SYKES ENTERPRISES INC, 10-K filed on 2/27/2020
Annual Report
v3.19.3.a.u2
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Feb. 06, 2020
Jun. 30, 2019
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Trading Symbol SYKE    
Entity Registrant Name SYKES ENTERPRISES INC    
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 N. 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   41,548,680  
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 Annual Report true    
Document Transition Report false    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer No    
Entity Public Float     $ 1,100,897,020
Documents Incorporated by Reference

DOCUMENTS INCORPORATED BY REFERENCE:

Documents

 

Form 10-K Reference

Portions of the Proxy Statement for the year 2020

Annual Meeting of Shareholders

 

 

Part III Items 10–14

 

   
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 127,246 $ 128,697
Receivables, net 390,147 347,425
Prepaid expenses 20,868 23,754
Other current assets 20,525 16,761
Total current assets 558,786 516,637
Property and equipment, net 125,990 135,418
Operating lease right-of-use assets 205,112  
Goodwill, net 311,247 302,517
Intangibles, net 158,420 174,031
Deferred charges and other assets 55,945 43,364
Total assets 1,415,500 1,171,967
Current liabilities:    
Accounts payable 33,591 26,923
Accrued employee compensation and benefits 109,591 95,813
Income taxes payable 3,637 1,433
Deferred revenue and customer liabilities 26,621 30,176
Operating lease liabilities 50,863  
Other accrued expenses and current liabilities 29,330 31,235
Total current liabilities 253,633 185,580
Long-term debt 73,000 102,000
Long-term income tax liabilities 22,286 23,787
Long-term operating lease liabilities 166,810  
Other long-term liabilities 25,296 33,991
Total liabilities 541,025 345,358
Commitments and loss contingencies (Note 22)
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; 41,549 and 42,778 shares issued, respectively 416 428
Additional paid-in capital 288,935 286,544
Retained earnings 634,668 598,788
Accumulated other comprehensive income (loss) (47,001) (56,775)
Treasury stock at cost: 128 and 126 shares, respectively (2,543) (2,376)
Total shareholders' equity 874,475 826,609
Total liabilities and shareholders' equity $ 1,415,500 $ 1,171,967
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
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 41,549,000 42,778,000
Treasury stock, shares 128,000 126,000
v3.19.3.a.u2
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Revenues $ 1,614,762 $ 1,625,687 $ 1,586,008
Operating expenses:      
Direct salaries and related costs 1,042,289 1,072,907 1,039,677
General and administrative 412,407 407,285 376,825
Depreciation, net 51,916 57,350 55,972
Amortization of intangibles 16,639 15,542 21,082
Impairment of long-lived assets 1,711 9,401 5,410
Total operating expenses 1,524,962 1,562,485 1,498,966
Income from operations 89,800 63,202 87,042
Other income (expense):      
Interest income 846 706 696
Interest (expense) (4,309) (4,743) (7,689)
Other income (expense), net (414) (2,248) 1,258
Total other income (expense), net (3,877) (6,285) (5,735)
Income before income taxes 85,923 56,917 81,307
Income taxes 21,842 7,991 49,091
Net income $ 64,081 $ 48,926 $ 32,216
Net income per common share:      
Basic $ 1.54 $ 1.16 $ 0.77
Diluted $ 1.53 $ 1.16 $ 0.76
Weighted average common shares outstanding:      
Basic 41,649 42,090 41,822
Diluted 41,802 42,246 42,141
v3.19.3.a.u2
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement Of Income And Comprehensive Income [Abstract]      
Net income $ 64,081 $ 48,926 $ 32,216
Other comprehensive income (loss), net of taxes:      
Foreign currency translation adjustments, net of taxes 5,504 (21,938) 36,078
Unrealized gain (loss) on net investment hedges, net of taxes     (5,220)
Unrealized gain (loss) on cash flow hedging instruments, net of taxes 4,154 (4,335) 4,696
Unrealized actuarial gain (loss) related to pension liability, net of taxes 68 682 449
Unrealized gain (loss) on postretirement obligation, net of taxes 48 (80) (80)
Other comprehensive income (loss), net of taxes 9,774 (25,671) 35,923
Comprehensive income (loss) $ 73,855 $ 23,255 $ 68,139
v3.19.3.a.u2
Consolidated Statements of Changes in Shareholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Beginning Balance at Dec. 31, 2016 $ 724,522 $ 429 $ 281,357 $ 518,611 $ (67,027) $ (8,848)
Beginning Balance, shares at Dec. 31, 2016   42,895        
Stock-based compensation expense 7,621   7,621      
Issuance of common stock under equity award plans, net of forfeitures   $ 4 250     (254)
Issuance of common stock under equity award plans, net of forfeitures, Share   386        
Shares repurchased for tax withholding on equity awards (3,882) $ (1) (3,881)      
Shares repurchased for tax withholding on equity awards, Share   (132)        
Retirement of treasury stock   $ (3) (3,194) (3,831)   7,028
Retirement of treasury stock, shares   (250)        
Comprehensive income (loss) 68,139     32,216 35,923  
Ending Balance at Dec. 31, 2017 796,479 $ 429 282,385 546,843 (31,104) (2,074)
Ending Balance, shares at Dec. 31, 2017   42,899        
Cumulative effect of accounting change | Accounting Standards Update 2016-09 [Member] 79   232 (153)    
Stock-based compensation expense 7,543   7,543      
Issuance of common stock under equity award plans, net of forfeitures     302     (302)
Issuance of common stock under equity award plans, net of forfeitures, Share   (3)        
Shares repurchased for tax withholding on equity awards (3,687) $ (1) (3,686)      
Shares repurchased for tax withholding on equity awards, Share   (118)        
Comprehensive income (loss) 23,255     48,926 (25,671)  
Ending Balance at Dec. 31, 2018 826,609 $ 428 286,544 598,788 (56,775) (2,376)
Ending Balance, shares at Dec. 31, 2018   42,778        
Cumulative effect of accounting change | Accounting Standards Update 2014-09 [Member] 3,019     3,019    
Stock-based compensation expense 7,396   7,396      
Issuance of common stock under equity award plans, net of forfeitures     167     (167)
Issuance of common stock under equity award plans, net of forfeitures, Share   9        
Shares repurchased for tax withholding on equity awards (3,214) $ (1) (3,213)      
Shares repurchased for tax withholding on equity awards, Share   (98)        
Repurchase of common stock (30,281)         (30,281)
Retirement of treasury stock   $ (11) (1,959) (28,311)   30,281
Retirement of treasury stock, shares   (1,140)        
Comprehensive income (loss) 73,855     64,081 9,774  
Ending Balance at Dec. 31, 2019 874,475 $ 416 $ 288,935 634,668 $ (47,001) $ (2,543)
Ending Balance, shares at Dec. 31, 2019   41,549        
Cumulative effect of accounting change | Accounting Standards Update 2016-02 [Member] $ 110     $ 110    
v3.19.3.a.u2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:      
Net income $ 64,081 $ 48,926 $ 32,216
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 52,149 57,817 56,482
Amortization of intangibles 16,639 15,542 21,082
Amortization of deferred grants (351) (657) (716)
Impairment losses 1,711 9,401 5,410
Unrealized foreign currency transaction (gains) losses, net (2,304) (843) (4,671)
Stock-based compensation expense 7,396 7,543 7,621
Deferred income tax provision (benefit) 282 (1,509) 7,908
Net (gain) loss on disposal of property and equipment 383 312 474
Unrealized (gains) losses and premiums on financial instruments, net (1,059) 805 (98)
Amortization of deferred loan fees 283 269 269
Net (gain) on insurance settlement (1,133)    
Imputed interest expense and fair value adjustments to contingent consideration     (529)
Other 950 834 (34)
Changes in assets and liabilities, net of acquisitions:      
Receivables, net (40,239) (8,224) (10,154)
Prepaid expenses (284) (1,690) (221)
Other current assets (138) (693) (1,433)
Deferred charges and other assets (12,197) (13,621) (930)
Accounts payable 2,099 (1,571) 7,286
Income taxes receivable / payable (81) (1,066) 1,137
Accrued employee compensation and benefits 9,409 (6,418) 5,101
Other accrued expenses and current liabilities 3,465 449 (5,548)
Deferred revenue and customer liabilities (4,521) (1,623) (5,866)
Other long-term liabilities 3,909 5,111 20,003
Operating lease assets and liabilities 834    
Net cash provided by operating activities 101,283 109,094 134,789
Cash flows from investing activities:      
Capital expenditures (38,698) (46,884) (63,344)
Cash paid for business acquisitions, net of cash acquired (3,133) (78,395) (9,075)
Proceeds from property and equipment insurance settlement 1,190    
Net investment hedge settlement     (5,122)
Purchase of intangible assets (292) (8,156) (4,825)
Investment in equity method investees   (5,000) (5,012)
Other 346 1,495 101
Net cash (used for) investing activities (40,587) (136,940) (87,277)
Cash flows from financing activities:      
Payments of long-term debt (58,000) (231,000)  
Proceeds from issuance of long-term debt 29,000 58,000 8,000
Cash paid for repurchase of common stock (30,281)    
Proceeds from grants   31 163
Shares repurchased for tax withholding on equity awards (3,214) (3,687) (3,882)
Cash paid for loan fees related to long-term debt (1,098)    
Payments of contingent consideration related to acquisitions     (5,760)
Net cash (used for) financing activities (63,593) (176,656) (1,479)
Effects of exchange rates on cash, cash equivalents and restricted cash 1,851 (10,072) 31,178
Net increase (decrease) in cash, cash equivalents and restricted cash (1,046) (214,574) 77,211
Cash, cash equivalents and restricted cash – beginning 130,231 344,805 267,594
Cash, cash equivalents and restricted cash – ending 129,185 130,231 344,805
Supplemental disclosures of cash flow information:      
Cash paid during period for interest 3,500 3,888 6,680
Cash paid during period for income taxes 24,049 19,587 24,342
Non-cash transactions:      
Property and equipment additions in accounts payable 5,970 1,944 6,056
Unrealized gain (loss) on postretirement obligation, net of taxes, in accumulated other comprehensive income (loss) $ 48 $ (80) $ (80)
v3.19.3.a.u2
Overview and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Overview and Summary of Significant Accounting Policies

