SYKES ENTERPRISES INC, 10-K filed on 2/26/2021
Annual Report
v3.20.4
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2020
Feb. 08, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2020    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
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 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    
ICFR Auditor Attestation Flag true    
Entity Common Stock, Shares Outstanding   39,614,062  
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     $ 1,054,045,429
Documents Incorporated by Reference

DOCUMENTS INCORPORATED BY REFERENCE:

Documents

 

Form 10-K Reference

Portions of the Proxy Statement for the year 2021

Annual Meeting of Shareholders

 

 

Part III Items 10–14

 

   
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 103,077 $ 127,246
Receivables, net of allowance of $4.8 million and $3.5 million, respectively 415,746 390,147
Prepaid expenses 21,348 20,868
Other current assets 19,718 20,525
Total current assets 559,889 558,786
Property and equipment, net 121,084 125,990
Operating lease right-of-use assets 158,866 205,112
Goodwill, net 299,409 311,247
Intangibles, net 233,975 158,420
Deferred charges and other assets 62,582 55,945
Total assets 1,435,805 1,415,500
Current liabilities:    
Accounts payable 32,049 33,591
Accrued employee compensation and benefits 147,212 109,591
Income taxes payable 3,521 3,637
Deferred revenue and customer liabilities 24,802 26,621
Operating lease liabilities 55,928 50,863
Other accrued expenses and current liabilities 31,994 29,330
Total current liabilities 295,506 253,633
Long-term debt 63,000 73,000
Long-term income tax liabilities 21,586 22,286
Long-term operating lease liabilities 126,336 166,810
Other long-term liabilities 35,723 25,296
Total liabilities 542,151 541,025
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; 39,614 and 41,549 shares issued, respectively 396 416
Additional paid-in capital 298,037 288,935
Retained earnings 639,000 634,668
Accumulated other comprehensive income (loss) (40,999) (47,001)
Treasury stock at cost: 135 and 128 shares, respectively (2,780) (2,543)
Total shareholders' equity 893,654 874,475
Total liabilities and shareholders' equity $ 1,435,805 $ 1,415,500
v3.20.4
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Statement Of Financial Position [Abstract]    
Accounts Receivable, Allowance for Credit Loss $ 4,792 $ 3,480
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 39,614,000 41,549,000
Treasury stock, shares 135,000 128,000
v3.20.4
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]      
Revenues $ 1,710,261 $ 1,614,762 $ 1,625,687
Operating expenses:      
Direct salaries and related costs 1,099,593 1,042,289 1,072,907
General and administrative 421,910 412,407 407,285
Depreciation, net 51,418 51,916 57,350
Amortization of intangibles 14,003 16,639 15,542
Impairment of goodwill 21,792    
Impairment of long-lived assets 19,761 1,711 9,401
Total operating expenses 1,628,477 1,524,962 1,562,485
Income from operations 81,784 89,800 63,202
Other income (expense):      
Interest income 755 846 706
Interest (expense) (1,923) (4,309) (4,743)
Other income (expense), net (49) (414) (2,248)
Total other income (expense), net (1,217) (3,877) (6,285)
Income before income taxes 80,567 85,923 56,917
Income taxes 24,135 21,842 7,991
Net income $ 56,432 $ 64,081 $ 48,926
Net income per common share:      
Basic $ 1.40 $ 1.54 $ 1.16
Diluted $ 1.39 $ 1.53 $ 1.16
Weighted average common shares outstanding:      
Basic 40,255 41,649 42,090
Diluted 40,480 41,802 42,246
v3.20.4
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]      
Net income $ 56,432 $ 64,081 $ 48,926
Other comprehensive income (loss), net of taxes:      
Foreign currency translation adjustments 12,299 5,504 (21,938)
Unrealized gain (loss) on cash flow hedging instruments, net of taxes (4,481) 4,154 (4,335)
Unrealized actuarial gain (loss) related to pension liability, net of taxes (1,728) 68 682
Unrealized gain (loss) on postretirement obligation, net of taxes (88) 48 (80)
Other comprehensive income (loss), net of taxes 6,002 9,774 (25,671)
Comprehensive income (loss) $ 62,434 $ 73,855 $ 23,255
v3.20.4
Consolidated Statements of Changes in Shareholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Beginning Balance at Dec. 31, 2017 $ 796,479   $ 429 $ 282,385 $ 546,843   $ (31,104) $ (2,074)
Beginning Balance, shares at Dec. 31, 2017     42,899          
Cumulative effect of accounting change at Dec. 31, 2017   $ 3,019       $ 3,019    
Accounting Standards Update Extensible List   us-gaap:AccountingStandardsUpdate201409Member       us-gaap:AccountingStandardsUpdate201409Member    
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 at Dec. 31, 2018   $ 110       $ 110    
Accounting Standards Update Extensible List   us-gaap:AccountingStandardsUpdate201602Member       us-gaap:AccountingStandardsUpdate201602Member    
