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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2021


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

For the transition period from ____________ to ____________

Commission File No. 0-28274

Sykes Enterprises, Incorporated

(Exact name of Registrant as specified in its charter)

Florida		56-1383460
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

(Address of principal executive offices) (Zip Code)

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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	SYKE	NASDAQ Global Select Market

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

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

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of July 15, 2021, there were 39,797,116 outstanding shares of common stock.

Sykes Enterprises, Incorporated and Subsidiaries

Form 10-Q

INDEX

PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets – June 30, 2021 and December 31, 2020 (Unaudited)	3
	Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2021 and 2020 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2021 and 2020 (Unaudited)	5
	Condensed Consolidated Statements of Changes in Shareholders’ Equity – Three and Six Months Ended June 30, 2021 and 2020 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2021 and 2020 (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42

Part II. OTHER INFORMATION		42

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
	SIGNATURE	46

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except per share data)	June 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	103,209		$	103,077
Receivables, net of allowance of $4.8 million and $4.8 million, respectively		418,105			415,746
Prepaid expenses		22,690			21,348
Other current assets		22,802			19,718
Total current assets		566,806			559,889
Property and equipment, net		116,797			121,084
Operating lease right-of-use assets		132,032			158,866
Goodwill, net		299,669			299,409
Intangibles, net		227,891			233,975
Deferred charges and other assets		63,249			62,582
	$	1,406,444		$	1,435,805
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	30,277		$	32,049
Accrued employee compensation and benefits		138,810			147,212
Income taxes payable		1,745			3,521
Deferred revenue and customer liabilities		24,270			24,802
Operating lease liabilities		48,321			55,928
Other accrued expenses and current liabilities		36,401			31,994
Total current liabilities		279,824			295,506
Long-term debt		23,000			63,000
Long-term income tax liabilities		19,607			21,586
Long-term operating lease liabilities		100,342			126,336
Other long-term liabilities		39,028			35,723
Total liabilities		461,801			542,151

Commitments and loss contingencies (Note 11)

Shareholders' equity:
Preferred stock, $0.01 par value per share, 10,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.01 par value per share, 200,000 shares authorized; 39,797 and 39,614 shares issued, respectively		398			396
Additional paid-in capital		303,065			298,037
Retained earnings		687,158			639,000
Accumulated other comprehensive income (loss)		(42,786	)		(40,999	)
Treasury stock at cost: 144 and 135 shares, respectively		(3,192	)		(2,780	)
Total shareholders' equity		944,643			893,654
	$	1,406,444		$	1,435,805

See accompanying Notes to Condensed Consolidated Financial Statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2021			2020			2021			2020
Revenues	$	448,885		$	416,833		$	906,771		$	827,999
Operating expenses:
Direct salaries and related costs		292,086			268,433			591,563			535,378
General and administrative		110,924			102,664			220,551			205,911
Depreciation, net		12,809			12,630			25,924			25,091
Amortization of intangibles		2,959			4,093			5,946			8,212
Impairment of long-lived assets		386			1,800			1,536			1,800
Total operating expenses		419,164			389,620			845,520			776,392
Income from operations		29,721			27,213			61,251			51,607

Other income (expense):
Interest income		103			165			201			428
Interest (expense)		(382	)		(560	)		(805	)		(1,280	)
Other income (expense), net		92			1,797			(230	)		(2,996	)
Total other income (expense), net		(187	)		1,402			(834	)		(3,848	)

Income before income taxes		29,534			28,615			60,417			47,759
Income taxes		6,354			6,385			12,259			11,611
Net income	$	23,180		$	22,230		$	48,158		$	36,148

Net income per common share:
Basic	$	0.58		$	0.55		$	1.21		$	0.89
Diluted	$	0.58		$	0.55		$	1.21		$	0.88

Weighted average common shares outstanding:
Basic		39,779			40,318			39,711			40,726
Diluted		39,942			40,380			39,951			40,857