Note 1. Overview and Summary of Significant Accounting Policies

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 our 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.

U.S. 2017 Tax Reform Act

On December 20, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”) was approved by Congress and received presidential approval on December 22, 2017. In general, the 2017 Tax Reform Act reduced the U.S. federal corporate tax rate from 35% to 21%, effective in 2018. The 2017 Tax Reform Act moved from a worldwide business taxation approach to a participation exemption regime. The 2017 Tax Reform Act also imposed base-erosion prevention measures on non-U.S. earnings of U.S. entities, as well as a one-time mandatory deemed repatriation tax on accumulated non-U.S. earnings. The impact of the 2017 Tax Reform Act on the Company’s consolidated financial results began with the fourth quarter of 2017, the period of enactment. This impact, along with the transitional taxes discussed in Note 20, Income Taxes, is reflected in the Other segment.

Acquisitions

The Company completed three acquisitions during 2017 and 2018, all of which were immaterial to the Company individually and in the aggregate.  See Note 4, Acquisitions, for further information.

Principles of Consolidation The 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 consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “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.

Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance of the consolidated financial statements. There were no material subsequent events that required recognition or disclosure in the accompanying consolidated financial statements.

Revenues The Company recognizes revenues in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), whereby revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services. Under ASC 606, the Company accounts for a contract with a client when it has approval, the contract is committed, the rights of the parties, including payment terms are identified, the contract has commercial substance and consideration is probable of collection. The Company’s sales commissions are expensed as incurred because they are not directly incremental to obtaining customer contracts.

The Americas and EMEA regions primarily provide customer engagement solutions and services with an emphasis on inbound multichannel demand generation, customer service and technical support to our clients’ customers. These services, which represented 97.7%, 99.0% and 99.4% of consolidated revenues in 2019, 2018 and 2017, respectively, are delivered through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service.

Customer engagement solutions and services contracts have a single stand-ready performance obligation as the promise to transfer the customer solutions and services are not separately identifiable from other promises in the contract, and therefore not distinct. Because the Company’s customers simultaneously receive and consume the benefits of its services as they are delivered, the performance obligations are satisfied over time, and revenues are recognized over time using output methods such as a per minute, per hour, per call, per transaction or per time and materials basis. These output methods faithfully depict the satisfaction of the Company’s obligation to deliver the services as requested and represent a direct measurement of value to the customer.

