Table of Contents



 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 


 

Form 10-Q

(Mark One) 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 20212022

or 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                to                

 

Commission file number 1-12793


 

StarTek, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

84-1370538

(State or other jurisdiction of

(I.R.S. employer

incorporation or organization)

Identification No.)

 

 

6200

4610 South Syracuse Way, Suite 485Ulster Street,

 

Greenwood Village,Suite 150

, Denver, Colorado

8011180237

(Address of principal executive offices)

(Zip code)

 

(303) 262-4500

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

SRT

New York Stock Exchange, Inc.

 

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒  No ☐ 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No  ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer  ☐

Smaller reporting company  ☒

 

Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐  No ☒ 

 

As of July 31, 2021,30, 2022, there were 40,799,33940,336,417 shares of Common Stock outstanding.

 



 

1

 

 

STARTEK, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q

 

 

PART I - FINANCIAL INFORMATION

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

Page

 

Consolidated StatementsStatement of Income (Loss) and Other Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 20212022 and 20202021 (Unaudited)

4

 

Consolidated Balance Sheets as of June 30, 2021(Unaudited)2022(Unaudited) and December 31, 20202021 

5

 

Consolidated StatementsStatement of Cash Flows for the Six Months Ended June 30, 20212022 and 20202021 (Unaudited)

6

 

Consolidated Statement of Stockholders' Equity for the Three and Six Months Ended June 30, 20212022 and 20202021 (Unaudited)

7

 

Note 1 Overview and Basis of Preparation

8

 Note 2 Summary of Significant Accounting Policies89
 Note 3 Goodwill and Intangible Assets12
 Note 4 Revenue13
 Note 5 Net GainIncome / (Loss) Per Share15
 Note 6 Impairment Losses and Restructuring / Exit cost15
 Note 7 Derivative Instruments16
 Note 8 Fair Value Measurements1617
 Note 9 Debt1718
 Note 10 Share-Based Compensation1820
 Note 11 Accumulated Other Comprehensive Loss2021
 Note 12 Segment Reporting2122
 Note 13 Leases2223
 Note 14 Investment in Equity-Accounted Investees24
Note 15 Common Stock 25
 Note 1516 Private Offer Transaction Cost26
Note 17 Subsequent Events26

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

27

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

3334

ITEM 4.

Controls and Procedures

3334

 

 

 

PART II - OTHER INFORMATION

 

 

 

ITEM 1.

Legal proceeding

3435

ITEM 1A.

Risk Factors

3435

ITEM 2.Unregistered sales of equity securities and use of proceeds3435

ITEM 3.

Defaults upon senior securities3435
ITEM 4.Mine safety disclosure3435

ITEM 5. 

Other Information

3435

ITEM 6.

Exhibits

3536

SIGNATURES

 

3637

 

2

 

NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the following:

 

 

certain statements, including possible or assumed future results of operations, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

 

any statements regarding the prospects for our business or any of our services;

 

any statements preceded by, followed by or that include the words “may,” “will,” “should,” “seeks,” “believes,” “expects,” “anticipates,” “intends,” “continue,” “estimate,” “plans,” “future,” “targets,” “predicts,” “budgeted,” “projections,” “outlooks,” “attempts,” “is scheduled,” or similar expressions; and

 

other statements regarding matters that are not historical facts.

 

Our business and results of operations are subject to risks and uncertainties, many of which are beyond our ability to control or predict. Because of these risks and uncertainties, actual results may differ materially from those expressed or implied by forward-looking statements, and investors are cautioned not to place undue reliance on such statements, which speak only as of the date thereof. Important factors that could cause actual results to differ materially from our expectations and may adversely affect our business and results of operations, include, but are not limited to, those items described herein or set forth in the Form 10-K for the fiscal year ended December 31, 20202021 filed with the Securities and Exchange Commission ("SEC") on March 16, 202114, 2022 and this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.2022. Unless otherwise noted in this report, any description of "us," "we," or "our," refers to StarTek,Startek, Inc. ("Startek") and its subsidiaries.

 

 

CHANGE IN FILING STATUS

 

In accordance with the SEC's expanded definition of Smaller Reporting Companies effective September 10, 2018, Startek qualifies for Smaller Reporting Company status. As such, it has decided to take advantage of the relief provided from Part 1, Item 3.

 

3

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

 

STARTEK, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENT OF INCOME (LOSS)

(In thousands, except share and per share amounts)data)

(Unaudited)

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Revenue

  189,436   142,652   352,931   303,829 

Warrant contra revenue

  (405)  (485)  (830)  (763)

Net Revenue

 $189,031  $142,167  $352,101  $303,066 

Cost of services

  (164,477)  (126,354)  (302,860)  (267,195)

Gross profit

 $24,554  $15,813  $49,241  $35,871 
                 

Selling, general and administrative expenses

  (12,298)  (14,644)  (26,469)  (31,899)

Impairment losses and restructuring/exit cost

  19   (235)  (1,879)  (24,557)

Operating income/ (loss)

 $12,275  $934  $20,893  $(20,585)
                 

Share of income/ (loss) of equity-accounted investees

  59   (12)  45   (20)

Interest expense, net

  (2,484)  (3,190)  (16,253)  (6,696)

Exchange gain / (loss), net

  363   (1,637)  575   291 

Income/ (loss) before income taxes

 $10,213  $(3,905) $5,260  $(27,010)

Income tax expense

  (2,093)  (1,283)  (6,995)  (4,159)

Net income/ (loss)

 $8,120  $(5,188) $(1,735) $(31,169)
                 

Net income/ (Loss)

                

Net income attributable to non-controlling interests

  1,235   29   3,535   605 

Net income/ ( loss) attributable to Startek shareholders

  6,885   (5,217)  (5,270)  (31,774)
                 

Net income/ (loss) per common share - basic

 $0.17  $(0.14) $(0.13) $(0.82)

Net income/ (loss) per common share - diluted

 $0.17  $(0.14) $(0.13) $(0.82)
                 

Weighted average common shares outstanding - basic

  40,786   38,614   40,689   38,571 

Weighted average common shares outstanding - diluted

  41,222   38,614   40,689   38,571 
  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Revenue

  167,641   189,436   334,958   352,931 

Warrant adjustment

  0   (405)  0   (830)

Net revenue

 $167,641  $189,031  $334,958  $352,101 

Cost of services

  (150,914)  (164,477)  (297,174)  (302,860)

Gross profit

 $16,727  $24,554  $37,784  $49,241 
                 

Selling, general and administrative expenses

  (13,743)  (12,298)  (29,624)  (26,469)

Impairment losses and restructuring/exit cost

  (745)  19   (2,152)  (1,879)

Operating income

 $2,239  $12,275  $6,008  $20,893 
                 

Share of income of equity accounted investee

  3,833   59   3,825   45 

Interest expense, net and other income

  (2,103)  (2,484)  (3,077)  (16,253)

Foreign exchange gains (losses), net

  82   363   (326)  575 

Income before tax expense

 $4,051  $10,213  $6,430  $5,260 

Tax expense

  (1,423)  (2,093)  (3,516)  (6,995)

Net income (loss)

 $2,628  $8,120  $2,914  $(1,735)
                 

Net income (loss)

                

Net income attributable to noncontrolling interests

  761   1,235   2,290   3,535 

Net income (loss) attributable to Startek shareholders

  1,867   6,885   624   (5,270)
                 

Net incom (loss) per common share

                

Basic net income (loss) attributable to Startek shareholders

 $0.05  $0.17  $0.02  $(0.13)

Diluted net income (loss) attributable to Startek shareholders

 $0.05  $0.17  $0.02  $(0.13)
                 

Weighted average common shares outstanding

                

Basic

  40,284   40,786   40,311   40,689 

Diluted

  40,308   41,222   40,366   40,689 

 

 

STARTEK, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share amounts)data)

(Unaudited)

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Net income/ (loss)

 $8,120  $(5,188) $(1,735) $(31,169)

Net income attributable to non-controlling interests

  1,235   29   3,535   605 

Net income/ ( loss) attributable to Startek shareholders

  6,885   (5,217)  (5,270)  (31,774)
                 

Other comprehensive (loss) / income, net of taxes:

                

Foreign currency translation adjustments

  (876)  727   (1,968)  (3,665)

Change in fair value of derivative instruments

  0   (8)  8   (680)

Pension amortization

  (37)  (3,026)  (421)  (2,630)

Other comprehensive loss

 $(913) $(2,307) $(2,381) $(6,975)
                 

Other comprehensive (loss) / income, net of taxes

                

Other comprehensive loss attributable to non-controlling interests

  0   (1,787)  (69)  (1,624)

Other comprehensive loss attributable to Startek shareholders

  (913)  (520)  (2,312)  (5,351)
  $(913) $(2,307) $(2,381) $(6,975)

Comprehensive (loss) / income

                

Comprehensive income/ (loss) attributable to non-controlling interests

  1,235   (1,758)  3,466   (1,019)

Comprehensive income/ (loss) attributable to Startek shareholders

  5,972   (5,737)  (7,582)  (37,125)
  $7,207  $(7,495) $(4,116) $(38,144)
  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Net income (loss)

 $2,628  $8,120  $2,914  $(1,735)

Net income attributable to noncontrolling interests

  761   1,235   2,290   3,535 

Net income (loss) attributable to Startek shareholders

  1,867   6,885   624   (5,270)
                 

Other comprehensive income (loss), net of taxes

                

Foreign currency translation adjustments

  (3,937)  (876)  (3,389)  (1,968)

Change in fair value of derivative instruments

  0   0   0   8 

Pension amortization

  451   (37)  (686)  (421)

Other comprehensive loss

 $(3,486) $(913) $(4,075) $(2,381)
                 

Other comprehensive income (loss), net of taxes

                

Other comprehensive income (loss) attributable to noncontrolling interest

  281   0   (374)  (69)

Other comprehensive loss attributable to Startek shareholders

  (3,767)  (913)  (3,701)  (2,312)
  $(3,486) $(913) $(4,075) $(2,381)

Comprehensive income (loss)

                

Comprehensive income attributable to noncontrolling interests

  1,042   1,235   1,916   3,466 

Comprehensive income (loss) attributable to Startek shareholders

  (1,900)  5,972   (3,077)  (7,582)
  $(858) $7,207  $(1,161) $(4,116)

 

See Notes to Consolidated Financial Statements.

 

4

 

STARTEK, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEET

(In thousands, except share data)

(Unaudited)

 

 

June 30,

 

December 31,

  

June 30,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

Assets

            

Current assets

          

Cash and cash equivalents

  47,018   44,507   47,145   47,940 

Restricted cash

 7,045  6,052  8,646  7,456 

Trade accounts receivables, net

 93,735  83,560  84,115  106,937 

Unbilled revenue

 51,685  49,779  67,630  50,074 

Prepaid and other current assets

  15,148   14,542   19,483   12,611 

Total current assets

 $214,631  $198,440  $227,019  $225,018 
          

Non-current assets

          

Property, plant and equipment, net

 34,692  34,225  32,494  34,168 

Operating lease right-of-use assets

 59,906  69,376  51,157  63,012 

Intangible assets, net

 95,297  100,440  84,950  90,092 

Goodwill

 183,397  183,397  183,397  183,397 

Investment in equity-accounted investees

 25,052  111  35,513  31,688 

Deferred tax assets, net

 3,154  5,294  4,800  3,664 

Prepaid expenses and other non-current assets

  14,816   13,370   8,251   11,436 

Total non-current assets

 $416,314 $406,213  $400,562 $417,457 

Total assets

 $630,945  $604,653  $627,581  $642,475 
          

Liabilities and Shareholders' Equity

      

Liabilities and Stockholders’ Equity

      

Current liabilities

          

Trade accounts payables

  9,885   20,074   10,615   11,916 

Accrued expenses

 58,203  57,118  53,493  53,203 

Short term debt

 6,983  15,505  5,112  3,611 

Current maturity of long term debt

 2,294  2,180  16,274  6,241 

Current maturity of operating lease obligation

 17,623  19,327 

Current maturity of operating lease liabilities

 22,710  24,393 

Other current liabilities

 46,813  39,987  45,430  48,265 

Total current liabilities

 $141,801  $154,191  $153,634  $147,629 
          

Non-current liabilities

          

Long term debt

 164,623  118,315  149,283  160,175 

Operating lease liabilities

 44,326  52,052  32,642  44,263 

Other non-current liabilities

 17,754  15,498  22,316  19,562 

Deferred tax liabilities, net

  16,971   17,715   17,802   17,526 

Total non-current liabilities

 $243,674  $203,580  $222,043  $241,526 

Total liabilities

 $385,475  $357,771  $375,677  $389,155 
          

Stockholders’ equity:

     

Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 40,796,179 and 40,453,462 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

  408   405 

Stockholders’ equity

     

Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 40,996,566 and 40,893,396 shares issued as of June 30, 2022, and December 31, 2021, respectively

  410   409 

Additional paid-in capital

 291,401  288,700  292,615  291,537 

Accumulated deficit

 (90,813) (85,543) (83,419) (84,043)

Treasury stock, 692,176 and 412,769 shares as of June 30, 2022, and December 31, 2021, respectively, at cost

 (3,246) (1,912)

Accumulated other comprehensive loss

 (9,598) (7,286) (14,388) (10,687)

Equity attributable to Startek shareholders

 $191,398  $196,276  $191,972  $195,304 

Non-controlling interests

  54,072   50,606 

Non-controlling interest

  59,932   58,016 

Total stockholders’ equity

 $245,470  $246,882  $251,904  $253,320 

Total liabilities and stockholders’ equity

 $630,945  $604,653  $627,581  $642,475 

 

See Notes to Consolidated Financial Statements.

