Exhibit 99.1
NEWS RELEASE
CONVERGYS CORPORATION REPORTS
FIRST QUARTER FINANCIAL RESULTS
IN THE FIRST QUARTER:
.. Revenues decreased 5 percent to $560.4 million versus one year ago.
.. Operating income decreased to $68.5 million from $98.5 million.
.. Including pre-tax loss of $9.9 million from the cellular partnership
investment resulting from the settlement of a lawsuit, GAAP net income
decreased to $34.9 million or $0.22 per diluted share versus $59.6 million
or $0.35 in 2002.
(Cincinnati; April 22, 2003) - - - Convergys Corporation (NYSE: CVG), the global
leader in integrated billing, employee care, and customer care services,
announced today its financial results for the first quarter of 2003.
Total revenues were $560.4 million compared to $587.5 million reported in the
first quarter of 2002. Compared to the fourth quarter of 2002, revenues declined
one percent. Operating income decreased 30 percent to $68.5 million from $98.5
million as operating margin dropped to 12.2 percent from 16.8 percent in the
prior year. Convergys' cellular partnership investment generated a pre-tax loss
of $9.9 million versus pre-tax earnings of $0.9 million in the first quarter of
2002. As announced in an earlier statement, the general partner of the cellular
partnership recently informed Convergys that the partnership had settled a
pending lawsuit for $22 million. As a result of its 45 percent interest in the
partnership, Convergys' share of the settlement is $9.9 million, which it has
recorded as a loss from its investment in the partnership. Interest expense
decreased to $1.5 million from $3.6 million in the prior year. GAAP net income
was $34.9 million or $0.22 per diluted share versus $59.6 million in the first
quarter of 2002. Excluding the loss resulting from the cellular partnership
settlement, Convergys' pro forma net income was $41.3, representing a 31 percent
decrease from 2002. As a result, pro forma diluted EPS decreased 26 percent to
$0.26 from $0.35 reflecting, in part, Convergys' share repurchases. Average
diluted shares outstanding decreased 9 percent to 156.2 million. Convergys
repurchased 4.9 million shares during the quarter.
"The global business environment remains challenging for our Information
Management Group. Wireless subscriber growth has slowed significantly, carriers
are delaying the large-scale rollout of new services, and burdened by heavy debt
loads, telecommunication companies are managing their businesses with tight
controls over expenditures. Although we are aggressively pursuing new business,
the current North American market opportunity for our Information Management
Group is difficult." said
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Jim Orr, Chairman, President, and CEO of Convergys. "Strengthening revenue in
our Customer Management Group is partially helping to offset these challenging
conditions. Additionally, strong cash flow and a solid balance sheet are
allowing us to expand our market leading product portfolio, invest in research
and development, and return value back to our shareholders through share
repurchases."
First Quarter 2003 Highlights
Convergys announced three important domestic contracts during the quarter
including a major business process outsourcing contract with the United States
Postal Service (USPS) to support its Contact Center Network Solution project.
This initial four-year contract (with a potential for an additional six one-year
renewal options based on Convergys' performance and USPS business needs) will
lower costs and enhance the Postal Service's customer experience.
Two Employee Care contract announcements included a multi-year, outsourced,
employee care contract with RR Donnelley (NYSE: DNY). Convergys will provide a
wide array of human resources administration services for the company's 25,000
U.S.-based employees through a centralized multi-channel HR service center.
Convergys also announced a five-year contract with Office Depot (NYSE: ODP) to
provide outsourced health and welfare benefits and leave of absence
administration services. Convergys will support approximately 37,000 U.S.
employees of Office Depot with employee care specialists, Web-based self-service
capabilities, and other technologies.
Continuing to penetrate international markets with additional contracts,
Convergys announced it had signed an expanded billing contract with Brasil
Telecom SA (NYSE: BTM) to support Brasil Telecom's future "Mobile Personal
Service" wireless subscribers. Convergys will also support the operator's 2
million corporate customers of fixed telephony (i.e., wireline) services as part
of the expanded multi-year agreement.
In Europe, Danish ISP Cybercity deployed Convergys' Geneva software to support
the company's home market DSL program and the rollout of new broadband services.
Convergys also signed a contract with Germany's EWE TEL to support the regional
telephone company with Convergys' IP Suite. In addition, Convergys announced a
contract with French mobile operator Bouygues Telecom, one of the leading French
mobile operators, to provide a new billing solution that incorporates Convergys'
award-winning Geneva components.
