Startek Inc (SRT) 2004 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the third quarter 2004 Startek earnings conference call. My name is Ann Marie and I’ll be your coordinator for today. At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of this conference. If at anytime during the call you require assistance please press star zero and a coordinator will be happy to assist you. I would now like to turn the presentation over to Mr. Amy Fairwild vice president of marketing and communications. Please proceed.

Thank you very much Ann-marie. Today’s call is being recorded, a dial in replay will be available at the conclusion of the call this morning a web based replay will also be posted on Startek’s corporate we site www.startek.com by November 6th and will be accessible through November 30th . Please note that our discussion today will encompass certain statements which are forward-looking and are subject to various risks and uncertainties as summarized in our 2003 form 10K and other SEC filings. Our actual results may vary based upon these risks and uncertainties. Please allow me to introduce Bill Meade CEO and president of Startek.

Good morning and welcome to our quarterly earnings conference call for Startek and we are pleased to have this opportunity to chat with you this morning. Again I am Bill Meade and I am the president and CEO of Startek. Let me begin with you know that many of you are listening to the call today have worked with Jean McKenzie our chief financial officer and again I just want to reiterate for personal reasons Jean resigned from Startek and as such I’ll be conducting both really the business side and financial side of the call today. The agenda this morning includes comments on the quarters business progress and then followed by the discussion of our financial results and then we will open up with a Q&A and we will target to end the call not later than five thirty eastern time. During the course of my remarks today again we will not be providing and forward looking guidance about our business nor will we provide financial guidance for the balance of this calendar year. This is consistent with the discussion in comments we made during our second quarter conference call which was held on July 29th 2004.

Now let me talk a little bit about the business. First the name of our largest client changed from AT&T wireless to Cingular during the quarter due to the recent FCC approved merger and as we talked about previously and in our second quarter communication going into the merger Startek has had a track record of performance with AT&T wireless where we believed we were the highest quality service provider and we also believe we are the lowest priced provider for AT&T wireless and we see the effects of our pre emptive price reduction with our largest client and we believe they have been having a very positive impact and resulting in significant incremental season volume which did begin to ramp during the third quarter. Now also the ramp of our two newest clients continues to go very well and we are also pleased in our contribution toward our over all growth now and moving forward.

We did continue to see declines in porting volume during the quarter but more related to our original forecast for the year and we have had to absorb significant expense in the third quarter for the ramp that started with a major client and we have also had to start to bring on another facility and also absorb the training expenses associated with ramping that facility. So during the quarter we did begin the full scale ramp of Collinsville Virginia which is our 16th business process management services facility and I think you know for those of you familiar with our historical practice for how we ramp and bring sites on. We really only ramp a site we are you know were fairly and very solidly optimistic about the demand to fill it. And again our ability to execute a full ramp in a short you know a time period is very advantageous for us but still you don’t really see any material revenue for 3-4months until after we initiate in and announce a site selection.

So you know given these forces on the business we really during the quarter made a conscious effort not to reduce our work force and to stay in what would really be characterized as an overstaffed mode for part of the third quarter and this did drive down the margins. Now we could have made staff reductions but because of our optimism and confidence in both the near term and the mid term in really our visibility in the solid demand for incremental seats during the late third quarter and also moving into the fourth quarter. We made a conscious decision to retain staff. One of the key reasons we chose to do so the staff we retained has an experienced knowledge base and skill set within the wireless customer service space and so we absorb significant lower productivity and utilization rates during the quarter rather than making short term cuts on this staff only to turn around and then have to hire new staff back and fully train them. So you know in addition we also what to maintain our workforce as we have done consistently with the value we’ve placed also on our reputation in the local communities in which we reside and it’s important for us to value the balance of the interest between our clients our employees and the communities that we live and work in.

So our assessment was not to make cuts our to saw to the bone in our operations because while it might be an effective short term decision we believe that it was not the right thing to do really looking at both the growth we see in the near term and the long term. So while clearly we are disappointed about the impact on our margins the training is having because this is on our dime. We really so this is an incremental near term investment which is a leading indicator of our ongoing continued growth. Now we also see the ramp of addition capacity and seat continuing as we move through Q4 which is evidence we believe that our operational excellence model is working and were being rewarded with incremental volume and we believe we are also continuing to gain share of market.

Now as you also probably all know and are familiar that with all public companies right now are addressing challenges of Sarbanes Oxley 404 compliance and like other companies we have had to incur incremental expense and a portion of this was in the third quarter and will also continue into the fourth quarter. And you also may recall that we disclosed on September 30th that we did exit our business operations in the United Kingdom. If we are going to continue to look at markets through platforms that don’t give us the returns we feel we need we will also continue to exit those businesses. This was the case with the UK operations since we lost our largest client a few years ago and since then we really have not been able sustain consistent profitability so thus we choose to sell our eggs at that business.

