UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberJune 30, 20172021
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ____________ to ____________
Commission File No. 0-28274
Sykes Enterprises, Incorporated
(Exact name of Registrant as specified in its charter)
Florida | 56-1383460 | |
(State or other jurisdiction of incorporation or organization) | ( |
400 North Ashley Drive, Suite 2800, Tampa, FL 33602
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (813)274-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.01 par value | SYKE | NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 229.405232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||
Emerging growth company | ☐ |
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
Yes ☐ No ☒
As of October 19, 2017,July 15, 2021, there were 42,897,52639,797,116 outstanding shares of common stock.
Sykes Enterprises, Incorporated and Subsidiaries
Form10-Q
INDEX
3 | ||||||
Item 1. | 3 | |||||
3 | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 9 | |||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||
30 | ||||||
41 | ||||||
Item 4. | 42 | |||||
42 | ||||||
42 | ||||||
Item 1A. | 42 | |||||
Item 2. | ||||||
44 | ||||||
44 | ||||||
44 | ||||||
44 | ||||||
45 | ||||||
46 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share data) | September 30, 2017 | December 31, 2016 | June 30, 2021 |
|
| December 31, 2020 |
| ||||||||
Assets |
|
|
|
|
|
|
| ||||||||
Current assets: |
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | $ | 328,166 | $ | 266,675 | $ | 103,209 |
|
| $ | 103,077 |
| ||||
Receivables, net | 342,640 | 318,558 | |||||||||||||
Receivables, net of allowance of $4.8 million and $4.8 million, respectively |
| 418,105 |
|
|
| 415,746 |
| ||||||||
Prepaid expenses | 20,848 | 21,973 |
| 22,690 |
|
|
| 21,348 |
| ||||||
Other current assets | 16,930 | 16,030 |
| 22,802 |
|
|
| 19,718 |
| ||||||
|
| ||||||||||||||
Total current assets | 708,584 | 623,236 |
| 566,806 |
|
|
| 559,889 |
| ||||||
Property and equipment, net | 159,959 | 156,214 |
| 116,797 |
|
|
| 121,084 |
| ||||||
Operating lease right-of-use assets |
| 132,032 |
|
|
| 158,866 |
| ||||||||
Goodwill, net | 269,028 | 265,404 |
| 299,669 |
|
|
| 299,409 |
| ||||||
Intangibles, net | 145,543 | 153,055 |
| 227,891 |
|
|
| 233,975 |
| ||||||
Deferred charges and other assets | 29,566 | 38,494 |
| 63,249 |
|
|
| 62,582 |
| ||||||
|
| $ | 1,406,444 |
|
| $ | 1,435,805 |
| |||||||
$ | 1,312,680 | $ | 1,236,403 | ||||||||||||
|
| ||||||||||||||
Liabilities and Shareholders’ Equity | |||||||||||||||
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
| ||||||||
Current liabilities: |
|
|
|
|
|
|
| ||||||||
Accounts payable | $ | 26,851 | $ | 29,163 | $ | 30,277 |
|
| $ | 32,049 |
| ||||
Accrued employee compensation and benefits | 106,681 | 92,552 |
| 138,810 |
|
|
| 147,212 |
| ||||||
Income taxes payable | 1,252 | 4,487 |
| 1,745 |
|
|
| 3,521 |
| ||||||
Deferred revenue | 43,330 | 38,736 | |||||||||||||
Deferred revenue and customer liabilities |
| 24,270 |
|
|
| 24,802 |
| ||||||||
Operating lease liabilities |
| 48,321 |
|
|
| 55,928 |
| ||||||||
Other accrued expenses and current liabilities | 37,330 | 37,919 |
| 36,401 |
|
|
| 31,994 |
| ||||||
|
| ||||||||||||||
Total current liabilities | 215,444 | 202,857 |
| 279,824 |
|
|
| 295,506 |
| ||||||
Deferred grants | 3,381 | 3,761 | |||||||||||||
Long-term debt | 267,000 | 267,000 |
| 23,000 |
|
|
| 63,000 |
| ||||||
Long-term income tax liabilities | 2,578 | 19,326 |
| 19,607 |
|
|
| 21,586 |
| ||||||
Long-term operating lease liabilities |
| 100,342 |
|
|
| 126,336 |
| ||||||||
Other long-term liabilities | 21,824 | 18,937 |
| 39,028 |
|
|
| 35,723 |
| ||||||
|
| ||||||||||||||
Total liabilities | 510,227 | 511,881 |
| 461,801 |
|
|
| 542,151 |
| ||||||
|
|
|
|
|
|
|
|
| |||||||
Commitments and loss contingencies (Note 11) |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| |||||||||
Commitments and loss contingency (Note 14) | |||||||||||||||
Shareholders’ equity: | |||||||||||||||
Preferred stock, $0.01 par value per share, 10,000 shares authorized; no shares issued and outstanding | - | - | |||||||||||||
Common stock, $0.01 par value per share, 200,000 shares authorized; 42,895 and 42,895 shares issued, respectively | 429 | 429 | |||||||||||||
Shareholders' equity: |
|
|
|
|
|
|
| ||||||||
Preferred stock, $0.01 par value per share, 10,000 shares authorized; 0 shares issued and outstanding |
| — |
|
|
| — |
| ||||||||
Common stock, $0.01 par value per share, 200,000 shares authorized; 39,797 and 39,614 shares issued, respectively |
| 398 |
|
|
| 396 |
| ||||||||
Additionalpaid-in capital | 279,271 | 281,357 |
| 303,065 |
|
|
| 298,037 |
| ||||||
Retained earnings | 563,879 | 518,611 |
| 687,158 |
|
|
| 639,000 |
| ||||||
Accumulated other comprehensive income (loss) | (38,997 | ) | (67,027 | ) |
| (42,786 | ) |
|
| (40,999 | ) | ||||
Treasury stock at cost: 121 and 362 shares, respectively | (2,129 | ) | (8,848 | ) | |||||||||||
Treasury stock at cost: 144 and 135 shares, respectively |
| (3,192 | ) |
|
| (2,780 | ) | ||||||||
Total shareholders' equity |
| 944,643 |
|
|
| 893,654 |
| ||||||||
|
| $ | 1,406,444 |
|
| $ | 1,435,805 |
| |||||||
Total shareholders’ equity | 802,453 | 724,522 | |||||||||||||
|
| ||||||||||||||
$ | 1,312,680 | $ | 1,236,403 | ||||||||||||
|
|
See accompanying Notes to CondensedConsolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(in thousands, except per share data) | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenues | $ | 448,885 |
|
| $ | 416,833 |
|
| $ | 906,771 |
|
| $ | 827,999 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct salaries and related costs |
| 292,086 |
|
|
| 268,433 |
|
|
| 591,563 |
|
|
| 535,378 |
|
General and administrative |
| 110,924 |
|
|
| 102,664 |
|
|
| 220,551 |
|
|
| 205,911 |
|
Depreciation, net |
| 12,809 |
|
|
| 12,630 |
|
|
| 25,924 |
|
|
| 25,091 |
|
Amortization of intangibles |
| 2,959 |
|
|
| 4,093 |
|
|
| 5,946 |
|
|
| 8,212 |
|
Impairment of long-lived assets |
| 386 |
|
|
| 1,800 |
|
|
| 1,536 |
|
|
| 1,800 |
|
Total operating expenses |
| 419,164 |
|
|
| 389,620 |
|
|
| 845,520 |
|
|
| 776,392 |
|
Income from operations |
| 29,721 |
|
|
| 27,213 |
|
|
| 61,251 |
|
|
| 51,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| 103 |
|
|
| 165 |
|
|
| 201 |
|
|
| 428 |
|
Interest (expense) |
| (382 | ) |
|
| (560 | ) |
|
| (805 | ) |
|
| (1,280 | ) |
Other income (expense), net |
| 92 |
|
|
| 1,797 |
|
|
| (230 | ) |
|
| (2,996 | ) |
Total other income (expense), net |
| (187 | ) |
|
| 1,402 |
|
|
| (834 | ) |
|
| (3,848 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
| 29,534 |
|
|
| 28,615 |
|
|
| 60,417 |
|
|
| 47,759 |
|
Income taxes |
| 6,354 |
|
|
| 6,385 |
|
|
| 12,259 |
|
|
| 11,611 |
|
Net income | $ | 23,180 |
|
| $ | 22,230 |
|
| $ | 48,158 |
|
| $ | 36,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.58 |
|
| $ | 0.55 |
|
| $ | 1.21 |
|
| $ | 0.89 |
|
Diluted | $ | 0.58 |
|
| $ | 0.55 |
|
| $ | 1.21 |
|
| $ | 0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| 39,779 |
|
|
| 40,318 |
|
|
| 39,711 |
|
|
| 40,726 |
|
Diluted |
| 39,942 |
|
|
| 40,380 |
|
|
| 39,951 |
|
|
| 40,857 |
|
See accompanying Notes to CondensedConsolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(in thousands) | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income | $ | 23,180 |
|
| $ | 22,230 |
|
| $ | 48,158 |
|
| $ | 36,148 |
|
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
| 1,511 |
|
|
| 8,311 |
|
|
| (2,952 | ) |
|
| (13,039 | ) |
Unrealized gain (loss) on cash flow hedging instruments, net of taxes |
| 186 |
|
|
| (253 | ) |
|
| 1,177 |
|
|
| (1,595 | ) |
Unrealized actuarial gain (loss) related to pension liability, net of taxes |
| (5 | ) |
|
| 16 |
|
|
| (12 | ) |
|
| (1 | ) |
Unrealized gain (loss) on postretirement obligation, net of taxes |
| — |
|
|
| (22 | ) |
|
| — |
|
|
| (44 | ) |
Other comprehensive income (loss), net of taxes |
| 1,692 |
|
|
| 8,052 |
|
|
| (1,787 | ) |
|
| (14,679 | ) |
Comprehensive income (loss) | $ | 24,872 |
|
| $ | 30,282 |
|
| $ | 46,371 |
|
| $ | 21,469 |
|
See accompanying Notes to CondensedConsolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
| Common Stock |
|
| Additional |
|
|
|
|
|
| Accumulated Other |
|
|
|
|
|
|
|
|
| |||||||
(in thousands) | Shares Issued |
|
| Amount |
|
| Paid-in Capital |
|
| Retained Earnings |
|
| Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total |
| |||||||
Balance at December 31, 2020 |
| 39,614 |
|
| $ | 396 |
|
| $ | 298,037 |
|
| $ | 639,000 |
|
| $ | (40,999 | ) |
| $ | (2,780 | ) |
| $ | 893,654 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 4,751 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,751 |
|
Issuance of common stock under equity award plans, net of forfeitures |
| 241 |
|
|
| 2 |
|
|
| 287 |
|
|
| — |
|
|
| — |
|
|
| (289 | ) |
|
| — |
|
Shares withheld for taxes paid related to net share settlement of equity awards |
| (76 | ) |
|
| (1 | ) |
|
| (3,440 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,441 | ) |
Comprehensive income (loss) |
| — |
|
|
| — |
|
|
| — |
|
|
| 24,978 |
|
|
| (3,479 | ) |
|
| — |
|
|
| 21,499 |
|
Balance at March 31, 2021 |
| 39,779 |
|
|
| 397 |
|
|
| 299,635 |
|
|
| 663,978 |
|
|
| (44,478 | ) |
|
| (3,069 | ) |
|
| 916,463 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 3,618 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,618 |
|
Issuance of common stock under equity award plans, net of forfeitures |
| 25 |
|
|
| 1 |
|
|
| 122 |
|
|
| — |
|
|
| — |
|
|
| (123 | ) |
|
| — |
|
Shares withheld for taxes paid related to net share settlement of equity awards |
| (7 | ) |
|
| — |
|
|
| (310 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (310 | ) |
Retirement of treasury stock |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Comprehensive income (loss) |
| — |
|
|
| — |
|
|
| — |
|
|
| 23,180 |
|
|
| 1,692 |
|
|
| — |
|
|
| 24,872 |
|
Balance at June 30, 2021 |
| 39,797 |
|
| $ | 398 |
|
| $ | 303,065 |
|
| $ | 687,158 |
|
| $ | (42,786 | ) |
| $ | (3,192 | ) |
| $ | 944,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Additional |
|
|
|
|
|
| Accumulated Other |
|
|
|
|
|
|
|
|
| |||||||
(in thousands) | Shares Issued |
|
| Amount |
|
| Paid-in Capital |
|
| Retained Earnings |
|
| Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total |
| |||||||
Balance at December 31, 2019 |
| 41,549 |
|
| $ | 416 |
|
| $ | 288,935 |
|
| $ | 634,668 |
|
| $ | (47,001 | ) |
| $ | (2,543 | ) |
| $ | 874,475 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 1,860 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,860 |
|
Issuance of common stock under equity award plans, net of forfeitures |
| (146 | ) |
|
| (2 | ) |
|
| 69 |
|
|
| — |
|
|
| — |
|
|
| (67 | ) |
|
| — |
|
Shares withheld for taxes paid related to net share settlement of equity awards |
| (39 | ) |
|
| — |
|
|
| (1,009 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,009 | ) |
Repurchase of common stock |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,909 | ) |
|
| (22,909 | ) |
Retirement of treasury stock |
| (860 | ) |
|
| (9 | ) |
|
| (26 | ) |
|
| (22,874 | ) |
|
| — |
|
|
| 22,909 |
|
|
| — |
|
Comprehensive income (loss) |
| — |
|
|
| — |
|
|
| — |
|
|
| 13,918 |
|
|
| (22,731 | ) |
|
| — |
|
|
| (8,813 | ) |
Balance at March 31, 2020 |
| 40,504 |
|
|
| 405 |
|
|
| 289,829 |
|
|
| 625,712 |
|
|
| (69,732 | ) |
|
| (2,610 | ) |
|
| 843,604 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 2,042 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,042 |
|
Issuance of common stock under equity award plans, net of forfeitures |
| 57 |
|
|
| 1 |
|
|
| 82 |
|
|
| — |
|
|
| — |
|
|
| (83 | ) |
|
| — |
|
Shares withheld for taxes paid related to net share settlement of equity awards |
| (6 | ) |
|
| — |
|
|
| (124 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (124 | ) |
Repurchase of common stock |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,019 | ) |
|
| (13,019 | ) |
Retirement of treasury stock |
| (500 | ) |
|
| (5 | ) |
|
| (15 | ) |
|
| (12,999 | ) |
|
| — |
|
|
| 13,019 |
|
|
| — |
|
Comprehensive income (loss) |
| — |
|
|
| — |
|
|
| — |
|
|
| 22,230 |
|
|
| 8,052 |
|
|
| — |
|
|
| 30,282 |
|
Balance at June 30, 2020 |
| 40,055 |
|
| $ | 401 |
|
| $ | 291,814 |
|
| $ | 634,943 |
|
| $ | (61,680 | ) |
| $ | (2,693 | ) |
| $ | 862,785 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 407,309 | $ | 385,743 | $ | 1,166,761 | $ | 1,070,891 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating expenses: | ||||||||||||||||
Direct salaries and related costs | 267,516 | 249,859 | 763,324 | 694,856 | ||||||||||||
General and administrative | 93,364 | 87,955 | 277,664 | 262,800 | ||||||||||||
Depreciation, net | 14,227 | 13,004 | 41,395 | 35,748 | ||||||||||||
Amortization of intangibles | 5,293 | 5,254 | 15,774 | 14,144 | ||||||||||||
Impairment of long-lived assets | 680 | - | 5,071 | - | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total operating expenses | 381,080 | 356,072 | 1,103,228 | 1,007,548 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income from operations | 26,229 | 29,671 | 63,533 | 63,343 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other income (expense): | ||||||||||||||||
Interest income | 169 | 135 | 468 | 429 | ||||||||||||
Interest (expense) | (2,021 | ) | (1,578 | ) | (5,585 | ) | (3,967 | ) | ||||||||
Other income (expense), net | 64 | 981 | 1,747 | 2,601 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total other income (expense), net | (1,788 | ) | (462 | ) | (3,370 | ) | (937 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income before income taxes | 24,441 | 29,209 | 60,163 | 62,406 | ||||||||||||
Income taxes | 2,746 | 7,939 | 10,911 | 18,044 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income | $ | 21,695 | $ | 21,270 | $ | 49,252 | $ | 44,362 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income per common share: | ||||||||||||||||
Basic | $ | 0.52 | $ | 0.51 | $ | 1.18 | $ | 1.06 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Diluted | $ | 0.52 | $ | 0.50 | $ | 1.17 | $ | 1.05 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 41,879 | 41,938 | 41,800 | 41,873 | ||||||||||||
Diluted | 42,033 | 42,224 | 42,006 | 42,233 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 21,695 | $ | 21,270 | $ | 49,252 | $ | 44,362 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive income (loss), net of taxes: | ||||||||||||||||
Foreign currency translation gain (loss), net of taxes | 11,502 | (163 | ) | 31,884 | 4,137 | |||||||||||
Unrealized gain (loss) on net investment hedges, net of taxes | (1,916 | ) | (607 | ) | (5,220 | ) | (1,040 | ) | ||||||||
Unrealized actuarial gain (loss) related to pension liability, net of taxes | (19 | ) | (33 | ) | (58 | ) | (59 | ) | ||||||||
Unrealized gain (loss) on cash flow hedging instruments, net of taxes | 1,326 | (1,322 | ) | 1,462 | (888 | ) | ||||||||||
Unrealized gain (loss) on postretirement obligation, net of taxes | (13 | ) | 61 | (38 | ) | 34 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive income (loss), net of taxes | 10,880 | (2,064 | ) | 28,030 | 2,184 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Comprehensive income (loss) | $ | 32,575 | $ | 19,206 | $ | 77,282 | $ | 46,546 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statement of Changes in Shareholders’ Equity
Nine Months Ended September 30, 2017
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||
Common Stock | Other | |||||||||||||||||||||||||||
Shares | Additional | Retained | Comprehensive | Treasury | ||||||||||||||||||||||||
(in thousands) | Issued | Amount | Paid-in Capital | Earnings | Income (Loss) | Stock | Total | |||||||||||||||||||||
Balance at December 31, 2016 | 42,895 | $ | 429 | $ | 281,357 | $ | 518,611 | $ | (67,027 | ) | $ | (8,848 | ) | $ | 724,522 | |||||||||||||
Cumulative effect of accounting change | - | - | 232 | (153 | ) | - | - | 79 | ||||||||||||||||||||
Stock-based compensation expense | - | - | 4,429 | - | - | - | 4,429 | |||||||||||||||||||||
Issuance of common stock under equity award plans, net of shares withheld for employee taxes | 250 | 3 | (3,553 | ) | - | - | (309 | ) | (3,859 | ) | ||||||||||||||||||
Retirement of treasury stock | (250 | ) | (3 | ) | (3,194 | ) | (3,831 | ) | - | 7,028 | - | |||||||||||||||||
Comprehensive income (loss) | - | - | - | 49,252 | 28,030 | - | 77,282 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at September 30, 2017 | 42,895 | $ | 429 | $ | 279,271 | $ | 563,879 | $ | (38,997 | ) | $ | (2,129 | ) | $ | 802,453 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, | Six Months Ended June 30, |
| |||||||||||||
(in thousands) | 2017 | 2016 | 2021 |
|
| 2020 |
| ||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
| ||||||||
Net income | $ | 49,252 | $ | 44,362 | $ | 48,158 |
|
| $ | 36,148 |
| ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
| ||||||||
Depreciation | 41,778 | 36,208 |
| 25,948 |
|
|
| 25,206 |
| ||||||
Amortization of intangibles | 15,774 | 14,144 |
| 5,946 |
|
|
| 8,212 |
| ||||||
Amortization of deferred grants | (550 | ) | (659 | ) |
| (480 | ) |
|
| (170 | ) | ||||
Impairment losses | 5,071 | - |
| 1,536 |
|
|
| 1,800 |
| ||||||
Unrealized foreign currency transaction (gains) losses, net | (1,714 | ) | (2,359 | ) |
| 1,948 |
|
|
| 510 |
| ||||
Stock-based compensation expense | 4,429 | 7,836 |
| 8,369 |
|
|
| 3,902 |
| ||||||
Deferred income tax provision (benefit) | 7,395 | (2,697 | ) |
| (846 | ) |
|
| 564 |
| |||||
Unrealized (gains) losses on financial instruments, net | 126 | 547 | |||||||||||||
Amortization of deferred loan fees | 201 | 201 | |||||||||||||
Imputed interest expense and fair value adjustments to contingent consideration | (529 | ) | (2,082 | ) | |||||||||||
Net (gain) loss on lease termination |
| (1,670 | ) |
|
| — |
| ||||||||
Bad debt expense (reversals) |
| 236 |
|
|
| 1,129 |
| ||||||||
Unrealized (gains) losses and premiums on financial instruments, net |
| (521 | ) |
|
| 665 |
| ||||||||
(Earnings) losses from equity method investees |
| 1,535 |
|
|
| 547 |
| ||||||||
Other | 173 | (50 | ) |
| 1,011 |
|
|
| (104 | ) | |||||
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
| ||||||||
Receivables | (3,844 | ) | (21,717 | ) | |||||||||||
Receivables, net |
| (6,793 | ) |
|
| 294 |
| ||||||||
Prepaid expenses | 1,048 | (1,049 | ) |
| (1,364 | ) |
|
| (239 | ) | |||||
Other current assets | (4,523 | ) | (2,562 | ) |
| (1,097 | ) |
|
| (263 | ) | ||||
Deferred charges and other assets | (667 | ) | (919 | ) |
| (943 | ) |
|
| 238 |
| ||||
Accounts payable | 2,937 | (391 | ) |
| (4,702 | ) |
|
| (4,184 | ) | |||||
Income taxes receivable / payable | (7,285 | ) | 5,356 |
| (3,481 | ) |
|
| 2,324 |
| |||||
Accrued employee compensation and benefits | 12,038 | 17,538 |
| (6,731 | ) |
|
| 6,998 |
| ||||||
Other accrued expenses and current liabilities | (697 | ) | 7,304 |
| 6,241 |
|
|
| (279 | ) | |||||
Deferred revenue | 2,476 | 5,231 | |||||||||||||
Deferred revenue and customer liabilities |
| (938 | ) |
|
| (1,666 | ) | ||||||||
Other long-term liabilities | (4,515 | ) | 1,127 |
| 676 |
|
|
| 6,585 |
| |||||
|
| ||||||||||||||
Operating lease assets and liabilities |
| (6,138 | ) |
|
| (1,575 | ) | ||||||||
Net cash provided by operating activities | 118,374 | 105,369 |
| 65,900 |
|
|
| 86,642 |
| ||||||
|
| ||||||||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
| ||||||||
Capital expenditures | (48,430 | ) | (59,348 | ) |
| (19,103 | ) |
|
| (22,880 | ) | ||||
Cash paid for business acquisitions, net of cash acquired | (9,075 | ) | (205,324 | ) |
| (165 | ) |
|
| — |
| ||||
Net investment hedge settlement | (5,122 | ) | 10,339 | ||||||||||||
Purchase of intangible assets | (4,825 | ) | (10 | ) |
| (252 | ) |
|
| — |
| ||||
Investment in equity method investees | (5,012 | ) | - | ||||||||||||
Sale of intangible assets |
| 200 |
|
|
| — |
| ||||||||
Other | 6 | (43 | ) |
| 59 |
|
|
| 592 |
| |||||
|
| ||||||||||||||
Net cash (used for) investing activities | (72,458 | ) | (254,386 | ) |
| (19,261 | ) |
|
| (22,288 | ) | ||||
|
|
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Continued)
Nine Months Ended September 30, | ||||||||
(in thousands) | 2017 | 2016 | ||||||
Cash flows from financing activities: | ||||||||
Payments of long-term debt | - | (14,000 | ) | |||||
Proceeds from issuance of long-term debt | - | 216,000 | ||||||
Cash paid for repurchase of common stock | - | (4,117 | ) | |||||
Proceeds from grants | 139 | 151 | ||||||
Shares repurchased for tax withholding on equity awards | (3,859 | ) | (4,916 | ) | ||||
Payments of contingent consideration related to acquisitions | (4,760 | ) | - | |||||
|
|
|
|
|
| |||
Net cash provided by (used for) financing activities | (8,480 | ) | 193,118 | |||||
|
|
|
|
|
| |||
Effects of exchange rates on cash and cash equivalents | 24,055 | 3,864 | ||||||
|
|
|
|
|
| |||
Net increase in cash and cash equivalents | 61,491 | 47,965 | ||||||
Cash and cash equivalents – beginning | 266,675 | 235,358 | ||||||
|
|
|
|
|
| |||
Cash and cash equivalents – ending | $ | 328,166 | $ | 283,323 | ||||
|
|
|
|
|
| |||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during period for interest | $ | 4,852 | $ | 2,680 | ||||
Cash paid during period for income taxes | $ | 21,169 | $ | 14,050 | ||||
Non-cash transactions: | ||||||||
Property and equipment additions in accounts payable | $ | 5,165 | $ | 7,070 | ||||
Unrealized gain (loss) on postretirement obligation in accumulated other comprehensive income (loss) | $ | (38 | ) | $ | 34 | |||
Shares repurchased for tax withholding on equity awards included in current liabilities | $ | 123 | $ | - |
| Six Months Ended June 30, |
| |||||
(in thousands) | 2021 |
|
| 2020 |
| ||
Cash flows from financing activities: |
|
|
|
|
|
|
|
Payments of long-term debt |
| (40,000 | ) |
|
| (47,000 | ) |
Proceeds from issuance of long-term debt |
| — |
|
|
| 23,000 |
|
Cash paid for repurchase of common stock |
| — |
|
|
| (35,928 | ) |
Taxes paid related to net share settlement of equity awards |
| (3,751 | ) |
|
| (1,133 | ) |
Net cash (used for) financing activities |
| (43,751 | ) |
|
| (61,061 | ) |
Effects of exchange rates on cash, cash equivalents and restricted cash |
| (2,819 | ) |
|
| (1,795 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
| 69 |
|
|
| 1,498 |
|
Cash, cash equivalents and restricted cash – beginning |
| 104,396 |
|
|
| 129,185 |
|
Cash, cash equivalents and restricted cash – ending | $ | 104,465 |
|
| $ | 130,683 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 35,307 |
|
| $ | 31,484 |
|
Cash paid during period for interest | $ | 584 |
|
| $ | 1,009 |
|
Cash paid during period for income taxes | $ | 17,457 |
|
| $ | 8,947 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
Net right-of-use assets arising from new or remeasured operating lease liabilities | $ | 1,836 |
|
| $ | 12,976 |
|
Capital expenditures incurred but not yet paid | $ | 9,187 |
|
| $ | 4,978 |
|
Unrealized gain (loss) on postretirement obligation, net of taxes, in accumulated other comprehensive income (loss) | $ | — |
|
| $ | (44 | ) |
Property and equipment acquired under grant agreement | $ | 2,136 |
|
| $ | — |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three and NineSix Months Ended SeptemberJune 30, 20172021 and 20162020
(Unaudited)
Note 1. Overview and Basis of Presentation
Business—Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) is a leading full lifecycle provider of global business processing outsourcing leader in providing comprehensive inbound customer engagementexperience management services, multichannel demand generation and digital transformation. The Company provides differentiated full lifecycle customer experience management solutions and services primarily to Global 2000 companies primarilyand their end customers principally in the communications, financial services, technology, communications, transportation & leisure and healthcare technology, transportation and leisure, retail and other industries. SYKES’The Company’s differentiatedend-to-end solutions and service full lifecycle services platform effectively engages consumerscustomers at every touch point in theirtouchpoint within the customer lifecycle, starting fromjourney, including digital marketingmedia and acquisition, tosales expertise, customer support,up-sell/cross-sell and retention. The Company serves its clients through two geographic operating regions: the Americas (United States, Canada, Latin America, Australia and the Asia Pacific Rim) and EMEA (Europe, the Middle East and Africa). Our Americas and EMEA regions primarily provide customer engagement services (with an emphasis on inbound technical support, digital marketing and demand generation, and customer service), which includes customer assistance, healthcare and roadside assistance,service, technical support and productretention, many of which can be optimized through a suite of digital transformation capabilities under its SYKES Digital Services (“SDS”) group, which spans robotic process automation (“RPA”), self-service, insight analytics and service salesdigital learning. In addition to digital transformation, the Company also provides artificial intelligence (“AI”) solutions that can be embedded and leveraged across its clients’ customers. Theselifecycle offerings. Utilizing SYKES’ integrated onshore/offshore global delivery model, the Company provides its services are delivered through multiple communication channels including phone,e-mail, social media, text messaging, chat and digital self-service. The Company also provides various enterprise support services in the United States that include services for its clients’ internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, SYKES also provides fulfillment services, which includesinclude order processing, payment processing, inventory control, product delivery and product returns handling. SYKES has developed an extensive global reachAdditionally, through the Company’s acquisition of RPA provider Symphony Ventures Ltd (“Symphony”) coupled with customer engagement centers across six continents, including North America, South America, Europe, Asia, Australia and Africa. The Company delivers cost-effective solutions that enhance the customer service experience, promote stronger brand loyalty, and bring out high levels of performance and profitability.
Acquisitions
On May 31, 2017,its investment in AI through XSell Technologies, Inc. (“XSell”), the Company completed the acquisitionalso provides a suite of certain assets of a Global 2000 telecommunicationssolutions such as consulting, implementation, hosting and managed services provider, pursuant to a definitive Asset Purchase Agreement (the “Purchase Agreement”) entered into on April 24, 2017 (the “Telecommunications Asset acquisition”).that optimizes its differentiated full lifecycle management services platform. The Company has reflectedoperations in 2 reportable segments entitled (1) the Telecommunications Asset acquisition’s resultsAmericas, in which the client base is primarily companies in the Condensed Consolidated Financial Statements since May 31, 2017. See Note 2, Acquisitions, for additional information onUnited States that are using the acquisition.Company’s services to support their customer management needs, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim; and (2) EMEA, which includes Europe, the Middle East and Africa.
