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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2021

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from ____________ to ____________

 

Commission File No.          0-28274

 

 

 

Sykes Enterprises, Incorporated

 

(Exact name of Registrant as specified in its charter)

 

Florida

 

56-1383460

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

400 North Ashley Drive, Suite 2800, Tampa, FL     33602

(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code:  (813) 274-1000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

SYKE

 

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

 

As of April 15, 2021, there were 39,778,641 outstanding shares of common stock.

 

 

 


 

Sykes Enterprises, Incorporated and Subsidiaries

 

Form 10-Q

 

INDEX

 

PART I.  FINANCIAL INFORMATION

 

3

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

Condensed Consolidated Balance Sheets – March 31, 2021 and December 31, 2020 (Unaudited)

 

3

 

 

Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2021 and 2020 (Unaudited)

 

4

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended March 31, 2021 and 2020 (Unaudited)

 

5

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2021 and 2020 (Unaudited)

 

6

 

 

Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2021 and 2020 (Unaudited)

 

7

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

36

Item 4.

 

Controls and Procedures

 

37

 

 

 

Part II.  OTHER INFORMATION

 

37

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

37

Item 1A.

 

Risk Factors

 

37

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

37

Item 3.

 

Defaults Upon Senior Securities

 

37

Item 4.

 

Mine Safety Disclosures

 

38

Item 5.

 

Other Information

 

38

Item 6.

 

Exhibits

 

38

 

 

SIGNATURE

 

39

 

 

 

2


 

 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

(in thousands, except per share data)

March 31, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

112,763

 

 

$

103,077

 

Receivables, net of allowance of $4.8 million and $4.8 million, respectively

 

410,616

 

 

 

415,746

 

Prepaid expenses

 

22,313

 

 

 

21,348

 

Other current assets

 

21,685

 

 

 

19,718

 

Total current assets

 

567,377

 

 

 

559,889

 

Property and equipment, net

 

115,229

 

 

 

121,084

 

Operating lease right-of-use assets

 

145,780

 

 

 

158,866

 

Goodwill, net

 

299,296

 

 

 

299,409

 

Intangibles, net

 

231,158

 

 

 

233,975

 

Deferred charges and other assets

 

62,564

 

 

 

62,582

 

 

$

1,421,404

 

 

$

1,435,805

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

26,943

 

 

$

32,049

 

Accrued employee compensation and benefits

 

141,638

 

 

 

147,212

 

Income taxes payable

 

5,160

 

 

 

3,521

 

Deferred revenue and customer liabilities

 

25,744

 

 

 

24,802

 

Operating lease liabilities

 

53,043

 

 

 

55,928

 

Other accrued expenses and current liabilities

 

29,235

 

 

 

31,994

 

Total current liabilities

 

281,763

 

 

 

295,506

 

Long-term debt

 

48,000

 

 

 

63,000

 

Long-term income tax liabilities

 

21,477

 

 

 

21,586

 

Long-term operating lease liabilities

 

116,496

 

 

 

126,336

 

Other long-term liabilities

 

37,205

 

 

 

35,723

 

Total liabilities

 

504,941

 

 

 

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;

   39,779 and 39,614 shares issued, respectively

 

397

 

 

 

396

 

Additional paid-in capital

 

299,635

 

 

 

298,037

 

Retained earnings

 

663,978

 

 

 

639,000

 

Accumulated other comprehensive income (loss)

 

(44,478

)

 

 

(40,999

)

Treasury stock at cost: 142 and 135 shares, respectively

 

(3,069

)

 

 

(2,780

)

Total shareholders' equity

 

916,463

 

 

 

893,654

 

 

$

1,421,404

 

 

$

1,435,805

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

3


 

 

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands, except per share data)

2021

 

 

2020

 

Revenues

$

457,886

 

 

$

411,166

 

Operating expenses:

 

 

 

 

 

 

 

Direct salaries and related costs

 

299,477

 

 

 

266,945

 

General and administrative

 

109,627

 

 

 

103,247

 

Depreciation, net

 

13,115

 

