StarTek, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss StarTech's financial results for the second quarter ended June 30th, 2021. Joining us today are StarTech's Executive Chairman and Global CEO, Aparoob Sengupta, and the company's CFO, Vikash Surekha. Following their remarks, we'll open the call for your questions. Before we continue, we'd like to remind all participants that the discussion today may contain certain statements which are forward-looking in nature pursuant to the safe harbor provisions of the federal securities laws. These statements are based on information currently available to us and are subject to various risks and uncertainties that could cause actual results to differ materially. StarTech advises all those listening to this call to review the latest 10Q and 10K posted on its website for a summary of these risks and uncertainties. StarTech does not undertake the responsibility to update any forward-looking statements. Further, the discussion today may include some non-GAAP measures. In accordance with Regulation G, the company has reconciled these amounts back to the closest GAAP-based measurement. Reconciliations can be found in the earnings release on the investor section of the website. I would like to remind everyone that a webcast replay of today's call will be available via the investor section of the company's website at www.startech.com. Now I would like to turn the call over to StarTech's Executive Chairman and Global CEO, Paparoop Sengupta.

Thank you, Giuseppe. Good afternoon, everyone, and thank you all for joining. I'm very pleased with the results of this quarter as we continue to generate strong revenue and profitability growth, demonstrating the resilience of our team and our operational foundation. Our top-line growth was driven by improvements across our key growth verticals, including significant contributions from the vaccine drives we helped support throughout the United States. Underlying these promising trends across our verticals was our continued focus on careful cost management as we further enhance both the cost and operational efficiency of our organization. In addition to the vaccination tailwinds in the U.S., we also generated solid traction out of India, as vaccination rates improved and recovery from last quarter's COVID-19 outbreak continued to progress. The recovery trends across our geographies helped drive the strong performance we delivered across our verticals during the quarter. To provide some additional color on our growth by vertical, the high-quality service and flexibility we have demonstrated to our clients' base has helped them navigate both macroeconomic and industry-specific factors during their recovery, from last year's pandemic-related lows. These recovery-related tailwinds have continued to support existing growth trends across certain verticals as restrictions eased throughout Q2, including e-commerce, media and cable, business and financial services, and local travel. Meanwhile, even some of our long-challenged verticals began their gradual return to growth during the quarter. For instance, our telecom segment revenues began to increase, both on a year-over-year and sequential basis, over a period of prolonged decline, as did our brick-and-mortar retail and automobile segments. Certain verticals that were most deeply affected by COVID-19 last year remain challenged by pandemic-related volatility, such as intercontinental travel, and we are remaining closely attentive to changing health protocols and further developments related to the Delta variant. We will remain vigilant on these developments across all of our verticals and geographies, as well as maintain our strong commitment to supportive and flexible partnerships. Within our healthcare and education segment, revenue growth was largely driven by COVID-19 assistance program we supported in the US. As domestic vaccine rollouts progressed across the country, we were able to leverage our platform, expanded range of capabilities to facilitate greater vaccine access throughout U.S. communities nationwide. Within a short time frame, we were able to have thousands of agents ready and able to assist and answer U.S. patients' questions regarding vaccination logistics as well as facilitate a help hotline to make some of these answers readily available. We are very proud to leverage our scale and operational agility to support this important health initiative for the United States. Across the U.S. and all of our geographies, we are committed to upholding the safety and health of not only our workforce, but also the broader communities in which we operate, especially in such a critical time for global health. This agreement is known as the Indefinite Duration, Indefinite Quantity, or IDIQ, based on the government's need for these services similar to many other government BPO contracts. Given the bulk of the support was for initial vaccine rollout efforts, we currently do not anticipate this particular government program to continue into the second half of the year. That said, the comprehensive support we were able to provide positions us well for future extensive large-scale government opportunities, ones that we previously did not have the resources to support. I will speak more to the flexibility and optimization of our platform a bit later in the call. But before I turn the call over to our CFO, Vikash Surekha, I would like to provide some additional detail around the cybersecurity attack we experienced during Q2, which we have worked around to the clock to remedy. The cybersecurity threat occurred on June 30th and involved encryption of some of our systems. Many of our clients faced no disruptions in certain regions, but other customers faced disruptions in regions where we support a greater concentration of agents working from home. While several impacted clients maintained connectivity with our network and continued receiving our services, others chose to temporarily suspend our access to the networks out of an abundance of caution. We have since restored the security of our systems and networks. enhanced the way we monitor our entire information security environment, and implemented various network process improvements in close collaboration with leading external forensics and cybersecurity experts. These steps help allow us to understand why the incident occurred and work to prevent similar incidents from occurring in the future. As the incident occurred on the last day of the second quarter, we expect that the incident may impact our revenues for the second half of 2021. However, our team's quick and comprehensive response gives me confidence in our operational flexibility and our focus on bolstering the strength of our platform. On the whole, I'm very proud of our team's adaptability in driving our recovery from both this threat and the broader lows of the pandemic last year. In addition, we have diligently maintained a strong focus on further leveraging and enhancing the comprehensive capabilities of our platform to provide best-in-class client support. Before I discuss these efforts further, I'd like to turn the call over to our CFO, Vikash Surekha, to walk you through our second quarter financials performance in greater detail. Vikash?