Now we continue to believe and see that the pipe line is the strongest its been since I’ve been CEO which is 3 plus years and we feel good about the incremental revenue that will be coming from new signings as we go forward and to be a little more specific about some of the opportunities we see relative to our pipeline right now we are 1 of 3 finalists in a service bid with a health care company which would be a new vertical for us. We are one of five finalist with a pharmaceutical company which you may have seen mentioned in the San Francesco Chronicle there was an article that specifically stated the company and who the finals were a few weeks ago, and we are one of two finalist with a major telecommunications company. So based upon the health of our pipeline we could envision our new site planning process and having perhaps to bring on another 2-3 additional sites in 2005. So while the third quarter is down versus prior year we believe the increase in the dividend and the announcement in the stock repurchase program sends a very strong message that the board of directors are encouraged and supportive of management’s performance. And we look forward to the future for business performance despite we’ll be consistent with our historical pattern of earning. Now let me shift gear a little bit and talk about the financial results.

If you look at revenue, our overall revenue is up 14% from Q3 ‘03. That’s really driven by business process management services. Business process management services is up 31% from last year and this is somewhat offset by our supply chain management revenue which is continuing to decline and declined 28% year over year. Business process management services now comprises 81% of our overall revenue versus 70% in last year’s Q3. Supply chain management revenues decreased from 29% in Q3 ‘03 to 18% now in ‘04. Coming back to the gross profit margin, it was down 5.1 percentage points year over year from the 26.5 % to 21.4 but again this is really driven by three factors during the quarter. As we previously disclosed, we have an incentive tiered price reduction with our largest client and the good news in that though is that’s working exactly the way we hoped it would. It is generating incremental volume for us while we had had a lower price.

We have the investments during the quarter in launching an additional facility as I said with Collinsville and then again we made this conscious decision to based on the demand that we saw with the very large wireless client to hang on to and redeploy some trained resource that had knowledge base in the wireless industry over to where we saw the future demand coming in and the incremental growth.

And then during the quarter there was an impact, foreign exchange debt accounts for less than a million dollars of unfavorable variance due to our Canadian operation growth and the rate change from Q3 ‘03 to Q3 ‘04. Operating expenses, they were up 13% from Q3 03 to Q3 04 but as the percent of revenue there was a slight decline from 11.3 to 11.2%. Now most of this was staffing requirements due to the support of three new sites relative to year over year and then further investments we’re making and training and development particularly as it relates to our front line supervisors. And as I previously mentioned we’ve also had the impact as a lot of other companies had of the Sarbanes Oxley compliance.

From a balance sheet standpoint cash in equivalents we down 7.5 million from Q2 . Accounts receivable grew by 2 million and days outstanding stayed fairly consistent- was just a minor change really from Q2 and then revenue was up 2.8 million in the same period. Now our income tax receivables did grow 5.1 million from Q2 04 and has grown 10.2 million year to date and this is primarily due to an over payment we made of our estimated cash liability through Q3 of ‘04 which was about 7 million. So as we you know exit Q4 there will be a cash benefit of approximately 4 million coming back and we have investigated – we’re going to be filling early in ‘05 the IRS form 4466 which will allow us to get a refund for the tax over payment that we did make. And as I stated earlier our property plan equipment has increased due to the investment in the new centers and this is offset by the sale of UK operations.

Relative to the cash flow at the close of Q3, our cash position was 12.3 million which was down from 19.8 in Q2. But during the quarter- again we invested 7 million in property and plant equipment. Then we also paid the dividend, by quarter dividend which was about 5.8 million. Then again this was offset by positive cash flow form our operations of 6.8 million and again we are very pleased that we continue to generate positive cash from our operations. If you look back the first nine months of 2004, we are pleased that our revenue has increased 20.3% and over the same period last year. Our gross profit has increased 23.5 % over the same period last year. Earnings have increased 24% including continuing operations and if you look at it with you know, the discontinuation of the UK, earnings are still up a very healthy 14%.

Now I was just want to call your attention though as we move through the fourth quarter of 2004, I do want to remind all of you the fact that this time last year we a record fourth quarter for us . We were experiencing some strong upside in our business that included the client demand in our supply chain services and then also last year was the launch of the wireless number portability services to a significant market thirst and and we had tremendous increase in overtime in our service to our wireless clients and then again we were benefiting from the continued ramp of two sites we brought on in the fist half of 2003.