 

 

12,461

 

Amortization of intangibles

 

2,987

 

 

 

4,119

 

Impairment of long-lived assets

 

1,150

 

 

 

 

Total operating expenses

 

426,356

 

 

 

386,772

 

Income from operations

 

31,530

 

 

 

24,394

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

98

 

 

 

263

 

Interest (expense)

 

(423

)

 

 

(720

)

Other income (expense), net

 

(322

)

 

 

(4,793

)

Total other income (expense), net

 

(647

)

 

 

(5,250

)

 

 

 

 

 

 

 

 

Income before income taxes

 

30,883

 

 

 

19,144

 

Income taxes

 

5,905

 

 

 

5,226

 

Net income

$

24,978

 

 

$

13,918

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

Basic

$

0.63

 

 

$

0.34

 

Diluted

$

0.63

 

 

$

0.34

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

39,641

 

 

 

41,132

 

Diluted

 

39,956

 

 

 

41,334

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4


 

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands)

2021

 

 

2020

 

Net income

$

24,978

 

 

$

13,918

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(4,463

)

 

 

(21,350

)

Unrealized gain (loss) on cash flow hedging

   instruments, net of taxes

 

991

 

 

 

(1,342

)

Unrealized actuarial gain (loss) related to pension

   liability, net of taxes

 

(7

)

 

 

(17

)

Unrealized gain (loss) on postretirement obligation,

   net of taxes

 

 

 

 

(22

)

Other comprehensive income (loss),

   net of taxes

 

(3,479

)

 

 

(22,731

)

Comprehensive income (loss)

$

21,499

 

 

$

(8,813

)

 

See accompanying Notes to Condensed Consolidated Financial Statements.

5


 

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

(in thousands)

Shares

Issued

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

 

Balance at December 31, 2020

 

39,614

 

 

$

396

 

 

$

298,037

 

 

$

639,000

 

 

$

(40,999

)

 

$

(2,780

)

 

$

893,654

 

Stock-based compensation expense

 

 

 

 

 

 

 

4,751

 

 

 

 

 

 

 

 

 

 

 

 

4,751

 

Issuance of common stock under equity

   award plans, net of forfeitures

 

241

 

 

 

2

 

 

 

287

 

 

 

 

 

 

 

 

 

(289

)

 

 

 

Shares withheld for taxes paid related to net

   share settlement of equity awards

 

(76

)

 

 

(1

)

 

 

(3,440

)

 

 

 

 

 

 

 

 

 

 

 

(3,441

)

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

24,978

 

 

 

(3,479

)

 

 

 

 

 

21,499

 

Balance at March 31, 2021

 

39,779

 

 

$

397

 

 

$

299,635

 

 

$

663,978

 

 

$

(44,478

)

 

$

(3,069

)

 

$

916,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

41,549

 

 

$

416

 

 

$

288,935

 

 

$

634,668

 

 

$

(47,001

)

 

$

(2,543

)

 

$

874,475

 

Stock-based compensation expense

 

 

 

 

 

 

 

1,860

 

 

 

 

 

 

 

 

 

 

 

 

1,860

 

Issuance of common stock under equity

   award plans, net of forfeitures

 

(146

)

 

 

(2

)

 

 

69

 

 

 

 

 

 

 

 

 

(67

)

 

 

 

Shares withheld for taxes paid related to net

   share settlement of equity awards

 

(39

)

 

 

 

 

 

(1,009

)

 

 

 

 

 

 

 

 

 

 

 

(1,009

)

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,909

)

 

 

(22,909

)

Retirement of treasury stock

 

(860

)

 

 

(9

)

 

 

(26

)

 

 

(22,874

)

 

 

 

 

 

22,909

 

 

 

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

13,918

 

 

 

(22,731

)

 

 

 

 

 

(8,813

)

Balance at March 31, 2020

 

40,504

 

 

$

405

 

 

$

289,829

 

 

$

625,712

 

 

$

(69,732

)

 

$

(2,610

)

 

$

843,604

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

6


 

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands)

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

24,978

 

