EAGAN, Minn.--(BUSINESS WIRE)--Stream Global Services, Inc., a leading global business process outsource (BPO) service provider specializing in customer relationship management, including technical support, customer care and sales programs for Fortune 1000 companies, today announced consolidated financial results for the three and nine months ended September 30, 2013.
CEO Commentary
Kathryn Marinello, Chairman and Chief Executive Officer of Stream, said, “We continue to be very pleased with the performance of the business as we are reporting a 21% increase in revenue and a 20% increase in Adjusted EBITDA for the quarter ended September 30, 2013 over the comparable period in 2012. This included another strong quarter of 7% organic revenue growth. During the third quarter, we added a new product offering to our portfolio with the acquisition of N2SP and its chat technology. This is a continuation of our strategy to deliver analytics and revenue generating services for our clients.”
Third Quarter 2013 Financial Highlights
- Revenue for the quarter ended September 30, 2013 was $256 million, an increase of $45 million, or 21%, from the comparable period in 2012. The increase is primarily the result of the acquisition of LBM in the first quarter of 2013 and additional volume from existing clients.
- Gross profit increased approximately $16 million, or 18%, from the third quarter of 2012. The gross margin was 41.2% and 42.2% for the third quarter of 2013 and 2012, respectively. The decrease in gross margin was primarily driven by higher levels of agent training.
- Income from operations excluding severance, restructuring and other charges, net was $14 million and $11 million for the third quarter of 2013 and 2012, respectively. This improvement is primarily due to increased revenue period over period. For the first nine months of 2013, income from operations excluding severance, restructuring and other charges was $33 million, an increase of $11 million from the comparable period in 2012.
- Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) were $31 million for the third quarter of 2013 and $26 million for the third quarter of 2012. The increase is primarily due to our acquisition of LBM and increased client volume.
- Net income was $3 million and net loss was $4 million for the three and nine months ended September 30, 2013, respectively, compared to a net loss of $2 million and $17 million for the same periods in 2012.
- Days sales outstanding decreased 5 days from 71 days at September 30, 2012 to 66 days at September 30, 2013.
- Cash flow provided by operating activities for the third quarter of 2013 was $27 million, an increase of $30 million from cash flow used in operating activities in the third quarter of 2012 largely due to the increase in income from operations and working capital efficiencies. Free cash flow (operating cash flow less additions to equipment and fixtures and new capital lease financing) for the three and nine months ended September 30, 2013 was an inflow of $11 million, an increase of $37 million and $19 million from the three and nine months ended September 30, 2012, respectively. Spending on capital equipment decreased $7 million and $3 million, respectively, in the three and nine months ended September 30, 2013 compared to the comparable periods in 2012.
Americas Region
Revenue generated from our Americas region, which includes the United States, Canada, the Philippines, India, Nicaragua, Honduras, the Dominican Republic, El Salvador and China, was $166 million and $505 million for the three and nine months ended September 30, 2013, compared to $158 million and $463 million for the same periods in 2012. The increase was mainly due to increased client volumes.
Gross profit generated by the Americas region was $70 million and $215 million for the three and nine months ended September 30, 2013, compared to $70 million and $203 million for the same periods in 2012. The gross margin was 42.4% and 42.6% for the three and nine months ended September 30, 2013, and was 44.2% and 43.8% for the same periods in 2012. This decrease in gross margin was driven primarily by an increase in agent training costs.
EMEA Region
Revenue generated from our EMEA region, which includes Europe, the Middle East and Africa, for the three and nine months ended September 30, 2013 was $90 million and $243 million, compared to $53 million and $161 million for the same periods in 2012. The increase was mainly due to revenue from LBM and increased client volume.
Gross profit generated by the EMEA region was $35 million and $90 million for the three and nine months ended September 30, 2013, compared to $19 million and $57 million for the same periods in 2012. The gross margin was 38.9% and 37.1% for the three and nine months ended September 30, 2013, and was 36.1% and 35.3% for the same periods in 2012. This increase in gross margin was driven primarily by the acquisition of LBM and changes to the client program mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, which includes non-agent service center costs, were $74 million, or 29% of revenue, during the three months ended September 30, 2013 compared to $64 million, or 30% of revenue, during the same period in 2012. The increase in spending is primarily due to the addition of the LBM business, a larger investment in marketing and IT support personnel, and the opening of new service centers.
