Company Quick10K Filing
Startek
Price6.49 EPS-0
Shares38 P/E-13
MCap250 P/FCF23
Net Debt113 EBIT-14
TEV363 TEV/EBIT-27
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-09
10-Q 2020-06-30 Filed 2020-08-10
10-Q 2020-03-31 Filed 2020-06-10
10-K 2019-12-31 Filed 2020-03-12
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-08
10-K 2017-12-31 Filed 2018-03-16
10-Q 2017-09-30 Filed 2017-11-08
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-02-22
10-Q 2016-09-30 Filed 2016-11-08
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-10
10-K 2015-12-31 Filed 2016-03-14
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-06
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-13
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-10
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-10
10-K 2012-12-31 Filed 2013-03-08
10-Q 2012-09-30 Filed 2012-11-06
10-Q 2012-06-30 Filed 2012-08-07
10-Q 2012-03-31 Filed 2012-05-11
10-K 2011-12-31 Filed 2012-03-09
10-Q 2011-09-30 Filed 2011-11-02
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-03
10-K 2010-12-31 Filed 2011-03-04
10-Q 2010-09-30 Filed 2010-10-29
10-Q 2010-06-30 Filed 2010-07-30
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-02-25
8-K 2020-11-09
8-K 2020-10-22
8-K 2020-08-10
8-K 2020-07-30
8-K 2020-07-09
8-K 2020-07-01
8-K 2020-06-29
8-K 2020-06-10
8-K 2020-05-12
8-K 2020-05-05
8-K 2020-04-17
8-K 2020-03-25
8-K 2020-03-12
8-K 2020-02-04
8-K 2020-01-12
8-K 2019-12-11
8-K 2019-11-06
8-K 2019-07-22
8-K 2019-06-30
8-K 2019-05-17
8-K 2019-05-08
8-K 2019-03-22
8-K 2019-03-21
8-K 2019-03-14
8-K 2019-03-13
8-K 2019-03-01
8-K 2018-12-31
8-K 2018-12-13
8-K 2018-11-08
8-K 2018-09-18
8-K 2018-08-07
8-K 2018-08-07
8-K 2018-07-20
8-K 2018-07-05
8-K 2018-05-08
8-K 2018-03-16
8-K 2018-03-15
8-K 2018-03-15
8-K 2018-03-15
8-K 2018-01-23

SRT 10Q Quarterly Report

Item 1.  Financial Statements
EX-31.1 ex_201880.htm
EX-31.2 ex_201881.htm
EX-32.1 ex_201882.htm

Startek Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
68554841127413702012201420172020
Assets, Equity
165129935721-152012201420172020
Rev, G Profit, Net Income
20124-4-12-202012201420172020
Ops, Inv, Fin

srt20190630_10q.htm
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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 September 30, 2020

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 South Syracuse Way, Suite 485

 

Greenwood Village, Colorado

80111

(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  October 31, 2020, there were 40,292,755 shares of Common Stock outstanding.

 



 

 

 

 

STARTEK, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q

 

 

PART I - FINANCIAL INFORMATION

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

Page

 

Condensed Consolidated Statements of Income(Loss) and Other Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)

4

 

Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019 

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

6

 

Condensed Consolidated Statement of Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)

7

 

Note 1 Overview and Basis of Preparation

8

  Note 2 Summary of Accounting Policies 9
  Note 3 Goodwill and Intangible Assets 12
  Note 4 Revenue 13
  Note 5 Net Gain/(Loss) Per Share 15
  Note 6 Impairment and Restructuring/Exit cost 15
  Note 7 Derivative Instruments 16
  Note 8 Fair Value Measurements 16
  Note 9 Debt 18
  Note 10 Share-Based Compensation 19
  Note 11 Accumulated Other Comprehensive Loss 19
  Note 12 Segment Reporting 20
  Note 13 Leases 20
  Note 14 Subsequent Event 21

ITEM 2.

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

22

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

29

ITEM 4.

Controls and Procedures

29

 

 

 

PART II - OTHER INFORMATION

 

 

 

ITEM 1.

Legal proceeding

 

ITEM 1A.

Risk Factors

30

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

ITEM 3.

Defaults upon senior securities  
ITEM 4. Mine safety disclosure  

ITEM 5. 

Other Information

30

ITEM 6.

Exhibits

31

SIGNATURES

 

32

 

 

 

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, 2019 filed with the Securities and Exchange Commission ("SEC") on March 12, 2020 and this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020. Unless otherwise noted in this report, any description of "us," "we," or "our," refers to 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.

