[November 05, 2014] |
|
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 2014.
Third Quarter Summary
-
Revenue of $750 million, up 44 percent compared with prior year;
-
Adjusted operating income of $63 million, up 69 percent compared with
prior year; GAAP operating income of $42 million, up 34 percent
compared with prior year;
-
Adjusted EBITDA of $97 million, up 55 percent compared with prior year;
-
Adjusted EPS from continuing operations of $0.42, compared with $0.30
in the prior year; GAAP EPS from continuing operations of $0.28,
compared with $0.26 in the prior year;
-
Adjusted free cash flow of $75 million;
-
Returned $22 million to shareholders via dividend and share repurchase;
-
Updated 2014 business outlook includes raised guidance for adjusted
EPS.
"We made good progress executing our plan in the third quarter with
higher revenue, operating income, EBITDA and EPS," said Andrea Ayers,
president and CEO. "The Stream integration continued to go smoothly as
we realized the anticipated contributions to revenue and profitability,
and now expect synergies to exceed our original plan. We also had
several new business wins during the quarter across the vertical markets
we serve. Our clients seek strategic partners with global scale,
comprehensive service capabilities and quality delivery to improve the
customer experience which plays to our competitive strengths."
Ayers continued, "Based on our strong cash flow generation, commitment
to capital return and confidence in the business, we paid our $7 million
dividend, repurchased $15 million of stock and are raising our EPS
guidance for the full year."
Third Quarter Results - Continuing Operations
Revenue - Revenue was $750 million, a 44 percent increase
compared with $521 million in the same period last year. The increase in
revenue included $247 million from the Stream acquisition.
Operating Income - Adjusted operating income was $63 million, a
69 percent increase compared with $38 million in the same period last
year. Including acquisition and other impacts discussed below, GAAP
operating income from continuing operations was $42 million, a 34
percent increase compared with $31 million in the same period last year.
Adjusted operating income margin was 8.4 percent, up 120 basis points
compared with 7.2 percent in the same period last year.
Adjusted EBITDA - Adjusted EBITDA was $97 million, a 55 percent
increase compared with $62 million in the same period last year.
Adjusted EBITDA excludes acquisition and other impacts discussed below.
Adjusted EBITDA margin was 12.9 percent, up 100 basis points compared
with 11.9 percent in the same period last year.
Net Income - Adjusted net income from continuing operations was
$45 million, or $0.42 per diluted share, compared with $32 million, or
$0.30 per diluted share, in the same period last year. Including
acquisition and other impacts discussed below, GAAP net income from
continuing operations was $30 million, or $0.28 per diluted share,
compared with $28 million, or $0.26 per diluted share, in the same
period last year.
Share Repurchase - Convergys repurchased 0.8 million shares in
the third quarter at a cost of $15 million. To date in the fourth
quarter the Company has repurchased 0.4 million shares at a cost of $7
million. The remaining authorization to purchase outstanding shares is
$100 million.
Quarterly Dividend - Convergys paid a $0.07 per share quarterly
dividend in October to holders of record at the close of business on
September 19, 2014. The next dividend payment of $0.07 per share is
scheduled to be made on January 9, 2015, to shareholders of record at
the close of business on December 26, 2014.
Free Cash Flow - Adjusted free cash flow was $75 million,
excluding the following acquisition-related items: collection of $15
million resulting from final working capital settlement and cash
payments of $5 million resulting from integration activities. This
compared with free cash flow of $60 million in the same period last year.
Net Debt - At September 30, 2014, cash and short term investments
were $249 million, debt maturing in one year was $9 million, and long
term debt was $404 million. Net debt totaled $164 million at September
30, 2014, compared with $229 million at June 30, 2014, and net cash and
short term investments of $591 million at the end of the third quarter
last year.