The stated terms of these contracts range from 30 days to six years. The majority of these contracts include termination for convenience or without cause provisions allowing either party to cancel the contract without substantial cost or penalty within a defined notification period (“termination rights”), typically up to 180 days. Only the noncancelable portion of the contract qualifies as a legally enforceable contract under ASC 606 and any unsatisfied performance obligations are accounted for as deferred revenue. Periods that extend beyond the legally enforceable contract period are considered optional purchases of additional services.  As these options typically do not represent a material right, the amount of up-front fees received for periods that extend beyond the legally enforceable contract period are accounted for as customer arrangements with termination rights.

Invoices are generally issued on a monthly basis as control transfers and payment is typically due within 30 or 60 days of the invoice date. Revenue recognition is limited to the established transaction price, the amount to which the Company expects to be entitled to under the contract, including the amount of expected fees for those contracts with renewal provisions, and the amount that is not contingent upon delivery of any future product or service or meeting other specified performance obligations. The Company’s customer contracts include penalty and holdback provisions for failure to meet specified minimum service levels and other performance-based contingencies, as well as the right of certain of the Company’s clients to chargeback accounts that do not meet certain requirements for specified periods after a sale has occurred. Certain customers also receive cash discounts for early payment. These provisions are accounted for as variable consideration and are estimated using the expected value method based on historical service and pricing trends, the individual contract provisions, and the Company’s best judgment at the time. None of these variable consideration components are subject to constraint due to the short time period to resolution, the Company’s extensive history with similar transactions, and the limited number of possible outcomes and third-party influence. The portion of the consideration received under the contract that the Company expects to ultimately refund to the customer is excluded from the transaction price and is recorded as an estimated refund liability. The transaction price, once determined, is allocated to the single performance obligation on a contract by contract basis.

The Company also provides RPA, fulfillment and enterprise support services which are immaterial in total.

For additional information refer to Note 2, Revenues.

Deferred revenues and customer liabilities Deferred revenues consist of up-front fees received in connection with certain contracts to the extent a legally enforceable contract exists. Accordingly, the up-front fees allocated to a contract’s termination notification period, typically varying periods up to 180 days, are recorded as deferred revenue, while the fees that extend beyond the notification period are classified as customer arrangements with termination rights. These up-front fees do not represent a significant financing component since they were structured primarily to reduce the administrative burden in managing the operations of certain contracts, to provide the

customer with un-interrupted service, and to assist in managing the overall risk and profitability of providing the services.

Customer liabilities consist of customer arrangements with termination rights and estimated refund liabilities. Customer arrangements with termination rights represent the amount of up-front fees received for periods that extend beyond the legally enforceable contract period. All customer arrangements with termination rights are classified as current as the customer can terminate the contracts and demand pro-rata refunds of the up-front fees over varying periods, typically up to 180 days. Estimated refund liabilities represent consideration received under the contract that the Company expects to ultimately refund to the customer and primarily relates to estimated penalties, holdbacks and chargebacks. Penalties and holdbacks result from the failure to meet specified minimum service levels in certain contracts and other performance-based contingencies. Chargebacks reflect the right of certain of the Company’s clients to chargeback accounts that do not meet certain requirements for specified periods after a sale has occurred.

For additional information refer to Note 2, Revenues.

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. Cash and cash equivalents in the amount of $127.2 million and $128.7 million at December 31, 2019 and 2018, respectively, were primarily held in non-interest-bearing accounts. Cash and cash equivalents of $125.3 million and $115.7 million at December 31, 2019 and 2018, respectively, were held in international operations. Most of these funds will not be subject to additional taxes if repatriated to the United States. There are circumstances where the Company may be unable to repatriate some of the cash and cash equivalents held by its international operations due to country restrictions.

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 Consolidated Balance Sheets that sum to the amounts reported in the Consolidated Statements of Cash Flows (in thousands):

 

 

December 31,

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Cash and cash equivalents

$

127,246

 

 

$

128,697

 

 

$

343,734

 

 

$

266,675

 

Restricted cash included in "Other current assets"

 

568

 

 

 

149

 

 

 

154

 

 

 

160

 

Restricted cash included in "Deferred charges and other assets"

 

1,371

 

 

 

1,385

 

 

 

917

 

 

 

759

 

 

$

129,185

 

 

$

130,231

 

 

$

344,805

 

 

$

267,594

 

Allowance for Doubtful Accounts The Company maintains allowances for doubtful accounts on trade account receivables for estimated losses arising from the inability of its customers to make required payments. The Company’s estimate is based on qualitative and quantitative analyses, including 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 the historical collection experience of the Company’s clients. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will increase if the financial condition of the Company’s customers were to deteriorate, resulting in a reduced ability to make payments.

Property and Equipment Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are credited or charged to income. The Company capitalizes certain costs incurred, if any, to internally develop software during the application development stages. Costs incurred in the preliminary project and post-implementation stages are expensed as incurred.  

The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360, Property, Plant and Equipment. For purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels for which there are identifiable cash flows (the “asset group”).  An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on appraisals or sales prices of comparable assets or independent third party offers. Other than what has been disclosed in Note 6, Fair Value, the Company determined that its property and equipment was not impaired as of December 31, 2019 and 2018.

Goodwill The Company accounts for goodwill and other intangible assets under ASC 350, Intangibles — Goodwill and Other (“ASC 350”). The Company expects to receive future benefits from previously acquired goodwill over an indefinite period of time.  For goodwill and other intangible assets with indefinite lives not subject to amortization, the Company reviews goodwill and intangible assets for impairment at least annually in the third quarter, and more frequently in the presence of certain circumstances. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company may elect to forgo this option and proceed to the quantitative goodwill impairment test.  If the Company elects to perform the qualitative assessment and it indicates that a significant decline to fair value of a reporting unit is more likely than not, or if a reporting unit’s fair value has historically been closer to its carrying value, or the Company elects to forgo this qualitative assessment, the Company will proceed to the quantitative goodwill impairment test where the fair value of a reporting unit is calculated based on discounted future probability-weighted cash flows. If the quantitative goodwill impairment test indicates that the carrying value of a reporting unit is in excess of its fair value, the Company will recognize an impairment loss 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.

