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 2020-06-30 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 2020-08-10 Earnings, Exhibits
8-K 2020-07-30 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2020-07-09 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2020-07-01 Officers, Exhibits
8-K 2020-06-29 Enter Agreement, Sale of Shares
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_190864.htm
EX-31.2 ex_190865.htm
EX-32.1 ex_190866.htm

Startek Earnings 2020-06-30

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 June 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  July 31, 2020, there were 40,282,637 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 Six Months Ended June 30, 2020 and 2019 (Unaudited)

4

 

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

5

 

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

4

 

Condensed Consolidated Statement of Stockholders' Equity for the Three and Six Months Ended June 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 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 and Geographical Information 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 June 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 now 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 June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenue

    142,652       161,283       303,829       322,425  

Warrant contra revenue

    (485 )     (730 )     (763 )     (730 )

Net Revenue

    142,167       160,553       303,066       321,695  

Cost of services

    (126,354 )     (132,993 )     (267,195 )     (266,921 )

Gross profit

    15,813       27,560       35,871       54,774  

Selling, general and administrative expenses

    (14,644 )     (24,936 )     (31,899 )     (49,015 )

Impairment losses and restructuring/exit cost

    (235 )     (721 )     (24,557 )     (1,850 )

Acquisition related cost

    -       (25 )     -       11  

Operating (Loss) / Income

    934       1,878       (20,585 )     3,920  

Share of (loss) / profit of equity accounted investees

    (12 )     662       (20 )     1,003  

Interest expense, net

    (3,190 )     (4,026 )     (6,696 )     (8,492 )

Exchange gain / (loss), net

    (1,637 )     14       291       (677 )

Loss before income taxes

    (3,905 )     (1,472 )     (27,010 )     (4,246 )

Income tax expense

    1,283       730       4,159       1,113  

Net loss

    (5,188 )     (2,202 )     (31,169 )     (5,359 )
                                 
Net (Loss) / income                                

Net income attributable to non-controlling interests

    29       1,392       605       1,581  

Net loss attributable to Startek shareholders

    (5,217 )     (3,594 )     (31,774 )     (6,940 )
                                 

Net loss per common share - basic and diluted

    (0.14 )     (0.10 )     (0.82 )     (0.18 )

Weighted average common shares outstanding - basic and diluted

    38,614       37,779       38,571       37,779  
                                 

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net Loss

    (5,188 )     (2,202 )     (31,169 )     (5,359 )

Net income attributable to noncontrolling interests

    29       1,392       605       1,581  

Net loss attributable to Startek shareholders

    (5,217 )     (3,594 )     (31,774 )     (6,940 )
                                 

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

                               

Foreign currency translation adjustments

    727       32       (3,665 )     599  

Change in fair value of derivative instruments

    (8 )     413       (680 )     348  

Pension amortization

    (3,026 )     (236 )     (2,630 )     (60 )

Comprehensive (loss) / income

    (2,307 )     209       (6,975 )     887  
                                 

Other comprehensive (loss) / income, net of taxes

                               

Other comprehensive (loss) / income attributable to noncontrolling interest

    (1,787 )     (111 )     (1,624 )     (25 )

Other comprehensive (loss) / income attributable to Startek shareholders

    (520 )     320       (5,351 )     912  
      (2,307 )     209       (6,975 )     887  

Comprehensive (loss) / income

                               

Comprehensive income attributable to noncontrolling interests

    (1,758 )     1,281       (1,019 )     1,556  

Comprehensive loss attributable to Startek shareholders

    (5,737 )     (3,274 )     (37,125 )     (6,028 )
      (7,495 )     (1,993 )     (38,144 )     (4,472 )

 

See Notes to Consolidated Financial Statements.

