UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 20202021
☐ | 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) |
| (I.R.S. Employer Identification No.) |
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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 Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ |
|
| Accelerated filer | ☐ |
Non-accelerated filer | ☐ |
|
| 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 Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 16, 2020,15, 2021, there were 40,503,70739,778,641 outstanding shares of common stock.
Sykes Enterprises, Incorporated and Subsidiaries
Form 10-Q
INDEX
| 3 | |||
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| ||
Item 1. |
|
| 3 | |
|
| Condensed Consolidated Balance Sheets – March 31, |
| 3 |
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| 4 | |
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| 5 | |
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| 6 | |
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| 7 | |
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| Notes to Condensed Consolidated Financial Statements (Unaudited) |
| 9 |
Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share data) | March 31, 2020 |
|
| December 31, 2019 |
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 118,422 |
|
| $ | 127,246 |
| $ | 112,763 |
|
| $ | 103,077 |
|
Receivables, net of allowance of $3.8 million and $3.5 million, respectively |
| 378,555 |
|
|
| 390,147 |
| |||||||
Receivables, net of allowance of $4.8 million and $4.8 million, respectively |
| 410,616 |
|
|
| 415,746 |
| |||||||
Prepaid expenses |
| 25,052 |
|
|
| 20,868 |
|
| 22,313 |
|
|
| 21,348 |
|
Other current assets |
| 17,457 |
|
|
| 20,525 |
|
| 21,685 |
|
|
| 19,718 |
|
Total current assets |
| 539,486 |
|
|
| 558,786 |
|
| 567,377 |
|
|
| 559,889 |
|
Property and equipment, net |
| 119,953 |
|
|
| 125,990 |
|
| 115,229 |
|
|
| 121,084 |
|
Operating lease right-of-use assets |
| 196,737 |
|
|
| 205,112 |
|
| 145,780 |
|
|
| 158,866 |
|
Goodwill, net |
| 304,691 |
|
|
| 311,247 |
|
| 299,296 |
|
|
| 299,409 |
|
Intangibles, net |
| 151,537 |
|
|
| 158,420 |
|
| 231,158 |
|
|
| 233,975 |
|
Deferred charges and other assets |
| 53,943 |
|
|
| 55,945 |
|
| 62,564 |
|
|
| 62,582 |
|
| $ | 1,366,347 |
|
| $ | 1,415,500 |
| $ | 1,421,404 |
|
| $ | 1,435,805 |
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | 25,236 |
|
| $ | 33,591 |
| $ | 26,943 |
|
| $ | 32,049 |
|
Accrued employee compensation and benefits |
| 105,373 |
|
|
| 109,591 |
|
| 141,638 |
|
|
| 147,212 |
|
Income taxes payable |
| 4,016 |
|
|
| 3,637 |
|
| 5,160 |
|
|
| 3,521 |
|
Deferred revenue and customer liabilities |
| 24,521 |
|
|
| 26,621 |
|
| 25,744 |
|
|
| 24,802 |
|
Operating lease liabilities |
| 52,642 |
|
|
| 50,863 |
|
| 53,043 |
|
|
| 55,928 |
|
Other accrued expenses and current liabilities |
| 27,306 |
|
|
| 29,330 |
|
| 29,235 |
|
|
| 31,994 |
|
Total current liabilities |
| 239,094 |
|
|
| 253,633 |
|
| 281,763 |
|
|
| 295,506 |
|
Long-term debt |
| 75,000 |
|
|
| 73,000 |
|
| 48,000 |
|
|
| 63,000 |
|
Long-term income tax liabilities |
| 22,334 |
|
|
| 22,286 |
|
| 21,477 |
|
|
| 21,586 |
|
Long-term operating lease liabilities |
| 159,851 |
|
|
| 166,810 |
|
| 116,496 |
|
|
| 126,336 |
|
Other long-term liabilities |
| 26,464 |
|
|
| 25,296 |
|
| 37,205 |
|
|
| 35,723 |
|
Total liabilities |
| 522,743 |
|
|
| 541,025 |
|
| 504,941 |
|
|
| 542,151 |
|
|
|
|
|
|
|
|
|
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|
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|
Commitments and loss contingencies (Note 12) |
|
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| |||||||
Commitments and loss contingencies (Note 11) |
|
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Shareholders' equity: |
|
|
|
|
|
|
|
|
|
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|
|
|
|
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; 40,504 and 41,549 shares issued, respectively |
| 405 |
|
|
| 416 |
| |||||||
Common stock, $0.01 par value per share, 200,000 shares authorized; 39,779 and 39,614 shares issued, respectively |
| 397 |
|
|
| 396 |
| |||||||
Additional paid-in capital |
| 289,829 |
|
|
| 288,935 |
|
| 299,635 |
|
|
| 298,037 |
|
Retained earnings |
| 625,712 |
|
|
| 634,668 |
|
| 663,978 |
|
|
| 639,000 |
|
Accumulated other comprehensive income (loss) |
| (69,732 | ) |
|
| (47,001 | ) |
| (44,478 | ) |
|
| (40,999 | ) |
Treasury stock at cost: 130 and 128 shares, respectively |
| (2,610 | ) |
|
| (2,543 | ) | |||||||
Treasury stock at cost: 142 and 135 shares, respectively |
| (3,069 | ) |
|
| (2,780 | ) | |||||||
Total shareholders' equity |
| 843,604 |
|
|
| 874,475 |
|
| 916,463 |
|
|
| 893,654 |
|
| $ | 1,366,347 |
|
| $ | 1,415,500 |
| $ | 1,421,404 |
|
| $ | 1,435,805 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
(in thousands, except per share data) | 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Revenues | $ | 411,166 |
|
| $ | 402,925 |
| $ | 457,886 |
|
| $ | 411,166 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct salaries and related costs |
| 266,945 |
|
|
| 261,728 |
|
| 299,477 |
|
|
| 266,945 |
|
General and administrative |
| 103,247 |
|
|
| 104,680 |
|
| 109,627 |
|
|
| 103,247 |
|
Depreciation, net |
| 12,461 |
|
|
| 13,897 |
|
| 13,115 |
|
|
| 12,461 |
|
Amortization of intangibles |
| 4,119 |
|
|
| 4,286 |
|
| 2,987 |
|
|
| 4,119 |
|
Impairment of long-lived assets |
| — |
|
|
| 1,582 |
|
| 1,150 |
|
|
| — |
|
Total operating expenses |
| 386,772 |
|
|
| 386,173 |
|
| 426,356 |
|
|
| 386,772 |
|
Income from operations |
| 24,394 |
|
|
| 16,752 |
|
| 31,530 |
|
|
| 24,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| 263 |
|
|
| 185 |
|
| 98 |
|
|
| 263 |
|
Interest (expense) |
| (720 | ) |
|
| (1,178 | ) |
| (423 | ) |
|
| (720 | ) |
Other income (expense), net |
| (4,793 | ) |
|
| 610 |
|
| (322 | ) |
|
| (4,793 | ) |
Total other income (expense), net |
| (5,250 | ) |
|
| (383 | ) |
| (647 | ) |
|
| (5,250 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
| 19,144 |
|
|
| 16,369 |
|
| 30,883 |
|
|
| 19,144 |
|
Income taxes |
| 5,226 |
|
|
| 4,682 |
|
| 5,905 |
|
|
| 5,226 |
|
Net income | $ | 13,918 |
|
| $ | 11,687 |
| $ | 24,978 |
|
| $ | 13,918 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Net income per common share: |
|
|
|
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|
|
|
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|
|
Basic | $ | 0.34 |
|
| $ | 0.28 |
| $ | 0.63 |
|
| $ | 0.34 |
|
Diluted | $ | 0.34 |
|
| $ | 0.28 |
| $ | 0.63 |
|
| $ | 0.34 |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| 41,132 |
|
|
| 42,169 |
|
| 39,641 |
|
|
| 41,132 |
|
Diluted |
| 41,334 |
|
|
| 42,299 |
|
| 39,956 |
|
|
| 41,334 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
(in thousands) | 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Net income | $ | 13,918 |
|
| $ | 11,687 |
| $ | 24,978 |
|
| $ | 13,918 |
|
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of taxes |
| (21,350 | ) |
|
| 1,362 |
| |||||||
Foreign currency translation adjustments |
| (4,463 | ) |
|
| (21,350 | ) | |||||||
Unrealized gain (loss) on cash flow hedging instruments, net of taxes |
| (1,342 | ) |
|
| 1,672 |
|
| 991 |
|
|
| (1,342 | ) |
Unrealized actuarial gain (loss) related to pension liability, net of taxes |
| (17 | ) |
|
| (15 | ) |
| (7 | ) |
|
| (17 | ) |
Unrealized gain (loss) on postretirement obligation, net of taxes |
| (22 | ) |
|
| (5 | ) |
| — |
|
|
| (22 | ) |
Other comprehensive income (loss), net of taxes |
| (22,731 | ) |
|
| 3,014 |
|
| (3,479 | ) |
|
| (22,731 | ) |
Comprehensive income (loss) | $ | (8,813 | ) |
| $ | 14,701 |
| $ | 21,499 |
|
| $ | (8,813 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
| Common Stock |
|
| Additional |
|
|
|
|
|
| Accumulated Other |
|
|
|
|
|
|
|
|
| Common Stock |
|
| Additional |
|
|
|
|
|
| Accumulated Other |
|
|
|
|
|
|
|
|
| ||||||||||||||
(in thousands) | Shares Issued |
|
| Amount |
|
| Paid-in Capital |
|
| Retained Earnings |
|
| Comprehensive Income (Loss) |
|
| Treasury Stock |
|
| Total |
| 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 |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Balance at December 31, 2019 |
| 41,549 |
|
| $ | 416 |
|
| $ | 288,935 |
|
| $ | 634,668 |
|
| $ | (47,001 | ) |
| $ | (2,543 | ) |
| $ | 874,475 |
|
| 41,549 |
|
| $ | 416 |
|
| $ | 288,935 |
|
| $ | 634,668 |
|
| $ | (47,001 | ) |
| $ | (2,543 | ) |
| $ | 874,475 |
|
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 1,860 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,860 |
|
| — |
|
|
| — |
|
|
| 1,860 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,860 |
|
Issuance of common stock under equity award plans, net of forfeitures |
| (146 | ) |
|
| (2 | ) |
|
| 69 |
|
|
| — |
|
|
| — |
|
|
| (67 | ) |
|
| — |
|
| (146 | ) |
|
| (2 | ) |
|
| 69 |
|
|
| — |
|
|
| — |
|
|
| (67 | ) |
|
| — |
|
Shares repurchased for tax withholding on equity awards |
| (39 | ) |
|
| — |
|
|
| (1,009 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,009 | ) | |||||||||||||||||||||||||||
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 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,909 | ) |
|
| (22,909 | ) |
Retirement of treasury stock |
| (860 | ) |
|
| (9 | ) |
|
| (26 | ) |
|
| (22,874 | ) |
|
| — |
|
|
| 22,909 |
|
|
| — |
|
| (860 | ) |
|
| (9 | ) |
|
| (26 | ) |
|
| (22,874 | ) |
|
| — |
|
|
| 22,909 |
|
|
| — |
|
Comprehensive income (loss) |
| — |
|
|
| — |
|
|
| — |
|
|
| 13,918 |
|
|
| (22,731 | ) |
|
| — |
|
|
| (8,813 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| 13,918 |
|
|
| (22,731 | ) |
|
| — |
|
|
| (8,813 | ) |
Balance at March 31, 2020 |
| 40,504 |
|
| $ | 405 |
|
| $ | 289,829 |
|
| $ | 625,712 |
|
| $ | (69,732 | ) |
| $ | (2,610 | ) |
| $ | 843,604 |
|
| 40,504 |
|
| $ | 405 |
|
| $ | 289,829 |
|
| $ | 625,712 |
|
| $ | (69,732 | ) |
| $ | (2,610 | ) |
| $ | 843,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Balance at December 31, 2018 |
| 42,778 |
|
| $ | 428 |
|
| $ | 286,544 |
|
| $ | 598,788 |
|
| $ | (56,775 | ) |
| $ | (2,376 | ) |
| $ | 826,609 |
| |||||||||||||||||||||||||||
Cumulative effect of accounting change – adoption of ASC 842, Leases |
| — |
|
|
| — |
|
|
| — |
|
|
| 110 |
|
|
| — |
|
|
| — |
|
|
| 110 |
| |||||||||||||||||||||||||||
Stock-based compensation expense |
| — |
|
|
| — |
|
|
| 1,890 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,890 |
| |||||||||||||||||||||||||||
Issuance of common stock under equity award plans, net of forfeitures |
| (168 | ) |
|
| (2 | ) |
|
| 182 |
|
|
| — |
|
|
| — |
|
|
| (180 | ) |
|
| — |
| |||||||||||||||||||||||||||
Shares repurchased for tax withholding on equity awards |
| (45 | ) |
|
| — |
|
|
| (1,269 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,269 | ) | |||||||||||||||||||||||||||
Comprehensive income (loss) |
| — |
|
|
| — |
|
|
| — |
|
|
| 11,687 |
|
|
| 3,014 |
|
|
| — |
|
|
| 14,701 |
| |||||||||||||||||||||||||||
Balance at March 31, 2019 |
| 42,565 |
|
| $ | 426 |
|
| $ | 287,347 |
|
| $ | 610,585 |
|
| $ | (53,761 | ) |
| $ | (2,556 | ) |
| $ | 842,041 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
(in thousands) | 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 13,918 |
|
| $ | 11,687 |
| $ | 24,978 |
|
| $ | 13,918 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
| 12,519 |
|
|
| 13,957 |
|
| 13,127 |
|
|
| 12,519 |
|
Amortization of intangibles |
| 4,119 |
|
|
| 4,286 |
|
| 2,987 |
|
|
| 4,119 |
|
Amortization of deferred grants |
| (85 | ) |
|
| (95 | ) |
| (240 | ) |
|
| (85 | ) |
Impairment losses |
| — |
|
|
| 1,582 |
|
| 1,150 |
|
|
| — |
|
Unrealized foreign currency transaction (gains) losses, net |
| 474 |
|
|
| 573 |
|
| 1,212 |
|
|
| 474 |
|
Stock-based compensation expense |
| 1,860 |
|
|
| 1,890 |
|
| 4,751 |
|
|
| 1,860 |
|
Deferred income tax provision (benefit) |
| 973 |
|
|
| 530 |
|
| (201 | ) |
|
| 973 |
|
Bad debt expense (reversals) |
| 236 |
|
|
| 586 |
| |||||||
Unrealized (gains) losses and premiums on financial instruments, net |
| 280 |
|
|
| (494 | ) |
| (668 | ) |
|
| 280 |
|
(Earnings) losses from equity method investees |
| 615 |
|
|
| 179 |
|
| 675 |
|
|
| 615 |
|
Other |
| 710 |
|
|
| 153 |
|
| 411 |
|
|
| 124 |
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
| 1,450 |
|
|
| (2,320 | ) |
| 1,535 |
|
|
| 1,450 |
|
Prepaid expenses |
| (4,570 | ) |
|
| 1,103 |
|
| (1,034 | ) |
|
| (4,570 | ) |
Other current assets |
| 68 |
|
|
| (359 | ) |
| (692 | ) |
|
| 68 |
|
Deferred charges and other assets |
| 213 |
|
|
| (1,961 | ) |
| (197 | ) |
|
| 213 |
|
Accounts payable |
| (5,124 | ) |
|
| (15 | ) |
| (3,608 | ) |
|
| (5,124 | ) |
Income taxes receivable / payable |
| 478 |
|
|
| 1,664 |
|
| 1,928 |
|
|
| 478 |
|
Accrued employee compensation and benefits |
| 559 |
|
|
| 6,866 |
|
| (4,712 | ) |
|
| 559 |
|
Other accrued expenses and current liabilities |
| (1,541 | ) |
|
| 2,179 |
|
| (1,171 | ) |
|
| (1,541 | ) |
Deferred revenue and customer liabilities |
| (761 | ) |
|
| (3,507 | ) |
| 740 |
|
|
| (761 | ) |
Other long-term liabilities |
| 1,206 |
|
|
| 198 |
|
| (125 | ) |
|
| 1,206 |
|
Operating lease assets and liabilities |
| 1,188 |
|
|
| 1,207 |
|
| (843 | ) |
|
| 1,188 |
|
Net cash provided by operating activities |
| 28,549 |
|
|
| 39,303 |
|
| 40,239 |
|
|
| 28,549 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| (11,818 | ) |
|
| (5,696 | ) |
| (9,376 | ) |
|
| (11,818 | ) |
Cash paid for business acquisitions, net of cash acquired |
| (165 | ) |
|
| — |
| |||||||
Purchase of intangible assets |
| (252 | ) |
|
| — |
| |||||||
Other |
| 5 |
|
|
| (35 | ) |
| 18 |
|
|
| 5 |
|
Net cash (used for) investing activities |
| (11,813 | ) |
|
| (5,731 | ) |
| (9,775 | ) |
|
| (11,813 | ) |
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Continued)
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
(in thousands) | 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt |
| (21,000 | ) |
|
| (9,000 | ) |
| (15,000 | ) |
|
| (21,000 | ) |
Proceeds from issuance of long-term debt |
| 23,000 |
|
|
| — |
|
| — |
|
|
| 23,000 |
|
Cash paid for repurchase of common stock |
| (22,909 | ) |
|
| — |
|
| — |
|
|
| (22,909 | ) |
Shares repurchased for tax withholding on equity awards |
| (1,009 | ) |
|
| (1,269 | ) | |||||||
Cash paid for loan fees related to long-term debt |
| — |
|
|
| (1,091 | ) | |||||||
Other |
| — |
|
|
| (6 | ) | |||||||
Taxes paid related to net share settlement of equity awards |
| (3,441 | ) |
|
| (1,009 | ) | |||||||
Net cash (used for) financing activities |
| (21,918 | ) |
|
| (11,366 | ) |
| (18,441 | ) |
|
| (21,918 | ) |
Effects of exchange rates on cash, cash equivalents and restricted cash |
| (3,920 | ) |
|
| (862 | ) |
| (2,401 | ) |
|
| (3,920 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
| (9,102 | ) |
|
| 21,344 |
|
| 9,622 |
|
|
| (9,102 | ) |
Cash, cash equivalents and restricted cash – beginning |
| 129,185 |
|
|
| 130,231 |
|
| 104,396 |
|
|
| 129,185 |
|
Cash, cash equivalents and restricted cash – ending | $ | 120,083 |
|
| $ | 151,575 |
| $ | 114,018 |
|
| $ | 120,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 13,578 |
|
| $ | 13,146 |
| $ | 15,387 |
|
| $ | 13,578 |
|
Cash paid during period for interest | $ | 567 |
|
| $ | 946 |
| $ | 324 |
|
| $ | 567 |
|
Cash paid during period for income taxes | $ | 3,799 |
|
| $ | 2,862 |
| $ | 5,083 |
|
| $ | 3,799 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net right-of-use assets arising from new or remeasured operating lease liabilities | $ | 9,095 |
|
| $ | 6,581 |
| $ | 2,748 |
|
| $ | 9,095 |
|
