[November 04, 2015] |
|
Convergys Reports Third Quarter Results
Convergys
Corporation (NYSE: CVG), a global leader in customer management,
today announced its financial results for the third quarter of 2015.
Third Quarter Summary
-
Revenue was $742 million, down 1 percent as reported and up 2 percent
on a constant currency basis compared with the prior year;
-
GAAP EPS from continuing operations of $0.55, compared with $0.28 in
the prior year; adjusted EPS from continuing operations of $0.45,
compared with $0.42 in the prior year;
-
Adjusted free cash flow of $17 million;
-
$28 million capital returned to shareholders via share repurchase and
dividend.
"We delivered solid operating performance with constant currency revenue
growth and strong new business signings," said Andrea Ayers, president
and CEO. "Volume increases with several existing and new clients offset
volume fluctuations with a few clients in the third quarter. In support
of new program ramps and recent client wins, we are investing in global
infrastructure and agent training to drive excellence for our clients
and deliver value for our shareholders. We are successfully executing
our strategy for profitable growth and continue to expect revenue and
earnings improvement for the full year. Based on our confidence in the
business, we paid an eight-cent dividend and repurchased $20 million of
our shares in the third quarter."
Third Quarter Results - Continuing Operations
Revenue - Revenue was $742 million including $21 million adverse
foreign currency impacts, a 1 percent decrease as reported and a 2
percent increase on a constant currency basis compared with $750 million
in the same period last year.
Operating Income - GAAP operating income was $48 million,
compared with $42 million in the same period last year. Excluding
certain acquisition-related and other impacts discussed below, adjusted
operating income was $62 million, compared with $63 million in the same
period last year.
EBITDA - Adjusted EBITDA was $90 million, compared with $97
million in the same period last year. Adjusted EBITDA excludes certain
acquisition-related and other impacts discussed below.
Tax Rate - The GAAP tax benefit of $17M includes tax items
discussed in the acquisition-related and other impacts section below. On
an adjusted basis, the effective tax rate of 16 percent was lower than
expected due to benefits resulting from changes in the mix of income by
jurisdictions.
Net Income - GAAP net income from continuing operations was $58
million, or $0.55 per diluted share, compared with $30 million, or $0.28
per share, in the same period last year. Excluding certain
acquisition-related and other impacts discussed below, adjusted net
income from continuing operations was $46 million, or $0.45 per diluted
share, compared with $45 million, or $0.42 per diluted share, in the
same period last year.
Share Repurchase - Convergys repurchased 0.9 million shares in
the third quarter at a cost of $20 million.
Quarterly Dividend - Convergys paid a $0.08 per share quarterly
dividend in October to holders of record at the close of business on
September 18, 2015. The next dividend payment of $0.08 per share is
scheduled to be made on January 8, 2016, to shareholders of record at
the close of business on December 24, 2015.
Free Cash Flow - Adjusted free cash flow was $17 million,
compared with $75 million in the same period last year. Adjusted free
cash flow excludes Stream transaction-related cash payments of $4
million in the current quarter and net collection of $10 million in the
same period last year.
Net Debt - At September 30, 2015, cash and short term investments
were $188 million, debt maturing in one year was $4 million, and long
term debt was $328 million. Net debt totaled $144 million at September
30, 2015, compared with $130 million at June 30, 2015, and $164 million
at the end of the third quarter last year.
Acquisition-related and Other Impacts - GAAP third-quarter 2015
results include acquisition-related impacts consisting of $7 million
amortization expense for acquired intangible assets, $5 million
depreciation expense related to the fair value write-up of acquired
property and equipment, $3 million Stream integration costs, a $17
million tax benefit from the reversal of a reserve related to a prior
business acquisition, and a $4 million tax benefit due to an adjustment
related to prior cash repatriation activities. Prior year third-quarter
2014 GAAP results included $7 million amortization expense for acquired
intangible assets, and $6 million depreciation expense related to the
fair value write-up of acquired property and equipment, $5 million
Stream integration costs, and a $3 million non-cash pension settlement
charge.
Reconciliation tables of GAAP to non-GAAP results are attached.
2015 Business Outlook
Convergys expectations for the remainder of the year include:
-
Reported fourth-quarter 2015 revenue of $750 million to $760 million,
including approximately $15 million negative impact of foreign
exchange rates compared with 2014 rates;
-
Fourth-quarter 2015 adjusted EBITDA of $98 million to $102 million;
-
Fourth-quarter 2015 adjusted effective tax rate of approximately 23
percent;
-
Diluted shares outstanding to approximate 104 million;
-
Fourth-quarter adjusted EPS of $0.45 to $0.50.
