SYKES ENTERPRISES INC, 10-Q filed on 8/9/2021
Quarterly Report
v3.21.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2021
Jul. 15, 2021
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2021  
Document Fiscal Year Focus 2021  
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   39,797,116
Entity Interactive Data Current Yes  
Title of 12(b) Security Common Stock, $0.01 par value  
Security Exchange Name NASDAQ  
Entity Incorporation, State or Country Code FL  
Document Quarterly Report true  
Document Transition Report false  
v3.21.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
Statement Of Financial Position [Abstract]    
Accounts Receivable, Allowance for Credit Loss $ 4.8 $ 4.8
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 39,797,000 39,614,000
Treasury stock, shares 144,000 135,000
v3.21.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2021
Dec. 31, 2020
Current assets:    
Cash and cash equivalents $ 103,209 $ 103,077
Receivables, net of allowance of $4.8 million and $4.8 million, respectively 418,105 415,746
Prepaid expenses 22,690 21,348
Other current assets 22,802 19,718
Total current assets 566,806 559,889
Property and equipment, net 116,797 121,084
Operating lease right-of-use assets 132,032 158,866
Goodwill, net 299,669 299,409
Intangibles, net 227,891 233,975
Deferred charges and other assets 63,249 62,582
Total assets 1,406,444 1,435,805
Current liabilities:    
Accounts payable 30,277 32,049
Accrued employee compensation and benefits 138,810 147,212
Income taxes payable 1,745 3,521
Deferred revenue and customer liabilities 24,270 24,802
Operating lease liabilities 48,321 55,928
Other accrued expenses and current liabilities 36,401 31,994
Total current liabilities 279,824 295,506
Long-term debt 23,000 63,000
Long-term income tax liabilities 19,607 21,586
Long-term operating lease liabilities 100,342 126,336
Other long-term liabilities 39,028 35,723
Total liabilities 461,801 542,151
Commitments and loss contingencies (Note 11)
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; 39,797 and 39,614 shares issued, respectively 398 396
Additional paid-in capital 303,065 298,037
Retained earnings 687,158 639,000
Accumulated other comprehensive income (loss) (42,786) (40,999)
Treasury stock at cost: 144 and 135 shares, respectively (3,192) (2,780)
Total shareholders' equity 944,643 893,654
Total liabilities and shareholders' equity $ 1,406,444 $ 1,435,805
v3.21.2
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Income Statement [Abstract]        
Revenues $ 448,885 $ 416,833 $ 906,771 $ 827,999
Operating expenses:        
Direct salaries and related costs 292,086 268,433 591,563 535,378
General and administrative 110,924 102,664 220,551 205,911
Depreciation, net 12,809 12,630 25,924 25,091
Amortization of intangibles 2,959 4,093 5,946 8,212
Impairment of long-lived assets 386 1,800 1,536 1,800
Total operating expenses 419,164 389,620 845,520 776,392
Income from operations 29,721 27,213 61,251 51,607
Other income (expense):        
Interest income 103 165 201 428
Interest (expense) (382) (560) (805) (1,280)
Other income (expense), net 92 1,797 (230) (2,996)
Total other income (expense), net (187) 1,402 (834) (3,848)
Income before income taxes 29,534 28,615 60,417 47,759
Income taxes 6,354 6,385 12,259 11,611
Net income $ 23,180 $ 22,230 $ 48,158 $ 36,148
Net income per common share:        
Basic $ 0.58 $ 0.55 $ 1.21 $ 0.89
Diluted $ 0.58 $ 0.55 $ 1.21 $ 0.88
Weighted average common shares outstanding:        
Basic 39,779 40,318 39,711 40,726
Diluted 39,942 40,380 39,951 40,857
v3.21.2
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Statement Of Income And Comprehensive Income [Abstract]        
Net income $ 23,180 $ 22,230 $ 48,158 $ 36,148
Other comprehensive income (loss), net of taxes:        
Foreign currency translation adjustments 1,511 8,311 (2,952) (13,039)
Unrealized gain (loss) on cash flow hedging instruments, net of taxes 186 (253) 1,177 (1,595)
Unrealized actuarial gain (loss) related to pension liability, net of taxes (5) 16 (12) (1)
Unrealized gain (loss) on postretirement obligation, net of taxes   (22)   (44)
Other comprehensive income (loss), net of taxes 1,692 8,052 (1,787) (14,679)
Comprehensive income (loss) $ 24,872 $ 30,282 $ 46,371 $ 21,469
v3.21.2
Condensed 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, 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 withheld for taxes paid related to net share settlement of equity awards (1,009)   (1,009)      
Shares withheld for taxes paid related to net share settlement of 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 withheld for taxes paid related to net share settlement of equity awards (124)   (124)      
Shares withheld for taxes paid related to net share settlement of 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        
Beginning Balance at Dec. 31, 2020 893,654 $ 396 298,037 639,000 (40,999) (2,780)
Beginning Balance, shares at Dec. 31, 2020   39,614        
Stock-based compensation expense 4,751   4,751      
Issuance of common stock under equity award plans, net of forfeitures   $ 2 287     (289)
Issuance of common stock under equity award plans, net of forfeitures, Share   241        
Shares withheld for taxes paid related to net share settlement of equity awards (3,441) $ (1) (3,440)      
Shares withheld for taxes paid related to net share settlement of equity awards, Share   (76)        
Comprehensive income (loss) 21,499     24,978 (3,479)  
Ending Balance at Mar. 31, 2021 916,463 $ 397 299,635 663,978 (44,478) (3,069)
Ending Balance, shares at Mar. 31, 2021   39,779        
Beginning Balance at Dec. 31, 2020 893,654 $ 396 298,037 639,000 (40,999) (2,780)