Now in closing let me summarize a few key points. Due to strong client demand we are ramping a new site and we may yet need another site in early ‘05. The growth combined with the training revenue in our tiered pricing volume model confirms our views that we move into 2005 with very strong momentum. While we are below analysts expectations, we really do see that the future looks good. We have an eye towards the future and we look at our performance over both the long and the short terms. And while the immediate short term has gotten bumpy, we still fell very, very good about the long term. And we believe our client facing operational excellence model is working extremely well. And let me just refresh everyone’s memory about what we mean by the operational excellence model.

We really believe Startek has the unique ability to swiftly ramp new capacity in less than 90 days and we believe our ability to do that gives us an advantage of 30%-40% faster implementation than our competitors. We also have a unique focus we feel on resource planning relative to how we schedule and staff for the fifteen minute intervals and this really gives us an advantage on our ability to deliver consistent service and quality and in fact we’ve been told by one of the major tele-service switch providers we are best in class relative to our ability to do that. Then again, we have a desire to be the number one out source provider for any of the clients we work with, with respect to delivering unsurpassed service and quality and we know this because we back it up with our client satisfaction surveys and our quarterly business review process.

So we continue to deliver high client satisfaction and high levels of service on a consistent basis. We’re being rewarded for that with strong incremental growth from our existing clients. Again, we’re going to continue to execute on our operational excellence model. Then again, we’re going into 2005 with the current client base where we see right now all of our major relationships are either on a growth curve or stable. As I stated earlier in the call, we’ve got a healthy promising pipeline of diverse prospects as we move into 2005. So, the external world looking in, I really realize I’ve taken a hit. I have got a black eye but you know we’re standing strong here and we’ve got a strong eagerness to pursue the opportunities as we go forward and again we are very encouraged by the momentum we have as we move into the front end of 2005. So that concludes it for paired remarks on our third quarter performance. I just want to restate our current practice of not offering forward looking financial guidance at this point in time and for the duration of 2004. So we’ll now open the call up for questions and answers and please standby while the operator provides instructions, Thank you.

Ladies and gentlemen if you wish to ask a question, please press star followed by one on your touch tone phone. If your question has been answered or you wish to withdraw your question please press star followed by two. Questions will be taken in order received. Again to ask a question, the command is star one and we’ll pause for a moment as questions queue up. And our first question comes from Arnold O’Conner of CJS Securities, please proceed.

Arnold O’Conner: Good morning, obviously I think most of the investors are going to want to focus on the margin issue which was pretty weak. You mentioned three specific items in (inaudible) going in reverse order. I think you to tried to attempt to quantify them starting with redeploying assets. You used the term a one time retraining expense, as I said if you could just walk up your list of hits to the margin and expand on those.

Okay there’s three key components Arnie. The first one would be the price reduction with our largest client and again I think as we’ve shared before, it’s a very aggressive model. What we’ve hoped to do is incent them as it was put in place in the second quarter but as we move through the year to give us more volume while it would be at a lower price. Now, as we exit the year we are seeing strong incremental demands as it relates to that pricing model and you have a function of where the price decrease that came into place in the second quarter based on the demand we’re seeing in indeed by the end of the year that client could also hit a new lower price threshold. So there’s the overall margin deterioration from Q2 when the price reduction went into effect and now based on the significant demand we’re seeing, there maybe a new pricing tier so that’s part of it.

The second thing is we’ve got expense associated with ramping a new facility and also meeting some significant new demands for the new clients we’ve been ramping but again particularly for our largest clients and as we’ve disclosed before, the initial training for that ramp is on our dime. We have to absorb four weeks of training, classroom training and then usually a couple of weeks of what we call A Bay training where in the four weeks there is virtually no revenue and in the two weeks in the A Bay there is very minimal revenue. So we’ve got that going on.

Then the last piece and these are kind of in rank. I’m giving them to you in rank order relative to the margin the deterioration. This is component where in one of our geographic locations where we have multiple sites, we had some agents where they had experience in the wireless phase. We saw some declining volumes or not gross volumes there and we saw the chance based on the increase demand from the largest clients to redeploy those resources. Now those resources had strong wireless industry experience but did not have experience relative to that specific client. So they also had to go into this training of the four weeks of new training and then the A Bay training. You add all those up that’s the majority of the margin deterioration in the quarter.

Arnold O’Conner: Yeah but it doesn’t really answer the question. Your margin deterioration had a 400 basis point margin hit. You’ve opened facilities in the past many times and you’ve never seen a margin hit anything remotely close to this. Again going back to your largest client, you mentioned you might get to a new pricing tier at year end if volumes kick in. I want to be as clear as I can on asking the question. At what point you returned to the historic margins you’ve had with this client? What volume increases are needed just to return to margin?

