BOSTON--(BUSINESS WIRE)--Stream Global Services, Inc., (NYSE AMEX: SGS), a leading global business process outsource (BPO) service provider specializing in customer relationship management including technical support and sales programs for Fortune 1000 companies, today announced consolidated financial results for the three months and year ended December 31, 2011. On February 29, 2012 Stream also filed its Annual Report on Form 10-K with the Securities and Exchange Commission for the fiscal year ended December 31, 2011.
CEO Commentary
Kathryn Marinello, Chairman and Chief
Executive Officer of Stream, said, “We are very pleased to report record
Net Income and record Adjusted EBITDA for the fourth quarter. Execution
of our strategy that we initiated over a year ago yielded the intended
results – net income of $4 million and a 32% growth in Adjusted EBITDA
over the same quarter for the prior year. Further, for the year, we saw
strong demand for our services as demonstrated by our 6% growth in
year-over-year in revenue.”
“Our strategy was to significantly invest in our business – our people and our infrastructure – with the expectation that we would see a return on this investment. We invested $20 million more in capital expenditures this year and spent $5 million more on agent incentives. We measure our clients’ and employees’ satisfaction levels and we are very pleased that during 2011, our client satisfaction scores increased 20% over the prior year and our agent survey results show a similar marked increase in satisfaction with Stream Global Services.”
Fourth Quarter 2011 Financial Highlights
• Net income was $4 million for the three months ended December 31, 2011 compared to a net loss of $9 million for the three months ended December 31, 2010.
• Revenue for the quarter ended December 31, 2011 was $220 million, a decrease of $2 million, or 1%, from the same period in 2010 principally due to (i) the previously announced cessation of our South Africa operations, (ii) not renewing a seasonal program with a medical insurance company as the work volumes available were lower than the prior year, and (iii) the change in foreign exchange rates from 2010 to 2011 which lowered revenue by approximately $1 million.
• Gross profit increased approximately $5 million, or 5%, over the prior year fourth quarter. The Gross Profit percentage was 43% for the fourth quarter of 2011 versus 40% for the fourth quarter of 2010. The 260 basis point improvement in the gross margin percentage is a result of our programs to improve agent utilization and attrition as well as pricing of new business.
• Income From Operations Excluding Severance, Restructuring and Other Charges, net for the quarter ended December 31, 2011 was $16 million versus $6 million for the same period in 2010. This $10 million increase reflects higher gross profit earned on the increased revenue and a relative decline in Selling, General and Administrative expenses from 30% of revenue for the fourth quarter 2010 to 29% of revenue for the fourth quarter of 2011. This improvement is largely the result of our cost efficiency improvement programs implemented during 2011.
• Cash flow from operating activities for the fourth quarter 2011 was $4 million, a decrease of $4 million from the prior year period largely due to severance payments of $5 million made in the quarter. Days Sales Outstanding improved from 73 days at December 31, 2010 to 68 days at December 31, 2011.
• Free Cash Flow (operating cash flow less additions to equipment and fixtures and new capital lease financing) for the fourth quarter of 2011 was outflows of $11 million and for the quarter ended December 31, 2010 was outflows of $6 million. The decrease in free cash flow during the quarter was a result of higher capital expenditures in the fourth quarter of 2011 of $2 million and salary continuation payments to employees during the fourth quarter of 2011 of $5 million.
• Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $31 million for the fourth quarter of 2011, an increase of $8 million, or 32%, from the fourth quarter of 2010. Changes in currency rates did not have a material impact on the quarter’s Adjusted EBITDA.
Full Year 2011 Financial Highlights
• Net loss was $24 million for the year ended December 31, 2011 versus a net loss of $53 million for the year ended December 31, 2010.
• Revenue for 2011 increased by 6% to $847 million from $800 million in 2010. Stream signed an estimated $155 million, on an annualized basis once fully ramped, of revenue with both new and existing clients. The impact of changes in exchange rates from 2010 to 2011 was an increase to revenue of approximately $11 million.
• Gross profit increased approximately $22 million, or 7%, in 2011 compared to 2010. The Gross Profit percentage was 42% for the year ended December 31, 2011 versus 41% for the year ended December 31, 2010. The improvement in the gross margin percentage is a result of our programs to improve agent utilization and attrition as well as pricing of new business.