Proposed Transaction with Sitel Group
On April 1, 2016,June 17, 2021, the Company completed the acquisition of Clear Link Holdings LLC (“Clearlink”), pursuant to a definitiveentered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sitel Worldwide Corporation, a Delaware corporation (“Parent”), datedand Florida Mergersub, Inc., a Florida corporation and wholly owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are subsidiaries of Sitel Group, a global provider of customer experience products and solutions. Pursuant to the Merger Agreement, and subject to the terms thereof, Parent will acquire each share of the Company’s common stock (“Company Common Stock”) issued and outstanding immediately prior to the effective time of the merger contemplated by the Merger Agreement for $54.00 in cash, without interest and subject to any required tax withholding (the “Merger”).
Consummation of the Merger is subject to customary closing conditions, including, among others, (i) the absence of certain legal impediments that prohibit the consummation of the Merger and the other transactions contemplated by the Merger Agreement, (ii) receipt of certain regulatory clearances, including, the expiration or termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the adoption of the Merger Agreement by the holders of a majority of the issued and outstanding shares of Company Common Stock and (iv) all consents, approvals, clearances and other authorizations of any governmental entity.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, which was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 21, 2021.
In connection with the Merger, the Company has incurred, and will continue to incur, merger-related legal and advisory costs, some of which are contingent on the closing of the Merger. Transaction expenses associated with the proposed Merger of $3.5 million were recorded in “General and administrative” costs in the Other segment in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021. The Company expects the Merger to close in the second half of 2021.
Coronavirus
On March 6, 2016. 11, 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic. The global nature, rapid spread and continually evolving response by governments throughout the world to combat the spread has had a negative impact on the global economy. Certain of the Company’s customer experience management centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels to achieve social distancing. The Company is committed to the health and safety of its workforce and ensuring business continuity for the brands it serves. In response, the Company has shifted as many employees as possible to a work-at-home model. As of the middle of July 2021, approximately 69% of agents assigned to the Company’s brick-and-mortar facilities have temporarily transitioned to a work-at-home model, 30% are working in centers and 1% of the Company’s agents are idle primarily due to the lack of technical infrastructure to work from home. The Company’s operations in the Philippines, El Salvador and Mexico have been most impacted by the governmental restrictions.
The Company continues to closely monitor the prevalence of COVID-19 and the vaccination rates in the communities where its centers are located as well as guidance from public health authorities, federal and local agencies and municipalities. The Company will work with employees and clients to transition agents back to its centers based on that guidance, but risk further disruption to the business as a result of COVID-19 and government-imposed restrictions. Over time, the Company anticipates a permanent transition to a work-at-home or hybrid model for a portion of its workforce.
Exit of Leased Space
The Company continues to reevaluate its real estate footprint in connection with the transition of a portion of its workforce to a permanent remote working environment in both the Americas and EMEA. Since April 2020, the Company has decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of its sites as approximately 4,200 seats transitioned from brick and mortar to at home agents. As such, the Company recorded cumulative impairments of right-of-use (“ROU”) assets of $13.4 million and impairments of property and equipment of $7.6 million related to these actions since the initiation of its reevaluation in April 2020, of which $0.7 million of ROU assets and $0.5 million of property and equipment impairments were recorded during the six months ended June 30, 2021. See Note 4, Fair Value, in the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.
Taylor Media Corp. Acquisition
On December 31, 2020, through its wholly-owned subsidiary, Clear Link Technologies, LLC, the Company completed the acquisition of Taylor Media Corp. (“TMC”), a personal finance digital media company and owner of The Penny Hoarder. Of the total initial purchase price of $104.9 million, $87.2 million was paid upon closing using $63.0 million of additional borrowings under our credit agreement as well as cash on hand. Of the remaining $17.7 million of the purchase price, $0.2 million was used to repay outstanding debt and $17.5 million of the purchase price was deferred and is payable on December 31, 2027, the seventh anniversary of the closing. In the event TMC’s previous owner remains employed by the Company or one of its subsidiaries on December 31, 2022, the second anniversary of the closing, the deferred payment will be accelerated and due at that time. The deferred purchase price was included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020.
The Company accounted for the TMC acquisition in accordance with ASC 805, Business Combinations (“ASC 805”), whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the closing date. The Company completed its final purchase price allocation of the assets acquired and liabilities assumed during the three months ended June 30, 2021 and no entries were recorded as a result. The final purchase price allocation resulted in $2.2 million of cash, $6.7 million of accounts receivable, $87.9 million of intangible assets, primarily domain names, content library and customer relationships, $4.2 million of other assets, $9.0 million of goodwill and $5.1 million of liabilities.
The Company has reflected Clearlink’sTMC’s assets and liabilities in its consolidated balance sheet as of December 31, 2020 and the results of TMC’s operations have been reflected in its consolidated financial statements in the Condensed Consolidated Financial StatementsAmericas segment since AprilJanuary 1, 2016. See Note 2, Acquisitions, for additional information on the acquisition.2021.
Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “U.S. GAAP”) for interim financial information, the instructions to Form10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and ninesix months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2017.2021. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form10-K for the year ended December 31, 2016,2020, as filed with the Securities and Exchange Commission (“SEC”) on March 1, 2017.February 26, 2021.
Principles of Consolidation—The condensed consolidated financial statements include the accounts of SYKES and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. Investments in less than majority-owned subsidiaries in which the Company does not have a controlling interest, but does have significant influence, are accounted for as equity method investments. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates—The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. Other than where noted, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date and time of issuance of the condensed consolidated financial statements. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Subsequent Events—Subsequent events or transactions have been evaluated through the date and time of issuance of the condensed consolidated financial statements. There were no material subsequent events that required recognition or disclosure in the accompanying condensed consolidated financial statements.
Investments
Cash, Cash Equivalents and Restricted Cash — Cash and cash equivalents consist of cash and highly liquid short-term investments, primarily held in Equity Method Investees— The Company usesnon-interest-bearing investments which have original maturities of less than 90 days. Restricted cash includes cash whereby the equity method to account for investments in companies if the investment provides theCompany’s ability to exercise significant influence, but not control, over operating and financial policiesuse the funds at any time is contractually limited or is generally designated for specific purposes arising out of the investee. The Company’s proportionate share of the net incomecertain contractual or loss of an equity method investment is included in consolidated net income. Judgment regarding the level of influence over an equity method investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.other obligations.
The Company evaluates an equity method investment for impairment whenever events or changesfollowing table provides a reconciliation of cash and cash equivalents and restricted cash reported in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time (duration) and the extent (severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects, and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified.
In July 2017, the Company made a strategic investment of $10.0 million in XSell Technologies, Inc. (“XSell”) for 32.8% of XSell’s preferred stock. The Company plans to incorporate XSell’s machine learning and artificial intelligence algorithms into its business. The Company believes this will increase the sales performance of its agents, to drive revenue for its clients, improve the experience of the Company’s clients’ end customers and enhance brand loyalty, reduce the cost of customer care and leverage analytics and machine learning to source the best agents and improve their performance.
The Company’s investment in XSell of $10.0 million was included in “Other assets” in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2017. The Company paid $5.0 millionSheets that sum to the amounts reported in July 2017 with the remaining $5.0 million included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2017. The Company’s proportionate share of XSell’s income (loss) of less than $(0.1) million was included in “Other income (expense), net” in the accompanying Condensed Consolidated Statements of OperationsCash Flows (in thousands):
| June 30, 2021 |
|
| December 31, 2020 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Cash and cash equivalents | $ | 103,209 |
|
| $ | 103,077 |
|
| $ | 129,050 |
|
| $ | 127,246 |
|
Restricted cash included in "Other current assets" |
| 290 |
|
|
| 355 |
|
|
| 318 |
|
|
| 568 |
|
Restricted cash included in "Deferred charges and other assets" |
| 966 |
|
|
| 964 |
|
|
| 1,315 |
|
|
| 1,371 |
|
| $ | 104,465 |
|
| $ | 104,396 |
|
| $ | 130,683 |
|
| $ | 129,185 |
|
Allowance for the three and nine months ended September 30, 2017.
Customer-Acquisition Advertising CostsDoubtful Accounts — The Company utilizes direct-response advertising,recorded a $0.2 million and $1.1 million increase to the primary purposeallowance for credit losses related to its short-term trade receivables primarily as a result of which isdeterioration in certain clients’ credit ratings reflecting current and expected economic conditions during the six months ended June 30, 2021 and 2020, respectively, and wrote off $0.2 million and $0.4 million of the allowance for credit losses related to elicit purchases from its clients’ customers. These costs are capitalized when they are expected to result in probable future benefits and are amortized over the period during which future benefits are expectedcertain short-term trade receivables deemed to be received, which is generally less than one month. All otheruncollectible during the six months ended June 30, 2021 and 2020,
respectively. The Company recorded a $0.1 million increase to the allowance for credit losses related to its long-term trade receivables during the six months ended June 30, 2021 (0ne in 2020).
Customer-Acquisition Advertising Costs — The Company’s advertising costs are expensed as incurred. As of September 30, 2017 and December 31, 2016, the Company had $0.1 million and less than $0.1 million of capitalized direct-response advertising costs included in “Prepaid expenses” in the accompanying Condensed Consolidated Balance Sheets, respectively. Total advertising costs included in “Direct salaries and related costs” in the accompanying Condensed Consolidated Income Statements for the three months ended September 30, 2017 and 2016of Operations were $9.2 million and $9.8 million, respectively, and $27.6 million and $17.8 million for the nine months ended September 30, 2017 and 2016, respectively. Total advertising costs included in “General and administrative” in the accompanying Condensed Consolidated Income Statements for the three and nine months ended September 30, 2017 were less than $0.1 million and $0.1 million, respectively (none in 2016).as follows (in thousands):
Reclassifications — Certain balances in the prior period have been reclassified to conform to current period presentation.
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Customer-acquisition advertising costs |
| 21,297 |
|
|
| 9,826 |
|
| $ | 40,862 |
|
| $ | 20,008 |
|
New Accounting Standards Not Yet Adopted
Revenue from Contracts with Customers
Reference Rate Reform
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2014-09,Revenue from Contracts with Customers (Topic 606)(“ASU2014-09”). The amendments in ASU2014-09 outline a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and indicate that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this, an entity should identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015,March 2020, the FASB issued ASU2015-14,Revenue from Contracts with Customers 2020-04, Compensation – Reference Rate Reform (Topic 606) Deferral848) – Facilitation of the Effective Date(“Effects of Reference Rate Reform on Financial Reporting (“ASU2015-14” 2020-04”). In 2016,, which provides companies with optional guidance, including expedients and exceptions for applying generally accepted accounting principles to contracts and other transactions affected by reference rate reform, such as the FASB issued additional ASUs that are also part of the overall new revenue guidance included in Accounting Standards CodificationLondon Interbank Offered Rate (“ASC”LIBOR”) Topic 606. ASU2014-09 and the related subsequent. These amendments are referred to herein as “ASC 606.” The amendments in ASU2015-14 defer the effective date of ASU2014-09 to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted onlyfor all entities as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. AnMarch 12, 2020 and an entity shouldmay elect to apply the amendments using either the full retrospective approach or retrospectively with a cumulative effect of initially applying the amendments recognized at the date of initial application.
The Company’s implementation team has completed its evaluation of the Company’s revenue streams, analyzed the Company’s contracts to identify key provisions impacted by ASC 606, assessed the applicable accounting, and reviewed existing accounting policies and internal controls.prospectively through December 31, 2022. The Company is incurrently evaluating the processimpact of implementing appropriate changesthe transition from LIBOR to its business processes, systems and controls to support recognition and disclosure under ASC 606. The Company will adopt ASC 606 using the modified retrospective approach applied to those contracts which were not completed as of January 1, 2018. The adoption will result in a cumulative effect adjustment to opening retained earnings as of January 1, 2018, primarily related to deferred revenue associated with the Company’s customer engagement solutions and services. The adoption of these amendments will require expanded qualitative and quantitative disclosures about the Company’s contracts with its customers. Based on the results of its assessment, the Companyalternative reference interest rates but does not expect the adoption of ASC 606 on January 1, 2018 to have a material impact on its timing of recognition of revenue, financial condition,position, results of operations andor cash flows.
The impact to
New Accounting Standards Recently Adopted
Income Taxes
In December 2019, the Company’s results is not expected to be material becauseFASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the analysis of its contracts under ASC 606 supports the recognition of revenue over time under the output methodAccounting for the majority of its contracts, which is
consistent with the Company’s current revenue recognition model. Revenue from the majority of the Company’s contracts will continue to be recognized over time because of the continuous transfer of control to the customer. In addition, the number of the Company’s performance obligations, which are classified as stand-ready performance obligations under ASC 606, is not materially different from those under the existing standard. Lastly,Income Taxes (“ASU 2019-12”). These amendments simplify the accounting for the estimateincome taxes by eliminating certain exceptions and also clarifying and amending certain aspects of variable consideration is not expected to be materially different compared to the Company’s current practice. The immaterial changes as a result of the Company’s adoption of ASC 606 relate to changes in estimating variable consideration with respect to penalty and holdback provisions for failure to meet specified minimum service levels and other performance-based contingencies, as well as the change in timing of revenue recognition associated with certain customer contracts that provide additional fees upon renewal.
Financial Instruments
In January 2016, the FASB issued ASU2016-01,Financial Instruments - Overall (Subtopic825-10) Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU2016-01”). These amendments modify how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820,Fair Value Measurements, and as such, these investments may be measured at cost.existing guidance. These amendments are effective for fiscal years, beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of ASU2016-01 to materially impact its financial condition, results of operations and cash flows.
Leases
In February 2016, the FASB issued ASU2016-02,Leases (Topic 842) (“ASU2016-02”). These amendments require the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC 840,Leases. These amendments also require qualitative disclosures along with specific quantitative disclosures. These amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Entities are required to apply the amendments at the beginning of the earliest period presented using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and there are certain optional practical expedients that an entity may elect to apply. The Company expects the adoption of ASU2016-02 to result in a material increase in the assets and liabilities on the consolidated balance sheets due to the amount of the Company’s lease commitments. However, the amendments will likely have an insignificant impact on the Company’s consolidated statements of income. The Company is continuing to evaluate the magnitude of the impact and related disclosures, as well as the timing and method of adoption, with respect to the optional practical expedients.
Financial Instruments – Credit Losses
In June 2016, the FASB issued ASU2016-13,Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (“ASU2016-13”). These amendments require measurement and recognition of expected versus incurred credit losses for financial assets held. These amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its financial condition, results of operations and cash flows.
Statement of Cash Flows
In August 2016, the FASB issued ASU2016-15,Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments (“ASU2016-15”). These amendments clarify the presentation of cash receipts and payments in eight specific situations. These amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. These amendments will be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU2016-15 to materially impact its cash flows.
In November 2016, the FASB issued ASU2016-18,Statement of Cash Flows (Topic 230) – Restricted Cash (A Consensus of the FASB Emerging Issues Task Force (“ASU2016-18”). These amendments clarify how entities should present restricted cash and restricted cash equivalents in the statement of cash flows, requiring entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. These amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. These amendments will be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU2016-18 to materially impact its cash flows.
Income Taxes
In October 2016, the FASB issued ASU2016-16,Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other than Inventory (“ASU2016-16”). These amendments require recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. These amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. These amendments will be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued. The Company does not expect the adoption of ASU2016-16 to materially impact its financial condition, results of operations and cash flows.
Business Combinations
In January 2017, the FASB issued ASU2017-01,Business Combinations (Topic 805) – Clarifying the Definition of a Business (“ASU2017-01”). These amendments clarify the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. These amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. These amendments will be applied prospectively. Early adoption is permitted in certain circumstances. The Company does not expect the adoption of ASU2017-01 to materially impact its financial condition, results of operations and cash flows.
Retirement Benefits
In March 2017, the FASB issued ASU2017-07,Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU2017-07”). These amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component outside of a subtotal of income from operations. If a separate line item is not used, the line items used in the income statement to present other components of net benefit cost must be disclosed. These amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements, interim or annual, have not been issued or made available for issuance. These amendments will be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Company does not expect the adoption of ASU2017-07 to materially impact its financial condition, results of operations and cash flows.
Derivatives and Hedging
In August 2017, the FASB issued ASU2017-12,Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedge Activities (“ASU2017-12”). These amendments help simplify certain aspects of hedge accounting and better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. For cash flow and net investment hedges as of the adoption date, the guidance requires a modified retrospective approach. The amended presentation and disclosure guidance is required only
prospectively. These amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early application permitted in any interim period after issuance of this update. The Company is currently evaluating the accounting, transition and disclosure requirements to determine the impact ASU2017-12 may have on its financial condition, results of operations, cash flows and disclosures.
New Accounting Standards Recently Adopted
Goodwill
In January 2017, the FASB issued ASU2017-04,Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment (“ASU2017-04”). These amendments simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value of assets acquired and liabilities assumed in a business combination. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. These amendments are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. These2020. Most of the amendments willare required to be applied on a prospective basis, with earlywhile certain amendments must be applied on a retrospective or modified retrospective basis. Early adoption was permitted, including adoption in any interim period for interim or annual goodwill impairment tests performedwhich financial statements had not yet been issued. The Company’s adoption of ASU 2019-12 on testing dates after January 1, 2017. The early adoption of ASU2017-04 on July 31, 20172021 did not have a material impact on theits financial condition,position, results of operations, cash flows or disclosures.
Significant Accounting Policies
There have been no new or material changes to the significant accounting policies disclosed in Note 1, Overview and Summary of Significant Accounting Policies, in the “Notes to the Consolidated Financial Statements” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Note 2. Revenues
Revenues from Contracts with Customers
Revenues for customer experience management solutions and services are recognized over time using output methods such as a per minute, per hour, per call, per transaction or per time and materials basis.RPA services revenues are primarily recognized over time using output methods such as per time and materials basis.Revenues from fulfillment services are recognized upon shipment to the customer and satisfaction of all obligations.Revenues from enterprise support services are recognized over time using output methods such as number of positions filled.
Disaggregated Revenues
The Company disaggregates its revenues from contracts with customers by service type and delivery location (see Note 14, Segments and Geographic Information), for each of its reportable segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows ofare affected by economic factors.
The following table represents revenues from contracts with customers disaggregated by service type and by the Company.
Stock Compensation
In May 2017, the FASB issued ASU2017-09,Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting (“ASU2017-09”). These amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. These amendments should be applied prospectively to changes in terms and conditions of awards occurring on or after the adoption date. The amendments are effectivereportable segment for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including in any interim period,each category for public business entities for reporting periods for which financial statements have not yet been issued. The early adoption of ASU2017-09 on June 30, 2017 did not have a material impact on the financial condition, results of operations and cash flows of the Company.
In March 2016, the FASB issued ASU2016-09,Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting (“ASU2016-09”). These amendments are intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. These amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU2016-09 on January 1, 2017 resulted in stock-based compensation excess tax benefits or deficiencies reflected in the consolidated statements of operations on a prospective basis as a component of the provision for income taxes. Prior to the adoption, these benefits or deficiencies were recognized in equity. Additionally, the Company’s consolidated statements of cash flows now include excess tax benefits as an operating activity, with prior periods adjusted accordingly. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented onindicated (in thousands):
| Three Months Ended June 30, |
| |||||||||||||
| 2021 |
|
| 2020 |
| ||||||||||
| Amount |
|
| % of Revenue |
|
| Amount |
|
| % of Revenue |
| ||||
Americas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer experience management solutions and services | $ | 356,108 |
|
| 79.3% |
|
| $ | 338,963 |
|
| 81.3% |
| ||
Other revenues |
| 319 |
|
| 0.1% |
|
|
| 309 |
|
| 0.1% |
| ||
Total Americas |
| 356,427 |
|
| 79.4% |
|
|
| 339,272 |
|
| 81.4% |
| ||
EMEA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer experience management solutions and services |
| 86,950 |
|
| 19.4% |
|
|
| 73,285 |
|
| 17.6% |
| ||
Other revenues |
| 5,505 |
|
| 1.2% |
|
|
| 4,276 |
|
| 1.0% |
| ||
Total EMEA |
| 92,455 |
|
| 20.6% |
|
|
| 77,561 |
|
| 18.6% |
| ||
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
| 3 |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
| ||
Total Other |
| 3 |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
| ||
| $ | 448,885 |
|
| 100.0% |
|
| $ | 416,833 |
|
| 100.0% |
|
The following table represents revenues from contracts with customers disaggregated by service type and by the Company’s consolidated cash flows statements since such cash flows have historically been presented as a financing activity. Finally, the Company has elected to accountreportable segment for forfeitures as they occur, rather than estimating expected forfeitures.
As a result of the adoption of ASU2016-09, the Condensed Consolidated Statement of Cash Flowseach category for the nine months ended September 30, 2016 was adjusted as follows: a $2.1 million increase to net cash provided by operating activities and a $2.1 million decrease to net cash provided by financing activities. Additionally, the Condensed Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2017 reflects a cumulative effect of accounting change of $0.2 million to “Additionalpaid-in capital” and $(0.2) million to “Retained earnings” related to the change in accounting for forfeitures.periods indicated (in thousands):
Derivatives and Hedging
| Six Months Ended June 30, |
| |||||||||||||
| 2021 |
|
| 2020 |
| ||||||||||
| Amount |
|
| % of Revenue |
|
| Amount |
|
| % of Revenue |
| ||||
Americas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer experience management solutions and services | $ | 719,561 |
|
| 79.4% |
|
| $ | 671,577 |
|
| 81.1% |
| ||
Other revenues |
| 585 |
|
| 0.0% |
|
|
| 621 |
|
| 0.1% |
| ||
Total Americas |
| 720,146 |
|
| 79.4% |
|
|
| 672,198 |
|
| 81.2% |
| ||
EMEA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer experience management solutions and services |
| 176,286 |
|
| 19.4% |
|
|
| 145,918 |
|
| 17.6% |
| ||
Other revenues |
| 10,336 |
|
| 1.2% |
|
|
| 9,876 |
|
| 1.2% |
| ||
Total EMEA |
| 186,622 |
|
| 20.6% |
|
|
| 155,794 |
|
| 18.8% |
| ||
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
| 3 |
|
| 0.0% |
|
|
| 7 |
|
| 0.0% |
| ||
Total Other |
| 3 |
|
| 0.0% |
|
|
| 7 |
|
| 0.0% |
| ||
| $ | 906,771 |
|
| 100.0% |
|
| $ | 827,999 |
|
| 100.0% |
|
In March 2016, the FASB issued ASU2016-05,Derivatives and Hedging (Topic 815) – Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (“ASU2016-05”). These amendments clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under
Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. These amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of ASU2016-05 on January 1, 2017 did not have a material impact on the financial condition, results of operations and cash flows of the Company.Trade Accounts Receivable
Note 2. Acquisitions
Telecommunications Asset Acquisition
On April 24, 2017, the Company entered into a Purchase Agreement to acquire certain assets from a Global 2000 telecommunications services provider. The aggregate purchase price of $7.5 million was paid on May 31, 2017, using cash on hand, resulting in $6.0 million of property and equipment and $1.5 million of customer relationship intangibles. The Purchase Agreement contains customary representations and warranties, indemnification obligations and covenants. The Telecommunications Asset acquisition was completed to strengthen and create new partnerships for the Company and expand its geographic footprint in North America. The results of the Telecommunications Assets’ operations have been included in the Company’s consolidated financial statements since its acquisition on May 31, 2017.
The Company accounted for the Telecommunications Asset acquisition in accordanceCompany’s noncurrent trade accounts receivable result from contracts with ASC 805,Business Combinations, whereby the fair value of the purchase price was allocated to the tangiblecustomers that include renewal provisions and identifiable intangible assets acquired based on their estimated fair values as of the closing date.contracts with customers under multi-year arrangements. The Company completed its analysis of the purchase price allocation during the second quarter of 2017.
Clearlink
On April 1, 2016, the Company acquired 100% of the outstanding membership units of Clearlink through a merger of Clearlink with and into a subsidiary of the Company (the “Merger”). Clearlink, with its operations located in the United States, is an inbound demand generation and sales conversion platform serving numerous Fortune 500business-to-consumer andbusiness-to-business clients across various industries and subsectors, including telecommunications, satellite television, home security and insurance. The results of Clearlink’s operations have been included in the Company’s consolidated financial statements since April 1, 2016 (the “Clearlink acquisition date”). The strategic acquisition of Clearlink expands the Company’s suite of service offerings while creating differentiation in the marketplace, broadening its addressable market opportunity and extending executive level reach within the Company’s existing clients’ organizations. This resulted in the Company paying a substantial premium for Clearlink resulting in the recognition of goodwill. Pursuant to Federal income tax laws, intangible assets and goodwill from the Clearlink acquisition are deductible over a15-year amortization period.
The Clearlink purchase price totaled $207.9 million, consistingtrade accounts receivable, net, consisted of the following (in thousands):
| ||||
| ||||
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Trade accounts receivable, net, current (1) | $ | 401,251 |
|
| $ | 398,112 |
|
Trade accounts receivable, net, noncurrent (2) |
| 30,408 |
|
|
| 30,021 |
|
| $ | 431,659 |
|
| $ | 428,133 |
|
(1)Funded through borrowings under Included in “Receivables, net” in the Company’s credit agreement. See Note 10, Borrowings, for more information.accompanying Condensed Consolidated Balance Sheets.
Approximately $2.6 million(2) Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets.
Deferred Revenue and Customer Liabilities
Deferred revenue and customer liabilities consisted of the purchase price was placed in an escrow account as security for the indemnification obligations of Clearlink’s members under the merger agreement. The escrow was released pursuant to the terms of the escrow agreement, but the Company subsequently asserted a claim of approximately $0.4 million against the Clearlink members. This claim has been resolved by the parties for $0.2 million, which is due to the Company prior to December 31, 2017.
The following table summarizes the final purchase price allocation of the fair values of the assets acquired and liabilities assumed, all included in the Americas segment (in thousands):
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||
(1)The fair value equals the gross contractual value of the receivables.
The Company accountedexpects to recognize the majority of its deferred revenue as of June 30, 2021 over the next 180 days. Revenues of $0.1 million and $0.2 million were recognized during the three months ended June 30, 2021 and 2020, respectively, and $2.9 million and $2.9 million were recognized during the six months ended June 30, 2021 and 2020, respectively, from amounts included in deferred revenue at December 31, 2020 and 2019, respectively.
The Company expects to recognize the majority of the customer arrangements with termination rights into revenue as the Company has not historically experienced a high rate of contract terminations.
Estimated refund liabilities are generally resolved within 180 days, once it is determined whether the requisite service levels and client requirements were achieved to settle the contingency.
Note 3. Leases
The Company leases facilities for the Clearlink acquisitionits corporate headquarters, many of its customer experience management centers, several regional support offices and data centers. These leases are classified as operating leases in accordance with ASC 805,Business Combinations (“ASC 805”)842, Leases, wherebyand are included in “Operating lease right-of-use assets,” “Operating lease liabilities” and “Long-term operating lease liabilities” in the purchase price paid was allocated to the tangible and identifiable intangibles acquired and liabilities assumed from Clearlink based on their estimated fair valuesaccompanying Condensed Consolidated Balance Sheet as of the closing date.June 30, 2021. The Company completed its analysishas 0 finance leases.
Lease costs, net of the purchase price allocation during the fourth quartersublease income, of 2016$15.3 million and the resulting adjustments were recorded in accordance with ASU2015-16,Business Combinations (Topic 805) Simplifying the Accounting for Measurement-Period Adjustments.
Fair values are based on management’s estimates and assumptions including variations of the income approach, the cost approach and the market approach.
The following table presents the Company’s purchased intangible assets as of April 1, 2016, the Clearlink acquisition date (in thousands):
Amount Assigned | Weighted Average Amortization Period (years) | |||||||
Customer relationships | $ | 63,800 | 13 | |||||
Trade name | 2,400 | 7 | ||||||
Non-compete agreements | 1,800 | 3 | ||||||
Proprietary software | 700 | 5 | ||||||
Indefinite-lived domain names | 52,700 | N/A | ||||||
|
|
| ||||||
$ | 121,400 | 7 | ||||||
|
|
|
The amount of Clearlink’s revenues and net income since the April 1, 2016 acquisition date, included in the Company’s Condensed Consolidated Statements of Operations$15.5 million for the three and nine months ended SeptemberJune 30, 2016, were as follows (in thousands):
For the Three Months Ended September 30, 2016 | From April 1, 2016 Through September 30, 2016 | |||||||
Revenues | $ | 45,494 | $ | 81,856 | ||||
Net income | $ | 3,942 | $ | 4,733 |
The following table presents the unaudited pro forma combined revenues2021 and net earnings as if Clearlink had been included in the consolidated results of the Company2020, respectively, and $30.9 million and $31.5 million for the entire threesix months ended June 30, 2021 and nine month periods ended September 30, 2016. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2016 (in thousands):
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||
Revenues | $ | 385,743 | $ | 1,104,720 | ||||
Net income | $ | 21,277 | $ | 47,172 | ||||
Net income per common share: | ||||||||
Basic | $ | 0.51 | $ | 1.13 | ||||
Diluted | $ | 0.50 | $ | 1.12 |
These amounts2020, respectively, were calculated to reflect the additional depreciation, amortization, interest expense and rent expense that would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2016, together with the consequential tax effects. In addition, these amounts exclude costs incurred which were directly attributable to the acquisition, and which did not have a continuing impact on the combined companies’ operating results. Included in these costs are advisory and legal costs, net of the tax effects.
Merger and integration costs associated with Clearlinkprimarily included in “General and administrative” costs in the accompanying Condensed Consolidated StatementStatements of OperationsOperations.