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          
Stock-based compensation expense 10,748     10,748        
Issuance of common stock under equity award plans, net of forfeitures       237       (237)
Issuance of common stock under equity award plans, net of forfeitures, Share     (13)          
Shares repurchased for tax withholding on equity awards (1,827)   $ (1) (1,826)        
Shares repurchased for tax withholding on equity awards, Share     (62)          
Repurchase of common stock (52,176)             (52,176)
Retirement of treasury stock     $ (19) (57) (52,100)     52,176
Retirement of treasury stock, shares     (1,860)          
Comprehensive income (loss) 62,434       56,432   6,002  
Ending Balance at Dec. 31, 2020 $ 893,654   $ 396 $ 298,037 $ 639,000   $ (40,999) $ (2,780)
Ending Balance, shares at Dec. 31, 2020     39,614          
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Cash flows from operating activities:      
Net income $ 56,432 $ 64,081 $ 48,926
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 51,629 52,149 57,817
Amortization of intangibles 14,003 16,639 15,542
Amortization of deferred grants (1,119) (351) (657)
Impairment losses 41,553 1,711 9,401
Unrealized foreign currency transaction (gains) losses, net 2,123 (2,304) (843)
Stock-based compensation expense 10,748 7,396 7,543
Deferred income tax provision (benefit) (5,649) 282 (1,509)
Net (gain) loss on disposal of property and equipment (158) 383 312
Unrealized (gains) losses and premiums on financial instruments, net 1,108 (1,059) 805
Net (gain) on insurance settlement   (1,133)  
(Earnings) losses from equity method investees 1,099 448 639
(Gain) on dilution of investment in equity method investees (1,357)    
Other 1,615 785 464
Changes in assets and liabilities, net of acquisitions:      
Receivables, net (9,306) (40,239) (8,224)
Prepaid expenses (69) (284) (1,690)
Other current assets (343) (138) (693)
Deferred charges and other assets (4,729) (12,197) (13,621)
Accounts payable (3,613) 2,099 (1,571)
Income taxes receivable / payable (2,972) (81) (1,066)
Accrued employee compensation and benefits 31,073 9,409 (6,418)
Other accrued expenses and current liabilities (2,403) 3,465 449
Deferred revenue and customer liabilities (2,759) (4,521) (1,623)
Other long-term liabilities 1,629 3,909 5,111
Operating lease assets and liabilities (2,793) 834  
Net cash provided by operating activities 175,742 101,283 109,094
Cash flows from investing activities:      
Capital expenditures (52,683) (38,698) (46,884)
Cash paid for business acquisitions, net of cash acquired (88,466) (3,133) (78,395)
Proceeds from property and equipment insurance settlement   1,190  
Purchase of intangible assets   (292) (8,156)
Investment in equity method investees     (5,000)
Other 1,792 346 1,495
Net cash (used for) investing activities (139,357) (40,587) (136,940)
Cash flows from financing activities:      
Payments of long-term debt (101,000) (58,000) (231,000)
Proceeds from issuance of long-term debt 91,000 29,000 58,000
Cash paid for repurchase of common stock (52,176) (30,281)  
Proceeds from grants     31
Shares repurchased for tax withholding on equity awards (1,827) (3,214) (3,687)
Cash paid for loan fees related to long-term debt   (1,098)  
Net cash (used for) financing activities (64,003) (63,593) (176,656)
Effects of exchange rates on cash, cash equivalents and restricted cash 2,829 1,851 (10,072)
Net increase (decrease) in cash, cash equivalents and restricted cash (24,789) (1,046) (214,574)
Cash, cash equivalents and restricted cash – beginning 129,185 130,231 344,805
Cash, cash equivalents and restricted cash – ending 104,396 129,185 130,231
Supplemental disclosures of cash flow information:      
Cash paid for amounts included in the measurement of operating lease liabilities under ASC 842 63,097 58,058  
Cash paid during period for interest 1,423 3,500 3,888
Cash paid during period for income taxes 32,770 24,049 19,587
Non-cash transactions:      
Net right-of-use assets arising from new or remeasured operating lease liabilities under ASC 842 16,799 30,014  
Capital expenditures incurred but not yet paid 6,111 5,970 1,944
Unrealized gain (loss) on postretirement obligation, net of taxes, in accumulated other comprehensive income (loss) (88) $ 48 $ (80)
Property and equipment acquired under grant agreement $ 1,612    
v3.20.4
Overview and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
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 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 its 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 marketing 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, 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 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.

