Startek Inc (SRT) 2013 Q2 法說會逐字稿

Good afternoon, everyone, and thanks for calling in. It is my pleasure to welcome everyone to StarTek's second-quarter 2013 earnings call.

I'm joined on the call today by StarTek's President and Chief Executive Officer, Chad Carlson, and Chief Financial Officer, Lisa Weaver. Chad will deliver some brief commentary today. At the conclusion of Chad's prepared remarks, Chad and Lisa will conduct a question-and-answer session. For those of you who have not received a copy of today's earnings press release, go to www.StarTek.com, where you can download a copy of the investors section of their website.

These 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 these projections. StarTek advises all those listening to this call to review the 2012 Form 10-K posted on their website for a summary of these risks and uncertainties. StarTek does not undertake the responsibility to update these projections.

Further, the discussion today may include some non-GAAP measures in accordance with Regulation G. The Company has reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found in the earnings release on the investor page of their website.

I now turn the call over to Chad Carlson, StarTek's President and CEO. Please proceed, Sir.

Thank you, Celia. And thank you all for joining.

Second quarter of 2013 revenue of $55.6 million grew more than 25% over the same quarter of last year and our revenue diversification is greatly improved. This is a strong testament that the execution and solutions brought to our clients through the StarTek Advantage System are producing results and generating value for our clients. Our new business signed during the quarter was $12 million, which includes one new logo and brings our year-to-date new business to $18.5 million. We have invested in solution capabilities, the operating platform, and how we engage and build trust with our clients. And I'm pleased to see these efforts paying off with organic revenue growth.

Gross margin improved overall, with both North America and Latin America up. And Asia-Pacific relatively flat, held down mostly by significant ramp up in program conversion costs associated with new business. The operating challenges I discussed in the Philippines last quarter are largely behind us. We have closed the temporary capacity we had in the Philippines, and are currently ramping in our new provincial site in Angeles City, Philippines.

Adjusted EBITDA for the quarter was just under $2 million and the cash balance at the close of the quarter was $10 million. Over the past few months, we made significant progress in line with our strategic plan, as previously discussed the acquisition of Ideal Dialogue, further progression of the IT platform initiative, and most recently solidifying our move into the healthcare services vertical. Differentiating our services for clients and diversifying our revenues are key to accomplishing sustainable, predictable, and profitable growth. And these moves will all contribute to this.

SG&A was down 7.7% year-over-year, reflecting continued focus on efficiencies. And has now decreased to 13% of revenue. We also recently promoted Pat Hain to lead our IT organization, and Emily Millar to lead our Client Solutions and Strategy. I'm proud of the team we have built. And we are committed to generating value for our stakeholders.

Tilia, Lisa and I will now open the line and take questions.

(Operator Instructions)

Tim Wojs from Baird.

My first question, really, if you go back to last quarter, you guys had talked about Q2 really being, at least from an operational standpoint, maybe being a trough in terms of profitability, and you should see an improvement in Q3 and in Q4. I just wanted to get an update from you guys on that aspect.

Yes, I believe that's still an accurate picture, Tim.

Okay. As we exit the year in Q4, you guys feel pretty confident that you will be able to exceed where you were in Q4 last year?

I won't set that expectation, but we will certainly be in the ballpark.

Okay. And then, just to touch on gross margins in both the domestic and the Asia-Pacific business -- first, on the domestic business, is the low- to mid-teens growth margins pretty sustainable? Or is there something there that can ebb and flow? How should we think about that as some of the wins you guys are putting out are ramping?

I think with solid utilization of both personnel and continuing to focus on our asset utilization, that's certainly the range we'd like to operate in.

Okay. And then just on Asia-Pacific, the margins there have been a little bit closer to 10% or 11% the last couple quarters. If you look at last year, you had gross margins there closer to the low-20%s, maybe even the mid-20%s. I know you've had some challenges, or some one-time expenses there in the first half, but could you bridge for us how you guys get back to that 20%-ish gross margin level in Asia-Pacific?

Our expectations for gross margins for Asia-Pacific have not changed. And we believe we can get back into those levels. It will be somewhat dependent on the ramp-up of our new facility there, which we are off to a good start.

Okay. And just my last question, could we get the revenue concentration for both your two largest clients?

For AT&T for the quarter, Tim, a little over 26%. And for T-Mobile, a little over 27%.

Okay. Thanks a lot. I appreciate it.

Omar Samalot, Independent Analyst Corporation.

Good quarter, guys. I'm very pleased with what you've accomplished so far. Can you expand a little bit more about that new facility in the Philippines that you are opening? And how far along has it been ramped already?

Yes, we've already started hiring for our first client into there. And have some good progress on a couple of other programs coming shortly after that. So, pleased with our start there.

Okay. So, it seems like you already have committed business for that. Did Q2 see any training ramping costs for that facility at all?

Yes.

Okay. On the margin improvement in the domestic, did the margin improvement expected in Canada help a bit there?

It did, a little bit, Omar.

Okay, great. And in terms of the new business that you've signed this quarter, can you expand a little bit more on what you've been able to sign? And congratulations are in place for finally landing a healthcare client. I know that was a goal for you guys.

The healthcare piece was subsequent to the close of the quarter. That was a small acquisition we made, but I think important, and an area we are very excited about. As far as new business goes, one new logo, and then quite a bit of organic growth and expanded programs with some existing clients.

Okay. That new acquisition, are you buying revenue at all there? Is it strategic? How should we think about that?

Strategic, but there's a little bit of revenue there.