Property and equipment additions in accounts payable | $ | 4,154 |
|
| $ | 3,669 |
| |||||||
Capital expenditures incurred but not yet paid | $ | 4,818 |
|
| $ | 4,154 |
| |||||||
Unrealized gain (loss) on postretirement obligation, net of taxes, in accumulated other comprehensive income (loss) | $ | (22 | ) |
| $ | (5 | ) | $ | — |
|
| $ | (22 | ) |
Property and equipment acquired under grant agreement | $ | 1,123 |
|
| $ | — |
| |||||||
Shares repurchased for tax withholding on equity awards included in current liabilities | $ | 33 |
|
| $ | 102 |
| $ | 212 |
|
| $ | 33 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
Sykes Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 20202021 and 20192020
(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 customer experience management services, multichannel demand generation and global customer engagement services. SYKESdigital transformation. The Company provides differentiated full lifecycle customer engagementexperience management solutions and services primarily to Global 2000 companies and their end customers withinprincipally in the financial services, technology, communications, technology, transportation & leisure and healthcare industries. The Company’s differentiated full lifecycle services platform effectively engages customers at every touchpoint within the customer journey, including digital media and other industries. SYKES primarily provides customer engagement solutions and services with an emphasis on inbound multichannel demand generation,acquisition, sales expertise, customer service, and technical support and retention, 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 digital learning. In addition to digital transformation, the Company also provides artificial intelligence (“AI”) solutions that can be embedded and leveraged across its clients’ customers.lifecycle offerings. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKESthe Company provides its services through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. SYKESThe 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 include order processing, payment processing, inventory control, product delivery and product returns handling. Additionally, through the Company’s acquisition of robotic processing automation (“RPA”)RPA provider Symphony Ventures Ltd (“Symphony”) coupled with its investment in artificial intelligence (“AI”)AI through XSell Technologies, Inc. (“XSell”), the Company also provides a suite of solutions such as consulting, implementation, hosting and managed services that optimizes its differentiated full lifecycle management services platform. The Company has operations in 2 reportable segments entitled (1) the Americas, in which the client base is primarily companies in the United States that are using the 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.
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 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 April 2021, approximately 70% of agents assigned to the Company’s brick-and-mortar facilities have temporarily transitioned to a work-at-home model, 25% are working in centers and 5% 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 3,500 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 $7.2 million related to these actions since the initiation of its reevaluation in April 2020, of which $0.7
million of ROU assets and $0.1 million of property and equipment impairments were recorded during the three months ended March 31, 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 March 31, 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. Certain amounts are provisional and are subject to change, including the tax analysis of the assets acquired and liabilities assumed, and goodwill. The Company expects to complete this analysis by June 30, 2021 and any resulting adjustments will be recorded in accordance with ASC 805. The initial 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 TMC’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 Americas segment since January 1, 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 Form 10-Q and Article 10 of Regulation S-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 months ended March 31, 20202021 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2020.2021. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020, as filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020.26, 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 U.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 novel coronavirus (“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. On April 5, 2020, the Company experienced a cyber incident that affected specific back office systems. See Note 18, Subsequent Event, for further information. There were no
other material subsequent events that required recognition or disclosure in the accompanying condensed consolidated financial statements.
Cash, Cash Equivalents and Restricted Cash — Cash and cash equivalents consist of cash and highly liquid short-term investments, primarily held in non-interest-bearing investments which have original maturities of less than 90 days. Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets that sum to the amounts reported in the Condensed Consolidated Statements of Cash Flows (in thousands):
| March 31, 2020 |
|
| December 31, 2019 |
|
| March 31, 2019 |
|
| December 31, 2018 |
| March 31, 2021 |
|
| December 31, 2020 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||
Cash and cash equivalents | $ | 118,422 |
|
| $ | 127,246 |
|
| $ | 148,242 |
|
| $ | 128,697 |
| $ | 112,763 |
|
| $ | 103,077 |
|
| $ | 118,422 |
|
| $ | 127,246 |
|
Restricted cash included in "Other current assets" |
| 438 |
|
|
| 568 |
|
|
| 1,960 |
|
|
| 149 |
|
| 288 |
|
|
| 355 |
|
|
| 438 |
|
|
| 568 |
|
Restricted cash included in "Deferred charges and other assets" |
| 1,223 |
|
|
| 1,371 |
|
|
| 1,373 |
|
|
| 1,385 |
|
| 967 |
|
|
| 964 |
|
|
| 1,223 |
|
|
| 1,371 |
|
| $ | 120,083 |
|
| $ | 129,185 |
|
| $ | 151,575 |
|
| $ | 130,231 |
| $ | 114,018 |
|
| $ | 104,396 |
|
| $ | 120,083 |
|
| $ | 129,185 |
|
Allowance for Doubtful Accounts — The Company recorded a $0.2 million and $0.6 million increase to the allowance for credit losses related to its short-term trade receivables primarily as a result of deterioration in certain clients’ credit ratings reflecting current and expected economic conditions during the three months ended March 31, 2021 and 2020, respectively, and wrote off $0.1 million and $0.3 million of the allowance for credit losses related to certain short-term trade receivables deemed to be uncollectible during the three months ended March 31, 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 three months ended March 31, 2021 (NaN in 2020).
Customer-Acquisition Advertising Costs — The Company’s advertising costs are expensed as incurred. Total advertising costs included in “Direct salaries and related costs” in the accompanying Condensed Consolidated Statements of Operations were as follows (in thousands):
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Customer-acquisition advertising costs | $ | 10,182 |
|
| $ | 12,104 |
|
| Three Months Ended March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
Customer-acquisition advertising costs |
| 19,565 |
|
|
| 10,182 |
|
New Accounting Standards Not Yet Adopted
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Compensation – Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), 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 London Interbank Offered Rate (“LIBOR”). These amendments are effective for all entities as of March 12, 2020 and an entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of the transition from LIBOR to alternative reference interest rates but does not expect a material impact on its financial position, results of operations or cash flows.
New Accounting Standards Recently Adopted
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). These amendments simplify the accounting for income taxes by eliminating certain exceptions and also clarifying and amending certain aspects of existing guidance. These amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Most of the amendments are required to be applied on a prospective basis, while certain amendments must be applied on a
retrospective or modified retrospective basis. Early adoption iswas permitted, including adoption in any interim period for which financial statements havehad not yet been issued. The Company is currently evaluating the amendments in ASU 2019-12 but does not expect a material impact on its financial condition, results of operations, cash flows or disclosures. The Company does not anticipate early adoption of ASU 2019-12.
Retirement Benefits
In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans - General (Subtopic 715-20) – Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). These amendments remove, modify or add certain disclosure requirements for defined benefit plans. These amendments are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company does not expect its adoption of ASU 2018-14 to have a material impact on its financial condition, results of operations, cash flows or disclosures and does not expect to early adopt the standard.
New Accounting Standards Recently Adopted
Financial Instruments – Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). These amendments require measurement and recognition of expected versus incurred credit losses for financial assets held. Entities are required to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses in November 2018 and
ASU 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief in May 2019 (together, “subsequent amendments”). ASU 2016-13 and the subsequent amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.
The Company adopted ASU 2016-13 on January 1, 2020, using the modified retrospective transition method, which resulted in 0 cumulative-effect adjustment to be recognized to the opening balance of retained earnings. The prior period was not restated. The Company’s adoption of ASU 2016-132019-12 on January 1, 2021 did not have a material impact on its financial condition, results of operations or cash flows as the credit losses associated with the Company’s trade receivables have historically been insignificant. See the description of the Company’s “Allowance for Doubtful Accounts” accounting policy in the “Significant Accounting Policies” section below.
Codification Improvements – Financial Instruments – Credit Losses, Derivatives and Hedging, and Financial Instruments
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”). These amendments clarify new standards on credit losses, hedging and recognizing and measuring financial instruments and address implementation issues stakeholders have raised. The credit losses and hedging amendments have the same effective dates as the respective standards, unless an entity has already adopted the standards. The amendments related to recognizing and measuring financial instruments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company’s adoption of ASU 2019-04 on January 1, 2020 did not have a material impact on its financial condition,position, results of operations, cash flows or disclosures.
Fair Value Measurements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). These amendments remove, modify or add certain disclosure requirements for fair value measurements. These amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Certain of the amendments will be applied prospectively in the initial year of adoption while the remainder are required to be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The Company’s adoption of ASU 2018-03 on January 1, 2020 did not have a material impact on its disclosures.
Cloud Computing
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. These amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early application permitted in any interim period after issuance of this update. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company’s adoption of ASU 2018-15 on January 1, 2020 on a prospective basis did not have a material impact on its financial condition, results of operations, cash flows or disclosures.
Significant Accounting Policies
With the exception of the change for the accounting of credit losses as a result of the adoption of ASU 2016-13, there
There have been no new or material changes to the significant accounting policies discusseddisclosed 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, 20192020.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts on trade accounts receivables for estimated losses arising from the inability of its clients to make contractual payments, applying a probability of default method. The Company’s estimate is based on qualitative and quantitative analyses, applying credit risk measurement tools and methodologies using publicly available credit and capital market information, a review of the current status of the Company’s trade accounts receivable and its historical experience. It is reasonably possible that the Company’s estimate of the allowance for credit losses will increase if the financial condition of the Company’s clients were to deteriorate, resulting in a reduced ability to make payments.
During the three months ended March 31, 2020, the Company recorded a $0.6 million increase to the allowance for credit losses related to its short-term trade receivables primarily as a result of deterioration in certain clients’ credit ratings reflecting current and expected economic conditions, and wrote off $0.3 million of the allowance for credit losses related to certain short-term trade receivables deemed to be uncollectible. There was 0 change to the Company’s allowance for credit losses of less than $0.1 million on its long-term trade receivables balance during the three months ended March 31, 2020.
Note 2. Revenues
Revenues from Contracts with Customers
Customer Engagement Solutions and Services
The Company provides customer engagement solutions and services with an emphasis on inbound multichannel demand generation, customer service and technical support to its clients’ customers. These services are delivered through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. Revenues for customer engagementexperience 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.
Other Revenues
The Company offers RPA services including RPA consulting, implementation, hosting and managed services for front, middle and back-office processes, in Europe and the U.S. Revenuesrevenues are primarily recognized over time using output methods such as per time and materials basis.
The Company offersRevenues from fulfillment services that are integrated with its customer care and technical support services, primarily to clients operating in Europe. The Company’s fulfillment solutions include order processing, payment processing, inventory control, product delivery and product returns handling. Revenues are recognized upon shipment to the customer and satisfaction of all obligations.
The Company provides a range ofRevenues from enterprise support services including technical staffing services and outsourced corporate help desk services, primarily in the U.S. Revenues are recognized over time using output methods such as number of positions filled.
The Company also has miscellaneous other revenues in the Other segment.
Disaggregated Revenues
The Company disaggregates its revenues from contracts with customers by service type and delivery location (see Note 15,14, 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 are affected by economic factors.
The following table represents revenues from contracts with customers disaggregated by service type and by the reportable segment for each category for the periods indicated (in thousands):
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
| Amount |
|
| % of Revenue |
|
| Amount |
|
| % of Revenue |
| Amount |
|
| % of Revenue |
|
| Amount |
|
| % of Revenue |
| ||||||||
Americas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer engagement solutions and services | $ | 332,614 |
|
|
| 80.9 | % |
| $ | 324,562 |
|
|
| 80.6 | % | |||||||||||||||
Customer experience management solutions and services | $ | 363,453 |
|
| 79.4% |
|
| $ | 332,614 |
|
| 80.9% |
| |||||||||||||||||
Other revenues |
| 312 |
|
|
| 0.1 | % |
|
| 215 |
|
|
| 0.0 | % |
| 266 |
|
| 0.0% |
|
|
| 312 |
|
| 0.1% |
| ||
Total Americas |
| 332,926 |
|
|
| 81.0 | % |
|
| 324,777 |
|
|
| 80.6 | % |
| 363,719 |
|
| 79.4% |
|
|
| 332,926 |
|
| 81.0% |
| ||
EMEA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer engagement solutions and services |
| 72,633 |
|
|
| 17.7 | % |
|
| 70,997 |
|
|
| 17.6 | % | |||||||||||||||
Customer experience management solutions and services |
| 89,336 |
|
| 19.5% |
|
|
| 72,633 |
|
| 17.7% |
| |||||||||||||||||
Other revenues |
| 5,600 |
|
|
| 1.3 | % |
|
| 7,131 |
|
|
| 1.8 | % |
| 4,831 |
|
| 1.1% |
|
|
| 5,600 |
|
| 1.3% |
| ||
Total EMEA |
| 78,233 |
|
|
| 19.0 | % |
|
| 78,128 |
|
|
| 19.4 | % |
| 94,167 |
|
| 20.6% |
|
|
| 78,233 |
|
| 19.0% |
| ||
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
| 7 |
|
|
| 0.0 | % |
|
| 20 |
|
|
| 0.0 | % |
| — |
|
| 0.0% |
|
|
| 7 |
|
| 0.0% |
| ||
Total Other |
| 7 |
|
|
| 0.0 | % |
|
| 20 |
|
|
| 0.0 | % |
| — |
|
| 0.0% |
|
|
| 7 |
|
| 0.0% |
| ||
| $ | 411,166 |
|
|
| 100.0 | % |
| $ | 402,925 |
|
|
| 100.0 | % | $ | 457,886 |
|
| 100.0% |
|
| $ | 411,166 |
|
| 100.0% |
|
Trade Accounts Receivable
The Company’s noncurrent trade accounts receivable result from (1) contracts with customers that include renewal provisions and (2) contracts with customers under multi-year arrangements. The Company’s trade accounts receivable, net, consisted of the following (in thousands):
| March 31, 2020 |
|
| December 31, 2019 |
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Trade accounts receivable, net, current (1) | $ | 364,625 |
|
| $ | 375,136 |
| $ | 393,157 |
|
| $ | 398,112 |
|
Trade accounts receivable, net, noncurrent (2) |
| 26,851 |
|
|
| 26,496 |
|
| 29,833 |
|
|
| 30,021 |
|
| $ | 391,476 |
|
| $ | 401,632 |
| $ | 422,990 |
|
| $ | 428,133 |
|
(1) Included in “Receivables, net” in the accompanying Condensed Consolidated Balance Sheets.
(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 following (in thousands):
| March 31, 2020 |
|
| December 31, 2019 |
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Deferred revenue | $ | 3,261 |
|
| $ | 3,012 |
| $ | 2,772 |
|
| $ | 2,916 |
|
Customer arrangements with termination rights |
| 13,815 |
|
|
| 15,024 |
|
| 15,326 |
|
|
| 15,771 |
|
Estimated refund liabilities |
| 7,445 |
|
|
| 8,585 |
|
| 7,646 |
|
|
| 6,115 |
|
| $ | 24,521 |
|
| $ | 26,621 |
| $ | 25,744 |
|
| $ | 24,802 |
|
The Company expects to recognize the majority of its deferred revenue as of March 31, 20202021 over the next 180 days. Revenues of $2.7$2.8 million and $3.1$2.7 million were recognized during the three months ended March 31, 20202021 and 2019,2020, respectively, from amounts included in deferred revenue at December 31, 20192020 and 2018,2019, 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
Adoption of ASC 842, Leases
On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) and subsequent amendments (together, “ASC 842”) using the modified retrospective method and recognized a cumulative-effect adjustment to the opening balance of retained earnings.
The adoption of ASC 842 on January 1, 2019 required the gross up of historical deferred rent which resulted in the recognition of $225.3 million of right-of-use ("ROU") assets, $239.3 million of operating lease liabilities, a $0.1 million increase to opening retained earnings, as well as $14.1 million primarily related to the derecognition of net straight-line lease liabilities. The retained earnings adjustment was due to the cumulative impact of adopting ASC 842, primarily resulting from the derecognition of embedded lease derivatives, the difference between deferred rent balances and the net of ROU assets and lease liabilities and the deferred tax impact.
The impact of the adoption of ASC 842 to the Company’s Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 was not material. The Company’s net cash provided by operating activities for the three months ended March 31, 2019 did not change due to the adoption of ASC 842.
Leases
The Company leases facilities for its corporate headquarters, many of its customer engagementexperience management centers, several regional support offices and data centers. These leases are classified as operating leases in accordance with ASC 842, Leases, and are included in “Operating lease right-of-use assets,” “Operating lease liabilities” and “Long-term operating lease liabilities” in the accompanying Condensed Consolidated Balance Sheet as of March 31, 2020.2021. The Company has 0 finance leases.
Lease costs, net of sublease income, of $16.0$15.6 million and $15.9$16.0 million for the three months ended March 31, 2021 and 2020, and 2019, respectively, waswere primarily included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Income.Operations.
Additional supplemental information related to leases was as follows:
| March 31, 2020 |
|
| December 31, 2019 |
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Weighted average remaining lease term of operating leases | 4.9 years |
|
| 5.1 years |
| 4.1 years |
|
| 4.3 years |
| ||||
Weighted average discount rate of operating leases |
| 3.6 | % |
|
| 3.7 | % |
| 3.4 | % |
|
| 3.4 | % |
Maturities of operating lease liabilities as of March 31, 20202021 were as follows (in thousands):
| Amount |
| Amount |
| ||
2020 (remainder of the year) | $ | 45,125 |
| |||
2021 |
| 57,413 |
| |||
2021 (remainder of the year) | $ | 45,075 |
| |||
2022 |
| 42,932 |
|
| 48,783 |
|
2023 |
| 28,688 |
|
| 32,335 |
|
2024 |
| 21,323 |
|
| 22,998 |
|
2025 and thereafter |
| 37,547 |
| |||
2025 |
| 14,755 |
| |||
2026 and thereafter |
| 18,753 |
| |||
Total future lease payments |
| 233,028 |
|
| 182,699 |
|
Less: Imputed interest |
| 20,535 |
|
| 13,160 |
|
Present value of future lease payments |
| 212,493 |
|
| 169,539 |
|
Less: Operating lease liabilities |
| 52,642 |
|
| 53,043 |
|
Long-term operating lease liabilities | $ | 159,851 |
| $ | 116,496 |
|
Note 4. Costs Associated with Exit or Disposal Activitiesof Leased Space
During the first quarter of 2019, the Company initiated a restructuring plan to simplify and refine its operating model in the U.S. (the “Americas 2019 Exit Plan”), in part to improve agent attrition and absenteeism. The Americas 2019 Exit Plan included closing customer engagement centers, consolidating leased space in various locations in the U.S. and management reorganization. The Company finalized these actions ascontinues to reevaluate its real estate footprint in connection with a transition of September 30, 2019.
During the second quartera portion of 2018, the Company initiatedits workforce to a restructuring plan to manage and optimize capacity utilization, which included closing customer engagement centers and consolidating leased spacepermanent remote working environment in various locations in the U.S. and Canada (the “Americas 2018 Exit Plan”). The Company finalized the site closures under the Americas 2018 Exit Plan as of December 2018, resulting in a reduction of 5,000 seats.
The Company’s actions under both the Americas 2018 and 2019 Exit Plans resulted in general and administrative cost savings and lower depreciation expense.
The cumulative costs incurredEMEA. Since April 2020, the Company decided to date related to cash and non-cash expenditures resulting from the Americas 2018 and 2019 Exit Plans are outlined below as of March 31, 2020 (in thousands):
| Americas 2018 Exit Plan |
|
| Americas 2019 Exit Plan |
| ||
Lease obligations and facility exit costs (1) | $ | 7,073 |
|
| $ | — |
|
Severance and related costs (2) |
| 3,426 |
|
|
| 191 |
|
Severance and related costs (1) |
| 1,037 |
|
|
| 2,153 |
|
Non-cash impairment charges |
| 5,875 |
|
|
| 1,582 |
|
Other non-cash charges |
| — |
|
|
| 244 |
|
| $ | 17,411 |
|
| $ | 4,170 |
|
(1) Included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations.
(2) Included in “Direct salaries and related costs” in the accompanying Condensed Consolidated Statements of Operations.
The Company has paid a total of $12.7 million in cash through March 31, 2020, of which $10.5 million relatedterminate, sublease or abandon leases prior to the Americas 2018 Exit Plan and $2.2 million related to the Americas 2019 Exit Plan.
The following table summarizes the accrued liability and related charges for the three months ended March 31, 2020 (in thousands):
| Americas 2018 Exit Plan |
|
| Americas 2019 Exit Plan |
| ||||||||||||||
| Lease Obligations and Facility Exit Costs |
|
| Severance and Related Costs |
|
| Total |
|
| Severance and Related Costs |
|
| Total |
| |||||
Balance at the beginning of the period | $ | 81 |
|
| $ | 6 |
|
| $ | 87 |
|
| $ | 481 |
|
| $ | 481 |
|
Charges (reversals) included in "General and administrative" |
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| (2 | ) |
Cash payments |
| (13 | ) |
|
| (6 | ) |
|
| (19 | ) |
|
| (333 | ) |
|
| (333 | ) |
Balance at the end of the period | $ | 68 |
|
| $ | — |
|
| $ | 68 |
|
| $ | 146 |
|
| $ | 146 |
|
The following table summarizes the accrued liability and related charges for the three months ended March 31, 2019 (in thousands):
| Americas 2018 Exit Plan |
|
| Americas 2019 Exit Plan |
| ||||||||||||||
| Lease Obligations and Facility Exit Costs |
|
| Severance and Related Costs |
|
| Total |
|
| Severance and Related Costs |
|
| Total |
| |||||
Balance at the beginning of the period | $ | 1,769 |
|
| $ | 817 |
|
| $ | 2,586 |
|
| $ | — |
|
| $ | — |
|
Charges (reversals) included in "Direct salaries and related costs" |
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 7 |
|
Charges (reversals) included in "General and administrative" |
| (4 | ) |
|
| 19 |
|
|
| 15 |
|
|
| 1,090 |
|
|
| 1,090 |
|
Cash payments |
| (265 | ) |
|
| (341 | ) |
|
| (606 | ) |
|
| (57 | ) |
|
| (57 | ) |
Balance sheet reclassifications (1) |
| (1,338 | ) |
|
| — |
|
|
| (1,338 | ) |
|
| — |
|
|
| — |
|
Balance at the end of the period | $ | 162 |
|
| $ | 495 |
|
| $ | 657 |
|
| $ | 1,040 |
|
| $ | 1,040 |
|
(1) Consistsend of the reclassification from the restructuring liability to “Operating lease liabilities” and “Long-term operating lease liabilities” upon adoption of ASC 842 on January 1, 2019.
Restructuring Liability Classification
The following table summarizes the Company’s short-term and long-term accrued liabilities associated with its Americas 2018 and 2019 Exit Plans (in thousands):
| Americas 2018 Exit Plan |
|
| Americas 2019 Exit Plan |
| ||||||||||
| March 31, 2020 |
|
| December 31, 2019 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
Lease obligations and facility exit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in "Other accrued expenses and current liabilities" |
| 54 |
|
|
| 54 |
|
|
| — |
|
|
| — |
|
Included in "Other long-term liabilities" |
| 14 |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| 81 |
|
|
| — |
|
|
| — |
|
Severance and related costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in "Accrued employee compensation and benefits" |
| — |
|
|
| 6 |
|
|
| 146 |
|
|
| 479 |
|
Included in "Other accrued expenses and current liabilities" |
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 6 |
|
|
| 146 |
|
|
| 481 |
|
| $ | 68 |
|
| $ | 87 |
|
| $ | 146 |
|
| $ | 481 |
|
The long-term accrued restructuring liability relates to variable costs associated with future rent obligations to be paid through the remainder of thetheir lease terms the lastat certain of which ends in June 2021.
its sites and recorded impairments of ROU assets as a result. See Note 4, Fair Value, for further information.
Note 5.4. 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 how 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 identical instruments in active markets. |
• | Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
• | Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
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 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, 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 Contracts — 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— Prior to the adoption of ASC 842, the Company had embedded derivatives within certain hybrid lease agreements that were bifurcated from the host contract and valued such contracts at fair value using significant unobservable inputs, which are classified in Level 3 of the fair value hierarchy. These unobservable inputs included 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 were adjusted for credit risk. These items were classified in Level 3 of the fair value hierarchy. The Company’s embedded derivatives of $0.4 million were derecognized on January 1, 2019.
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 8,7, Investments Held in Rabbi Trust.
The Company's assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consisted of the following (in thousands):
|
|
|
|
| Fair Value Measurements Using: |
|
|
|
|
| Fair Value Measurements Using: |
| ||||||||||||||||||
| Balance at |
|
| Quoted Prices in Active Markets For Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
| Balance at |
|
| Quoted Prices in Active Markets For Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
| ||||||||
| March 31, 2020 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| March 31, 2021 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts (1) | $ | 2,510 |
|
| $ | — |
|
| $ | 2,510 |
|
| $ | — |
| $ | 905 |
|
| $ | 0 |
|
| $ | 905 |
|
| $ | 0 |
|
Equity investments held in rabbi trust for the Deferred Compensation Plan (2) |
| 7,020 |
|
|
| 7,020 |
|
|
| — |
|
|
| — |
|
| 13,558 |
|
|
| 13,558 |
|
|
| 0 |
|
|
| 0 |
|
Debt investments held in rabbi trust for the Deferred Compensation Plan (2) |
| 4,899 |
|
|
| 4,899 |
|
|
| — |
|
|
| — |
|
| 4,450 |
|
|
| 4,450 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 14,429 |
|
| $ | 11,919 |
|
| $ | 2,510 |
|
| $ | — |
| $ | 18,913 |
|
| $ | 18,008 |
|
| $ | 905 |
|
| $ | 0 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts (1) | $ | 697 |
|
| $ | — |
|
| $ | 697 |
|
| $ | — |
| $ | 1,411 |
|
| $ | 0 |
|
| $ | 1,411 |
|
| $ | 0 |
|
| $ | 697 |
|
| $ | — |
|
| $ | 697 |
|
| $ | — |
| $ | 1,411 |
|
| $ | 0 |
|
| $ | 1,411 |
|
| $ | 0 |
|
|
|
|
|
| Fair Value Measurements Using: |
|
|
|
|
| Fair Value Measurements Using: |
| ||||||||||||||||||
| Balance at |
|
| Quoted Prices in Active Markets For Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
| Balance at |
|
| Quoted Prices in Active Markets For Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
| ||||||||
| December 31, 2019 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| December 31, 2020 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts (1) | $ | 3,607 |
|
| $ | — |
|
| $ | 3,607 |
|
| $ | — |
| $ | 337 |
|
| $ | 0 |
|
| $ | 337 |
|
| $ | 0 |
|
Equity investments held in rabbi trust for the Deferred Compensation Plan (2) |
| 9,125 |
|
|
| 9,125 |
|
|
| — |
|
|
| — |
|
| 11,263 |
|
|
| 11,263 |
|
|
| 0 |
|
|
| 0 |
|
Debt investments held in rabbi trust for the Deferred Compensation Plan (2) |
| 4,802 |
|
|
| 4,802 |
|
|
| — |
|
|
| — |
|
| 5,517 |
|
|
| 5,517 |
|
|
| 0 |
|
|
| 0 |
|
| $ | 17,534 |
|
| $ | 13,927 |
|
| $ | 3,607 |
|
| $ | — |
| $ | 17,117 |
|
| $ | 16,780 |
|
| $ | 337 |
|
| $ | 0 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts (1) | $ | 251 |
|
| $ | — |
|
| $ | 251 |
|
| $ | — |
| $ | 2,478 |
|
| $ | 0 |
|
| $ | 2,478 |
|
| $ | 0 |
|
| $ | 251 |
|
| $ | — |
|
| $ | 251 |
|
| $ | — |
| $ | 2,478 |
|
| $ | 0 |
|
| $ | 2,478 |
|
| $ | 0 |
|
(1) See Note 7,6, 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 8,7, Investments Held in Rabbi Trust.
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, like those associated with acquired businesses,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 March 31, 2020 and December 31, 2019.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) (none in 2020) (in thousands):
| Three Months Ended March 31, 2019 |
| Three Months Ended March 31, 2021 |
| ||
Americas: |
|
|
|
|
|
|
Property and equipment, net | $ | 343 |
| $ | 56 |
|
Operating lease right-of-use assets |
| 1,239 |
|
| 301 |
|
| $ | 1,582 |
|
| 357 |
|
EMEA: |
|
|
| |||
Property and equipment, net |
| 77 |
| |||
Operating lease right-of-use assets |
| 398 |
| |||
|
| 475 |
| |||
Other: |
|
|
| |||
Property and equipment, net |
| 318 |
| |||
|
|
|
| |||
| $ | 1,150 |
|
InThe 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 closureAmericas and EMEA and transitioned approximately 3,500 seats from brick and mortar to at home agents since April 2020. The Company decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain under-utilized customer engagement centersof its sites and the consolidation of leased space in the U.S. and Canada, the Company recorded impairment chargeslosses during the three months ended March 31, 20192021 related to the exit of leased facilities as well asand the leasehold improvements, equipment, furniture and fixtures located in these sites which were not recoverable. See Note 4, Costs Associated with ExitAs the fair value of the ROU assets was less than the carrying value, the Company recognized an impairment of ROU assets, reducing the carrying value of the ROU assets to an estimated fair value of $0.4 million. The fair value of the ROU assets where the Company intends to sublease 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 Disposal Activities, for further information.timing of cash flows from sublease arrangements could result in additional impairment charges. The impairment of property and equipment reduced the carrying amount of the applicable assets to their fair value of $0.
The Company also recorded an impairment charge of $0.3 million during the three months ended March 31, 2021 related to software that was no longer being utilized. The impairment of the software reduced the carrying value of the applicable asset to its fair value of $0.
Note 6.5. Goodwill and Intangible Assets
Intangible Assets
The following table presents the Company’s purchased intangible assets as of March 31, 20202021 (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 | $ | 188,083 |
|
| $ | (122,624 | ) |
| $ | 65,459 |
|
|
| 10 |
| $ | 195,257 |
|
| $ | (136,132 | ) |
| $ | 59,125 |
|
|
| 10 |
|
Trade names and trademarks |
| 19,133 |
|
|
| (13,467 | ) |
|
| 5,666 |
|
|
| 8 |
|
| 7,949 |
|
|
| (3,485 | ) |
|
| 4,464 |
|
|
| 8 |
|
Non-compete agreements |
| 902 |
|
|
| (427 | ) |
|
| 475 |
|
|
| 3 |
|
| 1,053 |
|
|
| (794 | ) |
|
| 259 |
|
|
| 3 |
|
Content library |
| 497 |
|
|
| (497 | ) |
|
| — |
|
|
| 2 |
|
| 4,829 |
|
|
| (744 | ) |
|
| 4,085 |
|
|
| 5 |
|
Proprietary software |
| 870 |
|
|
| (730 | ) |
|
| 140 |
|
|
| 5 |
|
| 870 |
|
|
| (870 | ) |
|
| — |
|
|
| 5 |
|
|
| 209,958 |
|
|
| (142,025 | ) |
|
| 67,933 |
|
|
| 9 |
| |||||||||||||||
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain names |
| 79,797 |
|
|
| — |
|
|
| 79,797 |
|
| N/A |
|
| 163,225 |
|
|
| — |
|
|
| 163,225 |
|
| N/A |
| ||
| $ | 289,282 |
|
| $ | (137,745 | ) |
| $ | 151,537 |
|
|
| 5 |
| $ | 373,183 |
|
| $ | (142,025 | ) |
| $ | 231,158 |
|
|
|
|
|
The following table presents the Company’s purchased intangible assets as of December 31, 20192020 (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 | $ | 191,171 |
|
| $ | (121,074 | ) |
| $ | 70,097 |
|
|
| 10 |
| $ | 195,116 |
|
| $ | (133,689 | ) |
| $ | 61,427 |
|
|
| 10 |
|
Trade names and trademarks |
| 19,380 |
|
|
| (12,929 | ) |
|
| 6,451 |
|
|
| 8 |
|
| 7,918 |
|
|
| (3,225 | ) |
|
| 4,693 |
|
|
| 8 |
|
Non-compete agreements |
| 2,769 |
|
|
| (2,181 | ) |
|
| 588 |
|
|
| 3 |
|
| 1,100 |
|
|
| (712 | ) |
|
| 388 |
|
|
| 3 |
|
Content library |
| 506 |
|
|
| (506 | ) |
|
| — |
|
|
| 2 |
|
| 4,851 |
|
|
| (551 | ) |
|
| 4,300 |
|
|
| 5 |
|
Proprietary software |
| 870 |
|
|
| (695 | ) |
|
| 175 |
|
|
| 5 |
|
| 870 |
|
|
| (835 | ) |
|
| 35 |
|
|
| 5 |
|
|
| 209,855 |
|
|
| (139,012 | ) |
|
| 70,843 |
|
|
| 9 |
| |||||||||||||||
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain names |
| 81,109 |
|
|
| — |
|
|
| 81,109 |
|
| N/A |
|
| 163,132 |
|
|
| — |
|
|
| 163,132 |
|
| N/A |
| ||
| $ | 295,805 |
|
| $ | (137,385 | ) |
| $ | 158,420 |
|
|
| 5 |
| $ | 372,987 |
|
| $ | (139,012 | ) |
| $ | 233,975 |
|
|
|
|
|
The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible assets resulting from acquisitions completed prior to March 31, 20202021 is as follows (in thousands):
| Amount |
| Amount |
| ||
2020 (remainder of the year) | $ | 9,771 |
| |||
2021 |
| 9,325 |
| |||
2021 (remainder of the year) | $ | 8,749 |
| |||
2022 |
| 8,049 |
|
| 10,414 |
|
2023 |
| 7,222 |
|
| 8,309 |
|
2024 |
| 6,979 |
|
| 8,074 |
|
2025 |
| 6,858 |
|
| 7,961 |
|
2026 and thereafter |
| 23,536 |
| |||
2026 |
| 6,980 |
| |||
2027 and thereafter |
| 17,446 |
|
Goodwill
Changes in goodwill for the three months ended March 31, 20202021 consisted of the following (in thousands):
| January 1, 2020 |
|
| Acquisition- Related |
|
| Effect of Foreign Currency |
|
| March 31, 2020 |
| January 1, 2021 |
|
| Acquisition- Related (1) |
|
| Impairment |
|
| Effect of Foreign Currency |
|
| March 31, 2021 |
| |||||||||
Americas | $ | 259,953 |
|
| $ | — |
|
| $ | (3,954 | ) |
| $ | 255,999 |
| $ | 269,472 |
|
| $ | 176 |
|
| $ | 0 |
|
| $ | 151 |
|
| $ | 269,799 |
|
EMEA |
| 51,294 |
|
|
| — |
|
|
| (2,602 | ) |
|
| 48,692 |
|
| 29,937 |
|
|
| 0 |
|
|
| 0 |
|
|
| (440 | ) |
|
| 29,497 |
|
| $ | 311,247 |
|
| $ | — |
|
| $ | (6,556 | ) |
| $ | 304,691 |
| $ | 299,409 |
|
| $ | 176 |
|
| $ | 0 |
|
| $ | (289 | ) |
| $ | 299,296 |
|
Changes in goodwill for the year ended December 31, 20192020 consisted of the following (in thousands):
| January 1, 2019 |
|
| Acquisition- Related (1) |
|
| Effect of Foreign Currency |
|
| December 31, 2019 |
| January 1, 2020 |
|
| Acquisition- Related (1) |
|
| Impairment (2) |
|
| Effect of Foreign Currency |
|
| December 31, 2020 |
| |||||||||
Americas | $ | 255,436 |
|
| $ | 1,202 |
|
| $ | 3,315 |
|
| $ | 259,953 |
| $ | 259,953 |
|
| $ | 8,851 |
|
| $ | — |
|
| $ | 668 |
|
| $ | 269,472 |
|
EMEA |
| 47,081 |
|
|
| 2,421 |
|
|
| 1,792 |
|
|
| 51,294 |
|
| 51,294 |
|
|
| — |
|
|
| (21,792 | ) |
|
| 435 |
|
|
| 29,937 |
|
| $ | 302,517 |
|
| $ | 3,623 |
|
| $ | 5,107 |
|
| $ | 311,247 |
| $ | 311,247 |
|
| $ | 8,851 |
|
| $ | (21,792 | ) |
| $ | 1,103 |
|
| $ | 299,409 |
|
(1) The yearthree months ended DecemberMarch 31, 20192021 includes the impact of adjustments to acquired goodwill upon finalizationrefinements of working capital adjustments and the tax analysispurchase price allocation of WhistleOut’s and Symphony’sTMC’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, 2019.2020. 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 growth rate 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, 2019,2020, the Company had 8 reporting units, seven of which havehad goodwill. The Company concluded that goodwill was not impaired for all6 of its 7 of its reporting units with goodwill, based on generally accepted valuation techniques and the significant assumptions outlined above. The fair values of 3 of the seven reporting units were substantially in excess of their carrying value. As part of this analysis, the Company considered the ongoing deterioration in general economic and market conditions due to the pandemic and its impact on each of the Company’s reporting units’ performance. The Clearlink, Symphony, Latin America and Qelp reporting units’ fair valuesvalue exceeded their respective carrying values, although the fair value cushion was not substantial. The decrease in the Clearlink reporting unit’s cushion from the prior year was primarily attributable to a decrease in the projected long-term growth rate of the U.S. Gross Domestic Product as well as a decline in projected revenue growth. The decrease in the cushion from the prior year for the Latin America and Qelp reporting units was primarily attributable to an increase in the country-specific risk premiums which increased the applied weighted average cost of capital. Symphony was acquired by the Company in November 2018.
The Clearlink, Symphony, Latin America and Qelp reporting units are at risk of future impairment if projected operating results are not met or other inputs into the fair value measurement model change.change.
The Symphony reporting unit’s carrying value exceeded its fair value as of the 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, andas 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 prolongedprotracted delay in the resumption
of its operations or a significant shift in client demand results from the economic downturn. As of March 31, 2020,2021, the Company believes there was not0 impairment related to Symphony’s $39.0remaining $19.3 million of goodwill.goodwill as no triggering events were identified during the three months ended March 31, 2021.
As of March 31, 2020,2021, the Company believes there were 0 indicators of impairment related to Clearlink’s $74.0$83.4 million of goodwill (which includes goodwill from the TMC acquisition), Latin America’s $18.9$18.2 million of goodwill and Qelp’s $9.6$10.2 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 7.6. 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 hedge the exposure to variability in the cash flows of 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 were as follows (in thousands):
| March 31, 2020 |
|
| December 31, 2019 |
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Deferred gains (losses) in AOCI | $ | 976 |
|
| $ | 2,221 |
| $ | (1,212 | ) |
| $ | (2,188 | ) |
Tax on deferred gains (losses) in AOCI |
| (28 | ) |
|
| 69 |
|
| 12 |
|
|
| (3 | ) |
Deferred gains (losses) in AOCI, net of taxes | $ | 948 |
|
| $ | 2,290 |
| $ | (1,200 | ) |
| $ | (2,191 | ) |
Deferred gains (losses) expected to be reclassified to "Revenues" from AOCI during the next twelve months | $ | 976 |
|
|
|
|
| $ | (1,031 | ) |
|
|
|
|
Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the underlying market price of the forward contracts and options as well as the related settlement of forecasted transactions.
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.