Acquisition and Other Impacts - GAAP third-quarter 2014 results
include acquisition-related impacts consisting of $7 million
amortization expense for acquired intangible assets, $6 million
depreciation expense related to the fair value write-up of acquired
property and equipment and $5 million integration expenses.
Third-quarter 2014 GAAP results also include a $3 million non-cash
pension settlement charge. Prior year third-quarter 2013 GAAP results
included $5 million corporate simplification impacts and $1 million
intangible amortization.
Reconciliation tables of GAAP to non-GAAP results are attached.
2014 Business Outlook
Based on the Company's year-to-date performance and outlook for the
fourth quarter Convergys now expects:
-
Revenue to approximate $2.85 billion;
-
Adjusted EBITDA to approximate $355 million;
-
Adjusted effective tax rate to approximate 23 percent;
-
Diluted shares outstanding to approximate 106 million;
-
Adjusted EPS to approximate $1.52.
Not included in this outlook are acquisition-related impacts such as
transaction costs, 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 prior real estate transactions, non-cash
pension settlement charges 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. 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 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
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 failure to meet expectations regarding the tax
treatment of acquired or divested businesses; (viii) adverse effects of
litigation and other commitments and contingencies and (ix) 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 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,
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, 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 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 facilitate
management's ability to strengthen the Company's balance sheet, to
repurchase the Company's stock, to pay dividends, 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 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 are no material purposes 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.
Webcast Presentation
Convergys will hold its Third Quarter Financial Results webcast
presentation at 9:00 a.m., Eastern time, Thursday, November 6. 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/3Q2014ConferenceCall.
This link will replay the webcast presentation through December 5. 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 47
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, tech 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.
Supporting Resources
Follow us on Twitter
and Facebook.
(Convergys and the Convergys logo are registered trademarks of Convergys
Corporation).
CONVERGYS CORPORATION
|
Consolidated Statements of Income
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Nine Months
|
|
|
|
|
|
|
|
Ended September 30,
|
|
%
|
|
Ended September 30,
|
|
%
|
(In millions except per share amounts)
|
|
2014
|
|
2013
|
|
Change
|
|
2014
|
|
2013
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
424.2
|
|
|
|
314.4
|
|
|
35
|
|
|
1,173.2
|
|
|
|
908.3
|
|
|
29
|
|
Technology
|
|
|
144.9
|
|
|
|
52.2
|
|
|
NM
|
|
|
377.2
|
|
|
|
144.4
|
|
|
NM
|
|
Financial Services
|
|
|
49.4
|
|
|
|
43.0
|
|
|
15
|
|
|
151.2
|
|
|
|
134.6
|
|
|
12
|
|
Other
|
|
|
131.0
|
|
|
|
111.4
|
|
|
18
|
|
|
390.0
|
|
|
|
331.5
|
|
|
18
|
|
|
