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Form 8-K StarTek, Inc. For: Feb 19

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February 19, 2015 4:14 PM EST


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K

 Current Report
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

 Date of Report (Date of earliest event reported): February 19, 2015

STARTEK, INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
1-12793
84-1370538
(State or other jurisdiction of incorporation or organization)
(Commission File
Number)
(IRS Employer Identification No.)
 
8200 E. Maplewood Ave., Suite 100, Greenwood Village, CO 80111
(Address of principal executive offices; zip code)
 
Registrant’s telephone number, including area code: (303) 262-4500
 
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

 
£
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
£
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
£
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
£
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 2.02 Results of Operations and Financial Condition.
 
On February 19, 2015, StarTek, Inc. (the “Company”) issued a press release reporting its earnings for its quarter and full year ended December 31, 2014. A copy of the press release is attached as Exhibit 99.1 and the Financial Scorecard is attached as Exhibit 99.2 to this Current Report on Form 8-K. This press release and Financial Scorecard shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933.

Item 9.01 Financial Statements and Exhibits

Exhibit Number
Exhibit Description
99.1
Press Release dated February 19, 2015
99.2
Financial Scorecard as of December 31, 2014
 

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
STARTEK, INC.
 
 
 
 
 
 
Date: February 19, 2015
By:
/s/ Lisa A. Weaver
 
 
Lisa A. Weaver
Senior Vice President and Chief Financial Officer
 





Exhibit 99.1
 

 
 

STARTEK Reports Fourth Quarter and Full Year 2014 Results

 
GREENWOOD VILLAGE, CO - February 19, 2015 - StarTek, Inc. ("STARTEK") (NYSE: SRT), a provider of high-value business process outsourcing services, has reported its fourth quarter and full year 2014 financial results.
 
2014 Highlights
•
17 new clients signed with $48.6 million of annual contract value
•
Revenue from verticals excluding telecommunications/cable and media increased 150% to $25.9 million, exiting the year at 17.4% of revenue
•
Improved geographical footprint with net capacity expansion of 2,000 new seats
•
Improved diversification with 24% growth in receivables management and back office revenue
•
Adjusted EBITDA was up 20%

Fourth Quarter 2014 Financial Results
Total revenue in the fourth quarter of 2014 increased to $64.2 million compared to $63.4 million in the fourth quarter of 2013. This was the result of $3.1 million of growth in receivables management and back office work and $8.0 million of growth in healthcare, education, financial services, and retail verticals. The acquisition of Collections Center, Inc. during the fourth quarter of 2014 contributed to this growth. This was partially offset by declines of $10.3 million in core services for telecommunications/cable clients associated with the Costa Rica facility closure, lower than forecasted call volumes and program mix changes. The client mix and mature wages made it difficult to be profitable in Costa Rica.

Gross margin in the fourth quarter of 2014 was 11.7% compared to 11.8% in the year-ago quarter. Current quarter gross margin reflects a 280 basis point impact from expenses related to client start-up and capacity expansion. Excluding this dilutive impact of on-boarding new clients and capacity investments, gross margin was 14.5%, an increase of 270 basis points as compared to the fourth quarter of 2013.

Selling, general and administrative (SG&A) expenses increased to $8.3 million in the fourth quarter of 2014 compared to $7.2 million in the year-ago quarter. Selling expense increases associated with new revenue was approximately $0.5 million and investment in growth initiatives was $0.4 million. As a percentage of revenue, SG&A was 13.0% compared to 11.4% in the year-ago quarter.

Fourth quarter 2014 Adjusted EBITDA of $2.3 million compares to a fourth quarter 2013 Adjusted EBITDA of $3.6 million. The decline was due to the aforementioned growth-related investment.

At December 31, 2014, the company’s cash position was $5.3 million compared to $11.0 million at December 31, 2013. The reduction was due to the increase in capital expenditures for new facilities and increased capacity, $3.4 million of cash payments for acquisitions and restructuring payments of $4.0 million.






2014 Financial Results
Total revenue in 2014 increased 8% to $250.1 million compared to $231.3 million in 2013.

Gross margin increased 170 basis points to 12.2% in 2014 compared to 10.5% in 2013.

SG&A expenses increased to $31.4 million in 2014 compared to $28.8 million in 2013. As a percentage of revenue, SG&A remained relatively flat at 12.6% compared to 12.5% in 2013.

Adjusted EBITDA in 2014 increased 20% to $11.5 million compared to $9.6 million in 2013.

