Chad Carlson - President and CEO Don Norsworthy - Chief Financial Officer Cory White - Chief of Sales and Marketing

Mark Argento - Lake Street Capital Dave Koning - Baird Omar Samalot - Independent Analyst Board Douglas Ott - Andvari Associates

Good afternoon, everyone. And thank you for participating in today's conference call to discuss STARTEK's Financial Results for the Fourth Quarter and Full Year Ended December 31, 2016. Joining us today is STARTEK's President and CEO, Chad Carlson; and the company's CFO, Don Norsworthy. Following their remarks, we'll open the call for your questions. Before we continue, we would 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 Security Laws. These statements are subject to various risk and uncertainties, and actual results may vary materially from these projections. STARTEK advises all those listening to this call to review the 2015 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-based measurement. The reconciliations can be found in the earnings release on the Investors page of their website. I would like to remind everyone that a webcast replay of today's call will be available via the Investors section of the company's website at www.startek.com. Now I’d like to turn the call over to STARTEK's President and CEO, Chad Carlson. Sir, please proceed.

Thank you, Kristal. Good afternoon and thank you all for joining. Earlier today we issued a press release announcing our financial results for the fourth quarter and full year ended December 31, 2016. Our focus on key business initiatives enabled us to reach our goal generating positive net income for 2016, which represents the current results STARTEK is capable of producing and also becomes to reflect the ability to grow without significant increases through sales, general administrative costs. The impact on our margins will obviously be positive. We bring on the new clients we had mentioned over the past several months and bringing in new wins from the current pipeline. As we have discussed all year, our top priority is to achieve profitability. Our persistent focus on high grading meaning to remove our three programs with less than acceptable margins and improving operating efficiencies, bringing new business, improving capacity utilization and continued tight our head cost management enabled us to reach this goal for the first time since 2009, while also generating over $7 million of free cash flow. This year marks the completion of our turnaround. For the fourth quarter, I will assume the overall receive earnings release from earlier today. Obviously, revenue being down is not good, but this short-term level in volume should be end by the second quarter, a new order flow we have reported and start hitting the P&L. Further, pipeline is the best I have seen during my tenure and we will continue working through more business. As a result of improving sales execution and strong near short demand, we are planning to open more seats in Jamaica and Honduras in 2017 to further build upon our growth of high-quality revenue. Based on these new projects and our current normalized maintenance CapEx, we expect total CapEx for the year to fall between $8 million and $11 million. As I mentioned on my last call, we have good client available capacity to grow. In fact, including the two projects as mentioned, we will have enough capacity to refill the $400 million in revenue before taking on any other significant capital expenditures. This is why I stress variance leverage opportunity we currently have with continued revenue growth in my opening remarks. Now looking forward, for the first time in five years, I believe we have all the pieces in place. We now have better revenue in vertical diversification, differentiated solutions for the market, a robust, stable and efficient IT platform, enable capacity footprint and the leadership team and power to win. The pipeline is healthier than any time in my tenure. I believe the core existing client base is solid and improving. We are ramping the wins reported over last two quarters along with strong client metric performance. We have added to the sales team and are intensifying the focus to grow healthcare revenues. We even recently won back the healthcare client who have discontinued with us over last year. Due to all these enablers those wins are now been in place. I have said our objective over the next couple of years we will grow revenue by 10% and increase EBITDA by 25%, and 25% is our focus. But we are not at these levels, you should know that I will not be happy and we will make whatever changes necessary to get us there. Kristal, Don and I will now open the call for questions.

Thank you. [Operator Instructions] And our first question comes from Mark Argento from Lake Street Capital. Your line is open.

Hi. Good afternoon, guys. A couple of quick questions.

Good afternoon, Mark.

Hi. The CapEx number, so the $8 million to $11 million for 2017, maybe just help us understand a little bit, typically where you see that CapEx, is that seat expansion, is that some IT, maybe break down a little bit if you could?