Liquidity and Capital Resources
At September 30, 2013, cash and cash equivalents was $16 million, down from $19 million at December 31, 2012. The balance on the company’s revolving line of credit was $30 million at September 30, 2013, compared to $35 million at December 31, 2012. Excluding the effect of acquisitions during 2013 that we funded with our revolving line of credit, the balance of our revolving line of credit would have been $8 million. At September 30, 2013, the company had in excess of $87 million of availability which could be drawn under its revolving line of credit.
We currently intend to replace, refinance or extend our revolving line of credit at or prior to its maturity in June 2014 and to replace, refinance or extend our outstanding 11.25% senior secured notes at or prior to their maturity in October 2014. However, there can be no assurance that we will be able to do so on terms favorable to us, or at all. We believe that the renegotiated financing, combined with our cash generated from operations and existing cash and cash equivalents, should be sufficient to meet expected liquidity needs for the next 12 months.
About Stream Global Services:
Stream Global Services is a leading global business process outsource (BPO) service provider specializing in customer relationship management, including technical support, customer care and sales, for Fortune 1000 companies. Stream is a trusted partner to some of the world’s leading technology, computing, telecommunications, retail, entertainment/media, and financial services companies. Stream’s service programs are delivered through a set of standardized best practices and sophisticated technologies by a highly skilled multilingual workforce of over 40,000 employees capable of supporting over 35 languages across approximately 56 service centers in 22 countries. Stream strives to expand its global presence and service offerings to increase revenue, improve operational efficiencies and drive brand loyalty for its clients. To learn more about the company and its complete service offering, please visit www.stream.com.
Non-GAAP Financial Information
This release contains non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of Stream’s performance or liquidity, should be considered in addition to, not as a substitute for, measures of Stream’s financial performance or liquidity prepared in accordance with GAAP. Non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how Stream defines non-GAAP financial measures in this release.
Stream’s management uses the non-GAAP financial measures in the accompanying schedules to gain an understanding of Stream’s comparative operating performance (when comparing such results with previous periods) and future prospects and excludes certain items from its internal financial statements for purposes of its internal budgets and financial goals. These non-GAAP financial measures are used by Stream’s management in their financial and operating decision-making because management believes they reflect Stream’s ongoing business in a manner that allows meaningful period-to-period comparisons. Stream’s management believes that these non-GAAP financial measures provide useful information to investors and others in (a) understanding and evaluating Stream’s current operating performance and future prospects in the same manner as management does, if they so choose, and (b) in comparing in a consistent manner Stream’s current financial results with its past financial results.
All of the foregoing non-GAAP financial measures have limitations. Specifically, the non-GAAP financial measures that exclude certain items do not include all items of income and expense that affect Stream’s operations. Further, these non-GAAP financial measures are not prepared in accordance with GAAP, may not be comparable to non-GAAP financial measures used by other companies and do not reflect any benefit that such items may confer on Stream. Management compensates for these limitations by also considering Stream’s financial results in accordance with GAAP.
The required reconciliations and other disclosures for all non-GAAP measures used by the Company are set forth in a schedule attached to this press release.
Safe Harbor
This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including forward-looking statements concerning expectations regarding future operating performance and economic and market conditions. The forward looking statements made are neither promises nor guarantees, and are subject to risk and uncertainties that could cause our actual results to differ materially from those anticipated or indicated, including, without limitation, risks and uncertainties relating to our current operation in, as well as entry into, new markets; changes in general economic and business conditions; fluctuations in foreign currency rates; fluctuations in sales volume, timing and sales cycles; our ability to retain our employees in light of competition for agents; our ability to make payments required under our outstanding indebtedness; delays in obtaining new clients or sales from existing clients; delays or interruptions of service as a result of power loss, fire, natural disasters, security breaches, civil unrest or political upheaval, and other similar events; litigation; intense competition in the marketplace from competitors; future acquisitions, joint ventures or other strategic investments; and our ability to obtain necessary financing in the future plus other risks detailed in the Company’s filings with the U.S. Securities and Exchange Commission (“SEC”), including those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
Stream does not intend, and disclaims any obligation, to update any forward-looking information contained in this release, even if its estimates change.
