SOURCE: MARKETWATCH

TAMPA, Fla., Aug. 2, 2010 — Sykes Enterprises, Incorporated (“SYKES” or the “Company”) , a global leader in providing outsourced customer contact management solutions and services in the business process outsourcing (BPO) arena, announced today second-quarter 2010 financial results.

Second quarter 2010 Highlights

  --  Second quarter 2010 revenues of $299.2 million increased $90.3 million,
      or 43.3%, over the comparable quarter last year; second quarter 2010
      revenues included $98.5 million in contribution from the ICT
      acquisition

  --  Second quarter 2010 operating margin was 2.9% versus 8.2% on a
      comparable basis; on an adjusted basis, a non-GAAP measure, which
      includes the ICT acquisition but excludes ICT acquisition-related costs
      (see Exhibit 4 for reconciliation), second quarter 2010 operating margin
      was 4.9% versus 8.9%, which excludes the KLA impairment loss in the
      year-ago quarter, comparably due to previously-discussed program
      expirations beginning in the second-half of 2009, lower-than-forecasted
      client demand without a commensurate reduction in labor costs and costs
      related to migration of demand to near-shore locations in Egypt, Romania
      and Germany

  --  Excluding the ICT acquisition and on a constant currency basis, second
      quarter 2010 revenues decreased 5.9% comparably due to tougher year-ago
      comparisons driven principally by previously-discussed program
      expirations, migration of demand to near-shore locations as well as
      softness in the technology and communications verticals, which more than
      offset increased demand from the financial services and transportation
      verticals and new client wins

  --  Excluding the ICT acquisition, second quarter 2010 operating margins
      declined 400 basis points (4.9% vs. 8.9%) comparably due principally to
      previously-discussed client program expirations, lower-than-forecasted
      client demand without a commensurate reduction in labor costs, wage
      increases in certain geographies and migration costs

  --  Second quarter 2010 diluted earnings per share was $0.05 versus $0.35 in
      the comparable quarter last year and below the Company's second quarter
      2010 business outlook earnings per share range of $0.20 to $0.22. The
      decrease in the Company's second quarter 2010 diluted earnings per share
      on a comparable basis and relative to the business outlook was due to a
      combination of foreign currency transaction and other expense net
      losses, lower-than- forecasted-demand and a higher tax rate

  --  On an adjusted basis, second quarter 2010 diluted earnings per share was
      $0.14 versus $0.41 per share in the comparable quarter last year, which
      excludes the impact of the impairment loss on KLA and SHPS in the
      year-ago quarter, and versus an adjusted diluted earnings per share
      range of $0.28 to $0.32 provided in the Company's second quarter 2010
      business outlook. Assuming a forecasted tax rate of 13% as projected in
      the Company's second quarter 2010 business outlook and assuming the
      projected net interest expense of approximately $1.0 million for the
      second quarter of 2010, the adjusted diluted earnings per share would
      have been $0.25. The decrease in second quarter 2010 adjusted earnings
      per share was due to principally to lower-than-forecasted client demand

Americas Region

Revenues generated from the Company’s Americas segment, including operations in North America and offshore (Latin America, South Asia and the Asia Pacific region), increased 65.1% to $246.0 million, or 82.2% of total revenues, for the second quarter of 2010. Revenues for the prior year period totaled $149.0 million, or 71.3% of total revenues. The ICT acquisition contributed approximately $98.1 million to the Americas second quarter 2010 revenues. Excluding the ICT acquisition and on a constant currency basis, second quarter 2010 Americas revenues decreased 5.0% comparably due principally to expiration of previously-discussed client programs and lower-than-forecasted demand, which more than offset increased demand from the financial services and transportation verticals as well as new client wins.

During the quarter, approximately 49% of the Americas second quarter 2010 revenues was generated from services provided offshore. Excluding the ICT acquisition, approximately 57% of the Americas second quarter 2010 revenues was generated from services provided offshore compared to approximately 60% in the prior year quarter, with the percentage decrease due primarily to an increased revenue contribution from the U.S.

