OUR MISSION
To significantly improve the business of our clients and help consumers
find and use the products and services they need by combining the power
of machine intelligence with human ingenuity to modernize, optimize and
integrate customer touchpoints across the commerce value chain.
2019
ANNUAL
REPORT
Sykes Enterprises, Incorporated
400 North Ashley Drive, Suite 3100, Tampa, FL 33602, USA
www.sykes.com
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SYKES ENTERPRISES, INCORPORATED (“SYKES” or “the Company”) is a leading provider of
multi-channel demand generation and global customer engagement services. The Company
provides differentiated full lifecycle customer engagement solutions and services primarily to
Global 2000 companies and their end customers principally
in the financial services,
communications, technology, transportation &
leisure and healthcare
industries. SYKES’
differentiated full lifecycle management 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 by a suite
of robotic process automation (“RPA”) and artificial intelligence (“AI”) solutions. The Company
serves its clients through two geographic operating regions: the Americas (United States, Canada,
Latin America, South Asia and Asia Pacific) and EMEA (Europe, the Middle East and Africa). Its
Americas and EMEA regions primarily provide customer-engagement solutions and services with an
emphasis on inbound multichannel demand generation, customer service and technical support to
its clients’ customers. These services are delivered through multiple communication channels
including phone, email, 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, the Company provides fulfillment services, which includes order
processing, payment processing, inventory control, product delivery and product returns handling.
Additionally, through the acquisition of RPA provider Symphony Ventures Ltd (“Symphony”)
400 North Ashley Drive, Suite 2800, Tampa, FL USA 33602 • phone: (813) 274-1000 • fax: (813) 273-0148 • www.sykes.com
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. SYKES’
complete service offering helps its clients acquire, retain and increase the lifetime value
of their customer relationships. The Company has developed an extensive global reach
with customer engagement centers across six continents, including North America, South
America, Europe, Asia, Australia and Africa. It delivers cost-effective solutions that generate
demand, enhance the customer service experience, promote stronger brand loyalty, and
bring about high levels of performance and profitability. For additional information please
visit www.sykes.com.
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CORPORATE HEADQUARTERS
INDEPENDENT AUDITORS
Deloitte & Touche LLP • 201 N. Franklin St., Suite 3600, Tampa, FL USA 33602
REGISTRAR AND TRANSFER AGENT
Computershare • P.O. Box 43078, Providence, RI 02940-3078 • (800) 962-4284
SYKES’ shares trade on The NasdaqGS Stock Market under the symbol “SYKE”
ANNUAL MEETING
SYKES’ annual meeting of shareholders will be held at 8:00 a.m. (EDT) • Tuesday, May 12, 2020
The meeting will be held at: Rivergate Tower, 400 North Ashley Drive, Suite 320, 3rd Floor, Conference Room A, Tampa, FL 33602
INVESTOR INFORMATION
Quarterly Reports on Form 10-Q and the Form 10-K Annual Report filed with the Securities and Exchange Commission
are available on the Company’s website at: http://investor.sykes.com or upon written request to SYKES’ Investor Relations
department in Tampa, Florida, or by contacting:
Subhaash Kumar • Global Vice President, Finance and Investor Relations • phone: (813) 274-1000
BOARD OF DIRECTORSPRINCIPAL OFFICERSJAMES S. MACLEOD Chairman of the Board Non-Executive Chairman of the Board of CoastalSouth Bancshares, Inc. and CoastalStates Bank Trustee, AllianzGI Funds Director, MUSC Foundation Chairman of the Board of The University of TampaMARK C. BOZEK Director Founder and CEO of Live Rocket, LLCVANESSA C.L. CHANG Director Director, Edison International Director, Transocean Ltd. Director, American Funds Family and other funds advised by Capital Group Forest Lawn Memorial Parks Association SCO America, Inc. CARLOS E. EVANS Director Board Affiliations: Queens University of Charlotte National Coatings and Supplies Inc. American Welding & Gas Inc. Johnson Management Highwoods Properties, Inc. (NYSE: HIW)LORRAINE LEIGH LUTTON Director WILLIAM J. MEURER Director Private Financial Consultant Managing Partner (retired) for Arthur Andersen’s Central Florida OperationsWILLIAM D. MUIR, JR. Director EFI CEO (retired)CHARLES E. SYKES Director (Principal Executive Officer) President and Chief Executive Officer Sykes Enterprises, IncorporatedW. MARK WATSON (CPA) Director Directors and Chairman of the Audit Committee for Sykes Enterprises, Inc. Momentum Health Holdings, LLC and Inhibitor Therapeutic Inc. President of WM Watson, LLC Board of Trustees, Moffitt Medical Group Lead Audit Partner (retired) for Deloitte Touche TohmatsuCHARLES E. SYKES President and Chief Executive OfficerJOHN CHAPMAN Executive Vice President and Chief Financial OfficerIAN BARKIN Chief Strategy & Marketing Officer JAMES T. HOLDER Executive Vice President, General Counsel and Corporate Secretary KELLY MORGAN Chief Customer Officer and General ManagerJENNA R. NELSON Executive Vice President, Human ResourcesDAVID L. PEARSON Executive Vice President and Chief Information OfficerLAWRENCE R. ZINGALE Chief Customer Officer and General Manager, EMEA FELLOW SHAREHOLDERS,
2019 provided further evidence that SYKES’ fundamentals are starting to
rebound. Not only did 2019 mark the start of recovery in our operating
margin performance, it also set us up for a solid revenue growth trajectory
going into 2020. Recall, our focus in 2017 and 2018 was to rationalize
excess capacity to increase capacity utilization and improve operating
margins. We achieved significant success on that front. Another focus area
was moderating the impact of our once-largest communications client on
our overall revenue growth. Although the success there did not crystalize
CHARLES E. SYKES
President and CEO
during the first half of the year, we believe we are now on good footing if
the healthy revenue growth in the fourth quarter of 2019 is any indication.
2019 was also important in other respects. It was a year that brought a
greater focus on strategic alignment. Over the past few years, we have made
of robotic process automation (“RPA”) and artificial intelligence (“AI”) solutions. The Company
strategic acquisitions in anticipation of the evolution in our marketplace. In
also provides various enterprise support services in the United States that include services for
and solid cash flow generation, which enabled us to reinvest in our business while paying down debt
fact, as a result of those acquisitions, we are unique in having full lifecycle
offerings around engagement services, digital marketing and digital
transformation. In 2019, we took initial steps to create the building blocks
for deeper operational integration among some of those offerings. Second,
we further tested and refined our go-to-market messaging to better reflect
JOHN CHAPMAN
Executive VP and CFO
this unique differentiation. And finally, with the actions we have taken around capacity rationalization, we
simplified our operating model. We would be remiss if we didn’t highlight our strong 2019 balance sheet
and returning cash to our shareholders through our share repurchase program to the tune of $30 million.
In all, exiting 2019 in a strong position sets us up well, we believe, for growth and continued margin
advancement for 2020, as we will further discuss in this letter.
CORPORATE HEADQUARTERS
400 North Ashley Drive, Suite 2800, Tampa, FL USA 33602 • phone: (813) 274-1000 • fax: (813) 273-0148 • www.sykes.com
TURNING THE TIDE IN OPERATING MARGIN IN 2019
INDEPENDENT AUDITORS
After three consecutive years of operating margin decline, 2018 marked an inflection point in our
Deloitte & Touche LLP • 201 N. Franklin St., Suite 3600, Tampa, FL USA 33602
operating margins as committed to in our 2018 shareholder letter. As we closed 2019, operating
REGISTRAR AND TRANSFER AGENT
margins increased to 5.6% (non-GAAP 7.5%*) from 3.9% (non-GAAP 6.8%**) in 2018. There were three
Computershare • P.O. Box 43078, Providence, RI 02940-3078 • (800) 962-4284
SYKES’ shares trade on The NasdaqGS Stock Market under the symbol “SYKE”
primary factors behind the margin increase in 2019. One, and perhaps the biggest, was eliminating
SYKES ENTERPRISES, INCORPORATED (“SYKES” or “the Company”) is a leading provider of
multi-channel demand generation and global customer engagement services. The Company
provides differentiated full lifecycle customer engagement solutions and services primarily to
Global 2000 companies and their end customers principally
in the financial services,
communications, technology, transportation &
leisure and healthcare
industries. SYKES’
differentiated full lifecycle management 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 by a suite
serves its clients through two geographic operating regions: the Americas (United States, Canada,
Latin America, South Asia and Asia Pacific) and EMEA (Europe, the Middle East and Africa). Its
Americas and EMEA regions primarily provide customer-engagement solutions and services with an
emphasis on inbound multichannel demand generation, customer service and technical support to
its clients’ customers. These services are delivered through multiple communication channels
including phone, email, social media, text messaging, chat and digital self-service. The Company
its clients’ internal support operations, from technical staffing services to outsourced corporate
help desk services. In Europe, the Company provides fulfillment services, which includes order
processing, payment processing, inventory control, product delivery and product returns handling.
Additionally, through the 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. SYKES’
complete service offering helps its clients acquire, retain and increase the lifetime value
of their customer relationships. The Company has developed an extensive global reach
with customer engagement centers across six continents, including North America, South
America, Europe, Asia, Australia and Africa. It delivers cost-effective solutions that generate
demand, enhance the customer service experience, promote stronger brand loyalty, and
bring about high levels of performance and profitability. For additional information please
visit www.sykes.com.
of wage inflation, agent attrition and absenteeism through planned price increases against an
INVESTOR INFORMATION
ever-tightening labor market backdrop. And third was reshoring demand where feasible or exiting
Quarterly Reports on Form 10-Q and the Form 10-K Annual Report filed with the Securities and Exchange Commission
programs or client relationships where there was no line of sight on margin improvement. The payoff
are available on the Company’s website at: http://investor.sykes.com or upon written request to SYKES’ Investor Relations
department in Tampa, Florida, or by contacting:
Subhaash Kumar • Global Vice President, Finance and Investor Relations • phone: (813) 274-1000
excess capacity (we eliminated 5,000 seats in 2018) to increase utilization (2019 average of 73% vs.
ANNUAL MEETING
2018 average of 70%) and reduce the related cost overhang. Second was moderating the effects
SYKES’ annual meeting of shareholders will be held at 8:00 a.m. (EDT) • Tuesday, May 12, 2020
The meeting will be held at: Rivergate Tower, 400 North Ashley Drive, Suite 320, 3rd Floor, Conference Room A, Tampa, FL 33602
from executing on these initiatives in 2019 was not only significant in and of itself, but there were also
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SYKES ANNUAL REPORT 2019 | 3 BOARD OF DIRECTORSPRINCIPAL OFFICERSJAMES S. MACLEOD Chairman of the Board Non-Executive Chairman of the Board of CoastalSouth Bancshares, Inc. and CoastalStates Bank Trustee, AllianzGI Funds Director, MUSC Foundation Chairman of the Board of The University of TampaMARK C. BOZEK Director Founder and CEO of Live Rocket, LLCVANESSA C.L. CHANG Director Director, Edison International Director, Transocean Ltd. Director, American Funds Family and other funds advised by Capital Group Forest Lawn Memorial Parks Association SCO America, Inc. CARLOS E. EVANS Director Board Affiliations: Queens University of Charlotte National Coatings and Supplies Inc. American Welding & Gas Inc. Johnson Management Highwoods Properties, Inc. (NYSE: HIW)LORRAINE LEIGH LUTTON Director WILLIAM J. MEURER Director Private Financial Consultant Managing Partner (retired) for Arthur Andersen’s Central Florida OperationsWILLIAM D. MUIR, JR. Director EFI CEO (retired)CHARLES E. SYKES Director (Principal Executive Officer) President and Chief Executive Officer Sykes Enterprises, IncorporatedW. MARK WATSON (CPA) Director Directors and Chairman of the Audit Committee for Sykes Enterprises, Inc. Momentum Health Holdings, LLC and Inhibitor Therapeutic Inc. President of WM Watson, LLC Board of Trustees, Moffitt Medical Group Lead Audit Partner (retired) for Deloitte Touche TohmatsuCHARLES E. SYKES President and Chief Executive OfficerJOHN CHAPMAN Executive Vice President and Chief Financial OfficerIAN BARKIN Chief Strategy & Marketing Officer JAMES T. HOLDER Executive Vice President, General Counsel and Corporate Secretary KELLY MORGAN Chief Customer Officer and General ManagerJENNA R. NELSON Executive Vice President, Human ResourcesDAVID L. PEARSON Executive Vice President and Chief Information OfficerLAWRENCE R. ZINGALE Chief Customer Officer and General Manager, EMEA some secondary benefits. Among them, we were able to further simplify and streamline
aspects of our operating model in the U.S. by pushing more of the functions around recruiting,
forecasting and client support and management to customer contact engagement sites for
greater accountability.
While the operating margin recovery was a bright spot in 2019, reported revenue of
approximately $1.615 billion was down 0.7%, but up a modest 0.9%*** on a constant currency
basis, including revenue contribution from the Symphony and WhistleOut acquisitions. Although
lackluster on the surface, the reported revenue number masked the underlying demand trends.
First, there were two discrete events that had a disproportionate impact on reported revenue
growth in 2019. Most notably, we exited a significant communications client – averaging around
4% of revenues over the 2017-2018 period – in July of 2019. This client’s contract renewal did
not align with our forecasted target margins as the client’s business had come under significant
financial pressure. Furthermore, the client was not willing to make a strategic change to shift this
demand offshore. Meanwhile, demand softness from our once-largest communications client
intensified in the second half of 2019 rather than inflect in the third quarter as expected, with
revenue declines accelerating from an average of 29% in the first half to 41% in the second half.
But excluding the impact of the once-largest client, which has masked our underlying growth
since 2017, constant currency organic revenue growth bottomed out in 2018 and has been
trending up solidly. Most impressively, we have delivered mid-single to double-digit solid growth
across virtually all of our vertical markets excluding communications. And better still, even the
communications vertical, which has been on a steady decline since 2016, is projected for growth
in 2020 both in absolute terms and as a percent of revenues against declines from our once-
largest clients, which is expected to continue into the first half of 2020.
INTEGRATING FULL LIFECYCLE CAPABILITIES
For those who are new to SYKES, we have been broadening and
strengthening our service portfolio through highly targeted strategic
acquisitions and partnerships over the last few years. The acquisitions/
strategic investments we have made over those years include Qelp (which
focuses on the customer journey and digital self-service), Clearlink (focuses
on digital marketing around branded and category search), XSell Technologies (agent assisted
artificial intelligence and machine language) and Symphony (Robotic Process Automation).
This has positioned us to go to market with a full lifecycle platform of capabilities that delivers
intelligent customer experiences across the entire customer journey, from marketing, sales, and
service, to agent augmentation and intelligent automation. As more and more customer journeys
begin across the frictionless on-line medium, we believe it will be critical for clients to be able
to fully contextualize the best way to acquire, transact and service end consumers. We saw this
evolution early on and began acting on it with our acquisitions and partnership strategy. Our
capabilities are already resonating nicely in the marketplace. In fact, in 2019, we were recognized
4 | SYKES ANNUAL REPORT 2019 by HFS Research, an industry analyst
firm, as the number one company
for vision and go-to-market strategy out of 25 leading
contenders across the customer engagement services
value chain.
Yet, we have been very deliberate in how we integrate
these acquisitions so as not to disrupt the success
behind and rationale for these acquisitions. But, as our industry has evolved and is starting to
converge in how clients cost-effectively acquire and employ services to create a seamless/
effortless end consumer experience, we believe the time is right for us to start the shift from a
discrete set of capabilities toward a more integrated platform of full lifecycle offerings around
engagement services, digital transformation and some aspects of digital marketing. In fact, we
have conducted pilots of this platform offering and are increasingly now being invited to respond
to transformational RFPs where this platform plays a pivotal role. As such, we are exploring how to
best devote financial resources and manpower to operationalize a dedicated department or team
to strengthen our commitment to this platform offering. We are in the early process of ideation
around this and plan to formalize a roadmap as the year unfolds. We are also aiming at some level
of operational integration in terms of service delivery. At the same time, we are continuing our
efforts at message refinement to better reflect scope of our platform value proposition. We are also
focusing our branding efforts around the message that SYKES is “the digital partner our clients
can grow with” to educate clients about our unique and differentiated integrated platform with its
breadth of capabilities. We also are supporting that brand that with the tagline “not just all talk,” as
we believe that best captures how these proven capabilities within the platform drive great results
for our clients.
REVENUE GROWTH TO REBOUND UNDER 2020 OUTLOOK
As we go into 2020, we believe we are well positioned to deliver on revenue growth just as we
have started to deliver on the operating margin turnaround. From a revenue growth perspective,
we guided to the 2020 consensus revenue outlook in the third quarter of 2019, which implies
comparable growth of 4%. What gives us confidence in these projections is that we have won
business that is either significant in size from the outset or that has the potential to be significant.
The wins span our financial services, technology, healthcare, travel and even communications
verticals. More specifically, we have won lines of business in areas such as new economy consumer
security, fintech, online marketplaces, property and casualty, enterprise telecommunications
provisioning, dental benefit verification and process auditing and automation. A healthy cross
section of these opportunities won was due to the full lifecycle capabilities of our platform, which
shows up as a meaningful differentiation in the marketplace. And while clients at present may use
either one or all of our capabilities in our platform, we believe that clients believe that our solutions
are not only the best for their current state of business but also their future state.
SYKES ANNUAL REPORT 2019 | 5 Of course, 2020 is also a Presidential election cycle
in the U.S. and if history is any guide, there could
be the potential for significant noise around policy,
which can potentially and temporarily lead to client
shifts and indecisions that could impact revenue
dynamics. At the same time, wage inflation still
remains a lingering concern with unemployment rate sitting at a 50-year low at 3.5%. Add to
that the potential near-term concerns around the coronavirus (COVID-19), 2020 could prove
to be a little bumpy. That said, we will continue to execute our strategy as the year unfolds.
We plan to make further refinements to our business model as necessary and deploy capital
both organically and in-organically to strengthen our competitive advantage. While none of the
concerns above are to be discounted, we believe that ultimately we will get through this and
overcome any short-term disruption that may present itself.
In all, we have a solid foundation upon which to build, and we are very proud and honored to
be working with a team of dedicated colleagues worldwide who have executed passionately on
our strategy. We are particularly proud of the front-line associates and their support teams who
have ensured the success we all enjoy today as clients, consumers and investors. As always,
we would like to thank our board of directors for their continued support.
CHARLES E. SYKES
President and Chief Executive Officer
JOHN CHAPMAN
Executive Vice President and Chief Financial Officer
*2019 operating margin increased to 5.6% from 3.9% for the comparable period last year. 2019 operating margin reflects the impact of
acquisition-related intangible amortization, charges, legal as well as merger and integration costs totaling $30.8 million, or 190 basis points.
Of that total, $18.8 million, or 120 basis points, is associated with the amortization of acquisition-related intangibles and fixed asset write-
ups. There is $7.1 million of charges, or approximately 40 basis points, is related to merger and integration costs. The remaining $4.9 million,
or roughly 30 basis points, is related to the 2019 Americas Exit Plan and other, which includes severance expenses, asset impairments and
other expenses.
**2018 operating margin reflects the impact of acquisition-related intangible amortization, charges, legal as well as merger and integration
costs totaling $48.1 million, or 290 basis points. Of that total, $22.6 million of charges, or approximately 140 basis points, is related to
capacity rationalization under the 2018 Americas Exit Plan. These charges include asset impairments, severance expenses, write-off
of remaining lease commitments and other expenses. There is $18.3 million, or 110 basis points, associated with the amortization of
acquisition-related intangibles and fixed asset write-ups. The remaining $7.2 million, or roughly 40 basis points, is from earnouts as well as
merger and integration costs related to acquisitions of Portent, WhistleOut and Symphony.
***2019 reported revenues were down 0.7% compared to 2018. Unfavorable foreign exchange movements had approximately 1.6%
negative impact on reported revenues. Excluding the unfavorable foreign exchange movements, constant currency revenues grew 0.9%.
6 | SYKES ANNUAL REPORT 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For the fiscal year ended December 31, 2019
or
☐ Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For The Transition Period From
To
Commission File Number 0-28274
Sykes Enterprises, Incorporated
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of
incorporation or organization)
400 N. Ashley Drive, Suite 2800, Tampa, Florida
(Address of principal executive offices)
(813) 274-1000
(Registrant’s telephone number, including area code)
56-1383460
(I.R.S. Employer
Identification No.)
33602
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Trading Symbol(s)
SYKE
Name of each exchange on which registered
NASDAQ Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
Yes "
No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes "
No ⌧
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 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
Non-accelerated filer
☒
☐
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 ⌧
The aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the closing sales price of
such shares on the NASDAQ Global Select Market on June 30, 2019, the last business day of the registrant’s most recently completed second fiscal
quarter, was $1,100,897,020.
As of February 6, 2020, there were 41,548,680 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents ..............................................................................................................................................................
Portions of the Proxy Statement for the year 2020
Annual Meeting of Shareholders .............................................................................................................................
Form 10-K Reference
Part III Items 10–14
TABLE OF CONTENTS
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
Business ......................................................................................................................................
Risk Factors ................................................................................................................................
Unresolved Staff Comments.......................................................................................................
Properties ....................................................................................................................................
Legal Proceedings.......................................................................................................................
Mine Safety Disclosures .............................................................................................................
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities................................................................................................................
Selected Financial Data..............................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations....
Quantitative and Qualitative Disclosures About Market Risk...................................................
Financial Statements and Supplementary Data..........................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....
Controls and Procedures ............................................................................................................
Other Information ......................................................................................................................
Directors, Executive Officers and Corporate Governance ........................................................
Executive Compensation ...........................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters ..............................................................................................................
Certain Relationships and Related Transactions, and Director Independence ..........................
Principal Accountant Fees and Services ....................................................................................
Exhibits and Financial Statement Schedules .............................................................................
Form 10-K Summary .................................................................................................................
Page
3
11
20
20
21
21
21
23
24
38
39
40
40
42
42
42
42
42
42
43
46
Item 1. Business
General
PART I
Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES,” “our,” “us” or “we”) is a leading provider
of multichannel demand generation and global customer engagement solutions and services. SYKES provides
differentiated full lifecycle customer engagement solutions and services primarily to Global 2000 companies and
their end customers principally in the financial services, communications, technology, transportation & leisure and
healthcare industries. Our differentiated full lifecycle management 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 by a suite of robotic process
automation (“RPA”) and artificial intelligence (“AI”) solutions. We serve our clients through two geographic
operating regions: the Americas (United States, Canada, Latin America, Australia and the Asia Pacific Rim) and
EMEA (Europe, the Middle East and Africa). Our Americas and EMEA regions primarily provide customer
engagement solutions and services with an emphasis on inbound multichannel demand generation, customer service
and technical support to our clients’ customers. These services are delivered through multiple communication
channels including phone, e-mail, social media, text messaging, chat and digital self-service. We also provide
various enterprise support services in the United States that include services for our clients’ internal support
operations, from technical staffing services to outsourced corporate help desk services. In Europe, we also provide
fulfillment services, which include order processing, payment processing, inventory control, product delivery and
product returns handling. (See Note 25, Segments and Geographic Information, of the accompanying “Notes to
Consolidated Financial Statements” for further information on our segments.) Additionally, through our acquisition
of RPA provider Symphony Ventures Ltd (“Symphony”) coupled with our investment in AI through XSell
Technologies, Inc. (“XSell”), we also provide a suite of solutions such as consulting, implementation, hosting and
managed services that optimizes our differentiated full lifecycle management services platform. Our complete
service offering helps our clients acquire, retain and increase the lifetime value of their customer relationships. We
have developed an extensive global reach with customer engagement centers across six continents, including North
America, South America, Europe, Asia, Australia and Africa. We deliver cost-effective solutions that generate
demand, enhance the customer service experience, promote stronger brand loyalty, and bring about high levels of
performance and profitability.
SYKES was founded in 1977 in North Carolina and we moved our headquarters to Florida in 1993. Our
headquarters are located at 400 North Ashley Drive, Suite 2800, Tampa, Florida 33602, and our telephone number is
(813) 274-1000.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to those reports, as well as our proxy statements and other materials which are filed with, or furnished
to, the Securities and Exchange Commission (“SEC”) are made available, free of charge, on or through our internet
website at www.sykes.com by first clicking on “Investor Relations” then on “SEC Filings” under the heading
“Financial Reports & Filings” as soon as reasonably practicable after they are filed with, or furnished to, the SEC.
Recent Developments
Americas 2019 Exit Plan
During the first quarter of 2019, we initiated a restructuring plan to simplify and refine our operating model in the
United States (“U.S.”) (the “Americas 2019 Exit Plan”), in part to improve agent attrition and absenteeism. The
Americas 2019 Exit Plan included the closure of customer engagement centers, the consolidation of leased space in
various locations in the U.S. and management reorganization. We finalized the actions under the Americas 2019
Exit Plan as of September 30, 2019. Annualized savings of $7.1 million are expected as a result of these actions,
primarily related to reduced general and administrative costs and lower depreciation expense.
Americas 2018 Exit Plan
During the second quarter of 2018, we initiated a restructuring plan to manage and optimize capacity utilization,
which included the closure of customer engagement centers and the consolidation of leased space in various
locations in the U.S. and Canada (the “Americas 2018 Exit Plan”). We finalized the site closures under the Americas
2018 Exit Plan as of December 2018. The actions impacted approximately 5,000 seats, all of which were
rationalized as of December 31, 2018.
3
See Note 5, Costs Associated with Exit or Disposal Activities, in the accompanying “Notes to Consolidated
Financial Statements” for further information.
U.S. 2017 Tax Reform Act
On December 20, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”) was approved by Congress and
received presidential approval on December 22, 2017. In general, the 2017 Tax Reform Act reduced the U.S.
corporate income tax rate from 35% to 21%, effective in 2018. The 2017 Tax Reform Act moved from a worldwide
business taxation approach to a participation exemption regime. The 2017 Tax Reform Act also imposed base-
erosion prevention measures on non-U.S. earnings of U.S. entities, as well as a one-time mandatory deemed
repatriation tax on accumulated non-U.S. earnings. The impact of the 2017 Tax Reform Act on our consolidated
financial results began with the fourth quarter of 2017, the period of enactment. This impact, along with the
transitional taxes discussed in Note 20, Income Taxes, in the accompanying “Notes to Consolidated Financial
Statements” is reflected in the Other segment.
Acquisitions
On November 1, 2018, we completed the acquisition of Symphony, a provider of RPA services, offering RPA
consulting, implementation, hosting and managed services for front, middle and back-office processes. Of the total
initial purchase price of GBP 52.5 million ($67.6 million), GBP 44.6 million ($57.6 million) was paid upon closing
using cash on hand as well as $31.0 million of borrowings under our credit agreement. The acquisition date present
value of the remaining GBP 7.9 million ($10.0 million) of the purchase price was deferred and payable in equal
installments over three years, on or around November 1, 2019, 2020 and 2021. Subsequent to the finalization of the
working capital adjustment, the purchase price was adjusted to GBP 52.4 million ($67.5 million). The results of
Symphony’s operations have been reflected in our consolidated financial statements since November 1, 2018.
On July 9, 2018, we completed the acquisition of WhistleOut Pty Ltd and WhistleOut Inc. (together, “WhistleOut”).
WhistleOut is a consumer comparison platform focused on mobile, broadband and pay TV services, principally
across Australia and the U.S. The acquisition broadens our digital marketing capabilities geographically and extends
our home services product portfolio. The total purchase price of AUD 30.2 million ($22.4 million) was funded
through $22.0 million of additional borrowings under our credit agreement. Subsequent to the finalization of the
working capital adjustment, the purchase price was adjusted to AUD 30.3 million ($22.5 million). The results of
WhistleOut’s operations have been reflected in our consolidated financial statements since July 9, 2018.
See Note 4, Acquisitions,
information.
Industry Overview
in the accompanying “Notes to Consolidated Financial Statements” for further
The customer engagement solutions and services industry, which includes services such as digital marketing and
demand generation, customer acquisition, customer support, customer retention and automation,
is highly
fragmented and significant in size. According to Everest Group, an industry research firm, the total size of the
customer engagement solutions and services industry worldwide measured in terms of the U.S dollar was estimated
between $330 billion and $360 billion in 2018. Of the total size of the industry worldwide, approximately 25% was
outsourced to third-party engagement centers with the remaining 75% utilizing in-house engagement centers. In
2019, the outsourced portion of the customer engagement solutions and services industry worldwide was estimated
to be between $86 billion and $88 billion, growing at rate of approximately 3% from 2017 to 2019.
We believe that growth for broader outsourced customer engagement solutions and services will be fueled by the
trend of Global 2000 companies and medium-sized businesses utilizing outsourcers. In today’s marketplace,
companies increasingly are seeking a comprehensive suite of innovative full lifecycle customer engagement
management solutions and services that allow them to acquire customers, enhance the end user’s experience with
their products and services, strengthen and enhance their company brands, maximize the lifetime value of their
customers through retention and up-sell and cross-sell, efficiently and effectively deliver human interactions when
and where customers value it most, and deploy best-in-class customer management strategies, automation processes
and technologies. However, a myriad of factors, among them intense global competition, pricing pressures, softness
in the global economy and rapid changes in technology, continue to make it difficult for companies to cost-
effectively maintain the in-house personnel necessary to handle all of their customer engagement needs.
4
To address these needs, we offer multichannel demand generation and comprehensive global customer engagement
solutions and services that leverage brick-and-mortar and at-home agent delivery infrastructure as well as digital
self-service, RPA and AI capabilities. We provide consistent high-value support for our clients’ customers across
the globe in a multitude of languages, leveraging our dynamic, secure communications infrastructure and our global
footprint that reaches across 21 countries. This global footprint includes established brick-and-mortar operations in
both onshore and offshore geographies where companies have access to high-quality customer engagement solutions
at lower costs compared to other markets. We further complement our brick-and-mortar global delivery model with
a highly differentiated and ready-made best-in-class at-home agent delivery model. In addition, we provide digital
self-service customer support and automation that differentiates our go-to-market strategy as it expands options for
companies to best service their customers in their channel of choice to deliver an “effortless customer experience.”
By working in partnership with outsourcers, companies can ensure that the crucial task of acquiring, growing and
retaining their customer base is addressed while creating operating flexibility, enabling focus on their core
competencies, ensuring service excellence and execution, achieving cost savings through a variable cost structure,
leveraging scale, entering niche markets speedily, and efficiently allocating capital within their organizations.
Business Strategy
Broadly speaking, our value proposition to our clients is that of a trusted partner, which provides a comprehensive
suite of RPA and AI enabled differentiated full lifecycle multichannel demand generation and global customer
engagement solutions and services primarily to Global 2000 companies that drive customer acquisition,
differentiation, brand loyalty and increased lifetime value of end customer relationships. By outsourcing their
customer acquisition and service solutions to us, clients are able to achieve exceptional customer experience and
drive tangible business impact with greater operational flexibility, enhanced revenues, lower operating costs and
faster speed to market, all of which are at the center of our value proposition. At a tactical level, we deliver on this
value proposition through consistent delivery of operational and client excellence. Our business strategy is to
leverage this value proposition in order to capitalize on and increase our share of the large and underpenetrated
addressable market opportunity for customer engagement solutions and services worldwide. We believe through
successful execution of our business strategy, we could generate a healthy level of revenue growth and drive
targeted long-term operating margins. To deliver on our long-term growth potential and operating margin objectives,
we need to manage the key levers of our business strategy, the principles of which include the following:
Build Long-Term Client Relationships Through Customer Service Excellence. We believe that providing high-
value, high-quality service is critical in our clients’ decisions to outsource and in building long-term relationships
with our clients. To ensure service excellence and consistency across each of our centers globally, we leverage a
portfolio of techniques, including SYKES Science of Service®. This standard is a compilation of more than 30 years
of experience and best practices. Every customer engagement center strives to meet or exceed the standard, which
addresses leadership, hiring and training, performance management down to the agent level, forecasting and
scheduling, and the client relationship including continuous improvement, disaster recovery plans and feedback.
Increasing Share of Seats Within Existing Clients and Winning New Clients. We provide customer engagement
solutions and services to primarily Global 2000 companies. With this large target market, we have the opportunity to
grow our client base while we also selectively target new economy or disrupter clients. We strive to achieve this by
winning a greater share of our clients’ in-house seats as well as gaining share from our competitors by providing
consistently high-quality service as clients continue to consolidate their vendor base. In addition, as we further
integrate the recently acquired RPA and AI capabilities with digital marketing and leverage it across our brick-and-
mortar and at-home agent delivery platforms both domestically and internationally within our vertical markets mix,
we plan to win new clients as a way to broaden our base of growth.
Diversifying Verticals and Expanding Service Lines. To mitigate the impact of any negative economic and product
cycles on our growth rate, we continue to seek ways to diversify into verticals and service lines that have
countercyclical features and healthy growth rates. We are targeting the following verticals for growth: financial
services, communications, technology, transportation & leisure, healthcare, and other, which includes retail. These
verticals cover various business lines, including credit card/consumer fraud protection, fintech, online marketplace,
ecommerce, online gaming, wireless services, broadband, media, retail banking, consumer and high-end enterprise
tech support and travel, telemedicine and soft and hard goods online and through brick and mortar retailers.
5
Maximizing Capacity Utilization Rates and Strategically Adding Seat Capacity. Revenues and profitability growth
are largely driven by increasing the capacity utilization rate in conjunction with seat capacity additions. We plan to
sustain our focus on increasing the capacity utilization rate by further penetrating existing clients, adding new clients
and rationalizing underutilized seat capacity as deemed necessary. With greater operating flexibility resulting from
our at-home agent delivery model, we believe we can rationalize underutilized capacity more efficiently and drive
capacity utilization rates.
Broadening At-Home Agent and Brick-and-Mortar Global Delivery Footprint. Just as increased capacity
utilization rates and increased seat capacity are key drivers of our revenues and profitability growth, where we
deploy both the seat capacity and the at-home agent delivery platform geographically is also important. By
broadening and continuously strengthening our brick-and-mortar global delivery footprint and our at-home agent
delivery platform, we believe we are able to meet both our existing and new clients’ customer engagement needs
globally as they enter new markets. At the end of 2019, our global delivery brick-and-mortar footprint spanned 21
countries while our at-home agent delivery platform now increasingly spans EMEA, building on our existing
presence in 41 states and ten provinces within the U.S. and Canada, respectively.
Creating Value-Added Service Enhancements. To improve both revenue and margin expansion, we intend to
continue to introduce new service offerings and add-on enhancements. Digital marketing and demand generation,
multilingual customer support, digital self-service support, back office services, RPA and AI are examples of
horizontal service offerings, while data analytics and process improvement products are examples of add-on
enhancements. Additionally, with the proliferation of on-line communities, such as Facebook and Twitter, we
continue to make on-going investments in our social media service offerings, which can be leveraged across both
our brick-and-mortar and at-home agent delivery platforms.
Continuing to Focus on Expanding the Addressable Market Opportunities. As part of our growth strategy, we
continually seek to expand the number of markets we serve. The United States, Canada and Germany, for instance,
are markets which are served by in-country centers, centers in offshore regions or a combination thereof. We
continually seek ways to broaden the addressable market for our customer engagement services. We currently
operate in 14 markets.
Continue to Grow Our Business Organically, through Strategic Investments and Partnerships, and through
Acquisitions. We have grown our customer engagement solutions and services utilizing a combination of internal
organic growth, strategic investments and partnerships, and external acquisitions. Our organic growth, partnership
and acquisition strategies are to target markets, clients, verticals, delivery geographies and service mix that will
expand our addressable market opportunity, and thus drive our organic growth. Entry into the Philippines, El
Salvador, Romania, Colombia and Cyprus are examples of how we leveraged these delivery geographies to further
penetrate both existing and new clients, verticals and service mix in order to drive organic growth. While the Alpine
Access, Inc. (“Alpine”), Qelp B.V. (“Qelp”), Clear Link Holding, LLC (“Clearlink”) and Symphony acquisitions are
examples of how we used acquisitions to augment our service offerings and differentiate our delivery model. The
ICT Group, Inc. (“ICT”) acquisition is an example of how we used an acquisition to gain overall size and critical
mass in key verticals, clients and geographies.
In 2017, we also made a strategic investment of $10.0 million in
XSell for 32.8% of XSell’s preferred stock. XSell optimizes the sales performance capabilities of a broader base of
agents as compared to what has historically been an extremely narrow base by leveraging machine learning and AI
algorithms. As customer engagement programs increasingly incorporate up-selling and cross-selling, and measures
based on sales conversion, XSell’s targeted offering can be leveraged across both chat and voice channels, across
traditional customer engagement opportunities, and the Clearlink platform to enhance sales performance and
conversion on behalf of our clients.
