StarTek, Inc.

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StarTek, Inc.

100 Garfield Street
Denver, Colorado 80206
U.S.A.
Telephone: (303) 399-2400
Fax: (303) 388-9970
Web site: http://www.startek.com

Public Company
Founded: 1987 as StarPak, Inc.
Employees: 6,700
Sales: $216.4 million (2005) Stock Exchanges: New York Ticker Symbol: SRT
NAIC: 561499 All Other Business Support Services

Denver-based StarTek, Inc. provides process management outsourcing services to major corporations in the telecommunications and computer industries, including supply chain management, provisioning management, customer care, product and technical support, and e-commerce fulfillment. The public company, listed on the New York Stock Exchange, maintains 20 North American operational facilities, seven of which are located in Canada. StarTek also owns Domain.com, a subsidiary that owns a number of Internet domain names, including wedding.com and airlines.com.

ORIGINS

StarTek was cofounded by Arthur Emmet Stephenson, Jr. He was born in Louisiana in 1945, the son of a businessman, Arthur Emmet Stephenson, Sr., who owned real estate, an automobile dealership, a manufacturing company, and a bank. The younger Stephenson was exposed to the world of commerce at an early age. By 12 he was sitting in on bank board meetings with his father. As he recalled later in life, "It never occurred to me to do anything other than start my own business." He graduated first in his class at Louisiana State University, receiving a bachelor's degree in finance in 1967, and while at LSU spent some time in Washington, D.C., working as an administrative aide to U.S. Senator Russell Long. Stephenson then entered Harvard Business School, earning a Master's of Business Administration two years later. During his time in Boston he picked up some practical business experience by serving as a security analyst for Fidelity Funds. After graduating from Harvard, he went into business for himself, eventually launching a dozen companies, one of which was StarTek.

StarTek was founded as StarPak, Inc. in 1987 by Stephenson, who provided the money, and Michael W. Morgan, 15 years younger, who provided the expertise. Like Stephenson, Morgan got an early start in business. When he was just 12 he made a successful bid to service his father's arcade business. Later he worked in a variety of jobs, including sign painting and the training of Arabian horses. He also became involved in a venture in California that packaged and distributed software. When that business shut down, he recognized that the trend of downsizing in the software publishing industry would open up an opportunity for a company to provide software packaging and distribution services on an out-sourcing basis. Stephenson put up the money and Morgan did the legwork in setting up the business in Greeley, Colorado. In 1990 Morgan became president and chief executive officer, and Stephenson served as chairman of the board.

Initially, StarPak duplicated customers' software, packaged it, and shipped it. The company soon moved toward offering complete product fulfillment. In 1989 a phone order service was added, followed in 1991 by technical support services. Corporate customers included Federal Express, IBM, Hewlett-Packard, and Sony. Work was done out of a pair of Greeley sites, a former health club and a former mobile-home factory. As the business expanded in the 1990s, StarPak bought the old Western Electric building in nearby Aurora, Colorado. A 1996 Denver Post article offered a glimpse of the way the business worked, using a CD-ROM commemorating Ohio State University's football history as an example. The independent software company "promotes the CD with a telephone number that rings in one of StarPak's Greeley buildings. The consumer pays for the disk by credit card and as the order is entered, a mailing label is printed, the disk is pulled from inventory and can be shipped within hours." For software that required technical support, StarPak trained people to provide help via toll-free telephone lines.

StarPak opened a facility in Singapore and gained a foothold in the European market by establishing a subsidiary in the United Kingdom. During the mid-1990s, StarPak also branched into the Internet field. Subsidiary Domain.com was formed and the company secured the rights to some three dozen web site addresses, paying $50 apiece. Stephenson kept the web site names close to the vest, but some of his favorites were gifts.com, wedding.com, and airlines.com. He also bided his time looking for partners to commercialize the sites, convinced that by having the right domain name a company did not have to spend nearly as much money in building the brand. According to a 1999 Wall Street Journal article, "That logic hasn't been lost on others pursuing Internet entry. I've been offered millions for some of these names, well into seven figures for some of them."

1996 IPO

StarPak's revenues grew steadily in the early 1990s, totaling $23 million in 1993 and increasing to $71.6 million in 1996. On December 30, 1996, Stephenson incorporated StarTek, Inc. in Delaware and two days later it acquired StarPak in preparation for taking the business public. With Morgan Stanley & Co. and Donaldson, Lufkin & Jenrette Securities Corp. serving as underwriters, the initial public offering (IPO) of stock, priced at $15 per share, netted the company more than $40 million. Nearly $10 million of that amount was earmarked to pay down debt, another $5.5 million repaid Stephenson, and more than $31 million became working capital to support StarTek's strong growth. In 1997 some of that money would be put to use in building a new Colorado facility and expanding the United Kingdom operation. When its first year as a public company was completed, StarTek reported a 25 percent increase in revenues to $89.1 million, and a 51 percent increase in net income to $5.9 million.

Expansion continued for the rest of the 1990s. StarTek brought three more new facilities into operation in 1998. The largest was a 305,000-square-foot manufacturing and distribution center that opened in Clarksville, Tennessee. StarTek also opened a 35,000square-foot, state-of-the-art call center in Greeley, and a similar high-tech call center in Laramie, Wyoming. Three additional operations were opened in 1999. A 46,000-square-foot facility was built in Grand Junction, Colorado, to serve Internet, software, and communications clients. A 30,000-square-foot building was opened in Big Spring, Texas, to bolster StarTek's Internet support services. In addition, to keep pace with its rapidly growing provisioning management and E-commerce support operations, StarTek bought an 88,000-squarefoot building in Greeley.

COMPANY PERSPECTIVES

Our Company mission is to provide our clients and their customers with the highest level of professionalism and service as we continue to find innovative ways to grow and improve profitability and shareholder value in a dynamic and fun environment.

