Nasdaq-listed Startek invests $30 mn in cloud provider CSS Corp
Published 16 March 2021
Nasdaq-listed outsourcing company Startek has acquired a minority stake in cloud solutions provider CSS Corp for $30 million.
This $30 million investment will be done in a limited partnership, managed by Startek’s majority shareholder, Capital Square Partners, to acquire both an indirect beneficial interest of approximately 26 per cent in CSS, as well as an option to acquire a controlling stake, the company said. The option to acquire a majority stake in CSS is at the sole discretion of Startek, and the Company has no obligation to do so, Startek added.
Aparup Sengupta, Executive Chairman and Global CEO of Startek said: “The recent minority investment we made in CSS Corp. (CSS) represents one such accretive opportunity that will also advance our ramping digital initiatives. CSS is a robust IT services company providing mission-critical AI, automation, analytics, cloud and digital solutions to a growing technology customer base across five continents. Given the success of our Startek Cloud omnichannel platform in 2020, we continue to view our digital services as a key long-term driver of both future revenue growth and margin expansion. Our investment in CSS accelerates our digitization initiatives and marks an important inflection point for Startek.”
Currently, Startek employs over 18,000 people in India across 17 BPO centres globally.
Fourth Quarter 2020 Financial Results
Net revenue in the fourth quarter increased to $174.5 million compared to $171.6 million in the year-ago quarter. The increase was driven by elevated demand and seasonal strength within the company’s existing client network.
On a constant currency basis, net revenue increased 4.7 per cent compared to the prior year period.
Gross profit in the fourth quarter increased by 11.7 per cent to $30.9 million compared to $27.6 million in the year-ago quarter. Gross margin increased 160 basis points to 17.7 per cent compared to 16.1 per cent in the year-ago quarter.
The increase was primarily driven by the aforementioned strength within Startek’s existing client base and a greater revenue mix of high-margin digital services. The margin expansion was also aided by incremental grants of $2.7 million received in the fourth quarter.
Selling, general and administrative (SG&A) expenses in the fourth quarter decreased to $15.3 million compared to $19.4 million in the year-ago quarter. As a percentage of revenue, SG&A improved 250 basis points to 8.8 per cent compared to 11.3 per cent in the year-ago quarter as a result of the continued cost reductions the company has implemented over the past several quarters and in response to COVID-19.
Net loss attributable to Startek shareholders in the fourth quarter was $7.6 million or $(0.19) per share, compared to a net loss of $5.3 million or $(0.14) per share in the year-ago quarter. Net loss in the fourth quarter of 2020 included an approximate $13.2 million goodwill impairment from COVID-19 related forecasted declines in Startek’s business in India, South Africa, and Australia and in Argentina owing primarily to the devaluation of the local currency.
Adjusted net income in the fourth quarter increased 50 per cent to $8.8 million or $0.22 per diluted share, compared to adjusted net income of $5.8 million or $0.15 per diluted share in the year-ago quarter.
Adjusted EBITDA in the fourth quarter increased 38.5 per cent to $23.3 million compared to $16.8 million in the year-ago quarter. The increase was primarily driven by the aforementioned revenue growth and margin expansion, cost reductions, and approximately $2.7 million in incremental benefits related to government grants.
On December 31, 2020, cash and restricted cash was $50.6 million compared to $56.6 million at September 30, 2020. The decrease was largely driven by increased capital expenditures in this quarter relative to previous quarters. Total debt at December 31, 2020 remained flat at $136.0 million compared to September 30, 2020 and net debt at December 31, 2020 was $85.4 million compared to $79.4 million at September 30, 2020.
Debt Refinancing and Capital Allocation
Subsequent to the fourth quarter, CSP Alpha Holdings Pte. Ltd., a wholly-owned subsidiary of Startek, successfully 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. The term loan bears a moratorium on principal repayment for 21 months and will amortize quarterly thereafter, beginning in November 2022.
The loan is subject to certain standardised financial covenants. The proceeds of this loan was used to repay in full the previous senior debt facility and to also make the strategic investment in CSS.