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 future currency movements, non-cash pension settlement charges,
significant discrete tax adjustments 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. Forward looking statements may be identified by words
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 and cost effective
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,
constant currency revenue growth, 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,
revenue growth, operating income, income from continuing operations, net
of tax and diluted earnings per share, in its evaluation of performance.
The Company presents the non-GAAP financial measure constant currency
revenue growth because management uses this measure to assess underlying
revenue trends by providing revenue growth between periods on a
consistent basis. Revenue growth is adjusted based on a mathematical
model that translates current period revenue in local currencies using
the comparable prior year period's currency exchange rates. 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 provide an
indication of the ongoing cash that is available for debt repayment,
returning capital to shareholders and other opportunities. Management
also believes the presentation of these measures enhances 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 is no material purpose for which we use these non-GAAP measures
beyond those 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 2015 Financial Results webcast at
9:00 a.m., Eastern time, Thursday, November 5. 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/3Q15ConferenceCall.
This link will replay the webcast presentation through December 4. 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 58
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, technical 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)
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Nine Months
|
|
|
|
|
|
|
|
Ended September 30,
|
|
%
|
|
Ended September 30,
|
|
%
|
(In millions except per share amounts)
|
|
2015
|
|
2014
|
|
Change
|
|
2015
|
|
2014
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
400.0
|
|
|
|
424.2
|
|
|
(6)
|
|
|
1,193.7
|
|
|
|
1,173.2
|
|
|
2
|
|
Technology
|
|
|
159.4
|
|
|
|
144.9
|
|
|
10
|
|
|
453.0
|
|
|
|
377.2
|
|
|
20
|
|
Financial Services
|
|
|
50.5
|
|
|
|
49.4
|
|
|
2
|
|
|
157.5
|
|
|
|
151.2
|
|
|
4
|
|
Other
|
|
|
131.7
|
|
|
|
131.0
|
|
|
1
|
|
|
394.6
|
|
|
|
390.0
|
|
|
1
|
|
|
Total Revenues
|
|
$
|
741.6
|
|
|
$
|
749.5
|
|
|
(1)
|
|
$
|
2,198.8
|
|
|
$
|
2,091.6
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Providing Services and Products Sold
|
|
|
471.1
|
|
|
|
476.1
|
|
|
(1)
|
|
|
1,406.6
|
|
|
|
1,327.4
|
|
|
6
|
|
Selling, General and Administrative
|
|
|
175.9
|
|
|
|
177.5
|
|
|
(1)
|
|
|
513.5
|
|
|
|
499.1
|
|
|
3
|
|
Research and Development Costs
|
|
|
1.8
|
|
|
|
1.9
|
|
|
(5)
|
|
|
5.4
|
|
|
|
5.7
|
|
|
(5)
|
|
Depreciation
|
|
|
35.2
|
|
|
|
38.8
|
|
|
(9)
|
|
|
108.1
|
|
|
|
104.8
|
|
|
3
|
|
Amortization
|
|
|
6.6
|
|
|
|
7.3
|
|
|
(10)
|
|
|
20.6
|
|
|
|
17.6
|
|
|
17
|
|
Restructuring Charges
|
|
|
0.1
|
|
|
|
0.5
|
|
|
(80)
|
|
|
3.5
|
|
|
|
2.2
|
|
|
59
|
|
Gain on sale of real estate
|
|
|
-
|
|
|
|
-
|
|
|
NM
|
|
|
-
|
|
|
|
(1.6
|
)
|
|
(100)
|
|
Transaction and Integration Costs
|
|
|
3.1
|
|
|
|
5.4
|
|
|
(43)
|
|
|
7.8
|
|
|
|
35.5
|
|
|
(78)
|
|
|
Total Costs and Expenses
|
|
|
693.8
|
|
|
|
707.5
|
|
|
(2)
|
|
|
2,065.5
|
|
|
|
1,990.7
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
47.8
|
|
|
|
42.0
|
|
|
14
|
|
|
133.3
|
|
|
|
100.9
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Expense) Income, net
|
|
|
(2.6
|
)
|
|
|
0.3
|
|
|
NM
|
|
|
0.3
|
|
|
|
(1.6
|
)
|
|
NM
|
Interest Expense
|
|
|
(4.6
|
)
|
|
|
(5.9
|
)
|
|
(22)
|
|
|
(13.9
|
)
|
|
|
(15.6
|
)
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes and Discontinued Operations
|
|
|
40.6
|
|
|
|
36.4
|
|
|
12
|
|
|
119.7
|
|
|
|
83.7
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax (Benefit) Expense
|
|
|
(17.0
|
)
|
|
|
6.4
|
|
|
NM
|
|
|
(6.1
|
)
|
|
|
15.2
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations, net of tax
|
|
|
57.6
|
|
|
|
30.0
|
|
|
92
|
|
|
125.8
|
|
|
|
68.5
|
|
|
84
|
|
Income from Discontinued Operations, net of tax benefit of $0.7 and
$2.8, for the three months ended September 30, 2015 and 2014,
respectively, and $0.5 and $2.7 for the nine months ended September
30, 2015 and 2014, respectively.