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Revenue

  163,097   164,630   466,926   487,054 

Warrant contra revenue

  (410)  -   (1,173)  (730)

Net Revenue

  162,687   164,630   465,753   486,324 

Cost of services

  (139,808)  (136,142)  (407,003)  (403,064)

Gross profit

  22,879   28,488   58,750   83,260 

Selling, general and administrative expenses

  (14,876)  (22,926)  (46,774)  (71,938)

Impairment losses and restructuring/exit cost

  12   (220)  (24,545)  (2,069)

Acquisition related cost

  -   -   -   11 

Operating Income/ (Loss)

  8,015   5,342   (12,569)  9,264 

Share of (loss) / profit of equity accounted investees

  (5)  (16)  (25)  988 

Interest expense, net

  (3,988)  (3,372)  (10,684)  (11,864)

Exchange loss, net

  (621)  (1,880)  (331)  (2,558)

Income /(Loss) before income taxes

  3,401   74   (23,609)  (4,170)

Income tax expense

  1,649   3,436   5,808   4,550 

Net lncome / (Loss)

  1,752   (3,362)  (29,417)  (8,720)
                 
Net income/ (Loss)                

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

  1,385   (575)  1,990   1,007 

Net income/ (loss) attributable to Startek shareholders

  367   (2,787)  (31,407)  (9,727)
                 

Net gain /(loss) per common share - basic

  0.01   (0.07)  (0.80)  (0.26)
Net gain /(loss) per common share - diluted  0.01   (0.07)  (0.80)  (0.26)
Weighted average common shares outstanding - basic  40,275   38,467   39,143   38,011 

Weighted average common shares outstanding - diluted

  40,626   38,467   39,143   38,011 

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Net Income / (Loss)

  1,752   (3,362)  (29,417)  (8,720)

Net income/ (Loss) attributable to non-controlling interests

  1,385   (575)  1,990   1,007 

Net Income/ (Loss) attributable to Startek shareholders

  367   (2,787)  (31,407)  (9,727)
                 

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

                

Foreign currency translation adjustments

  936   (1,899)  (2,729)  (1,299)

Change in fair value of derivative instruments

  103   (298)  (577)  50 

Pension amortization

  774   (9)  (1,856)  (70)

Comprehensive (loss) / income

  1,813   (2,206)  (5,162)  (1,319)
                 

Other comprehensive (loss) / income, net of taxes

                

Other comprehensive (loss) / income attributable to non-controlling interest

  413   (19)  (1,211)  (45)

Other comprehensive (loss) / income attributable to Startek shareholders

  1,400   (2,187)  (3,951)  (1,274)
   1,813   (2,206)  (5,162)  (1,319)

Comprehensive (loss) / income

                

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

  1,798   (594)  779   962 

Comprehensive (loss)/ income attributable to Startek shareholders

  1,767   (4,974)  (35,358)  (11,001)
   3,565   (5,568)  (34,579)  (10,039)

 

See Notes to Consolidated Financial Statements.

 

 

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except share data)

(Unaudited)

 

  

September 30,

  

December 31,

 
  

2020

  

2019

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

  48,463   20,464 

Restricted cash

  8,122   12,162 

Trade accounts receivable, net

  77,767   108,479 

Unbilled revenue

  40,126   41,449 

Prepaid and other current assets

  12,612   12,008 

Total current assets

  187,090   194,562 

Property, plant and equipment, net

  34,423   37,507 

Operating lease right-of-use assets

  70,256   73,692 

Intangible assets, net

  103,042   110,807 

Goodwill

  196,633   219,341 

Investment in associates

  109   553 

Deferred tax assets, net

  2,782   5,251 

Prepaid expenses and other non-current assets

  13,140   16,370 

Total assets

  607,475   658,083 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Trade accounts payables

  14,591   25,449 

Accrued expenses

  64,375   45,439 

Short term debt

  15,206   26,491 

Current maturity of long term debt

  19,142   18,233 

Current maturity of operating lease obligation

  18,649   19,677 

Other current liabilities

  39,854   37,159 

Total current liabilities

  171,817   172,448 

Long term debt

  101,626   130,144 

Operating lease liabilities

  52,854   54,341 

Other non-current liabilities

  17,378   11,140 

Deferred tax liabilities, net

  16,596   18,226 

Total liabilities

  360,271   386,299 

Commitments and contingencies

      

Stockholders’ equity:

        

Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 40,288,453 and 38,525,636 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

  403   385 

 Additional paid-in capital

  287,221   276,827 

    Accumulated deficit

  (77,965)  (46,145)

Accumulated other comprehensive loss

  (9,973)  (6,022)

Equity attributable to Startek shareholders

  199,686   225,045 

Non-controlling interest

  47,518   46,739 

Total stockholders’ equity

  247,204   271,784 

Total liabilities and stockholders’ equity

  607,475   658,083 

 

See Notes to Consolidated Financial Statements.

