STREAM GLOBAL SERVICES ANNOUNCES DECEMBER 31, 2008 FOURTH QUARTER AND YEAR END FINANCIAL RESULTS
Fourth Quarter Gross Margins increased to 40% in Q4 2008 as compared to 33% in Q4 2007 for Predecessor Company
BOSTON, MA March 17, 2009 -- Stream Global Services, Inc. (Amex: OOO), a leading provider of customer relationship management and other business process outsourcing services ("Stream"), today reported consolidated financial results for its 2008 fourth quarter and year end.(1)
GAAP Consolidated Results
On July 31, 2008, Stream (formerly known as Global BPO Services Corp.), a development stage company completed its acquisition of Stream Holdings Corporation ("SHC").
On a GAAP basis revenue for the three and twelve-month periods ended December 31, 2008 was $129.8 million and $211.4 million, respectively, as compared to zero in the prior year for both periods.
GAAP net loss was $0.1 million for the three months ended December 31, 2008 as compared to net income of $1.1 million for the three months ended December 31, 2007. For the year ended December 31, 2008, GAAP net income was $0.8 million compared to net income of $1.1 million for the year ended December 31, 2007.
Pro Forma Combined Consolidated Results
On a pro forma combined consolidated basis, the Company posted record revenue for the year ended December 31, 2008 of $523.5 million compared to $483.6 million for the prior year ended December 31, 2007. For the fourth quarter ended December 31, 2008, revenue was $129.8 million compared to $137.9 million for the fourth quarter ended December 31, 2007.
Stream's gross profit as a percentage of revenue increased to 37% in the year ended December 31, 2008 compared to 34% in the year ended December 31, 2007. For the three month period ended December 31, 2008, gross profit as a percentage of revenue improved to 40% compared to 33% for the three months ended December 31, 2007.
For the three months ended December 31, 2008, adjusted earnings before interest taxes depreciation and amortization ("Adjusted EBITDA") increased 80% to $11.5 million compared to $6.4 million in the year-earlier period. Adjusted EBITDA increased 44% to $31.7 million in the year ended December 31, 2008 as compared to $22.0 million in the year earlier period (see attached Reconciliation of GAAP to non-GAAP Information).
2008 Accomplishments
Scott Murray, Chairman and Chief Executive Officer of Stream said; "Since our purchase of SHC on July 31, 2008, we have made tremendous progress in building our client relationships and strengthening our performance with our global clients by improving operating metrics that they consider key to the success of their businesses. We have substantially improved the financial performance of Stream by focusing on operations, growing our existing accounts and adding new logos, opening new global centers for service and attracting many industry veterans back to Stream to join our management team. "
Our 2008 accomplishments included the following:
- We consummated the acquisition of SHC on July 31, 2008. The purchase was valued at $128.8 million for accounting purposes (which reflected the $200 million purchase price less assumed indebtedness and other transaction related costs). In connection with the acquisition we completed a $108 million asset backed revolving credit facility.
- We issued 150,000 shares of our Series A Convertible Preferred Stock, for an aggregate purchase price of $150 million to Ares Corporate Opportunities Fund II, L.P. ("Ares"). Ares then became our largest stockholder with approximately 73% effective ownership.
- We completed a self-tender offer and a share redemption pursuant to which we purchased a total of 29.6 million shares of our common stock for approximately $236 million.
- We expanded operations into new geographies such as El Salvador, the Philippines and Egypt. We also increased our presence in India to over 1500 seats.
- We have sold a number of new logo clients representing over $70 million of annualized revenues on a full year basis once fully implemented.
- Over 35 industry veterans have returned to SGS in various senior management positions in areas such as client management and sales, operations and other areas of administration.
Murray concluded, "During 2009, we expect to build on the operating improvements made in the fourth quarter to streamline our business. At the same time, we have upgraded both the quality and the quantity of our sales force, and are committed to increasing our market penetration."
For further information please contact: Stephen Farrell, Executive Vice President & Chief Financial Officer at 781-304-1800 or stephen.farrell@stream.com
_______________________________
(1) On July 31, 2008, Stream Global Services, Inc. ("SGSI") (formerly known as Global BPO Services Corp.) completed its acquisition of Stream Holdings Corporation ("SHC"). As a result, the preliminary consolidated condensed statements of operations include the results of operations of SGSI for all periods presented, and of SHC for only the period from July 31, 2008 through December 31, 2008. The balance sheet at December 31, 2008 includes the balances of SGSI, including its wholly owned subsidiary SHC. These financial results also include non-GAAP pro forma combined results of operations for SGSI and SHC as if they had been combined since January 1, 2007. The pro forma combined consolidated condensed statements of operations are presented because management believes they reflect Stream's ongoing business in a manner that allows meaningful period-to-period comparisons. Prior to July 31, 2008, SGSI was a blank check company formed for the purpose of seeking to acquire an operating company. Accordingly, we had no revenues prior to July 31, 2008 because we were in the development stage.
