The following discussion and analysis should be read in conjunction with our Unaudited Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2008, and with the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2008.

Unless otherwise noted in this report, any description of "us" or "we" refers to StarTek, Inc. and our subsidiaries. Financial information in this report is presented in U.S. dollars.

BUSINESS DESCRIPTION AND OVERVIEW

StarTek is a provider of business process outsourcing services to the communications industry. We partner with our clients to meet their business objectives and improve customer retention, increase revenues and reduce costs through an improved customer experience. Our solutions leverage industry knowledge, best business practices, skilled agents, proven operational excellence and flexible technology. The StarTek comprehensive service suite includes customer care, sales support, complex order processing, accounts receivable management, technical support and other industry-specific processes. We operate our business within three

reportable segments, based on the geographic regions in which our services are rendered: (1) the U.S., (2) Canada and (3) the Philippines ("Offshore"). As of March 31, 2009, our U.S. segment included the operations of our thirteen facilities in the U.S.; our Canada segment included the operations of our five facilities in Canada; and our Offshore segment included the operations of our facility in Makati City, Philippines. As of March 31, 2008, there were fourteen, six and zero operating centers in the U.S., Canada and Offshore, respectively. We use gross profit as our measure of profit and loss for each business segment and do not allocate selling, general and administrative expenses to our business segments.

We endeavor to achieve site optimization at all of our locations by routinely evaluating site performance. If local economic conditions, prevailing wage rates, or other factors, negatively impact the long-term financial viability of a location, management will from time to time make the decision to close a facility. As a result, we may incur impairment losses or restructuring charges in connection with the closure. Likewise, management is continually in pursuit of opportunities to open new locations in economically viable geographic markets in order to improve profitability and grow the business.

SIGNIFICANT DEVELOPMENTS DURING THE THREE MONTHS ENDED MARCH 31, 2009

In February 2009, we closed our facility in Regina, Saskatchewan. The closure of our Regina facility was driven by market conditions, namely recruiting challenges in this location, which impacted the profitability of the site and management determined it was in our long-term interest to close the location. This closure resulted in approximately $2.3 million less revenue and $0.1 million less gross profit during the three months ended March 31, 2009 compared to March 31, 2008. We also incurred restructuring charges of approximately $4.4 million related to the closure, which is discussed in further detail below within Item 2, "Results of Operations - Three Months ended March 31, 2009 and March 31, 2008".

On February 25, 2009, we entered into an agreement to sell the assets of Domain.com, our wholly owned subsidiary, to A. Emmet Stephenson, Jr., Inc. ("Mr. Stephenson") in exchange for cash of $7.075 million. The assets of Domain.com consist of domain names, trademarks and corporation names. We conducted an auction for the assets and received bids from multiple parties, including Mr. Stephenson. Mr. Stephenson presented the highest bid, which represented the selling price, of $7.075 million and the sale was completed effective February 25, 2009. Mr. Stephenson is one of our co-founders, has managed the Domain.com subsidiary since 2006 and owns approximately 20% of our common shares outstanding. Because the transaction involves a related party, the Audit Committee of our Board of Directors considered and approved the transaction.

The results of operations and cash flows of Domain.com have been reported as discontinued operations.

RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2009 AND MARCH 31, 2008

The following table presents selected items from our Condensed Consolidated Statements of Operations in thousands of dollars and as a percentage of revenue for the periods indicated:

