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Convergys Reports Fourth Quarter and Full Year 2014 ResultsConvergys Corporation (NYSE: CVG), a global leader in customer management, today announced its financial results for the fourth quarter and full year 2014. Fourth Quarter Summary
"The business produced solid revenue, profitability and client wins in the fourth quarter," said Andrea Ayers, president and CEO. "In 2014, we strengthened our market leadership position through the acquisition of Stream, delivered record revenue with sustained margin expansion and double-digit EPS growth, and returned $73 million to investors through share repurchases and quarterly dividends. Entering 2015, our dedicated employees remain focused on strong execution and value creation for our clients and shareholders. Our strong cash flow generation and healthy balance sheet provide us with the flexibility to continue returning capital to shareholders while also investing in business expansion, and we expect another year of profitable growth." Fourth Quarter Results - Continuing Operations Revenue - Revenue was $764 million, a 45 percent increase compared with $527 million in the same period last year. The increase in revenue included $253 million from the Stream acquisition. Operating Income - Adjusted operating income including contributions from Stream was $67 million, a 49 percent increase compared with $45 million in the same period last year. Including certain acquisition-related and other impacts discussed below, GAAP operating income was $50 million, a 25 percent increase compared with $40 million in the same period last year. Adjusted operating margin was 8.7 percent, up 20 basis points compared with 8.5 percent in the same period last year. Adjusted EBITDA - Adjusted EBITDA was $99 million, a 49 percent increase compared with $66 million in the same period last year. Adjusted EBITDA excludes certain acquisition-related and other impacts discussed below. Adjusted EBITDA margin was 12.9 percent, up 30 basis points compared with 12.6 percent in the same period last year. Tax Rate - On an adjusted basis, the effective tax rate of 13 percent was lower than expected due to benefits resulting from changes in the mix of income by jurisdictions as well as extension of the U.S. Work Opportunity Tax Credit through December 31, 2014. Net Income - Adjusted net income from continuing operations was $54 million, or $0.52 per diluted share, compared with $29 million, or $0.26 per diluted share, in the same period last year. Including certain acquisition-related and other impacts discussed below, GAAP net income from continuing operations was $48 million, or $0.46 per diluted share, compared with net loss of $22 million, or $0.21 per share, in the same period last year. Share Repurchase - Convergys repurchased 1.0 million shares in the fourth quarter at a cost of $20 million. To date in the first quarter of 2015 the Company has repurchased 0.5 million shares at a cost of $10 million. The remaining authorization to purchase outstanding shares is $78 million. Quarterly Dividend - Convergys paid a $0.07 per share quarterly dividend in January to holders of record at the close of business on December 26, 2014. The next dividend payment of $0.07 per share is scheduled to be made on April 3, 2015, to shareholders of record at the close of business on March 20, 2015. Free Cash Flow - Adjusted free cash flow was $26 million, excluding cash payments of $2 million resulting from integration activities, compared with free cash flow of $40 million in the same period last year. Net Debt - At December 31, 2014, cash and short term investments were $212 million, debt maturing in one year was $8 million, and long term debt was $368 million. Net debt totaled $164 million at December 31, 2014, and September 30, 2014, compared with net cash and short term investments of $603 million at the end of the fourth quarter last year. Acquisition-related and Other Impacts - GAAP fourth-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, $5 million tax benefit from the impact of cash repatriation related to the Stream acquisition, and $2 million integration expenses. Fourth-quarter 2014 GAAP results also include a $2 million non-cash pension settlement charge. Prior year fourth-quarter 2013 GAAP results included $46 million tax expense from the impact of cash repatriation and $3 million transaction costs related to the Stream acquisition, a $1 million non-cash pension settlement charge and $1 million intangible amortization. Full Year 2014 Results - Continuing Operations Full year 2014 revenue increased 40 percent to $2.856 billion, compared with $2.046 billion in 2013. The increase in revenue included $835 million from the Stream acquisition. Full year 2014 adjusted operating income including contributions from Stream improved 47 percent to $235 million, compared with $160 million in 2013. Full year adjusted operating margin was 8.2 percent, up 40 basis points compared with 7.8 percent in the same period last year. Full year 2014 GAAP operating income improved 10 percent to $151 million, compared with $137 million in 2013. Full year 2014 adjusted EBITDA improved 42 percent to $357 million, compared with $251 million in 2013. Full year adjusted EBITDA margin was 12.5 percent, up 30 basis points compared with 12.2 percent in the same period last year. Full year 2014 adjusted net income from continuing operations grew 41 percent to $169 million, or $1.60 per diluted share, compared with $120 million, or $1.10 per diluted share, in 2013. Full year 2014 GAAP net income from continuing operations was $117 million, or $1.10 per diluted share, compared with $59 million, or $0.54 per diluted share, in 2013. Reconciliation tables of GAAP to non-GAAP results are attached. 2015 Business Outlook Convergys expectations for 2015 improvement in revenue, EBITDA and EPS include:
The Company expects normal seasonal impacts on revenue, EBITDA and EPS in the first quarter and second quarter of 2015 with sequential improvement in quarterly results beginning in the third quarter. Not included in this outlook are acquisition-related impacts such as 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 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 effects of foreign currency exchange rate fluctuations; (viii) the failure to meet expectations regarding the tax treatment of acquired or divested businesses; (ix) adverse effects of litigation and other commitments and contingencies and (x) 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. 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 Fourth Quarter and Full Year 2014 Financial Results webcast at 9:00 a.m., Eastern time, Thursday, February 19. 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/4Q14ConferenceCall. This link will replay the webcast presentation through March 19. 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).
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.
(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.
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