(Cincinnati; November 8, 2010) – – – Convergys Corporation (NYSE: CVG):
- Revenue from continuing operations of $556 million;
- Adjusted EBITDA from continuing operations of $76 million;
- Non-GAAP EPS from continuing operations of $0.29; GAAP EPS from continuing operations of $0.28.
Convergys Corporation (NYSE: CVG), a global leader in relationship management, today announced its financial results for the third quarter of 2010. Revenue from continuing operations was $556 million. Adjusted EBITDA from continuing operations was $76 million. GAAP income from continuing operations was $35 million, or $0.28 per diluted share; non-GAAP income from continuing operations was $36 million, or $0.29 per diluted share. In the third quarter of 2010, adjusted free cash flow was $34 million.
“We made solid progress executing our plan with higher sequential revenue, EBITDA, and EPS in the quarter. We also had several contract wins with new and existing clients across both of our businesses,” said Jeff Fox, president and CEO of Convergys. “We are investing in our solution platforms and working hard to simplify our business. Our operating teams are focused on delivering more value to our clients which we believe will yield further revenue and profit improvements over time. In aggregate, we expect continued margin improvement in the fourth quarter.”
Reconciliation tables of GAAP to non-GAAP and adjusted EBITDA and adjusted free cash flow results are attached.
Revenue – Third-quarter 2010 revenue from continuing operations was $556 million, compared with $591 million in the same period last year.
Operating Income – Third-quarter 2010 GAAP operating income from continuing operations was $35 million, including expected $1 million CEO transition-related costs, compared with $27 million, including $17 million restructuring and HR Management-related charges in the same period last year. On a non-GAAP basis, third-quarter 2010 operating income from continuing operations was $36 million, compared with $44 million in the same period last year.
Adjusted EBITDA – Adjusted EBITDA in the third quarter of 2010 was $76 million, compared with $84 million in the same period last year. This includes earnings from continuing operations before interest, taxes, depreciation and amortization, and excludes CEO transition-related, restructuring, and HR Management-related costs.
Income – Third-quarter 2010 GAAP income from continuing operations was $35 million, or $0.28 per diluted share, compared with $30 million, or $0.24 per diluted share, in the same period last year. On a non-GAAP basis, third-quarter 2010 adjusted income from continuing operations was $36 million, or $0.29 per diluted share, compared with $41 million, or $0.32 per diluted share, in the same period last year.
Adjusted Free Cash Flow – Adjusted free cash flow, defined as cash from operating activities less capital expenditures and excluding $8 million expected CEO transition-related payments, was $34 million in the third quarter of 2010, compared with $4 million in the same period last year.
Share Repurchase – During the third quarter 2010, Convergys purchased 2.4 million shares for $25 million, or an average price of $10.15 per share. 4.6 million Convergys shares remained authorized for repurchase at September 30, 2010.
Net Debt – Net debt, defined as long-term debt and debt maturing in one year less cash and cash equivalents, was $37 million at the end of the third quarter of 2010, compared with $268 million at the end of the same period last year, and $36 million at June 30, 2010.
Third Quarter Segment Performance
Customer Management – Third-quarter 2010 Customer Management revenue was $463 million, compared with $492 million in the same period last year. Third-quarter 2010 Customer Management operating income was $31 million and operating margin was 6.8 percent, compared with operating income of $34 million, including $4 million restructuring charges, and operating margin of 6.8 percent, in the same period last year.
Information Management – Information Management revenue in the third quarter of 2010 was $82 million, compared with $99 million in the same period last year. Third-quarter 2010 operating income was $11 million and operating margin was 13.8 percent, compared with operating income of $3 million, including $6 million restructuring charges, and operating margin of 3.3 percent, in the same period last year.
Corporate and Other – Third-quarter 2010 Corporate and Other operating results includes $11 million of revenue related to transition services provided after the sale of the HR Management business. Corporate and Other operating loss of $8 million in the third quarter of 2010 reflects long-term incentive compensation and CEO transition-related costs.
For 2010, Convergys expectations for continuing operations are as follows:
- Customer Management revenue of $1.8 billion to $1.85 billion;
- Information Management revenue to approximate $350 million;
- Adjusted EBITDA to approximate $300 million;
- Non-GAAP EPS from continuing operations of $0.95 to $1.05.
Not included in full year 2010 guidance for continuing operations are HR Management-related impacts, including its sale, as well as the litigation reserve reduction, the President and CEO transition costs in the first and third quarter results, and the second quarter restructuring charges.
