StarTek, Inc. (SRT)

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StarTek, Inc. (SRT)

Q4 2013 Results Earnings Conference Call

February 24, 2014 5:00 PM ET

Executives

Chad Carlson - President and CEO

Lisa Weaver - Chief Financial Officer

Analysts

Omar Samalot - Independent Analyst Corporation

Dave Koning - Baird

Presentation

Operator

Good afternoon, everyone, and thanks for calling in. It’s my pleasure to welcome everyone to the StarTek’s Fourth Quarter 2013 Earnings Conference Call. I am 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 remark, Chad and Lisa will conduct a question-and-answer session.

For those who have not yet received a copy of today’s earnings press release, please go to www.startek.com, 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 Security Laws. These statements are subject to various risks and uncertainties, and actual results may vary materially from the projections. StarTek advises all of those listening to this call to review the 2012 Form 10-K posted on their website for a summary of those risks and uncertainties. StarTek does not undertake the responsibility to update those projections.

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

I will now turn the call over to Mr. Chad Carlson, StarTek’s President and CEO. Please proceed.

Chad Carlson

Thank you, Jackie and good afternoon everyone. Our goal is to achieve sustainable, predictable, profitable growth; winning new business from existing clients is a preferred step in this process because it proves that the StarTek Advantage System delivers results clients, value. Closing 2013 with 16.7% revenue growth over 2012 is proof to current and potential new clients that StarTek is viewed as a trusted partner. Our fourth quarter revenue was $63.4 million, a 15% increase over prior year. New business booked in the quarter was $2 million and was our first healthcare client outside of the acquisition completed in July. SG&A was at a level I am satisfied with for now, coming in under 12% of revenue.

We’ve progressed on a several key strategic initiatives. We made the final selection of a key strategic supplier to complete the IT platform initiative. We just recently completed that contract and will be making an industry first announcement in the near future. This transformation is underway and we expect to complete this effort midyear. There will be approximately $2 million of investment to complete the project. We launched the StarTek healthcare website and as previously mentioned, closed our first healthcare client, new client logo outside of the acquisition.

We launched the first center using the full suite of Ideal Dialogue’s unique customer engagement methodology. We disposed of non-core real estate access in order to redeploy that capital. Over the past several months, we have added 1,500 seats of capacity across all geographies and committed to building out another 2,500 seats. These investments in smart growth are target to continue trends and achieve our financial objectives.

Bottom line results from this expansion will lag investments. We are confident in the returns these new investments would generate longer term as we continue to grow the company and build value. Our footprint is greatly improved, the result of our disciplined process for new investments. That said, we still have a few assets performing below margin expectations and we are taking a balanced approach to adjust these as aggressively as possible.

We existed 2013 with better scale more diverse revenue streams, stronger solution differentiation and significant progress on several key strategic initiatives, all of which will lead to long term value creation for our shareholders.

Jackie, Lisa and I will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Omar Samalot with Independent Analyst Corporation. Please proceed.

Omar Samalot - Independent Analyst Corporation

Hey, guys. How are you doing?

Chad Carlson

Hey Omar, great. How are you?

Omar Samalot - Independent Analyst Corporation

Solid quarter. Last quarter you mentioned that there was like a 100 to 125 bps impact on the gross margin due to the investments in new -- new investments in growth. Could you tell us what was the impact in Q4?

Lisa Weaver

Yes, it was a little less than that, around a 100 basis points, Omar.

Omar Samalot - Independent Analyst Corporation

Okay. So, let me see, like in the envelop here, [investments] up $0.04 a share, so on a normalized basis you were probably coming around $0.06 a share, is that a fair assumption?

Lisa Weaver

If you are factoring in the impact of the ramp facilities as well as the IT investments, yes.

Omar Samalot - Independent Analyst Corporation

Okay, got it. Now, I have seen that you obviously been very busy expanding since the last call, like we see outlined in Honduras, Colorado Springs, Myrtle Beach, Iloilo in Philippines. Can you explain how much of this capacity expansion is to accommodate the large $44 million in new business you won in Q3 and maybe what part of that is new business won in Q4 and maybe even Q1? In other words, what part of it is for what you already have in the books and what part of it is what you see coming forward?

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