EDGAR 10-K Filing

Company CIK: 1010612
Filing Year: 2021
Filename: 1010612_10-K_2021_0001564590-21-009418.json

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ITEM 1. BUSINESS
Item 1. Business
General
Sykes Enterprises, Incorporated and consolidated subsidiaries (“SYKES,” “our,” “us” or “we”) is a leading full lifecycle provider of global customer experience management services, multichannel demand generation and digital transformation. SYKES 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. Our 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 our SYKES Digital Services (“SDS”) group, which spans robotic process automation (“RPA”), self-service, insight analytics and digital learning. In addition to digital transformation, SYKES also provides artificial intelligence (“AI”) solutions that can be embedded and leveraged across its lifecycle offerings. 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 management 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 digital transformation capabilities 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 experience management 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” as soon as reasonably practicable after they are filed with, or furnished to, the SEC.
Recent Developments
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 our 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. We are committed to the health and safety of our workforce and ensuring business continuity for the brands we serve. In response, we have shifted as many employees as possible to a work-at-home model. As of January 2021, approximately 95% of agents assigned to our brick-and-mortar facilities are working at our centers or from home across the world with 70% having transitioned to a work-at-home model. Approximately
5% of our agents are idle primarily due to the lack of technical infrastructure to work from home. Our operations in the Philippines, El Salvador and Mexico have been most impacted by the governmental restrictions.
We continue to closely monitor the prevalence of COVID-19 in the communities where our centers are located as well as guidance from public health authorities, federal and local agencies and municipalities. We will work with employees and clients to transition agents back to our centers based on that guidance, but risk further disruption to our business as a result of COVID-19 and government-imposed restrictions.
Exit of Leased Space
We are reevaluating our real estate footprint in connection with a transition of a portion of our workforce to a permanent remote working environment in both the Americas and EMEA. We have decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of our sites during the year ended December 31, 2020 as approximately 3,200 seats transitioned from brick and mortar to at home agents. As such, we recorded impairments of right-of-use (“ROU”) assets of $12.7 million and impairments of property and equipment of $7.1 million during the year ended December 31, 2020. See Note 6, Fair Value, in the accompanying “Notes to Consolidated Financial Statements” for further information. Annualized lease expense savings of approximately $10.3 million and reduced depreciation expense of approximately $3.0 million are expected from these actions. Of the $10.3 million in expected annualized lease savings, approximately 70% is anticipated to be realized as cash savings.
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 experience management 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.
Acquisitions
On December 31, 2020, we 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 $104.8 million, subject to a post-closing working capital adjustment, $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 $17.6 million of the purchase price, $0.2 million will go to repay outstanding debt and $17.4 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. TMC’s assets and liabilities have been reflected in our consolidated balance sheet as of December 31, 2020 in the Americas segment and the results of TMC’s operations will be reflected in our consolidated financial statements beginning on January 1, 2021.
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 media 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, in the accompanying “Notes to Consolidated Financial Statements” for further information.
Industry Overview
The customer experience management solutions and services industry, includes services such as digital media and demand generation, customer acquisition, customer support, customer retention, digital transformation, RPA, self-service, insight analytics and digital learning. According to Everest Group, an industry research firm, the outsourced portion of the customer experience management solutions and services industry worldwide was estimated to be between $83 billion and $85 billion, growing at rate of approximately 1% from 2017 to 2020 due to COVID-19 related lockdowns impacting consumer confidence and economic activity.
We believe that growth for broader outsourced customer experience management 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 experience 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 experience management needs.
To address these needs, we offer multichannel demand generation and comprehensive global customer experience management solutions and services that leverage brick-and-mortar and at-home agent delivery infrastructure as well as digital transformational capabilities and AI. 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 experience management 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 full lifecycle global customer experience management services, multichannel demand generation, digital transformation and AI capabilities 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 experience management 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 experience management 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 experience management 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 media 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, ecommerce platforms, 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.
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 experience management needs globally as they enter new markets. At the end of 2020, our at-home agent delivery capability and global delivery brick-and-mortar footprint spanned 21 countries.
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 media 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 experience management 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 experience management 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”), Symphony and TMC 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 made a strategic investment in XSell, which allows us to optimize 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 experience management 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 experience management opportunities, and the Clearlink platform to digitally enhance sales performance and conversion either on behalf of or direct to clients through branded search, organic search and integrated marketing agency perspectives.
Services
We specialize in providing differentiated full lifecycle customer experience management solutions and services primarily to Global 2000 companies and their end customers at key touchpoints on a global basis. These services include digital media, demand generation, customer acquisition, customer support, technical support, up-selling, cross-selling and retention. Our comprehensive customer experience management solutions and services are provided through two reportable segments - the Americas and EMEA. The Americas region, representing 80.7% of consolidated revenues in 2020, 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 vehicle for U.S.-based companies that are utilizing our customer experience management solutions and services in these locations to support their customer care needs. The EMEA region, representing 19.3% of consolidated revenues in 2020, 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 experience management solutions and services:
Outsourced Customer Experience Management Solutions and Services. Our outsourced customer experience management solutions and services represented 98.7%, 97.7% and 99.0% of total 2020, 2019 and 2018 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:
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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;
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Technical support - Technical support contacts primarily include support around complex networks, hardware and software, communications equipment, internet access technology and internet portal usage; and
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Customer acquisition - Our customer acquisition services are focused around digital media, multichannel demand generation, inbound up-selling and sales conversion, as well as some outbound selling of our clients’ products and services.
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Digital Transformation - We offer a suite of digital transformation capabilities under our SDS group such as RPA, self-service, insight analytics and digital learning to help clients further reduce the cost of customer experience management solutions by either automating or optimizing processes that empower our clients’ end users to resolve issues through their channel of choice or assist agents navigating multiple systems to better serve end users and drive greater customer satisfaction.
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 Experience Management Centers. We operate across 21 countries in 67 customer experience management centers, which breakdown as follows: 23 centers across EMEA, 15 centers in the United States, one center in Canada, three centers in Australia and 25 centers offshore, including the People’s Republic of China, the Philippines, Costa Rica, El Salvador, India, Mexico, Brazil and Colombia.
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.
Our data warehouse captures and downloads customer experience management 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 experience management 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 experience management 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 180 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 experience management 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 experience management 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 media, 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 media 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 experience management 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.
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, technology, communications, transportation & leisure, healthcare and other industries. Revenue by industry vertical for 2020, as a percentage of our consolidated revenues, was 33% for financial services, 23% for technology, 20% for communications, 7% 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 experience management 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 experience management 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 experience management 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 experience management services include service quality, tailored value-added service offerings, industry experience, advanced technological capabilities, global coverage, reliability, scalability, security, price and financial strength. As a result of intense competition, outsourced customer experience management 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.
