StarTek, Inc. Reports Second Quarter Results.

Continued Improvement Toward Growth and Profitability Plan

DENVER -- StarTek, Inc. (NYSE:SRT) today announced results for the second quarter of 2007. Revenue for the second quarter was $58.8 million, an increase of 2.1% from the first quarter of 2007, with a net loss of $3.4 million, or $0.23 per diluted share. The results were negatively affected by a decline in foreign currency exchange rates. In addition, the Company booked one-time non-cash charges for the impairment of assets and a tax valuation allowance. Cash and investments increased $8.3 million for the quarter to $43.7 million, due mainly to working capital improvements.

Financial Results

Revenue for the second quarter of 2007 increased $1.2 million or 2.1% over the first quarter of 2007 to $58.8 million. Most of the growth was attributable to increased business from current clients and improved pricing terms with two significant clients. Compared to the second quarter of 2006, revenue was down $0.7 million or 1.2%. This was driven by the temporary closing of the Petersburg facility and lower FTE due to continued staffing pressures, partially offset by new business, improved pricing, and productivity.

Gross margin for the second quarter of 2007 was 14.5% compared to 15.5% in the first quarter of 2007. After adjusting for the $0.8 million effect of foreign currency exchange, gross margin improved to 15.9%. This adjusted margin improvement was primarily due to improved pricing terms from two existing clients and productivity gains. Compared to the second quarter of 2006, gross margin improved from 13.8%.

Operating loss for the second quarter was $0.5 million, basically unchanged from the first quarter of 2007. Selling, general and administrative expense for the quarter decreased from $9.4 million to $9.0 million. After adjusting the first quarter for a one-time $0.8 million severance charge, selling, general and administrative expense actually increased in the second quarter by $0.4 million due to increases in corporate staffing and human resources spending. Normalizing for the impact of foreign currency exchange and severance charges, adjusted operating income for the second quarter was $0.33 million, a slight improvement from the first quarter adjusted operating income of $0.30 million.

While second quarter operating income was comparable to the first quarter, the net loss and loss per diluted share for the second quarter were $3.4 million and $0.23 respectively. This compares to the prior quarter net loss of $0.2 million and loss per diluted share of $0.01. The second quarter results included three non-cash charges: a $1.7 million impairment related to software projects; a $1.3 million impairment of leasehold improvements relating to the closing of the Hawkesbury, Ontario facility; and a $1.8 million tax valuation allowance affecting tax rates which was established against capital loss carryforwards that management does not believe will be offset by future capital gains prior to their expiration.