Yeah. A good way to think about our business model Mark is every year maintenance CapEx is going to be about 2% of revenue. So even though we had a pretty significant catch-up in the fourth quarter, we are still a little bit behind, so we have to catch-up from that standpoint. It will be somewhere around $2 million committed to growth CapEx in that number, but the vast majority of it is going to be maintenance CapEx.

Got it. Okay. And Chad you had mentioned towards the end that you said you will not be happy if you don’t achieve, I missed, what kind of the bogie that you would start out there, what was the metrics you are referring to?

10% revenue growth -- yeah, 10% revenue growth and 25% in EBITDA.

Okay. And then talk a little bit about Q4, it sound like there is, obviously, a little bit of low in terms of activity, was that -- was it a different seats or was it just overall spending by your customers, maybe spend a little bit of time walking us through Q4, it did see, sounds like you anticipate things picking back up by Q2 and like give the visibility there?

There are really three primary areas there, Mark, first, it was that we did some pretty significant efforts around upgrading our contracted revenue, which basically affected the removal of two client programs. We also -- so that was one revenue level impact. The second item was just a difficult year-over-year comp due to [ph] evaluation (07:49) and demand from a financial services client, which did not reoccur in this past fourth quarter versus ’15. And then the third area like the softer revenue would be around the softer than expected seasonal volumes, primarily coming from retail and wireless sectors and it really happens from the election way through new year. So this is not as heavy of the holiday period as what we experienced in ’15. So from a year-over-year comp standpoint clearly show the variance there, and obviously, no secret about how the retail sector has been impacted there in the general market, I think, there was definitely some election overhand going into holidays and things of that nature impacted volumes always from my perspective.

And then, Don, on the balance sheet quick, maybe did you guys spend any debt down in Q4, where do you sit right now in terms of the current debt load and any availability?

Let’s see, let me grab that number, right, call just back Mark.

And Chad, well, speaking that one, one last one for you, in terms of the environment -- current environment, obviously there has been a lot of chatter about intercross border, employment and what have you? How do you see any of that impacting your business at all, have you seen any of that impact in your business.

I have not seen any impacts for that at this stage. However, we provide services from our outsource perspective that makes sense for our clients and what they are trying to accomplish and we will continue to be in the position for that. The ample capacity that we have allows us some flexibility to deal with any potential changes that come on there.

And Mark, the answer to your question we started the year with $32.2 million on line of credit and we ended the year $26 million.

Great. Thanks, guys. Appreciate it.

Thank you, Mark.

Thanks, Mark.

Thank you. Our next question comes from Dave Koning from Baird. Your line is open.

Yeah. Hey, guys. Nice job this year.

Hi, Dave. Thank you.

Thank you.

Yeah. And I guess, first of all, just on the commitment to the 10% rev growth and 25% EBITDA growth, is that a 2017 guidance or is that kind of a multi-year guidance over the next few years?

Well, as a policy we don’t provide guidance. That is our objective on a year-over-year basis for the next couple years.

Okay. Next couple years. Got you. And then, secondly, the free cash flow this year obviously did a great job getting that back to positive. Given maintenance CapEx is pretty small and you just don't need to spend a lot on growth CapEx for a while, does that mean free cash flow should be nicely positive again in ’17?

The goal is for to be positive. The challenge is going to be with the ramp in revenue. We are going to have a pretty significant investment there and trying to control DSOs. But, yeah, the goal is to have positive free cash flow and certainly hope that trade wise what we’d be beating strong positive free cash flow.

Yeah. Okay.

It certainly somewhere [ph] mind full (11:44), Dave.

Yeah. Yeah. No, I mean, you have done a great job of that so…

Thank you.

Yeah. And then, I guess, the last thing, what -- maybe if you could just give you an update, I know it will come on in the 10-K, but just kind of rough numbers around some of the bigger clients like AT&T and T-Mobile and Sprint maybe?

Okay. Go ahead, your chance?

For the quarter…

Yeah.

T-Mobile was actually up 18.7%, for the year they were up 7.6%. Sprint for the last six months was up 3.4% year-over-year. AT&T for the quarter was positive just under 1% for the quarter on a year-over-year basis was up 9.2% for the year and Comcast was down 40% for the quarter, 21% for the year.