 

5

 

 

STARTEK, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Six Months Ended June 30,

  

Six Months Ended June 30,

 
 

2021

  

2020

  

2022

  

2021

 

Operating Activities

    

Net loss

 $(1,735) $(31,169)

Operating activities

    

Net income (loss)

 $2,914  $(1,735)
  

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

 13,470  14,328  14,558  13,470 

Impairment of goodwill

 0  22,708 

Profit on sale of property, plant and equipment

 (73) 0  (152) (73)

Provision for doubtful accounts

 32  889  (136) 32 

Amortisation of debt issuance cost

 2,827  761 

Amortisation of call option premium

 480 0 

Amortization of debt issuance costs (including loss on extinguishment of debt)

 286  11,302 

Amortization of call option premium

 720 480 

Warrant contra revenue

 830  763  0  830 

Share-based compensation expense

 591  209  833  591 

Deferred income taxes

 (1,255) 1,604  (1,157) (1,255)

Share of (income)/ loss of equity-accounted investees

 (45) 20 

Share of income of equity-accounted investees

 (3,825) (45)
  

Changes in operating assets and liabilities:

        

Trade accounts receivables

 (11,412) 34,022  19,544  (11,412)

Prepaid expenses and other assets

 (2,971) (2,301) (25,539) (2,971)

Trade accounts payables

 (9,965) (5,920)

Trade accounts payable

 (712) (9,965)

Income taxes, net

 2,724  (2,314) (1,046) 2,724 

Accrued expenses and other current liabilities

  9,505   15,558 

Net cash generated from operating activities

 $3,003  $49,158 

Accrued expenses and other liabilities

  2,418   9,505 

Net cash provided by operating activities

 $8,706  $11,478 
  

Investing Activities

    

Purchase of property, plant and equipment

 (7,513) (7,864)

Investing activities

    

Purchase of property, plant and equipment, net

 (6,191) (7,513)

Investment in equity-accounted investees

  (25,000)  0   0   (25,000)

Payments for call option premium

 (3,000) 0  0 (3,000)

Proceeds from equity-accounted investees

 104  395  0 104 

Net cash used in investing activities

 $(35,409) $(7,469) $(6,191) $(35,409)
  

Financing Activities

    

Financing activities

    

Proceeds from the issuance of common stock

 1,283  8,009  246  1,283 

Proceeds from long term debt

 165,000  0 

Payments on long term debt

 (117,600) (4,200)

Proceeds from long term debt (net of debt issuance cost paid to lenders)

 0  156,525 

Payments of long term debt

 0 (117,600)

Payments for loan fees related to long term debt

 (2,794) 0  0 (2,794)

Proceeds from (payments on) other debt, net

  (9,431)  (21,210)

Net cash generated from/ (used in) financing activities

 $36,458  $(17,401)

Proceeds from a line of credit, net

 1,423 0 

Payments of other borrowings, net

 (969) (9,431)

Common stock repurchases

 (1,334) 0 

Net cash (used in)/ provided by financing activities

 $(634) $27,983 
  

Net increase in cash and cash equivalents

 4,052  24,288  1,881  4,052 

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 (548) (497) (1,486) (548)

Cash and cash equivalents and restricted cash at beginning of the period

  50,559   32,626 

Cash and cash equivalents and restricted cash at end of the period

 $54,063  $56,417 

Cash and cash equivalents and restricted cash at beginning of period

  55,396   50,559 

Cash and cash equivalents and restricted cash at end of period

 $55,791  $54,063 
  

Components of cash and cash equivalents and restricted cash

         

Balance with banks

 47,018  47,451 

Balances with banks

 47,145 47,018 

Restricted cash

  7,045   8,966   8,646   7,045 

Total cash and cash equivalents and restricted cash

 $54,063  $56,417  $55,791  $54,063 
  

Supplemental disclosure of Cash Flow Information

    

Cash paid for interest and other finance costs

 17,091  6,440 

Supplemental disclosure of cash flow information

     

Cash paid for interest and other finance cost

 4,700 17,091 

Cash paid for income taxes

 5,541  4,017  5,573  5,541 

Supplemental disclosure of non-cash activities

     

Non-cash warrant contra revenue

 830  763  0 830 

Non-cash share-based compensation expenses

 591  209  833  591 

 

See Notes to Consolidated Financial Statements.

 

6

 

 

STARTEK, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

 

 

Common Stock

       

Other Items of OCI

         
 

Shares

 

Amount

 

Additional paid-in

 

Accumulated

 

Foreign currency

 

Change in fair value of

 

Unrecognised

 

Equity attributable to Startek

 

Non-controlling

 

Total stockholders'

  

Common Stock

  

Treasury Stock

        

Other Items of OCI

          
         

capital

  

deficit

  

translation

  

derivative instruments

  

pension cost

  

shareholders

  

interest

  

equity

  

Shares

  

Amount

  

Shares

  

Amount

  

Additional paid-in capital

  

Accumulated deficit

  

Foreign currency translation

  

Change in fair value of derivative instruments

  

Unrecognised pension cost

  

Equity attributable to Startek shareholders

  

Non-controlling interest

  

Total stockholders' equity

 

Three months ended

                                                                            

Balance at March 31, 2022

  40,953,221 $410  672,176 $(3,183) $292,104 $(85,286) $(6,268) $0 $(4,353) $193,424 $58,890 $252,314 

Issuance of common stock

 43,345  0  0  0  106  0  0  0  0  106  0  106 

Share-based compensation expenses

 -  0  -  0  405  0  0  0  0  405  0  405 

Net income (loss)

 -  0  -  0  0  1,867  0  0  0  1,867  761  2,628 

Other comprehensive income (loss)

 -  0  -  0  0  0  (3,937) 0  170  (3,767) 281  (3,486)

Repurchase of common stock

 0 0 20,000 (63) 0 0 0 0 0 (63) 0 (63)

Balance at June 30, 2022

  40,996,566  $410   692,176  $(3,246) $292,615  $(83,419) $(10,205) $0  $(4,183) $191,972  $59,932  $251,904 
                         

Balance at March 31, 2021

  40,781,804  $408  $290,646  $(97,698) $(5,621) $0  $(3,064) $184,671  $52,837  $237,508   40,781,804  $408   0  $0  $290,646  $(97,698) $(5,621) $0  $(3,064) $184,671  $52,837  $237,508 

Issuance of common stock

 14,375  0  39  0  0  0  0  39  0  39  14,375  0  0  0  39  0  0  0  0  39  0  39 

Share-based compensation expenses

 -  0  311  0  0  0  0  311  0  311  -  0  -  0  311  0  0  0  0  311  0  311 

Warrant expenses

 -  0  405  0  0  0  0  405  0  405 

Warrant expense

 -  0  -  0  405  0  0  0  0  405  0  405 

Net income (loss)

 -  0  0  6,885  0  0  0  6,885  1,235  8,120  -  0  -  0  0  6,885  0  0  0  6,885  1,235  8,120 

Other comprehensive loss for the period

  -   0   0   0   (876)  0   (37)  (913)  0   (913)

Other comprehensive income (loss)

  -   0   -   0   0   0   (876)  0   (37)  (913)  0   (913)

Balance at June 30, 2021

  40,796,179  $408  $291,401  $(90,813) $(6,497) $0  $(3,101) $191,398  $54,072  $245,470   40,796,179 $408  0 $0 $291,401 $(90,813) $(6,497) $0 $(3,101) $191,398 $54,072 $245,470 
                                

Balance at March 31, 2020

  38,541,724  $385  $277,852  $(73,115) $(8,960) $(197) $(1,696) $194,269  $47,478  $241,747 

Six months ended

                         

Balance at December 31, 2021

  40,893,396  $409   412,769  $(1,912) $291,537  $(84,043) $(6,816) $0  $(3,871) $195,304  $58,016  $253,320 

Issuance of common stock

 1,668,575  16  7,950  0  0  0  0  7,966  0  7,966  103,170 1 0 0 245 0 0 0 0 246 0 246 

Share-based compensation expenses

 -  0  (82) 0  0  0  0  (82) 0  (82) - 0 - 0 833 0 0 0 0 833 0 833 

Warrant expenses

 -  0  485  0  0  0  0  485  0  485 

Net income (loss)

 -  0  0  (5,217) 0  0  0  (5,217) 29  (5,188) - 0 - 0 0 624 0 0 0 624 2,290 2,914 

Other comprehensive loss for the period

  -   0   0   0   727   (8)  (1,239)  (520)  (1,787)  (2,307)

Balance at June 30, 2020

  40,210,299  $401  $286,205  $(78,332) $(8,233) $(205) $(2,935) $196,901  $45,720  $242,621 

Other comprehensive income (loss)

 - 0 - 0 0 0 (3,389) 0 (312) (3,701) (374) (4,075)

Repurchase of common stock

  0  0  279,407 $(1,334)  0  0  0  0  0  (1,334)  0  (1,334)

Balance at June 30, 2022

  40,996,566 $410  692,176 $(3,246) $292,615 $(83,419) $(10,205) $0 $(4,183) $191,972 $59,932 $251,904 
                                              

Six months ended

                                        

Balance at December 31, 2020

  40,453,462  $405  $288,700  $(85,543) $(4,529) $(8) $(2,749) $196,276  $50,606  $246,882   40,453,462  $405   0  $0  $288,700  $(85,543) $(4,529) $(8) $(2,749) $196,276  $50,606  $246,882 

Issuance of common stock

 342,717  3  1,280  0  0  0  0  1,283  0  1,283  342,717 3 0 0 1,280 0 0 0 0 1,283 0 1,283 

Share-based compensation expenses

 -  0  591  0  0  0  0  591  0  591  - 0 - 0 591 0 0 0 0 591 0 591 

Warrant expenses

 -  0  830  0  0  0  0  830  0  830 

Warrant expense

 - 0 - 0 830 0 0 0 0 830 0 830 

Net income (loss)

 -  0  0  (5,270) 0  0  0  (5,270) 3,535  (1,735) - 0 - 0 0 (5,270) 0 0 0 (5,270) 3,535 (1,735)

Other comprehensive loss for the period

  -   0   0   0   (1,968)  8   (352)  (2,312)  (69)  (2,381)

Other comprehensive income (loss)

  -  0  -  0  0  0  (1,968)  8  (352)  (2,312)  (69)  (2,381)

Balance at June 30, 2021

  40,796,179  $408  $291,401  $(90,813) $(6,497) $0  $(3,101) $191,398  $54,072  $245,470   40,796,179 $408  0 $0 $291,401 $(90,813) $(6,497) $0 $(3,101) $191,398 $54,072 $245,470 
                               

Balance at December 31, 2019

  38,525,636  $385  $276,827  $(46,145) $(4,568) $475  $(1,929) $225,045  $46,739  $271,784 

Transition period adjustment pursuant to ASU 2019-08

 -   0   413   (413)  0   0   0   0   0   0 

Issuance of common stock

 1,684,663  16  7,993  0  0  0  0  8,009  0  8,009 

Share-based compensation expenses

 -  0  209  0  0  0  0  209  0  209 

Warrant expenses

 -  0  763  0  0  0  0  763  0  763 

Net income (loss)

 -  0  0  (31,774) 0  0  0  (31,774) 605  (31,169)

Other comprehensive loss for the period

  -   0   0   0   (3,665)  (680)  (1,006)  (5,351)  (1,624)  (6,975)

Balance at June 30, 2020

  40,210,299  $401  $286,205  $(78,332) $(8,233) $(205) $(2,935) $196,901  $45,720  $242,621 

As of June 30, 2022 and December 31, 2021, there were 40,304,390 and 40,480,627 shares outstanding respectively of Common Stock, net off treasury stock.

 

7

 

STARTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 20212022

(In thousands, except share and per share data)

(Unaudited)

 

1. OVERVIEW AND BASIS OF PREPARATION

 

Unless otherwise noted in this report, any description of "us," "we," or "our," refers to StarTek,Startek, Inc. and its subsidiaries (the "Company"). Financial information in this report is presented in U.S. dollars.

 

Business

 

Startek is a leading global provider of technology-enabled business process management solutions. The Company provides omni-channel customer experience, digital transformation, and technology services to some of the finest brands globally. Startek is committed to impacting clients’ business outcomes by focusing on enhancing customer experience and digital enablement across all touchpoints and channels. Startek has more than 45,00046,000 CX experts globally employees spread across 4642 delivery campuses in 13 countries. The Company services over 200175 clients across various industries such as Banking and Financial Services, Insurance, Technology, Telecom, Healthcare, Travel and Hospitality, Consumer Goods, Retail, Media & Cable, E-commerce and Energy and Utilities.

 

The Company offers a repository of digital and omnichannel solutions based on decades of experience in driving growth by putting the customer at the center of our business. Because no one solution fits all, we have crafted solution delivery to suit variousa variety of industries. Startek has delivery campuses across India, United States, Malaysia, Philippines, Australia, South Africa, Canada, Honduras, Jamaica, Kingdom of Saudi Arabia, Argentina, Peru and Sri Lanka.

 

Basis of preparation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US-GAAP"U.S. GAAP") for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by US-GAAPU.S. GAAP for complete financial statements.

 

These consolidated financial statements reflect all adjustments (consisting only of normal recurring entries, except as noted) which, in the opinion of management, are necessary for fair presentation. The results of operations for interim periods are not necessarily indicative of full-year results.

 

The consolidated financial statements reflectinclude the financial resultsaccounts of allStartek, Inc and its subsidiaries that are more than 50% owned and over which the Company exerts control. When the Company does not have majority ownership in an entity but exerts significant influence over that entity, the Company accounts for the entity under the equity method of accounting. All intercompany balances are eliminated on consolidation. Where our ownership of a subsidiary was less than 100%, the non-controlling interest is reported in our consolidated balance sheet. The non-controlling interest in our consolidated net income is reported as "Net income (loss) attributable to non-controlling interests" in our consolidated statement of income (loss).

 

As of December 31, 2020,2021, the consolidated balance sheet included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by US-GAAP.U.S. GAAP. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 20202021.

 

The figures for the corresponding previous year have been regrouped/reclassified wherever necessary, to make them comparable.

 

8

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, intangibles, impairment of goodwill, valuation allowances for deferred tax assets, leases, and provision for doubtful debts and restructuring costs. Management believes that the estimates used in the preparation of the consolidated financial statements are reasonable and management has made assumptionsassumption about the possible effectseffect of the novel coronavirus (“COVID-19”) pandemic on criticalglobal macroeconomic conditions, including heightened inflation, changes to fiscal and significant accounting estimates.monetary policy, higher interest rates, currency fluctuations, labor shortages & challenges in supply chain, have the potential to negatively impact the Company. There current macroeconomic conditions may continue or aggravate and could cause the United States economy or other global economies to experience an economic slowdown or recession. We anticipate our business and operations could be materially adversely affected by a prolonged recession in the United States or other major global economy. Although these estimates and assumptions are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any changes in estimates are adjusted prospectively in the Company’s consolidated financial statements.

 

Revenue

 

The Company utilizes a five-step process given in ASC 606, for revenue recognition that focuses on the transfer of control, rather than the transfer of risks and rewards. It also provided additional guidance on accounting for contract acquisition and fulfillment costs. Refer to Note 4 on "Revenue from Contracts with Customers""Revenue" for further information.

 

Leases

 

We determine if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets, current maturity of operating lease liabilities, and operating lease liabilities in our consolidated balance sheet. Finance leases are included in property plant and equipment, long-term debt, accrued expenses and other current liabilities in our consolidated balance sheet.

  

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the balance lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the date of initial application on determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain to exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

 

ASC 842 requires an entity to apply the guidance on impairment of long-lived assets in ASC 360 to right-of-use assets. Therefore, right-of-use assets must be monitored for impairment, like other long-lived non-financial assets, regardless of whether the lease is an operating lease or a finance lease. When impairment indicators exist, an asset (asset group) should be tested to determine whether there is an impairment.

The Company elected the practical expedient permitted under the transition guidance under Topic 842, which among other matters, allowed the Company (i) not to apply the recognition requirements to short-term leases (leases with a lease term of 12 months or less), (ii) not to reassess whether any expired or existing contracts are or contain leases, (iii) not to reassess the lease classification for any expired or existing leases, and (iv) not to reassess initial direct costs for any existing leasesleases. Refer to Note 13, "Leases" for additional information.

 

We have lease agreements with lease and non-lease components, which are generally accounted for separately.

 

Rent discounts and deferment of rent that were received due to COVID-19 have been accounted for without lease modification using the practical expedient provided by the FASB. Refer to Note 13 "Leases" for information and related disclosures.

9

 

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations, by recognizing identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquired business at their fair values. The excess of the cost of the acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Acquisition-related costs are expensed as incurred.

Goodwill and Intangible Assets

 

Goodwill represents the cost of acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased. Goodwill is not amortized but is tested for impairment at least on an annual basis on December 31, based on a number of factors, including operating results, business plans, and future cash flows. The Company performs an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Based on the assessment of events or circumstances, the Company performs a quantitative assessment of goodwill impairment if it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, based on the quantitative impairment analysis, the carrying value of a reporting unit exceeds the fair value of reporting units, an impairment loss is recognized in an amount equal to the excess. In addition, the Company performs a quantitative assessment of goodwill impairment between annual tests if an event occurs or circumstances change that would be more likely than not reduce the fair value of a reporting unit below its carrying amount. Refer to Note 3 "Goodwill and Intengible Assets" for information and related disclosures.


Intangible assets acquired in a business combination were recorded at fair value at the acquisition date using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over the estimated useful lives and are reviewed for impairment at least annually, or more frequently if indicators of impairment arise. Refer to Note 3 on "Goodwill and Intangible assets" for further information.

