Convergys Corporation Reports Record Quarterly
Revenues and Operating Income
Business Wire - January 28, 1999 08:19
CINCINNATI--(BUSINESS WIRE)--Jan. 28, 1999--
-- Revenues increase 54 percent in fourth quarter
-- Operating income, excluding special charges, rises 37 percent in
fourth quarter
-- Diluted earnings per share $0.22
Convergys Corporation (NYSE:CVG) today reported record earnings for the fourth quarter ended
December 31, 1998. "The fourth quarter marks Convergys' first full quarter as a publicly traded
company. Our results in the fourth quarter and for the entire year reflect growth in outsourcing by
leading companies which have resulted in major contract wins for both our Customer Management and
Information Management groups," stated Jim Orr, president and chief executive officer of Convergys.
"Our ability to capitalize on the growth in our industry through successfully integrating the first quarter
acquisitions of AT&T Solutions Customer Care (Transtech) and the teleservices operations of Maritz,
reducing costs in our operations, and ultimately expanding our solution offerings has positively
impacted the bottom-line and translated into value for our shareholders."
Specific fourth-quarter 1998 results include:
-- Revenues increased 54 percent to $404.7 million from $262.5
million in the fourth quarter of 1997. Two first-quarter
acquisitions, Transtech and the teleservices operations of
Maritz, contributed $118.6 million to the revenue increase in the
fourth quarter. Excluding these acquisitions, revenues increased
9 percent.
-- Operating income increased 37 percent to $53.8 million, up from
$39.3 million excluding special charges in 1997. Operating
margins improved for the third consecutive quarter to
13.3 percent. This trend reflects the successful integration of
newly acquired operations as well as costs savings from
restructuring actions in the core customer management business.
-- Net income increased 21 percent to $34.1 million, compared to
$28.2 million excluding special charges in 1997. Diluted earnings
per share increased to $0.22, up 5 percent over the same period
last year, and 22 percent over last quarter. Results for the
quarter include $9.7 million equity income from an investment in
a cellular partnership, or $0.04 per share, compared to
$3.7 million, or $0.02 per share, last year.
-- Results for the fourth quarter 1998 compared with the fourth
quarter of 1997 reflect a $6 million, or $0.02 per share,
increase in amortization of goodwill and other intangibles, and
approximately $9 million, or $0.04 per share in additional
interest expense related to the acquisitions. Additionally,
fourth quarter Year 2000 compliance spending grew to
$8.4 million, or $0.03 per share, from $4.5 million, or $0.02 per
share last year.
-- In the fourth quarter last year, a restructuring charge in the
customer management business reduced operating income by
$35 million and net income by $23 million, or $0.17 per share.
Specific twelve-month results include:
-- For the first time in the company's history, revenues exceeded a
billion dollars, increasing 47 percent to $1.45 billion.
Acquisitions contributed $379.2 million to the increase.
-- Including a first quarter 1998 special item, operating income,
net income, and diluted earnings per share were $139.9 million,
$81.0 million, and $0.57, respectively.
-- Excluding special items in both years, operating income increased
22 percent to $182.5 million, net income declined 2 percent to
$107.4 million, and diluted earnings per share declined 6 percent
to $0.75. The declines in net income and diluted earnings per
share reflect additional interest and amortization expenses
associated with the acquisitions.
-- The Transtech and Maritz acquisitions added $20 million, or
$.09 per share, in goodwill and other intangible asset
amortization and $30 million, or $0.13 per share, in interest
expense.
-- Results for the twelve months also include $29.1 million, or
$0.13 per share, in Year 2000 compliance spending compared to
$9.9 million, or $0.04 per share, for 1997. The cellular
partnership contributed $15.6 million after-tax income, or
$0.11 per share, up $6.5 million, or $0.05 per share, over 1997.
Information Management Group
Excluding intercompany sales, fourth quarter 1998 revenues for Convergys' Information Management
Group increased 8 percent to $155 million in part due to a new Media One contract. Operating
income for the Group grew 17 percent to $33.0 million, despite a slight increase in Year 2000
compliance spending.