Okay. Great. Thank you.

Thank you, Dave.

Thank you.

Thank you. Our next question comes from Omar Samalot from Independent Analyst Board. Your line is open.

Hi, guys.

Hi, Omar.

Hi, Omar.

Congratulations on a solid quarter. Great margins.

Thank you.

Very good. Given the ramp of new business wins earned during late Q3 and given that a lot of that was healthcare related and I am assuming it carries better margins, should we expect improvements for domestic segment gross margins in early 2017, that segment has been not kind of underperforming for the last three quarters now?

I think in line with my comments a lot of the bookings or revenue are coming from the bookings we have announced will become more evidence in the second quarter and with rest of the year.

Okay. Got it. All right. And would you say that that you announced a lot of new business in Q3 about $32 million. Was that fully ramped by now or that still in process?

No. It’s still in process. So that’s why I added more clarity in the script regarding a lot of that won’t be real evidence until where we start seeing the P&L more in second quarter and throughout the rest of this year. A couple of the programs involved in those announcements have bit of a longer tail ramped than what historically we probably had on average, so that’s a reason I added that extra color.

Understood. Okay. I noticed that offshore margins are back to normalized levels. What is your expectation for that segment going forward in terms of capacity utilization and gross margins?

Continue to win new business and improve capacity utilization and the margin improvements will flow from that.

Okay. Good. All right. I have noticed quite a bit of hiring efforts for healthcare related business across a number of sites. I think I have seen healthcare related efforts in at least five different sites. Is a revenue run rate plus business already won as of today in healthcare hire than say year ago, anything that at least qualitatively that you could say there would be helpful?

Let’s say, based on the bookings that we’d announced in third quarter and that -- it is more healthcare in the third quarter and we have recorded wins in a while. And I mentioned in my comments that we are intensifying our efforts to grow healthcare, so I certainly expect us to grow healthcare and hope to see that become a significant part of our business especially as we exit this year.

Okay. All right. I know that…

We have added to our sales team that relates to healthcare as well, so I would expect them to produce.

Okay. Okay. Got it. I know that a part of your improvement efforts, you guys have been focusing on employee retention, which really ultimately starts with the right employee selection. Could you talk about that a little bit and what has been your turnover rate, let’s say, trajectory?

We are actually very proud of the team on that front. We have our lowest offshore and near shore attrition in the history of the company last year made significant progress there. I think that’s really a combination of a lot of different initiatives. It always starts with leaderships and having right screening criteria, we certainly used our ideal screening on our offshore and near shore markets. And then -- and leadership and training is another key area where we believe we have some differentiation to some of our competitors from the training and curriculum development standpoint. It’s an ongoing battle in this business and we always look to continue improve our retention and create some employee engagement and we will continue to do so. But it was a great year especially offshore and near shore, and domestically we had some good site performance and we had a couple sites that start a little bit and certainly we have a close eye in focus and helping those teams get on the path with all the rest of the organization.

Okay. Obviously the margins are -- a better margins are as a result of that improvement. And given that 2016 was the year of fine-tuning the delivery platform and then the sales message combined with further cost structure realignment as you get ready for the next step up and growth, could you at least qualitatively describe what you see or expect for 2017, well, reaching up operating performance, it’s something that would be more of the probability for 2017?

We need to execute. We will continue to execute. We will continue to improve our results.

Okay. All right. And finally, I do appreciate the -- at least the goal of 25% EBITDA growth, so that would probably take us somewhere around $26 million, $27 million in 2018, is that the number that that we can work with?

I am not sure where you get that percentage or get to that number off of what we just reported.

Yeah. I mean, definitely…

We don’t give…

… you have got 25% a year.

Or for ’18 you are saying.

Yeah. For ’18 -- 2018.

25% growth in EBITDA for next couple of years is our goal.

Okay. Okay. Great. Thank you very much and congratulations guys. You are doing a great job.

Thanks, Omar.

