StarTek, Inc.

CIK:0001031029|SEC Filings

Note 3A - Discontinued Operations and Held for Sale - Contact Center Company

9 Months Ended

Sep. 30, 2023

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

3A. Discontinued Operations and Held for Sale - Contact Center Company

On November 10, 2022, the Company accepted a final offer by Arabian Internet and Communications Services Company (Solutions) to acquire Startek’s indirect 51% ownership interest in its subsidiary Contact Center Company (CCC), which was the Company’s joint venture that operated in the Kingdom of Saudi Arabia. After consideration of the relevant facts, the Company concluded the assets and liabilities of its CCC component met the criteria for classification as held for sale. The Company concluded that the actual and proposed disposal activities represented a strategic shift that will have a major effect on the Company’s operations and financial results and qualified for presentation as discontinued operations in accordance with FASB Accounting Standards Codification (ASC) 205-20. Accordingly, the financial results of the CCC are presented in the Consolidated Statements of Operations as discontinued operations for all periods presented. Current and non-current assets and liabilities of the business not sold as of the balance sheet date are presented in the Consolidated Balance Sheet as current assets and liabilities held for sale for both periods presented. Interest expense on term loans allocated to discontinued operations represents interest expenses on term loans which were required to be settled upon the sale of the CCC. CCC formed part of the 'Middle East' segment in the consolidated financial statements for the period ended September 30, 2022.

Subsequently, on January 11, 2023, the Company entered into a definitive Sale and Purchase Agreement with Solutions. The Sale and Purchase Agreement provided for a transaction based on an enterprise value for CCC of $120 million (SAR 450 million), on a debt free and cash free basis, to be paid in cash at closing, subject to the adjustments set forth in the Sale and Purchase Agreement. The transaction has been approved by the General Authority for Competition (GAC) in the Kingdom of Saudi Arabia and the Company has also obtained consent from its lenders.

On April 3, 2023, the Company completed its sale of ownership interest in “CCC” to “Solutions”. At closing, the final consideration paid was $69.8 million. Under the Sale and Purchase Agreement, the Company will act as a guarantor for the obligations of its indirect subsidiary that owned the Company’s interests in CCC.

Assets and Liabilities classified as Held for sale as on December 31, 2022 includes Assets of $195,184 and Liabilities of $82,259. For detailed list of assets and liabilities, refer to notes 3A and 3B included in our annual report on Form 10K for the year ended December 31, 2022.

The following table summarizes the income statement information of discontinued operations for the period ended September 30, 2023 and September 30, 2022:

Statement of income (loss)	*Nine Months Ended September 30,*
	*2023#*			*2022*
Revenue		64,364			181,680
Cost of services		(54,889	)		(162,234	)
Gross profit		9,475			19,446

Selling, general and administrative expenses		(3,117	)		(8,219	)
Impairment losses and restructuring/exit cost		(4	)		(30	)
Operating income		6,354			11,197

Interest and other cost (represents allocated interest)*		(1,174	)		(2,198	)
Foreign exchange gains (losses), net		(10	)		(20	)
Income before gain on disposal and tax expenses		5,170			8,979
Tax expenses (A)		(1,185	)		(2,500	)
Net income		3,985			6,479

*Includes allocated interest.

#Includes results of operations of CCC till March 31, 2023.

The following table presents the gain associated with the sale, presented in the statement of Income as a part of discontinued operations;

	*September 30, 2023*

Gross purchase price, as adjusted per the terms of the Purchase Agreement		69,800
Less: Carrying value of net assets sold		(55,122	)
Income/(Loss) on reclassification of items of AOCI to statement of income (loss) on disposal of component:
Less: Unrecognised pension costs		(3,062	)
Add: Foreign currency translation		50
Pre-tax gain on disposal		11,666
Tax expenses on gain on disposal net off deferred tax liability reversal of $ 3,056 (B)		(4,189	)
Total tax expenses of CCC (A+B)		(5,374	)
The Carrying value of net assets sold are as follows;

a) Assets
Cash and cash equivalents		28,284
Restricted cash		5,735
Trade accounts receivables, net		33,853
Unbilled revenue		46,434
Prepaid and other assets		8,377
Property, plant and equipment, net		4,449
Operating lease right-of-use assets		11,289
Goodwill		54,840
Deferred tax assets, net		5,028

b) Liabilities
Trade accounts payables		(3,698	)
Accrued expenses		(16,015	)
Other current and non current liabilities		(45,965	)
Operating lease liabilities		(10,494	)

c) Non-controlling interest		(66,995	)