The Information Management Group won new licensed billing contracts in the fourth quarter including
Media One, Birmingham Cable, a leading cable provider in the United Kingdom, Mid-Continent
Cable, Sky Network Television in New Zealand, and Southwestern Bell Video.
In October, after an extensive search and evaluation process, United States Satellite Broadcasting
Company (USSB) selected Convergys' Information Management Group to provide outsourced billing
solutions and subscriber management. During the formation of the commitment, it was understood that
USSB could be sold at some point. As a result of this potential change of ownership, an agreement
was reached to include an early termination provision in the USSB contract. This provision, unique to
the USSB contract, entitled Convergys to a progressively higher payment over time if the contract was
terminated early. In December 1998, DirecTV announced its intention to acquire USSB. As a result, in
January 1999, USSB terminated its contract with Convergys and paid a $10 million early termination
penalty.
Separately, Convergys' Customer Management Group continues to provide customer service for
DirecTV.
Customer Management Group
Convergys' Customer Management Group reported revenues of $249 million in the fourth quarter
1998, an increase of 111 percent. Revenues for the Group grew by 11 percent, excluding the
Transtech and Maritz acquisitions. The balance of the growth came from strong performance in other
dedicated business and international. Revenues from AT&T for services previously provided by
Transtech were $75 million for the quarter compared to $65 million in the third quarter of 1998.
Excluding 1997 special items, 1998 operating income increased by more than 106 percent, to $22.7
million. This reflects income from the Transtech and Maritz acquisitions, cost reductions associated
with last year's restructuring plan, and a recovery from the downturn that affected the customer
management industry during the second half of 1997. The growth in operating income was achieved
despite $3.0 million higher spending on Year 2000 compliance.
Continued progress on integrating Transtech and Maritz helped operating margin improve to 9.1
percent in the fourth quarter from 7.4 percent in the third quarter, and 6.3 percent in the second
quarter of 1998.
The Customer Management Group won or extended contracts in the fourth quarter including Compaq
Computer for telebusiness services in Europe, Lucent Technologies for business to business telephone
sales, and Telecorp PCS to perform outsourced customer care services.
"We are excited and gratified with the successful completion of our spin-off and look forward to facing
the challenges and opportunities presented to us as a public company in a rapidly changing
environment. Our two business groups are using innovative state-of-the art solutions that leverage
customer knowledge enabling clients to increase the value of their customer relationships and obtain a
competitive advantage," said Orr. "In addition, in the fourth quarter, we also expanded our strategic
focus by forming a relationship which utilizes software developed by SPL WorldGroup to launch a
utilities billing and customer management outsourcing business which will capitalize on the opportunities
provided by deregulation and expansion in that industry."
Tax-free Spin-off From Cincinnati Bell
On December 31, 1998, Cincinnati Bell completed the spin-off of its interest in the remaining 90
percent of Convergys' common shares.
About Convergys Corporation
Convergys Corporation is a leader in providing outsourced, integrated, customer care and billing
services, bringing together a broad range of resources and expertise to help clients transform customer
relationships into a competitive advantage.
Convergys software produces more than one million bills each day and Convergys customer service
representatives handle more than one million calls each day.
Convergys serves the top companies in a wide range of industries, including communications,
technology, cable and broadband services, consumer products, financial services, utilities, healthcare,
hospitality, and direct response. Headquartered in Cincinnati, Ohio, Convergys employs about 31,000
people at its more than 38 call centers, data centers, and other offices in the United States, Canada,
and Europe.
Additional information on Convergys is available at convergys.com
NOTE:
Information included in this news release contains forward-looking statements that involve potential
risks for Convergys Corporation. The future results of Convergys could differ materially from those
discussed herein. Factors that could cause or contribute to such differences include, but are not limited
to, the loss of a significant client, difficulties in completing or integrating acquisitions, Year 2000
compliance, and other factors disclosed in the S-1 registration statement and Form 10-Q for the
quarter ended September 30, 1998, filed with the SEC by Convergys Corporation.
