Convergys Reports Fourth Quarter Results
Raises Quarterly Dividend 20 Percent
Increases Share Repurchase Authorization to $250M
Guides Continued Revenue and Profit Improvement in 2013
The Company also announced that the Board of Directors approved raising its regular quarterly dividend 20 percent to $0.06 per share and increasing the authorization for share repurchase to $250 million in the aggregate.
Fourth Quarter Summary
Total revenue from continuing operations of $509 million, up two percent compared with prior year;
GAAP EPS from continuing operations of $0.27; adjusted EPS from continuing operations of $0.25, compared with $0.21 in the prior year;
Adjusted EBITDA from continuing operations of $62 million, up five percent compared with adjusted EBITDA in the prior year;
Repurchased 3.7 million Convergys shares for $59 million, or $16.05 per share;
$639 million cash and short term investments on balance sheet at quarter end;
2013 outlook includes continuing revenue and profit improvement with EPS growth to exceed 10 percent compared with 2012 adjusted results.
"We delivered our seventh consecutive quarter of revenue growth and profit improvement," said Andrea Ayers, president and CEO. "Entering 2013, we continue to execute our growth strategy and expect another year of performance improvement. We repurchased $59 million of our stock in the fourth quarter consistent with our disciplined capital deployment strategy. Our strong capital position and confidence in the future allows us to pursue strategic growth and return cash to investors. We are pleased to raise the quarterly dividend 20 percent and increase our share repurchase authorization to $250 million."
Fourth Quarter Results - Continuing Operations
Having completed the corporate simplification, the Company now reports results as a single segment.
Revenue - Revenue from continuing operations was $509 million, a two percent increase compared with $501 million in the same period last year. This included transition services revenue related to discontinued operations in both periods of $5 million and $1 million, respectively.
Operating Income - Adjusted operating income from continuing operations was $38 million, compared with $37 million in the same period last year. Including the Information Management sale impacts discussed below, GAAP operating income from continuing operations was $31 million in both periods.
EBITDA - Adjusted EBITDA was $62 million, compared with $59 million in the same period last year. Adjusted EBITDA excludes the Information Management sale impacts discussed below, and includes non-cash long-term compensation expense in both periods of $5 million and $4 million, respectively.
Net Income - Adjusted net income from continuing operations was $28 million, or $0.25 per diluted share, compared with $26 million, or $0.21 per diluted share, in the same period last year. Adjusted results exclude the Information Management sale impacts and tax benefit items discussed below and apply a normalized tax rate of 24 percent. GAAP net income from continuing operations was $30 million, or $0.27 per diluted share, compared with $39 million, or $0.33 per diluted share, in the same period last year.
Share Repurchase -Convergys repurchased 3.7 million shares in the fourth quarter at a cost of $59 million. For the full year 2012, the Company repurchased 12.3 million shares at a cost of $184 million, or $15.04 per share. The Board of Directors of the Company increased the current authorization to purchase outstanding shares to $250 million.
Quarterly Dividend -Convergys paid its regular quarterly dividend of $0.05 per share in January to holders of record at the close of business on December 21, 2012. The first raised dividend payment of $0.06 is scheduled to be made on April 5, 2013, to shareholders of record at the close of business on March 22, 2013.
Free Cash Flow - Free cash flow was a net use of $26 million, including $35 million for pension liability reduction and Information Management sale tax payments, compared with net cash inflows of $30 million, including approximately $15 million contribution from Information Management, in the same period last year.
Net Cash and Short Term Investments - At December 31, 2012, cash and short term investments were $639 million, debt maturing in one year was $1 million and long term debt was $60 million. Net cash and short term investments totaled $578 million at December 31, 2012, compared with $668 million at September 30, 2012, and $318 million at the end of the fourth quarter last year.
Information Management Sale Impacts and Certain Other Tax Items - GAAP fourth-quarter 2012 results from continuing operations include the expected $7 million non-cash pension plan settlement charge related to the Information Management business sold last year, and a $6 million tax benefit largely to reflect the mix of income by jurisdictions. GAAP fourth-quarter 2011 results include $6 million Information Management-related costs that did not qualify for presentation as discontinued operations and $17 million tax benefits from international transactions and certain discrete items.
Reconciliation tables of GAAP to non-GAAP results are attached.
