Description

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

organic growth.

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.

````

Catalyst

!.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.