The Company had the following outstanding foreign currency forward contracts and options (in thousands):
| March 31, 2020 |
| December 31, 2019 |
| March 31, 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 | $ | 70,000 |
|
| December 2020 |
| $ | 74,000 |
|
| December 2020 |
| $ | 42,000 |
|
| December 2021 |
| $ | 12,000 |
|
| June 2021 |
| ||
Forwards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Dollars/Costa Rican Colones |
| 45,000 |
|
| December 2020 |
|
| 42,000 |
|
| December 2020 |
|
| 30,000 |
|
| August 2022 |
|
| 36,000 |
|
| December 2021 |
| ||
Euros/Hungarian Forints |
| 2,575 |
|
| December 2020 |
|
| — |
|
|
| — |
|
| 1,689 |
|
| December 2021 |
|
| — |
|
|
| — |
|
Euros/Romanian Leis |
| 10,951 |
|
| December 2020 |
|
| — |
|
|
| — |
|
| 11,000 |
|
| December 2021 |
|
| — |
|
|
| — |
|
Non-designated hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards |
| 11,102 |
|
| November 2021 |
|
| 19,295 |
|
| November 2021 |
|
| 12,481 |
|
| November 2021 |
|
| 12,439 |
|
| November 2021 |
|
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 a set-off clause that provides the non-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 $2.5$0.9 million and $3.6$0.3 million as of March 31 2020, 2021 and December 31, 2019,2020, 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 $2.0$0.8 million and $3.4$0.3 million as of March 31, 20202021 and December 31, 2019,2020, respectively, and liability positions of $0.2$1.3 million and $0 $2.4 as of March 31, 20202021 and December 31, 2019,2020, 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 |
|
|
|
| Derivative Assets |
| ||||||||||
|
| Balance Sheet Location |
| March 31, 2020 |
|
| December 31, 2019 |
|
| Balance Sheet Location |
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Derivatives designated as cash flow hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Other current assets |
| $ | 2,281 |
|
| $ | 3,051 |
|
| Other current assets |
| $ | 511 |
|
| $ | 154 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Other current assets |
|
| 121 |
|
|
| 322 |
| ||||||||||
Foreign currency contracts |
| Deferred charges and other assets |
|
| 108 |
|
|
| 234 |
|
| Other current assets |
|
| 394 |
|
|
| 183 |
|
Total derivative assets |
|
|
| $ | 2,510 |
|
| $ | 3,607 |
|
|
|
| $ | 905 |
|
| $ | 337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative Liabilities |
|
|
|
| Derivative Liabilities |
| ||||||||||
|
| Balance Sheet Location |
| March 31, 2020 |
|
| December 31, 2019 |
|
| Balance Sheet Location |
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Derivatives designated as cash flow hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Other accrued expenses and current liabilities |
| $ | 652 |
|
| $ | 138 |
|
| Other accrued expenses and current liabilities |
| $ | 1,155 |
|
| $ | 2,253 |
|
Foreign currency contracts |
| Other long-term liabilities |
|
| 181 |
|
|
| — |
| ||||||||||
|
|
|
|
| 1,336 |
|
|
| 2,253 |
| ||||||||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Other accrued expenses and current liabilities |
|
| 45 |
|
|
| 113 |
|
| Other accrued expenses and current liabilities |
|
| 75 |
|
|
| 225 |
|
Total derivative liabilities |
|
|
| $ | 697 |
|
| $ | 251 |
|
|
|
| $ | 1,411 |
|
| $ | 2,478 |
|
The following table presents the effect of the Company’s derivative instruments included in the accompanying condensed consolidated financial statements (in thousands):
|
| Location of Gains |
| Three Months Ended March 31, |
|
| Location of Gains |
| Three Months Ended March 31, |
| ||||||||||
|
| (Losses) in Net Income |
| 2020 |
|
| 2019 |
|
| (Losses) in Net Income |
| 2021 |
|
| 2020 |
| ||||
Revenues |
|
|
| $ | 411,166 |
|
| $ | 402,925 |
|
|
|
| $ | 457,886 |
|
| $ | 411,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized in AOCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
|
|
|
| (311 | ) |
|
| 1,183 |
|
|
|
| $ | 208 |
|
| $ | (311 | ) |
Gains (losses) reclassified from AOCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Revenues |
|
| 926 |
|
|
| (501 | ) |
| Revenues |
| $ | (757 | ) |
| $ | 926 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized from foreign currency contracts |
| Other income (expense), net |
| $ | (246 | ) |
| $ | (33 | ) |
| Other income (expense), net |
| $ | 35 |
|
| $ | (246 | ) |
Note 8.7. 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):
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
Mutual funds | $ | 9,814 |
|
| $ | 11,919 |
|
| $ | 9,777 |
|
| $ | 13,927 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||||||||
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
Mutual funds | $ | 11,088 |
|
| $ | 18,008 |
|
| $ | 10,332 |
|
| $ | 16,780 |
|
The mutual funds held in rabbi trust were 59%75% equity-based and 41%25% debt-based as of March 31, 2020.2021. Net investment gains (losses) included in “Other income (expense), net” in the accompanying Condensed Consolidated Statements of Operations consists of the following (in thousands):
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Net realized gains (losses) from sale of trading securities | $ | 50 |
|
| $ | 61 |
| $ | 425 |
|
| $ | 50 |
|
Dividend and interest income |
| 33 |
|
|
| 29 |
|
| 32 |
|
|
| 33 |
|
Net unrealized holding gains (losses) |
| (2,140 | ) |
|
| 1,090 |
|
| 68 |
|
|
| (2,140 | ) |
| $ | (2,057 | ) |
| $ | 1,180 |
| $ | 525 |
|
| $ | (2,057 | ) |
Note 9.8. Accumulated Other Comprehensive Income (Loss)
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 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 |
| ||||||||||||
Balance at January 1, 2019 | $ | (58,253 | ) |
| $ | 1,046 |
|
| $ | (1,864 | ) |
| $ | 2,256 |
|
| $ | 40 |
|
| $ | (56,775 | ) | |||||||||||||||||||||||
Balance at January 1, 2020 | $ | (52,749 | ) |
| $ | 1,046 |
|
| $ | 2,290 |
|
| $ | 2,324 |
|
| $ | 88 |
|
| $ | (47,001 | ) | |||||||||||||||||||||||
Pre-tax amount |
| 5,462 |
|
|
| — |
|
|
| 6,978 |
|
|
| 108 |
|
|
| — |
|
|
| 12,548 |
|
| 12,461 |
|
|
| — |
|
|
| (839 | ) |
|
| (1,914 | ) |
|
| — |
|
|
| 9,708 |
|
Tax (provision) benefit |
| — |
|
|
| — |
|
|
| 20 |
|
|
| (23 | ) |
|
| — |
|
|
| (3 | ) |
| — |
|
|
| — |
|
|
| (253 | ) |
|
| 182 |
|
|
| — |
|
|
| (71 | ) |
Reclassification of (gain) loss to net income |
| — |
|
|
| — |
|
|
| (2,719 | ) |
|
| (100 | ) |
|
| 48 |
|
|
| (2,771 | ) |
| — |
|
|
| — |
|
|
| (3,418 | ) |
|
| (129 | ) |
|
| (88 | ) |
|
| (3,635 | ) |
Foreign currency translation |
| 42 |
|
|
| — |
|
|
| (125 | ) |
|
| 83 |
|
|
| — |
|
|
| — |
|
| (162 | ) |
|
| — |
|
|
| 29 |
|
|
| 133 |
|
|
| — |
|
|
| — |
|
Balance at December 31, 2019 |
| (52,749 | ) |
|
| 1,046 |
|
|
| 2,290 |
|
|
| 2,324 |
|
|
| 88 |
|
|
| (47,001 | ) | |||||||||||||||||||||||
Balance at December 31, 2020 |
| (40,450 | ) |
|
| 1,046 |
|
|
| (2,191 | ) |
|
| 596 |
|
|
| — |
|
|
| (40,999 | ) | |||||||||||||||||||||||
Pre-tax amount |
| (21,353 | ) |
|
| — |
|
|
| (311 | ) |
|
| — |
|
|
| — |
|
|
| (21,664 | ) |
| (4,457 | ) |
|
| — |
|
|
| 208 |
|
|
| — |
|
|
| — |
|
|
| (4,249 | ) |
Tax (provision) benefit |
| — |
|
|
| — |
|
|
| (125 | ) |
|
| 4 |
|
|
| — |
|
|
| (121 | ) |
| — |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Reclassification of (gain) loss to net income |
| — |
|
|
| — |
|
|
| (898 | ) |
|
| (26 | ) |
|
| (22 | ) |
|
| (946 | ) |
| — |
|
|
| — |
|
|
| 756 |
|
|
| (1 | ) |
|
| — |
|
|
| 755 |
|
Foreign currency translation |
| 3 |
|
|
| — |
|
|
| (8 | ) |
|
| 5 |
|
|
| — |
|
|
| — |
|
| (6 | ) |
|
| — |
|
|
| 12 |
|
|
| (6 | ) |
|
| — |
|
|
| — |
|
Balance at March 31, 2020 | $ | (74,099 | ) |
| $ | 1,046 |
|
| $ | 948 |
|
| $ | 2,307 |
|
| $ | 66 |
|
| $ | (69,732 | ) | |||||||||||||||||||||||
Balance at March 31, 2021 | $ | (44,913 | ) |
| $ | 1,046 |
|
| $ | (1,200 | ) |
| $ | 589 |
|
| $ | — |
|
| $ | (44,478 | ) |
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 March 31, |
|
| Statements of Operations | Three Months Ended March 31, |
|
| Statements of Operations | ||||||||||
| 2020 |
|
| 2019 |
|
| Location | 2021 |
|
| 2020 |
|
| Location | ||||
Gain (loss) on cash flow hedging instruments: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amount | $ | 926 |
|
| $ | (501 | ) |
| Revenues | $ | (757 | ) |
| $ | 926 |
|
| Revenues |
Tax (provision) benefit |
| (28 | ) |
|
| (10 | ) |
| Income taxes |
| 1 |
|
|
| (28 | ) |
| Income taxes |
Reclassification to net income |
| 898 |
|
|
| (511 | ) |
|
|
| (756 | ) |
|
| 898 |
|
|
|
Actuarial gain (loss) related to pension liability: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amount |
| 23 |
|
|
| 21 |
|
| Other income (expense), net |
| 1 |
|
|
| 23 |
|
| Other income (expense), net |
Tax (provision) benefit |
| 3 |
|
|
| 3 |
|
| Income taxes |
| — |
|
|
| 3 |
|
| Income taxes |
Reclassification to net income |
| 26 |
|
|
| 24 |
|
|
|
| 1 |
|
|
| 26 |
|
|
|
Gain (loss) on postretirement obligation: (2)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to net income |
| 22 |
|
|
| 5 |
|
| Other income (expense), net |
| — |
|
|
| 22 |
|
| Other income (expense), net |
| $ | 946 |
|
| $ | (482 | ) |
|
| $ | (755 | ) |
| $ | 946 |
|
|
|
(1) See Note 7,6, Financial Derivatives, for further information.
(2) See Note 13,12, Defined Benefit Pension Plan and Postretirement Benefits, for further information.
(3) No related tax (provision) benefit.
As discussed in Note 10, Income Taxes, for periods priorThe Company has accrued income taxes on earnings which it plans to December 31, 2017, anyrepatriate to the U.S. Any remaining reinvested earnings andas 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 has been provided. See Note 9, Income Taxes, for further information.
Note 10.9. Income Taxes
The Company’s effective tax rates were as follows:
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Effective tax rate |
| 27.3 | % |
|
| 28.6 | % |
| Three Months Ended March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
Effective tax rate |
| 19.1 | % |
|
| 27.3 | % |
The decrease in the effective tax rate for the three months ended March 31, 20202021 as compared to 20192020 was primarily due to $1.2 million in discrete tax benefits relating to Philippines tax law changes and stock compensation recognized during the three months ended March 31, 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 tax 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.
Prior to December 31, 2017, no
The Company provides U.S. income taxes on the earnings of foreign subsidiaries unless they are exempted from taxation. No additional income taxes have been provided for any indefinitely reinvested earnings andor outside basis differences inherent in the Company’s investments in its foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations.differences. Determining the amount of unrecognized deferred tax liability related to any remaining outside basis difference in these entities is not practicable due to the inherent complexity of the multi-nationalmulti-jurisdictional tax environment in which the Company operates.
The Company is currently under audit in several tax jurisdictions. The Company believes it has adequate reserves related to all matters pertaining to these audits. Should the Company experience unfavorable outcomes from these audits, such outcomes could have a significant impact on its financial condition, results of operations and cash flows.
Note 11.10. 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 were as follows (in thousands):
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
| 41,132 |
|
|
| 42,169 |
|
| 39,641 |
|
|
| 41,132 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock appreciation rights, restricted stock, restricted stock units and shares held in rabbi trust |
| 202 |
|
|
| 130 |
|
| 315 |
|
|
| 202 |
|
Total weighted average diluted shares outstanding |
| 41,334 |
|
|
| 42,299 |
|
| 39,956 |
|
|
| 41,334 |
|
Anti-dilutive shares excluded from the diluted earnings per share calculation |
| 12 |
|
|
| 115 |
|
| 25 |
|
|
| 12 |
|
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 7.38.3 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 2011 Share Repurchase Program were as follows (none in 2019)2021) (in thousands, except per share amounts):
|
| Total Number of |
|
|
|
|
| Total Cost of |
|
| Total Number of |
|
|
|
|
| Total Cost of |
| ||||||||||||||
|
| Shares |
|
| Range of Prices Paid Per Share |
|
| Shares |
|
| Shares |
|
| Range of Prices Paid Per Share |
|
| Shares |
| ||||||||||||||
|
| Repurchased |
|
| Low |
|
| High |
|
| Repurchased |
|
| Repurchased |
|
| Low |
|
| High |
|
| Repurchased |
| ||||||||
Three Months Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 |
|
| 860 |
|
| $ | 23.33 |
|
| $ | 31.91 |
|
| $ | 22,909 |
|
|
| 860 |
|
| $ | 23.33 |
|
| $ | 31.91 |
|
| $ | 22,909 |
|
Note 12.11. Commitments and Loss Contingencies
Purchase Commitments
The Company enters into various purchase commitment agreements with third-party vendors in the ordinary course of business whereby the Company commits to purchase goods and services used in its normal operations. These agreements generally are not cancelable, range from one to five-year periods and may contain fixed or minimum annual commitments. Certain of these agreements allow for renegotiation of the minimum annual commitments.
Loss Contingencies
Contingencies are recorded in the consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss is reasonably estimable, or otherwise disclosed, in accordance with ASC 450, Contingencies (“ASC 450”). Significant judgment is required in both the determination 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 $1.7$1.9 million, net of federal benefit.benefit, as of March 31, 2021.
The Company, from time to time, is involved in legal actions arising in the ordinary course of business.
With respect to any 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, results of operations or cash flows.
Note 13.12. 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 March 31, |
| Three Months Ended March 31, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Service cost | $ | 105 |
|
| $ | 98 |
| $ | 181 |
|
| $ | 105 |
|
Interest cost |
| 51 |
|
|
| 62 |
|
| 61 |
|
|
| 51 |
|
Recognized actuarial (gains) |
| (23 | ) |
|
| (21 | ) |
| (1 | ) |
|
| (23 | ) |
| $ | 133 |
|
| $ | 139 |
| $ | 241 |
|
| $ | 133 |
|
The Company’s service cost for its qualified pension plans was included(1) Included in “Direct"Direct salaries and related costs”costs" and “General and administrative” costs in itsthe accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 3020 and 2019. The remaining components of net periodic benefit cost were includedOperations.
(2) Included in “Other"Other income (expense), net”net" in the Company’saccompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019..
Employee Retirement Savings Plans
The Company maintains a 401(k) plan covering defined employees who meet established eligibility requirements, which were last modified on September 30, 2019, effective for contributions made beginning January 1, 2020. Under the current plan provisions, the Company matches 100% of the first 3% and 50% of the next 2% of participant contributions to a maximum matching amount of 4% of participant compensation for most of the Company’s employees. Additionally, participants whose salaries are above a certain threshold are eligible for a Company match of 50% of the first 4% for those participants’ contributions to a maximum matching amount of 2% of participant compensation.requirements. The Company’s contributions included in the accompanying Condensed Consolidated Statements of Operations were as follows (in thousands):
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2020 |
|
| 2019 |
| ||
401(k) plan contributions |
| $ | 780 |
|
| $ | 466 |
|
| Three Months Ended March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
401(k) plan contributions | $ | 851 |
|
| $ | 780 |
|
Note 14.13. Stock-Based Compensation
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 non-plan related (in thousands):
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Stock-based compensation (expense) (1) | $ | (1,860 | ) |
| $ | (1,890 | ) | $ | (4,751 | ) |
| $ | (1,860 | ) |
Income tax benefit (2) |
| 446 |
|
|
| 454 |
|
| 1,140 |
|
|
| 446 |
|
(1) Included in "General and administrative" costs in the accompanying Condensed Consolidated Statements of Operations.
(2) Included in "Income taxes" in the accompanying Condensed Consolidated Statements of Operations.
During the three months ended March 31, 2020,2021, the Company granted 0.40.3 million performance-based restricted shares/restricted stock units and 0.20.1 million service-based restricted shares/restricted stock units under the Company’s 2019 Plan, all at a weighted average grant-date fair value of $25.60$44.79 per share.
