Startek Inc (SRT) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the StarTek third quarter 2005 financial results conference call. Today's call is being recorded. A dial-in replay will be available at the conclusion of the call and can be accessed through November 9. A Web-based replay will be posted at StarTek's corporate website, www.StarTek.com by November 5 and will be accessible through November 22. Please note that the discussion today will encompass certain statements which are forward-looking and subject to various risks and uncertainties as summarized in our form 10-K and other SEC filings. Actual results may vary based upon these risks and uncertainties. I will now turn the call over to Steve Butler, StarTek's President and CEO. Please proceed, sir.

Thank you. Good morning. Welcome and thank you for this opportunity to speak with you this morning. On the call today with me is Rodd Granger, our Chief Financial Officer. Rodd will be discussing the financial results for the quarter. Our agenda this morning will begin with comments on the quarter's business progress, followed by a discussion of these financial results. We will then open up the line for some Q&A and try to conclude the call no later than 9:30 a.m. Eastern time.

This quarter marked a period of change for StarTek. We have committed to selling our upply chain management services platform, which will allow us to strengthen our position in our business process management services platform. We continue our resolve to grow our revenue base by signing new clients and renewing contracts with existing clients. Significant strides were made during the quarter related to capacity utilization culminating recently with a lease on a new facility in Petersburg, Virginia. During the quarter, the senior management in conjunction with StarTek’s Board of Directors, began the process of looking to sell the assets and operations of our supply chain management platform.

As you know, this platform has declined significantly over the last few years as major customers, such as Microsoft, found new ways to deliver their product to the marketplace. We believe the decision to find a buyer for this business is in the best interest of StarTek and its shareholders. Likewise, we believe that by selling these assets, StarTek can dedicate more resources to expanding upon its current business process management services platform and diversify into other products and market verticals.

We had some significant new business wins during the quarter. We added two new clients to our overall client portfolio. This morning, we announced a third new client who is located in Canada. As I indicated to you in previous calls, when we sign a new client I would inform you as soon as possible with as much information as I am allowed to share with you.

However, as is common in this industry, I am limited by client confidentiality agreements as to what I can say today. As you know, we were chosen early in the quarter by a major North American wireless telecom service provider to provide national consumer support with our award-winning outsource customer care services. We launched services for this client in August.

We were also selected by a Fortune 1000 multinational communications provider to provide bilingual customer care support. This client will utilize StarTek’s unique mobile virtual network operator business model, known as MVNO, to support its customer base. This is a new service sign for StarTek and we believe will be a very successful partnership for us, particularly given the strong growth in the bilingual customer care market. We began services for this client in October.

This morning, we announced the signing of an industry-leading Canadian company for which we will provide bilingual customer care services for multiple lines of business. This new opportunity was the result of dedicated relationship development efforts that have spanned the last year. We also began servicing this client in late October as well. We expect to see costs associated with ramp of these lines of business on these clients through the end of the year. We continue to actively pursue additional commitments from other new client prospects. We will share further information as these business opportunities are finalized.

In summary, we’ve had three very successful launches of new lines of business for these new clients during the quarter. We are working hard to maintain unparalleled service for these clients and we continue to aggressively pursue growth opportunities. Our successes have led us to secure a lease on our seventeenth business process management services facility during the quarter. We expect this facility to be fully operational in early 2006.

On the current client side, consistent with prior quarters, our relationship and service delivery performance with each of our current clients continued to be very solid. During the quarter, we renewed our contracts with Team Mobile, our second-largest revenue producing client during the quarter and year-to-date and are excited to say that this key client has extended the terms of their contract for another year with an automatic contract renewal that will extend the relationship until August of 2007. We believe this is a testament to the excellence service we have provided Team Mobile and we look forward to continuing to expand our relationship.

We also renewed a contract with another major telecom services provider, whose name I can’t disclose this morning, for a year. This contract also has an automatic renewal clause, which will take us through June of 2007. With the Justice Department’s recent approval of significant mergers in the telecom space, we believe the relationships we have with our current clients that are involved in these mergers will provide us with further growth opportunities.

With that summary, I will now turn the call over to Rodd Granger, who will give you a brief overview of our financial results for the quarter. Rodd.

Thank you, Steve. Good morning, everybody.

I’d like to start out by making a few key notes about the financial results I am about to provide. As a result of management’s intent to sell our supply chain business, we classified the assets and liabilities of this platform as held-for-sale and reported the relating operating results as discontinued operations in our consolidated statements of income. Also note that discontinued operations for the comparative periods in 2004 include the results of StarTek Europe, which as previously reported, was sold in September of 2004.

