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STARTEK Reports Second Quarter 2018 Results

August 7, 2018

GREENWOOD VILLAGE, Colo.--(BUSINESS WIRE)--Aug 7, 2018--Startek, Inc. (NYSE:SRT), a global provider of business process outsourcing services, is reporting financial results for the second quarter ended June 30, 2018, and providing an update on its recently completed strategic combination with Aegis.

Startek Second Quarter 2018 Summary (vs. year-ago quarter)

Total revenue was $59.7 million compared to $74.0 million. Gross profit was $5.2 million compared to $9.0 million, with gross margin of 8.8% compared to 12.1%. Net loss was $3.7 million or $(0.23) per share, compared to net income of $0.6 million or $0.03 per share. Adjusted EBITDA* was $0.7 million compared to $4.4 million.

Subsequent Event: Key Highlights of Combination with Aegis

On July 20, 2018, Startek completed its strategic combination with Capital Square Partners (CSP) portfolio company, Aegis, to create a global BPO platform with differentiation, scale and a diverse customer base Combined 2017 revenue of approximately $700 million and adjusted EBITDA of approximately $50 million Top three customers now represent less than 30% of total revenue compared to 53% for Startek in 2017. Synergies expected to drive incremental $30 million in EBITDA by 2020 through enhanced revenue growth and cost savings. Startek shareholders own approximately 45% of the combined company, while CSP owns approximately 55%.

Management Commentary

“The combination of STARTEK and Aegis has created a truly global platform with more than 50,000 employees operating in 13 countries and servicing six continents,” said Lance Rosenzweig, president & global CEO of Startek. “This provides unprecedented benefits to all stakeholders, including clients, shareholders and employees.

“Our clients will reap the benefit of our global reach and access to new markets, multi-lingual offerings and technology-led innovations. Our shareholders can expect the diversification of our client base, added scale and operational synergies to enhance margins and profitability, while providing considerable cross-sell opportunities to accelerate growth. And our employees will now become part of an even larger organization with vast opportunities for professional development.

“The timing of this combination was also important given the challenges to Startek’s business over the last year. In the second quarter, the company continued to work through lower volumes and lost programs from its top wireless clients, which impacted both revenue and profitability. The wireless industry continues to face disruption, which has resulted in a rapidly evolving environment for service providers. These soft volumes were partially offset by strong growth from cable/media and retail clients, as well as the early benefit of ramping one of the large, strategic client wins announced earlier in the year. Going forward, we expect our combined business to be much less volatile, as no one client will represent more than 10% of revenue.

“We still have plenty of work ahead to replace the lost wireless programs and to integrate talent, experience, products and services across the combined organization. It will take several quarters to realize the benefits of our new global scale and footprint. Nevertheless, I strongly believe that our combined resources will enable world-class customer support for clients and produce operational synergies throughout the organization, which will drive growth and enhance profitability down the road. The opportunities ahead for Startek are just beginning, and I look forward to leading the team and all stakeholders into this next chapter of growth.”

Second Quarter 2018 Financial Results

Total revenue in the second quarter was $59.7 million compared to $74.0 million in the year-ago quarter. The decrease was primarily due to lower call volumes and lost programs from the company’s wireless clients, partially offset by new business and growth from existing clients.

Gross margin in the second quarter was 8.8% compared to 12.1% in the year-ago quarter, with the decline primarily due to the aforementioned lower wireless volumes and lost programs, as well as discounted training related to on-boarding a new client.

Selling, general and administrative (SG&A) expenses were $7.0 million compared to $8.2 million in the year-ago quarter. As a percentage of revenue, SG&A was 11.7% compared to 11.0%.

Net loss for the second quarter was $3.7 million or $(0.23) per share, compared to net income of $0.6 million or $0.03 per share in the year-ago quarter. Adjusted net loss* in the second quarter was $2.2 million compared to adjusted net income of $1.0 million.

Adjusted EBITDA* in the second quarter was $0.7 million compared to $4.4 million in the year-ago quarter. The decline was primarily due to the aforementioned factors impacting revenue and gross margin.

At June 30, 2018, the company’s cash position was $1.3 million compared to $1.5 million at December 31, 2017. Startek closed the quarter with a $27.7 million balance on its $50 million credit facility compared to $19.1 million outstanding at December 31, 2017.

*A non-GAAP measure defined below

Conference Call and Webcast Details

Startek management will hold a conference call today at 4:30 p.m. Eastern time to discuss its second quarter 2018 results and recently completed strategic combination with Aegis. The conference call will be followed by a question and answer period.

Date: Tuesday, August 7, 2018 Time: 4:30 p.m. Eastern time (2:30 p.m. Mountain time) Toll-free dial-in number: (844) 239-5283 International dial-in number: (574) 990-1022 Conference ID: 1739269

During the call, Startek management will refer to a supplementary slide presentation, which will be available for download in the Investors section of the company’s website.

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 (949) 574-3860.

The conference call will also be broadcast live and available for replay here.

A replay of the conference call will be available after 7:30 p.m. Eastern time on the same day through August 14, 2018.

Toll-free replay number: (855) 859-2056 International replay number: (404) 537-3406 Replay ID: 1739269

About Startek

Startek is a leading global provider of Customer Experience Management through business process outsourcing (BPO) services and technology services to corporations across a range of industries. Operating under the Startek and Aegis brands, the company has more than 50,000 support experts across 66 contact center locations worldwide that are committed to enhancing the customer experience for clients. This is accomplished through a variety of multi-channel customer interactions, including voice, chat, email and IVR. The company also provides sales support, order processing, receivables management and social media analytics to power superior business results for its clients. To learn more about Startek’s global solutions, 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, difficulties with the successful integration and realization of the anticipated benefits or synergies from the Aegis transaction, and the risk that the consummation of the transaction could have an adverse effect on Startek’s ability to retain customers and retain and hire key personnel. 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, 2017 filed with the SEC and in other filings with the SEC, for further information on risks and uncertainties that could affect Startek’s business, financial condition and results of operation. Startek assumes no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date herein.

STARTEK, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP MEASURES (In thousands) (Unaudited)

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