Note 15.14. Segments and Geographic Information
The Company operates within 2 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 2 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 March 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Revenues | $ | 363,719 |
|
| $ | 94,167 |
|
| $ | — |
|
| $ | 457,886 |
| |||||||||||||||
Percentage of revenues |
| 79.4 | % |
|
| 20.6 | % |
|
| 0.0 | % |
|
| 100.0 | % | |||||||||||||||
Depreciation, net | $ | 10,221 |
|
| $ | 2,156 |
|
| $ | 738 |
|
| $ | 13,115 |
| |||||||||||||||
Amortization of intangibles | $ | 2,096 |
|
| $ | 891 |
|
| $ | — |
|
| $ | 2,987 |
| |||||||||||||||
Income (loss) from operations | $ | 44,872 |
|
| $ | 6,668 |
|
| $ | (20,010 | ) |
| $ | 31,530 |
| |||||||||||||||
Total other income (expense), net |
|
|
|
|
|
|
|
|
| (647 | ) |
|
| (647 | ) | |||||||||||||||
Income taxes |
|
|
|
|
|
|
|
|
| (5,905 | ) |
|
| (5,905 | ) | |||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
| $ | 24,978 |
| |||||||||||||||
Three Months Ended March 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues | $ | 332,926 |
|
| $ | 78,233 |
|
| $ | 7 |
|
| $ | 411,166 |
| $ | 332,926 |
|
| $ | 78,233 |
|
| $ | 7 |
|
| $ | 411,166 |
|
Percentage of revenues |
| 81.0 | % |
|
| 19.0 | % |
|
| 0.0 | % |
|
| 100.0 | % |
| 81.0 | % |
|
| 19.0 | % |
|
| 0.0 | % |
|
| 100.0 | % |
Depreciation, net | $ | 10,033 |
|
| $ | 1,705 |
|
| $ | 723 |
|
| $ | 12,461 |
| $ | 10,033 |
|
| $ | 1,705 |
|
| $ | 723 |
|
| $ | 12,461 |
|
Amortization of intangibles | $ | 3,286 |
|
| $ | 833 |
|
| $ | — |
|
| $ | 4,119 |
| $ | 3,286 |
|
| $ | 833 |
|
| $ | — |
|
| $ | 4,119 |
|
Income (loss) from operations | $ | 35,779 |
|
| $ | 3,180 |
|
| $ | (14,565 | ) |
| $ | 24,394 |
| $ | 35,779 |
|
| $ | 3,180 |
|
| $ | (14,565 | ) |
| $ | 24,394 |
|
Total other income (expense), net |
|
|
|
|
|
|
|
|
| (5,250 | ) |
|
| (5,250 | ) |
|
|
|
|
|
|
|
|
| (5,250 | ) |
|
| (5,250 | ) |
Income taxes |
|
|
|
|
|
|
|
|
| (5,226 | ) |
|
| (5,226 | ) |
|
|
|
|
|
|
|
|
| (5,226 | ) |
|
| (5,226 | ) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
| $ | 13,918 |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 13,918 |
|
Three Months Ended March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Revenues | $ | 324,777 |
|
| $ | 78,128 |
|
| $ | 20 |
|
| $ | 402,925 |
| |||||||||||||||
Percentage of revenues |
| 80.6 | % |
|
| 19.4 | % |
|
| 0.0 | % |
|
| 100.0 | % | |||||||||||||||
Depreciation, net | $ | 11,507 |
|
| $ | 1,626 |
|
| $ | 764 |
|
| $ | 13,897 |
| |||||||||||||||
Amortization of intangibles | $ | 3,438 |
|
| $ | 848 |
|
| $ | — |
|
| $ | 4,286 |
| |||||||||||||||
Income (loss) from operations | $ | 30,068 |
|
| $ | 1,491 |
|
| $ | (14,807 | ) |
| $ | 16,752 |
| |||||||||||||||
Total other income (expense), net |
|
|
|
|
|
|
|
|
| (383 | ) |
|
| (383 | ) | |||||||||||||||
Income taxes |
|
|
|
|
|
|
|
|
| (4,682 | ) |
|
| (4,682 | ) | |||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
| $ | 11,687 |
|
(1) Other items (including corporate and other costs, other income and expense, and income taxes) are included for purposes of reconciling to the Company’s consolidated totals as shown in the tables above for the 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 March 31, |
| Three Months Ended March 31, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Americas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States | $ | 157,666 |
|
| $ | 162,032 |
| $ | 170,004 |
|
| $ | 157,666 |
|
The Philippines |
| 64,439 |
|
|
| 56,078 |
|
| 67,994 |
|
|
| 64,439 |
|
Costa Rica |
| 34,881 |
|
|
| 30,717 |
|
| 37,526 |
|
|
| 34,881 |
|
Canada |
| 25,241 |
|
|
| 25,564 |
|
| 27,987 |
|
|
| 25,241 |
|
El Salvador |
| 18,720 |
|
|
| 20,476 |
|
| 17,996 |
|
|
| 18,720 |
|
Other |
| 31,979 |
|
|
| 29,910 |
|
| 42,212 |
|
|
| 31,979 |
|
Total Americas |
| 332,926 |
|
|
| 324,777 |
|
| 363,719 |
|
|
| 332,926 |
|
EMEA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
| 24,651 |
|
|
| 23,864 |
|
| 29,023 |
|
|
| 24,651 |
|
Other |
| 53,582 |
|
|
| 54,264 |
|
| 65,144 |
|
|
| 53,582 |
|
Total EMEA |
| 78,233 |
|
|
| 78,128 |
|
| 94,167 |
|
|
| 78,233 |
|
Total Other |
| 7 |
|
|
| 20 |
|
| — |
|
|
| 7 |
|
| $ | 411,166 |
|
| $ | 402,925 |
| $ | 457,886 |
|
| $ | 411,166 |
|
Note 16.15. Other Income (Expense)
Other income (expense), net consists of the following (in thousands):
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Foreign currency transaction gains (losses) | $ | (1,606 | ) |
| $ | (176 | ) | $ | (185 | ) |
| $ | (1,606 | ) |
Gains (losses) on derivative instruments not designated as hedges |
| (246 | ) |
|
| (33 | ) |
| 35 |
|
|
| (246 | ) |
Net investment gains (losses) on investments held in rabbi trust |
| (2,057 | ) |
|
| 1,180 |
|
| 525 |
|
|
| (2,057 | ) |
Other miscellaneous income (expense) |
| (884 | ) |
|
| (361 | ) |
| (697 | ) |
|
| (884 | ) |
| $ | (4,793 | ) |
| $ | 610 |
| $ | (322 | ) |
| $ | (4,793 | ) |
Note 17.16. 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 the 20-year lease were negotiated at or below market rates, and the lease is cancellable at the option of the Company. 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 March 31, 20202021 and 20192020, under the terms of the lease.
Note 18. Subsequent Event
On April 5, 2020, the Company experienced a cyber incident affecting the Company’s Americas’ back-office systems (the “April 2020 Cyber Incident”). The Company believes it has identified the specific systems that were impacted and that it has restored normal operations with no material day-to-day impact to its ability to access data, and no impact to client-connected systems or data outside of its back-office environment. The Company’s investigation of the incident is ongoing with assistance from third-party experts. The Company has notified law enforcement officials and will cooperate with any criminal investigation of this matter. The Company maintains a cyber and privacy insurance policy and expects to recover amounts paid related to the incident under its insurance policy, with the exception of the Company’s deductible, which is not material.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors 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") as of March 31, 2020,2021, the related condensed consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the three-month periods ended March 31, 20202021 and 2019,2020, 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 information for it 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) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019,2020, 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 27, 2020,26, 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, 2019,2020, 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 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.
/s/ Deloitte & Touche LLP
Tampa, Florida
May 5, 20202021
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 Form 10-K for the year ended December 31, 20192020, 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, including our belief that our operations have not been materially impacted by the April 2020 Cyber Incident.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," “intend,” “may," "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 COVID-19novel 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 demand 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, and (xxviii) other risk factors that are identified in our most recent Annual Report on Form 10-K for the year ended December 31, 20192020, 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 global comprehensive customer engagement services.digital transformation. We provide differentiated full lifecycle customer engagement experience management
solutions and services primarily to Global 2000 companies and their end customers principally in the financial services, technology, communications, technology, transportation & leisure healthcare and otherhealthcare industries. Our differentiated full lifecycle management services platform effectively engages customers at every touchpoint within the customer journey, including digital marketing
media and acquisition, sales expertise, customer service, technical support and 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.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 with an emphasis on inbound multichannel demand generation, customer service and technical support to our clients’ customers. These services, which represented 98.6%98.9% and 98.2%98.6% of consolidated revenues during the three months ended March 31, 20202021 and 2019,2020, 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 include 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 solutions such as consulting, implementation, hosting and managed servicesdigital 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.
Recent Developments
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 engagementexperience management centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels.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 endmiddle of April 2020,2021, approximately 90%70% of agents assigned to our brick-and-mortar facilitieshave temporarily transitioned to a work-at-home model, 25% are working atin our centers or from home across the world and we continue to work with our clients to shift work to at home delivery, where possible. However, certain5% of our agents are idle primarily due to the lack theof technical infrastructure to work from home. As a result, ourOur operations in the Philippines, El Salvador and Mexico have been most impacted by the governmental restrictions.
Exit Plans
Americas 2019 Exit Plan
DuringWe continue to closely monitor the first quarterprevalence of 2019, we initiated a restructuring plan to simplifyCOVID-19 and refine our operating modelthe vaccination rates in the U.S. (the “Americas 2019 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 Plan”),of Leased Space
We continues to reevaluate our real estate footprint in partconnection with the transition of a portion of our workforce to improve agent attrition and absenteeism. The Americas 2019 Exit Plan included the closure of customer engagement centers, the consolidation of leased spacea permanent remote working environment in various locations in the U.S. and management reorganization. We finalized the actions underboth the Americas 2019 Exit Planand 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 3,500 seats transitioned from brick and mortar to at home agents. As such, we recorded impairments of September 30, 2019.
Americas 2018 Exit Plan
Duringright-of-use (“ROU”) assets of $13.4 million and impairments of property and equipment of $7.2 million since the second quarterinitiation of 2018, we initiated a restructuring plan to manageour reevaluation in April 2020, of which $0.7 million of ROU assets and optimize capacity utilization, which included$0.1 million of property and equipment impairments were recorded during the closure of customer engagement centers and the consolidation of leased space in various locations in the U.S. and Canada (the “Americas 2018 Exit Plan”). We finalized the site closures under the Americas 2018 Exit Plan as of December 2018, which resulted in a decrease of approximately 5,000 seats.
three months ended March 31, 2021. See Note 4, Costs Associated with Exit or Disposal Activities,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, 2020, through our wholly-owned subsidiary, Clear Link Technologies, LLC, we 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. TMC’s assets and liabilities have been reflected in our consolidated balance sheet as of December 31, 2020 in the Americas segment and the results of TMC’s operations have been reflected in our consolidated financial statements since January 1, 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 March 31, |
| Three Months Ended March 31, |
| ||||||||||||||||||
(in thousands) | 2020 |
|
| 2019 |
|
| $ Change |
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
Revenues | $ | 411,166 |
|
| $ | 402,925 |
|
| $ | 8,241 |
| $ | 457,886 |
|
| $ | 411,166 |
|
| $ | 46,720 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct salaries and related costs |
| 266,945 |
|
|
| 261,728 |
|
|
| 5,217 |
|
| 299,477 |
|
|
| 266,945 |
|
|
| 32,532 |
|
General and administrative |
| 103,247 |
|
|
| 104,680 |
|
|
| (1,433 | ) |
| 109,627 |
|
|
| 103,247 |
|
|
| 6,380 |
|
Depreciation, net |
| 12,461 |
|
|
| 13,897 |
|
|
| (1,436 | ) |
| 13,115 |
|
|
| 12,461 |
|
|
| 654 |
|
Amortization of intangibles |
| 4,119 |
|
|
| 4,286 |
|
|
| (167 | ) |
| 2,987 |
|
|
| 4,119 |
|
|
| (1,132 | ) |
Impairment of long-lived assets |
| — |
|
|
| 1,582 |
|
|
| (1,582 | ) |
| 1,150 |
|
|
| — |
|
|
| 1,150 |
|
Total operating expenses |
| 386,772 |
|
|
| 386,173 |
|
|
| 599 |
|
| 426,356 |
|
|
| 386,772 |
|
|
| 39,584 |
|
Income from operations |
| 24,394 |
|
|
| 16,752 |
|
|
| 7,642 |
|
| 31,530 |
|
|
| 24,394 |
|
|
| 7,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| 263 |
|
|
| 185 |
|
|
| 78 |
|
| 98 |
|
|
| 263 |
|
|
| (165 | ) |
Interest (expense) |
| (720 | ) |
|
| (1,178 | ) |
|
| 458 |
|
| (423 | ) |
|
| (720 | ) |
|
| 297 |
|
Other income (expense), net |
| (4,793 | ) |
|
| 610 |
|
|
| (5,403 | ) |
| (322 | ) |
|
| (4,793 | ) |
|
| 4,471 |
|
Total other income (expense), net |
| (5,250 | ) |
|
| (383 | ) |
|
| (4,867 | ) |
| (647 | ) |
|
| (5,250 | ) |
|
| 4,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
| 19,144 |
|
|
| 16,369 |
|
|
| 2,775 |
|
| 30,883 |
|
|
| 19,144 |
|
|
| 11,739 |
|
Income taxes |
| 5,226 |
|
|
| 4,682 |
|
|
| 544 |
|
| 5,905 |
|
|
| 5,226 |
|
|
| 679 |
|
Net income | $ | 13,918 |
|
| $ | 11,687 |
|
| $ | 2,231 |
| $ | 24,978 |
|
| $ | 13,918 |
|
| $ | 11,060 |
|
Three Months Ended March 31, 20202021 Compared to Three Months Ended March 31, 20192020
Revenues
| Three Months Ended March 31, |
|
|
|
|
| Three Months Ended March 31, |
|
|
|
|
| ||||||||||||||||||||||
| 2020 |
|
| 2019 |
|
|
|
|
| 2021 |
|
| 2020 |
|
|
|
|
| ||||||||||||||||
(in thousands) | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
| ||||||
Americas | $ | 332,926 |
|
| 81.0% |
|
| $ | 324,777 |
|
| 80.6% |
|
| $ | 8,149 |
| $ | 363,719 |
|
| 79.4% |
|
| $ | 332,926 |
|
| 81.0% |
|
| $ | 30,793 |
|
EMEA |
| 78,233 |
|
| 19.0% |
|
|
| 78,128 |
|
| 19.4% |
|
|
| 105 |
|
| 94,167 |
|
| 20.6% |
|
|
| 78,233 |
|
| 19.0% |
|
|
| 15,934 |
|
Other |
| 7 |
|
| 0.0% |
|
|
| 20 |
|
| 0.0% |
|
|
| (13 | ) |
| — |
|
| 0.0% |
|
|
| 7 |
|
| 0.0% |
|
|
| (7 | ) |
Consolidated | $ | 411,166 |
|
| 100.0% |
|
| $ | 402,925 |
|
| 100.0% |
|
| $ | 8,241 |
| $ | 457,886 |
|
| 100.0% |
|
| $ | 411,166 |
|
| 100.0% |
|
| $ | 46,720 |
|
Consolidated revenues increased $8.2$46.7 million, or 2.0%11.4%, for the three months ended March 31, 20202021 from the comparable period in 2019.2020.
The increase in Americas’ revenues was due to higher volumes from existing clients of $18.0$30.6 million, and new clients of $8.9$18.9 million and a favorable foreign currency impact of $3.4 million, partially offset by end-of-life client programs of $18.6$22.1 million primarily in the communications and other verticals and an unfavorable foreign currency impact of $0.2 million.financial services verticals. Revenues from our offshore operations represented 42.8%42.6% of Americas’ revenues in 2020,2021, compared to 39.9%42.8% for the comparable period in 2019.2020.
The increase in EMEA’s revenues was due to higher volumes from existing clients of $2.8$8.0 million, and new clients of $2.7$2.6 million and a favorable foreign currency impact of $8.1 million, partially offset by end-of-life client programs of $2.8 million primarily in the communications and other verticals and an unfavorable foreign currency impact of $2.6 million.vertical.
On a consolidated basis, we had 48,60045,100 brick-and-mortar seats as of March 31, 2020, an increase2021, a decrease of 7003,500 seats from the comparable period in 2019.2020, 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 consolidation of underutilized facilities in both the Americas and EMEA. On a segment basis, 40,60037,600 seats were located in the Americas, an increasea decrease of 4003,000 seats from the comparable period in 2019,2020, and 8,0007,500 seats were located in EMEA, an increasea decrease of 300500 seats from the comparable period in 2019.2020.
On a consolidated basis, the capacity utilization rate was 73%74%, compared to 72%73% in the comparable period in 2019.2020. As of the endmiddle of April 2020,2021, approximately 60%70% of agents who typically work in our brick-and-mortar facilities
have temporarily transitioned to work at home, 30%25% are working in our facilitiescenters and the remaining 10%5% of agents are at home but idle.
The capacity utilization rate for the Americas in 20202021 was 74%, compared to 71%74% in the comparable period in 2019.2020. The capacity utilization rate for EMEA in 20202021 was 69%71%, compared to 73%69% in the comparable period in 2019.2020. 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 March 31, |
|
|
|
|
|
|
|
|
| Three Months Ended March 31, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| 2020 |
|
| 2019 |
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
| ||||||||||||||||
(in thousands) | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| ||||||||
Americas | $ | 212,628 |
|
| 63.9% |
|
| $ | 207,599 |
|
| 63.9% |
|
| $ | 5,029 |
|
| 0.0% |
| $ | 234,497 |
|
| 64.5% |
|
| $ | 212,628 |
|
| 63.9% |
|
| $ | 21,869 |
|
| 0.6% |
| ||
EMEA |
| 54,317 |
|
| 69.4% |
|
|
| 54,129 |
|
| 69.3% |
|
|
| 188 |
|
| 0.1% |
|
| 64,980 |
|
| 69.0% |
|
|
| 54,317 |
|
| 69.4% |
|
|
| 10,663 |
|
| -0.4% |
| ||
Consolidated | $ | 266,945 |
|
| 64.9% |
|
| $ | 261,728 |
|
| 65.0% |
|
| $ | 5,217 |
|
| -0.1% |
| $ | 299,477 |
|
| 65.4% |
|
| $ | 266,945 |
|
| 64.9% |
|
| $ | 32,532 |
|
| 0.5% |
|
The increase of $5.2$32.5 million in direct salaries and related costs included aan unfavorable foreign currency impact of $1.0$2.5 million in the Americas and a favorablean unfavorable foreign currency impact of $1.9$5.6 million in EMEA.
The increase in Americas’ direct salaries and related costs, as a percentage of revenues, remained consistent and was primarily attributable to higher compensationcustomer-acquisition advertising costs of 1.1%2.2% driven primarily by a decrease in agent productivity resulting principally from the requirement by certain governments to continue paying employees while operations are suspended due to COVID-19activity at TMC in the current period, partially offset by lower recruiting costs of 0.5%, lower travel costs of 0.4%, lower communication costs of 0.2% and higherlower other costs of 0.3%, offset by lower customer-acquisition advertising costs of 0.7%, lower auto tow claim costs of 0.4% and lower communications costs of 0.3%0.5%.
The increasedecrease in EMEA’s direct salaries and related costs, as a percentage of revenues, was primarily attributable to higher compensationlower software purchased for resale of 0.5%, lower rebillable costs of 1.1% driven by a decrease in consultant productivity at Symphony resulting principally from project delays due to COVID-19 in the current period0.2%, lower auto and higherparking costs of 0.2%, lower travel costs of 0.2% and lower other costs of 0.5%0.2%, partially offset by lower communications costs of 0.5%, rebillable costs of 0.5% and lowerhigher fulfillment materials costs of 0.5%0.6% and higher compensation costs of 0.3%.
General and Administrative
| Three Months Ended March 31, |
|
|
|
|
|
|
|
|
| Three Months Ended March 31, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| 2020 |
|
| 2019 |
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
| ||||||||||||||||
(in thousands) | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| ||||||||
Americas | $ | 71,200 |
|
| 21.4% |
|
| $ | 70,583 |
|
| 21.7% |
|
| $ | 617 |
|
| -0.3% |
| $ | 71,676 |
|
| 19.7% |
|
| $ | 71,200 |
|
| 21.4% |
|
| $ | 476 |
|
| -1.7% |
| ||
EMEA |
| 18,198 |
|
| 23.3% |
|
|
| 20,034 |
|
| 25.6% |
|
|
| (1,836 | ) |
| -2.3% |
|
| 18,997 |
|
| 20.2% |
|
|
| 18,198 |
|
| 23.3% |
|
|
| 799 |
|
| -3.1% |
| ||
Other |
| 13,849 |
|
| - |
|
|
| 14,063 |
|
| - |
|
|
| (214 | ) |
| - |
|
| 18,954 |
|
| - |
|
|
| 13,849 |
|
| - |
|
|
| 5,105 |
|
| - |
| ||
Consolidated | $ | 103,247 |
|
| 25.1% |
|
| $ | 104,680 |
|
| 26.0% |
|
| $ | (1,433 | ) |
| -0.9% |
| $ | 109,627 |
|
| 23.9% |
|
| $ | 103,247 |
|
| 25.1% |
|
| $ | 6,380 |
|
| -1.2% |
|
The decreaseincrease of $1.4$6.4 million in general and administrative expenses included aan unfavorable foreign currency impact of $0.2 million in the Americas and a favorable foreign currency impact of $0.6 million in the Americas and an unfavorable foreign currency impact of $1.5 million in EMEA.
The decrease in Americas’ general and administrative expenses, as a percentage of revenues, was primarily attributable to lower facility-related costs of 0.8%, lower travel costs of 0.4%, lower recruiting costs of 0.2%, lower merger and integration costs of 0.4%, lower compensation costs of 0.2% and lower facility-related costs of 0.2%, partially offset by higher other costs of 0.5%0.1%.
The decrease in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily attributable to lower merger and integrationfacility-related costs of 2.0%,1.1% driven by the exit of leased space, lower compensation costs of 0.5%0.8%, lower legal and professional feestravel costs of 0.2%0.8%, lower technology equipment and maintenancerecruiting costs of 0.2% and lower communications costs of 0.2%, partially offset by higher facility-related costs of 0.3%, higher software and maintenance costs of 0.3% and higher other costs of 0.2%.
The decreaseincrease in Other general and administrative expenses, which includes corporate and other costs, was primarily attributable to lowerhigher compensation costs of $2.2$6.1 million driven by higher long-term and annual performance-based compensation and mark-to-market adjustment of executive deferred compensation in the current period, partially offset by higher merger and integration costs of
$1.4 million, higher software and maintenancelower travel costs of $0.2$0.4 million, higher charitable contributionslower insurance costs of $0.3 million, lower legal and professional fees of $0.2 million and higherlower other costs of $0.2$0.1 million.
Depreciation, Amortization and Impairment of Long-Lived Assets
| Three Months Ended March 31, |
|
|
|
|
|
|
|
|
| Three Months Ended March 31, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| 2020 |
|
| 2019 |
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
(in thousands) | Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
|
| $ Change |
|
| Change in % of Revenues |
| ||||||||||||
Depreciation, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas | $ | 10,033 |
|
| 3.0% |
|
| $ | 11,507 |
|
| 3.5% |
|
| $ | (1,474 | ) |
| -0.5% |
| $ | 10,221 |
|
| 2.8% |
|
| $ | 10,033 |
|
| 3.0% |
|
| $ | 188 |
|
| -0.2% |
| ||||||
EMEA |
| 1,705 |
|
| 2.2% |
|
|
| 1,626 |
|
| 2.1% |
|
|
| 79 |
|
| 0.1% |
|
| 2,156 |
|
| 2.3% |
|
|
| 1,705 |
|
| 2.2% |
|
|
| 451 |
|
| 0.1% |
| ||||||
Other |
| 723 |
|
| - |
|
|
| 764 |
|
| - |
|
|
| (41 | ) |
| - |
|
| 738 |
|
| - |
|
|
| 723 |
|
| - |
|
|
| 15 |
|
| - |
| ||||||
Consolidated | $ | 12,461 |
|
| 3.0% |
|
| $ | 13,897 |
|
| 3.4% |
|
| $ | (1,436 | ) |
| -0.4% |
| $ | 13,115 |
|
| 2.9% |
|
| $ | 12,461 |
|
| 3.0% |
|
| $ | 654 |
|
| -0.1% |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas | $ | 3,286 |
|
| 1.0% |
|
| $ | 3,438 |
|
| 1.1% |
|
| $ | (152 | ) |
| -0.1% |
| $ | 2,096 |
|
| 0.6% |
|
| $ | 3,286 |
|
| 1.0% |
|
| $ | (1,190 | ) |
| -0.4% |
| ||||||
EMEA |
| 833 |
|
| 1.1% |
|
|
| 848 |
|
| 1.1% |
|
|
| (15 | ) |
| 0.0% |
|
| 891 |
|
| 0.9% |
|
|
| 833 |
|
| 1.1% |
|
|
| 58 |
|
| -0.2% |
| ||||||
Other |
| — |
|
| - |
|
|
| — |
|
| - |
|
|
| — |
|
| - |
|
| — |
|
| - |
|
|
| — |
|
| - |
|
|
| — |
|
| - |
| ||||||
Consolidated | $ | 4,119 |
|
| 1.0% |
|
| $ | 4,286 |
|
| 1.1% |
|
| $ | (167 | ) |
| -0.1% |
| $ | 2,987 |
|
| 0.7% |
|
| $ | 4,119 |
|
| 1.0% |
|
| $ | (1,132 | ) |
| -0.3% |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas | $ | — |
|
| 0.0% |
|
| $ | 1,582 |
|
| 0.5% |
|
| $ | (1,582 | ) |
| -0.5% |
| $ | 357 |
|
| 0.1% |
|
| $ | — |
|
| 0.0% |
|
| $ | 357 |
|
| 0.1% |
| ||||||
EMEA |
| — |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
|
| 475 |
|
| 0.5% |
|
|
| — |
|
| 0.0% |
|
|
| 475 |
|
| 0.5% |
| ||||||
Other |
| — |
|
| - |
|
|
| — |
|
| - |
|
|
| — |
|
| - |
|
| 318 |
|
| - |
|
|
| — |
|
| - |
|
|
| 318 |
|
| - |
| ||||||
Consolidated | $ | — |
|
| 0.0% |
|
| $ | 1,582 |
|
| 0.4% |
|
| $ | (1,582 | ) |
| -0.4% |
| $ | 1,150 |
|
| 0.3% |
|
| $ | — |
|
| 0.0% |
|
| $ | 1,150 |
|
| 0.3% |
|
The decreaseincrease 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 partially offset by new depreciable fixedas well as assets placed into service supporting site expansions and infrastructure upgrades.that were impaired.
The decrease in amortization was primarily due to the impact since the prior period of certain fully amortized intangible assets.
See Note 5,4, Fair Value, in the accompanying “Notes to Condensed Consolidated Financial Statements” for further information on the impairment of long-lived assets.
Other Income (Expense)
| Three Months Ended March 31, |
|
|
|
|
| Three Months Ended March 31, |
|
|
|
|
| ||||||||||
(in thousands) | 2020 |
|
| 2019 |
|
| $ Change |
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
Interest income | $ | 263 |
|
| $ | 185 |
|
| $ | 78 |
| $ | 98 |
|
| $ | 263 |
|
| $ | (165 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) | $ | (720 | ) |
| $ | (1,178 | ) |
| $ | 458 |
| $ | (423 | ) |
| $ | (720 | ) |
| $ | 297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency transaction gains (losses) | $ | (1,606 | ) |
| $ | (176 | ) |
| $ | (1,430 | ) | $ | (185 | ) |
| $ | (1,606 | ) |
| $ | 1,421 |
|
Gains (losses) on derivative instruments not designated as hedges |
| (246 | ) |
|
| (33 | ) |
|
| (213 | ) |
| 35 |
|
|
| (246 | ) |
|
| 281 |
|
Gains (losses) on investments held in rabbi trust |
| (2,057 | ) |
|
| 1,180 |
|
|
| (3,237 | ) |
| 525 |
|
|
| (2,057 | ) |
|
| 2,582 |
|
Other miscellaneous income (expense) |
| (884 | ) |
|
| (361 | ) |
|
| (523 | ) |
| (697 | ) |
|
| (884 | ) |
|
| 187 |
|
Total other income (expense), net | $ | (4,793 | ) |
| $ | 610 |
|
| $ | (5,403 | ) | $ | (322 | ) |
| $ | (4,793 | ) |
| $ | 4,471 |
|
InterestThe decrease in interest income remained consistent withwas primarily due to lower invested balances and interest rates than in the comparable period.
The decrease in interest (expense) was primarily due to lower average outstanding borrowings and lower average interest rates than in the comparable period.
The increasechange in other income (expense), net, was primarily due to a declinean increase in foreign currency transaction gains and an increase in value of investments held in rabbi trust, foreign exchange losses and an increase in the losses from equity method investees from the comparable period.
trust. See Note 8,7, Investments Held in Rabbi Trust, in the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.
Income Taxes
| Three Months Ended March 31, |
|
|
|
|
| Three Months Ended March 31, |
|
|
|
|
| ||||||||||
(in thousands) | 2020 |
|
| 2019 |
|
| $ Change |
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
Income before income taxes | $ | 19,144 |
|
| $ | 16,369 |
|
| $ | 2,775 |
| $ | 30,883 |
|
| $ | 19,144 |
|
| $ | 11,739 |
|
Income taxes |
| 5,226 |
|
|
| 4,682 |
|
|
| 544 |
|
| 5,905 |
|
|
| 5,226 |
|
|
| 679 |
|
|
|
|
|
|
|
|
|
| % Change |
|
|
|
|
|
|
|
|
| % Change |
| ||
Effective tax rate |
| 27.3 | % |
|
| 28.6 | % |
|
| -1.3 | % |
| 19.1 | % |
|
| 27.3 | % |
|
| -8.2 | % |
The decrease in the effective tax rate in 20202021 compared to 20192020 was primarily due to $1.2 million discrete tax benefits relating to Philippines tax law changes and stock compensation recognized in the current period. The decrease was also 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 44.8%40.3% and 42.4%44.8% of our consolidated revenues in the three months ended March 31, 20202021 and 2019,2020, respectively.