Carrying value of net assets sold (a+b+c)		55,122

Net cash flows attributable to the discontinued operations:
	*September 30, 2023*			*September 30, 2022*

Net cash generated from operating activities		(5,870	)		13,135
Net cash used in investing activities		(3,513	)		(2,164	)
Net cash (used in) / provided by financing activities		-			-
Net Cash Inflow/(Outflow)		(9,383	)		10,971

3B. Discontinued Operations and Held for Sale - Argentina

On December 14, 2022, the Company has entered into an engagement letter with M/S Estudio A & L LLC (‘the Firm’) pursuant to which the Firm would serve as a non-exclusive advisor in connection with the potential sale of Aegis Argentina. The Firm will perform services for the Company such as advice on the structure, negotiation strategy, valuation analyses, financial terms, and other financial matters etc. If required, the Firm will assist the Company in preparing a brief memorandum, for distribution to potential buyers, describing the Company and its business, operations, properties, financial condition, and prospects. The Firm to negotiate and execute on its behalf and/or the Company’s behalf confidentiality agreements with potential parties to a transaction and to deliver confidential memoranda or other data furnished to the Firm by the Company for distribution to such parties. The Company has been in advanced discussions with certain strategic investors. The strategic investors are currently undertaking their due diligence of the business operations. The Company expects the discussions to continue and to enter definitive documentation with the investors in near future.

After consideration of the relevant facts, the Company concluded the assets and liabilities of Argentina met the criteria for classification as held for sale. The Company concluded the actual and proposed disposal activities represented a strategic shift that will have a major effect on the Company’s operations and financial results and qualified for presentation as discontinued operations in accordance with FASB Accounting Standards Codification (ASC) 205-20. Accordingly, the financial results of the Argentina are presented in the Consolidated Statements of Operations as discontinued operations for all periods presented. Current and non-current assets and liabilities of the business not sold as of the balance sheet date are presented in the Consolidated Balance Sheet as current assets and liabilities held for sale for both periods presented. Argentina was forming part of the 'Argentina and Peru' segment in the consolidated financial statements for the period ended September 30, 2022.

The following table summarizes the income statement information of discontinued operations for the period ended September 30, 2023 and September 30, 2022:

Statement of income (loss)	*Nine Months Ended September 30,*
	*2023*			*2022*
Revenue		19,027			24,295
Cost of services		(17,756	)		(23,840	)
Gross profit (loss)		1,271			455

Selling, general and administrative expenses		(1,462	)		(1,515	)
Impairment losses and restructuring/exit cost		(3,570	)		(3,010	)
Operating income (loss)		(3,761	)		(4,070	)

Interest expense and other income (expense), net		2,415			1,401
Foreign exchange gains (losses), net		(706	)		(445	)
Income (loss)		(2,052	)		(3,114	)
Tax expense		-			-
Net (loss)		(2,052	)		(3,114	)

The following table summarizes the carrying values of the assets and liabilities classified as held for sale in our consolidated balance sheet as:

	*September 30, 2023*		*December 31, 2022*
Assets
Current assets
Cash and cash equivalents		1,168		367
Trade accounts receivables, net		1,984		2,483
Unbilled revenue		1,172		1,320
Prepaid and other current assets		1,906		1,988
Total current assets		6,230		6,158

Non-current assets
Property, plant and equipment, net		957		854
Operating lease right-of-use assets		584		620
Prepaid expenses and other non-current assets		12		15
Total non-current assets		1,553		1,489
Total assets classified as held for sale in the consolidated balance sheet		7,783		7,647

Liabilities and Stockholders’ Equity
Current liabilities
Trade accounts payables		444		307
Accrued expenses		2,043		1,951
Short term debt		-		325
Current maturity of operating lease liabilities		457		398
Other current liabilities		2,492		2,674
Total current liabilities		5,436		5,655

Non-current liabilities
Operating lease liabilities		133		226
Other non-current liabilities		796		1,346
Total non-current liabilities		929		1,572
Total liabilities classified as discontinued operations in the consolidated balance sheet		6,365		7,227

	*September 30, 2023*			*September 30, 2022*
Net cash used in operating activities		(1,821	)		(1,671	)
Net cash used in investing activities		(103	)		(130	)
Net cash generated from financing activities		(325	)		534
Net Cash outflow		(2,249	)		(1,267	)