Beginning Balance, shares at Dec. 31, 2020   39,614        
Comprehensive income (loss) 46,371          
Ending Balance at Jun. 30, 2021 944,643 $ 398 303,065 687,158 (42,786) (3,192)
Ending Balance, shares at Jun. 30, 2021   39,797        
Beginning Balance at Mar. 31, 2021 916,463 $ 397 299,635 663,978 (44,478) (3,069)
Beginning Balance, shares at Mar. 31, 2021   39,779        
Stock-based compensation expense 3,618   3,618      
Issuance of common stock under equity award plans, net of forfeitures   $ 1 122     (123)
Issuance of common stock under equity award plans, net of forfeitures, Share   25        
Shares withheld for taxes paid related to net share settlement of equity awards (310)   (310)      
Shares withheld for taxes paid related to net share settlement of equity awards, Share   (7)        
Comprehensive income (loss) 24,872     23,180 1,692  
Ending Balance at Jun. 30, 2021 $ 944,643 $ 398 $ 303,065 $ 687,158 $ (42,786) $ (3,192)
Ending Balance, shares at Jun. 30, 2021   39,797        
v3.21.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Cash flows from operating activities:    
Net income $ 48,158 $ 36,148
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 25,948 25,206
Amortization of intangibles 5,946 8,212
Amortization of deferred grants (480) (170)
Impairment losses 1,536 1,800
Unrealized foreign currency transaction (gains) losses, net 1,948 510
Stock-based compensation expense 8,369 3,902
Deferred income tax provision (benefit) (846) 564
Net (gain) loss on lease termination (1,670)  
Bad debt expense (reversals) 236 1,129
Unrealized (gains) losses and premiums on financial instruments, net (521) 665
(Earnings) losses from equity method investees 1,535 547
Other 1,011 (104)
Changes in assets and liabilities, net of acquisitions:    
Receivables, net (6,793) 294
Prepaid expenses (1,364) (239)
Other current assets (1,097) (263)
Deferred charges and other assets (943) 238
Accounts payable (4,702) (4,184)
Income taxes receivable / payable (3,481) 2,324
Accrued employee compensation and benefits (6,731) 6,998
Other accrued expenses and current liabilities 6,241 (279)
Deferred revenue and customer liabilities (938) (1,666)
Other long-term liabilities 676 6,585
Operating lease assets and liabilities (6,138) (1,575)
Net cash provided by operating activities 65,900 86,642
Cash flows from investing activities:    
Capital expenditures (19,103) (22,880)
Cash paid for business acquisitions, net of cash acquired (165)  
Purchase of intangible assets (252)  
Sale of intangible assets 200  
Other 59 592
Net cash (used for) investing activities (19,261) (22,288)
Cash flows from financing activities:    
Payments of long-term debt (40,000) (47,000)
Proceeds from issuance of long-term debt   23,000
Cash paid for repurchase of common stock   (35,928)
Taxes paid related to net share settlement of equity awards (3,751) (1,133)
Net cash (used for) financing activities (43,751) (61,061)
Effects of exchange rates on cash, cash equivalents and restricted cash (2,819) (1,795)
Net increase (decrease) in cash, cash equivalents and restricted cash 69 1,498
Cash, cash equivalents and restricted cash – beginning 104,396 129,185
Cash, cash equivalents and restricted cash – ending 104,465 130,683
Supplemental disclosures of cash flow information:    
Cash paid for amounts included in the measurement of operating lease liabilities 35,307 31,484
Cash paid during period for interest 584 1,009
Cash paid during period for income taxes 17,457 8,947
Non-cash transactions:    
Net right-of-use assets arising from new or remeasured operating lease liabilities 1,836 12,976
Capital expenditures incurred but not yet paid 9,187 4,978
Unrealized gain (loss) on postretirement obligation, net of taxes, in accumulated other comprehensive income (loss)   $ (44)
Property and equipment acquired under grant agreement $ 2,136  
v3.21.2
Overview and Basis of Presentation
6 Months Ended
Jun. 30, 2021
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 full lifecycle provider of global customer experience management services, multichannel demand generation and digital transformation. The Company provides differentiated full lifecycle customer experience management solutions and services primarily to Global 2000 companies and their end customers principally in the financial services, technology, communications, transportation & leisure and healthcare industries. The Company’s differentiated full lifecycle services platform effectively engages customers at every touchpoint within the customer journey, including digital media and acquisition, sales expertise, customer service, technical support and retention, many of which can be optimized through a suite of digital transformation capabilities under its SYKES Digital Services (“SDS”) group, which spans robotic process automation (“RPA”), self-service, insight analytics and digital learning.  In addition to digital transformation, the Company also provides artificial intelligence (“AI”) solutions that can be embedded and leveraged across its lifecycle offerings. Utilizing SYKES’ integrated onshore/offshore global delivery model, the Company provides its services through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. The Company also provides various enterprise support services in the United States that include services for its clients’ internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, SYKES also provides fulfillment services, which include order processing, payment processing, inventory control, product delivery and product returns handling. Additionally, through the Company’s acquisition of RPA provider Symphony Ventures Ltd (“Symphony”) coupled with its investment in 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.

