EX-99.1 2 a5394704ex991.txt EXHIBIT 99.1 Exhibit 99.1 StarTek, Inc. Reports First Quarter Results Gross Margins Improve Sequentially Makes Progress Toward New Plan DENVER--(BUSINESS WIRE)--May 4, 2007--StarTek, Inc. (NYSE: SRT) today announced results for the first quarter of 2007. Revenue for the first quarter was $57.6 million, a decline of 2.5% from the fourth quarter of 2006, with a net loss of $0.2 million, or $0.01 per diluted share. Despite the decline in revenue, the company improved its gross margins and increased revenue from key clients. Compared to the fourth quarter of 2006, revenue declined $1.5 million, driven by the closure of the Petersburg, Virginia, facility and a decline in revenue from the company's second largest client. These declines were partially offset by increases in revenue from all other clients, including the company's largest client, which increased from the prior quarter by 4%. Gross margin for the first quarter of 2007 increased to 15.5% from 14.3% in the fourth quarter of 2006 driven by increased productivity, lower production attrition, and improved client pricing. In addition, in the fourth quarter of 2006, gross margins benefited from approximately $1.2 million of incentive grants from local municipalities and other one-time items. Selling, general and administrative expenses increased $1.6 million compared to the prior quarter due to one-time severance charges of $0.8 million as well as certain recurring expenses. Cash, cash equivalents and investments for the period declined $3.9 million from the prior quarter to $35.4 million due to the timing of cash receipts and cash payments. Compared to the first quarter of 2006, first quarter 2007 revenue increased 1% and gross margin declined from 17.1% to 15.5%. A net loss of $0.2 million in the quarter resulted in a net loss per diluted share of $0.01, down from net earnings per diluted share of $0.14 during the first quarter of 2006. "While first quarter financial results were disappointing, we are pleased with the progress we have made on the plan announced in February. We have secured several new programs from existing clients, improved margins by increasing productivity, lowering production attrition and improving client pricing, and have strengthened the executive team in preparation for future growth," said Larry Jones, StarTek's President and Chief Executive Officer. "We expect to see improved revenue sequential growth and profitability throughout the rest of the year as we see the impact of the programs initiated this quarter." CONFERENCE CALL The Company will host a conference call on May 4, 2007, to discuss the Company's financial results. The call will begin at 6:30 a.m. Mountain Time (8:30 a.m. Eastern Time) and can be accessed as follows: USA: 800-901-5247 International: 617-786-4501 Passcode: 76862127 Conference Host: Larry Jones A dial-in replay will be available from May 4, 2007, at 10:30 a.m. Mountain Time through May 10, 2007, and can be accessed as follows: USA: 888-286-8010 International: 617-801-6888 Passcode: 26111724 A web-based replay will be available on May 7, 2007, and accessible from the Company's website at www.startek.com. ABOUT STARTEK, INC. StarTek, Inc. (NYSE: SRT) is a leading provider of high value business process outsourcing services to the communications industry. Since 1987 StarTek has partnered with their clients to solve strategic business challenges so that fast-moving businesses can improve customer retention, increase revenue and reduce costs through an improved customer experience. These robust solutions leverage industry knowledge, best business practices, highly skilled agents, proven operational excellence and flexible technology. The StarTek comprehensive service suite includes customer care, sales support, complex order processing, accounts receivable management, technical support and other industry-specific processes. Headquartered in Denver, Colorado, StarTek provides these services from 19 operational facilities in the US and Canada. For more information visit the Company's website at www.StarTek.com or contact us at 800-541-1130. 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 factors include, but are not limited to, risks relating to our revenue from our principal clients, concentration of our client base in the communications industry, consolidation in the communications industry, trend of communications companies to out-source non-core services, management turnover, dependence on and requirement to recruit qualified employees, labor costs, need to add key management personnel and specialized sales personnel, considerable pricing pressure, capacity utilization of our facilities, collection of note receivable from sale of Supply Chain Management Services platform, inability to utilize current capital loss carry-forwards, defense and outcome of pending class action lawsuit, lack of success of our clients' products or services, risks related to our contracts, decreases in numbers of vendors used by clients or potential clients, inability to effectively manage growth, risks associated with advanced technologies, highly competitive markets, foreign exchange risks and other risks relating to conducting business in Canada, lack of a significant international presence, potentially significant influence on corporate actions by our largest stockholder, volatility of our stock price, geopolitical military conditions, interruption to our business, increasing costs of or interruptions in telephone and data services, compliance with SEC rules, inability to renew or replace sources of capital funding, fluctuations in the value of our investment securities portfolio, and variability of quarterly operating results. 