Intangible Assets — Definite-lived intangible assets, primarily customer relationships, are amortized using the straight-line method over their estimated useful lives which approximate the pattern in which the economic benefits of the assets are consumed. The Company periodically evaluates the recoverability of intangible assets and takes into account events or changes in circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. Fair value for intangible assets is based on discounted cash flows, market multiples and/or appraised values, as appropriate.

Income Taxes The Company accounts for income taxes under ASC 740, Income Taxes (“ASC 740”) which requires recognition of deferred tax assets and liabilities to reflect tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the accompanying consolidated financial statements. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be realized in accordance with the criteria of ASC 740. Valuation allowances are established against deferred tax assets due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence, in accordance with criteria of ASC 740, to support a change in judgment about the ability to realize the related deferred tax assets. Uncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions.  

The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns and records a liability for uncertain tax positions in accordance with ASC 740. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated financial statements.

Self-Insurance Programs The Company self-insures for certain levels of workers' compensation and self-funds the medical, prescription drug and dental benefit plans in the United States.  Estimated costs are accrued at the projected settlements for known and anticipated claims. Amounts related to these self-insurance programs are included in “Accrued employee compensation and benefits” and “Other long-term liabilities” in the accompanying Consolidated Balance Sheets.

Investments in Equity Method Investees — The Company uses the equity method to account for investments in companies if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of the net income or loss of an equity method investment is included in consolidated net income. Judgment regarding the level of influence over an equity method investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.

The Company evaluates an equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time (duration) and the extent (severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects, and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified.  As of December 31, 2019 and 2018, the Company did not identify any instances where the carrying values of its equity method investments were not recoverable.

In July 2017, the Company made a strategic investment of $10.0 million in XSell for 32.8% of XSell’s preferred stock. The Company’s net investment in XSell of $8.7 million and $9.2 million was included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively.  The Company’s investment was paid in two installments of $5.0 million, one in July 2017 and one in August 2018. The Company’s proportionate share of XSell’s income (loss) of $(0.5) million, $(0.7) million and $(0.1) million was included in “Other income (expense), net” in the accompanying Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017, respectively.  

Customer-Acquisition Advertising Costs — The Company’s advertising costs are expensed as incurred. Total advertising costs included in the accompanying Consolidated Statements of Operations were as follows (in thousands):

 

 

Years Ended December 31,

 

 

2019

 

 

2018

 

 

2017

 

Customer-acquisition advertising costs included

   in "Direct salaries and related costs"

$

47,313

 

 

$

49,657

 

 

$

36,659

 

 

Stock-Based Compensation —In accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”), the Company recognizes in its accompanying Consolidated Statements of Operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors. Compensation expense for equity-based awards is recognized over the requisite service period, usually the vesting period, while compensation expense for liability-based awards (those usually settled in cash rather than stock) is re-measured to fair value at each balance sheet date until the awards are settled.  See Note 24, Stock-Based Compensation, for further information.  

Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

 

Cash, short-term and other investments, investments held in rabbi trust and accounts payable The carrying values for cash, short-term and other investments, investments held in rabbi trust and accounts payable approximate their fair values.

 

Foreign currency forward contracts and options Foreign currency forward contracts and options, including premiums paid on options, are recognized at fair value based on 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.

 

Embedded derivatives — Embedded derivatives within certain hybrid lease agreements are bifurcated from the host contract and recognized at fair value based on pricing models or formulas using significant unobservable inputs, including adjustments for credit risk.

 

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.

 

Contingent consideration Contingent consideration is recognized at fair value based on the discounted cash flow method.

Fair Value Measurements ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. 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.

Fair Value Hierarchy ASC 820 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which 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 rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

The following section describes the valuation methodologies used by the Company to measure assets and liabilities at fair value on a recurring basis, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.

Money Market and Open-End Mutual Funds The Company uses quoted market prices in active markets to determine the fair value.  These items are classified in Level 1 of the fair value hierarchy.

Foreign Currency Contracts The Company enters into foreign currency forward contracts and options over-the-counter and values such contracts using quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk. The key inputs include forward or option foreign currency exchange rates and interest rates. These items are classified in Level 2 of the fair value hierarchy.

Embedded Derivatives The Company uses significant unobservable inputs to determine the fair value of embedded derivatives, which are classified in Level 3 of the fair value hierarchy.  These unobservable inputs include expected cash flows associated with the lease, currency exchange rates on the day of commencement, as well as forward currency exchange rates; results of which are adjusted for credit risk. These items are classified in Level 3 of the fair value hierarchy. See Note 12, Financial Derivatives, for further information.

Investments Held in Rabbi Trust The investment assets of the rabbi trust are valued using quoted market prices in active markets, which are classified in Level 1 of the fair value hierarchy. For additional information about the deferred compensation plan, refer to Note 13, Investments Held in Rabbi Trust, and Note 24, Stock-Based Compensation.

Contingent Consideration The Company uses significant unobservable inputs to determine the fair value of contingent consideration, which is classified in Level 3 of the fair value hierarchy. The contingent consideration recorded related to the liabilities assumed as part of the Clearlink acquisition was recognized at fair value using a discounted cash flow methodology and a discount rate of approximately 10.0%. The discount rate varies dependent on the specific risks of each acquisition including the country of operation, the nature of services and complexity of the acquired business, and other similar factors, all of which are significant inputs not observable in the market.  Significant increases or decreases in any of the inputs in isolation would result in a significantly higher or lower fair value measurement.

Foreign Currency Translation The assets and liabilities of the Company’s foreign subsidiaries, whose functional currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the balance sheet date, and income and expenses are translated at the weighted average exchange rate during the period. The net effect of translation gains and losses is not included in determining net income, but is included in “Accumulated other comprehensive income (loss)” (“AOCI”), which is reflected as a separate component of shareholders’ equity until the sale or until the complete or substantially complete liquidation of the net investment in the foreign subsidiary. Foreign currency transactional gains and losses are included in “Other income (expense), net” in the accompanying Consolidated Statements of Operations.