See accompanying Notes to Condensed Consolidated Financial Statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2021			2020			2021			2020
Net income	$	23,180		$	22,230		$	48,158		$	36,148
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments		1,511			8,311			(2,952	)		(13,039	)
Unrealized gain (loss) on cash flow hedging instruments, net of taxes		186			(253	)		1,177			(1,595	)
Unrealized actuarial gain (loss) related to pension liability, net of taxes		(5	)		16			(12	)		(1	)
Unrealized gain (loss) on postretirement obligation, net of taxes		—			(22	)		—			(44	)
Other comprehensive income (loss), net of taxes		1,692			8,052			(1,787	)		(14,679	)
Comprehensive income (loss)	$	24,872		$	30,282		$	46,371		$	21,469

See accompanying Notes to Condensed Consolidated Financial Statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

	Common Stock						Additional						Accumulated Other
(in thousands)	Shares Issued			Amount			Paid-in Capital			Retained Earnings			Comprehensive Income (Loss)			Treasury Stock			Total
Balance at December 31, 2020		39,614		$	396		$	298,037		$	639,000		$	(40,999	)	$	(2,780	)	$	893,654
Stock-based compensation expense		—			—			4,751			—			—			—			4,751
Issuance of common stock under equity award plans, net of forfeitures		241			2			287			—			—			(289	)		—
Shares withheld for taxes paid related to net share settlement of equity awards		(76	)		(1	)		(3,440	)		—			—			—			(3,441	)
Comprehensive income (loss)		—			—			—			24,978			(3,479	)		—			21,499
Balance at March 31, 2021		39,779			397			299,635			663,978			(44,478	)		(3,069	)		916,463
Stock-based compensation expense		—			—			3,618			—			—			—			3,618
Issuance of common stock under equity award plans, net of forfeitures		25			1			122			—			—			(123	)		—
Shares withheld for taxes paid related to net share settlement of equity awards		(7	)		—			(310	)		—			—			—			(310	)
Retirement of treasury stock		—			—			—			—			—			—			—
Comprehensive income (loss)		—			—			—			23,180			1,692			—			24,872
Balance at June 30, 2021		39,797		$	398		$	303,065		$	687,158		$	(42,786	)	$	(3,192	)	$	944,643

	Common Stock						Additional						Accumulated Other
(in thousands)	Shares Issued			Amount			Paid-in Capital			Retained Earnings			Comprehensive Income (Loss)			Treasury Stock			Total
Balance at December 31, 2019		41,549		$	416		$	288,935		$	634,668		$	(47,001	)	$	(2,543	)	$	874,475
Stock-based compensation expense		—			—			1,860			—			—			—			1,860
Issuance of common stock under equity award plans, net of forfeitures		(146	)		(2	)		69			—			—			(67	)		—
Shares withheld for taxes paid related to net share settlement of equity awards		(39	)		—			(1,009	)		—			—			—			(1,009	)
Repurchase of common stock		—			—			—			—			—			(22,909	)		(22,909	)
Retirement of treasury stock		(860	)		(9	)		(26	)		(22,874	)		—			22,909			—
Comprehensive income (loss)		—			—			—			13,918			(22,731	)		—			(8,813	)
Balance at March 31, 2020		40,504			405			289,829			625,712			(69,732	)		(2,610	)		843,604
Stock-based compensation expense		—			—			2,042			—			—			—			2,042
Issuance of common stock under equity award plans, net of forfeitures		57			1			82			—			—			(83	)		—
Shares withheld for taxes paid related to net share settlement of equity awards		(6	)		—			(124	)		—			—			—			(124	)
Repurchase of common stock		—			—			—			—			—			(13,019	)		(13,019	)
Retirement of treasury stock		(500	)		(5	)		(15	)		(12,999	)		—			13,019			—
Comprehensive income (loss)		—			—			—			22,230			8,052			—			30,282
Balance at June 30, 2020		40,055		$	401		$	291,814		$	634,943		$	(61,680	)	$	(2,693	)	$	862,785

See accompanying Notes to Condensed Consolidated Financial Statements.