Additional supplemental information related to leases was as follows:
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Weighted average remaining lease term of operating leases | 4.2 years |
|
| 4.3 years |
| ||
Weighted average discount rate of operating leases |
| 3.4 | % |
|
| 3.4 | % |
Maturities of operating lease liabilities as of June 30, 2021 were as follows (none in 2017) (in thousands):
| Amount |
| |
2021 (remainder of the year) | $ | 25,367 |
|
2022 |
| 47,200 |
|
2023 |
| 31,600 |
|
2024 |
| 21,999 |
|
2025 |
| 14,725 |
|
2026 and thereafter |
| 19,706 |
|
Total future lease payments |
| 160,597 |
|
Less: Imputed interest |
| 11,934 |
|
Present value of future lease payments |
| 148,663 |
|
Less: Operating lease liabilities |
| 48,321 |
|
Long-term operating lease liabilities | $ | 100,342 |
|
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||
Severance costs: | ||||||||
Americas | $ | 162 | $ | 162 | ||||
Transaction and integration costs: | ||||||||
Americas | - | 29 | ||||||
Other | 39 | 4,415 | ||||||
|
|
|
|
|
| |||
39 | 4,444 | |||||||
|
|
|
|
|
| |||
$ | 201 | $ | 4,606 | |||||
|
|
|
|
|
|
Note 3. Costs Associated with Exit or Disposal Activities
During 2011 and 2010, the Company announced several initiatives to streamline excess capacity through targeted seat reductions in the Americas (“Exit Plans”) in anon-going effort to manage and optimize capacity utilization. These Americas’ Exit Plans included, but were not limited to, closing customer engagement centers in the Philippines and consolidating leased space in various locations in the U.S.of Leased Space
The Company paid $8.1 millioncontinues to reevaluate its real estate footprint in cash through December 31, 2016 under these Exit Plans for lease obligationsconnection with a transition of a portion of its workforce to a permanent remote working environment in both the Americas and facility exit costs. As of December 31, 2016, there were no remaining outstanding liabilities relatedEMEA. Since April 2020, the Company decided to terminate, sublease or abandon leases prior to the Exit Plans.
The following table summarizes the accrued liability associated with the Exit Plans’ exitend of their lease terms at certain of its sites and disposal activities and related chargesrecorded impairments of ROU assets as a result (see Note 4, Fair Value, for further information). During the three and ninesix months ended SeptemberJune 30, 2016 (none2021, the Company terminated 2 leases which resulted in 2017) (in thousands):a $1.7 million gain on lease terminations which was recorded in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations.
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||
Beginning accrual | $ | 319 | $ | 733 | ||||
Cash payments | (211 | ) | (625 | ) | ||||
|
|
|
|
|
| |||
Ending accrual | $ | 108 | $ | 108 | ||||
|
|
|
|
|
|
Note 4. Fair Value
ASC 820,Fair Value Measurements and Disclosures (“(“ASC 820”) defines fair value and establishes a framework for measuring fair value. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additionally, ASC 820 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for whichhow these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair value hierarchy:
• | Level 1— Quoted prices for |
• | Level 2— Quoted prices for |
• | Level 3— Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Fair Value of Financial Instruments—The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
|
|
|
|
|
Fair Value Measurements— ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC820-10-20 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
ASC 825Financial Instruments (“ASC 825”) permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The Company has not elected to use the fair value option permitted under ASC 825 for any of its financial assets and financial liabilities that are not already recorded at fair value.
Determination of Fair Value—The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access to determine fair value and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency exchange rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure assets and liabilities at fair value on a recurring basis, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.classified, if applicable.
Cash, Short-Term and Other Investments and Accounts Payable— The carrying values for cash, short-term and other investments, and accounts payable approximate their fair values.
Long-Term Debt— The carrying value of long-term debt approximates its estimated fair value as the debt bears interest based on variable market rates, as outlined in the debt agreement.
Foreign Currency Forward Contracts and Options—The Company enters into foreign currency forward contracts and options over the counter and values such contracts, including premiums paid on options, at fair value using quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk. The key inputs include forward or option foreign currency exchange rates and interest rates. These items are classified in Level 2 of the fair value hierarchy.
Embedded Derivatives —The Company uses significant unobservable inputs to determine the fair value of embedded derivatives, which are classified in Level 3 of the fair value hierarchy. These unobservable inputs include expected cash flows associated with the lease, currency exchange rates on the day of commencement, as well as forward currency exchange rates, the results of which are adjusted for credit risk. These items are classified in Level 3 of the fair value hierarchy. See Note 6, Financial Derivatives, for further information.
Investments Held in Rabbi Trust—The investment assets of the rabbi trust are valued using quoted market prices in active markets, which are classified in Level 1 of the fair value hierarchy. For additional information about the deferred compensation plan, refer to Note 7, Investments Held in Rabbi Trust, and Note 16, Stock-Based Compensation.Trust.
Contingent Consideration— The Company uses significant unobservable inputs to determine the fair value of contingent consideration, which is classified in Level 3 of the fair value hierarchy. The contingent consideration recorded related to the acquisition of Qelp B.V. and its subsidiary (together, known as “Qelp”) on July 2, 2015 and liabilities assumed as part of the Clearlink acquisition was recognized at fair value using a discounted cash flow methodology and a discount rate of approximately 14.0% and 10.0%, respectively. The discount rates vary dependent on the specific risks of each acquisition including the country of operation, the nature of services and complexity of the acquired business, and other similar factors, all of which are significant inputs not observable in the market. Significant increases or decreases in any of the inputs in isolation would result in a significantly higher or lower fair value measurement.
The Company’sCompany's assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consistconsisted of the following as of September 30, 2017 (in thousands):
Fair Value Measurements at September 30, 2017 Using: | ||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||
in Active | Other | Significant | ||||||||||||||||
Markets For | Observable | Unobservable | ||||||||||||||||
Balance at | Identical Assets | Inputs | Inputs | |||||||||||||||
September 30, 2017 | Level (1) | Level (2) | Level (3) | |||||||||||||||
Assets: | ||||||||||||||||||
Foreign currency forward and option contracts | (1) | $ | 815 | $ | - | $ | 815 | $ | - | |||||||||
Embedded derivatives | (1) | 41 | - | - | 41 | |||||||||||||
Equity investments held in rabbi trust for the Deferred Compensation Plan | (2) | 7,849 | 7,849 | - | - | |||||||||||||
Debt investments held in rabbi trust for the Deferred Compensation Plan | (2) | 3,427 | 3,427 | - | - | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
$ | 12,132 | $ | 11,276 | $ | 815 | $ | 41 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Liabilities: | ||||||||||||||||||
Foreign currency forward and option contracts | (1) | $ | 916 | $ | - | $ | 916 | $ | - | |||||||||
Embedded derivatives | (1) | 341 | - | - | 341 | |||||||||||||
Contingent consideration | (3) |
| 1,000 |
| - | - | 1,000 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
$ | 2,257 | $ | - | $ | 916 | $ | 1,341 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consist of the following as of December 31, 2016 (in thousands):
|
|
|
|
| Fair Value Measurements Using: |
| |||||||||
| Balance at |
|
| Quoted Prices in Active Markets For Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
| ||||
| June 30, 2021 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts (1) | $ | 617 |
|
| $ | 0 |
|
| $ | 617 |
|
| $ | 0 |
|
Equity investments held in rabbi trust for the Deferred Compensation Plan (2) |
| 14,357 |
|
|
| 14,357 |
|
|
| 0 |
|
|
| 0 |
|
Debt investments held in rabbi trust for the Deferred Compensation Plan (2) |
| 5,242 |
|
|
| 5,242 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 20,216 |
|
| $ | 19,599 |
|
| $ | 617 |
|
| $ | 0 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts (1) | $ | 1,076 |
|
| $ | 0 |
|
| $ | 1,076 |
|
| $ | 0 |
|
| $ | 1,076 |
|
| $ | 0 |
|
| $ | 1,076 |
|
| $ | 0 |
|
Fair Value Measurements at December 31, 2016 Using: | ||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||
in Active | Other | Significant | ||||||||||||||||
Markets For | Observable | Unobservable | ||||||||||||||||
Balance at | Identical Assets | Inputs | Inputs | |||||||||||||||
December 31, 2016 | Level (1) | Level (2) | Level (3) | |||||||||||||||
Assets: | ||||||||||||||||||
Foreign currency forward and option contracts | (1) | $ | 3,921 | $ | - | $ | 3,921 | $ | - | |||||||||
Embedded derivatives | (1) | 12 | - | - | 12 | |||||||||||||
Equity investments held in rabbi trust for the Deferred Compensation Plan | (2) | 7,470 | 7,470 | - | - | |||||||||||||
Debt investments held in rabbi trust for the Deferred Compensation Plan | (2) | 1,944 | 1,944 | - | - | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
$ | 13,347 | $ | 9,414 | $ | 3,921 | $ | 12 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Liabilities: | ||||||||||||||||||
Foreign currency forward and option contracts | (1) | $ | 1,912 | $ | - | $ | 1,912 | $ | - | |||||||||
Embedded derivatives | (1) | 567 | - | - | 567 | |||||||||||||
Contingent consideration | (3) | 6,100 | - | - | 6,100 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
$ | 8,579 | $ | - | $ | 1,912 | $ | 6,667 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements Using: |
| |||||||||
| Balance at |
|
| Quoted Prices in Active Markets For Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
| ||||
| December 31, 2020 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts (1) | $ | 337 |
|
| $ | 0 |
|
| $ | 337 |
|
| $ | 0 |
|
Equity investments held in rabbi trust for the Deferred Compensation Plan (2) |
| 11,263 |
|
|
| 11,263 |
|
|
| 0 |
|
|
| 0 |
|
Debt investments held in rabbi trust for the Deferred Compensation Plan (2) |
| 5,517 |
|
|
| 5,517 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 17,117 |
|
| $ | 16,780 |
|
| $ | 337 |
|
| $ | 0 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts (1) | $ | 2,478 |
|
| $ | 0 |
|
| $ | 2,478 |
|
| $ | 0 |
|
| $ | 2,478 |
|
| $ | 0 |
|
| $ | 2,478 |
|
| $ | 0 |
|
(1) See Note 6, Financial Derivatives, for the classification in the accompanying Condensed Consolidated Balance Sheets.
(2) Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets. See Note 7, Investments Held in Rabbi Trust.
(3) Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets.
Reconciliations ofNon-Recurring Fair Value Measurements Categorized within Level 3 of the Fair Value Hierarchy
Embedded Derivatives in Lease Agreements
A rollforward of the net asset (liability) activity in the Company’s fair value of the embedded derivatives is as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at the beginning of the period | $ | (171 | ) | $ | 43 | $ | (555 | ) | $ | - | ||||||
Gains (losses) recognized in “Other income (expense), net” | (193 | ) | 131 | 122 | 176 | |||||||||||
Settlements | 66 | (2 | ) | 134 | (5 | ) | ||||||||||
Effect of foreign currency | (2 | ) | 4 | (1 | ) | 5 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at the end of the period | $ | (300 | ) | $ | 176 | $ | (300 | ) | $ | 176 | ||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Change in unrealized gains (losses) included in “Other income (expense), net” related to embedded derivatives held at the end of the period | $ | (193 | ) | $ | 131 | $ | 122 | $ | 176 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration
A rollforward of the activity in the Company’s fair value of the contingent consideration (liability) is as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at the beginning of the period | $ | (1,127 | ) | $ | (9,696 | ) | $ | (6,100 | ) | $ | (6,280 | ) | ||||
Acquisition(1) | - | - | - | (2,779 | ) | |||||||||||
Imputed interest | (8 | ) | (207 | ) | (76 | ) | (716 | ) | ||||||||
Fair value gain (loss) adjustments(2) | (96 | ) | 2,798 | 605 | 2,798 | |||||||||||
Settlements | 232 | - | 4,760 | - | ||||||||||||
Effect of foreign currency | (1 | ) | (87 | ) | (189 | ) | (215 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at the end of the period | $ | (1,000 | ) | $ | (7,192 | ) | $ | (1,000 | ) | $ | (7,192 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Change in unrealized gains (losses) included in “General and administrative” related to contingent consideration outstanding at the end of the period | $ | - | $ | 2,755 | $ | - | $ | 2,755 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) Liability acquired as part of the Clearlink acquisition on April 1, 2016. See Note 2, Acquisitions.
(2) Included in “General and administrative” costs in the accompanying Consolidated Statements of Operations.
The Company recorded a fair value loss of $0.1 million and a net fair value gain of $0.6 million in “General and administrative” during the three and nine months ended September 30, 2017, respectively, to the Clearlink contingent consideration related to settlements and changes in the probability of achievement of certain revenue targets.
The Company recorded a fair value gain of $2.6 million to the Qelp contingent consideration in “General and administrative” during the three and nine months ended September 30, 2016 due to the execution of an addendum to the Qelp purchase agreement, subject to which the Company agreed to pay the sellers EUR 4.0 million by June 30, 2017. The Company paid $4.4 million in May 2017 to settle the outstanding contingent consideration obligation. During the three and nine months ended September 30, 2016, the Company recorded a fair value gain of $0.2 million in “General and administrative” to the Clearlink contingent consideration due to changes in the probability of achievement of certain revenue targets.
The Company accretes interest expense each period using the effective interest method until the contingent consideration reaches the estimated remaining future value of $1.0 million. Interest expense related to the contingent consideration is included in “Interest (expense)” in the accompanying Condensed Consolidated Statements of Operations.
Non-Recurring Fair Value
Certain assets under certain conditions, are not required to be measured at fair value on a nonrecurringrecurring basis utilizing Level 3 inputs,and are reported at their carrying values, including goodwill, other intangible assets, other long-lived assets, ROU assets and equity method investments. ForThe carrying value of these assets measurementis evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable (and at least annually for goodwill and indefinite-lived intangible assets), and if applicable, written down to fair value in periods subsequent to their initial recognition would be applicable if these assets were determined to be impaired. The adjusted carrying values for assets measured at fair value on a nonrecurring basis (no liabilities) subject to the requirements of ASC 820 were not material at September 30, 2017 and December 31, 2016.value.
The following table summarizes the total impairment losses in the accompanying Condensed Consolidated Statements of Operations related to nonrecurring fair value measurements of certain assets (no liabilities) subject(in thousands):
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Americas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net | $ | 386 |
|
| $ | 760 |
|
| $ | 442 |
|
| $ | 760 |
|
Operating lease right-of-use assets |
| — |
|
|
| 1,040 |
|
|
| 301 |
|
|
| 1,040 |
|
|
| 386 |
|
|
| 1,800 |
|
|
| 743 |
|
|
| 1,800 |
|
EMEA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
| — |
|
|
| — |
|
|
| 77 |
|
|
| — |
|
Operating lease right-of-use assets |
| — |
|
|
| — |
|
|
| 398 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 475 |
|
|
| — |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
| — |
|
|
| — |
|
|
| 318 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 386 |
|
| $ | 1,800 |
|
| $ | 1,536 |
|
| $ | 1,800 |
|
The Company continues to reevaluate its real estate footprint in connection with a shift of a portion of its workforce to a permanent remote working environment in both the Americas and EMEA and transitioned approximately 4,200 seats from brick and mortar to at home agents since April 2020. The Company decided to terminate, sublease or abandon leases prior to the requirementsend of ASC 820 (in thousands) (none in 2016):
Total Impairment (Loss) | ||||||||
Three Months Ended | Nine Months Ended | |||||||
2017 | 2017 | |||||||
Americas: | ||||||||
Property and equipment, net | $ | (680 | ) | $ | (5,071 | ) | ||
|
|
|
|
|
|
As a resulttheir lease terms at certain of its sites and recorded impairment losses related to the consolidationexit of leased space infacilities and the U.S., the Company recorded an impairment charge of $0.7 million during the three and nine months ended September 30, 2017 related to leasehold improvements, which were not recoverable and equipment, furniture and fixtures that couldlocated in these sites which were not be redeployed to other locations.recoverable.
In connection with
As the closurefair value of an under-utilized customer contact management center incertain ROU assets was less than the U.S.,carrying value, the Company recordedrecognized an impairment charge of $4.2the applicable ROU assets, reducing the carrying value of the ROU assets to an estimated fair value of $0.4 million and $5.0 million during the ninesix months ended SeptemberJune 30, 2017 related2021 and 2020, respectively. The fair value of the ROU assets where the Company intends to leasehold improvements which were not recoverablesublease was estimated using Level 2 inputs such as market comparables to estimate future cash flows expected from sublease income over the remaining lease terms. Further changes in the estimated amount or timing of cash flows from sublease arrangements could result in additional impairment charges. The impairment of property and equipment furniturereduced the carrying value of the applicable assets to their fair value of $0 during the six months ended June 30, 2021 and fixtures that could not be redeployed to other locations. 2020, respectively.
The Company also recorded an impairment charge of $0.2$0.3 million during the six months ended June 30, 2021 related to software that was no longer being utilized. The impairment of the write-downsoftware reduced the carrying value of a vacant and unused parcel of land in the U.S.applicable asset to its estimated fair value during the nine months ended September 30, 2017.of $0.
Note 5. Goodwill and Intangible Assets
Intangible Assets
The following table presents the Company’s purchased intangible assets as of SeptemberJune 30, 20172021 (in thousands):
Gross Intangibles | Accumulated Amortization | Net Intangibles | Weighted Average Amortization Period (years) | Gross Intangibles |
|
| Accumulated Amortization |
|
| Net Intangibles |
|
| Weighted Average Amortization Period (years) |
| |||||||||||||||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Customer relationships | $ | 170,925 | $ | (90,596 | ) | $ | 80,329 | 10 | $ | 195,587 |
|
| $ | (138,830 | ) |
| $ | 56,757 |
|
|
| 10 |
| ||||||||
Trade names and trademarks | 14,137 | (8,367 | ) | 5,770 | 7 |
| 7,955 |
|
|
| (3,743 | ) |
|
| 4,212 |
|
|
| 8 |
| |||||||||||
Non-compete agreements | 1,820 | (901 | ) | 919 | 3 |
| 1,051 |
|
|
| (872 | ) |
|
| 179 |
|
|
| 3 |
| |||||||||||
Content library | 533 | (533 | ) | - | 2 |
| 4,835 |
|
|
| (965 | ) |
|
| 3,870 |
|
|
| 5 |
| |||||||||||
Proprietary software | 1,550 | (1,060 | ) | 490 | 3 |
| 870 |
|
|
| (870 | ) |
|
| — |
|
|
| 5 |
| |||||||||||
|
| 210,298 |
|
|
| (145,280 | ) |
|
| 65,018 |
|
|
| 9 |
| ||||||||||||||||
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Domain names | 58,035 | - | 58,035 | N/A |
| 162,873 |
|
|
| — |
|
|
| 162,873 |
|
| N/A |
| |||||||||||||
|
|
| $ | 373,171 |
|
| $ | (145,280 | ) |
| $ | 227,891 |
|
|
|
|
| ||||||||||||||
$ | 247,000 | $ | (101,457 | ) | $ | 145,543 | 6 | ||||||||||||||||||||||||
|
|
|
The following table presents the Company’s purchased intangible assets as of December 31, 20162020 (in thousands):
Gross Intangibles | Accumulated Amortization | Net Intangibles | Weighted Average Amortization Period (years) | Gross Intangibles |
|
| Accumulated Amortization |
|
| Net Intangibles |
|
| Weighted Average Amortization Period (years) |
| |||||||||||||||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Customer relationships | $ | 166,634 | $ | (75,364 | ) | $ | 91,270 | 10 | $ | 195,116 |
|
| $ | (133,689 | ) |
| $ | 61,427 |
|
|
| 10 |
| ||||||||
Trade names and trademarks | 14,095 | (7,083 | ) | 7,012 | 7 |
| 7,918 |
|
|
| (3,225 | ) |
|
| 4,693 |
|
|
| 8 |
| |||||||||||
Non-compete agreements | 2,993 | (1,643 | ) | 1,350 | 2 |
| 1,100 |
|
|
| (712 | ) |
|
| 388 |
|
|
| 3 |
| |||||||||||
Content library | 475 | (357 | ) | 118 | 2 |
| 4,851 |
|
|
| (551 | ) |
|
| 4,300 |
|
|
| 5 |
| |||||||||||
Proprietary software | 1,550 | (955 | ) | 595 | 3 |
| 870 |
|
|
| (835 | ) |
|
| 35 |
|
|
| 5 |
| |||||||||||
Favorable lease agreement | 449 | (449 | ) | - | 2 | ||||||||||||||||||||||||||
|
| 209,855 |
|
|
| (139,012 | ) |
|
| 70,843 |
|
|
| 9 |
| ||||||||||||||||
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Domain names | 52,710 | - | 52,710 | N/A |
| 163,132 |
|
|
| — |
|
|
| 163,132 |
|
| N/A |
| |||||||||||||
|
|
| $ | 372,987 |
|
| $ | (139,012 | ) |
| $ | 233,975 |
|
|
|
|
| ||||||||||||||
$ | 238,906 | $ | (85,851 | ) | $ | 153,055 | 6 | ||||||||||||||||||||||||
|
|
|
The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible assets resulting from acquisitions completed prior to SeptemberJune 30, 2017,2021 is as follows (in thousands):
Years Ending December 31, | Amount | |||
2017 (remaining three months) | $ | 5,464 | ||
2018 | 15,126 | |||
2019 | 14,067 | |||
2020 | 11,380 | |||
2021 | 6,816 | |||
2022 | 5,723 | |||
2023 and thereafter | 28,932 |
| Amount |
| |
2021 (remainder of the year) | $ | 5,803 |
|
2022 |
| 10,421 |
|
2023 |
| 8,311 |
|
2024 |
| 8,077 |
|
2025 |
| 7,963 |
|
2026 |
| 6,982 |
|
2027 and thereafter |
| 17,461 |
|
Goodwill
Changes in goodwill for the ninesix months ended SeptemberJune 30, 2017 consist2021 consisted of the following (in thousands):
January 1, 2017 | Acquisition | Effect of Foreign Currency | September 30, 2017 | January 1, 2021 |
|
| Acquisition- Related (1) |
|
| Impairment |
|
| Effect of Foreign Currency |
|
| June 30, 2021 |
| ||||||||||||||||||
Americas | $ | 255,842 | $ | 410 | $ | 2,132 | $ | 258,384 | $ | 269,472 |
|
| $ | 176 |
|
| $ | 0 |
|
| $ | 393 |
|
| $ | 270,041 |
| ||||||||
EMEA | 9,562 | - | 1,082 | 10,644 |
| 29,937 |
|
|
| 0 |
|
|
| 0 |
|
|
| (309 | ) |
|
| 29,628 |
| ||||||||||||
|
|
|
| $ | 299,409 |
|
| $ | 176 |
|
| $ | 0 |
|
| $ | 84 |
|
| $ | 299,669 |
| |||||||||||||
$ | 265,404 | $ | 410 | $ | 3,214 | $ | 269,028 | ||||||||||||||||||||||||||||
|
|
|
|
Changes in goodwill for the year ended December 31, 2016 consist2020 consisted of the following (in thousands):
January 1, 2016 | Acquisition (1) | Effect of Foreign Currency | December 31, 2016 | January 1, 2020 |
|
| Acquisition- Related (1) |
|
| Impairment (2) |
|
| Effect of Foreign Currency |
|
| December 31, 2020 |
| ||||||||||||||||||
Americas | $ | 186,049 | $ | 70,563 | $ | (770 | ) | $ | 255,842 | $ | 259,953 |
|
| $ | 8,851 |
|
| $ | — |
|
| $ | 668 |
|
| $ | 269,472 |
| |||||||
EMEA | 9,684 | - | (122 | ) | 9,562 |
| 51,294 |
|
|
| — |
|
|
| (21,792 | ) |
|
| 435 |
|
|
| 29,937 |
| |||||||||||
|
|
|
| $ | 311,247 |
|
| $ | 8,851 |
|
| $ | (21,792 | ) |
| $ | 1,103 |
|
| $ | 299,409 |
| |||||||||||||
$ | 195,733 | $ | 70,563 | $ | (892 | ) | $ | 265,404 | |||||||||||||||||||||||||||
|
|
|
|
(1)See Note 2, Acquisitions, for further information. The six months ended June 30, 2021 includes the impact of adjustments to acquired goodwill upon refinements of the purchase price allocation of TMC’s assets acquired and liabilities assumed. The year ended December 31, 2020 includes the goodwill recorded related to the TMC acquisition.
(2) The year ended December 31, 2020 includes the impairment of a portion of the Symphony reporting unit’s goodwill.
The Company performs its annual goodwill impairment test during the third quarter, or more frequently if indicators of impairment exist.
For the annual goodwill impairment test, the Company elected to forgo the option to first assess qualitative factors and performed its annual quantitative goodwill impairment test as of July 31, 2017.2020. Under ASC 350,Intangibles – Goodwill and Other, the carrying value of assets is calculated at the reporting unit level. The quantitative assessment of goodwill includes comparing a reporting unit’s calculated fair value to its carrying value. The calculation of fair value requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the projected long-term rate of growth the useful life over which cash flows will occurrate and determination of the Company’s weighted average cost of capital.capital (“WACC”), which are classified as Level 3 inputs. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. If the fair value of
the reporting unit is less than its carrying value, goodwill is considered impaired and an impairment loss is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
The process of evaluating the fair value of the reporting units is highly subjective and requires significant judgment and estimates as the reporting units operate in a number of markets and geographical regions. The Company considered the income and market approaches to determine its best estimates of fair value, which incorporated the following significant assumptions:
• | Revenue projections, including revenue growth during the forecast periods; |
• | EBITDA margin projections over the forecast periods; |
• | Estimated income tax rates; |
• | Estimated capital expenditures; and |
• | Discount rates based on various inputs, including the risks associated with the specific reporting units as well as their revenue growth and EBITDA margin assumptions. |
As of July 31, 2017, 2020, the Company had 8 reporting units, seven of which had goodwill. The Company concluded that goodwill was not impaired for all six of its 7 of its reporting units with goodwill, based on generally accepted valuation techniques and the significant assumptions outlined above. While theabove. The fair values of four 3 of the six7 reporting units were substantially in excess of their carrying value,value. As part of this analysis, the QelpCompany considered the ongoing deterioration in general economic and Clearlinkmarket conditions due to the pandemic and its impact on each of the Company’s reporting units’ performance. The Clearlink, Latin America and Qelp reporting units’ fair value exceeded thetheir respective carrying values, although the fair value althoughcushion was not substantially.
substantial. The QelpClearlink, Latin America and ClearlinkQelp reporting units are at risk of future impairment if projected operating results are not met or other inputs into the fair value measurement change. However,model change.
The Symphony reporting unit’s carrying value exceeded its fair value as of Septemberthe July 31, 2020 annual impairment analysis, which resulted in a non-cash goodwill impairment of $21.8 million. Symphony’s on-site consulting model has been negatively impacted by travel and shelter-in-place restrictions imposed by governments, as well as the shift by businesses to work from home in an attempt to reduce the spread of COVID-19. These restrictions have continued longer than initially anticipated and have resulted in further declines in the cash flow projections at Symphony for 2020 as well as the Company’s projections for 2021 at the time of the annual impairment test. There is significant uncertainty regarding the length of time these restrictions will remain in place. An additional impairment charge may arise in the future if Symphony’s operations experience a protracted delay in the resumption
of its operations or a significant shift in client demand results from the economic downturn. As of June 30, 2017,2021, the Company believes there was no impairment related to Symphony’s remaining $19.3 million of goodwill as no triggering events were identified during the three and six months ended June 30, 2021.
As of June 30, 2021, the Company believes there were no0 indicators of impairment related to Qelp’s $10.6Clearlink’s $83.4 million of goodwill or Clearlink’s $71.0(which includes goodwill from the TMC acquisition), Latin America’s $18.1 million of goodwill and Qelp’s $10.4 million of goodwill. It is possible that future changes in circumstances, including a more prolonged and/or severe pandemic, or future changes in the variable associated with the judgments, assumptions and estimates used in assessing the fair value of the reporting units, could require the Company to record additional non-cash impairment charges.
Note 6. Financial Derivatives
Cash Flow Hedges –— The Company has derivative assets and liabilities relating to outstanding forward contracts and options, designated as cash flow hedges, as defined under ASC 815,Derivatives and Hedging (“ASC 815”), consisting of Philippine Peso, Costa Rican Colon, Hungarian Forint and Romanian Leu contracts. These foreign currency contracts are entered into to protect againsthedge the risk thatexposure to variability in the eventual cash flows resulting from such transactions will be adversely affected byof a specific asset or liability, or of a forecasted transaction that is attributable to changes in exchange rates.
The deferred gains (losses) and related taxes on the Company’s cash flow hedges recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) in the accompanying Condensed Consolidated Balance Sheets arewere as follows (in thousands):
September 30, 2017 | December 31, 2016 | June 30, 2021 |
|
| December 31, 2020 |
| |||||||||
Deferred gains (losses) in AOCI | $ | (761 | ) | $ | (2,295 | ) | $ | (1,017 | ) |
| $ | (2,188 | ) | ||
Tax on deferred gains (losses) in AOCI | (2 | ) | 69 |
| 3 |
|
|
| (3 | ) | |||||
|
| ||||||||||||||
Deferred gains (losses) in AOCI, net of taxes | $ | (763 | ) | $ | (2,226 | ) | $ | (1,014 | ) |
| $ | (2,191 | ) | ||
|
| ||||||||||||||
Deferred gains (losses) expected to be reclassified to “Revenues” from AOCI during the next twelve months | $ | (757 | ) | ||||||||||||
| |||||||||||||||
Deferred gains (losses) expected to be reclassified to "Revenues" from AOCI during the next twelve months | $ | (869 | ) |
|
|
|
|
Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts and options.options as well as the related settlement of forecasted transactions.
Net Investment Hedge – The Company enters into foreign exchange forward contracts to hedge its net investment in certain foreign operations, as defined under ASC 815. The purpose of these derivative instruments is to protect the Company’s interests against the risk that the net assets of certain foreign subsidiaries will be adversely affected by changes in exchange rates and economic exposures related to the Company’s foreign currency-based investments in these subsidiaries.
Non-Designated Hedges
Foreign Currency Forward Contracts–—The Company also periodically enters into foreign currency hedge contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to protect the Company’s interests against adverse foreign currency moves relating primarily to intercompany receivables and payables, and other assets and liabilities that are denominated in currencies other than the Company’s subsidiaries’ functional currencies. These contracts generally do not exceed 180 days in duration.
Embedded Derivatives – The Company enters into certain lease agreements which require payments not denominated in the functional currency of any substantial party to the agreements. The foreign currency component of these contracts meets the criteria under ASC 815 as embedded derivatives. The Company has determined that the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contracts (lease agreements), and separate, stand-alone instruments with the same terms as the embedded derivative instruments would otherwise qualify as derivative instruments, thereby requiring separation from the lease agreements and recognition at fair value. Such instruments do not qualify for hedge accounting under ASC 815.
