Q2 2019 Earnings Call
2019, joining us today is starteks, president and global CEO , Lance Rosenzweig, and the Companys CFO Ramesh cotton.
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 of the federal Securities laws. These statements are subject to various risks and uncertainties and actual results may vary materially from those projections.
Starteks.
Advice all these listening to this call to review the latest 10-Q and 10-K posted on their website for a summary of these risks and uncertainties Startek does not undertake the responsibility to update these projections.
Further the discussion today may include some non-GAAP measures in accordance with regulation G and the company has reconciled these amounts back to the closest GAAP based measurement. These reconciliations can be found in the earnings release on the investors section of their website.
I would like to remind everyone that the webcast replay of today's call can be available via the investor section of the company's website at Www Dot Startek Dot com.
Now I would like to turn the call over to Starteks, President and global CEO Lance that week. Please go ahead Sir.
Thank you Jonathan good afternoon, everyone and thank you all for joining the Startek 2019 second quarter earnings call.
Last month marked the one year anniversary since our business combination with agents and I can proudly say that our business has considerably transformed over these last 12 months.
We have appointed a new global leadership team added global scale and operational synergies to enhance margins and profitability implemented a new client centric management model that has led to improved client satisfaction and reposition startek as a premium provider of tech enabled customer experience management for high growth companies and through some key new client wins, we have set the stage for future growth.
In summary, we have taken what was once a very volatile and declining business and have established stability and predictability of results.
This stability has been further aided by the diversification of our clients and revenue for perspective, our non telco verticals accounted for 59% of revenue during the second quarter compared to 51% in all of 2018.
We have been keenly focused on targeting new clients that we can grow with both organically by nature of their own growth, but also by cross selling services and geographies.
This execution has enabled us to consistently expand gross margins every quarter since the business combination last year, which also reflects our commitment to being a premium provider in the industry and no longer focusing on the mass market.
Well consistently and significantly improving our financial performance. We're also reminded every day that our people drive our success.
In that regard we are thrilled to have been recognized by Aon as a best employer in India. Among 16 of India's leading companies across industries that have been bestowed with this honor I would like to thank and congratulate our passionate team and leaders for creating the vibrant workplace and in fostering our mission of being an employer of choice across the globe.
As you may have seen in June we have been added to the Russell 2000 index at the conclusion of the indexes annual reconstitution.
We are proud to have come this far as a public company and expect this new Index addition to provide increased awareness to the broader investment community going forward.
Now that we have completed the one year anniversary of our business combination and our onto the next phase of growth. We believe it is appropriate to bring uniformity to our branding across geographies to better reflect the combined businesses, which we are planning to implement in the coming weeks.
In addition to bringing uniformity to our branding. We also felt it was important to bring uniformity to our global client operations as such we have recently appointed Rajiv a huge huh.
As our global Chief operating Officer, Rajiv is a multifaceted leader with decades of experience in our industry and a proven track record of taking customer centric organization to the next level.
Rajiv has had very successful leadership roles with companies like converges AOL Adele.
He was also with aegis earlier in his career as a precedent of a C on in a handset.
Rajiv has reported directly to me in the past so I know first hand, the outstanding leadership, he will bring to our campuses and Eric client operations. We look forward to leveraging regimes insights as we continue to instill a tech enabled and collaborative culture at Startek.
Before wrapping up with closing remarks, I would like to turn the call over to our CFO Ramesh come out to take you through Starteks financial results were much.
Thank you Len.
The quarterly results. We are reporting today include start they're gonna you're just financials from April to June Thirtyth 2019.
Due to certain limitations in regards to publicly available financial information, we are unable to provide the combined company financials from the Europe will be there.
As a result, we will not disclose discuss your on your comparisons as we would be comparing the financials of two companies against one.
Instead, we believe it would be more effective to highlight of the quarter over quarter results with quality to commentary about the general trends and drivers for each major item.
As noted in our press release today, the comparative results for the quarter ending March 31st Grant do you 19 into boats started <unk>.
Now having said that.
The total revenue for the quarter was dollars hundred 60.6 million compared to $2 161.1 billion for the quarter ended March 31st 2019.
The modest decrease in revenue from quarter one.
Was primarily driven by seasonality as quarter two is typically the softest of dealer.
In fact, a modest.
The sequential decline is actually a great accomplishment for the industry.
Because we were able to offset some of the seasonality by growing without lines that operate in high growth would be called such as technology.
Nexgen do you do.
Financial services.
Health care and travel.
Gross profit for the quarter.
Increased slightly $2 27.6 million as compared to $2 27.2 million in the fourth quarter.
With the gross margin percent is increasing 30 basis point.
To 17.2% as compared to 16.9% quadrant.
Margins have once again improved sequentially.
