Startek Inc (SRT) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2007 StarTek earnings conference call. My name is Akia and I will be your operator today. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. David Durham, Chief Financial Officer. Please proceed, sir.

Thanks, Akia. Good morning, everyone, and thanks for calling in. I'm Dave Durham, StarTek's Chief Financial Officer, and it's my pleasure to welcome everyone to StarTek's fourth quarter 2007 earnings call. I'm joined on the call today by StarTek's President and Chief Executive Officer, Larry Jones. He is your official host. Larry and I will be delivering our prepared remarks today with some brief comments about our release this morning. At the conclusion of our prepared remarks, we will conduct a question-and-answer session.

For those of you who have not received a copy of today's press release, please go to www.StarTek.com, or you can download a copy from the investor relations section of our website.

And of course, please note that the discussion today may contain certain statements which are forward-looking in nature pursuant to the Safe Harbor provisions of the federal securities laws. These statements are subject to various risks and uncertainties, and actual results may vary materially from those projections. StarTek advises all those listening to this call to review our 2006 Form 10-K posted on our website for a summary of these risks and uncertainties. StarTek does not undertake the responsibility to update these projections.

Further, our discussion today includes some non-GAAP financial measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found on the investor's page of our website under Regulation G.

I will now turn the call over to Larry Jones, StarTek's President and CEO. Larry?

Thank you, Dave. Good morning, everyone, and thank you for joining us. First, I'll start with a few general comments about our accomplishments and disappointments in 2007 and then let Dave discuss our financial results. After Dave is through, I'll make a few comments and observations about the industry, review our plans for 2008, and then we will open it up for questions.

Twelve months ago, during our first-quarter earnings call, we reported declining revenues and our first loss in the Company's history. I also talked to you about a turnaround plan, that consisted of strengthening our executive team, renegotiating underperforming contracts, addressing site performance, recruiting and attrition issues, and our intention to grow revenues from new and existing clients. I am pleased to say that in 2007, we accomplished nearly 90% of that plan, and I'm able to report to you today that StarTek is healthy, growing, and poised for future success in 2008.

Let me discuss several of the key accomplishments for 2007. First, we strengthened our executive team substantially through the addition of new executives in HR, Business Development, Legal, and a new CFO. This star-studded team helped drive 2007 results and has the strategic, financial, operational and acquisition experience to deliver continued growth and profitability over the next several years.

Second, we negotiated price increases for several contracts that were a drag on our profits. We are able to do this because we consistently deliver quality service to our clients. As a result of these negotiations, not only did we drive higher profits, but also created a stronger partnership with those clients that has resulted in more seats, more programs and increased revenue.

Third, we ere able to significantly improve our agent recruiting capability. In the second half of 2006, we are experiencing difficulty in recruiting in many sites, resulting in lower revenues despite strong demand from our clients. In 2007, we implemented a number of site improvement programs focused on staffing that allowed us to grow agents in the third and fourth quarter of this year.

Finally, early last year, we put a concentrated effort on selling new services into our existing base of clients. As a result, we closed 10 new add-on programs in our existing client base.

The combination of new contract terms, better recruiting and new sales resulted in an 11% year-over-year revenue growth in the fourth quarter that Dave will talk to you more about in a minute.

Our margin improvement story is equally impressive. Throughout 2007, we improved our margin sequentially every quarter, driven by the new contract terms, but also by improving site efficiencies and higher utilization.

No year is perfect, and we had a few disappointments as well. While we were successful in signing new business from our existing clients, we had limited success on closing new named contracts. We closed several smaller accounts that will grow in the next several years, but we were unable to close any new sizable accounts. During 2008, we hope to sign larger accounts that can add to the growth of the base business.

Another disappointment was lower profitability from our Canadian operation due to significantly lower FX rates. To combat this, we closed our non-performing Hawkesbury site, have driven efficiencies in our other Canadian sites, and in 2008, we are aggressively pursuing Canadian clients to insulate us from future FX swings.

And finally, while we were able to improve our agent recruiting, we made little progress in improving our attrition rates. We are hopeful that the programs that we put in place in 2007 will show improvements as we head into 2008.

