StarTek, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss StarTech's financial results for the fourth quarter and full year ended December 31st, 2021. Joining us today are StarTech's global CEO, Bharat Rao, and the company's global CFO, Nishit Shah. Following their remarks, we'll open the call up for your questions. Before we continue, we would like to remind all participants that the discussion today may contain certain statements which are forward-looking in nature, pursuant to the safe harbor provisions of the federal securities laws. These statements are based on information currently available to us and are subject to various risks and uncertainties that could cause actual results to differ materially. StarTech advises all those listening to this call to review the latest 10Q and 10K posted on its website for the 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-gap measures. In accordance with Regulation G, the company has reconciled those amounts back to the closest gap-based measurement. The reconciliations can be found in the earnings release on the investor section of our website. I would now 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'd like to turn the call over to StarTech's Global CEO, Bharat Rao. Please go ahead.

Thank you, Jonathan. Good afternoon, everyone, and thank you all for joining. I would also like to introduce Ron Gillett, who has just come on board towards the end of January and has joined us as Head of Business Transformation. Ron is the former Chief Operating Officer of WNS and brings a wealth of experience to StarTech. So please welcome Ron on board. Since joining as president in October, 2021, I've had the pleasure to travel across the globe and meet with our employees, customers, and stakeholders to get a firm grasp on the opportunities and challenges across our entire organization. Before I jump into the details, I wanted to start this call by taking time to thank all our dedicated employees and stakeholders across the globe. Your commitment and dedication to StarTech throughout all the difficulties we've faced in the macro environment has been instrumental to our continued progress and we deeply appreciate the support. For the structure of this call, I'm going to begin by walking through our accomplishments in the fourth quarter and what we've been able to achieve in the first five months that I've been on the helm. And then I'm going to pass it to our new global CFO Nishit Shah to walk through our financial results for the quarter and provide the full year in more detail. Finally, I'll return to discuss our strategic growth initiatives going forward. On that note, let's dive into the fourth quarter. Our fourth quarter performance was primarily focused on supporting our steady growth across core verticals and developing our operational foundation to hit the ground running in 2022. Our progress was reflected by our year-on-year revenue growth for both the fourth quarter and the full year, which occurred in conjunction with the cost management initiatives we've implemented throughout the year. Our revenue in 2021 and the fourth quarter increased year over year, primarily resulting from the growth we experienced in our key verticals. Telecom continues to be our largest vertical in terms of percentage of revenue, and we saw healthy growth largely driven by adding new lines of business with our existing clients. The large win with the South African telecom client that we spoke to in the previous quarter went live on October 1st and has ramped well through the quarter. Although e-commerce and consumer saw a slight overall decline due to volume reduction of a US-based client, we were able to offset some of that due to a substantial ramp in our e-commerce and food delivery platform in India. While the uncertainty brought on by the pandemic has started to recede, our travel and hospitality verticals have yet to rebound. However, the discussion with clients have started to refocus around growth and ramp, and therefore, we expect the travel sector to rebound sometime in the second half of 2022. On the other hand, financial and business services saw large recoveries back to pre-pandemic levels, as we began to move away from the macro constraints that were brought up in the past. As mentioned before, our vaccination program in the second quarter was a success, leading to a 32% increase in revenue within our healthcare and education verticals for the year. Despite some of our verticals having slight declines due to macroeconomic conditions and volume reductions, we were able to largely offset these decreases with sustained growth across our leading verticals. Operationally, we continue to be focused on strengthening our technological infrastructure. As many of you know, we were hit with a malicious cyber attack earlier in 2021. Since then, we bolstered our operations and security to ensure that our company stays resilient to any future event. Our initiatives included adding multiple layers of security to our data servers and emails, including geofencing and a two-factor authentication, establishing a 24 by 7 center of excellence monitoring, and scanning our networks across the world amongst other efforts taken to ensure that we provide an enhanced secure environment to both our clients and employees. As technology continues to evolve at a rapid pace, we believe it is our responsibility to maintain our platform and that is up to date with the state of art security measures for our customers and we remain committed to that responsibility going forward. We also spent much of the past quarter evaluating consolidation and right-sizing opportunities across our footprint. It has been our goal to maintain a lean and efficient organization that will be increasingly important as we look to produce meaningful revenue growth. We have already begun improving efficiency in some of our US delivery centers, especially as we transition to our overall hybrid and remote work plan. We remain set on our outlook of having a 75% and a 25% split of campus versus remote agents respectively, which will have a substantial effect on the utility of each campus. As such, we are working to maximize the utility of each center as part of our right-sizing strategy, which includes the consolidation of facilities and even closures. We'll keep you abreast of any material changes to our footprint as we further evaluate the best course of action. In addition to evaluating optimal efficiency across our footprint, we also continue to build out our executive team. Our company is rooted in the business of people, and that starts with our leaders in the organization. In October, we appointed Vivek Sharma, as Global Chief Revenue Officer, who has helped us lead our efforts to deepen our existing relationships with customers, as well as pursue new growth opportunities coming on the horizon. Vivek has a stellar record in the outsourcing industry, having spent over a decade at Infosys BPO, where he headed the global sales and marketing team and was also a member of their executive council. Rebecca Gautrey joined us in November as our Chief Marketing Officer with more than 20 years of experience in brand marketing. She will be using her expertise to ensure that StarTech has a strong presence across all channels and drive our new go-to-market strategies. Around the same time, we appointed Abhinandan Jain as Chief Digital Officer. who will be spearheading our digital innovations and ensuring that we remain focused on leveraging and expanding our digital partnerships. Our leadership team has seen a large transformation in the past year, including my transition to my current role as Global CEO, and each member, new and incumbent, have been paramount in driving company initiatives. Our executive team was not only part of the organization we expanded upon. We consider our sales ecosystem as one of the main pillars of this company and we invested heavily in this area by revamping our sales infrastructure with a reorganized solutioning and lead generation team. We also invested into our marketing team to better identify our brand positioning and and effective go-to-market strategies. In addition, we place much of our attention in driving digital partnerships by entering into POCs with our clients. These POCs are being supported by leading digital companies and startups with whom we intend to establish partnerships to boost our digital practice and provide most advanced and flexible solutions to our clients. For a leading computer manufacturer, for instance, we are deploying a hyper-intelligent automation tool for triaging and case creation which helps them drive customer response times down by 70%. Leveraging an AI-based noise cancellation application for a major telecom customer to deliver superior voice support. deploying a voice-based artificial intelligence omnichannel platform to transform customer service for a major utilities company. These are a few examples of the kind of POCs that I alluded to earlier. The fourth quarter and much of the back half of the year shared a common theme in preparing this company for its future growth opportunities, which I will discuss later on during the call. Overall, I'm very proud of the progress we've made across the organization and firmly believe that future is bright for StarTech. Before I jump into our strategic initiatives for the year and going forward, I would like to turn the call over to Nishit Shah, our global CFO, to provide further details on our fourth quarter and full year financial results. Nishit?