Management Commentary
“Increasing capacity in the right locations and diversifying our revenue are important and necessary steps to building a profitable company,” said Chad Carlson, president and CEO of STARTEK. “Continued enhancements to the STARTEK Advantage System are enabling us to provide more valuable services to an increasing number of verticals. We have closed unhealthy sites which hindered our ability to attain profitable growth and are expanding in locations, verticals and services which can attain better margins."

“As we enter 2015,” Carlson continued, “we will continue to invest in growth and are confident our strategy will build a profitable and more diversified STARTEK that delivers clients high-value services."

Conference Call and Webcast Details
STARTEK will hold a conference call today at 5:00 p.m. Eastern time to discuss its fourth quarter and full year 2014 results. Management will host the conference call, followed by a question and answer period.

Date: Thursday, February 19, 2015
Time: 5:00 p.m. Eastern time (3:00 p.m. Mountain time)
Toll-free dial-in number: 1-866-515-2914
International dial-in number: 1-617-399-5128
Conference ID: 37868293

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

The conference call will be broadcast live and available for replay via the investor relations section of the STARTEK website. A replay of the conference call will be available after 9:00 p.m. Eastern time on the same day through February 26, 2015.

Toll-free replay number: 1-888-286-8010
International replay number: 1-617-801-6888
Replay ID: 70121751

About STARTEK
STARTEK is a trusted service provider with contact centers around the world. Our employees, whom we call Brand Warriors, protect and promote our clients' brands. These Brand Warriors are committed to making a positive impact for our clients’ business results, enhancing the customer experience while reducing costs for our clients. With our STARTEK Advantage System, our Brand Warriors instill customer loyalty through a variety of multi-channel customer interactions, including voice, chat, email and social media. Our service offerings include sales support, order processing, customer care, technical support and receivables management. For more information, please visit www.STARTEK.com.





Forward-Looking Statements
The matters regarding the future discussed in this news release include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are intended to be identified in this document by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should” and similar expressions.   As described below, such statements are subject to a number of risks and uncertainties that could cause STARTEK's actual results to differ materially from those expressed or implied by any such forward-looking statements. These factors include, but are not limited to, risks relating to our reliance on a limited number of significant customers, lack of minimum purchase requirements in our contracts, the concentration of our business in the communications industry, lack of wide geographic diversity, maximization of capacity utilization, foreign currency exchange risk, risks inherent in the operation of business outside of the United States, ability to hire and retain qualified employees, increases in labor costs, management turnover and retention of key personnel, trends affecting companies’ decisions to outsource non-core services, reliance on technology and computer systems, including investment in and development of new and enhanced technology, increases in the cost of telephone and data services, unauthorized disclosure of confidential client or client customer information or personally identifiable information, compliance with regulations governing protected health information, our ability to acquire and integrate complementary businesses, compliance with our debt covenants, ability of our largest stockholder to affect decisions and stock price volatility. Readers are encouraged to review Item 1A. - Risk Factors and all other disclosures appearing in the Company's Form 10-K for the year ended December 31, 2013 and the Company's Form 10-Q for the quarter ended September 30, 2014 filed with the Securities and Exchange Commission, for further information on risks and uncertainties that could affect STARTEK's business, financial condition and results of operation.

Company Contact
Rosemary Hanratty
Vice President of Marketing
303-262-4144

Investor Relations
Liolios Group, Inc.
Cody Slach or Sean Mansouri
949-574-3860




STARTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 

 
 
Three Months Ended          
December 31,
 
Twelve Months Ended        
December 31,
 
 
2014
 
2013
 
2014
 
2013
Revenue
 
$
64,178

 
$
63,422

 
$
250,080

 
$
231,257

Cost of services
 
56,662

 
55,967

 
219,608

 
206,932

Gross profit
 
7,516


7,455

 
30,472

 
24,325

Selling, general and administrative expenses
 
8,345

 
7,227

 
31,397

 
28,828

Impairment losses and restructuring charges, net
 
461

 
531

 
3,965

 
94

Operating loss
 
(1,290
)
 
(303
)
 
(4,890
)
 
(4,597
)
Interest and other income (expense), net
 
(222
)
 
(570
)
 
(6
)
 
(1,579
)
Loss before income taxes
 
(1,512
)
 
(873
)
 
(4,896
)
 
(6,176
)
Income tax expense
 
81

 
143

 
564

 
230

Net loss
 
$
(1,593
)
 
$
(1,016
)
 
$
(5,460
)
 
$
(6,406
)
 