Despite several disappointments, 2007 was a very successful year where the new management team restored profitability and revenue growth and positioned the Company for an even better 2008. Dave?

Thanks, Larry. We reported strong financial results for the quarter, continuing to make progress in several fundamental areas. Our top-line growth was solid, both on a year-over-year and sequential basis. Gross margins continued to expand despite continued foreign currency exchange pressure and we were profitable for the second consecutive quarter after reporting losses in each of the first two quarters of the year.

Revenue for the fourth quarter totaled $65.7 million, our highest since the third quarter of 2004, an increase of 11.1% compared to the fourth quarter of 2006 and a sequential increase of approximately 4% compared to last quarter. The growth compared to the fourth quarter of 2006 was entirely attributable to an improved rate structure, a result of efforts throughout 2007 to improve contractual terms in select situations and to a lesser extent, a better mix of higher margin service offerings.

Our two other revenue drivers, full-time equivalent agent headcount and capacity utilization, were both relatively flat compared to the fourth quarter of 2006, but steadily improved in the second half of 2007 after hitting a low point in the second quarter of this year. As a result, the 4% sequential revenue growth improvement in the quarter was attributable not only to better rates but also improved capacity utilization and higher full-time equivalent headcount.

For the year, revenue totaled $245.3 million, a 3.2% increase compared to $237.6 million reported for 2006. The increase was the result of higher rates and an improved mix of service types offset by slower annual average full-time equivalent agent headcount and capacity utilization, both of which improved in the second half of the year.

Recognizing that many of you track our client concentration, 2007 revenue from our largest client, AT&T, represented 50% of our total compared to 53% in 2006 and for the fourth quarter, decreased to 48% of our total compared to 50% in the fourth quarter of 2006.

T-Mobile revenue increased to 22% for the year and 24% for the fourth quarter, up from 21% in both comparative periods of 2006. It's worth noting that while these clients represent a significant percentage of our overall revenue, each of these accounts have numerous programs serving multiple lines of business within both accounts, with several service types.

Perhaps more significant than our strong top-line performance was the continued progress made in the quarter to expand gross margins. Gross profit percentage for the fourth quarter of 2007 was 17.4%, a 310 basis point improvement compared to 14.3% in the fourth quarter of 2006, and our highest in seven quarters. It was also 110 basis point improvement compared to last quarter. This improvement came in spite of continued weakening of the U.S. dollar against the Canadian dollar, which compared to our fourth-quarter 2006 results negatively affected gross profit by approximately $1.6 million or 260 basis points of gross profit. Said another way, applying the Canadian dollar exchange rate for the fourth quarter of 2006 to our current quarter results, gross profit as a percentage of revenue would have been 20%, an improvement of 570 basis points compared to 14.3% reported in the fourth quarter of 2006. This margin improvement was primarily due to better contract terms, as discussed previously.

Gross profit also improved for the year, increasing to 16% in 2007 compared to 15.2% in 2006. Improved pricing and a higher margin mix of services offset lower overall capacity utilization to account for the increase.

Foreign exchange also had a negative impact on the year, decreasing gross profit by approximately $2.6 million or 110 basis points of gross profit.

We continued to invest in our corporate infrastructure in support of future growth, and as a result, selling, general and administrative expenses for the quarter increased to $10.9 million compared to $7.8 million in the fourth quarter of 2006 and $9.7 million last quarter. As a percentage of revenue, SG&A increased to 16.5% compared to 13.1% in 2006 and 15.3% last quarter.

In addition to continued investment in corporate staffing and human resources programs, we incurred higher than normal consulting and legal expenses in the quarter and don't expect those expenses to recur. Our 2008 planning process involved a detailed analysis of SG&A expenditures, and it is our intent to monitor our plan closely and pursue opportunities for efficiency.

We are pleased to report that operating income before impairment and restructuring charges totaled $600,000 for the second consecutive quarter after losses in both the first and second quarters of the year. We did incur lingering impairment and restructuring charges of $300,000 this quarter in connection with the closure of our Hawkesbury, Ontario site due to delays in our expected sublease of that facility. As a result, operating income total $300,000 in the quarter, a decrease of $400,000 compared to the fourth quarter of 2006.

