SYKES ENTERPRISES INC, 10-Q filed on 8/4/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2020
Jul. 16, 2020
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Trading Symbol SYKE  
Entity Registrant Name Sykes Enterprises, Incorporated  
Entity Central Index Key 0001010612  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 0-28274  
Entity Tax Identification Number 56-1383460  
Entity Address, Address Line One 400 North Ashley Drive  
Entity Address, Address Line Two Suite 2800  
Entity Address, City or Town Tampa  
Entity Address, State or Province FL  
Entity Address, Postal Zip Code 33602  
City Area Code 813  
Local Phone Number 274-1000  
Entity Filer Category Large Accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   40,055,088
Entity Interactive Data Current Yes  
Title of 12(b) Security Common Stock, $0.01 par value  
Security Exchange Name NASDAQ  
Entity Incorporation, State or Country Code FL  
Document Quarterly Report true  
Document Transition Report false  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 129,050 $ 127,246
Receivables, net of allowance of $4.2 million and $3.5 million, respectively 383,512 390,147
Prepaid expenses 20,891 20,868
Other current assets 18,626 20,525
Total current assets 552,079 558,786
Property and equipment, net 119,412 125,990
Operating lease right-of-use assets 188,676 205,112
Goodwill, net 306,712 311,247
Intangibles, net 148,573 158,420
Deferred charges and other assets 54,381 55,945
Total assets 1,369,833 1,415,500
Current liabilities:    
Accounts payable 27,532 33,591
Accrued employee compensation and benefits 116,726 109,591
Income taxes payable 7,737 3,637
Deferred revenue and customer liabilities 24,294 26,621
Operating lease liabilities 54,948 50,863
Other accrued expenses and current liabilities 28,770 29,330
Total current liabilities 260,007 253,633
Long-term debt 49,000 73,000
Long-term income tax liabilities 20,469 22,286
Long-term operating lease liabilities 147,312 166,810
Other long-term liabilities 30,260 25,296
Total liabilities 507,048 541,025
Commitments and loss contingencies (Note 12)
Shareholders' equity:    
Preferred stock, $0.01 par value per share, 10,000 shares authorized; no shares issued and outstanding
Common stock, $0.01 par value per share, 200,000 shares authorized; 40,055 and 41,549 shares issued, respectively 401 416
Additional paid-in capital 291,814 288,935
Retained earnings 634,943 634,668
Accumulated other comprehensive income (loss) (61,680) (47,001)
Treasury stock at cost: 133 and 128 shares, respectively (2,693) (2,543)
Total shareholders' equity 862,785 874,475
Total liabilities and shareholders' equity $ 1,369,833 $ 1,415,500
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Statement Of Financial Position [Abstract]    
Accounts Receivable, Allowance for Credit Loss $ 4.2 $ 3.5
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares issued 40,055,000 41,549,000
Treasury stock, shares 133,000 128,000
v3.20.2
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Revenues $ 416,833 $ 389,006 $ 827,999 $ 791,931
Operating expenses:        
Direct salaries and related costs 268,433 252,161 535,378 513,889
General and administrative 102,664 104,282 205,911 208,962
Depreciation, net 12,630 13,052 25,091 26,949
Amortization of intangibles 4,093 4,127 8,212 8,413
Impairment of long-lived assets 1,800 129 1,800 1,711
Total operating expenses 389,620 373,751 776,392 759,924
Income from operations 27,213 15,255 51,607 32,007
Other income (expense):        
Interest income 165 192 428 377
Interest (expense) (560) (1,179) (1,280) (2,357)
Other income (expense), net 1,797 (533) (2,996) 77
Total other income (expense), net 1,402 (1,520) (3,848) (1,903)
Income before income taxes 28,615 13,735 47,759 30,104
Income taxes 6,385 2,466 11,611 7,148
Net income $ 22,230 $ 11,269 $ 36,148 $ 22,956
Net income per common share:        
Basic $ 0.55 $ 0.27 $ 0.89 $ 0.55
Diluted $ 0.55 $ 0.27 $ 0.88 $ 0.54
Weighted average common shares outstanding:        
Basic 40,318 42,038 40,726 42,107