 
 
 
 
 
 
 
 
Net loss per common share - basic and diluted
 
(0.10
)
 
(0.07
)
 
(0.35
)
 
(0.42
)
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic and diluted
 
15,410

 
15,365

 
15,394

 
15,339


 
STARTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
As of
 
 
December 31, 2014
 
December 31, 2013
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
5,306

 
$
10,989

Trade accounts receivable, net
 
46,103

 
43,708

Other current assets
 
3,099

 
5,367

Total current assets
 
54,508

 
60,064

Property, plant and equipment, net
 
28,180

 
22,210

Other assets
 
11,105

 
7,443

Total assets
 
$
93,793

 
$
89,717

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

Current liabilities
 
$
31,672

 
$
28,498

Other liabilities
 
7,440

 
3,045

Total liabilities
 
39,112

 
31,543

Total stockholders’ equity
 
54,681

 
58,174

Total liabilities and stockholders' equity
 
$
93,793

 
$
89,717

 
 




STARTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2014
 
2013
 
2014
 
2013
Net loss
 
$
(1,593
)
 
$
(1,016
)
 
$
(5,460
)
 
$
(6,406
)
Adjustments to reconcile net loss to net
 
 

 
 

 
 

 
 

cash provided by operating activities:
 
 

 
 

 
 

 
 

Depreciation and amortization
 
2,750

 
2,943

 
10,379

 
12,527

Impairment losses
 
—

 
531

 
—

 
531

(Gains) losses on disposal of assets
 
45

 
204

 
(136
)
 
1,074

(Gain) on dissolution of subsidiary
 
—

 
—

 
(413
)
 
—

Loss on sale leaseback transaction
 
—

 
475

 
—

 
475

Non-cash compensation cost
 
418

 
352

 
1,625

 
1,607

Amortization of deferred gain on sale leaseback transaction
 
(62
)
 
(67
)
 
(276
)
 
(273
)
Changes in operating assets & liabilities and other, net
 
(132
)
 
728

 
(1,339
)
 
(3,293
)
Net cash provided by operating activities
 
1,426

 
4,150

 
4,380

 
6,242

Investing Activities
 
 

 
 

 
 

 
 

Purchases of property, plant and equipment
 
(2,100
)
 
(4,789
)
 
(11,661
)
 
(8,843
)
Proceeds from sale of assets
 
71

 
3,394

 
1,135

 
3,394

Proceeds from sale leaseback transaction
 
—

 
1,337

 
—

 
1,337

Proceeds from note receivable
 
164

 
162

 
645

 
658

Cash paid for acquisitions of businesses
 
(2,816
)
 
(208
)
 
(3,419
)
 
(2,097
)
Net cash (used in) investing activities
 
(4,681
)
 
(104
)
 
(13,300
)
 
(5,551
)
Financing Activities
 
 

 
 

 
 

 
 

Other financing, net
 
1,974

 
1,009

 
3,416

 
1,213

Net cash provided by financing activities
 
1,974

 
1,009

 
3,416

 
1,213

Effect of exchange rate changes on cash
 
35

 
(83
)
 
(179
)
 
(98
)
Net (decrease) increase in cash and cash equivalents
 
(1,246
)
 
4,972

 
(5,683
)
 
1,806

Cash and cash equivalents at beginning of period
 
$
6,552

 
$
6,017

 
$
10,989

 
$
9,183

Cash and cash equivalents at end of period
 
$
5,306

 
$
10,989

 
$
5,306

 
$
10,989








STARTEK, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands)
(Unaudited)
 
This press release may contain certain non-GAAP financial measures including, 1) Adjusted EBITDA, 2) operating (income) loss before impairment losses and restructuring charges and 3) gross margin excluding the impact of on-boarding new clients and capacity investments. Reconciliations of these non-GAAP measures to their comparable GAAP measures are included in this press release or below. This non-GAAP information should not be construed as an alternative to the reported results determined in accordance with GAAP. It is provided solely to assist in an investor’s understanding of these items on the comparability of the Company’s operations.

The Company defines non-GAAP Adjusted EBITDA as net income (loss) plus income tax expense (benefit), interest expense (income), impairment losses and restructuring charges, depreciation and amortization expense, (gains) losses on disposal of assets and share-based compensation expense. Management uses Adjusted EBITDA as a performance measure to analyze the performance of our business. Management believes that excluding these non-cash and other non-recurring items helps investors and analysts assess the strength and performance of our ongoing operations.