Services
We specialize in providing differentiated full lifecycle customer engagement solutions and services primarily to
Global 2000 companies and their end customers at key touchpoints on a global basis. These services include digital
marketing, demand generation, customer acquisition, customer support, technical support, up-selling, cross-selling
and retention. Our comprehensive customer engagement solutions and services are provided through two reportable
segments — the Americas and EMEA. The Americas region, representing 80.3% of consolidated revenues in 2019,
includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim. The sites within Latin
America and the Asia Pacific Rim are included in the Americas region as they provide a significant service delivery
6
vehicle for U.S.-based companies that are utilizing our customer engagement solutions and services in these
locations to support their customer care needs. The EMEA region, representing 19.7% of consolidated revenues in
2019, includes Europe, the Middle East and Africa. Both regions include revenues from our at-home agent delivery
solution. See Note 25, Segments and Geographic Information, of the accompanying “Notes to Consolidated
Financial Statements” for further information on our segments. The following is a description of our customer
engagement solutions and services:
Outsourced Customer Engagement Solutions and Services. Our outsourced customer engagement solutions and
services represented 97.7%, 99.0% and 99.4% of total 2019, 2018 and 2017 consolidated revenues, respectively. We
provide phone, e-mail, social media, text messaging, chat and digital self-service support throughout the Americas
and EMEA regions utilizing our advanced technology infrastructure, human resource management skills and
industry experience. These services include:
•
•
•
Customer care — Customer care contacts primarily include handling billing inquiries and claims, activating
customer accounts, resolving complaints, cross-selling/up-selling, prequalifying and warranty management,
providing health information and dispatching roadside assistance;
Technical support — Technical support contacts primarily include support around complex networks,
hardware and software, communications equipment, internet access technology and internet portal usage;
and
Customer acquisition — Our customer acquisition services are focused around digital marketing,
multichannel demand generation, inbound up-selling and sales conversion, as well as some outbound
selling of our clients’ products and services.
We provide these services, primarily through inbound customer calls, in many languages over our extensive global
network of customer engagement centers. In addition, we augment those inbound calls with the option of digital
self-service customer support. Our technology infrastructure and managed service solutions allow for effective
distribution of calls to one or more centers. These technology offerings provide our clients and us with the leading-
edge tools needed to maximize quality and customer satisfaction while controlling and minimizing costs.
Robotic Process Automation. In Europe and the U.S., we offer a suite of solutions such as consulting,
implementation, hosting and managed services under the heading of RPA to help clients drive efficiency in their
back-office workflow. RPA can also help clients further reduce the cost of customer engagement solutions and
services by automating processes such as on-boarding, off-boarding and agents navigating multiple systems.
Fulfillment Services. In Europe, we offer fulfillment services that are integrated with our customer care and
technical support services. Our fulfillment solutions include order processing via the internet and phone, inventory
control, product delivery and product returns handling.
Enterprise Support Services. In the United States, we provide a range of enterprise support services including
technical staffing services and outsourced corporate help desk solutions.
Operations
Customer Engagement Centers. We operate across 21 countries in 73 customer engagement centers, which
breakdown as follows: 27 centers across EMEA, 19 centers in the United States, one center in Canada, three centers
in Australia and 23 centers offshore, including the People’s Republic of China, the Philippines, Costa Rica, El
Salvador, India, Mexico, Brazil and Colombia. In addition to our customer engagement centers, we employ
approximately 3,200 full-time equivalent at-home customer engagement agents in the U.S., Canada and in EMEA.
We utilize a sophisticated workforce management system to provide efficient scheduling of personnel. Our
internally developed digital private communications network complements our workforce by allowing for effective
call volume management and disaster recovery backup. Through this network and our dynamic intelligent call
routing capabilities, we can rapidly respond to changes in client call volumes and move call volume traffic based on
agent availability and skill throughout our network of centers, improving the responsiveness and productivity of our
agents. We also can offer cost competitive solutions for taking calls to our offshore locations.
7
Our data warehouse captures and downloads customer engagement information for reporting on a daily, real-time
and historical basis. This data provides our clients with direct visibility into the services that we are providing for
them. The data warehouse supplies information for our performance management systems such as our agent
scorecarding application, which provides us with information required for effective management of our operations.
Our customer engagement centers are protected by a fire extinguishing system, backup generators with significant
capacity and 24-hour refueling contracts and short-term battery backups in the event of a power outage, reduced
voltage or a power surge. Rerouting of call volumes to other customer engagement centers is also available in the
event of a telecommunications failure, natural disaster or other emergency. Security measures are imposed to
prevent unauthorized physical access. Software and related data files are backed up daily and stored off site at
multiple locations. We carry business interruption insurance covering interruptions that might occur as a result of
certain types of damage to our business.
Robotic Process Automation. We have a total of approximately 200 RPA consultants, sales and marketing
associates operating through offices in the Asia Pacific Rim, Europe, North America and Latin America.
Fulfillment Centers. We currently have one fulfillment center located in Europe. We provide our fulfillment
services primarily to certain clients operating in Europe who desire this complementary service in connection with
outsourced customer engagement services.
Enterprise Support Services Office. Our U.S. enterprise support services office provides recruitment services for
high-end knowledge workers, a local presence to service major accounts, and outsourced corporate help desk
solutions.
Sales and Marketing
Our sales and marketing objective is to leverage our vertical expertise, global presence, and end-to-end lifecycle of
service offerings to develop long-term relationships with existing and future clients. Our customer engagement
solutions have been developed to help our clients market, acquire, retain and increase the lifetime value of their
customer relationships. Our plans for increasing our visibility and impacting the market include the launch of new
service offerings in digital support and digital marketing, participation in market-specific industry associations, trade
shows and seminars, digital and content marketing to industry leading corporations, and consultative personal visits
and solution designs. We research and publish thought provoking perspectives on key industry issues, and use
forums, speaking engagements, articles and white papers, as well as our website and broad global digital and social
media presence to establish our leadership position in the market.
Our sales force is composed of business development managers who pursue new business opportunities and strategic
account managers who manage and grow relationships with existing accounts. We emphasize account development
to strengthen relationships with existing clients. Business development management and strategic account managers
are assigned to markets in their area of expertise in order to develop a complete understanding of each client’s
particular needs, to form strong client relationships and encourage cross-selling of our other service offerings. We
have inside customer sales representatives who receive customer inquiries and who provide pre-sales relationship
development for the business development managers. We employ modern methods of search and digital marketing
to cultivate interest in our brand and services. We use a methodical approach to collecting client feedback through
quarterly business reviews, annual strategic reviews, and through our bi-annual Voice of the Client program, which
enables us to react to early warning signs, and quickly identify and remedy challenges. It also is used to highlight
our most loyal clients, who we then work with to provide references, testimonials and joint speaking engagements at
industry conferences.
As part of our marketing efforts, we invite existing and potential clients to experience our customer engagement
centers and at-home agent delivery operations, where we can demonstrate the expertise of our skilled staff in
partnering to deliver new ways of growing clients’ revenues, customer satisfaction and retention rates, and thus
profit, through timely, insightful and proven solutions. This forum allows us to demonstrate our capabilities to
design, launch and scale programs.
It also allows us to illustrate our best innovations in talent management,
analytics, and digital channels, and how they can be best integrated into a program’s design.
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Clients
We provide service to clients from our locations in the United States, Canada, Latin America, Australia, the Asia
Pacific Rim, Europe, the Middle East and Africa. These clients are Global 2000 corporations, medium-sized
businesses and public institutions, which span the financial services, communications, technology, transportation &
leisure, healthcare and other industries. Revenue by industry vertical for 2019, as a percentage of our consolidated
revenues, was 32% for financial services, 22% for communications, 20% for technology, 9% for transportation &
leisure, 6% for healthcare and 11% for all other verticals, including retail. We believe our globally recognized client
base presents opportunities for further cross marketing of our services.
See Note 25, Segments and Geographic Information, of the accompanying “Notes to Consolidated Financial
Statements” for additional client information.
Competition
The industry in which we operate is global, highly fragmented and extremely competitive. While many companies
provide customer engagement solutions and services, we believe no one company is dominant in the industry.
In most cases, our principal competition stems from our existing and potential clients’ in-house customer
engagement operations. When it is not the in-house operations of a client or potential client, our public and private
direct competition includes [24]7.ai, Alorica, Arise, Atento, Concentrix, Groupe Acticall/Sitel, iQor, LiveOps,
StarTek, Sutherland, Teleperformance, Telus International, TTEC, Transcom and Working Solutions, as well as the
customer care arm of such companies as Accenture, Conduent, Infosys, Tech Mahindra and Wipro, among others. In
addition, we also compete with certain back-office BPO providers such as Genpact Limited, ExlService Holdings,
Inc. and WNS (Holdings) Limited. There are other numerous and varied providers of such services, including firms
specializing in various CRM consulting, other customer engagement solutions providers, niche or large market
companies, as well as product distribution companies that provide fulfillment services. Some of these companies
possess substantially greater resources, greater name recognition and a more established customer base than we do.
We believe that the most significant competitive factors in the sale of outsourced customer engagement services
include service quality,
industry experience, advanced technological
capabilities, global coverage, reliability, scalability, security, price and financial strength. As a result of intense
competition, outsourced customer engagement solutions and services frequently are subject to pricing pressure.
Clients also require outsourcers to be able to provide services in multiple locations. Competition for contracts for
many of our services takes the form of competitive bidding in response to requests for proposal.
tailored value-added service offerings,
Intellectual Property
The success of our business depends, in part, on our proprietary technology and intellectual property. We rely on a
combination of intellectual property laws and contractual arrangements to protect our intellectual property. We and
our subsidiaries have registered various trademarks and service marks in the U.S. and/or other countries, including
SYKES®, REAL PEOPLE. REAL SOLUTIONS®, SCIENCE OF SERVICE®, CLEARLINK®, MOVEAROO®,
BIGLOCAL®, HOW TO BUY HAPPY®, YOU MOVE. WE JUMP®, USDIRECT®, SYKES HOME®,
LEADAMP®, A SECURE LIFE®, RAINGAGE®, BUYCALLS®, SECURE TALK®, TALENTSPROUT®,
TRUE PROTECT®, TERMLIFE2GO®, SAFEWISE®, WHISTLEOUT®, PORTENT®, LOVE YOUR PLAN®,
and CARECOACH®. The duration of trademark and service mark registrations varies from country to country, but
may generally be renewed indefinitely as long as the marks are in use and their registrations are properly
maintained. We have a pending U.S. patent application that relates to a system and method of analysis and
recommendation for distributed employee management and digital collaboration, a pending U.S. patent application
that relates to foundational analytics enabling digital transformations, a pending U.S. patent application that relates
to systems and methods for secure authentication to computer networks and virtual work environment setup, and a
pending U.S. patent application that relates to systems and methods for analysis, testing, and recommendations for
improving customer experience. Our subsidiary, Alpine, was issued U.S. Patent No. 8,565,413 in 2013, which
relates to a system and method for establishment and management of a remote agent engagement center. Alpine was
also issued U.S. Patent No. 9,100,484 in 2015, which relates to a secure call environment.
9
Employees
As of January 31, 2020, we had approximately 54,900 employees worldwide, primarily customer engagement agents
at our centers and at-home agents handling technical and customer support inquiries. Our employees, with the
exception of certain employees in Brazil and various European countries, are not union members and we have never
suffered a material interruption of business as a result of a labor dispute. We consider our relations with our
employees worldwide to be satisfactory.
We employ personnel through a continually updated recruiting network. This network includes a seasoned team of
recruiters, competency-based selection standards and the sharing of global best practices in order to advertise to and
source qualified candidates through proven recruiting techniques. Nonetheless, demand for qualified professionals
with the required language and technical skills may still exceed supply at times as new skills are needed to keep
pace with the requirements of customer engagements. As such, competition for such personnel
is intense.
Additionally, employee turnover in our industry is high.
Information About Our Executive Officers
The following table provides the names and ages of our executive officers, and the positions and offices currently
held by each of them:
Name
Charles E. Sykes
John Chapman
Lawrence R. Zingale
Jenna R. Nelson
David L. Pearson
James T. Holder
William N. Rocktoff
Age
57
53
63
56
61
61
57
Principal Position
President and Chief Executive Officer and Director
Chief Finance Officer
Chief Customer Officer and General Manager EMEA
Chief Human Resources Officer
Chief Information Officer
Chief Legal Officer
Senior Vice President and Corporate Controller
Charles E. Sykes joined SYKES in 1986 and was named President and Chief Executive Officer and Director in
August 2004. From July 2003 to August 2004, Mr. Sykes was the Chief Operating Officer. From March 2000 to
June 2001, Mr. Sykes was Senior Vice President, Marketing, and in June 2001, he was appointed to the position of
General Manager, Senior Vice President — the Americas. From December 1996 to March 2000, he served as Vice
President, Sales, and held the position of Regional Manager of the Midwest Region for Professional Services from
1992 until 1996.
John Chapman, F.C.C.A, joined SYKES in September 2002 as Vice President, Finance, managing the EMEA
finance function and was named Senior Vice President, EMEA Global Region in January 2012, adding operational
responsibility. In April 2014, he was named Executive Vice President and Chief Financial Officer. Prior to joining
SYKES, Mr. Chapman served as financial controller for seven years for Raytheon UK.
Lawrence R. Zingale joined SYKES in January 2006 as Senior Vice President, Global Sales and Client
Management. In May 2010, he was named Executive Vice President, Global Sales and Client Management and in
September 2012, he was named Executive Vice President and General Manager. Prior to joining SYKES, Mr.
Zingale served as Executive Vice President and Chief Operating Officer of StarTek, Inc. since 2002. From
December 1999 until November 2001, Mr. Zingale served as President of the Americas at Stonehenge Telecom, Inc.
From May 1997 until November 1999, Mr. Zingale served as President and Chief Operating Officer of International
Community Marketing. From February 1980 until May 1997, Mr. Zingale held various senior level positions at
AT&T.
Jenna R. Nelson joined SYKES in August 1993 and was named Senior Vice President, Human Resources, in
July 2001. In May 2010, she was named Executive Vice President, Human Resources. From January 2001 until
July 2001, Ms. Nelson held the position of Vice President, Human Resources. In August 1998, Ms. Nelson was
appointed Vice President, Human Resources, and held the position of Director, Human Resources and
Administration, from August 1996 to July 1998. From August 1993 until July 1996, Ms. Nelson served in various
management positions within SYKES, including Director of Administration.
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David L. Pearson joined SYKES in February 1997 as Vice President, Engineering, and was named Vice President,
Technology Systems Management, in 2000 and Senior Vice President and Chief Information Officer in August
2004. In May 2010, he was named Executive Vice President and Chief Information Officer. Prior to SYKES, Mr.
Pearson held various engineering and technical management roles over a fifteen-year period, including eight years at
Compaq Computer Corporation and five years at Texas Instruments.
James T. Holder, J.D., joined SYKES in December 2000 as General Counsel and was named Corporate Secretary
in January 2001, Vice President in January 2004 and Senior Vice President in December 2006. In May 2010, he was
named Executive Vice President. From November 1999 until November 2000, Mr. Holder served in a consulting
capacity as Special Counsel to Checkers Drive-In Restaurants, Inc., a publicly held restaurant operator and
franchisor. From November 1993 until November 1999, Mr. Holder served in various capacities at Checkers
including Corporate Secretary, Chief Financial Officer and Senior Vice President and General Counsel.
William N. Rocktoff, C.P.A., joined SYKES in August 1997 as Corporate Controller and was named Treasurer and
Corporate Controller in December 1999, Vice President and Corporate Controller in March 2002 and Global Vice
President in January 2011. In June 2017, he was named Senior Vice President and Corporate Controller. From
November 1989 to August 1997, Mr. Rocktoff held various financial positions, including Corporate Controller, at
Kimmins Corporation.
Item 1A. Risk Factors
Factors Influencing Future Results and Accuracy of Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements (within the meaning of the Private
Securities Litigation Reform Act of 1995) that are based on current expectations, estimates, forecasts, and
projections about us, our beliefs, and assumptions made by us. In addition, we may make other written or oral
statements, which constitute forward-looking statements, from time to time. Words such as “may,” “expects,”
“projects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar
expressions are intended to identify such forward-looking statements. Similarly, statements that describe our future
plans, objectives or goals also are forward-looking statements. These statements are not guarantees of future
performance and are subject to a number of factors, risks and uncertainties, including those discussed below and
elsewhere in this Annual Report on Form 10-K. Our actual results may differ materially from what is expressed or
forecasted in such forward-looking statements, and undue reliance should not be placed on such statements. All
forward-looking statements are made as of the date hereof, and we undertake no obligation to update any forward-
looking statements, whether as a result of new information, future events or otherwise.
Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-
looking statements include, but are not limited to: the marketplace’s continued receptivity to our terms and elements
of services offered under our standardized contract for future bundled service offerings; our ability to continue the
growth of our service revenues through additional customer engagement centers; our ability to further penetrate into
vertically integrated markets; our ability to expand revenues within the global markets; our ability to continue to
establish a competitive advantage through sophisticated technological capabilities, and the following risk factors:
Risks Related to Our Business and Industry
Our business is dependent on key clients, and the loss of a key client could adversely affect our business and
results of operations.
We derive a substantial portion of our revenues from a few key clients. Our top ten clients accounted for
approximately 42.2% of our consolidated revenues in 2019. The loss of (or the failure to retain a significant amount
of business with) any of our key clients could have a material adverse effect on our business, financial condition and
results of operations. Many of our contracts contain penalty provisions for failure to meet minimum service levels
and are cancelable by the client at any time or on short-term notice. Also, clients may unilaterally reduce their use of
our services under these contracts without penalty. Thus, our contracts with our clients do not ensure that we will
generate a minimum level of revenues.
11
Cyber-attacks as well as improper disclosure or control of personal information could result in liability and harm
our reputation, which could adversely affect our business and results of operations.
Our business is heavily dependent upon our computer and voice technologies, systems and platforms. Attacks on
any of those, hosted on-premise or by third parties, could disrupt the normal operations of our engagement centers
and impede our ability to provide critical services to our clients, thereby subjecting us to liability under our
contracts. Additionally, our business involves the use, storage and transmission of information about our employees,
our clients and customers of our clients. While we take measures to protect the security of, and unauthorized access
to, our systems, as well as the privacy of personal and proprietary information, it is possible that our security
controls over our systems, as well as other security practices we follow, may not prevent the improper access to or
disclosure of personally identifiable or proprietary information. We also rely on the control environments of the
third parties who provide hosting and cloud-based services to protect this information. Such disclosure could harm
our reputation and subject us to liability under our contracts and laws that protect personal data, resulting in
increased costs or loss of revenue. Further, data privacy is subject to frequently changing rules and regulations,
which sometimes conflict among the various jurisdictions and countries in which we provide services.
The European Union’s (“EU”) General Data Protection Regulation (“GDPR”) requires EU member states to meet
stringent requirements regarding the handling of personal data. Failure to meet the GDPR requirements could result
in substantial penalties of up to the greater of €20 million or 4% of global annual revenue of the preceding financial
year. Additionally, compliance with the GDPR results in operational costs to implement procedures corresponding
to legal rights granted under the law. Although the GDPR applies across the EU without a need for local
implementing legislation, local data protection authorities have the ability to interpret the GDPR through so-called
to create
opening clauses, which permit region-specific data protection legislation and have the potential
inconsistencies on a country-by-country basis.
Our efforts to comply with GDPR, two recently enacted U.S. state laws, future U.S. state laws and other privacy and
data protection laws which have been, and in the future may be enacted in other countries in which we operate, may
impose significant costs and challenges that are likely to increase over time. Our failure to adhere to or successfully
implement processes in response to changing regulatory requirements in this area could result in impairment to our
reputation in the marketplace and we could incur substantial penalties or litigation related to violation of existing or
future data privacy laws and regulations, which could have a material adverse effect on our business, financial
condition and results of operations.
Our business is subject to substantial competition.
The markets for many of our services operate on a commoditized basis and are highly competitive and subject to
rapid change. While many companies provide outsourced customer engagement services, we believe no one
company is dominant in the industry. There are numerous and varied providers of our services, including firms
specializing in engagement center operations,
temporary staffing and personnel placement, consulting and
integration firms, and niche providers of outsourced customer engagement services, many of whom compete in only
certain markets. Our competitors include both companies that possess greater resources and name recognition than
we do, as well as small niche providers that have few assets and regionalized (local) name recognition instead of
global name recognition. In addition to our competitors, many companies that could utilize our services or the
services of one of our competitors may instead utilize in-house personnel to perform such services. Increased
competition, our failure to compete successfully, pricing pressures, loss of market share and loss of clients could
have a material adverse effect on our business, financial condition and results of operations.
Many of our large clients purchase outsourced customer engagement services from multiple preferred vendors. We
have experienced and continue to anticipate significant pricing pressure from these clients in order to remain a
preferred vendor. These companies also require vendors to be able to provide services in multiple locations.
Although we believe we can effectively meet our clients’ demands, there can be no assurance that we will be able to
compete effectively with other outsourced customer engagement services companies on price. We believe that the
most significant competitive factors in the sale of our core services include the standard requirements of service
quality, tailored value-added service offerings, industry experience, advanced technological capabilities, global
coverage, reliability, scalability, security, price and financial strength.
12
The concentration of customer engagement centers in certain geographies poses risks to our operations which
could adversely affect our financial condition.
Although we have engagement centers in many locations throughout the world, we have a concentration of centers
in certain geographies outside of the U.S., specifically the Philippines and Latin America. Our concentration of
operations in those geographies is a result of our ability to access significant numbers of employees with certain
language and other skills at costs that are advantageous. However, the concentration of business activities in any
geographical area creates risks which could harm operations and our financial condition. Certain risks, such as
natural disasters, armed conflict and military or civil unrest, political instability and disease transmission, as well as
the risk of interruption to our delivery systems, is magnified when the realization of these, or any other risks, would
affect a large portion of our business at once, which may result in a disproportionate increase in operating costs.
Emergency interruption of customer engagement center operations could affect our business and results of
operations.
Our operations are dependent upon our ability to protect our customer engagement centers and our information
databases against damage that may be caused by fire, earthquakes, severe weather and other disasters, power failure,
telecommunications failures, unauthorized intrusion, computer viruses and other emergencies. The temporary or
permanent loss of such systems could have a material adverse effect on our business, financial condition and results
of operations. Notwithstanding precautions taken to protect us and our clients from events that could interrupt
delivery of services, there can be no assurance that a fire, natural disaster, human error, equipment malfunction or
inadequacy, or other event would not result in a prolonged interruption in our ability to provide services to our
clients. Such an event could have a material adverse effect on our business, financial condition and results of
operations.
Our business is dependent on the demand for outsourcing.
Our business and growth depend in large part on the industry demand for outsourced customer engagement services.
Outsourcing means that an entity contracts with a third party, such as us, to provide customer engagement services
rather than perform such services in-house. There can be no assurance that
this demand will continue, as
organizations may elect to perform such services themselves. A significant change in this demand could have a
material adverse effect on our business, financial condition and results of operations. Additionally, there can be no
assurance that our cross-selling efforts will cause clients to purchase additional services from us or adopt a single-
source outsourcing approach.
Our industry is subject to rapid technological change, which could affect our business and results of operations.
Rapid technological advances, frequent new product
introductions and enhancements, and changes in client
requirements characterize the market for outsourced customer engagement services. Technological advancements in
voice recognition software, as well as self-provisioning and self-help software, along with call avoidance
technologies, have the potential to adversely impact call volume growth and, therefore, revenues. Our future success
will depend in large part on our ability to service new products, platforms and rapidly changing technology. These
factors will require us to provide adequately trained personnel to address the increasingly sophisticated, complex
and evolving needs of our clients. In addition, our ability to capitalize on our acquisitions will depend on our ability
to continually enhance software and services and adapt such software to new hardware and operating system
requirements. Any failure by us to anticipate or respond rapidly to technological advances, new products and
enhancements, or changes in client requirements could have a material adverse effect on our business, financial
condition and results of operations.
Our business relies heavily on technology and computer systems, which subjects us to various uncertainties.
We have invested significantly in sophisticated and specialized communications and computer technology and have
focused on the application of this technology to meet our clients’ needs. We anticipate that the requirement to invest
in new technologies will continue to grow and that it will be necessary to continue to invest in and develop new and
enhanced technology on a timely basis to maintain our competitiveness. Significant capital expenditures are
expected to be required to keep our technology up-to-date. There can be no assurance that any of our information
systems will be adequate to meet our future needs or that we will be able to incorporate new technology to enhance
13
and develop our existing services. Moreover, investments in technology, including future investments in upgrades
and enhancements to software, may not necessarily maintain our competitiveness. Our future success will also
depend in part on our ability to anticipate and develop information technology solutions that keep pace with
evolving industry standards and changing client demands.
Intellectual property infringement by us and by others may adversely impact our ability to innovate and compete.
Our solutions could infringe intellectual property of others impacting our ability to deploy them with clients. From
time to time, we and members of our supply chain receive assertions that our service offerings or technologies
infringe on the patents or other intellectual property rights of third parties. While to date we have been successful in
defending such claims and many of these claims are without basis, the claims could require us to cease activities,
incur expensive licensing costs, or engage in costly litigation, which could adversely affect our business and results
of operation.
Our intellectual property may not always receive favorable treatment from the United States Patent and Trademark
Office, the European Patent Office or similar foreign intellectual property adjudication and registration agencies;
and our “patent pending” intellectual property may not receive a patent or may be subject to prior art limitations.
The lack of an effective legal system in certain countries where we do business or lack of commitment to protection
of intellectual property rights, may prevent us from being able to defend our intellectual property and related
technology against infringement by others, leading to a material adverse effect on our business, results of operations
and financial condition.
Increases in the cost of telephone and data services or significant interruptions in such services could adversely
affect our financial results.
Our business is significantly dependent on telephone and data service provided by various local and long-distance
telephone companies. Accordingly, any disruption of these services could adversely affect our business. We have
taken steps to mitigate our exposure to service disruptions by investing in redundant circuits, although there is no
assurance that the redundant circuits would not also suffer disruption. Any inability to obtain telephone or data
services at favorable rates could negatively affect our business results. Where possible, we have entered into long-
term contracts with various providers to mitigate short-term rate increases and fluctuations. There is no obligation,
however, for the vendors to renew their contracts with us, or to offer the same or lower rates in the future, and such
contracts are subject to termination or modification for various reasons outside of our control. A significant increase
in the cost of telephone services that is not recoverable through an increase in the price of our services could
adversely affect our financial results.
Our operating results will be adversely affected if we are unable to maximize our facility capacity utilization.
Our profitability is significantly influenced by our ability to effectively manage our contact center capacity
utilization. The majority of our business involves technical support and customer care services initiated by our
clients’ customers and, as a result, our capacity utilization varies and demands on our capacity are, to some degree,
beyond our control. In order to create the additional capacity necessary to accommodate new or expanded
outsourcing projects, we may need to open new contact centers. The opening or expansion of a contact center may
result, at least in the short term, in idle capacity until we fully implement the new or expanded program.
Additionally, the occasional need to open customer engagement centers fully, or primarily, dedicated to a single
client, instead of spreading the work among existing facilities with idle capacity, negatively affects capacity
utilization. We periodically assess the expected long-term capacity utilization of our contact centers. As a result, we
may, if deemed necessary, consolidate, close or partially close under-performing contact centers to maintain or
improve targeted utilization and margins. While such actions may result in improved margins in the mid- to long-
term, they involve short-term costs. There can be no guarantee that we will be able to achieve or maintain optimal
utilization of our contact center capacity.
As part of our effort to consolidate our facilities, we may seek to sell or sublease a portion of our surplus contact
center space, if any, and recover certain costs associated with it. Failure to sell or sublease such surplus space will
negatively impact results of operations.
14
Our profitability may be adversely affected if we are unable to maintain and find new locations for customer
engagement centers in countries with stable wage rates.
Our business is labor-intensive. Wages, employee benefits and employment taxes constitute the largest component
of our operating expenses. As a result, expansion of our business is dependent upon our ability to find cost-effective
locations in which to operate, both domestically and internationally. Some of our customer engagement centers are
located in countries that have experienced inflation and rising standards of living, which requires us to increase
employee wages. In addition, collective bargaining is being utilized in an increasing number of countries in which
we currently, or may in the future, desire to operate. Collective bargaining may result in material wage and benefit
increases. If wage rates and benefits increase significantly in a country where we maintain customer engagement
centers, we may not be able to pass those increased labor costs on to our clients, requiring us to search for other
cost-effective delivery locations. Additionally, some of our customer engagement centers are located in jurisdictions
subject to minimum wage regulations, which may result in increased wages in the future. There is no assurance that
we will be able to find such cost-effective locations, and even if we do, the costs of closing delivery locations and
opening new customer engagement centers can adversely affect our financial results.
The expected phase-out of LIBOR could negatively impact our net interest expense and could have other adverse
effects.
LIBOR, the interest rate benchmark used as a reference rate on our revolving credit facility is expected to be phased
out after 2021. At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR.
Although our credit agreement provides for application of successor rates based on prevailing market conditions, it
is not currently possible to predict the effect of any establishment of alternative reference rates on our borrowing
costs.
Risks Related to Our International Operations
Our international operations and expansion involve various risks.
We intend to continue to pursue growth opportunities in markets outside the United States. At December 31, 2019,
our international operations were conducted from 42 customer engagement centers located in Australia, Cyprus,
Denmark, Egypt, Finland, Germany, Hungary, India, Norway, the People’s Republic of China, the Philippines,
Romania, Scotland and Sweden. Revenues from these international operations for the years ended December 31,
2019, 2018, and 2017, were 39.8%, 36.8%, and 36.1% of consolidated revenues, respectively. Our operations in the
People’s Republic of China are subject to laws, rules and regulations requiring Chinese Nationals to hold a
controlling interest in entities operating in the telecommunications business services vertical. We have established
an entity structure and conduct business in a manner that we believe complies with the laws, rules and regulations
applicable to our business in the People’s Republic of China. However, an adverse governmental position could
result in fines, penalties and other actions that could result in a materially adverse financial, organizational and
operational impacts. We also conduct business from 12 customer engagement centers located in Brazil, Canada,
Colombia, Costa Rica, El Salvador and Mexico. International operations are subject to certain risks common to
international activities, such as changes in foreign governmental regulations, tariffs and taxes, import/export license
requirements, the imposition of trade barriers, difficulties in staffing and managing international operations, political
uncertainties, longer payment cycles, possible greater difficulties in accounts receivable collection, economic
instability as well as political and country-specific risks.
We have been granted tax holidays in the Philippines, Colombia, Costa Rica and El Salvador some of which expire
at varying dates from 2021 through 2028. In some cases, the tax holidays expire without possibility of renewal. In
other cases, we expect to renew these tax holidays, but there are no assurances from the respective foreign
governments that they will renew them. This could potentially result in adverse tax consequences, the impact of
which is not practicable to estimate due to the inherent complexity of estimating critical variables such as long-term
future profitability, tax regulations and rates in the multi-national tax environment in which we operate. Any one or
more of these factors could have an adverse effect on our international operations and, consequently, on our
business, financial condition and results of operations. The tax holidays decreased the provision for income taxes by
$3.1 million, $4.1 million and $3.0 million for the years ended December 31, 2019, 2018 and 2017, respectively.
15
As of December 31, 2019, we had cash and cash equivalents of approximately $125.3 million held by international
operations. As a result of the 2017 Tax Reform Act, most of these funds will not be subject to additional taxes in the
U.S. if repatriated; however, certain jurisdictions may impose additional withholding taxes. There are circumstances
where we may be unable to repatriate some of the cash and cash equivalents held by our international operations due
to country restrictions.
We provide U.S. income taxes on the earnings of foreign subsidiaries unless they are exempted from taxation as a
result of the new territorial tax system. During the fourth quarter of 2019, we partially reversed our permanent
reinvestment assertion in connection with plans to distribute cash from certain of our foreign subsidiaries in 2020 or
subsequent years.
In connection with this change in assertion, we recorded $1.0 million of withholding tax. No
additional income taxes have been provided for any remaining reinvested earnings or outside basis differences
inherent in our foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations.
Determination of any unrecognized deferred tax liability related to the outside basis difference in investments in
foreign subsidiaries is not practicable due to the inherent complexity of the multi-national tax environment in which
we operate.
We conduct business in various foreign currencies and are therefore exposed to market risk from changes in foreign
currency exchange rates and interest rates, which could impact our results of operations and financial condition. We
are also subject to certain exposures arising from the translation and consolidation of the financial results of our
foreign subsidiaries. We enter into foreign currency contracts to hedge against the effect of certain foreign currency
exchange exposures. However, there can be no assurance that we can take actions to mitigate such exposure in the
future, and if taken, that such actions will be successful or that future changes in currency exchange rates will not
have a material adverse impact on our future operating results. A significant change in the value of the U.S. Dollar
against the currency of one or more countries where we operate may have a material adverse effect on our financial
condition and results of operations. Additionally, our hedging exposure to counterparty credit risks is not secured by
any collateral. Although each of the counterparty financial institutions with which we place hedging contracts are
investment grade rated by the national rating agencies as of the time of the placement, we can provide no assurances
as to the financial stability of any of our counterparties. If a counterparty to one or more of our hedge transactions
were to become insolvent, we would be an unsecured creditor and our exposure at the time would depend on foreign
exchange rate movements relative to the contracted foreign exchange rate and whether any gains result that are not
realized due to a counterparty default.
The fundamental shift in our industry toward global service delivery markets presents various risks to our
business.
Clients continue to require blended delivery models using a combination of onshore and offshore support. While we
have operated in global delivery markets since 1996, there can be no assurance that we will be able to successfully
conduct and expand such operations, and a failure to do so could have a material adverse effect on our business,
financial condition, and results of operations. The success of our offshore operations will be subject to numerous
factors, some of which are beyond our control, including general and regional economic conditions, prices for our
services, competition, changes in regulation and other risks. In addition, as with all of our operations outside of the
United States, we are subject
to various additional political, economic and market uncertainties (see “Our
international operations and expansion involve various risks”). Additionally, a change in the political environment in
the United States or the adoption and enforcement of legislation and regulations curbing the use of offshore
customer engagement solutions and services could have a material adverse effect on our business, financial
condition and results of operations.
Our global operations expose us to numerous legal and regulatory requirements.
We provide services to our clients’ customers in countries around the world. Accordingly, we are subject to
numerous legal regimes on matters such as taxation, government sanctions, content requirements, licensing, tariffs,
government affairs, data privacy and immigration as well as internal and disclosure control obligations. In the U.S.,
as well as several of the other countries in which we operate, some of our services must comply with various laws
and regulations regarding the method and timing of placing outbound telephone calls. Violations of these various
laws and regulations could result
in liability for monetary damages, fines and/or criminal prosecution and
unfavorable publicity. Changes in U.S. federal, state and international laws and regulations, specifically those
relating to the outsourcing of jobs to foreign countries as well as statutory and regulatory requirements related to
16
derivative transactions, may adversely affect our ability to perform our services at our overseas facilities or could
result in additional taxes on such services, or impact our flexibility to execute strategic hedges, thereby threatening
or limiting our ability or the financial benefit to continue to serve certain markets at offshore locations, or the risks
associated therewith.
Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many tax
jurisdictions where we have business operations. As a result, policies regarding corporate income and other taxes in
numerous jurisdictions are under heightened scrutiny and tax reform legislation is being proposed or enacted in a
the 2017 Tax Reform Act, adopting broad U.S. corporate income tax
number of jurisdictions. For example,
reform has, among other things, reduced the U.S. corporate income tax rate, but also imposed base-erosion
prevention measures on non-U.S. earnings of U.S. entities as well as a one-time mandatory deemed repatriation tax
on accumulated non-U.S. earnings. The 2017 Tax Reform Act has affected the tax position reflected on our
consolidated balance sheet and has had an impact on our consolidated financial results beginning with the fourth
quarter of 2017, the period of enactment.
In addition, many countries are beginning to implement legislation and other guidance to align their international tax
rules with the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting
recommendations and action plan that aim to standardize and modernize global corporate tax policy, including
changes to cross-border tax, transfer-pricing documentation rules, and nexus-based tax incentive practices. As a
result of the heightened scrutiny of corporate taxation policies, prior decisions by tax authorities regarding
treatments and positions of corporate income taxes could be subject to enforcement activities, and legislative
investigation and inquiry, which could also result in changes in tax policies or prior tax rulings. Any such changes in
policies or rulings may also result in the taxes we previously paid being subject to change.