 

Foreign Currency Matters

 

The Company has operations in Argentina and its functional currency has historically been the Argentine Peso. The Company monitors inflation rates in countries where it operates as required by USU.S. GAAP. Under ASC 830-10-45-12, an economy must be classified as highly inflationary when the cumulative three-year rate exceeds 100%.  Considering the inflation data of Argentina, the Company has considered Argentina to be highly inflationary beginning on July 1, 2018. In accordance with ASC 830, the functional currency of the Argentina business has been changed to USD, which requires re-measurement of the local books to USD. Exchange gains and losses are recorded through net income instead of through other comprehensive income as had been done historically. Translation adjustments from periods prior to the change in functional currency were not removed from equity.

 

Investment in equity-accounted investees

 

Investment in equity-accountedequity accounted investee is an entity over which the Company has significant influence and which is neither a subsidiary nor a joint arrangement. Significant influence is the power to participate in the investee's financial and operating policy decisions of the investee but is not control or joint control over those policies.

 

Investment in equity-accounted investee isequity accounted investees are accounted for using the equity method of accounting. Under the equity method, the investment in equity-accounted investeesequity accounted investee is initially recognized at cost and adjusted thereafter for the post-acquisitionpost acquisition changes in the Company’s share of net assets of the equity-accountedequity accounted investees. Goodwill relating to an investment in equity-accountedequity accounted investees, if any, is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.

 

In case of Limited Partnerships Investments, there is a specific SEC staff guidance which is included in ASC 323-30-S99-1 which provides that investments in all limited partnerships should be accounted for pursuant to paragraph 970-323-25-6. That guidance requires the use of the equity method unless the investor's interest "is so minor that the limited partner may have virtually no influence over partnership operating and financial policies."


The consolidated statement of income reflects the Company’s share of the results of operations of the equity-accountedequity accounted investees. When there has been a change recognized directly in the equity of the equity-accountedequity accounted investees, the Company recognizes its share of any changes and discloses this, when applicable, in the statement of stockholders' equity. Unrealized gains and losses resulting from transactions between the Company and the equity-accountedequity accounted investment are eliminated to the extent of the interest in the equity-accountedequity accounted investees. The Company’s share of profit/lossincome (loss) of equity-accounted investeesequity accounted investee is shown on the face of the consolidated statement of income/income (loss).


The financial statements of the equity-accounted investeeequity accounted investees are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company. After the application of the equity method, the Company determines at each reporting date whether there is any objective evidence that the investment in equity-accounted investeesequity accounted investee is impaired, if there has been other than a temporary decline in carrying value. If this is the case, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in the ‘share'share of profit/income (loss) of equity-accounted investeesequity accounted investee in the consolidated statement of income (loss)'. Refer to Note 14, "Investment in Equity-Accounted Investees" for additional information and related disclosures.

 

Stock-Based Compensation

 

We recognize expenses related to all share-based payments to employees, including grants of employee stock options, based on the grant-date fair values amortized straight-line over the period during which the employees are required to provide services in exchange for the equity instruments. We include an estimate of forfeitures when calculating compensation expenses. We use the Black-Scholes method for valuing stock-based awards. See Note 10, “Share-Based Compensation” for further information.

 

10

Common Stock Warrant Accounting

 

We account for common stock warrants as equity instruments, based on the specific terms of our warrant agreement. For more information refer to Note 10, "Share-Based Compensation."

10

Consolidated Cash Flow Statement

The Company has aligned the cash flow for comparable period for rectifications made in the previous year to presentation of certain transactions arising from the debt re-financing.

In the fourth quarter of 2021, a correction was made to present the payment of an amount of $8,475 paid and expensed in the income statement, as debt issuance cost, as a reduction from cash flows from financing activities and a corresponding increase in cash flows from operating activities.

The effect of the above reclassifications are an increase in cash flows from operating activities by $8,475 and a corresponding decline in cash flows from financing activities $8,475.

The Company has evaluated and concluded that the above corrections were not qualitatively material on previously filed quarterly consolidated financial statements. The above presentation errors within the consolidated statements of cash flows did not impact net income, comprehensive income, earnings per share, total equity, or the balance sheet and also detailed footnotes related to the transaction have been given in all quarters and in the annual financial statements for the year ended December 31, 2021. Also, these presentation errors did not impact Company’s debt covenants, its net debt position, segment reporting and cash and cash equivalents.

Restructuring Charges

On an ongoing basis, management assesses the profitability and utilization of our facilities and in some cases, management has chosen to close facilities. Severance payments that occur from reductions in the workforce are in accordance with our post-employment policy and/or statutory requirements that are communicated to all employees; therefore, severance liabilities are recognized when termination of employment is communicated to the employee(s). Other liabilities for costs associated with an exit or disposal activity are recognized when the liability is incurred, instead of upon commitment to an exit plan. A significant assumption used in determining the amount of the estimated liability for closing a facility is the estimated liability for future lease payments on vacant facilities. We determine our estimate of sublease payments based on our ability to successfully negotiate early termination agreements with landlords, a third-party broker, or management’s assessment of our ability to sublease the facility based upon the market conditions in which the facility is located. If the assumptions regarding early termination and the timing and amounts of sublease payments prove to be inaccurate, we may be required to record additional losses, or conversely, a future gain. Refer to Note 6, "Impairment Losses and Restructuring/Exit cost" for additional information.

Reserves/Contingencies for Litigation and Other Matters

We are involved in few claims and legal actions, such as wage and hour, wrongful termination, and other employment-related claims, that arise in the ordinary course of business, some of which may be covered by insurance. The outcomes of these actions are not predictable, but we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity, or capital resources. We record an accrual for legal contingencies when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss. However, if there is a significant increase in the number of these claims, or if we incur greater liabilities than we currently anticipate under one or more claims, it could materially and adversely affect our business, financial condition, results of operations and cash flows.

 

Recent Accounting Pronouncements

 

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13"), Measurement of Credit Losses on Financial Instruments. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard will replace today's "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for annual periods beginning after December 15, 2022, and interim periods therein for smaller reporting companies. We do not expectare currently evaluating the adoptionimpact of ASU 2016-13 will have a material impactthe new guidance on our consolidated financial statements.

 

In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional expedients and exceptions to the guidance in USU.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The guidance is effective upon issuance and generally can be applied through December 31, 2022. This amendment shall apply to any term loan obtained by the Company which is linked to LIBOR. The Company is still inclosely monitoring the processmarket and the announcements from the bank managing the transition to new benchmark interest rates for its term loan benchmarked to LIBOR. Based on announcements by bank, the transition will take effect. The Company is not expecting any material financial impact of assessingtransition from LIBOR to alternative benchmark rates on its floating rate borrowings linked to LIBOR.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This standard is effective for annual periods beginning after December 15, 2021 and should be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.adopting ASU 2021-10 within its Form 10-K for the fiscal year 2022.

 

11

 

3. GOODWILL AND INTANGIBLE ASSETS

 

Goodwill

 

The carrying value of goodwill is allocated to reporting units as follows:

 

Reporting Units

 

June 30, 2021

  

December 31, 2020

 

Reporting Units:

 

June 30, 2022

  

December 31, 2021

 

Americas

 64,315  64,315  64,315  64,315 

India

 12,554  12,554  12,554  12,554 

Malaysia

 47,543  47,543  47,543  47,543 

Saudi Arabia

 54,840  54,840  54,840  54,840 

South Africa

 0  0 

Argentina

 0  0 

Australia

  4,145   4,145   4,145   4,145 

Total

 $183,397  $183,397  $183,397  $183,397 

 

We perform a goodwill impairment analysis at least annually (in the fourth quarter of each year) unless indicators of impairment exist in interim periods. The assumptions used in the analysis are based on the Company’s internal budget. The Company projects revenue, operating margins, and cash flows for a period of five years and applies a perpetual long-term growth rate using discounted cash flows (DCF) method. These assumptions are reviewed annually as part of management’s budgeting and strategic planning cycles. These estimates may differ from actual results. In arriving at its forecasts, the Company considers past experience, economic trends and inflation, and industry and market trends, including the outbreak of COVID-19. The projections also take into account factors such as the expected impact from new client wins and expansion from existing clients' businesses and efficiency initiatives, and the maturity of the markets in which each business operates.

 

As of June 30, 2022 and December 31, 2021, based on the qualitative assessment, we concluded that there is no impairment of goodwill.

 

The following table presents the changes in goodwill during the threesix months ended June 30, 2021 2022and year ended December 31, 2020:2021:

 

 

June 30, 2021

  

December 31, 2020

  

June 30, 2022

  

December 31, 2021

 

Opening balance

  183,397   219,341   183,397   183,397 

Impairment

  0   (35,944)  0   0 

Ending balance

 $183,397  $183,397 

Closing balance

 $183,397  $183,397 

 

Intangible Assets

 

The following table presents our intangible assets:

 

 

As of June 30, 2021

  

As of June 30, 2022

 
 

Gross Intangibles

  Accumulated Amortization  Net Intangibles  Weighted Average Amortization Period (years)  

Gross Intangibles

  Accumulated Amortization  Net Intangibles  Weighted Average Amortization Period (years) 

Customer relationships

  66,220   19,072   47,148  6.5   66,220   24,670   41,550  6.5 

Brand

 49,500  13,226  36,274  7.1  49,500  16,892  32,608  7.1 

Trademarks

 13,210  2,596  10,614  7.5  13,210  3,476  9,734  7.5 

Other intangibles

  2,130   869   1,261  4.9   2,130   1,072   1,058  4.9 
 $131,060  $35,763  $95,297     $131,060  $46,110  $84,950    

 

 

As of December 31, 2020

  

As of December 31, 2021

 
 

Gross Intangibles

  Accumulated Amortization  Net Intangibles  Weighted Average Amortization Period (years)  

Gross Intangibles

  Accumulated Amortization  Net Intangibles  Weighted Average Amortization Period (years) 

Customer relationships

  66,220   16,289   49,931  6.5   66,220   21,887   44,333  6.5 

Brand

 49,500  11,408  38,092  7.1  49,500  15,074  34,426  7.1 

Trademarks

 13,210  2,155  11,055  7.5  13,210  3,036  10,174  7.5 

Other intangibles

  2,130   768   1,362  4.9   2,130   971   1,159  4.9 
 $131,060  $30,620  $100,440     $131,060  $40,968  $90,092    

 

As of June 30, 2021,2022, based on the qualitativemanagement assessment, we concluded there is no0 impairment ofon the Company's intangible assets.

 

Expected future amortization of intangible as of June 30, 2021 2022is as follows:

 

Years Ending December 31,

 

Amount

 

Remainder of 2021

 5,175 

2022

 10,350 

Year ending December 31,

 

Amount

 

Remainder of 2022

 5,175 

2023

 10,306  10,306 

2024

 10,252  10,252 

2025

 10,252  10,252 

2026

 9,490 

Thereafter

 48,962  39,475 

 

12

 

4.  REVENUE

 

The Company follows a five-step process in accordance with ASC 606, for revenue recognition that focuses on the transfer of control, rather than the transfer of risks and rewards.

 

Contracts with Customers

 

All of the Company's revenues are derived generally from written contracts with our customers. Generally speaking, ourOur contracts document our customers' intentagreement to utilize our services and the relevant terms and conditions under which our services will be provided. Our contracts generally do not contain minimum purchase requirements nor do they include termination penalties. Our customers may generally cancel our contract, without cause, upon written notice (generally ninety days). While our contracts do have stated terms, because of the facts stated above, they are accounted for on a month-to-month basis.

 

Our contracts give us the right to bill for services rendered during the period, which for most of our customers is a calendar month, with a few customers specifying a fiscal month. Our payment terms vary by client and generally range from due upon receipt to 60-90 days.

 

Performance Obligations

 

We have identified one main performance obligation for which we invoice our customers, which is to stand ready to provide care services for our customers’ clients. A stand-ready obligation is a promise that a customer will have access to services as and when the customer decides to use them. Ours is considered a stand-ready obligation because the delivery of the underlying service (that is, receiving customer contact and performing the associated care services) is outside of our control or the control of our customer.

 

Our stand-ready obligation involves outsourcing of the entire customer care life cycle, including:

 

 

The identification, operation, management, and maintenance of facilities, IT equipment, and IT and telecommunications infrastructure

 

Management of the entire human resources function, including recruiting, hiring, training, supervising, evaluating, coaching, retaining, compensating, providing employee benefits programs, and disciplinary activities

 

These activities are all considered an integral part of the production activities required in the service of standing ready to accept calls as and when they are directed to us by our clients.

 

13

 

Revenue Recognition Methods

 

Because our customers receive and consume the benefit of our services as they are performed and we have the contractual right to invoice for services performed to date, we have concluded that our performance obligation is satisfied over time. Accordingly, we recognize revenue for our services in the month they are performed.

 

We are generally entitled to invoice for our services on a monthly basis. We invoice according to the hourly and/or per-transaction rates stated in each contract for the various activities we perform. Some contracts include opportunities to earn bonuses or include parameters under which we will incur penalties related to performance in any given month. Bonus or penalty amounts are based on the current month’s performance. Formulas are included in the contracts for the calculation of any bonus or penalty. There is no other performance in future periods that will impact the bonus or penalty calculation in the current period. We estimate the amount of the bonus or penalty using the “most likely amount” method and we apply this method consistently. The bonus or penalty calculated is generally approved by the client prior to billing (and revenue being recognized). The unbilled revenue, where the right to invoice has not accrued is recognized based on service delivery estimate.

 

Practical expedients and exemptions

 

Because the Company’s contracts are essentially month-to-month, we have elected the following practical expedients:

 

 

ASC 606-10-50-14 exempts companies from the disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less

 

ASC 340-40-25-4 allows companies to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

 

ASC 606-10-32-2A allows an entity to make an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value-added, and some excise taxes)

 

ASC 606-10-55-18 allows an entity that has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the entity may recognize revenue in the amount to which the entity has a right to invoice.

 

Disaggregated Revenue

 

Revenues by our clients' industry verticals for the three and six months ended June 30, 2021 2022and 20202021 respectively:

 

 

Three Months Ended June 30,

  

Six Months Ended June 30,

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

Vertical:

 

2021

  

2020

  

2021

  

2020

 

Vertical

 

2022

  

2021

  

2022

  

2021

 

Telecom

 53,611  50,186  105,285  105,527  60,694  53,611  116,746  105,285 

Healthcare & Education

 40,018  9,178  57,705  22,617 

E-commerce & Consumer

 26,221  21,354  52,324  47,802  18,851  26,221  39,377  52,324 

Media & Cable

 23,778  22,099  49,572  45,265  15,927  23,778  32,869  49,572 

Financial & Business Services

 15,763  10,438  31,214  23,833  17,605  15,763  34,300  31,214 

Travel & Hospitality

 10,542  14,179  21,039  29,965  13,495  10,542  27,010  21,039 

Healthcare & Education

 7,363  40,018  18,826  57,705 

Technology, IT & Related Services

 4,858  4,402  9,939  9,497  5,112  4,858  10,457  9,939 

All other verticals

  14,645   10,816   25,853   19,323 

Other verticals

  28,594   14,645   55,373   25,853 

Gross revenue

 189,436  142,652  352,931  303,829  167,641  189,436  334,958  352,931 

Less: Warrant contra revenue

  (405)  (485)  (830)  (763)  0   (405)  0   (830)

Net revenue

 $189,031  $142,167  $352,101  $303,066  $167,641  $189,031  $334,958  $352,101 

 

14

 

5. NET GAININCOME / (LOSS) PER SHARE

 

Basic earnings per common share are computed based on our weighted average number of common shares outstanding. Diluted earnings per share are computed based on our weighted average number of common shares outstanding plus the effect of dilutive stock options, non-vested restricted stock, and deferred stock units, using the treasury stock method. 