Sequentially, revenues generated from the Americas segment increased 14.1% to $246.0 million, or 82.2% of total revenues, for the second quarter of 2010. First quarter 2010 revenues of $215.5 million, or 78.3% of total revenues, included only two-months of revenue contribution from the ICT acquisition, which closed on February 2nd, 2010. Excluding the ICT acquisition and on a constant currency basis, second quarter 2010 Americas revenues decreased 1.9% sequentially due principally to lower-than-forecasted client demand, program expirations and some seasonality, which more than offset increased demand from primarily the financial services vertical.

The Americas income from operations for the second quarter of 2010 decreased 1.6% to $24.6 million, with an operating margin of 10.0% versus 16.8% in the comparable quarter last year. On an adjusted basis, which includes the ICT acquisition but excludes ICT acquisition-related costs (see Exhibit 4 for reconciliation), the Americas operating margin was 11.5% versus 17.8% in the comparable quarter last year, which excludes the impact of the KLA impairment loss. Excluding the ICT acquisition, the Americas operating margin decreased 230 basis points (15.5% vs. 17.8%) comparably due to expiration of certain previously-discussed client programs and somewhat lower-than-forecasted client demand without a commensurate reduction in labor costs and wage increases in certain geographies.

Sequentially, the Americas income from operations for the second quarter of 2010 decreased 6.3% to $24.6 million, with an operating margin of 10.0% versus 12.2% in the first quarter of 2010. On an adjusted basis, which includes the ICT acquisition but excludes ICT acquisition-related costs (see Exhibit 6 for reconciliation), the Americas operating margins were 11.5% versus 13.6% sequentially. Excluding the ICT acquisition, the Americas operating margin decreased 200 basis points (15.5% vs. 17.5%) sequentially due largely to the above-mentioned factors.

EMEA Region

Revenues from the Company’s Europe, Middle East and Africa (EMEA) region decreased 11.2% to $53.2 million, representing 17.8% of SYKES’ total revenues for the second quarter of 2010 compared to $59.9 million, or 28.7%, in the prior year’s second quarter. The ICT acquisition contributed approximately $0.4 million in revenues to EMEA in the second quarter of 2010. Excluding the ICT acquisition and on a constant currency basis, EMEA revenues decreased 8.0% due largely to previously-discussed client program expirations, near-shore migration and sustained weakness within the technology vertical as well as a decline in demand with certain clients within the communications vertical, which more than offset new client and program wins. The Company continues to enhance its near-shore delivery solution for the EMEA market and is encouraged by the interest it has received from prospective clients for its recently-announced beach heads in Egypt, Romania and Germany.

Sequentially, revenues from the Company’s EMEA region decreased 10.8% to $53.2 million, representing 17.8% of SYKES’ total revenues for the second quarter of 2010 compared to $59.7 million, or 21.7% of SYKES’ total revenues in the first quarter of 2010, which included only two-months of revenue contribution from the ICT acquisition. Excluding the ICT acquisition and on a constant currency basis, EMEA revenues decreased 4.6% sequentially due largely to above-mentioned factors.

The EMEA loss from operations for the second quarter of 2010 was $3.9 million versus an income of $1.8 million, with an operating margin of negative 7.3% versus a positive 2.9% in the comparable quarter last year. On an adjusted basis, which includes the ICT acquisition but excludes ICT acquisition-related costs (see Exhibit 4 for reconciliation), the comparable operating margins remained unchanged. Excluding the ICT acquisition, the EMEA operating margin was a negative 6.4% versus a positive 2.9% due principally to soft client demand related to economic weakness, migration of demand to near-shore locations and the corresponding termination and duplicative ramp costs, including facilities and recruiting.

Sequentially, the EMEA loss from operations for the second quarter of 2010 was $3.9 million versus a loss of $0.7 million in the first quarter of 2010, with an operating margin of negative 7.3% versus a negative 1.2%. On an adjusted basis, which includes the ICT acquisition but excludes ICT acquisition-related costs (see Exhibit 6 for reconciliation), the EMEA operating margins remained unchanged. Excluding the ICT acquisition, the EMEA operating margin was a negative 6.4% versus a negative 0.6% due principally to the above-mentioned factors.