|
|
|
0.5
|
|
|
|
2.8
|
|
|
(82)
|
|
|
0.6
|
|
|
|
3.2
|
|
|
(81)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
58.1
|
|
|
$
|
32.8
|
|
|
77
|
|
$
|
126.4
|
|
|
$
|
71.7
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
0.59
|
|
|
$
|
0.30
|
|
|
|
|
$
|
1.28
|
|
|
$
|
0.68
|
|
|
|
|
Discontinued Operations
|
|
$
|
0.00
|
|
|
$
|
0.03
|
|
|
|
|
$
|
0.00
|
|
|
$
|
0.03
|
|
|
|
|
Net Basic Earnings Per Common Share
|
|
$
|
0.59
|
|
|
$
|
0.33
|
|
|
|
|
$
|
1.28
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
0.55
|
|
|
$
|
0.28
|
|
|
|
|
$
|
1.20
|
|
|
$
|
0.65
|
|
|
|
|
Discontinued Operations
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
|
|
Net Diluted Earnings Per Common Share
|
|
$
|
0.56
|
|
|
$
|
0.31
|
|
|
|
|
$
|
1.21
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
97.9
|
|
|
|
100.7
|
|
|
|
|
|
98.4
|
|
|
|
101.0
|
|
|
|
|
Diluted
|
|
|
104.1
|
|
|
|
105.2
|
|
|
|
|
|
104.6
|
|
|
|
105.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
26.22
|
|
|
$
|
21.96
|
|
|
|
|
$
|
26.56
|
|
|
$
|
24.43
|
|
|
|
|
Low
|
|
$
|
20.57
|
|
|
$
|
17.69
|
|
|
|
|
$
|
18.81
|
|
|
$
|
17.69
|
|
|
|
|
Close
|
|
$
|
23.11
|
|
|
$
|
17.82
|
|
|
|
|
$
|
23.11
|
|
|
$
|
17.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERGYS CORPORATION
|
Reconciliation of GAAP Revenue Growth to non-GAAP Constant
Currency Revenue Growth
|
(In Millions Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended September 30,
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
Revenue
|
|
$
|
741.6
|
|
|
$
|
749.5
|
|
|
|
|
|
|
|
Revenue growth, as reported under U.S. GAAP
|
|
|
-1
|
%
|
|
|
|
Foreign exchange impact (a)
|
|
|
3
|
%
|
|
|
Constant currency revenue growth (a non-GAAP measure)
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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,
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
Operating income as reported under U.S. GAAP
|
|
$
|
47.8
|
|
|
$
|
42.0
|
|
|
|
|
|
|
|
|
Operating Margin
|
|
|
6.4
|
%
|
|
|
5.6
|
%
|
|
Depreciation of property & equipment write-up (b)
|
|
|
4.7
|
|
|
|
5.7
|
|
|
Amortization of acquired intangible assets (c)
|
|
|
6.6
|
|
|
|
7.3
|
|
|
Net pension and other post employment benefit plan charges(d)
|
|
|
-
|
|
|
|
2.9
|
|
|
Integration related expenses (e)
|
|
|
3.1
|
|
|
|
5.4
|
|
|
Total charges
|
|
|
14.4
|
|
|
|
21.3
|
|
|
|
|
|
|
|
Adjusted operating income (a non-GAAP measure)
|
|
$
|
62.2
|
|
|
$
|
63.3
|
|
|
|
|
|
|
|
|
Adjusted Operating Margin
|
|
|
8.4
|
%
|
|
|
8.4
|
%
|
|
|
|
|
|
|
Income Before Income Taxes and Discontinued Operations as
reported under U.S. GAAP
|
|
$
|
40.6
|
|
|
$
|
36.4
|
|
|
|
|
|
|
|
|
Total operating charges from above
|
|
|
14.4
|
|
|
|
21.3
|
|
|
|
|
|
|
|
Adjusted Income Before Income Taxes and Discontinued Operations
(a non-GAAP measure)
|
|
$
|
55.0
|
|
|
$
|
57.7
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax, as reported under
U.S. GAAP
|
|
$
|
57.6
|
|
|
$
|
30.0
|
|
|
|
|
|
|
|
|
Total operating charges from above, net of tax
|
|
|
10.0
|
|
|
|
14.7
|
|
|
Release of uncertain tax positions (f)
|
|
|
(17.5
|
)
|
|
|
-
|
|
|
Tax provision related to unremitted foreign earnings (g)
|
|
|
(3.7
|
)
|
|
|
-
|
|
|
|
|
|
|
|
Adjusted income from continuing operations, net of tax (a
non-GAAP measure)
|
|
$
|
46.4
|
|
|
$
|
44.7
|
|
|
|
|
|
|
|
Diluted EPS from continuing operations as reported under U.S. GAAP