• Income (loss) From Operations Excluding Severance, Restructuring and Other Charges, net was income of $26 million for the year ended December 31, 2011, an increase of $27 million from the comparable loss of $1 million in the year ended December 31, 2010.
• Cash flow from operating activities for the year ended December 31, 2011 was $51 million, an increase of $29 million from the prior year period largely due to improved operating performance in the year as well as improvements in days sales outstanding achieved in 2011.
• Free Cash Flow (operating cash flow less additions to equipment and fixtures and new capital lease financing) for the year ended December 31, 2011 was an inflow of $0.4 million, an increase of $9 million from 2010. The improvement in free cash flow occurred despite an increase of approximately $20 million in capital expenditures and higher severance payments to employees during 2011 of $9 million.
• Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $89 million for the twelve months ended December 31, 2011, an increase of $18 million or 25% from $71 million for the year ended December 31, 2010. Our 2011 results reflect China start-up costs of approximately $2 million. On a year-over-year constant currency basis, our Adjusted EBITDA would have been higher by approximately $2 million had there been no change in global currency rates.
Americas Region
Revenue generated from our Americas region,
which includes the United States, Canada, the Philippines, India, Costa
Rica, Nicaragua, the Dominican Republic, El Salvador and China, was $160
million and $609 million for the three months and year ended
December 31, 2011 compared $163 million and $588 million for the same
periods in 2010, respectively.
Gross profit generated by the Americas region was $72 million and $267 million for the three months and year ended December 31, 2011 compared to $67 million and $248 million for the same periods in 2010, respectively. The gross margin percentage for the three months and year ended December 31, 2011 was 45% and 44% and was 41% and 42% for the same periods in 2010, respectively.
EMEA Region
Revenue generated from our EMEA region, which
includes Europe, the Middle East and Africa, for the three months and
year ended December 31, 2011 was $60 million and $238 million,
respectively compared to $60 million and $212 million for the same
periods in 2010, respectively.
Gross profit generated by the EMEA region for the three months and year ended December 31, 2011 was $23 million and $85 million, with a gross margin of 39% and 36%, respectively compared to $22 million and $80 million with a gross margin percentage of 37% and 38%, respectively, for the same periods in 2010.
Selling, General and Administrative Expense
Selling, general
and administrative expenses, which includes non-agent service center
costs, was $64 million or 29% of revenue during the three months ended
December 31, 2011 and $67 million or 30% of revenue during the same
period in 2010. This percentage decrease is a result of management focus
on cost efficiency, including the impact of reductions in our workforce
earlier in 2011.
Liquidity and Capital Resources
At December 31, 2011, cash
and cash equivalents was $25 million, up from $18 million at
December 31, 2010. The balance on the revolving line of credit was $45
million at December 31, 2011 and reflects the cash outlay of
approximately $14 million for repurchases of our common stock during
2011. At December 31, 2011, the company had in excess of $50 million of
availability which could be drawn under its revolving line of credit.
Facilities
During 2011 we materially increased our capital
expenditures to $51 million from $31 million in 2010. We did this to
update our centers and infrastructure to better service our clients and
employees. At the same time, we also reviewed our global footprint with
a view to maximize its potential to service our clients and, in this
regard, we opened a new center in China and ceased operations in South
Africa. We also actively renegotiated several leases and as a result
recorded a reduction of $1.4 million to our asset retirement obligations
during the fourth quarter of 2011. As a result, during the fourth
quarter, we reversed into income $1.4 million of asset retirement
obligations on fully depreciated sites where the lessors amended the
leases to remove the obligation to restore the sites.
Stream will hold a conference call for investors on March 1, 2012 at 8:30 AM EDT. Investors can participate by calling 1-800-230-1074 or 1-612-234-9959 (for callers outside the US).
About Stream Global Services:
Stream Global Services is a
leading global business process outsource (BPO) service provider
specializing in customer relationship management services including
sales, customer care and technical support 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 31,000
employees capable of supporting over 35 languages across 49 locations 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.
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,
2011.
Stream does not intend, and disclaims any obligation, to update any forward-looking information contained in this release, even if its estimates change.
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 and in the Current Report on Form 8-K furnished to the SEC on the date hereof.
