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Sykes Enterprises, Incorporated Reports Second-Quarter 2010 Financial Results

Liquidity and Capital Resources

The Company's balance sheet at June 30, 2010 remained strong with cash and cash equivalents of $224.8 million (excluding restricted cash of $0.4 million). Approximately $214.1 million of the Company's June 30 th cash balance was held in international operations and would be subject to additional taxes if repatriated back to the U.S. During the quarter, the Company made its first term loan repayment of $2.5 million and an early repayment of $20 million on its existing $75 million three-year term loan related to the ICT acquisition. The Company made an additional $50.0 million term loan repayment in July, with the remaining $2.5 million anticipated for repayment in September. At June 30, 2010, the Company had $75 million of undrawn borrowing capacity available under its revolving credit facility. The Company also purchased three hundred thousand shares of its common stock for a total cost of $5.2 million. Cash flow from operations was $27.1 million versus $25.4 million in same period last year.  

Business Outlook

The assumptions driving the business outlook are as follows:
  • The Company is raising its full-year 2010 synergy estimate to approximately $25 million from $21 million previously, while further raising its long-term projected synergy target to between $28 million and $30 million from between $23 million and $25 million previously. The Company's adjusted earnings per share estimates include pre-tax cost synergies of approximately $7 million in the third quarter of 2010. Separately, although it is not currently reflected in the third quarter and full-year 2010 business outlook, the process of capacity optimization and related-actions is under way as part of the Company's operational integration efforts related to the ICT acquisition. These actions could further impact earnings per share relative to the business outlook for the third-quarter and full-year 2010;  
  • Due to sustained macroeconomic weakness coupled with the foreign exchange volatility within the Americas and EMEA regions, the Company is revising its revenue range for full-year 2010. The roughly $68 million in revenue reduction on a consolidated basis between the mid-point of the previously forecasted full-year 2010 revenue range and the newly revised range is apportioned by a third equally across volatile foreign exchange rates, a decrease in existing client demand and a longer-than-anticipated sales cycle. Roughly two-thirds of the revenue reduction is from the Americas region, with the remaining from the EMEA region. And more than three-quarters of the revenue reduction is attributable to legacy SYKES;  
  • The Company's revenues and adjusted earnings per share assumptions were based on foreign exchange rates as of July 2010. Therefore, the continued volatility in foreign exchange rates between the U.S. dollar and the functional currencies of the markets the Company serves could have a significant impact on revenues and adjusted earnings per share relative to the business outlook for the third quarter and full-year;  
  • The Company anticipates net interest expense of approximately $1.3 million for the third quarter of 2010 and net interest expense and other of $10.3 million, which includes approximately $5.0 million of net interest expense for full-year 2010. Third quarter 2010 net interest expense and full-year 2010 net interest expense and other exclude the impact of additional foreign exchange gains or losses; and  
  • The Company anticipates a lower tax rate in the third quarter of 2010 compared to the tax rate in the second quarter of 2010 as there were discrete adjustments that drove the second quarter 2010 tax rate. The Company anticipates an uptick in the estimated full-year 2010 tax rate due to discrete adjustments as well.

Considering the above factors, the Company anticipates the following financial results for the three months ended September 30, 2010: 
  • Revenues in the range of $296 million to $301 million
  • Tax rate of approximately 16% to 18%, on an adjusted basis, a tax rate of approximately 19% to 21%%, subject to volatility from quarter to quarter
  • Fully diluted share count of approximately 46.3 million
  • *Earnings per share of approximately $0.18 to $0.22
  • Adjusted diluted earnings per share in the range of $0.24 to $0.26
  • Capital expenditures in the range of $7.0 million to $9.0 million    

For the twelve months ended December 31, 2010, the Company anticipates the following financial results: 
  • Revenues in the range of $1,165 million to $1,175 million
  • Tax rate of approximately 24% to 26%%, on adjusted basis, a tax rate of 26% to 29% subject to volatility
  • Fully diluted share count of approximately 46.3 million
  • *Earnings per share in the range of $0.23 to $0.28
  • Adjusted diluted earnings per share in the range of $0.81 to $0.83
  • Capital expenditures in the range of $27.0 million to $31.0 million   

*See "Business Outlook Reconciliation" for Third Quarter and Full-Year 2010 earnings per share.

Conference Call

The Company will conduct a conference call regarding the content of this release tomorrow, August 3 rd, 2010 at 10:00 a.m. Eastern Time. The conference call will be carried live on the Internet. Instructions for listening to the call over the Internet are available on the Investors page of SYKES' website at www.sykes.com. A replay will be available at this location for two weeks. This press release is also posted on the SYKES website at http://investor.sykes.com/phoenix.zhtml?c=119541&p=irol-news&nyo=0.

Non-GAAP Financial Measure

Adjusted earnings per diluted share is an important indicator of performance as this non-GAAP financial measure assists readers in further understanding the Company's results of operations and trends from period-to-period exclusive of certain acquisition-related items. Adjusted earnings per diluted share, however, is a supplemental measure of performance that is not required by, or presented in accordance with, U.S. Generally Accepted Accounting Principles (GAAP). Refer to the tables in the release for a detailed reconciliation.

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