 

$

13,918

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

13,127

 

 

 

12,519

 

Amortization of intangibles

 

2,987

 

 

 

4,119

 

Amortization of deferred grants

 

(240

)

 

 

(85

)

Impairment losses

 

1,150

 

 

 

 

Unrealized foreign currency transaction (gains) losses, net

 

1,212

 

 

 

474

 

Stock-based compensation expense

 

4,751

 

 

 

1,860

 

Deferred income tax provision (benefit)

 

(201

)

 

 

973

 

Bad debt expense (reversals)

 

236

 

 

 

586

 

Unrealized (gains) losses and premiums on financial instruments, net

 

(668

)

 

 

280

 

(Earnings) losses from equity method investees

 

675

 

 

 

615

 

Other

 

411

 

 

 

124

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Receivables, net

 

1,535

 

 

 

1,450

 

Prepaid expenses

 

(1,034

)

 

 

(4,570

)

Other current assets

 

(692

)

 

 

68

 

Deferred charges and other assets

 

(197

)

 

 

213

 

Accounts payable

 

(3,608

)

 

 

(5,124

)

Income taxes receivable / payable

 

1,928

 

 

 

478

 

Accrued employee compensation and benefits

 

(4,712

)

 

 

559

 

Other accrued expenses and current liabilities

 

(1,171

)

 

 

(1,541

)

Deferred revenue and customer liabilities

 

740

 

 

 

(761

)

Other long-term liabilities

 

(125

)

 

 

1,206

 

Operating lease assets and liabilities

 

(843

)

 

 

1,188

 

Net cash provided by operating activities

 

40,239

 

 

 

28,549

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(9,376

)

 

 

(11,818

)

Cash paid for business acquisitions, net of cash acquired

 

(165

)

 

 

 

Purchase of intangible assets

 

(252

)

 

 

 

Other

 

18

 

 

 

5

 

Net cash (used for) investing activities

 

(9,775

)

 

 

(11,813

)

7


 

 

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Continued)

 

 

Three Months Ended March 31,

 

(in thousands)

2021

 

 

2020

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments of long-term debt

 

(15,000

)

 

 

(21,000

)

Proceeds from issuance of long-term debt

 

 

 

 

23,000

 

Cash paid for repurchase of common stock

 

 

 

 

(22,909

)

Taxes paid related to net share settlement of equity awards

 

(3,441

)

 

 

(1,009

)

Net cash (used for) financing activities

 

(18,441

)

 

 

(21,918

)

Effects of exchange rates on cash, cash equivalents and restricted cash

 

(2,401

)

 

 

(3,920

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

9,622

 

 

 

(9,102

)

Cash, cash equivalents and restricted cash – beginning

 

104,396

 

 

 

129,185

 

Cash, cash equivalents and restricted cash – ending

$

114,018

 

 

$

120,083

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

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

$

15,387

 

 

$

13,578

 

Cash paid during period for interest

$

324

 

 

$

567

 

Cash paid during period for income taxes

$

5,083

 

 

$

3,799

 

Non-cash transactions:

 

 

 

 

 

 

 

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

$

2,748

 

 

$

9,095

 

Capital expenditures incurred but not yet paid

$

4,818

 

 

$

4,154

 

Unrealized gain (loss) on postretirement obligation, net of taxes, in

   accumulated other comprehensive income (loss)

$

 

 

$

(22

)

Property and equipment acquired under grant agreement

$

1,123

 

 

$

 

Shares repurchased for tax withholding on equity awards included in

   current liabilities

$

212

 

 

$

33

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

8


 

Sykes Enterprises, Incorporated and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2021 and 2020

(Unaudited)

Note 1. Overview and Basis of Presentation

Business Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) is a leading full lifecycle provider of global customer experience management services, multichannel demand generation and 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.