About Stream Global Services, Inc. Stream Global Services, Inc. is a leading provider of integrated business process outsourcing services such as technical support, customer retention and recovery services, warranty support, customer care, sales services, credit and collections, subscription management and other professional services for Fortune 1,000 clients in the technology, software, computing, consumer electronics, media and communications sectors. Stream has more than 17,000 technical and customer care professionals and other employees across 33 service solution centers in 18 countries.
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 regarding our business objectives and our belief about a reversal in a deferred tax liability provision. These statements are neither promises nor guarantees, but involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including, without limitation, risks relating to: our ability to maintain and win additional client business, continue to maintain our operating performance and margin expansion, continue to have sufficient capital to grow and maintain our business, retain our management team and effectively operate a global franchise across multiple jurisdictions plus other risks detailed in our filings with the SEC, including those discussed in the Company's annual report filed with the SEC on Form 10-K for the year ended December 31, 2008.
Stream does not intend, and disclaims any obligation, to update any forward-looking information contained in this release or with respect to the announcements described herein, 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 in this press release, in the Current Report on Form 8-K furnished to the SEC on the date hereof.
References to the financial information included in this news release reflect rounded numbers and should be considered approximate values.
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.
Where specified in the accompanying schedules for various periods entitled "Reconciliation of GAAP to Non-GAAP Information," certain items noted on each such specific schedule are excluded from the non-GAAP financial measures.
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 or forecasts) and future prospects and excludes the items described above from its internal financial statements for purposes of its internal budgets and each reporting segment's 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 the Company's current financial results with the Company's past financial results.
All of the foregoing non-GAAP financial measures have limitations. Specifically, the non-GAAP financial measures that exclude the items noted above 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.
For more information contact:
Stephen Farrell, EVP and Chief Financial Officer,
781-304-1815, stephen.farrell@stream.com
STREAM GLOBAL SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Period Ended
Three Months Year June 26, 2007
Ended December Ended to December
31 December 31 31
-------------- ----------- -------------
2008 2007 2008 2007
---- ---- ---- ----
Revenue $129,836 $- $211,373 $-
-------- --- -------- ---
Gross profit 52,087 - 83,095 -
------ --- ------ ---
Operating expenses:
Selling, general and
administrative expenses 40,689 224 66,884 242
Depreciation and
amortization expense 6,986 - 10,982 -
----- --- ------ ---
Income (loss) from
operations 4,412 (224) 5,229 (242)
Interest expense (income)
and other financial costs 2,028 (2,119) (926) (2,119)
----- ------- ----- -------
Income (loss)
before provision for
income taxes 2,384 1,895 6,155 1,877
Provision for
Income taxes 2,530 760 5,359 760
----- --- ----- ---
Net income (loss) $(146) $1,135 $796 $1,117
Preferred stock
beneficial conversion
feature, accretion and
dividends 1,359 - 51,958 -
----- --- ------ ---
Net income (loss)
available to common
shareholders: (1,505) 1,135 (51,162) 1,117
======= ===== ======== =====
Basic and Diluted
income (loss) per share $(0.16) $0.05 $(2.20) $0.07
======= ===== ======= =====
Shares used in computing
per share data:
Basic and Diluted shares 9,462 25,093 23,258 16,189
STREAM GLOBAL SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands)
(Predecessor
SHC)
December 31, December 31, December 31,
(in thousands) 2008 2007 2007
Assets
Current assets:
Cash and cash
equivalents $10,660 $247,461 $12,581
Accounts receivable, net 109,385 - 115,794
Other current assets 26,811 1,065 10,539
------ ----- ------
Total current assets 146,856 248,526 138,914
Equipment and fixtures,
net 41,634 27 36,656
Goodwill, intangible
assets, and other long-
term assets 141,455 165 17,846
------- --- ------
Total assets $329,945 $248,718 $193,416
======== ======== ========
Liabilities and
Stockholders' Equity
Current liabilities $79,392 $8,563 $148,685
Long-term debt 63,624 - 22,294
Other long-term
liabilities 39,267 - 15,085
------ --- ------
Total liabilities 182,283 8,563 186,064
Common stock subject to
conversion - 73,875 -
Stockholders equity and
preferred stock * 147,662 166,280 7,352
------- ------- -----
Total liabilities and
stockholders' equity $329,945 $248,718 $193,416
======== ======== ========
* December 31, 2008 includes $145,911
of redeemable convertible preferred stock
Note: Prior to July 31, 2008 SGS was a development stage company and had
no operations
STREAM GLOBAL SERVICES, INC.