Due to the large scale of our international business activities any substantial changes in international corporate tax
policies, enforcement activities or legislative initiatives may materially and adversely affect our business, the
amount of taxes we are required to pay and our financial condition and results of operations generally.
Failure to comply with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act or other
applicable anti-corruption legislation, could result in fines, criminal penalties and an adverse effect on our
business.
We are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and
policies, including anti-corruption laws and export-import compliance and trade laws, due to our global operations.
In particular, the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act of 2010 and similar anti-
bribery laws in other jurisdictions generally prohibit companies, their agents, consultants and other business partners
from making improper payments to government officials or other persons (i.e., commercial bribery) for the purpose
of obtaining or retaining business or other improper advantage. They also impose recordkeeping and internal
control provisions on companies such as ours. We operate and/or conduct business, and any acquisition target may
operate and/or conduct business, in some parts of the world that are recognized as having governmental and
commercial corruption and in such countries, strict compliance with anti-bribery laws may conflict with local
customs and practices. Under some circumstances, a parent company may be civilly and criminally liable for bribes
paid by a subsidiary. We cannot assure you that our internal control policies and procedures have protected us, or
will protect us, from unlawful conduct of our employees, agents, consultants and other business partners. In the
event that we believe or have reason to believe that violations may have occurred, including without limitation
violations of anti-corruption laws, we may be required to investigate and/or have outside counsel investigate the
relevant facts and circumstances, which can be expensive and require significant time and attention from senior
management. Violation may result in substantial civil and/or criminal fines, disgorgement of profits, sanctions and
penalties, debarment from future work with governments, curtailment of operations in certain jurisdictions, and
imprisonment of the individuals involved. As a result, any such violations may materially and adversely affect our
business, results of operations or financial condition. In addition, actual or alleged violations could damage our
reputation and ability to do business. Any of these impacts could have a material, adverse effect on our business,
results of operations or financial condition.
Risks Related to Our Employees
Our inability to attract and retain experienced personnel may adversely impact our business.
Our business is labor intensive and places significant importance on our ability to recruit, train, and retain qualified
technical and consultative professional personnel in a tightening labor market. We generally experience high
17
turnover of our personnel and are continuously required to recruit and train replacement personnel as a result of a
changing and expanding work force. Additionally, demand for qualified technical professionals conversant in
multiple languages, including English, and/or certain technologies may exceed supply, as new and additional skills
are required to keep pace with evolving computer technology. Our ability to locate and train employees is critical to
achieving our growth objective. Our inability to attract and retain qualified personnel or an increase in wages or
other costs of attracting, training, or retaining qualified personnel could have a material adverse effect on our
business, financial condition and results of operations.
Our operations are substantially dependent on our senior management.
Our success is largely dependent upon the efforts, direction and guidance of our senior management. Our growth
and success also depend in part on our ability to attract and retain skilled employees and managers and on the ability
of our executive officers and key employees to manage our operations successfully. We have entered into
employment and non-competition agreements with our executive officers. The loss of any of our senior management
or key personnel, or the inability to attract, retain or replace key management personnel in the future, could have a
material adverse effect on our business, financial condition and results of operations.
Health epidemics could disrupt our business and adversely affect our financial results.
Our customer engagement centers typically seat hundreds of employees in one location. Accordingly, an outbreak
of a contagious infection in one or more of the markets in which we do business may result in significant worker
absenteeism, lower asset utilization rates, voluntary or mandatory closure of our offices and delivery centers, travel
restrictions on our employees, and other disruptions to our business. Any prolonged or widespread health epidemic
could severely disrupt our business operations and have a material adverse effect on our business, financial
condition and results of operations.
Risks Related to Our Business Strategy
Our strategy of growing through selective acquisitions and mergers involves potential risks.
We evaluate opportunities to expand the scope of our services through acquisitions and mergers. We may be unable
to identify companies that complement our strategies, and even if we identify a company that complements our
strategies, we may be unable to acquire or merge with the company. Also, a decrease in the price of our common
stock could hinder our growth strategy by limiting growth through acquisitions funded with SYKES’ stock.
The integration of an acquired company may result in additional and unforeseen expenses, and the full amount of
anticipated benefits of the integration plan may not be realized. If we are not able to adequately address these
challenges, we may be unable to fully integrate the acquired operations into our own, or to realize the full amount of
anticipated benefits of the integration of the companies.
18
Our acquisition strategy involves other potential risks. These risks include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the inability to obtain the capital required to finance potential acquisitions on satisfactory terms;
the diversion of our attention to the integration of the businesses to be acquired;
the risk that the acquired businesses will fail to maintain the quality of services that we have historically
provided;
the need to implement financial and other systems and add management resources;
the risk that key employees of the acquired business will leave after the acquisition;
potential liabilities of the acquired business;
unforeseen difficulties in the acquired operations;
adverse short-term effects on our operating results;
lack of success in assimilating or integrating the operations of acquired businesses within our business;
the dilutive effect of the issuance of additional equity securities;
the impairment of goodwill and other intangible assets involved in any acquisitions;
the businesses we acquire not proving profitable;
incurring additional indebtedness; and
in the case of foreign acquisitions, the need to integrate operations across different cultures and languages
and to address the particular economic, currency, political, and regulatory risks associated with specific
countries.
We may incur significant cash and non-cash costs in connection with the continued rationalization of assets
resulting from acquisitions.
We may incur a number of non-recurring cash and non-cash costs associated with the continued rationalization of
assets resulting from acquisitions relating to the closing of facilities and disposition of assets.
If our goodwill or intangible assets become impaired, we could be required to record a significant charge to
earnings.
We recorded substantial goodwill and intangible assets as a result of our recent acquisitions. We review our
goodwill and intangible assets for impairment when events or changes in circumstances indicate the carrying value
may not be recoverable. We assess whether there has been an impairment in the value of goodwill at least annually.
Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or
intangible assets may not be recoverable include declines in stock price, market capitalization or cash flows and
slower growth rates in our industry. We could be required to record a significant charge to earnings in our financial
statements during the period in which any impairment of our goodwill or intangible assets were determined,
negatively impacting our results of operations.
Risks Related to Our Common Stock
Our organizational documents contain provisions that could impede a change in control.
Our Board of Directors is divided into three classes serving staggered three-year terms. The staggered Board of
Directors and the anti-takeover effects of certain provisions contained in the Florida Business Corporation Act and
in our Articles of Incorporation and Bylaws, including the ability of the Board of Directors to issue shares of
preferred stock and to fix the rights and preferences of those shares without shareholder approval, may have the
effect of delaying, deferring or preventing an unsolicited change in control. This may adversely affect the market
price of our common stock or the ability of shareholders to participate in a transaction in which they might otherwise
receive a premium for their shares.
The volatility of our stock price may result in loss of investment.
The trading price of our common stock has been and may continue to be subject to wide fluctuations over short and
long periods of time. We believe that market prices of outsourced customer engagement services stocks in general
have experienced volatility, which could affect the market price of our common stock regardless of our financial
results or performance. We further believe that various factors such as general economic conditions, changes or
volatility in the financial markets, changing market conditions in the outsourced customer engagement services
19
industry, quarterly variations in our financial results, the announcement of acquisitions, strategic partnerships, or
new product offerings, and changes in financial estimates and recommendations by securities analysts could cause
the market price of our common stock to fluctuate substantially in the future.
Item 1B. Unresolved Staff Comments
There are no material unresolved written comments that were received from the SEC staff 180 days or more before
the year ended December 31, 2019 relating to our periodic or current reports filed under the Securities Exchange Act
of 1934.
Item 2. Properties
Our corporate headquarters are located in Tampa, Florida, consisting of approximately 62,000 square feet of leased
space. This facility currently serves as the headquarters for senior management and the financial, information
technology and administrative departments. In addition to our headquarters and the customer engagement centers
(“centers”) used by our Americas and EMEA segments discussed below, we also have offices in several countries
around the world which support our Americas and EMEA segments.
As of December 31, 2019, we operated one Company-owned fulfillment location and 73 multi-client centers. Our
centers were located in the following countries:
Centers
Americas:
Australia
Brazil
Canada (1)
Colombia
Costa Rica
El Salvador
India
Mexico
People's Republic of China
The Philippines
United States (2)
Total Americas centers
EMEA:
Cyprus
Denmark
Egypt
Finland
Germany
Hungary
Norway
Romania
Scotland
Sweden
Total EMEA centers
Total centers
(1) Company-owned center.
(2) Two of these centers are Company-owned.
3
1
1
1
5
2
2
2
3
7
19
46
2
1
1
1
5
1
1
5
4
6
27
73
We believe our existing facilities, both owned and leased, are suitable and adequate to meet current requirements,
and that suitable additional or substitute space will be available as needed to accommodate any physical expansion
or any space required due to expiring leases not renewed. We operate from time to time in temporary facilities to
accommodate growth before new centers are available. For the year ended December 31, 2019, our centers, taken as
a whole, were utilized at average capacities of approximately 73% and were capable of supporting a higher level of
market demand. We had average utilization of 73% in both the Americas and EMEA during 2019.
20
Item 3. Legal Proceedings
Information with respect to this item may be found in Note 22, Commitments and Loss Contingencies, of the
accompanying “Notes to Consolidated Financial Statements” under the caption "Loss Contingencies," which
information is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Our common stock is quoted on the NASDAQ Global Select Market under the symbol SYKE.
Holders of our common stock are entitled to receive dividends out of the funds legally available when and if
declared by the Board of Directors. We have not declared or paid any cash dividends on our common stock in the
past and do not anticipate paying any cash dividends in the foreseeable future.
According to the records of our transfer agent as of February 3, 2020, there were approximately 740 holders of
record of our common stock and we estimate there were approximately 11,900 beneficial owners.
Below is a summary of stock repurchases for the quarter ended December 31, 2019 (in thousands, except average
price per share).
Period
October 1, 2019 - October 31, 2019
November 1, 2019 - November 30, 2019
December 1, 2019 - December 31, 2019
Total
Total
Number of
Shares
Purchased
Average
Price
Paid Per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares That May
Yet Be Purchased
Under Plans or
Programs (1)
— $
— $
— $
—
—
—
—
—
—
—
—
3,608
3,608
3,608
3,608
(1) The total number of shares approved for repurchase under the 2011 Share Repurchase Program dated August 18, 2011, as amended
on March 16, 2016, is 10.0 million. The 2011 Share Repurchase Program has no expiration date.
21
Five-Year Stock Performance Graph
The following graph presents a comparison of the cumulative shareholder return on SYKES common stock with the
cumulative total
the NASDAQ
return on the NASDAQ Computer and Data Processing Services Index,
Telecommunications Index, the Russell 2000 Index, the S&P Small Cap 600 and the SYKES Peer Group (as defined
below). The SYKES Peer Group is comprised of publicly traded companies that derive a substantial portion of their
revenues from engagement centers, customer care businesses, have similar business models to SYKES, and are
those most commonly compared to SYKES by industry analysts following SYKES. This graph assumes that $100
was invested on December 31, 2014 in SYKES common stock, the NASDAQ Computer and Data Processing
Services Index, the NASDAQ Telecommunications Index, the Russell 2000 Index, the S&P Small Cap 600 and the
SYKES Peer Group, including reinvestment of dividends.
Comparison of Five-Year Cumulative Total Return (in dollars)
Sykes Enterprises, Incorporated
NASDAQ Computer and Data Processing Index
NASDAQ Telecommunications Stocks
Russell 2000 Index
S&P SmallCap 600 Index
Peer Group
$350
$300
$250
$200
$150
$100
$50
$0
Sykes Enterprises, Incorporated
NASDAQ Computer and Data Processing Index
NASDAQ Telecommunications Stocks
Russell 2000 Index
S&P SmallCap 600 Index
Peer Group
2014
100.00
100.00
100.00
100.00
100.00
100.00
2015
131.15
131.10
94.71
95.59
98.03
117.63
2016
122.97
142.54
111.36
115.95
124.06
136.11
2017
134.00
200.79
133.88
132.94
140.47
192.78
2018
105.36
221.52
140.93
118.30
128.56
193.78
2019
157.60
299.00
160.17
148.49
157.85
290.40
201320142015201620172018Sykes Enterprises, Incorporated Return %7.6131.15-6.248.97-21.37Cum $100.00107.61141.13132.32144.19113.38NASDAQ Computer and Data Processing Index Return %6.9231.108.7340.8710.32Cum $100.00106.92140.17152.40214.68236.84NASDAQ Telecommunications Stocks Return %11.51-5.2917.5920.225.27Cum $100.00111.51105.61124.18149.29157.15Russell 2000 Index Return %4.89-4.4121.3114.65-11.01Cum $100.00104.89100.26121.63139.45124.09S&P Small cap 600 Index Return %5.76-1.9726.5613.23-8.48Cum $100.00105.76103.67131.20148.56135.96New Peer Group Return %9.3517.6315.7141.640.52Cum $100.00109.35128.63148.84210.81211.91Old Peer Group Return %5.8719.1911.6331.521.30Cum $100.00105.87126.20140.88185.28187.68
2014 2015 2016 2017 2018 2019 Sykes Enterprises, Incorporated 100.00 131.15 122.97 134.00 105.36 157.60 NASDAQ Computer and Data Processing Index 100.00 131.10 142.54 200.79 221.52 299.00 NASDAQ Telecommunications Stocks 100.00 94.71 111.36 133.88 140.93 160.17 Russell 2000 Index 100.00 95.59 115.95 132.94 118.30 148.49 S&P SmallCap 600 Index 100.00 98.03 124.06 140.47 128.56 157.85 Peer Group 100.00 117.63 136.11 192.78 193.78 290.40
SYKES Peer Group
Atento S.A.
StarTek, Inc.
Teleperformance
TTEC Holdings, Inc.
Exchange & Ticker Symbol
NYSE: ATTO
NYSE: SRT
Paris: TEP
NASDAQ: TTEC
There can be no assurance that SYKES’ stock performance will continue into the future with the same or similar
trends depicted in the graph above. SYKES does not make or endorse any predictions as to the future stock
performance.
The information contained in the Stock Performance Graph section shall not be deemed to be “soliciting material”
or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a
document filed under the Securities Exchange Act of 1934.
22
Item 6. Selected Financial Data
The following selected financial data has been derived from our consolidated financial statements.
The information below should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and the accompanying Consolidated Financial Statements and related notes
thereto.
(in thousands, except per share data)
Income Statement Data: (3)
Revenues
Income from operations (4)(5)
Net income (4)(5)(6)
Net Income Per Common Share: (3)(4)(5)(6)
Basic
Diluted
Weighted Average Common Shares:
Basic
Diluted
Balance Sheet Data: (3)(4)(6)(7)
Total assets
Long-term debt
Shareholders' equity
Years Ended December 31,
2019 (1)
2018 (2)
2017
2016
2015
$ 1,614,762
89,800
64,081
$ 1,625,687
63,202
48,926
$ 1,586,008
87,042
32,216
$ 1,460,037
92,373
62,390
$ 1,286,340
94,358
68,597
$
$
1.54
1.53
$
$
1.16
1.16
$
$
0.77
0.76
$
$
1.49
1.48
$
$
1.64
1.62
41,649
41,802
42,090
42,246
41,822
42,141
41,847
42,239
41,899
42,447
$ 1,415,500
73,000
874,475
$ 1,171,967
102,000
826,609
$ 1,327,092
275,000
796,479
$ 1,236,403
267,000
724,522
$ 947,772
70,000
678,680
(1) Effective January 1, 2019, the Company adopted new guidance on leases using the modified retrospective method; as such, 2015 –
2018 have not been restated. See Note 3, Leases, of the accompanying “Notes to Consolidated Financial Statements” for further
information.
(2) Effective January 1, 2018, the Company adopted new guidance on revenue recognition using the modified retrospective method; as
such, 2015 – 2017 have not been restated. See Note 2, Revenues, of the accompanying “Notes to Consolidated Financial
Statements” for further information.
(3) The amounts reflect the results of Symphony, WhistleOut, the Telecommunications Asset acquisition, Clearlink and Qelp since the
associated acquisition dates of November 1, 2018, July 9, 2018, May 31, 2017, April 1, 2016 and July 2, 2015, respectively, as well
as the related merger and integration costs incurred as part of each acquisition. See Note 4, Acquisitions, of the accompanying
“Notes
and
Telecommunications Asset acquisitions.
information regarding the Symphony, WhistleOut
to Consolidated Financial Statements”
further
for
(4) The amounts for 2019, 2018 and 2017 include exit costs and impairments of long-lived assets. See Note 5, Costs Associated with
Exit or Disposal Activities, and Note 6, Fair Value, of the accompanying “Notes to Consolidated Financial Statements” for further
information.
(5) The amounts for 2018 include the $1.2 million Slaughter settlement agreement. See Note 22, Commitments and Loss
Contingencies, of the accompanying “Notes to Consolidated Financial Statements” for further information.
(6) The amount for 2017 includes $32.7 million related to the impact of the 2017 Tax Reform Act. See Note 20, Income Taxes, of the
accompanying “Notes to Consolidated Financial Statements” for further information.
(7) The Company has not declared cash dividends per common share for any of the five years presented.
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the accompanying Consolidated Financial Statements and the
notes thereto that appear elsewhere in this Annual Report on Form 10-K. The following discussion and analysis
compares the year ended December 31, 2019 (“2019”) to the year ended December 31, 2018 (“2018”). For a
discussion of the year ended December 31, 2018 as compared to the year ended December 31, 2017, see our Annual
Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission
(“SEC”) on February 26, 2019.
The following discussion and analysis and other sections of this document contain forward-looking statements that
involve risks and uncertainties. Words such as “may,” “expects,” “projects,” “anticipates,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such
forward-looking statements. Similarly, statements that describe our future plans, objectives, or goals also are
forward-looking statements. Future events and actual results could differ materially from the results reflected in
these forward-looking statements as a result of certain of the factors set forth below and elsewhere in this Annual
Report on Form 10-K for the year ended December 31, 2019, including the following analysis and in Item 1.A.,
“Risk Factors,” and, accordingly, undue reliance should not be placed on such statements. All forward-looking
statements are made as of the date hereof, and we undertake no obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise.
Executive Summary
We are a leading provider of multichannel demand generation and global comprehensive customer engagement
services. We provide differentiated full lifecycle customer engagement solutions and services primarily to Global
2000 companies and their end customers, principally in the financial services, communications, technology,
transportation & leisure, healthcare and other industries. Our differentiated full lifecycle management 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
by a suite of robotic process automation (“RPA”) and artificial intelligence (“AI”) solutions. We serve our clients
through two geographic operating regions: the Americas (United States, Canada, Latin America, Australia and the
Asia Pacific Rim) and EMEA (Europe, the Middle East and Africa). Our Americas and EMEA regions primarily
provide customer engagement solutions and services with an emphasis on inbound multichannel demand generation,
customer service and technical support to our clients’ customers. These services, which represented 97.7%, 99.0%
and 99.4% of consolidated revenues in 2019, 2018 and 2017, respectively, are delivered through multiple
communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. We
also provide various enterprise support services in the United States (“U.S.”) that include services for our clients’
internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe,
we also provide fulfillment services, which include order processing, payment processing, inventory control, product
delivery and product returns handling. Additionally, through our acquisition of RPA provider Symphony Ventures
Ltd (“Symphony”) coupled with our investment in AI through XSell Technologies, Inc. (“XSell”), we also provide a
suite of solutions such as consulting, implementation, hosting and managed services that optimizes our differentiated
full lifecycle management services platform. Our complete service offering helps our clients acquire, retain and
increase the lifetime value of their customer relationships. We have developed an extensive global reach with
customer engagement centers across six continents, including North America, South America, Europe, Asia,
Australia and Africa. We deliver cost-effective solutions that generate demand, enhance the customer service
experience, promote stronger brand loyalty, and bring about high levels of performance and profitability.
Recent Developments
Americas 2019 Exit Plan
During the first quarter of 2019, we initiated a restructuring plan to simplify and refine our 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 the closure of customer engagement centers, the consolidation of leased space in various locations in
the U.S. and management reorganization. We finalized the actions the Americas 2019 Exit Plan as of September 30,
2019. Annualized savings of $7.1 million are expected as a result of these actions, primarily related to reduced
general and administrative costs and lower depreciation.
24
Americas 2018 Exit Plan
During the second quarter of 2018, we initiated a restructuring plan to manage and optimize capacity utilization,
which included the closure of customer engagement centers and the consolidation of leased space in various
locations in the U.S. and Canada (the “Americas 2018 Exit Plan”). We finalized the site closures under the Americas
2018 Exit Plan as of December 31, 2018, which resulted in a decrease of approximately 5,000 seats.
See Note 5, Costs Associated with Exit or Disposal Activities, in the accompanying “Notes to Consolidated
Financial Statements” for further information regarding our exit plans.
U.S. 2017 Tax Reform Act
On December 20, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”) was approved by Congress and
received presidential approval on December 22, 2017. In general, the 2017 Tax Reform Act reduced the U.S.
corporate income tax rate from 35% to 21%, effective in 2018. The 2017 Tax Reform Act moved from a worldwide
business taxation approach to a participation exemption regime. The 2017 Tax Reform Act also imposed base-
erosion prevention measures on non-U.S. earnings of U.S. entities, as well as a one-time mandatory deemed
repatriation tax on accumulated non-U.S. earnings. The impact of the 2017 Tax Reform Act on our consolidated
financial results began with the fourth quarter of 2017, the period of enactment. This impact, along with the
transitional taxes discussed in Note 20, Income Taxes, of the accompanying “Notes to Consolidated Financial
Statements” is reflected in the Other segment.
Acquisitions
On November 1, 2018, we completed the acquisition of Symphony. Symphony provides RPA services, offering
RPA consulting, implementation, hosting and managed services for front, middle and back-office processes. Of the
total purchase price of GBP 52.5 million ($67.6 million), GBP 44.6 million ($57.6 million) was paid upon closing
using cash on hand as well as $31.0 million of additional borrowings under our credit agreement, while the
acquisition date present value of the remaining GBP 7.9 million ($10.0 million) of the purchase price was deferred
and is payable in equal installments over three years, on or around November 1, 2019, 2020 and 2021. Subsequent to
the finalization of the working capital adjustment, the purchase price was adjusted to GBP 52.4 million ($67.5
million). The results of Symphony’s operations have been reflected in our consolidated financial statements since
November 1, 2018.
On July 9, 2018, we completed the acquisition of WhistleOut Pty Ltd and WhistleOut Inc. (together, “WhistleOut”).
WhistleOut is a consumer comparison platform focused on mobile, broadband and pay TV services, principally
across Australia and the U.S. The acquisition broadens our digital marketing capabilities geographically and extends
our home services product portfolio. The total purchase price of AUD 30.2 million ($22.4 million) was funded
through $22.0 million of additional borrowings under our credit agreement. Subsequent to the finalization of the
working capital adjustment, the purchase price was adjusted to AUD 30.3 million ($22.5 million). The results of
WhistleOut’s operations have been reflected in our consolidated financial statements since July 9, 2018.
25
Results of Operations
The following table sets forth, for the years indicated, the amounts presented in the accompanying Consolidated
Statements of Operations as well as the changes between the respective years:
(in thousands)
Revenues
Operating expenses:
Direct salaries and related costs
General and administrative
Depreciation, net
Amortization of intangibles
Impairment of long-lived assets
Total operating expenses
Income from operations
Other income (expense):
Interest income
Interest (expense)
Other income (expense), net
Total other income (expense), net
Income before income taxes
Income taxes
Net income
Years Ended December 31,
$ Change
2017
$ Change
$
(10,925) $ 1,586,008
$
39,679
2018
$ 1,625,687
2019
$ 1,614,762
1,042,289
412,407
51,916
16,639
1,711
1,524,962
89,800
1,072,907
407,285
57,350
15,542
9,401
1,562,485
63,202
(30,618)
5,122
(5,434)
1,097
(7,690)
(37,523)
26,598
1,039,677
376,825
55,972
21,082
5,410
1,498,966
87,042
846
(4,309)
(414)
(3,877)
706
(4,743)
(2,248)
(6,285)
140
434
1,834
2,408
696
(7,689)
1,258
(5,735)
85,923
21,842
64,081
$
56,917
7,991
48,926
$
29,006
13,851
15,155
$
81,307
49,091
32,216
$
(24,390)
(41,100)
16,710
$
33,230
30,460
1,378
(5,540)
3,991
63,519
(23,840)
10
2,946
(3,506)
(550)
The following table sets forth, for the years indicated, the amounts presented in the accompanying Consolidated
Statements of Operations as a percentage of revenues:
Percentage of Revenue:
Revenues
Direct salaries and related costs
General and administrative
Depreciation, net
Amortization of intangibles
Impairment of long-lived assets
Income from operations
Interest income
Interest (expense)
Other income (expense), net
Income before income taxes
Income taxes
Net income
Years Ended December 31,
2018
2017
2019
100.0%
64.5
25.5
3.2
1.0
0.1
5.7
0.1
(0.3)
(0.0)
5.5
1.4
4.1%
100.0%
66.0
25.1
3.5
1.0
0.6
3.8
0.0
(0.3)
(0.1)
3.4
0.5
2.9%
100.0%
65.6
23.8
3.5
1.3
0.3
5.5
0.0
(0.5)
0.1
5.1
3.1
2.0%
26
2019 Compared to 2018
Revenues
(in thousands)
Americas
EMEA
Other
Consolidated
Years Ended December 31,
2019
2018
Amount
$ 1,296,660
318,013
89
$ 1,614,762
% of Revenues
80.3%
19.7%
0.0%
100.0%
Amount
$ 1,330,638
294,954
95
$ 1,625,687
% of Revenues
81.9%
18.1%
0.0%
100.0%
$ Change
$
$
(33,978)
23,059
(6)
(10,925)
Consolidated revenues decreased $10.9 million, or 0.7%, in 2019 from 2018.
The decrease in Americas’ revenues was due to end-of-life client programs of $80.7 million primarily in the
communications and other verticals and an unfavorable foreign currency impact of $6.8 million, partially offset by
higher volumes from existing clients of $43.1 million and new clients of $10.4 million. Revenues from our offshore
operations represented 42.7% of Americas’ revenues in 2019, compared to 39.7% for the comparable period in
2018.
The increase in EMEA’s revenues was due to higher volumes from existing clients of $30.5 million and new clients
of $19.8 million, partially offset by end-of-life client programs of $9.0 million primarily in the communications,
technology and other verticals and an unfavorable foreign currency impact of $18.2 million.
On a consolidated basis, we had 48,200 brick-and-mortar seats as of December 31, 2019, a net decrease of 600 seats
from 2018, primarily due to the rationalization of excess capacity. The average capacity utilization rate on a
combined basis was 73% in 2019, compared to 71% in 2018.
On a segment basis, 40,200 seats were located in the Americas, a net decrease of 1,000 seats from 2018, and 8,000
seats were located in EMEA, a net increase of 400 seats from 2018. The average capacity utilization rate for the
Americas in 2019 was 73%, compared to 70% in 2018, up primarily due to the rationalization of excess capacity
coupled with an increase in demand. The average capacity utilization rate for EMEA in 2019 was 73%, compared to
75% in 2018, down primarily due to expansion and the utilization of our at-home platform as a complement to our
brick-and-mortar facilities. We strive to attain a capacity utilization of 85% at each of our locations.
Direct Salaries and Related Costs
Years Ended December 31,
2019
2018
(in thousands)
Americas
EMEA
Consolidated
Amount % of Revenues Amount % of Revenues $ Change
$ 864,954
207,953
$1,072,907
$ (38,699)
8,081
$ (30,618)
$ 826,255
216,034
$1,042,289
65.0%
70.5%
66.0%
63.7%
67.9%
64.5%
Change in % of
Revenues
-1.3%
-2.6%
-1.5%
The decrease of $30.6 million in direct salaries and related costs included a favorable foreign currency impact of
$5.4 million in the Americas and a favorable foreign currency impact of $13.0 million in EMEA.
The decrease in Americas’ direct salaries and related costs, as a percentage of revenues, was primarily attributable to
lower compensation costs of 1.2% principally due to an increase in agent productivity principally within the
financial services, transportation and communications verticals in the current period, lower communications costs of
0.3%, lower severance costs principally related to the Americas 2018 Exit Plan of 0.2% and lower other costs of
0.1%, partially offset by higher recruiting costs of 0.3% and higher auto tow claim costs of 0.2%.
The decrease in EMEA’s direct salaries and related costs, as a percentage of revenues, was primarily attributable to
lower compensation costs of 1.9% primarily due to an increase in agent productivity principally within the
communications vertical in the current period, lower communications costs of 0.3%, lower fulfillment materials
27
costs of 0.3%, lower recruiting costs of 0.2% and lower other costs of 0.2%, partially offset by higher travel costs of
0.3%.
General and Administrative
(in thousands)
Americas
EMEA
Other
Consolidated
Years Ended December 31,
2019
2018
Amount % of Revenues Amount % of Revenues $ Change
$ 285,597
63,287
58,401
$ 407,285
$ 278,056
74,205
60,146
$ 412,407
21.5%
21.5%
-
25.1%
21.4%
23.3%
-
25.5%
(7,541)
10,918
1,745
5,122
$
$
Change in % of
Revenues
-0.1%
1.8%
-
0.4%
The increase of $5.1 million in general and administrative expenses included a favorable foreign currency impact of
$1.6 million in the Americas and a favorable foreign currency impact of $4.1 million in EMEA.
The decrease in Americas’ general and administrative expenses, as a percentage of revenues, was primarily
attributable to lower facility-related costs of 0.5% resulting from the Americas 2018 Exit Plan, lower legal and
professional fees of 0.3% and lower other costs of 0.3%, partially offset by higher software and maintenance costs of
0.5% and higher compensations costs of 0.5%.
The increase in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily
attributable to higher compensation costs of 1.0%, higher merger and integration costs of 0.4%, higher software and
maintenance costs of 0.4%, higher facility-related costs of 0.2% and higher travel costs of 0.2%, partially offset by
lower communications costs of 0.2% and lower other costs of 0.2%.
The increase of $1.7 million in Other general and administrative expenses, which includes corporate and other costs,
was primarily attributable to higher compensation costs of $1.0 million, higher software and maintenance costs of
$0.8 million, higher legal and professional fees of $0.7 million, higher insurance costs of $0.4 million and higher
seminars and education costs of $0.2 million, partially offset by lower merger and integration costs of $1.3 million
and lower other costs of $0.1 million.
Depreciation, Amortization and Impairment of Long-Lived Assets
(in thousands)
Depreciation, net:
Americas
EMEA
Other
Consolidated
Amortization of intangibles:
Americas
EMEA
Other
Consolidated
Impairment of long-lived assets:
Americas
EMEA
Other
Consolidated
Years Ended December 31,
2019
2018
Amount % of Revenues Amount % of Revenues $ Change
Change in % of
Revenues
$ 48,378
5,952
3,020
$ 57,350
$ 14,287
1,255
—
$ 15,542
$
$
9,401
—
—
9,401
3.6%
2.0%
-
3.5%
1.1%
0.4%
-
1.0%
0.7%
0.0%
-
0.6%
$
$
$
$
$
$
(5,992)
569
(11)
(5,434)
(983)
2,080
—
1,097
(7,690)
—
—
(7,690)
-0.3%
0.1%
-
-0.3%
-0.1%
0.6%
-
0.0%
-0.6%
0.0%
-
-0.5%
$ 42,386
6,521
3,009
$ 51,916
$ 13,304
3,335
—
$ 16,639
$
$
1,711
—
—
1,711
3.3%
2.1%
-
3.2%
1.0%
1.0%
-
1.0%
0.1%
0.0%
-
0.1%
28
The decrease in depreciation was primarily due to the impact since the prior period of certain fully depreciated fixed
assets and fixed assets that were impaired and disposed of as part of the Americas 2018 Exit Plan, partially offset by
new depreciable fixed assets placed into service supporting site expansions, acquisitions and infrastructure upgrades.
The increase in amortization was primarily due to the addition of intangibles acquired in conjunction with the
November 2018 Symphony acquisition, partially offset by certain fully amortized intangible assets.
See Note 5, Costs Associated with Exit or Disposal Activities, and Note 6, Fair Value, in the accompanying “Notes
to Consolidated Financial Statements” for further information regarding the impairment of long-lived assets.
Other Income (Expense)
(in thousands)
Interest income
Interest (expense)
Other income (expense), net:
Foreign currency transaction gains (losses)
Gains (losses) on derivative instruments not designated as hedges
Gains (losses) on investments held in rabbi trust
Other miscellaneous income (expense)
Total other income (expense), net
Years Ended December 31,
2019
2018
$ Change
$
$
$
$
846
$
706
$
(4,309) $
(4,743) $
(1,262) $
(674)
2,379
(857)
(414) $
$
2,029
(1,751)
(867)
(1,659)
(2,248) $
140
434
(3,291)
1,077
3,246
802
1,834
The increase in interest income was primarily due to an increase in the rate earned.
The decrease in interest (expense) was primarily due to a decrease in the outstanding borrowings under our credit
agreements as a result of $29.0 million and $173.0 million of repayments, net, in 2019 and 2018, respectively,
partially offset by an increase in weighted average interest rates on outstanding borrowings.
See Note 13, Investments Held in Rabbi Trust, of “Notes to Consolidated Financial Statements” for further
information.
The change in other miscellaneous income (expense) was primarily due to a reduction in Affordable Care Act
compliance costs, payroll tax compliance costs and losses from our equity method investee, XSell.
Income Taxes
(in thousands)
Income before income taxes
Income taxes
Effective tax rate
Years Ended December 31,
2019
2018
$ Change
$
$
85,923
21,842
$
$
56,917
7,991
$
$
29,006
13,851
25.4%
14.0%
11.4%
% Change
The increase in the effective tax rate in 2019 compared to 2018 was primarily due to tax benefits recognized related
to the 2017 Tax Reform Act and the settlement of tax audits and ancillary issues, both in 2018. The effective tax rate
was also affected by shifts in earnings among the various jurisdictions in which we operate along with several
additional factors, the overall impact of which was not material.
29
Quarterly Results
The following information presents our unaudited quarterly operating results for 2019 and 2018. The data has been
prepared on a basis consistent with the accompanying Consolidated Financial Statements included elsewhere in this
Annual Report on Form 10-K, and includes all adjustments, consisting of normal recurring accruals, that we
consider necessary for a fair presentation thereof.
(in thousands, except per share data)
Revenues
Operating expenses:
Direct salaries and related costs
General and administrative (1)
Depreciation, net
Amortization of intangibles
Impairment of long-lived assets
Total operating expenses
Income from operations
Other income (expense):
Interest income
Interest (expense)
Other income (expense), net
Total other income (expense), net
Income before income taxes
Income taxes
Net income (loss)
Net income (loss) per common share: (2)
Basic
Diluted
Weighted average shares:
Basic
Diluted
12/31/2019
$ 425,284
9/30/2019
$ 397,547
6/30/2019
$ 389,006
3/31/2019
$ 402,925
12/31/2018
$ 415,198
9/30/2018
$ 399,333
6/30/2018
$ 396,785
3/31/2018
$ 414,371
274,731
100,825
12,518
4,123
—
392,197
33,087
253,669
102,620
12,449
4,103
—
372,841
24,706
252,161
104,282
13,052
4,127
129
373,751
15,255
261,728
104,680
13,897
4,286
1,582
386,173
16,752
271,437
97,660
13,882
4,062
145
387,186
28,012
261,474
105,148
14,072
3,638
555
384,887
14,446
264,924
102,037
14,560
3,629
5,175
390,325
6,460
275,072
102,440
14,836
4,213
3,526
400,087
14,284
235
(861 )
(436 )
(1,062 )
234
(1,091 )
(55 )
(912 )
192
(1,179)
(533)
(1,520)
185
(1,178)
610
(383)
177
(1,220 )
(2,785 )
(3,828 )
183
(1,168 )
919
(66 )
175
(1,149 )
(537 )
(1,511 )
171
(1,206 )
155
(880 )
32,025
9,005
23,020
23,794
5,689
$ 18,105
13,735
2,466
$ 11,269
16,369
4,682
$ 11,687
0.56
0.56
$
$
0.44
0.44
$
$
0.27
0.27
$
$
0.28
0.28
24,184
7,136
17,048
14,380
628
$ 13,752
0.40
0.40
$
$
0.33
0.33
4,949
(2,229 )
7,178
13,404
2,456
$ 10,948
0.17
0.17
$
$
0.26
0.26
$
$
$
$
$
$
$
$
$
41,176
41,453
41,190
41,307
42,038
42,094
42,169
42,299
42,145
42,264
42,136
42,204
42,125
42,160
41,939
42,232
(1) The quarter ended December 31, 2018 includes the $1.2 million Slaughter settlement agreement. See Note 22, Commitments and
Loss Contingencies, of the accompanying “Notes to Consolidated Financial Statements” for further information.