On another front in 1999, StarTek found a partner for its gifts.com web site, creating a joint venture, Gifts. com, Inc., with The Reader's Digest Association, Inc., which took an 80.1 percent stake, leaving StarTek with a 19.9 percent interest. The site was launched in the fall of 1999. After the announcement of the Reader's Digest alliance, the price of StarTek's stock jumped from $37 to $55 a share, an improvement even more dramatic given that shares were trading in the $8 range just a year earlier. About the only concern investors had was Star Tek's increasing reliance on business from Microsoft, which accounted for about three-quarters of its business. The company maintained, however, that it did business with a dozen different, independent Microsoft units, so that it was not likely to lose that entire amount of business in one stroke. The situation also was mitigated because in 1999 StarTek began doing work for another giant corporation, AT&T. StarTek closed the 1990s very much on the upswing, topping the $200 million mark in revenues in 1999 and posting net income of $13 million, a 52 percent increase over the prior year.

In the year 2000, StarTek experienced a slight decline in revenues, but net income improved 49 percent to $19.4 million due to improved efficiencies and a better mix of services. The company gained membership in the Russell 2000 Index and the Standard and Poor's 600 Small Cap Index. Moreover, in May 2000 Business Week recognized StarTek as one of the nation's 100 fastest-growing small companies, and later in the year Fortune magazine listed it among its fastest-growing companies as well, ranking it number 73. The year also saw the opening of two more facilities. A 48,000-square-foot building for technical support/customer care was opened in Enid, Oklahoma. StarTek's provisioning management operations also were strengthened with the addition of a new 54,000-square-foot facility in Grand Junction, Colorado. Furthermore, in 2000 StarTek struck a deal with WeddingChannel.com to exploit the wedding.com domain site.

StarTek expanded into Canada in 2001, opening three facilities—two in Kingston, Ontario, and a third in Cornwall, Ontario—and hiring and training 1,000 employees to provide call center support. But the year was the most challenging one the company faced since the early days. The economy began to sag, and then the terrorist attacks of September 11, 2001, severely impacted business for several days. Uncertain of demand for its services, the company kept its call centers fully staffed but realized little revenue during this time. When the accounting on the year was completed, Startek experienced a 9 percent drop in revenues in 2001 to $182.6 million, and net income fell to $4.9 million. The year also brought changes at the top ranks of management. StarTek's chief financial officer, Dennis Swenson, retired, and cofounder Morgan retired as president and CEO, although he stayed on as vice-chairman. He was succeeded by William E. Meade, Jr., who had a dozen years of experience with the American Express Company, where he rose to the rank of senior vice-president of Business Development and Global Operations and was involved in a number of strategic, planning, and re-engineering programs. After leaving American Express he became CEO of WebMiles, Inc. Another major addition to StarTek's management ranks was Michael Burke, hired as senior vice-president of Marketing and Sales.

CHANGING FOCUS IN THE EARLY 21ST CENTURY

Meade and Burke were brought in to help StarTek adapt its business model and marketing approach to a changing world. In particular, the company began to place even greater emphasis on outsourcing, which it considered to be a growth sector. Meade explained to Customer Inter@ction Solutions, "In the post-9/11 world, budgets have been cut, but we foresee that in 2003 companies are going to even more closely examine what their core competencies are, which means continued growth in outsourcing." Meade also forged an alliance with Novantas, a New York-based management consulting firm, serving industries such as finance, energy, publishing, and technology. Novantas used proprietary technology, such as Mindswift software, to help companies' call center personnel to test a variety of dialogue strategies to determine the best way to converse with a customer. Through the partnership agreement, Novantas gained StarTek's call center capabilities, while StarTek was able to enter some new industries and make available additional consulting options to its clients.

KEY DATES

1987:: The company is founded as StarPak, Inc. by Arthur Emmet Stephenson, Jr., and Michael W. Morgan.
1989:: Phone order service is added.
1991:: Technical support services are added.
1996:: StarTek, Inc. is incorporated.
1997:: StarTek acquires StarPak, and is taken public.
2001:: Morgan resigns as CEO.
2006:: Stephenson retires as chairman.

In general, Startek enjoyed a bounce-back year in 2002. Revenues increased to $207.9 million and net income more than doubled to $10.3 million. Business was even better in 2003. Revenues increased to a record $231.2 million, and net income approached $22.2 million. The trend continued early in 2004, and sales for the year reached the $250 million mark for the first time. The company even opened three new process outsourcing call centers to meet increased demand, located in Alexandria, Louisiana, and Lynchburg and Collinsville, Virginia. However, problems also began to develop, as the company lost volume in some of its more profitable services. The price of StarTek's stock suffered and the company began taking action. In order to focus its resources on the North American business process outsourcing market, StarTek chose in 2004 to sell its U.K. supply chain management operations. Business continued to slip in early 2005 and in February 2005, the company began laying off employees. The Greeley Tribune reported that the company had "security guards on Feb. 10 escort employees to their cars after suddenly laying them off." A week later Meade resigned. According to the Rocky Mountain News, he was "unexpectedly ousted." When the first quarter numbers were released several weeks later, it was revealed that StarTek had experienced a 14.2 percent decline in sales over the same period the prior year.

Chief Financial Officer Steve Butler took over as CEO on an interim basis and began the process of getting costs and headcounts in line with the current economic reality. In June he was named the permanent chief executive. By the end of 2005 he completed the sale of the company's Supply Chain Management Services platform, as StarTek now elected to focus on its Business Process Management Services platform. For the year, StarTek reported sales of $216.4 million and net income of $12.8 million. Changes continued in 2006, highlighted by Stephenson's retirement as of the end of May.