The Company had the following outstanding foreign currency forward contracts and options and embedded derivatives (in thousands):
As of September 30, 2017 | As of December 31, 2016 | June 30, 2021 |
| December 31, 2020 |
| ||||||||||||||||||||||||
Contract Type | Notional Amount in USD | Settle Through Date | Notional Amount in USD | Settle Through Date | Notional Amount in USD |
|
| Settle Through Date |
| Notional Amount in USD |
|
| Settle Through Date |
| |||||||||||||||
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Options: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
US Dollars/Philippine Pesos | $ | 39,000 | September 2018 | $ | 51,000 | December 2017 | $ | 40,000 |
|
| April 2022 |
| $ | 12,000 |
|
| June 2021 |
| |||||||||||
Forwards: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
US Dollars/Philippine Pesos | 3,000 | June 2018 | - | - | $ | 2,000 |
|
| August 2021 |
|
| — |
|
|
| — |
| ||||||||||||
US Dollars/Costa Rican Colones | 64,000 | December 2018 | 45,500 | December 2017 |
| 34,000 |
|
| August 2022 |
|
| 36,000 |
|
| December 2021 |
| |||||||||||||
Euros/Hungarian Forints | 709 | December 2017 | - | - |
| 1,138 |
|
| December 2021 |
|
| — |
|
|
| — |
| ||||||||||||
Euros/Romanian Leis | 1,981 | December 2017 | - | - |
| 7,514 |
|
| December 2021 |
|
| — |
|
|
| — |
| ||||||||||||
Net investment hedges: | |||||||||||||||||||||||||||||
Forwards: | |||||||||||||||||||||||||||||
Euros/US Dollar | - | - | 76,933 | September 2017 | |||||||||||||||||||||||||
Non-designated hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Forwards | 27,468 | December 2017 | 55,614 | March 2017 | $ | 8,693 |
|
| November 2021 |
| $ | 12,439 |
|
| November 2021 |
| |||||||||||||
Embedded derivatives | 13,752 | April 2030 | 13,234 | April 2030 |
Master netting agreements exist with each respective counterparty to reduce credit risk by permitting net settlement of derivative positions. In the event of default by the Company or one of its counterparties, these agreements include
aset-off clause that provides thenon-defaulting party the right to net settle all derivative transactions, regardless of the currency and settlement date. The maximum amount of loss due to credit risk that, based on gross fair value, the Company would incur if parties to the derivative transactions that make up the concentration failed to perform according to the terms of the contracts was $0.8$0.6 million and $3.9$0.3 million as of SeptemberJune 30 2017, 2021 and December 31, 2016,2020, respectively. After consideration of these netting arrangements and offsetting positions by counterparty, the total net settlement amount as it relates to these positions are asset positions of $0.7$0.5 million and $3.6$0.3 million as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively, and liability positions of $0.8$1.0 million and $1.6$2.4 million as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
Although legally enforceable master netting arrangements exist between the Company and each counterparty, the Company has elected to present the derivative assets and derivative liabilities on a gross basis in the accompanying Condensed Consolidated Balance Sheets. Additionally, the Company is not required to pledge, nor is it entitled to receive, cash collateral related to these derivative transactions.
The following tables present the fair value of the Company’s derivative instruments included in the accompanying Condensed Consolidated Balance Sheets (in thousands):
Derivative Assets | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: | ||||||||
Foreign currency forward and option contracts(1) | $ | 538 | $ | - | ||||
Foreign currency forward and option contracts(2) | 4 | - | ||||||
|
|
|
|
|
| |||
542 | - | |||||||
Derivatives designated as net investment hedging instruments under ASC 815: | ||||||||
Foreign currency forward contracts(1) | - | 3,230 | ||||||
|
|
|
|
|
| |||
542 | 3,230 | |||||||
Derivatives not designated as hedging instruments under ASC 815: | ||||||||
Foreign currency forward contracts(1) | 273 | 691 | ||||||
Embedded derivatives(1) | 8 | 8 | ||||||
Embedded derivatives(2) | 33 | 4 | ||||||
|
|
|
|
|
| |||
Total derivative assets | $ | 856 | $ | 3,933 | ||||
|
|
|
|
|
| |||
Derivative Liabilities | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Fair Value | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments under ASC 815: | ||||||||
Foreign currency forward and option contracts(3) | $ | 908 | $ | 1,806 | ||||
Foreign currency forward and option contracts(4) | 8 | - | ||||||
|
|
|
|
|
| |||
916 | 1,806 | |||||||
Derivatives not designated as hedging instruments under ASC 815: | ||||||||
Foreign currency forward contracts(3) | - | 106 | ||||||
Embedded derivatives(3) | 167 | 174 | ||||||
Embedded derivatives(4) |
| 174
|
|
| 393
|
| ||
|
|
|
|
|
| |||
Total derivative liabilities | $ | 1,257 | $ | 2,479 | ||||
|
|
|
|
|
|
|
|
|
| Derivative Assets |
| |||||
|
| Balance Sheet Location |
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Derivatives designated as cash flow hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Other current assets |
| $ | 341 |
|
| $ | 154 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Other current assets |
|
| 276 |
|
|
| 183 |
|
Total derivative assets |
|
|
| $ | 617 |
|
| $ | 337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative Liabilities |
| |||||
|
| Balance Sheet Location |
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Derivatives designated as cash flow hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Other accrued expenses and current liabilities |
| $ | 905 |
|
| $ | 2,253 |
|
Foreign currency contracts |
| Other long-term liabilities |
|
| 148 |
|
|
| — |
|
|
|
|
|
| 1,053 |
|
|
| 2,253 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Other accrued expenses and current liabilities |
|
| 23 |
|
|
| 225 |
|
Total derivative liabilities |
|
|
| $ | 1,076 |
|
| $ | 2,478 |
|
(1)Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets.
(2)Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets.
(3)Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets.
(4)Included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets.
The following tables presenttable presents the effect of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the three months ended September 30, 2017 and 2016condensed consolidated financial statements (in thousands):
Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) | Gain (Loss) Reclassified From AOCI Into “Revenues” (Effective Portion) | Gain (Loss) Recognized in “Revenues” on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) | ||||||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Derivatives designated as cash flow hedging instruments under ASC 815: | ||||||||||||||||||||||||
Foreign currency forward and option contracts | $ | 585 | $ | (1,274 | ) | $ | (766 | ) | $ | 127 | $ | - | $ | - | ||||||||||
Derivatives designated as net investment hedging instruments under ASC 815: | ||||||||||||||||||||||||
Foreign currency forward contracts | (2,979 | ) | (979 | ) | - | - | - | - | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
$ | (2,394 | ) | $ | (2,253 | ) | $ | (766 | ) | $ | 127 | $ | - | $ | - | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in “Other income (expense), net” on Derivatives | ||||||||
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Derivatives not designated as hedging instruments under ASC 815: | ||||||||
Foreign currency forward contracts | $ | (252 | ) | $ | 240 | |||
Embedded derivatives | (193 | ) | (130 | ) | ||||
|
|
|
|
|
| |||
$ | (445 | ) | $ | 110 | ||||
|
|
|
|
|
|
The following tables present the effect of the Company’s derivative instruments included in the accompanying Condensed Consolidated Financial Statements for the nine months ended September 30, 2017 and 2016 (in thousands):
Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) | Gain (Loss) Reclassified From AOCI Into “Revenues” (Effective Portion) | Gain (Loss) Recognized in “Revenues” on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) | ||||||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Derivatives designated as cash flow hedging instruments under ASC 815: | ||||||||||||||||||||||||
Foreign currency forward and option contracts | $ | (881 | ) | $ | (843 | ) | $ | (2,346 | ) | $ | 77 | $ | - | $ | - | |||||||||
Derivatives designated as net investment hedging instruments under ASC 815: | ||||||||||||||||||||||||
Foreign currency forward contracts | (8,352 | ) | (1,677 | ) | - | - | - | - | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
$ | (9,233 | ) | $ | (2,520 | ) | $ | (2,346 | ) | $ | 77 | $ | - | $ | - | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in “Other income (expense), net” on Derivatives | ||||||||
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Derivatives not designated as hedging instruments under ASC 815: | ||||||||
Foreign currency forward contracts | $ | (170 | ) | $ | 1,610 | |||
Embedded derivatives | 122 | (176 | ) | |||||
|
|
|
|
|
| |||
$ | (48 | ) | $ | 1,434 | ||||
|
|
|
|
|
|
|
| Location of Gains (Losses) in |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| Net Income |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenues |
|
|
| $ | 448,885 |
|
| $ | 416,833 |
|
| $ | 906,771 |
|
| $ | 827,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized in AOCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
|
|
| $ | (504 | ) |
| $ | 1,179 |
|
|
| (296 | ) |
|
| 868 |
|
Gains (losses) reclassified from AOCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Revenues |
| $ | (676 | ) |
| $ | 1,438 |
|
|
| (1,433 | ) |
|
| 2,364 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized from foreign currency contracts |
| Other income (expense), net |
| $ | (42 | ) |
| $ | (164 | ) |
| $ | (7 | ) |
| $ | (410 | ) |
Note 7. Investments Held in Rabbi Trust
The Company’s investments held in rabbi trust, classified as trading securities and included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets, at fair value, consist of the following (in thousands):
September 30, 2017 | December 31, 2016 | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Mutual funds | $ | 8,017 | $ | 11,276 | $ | 7,257 | $ | 9,414 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
Mutual funds | $ | 11,560 |
|
| $ | 19,599 |
|
| $ | 10,332 |
|
| $ | 16,780 |
|
The mutual funds held in rabbi trust were 70%73% equity-based and 30%27% debt-based as of SeptemberJune 30, 2017.2021. Net investment incomegains (losses), included in “Other income (expense), net” in the accompanying Condensed Consolidated Statements of Operations consists of the following (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||||
Net realized gains (losses) from sale of trading securities | $ | 13 | $ | - | $ | 162 | $ | - | $ | 309 |
|
| $ | 12 |
|
| $ | 734 |
|
| $ | 62 |
| ||||||||
Dividend and interest income | 28 | 7 | 67 | 26 |
| 41 |
|
|
| 48 |
|
|
| 73 |
|
|
| 81 |
| ||||||||||||
Net unrealized holding gains (losses) | 401 | 317 | 943 | 471 |
| 773 |
|
|
| 1,756 |
|
|
| 841 |
|
|
| (384 | ) | ||||||||||||
|
|
|
| $ | 1,123 |
|
| $ | 1,816 |
|
| $ | 1,648 |
|
| $ | (241 | ) | |||||||||||||
Net investment income (losses) | $ | 442 | $ | 324 | $ | 1,172 | $ | 497 | |||||||||||||||||||||||
|
|
|
|
Note 8. Deferred Revenue
Deferred revenue consists of the following (in thousands):
September 30, 2017 | December 31, 2016 | |||||||
Future service | $ | 30,949 | $ | 27,116 | ||||
Estimated potential penalties and holdbacks | 6,879 | 6,593 | ||||||
Estimated chargebacks | 5,502 | 5,027 | ||||||
|
|
|
|
|
| |||
$ | 43,330 | $ | 38,736 | |||||
|
|
|
|
|
|
Note 9. Deferred Grants
Deferred grants, net of accumulated amortization, consist of the following (in thousands):
September 30, 2017 | December 31, 2016 | |||||||
Property grants | $ | 2,970 | $ | 3,353 | ||||
Lease grants | 525 | 502 | ||||||
Employment grants | 45 | 67 | ||||||
|
|
|
|
|
| |||
Total deferred grants | 3,540 | 3,922 | ||||||
Less: Lease grants - short-term(1) | (114 | ) | (94 | ) | ||||
Less: Employment grants - short-term(1) | (45 | ) | (67 | ) | ||||
|
|
|
|
|
| |||
Total long-term deferred grants | $ | 3,381 | $ | 3,761 | ||||
|
|
|
|
|
|
(1)Included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets.
Note 10. Borrowings
On May 12, 2015, the Company entered into a $440 million revolving credit facility (the “2015 Credit Agreement”) with a group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner, Administrative Agent, Swing Line Lender and Issuing Lender (“KeyBank”). The 2015 Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants.
The 2015 Credit Agreement includes a $200 million alternate-currencysub-facility, a $10 million swinglinesub-facility and a $35 million letter of creditsub-facility, and may be used for general corporate purposes including acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. The Company is not currently aware of any inability of its lenders to provide access to the full commitment of funds that exist under the revolving credit facility, if necessary. However, there can be no assurance that such facility will be available to the Company, even though it is a binding commitment of the financial institutions.
The 2015 Credit Agreement matures on May 12, 2020, and had outstanding borrowings of $267.0 million at both September 30, 2017 and December 31, 2016, included in “Long-term debt” in the accompanying Condensed Consolidated Balance Sheets.
On April 1, 2016, the Company borrowed $216.0 million under its 2015 Credit Agreement in connection with the acquisition of Clearlink.
Borrowings under the 2015 Credit Agreement bear interest at the rates set forth in the 2015 Credit Agreement. In addition, the Company is required to pay certain customary fees, including a commitment fee determined quarterly based on the Company’s leverage ratio and due quarterly in arrears as calculated on the average unused amount of the 2015 Credit Agreement.
The 2015 Credit Agreement is guaranteed by all of the Company’s existing and future direct and indirect material U.S. subsidiaries and secured by a pledge of 100% of thenon-voting and 65% of the voting capital stock of all the direct foreign subsidiaries of the Company and those of the guarantors.
In May 2015, the Company paid an underwriting fee of $0.9 million for the 2015 Credit Agreement, which is deferred and amortized over the term of the loan, along with the deferred loan fees of $0.4 million related to the previous credit agreement.
The following table presents information related to our credit agreements (dollars in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Average daily utilization | $ | 267,000 | $ | 272,000 | $ | 267,000 | $ | 207,161 | ||||||||
Interest expense, including commitment fee(1) | $ | 1,772 | $ | 1,171 | $ | 4,815 | $ | 2,625 | ||||||||
Weighted average interest rate(2) | 2.6% | 1.7% | 2.4% | 1.8% |
(1)Excludes the amortization of deferred loan fees.
(2)Includes the commitment fee.
Note 11. Accumulated Other Comprehensive Income (Loss)
The Company presents data in the Condensed Consolidated Statements of Changes in Shareholders’ Equity in accordance with ASC 220,Comprehensive Income (“ASC 220”). ASC 220 establishes rules for the reporting of comprehensive income (loss) and its components. The components of accumulated other comprehensive income (loss) consist of the following (in thousands):
Foreign Currency Translation Adjustments |
|
| Unrealized Gain (Loss) on Net Investment Hedge |
|
| Unrealized Gain (Loss) on Cash Flow Hedging Instruments |
|
| Unrealized Actuarial Gain (Loss) Related to Pension Liability |
|
| Unrealized Gain (Loss) on Postretirement Obligation |
|
| Total |
| |||||||||||||||||||||||||||||||
Foreign Currency Translation Gain (Loss) | Unrealized Gain (Loss) on Net Investment Hedge | Unrealized Actuarial Gain (Loss) Related to Pension Liability | Unrealized Gain (Loss) on Cash Flow Hedging Instruments | Unrealized Gain (Loss) on Post Retirement Obligation | Total | ||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2016 | $ | (58,601 | ) | $ | 4,170 | $ | 1,029 | $ | (527 | ) | $ | 267 | $ | (53,662 | ) | ||||||||||||||||||||||||||||||||
Balance at January 1, 2020 | $ | (52,749 | ) |
| $ | 1,046 |
|
| $ | 2,290 |
|
| $ | 2,324 |
|
| $ | 88 |
|
| $ | (47,001 | ) | ||||||||||||||||||||||||
Pre-tax amount | (13,832 | ) | 3,409 | 212 | (2,313 | ) | (9 | ) | (12,533 | ) |
| 12,461 |
|
|
| — |
|
|
| (839 | ) |
|
| (1,914 | ) |
|
| — |
|
|
| 9,708 |
| ||||||||||||||
Tax (provision) benefit | - | (1,313 | ) | (8 | ) | 72 | - | (1,249 | ) |
| — |
|
|
| — |
|
|
| (253 | ) |
|
| 182 |
|
|
| — |
|
|
| (71 | ) | |||||||||||||||
Reclassification of (gain) loss to net income | - | - | (52 | ) | 527 | (58 | ) | 417 |
| — |
|
|
| — |
|
|
| (3,418 | ) |
|
| (129 | ) |
|
| (88 | ) |
|
| (3,635 | ) | ||||||||||||||||
Foreign currency translation | 40 | - | (56 | ) | 16 | - | - |
| (162 | ) |
|
| — |
|
|
| 29 |
|
|
| 133 |
|
|
| — |
|
|
| — |
| |||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2016 | (72,393 | ) | 6,266 | 1,125 | (2,225 | ) | 200 | (67,027 | ) | ||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 |
| (40,450 | ) |
|
| 1,046 |
|
|
| (2,191 | ) |
|
| 596 |
|
|
| — |
|
|
| (40,999 | ) | ||||||||||||||||||||||||
Pre-tax amount | 31,922 | (8,352 | ) | - | (881 | ) | (1 | ) | 22,688 |
| (2,927 | ) |
|
| — |
|
|
| (296 | ) |
|
| — |
|
|
| — |
|
|
| (3,223 | ) | |||||||||||||||
Tax (provision) benefit | - | 3,132 | - | 15 | - | 3,147 |
| — |
|
|
| — |
|
|
| 11 |
|
|
| 1 |
|
|
| — |
|
|
| 12 |
| ||||||||||||||||||
Reclassification of (gain) loss to net income | - | - | (31 | ) | 2,263 | (37 | ) | 2,195 |
| — |
|
|
| — |
|
|
| 1,428 |
|
|
| (4 | ) |
|
| — |
|
|
| 1,424 |
| ||||||||||||||||
Foreign currency translation | (38 | ) | - | (27 | ) | 65 | - | - |
| (25 | ) |
|
| — |
|
|
| 34 |
|
|
| (9 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2017 | $ | (40,509 | ) | $ | 1,046 | $ | 1,067 | $ | (763 | ) | $ | 162 | $ | (38,997 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | (43,402 | ) |
| $ | 1,046 |
|
| $ | (1,014 | ) |
| $ | 584 |
|
| $ | — |
|
| $ | (42,786 | ) |
The following table summarizes the amounts reclassified to net income from accumulated other comprehensive income (loss) and the associated line item in the accompanying Condensed Consolidated Statements of Operations (in thousands):
Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Statements of Operations | |||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Statements of Operations Location | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| Location | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||||
Actuarial Gain (Loss) Related to Pension Liability:(1) | |||||||||||||||||||||||||||||||||||
Gain (loss) on cash flow hedging instruments: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Pre-tax amount | $ | 10 | $ | 10 | $ | 31 | $ | 32 | Direct salaries and related costs | $ | (676 | ) |
| $ | 1,438 |
|
| $ | (1,433 | ) |
| $ | 2,364 |
|
| Revenues | |||||||||
Tax (provision) benefit | - | - | - | - | Income taxes |
| 4 |
|
|
| (42 | ) |
|
| 5 |
|
|
| (70 | ) |
| Income taxes | |||||||||||||
|
|
|
| ||||||||||||||||||||||||||||||||
Reclassification to net income |
| (672 | ) |
|
| 1,396 |
|
|
| (1,428 | ) |
|
| 2,294 |
|
|
| ||||||||||||||||||
Actuarial gain (loss) related to pension liability: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Pre-tax amount |
| 2 |
|
|
| 23 |
|
|
| 3 |
|
|
| 46 |
|
| Other income (expense), net | ||||||||||||||||||
Tax (provision) benefit |
| 1 |
|
|
| 4 |
|
|
| 1 |
|
|
| 7 |
|
| Income taxes | ||||||||||||||||||
Reclassification to net income |
| 3 |
|
|
| 27 |
|
|
| 4 |
|
|
| 53 |
|
|
| ||||||||||||||||||
Gain (loss) on postretirement obligation: (2)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Reclassification to net income | 10 | 10 | 31 | 32 |
| — |
|
|
| 22 |
|
|
| — |
|
|
| 44 |
|
| Other income (expense), net | ||||||||||||||
$ | (669 | ) |
| $ | 1,445 |
|
| $ | (1,424 | ) |
| $ | 2,391 |
|
|
| |||||||||||||||||||
Gain (Loss) on Cash Flow Hedging Instruments:(2) | |||||||||||||||||||||||||||||||||||
Pre-tax amount | (766 | ) | 127 | (2,346 | ) | 77 | Revenues | ||||||||||||||||||||||||||||
Tax (provision) benefit | 25 | (17 | ) | 83 | 5 | Income taxes | |||||||||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||||||||||||
Reclassification to net income | (741 | ) | 110 | (2,263 | ) | 82 | |||||||||||||||||||||||||||||
Gain (Loss) on Post Retirement Obligation:(1),(3) | |||||||||||||||||||||||||||||||||||
Reclassification to net income | 12 | 13 | 37 | 40 | General and administrative | ||||||||||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||||||||||||
Total reclassification of gain (loss) to net income | $ | (719 | ) | $ | 133 | $ | (2,195 | ) | $ | 154 | |||||||||||||||||||||||||
|
|
|
|
(1)See Note 15,6, Financial Derivatives, for further information.
(2) See Note 12, Defined Benefit Pension Plan and Postretirement Benefits, for further information.
(2)See Note 6, Financial Derivatives, for further information.
(3)No related tax (provision) benefit.
As discussed in Note 12, Income Taxes,The Company has accrued income taxes on earnings which it plans to repatriate to the U.S. Any remaining earnings as well as other outside basis differences associated with the Company’s investments in its foreign subsidiaries are considered to be indefinitely reinvested and no provision for income taxes on those earnings or translation adjustments havehas been provided. See Note 9, Income Taxes, for further information.
Note 12.9. Income Taxes
The Company’s effective tax rate was 11.2% and 27.2% for the three months ended September 30, 2017 and 2016, respectively. The decrease in the effective tax rates is due to several significant factors, including the recognition of a $0.8 million previously unrecognized tax benefit, inclusive of penalties and interest, arising from a favorable tax audit settlement and statute of limitation expirations. Additionally, the Company recognized a $0.8 million benefit related to the increase in anticipated tax credits and reductions in estimatednon-deferred foreign income,were as well as a $0.3 million benefit for the release of a valuation allowance where it is more likely than not that the benefit will be realized. follows:
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Effective tax rate |
| 21.5 | % |
|
| 22.3 | % |
|
| 20.3 | % |
|
| 24.3 | % |
The decrease in the effective tax rate for the three months ended June 30, 2021 as compared to 2020 was primarily due to a $1.0 million discrete tax benefit relating to changes in the Company’s valuation allowances, which was partially offset by the UK tax rate change during the three months ended June 30, 2021. The decrease was also significantly affected by shifts in earnings among the various jurisdictions in which the Company operates. Several additional factors, none of which arewere individually material, also impacted the rate. The difference between the Company’s effective tax rate as compared to the U.S. statutory federal income tax rate of 35.0%21.0% was primarily due to the aforementioned factors as well astax impact of permanent differences, state income and foreign withholding taxes, partially offset by the recognition of net tax benefits resulting from foreign tax rate differentials, income earned in certain tax holiday jurisdictions and tax credits.
The decrease in the effective tax rate for the six months ended June 30, 2021 as compared to 2020 was primarily due to $2.0 million in discrete tax benefits relating to changes in the Company’s valuation allowances, the Philippines tax law change and stock compensation recognized, partially offset by the UK tax rate change during the six months ended June 30, 2021. The decrease was also affected by shifts in earnings among the various jurisdictions in which the Company operates. Several additional factors, none of which were individually material, also impacted the rate. The difference between the Company’s effective tax rate as compared to the U.S. statutory federal tax rate of 21.0% was primarily due to the recognition of net tax benefits resulting from foreign tax rate differentials, income earned in certain tax holiday jurisdictions and tax credits, partially offset by the tax impact of permanent differences, state income and foreign withholding taxes.
The Company’s effective tax rate was 18.1% and 28.9% for the nine months ended September 30, 2017 and 2016, respectively. The decrease in the effective tax rates is due to several significant factors, including the recognition of $2.0 million of previously unrecognized tax benefits, inclusive of penalties and interest, of which $1.2 million arose from the effective settlement of the Canadian Revenue Agency audit and $0.8 million arose from other favorable audit settlements and statute of limitation expirations. Additionally, the Company recognized a $0.8 million benefit related to the increase in anticipated tax credits and reductions in estimatednon-deferred foreign income, as well as a $0.3 million benefit for the release of a valuation allowance where it is more likely than not that the benefit will be realized.
The Company also recognized a $0.9 million tax benefit resulting from the adoption of ASU2016-09 on January 1, 2017. The decrease in the effective tax rate was also significantly affected by shifts in earnings among the various jurisdictions in which the Company operates. Several additional factors, none of which are individually material, also impacted the rate. The difference between the Company’s effective tax rate as compared to theprovides U.S. statutory federal income tax rate of 35.0% was primarily due to the aforementioned factors as well as the recognition of tax benefits resulting from foreign tax rate differentials, income earned in certain tax holiday jurisdictions and tax credits, partially offset by the tax impact of permanent differences and foreign withholding taxes.
Earnings associated with the investments in the Company’s foreign subsidiaries are considered to be indefinitely reinvested outside of the U.S. Therefore, a U.S. provision for income taxes on thosethe earnings of foreign subsidiaries unless they are exempted from taxation. No additional income taxes have been provided for any indefinitely reinvested earnings or translation adjustments has not been recorded, as permitted by criterion outlined in ASC 740,Income Taxes(“ASC 740”). Determinationoutside basis differences. Determining the amount of any unrecognized deferred tax liability related to investmentsany remaining outside basis
difference in foreign subsidiariesthese entities is not practicable due to the inherent complexity of the multi-nationalmulti-jurisdictional tax environment in which the Company operates.
The Company received assessments for the Canadian 2003-2009 audit. Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the U.S. Internal Revenue Service and the Company paid mandatory security deposits to Canada as part of this process. The total amount of the deposits was $13.8 million as of December 31, 2016 (none at September 30, 2017) and was included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet. As of June 30, 2017, the Company determined that all material aspects of the Canadian audit were effectively settled pursuant to ASC 740. As a result, the Company recognized a net income tax benefit of $1.2 million and the deposits were applied against the anticipated liability.
With the effective settlement of the Canadian audit, the Company has no significant tax jurisdictions under audit; however, the Company is currently under audit in several tax jurisdictions. The Company believes it is adequately reserved forhas adequate reserves related to all matters pertaining to these audits. Should the remainingCompany experience unfavorable outcomes from these audits, and their resolution is not expected tosuch outcomes could have a materialsignificant impact on its financial condition, and results of operations.operations and cash flows.
Note 13.10. Earnings Per Share
Basic earnings per share are based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the respective periods and the further dilutive effect, if any, from stock appreciation rights, restricted stock, restricted stock units and shares held in rabbi trust using the treasury stock method.
The numbers of shares used in the earnings per share computation arewere as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Weighted average common shares outstanding | 41,879 | 41,938 | 41,800 | 41,873 |
| 39,779 |
|
|
| 40,318 |
|
|
| 39,711 |
|
|
| 40,726 |
| ||||||||||||
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dilutive effect of stock appreciation rights, restricted stock, restricted stock units and shares held in rabbi trust | 154 | 286 | 206 | 360 |
| 163 |
|
|
| 62 |
|
|
| 240 |
|
|
| 131 |
| ||||||||||||
|
|
|
| ||||||||||||||||||||||||||||
Total weighted average diluted shares outstanding | 42,033 | 42,224 | 42,006 | 42,233 |
| 39,942 |
|
|
| 40,380 |
|
|
| 39,951 |
|
|
| 40,857 |
| ||||||||||||
|
|
|
| ||||||||||||||||||||||||||||
Anti-dilutive shares excluded from the diluted earnings per share calculation | 14 | 23 | 16 | 22 |
| 86 |
|
|
| 101 |
|
|
| 52 |
|
|
| 51 |
| ||||||||||||
|
|
|
|
On August 18, 2011, the Company’s Board of Directors (the “Board”) authorized the Company to purchase up to 5.0 million shares of its outstanding common stock (the “2011 Share Repurchase Program”). On March 16, 2016, the Board authorized an increase of 5.0 million shares to the 2011 Share Repurchase Program for a total of 10.0 million shares. A total of 5.38.3 million shares have been repurchased under the 2011 Share Repurchase Program since inception. The shares are purchased, from time to time, through open market purchases or in negotiated private transactions, and the purchases are based on factors, including but not limited to, the stock price, management discretion and general market conditions. The 2011 Share Repurchase Program has no expiration date.
The shares repurchased under the Company’s share repurchase program2011 Share Repurchase Program were as follows (none in 2021) (in thousands, except per share amounts) (none in 2017):
Total Number of Shares Repurchased | Range of Prices Paid Per Share | Total Cost of Shares Repurchased | ||||||||||||||
Low | High | |||||||||||||||
Three Months Ended: | ||||||||||||||||
September 30, 2016 | 140 | $ | 29.27 | $ | 30.00 | $ | 4,117 | |||||||||
Nine Months Ended: | ||||||||||||||||
September 30, 2016 | 140 | $ | 29.27 | $ | 30.00 | $ | 4,117 |
|
| Total Number of |
|
|
|
|
| Total Cost of |
| |||||||
|
| Shares |
|
| Range of Prices Paid Per Share |
|
| Shares |
| |||||||
|
| Repurchased |
|
| Low |
|
| High |
|
| Repurchased |
| ||||
Three Months Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
| 500 |
|
| $ | 23.90 |
|
| $ | 27.94 |
|
| $ | 13,019 |
|
Six Months Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
| 1,360 |
|
| $ | 23.33 |
|
| $ | 31.91 |
|
| $ | 35,928 |
|
Note 14.11. Commitments and Loss ContingencyContingencies
Purchase Commitments
During the nine months ended September 30, 2017, the Company entered into several leases in the ordinary course of business. The following is a schedule of future minimum rental payments required under operating leases that have noncancelable lease terms as of September 30, 2017, including the impact of the leases assumed in connection with the Telecommunications Asset acquisition (in thousands):
Amount | ||||
2017 (remaining three months) | $ | 1,560 | ||
2018 | 7,645 | |||
2019 | 7,271 | |||
2020 | 7,474 | |||
2021 | 7,631 | |||
2022 | 6,940 | |||
2023 and thereafter | 18,437 | |||
|
|
| ||
Total minimum payments required | $ | 56,958 | ||
|
|
|
During the nine months ended September 30, 2017, theThe Company enteredenters into various purchase commitment agreements with third-party vendors in the ordinary course of business whereby the Company committedcommits to purchase goods and services used in its normal operations. These agreements generally are not cancelable, range from one to five yearfive-year periods and may contain fixed or minimum annual commitments. Certain of these agreements allow for renegotiation of the minimum annual commitments. The followingcommitments.
