhance agent experience.

With a large E tailers and India be piloting.

And designed.

The pilot to increase agent efficiency by providing agents with tools to manage the performance.

Celebrate achievement of codes.

And create the space for healthy competition.

One of our primary objective is to deliver tailor made solution.

And we remain committed to this responsibility going forward.

As we look forward.

<unk> carefully selected letters of success will remain at the core of our strategic roadmap.

As I mentioned earlier.

We were able to improve our margins through our continued efforts to provide cost efficient services and.

And transition clients from onshore nearshore and offshore delivery.

Furthermore, prudent financial discipline and strengthen our balance sheet during the quarter.

Consolidated some of our brick and mortar sites.

As more of our agents transitioned to work from home.

Recent upgrades to our platform enable our agents to perform equally regardless of whether they work from a brick and mortar site.

As part of our at home operation.

Optimizing our physical footprint has allowed us to increase our capacity.

By training and hiring additional agents <unk>.

<unk> and rental and associated costs.

And then to divert the savings from our fixed costs to our continued investments in our sales marketing and digital activities.

We expect our newly and large client portfolio combined with our increased capacity to provide a meaningful uplift to our top line performance in 2023.

As we continued to generate new logos and transition to a higher mix of clients with solutions provided to offshore delivery.

We remain laser focused on delivering world class solutions to our clients.

Although we incurred a minus head back to our top line, we are well positioned to capitalize on momentum from our sales pipeline.

Realized incremental margin expansion in the near future.

In summary.

We continue to add new logos in this quarter on the back of a robust sales pipeline.

And fostered innovative digital partnerships to strengthen our technology stack.

Whilst a strengthening dollar it didn't have a marginal impact.

And our footprint across all business segments and verticals.

Focus on improving margins.

Regarding the preliminary non binding proposal by catheter the square partners to acquire the minority shares and stock take that capita square partners did not own.

As most of you would have seen from public announcements.

<unk> Square partners has formally withdrawn its proposal.

After discussions with the special committee of the board of directors.

The Special Committee has since been dissolved.

Okay.

Now I'd like to turn the call over to initial shock to provide further details on our third quarter financial results.

Often they should concludes his review of our financial performance.

I will turn the call over to the static head of transformation at <unk>.

To provide more insight into our strategic initiatives for the remainder of the year then beyond.

Thank you all for joining us.

Ill be available to answer any questions. You may have during the Q&A session at the end of this call.

Michigan.

I'll pass the call over to you. Thank you.

Thanks, Brett.

Starting on the top line.

Net revenue in Q3 was $163 1 million compared to $172 8 million.

Good quarter.

The decrease was primarily driven by the strengthening of the U S dollar.

The termination of our media claimed in our medical segment.

And continued normalization of revenue for one off COVID-19 that traditional support program that would deliver they lumpier spirit.

On a constant currency basis net revenue decreased by two 6% compared to the yellow quadrant.

The decline in revenue was partially offset by continued spend in our core verticals.

Gross profit in Greece.

One 4% relatively.

We're literally about a $1 million compared to $21 5 million.

Good quarter.

Gross margin increased one basis point to 14, 2%.

<unk> type of thing.

We work with them.

The increase was primarily due to changing business mix with increased delivery in the nearshore and offshore geographies.

The impact of price increases.

As contracts are renegotiated as well as lower rent costs. Following the consolidation of several of our brick and mortar side.

Sterling.

General and recession.

Sensors for the third quarter and $15 5 million.

Total $8 1 million in the.

Good quarter.

As a percentage of revenue.

As it was $10 one button.

Seven 6% in the year ago quarter.

The increase was primarily due to our ongoing investments in sales and marketing initiatives.

As well as cost to take private transaction.

The expenses related to a take private transaction.

Non operating expenses and onetime in nature.

It added about going into a distillate with them.

Our adjusted net income attributable to transact children for Q3 increased by 41, 3% before one 3 million.

<unk> per diluted share.

Comparable coupon 9 million odd seven cents per diluted share in a quarter.