Total Revenues
|
|
$
|
749.5
|
|
|
$
|
521.0
|
|
|
44
|
|
$
|
2,091.6
|
|
|
$
|
1,518.8
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Providing Services and Products Sold
|
|
|
476.1
|
|
|
|
341.0
|
|
|
40
|
|
|
1,327.4
|
|
|
|
986.5
|
|
|
35
|
|
Selling, General and Administrative
|
|
|
177.5
|
|
|
|
118.4
|
|
|
50
|
|
|
499.1
|
|
|
|
352.9
|
|
|
41
|
|
Research and Development Costs
|
|
|
1.9
|
|
|
|
2.0
|
|
|
(5)
|
|
|
5.7
|
|
|
|
6.3
|
|
|
(10)
|
|
Depreciation
|
|
|
38.8
|
|
|
|
22.2
|
|
|
75
|
|
|
104.8
|
|
|
|
64.3
|
|
|
63
|
|
Amortization
|
|
|
7.3
|
|
|
|
1.4
|
|
|
NM
|
|
|
17.6
|
|
|
|
4.0
|
|
|
NM
|
|
Restructuring Charges
|
|
|
0.5
|
|
|
|
4.3
|
|
|
(88)
|
|
|
2.2
|
|
|
|
5.4
|
|
|
(59)
|
|
Loss (gain) on sale of real estate
|
|
|
-
|
|
|
|
0.4
|
|
|
(100)
|
|
|
(1.6
|
)
|
|
|
1.5
|
|
|
NM
|
|
Transaction and Integration Costs
|
|
|
5.4
|
|
|
|
-
|
|
|
NM
|
|
|
35.5
|
|
|
|
-
|
|
|
NM
|
|
|
Total Costs and Expenses
|
|
|
707.5
|
|
|
|
489.7
|
|
|
44
|
|
|
1,990.7
|
|
|
|
1,420.9
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
42.0
|
|
|
|
31.3
|
|
|
34
|
|
|
100.9
|
|
|
|
97.9
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), net
|
|
|
0.3
|
|
|
|
2.5
|
|
|
(88)
|
|
|
(1.6
|
)
|
|
|
4.8
|
|
|
NM
|
Interest Expense
|
|
|
(5.9
|
)
|
|
|
(2.9
|
)
|
|
NM
|
|
|
(15.6
|
)
|
|
|
(8.7
|
)
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes and Discontinued Operations
|
|
|
36.4
|
|
|
|
30.9
|
|
|
18
|
|
|
83.7
|
|
|
|
94.0
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
|
6.4
|
|
|
|
2.7
|
|
|
NM
|
|
|
15.2
|
|
|
|
13.6
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations, net of tax
|
|
|
30.0
|
|
|
|
28.2
|
|
|
6
|
|
|
68.5
|
|
|
|
80.4
|
|
|
(15)
|
|
Income from Discontinued Operations, net of tax benefit of $2.8 and
$4.6, for the three months ended September 30, 2014 and 2013,
respectively and $2.7 and $8.6 for the nine months ended September
30, 2014 and 2013, respectively.
|
|
|
2.8
|
|
|
|
5.7
|
|
|
(51)
|
|
|
3.2
|
|
|
|
2.0
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
32.8
|
|
|
$
|
33.9
|
|
|
(3)
|
|
$
|
71.7
|
|
|
$
|
82.4
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
0.30
|
|
|
$
|
0.27
|
|
|
|
|
$
|
0.68
|
|
|
$
|
0.77
|
|
|
|
|
Discontinued Operations
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
|
|
Net Basic Earnings Per Common Share
|
|
$
|
0.33
|
|
|
$
|
0.33
|
|
|
|
|
$
|
0.71
|
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
0.28
|
|
|
$
|
0.26
|
|
|
|
|
$
|
0.65
|
|
|
$
|
0.74
|
|
|
|
|
Discontinued Operations
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
|
|
Net Diluted Earnings Per Common Share
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
|
|
|
$
|
0.68
|
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
100.7
|
|
|
|
103.0
|
|
|
|
|
|
101.0
|
|
|
|
104.1
|
|
|
|
|
Diluted
|
|
|
105.2
|
|
|
|
107.9
|
|
|
|
|
|
105.7
|
|
|
|
109.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
21.96
|
|
|
$
|
19.91
|
|
|
|
|
$
|
24.43
|
|
|
$
|
19.91
|
|
|
|
|
Low
|
|
$
|
17.69
|
|
|
$
|
17.16
|
|
|
|
|
$
|
17.69
|
|
|
$
|
15.05
|
|
|
|
|
Close
|
|
$
|
17.82
|
|
|
$
|
18.75
|
|
|
|
|
$
|
17.82
|
|
|
$
|
18.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERGYS CORPORATION
|
Reconciliation of GAAP EPS from Continuing Operations to non-GAAP
EPS from Continuing Operations
|
(In Millions Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended September 30,
|