Well with the largest client we’ll never return to the historic margins we’ve had for a couple of reasons. One is historically in past years, there was a period where in fact we were reimbursed for training. So that changed in the last year. Then secondly, as we said in Q2 when we went for the new pricing agreement, we knew that it would be lower margins but for significant incremental volume and then therefore net gained to the bottom line. So we won’t see ourselves returning to historic margins with the largest client. Now that being said relative to your questions about margin trends, we don’t see the ongoing reduction we made in Q3 with those kind of margin reductions occurring going forward. That will be because again a lot of this happened at one time in Q3 and the second thing is that it will be supplemented by new client signings as we go forward at a higher margin and then getting through this bump. This is a significant ramp that is taking place with AWS and your point is well taken relative to historic, but we are bringing on a significant amount of capacity and we kind of had the perfect storm in Q3 relative to all those things happening with the largest client that while we take the price hits but we’ve also got a very significant capacity coming on in the hundreds of seat and we just weren’t able to absorb it all.

Arnold O’Conner: Again, I want to focus on EBIT margins which I know historically has been one of your key measures. You used to be in the 14%-15% EBIT margin when supply chain was a dramatically higher percentage of the company and your whole thesis has been shifting towards business process management and the impact it would have on the EBIT margin. That just is not happening at the moment.

It did not happen in Q3, but again as we go forward, we really see we will get the benefit. If you think about it, we’ve got, you know again, significant capacity in Q3 where we had a lot of training, we had a lot of ramp up cost and now we really get no revenue for that. As we exit Q4 and as we move into the front end of ’05, particularly very early ’05, all of that training cost will be absorbed and we will have significant incremental revenue coming on.

Arnold O’Conner: Again, I know you don’t give guidance but the investments you’ve made in launching this new facility, can you give us a feel for having it completed at this point a month into the next quarter. Are they still ongoing, will they continue all through Q4? Give us a better feel for where we are in the process.

Okay, part of the additional capacity is being absorbed into some facilities we had. But we are just now we took first calls in the Collinsville just this week. So if you follow that in terms of how we disclosed it before, the agents usually come on in chunks. They come out of training in kind of a 60 to 80 seat range. So the first group of agents hit the floor just this week to actually generate revenue. So a lot of the costs relative to bringing up the Collinsville facility, that part was absorbed in Q3. We will have further training costs as we are moving into Q4 as these agents come out on the floor. But as we are in the month of December, these agents will be fully ramped and producing revenue.

Arnold O’Conner: Thank you.

Thanks, Arnie.

And your next question comes from Troy Mastin of William Blair & Company. Please proceed.

Good morning. Thanks. This might sound like I am asking the same questions. I just want to try to get some more clarity. Is this a different ramp in Collinsvile than you have seen in the past? Because you have been added facilities for years and this quarter seems to have a negative impact on the year-over-year basis or is the comparison one in which you didn’t have incremental expenses last year?

Two things again. Clearly, I haven’t been as clear. It’s a little different relative to order of magnitude of the number of seats being brought on that started in Q3 will continue through the bulk of Q4 with a very, very large client. So from that standpoint, it is a little different. You have seen us bring on sites before, but frankly those sites have ramped slower relative to from the beginning date to the ending date for them to get to full capacity. So they number of agents we are bringing on have been truncated into a shorter period of time relative to one, how quickly the clients are asking us to get them through training, and then how quickly they are asking us to ramp them. So that is really pushing a lot of expense into the equation on the training side that we haven’t seen before. Then, I will come back to the point. I think on the Q, on the second quarter call we alluded to the porting volumes not materializing to the way that we saw them forecasted. That is primarily the place we chose to hang on to the staff looking out and seeing just a little bit ahead of us strong demand coming. We had about a 60-day timing gap relative to where we saw the new demand coming from and that staff being there in this geographic location. So we could have had the choice to basically maintain margins at a much higher level, let that staff go. And then have to turn around in 60 days, go back out into the same community and try to rehire those people. So we made a conscious decision, and this is something that is not out there historically, in a way, invest in those people, keep them on-board at significantly lower productivity and utilization rates but knowing 60 days out, we had the demand for them.

And is that demand for those people coming from the same client where the porting volume was or was that…?

No. That demand is coming from a very large client.

Ok. And if you can try to give us some color as to the drop in gross margin, you said 5.1% year-over-year. How much of this is temporary versus systemic? So if you strip out everything this one time, how much of a drop might we see?