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 shifted as many employees as possible to a work-at-home model. As of January 2021, approximately 95% of agents assigned to the Company’s brick-and-mortar facilities are working at its centers or from home across the world with 70% having transitioned to a work-at-home model. Approximately 5% of our agents lack the 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 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 its business as a result of COVID-19 and government-imposed restrictions.

Exit of Leased Space

The Company is reevaluating 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. The Company has decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of its sites during the year ended December 31, 2020 as approximately 3,200 seats transitioned from brick and mortar to at home agents. As such, the Company recorded impairments of right-of-use (“ROU”) assets of $12.7 million and impairments of property and equipment of

$7.1 million during the year ended December 31, 2020. See Note 6, Fair Value, in the accompanying “Notes to Consolidated Financial Statements” for further information.  

Acquisitions

The Company completed one acquisition during 2020 and two acquisitions during 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.

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 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 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 Accounting Standards Codification (“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 experience management solutions and services with an emphasis on inbound multichannel demand generation, customer service and technical support to our clients’ customers. These services, which represented 98.7%, 97.7% and 99.0% of consolidated revenues in 2020, 2019 and 2018, respectively, are delivered through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service.

Customer experience management 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 $103.1 million and $127.2 million at December 31, 2020 and 2019, respectively, were primarily held in non-interest-bearing accounts. Cash and cash equivalents of $86.7 million and $125.3 million at December 31, 2020 and 2019, 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,

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

Cash and cash equivalents

$

103,077

 

 

$

127,246

 

 

$

128,697

 

 

$

343,734

 

Restricted cash included in "Other current assets"

 

355

 

 

 

568

 

 

 

149

 

 

 

154

 

Restricted cash included in "Deferred charges

   and other assets"

 

964

 

 

 

1,371

 

 

 

1,385

 

 

 

917

 

 

$

104,396

 

 

$

129,185

 

 

$

130,231

 

 

$

344,805

 

Allowance for Doubtful Accounts The Company maintains allowances for doubtful accounts on trade accounts receivables for estimated losses arising from the inability of its clients to make contractual payments, applying a probability of default method, in accordance with ASC 326, Financial Instruments – Credit Losses (“ASC 326”). The Company’s estimate is based on qualitative and quantitative analyses, applying credit risk measurement tools and methodologies using publicly available credit and capital market information, a review of the current status of the Company’s trade accounts receivable and its historical experience. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will increase if the financial condition of the Company’s clients 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 (“ASC 360”). 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, market 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, 2020 and 2019.

Leases In determining whether a contract contains a lease under ASC 842, Leases (“ASC 842”), 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). 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 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.  

For additional information refer to Note 3, Leases

Goodwill and Intangible Assets 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. Other than what has been disclosed in Note 7, Goodwill and Intangible Assets, the Company determined that its goodwill was not impaired as of December 31, 2020 and 2019.