(2) Net income (loss) per basic and diluted common share is computed independently for each of the quarters presented and, therefore,
may not sum to the total for the year.
Business Outlook
For the three months ended March 31, 2020, we anticipate the following financial results:
Revenues in the range of $417.0 million to $422.0 million;
•
Effective tax rate of approximately 25.0%;
•
•
Fully diluted share count of approximately 41.5 million;
• Diluted earnings per share in the range of $0.39 to $0.43; and
•
Capital expenditures in the range of $15.0 million to $20.0 million
For the twelve months ended December 31, 2020, we anticipate the following financial results:
Revenues in the range of $1,700.0 million to $1,720.0 million;
•
Effective tax rate of approximately 24.0%;
•
•
Fully diluted share count of approximately 41.6 million;
• Diluted earnings per share in the range of $2.02 to $2.16; and
•
Capital expenditures in the range of $50.0 million to $60.0 million
We continue to see a broad-based increase in client demand across our vertical markets. In fact, client demand
projections for 2020 are significantly better than what we initially indicated in our third quarter 2019 earnings
30
release. To service this higher level of demand, we expect higher than planned ramp costs, which are expected to be
front-end loaded.
The first quarter and full year 2020 revenues and diluted earnings per share outlook do not reflect the impact of the
coronavirus disease (COVID-19) given its uncertain path within and beyond China. However, China generated
roughly $36 million of revenues in 2019 with operating margins, net of overhead allocation, roughly in line with the
current Company average. We believe that the revenues and diluted earnings per share impact for the first quarter of
2020 could be in the range of $1.5 million to $2.0 million and $0.03 to $0.05, respectively, based on current labor
participation levels at our facilities and home agent utilization post Chinese New Year’s.
Our revenues and earnings per share assumptions for the first quarter and full year 2020 are based on foreign
exchange rates as of February 2020. Therefore, the continued volatility in foreign exchange rates between the U.S.
Dollar and the functional currencies of the markets we serve could have a further impact, positive or negative, on
revenues and earnings per share relative to the business outlook for the first quarter and full-year as discussed above.
We anticipate total other interest income (expense), net of approximately $(1.2) million for the first quarter and
$(3.8) million for the full year 2020. The full year 2020 amount is in line with 2019. The amounts in the other
interest income (expense), net, however, exclude the potential impact of any future foreign exchange gains or losses.
We expect our full-year 2020 effective tax rate to be in line with our 2019 tax rate.
Not included in this guidance is the impact of any future acquisitions, share repurchase activities or a potential sale
of previously exited customer engagement centers.
Liquidity and Capital Resources
Our primary sources of liquidity are typically cash flows generated by operating activities and from available
borrowings under our revolving credit facility. We utilize these capital resources to make capital expenditures
associated primarily with our customer engagement services, invest in technology applications and tools to further
develop our service offerings and for working capital and other general corporate purposes, including the repurchase
of our common stock in the open market and to fund acquisitions. In future periods, we intend similar uses of these
funds.
Our Board of Directors authorized us to purchase up to 10.0 million shares of our outstanding common stock (the
“2011 Share Repurchase Program”) on August 18, 2011, as amended on March 16, 2016. A total of 6.4 million
shares have been repurchased under the 2011 Share Repurchase Program since inception. The shares are purchased,
from time to time, through open market purchases or in negotiated private transactions, and the purchases are based
on factors, including but not limited to, the stock price, management discretion and general market conditions. The
2011 Share Repurchase Program has no expiration date.
During 2019, cash increased $101.3 million from operating activities, $29.0 million of debt proceeds, $1.2 million
of proceeds from a property and equipment insurance settlement and $0.3 million of other cash inflows, partially
offset by $58.0 million used to repay long-term debt, $38.7 million used for capital expenditures, $30.3 million used
to repurchase common stock, $3.2 million to repurchase common stock for tax withholding on equity awards, $3.1
million of cash paid for acquisitions, $1.1 million of loan fees related to the 2019 Credit Agreement and $0.3 million
used for the purchase of intangible assets, resulting in a $1.0 million decrease in available cash, cash equivalents and
restricted cash (including the favorable effects of foreign currency exchange rates on cash, cash equivalents and
restricted cash of $1.9 million).
Net cash flows provided by operating activities for 2019 were $101.3 million, compared to $109.1 million in 2018.
The $7.8 million decrease in net cash flows from operating activities was due to a $14.6 million decrease in non-
cash reconciling items such as impairment, depreciation, net unrealized (gains) losses and premiums on financial
instruments, net unrealized foreign currency transaction (gains) losses and a net (gain) on insurance settlement, and
a net decrease of $8.4 million in cash flows from assets and liabilities, partially offset by a $15.2 million increase in
net income. The $8.4 million decrease in cash flows from assets and liabilities was principally a result of a $32.0
million increase in accounts receivable and a $2.9 million decrease in deferred revenue and customer liabilities,
partially offset by a $21.3 million increase in other liabilities, a $3.4 million decrease in other assets, a $1.0 million
31
increase in taxes payable and a $0.8 million increase in net operating lease liabilities. The $32.0 million increase in
the change in accounts receivable was primarily due to the timing of billings and collections. The $21.3 million
increase in the change in other liabilities was primarily due to a $15.8 million increase principally related to the
timing of accrued employee compensation and benefits, a $3.7 million increase in accounts payable principally due
to the timing of invoices and related payments and a $3.0 million increase in other accrued expenses and current
liabilities, partially offset by a $1.2 million decrease in other long-term liabilities.
Capital expenditures, which are generally funded by cash generated from operating activities, available cash
balances and borrowings available under our credit facilities, were $38.7 million for 2019, compared to $46.9
million for 2018, a decrease of $8.2 million. In 2020, we anticipate capital expenditures in the range of $50.0 million
to $60.0 million, primarily for new seat additions, facility upgrades, maintenance and systems infrastructure.
On February 14, 2019, we entered into a $500 million senior revolving credit facility (the “2019 Credit Agreement”)
with a group of lenders, KeyBank National Association, as Administrative Agent, Swing Line Lender and Issuing
Lender (“KeyBank”), the lenders named therein, and KeyBanc Capital Markets Inc. as Lead Arranger and Sole
Book Runner. The 2019 Credit Agreement replaced our previous $440 million revolving credit facility dated May
12, 2015 (the “2015 Credit Agreement”), which agreement was terminated simultaneous with entering into the 2019
Credit Agreement. The 2019 Credit Agreement is subject to certain borrowing limitations and includes certain
customary financial and restrictive covenants. We are not currently aware of any inability of our lenders to provide
access to the full commitment of funds that exist under the 2019 Credit Agreement, if necessary. However, there
can be no assurance that such facility will be available to us, even though it is a binding commitment of the financial
institutions. The 2019 Credit Agreement will mature on February 14, 2024. At December 31, 2019, we were in
compliance with all loan requirements of the 2019 Credit Agreement and had $73.0 million of outstanding
borrowings under this facility.
Our credit agreements had an average daily utilization of $87.8 million, $106.2 million and $268.8 million during
the years ended December 31, 2019, 2018 and 2017, respectively. During the years ended December 31, 2019, 2018,
and 2017, the related interest expense, including the commitment fee and excluding the amortization of deferred
loan fees, was $3.5 million, $3.8 million and $6.7 million, respectively, which represented weighted average interest
rates of 3.9%, 3.6% and 2.5%, respectively.
We repaid $29.0 million, net, of long-term debt outstanding under our credit agreements in 2019. Our 2020 interest
expense will vary based on our usage of the credit facility and market interest rates.
We are currently under audit in several tax jurisdictions. We believe we have adequate reserves related to all matters
pertaining to these audits. Should we experience unfavorable outcomes from these audits, such outcomes could have
a significant impact on our financial condition, results of operations and cash flows.
The 2017 Tax Reform Act provided for a one-time transition tax based on our undistributed foreign earnings on
which we previously had deferred U.S. income taxes. We recorded a $28.3 million provisional liability in 2017,
which was net of $5.0 million of available tax credits, for our one-time transition tax. As of December 31, 2019 and
2018, $2.0 million and $2.0 million, respectively, of the liability was included in “Income taxes payable” in the
accompanying Consolidated Balance Sheets. As of December 31, 2019 and 2018, $18.5 million and $20.4 million,
respectively, of the long-term liability were included in “Long-term income tax liabilities” in the accompanying
Consolidated Balance Sheets. This transition tax liability will be paid in yearly installments through the final
payment due in April 2025. We provide U.S. income taxes on the earnings of foreign subsidiaries unless they are
exempted from taxation as a result of the new territorial tax system. During the fourth quarter of 2019, we partially
reversed our permanent reinvestment assertion in connection with plans to distribute cash from certain of our foreign
subsidiaries in 2020 or subsequent years. In connection with this change in assertion, we recorded $1.0 million of
withholding tax. No additional income taxes have been provided for any remaining reinvested earnings or outside
basis differences inherent in our investments in our foreign subsidiaries as these amounts continue to be indefinitely
reinvested in foreign operations.
32
As part of the July 1, 2018 WhistleOut acquisition, an AUD 14.0 million three-year retention bonus is payable in
installments on or around July 1, 2019, 2020 and 2021. We paid the first installment of AUD 6.0 million ($4.2
million) in July 2019. Also, as part of the Symphony acquisition on November 1, 2018, a portion of the purchase
price, with an acquisition date present value of GBP 7.9 million ($10.0 million), was deferred and is payable in
equal installments over three years, on or around November 1, 2019, 2020 and 2021. We paid the first installment
of GBP 2.7 million ($3.3 million) in October 2019.
As of December 31, 2019, we had $127.2 million in cash and cash equivalents, of which approximately 98.5%, or
$125.3 million, was held in international operations. As a result of the 2017 Tax Reform Act, most of these funds
will not be subject to additional taxes in the United States if repatriated; however, certain jurisdictions may impose
additional withholding taxes. There are circumstances where we may be unable to repatriate some of the cash and
cash equivalents held by our international operations due to country restrictions.
We expect our current cash levels and cash flows from operations to be adequate to meet our anticipated working
capital needs, including investment activities such as capital expenditures and debt repayment for the next twelve
months and the foreseeable future. However, from time to time, we may borrow funds under our 2019 Credit
Agreement as a result of the timing of our working capital needs, including capital expenditures.
Our cash resources could also be affected by various risks and uncertainties, including but not limited to, the risks
detailed in Item 1A, Risk Factors.
Off-Balance Sheet Arrangements
At December 31, 2019, we did not have any material commercial commitments, including guarantees or standby
repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities
often referred to as structured finance or special purpose entities or variable interest entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes.
33
Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2019, and the effect these obligations
are expected to have on liquidity and cash flow in future periods (in thousands):
Operating leases (1)(2)
Operating leases, not yet commenced (1)
Purchase obligations (3)
Long-term debt (4)
Long-term income tax liabilities (5)
Other long-term liabilities (6)
Total
$ 240,239
1,720
45,499
73,000
22,286
13,305
$ 396,049
Less Than
1 Year
$ 57,742
546
36,332
—
—
—
$ 94,620
Payments Due By Period
1 - 3 Years
$ 96,854
1,128
8,642
—
3,895
7,502
$ 118,021
3 - 5 Years
$ 47,877
46
525
73,000
8,520
1,131
$ 131,099
After 5
Years
$ 37,766
—
—
—
6,086
4,672
$ 48,524
Other
—
—
—
—
3,785
—
3,785
$
$
(1) Amounts represent the gross expected cash payments due under our operating leases. See Note 3, Leases, to the accompanying
Consolidated Financial Statements.
(2) As of December 31, 2019, we subleased six of our operating leases. Future contractual sublease payments of $3.2 million, $5.1
million, $2.7 million and $1.4 million are expected to be received in the periods of less than one year, one to three years, three to
five years, and after five years, respectively. These payments will partially offset the gross amounts owed under the related
operating leases.
(3) Amounts represent the expected cash payments under our purchase obligations, which include agreements to purchase goods or
services that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities
to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations
exclude agreements that are cancelable without penalty.
(4) Amount represents total outstanding borrowings but excludes interest charges on borrowings and the fee on the amount of any
unused commitment that we may be obligated to pay under our credit agreement, as such amounts vary. See Note 18, Borrowings,
to the accompanying Consolidated Financial Statements.
(5) Long-term income tax liabilities include amounts owed in annual installments through 2025 related to our deemed repatriation
under the 2017 Tax Reform Act, as well as uncertain tax positions and related penalties and interest as discussed in Note 20,
Income Taxes, to the accompanying Consolidated Financial Statements. We cannot make reasonably reliable estimates of the cash
settlement of $3.8 million of uncertain tax positions with the taxing authority; therefore, amounts have been excluded from
payments due by period.
(6) Other long-term liabilities, which excludes deferred income taxes and other non-cash long-term liabilities.
From time to time, during the normal course of business, we may make certain indemnities, commitments and
guarantees under which we may be required to make payments in relation to certain transactions. These include but
are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on negligence
or willful misconduct and (ii) indemnities involving breach of contract, the accuracy of representations and
warranties, or other liabilities assumed by us in certain contracts. In addition, we have agreements whereby we will
indemnify certain officers and directors for certain events or occurrences while the officer or director is, or was,
serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences
during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required
to make under these indemnification agreements is unlimited; however, we have director and officer insurance
coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the
applicable insurance coverage is generally adequate to cover any estimated potential
liability under these
indemnification agreements. The majority of these indemnities, commitments and guarantees do not provide for any
limitation of the maximum potential for future payments we could be obligated to make. We have not recorded any
liability for these indemnities, commitments and other guarantees in the accompanying Consolidated Balance
Sheets.
In addition, we have some client contracts that do not contain contractual provisions for the limitation of
liability, and other client contracts that contain agreed upon exceptions to limitation of liability. We have not
recorded any liability in the accompanying Consolidated Balance Sheets with respect to any client contracts under
which we have or may have unlimited liability.
34
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in
the United States requires estimations and assumptions that affect the reported amounts of assets and liabilities and
the 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. These estimates and assumptions are based on historical
experience and various other factors that are believed to be reasonable under the circumstances. Actual results could
differ from these estimates under different assumptions or conditions.
We believe the following accounting policies are the most critical since these policies require significant judgment
or involve complex estimations that are important to the portrayal of our financial condition and operating results.
Recognition of Revenues
We recognize revenue in accordance with ASC 606, Revenue Recognition. We primarily recognize revenues from
services over time using output methods such as a per minute, per hour, per call, per transaction or per time and
material basis, since our customers simultaneously receive and consume the benefits of our services as they are
delivered. Our 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 our 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 for the past six months, the
individual contract provisions, and our best judgment at the time. Since we maintain a large portfolio of contracts
with similar billing structures and characteristics, and the nature of these provisions can result in numerous potential
outcomes, the expected value method provides a more accurate assessment of the consideration to which we are
entitled. We utilize a rolling six-month historical servicing and pricing trend data in order to reduce the likelihood
of a significant revenue reversal in the future since the majority of our customer contracts include termination for
convenience or without cause provisions allowing either party to cancel within a defined notification period,
typically up to 180 days.
Income Taxes
We reduce deferred tax assets 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 some portion or all of such deferred
tax assets will not be realized. Available evidence which is considered in determining the amount of valuation
allowance required includes, but is not limited to, our estimate of future taxable income and any applicable tax-
planning strategies. Establishment or reversal of certain valuation allowances may have a significant impact on both
current and future results. The recoverability of a net deferred tax asset is dependent upon future profitability,
estimates of future taxable income and any applicable tax-planning strategies, within each taxing jurisdiction.
As of December 31, 2019, we determined that a total valuation allowance of $12.7 million was necessary to reduce
U.S. deferred tax assets by $0.9 million and foreign deferred tax assets by $11.8 million, where it was more likely
than not that some portion or all of such deferred tax assets will not be realized. The recoverability of the remaining
deferred tax asset of $6.8 million as of December 31, 2019 is dependent upon future profitability within each tax
jurisdiction. As of December 31, 2019, based on our estimates of future taxable income and any applicable tax-
planning strategies within various tax jurisdictions, we believe that it is more likely than not that the remaining
deferred tax assets will be realized.
The Company provides U.S. income taxes on the earnings of foreign subsidiaries unless they are exempted from
taxation as a result of the new territorial tax system. During the fourth quarter of 2019, we partially reversed our
permanent reinvestment assertion in connection with plans to distribute cash from certain of our foreign subsidiaries
in 2020 or subsequent years. In connection with this change in assertion, we recorded $1.0 million of withholding
tax. No additional income taxes have been provided for any remaining outside basis difference inherent in these
entities as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of
unrecognized deferred tax liability related to any remaining reinvested earnings or outside basis differences in these
entities is not practicable due to the inherent complexity of the multi-national tax environment in which we operate.
35
We evaluate tax positions that have been taken or are expected to be taken in our tax returns, and record a liability
for uncertain tax positions in accordance with ASC 740. The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. 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. We reevaluate these uncertain tax
positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in
recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax
provision.
As of December 31, 2019 and 2018, we had $2.7 million of unrecognized tax benefits. Had we recognized these tax
benefits, approximately $2.7 million, along with the related interest and penalties, would have favorably impacted
the effective tax rate in both 2019 and 2018. We do not anticipate that any of the unrecognized tax benefits will be
recognized in the next twelve months.
Our provision for income taxes is subject to volatility and is impacted by the distribution of earnings in the various
domestic and international jurisdictions in which we operate. Our effective tax rate could be impacted by earnings
being either proportionally lower or higher in foreign countries with tax rates different from the U.S. tax rates. In
addition, we have been granted tax holidays in several foreign tax jurisdictions, some of which have various
expiration dates ranging from 2021 through 2028. If we are unable to renew a tax holiday in any of these
jurisdictions, our effective tax rate could be adversely impacted. In some cases, the tax holidays expire without
possibility of renewal. In other cases, we expect to renew these tax holidays, but there are no assurances from the
respective foreign governments that they will permit a renewal. The tax holidays decreased the provision for income
taxes by $3.1 million, $4.1 million and $3.0 million for the years ended December 31, 2019, 2018 and 2017,
respectively. Our effective tax rate could also be affected by several additional factors, including changes in the
valuation of our deferred tax assets or liabilities, changing legislation, regulations, and court interpretations that
impact tax law in multiple tax jurisdictions in which we operate, as well as new requirements, pronouncements and
rulings of certain tax, regulatory and accounting organizations.
Purchase Accounting
Our financial statements include the operations of an acquired business starting from the completion of the
acquisition. In addition, the assets acquired and liabilities assumed are recorded on the date of acquisition at their
respective estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets
acquired recorded as goodwill.
Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective
useful lives. Accordingly, we typically obtain the assistance of third-party valuation specialists for significant items.
The fair value estimates are based on available historical information and on future expectations and assumptions
deemed reasonable by management but are inherently uncertain. We consider the income, market and cost
approaches and place reliance on the approach or approaches deemed most indicative of value to estimate the fair
value of intangible assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of
other marketplace participants and include the amount and timing of future cash flows (including expected growth
rates and profitability), the underlying demand, technology life cycles, the economic barriers to entry and the
discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may
occur that could affect the accuracy or validity of the estimates and assumptions.
Determining the useful life of an intangible asset also requires judgment. With the exception of domain names, the
majority of our acquired intangible assets (e.g., customer relationships, trade names and trademarks) are expected to
have determinable useful lives. Our assessment as to the useful lives of these intangible assets is based on a number
of factors including competitive environment, market share, trademark, brand history, underlying demand, operating
plans and the macroeconomic environment of the countries in which the services are provided. Finite-lived
intangible assets are amortized over their estimated useful life.
36
Goodwill, Intangibles and Long-Lived Assets
The value of indefinite-lived intangible assets and goodwill is not amortized but is tested at least annually for
impairment, or whenever events or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. We perform our annual impairment test on July 31st of each year. To assess the realizability of
goodwill, we have 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. We may elect to forgo this option and proceed to the quantitative goodwill impairment test.
If we elect to perform the qualitative assessment and it indicates that a significant decline to fair value of a reporting
unit is more likely than not, if a reporting unit’s fair value has historically been closer to its carrying value, or we
elect to forgo this qualitative assessment, we will proceed to the quantitative goodwill impairment test where we
calculate the fair value of a reporting unit 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, we 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.
We test indefinite-lived intangibles by reviewing the book values compared to the fair value. We determine the fair
value of our reporting units and indefinite-lived intangible assets based on the income and market approaches. We
calculate the fair value of our reporting units and indefinite-lived intangible assets based on the present value of
estimated future cash flows.
We estimate fair value using discounted cash flows of the reporting units. The most significant assumptions used in
these analyses are those made in estimating future cash flows. In estimating future cash flows, we use financial
assumptions in our internal forecasting model such as projected capacity utilization, projected changes in the prices
we charge for our services, projected labor costs, projected foreign currency exchange rates, as well as contract
negotiation status. The financial and credit market volatility directly impacts our fair value measurement through our
weighted average cost of capital that we use to determine our discount rate. We use a discount rate we consider
appropriate for the country where the services are being provided. Considerable management judgment is necessary
to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows to measure fair
value. If actual results differ substantially from the assumptions used in performing the impairment test, the fair
value of the reporting units may be significantly lower, causing the carrying value to exceed the fair value and
indicating an impairment has occurred. Events or changes that could negatively affect our key assumptions include
a sustained decrease in our market capitalization, increased competition or unexpected loss of components of our
business, unexpected business disruptions (for example, due to a natural disaster or loss of a customer, supplier, or
other significant business relationship), unexpected significant declines in operating results, significant adverse
changes in the markets in which we operate, or changes in management strategy.
We did not recognize any impairment charges for goodwill in the years presented, as our annual impairment testing
indicated that all seven of our reporting units with goodwill had fair values that exceeded their respective carrying
values.
37
As outlined in Note 7, Goodwill and Intangible Assets, in the accompanying “Notes to Consolidated Financial
Statements,” four of our seven reporting units with goodwill are at risk of future impairment as the fair value is not
substantially in excess of carrying value (“cushion”).
Information related to these reporting units as of July 31,
2019, the date of our annual impairment test was as follows (in thousands):
Reporting Unit
Clearlink (1)
Symphony (2)
Latin America (3)
Qelp (3)
Allocated
Goodwill
74,161
35,691
19,501
9,892
$
$
$
$
Percentage by
Which Fair Value
Exceeds Carrying
Value
10-20%
10-20%
30-40%
10-20%
(1) Decrease in the fair value cushion from the prior year was primarily attributable to a decrease in the projected long-term
growth rate of the U.S. Gross Domestic Product as well as a decline in projected revenue growth.
(2) Acquired on November 1, 2018 and as such, this was the first annual impairment test for this reporting unit.
(3) Decrease in the fair value cushion from the prior year was primarily attributable to an increase in the country-specific risk
premium which increased the applied weighted average cost of capital.
A hypothetical 10% decrease in the fair value of the Clearlink, Symphony, Latin America and Qelp reporting units
would not have resulted in the recognition of an impairment loss as of the date of our annual impairment test.
Although we believe we have used reasonable estimates and assumptions to calculate the fair values of our reporting
units with goodwill balances, these estimates and assumptions could be materially different from actual results. If
actual market conditions are less favorable than those projected, or if events occur or circumstances change that
would reduce the fair values below the respective carrying values, we may be required to recognize impairment
charges, which may be material, in future periods.
We evaluate the carrying value of our other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The evaluation is performed at the lowest
level of identifiable cash flows, which is at the individual asset level or the asset group level. An asset is considered
to be impaired when the forecasted undiscounted cash flows are estimated to be less than its carrying value. The
amount of impairment recognized is the difference between the carrying value of the asset or asset group and its fair
value, which is determined by an appropriate market appraisal or other valuation technique. Undiscounted cash
flows are based on assumptions concerning the amount and timing of estimated future cash flows. Future adverse
changes in market conditions or poor operating results of the underlying investment could result in losses or an
inability to recover the carrying value of the investment and, therefore, might require an impairment charge in the
future. Assets classified as held-for-sale, if any, are recorded at the lower of carrying value or fair value less costs to
sell.
New Accounting Standards Not Yet Adopted
See Note 1, Overview and Summary of Significant Accounting Policies, of the accompanying “Notes to
Consolidated Financial Statements” for information related to recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
Our earnings and cash flows are subject to fluctuations due to changes in currency exchange rates. We are exposed
to foreign currency exchange rate fluctuations when subsidiaries with functional currencies other than the U.S.
Dollar (“USD”) are translated into our USD consolidated financial statements. As exchange rates vary, those results,
when translated, may vary from expectations and adversely impact profitability. The cumulative translation effects
for subsidiaries using functional currencies other than USD are included in “Accumulated other comprehensive
income (loss)” in shareholders’ equity. Movements in non-USD currency exchange rates may negatively or
positively affect our competitive position, as exchange rate changes may affect business practices and/or pricing
strategies of non-U.S. based competitors.
38
We employ a foreign currency risk management program that periodically utilizes derivative instruments to protect
against unanticipated fluctuations in certain earnings and cash flows caused by volatility in foreign currency
exchange (“FX”) rates. We also utilize derivative contracts to hedge foreign currency-denominated intercompany
receivables and payables and to hedge net investments in foreign operations.
We serve a number of U.S.-based clients using customer engagement center capacity in the Philippines and Costa
Rica, which are within our Americas segment. Although a substantial portion of the costs incurred to render services
under these contracts are denominated in Philippine Pesos (“PHP”) and Costa Rican Colones (“CRC”), the contracts
with these clients are priced in USDs, which represent FX exposures. Additionally, our EMEA segment services
clients in Hungary and Romania with a substantial portion of the costs incurred to render services under these
contracts denominated in Hungarian Forints and Romanian Leis, where the contracts are priced in Euros.
In order to hedge a portion of our anticipated revenues denominated in USD, we had outstanding forward contracts
and options as of December 31, 2019 with counterparties through December 2020 with notional amounts totaling
$116.0 million. As of December 31, 2019, we had net total derivative assets associated with these contracts with a
fair value of $2.9 million. If the USD had weakened against the PHP and CRC by 10% as of December 31, 2019 and
2018, we would have incurred a loss of approximately $9.9 million and $11.1 million as of December 31, 2019 and
2018, respectively, on the underlying exposures of the derivative instruments. However, these losses would be
mitigated by corresponding gains on the underlying exposures.
We had outstanding forward exchange contracts as of December 31, 2019 with notional amounts totaling $19.3
million that are not designated as hedges. The purpose of these derivative instruments is to protect against FX
volatility pertaining to intercompany receivables and payables, and other assets and liabilities that are denominated
in currencies other than our subsidiaries’ functional currencies. As of December 31, 2019, the fair value of these
derivatives was a net asset of $0.4 million. The potential loss in fair value at December 31, 2019 and 2018, for these
contracts resulting from a hypothetical 10% adverse change in the foreign currency exchange rates is approximately
$1.0 million and $1.2 million, respectively. However, these losses would be mitigated by corresponding gains on the
underlying exposures.
We evaluate the credit quality of potential counterparties to derivative transactions and only enter into contracts with
those considered to have minimal credit risk. We periodically monitor changes to counterparty credit quality as well
as our concentration of credit exposure to individual counterparties.
We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign
currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates. As a general
rule, we do not use financial instruments to hedge local currency denominated operating expenses in countries where
a natural hedge exists. For example, in many countries, revenue from the local currency services substantially offsets
the local currency denominated operating expenses.
Interest Rate Risk
Our exposure to interest rate risk results from variable rate debt outstanding under our revolving credit facility. We
pay interest on outstanding borrowings at interest rates that fluctuate based upon changes in various base rates. As of
December 31, 2019 and 2018, we had $73.0 million and $102.0 million in borrowings outstanding under the
revolving credit facility, respectively. Based on our level of variable rate debt outstanding during the years ended
December 31, 2019 and 2018, a 1.0% increase in the weighted average interest rate, which generally equals the
LIBOR rate plus an applicable margin, would have had an impact of $0.9 million and $1.1 million, respectively, on
our results of operations.
We have not historically used derivative instruments to manage exposure to changes in interest rates.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are located beginning on page 48 and page 30
of this report, respectively.
39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Finance Officer, has evaluated the
effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as of December 31, 2019. Based on that evaluation, our Chief Executive Officer
and Chief Finance Officer concluded that our disclosure controls and procedures were effective as of December 31,
2019.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making
this assessment, we used the criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, management
believes that, as of December 31, 2019, our internal control over financial reporting was effective.
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2019
that have materially affected, or are reasonably likely to materially affect, our internal controls over financial
reporting.
Attestation Report of Independent Registered Public Accounting Firm
Our independent registered public accounting firm has issued an attestation report on our internal control over
financial reporting. This report appears on page 41.
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Sykes Enterprises, Incorporated
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Sykes Enterprises, Incorporated and subsidiaries
(the “Company”) as of December 31, 2019, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by
COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the
Company and our report dated February 27, 2020, expressed an unqualified opinion on those financial statements
and schedule and included explanatory paragraphs regarding the Company’s adoption of new accounting standards.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Tampa, Florida
February 27, 2020
41
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item, with the exception of information on Executive Officers which appears in
this report in Item 1 under the caption “Information About Our Executive Officers,” will be set forth in our Proxy
Statement for the 2020 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the
fiscal year ended December 31, 2019 and is incorporated herein by reference.
Our Board of Directors has adopted a code of ethics that applies to all of our employees, officers and directors,
including our Chief Executive Officer, Chief Finance Officer and other executive and senior financial officers. The
full text of our code of ethics is posted on the investor relations page on our website which is located at
http://investor.sykes.com under the heading “Documents & Charters” of the “Corporate Governance” section. We
will post any amendments to our code of ethics, or waivers of its requirements, on our website.
Item 11. Executive Compensation
The information required by this Item will be set forth in our Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item will be set forth in our Proxy Statement and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be set forth in our Proxy Statement and is incorporated herein by
reference.
Item 14. Principal Accounting Fees and Services
The information required by this Item will be set forth in our Proxy Statement and is incorporated herein by
reference.
42
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
Consolidated Financial Statements
The Index to Consolidated Financial Statements is set forth on page 48 of this report.
Financial Statements Schedule
Schedule II — Valuation and Qualifying Accounts is set forth on page 107 of this report.
Other schedules have been omitted because they are not required or applicable or the information is included in the
Consolidated Financial Statements or notes thereto.
The following exhibits are filed with this Report or incorporated by reference:
Exhibit
Number
Exhibit Description
2.1
3.1
3.2
3.3
3.4
4.1 (P)
4.2 +
10.1 (P)*
10.2 (P)*
10.3 (P)
10.4 *
10.5 *
10.6 *
Agreement and Plan of Merger, dated as of March 6, 2016, by and among Sykes Enterprises,
Incorporated, Sykes Acquisition Corporation II, Inc., Clear Link Holdings, LLC, and Pamlico
Capital Management, L.P. (Incorporated herein by reference from Exhibit 2.1 to Form 8-K filed
on March 8, 2016.)
Articles of Incorporation of Sykes Enterprises, Incorporated, as amended. (Incorporated herein by
reference from Exhibit 3.1 to Form S-3, Registration No. 333-38513, filed on October 23, 1997.)
Articles of Amendment to Articles of Incorporation of Sykes Enterprises, Incorporated, as
amended. (Incorporated herein by reference from Exhibit 3.2 to Form 10-K filed on March 29,
1999.)
Bylaws of Sykes Enterprises, Incorporated, as amended. (Incorporated herein by reference from
Exhibit 3.3 to Form 10-K filed on March 23, 2005.)
Amendment to Bylaws of Sykes Enterprises, Incorporated. (Incorporated herein by reference from
Exhibit 3.1 to Form 8-K filed on March 24, 2014.)
Specimen certificate for the Common Stock of Sykes Enterprises, Incorporated. (Incorporated
herein by reference from exhibit to Form S-1, Registration No. 333-2324.)
Description of Registered Securities.
Form of Split Dollar Plan Documents. (Incorporated herein by reference from exhibit to Form S-1,
Registration No. 333-2324.)
Form of Split Dollar Agreement. (Incorporated herein by reference from exhibit to Form S-1,
Registration No. 333-2324.)
Form of Indemnity Agreement between Sykes Enterprises, Incorporated and directors & executive
officers. (Incorporated herein by reference from exhibit to Form S-1, Registration No. 333-2324.)
Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of March 29,
2006. (Incorporated herein by reference from Exhibit 99.1 to Form 8-K filed on April 4, 2006.)
Form of Restricted Share And Bonus Award Agreement dated as of March 29, 2006.
(Incorporated herein by reference from Exhibit 99.2 to Form 8-K filed on April 4, 2006.)
Form of Restricted Share Award Agreement dated as of May 24, 2006. (Incorporated herein by
reference from Exhibit 99.1 to Form 8-K filed on May 31, 2006.)
43
Exhibit
Number
10.7 *
10.8 *
10.9 *
10.10 *
10.11 *
10.12 *
10.13 *
10.14 *
10.15 *
10.16
10.17
10.18
10.19 *
10.20 *
10.21 *
Exhibit Description
Form of Restricted Share And Stock Appreciation Right Award Agreement dated as of January 2,
2007. (Incorporated herein by reference from Exhibit 99.1 to Form 8-K filed on December 28,
2006.)
Form of Restricted Share Award Agreement dated as of January 2, 2007. (Incorporated herein by
reference from Exhibit 99.2 to Form 8-K filed on December 28, 2006.)
Form of Restricted Share and Stock Appreciation Right Award Agreement dated as of January 2,
2008. (Incorporated herein by reference from Exhibit 99.1 to Form 8-K filed on January 8, 2008.)
2011 Equity Incentive Plan. (Incorporated herein by reference from Exhibit 10.17 to Form 10-K
filed on February 29, 2016.)
Amended and Restated Employment Agreement dated as of December 30, 2008 between Sykes
Enterprises, Incorporated and Charles E. Sykes. (Incorporated herein by reference from Exhibit
10.26 to Form 10-K filed on March 10, 2009.)
Amended and Restated Employment Agreement dated as of December 29, 2008 between Sykes
Enterprises, Incorporated and Jenna R. Nelson. (Incorporated herein by reference from Exhibit
10.31 to Form 10-K filed on March 10, 2009.)
Amended and Restated Employment Agreement dated as of December 29, 2008 between Sykes
Enterprises, Incorporated and James T. Holder. (Incorporated herein by reference from Exhibit
10.37 to Form 10-K filed on March 10, 2009.)
Amended and Restated Employment Agreement dated as of December 29, 2008 between Sykes
Enterprises, Incorporated and William N. Rocktoff. (Incorporated herein by reference from
Exhibit 10.38 to Form 10-K filed on March 10, 2009.)
Amended and Restated Employment Agreement dated as of December 29, 2008 between Sykes
Enterprises, Incorporated and David L. Pearson. (Incorporated herein by reference from Exhibit
10.43 to Form 10-K filed on March 10, 2009.)
Lease Agreement, dated January 25, 2008, Lease Amendment Number One and Lease
Amendment Number Two dated February 12, 2008 and May 28, 2008 respectively, between
Sykes Enterprises, Incorporated and Kingstree Office One, LLC. (Incorporated herein by reference
from Exhibit 99.1 to Form 8-K filed on May 29, 2008.)
Credit Agreement, dated May 12, 2015, between Sykes Enterprises, Incorporated, the lenders
party thereto and KeyBank National Association, as Lead Arranger, Sole Book Runner and
Administrative Agent. (Incorporated herein by reference from Exhibit 10.1 to Form 8-K filed on
May 13, 2015.)
Credit Agreement, dated February 14, 2019, between Sykes Enterprises, Incorporated; KeyBank
National Association, as Administrative Agent, Swing Line Lender and Issuing Lender; KeyBanc
Capital Markets Inc. as Lead Arranger and Sole Book Runner; and the lenders named therein
(Incorporated herein by reference from Exhibit 10.1 to Form 8-K filed on February 15, 2019.)
Employment Agreement, dated as of September 13, 2012, between Sykes Enterprises,
Incorporated and Lawrence R. Zingale. (Incorporated herein by reference from Exhibit 99.2 to
Form 8-K filed on September 19, 2012.)
Sykes Enterprises, Incorporated Deferred Compensation Plan Amended and Restated as of
January 1, 2014. (Incorporated herein by reference from Exhibit 10.35 to Form 10-K filed on
February 19, 2015.)