Adjusted EBITDA in the third quarter increased to $16 million compared to $15 9 million.

<unk> quarter.

As a percentage of revenue.

EBITDA increased 60 basis points to nine 8% compared to nine 2%.

Good quarter.

From a balance sheet perspective.

As of September 30th relate a little cash.

Cash and restricted cash balances.

Increased to $61 3 million.

Back of $55 8 billion on June 30 of 2022.

Total debt on September 30th Twenty-twenty, There was $169 6 million compared to 171 7 million on June 30.

2022.

Net debt excluding restricted cash.

Well it really was.

And $17 9 million compared to $1 5 million.

It's going to be political.

This concludes my prepared remarks, I will now turn the call over to Ron.

Thanks, Michelle and thank you all for joining us today.

Let's discuss our strategic focus going forward.

Looking towards the end of the year and into the next.

We are focused on taking the advantage of the momentum from our sales pipeline to drive new logos and strengthening client.

Portfolio.

Identifying value accretive digital partnerships to strengthen our platform and transitioning a greater mix of our customer portfolio with nearshore and offshore delivery to drive higher margins through a more cost efficient labor approach.

As part of our sales team directive, we will continue to dedicate a number of resources to expand our footprint in the United States. We see this as a breeding ground for opportunity there.

Cost efficient solutions, we provide are a must have.

Our lean and efficient approach continues to drive a shift towards hybrid and remote work structures decreasing our physical infrastructure across the U S and other geographies.

In the market today, we have identified an increasing number of companies willing to offshore their in house customer experience solutions to cut costs.

These are key opportunities that our sales team will be focused on capitalizing and converting upon.

Given the transaction.

<unk>, we are seeing we are proactively expanding our capacity in nearshore and offshore locations to provide state of the art facilities to our customers.

We will continue to leverage our digital partnerships to expand our solution set and carefully utilize marketing dollars to increase our brand awareness across all industries and core segments.

In order to transform into a truly digital first CX organization, we will continue to develop strategic partnerships, giving us access to the latest digital toolset.

Ultimately, our innovations and digital partnerships aimed to allow our agents to deliver world class services to our clients.

With the Avaya partnership.

Now have the capability to offer CX in a box to our clients at scale.

We are making a concerted effort to improve our offshore nearshore mix.

Our near term strategy is to move current clients from onshore to near shore services, then ultimately transitioning them to be offshore.

As we gain digital partnerships and additional tools to our platform, we will leverage our improved capabilities and technologies to enhance our agents and the quality of customer service they deliver.

Our nearshore and offshore services are improving every quarter and we believe we have built a strong platform for our customers to feel comfortable transitioning into nearshore and offshore services.

Overall, we expect the strategic investments we've made in our sales pipeline and marketing initiatives to pave the way for topline growth and meaningful margin expansion in 2023.

We are beginning to see the return on our investments.

And are optimistic in our ability to convert new and future logos into revenue in the coming quarters.

By leveraging our expanded capacity to provide world class service to our new and future clients, we will be able to service, a broad and global customer base and capture incremental increases across our top and bottom line beginning next year.

As always our priority is sustainably growing our company to return value back to our shareholders and we look forward to.

Executing on our strategic growth roadmap for many years to come.

With that we will now open the call for questions.

Operator over to you.

Thank you and at this time, we will now conduct the question and answer session.

If you would like to ask a question. Please press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

If you would like to withdraw your question. Please press Star then two once again that is star then one to ask a question and when we will pause momentarily to assemble the roster.

And our first question today will come from Zach Cummins with B Riley Securities. Please go ahead.

Yeah, Hi, good afternoon. Thanks for taking my questions first one for me is just really around the momentum that you're seeing with new logos nice to see that continue here in Q3.

How should we think about just revenue contribution from these new logos is it starting to ramp here in Q4 or is that more of a 2023 objective.

Hi, Hi, Zack and thanks for the question.

I see.

Thank you.

Some part of it in Q4, but most of it.

Usually the ramp you would see materializing.

In 2023.