 

 

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

  

Nine Months Ended September 30,

 
  

2020

  

2019

 

Operating Activities

        

Net loss

 $(29,417) $(8,720)

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

        

Depreciation and amortization

  21,279   22,056 
    Impairment of goodwill  22,708   - 

Loss /(profit) on sale of property, plant and equipment

  181   (223)

Provision for doubtful accounts

  2,089   1,238 

Warrant contra revenue

  1,173   730 

Share-based compensation expense

  447   1,151 

Deferred income taxes

  1,192   209 

Share of loss / (profit) of equity accounted investees

  25   (988)

Changes in operating assets and liabilities:

        

Trade accounts receivable, net

  26,171   (1,529)

Prepaid expenses and other assets, current and noncurrent

  (117)  (950)

Trade accounts payable

  (10,155)  (5,236)

Income taxes, net

  1,300   (2,267)

Accrued expenses and other liabilities, current and noncurrent

  27,421   1,150 

Net cash generated from operating activities

 $64,297  $6,621 
         

Investing Activities

        

Purchases of property, plant and equipment

  (10,141)  (9,027)
Proceeds from equity-accounted investees  429   1,317 

Net cash used in investing activities

 $(9,712) $(7,710)
         

Financing Activities

        

Proceeds from the issuance of common stock

  8,379   6,563 

Payments on long term debt

  (4,200)  (7,000)

Proceeds from (payments on) other debt, net

  (34,549)  5,831 

Net cash (used in) / generated from financing activities

 $(30,370) $5,394 
         

Net increase in cash and cash equivalents

  24,215   4,305 

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

  (256)  (497)

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

  32,626   24,569 

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

 $56,585  $28,377 
         

Components of cash and cash equivalents and restricted cash

        

Balances with banks

  48,463   17,795 

Restricted cash

  8,122   10,582 

Total cash and cash equivalents and restricted cash

  56,585  $28,377 
         
Supplemental disclosure of Cash Flow Information        
Cash paid for Interest and other finance cost  10,392   11,179 
Cash paid for income taxes  2,752   6,740 
Non cash warrant contra revenue  1,173   730 
Non cash share-based compensation expenses  447   1,151 

 

See Notes to Consolidated Financial Statements.

 

 

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED 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' 
        

capital

  

deficit

  

translation

  

derivative instruments

  

pension cost

  

shareholders

  

interest

  

equity

 

Three months ended

                                        

Balance at June 30, 2020

  40,210,299  $401  $286,205  $(78,332) $(8,233) $(205) $(2,935) $196,901  $45,720  $242,621 
Issuance of common stock  78,154   2   368   -   -   -   -   370   -   370 
Share-based compensation expenses  -   -   238   -   -   -   -   238   -   238 
Warrant expenses  -   -   410   -   -   -   -   410   -   410 
Net income (loss)  -   -   -   367   -   -   -   367   1,385   1,752 
Other comprehensive loss for the period  -   -   -   -   936   103   361   1,400   413   1,813 

Balance at September 30, 2020

  40,288,453  $403  $287,221  $(77,965) $(7,297) $(102) $(2,574) $199,686  $47,518  $247,204 
                                         

Balance at June 30, 2019

  38,452,111  $384  $275,284  $(38,067) $(3,389) $333  $(1,578) $232,967  $46,912  $279,879 
Issuance of common stock  30,914   1   96   -   -   -   -   97   -   97 
Share-based compensation expenses  -   -   370   -   -   -   -   370   -   370 
Warrant expenses  -   -   -   -   -   -   -   -   -   - 
Net income (loss)  -   -   -   (2,787)  -   -   -   (2,787)  (575)  (3,362)
Other comprehensive loss for the period  -   -   -   -   (1,899)  (298)  10   (2,187)  (19)  (2,206)

Balance at September 30, 2019

  38,483,025  $385  $275,750  $(40,854) $(5,288) $35  $(1,568) $228,460  $46,318  $274,778 
                                         

Nine months ended

                                        

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  -   -   413   (413)  -   -   -   -   -   - 
Issuance of common stock  1,762,817   18   8,361   -   -   -   -   8,379   -   8,379 
Share-based compensation expenses  -   -   447   -   -   -   -   447   -   447 
Warrant expenses  -   -   1,173   -   -   -   -   1,173   -   1,173 
Net income (loss)  -   -   -   (31,407)  -   -   -   (31,407)  1,990   (29,417)
Other comprehensive loss for the period  -   -   -   -   (2,729)  (577)  (645)  (3,951)  (1,211)  (5,162)