Corporate G&A Expenses

Corporate costs increased to $12.0 million, or 4.0% of revenues, in the second quarter of 2010, compared to $9.7 million, or 4.6% of revenues, in the comparable quarter last year. On an adjusted basis, which includes the ICT acquisition but excludes ICT acquisition-related costs (see Exhibit 4 for reconciliation), corporate costs remained unchanged at $9.7 million, but declined as a percent of revenues to 3.2% in the second quarter of 2010 from 4.6% in comparable period last year. Excluding the ICT acquisition, corporate costs remained essentially unchanged at $9.7 million, or 4.8% of second quarter 2010 revenues.

Sequentially, corporate costs decreased to $12.0 million, or 4.0% of revenues, in the second quarter of 2010, from $31.7 million, or 11.5% of revenues, in the first quarter of 2010. On an adjusted basis, which includes the ICT acquisition but excludes ICT acquisition-related costs (see Exhibit 6 for reconciliation), corporate costs declined to $9.7 million, or 3.2% of revenues, from $11.4 million, or 4.2% of revenues, in the first quarter of 2010. Excluding the ICT acquisition, corporate costs declined to $9.7 million, or 4.8% of revenues, from $11.4 million, or 5.4% of revenues, in the first quarter of 2010 due to a reduction in payroll related expenses.

Interest & Other Income and Taxes

Interest and other expense for the second quarter of 2010 totaled approximately $5.1 million compared to other income of $0.6 million for the same period in the prior year. Of the $5.7 million negative swing in interest and other expense, approximately $3.6 million was attributable to realized and unrealized foreign currency transaction losses which resulted primarily from U.S. dollar denominated assets and liabilities held by the Company’s international subsidiaries. Approximately $1.7 million of the swing was net interest expense due to a combination of higher interest expense and related underwriting fees associated with the acquisition-related term loan as well as lower average interest rates on lower cash balances. The remaining $0.4 million was other miscellaneous expenses.

The Company’s second quarter 2010 effective tax rate was 27.5% versus 8.1% in the same period last year and above the estimated 8% provided in the Company’s second quarter 2010 business outlook. The increase in the Company’s second quarter 2010 tax rate was due chiefly to a tax expense resulting from foreign exchange rate fluctuation between a stronger U.S. dollar and a weaker Euro on the planned cash repatriation of $85 million and the recording of a valuation allowance on foreign tax credits, more-than-offsetting the recognition of a tax benefit related to a favorable audit settlement. On an adjusted basis, second quarter 2010 tax rate was 30.4% versus 12.2% in the same period last year and above the estimated 13% provided in the Company’s second quarter 2010 business outlook. The increase in tax rate on an adjusted basis both relative to last year and the business outlook was due largely to the above-mentioned factors and a shift in the geographic mix of earnings to higher tax rate jurisdictions.

Earnings Per Diluted Share

The Company’s second quarter 2010 earnings per diluted share were $0.05 versus $0.35 in the comparable quarter last year and a range of $0.20 to $0.22 provided in the Company’s second quarter 2010 business outlook. The decrease in the Company’s second quarter 2010 earnings per share relative to the business outlook was due to foreign currency transaction and other expense net losses (approximately $0.09 per diluted share impact), lower-than-forecasted demand (approximately $0.06 earnings per share impact), and a higher-than-anticipated tax rate (approximately $0.01 earnings per share impact).

On an adjusted basis, second quarter 2010 diluted earnings per share was $0.14 versus a $0.41 per share in the comparable quarter last year, which excludes the impact of the impairment loss on KLA and SHPS, and versus the adjusted diluted earnings per share range of $0.28 to $0.32 provided in the Company’s second quarter 2010 business outlook. Assuming a forecasted tax rate of 13% as projected in the Company’s second quarter 2010 business outlook and assuming the projected net interest expense of approximately $1.0 million for the second quarter of 2010, the adjusted diluted earnings per diluted share would have been $0.25. The decrease in second quarter 2010 earnings per share was due principally to lower-than-forecasted client demand without a commensurate reduction in labor costs.

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 30th 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

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