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STREAM GLOBAL SERVICES, INC. |
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Consolidated Condensed Statements of Operations |
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(Unaudited) |
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(In thousands) |
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| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Revenue | $ | 256,011 | $ | 210,931 | $ | 747,977 | $ | 624,213 | ||||||||
| Direct cost of revenue | 150,626 | 121,997 | 442,831 | 364,775 | ||||||||||||
| Gross profit | 105,385 | 88,934 | 305,146 | 259,438 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | 74,435 | 63,665 | 223,452 | 194,526 | ||||||||||||
| Severance, restructuring and other charges, net | 3,631 | 3,419 | 10,251 | 12,871 | ||||||||||||
| Depreciation and amortization expense | 16,953 | 14,554 | 48,425 | 43,227 | ||||||||||||
| Total operating expenses | 95,019 | 81,638 | 282,128 | 250,624 | ||||||||||||
| Income from operations | 10,366 | 7,296 | 23,018 | 8,814 | ||||||||||||
| Interest expense, net | 8,752 | 7,422 | 25,714 | 22,087 | ||||||||||||
| Foreign currency loss | 1,541 | 1,258 | 1,084 | 1,053 | ||||||||||||
| Income (loss) before provision for income taxes | 73 | (1,384 | ) | (3,780 | ) | (14,326 | ) | |||||||||
| Provision (benefit) for income taxes | (2,531 | ) | 797 | (106 | ) | 2,976 | ||||||||||
| Net income (loss) | $ | 2,604 | $ | (2,181 | ) | $ | (3,674 | ) | $ | (17,302 | ) | |||||
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STREAM GLOBAL SERVICES, INC. |
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Consolidated Condensed Balance Sheets |
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(Unaudited) |
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(In thousands) |
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| September 30, | December 31, | |||||
| 2013 | 2012 | |||||
| Assets: | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 15,675 | $ | 18,735 | ||
| Accounts receivable, net | 188,377 | 164,929 | ||||
| Other current assets | 23,736 | 29,008 | ||||
| Total current assets | 227,788 | 212,672 | ||||
| Equipment and fixtures, net | 105,035 | 96,851 | ||||
| Goodwill, intangible assets, and other long-term assets | 328,475 | 294,505 | ||||
| Total assets | $ | 661,298 | $ | 604,028 | ||
| Liabilities and Stockholders’ Equity: | ||||||
| Current liabilities | $ | 186,845 | $ | 116,185 | ||
| Debt, net of discounts | 236,369 | 240,354 | ||||
| Capital lease obligations | 5,898 | 5,967 | ||||
| Deferred income taxes | 14,875 | 15,673 | ||||
| Other long-term liabilities | 17,618 | 15,953 | ||||
| Total liabilities | 461,605 | 394,132 | ||||
| Stockholders’ equity | 199,693 | 209,896 | ||||
| Total liabilities and stockholders’ equity | $ | 661,298 | $ | 604,028 | ||
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STREAM GLOBAL SERVICES, INC. |
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Consolidated Condensed Statements of Cash Flows |
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(Unaudited) |
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(In thousands) |
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| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Operating Activities: | ||||||||||||||||
| Net income (loss) | $ | 2,604 | $ | (2,181 | ) | $ | (3,674 | ) | $ | (17,302 | ) | |||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
| Depreciation and amortization | 16,953 | 14,554 | 48,425 | 43,227 | ||||||||||||
| Other non-cash expenses | 2,167 | 1,864 | 5,742 | 6,232 | ||||||||||||
| Changes in operating assets and liabilities | 5,613 | (17,355 | ) | (621 | ) | 1,226 | ||||||||||
| Net cash provided by (used in) operating activities | $ | 27,337 | $ | (3,118 | ) | $ | 49,872 | $ | 33,383 | |||||||
| Investing Activities: | ||||||||||||||||
| Acquisitions of business | $ | (2,855 | ) | $ | — | $ | (44,022 | ) | $ | — | ||||||
| Cash acquired from acquisitions | 266 | — | 5,217 | — | ||||||||||||