All figures in the following remarks are for continuing operations and pertain to quarter three results unless otherwise noted. Total revenue for Q3 ’05 compared with Q3 ’04 was relatively flat, down approximately $600,000 to $53.9 million. Increases in volume on some of StarTek’s larger clients combined with revenue from new clients were offset by a continued shift in revenue mix with one of StarTek’s major clients as well as lower volume from smaller clients.

Total gross profit for Q3 ’05 compared to Q3 ’04 increased 2.5% or $300,000 to $12.5 million. This led to a gross margin increase from 22.4% to 23.2% in Q3 of 2005. The increase in margin was primarily driven by improved capacity utilization attributable to increasing volume from the new business, as well as our largest client. This resulted in better leveraging of fixed costs, thereby generating revenue more effectively. Offsetting these increases was a $1.4 million impact of a stronger Canadian dollar in 2005 and ramp costs associated with new clients that we began serving during the third quarter of 2005. Total SG&A for Q3 ’05 compared to Q3 of ’04 decreased 2.3% or $167,000 to $7.2 million. The decrease was due to savings associated with staff reductions, which occurred in the first half of 2005, offset by an incremental expense of $600,000 associated with this cost realignment.

Total operating profit for the third quarter 2005 increased approximately $500,000 or 9.8% to $5.3 million. Net interest and other income increased 34% to $1.1 million for the quarter. We realized an $800,000 gain on the sale of a facility in Greeley. At one time, this facility was associated with the supply chain management services platform, but it is not part of our assets currently classified as held-for-sale, nor is it meant to constitute part of the supply chain business that we intend to sell.

Total net income from continuing operations before income taxes increased 13.1% or $800,000. Our income tax expense increased significantly during Q3 2005 versus the prior year as a result of a taxed basis valuation allowance of $630,000. This was recorded to allow for capital loss carry-forwards that we do not believe will be offset by future capital gains before these carry-forwards expire.

As I mentioned previously, we have classified the assets and liabilities related to our supply chain business as held-for-sale. This is due to the fact that we have entered into negotiations with a potential buyer for these assets. As a result, we are also required to classify the operations associated with these assets into discontinued operations. For Q3 2005, we classified a $500,000 net loss into discontinued operations, which represented the results of operations from our supply chain business for the quarter, net of tax. As a point of reference, we classified a net gain of $1.3 million into discontinued operations for Q3 2004, related to the supply chain platform. The remainder of the 2004 discontinued operations was attributable to StarTek Europe, which, again, was sold in September of 2004.

Fully diluted earnings per share from continuing operations remained constant at $0.25 for Q3 ’05 compared to Q3 ’04. Fully diluted earnings per share, including discontinued operations, also remained flat at $0.22 for the third quarters of 2004 and 2005. Working capital at September 30, 2005 compared to December 31, 2004 declined $10.2 million, ending Q3 ’05 at $79.5 million. This decline was primarily driven by decreases in accounts receivable and income tax receivable.

Stockholders equity at September 30, 2005 fell $7.3 million compared to December 31, 2004 ending Q3 ’05 at $129.6 million. Year-to-date Q3 ’05 we had $6 million in net capital purchases and $16.7 million in dividend payments. Capital purchases were primarily in support of our ERP system and IT infrastructure upgrades.

With that, I would like to hand the call back to Steve for a discussion of our dividend and our closing remarks.

Thank you, Rodd. As we announced today, StarTek’s Board of Directors declared a quarterly dividend of $0.36 per share, consistent with last quarter. We continue to believe that our current cash position is strong enough to allow us flexibility with regard to the amount of the dividend and to keep our options open for growth and expansion opportunities. The Board and management will continue to evaluate the dividend based on earnings, cash position, immediate cash needs, and these growth opportunities in the future.

In closing, let me summarize with a few key points. As we near the end of the year, StarTek is continuing to make the changes necessary to position the Company for a successful future. In the third quarter this included a transition from two service platforms into one primary service platform. The decision to sell our supply chain management platform creates more opportunity for us to concentrate our efforts on our business process management services platform.

Our outlook for continuing improvement in operating results is promising. Our recent successes in signing new business process management service clients and retention of our existing key clients are vital contributors to these improved results. We continue to explore more growth opportunities and market diversification. While the full effects of the savings we’ve created as we’ve realigned our cost structure won’t be felt until mid 2006, we are starting to see some positive impact to operating income. While the success of this turnaround is not without its challenges, we are encouraged by the successes we’ve had so far and reiterate our strategy for continued growth and improved shareholder value.