Loss Contingencies
Contingencies are recorded in the consolidated financial statements when it is probable that a scheduleliability will be incurred and the amount of the future minimum purchases remaining underloss is reasonably estimable, or otherwise disclosed, in accordance with ASC 450, Contingencies (“ASC 450”). Significant judgment is required in both the agreementsdetermination of probability and the determination as to whether a loss is reasonably estimable. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450.
The Company received a state audit assessment and is currently rebutting the position. The Company has determined that the likelihood of a liability is reasonably possible and developed a range of possible loss up to $2.0 million, net of federal benefit, as of SeptemberJune 30, 2017 (in thousands):2021.
Amount | ||||
2017 (remaining three months) | $ | 6,646 | ||
2018 | 20,021 | |||
2019 | 12,994 | |||
2020 | 5,727 | |||
2021 | - | |||
2022 | - | |||
2023 and thereafter | - | |||
|
|
| ||
Total minimum payments required | $ | 45,388 | ||
|
|
|
The July 2015 Qelp acquisition included contingent consideration of $6.0 million, based on achieving targets tiedTwo lawsuits relating to revenues and EBITDAthe Merger, each filed by an individual shareholder, have been filed in the United States District Court for the years ended December 31, 2016, 2017Southern District of New York, captioned Shiva Stein v. Sykes Enterprises, Incorporated, et al., Case No. 1:21-cv-06043, and 2018. On September 26, 2016,Matthew Whitfield v. Sykes Enterprises, Incorporated, et al., Case No. 1:21-cv-06163.
The Company and individual members of its Board of Directors are named as defendants in each complaint. The complaints generally allege that the defendants violated the Exchange Act by making untrue statements in, or failing to disclose material information in, the Company’s preliminary proxy statement filed on July 12, 2021, and generally seeks, among other things, injunctive relief prohibiting consummation of the Merger and unspecified damages and attorneys’ fees.
The defendants deny the allegations made in the complaints. Additional complaints arising out of or relating to the Merger Agreement and the transactions contemplated thereby may be filed in the future. If additional similar complaints are filed, absent new or different allegations that are material, the Company entered into an addendum to the Qelp purchase agreement with the sellers to settle the outstanding contingent consideration for EUR 4.0 million to be paid by June 30, 2017. The Company paid $4.4 million in May 2017 to settle the outstanding contingent consideration obligation.
As part of the April 2016 Clearlink acquisition, the Company assumed contingent consideration liabilities related to four separate acquisitions made by Clearlink in 2015 and 2016, prior to the Merger. The fair value of the contingent consideration related to these previous acquisitions was $2.8 million as of April 1, 2016 and was based on achieving targets primarily tied to revenues for varying periods of time during 2016 and 2017. As of September 30, 2017, the fair value of the remaining contingent consideration was $1.0 million, which was paid in October 2017.
Loss Contingencywill not necessarily announce such additional filings.
The Company, from time to time, is involved in legal actions arising in the ordinary course of business. With respect to theseany such other currently pending matters, management believes that the Company has adequate legal defenses and/or, when possible and appropriate, has provided adequate accruals related to those matters such that the ultimate outcome will not have a material adverse effect on the Company’s financial position, or results of operations.operations or cash flows.
Note 15.12. Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plans
The following table provides information about the net periodic benefit cost for the Company’s pension plans (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Service cost | $ | 118 | $ | 112 | $ | 371 | $ | 350 | ||||||||
Interest cost | 46 | 42 | 144 | 131 | ||||||||||||
Recognized actuarial (gains) | (10 | ) | (10 | ) | (31 | ) | (32 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net periodic benefit cost | $ | 154 | $ | 144 | $ | 484 | $ | 449 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Service cost (1) | $ | 183 |
|
| $ | 108 |
|
| $ | 364 |
|
| $ | 213 |
|
Interest cost (2) |
| 61 |
|
|
| 52 |
|
|
| 122 |
|
|
| 103 |
|
Recognized actuarial (gains) (2) |
| (2 | ) |
|
| (23 | ) |
|
| (3 | ) |
|
| (46 | ) |
| $ | 242 |
|
| $ | 137 |
|
| $ | 483 |
|
| $ | 270 |
|
(1) Included in "Direct salaries and related costs" and “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations.
(2) Included in "Other income (expense), net" in the accompanying Condensed Consolidated Statements of Operations.
Employee Retirement Savings Plans
The Company maintains a 401(k) plan covering defined employees who meet established eligibility requirements. Under the plan provisions, the Company matches 50% of participant contributions to a maximum matching amount of 2% of participant compensation. The Company’s contributions included in the accompanying Condensed Consolidated Statements of Operations were as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
401(k) plan contributions | $ | 484 | $ | 260 | $ | 1,104 | $ | 879 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Split-Dollar Life Insurance Arrangement
In 1996, the Company entered into a split-dollar life insurance arrangement to benefit the former Chairman and Chief Executive Officer of the Company. Under the terms of the arrangement, the Company retained a collateral interest in the policy to the extent of the premiums paid by the Company. The postretirement benefit obligation included in “Other long-term liabilities” and the unrealized gains (losses) included in “Accumulated other comprehensive income” in the accompanying Condensed Consolidated Balance Sheets were as follows (in thousands):
September 30, 2017 | December 31, 2016 | |||||||
Postretirement benefit obligation | $ | 19 | $ | 27 | ||||
Unrealized gains (losses) in AOCI(1) | 162 | 200 |
(1)Unrealized gains (losses) are impacted by changes in discount rates related to the postretirement obligation.
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
401(k) plan contributions | $ | 801 |
|
| $ | 711 |
|
| $ | 1,652 |
|
| $ | 1,491 |
|
Note 16.13. Stock-Based Compensation
The Company’s stock-based compensation plans include the 2011 Equity Incentive Plan, theNon-Employee Director Fee Plan and the Deferred Compensation Plan. The following table summarizes the stock-based compensation expense (primarily in the Americas), and income tax benefits related to the stock-based compensation, both plan and excess tax benefits (deficiencies)non-plan related (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Stock-based compensation reversal (expense)(1) | $ | 303 | $ | (2,107 | ) | $ | (4,429 | ) | $ | (7,836 | ) | |||||
Income tax benefit (expense)(2) | (161 | ) | 840 | 1,661 | 3,017 | |||||||||||
Excess tax benefit (deficiency) from stock-based compensation(3) | - | 5 | - | 2,065 |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Stock-based compensation (expense) (1) | $ | (3,618 | ) |
| $ | (2,042 | ) |
| $ | (8,369 | ) |
| $ | (3,902 | ) |
Income tax benefit (2) |
| 869 |
|
|
| 490 |
|
|
| 2,009 |
|
|
| 936 |
|
(1)Included in “General"General and administrative”administrative" costs in the accompanying Condensed Consolidated Statements of Operations.
(2)Included in “Income taxes”"Income taxes" in the accompanying Condensed Consolidated Statements of Operations.Operations.
(3)Included in “Additionalpaid-in capital” inDuring the accompanying Condensed Consolidated Statements of Changes in Shareholders’ Equity.
There were no capitalized stock-based compensation costs as of Septembersix months ended June 30, 2017 and December 31, 2016.
Beginning January 1, 2017, as a result of the adoption of ASU2016-09,2021, the Company began accounting for forfeitures as they occur, rather than estimating expected forfeitures. The net cumulative effect of this change was recognized as a $0.2granted 0.3 million reduction to retained earnings as of January 1, 2017. Additionally, excess tax benefits (deficiencies) fromperformance-based restricted shares/restricted stock compensation are included in “Income taxes” in the accompanying Condensed Consolidated Statements of Income subsequent to the adoption of ASU2016-09.
2011Equity Incentive Plan—The Company’s Board of Directors (the “Board”) adopted the Sykes Enterprises, Incorporated 2011 Equity Incentive Plan (the “2011 Plan”) on March 23, 2011, as amended on May 11, 2011 to reduce the number of shares of commonunits and 0.1 million service-based restricted shares/restricted stock available to 4.0 million shares. The 2011 Plan was approved by the shareholders at the May 2011 Annual Shareholders’ Meeting. The 2011 Plan replaced and supersededunits under the Company’s 2001 Equity Incentive2019 Plan, (the “2001 Plan”), which expired on March 14, 2011. The outstanding awards granted under the 2001 Plan will remain in effect until their exercise, expiration or termination. The 2011 Plan permits the grant of restricted stock, stock appreciation rights, stock options and other stock-based awards to certain employees of the Company, members of the Company’s Board and certainnon-employees who provide services to the Company in order to encourage them to remain in the employment of, or to faithfully provide services to, the Company and to increase their interest in the Company’s success.
Stock Appreciation Rights—The Board,all at the recommendation of the Compensation and Human Resources Development Committee (the “Compensation Committee”), has approved in the past, and may approve in the future, awards of stock-settled stock appreciation rights (“SARs”) for eligible participants. SARs represent the right to receive, without payment to the Company, a certain number of shares of common stock, as determined by the Compensation Committee, equal to the amount by which the fair market value of a share of common stock at the time of exercise exceeds the grant price. The SARs are granted at the fair market value of the Company’s common stock on the date of the grant and vestone-third on each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date. The SARs have a term of 10 years from the date of grant. Theweighted average grant-date fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model that uses various assumptions.
The following table summarizes the assumptions used to estimate the fair value of SARS granted:
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Expected volatility | 19.3 | % | 25.3 | % | ||||
Weighted-average volatility | 19.3 | % | 25.3 | % | ||||
Expected dividend rate | 0.0 | % | 0.0 | % | ||||
Expected term (in years) | 5.0 | 5.0 | ||||||
Risk-free rate | 1.9 | % | 1.5 | % |
The following table summarizes SARs activity as of September 30, 2017 and for the nine months then ended:
Stock Appreciation Rights | Shares (000s) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (000s) | ||||||||||||
Outstanding at January 1, 2017 | 633 | $ | - | |||||||||||||
Granted | 396 | $ | - | |||||||||||||
Exercised | (196 | ) | $ | - | ||||||||||||
Forfeited or expired | (70 | ) | $ | - | ||||||||||||
|
|
| ||||||||||||||
Outstanding at September 30, 2017 | 763 | $ | - | 8.6 | $ | 915 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Vested or expected to vest at September 30, 2017 | 763 | $ | - | 8.6 | $ | 915 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Exercisable at September 30, 2017 | 163 | $ | - | 7.0 | $ | 658 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information regarding SARs granted and exercised (in thousands, except$44.79 per SAR amounts):share.
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Number of SARs granted | 396 | 323 | ||||||
Weighted average grant-date fair value per SAR | $ | 6.24 | $ | 7.68 | ||||
Intrinsic value of SARs exercised | $ | 1,678 | $ | 1,691 | ||||
Fair value of SARs vested | $ | 1,846 | $ | 1,520 |
The following table summarizes nonvested SARs activity as of September 30, 2017 and for the nine months then ended:
Nonvested Stock Appreciation Rights | Shares (000s) | Weighted Average Grant- Date Fair Value | ||||||
Nonvested at January 1, 2017 | 515 | $ | 7.76 | |||||
Granted | 396 | $ | 6.24 | |||||
Vested | (241 | ) | $ | 7.69 | ||||
Forfeited or expired | (70 | ) | $ | 6.93 | ||||
|
|
| ||||||
Nonvested at September 30, 2017 | 600 | $ | 6.88 | |||||
|
|
|
As of September 30, 2017, there was $3.1 million of total unrecognized compensation cost, net of actual forfeitures, related to nonvested SARs granted under the 2011 Plan. This cost is expected to be recognized over a weighted average period of 1.4 years.
Restricted Shares –The Board, at the recommendation of the Compensation Committee, has approved in the past, and may approve in the future, awards of performance and employment-based restricted shares (“restricted shares”) for eligible participants. In some instances, where the issuance of restricted shares has adverse tax consequences to the recipient, the Board may instead issue restricted stock units (“RSUs”). The restricted shares are shares of the Company’s common stock (or in the case of RSUs, represent an equivalent number of shares of the Company’s common stock) which are issued to the participant subject to (a) restrictions on transfer for a period of time and (b) forfeiture under certain conditions. The performance goals, including revenue growth and income from operations targets, provide a range of vesting possibilities from 0% to 100% and will be measured at the end of the performance period. If the performance conditions are met for the performance period, the shares will vest and all restrictions on the transfer of the restricted shares will lapse (or in the case of RSUs, an equivalent number of shares of the Company’s common stock will be issued to the recipient). The Company recognizes compensation cost, net of actual forfeitures, based on the fair value (which approximates the current market price) of the restricted shares (and RSUs) on the date of grant ratably over the requisite service period based on the probability of achieving the performance goals.
Changes in the probability of achieving the performance goals from period to period will result in corresponding changes in compensation expense. The employment-based restricted shares currently outstanding vestone-third on
each of the first three anniversaries of the date of grant, provided the participant is employed by the Company on such date.
The following table summarizes nonvested restricted shares/RSUs activity as of September 30, 2017 and for the nine months then ended:
Nonvested Restricted Shares and RSUs | Shares (000s) | Weighted Average Grant- Date Fair Value | ||||||
Nonvested at January 1, 2017 | 1,136 | $ | 25.47 | |||||
Granted | 480 | $ | 29.42 | |||||
Vested | (328 | ) | $ | 20.95 | ||||
Forfeited or expired | (179 | ) | $ | 25.62 | ||||
|
|
| ||||||
Nonvested at September 30, 2017 | 1,109 | $ | 28.50 | |||||
|
|
|
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands, except per restricted share/RSU amounts):
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Number of restricted shares/RSUs granted | 480 | 451 | ||||||
Weighted average grant-date fair value per restricted share/RSU | $ | 29.42 | $ | 30.32 | ||||
Fair value of restricted shares/RSUs vested | $ | 6,868 | $ | 6,785 |
As of September 30, 2017, there was $25.0 million of total unrecognized compensation cost, net of actual forfeitures, related to nonvested restricted shares/RSUs granted under the 2011 Plan. This cost is expected to be recognized over a weighted average period of 1.8 years.
Non-Employee Director Fee Plan—The Company’s 2004Non-Employee Director Fee Plan (the “2004 Fee Plan”), as amended on May 17, 2012, provided that all newnon-employee directors joining the Board would receive an initial grant of shares of common stock on the date the new director is elected or appointed, the number of which will be determined by dividing $60,000 by the closing price of the Company’s common stock on the trading day immediately preceding the date a new director is elected or appointed, rounded to the nearest whole number of shares. The initial grant of shares vested in twelve equal quarterly installments,one-twelfth on the date of grant and an additionalone-twelfth on each successive third monthly anniversary of the date of grant. The award lapses with respect to all unvested shares in the event thenon-employee director ceases to be a director of the Company, and any unvested shares are forfeited.
The 2004 Fee Plan also provided that eachnon-employee director would receive, on the day after the annual shareholders’ meeting, an annual retainer for service as anon-employee director (the “Annual Retainer”). Prior to May 17, 2012, the Annual Retainer was $95,000, of which $50,000 was payable in cash, and the remainder was paid in stock. The annual grant of cash vested in four equal quarterly installments,one-fourth on the day following the annual meeting of shareholders, and an additionalone-fourth on each successive third monthly anniversary of the date of grant. The annual grant of shares paid tonon-employee directors prior to May 17, 2012 vests in eight equal quarterly installments,one-eighth on the day following the annual meeting of shareholders, and an additionalone-eighth on each successive third monthly anniversary of the date of grant. On May 17, 2012, upon the recommendation of the Compensation Committee, the Board adopted the Fifth Amended and RestatedNon-Employee Director Fee Plan (the “Amendment”), which increased the common stock component of the Annual Retainer by $30,000, resulting in a total Annual Retainer of $125,000, of which $50,000 was payable in cash and the remainder paid in stock. In addition, the Amendment also changed the vesting period for the annual equity award, from atwo-year vesting period, to aone-year vesting period (consisting of four equal quarterly installments,one-fourth on the date of grant and an additionalone-fourth on each successive third monthly anniversary of the date of grant). The award lapses with respect to all unpaid cash and unvested shares in the event thenon-employee director ceases to be a director of the Company, and any unvested shares and unpaid cash are forfeited.
In addition to the Annual Retainer award, the 2004 Fee Plan also provided for anynon-employee Chairman of the Board to receive an additional annual cash award of $100,000, and eachnon-employee director serving on a committee of the Board to receive an additional annual cash award. The additional annual cash award for the
Chairperson of the Audit Committee is $20,000 and Audit Committee members’ are entitled to an annual cash award of $10,000. The annual cash awards for the Chairpersons of the Compensation Committee, Finance Committee and Nominating and Corporate Governance Committee are $15,000, $12,500 and $12,500, respectively, and all other members of such committees are entitled to an annual cash award of $7,500.
The 2004 Fee Plan expired in May 2014, prior to the 2014 annual shareholders’ meeting. In March 2014, upon the recommendation of the Compensation Committee, the Board determined that, following the expiration of the 2004 Fee Plan, the compensation ofnon-employee Directors should continue on the same terms as provided in the Fifth Amended and RestatedNon-Employee Director Fee Plan, except the amounts of cash and equity grants shall be determined annually by the Board, and that the stock portion of such compensation would be issued under the 2011 Plan.
At the Board’s regularly scheduled meeting on December 10, 2014, upon the recommendation of the Compensation Committee, the Board determined that the amount of the cash and equity compensation payable tonon-employee directors beginning on the date of the 2015 annual shareholders’ meeting would be increased as follows: cash compensation would be increased by $5,000 per year to a total of $55,000 and equity compensation would be increased by $25,000 per year to a total of $100,000. No change would be made in the additional amounts payable to the Chairman of the Board or the Chairs or members of the various Board committees for their service on such committees, and no changes would be made in the payment terms described above for such cash and equity compensation.
At the Board’s regularly scheduled meeting on December 6, 2016, upon the recommendation of the Compensation Committee, the Board determined that the amount of the cash compensation payable tonon-employee directors beginning on the date of the 2017 annual shareholders’ meeting would be increased by $15,000 per year to a total of $70,000.
The Board may pay additional cash compensation to anynon-employee director for services on behalf of the Board over and above those typically expected of directors, including but not limited to service on a special committee of the Board. Directors who are executive officers of the Company receive no compensation for service as members of either the Board of Directors or any committees of the Board.
The following table summarizes nonvested common stock share award activity as of September 30, 2017 and for the nine months then ended:
Nonvested Common Stock Share Awards | Shares (000s) | Weighted Average Grant- Date Fair Value | ||||||
Nonvested at January 1, 2017 | 10 | $ | 28.69 | |||||
Granted | 24 | $ | 32.93 | |||||
Vested | (20 | ) | $ | 31.14 | ||||
Forfeited or expired | - | $ | - | |||||
|
|
| ||||||
Nonvested at September 30, 2017 | 14 | $ | 32.45 | |||||
|
|
|
The following table summarizes information regarding common stock share awards granted and vested (in thousands, except per share award amounts):
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Number of share awards granted | 24 | 32 | ||||||
Weighted average grant-date fair value per share award | $ | 32.93 | $ | 29.04 | ||||
Fair value of share awards vested | $ | 640 | $ | 630 |
As of September 30, 2017, there was $0.4 million of total unrecognized compensation cost, net of actual forfeitures, related to nonvested common stock share awards granted under the Fee Plan. This cost is expected to be recognized over a weighted average period of less than one year.
Deferred Compensation Plan—The Company’snon-qualified Deferred Compensation Plan (the “Deferred Compensation Plan”), which is not shareholder-approved, was adopted by the Board effective December 17, 1998. It was last amended and restated on December 9, 2015, effective as of January 1, 2016, and was subsequently amended on May 18, 2016, effective as of June 30, 2016, August 17, 2016, effective as of January 1, 2017, May 25, 2017, effective as of July 1, 2017 and August 15, 2017, effective January 1, 2018. Eligibility is limited to a select group of key management and employees who are expected to receive an annualized base salary (which will not take into account bonuses or commissions) that exceeds the amount taken into account for purposes of determining highly compensated employees under Section 414(q) of the Internal Revenue Code of 1986 based on the current year’s base salary and applicable dollar amounts. The Deferred Compensation Plan provides participants with the ability to defer between 1% and 80% of their compensation (between 1% and 100% prior to June 30, 2016, the effective date of the first amendment) until the participant’s retirement, termination, disability or death, or a change in control of the Company. Using the Company’s common stock, the Company matches 50% of the amounts deferred by participants on a quarterly basis up to a total of $12,000 per year for the president, chief executive officer and executive vice presidents, $7,500 per year for senior vice presidents, global vice presidents and vice presidents, and, effective January 1, 2017, $5,000 per year for all other participants (there was no match for other participants prior to January 1, 2017, the effective date of the second amendment). Matching contributions and the associated earnings vest over a seven-year service period. Vesting will be accelerated in the event of the participant’s death or disability, a change in control or retirement (defined as separate from service after age 65). In the event of a distribution of benefits as a result of a change in control of the Company, the Company will increase the benefit by an amount sufficient to offset the income tax obligations created by the distribution of benefits. Deferred compensation amounts used to pay benefits, which are held in a rabbi trust, include investments in various mutual funds and shares of the Company’s common stock (see Note 7, Investments Held in Rabbi Trust).
As of September 30, 2017 and December 31, 2016, liabilities of $11.3 million and $9.4 million, respectively, of the Deferred Compensation Plan were recorded in “Accrued employee compensation and benefits” in the accompanying Condensed Consolidated Balance Sheets. Additionally, the Company’s common stock match associated with the Deferred Compensation Plan, with a carrying value of approximately $2.1 million and $1.8 million as of September 30, 2017 and December 31, 2016, respectively, is included in “Treasury stock” in the accompanying Condensed Consolidated Balance Sheets.
The following table summarizes nonvested common stock activity as of September 30, 2017 and for the nine months then ended:
Nonvested Common Stock | Shares (000s) | Weighted Average Grant- Date Fair Value | ||||||
Nonvested at January 1, 2017 | 2 | $ | 22.77 | |||||
Granted | 12 | $ | 30.39 | |||||
Vested | (10 | ) | $ | 29.42 | ||||
Forfeited or expired | (1 | ) | $ | 29.81 | ||||
|
|
| ||||||
Nonvested at September 30, 2017 | 3 | $ | 29.18 | |||||
|
|
|
The following table summarizes information regarding shares of common stock granted and vested (in thousands, except per common stock amounts):
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Number of shares of common stock granted | 12 | 8 | ||||||
Weighted average grant-date fair value per common stock | $ | 30.39 | $ | 29.39 | ||||
Fair value of common stock vested | $ | 310 | $ | 241 | ||||
Cash used to settle the obligation | $ | 590 | $ | 359 |
As of September 30, 2017, there was $0.1 million of total unrecognized compensation cost, net of actual forfeitures, related to nonvested common stock granted under the Deferred Compensation Plan. This cost is expected to be recognized over a weighted average period of 3.7 years.
Note 17.14. Segments and Geographic Information
The Company operates within two2 regions, the Americas and EMEA. Each region represents a reportable segment comprised of aggregated regional operating segments, which portray similar economic characteristics. The Company aligns its business into two2 segments to effectively manage the business and support the customer care needs of every client and to respond to the demands of the Company’s global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, and provides outsourced customer engagementexperience management solutions and services (with an emphasis on inbound technical support, digital support and demand generation, and customer service) and technical staffing and (2) EMEA, which includes Europe, the Middle East and Africa, and provides outsourced customer engagementexperience management solutions and services (with an emphasis on technical support and customer service) and fulfillment services. The sites within Latin America, Australia and the Asia Pacific Rim are included in the Americas segment given the nature of the business and client profile, which is primarily made up of U.S.-based companies that are using the Company’s services in these locations to support their customer engagementexperience management needs.
Information about the Company’s reportable segments is as follows (in thousands):
Americas |
|
| EMEA |
|
| Other (1) |
|
| Consolidated |
| |||||||||||||||||||||
Americas | EMEA | Other(1) | Consolidated | ||||||||||||||||||||||||||||
Three Months Ended September 30, 2017: | |||||||||||||||||||||||||||||||
Three Months Ended June 30, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Revenues | $ | 341,334 | $ | 65,957 | $ | 18 | $ | 407,309 | $ | 356,427 |
|
| $ | 92,455 |
|
| $ | 3 |
|
| $ | 448,885 |
| ||||||||
Percentage of revenues | 83.8% | 16.2% | 0.0% | 100.0% |
| 79.4 | % |
|
| 20.6 | % |
|
| 0.0 | % |
|
| 100.0 | % | ||||||||||||
Depreciation, net | $ | 12,064 | $ | 1,375 | $ | 788 | $ | 14,227 | $ | 9,864 |
|
| $ | 2,212 |
|
| $ | 733 |
|
| $ | 12,809 |
| ||||||||
Amortization of intangibles | $ | 5,081 | $ | 212 | $ | - | $ | 5,293 | $ | 2,061 |
|
| $ | 898 |
|
| $ | — |
|
| $ | 2,959 |
| ||||||||
Income (loss) from operations | $ | 35,896 | $ | 4,523 | $ | (14,190 | ) | $ | 26,229 | $ | 47,275 |
|
| $ | 4,593 |
|
| $ | (22,147 | ) |
| $ | 29,721 |
| |||||||
Total other income (expense), net | (1,788 | ) | (1,788 | ) |
|
|
|
|
|
|
|
|
| (187 | ) |
|
| (187 | ) | ||||||||||||
Income taxes | (2,746 | ) | (2,746 | ) |
|
|
|
|
|
|
|
|
| (6,354 | ) |
|
| (6,354 | ) | ||||||||||||
| |||||||||||||||||||||||||||||||
Net income | $ | 21,695 | |||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
Three Months Ended September 30, 2016: | |||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
| $ | 23,180 |
| ||||||||||||||||
Three Months Ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Revenues | $ | 326,013 | $ | 59,711 | $ | 19 | $ | 385,743 | $ | 339,272 |
|
| $ | 77,561 |
|
| $ | — |
|
| $ | 416,833 |
| ||||||||
Percentage of revenues | 84.5% | 15.5% | 0.0% | 100.0% |
| 81.4 | % |
|
| 18.6 | % |
|
| 0.0 | % |
|
| 100.0 | % | ||||||||||||
Depreciation, net | $ | 11,364 | $ | 1,124 | $ | 516 | $ | 13,004 | $ | 10,088 |
|
| $ | 1,818 |
|
| $ | 724 |
|
| $ | 12,630 |
| ||||||||
Amortization of intangibles | $ | 4,990 | $ | 264 | $ | - | $ | 5,254 | $ | 3,281 |
|
| $ | 812 |
|
| $ | — |
|
| $ | 4,093 |
| ||||||||
Income (loss) from operations | $ | 36,946 | $ | 7,391 | $ | (14,666 | ) | $ | 29,671 | $ | 40,479 |
|
| $ | 4,078 |
|
| $ | (17,344 | ) |
| $ | 27,213 |
| |||||||
Total other income (expense), net | (462 | ) | (462 | ) |
|
|
|
|
|
|
|
|
| 1,402 |
|
|
| 1,402 |
| ||||||||||||
Income taxes | (7,939 | ) | (7,939 | ) |
|
|
|
|
|
|
|
|
| (6,385 | ) |
|
| (6,385 | ) | ||||||||||||
| |||||||||||||||||||||||||||||||
Net income | $ | 21,270 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 22,230 |
| ||||||||||||||
| |||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2017: | |||||||||||||||||||||||||||||||
Six Months Ended June 30, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Revenues | $ | 977,136 | $ | 189,564 | $ | 61 | $ | 1,166,761 | $ | 720,146 |
|
| $ | 186,622 |
|
| $ | 3 |
|
| $ | 906,771 |
| ||||||||
Percentage of revenues | 83.8% | 16.2% | 0.0% | 100.0% |
| 79.4 | % |
|
| 20.6 | % |
|
| 0.0 | % |
|
| 100.0 | % | ||||||||||||
Depreciation, net | $ | 35,374 | $ | 3,815 | $ | 2,206 | $ | 41,395 | $ | 20,085 |
|
| $ | 4,368 |
|
| $ | 1,471 |
|
| $ | 25,924 |
| ||||||||
Amortization of intangibles | $ | 15,048 | $ | 726 | $ | - | $ | 15,774 | $ | 4,157 |
|
| $ | 1,789 |
|
| $ | — |
|
| $ | 5,946 |
| ||||||||
Income (loss) from operations | $ | 99,918 | $ | 12,266 | $ | (48,651 | ) | $ | 63,533 | $ | 92,147 |
|
| $ | 11,261 |
|
| $ | (42,157 | ) |
| $ | 61,251 |
| |||||||
Total other income (expense), net | (3,370 | ) | (3,370 | ) |
|
|
|
|
|
|
|
|
| (834 | ) |
|
| (834 | ) | ||||||||||||
Income taxes | (10,911 | ) | (10,911 | ) |
|
|
|
|
|
|
|
|
| (12,259 | ) |
|
| (12,259 | ) | ||||||||||||
| |||||||||||||||||||||||||||||||
Net income | $ | 49,252 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 48,158 |
| ||||||||||||||
| |||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2016: | |||||||||||||||||||||||||||||||
Six Months Ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Revenues | $ | 893,300 | $ | 177,488 | $ | 103 | $ | 1,070,891 | $ | 672,198 |
|
| $ | 155,794 |
|
| $ | 7 |
|
| $ | 827,999 |
| ||||||||
Percentage of revenues | 83.4% | 16.6% | 0.0% | 100.0% |
| 81.2 | % |
|
| 18.8 | % |
|
| 0.0 | % |
|
| 100.0 | % | ||||||||||||
Depreciation, net | $ | 30,856 | $ | 3,450 | $ | 1,442 | $ | 35,748 | $ | 20,121 |
|
| $ | 3,523 |
|
| $ | 1,447 |
|
| $ | 25,091 |
| ||||||||
Amortization of intangibles | $ | 13,353 | $ | 791 | $ | - | $ | 14,144 | $ | 6,567 |
|
| $ | 1,645 |
|
| $ | — |
|
| $ | 8,212 |
| ||||||||
Income (loss) from operations | $ | 100,658 | $ | 13,697 | $ | (51,012 | ) | $ | 63,343 | $ | 76,258 |
|
| $ | 7,258 |
|
| $ | (31,909 | ) |
| $ | 51,607 |
| |||||||
Total other income (expense), net | (937 | ) | (937 | ) |
|
|
|
|
|
|
|
|
| (3,848 | ) |
|
| (3,848 | ) | ||||||||||||
Income taxes | (18,044 | ) | (18,044 | ) |
|
|
|
|
|
|
|
|
| (11,611 | ) |
|
| (11,611 | ) | ||||||||||||
| |||||||||||||||||||||||||||||||
Net income | $ | 44,362 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 36,148 |
| ||||||||||||||
|
(1)Other items (including corporate and other costs, impairment costs, other income and expense, and income taxes) are shownincluded for purposes of reconciling to the Company’s consolidated totals as shown in the tables above for the three and nine months ended September 30, 2017 and 2016.periods shown. Inter-segment revenues are not material to the Americas and EMEA segment results.
