StarTek, Inc. (SRT)

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StarTek (SRT)

Q1 2013 Earnings Call

May 09, 2013 6:00 pm ET


Chad A. Carlson - Chief Executive Officer, President and Director

Lisa A. Weaver - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer


David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Rob Romano

Omar Samalot

Tom Carpenter - Hilliard Lyons, Research Division



Good afternoon, everyone, and thanks for calling in. It is my pleasure to welcome everyone to StarTek's First Quarter 2013 Earnings Call. I'm joined on the call today by StarTek's President and Chief Executive Officer, Chad Carlson; and Chief Financial Officer, Lisa Weaver.

Chad will deliver some brief commentary today. At the conclusion of Chad's prepared remarks, Chad and Lisa will conduct a question-and-answer session.

For those of you who have not yet received a copy of today's earnings press release, please go to, where you can download a copy from the Investors section of their website. Please note that the discussion today may contain certain statements, which are forward-looking in nature, pursuant to the Safe Harbor provisions of the Federal Securities Laws. These statements are subject to various risks and uncertainties, and actual results may vary materially from these projections. StarTek advises all those listening to the conference to review the 2012 Form 10-K posted on their website for a summary of these risks and uncertainties. StarTek does not undertake the responsibility to update these projections.

Further, the discussion today may include some non-GAAP measures in accordance with Regulation G. The company has reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found in the earnings release on the Investor page of their website.

I'll now turn the call over to Chad Carlson, StarTek's President and CEO.

Chad A. Carlson

Thank you, Carla. Good afternoon, and thank you for joining. Revenue was a bright spot at $53.8 million, a 5.8% increase over first quarter of 2012. But I was disappointed that our bottom line demonstrated the lumpiness inherent to our business. I will not be satisfied until we can achieve sustainable, predictable, profitable growth.

The revenue growth reflects a 29% increase, excluding our largest client at this time last year. During the first quarter, we closed 2 new statements of work with one of our larger clients, amounting to an annual contract value of $6.5 million. We also added a new global client through the acquisition of Ideal Dialogue, which I will discuss later.

Our largest client is now just under 25% of total revenue. This is a significant accomplishment and the best in the company's history.

I was pleased with North America results and progress in Latin America, but I am not happy with our Asia Pacific performance. While we expected a drop in bottom line results during first quarter, I did not fully anticipate the magnitude of the impact from poor performance on a few key programs in Asia Pacific. Gross margin of 8.8% compares to first quarter of 2012 gross margin of 10.5%. It is important to point out that the gap to our expectations is primarily from a few specific programs within one site. We are working closely with our clients and have taken the appropriate steps to address this performance. The performance across most programs has improved with our execution focus and the upgrading of leadership talent in key positions.

SG&A expense was aligned with expectations due to the continued focus on cost management, decreasing from 16.4% of revenue in the first quarter of 2012 to 13.5% of revenue in the first quarter of 2013. Although aligned with what we expected, as you know, I'm never satisfied with the level of SG&A expenses. We have recently completed a project to refresh reporting tools. And once we complete the IT platform initiative, we will have Phase II opportunities to further improve efficiencies.

It is important for us to continue enhancing the StarTek advantage system with solutions to differentiate us and add value to our clients. We were pleased to announce the acquisition of Ideal Dialogue during the first quarter. We are in the communication business, and Ideal Dialogue has developed specific methodologies designed to improve the customer experience. Ideal Dialogue will enable new business wins, improve existing performance and continue to offer stand-alone products for clients focused on improving their customers' experience.

The IT platform initiative is important to our future. The goal of this initiative is to improve efficiency and stability; lessen future capital requirements, thus changing a large portion of currently fixed IT expenses into variable expenses; and create a strategic differentiation. We are close to a final decision on this initiative and are confident we will hit these objectives. You can expect to see the impact of this transformation over the next few quarters.

We still have some final elements to work, but expect to reduce ongoing IT expenses by more than 10% per year, and in conjunction with this decision, we will likely write off over $3 million of outdated IT assets. Perhaps the best news will be the improved stability and robust nature of the new platform, providing us the ability to turn out new business quickly and efficiently.

The addition of Jay Kirksey to the StarTek executive leadership team as the Senior Vice President of Human Resources will further our Brand Warrior culture and mission, which is a differentiator for us. His experience and focus on improving the employee life cycle is a great opportunity for StarTek.

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