Well you got the piece associated with the largest client, Cingular. Clearly, that part is going to be ongoing as it relates to the price reduction component or wherever we end up relative to a lower tier. But again, I will just reiterate, certainly incremental benefit to the bottom line. But that piece will be ongoing. The part about redeploying and retraining the resources, that part is for the most part done and over now in terms of where we are at in the equation. And then ramping the facility, again, most of the costs associated with actually bringing up the infrastructure and the site of it side of the equation is done. Now, but I want to reiterate, we still have significant training that we were doing in Q3 that has rolled into Q4 where we are continuing to ramp for this very, very large client in Collinsville. And as I said, it really won’t be until the December time frame that that facility is fully ramped and those agents are all producing revenue.

Is the permanent impact of margins greater than half of the margin hit? Can you at least give us that color?

Yes. I think that is a fair way to look at it.

Ok. Good. And then maybe one final question. Can you tell me if there has been any impact on pricing at any of your other clients as a result of this renegotiation that you went through or do you anticipate that there will be similar renegotiations in the future? Thanks.

On the major, major clients, I think we shared before most of those agreements are now tied up through 2005. So for…to coming back as a result of the tier-price reduction with Cingular, we have not seen further price pressure for reductions with the other existing clients only because the agreements are done through 2005. And then I think the newer clients that we brought on this year, those agreements initially I think were one year agreements so they would expire at different stages during ’05. But nothing meaningful, no.

So no requests for each proactively renegotiating existing contracts by your clients or plans that you have to do such?

No. No impact right now, no.

Ok. Thank you.

And your next question comes from Lilia Kozicky of SunTrust, Robinson, Humphrey. Please proceed.

Good morning. I was wondering if you can actually quantify exactly, break down and quantify for us exactly what the impact was in third quarter for the tiered pricing model to gross margins.

Lydia, we historically have not gotten into that kind of detail relative to our disclosure. I think for the previous question, I think that the range that was used was relative to the margin hit, the 50% impact or half of it being associated with the large client and the tier is a valid assumption. And then the other half being, I think, associated with the facility and the redeployment is probably, again, a fair way to look at it.

Ok…

And Lydia, I think you do have to add in, I think as I mentioned, there is an FX component also to the year-over-year deterioration and that we will be quantifying in the Q.

Ok. And does second quarter Q you disclose $1m? There was an impact to, on the top line from the tiered-pricing model relative to what the previous contract terms would have been? What would that be for third quarter?

Again, I think we will have to come to that in the Q. I don’t think it will be about relatively, I think we said going back to the second quarter at the pricing levels it was at there was 4 to 5% reduction year-over-year if you looked at Q2 versus the prior period. And I think that it could be…it is probably in the range of an excess of $1m.

Ok. And also what are the prospects in terms of winning incremental business post-merger with Cingular?

Well, we are winning business post-merger with Cingular. Effective whatever it was a few weeks ago, Cingular is now our largest client. I think if you have seen the advertising campaign has started. I think it started last week with Cingular with kind of their initial dual branding and these seats. While a lot of the discussions that took place relative to the incremental ramping were with AWS, they were also during the period that the merger was being completed. So right now we view this as incremental volume from Cingular.

And in terms of discussions for taking the work that is being done in-house now by Cingular and outsourcing that, any update on that?

Sorry, could you just restate that, I’m sorry.

Arnold O’ Conner: Regarding the work that’s currently being done by Cingular in house, is there any update on potentially winning a piece of that or potentially increase outsourcing of that business going forward?

That’s a great question and let me just take everybody back for a minute because I just want to go back to Q2 also. In Q2 there was a tremendous amount of concern and a tremendous written about our exposure because of the AWS Cingular merger and the fact that Cingular historically has not outsourced and our response to that was we were going to be very preemptive, we were going to be very aggressive, we knew we were number one in service and quality. We were going to go out there and put a very aggressive pricing offer on the table to position ourselves as the merger was being completed, to win incremental volume and to gain market share from our competitors and I think and I hope what everyone will look at particularly as we move into 2005 is our preemptive strategy was very, very successful and in fact all of the concern about the merger being a big risk for StarTek isn’t taking place. Now clearly I understand from all of your perspective we’ve got the client concentration issue relative to that, but relative to having tremendous exposure, relative to our volume with what was AWS, I think everyone should watch the results and the trends over the next several weeks and see that we put that away.

The other thing I would want to talk to also, it’s two things one is, the work we are doing in Collinsville is not just the same work we’ve been historically doing for what was AWS. This work is a new line of business for us within Cingular. So very, its very important to understand that these are incremental seats and a new line of work relative to what we were doing, so we are gaining incremental volume and we are getting deeper into the organization and this being a new line of business and again, the ramp and the timing of this site as it relates to the merger was very, very well understood and could not have been done without Cingular’s concurrence.