The Company’s reportable segments are evaluated regularly by its chief operating decision maker to decide how to allocate resources and assess performance. The chief operating decision maker evaluates performance based upon reportable segment revenue and income (loss) from operations. Because assets by segment are not reported to or used by the Company’s chief operating decision maker to allocate resources, or to assess performance, total assets by segment are not disclosed.
The following table represents a disaggregation of revenue from contracts with customers by delivery location and by the reportable segment (in thousands):
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Americas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States | $ | 157,174 |
|
| $ | 164,773 |
|
| $ | 327,178 |
|
| $ | 322,437 |
|
The Philippines |
| 70,076 |
|
|
| 62,567 |
|
|
| 138,070 |
|
|
| 127,006 |
|
Costa Rica |
| 36,722 |
|
|
| 39,250 |
|
|
| 74,248 |
|
|
| 74,131 |
|
Canada |
| 29,392 |
|
|
| 22,955 |
|
|
| 57,379 |
|
|
| 48,196 |
|
El Salvador |
| 19,368 |
|
|
| 16,902 |
|
|
| 37,364 |
|
|
| 35,622 |
|
Other |
| 43,695 |
|
|
| 32,825 |
|
|
| 85,907 |
|
|
| 64,806 |
|
Total Americas |
| 356,427 |
|
|
| 339,272 |
|
|
| 720,146 |
|
|
| 672,198 |
|
EMEA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
| 27,252 |
|
|
| 24,116 |
|
|
| 56,275 |
|
|
| 48,767 |
|
Other |
| 65,203 |
|
|
| 53,445 |
|
|
| 130,347 |
|
|
| 107,027 |
|
Total EMEA |
| 92,455 |
|
|
| 77,561 |
|
|
| 186,622 |
|
|
| 155,794 |
|
Total Other |
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| 7 |
|
| $ | 448,885 |
|
| $ | 416,833 |
|
| $ | 906,771 |
|
| $ | 827,999 |
|
Note 18.15. Other Income (Expense)
Other income (expense), net consists of the following (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||||
Foreign currency transaction gains (losses) | $ | (77 | ) | $ | 778 | $ | 567 | $ | 3,534 | $ | (72 | ) |
| $ | 48 |
|
| $ | (257 | ) |
| $ | (1,558 | ) | |||||||
Gains (losses) on derivative instruments not designated as hedges | (445 | ) | (110 | ) | (48 | ) | (1,434 | ) |
| (42 | ) |
|
| (164 | ) |
|
| (7 | ) |
|
| (410 | ) | ||||||||
Net investment gains (losses) on investments held in rabbi trust |
| 1,123 |
|
|
| 1,816 |
|
|
| 1,648 |
|
|
| (241 | ) | ||||||||||||||||
Other miscellaneous income (expense) | 586 | 313 | 1,228 | 501 |
| (917 | ) |
|
| 97 |
|
|
| (1,614 | ) |
|
| (787 | ) | ||||||||||||
|
|
|
| $ | 92 |
|
| $ | 1,797 |
|
| $ | (230 | ) |
| $ | (2,996 | ) | |||||||||||||
$ | 64 | $ | 981 | $ | 1,747 | $ | 2,601 | ||||||||||||||||||||||||
|
|
|
|
Note 19.16. Related Party Transactions
In January 2008, the Company entered into a lease for a customer engagementexperience management center located in Kingstree, South Carolina. The landlord, Kingstree Office One, LLC, is an entity controlled by John H. Sykes, the founder, former Chairman and former Chief Executive Officer of the Company and the father of Charles Sykes, President and Chief Executive Officer of the Company. The lease payments on the20-year lease were negotiated at or below market rates, and the lease is cancellable at the option of the Company. There are penalties for early cancellation which decrease over time.Upon giving notice in September 2020, the Company paid a lease termination penalty of $0.1 million and the Company vacated the space as of March 31, 2021. The Company paid $0.1 million to the landlord during both the three months ended SeptemberJune 30, 2017 and 2016, and $0.32020 (NaN in the three months ended June 30, 2021), $0.1 million during both the ninesix months ended SeptemberJune 30, 20172021 and 2016$0.2 million during the six months ended June 30, 2020, under the terms of the lease.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors and Shareholders of
Sykes Enterprises, Incorporated
400 North Ashley Drive
Tampa, Florida
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheet of Sykes Enterprises, Incorporated and subsidiaries (the “Company”"Company") as of SeptemberJune 30, 2017, and2021, the related condensed consolidated statements of operations, and comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2017 and 2016, of, changes in shareholders’ equity for the nine-month periodthree-month and six-month periods ended SeptemberJune 30, 2017,2021 and 2020, and of cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 20172021 and 2016. These2020, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements areinformation for it to be in conformity with accounting principles generally accepted in the responsibilityUnited States of the Company’s management.America.
We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of December 31, 2020, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Sykes Enterprises, Incorporated and subsidiaries as of December 31, 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Tampa, Florida
November
August 9, 20172021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the condensed consolidated financial statements and notes included elsewhere in this report and the consolidated financial statements and notes in the Sykes Enterprises, Incorporated (“SYKES,” “our,” “we” or “us”) Annual Report on Form10-K for the year ended December 31, 2016,2020, as filed with the Securities and Exchange Commission (“SEC”).
Our discussion and analysis may contain forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates, forecasts, and projections about SYKES, our beliefs, and assumptions made by us.us, including our belief that our operations have not been materially impacted by the April 2020 cyber incident, as discussed in our Form 10-Q for the three months ended March 31, 2020, as filed with the SEC, or the October 2020 cyber incident, as discussed in Note 18, Subsequent Event, in our Form 10-Q for the three and nine months ended September 30, 2020, as filed with the SEC. In addition, we may make other written or oral statements, which constitute forward-looking statements, from time to time. Words such as “believe,” “estimate,” “project,” “expect,”"believe," "estimate," "project," "expect," “intend,” “may,” “anticipate,” “plan,” “seek,” " "anticipate," "plan," "seek,"variations of such words, and similar expressions are intended to identify such forward-looking statements. Similarly, statements that describe our future plans, objectives, or goals also are forward-looking statements. Further, statements about the effects of the novel coronavirus (“COVID-19”) pandemic on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our clients, third parties and us. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties, including those discussed below and elsewhere in this report. Our actual results may differ materially from what is expressed or forecasted in such forward-looking statements, and undue reliance should not be placed on such statements. All forward-looking statements are made as of the date hereof, and we undertake no obligation to update any such forward-looking statements, whether as a result of new information, future events or otherwise.
Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to: (i) the impact of economic recessions in the U.S. and other parts of the world, (ii) fluctuations in global business conditions and the global economy, (iii) currency fluctuations, (iv) the timing of significant orders for our products and services, (v) variations in the terms and the elements of services offered under our standardized contract including those for future bundled service offerings, (vi) changes in applicable accounting principles or interpretations of such principles, (vii) difficulties or delays in implementing our bundled service offerings, (viii) failure to achieve sales, marketing and other objectives, (ix) construction delays of new or expansion of existing customer engagementexperience management centers, (x) delays in our ability to develop new products and services and market acceptance of new products and services, (xi) rapid technological change, (xii) loss or addition of significant clients, (xiii) political and country-specific risks inherent in conducting business abroad, (xiv) our ability to attract and retain key management personnel, (xv) our ability to continue the growth of our support service revenues through additional technical and customer engagementexperience management centers, (xvi) our ability to further penetrate into vertically integrated markets, (xvii) our ability to expand our global presence through strategic alliances and selective acquisitions, (xviii) our ability to continue to establish a competitive advantage through sophisticated technological capabilities, (xix) the ultimate outcome of any lawsuits, (xx) our ability to recognize deferred revenue through delivery of products or satisfactory performance of services, (xxi) our dependence on the trend towarddemand for outsourcing, (xxii) risk of interruption of technical and customer engagementexperience management center operations due to such factors as fire, earthquakes, inclement weather and other disasters, power failures, telecommunication failures, unauthorized intrusions, computer viruses and other emergencies, (xxiii) the existence of substantial competition, (xxiv) the early termination of contracts by clients, (xxv) the ability to obtain and maintain grants and other incentives (tax or otherwise), (xxvi) the potential of cost savings/synergies associated with acquisitions not being realized, or not being realized within the anticipated time period, (xxvii) risks related to the integration of the acquisitions and the impairment of any related goodwill, (xxviii) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement and (xxviii)(xxix) other risk factors whichthat are identified herein and in our most recent Annual Report on Form10-K for the year ended December 31, 2020, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Executive Summary
We are a leading full lifecycle provider of global customer experience management services, multichannel demand generation and digital transformation. We provide comprehensive inbounddifferentiated full lifecycle customer engagementexperience management solutions and services primarily to Global 2000 companies primarilyand their end customers principally in the communications, financial services, technology, communications, transportation & leisure and healthcare technology, transportationindustries. Our differentiated full lifecycle services platform effectively engages customers at every touchpoint within the customer journey, including digital media and leisure, retailacquisition, sales expertise, customer service, technical support and other industries.retention, many of which can be optimized by a suite of digital transformation capabilities under our SYKES Digital Services (“SDS”) group, which spans robotic process automation (“RPA”), self-service, insight analytics and digital learning. In addition to digital transformation, we also provide artificial intelligence (“AI”) solutions that can be embedded and leveraged across our lifecycle offerings. We serve our clients through two geographic operating regions: the Americas (United States, Canada, Latin America, Australia and the Asia Pacific Rim) and EMEA (Europe, the Middle East and Africa). Our Americas and EMEA regions primarily provide customer engagementexperience management solutions and services (withwith an emphasis on inbound technical support, digital marketing andmultichannel demand generation, and customer service), which includes customer assistance, healthcareservice and roadside assistance, technical support and product and service sales to our clients’ customers. These services, which represented 99.5%98.7% and 99.1%98.9% of consolidated revenues during the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and 99.5%98.8% and 99.1%98.7% of consolidated revenues during the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, are delivered through multiple communication channels including phone,e-mail, social media, text messaging, chat and digital self-service. We also provide various
enterprise support services in the United States (“U.S.”) that include services for our clients’ internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, we also provide fulfillment services, which includesinclude order processing, payment processing, inventory control, product delivery and product returns handling. Additionally, through our acquisition of RPA provider Symphony Ventures Ltd (“Symphony”) coupled with our investment in AI through XSell Technologies, Inc. (“XSell”), we also provide a suite of digital transformation capabilities that optimizes our differentiated full lifecycle management services platform. Our complete service offering helps our clients acquire, retain and increase the lifetime value of their customer relationships. We have developed an extensive global reach with customer engagementexperience management centers across six continents, including North America, South America, Europe, Asia, Australia and Africa. We deliver cost-effective solutions that generate demand, enhance the customer service experience, promote stronger brand loyalty, and bring about high levels of performance and profitability.
Acquisition of Telecommunications AssetsRecent Developments
Proposed Transaction with Sitel Global
On May 31, 2017,June 17, 2021, we completedentered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sitel Worldwide Corporation, a Delaware corporation (“Parent”), and Florida Mergersub, Inc., a Florida corporation and wholly owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are subsidiaries of Sitel Group, a global provider of customer experience products and solutions. Pursuant to the acquisitionMerger Agreement, and subject to the terms thereof, Parent will acquire each share of the Company’s common stock (“Company Common Stock”) issued and outstanding immediately prior to the effective time of the merger contemplated by the Merger Agreement for $54.00 in cash, without interest and subject to any required tax withholding (the “Merger”). Consummation of the Merger is subject to customary closing conditions, including, among others, (i) the absence of certain assetslegal impediments that prohibit the consummation of the Merger and the other transactions contemplated by the Merger Agreement, (ii) receipt of certain regulatory clearances, including, the expiration or termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the adoption of the Merger Agreement by the holders of a Global 2000 telecommunications service provider (the “Telecommunications Asset acquisition”) to strengthen and create new partnerships and expand our geographic footprint in North America. The total purchase price of $7.5 million was funded through cash on hand. The results of operationsmajority of the Telecommunications Asset acquisitionissued and outstanding shares of Company Common Stock and (iv) all consents, approvals, clearances and other authorizations of any governmental entity.
The full text of the Merger Agreement was filed as Exhibit 2.1 to our Current Report on Form 8-K filed on June 21, 2021.
In connection with the Merger, we have been reflectedincurred, and will continue to incur, merger-related legal and advisory costs, some of which are contingent on the closing of the Merger. Transaction expenses associated with the proposed Merger of $3.5 million were recorded in “General and administrative” costs in the Other segment in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021. We expect the Merger to close in the second half of 2021.
Coronavirus
On March 11, 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic. The global nature, rapid spread and continually evolving response by governments throughout the world to combat the spread has had a negative impact on the global economy. Certain of our customer experience management centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels to achieve social distancing. We are committed to the health and safety of our workforce and ensuring business continuity for the brands we serve. In response, we have shifted as many employees as possible to a work-at-home model. As of the middle of July 2021, approximately 69% of agents assigned to our brick-and-mortar have temporarily transitioned to a work-at-home model, 30% are working in our centers and 1% of our agents are idle primarily due to the lack of technical infrastructure to work from home. Our operations in the Philippines, El Salvador and Mexico have been most impacted by the governmental restrictions.
We continue to closely monitor the prevalence of COVID-19 and the vaccination rates in the communities where our centers are located as well as guidance from public health authorities, federal and local agencies and municipalities. We will work with employees and clients to transition agents back to our centers based on that guidance, but risk further disruption to our business as a result of COVID-19 and government-imposed restrictions. Over time, we anticipate a permanent transition to a work-at-home or hybrid model for a portion of our workforce.
Exit of Leased Space
We continue to reevaluate our real estate footprint in connection with the transition of a portion of our workforce to a permanent remote working environment in both the Americas and EMEA. Since April 2020, we have decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of our sites as approximately 4,200 seats transitioned from brick and mortar to at home agents. As such, we recorded impairments of right-of-use (“ROU”) assets of $13.4 million and impairments of property and equipment of $7.6 million since Maythe initiation of our reevaluation in April 2020, of which $0.7 million of ROU assets and $0.5 million of property and equipment impairments were recorded during the six months ended June 30, 2021. See Note 4, Fair Value, in the accompanying “Notes to Condensed Consolidated Financial Statements” for further information. Annualized lease expense savings of $0.7 million is expected from the actions in 2021, of which approximately 70% is anticipated to be realized as cash savings.
Taylor Media Corp. Acquisition
On December 31, 2017.
Acquisition of Clearlink
In April 2016,2020, through our wholly-owned subsidiary, Clear Link Technologies, LLC, we completed the acquisition of Clear Link Holdings LLCTaylor Media Corp. (“Clearlink”TMC”), to expand our suitea personal finance digital media company and owner of service offerings while creating differentiation inThe Penny Hoarder. Of the marketplace, broadening our addressable market opportunity and extending executive level reach within our existing clients’ organizations. We refer to such acquisition herein as the “Clearlink acquisition.” The total initial purchase price of $207.9$104.9 million, $87.2 million was funded bypaid upon closing using $63.0 million of additional borrowings under our existing credit facility. The resultsagreement as well as cash on hand. Of the remaining $17.7 million of operationsthe purchase price, $0.2 million was used to repay outstanding debt and $17.5 million of Clearlinkthe purchase price was deferred and is payable on December 31, 2027, the seventh anniversary of the closing. In the event TMC’s previous owner remains employed by the Company or one of its subsidiaries on December 31, 2022, the second anniversary of the closing, the deferred payment will be accelerated and due at that time. TMC’s assets and liabilities have been reflected in our consolidated balance sheet as of December 31, 2020 in the accompanying Condensed Consolidated StatementsAmericas segment and the results of OperationsTMC’s operations have been reflected in our consolidated financial statements since AprilJanuary 1, 2016.2021.
Results of Operations
The following table sets forth, for the periods indicated, the amounts presented in the accompanying Condensed Consolidated Statements of Operations as well as the change between the respective periods:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2017 | Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||||||||||||||||||
(in thousands) | 2017 | 2016 | $ Change | 2017 | 2016 | $ Change | 2021 |
|
| 2020 |
|
| $ Change |
|
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||||||||||||||||||||
Revenues | $ | 407,309 | $ | 385,743 | $ | 21,566 | $ | 1,166,761 | $ | 1,070,891 | $ | 95,870 | $ | 448,885 |
|
| $ | 416,833 |
|
| $ | 32,052 |
|
| $ | 906,771 |
|
| $ | 827,999 |
|
| $ | 78,772 |
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Direct salaries and related costs | 267,516 | 249,859 | 17,657 | 763,324 | 694,856 | 68,468 |
| 292,086 |
|
|
| 268,433 |
|
|
| 23,653 |
|
|
| 591,563 |
|
|
| 535,378 |
|
|
| 56,185 |
| ||||||||||||||||||
General and administrative | 93,364 | 87,955 | 5,409 | 277,664 | 262,800 | 14,864 |
| 110,924 |
|
|
| 102,664 |
|
|
| 8,260 |
|
|
| 220,551 |
|
|
| 205,911 |
|
|
| 14,640 |
| ||||||||||||||||||
Depreciation, net | 14,227 | 13,004 | 1,223 | 41,395 | 35,748 | 5,647 |
| 12,809 |
|
|
| 12,630 |
|
|
| 179 |
|
|
| 25,924 |
|
|
| 25,091 |
|
|
| 833 |
| ||||||||||||||||||
Amortization of intangibles | 5,293 | 5,254 | 39 | 15,774 | 14,144 | 1,630 |
| 2,959 |
|
|
| 4,093 |
|
|
| (1,134 | ) |
|
| 5,946 |
|
|
| 8,212 |
|
|
| (2,266 | ) | ||||||||||||||||||
Impairment of long-lived assets | 680 | - | 680 | 5,071 | - | 5,071 |
| 386 |
|
|
| 1,800 |
|
|
| (1,414 | ) |
|
| 1,536 |
|
|
| 1,800 |
|
|
| (264 | ) | ||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
Total operating expenses | 381,080 | 356,072 | 25,008 | 1,103,228 | 1,007,548 | 95,680 |
| 419,164 |
|
|
| 389,620 |
|
|
| 29,544 |
|
|
| 845,520 |
|
|
| 776,392 |
|
|
| 69,128 |
| ||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
Income from operations | 26,229 | 29,671 | (3,442 | ) | 63,533 | 63,343 | 190 |
| 29,721 |
|
|
| 27,213 |
|
|
| 2,508 |
|
|
| 61,251 |
|
|
| 51,607 |
|
|
| 9,644 |
| |||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Interest income | 169 | 135 | 34 | 468 | 429 | 39 |
| 103 |
|
|
| 165 |
|
|
| (62 | ) |
|
| 201 |
|
|
| 428 |
|
|
| (227 | ) | ||||||||||||||||||
Interest (expense) | (2,021 | ) | (1,578 | ) | (443 | ) | (5,585 | ) | (3,967 | ) | (1,618 | ) |
| (382 | ) |
|
| (560 | ) |
|
| 178 |
|
|
| (805 | ) |
|
| (1,280 | ) |
|
| 475 |
| ||||||||||||
Other income (expense), net | 64 | 981 | (917 | ) | 1,747 | 2,601 | (854 | ) |
| 92 |
|
|
| 1,797 |
|
|
| (1,705 | ) |
|
| (230 | ) |
|
| (2,996 | ) |
|
| 2,766 |
| ||||||||||||||||
Total other income (expense), net | (1,788 | ) | (462 | ) | (1,326 | ) | (3,370 | ) | (937 | ) | (2,433 | ) |
| (187 | ) |
|
| 1,402 |
|
|
| (1,589 | ) |
|
| (834 | ) |
|
| (3,848 | ) |
|
| 3,014 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income before income taxes | 24,441 | 29,209 | (4,768 | ) | 60,163 | 62,406 | (2,243 | ) |
| 29,534 |
|
|
| 28,615 |
|
|
| 919 |
|
|
| 60,417 |
|
|
| 47,759 |
|
|
| 12,658 |
| ||||||||||||||||
Income taxes | 2,746 | 7,939 | (5,193 | ) | 10,911 | 18,044 | (7,133 | ) |
| 6,354 |
|
|
| 6,385 |
|
|
| (31 | ) |
|
| 12,259 |
|
|
| 11,611 |
|
|
| 648 |
| ||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 21,695 | $ | 21,270 | $ | 425 | $ | 49,252 | $ | 44,362 | $ | 4,890 | $ | 23,180 |
|
| $ | 22,230 |
|
| $ | 950 |
|
| $ | 48,158 |
|
| $ | 36,148 |
|
| $ | 12,010 |
| ||||||||||||
|
|
|
|
|
|
Three Months Ended SeptemberJune 30, 20172021 Compared to Three Months Ended SeptemberJune 30, 20162020
Revenues
Three Months Ended September 30, | |||||||||||||||||||||||||||||||||
2017 | 2016 | Three Months Ended June 30, |
|
|
|
|
| ||||||||||||||||||||||||||
% of | % of | 2021 |
|
| 2020 |
|
|
|
|
| |||||||||||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | $ Change | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
| ||||||||||||||
Americas | $ | 341,334 | 83.8% | $ | 326,013 | 84.5% | $ | 15,321 | $ | 356,427 |
|
| 79.4% |
|
| $ | 339,272 |
|
| 81.4% |
|
| $ | 17,155 |
| ||||||||
EMEA | 65,957 | 16.2% | 59,711 | 15.5% | 6,246 |
| 92,455 |
|
| 20.6% |
|
|
| 77,561 |
|
| 18.6% |
|
|
| 14,894 |
| |||||||||||
Other | 18 | 0.0% | 19 | 0.0% | (1 | ) |
| 3 |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
|
|
| 3 |
| ||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||
Consolidated | $ | 407,309 | 100.0% | $ | 385,743 | 100.0% | $ | 21,566 | $ | 448,885 |
|
| 100.0% |
|
| $ | 416,833 |
|
| 100.0% |
|
| $ | 32,052 |
| ||||||||
|
|
|
|
|
Consolidated revenues increased $21.6$32.1 million, or 5.6%7.7%, for the three months ended SeptemberJune 30, 20172021 from the comparable period in 2016.2020.
The increase in Americas’ revenues was due to new clients of $23.4 million and higher volumes from existing clients of $0.2 million, partially offset byend-of-life client programs of $8.3 million. Revenues from our offshore operations represented 40.6% of Americas’ revenues, compared to 40.0% for the comparable period in 2016.
The increase in EMEA’s revenues was due to higher volumes from existing clients of $2.8$12.8 million, new clients of $2.7$19.5 million and a positivefavorable foreign currency impact of $1.6$5.8 million, partially offset byend-of-life client programs of $0.9 million.$20.9 million primarily in the communications and technology verticals. Revenues from our offshore operations represented 44.9% of Americas’ revenues in 2021, compared to 42.6% for the comparable period in 2020.
The increase in EMEA’s revenues was due to higher volumes from existing clients of $6.4 million, new clients of $2.5 million and a favorable foreign currency impact of $8.8 million, partially offset by end-of-life client programs of $2.8 million primarily in the communications and technology verticals.
On a consolidated basis, we had 52,40044,600 brick-and-mortar seats as of SeptemberJune 30, 2017, an increase2021, a decrease of 5,0004,000 seats from the comparable period in 2016. Included in this seat count are 2,900 seats associated2020, driven by decisions made by certain clients to permanently alter their delivery mix away from brick and mortar to a home agent solution due to COVID-19, coupled with the Telecommunications Asset acquisition. This increaseconsolidation of underutilized facilities in seats, net ofboth the Telecommunications Asset acquisition additions, reflect seat additions to support higher projected demand. The capacity utilization rate on a combined basis was 71% compared to 75% in the comparable period in 2016. This decrease was primarily due to capacity additions related to the Telecommunications Asset acquisition with its seasonally low utilization rate, as well as capacity additions owing to higher projected demandAmericas and certain operational inefficiencies.
EMEA. On a geographic segment basis, 45,20037,100 seats were located in the Americas, an increasea decrease of 4,3003,300 seats from the comparable period in 2016,2020, and 7,2007,500 seats were located in EMEA, an increasea decrease of 700 seats from the comparable period in 2016. Capacity2020.
On a consolidated basis, the capacity utilization rates as of September 30, 2017 were 70% for the Americas and 80% for EMEA,rate was 73%, compared to 75% and 78%, respectively,73% in the comparable period in 2016, with2020. As of the decreasemiddle of July 2021, approximately 69% of agents who typically work in our brick-and-mortar facilities
have temporarily transitioned to work at home, 30% are working in our centers and the remaining 1% of agents are at home but idle.
The capacity utilization rate for the Americas was 73% in 2021 and in the Americas primarily duecomparable period in 2020. The capacity utilization rate for EMEA in 2021 was 72%, compared to the aforementioned factors. As a result of the Telecommunications Asset acquisition, we expect to take further actions in streamlining our capacity footprint69% in the U.S.comparable period in 2020. We strive to attain a capacity utilization rate of 85% at each of our locations. Capacity utilization is measured by taking the number of agents and indirect support headcount and dividing it by the number of seats provisioned for utilization. Agents assigned to brick-and-mortar facilities but temporarily working from home to meet social distancing requirements resulting from the COVID-19 pandemic are included as if they were working in a center. Capacity utilization is a critical metric for us as it is used as an input to the pricing, revenue and margin drivers of our business as well as capital allocation.
Direct Salaries and Related Costs
Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Three Months Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
% of | % of | Change in % of | 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | $ Change | Revenues | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| ||||||||||||||||
Americas | $ | 221,392 | 64.9% | $ | 208,664 | 64.0% | $ | 12,728 | 0.9% | $ | 226,429 |
|
| 63.5% |
|
| $ | 214,606 |
|
| 63.3% |
|
| $ | 11,823 |
|
| 0.2% |
| ||||||||||
EMEA | 46,124 | 69.9% | 41,195 | 69.0% | 4,929 | 0.9% |
| 65,657 |
|
| 71.0% |
|
|
| 53,827 |
|
| 69.4% |
|
|
| 11,830 |
|
| 1.6% |
| |||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||
Consolidated | $ | 267,516 | 65.7% | $ | 249,859 | 64.8% | $ | 17,657 | 0.9% | $ | 292,086 |
|
| 65.1% |
|
| $ | 268,433 |
|
| 64.4% |
|
| $ | 23,653 |
|
| 0.7% |
| ||||||||||
|
|
|
The increase of $17.7$23.7 million in direct salaries and related costs included a positivean unfavorable foreign currency impact of $2.3$5.0 million in the Americas and a negativean unfavorable foreign currency impact of $1.4$6.5 million in EMEA.
The increase in Americas’ direct salaries and related costs, as a percentage of revenues, was primarily attributable to higher customer-acquisition advertising costs of 2.9% driven primarily by the activity at recently acquired TMC in the current period and higher auto tow claim costs of 0.4%, partially offset by lower compensation costs of 1.7% primarily due to higher agent productivity in the healthcare and financial services verticals, lower travel costs of 1.2% primarily driven by a decrease in agent productivity principally withinemployee transportation costs during the financial services and communications verticalspandemic in the currentprior period partially offset by lower communications costs of 0.3%, lower customer-acquisition advertising costs of 0.3% and lower other costs of 0.2%.
The increase in EMEA’s direct salaries and related costs, as a percentage of revenues, was primarily attributable to
higher compensation costs of 1.7%1.1% primarily driven by a decrease inlower agent productivity principally withinin the financial services, communications and technology verticals in the current period, and higher rebillablefulfillment materials costs of 0.3%, higher recruiting costs of 0.2% and higher other costs of 0.3%1.0%, partially offset by lower fulfillment materialscommunications costs of 1.6%0.4% and lower other costs of 0.1%.
General and Administrative
Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Three Months Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
% of | % of | Change in % of | 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | $ Change | Revenues | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| ||||||||||||||||
Americas | $ | 66,221 | 19.4% | $ | 64,049 | 19.6% | $ | 2,172 | -0.2% | $ | 70,412 |
|
| 19.8% |
|
| $ | 69,018 |
|
| 20.3% |
|
| $ | 1,394 |
|
| -0.5% |
| ||||||||||
EMEA | 13,723 | 20.8% | 9,737 | 16.3% | 3,986 | 4.5% |
| 19,095 |
|
| 20.7% |
|
|
| 17,026 |
|
| 22.0% |
|
|
| 2,069 |
|
| -1.3% |
| |||||||||||||
Other | 13,420 | - | 14,169 | - | (749 | ) | - |
| 21,417 |
|
| - |
|
|
| 16,620 |
|
| - |
|
|
| 4,797 |
|
| - |
| ||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||
Consolidated | $ | 93,364 | 22.9% | $ | 87,955 | 22.8% | $ | 5,409 | 0.1% | $ | 110,924 |
|
| 24.7% |
|
| $ | 102,664 |
|
| 24.6% |
|
| $ | 8,260 |
|
| 0.1% |
| ||||||||||
|
|
|
The increase of $5.4$8.3 million in general and administrative expenses included a positivean unfavorable foreign currency impact of $0.7$1.2 million in the Americas and a negativean unfavorable foreign currency impact of $0.2$1.8 million in EMEA.