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
(in thousands)	2021			2020
Cash flows from operating activities:
Net income	$	48,158		$	36,148
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		25,948			25,206
Amortization of intangibles		5,946			8,212
Amortization of deferred grants		(480	)		(170	)
Impairment losses		1,536			1,800
Unrealized foreign currency transaction (gains) losses, net		1,948			510
Stock-based compensation expense		8,369			3,902
Deferred income tax provision (benefit)		(846	)		564
Net (gain) loss on lease termination		(1,670	)		—
Bad debt expense (reversals)		236			1,129
Unrealized (gains) losses and premiums on financial instruments, net		(521	)		665
(Earnings) losses from equity method investees		1,535			547
Other		1,011			(104	)
Changes in assets and liabilities, net of acquisitions:
Receivables, net		(6,793	)		294
Prepaid expenses		(1,364	)		(239	)
Other current assets		(1,097	)		(263	)
Deferred charges and other assets		(943	)		238
Accounts payable		(4,702	)		(4,184	)
Income taxes receivable / payable		(3,481	)		2,324
Accrued employee compensation and benefits		(6,731	)		6,998
Other accrued expenses and current liabilities		6,241			(279	)
Deferred revenue and customer liabilities		(938	)		(1,666	)
Other long-term liabilities		676			6,585
Operating lease assets and liabilities		(6,138	)		(1,575	)
Net cash provided by operating activities		65,900			86,642
Cash flows from investing activities:
Capital expenditures		(19,103	)		(22,880	)
Cash paid for business acquisitions, net of cash acquired		(165	)		—
Purchase of intangible assets		(252	)		—
Sale of intangible assets		200			—
Other		59			592
Net cash (used for) investing activities		(19,261	)		(22,288	)

Sykes Enterprises, Incorporated and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Continued)

	Six Months Ended June 30,
(in thousands)	2021			2020
Cash flows from financing activities:
Payments of long-term debt		(40,000	)		(47,000	)
Proceeds from issuance of long-term debt		—			23,000
Cash paid for repurchase of common stock		—			(35,928	)
Taxes paid related to net share settlement of equity awards		(3,751	)		(1,133	)
Net cash (used for) financing activities		(43,751	)		(61,061	)
Effects of exchange rates on cash, cash equivalents and restricted cash		(2,819	)		(1,795	)
Net increase (decrease) in cash, cash equivalents and restricted cash		69			1,498
Cash, cash equivalents and restricted cash – beginning		104,396			129,185
Cash, cash equivalents and restricted cash – ending	$	104,465		$	130,683

Supplemental disclosures of cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	35,307		$	31,484
Cash paid during period for interest	$	584		$	1,009
Cash paid during period for income taxes	$	17,457		$	8,947
Non-cash transactions:
Net right-of-use assets arising from new or remeasured operating lease liabilities	$	1,836		$	12,976
Capital expenditures incurred but not yet paid	$	9,187		$	4,978
Unrealized gain (loss) on postretirement obligation, net of taxes, in accumulated other comprehensive income (loss)	$	—		$	(44	)
Property and equipment acquired under grant agreement	$	2,136		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

Sykes Enterprises, Incorporated and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2021 and 2020

(Unaudited)