Employment Agreement, dated as of April 15, 2014, between Sykes Enterprises, Incorporated and
John Chapman. (Incorporated herein by reference from Exhibit 99.1 to Form 8-K filed on
April 15, 2014.)
44
Exhibit
Number
10.22 *
10.23 *
10.24 *
10.25 *
10.26 *
10.27 *
10.28 *
10.29 *
21.1 +
23.1 +
24.1 +
31.1 +
31.2 +
32.1 ++
32.2 ++
Exhibit Description
Employment Agreement, dated as of October 29, 2016, between Sykes Enterprises, Incorporated
and James D. Farnsworth. (Incorporated herein by reference from Exhibit 10.36 to Form 10-K
filed on March 1, 2017.)
Amended and Restated Sykes Enterprises, Incorporated Deferred Compensation Plan, effective as
of January 1, 2016. (Incorporated herein by reference from Exhibit 10.37 to Form 10-K filed on
March 1, 2017.)
First Amendment to the Amended and Restated Sykes Enterprises, Incorporated Deferred
Compensation Plan, effective as of June 30, 2016. (Incorporated herein by reference from Exhibit
10.38 to Form 10-K filed on March 1, 2017.)
Second Amendment to the Amended and Restated Sykes Enterprises, Incorporated Deferred
Compensation Plan, effective as of January 1, 2017. (Incorporated herein by reference from
Exhibit 10.39 to Form 10-K filed on March 1, 2017.)
Third Amendment to the Amended and Restated Sykes Enterprises, Incorporated Deferred
Compensation Plan, effective as of January 1, 2017. (Incorporated herein by reference from
Exhibit 10.1 to Form 10-Q filed on August 9, 2017.)
Fourth Amendment to the Amended and Restated Sykes Enterprises, Incorporated Deferred
Compensation Plan, effective as of July 1, 2017. (Incorporated herein by reference from Exhibit
10.2 to Form 10-Q filed on August 9, 2017.)
Amended and Restated Sykes Enterprises, Incorporated Deferred Compensation Plan, effective as
of January 1, 2018. (Incorporated herein by reference from Exhibit 10.1 to Form 10-Q filed on
November 9, 2017.)
2019 Equity Incentive Plan. (Incorporated herein by reference from Appendix A to the Company’s
2019 Proxy Statement filed on April 19, 2019.)
List of subsidiaries of Sykes Enterprises, Incorporated.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney relating to subsequent amendments (included on the signature page of this
Report).
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange
Act, as amended.
Certification of Chief Finance Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act,
as amended.
Certification of Chief Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Finance Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS +,#
XBRL Instance Document – the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
101.SCH +,#
Inline XBRL Taxonomy Extension Schema Document
101.CAL +,#
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB +,#
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE +,#
Inline XBRL Taxonomy Extension Presentation Linkbase Document
45
Exhibit
Number
101.DEF +,#
104 #
*
+
++
#
(P)
Exhibit Description
Inline XBRL Taxonomy Extension Definition Linkbase Document
The cover page from the Company’s Annual Report on Form 10-K for the year ended December
31, 2019, formatted in Inline XBRL (included in Exhibit 101)
Indicates management contract or compensatory plan or arrangement.
Filed herewith.
Furnished herewith.
Submitted electronically with this Annual Report.
This exhibit has been paper filed and is not subject to the hyperlinking requirements of Item 601
of Regulation S-K.
Item 16. Form 10-K Summary
Not Applicable.
46
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, and
State of Florida, on this 27th day of February 2020.
SYKES ENTERPRISES, INCORPORATED
(Registrant)
By: /s/ John Chapman
John Chapman
Chief Finance Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose
signature appears below constitutes and appoints John Chapman his true and lawful attorney-in-fact and agent, with
full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments to this report and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents,
and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and purposes as he might or should do in person, thereby
ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Signature
Title
Date
/s/ James S. MacLeod
James S. MacLeod
/s/ Charles E. Sykes
Charles E. Sykes
/s/ Mark C. Bozek
Mark C. Bozek
/s/ Vanessa C.L. Chang
Vanessa C.L. Chang
/s/ Carlos E. Evans
Carlos E. Evans
/s/ Lorraine L. Lutton
Lorraine L. Lutton
/s/ William J. Meurer
William J. Meurer
/s/ William D. Muir, Jr.
William D. Muir, Jr.
/s/ W. Mark Watson
W. Mark Watson
/s/ John Chapman
John Chapman
Chairman of the Board
February 27, 2020
President and Chief Executive Officer and
Director (Principal Executive Officer)
Director
Director
Director
Director
Director
Director
Director
Chief Finance Officer
(Principal Financial and Accounting Officer)
47
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
Table of Contents
Report of Independent Registered Public Accounting Firm.........................................................................
Consolidated Balance Sheets as of December 31, 2019 and 2018 ...............................................................
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017.............
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2019,
2018 and 2017..........................................................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2019,
2018 and 2017..........................................................................................................................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 ...........
Notes to Consolidated Financial Statements.................................................................................................
Page
49
51
52
53
54
55
57
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Sykes Enterprises, Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sykes Enterprises, Incorporated and subsidiaries
(the "Company") as of December 31, 2019 and 2018,
the related consolidated statements of operations,
comprehensive income (loss), changes in shareholders' equity, and cash flows, for each of the three years in the
period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 27, 2020, expressed an unqualified
opinion on the Company's internal control over financial reporting.
Changes in Accounting Principles
As discussed in Note 3 to the financial statements, the Company has changed its method of accounting for leases in
the year ended December 31, 2019 due to adoption of Accounting Standards Update (ASU) No. 2016-02, Leases
(Topic 842).
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for revenue
in the year ended December 31, 2018 due to adoption of ASU No. 2014-09, Revenue from Contracts with Customers
(Topic 606).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
49
Goodwill – Refer to Note 7 to the financial statements
Critical Audit Matter Description
The Company evaluates goodwill for impairment by comparing the fair value of each reporting unit to its carrying
value. The Company determines the fair value of the reporting units using the income and market approaches. The
goodwill balance was approximately $311 million as of December 31, 2019, of which $74.2 million, $41.3 million
and $10.0 million was allocated to the Clearlink, Symphony and Qelp reporting units, respectively. The fair values
of these reporting units exceeded their carrying values as of the annual measurement date, although the difference in
fair value and carrying value for each of these reporting units was not substantial.
We identified goodwill for Clearlink, Symphony and Qelp as a critical audit matter because of the significant
estimates and assumptions management makes to estimate the fair value of each reporting unit and considering the
difference in fair value and carrying value for each of these reporting units. This required a high degree of auditor
judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing
audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to earnings
before interest, taxes, depreciation and amortization (EBITDA) margin projections and the selection of the discount
rates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the EBITDA margin projections over the forecast period and selection of discount
rates for the Clearlink, Symphony and Qelp reporting units included the following, among others:
• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those
over management’s review of the EBITDA margin projections over the forecast period and discount rates
utilized within the income approach, used in the determination of each reporting unit’s fair value.
• We evaluated the reasonableness of management’s EBITDA margin projections over the forecast period by:
o Comparing actual results to management’s historical projections.
o Comparing the projections to management’s historical projections utilized in the prior year.
o Comparing the Company’s projections to external industry reports.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation
methodology and (2) discount rates by:
o Testing the underlying source information and the mathematical accuracy of the calculations.
o Developing a range of independent estimates and comparing those to the discount rates selected by
management.
Tampa, Florida
February 27, 2020
We have served as the Company's auditor since 2001.
50
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents
Receivables, net
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill, net
Intangibles, net
Deferred charges and other assets
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable
Accrued employee compensation and benefits
Income taxes payable
Deferred revenue and customer liabilities
Operating lease liabilities
Other accrued expenses and current liabilities
Total current liabilities
Long-term debt
Long-term income tax liabilities
Long-term operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and loss contingencies (Note 22)
Shareholders' equity:
Preferred stock, $0.01 par value per share, 10,000 shares authorized;
no shares issued and outstanding
Common stock, $0.01 par value per share, 200,000 shares authorized;
41,549 and 42,778 shares issued, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock at cost: 128 and 126 shares, respectively
Total shareholders' equity
December 31, 2019
December 31, 2018
$
$
$
$
$
$
$
127,246
390,147
20,868
20,525
558,786
125,990
205,112
311,247
158,420
55,945
1,415,500
33,591
109,591
3,637
26,621
50,863
29,330
253,633
73,000
22,286
166,810
25,296
541,025
128,697
347,425
23,754
16,761
516,637
135,418
—
302,517
174,031
43,364
1,171,967
26,923
95,813
1,433
30,176
—
31,235
185,580
102,000
23,787
—
33,991
345,358
—
—
416
288,935
634,668
(47,001)
(2,543)
874,475
1,415,500
$
428
286,544
598,788
(56,775)
(2,376)
826,609
1,171,967
See accompanying Notes to Consolidated Financial Statements.
51
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Revenues
Operating expenses:
Direct salaries and related costs
General and administrative
Depreciation, net
Amortization of intangibles
Impairment of long-lived assets
Total operating expenses
Income from operations
Other income (expense):
Interest income
Interest (expense)
Other income (expense), net
Total other income (expense), net
Income before income taxes
Income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
$
Years Ended December 31,
2018
1,625,687
$
$
2019
1,614,762
1,042,289
412,407
51,916
16,639
1,711
1,524,962
89,800
1,072,907
407,285
57,350
15,542
9,401
1,562,485
63,202
846
(4,309)
(414)
(3,877)
85,923
21,842
64,081
1.54
1.53
41,649
41,802
$
$
$
706
(4,743)
(2,248)
(6,285)
56,917
7,991
48,926
1.16
1.16
42,090
42,246
$
$
$
2017
1,586,008
1,039,677
376,825
55,972
21,082
5,410
1,498,966
87,042
696
(7,689)
1,258
(5,735)
81,307
49,091
32,216
0.77
0.76
41,822
42,141
See accompanying Notes to Consolidated Financial Statements.
52
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Net income
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments, net of taxes
Unrealized gain (loss) on net investment hedges, net
of taxes
Unrealized gain (loss) on cash flow hedging
instruments, net of taxes
Unrealized actuarial gain (loss) related to pension
liability, net of taxes
Unrealized gain (loss) on postretirement obligation, net
of taxes
Other comprehensive income (loss), net of taxes
Comprehensive income (loss)
Years Ended December 31,
2018
2017
2019
$
64,081
$
48,926
$
32,216
5,504
—
4,154
68
(21,938)
36,078
—
(5,220)
(4,335)
682
4,696
449
(80)
35,923
68,139
48
9,774
73,855
$
(80)
(25,671)
23,255
$
$
See accompanying Notes to Consolidated Financial Statements.
53
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(in thousands)
Balance at January 1, 2017
Cumulative effect of accounting change
Stock-based compensation expense
Issuance of common stock under equity
award plans, net of forfeitures
Shares repurchased for tax withholding on
equity awards
Retirement of treasury stock
Comprehensive income (loss)
Balance at December 31, 2017
Cumulative effect of accounting change
(Note 2)
Stock-based compensation expense
Issuance of common stock under equity
award plans, net of forfeitures
Shares repurchased for tax withholding on
equity awards
Comprehensive income (loss)
Balance at December 31, 2018
Cumulative effect of accounting change
(Note 3)
Stock-based compensation expense
Issuance of common stock under equity
award plans, net of forfeitures
Shares repurchased for tax withholding on
equity awards
Repurchase of common stock
Retirement of treasury stock
Comprehensive income (loss)
Balance at December 31, 2019
Common Stock Additional
Shares
Issued Amount
42,895 $
—
—
Paid-in
Capital
429 $ 281,357 $518,611 $
232
—
7,621
—
(153)
—
Accumulated
Other
Comprehensive
Income (Loss) Treasury Stock
Retained
Earnings
Total
(67,027) $
—
—
(8,848) $724,522
79
7,621
—
—
386
4
250
—
—
(254)
—
(132)
(250)
—
42,899
—
—
(3)
(1)
(3)
—
429
—
—
—
(118)
—
42,778
(1)
—
428
(3,881)
(3,194)
—
(3,831)
— 32,216
546,843
282,385
—
7,543
3,019
—
302
—
(3,686)
—
— 48,926
598,788
286,544
—
—
35,923
(31,104)
—
—
—
7,028
— (3,882)
—
— 68,139
(2,074) 796,479
—
—
3,019
7,543
(302)
—
—
(25,671)
(56,775)
— (3,687)
— 23,255
(2,376) 826,609
—
—
9
—
—
—
—
7,396
167
110
—
—
—
—
—
—
—
110
7,396
(167)
—
(98)
—
(1,140)
—
41,549 $
(3,213)
—
(1,959)
(1)
—
(11)
—
416 $ 288,935 $634,668 $
—
—
(28,311)
— 64,081
—
—
—
9,774
(47,001) $
(30,281)
30,281
— (3,214)
(30,281)
—
— 73,855
(2,543) $874,475
See accompanying Notes to Consolidated Financial Statements.
54
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
Amortization of intangibles
Amortization of deferred grants
Impairment losses
Unrealized foreign currency transaction (gains) losses, net
Stock-based compensation expense
Deferred income tax provision (benefit)
Net (gain) loss on disposal of property and equipment
Unrealized (gains) losses and premiums on financial instruments, net
Amortization of deferred loan fees
Net (gain) on insurance settlement
Imputed interest expense and fair value adjustments to contingent
consideration
Other
Changes in assets and liabilities, net of acquisitions:
Receivables, net
Prepaid expenses
Other current assets
Deferred charges and other assets
Accounts payable
Income taxes receivable / payable
Accrued employee compensation and benefits
Other accrued expenses and current liabilities
Deferred revenue and customer liabilities
Other long-term liabilities
Operating lease assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Cash paid for business acquisitions, net of cash acquired
Proceeds from property and equipment insurance settlement
Net investment hedge settlement
Purchase of intangible assets
Investment in equity method investees
Other
Net cash (used for) investing activities
Years Ended December 31,
2018
2017
2019
$
64,081
$
48,926
$
32,216
52,149
16,639
(351)
1,711
(2,304)
7,396
282
383
(1,059)
283
(1,133)
—
950
(40,239)
(284)
(138)
(12,197)
2,099
(81)
9,409
3,465
(4,521)
3,909
834
101,283
(38,698)
(3,133)
1,190
—
(292)
—
346
(40,587)
57,817
15,542
(657)
9,401
(843)
7,543
(1,509)
312
805
269
—
—
834
(8,224)
(1,690)
(693)
(13,621)
(1,571)
(1,066)
(6,418)
449
(1,623)
5,111
—
109,094
(46,884)
(78,395)
—
—
(8,156)
(5,000)
1,495
(136,940)
56,482
21,082
(716)
5,410
(4,671)
7,621
7,908
474
(98)
269
—
(529)
(34)
(10,154)
(221)
(1,433)
(930)
7,286
1,137
5,101
(5,548)
(5,866)
20,003
—
134,789
(63,344)
(9,075)
—
(5,122)
(4,825)
(5,012)
101
(87,277)
55
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
(in thousands)
Cash flows from financing activities:
Payments of long-term debt
Proceeds from issuance of long-term debt
Cash paid for repurchase of common stock
Proceeds from grants
Shares repurchased for tax withholding on equity awards
Cash paid for loan fees related to long-term debt
Payments of contingent consideration related to acquisitions
Net cash (used for) financing activities
Effects of exchange rates on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash – beginning
Cash, cash equivalents and restricted cash – ending
Supplemental disclosures of cash flow information:
Cash paid during period for interest
Cash paid during period for income taxes
Non-cash transactions:
Property and equipment additions in accounts payable
Unrealized gain (loss) on postretirement obligation, net of taxes, in
accumulated other comprehensive income (loss)
$
$
$
$
$
Years Ended December 31,
2018
2017
2019
(58,000)
29,000
(30,281)
—
(3,214)
(1,098)
—
(63,593)
1,851
(1,046)
130,231
129,185
3,500
24,049
5,970
48
$
$
$
$
$
(231,000)
58,000
—
31
(3,687)
—
—
(176,656)
(10,072)
(214,574)
344,805
130,231
3,888
19,587
1,944
$
$
$
$
—
8,000
—
163
(3,882)
—
(5,760)
(1,479)
31,178
77,211
267,594
344,805
6,680
24,342
6,056
(80) $
(80)
See accompanying Notes to Consolidated Financial Statements.
56
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Overview and Summary of Significant Accounting Policies
Business — Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) is a
leading provider of multichannel demand generation and global customer engagement services. SYKES provides
differentiated full lifecycle customer engagement solutions and services primarily to Global 2000 companies and
their end customers within the financial services, communications, technology, transportation & leisure, healthcare
and other industries. SYKES primarily provides customer engagement solutions and services with an emphasis on
inbound multichannel demand generation, customer service and technical support to its clients’ customers. Utilizing
SYKES’ integrated onshore/offshore global delivery model, SYKES provides its services through multiple
communication channels including phone, e-mail, social media, text messaging, chat and digital self-service.
SYKES also provides various enterprise support services in the United States that include services for its clients’
internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe,
SYKES also provides fulfillment services, which include order processing, payment processing, inventory control,
through the Company’s acquisition of robotic
product delivery and product returns handling. Additionally,
processing automation (“RPA”) provider Symphony Ventures Ltd (“Symphony”) coupled with our investment in
artificial intelligence (“AI”) through XSell Technologies, Inc. (“XSell”), the Company also provides a suite of
solutions such as consulting, implementation, hosting and managed services that optimizes its differentiated full
lifecycle management services platform. The Company has operations in two reportable segments entitled (1) the
Americas, in which the client base is primarily companies in the United States that are using the Company’s services
to support their customer management needs, which includes the United States, Canada, Latin America, Australia
and the Asia Pacific Rim; and (2) EMEA, which includes Europe, the Middle East and Africa.
U.S. 2017 Tax Reform Act
On December 20, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”) was approved by Congress and
received presidential approval on December 22, 2017. In general, the 2017 Tax Reform Act reduced the U.S. federal
corporate tax rate from 35% to 21%, effective in 2018. The 2017 Tax Reform Act moved from a worldwide business
taxation approach to a participation exemption regime. The 2017 Tax Reform Act also imposed base-erosion
prevention measures on non-U.S. earnings of U.S. entities, as well as a one-time mandatory deemed repatriation tax
on accumulated non-U.S. earnings. The impact of the 2017 Tax Reform Act on the Company’s consolidated
financial results began with the fourth quarter of 2017, the period of enactment. This impact, along with the
transitional taxes discussed in Note 20, Income Taxes, is reflected in the Other segment.
Acquisitions
The Company completed three acquisitions during 2017 and 2018, all of which were immaterial to the Company
individually and in the aggregate. See Note 4, Acquisitions, for further information.
Principles of Consolidation — The consolidated financial statements include the accounts of SYKES and its
wholly-owned subsidiaries and controlled majority-owned subsidiaries. Investments in less than majority-owned
subsidiaries in which the Company does not have a controlling interest, but does have significant influence, are
accounted for as equity method investments. All intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America (“generally accepted accounting principles” or “U.S. GAAP”)
requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events — Subsequent events or transactions have been evaluated through the date and time of issuance
of the consolidated financial statements. There were no material subsequent events that required recognition or
disclosure in the accompanying consolidated financial statements.
57
Revenues — The Company recognizes revenues in accordance with ASC 606, Revenue from Contracts with
Customers (“ASC 606”), whereby revenues are recognized when control of the promised goods or services is
transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in
exchange for those services. Under ASC 606, the Company accounts for a contract with a client when it has
approval, the contract is committed, the rights of the parties, including payment terms are identified, the contract has
commercial substance and consideration is probable of collection. The Company’s sales commissions are expensed
as incurred because they are not directly incremental to obtaining customer contracts.
The Americas and EMEA regions primarily provide customer engagement solutions and services with an emphasis
on inbound multichannel demand generation, customer service and technical support to our clients’ customers.
These services, which represented 97.7%, 99.0% and 99.4% of consolidated revenues in 2019, 2018 and 2017,
respectively, are delivered through multiple communication channels including phone, e-mail, social media, text
messaging, chat and digital self-service.
Customer engagement solutions and services contracts have a single stand-ready performance obligation as the
promise to transfer the customer solutions and services are not separately identifiable from other promises in the
contract, and therefore not distinct. Because the Company’s customers simultaneously receive and consume the
benefits of its services as they are delivered, the performance obligations are satisfied over time, and revenues are
recognized over time using output methods such as a per minute, per hour, per call, per transaction or per time and
materials basis. These output methods faithfully depict the satisfaction of the Company’s obligation to deliver the
services as requested and represent a direct measurement of value to the customer.
The stated terms of these contracts range from 30 days to six years. The majority of these contracts include
termination for convenience or without cause provisions allowing either party to cancel the contract without
substantial cost or penalty within a defined notification period (“termination rights”), typically up to 180 days. Only
the noncancelable portion of the contract qualifies as a legally enforceable contract under ASC 606 and any
unsatisfied performance obligations are accounted for as deferred revenue. Periods that extend beyond the legally
enforceable contract period are considered optional purchases of additional services. As these options typically do
not represent a material right, the amount of up-front fees received for periods that extend beyond the legally
enforceable contract period are accounted for as customer arrangements with termination rights.
Invoices are generally issued on a monthly basis as control transfers and payment is typically due within 30 or 60
days of the invoice date. Revenue recognition is limited to the established transaction price, the amount to which the
Company expects to be entitled to under the contract, including the amount of expected fees for those contracts with
renewal provisions, and the amount that is not contingent upon delivery of any future product or service or meeting
other specified performance obligations. The Company’s customer contracts include penalty and holdback
provisions for failure to meet specified minimum service levels and other performance-based contingencies, as well
as the right of certain of the Company’s clients to chargeback accounts that do not meet certain requirements for
specified periods after a sale has occurred. Certain customers also receive cash discounts for early payment. These
provisions are accounted for as variable consideration and are estimated using the expected value method based on
historical service and pricing trends, the individual contract provisions, and the Company’s best judgment at the
time. None of these variable consideration components are subject to constraint due to the short time period to
resolution, the Company’s extensive history with similar transactions, and the limited number of possible outcomes
and third-party influence. The portion of the consideration received under the contract that the Company expects to
ultimately refund to the customer is excluded from the transaction price and is recorded as an estimated refund
liability. The transaction price, once determined, is allocated to the single performance obligation on a contract by
contract basis.
The Company also provides RPA, fulfillment and enterprise support services which are immaterial in total.
For additional information refer to Note 2, Revenues.
Deferred revenues and customer liabilities — Deferred revenues consist of up-front fees received in connection
with certain contracts to the extent a legally enforceable contract exists. Accordingly, the up-front fees allocated to a
contract’s termination notification period, typically varying periods up to 180 days, are recorded as deferred
revenue, while the fees that extend beyond the notification period are classified as customer arrangements with
termination rights. These up-front fees do not represent a significant financing component since they were structured
primarily to reduce the administrative burden in managing the operations of certain contracts, to provide the
58
customer with un-interrupted service, and to assist in managing the overall risk and profitability of providing the
services.
Customer liabilities consist of customer arrangements with termination rights and estimated refund liabilities.
Customer arrangements with termination rights represent the amount of up-front fees received for periods that
extend beyond the legally enforceable contract period. All customer arrangements with termination rights are
classified as current as the customer can terminate the contracts and demand pro-rata refunds of the up-front fees
over varying periods, typically up to 180 days. Estimated refund liabilities represent consideration received under
the contract that the Company expects to ultimately refund to the customer and primarily relates to estimated
penalties, holdbacks and chargebacks. Penalties and holdbacks result from the failure to meet specified minimum
service levels in certain contracts and other performance-based contingencies. Chargebacks reflect the right of
certain of the Company’s clients to chargeback accounts that do not meet certain requirements for specified periods
after a sale has occurred.
For additional information refer to Note 2, Revenues.
Cash, Cash Equivalents and Restricted cash — Cash and cash equivalents consist of cash and highly liquid short-
term investments, primarily held in non-interest-bearing investments which have original maturities of less than
90 days. Cash and cash equivalents in the amount of $127.2 million and $128.7 million at December 31, 2019 and
2018, respectively, were primarily held in non-interest-bearing accounts. Cash and cash equivalents of $125.3
million and $115.7 million at December 31, 2019 and 2018, respectively, were held in international operations. Most
of these funds will not be subject to additional taxes if repatriated to the United States. There are circumstances
where the Company may be unable to repatriate some of the cash and cash equivalents held by its international
operations due to country restrictions.
Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or
is generally designated for specific purposes arising out of certain contractual or other obligations.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the
Consolidated Balance Sheets that sum to the amounts reported in the Consolidated Statements of Cash Flows (in
thousands):
Cash and cash equivalents
Restricted cash included in "Other current assets"
Restricted cash included in "Deferred charges and
other assets"
December 31,
2019
2018
2017
2016
$
$
127,246
568
1,371
129,185
$
$
128,697
149
1,385
130,231
$
$
343,734
154
917
344,805
$
$
266,675
160
759
267,594
Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts on trade account
receivables for estimated losses arising from the inability of its customers to make required payments. The
Company’s estimate is based on qualitative and quantitative analyses, including credit risk measurement tools and
methodologies using publicly available credit and capital market information, a review of the current status of the
Company’s trade accounts receivable and the historical collection experience of the Company’s clients. It is
reasonably possible that the Company’s estimate of the allowance for doubtful accounts will increase if the financial
condition of the Company’s customers were to deteriorate, resulting in a reduced ability to make payments.
Property and Equipment — Property and equipment is recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the respective assets. Improvements to leased premises are amortized over
the shorter of the related lease term or the estimated useful lives of the improvements. Cost and related accumulated
depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are
credited or charged to income. The Company capitalizes certain costs incurred, if any, to internally develop software
during the application development stages. Costs incurred in the preliminary project and post-implementation stages
are expensed as incurred.
59
The carrying value of property and equipment to be held and used is evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360,
Property, Plant and Equipment. For purposes of recognition and measurement of an impairment loss, assets are
grouped at the lowest levels for which there are identifiable cash flows (the “asset group”). An asset is considered to
be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and
its eventual disposition does not exceed its carrying amount. The amount of the impairment loss, if any, is measured
as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally
determined based on appraisals or sales prices of comparable assets or independent third party offers. Other than
what has been disclosed in Note 6, Fair Value, the Company determined that its property and equipment was not
impaired as of December 31, 2019 and 2018.
Goodwill — The Company accounts for goodwill and other intangible assets under ASC 350, Intangibles —
Goodwill and Other (“ASC 350”). The Company expects to receive future benefits from previously acquired
goodwill over an indefinite period of time. For goodwill and other intangible assets with indefinite lives not subject
to amortization, the Company reviews goodwill and intangible assets for impairment at least annually in the third
quarter, and more frequently in the presence of certain circumstances. The Company has the option to first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company may elect
to forgo this option and proceed to the quantitative goodwill impairment test. If the Company elects to perform the
qualitative assessment and it indicates that a significant decline to fair value of a reporting unit is more likely than
not, or if a reporting unit’s fair value has historically been closer to its carrying value, or the Company elects to
forgo this qualitative assessment, the Company will proceed to the quantitative goodwill impairment test where the
fair value of a reporting unit is calculated based on discounted future probability-weighted cash flows. If the
quantitative goodwill impairment test indicates that the carrying value of a reporting unit is in excess of its fair
value, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the
reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
Intangible Assets — Definite-lived intangible assets, primarily customer relationships, are amortized using the
straight-line method over their estimated useful lives which approximate the pattern in which the economic benefits
of the assets are consumed. The Company periodically evaluates the recoverability of intangible assets and takes
into account events or changes in circumstances that warrant revised estimates of useful lives or that indicate that
impairment exists. Fair value for intangible assets is based on discounted cash flows, market multiples and/or
appraised values, as appropriate.
Income Taxes — The Company accounts for income taxes under ASC 740, Income Taxes (“ASC 740”) which
requires recognition of deferred tax assets and liabilities to reflect tax consequences of differences between the tax
bases of assets and liabilities and their reported amounts in the accompanying consolidated financial statements.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, both positive
and negative, for each respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be
realized in accordance with the criteria of ASC 740. Valuation allowances are established against deferred tax assets
due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by tax
jurisdiction basis to analyze whether there is sufficient positive or negative evidence, in accordance with criteria of
ASC 740, to support a change in judgment about the ability to realize the related deferred tax assets. Uncertainties
regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those
jurisdictions.
The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns and records a
liability for uncertain tax positions in accordance with ASC 740. ASC 740 contains a two-step approach to
recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available
evidence indicates that it is more likely than not that the position will be sustained upon examination, including
resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest
amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company
recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the
accompanying consolidated financial statements.
60
Self-Insurance Programs — The Company self-insures for certain levels of workers' compensation and self-funds
the medical, prescription drug and dental benefit plans in the United States. Estimated costs are accrued at the
projected settlements for known and anticipated claims. Amounts related to these self-insurance programs are
included in “Accrued employee compensation and benefits” and “Other long-term liabilities” in the accompanying
Consolidated Balance Sheets.
Investments in Equity Method Investees — The Company uses the equity method to account for investments in
companies if the investment provides the ability to exercise significant influence, but not control, over operating and
financial policies of the investee. The Company’s proportionate share of the net income or loss of an equity method
investment is included in consolidated net income. Judgment regarding the level of influence over an equity method
investment includes considering key factors such as the Company’s ownership interest, representation on the board
of directors, participation in policy-making decisions and material intercompany transactions.
The Company evaluates an equity method investment for impairment whenever events or changes in circumstances
indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company
when reviewing an equity method investment for impairment include the length of time (duration) and the extent
(severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial
condition and near-term prospects, and the intent and ability to hold the investment for a period of time sufficient to
allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified.
As of December 31, 2019 and 2018, the Company did not identify any instances where the carrying values of its
equity method investments were not recoverable.
In July 2017, the Company made a strategic investment of $10.0 million in XSell for 32.8% of XSell’s preferred
stock. The Company’s net investment in XSell of $8.7 million and $9.2 million was included in “Deferred charges
and other assets” in the accompanying Consolidated Balance Sheets as of December 31, 2019 and 2018,
respectively. The Company’s investment was paid in two installments of $5.0 million, one in July 2017 and one in
August 2018. The Company’s proportionate share of XSell’s income (loss) of $(0.5) million, $(0.7) million and
$(0.1) million was included in “Other income (expense), net” in the accompanying Consolidated Statements of
Operations for the years ended December 31, 2019, 2018 and 2017, respectively.
Customer-Acquisition Advertising Costs — The Company’s advertising costs are expensed as incurred. Total
advertising costs included in the accompanying Consolidated Statements of Operations were as follows (in
thousands):
2019
Years Ended December 31,
2018
2017
Customer-acquisition advertising costs included
in "Direct salaries and related costs"
$
47,313
$
49,657
$
36,659
Stock-Based Compensation —In accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”),
the Company recognizes in its accompanying Consolidated Statements of Operations the grant-date fair value of
stock options and other equity-based compensation issued to employees and directors. Compensation expense for
equity-based awards is recognized over the requisite service period, usually the vesting period, while compensation
expense for liability-based awards (those usually settled in cash rather than stock) is re-measured to fair value at
each balance sheet date until the awards are settled. See Note 24, Stock-Based Compensation, for further
information.
61
Fair Value of Financial Instruments — The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to estimate that value:
•
•
•
•
•
Cash, short-term and other investments, investments held in rabbi trust and accounts payable — The
carrying values for cash, short-term and other investments, investments held in rabbi trust and accounts
payable approximate their fair values.
Foreign currency forward contracts and options — Foreign currency forward contracts and options,
including premiums paid on options, are recognized at fair value based on quoted market prices of
comparable instruments or, if none are available, on pricing models or formulas using current market and
model assumptions, including adjustments for credit risk.
Embedded derivatives — Embedded derivatives within certain hybrid lease agreements are bifurcated from
the host contract and recognized at fair value based on pricing models or formulas using significant
unobservable inputs, including adjustments for credit risk.
Long-term debt — The carrying value of long-term debt approximates its estimated fair value as the debt
bears interest based on variable market rates, as outlined in the debt agreement.
Contingent consideration — Contingent consideration is recognized at fair value based on the discounted
cash flow method.
Fair Value Measurements — ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing
the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants.
Fair Value Hierarchy — ASC 820 requires disclosure about how fair value is determined for assets and liabilities
and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of
observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable
market data when available. These two types of inputs have created the following fair value hierarchy:
•
•
•
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets.
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or
significant value drivers are unobservable.
Determination of Fair Value — The Company generally uses quoted market prices (unadjusted) in active markets
for identical assets or liabilities that the Company has the ability to access to determine fair value and classifies such
items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in
Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted
market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are
observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include
situations where there is little, if any, market activity for the asset or liability.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use,
where possible, current market-based or independently sourced market parameters, such as interest rates, currency
rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to
the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3
even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure assets and liabilities
at fair value on a recurring basis, including an indication of the level in the fair value hierarchy in which each asset
or liability is generally classified.
62
Money Market and Open-End Mutual Funds — The Company uses quoted market prices in active markets to
determine the fair value. These items are classified in Level 1 of the fair value hierarchy.
Foreign Currency Contracts — The Company enters into foreign currency forward contracts and options over-the-
counter and values such contracts using quoted market prices of comparable instruments or, if none are available, on
pricing models or formulas using current market and model assumptions, including adjustments for credit risk. The
key inputs include forward or option foreign currency exchange rates and interest rates. These items are classified in
Level 2 of the fair value hierarchy.
Embedded Derivatives — The Company uses significant unobservable inputs to determine the fair value of
embedded derivatives, which are classified in Level 3 of the fair value hierarchy. These unobservable inputs include
expected cash flows associated with the lease, currency exchange rates on the day of commencement, as well as
forward currency exchange rates; results of which are adjusted for credit risk. These items are classified in Level 3
of the fair value hierarchy. See Note 12, Financial Derivatives, for further information.
Investments Held in Rabbi Trust — The investment assets of the rabbi trust are valued using quoted market prices in
active markets, which are classified in Level 1 of the fair value hierarchy. For additional information about the
deferred compensation plan, refer to Note 13, Investments Held in Rabbi Trust, and Note 24, Stock-Based
Compensation.
Contingent Consideration — The Company uses significant unobservable inputs to determine the fair value of
contingent consideration, which is classified in Level 3 of the fair value hierarchy. The contingent consideration
recorded related to the liabilities assumed as part of the Clearlink acquisition was recognized at fair value using a
discounted cash flow methodology and a discount rate of approximately 10.0%. The discount rate varies dependent
on the specific risks of each acquisition including the country of operation, the nature of services and complexity of
the acquired business, and other similar factors, all of which are significant inputs not observable in the market.
Significant increases or decreases in any of the inputs in isolation would result in a significantly higher or lower fair
value measurement.
Foreign Currency Translation — The assets and liabilities of the Company’s foreign subsidiaries, whose functional
currency is other than the U.S. Dollar, are translated at the exchange rates in effect on the balance sheet date, and
income and expenses are translated at the weighted average exchange rate during the period. The net effect of
translation gains and losses is not included in determining net income, but is included in “Accumulated other
comprehensive income (loss)” (“AOCI”), which is reflected as a separate component of shareholders’ equity until
the sale or until the complete or substantially complete liquidation of the net investment in the foreign subsidiary.
Foreign currency transactional gains and losses are included in “Other income (expense), net” in the accompanying
Consolidated Statements of Operations.
Foreign Currency and Derivative Instruments — The Company accounts for financial derivative instruments under
ASC 815, Derivatives and Hedging (“ASC 815”). The Company generally utilizes forward contracts and options
expiring within one to 24 months to reduce its foreign currency exposure due to exchange rate fluctuations on
forecasted cash flows denominated in non-functional foreign currencies and net investments in foreign operations. In
using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself
to counterparty credit risk.
The Company designates derivatives as either (1) a hedge of a forecasted transaction or of the variability of cash
flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (2) a hedge of a net
investment in a foreign operation (“net investment” hedge); or (3) a derivative that does not qualify for hedge
accounting. To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the
designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and throughout the
life of the hedging relationship.
For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of
hedge effectiveness is reported in AOCI until the hedged transaction affects earnings. At that time, this amount is
reclassified from AOCI and recognized within “Revenues.”
For net investment hedges, the entire change in the fair value of the hedging instrument included in the assessment
of hedge effectiveness is recorded in cumulative translation adjustment (“CTA”) in AOCI. That amount will remain
in CTA until the period in which the hedged item affects earnings. At that time, the amount in CTA is reclassified to
the same income statement line where the earnings effect of the hedged item is presented. The Company has elected
63
the spot method for assessing the effectiveness of net investment hedges and will record the amortization of
excluded components of net investment hedges in “Other income (expense), net” in its consolidated financial
statements.
