SRT StarTek Inc

StarTek Inc. (NYSE: SRT) reported fully diluted earnings per share from continuing operations decreased for the first quarter ended March 31, 2005, to $0.18 compared to $0.49 for the first quarter of 2004. Fully diluted earnings per share decreased to $0.18, compared to $0.46 including discontinued operations for the same period last year. Discontinued operations consisted of operations in the United Kingdom which, as previously reported, were sold on September 30, 2004. For the first quarter of 2005, revenue declined 14.2% to $54.3 million from $63.3 million for the same period in 2004, which was primarily driven by a decline in our supply chain management services and partially due to our tiered incentive pricing model in our business process management services. Gross margin declined in the first quarter to 21.6% from 28.6% for the same period in 2004. This decline was attributed to a greater portion of client volume billed at lower rates, excess call center capacity, continuing decreases in revenue and margins in our supply chain management platform, and unfavorable foreign exchange. Selling, general and administrative expenses increased by 14% for the first quarter of 2005 compared to the same period last year. The increase is primarily due to costs associated with reductions in staff, recurring fixed costs of three new call centers opened in 2004, expenses related to investments in information technology infrastructure and costs associated with Sarbanes-Oxley Act of 2002. In addition, the Board of Directors declared a quarterly dividend of $0.36 per share, payable on May 24, 2005, to our stockholders of record as of May 11, 2005. The reduced dividend is an initial step by management to strategically pursue growth opportunities in market and service diversification. "StarTek is actively involved in a turnaround process. We took major steps in the first quarter towards realignment of costs and headcount reduction. The annualized savings associated with headcount reductions is expected to be approximately $6 million. The initial impact of these reductions improved our gross margin from the fourth quarter of 2004, increasing from 20.0% to 21.6%. Our continued focus in 2005 will be on returning to greater profitability and increasing stockholder value," said Steve Butler, Chief Financial Officer and Interim Chief Executive Officer of StarTek. Company Profile StarTek Inc. is a leading provider of business process outsourced services, which consist of business process management and supply chain management services. StarTek provides services from seventeen operating facilities, including four in Colorado, five in Canada, two in Virginia and one each in Illinois, Louisiana, Oklahoma, Tennessee, Texas and Wyoming. The Company's primary clients are in the telecommunications industry, and it also serves clients in the computer software and hardware, consumer products, cable TV, entertainment, utility, Internet and e-commerce industries. Please visit the Company's website at www.startek.com. Conference Call CFO and Interim CEO Steve Butler will host a conference call on May 6, 2005, 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: 800-510-9836 International: 617-614-3670 Passcode: 80988069 Conference Host: Steve Butler A dial-in replay will be available May 6, 2005, at 8:30 a.m. Mountain time through May 13, 2005, and can be accessed as follows: USA: 888-286-8010 International: 617-801-6888 Passcode: 69434002 A web-based replay will be available on May 10, 2005, and accessible from the Investor Relations section of the company's website 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, 2004, and subsequent filings with the Securities and Exchange Commission. -0- *T STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Dollars in thousands, except per share data) Three Months Ended March 31, --------------------- 2005 2004 ----------- --------- (Unaudited) Revenue $54,318 $63,306 Cost of services 42,592 45,208 ----------- --------- Gross profit 11,726 18,098 Selling, general and administrative expense 7,881 6,913 ----------- --------- Operating profit 3,845 11,185 Net interest income and other 444 621 ----------- --------- Income from continuing operations before income taxes 4,289 11,806 Income tax expense 1,644 4,514 ----------- --------- Income from continuing operations 2,645 7,292 Discontinued Operations: Loss from operations of discontinued operations -- (669) Loss on disposal of discontinued operations -- -- Income tax benefit -- 249 ----------- --------- Loss on discontinued operations -- (420) ----------- --------- Net income $2,645 $6,872 =========== ========= Earnings per share from continuing operations: Basic $0.18 $0.51 =========== ========= Diluted $0.18 $0.49 =========== ========= Earnings per share including discontinued operations: Basic $0.18 $0.48 =========== ========= Diluted $0.18 $0.46 =========== ========= *T -0- *T STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (dollars in thousands) March 31, December 31, 2005 2004 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $15,833 $14,609 Investments 39,259 24,785 Trade accounts receivable, less allowance for doubtful accounts of $359 and $357, respectively 36,002 51,291 Inventories, net: Purchased components and fabricated assemblies 94 400 Finished goods 19 30 ------------ ------------ Total inventories, net 113 430 Income tax receivable 4,030 12,344 Deferred tax assets 2,259 2,875 Prepaid expenses and other current assets 2,726 2,180 ------------ ------------ Total current assets 100,222 108,514 Property, plant and equipment, net 59,545 59,760 Long-term deferred tax assets 1,535 1,521 Other assets 209 224 ------------ ------------ Total assets $161,511 $170,019 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $5,400 $7,464 Accrued liabilities: Accrued payroll 3,884 5,950 Accrued compensated absences 4,363 4,368 Accrued health insurance 922 188 Other accrued liabilities 697 333 Current portion of long-term debt 2,602 2,580 Short-term borrowings -- 1,250 Income tax payable 2,021 1,626 Other current liabilities 147 160 ------------ ------------ Total current liabilities 20,036 23,919 Long-term debt, less current portion 4,910 5,533 Other liabilities 3,405 3,684 ------------ ------------ Total Liabilities 28,351 33,136 Stockholders' equity: Common stock 146 146 Additional paid-in capital 60,174 59,736 Accumulated other comprehensive income 1,151 1,815 Retained earnings 71,689 75,186 ------------ ------------ Total stockholders' equity 133,160 136,883 ------------ ------------ Total liabilities and stockholders' equity $161,511 $170,019 ============ ============ *T -0- *T STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Dollars in thousands) Three Months Ended March 31, ------------------ 2005 2004 --------- -------- (Unaudited) Operating Activities Net income $2,645 $6,872 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,267 3,085 Deferred income taxes 1,015 (266) Net gain on sale of assets (47) -- Changes in operating assets and liabilities: Sales of trading securities, net 2,934 91 Trade accounts receivable, net 15,289 (5,039) Inventories, net 317 (644) Prepaid expenses and other assets (531) (1,821) Accounts payable (2,064) (1,698) Income taxes receivable 8,793 2,928 Accrued and other liabilities (1,265) 3,685 --------- -------- Net cash provided by operating activities 30,353 7,193 Investing Activities Purchases of investments available for sale (312,026) (3,952) Proceeds from disposition of investments available for sale 293,986 5,368 Purchases of property, plant and equipment (3,500) (2,248) Proceeds from disposition of property plant and equipment 25 -- --------- -------- Net cash used in investing activities (21,515) (832) Financing Activities Proceeds from stock option exercises 354 1,156 Principal payments on borrowings, net (1,851) (194) Dividend Payments (6,142) (5,454) Proceeds from borrowings -- 10,000 --------- -------- Net cash (used in) provided by financing activities (7,639) 5,508 Effect of exchange rate changes on cash 25 42 --------- -------- Net increase in cash and cash equivalents 1,224 11,911 Cash and cash equivalents at beginning of period 14,609 5,955 --------- -------- Cash and cash equivalents at end of period $15,833 $17,866 ========= ======== *T