EX-99.1 2 a5141316ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 StarTek, Inc. Reports a 7% Increase in Revenue; Company Ramps Three New Call Centers DENVER--(BUSINESS WIRE)--May 4, 2006--StarTek, Inc. (NYSE:SRT) reported first quarter 2006 fully diluted earnings per share from continuing operations of $0.14 per share, a decline of $0.09 per share from the same period in 2005. Fully diluted earnings per share including discontinued operations was also $0.14 per share in 2006, a decline of $0.04 per share from the previous year. Revenue increased $3.8 million, or 7.1%, to $57.1 million during the first quarter of 2006 compared to the same period in the prior year. Incremental revenue from clients new to StarTek since first quarter of 2005, in addition to increased volume from its second largest client, drove the increase. Gross margin declined from 23.8% in the first quarter of 2005 to 17.1% in the first quarter of 2006. The largest single contributor to this gross margin decline was costs associated with ramping three new call centers, which is principally related to new agent training. Other contributing factors include increased costs associated with agent attrition, increased depreciation expense and an unfavorable fluctuation in the value of the U.S. dollar versus the Canadian dollar in the first quarter of 2006 compared to the same period in 2005. As a percent of revenue, selling, general and administrative expenses declined to 13.3% in first quarter of 2006 compared to 14.4% in first quarter 2005. Operating profit declined $2.8 million to $2.2 million in first quarter 2006, as a result of lower gross margin compared to the previous year. Income tax expense was $1.5 million lower in first quarter of 2006 than in the same period in the prior year as a result of lower earnings before taxes and the release of a tax valuation allowance relating to the favorable settlement of an outstanding tax audit. Resulting net income after discontinued operations of $2.1 million was $0.5 million lower than in the prior year. In addition, the Board of Directors declared a quarterly dividend of $0.25 per share, payable on May 25, 2006, to our stockholders of record as of May 15, 2006. After consideration of the growth opportunities available to us and the capital required to fund them, the Board has determined that this dividend is an appropriate level of cash return to stockholders. "As we expected and communicated previously, first quarter earnings were impacted negatively as we continued to ramp three new call centers in response to new business that was contracted in late 2005," said Steve Butler, President and CEO of StarTek. "While the ramp process can provide challenges to our margins in the short-term, we are confident in our business model and expect that in the long-term, these centers and the relationships they support will be beneficial for the business and for our stockholders. We remain diligent in our quest to lower our attrition rates and redefine our products and business as we leverage the expertise we have in the call center business into new markets." About StarTek StarTek, Inc. (NYSE:SRT) is a leading provider of Business Process Optimization services for outsourced customer interactions. Since 1987 StarTek has provided customer experience management solutions that solve strategic business challenges so that fast-moving businesses can effectively manage customer relationships across all contact points -- web, voice, email, fax, and video. This blended solution helps companies create and maintain customer satisfaction and frees them to focus on preserving capital, while StarTek delivers the ultimate customer experience. The Company is managed by executives from the Financial, Cable MSO, CRM and business services industries. Headquartered in Denver, Colorado, StarTek has 18 operational facilities across North America. For more information visit the Company's website at www.StarTek.com. Conference Call The Company will host a conference call on May 4, 2006, to discuss the Company's financial results. The call will begin at 7:30 a.m. Mountain Time (9:30 a.m. Eastern Time) and can be accessed as follows: USA: 866-831-6243 International: 617-213-8855 Passcode: 83439780 Conference Host: Steve Butler A dial-in replay will be available May 4, 2006, at 9:30 a.m. Mountain Time through May 11, 2006, and can be accessed as follows: USA: 888-286-8010 International: 617-801-6888 Passcode: 10843623 A Web-based replay will be available on May 11, 2006, and accessible from the Investor Relations section of the Company's Web site at www.startek.com. Forward-Looking Statements The matters regarding the future discussed in this news release include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements are subject to a number of risks and uncertainties. The following are important risks and uncertainties relating to StarTek's business that could cause StarTek's actual results to differ materially from those expressed or implied by any such forward-looking statements. These include, but are not limited to, loss of its principal clients, concentration of its client base in a few select industries, highly competitive markets, risks related to its contracts, decreases in numbers of vendors used by clients or potential