Thanks, Omar.

Thank you. [Operator Instructions] And our next question comes from Douglas Ott from Andvari Associates. Your line is open.

Hi, Chad and Don. Can you hear me?

We can, Douglas. Hi.

Good. I am pleased with the results and I know you guys are. I was hoping if you could comment anymore on how you are feeling about the sales pipeline and if you can more specifically can you share anything with us about what Cory White has been up to?

Well, as I mentioned, our pipeline stronger than at any time of my tenure. So you can assume that Cary has been very busy.

All right. Good. Can you tell us anything about…

He also have new members in his team with we expect a lot from, I just believe we need to go execute.

Good. Can you tell us anything about the composition of the pipeline, is it mostly the higher margin business that you're after, can we continue to expect the greater diversification of revenues going forward.

Yeah. Certainly, diversification will come from that. Certainly we are intensifying our focus on healthcare and we’d like that to become a larger share of our overall portfolio, which one could translate that is in higher margin business just by nature of the business and also some services that we provide in that business. And but, I think, as far as geographically, it’s a pretty good mix and we are working our system and get top of the funnel fold and trying to improve our winning percentage as a percentage of some improvements there. So it’s -- as we are looking at there is very little we are seeing a broken in this company anymore, which is why there will be turnaround, last year ended our turnaround, so everybody in our company is a sales person right now and it’s all about sales and getting the revenue and do our billing and with that we will become much better possibility in results.

Good. Good. And you mentioned earlier in the call briefly that you recently won back healthcare client, Cory, if you could share any details on why do you think they left in the first place and also why they came back?

We have seen a lot of clients. There is often a pendulum swings between should we outsource, should we not outsource, what kind of business challenges are they trying to solve for, what’s their long-term strategy and the mix, the same kind of pendulum swings between offshore, onshore and near shore, again it all depends on that particular client, what they are trying to accomplish within their business objectives and I think that that particular client has got a situation where they saw a value and having a partner that could help them with some of their demand. So, without getting into too much client specifics that’s that kind of describe the dynamics to inspire this.

Yeah. That sounds fine. And would you say it apply to most clients, they seems every couple years and then you assess them and then you need to want to leave STARTEK and maybe eventually they will come back in the couple month depending on?

Yeah. Probably one say most, it’s certainly not rare.

Okay. Okay. So what the last you think probably a little more attrition attached to that so to speak?

Yes. Yeah. I probably wouldn’t say a number like that, but it’s not on the client strategy, it sometimes depends on the leadership within the client again what they are trying to accomplish.

And from a more broad perspective, I was hoping you could also talk about kind of the general stake of the BPO industry and it competition currently kind of healthy rational, can you see opportunities that felt a further with you guys or are there people continuing to look to consolidate further within the industry?

Well, Douglas, it’s not a secrete, it’s a very fragmented industry, I mean, it’s now projected somewhere in the range of $72 billion industry and I believe that that 10 or 15 players control 30% or less of the space and I think was probably 3,000 providers and other 70% or so, I am giving you ballpark numbers but…

Yeah. Yeah.

Certainly, it’s still a very fragmented industry and we continue to have opportunistic approach and view and it makes sense there from a strategic standpoint and what’s most important is to take control of all investment and perform and execute and get the results and then here where it goes.

Okay. And my final question, regarding the debt, do you have any general or specific goals so when you fully pay down the debt and is it kind of slow steady or you kind of do this thing as it begin?

Well, it really just depends on the growth of the business and we have the investment we haven’t made are…

Okay.

So that’s the critical factor. It sort of good news, bad news, good news is the business is growing at a good solid rate, the bad news is when you try to generate free cash flow, there is pretty significant investment there are in this industry.

Got you. All right. That’s it for me. Thank you, guys.

Thank you, Doug.

Thank you.

Thank you.

Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Carlson. Mr. Carlson, please proceed.

Thank you, Kristal, and appreciate everyone’s interest today and we are going to go get back to work and talk to you next time. Thank you.

Thank you, ladies and gentlemen. You may now disconnect.