PRO FORMA COMBINED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Years Ended
Ended December 31, December 31,
------------------ ------------
2008 2007 2008 2007
---- ---- ---- ----
(Non-GAAP)
Revenue $129,836 $137,924 $523,458 $483,569
Direct costs of revenue 77,749 91,918 330,955 320,935
------ ------ ------- -------
Gross profit 52,087 46,006 192,503 162,634
------ ------ ------- -------
Gross profit as a
percentage of revenue 40% 33% 37% 34%
Operating expenses:
Selling, general
and administrative
expenses 40,593 39,609 160,824 143,117
Stock based
compensation expense 96 701 1,330 1,013
Depreciation and
amortization expense 6,986 5,426 24,359 19,550
----- ----- ------ ------
47,675 45,736 186,513 163,680
Income (loss) from
operations 4,412 270 5,990 (1,046)
Interest expense
(income) and other
financial costs 2,028 2,026 7,952 7,695
----- ----- ----- -----
Income (loss) before
provision for
income taxes 2,384 (1,756) (1,962) (8,741)
Provision for
income taxes 2,530 2,598 9,697 5,938
----- ----- ----- -----
Net income (loss) $(146) $(4,354) $(11,659) $(14,679)
====== ======= ========= =========
Pro Forma Adjusted
EBITDA
Income (loss) from
operations $4,412 $270 $5,990 $(1,046)
Depreciation and
Amortization 6,986 5,426 24,359 19,550
Stock-based
compensation expenses 96 701 1,330 1,013
Facility closure costs - - - 2,467
--- --- --- -----
Pro Forma Adjusted
EBITDA $11,494 $6,397 $31,679 $21,984
======= ====== ======= =======
STREAM GLOBAL SERVICES, INC.
RECONCILIATION OF GAAP TO NON-GAAP PRO FORMA INFORMATION
(Unaudited)
(in thousands)
Three Months Ended Years Ended
December 31, December 31,
--------------- -------------
2008 2007 2008 2007
---- ---- ---- ----
Net Income (loss) $(146) $1,135 $796 $1,117
Add (deduct) items to reconcile
to non-GAAP adjusted EBITDA:
Provision for income taxes 2,530 760 5,359 760
Pro forma depreciation and
amortization 6,986 5,426 24,359 19,550
Interest expense (income) and
financial costs 2,028 (2,119) (926) (2,119)
Stock-based compensation
expenses 96 701 1,330 1,013
Operating income (loss) from SHC
for the period prior to the
acquisition of July 31, 2008,
excluding depreciation and
amortization - 494 761 1,663
--- --- --- -----
Pro Forma Adjusted EBITDA $11,494 $6,397 $31,679 $21,984
========================= ======= ====== ======= =======
STREAM GLOBAL SERVICES, INC.
STATEMENT OF OUTSTANDING COMMON STOCK EQUIVALENTS AND WARRANTS
AS OF DECEMBER 31, 2008
(Unaudited)
(in thousands)
Shares or
warrants
outstanding Percentage
------------ ----------
Common share equivalents outstanding:
Common shares held by founding stockholders
subject to resale restrictions 7,813 22.48%
Common shares held by employees subject to
resale restriction 93 0.27%
Common shares held by institutional
investor 1,250 3.60%
Common shares held by other public
investors 302 0.87%
----- -----
Common shares outstanding 9,458 27.21%
Common share equivalents from conversion of
150,000 preferred shares held by Ares at
$6.00 per share conversion price 25,298 72.79%
------ -----
Total common share equivalents
outstanding 34,756 100.00%
====== =======
Warrants and employee stock options
outstanding:
Publicly held warrants outstanding,
exercisable at $6.00 per warrant into
common shares 31,250
Ares held warrants outstanding,
exercisable at $6.00 per warrant into
common shares 7,500
Employee stock options, exercisable at
$6.00 per share and not yet vested 3,210
