SRT StarTek Inc

StarTek Inc. (NYSE: SRT) reported fully diluted earnings per share from continuing operations decreased for the second quarter ended June 30, 2005, to $0.18 compared to $0.47 for the second quarter of 2004. Fully diluted earnings per share decreased to $0.18, compared to $0.44 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 second quarter of 2005, revenue declined 15.9% to $53.2 million from $63.3 million for the same period in 2004. This was primarily driven by a downturn in our supply chain management services representing over 70% of the overall decline. An overall shift in revenue mix with our second-largest client in our business process management services also contributed to the reduction of revenue. Gross margin declined in the second quarter to 21.8% from 26.7% for the same period in 2004. This decline was attributed to a shift in revenue mix and tiered pricing in our business process management services, underutilized capacity in three new call centers launched during 2004, and the foreign exchange impact from a stronger Canadian dollar. Selling, general and administrative expenses decreased by 2.3% for the second quarter of 2005 compared to the same period last year. The decrease is primarily due to lowered costs associated with reductions in staff, which were offset by recurring fixed costs of three new call centers opened in 2004, and expenses related to investments in information technology infrastructure. Other income declined $1.6 million primarily due to the repositioning of our portfolio investments which is in line with our current investment policy. In addition, the Board of Directors declared a quarterly dividend of $0.36 per share, payable on August 24, 2005, to our stockholders of record as of August 12, 2005. "StarTek continued to make progress in our turnaround process during the second quarter," said Steve Butler, President and CEO of StarTek. "The sales opportunities we have nurtured in our pipeline for the last year are now starting to come to fruition. In addition, we maintained our commitment to realign costs, while working to improve our operational processes and efficiencies. Given the highly competitive marketplace, we are encouraged that our plans have better positioned the company to close new business. The changes we have made during the first half of 2005 have enhanced our ability to deliver value to our clients and shareholders." StarTek also announced today that it has been selected by one of the largest telecommunications companies in the United States to provide national consumer support with its award-winning outsourced customer care services. The client adds to StarTek's portfolio of marquee telecommunications clients for customer care services. "Customer care is a critical business process for the extremely fast-paced and evolving telecommunications industry, and particularly for brand-name companies," said Butler. "For clients with significant brand equity, putting customer care in the hands of a third party requires a great level of trust, because those clients demand every customer-facing operation to perform at a level that goes beyond merely protecting the brand. We are looking forward to building a great relationship with this client and earning their continued trust in StarTek." StarTek's wireless customer care experience was a major factor in securing this contract. The client also selected StarTek for its demonstrated ability to quickly ramp-up new customer care sites with agility and flexibility. The company is expected to begin using StarTek's business process outsourcing services as soon as this month. In the near term, StarTek will deliver the initial support service through existing capacity. About StarTek 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, Internet, and e-commerce industries. Please visit the Company's website at www.startek.com. Conference Call President and CEO Steve Butler will host a conference call on August 2, 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: 866-800-8652 International: 617-614-2705 Passcode: 88168276 Conference Host: Steve Butler A dial-in replay will be available August 2, 2005, at 8:30 a.m. Mountain time through August 9, 2005, and can be accessed as follows: USA: 888-286-8010 International: 617-801-6888 Passcode: 89130543 A Web-based replay will be available on August 5, 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) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 2005 2004 2005 2004 ---------- --------- --------- --------- Revenue $53,193 $63,270 $107,511 $126,576 Cost of services 41,617 46,393 84,209 91,601 ---------- --------- --------- --------- Gross profit 11,576 16,877 23,302 34,975 Selling, general and administrative expenses 6,717 6,876 14,598 13,789 ---------- --------- --------- --------- Operating profit 4,859 10,001 8,704 21,186 Net interest income and other (407) 1,152 37 1,773 ---------- --------- --------- --------- Income from continuing operations before income taxes 4,452 11,153 8,741 22,959 Income tax expense 1,809 4,278 3,453 8,792 ---------- --------- --------- --------- Income from continuing operations $2,643 $6,875 $5,288 $14,167 Discontinued operations: Loss from operations of discontinued operations - (681) - (1,350) Income tax benefit - 267 - 516 ---------- --------- --------- --------- Loss on discontinued operations - (414) - (834) ---------- --------- --------- --------- Net income $2,643 $6,461 $5,288 $13,333 ========== ========= ========= ========= Earnings per share from continuing operations: Basic $0.18 $0.48 $0.36 $0.98 Diluted $0.18 $0.47 $0.36 $0.96 Earnings per share including discontinued operations: Basic $0.18 $0.45 $0.36 $0.93 Diluted $0.18 $0.44 $0.36 $0.90 *T -0- *T STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands) June 30, December 31, 2005 2004 ----------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $6,703 $14,609 Investments 38,678 24,785 Trade accounts receivable, less allowance for doubtful accounts of $226 and $357, respectively 44,181 51,291 Inventories, net 499 430 Income tax receivable 4,030 12,344 Deferred tax assets 3,608 2,875 Prepaid expenses and other current assets 2,810 2,180 ----------- ------------ Total current assets 100,509 108,514 Property, plant and equipment, net 57,835 59,760 Long term deferred tax assets 1,784 1,521 Other assets 206 224 ----------- ------------ Total assets $160,334 $170,019 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $5,220 $7,464 Accrued liabilities : Accrued payroll 4,986 5,950 Accrued compensated absences 4,245 4,368 Accrued health insurance 445 188 Other accrued liabilities 755 333 Current portion of long-term debt 2,624 2,580 Short-term borrowings 880 1,250 Income tax payable 3,223 1,626 Other current liabilities 109 160 ----------- ------------ Total current liabilities 22,487 23,919 Long-term debt, less current portion 4,281 5,533 Long-term income tax payable 1,363 1,962 Other liabilities 1,640 1,722 ----------- ------------ Total liabilities 29,771 33,136 Stockholders' equity: Common stock 146 146 Additional paid-in capital 60,270 59,736 Accumulated other comprehensive income 1,082 1,815 Retained earnings 69,065 75,186 ----------- ------------ Total stockholders' equity 130,563 136,883 ----------- ------------ Total liabilities and stockholders' equity $160,334 $170,019 =========== ============ *T -0- *T STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Dollars in thousands) Six Months Ended June 30, ------------------ 2005 2004 --------- -------- Operating Activities (Unaudited) Net income $5,288 $13,333 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,460 6,364 Deferred income taxes (539) (215) Realized loss (gain) on investments 747 (1,072) Loss (gain) on sale of assets (66) 3 Changes in operating assets and liabilities: Sales of trading securities, net 2,929 (113) Trade accounts receivable, net 7,110 2,725 Inventories, net (69) (856) Prepaid expenses and other assets (612) (2,367) Accounts payable (2,244) (537) Income taxes receivable, net 9,358 (4,400) Accrued and other liabilities (540) 2,708 --------- -------- Net cash provided by operating activities 27,822 15,573 Investing Activities Purchases of investments available for sale (515,736) (11,479) Proceeds from disposition of investments available for sale 497,160 15,609 Purchases of property, plant and equipment (4,882) (6,087) Proceeds from disposition of property, plant and equipment 57 -- --------- -------- Net cash used in investing activities (23,401) (1,957) Financing Activities Proceeds from stock option exercises 488 1,963 Principal payments on borrowings, net (2,458) (778) Dividend Payments (11,409) (11,083) Proceeds from borrowings 880 10,000 --------- -------- Net cash (used in) provided by financing activities (12,499) 102 Effect of exchange rate changes on cash 172 117 --------- -------- Net (decrease) increase in cash and cash equivalents (7,906) 13,835 Cash and cash equivalents at beginning of period 14,609 5,955 --------- -------- Cash and cash equivalents at end of period $6,703 $19,790 ========= ======== Supplemental Disclosure of Cash Flow Information Cash paid for interest $138 $136 Income taxes paid $2,886 $12,886 Property, plant and equipment financed under long- term debt -- $10,000 Change in unrealized gain on investments available for sale, net of tax $(618) $(577) *T