The decrease in Americas’ general and administrative expenses, as a percentage of revenues, was primarily attributable to a higher net gain on lease terminations of 0.6%, lower technology equipmentmerger and maintenanceintegration costs of 0.3%0.4% and a reduction in technologylower facility-related costs of 0.2% allocated from corporate,0.3%, partially offset by higher compensation costs of 0.4%, higher software and maintenance costs of 0.2% and higher other costslegal and professional fees of 0.1%0.2%.
The increasedecrease in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily attributable to a gain on settlementlower compensation costs of Qelp’s contingent consideration of 4.3% in the prior period0.9% and higherlower facility-related costs of 0.2%0.8%, partially offset by higher severance costs of 0.4%.
The decrease of $0.7 millionincrease in Other general and administrative expenses, which includes corporate and other costs, was primarily attributable to lowerhigher merger and integration costs of $3.7 million resulting primarily from the proposed Merger with Sitel Group and higher compensation costs of $2.6$1.3 million driven by higher long-term and annual performance-based compensation in the current period, partially offset by higher severancelower other costs of $0.8 million, a reduction in technology costs of $0.5 million allocated to the Americas, higher legal and professional fees of $0.4 million and higher charitable contributions of $0.2 million.
Depreciation, Amortization and Impairment of Long-Lived Assets
Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Three Months Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
% of | % of | Change in % of | 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | $ Change | Revenues | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| ||||||||||||||||||||||||
Depreciation, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Americas | $ | 12,064 | 3.5% | $ | 11,364 | 3.5% | $ | 700 | 0.0% | $ | 9,864 |
|
| 2.8% |
|
| $ | 10,088 |
|
| 3.0% |
|
| $ | (224 | ) |
| -0.2% |
| ||||||||||||||||||
EMEA | 1,375 | 2.1% | 1,124 | 1.9% | 251 | 0.2% |
| 2,212 |
|
| 2.4% |
|
|
| 1,818 |
|
| 2.3% |
|
|
| 394 |
|
| 0.1% |
| |||||||||||||||||||||
Other | 788 | - | 516 | - | 272 | - |
| 733 |
|
| - |
|
|
| 724 |
|
| - |
|
|
| 9 |
|
| - |
| |||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 14,227 | 3.5% | $ | 13,004 | 3.4% | $ | 1,223 | 0.1% | $ | 12,809 |
|
| 2.9% |
|
| $ | 12,630 |
|
| 3.0% |
|
| $ | 179 |
|
| -0.1% |
| ||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Amortization of intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Americas | $ | 5,081 | 1.5% | $ | 4,990 | 1.5% | $ | 91 | 0.0% | $ | 2,061 |
|
| 0.6% |
|
| $ | 3,281 |
|
| 1.0% |
|
| $ | (1,220 | ) |
| -0.4% |
| ||||||||||||||||||
EMEA | 212 | 0.3% | 264 | 0.4% | (52 | ) | -0.1% |
| 898 |
|
| 1.0% |
|
|
| 812 |
|
| 1.0% |
|
|
| 86 |
|
| 0.0% |
| ||||||||||||||||||||
Other | - | - | - | - | - | - |
| — |
|
| - |
|
|
| — |
|
| - |
|
|
| — |
|
| - |
| |||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 5,293 | 1.3% | $ | 5,254 | 1.4% | $ | 39 | -0.1% | $ | 2,959 |
|
| 0.7% |
|
| $ | 4,093 |
|
| 1.0% |
|
| $ | (1,134 | ) |
| -0.3% |
| ||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Impairment of long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Americas | $ | 680 | 0.2% | $ | - | 0.0% | $ | 680 | 0.2% | $ | 386 |
|
| 0.1% |
|
| $ | 1,800 |
|
| 0.5% |
|
| $ | (1,414 | ) |
| -0.4% |
| ||||||||||||||||||
EMEA | - | 0.0% | - | 0.0% | - | 0.0% |
| — |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
| |||||||||||||||||||||
Other | - | - | - | - | - | - |
| — |
|
| - |
|
|
| — |
|
| - |
|
|
| — |
|
| - |
| |||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 680 | 0.2% | $ | - | 0.0% | $ | 680 | 0.2% | $ | 386 |
|
| 0.1% |
|
| $ | 1,800 |
|
| 0.4% |
|
| $ | (1,414 | ) |
| -0.3% |
| ||||||||||||||||||
|
|
|
The increase in depreciation was primarily due to new depreciable fixed assets placed into service supporting site expansions and infrastructure upgrades as well as accelerated depreciation related to certain site exits, partially offset by the impact since the prior period of certain fully depreciated fixed assets.assets as well as assets that were impaired.
The decrease in amortization remained consistent withwas primarily due to the comparable period.impact since the prior period of certain fully amortized intangible assets.
See Note 4, Fair Value, ofin the accompanying “Notes to Condensed Consolidated Financial Statements” for further information regardingon the
impairment of long-lived assets.assets.
Other Income (Expense)
Three Months Ended September 30, | Three Months Ended June 30, |
|
|
|
|
| |||||||||||||||||
(in thousands) | 2017 | 2016 | $ Change | 2021 |
|
| 2020 |
|
| $ Change |
| ||||||||||||
Interest income | $ | 169 | $ | 135 | $ | 34 | $ | 103 |
|
| $ | 165 |
|
| $ | (62 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest (expense) | $ | (2,021 | ) | $ | (1,578 | ) | $ | (443 | ) | $ | (382 | ) |
| $ | (560 | ) |
| $ | 178 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Foreign currency transaction gains (losses) | $ | (77 | ) | $ | 778 | $ | (855 | ) | $ | (72 | ) |
| $ | 48 |
|
| $ | (120 | ) | ||||
Gains (losses) on foreign currency derivative instruments not designated as hedges | (445 | ) | (110 | ) | (335 | ) | |||||||||||||||||
Gains (losses) on derivative instruments not designated as hedges |
| (42 | ) |
|
| (164 | ) |
|
| 122 |
| ||||||||||||
Gains (losses) on investments held in rabbi trust |
| 1,123 |
|
|
| 1,816 |
|
|
| (693 | ) | ||||||||||||
Other miscellaneous income (expense) | 586 | 313 | 273 |
| (917 | ) |
|
| 97 |
|
|
| (1,014 | ) | |||||||||
|
|
| |||||||||||||||||||||
Total other income (expense), net | $ | 64 | $ | 981 | $ | (917 | ) | $ | 92 |
|
| $ | 1,797 |
|
| $ | (1,705 | ) | |||||
|
|
|
Interest
The decrease in interest income remained consistent withwas primarily due to lower invested balances and interest rates than in the comparable period.period.
The increasedecrease in interest (expense) was primarily due to lower average outstanding borrowings and interest rates than in the comparable period.
The change in other income (expense), net, was primarily due to an increase in weighted average interest rates on outstanding borrowings, partially offset bylosses from XSell, our equity method investee, and a decrease in the interest accretion on contingent consideration.value of investments held in rabbi trust. See Note 7, Investments Held in Rabbi Trust, in the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.
Income Taxes
Three Months Ended September 30, | Three Months Ended June 30, |
|
|
|
|
| |||||||||||||||||
(in thousands) | 2017 | 2016 | $ Change | 2021 |
|
| 2020 |
|
| $ Change |
| ||||||||||||
Income before income taxes | $ | 24,441 | $ | 29,209 | $ | (4,768 | ) | $ | 29,534 |
|
| $ | 28,615 |
|
| $ | 919 |
| |||||
Income taxes | 2,746 | 7,939 | $ | (5,193 | ) |
| 6,354 |
|
|
| 6,385 |
|
|
| (31 | ) | |||||||
|
|
|
|
|
|
|
| % Change |
| ||||||||||||||
% Change | |||||||||||||||||||||||
Effective tax rate | 11.2% | 27.2% | -16.0% |
| 21.5 | % |
|
| 22.3 | % |
|
| -0.8 | % |
The decrease in the effective tax rate in 20172021 compared to 2016 is2020 was primarily due to several significant factors, including the recognition of a $0.8$1.0 million previously unrecognizeddiscrete tax benefit inclusive of penalties and interest, arising from a favorablerelating to changes in the Company’s valuation allowances, which was partially offset by the UK tax audit settlement and statute of limitation expirations. Additionally, we recognized a $0.8 million benefit related torate change in the increase in anticipated tax credits and reductions in estimatednon-deferred foreign income, as well as a $0.3 million benefit for the release of a valuation allowance where it is more likely than not that the benefit will be realized.current period. The decrease in the effective tax rate was also significantly affected by shifts in earnings among the various jurisdictions in which we operate. Several additional factors, none of which are individually material, also impacted the rate.
Nine
Six Months Ended SeptemberJune 30, 20172021 Compared to NineSix Months Ended SeptemberJune 30, 20162020
Revenues
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
2017 | 2016 | Six Months Ended June 30, |
|
|
|
|
| ||||||||||||||||||||||||||
% of | % of | 2021 |
|
| 2020 |
|
|
|
|
| |||||||||||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | $ Change | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
| ||||||||||||||
Americas | $ | 977,136 | 83.8% | $ | 893,300 | 83.4% | $ | 83,836 | $ | 720,146 |
|
| 79.4% |
|
| $ | 672,198 |
|
| 81.2% |
|
| $ | 47,948 |
| ||||||||
EMEA | 189,564 | 16.2% | 177,488 | 16.6% | 12,076 |
| 186,622 |
|
| 20.6% |
|
|
| 155,794 |
|
| 18.8% |
|
|
| 30,828 |
| |||||||||||
Other | 61 | 0.0% | 103 | 0.0% | (42 | ) |
| 3 |
|
| 0.0% |
|
|
| 7 |
|
| 0.0% |
|
|
| (4 | ) | ||||||||||
|
|
|
|
| |||||||||||||||||||||||||||||
Consolidated | $ | 1,166,761 | 100.0% | $ | 1,070,891 | 100.0% | $ | 95,870 | $ | 906,771 |
|
| 100.0% |
|
| $ | 827,999 |
|
| 100.0% |
|
| $ | 78,772 |
| ||||||||
|
|
|
|
|
Consolidated revenues increased $95.9$78.8 million, or 9.0%9.5%, for the ninesix months ended SeptemberJune 30, 20172021 from the comparable period in 2016.2020.
The increase in Americas’ revenues was due to an increase in Clearlink acquisition revenues of $43.1 million, higher volumes from existing clients of $39.1 million and new clients of $37.7 million, partially offset byend-of-life client programs of $33.0 million and a negative foreign currency impact of $3.1 million. Revenues from our offshore operations represented 40.9% of Americas’ revenues, compared to 41.8% for the comparable period in 2016.
The increase in EMEA’s revenues was due to higher volumes from existing clients of $16.8$47.9 million, new clients of $35.6 million and new clients
a favorable foreign currency impact of $5.7$9.2 million, partially offset by end-of-life client programs of $44.8 million primarily in the communications, technology and financial services verticals. Revenues from our offshore operations represented 43.8% of Americas’ revenues in 2021, compared to 42.7% for the comparable period in 2020.
The increase in EMEA’s revenues was due to higher volumes from existing clients of $15.6 million, new clients of $4.1 million and a negativefavorable foreign currency impact of $7.4$16.9 million, andpartially offset by end-of-life client programs of $3.0 million.$5.8 million primarily in the communications and technology verticals.
Direct Salaries and Related Costs
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
% of | % of | Change in % of | 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | $ Change | Revenues | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| ||||||||||||||||
Americas | $ | 630,151 | 64.5% | $ | 569,388 | 63.7% | $ | 60,763 | 0.8% | $ | 460,926 |
|
| 64.0% |
|
| $ | 427,234 |
|
| 63.6% |
|
| $ | 33,692 |
|
| 0.4% |
| ||||||||||
EMEA | 133,173 | 70.3% | 125,468 | 70.7% | 7,705 | -0.4% |
| 130,637 |
|
| 70.0% |
|
|
| 108,144 |
|
| 69.4% |
|
|
| 22,493 |
|
| 0.6% |
| |||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||
Consolidated | $ | 763,324 | 65.4% | $ | 694,856 | 64.9% | $ | 68,468 | 0.5% | $ | 591,563 |
|
| 65.2% |
|
| $ | 535,378 |
|
| 64.7% |
|
| $ | 56,185 |
|
| 0.5% |
| ||||||||||
|
|
|
The increase of $68.5$56.2 million in direct salaries and related costs included a positivean unfavorable foreign currency impact of $8.4$7.5 million in the Americas and a positivean unfavorable foreign currency impact of $4.4$12.1 million in EMEA.
The increase in Americas’ direct salaries and related costs, as a percentage of revenues, was primarily attributable to higher customer-acquisition advertising costs of 0.8% and higher compensation costs of 0.2%,2.5% driven primarily by the activity at recently acquired TMC in
the current period, partially offset by lower communicationscompensation costs of 0.9%, lower travel costs of 0.8%, lower communication costs of 0.2% and lower recruiting costs of 0.2%.
The decreaseincrease in EMEA’s direct salaries and related costs, as a percentage of revenues, was primarily attributable to lowerhigher fulfillment materials costs of 1.1%0.8% and higher compensation costs of 0.7%, partially offset by higher compensation costslower software purchased for resale of 0.3%0.2%, higherlower rebillable costs of 0.1%0.2% and higherlower other costs of 0.3%0.5%.
General and Administrative
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
% of | % of | Change in % of | 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | $ Change | Revenues | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| ||||||||||||||||
Americas | $ | 191,574 | 19.6% | $ | 179,045 | 20.0% | $ | 12,529 | -0.4% | $ | 142,088 |
|
| 19.7% |
|
| $ | 140,218 |
|
| 20.9% |
|
| $ | 1,870 |
|
| -1.2% |
| ||||||||||
EMEA | 39,584 | 20.9% | 34,082 | 19.2% | 5,502 | 1.7% |
| 38,092 |
|
| 20.4% |
|
|
| 35,224 |
|
| 22.6% |
|
|
| 2,868 |
|
| -2.2% |
| |||||||||||||
Other | 46,506 | - | 49,673 | - | (3,167 | ) | - |
| 40,371 |
|
| - |
|
|
| 30,469 |
|
| - |
|
|
| 9,902 |
|
| - |
| ||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||
Consolidated | $ | 277,664 | 23.8% | $ | 262,800 | 24.5% | $ | 14,864 | -0.7% | $ | 220,551 |
|
| 24.3% |
|
| $ | 205,911 |
|
| 24.9% |
|
| $ | 14,640 |
|
| -0.6% |
| ||||||||||
|
|
|
The increase of $14.9$14.6 million in general and administrative expenses included a positivean unfavorable foreign currency impact of $2.5$1.9 million in the Americas and a positivean unfavorable foreign currency impact of $1.9$3.3 million in EMEA.
The decrease in Americas’ general and administrative expenses, as a percentage of revenues, was primarily attributable to a reduction in technologylower facility-related costs of 0.6%, a higher net gain on lease terminations of 0.3% allocated from corporate,, lower technology equipmentmerger and maintenanceintegration costs of 0.3%, lower travel costs of 0.2% and lower other costs of 0.1%0.2%, partially offset by higher compensation costs of 0.2% and higher software and maintenance costs of 0.2%.
The increasedecrease in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily attributable to a gain on settlement of Qelp’s contingent consideration of 1.5% in the prior period and higherlower compensation costs of 0.7%0.9%, partially offset by lower facility-related costs of 0.1%,0.9% and lower communicationtravel costs of 0.1% and lower other costs of 0.3%0.4%.
The decrease of $3.2 millionincrease in Other general and administrative expenses, which includes corporate and other costs, was primarily attributable to lowerhigher compensation costs of $7.4 million driven by higher long-term and annual performance-based compensation and mark-to-market adjustment of executive deferred compensation in the current period and higher merger and integration costs of $3.8 million lower compensation costs of $3.5 million and lower other costs of $0.1 million,resulting primarily from the proposed Merger with Sitel Group, partially offset by a reduction in technologylower insurance costs of $2.3$0.6 million, allocated to the Americas, higher severance costs of $0.8 million, higherlower legal and professional fees of $0.7$0.4 million and higher charitable contributionslower travel costs of $0.4$0.3 million.
Depreciation, Amortization and Impairment of Long-Lived Assets
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
% of | % of | Change in % of | 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | $ Change | Revenues | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| ||||||||||||||||||||||||
Depreciation, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Americas | $ | 35,374 | 3.6% | $ | 30,856 | 3.5% | $ | 4,518 | 0.1% | $ | 20,085 |
|
| 2.8% |
|
| $ | 20,121 |
|
| 3.0% |
|
| $ | (36 | ) |
| -0.2% |
| ||||||||||||||||||
EMEA | 3,815 | 2.0% | 3,450 | 1.9% | 365 | 0.1% |
| 4,368 |
|
| 2.3% |
|
|
| 3,523 |
|
| 2.3% |
|
|
| 845 |
|
| 0.0% |
| |||||||||||||||||||||
Other | 2,206 | - | 1,442 | - | 764 | - |
| 1,471 |
|
| - |
|
|
| 1,447 |
|
| - |
|
|
| 24 |
|
| - |
| |||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 41,395 | 3.5% | $ | 35,748 | 3.3% | $ | 5,647 | 0.2% | $ | 25,924 |
|
| 2.9% |
|
| $ | 25,091 |
|
| 3.0% |
|
| $ | 833 |
|
| -0.1% |
| ||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Amortization of intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Americas | $ | 15,048 | 1.5% | $ | 13,353 | 1.5% | $ | 1,695 | 0.0% | $ | 4,157 |
|
| 0.6% |
|
| $ | 6,567 |
|
| 1.0% |
|
| $ | (2,410 | ) |
| -0.4% |
| ||||||||||||||||||
EMEA | 726 | 0.4% | 791 | 0.4% | (65) | 0.0% |
| 1,789 |
|
| 1.0% |
|
|
| 1,645 |
|
| 1.1% |
|
|
| 144 |
|
| -0.1% |
| |||||||||||||||||||||
Other | - | - | - | - | - | - |
| — |
|
| - |
|
|
| — |
|
| - |
|
|
| — |
|
| - |
| |||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 15,774 | 1.4% | $ | 14,144 | 1.3% | $ | 1,630 | 0.1% | $ | 5,946 |
|
| 0.7% |
|
| $ | 8,212 |
|
| 1.0% |
|
| $ | (2,266 | ) |
| -0.3% |
| ||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Impairment of long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Americas | $ | 5,071 | 0.5% | $ | - | 0.0% | $ | 5,071 | 0.5% | $ | 743 |
|
| 0.1% |
|
| $ | 1,800 |
|
| 0.3% |
|
| $ | (1,057 | ) |
| -0.2% |
| ||||||||||||||||||
EMEA | - | 0.0% | - | 0.0% | - | 0.0% |
| 475 |
|
| 0.3% |
|
|
| — |
|
| 0.0% |
|
|
| 475 |
|
| 0.3% |
| |||||||||||||||||||||
Other | - | - | - | - | - | - |
| 318 |
|
| - |
|
|
| — |
|
| - |
|
|
| 318 |
|
| - |
| |||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 5,071 | 0.4% | $ | - | 0.0% | $ | 5,071 | 0.4% | $ | 1,536 |
|
| 0.2% |
|
| $ | 1,800 |
|
| 0.2% |
|
| $ | (264 | ) |
| 0.0% |
| ||||||||||||||||||
|
|
|
The increase in depreciation was primarily due to new depreciable fixed assets placed into service supporting site expansions and infrastructure upgrades as well as the addition of depreciable fixed assets acquired in conjunction with the April 2016 Clearlink acquisition,accelerated depreciation related to certain site exits, partially offset by the impact since the prior period of certain fully depreciated fixed assets.assets as well as assets that were impaired.
The increasedecrease in amortization was primarily due to the additionimpact since the prior period of intangible assets acquired in conjunction with the April 2016 Clearlink acquisition, partially offset by certain fully amortized intangible assets.
See Note 4, Fair Value, ofin the accompanying “Notes to Condensed Consolidated Financial Statements” for further information regardingon the impairment of long-lived assets.assets.
Other Income (Expense)
Nine Months Ended September 30, | Six Months Ended June 30, |
|
|
|
|
| |||||||||||||||||
(in thousands) | 2017 | 2016 | $ Change | 2021 |
|
| 2020 |
|
| $ Change |
| ||||||||||||
Interest income | $ | 468 | $ | 429 | $ | 39 | $ | 201 |
|
| $ | 428 |
|
| $ | (227 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest (expense) | $ | (5,585 | ) | $ | (3,967 | ) | $ | (1,618 | ) | $ | (805 | ) |
| $ | (1,280 | ) |
| $ | 475 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Foreign currency transaction gains (losses) | $ | 567 | $ | 3,534 | $ | (2,967 | ) | $ | (257 | ) |
| $ | (1,558 | ) |
| $ | 1,301 |
| |||||
Gains (losses) on foreign currency derivative instruments not designated as hedges | (48 | ) | (1,434 | ) | 1,386 | ||||||||||||||||||
Gains (losses) on derivative instruments not designated as hedges |
| (7 | ) |
|
| (410 | ) |
|
| 403 |
| ||||||||||||
Gains (losses) on investments held in rabbi trust |
| 1,648 |
|
|
| (241 | ) |
|
| 1,889 |
| ||||||||||||
Other miscellaneous income (expense) | 1,228 | 501 | 727 |
| (1,614 | ) |
|
| (787 | ) |
|
| (827 | ) | |||||||||
|
|
| |||||||||||||||||||||
Total other income (expense), net | $ | 1,747 | $ | 2,601 | $ | (854 | ) | $ | (230 | ) |
| $ | (2,996 | ) |
| $ | 2,766 |
| |||||
|
|
|
Interest
The decrease in interest income remained consistent withwas primarily due to lower invested balances and interest rates than in the comparable period.period.
The increasedecrease in interest (expense) was primarily due to $216.0 million inlower average outstanding borrowings used to acquire Clearlink in April 2016 as well as an increase in weighted averageand interest rates on outstanding borrowings, partially offset by a decreasethan in the interest accretion on contingent consideration.comparable period.
The increasechange in other miscellaneous income (expense), net, was primarily due to an increase in the net investment income (losses) related to thevalue of investments held in rabbi trust.trust, partially offset by an increase in losses from XSell. See Note 7, Investments Held in Rabbi Trust, ofin the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.
Income Taxes
Nine Months Ended September 30, | Six Months Ended June 30, |
|
|
|
|
| |||||||||||||||||
(in thousands) | 2017 | 2016 | $Change | 2021 |
|
| 2020 |
|
| $ Change |
| ||||||||||||
Income before income taxes | $ | 60,163 | $ | 62,406 | $ | (2,243 | ) | $ | 60,417 |
|
| $ | 47,759 |
|
| $ | 12,658 |
| |||||
Income taxes | 10,911 | 18,044 | $ | (7,133 | ) |
| 12,259 |
|
|
| 11,611 |
|
|
| 648 |
| |||||||
|
|
|
|
|
|
|
| % Change |
| ||||||||||||||
% Change | |||||||||||||||||||||||
Effective tax rate | 18.1% | 28.9% | -10.8% |
| 20.3 | % |
|
| 24.3 | % |
|
| -4.0 | % |
The decrease in the effective tax rate in 20172021 compared to 2016 is2020 was primarily due to several significant factors, including the recognition of $2.0 million of previously unrecognizedin discrete tax benefits inclusive of penaltiesrelating to changes in the Company’s valuation allowances, Philippines tax law changes and interest, of which $1.2 million arose fromstock compensation recognized, partially offset by the effective settlement ofUK tax rate change in the Canadian Revenue Agency audit and $0.8 million arose from other favorable audit settlements and statute of limitation expirations. Additionally, we recognized a $0.8 million benefit related to the increase in anticipated tax credits and reductions in estimatednon-deferred foreign income, as well as a $0.3 million benefit for the release of a valuation allowance where it is more likely than not that the benefit will be realized. We also recognized a $0.9 million tax benefit resulting from the adoption of ASU2016-09 on January 1, 2017.current period. The decrease in the effective tax rate was also significantly affected by shifts in earnings among the various jurisdictions in which we operate. Several additional factors, none of which are individually material, also impacted the rate.
Client Concentration
Our top ten clients accounted for approximately 47.6%38.6% and 50.1%45.9% of our consolidated revenues in the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and 48.1%39.4% and 49.1%45.3% of our consolidated revenues in the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
Total revenues by segment from AT&T Corporation (“AT&T”), a major provider of communication services for which we provide various customer support services over several distinct lines of AT&T businesses, were as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||
Amount | Revenues | Amount | Revenues | Amount | Revenues | Amount | Revenues | |||||||||||||||||
Americas | $ | 56,448 | 16.5% | $ | 65,847 | 20.2% | $ | 173,609 | 17.8% | $ | 176,701 | 19.8% | ||||||||||||
EMEA | - | 0.0% | - | 0.0% | - | 0.0% | - | 0.0% | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
$ | 56,448 | 13.9% | $ | 65,847 | 17.1% | $ | 173,609 | 14.9% | $ | 176,701 | 16.5% | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
We have multiple distinct contracts with AT&T spread across multiple lines of businesses, which expire at varying dates between 2017 and 2019. We have historically renewed most of these contracts. However, there is no assurance that these contracts will be renewed, or if renewed, will be on terms as favorable as the existing contracts. Each line of business is governed by separate business terms, conditions and metrics. Each line of business also has a separate decision maker such that a loss of one line of business would not necessarily impact our relationship with the client and decision makers on other lines of business. The loss of (or the failure to retain a significant amount of business with) any of our key clients, including AT&T, could have a material adverse effect on our performance. Many of our contracts contain penalty provisions for failure to meet minimum service levels and are cancelable by the client at any time or on short notice. Also, clients may unilaterally reduce their use of our services under our contracts without penalty.
Total revenues by segment from our next largest client in each of the periods, which was in the financial services vertical in each offor the periods,three and six months ended June 30, 2021 and 2020, were as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||||||||||||||||||||
% of | % of | % of | % of | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||||||||||||||||||||||||
Amount | Revenues | Amount | Revenues | Amount | Revenues | Amount | Revenues | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
| |||||||||||||||||||||
Americas | $ | 28,644 | 8.4% | $ | 22,930 | 7.0% | $ | 76,388 | 7.8% | $ | 67,479 | 7.6% | $ | 26,413 |
|
| 7.4% |
|
| $ | 32,123 |
|
| 9.5% |
|
| $ | 58,749 |
|
| 8.2% |
|
| $ | 61,726 |
|
| 9.2% |
| ||||||||||||
EMEA | - | 0.0% | - | 0.0% | - | 0.0% | - | 0.0% |
| — |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
| ||||||||||||||||
|
|
|
| $ | 26,413 |
|
| 5.9% |
|
| $ | 32,123 |
|
| 7.7% |
|
| $ | 58,749 |
|
| 6.5% |
|
| $ | 61,726 |
|
| 7.5% |
| |||||||||||||||||||||
$ | 28,644 | 7.0% | $ | 22,930 | 5.9% | $ | 76,388 | 6.5% | $ | 67,479 | 6.3% | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
Other than AT&T, totalTotal revenues by segment of our clients that each individually represents 10% or greater of that segment’s revenues in each of the periods were as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||||
Americas | $ | - | 0.0% | $ | - | 0.0% | $ | - | 0.0% | $ | - | 0.0% | ||||||||||||
EMEA | 20,684 | 31.4% | 24,112 | 40.4% | 58,813 | 31.0% | 70,298 | 39.6% | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
$ | 20,684 | 5.1% | $ | 24,112 | 6.3% | $ | 58,813 | 5.0% | $ | 70,298 | 6.6% | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Business Outlook
For the three months ended December 31, 2017, we anticipate the following financial results:
|
|
|
|
|
For the twelve months ended December 31, 2017, we anticipate the following financial results:
|
|
|
|
|
We are raising our full-year 2017 revenue and diluted earnings per share outlook, reflecting the above-expectations operating results in the third quarter of 2017. Meanwhile, we continue to implement various action plans to address the operational inefficiencies around staffing, attrition and capacity utilization, and believe the associated drag on our underlying operating results is beginning to moderate.
Our revenues and earnings per share assumptions for the fourth quarter and full-year 2017 are based on foreign exchange rates as of October 2017. Therefore, the continued volatility in foreign exchange rates between the U.S. Dollar and the functional currencies of the markets we serve could have a further impact, positive or negative, on revenues and earnings per share relative to the business outlook for the fourth quarter and full-year, as discussed above.
We anticipate total other interest income (expense), net of approximately $(1.8) million for the fourth quarter and $(5.3) million for the full-year 2017. These amounts include the accretion on the Clearlink contingent consideration, which is expected to be a total of $(0.1) million for the year. The amounts, however, exclude the potential impact of any future foreign exchange gains or losses in other income (expense).
We expect a slight reduction in our full-year 2017 effective tax rate relative to the business outlook provided in August 2017, with the decline due to various discrete items, including the settlement of uncertain tax positions and an increase in tax credits, coupled with a release of a valuation allowance and a shift in the geographic mix of earnings to lower tax rate jurisdictions.
Not included in this guidance is the impact of any future acquisitions, share repurchase activities or a potential sale of previously exited customer engagement centers.