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®, SYKES HOME®, REAL PEOPLE. REAL SOLUTIONS.®, SCIENCE OF SERVICE®,
TALENTSPROUT®, CARE COACH®, CLEARLINK®, MOVEAROO®, BIGLOCAL®, YOU MOVE. WE JUMP.®, USDIRECT®, LEADAMP®, A SECURE LIFE®, RAINGAGE®, TRUE PROTECT®, TERMLIFE2GO®, SAFEWISE®, LET’S TALK®, LETSTALK.COM®, PORTENT®, WHISTLEOUT®, LOVE YOUR PLAN®, THE PENNY HOARDER®, DEAR PENNY®, and GOURMET ON A DIME®. 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 an issued U.S. patent No. 10,748,099 that relates to foundational analytics enabling digital transformations, issued U.S. patent No. 10,742,649 that relates to systems and methods for secure authentication to computer networks and virtual work environment setup, a pending U.S. patent application that relates to systems and methods for analysis, testing, and recommendations for improving customer experience, and a pending U.S. patent application that relates to adaptive workspace environments. Our subsidiary, Alpine, was issued U.S. Patent No. 8,565,413, which relates to a system and method for establishment and management of a remote agent experience management center. Alpine was also issued U.S. Patent No. 9,100,484, which relates to a secure call environment.
Human Capital
As of January 31, 2021, we had approximately 61,100 employees worldwide, primarily customer experience 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 experience management. As such, competition for such personnel is intense. Additionally, employee turnover in our industry is high.
We recognize that a diverse labor force with a mix of backgrounds, skills and experiences drives new ideas and innovations, providing us with a sustained competitive advantage. Through the following programs we aim to promote the personal and professional growth of our staff.
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SYKES Women In Technology - This program promotes and facilitates the inclusion of women in technology accounts and empowers them to learn more about high-tech growth options within the organization.
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Peer Mentoring - This program is designed to help leaders collaborate with others, to extend their network across the organization, and to be challenged to think outside the box.
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Leadership Evaluation and Advancement Program - The LEAP program aims to improve knowledge and equip employees with the necessary skills to develop talent and grow within the company. LEAP establishes candidates for internal promotions based on forecasted growth or new positions within accounts.
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
Age
Principal Position
Charles E. Sykes
President and Chief Executive Officer and Director
John Chapman
Chief Finance Officer
Lawrence R. Zingale
Chief Customer Officer and General Manager EMEA
Jenna R. Nelson
Chief Human Resources Officer
David L. Pearson
Chief Information Officer
James T. Holder
Chief Legal Officer
William N. Rocktoff
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.
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.

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ITEM 1A. RISK FACTORS
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 experience management 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 small number of key clients. Our top ten clients accounted for approximately 42.2% of our consolidated revenues in 2020. 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 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.
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 experience management 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 experienced two such cyber-attacks in 2020 which were disclosed in our quarterly reports for the second and third quarters, respectively. 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 opening clauses, which permit region-specific data protection legislation and have the potential to create inconsistencies on a country-by-country basis.
Our efforts to comply with GDPR, 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 experience management services, we believe no one company is dominant in the industry. There are numerous and varied providers of our services, including firms specializing in experience management center operations, temporary staffing and personnel placement, consulting and integration firms, and niche providers of outsourced customer experience management 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 experience management 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 experience management 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.
The concentration of customer experience management centers in certain geographies poses risks to our operations which could adversely affect our financial condition.
Although we have customer experience management 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 experience management center operations could affect our business and results of operations.
Our operations are dependent upon our ability to protect our customer experience management 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 experience management services. Outsourcing means that an entity contracts with a third party, such as us, to provide customer experience management 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 digital media and demand generation offerings are partially reliant upon internet search companies to direct visitors to our owned and operated websites.
Our digital media and demand generation offerings derive revenue through the delivery of qualified leads, clicks and calls which is dependent on our ability to attract online visitors to our owned and operated websites and in certain cases, convert them into customers for our clients in a cost-effective manner. We utilize paid listings, organic search, social media marketing, display advertising and native advertising to direct visitors to our owned and operated websites. If one or more of the search engines or social media sites on which we rely for purchased listings modifies or terminates its relationship with us, our costs could increase and / or traffic to our websites could decrease resulting in a negative impact to our financial condition and results of operations. Search companies frequently revise their algorithms and changes in search engine algorithms may result in lower page rankings in organic search result listings. Search companies could determine that our websites’ content is either not relevant or is of poor quality. We maintain search engine optimization (“SEO”) efforts in response to changing search engine algorithms and search query trends.
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 experience management 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 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 experience management 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.
Our profitability may be adversely affected if we are unable to maintain and find new locations for customer experience management 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 experience management 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 experience management 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 experience management 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 experience management centers can adversely affect our financial results.
The expected phase-out of LIBOR could negatively impact our net interest expense.
LIBOR, the interest rate benchmark used as the primary reference rate on our revolving credit facility is expected to be phased out. While we expect that reasonable alternatives to LIBOR will be implemented prior to the cessation date, we cannot predict the effect of the establishment of alternative reference rates on our borrowing costs. If LIBOR ceases to exist or the methods of calculating LIBOR change from their current form, it may result in an increase in our net interest expense.
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, 2020, our international operations were conducted from 39 customer experience management 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, 2020, 2019, and 2018, were 39.9%, 39.8%, and 36.8% 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 13 customer experience management 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, El Salvador and India, some of which expire at varying dates from 2021 through 2030. 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 either that they will renew them on the same or similar terms or that the laws and regulations relating to the holiday will remain the same. 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-jurisdictional 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 $3.8 million, $3.1 million and $4.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.
As of December 31, 2020, we had cash and cash equivalents of approximately $86.7 million held by international operations. As a result of the Tax Cuts and Jobs Act (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. 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-jurisdictional 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 experience management 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 and unsolicited commercial email. 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 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 number of jurisdictions. For example, currently proposed tax reform policies, which if enacted, could increase our provision for income taxes and taxes payable. Further, due to COVID-19 and the resulting increase to fiscal spending, countries may address their need for additional tax revenue through implementation of unfavorable changes to tax laws, regulations, or tax audit approaches.