 

Coronavirus

On March 11, 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic. The global nature, rapid spread and continually evolving response by governments throughout the world to combat the spread has had a negative impact on the global economy. Certain of the Company’s customer experience management centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels to achieve social distancing. The Company is committed to the health and safety of its workforce and ensuring business continuity for the brands it serves. In response, the Company has shifted as many employees as possible to a work-at-home model. As of the middle of April 2021, approximately 70% of agents assigned to the Company’s brick-and-mortar facilities have temporarily transitioned to a work-at-home model, 25% are working in centers and 5% of the Company’s agents are idle primarily due to the lack of technical infrastructure to work from home. The Company’s operations in the Philippines, El Salvador and Mexico have been most impacted by the governmental restrictions.

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

Exit of Leased Space

The Company continues to reevaluate its real estate footprint in connection with the transition of a portion of its workforce to a permanent remote working environment in both the Americas and EMEA. Since April 2020, the Company has decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of its sites as approximately 3,500 seats transitioned from brick and mortar to at home agents. As such, the Company recorded cumulative impairments of right-of-use (“ROU”) assets of $13.4 million and impairments of property and equipment of $7.2 million related to these actions since the initiation of its reevaluation in April 2020, of which $0.7

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million of ROU assets and $0.1 million of property and equipment impairments were recorded during the three months ended March 31, 2021. See Note 4, Fair Value, in the accompanying “Notes to Condensed Consolidated Financial Statements” for further information.

 

Taylor Media Corp. Acquisition

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

 

The Company accounted for the TMC acquisition in accordance with ASC 805, Business Combinations (“ASC 805”), whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the closing date. Certain amounts are provisional and are subject to change, including the tax analysis of the assets acquired and liabilities assumed, and goodwill. The Company expects to complete this analysis by June 30, 2021 and any resulting adjustments will be recorded in accordance with ASC 805. The initial purchase price allocation resulted in $2.2 million of cash, $6.7 million of accounts receivable, $87.9 million of intangible assets, primarily domain names, content library and customer relationships, $4.2 million of other assets, $9.0 million of goodwill and $5.1 million of liabilities.

 

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

 

Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 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 novel coronavirus (“COVID-19”) pandemic, there has been uncertainty and disruption in the global economy and financial markets. Other than where noted, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date and time of issuance of the condensed consolidated financial statements. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

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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):

 

 

March 31, 2021

 

 

December 31, 2020

 

 

March 31, 2020

 

 

December 31, 2019

 

Cash and cash equivalents

$

112,763

 

 

$

103,077

 

 

$

118,422

 

 

$

127,246

 

Restricted cash included in "Other current assets"

 

288

 

 

 

355

 

 

 

438

 

 

 

568

 

Restricted cash included in "Deferred charges and

   other assets"

 

967

 

 

 

964

 

 

 

1,223

 

 

 

1,371

 

 

$

114,018

 

 

$

104,396

 

 

$

120,083

 

 

$

129,185

 

 

Allowance for Doubtful Accounts — The Company recorded a $0.2 million and $0.6 million increase to the allowance for credit losses related to its short-term trade receivables primarily as a result of deterioration in certain clients’ credit ratings reflecting current and expected economic conditions during the three months ended March 31, 2021 and 2020, respectively, and wrote off $0.1 million and $0.3 million of the allowance for credit losses related to certain short-term trade receivables deemed to be uncollectible during the three months ended March 31, 2021 and 2020, respectively. The Company recorded a $0.1 million increase to the allowance for credit losses related to its long-term trade receivables during the three months ended March 31, 2021 (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 March 31,

 

 

2021

 

 

2020

 

Customer-acquisition advertising costs

 

19,565

 

 

 

10,182

 

 

New Accounting Standards Not Yet Adopted

 

Reference Rate Reform

 

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

 

New Accounting Standards Recently Adopted

 

Income Taxes

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). These amendments simplify the accounting for income taxes by eliminating certain exceptions and also clarifying and amending certain aspects of existing guidance.  These amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.  Most of the amendments are required to be applied on a prospective basis, while certain amendments must be applied on a

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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.

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 March 31,

 

 

2021

 

 

2020

 

 

Amount

 

 

% of Revenue

 

 

Amount

 

 

% of Revenue

 

Americas: