Chad Carlson - President and CEO Lisa Weaver - CFO

Matt Blazei - Lake Street Capital Markets Omar Samalot - Independent Analyst Group Alex Silverman - Special Situations Fund

Good afternoon, everyone. [Operator Instructions] Thank you for participating in today’s conference call to discuss StarTek’s Financial Results for the First Quarter ended March 31, 2015. Joining us today is StarTek’s President and CEO, Chad Carlson; and the company’s CFO, Lisa Weaver. Following their remarks we’ll open the call for your questions. Before we continue, we’ll like to remind all participants that the discussion today may contain certain statements, which are forward-looking in nature, pursuant to the Safe Harbor provisions of the Federal Securities Laws. These statements are subject to various risks and uncertainties and actual results may vary materially from these projections. StarTek advises all those listening to the call to review the 2014 Form 10-K posted on their website for a summary of these risks and uncertainties. StarTek does not undertake the responsibility to update these projections. Further, the discussion today may include some non-GAAP measures in accordance with Regulation G. The company has reconciled these amounts back to the closest GAAP basis measurement. The reconciliations can be found in the earnings release on the Investor page of the website. I’ll like to remind everyone that a webcast replay of today’s call will be available via the investor section of the company’s website at www.startek.com. I'll now turn the call over to StarTek’s President and CEO, Chad Carlson. Sir, please proceed.

Thank you, Joyce. Good afternoon and thank you all for joining, an exciting day at StarTek for sure. We’ll discuss today’s acquisition announcement in a few minutes, but first I’ll discuss the first quarter results. StarTek’s first quarter revenue was flat versus the same quarter last year, due primarily to lower AT&T volume, which I’ll further discuss later and the closure of Costa Rica. In the face of these reductions, our intense focus on the execution of our strategy to create healthier revenue diversification was elevated. Revenue outside of telecommunications and cable including STARTEK Health grew 197% versus the same quarter of last year to over $16 million. During the quarter we won $10.5 annual contract value of new business, including five new clients, consisting of healthcare,financial services and consumer products to name a few. With regard to our AT&T relationship, I’ve some good news and bad news. We have been navigating many changes. If you recall, during the late Q2 of last year, we transitioned one of our large sites from mobility care to consumer mobility credit and collections. We’re now considered by AT&T to be a strategic partner for the credit and collections group, due to strong performance and a good relationship. Over the past five years, the mobility care group has been executing on a vendor consolidation strategy and this was one of the largest blocks of business StarTek had with AT&T. As AT&T moved on that strategy, StarTek experienced some lost revenue. The best defense was to keep execution strong and fight doing other business. This prevented us from taking larger losses. During the transition last year, aside from a new agreement for lower pricing, we expected volumes will come back in line. That query has not occurred. Volumes with this group has been much lower than the client expected, at the same time AT&T has been bringing some work back to the US and as the quarter closed, we were informed the last remaining mobility care work we had in the Philippines will also be going away. These impacts will play out through this year, affecting approximately 5% of our revenue. Performance over the past couple of years has helped to rebuild our brand with AT&T and we’ve recently launched some key projects and are in discussions on other opportunities. Gross margin was 9.6%, a decrease from Q1 of last year. This was negatively impacted by the revenue dynamics I just outlined, as well as bringing on four new sites. Three of the four new sites were at or near our margin targets as we excited first quarter. During the subsequent quarter end, we reduced total Manila seats by 250, with a move to a very nice facility in Frontera Verde, not too far from the old site in Ortigas, which will be a great environment for our brand warriors. We’ve also discontinued operations in our Oklahoma facility and do not plan to keep that site. Due to the revenue dynamics mentioned, our capacity utilization is lower and consequently we’ll be doing CapEx plans for added capacity as we work our existing capacity in line with our pipeline opportunities. This is always an interesting balance to manage. I’m very happy to announce that we’ve now completed the data center moves related to the IT platform initiative. While this was a difficult transition for the team, StarTek now sits on a reliable, scalable and very robust IT platform, which will enable our future and require a little capital to scale and update. Today, StarTek announced the acquisition of Accent Marketing Services. Accent is a business process outsourcing company, providing contact center services and Customer Engagement Agency solutions with six locations in US and Jamaica. Accent’s data driven approach helps brands maximize their engagement with consumers and enables brands to influence behavior, all while generating a better return on investment across all customer touch points, including phone, online and social media channels. Accent has 18 clients across several industries, including telecom, technology, retail, financial services and consumer products. I’m excited at the opportunity to combine Accent with ideal dialogue to form a very capable customer engagement agency to help our clients develop a customer strategy through the use of data and analytics to improve the customer experience. We’re then able to support clients to execute that strategy through our omni-channel contacts and they’re staffed with over 14,000 brand warriors. The purchase price for this transaction is $16 million and we’re financing this through our new credit facility with BMO Harris Bank. We expect to close to no later than May 31. Accent’s current annual revenue run rate is approximately $67 million and based on the synergies we can achieve through integrating the StarTek advantage system, which now includes a new IT platform, the purchase price is approximately 3.5 times EBITDA on a standalone basis. We expect to achieve most of these synergies by the end of this year making a transaction accretive to our shareholders in 2016. Taking on debt is not a decision we made lively and we we’re determined to increase our margins and generate the free cash flow necessary to pay this debt down quickly. The board now are very deliberate in this position and the team has completed expensive diligence and now we must execute. We have a very strong pipeline and the differentiation of our client engagement and the value of the StarTek advantage system is evident with 15 new clients, one last year and five more in the first quarter of this year. We’ll continue to work hard on executing for existing clients and convert pipeline opportunities into new clients and continued revenue diversification. The goal to deliver sustainable, predictable, profitable growth has always required improved revenue diversification. The strategic plan to grow our client base, expand verticals and add higher valued services, has been underway now for almost four years with a lot success to show. With continued strong performance for our clients and converting a very strong pipeline into wins, we’ll work hard to keep revenue growth back on track by the end of this year and begin to generate cash from our existing and new capacity. Now, with Accent, we’ll have a more robust costumer engagement agency offering in over 50 client’s brands being protected and promoted by StarTek brand warriors. Joyce, Lisa and I will now take questions.

