Convergys Reports Third Quarter Results

CINCINNATI--(BUSINESS WIRE)-- Convergys Corporation (NYSE: CVG), a global leader in customer management, today announced its financial results for the third quarter of 2015.

Third Quarter Summary

• Revenue was $742 million, down 1 percent as reported and up 2 percent on a constant currency basis compared with the prior year;
• GAAP EPS from continuing operations of $0.55, compared with $0.28 in the prior year; adjusted EPS from continuing operations of $0.45, compared with $0.42 in the prior year;
• Adjusted free cash flow of $17 million;
• $28 million capital returned to shareholders via share repurchase and dividend.

“We delivered solid operating performance with constant currency revenue growth and strong new business signings,” said Andrea Ayers, president and CEO. “Volume increases with several existing and new clients offset volume fluctuations with a few clients in the third quarter. In support of new program ramps and recent client wins, we are investing in global infrastructure and agent training to drive excellence for our clients and deliver value for our shareholders. We are successfully executing our strategy for profitable growth and continue to expect revenue and earnings improvement for the full year. Based on our confidence in the business, we paid an eight-cent dividend and repurchased $20 million of our shares in the third quarter.”

Third Quarter Results – Continuing Operations

Revenue – Revenue was $742 million including $21 million adverse foreign currency impacts, a 1 percent decrease as reported and a 2 percent increase on a constant currency basis compared with $750 million in the same period last year.

Operating Income – GAAP operating income was $48 million, compared with $42 million in the same period last year. Excluding certain acquisition-related and other impacts discussed below, adjusted operating income was $62 million, compared with $63 million in the same period last year.

EBITDA – Adjusted EBITDA was $90 million, compared with $97 million in the same period last year. Adjusted EBITDA excludes certain acquisition-related and other impacts discussed below.

Tax Rate – The GAAP tax benefit of $17M includes tax items discussed in the acquisition-related and other impacts section below. On an adjusted basis, the effective tax rate of 16 percent was lower than expected due to benefits resulting from changes in the mix of income by jurisdictions.

Net Income – GAAP net income from continuing operations was $58 million, or $0.55 per diluted share, compared with $30 million, or $0.28 per share, in the same period last year. Excluding certain acquisition-related and other impacts discussed below, adjusted net income from continuing operations was $46 million, or $0.45 per diluted share, compared with $45 million, or $0.42 per diluted share, in the same period last year.

Share Repurchase – Convergys repurchased 0.9 million shares in the third quarter at a cost of $20 million.

Quarterly Dividend – Convergys paid a $0.08 per share quarterly dividend in October to holders of record at the close of business on September 18, 2015. The next dividend payment of $0.08 per share is scheduled to be made on January 8, 2016, to shareholders of record at the close of business on December 24, 2015.

Free Cash Flow – Adjusted free cash flow was $17 million, compared with $75 million in the same period last year. Adjusted free cash flow excludes Stream transaction-related cash payments of $4 million in the current quarter and net collection of $10 million in the same period last year.

Net Debt – At September 30, 2015, cash and short term investments were $188 million, debt maturing in one year was $4 million, and long term debt was $328 million. Net debt totaled $144 million at September 30, 2015, compared with $130 million at June 30, 2015, and $164 million at the end of the third quarter last year.

Acquisition-related and Other Impacts – GAAP third-quarter 2015 results include acquisition-related impacts consisting of $7 million amortization expense for acquired intangible assets, $5 million depreciation expense related to the fair value write-up of acquired property and equipment, $3 million Stream integration costs, a $17 million tax benefit from the reversal of a reserve related to a prior business acquisition, and a $4 million tax benefit due to an adjustment related to prior cash repatriation activities. Prior year third-quarter 2014 GAAP results included $7 million amortization expense for acquired intangible assets, and $6 million depreciation expense related to the fair value write-up of acquired property and equipment, $5 million Stream integration costs, and a $3 million non-cash pension settlement charge.

Reconciliation tables of GAAP to non-GAAP results are attached.

2015 Business Outlook

Convergys expectations for the remainder of the year include:

• Reported fourth-quarter 2015 revenue of $750 million to $760 million, including approximately $15 million negative impact of foreign exchange rates compared with 2014 rates;
• Fourth-quarter 2015 adjusted EBITDA of $98 million to $102 million;
• Fourth-quarter 2015 adjusted effective tax rate of approximately 23 percent;
• Diluted shares outstanding to approximate 104 million;
• Fourth-quarter adjusted EPS of $0.45 to $0.50.

