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July 24, 2008

Convergys: Challenging Times, Smart Moves

By Brendan B. Read, Senior Contributing Editor

A smart crew knows what to do when they see troubled waters, and how to react when they find themselves in such waters.
That appears to be the case with Convergys (News - Alert), which reported in its second quarter 2008 earnings Wednesday that it is expecting softer-than-projected financial results in the second half of the year due to a slowing economy and resulting lower call volumes.
Large multinational BPO firms like Convergys are facing other challenges including competition from automated, chiefly speech-rec-enabled solutions and coping with a weak U.S. dollar that has made especially Canadian operations more expensive.
Convergys said that it anticipates that its full year earnings will be at the lower end of a previously provided range of $2.85 billion to $3 billion. Earnings per share may slip to $1.15 to $1.20, even with the Intervoice (News - Alert) acquisition, from its prior forecast of $1.31 to $1.36 per share.
The BPO provider did see its net income grow to $40.5 million or 32 cents a share from $38.8 million or 28 cents a share in the same period in 2007. At the same time total revenue fell three percent to $689.5 million from $707 million.
Convergys’ largest component, its customer management (CM) practice, which includes its contact center operations, saw its revenues increase to $469.0 million compared to $460.6 million in the same period last year.  Price and volume increases with clients in the communications and other markets more than offset a revenue decline with financial services clients. 
Yet the CM operating income dropped to $19.4 million compared to $44.7 million in the same period last year. Operating margin slipped to 4.1 percent from 9.7 percent primarily due to the weakened US dollar and continued investment to support anticipated future growth.
The deteriorated results from CM helped pull Convergys’ operating income down to $47.4 million compared to $58.1 million in the same period a year ago. Strong contribution from the cellular partnerships, a lower tax rate, and an aggressive share repurchase program helped offset largely anticipated operating challenges. 
Tacking the ship to smoother sailing
Yet Convergys also reported, with what appears to be considerable justification, that it expects the CMG income and margin improving in the fourth quarter that will enable it to withstand the rougher conditions and come out ahead, with smoother sailing.
“We are taking decisive action to expand and improve Customer Management revenue and margin trends in the future,” said Dave Dougherty, President and CEO of Convergys. 
Those actions include:
Adding new contact centers in the US and in The Philippines
The company also closed four Canadian sites, three of which have been named in response to the strong Canadian dollar relative to the US dollar.
Streamlining and making key appointments to the CM organization
Convergys named Andrea Ayers as CM president while it placed all North American vertical market responsibilities under Jim Boyce, who it appointed as President, North America. It appointed Igor Sarenac as Vice President, Business Development, for Canada placing special emphasis on attracting and expanding business among companies headquartered there.
The recently-announced Intervoice acquisition
The deal vaults Convergys from the periphery to the middle of the growing automated voice handling playing field both for hosted and for customer premises solutions. It also positions Convergys as a single-source one-stop shop for automated and live agent solutions that may draw in more business.
Convergys CEO Dougherty revealed on the second quarter results call Wednesday that some its clients are using more automation rather than live agents to deflect, handle or avoid calls.

“While we can’t control all the factors effecting call volume, we can ensure that our products and services are meeting our clients’ needs and in particular, their needs for more automated solutions,” said Dougherty. “We expect the recently announced Intervoice acquisition to enable Convergys to fully participate in our clients’ growing use of automation of their call handling strategies.  By meeting this need, we believe we will be rewarded with a larger share of spend and stronger relationships.”
Continued quality focus
That is the other side of the coin with automation, which takes more of the lower-end transaction calls, leaving the more challenging issues to be handled by live agents. Convergys is well-placed for that migration, and is already experiencing success thanks to its commitment to quality service.
Dougherty reported that the firm received AT&T's (News - Alert) supplier recognition award for teamwork and was acknowledged for consistently providing better products, services and solutions to help AT&T deliver outstanding service to its customers. 
Delivering high quality service helps providers make the case for price increases, as well as retaining them as suppliers. The firm has negotiated price hikes from a number of its largest clients that helps offset higher costs and produce acceptable returns.
Capitalizing on opportunities
Convergys’ strategy includes expanding existing client relationships to grow business share. It will for example free up large blocks of capacity to serve immediate clients needs and extend operations into geographies, such as Latin America that align with market demand.
“We expect our expanded sales force to capitalize on our improving customer satisfaction scores and the available capacity to win new business with existing client,” says Dougherty. “As a leader in the industry, we also see opportunity for growth as clients move more of their business to larger, more stable providers.”
Brendan B (News - Alert). Read is TMCnet’s Senior Contributing Editor. To read more of Brendan’s articles, please visit his columnist page.

Don’t forget to check out TMCnet’s White Paper Library, which provides a selection of in-depth information on relevant topics affecting the IP Communications industry. The library offers white papers, case studies and other documents which are free to registered users. Today’s featured white paper is Jim Cossetta, President, CEO, 4What Interactive, Creators of The VoIPTrainer, brought to you by 4What Interactive (News - Alert).


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