 

Proposed Transaction with Sitel Group

 

On June 17, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sitel Worldwide Corporation, a Delaware corporation (“Parent”), and Florida Mergersub, Inc., a Florida corporation and wholly owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are subsidiaries of Sitel Group, a global provider of customer experience products and solutions. Pursuant to the Merger Agreement, and subject to the terms thereof, Parent will acquire each share of the Company’s common stock (“Company Common Stock”) issued and outstanding immediately prior to the effective time of the merger contemplated by the Merger Agreement for $54.00 in cash, without interest and subject to any required tax withholding (the “Merger”).

 

Consummation of the Merger is subject to customary closing conditions, including, among others, (i) the absence of certain legal impediments that prohibit the consummation of the Merger and the other transactions contemplated by the Merger Agreement, (ii) receipt of certain regulatory clearances, including, the expiration or termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the adoption of the Merger Agreement by the holders of a majority of the issued and outstanding shares of Company Common Stock and (iv) all consents, approvals, clearances and other authorizations of any governmental entity.

 

The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, which was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 21, 2021.

 

In connection with the Merger, the Company has incurred, and will continue to incur, merger-related legal and advisory costs, some of which are contingent on the closing of the Merger. Transaction expenses associated with the proposed Merger of $3.5 million were recorded in “General and administrative” costs in the Other segment in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021. The Company expects the Merger to close in the second half of 2021.

 

 

Coronavirus

On March 11, 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic. The global nature, rapid spread and continually evolving response by governments throughout the world to combat the spread has had a negative impact on the global economy. Certain of the Company’s customer experience management centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels to achieve social distancing. The Company is committed to the health and safety of its workforce and ensuring business continuity for the brands it serves. In response, the Company has shifted as many employees as possible to a work-at-home model. As of the middle of July 2021, approximately 69% of agents assigned to the Company’s brick-and-mortar facilities have temporarily transitioned to a work-at-home model, 30% are working in centers and 1% of the Company’s agents are idle primarily due to the lack of technical infrastructure to work from home. The Company’s operations in the Philippines, El Salvador and Mexico have been most impacted by the governmental restrictions.