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
Revenue
|
|
$
|
749.5
|
|
|
$
|
521.0
|
|
|
|
|
|
|
|
Operating income as reported under U.S. GAAP
|
|
$
|
42.0
|
|
|
$
|
31.3
|
|
|
|
|
|
|
|
|
Operating Margin
|
|
|
5.6
|
%
|
|
|
6.0
|
%
|
|
Net pension and other post employment benefit plan charges (a)
|
|
|
2.9
|
|
|
|
4.4
|
|
|
Loss on sale of real estate (b)
|
|
|
-
|
|
|
|
0.4
|
|
|
Depreciation of property & equipment write-up (c)
|
|
|
5.7
|
|
|
|
-
|
|
|
Amortization of acquired intangible assets (d)
|
|
|
7.3
|
|
|
|
1.4
|
|
|
Integration related expenses (e)
|
|
|
5.4
|
|
|
|
-
|
|
|
Total charges
|
|
|
21.3
|
|
|
|
6.2
|
|
|
|
|
|
|
|
Adjusted operating income (a non-GAAP measure)
|
|
$
|
63.3
|
|
|
$
|
37.5
|
|
|
|
|
|
|
|
|
Adjusted Operating Margin
|
|
|
8.4
|
%
|
|
|
7.2
|
%
|
|
|
|
|
|
|
Income Before Income Taxes and Discontinued Operations as
reported under U.S. GAAP
|
|
$
|
36.4
|
|
|
$
|
30.9
|
|
|
|
|
|
|
|
|
Total operating charges from above
|
|
|
21.3
|
|
|
|
6.2
|
|
|
|
|
|
|
|
Adjusted Income Before Income Taxes and Discontinued Operations
(a non-GAAP measure)
|
|
$
|
57.7
|
|
|
$
|
37.1
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax, as reported under
U.S. GAAP
|
|
$
|
30.0
|
|
|
$
|
28.2
|
|
|
|
|
|
|
|
|
Total operating charges from above, net of tax
|
|
|
14.7
|
|
|
|
4.0
|
|
|
|
|
|
|
|
Adjusted net income from continuing operations, net of tax (a
non-GAAP measure)
|
|
$
|
44.7
|
|
|
$
|
32.2
|
|
|
|
|
|
|
|
Diluted EPS from continuing operations as reported under U.S. GAAP
|
|
$
|
0.28
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
Net impact of total charges included in continuing operations
|
|
|
0.14
|
|
|
|
0.04
|
|
|
|
|
|
|
|
Adjusted diluted EPS from continuing operations (a non-GAAP
measure)
|
|
$
|
0.42
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
(a) During the three months ended September 30, 2014 and 2013, the
Company recorded pension plan settlement charges of $2.9 and $4.4,
respectively, due to a high level of lump-sum payouts.
|
|
|
(b) During the three months ended September 30, 2013, the Company
recorded an impairment charge of $0.4 related to its completion of
the sale of certain real estate assets.
|
|
|
(c) During the three months ended September 30, 2014, the Company
recorded $5.7 of depreciation expense resulting from the fair value
write-up of property and equipment acquired from Stream.
|
|
|
(d) During the three months ended September 30, 2014 and 2013, the
Company recorded amortization expense of $7.3 and $1.4,
respectively, related to acquired intangible assets.
|
|
|
(e) During the three months ended September 30, 2014, the Company
recorded $5.4 of integration expenses associated with Convergys'
integration of the acquired Stream operations. These expenses were
primarily related to severance expense and third-party consulting
services.
|
|
|
Management uses operating income, income from continuing operations,
net of tax and earnings per share from continuing operations
excluding the above items to assess the underlying operational
performance of the continuing operations of the business for the
year and to have a basis to compare underlying operating 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 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 charges, and the
GAAP measures, operating income, income from continuing operations,
net of tax 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.