Foreign Currency and Derivative Instruments The Company accounts for financial derivative instruments under ASC 815, Derivatives and Hedging (“ASC 815”). The Company generally utilizes forward contracts and options expiring within one to 24 months to reduce its foreign currency exposure due to exchange rate fluctuations on forecasted cash flows denominated in non-functional foreign currencies and net investments in foreign operations. In using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to counterparty credit risk.

The Company designates derivatives as either (1) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (2) a hedge of a net investment in a foreign operation (“net investment” hedge); or (3) a derivative that does not qualify for hedge accounting.  To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship.

For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is reported in AOCI until the hedged transaction affects earnings. At that time, this amount is reclassified from AOCI and recognized within “Revenues.”

For net investment hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in cumulative translation adjustment (“CTA”) in AOCI. That amount will remain in CTA until the period in which the hedged item affects earnings. At that time, the amount in CTA is reclassified to the same income statement line where the earnings effect of the hedged item is presented.  The Company has elected

the spot method for assessing the effectiveness of net investment hedges and will record the amortization of excluded components of net investment hedges in “Other income (expense), net” in its consolidated financial statements.

Cash flows from the derivative contracts are classified within the operating section in the accompanying Consolidated Statements of Cash Flows. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging activities. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective on a prospective and retrospective basis. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge is no longer probable of occurring, or if the Company de-designates a derivative as a hedge, the Company discontinues hedge accounting prospectively. At December 31, 2019 and 2018, all hedges were determined to be highly effective.

The Company also periodically enters into forward contracts that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to reduce the effects from fluctuations caused by volatility in currency exchange rates on the Company’s operating results and cash flows. Changes in the fair value of the derivative instruments are included in “Revenues” or “Other income (expense), net”, depending on the underlying risk exposure.  See Note 12, Financial Derivatives, for further information.

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. See Note 22, Commitments and Loss Contingencies, for further information.

Reclassifications — Certain balances in prior years have been reclassified to conform to current year presentation.  

New Accounting Standards Not Yet Adopted

Financial Instruments – Credit Losses

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 several 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’s implementation team completed its assessment of its data and the design of its financial models to estimate expected credit losses and evaluated the critical factors of ASU 2016-13 to determine its impact on the Company’s business processes, systems, and internal controls. The Company will apply ASU 2016-13 to its trade receivables but expects the adoption of the amendments on January 1, 2020 to have an immaterial impact on its financial condition, results of operations or cash flows because credit losses associated with trade receivables have historically been insignificant. The adoption of ASU 2016-13 will require expanded quantitative and qualitative disclosures about the Company’s expected credit losses.

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, 2020Most 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 and is assessing the timing of its adoption but does not expect a material impact on its financial condition, results of operations, cash flows.

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 does not expect its adoption of ASU 2018-13 on January 1, 2020 to have a material impact on its disclosures.

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.

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 does not expect its adoption of ASU 2018-15 on January 1, 2020 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.

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, 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 does not expect the adoption of ASU 2019-04 on January 1, 2020 to have a material impact on its financial condition, results of operations, cash flows or disclosures.

New Accounting Standards Recently Adopted

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) and subsequent amendments (together, “ASC 842”). These amendments require the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under ASC 840, Leases (“ASC 840”). These amendments also require qualitative disclosures along with specific quantitative disclosures. These amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted.  Entities have the option to either apply the amendments (1) at the beginning of the earliest period presented using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements or (2) at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without the need to restate prior periods. There are also certain optional practical expedients that an entity may elect to apply.  The Company adopted ASC 842 as of January 1, 2019 using a modified retrospective transition, with the cumulative-effect adjustment to the opening balance of retained earnings as of the effective date. Periods prior to January 1, 2019 have not been restated.  

See Note 3, Leases, for further details as well as the Company’s significant accounting policy for leases.

Derivatives and Hedging

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedge Activities (“ASU 2017-12”). These amendments help simplify certain aspects of hedge accounting and better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.  For cash flow and net investment hedges as of the adoption date, the guidance requires a modified retrospective approach. The amended presentation and disclosure guidance is required only prospectively.  These amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early application permitted in any interim period after issuance of this update.  The adoption of ASU 2017-12 on January 1, 2019 did not have a material impact on the financial condition, results of operations, cash flows or disclosures of the Company.  No cumulative-effect adjustment was recorded to opening retained earnings on the date of adoption as there was no ineffectiveness previously recorded in retained earnings that would have been included in other comprehensive income if the new guidance had been applied since hedge inception. Upon adoption of ASU 2017-12, the Company elected the spot method for assessing the effectiveness of net investment hedges and will record the amortization of excluded components of net investment hedges in “Other income (expense), net” in its consolidated financial statements. 

 

v3.19.3.a.u2
Revenues
12 Months Ended
Dec. 31, 2019
Revenue From Contract With Customer [Abstract]  
Revenues

Note 2. Revenues

Adoption of ASC 606, Revenue from Contracts with Customers

On January 1, 2018, the Company adopted ASC 606, which includes ASU 2014-09 and all related amendments, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The Company recorded an increase to opening retained earnings of $3.0 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606.  The impact, all in the Americas segment, primarily related to the change in the timing of revenue recognition associated with certain customer contracts that provide fees upon renewal, as well as changes in estimating variable consideration with respect to penalty and holdback provisions for failure to meet specified minimum service levels and other performance-based contingencies.  

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting for revenues under ASC 605, Revenue Recognition (“ASC 605”). Revenues recognized under ASC 606 were higher during 2018 than revenues would have been under ASC 605. This is primarily attributable to the change in the timing of revenue recognition, as discussed above. The impact on revenues recognized for the year ended December 31, 2018 is reported below.

The financial statement line items impacted by the adoption of ASC 606 in the Company’s Consolidated Statement of Operations for the year ended December 31, 2018, including the impact of acquisitions, were as follows, along with the impact per share (in thousands, except per share data):

 

 

As Reported

 

 

Balances

Without the

Impact of

the ASC 606

Adoption

 

 

Effect of

Adoption

Increase

(Decrease)

 

Revenues

$

1,625,687

 

 

$

1,608,731

 

 

$

16,956

 

Direct salaries and related costs

 

1,072,907

 

 

 

1,069,667

 

 

 

3,240

 

Income from operations

 

63,202

 

 

 

49,486

 

 

 

13,716

 

Income before income taxes

 

56,917

 

 

 

43,201

 

 

 

13,716

 

Income taxes

 

7,991

 

 

 

4,833

 

 

 

3,158

 

Net income

 

48,926

 

 

 

38,368

 

 

 

10,558

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

1.16

 

 

$

0.91

 

 

$

0.25

 

Diluted

$

1.16

 

 

$

0.91

 

 

$

0.25

 

 

The Company’s net cash provided by operating activities for the year ended December 31, 2018 did not change due to the adoption of ASC 606.

 

Revenue 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 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.

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. Revenues are primarily recognized over time using output methods such as per time and materials basis.

The Company offers 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 of 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 25, 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 (in thousands):

 

 

Years Ended December 31,

 

 

2019

 

 

2018

 

 

2017

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions

   and services

$

1,295,636

 

 

 

80.3

%

 

$

1,329,614

 

 

 

81.8

%

 

$

1,324,534

 

 

 

83.5

%

Other revenues

 

1,024

 

 

 

0.0

%

 

 

1,024

 

 

 

0.1

%

 

 

1,109

 

 

 

0.1

%

Total Americas

 

1,296,660

 

 

 

80.3

%

 

 

1,330,638

 

 

 

81.9

%

 

 

1,325,643

 

 

 

83.6

%

EMEA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer engagement solutions

   and services

 

281,302

 

 

 

17.4

%

 

 

280,437

 

 

 

17.2

%

 

 

252,423

 

 

 

15.9

%

Other revenues

 

36,711

 

 

 

2.3

%

 

 

14,517

 

 

 

0.9

%

 

 

7,860

 

 

 

0.5

%

Total EMEA

 

318,013

 

 

 

19.7

%

 

 

294,954

 

 

 

18.1

%

 

 

260,283

 

 

 

16.4

%

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other revenues

 

89

 

 

 

0.0

%

 

 

95

 

 

 

0.0

%

 

 

82

 

 

 

0.0

%

Total Other

 

89

 

 

 

0.0

%

 

 

95

 

 

 

0.0

%

 

 

82

 

 

 

0.0

%

 

$

1,614,762

 

 

 

100.0

%

 

$

1,625,687

 

 

 

100.0

%

 

$

1,586,008

 

 

 

100.0

%

 

Trade Accounts Receivable

The Company’s trade accounts receivable, net, consisted of the following (in thousands):

 

 

December 31,

 

 

2019

 

 

2018

 

Trade accounts receivable, net, current (1)

$

375,136

 

 

$

335,377

 

Trade accounts receivable, net, noncurrent (2)

 

26,496

 

 

 

15,948

 

 

$

401,632

 

 

$

351,325

 

 

(1)

Included in “Receivables, net” in the accompanying Consolidated Balance Sheets.  

(2)

Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets.

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. For contracts that include renewal provisions, revenue is recognized up-front upon satisfaction of the associated performance obligations, but payments are received upon renewal. Renewals occur in bi-annual and annual increments over the associated expected contract term, the majority of which range from two to five years. The Company’s contracts with customers under multi-year arrangements generally have three-year terms and are invoiced annually at the beginning of each annual coverage period. The Company records a receivable related to revenue recognized under multi-year arrangements as the Company has an unconditional right to invoice and receive payment in the future related to these arrangements.

Where the timing of revenue recognition differs from the timing of invoicing and payment, the Company has determined that its contracts do not include a significant financing component. A substantial amount of the consideration promised by the customer under the contracts that include renewal provisions is variable, and the amount and timing of that consideration varies based on the occurrence or nonoccurrence of future events that are not substantially within the Company’s control. With respect to multi-year year arrangements, there is minimal difference between the consideration received and the cash selling price, any offered discounts are driven by volume, and the contracts are of short duration resulting in insignificant interest. Thus, the primary purpose of the invoicing terms on the multi-year arrangements is to provide the customer with a simplified and predictable way of purchasing certain products, not to provide financing or to receive financing from the Company’s customer.

Deferred Revenue and Customer Liabilities

Deferred revenue and customer liabilities consisted of the following (in thousands):

 

December 31,

 

 

2019

 

 

2018

 

Deferred revenue

$

3,012

 

 

$

3,655

 

Customer arrangements with termination rights

 

15,024

 

 

 

16,404

 

Estimated refund liabilities

 

8,585

 

 

 

10,117

 

 

$

26,621

 

 

$

30,176

 

 

The Company expects to recognize the majority of its deferred revenue as of December 31, 2019 over the next 180 days. Revenues of $3.7 million were recognized during the year ended December 31, 2019 from amounts included in deferred revenue at December 31, 2018.  Revenues of $4.4 million were recognized during the year ended December 31, 2018 from amounts included in deferred revenue at January 1, 2018.  

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 in 180 days, once it is determined whether the requisite service levels and client requirements were achieved to settle the contingency.

v3.19.3.a.u2
Leases
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Leases

Note 3. Leases

Adoption of ASC 842, Leases

On January 1, 2019, the Company adopted ASC 842, which includes ASU 2016-02 and all related amendments, using the modified retrospective method and recognized a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting for leases under ASC 840.

The adoption of ASC 842 on January 1, 2019 had a material impact on the Company’s Condensed Consolidated Balance Sheet.  ASC 842 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 year ended December 31, 2019 was not material. The Company’s net cash provided by operating activities for the year ended December 31, 2019 did not change due to the adoption of ASC 842.

Practical Expedients

The Company elected the following practical expedients:

The package of transitional practical expedients, consistently applied to all leases, that permits the Company to not reassess whether any expired or existing contracts are or contain leases, the historical lease classification for any expired or existing leases and initial direct costs for any expired or existing leases; and

The practical expedient that permits the Company to make an accounting policy election (by class of underlying asset) to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases entered into or modified after the January 1, 2019 adoption date.

Accounting Policy

In determining whether a contract contains a lease, the Company assesses whether the arrangement meets all three of the following criteria: 1) there is an identified asset; 2) the Company has the right to obtain substantially all the

economic benefits from use of the identified asset; and 3) the Company has the right to direct the use of the identified asset. This involves evaluating whether the Company has the right to operate the asset or to direct others to operate the asset in a manner that it determines without the supplier having the right to change those operating instructions, as well as evaluating the Company’s involvement in the design of the asset.