 

 

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except share data)

(Unaudited)

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

  47,451   20,464 

Restricted cash

  8,966   12,162 

Trade accounts receivable, net

  70,194   108,479 

Unbilled revenue

  40,181   41,449 

Prepaid and other current assets

  14,308   12,008 

Total current assets

  181,100   194,562 

Property, plant and equipment, net

  37,644   37,507 

Operating lease right-of-use assets

  77,437   73,692 

Intangible assets, net

  105,644   110,807 

Goodwill

  196,633   219,341 

Investment in associates

  109   553 

Deferred tax assets, net

  2,980   5,251 

Prepaid expenses and other non-current assets

  17,113   16,370 

Total assets

  618,660   658,083 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Trade accounts payables

  18,669   25,449 

Accrued expenses

  54,857   45,439 

Short term debt

  29,134   26,491 

Current maturity of long term debt

  9,863   18,233 

Current maturity of operating lease obligation

  20,223   19,677 

Other current liabilities

  39,089   37,159 

Total current liabilities

  171,835   172,448 

Long term debt

  110,923   130,144 

Operating lease liabilities

  58,251   54,341 

Other non-current liabilities

  17,935   11,140 

Deferred tax liabilities, net

  17,095   18,226 

Total liabilities

  376,039   386,299 

Commitments and contingencies

      

Stockholders’ equity:

        

Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 40,210,299 and 38,525,636 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

  401   385 

Additional paid-in capital

  286,205   276,827 

Accumulated deficit

  (78,332)  (46,145)

Accumulated other comprehensive loss

  (11,373)  (6,022)

Equity attributable to Startek shareholders

  196,901   225,045 

Non-controlling interest

  45,720   46,739 

Total stockholders’ equity

  242,621   271,784 

Total liabilities and stockholders’ equity

  618,660   658,083 

 

See Notes to Consolidated Financial Statements.

 

 

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

   

Six Months Ended June 30,

 
   

2020

   

2019

 

Operating Activities

               

Net loss

  $ (31,169 )   $ (5,359 )

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

               

Depreciation and amortization

    14,328       14,631  
   Impairment of goodwill     22,708       -  

Profit on sale of property, plant and equipment

    -       (223 )

Provision for doubtful accounts

    889       1,169  

Warrant contra revenue

    763       730  

Share-based compensation expense

    209       781  

Deferred income taxes

    1,604       (1,224 )

Share of profit of associates

    20       (1,003 )

Changes in operating assets and liabilities:

               

Trade accounts receivable

    34,022       (1,218 )

Prepaid expenses and other assets

    (2,301 )     (7,677 )

Trade accounts payable

    (5,920 )     (2,091 )

Income taxes, net

    (2,314 )     (2,663 )

Accrued expenses and other current liabilities

    15,558       (1,280 )

Net cash (used in) / generated from operating activities

  $ 48,397     $ (5,427 )
                 

Investing Activities

               

Purchases of property, plant and equipment

    (7,864 )     (7,302 )
Proceeds from equity-accounted investees     395       1,329  

Net cash used in generated investing activities

  $ (7,469 )   $ (5,973 )
                 

Financing Activities

               

Proceeds from the issuance of common stock

    8,009       6,466  

Payments on long term debt

    (4,200 )     (4,200 )

Proceeds from (payments on) other debt, net

    (20,449 )     10,513  

Net cash (used in) / generated from financing activities

  $ (16,640 )   $ 12,779  

Net increase in cash and cash equivalents

    24,288       1,379  

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

    (497 )     (40 )

Cash and cash equivalents and restricted cash at beginning of period

    32,626       24,569  

Cash and cash equivalents and restricted cash at end of period

  $ 56,417     $ 25,908  
                 

Components of cash and cash equivalents and restricted cash

               

Balances with banks

    47,451       15,452  

Restricted cash

    8,966       10,456  

Total cash and cash equivalents and restricted cash

    56,417     $ 25,908  
                 
Supplemental disclosure of Cash Flow Information                
Cash paid for Interest and other finance cost     6,440       8,200  
Cash paid for income taxes     4,017       4,920  
Non cash warrant contra revenue     763       730  
Non cash share-based compensation expenses     209       781  