Convergys will continue to streamline operations and execute improvement plans that likely will require additional cost actions in the fourth quarter of 2010, which are not included in this guidance. Additionally, this guidance does not include expected pension settlements in the fourth quarter of 2010.
Forward-Looking Statements Disclosure and “Safe Harbor” Note:
This news release contains forward-looking statements that reflect Convergys’ expectations as of November 8, 2010. Actual results of Convergys could differ materially from those discussed herein. For us, particular uncertainties that could adversely or positively affect our future results include: the behavior of financial markets including fluctuations in interest or exchange rates; continued volatility and further deterioration of the capital markets; the impact of regulation and regulatory, investigative, and legal actions; strategic actions, including acquisitions and dispositions; future integration of acquired businesses; future financial performance of major industries which we serve; the loss of a significant client or significant business from a client; difficulties in completing a contract or implementing its provisions; and numerous other matters of national, regional, and global scale including those of the political, economic, business, and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. Please refer to Convergys’ most recent news releases and filings with the SEC for additional information including risk factors. We do not undertake to update our forward-looking statements as a result of new information or future events or developments.
Non-GAAP Financial Measures:
This news release contains non-GAAP financial measures as defined by the Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, reconciliations of these non-GAAP measures to their comparable GAAP measures are included in the attached financial tables.
Management uses free cash flow and adjusted free cash flow to assess the financial performance of the company. Convergys’ management believes that free cash flow and adjusted free cash flow is useful to investors because it relates the operating cash flow of the company to the capital that is spent to continue and improve business operations, such as investment in the company’s existing businesses. Further, free cash flow facilitates management’s ability to strengthen the company’s balance sheet, to repurchase the company’s stock, and to repay the company’s debt obligations. Management also believes the presentation of these measures will enhance the investors’ ability to analyze trends in the business and evaluate the Company’s underlying performance relative to other companies in the industry. Limitations associated with the use of free cash flow and adjusted free cash flow include that they do not represent the residual cash flow available for discretionary expenditures as they do not incorporate certain cash payments including payments made on capital lease obligations or cash payments for business acquisitions. Management compensates for these limitations by using both the non-GAAP measures, free cash flow and adjusted free cash flow, and the GAAP measure, cash from operating activities, in its evaluation of performance. There are no material purposes for which we use these non-GAAP measures beyond the purposes described above.
Management uses operating income, income from continuing operations, net of tax, net income and earnings per share data excluding the HR Management related impacts, litigation reserve reduction, CEO transition costs and restructuring charges to assess the current operational performance of the business for the year and to have a basis to compare results to prior and future periods. These charges and credits are relevant in evaluating the overall performance of the business. Limitations associated with the use of the non-GAAP measures include that these measures do not include all of the amounts associated with our results as determined in accordance with GAAP. Management compensates for these limitations by using both the non-GAAP measures, operating income, income from continuing operations, net of tax, net income and diluted earnings per share excluding the charges and credits, and the GAAP measure operating income, income from continuing operations, net of tax, net income and diluted earnings per share, in its evaluation of performance. There are no material purposes for which we use these non-GAAP measures beyond those described above.
The Company presents the non-GAAP financial measures EBITDA and Adjusted EBITDA because management uses these measures to monitor and evaluate the performance of the business and believes the presentation of these measures will enhance the investors’ ability to analyze trends in the business and evaluate the Company’s underlying performance relative to other companies in the industry.
These non-GAAP measures should be considered supplemental in nature and should not be considered in isolation or be construed as being more important than comparable GAAP measures. The non-GAAP financial information that we provide may be different from that provided by our competitors or other companies.
Convergys will hold its Third Quarter Financial Results webcast presentation at 8:30 A.M., Eastern Standard Time, Tuesday, November 9. It will feature President and CEO Jeff Fox and CFO Earl Shanks. The webcast presentation will take place live and will then be available for replay at this link – http://tiny.cc/1zpov The replay will be available through December 9.
Convergys Corporation (NYSE: CVG) is a global leader in relationship management. We provide solutions that drive more value from the relationships our clients have with their customers. Convergys turns these everyday interactions into a source of profit and strategic advantage for our clients.
For more than 30 years, our unique combination of domain expertise, operational excellence, and innovative technologies has delivered process improvement and actionable business insight to marquee clients all over the world.
Convergys has approximately 65,000 employees in 68 customer contact centers and other facilities in the United States, Canada, Latin America, Europe, the Middle East, and Asia, and our global headquarters in Cincinnati, Ohio. For more information, visit www.convergys.com
(Convergys and the Convergys logo are registered trademarks of Convergys Corporation.)
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