clients, lack of success of StarTek's clients' products or services, considerable pricing pressure, risks relating to fluctuations in the value of StarTek's investment securities portfolio, risks associated with advanced technologies, inability to grow its business, inability to effectively manage growth, dependence on qualified employees and key management personnel, potential future declines in revenue, lack of a significant international presence, and risks relating to conducting business in Canada. Readers are encouraged to review Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors and all other disclosures appearing in the Company's Form 10-K for the year ended December 31, 2005, and subsequent filings with the Securities and Exchange Commission. STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Dollars in thousands, except per share data, unaudited) Three Months Ended March 31, ------------------ 2006 2005 ------- ------- Revenue $57,105 $53,338 Cost of services 47,333 40,644 ------- ------- Gross profit 9,772 12,694 Selling, general and administrative expenses 7,573 7,682 ------- ------- Operating profit 2,199 5,012 Net interest and other income 533 445 ------- ------- Income from continuing operations before income taxes 2,732 5,457 Income tax expense 596 2,103 ------- ------- Income from continuing operations 2,136 3,354 Loss from discontinued operations - (708) ------- ------- Net income $ 2,136 $ 2,646 ======= ======= Earnings per share from continuing operations: -------- -------- Basic $ 0.15 $ 0.23 ------- ------- Diluted $ 0.14 $ 0.23 ======= ======= Earnings per share including discontinued operations: -------- -------- Basic $ 0.15 $ 0.18 ======= ======= Diluted $ 0.14 $ 0.18 ======= ======= STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands) As of -------------------------- March 31, December 31, 2006 2005 ---------- ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 16,196 $ 17,425 Investments 19,751 28,168 Trade accounts receivable, less allowance for doubtful accounts of $146 and $250, respectively 43,849 40,612 Income tax receivable 3,245 4,227 Prepaid expenses and other current assets 3,683 3,161 ---------- ------------- Total current assets 86,724 93,593 Property, plant and equipment, net 60,409 57,066 Long-term deferred tax assets 2,620 2,402 Other assets 935 853 ---------- ------------- Total assets $ 150,688 $ 153,914 ========== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,815 $ 4,744 Accrued liabilities: Accrued payroll 5,258 7,280 Accrued compensated absences 3,763 3,522 Accrued health insurance 264 462 Other accrued liabilities 287 806 Current portion of long-term debt 2,574 2,551 Short-term deferred income tax liabilities 1,288 1,108 Other current liabilities 1,154 1,150 ---------- ------------- Total current liabilities 21,403 21,623 Long-term debt, less current portion 2,452 3,099 Other liabilities 1,139 1,028 ---------- ------------- Total liabilities 24,994 25,750 ---------- ------------- Stockholders' equity: Common stock 147 146 Additional paid-in capital 61,124 60,139 Accumulated other comprehensive income 1,451 1,776 Retained earnings 62,972 66,103 ---------- ------------- Total stockholders' equity 125,694 128,164 ---------- ------------- Total liabilities and stockholders' equity $ 150,688 $ 153,914 ========== ============= STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Dollars in thousands, unaudited) Three Months Ended March 31, ----------------------------- 2006 2005 ------------- ------------- Operating Activities Net income $ 2,136 $ 2,646 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,895 3,267 Non-cash compensation cost 54 - Deferred income taxes 130 1,015 Realized gain on investments (21) - Gain on sale of assets (123) (47) Changes in operating assets and liabilities: Sales of trading securities, net - 2,934 Trade accounts receivable, net (3,237) 15,289 Prepaid expenses and other assets (805) (214) Accounts payable 1,851 (2,064) Income taxes, net 982 8,793 Accrued and other liabilities (2,384) (1,266) ------------- ------------- Net cash provided by operating activities 2,478 30,353 ------------- ------------- Investing Activities Purchases of investments available for sale (62,100) (312,026) Proceeds from disposition of investments available for sale 70,602 293,986 Purchases of property, plant and equipment (7,531) (3,500) Proceeds from disposition of property, plant and equipment 343 25 ------------- ------------- Net cash provided by (used in) investing activities 1,314 (21,515) ------------- ------------- Financing Activities Proceeds from stock option exercises 823 354 Principal payments on borrowings (624) (1,851) Dividend payments (5,268) (6,142) ------------- ------------- Net cash used in financing activities (5,069) (7,639) Effect of exchange rate changes on cash 48 25 ------------- ------------- Net increase (decrease) in cash and cash equivalents (1,229) 1,224 Cash and cash equivalents at beginning of period 17,425 14,609 ------------- ------------- Cash and cash equivalents at end of period $ 16,196 $ 15,833 ============= ============= CONTACT: StarTek, Inc. Media Contact: Steve Butler, 303-262-4500 steve.butler@startek.com or Investor Relations Contact: Jennifer Martin, 303-262-4587 jennifer.martin@startek.com