The Company capitalizes operating lease obligations with initial terms in excess of 12 months as ROU assets with corresponding lease liabilities on its balance sheet.  Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Additionally, the ROU asset is adjusted for lease incentives, prepaid lease payments and initial direct costs. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, such as real estate taxes, insurance, common area maintenance and other operating costs.  Lease and non-lease components are generally accounted for as a single component to the extent that the costs are fixed per the arrangement. The Company has applied this accounting policy to all asset classes. To the extent that the non-lease components are not fixed per the arrangement, these costs are treated as variable lease costs and expensed as incurred.  

Certain of the Company’s lease agreements include rental payments that adjust periodically based on an index or rate, generally the applicable Consumer Price Index (“CPI”). The operating lease liability is measured using the prevailing index or rate at the measurement date (i.e., the commencement date); however, the most recent CPI in effect as of January 1, 2019 was used to effectuate the adoption of ASC 842. Incremental payments due to changes to the index- and rate-based lease payments are treated as variable lease costs and expensed as incurred.  

For purposes of calculating operating lease liabilities, the lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The primary factors used to estimate whether an option to extend a lease term will be exercised or not generally include the extent of the Company’s capital investment, employee recruitment potential and operational cost and flexibility.

In determining the present value of lease payments, the Company uses incremental borrowing rates based on information available at the lease commencement date. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company’s incremental borrowing rate is estimated using a synthetic credit rating model and forward currency exchange rates, as applicable.  

Leases with an initial term of 12 months or less are recognized in the accompanying Condensed Consolidated Statements of Operations on a straight-line basis over the lease term.

The ROU asset is evaluated for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360. A loss is recognized when the ROU asset is impaired in connection with the impairment of a site’s assets due to economic or other factors.  When the ROU asset is impaired, it is typically amortized on a straight-line basis over the shorter of the remaining lease term or its useful life, and the related operating lease would no longer qualify for straight-line treatment of total lease expense.  

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 December 31, 2019. The Company has no finance leases.

Lease terms for the Company’s leases are generally three to 20 years with renewal options typically ranging from one month to five years and largely require the Company to pay a proportionate share of real estate taxes, insurance,

common area maintenance, and other operating costs in addition to a base or fixed rent. The Company's operating leases have remaining lease terms of one month to 13 years as of December 31, 2019.  

The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.

The Company subleases certain of its facilities that have been abandoned before the expiration of the lease term.  Operating lease costs on abandoned facilities are reduced by sublease income and included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations. The Company’s sublease arrangements do not contain renewal options or restrictive covenants. The Company’s subleases have varying remaining lease terms extending through 2025, and future contractual sublease payments are expected to be $12.4 million over the remaining lease terms.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense were as follows (in thousands):

 

Statement of Operations Location

 

Year Ended

December 31, 2019

 

Operating lease cost

General and administrative

 

$

59,381

 

Operating lease cost

Direct salaries and related costs

 

 

186

 

Short-term lease cost

General and administrative

 

 

2,571

 

Short-term lease cost

Direct salaries and related costs

 

 

32

 

Variable lease cost

General and administrative

 

 

4,608

 

Sublease income

General and administrative

 

 

(2,770

)

 

 

 

$

64,008

 

Supplemental cash flow information related to leases was as follows (in thousands):

 

Year Ended

December 31, 2019

 

Cash paid for amounts included in the measurement of operating lease liabilities - operating

   cash flows

$

58,058

 

Net right-of-use assets arising from new or remeasured operating lease liabilities

 

30,014

 

Additional supplemental information related to leases was as follows:

 

December 31, 2019

 

Weighted average remaining lease term of operating leases

5.1 years

 

Weighted average discount rate of operating leases

 

3.7

%

Maturities of operating lease liabilities as of December 31, 2019 were as follows (in thousands):

 

Amount

 

2020

$

57,742

 

2021

 

55,472

 

2022

 

41,382

 

2023

 

27,667

 

2024

 

20,210

 

2025 and thereafter

 

37,766

 

Total future lease payments

 

240,239

 

Less: Imputed interest

 

22,566

 

Present value of future lease payments

 

217,673

 

Less: Operating lease liabilities

 

50,863

 

Long-term operating lease liabilities

$

166,810

 

As of December 31, 2019, the Company had an additional operating lease for a customer engagement center that had not yet commenced with future lease payments of $1.7 million. This operating lease will commence during the first quarter of 2020 and has a 3-year lease term.

Disclosures related to periods prior to adoption of ASC 842

Rental expense under operating leases, primarily included in “General and administrative” in the accompanying Condensed Consolidated Statements of Operations, for the years ended December 31, 2018 and 2017 was $68.0 million and $59.9 million, respectively.

The following is a schedule of future minimum rental payments required under operating leases that had noncancelable lease terms as of December 31, 2018 under ASC 840 (in thousands):

 

Amount

 

2019

$

53,071

 

2020

 

48,770

 

2021

 

43,324

 

2022

 

34,063

 

2023

 

22,583

 

2024 and thereafter

 

51,456

 

 

$

253,267

 

 

v3.19.3.a.u2
Acquisitions
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Acquisitions

Note 4. Acquisitions

Symphony Acquisition

On October 18, 2018, the Company, as guarantor, and its wholly-owned subsidiary, SEI International Services S.a.r.l, a Luxembourg company, entered into a definitive Share Purchase Agreement (the “Symphony Purchase Agreement”) with Pascal Baker, Ian Barkin, David Brain, David Poole, FIS Nominee Limited, Baronsmead Venture Trust plc and Baronsmead Second Venture Trust plc to acquire all of the outstanding shares of Symphony. The Symphony Purchase Agreement contained customary representations and warranties, indemnification obligations and covenants.

The aggregate purchase price was GBP 52.5 million ($67.6 million), subject to a post-closing working capital adjustment, of which the Company paid GBP 44.6 million ($57.6 million) at the closing of the transaction on November 1, 2018 using cash on hand as well as $31.0 million of borrowings under the Company’s credit agreement. The acquisition date present value of the remaining GBP 7.9 million ($10.0 million) of purchase price was deferred and is payable in equal installments over three years, on or around November 1, 2019, 2020 and 2021. The Company paid the first installment of the deferred purchase price of GBP 2.7 million ($3.3 million) in October 2019. The Symphony Purchase Agreement also provides for a three-year, retention based earnout payable in restricted stock units (“RSUs”) with a value of GBP 3.0 million.