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, 2006, and subsequent filings with the Securities and Exchange Commission. STARTEK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Ended March 31, 2007 2006 -------------- ------------- Revenue $57,647 $57,105 Cost of services 48,737 47,333 -------------- ------------- Gross profit 8,910 9,772 Selling, general and administrative expenses 9,392 7,573 -------------- ------------- Operating (loss) profit (482) 2,199 Net interest and other income 188 533 -------------- ------------- (Loss) income from operations before income taxes (294) 2,732 Income tax benefit (expense) 105 (596) -------------- ------------- Net (loss) income $(189) $2,136 ============== ============= Net (loss) income per share: -------------- ------------- Basic $(0.01) $0.15 ============== ============= Diluted $(0.01) $0.14 ============== ============= -------------- ------------- Dividends declared per common share $- $0.36 ============== ============= Weighted average shares outstanding Basic 14,696 14,636 Diluted 14,696 14,823 STARTEK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) As of -------------------------------- March 31, 2007 December 31, 2006 -------------- ----------------- ASSETS Current assets: Cash and cash equivalents $19,377 $33,437 Investments 16,070 5,933 Trade accounts receivable, less allowance for doubtful accounts of $10 and $16, respectively 49,211 46,364 Income tax receivable 1,811 1,281 Prepaid expenses and other current assets 2,640 3,009 -------------- ----------------- Total current assets 89,109 90,024 Property, plant and equipment, net 58,630 60,101 Long-term deferred tax assets 4,925 4,444 Other assets 1,171 1,166 -------------- ----------------- Total assets $153,835 $155,735 ============== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $3,400 $6,061 Accrued liabilities: Accrued payroll 6,730 6,798 Accrued compensated absences 4,980 4,146 Accrued health insurance 164 77 Other accrued liabilities 660 338 Current portion of long-term debt 5,518 5,654 Short-term deferred income tax liabilities 1,321 754 Grant advances 923 173 Other current liabilities 335 329 -------------- ----------------- Total current liabilities 24,031 24,330 Long-term debt, less current portion 9,148 10,314 Other liabilities 1,927 2,709 -------------- ----------------- Total liabilities 35,106 37,353 -------------- ----------------- Stockholders' equity: Common stock, 32,000,000 non- convertible shares, $0.01 par value, authorized; 14,725,791 and 14,695,791 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively 147 147 Additional paid-in capital 61,858 61,669 Cumulative translation adjustment 1,346 1,222 Unrealized (loss) gain on investments available for sale (13) 1 Unrealized gain (loss) on derivative instruments 2 (235) Retained earnings 55,389 55,578 -------------- ----------------- Total stockholders' equity 118,729 118,382 -------------- ----------------- Total liabilities and stockholders' equity $153,835 $155,735 ============== ================= STARTEK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended March 31, ------------------ 2007 2006 --------- -------- Operating Activities Net (loss) income $(189) $2,136 Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation 4,227 3,895 Non-cash compensation cost 189 54 Deferred income taxes (127) 130 Realized loss (gain) on investments 1 (21) Gain on sale of assets - (123) Changes in operating assets and liabilities: Trade accounts receivable, net (2,681) (3,237) Prepaid expenses and other assets 368 (805) Accounts payable (2,283) 1,851 Income taxes receivable, net (531) 982 Accrued and other liabilities 1,151 (2,384) --------- -------- Net cash provided by operating activities 125 2,478 --------- -------- Investing Activities Purchases of investments available for sale (11,250) (62,100) Proceeds from disposition of investments available for sale 1,090 70,602 Purchases of property, plant and equipment (2,567) (7,531) Proceeds from disposition of property, plant and equipment - 343 --------- -------- Net cash (used in) provided by investing activities (12,727) 1,314 --------- -------- Financing Activities Proceeds from stock option exercises - 823 Principal payments on borrowings (1,381) (624) Dividend payments - (5,268) --------- -------- Net cash used in financing activities (1,381) (5,069) Effect of exchange rate changes on cash (77) 48 --------- -------- Net decrease in cash and cash equivalents (14,060) (1,229) Cash and cash equivalents at beginning of period 33,437 17,425 --------- -------- Cash and cash equivalents at end of period $19,377 $16,196 ========= ======== CONTACT: StarTek, Inc. Media/Industry Analyst Contact: Matt Brekke, 303-262-4548 Director of Marketing mbrekke@startek.com or Investor Relations Contact: Jennifer Martin, 303-262-4587 SEC Reporting and Compliance jennifer.martin@startek.com