                                Three Months                   Three Months                 % change Q1
                               Ended March 31,     % of       Ended March 31,     % of      2008 to Q1
                                    2009          Revenue          2008          Revenue       2009
Revenue                       $          70,711     100.0 %  $          64,583     100.0 %          9.5 %
Cost of services                         59,988      84.8 %             55,116      85.2 %          8.8 %
Gross profit                             10,723      15.2 %              9,467      14.8 %         13.3 %
Selling, general and
administrative expenses                   9,692      13.7 %             10,090      15.6 %         -3.9 %
Impairment losses and
restructuring charges                     6,437       9.1 %                108       0.2 %       5860.2 %
Operating loss                           (5,406 )    -7.6 %               (731 )    -1.0 %        639.5 %
Net interest and other
(expense) income                            (75 )    -0.1 %                310       0.5 %       -124.2 %
Loss from continuing
operations before income
taxes                                    (5,481 )    -7.7 %               (421 )    -0.5 %       1201.9 %
Income tax benefit                       (1,493 )    -2.1 %                (18 )     0.0 %       8194.4 %
Net loss from continuing
operations                               (3,988 )    -5.6 %               (403 )    -0.5 %        889.6 %
Income from discontinued
operations, net of tax                    4,640       6.5 %                 72       0.1 %       6344.4 %
Net income (loss)             $             652       0.9 %  $            (331 )    -0.4 %        297.0 %

The following table summarizes our revenues and gross profit for the periods indicated, by reporting segment:

                            For the Three Months Ended March 31,
                              2009                         2008
                    (in 000s)    (% of Total)    (in 000s)    (% of Total)
United States:
Revenue            $    49,364           69.8 % $    39,958           61.9 %
Cost of services        40,567           67.6 %      31,952           58.0 %
Gross profit       $     8,797           82.0 % $     8,006           84.6 %
Gross profit %            17.8 %                       20.0 %

Canada:
Revenue            $    19,181           27.1 % $    24,625           38.1 %
Cost of services        17,435           29.1 %      23,164           42.0 %
Gross profit       $     1,746           16.3 % $     1,461           15.4 %
Gross profit %             9.1 %                        5.9 %

Offshore:
Revenue            $     2,166            3.1 % $         -            0.0 %
Cost of services         1,986            3.3 %           -            0.0 %
Gross profit       $       180            1.7 % $         -            0.0 %
Gross profit %             8.3 %

Revenue

Revenue increased by $6.1 million, or 9.5%, from $64.6 million in the first quarter of 2008 to $70.7 million in the first quarter of 2009. The increase was driven by the U.S. segment and the Offshore segment which increased by $9.4 million and $2.2 million, respectively. The increase in U.S. revenue was due to three new U.S. facilities added in 2008, offset by the closure of two U.S. facilities. The net impact of these openings and closings was $6.3 million in additional revenue. The remaining increase of $3.1 million at the remaining U.S. facilities was driven by an increase in the number of average full-time equivalent agents, which increased approximately 10.5% from the first quarter of 2008 to the first quarter of 2009. The offshore facility in Makati City, Philippines opened in September 2008, and as such did not contribute revenue during the first quarter of 2008. Of the $2.2 million of revenue generated from the Philippines during the first quarter of 2009, approximately $0.4 million related to one-time training revenue. Revenue from Canada decreased by $5.4 million in the first quarter of 2009 compared to 2008 due primarily to the closure of our Regina, Saskatchewan facility in February 2009 which had approximately $2.3 million less revenue in 2009 compared to 2008. In addition, revenue decreased by approximately $0.3 million due to changes in the foreign exchange rate between the U.S. dollar and Canadian dollar. The remainder of the decrease in the Canadian segment was due to a decrease in the number of average full-time equivalent agents, which decreased by approximately 15.2% in the first quarter of 2009 from the first quarter of 2008.

Cost of Services and Gross Profit

Cost of services increased by $4.9 million, or 8.8%, from $55.1 million in the first quarter of 2008 to $60.0 million in the first quarter of 2009. Cost of services in the U.S. increased by approximately $8.6 million, of which $6.1 million related to the net addition of new sites year over year, as discussed above. Cost of services at our other U.S. facilities also increased during the first quarter of 2009 compared to the first quarter of 2008 due to a greater number of agents, as described above. In addition, cost of services increased by approximately $2.0 million due to the Makati City, Philippines location. These increases to cost of services were offset by lower cost of services in Canada due in part to the closure of the Regina location, which accounted for $2.2 million of the decrease. Additionally, gross margin improved in Canada from the stronger U.S. to Canadian dollar exchange rate. Our effective exchange rate of Canadian to U.S. dollars, net of hedges, improved from 1.00 in the first quarter of 2008 to 1.11 in the first quarter of 2009 lowering our cost of services by approximately $2.0 million. The remaining decrease in the Canadian segment was due to fewer agents, as described above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $0.4 million, or 3.9%, from $10.1 million in the first quarter of 2008 to $9.7 million in the first quarter of 2009. The decline was due primarily to decreases in hiring and other personnel expense of approximately $0.3 million, decreased salaries of $0.3 million, lower commission expense of $0.2 million and less depreciation expense of $0.2 million. These decreases were partially offset by increases in legal expenses of approximately $0.2 million related to the negotiation of new customer contracts and greater bonus expense of $0.4 million.