|
|
$
|
0.55
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
Net impact of total charges included in continuing operations
|
|
|
(0.10
|
)
|
|
|
0.14
|
|
|
|
|
|
|
|
Adjusted diluted EPS from continuing operations (a non-GAAP
measure)
|
|
$
|
0.45
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
(a) Changes in currency exchange rates resulted in reduced revenues
in the current quarter primarily due to the strengthening U.S.
dollar relative to the euro, British pound, Australian dollar and
the Canadian dollar.
|
|
|
(b) During the three months ended September 30, 2015 and 2014, the
Company recorded $4.7 and $5.7, respectively, of depreciation
expense resulting from the fair value write-up of property and
equipment acquired from Stream.
|
|
|
(c) During the three months ended September 30, 2015 and 2014 the
Company recorded amortization expense of $6.6 and $7.3,
respectively, related to acquired intangible assets.
|
|
|
(d) During the three months ended September 30, 2014, the Company
recorded pension plan settlement charges of $2.9 due to a high level
of lump-sum payouts.
|
|
|
(e) During the three months ended September 30, 2015 and 2014, the
Company recorded $3.1 and $5.4, respectively, of integration
expenses associated with Convergys' integration of the acquired
Stream operations. These expenses were primarily related to
third-party consulting services and severance expense.
|
|
|
(f) During the three months ended September 30, 2015, the Company
recorded a $17.5 tax benefit associated with statute expirations for
previous uncertain non-U.S. tax positions.
|
|
|
(g) During the three months ended September 30, 2015, the Company
recorded a $3.7 tax benefit for a change in estimate between tax
previously accrued for the repatriation of foreign earnings and the
actual taxes paid on the ultimate repatriation of such earnings.
|
|
|
Management uses constant currency revenue growth to assess
underlying revenue trends by providing revenue growth between
periods on a consistent basis. Revenue growth is adjusted based on a
mathematical model that translates current period revenue in local
currencies using the comparable prior year period's currency
exchange rates. 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, constant currency revenue growth, operating income, income
from continuing operations, net of tax and diluted earnings per
share excluding the charges, and the GAAP measures, revenue growth,
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 Revenue Growth to non-GAAP Constant
Currency Revenue Growth
|
(In Millions Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,198.8
|
|
|
$
|
2,091.6
|
|
|
|
|
|
|
|
Revenue growth, as reported under U.S. GAAP
|
|
|
5
|
%
|
|
|
|
Foreign exchange impact (a)
|
|
|
3
|
%
|
|
|
Constant currency revenue growth (a non-GAAP measure)
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
Operating income as reported under U.S. GAAP
|
|
$
|
133.3
|
|
|
$
|
100.9
|
|
|
|
|
|
|
|
|
Operating Margin
|
|
|
6.1
|
%
|
|
|
4.8
|
%
|
|
Net pension and other post employment benefit plan charges (b)
|
|
|
-
|
|
|
|
2.9
|
|
|
Gain on sale of real estate (c)
|
|
|
-
|
|
|
|
(1.6
|
)
|
|
Depreciation of property & equipment write-up (d)
|
|
|
15.5
|
|
|
|
13.4
|
|
|
Amortization of acquired intangible assets (e)
|
|
|
20.6
|
|
|
|
17.6
|
|
|
Transaction related expenses (f)