In addition, many countries are beginning to implement legislation and other guidance to align their international tax rules with the Organization for Economic Cooperation and Development’s (“OECD”) 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 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 experience management centers typically seat hundreds of employees in one location. Accordingly, an outbreak of a contagious infection, such as COVID-19, 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. As disclosed elsewhere, as a result of the COVID-19 pandemic, certain of our customer experience management centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels. Certain of our agents lack the technical infrastructure to work from home. As a result, our operations in the Philippines, El Salvador and Mexico have been most impacted by the governmental restrictions. The global nature of the ongoing COVID-19 pandemic has significantly impacted the global economy. If the pandemic is prolonged, it could severely disrupt our business operations and have a material adverse effect on our business, financial condition and results of operations. In particular, the impacts may include reduced demand for our services as a result of economic recession, inability to reduce costs while volumes are temporarily reduced, and delayed payments from clients. As disclosed in Note 7, Goodwill and Intangible Assets, of the accompanying “Notes to Consolidated Financial Statements,” Symphony’s on-site consulting model has been negatively impacted by travel and shelter-in-place restrictions imposed by governments and businesses to reduce the spread of COVID-19.
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.
Our acquisition strategy involves other potential risks. These risks include:
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the inability to obtain the capital required to finance potential acquisitions on satisfactory terms;
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the diversion of our attention to the integration of the businesses to be acquired;
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the risk that the acquired businesses will fail to maintain the quality of services that we have historically provided;
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the need to implement financial and other systems and add management resources;
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the risk that key employees of the acquired business will leave after the acquisition;
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potential liabilities of the acquired business;
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unforeseen difficulties in the acquired operations;
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adverse short-term effects on our operating results;
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lack of success in assimilating or integrating the operations of acquired businesses within our business;
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the dilutive effect of the issuance of additional equity securities;
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the impairment of goodwill and other intangible assets involved in any acquisitions;
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the businesses we acquire not proving profitable;
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incurring additional indebtedness; and
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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 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. As disclosed in Note 7, Goodwill and Intangible Assets, of the accompanying “Notes to Consolidated Financial Statements,” we recorded a $21.8 million impairment to Symphony’s goodwill resulting from the protracted impact of the pandemic during the year ended December 31, 2020. There is significant uncertainty regarding the length of time the pandemic will impact the global economy as well as how long the related restrictions will remain in place. As such, additional impairment charges may arise in the future if our operations experience a prolonged delay in their resumption or if a significant shift in client demand results from the economic downturn. We could be required to record a significant charge to earnings in our financial statements during the period in which any further 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 experience management 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 experience management services 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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
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, 2020 relating to our periodic or current reports filed under the Securities Exchange Act of 1934.

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ITEM 2. PROPERTIES
Item 2. Properties
Our corporate headquarters are located in Tampa, Florida, consisting of approximately 68,000 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 experience management 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, 2020, we operated one Company-owned fulfillment location and 67 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
Total Americas centers
EMEA:
Cyprus
Denmark
Egypt
Finland
Germany
Hungary
Norway
Romania
Scotland
Sweden
Total EMEA centers
Total centers
(1)
Company-owned center.
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, 2020, our centers, taken as a whole, were utilized at average capacities of approximately 75% and were capable of supporting a higher level of market demand. We had average utilization of 74% and 75% in the Americas and EMEA, respectively, during 2020.

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ITEM 3. LEGAL PROCEEDINGS
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.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not Applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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 1, 2021, there were approximately 720 holders of record of our common stock and we estimate there were approximately 13,200 beneficial owners.
Below is a summary of stock repurchases for the quarter ended December 31, 2020 (in thousands, except average price per share).
Period
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)
October 1, 2020 - October 31, 2020
-
$
-
-
1,748
November 1, 2020 - November 30, 2020
-
$
-
-
1,748
December 1, 2020 - December 31, 2020
-
$
-
-
1,748
Total
-
-
1,748
(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.
Five-Year Stock Performance Graph
The following graph presents a comparison of the cumulative shareholder return on SYKES common stock with the cumulative total return on 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 (as defined below). The SYKES Peer Group is comprised of publicly traded companies that derive a substantial portion of their revenues from experience management 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, 2015 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)
2015 2016 2017 2018 2019 2020 Sykes Enterprises, Incorporated 100.00 93.76 102.17 80.34 120.17 122.38 NASDAQ Computer and Data Processing Index 100.00 108.83 154.96 163.40 223.96 325.94 NASDAQ Telecommunications Stocks 100.00 117.59 141.36 148.81 169.12 206.39 Russell 2000 Index 100.00 121.31 139.08 123.76 155.35 186.36 S&P SmallCap 600 Index 100.00 126.56 143.30 131.14 161.02 179.20 Peer Group 100.00 115.71 163.89 164.74 246.88 330.16
SYKES Peer Group
Exchange & Ticker Symbol
Atento S.A.
NYSE: ATTO
StarTek, Inc.
NYSE: SRT
Teleperformance
Paris: TEP
TTEC Holdings, Inc.
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.

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ITEM 6. SELECTED FINANCIAL DATA
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.
Years Ended December 31,
(in thousands, except per share data)
2019 (1)
2018 (2)
Income Statement Data: (3)
Revenues
$
1,710,261
$
1,614,762
$
1,625,687
$
1,586,008
$
1,460,037
Income from operations (4)(5)(6)
81,784
89,800
63,202
87,042
92,373
Net income (4)(5)(6)(7)
56,432
64,081
48,926
32,216
62,390
Net Income Per Common Share: (3)(4)(5)(6)(7)
Basic
$
1.40
$
1.54
$
1.16
$
0.77
$
1.49
Diluted
$
1.39
$
1.53
$
1.16
$
0.76
$
1.48
Weighted Average Common Shares:
Basic
40,255
41,649
42,090
41,822
41,847
Diluted
40,480
41,802
42,246
42,141
42,239
Balance Sheet Data: (3)(4)(5)(6)(7)(8)(9)
Total assets
$
1,435,805
$
1,415,500
$
1,171,967
$
1,327,092
$
1,236,403
Long-term debt
63,000
73,000
102,000
275,000
267,000
Shareholders' equity
893,654
874,475
826,609
796,479
724,522
(1)
Effective January 1, 2019, the Company adopted new guidance on leases using the modified retrospective method; as such, 2016 - 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, 2016 - 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 and Clearlink since the associated acquisition dates of November 1, 2018, July 9, 2018, May 31, 2017 and April 1, 2016, respectively, as well as the related merger and integration costs incurred as part of each acquisition. See Note 4, Acquisitions, of the accompanying “Notes to Consolidated Financial Statements” for further information regarding the Symphony and WhistleOut acquisitions.
(4)
The amounts for 2020 include $21.8 million of goodwill impairment related to the Symphony reporting unit. See Note 7, Goodwill and Intangible Assets, of the accompanying “Notes to Consolidated Financial Statements” for further information.