The Company continues to closely monitor the prevalence of COVID-19 and the vaccination rates in the communities where its centers are located as well as guidance from public health authorities, federal and local agencies and municipalities. The Company will work with employees and clients to transition agents back to its centers based on that guidance, but risk further disruption to the business as a result of COVID-19 and government-imposed restrictions. Over time, the Company anticipates a permanent transition to a work-at-home or hybrid model for a portion of its workforce.

Exit of Leased Space

The Company continues to reevaluate its real estate footprint in connection with the transition of a portion of its workforce to a permanent remote working environment in both the Americas and EMEA. Since April 2020, the Company has decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of its sites as approximately 4,200 seats transitioned from brick and mortar to at home agents. As such, the Company recorded cumulative impairments of right-of-use (“ROU”) assets of $13.4 million and impairments of property and equipment of $7.6 million related to these actions since the initiation of its reevaluation in April 2020, of which $0.7 million of ROU assets and $0.5 million of property and equipment impairments were recorded during the six months ended June 30, 2021. See Note 4, Fair Value, in the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.

 

Taylor Media Corp. Acquisition

On December 31, 2020, through its wholly-owned subsidiary, Clear Link Technologies, LLC, the Company completed the acquisition of Taylor Media Corp. (“TMC”), a personal finance digital media company and owner of The Penny Hoarder. Of the total initial purchase price of $104.9 million, $87.2 million was paid upon closing using $63.0 million of additional borrowings under our credit agreement as well as cash on hand. Of the remaining $17.7 million of the purchase price, $0.2 million was used to repay outstanding debt and $17.5 million of the purchase price was deferred and is payable on December 31, 2027, the seventh anniversary of the closing. In the event TMC’s previous owner remains employed by the Company or one of its subsidiaries on December 31, 2022, the second anniversary of the closing, the deferred payment will be accelerated and due at that time. The deferred purchase price was included in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020.

 

The Company accounted for the TMC acquisition in accordance with ASC 805, Business Combinations (“ASC 805”), whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the closing date. The Company completed its final purchase price allocation of the assets acquired and liabilities assumed during the three months ended June 30, 2021 and no entries were recorded as a result. The final purchase price allocation resulted in $2.2 million of cash, $6.7 million of accounts receivable, $87.9 million of intangible assets, primarily domain names, content library and customer relationships, $4.2 million of other assets, $9.0 million of goodwill and $5.1 million of liabilities.

 

 

The Company has reflected TMC’s assets and liabilities in its consolidated balance sheet as of December 31, 2020 and the results of TMC’s operations have been reflected in its consolidated financial statements in the Americas segment since January 1, 2021.

 

Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for any future quarters or the year ending December 31, 2021. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on February 26, 2021.

 

Principles of Consolidation The condensed consolidated financial statements include the accounts of SYKES and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. Investments in less than majority-owned subsidiaries in which the Company does not have a controlling interest, but does have significant influence, are accounted for as equity method investments. All intercompany transactions and balances have been eliminated in consolidation.  

 

Use of Estimates The preparation of condensed consolidated financial statements in conformity with 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 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, 2021

 

 

December 31, 2020

 

 

June 30, 2020

 

 

December 31, 2019

 

Cash and cash equivalents

$

103,209

 

 

$

103,077

 

 

$

129,050

 

 

$

127,246

 

Restricted cash included in "Other current assets"

 

290

 

 

 

355

 

 

 

318

 

 

 

568

 

Restricted cash included in "Deferred charges and

   other assets"

 

966

 

 

 

964

 

 

 

1,315

 

 

 

1,371

 

 

$

104,465

 

 

$

104,396

 

 

$

130,683

 

 

$

129,185

 

 

Allowance for Doubtful Accounts — The Company recorded a $0.2 million and $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 during the six months ended June 30, 2021 and 2020, respectively, and wrote off $0.2 million and $0.4 million of the allowance for credit losses related to certain short-term trade receivables deemed to be uncollectible during the six months ended June 30, 2021 and 2020,

respectively. The Company recorded a $0.1 million increase to the allowance for credit losses related to its long-term trade receivables during the six months ended June 30, 2021 (none in 2020).