Impairment Losses and Restructuring Charges

Impairment losses and restructuring charges were $6.4 million and $0.1 million for the three months ended March 31, 2009 and 2008, respectively. Restructuring charges were $4.7 million during the three months ended March 31, 2009, related primarily to the closure of our Regina, Saskatchewan facility in February 2009 for which we incurred approximately $4.4 million of charges. The costs relate primarily to the building lease costs through the remainder of the lease term, or July 2013. Accrued restructuring costs were valued using a discounted cash flow model and the cash flows consist of the future lease payment obligations required under the lease agreements and property taxes through the remainder of the lease term. We assumed that we would not sublease the vacant facilities for the remainder of the lease term. In the future, if we are able to sublease the facilities, we may be required to record a gain in the Condensed Consolidated Statements of Operations. The remainder of the restructuring charges during the first quarter of 2009 were due to adjustments in our estimated liability for our other restructuring plans. The restructuring charges in the first quarter of 2008 related to the closure of our Hawkesbury, Ontario facility in 2007.

We recorded approximately $1.7 million in impairment losses during the first quarter of 2009 due to the impairment of certain long-lived assets for which the carrying value of those assets is not recoverable. These assets are located in a facility for which we are uncertain about our ability to generate future cash flows to support the carrying value of these assets. The long-lived assets include computer and telephone equipment, furniture and fixtures, leasehold improvements and software.

Operating Loss

We incurred operating losses of approximately $5.4 million and $0.7 million for the three months ended March 31, 2009 and 2008, respectively. Operating loss as a percentage of revenue was (7.6%) for the three months ended March 31, 2009 compared to (1.0%) for the three months ended March 31, 2008. The decline was driven by increased impairment and restructuring charges and cost of services, partially offset by an increase in revenue and a decrease in selling, general and administrative costs, as discussed previously.

Net Interest and Other Income

Net interest and other expense was approximately $0.1 million during the first quarter of 2009, compared to net interest and other income of approximately $0.3 million in the first quarter of 2008. The change was due primarily to a decrease in interest income of approximately $0.5 million in the first quarter of 2009 compared to the first quarter of 2008 due to a decline in our investment balances, partially offset by less interest expense, which declined by approximately $0.1 million in the first quarter of 2009 compared to the first quarter of 2008.

Income Tax

The year-to-date effective tax rate for continuing operations increased from 4.3% during the three months ended March 31, 2008 to 27.2% during the three months ended March 31, 2009. The primary difference between the periods is a smaller impact from the change in the Canadian statutory tax rates in 2009 compared to 2008. Effective January 1, 2008, the Canadian statutory rate was

reduced from 22.1% to 19.5% for fiscal year 2008 and to 19.0% for fiscal year 2009. The rate will continue to decrease each year until it is 15.0% by 2012.

Income from Discontinued Operations

Income from discontinued operations was approximately $4.6 million during the first quarter of 2009 and approximately $0.1 million during the first quarter of 2008. In February 2009, we sold Domain.com, a wholly-owned subsidiary, for cash of approximately $7.1 million. We had a gain on the sale of approximately $6.9 million, less taxes of approximately $2.3 million.