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
| ||||
Americas | $ | — |
|
| 0.0% |
|
| $ | — |
|
| 0.0% |
|
| $ | — |
|
| 0.0% |
|
| $ | — |
|
| 0.0% |
|
EMEA |
| 32,982 |
|
| 35.7% |
|
|
| 17,683 |
|
| 22.8% |
|
|
| 67,297 |
|
| 36.1% |
|
|
| 35,156 |
|
| 22.6% |
|
| $ | 32,982 |
|
| 7.3% |
|
| $ | 17,683 |
|
| 4.2% |
|
| $ | 67,297 |
|
| 7.4% |
|
| $ | 35,156 |
|
| 4.2% |
|
Liquidity and Capital Resources
Our primary sources of liquidity are generallytypically cash flows generated by operating activities and from available borrowings under our revolving credit facility. We utilize these capital resources to make capital expenditures associated primarily with our customer engagementexperience management services, invest in technology applications and tools to further develop our service offerings and for working capital and other general corporate purposes, including the repurchase of our common stock in the open market and to fund acquisitions. In future periods, we intend similar uses of these funds.
On August 18, 2011, theOur Board of Directors authorized us to purchase up to 5.010.0 million shares of our outstanding common stock (the “2011 Share Repurchase Program”). On on August 18, 2011, as amended on March 16, 2016, the Board authorized an increase of 5.0 million shares to the 2011 Share Repurchase Program, for a total of 10.0 million.2016. A total of 5.38.3 million shares have been repurchased under the 2011 Share Repurchase Program since inception. The shares are purchased, from time to time, through open market purchases or in negotiated private transactions, and the purchases are based on factors, including but not limited to, the stock price, management discretion and general market conditions. The 2011 Share Repurchase Program has no expiration date.
During the ninesix months ended SeptemberJune 30, 2017, 2021, cash increased $118.4due to $65.9 million from operating activities, $0.2 million from the sale of intangible assets and $0.1$0.2 million of proceeds from grants, which was other miscellaneous cash inflows, partially offset by $48.4$40.0 million used to repay long-term debt, $19.1 million used for capital expenditures, $9.1$3.8 million of cash paid for acquisitions, a $5.1 millionused to pay taxes related to net share settlement of the net investment hedge, a $5.0equity awards, $0.3 million investment in equity method investees, a $4.8 millionto purchase of intangible assets a $4.8and $0.2 million payment of contingent consideration and $3.9 millionrelated to repurchase common stockpaying for tax withholding on equity awards,an acquisition, resulting in a $61.5$0.1 million increase in available cash, (includingcash equivalents and restricted cash (including the favorableunfavorable effects of foreign currency exchange
rates on cash, and cash equivalents and restricted cash of $24.1$2.8 million).
Net cash flows provided by operating activities for the ninesix months ended SeptemberJune 30, 20172021 were $118.4$65.9 million, compared to $105.4$86.6 million for the comparable period in 2016.2020. The $13.0$20.7 million increasedecrease in net cash flows from operating activities was due to a $4.9$33.5 million decrease in cash flows from assets and liabilities, partially offset by a $12.0 million increase in net income and a $21.1net increase of $0.8 million increase innon-cash reconciling items, such as stock compensation, impairment, depreciation, amortization, deferred income taxes, unrealized foreign currency transaction (gains) lossesgains (losses), net unrealized gains (losses) and deferred income taxes, partially offset by apremiums on financial instruments, and net decrease of $13.0 million in cash flows from assets and liabilities.gains (losses) on lease terminations. The $13.0$33.5 million decrease in 20172021 from 20162020 in cash flows from assets and liabilities was principally a result of a $15.8$13.6 million decrease in other liabilities, a $12.6$7.1 million increase in accounts receivable, a $5.8 million change in net taxes receivable, netpayable, a $4.6 million change in operating lease assets and liabilities and a $2.8$3.1 million decreaseincrease in deferred revenue,other assets, partially offset by a $17.9$0.7 million decreaseincrease in accounts receivabledeferred revenue and a $0.3 million decrease in other assets.customer liabilities. The $15.8$13.6 million decrease in the change in other liabilities was primarily due to $8.0a $13.7 million decrease principally related to accrued employee compensation and benefits driven by an increase in annual performance-based compensation and the timing of payroll as well as a $5.9 million decrease principally related to the timing of other long-term liabilities driven by the deferral of our portion of social security taxes in the prior period as
permitted by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, partially offset by a $6.5 million increase principally related to the timing of other accrued expenses and current liabilities principally due to a decrease of $4.8 million related to the timing of payments associated with site expansions and infrastructure upgrades, a $2.1 million decrease resulting from the settlement of the net investment hedge and a $1.5 million decrease driven by a reduction in cash flow hedge liabilities as well as a $5.5 million decrease related to the timing of accrued employee compensation and benefits in the nine months ended September 30, 2017 over the comparable period in 2016.liabilities. The $12.6 million increase in taxes receivable, net was primarily due to the effective settlement of the Canadian Revenue Agency audit and a reduction in estimated tax liabilities in the nine months ended September 30, 2017 over the comparable period in 2016. The $17.9$7.1 million decrease in the change in accounts receivable was primarily due to the timing of billingsbilling and collectionscollections. The $5.8 million decrease in net taxes payable was primarily due to extensions of payment deadlines in the nine months ended September 30, 2017 overprior period granted by several jurisdictions. The $4.6 million change in operating lease assets and liabilities was primarily due to the comparable periodtiming of rent payments as compared to timing of ROU asset amortization. The $3.1 million increase in 2016.the change in other assets was primarily due to a $1.2 million increase in deferred charges and other assets and a $1.1 million increase in prepaid expenses.
Capital expenditures, which are generally funded by cash generated from operating activities, available cash balances and borrowings available under our credit facilities, were $48.4$19.1 million for the ninesix months ended SeptemberJune 30, 2017,2021, compared to $59.3$22.9 million for the comparable period in 2016,2020, a decrease of $10.9$3.8 million. In 2017,2021, we anticipate capital expenditures in the range of $62.0$47.0 million to $65.0$53.0 million, primarily for systems infrastructure upgrades and additions as well as new seat additions, Enterprise Resource Planning upgrades, facility upgrades, maintenance and systems infrastructure.additions.
On May 12, 2015,February 14, 2019, we entered into a $440$500 million senior revolving credit facility (the “2015“2019 Credit Agreement”) with a group of lenders, and KeyBank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent, Swing Line Lender and Issuing Lender (“KeyBank”)., the lenders named therein, and KeyBanc Capital Markets Inc. as Lead Arranger and Sole Book Runner. The 20152019 Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants. At September 30, 2017, we were in compliance with all loan requirements of the 2015 Credit Agreement and had $267.0 million of outstanding borrowings under this facility. On April 1, 2016, we borrowed $216.0 million under our 2015 Credit Agreement in connection with the acquisition of Clearlink. See Note 2, Acquisitions, of “Notes to Condensed Consolidated Financial Statements” for further information.
Our credit agreement had an average daily utilization of $267.0 million and $272.0 million during the three months ended September 30, 2017 and 2016, respectively, and $267.0 million and $207.2 million during the nine months ended September 30, 2017 and 2016, respectively. During the three months ended September 30, 2017 and 2016, the related interest expense, including the commitment fee and excluding the amortization of deferred loan fees, was $1.8 million and $1.2 million, respectively, which represented weighted average interest rates of 2.6% and 1.7%, respectively. During the nine months ended September 30, 2017 and 2016, the related interest expense, including the commitment fee and excluding the amortization of deferred loan fees, was $4.8 million and $2.6 million, respectively, which represented weighted average interest rates of 2.4% and 1.8%, respectively.
The 2015 Credit Agreement includes a $200 million alternate-currencysub-facility, a $10 million swinglinesub-facility and a $35 million letter of creditsub-facility, and may be used for general corporate purposes including acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. We are not currently aware of any inability of our lenders to provide access to the full commitment of funds that exist under the 20152019 Credit Agreement, if necessary. However, there can be no assurance that such facility will be available to us, even though it is a binding commitment of the financial institutions. The 20152019 Credit Agreement will mature on May 12, 2020.
Borrowings under the 2015 Credit Agreement bear interest at the rates set forth in the 2015 Credit Agreement. In addition, we are required to pay certain customary fees, including a commitment fee determined quarterly based on our leverage ratio and due quarterly in arrears as calculated on the average unused amount of the 2015 Credit Agreement.
The 2015 Credit Agreement is guaranteed by all of our existing and future direct and indirect material U.S. subsidiaries and secured by a pledge of 100% of thenon-voting and 65% of the voting capital stock of all of our direct foreign subsidiaries and those of the guarantors.
We received assessments for the Canadian 2003-2009 audit. Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the U.S. Internal Revenue Service and we paid mandatory security deposits to Canada as part of this process. The total amount of deposits were $13.8 million as of December 31, 2016 (none at September 30, 2017) and were included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheet.February 14, 2024. As of June 30, 2017,2021, we determined thatwere in compliance with all material aspectsloan requirements of the Canadian audit were effectively settled pursuant2019 Credit Agreement and had $23.0 million of outstanding borrowings under this facility. For additional discussion of our credit agreements, see Note 18, Borrowings in the “Notes to ASC 740,Income Taxes. As a result, we recognized a net income tax benefitthe Consolidated Financial Statements” section of $1.2our Annual Report on Form 10-K for the year ended December 31, 2020.
Our credit agreements had an average daily utilization of $44.8 million and $71.4 million during the deposits were netted againstthree months ended June 30, 2021 and 2020, respectively, and $49.4 million and $67.6 million during the anticipated liability.six months ended June 30, 2021 and 2020, respectively. During the three months ended June 30, 2021 and 2020, the related interest expense, excluding the commitment fee and the amortization of deferred loan fees, was $0.1 million and $0.3 million, respectively, which represented weighted average interest rates of 1.1% and 1.5%, respectively. During the six months ended June 30, 2021 and 2020, the related interest expense, excluding the commitment fee and the amortization of deferred loan fees, was $0.3 million and $0.7 million, respectively, which represented weighted average interest rates of 1.2% and 2.1%, respectively.
WithWe repaid $40.0 million, net, of long-term debt outstanding under the effective settlement2019 Credit Agreement during the six months ended June 30, 2021. Our future interest expense for the remainder of 2021 will vary based on our usage of the Canadian audit, we have no significant tax jurisdictions under audit; however, we2019 Credit Agreement and market interest rates.
We are currently under audit in several tax jurisdictions. We believe we are adequately reserved for the remaininghave adequate reserves related to all matters pertaining to these audits. Should we experience unfavorable outcomes from these audits, and their resolution is not expected tosuch outcomes could have a materialsignificant impact on our financial condition, and results of operations.
On April 24, 2017, we entered into a definitive Asset Purchase Agreement to purchase certain assets of a Global 2000 telecommunications services provider. The aggregate purchase price of $7.5 million was paid on May 31, 2017, usingoperations and cash on hand.flows.
As part of the April 2016 ClearlinkJuly 1, 2018 WhistleOut Pty Ltd acquisition, we assumed contingent consideration liabilities related to four separate acquisitions made by Clearlinkan AUD 14.0 million three-year retention bonus was payable in 2015installments on or around July 1, 2019, 2020 and 2016, prior to2021. We paid the Merger. The fairfirst installment of AUD 6.0 million ($4.2 million) in July 2019. We accelerated the 2021 installment of the retention bonus and paid AUD 8.0 million ($5.6 million) in July 2020, which represented both the 2020 and 2021 installments. No further amounts are due. As part of the Symphony acquisition on November 1, 2018, a portion of the purchase price, with an acquisition date present value of GBP 7.9 million ($10.0 million), was deferred and is payable in equal installments over three years, on or around November 1, 2019, 2020 and 2021. We paid the contingent consideration related to these previous acquisitionsfirst installment of GBP 2.7 million ($3.3 million) in October 2019 and the second installment of GBP 2.7 million ($3.4 million) in October 2020. The Symphony deferred purchase price was $2.8 millionincluded in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets as of April 1, 2016June 30, 2021 and December 31, 2020. Also, as part of the December 31, 2020 TMC acquisition, $17.4 million of the purchase price was baseddeferred and is payable on achieving targets primarily tied to revenues for varying periodsDecember 31, 2027, the seventh anniversary of time during 2016the closing. In the event TMC’s previous owner remains employed by us or one of our subsidiaries on December 31, 2022, the second anniversary of the closing, the deferred payment will be accelerated and 2017. due at that time. The TMC deferred purchase price was included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020.
As of September 30, 2017, the fair value of the remaining contingent consideration liability was $1.0 million, which was paid in October 2017.
In July 2015, we completed the acquisition of Qelp B.V. and its subsidiary (together, known as “Qelp”) pursuant to the definitive share sale and purchase agreement, dated July 2, 2015. The purchase price of $15.8 million was funded through cash on hand of $9.8 million and contingent consideration of $6.0 million. On September 26, 2016, we entered into an addendum to the Qelp purchase agreement with the sellers to settle the outstanding contingent consideration for EUR 4.0 million to be paid by June 30, 2017. We paid $4.4 million in May 2017 to settle the outstanding contingent consideration obligation.
As of September 30, 2017,2021, we had $328.2$103.2 million in cash and cash equivalents, of which approximately 90.0%84.8%, or $295.5$87.5 million, was held in international operations and is deemed to be indefinitely reinvested offshore. Theseoperations. Most of these funds maywill not be subject to additional taxes if repatriated toin the United States includingif repatriated; however, certain jurisdictions may impose additional withholding tax applied by the country of origin and an incremental U.S. income tax, net of allowable foreign tax credits.taxes. There are circumstances where we may be unable to repatriate some of the cash and cash equivalents held by our international operations due to country restrictions. We do not intend nor currently foresee a need to repatriate these funds.
We expect our current domestic cash levels and cash flows from operations to be adequate to meet our domestic anticipated working capital needs, including investment activities such as capital expenditures and debt repayment for the next twelve months and the foreseeable future. However, from time to time, we may borrow funds under our 20152019 Credit Agreement as a result of the timing of our working capital needs, including capital expenditures. Additionally, we expect our current foreign cash levels and cash flows from foreign operations to be adequate to meet our foreign anticipated working capital needs, including investment activities such as capital expenditures for the next twelve months and the foreseeable future.
If we should require more cash in the U.S. than is provided by our domestic operations for significant discretionary unforeseen activities such as acquisitions of businesses and share repurchases, we could elect to repatriate future foreign earnings and/or raise capital in the U.S through additional borrowings or debt/equity issuances. These alternatives could result in higher effective tax rates, interest expense and/or dilution of earnings. We have borrowed funds domestically and continue to have the ability to borrow additional funds domestically at reasonable interest rates.
Our cash resources could also be affected by various risks and uncertainties, including but not limited to, the risks described in our Annual Report on Form10-K for the year ended December 31, 2016.
��
53
Off-Balance Sheet Arrangements and Other
As of SeptemberJune 30, 2017,2021, we did not have any material commercial commitments, including guarantees or standby repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities often referred to as structured finance or special purpose entities or variable interest entities, which would have been established for the purpose of facilitatingoff-balance sheet arrangements or other contractually narrow or limited purposes.
From time to time, during the normal course of business, we may make certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These include, but are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on negligence or willful misconduct and (ii) indemnities involving breach of contract, the accuracy of representations and warranties, or other liabilities assumed by us in certain contracts. In addition, we have agreements whereby we will indemnify certain officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the applicable insurance coverage is generally adequate to cover any estimated potential liability under these indemnification agreements. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments we could be obligated to make. We have not recorded any liability for these indemnities, commitments and other guarantees in the accompanying Condensed Consolidated Balance Sheets. In addition, we have some client contracts that do not contain contractual provisions for the limitation of liability, and other client contracts that contain agreed upon exceptions to limitation of liability. We have not recorded any liability in the accompanying Condensed Consolidated Balance Sheets with respect to any client contracts under which we have or may have unlimited liability.
Contractual Obligations
The following table summarizes the material changes to our contractual obligations as of September 30, 2017, and the effect these obligations are expected to have on liquidity and cash flow in future periods (in thousands):
Payments Due By Period | ||||||||||||||||||||||||
Less Than | After 5 | |||||||||||||||||||||||
Total | 1 Year | 1 -3 Years | 3 -5 Years | Years | Other | |||||||||||||||||||
Operating leases(1) | $ | 56,958 | $ | 1,560 | $ | 14,916 | $ | 15,105 | $ | 25,377 | $ | - | ||||||||||||
Purchase obligations(2) | 45,388 | 6,646 | 33,015 | 5,727 | - | - | ||||||||||||||||||
Other accrued expenses and current liabilities(3) | 5,000 | - | 5,000 | - | - | - | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
$ | 107,346 | $ | 8,206 | $ | 52,931 | $ | 20,832 | $ | 25,377 | $ | - | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts represent the change in expected cash payments under our operating leases, including amounts that were assumed in conjunction with the Telecommunications Asset acquisition in May 2017. See Note 14, Commitments and Loss Contingency, to the accompanying Condensed Consolidated Financial Statements.
(2) Amounts represent the change in expected cash payments under our purchase obligations, which include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. See Note 14, Commitments and Loss Contingency, to the accompanying Condensed Consolidated Financial Statements.
(3) Amount represents the final payment related to an equity method investment entered into in July 2017.
Except for the contractual obligations mentioned above, thereThere have not been any material changes to the outstanding contractual obligations outside of the ordinary course of business from the disclosure in our Annual Report on Form10-K as of and for the year ended December 31, 2016.2020.
Critical Accounting Estimates
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report onForm 10-K for the year ended December 31, 20162020 for a discussion of our critical accounting estimates.
There have been no material changes to our critical accounting estimates, in 2017.including a description of the methods and key assumptions used and how the key assumptions were determined.
New Accounting Standards Not Yet Adopted
See Note 1, Overview and Basis of Presentation, ofin the accompanying “Notes to Condensed Consolidated Financial Statements” for information related to recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
Our earnings and cash flows are subject to fluctuations due to changes in currency exchange rates. We are exposed to foreign currency exchange rate fluctuations when subsidiaries with functional currencies other thanmarket risk in the U.S. Dollar (“USD”) are translated intonormal course of business due primarily to our USD consolidated financial statements. As exchange rates vary, those results, when translated, may vary from expectationsborrowings and adversely impact profitability. The cumulative translation effects for subsidiaries using functional currencies other than USD are included in “Accumulated other comprehensive income (loss)” in shareholders’ equity. Movements innon-USD currency exchange rates may negatively or positively affect our competitive position, as exchange rate changes may affect business practices and/or pricing strategies ofnon-U.S. based competitors.
We employ a foreign currency risk management program that periodically utilizes derivative instruments to protect against unanticipated fluctuations in certain earnings and cash flows caused by volatility in foreign currency exchange (“FX”) rates. We also utilize derivative contracts to hedge intercompany receivables and payables that are denominated in a foreign currency and to hedge net investments in foreign operations.
We serve a number of U.S.-based clients using customer engagement center capacity in The Philippines and Costa Rica,cash-management activities, which are within our Americas segment. Although a substantial portion of the costs incurred to render services under these contracts are denominated in Philippine Pesos (“PHP”) and Costa Rican Colones (“CRC”), the contracts with these clients are priced in USDs, which represent FX exposures. Additionally, our EMEA segment services clients in Hungary and Romania with a substantial portion of the costs incurred to render services under these contracts denominated in Hungarian Forints (“HUF”) and Romanian Leis (“RON”), where the contracts are priced in Euros (“EUR”).
In order to hedge a portion of our anticipated revenues denominated in USD and EUR, we had outstanding forward contracts and options as of September 30, 2017 with counterparties through December 2018 with notional amounts totaling $108.7 million. As of September 30, 2017, we had net total derivative liabilities associated with these contracts with a fair value of $0.4 million, which will settle within the next 15 months. If the USD was to weaken against the PHP and CRC and the EUR was to weaken against the HUF and RON by 10% from currentperiod-end levels, we would incur a loss of approximately $9.1 million on the underlying exposures of the derivative instruments. However, this loss would be mitigated by corresponding gains on the underlying exposures.
We had forward exchange contracts with notional amounts totaling $27.5 million that are not designated as hedges. The purpose of these derivative instruments is to protect against FX volatility pertaining to intercompany receivables and payables, and other assets and liabilities that are denominated in currencies other than our subsidiaries’ functional currencies. As of September 30, 2017, the fair value of these derivatives was a net asset of $0.3 million. The potential loss in fair value at September 30, 2017, for these contracts resulting from a hypothetical 10% adverse change in the foreign currency exchange rates is approximately $5.0 million. However, this loss would be mitigated by corresponding gains on the underlying exposures.
We had embedded derivative contracts with notional amounts totaling $13.8 million that are not designated as hedges. As of September 30, 2017, the fair value of these derivatives was a net liability of $0.3 million. The potential loss in fair value at September 30, 2017, for these contracts resulting from a hypothetical 10% adverse change in the foreign currency exchange rates is approximately $2.3 million. However, this loss would be mitigated
by corresponding gains on the underlying exposures.
We evaluate the credit quality of potential counterparties to derivative transactions and only enter into contracts with those considered to have minimal credit risk. We periodically monitor changes to counterparty credit quality as well as our concentration of credit exposure to individual counterparties.
We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates. As a general rule, we do not use financial instruments to hedge local currency denominated operating expenses in countries where a natural hedge exists. For example, in many countries, revenue from the local currency services substantially offsets the local currency denominated operating expenses.
Interest Rate Risk
Our exposuresubject to interest rate risk, results from variableand to our foreign business operations, which are subject to foreign exchange rate debt outstanding underrisk. Our market risk disclosures set forth in our revolving credit facility. We pay interestAnnual Report on outstanding borrowings at interest rates that fluctuate based upon changes in various base rates. As of September 30, 2017, we had $267.0 million in borrowings outstanding underForm 10-K for the revolving credit facility. Based on our level of variable rate debt outstanding during the three and nine monthsyear ended September 30, 2017, a 1.0% increase in the weighted average interest rate, which generally equals the LIBOR rate plus an applicable margin, would have had an impact of $0.7 million and $2.0 million, respectively, on our results of operations.
WeDecember 31, 2020 have not historically used derivative instrumentsotherwise changed significantly.
For a discussion of current market conditions resulting from the COVID-19 pandemic, refer to manage exposurePart I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and to changes in interest rates.Part II, Item 1A, “Risk Factors.”
Fluctuations in Quarterly Results
For the year ended December 31, 2016,2020, quarterly revenues as a percentage of total consolidated annual revenues were approximately 22%24%, 25%, 26%25% and 27%26%, respectively, for each of the respective quarters of the year. We have experienced and anticipate that in the future we will experience variations in quarterly revenues. The variations are due to the timing of new contracts and renewal of existing contracts, the timing and frequency of client spending for customer engagementexperience management services,non-U.S. currency fluctuations, and the seasonal pattern of customer engagementexperience management support and fulfillment services.
Item 4. Controls and Procedures
As of SeptemberJune 30, 2017,2021, under the direction of our Chief Executive Officer and Chief FinancialFinance Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a – 15(e) under the Securities Exchange Act of 1934, as amended. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief FinancialFinance Officer, as appropriate to allow timely decisions regarding required disclosure. We concluded that, as of SeptemberJune 30, 2017,2021, our disclosure controls and procedures were effective at the reasonable assurance level.
There were no changes in our internal controls over financial reporting during the quarter ended SeptemberJune 30, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.reporting, except for the change discussed under “Change in Internal Control over Financial Reporting” below.
Change in Internal Control over Financial Reporting
On December 31, 2020, we acquired TMC. We have excluded TMC from our assessment of the effectiveness of our internal control over financial reporting as of June 30, 2021 as we are currently integrating policies, processes, people, technology and operations for the combined companies. Management will continue to evaluate our internal control over financial reporting as we execute on our integration activities.
Part II. OTHER INFORMATION
Two lawsuits relating to the Merger, each filed by an individual shareholder, have been filed in the United States District Court for the Southern District of New York, captioned Shiva Stein v. Sykes Enterprises, Incorporated, et al., Case No. 1:21-cv-06043, and Matthew Whitfield v. Sykes Enterprises, Incorporated, et al., Case No. 1:21-cv-06163.
SYKES and individual members of the Board of Directors are named as defendants in each complaint. The complaints generally allege that the defendants violated the Exchange Act by making untrue statements in, or failing to disclose material information in, our preliminary proxy statement filed on July 12, 2021, and generally seeks, among other things, injunctive relief prohibiting consummation of the Merger and unspecified damages and attorneys’ fees.
The defendants deny the allegations made in the complaints. Additional complaints arising out of or relating to the Merger Agreement and the transactions contemplated thereby may be filed in the future. If additional similar complaints are filed, absent new or different allegations that are material, we will not necessarily announce such additional filings.
From time to time, we are involved in legal actions arising in the ordinary course of business. With respect to theseany such other currently pending matters, we believe that we have adequate legal defenses and/or, when possible and appropriate, have provided adequate accruals for related coststo those matters such that the ultimate outcome will not have a material adverse effect on our future financial position or results of operations.
For risk factors, see Item 1A, “Risk Factors,” of our Annual Report on Form10-K for the year ended December 31, 2016.2020. During the three and six months ended June 30, 2021, we added the following risk factors to address the risks and uncertainties related to the proposed Merger between us and Sitel Group.
Risks Related to the Merger
The Merger is subject to various closing conditions and other risks which may cause the Merger to be delayed or not completed at all or have other adverse consequences.
The Merger is subject to customary closing conditions that must be satisfied or waived to complete the Merger.
Failure to satisfy or obtain waivers of any closing condition may jeopardize or delay the completion of the Merger and result in additional expenditures of money and resources (including the potential payment of termination fees and other costs). There can be no assurance that these conditions will be satisfied or waived or that the Merger will be completed in a timely manner or at all. The Merger is also subject to approval by the Company’s shareholders. There is no assurance that the Company’s shareholders will approve the Merger. The governmental agencies from which the parties have sought or are seeking certain approvals in connection with the Merger have broad discretion in administering applicable governing regulations, and may impose requirements, limitations or costs, require divestitures or place restrictions on the conduct of the combined company’s business after the closing.
If the Merger is not completed for any reason, the price of our Common Stock may decline to the extent that the current market price reflects an assumption that the Merger will be consummated. Furthermore, if the Merger is not completed for any reason, our ongoing business and financial results would be subject to a number of risks, including negative reactions from analysts, media and financial markets, negative reactions from customers or employees, distraction of management attention, and litigation related to the Merger or the Company’s failure to perform its obligations under the Merger Agreement. In addition, we may elect to terminate the Merger Agreement in certain circumstances, and the parties can mutually decide to terminate the Merger Agreement at any time prior to the consummation of the Merger.
Uncertainty among our employees about their future roles after the completion of the Merger may impair our ability to attract, retain and motivate key personnel, and the pendency of the Merger may disrupt our business relationships with our existing and potential customers, suppliers, vendors, landlords, and other business partners, who may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us. The adverse consequence of the pendency of the Merger could be exacerbated by any delays in completion of the Merger or termination of the Merger Agreement.
We have incurred and are expected to continue to incur significant costs, expenses and fees for professional services and other transaction costs, which may be in excess of what we expected.
While the Merger Agreement is in effect, we are subject to restrictions on our business activities.
While the Merger Agreement is in effect, we are generally required to operate our business in the ordinary course and are subject to restrictions on the business activities we may engage in without the prior written consent of Parent. These restrictions could affect our ability to pursue strategic business opportunities, take actions with respect to our business that we may consider advantageous and respond effectively and/or timely to competitive pressures and industry developments, which may as a result materially adversely affect our business, results of operations and financial condition.
Our shareholders are not entitled to appraisal rights in the Merger.
Under the Florida Business Corporation Act, so long as our common stock continues to be listed on the NASDAQ, appraisal rights will not be available to our shareholders in connection with the Merger.
The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger, may discourage certain other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require us to pay the other party a termination fee.
Under the Merger Agreement, we are subject to certain restrictions on our ability to solicit alternative business combination proposals from third parties, engage in discussion or negotiations with respect to such proposals or provide information in connection with such proposals, subject to certain customary exceptions. We may terminate the Merger Agreement and enter into an agreement providing for a superior proposal only if specified conditions have been satisfied, and such a termination would result in us being required to pay Parent a termination fee equal to $66 million.
We may be targets of legal proceedings that could result in substantial costs and may delay or prevent the Transaction from being completed.
Legal proceedings instituted against the Company and others relating to the Merger Agreement also could delay or prevent the Merger from becoming effective within the agreed upon timeframe. As discussed above, two lawsuits relating to the Merger have been filed. Securities class action lawsuits, derivative lawsuits and other legal
proceedings, such as the foregoing two lawsuits, are often brought against public companies that have entered into merger agreements. Even if such legal proceedings are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, such injunction may delay or prevent the Merger from being completed, or from being completed within the expected timeframe, which may adversely affect our business, financial position and results of operation.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Below is a summary of stock repurchases for the three months ended September 30, 2017 (in thousands, except average price per share). See Note 13, Earnings Per Share, of “Notes to Condensed Consolidated Financial Statements” for information regarding our stock repurchase program.
| ||||||||||||||||
| ||||||||||||||||
| ||||||||||||||||
| ||||||||||||||||
(1) The total number of shares approved for repurchase under the 2011 Share Repurchase Plan datedOn August 18, 2011, as amended on March 16, 2017, is 10.0 million. The2016, the Company’s Board of Directors approved the 2011 Share Repurchase Plan hasprogram with no stated expiration date. The Company is authorized to repurchase 10.0 million shares, of which 8.3 million shares have been repurchased to date. There were no share repurchases during the three months ended June 30, 2021.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
None.
Item 6. Exhibits
The following documents are filed as an exhibit to this Report:
No. | Description | |
2.1 | ||
10.1# | ||
15 | ||
31.1 | Certification of Chief Executive Officer, pursuant to Rule13a-14(a). | |
31.2 | Certification of Chief | |
32.1* | Certification of Chief Executive Officer, pursuant to 18 U.S.C. §1350. | |
32.2* | Certification of Chief | |
101.INS+ | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH+ | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL+ | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB+ | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE+ | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF+ | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
104+ | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (included in Exhibit 101) | |
# | Indicates management contract or compensatory plan or arrangement. | |
* | Furnished herewith as an Exhibit. | |
+ | Submitted electronically with this Quarterly Report. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SYKES ENTERPRISES, INCORPORATED | |||
(Registrant) | |||
Date: | By: | /s/ John Chapman | |
John Chapman | |||
| |||
(Principal Financial and Accounting Officer) |
5946