(5)
The amounts for 2020, 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.
(6)
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.
(7)
The amount for 2017 includes $32.7 million related to the impact of the 2017 Tax Reform Act.
(8)
The amount for 2020 includes the assets acquired as part of the TMC acquisition on December 31, 2020. See Note 4, Acquisitions, of the accompanying “Notes to Consolidated Financial Statements” for further information regarding the TMC acquisition.
(9)
The Company has not declared cash dividends per common share for any of the five years presented.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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, 2020 (“2020”) to the year ended December 31, 2019 (“2019”). For a discussion of the year ended December 31, 2019 as compared to the year ended December 31, 2018, see our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020.
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, 2020, including the following analysis and in Item 1A., “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 full lifecycle provider of global customer experience management services, multichannel demand generation and digital transformation. We provide 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. Our differentiated full lifecycle services platform effectively engages customers at every touchpoint within the customer journey, including digital marketing and acquisition, sales expertise, customer service, technical support and retention, many of which can be optimized through a suite of digital transformation capabilities under our SYKES Digital Services (“SDS”) group, which spans robotic process automation (“RPA”), self-service, insight analytics and digital learning. In addition to digital transformation, we also provide artificial intelligence (“AI”) solutions that can be embedded and leveraged across its lifecycle offerings. 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 experience management solutions and services with an emphasis on inbound multichannel demand generation, customer service and technical support to our clients’ customers. These services, which represented 98.7%, 97.7% and 99.0% of consolidated revenues in 2020, 2019 and 2018, respectively, are delivered through multiple communication channels including phone, e-mail, social media, text messaging, chat and digital self-service. 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 experience management 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
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 our 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. We are committed to the health and safety of our workforce and ensuring business continuity for the brands we serve. In response, we have shifted as many employees as possible to a work-at-home model. As of January 2021, approximately 95% of agents assigned to our brick-and-mortar facilities are working at our centers or from home across the world with 70% having transitioned to a work-at-home model. Approximately 5% of our agents are idle primarily due to the lack of technical infrastructure to work from home. Our operations in the Philippines, El Salvador and Mexico have been most impacted by the governmental restrictions.
We continue to closely monitor the prevalence of COVID-19 in the communities where our centers are located as well as guidance from public health authorities, federal and local agencies and municipalities. We will work with employees and clients to transition agents back to our centers based on that guidance, but risk further disruption to our business as a result of COVID-19 and government-imposed restrictions.
Exit of Leased Space
We are reevaluating our real estate footprint in connection with a transition of a portion of our workforce to a permanent remote working environment in both the Americas and EMEA. We have decided to terminate, sublease or abandon leases prior to the end of their lease terms at certain of our sites during the year ended December 31, 2020 as approximately 3,200 seats transitioned from brick and mortar to at home agents. As such, we recorded impairments of right-of-use (“ROU”) assets of $12.7 million and impairments of property and equipment of $7.1 million during the year ended December 31, 2020. See Note 6, Fair Value, in the accompanying “Notes to Consolidated Financial Statements” for further information. Annualized lease expense savings of approximately $10.3 million and reduced depreciation expense of approximately $3.0 million are expected from these actions. Of the $10.3 million in expected annualized lease savings, approximately 70% is anticipated to be realized as cash savings.
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 experience management 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.
Acquisitions
On December 31, 2020, we completed the acquisition of Taylor Media Corp. (“TMC”), a personal finance media company and owner of The Penny Hoarder. Of the total initial purchase price of $104.8 million, subject to a post-closing working capital adjustment, of which $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 $17.6 million of the purchase price, $0.2 million will go to repay outstanding debt and $17.4 million 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. TMC’s assets and liabilities have been reflected in our consolidated balance sheet in the Americas segment as of December 31, 2020 and the results of TMC’s operations will be reflected in our consolidated financial statements beginning on January 1, 2021.
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.
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:
Years Ended December 31,
(in thousands)
$ Change
$ Change
Revenues
$
1,710,261
$
1,614,762
$
95,499
$
1,625,687
$
(10,925
)
Operating expenses:
Direct salaries and related costs
1,099,593
1,042,289
57,304
1,072,907
(30,618
)
General and administrative
421,910
412,407
9,503
407,285
5,122
Depreciation, net
51,418
51,916
(498
)
57,350
(5,434
)
Amortization of intangibles
14,003
16,639
(2,636
)
15,542
1,097
Impairment of goodwill
21,792
-
21,792
-
-
Impairment of long-lived assets
19,761
1,711
18,050
9,401
(7,690
)
Total operating expenses
1,628,477
1,524,962
103,515
1,562,485
(37,523
)
Income from operations
81,784
89,800
(8,016
)
63,202
26,598
Other income (expense):
Interest income
(91
)
Interest (expense)
(1,923
)
(4,309
)
2,386
(4,743
)
Other income (expense), net
(49
)
(414
)
(2,248
)
1,834
Total other income (expense), net
(1,217
)
(3,877
)
2,660
(6,285
)
2,408
Income before income taxes
80,567
85,923
(5,356
)
56,917
29,006
Income taxes
24,135
21,842
2,293
7,991
13,851
Net income
$
56,432
$
64,081
$
(7,649
)
$
48,926
$
15,155
The following table sets forth, for the years indicated, the amounts presented in the accompanying Consolidated Statements of Operations as a percentage of revenues:
Years Ended December 31,
Percentage of Revenue:
Revenues
100.0
%
100.0
%
100.0
%
Direct salaries and related costs
64.3
64.5
66.0
General and administrative
24.7
25.5
25.1
Depreciation, net
3.0
3.2
3.5
Amortization of intangibles
0.8
1.0
1.0
Impairment of goodwill
1.3
-
-
Impairment of long-lived assets
1.1
0.1
0.6
Income from operations
4.8
5.7
3.8
Interest income
0.0
0.1
0.0
Interest (expense)
(0.1
)
(0.3
)
(0.3
)
Other income (expense), net
(0.0
)
(0.0
)
(0.1
)
Income before income taxes
4.7
5.5
3.4
Income taxes
1.4
1.4
0.5
Net income
3.3
%
4.1
%
2.9
%
2020 Compared to 2019
Revenues
Years Ended December 31,
(in thousands)
Amount
% of Revenues
Amount
% of Revenues
$ Change
Americas
$
1,381,008
80.7%
$
1,296,660
80.3%
$
84,348
EMEA
329,238
19.3%
318,013
19.7%
11,225
Other
0.0%
0.0%
(74
)
Consolidated
$
1,710,261
100.0%
$
1,614,762
100.0%
$
95,499
Consolidated revenues increased $95.5 million, or 5.9%, in 2020 from 2019.