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.
| STREAM GLOBAL SERVICES, INC. | ||||||||||||||||||||
| Consolidated Condensed Statements of Operations | ||||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||
| Revenue | $ | 220,081 | $ | 222,548 | $ | 846,907 | $ | 800,173 | ||||||||||||
| Direct cost of revenue | 125,415 | 132,668 | 494,426 | 469,537 | ||||||||||||||||
| Gross profit | 94,666 | 89,880 | 352,481 | 330,636 | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative expenses | 64,013 | 67,184 | 266,252 | 265,705 | ||||||||||||||||
| Severance, restructuring and other charges, net | 2,174 | 3,182 | 10,769 | 11,899 | ||||||||||||||||
| Depreciation expense | 10,907 | 11,375 | 43,320 | 45,066 | ||||||||||||||||
| Amortization expense | 3,823 | 5,207 | 17,002 | 20,837 | ||||||||||||||||
| Total operating expenses | 80,917 | 86,948 | 337,343 | 343,507 | ||||||||||||||||
| Income (loss) from operations | 13,749 | 2,932 | 15,138 | (12,871 | ) | |||||||||||||||
| Interest expense | 7,124 | 7,838 | 28,780 | 30,720 | ||||||||||||||||
| Foreign currency transaction loss (gain) | (220 | ) | 282 | 3,902 | (508 | ) | ||||||||||||||
| Income (loss) before provision for income taxes | 6,845 | (5,188 | ) | (17,544 | ) | (43,083 | ) | |||||||||||||
| Provision for income taxes | 2,756 | 3,728 | 6,093 | 10,392 | ||||||||||||||||
| Net income (loss) | $ | 4,089 | $ | (8,916 | ) | $ | (23,637 | ) | $ | (53,475 | ) | |||||||||
| Net income (loss) per share: | ||||||||||||||||||||
| Basic and diluted | $ | 0.05 | $ | (0.11 | ) | $ | (0.30 | ) | $ | (0.67 | ) | |||||||||
| Shares used in computing per share amounts: | ||||||||||||||||||||
| Basic and diluted | 76,393 | 80,081 | 77,966 | 79,905 | ||||||||||||||||
| STREAM GLOBAL SERVICES, INC. | ||||||||
| Consolidated Condensed Balance Sheets | ||||||||
| (In thousands) | ||||||||
| December 31, | December 31, | |||||||
| 2011 | 2010 | |||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 24,586 | $ | 18,489 | ||||
| Accounts receivable, net | 165,963 | 180,211 | ||||||
| Other current assets | 27,822 | 37,190 | ||||||
| Total current assets | 218,371 | 235,890 | ||||||
| Equipment and fixtures, net | 87,611 | 80,859 | ||||||
| Goodwill, intangible assets, and other long-term assets | 312,052 | 331,236 | ||||||
| Total assets | $ | 618,034 | $ | 647,985 | ||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Current liabilities | $ | 121,932 | $ | 118,608 | ||||
| Revolving line of credit | 44,755 | 24,506 | ||||||
| Debt, net of discounts | 195,019 | 192,693 | ||||||
| Capital lease obligations | 9,964 | 10,491 | ||||||
| Deferred income taxes | 19,103 | 21,838 | ||||||
| Other long-term liabilities | 13,817 | 20,131 | ||||||
| Total liabilities | 404,590 | 388,267 | ||||||
| Stockholders’ equity | 213,444 | 259,718 | ||||||
| Total liabilities and stockholders’ equity | $ | 618,034 | $ | 647,985 | ||||
| STREAM GLOBAL SERVICES, INC. | ||||||||||||||||||||
| Consolidated Condensed Statements of Cash Flows | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||
| Operating Activities: | ||||||||||||||||||||
| Net income (loss) | $ | 4,089 | $ | (8,916 | ) | $ | (23,637 | ) | $ | (53,475 | ) | |||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 14,730 | 16,582 | 60,322 | 65,903 | ||||||||||||||||
| Other non-cash expenses | 2,035 | 5,626 | 7,619 | 20,429 | ||||||||||||||||
| Changes in operating assets and liabilities | (16,971 | ) | (5,621 | ) | 7,149 | (10,413 | ) | |||||||||||||
| Net cash provided by operating activities | $ | 3,883 | $ | 7,671 | $ | 51,453 | $ | 22,444 | ||||||||||||
| Investing Activities: | ||||||||||||||||||||
| Additions to equipment and fixtures | $ | (12,485 | ) | $ | (9,834 | ) | $ | (39,312 | ) | $ | (22,904 | ) | ||||||||