|
|
CONVERGYS CORPORATION
|
Reconciliation of GAAP EPS from Continuing Operations to non-GAAP
EPS from Continuing Operations
|
(In Millions Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,091.6
|
|
|
$
|
1,518.8
|
|
|
|
|
|
|
|
Operating income as reported under U.S. GAAP
|
|
$
|
100.9
|
|
|
$
|
97.9
|
|
|
|
|
|
|
|
|
Operating Margin
|
|
|
4.8
|
%
|
|
|
6.4
|
%
|
|
Net pension and other post employment benefit plan charges (a)
|
|
|
2.9
|
|
|
|
11.9
|
|
|
(Gain) loss on sale of real estate (b)
|
|
|
(1.6
|
)
|
|
|
1.5
|
|
|
Depreciation of property & equipment write-up (c)
|
|
|
13.4
|
|
|
|
-
|
|
|
Amortization of acquired intangible assets (d)
|
|
|
17.6
|
|
|
|
4.0
|
|
|
Transaction related expenses (e)
|
|
|
14.7
|
|
|
|
-
|
|
|
Integration related expenses (f)
|
|
|
20.8
|
|
|
|
-
|
|
|
Total charges
|
|
|
67.8
|
|
|
|
17.4
|
|
|
|
|
|
|
|
Adjusted operating income (a non-GAAP measure)
|
|
$
|
168.7
|
|
|
$
|
115.3
|
|
|
|
|
|
|
|
|
Adjusted Operating Margin
|
|
|
8.1
|
%
|
|
|
7.6
|
%
|
|
|
|
|
|
|
Income Before Income Taxes and Discontinued Operations as
reported under U.S. GAAP
|
|
$
|
83.7
|
|
|
$
|
94.0
|
|
|
|
|
|
|
|
|
Total operating charges from above
|
|
|
67.8
|
|
|
|
17.4
|
|
|
Total charges
|
|
|
67.8
|
|
|
|
17.4
|
|
|
|
|
|
|
|
Adjusted Income Before Income Taxes and Discontinued Operations
(a non-GAAP measure)
|
|
$
|
151.5
|
|
|
$
|
111.4
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax, as reported under
U.S. GAAP
|
|
$
|
68.5
|
|
|
$
|
80.4
|
|
|
|
|
|
|
|
|
Total operating charges from above, net of tax
|
|
|
47.6
|
|
|
|
9.4
|
|
|
Adjustment for state tax rate changes (g)
|
|
|
0.4
|
|
|
|
-
|
|
|
Tax benefit related to unremitted foreign earnings(h)
|
|
|
(1.5
|
)
|
|
|
-
|
|
|
|
|
|
|
|
Adjusted income from continuing operations, net of tax (a
non-GAAP measure)
|
|
$
|
115.0
|
|
|
$
|
89.8
|
|
|
|
|
|
|
|
Diluted EPS from continuing operations as reported under U.S. GAAP
|
|
$
|
0.65
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
Net impact of total charges included in continuing operations
|
|
|
0.44
|
|
|
|
0.08
|
|
|
|
|
|
|
|
Adjusted diluted EPS from continuing operations (a non-GAAP
measure)
|
|
$
|
1.09
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
(a) During the nine months ended September 30, 2014 and 2013, the
Company recorded pension plan settlement charges of $2.9 and $11.9,
respectively, due to a high level of lump-sum payouts.
|
|
|
(b) During the nine months ended September 30, 2014, the Company
recorded a gain of $1.6 resulting from the settlement of a
contingency related to a previous real estate sale. During the nine
months ended September 30, 2013, the Company recorded an impairment
charge of $1.5 to reduce the carrying value of certain real estate
assets to estimated fair value less cost to sell.
|
|
|
(c) During the nine months ended September 30, 2014, the Company
recorded $13.4 of depreciation expense resulting from the fair value
write-up of property and equipment acquired from Stream.
|
|
|
(d) During the nine months ended September 30, 2014 and 2013, the
Company recorded amortization expense of $17.6 and $4.0,
respectively, related to acquired intangible assets.
