CINCINNATI--(BUSINESS WIRE)-- Convergys Corporation (NYSE:CVG - News), a global leader in relationship management, today announced its financial results for the fourth quarter of 2010, including sequential improvement in revenue in both Customer Management and Information Management, and year-over-year and sequential improvement in adjusted EBITDA and adjusted earnings. Fourth-quarter 2010 operating results include charges of $207 million primarily related to non-cash impairment of the Relationship Technology Management reporting unit within the Customer Management segment.
Fourth Quarter Summary
"During 2010, we made solid progress simplifying the business and improving operating performance in both Customer Management and Information Management," said Jeff Fox, president and CEO of Convergys. "As the charges in the quarter indicate, we took additional actions to streamline operations. As we enter 2011, our focus is on growing revenue and earnings while investing in the capabilities that our clients value. We expect to report higher revenue, EBITDA, and earnings in 2011 versus 2010."
Impairment and Other Charges – As discussed in the third-quarter 2010 Form 10-Q, during the fourth quarter of 2010 the company assessed business plans and evaluated intangible assets related to the Relationship Technology Management reporting unit within the Customer Management segment. Subsequent analysis determined that the estimated fair value of the Relationship Technology Management reporting unit, which is principally related to an acquisition that was completed in the second half of 2008, was less than its carrying value. Consequently, fourth-quarter 2010 results include net $179 million non-cash charges related to the Relationship Technology Management reporting unit within the Customer Management segment of: $166 million goodwill impairment and $15 million facilities impairment, reported in operating income; and $2 million benefit for reduction of a previously established reserve, reported in other income. Fourth-quarter 2010 operating results also include $19 million severance and facilities restructuring costs to further streamline the business and a $6 million non-cash pension settlement.
Reconciliation tables of GAAP to non-GAAP and adjusted EBITDA and adjusted free cash flow results are attached.
Revenue – Fourth-quarter 2010 revenue from continuing operations was $573 million, compared with $596 million in the same period last year.
Operating Income (Loss) – Fourth-quarter 2010 GAAP operating loss from continuing operations was $159 million, including $207 million impairment and other charges described above, compared with a loss of $6 million, including $45 million restructuring, HR Management-related, and asset impairment charges in the same period last year. On a non-GAAP basis, fourth-quarter 2010 operating income from continuing operations was $47 million, compared with $39 million in the same period last year.
Adjusted EBITDA – Adjusted EBITDA in the fourth quarter of 2010 was $81 million, compared with $71 million in the same period last year. This includes earnings from continuing operations before interest, taxes, depreciation, and amortization, and excludes the impairment and other charges described above, and restructuring and HR Management-related costs for the prior year.
Income (Loss) – Fourth-quarter 2010 GAAP loss from continuing operations was $147 million, or $1.20 per diluted share, including the impairment and other charges described above, compared with a loss of $3 million, or $0.02 per diluted share, in the same period last year. On a non-GAAP basis, fourth-quarter 2010 adjusted income from continuing operations was $39 million, or $0.31 per diluted share, compared with adjusted income of $27 million, or $0.22 per diluted share, in the same period last year.
Free Cash Flow – Fourth-quarter 2010 free cash flow was $17 million, compared with free cash flow of $68 million in the same period last year.
Net Debt – Net debt was $24 million at the end of the fourth quarter of 2010, compared with $37 million at September 30, 2010, and $138 million at the end of the fourth quarter of last year.
Fourth quarter Segment Performance
Customer Management – Fourth-quarter 2010 Customer Management revenue was $467 million, compared with $484 million in the same period last year. Fourth-quarter 2010 Customer Management operating loss was $152 million, including the Relationship Technology Management-related non-cash $181 million impairment charges and $7 million restructuring charges, compared with operating income of $23 million, including $4 million restructuring charges, in the same period last year. On a non-GAAP basis, fourth-quarter 2010 Customer Management operating income was $37 million and operating margin was 7.9 percent, compared with operating income of $28 million and operating margin of 5.7 percent in the same period last year.
Information Management – Fourth-quarter 2010 Information Management revenue was $98 million, compared with $112 million in the same period last year. Fourth-quarter 2010 Information Management operating income was $6 million, including $8 million restructuring charges, compared with operating loss of $11 million, including $28 million restructuring and impairment charges, in the same period last year. On a non-GAAP basis, fourth-quarter 2010 Information Management operating income was $14 million and operating margin was 13.9 percent, compared with operating income of $17 million and operating margin of 15.1 percent in the same period last year.
Corporate and Other – Fourth-quarter 2010 Corporate and Other operating results includes $9 million of revenue related to transition services provided after the sale of the HR Management business. Corporate and Other operating loss of $13 million in the fourth quarter of 2010 primarily reflects pension settlement, restructuring, and long-term incentive compensation costs.
2011 Business Outlook
Convergys expectations for the full year 2011 include:
Compared to historical performance, Convergys expects gradual year-over-year improvement in its quarterly performance.
Forward-Looking Statements Disclosure and "Safe Harbor" Note:
This news release contains forward-looking statements that reflect Convergys' expectations as of February 2, 2011. 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, asset impairments, non-operating reserve reduction, CEO transition costs and restructuring and pension settlement 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.
Webcast Presentation:
Convergys will hold its Fourth Quarter Financial Results webcast presentation at 10:00 A.M., Eastern Standard Time, Wednesday, February 2. 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://tinyurl.com/4cbwdbd The replay will be available through March 2.
About Convergys
Convergys Corporation (NYSE:CVG - News) 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 70,000 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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Contacts:
David Stein, Investor Relations
+1 513 723 7768 or investor@convergys.com
John Pratt, Public/Media Relations
+1 513 723 3333 or john.pratt@convergys.com