 

When a net loss is reported, potentially issuable common shares are excluded from the computation of diluted earnings per share as their effect would be anti-dilutive.

 

For three and six months ended June 30, 2021 2022and 2020,2021, the following number of shares were used in the computation of basic/basic and diluted earnings per share calculation (in thousands): 

 

 

Three Months Ended June 30,

  

Six Months Ended June 30,

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Shares used in basic earnings per share calculation:

 40,786  38,614  40,689  38,571 

Shares used in basic earnings per share calculation

 40,284  40,786  40,311  40,689 

Effect of dilutive securities:

 -  -  -  -  

Stock options

 436  0  0  0  24  436  55  0 

Restricted stock/Deferred stock units

 0  0  0  0   0   0   0   0 

Total effects of dilutive securities

  436   0   0   0   24   436   55   0 

Shares used in dilutive earnings per share calculation:

  41,222   38,614   40,689   38,571 

Shares used in dilutive earnings per share calculation

  40,308   41,222   40,366   40,689 

 

The Company always maintained Startek's 2008 Equity Incentive Plan (see Note 10, "Share-based compensation and employee benefit plans"compensation" for more information).

 

 

Three Months Ended June 30,

  

Six Months Ended June 30,

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Anti-dilutive securities:

        

Anti-dilutive securities

        

Stock options

 62  1,948  2,114  1,948  0  62  0  2,114 

 

 

6. IMPAIRMENT LOSSES & RESTRUCTURING/EXIT COST

 

Impairment Loss

 

As of June 30, 2021,2022, based on the qualitative assessment, we concluded there is 0no impairment of goodwill.

 

Restructuring / Exit Cost

 

The table below summarizes the balance of accrued restructuring cost, voluntary/involuntary termination costs, and other acquisition-relatedexit-related costs, which are included in other accrued liabilities in our consolidated balance sheet. The changes during the six months ended June 30, 2021 2022and the year ended December 31, 2020.2021.

 

  

Employee related

  

Facilities related

  

Total

 

Balance as of December 31, 2020

  0   25   25 

Accruals/(reversals)

  1,837   42   1,879 

Payments

  (1,756)  (67)  (1,823)

Balance as of June 30, 2021

 $81  $0  $81 
  

Employee related

  

Facilities related

  

Total

 

Balance on December 31, 2021

  480   155   635 

Accruals/(reversal)

  1,820   332   2,152 

Payments

  (1,751)  (465)  (2,216)

Balance as of June 30, 2022

 $549  $22  $571 

 

  

Employee related

  

Facilities related

  

Total

 

Balance at December 31, 2019

  1,326   514   1,840 

Accruals/(reversals)

  1,499   356   1,855 

Payments

  (2,825)  (845)  (3,670)

Balance at December 31, 2020

 $0  $25  $25 
  

Employee related

  

Facilities related

  

Total

 

Balance on December 31, 2020

  0   25   25 

Accruals/(reversal)

  3,519   193   3,712 

Payments

  (3,039)  (63)  (3,102)

Balance on December 31, 2021

 $480  $155  $635 

 

Employee related

 

In 2021,2022, the Company has closed onefew of its facilities in Canada,Argentina and Philippines, where we have terminated service of number of employees. We have also offered a voluntary retirement plan to certain employees in one other geography. We have recognized a provision for employee-related costs regarding the above voluntary/involuntary termination. We expect to pay the remaining termination costs of $81$549 by the end of the fourth quarter of 2022.

Facility related

In 2022, the Company has recognized provision for the remaining costs associated with the lease that has been surrendered in Argentina. We expect to pay the remaining termination costs of $22 by the end of the third quarter of 2021.2022.

 

15

 

7.  DERIVATIVE INSTRUMENTS

 

Cash flow hedges

 

Our locations in Canada and the Philippines primarily serve US-based clients. The revenues from these clients are billed and collected in US Dollars, but the expenses related to these revenues are paid in Canadian Dollars and Philippine Pesos. We enterhad entered into derivative contracts, in the form of forward contracts and range forward contracts (a transaction where both a call option is purchased and a put option is sold) to mitigate this foreign currency exchange risk. The contracts covercovered periods commensurate with expected exposure, generally three to twelve months. We havehad elected to designate our derivatives as cash flow hedges to associate the hedges' results with forecasted expenses.

 

The Company had terminated all cash flow hedges contracts early in April 2020 due to a change in counterparty relationship, hence balance asAs of June 30, 2021 is nil.

  

Gain (Loss) Recognized in AOCI, net of tax

  

Gain (Loss) Recognized in AOCI, net of tax

  

Gain/ (Loss) Reclassified from AOCI into Income

  

Gain/ (Loss) Reclassified from AOCI into Income

 
  

Six Months Ended June 30, 2021

  

Six Months Ended June 30, 2020

  

Six Months Ended June 30, 2021

  

Six Months Ended June 30, 2020

 
                 

Cash flow hedges:

                

Foreign exchange contracts

 $0  $(434) $8  $(246)

Non-designated hedges

We have also entered into foreign currency range forward contracts and interest swap contracts as required by our lenders. These hedges are not designated hedges under ASC 815,Derivatives and Hedging. These contracts generally do not exceed 3 years in duration.

Unrealized gains and losses and changes in the fair value of these derivatives are recognized as incurred in Exchange gains (losses), net in the consolidated statement of income (loss). The following table presents these amounts for the three30,2022 and six2021, months endedthere were June 30, 2021 noand 2020: derivative contract in effect.

 

Derivatives not designated under ASC 815

 

For the Three Months Ended June 30, 2021

  

For the Three Months Ended June 30, 2020

  

For the Six months ended June 30, 2021

  

For the Six Months Ended June 30, 2020

 

Foreign currency forward contracts

 $0  $(1,304) $0  $468 

Interest rate swap

 $-  $(83) $0  $(423)

The Company had terminated all derivative (non-designated hedge) contracts in November 2020 and realized and accounted for gain and loss on settlement of contracts in the consolidated statement of income (loss).

  Gain (Loss) Recognized in AOCI, net of tax     Gain (loss) reclassified from AOCI into Income    
  

Six Months Ended June 30, 2022

  

Six Months Ended June 30, 2021

  

Six Months Ended June 30, 2022

  

Six Months Ended June 30, 2021

 

Cash flow hedges

                

Foreign exchange contracts

 $0  $0  $0  $8 

 

16

 

8.  FAIR VALUE MEASUREMENTS 

 

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The levels of the fair value hierarchy are described below:

 

Level 1 - Quoted prices for identical instruments traded in active markets.

 

Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

 

Level 3 - Unobservable inputs that cannot be supported by market activity and are significant to the fair value of the asset, liability, or equity such as the use of certain pricing models, discounted cash flow models, and similar techniques use significant assumptions. These unobservable inputs reflect our own estimates of assumptions that market participants would use in pricing the asset or liability:

 

Derivative Instruments

 

The values of our derivative instruments are derived from pricing models using inputs based upon market information, including contractual terms, market prices, and yield curves. The inputs to the valuation pricing models are observable in the market, and as such the derivatives are classified as Level 2 in the fair value hierarchy.

 

As of June 30, 2022 and December 31,2021,the Company has settled all derivative contracts, hence there arewere no derivative assets and liabilities.

 

17

 

9. DEBT

 

The below table presents details of the Company's debt:

 

 

June 30, 2021

  

December 31, 2020

  

June 30, 2022

  

December 31, 2021

 

Short term debt

            

Working capital facilities

  6,983   15,506   5,112   3,611 

Current portion of long term debt

          

Current maturity of long term loan

 0  0 

Current maturity of term loan

 14,438  4,125 

Current maturity of equipment loan

 1,773 1,664  1,663 1,682 

Current maturity of finance lease obligations

  521   516   174   434 

Total

 $9,277   17,686  $21,387   9,852 
  

Long term debt

            

Term loan, net of debt issuance costs

  162,363  $114,930   148,516  $158,543 

Equipment loan

 2,093  2,955  767  1,632 

Finance lease obligations

  167   430   0   0 

Total

 $164,623  $118,315  $149,283 $160,175 

 

Working capital facilities

 

The Company has a number of working capital facilities in various countries in which it operates. These facilities provide for a combined borrowing capacity of approximately $30 million for a number of working capital products. These facilities bear interest at benchmark rate plus margins between 3.0% and 4.5% and are due on demand. These facilities are collateralized by various Company assets and have a total outstanding balance of $7$5.1 million as of June 30, 2021.2022.

 

Term loan

 

On February 18, 2021, the Company completed a debt refinancing with a newly secured $185 million senior debt facility, comprising a $165 million term loan and a $20 million revolving credit facility. Under the new senior debt, borrowings will bear a tiered interest rate based on the Company’s consolidated net leverage ratio and is initially set at LIBOR plus 450 basis points.

 

The term loan facility amortizes 2.5% on the date that is 21, and 24 months from closing, 3.75% on the date that is 27, 30, 33, and 36 months from closing, 5.0% on the date that is 39, 42, 45, 48 and 51 months from closing, 10% on the date that is 54 months from closing and 15% on the date that is 57 months from closing and balance will be paid on the closure of term loan.

 

On February 22, 2021, the Company used proceeds from the above facilities agreement to prepay and terminate the existing credit facility made available to it under that certain Amended and Restated Senior Term and Revolving Facilities Agreement, dated October 27, 2017.

 

Principal payments due on the term loan are as follows:

 

Years

 

Amount

  

Amount

 

Remainder of 2021

 0 

2022

 4,125 

Remainder of 2022

 4,125 

2023

 22,688  22,688 

2024

 30,937  30,937 

2025

 57,750  57,750 

2026

  49,500   49,500 

Total

 $165,000  $165,000 

 

The Term loan has a floating interest rate of USD LIBOR plus 4.5% annually for the first year and thereafter the margin will range between 3.75% and 4.5% subject to certain financial ratios.

 

TheIn 2021, the Company incurred debt issuance costs of $11.3 million in connection with the new term loan. As per ASC 470, accounting guidance on term loan extinguishment, the Company has expensed off the debt issuance cost of $8.5 million paid to the lenders towards the new term loan and $2.5 million remaining unamortized debt issuance cost of the old term loan in interest expenses,expense, net in the consolidated statementsstatement of income (loss).

In connection with Debt issuance costs paid to the Company’s counsel and other third parties of $2.8 million is being amortized over the period of the new term loan, theloan. The balance unamortized debt issuanceportion of such costs as of June 30, 20212022, amountamounted to $2.6$2.1 million which are nethas been netted off against long-term debt on the consolidated balance sheet.

The Term loan is subject to certain covenants, whereby the Company is required to meet certain financial ratios and obligations on a quarterly basis. As of June 30, 2022, the Company was in compliance with all financial covenants.

 

Following table presents the changes in debt issuance cost during the six months ended June 30, 2021 2022and the year ended December 31, 2020:2022:

 

 

June 30, 2021

  

December 31, 2020

  

June 30, 2022

  

December 31, 2021

 

Opening balance

 2,670  4,125  2,332  2,670 

Add: Debt issuance cost (refinancing of term loan)

 11,269  0  0  11,269 

Less: Expensed out (ASC 470 - extinguishment or modification)

 (10,937) 0  -  (10,937)

Less: Amortisation of debt issuance cost

  (365)  (1,455)

Less: Amortization of debt issuance cost

  (286)  (670)

Closing balance

 $2,637  $2,670   2,046   2,332 

 

18

 

Non-recourse factoring

 

We have entered into factoring agreements with financial institutions to sell certain of our accounts receivable under non-recourse agreements. Under the arrangement, the Company sells the trade receivables on a non-recourse basis and accounts for the transactions as sales of receivables. The applicable receivables are removed from the Company's consolidated balance sheet when the Company receives the cash proceeds. We do not service any factored accounts after the factoring has occurred. We utilize factoring arrangements as part of our financing formanagement of working capital. The balance of funds received fromCompany has factored receivables under these agreements was $32.7of $21.1 million and $21.6 million as of June 30, 2021.2022 and December 31, 2021 under these agreements .

 

BMO Equipment Loan

 

On December 27, 2018, the Company executed an agreement to secure a loan against US and Canadian assets for $2.06 million at the interest of 7.57% per annum, to be repaid over 2.5 years. The loan was funded in January 2019.2019 The amount outstanding as ofand fully repaid in June 30, 2021 May 2022.is $0.2 million.

 

Equipment Loan

 

On November 02,2, 2020, the Company executed Master Equipment Finance Agreement to finance the purchase of equipment for $4 million at the interest of 5.27% per annum with a maturity date 34 months after the date of first utilization of equipment loan. The amount outstanding as of June 30, 20212022 is $3.7$2.1 million.

 

Finance lease obligations

 

From time to time and when management believes it to be advantageous, we may enter into other arrangements to finance the purchase or construction of capital assets.

 

19

 

10. SHARE-BASED COMPENSATION

 

Amazon Warrant

 

On January 23, 2018, Startek entered into the Amazon Transaction Agreement, pursuant to which we agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly-owned subsidiary of Amazon, (“NV Investment”), a warrant (the “Warrant”) to acquire up to 4,000,000 shares (the “Warrant Shares”) of our common stock, par value $0.01 per share (“Common Stock”), subject to certain vesting events. On May 17, 2019, the Company issued and sold 692,520 shares of Common Stock to certain investors at a price per share of $7.48.   The Warrant contains certain anti-dilution provisions and as a result of such offering, the total number of shares issuable to Amazon was adjusted from 4,000,000 to 4,002,964 and the exercise price of the Warrant was adjusted from $9.96 per share to $9.95 per share. On June 29, 2020, the Company issued and sold 1,540,041 shares of Common Stock to CSP Victory Limited at a price per share of $4.87 per share.  As a result of such transaction, the total number of shares issuable to Amazon has been adjusted from 4,002,964 to 4,006,051 and the exercise price of the Warrant was adjusted from $9.95 per share to $9.94 per share. We entered into the Amazon Transaction Agreement in connection with commercial arrangements between us and any of our affiliates and Amazon and/or any of its affiliates pursuant to which we and any of our affiliates provide and will continue to provide commercial services to Amazon and/or any of its affiliates. The vesting of the Warrant shares described below, is linked to payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to a service contract. Since no vesting event occurred in the commercial arrangements.

Thefiscal year first2021 tranche of 425,532 Warrant Shares was vested uponand we do not anticipate additional vesting in the execution ofnear future, the Amazon Transaction Agreement. The remainder of the Warrant Shares will vest in various tranches based on Amazon’s payment of up to $600 million to us orCompany had not accrued any of our affiliates in connection with the receipt by Amazon or any of its affiliates of commercial services from us or any of our affiliates. The Warrant Shares are exercisable through January 23, 2026.

The second tranche of 212,766 Warrant Shares was vested on May 31, 2019. The amount of contra revenue attributed to these Warrant Shares is $730.

The third tranche of 212,953 Warrant Shares was vested on Feb 29,2020. The amount of contra revenue attributed to these Warrant Shares is $278 after adjusting the impact of $413 towards adoption of ASU 2019-08 on January 01, 2020 and $565 towards accrual till December 31, 2019, respectively using initial grant-date fair value.

The fourth tranche of 213,162 Warrant Shares was vested on Dec 31, 2020. The amount of contra revenue attributed to these Warrant Shares is $1,257 using initial grant-date fair value.

Asas per ASC 606,606. the Company has accrued $405 and $830 for three and six months ended June 30, 2021, respectively using initial grant-date fair value.