The increase in Americas’ revenues was due to higher volumes from existing clients of $137.5 million and new clients of $38.2 million, partially offset by end-of-life client programs of $90.4 million primarily in the communications vertical and an unfavorable foreign currency impact of $1.0 million. Revenues from our offshore operations represented 43.3% of Americas’ revenues in 2020, compared to 42.7% for the comparable period in 2019.
The increase in EMEA’s revenues was due to new clients of $14.4 million, higher volumes from existing clients of $5.5 million and a favorable foreign currency impact of $3.8 million, partially offset by end-of-life client programs of $12.5 million primarily in the communications and other verticals.
On a consolidated basis, we had 45,600 brick-and-mortar seats as of December 31, 2020, a decrease of 2,600 seats from the comparable period in 2019, driven by decisions made by certain clients to permanently alter their delivery mix away from brick and mortar to a home agent solution due to COVID-19 in both the Americas and EMEA. On a segment basis, 38,000 seats were located in the Americas, a decrease of 2,200 seats from the comparable period in 2019, and 7,600 seats were located in EMEA, a decrease of 400 seats from the comparable period in 2019.
On a consolidated basis, the capacity utilization rate was unchanged at 75% in both 2020 and 2019. However, including home agents in the comparable utilization calculation would have resulted in an increase in comparable capacity utilization. As of January 2021, approximately 70% of agents who typically work in our brick-and-mortar facilities have transitioned to work at home, 25% are working in our facilities and the remaining 5% of agents are at home but idle.
The capacity utilization rate for the Americas in 2020 was 74%, compared to 73% in the comparable period in 2019. The capacity utilization rate for EMEA in 2020 was 75%, compared to 73% in the comparable period in 2019. We strive to attain a capacity utilization rate of 85% at each of our locations. Capacity utilization is measured by taking the number of agents and indirect support headcount and dividing it by the number of seats provisioned for utilization. Capacity utilization is a critical metric for us as it is used as an input to the pricing, revenue and margin drivers of our business as well as capital allocation.
Direct Salaries and Related Costs
Years Ended December 31,
(in thousands)
Amount
% of Revenues
Amount
% of Revenues
$ Change
Change in % of Revenues
Americas
$
876,547
63.5%
$
826,255
63.7%
$
50,292
-0.2%
EMEA
223,046
67.7%
216,034
67.9%
7,012
-0.2%
Consolidated
$
1,099,593
64.3%
$
1,042,289
64.5%
$
57,304
-0.2%
The increase of $57.3 million in direct salaries and related costs included an unfavorable foreign currency impact of $1.8 million in the Americas and an unfavorable foreign currency impact of $2.1 million in EMEA.
The decrease in Americas’ direct salaries and related costs, as a percentage of revenues, was primarily attributable to lower customer-acquisition advertising costs of 0.7%, lower recruiting costs of 0.4%, lower auto tow claim costs of 0.4%, lower communications costs of 0.2%, partially offset by higher compensation costs of 1.0% principally due to
a decrease in agent productivity across several verticals primarily resulting from pandemic-induced restrictions in the current period, higher travel costs of 0.3% driven by employee transportation costs during the pandemic and higher other costs of 0.2%.
The decrease in EMEA’s direct salaries and related costs, as a percentage of revenues, was primarily attributable to lower travel costs of 0.5%, lower rebillable costs of 0.3%, lower software purchased for resale of 0.3% and lower communications costs of 0.2%, partially offset by higher compensation costs of 1.0% primarily due to a decrease in agent productivity principally within the communications vertical in the current period and higher other costs of 0.1%.
General and Administrative
Years Ended December 31,
(in thousands)
Amount
% of Revenues
Amount
% of Revenues
$ Change
Change in % of Revenues
Americas
$
280,398
20.3%
$
278,056
21.4%
$
2,342
-1.1%
EMEA
70,832
21.5%
74,205
23.3%
(3,373
)
-1.8%
Other
70,680
-
60,146
-
10,534
-
Consolidated
$
421,910
24.7%
$
412,407
25.5%
$
9,503
-0.8%
The increase of $9.5 million in general and administrative expenses included an unfavorable foreign currency impact of $0.2 million in the Americas and an unfavorable foreign currency impact of $0.5 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 0.7% resulting primarily from the exit of leased space during the current year as well as the Americas 2019 Exit Plan, lower travel costs of 0.3%, lower merger and integration costs of 0.2% and lower software and maintenance costs of 0.2%, partially offset by higher compensations costs of 0.2% and higher other costs of 0.1%.
The decrease in EMEA’s general and administrative expenses, as a percentage of revenues, was primarily attributable to lower travel costs of 0.7%, lower merger and integration costs of 0.6%, lower legal and professional fees of 0.3% and lower other costs of 0.2%.
The increase of $10.5 million in Other general and administrative expenses, which includes corporate and other costs, was primarily attributable to higher compensation costs of $10.0 million, higher merger and integration costs of $1.7 million, higher software and maintenance costs of $1.0 million and higher other costs of $0.3 million, partially offset by lower travel costs of $1.2 million, lower legal and professional fees of $0.8 million and lower seminars and education costs of $0.5 million.
Depreciation, Amortization, Impairment of Goodwill and Long-Lived Assets
Years Ended December 31,
(in thousands)
Amount
% of Revenues
Amount
% of Revenues
$ Change
Change in % of Revenues
Depreciation, net:
Americas
$
40,903
3.0%
$
42,386
3.3%
$
(1,483
)
-0.3%
EMEA
7,586
2.3%
6,521
2.1%
1,065
0.2%
Other
2,929
-
3,009
-
(80
)
-
Consolidated
$
51,418
3.0%
$
51,916
3.2%
$
(498
)
-0.2%
Amortization of intangibles:
Americas
$
10,654
0.8%
$
13,304
1.0%
$
(2,650
)
-0.2%
EMEA
3,349
1.0%
3,335
1.0%
0.0%
Other
-
-
-
-
-
-
Consolidated
$
14,003
0.8%
$
16,639
1.0%
$
(2,636
)
-0.2%
Impairment of goodwill:
Americas
$
-
0.0%
$
-
0.0%
$
-
0.0%
EMEA
21,792
6.6%
-
0.0%
21,792
6.6%
Other
-
-
-
-
-
-
Consolidated
$
21,792
1.3%
$
-
0.0%
$
21,792
1.3%
Impairment of long-lived assets:
Americas
$
18,795
1.4%
$
1,711
0.1%
$
17,084
1.3%
EMEA
0.3%
-
0.0%
0.3%
Other
-
-
-
-
-
-
Consolidated
$
19,761
1.1%
$
1,711
0.1%
$
18,050
1.0%
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 exit of leased space in the current year, partially offset by new depreciable fixed assets placed into service supporting site expansions and infrastructure upgrades.
