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Convergys Corporation Announces Third Quarter Results

By Hans Lewis
TMCnet Contributor

Convergys (News - Alert) Corporation, a global leader in relationship management announced its financial results for the third quarter of 2010.

Jeff Fox, president and CEO of Convergys said, “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. 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.”

Third-quarter 2010 revenue from continuing operations was $556 million, compared with $591 million in the same period last year.

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 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.

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, 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.

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, 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 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 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.

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

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