The contra-revenue and equity are estimated and recorded, using the Monte Carlo pricing model, when performance completion is probable, with adjustments in each reporting period until performance is complete in conformance with ASC 606 and ASC 718 requirements. 

The Warrant provides for net share settlement that will reduce the number of shares issued upon exercise to reflect the net settlement of the exercise price if elected by the holders. The Warrant provides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. Vested Warrant Shares are classified as equity instruments.

 

Share-based compensation

 

Our share-based compensation arrangements include grants of stock options, restricted stock units and deferred stock units under the StarTek,Startek, Inc. 2008 Equity Incentive Plan and our Employee Stock Purchase Plan. The compensation expense that has been charged against income for the three and six months ended June 30, 20212022, was $311 and $591, respectively,$833 and is included in selling, general and administrative expenses.expense. As of June 30, 2021,2022, there was $1,284$3,160 of total unrecognized compensation expense related to non-vested stock options, which is expected to be recognized over a weighted averageweighted-average period of 1.922.4 years.

 

20

 

11.  ACCUMULATED OTHER COMPREHENSIVE LOSS

 

Accumulated other comprehensive loss consists of the following items:

 

  Foreign Currency Translation Adjustment  Derivatives Accounted for as Cash Flow Hedges  Defined Benefit Plan  Equity attributable to Startek shareholders  Non-controlling interests  

Total

 

Balance at December 31, 2020

  (4,529)  (8)  (2,749)  (7,286)  (3,071)  (10,357)

Foreign currency translation

  (1,968)  0   0   (1,968)  0   (1,968)

Reclassification to operations

  0   8   0   8   0   8 

Unrealized losses

  0   0   0   0   0   0 

Pension remeasurement

  0   0   (352)  (352)  (69)  (421)

Balance at June 30, 2021

 $(6,497) $0  $(3,101) $(9,598) $(3,140) $(12,738)

  

Foreign Currency Translation Adjustments

  

Defined Benefit Plan

  

Equity attributable to Startek shareholders

  

Non-controlling interests

  

Total

 

Balance on December 31, 2021

  (6,816)  (3,871)  (10,687)  (3,887)  (14,574)

Foreign currency translation

  (3,389)  0   (3,389)  0   (3,389)

Reclassification to operations

  0   0   0   0   0 

Pension amortization

  0   (312)  (312)  (374)  (686)

Balance at June 30, 2022

 $(10,205) $(4,183) $(14,388) $(4,261) $(18,649)

 

21

 

12.  SEGMENT REPORTING

 

The Company provides business process outsourcing services (“BPO”) to clients in various industries and geographical locations. Our approach is focused on providing our clients with the best possible combination of services and delivery locations to meet our clients' needs in the best and most efficient manner. Our Global Chief Executive Officer (CEO), who has been identified as the Chief Operating Decision Maker ("CODM"), reviews financial information mainly on a geographical basis.

 

Our operating business model is focused on the geographies in which we operate. Our CODM reviews the performance and makes resource allocation geography-wise, hence the geographical level represents the operating segments of Startek Inc.

 

We report our results of operations in Six6 reportable segments, as follows:


a) Americas
b) India and Sri Lanka
c) Malaysia 
d) Middle East 
e) Argentina & Peru
f) Rest of World

 

 

Three Months Ended

 

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

  

June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Revenue:

        

Revenue

        

Americas

 84,680  58,479  148,605  126,647  41,952  84,680  87,367  148,605 

India & Sri Lanka

 24,079  16,698  45,561  40,950  26,264  24,079  54,224  45,561 

Malaysia

 13,816  12,017  28,781  23,902  11,431  13,816  22,711  28,781 

Middle East

 45,714  36,243  88,954  70,760  63,054  45,714  121,741  88,954 

Argentina & Peru

 9,143  8,997  17,302  19,205  9,321  9,143  17,626  17,302 

Rest of World

  11,599   9,733   22,898   21,602   15,619   11,599   31,289   22,898 

Total

 $189,031  $142,167  $352,101  $303,066  $167,641  $189,031  $334,958  $352,101 

 

 

Three Months Ended

 

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

  

June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Operating income (loss):

        

Operating income (loss)

        

Americas

  5,369   (255)  7,264   671  (316) 5,369  (2,635) 7,264 

India & Sri Lanka

 2,594  (210) 1,366  (905) 1,178  2,594  4,644  1,366 

Malaysia

 3,414  3,305  7,828  4,940  2,579  3,414  4,605  7,828 

Middle East

 3,009  598  8,750  2,215  2,103  3,009  6,404  8,750 

Argentina & Peru

 (393) (376) (436) (360) (949) (393) (3,269) (436)

Rest of World

  865   453   1,264   725   917   865   2,593   1,264 

Segment operating income

 14,858  3,515  26,036  7,286  5,512  14,858  12,342  26,036 

Startek consolidation adjustments

           ��    

Goodwill impairment

 0  0  0  (22,708)

Private offer transaction cost

 (692) 0  (1,192) 0 

Intangible amortization

  (2,583)  (2,581)  (5,143)  (5,163)  (2,581)  (2,583)  (5,142)  (5,143)

Total operating income

 $12,275  $934  $20,893  $(20,585) $2,239  $12,275  $6,008  $20,893 

 

A single client accounted for 16%19% and 20%16% of the consolidated total net revenue during the three months ended June 30, 20212022 and 2020,2021, respectively, and 17%18% and 18%17% during the six months ended June 30, 20212022 and 2020,2021, respectively.

 

Property, plant and equipment, net by geography based on the location of the assets are presented below:

 

 

 As on As on  As on As on 
 June 30, 2021  December 31, 2020  June 30, 2022  December 31, 2021 

Property, plant and equipment, net:

      

Property, plant and equipment, net

      

Americas

 13,127  14,455  10,838  11,335 

India & Sri Lanka

 9,618  8,069  9,908  8,712 

Malaysia

 3,285  3,749  2,558  2,818 

Middle East

 5,509  4,736  5,201  7,461 

Argentina & Peru

 1,287  1,257  1,219  1,453 

Rest of World

  1,866   1,959   2,770   2,389 

Total

 $34,692  $34,225  $32,494  $34,168 

Investment in Equity Accounted Investees

On February 25, 2021, the Company made a $25 million strategic investment in CSS Corp LP (“an Investment Limited Liability Partnership”), and the Company accounted this investment under the equity accounted investee method of accounting in accordance with ASC 323-30-S99-1. The CODM receives a partnership statement of CSS Corp LP on quarterly basis and evaluates the carrying value of the investment in equity accounted investees. The carrying value of investment as on June 30, 2022 is $35,513, Refer Note 14 for more details.

 

22

 

13.  LEASES

 

We have operating and finance leases for service centers, corporate offices, and certain equipments.equipment. Our leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases for up to 3-5 years, and some of which include options to terminate the leases within 1 year.

 

The components of lease expense were as follows:

 

 

Three Months Ended June 30, 2021

  

Three Months Ended June 30, 2020

  

Six Months Ended June 30, 2021

  

Six Months Ended June 30, 2020

  Three Months Ended June 30, 2022  Three Months Ended June 30, 2021  Six Months Ended June 30, 2022  Six Months Ended June 30, 2021 
          

Operating lease cost

 $6,479  $7,111  $13,288  $14,370  $5,722  $6,479  $11,585  $13,288 
          

Finance lease cost:

            

Finance lease cost

        

Amortization of right-of-use assets

 153  342  339  668  118  153  261  339 

Interest on lease liabilities

  15   30   32   74   5   15   65   32 

Total Finance lease cost

 $168  $372  $371  $742 

Total finance lease cost

 $123  $168  $326  $371 

 

23

Supplemental cash flow information related to leases was as follows:

 

 Six Months Ended June 30, 2021  Six Months Ended June 30, 2020  Six Months Ended June 30, 2022  Six Months Ended June 30, 2021 

Cash paid for amounts included in the measurement of lease liabilities:

      

Cash paid for amounts included in the measurement of lease liabilities

      

Operating cash flows from operating leases

 13,246  14,062  12,647  13,246 

Operating cash flow from finance leases

 32  74  65  32 

Financing cash flows from finance leases

 371  742  260  371 
  

Right-of-use assets obtained in exchange for lease obligations:

      

Right-of-use assets obtained in exchange for lease obligations

      

Operating leases

 2,105  17,278  

2,498

 

2,105

 

Finance leases

 0  0  0 0 

 

Supplemental balance sheet information related to leases was as follows:

 

 

As of June 30, 2021

  

As of December 31, 2020

  

As of June 30, 2022

  

As of December 31, 2021

 

Operating leases

            

Operating lease right-of-use assets

 $59,906  $69,376  $51,157  $63,012 
  

Operating lease liabilities - Current

 17,623  19,327  22,710  24,393 

Operating lease liabilities - Non-current

  44,326   52,052   32,642   44,263 

Total operating lease liabilities

 $61,949  $71,379  $55,352  $68,656 
  

Finance Leases

            

Property and equipment, at cost

 4,351  4,351  4,118  4,128 

Accumulated depreciation

  (3,370)  (3,010)  (3,870)  (3,641)

Property and equipment, at net

 $981  $1,341  $248  $487 
  

Finance lease liabilities - Current

 521  516  174  434 

Finance lease liabilities - Non-current

  167   430   0   0 

Total finance lease liabilities

 $688  $946  $174  $434 

 

Weighted average remaining lease term

 

As of June 30, 2021

  

As of December 31, 2020

  As of June 30, 2022  As of December 31, 2021 

Operating leases (in years)

 3.86 yrs 4.18 years  3.26 years 3.58 years 

Finance leases (in years)

 0.42 yrs 0.92 years  0.00 years 0.00 years 
  

Weighted average discount rate

            

Operating leases

 6.8% 6.9% 7.0% 6.8%

Finance leases

 6.0% 6.0% 0.0% 0.0%

 

MaturitiesThe following table reconciles the undiscounted cash flows for the Company’s finance and operating leases as ofJune 30, 2022, to the finance and operating lease liabilities were as follows:recorded on the Company’s balance sheet:

 

 

Operating Leases

 

Finance Leases

  

Operating Leases

 

Finance Leases

 

Year ending December 31,

          

Remainder of 2021

 21,552  287 

2022

 16,217  441 

Remainder of 2022

 11,726  174 

2023

 12,567  0  20,100  0 

2024

 9,383 0  15,638 0 

2025

 3,580  0  9,291  0 

2026

 2,717  0 

Thereafter

  2,512 0   2,101  0 

Total Lease payments

 65,811   728 

Less imputed interest

  (3,862)  (40)

Total

 $61,949  $688 

Total lease payments

 61,573  174 

Less: Imputed interest

  (6,221)  0 

Total present value to lease liabilities

 $55,352  $174 

 

24
23

 

 

14.  INVESTMENT IN EQUITY-ACCOUNTED INVESTEES

 

Following are the entity wise details of equity-accounted investees:

 

  

% of ownership interest

 

Carrying amount

 

% of ownership interest

 

Carrying amount

 

Name of entity

  

June 30, 2021

 

December 31, 2020

 

June 30, 2021

 

December 31, 2020

 

June 30, 2022

  

December 31, 2021

  

June 30, 2022

  

December 31, 2021

 

a) CSS Corp LP

  

61.35%

 

0%

 

25,052

 

-

 61.35% 61.35% 35,513  31,688 

b) Immaterial associates

      

-

 

111

      - 0 

Carrying amount of investment in equity-accounted investees

Carrying amount of investment in equity-accounted investees

     

25,052

 

111

        35,513   31,688 
         
  

Three months ended June 30, 2021

 

Three months ended June 30, 2020

 

Six months ended June 30, 2021

 

Six months ended June 30, 2020

Aggregate amounts of the group’s share of profit/ (loss) of equity-accounted investees (a+b)

 

59

 

(12)

 

45

 

(20)

  

Three months ended June 30, 2022

  

Three months ended June 30, 2021

  

Six months ended June 30, 2022

  

Six months ended June 30, 2021

 

Aggregate amounts of the group’s share of income (loss) of equity-accounted investees

  3,833   59   3,825   45 

 

a) CSS Corp LP

 

On February 25, 2021, the Company announced a $25 million strategic minority investment in CSS Corp. (“CSS”), a new-age IT services and technology support solutions company that harnesses the power of AI, automation, analytics, cloud, and digital to address customer needs. Through this investment, Startek acquired an indirect beneficial interest in CSS of approximately 26%, with Capital Square Partners (“CSP” or “CSP Fund”), a Singapore-based Private Equity Fund Manager, and the Company’s majority shareholder, acquiring the majority controlling stake.

 

The Company and CSP Alpha Holdings Pte. Ltd., a subsidiary of the Company, participated in this transaction by (i) contributing $25 million to acquire approximately 62.5%* in CSS Corp LP, and (ii) paying $5 million to CSP Management Limited to acquire certain call options. These call options to acquire a controlling stake in CSS are only exercisable by the Company during the period from August 19, 2022, to April 19, 2023, without any obligation and are currently considered to be not substantive.

 

*Subsequently reduced to 61.35%

 

The Company has assessed CSS Corp LP to be a variable interest entity (‘VIE’) and per ASC 810-10-25-44 concluded that it is not the primary beneficiary. Amongst other factors, the Company’s basis of this conclusion is that it lacks the power to direct or control any significant activities of the VIE and that the design and structure of the VIE were not specifically for the benefit of the Company. Further, CSS Corp LP’s objectives as an investment company is an extension of the investment activities of CSP Fund. The Company has accordingly, accounted for this transaction under the equity-accounted investee method of accounting in accordance with ASC 323-30-S999S99-1. The Company's share of profit/lossincome (loss) of equity-accounted investee is accounted under the “equity method” as per which the share of profit/income (loss) of equity-accounted investee has been added to the cost.

 

Summarized financial position

        
  

June 30, 2022

  

December 31, 2021

 

Current assets

  34   42 

Non-current assets

  57,964   51,690 

Current and non-current liabilities

  (111)  (80)

Net assets

  57,887   51,652 
   -   - 

Company share in %

  61.35%  61.35%

Company share

  35,513   31,688 

Carrying amount of investment in equity-accounted investee

  35,513   31,688 

 

Summarised financial position

      

June 30, 2021

 

December 31, 2020

Current assets

      

55

 0

-

Non-current assets

      

40,839

 0

-

Current and non-current liabilities

      

(59)

 

-

Net assets

      

40,835

 0

-

          

Reconciliation to carrying amounts

      

June 30, 2021

 

December 31, 2020

Opening net assets

      0

-

 0

-

Acquired during the year

      

40,750

 0

-

Share of profit of equity-accounted investees

      

85

 0

-

Other comprehensive income

      0

-

 0

-

       

40,835

 0

-

          

Company share in %

      

61.35%

 

0%

Company share

      

25,052

 0

-

Carrying amount of investment in equity-accounted investee

      

25,052

 0

-

          
          

Summarized statement of comprehensive income

 

Three months ended June 30, 2021

 

Three months ended June 30, 2020

 

Six months ended June 30, 2021

 

Six months ended June 30, 2020

Revenue

  0

-

 0

-

 0

-

 0

-

Other income 139 0 139 0

Expenses

  

(34)

 

-

 

(54)

 

-

Profit for the period

  

105

 0

-

 

85

 0

-

Other comprehensive income

  0

-

 0

-

 0

-

 0

-

Total comprehensive income for the period

  

105

 0

-

 

85

 0

-

Aggregate amounts of the Company share of profit of equity-accounted investee

 

64

 0

-

 

52

 0

-

Reconciliation to carrying amounts

        
  

June 30, 2022

  

December 31, 2021

 

Opening net assets

  31,688   0 

Acquired during the year

  0   25,000 

Share of income of equity-accounted investees

  3,825   6,688 

Other comprehensive income

  0   0 
   35,513   31,688 

 

Summarized statement of comprehensive income

                
  

Three months ended June 30, 2022

  

Three months ended June 30, 2021

  

Six months ended June 30, 2022

  

Six months ended June 30, 2021

 

Revenue

  -   -   -   - 

Cost of services

  0   0   0   0 

Gross profit

  0   0   0   0 

Selling, general and administrative expenses

  (26)  (34)  (34)  (54)

Operating loss

  (26)  (34)  (34)  (54)

Unrealised gain on investment

  6,273   139   6,268   139 

Net income

  6,247   105   6,234   85 

Other comprehensive income

  0   0   0   0 

Total comprehensive income for the period

  6,247   105   6,234   85 

Aggregate amounts of the Company share of income of equity-accounted investee at 61.35%

  3,833   64   3,825   52 

24

b) Individually immaterial associates

 

The Company hashad individually immaterial investments in equity accountedequity-accounted investee in Australia. It has 33.33% interest in Queensland Partnership Group Pty. Ltd and 16.67% interest in Services Queensland Partnership in Australia. The Company's share of profit/lossincome (loss) of equity accountedequity-accounted investee, is accounted under the “equity method” as per which the share of profitincome (loss) of equity accountedequity-accounted investee hashad been added to the cost. In 2021 the Company had realized carrying amounts related to investment in individually immaterial associates.