CONVERGYS CORPORATION
Revenues, Net Income and Earnings Per Common Share
In Millions Except Per Share Amounts
(Unaudited)
Fourth Quarter
Change
1998 1997 Amount %
Revenues:
- Information Mgmt. Grp. $164.1 $146.3 $ 17.8 12
- Customer Mgmt. Group 249.5 118.2 131.3 111
- Eliminations & Other (8.9) (2.0) (6.9) -
------- ------- ------- ---
--Total $404.7 $262.5 $142.2 54
Operating Income:
- Information Mgmt. Grp. $ 33.0 $ 28.3 $ 4.7 17
- Customer Mgmt. Group 22.7 (24.0)(b) 46.7 -
- Eliminations & Other (1.9) - (1.9) -
------- ------- ------- ---
--Total $ 53.8 $ 4.3 $ 49.5 -
Net Income $ 34.1 $ 5.2 $ 28.9 -
Earnings Per Common Share (c)
- Basic $0.22 $0.04(b) $ 0.18 -
- Diluted $0.22 $0.04(b) $ 0.18 -
Weighted Average Common Shares Outstanding (millions) (c)
- Basic 152.0 137.0 15.0
- Diluted 152.6 137.0 15.6
Twelve Months
Change
1998 1997 Amount %
Revenues:
- Information Mgmt. Grp. $ 602.0 $ 548.0 $ 54.0 10
- Customer Mgmt. Group 869.9 447.6 422.3 94
- Eliminations & Other (24.7) (8.1) (16.6) -
------- ------- ------- ---
--Total $1447.2 $ 987.5 $459.7 47
Operating Income:
- Information Mgmt. Grp. $ 116.5 $ 104.7 $ 11.8 11
- Customer Mgmt. Group 25.6(a) 9.4(b) 16.2 172
- Eliminations & Other (2.2) - (2.2) -
------- ------- ------- ---
--Total $ 139.9 $ 114.1 $ 25.8 23
Net Income $ 81.0 $ 86.6 $ (5.6) (6)
Earnings Per Common Share (c)
- Basic $0.57(a) $0.63(b) $(0.06) (10)
- Diluted $0.57(a) $0.63(b) $(0.06) (10)
Weighted Average Common Shares Outstanding (millions) (c)
- Basic 142.7 137.0 5.7
- Diluted 142.9 137.0 5.9
(a) Includes $42.6 million in acquired research and development costs
which decreased net income by $26.4 million or $.18 per diluted common
share.
(b) Includes a $35.0 million restructure charge at the Customer
Management Group which decreased net income by $23.0 million or
$.17 per diluted share.
(c) Effective August 4, 1998, the Company approved a share split,
which increased the number of then outstanding common shares to
137.0 million. On August 13, 1998, the Company issued an additional
14,950,000 common shares to the public in an initial public offering.
Basic and diluted earnings per share for all periods prior to
August 13, 1998 have been calculated using the 137.0 common share
total.
Convergys Corporation
Consolidated Statements of Income
In Millions Except Per Share Amounts
(Unaudited)
For the Three Months For the Twelve Months
Ended Dec. 31, % Ended Dec. 31, %
1998 1997 Chg. 1998 1997 Chg.
Revenues:
Information Mgmt. Grp.
Info. Processing $ 91.6 $ 87.2 5 $358.5 $326.0 10
Prof. & Consulting 34.1 33.4 2 137.8 130.1 6
License & Other 19.5 11.9 64 39.3 31.5 25
International 10.0 11.8 (15) 41.8 52.5 (20)
----- ------ -- ----- ----- --
External Revenues 155.2 144.3 8 577.4 540.1 7
Interco. Svcs. for CMG 8.9 2.0 - 24.6 7.9 -
----- ------ -- ----- ----- --
Total IMG Revenues 164.1 146.3 12 602.0 548.0 10
Customer Management Grp.