But I'm really due to the continued rollout of our new client centric management model that has enabled greater client a greater employee utilization across our global footprint.
As you can do for the quarter was gone those 24.9 million as compared to $2 24.1 million in the quarter ending March 31st 2019.
As a percentage of revenue as your new was 15.5% compared to 14.9%.
With the increase driven by continued investments in sales and technology.
Net loss for the quarter was dollars 3.6 million or.
A negative 10 cents per share as compared to a loss of 3.3 million or negative nine cents.
<unk> for the quarter ending March.
31st 2019.
The slight increase in net loss was the return as a result of the aforementioned increase in as you ended along with an increase in income tax expense.
Adjusted EBITDA for the quarter.
Was increased $2 11 million as compared $2 10.9 million in the quarter ending March 31st as a percentage of revenue.
Adjusted EBITDA was 6.8% compared to 6.7%.
This concludes my prepared remarks, and I'll now turn the call back to Lance Lance.
Thank you very much.
As I mentioned earlier with our one year anniversary behind Us I can confidently say that we are now into the next phase of our company's growth.
This phase will further solidify our position as a global leader in transformative customer experiences.
We have more than 45000 customer experience experts across the globe utilizing next Gen technologies like data science and machine learning to make every customer interaction unique and authentic.
Enabling customer loyalty and success for our clients is the core of what we do and we look forward to positioning startek as the premier partner for the world's finest brands for years to come.
Jonathan Ramesh and I will now open the call for questions.
Certainly ladies and gentlemen, if you have any questions. At this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Mark Argento from Lake Street Capital. Your question. Please.
Lance Thanks for taking my question just a couple a couple ones for you here.
I know it's.
A year now you guys have done a nice job integrating the two businesses realigning some of the key.
Organizational structures can you talk about maybe specifically if you can or at least anecdotally.
Some of the wins that you've had in terms of realignment client focus and then seeing an extension or expanding your business with a particular client.
I'm just trying to see.
The realignment at work.
Any kind of anecdotes there any specific new business wins or expansion of relationships that would be really helpful. Both at a client level, but also maybe talk.
Verticals as well.
Sure. Thank you Marc it's an excellent question and I'll answer it in two ways first with respect to our existing client base and what we've seen as we've globalized. Our operations is some strong client successes in expanding too.
Additional geographies and expanding to additional lines of business and there were several clients I can think of in multiple verticals, where where we have had that successes. That's partially a function of outstanding performance by our operating teams, but it's also a function of our further global footprint and if our unified global enterprise.
Second we've also seen the success on the new client front.
We have as been mentioned in the past reorganized our sales team. So it's now a single global organization, we brought in a new head of global sales and all signs show that it's been a great success.
We have had a successful new closes in multiple verticals, including some of our existing verticals as well as financial services and education and auto ER and telco and we've been very pleased with how our global sales organization has been has been working together to achieve these results.
Right. That's helpful. In terms of Ah you know whats the the traditional kind of.
Time to ramp ramp period.
Initially kick things off to say kind of achieve.
50%, 75%, 100% on a run rate.
What's the gestation period.
Yeah. It varies by the type of client so given our focus on some of the world's finest brands. You know these are sophisticated growing companies and so the launch time is a bit longer because it does take an enormous amount of I T integration and a training et cetera.
To be up to the kind of worldscale levels that they require so typically we would see about a couple of quarters from when the ramp begins and then usually those ramps themselves will last a couple of quarters. So we're sort of at full full go after about a year from closing a deal.
That said, though another beautiful thing about these types of clients is that they have multiple lines of business that are available to us should we performed well in the company has a history of doing that so even when we when we grow a new contract up to its a up to its level, there's others coming and we've seen that consistently and we're very excited about the opportunity to grow. These clients further even beyond the initial esso w.'s that are signed.
That's.
Helpful. So some of the new business that you've onboarded over the next.
Three or four quarters that should start to materially.
And in fact on a revenue run rates.
Adjusting for seasonality.
Way to think about Oh, we should see some of this new business.
Yeah that does that is a fair characterization.
All right and then maybe quickly anything in terms of the Amazon relationship I know that.
Deal done before your time, there, but maybe you talk about.
To the degree and extend you can how that relationships progressing deepening.
Growing in terms of percentage of revenue contribution.
Anecdotal things there would be helpful.
Sure.
We are we do not discuss individual clients, but what I can say is that the nexgen retail category is a key growth target for us and a and we have been seeing great growth and success in that vertical one of the things to note is that that vertical does come with seasonality. So the the retail business tends to grow and peak across Q3 and four.