Yeah.

Typically what happens is by the time.

<unk>, Inc contract get equipment into all.

All the related equipment circuits by them all that is completed it takes almost a quarter. So which is why we feel that if you want to actually see the ramp in deferred benefits.

<unk>.

These new logos.

Actually you see them coming through from from <unk>.

All of the revenues that we have awesome logos won in the first half of the year.

She started translating into revenues.

This quarter as well, but to answer your question in terms of most of the impact you would see that starting from 2003.

Understood. That's helpful and also encouraging to see the improvements in gross margin here in the quarter, just shifting more of your delivery to the lower cost near.

Nearshore and offshore delivery centers.

Can you talk about the opportunity that's still available to you to continue that positive mix shift it sounded like an increasing number of customers are now opened idea to at least the near shoring or potentially offshoring some of their operations.

I think yes, I see most of our customers.

Happy to be able to support customers.

A very large but equally there are a number of customers of ours in the mid market space, where clearly see feeling the pinch of.

Inflationary trends.

The challenges of being able to.

Attract and retain people.

On those particular pressure on that being able to.

Provide consistent delivery and support.

And also do that at the center of the margin. So what we see is especially in the mid market space as Don alluded to documents comments, we see lots of big market players who.

We haven't really talked about outsourcing now becoming open to outsourcing.

Who are.

Who are who's preference for sustained onshore now being quite open to nearshore and offshore opportunities. So you've seen a lot more I think that trend is.

Clearly here to stay.

Because that would mean.

Without compromising with all the.

All the technology, we have today thanks.

Frankly dream that nearshore and offshore at a fraction of your.

Cost of delivering onshore clearly isn't a compelling proposition so that.

Businesses can continue to focus there.

Because the priorities.

And really customer acquisition getting into product development.

Areas that are really core to their existence.

Understood.

Yeah, absolutely. That's that's very helpful and final question for me is just right around.

Some of the rent savings that you would recognize I know you consolidated many of your delivery centers. I mean is there additional savings that can be extracted from this or how are you thinking about your overall necessary physical footprint versus your kind of a hybrid delivery model going forward.

We will continue to explore that.

I mean equally what we are doing is there are a couple of minutes.

Initiatives looking into one is of course consolidating.

Paul.

Brick and mortar facilities to ensure proper utilization.

Utilization of speeds is not just important from a cost perspective, but equally proper utilization.

Also enables us to provide.

Those centers, which are that.

We are having or maybe having a good capacity utilization.

Kind of support from a non agent.

Staffing perspective.

Because as people wanted the flexibility to be able to work from home.

We have people, who can come in and typically in a hub and spoke model.

Coming online programs start.

Need support.

They would like to have the.

The option of being able to come in.

Get the support get trained and be able to go back. So I think we will continue our efforts on looking at consolidating not just centers, but also flaws typically within centers.

As long as of course subject to ensuring that we maintain.

There are requirements.

Contractual obligations.

From a spacing perspective.

But equally what we are doing is we are also particularly in looking at our facilities and ensuring we have the state of.

State of art infrastructure, so whilst you consolidate space on the one hand.

We will continue to invest and.

Invest into building our centers.

Publishing them.

Ensuring that we have very good and provide really good.

<unk> experience, especially in centers.

<unk> occupancy.

And because people are working in many of our geographies people have come back to work from site. So I think that the combination of right sizing.

And equally ensuring that we invest in centers, where people have started coming back to work from site will continue.

Understood well I think that's all the questions I have for now, but thanks for taking my questions and best of luck with the rest of the year.

Thank you Zack.

And once again, if you would like to ask a question. Please press Star then one.

And at this time this will conclude our question and answer session I would like to turn the call back over to Mr. Row. Please proceed.

Thank you operator, and thank you all for joining us this afternoon.

For your continued support all started.

I look forward to speaking with you next when we report our fourth quarter.

And 2022 full year results.

Thank you ladies and gentlemen, this concludes the conference and at this time you may now disconnect.

Okay.

Okay.

Yes.

[music].