Arnold O’ Conner: Okay, also finally, I would need to pass along a question that we have been getting for you, you have mentioned in the past that you would begin to give forward guidance, formal forward guidance, when will you begin to do this?

Well again I think you’re referencing that on the road show we talked about, we are basically changing our investor relations policy but what we did say we were, this is only our second conference call we have ever done since the company went public. We said that we were putting our toe in the water slowly. We would not be doing that for 2004 and that continues to be reviewed and evaluated at the board level for 2005.

Arnold O’ Conner: Okay great, thank you.

As a reminder ladies and gentlemen, if you wish to ask a question, please “*”, “1” on your touch tone phone. And your next question comes from Martin Bach of Morgan Stanley. Please proceed.

Good morning and thank you for clarifying the Cingular business. My question has to do with the actual market. The short selling that is going on in your stock and has been going on in your stock for months is amazing. Do you have any response to who, what and why are getting the calls.

You know Martin that’s a great observation. We just recently did some internal analysis here as looking at our stock performance versus some of competitors in our own vertical and there is short selling. I think that clearly before we did the secondary offering one of the challenges was there wasn’t a lot of float out in the marketplace. It’s only really since June 29th that 4,750,000 additional shares went out into the marketplace. I don’t really know, I know we are watching it, we’re troubled by it, I tend to think that when you look at it, it does seem that StarTek Inc converges for whatever reasons if you look at performance over the last thirty days or the last quarter or the last twelve months or particularly since the AWS, Cingular merger was announced, we seem to be, being penalized to a far greater degree than some of our competitors. We can only hope that with our strong historical performance, our performance year to date through the first nine months and how we’re looking at the momentum and the trajectory going into 2005 that this will change.

Do you visualize implementing your stock by buy back, sooner versus later?

Yes I think clearly sooner that we will be, we are going to be watching very, very closely to today’s announcement, what happens and when it was approved that the board, that decision was made not to just put it out there and leave it out there, just to sit there and say, we think it’s an opportune time particularly don’t react well to today’s announcement is for us to execute that sooner than later.

Thank you very much.

Thank you Martin.

And your next question comes from Jeff Nebbon of First Analysis. Please proceed.

Good morning Bill, just to follow up on the AT&T Wireless, Cingular. What’s the new line of business that you guys are serving them now?

Basically it’s a line of business that’s more related to …. I don’t want to really disclose the specific nature of it, I would just say it’s more of what we call the higher end complex of that. It’s dealing on the business side versus the consumer side.

Is that something that you won prior to the merger or after the merger closed?

Those discussions started while the merger was going on, but again were culminated as the merger was becoming closer and closer to being completed, so certainly Cingular had a view into that.

And the other question I had for you was on the contract that you said you are one of five finalists for the former deal, that was a very quick bidding process, it was only about a month ago that there was thirty of you in there, is that right and how quickly do you think that one’s moving, I mean obviously it’s moving very fast, at the moment any way?

Yes, you don’t often see bids that people go out publicly and state exactly what’s going on and the status of it but your are right, that process started not too long ago, probably thirty to forty-five days ago. We were one of thirty players, we are now on the short list of one to five and our understanding is a decision will be made by the end of the year.

Okay, thanks Bill.

You’re welcome, thanks Jeff.

Your next question comes from Carmel Gerber of Thomas Weisel. Please proceed.

Hi, I was wondering if you could provide a revenue break-out for your major clients?

That will be in the Q that we filed, I think -- I’m doing if off the top of my head right now but clearly, let me refresh, AWS or now Cingular relative to the quarter will be just a little over 41% for the nine months will be right around 42% T-Mobile and that would be compared to, for the three months last year, that 41 would be compared to 39 in’03 and then for T-Mobile it would be just around 22 compared to 14 and then Microsoft relative to the supply chain side would have gone from around 25 to14 and then everything else.

Okay, great. Also I wonder if you would comment on any plans that you have to build-up facilities in lower cost environments like India?

We’ve, as we stated before, certainly one of our strategic gaps have been our lack of presence offshore. We have evaluated this during the latter part of ’03 and ’04 and frankly we’re poised and ready to go. What we saw take place earlier this year was a real slow down in the demand curve for offshore seats, a lot of that driven by I think, a lot of the publicity that took place during the presidential election and Lou Dobbs’ site and things a like that. So we are poised and ready to go. We can go to the Philippines pretty much now. We continue to look at India, but like everything else we -- we were at a point earlier in the year we thought we would maybe just build a capacity or enter into an agreement to have it ready and then we saw the demand curve slow down and we are taking more of the position we take here in the States which is really to launch the site or to go with it when we actually have demand. Now that’s another area where we have an opportunity right now where there might be a deal we win where initially it would be a combination of onshore and offshore and we are a finalist in one of those deals right now so that’s another thing that we’ll probably find out within the next, I would say thirty day, so within the next thirty days we might have our first seats offshore.