 

       

June 30, 2021

 

December 31, 2020

Carrying amount of individually immaterial investment in equity-accounted investee

      

-

 

111

          
   

Three months ended June 30, 2021

 

Three months ended June 30, 2020

 

Six months ended June 30, 2021

 

Six months ended June 30, 2020

Aggregate amounts of share of:

        

Loss of equity-accounted investee

  

(5)

 

(12)

 

(7)

 

(20)

Other comprehensive income

  0

-

 0

-

 0

-

 0

-

   

(5)

 

(12)

 

(7)

 

(20)

Aggregate share of loss of immaterial associates was $5 and $7 for three months ended and six months ended June 30, 2021, respectively.

15. COMMON STOCK

Share Repurchase Plan

In the year 2004, the Company had announced the “Repurchase plan” that authorized the Company to repurchase up-to $ 25 million of common stock. The program will remain in effect until the same is terminated by the Board of Director’s and will allow the Company to repurchase common stock from time to time on the open market either via block trades or privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs or other means at times and in such amounts as management deems appropriate and will be funded from our working capital or other financing alternatives. Repurchases will be implemented by the Chief Financial Officer consistent with the guidelines adopted by the board of directors and will depend on market conditions and other factors. Pursuant to the Board of Directors (BOD) meeting held on August 26, 2021, the Board of Director’s approved the Company to carry out a stock repurchase in line with 2004 “Repurchase plan’ up-to $ 2 million. Further in board meeting held on December 14, 2021 the Board of Director’s approved additional $2 million towards a stock repurchase plan. 

Our stock repurchase programs are intended to programmatically offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, to make opportunistic and programmatic repurchases of our common stock to reduce our outstanding share count. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. Our stock repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, the shares withheld for taxes associated with the vesting of restricted stock, other corporate considerations and CFO’s determination as to the appropriate use of our cash.

During the six months ended June 30, 2022, we repurchased an aggregate of 279,407 shares of our common stock under our repurchase plan at an average cost of $4.75 per share.

Stock repurchase activity during the six months ended June 30, 2022 was as follows:

Period Ended

 

Total number of shares purchased

  

Average price paid per share (1) ($)

  

Total number of shares purchased as part of publicly announced program

  

Maximum dollar value that may yet to be purchased under program ($)

 

January 31, 2022

  130,803   5.08   130,803   1,432,822 

February 28, 2022

  75,865   4.90   75,865   1,061,426 

March 31, 2022

  52,739   4.36   52,739   831,229 

April 30, 2022

  0   0   0   831,229 

May 31, 2022

  20,000   3.15   20,000   768,156 

June 30, 2022

  0   0   0   768,156 

Total

  279,407       279,407     

1. Excludes broker commission.

 

25

 

15.16. PRIVATE OFFER TRANSACTION COST

On January 17, 2022, the Company announced that the board of directors has formed a special committee of independent directors that is authorized, among other things, to evaluate the non-binding proposal, dated December 20, 2021, by CSP Management Limited (“CSP”) to acquire all outstanding shares of common stock of Startek that it does not already beneficially own for $5.40 in cash per share. The special committee has engaged legal and financial advisors to assist in its consideration of the proposal. CSP is currently the beneficial owner of approximately 56% of the outstanding common stock of Startek. The special committee has appointed Foros Securities LLC as a financial advisor in connection with private offer and the Company incurred total expenses of $1,192 during the six months ended June 30, 2022 which is included in selling, general and administrative expenses.

17. SUBSEQUENT EVENTS.

 

None.

 

26

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of operations and financial condition should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 20202021 and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. All dollar amounts are presented in thousands other than per share data.

 

BUSINESS DESCRIPTION AND OVERVIEW

 

Startek is a leading global provider of technology-enabled business process management solutions. The Company provides Omni-channel customer experience, digital transformation, and technology services to some of the finest brands globally. Startek is committed to impacting clients’ business outcomes by focusing on enhancing customer experience and digital enablement across all touchpoints and channels. Startek has more than 45,000 CX experts globally spread 46,000 employees located across 4642 delivery campuses in 13 countries. The Company services over 200175 clients across variousa range of industries such as Banking and Financial Services, Insurance, Technology, Telecom, Healthcare, Travelinsurance, technology, telecom, healthcare, travel and Hospitality, Consumer Goods, Retail,hospitality, consumer goods, retail, media & cable, E-commerce and Energyenergy and Utilities.utilities.

 

SIGNIFICANT DEVELOPMENTS


Cyber Security Incident

On June 30, 2021, we suffered an attempted encryption attack. While the attackers or the threat actors failed to shut down company operations, they however encrypted some of our operating systems and application servers. We took immediate steps to remedy the situation and based on the numerous steps undertaken, we believe that the incident is contained, and we have eradicated any remnants of the attack. This incident resulted in temporary disruption to our business that was caused by the threat actors encrypting some of our systems and our precautionary actions to move certain of our systems offline. The impact of this incident on our clients was varied and was dependent on the region of our service delivery. Many of our clients faced no disruptions as the network and systems in those regions weren’t compromised, however, in some regions our customers faced disruptions especially where we support work from home operations. In addition, with-in the impacted clients, many of them maintained connectivity with our network, allowing us to continue to provide service, however, some clients chose to temporarily suspend our access to their networks as a measure of abundant caution.

Since the Incident, we have (a) restored the security of our systems and networks, (b) significantly enhanced the continuous monitoring of our entire information security environment, (c) implementation various enhancements to our network and processes to prevent the recurrence of such incidents, (d) notified the incident to the various law enforcement agencies and are closely coordinating with them, (e) launched an investigation to determine if any sensitive data was at risk during the incident, and, (f) have engaged leading external forensics and cybersecurity experts, to conduct a comprehensive study on the incident so as to arrive at the root cause of the security breach and advise the management on remedial steps that can be taken to thwart such incidents in the future.

As the incident occurred on the last day of the second quarter, our year-over-year revenue growth for the second quarter was not impacted, however, we expect that the incident may impact our revenues for the second half of 2021. In addition, we expect to incur costs related to the incident as we remedy the situation and make incremental investments to enhance the overall security of our information technology environment. We have a comprehensive cyber insurance policy that covers amongst others, costs related to privacy breach, digital asset replacement, business income loss, data breach notification, emergency costs, regulatory proceeding defense costs, penalties, etc., however, we expect that some of the costs and investments may not be covered under the insurance policy. We also expect that there could be certain other potential consequences, which includes but are not limited to, negative publicity, reputational damage, loss of trust with customers, regulatory action, notification to persons whose data was compromised, litigation that could result in financial judgments or the payment of settlement amounts and disputes with insurance carriers regarding coverage.

Coronavirus

The global outbreak of the novel coronavirus (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. The pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets, and resulted in significant travel restrictions, mandated facility closures and shelter-in-place, and social distancing orders in numerous jurisdictions around the world. Certain of our customer engagement centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels. In response to COVID-19, we have prioritized our employees' safety and well-being, business continuity for our clients, and supporting the efforts of governments around the world to contain the spread of the virus. In light of our commitment to helping our clients navigate unprecedented business challenges while protecting the safety of our employees, we have taken numerous steps and will continue to take further actions, to address the COVID-19 pandemic. We have taken additional measures to ensure the safety of our employees in India who are facing a strong second wave of the Pandemic. We continue to work closely with our clients to support them as they implemented their contingency plans, helping them access our services and solutions remotely. In discussion with our clients, we continue to maintain many of our employees on a work-at-home model. The impact of COVID-19 in the first half of fiscal 2021 was not significant on the Company. The extent of the ultimate impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our operations within the expected parameters, will depend on future developments, including the duration and spread of the pandemic and related actions taken by the various governments to prevent disease spread, all of which remain uncertain and cannot be predicted.None.

 

RESULTS OF OPERATIONS — three months ended June 30, 20212022 AND 20202021

 

Revenue

 

Our gross revenues for the three months ended June 30, 2021 increased2022 decreased by 32.8%11.5% to $189,436$167,641 as compared to $142,652$189,436 for the three months ended June 30, 2020.2021.

 

Our net revenue for the quarter ended June 30, 20212022 and 2020:2021:

 

  

For the Three Months Ended June 30, 2021

  

For the Three Months Ended June 30, 2020

 

Revenues

  189,436   142,652 

Warrant Contra Revenue

  (405)  (485)

Net Revenue

 $189,031  $142,167 

27

  

For the Three Months Ended June 30, 2022

  

For the Three Months Ended June 30, 2021

 

Revenues

  167,641   189,436 

Warrant contra revenue

  -   (405)

Net revenue

 $167,641  $189,031 

 

Our net revenues adjusted for warrant contra revenue for the three months ended June 30, 2021 were higher at $189,0312022 decreased to $167,641 compared to $142,167$189,031 for the three months ended June 30, 2020.2021.

27

The breakdown of our net revenues from various segments for the three months ended June 30, 2022 and 2021 is as follows:

  

Three Months Ended June 30,

 
  

2022

  

2021

 

Americas

  41,952   84,680 

India & Sri Lanka

  26,264   24,079 

Malaysia

  11,431   13,816 

Middle East

  63,054   45,714 

Argentina & Peru

  9,321   9,143 

Rest of World

  15,619   11,599 

Total

  167,641   189,031 

The decline in revenue in the Americas region is primarily due to high base impact in the previous year. Revenue in the previous period included short term government program relating to COVID vaccination that did not continue in the current year. The revenue decline was also driven by the termination of operations with one of our e-commerce clients and insourcing of operations by a client in the media vertical. This decline is partly offset by increase in revenues from other clients primarily in the telecom and retail verticals. 

Revenue growth in India and Sri Lanka region was driven by continuing ramp-ups in operations with some of the largest digital native clients in this region. Our international operations delivered out of India also continues to grow.

Revenue in Malaysia saw a decline due to the termination of the contract with the e-commerce client. Our operations with travel client delivered out of Malaysia saw a strong revival in demand.

Our operation in the Middle East continues to deliver strong revenue growth at the back of scaling up of new clients won during the last year.

Our revenue in the Rest of World was higher due to ramp-ups with our clients in South Africa and Australia.

 

The breakdown of our net revenues from various industry verticals for three months ended June 30, 20212022 and 2021 is as follows:

 

 

For the Three Months Ended June 30, 2021

  

For the Three Months Ended June 30, 2020

  

For the Three Months Ended June 30, 2021

  

For the Three Months Ended June 30, 2020

  

For the Three Months Ended June 30, 2022

  

For the Three Months Ended June 30, 2021

  

For the Three Months Ended June 30, 2022

  

For the Three Months Ended June 30, 2021

 
  

Verticals:

                

Telecom

 53,611  50,186  28% 35% 60,694  53,611  36% 28%

Healthcare & Education

 40,018  9,178  21% 6%

E-commerce & Consumer

 26,221  21,354  14% 15% 18,851  26,221  11% 14%

Media & Cable

 23,778  22,099  13% 16% 15,927  23,778  10% 13%

Financial & Business Services

 15,763  10,438  8% 7% 17,605  15,763  11% 8%

Travel & Hospitality

 10,542  14,179  6% 10% 13,495  10,542  8% 6%

Healthcare & Education

 7,363  40,018  4% 21%

Technology, IT & Related Services

 4,858  4,402  3% 3% 5,112  4,858  3% 3%

All other verticals

 14,645  10,816  8% 8%

Other verticals

 28,594  14,645  17% 8%

Gross revenue

 167,641 189,436     

Less: Warrant contra revenue

 - (405)     

Net revenue

 167,641 189,031    

 

 

The increaseGrowth in revenue in the current quartertelecom vertical was due to strong performance across verticals as well as geographies. About 50% of the year-on-year increase in revenue in the current quarter was attributed to a government vaccine program that we delivered out of the United States. This program has successfully completed around the end of the quarter. Additionally, part of the year-on-year growth in revenue during the current quarter was due to the severe impact of the Pandemic in the year-ago period.

Telecom sector saw an increase after a prolonged period of decline. The current quarter witnessed growth in select largedriven by new wins with our existing telecom clients across US and South Africa.

Financial & Business services vertical continues to perform strongly as we strengthen our geographies.partnership with key clients in these verticals.

 

We continue to see accelerated growth with revenues from our e-commerce clients growing around 40% year over yearyear-on-year and around 8% sequentially. Our clientssequential improvement in the brick-and-mortar retail and automobile sectors also have seen an upturnvolume in operations as the Pandemic worries receded across some geographies.

While the travel and hospitality sector continuesas activity in these verticals trend to remain under pressurenormalize to pre-COVID levels.

Decline in revenues from the Media vertical was led by change in strategy with subdued intercontinental travel volumes,a key client who insourced part of their CX activities across vendors.

A contract was terminated in 2021 by one of our clients from the e-commerce vertical which led to year-on -year decline in the local transport and logistics aggregatorsrevenues from this vertical. We continue to operate strongly.expand our wallet share within our other clients in this vertical as we deploy customized solution to them.

 

RevenuesDecline in revenue in the healthcare and education sectorHealthcare & Education is primarily due to one-off COVID vaccination support program that the Company delivered in the current quarter were driven largely by the program related to the US government vaccination drive.previous period.

 

Our clientsOthers include contracts with public sector enterprises and government entities where we have seen increase in the financialrevenues from existing and business services and media and cable sectors continue to post year-on-year growth depicting a return to normalcy from the Pandemic impact.new contracts.

 

28

 

Cost of Servicesservices and Gross Profitgross profit

 

Overall, the cost of services as a percentage of revenue decreasedincreased to 87.0%90% for the three months ended June 30, 20212022 compared to 88.9%87% for the three months ended June 30, 2020.2021. Employee expenses, rent costs, and Depreciationdepreciation and amortization are the most significant costs for the Company, representing 76.7%75.6%, 4.5%3.7%, and 3.7%4% of the total cost of services, respectively. The breakdown of the cost of services is listed in the table belowbelow:

 

 

Three Months Ended June 30,

  

As % of Revenue

  

Three Months Ended June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

 

Employee Benefit Expenses

  126,135   98,579  66.7% 69.3%

Employee benefit expenses

 114,063  126,135 

Rent expense

 7,473  7,515  4.0% 5.3% 5,562  7,473 

Depreciation and amortization

 6,161  5,754  3.3% 4.0% 6,112  6,161 

Other

  24,708   14,506  13.1% 10.2%  25,177   24,708 

Total

 $164,477  $126,354        $150,914  $164,477 

 

Employee expenses: Our business heavily relies on our employees to provide professional services to our clients. Thus, our most significant costs are payments made to agents, supervisors, and trainers who are directly involved in delivering services to the clients.