The decrease in amortization was primarily due to certain fully amortized intangible assets.
See Note 5, Costs Associated with Exit or Disposal Activities, Note 6, Fair Value, and Note 7, Goodwill and Intangible Assets, in the accompanying “Notes to Consolidated Financial Statements” for further information regarding the impairment of goodwill and long-lived assets.
Other Income (Expense)
Years Ended December 31,
(in thousands)
$ Change
Interest income
$
$
$
(91
)
Interest (expense)
$
(1,923
)
$
(4,309
)
$
2,386
Other income (expense), net:
Foreign currency transaction gains (losses)
$
(1,645
)
$
(1,262
)
$
(383
)
Gains (losses) on derivative instruments not designated as hedges
(673
)
(674
)
Gains (losses) on investments held in rabbi trust
2,309
2,379
(70
)
Other miscellaneous income (expense)
(40
)
(857
)
Total other income (expense), net
$
(49
)
$
(414
)
$
Interest income remained consistent with the prior period.
The decrease in interest (expense) was primarily due to a decrease in the average daily outstanding borrowings under our credit agreements and a decrease in the weighted average interest rates on outstanding borrowings.
See Note 13, Investments Held in Rabbi Trust, of the accompanying “Notes to Consolidated Financial Statements” for further information.
The change in other miscellaneous income (expense) was primarily due to a gain on dilution of our investment in XSell, our equity method investee. See Note 1, Overview and Summary of Significant Accounting Policies, of the accompanying “Notes to Consolidated Financial Statements” for further information.
Income Taxes
Years Ended December 31,
(in thousands)
$ Change
Income before income taxes
$
80,567
$
85,923
$
(5,356
)
Income taxes
$
24,135
$
21,842
$
2,293
% Change
Effective tax rate
30.0
%
25.4
%
4.6
%
The increase in the effective tax rate in 2020 compared to 2019 was primarily due to the 2020 impairment of non-deductible goodwill and an increase in unrecognized tax benefits. This increase was partially offset by a shift in earnings among the various jurisdictions in which we operate. The effective tax rate was also affected by several additional factors, the overall impact of which was not material.
Quarterly Results
The following information presents our unaudited quarterly operating results for 2020 and 2019. 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)
12/31/2020
9/30/2020
6/30/2020
3/31/2020
12/31/2019
9/30/2019
6/30/2019
3/31/2019
Revenues
$
450,535
$
431,727
$
416,833
$
411,166
$
425,284
$
397,547
$
389,006
$
402,925
Operating expenses:
Direct salaries and related costs
289,009
275,206
268,433
266,945
274,731
253,669
252,161
261,728
General and administrative
108,946
107,053
102,664
103,247
100,825
102,620
104,282
104,680
Depreciation, net
13,646
12,681
12,630
12,461
12,518
12,449
13,052
13,897
Amortization of intangibles
2,425
3,366
4,093
4,119
4,123
4,103
4,127
4,286
Impairment of goodwill (1)
-
21,792
-
-
-
-
-
-
Impairment of long-lived assets (2)
4,232
13,729
1,800
-
-
-
1,582
Total operating expenses
418,258
433,827
389,620
386,772
392,197
372,841
373,751
386,173
Income (loss) from operations
32,277
(2,100
)
27,213
24,394
33,087
24,706
15,255
16,752
Other income (expense):
Interest income
Interest (expense)
(288
)
(355
)
(560
)
(720
)
(861
)
(1,091
)
(1,179
)
(1,178
)
Other income (expense), net
1,044
1,903
1,797
(4,793
)
(436
)
(55
)
(533
)
Total other income (expense), net
1,685
1,402
(5,250
)
(1,062
)
(912
)
(1,520
)
(383
)
Income (loss) before income taxes
33,223
(415
)
28,615
19,144
32,025
23,794
13,735
16,369
Income taxes
7,848
4,676
6,385
5,226
9,005
5,689
2,466
4,682
Net income (loss)
$
25,375
$
(5,091
)
$
22,230
$
13,918
$
23,020
$
18,105
$
11,269
$
11,687
Net income (loss) per common share: (3)
Basic
$
0.64
$
(0.13
)
$
0.55
$
0.34
$
0.56
$
0.44
$
0.27
$
0.28
Diluted
$
0.64
$
(0.13
)
$
0.55
$
0.34
$
0.56
$
0.44
$
0.27
$
0.28
Weighted average shares:
Basic
39,580
39,994
40,318
41,132
41,176
41,190
42,038
42,169
Diluted
39,895
39,994
40,380
41,334
41,453
41,307
42,094
42,299
(1)
See Note 7, Goodwill and Intangible Assets, of the accompanying “Notes to Consolidated Financial Statements” for further information.
(2)
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.
(3)
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, 2021, we anticipate the following financial results:
•
Revenues in the range of $454.0 million to $459.0 million;
•
Effective tax rate of approximately 24.0%;
•
Fully diluted share count of approximately 40.0 million;
•
Diluted earnings per share in the range of $0.58 to $0.61; and
•
Capital expenditures in the range of $14.0 million to $16.0 million
For the twelve months ended December 31, 2021, we anticipate the following financial results:
•
Revenues in the range of $1,833.0 million to $1,853.0 million;
•
Effective tax rate of approximately 24.0%;
•
Fully diluted share count of approximately 40.1 million;
•
Diluted earnings per share in the range of $2.60 to $2.73; and
•
Capital expenditures in the range of $47.0 million to $53.0 million
Our first quarter and full year 2021 business outlook reflects healthy levels of demand stemming from existing and new clients as well as new lines of businesses across our vertical markets, consistent with the pattern that has driven those verticals to date. We expect the first quarter through full year outlook to largely maintain our historical pattern as we ramp client programs and step-up levels of information technology (“IT”) and IT-related investments to reinforce our infrastructure and agility in the marketplace. We remain well positioned strategically to address opportunities in the marketplace just as we have throughout the pandemic.
We continue to work with clients in determining the future view of their delivery strategy between home agent and brick and mortar facility driven by COVID-19. As such, we will continue to adjust our capacity footprint - similar to actions taken on facility leases in 2020 - as we get greater clarity around those decisions.
Our revenues and earnings per share assumptions for the first quarter and full year 2021 are based on foreign exchange rates as of January 2021. 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 discussed above.