| Net cash used in investing activities | $ | (12,485 | ) | $ | (9,834 | ) | $ | (39,312 | ) | $ | (22,904 | ) | ||||||||
| Net cash provided by (used in) financing activities | $ | 13,511 | $ | (543 | ) | $ | (3,034 | ) | $ | 3,788 | ||||||||||
| Effect of exchange rates on cash and cash equivalents | (1,693 | ) | (249 | ) | (3,010 | ) | 233 | |||||||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 3,216 | $ | (2,955 | ) | $ | 6,097 | $ | 3,561 | |||||||||||
| Cash and cash equivalents, beginning of period | $ | 21,370 | $ | 21,444 | $ | 18,489 | $ | 14,928 | ||||||||||||
| Cash and cash equivalents, end of period | $ | 24,586 | $ | 18,489 | $ | 24,586 | $ | 18,489 | ||||||||||||
| Supplemental Item: | ||||||||||||||||||||
| Capital lease financing | $ | 2,674 | $ | 3,603 | $ | 11,772 | $ | 8,219 | ||||||||||||
| STREAM GLOBAL SERVICES, INC. | |||||||||||||||||
| Reconciliation of GAAP to Non-GAAP Income (Loss) from Operations Excluding Severance, restructuring and other charges, net | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| (In thousands) | |||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||
| Operating income (loss) as shown on a GAAP basis | $ | 13,749 | $ | 2,932 | $ | 15,138 | $ | (12,871 | ) | ||||||||
| Severance, restructuring and other charges, net | 2,174 | 3,182 | 10,769 | 11,899 | |||||||||||||
| Income (loss) from operations excluding severance, restructuring and other charges, net | $ | 15,923 | $ | 6,114 | $ | 25,907 | $ | (972 | ) | ||||||||
| Reconciliation of GAAP to Non-GAAP Adjusted EBITDA | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| (In thousands) | |||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||
| Operating income (loss) as shown on a GAAP basis | $ | 13,749 | $ | 2,932 | $ | 15,138 | $ | (12,871 | ) | ||||||||
| Add items to reconcile to non-GAAP Adjusted EBITDA: | |||||||||||||||||
| Depreciation and amortization | 14,730 | 16,582 | 60,322 | 65,903 | |||||||||||||
| Transaction, severance, closure related expenses, net | 2,174 | 3,080 | 10,769 | 13,302 | |||||||||||||
| Stock based compensation expense | 476 | 989 | 2,356 | 4,684 | |||||||||||||
| Adjusted EBITDA | $ | 31,129 | $ | 23,583 | $ | 88,585 | $ | 71,018 | |||||||||
| Reconciliation of GAAP to Non-GAAP Free Cash Flow | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||
| Cash flows from operations | $ | 3,883 | $ | 7,671 | $ | 51,453 | $ | 22,444 | ||||||||||||
| Add (deduct) items to reconcile to non-GAAP Free Cash Flow: | ||||||||||||||||||||
| Additions to equipment and fixtures | (12,485 | ) | (9,834 | ) | (39,312 | ) | (22,904 | ) | ||||||||||||
| Capital lease financing | (2,674 | ) | (3,603 | ) | (11,772 | ) | (8,219 | ) | ||||||||||||
| Free cash flow | $ | (11,276 | ) | $ | (5,766 | ) | $ | 369 | $ | (8,679 | ) | |||||||||
To conform with industry practice, Stream is presenting realized gains (losses) on foreign exchange cash flow hedges as a component of the hedged item, Direct Costs. The prior year results reflect this reclassification as follows.
| Operating | Adjusted | ||||||||||||||
| Direct Cost | Income | EBITDA | |||||||||||||
| As reported for the three months ended December 31, 2010 | $ | 133,646 | $ | 1,954 | $ | 23,125 | |||||||||
| Adjustment | (978 | ) | 978 | 458 | |||||||||||
| Reclassified for the three months ended December 31, 2010 | $ | 132,668 | $ | 2,932 | $ | 23,583 | |||||||||
| Operating | Adjusted | ||||||||||||||
| Direct Cost | Income (Loss) | EBITDA | |||||||||||||
| As reported for the year ended December 31, 2010 | $ | 471,428 | $ | (14,762 | ) | $ | 72,706 | ||||||||
| Adjustment | (1,891 | ) | 1,891 | (1,688 | ) | ||||||||||
| Reclassified for the year ended December 31, 2010 | $ | 469,537 | $ | (12,871 | ) | $ | 71,018 | ||||||||