At this time we’ll open the line up for questions. [Operator Instructions] The first question comes from the line of Adam Dolman [ph] with Baird. Please proceed.

Hey, guys. Thanks for taking my question. Guess just the first one on free cash flow. The Accent acquisition, is that free cash flow positive on a standalone basis and then I’m just curious, through 2015, given some of the investments will need to integrate, should we think about positive free cash flow this year or is that something that we should kind of think about more for 2016?

More for 2016, Adam.

Okay and then any details maybe you could provide in terms of the CapEx you’ll need to integrate this acquisition this year?

It’ll be minimal CapEx and it would just be some typical integration OpEx, but it’s not anything that got significant from our perspective.

Okay, great. And then I guess just one more question on AT&T, you talked about it impacting about 5% of your rev. They had I think a $55 million run rate in 2014, is it fair to expect a run rate of just north of $40 million then this year?

Probably a little less than that, Adam.

Okay. I think that’s all my questions for right now. Thanks guys.

The next question comes from the line of Matt Blazei with Lake Street Capital Markets. Please proceed.

Hey, guys. Matt Blazei, here from Lake Street. A question for you, you talked about the 2,300 employees I believe at Accent, is there a seat count associated with that?

Yes, approximately 2,000

Okay, so 2,000 seat - I know that your previous sort of outlook was at 2,500 new seat capacities here for 2015, how does that change now with the acquisition?

Yeah, between the acquisition and some of the volume softness that Chad referenced in his comments will be slowing that down.

We’ll try to balance that with our pipeline.

Yeah and the incremental capacity we’ve picking up with Accent.

Great and so potentially you won’t be having to spend as much money on just general capital investment here to add new seats post this deal?

Correct.

I see, okay. And then as far as the - obviously your gross margins were down quite a bit in Asia Pacific in the quarter. Is that going to be a slow ramp back to previous levels or what should we expect there in terms of - in Asia Pacific given, I assume that’s where the AT&T business came from?