| Additions to equipment and fixtures | (12,753 | ) | (20,708 | ) | (31,147 | ) | (36,556 | ) | ||||||||
| Net cash used in investing activities | $ | (15,342 | ) | $ | (20,708 | ) | $ | (69,952 | ) | $ | (36,556 | ) | ||||
| Net cash provided by (used in) financing activities | $ | (10,507 | ) | $ | 23,515 | $ | 18,805 | $ | (8,132 | ) | ||||||
| Effect of exchange rates on cash and cash equivalents | $ | 65 | $ | 1,346 | $ | (1,785 | ) | $ | 89 | |||||||
| Net increase (decrease) in cash and cash equivalents | $ | 1,553 | $ | 1,035 | $ | (3,060 | ) | $ | (11,216 | ) | ||||||
| Cash and cash equivalents, beginning of period | $ | 14,122 | $ | 10,997 | $ | 18,735 | $ | 23,248 | ||||||||
| Cash and cash equivalents, end of period | $ | 15,675 | $ | 12,032 | $ | 15,675 | $ | 12,032 | ||||||||
| Supplemental Item: | ||||||||||||||||
| Capital lease financing | $ | 3,685 | $ | 2,348 | $ | 7,380 | $ | 4,592 | ||||||||
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STREAM GLOBAL SERVICES, INC. |
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Reconciliation of GAAP to Non-GAAP Income from Operations Excluding Severance, restructuring and other charges, net |
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(Unaudited) |
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(In thousands) |
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| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Operating income as shown on a GAAP basis | $ | 10,366 | $ | 7,296 | $ | 23,018 | $ | 8,814 | ||||||||
| Severance, restructuring and other charges, net | 3,631 |
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3,419 |
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10,251 |
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12,871 |
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| Income from operations excluding severance, restructuring and other charges, net | $ | 13,997 | $ | 10,715 | $ | 33,269 | $ | 21,685 | ||||||||
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Reconciliation of GAAP to Non-GAAP Adjusted EBITDA |
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(Unaudited) |
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(In thousands) |
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| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 |
2012 |
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| Operating income as shown on a GAAP basis |
$ |
10,366 | $ | 7,296 |
$ |
23,018 | $ | 8,814 | ||||||||
| Add items to reconcile to non-GAAP Adjusted EBITDA: | ||||||||||||||||
| Depreciation and amortization | 16,953 |
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14,554 |
48,425 |
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43,227 |
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| Severance, restructuring and other charges, net | 3,631 |
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3,419 |
10,251 |
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12,871 |
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| Stock based compensation expense | 397 |
|
836 |
1,113 |
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2,310 |
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| Adjusted EBITDA |
$ |
31,347 | $ | 26,105 |
$ |
82,807 | $ | 67,222 | ||||||||
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Reconciliation of GAAP to Non-GAAP Free Cash Flow |
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(Unaudited) |
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(In thousands) |
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| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Cash flows from operations | $ | 27,337 | $ | (3,118 |
) |
$ | 49,872 | $ | 33,383 | |||||||
| Add (deduct) items to reconcile to non-GAAP Free Cash Flow: | ||||||||||||||||
| Additions to equipment and fixtures | (12,753 |
) |
|
|
(20,708 |
) |
|
(31,147 |
) |
|
(36,556 |
) | ||||
| Capital lease financing | (3,685 |
) |
|
|
(2,348 |
) |
|
(7,380 |
) |
|
(4,592 |
) | ||||
| Free cash flow | $ | 10,899 | $ | (26,174 |
) |
$ | 11,345 | $ | (7,765 | ) | ||||||
