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 CommentaryKathryn 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 RegionRevenue 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 RegionRevenue 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 ExpenseSelling,
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 ResourcesAt 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.
FacilitiesDuring 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 HarborThis 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 InformationThis 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
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