Subsequent to the finalization of the working capital adjustments during the quarter ended March 31, 2019, the purchase price was adjusted to GBP 52.4 million ($67.5 million).

The Company accounted for the Symphony acquisition in accordance with ASC 805, Business Combinations (“ASC 805”), whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the closing date. The Company completed its tax analysis of the assets acquired and liabilities assumed during the fourth quarter of 2019, which resulted in the recording of deferred tax assets and liabilities in accordance with ASC 805.  The final purchase price allocation resulted in $26.1 million of intangible assets, primarily customer relationships and trade names, $2.2 million of fixed assets and $38.8 million of goodwill.

The Company has reflected Symphony’s results in its consolidated financial statements in the EMEA segment since November 1, 2018.

WhistleOut Acquisition

On July 9, 2018, the Company, as guarantor, and its wholly-owned subsidiaries, Sykes Australia Pty Ltd, an Australian company, and Clear Link Technologies, LLC, a Delaware limited liability company, entered into and closed a definitive Share Sale Agreement (the “WhistleOut Sale Agreement”) with WhistleOut Nominees Pty Ltd as trustee for the WhistleOut Holdings Unit Trust, CPC Investments USA Pty Ltd, JJZL Pty Ltd, Kenneth Wong as

trustee for Wong Family Trust and C41 Pty Ltd as trustee for the Ottery Family Trust to acquire all of the outstanding shares of WhistleOut Pty Ltd and WhistleOut, Inc. (together, “WhistleOut”). The WhistleOut Sale Agreement contained customary representations and warranties, indemnification obligations and covenants.

The aggregate purchase price of AUD 30.2 million ($22.4 million) was paid at the closing of the transaction on July 9, 2018. Subsequent to the finalization of the working capital adjustments during the quarter ended March 31, 2019, the purchase price was adjusted to AUD 30.3 million ($22.5 million). The purchase price was funded through $22.0 million of additional borrowings under the Company’s credit agreement. The WhistleOut Sale Agreement provided for a three-year, retention based earnout of AUD 14.0 million payable in three installments on or about July 1, 2019, 2020 and 2021.  The Company paid the first installment of the earn-out of AUD 6.0 million ($4.2 million) in July 2019.

The Company accounted for the WhistleOut acquisition in accordance with ASC 805, whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the closing date. The Company completed its tax analysis of the assets acquired and liabilities assumed during the second quarter of 2019, which resulted in the recording of deferred tax assets and liabilities in accordance with ASC 805. The final purchase price allocation resulted in $16.5 million of intangible assets, primarily indefinite-lived domain names, $2.4 million of fixed assets and $3.3 million of goodwill.

The Company has reflected WhistleOut’s results in its consolidated financial statements in the Americas segment since July 9, 2018.

Telecommunications Asset Acquisition

On April 24, 2017, the Company entered into a definitive Asset Purchase Agreement (the “Telecommunications Asset Acquisition Purchase Agreement”) to acquire certain assets from a Global 2000 telecommunications services provider (the “Telecommunications Asset acquisition”). The aggregate purchase price of $7.5 million, paid on May 31, 2017 using cash on hand, resulted in $6.0 million of property and equipment and $1.5 million of customer relationship intangibles. The Telecommunications Asset Acquisition Purchase Agreement contained customary representations and warranties, indemnification obligations and covenants.

The Company accounted for the Telecommunications Asset acquisition in accordance with ASC 805, whereby the fair value of the purchase price was allocated to the tangible and identifiable intangible assets acquired based on their estimated fair values as of the closing date. The Company completed its analysis of the purchase price allocation during the second quarter of 2017.

The Company has reflected the Telecommunications Asset’s results in its consolidated financial statements in the Americas segment since April 24, 2017.

v3.19.3.a.u2
Costs Associated with Exit or Disposal Activities
12 Months Ended
Dec. 31, 2019
Restructuring And Related Activities [Abstract]  
Costs Associated with Exit or Disposal Activities

Note 5. Costs Associated with Exit or Disposal Activities

Americas 2019 Exit Plan

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 the actions as of September 30, 2019.

Americas 2018 Exit Plan

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 31, 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 December 31, 2019 (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

 

 

 

2,155

 

Non-cash impairment charges

 

5,875

 

 

 

1,582

 

Other non-cash charges

 

 

 

 

244

 

 

$

17,411

 

 

$

4,172

 

 

(1)

Included in “General and administrative” costs in the accompanying Consolidated Statements of Operations.

(2)

Included in “Direct salaries and related costs” in the accompanying Consolidated Statements of Operations.

The Company has paid a total of $12.3 million in cash through December 31, 2019, of which $10.4 million related to the Americas 2018 Exit Plan and $1.9 million related to the Americas 2019 Exit Plan.  

The following table summarizes the accrued liability and related charges for the years ended December 31, 2019 and 2018 (none in 2017) (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 January 1, 2018

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Charges (reversals) included in "Direct

   salaries and related costs"

 

 

 

 

 

3,429

 

 

 

3,429

 

 

 

 

 

 

 

Charges (reversals) included in "General

   and administrative"

 

 

7,077

 

 

 

1,035

 

 

 

8,112

 

 

 

 

 

 

 

Cash payments

 

 

(5,643

)

 

 

(3,647

)

 

 

(9,290

)

 

 

 

 

 

 

Balance sheet reclassifications (1)

 

 

335

 

 

 

 

 

 

335

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

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

)

 

 

2

 

 

 

(2

)

 

 

2,155

 

 

 

2,155

 

Cash payments

 

 

(346

)

 

 

(810

)

 

 

(1,156

)

 

 

(1,865

)

 

 

(1,865

)

Balance sheet reclassifications (2)

 

 

(1,338

)

 

 

 

 

 

(1,338

)

 

 

 

 

 

 

Balance at December 31, 2019

 

$

81

 

 

$

6

 

 

$

87

 

 

$

481

 

 

$

481