With that I’ll open up the call for question and answers. Please stand by while the call Operator provides necessary instructions. Operator.

(Operator Instructions) Arnie Ursaner with CJS Securities.

Good morning. Can you give us a sense of the total exposure you have at the moment to the telecom space?

Percentage-wise as a part of revenue, Arnie? Is that what you’re talking about?

Yes.

The concentration of revenue that we’ve experienced – Cingular, I think, is about 51, 52%. I think that will hold very steady as well as T-Mobile in the 26% range. So nothing has really changed there.

A key question regarding the new client that you can’t discuss by name. Can you give us a sense of what industry they are in?

I can tell you it’s similar.

Okay. My final question, if you would, can you give us a sense of volume growth included in your revenue number for the quarter?

Quarter-over-quarter from Q3 of ’04, I think volume was relatively flat.

Okay. I’ll jump back in queue. Thank you.

Josh Vogel with Sidoti.

Good morning, gentlemen. Real quickly, do you have a share count for us?

Yes. For the quarter, our basic shares outstanding are 14,631,000. Fully diluted is 14,673,000. Year-to-date in the basic is 14,628. And fully diluted is 14, 676.

Can you give us a sense of what overall utilization was and total seats were for the quarter?

No. Suffice it to say, we don’t usually give out that kind of competitive information. It did, again, culminate in us leasing a new facility in Virginia.

With your top three customers, can you break down the revenue for us?

Sure. Q3 ’05 Cingular – 52%. T-Mobile is at 26%; AT&T at 11%. Those percentages have not changed much sequentially.

Do you have any more color on the Cingular business beyond 2006?

No, other than we continue to have a great relationship with those guys. We’ve not seen a change of any kind of degradation from what we do for them today. As I said earlier, I believe that obviously with the merger that has been approved with SBC, AT&T, and of course, Cingular being a part of that, I think we feel there are some actual growth opportunities in all of that.

Finally, do you have any updates on a new COO?

We recently hired Jim Farnsworth as our Senior Vice-President of Operations. At this point the Company doesn’t feel like it needs a COO today. However, that can change. Jim comes with a lot of experience and a large background in this space.

Okay, great. Thank you.

Tobey Sommer with Suntrust Robinson Humphrey.

Good morning. Curious if you could you comment on SG&A, which was down a little bit based on some of the actions you took earlier in the year? At what point though is some more of that expense, either severance or otherwise, going to roll off the income statement?

I think what I said earlier was that we didn’t think we really start to see the full impact of all of that until probably the middle of next year, then getting rid of the severance and associated costs with realigning.

Specifically would that be a 2Q? Or is that more of a 3Q full impact?

I would probably say latter Q2.

Is there anything specifically that gives you confidence that there is an opportunity to grow the business in light of the mergers – the merger that is pending – anything specifically? Could you give us a little more color there?

Probably not so much specifics as the fact that we continue to be held in high regard by the folks that are being merged with and also based on some conversations that we've had in this space. Until things actually further develop, all I can say is that, given the way we’ve performed for the current clients at AT&T and Cingular, we believe that there will be opportunity there.

You may have given it, but I might have missed it. Did you give us a headcount figure relative to a year ago and then what DSOs stood like in the quarter?

We didn’t, but we can find it for you. Our current headcount is around –I believe 6,800. Of course, that moves with volumes and everything else. That is Company-wide. That would also include headcount associated with supply chain at this point in time. For last year? I’ll have to look and see what I can find. Do you have anything?

I don’t have it for last year. I think we are up slightly. It isn’t that much. (multiple speakers)

Then maybe while you are thinking of the DSOs, I was wondering if you could comment on what sales cycles look like. Because you’ve had some successes renewing some contracts and a new one now, curious what you are seeing in the marketplace? I think some of your peers have talked about a little bit better sales. I want to know if that is a market-wide experience. Thank you.

I don’t know. I guess I haven’t paid so much attention as to what peers are doing as far as popping better sales. For us, this was a great quarter. We added three new clients over the last 90 days and continued to move in the right direction from that standpoint. Again I think what I’ve always said is, the larger the client is sometimes the longer it takes to get through that cycle. Sometimes it could be as long as nine to 12 months. It depends on the bureaucracy and everything else that you are dealing with. We are very, very motivated and enthused by what we’ve been able to accomplish over the last three to six months here in closing new deals.