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 definite-lived and indefinite-lived 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 — In accordance with ASC 323, Investments – Equity Method and Joint Ventures (“ASC 323”), 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.

Equity method investments are assessed for other-than-temporary impairment in accordance with ASC 323. 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. If a decline in the value of an equity method investment is determined to be other-than-temporary, a loss is recognized in the period identified. As of December 31, 2020 and 2019, the Company did not identify any instances where the carrying values of its equity method investments were impaired.

In July 2017, the Company made a strategic investment of $10.0 million in XSell for 32.8% of XSell’s preferred stock. As a result of XSell’s equity issuance during 2020, the Company’s investment was diluted to 26.5% of XSell’s preferred stock.  The Company recognized a non-cash gain of $1.4 million on the dilution of its investment, which was included in “Other income (expense), net” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2020.  The Company’s net investment in XSell of $8.9 million and $8.7 million was included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively. The Company’s proportionate share of XSell’s earnings (losses) were included in “Other income (expense), net” in the accompanying Consolidated Statements of Operations. The Company’s investment was paid in two installments of $5.0 million, one in July 2017 and one in August 2018.

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,

 

 

2020

 

 

2019

 

 

2018

 

Customer-acquisition advertising costs included

   in "Direct salaries and related costs"

$

41,196

 

 

$

47,313

 

 

$

49,657

 

 

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

Level 1 Quoted prices for identical instruments in active markets.

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

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

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

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

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

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

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

Foreign Currency Contracts The Company enters into foreign currency forward contracts and options over-the-counter and values such contracts, including premiums paid on options, at fair value using quoted market prices of

comparable instruments or, if none are available, on pricing models or formulas using current market and model assumptions, including adjustments for credit risk. The key inputs include forward or option foreign currency exchange rates and interest rates. These items are classified in Level 2 of the fair value hierarchy.

Embedded Derivatives 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.  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.

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, 2020 and 2019, 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

Income Taxes

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

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, 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

Financial Instruments – Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). These amendments require measurement and recognition of expected versus incurred credit losses for financial assets held. Entities are required to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses in November 2018 and ASU 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief in May 2019 (together, “subsequent amendments”). ASU 2016-13 and the subsequent amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption was permitted.

The Company adopted ASU 2016-13 on January 1, 2020, using the modified retrospective transition method, which resulted in no cumulative-effect adjustment to be recognized to the opening balance of retained earnings. The prior

period was not restated.  The Company’s adoption of ASU 2016-13 did not have a material impact on its financial condition, results of operations or cash flows as the credit losses associated with the Company’s trade receivables have historically been insignificant.

Codification Improvements – Financial Instruments – Credit Losses, Derivatives and Hedging, and Financial Instruments

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”). These amendments clarify new standards on credit losses, hedging and recognizing and measuring financial instruments and address implementation issues stakeholders have raised. The credit losses and hedging amendments have the same effective dates as the respective standards, unless an entity has already adopted the standards. The amendments related to recognizing and measuring financial instruments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. The Company’s adoption of ASU 2019-04 on January 1, 2020 did not have a material impact on its financial condition, results of operations, cash flows or disclosures.

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’s adoption of ASU 2018-14 as of December 31, 2020 did not have a material impact on its financial condition, results of operations, cash flows or disclosures.

Fair Value Measurements

In August 2018, the FASB issued 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 was permitted. The Company’s adoption of ASU 2018-03 on January 1, 2020 did not have a material impact on its disclosures.

Cloud Computing

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. These amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early application permitted in any interim period after issuance of this update.  The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company’s adoption of ASU 2018-15 on January 1, 2020 on a prospective basis did not have a material impact on its financial condition, results of operations, cash flows or disclosures.

 

v3.20.4
Revenues
12 Months Ended
Dec. 31, 2020
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 results for all reporting periods are presented under ASC 606.