Net Income (Loss)

Net income was $0.7 million during the first quarter of 2009 and net loss was approximately $0.3 million during the first quarter of 2008. The increase in net income was primarily due to income from discontinued operations and higher revenue, partially offset by impairment and restructuring charges and income taxes, as discussed previously.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2009, working capital totaled $56.7 million and our current ratio was 3.03:1, compared to working capital of $47.6 million and a current ratio of 2.58:1 at December 31, 2008. We have historically financed our operations, liquidity requirements, capital expenditures, and capacity expansion primarily through cash flows from operations, and to a lesser degree, through various forms of debt and leasing arrangements. In addition to funding basic operations, our primary uses of cash typically relate to capital expenditures to upgrade our existing information technologies and service offerings, investments in our facilities and, prior to 2007, the payment of dividends. We believe that cash flows from operations and cash provided by short-term borrowings, when necessary, will adequately meet our ongoing operating requirements and scheduled principle and interest payments on existing debt. Any significant future expansion of our business may require us to secure additional cash resources. Our liquidity could be significantly impacted by large cash requirements to expand our business or a decrease in demand for our services, particularly from any of our principal clients, which could arise from a number of factors, including, but not limited to, competitive pressures, adverse trends in the business process outsourcing market, industry consolidation, adverse circumstances with respect to the industries we service, and any of the other factors we describe more fully in the "Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2008.

                                                           Three Months Ended March 31,
                                                             2009               2008
                                                                  (in thousands)
Net cash provided by (used in):
Operating activities                                    $         4,855    $        (2,984 )
Investing activities                                             12,369             (4,616 )
Financing activities                                               (765 )              353
Effect of foreign exchange rates on cash                             57               (430 )
Net increase (decrease) in cash and cash equivalents    $        16,516    $        (7,677 )

Our balance of cash and cash equivalents was $26.1 million at March 31, 2009, compared to a balance of $9.6 million at December 31, 2008.

Operating Activities. Net cash provided by operating activities was $4.9 million for the three months ended March 31, 2009, an increase of approximately $7.9 million from cash used in operations of $3.0 million for the three months ended March 31, 2008. Net cash provided by operating activities from continuing operations was $7.2 million, or an increase of $10.2 million. Cash provided by operating activities increased by approximately $9.7 million for the three months ended March 31, 2009 compared to the same period in 2008 due to greater collections of accounts receivable. Our accounts receivable balance can change significantly period to period because the majority of our billings occur monthly with large customers, whereby, the timing of collections on those receivables can result in significant fluctuations in our accounts receivable balance. In addition, cash provided by operating activities increased by $3.2 million from larger accrued liabilities (primarily due to increased accrued restructuring costs). Refer to "Results from Operations - Three Months Ended March 31, 2009 and March 31, 2008" above for further information on the impairment losses and restructuring charges. These increases to cash provided by operating activities were partially offset by a $3.6 million increase in net loss from continuing operations, which included a $1.8 million non-cash impairment loss, and a decrease of $1.0 million in accounts payable due to the timing of purchases and payments.

Investing Activities. Net cash provided by investing activities was $12.4 million in the first quarter of 2009 compared to cash used in investing activities of $4.6 million in the first quarter of 2008. The increase was due to 1) proceeds from the sale of Domain.com of $7.1 million, 2) $2.7 million less purchases of property, plant and equipment because of no new site openings in the first quarter of

2009 compared to two in the first quarter of 2008 and 3) an increase in net proceeds from the sale of investments, net of purchases, of $7.2 million which was a result of a shift towards more conservative holdings of cash and cash equivalents.

Financing Activities. Net cash used in financing activities was $0.8 million in the first quarter of 2009, compared to net cash provided by financing activities of $0.4 million in the first quarter of 2008. The cash used in financing activities during the first quarter of 2009 was due primarily to payments on our borrowings. In 2008, we had net cash provided by financing activities due to net proceeds on our line of credit of $1.7 million, offset by $1.3 million of payments on our borrowings.

Contractual Obligations. Other than operating and capital leases for certain equipment, real estate and leases and commitments to purchase goods and services in the future, we have no off-balance sheet transactions, unconditional purchase obligations or similar instruments and we are not a guarantor of any other entities' debt or other financial obligations, other than our Canadian Dollar Secured Equipment Loan and the Secured Promissory Note, as described in our Annual Report on Form 10-K for the year ended December 31, 2008. We maintain a $10.0 million secured line of credit with Wells Fargo Bank, N.A. which we use to finance regular, short-term operating expenses. The line of credit expires June 30, 2009. We expect to renew the line of credit or replace it with other financing when this line of credit expires. There was no balance outstanding on this line of credit as of March 31, 2009. As of March 31, 2009, we were in compliance with our debt covenants.