Cash flows from the derivative contracts are classified within the operating section in the accompanying
Consolidated Statements of Cash Flows. The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging
activities. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective on a prospective and retrospective basis. When
it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge
or if a forecasted hedge is no longer probable of occurring, or if the Company de-designates a derivative as a hedge,
the Company discontinues hedge accounting prospectively. At December 31, 2019 and 2018, all hedges were
determined to be highly effective.
The Company also periodically enters into forward contracts that are not designated as hedges as defined under ASC
815. The purpose of these derivative instruments is to reduce the effects from fluctuations caused by volatility in
currency exchange rates on the Company’s operating results and cash flows. Changes in the fair value of the
derivative instruments are included in “Revenues” or “Other income (expense), net”, depending on the underlying
risk exposure. See Note 12, Financial Derivatives, for further information.
Loss Contingencies
Contingencies are recorded in the consolidated financial statements when it is probable that a liability will be
incurred and the amount of the loss is reasonably estimable, or otherwise disclosed, in accordance with ASC 450,
Contingencies (“ASC 450”). Significant judgment is required in both the determination of probability and the
determination as to whether a loss is reasonably estimable. In the event the Company determines that a loss is not
probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a
reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate
and in compliance with ASC 450. See Note 22, Commitments and Loss Contingencies, for further information.
Reclassifications — Certain balances in prior years have been reclassified to conform to current year presentation.
New Accounting Standards Not Yet Adopted
Financial Instruments – Credit Losses
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial
Instruments (“ASU 2016-13”). These amendments require measurement and recognition of expected versus incurred
credit losses for financial assets held. Entities are required to measure all expected credit losses for most financial
assets held at the reporting date based on an expected loss model which includes historical experience, current
conditions, and reasonable and supportable forecasts. Subsequently, the FASB issued several amendments. ASU
2016-13 and the subsequent amendments are effective for fiscal years beginning after December 15, 2019, and
interim periods within those fiscal years. Early adoption is permitted.
The Company’s implementation team completed its assessment of its data and the design of its financial models to
estimate expected credit losses and evaluated the critical factors of ASU 2016-13 to determine its impact on the
Company’s business processes, systems, and internal controls. The Company will apply ASU 2016-13 to its trade
receivables but expects the adoption of the amendments on January 1, 2020 to have an immaterial impact on its
financial condition, results of operations or cash flows because credit losses associated with trade receivables have
historically been insignificant. The adoption of ASU 2016-13 will require expanded quantitative and qualitative
disclosures about the Company’s expected credit losses.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for
Income Taxes (“ASU 2019-12”). These amendments simplify the accounting for income taxes by eliminating certain
exceptions and also clarifying and amending certain aspects of existing guidance. These amendments are effective
64
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Most of the
amendments are required to be applied on a prospective basis, while certain amendments must be applied on a
retrospective or modified retrospective basis. Early adoption is permitted, including adoption in any interim period
for which financial statements have not yet been issued. The Company is currently evaluating the amendments in
ASU 2019-12 and is assessing the timing of its adoption but does not expect a material impact on its financial
condition, results of operations, cash flows.
Fair Value Measurements
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
In August 2018,
(“ASU”) 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement (“ASU 2018-13”). These amendments remove, modify or add certain
disclosure requirements for fair value measurements. These amendments are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. Certain of the amendments will be applied
prospectively in the initial year of adoption while the remainder are required to be applied retrospectively to all
periods presented upon their effective date. Early adoption is permitted. The Company does not expect its adoption
of ASU 2018-13 on January 1, 2020 to have a material impact on its disclosures.
Retirement Benefits
In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans -
General (Subtopic 715-20) – Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit
Plans (“ASU 2018-14”). These amendments remove, modify or add certain disclosure requirements for defined
benefit plans. These amendments are effective for fiscal years ending after December 15, 2020, with early adoption
permitted. The Company does not expect its adoption of ASU 2018-14 to have a material impact on its financial
condition, results of operations, cash flows or disclosures and does not expect to early adopt the standard.
Cloud Computing
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software
(Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That Is a Service Contract (“ASU 2018-15”). These amendments align the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software. These amendments are
effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with
early application permitted in any interim period after issuance of this update. The amendments should be applied
either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company
does not expect its adoption of ASU 2018-15 on January 1, 2020 to have a material impact on its financial condition,
results of operations, cash flows or disclosures and does not expect to early adopt the standard.
Codification Improvements – Financial Instruments – Credit Losses, Derivatives and Hedging, and Financial
Instruments
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments –
Credit Losses, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”). These
amendments clarify new standards on credit losses, hedging and recognizing and measuring financial instruments
and address implementation issues stakeholders have raised. The credit losses and hedging amendments have the
same effective dates as the respective standards, unless an entity has already adopted the standards. The amendments
related to recognizing and measuring financial instruments are effective for fiscal years beginning after December
15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company does not
expect the adoption of ASU 2019-04 on January 1, 2020 to have a material impact on its financial condition, results
of operations, cash flows or disclosures.
65
New Accounting Standards Recently Adopted
Leases
the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) and subsequent
In February 2016,
amendments (together, “ASC 842”). These amendments require the recognition of lease assets and lease liabilities
on the balance sheet by lessees for those leases classified as operating leases under ASC 840, Leases (“ASC 840”).
These amendments also require qualitative disclosures along with specific quantitative disclosures. These
amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. Early application is permitted. Entities have the option to either apply the amendments (1) at the
beginning of the earliest period presented using a modified retrospective approach for leases that exist or are entered
into after the beginning of the earliest comparative period in the financial statements or (2) at the adoption date and
recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption
without the need to restate prior periods. There are also certain optional practical expedients that an entity may elect
to apply. The Company adopted ASC 842 as of January 1, 2019 using a modified retrospective transition, with the
cumulative-effect adjustment to the opening balance of retained earnings as of the effective date. Periods prior to
January 1, 2019 have not been restated.
See Note 3, Leases, for further details as well as the Company’s significant accounting policy for leases.
Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to
Accounting for Hedge Activities (“ASU 2017-12”). These amendments help simplify certain aspects of hedge
accounting and better align an entity’s risk management activities and financial reporting for hedging relationships
through changes to both the designation and measurement guidance for qualifying hedging relationships and the
presentation of hedge results. For cash flow and net investment hedges as of the adoption date, the guidance
requires a modified retrospective approach. The amended presentation and disclosure guidance is required only
prospectively. These amendments are effective for fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years, with early application permitted in any interim period after issuance of this
update. The adoption of ASU 2017-12 on January 1, 2019 did not have a material impact on the financial condition,
results of operations, cash flows or disclosures of the Company. No cumulative-effect adjustment was recorded to
opening retained earnings on the date of adoption as there was no ineffectiveness previously recorded in retained
earnings that would have been included in other comprehensive income if the new guidance had been applied since
hedge inception. Upon adoption of ASU 2017-12,
the Company elected the spot method for assessing the
effectiveness of net investment hedges and will record the amortization of excluded components of net investment
hedges in “Other income (expense), net” in its consolidated financial statements.
Note 2. Revenues
Adoption of ASC 606, Revenue from Contracts with Customers
On January 1, 2018, the Company adopted ASC 606, which includes ASU 2014-09 and all related amendments,
using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.
The Company recorded an increase to opening retained earnings of $3.0 million as of January 1, 2018 due to the
cumulative impact of adopting ASC 606. The impact, all in the Americas segment, primarily related to the change
in the timing of revenue recognition associated with certain customer contracts that provide fees upon renewal, as
well as changes in estimating variable consideration with respect to penalty and holdback provisions for failure to
meet specified minimum service levels and other performance-based contingencies.
Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period
amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting for
revenues under ASC 605, Revenue Recognition (“ASC 605”). Revenues recognized under ASC 606 were higher
during 2018 than revenues would have been under ASC 605. This is primarily attributable to the change in the
timing of revenue recognition, as discussed above. The impact on revenues recognized for the year ended December
31, 2018 is reported below.
66
The financial statement line items impacted by the adoption of ASC 606 in the Company’s Consolidated Statement
of Operations for the year ended December 31, 2018, including the impact of acquisitions, were as follows, along
with the impact per share (in thousands, except per share data):
Balances
Without the
Impact of
the ASC 606
Adoption
Effect of
Adoption
Increase
(Decrease)
Revenues
Direct salaries and related costs
Income from operations
Income before income taxes
Income taxes
Net income
Net income per common share:
Basic
Diluted
$
$
$
As Reported
$
1,625,687
1,072,907
63,202
56,917
7,991
48,926
$
1,608,731
1,069,667
49,486
43,201
4,833
38,368
1.16
1.16
$
$
0.91
0.91
$
$
16,956
3,240
13,716
13,716
3,158
10,558
0.25
0.25
The Company’s net cash provided by operating activities for the year ended December 31, 2018 did not change due
to the adoption of ASC 606.
Revenue from Contracts with Customers
Customer Engagement Solutions and Services
The Company provides customer engagement solutions and services with an emphasis on inbound multichannel
demand generation, customer service and technical support to its clients’ customers. These services are delivered
through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital
self-service. Revenues for customer engagement solutions and services are recognized over time using output
methods such as a per minute, per hour, per call, per transaction or per time and materials basis.
Other Revenues
The Company offers RPA services, including RPA consulting, implementation, hosting and managed services for
front, middle and back-office processes, in Europe and the U.S. Revenues are primarily recognized over time using
output methods such as per time and materials basis.
The Company offers fulfillment services that are integrated with its customer care and technical support services,
primarily to clients operating in Europe. The Company’s fulfillment solutions include order processing, payment
processing, inventory control, product delivery and product returns handling. Revenues are recognized upon
shipment to the customer and satisfaction of all obligations.
The Company provides a range of enterprise support services including technical staffing services and outsourced
corporate help desk services, primarily in the U.S. Revenues are recognized over time using output methods such as
number of positions filled.
The Company also has miscellaneous other revenues in the Other segment.
Disaggregated Revenues
The Company disaggregates its revenues from contracts with customers by service type and delivery location (see
Note 25, Segments and Geographic Information), for each of its reportable segments, as the Company believes it
best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by economic
factors.
67
The following table represents revenues from contracts with customers disaggregated by service type and by the
reportable segment for each category (in thousands):
2019
Amount % of Revenues
Years Ended December 31,
2018
Amount % of Revenues
2017
Amount % of Revenues
Americas:
Customer engagement solutions
and services
Other revenues
Total Americas
EMEA:
Customer engagement solutions
and services
Other revenues
Total EMEA
Other:
Other revenues
Total Other
Trade Accounts Receivable
$ 1,295,636
1,024
1,296,660
281,302
36,711
318,013
89
89
$ 1,614,762
80.3% $ 1,329,614
1,024
0.0%
80.3% 1,330,638
81.8% $ 1,324,534
1,109
0.1%
81.9% 1,325,643
17.4%
2.3%
19.7%
280,437
14,517
294,954
0.0%
0.0%
95
95
100.0% $ 1,625,687
17.2%
0.9%
18.1%
252,423
7,860
260,283
0.0%
0.0%
82
82
100.0% $ 1,586,008
83.5%
0.1%
83.6%
15.9%
0.5%
16.4%
0.0%
0.0%
100.0%
The Company’s trade accounts receivable, net, consisted of the following (in thousands):
Trade accounts receivable, net, current (1)
Trade accounts receivable, net, noncurrent (2)
December 31,
2019
2018
$
$
375,136
26,496
401,632
$
$
335,377
15,948
351,325
(1)
(2)
Included in “Receivables, net” in the accompanying Consolidated Balance Sheets.
Included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets.
The Company’s noncurrent trade accounts receivable result from (1) contracts with customers that include renewal
provisions, and (2) contracts with customers under multi-year arrangements. For contracts that include renewal
provisions, revenue is recognized up-front upon satisfaction of the associated performance obligations, but payments
are received upon renewal. Renewals occur in bi-annual and annual increments over the associated expected
contract term, the majority of which range from two to five years. The Company’s contracts with customers under
multi-year arrangements generally have three-year terms and are invoiced annually at the beginning of each annual
coverage period. The Company records a receivable related to revenue recognized under multi-year arrangements as
the Company has an unconditional right to invoice and receive payment in the future related to these arrangements.
Where the timing of revenue recognition differs from the timing of invoicing and payment, the Company has
determined that its contracts do not include a significant financing component. A substantial amount of the
consideration promised by the customer under the contracts that include renewal provisions is variable, and the
amount and timing of that consideration varies based on the occurrence or nonoccurrence of future events that are
not substantially within the Company’s control. With respect to multi-year year arrangements, there is minimal
difference between the consideration received and the cash selling price, any offered discounts are driven by
volume, and the contracts are of short duration resulting in insignificant interest. Thus, the primary purpose of the
invoicing terms on the multi-year arrangements is to provide the customer with a simplified and predictable way of
purchasing certain products, not to provide financing or to receive financing from the Company’s customer.
68
Deferred Revenue and Customer Liabilities
Deferred revenue and customer liabilities consisted of the following (in thousands):
Deferred revenue
Customer arrangements with termination rights
Estimated refund liabilities
December 31,
2019
2018
$
$
3,012
15,024
8,585
26,621
$
$
3,655
16,404
10,117
30,176
The Company expects to recognize the majority of its deferred revenue as of December 31, 2019 over the next 180
days. Revenues of $3.7 million were recognized during the year ended December 31, 2019 from amounts included
in deferred revenue at December 31, 2018. Revenues of $4.4 million were recognized during the year ended
December 31, 2018 from amounts included in deferred revenue at January 1, 2018.
The Company expects to recognize the majority of the customer arrangements with termination rights into revenue
as the Company has not historically experienced a high rate of contract terminations.
Estimated refund liabilities are generally resolved in 180 days, once it is determined whether the requisite service
levels and client requirements were achieved to settle the contingency.
Note 3. Leases
Adoption of ASC 842, Leases
On January 1, 2019, the Company adopted ASC 842, which includes ASU 2016-02 and all related amendments,
using the modified retrospective method and recognized a cumulative-effect adjustment to the opening balance of
retained earnings at the date of adoption. Results for reporting periods beginning after January 1, 2019 are presented
under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the
Company’s historic accounting for leases under ASC 840.
The adoption of ASC 842 on January 1, 2019 had a material impact on the Company’s Condensed Consolidated
Balance Sheet. ASC 842 required the gross up of historical deferred rent which resulted in the recognition of $225.3
million of right-of-use ("ROU") assets, $239.3 million of operating lease liabilities, a $0.1 million increase to
opening retained earnings, as well as $14.1 million primarily related to the derecognition of net straight-line lease
liabilities. The retained earnings adjustment was due to the cumulative impact of adopting ASC 842, primarily
resulting from the derecognition of embedded lease derivatives, the difference between deferred rent balances and
the net of ROU assets and lease liabilities and the deferred tax impact.
The impact of the adoption of ASC 842 to the Company’s Condensed Consolidated Statements of Operations for the
year ended December 31, 2019 was not material. The Company’s net cash provided by operating activities for the
year ended December 31, 2019 did not change due to the adoption of ASC 842.
Practical Expedients
The Company elected the following practical expedients:
•
•
The package of transitional practical expedients, consistently applied to all leases, that permits the Company to
not reassess whether any expired or existing contracts are or contain leases, the historical lease classification for
any expired or existing leases and initial direct costs for any expired or existing leases; and
The practical expedient that permits the Company to make an accounting policy election (by class of underlying
asset) to account for each separate lease component of a contract and its associated non-lease components as a
single lease component for all leases entered into or modified after the January 1, 2019 adoption date.
Accounting Policy
In determining whether a contract contains a lease, the Company assesses whether the arrangement meets all three
of the following criteria: 1) there is an identified asset; 2) the Company has the right to obtain substantially all the
69
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
the
lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. Additionally, the ROU asset
is adjusted for lease incentives, prepaid lease payments and initial direct costs. Operating lease expense is
recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, such as real estate taxes, insurance,
common area maintenance and other operating costs. Lease and non-lease components are generally accounted for
as a single component to the extent that the costs are fixed per the arrangement. The Company has applied this
accounting policy to all asset classes. To the extent that the non-lease components are not fixed per the arrangement,
these costs are treated as variable lease costs and expensed as incurred.
Certain of the Company’s lease agreements include rental payments that adjust periodically based on an index or
rate, generally the applicable Consumer Price Index (“CPI”). The operating lease liability is measured using the
prevailing index or rate at the measurement date (i.e., the commencement date); however, the most recent CPI in
effect as of January 1, 2019 was used to effectuate the adoption of ASC 842. Incremental payments due to changes
to the index- and rate-based lease payments are treated as variable lease costs and expensed as incurred.
For purposes of calculating operating lease liabilities, the lease term includes options to extend or terminate the lease
when it is reasonably certain that the Company will exercise that option. The primary factors used to estimate
whether an option to extend a lease term will be exercised or not generally include the extent of the Company’s
capital investment, employee recruitment potential and operational cost and flexibility.
In determining the present value of lease payments, the Company uses incremental borrowing rates based on
information available at the lease commencement date. The incremental borrowing rate is the rate of interest that a
lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease
payments in a similar economic environment. The Company’s incremental borrowing rate is estimated using a
synthetic credit rating model and forward currency exchange rates, as applicable.
Leases with an initial term of 12 months or less are recognized in the accompanying Condensed Consolidated
Statements of Operations on a straight-line basis over the lease term.
The ROU asset is evaluated for impairment whenever events or circumstances indicate that the carrying amount may
not be recoverable in accordance with ASC 360. A loss is recognized when the ROU asset is impaired in connection
with the impairment of a site’s assets due to economic or other factors. When the ROU asset is impaired, it is
typically amortized on a straight-line basis over the shorter of the remaining lease term or its useful life, and the
related operating lease would no longer qualify for straight-line treatment of total lease expense.
Leases
The Company leases facilities for its corporate headquarters, many of its customer engagement centers, several
regional support offices and data centers. These leases are classified as operating leases and are included in
“Operating lease right-of-use assets,” “Operating lease liabilities” and “Long-term operating lease liabilities”
in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2019. The Company has no
finance leases.
Lease terms for the Company’s leases are generally three to 20 years with renewal options typically ranging from
one month to five years and largely require the Company to pay a proportionate share of real estate taxes, insurance,
70
common area maintenance, and other operating costs in addition to a base or fixed rent. The Company's operating
leases have remaining lease terms of one month to 13 years as of December 31, 2019.
The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.
The Company subleases certain of its facilities that have been abandoned before the expiration of the lease term.
Operating lease costs on abandoned facilities are reduced by sublease income and included in “General and
administrative” costs in the accompanying Condensed Consolidated Statements of Operations. The Company’s
sublease arrangements do not contain renewal options or restrictive covenants. The Company’s subleases have
varying remaining lease terms extending through 2025, and future contractual sublease payments are expected to be
$12.4 million over the remaining lease terms.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease
expense were as follows (in thousands):
Operating lease cost
Operating lease cost
Short-term lease cost
Short-term lease cost
Variable lease cost
Sublease income
Statement of Operations Location
General and administrative
Direct salaries and related costs
General and administrative
Direct salaries and related costs
General and administrative
General and administrative
$
$
Year Ended
December 31, 2019
59,381
186
2,571
32
4,608
(2,770)
64,008
Supplemental cash flow information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of operating lease liabilities - operating
cash flows
Net right-of-use assets arising from new or remeasured operating lease liabilities
Additional supplemental information related to leases was as follows:
Weighted average remaining lease term of operating leases
Weighted average discount rate of operating leases
Year Ended
December 31, 2019
$
58,058
30,014
December 31, 2019
5.1 years
3.7%
Maturities of operating lease liabilities as of December 31, 2019 were as follows (in thousands):
2020
2021
2022
2023
2024
2025 and thereafter
Total future lease payments
Less: Imputed interest
Present value of future lease payments
Less: Operating lease liabilities
Long-term operating lease liabilities
Amount
57,742
55,472
41,382
27,667
20,210
37,766
240,239
22,566
217,673
50,863
166,810
$
$
As of December 31, 2019, the Company had an additional operating lease for a customer engagement center that
had not yet commenced with future lease payments of $1.7 million. This operating lease will commence during the
first quarter of 2020 and has a 3-year lease term.
71
Disclosures related to periods prior to adoption of ASC 842
Rental expense under operating leases, primarily included in “General and administrative” in the accompanying
Condensed Consolidated Statements of Operations, for the years ended December 31, 2018 and 2017 was $68.0
million and $59.9 million, respectively.
The following is a schedule of future minimum rental payments required under operating leases that had
noncancelable lease terms as of December 31, 2018 under ASC 840 (in thousands):
2019
2020
2021
2022
2023
2024 and thereafter
Note 4. Acquisitions
Symphony Acquisition
Amount
53,071
48,770
43,324
34,063
22,583
51,456
253,267
$
$
On October 18, 2018, the Company, as guarantor, and its wholly-owned subsidiary, SEI International Services
S.a.r.l, a Luxembourg company, entered into a definitive Share Purchase Agreement (the “Symphony Purchase
Agreement”) with Pascal Baker, Ian Barkin, David Brain, David Poole, FIS Nominee Limited, Baronsmead Venture
Trust plc and Baronsmead Second Venture Trust plc to acquire all of the outstanding shares of Symphony. The
Symphony Purchase Agreement contained customary representations and warranties, indemnification obligations
and covenants.
The aggregate purchase price was GBP 52.5 million ($67.6 million), subject to a post-closing working capital
adjustment, of which the Company paid GBP 44.6 million ($57.6 million) at the closing of the transaction on
November 1, 2018 using cash on hand as well as $31.0 million of borrowings under the Company’s credit
agreement. The acquisition date present value of the remaining GBP 7.9 million ($10.0 million) of purchase price
was deferred and is payable in equal installments over three years, on or around November 1, 2019, 2020 and 2021.
The Company paid the first installment of the deferred purchase price of GBP 2.7 million ($3.3 million) in October
2019. The Symphony Purchase Agreement also provides for a three-year, retention based earnout payable in
restricted stock units (“RSUs”) with a value of GBP 3.0 million.
Subsequent to the finalization of the working capital adjustments during the quarter ended March 31, 2019, the
purchase price was adjusted to GBP 52.4 million ($67.5 million).
The Company accounted for the Symphony acquisition in accordance with ASC 805, Business Combinations (“ASC
805”), whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their estimated fair values as of the closing date. The Company completed its tax
analysis of the assets acquired and liabilities assumed during the fourth quarter of 2019, which resulted in the
recording of deferred tax assets and liabilities in accordance with ASC 805. The final purchase price allocation
resulted in $26.1 million of intangible assets, primarily customer relationships and trade names, $2.2 million of fixed
assets and $38.8 million of goodwill.
The Company has reflected Symphony’s results in its consolidated financial statements in the EMEA segment since
November 1, 2018.
WhistleOut Acquisition
On July 9, 2018, the Company, as guarantor, and its wholly-owned subsidiaries, Sykes Australia Pty Ltd, an
Australian company, and Clear Link Technologies, LLC, a Delaware limited liability company, entered into and
closed a definitive Share Sale Agreement (the “WhistleOut Sale Agreement”) with WhistleOut Nominees Pty Ltd as
trustee for the WhistleOut Holdings Unit Trust, CPC Investments USA Pty Ltd, JJZL Pty Ltd, Kenneth Wong as
72
trustee for Wong Family Trust and C41 Pty Ltd as trustee for the Ottery Family Trust to acquire all of the
outstanding shares of WhistleOut Pty Ltd and WhistleOut, Inc. (together, “WhistleOut”). The WhistleOut Sale
Agreement contained customary representations and warranties, indemnification obligations and covenants.
The aggregate purchase price of AUD 30.2 million ($22.4 million) was paid at the closing of the transaction on July
9, 2018. Subsequent to the finalization of the working capital adjustments during the quarter ended March 31, 2019,
the purchase price was adjusted to AUD 30.3 million ($22.5 million). The purchase price was funded through $22.0
million of additional borrowings under the Company’s credit agreement. The WhistleOut Sale Agreement provided
for a three-year, retention based earnout of AUD 14.0 million payable in three installments on or about July 1, 2019,
2020 and 2021. The Company paid the first installment of the earn-out of AUD 6.0 million ($4.2 million) in July
2019.
The Company accounted for the WhistleOut acquisition in accordance with ASC 805, whereby the purchase price
paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their
estimated fair values as of the closing date. The Company completed its tax analysis of the assets acquired and
liabilities assumed during the second quarter of 2019, which resulted in the recording of deferred tax assets and
liabilities in accordance with ASC 805. The final purchase price allocation resulted in $16.5 million of intangible
assets, primarily indefinite-lived domain names, $2.4 million of fixed assets and $3.3 million of goodwill.
The Company has reflected WhistleOut’s results in its consolidated financial statements in the Americas segment
since July 9, 2018.
Telecommunications Asset Acquisition
On April 24, 2017, the Company entered into a definitive Asset Purchase Agreement (the “Telecommunications
Asset Acquisition Purchase Agreement”) to acquire certain assets from a Global 2000 telecommunications services
provider (the “Telecommunications Asset acquisition”). The aggregate purchase price of $7.5 million, paid on May
31, 2017 using cash on hand, resulted in $6.0 million of property and equipment and $1.5 million of customer
relationship intangibles. The Telecommunications Asset Acquisition Purchase Agreement contained customary
representations and warranties, indemnification obligations and covenants.
The Company accounted for the Telecommunications Asset acquisition in accordance with ASC 805, whereby the
fair value of the purchase price was allocated to the tangible and identifiable intangible assets acquired based on
their estimated fair values as of the closing date. The Company completed its analysis of the purchase price
allocation during the second quarter of 2017.
The Company has reflected the Telecommunications Asset’s results in its consolidated financial statements in the
Americas segment since April 24, 2017.
Note 5. Costs Associated with Exit or Disposal Activities
Americas 2019 Exit Plan
During the first quarter of 2019, the Company initiated a restructuring plan to simplify and refine its operating
model in the U.S. (the “Americas 2019 Exit Plan”), in part to improve agent attrition and absenteeism. The
Americas 2019 Exit Plan included closing customer engagement centers, consolidating leased space in various
locations in the U.S. and management reorganization. The Company finalized the actions as of September 30, 2019.
Americas 2018 Exit Plan
During the second quarter of 2018, the Company initiated a restructuring plan to manage and optimize capacity
utilization, which included closing customer engagement centers and consolidating leased space in various locations
in the U.S. and Canada (the “Americas 2018 Exit Plan”). The Company finalized the site closures under the
Americas 2018 Exit Plan as of December 31, 2018, resulting in a reduction of 5,000 seats.
The Company’s actions under both the Americas 2018 and 2019 Exit Plans resulted in general and administrative
cost savings and lower depreciation expense.
73
The cumulative costs incurred to date related to cash and non-cash expenditures resulting from the Americas 2018
and 2019 Exit Plans are outlined below as of December 31, 2019 (in thousands):
Lease obligations and facility exit costs (1)
Severance and related costs (2)
Severance and related costs (1)
Non-cash impairment charges
Other non-cash charges
Americas
2018 Exit Plan
Americas
2019 Exit Plan
$
$
7,073
3,426
1,037
5,875
—
17,411
$
$
—
191
2,155
1,582
244
4,172
(1)
(2)
Included in “General and administrative” costs in the accompanying Consolidated Statements of Operations.
Included in “Direct salaries and related costs” in the accompanying Consolidated Statements of Operations.
The Company has paid a total of $12.3 million in cash through December 31, 2019, of which $10.4 million related
to the Americas 2018 Exit Plan and $1.9 million related to the Americas 2019 Exit Plan.
The following table summarizes the accrued liability and related charges for the years ended December 31, 2019 and
2018 (none in 2017) (in thousands):
Balance at January 1, 2018
Charges (reversals) included in "Direct
salaries and related costs"
Charges (reversals) included in "General
and administrative"
Cash payments
Balance sheet reclassifications (1)
Balance at December 31, 2018
Charges (reversals) included in "Direct
salaries and related costs"
Charges (reversals) included in "General
and administrative"
Cash payments
Balance sheet reclassifications (2)
Balance at December 31, 2019
7,077
(5,643)
335
1,769
—
(4)
(346)
(1,338)
81
$
$
Americas
2018 Exit Plan
Americas
2019 Exit Plan
Lease
Obligations
and Facility
Exit Costs
Severance and
Related Costs
Total
Severance and
Related Costs
Total
$
— $
— $
— $
— $
—
3,429
3,429
1,035
(3,647)
—
817
8,112
(9,290)
335
2,586
—
—
—
—
—
—
—
—
—
—
—
(3)
2
(810)
—
6
$
(3)
191
191
(2)
(1,156)
(1,338)
87
$
2,155
(1,865)
—
481
$
2,155
(1,865)
—
481
(1) Consists of the reclassification of deferred rent balances to the restructuring liability for locations subject to closure.
(2) Consists of the reclassification from the restructuring liability to “Operating lease liabilities” and “long-term operating lease
liabilities” upon adoption of ASC 842 on January 1, 2019.
74
Restructuring Liability Classification
The following table summarizes the Company’s short-term and long-term accrued liabilities in the accompanying
Consolidated Balance Sheets associated with its Americas 2018 and 2019 Exit Plans (in thousands):
Americas
2018 Exit Plan
December 31, 2019
December 31, 2018
Americas
2019 Exit Plan
December 31, 2019
Lease obligations and facility exit costs:
Included in "Accounts payable"
Included in "Other accrued expenses and current
liabilities"
Included in "Other long-term liabilities"
Severance and related costs:
Included in "Accrued employee compensation and
benefits"
Included in "Other accrued expenses and current
liabilities"
$
$
— $
100
$
54
27
81
6
—
6
87
$
952
717
1,769
793
24
817
2,586
$
—
—
—
—
479
2
481
481
The long-term accrued restructuring liability relates to variable costs associated with future rent obligations to be
paid through the remainder of the lease terms, the last of which ends in June 2021.
75
Note 6. Fair Value
The Company's assets and liabilities measured at fair value on a recurring basis subject to the requirements of ASC
820 consisted of the following (in thousands):
Assets:
Foreign currency contracts (1)
Equity investments held in rabbi trust for the
Deferred Compensation Plan (2)
Debt investments held in rabbi trust for the
Deferred Compensation Plan (2)
Liabilities:
Foreign currency contracts (1)
Assets:
Foreign currency contracts (1)
Embedded derivatives (1)
Equity investments held in rabbi trust for the
Deferred Compensation Plan (2)
Debt investments held in rabbi trust for the
Deferred Compensation Plan (2)
Liabilities:
Foreign currency contracts (1)
Embedded derivatives (1)
Fair Value Measurements Using:
Quoted
Prices in
Active Markets
For Identical
Assets
Level 1
Significant
Other
Observable
Inputs
Level 2
Significant
Unobservable
Inputs
Level 3
Balance at
December 31, 2019
$
$
$
$
3,607
$
— $
3,607
$
9,125
4,802
17,534
251
251
$
$
$
9,125
4,802
13,927
$
— $
— $
—
—
3,607
251
251
$
$
$
—
—
—
—
—
—
Fair Value Measurements Using:
Quoted
Prices in
Active Markets
For Identical
Assets
Level 1
Significant
Other
Observable
Inputs
Level 2
Significant
Unobservable
Inputs
Level 3
Balance at
December 31, 2018
$
$
$
$
1,068
10
8,075
3,367
12,520
2,895
369
3,264
$
$
$
$
— $
—
8,075
3,367
11,442
$
— $
—
— $
1,068
—
—
—
1,068
2,895
—
2,895
$
$
$
$
—
10
—
—
10
—
369
369
(1) See Note 12, Financial Derivatives, for the classification in the accompanying Consolidated Balance Sheets.
(2)
Included in “Other current assets” in the accompanying Consolidated Balance Sheets. See Note 13, Investments Held in Rabbi
Trust.
76
Reconciliations of Fair Value Measurements Categorized within Level 3 of the Fair Value Hierarchy
Embedded Derivatives in Lease Agreements
A rollforward of the net asset (liability) activity in the Company’s fair value of the embedded derivatives was as
follows (in thousands):
Balance at the beginning of the period
Derecognition of embedded derivatives (1)
(Losses) included in "Other income (expense), net"
Settlements
Effect of foreign currency
Balance at the end of the period
Change in unrealized gains (losses) included in "Other income
(expense), net" related to embedded derivatives held at
the end of the period
Years Ended December 31,
2018
2017
2019
(359) $
359
—
—
—
— $
(527) $
—
(7)
158
17
(359) $
(555)
—
(139)
170
(3)
(527)
— $
15
$
(325)
$
$
$
(1) Derecognition upon adoption of ASC 842 on January 1, 2019. See Note 3, Leases, for more information.
Contingent Consideration
A rollforward of the activity in the Company’s fair value of its contingent consideration (liability) related to its
Clearlink acquisition was as follows (none in 2019 or 2018) (in thousands):
Balance at the beginning of the period
Imputed interest included in "Interest (expense)"
Fair value gain adjustment included in "General and administrative" costs
Settlements
Effect of foreign currency
Balance at the end of the period
Change in unrealized gains (losses) included in "General and
administrative" related to contingent consideration
outstanding at the end of the period
Non-Recurring Fair Value
Year Ended
December 31, 2017
$
(6,100)
(76)
605
5,760
(189)
—
—
$
$
Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis utilizing Level 3 inputs,
as described in Note 1, Overview and Summary of Significant Accounting Policies, like those associated with
acquired businesses,
including goodwill, other intangible assets, other long-lived assets and equity method
investments. For these assets, measurement at fair value in periods subsequent to their initial recognition would be
applicable if these assets were determined to be impaired.
The adjusted carrying values for assets measured at fair value on a nonrecurring basis (no liabilities) subject to the
requirements of ASC 820 were not material at December 31, 2019 and 2018. The following table summarizes the
total impairment losses in the accompanying Consolidated Statements of Operations related to nonrecurring fair
value measurements of certain assets (no liabilities):
Americas:
Property and equipment, net
Operating lease right-of-use assets
Years Ended December 31,
2018
2017
2019
(343) $
(1,368)
(1,711) $
(9,401) $
—
(9,401) $
(5,410)
—
(5,410)
$
$
77
In connection with the closure of certain under-utilized customer engagement centers and the consolidation of leased
space in the U.S. and Canada, the Company recorded impairment charges of $1.7 million, $9.4 million and $5.2
million during the years ended December 2019, 2018 and 2017, respectively, related to the exit of leased facilities as
well as leasehold improvements, equipment, furniture and fixtures which were not recoverable. See Note 5, Costs
Associated with Exit or Disposal Activities, for further information.
Also, the Company recorded an impairment charge of $0.2 million related to the write-down of a vacant and unused
parcel of land in the U.S. to its estimated fair value during the year ended December 31, 2017.
Note 7. Goodwill and Intangible Assets
Intangible Assets
The following table presents the Company’s purchased intangible assets as of December 31, 2019 (in thousands):
Intangible assets subject to amortization:
Customer relationships
Trade names and trademarks
Non-compete agreements
Content library
Proprietary software
Intangible assets not subject to amortization:
Domain names
Gross
Intangibles
Accumulated
Amortization
Net
Intangibles
$
$
$
191,171
19,380
2,769
506
870
(121,074) $
(12,929)
(2,181)
(506)
(695)
70,097
6,451
588
—
175
81,109
295,805
$
—
(137,385) $
81,109
158,420
Weighted
Average
Amortization
Period (years)
10
8
3
2
5
N/A
5
The following table presents the Company’s purchased intangible assets as of December 31, 2018 (in thousands):
Intangible assets subject to amortization:
Customer relationships
Trade names and trademarks
Non-compete agreements
Content library
Proprietary software
Intangible assets not subject to amortization:
Domain names
Gross
Intangibles
Accumulated
Amortization
Net
Intangibles
$
$
$
189,697
19,236
2,746
517
1,040
(106,502) $
(10,594)
(1,724)
(517)
(725)
83,195
8,642
1,022
—
315
80,857
294,093
$
—
(120,062) $
80,857
174,031
Weighted
Average
Amortization
Period (years)
10
8
3
2
4
N/A
5
The Company’s estimated future amortization expense for the succeeding years relating to the purchased intangible
assets resulting from acquisitions completed prior to December 31, 2019, is as follows (in thousands):
2020
2021
2022
2023
2024
2025 and thereafter
Amount
14,099
9,506
8,204
7,361
7,116
31,025
78
Goodwill
Changes in goodwill for the year ended December 31, 2019 consisted of the following (in thousands):
Changes in goodwill for the year ended December 31, 2018 consisted of the following (in thousands):
Acquisition-
Related (1)
Effect of
Foreign
Currency
January 1, 2019
$
255,436 $
47,081
302,517 $
1,202 $
2,421
3,623 $
December 31, 2019
259,953
51,294
311,247
3,315 $
1,792
5,107 $
Acquisition-
Related (1)
Effect of
Foreign
Currency
January 1, 2018
$
258,496 $
10,769
269,265 $
2,175 $
36,361
38,536 $
December 31, 2018
255,436
47,081
302,517
(5,235) $
(49)
(5,284) $
$
$
Americas
EMEA
Americas
EMEA
(1) See Note 4, Acquisitions, for further information. The year ended December 31, 2018 includes the goodwill recorded upon
acquisition of WhistleOut and Symphony, while the year ended December 31, 2019 includes the impact of adjustments to acquired
goodwill upon finalization of working capital adjustments and the tax analysis of WhistleOut’s and Symphony’s assets acquired
and liabilities assumed.