 

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

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Customer-acquisition advertising costs

 

21,297

 

 

 

9,826

 

 

$

40,862

 

 

$

20,008

 

 

New Accounting Standards Not Yet Adopted

 

Reference Rate Reform

 

In March 2020, the FASB issued ASU 2020-04, Compensation – Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides companies with optional guidance, including expedients and exceptions for applying generally accepted accounting principles to contracts and other transactions affected by reference rate reform, such as the London Interbank Offered Rate (“LIBOR”).  These amendments are effective for all entities as of March 12, 2020 and an entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of the transition from LIBOR to alternative reference interest rates but does not expect a material impact on its financial position, results of operations or cash flows.

 

New Accounting Standards Recently Adopted

 

Income Taxes

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). These amendments simplify the accounting for income taxes by eliminating certain exceptions and also clarifying and amending certain aspects of existing guidance.  These amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.  Most of the amendments are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.  Early adoption was permitted, including adoption in any interim period for which financial statements had not yet been issued. The Company’s adoption of ASU 2019-12 on January 1, 2021 did not have a material impact on its financial position, results of operations, cash flows or disclosures.

 

Significant Accounting Policies

 

There have been no new or material changes to the significant accounting policies disclosed in Note 1, Overview and Summary of Significant Accounting Policies, in the “Notes to the Consolidated Financial Statements” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

v3.21.2
Revenues
6 Months Ended
Jun. 30, 2021
Revenue From Contract With Customer [Abstract]  
Revenues

Note 2. Revenues

Revenues from Contracts with Customers

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

Disaggregated Revenues

The Company disaggregates its revenues from contracts with customers by service type and delivery location (see Note 14, Segments and Geographic Information), for each of its reportable segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows 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,

 

 

2021

 

 

2020

 

 

Amount

 

 

% of Revenue

 

 

Amount

 

 

% of Revenue

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer experience management solutions

   and services

$

356,108

 

 

79.3%

 

 

$

338,963

 

 

81.3%

 

Other revenues

 

319

 

 

0.1%

 

 

 

309

 

 

0.1%

 

Total Americas

 

356,427

 

 

79.4%

 

 

 

339,272

 

 

81.4%

 

EMEA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer experience management solutions

   and services

 

86,950

 

 

19.4%

 

 

 

73,285

 

 

17.6%

 

Other revenues

 

5,505

 

 

1.2%

 

 

 

4,276

 

 

1.0%

 

Total EMEA

 

92,455

 

 

20.6%

 

 

 

77,561

 

 

18.6%

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other revenues

 

3

 

 

0.0%

 

 

 

 

 

0.0%

 

Total Other

 

3

 

 

0.0%

 

 

 

 

 

0.0%

 

 

$

448,885

 

 

100.0%

 

 

$

416,833

 

 

100.0%

 

The following table represents revenues from contracts with customers disaggregated by service type and by the reportable segment for each category for the periods indicated (in thousands):

 

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

Amount

 

 

% of Revenue

 

 

Amount

 

 

% of Revenue

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer experience management solutions

   and services

$

719,561

 

 

79.4%

 

 

$

671,577

 

 

81.1%

 

Other revenues

 

585

 

 

0.0%

 

 

 

621

 

 

0.1%

 

Total Americas

 

720,146

 

 

79.4%

 

 

 

672,198

 

 

81.2%

 

EMEA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer experience management solutions

   and services

 

176,286

 

 

19.4%

 

 

 

145,918

 

 

17.6%

 

Other revenues

 

10,336

 

 

1.2%

 

 

 

9,876

 

 

1.2%

 

Total EMEA

 

186,622

 

 

20.6%

 

 

 

155,794

 

 

18.8%

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other revenues

 

3

 

 

0.0%

 

 

 

7

 

 

0.0%

 

Total Other

 

3

 

 

0.0%

 

 

 

7

 

 

0.0%

 

 

$

906,771

 

 

100.0%

 

 

$

827,999

 

 

100.0%

 

 

 

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, 2021

 

 

December 31, 2020

 

Trade accounts receivable, net, current (1)

$

401,251

 

 

$

398,112

 

Trade accounts receivable, net, noncurrent (2)

 

30,408

 

 

 

30,021

 

 

$

431,659

 

 

$

428,133

 

 

(1) 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, 2021

 

 

December 31, 2020

 

Deferred revenue

$

3,322

 

 

$

2,916

 

Customer arrangements with termination rights

 

15,479

 

 

 

15,771

 

Estimated refund liabilities

 

5,469

 

 

 

6,115

 

 

$

24,270

 

 

$

24,802

 

 

The Company expects to recognize the majority of its deferred revenue as of June 30, 2021 over the next 180 days. Revenues of $0.1 million and $0.2 million were recognized during the three months ended June 30, 2021 and 2020, respectively, and $2.9 million and $2.9 million were recognized during the six months ended June 30, 2021 and 2020, respectively, from amounts included in deferred revenue at December 31, 2020 and 2019, respectively.

The Company expects to recognize the majority of the customer arrangements with termination rights into revenue as the Company has not historically experienced a high rate of contract terminations.

Estimated refund liabilities are generally resolved within 180 days, once it is determined whether the requisite service levels and client requirements were achieved to settle the contingency.

v3.21.2
Leases
6 Months Ended
Jun. 30, 2021
Leases [Abstract]  
Leases

Note 3. Leases

 

The Company leases facilities for its corporate headquarters, many of its customer experience management centers, several regional support offices and data centers. These leases are classified as operating leases in accordance with ASC 842, Leases, and are included in “Operating lease right-of-use assets,” “Operating lease liabilities” and “Long-term operating lease liabilities” in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2021. The Company has no finance leases.

Lease costs, net of sublease income, of $15.3 million and $15.5 million for the three months ended June 30, 2021 and 2020, respectively, and $30.9 million and $31.5 million for the six months ended June 30, 2021 and 2020, respectively, were primarily included in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations.

Additional supplemental information related to leases was as follows:

 

June 30, 2021

 

 

December 31, 2020

 

Weighted average remaining lease term of operating leases

4.2 years

 

 

4.3 years

 

Weighted average discount rate of operating leases

 

3.4

%

 

 

3.4

%

 

Maturities of operating lease liabilities as of June 30, 2021 were as follows (in thousands):

 

Amount

 

2021 (remainder of the year)

$

25,367

 

2022

 

47,200

 

2023

 

31,600

 

2024

 

21,999

 

2025

 

14,725

 

2026 and thereafter

 

19,706

 

Total future lease payments

 

160,597

 

Less: Imputed interest

 

11,934

 

Present value of future lease payments

 

148,663

 

Less: Operating lease liabilities

 

48,321

 

Long-term operating lease liabilities

$

100,342

 

 

Exit of Leased Space

The Company continues to reevaluate its real estate footprint in connection with a transition of a portion of its workforce to a permanent remote working environment in both the Americas and EMEA. Since April 2020, the Company decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of its sites and recorded impairments of ROU assets as a result (see Note 4, Fair Value, for further information). During the three and six months ended June 30, 2021, the Company terminated two leases which resulted in a $1.7 million gain on lease terminations which was recorded in “General and administrative” costs in the accompanying Condensed Consolidated Statements of Operations.

v3.21.2
Fair Value
6 Months Ended
Jun. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value

Note 4. Fair Value

 

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value and establishes a framework for measuring fair value. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  Additionally, ASC 820 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for how these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair value hierarchy:

 

Level 1 Quoted prices for identical instruments in active markets.

Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

Determination of Fair Value The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access to determine fair value and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

 

If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency exchange rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

 

 

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

 

Cash, Short-Term and Other Investments and Accounts Payable The carrying values for cash, short-term and other investments, and accounts payable approximate their fair values.

 

Long-Term Debt The carrying value of long-term debt approximates its estimated fair value as the debt bears interest based on variable market rates, as outlined in the debt agreement.

 

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

 

Investments Held in Rabbi Trust The investment assets of the rabbi trust are valued using quoted market prices in active markets, which are classified in Level 1 of the fair value hierarchy. For additional information about the deferred compensation plan, refer to Note 7, Investments Held in Rabbi Trust.