Dedicated Services 190.7 66.0 - 651.0 247.9 -
Traditional Services 45.3 43.9 3 181.2 170.4 6
International 13.5 8.3 63 37.7 29.3 29
----- ------ -- ----- ----- --
Total CMG Revenues 249.5 118.2 111 869.9 447.6 94
Eliminations & Other (8.9) (2.0) - (24.7) (8.1) -
----- ------ -- ----- ----- --
Total Revenues 404.7 262.5 54 1447.2 987.5 47
Costs & Expenses:
Cost of Providing
Services & Products Sold 228.9 140.7 63 826.4 540.2 53
Selling, General & Admin. 65.7 41.6 58 226.0 158.7 42
Research & Development 19.1 19.7 (3) 81.9 68.6 19
Deprec. & Amortization 28.8 16.7 72 101.3 61.0 66
Year 2000 Programming 8.4 4.5 87 29.1 9.9 -
Purchased R&D Costs - - - 42.6 - -
Special Charges (Credits) - 35.0 - - 35.0 -
----- ----- -- ----- ----- --
Total Costs and Expenses 350.9 258.2 36 1307.3 873.4 50
Operating Income 53.8 4.3 - 139.9 114.1 23
Equity in Earnings of
Cellular Partnership 9.7 3.7 - 25.1 14.7 71
Other Income(Expense), Net (1.0) 1.6 - (.5) 7.2 -
Interest Expense 7.2 1.7 - 33.9 5.4 -
----- ----- -- ----- ----- --
Income Before Income Taxes 55.3 7.9 - 130.6 130.6 -
Income Taxes 21.2 2.7 - 49.6 44.0 13
----- ------ -- ----- ----- --
Net Income $ 34.1 $ 5.2 - $ 81.0 $ 86.6 (6)
----- ------ -- ----- ----- --
----- ------ -- ----- ----- --
Earnings Per Common Share (a)
-Basic $ 0.22 $ 0.04 - $ 0.57 $ 0.63 (10)
-Diluted $ 0.22 $ 0.04 - $ 0.57 $ 0.63 (10)
Weighted Average Common Shares Outstanding (millions) (a)
-Basic 152.0 137.0 142.7 137.0
-Diluted 152.6 137.0 142.9 137.0
Other Data
Operating Margin (b) 13.3% 15.0% 12.6% 15.1%
Market Price Per Share
High $ 23.750 $ - $ 23.750 $ -
Low $ 9.625 $ - $ 9.625 $ -
Close $ 22.375 $ - $ 22.375 $ -
(a) Effective August 4, 1998, the Company approved a share split,
which increased the number of then outstanding common shares to
137.0 million. On August 13, 1998, the Company issued an
additional 14.9 million common shares to the public in an initial
public offering. Basic and diluted earnings per share for all
periods prior to August 13, 1998 have been calculated using the
137.0 million common share total.
(b) Excludes purchased research and development costs of $42.6 million
resulting from the Transtech acquisition for the year ended
December 31, 1998 and restructuring costs of $35.0 million for
both the three months and year ended December 31, 1997.
Convergys Corporation
Consolidated Balance Sheets
In Millions
(Unaudited)
Dec. 31, Dec. 31,
1998 1997
Assets
Cash and Cash Equivalents $ 3.8 $ 2.1
Receivables - Net 314.3 222.9
Other Current Assets 42.4 40.8
Property, Plant & Equipment-Net 249.8 130.0
Other Assets 840.6 258.6
Total Assets $ 1450.9 $ 654.4
Liabilities and Shareowners' Equity
Debt Maturing in One Year $ 466.8 $ 59.1
Other Current Liabilities 231.1 157.5
Long-Term Debt 0.2 1.2
Deferred Credits, Other Liabilities 21.3 5.8
Common Shareowners' Equity 731.5 430.8
Total Liabilities
& Shareowners' Equity $ 1450.9 $ 654.4
CONTACT: Investors -
Convergys Corporation
Steve Rolls, 513/723-3440
Ron Harris, 513/723-2449 or 888/284-9900
or
Media -
Convergys Corporation
John Pratt, 513/723-3333 or 888-284-9900
or
Edelman PR, Financial
Whit Clay, 212/704-4559 |