 

Employee expenses as a percentage of revenues decreasedincreased to 66.7%68% for the current period as compared to 69.3%66.7% for the previous period. The year-on-year decrease isThis increase was primarily driven by continuous diversificationinflation-led wage increases implemented in the fourth quarter of 2021 and first quarter of 2022. The Company has seen aggressive ramp-up with some our clients in ecommerce vertical mix towards new-age verticals like healthcarewhich led to considerable increase in upfront cost incurred on recruitment and e-commerce.training. Revenue from these ramp-up will start accruing in the future.

 

Rent expense: Rent expense as a percentage of revenue decreased to 4.0%3.3% for the current period as compared to 5.3%4% for the previous period. The decrease is driven by a higher baserationalization of revenue in the current quarter. The higher revenue was almost entirely delivered under the ‘at home’ model leveragingbrick-and-mortar sites across geographies as operations moved to our proprietary Startek Cloud platform. work from home model.

 

Depreciation and amortization: Depreciation and amortization expense as a percentage of revenue for the current period was marginally lowerincreased at 3.3%3.6% as compared to 4.0%3.3% for the previous period. The increase was due to lower revenue base in the current period relative to the previous period.

 

Other expense includes rec recruitment, technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs increased to 15% from 10.2%13.1%. The outsourcing cost for the current period includes pass through cost for delivery of technology services to 13.1% primarily due to higher recruitment and insurance costs. Recruitment cost was highone of our clients in the current quarter due to the large-scale ramp undertaken to support the COVID vaccination drive.Middle East.

 

As a result, gross profit as a percentage of revenue for the current period increaseddecreased to 13.0%10% as compared to 11.1%13% for the previous period.

 

 

Three Months Ended June 30,

  

Three Months Ended June 30,

 
 

2021

  

2020

  

2022

  

2021

 

Gross revenue

 189,436  142,652  167,641  189,436 

Warrant contra revenue

  (405)  (485)  -   (405)

Net Revenue

 189,031  142,167 

Net revenue

 167,641  189,031 

Cost of services

  (164,477)  (126,354)  150,914   164,477 

Gross profit

 $24,554  $15,813  $16,727  $24,554 

Gross margin

  13.0%  11.1%  10.0%  13.0%

29

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses (SG&A) as a percentage of revenue decreasedincreased from 10.3%6.5% in the previous period to 6.5%8.2% in the current period. Apart fromIncrease in SG&A expenses was driven by investments made by the various measures implemented to rationalize costs over the past few quarters, the SG&A cost as a percentage of revenue is low in the current quarterCompany on its sales, marketing and digital efforts and also due to the higher revenue base. Sequentially,increase in insurance premiums relative to previous period. The SG&A expenses have remained stable.costs for the current period includes costs incurred towards the ongoing take private transaction.

 

Impairment Losseslosses and Restructuring/Exit Cost, Netrestructuring/exit cost, net


Impairment losses and restructuring costs, net totaled $(19)totalled $745 for the current period as compared to $235($19) for the previous period. There are no impairment chargesThe restructuring cost during the current period.quarter include $668 towards the restructuring exercise underway in Argentina.

 

Interest expense, net, and other income

 

Interest expense, net, totaled $2,484and other income totalled $2,103 for the current period as compared to $3,190$2,484 for the previous period. The expense for the second quarter of 2021 comprises interest expense on our term debt and revolving line of credit facilities.

 

Income tax expense

 

Income tax expense for the current period was $2,093$1,423 compared to $1,283$2,093 for the previous period. The movement in the effective tax rate was primarily due to shifts in earnings among the various jurisdictions in which we operate coupled with utilization of net operating losses for entities having taxable profit and valuation allowance as per the requirement of ASC 740. Additionally, the movement of funds between various geographies primarily to service our debt facilities also attracts withholding taxes.

RESULTS OF OPERATIONS — Six months ended June 30, 2022 AND 2021

Revenue

Our gross revenues for the six months ended June 30, 2022 decreased by 5.1% to $334,958 as compared to $352,931 for the six months ended June 30, 2021.

Our net revenue for the six months ended June 30, 2022 and 2021:

  For the Six Months Ended June 30, 2022  For the Six Months Ended June 30, 2021 

Revenues

  334,958   352,931 

Warrant contra revenue

  -   (830)

Net revenue

 $334,958  $352,101 

30

The breakdown of our net revenues from various segments for the six months ended June 30, 2022 and 2021 is as follows: 

  

Six Months Ended June 30,

 
  

2022

  

2021

 

Americas

  87,367   148,605 

India & Sri Lanka

  54,224   45,561 

Malaysia

  22,711   28,781 

Middle East

  121,741   88,954 

Argentina & Peru

  17,626   17,302 

Rest of World

  31,289   22,898 

Total

  334,958   352,101 

The decline in revenue in the Americas region is primarily due to high base impact in the previous year. Revenue in the previous period included short term government program relating to COVID vaccination that did not continue in the current year. The revenue decline was also driven by the termination of operations with one of our e-commerce clients and insourcing of operations by a client in the media vertical. This decline is partly offset by increase in revenues from other clients primarily in the telecom and retail verticals.

Revenue growth in India and Sri Lanka region was driven by continuing ramp-up in operations with some of the largest digital native clients in this region. Our international operations delivered out of India also grew during the current period.

Revenue in Malaysia saw a decline due to the termination of the contract with the e-commerce client. Our operations with travel client delivered out of Malaysia saw a strong revival in demand.

Our operation in the Middle East saw continuity of government programs that was won during the Pandemic. The Company also secured new clients which continue to ramp up in the current year.

Our revenue in the Rest of World was higher due to ramp-ups with our clients in South Africa and Australia.

The breakdown of our net revenues from various industry verticals for six months ended June 30, 2022 and 2021 is as follows:

  

For the Six Months Ended June 30, 2022

  

For the Six Months Ended June 30, 2021

  

For the Six Months Ended June 30, 2022

  

For the Six Months Ended June 30, 2021

 
                 

Verticals:

                

Telecom

  116,746   105,285   35%  30%

E-commerce & Consumer

  39,377   52,324   12%  15%

Media & Cable

  32,869   49,572   10%  14%

Financial & Business Services

  34,300   31,214   10%  9%

Travel & Hospitality

  27,010   21,039   8%  6%

Healthcare & Education

  18,826   57,705   6%  16%

Technology, IT & Related Services

  10,457   9,939   3%  3%

Other verticals

  55,373   25,853   17%  7%

Gross revenue

  334,958   352,931         

Less: Warrant contra revenue

  -   (830)        

Net revenue

  334,958   352,101         

Growth in telecom vertical was driven by new wins with our existing telecom clients across US and South Africa.

Financial & Business services vertical continues to perform strongly as we strengthen our partnership with key clients in these verticals.

We continue to see year-on-year and sequential improvement in volume in the travel and hospitality sector as activity in these verticals trend to normalize to pre-COVID levels.

Decline in revenues from the Media vertical was led by change in strategy with a key client who insourced part of their CX activities across vendors.

A contract was terminated in 2021 by one of our clients from the e-commerce vertical which led to year-on -year decline in revenues from this vertical. The decline in revenue were partially offset by new wins and expansion with our other clients in the e-commerce vertical.

Decline in revenue in the Healthcare & Education is primarily due to one-off COVID vaccination support program that the Company delivered in the previous period.

Others include contracts with public sector enterprises and government entities where we have seen increase in revenues from existing and new contracts.

31

Cost of services and gross profit

Overall, the cost of services as a percentage of revenue increased to 88.7% for the six months ended June 30, 2022 compared to 86% for the six months ended June 30, 2021. Employee expenses, rent costs, and depreciation and amortization are the most significant costs for the Company, representing 74.9%, 3.8%, and 4.3% of the total cost of services, respectively. The breakdown of the cost of services is listed in the table below:

  

Six Months Ended June 30,

 
  

2022

  

2021

 

Employee Benefit Expenses

 $222,722  $230,881 

Rent expense

  11,332   14,957 

Depreciation and amortization

  12,792   12,315 

Other

  50,328   44,707 

Total

 $297,174  $302,860 

Employee expenses: Our business heavily relies on our employees to provide professional services to our clients. Thus, our most significant costs are payments made to agents, supervisors, and trainers who are directly involved in delivering services to the clients.

Employee expenses as a percentage of revenues increased to 66.5% for the current period as compared to 65.6% for the previous period. This increase was primarily driven by inflation-led wage increases implemented in the fourth quarter of 2021 and first quarter of 2022.

Rent expense: Rent expense as a percentage of revenue decreased to 3.4% for the current period as compared to 4.2% for the previous period. The decline was driven by rationalization of some brick-and-mortar facilities across geographies as operations moved to our work from home model.

Depreciation and amortization: Depreciation and amortization expense as a percentage of revenue for the current period was marginally increased at 3.8% as compared to 3.5% for the previous period. The increase was due to lower revenue base in the current period relative to the previous period.

Other expense includes recruitment, technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs increased to 15% from 12.7%. The outsourcing cost for the current period includes pass through cost for delivery of technology services to one of our clients in the Middle East.

As a result, gross profit as a percentage of revenue for the current period decreased to 11.3% as compared to 14% for the previous period.

  

Six Months Ended June 30,

  

2022

 

2021

Gross revenue

 

334,958

 

352,931

Warrant contra revenue

 

-

 

(830)

Net revenue

 

334,958

 

352,101

Cost of services

 

297,174

 

302,860

Gross profit

 

$ 37,784

 

$ 49,241

Gross margin

 

11.3%

 

14.0%

Selling, general and administrative expenses

Selling, general and administrative expenses (SG&A) as a percentage of revenue increased from 7.5% in the previous period to 8.8% in the current period. The increase was due to the investments made by the Company to strengthen sales, marketing, and digital verticals. The company also increased investments in upgrading our technology infrastructure, particularly related to security and cybersecurity aspects. The SG&A costs for the current period includes costs incurred towards the ongoing take private transaction.

Impairment losses and restructuring/exit cost, net

Impairment losses and restructuring costs, net totalled $2,152 for the current period as compared to $1,879 for the previous period. The restructuring cost during the six months include $2,049 towards the restructuring exercise underway in Argentina.

Interest expense, net, and other income

Interest expense, net, and other income totalled $3,077 for the current period as compared to $16,253 for the previous period. The expense for the previous period included $11,269 towards the refinancing of debt undertaken in February 2021. 

Income tax expense

Income tax expense for the current period was $3,516 compared to $6,995 for the previous period. The movement in the effective tax rate was primarily due to shifts in earnings among the various jurisdictions in which we operate coupled with utilization of net operating losses for entities having taxable profit and valuation allowance as per the requirement of ASC 740. Additionally, the movement of funds between various geographies primarily to service our debt facilities also attracts withholding taxes.

 

2932

RESULTS OF OPERATIONS — Six months ended June 30, 2021 and 2020

Revenue
Our gross revenues for the six months ended June 30, 2021 increased by 16.2% to $352,931 as compared to $303,829 for the six months ended June 30, 2020.

Our net revenue for the six months ended June 30, 2021 and 2020:

  

For the Six Months Ended June 30, 2021

  

For the Six Months Ended June 30, 2020

 

Revenues

  352,931   303,829 

Warrant Contra Revenue

  (830)  (763)

Net Revenue

 $352,101  $303,066 

Our net revenues adjusted for warrant contra revenue for the six months ended June 30, 2021 was higher at $352,101 compared to $303,066 for the six months ended June 30, 2020. The breakdown of our net revenues from various industry verticals for six months ended June 30, 2021 and June 30, 2020 is as follows:

  

For the Six Months Ended June 30, 2021

  

For the Six Months Ended June 30, 2020

  

For the Six Months Ended June 30, 2021

  

For the Six Months Ended June 30, 2020

 
                 

Verticals:

                

Telecom

  105,285   105,527   30%  35%

Healthcare & Education

  57,705   22,617   16%  7%

E-commerce & Consumer

  52,324   47,802   15%  16%

Media & Cable

  49,572   45,265   14%  15%

Financial & Business Services

  31,214   23,833   9%  8%

Travel & Hospitality

  21,039   29,965   6%  10%

Technology, IT & Related Services

  9,939   9,497   3%  3%

All other verticals

  25,853   19,323   7%  6%

The increase in revenue in the current period was due to strong performance across verticals as well as geographies. About 50% of the year-on-year increase in revenue in the current period was attributed to a government vaccine program that we delivered out of the United States. This program has successfully completed around the end of the quarter. Additionally, part of the year-on-year growth in revenue during the current period was due to the severe impact of the Pandemic in the year-ago period.

The Company saw largely stable revenues across the clients in the telecom sector with volumes in certain US telecom clients witnessing a rebound. Within the e-commerce and consumer sector, we continue to see robust growth with our e-commerce clients across geographies while the brick-and-mortar and auto clients saw signs of revival in revenues as the Pandemic fears subsided.

While the travel and hospitality sector continues to remain under pressure from COVID-led sluggishness, local transport and logistics providers continue to benefit from social distancing norms.

In the healthcare and education sector, the Company generated significant revenue in the current period from a program related to COVID vaccine rollout in the US.

Our clients in the financial and business services and media and cable sectors continue to post stable volumes depicting a return to normalcy from the Pandemic impact.

30

Cost of services

Overall, the cost of services as a percentage of revenue decreased to 86.0% for the six months ended June 30, 2021 as compared to 88.2% for the six months ended June 30, 2020. Employee expenses, rent costs, and Depreciation and amortization are the most significant costs for the Company, representing 76.2%, 4.9%, and 4.1% of the total cost of services, respectively. The breakdown of the cost of services is listed in the table below:

  

Six Months Ended June 30,

  

As % of Revenue

 
  

2021

  

2020

  

2021

  

2020

 

Employee Benefit Expenses

  230,881   204,968   65.6%  67.6%

Rent expense

  14,957   15,598   4.2%  5.1%

Depreciation and amortization

  12,315   11,375   3.5%  3.8%

Other

  44,707   35,254   12.7%  11.6%

Total

 $302,860  $267,195         

Employee Benefit expenses: Our business heavily relies on our employees to provide professional services to our clients. Thus, our most significant costs are payments made to agents, supervisors, and trainers who are directly involved in delivering services to the clients.

Employee expenses as a percentage of revenues decreased to 65.6% for the current period as compared to 67.6% for the previous period. The decrease is driven by continuous diversification in our vertical mix towards new-age verticals like healthcare and e-commerce.

Rent expense: Rent expense as a percentage of revenue decreased to 4.2% for the current period as compared to 5.1% for the previous period. The year-on-year decrease in the percentage is driven by a higher revenue base in the current period relative to the year-ago period.

Depreciation and amortization: Depreciation and amortization expense as a percentage of revenue for the current period was marginally lower at 3.5% as compared to 3.8% for the previous period

Other expense includes recruitment, technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs marginally increased from 11.6% to 12.7% primarily due to higher recruitment and insurance costs in the current period partially offset by lower travel costs.

As a result, gross profit as a percentage of revenue for the current period increased to 14.0% as compared to 11.8% for the previous period.