Not included in this outlook are acquisition-related impacts such as integration costs, intangible amortization and depreciation related to the fair value write-up of acquired property and equipment, and tax expense associated with cash repatriation. Also not included are impacts from future currency movements, non-cash pension settlement charges, significant discrete tax adjustments or any future share repurchase activities.

Forward-Looking Statements Disclosure and "Safe Harbor" Note

This news release contains statements, estimates, or projections that constitute "forward-looking statements" as defined under U.S. federal securities laws. Forward looking statements may be identified by words such as "will," "expect," "estimate," "think," "forecast," "guidance, "outlook," "plan," "lead," "project" or other comparable terminology. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks include, but are not limited to: (i) the loss of a significant client or significant business from a client; (ii) the future financial performance of major industries that we serve; (iii) our failure to successfully acquire and integrate businesses; (iv) our inability to protect personally identifiable data against unauthorized access or unintended release; (v) our inability to maintain and upgrade our technology and network equipment in a timely and cost effective manner; (vi) international business and political risks, including economic weakness and operational disruption as a result of natural events, political unrest, war, terrorist attacks or other civil disruption; (vii) the effects of foreign currency exchange rate fluctuations; (viii) the failure to meet expectations regarding the tax treatment of acquired or divested businesses; (ix) adverse effects of litigation and other commitments and contingencies and (x) those factors contained in our periodic reports filed with the SEC, including in the "Risk Factors" section of our most recent Annual Report on Form 10-K. The forward-looking information in this document is given as of the date of the particular statement and we assume no duty to update this information. Our filings and other important information are also available on the investor relations page of our web site at www.convergys.com.

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. To assess the underlying operational performance of the continuing operations of the business for the quarter and to have a basis to compare underlying operating results to prior and future periods, management uses operating income, net income from continuing operations and diluted earnings per share from continuing operations metrics excluding certain unusual, non-operational or restructuring-related activities.

These items are relevant in evaluating the overall performance of the business. Limitations associated with the use of these 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 the non-GAAP measures, constant currency revenue growth, operating income, income from continuing operations, net of tax and diluted earnings per share from continuing operations excluding the items above, and the GAAP measures, revenue growth, operating income, income from continuing operations, net of tax and diluted earnings per share, in its evaluation of performance.

The Company presents the non-GAAP financial measure constant currency revenue growth because management uses this measure to assess underlying revenue trends by providing revenue growth between periods on a consistent basis. Revenue growth is adjusted based on a mathematical model that translates current period revenue in local currencies using the comparable prior year period’s currency exchange rates. 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.

Management uses the non-GAAP metrics 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 are useful to investors because they relate 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 and adjusted free cash flow provide an indication of the ongoing cash that is available for debt repayment, returning capital to shareholders and other opportunities. Management also believes the presentation of these measures enhances 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 utilizing the non-GAAP measures, free cash flow and adjusted free cash flow, and the GAAP measure, cash flow from operating activities, in its evaluation of performance.

There is no material purpose for which we use these non-GAAP measures beyond those described above. 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.

Webcast Presentation

Convergys will hold its Third Quarter 2015 Financial Results webcast at 9:00 a.m., Eastern time, Thursday, November 5. It will feature its President and CEO Andrea Ayers and CFO Andre Valentine. The webcast presentation will take place live and will then be available for replay at this link - http://tinyurl.com/3Q15ConferenceCall. This link will replay the webcast presentation through December 4. You may also access the webcast or the recording via the Convergys website, www.convergys.com. Click "Company," then "Investor Relations," then "Events and Webcasts."

About Convergys

Convergys delivers consistent, quality customer experiences in 58 languages and from more than 150 locations around the globe. We partner with our clients to improve customer loyalty, reduce costs, and generate revenue through an extensive portfolio of capabilities, including customer care, analytics, technical support, collections, home agent, and end-to-end selling. We are committed to delighting our clients and their customers, delivering value to our shareholders, and creating opportunities for our talented, caring employees, 125,000-strong in 31 countries around the world. Visit www.convergys.com to learn more about us.

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(Convergys and the Convergys logo are registered trademarks of Convergys Corporation).

View source version on businesswire.com: http://www.businesswire.com/news/home/20151104006486/en/

Convergys Corporation
David Stein, Investor Relations, +1-513-723-7768
[email protected]
or
Krista Boyle, Public/Media Relations, +1-513-723-2061
[email protected]

Source: Convergys Corporation

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