StarTek, Inc. (SRT)

Q1 2010 Earnings Conference Call

May 6, 2010 11:00 AM ET


Julie Pierce – Director, SEC Reporting

Larry Jones – CEO

David Durham – CFO


Jason Ursaner – CJS Securities

David Koning – Robert W. Baird & Co.

Matt McCormack – BGB Securities

Tom Carpenter – Hilliard Lyons

Howard Smith – First Analysis



Good day ladies and gentlemen and welcome to the first quarter 2010 StarTek earnings conference call. At this time all participants in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

(Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Ms. Julie Pierce, Director of SEC Reporting. Please proceed.

Julie Pierce

Good morning everybody and thanks for calling us. I am Julie Pierce, StarTek's Director of SEC Reporting and Investor Relations and it is my pleasure to welcome everyone to StarTek's first quarter 2010 earnings call. I am joined on the call today by StarTek's President and Chief Executive Officer Larry Jones and Chief Financial Officer David Durham. Larry and Dave will deliver prepared remarks today with some brief comments about this morning's release.

At the conclusion of their prepared remarks, they 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 investor section of our website. In addition, we are using a PowerPoint presentation to assist in communicating our message to you and to provide after-call documentation. The presentation is available on our website next to the webcast link.

Please note that the discussion today may contain certain statements which are forward-looking in nature pursuant to the Safe Harbor Provisions of Federal Securities Laws. These statements are subject to various risks and uncertainties and actual results may vary materially from these projections. StarTek advises all of those listening to this call to review our 2009 Form 10-K posted on our website for a summary of these risks and uncertainties. StarTek does not undertake the responsibility to update these projections. Further, our discussion today includes some non-GAAP measures, and according to Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found in the appendix of the earnings call, PowerPoint presentation, and on the Investor page of our website under Regulation G. I would now turn the call over to Larry Jones, StarTek's President and CEO.

Larry Jones

Thank you Julie and good morning everybody. As Julie mentioned, please download the presentation from our website and follow along. Let me start by acknowledging that this has been a difficult quarter.

The convergence of four factors has taken a toll on our quarterly revenue and EPS results. First was the closure of three sites, which we announced on the last call. Second, was the launching of four new offshore programs that we secured in the fourth quarter of last year representing over 1000 feet. Third, three of these four programs began in the first quarter and are expected to ramp over the next six months, and the other will begin this quarter. The third factor was waning demand in the telecommunications sector which was building over the last two quarters and resulted FTE reductions in a number of our North American sites. The final factor was lower Canadian exchange rates.

Dave and I will provide you a lot more color and relative impact of these factors throughout our presentation today.

Let me now jump into details starting on Page 4 which highlights our financial results for the first quarter. Revenues of $67 million represented nearly a 5% decline from the prior year and a 7% decline from last quarter. This sequential decline was driven primarily from site closures and lower demand in our telco clients. Margins declined dramatically during the quarter as a result of startup costs associated with the new offshore program launches, lower utilization in a number of our North American sites, and an unfavorable Canadian exchange rates.

In the fourth quarter, we initiated a number of cost reduction programs, both in the corporate and in the field level, reducing SG&A by approximately $600,000 for the quarter. Lower revenues and margins offset by favorable SG&A variance resulted in a quarterly loss of $3.1 million or $0.21. Cash at the end of the period was up to $27 million primarily due to a $5 million one-time tax refund.

On Page 5, we list some of the client highlights of the quarter. As mentioned earlier, the wireline sector continues to struggle as clients disconnect landlines. As a result, a number of our clients are reducing headcount, lowering future forecasts, and in some instances requesting price concessions. Revenue from our largest client AT&T for the quarter was relatively flat, with slight decreases in both the wireline and the wireless programs. Total AT&T revenues across three big business segments represented 67% of our revenue. In T-Mobile, our second largest client, revenue declined 20% sequentially due to a site closure in the first quarter and overall lower call volumes. We expect future demand in North America to be down offset by an increase in offshore.

Across-the-board, the migration from onshore to near-shore to offshore is accelerating, lowering North America demands and heightening demand for our Philippines and Costa Rica facilities, which by the year-end will represent over 3500 seats, or approximately 35% of our capacity.

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