Thank you Bharat for the introduction. I'd like to first begin by expressing my excitement to join this organization and use my expertise to help accelerate the growth and enhance value for all stakeholders. There is much to look forward to with the strong foundation we have in place and look forward to executing on our growth priorities. With that being said, Let's drive into our financials for the quarter 4. Starting on the top line, net revenue in Q4 slightly increased to $178.7 million compared to $174.5 million in the year-ago quarter. On a constant currency basis, net revenue increased by 2% compared to the year-ago quarter. This year-over-year growth reflects continued performance strength across archi-verticals and geographies. Gross profit for Q4 was $26.8 million compared to $30.2 million in the year-ago quarter. Gross margin was 15% compared to 17.3% in the year-ago quarter. which was primarily attributable to the growth in our telecom and banking and financial services vertical that are delivering onshore. The gross margin for the quarter for 2021 was also impacted by a special bonus payout of around $2 million that was distributed across the organization. Selling and general administration SG&A expenses for fourth quarter increased to $15.1 million compared to $14.7 million in the year-ago quarter. As a percentage of revenue, SG&A was the same at 8.4% compared to the year-ago quarter as a result of continued operating leverage on the back of higher revenue base we generated during the quarter. Our investments in high-performing sales, solutioning and marketing, and digital team in order to drive growth and differentiation impact our SG&A in the fourth quarter. Our net income attributable to star tech shareholders for quarter four increased significantly to $6.7 million or $0.16 per share compared to a net loss attributable to StarTech shareholders at $-7.6 million or $0.19 per share a year ago quarter. Net income in the fourth quarter of 2021 included an approximate $4.5 million of impairment charge on the right-to-use asset that was driven by the decision taken to rationalize our brick-and-mortar facilities across multiple geographies. Where the company's client services in pivoting towards at-home delivery, the net income attributable to StarTech shareholders also includes $6.7 million in fair value gains from the investment made in CSS . Net adjusted income attributable to StarTech shareholders for Q4 increased 41% to $12.9 million or $0.32 per diluted shares, compared to an adjusted net income attributable to StarTech shareholders of $8.8 million or $0.22 per diluted shares in the year-over-quarter. Adjusted EBITDA in quarter four was $18.9 million compared to $23.3 million in the year-ago quarter. As a percentage of revenue, adjusted EBITDA was 10.6% compared to 13.4% the year-ago quarter. The decline was primarily a result of impact to gross profit associated with the special performance bonus declared in December. And due to high base in 2020, that had benefited from government grants. The quarter was also impacted by increase in IT cost related to upgrading of our applications and measures taken to enhance security infrastructure. From a financial perspective, at December 31st, 2021, our cash and restricted cash increased to $55.4 million compared to $50.6 million at December 31st, 2020. The total debt at December 31, 2021 was 170 million compared to 136 million at December 31, 2020. The net debt excluding restricted cash at December 31, 2021 was 122.1 million compared to 91.5 million at December 31, 2020. We remain comfortable with our liquidity position as it stands today. In addition, we repurchased an aggregate of 353810 shares of our common stocks under our repurchase plan during the fourth quarter at an average cost of $4.44 per share. This was testament to our continued confidence in our long-term growth prospects as well as our strong execution of this initiative. As we progress into 2022, we have maintained our commitment to further support our investments in key market-facing growth initiatives. We also plan to invest further in improving our IT and the go-to-market strategy, including enhancing our digital first capabilities and further building out our sales and marketing teams. We expect these investments and our enhanced infrastructure to have put in place to boost our operational foundation for the quarter ahead. and we look forward to provide further updates on our growth trajectory. Now let me briefly review StarTech's full year 2021 performance. Net revenue in 2021 increased 10% to $703.6 million compared to $640.2 million in 2020. Gross profit in 2021 increased 12% to $97.6 million compared to $87.2 million in 2020. and a gross margin increased 30 basis points to 13.9% compared to 13.6% in 2020. Adjusted EBITDA in 2021 increased 24% to $72.4 million compared to $58.2 million in 2020. As a percentage of revenue, adjusted EBITDA was 10.3% in 2021, up by 120 basis points compared to 9.1% in 2020. Net income attributable to StarTech shareholders in 2021 increased significantly to $1.5 million or $0.04 per share compared to a net loss of $39 million or $0.99 per share in 2020. Adjusted net income attributable to StarTech shareholders in 2021 increased 221% next to $27.3 million or $0.67 per share. compared to $8.5 million or $0.22 per share in 2020. This concludes my prepared remarks. I will now turn the call back over to Bharat.