It came from both the domestic segment and Asia Pacific segment. Asia Pacific is still diluted if you will, for the cost of the new capacity we brought on last year in [indiscernible]. And then also the transition from the Ortigas facility to the Frontera Verde facility during the quarter had some redundant cost or duplicate read for a period of time while we were bringing the new set up. The Asia Pacific wise in fact impacted by more volume softness with AT&T that share diluted to the results of some of the new site movement at play there as well.

I see and then referencing the previous question on the acquisition, you talk about it being EBITDA positive for you in 2016, is it at a breakeven level now or is this going to be - and I’m just trying to get an idea of what sort of dilution we’re looking at here in ‘15?

Yeah, we cannot provide guidance as a matter of policy, but the bulk of our synergy is probably won’t be achieved until towards the end of Q4.

Great, okay. Alright, thank you guys.

[Operator Instructions] The first question comes from the line of Omar Samalot with Independent Analyst Group. Please proceed.

Hey, guys.

Hey, Omar. Omar

Omar you’ve never downloaded some of games [ph] for me one day on us, so yes thanks. So could you tell us what was the impacts of your gross investment expenses on the gross margin overall? And if you could maybe give us a rough breakdown by segment?

Yeah, it was less than a 100 basis points overall for the quarter because as Chad mentioned, three of the four new sites we brought on last year either at or near our margin targets. The segment that was impacted the most from bringing new capacity online was Asia Pacific, as I mentioned in the previous question, but then obviously the segment that benefited the most from closure was Latin America, with the exit of Costa Rica during the year, last year.

Okay. In terms of the decreased volume from AT&T, was it all AT&T in Q1 as compared to say the previous quarter?

But clarify that, are you asking it sequentially as it all came out or just it all. We started to see some of that in fourth quarter I would say, but just was either impact - quite the impact that we saw in first quarter.

Okay, but my question there, is it - was it focused mostly on AT&T business, not any of the other big clients that you have?

Yeah, the primary - but the primary impact was AT&T. I mean you know this business Omar, it adds and flows and can be lumpy. So we certainly saw [indiscernible] with our other clients, but yeah, there’s significant impact we need to address with AT&T.

Okay. Now, does this mean that - so the whole mobility piece from AT&T, I guess has been pulled out and are you going to maintain the receivables management piece?

Yes.

Okay and then you mentioned that -

That’s why I tried to really focus on the fact that we’ve been declared a strategic partner for that group and working some opportunities there.

Okay, got it okay. And then when you said the impact of 5% of 2014 revenue, did you mean - I’m sorry, you said 5% of revenue, did you mean 5% of total 2014 revenue or 5% of AT&T specific ‘14 revenue ?

I was thinking of 2015 total revenue.

Okay, so this factors in 2015, got it. Okay, let me see in the - I guess aside from AT&T, the slowness in volume for - that we saw in Q4 and Q1, how are you seeing volumes currently?

Well, I think we’ve addressed that with the first quarter read out where the bulk of the softness is coming from and certainly from an year-over-year basis, Costa Rica is a part of that as well.

Okay, it seems like the cash researching charge [ph] Lisa, for Q1including the IT platform consistent cost is around 850,000 is that accurate?

Correct.

Okay and then I guess another 200,000 for Q2?

We’ll have some this quarter, 200 might be a little high.

Okay, so 200 balance spread out between the - I guess the rest of the year.

Yes.

Okay and that could be it in terms of cash researching charges so far, as far as you know?

Yes.

Okay, the acquisition of Accent, is there any way that you can talk about profitability at all on the business that you acquired and maybe expect margins?

I think if you review my comments you’ll be able to get to that, Omar, post synergies.

Okay, got it. I didn’t see the BMO credit agreement in the queue that was released, will that be released soon?

It will be released with the second quarter queue.

The second quarter queue, I got it. Okay. Alright and then I saw also that the - you have two new US facilities that are scheduled to open later on this year, would the CapEx for those facilities come out during Q2 or during Q3, when they’re expected to be operational?