We anticipate total other interest income (expense), net of approximately $(1.4) million and $(5.6) million for the first quarter and full year 2021, respectively. The amounts in the other interest income (expense), net, however, exclude the potential impact of any future foreign exchange gains or losses.
Not included in this guidance is the impact of any future acquisitions, share repurchase activities or a potential sale of previously exited customer experience management 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 experience management 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 8.3 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 2020, we used $101.0 million to repay long-term debt, $88.5 million used to pay for acquisitions, $52.7 million used for capital expenditures, $52.2 million used to repurchase common stock and $1.8 million to repurchase common stock for tax withholding on equity awards cash, which was partially offset by $175.7 million provided by operating activities, $91.0 million of debt proceeds and $1.9 million of other cash inflows, resulting in a $24.8 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 $2.8 million).
Net cash flows provided by operating activities for 2020 were $175.7 million, compared to $101.3 million in 2019. The $74.4 million increase in net cash flows from operating activities was due to a net increase of $41.4 million in cash flows from assets and liabilities and a $40.6 million increase in non-cash reconciling items such as impairment, net unrealized foreign currency transaction (gains) losses, stock-based compensation expense, partially offset by a $7.6 million decrease in net income. The $41.4 million increase in cash flows from assets and liabilities was principally a result of a $30.9 million decrease in accounts receivable, a $7.8 million increase in other liabilities, a $7.5 million decrease in other assets and a $1.7 million increase in deferred revenue and customer liabilities, partially offset by a $3.6 million increase in net operating lease liabilities and a $2.9 million increase in taxes payable. The $30.9 million decrease in the change in accounts receivable was primarily due to the timing of billings and collections. The $7.8 million increase in the change in other liabilities was primarily due to a $21.7 million increase principally related to the timing of accrued employee compensation and benefits driven by the deferral of our portion of social security
taxes as permitted by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, partially offset by a $5.9 million decrease in other accrued expenses and current liabilities principally resulting from fluctuations in our derivatives and the impact of the adoption of ASC 842, Leases, on our deferred rent balance and our lease liability associated with the Americas 2018 Exit Plan, a $5.7 million decrease in accounts payable principally due to the timing of invoices and related payments and a $2.3 million decrease in other long-term liabilities. The $7.5 million decrease in the change in other assets was primarily due to a decrease in deferred charges and other assets driven by long-term accounts receivable billings partially offset by related reclassifications to short-term accounts receivable.
Capital expenditures, which are generally funded by cash generated from operating activities, available cash balances and borrowings available under our credit facilities, were $52.7 million for 2020, compared to $38.7 million for 2019, a decrease of $14.0 million. In 2021, we anticipate capital expenditures in the range of $47.0 million to $53.0 million, primarily for systems infrastructure upgrades and additions as well as new seat additions.
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, 2020, we were in compliance with all loan requirements of the 2019 Credit Agreement and had $63.0 million of outstanding borrowings under this facility.
Our credit agreements had an average daily utilization of $45.8 million, $87.8 million and $106.2 million during the years ended December 31, 2020, 2019 and 2018, respectively. During the years ended December 31, 2020, 2019, and 2018, the related interest expense, including the commitment fee and excluding the amortization of deferred loan fees, was $1.4 million, $3.5 million and $3.8 million, respectively, which represented weighted average interest rates of 3.1%, 3.9% and 3.6%, respectively.
We repaid $10.0 million, net, of long-term debt outstanding under our credit agreements in 2020. Our 2021 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, 2020 and 2019, $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, 2020 and 2019, $16.6 million and $18.5 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. 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.
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. We accelerated the 2021 installment of the retention bonus and paid AUD 8.0 million ($5.6 million) in July 2020, which represented both the 2020 and 2021 installments. No further amounts are due. 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 and the second installment of GBP 2.7 million ($3.4 million) in October 2020.
As of December 31, 2020, we had $103.1 million in cash and cash equivalents, of which approximately 84.1%, or $86.7 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, 2020, 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.
Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2020, and the effect these obligations are expected to have on liquidity and cash flow in future periods (in thousands):
Payments Due By Period
Total
Less Than 1 Year
1 - 3 Years
3 - 5 Years
After 5 Years
Other
Operating leases (1)(2)
197,016
$
60,980
$
79,728
$
37,511
$
18,797
$
-
Purchase obligations (3)
36,777
27,338
9,439
-
-
-
Long-term debt (4)
63,000
-
-
63,000
-
-
Long-term income tax liabilities (5)
21,586
-
5,599
10,954
-
5,033
Other long-term liabilities (6)
27,679
-
19,875
1,695
6,109
-
$
346,058
$
88,318
$
114,641
$
113,160
$
24,906
$
5,033
(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, 2020, we subleased five of our operating leases. Future contractual sublease payments of $3.2 million, $3.3 million and $2.8 million are expected to be received in the periods of less than one year, one to three years and three to 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 $5.0 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.
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 all available evidence 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, 2020, we determined that a total valuation allowance of $12.2 million was necessary to reduce U.S. deferred tax assets by $0.8 million and foreign deferred tax assets by $11.4 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 $9.4 million as of December 31, 2020 is dependent upon future profitability within each tax jurisdiction. As of December 31, 2020, 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. 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-jurisdictional tax environment in which we operate.
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, Income Taxes (“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, 2020 and 2019, we had $3.2 million and $2.7 million, respectively, of unrecognized tax benefits. Had we recognized these tax benefits, approximately $3.2 million and $2.7 million, along with the related interest and penalties, would have favorably impacted the effective tax rate in 2020 and 2019, respectively. 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 impacted by the 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 2030. If we are unable to renew a tax holiday or if there is an unfavorable change in tax holiday laws 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 either renew them on the same or similar terms or that the laws and regulations relating to the holiday will remain the same. The tax holidays decreased the provision for income taxes by $3.8 million, $3.1 million and $4.1 million for the years ended December 31, 2020, 2019 and 2018, 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.
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 apply revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples of comparable companies using the guideline public company method under the market approach.
We estimate fair value under the income approach 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 demand, projected capacity utilization, projected changes in the prices we charge for our services, projected labor costs and projected foreign currency exchange rates. The financial and credit market volatility directly impacts our fair value measurement through the 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, cyber event, pandemic 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 recognized a $21.8 million goodwill impairment during the year ended December 31, 2020 related to our Symphony reporting unit. Our annual impairment testing indicated that the remaining six of our seven reporting units with goodwill had fair values that exceeded their respective carrying values.