The Company performs its annual goodwill impairment test during the third quarter, or more frequently if indicators
of impairment exist.
For the annual goodwill impairment test, the Company elected to forgo the option to first assess qualitative factors
and performed its annual quantitative goodwill impairment test as of July 31, 2019. Under ASC 350, the carrying
value of assets is calculated at the reporting unit level. The quantitative assessment of goodwill includes comparing
a reporting unit’s calculated fair value to its carrying value. The calculation of fair value requires significant
judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the
projected long-term growth rate and determination of the Company’s weighted average cost of capital. Changes in
these estimates and assumptions could materially affect the determination of fair value and/or conclusions on
goodwill impairment for each reporting unit. If the fair value of the reporting unit is less than its carrying value,
goodwill is considered impaired and an impairment loss is recognized 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.
The process of evaluating the fair value of the reporting units is highly subjective and requires significant judgment
and estimates as the reporting units operate in a number of markets and geographical regions. The Company
considered the income and market approaches to determine its best estimates of fair value, which incorporated the
following significant assumptions:
Revenue projections, including revenue growth during the forecast periods;
EBITDA margin projections over the forecast periods;
Estimated income tax rates;
Estimated capital expenditures; and
•
•
•
•
• Discount rates based on various inputs, including the risks associated with the specific reporting units as
well as their revenue growth and EBITDA margin assumptions.
As of July 31, 2019, the Company had eight reporting units, seven of which have goodwill. The Company
concluded that goodwill was not impaired for all seven of its reporting units with goodwill, based on generally
accepted valuation techniques and the significant assumptions outlined above. The fair values of three of the seven
reporting units were substantially in excess of their carrying value. The Clearlink, Symphony, Latin America and
Qelp reporting units’ fair values exceeded the respective carrying values, although the fair value cushion was not
substantial. The decrease in the Clearlink reporting unit’s cushion from the prior year was primarily attributable to a
decrease in the projected long-term growth rate of the U.S. Gross Domestic Product as well as a decline in projected
79
revenue growth. The decrease in the cushion from the prior year for the Latin America and Qelp reporting units was
primarily attributable to an increase in the country-specific risk premiums which increased the applied weighted
average cost of capital. Symphony was acquired by the Company in November 2018.
The Clearlink, Symphony, Latin America and Qelp reporting units are at risk of future impairment if projected
operating results are not met or other inputs into the fair value measurement model change. As of December 31,
2019, the Company believes there were no indicators of impairment related to Clearlink’s $74.2 million of goodwill,
Symphony’s $41.3 million of goodwill, Latin America’s $19.5 million of goodwill and Qelp’s $10.0 million of
goodwill.
Note 8. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
trade receivables. The Company’s credit concentrations are limited due to the wide variety of customers and markets
in which the Company’s services are sold. See Note 12, Financial Derivatives, for a discussion of the Company’s
credit risk relating to financial derivative instruments, and Note 25, Segments and Geographic Information, for a
discussion of the Company’s customer concentration.
Note 9. Receivables, Net
Receivables, net consisted of the following (in thousands):
Trade accounts receivable, current
Income taxes receivable
Other
Receivables, gross
Less: Allowance for doubtful accounts
Receivables, net
Allowance for doubtful accounts as a percent of trade accounts
receivable, current
Note 10. Prepaid Expenses
Prepaid expenses consisted of the following (in thousands):
Prepaid maintenance
Prepaid insurance
Prepaid software
Prepaid rent
Prepaid other
Note 11. Other Current Assets
Other current assets consisted of the following (in thousands):
Investments held in rabbi trust (Note 13)
Financial derivatives (Note 12)
Deferred rent
Other current assets
80
December 31,
2019
2018
$
$
378,616
1,571
13,440
393,627
3,480
390,147
$
$
338,473
916
11,132
350,521
3,096
347,425
0.9%
0.9%
December 31,
2019
2018
6,218
5,321
4,236
421
4,672
20,868
$
$
December 31,
2019
2018
13,927
3,373
558
2,667
20,525
$
$
5,888
4,500
3,499
3,471
6,396
23,754
11,442
1,078
1,867
2,374
16,761
$
$
$
$
Note 12. Financial Derivatives
Cash Flow Hedges – The Company has derivative assets and liabilities relating to outstanding forward contracts and
options, designated as cash flow hedges, as defined under ASC 815, consisting of Philippine Peso and Costa Rican
Colon contracts. These contracts are entered into to hedge the exposure to variability in the cash flows of a specific
asset or liability, or of a forecasted transaction that is attributable to changes in exchange rates.
The deferred gains (losses) and related taxes on the Company’s cash flow hedges recorded in “Accumulated other
comprehensive income (loss)” (“AOCI”) in the accompanying Consolidated Balance Sheets were as follows (in
thousands):
Deferred gains (losses) in AOCI
Tax on deferred gains (losses) in AOCI
Deferred gains (losses) in AOCI, net of taxes
Deferred gains (losses) expected to be reclassified to
"Revenues" from AOCI during the next twelve months
December 31,
2019
2018
$
$
$
$
$
2,221
69
2,290
2,221
(1,825)
(39)
(1,864)
Deferred gains (losses) and other future reclassifications from AOCI will fluctuate with movements in the
underlying market price of the forward contracts and options as well as the related settlement of forecasted
transactions.
Non-Designated Hedges
Foreign Currency Forward Contracts – The Company also periodically enters into foreign currency hedge contracts
that are not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is to
protect
the Company’s interests against adverse foreign currency moves relating primarily to intercompany
receivables and payables, and other assets and liabilities that are denominated in currencies other than the
Company’s subsidiaries’ functional currencies. See Note 1, Overview and Summary of Significant Accounting
Policies, for additional information on the Company’s purpose for entering into derivatives not designated as
hedging instruments and its overall risk management strategies.
Embedded Derivatives – The Company enters into certain lease agreements which require payments not
denominated in the functional currency of any substantial party to the agreements. Prior to the adoption of ASC 842
on January 1, 2019, the foreign currency component of these contracts met the criteria under ASC 815 as embedded
derivatives. The Company determined that the embedded derivatives were not clearly and closely related to the
economic characteristics and risks of the host contracts (lease agreements), and separate, stand-alone instruments
with the same terms as the embedded derivative instruments would otherwise qualify as derivative instruments,
thereby requiring separation from the lease agreements and recognition at fair value. Such instruments do not qualify
for hedge accounting under ASC 815. The Company’s embedded derivatives were derecognized on January 1, 2019.
81
The Company had the following outstanding foreign currency forward contracts and options, and embedded
derivatives (in thousands):
Contract Type
Cash flow hedges:
Options:
December 31, 2019
December 31, 2018
Notional
Amount in
USD
Settle
Through
Date
Notional
Amount in
USD
Settle
Through
Date
US Dollars/Philippine Pesos
$
74,000
December 2020
$
26,250
December 2019
Forwards:
US Dollars/Philippine Pesos
US Dollars/Costa Rican Colones
Non-designated hedges:
Forwards
Embedded derivatives
—
42,000
—
December 2020
19,295
—
November 2021
—
39,000
67,000
19,261
14,069
September 2019
December 2019
November 2021
April 2030
Master netting agreements exist with each respective counterparty to reduce credit risk by permitting net settlement
of derivative positions. In the event of default by the Company or one of its counterparties, these agreements include
a set-off clause that provides the non-defaulting party the right to net settle all derivative transactions, regardless of
the currency and settlement date. The maximum amount of loss due to credit risk that, based on gross fair value, the
Company would incur if parties to the derivative transactions that make up the concentration failed to perform
according to the terms of the contracts was $3.6 million and $1.1 million as of December 31, 2019 and 2018,
respectively. After consideration of these netting arrangements and offsetting positions by counterparty, the total net
settlement amount as it relates to these positions are asset positions of $3.4 million and $1.1 million, and liability
positions of $0 and $2.9 million as of December 31, 2019 and 2018, respectively.
Although legally enforceable master netting arrangements exist between the Company and each counterparty, the
Company has elected to present the derivative assets and derivative liabilities on a gross basis in the accompanying
Consolidated Balance Sheets. Additionally, the Company is not required to pledge, nor is it entitled to receive, cash
collateral related to these derivative transactions.
82
The following tables present the fair value of the Company’s derivative instruments included in the accompanying
Consolidated Balance Sheets (in thousands):
Derivatives designated as cash
flow hedging instruments:
Foreign currency contracts
Derivatives not designated as
hedging instruments:
Foreign currency contracts
Foreign currency contracts
Embedded derivatives
Total derivative assets
Derivatives designated as cash
flow hedging instruments:
Foreign currency contracts
Derivatives not designated as
hedging instruments:
Foreign currency contracts
Foreign currency contracts
Embedded derivatives
Embedded derivatives
Total derivative liabilities
Balance Sheet Location
December 31, 2019
December 31, 2018
Derivative Assets
Other current assets
Other current assets
Deferred charges and other assets
Other current assets
$
$
3,051
$
1,038
322
234
—
3,607
$
30
—
10
1,078
Balance Sheet Location
December 31, 2019
December 31, 2018
Derivative Liabilities
Other accrued expenses and current liabilities $
138
$
2,604
Other accrued expenses and current liabilities
Other long-term liabilities
Other accrued expenses and current liabilities
Other long-term liabilities
$
113
—
—
—
251
$
247
44
8
361
3,264
The following table presents the effect of the Company’s derivative instruments included in the accompanying
Consolidated Financial Statements (in thousands):
Revenues
Derivatives designated as cash
flow hedging instruments:
Gains (losses) recognized in AOCI:
Foreign currency contracts
Gains (losses) reclassified from AOCI:
Foreign currency contracts
Derivatives designated as net investment
hedging instruments:
Gains (losses) reclassified from AOCI:
Foreign currency contracts
Derivatives not designated as
hedging instruments:
Gains (losses) recognized from foreign
currency contracts
Gains (losses) recognized from embedded
derivatives
Location of Gains
(Losses) in Net
Income
Years Ended December 31,
2019
$ 1,614,762
2018
$ 1,625,687
2017
$ 1,586,008
$
6,978
$
(4,259) $
2,277
Revenues
2,808
(54)
(2,537)
Revenues
—
—
(8,352)
Other income
(expense), net
Other income
(expense), net
$
$
(674) $
(1,744) $
282
—
(674) $
(7)
(1,751) $
(139)
143
83
Note 13. Investments Held in Rabbi Trust
The Company’s investments held in rabbi trust, classified as trading securities and included in “Other current assets”
in the accompanying Consolidated Balance Sheets, at fair value, consisted of the following (in thousands):
Mutual funds
December 31, 2019
December 31, 2018
Cost
Fair Value
Cost
Fair Value
$
9,777
$
13,927
$
8,864
$
11,442
The mutual funds held in the rabbi trust were 66% equity-based and 34% debt-based as of December 31, 2019. Net
investment
included in “Other income (expense), net” in the accompanying Consolidated
Statements of Operations consisted of the following (in thousands):
income (losses),
Net realized gains (losses) from sale of trading
securities
Dividend and interest income
Net unrealized holding gains (losses)
2019
Years Ended December 31,
2018
2017
$
$
143
419
1,817
2,379
$
$
10
635
(1,512)
(867)
$
$
195
422
1,002
1,619
Note 14. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
Land
Buildings and leasehold improvements
Equipment, furniture and fixtures
Capitalized internally developed software costs
Transportation equipment
Construction in progress
Less: Accumulated depreciation
December 31,
2019
2018
$
$
1,949
138,755
307,559
38,466
613
5,037
492,379
366,389
125,990
$
$
2,185
129,582
298,537
41,883
636
2,253
475,076
339,658
135,418
Capitalized internally developed software, net of depreciation, included in “Property and equipment, net” in the
accompanying Consolidated Balance Sheets was as follows (in thousands):
Capitalized internally developed software costs, net
$
14,353
$
18,352
December 31,
2019
2018
Tornado Damage to Fixed Assets Located in Fort Smith, Arkansas
In May 2019, the building that houses the Company’s customer engagement center located in Fort Smith, Arkansas
experienced significant damage as a result of a tornado, primarily impacting its leasehold improvements and other
fixed assets, and causing an interruption in its business operations. The Company filed an insurance claim with its
property insurance company and received proceeds of $2.9 million. The Company recognized a $1.1 million gain on
settlement of the insurance claim in November 2019, which is included in “General and administrative” costs in the
accompanying Consolidated Statement of Operations for the year ended December 31, 2019. This gain was offset by
costs recognized in previous quarters not covered by the insurance claim.
84
Sale of Land Located in Milton-Freewater, Oregon
In August 2019, the Company sold vacant land located in Milton-Freewater, Oregon, with a net carrying value of
$0.3 million, for cash of $0.3 million (net of selling costs of less than $0.1 million). This resulted in a net gain on
disposal of property and equipment of less than $0.1 million, which is included in “General and administrative”
costs in the accompanying Consolidated Statement of Operations for the year ended December 31, 2019.
Sale of Fixed Assets, Land and Building Located in Wise, Virginia
In October 2018, the Company sold the fixed assets, land and building located in Wise, Virginia, with a net carrying
value of $0.7 million, for cash of $0.8 million (net of selling costs of less than $0.1 million). This resulted in a net
gain on disposal of property and equipment of less than $0.1 million, which is included in “General and
administrative” costs in the accompanying Consolidated Statement of Operations for the year ended December 31,
2018.
Sale of Fixed Assets, Land and Building Located in Ponca City, Oklahoma
In September 2018, the Company sold the fixed assets, land and building located in Ponca City, Oklahoma, with a
net carrying value of $0.5 million, for cash of $0.2 million (net of selling costs of less than $0.1 million). This
resulted in a net loss on disposal of property and equipment of $0.3 million, which is included in “General and
administrative” costs in the accompanying Consolidated Statement of Operations for the year ended December 31,
2018.
Note 15. Deferred Charges and Other Assets
Deferred charges and other assets consisted of the following (in thousands):
Trade accounts receivable, net, noncurrent (Note 2)
Equity method investments (Note 1)
Net deferred tax assets, noncurrent (Note 20)
Rent and other deposits
Value added tax receivables, net, noncurrent
Other
December 31,
2019
2018
$
$
26,496
9,254
6,774
6,106
592
6,723
55,945
$
$
15,948
9,702
5,797
5,687
519
5,711
43,364
Note 16. Accrued Employee Compensation and Benefits
Accrued employee compensation and benefits consisted of the following (in thousands):
Accrued compensation
Accrued bonus and commissions
Accrued vacation
Accrued employment taxes
Accrued severance and related costs (Note 5)
Other
December 31,
2019
2018
$
$
38,186
27,039
20,647
16,468
485
6,766
109,591
$
$
34,095
19,835
19,019
15,598
793
6,473
95,813
85
Note 17. Other Accrued Expenses and Current Liabilities
Other accrued expenses and current liabilities consisted of the following (in thousands):
Accrued purchases
Accrued legal and professional fees
Accrued customer-acquisition advertising costs (Note 1)
Deferred Symphony acquisition purchase price (Note 4)
Accrued roadside assistance claim costs
Accrued telephone charges
Financial derivatives (Note 12)
Accrued restructuring (Note 5)
Accrued rent (Note 3)
Other
December 31,
2019
2018
$
$
4,328
3,860
3,745
3,517
1,709
1,605
251
56
—
10,259
29,330
$
$
1,679
3,380
2,831
3,394
1,330
2,000
2,859
976
3,283
9,503
31,235
Note 18. Borrowings
On February 14, 2019, the Company entered into a $500 million senior revolving credit facility (the “2019 Credit
Agreement”) with a group of lenders, KeyBank National Association, as Administrative Agent, Swing Line Lender
and Issuing Lender (“KeyBank”), the lenders named therein, and KeyBanc Capital Markets Inc. as Lead Arranger
and Sole Book Runner. The 2019 Credit Agreement replaced the Company’s previous $440 million revolving credit
facility dated May 12, 2015 (the “2015 Credit Agreement”), which agreement was terminated simultaneous with
entering into the 2019 Credit Agreement. The 2019 Credit Agreement is subject to certain borrowing limitations and
includes certain customary financial and restrictive covenants.
The 2019 Credit Agreement includes a $200 million alternate-currency sub-facility, a $15 million swingline sub-
facility and a $15 million letter of credit sub-facility, and may be used for general corporate purposes including
acquisitions, share repurchases, working capital support and letters of credit, subject to certain limitations. The
Company is not currently aware of any inability of its lenders to provide access to the full commitment of funds that
exist under the revolving credit facility, if necessary. However, there can be no assurance that such facility will be
available to the Company, even though it is a binding commitment of the financial institutions.
The 2019 Credit Agreement matures on February 14, 2024, and had outstanding borrowings of $73.0 million at
December 31, 2019 and the 2015 Credit Agreement had outstanding borrowings of $102.0 million at December 31,
2018, included in “Long-term debt” in the accompanying Consolidated Balance Sheets.
Borrowings under the 2019 Credit Agreement bear interest at the rates set forth in the 2019 Credit Agreement. In
addition, the Company is required to pay certain customary fees, including a commitment fee determined quarterly
based on the Company’s leverage ratio and due quarterly in arrears as calculated on the average unused amount of
the 2019 Credit Agreement.
The 2019 Credit Agreement is guaranteed by all the Company’s existing and future direct and indirect material U.S.
subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital stock of all the direct
foreign subsidiaries of the Company and those of the guarantors.
In February 2019, the Company paid debt issuance costs of $1.1 million for the 2019 Credit Agreement, which has
been deferred and will be amortized over the term of the loan, along with the remaining debt issuance costs of $0.3
million related to the 2015 Credit Agreement.
86
The following table presents information related to our credit agreements (dollars in thousands):
Average daily utilization
Interest expense (1)
Weighted average interest rate (1)
2019
Years Ended December 31,
2018
2017
$
$
87,800
3,465
$
$
3.9%
106,189
3,817
$
$
3.6%
268,775
6,668
2.5%
(1) Excludes the amortization of deferred loan fees and includes the commitment fee.
In January 2018,
Agreement, primarily using funds repatriated from its foreign subsidiaries.
the Company repaid $175.0 million of long-term debt outstanding under its 2015 Credit
Note 19. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) consisted of the following (in thousands):
Unrealized
Gain
(Loss) on
Net
Investment
Hedge
Unrealized
Gain (Loss)
on
Cash Flow
Hedging
Instruments
Unrealized
Actuarial
Gain
(Loss)
Related
to Pension
Liability
Unrealized
Gain
(Loss) on
Postretirement
Obligation
Total
Foreign
Currency
Translation
Adjustments
$
(72,393) $
36,101
—
—
(23)
(36,315)
(22,158)
—
—
220
(58,253)
5,462
—
—
42
(52,749) $
6,266 $
(8,352)
3,132
—
—
1,046
—
—
—
—
1,046
—
—
—
—
1,046 $
(2,225) $
2,276
(54)
2,444
30
2,471
(4,287)
84
6
(138)
(1,864)
6,978
20
(2,719)
(125)
2,290 $
1,125 $
527
(18)
(53)
(7)
1,574
783
47
(66)
(82)
2,256
108
(23)
(100)
83
2,324 $
200 $ (67,027)
30,522
(30)
3,060
—
2,341
(50)
—
—
120
(31,104)
— (25,662)
131
—
(140)
(80)
—
—
40
(56,775)
— 12,548
(3)
—
(2,771)
48
—
—
88 $ (47,001)
$
Balance at January 1, 2017
Pre-tax amount
Tax (provision) benefit
Reclassification of (gain) loss to net income
Foreign currency translation
Balance at December 31, 2017
Pre-tax amount
Tax (provision) benefit
Reclassification of (gain) loss to net income
Foreign currency translation
Balance at December 31, 2018
Pre-tax amount
Tax (provision) benefit
Reclassification of (gain) loss to net income
Foreign currency translation
Balance at December 31, 2019
87
The following table summarizes the amounts reclassified to net income from accumulated other comprehensive
income (loss) and the associated line item in the accompanying Consolidated Statements of Operations (in
thousands):
Gain (loss) on cash flow hedging
instruments: (1)
Pre-tax amount
Tax (provision) benefit
Reclassification to net income
Actuarial gain (loss) related to
pension liability: (2)
Pre-tax amount
Tax (provision) benefit
Reclassification to net income
Gain (loss) on postretirement
obligation: (2),(3)
Reclassification to net income
Years Ended December 31,
2018
2017
2019
Statements of
Operations
Location
$
$
2,808
(89)
2,719
86
14
100
(54)
48
(6)
58
8
66
$
(2,537) Revenues
93
(2,444)
Income taxes
Other income (expense), net
Income taxes
43
10
53
(48)
2,771
$
$
80
140
$
50
(2,341)
Other income (expense), net
(1) See Note 12, Financial Derivatives, for further information.
(2) See Note 23, Defined Benefit Pension Plan and Postretirement Benefits, for further information.
(3) No related tax (provision) benefit.
For periods prior to December 31, 2017, any remaining reinvested earnings or outside basis differences associated
with the Company’s investments in its foreign subsidiaries are considered to be indefinitely reinvested and no
provision for income taxes on those earnings or translation adjustments has been provided other than as discussed in
Note 20, Income Taxes.
Note 20. Income Taxes
The Company’s income before income taxes consisted of the following (in thousands):
2019
Years Ended December 31,
2018
2017
Domestic (U.S., state and local)
Foreign
$
$
38,672
47,251
85,923
$
$
6,971
49,946
56,917
Significant components of the income tax provision were as follows (in thousands):
Current:
U.S. federal
State and local
Foreign
Total current provision for income taxes
Deferred:
U.S. federal
State and local
Foreign
Total deferred provision (benefit) for income taxes
2019
Years Ended December 31,
2018
8,190
1,506
11,864
21,560
(1,238)
14
1,506
282
21,842
$
$
$
(492)
54
9,938
9,500
(498)
(85)
(926)
(1,509)
7,991
$
$
$
88
$
$
$
$
2017
9,662
71,645
81,307
29,986
855
10,342
41,183
7,919
922
(933)
7,908
49,091
The temporary differences that gave rise to significant portions of the deferred income tax provision (benefit) were
as follows (in thousands):
Net operating loss and tax credit carryforwards
Accrued expenses/liabilities
Depreciation and amortization
Valuation allowance
Deferred statutory income
Other
2019
Years Ended December 31,
2018
2017
$
$
21,846
2,166
(5,864)
(19,006)
846
294
282
$
$
(613)
(2,512)
101
1,558
6
(49)
(1,509)
$
$
1,231
16,470
(10,571)
(1,441)
2,479
(260)
7,908
The reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the Company’s
effective income tax provision was as follows (in thousands):
2019
Years Ended December 31,
2018
2017
Tax at U.S. federal statutory tax rate
State income taxes, net of federal tax benefit
Foreign rate differential
Tax holidays
Permanent differences
Tax credits
Foreign withholding and other taxes
Valuation allowance
Uncertain tax positions
Statutory tax rate changes
Change in assertion related to foreign earnings distribution
2017 Tax Reform Act
Other
Total provision for income taxes
$
$
18,044
1,520
(5,119)
(3,080)
13,257
(8,218)
2,834
781
402
475
952
—
(6)
21,842
$
$
11,953
(31)
(4,620)
(4,050)
12,150
(8,979)
(840)
1,549
771
96
—
(217)
209
7,991
$
$
28,457
594
(14,736)
(2,951)
8,749
(5,102)
2,661
(1,689)
(1,812)
2,536
—
32,705
(321)
49,091
Withholding taxes on offshore cash movements assessed by certain foreign governments of $3.0 million, $2.0
million and $1.7 million were included in the provision for income taxes in the accompanying Consolidated
Statements of Operations for the years ended December 31, 2019, 2018 and 2017, respectively.
On December 22, 2017, the 2017 Tax Reform Act was signed into law making significant changes to the Internal
Revenue Code. Changes included, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for
tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax
system to a participation exemption regime, and a one-time transition tax on the mandatory deemed repatriation of
foreign earnings. We estimated our provision for income taxes in accordance with the 2017 Tax Reform Act and
guidance available upon enactment and as a result recorded $32.7 million as additional income tax expense in the
fourth quarter of 2017, the period in which the legislation was enacted. The $32.7 million estimate included the
provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings
of $32.7 million based on cumulative foreign earnings of $531.8 million and $1.0 million of foreign withholding
taxes on certain anticipated distributions. The provisional tax expense was partially offset by a provisional benefit of
$1.0 million related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which
they are expected to reverse in the future. The Company recorded a $0.2 million decrease to the provisional amounts
during the year ended December 31, 2018 upon finalizing the impact of the 2017 Tax Reform Act.
The Company provides U.S. income taxes on the earnings of foreign subsidiaries unless they are exempted from
taxation as a result of the new territorial tax system. During the fourth quarter of 2019, we partially reversed our
permanent reinvestment assertion in connection with plans to distribute cash from certain of our foreign subsidiaries
In connection with this change in assertion, the Company recorded $1.0 million of
in 2020 or subsequent years.
withholding tax. No additional income taxes have been provided for any remaining reinvested earnings or outside
basis differences inherent in these entities as these amounts continue to be indefinitely reinvested in foreign
operations. Determining the amount of unrecognized deferred tax liability related to any remaining outside basis
89
difference in these entities is not practicable due to the inherent complexity of the multi-national tax environment in
which the Company operates.
On December 22, 2017, the SEC issued SAB 118 to address the application of U.S. GAAP in situations when a
registrant does not have the necessary information available, prepared, or analyzed (including computations) in
reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Reform Act. In
accordance with SAB 118, we determined that
the deferred tax benefit recorded in connection with the
remeasurement of certain deferred tax assets and liabilities and the current tax expense recorded in connection with
the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a
reasonable estimate at December 31, 2017. Final computations were completed during the fourth quarter of 2018,
resulting in the $0.2 million decrease to the provisional amount discussed above.
The 2017 Tax Reform Act instituted a number of new provisions effective January 1, 2018, including GILTI,
Foreign Derived Intangible Income (“FDII”) and Base Erosion and Anti-Abuse Tax (“BEAT”). Based on the
guidance, interpretations, and data available as of December 31, 2019, the Company has determined the impact of
these measures is immaterial to its tax provision in 2019.
The Company has been granted tax holidays in the Philippines, Colombia, Costa Rica and El Salvador, some of
which have various expiration dates ranging from 2021 through 2028. In some cases, the tax holidays expire without
possibility of renewal. In other cases, the Company expects to renew these tax holidays, but there are no assurances
from the respective foreign governments that they will renew them. This could potentially result in future adverse
tax consequences in the local jurisdiction, the impact of which is not practicable to estimate due to the inherent
complexity of estimating critical variables such as long-term future profitability, tax regulations and rates in the
multi-national tax environment in which the Company operates. The Company’s tax holidays decreased the
provision for income taxes by $3.1 million ($0.07 per diluted share), $4.1 million ($0.10 per diluted share) and $3.0
million ($0.07 per diluted share) for the years ended December 31, 2019, 2018 and 2017, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for income taxes. The temporary differences that
gave rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):
Deferred tax assets:
Net operating loss and tax credit carryforwards
Valuation allowance
Accrued expenses
Deferred revenue and customer liabilities
Depreciation and amortization
Other
Deferred tax liabilities:
Depreciation and amortization
Deferred statutory income
Accrued liabilities
Other
Net deferred tax assets (liabilities)
Classified as follows:
Deferred charges and other assets (Note 15)
Other long-term liabilities
Net deferred tax assets (liabilities)
December 31,
2019
2018
$
$
$
$
13,310
(12,666)
9,798
3,346
3,224
129
17,141
(14,919)
(862)
(4,384)
(189)
(20,354)
(3,213)
6,774
(9,987)
(3,213)
$
$
$
$
34,565
(32,299)
9,500
4,138
1,693
413
18,010
(13,199)
(838)
(1,779)
(253)
(16,069)
1,941
5,797
(3,856)
1,941
There are approximately $79.9 million of income tax loss carryforwards as of December 31, 2019, with varying
expiration dates, approximately $48.9 million relating to foreign operations, $30.7 million relating to U.S. state
operations and $0.3 million related to U.S. federal operations. With respect to foreign operations, $24.4 million of
the net operating loss carryforwards have an indefinite expiration date and the remaining $24.5 million net operating
90
loss carryforwards have varying expiration dates through December 2040. Regarding the foreign and U.S. state
aforementioned tax loss carryforwards, no benefit has been recognized for $41.8 million and $22.8 million,
respectively, as the Company does not anticipate that the losses will more likely than not be fully utilized.
During the year ended December 31, 2019, the Company completed a reorganization of certain of its foreign
subsidiaries that resulted in the derecognition of the related deferred tax assets for net operating losses which were
subject to a valuation allowance. As a result, the Company reduced both its net operating loss deferred tax assets and
valuation allowance by approximately $19.7 million.
The Company accrued $2.7 million as of both December 31, 2019 and 2018, excluding penalties and interest, for
the liability for unrecognized tax benefits, which was included in “Long-term income tax liabilities” in the
accompanying Consolidated Balance Sheets. Had the Company recognized these tax benefits, approximately $2.7
million, along with the related interest and penalties, would have favorably impacted the effective tax rate in both
2019 and 2018. The Company does not anticipate that any of the unrecognized tax benefits will be recognized in the
next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income
taxes. The Company had $1.1 million and $0.6 million accrued for interest and penalties as of December 31, 2019
and 2018, respectively. Of the accrued interest and penalties at December 31, 2019 and 2018, $0.6 million and $0.4
million, respectively, relate to statutory penalties. The amount of interest and penalties, net, included in the provision
for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31,
2019, 2018 and 2017 was $0.4 million, $0.7 million and $(9.5) million, respectively.
The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):
Balance at the beginning of the period
Current period tax position increases
Decreases from settlements with tax authorities
Decreases due to lapse in applicable statute of limitations
Foreign currency translation increases (decreases)
Balance at the end of the period
$
$
2019
Years Ended December 31,
2018
2017
2,720
—
—
—
(9)
2,711
$
$
1,342
2,950
(191)
(1,310)
(71)
2,720
$
$
8,531
—
(10,865)
(466)
4,142
1,342
The Company received assessments for the Canadian 2003-2009 audit. Requests for Competent Authority
Assistance were filed with both the Canadian Revenue Agency and the U.S. Internal Revenue Service and the
Company paid mandatory security deposits to Canada as part of this process. As of June 30, 2017, the Company
determined that all material aspects of the Canadian audit were effectively settled pursuant to ASC 740. As a result,
the Company recognized an income tax benefit of $1.2 million, net of the U.S. tax impact, at that time and the
deposits were applied against the anticipated liability. During the year ended December 31, 2018, the Company
finalized procedures ancillary to the Canadian audit and recognized an additional $2.8 million income tax benefit
due to the elimination of certain assessed penalties, interest and withholding taxes.
The Company is currently under audit in several tax jurisdictions. The Company believes it has adequate reserves
related to all matters pertaining to these audits. Should the Company experience unfavorable outcomes from these
audits,
such outcomes could have a significant impact on its financial condition, results of operations and cash
flows.
The Company and its subsidiaries file federal, state and local income tax returns as required in the U.S. and in
various foreign tax jurisdictions. The major tax jurisdictions and tax years that are open and subject to examination
by the respective tax authorities as of December 31, 2019 are tax years 2016 through 2019 for the U.S.
91
Note 21. Earnings Per Share
Basic earnings per share are based on the weighted average number of common shares outstanding during the
periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the
respective periods and the further dilutive effect, if any, from stock appreciation rights, restricted stock, restricted
stock units and shares held in rabbi trust using the treasury stock method.
The number of shares used in the earnings per share computation were as follows (in thousands):
Basic:
Weighted average common shares outstanding
41,649
42,090
41,822
2019
Years Ended December 31,
2018
2017
Diluted:
Dilutive effect of stock appreciation rights, restricted
stock, restricted stock units and shares held in
rabbi trust
Total weighted average diluted shares outstanding
Anti-dilutive shares excluded from the diluted earnings
per share calculation
153
41,802
69
156
42,246
44
319
42,141
46
On August 18, 2011, the Company’s Board of Directors (the “Board”) authorized the Company to purchase up to
5.0 million shares of its outstanding common stock (the “2011 Share Repurchase Program”). On March 16, 2016,
the Board authorized an increase of 5.0 million shares to the 2011 Share Repurchase Program for a total of 10.0
million shares. A total of 6.4 million shares have been repurchased under the 2011 Share Repurchase Program since
inception. The shares are purchased, from time to time, through open market purchases or in negotiated private
transactions, and the purchases are based on factors, including but not limited to, the stock price, management
discretion and general market conditions. The 2011 Share Repurchase Program has no expiration date.
The shares repurchased under the Company’s 2011 Share Repurchase Program were as follows (none in 2018 or
2017) (in thousands, except per share amounts):
For the Year Ended
December 31, 2019
Total Number of
Shares
Repurchased
Range of Prices Paid Per Share
Low
High
Total Cost of
Shares
Repurchased
1,140
$
24.72
$
28.00
$
30,281
Note 22. Commitments and Loss Contingencies
Purchase Commitments
The Company enters into agreements with third-party vendors in the ordinary course of business whereby the
Company commits to purchase goods and services used in its normal operations. These agreements generally are not
cancelable, range from one to five-year periods and may contain fixed or minimum annual commitments. Certain of
these agreements allow for renegotiation of the minimum annual commitments based on certain conditions.
The following is a schedule of future minimum purchases remaining under the agreements as of December 31, 2019
(in thousands):
2020
2021
2022
2023
2024
2025 and thereafter
92
Amount
36,332
6,304
2,338
525
—
—
45,499
$
$
Indemnities, Commitments and Guarantees
From time to time, during the normal course of business, the Company may make certain indemnities, commitments
and guarantees under which it may be required to make payments in relation to certain transactions. These include
but are not limited to: (i) indemnities to clients, vendors and service providers pertaining to claims based on
negligence or willful misconduct of the Company and (ii) indemnities involving breach of contract, the accuracy of
representations and warranties of the Company, or other liabilities assumed by the Company in certain contracts. In
addition, the Company has agreements whereby it will indemnify certain officers and directors for certain events or
occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The
indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The
maximum potential amount of future payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has director and officer insurance coverage that limits its exposure
and enables it to recover a portion of any future amounts paid. The Company believes the applicable insurance
coverage is generally adequate to cover any estimated potential liability under these indemnification agreements.
The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum
potential for future payments the Company could be obligated to make. The Company has not recorded any liability
for these indemnities, commitments and guarantees in the accompanying Consolidated Balance Sheets. In addition,
the Company has some client contracts that do not contain contractual provisions for the limitation of liability, and
other client contracts that contain agreed upon exceptions to limitation of liability. The Company has not recorded
any liability in the accompanying Consolidated Balance Sheets with respect to any client contracts under which the
Company has or may have unlimited liability.
Loss Contingencies
The Company received a state audit assessment and is currently rebutting the position. The Company has
determined that the likelihood of a liability is reasonably possible and developed a range of possible loss up to $1.6
million, net of federal benefit.
The Company, from time to time, is involved in legal actions arising in the ordinary course of business.
On August 24, 2017, a collective action lawsuit was filed against the Company in the United States District Court
for the District of Colorado (the “Court”), Slaughter v. Sykes Enterprises, Inc., Case No. 17 Civ. 2038. The lawsuit
claimed that the Company failed to pay certain employees overtime compensation for the hours they worked over
forty in a workweek, as required by the Fair Labor Standards Act. On October 17, 2018, the parties entered into a
verbal agreement to fully resolve all claims and the fees for the plaintiffs’ attorneys for a total payment of $1.2
million. The settlement agreement was approved by the Court and a charge of $1.2 million was included in “General
and administrative” in the accompanying Consolidated Statement of Operations for the year ended December 31,
2018. The settlement was paid in full on December 31, 2018.
With respect to any such other currently pending matters, management believes that the Company has adequate legal
defenses and/or, when possible and appropriate, has provided adequate accruals related to those matters such that the
ultimate outcome will not have a material adverse effect on the Company’s financial position, results of operations
or cash flows.