Total revenues by segment from our largest client in each of the periods, which was in the financial services vertical for the three ended March 31, 2021 and the communications vertical, respectively,2020, were as follows (in thousands):
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||||||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||||||||||||||
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
| ||||
Americas | $ | 32,539 |
|
| 9.8% |
|
| $ | 30,625 |
|
| 9.4% |
| $ | 32,336 |
|
| 8.9% |
|
| $ | 32,539 |
|
| 9.8% |
|
EMEA |
| — |
|
| 0.0% |
|
|
| 37 |
|
| 0.0% |
|
| — |
|
| 0.0% |
|
|
| — |
|
| 0.0% |
|
| $ | 32,539 |
|
| 7.9% |
|
| $ | 30,662 |
|
| 7.6% |
| $ | 32,336 |
|
| 7.1% |
|
| $ | 32,539 |
|
| 7.9% |
|
Total 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 March 31, |
| Three Months Ended March 31, |
| ||||||||||||||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||||||||||||||
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
| Amount |
|
| % of Revenues |
|
| Amount |
|
| % of Revenues |
| ||||
Americas | $ | — |
|
| 0.0% |
|
| $ | — |
|
| 0.0% |
| $ | — |
|
| 0.0% |
|
| $ | — |
|
| 0.0% |
|
EMEA |
| 17,473 |
|
| 22.3% |
|
|
| 18,024 |
|
| 23.1% |
|
| 34,314 |
|
| 36.4% |
|
|
| 17,473 |
|
| 22.3% |
|
| $ | 17,473 |
|
| 4.2% |
|
| $ | 18,024 |
|
| 4.5% |
| $ | 34,314 |
|
| 7.5% |
|
| $ | 17,473 |
|
| 4.2% |
|
Business Outlook
On March 11, 2020,For the World Health Organization characterized COVID-19 as a pandemic. The global nature, rapid spread and continually evolving response by governments throughoutthree months ended June 30, 2021, we anticipate the world to combatfollowing financial results:
• | Revenues in the range of $443.0 million to $448.0 million; |
• | Effective tax rate of approximately 23.0%; |
• | Fully diluted share count of approximately 39.9 million; |
• | Diluted earnings per share in the range of $0.46 to $0.50; and |
• | Capital expenditures in the range of $15.0 million to $20.0 million. |
For the spread has had a negative impact ontwelve months ended December 31, 2021, we anticipate the global economy. Certain of our customer engagement centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels. following financial results:
• | Revenues in the range of $1,843.0 million to $1,858.0 million; |
• | Effective tax rate of approximately 21.0%; |
• | Fully diluted share count of approximately 40.1 million; |
• | Diluted earnings per share in the range of $2.67 to $2.77; and |
• | Capital expenditures in the range of $47.0 million to $53.0 million. |
We are committedincreasing our full year 2021 revenue and diluted earnings per share outlook relative to what was initially provided in February 2021. The increase in the health and safetyrevenue outlook is being driven by a broad base of existing clients across our workforce and ensuring business continuity forvertical markets, while the brands we serve. In response, we have shifted as many employees as possibleincrease in diluted earnings per share is primarily due to a work-at-home model. As of the end of April 2020, approximately 90% of agents assigned to our brick-and-mortar facilities are working at our centers or from home across the world and welower than projected effective tax rate.
We continue to work with our clients in determining the future view of their delivery strategy between home agent and brick and mortar facility driven by COVID-19. As such, we will continue to shift workadjust our capacity footprint – similar to at home delivery, where possible. However, certainactions taken on facility leases in 2020 – as we get greater clarity around those decisions.
Our revenues and earnings per share assumptions for the second quarter and full year 2021 are based on foreign exchange rates as of April 2021. 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 second quarter and full year discussed above.
We anticipate total other interest income (expense), net of approximately $(1.4) million and $(4.8) million for the second quarter and full year 2021, respectively. In the second quarter, roughly $(1.0) million of the $(1.4) million reflects the anticipated impact of our agents lackequity method investment in XSell, which is poised to accelerate growth investments in its business. The remainder reflects other expense related to the technical infrastructure to work from home. As a result, our operationsacquisition of TMC. The amounts in the Philippines, El Salvador and Mexico have been most impacted byother interest income (expense), net, however, exclude the governmental restrictions.potential impact of any future foreign exchange gains or losses.
We continue to monitor the progression of the pandemic and may take additional actions in response to government orders or that we believe are in the best interests of our employees, clients and shareholders. Due to the unprecedented nature of this pandemic, forward-looking guidance has been suspended.
Liquidity and Capital Resources
Our primary sources of liquidity are typically 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.
Our Board of Directors authorized us to purchase up to 10.0 million shares of our outstanding common stock (the “2011 Share Repurchase Program”) on August 18, 2011, as amended on March 16, 2016. A total of 7.38.3 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 three months ended March 31, 2020,2021, cash increased $28.5due to an increase of $40.2 million from operating activities and $23.0$0.1 million of debt proceeds, other miscellaneous cash inflows, partially offset by $22.9$15.0 million used to repurchase common stock, $21.0 million used to repay long-term debt, $11.89.4 million used for capital expenditures, and$3.4 million used to pay taxes related to net share settlement of equity awards,$1.0 $0.3 million to repurchase common stockpurchase intangible assets and $0.2 million related to paying for tax withholding on equity awards, an acquisition, resulting in a $9.1$9.6 million decreaseincrease in available cash, cash equivalents and restricted cash (including(including the unfavorable effects of foreign currency exchange rates on cash, cash equivalents and restricted cash of $3.9$2.4 million).
Net cash flows provided by operating activities for the three months ended March 31, 20202021 were $28.5$40.2 million, compared to $39.3$28.5 million for the comparable period in 2019.2020. The $10.8$11.7 million decreaseincrease in net cash flows from operating activities was due to an $11.1 million increase in net income and a net decreaseincrease of $11.9$1.9 million in non-cash reconciling items, such as stock compensation, net impairment, depreciation, amortization, deferred income taxes, unrealized foreign currency transaction gains (losses), and net unrealized gains (losses) and premiums on financial instruments, partially offset by a $1.3 million decrease in cash flows from assets and liabilities and a $1.1liabilities. The $1.3 million decrease in non-cash reconciling items such as impairment and depreciation, partially offset by a $2.2 million increase in net income. The $11.9 million decrease in2021 from 2020 from 2019 in cash flows from assets and liabilities was principally a result of a $14.1$4.7 million decrease in other liabilities a $3.1 million increase in other assets and a $1.2$2.0 million change in net taxes payable,operating lease assets and liabilities, partially offset by a $3.8$2.4 million decrease in accounts receivable andother assets, a $2.7$1.5 million increase in deferred revenue and customer liabilities.liabilities and a $1.5 million change in net taxes payable. The $14.1$4.7 million decrease in the change in other liabilities was primarily due to a $6.3$5.3 million decrease related to the timing of accrued employee compensation and benefits, a $5.1benefits. The $2.4 million decrease relatedin the change in other assets was primarily due to the timing of account payable and a $3.7$3.5 million decrease related to the timing of accrued expenses and current liabilities, partially offsetin prepaid assets driven by a $1.0$3.8 million increase in other long-term liabilities.prepaid insurance in the prior year.
Capital expenditures, which are generally funded by cash generated from operating activities, available cash balances and borrowings available under our credit facilities, were $11.8$9.4 million for the three months ended March 31, 2020,2021, compared to $5.7$11.8 million for the comparable period in 2019, an increase2020, a decrease of $6.1$2.4 million. In 2021, we anticipate capital expenditures in the range of $47.0 million to $53.0 million, primarily for systems infrastructure upgrades and additions as well as new seat additions.
On February 14, 2019, we entered into a $500 million senior revolving credit facility (the “2019 Credit Agreement”) with a group of lenders, KeyBank National Association, as 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 2019 Credit Agreement replaced our previous $440 million revolving credit facility dated May 12, 2015 (the “2015 Credit Agreement”), which agreement was terminated simultaneous with entering into the 2019 Credit Agreement. The 2019 Credit Agreement is subject to certain borrowing limitations and includes certain customary financial and restrictive covenants. We are not currently aware of any inability of our lenders to provide access to the full commitment of funds that exist under the 2019 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 2019 Credit Agreement will mature on February 14, 2024. As of March 31, 2020,2021, we were in compliance with all loan requirements of the 2019 Credit Agreement and had $75.0$48.0 million of outstanding borrowings under this facility. For additional discussion of our credit agreements, see Note 18, Borrowings in the “Notes to the Consolidated Financial Statements” section of our Annual Report on Form 10-K for the year ended December 31, 20192020.
Our credit agreements had an average daily utilization of $63.8$54.0 million and $96.0$63.8 million during the three months ended March 31, 20202021 and 2019,2020, respectively. During the three months ended March 31, 20202021 and 2019,2020, the related interest expense, includingexcluding the commitment fee and excluding the amortization of deferred loan fees, was $0.6$0.2 million and $1.0$0.4 million, respectively, which represented weighted average interest rates of 3.6%1.2% and 4.1%2.7%, respectively.
We borrowed $2.0repaid $15.0 million, net, of long-term debt outstanding under the 2019 Credit Agreement during the three months ended March 31, 2020.2021. Our future interest expense for the remainder of 20202021 will vary based on our usage of the 2019 Credit Agreement and market interest rates.
We are currently under audit in several tax jurisdictions andjurisdictions. We believe we have adequate reserves related to all matters pertaining to these audits. Should we experience unfavorable outcomes from these audits, such outcomes could have a significant impact on our financial condition, results of operations and cash flows.
As part of the July 1, 2018 WhistleOut Pty Ltd acquisition, an AUD 14.0 million three-year retention bonus is payable in installments on or around July 1, 2019, 2020 and 2021. We paid the first 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. Also, 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 first installment of GBP 2.7 million ($3.3 million) in October 2019.2019 and the second installment of GBP 2.7 million ($3.4 million) in October 2020. The Symphony deferred purchase price was included in “Other accrued expenses and current liabilities” in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.As part of the December 31, 2020 TMC acquisition, $17.4 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 us or one of our subsidiaries on December 31, 2022, the second anniversary of the closing, the deferred payment will be accelerated and 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 March 31, 2021 and December 31, 2020.
As of March 31, 2020,2021, we had $118.4$112.8 million in cash and cash equivalents, of which approximately 92.2%87.2%, or $109.1$98.3 million, was held in international operations. Most of these funds will not be subject to additional taxes in the United States if repatriated; however, certain jurisdictions may impose additional withholding 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 expect our current cash levels and cash flows from operations to be adequate to meet our 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 2019 Credit Agreement as a result of the timing of our working capital needs, including capital expenditures.
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 Form 10-K for the year ended December 31, 20192020.
Off-Balance Sheet Arrangements
As of March 31, 2020,2021, 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 facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contractual Obligations
There 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 Form 10-K for the year ended December 31, 20192020.
Critical Accounting Estimates
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 20192020 for a discussion of our critical accounting estimates, 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, in the accompanying “Notes to Condensed Consolidated Financial Statements” for information related to recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk in the normal course of business due primarily to our borrowings and cash-management activities, which are subject to interest rate risk, and to our foreign business operations, which are subject to foreign exchange rate risk. Our market risk disclosures set forth in our Annual Report on Form 10-K for the year ended December 31, 20192020 have not otherwise changed significantly.
For a discussion of current market conditions resulting from the COVID-19 pandemic, refer to Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and to Part II, Item 1A, “Risk Factors.”
Fluctuations in Quarterly Results
For the year ended December 31, 2019,2020, quarterly revenues as a percentage of total consolidated annual revenues were approximately 25%24%, 24%25%, 25% and 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 March 31, 2020,2021, under the direction of our Chief Executive Officer and Chief Finance 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 Finance Officer, as appropriate to allow timely decisions regarding required disclosure. We concluded that, as of March 31, 2020,2021, 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 March 31, 20202021 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 March 31, 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
Item 1. Legal Proceedings
From time to time, we are involved in legal actions arising in the ordinary course of business. With respect to any such currently pending matters, we believe that we have adequate legal defenses and/or, when possible and appropriate, have provided adequate accruals related to those matters such that the ultimate outcome will not have a material adverse effect on our future financial position or results of operations.
Item 1A. Risk Factors
For risk factors, see Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 20192020. During the three months ended March 31, 2020, we modified the following risk factor:
Health epidemics could disrupt our business and adversely affect our financial results.
Our customer engagement centers typically seat hundreds of employees in one location. Accordingly, an outbreak of a contagious infection, such as COVID-19, in one or more of the markets in which we do business may result in significant worker absenteeism, lower asset utilization rates, voluntary or mandatory closure of our offices and delivery centers, travel restrictions on our employees, and other disruptions to our business. As disclosed elsewhere, as a result of the COVID-19 pandemic, certain of our customer engagement centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels. Certain of our agents lack the technical infrastructure to work from home. As a result, our operations in the Philippines, El Salvador and Mexico have been most impacted by the governmental restrictions. The global nature of the ongoing COVID-19 pandemic has significantly impacted the global economy. If the pandemic is prolonged, it could severely disrupt our business operations and have a material adverse effect on our business, financial condition and results of operations. In particular, the impacts may include reduced demand for our services as a result of economic recession, inability to reduce costs while volumes are temporarily reduced, and delayed payments from clients. As disclosed elsewhere, Symphony’s on-site consulting model has been negatively impacted by travel and shelter-in-place restrictions imposed by governments and businesses to reduce the spread of COVID-19. There is significant uncertainty regarding the length of time these restrictions will remain in place. An impairment charge may arise in the future if Symphony’s operations experience a prolonged delay in the resumption of its operations or a significant shift in client demand results from the economic downturn.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Below is a summary of stock repurchases for the three months ended March 31, 2020 (in thousands, except average price per share). See Note 11, Earnings Per Share, in the accompanying “Notes to Condensed Consolidated Financial Statements” for information regarding our stock repurchase program.
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs (1) |
| ||||
January 1, 2020 - January 31, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| 3,608 |
|
February 1, 2020 - February 29, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| 3,608 |
|
March 1, 2020 - March 31, 2020 |
|
| 860 |
|
| $ | 26.60 |
|
|
| 860 |
|
|
| 2,748 |
|
Total |
|
| 860 |
|
|
|
|
|
|
| 860 |
|
|
| 2,748 |
|
(1) The total number of shares approved for repurchase under the 2011 Share Repurchase Program datedOn August 18, 2011, as amended on March 16, 2016, is 10.0 million. Thethe Company’s Board of Directors approved the 2011 Share Repurchase Program 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 March 31, 2021.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following documents are filed as an exhibit to this Report:
No. |
| Description |
|
|
|
15 |
| |
|
|
|
31.1 |
| Certification of Chief Executive Officer, pursuant to Rule 13a-14(a). |
|
|
|
31.2 |
| Certification of Chief Finance Officer, pursuant to Rule 13a-14(a). |
|
|
|
32.1* |
| Certification of Chief Executive Officer, pursuant to 18 U.S.C. §1350. |
|
|
|
32.2* |
| Certification of Chief Finance Officer, pursuant to 18 U.S.C. §1350. |
|
|
|
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 March 31, |
|
|
|
* |
| Furnished herewith as an Exhibit. |
+ |
| Submitted electronically with this Quarterly Report. |
SIGNATURE
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: May 5, | By: | /s/ John Chapman |
| John Chapman | |
| Chief Finance Officer | |
| (Principal Financial and Accounting Officer) |
4139