|
|
|
-
|
|
|
|
14.7
|
|
|
Integration related expenses (g)
|
|
|
7.8
|
|
|
|
20.8
|
|
|
Total charges
|
|
|
43.9
|
|
|
|
67.8
|
|
|
|
|
|
|
|
Adjusted operating income (a non-GAAP measure)
|
|
$
|
177.2
|
|
|
$
|
168.7
|
|
|
|
|
|
|
|
|
Adjusted Operating Margin
|
|
|
8.1
|
%
|
|
|
8.1
|
%
|
|
|
|
|
|
|
Income Before Income Taxes and Discontinued Operations as
reported under U.S. GAAP
|
|
$
|
119.7
|
|
|
$
|
83.7
|
|
|
|
|
|
|
|
|
Total operating charges from above
|
|
|
43.9
|
|
|
|
67.8
|
|
|
|
|
|
|
|
Adjusted Income Before Income Taxes and Discontinued Operations
(a non-GAAP measure)
|
|
$
|
163.6
|
|
|
$
|
151.5
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax, as reported under
U.S. GAAP
|
|
$
|
125.8
|
|
|
$
|
68.5
|
|
|
|
|
|
|
|
|
Total operating charges from above, net of tax
|
|
|
30.7
|
|
|
|
47.6
|
|
|
Release of uncertain tax positions (h)
|
|
|
(22.4
|
)
|
|
|
-
|
|
|
Adjustment for state tax rate changes (i)
|
|
|
-
|
|
|
|
0.4
|
|
|
Tax benefit related to unremitted foreign earnings(j)
|
|
|
(3.7
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
Adjusted income from continuing operations, net of tax (a
non-GAAP measure)
|
|
$
|
130.4
|
|
|
$
|
115.0
|
|
|
|
|
|
|
|
Diluted EPS from continuing operations as reported under U.S. GAAP
|
|
$
|
1.20
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
Net impact of total charges included in continuing operations
|
|
|
0.05
|
|
|
|
0.44
|
|
|
|
|
|
|
|
Adjusted diluted EPS from continuing operations (a non-GAAP
measure)
|
|
$
|
1.25
|
|
|
$
|
1.09
|
|
|
|
|
|
|
(a) Changes in currency exchange rates resulted in reduced revenues
in the current quarter primarily due to the strengthening U.S.
dollar relative to the euro, British pound, Australian dollar and
the Canadian dollar.
|
|
|
(b) During the nine months ended September 30, 2014, the Company
recorded pension plan settlement charges of $2.9 due to a high level
of lump-sum payouts.
|
|
|
(c) 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.
|
|
|
(d) During the nine months ended September 30, 2015 and 2014, the
Company recorded $15.5 and $13.4, respectively, of depreciation
expense resulting from the fair value write-up of property and
equipment acquired from Stream.
|
|
|
(e) During the nine months ended September 30, 2015 and 2014, the
Company recorded amortization expense of $20.6 and $17.6,
respectively, related to acquired intangible assets.
|
|
|
(f) 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.
|
|
|
(g) During the nine months ended September 30, 2015 and 2014, the
Company recorded $7.8 and $20.8, respectively, of integration
expenses associated with Convergys' integration of the acquired
Stream operations. These expenses were primarily related to
third-party consulting services and severance expense.
|
|
|
(h) During the nine months ended September 30, 2015, the Company
recorded tax benefits of $22.4 associated with statute expirations
for previous uncertain non-U.S. tax positions and favorable
resolutions of tax audits.
|
|
|
(i) 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.
|
|
|
(j) During the nine months ended September 30, 2015 and 2014, the
Company recognized a $3.7 and $1.5 tax benefit for a change in
estimate between tax previously accrued for the repatriation of
foreign earnings and the actual taxes paid on the ultimate
repatriation of such earnings.