2013 Business Outlook
Convergys expects continuing revenue growth and profit improvement for the full year 2013 compared with 2012 adjusted results, including:
Revenue to exceed $2,045 million, increasing from prior year $2,005 million;
Adjusted EBITDA to exceed $245 million, improving from prior year adjusted EBITDA of $240 million;
Effective tax rate to approximate 22 percent;
Diluted shares outstanding to approximate 112 million, compared with prior year average of 117 million shares;
Adjusted EPS to exceed $1.00, improving from prior year adjusted EPS of $0.91;
Free cash flow to approximate adjusted net income.
The Company expects second-half 2013 results to exceed first-half 2013 results.
Not included in this guidance is the impact of any future strategic acquisitions or share repurchase activities. Also not included in this guidance are results classified within discontinued operations, including the impact of the sale of the Information Management business as well as other costs that may be incurred related to, or as a result of, the transaction. Costs that may be incurred as a result of the transaction include an expected 2013 pension settlement charge.
To provide a relevant comparison of 2013 guidance with 2012 underlying performance from continuing operations, a table is attached that reconciles 2012 GAAP results to 2012 non-GAAP and adjusted EBITDA, excluding Information Management business sale impacts and certain other tax items.
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. In some cases, one can identify forward looking statements by terminology 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 inability to protect personally identifiable data against unauthorized access or unintended release; (iv) our inability to maintain and upgrade our technology and network equipment in a timely manner; (v) 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; (vi) the failure to meet expectations regarding the tax treatment of the Information Management transaction; (vii) higher than expected costs of providing transition services and other support to the Information Management business and (viii) 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 and Quarterly Report on Form 10-Q. 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 2012 operating income, net income from continuing operations and diluted earnings per share from continuing operations metrics excluding asset impairment charges, corporate restructuring costs, certain Information Management-related costs, interest expense for debt reduction, net non-cash post-employment benefit plan charges, and tax benefits from certain discrete and other adjustments, and 2011 operating income excluding the Information Management-related costs as well as net income from continuing operations and diluted earnings per share from continuing operations also excluding contributions from the Company's investments in the Cellular Partnerships, including the gain on the sale of our interests in these investments, the gain on the sale of the Finance and Accounting Outsourcing line of business and tax benefits from certain international transactions and discrete items.
These charges 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, operating income, income from continuing operations, net of tax and diluted earnings per share excluding the items above, and the GAAP measures, operating income, income from continuing operations, net of tax and diluted earnings per share, in its evaluation of performance. There is no material purpose for which we use these non-GAAP measures beyond those described above.
The Company presents the non-GAAP financial measure Adjusted EBITDA because management uses this measure 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 free cash flow to assess the financial performance of the Company. Convergys' management believes that 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 this measure 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 include that it does not represent the residual cash flow available for discretionary expenditures as it does 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 measure, 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 the purposes 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.
Convergys will hold its Fourth Quarter Financial Results webcast presentation at 10:00 a.m., Eastern time, Thursday, February 7. 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/4Q12ConferenceCall. This link will replay the webcast presentation through March 7. 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."
As a leader in customer management for over 30 years, Convergys Corporation (NYS: CVG) is uniquely focused on helping companies find new ways to enhance the value of their customer relationships and deliver consistent customer experiences across all channels and geographies. Every day, our nearly 75,000 employees help our clients balance the demands of increasing revenue, improving customer satisfaction, and reducing overall cost using an optimal mix of agent, technology, and analytics solutions. Our actionable insight stems from handling billions of customer interactions annually for our clients. Visit www.convergys.com to learn more.
(Convergys and the Convergys logo are registered trademarks of Convergys Corporation.)
David Stein, Investor Relations
+1 513 723 7768 or firstname.lastname@example.org
Krista Boyle, Public/Media Relations
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Consolidated Statements of Income
For the Three Months
For the Twelve Months
Ended Dec 31,
Ended Dec 31,
(In millions except per share amounts)
Costs and Expenses:
Cost of Providing Services and Products Sold
Selling, General and Administrative
Research and Development Costs
Total Costs and Expenses
Earnings and gain from Cellular Partnerships, net
Other Income, net
Income Before Income Taxes and Discontinued Operations
Income Tax (Benefit) Expense
Income from Continuing Operations, net of tax
Income from Discontinued Operations, net of tax (benefit) expense of ($0.5) and $10.1 for the three months ended December 31, 2012 and 2011, respectively, and $51.1 and $12.4 for the twelve months ended December 31, 2012 and 2011, respectively
Basic Earnings Per Common Share
Net Basic Earnings Per Common Share
Diluted Earnings Per Common Share
Net Diluted Earnings Per Common Share
Weighted Average Common Shares Outstanding