Maybe in that context, referring to those deals, were the sales cycles of inception to closing those deals any shorter than they had been in the past? Or are those deals that had been in the pipeline for quite some time?

I would tell you with the two major ones that we signed, the one that we announced today and the one that we announced earlier in the quarter – they were longer sales cycles. The third one that we announced, I believe, in September was obviously a bit shorter cycle. It was more probably in a three- to six-month range where the others were indeed more in the nine- to 12-month range.

Steve, I was wondering if could you give us an update on what areas look the most interesting to you in terms of new business development outside of the telecom and communications area.

I think for us one of the areas that we have focused on is health services, certainly some areas in even media. I know that we are also looking in the consumer retail space, as well.

Along those lines, are you comfortable with the number of sales people you have in the field? Or any reason to think that you need to expand upon that in order to tackle some of these potential new business opportunities?

I guess this is a form of an update. I believe that the whole senior management and executive team of this Company are sales people. But we have actually added another sales person that will start with the next two weeks for the Company. We continue to evaluate that all the time to see what is necessary to cover the clients and the geographical areas that we’re getting into.

Thank you very much. I’ll get back in the queue.

Donna Jaegers with Janco Partners.

Can you give us a little more detail as far as on the discontinued operations. What do they consist of? Do you have buildings, assets? What sort of asset value? Any sort of – I know you can’t obviously spit out a price that you are looking for for them– but any sort of valuation parameters that would help us.

The assets that we have classified on the balance sheet are on a line item called “Assets Held For Sale” is the total. I think it is $5.4 million that we have at 9/30. It primarily consists of PP&E as well as accounts receivable, prepaids, and inventory.

We can’t really disclose much about valuations. Obviously there is a lot of confidentiality stuff that is out there right now.

You are actively in negotiations currently?

Correct.

The recent hire of Jim Farnsworth as the Senior VP of Ops The company he came from was doing some very innovative things as far as agent-at-home. What can we conclude from this hire? Will he be pushing into those areas for your businesses as well?

We’ll certainly be looking into them. I think Jim is a big believer that there is opportunity there. As a Company, we are certainly looking at that opportunity today. I’d give Jim a little bit of time here. He has only been on board for about 60 days. He is still getting his feet wet. Certainly there is a cause for us to look into those areas for growth and expansion.

Just one last follow-up. On AT&T, if I remember our previous conversations correctly, can you describe the kind of business you do for them? I think you do a lot of collections business, right, which would be more of a specialty business and maybe a little safer than just run-of-the-mill customer (multiple speakers) service?

We do do some receivables management for them. We do some provisioning services for them. Other than that, it is more of a complex services type of a mechanism that we actually provide for AT&T.

Great. Thanks a lot.

Rick Datoole (ph) with Columbia Management.

Good morning. A couple of things. I may have missed this but to the extent that you can quantify the ramp-up costs related to new business – I would guess not much at this quarter – what are the expectations for that as it relates to the three new customers in the next quarter?

Those are difficult to quantify. We’ve spoken before about the ramp of these things. It is a very fluid process. We’ve put a ramp plan together, but that thing changes depending on a whole multitude of factors. A lot of it depends on the volume that the clients have to bring to us and the timing versus the ramp plan. It’s very difficult to predict the actual ramp costs.

I assume in aggregate, it’s meaningful. Right? It is not a rounding error.

It certainly can be. It depends on, again to Rodd’s points, how quickly that we need to ramp and what the demand starts to become with these new clients as well as existing ones, if they decide to start to expand as well. It can become meaningful. But to his point, it’s very hard to predict what that meaningful number could be.

What do they do collectively to – you were in a position of being -- having excess capacity. The thought was not to take that capacity out during the slow time, hoping to resolve it with new business. Now you have signed some new business. Where do you stand on absorbing that excess capacity?

I think maybe to reiterate my other point earlier, if we didn’t think we were utilizing the capacity to its fullest extent, we certainly wouldn't have signed a new lease for an additional center.

So you feel like you are fully utilized?

I’m telling you I think that we were at a point where we needed to expand to make sure that we had the necessary capabilities to fulfill needs for current and new clients.

Okay. And then the resigning or extension of T-Mobile, can you, in big picture terms, talk about whether that is – what kind of pricing was arrived at there? Was it up, down, sideways?

We certainly can’t talk about it. There are too many disclosure issues there and the confidentiality arrangements so -- .

Are you happy with it?

We wouldn't have signed a bad deal, I don’t suppose.

Okay, well we’re still scratching our heads under this Cingular one. But, okay, I’ll take you at your word.

Tom Carpenter with Hilliard Lyons.

Good morning. In the conference call this morning, after you mentioned that you renewed T-Mobile for a year with an automatic renewal for another year to 2007, did you mention that you renewed another major telecom customer through June 2007?

We did. It’s the same kind of an arrangement. It’s for a year with an automatic renewal that could take us through June of ’07. That’s correct.

Okay, excellent. Can you give us an idea on the three new customer wins, if there is a target seat number over the next year that you and the client are trying to achieve? That might give us an – help us understand what the revenue could look like next year.

No. Certainly the clients in and of themselves have their own issues that they have to deal with internally as they roll out their plan. Most of them are just now getting into their 2006 process. We know what is right in front of us. But again, that can change as well if they decide to accelerate or not accelerate their programs. Right now, I think things are somewhat consistent with what we initially thought they would be. But for me to tell you that it is going to be 100, 200, 300, 1,000 seats by the end of this quarter wouldn't be fair to you, because I am not sure that would be correct.

I was actually talking about 2006. Let me ask the question from a different angle. Can any of these customers be top five customers or 10% revenue customers in ’06?

Depending on the growth pattern, I guess there is that possibility. It’s hard to predict. I think the best way to gauge and watch is to watch for announcements on additional facilities and sites that we start taking leases out on.

Okay. So it sounds like if you open a new facility – and the comment you just made -- that your capacity utilization is quite strong compared to a quarter or two ago?

I think it is optimal at this point from our standpoint. To Rodd’s point earlier, I believe that we are operating and generating revenue much more efficiently than we have in the past.

Okay, great. Thank you.

(Operator Instructions) David Grossman with Thomas Weisel Partners.

Thanks and good morning. Just a couple of follow-up questions to some that were already asked. Before that, on seasonality. Given the divestiture or planned divestiture of the supply chain business, can you help us better understand how to think about seasonality in the December quarter as well as we go into the beginning of ’06?

I think if you look at past history with this Company, you probably see that fourth quarters are typically strong. Certainly with some of the clients that we serve, that is usually their big promotional quarter, to a large extent, with what they are trying to do. I think you have to look back at prior years to get a measure for seasonality. Typically fourth quarter is a fairly strong quarter because of the Christmas season.

And there is nothing – no changes -- in that core base that would suggest we’d see anything different in the 4Q ’05?

I’m not sure. I am not saying that. I am just saying that I think you have to look at prior quarters and then take into account that we have signed some new clients. They are somewhat unpredictable at this point.

On the tax rate. Maybe you could help us understand. I’ve read the commentary in the press release. Going into next year, should we think of a higher tax rate for next year? Or should we think more of where you have been tracking historically?

The effective tax rate should level off back to normal in the 38 to 39% range. This was a one-time valuation allowance. It gets booked through the tax expense.

You talked about the renewal. It sounds like you have a lot of your customers on these one-year extensions that are automatic and written into your core contracts. How should we think about – should we think about the entire base, on average, as turning over, or has the opportunity to turn over and renew, on an annual basis?

I don’t know that you should think about this. They all have different contract termination dates. I think Cingular is through December of next year at this point. I guess from our side optimistically, you would like to say that we will get them all renewed and continue. Certainly I think our service levels have been as such (ph) that we’re confident that hopefully we can do that. Within the context of mergers and stuff like that, you never know what can change.

As I said earlier, I think that we are also confident that there are opportunities there. As they come along, we try to obviously stay out in front of the game so we don’t come upon an expiration date and not have something renewed. We were well ahead of the game for these two clients in getting them renewed. I guess our premise is to try and get renewals well ahead of expiration dates to make sure that we continue the level of service and there is no service interruption.

But just in general, is your base of business up for renewal on an annual basis? I am just trying to understand on average.

I see what you are getting to. The new clients that we’ve signed, I believe – and I will double-check -- but I think that they are all three-year contracts of the ones that we just did sign, except for the first one that we announced in August. I believe it was an 18-month contract.

Typically in the past, you are correct. They have been more annual renewal type contracts or let’s say within an 18-month timeframe. Now we’re starting to see extensions beyond that.

You mentioned in two of the new customers, bilingual services. Is that something that is becoming more important? Are there perhaps different margin characteristics on that type of service versus typical English-speaking service?

