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Startek (SRT) is an old Value Board story probably well known to many on VIC.
Best known as a telephone contac center, it has morphed into a business process
outsourcing services operating out of United States, Latin America and Asia-Pacific.
SRT provides sales, order management, customer care, technical and
product support , receivable management, inbound sales as well as complex order
processing. Inbound help desks offer technical and product support via phone,
internet, fax, email, chat and social media. Upselling and cross selling, lead generation
as well as direct selling are all included in their portfolio of services.
Services to wireless, data, and telco companies are quite extensive and include
telephone backup to automated calls, order processing and transfer of accounts
between client service providers, and receivable management of course consists of
collections for clients across many industries including media, cable, healthcare
and telecommunications. One of the newest segments is healthcare which includes
remote patient care, customer care, sales support and medical triage to payers,
providers, drug and device manufacture companies.
The “old” Startek had its ups and downs but the fourth quarter just reported
seems to suggest and important change has occurred. The street consensus
for the quarter was a loss of $0.08 but SRT surprised with a profit of $0.02.
While not earth shattering by itself but with the background facts and commentary,
a “turn in the tide” is suggested.
The long time knock on the company was that just four customers accounted for almost
all of the revenues- certainly not in inconsequential issue. ATT alone in 2010 accounted
for 66% of sales-now under 10%. Startek just reported now having 58 clients in the
now core business and in Startek Health an additional 210 clients. Thus SRT has
greatly changed its corporate profile.
Probably historically best know for its relationship with T Mobile which was recently
rated by J.D.Powers in a “2016 US Wireless Customer Care Performance Study”
with the highest ranking among full service carriers responding to customers calls.
The transformation from a narrowly focused telco provider to a broadly diversified
customer care service provider has attracted many new clients in new industry sectors.
In addition to a wide ranging healthcare vertical, we have a financial services sector
as well as a newly expanded receivables management business.
What is important to bear in mind is that the original core business of customer center
contact is lower margin, and competitive, the new verticals more are more profitable and
less contentious. The more mature telecommunications area may be near a renaissance,
However, with cellular companies betting heavily on 5g service as their next money
maker. Mobile speeds will dramatically increase and require a great deal of
customer service on introduction and implementation. Currently beginning initial
trials, ATT and Verizon expect this to be a major homerun.
Total revenues for 2015 was $282 million up from $250 million while gross margins
fell to 8.6% from 12.2% due to excessive cost overruns in capacity and delayed
contract wins. A mismatch of seats and geographies has been remedied with the closing
of several sites.
The recently released fourth quarter demonstrates better times ahead. Total revenues
for the fourth quarter were $82.3 million up some 28% from $62.3 million largely
attributable to an acquisition on June 1 as well a new client wins and
Revenues from the Healthcare, financial services and retail verticals
surged 135% to $26.3 million versus the same time last year and represented one-third
of total sales compared to 17% last year while adjusted ebidta jumped 106% to $4.8
million compared to prior year. Net income turned profitable $0.3 million or
$0.02 compared to a loss of $1.6 million or ($0.10) adding two new clients in quarter
and $10 million of new revenues.
For the full year, Startek signed 14 new clients adding $22 million in revs.
On a go forward basis, they are specifically targeting new verticals with higher
margins with a goal of achieving double digit growth and profitability this year.
Current indications for the full year suggest a 10% increase in sales to $280 million
and an ebidta of $20 million. Since comps trade at over five times ebitda we could have
a stock trading at over $7. And, of course, if it all comes together – higher.
Three insiders seem to be enthusiastic of the prospects with open market buys over the
last three months.
!.DISCOVERY OF MAJOR CHANGE FROM 4 CUSTOMERS TO OVER 100 IN THREE YEARS.
2.NEW HEALTHCARE VERTICAL ACCOUNTING FOR ONE-THIRD SALES, SURGING 135% YOY.
3.HIGHER MARGINS FROM NEW VERTICALS.
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