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

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

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

On November 10, 2022, the Company has 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 is the Company’s joint venture that operates 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 was forming part of the 'Middle East' segment in the consolidated financial statements for the period ended March 31, 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 Company received cash proceeds of approximately $68.9 million subject to true-up working capital adjustments to the amount paid on the closing date and tax payable on the transaction. Under the Sale and Purchase Agreement, the Company will act as a guarantor for the obligations of its indirect subsidiary that owns the Company’s interests in CCC.

The following table summarizes the income statement information of discontinued operations:

Statement of income (loss)	Three Months Ended March 31,
	2023			2022
Revenue		64,364			58,687
Cost of services		(54,889	)		(51,672	)
Gross profit		9,475			7,015
Selling, general and administrative expenses		(3,117	)		(2,684	)
Impairment losses and restructuring/exit cost		(4	)		(30	)
Operating income		6,354			4,301
Interest expense and other income (expense), net*		(1,174	)		(611	)
Foreign exchange gains (losses), net		(10	)		(6	)
Income before tax expenses		5,170			3,684
Tax expenses		(1,184	)		(1,455	)
Net income		3,986			2,229

*includes allocated interest.

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

	March 31, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents		28,284		38,002
Restricted cash		5,735		4,374
Trade accounts receivables, net		33,853		24,794
Unbilled revenue		46,434		43,322
Prepaid and other current assets		4,696		5,971
Total current assets		119,002		116,463
Non-current assets
Property, plant and equipment, net		4,449		3,656
Operating lease right-of-use assets		11,289		12,184
Goodwill		54,840		54,840
Deferred tax assets, net		4,880		4,914
Prepaid expenses and other non-current assets		3,670		3,127
Total non-current assets		79,128		78,721
Total assets classified as held for sale in the consolidated balance sheet		198,130		195,184
Liabilities
Current liabilities
Trade accounts payables		3,927		658
Accrued expenses		15,992		19,467
Current maturity of operating lease liabilities		6,283		6,752
Other current liabilities		28,912		36,129
Total current liabilities		55,114		63,006
Non-current liabilities
Operating lease liabilities		4,211		4,702
Other non-current liabilities		17,053		11,817
Deferred tax liabilities, net		2,908		2,734
Total non-current liabilities		24,172		19,253
Total liabilities classified as held for sale in the consolidated balance sheet		79,286		82,259

Net cash flows attributable to the discontinued operations:
	March 31, 2023			March 31, 2022
Net cash generated from/used in operating activities		(5,652	)		3,699
Net cash used in investing activities		(3,513	)		(1,280	)
Net cash (used in) / provided by financing activities		-			-
Net Cash Inflow		(9,165	)		2,419

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. During the first quarter, the Company entered into discussions with potential buyers. The discussions are still ongoing and the Company expects to enter in diligence phase 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 March 31, 2022.

The following table summarizes the income statement information of discontinued operations:

Statement of income (loss)	Three Months Ended March 31,
	2023			2022
Revenue		6,134			7,538
Cost of services		(6,255	)		(7,991	)
Gross profit (loss)		(121	)		(453	)
Selling, general and administrative expenses		(467	)		(530	)
Impairment losses and restructuring/exit cost		(1,341	)		(1,382	)
Operating income (loss)		(1,929	)		(2,365	)
Interest expense and other income (expense), net		534			1,367
Foreign exchange gains (losses), net		(114	)		(178	)
Income (loss)		(1,509	)		(1,176	)
Tax expense		-			-
Net (loss)		(1,509	)		(1,176	)

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

	March 31, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents		553		367
Trade accounts receivables, net		2,524		2,483
Unbilled revenue		1,444		1,320
Prepaid and other current assets		1,806		1,988
Total current assets		6,327		6,158
Non-current assets
Property, plant and equipment, net		859		854
Operating lease right-of-use assets		552		620
Prepaid expenses and other non-current assets		15		15
Total non-current assets		1,426		1,489
Total assets classified as held for sale in the consolidated balance sheet		7,753		7,647
Liabilities and Stockholders’ Equity
Current liabilities
Trade accounts payables		199		307
Accrued expenses		3,039		1,951
Short term debt		154		325
Current maturity of operating lease liabilities		394		398
Other current liabilities		2,583		2,674
Total current liabilities		6,369		5,655
Non-current liabilities
Operating lease liabilities		163		226
Other non-current liabilities		1,135		1,346
Total non-current liabilities		1,298		1,572
Total liabilities classified as held for sale in the consolidated balance sheet		7,667		7,227

	March 31, 2023			March 31, 2022
Net cash generated from / used in operating activities		(773	)		(2,113	)
Net cash generated from / used in investing activities		(5	)		9
Net cash generated from / used in financing activities		(132	)		(84	)
Net Cash outflow		(910	)		(2,188	)