 

Revenue 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 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,

 

 

2020

 

 

2019

 

 

2018

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

 

Amount

 

 

% of Revenues

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer experience management

   solutions and services

$

1,379,792

 

 

80.6%

 

 

$

1,295,636

 

 

80.3%

 

 

$

1,329,614

 

 

81.8%

 

Other revenues

 

1,216

 

 

0.1%

 

 

 

1,024

 

 

0.0%

 

 

 

1,024

 

 

0.1%

 

Total Americas

 

1,381,008

 

 

80.7%

 

 

 

1,296,660

 

 

80.3%

 

 

 

1,330,638

 

 

81.9%

 

EMEA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer experience management

   solutions and services

 

308,753

 

 

18.1%

 

 

 

281,302

 

 

17.4%

 

 

 

280,437

 

 

17.2%

 

Other revenues

 

20,485

 

 

1.2%

 

 

 

36,711

 

 

2.3%

 

 

 

14,517

 

 

0.9%

 

Total EMEA

 

329,238

 

 

19.3%

 

 

 

318,013

 

 

19.7%

 

 

 

294,954

 

 

18.1%

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other revenues

 

15

 

 

0.0%

 

 

 

89

 

 

0.0%

 

 

 

95

 

 

0.0%

 

Total Other

 

15

 

 

0.0%

 

 

 

89

 

 

0.0%

 

 

 

95

 

 

0.0%

 

 

$

1,710,261

 

 

100.0%

 

 

$

1,614,762

 

 

100.0%

 

 

$

1,625,687

 

 

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):

 

 

December 31,

 

 

2020

 

 

2019

 

Trade accounts receivable, net, current (1)

$

398,112

 

 

$

375,136

 

Trade accounts receivable, net, noncurrent (2)

 

30,021

 

 

 

26,496

 

 

$

428,133

 

 

$

401,632

 

 

(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 contracts with customers that include renewal provisions, and 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,

 

 

2020

 

 

2019

 

Deferred revenue

$

2,916

 

 

$

3,012

 

Customer arrangements with termination rights

 

15,771

 

 

 

15,024

 

Estimated refund liabilities

 

6,115

 

 

 

8,585

 

 

$

24,802

 

 

$

26,621

 

 

The Company expects to recognize the majority of its deferred revenue as of December 31, 2020 over the next 180 days. Revenues of $3.0 million were recognized during the year ended December 31, 2020 from amounts included in deferred revenue at December 31, 2019. Revenues of $3.7 million were recognized during the year ended December 31, 2019 from amounts included in deferred revenue at December 31, 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 within 180 days, once it is determined whether the requisite service levels and client requirements were achieved to settle the contingency.

v3.20.4
Leases
12 Months Ended
Dec. 31, 2020
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, Leases.

The adoption of ASC 842 on January 1, 2019 had a material impact on the Company’s 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 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.

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 and are included in

“Operating lease right-of-use assets,” “Operating lease liabilities” and “Long-term operating lease liabilities” in the accompanying Consolidated Balance Sheets as of December 31, 2020 and 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 12 years as of December 31, 2020.  

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 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 $9.3 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):

 

 

 

Years Ended December 31,

 

 

Statement of Operations Location

 

2020

 

 

2019

 

Operating lease cost

General and administrative

 

$

60,131

 

 

$

59,381

 

Operating lease cost

Direct salaries and related costs

 

 

13

 

 

 

186

 

Short-term lease cost

General and administrative

 

 

1,659

 

 

 

2,571

 

Short-term lease cost

Direct salaries and related costs

 

 

382

 

 

 

32

 

Variable lease cost

General and administrative

 

 

4,326

 

 

 

4,608

 

Sublease income

General and administrative

 

 

(3,498

)

 

 

(2,770

)

 

 

 

$

63,013

 

 

$

64,008

 

Additional supplemental information related to leases was as follows:

 

December 31,

 

 

2020

 

 

2019

 

Weighted average remaining lease term of operating leases

4.3 years

 

 

5.1 years

 

Weighted average discount rate of operating leases

 

3.4

%

 

 

3.7

%

 

Maturities of operating lease liabilities as of December 31, 2020 were as follows (in thousands):

 

Amount

 