 

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 March 31, 2020

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

Issuance of common stock

  1,668,575   16   7,950   -   -   -   -   7,966   -   7,966 

Share-based compensation expenses

  -   -   (82)  -   -   -   -   (82)  -   (82)

Warrant expenses

  -   -   485   -   -   -   -   485   -   485 

Net income (loss)

  -   -   -   (5,217)  -   -   -   (5,217)  29   (5,188)

Other comprehensive loss for the period

  -   -   -   -   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 
                                         

Balance at March 31, 2019

  37,561,744  $375  $268,256  $(34,473) $(3,422) $(80) $(1,453) $229,203  $45,631  $274,834 

Issuance of common stock

  890,367   9   5,942   -   -   -   -   5,951   -   5,951 

Share-based compensation expenses

  -   -   356   -   -   -   -   356   -   356 

Warrant expenses

  -   -   730   -   -   -   -   730   -   730 

Net income (loss)

  -   -   -   (3,594)  -   -   -   (3,594)  1,392   (2,202)

Other comprehensive loss for the period

  -   -   -   -   32   413   (125)  320   (111)  209 

Balance at June 30, 2019

  38,452,111  $384  $275,284  $(38,067) $(3,390) $333  $(1,578) $232,966  $46,912  $279,878 
                                         

Six 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

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

Share-based compensation expenses

  -   -   209   -   -   -   -   209   -   209 

Warrant expenses

  -   -   763   -   -   -   -   763   -   763 

Net income (loss)

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

Other comprehensive loss for the period

  -   -   -   -   (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 
                                         

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

  1,005,788   10   6,456   -   -   -   -   6,466   -   6,466 

Share-based compensation expenses

  -   -   781   -   -   -   -   781   -   781 

Warrant expenses

  -   -   730   -   -   -   -   730   -   730 

Net income (loss)

  -   -   -   (6,940)  -   -   -   (6,940)  1,581   (5,359)

Other comprehensive loss for the period

  -   -   -   -   599   348   (35)  912   (25)  887 

Balance at June 30, 2019

  38,452,111  $384  $275,284  $(38,067) $(3,390) $333  $(1,578) $232,966  $46,912  $279,878 

 

 

 

STARTEK, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 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 global business process outsourcing company that provides omnichannel customer interactions, technology and back-office support solutions for some of the world’s most iconic brands in a variety of vertical markets. Operating under the Startek and Aegis brand, we help these large global companies connect emotionally with their customers, solve issues, and improve net promoter scores and other customer-facing performance metrics. Through consulting and analytics services, technology-led innovation, and engagement solutions, we deliver personalized experiences at the point of conversation between our clients and their customers across every interaction channel and phase of the customer journey.

 

Startek has proven results for the multiple services we provide, including sales, order management and provisioning, customer care, technical support, receivables management, and retention programs. We manage programs using a variety of multi-channel customer interactions, including voice, chat, email, social media and back-office support. Startek has facilities in 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 Statements of Comprehensive 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, a 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. 

 

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 31 December 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

 

June 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 unit respectively.

 

As of June 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, June 30, 2020

  $ 196,633  

 

Intangible Assets

 

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

 

   

Gross Intangibles

   

Accumulated Amortization

   

Net Intangibles

   

Weighted Average Amortization Period (years)

 

Customer relationships

  $ 66,220     $ 13,474     $ 52,746       6.5  

Brand

    49,500       9,561       39,939       7.1  

Trademarks

    13,210       1,715       11,495       7.5  

Other intangibles

    2,130       666       1,464       4.9  
    $ 131,060     $ 25,416     $ 105,644          

 

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 trade names exceeded the carrying values.

 

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

 

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

 

Years Ending December 31,

 

Amount

 
Remainder of 2020   $ 5,175  

2021

    10,350