Balance at September 30, 2020

  40,288,453  $403  $287,221  $(77,965) $(7,297) $(102) $(2,574) $199,686  $47,518  $247,204 
                                         

Balance at December 31, 2018

  37,446,323  $374  $267,317  $(31,127) $(3,989) $(15) $(1,543) $231,017  $45,356  $276,373 
Issuance of common stock  1,036,702   11   6,552   -   -   -   -   6,563   -   6,563 
Share-based compensation expenses  -   -   1,151   -   -   -   -   1,151   -   1,151 
Warrant expenses  -   -   730   -   -   -   -   730   -   730 
Net income (loss)  -   -   -   (9,727)  -   -   -   (9,727)  1,007   (8,720)
Other comprehensive loss for the period  -   -   -   -   (1,299)  50   (25)  (1,274)  (45)  (1,319)

Balance at September 30, 2019

  38,483,025  $385  $275,750  $(40,854) $(5,288) $35  $(1,568) $228,460  $46,318  $274,778 

 

 

 

STARTEK, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(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, 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 touch points and channels. Startek has more than 40,000 CX experts globally spread across 46 delivery campuses in 13 countries. The Company services over 250 clients across a range of industries such as Banking and Financial Services, Insurance, Technology, Telecom, Healthcare, Travel & Hospitality,Consumer Goods, Retail, and Energy & 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 a 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 unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US-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-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 reflect the financial results of all 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 Sheets. 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).

 

The consolidated balance sheet as of  December 31, 2019, 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. 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, 2019.

 

8

 
 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of condensed 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 and restructuring costs. Management believes that the estimates used in the preparation of the condensed consolidated financial statements are reasonable, and management has made assumptions about the possible effects of the novel coronavirus (“COVID-19”) pandemic on critical and significant accounting estimates. Although these estimates 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 condensed consolidated financial statements.

 

Revenue

 

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

 

Leases

 

On January 1, 2019, the Company adopted Accounting Standards Codification 842, Leases, (Topic 842) with the transition approach. However, the Company has accounted the lease for the comparable periods as per the Accounting Standards Codification 840.

 

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 sheets. Finance leases are included in property plant and equipment, long-term debt, accrued expenses and other current liabilities in our consolidated balance sheets.

  

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 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 that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

 

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 leases

 

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

 

During the first quarter of 2020, the COVID-19 pandemic did not trigger changes to the terms of any of the Company’s leases, however during second quarter we have received partial relief from few landlords in terms of rent discounts for certain periods and deferments of rent for a few facilities. Rent discounts and deferment of rent have been accounted for without lease modification using the practical expedient provided by the FASB.There is no new rent deferments/discounts being received in quarter ending September 30, 2020.

 

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 more likely than not reduce the fair value of a reporting unit below its carrying amount. Refer to Note 3 for information and related disclosures.


Intangible assets acquired in a business combination were recorded at fair value at 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.

 

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 in which it operates as required by US 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 remeasurement of the local books to USD. Exchange gains and losses are recorded through net income as opposed to 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.

 

Stock-Based Compensation

 

We recognize expense 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 expense. We use the Black-Scholes method for valuing stock-based awards. See Note 10, “Share-Based Compensation” for further information.

 

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

 

 

Recent Accounting Pronouncements

 

 

In December 2019, FASB issued ASU 2019-12 which modifies ASC 740 to simplify accounting for income taxes. ASU 2019-12 amends the requirements related to the accounting for “hybrid” tax regimes. FASB amended ASC 740-10-15-4(a) to state that an entity should include the amount of tax based on income in the tax provision and should record any incremental amount recorded as a tax not based on income. This amendment effectively reverses the order in which an entity determines the type of tax under current U.S. GAAP. The Company does not have a hybrid tax regime currently.

 

FASB also removed the previous guidance that prohibit recognition of a DTA for a step up in tax basis “except to the extent that the newly deductible goodwill amount exceeds the remaining balance of book goodwill.” Instead, the amended guidance contains a model under which an entity can consider a list of factors in determining whether the step-up in tax basis is related to the business combination that caused the initial recognition of goodwill or to a separate transaction. The Company does not have a step up in tax basis for goodwill.

 

ASU 2019-12 also modified intra-period tax allocation exception to incremental approach. As per the modification, an entity should determine the tax effect of income from continuing operations without considering the tax effect of items that are not included in continuing operations, such as discontinued operations or other comprehensive income. The Company does not believe this to have material impact on their consolidated financial statements.