2021

$

60,980

 

2022

 

47,721

 

2023

 

32,007

 

2024

 

22,919

 

2025

 

14,592

 

2026 and thereafter

 

18,797

 

Total future lease payments

 

197,016

 

Less: Imputed interest

 

14,752

 

Present value of future lease payments

 

182,264

 

Less: Operating lease liabilities

 

55,928

 

Long-term operating lease liabilities

$

126,336

 

 

Exit of Leased Space

 

The Company is reevaluating 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. The Company decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of its sites during the year ended December 31, 2020 and recorded impairments of ROU assets as a result. See Note 6, Fair Value, for further information.

Disclosures related to periods prior to adoption of ASC 842

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

v3.20.4
Acquisitions
12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Acquisitions

 

Note 4. Acquisitions

Taylor Media Corp. Acquisition

On December 31, 2020, the Company’s wholly-owned subsidiary, Clear Link Technologies, LLC, a Delaware limited liability company, closed a definitive Equity Purchase Agreement (the “TMC Purchase Agreement”) with Taylor Media Corp., a Florida corporation (“TMC”), and Kyle Taylor (“owner”) to acquire all of the outstanding shares of TMC, a personal finance media company and owner of The Penny Hoarder. The TMC Purchase Agreement contained customary representations and warranties, indemnification obligations and covenants.

The aggregate purchase price was $104.8 million, subject to a post-closing working capital adjustment, of which the Company paid $87.2 million at the closing of the transaction on December 31, 2020 using $63.0 million of additional borrowings under the Company’s credit agreement as well as cash on hand. Of the remaining $17.6 million of the purchase price, $0.2 million will go to repay outstanding debt and $17.4 million of 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 Company accounted for the TMC acquisition in accordance with ASC 805, Business Combinations (“ASC 805”), whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the closing date. Certain amounts are provisional and are subject to change, including the finalization of the working capital adjustment, the tax analysis of the assets acquired and liabilities assumed, and goodwill. The Company expects to complete this analysis by December 31, 2021 and any resulting adjustments will be recorded in accordance with ASC 805. The initial purchase price allocation resulted in $2.2 million of cash, $6.7 million of accounts receivable, $87.9 million of intangible assets, primarily domain names, content library and customer relationships, $4.2 million of other assets and $8.9 million of goodwill.

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 will be reflected in its consolidated financial statements in the Americas segment beginning on January 1, 2021.

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 two installments of the deferred purchase price, one installment of GBP 2.7 million ($3.3 million) in October 2019 and the second installment of GBP 2.7 million ($3.4 million) in October 2020. The Symphony 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.  See Note 24, Stock-Based Compensation, for further information.  

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 and 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 accelerated the 2021 installment of the retention bonus and paid AUD 8.0 million ($5.6 million) in July 2020, which represented both the 2020 and 2021 installments. There are no further amounts due.

The Company accounted for the WhistleOut acquisition in accordance with ASC 805 and 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.

v3.20.4
Costs Associated with Exit or Disposal Activities
12 Months Ended
Dec. 31, 2020
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 experience management 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 experience management 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, 2020 (in thousands):

 

 

Americas

2018 Exit Plan

 

 

Americas

2019 Exit Plan

 

Lease obligations and facility exit costs (1)

$

7,073

 

 

$

 

Severance and related costs (2)

 

3,426

 

 

 

191

 

Severance and related costs (1)

 

1,037

 

 

 

2,153

 

Non-cash impairment charges

 

5,875

 

 

 

1,582

 

Other non-cash charges

 

 

 

 

244

 

 

$

17,411

 

 

$

4,170

 

 

(1)

Included in “General and administrative” costs in the accompanying 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 $12.8 million in cash through December 31, 2020, of which $10.5 million related to the Americas 2018 Exit Plan and $2.3 million related to the Americas 2019 Exit Plan.  

The following table summarizes the accrued liability and related charges for the years ended December 31, 2020, 2019 and 2018 (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 January 1, 2019

 

 

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

 

Charges (reversals) included in "General

   and administrative"

 

 

 

 

 

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