StarTek, Inc. Reports a 17% Increase in Revenue As Two More New Call Centers Go Live

StarTek, Inc. reported second quarter 2006 fully diluted earnings per share from continuing operations of $0.06. Fully diluted earnings per share from continuing operations for the same period in 2005 were $0.18.

Revenue for the second quarter of $59.5 million represented an increase of 17% over the same period in the previous year. New clients added since the second quarter of 2005 drove this increase, contributing $9.4 million to revenue during the quarter. These new clients also lessened StarTek’s revenue concentration as the Company’s two largest clients represented 66% of revenue during the second quarter of 2006, versus 78% during the same period of 2005. The Company also continued to expand its value-added services by launching two new business solutions during the quarter aimed at further diversifying its revenue base.

Gross margin declined from 22% to 14%. The majority of this decline was the result of costs attributable to greater than anticipated employee turnover in certain of our U.S. sites as well as the opening and ramping of two new call centers in Ontario, Canada during the second quarter. The ongoing strengthening of the Canadian dollar versus the U.S. dollar contributed approximately $1.3 million to the decline in margin. Lower volumes from our largest client as well as increased numbers of agents in training in many of our sites also negatively impacted second quarter gross margin.

“Launching three new call centers and ramping personnel to service three new clients over a six-month period had a significant impact on our margins, as we had anticipated,” said Steve Butler, President and CEO of StarTek. “However, we are encouraged by the double-digit revenue growth that occurred in the second quarter primarily as a result of these new call centers and new clients. During the quarter we also broadened our service offerings to include Intelligent Enterprise, a suite of complex management services targeted at communications, financial services and healthcare organizations and a solution to provide support for emerging consumer-driven health care plans. This is a manifestation of our continuing efforts to focus on the long-term success of StarTek as we position the Company for future growth and revenue diversification.”

Selling, general and administrative expenses increased $0.9 million during the second quarter of 2006 due to increased legal expenses and costs associated with support of three new call centers placed into service during the first half of 2006. As a percentage of revenue, selling, general and administrative costs declined from 12.8% in the second quarter of 2005 to 12.4% in the same period of 2006. Net interest and other income increased $0.9 million due to losses incurred in the previous year as we repositioned our portfolio investments to be in line with a new investment policy. Net income from continuing operations for the second quarter declined to $0.8 million in 2006 from $2.7 million in 2005.

The Board of Directors declared a quarterly dividend of $0.25 per share, payable on August 24, 2006, to our stockholders of record as of August 14, 2006.