Diluted 40,380 42,094 40,857 42,200
v3.20.2
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]        
Net income $ 22,230 $ 11,269 $ 36,148 $ 22,956
Other comprehensive income (loss), net of taxes:        
Foreign currency translation adjustments 8,311 2,339 (13,039) 3,701
Unrealized gain (loss) on cash flow hedging instruments, net of taxes (253) 2,828 (1,595) 4,500
Unrealized actuarial gain (loss) related to pension liability, net of taxes 16 35 (1) 20
Unrealized gain (loss) on postretirement obligation, net of taxes (22) (5) (44) (10)
Other comprehensive income (loss), net of taxes 8,052 5,197 (14,679) 8,211
Comprehensive income (loss) $ 30,282 $ 16,466 $ 21,469 $ 31,167
v3.20.2
Condensed Consolidated Statements of Changes in Shareholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Beginning Balance at Dec. 31, 2018 $ 826,609   $ 428 $ 286,544 $ 598,788   $ (56,775) $ (2,376)
Beginning Balance, shares at Dec. 31, 2018     42,778          
Cumulative effect of accounting change at Dec. 31, 2018   $ 110       $ 110    
Accounting Standards Update [Extensible List]   us-gaap:AccountingStandardsUpdate201602Member       us-gaap:AccountingStandardsUpdate201602Member    
Stock-based compensation expense 1,890     1,890        
Issuance of common stock under equity award plans, net of forfeitures     $ (2) 182       (180)
Issuance of common stock under equity award plans, net of forfeitures, Share     (168)          
Shares repurchased for tax withholding on equity awards (1,269)     (1,269)        
Shares repurchased for tax withholding on equity awards, Share     (45)          
Comprehensive income (loss) 14,701       11,687   3,014  
Ending Balance at Mar. 31, 2019 842,041   $ 426 287,347 610,585   (53,761) (2,556)
Ending Balance, shares at Mar. 31, 2019     42,565          
Beginning Balance at Dec. 31, 2018 826,609   $ 428 286,544 598,788   (56,775) (2,376)
Beginning Balance, shares at Dec. 31, 2018     42,778          
Cumulative effect of accounting change at Dec. 31, 2018   $ 110       $ 110    
Repurchase of common stock (20,178)              
Comprehensive income (loss) 31,167              
Ending Balance at Jun. 30, 2019 840,529   $ 421 288,879 609,791   (48,564) (9,998)
Ending Balance, shares at Jun. 30, 2019     42,091          
Beginning Balance at Mar. 31, 2019 842,041   $ 426 287,347 610,585   (53,761) (2,556)
Beginning Balance, shares at Mar. 31, 2019     42,565          
Stock-based compensation expense 2,200     2,200        
Issuance of common stock under equity award plans, net of forfeitures       123       (123)
Issuance of common stock under equity award plans, net of forfeitures, Share     26          
Repurchase of common stock (20,178)             (20,178)
Retirement of treasury stock     $ (5) (791) (12,063)     12,859
Retirement of treasury stock, shares     (500)          
Comprehensive income (loss) 16,466       11,269   5,197  
Ending Balance at Jun. 30, 2019 840,529   $ 421 288,879 609,791   (48,564) (9,998)
Ending Balance, shares at Jun. 30, 2019     42,091          
Beginning Balance at Dec. 31, 2019 874,475   $ 416 288,935 634,668   (47,001) (2,543)
Beginning Balance, shares at Dec. 31, 2019     41,549          
Stock-based compensation expense 1,860     1,860        
Issuance of common stock under equity award plans, net of forfeitures     $ (2) 69       (67)
Issuance of common stock under equity award plans, net of forfeitures, Share     (146)          
Shares repurchased for tax withholding on equity awards (1,009)     (1,009)        
Shares repurchased for tax withholding on equity awards, Share     (39)          
Repurchase of common stock (22,909)             (22,909)
Retirement of treasury stock     $ (9) (26) (22,874)     22,909
Retirement of treasury stock, shares     (860)          
Comprehensive income (loss) (8,813)       13,918   (22,731)  
Ending Balance at Mar. 31, 2020 843,604   $ 405 289,829 625,712   (69,732) (2,610)
Ending Balance, shares at Mar. 31, 2020     40,504          
Beginning Balance at Dec. 31, 2019 874,475   $ 416 288,935 634,668   (47,001) (2,543)
Beginning Balance, shares at Dec. 31, 2019     41,549          
Repurchase of common stock (35,928)              
Comprehensive income (loss) 21,469              
Ending Balance at Jun. 30, 2020 862,785   $ 401 291,814 634,943   (61,680) (2,693)
Ending Balance, shares at Jun. 30, 2020     40,055          
Beginning Balance at Mar. 31, 2020 843,604   $ 405 289,829 625,712   (69,732) (2,610)
Beginning Balance, shares at Mar. 31, 2020     40,504          
Stock-based compensation expense 2,042     2,042        
Issuance of common stock under equity award plans, net of forfeitures     $ 1 82       (83)
Issuance of common stock under equity award plans, net of forfeitures, Share     57          
Shares repurchased for tax withholding on equity awards (124)     (124)        
Shares repurchased for tax withholding on equity awards, Share     (6)          
Repurchase of common stock (13,019)             (13,019)
Retirement of treasury stock     $ (5) (15) (12,999)     13,019
Retirement of treasury stock, shares     (500)          
Comprehensive income (loss) 30,282       22,230   8,052  
Ending Balance at Jun. 30, 2020 $ 862,785   $ 401 $ 291,814 $ 634,943   $ (61,680) $ (2,693)
Ending Balance, shares at Jun. 30, 2020     40,055          
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net income $ 36,148 $ 22,956
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 25,206 27,066
Amortization of intangibles 8,212 8,413
Amortization of deferred grants (170) (181)
Impairment losses 1,800 1,711
Unrealized foreign currency transaction (gains) losses, net 510 (603)
Stock-based compensation expense 3,902 4,090
Deferred income tax provision (benefit) 564 325
Bad debt expense (reversals) 1,129 68
Unrealized (gains) losses and premiums on financial instruments, net 665 (304)
(Earnings) losses from equity method investees 547 233
Other (104) 256
Changes in assets and liabilities, net of acquisitions:    
Receivables, net 294 (1,214)
Prepaid expenses (239) (1,122)
Other current assets (263) (896)
Deferred charges and other assets 238 (3,196)
Accounts payable (4,184) (2,824)
Income taxes receivable / payable 2,324 (5,225)
Accrued employee compensation and benefits 6,998 6,489
Other accrued expenses and current liabilities (279) 1,228
Deferred revenue and customer liabilities (1,666) (2,435)
Other long-term liabilities 6,585 1,086
Operating lease assets and liabilities (1,575) 415
Net cash provided by operating activities 86,642 56,336
Cash flows from investing activities:    
Capital expenditures (22,880) (16,390)
Other 592 284
Net cash (used for) investing activities (22,288) (16,106)
Cash flows from financing activities:    
Payments of long-term debt (47,000) (18,000)
Proceeds from issuance of long-term debt 23,000 8,000
Cash paid for repurchase of common stock (35,928) (20,178)
Shares repurchased for tax withholding on equity awards (1,133) (1,269)
Cash paid for loan fees related to long-term debt   (1,098)
Other   (4)
Net cash (used for) financing activities (61,061) (32,549)
Effects of exchange rates on cash, cash equivalents and restricted cash (1,795) 655
Net increase (decrease) in cash, cash equivalents and restricted cash 1,498 8,336
Cash, cash equivalents and restricted cash – beginning 129,185 130,231
Cash, cash equivalents and restricted cash – ending 130,683 138,567
Supplemental disclosures of cash flow information:    
Cash paid for amounts included in the measurement of operating lease liabilities 31,484 29,119
Cash paid during period for interest 1,009 1,874
Cash paid during period for income taxes 8,947 12,567
Non-cash transactions:    
Net right-of-use assets arising from new or remeasured operating lease liabilities 12,976 10,663
Property and equipment additions in accounts payable 4,978 2,663
Unrealized gain (loss) on postretirement obligation, net of taxes, in accumulated other comprehensive income (loss) $ (44) $ (10)
v3.20.2
Overview and Basis of Presentation
6 Months Ended
Jun. 30, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Overview and Basis of Presentation

Note 1. Overview and Basis of Presentation

Business Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) is a leading provider of multichannel demand generation and global customer engagement services. SYKES provides differentiated full lifecycle customer engagement solutions and services primarily to Global 2000 companies and their end customers within the financial services, communications, technology, transportation & leisure, healthcare and other industries. SYKES primarily provides customer engagement solutions and services with an emphasis on inbound multichannel demand generation, customer service and technical support to its clients’ customers. Utilizing SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. SYKES 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”) provider Symphony Ventures Ltd (“Symphony”) coupled with its investment in artificial intelligence (“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 two 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.

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 and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2020. 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, 2019, as filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020.

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. There were no 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):

 

 

June 30, 2020

 

 

December 31, 2019

 

 

June 30, 2019

 

 

December 31, 2018

 

Cash and cash equivalents

$

129,050

 

 

$

127,246

 

 

$

136,631

 

 

$

128,697

 

Restricted cash included in "Other current assets"

 

318

 

 

 

568

 

 

 

566

 

 

 

149

 

Restricted cash included in "Deferred charges and

   other assets"

 

1,315

 

 

 

1,371

 

 

 

1,370

 

 

 

1,385

 

 

$

130,683

 

 

$

129,185

 

 

$

138,567

 

 

$

130,231

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Customer-acquisition advertising costs

$

9,826

 

 

$

10,036

 

 

$

20,008

 

 

$

22,140

 

 

New Accounting Standards Not Yet 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 is permitted, including adoption in any interim period for which financial statements have 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 no 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 2016-13 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, 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 have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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 six months ended June 30, 2020, the Company recorded a $1.1 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 $0.4 million of the allowance for credit losses related to certain short-term trade receivables deemed to be uncollectible.

v3.20.2
Revenues
6 Months Ended
Jun. 30, 2020
Revenue From Contract With Customer [Abstract]  
Revenues

Note 2. Revenues

Revenues from Contracts with Customers

Revenues for customer engagement solutions and services are recognized over time using output methods such as a per minute, per hour, per call, per transaction or per time and materials basis. RPA services revenues are primarily recognized over time using output methods such as per time and materials basis. Revenues from fulfillment services are recognized upon shipment to the customer and satisfaction of all obligations. Revenues from enterprise support services are recognized over time using output methods such as number of positions filled.

Disaggregated Revenues

The Company disaggregates its revenues from contracts with customers by service type and delivery location (see Note 15, 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 June 30,

 

 

2020

 

 

2019

 

 

Amount

 

 

% of Revenue

 

 

Amount

 

 

% of Revenue

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions and services

$

338,963

 

 

 

81.3

%

 

$

310,070

 

 

 

79.8

%

Other revenues

 

309

 

 

 

0.1

%

 

 

237

 

 

 

0.0

%

Total Americas

 

339,272

 

 

 

81.4

%

 

 

310,307

 

 

 

79.8

%

EMEA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions and services

 

73,285

 

 

 

17.6

%

 

 

68,643

 

 

 

17.6

%

Other revenues

 

4,276

 

 

 

1.0

%

 

 

10,033

 

 

 

2.6

%

Total EMEA

 

77,561

 

 

 

18.6

%

 

 

78,676

 

 

 

20.2

%

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other revenues

 

 

 

 

0.0

%

 

 

23

 

 

 

0.0

%

Total Other

 

 

 

 

0.0

%

 

 

23

 

 

 

0.0

%

 

$

416,833

 

 

 

100.0

%

 

$

389,006

 

 

 

100.0

%

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):

 

 

Six Months Ended June 30,

 

 

2020

 

 

2019

 

 

Amount

 

 

% of Revenue

 

 

Amount

 

 

% of Revenue

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions and services

$

671,577

 

 

 

81.1

%

 

$

634,632

 

 

 

80.2

%

Other revenues

 

621

 

 

 

0.1

%

 

 

452

 

 

 

0.0

%

Total Americas

 

672,198

 

 

 

81.2

%

 

 

635,084

 

 

 

80.2

%

EMEA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions and services

 

145,918

 

 

 

17.6

%

 

 

139,640

 

 

 

17.6

%

Other revenues

 

9,876

 

 

 

1.2

%

 

 

17,164

 

 

 

2.2

%

Total EMEA

 

155,794

 

 

 

18.8

%

 

 

156,804

 

 

 

19.8

%

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other revenues

 

7

 

 

 

0.0

%

 

 

43

 

 

 

0.0

%

Total Other

 

7

 

 

 

0.0

%

 

 

43

 

 

 

0.0

%

 

$

827,999

 

 

 

100.0

%

 

$

791,931

 

 

 

100.0

%

 

Trade Accounts Receivable

 

The Company’s noncurrent trade accounts receivable result from contracts with customers that include renewal provisions, and contracts with customers under multi-year arrangements. The Company’s trade accounts receivable, net, consisted of the following (in thousands):

 

 

June 30, 2020

 

 

December 31, 2019

 

Trade accounts receivable, net, current (1)

$

368,693

 

 

$

375,136

 

Trade accounts receivable, net, noncurrent (2)

 

26,920

 

 

 

26,496

 

 

$

395,613

 

 

$

401,632

 

 

(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):

 

 

June 30, 2020

 

 

December 31, 2019

 

Deferred revenue

$

3,475

 

 

$

3,012

 

Customer arrangements with termination rights

 

14,554

 

 

 

15,024

 

Estimated refund liabilities

 

6,265

 

 

 

8,585

 

 

$

24,294

 

 

$

26,621

 

 

The Company expects to recognize the majority of its deferred revenue as of June 30, 2020 over the next 180 days. Revenues of $0.2 million and $0.3 million were recognized during the three months ended June 30, 2020 and 2019, respectively, and revenues of $2.9 million and $3.4 million were recognized during the six months ended June 30, 2020 and 2019, respectively, from amounts included in deferred revenue at December 31, 2019 and 2018, 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.

v3.20.2
Leases
6 Months Ended
Jun. 30, 2020
Leases [Abstract]  
Leases

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 and six months ended June 30, 2019 was not material. The Company’s net cash provided by operating activities for the six months ended June 30, 2019 did not change due to the adoption of ASC 842.

Leases

The Company leases facilities for its corporate headquarters, many of its customer engagement centers, several regional support offices and data centers. These leases are classified as operating 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 June 30, 2020. The Company has no finance leases.

Lease costs, net of sublease income, of $15.5 million and $16.2 million for the three months ended June 30, 2020 and 2019, respectively, and $31.5 million and $32.1 million for the six months ended June 30, 2020 and 2019, respectively, were primarily included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Income.

Additional supplemental information related to leases was as follows:

 

June 30, 2020

 

 

December 31, 2019

 

Weighted average remaining lease term of operating leases

4.8 years

 

 

5.1 years

 

Weighted average discount rate of operating leases

 

3.5

%

 

 

3.7

%

Maturities of operating lease liabilities as of June 30, 2020 were as follows (in thousands):

 

Amount

 

2020 (remainder of the year)

$

28,288

 

2021

 

58,340

 

2022

 

44,905

 

2023

 

30,407

 

2024

 

21,307

 

2025 and thereafter

 

37,962

 

Total future lease payments

 

221,209

 

Less: Imputed interest

 

18,949

 

Present value of future lease payments

 

202,260

 

Less: Operating lease liabilities

 

54,948

 

Long-term operating lease liabilities

$

147,312

 

 

v3.20.2
Costs Associated with Exit or Disposal Activities
6 Months Ended
Jun. 30, 2020
Restructuring And Related Activities [Abstract]  
Costs Associated with Exit or Disposal Activities

Note 4. Costs Associated with Exit or Disposal Activities

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 as of September 30, 2019.

During the second quarter of 2018, the Company initiated a restructuring plan to manage and optimize capacity utilization, which included closing customer engagement centers and consolidating leased space 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 incurred to date related to cash and non-cash expenditures resulting from the Americas 2018 and 2019 Exit Plans are outlined below as of June 30, 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 $12.8 million in cash through June 30, 2020, of which $10.5 million related to the Americas 2018 Exit Plan and $2.3 million related to the Americas 2019 Exit Plan.

The Americas 2018 and 2019 Exit Plan activity during the three and six months ended June 30, 2020 consisted of cash payments due under the respective plans.

 

The following table summarizes the accrued liability and related activity for the three months ended June 30, 2019 (in thousands):

 

 

Americas

2018 Exit Plan

 

 

Americas

2019 Exit Plan

 

 

Lease Obligations

and Facility

Exit Costs

 

 

Severance and

Related Costs

 

 

Total

 

 

Lease Obligations

and Facility

Exit Costs

 

 

Severance and

Related Costs

 

 

Total

 

Balance at the beginning of the period

$

162

 

 

$

495

 

 

$

657

 

 

$

 

 

$

1,040

 

 

$

1,040

 

Charges (reversals) included in "Direct

   salaries and related costs"

 

 

 

 

(3

)

 

 

(3

)

 

 

 

 

 

184

 

 

 

184

 

Charges (reversals) included in "General

   and administrative"

 

 

 

 

(9

)

 

 

(9

)

 

 

54

 

 

 

1,079

 

 

 

1,133

 

Cash payments

 

(33

)

 

 

(261

)

 

 

(294

)

 

 

 

 

 

(742

)

 

 

(742

)

Balance at the end of the period

$

129

 

 

$

222

 

 

$

351

 

 

$

54

 

 

$

1,561

 

 

$

1,615

 

 

The following table summarizes the accrued liability and related activity for the six months ended June 30, 2019 (in thousands):

 

 

Americas

2018 Exit Plan

 

 

Americas

2019 Exit Plan

 

 

Lease Obligations

and Facility

Exit Costs

 

 

Severance and

Related Costs

 

 

Total

 

 

Lease Obligations

and Facility

Exit Costs

 

 

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"

 

 

 

 

(3

)

 

 

(3

)

 

 

 

 

 

191

 

 

 

191

 

Charges (reversals) included in "General

   and administrative"

 

(4

)

 

 

10

 

 

 

6

 

 

 

54

 

 

 

2,169

 

 

 

2,223

 

Cash payments

 

(298

)

 

 

(602

)

 

 

(900

)

 

 

 

 

 

(799

)

 

 

(799

)

Balance sheet reclassifications (1)

 

(1,338

)

 

 

 

 

 

(1,338

)

 

 

 

 

 

 

 

 

 

Balance at the end of the period

$

129

 

 

$

222

 

 

$

351

 

 

$

54

 

 

$

1,561

 

 

$

1,615

 

 

(1) Consists 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

 

 

June 30, 2020

 

 

December 31, 2019

 

 

June 30, 2020

 

 

December 31, 2019

 

Lease obligations and facility exit costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in "Other accrued expenses

   and current liabilities"

 

67

 

 

 

54

 

 

 

 

 

 

 

Included in "Other long-term liabilities"

 

 

 

 

27

 

 

 

 

 

 

 

 

 

67

 

 

 

81

 

 

 

 

 

 

 

Severance and related costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in "Accrued employee compensation

   and benefits"

 

 

 

 

6

 

 

 

 

 

 

479

 

Included in "Other accrued expenses

   and current liabilities"

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

6