  

Six Months Ended June 30,

 
  

2021

  

2020

 

Gross revenue

  352,931   303,829 

Warrant contra revenue

  (830)  (763)

Net Revenue

  352,101   303,066 

Cost of services

  (302,860)  (267,195)

Gross profit

 $49,242  $35,870 

Gross margin

  14.0%  11.8%

Selling, general and administrative expenses

Selling, general and administrative expenses (SG&A) as a percentage of revenue decreased from 10.5% in the previous period to 7.5% in the current period. The reduction is a result of operational efficiencies due to a higher revenue base in the current period.

Impairment Losses and Restructuring/Exit Cost, Net

Impairment losses and restructuring costs, net totaled $1,879 for the current period as compared to $24,557 for the previous period. The expense for the six months ended June 30, 2021 primarily relates to employee-related restructuring expenses. There are no impairment charges during the current period.

Interest expense, net

Interest expense, net totaled $16,253 for the current period as compared to $6,696 for the previous period. The expense for the six months ended June 30, 2021 comprises upfront fees and interest expense on our term debt and revolving line of credit facilities. 

Income tax expense

Income tax expense for the current period was $6,995 compared to $4,159 for the previous period. The movement in interest cost and the implied effective tax rate was primarily due to shifts in earnings among the various jurisdictions in which we operate coupled with utilization of net operating losses for entities having taxable profit and valuation allowance as per the requirement of ASC 740. Additionally, the movement of funds between various geographies primarily to service our debt facilities also attracts withholding taxes.

31

RELATED PARTY DISCLOSURE

In 2018, a transaction bonus was payable to Mr. Aparup Sengupta (Chairman & Global CEO) for the successful completion of the Startek-Aegis merger. This was accrued in the financial statements for the year ended  December 31, 2018 as “Acquisition-related cost”. An amount of $500 has been paid during the year ended December 31, 2020 to Mr. Aparup Sengupta and a balance of $350 has been paid during the first quarter of the current fiscal year.

   

LIQUIDITY AND CAPITAL RESOURCES

 

Our primary sources of liquidity are cash flows generated by operating activities, our working capital facilities, and term debt. We have historically utilized these resources to finance our operations and make capital expenditures associated with capacity expansion, upgrades of information technologies and service offerings, and business acquisitions. Due to the timing of our collections of receivables due from our major customers, we have historically needed to draw on our working capital facilities periodically for ongoing working capital needs. We have also entered into factoring agreements with financial institutions to sell certain of our accounts receivables under non-recourse agreement. The Company expects to meet all its debt obligations including compliance with all financial covenants in a timely manner.

During the first quarter of the current fiscal year, the Company entered into a newly secured $185 million senior debt facility, comprising a $165 million term loan and a $20 million revolving credit facility. Under the new senior debt, Borrowings will bear a tiered interest rate, which is based on the Company’s consolidated net leverage ratio and is initially set at LIBOR plus 450 basis points. The term loan will have a moratorium on principal repayment for 21 months and will amortize quarterly thereafter, beginning November 2022. The loan is subject to certain standardized financial covenants. The Company fully repaid the amounts due under the old senior facilities from the proceeds of the new debt facility. 

 

Cash and cash equivalents and restricted cash

 

As of June 30, 2021,2022, cash, cash equivalents, and restricted cash held by the Company and all its foreign subsidiaries increased by $3,504$395 to $54,063$55,791 compared to $50,559$55,396 as of December 31, 2020.2021. The restricted cash balance as of June 30, 20212022 stood at $7,045$8,646 as compared to $6,052$7,456 as of December 31, 2020.2021. The restricted cash pertains to the debt service reserve account (DSRA) that we have to maintain according to the Senior Term Agreement and for certain term deposits that need to be maintained in accordance with some of our lease and client agreements.

 

Cash flows from operating activities

 

For the six months ended June 30, 20212022 and 20202021 we reported net cash flows generated fromprovided by operating activities of $3,003$8,706 and $49,158,$11,478, respectively. The $(46,155) decrease in net cash flows from operating activities was due todriven by a net decreaseincrease of $(51,164)$6,784 in cash flows from operating assets and liabilities, a $(24,425)net working capital which was partially offset by decrease in non-cash reconciling items such as goodwill impairment, deferred tax expense, depreciation and amortization and warrant contra revenue, and an increase of $29,434 in net income. During the current period, the cash flows from operating assets and liabilities were impacted by increased receivables due to temporary growth in revenues. The amounts were subsequently collected. The cash flows for the six months ended June 30, 2020 was higher due to the sale of receivables under the non-recourse factoring arrangements in April 2020.
$14,205.

 

Cash flows used in investing activities

 

For the six months ended June 30, 2021,2022, and 20202021, we reported net cash used in investing activities of $35,409$(6,191) and $7,469$(35,409) respectively. Net cash used in investing activities for current periods primarily consisted of strategictowards capital expenditure while the amount for the previous period includes $25,000 towards the investment in equity accounted investeesCSS Corp and capital expenditure.
$3,000 towards payment of call option premium.

 

Cash flows generated from financing activities

 

For the six months ended June 30, 20212022 and 20202021 we reported net cash flows generated from(used in) and used inprovided by financing activities of $36,458$(634) and $(17,401),$27,983, respectively. During the six months ended June 30, 2021 our net borrowings increased by $35,175 mainly due to refinancing of senior term debt completed during the period. TheDuring the six months ended June 30, 2022, the Company collected $1,283 from the vestingrepurchased an aggregate of warrants under the ESOP program of the Company.       279,407 shares amounting to $1,334.

 

Debt

 

For more information, refer to Note 9, "Debt," to our consolidated financial statements included in Item 1, "Financial Statements."

 

CONTRACTUAL OBLIGATIONS

 

Smaller reporting companies are not required to provide the information required by this item.

 

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OFF-BALANCE SHEET ARRANGEMENTS

 

Apart from certain non-recourse receivables factoring as mentioned in the Note 9 "Debt" of the notes to the consolidated financial statements, we have no other material off-balance sheet transactions, unconditional purchase obligations, or similar instruments, and we are not a guarantor of any other entities’ debt or other financial obligations.

 

VARIABILITY OF OPERATING RESULTS

 

We have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors, many of which are outside our control, including: (i) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients; (ii) changes in the volume of services provided to clients; (iii) expiration or termination of client projects or contracts; (iv) timing of existing and future client product launches or service offerings; (v) seasonal and or temporary nature of certain clients’ businesses; and (vi) variability in demand for our services by our clients depending on demand for their products or services, and/or depending on our performance; (vii) due to COVID- 19 pandemic. 

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

In preparing our consolidated financial statements in conformity with US-GAAP, management must undertake decisions that impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions upon which accounting estimates are based. Management applies its best judgment based on its understanding and analysis of the relevant circumstances to reach these decisions. These judgments are subject to an inherent degree of uncertainty by their nature. Accordingly, actual results may vary significantly from the estimates we have applied.

 

Please refer to Note 2, "Summary of Significant Accounting Policies" of the Notes to the consolidated financial statements included in Item 1 for a complete description of our critical accounting policies and estimates.

 

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As Startek has qualified for Smaller Reporting Company status, this disclosure is not required.

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures:

 

An evaluationAs of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a15(e)Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). We maintain disclosure controls and 15d-15(e)procedures designed to ensure that information required to be disclosed in reports filed or submitted by us under the Exchange Act) as of June 30, 2021 was carried outAct is recorded, processed, summarized and reported within time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the supervisionExchange Act is accumulated and with the participation of ourcommunicated to management, including our Chief Executive Officer and Chief Financial Officer.Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon thaton management's evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were ineffective as of June 30, 2021.

Managements Report on Internal Control over Financial Reporting:

At December 31, 2020, management identified a material weakness in the operation of the Company’s internal controls over revenue recognition. In view of the existence of the material weakness and based on the assessment at the quarter-end, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021, our disclosure controls and procedures were ineffective. Notwithstandingeffective at the material weakness in internal control over financial reporting relating to revenue process disclosed below, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the consolidated financial statements present fairly in all material respects, our financial position, resultsreasonable assurance level as of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

A material weakness was identified in the operation of the Company’s internal financial controls over revenue recognition (and corresponding “unbilled revenue” asset) in certain reporting units. It was observed that for few customers the amount of revenue accrued in the books of accounts was on the lower side than what was billed to those customers. Management carried out measurement adjustments in respect of discounts, penalties, etc to revenue recognised in the books of account as the COVID 19 situation gave rise to uncertainties. However, these judgements were not adequately documented.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness described above did not result in any material misstatements to the company’s previously issued consolidated financial statements, nor in the consolidated financial statements disclosed in this Form 10-Q.

Remediation Plan:

The Company’s management is committed to maintaining a strong internal control environment. In response to the identified material weakness, the management immediately performed a detailed root-cause analysis of the highlighted issues and implemented certain corrective actions. The management has redefined the revenue recognition process combining automation and manual controls wherever appropriate. Documentation underlying key judgments is enhanced and “review” controls are further strengthened to reflect appropriate accounting treatment. While the management has completed the implementation of the corrective actions, it will also monitor the effectiveness of the controls through continuous monitoringJune 30, 2022.

 

Changes in Internal Control over Financial Reporting: 

 

Subject to the above, there wereThere have been no changes in ourthe Company's internal control over financial reporting that occurred during the quarter ended June 30, 2021,2022 that have materially affected, or are reasonably likely to materially affect, ourthe Company's internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDING

 

None.

 

ITEM 1A.  RISK FACTORS

 

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, except for the following:

Cyber Security Threat

In order to provide our services and solutions, we depend on global information technology networks and systems, including those of third parties, to process, transmit, host, and securely store electronic information (including our confidential information and the confidential information of our clients) and to communicate among our locations around the world and with our clients, suppliers and partners. Security breaches, employee malfeasance, or human or technological error create risks of shutdowns or disruptions of our operations and potential unauthorized access and/or disclosure of our or our clients’ sensitive data, which in turn could jeopardize our client deliveries that are critical to our operations or the operations of our clients’ businesses and have other adverse impacts on our business.

A security compromise of our information systems, such as the security incident that occurred in June 2021, or of those of businesses with whom we interact, that results in confidential information being accessed by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions, client attrition due to reputational concerns or otherwise, containment and remediation expenses, and claims brought by our clients or others for breaching contractual confidentiality and security provisions or data protection laws. Monetary damages imposed on us could be significant and may impose costs in excess of insurance policy limits or not covered by our insurance at all. Techniques used by bad actors to obtain unauthorized access, disable or degrade service, or sabotage systems evolve frequently and may not immediately produce signs of intrusion, and we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, a security breach could require that we expend substantial additional resources related to the security of our information systems, diverting resources from other projects and disrupting our businesses. Any remediation measures that we have taken or that we may undertake in the future in response to the security incident that occurred in June 2021 or other security incidents may be insufficient to prevent future cyber incidents.

We are required to comply with increasingly complex and changing data security and privacy regulations in the United States, Australia, India, Japan, Korea, and in other jurisdictions in which we operate, that regulate the collection, use and transfer of personal data, including the transfer of personal data between or among countries. In the United States, there have been proposals for federal privacy legislation and many new state privacy laws are on the horizon. Recently enacted legislation, such as the California Consumer Privacy Act, impose extensive privacy requirements on organizations governing personal information. Existing US  laws related to particular types of data, such as the Health Insurance Portability and Accountability Act, also impose extensive privacy and security requirements on organizations operating in the healthcare industry, which Startek serves. Additionally, in India, the Personal Data Protection Bill, 2018 was recently cleared for introduction in the current session of the Indian Parliament. If enacted in its current form it would impose stringent obligations on the handling of personal data, including certain localization requirements for sensitive data. Other countries have enacted or are considering enacting data localization laws that require certain data to stay within their borders.

We may also face audits or investigations by one or more domestic or foreign government agencies or our clients pursuant to our contractual obligations relating to our compliance with these regulations. Complying with changing regulatory requirements requires us to incur substantial costs, exposes us to potential regulatory action or litigation, and may require changes to our business practices in certain jurisdictions, any of which could materially or adversely affect our business operations and operating results.

The recent Coronavirus or COVID-19 outbreak continues to expand and may adversely affect our financial condition and results of operations for 2021.

The recent government-imposed restrictions around the world have significantly impacted businesses and their workforces. Most of the geographies in which we operate have been affected by local lockdowns or restrictions on facilities access. Other geographies may be impacted as the coronavirus/COVID-19 spreads and/or existing restrictions may be extended/strengthened. At this point, it is impossible to predict the degree to which supply and demand for our outsourcing services will be affected and the duration of such impact. This uncertainty makes it challenging for management to estimate the future performance of our businesses. However, the impact of COVID-19 will have an adverse impact on our results of operations over the near to medium term.

Given the overall uncertainty and fluidity of the current global pandemic response, coupled with how various government-imposed limitations may translate into client service delivery constraints, the Company may identify additional risk factors going forward which will be provided in the Quarterly Report.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.In the year 2004, the Company had announced the “Repurchase plan” that authorized the Company to repurchase up-to $25 million of common stock. The program will remain in effect until the same is terminated by the Board of Directors and will allow the Company to repurchase common stock from time to time on the open market either via block trades or privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs or other means at times and in such amounts as management deems appropriate and will be funded from our working capital or other financing alternatives. Repurchases will be implemented by the Chief Financial Officer (CFO) consistent with the guidelines adopted by the Board of Directors and will depend on market conditions and other factors. Pursuant to the Board of Directors meeting held on August 26, 2021, the Board restricted the CFO from exceeding $2 million of repurchases with any purchases more than $2 million requiring Board review. Further in board meeting held on December 14, 2021 the Board of Director’s approved additional $2 million towards a stock repurchase plan.

During the six months ended June 30, 2022, we repurchased an aggregate of 279,407 shares of our common stock under our repurchase plan at an average cost of $4.75 per share. Additional information regarding the Company’s repurchases of common stock during the six months ended June 30, 2022 is set forth in Note 15 to the accompanying consolidated financial statements which is incorporated by reference into this Item 2.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6.  EXHIBITS 

 

INDEX OF EXHIBITS

 

 
           

Exhibit

 

 

 

  

Incorporated Herein by Reference

No.

 

   

Exhibit Description

 

Exhibit

 

Filing Date

10.1 Separation Agreement with Rajiv Ahuja dated March 31, 2021  Form 8-K 10.1 April 5, 2021
10.2 Fourth Amendment to the Amended and Restated StarTek, Inc. 2008 Equity Incentive Plan  Form DEF 14A A April 16, 2021

31.1*

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

31.2*

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

32.1*

 

Written Statement of the Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

  

 

 

 

 

 

101*

 

The following materials are formatted in Extensible Business Reporting Language (iXBRL): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020(Unaudited), (ii) Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020, (iii) Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (Unaudited) and (iv) Notes to Consolidated Financial Statements (Unaudited)

 

  

 

 

 

 

 

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)        

Exhibit

Incorporated Herein by Reference

No.

Exhibit Description

Exhibit

Filing Date

31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Written Statement of the Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*

The following materials are formatted in Extensible Business Reporting Language (Inline XBRL): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited), (ii) Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021, (iii) Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited) and (iv) Notes to Consolidated Financial Statements (Unaudited)

104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

 

*

Filed with this Form 10-Q.

 

35
36

 

SIGNATURES

 

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

   

STARTEK, INC.

 

 

 

 

 

 

 

By:

/s/ Aparup SenguptaBharat Rao

Date: August 9, 20218, 2022

 

Aparup SenguptaBharat Rao

 

 

Global CEOChief Executive Officer

 

 

(principal executive officer)

 

 

 

 

 

 

 

By:

/s/ Vikash SurekaNishit Shah

Date: August 9, 20218, 2022

 

Vikash SurekaNishit Shah

 

 

Chief Financial Officer

 

 

(principal financial and accounting officer)

 

 

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