|
|
|
(e) During the nine months ended September 30, 2014, the Company
recorded $14.7 of transaction expenses associated with its
acquisition of Stream, related to fees paid for third-party
consulting services.
|
|
|
(f) During the nine months ended September 30, 2014, the Company
recorded $20.8 of integration expenses associated with Convergys'
integration of the acquired Stream operations. These expenses were
primarily related to severance expense and third-party consulting
services.
|
|
|
(g) During the nine months ended September 30, 2014, the Company
recorded a one-time charge resulting from changes in the Company's
state tax rate applicable to deferred tax assets and liabilities.
This change in rate resulted from the combination of the Convergys
and Stream operations.
|
|
|
(h) During the fourth quarter of 2013, the Company recognized tax
expense of $46.4 to record the deferred tax liability associated
with a change in classification for a portion of undistributed
earnings of the Company's foreign subsidiaries. During the nine
months ended September 30, 2014, the Company recognized a $1.5 tax
benefit for the difference between the tax previously accrued on
foreign earnings and the current estimate as of September 30, 2014.
|
|
|
Management uses operating income, income from continuing operations,
net of tax and earnings per share data excluding the items above to
assess the underlying operational performance of the continuing
operations of the business for the year and to have a basis to
compare underlying operating 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 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 charges, and the
GAAP measures, operating income, income from continuing operations,
net of tax 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.
|
|
CONVERGYS CORPORATION
|
Reconciliation of Net Income from Continuing Operations to
Adjusted EBITDA
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Nine Months
|
|
|
|
|
|
|
Ended September 30,
|
|
%
|
|
Ended September 30,
|
|
%
|
(In millions)
|
|
2014
|
|
2013
|
|
Change
|
|
2014
|
|
2013
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations, net of tax
|
|
$
|
30.0
|
|
|
$
|
28.2
|
|
|
6
|
|
$
|
68.5
|
|
|
$
|
80.4
|
|
|
(15)
|
|
|
Depreciation and Amortization
|
|
|
46.1
|
|
|
|
23.6
|
|
|
95
|
|
|
122.4
|
|
|
|
68.3
|
|
|
79
|
|
|
Interest expense
|
|
|
5.9
|
|
|
|
2.9
|
|
|
NM
|
|
|
15.6
|
|
|
|
8.7
|
|
|
79
|
|
|
Income tax expense
|
|
|
6.4
|
|
|
|
2.7
|
|
|
NM
|
|
|
15.2
|
|
|
|
13.6
|
|
|
12
|
|
EBITDA (a non-GAAP measure)
|
|
$
|
88.4
|
|
|
$
|
57.4
|
|
|
54
|
|
$
|
221.7
|
|
|
$
|
171.0
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of real estate
|
|
|
-
|
|
|
|
0.4
|
|
|
(100)
|
|
|
(1.6
|
)
|
|
|
1.5
|
|
|
NM
|
|
|
Net pension and other post employment benefit plan charges
|
|
|
2.9
|
|
|
|
4.4
|
|
|
(34)
|
|
|
2.9
|
|
|
|
11.9
|
|
|
(76)
|
|
|
Transaction related expenses
|
|
|
-
|
|
|
|
-
|
|
|
NM
|
|
|
14.7
|
|
|
|
-
|
|
|
NM
|
|
|
Integration related expenses
|
|
|
5.4
|
|
|
|
-
|
|
|
NM
|
|
|
20.8
|
|
|
|
-
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (a non-GAAP measure)
|
|
$
|
96.7
|
|
|
$
|
62.2
|
|
|
55
|
|
$
|
258.5
|
|
|
$
|
184.4
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Margin
|
|
|
11.8
|
%
|
|
|
11.0
|
%
|
|
|
|
|
10.6
|
%
|
|
|
11.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Margin
|
|
|
12.9
|
%
|
|
|
11.9
|
%
|
|
|
|
|
12.4
|
%
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 not be considered in isolation or as
a substitute for income from continuing operations, net of tax or
other income statement data prepared in accordance with GAAP and our
presentation of these measures may not be comparable to
similarly-titled measures used by other companies. Management uses
both these non-GAAP measures and the GAAP measure, income from
continuing operations, net of tax, in evaluation of its underlying
performance. There are no material purposes 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.