 

The ASU also makes one minor improvements to the Codification topics. Tax benefit of tax-deductible dividends on allocated and unallocated employee stock ownership plan shares shall be recognized in the income statement. FASB decided to change the phrase “recognized in the income statement” to “recognized in income taxes allocated to continuing operations” to clarify where income tax benefits related to tax-deductible dividends should be presented in the income statement. This improvement is not expected to have material impact on the Company.

 

The above amendments are effective for fiscal years beginning after December 15, 2020.

 

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). The amendment makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other post retirement benefit plans. The new guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020.

 

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 expect the adoption of ASU 2016-13 will have a material impact on our consolidated financial statements.

 

In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments.” This ASU represents changes to clarify or improve the Codification. The amendments make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications in relation to financial instruments. This guidance was effective immediately upon issuance. The additional elements of the ASU did not have a material impact on the Company's consolidated results of operations, cash flows, financial position and or disclosures.

 

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 US 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. The Company is still in the process of assessing the impact of this ASU.

 

11

 

 

3. GOODWILL AND INTANGIBLE ASSETS

 

Goodwill

 

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

 

Reporting Units

 

September 30, 2020

   

December 31, 2019

 

Americas

    64,315       64,315  

India

    15,180       31,000  

Malaysia

    47,543       47,543  

Saudi Arabia

    54,840       54,840  

South Africa

    1,578       5,910  

Argentina

    4,991       4,991  

Australia

    8,186       10,742  

Total

  $ 196,633     $ 219,341  

 

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 Goodwill was allocated to new reporting units using a relative fair value allocation approach. We performed a quantitative assessment to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value.

 

The assumptions used in the analysis are based on the Company’s internal budget. The Company projected revenue, operating margins and cash flows for a period of five years and applied 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. The values assigned to each of the key assumptions reflect the management’s past experience as their assessment of future trends and are consistent with external/internal sources of information.

 

During the first quarter of 2020, the Company reviewed the carrying value of goodwill due to the events and circumstances surrounding the COVID-19 pandemic. As a result of the recent global economic disruption and uncertainty due to the COVID-19 pandemic, the Company concluded a triggering event had occurred as of March 31, 2020, and accordingly, performed interim impairment testing on the goodwill balances of its reporting units. As quoted market prices are not available for these reporting units, the calculations of their estimated fair values were based on a discounted cash flow model (income approach). 

 

The results of these interim impairment tests indicated that the estimated fair value of the India, South Africa and Australia reporting unit was less than its carrying value. Consequently, a goodwill impairment charge of $15,820, $4,332 and $2,556 was recorded for the India, South Africa and Australia reporting units, respectively.

 

As of September 30, 2020, based on the qualitative assessment, we concluded there is no additional impairment of goodwill.

 

The following table presents the changes in goodwill during the period:

 

   

Amount

 
Opening balance, December 31, 2019   $ 219,341  

Impairment

    (22,708 )

Ending balance, September 30, 2020

  $ 196,633  

 

Intangible Assets

 

The following table presents our intangible assets as of September 30, 2020:

 

   

Gross Intangibles

   

Accumulated Amortization

   

Net Intangibles

   

Weighted Average Amortization Period (years)

 

Customer relationships

  $ 66,220     $ 14,882     $ 51,338       6.5  

Brand

    49,500       10,484       39,016       7.1  

Trademarks

    13,210       1,935       11,275       7.5  

Other intangibles

    2,130       717       1,413       4.9  
    $ 131,060     $ 28,018     $ 103,042          

 

During the first quarter of 2020, the Company reviewed the carrying value of its intangible assets due to the events and circumstances surrounding the COVID-19 pandemic. As a result of the recent global economic disruption and uncertainty due to the COVID-19 pandemic, the Company concluded a triggering event had occurred as of March 31, 2020, and accordingly, performed interim impairment testing on the all intangible assets. Based on the results of our analyses, the estimated fair values of the intangibles exceeded the carrying values.

 

As of September 30, 2020, based on the qualitative assessment, we concluded there is no additional impairment of the Company's intangible assets.

 

Expected future amortization of intangible assets as of September 30, 2020 is as follows:

 

Years Ending December 31,

 

Amount

 
Remainder of 2020   $ 2,587  

2021

    10,350  

2022

    10,350  

2023

    10,306  

2024

    10,252  

Thereafter

    59,197  

 

 

12

 
 

4.  REVENUE

 

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

 

Contracts with Customers

 

All of the Company's revenues are derived from written contracts with our customers. Generally speaking, our contracts document our customers' intent 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 the majority 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 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).

 

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 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