Startek, Inc.

Q2 net revenue was $91.1 million, down from $96.2 million in the year-ago quarter. On a constant-currency basis, revenue increased 3% year over year, adjusted for prior-year client churn and FX. Gross profit increased 5.7% to $11.7 million from $11 million, and gross margin improved 130 basis points to 12.8% from 11.5%. Adjusted EBITDA from continuing operations was $7.7 million versus $7.9 million, and adjusted EBITDA margin rose to 8.4% from 8.2%. Adjusted net income attributable to Startek shareholders from continuing operations was $1.5 million versus $6.2 million a year ago; consolidated adjusted net income was $1.5 million, or $0.04 per diluted share, versus $6.3 million, or $0.15 per diluted share. For guidance, management said it expects full-year adjusted EBITDA margins to stay in a similar range to last year, with possible improvement over time from more offshore/nearshore mix, but it did not give specific revenue or EPS guidance.

Bharat Rao said Startek’s strategy is shifting from 2022’s investment and footprint-rightsizing phase to a 2023 growth phase focused on new logos, expansions with existing clients, and better conversion from a consolidated sales/digital organization. He emphasized that cost pressure at customers is driving interest in outsourcing and offshore/nearshore delivery, which he believes positions Startek well, and said AI is already being incorporated into the offering rather than being a future-only initiative. His tone was constructive but cautious, repeatedly noting macro uncertainty, longer sales cycles, and softer holiday-season volumes.

Neeraj Jain highlighted that reported figures exclude revenue from discontinued operations due to current and planned divestitures. He said cash and restricted cash were $39.1 million at June 30, 2023 versus $24.9 million at March 31, 2023, while total debt fell to $78.5 million from $130.7 million, leaving net debt at $39.4 million and net leverage at 1.1x. On margins, he pointed to higher gross margin of 12.8%, adjusted EBITDA margin of 8.4%, and said the company wants full-year adjusted EBITDA margins to remain in a similar range to last year despite ongoing technology/security investments and a greater offshore/nearshore mix.

Analysts focused on why Startek is still winning new business despite macro headwinds, and management said the main drivers are a stronger pipeline, customer cost-cutting pressure, and the company’s expanded nearshore/offshore capabilities. On the second-half revenue ramp, Bharat Rao said the usual holiday-season uplift looks softer this year and decision-making is slower, so Q3/Q4 could be more muted than normal even though ramps from recent wins should continue. On gross margin, management said the mix shift to nearshore/offshore should help, but ongoing technology investment and softer volumes should keep margins from materially expanding or collapsing.