Okay great and also can you comment on the margins that you expect of the new Cingular business, secondly, is it similar to what you are doing for AT&T Wireless?

Well yes. The agreement that we re-negotiated with AT&T Wireless earlier this year that now runs through December 31st 2006 is an agreement that rolls over into Cingular’s so, that same agreement is now a Cingular agreement and those tiered pricing thresholds now exist for any business we had with AWS or any incremental business we will get from Cingular.

Oh may be I misunderstood I though that you were bringing on some new type of business from Cingular.

We are bringing on new type of business that’s focused on the business side versus the consumer side but that being said there is a one over all blended shared pricing agreement.

Okay so the share pricing would apply to that as well?

Yes it would.

Okay great thank you very much.

You’re welcome.

And your next question is a follow up from Lilia Kozicky of Suntrust Robinson Humphrey, please proceed.

Yes given your solid cash position any plans on the acquisition front?

Really you know we are a very, very you know we’re a very conservative company there are no immediate plan you know on the acquisition front. The only thing I would say to that is you know we know and we’re very conscious here that is – you know particularly going back to the gentleman’s earlier question, I think you know perhaps one of the challenges we have relative to our stock price is more of a supplying concentration issue and the perception around that. So we’re very, very conscious that more and more of our growth needs to come from new clients need to come from verticals out side the telecommunication industry. So those are the cases but as you go forward strategically you look at using your sales force to find that. But clearly you know there are mom and pop call centers out there that you know at some point down the road in our future you know we could look at that might be an area where we could penetrate new vertical faster than just trying to do core call selling but we have no –there are no plans right now for any type of acquisition.

Okay and then also can you comment a bit about the positive contribution to ’05 that would be reflected in cost savings from your recent divesture of the European division?

I think that again we don’t provide specific financial guidance I think if you look at you know the Q3 results and then the previous disclosure on the UK operations you can kind of glean from that probably what the on going impact is. I mean we will recover you know the investment in a way we may to get out of the UK very, very quickly. And this will all be detailed in the Q.

Okay great thank you.

And your next question is a follow up from Troy Mastin (ph) of Bill Blair and Co, please proceed.

Thank you a quick question on the now Cingular business, I know you got the contract to the end of I think ’06 right?

Correct.

If they wanted out of this contract is there any way for them to get out? I know there is cause cancellation provision. But if there is no reason for no cause is there a payoff they can give you to get out of the contract or anything like that?

No there is – you know Troy to what your referring to it’s one of our stronger agreements relative to really Cingular’s only way out is relative to I mean contractually is for breach. You know and clearly when there is breach there is a care period and all that. You know there is – the way they could do it would be that you know they just bleed us to death relative to reducing the amount of volume that they deliver to us. But again I would just re-iterate I think what every one should be looking at you know again tremendous concern early in the year about the impact that this could have on us. The fact that Cingular historically doesn’t outsource and this couldn’t bode will for us. And as we’ve gotten deeper and deeper into the time frame where the merger was being completed we’ve had strong demands for incremental volumes.

So I’m not sure why they would want to give us strong demand for incremental volume go to the – you know go to every thing that’s associated with that and then flip around and start bleeding us. Now clearly if you don’t – you know in our industry and outsourcing if you don’t perform there is always that danger. But our stated objective is to be number one relative to service and quality day in and day out with the people we do business with particularly as we’re compared to our competitors. And you know in this case we know that we’re number one in service and quality from a provider standpoint and at the same time we believe we’re the lowest cost.

So you know now that we’re getting to know the Cingular players and the Cingular players are coming into the equation you know we want to get them energized about the role that outsourcing can play in helping them meet their strategic objectives which they have previously announced to take $1b out of their expense base to combine expense base in the first year. And I think out sourcing can play a very effective role in that.

Okay then maybe an add-on to an earlier discussion about margins at that business. I know you cant get back this historic margins but can you give some color as to when based up on the current demand curve you’re seeing out of them you might get back to historic gross profit on an absolute dollar basis, gross profit contribution?

On Cingular in particular?

Yes.