Management believes that the measures that exclude impairment losses and restructuring charges or other non-recurring items permit a more meaningful comparison and understanding of our operating performance for the current, past or future periods.

Adjusted EBITDA:
 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31, 2014
 
December 31, 2013
 
December 31, 2014
 
December 31, 2013
Net loss
 
$
(1,593
)
 
$
(1,016
)
 
$
(5,460
)
 
$
(6,406
)
Income tax expense
 
81

 
143

 
564

 
230

Interest (income) expense, net
 
172

 
4

 
606

 
26

Impairment losses and restructuring charges, net
 
461

 
531

 
3,965

 
94

Depreciation and amortization expense
 
2,750

 
2,943

 
10,379

 
12,527

(Gains) losses on disposal of assets
 
45

 
679

 
(136
)
 
1,549

Share-based compensation expense
 
418

 
352

 
1,625

 
1,607

Adjusted EBITDA
 
$
2,334

 
$
3,636

 
$
11,543

 
$
9,627

  
Operating Income (Loss) before Impairment and Restructuring Charges:
 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31, 2014
 
December 31, 2013
 
December 31, 2014
 
December 31, 2013
Operating loss
 
$
(1,290
)
 
$
(303
)
 
$
(4,890
)
 
$
(4,597
)
Impairment losses and restructuring charges, net
 
461

 
531

 
3,965

 
94

Operating income (loss) before impairment losses and restructuring charges, net
 
$
(829
)
 
$
228

 
$
(925
)
 
$
(4,503
)





Exhibit 99.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Results Scorecard
As of December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1-13
Q2-13
Q3-13
Q4-13
2013
 
Q1-14
Q2-14
Q3-14
Q4-14
2014
Revenue (millions)
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
$
28.0

$
28.9

$
30.2

$
33.9

$
120.9

 
$
33.3

$
30.9

$
30.7

$
35.6

$
130.6

Asia Pacific
 
$
19.7

$
19.9

$
20.5

$
21.1

$
81.1

 
$
21.1

$
21.0

$
22.5

$
21.2

$
85.8

Latin America
 
$
6.1

$
6.8

$
7.8

$
8.5

$
29.2

 
$
8.8

$
9.3

$
8.3

$
7.3

$
33.7

Company Total
 
$
53.8

$
55.6

$
58.4

$
63.4

$
231.3

 
$
63.2

$
61.3

$
61.4

$
64.2

$
250.1

 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue %
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
52.1
 %
52.0
 %
51.6
%
53.4
%
52.3
%
 
52.7
%
50.5
%
50.0
%
55.5
%
52.2
%
Asia Pacific
 
36.6
 %
35.7
 %
35.0
%
33.2
%
35.1
%
 
33.3
%
34.3
%
36.6
%
33.1
%
34.3
%
Latin America
 
11.3
 %
12.3
 %
13.4
%
13.4
%
12.6
%
 
14.0
%
15.2
%
13.5
%
11.4
%
13.5
%
Company Total
 
100.0
 %
100.0
 %
100.0
%
100.0
%
100.0
%
 
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Profit (millions)
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
$
2.9

$
3.5

$
3.0

$
3.9

$
13.3

 
$
4.5

$
2.6

$
3.0

$
2.7

$
12.9

Asia Pacific
 
$
2.2

$
2.2

$
2.7

$
2.9

$
10.0

 
$
3.6

$
2.6

$
5.1

$
3.9

$
15.2

Latin America
 
$
(0.4
)
$
(0.1
)
$
0.9

$
0.7

$
1.1

 
$
0.1

$
0.4

$
0.9

$
0.9

$
2.3

Company Total
 
$
4.7

$
5.6

$
6.5

$
7.5

$
24.3

 
$
8.2

$
5.7

$
9.0

$
7.5

$
30.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Profit %
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
10.4
 %
12.3
 %
9.8
%
11.4
%
11.0
%
 
13.6
%
8.5
%
9.9
%
7.6
%
9.9
%
Asia Pacific
 
11.2
 %
10.9
 %
13.1
%
13.9
%
12.3
%
 
17.1
%
12.5
%
22.6
%
18.3
%
17.7
%
Latin America
 
(6.6
)%
(1.2
)%
11.2
%
7.9
%
3.6
%
 
0.8
%
4.5
%
11.2
%
12.7
%
6.9
%
Company Total
 
8.8
 %
10.1
 %
11.2
%
11.8
%
10.5
%
 
13.0
%
9.3
%
14.7
%
11.7
%
12.2
%




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