And then slows down across Q1 and Q2, so we saw that seasonality in a in Q2, but given the overall strong growth of our business, we're able to mostly overcome it despite kind of seasonal decline in that in that vertical, but we're very happy with our clients in that vertical we're very happy with the brands that they bring and the passion that they bring toward their customers and a and and quite honestly the.
The global sophistication and presence they have as sort of leading customer centric organizations and that we think that that bodes well on us both with with those clients as well as with others that we are increasingly targeting.
That's helpful. Thank you.
Thank you Mark.
Thank you. Our next question comes from the line of Patrick Schultz from Baird. Your question. Please.
Yeah. Thanks for taking my question and congrats on a great quarter.
Decoupled Yeah. The first question I have is you guys have any updates I know you previously you kind of laid out your 30 million synergy target do you have any updates on that.
Yeah. So we we mentioned a quarter or so ago that I said that synergy target.
It is in overtime becomes increasingly difficult to.
To calculate and and the reason I say that is that if it becomes more and more discretionary to say whether you know this gain is a function of synergies are not a function of synergies. So we're not commenting publicly on that specific number but what I could say is that we are very happy with our progress relative to our existing well relative to our initial targets that we've set with Uh huh.
Specifically with respect to synergies. So you know we're feeling very good about it we're just not reporting specifically against it given the you know sort of discretionary nature of that.
Awesome. Thank you and then could you also remind us on what that looks like a 1.4 million income from non controlling interest for the quarter.
Yeah remember why don't you take that one.
Yeah, we Oh investment and.
Our Australian subsidiary did a small partnerships from them and this is relating to that.
Thank you. Thank you and then with SGN, a it looks like it ticked up a little bit compared to Q1.
Could we expect X gene X months kind of flatten out from here is this is lower than you think it could go.
Oh, no. We don't provide forward looking I think the growth in is here and he is a typical of the plan to increase in court to premium full for the business. So soon and seasonality that comes in and as we mentioned in the script.
Oh. It was also due to the increased investments we continue to make on science and technology.
But we definitely are not expecting or nor do we plan to materially increase that number.
The idea is to move from one bucket to though.
Okay. Thank you and then one final one for me is interest expenses out 4 million now that at a more normalized level, especially as interest rates have kind of come down or could we see those ticked down a little bit further going forward.
But actually the interest in that is around 3.5 3.6 million. The balances we have taken some interest rate hedge put a bid in Singapore and there was a foreign exchange loss of news that.
But if that stabilizes then by just doing nothing the interest cost will come down by that much other than that I'm not expecting any change in the interest costs as we go forward.
Perfect. Thank you guys.
Thank you Patrick.
Thank you and as a reminder, ladies and gentlemen, if you have a question at this time. Please press Star then one.
Our next question comes from the line of Omar Samalot private Investor Your question. Please.
Hey, guys how are you.
Hey, Omar.
So I noticed the.
The this an accounting item for the cloud the warrant Contra revenue, but I'm imagining it's related to the best thing up additional Amazon warrants.
Hey, Omar yes, you're quite right. It is lifting to go to <unk>.
Okay. So I know that you don't want to touch that commenting on that but obviously as the way that the agreement works is means that it it it has or will reach a minimum revenue threshold for four.
For the time period that it's I guess determining that that warrants is that is that a fair assumption.
Absolutely you are quite correct and one that is the reason we had to do a Monte Carlo valuation from an outside consultant.
To ensure that we book just like we did it was 2.5 million.
Okay got it got it thank you alright and.
I also noticed.
A small amount of restructuring cost could you maybe comment a little bit on that.
You said that I would it's a small amount we closed one small on site in the U.S. and that is some amount of employee restructuring that book.
So these oh I'm in a large part of why this evidence has been our expenses at all but anything which was supposed to <unk> that is part of restructuring again, having said that we don't expect a big jump, but I'd be hard when we began to manage.
Okay, good and and I was.
Trying to find that net debt balance for the quarter I Wonder if you have that handy.
No. The net debt is not down for the quarter. It is oh, I think of it as more or less than half a million dollars.
I don't have the exact number handy with me I'd opened a few moments but.
Higher quarter over quarter revenue.
When you put put aside that warrant accounting.
And.
Unusually a down quarter for this industry. So.
Pretty good.
And also high higher gross margin of 79% that's.
That's pretty good than it seems.
Higher revenue on new business growth I really want to congratulate you guys.
Thank you I am I really really appreciate your comments.
Thank you.
Thank you.
And this does conclude the question and answer session of today's program I'd like to hand, the program back to Lance Rosensweig for any further remarks.
Thank you Jonathan and thank you all for joining US this afternoon and for your continued support of Startek.
We will be at the 2019 annual Gateway conference in early September to meet with investors and were always happy to make ourselves available by phone. So if we don't speak then we look forward to speaking you next when we report our quarterly results in November Thank you very much.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.