I don’t know how to answer that question right now. I mean I think and the only reason I’m hesitating is that our desire will be to win more business from Cingular while we sign more new business from new clients. So it’s just hard for me to say get back the historics, when I just know that we want to be very, very aggressive and again continuing to win incremental volumes that will boost our top line and will be incremental bottom line. So I don’t – I just don’t have an answer for that right now.

Okay thanks.

And your next question is a follow up from Arnold O’Conner of CJS Securities, please proceed.

Arnold O,Connor: Hi a couple of follow ups if I can, you haven’t comment as well on the utility work going there, your potential clients there can you freshen that up a little bit?

Yes sure Ernie in the middle of all this we are ramping on two of the clients we signed earlier in the year and the ramp within utility vertical is going well. It’s ramping as we expected. The other client that we’ve been ramping the other new client within the telecommunications industry, that’s ramping well. And just recently we were informed we’ve won some incremental pieces of business from that client. They will be ramping also between now and the end of the year and as we move into ’05. So it’s a result of our performance with the new telecommunications client we have gotten some incremental orders there and the utility ramp is going well. And we continue to stay focused on that vertical as an opportunity for future growth.

Arnold O’Connor: Okay but again the ramp meaning that you’ve built them up and they are now up and running or are you still in the build up phase?

Well relative to the initial expectations around the client we’re ramped but we are – you know we’re talking to them right now. Again I think it’s as you know we’ve shared with you before our whole – particular in the new vertical our strategy is to get in to start to execute extremely well to let them see our operational excellence model works. And then to start to have them you know have the desire to give us more volume. So relative to the initial expectation and the number of seats that ramp is done as it relates to the expense and the revenue.

Arnold O’Connor: Okay a few more question if I can on the share repurchase just for all your publish share holders can you clarify even though you have language that you can buy shares either in the open market or privately. Just from an intense point of view could you clarify that you would not be the intent of the company to buy back shares from a founder in the private transaction?

No that isn’t the intent at all. Yes I mean these are geared towards market transaction.

Arnold O’Connor: Okay can you highlight if you would – one more question on the Cingular business now as I under stand that you used to do involuntary and some receivables work not porting this expansion into the higher end business side versus the consumer side? Is it more an expansion of the receivables part of this business?

No it’s more into the business side it’s more related to care on the business side it’s not receivables oriented at all. Now to your point we still do a significant amount of receivables management within the Cingular family but this is more care related on the business customer side.

Arnold O’Connor: Okay my final question if you would, could you either you’re going through the CFO search could you give us kind of a guidance you’ve given you surf firm on the key characteristics you view as critical in your CFO search?

Yes Ernie you know again it’s always unfortunate when you loose an individual but I think what we’ve done with the search firm is we said look now that we have an opening what we would really like to do is to find an individual that’s you know a very, very strong CFO. I mean strong financial skill, but I think secondly and particular as it related to the transition of the whole investor relations function earlier this year from the chairman to myself, is I think it’s very, very important. And based on a lot of the dialogue that I’ve had with you, other analysts that cover the company and other investors is one of the other criteria we’re really looking at is to find an individual that’s got experience with the street, has got investor relations experience, has Wall Street experience.

Because you know clearly you want one of the things that every one has been very open about since the road show is that we’re not that well known. And I think some body mentioned to me it may have been you but this is all about people getting to touch and feel the senior team, the executive team and to be comfortable. So you know I need some body that can help complement me I’m only one individual and only can go so many places and have so many discussions. So certainly the Wall Street element of it or the IR element will be extremely critical. And then you know and I think – and again not because we have any intentions but because there is an opportunity to be out looking I think certainly we’re look gin for an individual that may have M&A in their back ground I guess that’s a good thing for them to have you know in their experience tool kit. And then again we’re looking either within our targeted industry space or we’re looking in at associated verticals. Either verticals that we in or verticals we’re trying to get into as another place where we think that might be a good back ground and experience for the individual.

Arnold O’Connor: Thank you.

And you have no further questions at this time. I’d like to turn the presentation back to Mr. Meade for closing remarks.

Again I want to thank every one you know for your time. Clearly I know relative to some of the expectations are out there. These results are not the results you were hoping to see nor were they for us. But that being said again we – here at Star Tek we want to make sure we’re making the right decisions not only for the short term but we’re making the right decisions for the long term. And I think that just as we close I feel very, very good about how our preemptive strategy with our largest client is working, how it’s turning out. I’m encouraged by the signings we brought on this year and what they are contributing and as I said we’re short listed on a number of deals right now. And I feel good about the pipeline. So we’re very encouraged as we move into 2005. Thanks again for your time.

Thank you for your participation on today’s conference this does conclude the presentation. You may now disconnect, have a great day.