Note 1. Overview and Basis of Presentation

Business — Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES” or the “Company”) is a leading full lifecycle provider of global customer experience management services, multichannel demand generation and digital transformation. The Company provides differentiated full lifecycle customer experience management solutions and services primarily to Global 2000 companies and their end customers principally in the financial services, technology, communications, transportation & leisure and healthcare industries. The Company’s differentiated full lifecycle services platform effectively engages customers at every touchpoint within the customer journey, including digital media and acquisition, sales expertise, customer service, technical support and retention, many of which can be optimized through a suite of digital transformation capabilities under its SYKES Digital Services (“SDS”) group, which spans robotic process automation (“RPA”), self-service, insight analytics and digital learning. In addition to digital transformation, the Company also provides artificial intelligence (“AI”) solutions that can be embedded and leveraged across its lifecycle offerings. Utilizing SYKES’ integrated onshore/offshore global delivery model, the Company provides its services through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. The Company also provides various enterprise support services in the United States that include services for its clients’ internal support operations, from technical staffing services to outsourced corporate help desk services. In Europe, SYKES also provides fulfillment services, which include order processing, payment processing, inventory control, product delivery and product returns handling. Additionally, through the Company’s acquisition of RPA provider Symphony Ventures Ltd (“Symphony”) coupled with its investment in AI through XSell Technologies, Inc. (“XSell”), the Company also provides a suite of solutions such as consulting, implementation, hosting and managed services that optimizes its differentiated full lifecycle management services platform. The Company has operations in two reportable segments entitled (1) the Americas, in which the client base is primarily companies in the United States that are using the Company’s services to support their customer management needs, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim; and (2) EMEA, which includes Europe, the Middle East and Africa.

Proposed Transaction with Sitel Group

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

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

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

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

Coronavirus

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

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

Exit of Leased Space

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

Taylor Media Corp. Acquisition

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

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

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

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

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

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. Other than where noted, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date and time of issuance of the condensed consolidated financial statements. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

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

Cash, Cash Equivalents and Restricted Cash — Cash and cash equivalents consist of cash and highly liquid short-term investments, primarily held in non-interest-bearing investments which have original maturities of less than 90 days. Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets that sum to the amounts reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

	June 30, 2021		December 31, 2020		June 30, 2020		December 31, 2019
Cash and cash equivalents	$	103,209	$	103,077	$	129,050	$	127,246
Restricted cash included in "Other current assets"		290		355		318		568
Restricted cash included in "Deferred charges and other assets"		966		964		1,315		1,371
	$	104,465	$	104,396	$	130,683	$	129,185

Allowance for Doubtful Accounts — The Company recorded a $0.2 million and $1.1 million increase to the allowance for credit losses related to its short-term trade receivables primarily as a result of deterioration in certain clients’ credit ratings reflecting current and expected economic conditions during the six months ended June 30, 2021 and 2020, respectively, and wrote off $0.2 million and $0.4 million of the allowance for credit losses related to certain short-term trade receivables deemed to be uncollectible during the six months ended June 30, 2021 and 2020,

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Customer-acquisition advertising costs		21,297		9,826	$	40,862	$	20,008

New Accounting Standards Not Yet Adopted

Reference Rate Reform

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

New Accounting Standards Recently Adopted

Income Taxes

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

Significant Accounting Policies

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

Note 2. Revenues

Revenues from Contracts with Customers

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

Disaggregated Revenues

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

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

	Three Months Ended June 30,
	2021			2020
	Amount		% of Revenue	Amount		% of Revenue
Americas:
Customer experience management solutions and services	$	356,108	79.3%	$	338,963	81.3%
Other revenues		319	0.1%		309	0.1%
Total Americas		356,427	79.4%		339,272	81.4%
EMEA:
Customer experience management solutions and services		86,950	19.4%		73,285	17.6%
Other revenues		5,505	1.2%		4,276	1.0%
Total EMEA		92,455	20.6%		77,561	18.6%
Other:
Other revenues		3	0.0%		—	0.0%
Total Other		3	0.0%		—	0.0%
	$	448,885	100.0%	$	416,833	100.0%