It's worth noting, however, that applying fourth-quarter 2006 FX rates to this quarter's results, operating income would have been $2 million, an increase of $1.3 million compared to the fourth quarter of '06.

For the year, we reported an operating loss of $4.1 million compared to operating income of $5.9 million in 2006, a $10 million negative swing. $3 million in higher gross profit was offset by impairment and restructuring charges totaling $4.3 million and an $8.7 million incremental SG&A increase to account for that decline.

Net income for the fourth quarter totaled $400,000 or $0.03 per diluted share, down compared to $0.08 reported in the fourth quarter of 2006 and flat compared to last quarter. For the year, we reported a net loss of $2.8 million or $0.19 a share compared to net income of $5.8 million or $0.39 per share in 2006.

Moving on to the balance sheet, our balance sheet remains strong, with cash and investments totaling $39.4 million as of year end. This balance represents an increase of approximately $6 million compared to the cash and investments balances at the end of September and is due, in part, it to an improvement in our days sales outstanding, which improved to 67 days at the end of December compared to 73 days as of September 30.

It's also worth noting that our year-end cash balance is almost identical to that of a year ago, even though we reduced debt by $5.8 million and reported a net loss.

CapEx for the quarter totaled $4.6 million, which included costs associated with the buildout of our new Victoria, Texas contact center and depreciation expense totaled $4.4 million. For the year, CapEx totaled $15.2 million and depreciation expense totaled $17.1 million. With that, I will turn the call back over to Larry.

Thanks, Dave. I will now comment on what I see as some trends in the communications sector. This is a sector that StarTek serves and consists of the wireless, wireline or telco and cable providers.

Despite the recession fears in the overall U.S. economy, we continue to see strong demand for customer care agents across all of our clients. Particularly in the wireless sector, there appears to be an industry shortage of agents, driving our clients to scramble for capacity from vendors. This shortage has also resulted in minimal pricing pressure that traditionally comes with a downturn in the economy. There is, however, an increased appetite for offshore agents as our clients look to increase capacity at a lower price. This move to offshore is surrounded by caution, as clients are unwilling to sacrifice quality, especially in their premium clients for fear of customer dissatisfaction that may lead to churn.

The second trend we are observing recently is an increased focus on customer service agents being asked to cross-sell new products. With much of the industry's growth being driven by new add-on services rather than subscriber growth, customer service calls are a prime opportunity to ask for the order. The challenge for service providers is to find and/or train customer service agents that can also sell often a difficult set of conflicting skill sets. Nonetheless, we have been very successful at profiling and cross-training agents that can sell with great results, once again, creating a differentiator for StarTek as a quality player.

Overall, it's a good time to be in the wireless and telco space as a BPO player. Competitors with concentration in financial services or retail are feeling the impact of a tightening economy, but I'm glad to report that for now, we are enjoying strong demand, and this, coupled with our ability to staff and add new sites should drive strong growth well into 2008.

So let me now highlight some of our plans for 2008. First and foremost, 2008 will be about continuing the trend of the second half of 2007 and accelerating revenue growth and profitability. Piggybacking on our 2007 initiatives and strong industry demand, we expect to see continued quarterly growth throughout 2008. In addition, our sales team is focused on larger accounts and already has several nice prospects in our pipeline.

Much of our 2007 margin improvement efforts will carry into 2008 as well. Continued focus on site improvements and reducing attrition and margin improvements in our Canadian operations should continue the margin improvement trends of the past several quarters. But equally important and exciting, 2008 will be a year of new investments. We will be investing in building new sites, a new At Home and offshore offering and a focused effort on acquisitions. While these investments may dampen our short-term profitability, they are critical to fuel long-term growth, profitability and competitive advantage.

Let me tell you about a few of these exciting investment areas. First, as we announced in January, we will continue to grow our U.S. capacity by opening three new sites in 2008. We opened Victoria, Texas successfully in January, are planning a second site to open in Mansfield, Ohio in the second quarter and are in the planning stages of a third site that will be operational in the third quarter. All three of these sites have client commitments for most of their respective capacity.

Our ability to manage this expansion plan is a result of the launch team and structured processes we put in place last year. With this team in place, we are capable of continuing to build new sites as demand warrants.

Obviously, there are costs associated with opening these new centers. They include both capital and a short-term margin erosion due to lower utilization as these centers ramp over the first six months of operation.

The second area of investment is building a network of At-Home agents that we have branded StarTek At Home. Given our size, StarTek has not been one to invest in new innovations until we can see real market acceptance. Most of our competitors and several startups have been able to make the at-home agent concept work after many years of investment, experimentation and some failures. Today, the technology and recruiting issues are such that StarTek and our clients are ready to adopt this new and exciting concept. Currently, and throughout 2008, we will be deploying StarTek At Home and we believe it can become a significant part of our delivery platform in 2009.

Our third area of investment is in offshore. Many of you heard me say last year that StarTek had to focus on optimizing our North American platform and then, until our clients' appetite for offshore grew, we would defer offshore investments. Well, the time has come for us to join the party, and I think that we will benefit here as we did with At Home in becoming a latecomer. In the past year, the Philippines have become the de facto location for offshore customer care voice. Therefore, our offshore efforts will focus on the Philippines first with later efforts in Latin America. Our strategy is to provide our clients with high-quality service with a blended mix of onshore and offshore agents then meet our clients' specific program needs. Our expectation is to have an operation in the Philippines in the second half of 2008 that will ramp well into 2009.

Finally, in 2008, we hope to be able to execute on our acquisition strategy. We now have the leadership team and the integration resources to execute [equitable] positions that can grow scale, provide new offerings and accelerate our offshore expansion.

So in closing, let me say that I am extremely proud of our new StarTek team and the amazing accomplishments in 2007, but equally excited about the new investments we are making in 2008.

I will now turn the call back over to Dave for some brief commentary on our financial outlook for 2008.

Thanks, Larry. Needless to say, we currently believe the financial outlook for 2008 is bright. The demand environment remains strong and our reputation in the marketplace for delivering quality continues to build. As a result, we currently expect revenue growth to continue at a healthy rate in 2008, tempered somewhat in the early part of the year by seasonal factors. We also currently expect the continued effect of improved contract terms and our ongoing site optimization efforts to produce improved gross margins, though on the short term, we expect continued Canadian FX pressure and our investment in the two new sites already announced plus plans for a third to open early in the third quarter to be a short-term net drag on gross margins.

And finally, the corporate infrastructure investments made throughout 2007 are expected to support our near-term growth plans and with the exception of some slight incremental additions specific to new sites both in North America and offshore, we anticipate a leveling off of SG&A expenses, in line with the fourth quarter of 2007.

With that, Larry and I would now like to open up the line for questions. Akia?

(OPERATOR INSTRUCTIONS). Josh Vogel, Sidoti & Co.

Dave, can you just first tell us the legal and consulting charges incurred in Q4 that you said were onetime? How much were they?

It was not a huge number. $300,000 to $400,000 in total for the quarter, that would be in the category of nonrecurring.

Okay. And can you remind us again, your hedging strategy against the Canadian dollar?

We have a vehicle known as a forward extra that basically creates a collar on the FX rates, giving us protection below a certain floor, and we participate in upside up to a certain level. So in periods where, in our case, the U.S. dollar is declining against the Canadian dollar, those vehicles are beneficial and but do create some more risk as the U.S. dollar starts to rebound. So we are looking at other choices in that regard to protect us as we go into '08.

And what percent of your Canadian expenses -- or of your expenses are denominated in Canadian dollars?

Our Canadian revenue represents about 40% of our total as we highlight in our 10-K. And about -- and two-thirds of our Canadian revenue is associated with U.S. clients. So it's roughly -- the percent of our expenses that are denominated in Canadian dollars is a lower percentage than our Canadian revenue, obviously, because there's very little SG&A in that number.

Right. Okay. And now just shifting gears to your discussion about moving offshore and having operations in the Philippines in the second half of '08, and then you were discussing your acquisition strategy. So is it to assume that when you do expand into the Philippines, it's going to be the acquisition?

No. We have initiatives underway that are still very preliminary to go in on a greenfield basis and start an operation. The comment on acquisitions was that would be complementary to accelerate the growth in the percentage of revenue there.

Okay. And then as far as the acquisitions go with these -- these would most likely be in offshore regions though, or do you think it would be (multiple speakers)?

The acquisition strategy is going to be very opportunistic, depending on what we can see and what we think is quality and what's worth the price. So really I can't -- we are -- we've got a pretty broad net out there for acquisitions and until we see something that fits, we will rejig our outsource strategy based on that.

Okay. And it sounds like now your clients or at least the smaller ones are coming to you with significant amounts of demand to move offshore, so if you don't accommodate them fairly quickly, do you stand to lose this business?

No, I don't think it's -- I think -- my comments about the industry transition are that people are developing strategies to have a blended mix offshore. Some of our current clients are already offshore with other vendors, but I don't see any short-term risk of revenue loss. And again, we've got a one-year strategy to provide that demand, it will be complementary and support the migration offshore.

Okay. And just two more quick ones. A competitor of yours recently highlighted they were having some success lately, especially with newer telecom clients, that they were passing along at least a portion of their training costs to the clients. At least with your smaller, newer clients that you signed, are you having this type of success as well?

We implemented that strategy in the first half of last year and nearly all of our clients pay for training right now. Or at least shared training revenue.

Okay, great. And just lastly, Dave, do you have an estimate of what CapEx should look like in 2008?

We are -- not to get too specific here, we do expect that CapEx will be a little bit higher, given the fact that we are opening three new sites in this -- in '08. Our CapEx expense was about $15.2 million in 2007, so we expect a little bit of an uptick from there.

Okay, great. Thank you.

Tobey Sommer, SunTrust.

Thanks. I wanted to delve a little bit into, you mentioned acquisitions. It sounded like your focus would be primarily to accelerate offshore and look towards acquiring those sort of assets. Are you at a stage now where you are already starting to look or is that something that you will kind of raise your head in the middle of the year and start looking perhaps for the back half and into '09?

We are aggressively looking at acquisitions today. They are far and few between, which is why specifically which of the areas growing, U.S. scale growing, offshore scale or new services will really be opportunistic based on what we can get our arms around on a realistic price. So in parallel to that, so that we're not just waiting for offshore for an acquisition, we are starting a greenfield effort as well, which, again, the second half of the year have an operation and hopefully grow some scale in 2009.

Along that same lines, would diversifying from an industry perspective be a consideration in your evaluation of acquisitions? And secondly, is there anything available in terms of At Home that could jump start your progress there?

We would look and entertain it at home. At this point, we don't see anything in the queue relative to that. Relative to new verticals, we would only jump into a new vertical if we really believed that we could get a strong, high-end position. Again, we are known for quality and very strong presence in the communications field. I wouldn't want to just dabble in one of the other verticals. So if I saw something that was very targeted in health care or some other area, I would jump in on that.

So I guess one of the things to be careful about is we are -- we have a huge appetite for acquisitions, but we're going to be cautious and we're going to be strategic about what we would buy in a market that doesn't have a lot floating around. So we just got to keep throwing a big net and evaluating them one at a time when they come through.

Fair enough. And then I wanted to ask you a question about gross margins in Canada. You talked about your forward extra and maybe plans to do something a little bit differently. Considering it did mask some of the progress that you had on gross margins in the quarter, to what extent do you have plans to tackle that in a broader way? And to what extent could we expect your gross margins to continue to drift higher over time?

FX is clearly one vehicle, and the ability to hedge against that risk. But I think the bigger initiative in Canada is to sign up more Canadian clients and generate more Canadian revenue in those Canadian sites. I think we also look for opportunities to potentially move certain U.S. revenue that is delivered out of Canadian sites to U.S. sites. So those are two strategies that I think we have our arms around and are looking pretty opportunistically to try to achieve.

And I guess I'll make a comment. On the FX side, the rates are down and we continue them to stay down. We don't have a crystal ball, but we don't expect another 20% swing in FX rates this year. So the reality is you've got to live in the world you are in. And hedging only pushes the bubble out a little bit and just kind of smoothes out the quarter to quarter trends. So we are where we are, and the improvements will come through shifting revenue basis from U.S. to Canada, optimizing the sites that we have there, getting some new Canadian revenue and doing a balance of U.S. and Canadian. Our U.S. operation margins are very strong and they continue to get stronger, and our goal is to really create a blend of Canadian, U.S. and then offshore that we can continue to grow revenues on, but also improve margins.

Thanks. Two questions. One, regarding Canada, we heard from another large competitor saying they had success in several of their Canadian accounts or U.S. accounts doing work in Canada and renegotiating some of the terms to help allow for less of a currency impact. What sort of things are you hearing from your customers in that regard?

I think there is low appetite for our clients to pay a premium for being in Canada because they're really agnostic. They don't care if they're in Canada or here. Anytime we've tried that, their answer is bring me back to the U.S. then or bring me offshore. So more power to them for doing what they did. My suspicion is they probably did it with one or two focused clients that they probably needed price increases anyway. But we have had no appetite from our clients to do that.

Okay.

Having said that though, I think we were successful in a couple of instances achieving that.

Yes, we took a major effort in the first and second quarter of last year to do that across the client base, so I think we are where we are and I think we are being paid fair prices for what we deliver.

Then my last question and I will get back in the queue, relates to the balance sheet and the cash position. Given your commentary regarding investment in acquisitions, are you in a position where you would actually use leverage in the capital structure? Or should we think of the amount of capital you were willing to deploy as restricted by the cash balance right now?

I would not conclude that we would be limited by the cash that's on the balance sheet today, and we do have a tolerance for some level of leverage.

Thank you very much.

Melissa Moran, Thomas Weisel Partners.

In the past, you talked about getting to a high teens gross margin target. And I was just wondering -- you talked about some margin erosion that you are going to be seeing this year from the ramp of the new facilities. I was just wondering if you could comment on that target -- if you still see that as being something that is achievable on a run rate basis getting out into later '08 or early 2009?

High teens to 20% is -- remains our target for gross profit. I think it's probably inappropriate for us to predict specifically when that is going to happen and we do acknowledge that our investments in the new sites will be a short-term drag on gross profit. But as mentioned in our remarks, the improved pricing that we were able to achieve this year plus our ability to optimize performance in several of the sites, we do believe that this is a 20% gross profit business that we are in. And I think as we slow our investment in new locations and as a single new site opening has less of an impact on the overall, I think it's not unrealistic to expect for us to achieve margins at that level.

Okay. And then on the StarTek At Home business, how does that compare with the margin profile of your traditional business? Is it comparable, a little better?

I would say at this point we're still in the early phases and it looks like it's comparable, but we think it has potential to be better. It's got a lot of dynamics relative to utilization that have the potential to move it higher. But on the other hand, there's some client expectations on pricing that could dampen that. So too early to tell I think is the easy answer.

Okay. And then just one last question. The Victoria facility you mentioned opened in January. When would you expect that to reach a run rate revenue level? I assume it will ramp probably through the first quarter, but it would be a run rate level by 2Q?

I think you've got to look at every site we open as a six-month ramp. At the end of six months, it's got parity utilization, and as we open sites that overlap, you'll get the same effect for two quarters. So in the third quarter of operation it's pretty much up to speed.

Okay, great. Thank you very much.

(OPERATOR INSTRUCTIONS). Tom Carpenter, Hilliard Lyons.

Definitely before your all's time, but maybe two years ago, roughly, the firm had talked about working with one of the existing clients -- I can't remember if it was AT&T or Cingular about doing some stuff in the Philippines. Is this a continuation of those efforts or is this a totally new effort on your all's parts?

Those efforts, which are more like three years ago, fizzled and then as the Company changed management, it became on the back burner. This is a new effort by a new management team and we've got pretty aggressive and high hopes for our offshore capability.

Okay. And the initial foray would be working with the existing clients that have requested the services?

Not necessarily. We've got a number of clients in our pipeline who have an appetite for offshore as well.

Okay. And outside of any acquisitions, do you expect multiple sites in the Philippines in '09 or is it going to be multiple sites in the Philippines in Latin America?

Too early to tell. I think Latin America has the advantage of having a multilingual base, which there is pretty sizable appetite for in the U.S., but we are walking first before we start running. So it will really depends on the success and the kind of management team we can put in place in the Philippines.

Okay, and I may have missed this. I don't know if I caught the first part of the call. Did you give an update on the AT&T, the wireless contract you guys have been working on?

No, we figured one of you would ask, so I'll let Dave talk.

Yes, we're still in a little bit of a holding pattern with respect to that. We had an extension that expires -- I think the last time we updated all of you on this, the extension took us through the end of this month, which is tomorrow. We do not yet have the extension or the contract signed. It is at the committee level that will ultimately make the decision. So it's one of those situations where it's any day type of circumstance, and we do have an extension queued up to be put in place to extend us through the end of April.

So I would also mention that in the past, we have hinted that the extension or the contract renewal, once it's in place, would only take us through the end of '08. And, in fact, once the contract is renewed, it will be a two-year period from the renewal date. So that is more of a correction of what we've previously communicated, but I think a positive statement about that situation.

But having said all that, relationship with the client continues to be very strong, and we continue to work to grow that business.

That's good news it would be a two-year. I think I made a mistake. I should have gone to law school and worked on these contract renewals. It's pretty good business. Steady work. Thanks and good luck on the renewal.

Arnie Ursaner, CJS Securities.

A couple of questions if I can. One is there are a lot of concerns on people reinvesting cash on their balance sheet in auction rate notes. Do you have any exposure to that?

No. None.

Okay. Larry, way back when, I think you said when you got a lot more comfortable with the business, it would probably lead to more formal guidance. What are you missing at this stage in terms of your degree of comfort in giving more specific EPS and revenue guidance?

I think both the senior management team and the Board have a lot of dialogue about guidance. I think we're starting to open up and give you more directional guidance. What concerns us is the investments we're making, the foreign exchange exposure are two of the biggest items that just give us pause. So I would expect that over the course of 2008, that you will be getting more and more specific guidance.

Okay. Can you give us a fresh look at Comcast? I know you've been building out your exposure with them. Is the growth in that client one where they are close or maybe targeted to be a disclosable client?

I can't comment on specific clients nor their name, but I can tell you that in every case, our clients are growing, and in the cable business, that's true as well.

Okay. Can you give us a feel for -- you've added a lot of people to your staff and we have had someone time items. Can you give us your best feel for run rate G&A as we enter into '08?

I think, Arnie, that my comments in the prepared remarks are pretty indicative. We do -- we did incur some unusual expenses in the fourth quarter to the tune of about 300,000 to $400,000 that we don't expect to recur. But I think as we go forward, with the exception of incremental investments in SG&A associated with new sites and the bulk of our expense as it relates to new sites hits cost of sales and is a gross profit. So there's not a huge incremental SG&A element to our opening of new sites. But we do expect on a quarterly basis, for SG&A to be relatively flat on a go-forward basis from what we reported in Q4, with the exception of slight incremental costs associated with new sites.

Larry, one of the challenges for StarTek over the last several years is you occasionally build sites because clients have indicated that they need the capacity and then either they change their mind or react. What steps are you taking to protect yourself as you make these more significant investments that your client, in fact, doesn't just change their view?

Well first of all, we're not green-fielding, so we're very cautious about building a greenfield site with no client commitments. I think we have a pretty good pulse on our clients' demand and a good relationship with them that gives us the confidence that we can continue to fill them with their demand. In addition, we also have new sales, which we closed last year and hopefully more significant this year, which could also be used to offset that. So no absolute guarantees; you build capacity and you work with your existing clients and new business to fill them. And again, with 20 plus sites, one site is not going to have a huge impact.

Final question for me. How many seats do you hope to have in the Philippines in your new expansion there?

Too early to tell right now. Typically in the Philippines, people are building 500 to 1000-seat sites. But we are very preliminary in the planning stages right now to figure out what's the appropriate level. And that, like here, would be a site-by-site decision based on demand that we see coming in from both existing and new clients.

Okay, thank you.

(OPERATOR INSTRUCTIONS). I'm showing there are no more questions at this time.

I think everybody for your participation and we will see you next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.