Convergys Yields Best Quarterly Performance in Three Years
Convergys Corporation (NYSE: CVG), a global leader in providing customer care, human resources, and billing services, announced its financial results for the third quarter of 2006. The company had record quarterly revenue of $702.7 million, up 9 percent over the prior year, combined with 10 percent revenue growth in Customer Care with operating income up 12 percent.
Highlights
- Record Convergys quarterly revenue of $702.7 million, up 9 percent over prior year
- Convergys earnings of $0.32 per diluted share, up from $0.30 in the prior year
- 10 percent revenue growth in Customer Care with operating income up 12 percent
- Information Management revenues increased 3 percent on continued strength of international operations
- Employee Care revenue increased 25 percent with operating loss reduced 18 percent
- 2006 EPS guidance increased to $1.15
Revenues of $702.7 million were up 9 percent compared to the third quarter of 2005 reflecting growth from all three Convergys segments: Customer Care, Information Management, and Employee Care. Operating income increased 4 percent to $69.7 million compared with a strong performance in the prior year of $67.0 million. Revenue growth with existing clients, increased productivity, utilization, and efficiency contributed to the improvement in results. Net income increased 7 percent to $45.2 million, or $0.32 per diluted share, versus $42.4 million or $0.30 per diluted share in the prior year. Non-cash stock based compensation expense in the third quarter was $7.2 million, or $0.03 per diluted share, compared to $6.4 million in the prior year.
“I am pleased that Convergys’ continuing strong execution and organic growth have yielded our best quarterly performance in three years,” said Jim Orr, Chairman and Chief Executive of Convergys. “Continued revenue growth and operating improvements in Customer Care reflect strong client demand and our more intensive management of performance metrics. We also delivered strong growth in Information Management’s international operations and achieved solid progress in Employee Care. Our strong results combined with a healthy pipeline give us increased confidence in our prospects for continued revenue and earnings growth.”
Operating Performance by Segment
Customer Care
Customer Care revenues of $454.8 million were up 10 percent compared to prior year. Strong growth from several existing clients in the Communication, Financial Services, Technology, and Other verticals contributed to the revenue growth. Customer Care operating income and operating margin were $54.5 million and 12.0 percent, respectively, compared with $48.8 million and 11.8 percent in the prior year. The operating income improvement reflects both revenue growth and operational efficiencies. Increased costs of $8.5 million caused by the impact of a weakened U.S. dollar partially offset these items.
Information Management
Information Management revenues of $197.1 million were up 3 percent compared to prior year. Strong growth in international operations more than offset declines in North America. Information Management operating income of $31.3 million was down 9 percent compared to prior year. Operating income margin of 15.9 percent was down 220 basis points from the prior year. The decrease from last year was due to the timing of the recognition of revenue and costs related to several projects, and increased investment in new product development.
Employee Care
Employee Care revenues of $50.8 million were up 25 percent compared to $40.7 million in the same period last year. Revenue increased as a result of recent client implementations. Employee Care operating loss improved 18 percent to $8.6 million compared to an operating loss of $10.5 million in the prior year. Improvements resulted from cost reductions and on-going operating efficiencies.
Other Items
- The cellular partnerships contributed pre-tax equity earnings of $4.2 million during the quarter. This is down from $7.4 million during the same period last year.
- Cash flow from operating activities was $114.0 million. Free cash flow was $89.7 million compared to $58.6 million in the prior year.
- The increase in deferred charges in the quarter, net of amortization and deferred implementation revenue, was $19.0 million.
- During the third quarter, Convergys repurchased 1.2 million shares at a cost of $24.0 million and an average price of $19.29 per share. Total shares repurchased during the first nine months were 3.4 million at an average price of $18.74 per share.
Financial Guidance
- Convergys is increasing full year 2006 guidance and now expects EPS of $1.15 per share.
- Convergys remains comfortable with its previous guidance for 2007 EPS to exceed $1.20. Further updates to this annual guidance will be provided in 2007.
About Convergys
Convergys Corporation (NYSE: CVG) is a global leader in providing customer care, human resources, and billing services. Convergys combines specialized knowledge and expertise with solid execution to deliver outsourced solutions, consulting services, and software support. Clients in more than 70 countries speaking nearly 35 languages depend on Convergys to manage the increasing complexity and cost of caring for customers and employees. Convergys serves the world’s leading companies in many industries including communications, financial services, technology, and consumer products.
Convergys is a member of the S&P 500 and a Fortune Most Admired Company. Headquartered in Cincinnati, Ohio, Convergys has more than 65,000 employees in 75 customer contact centers, three data centers, and other facilities in the United States, Canada, Latin America, Europe, the Middle East, and Asia. For more information visit www.convergys.com (Outthinking, Outdoing and Infinys are trademarks and Convergys and the Convergys logo are registered trademarks of Convergys Corporation.)