|
|
CONVERGYS CORPORATION Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
September 30,
|
|
Dec. 31,
|
(In millions)
|
|
2014
|
|
2013
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
228.6
|
|
$
|
580.8
|
Short Term Investments
|
|
|
19.9
|
|
|
82.9
|
Receivables - Net
|
|
|
499.1
|
|
|
319.8
|
Other Current Assets
|
|
|
144.2
|
|
|
76.9
|
Property and Equipment - Net
|
|
|
376.5
|
|
|
246.4
|
Other Assets
|
|
|
1,282.8
|
|
|
649.9
|
Total Assets
|
|
$
|
2,551.1
|
|
$
|
1,956.7
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Debt Maturing in One Year
|
|
$
|
9.2
|
|
$
|
0.9
|
Other Current Liabilities
|
|
|
414.5
|
|
|
291.7
|
Other Liabilities
|
|
|
432.8
|
|
|
314.3
|
Long-Term Debt
|
|
|
403.5
|
|
|
60.2
|
Convertible Debentures Conversion Feature
|
|
|
64.6
|
|
|
65.5
|
Common Shareholders' Equity
|
|
|
1,226.5
|
|
|
1,224.1
|
Total Liabilities and Shareholders' Equity
|
|
$
|
2,551.1
|
|
$
|
1,956.7
|
|
|
|
|
|
|
|
CONVERGYS CORPORATION Reconciliation of Cash
Provided by Operating Activities to Free Cash Flow (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions)
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
115.7
|
|
|
$
|
76.6
|
|
|
$
|
207.4
|
|
|
$
|
149.3
|
|
|
Capital expenditures
|
|
|
(30.2
|
)
|
|
|
(16.9
|
)
|
|
|
(86.5
|
)
|
|
|
(43.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow (a non-GAAP measure)
|
|
|
85.5
|
|
|
|
59.7
|
|
|
$
|
120.9
|
|
|
$
|
106.1
|
|
|
Stream acquisition - cash paid for transaction and integration
related expenses (a)
|
|
|
4.7
|
|
|
|
-
|
|
|
|
34.1
|
|
|
|
-
|
|
|
Stream acquisition - cash received from escrow associated with the
working capital settlement (a)
|
|
|
(15.0
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cash paid for taxes related to repatriation of non-U.S. cash to
partially fund the Stream acquisition (a)
|
|
|
-
|
|
|
|
-
|
|
|
|
27.4
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted free cash flow (a non-GAAP measure)
|
|
$
|
75.2
|
|
|
$
|
59.7
|
|
|
$
|
182.4
|
|
|
$
|
106.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Since these payments were associated with investment activity,
we have excluded these amounts from our adjusted free cash flow
calculation.
|
|
|
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 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
facilitate Management's ability to strengthen the Company's balance
sheet, to repay the Company's debt obligations and to repurchase the
Company's common shares. 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. 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.
|
|
Convergys Corporation
|
Summarized Statement of Cash Flow
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
115.7
|
|
|
$
|
76.6
|
|
|
$
|
207.4
|
|
|
$
|
149.3
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(35.5
|
)
|
|
|
(23.9
|
)
|
|
|
(827.6
|
)
|
|
|
(60.4
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(35.0
|
)
|
|
|
(42.0
|
)
|
|
|
268.0
|
|
|
|
(117.7
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
$
|
45.2
|
|
|
$
|
10.7
|
|
|
$
|
(352.2
|
)
|
|
$
|
(28.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[ Back To TMCnet.com's Homepage ]
|