StarTek, Inc. (SRT)

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StarTek (SRT)

Q2 2013 Earnings Call

August 12, 2013 5:00 pm ET

Executives

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

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

Analysts

Timothy Wojs - Robert W. Baird & Co. Incorporated, Research Division

Omar Samalot

Howard Smith - First Analysis Securities Corporation, Research Division

Presentation

Operator

Good afternoon, everyone, and thanks for calling in. It is my pleasure to welcome everyone to StarTek's Second 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 received a copy of today's earnings press release, please go to www.startek.com, where you can download a copy at 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 this call 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. Please proceed, sir.

Chad A. Carlson

Thank you, Celia, and thank you, all, for joining. Second quarter of 2013 revenue of $55.6 million grew more than 25% over the same quarter of last year, and our revenue diversification has greatly improved. This is a strong testament that the execution and solutions brought to our clients through the StarTek Advantage System are producing results and generating value for our clients.

Our new business signed during the quarter was $12 million, which includes 1 new logo and brings our year-to-date new business to $18.5 million. We have invested in solution capabilities, the operating platform and how we engage and build trust with our clients, and I'm pleased to see these efforts paying off with organic revenue growth.

Gross margin improved overall, with both North America and Latin America up and Asia Pacific relatively flat, held down mostly by significant ramp up in program conversion costs associated with new business. The operating challenges I discussed in the Philippines last quarter are largely behind us. We have closed the temporary capacity we had in the Philippines and are currently ramping in our new provincial site in Angeles City, Philippines.

Adjusted EBITDA for the quarter was just under $2 million, and the cash balance at the close of the quarter was $10 million.

Over the past few months, we made significant progress in line with our strategic plan. As previously discussed, the acquisition of Ideal Dialogue; further progression of the IT platform initiative and most recently, solidifying our move into the health care services vertical; differentiating our services for clients; and diversifying our revenues are key to accomplishing sustainable, predictable and profitable growth, and these moves will all contribute to this.

SG&A was down 7.7% year-over-year, reflecting continued focus on efficiencies, and has now decreased to 13% of revenue.

We also recently promoted Pat Hain to lead our IT organization and Emily Millar to lead our Clients Solution and Strategy. I'm proud of the team we have built, and we are committed to generating value for our stakeholders.

Celia, Lisa and I will now open the line and take questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from the line of Tim Wojs from Baird.

Timothy Wojs - Robert W. Baird & Co. Incorporated, Research Division

I guess, just my first question really, if you go back to last quarter, you guys had talked about Q2 really being, at least from an operational standpoint, maybe in a trough in terms of profitability and you should see an improvement in Q3 and in Q4. And I just wanted to get an update from you guys on that aspect.

Chad A. Carlson

Yes, I believe that's still an accurate picture, Tim.

Timothy Wojs - Robert W. Baird & Co. Incorporated, Research Division

Okay. So as we exit the year in Q4, you guys feel pretty confident that you'll be able to exceed where you were in Q4 last year?

Chad A. Carlson

I won't set that expectation, but we'll certainly be in the ballpark.

Timothy Wojs - Robert W. Baird & Co. Incorporated, Research Division

Okay, okay. And then, I guess, just to touch on gross margins in both the domestic and the Asia Pacific business, I guess, first on the domestic business, is kind of the low to mid-teens gross margin pretty sustainable, or is there something there that can kind of ebb and flow, or I guess, how should we think about that as some of the wins you guys are putting out or are ramping?

Chad A. Carlson

I think with solid utilization of both personnel and continue to focus on our asset utilization, and that's certainly the range we like to operate in.

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