Yeah, I think it will be spread over the balance of the year. Again we’re going to really balance bringing capacity online as the pipeline and client needs suggest, so I think it’s reasonable to assume that be Q2 and Q3, Omar.

Okay, got it. And I mean, I don’t know how much you can say, but are there - given the acquisition and given that these two facilities are opening later on this year, do you see any further need for additional capacities so far for this year?

Well, we do have the commitments for Tegucigalpa, you recall last year we opened it, facilities for that capacity will come online later this year as well. And then we’ll get through the Accent integration and assess what our needs are by market at that point.

We have stated that this - this is an investment here for us and while we’ll try to stage our current capacity expansion plans as close to our pipeline as possible and demand, we were planning this year as an investment year, setting ourselves up for 2016 to really much less in our capital expenditures in expansion and focus on optimizing our profitability really beginning to guide free cash flow. And that’s the focus we’ll have certainly into next year, so that we can generate free cash flow required to deliver the company.

Okay, got it. That’s helpful and fair. So I mean, is it fair to say that - obviously you’re going to have a few things to digest, is it fair to say that with Tegu and the two new facilities in the US and the acquisition that should be what you should be, I guess enough to digest during the year before you getting to more on new capacity?

We’ll see.

Okay, fair enough. Well, thank you guys, thanks for taking my questions.

Thank you, Omar.

[Operator Instructions] The next question comes from the line of Ryan Nelson with Special Situations Fund. Please proceed.

Hi, it’s actually Alex for Ryan.

Hey, Alex.

Hi, so in terms of the facilities you plan to open this year, do you have leases at this point signed that you have to then put on hold or help us with thinking through that?

We do have leases signed for both Wichita and Hamilton; Hamilton, Ohio and Wichita, Kansas, but the CapEx really is the build out and somewhat IT equipments that we would invest in the site to bring it online and that when we talk about timing and pushing it out, that’s what we’re talking about.

And that’s more material too.

Yeah, the CapEx is?

Yes.

The build on CapEx, okay. So Hamilton and Wichita get put on the back banner, I assume Accent, it sounds like they have most of their facilities in the US and Jamaica, is that right?

Yes.

Okay. How fully utilized are their facilities?

We’d like to not get into too much of that right now, until we get best horizon, Alex.

Okay, that’s reasonable.

Yeah and Alex, if I could just clarify, we haven’t back bannered Hamilton and Wichita. We will continue to assess that based on our pipeline and determine what the appropriate timing is for both of those facilities, as it relates to our current footprint and the Accent footprint.

Which should less stress the strength of our pipeline and that balance. So it’s interesting to balance capacity, try to bring that in line with the capacity requirements as tight as possible.

Very reasonable, on shore - I’m sorry, offshore and near shore expansion this year, what do you - what’s in the plan?

Well, it’s [indiscernible] where Lisa mentioned, Iloilo, she mentioned on APAC is there. So it will be not much past that.

Okay and then I assume you’ve got the capacity that AT&T is freeing up?

Yes.

Okay, thank you very much.

Thank you.

We have a follow up question from the line of Adam Dolman with Baird. Please proceed. Please proceed.

Hey, guys. Thought of one more question, you guys said I think, called out last quarter the expectation for double digit top line growth. I’m wondering if on a like-for-like basis we’re looking sort of mid single digits given sort of the update on AT&T or if maybe some of these deal signings that provided some upside there?

Yeah, I think the double digit obviously is put under lot of pressure now with this development, but by the end of the year with the pipeline, hope to get that back on track.

Great, makes sense. And then as far as Accent goes, will that all fall into the domestic piece of your reporting segments or I guess, how is that spread out?

Yeah, the majority of that will be in the domestic segments, but there is a portion that will be categorized as near shore.

Okay, perfect. Thanks guys.

Thank you.

At this time this concludes our question-and- answer session of the call. I’d now like to turn things back over to Mr. Carlson. Mr. Carlson, please proceed.

Yeah, I just like to thank everyone for your interest and continued support and obviously we have a lot of work to do, so we’ll get at it. Thank you.

Ladies and gentlemen, this concludes today’s conference. You may now disconnect. Have a great day.