As outlined in Note 7, Goodwill and Intangible Assets, in the accompanying “Notes to Consolidated Financial Statements,” in addition to our Symphony reporting unit, three more 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, 2020, the date of our annual impairment test was as follows (in thousands):
Reporting Unit
Allocated Goodwill
Percentage by Which Fair Value Exceeds Carrying Value
Clearlink (1)
$
74,243
11-20%
Latin America (2)
$
18,830
11-20%
Qelp (3)
$
10,290
21-30%
(1)
Increase in the fair value cushion from the prior year was primarily attributable to a decrease in its weighted average cost of capital driven by a decrease in the risk-free rate.
(2)
Decrease in the fair value cushion from the prior year was primarily attributable to an increase in its weighted average cost of capital driven by an increase in the country risk premium, market risk premium and country default spread.
(3)
Increase in the fair value cushion from the prior year was primarily attributable to an increase in the multiples applied using the guideline public company method under the market approach valuation.
A hypothetical 10% decrease in the fair value of the Clearlink, 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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
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 experience management 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, 2020 through December 2021 with notional amounts totaling $48.0 million. As of December 31, 2020, we had net total derivative liabilities associated with these contracts with a fair value of $2.1 million. If the USD had weakened against the PHP and CRC by 10% as of December 31, 2020 and 2019, we would have incurred a loss of approximately $4.2 million and $9.9 million as of December 31, 2020 and 2019, respectively, on these contracts. However, these losses would be mitigated by corresponding gains on the underlying exposures.
We had outstanding forward exchange contracts as of December 31, 2020 with notional amounts totaling $12.4 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, 2020, the fair value of these derivatives was a net liability of less than $0.1 million. The potential loss in fair value at December 31, 2020 and 2019, for these contracts resulting from a hypothetical 10% adverse change in the foreign currency exchange rates is approximately $0.8 million and $1.0 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, 2020 and 2019, we had $63.0 million and $73.0 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, 2020 and 2019, 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 $0.4 million and $0.9 million, respectively, on our results of operations.
We have not historically used derivative instruments to manage exposure to changes in interest rates.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are located beginning on page 50 and page 32 of this report, respectively.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
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, 2020. 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, 2020.
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, 2020. 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, 2020, our internal control over financial reporting was effective.
We acquired Taylor Media Corp. (“TMC”) on December 31, 2020. See Note 4, Acquisitions, of “Notes to Consolidated Financial Statements” for additional information. As permitted by the Securities and Exchange Commission, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition and management elected to exclude TMC from its assessment of internal control over financial reporting as of December 31, 2020. The aggregate assets of TMC constituted 7.7% of the Company’s consolidated total assets as of December 31, 2020. No revenues from TMC were included in the Company’s consolidated revenues for the year ended December 31, 2020.
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting, except for the change discussed under “Changes to Internal Control Over Financial Reporting” below.
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 43.
Changes to Internal Control Over Financial Reporting
We have excluded TMC from our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020. We will begin our integration activities and review of TMC’s internal controls over financial reporting as of January 1, 2021. Management will continue to assess the control environment.
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, 2020, 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, 2020, 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, 2020, of the Company and our report dated February 26, 2021, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Taylor Media Corp., which was acquired on December 31, 2020, and whose financial statements constitute 7.7% of total assets and 0% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2020. Accordingly, our audit did not include the internal control over financial reporting at Taylor Media Corp.
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.
/s/ Deloitte & Touche LLP
Tampa, Florida
February 26, 2021

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
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 2021 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2020 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
Item 11. Executive Compensation
The information required by this Item will be set forth in our Proxy Statement and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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 50 of this report.
Financial Statement Schedules
The schedules for Sykes Enterprises, Incorporated and its subsidiaries are omitted because of the absence of conditions under which they are required, or because the information is set forth in the consolidated financial statements or notes thereto.
Exhibits
The following exhibits are filed with this Report or incorporated by reference:
Exhibit
Number
Exhibit Description
2.1
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.)
3.1
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.)
3.2
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.)
3.3
Bylaws of Sykes Enterprises, Incorporated, as amended. (Incorporated herein by reference from Exhibit 3.3 to Form 10-K filed on March 23, 2005.)
3.4
Amendment to Bylaws of Sykes Enterprises, Incorporated. (Incorporated herein by reference from Exhibit 3.1 to Form 8-K filed on March 24, 2014.)
4.1 (P)
Specimen certificate for the Common Stock of Sykes Enterprises, Incorporated. (Incorporated herein by reference from exhibit to Form S-1, Registration No. 333-2324.)
4.2
Description of Registered Securities. (Incorporated herein by reference from Exhibit 4.2 to Form 10-K filed on February 27, 2020.)
10.1 (P)*
Form of Split Dollar Plan Documents. (Incorporated herein by reference from exhibit to Form S-1, Registration No. 333-2324.)
10.2 (P)*
Form of Split Dollar Agreement. (Incorporated herein by reference from exhibit to Form S-1, Registration No. 333-2324.)
10.3 (P)
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.)
10.4 *
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.)
10.5 *
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.)
Exhibit
Number
Exhibit Description
10.6 *
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.)
10.7 *
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.)
10.8 *
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.)
10.9 *
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.)
10.10 *
2011 Equity Incentive Plan. (Incorporated herein by reference from Exhibit 10.17 to Form 10-K filed on February 29, 2016.)
10.11 *
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.)
10.12 *
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.)
10.13 *
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.)
10.14 *
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.)
10.15 *
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.)
10.16
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.)
10.17
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.)
10.18
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.)
10.19 *
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.)
10.20 *
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.)
Exhibit
Number
Exhibit Description
10.21 *
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.)
10.22 *
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.)
10.23 *
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.)
10.24 *
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.)
10.25 *
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.)
10.26 *
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.)
10.27 *
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.)
10.28 *
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.)
10.29 *
2019 Equity Incentive Plan. (Incorporated herein by reference from Appendix A to the Company’s 2019 Proxy Statement filed on April 19, 2019.)
10.30 *
Form of Restricted Stock Unit Award Agreement dated May 13, 2020. (Incorporated herein by reference from Exhibit 10.1 to Form 10-Q filed on August 4, 2020.)
21.1 +
List of subsidiaries of Sykes Enterprises, Incorporated.
23.1 +
Consent of Independent Registered Public Accounting Firm.
24.1 +
Power of Attorney relating to subsequent amendments (included on the signature page of this Report).
31.1 +
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
31.2 +
Certification of Chief Finance Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
32.1 ++
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.
32.2 ++
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
Exhibit
Number
Exhibit Description
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
101.DEF +,#
Inline XBRL Taxonomy Extension Definition Linkbase Document
104 #
The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, 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.
(P)
This exhibit has been paper filed and is not subject to the hyperlinking requirements of Item 601 of Regulation S-K.