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

	Six Months Ended June 30,
	2021			2020
	Amount		% of Revenue	Amount		% of Revenue
Americas:
Customer experience management solutions and services	$	719,561	79.4%	$	671,577	81.1%
Other revenues		585	0.0%		621	0.1%
Total Americas		720,146	79.4%		672,198	81.2%
EMEA:
Customer experience management solutions and services		176,286	19.4%		145,918	17.6%
Other revenues		10,336	1.2%		9,876	1.2%
Total EMEA		186,622	20.6%		155,794	18.8%
Other:
Other revenues		3	0.0%		7	0.0%
Total Other		3	0.0%		7	0.0%
	$	906,771	100.0%	$	827,999	100.0%

Trade Accounts Receivable

The Company’s noncurrent trade accounts receivable result from contracts with customers that include renewal provisions and contracts with customers under multi-year arrangements. The Company’s trade accounts receivable, net, consisted of the following (in thousands):

	June 30, 2021		December 31, 2020
Trade accounts receivable, net, current ⁽¹⁾	$	401,251	$	398,112
Trade accounts receivable, net, noncurrent ⁽²⁾		30,408		30,021
	$	431,659	$	428,133

(1) Included in “Receivables, net” in the accompanying Condensed Consolidated Balance Sheets.

(2) Included in “Deferred charges and other assets” in the accompanying Condensed Consolidated Balance Sheets.

Deferred Revenue and Customer Liabilities

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

	June 30, 2021		December 31, 2020
Deferred revenue	$	3,322	$	2,916
Customer arrangements with termination rights		15,479		15,771
Estimated refund liabilities		5,469		6,115
	$	24,270	$	24,802

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

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

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

Note 3. Leases

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

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

Additional supplemental information related to leases was as follows:

	June 30, 2021			December 31, 2020
Weighted average remaining lease term of operating leases	4.2 years			4.3 years
Weighted average discount rate of operating leases		3.4	%		3.4	%

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

	Amount
2021 (remainder of the year)	$	25,367
2022		47,200
2023		31,600
2024		21,999
2025		14,725
2026 and thereafter		19,706
Total future lease payments		160,597
Less: Imputed interest		11,934
Present value of future lease payments		148,663
Less: Operating lease liabilities		48,321
Long-term operating lease liabilities	$	100,342

Exit of Leased Space

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

Note 4. Fair Value

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

•	Level 1 — Quoted prices for identical instruments in active markets.

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

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

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

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

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

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

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

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

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

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

			Fair Value Measurements Using:
	Balance at		Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	June 30, 2021		Level 1		Level 2		Level 3
Assets:
Foreign currency contracts ⁽¹⁾	$	617	$	—	$	617	$	—
Equity investments held in rabbi trust for the Deferred Compensation Plan ⁽²⁾		14,357		14,357		—		—
Debt investments held in rabbi trust for the Deferred Compensation Plan ⁽²⁾		5,242		5,242		—		—
	$	20,216	$	19,599	$	617	$	—
Liabilities:
Foreign currency contracts ⁽¹⁾	$	1,076	$	—	$	1,076	$	—
	$	1,076	$	—	$	1,076	$	—

			Fair Value Measurements Using:
	Balance at		Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2020		Level 1		Level 2		Level 3
Assets:
Foreign currency contracts ⁽¹⁾	$	337	$	—	$	337	$	—
Equity investments held in rabbi trust for the Deferred Compensation Plan ⁽²⁾		11,263		11,263		—		—
Debt investments held in rabbi trust for the Deferred Compensation Plan ⁽²⁾		5,517		5,517		—		—
	$	17,117	$	16,780	$	337	$	—
Liabilities:
Foreign currency contracts ⁽¹⁾	$	2,478	$	—	$	2,478	$	—
	$	2,478	$	—	$	2,478	$	—

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

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

Non-Recurring Fair Value

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Americas:
Property and equipment, net	$	386	$	760	$	442	$	760
Operating lease right-of-use assets		—		1,040		301		1,040
		386		1,800		743		1,800
EMEA:
Property and equipment, net		—		—		77		—
Operating lease right-of-use assets		—		—

SYKES ENTERPRISES INC 10-Q