 

The Company's assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC 820 consisted of the following (in thousands):

 

 

 

 

 

 

Fair Value Measurements Using:

 

 

Balance at

 

 

Quoted

Prices in

Active Markets

For Identical

Assets

 

 

Significant

Other

Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

 

June 30, 2021

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts (1)

$

617

 

 

$

 

 

$

617

 

 

$

 

Equity investments held in rabbi trust for the

   Deferred Compensation Plan (2)

 

14,357

 

 

 

14,357

 

 

 

 

 

 

 

Debt investments held in rabbi trust for the

   Deferred Compensation Plan (2)

 

5,242

 

 

 

5,242

 

 

 

 

 

 

 

 

$

20,216

 

 

$

19,599

 

 

$

617

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts (1)

$

1,076

 

 

$

 

 

$

1,076

 

 

$

 

 

$

1,076

 

 

$

 

 

$

1,076

 

 

$

 

 

 

 

 

 

 

Fair Value Measurements Using:

 

 

Balance at

 

 

Quoted

Prices in

Active Markets

For Identical

Assets

 

 

Significant

Other

Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

 

December 31, 2020

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts (1)

$

337

 

 

$

 

 

$

337

 

 

$

 

Equity investments held in rabbi trust for the

   Deferred Compensation Plan (2)

 

11,263

 

 

 

11,263

 

 

 

 

 

 

 

Debt investments held in rabbi trust for the

   Deferred Compensation Plan (2)

 

5,517

 

 

 

5,517

 

 

 

 

 

 

 

 

$

17,117

 

 

$

16,780

 

 

$

337

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts (1)

$

2,478

 

 

$

 

 

$

2,478

 

 

$

 

 

$

2,478

 

 

$

 

 

$

2,478

 

 

$

 

 

(1) See Note 6, Financial Derivatives, for the classification in the accompanying Condensed Consolidated Balance Sheets.  

(2) Included in “Other current assets” in the accompanying Condensed Consolidated Balance Sheets.  See Note 7, Investments Held in Rabbi Trust.

 

Non-Recurring Fair Value

 

Certain assets are not required to be measured at fair value on a recurring basis and are reported at their carrying values, including goodwill, other intangible assets, other long-lived assets, ROU assets and equity method investments. The carrying value of these assets is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable (and at least annually for goodwill and indefinite-lived intangible assets), and if applicable, written down to fair value.

 

The following table summarizes the total impairment losses in the accompanying Condensed Consolidated Statements of Operations related to nonrecurring fair value measurements of certain assets (in thousands):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

$

386

 

 

$

760

 

 

$

442

 

 

$

760

 

Operating lease right-of-use assets

 

 

 

 

1,040

 

 

 

301

 

 

 

1,040

 

 

 

386

 

 

 

1,800

 

 

 

743

 

 

 

1,800

 

EMEA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

 

 

 

 

 

77

 

 

 

 

Operating lease right-of-use assets

 

 

 

 

 

 

 

398

 

 

 

 

 

 

 

 

 

 

 

 

475

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

 

 

 

 

 

318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

386

 

 

$

1,800

 

 

$

1,536

 

 

$

1,800

 

 

The Company continues to reevaluate its real estate footprint in connection with a shift of a portion of its workforce to a permanent remote working environment in both the Americas and EMEA and transitioned approximately 4,200 seats from brick and mortar to at home agents since April 2020. The Company decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of its sites and recorded impairment losses related to the exit of leased facilities and the leasehold improvements, equipment, furniture and fixtures located in these sites which were not recoverable.

 

As the fair value of certain ROU assets was less than the carrying value, the Company recognized an impairment of the applicable ROU assets, reducing the carrying value of the ROU assets to an estimated fair value of $0.4 million and $5.0 million during the six months ended June 30, 2021 and 2020, respectively. The fair value of the ROU assets where the Company intends to sublease was estimated using Level 2 inputs such as market comparables to estimate future cash flows expected from sublease income over the remaining lease terms. Further changes in the estimated amount or timing of cash flows from sublease arrangements could result in additional impairment charges. The impairment of property and equipment reduced the carrying value of the applicable assets to their fair value of $0 during the six months ended June 30, 2021 and 2020, respectively.

 

The Company also recorded an impairment charge of $0.3 million during the six months ended June 30, 2021 related to software that was no longer being utilized.  The impairment of the software reduced the carrying value of the applicable asset to its fair value of $0.

v3.21.2
Goodwill and Intangible Assets
6 Months Ended
Jun. 30, 2021
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

Note 5. Goodwill and Intangible Assets

Intangible Assets

The following table presents the Company’s purchased intangible assets as of June 30, 2021 (in thousands):

 

 

Gross

Intangibles

 

 

Accumulated

Amortization

 

 

Net

Intangibles