I believe there can be. I think there is. Bilingual in the Spanish-speaking area is growing immensely. I think there is a lot of opportunity there. When you’re talking Canadian, you are talking English and French. I think the bilingual language opportunities are in front of us. There are, depending on the kind of service that you are delivering with those bilingual opportunities, probably some margin gain possibilities, yes.

One last question, and I know you have addressed this in several questions about capacity. I know in the past, at least, it’s been difficult to – you have to make some decisions about how long to keep idle capacity depending on the needs of your customers over time. I know you opened a new facility in Virginia. Is it still fair to say that there is some underutilized capacity that you are still keeping in your hip pocket, if you will, for future use? So you may be able to add some business without necessarily adding new brick and mortar?

Two points. We just signed the lease in Petersburg so we actually won’t open that facility until the first part of next year. Yes, indeed, we do try to keep some excess capacity available as existing clients and the possibility of a new client coming on in a shorter timeframe to allow to be able to obviously accommodate their service.

Is there any way you could help us understand how much of that is available without getting into numbers you don’t want to provide?

No, not really.

Okay, great. Thanks.

Arnie Ursaner with CJS Securities.

A quick question. A lot of companies have moved facilities out of New Orleans. I want to double check. I assume you had no benefit of people moving out of New Orleans from Katrina?

No, not really. We do have a facility in Alexandria. To be honest, I don’t know what upside we would have gotten from that from that standpoint.

You didn’t have anyone come to you looking for your capacity on a short-term basis?

As far as from a client perspective?

Yes.

No, not really.

The other question I have is a little more strategic. I think you’ve been focused, Steve, on true BPO partnerships. I think you have indicated in the past to really have those you may need to acquire certain capabilities. Can you perhaps update us on what you think you may need and how you might get there, either internal growth or acquisition?

I think there are a couple of things, that’s a good question, going on. We have established a corporate development team, which is headed up by Pat Hazier (ph) now and started to look into a lot of those strategic areas. One of the things that we’re looking at doing is more channel partnerships with key vendors and clients that we have today. They help us to expand opportunities. But certainly as part of corporate development that Pat is doing and looking into, we are looking at opportunities that can either enhance product and/or market verticals. But we are not down the path far enough to make any announcements as to where we are headed, and in what direction, that we’re going to go out and possibly acquire something today.

As I said earlier to one of the caller’s questions, we think there are opportunities in the health services arena, media arena, and places like that that if we are required to go out and look at additional products through acquisition or otherwise, then we will evaluate and do that at the time.

Thank you.

Tobey Sommer with Suntrust Robinson Humphrey.

My question has been answered. Thanks.

Donna Jaegers with Janco Partners.

She got the name right that time. I was curious if you could comment a little on the competitive tone in the market? Obviously it sounds like with the contracts getting longer, is it customers trying to lock in on current pricing? Or is everyone holding their ground and pushing for longer contracts?

I think there are two things. There is probably an element of trying to secure vendors to some extent. A lot of these clients we’re finding are trying to move towards more of a strategic partnership with you than more of just a vendor-client relationship with you. I think it bodes well for both parties. The last thing I think they are finding they like to do is get involved with a certain vendor, and then have things not work out, and then have to change and find another vendor and possibly risk disruption of service and unhappy customers themselves. Part of it, and a great deal of it, I think, is looking at it from a standpoint of locking into a specific relationship that they hope will be long-term. I don’t think it’s a lot about pricing so much as it is that because at the end of the day, you still have to deliver a quality-of-service level that is going to entice them to stay with you and not end a contract and not move volume away from you.

Pricing is always going to be competitive among the peer groups that are out there whether it is West, or Virgis, (ph) or us, Teltek, whomever. At the end, it also relies on the service level that you provide to them. If you are doing a great level of service and you are charging a couple of pennies more or whatever than the next guy, but their level of service isn’t as good as yours, then price becomes less of an issue.

Okay, thanks.

Josh Vogel with Sidoti.

Just a quick one. Have any of your current or prospective customers approached you about possible offshore capacity?

No. In fact, I will tell you the last couple of clients that we have signed have asked us to stay onshore.

So you have no plans? You haven’t evaluated anything offshore?

From our perspective, we haven’t had a lot of demand for it.

Okay, thank you.

Ladies and gentlemen, this does conclude our question-and-answer session. I would like to turn the presentation back to Mr. Steve Butler for any closing remarks.

Thank you, Operator. Thank each of you for taking the time to listen this morning. Certainly if you have follow-up questions, we’ll be around, I think, most of the day. I appreciate your time. Thank you again.

Ladies and gentlemen, we thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.