During the three months ended March 31, 2009, there were no material changes in our contractual obligations. For a complete discussion of our contractual obligations as of December 31, 2008, see Item 7 "Contractual Obligations" in our Annual Report on Form 10-K for the year ended December 31, 2008.

Other Factors Impacting Liquidity. Effective November 4, 2004, our board of directors authorized purchases of up to $25.0 million of our common stock. The repurchase program will remain in effect until terminated by the board of directors and allows us to repurchase shares of our common stock from time to time on the open market, in block trades and in privately-negotiated transactions. Repurchases will be implemented by the Chief Financial Officer consistent with the guidelines adopted by the board of directors and will depend on market conditions and other factors. Any repurchases of shares will be made in accordance with Securities and Exchange Commission rules. We have not yet repurchased any shares pursuant to this board authorization.

Our business currently has a high concentration of a few principal clients. The loss of a principal client and/or changes in timing or termination of a principal client's product launch or service offering would have a material adverse effect on our business, liquidity, operating results, and financial condition. These client relationships are further discussed in Note 6 "Principal Clients," to our Condensed Consolidated Financial Statements, which are included at Item 1, "Financial Statements," of this Form 10-Q. To limit our credit risk, management from time to time will perform credit evaluations of our clients. Although we are directly impacted by the economic conditions in which our clients operate, management does not believe substantial credit risk existed as of March 31, 2009. Refer to Item 1A. "Risk Factors" appearing in our Annual Report on Form 10-K for the year ended December 31, 2008 for further information regarding these risks.

As of March 31, 2009, we had approximately $2.0 million invested in corporate debt securities. There is a risk that if those companies in which we are invested suffer due to economic conditions or other reasons, we could realize losses on these investments which could impact our liquidity. We do not currently consider any declines in fair value to be other-than-temporary that have not been recognized in our Condensed Consolidated Statements of Operations.

There is a risk that the counterparties to our hedging instruments could suffer financial difficulties due to economic conditions or other reasons and we could realize losses on these arrangements which could impact our liquidity. However, we do not believe we are exposed to more than a nominal amount of credit risk in our derivative hedging activities, as the counterparties are established, well-capitalized financial institutions.

Although management cannot accurately anticipate the effects of domestic and foreign inflation on our operations, management does not believe inflation has had, or is likely in the foreseeable future to have, a material adverse effect on our results of operations or financial condition.

Variability of Operating Results. Our business has been seasonal only to the extent that our clients' marketing programs and product launches are geared toward the winter holiday buying season. We have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors, many of which are outside our control, including: (i) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients; (ii) changes in the volume of services provided to principal clients; (iii) expiration or termination of client projects or contracts; (iv) timing of existing and future client product launches or service offerings; (v) seasonal nature of certain clients' businesses; and (vi) cyclical nature of certain clients' businesses.

Because we service relatively few, large clients, the availability of cash is highly dependent on the timing of cash receipts from accounts receivable. As a result, from time to time, we borrow cash from our line of credit to cover short-term cash needs. These borrowings are typically outstanding for a short period of time before they are repaid. However, our debt balance can fluctuate significantly during any given quarter as part of our ordinary course of business. Accordingly, our debt balance at the end of any given quarter is not necessarily indicative of the debt balance at any other time during that period.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management must undertake decisions that impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions upon which accounting estimates are based. Management applies its best judgment based on its understanding and analysis of the relevant circumstances to reach these decisions. By their nature, these judgments are subject to an inherent degree of uncertainty. Accordingly, actual results may vary significantly from the estimates we have applied.

Our critical accounting policies and estimates are consistent with those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008. Please refer to Item 7, "Management's Discussion and Analysis of . . .