Thank you, Akru. Good evening, everyone, and thank you for joining the call. We generated promising trends across the verticals during the quarter. and I'm very pleased to report strong growth across our key financial metrics. Starting on the top line, net revenue in quarter two increased 33% to $189 million, compared to $142.2 million in the year-ago quarter. On a constant currency basis, net revenue increased by 33.7% compared to the year-ago quarter. This year-over-year growth reflects sustained performance across a key growth vertical, including significant contributions from the U.S. government's COVID-19 assistance contract. As Akub mentioned, we currently do not expect this U.S. government program to continue into the second half of 2021, which may result in some sequential softness on the top line in Q3. Gross profit for Q2 increased 55% to 24.6 million compared to 15.8 million in the year-ago quarter. Gross margin increased 190 basis points to 13% compared to 11.1% in the year-ago quarter. Similar to our top line, the year-over-year increases in gross profit and margin reflect strong growth across our client verticals. Selling, general and administrative, SG&A for short, expenses for Q2 decreased to $12.3 million compared to $14.6 million in the year-ago quarter. As a percentage of revenue, SG&A improved to 6.5% compared to 10.3% in the year-ago quarter. This reflects our operating leverage on the back of the higher net revenue base we generated during the quarter. We believe our SG&A costs in absolute terms could marginally increase in the near term as we look to strengthen our client-facing organization. Returning briefly to the cybersecurity threat approved mentioned earlier, we expect to incur costs related to this incident as we diligently work to remedy the situation and make incremental investments to enhance the overall security of our information security environment. We are confident this isolated threat is contained and eradicated. Net income attributable to StarTech shareholders for Q2 improved significantly to $6.9 million or $0.17 per share compared to a net loss attributable to StarTech shareholders of $5.2 million or negative $0.14 per share in the year-ago quarter. The increase also reflects our more normalized effective tax rate during Q2 as there was no one-time or exceptional costs recorded during the quarter. Adjusted EBITDA in Q2 increased significantly to 19.6 million compared to 8.8 million in the year-ago quarter. As a percentage of revenue, adjusted EBITDA increased to 10.4%, which was up 420 basis points compared to 6.2% in the year-ago quarter. The increase was primarily driven by our robust revenue growth and subdued comps last year. While we are very pleased to have delivered consecutive quarters of double-digit adjusted EBITDA margins, these have been driven by some one-off events in both quarter one and quarter two. We continue to receive grant income of 2.5 million in second quarter, having received similar grants in the past two quarters. At present, we anticipate some of this income to continue into the third quarter. From a balance sheet perspective, at June 30, 2021, our cash and restricted cash totaled 54.1 million compared to 64.6 million at March 31, 2021, with a decrease due to increased receivables related to the revenue growth we generated during the second quarter. While this led to negative cash flow from operations in the second quarter, this has already been normalized in the first few weeks of the third quarter. Total debt at June 30, 2021 was 173.9 million, compared to 172.8 million at March 31, 2021. Net debt at June 30, 2021 was 119.8 million compared to 108.1 million at March 31, 2021. Following last quarter's refinancing, our net leverage on a trailing 12-month basis continues to remain well under 2x. As we continue to the second half of 2021, We remain comfortable with our liquidity position as it stands today and are well positioned to start planning requisite investments in key market-facing growth initiatives, ensuring that we continue advancing the capabilities in the most cost-effective manner possible. As we discussed, we are reviewing our network and security design and will make all the necessary investments to improve our network security for both our clients and employees. We will also be making investments in our IT and go-to-market strategy, including our sales capabilities, to further strengthen our foundation for the remainder of 2021 and beyond. This concludes my prepared remarks. I will now turn the call back to Aproop. Aproop, over to you.