|
|
|
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)
|
|
2015
|
|
2014
|
|
Change
|
|
2015
|
|
2014
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations, net of tax
|
|
$
|
57.6
|
|
|
$
|
30.0
|
|
|
92
|
|
$
|
125.8
|
|
|
$
|
68.5
|
|
|
84
|
|
|
Depreciation and Amortization
|
|
|
41.8
|
|
|
|
46.1
|
|
|
(9)
|
|
|
128.7
|
|
|
|
122.4
|
|
|
5
|
|
|
Interest expense
|
|
|
4.6
|
|
|
|
5.9
|
|
|
(22)
|
|
|
13.9
|
|
|
|
15.6
|
|
|
(11)
|
|
|
Income tax (benefit) expense
|
|
|
(17.0
|
)
|
|
|
6.4
|
|
|
NM
|
|
|
(6.1
|
)
|
|
|
15.2
|
|
|
NM
|
|
EBITDA (a non-GAAP measure)
|
|
$
|
87.0
|
|
|
$
|
88.4
|
|
|
(2)
|
|
$
|
262.3
|
|
|
$
|
221.7
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate
|
|
|
-
|
|
|
|
-
|
|
|
NM
|
|
|
-
|
|
|
|
(1.6
|
)
|
|
(100)
|
|
|
Net pension and other post employment benefit plan charges
|
|
|
-
|
|
|
|
2.9
|
|
|
(100)
|
|
|
-
|
|
|
|
2.9
|
|
|
(100)
|
|
|
Transaction related expenses
|
|
|
-
|
|
|
|
-
|
|
|
NM
|
|
|
-
|
|
|
|
14.7
|
|
|
(100)
|
|
|
Integration related expenses
|
|
|
3.1
|
|
|
|
5.4
|
|
|
(43)
|
|
|
7.8
|
|
|
|
20.8
|
|
|
(63)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (a non-GAAP measure)
|
|
$
|
90.1
|
|
|
$
|
96.7
|
|
|
(7)
|
|
$
|
270.1
|
|
|
$
|
258.5
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Margin
|
|
|
11.7
|
%
|
|
|
11.8
|
%
|
|
|
|
|
11.9
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Margin
|
|
|
12.1
|
%
|
|
|
12.9
|
%
|
|
|
|
|
12.3
|
%
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 enhances 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,
|
|
December 31,
|
(In millions)
|
|
2015
|
|
2014
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
175.8
|
|
$
|
198.9
|
Short-Term Investments
|
|
|
11.7
|
|
|
13.0
|
Receivables - Net
|
|
|
556.4
|
|
|
511.1
|
Other Current Assets
|
|
|
194.0
|
|
|
167.9
|
Property and Equipment - Net
|
|
|
349.2
|
|
|
367.8
|
Other Assets
|
|
|
1,215.7
|
|
|
1,257.8
|
Total Assets
|
|
$
|
2,502.8
|
|
$
|
2,516.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
Debt Maturing in One Year
|
|
$
|
4.0
|
|
$
|
7.5
|
Other Current Liabilities
|
|
|
407.2
|
|
|
361.0
|
Other Liabilities
|
|
|
447.7
|
|
|
488.1
|
Long-Term Debt
|
|
|
327.7
|
|
|
368.4
|
Convertible Debentures Conversion Feature
|
|
|
63.3
|
|
|
64.3
|
Common Shareholders' Equity
|
|
|
1,252.9
|
|
|
1,227.2
|
Total Liabilities and Shareholders' Equity
|
|
$
|
2,502.8
|
|
$
|
2,516.5
|
|
|
|
|
|
|
|
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)
|
|
|
2015
|
|
2014
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
49.9
|
|
|
$
|
115.7
|
|
|
$
|
182.7
|
|
|
$
|
207.4
|
|
|
Capital expenditures
|
|
|
(36.8
|
)
|
|
|
(30.2
|
)
|
|
|
(88.4
|
)
|
|
|
(86.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow (a non-GAAP measure)
|
|
$
|
13.1
|
|
|
$
|
85.5
|
|
|
$
|
94.3
|
|
|
$
|
120.9
|
|
|
Stream acquisition - cash paid for transaction and integration
related expenses (a)
|
|
|
4.1
|
|
|
|
4.7
|
|
|
|
11.0
|
|
|
|
34.1
|
|
|
Stream acquisition - cash received from escrow associated with
future 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)
|
|
$
|
17.2
|
|
|
$
|
75.2
|
|
|
$
|
105.3
|
|
|
$
|
182.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Because 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 present the operating cash flow of the
Company, excluding 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
provide an indication of the ongoing cash that is available for debt
repayment, returning capital to shareholders and other investment
opportunities. 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)
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
49.9
|
|
|
$
|
115.7
|
|
|
$
|
182.7
|
|
|
$
|
207.4
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(36.8
|
)
|
|
|
(35.5
|
)
|
|
|
(88.4
|
)
|
|
|
(827.6
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(32.6
|
)
|
|
|
(35.0
|
)
|
|
|
(117.4
|
)
|
|
|
268.0
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
$
|
(19.5
|
)
|
|
$
|
45.2
|
|
|
$
|
(23.1
|
)
|
|
$
|
(352.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
View source version on businesswire.com: http://www.businesswire.com/news/home/20151104006486/en/
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