Note 23. Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plans
The Company sponsors non-contributory defined benefit pension plans (the “Pension Plans”) for its covered
employees in the Philippines. The Pension Plans provide defined benefits based on years of service and final salary.
All permanent employees meeting the minimum service requirement are eligible to participate in the Pension Plans.
As of December 31, 2019, the Pension Plans were unfunded. The Company expects to make no cash contributions to
its Pension Plans during 2020.
93
The following table provides a reconciliation of the change in the benefit obligation for the Pension Plans and the
net amount recognized, included in “Other long-term liabilities,” in the accompanying Consolidated Balance Sheets
(in thousands):
Balance at the beginning of the period
Service cost
Interest cost
Actuarial (gains) losses
Benefits paid
Effect of foreign currency translation
Balance at the end of the period
Unfunded status
Net amount recognized
December 31,
2019
2018
3,282
405
254
(108)
(22)
122
3,933
$
$
3,642
448
196
(783)
(32)
(189)
3,282
(3,933)
(3,933) $
(3,282)
(3,282)
$
$
$
The actuarial assumptions used to determine the benefit obligations and net periodic benefit cost for the Pension
Plans were as follows:
Discount rate
Rate of compensation increase
Years Ended December 31,
2018
7.4-7.5%
2019
5.0-5.3%
2017
5.5-5.6%
1.4%
2.0%
2.0%
The Company evaluates these assumptions on a periodic basis taking into consideration current market conditions
and historical market data. The discount rate is used to calculate expected future cash flows at a present value on the
measurement date, which is December 31. This rate represents the market rate for high-quality fixed income
investments. A lower discount rate would increase the present value of benefit obligations. Other assumptions
include demographic factors such as retirement, mortality and turnover.
The following table provides information about the net periodic benefit cost and other accumulated comprehensive
income for the Pension Plans (in thousands):
Service cost
Interest cost
Recognized actuarial (gains)
Net periodic benefit cost
Unrealized net actuarial (gains), net of tax
Total amount recognized in net periodic benefit cost and
accumulated other comprehensive income (loss)
$
Years Ended December 31,
2018
2017
2019
$
405
254
(86)
573
(2,324)
$
448
196
(58)
586
(2,256)
443
194
(43)
594
(1,574)
$
(1,751) $
(1,670) $
(980)
In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). These
amendments require that an employer report the service cost component in the same line item or items as other
compensation costs arising from services rendered by the pertinent employees during the period. The other
components of net periodic benefit cost are required to be presented in the income statement separately from the
service cost component outside of a subtotal of income from operations. If a separate line item is not used, the line
items used in the income statement to present other components of net benefit cost must be disclosed. These
amendments are effective for annual periods beginning after December 15, 2017, including interim periods within
those annual periods. These amendments were applied retrospectively for the presentation of the service cost
component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the
income statement and prospectively, on and after the effective date, for the capitalization of the service cost
component of net periodic pension cost and net periodic postretirement benefit in assets. The amendments allow a
94
practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement
benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation
requirements.
The Company adopted the income statement presentation aspects of ASU 2017-07 on a retrospective basis effective
January 1, 2018. The following is a reconciliation of the effect of the reclassification of the interest cost and
amortization of actuarial gain (loss) from operating expenses to other income (expense) in the Company’s
Consolidated Statements of Operations for the year ended December 31, 2017 (in thousands):
Year Ended December 31, 2017:
Direct salaries and related costs
General and administrative
Income from operations
Other income (expense), net
As Previously
Reported
$
$
1,039,790
376,863
86,891
(5,584)
Adjustments
Due to the
Adoption of
ASU 2017-07
As Revised
(113) $
(38)
151
(151)
1,039,677
376,825
87,042
(5,735)
The Company’s service cost for its qualified pension plans was included in “Direct salaries and related costs” and
“General and administrative” costs in its Consolidated Statements of Operations for the years ended December 31,
2019, 2018 and 2017. The remaining components of net periodic benefit cost were included in “Other income
(expense), net” in the Company’s Consolidated Statements of Operations for the years ended December 31, 2019,
2018 and 2017.
The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in
thousands):
Years Ending December 31,
2020
2021
2022
2023
2024
2025 - 2029
Amount
$
447
107
77
135
120
1,038
The Company expects to recognize $0.1 million of net actuarial gains as a component of net periodic benefit cost in
2020.
Employee Retirement Savings Plans
The Company maintains a 401(k) plan covering defined employees who meet established eligibility requirements.
Under the plan provisions, the Company matches 50% of participant contributions to a maximum matching amount
of 2% of participant compensation. The Company’s contributions included in the accompanying Consolidated
Statements of Operations were as follows (in thousands):
401(k) plan contributions
$
1,714
$
1,612
$
1,502
2019
Years Ended December 31,
2018
2017
95
Split-Dollar Life Insurance Arrangement
In 1996, the Company entered into a split-dollar life insurance arrangement to benefit the former Chairman and
Chief Executive Officer of the Company. Under the terms of the arrangement, the Company retained a collateral
interest in the policy to the extent of the premiums paid by the Company. The postretirement benefit obligation
included in “Other long-term liabilities” and the unrealized gains (losses) included in “Accumulated other
comprehensive income” in the accompanying Consolidated Balance Sheets were as follows (in thousands):
Postretirement benefit obligation
Unrealized gains (losses) in AOCI (1)
December 31,
2019
2018
$
$
3
88
12
40
(1) Unrealized gains (losses) are due to changes in discount rates related to the postretirement obligation.
Post-Retirement Defined Contribution Healthcare Plan
On January 1, 2005, the Company established a Post-Retirement Defined Contribution Healthcare Plan for eligible
employees meeting certain service and age requirements. The plan is fully funded by the participants and
accordingly, the Company does not recognize expense relating to the plan.
Note 24. Stock-Based Compensation
The Company’s stock-based compensation plans include the 2019 Equity Incentive Plan for employees and certain
non-employees,
including non-employee directors, and the Deferred Compensation Plan for certain eligible
employees. The Company issues common stock and uses treasury stock to satisfy stock option exercises or vesting
of stock awards.
The following table summarizes the stock-based compensation expense (primarily in the Americas) and income tax
benefits related to the stock-based compensation, both plan and non-plan related (in thousands):
Stock-based compensation (expense) (1)
Income tax benefit (2)
Years Ended December 31,
2018
2017
2019
$
(7,396)
1,775
$
(7,543)
1,810
$
(7,621)
2,858
(1)
(2)
Included in "General and administrative" costs in the accompanying Consolidated Statements of Operations.
Included in "Income taxes" in the accompanying Consolidated Statements of Operations.
There were no capitalized stock-based compensation costs as of December 31, 2019, 2018 and 2017.
2019 Equity Incentive Plan — The Company’s Board of Directors (the “Board”) adopted the Sykes Enterprises,
Incorporated 2019 Equity Incentive Plan (the "2019 Plan”) on March 12, 2019. The 2019 Plan was approved by the
shareholders at the May 2019 annual shareholders meeting. The 2019 Plan replaced and superseded the Company’s
2011 Equity Incentive Plan (the “2011 Plan”). The outstanding awards granted under the 2011 Plan will remain in
effect until their exercise, expiration or termination. The 2019 Plan provides for the grant of awards with respect to a
maximum of 4.0 million shares of common stock, plus any shares of common stock that expire, terminate or are
cancelled or forfeited under the terms of the 2011 Plan. The 2019 Plan permits the grant of restricted stock, stock
appreciation rights, stock options and other stock-based awards to certain employees of, and certain non-employees
who provide services to, the Company.
96
In the event of a change in control, except as may otherwise be provided in an award agreement, the outstanding
2019 Plan awards vesting upon the passage of time (e.g., employment-based) will be accelerated, and all awards
vesting upon the attainment of performance goals will be deemed achieved at 100% of target and all other
restrictions applicable to outstanding awards will lapse, provided that the participant is employed by the Company
on the date of the change in control.
Stock Appreciation Rights — Stock-settled stock appreciation rights (“SARs”) represent the right to receive, without
payment to the Company, a certain number of shares of common stock equal to the amount by which the fair market
value of a share of common stock at the time of exercise exceeds the grant price.
The SARs are granted at the fair market value of the Company’s common stock on the date of the grant and vest
ratably over a three-year period following the date of grant, provided the participant is employed by the Company on
such date. The SARs have a term of 10 years from the date of grant.
All currently outstanding SARs are exercisable within three months after the death, disability, retirement or
termination of the participant’s employment with the Company, if and to the extent the SARs were exercisable
immediately prior to such termination.
If the participant’s employment is terminated for cause, or the participant
terminates his or her own employment with the Company, any portion of the SARs not yet exercised (whether or not
vested) terminates immediately on the date of termination of employment.
The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model that uses
various assumptions. The fair value of the SARs is expensed on a straight-line basis over the requisite service
period. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate for periods
within the contractual life of the award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date
the award is granted with a maturity equal to the expected term of the award. Exercises and forfeitures are estimated
within the valuation model using employee termination and other historical data. The expected term of the SARs
granted represents the period of time the SARs are expected to be outstanding.
The following table summarizes the assumptions used to estimate the fair value of SARs granted (none in 2019):
Expected volatility
Weighted-average volatility
Expected dividend rate
Expected term (in years)
Risk-free rate
Years Ended December 31,
2018
2017
21.4%
21.4%
0.0%
5.0
2.5%
19.3%
19.3%
0.0%
5.0
1.9%
The following table summarizes SARs activity as of December 31, 2019 and for the year then ended:
Stock Appreciation Rights
Balance at the beginning of the period
Granted
Exercised
Forfeited or expired
Balance at the end of the period
Vested or expected to vest at the end of the period
Exercisable at the end of the period
Weighted
Average
Exercise
Price
Shares
(000s)
962
$
— $
(582) $
(40) $
$
340
$
340
$
61
—
—
—
—
—
—
—
Weighted
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value
(000s)
7.8
7.8
7.0
$
$
$
2,874
2,874
523
97
The following table summarizes information regarding SARs granted and exercised (in thousands, except per SAR
amounts):
Number of SARs granted
Weighted average grant-date fair value per SAR
Intrinsic value of SARs exercised
Fair value of SARs vested
Years Ended December 31,
2018
2017
2019
—
— $
$
$
4,893
2,053
$
$
$
333
6.84
320
1,950
$
$
$
396
6.24
1,763
1,846
The following table summarizes nonvested SARs activity as of December 31, 2019 and for the year then ended:
Nonvested Stock Appreciation Rights
Balance at the beginning of the period
Granted
Vested
Forfeited or expired
Balance at the end of the period
Weighted
Average
Grant-Date
Fair Value
6.74
—
6.85
6.63
6.63
Shares (000s)
618
$
— $
$
$
$
(299)
(40)
279
As of December 31, 2019, there was $0.9 million of total unrecognized compensation cost, net of actual forfeitures,
related to nonvested SARs. This cost is expected to be recognized over a weighted average period of 1.1 years.
Restricted Shares and Restricted Stock Units – The Company awards performance and employment-based restricted
shares (“restricted shares”) and/or restricted stock units (“RSUs”) to eligible participants. The restricted shares are
shares of the Company’s common stock (or in the case of RSUs, represent an equivalent number of shares of the
Company’s common stock) which are issued to the participant subject to (a) restrictions on transfer for a period of
time and (b) forfeiture under certain conditions.
For performance-based awards, the performance goals, including revenue growth and income from operations
targets, provide a range of vesting possibilities from 0% to 100% and will be measured at the end of the three-year
performance period. If the performance goals are met for the performance period, the shares will vest and all
restrictions on the transfer of the restricted shares will lapse (or in the case of RSUs, an equivalent number of shares
of the Company’s common stock will be issued to the recipient). The Company recognizes compensation cost, net of
actual forfeitures, based on the fair value (which approximates the current market price) of the restricted shares and
RSUs on the date of grant ratably over the requisite performance period based on the probability of achieving the
performance goals. Changes in the probability of achieving the performance goals from period to period will result
in corresponding changes in compensation expense.
Employment-based restricted shares and RSUs vest ratably over a three-year period following the date of grant,
provided the participant is employed by the Company on such date. The Company recognizes compensation cost,
net of actual forfeitures, based on the fair value (which approximates the current market price) of the restricted
shares and RSUs on the date of grant ratably over the requisite service period.
If the participant’s employment with the Company is terminated for any reason, either by the Company or
participant, prior to the date on which the restricted shares have vested and the restrictions have lapsed with respect
to such vested shares, any restricted shares remaining subject to the restrictions (together with any dividends paid
thereon) will be forfeited, unless there has been a change in control prior to such date.
98
The following table summarizes nonvested restricted shares/RSUs activity as of December 31, 2019 and for the year
then ended:
Nonvested Restricted Shares and RSUs
Balance at the beginning of the period
Granted
Vested
Forfeited or expired
Balance at the end of the period(1)
Weighted
Average
Grant-Date
Fair Value
29.15
28.43
29.67
29.65
28.61
Shares (000s)
1,144
508
(123)
(381)
1,148
$
$
$
$
$
(1) Comprised of 81% of performance-based nonvested restricted shares/RSUs and 19% of employment-based nonvested restricted
shares/RSUs.
The following table summarizes information regarding restricted shares/RSUs granted and vested (in thousands,
except per restricted share/RSU amounts):
Number of restricted shares/RSUs granted
Weighted average grant-date fair value per restricted share/RSU
Fair value of restricted shares/RSUs vested
Years Ended December 31,
2018
2017
2019
508
28.43
3,647
$
$
$
$
492
28.16
8,342
$
$
480
29.42
6,868
As of December 31, 2019, based on the probability of achieving the performance goals, there was $6.1 million of
total unrecognized compensation cost, net of actual forfeitures, related to nonvested restricted shares/RSUs. Of the
unrecognized compensation cost, 33% related to performance-based nonvested restricted shares/RSUs and 67%
related to employment-based nonvested restricted shares/RSUs. This cost is expected to be recognized over a
weighted average period of 2.0 years.
Non-Employee Director Compensation — The Company does not have a formal, written compensation plan for
non-employee directors. Subsequent to the expiration of its 2004 Non-Employee Director Fee Plan, the Board, upon
recommendation of the Compensation Committee, determined that the Company’s non-employee directors would
continue to receive a combination of cash and equity grants on an annual basis. The amount of the cash and equity
grants are determined annually by the Board, and the stock portion of such compensation is issued under the
Company’s 2019 Plan.
Currently, all new non-employee directors joining the Board receive an initial grant of shares of common stock on
the date the new director is elected or appointed, the number of which is determined by dividing $60,000 by the
closing price of the Company’s common stock on the trading day immediately preceding the date a new director is
elected or appointed, rounded to the nearest whole number of shares. The initial grant of shares vests in twelve
equal quarterly installments, one-twelfth on the date of grant and an additional one-twelfth on each successive third
monthly anniversary of the date of grant. The award lapses with respect to all unvested shares in the event the non-
employee director ceases to be a director of the Company, and any unvested shares are forfeited.
the current compensation structure approved by the Board, upon recommendation of
Additionally,
the
Compensation Committee, provides that each non-employee director receives, on the day after the annual
shareholders meeting, an annual retainer for service as a non-employee director (the “Annual Retainer”). The total
value of the Annual Retainer is $170,000, of which $70,000 is payable in cash, and the remainder is paid in stock,
the amount of which is determined by dividing $100,000 by the closing price of the Company’s common stock on
the date of the annual shareholders’ meeting. The annual grant of shares paid to non-employee directors vests in
four equal quarterly installments, one-fourth on the date of grant and an additional one-fourth on each successive
third monthly anniversary of the date of grant). The award lapses with respect to all unpaid cash and unvested shares
in the event the non-employee director ceases to be a director of the Company, and any unvested shares and unpaid
cash are forfeited.
99
The following table summarizes nonvested common stock share award activity as of December 31, 2019 and for the
year then ended:
Nonvested Common Stock Share Awards
Balance at the beginning of the period
Granted
Vested
Forfeited or expired
Balance at the end of the period
Weighted
Average
Grant-Date
Fair Value
27.72
25.41
25.99
—
25.61
Shares (000s)
$
9
$
34
$
(32)
— $
$
11
The following table summarizes information regarding common stock share awards granted and vested (in
thousands, except per share award amounts):
Number of share awards granted
Weighted average grant-date fair value per share award
Fair value of share awards vested
Years Ended December 31,
2018
2017
2019
34
25.41
840
$
$
$
$
34
27.68
880
$
$
24
32.93
850
As of December 31, 2019, there was $0.2 million of total unrecognized compensation costs, net of actual forfeitures,
related to nonvested common stock share awards. This cost is expected to be recognized over a weighted average
period of 0.8 years.
Deferred Compensation Plan — The Company’s non-qualified Deferred Compensation Plan (the “Deferred
Compensation Plan”), which is not shareholder-approved, was adopted by the Board effective December 17, 1998.
It was last amended and restated on August 15, 2017, effective January 1, 2018. Eligibility is limited to a select
group of key management and employees who are expected to receive an annualized base salary (which will not
take into account bonuses or commissions) that exceeds the amount taken into account for purposes of determining
highly compensated employees under Section 414(q) of the Internal Revenue Code of 1986 based on the current
year’s base salary and applicable dollar amounts. The Deferred Compensation Plan provides participants with the
ability to defer between 1% and 80% of their compensation (between 1% and 100% prior to June 30, 2016, the
effective date of the first amendment) until the participant’s retirement, termination, disability or death, or a change
in control of the Company. Using the Company’s common stock, the Company matches 50% of the amounts
deferred by participants on a quarterly basis up to a total of $5,000 to $12,000 per year, depending on the
participant’s eligible category. Matching contributions and the associated earnings vest over a seven-year service
period. Vesting will be accelerated in the event of the participant’s death or disability, retirement or a change in
control. In the event of a distribution of benefits resulting from a change in control of the Company, the Company
will increase the benefit by an amount sufficient to offset the income tax obligations created by the distribution of
benefits. Deferred compensation amounts used to pay benefits, which are held in a rabbi trust, include investments
in various mutual funds and shares of the Company’s common stock (see Note 13, Investments Held in Rabbi
Trust).
As of December 31, 2019 and 2018, liabilities of $13.9 million and $11.4 million, respectively, of the Deferred
Compensation Plan were recorded in “Accrued employee compensation and benefits” in the accompanying
Consolidated Balance Sheets. Additionally, the Company’s common stock match associated with the Deferred
Compensation Plan, with a carrying value of approximately $2.5 million and $2.4 million at December 31, 2019 and
2018, respectively, is included in “Treasury stock” in the accompanying Consolidated Balance Sheets.
100
The following table summarizes nonvested common stock activity as of December 31, 2019 and for the year then
ended:
Nonvested Common Stock
Balance at the beginning of the period
Granted
Vested
Forfeited or expired
Balance at the end of the period
Weighted
Average
Grant-Date
Fair Value
29.01
29.10
28.89
29.16
29.24
Shares (000s)
8
16
(11)
(2)
11
$
$
$
$
$
The following table summarizes information regarding shares of common stock granted and vested (in thousands,
except per common stock amounts):
Number of shares of common stock granted
Weighted average grant-date fair value per common stock
Fair value of common stock vested
Cash used to settle the obligation
Years Ended December 31,
2018
2017
2019
16
29.10
320
366
$
$
$
$
$
$
16
28.48
315
804
$
$
$
13
30.49
334
1,134
As of December 31, 2019, there was $0.2 million of total unrecognized compensation cost, net of actual forfeitures,
related to nonvested common stock. This cost is expected to be recognized over a weighted average period of 4.2
years.
Acquisition-Related Restricted Shares – In conjunction with the Company’s acquisition of Symphony on
November 1, 2018, the Company granted RSUs to certain of Symphony’s owners. These RSUs were issued from the
Company’s pool of authorized but unissued common stock. See Note 4, Acquisitions, for further information.
The Company recognizes compensation cost, net of actual forfeitures, based on the fair value (which approximates
the current market price) of the RSUs on the date of grant ratably over the requisite service period. The RSUs vest
one-half on and after each of May 1, 2020 and November 1, 2021, provided the participant is employed by the
Company on such date. In the event of a change in control prior to the date the RSUs vest, all of the RSUs will vest
and the restrictions on transfer will lapse with respect to such vested shares on the date of the change in control,
provided that participant is employed by the Company on the date of the change in control.
If the participant’s employment with the Company is terminated for any reason, either by the Company or
participant, prior to the date on which the RSUs have vested and the restrictions have lapsed with respect to such
vested shares, any RSUs remaining subject to the restrictions (together with any dividends paid thereon) will be
forfeited, unless there has been a change in control prior to such date.
The following table summarizes nonvested acquisition-related RSUs activity as of December 31, 2019 and for the
year then ended:
Nonvested Restricted Shares and RSUs
Balance at the beginning of the period
Granted
Vested
Forfeited or expired
Balance at the end of the period
Weighted
Average
Grant-Date
Fair Value
30.67
—
30.67
—
30.67
Shares (000s)
124
$
— $
(36)
$
— $
$
88
101
During the third quarter of 2019, the Company accelerated the vesting of certain of the acquisition-related RSUs in
conjunction with the departure of one of Symphony’s executives from the Company.
The following table summarizes information regarding acquisition-related RSUs granted and vested (none in 2017)
(in thousands, except per restricted share/RSU amounts):
Number of restricted shares/RSUs granted
Weighted average grant-date fair value per restricted share/RSU
Fair value of restricted shares/RSUs vested
Years Ended December 31,
2019
2018
—
— $
$
1,091
$
$
124
30.67
—
As of December 31, 2019, there was $1.7 million of total unrecognized compensation cost, net of actual forfeitures,
related to nonvested acquisition-related RSUs. This cost is expected to be recognized over a weighted average
period of 1.8 years.
Note 25. Segments and Geographic Information
The Company operates within two regions, the Americas and EMEA. Each region represents a reportable segment
comprised of aggregated regional operating segments, which portray similar economic characteristics. The
Company aligns its business into two segments to effectively manage the business and support the customer care
needs of every client and to respond to the demands of the Company’s global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada, Latin America,
Australia and the Asia Pacific Rim, and provides outsourced customer engagement solutions (with an emphasis on
inbound multichannel demand generation, customer service and technical support) and technical staffing, and
(2) EMEA, which includes Europe, the Middle East and Africa, and provides outsourced customer engagement
solutions (with an emphasis on technical support and customer service) and fulfillment services. The Company also
provides a suite of solutions such as RPA consulting, implementation, hosting and managed services that optimizes
its differentiated full lifecycle management services platform. The sites within Latin America, Australia and the Asia
Pacific Rim are included in the Americas segment given the nature of the business and client profile, which is
primarily made up of U.S.-based companies that are using the Company’s services in these locations to support their
customer engagement needs.
102
Information about the Company’s reportable segments is as follows (in thousands):
Americas
EMEA
Other (1)
Consolidated
Year Ended December 31, 2019:
Revenues
Percentage of revenues
Depreciation, net
Amortization of intangibles
Income (loss) from operations
Total other income (expense), net
Income taxes
Net income
Year Ended December 31, 2018:
Revenues
Percentage of revenues
Depreciation, net
Amortization of intangibles
Income (loss) from operations
Total other income (expense), net
Income taxes
Net income
Year Ended December 31, 2017:
Revenues
Percentage of revenues
Depreciation, net
Amortization of intangibles
Income (loss) from operations
Total other income (expense), net
Income taxes
Net income
$
$
$
$
$
$
$
$
$
$
$
$
1,296,660
80.3%
42,386
13,304
134,948
1,330,638
81.9%
48,378
14,287
108,021
1,325,643
83.6%
47,730
20,144
136,386
$
$
$
$
$
$
$
$
$
$
$
$
318,013
19.7%
6,521
3,335
17,918
294,954
18.1%
5,952
1,255
16,507
260,283
16.4%
5,211
938
16,067
$
$
$
$
$
$
$
$
$
$
$
$
$
1,614,762
89
0.0%
3,009
$
— $
$
(63,066)
(3,877)
(21,842)
$
$
95
0.0%
$
— $
$
3,020
(61,326)
(6,285)
(7,991)
$
$
82
0.0%
$
— $
$
3,031
(65,411)
(5,735)
(49,091)
$
100.0%
51,916
16,639
89,800
(3,877)
(21,842)
64,081
1,625,687
100.0%
57,350
15,542
63,202
(6,285)
(7,991)
48,926
1,586,008
100.0%
55,972
21,082
87,042
(5,735)
(49,091)
32,216
(1) Other items (including corporate and other costs, other income and expense, and income taxes) are shown for purposes of
Inter-segment revenues are not material to the
reconciling to the Company’s consolidated totals as shown in the tables above.
Americas and EMEA segment results.
The Company’s reportable segments are evaluated regularly by its chief operating decision maker to decide how to
allocate resources and assess performance. The chief operating decision maker evaluates performance based upon
reportable segment revenue and income (loss) from operations. Because assets by segment are not reported to or
used by the Company’s chief operating decision maker to allocate resources or to assess performance, total assets by
segment are not disclosed.
Total revenues by segment from AT&T Corporation (“AT&T”), a major provider of communication services for
which the Company provides various customer support services over several distinct lines of AT&T businesses,
were as follows (in thousands):
Americas
EMEA
2019
Years Ended December 31,
2018
Amount % of Revenues Amount % of Revenues Amount % of Revenues
$106,911
210
$107,121
$220,010
—
$220,010
$164,793
179
$164,972
16.6%
0.0%
13.9%
12.4%
0.1%
10.1%
8.2%
0.1%
6.6%
2017
103
The Company has multiple distinct contracts with AT&T spread across multiple lines of businesses, which expire at
varying dates between 2020 and 2022. The Company has historically renewed most of these contracts. However,
there is no assurance that these contracts will be renewed, or if renewed, will be on terms as favorable as the existing
contracts. Each line of business is governed by separate business terms, conditions and metrics. Each line of
business also has a separate decision maker such that a loss of one line of business would not necessarily impact the
Company’s relationship with the client and decision makers on other lines of business. The loss of (or the failure to
retain a significant amount of business with) any of the Company’s key clients, including AT&T, could have a
material adverse effect on its performance. Many of the Company’s contracts contain penalty provisions for failure
to meet minimum service levels and are cancelable by the client at any time or on short notice. Also, clients may
unilaterally reduce their use of the Company’s services under the contracts without penalty.
Total revenues by segment from the Company’s largest client other than AT&T, which was in the financial services
vertical in each of the years, were as follows (in thousands):
Americas
EMEA
2019
Years Ended December 31,
2018
Amount % of Revenues Amount % of Revenues Amount % of Revenues
$111,131
—
$111,131
$109,475
—
$109,475
$105,852
—
$105,852
8.0%
0.0%
6.5%
8.3%
0.0%
6.9%
8.6%
0.0%
6.9%
2017
Other than AT&T, total revenues by segment of the Company’s clients that each individually represents 10% or
greater of that segment’s revenues in each of the periods were as follows (in thousands):
Americas
EMEA
2019
Years Ended December 31,
2018
Amount % of Revenues Amount % of Revenues Amount % of Revenues
$
2017
—
40,138
$ 40,138
0.0%
12.6%
2.5%
$
—
104,856
$104,856
0.0%
35.5%
6.4%
$
—
104,829
$104,829
0.0%
40.3%
6.6%
The Company’s top ten clients accounted for 42.2%, 44.2% and 46.9% of its consolidated revenues during the years
ended December 31, 2019, 2018 and 2017, respectively.
The following table represents a disaggregation of revenue from contracts with customers by delivery location (in
thousands):
Americas:
United States
The Philippines
Costa Rica
Canada
El Salvador
Other
Total Americas
EMEA:
Germany
Other
Total EMEA
Total Other
2019
Years Ended December 31,
2018
2017
$
$
614,493
250,888
127,078
99,037
81,195
123,969
1,296,660
94,166
223,847
318,013
89
1,614,762
$
$
668,580
231,966
127,963
102,353
81,156
118,620
1,330,638
91,703
203,251
294,954
95
1,625,687
$
$
644,870
241,211
132,542
112,367
75,800
118,853
1,325,643
81,634
178,649
260,283
82
1,586,008
104
The Company’s property and equipment, net by geographic location was as follows (in thousands):
Americas:
United States
The Philippines
Costa Rica
Canada
El Salvador
Other
Total Americas
EMEA:
Germany
Other
Total EMEA
Total Other
December 31,
2019
2018
$
$
49,077
15,912
5,923
7,154
5,227
14,381
97,674
3,499
10,216
13,715
14,601
125,990
$
$
63,380
9,840
6,511
3,765
4,810
15,459
103,765
3,395
11,279
14,674
16,979
135,418
The Company’s ROU assets by geographic location were as follows (none in 2018) (in thousands):
Americas:
United States
The Philippines
Costa Rica
Canada
El Salvador
Other
Total Americas
EMEA:
Germany
Other
Total EMEA
Total Other
December 31, 2019
79,248
44,563
17,652
403
13,251
19,001
174,118
4,396
23,197
27,593
3,401
205,112
$
$
Note 26. Other Income (Expense)
Other income (expense), net consisted of the following (in thousands):
Foreign currency transaction gains (losses)
Gains (losses) on derivative instruments not designated as hedges
Net investment gains (losses) on investments held in rabbi trust
Other miscellaneous income (expense)
Note 27. Related Party Transactions
2019
Years Ended December 31,
2018
2017
$
$
(1,262)
(674)
2,379
(857)
(414)
$
$
2,029
(1,751)
(867)
(1,659)
(2,248)
$
$
(548)
143
1,619
44
1,258
In January 2008, the Company entered into a lease for a customer engagement center located in Kingstree, South
Carolina. The landlord, Kingstree Office One, LLC, is an entity controlled by John H. Sykes, the founder, former
Chairman and former Chief Executive Officer of the Company and the father of Charles Sykes, President and Chief
Executive Officer of the Company. The lease payments on the 20-year lease were negotiated at or below market
rates, and the lease is cancellable at the option of the Company. The Company paid $0.5 million, $0.5 million and
105
$0.5 million to the landlord during the years ended December 31, 2019, 2018 and 2017, respectively, under the
terms of the lease.
During the years ended December 31, 2019 and 2018, the Company contracted to receive services from XSell, an
equity method investee, for less than $0.1 million and $0.2 million, respectively (none in 2017). These related party
transactions occurred in the normal course of business on terms and conditions that are similar to those of
transactions with unrelated parties and, therefore, were measured at the exchange amount.
106
Schedule II — Valuation and Qualifying Accounts
Years ended December 31, 2019, 2018 and 2017:
(in thousands)
Allowance for doubtful accounts:
Year ended December 31, 2019
Year ended December 31, 2018
Year ended December 31, 2017
Valuation allowance for net deferred tax assets:
Year ended December 31, 2019
Year ended December 31, 2018
Year ended December 31, 2017
Balance at
Beginning of
Period
Charged
(Credited) to
Costs and
Expenses
Additions
(Deductions)
(1)
Balance at
End of Period
$
$
$
$
3,096
2,958
2,925
32,299
32,443
30,221
$
598
323
63
(214) $
(185)
(30)
3,480
3,096
2,958
(19,633) $
(144)
2,222
— $
—
—
12,666
32,299
32,443
(1) Net write-offs and recoveries, including the effect of foreign currency translation.
107
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SYKES ENTERPRISES, INCORPORATED (“SYKES” or “the Company”) is a leading provider of
multi-channel demand generation and global customer engagement services. The Company
provides differentiated full lifecycle customer engagement solutions and services primarily to
Global 2000 companies and their end customers principally
in the financial services,
communications, technology, transportation &
leisure and healthcare
industries. SYKES’
differentiated full lifecycle management 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 by a suite
of robotic process automation (“RPA”) and artificial intelligence (“AI”) solutions. The Company
serves its clients through two geographic operating regions: the Americas (United States, Canada,
Latin America, South Asia and Asia Pacific) and EMEA (Europe, the Middle East and Africa). Its
Americas and EMEA regions primarily provide customer-engagement solutions and services with an
emphasis on inbound multichannel demand generation, customer service and technical support to
its clients’ customers. These services are delivered through multiple communication channels
including phone, email, 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, the Company provides fulfillment services, which includes order
processing, payment processing, inventory control, product delivery and product returns handling.
Additionally, through the 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. SYKES’
complete service offering helps its clients acquire, retain and increase the lifetime value
of their customer relationships. The Company has developed an extensive global reach
with customer engagement centers across six continents, including North America, South
America, Europe, Asia, Australia and Africa. It delivers cost-effective solutions that generate
demand, enhance the customer service experience, promote stronger brand loyalty, and
bring about high levels of performance and profitability. For additional information please
visit www.sykes.com.
CORPORATE HEADQUARTERS
400 North Ashley Drive, Suite 2800, Tampa, FL USA 33602 • phone: (813) 274-1000 • fax: (813) 273-0148 • www.sykes.com
INDEPENDENT AUDITORS
Deloitte & Touche LLP • 201 N. Franklin St., Suite 3600, Tampa, FL USA 33602
REGISTRAR AND TRANSFER AGENT
Computershare • P.O. Box 43078, Providence, RI 02940-3078 • (800) 962-4284
SYKES’ shares trade on The NasdaqGS Stock Market under the symbol “SYKE”
ANNUAL MEETING
SYKES’ annual meeting of shareholders will be held at 8:00 a.m. (EDT) • Tuesday, May 12, 2020
The meeting will be held at: Rivergate Tower, 400 North Ashley Drive, Suite 320, 3rd Floor, Conference Room A, Tampa, FL 33602
INVESTOR INFORMATION
Quarterly Reports on Form 10-Q and the Form 10-K Annual Report filed with the Securities and Exchange Commission
are available on the Company’s website at: http://investor.sykes.com or upon written request to SYKES’ Investor Relations
department in Tampa, Florida, or by contacting:
Subhaash Kumar • Global Vice President, Finance and Investor Relations • phone: (813) 274-1000
2019_Sykes_Annual Report Cov.indd 2
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3/6/20 1:37 PM
BOARD OF DIRECTORSPRINCIPAL OFFICERSJAMES S. MACLEOD Chairman of the Board Non-Executive Chairman of the Board of CoastalSouth Bancshares, Inc. and CoastalStates Bank Trustee, AllianzGI Funds Director, MUSC Foundation Chairman of the Board of The University of TampaMARK C. BOZEK Director Founder and CEO of Live Rocket, LLCVANESSA C.L. CHANG Director Director, Edison International Director, Transocean Ltd. Director, American Funds Family and other funds advised by Capital Group Forest Lawn Memorial Parks Association SCO America, Inc. CARLOS E. EVANS Director Board Affiliations: Queens University of Charlotte National Coatings and Supplies Inc. American Welding & Gas Inc. Johnson Management Highwoods Properties, Inc. (NYSE: HIW)LORRAINE LEIGH LUTTON Director WILLIAM J. MEURER Director Private Financial Consultant Managing Partner (retired) for Arthur Andersen’s Central Florida OperationsWILLIAM D. MUIR, JR. Director EFI CEO (retired)CHARLES E. SYKES Director (Principal Executive Officer) President and Chief Executive Officer Sykes Enterprises, IncorporatedW. MARK WATSON (CPA) Director Directors and Chairman of the Audit Committee for Sykes Enterprises, Inc. Momentum Health Holdings, LLC and Inhibitor Therapeutic Inc. President of WM Watson, LLC Board of Trustees, Moffitt Medical Group Lead Audit Partner (retired) for Deloitte Touche TohmatsuCHARLES E. SYKES President and Chief Executive OfficerJOHN CHAPMAN Executive Vice President and Chief Financial OfficerIAN BARKIN Chief Strategy & Marketing Officer JAMES T. HOLDER Executive Vice President, General Counsel and Corporate Secretary KELLY MORGAN Chief Customer Officer and General ManagerJENNA R. NELSON Executive Vice President, Human ResourcesDAVID L. PEARSON Executive Vice President and Chief Information OfficerLAWRENCE R. ZINGALE Chief Customer Officer and General Manager, EMEA OUR MISSION
To significantly improve the business of our clients and help consumers
find and use the products and services they need by combining the power
of machine intelligence with human ingenuity to modernize, optimize and
integrate customer touchpoints across the commerce value chain.
2019
ANNUAL
REPORT
Sykes Enterprises, Incorporated
400 North Ashley Drive, Suite 3100, Tampa, FL 33602, USA
www.sykes.com
2019_Sykes_Annual Report Cov.indd 1
2019_Sykes_Annual Report Cov.indd 1
3/6/20 1:37 PM
3/6/20 1:37 PM