Okay. And it's related to the healthcare logo?

Yes.

Last question for me -- I believe that last quarter, I think you indicated something like an IT asset write-down charge. I'm not sure I saw much of it this quarter. Is that still pending?

You will see that in the second half. And it will probably come in the form of accelerated depreciation. But we are still working through the details of that.

Okay. And I'm imagining it's completely related to the new IT platform that you are implementing?

Yes.

Is that implementation on track, or has it been delayed a bit? How would you characterize that?

It's under way now. It's been a lengthy project, and we are not fully through all of the decision points on that yet. But some of the significant components of it we have had decision points on, and we are in implementation mode now.

Okay. So, at this point, we still haven't seen any of the, let's call it, cost savings or efficiencies of that platform yet?

No.

Okay. Thank you, guys. Great job.

(Operator Instructions)

[Darius Noori]

Good evening, ladies and gentlemen. Good job on the results. Definitely seems like you guys are continuing to make forward progress.

I just had one question for you guys. T-Mobile has been reporting some good subscriber growth recently. I wanted to know if you could talk a little bit about how that is impacting or could impact your relationship with that client?

I think our execution with the client has been strong over the past couple quarters. And as long as we continue to execute well, I think those opportunities will bode well for us.

So, are you starting to see that subscriber growth and the demand for some calls from that client?

I missed the first part of your question.

Meaning, are you guys, with having more subscribers signing on, the [need] for call services goes up. So, are you starting to see that at all in your end?

I think there's opportunity there for us.

Okay. Got it. That's it. Again, good job, guys. And continue to look forward to watching your future progress.

(Operator Instructions)

David Gearhart, First Analysis.

Actually, Howard Smith here at First Analysis. Two questions. One, I just wanted to follow up on the ramp up in Asia in the province. It sounds like you have some net new business or new programs, but you are also transitioning some of your existing work from one facility to another. I just want to make sure I understand that right, and maybe order of magnitude what's transitioning from one place versus net new?

The new logo, one, in the second quarter is part of that. We have some work that we are transitioning from one of our other sites. And we also have new programs that have been added from one of our existing clients.

Great. That's helpful.

And then, just a clarification of the one-time, actually, benefit -- not charge. Can you just remind me what that is about? Is that the building or -- ?

Is that in restructuring, Howard -- is that what you're asking?

Yes, the restructuring, exactly.

Yes, that was a restructuring reserve we put up for one of our US sites that closed a couple of years back. We didn't need the entire reserve, so we reversed the balance of it out for some fees that were being paid by the sub-tenant there.

Excellent. Thank you very much.

Adam Goldstein, private investor.

My first question is again about the Asia-Pacific gross margins. When you say you think you will be able to -- or your expectations haven't changed, could you give us a little better feel for what is your expectation, like, is it mid-20%s, low-20%s? They used to even talk about 30%, I think -- previous management -- so, any color on that would be helpful.

North of 20%.

North of 20%, okay. And how about -- I think another person asked about domestic, and I think you said low to mid teens. What about Latin America?

Better than that. So, if you think about the three markets we are in, it tiers in that way -- domestic, LatAm, and then Asia-Pacific.

Okay. I remember last quarter you talked about something holding down your domestic gross margin was that one of your largest facilities in the US was very under-utilized. I was curious if you made any progress towards filling up that capacity, or perhaps if that business could be consolidated elsewhere.

We haven't made progress on that particular facility yet. And we certainly keep all options on the table to address those areas.

Okay. So, the gross margin you are getting now is despite the lag -- being dragged down by that large facility, then, right?

Correct, as well as being in a very mature market with our Canadian site. So, we have a couple of things that are some headwinds on our North American gross margin performance.

Okay. Now, in this new site in Angeles City, I'm curious about how much new capacity you are adding there. Could you maybe give a ballpark, in terms of maybe percentage increase in seat capacity, or some kind of indication of how much new capacity we are talking about?

I'm trying to think how to shape that, Adam, for you.

Well, I know it's a little bit --

It's in the 500- to 800-seat range, I'll say.

Okay. That's good. So, this new healthcare service vertical -- this one I guess came through the Ideal Dialogue acquisition -- is that it?

No, it's a separate transaction.

Oh, there was another -- that wasn't announced. Was it too small to be announced, or what?

Yes, and for competitive reasons, we are keeping it somewhat quiet, I guess.

Okay. All right. That's all my questions.

Tim Wojs from Baird.

Just two other questions. One, how much do you guys expect to spend in CapEx in 2013?

We will spend a little more than we did in the first half, Tim. The first half was a little light. With some of the growth in new business coming on, we expect it to be higher in the second half.

Okay. That's helpful.

And then, just as we look at Q3, do you guys have an expectation that you will be profitable next quarter?

With the accelerated depreciation, I think that will be difficult for us to do this year. But it will be more due to the accelerated depreciation with the IT platform initiatives, Tim.

Okay. So, in Q3 -- basically, in Q3 it's going to be tough. And then for the year, it sounds like you guys won't be able to -- that will drag down the year.

Yes.

Okay. Thanks.

But I think it sets the stage well for us looking into the following years.

Okay.

We are pretty pleased with the savings and the opportunity we have to really get a solid platform that's very efficient in nature.

Great. Thank you.

Ladies and gentlemen, this will conclude today's question-and-answer portion of today's conference. I would now like to turn the call back over to Mr. Chad Carlson for closing remarks. Please proceed.

Thank you, everyone, for your interest. We will talk to you next quarter, and we will get back to work.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.