Convergys is upgrading Telewest Broadband's ICOMS billing and customer care
system that currently provides multi-channel television, telephone, and Internet
services to 1.76 million U.K. households and voice and data telecommunications
services to more than 74,000 businesses.
Also in Great Britain, BT Retail has selected Convergys as prime contractor to
implement a Geneva-based billing solution for FeatureNet, BT's corporate virtual
private network (VPN) operation.
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Convergys made several product announcements during the quarter including
updated versions of its Atlys and Geneva billing and customer care solutions, as
well as its Settlement Suite.
Convergys announced its new Prepaid Gateway for Atlys[r] and Geneva[tm] clients.
The integrated billing component acts as an interface between the Atlys or
Geneva real-time rating engine and the intelligent network (IN) platform
providing operators with a unified method of supporting all pre-paid and
post-paid customers across all types of services.
In addition, Convergys announced the newest update to its Credit Card
Acquisition Program that enables credit card issuers to increase their
conversion rates while lowering acquisition costs and gaining more knowledge of
their customers.
Convergys also entered into a global marketing relationship with IBM (NYSE: IBM)
with the goals of delivering highly flexible and scalable billing solutions to
communications providers worldwide, pursuing sales opportunities jointly,
expanding product offerings, and sharing technical expertise.
April 2003 Highlights to Date
Convergys announced that it has deployed the latest version of its WIZARD [r]
software for Israeli multichannel, satellite operator, YES.
Convergys also announced the availability of Mediation Manager Release 3.1,
which features multi-byte support for Chinese, Japanese, and Korean languages.
For the third consecutive year, Convergys was rated one of "America's Most
Admired" companies in the diversified outsourcing industry according to Fortune
Magazine.
Convergys announced its second integrated contact center in India in Bangalore.
Orr continued, "Despite the current business environment, I continue to be
confident in Convergys' long-term growth prospects and opportunity to create
shareholder value. We are focused on our well-defined strategy of delivering
value to our clients. I continue to believe that current economic conditions
will lead companies to search for the most cost-effective method of delivering
quality service to their customers and that search will accelerate the movement
toward outsourcing. Convergys is well positioned to take advantage of this trend
in both our customer management and employee care businesses. In addition, when
the economy and the telecommunications market recover, our information
management business will be ready with the most advanced technology in billing
and customer care solutions designed to meet the specific needs of our clients."
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Operating Performance by Segment
Information Management Group (IMG)
Excluding intercompany sales, first quarter 2003 IMG revenues decreased 16
percent to $196.7 million, from $233.3 million in the same period last year.
Compared to the fourth quarter of 2002, IMG revenues decreased by only two
percent. Data processing revenues decreased 11 percent to $118.9 million from
$133.9 million, representing a 3 percent year-over-year decrease in wireless
subscribers processed and lower wireless average per subscriber processing
rates, partially offset by an increase in cable data processing revenues. The
decrease in wireless subscribers resulted from conversions off Convergys systems
during the third quarter of 2002, partially offset by slow subscriber growth
among Convergys' other wireless clients.
Professional and consulting revenues decreased 50 percent to $26.8 million from
$53.1 million reflecting a reduction in system enhancement requests and
implementations of new systems from Convergys' wireless and cable clients as
communications companies continued their constraints on IT spending. On a
positive note, license and other revenues increased slightly to $13.6 million
from $12.8 million reflecting the expanded relationship with one of Convergys'
largest cable clients. Also on the plus side, international revenues increased
12 percent to $37.4 reflecting combined revenue growth of approximately $11
million resulting from the July, 2002, acquisition of TelesensKSCL and
Convergys' expansion in the Asia Pacific and Latin American markets.
First quarter operating income for IMG decreased 50 percent to $28.2 million
from $56.4 million. Operating margin was 14.3 percent compared with 24.2 percent
from the first quarter of last year reflecting lower revenues, higher medical
and pension benefit costs, and increased selling, general, and administrative
expenses resulting from Convergys' international expansion. This was partially
offset by savings realized through the restructuring Convergys began in the
fourth quarter of 2002.
Customer Management Group
CMG revenues were $363.7 million, a 3 percent increase compared to $354.2
million in the first quarter of 2002, primarily reflecting increased levels of
business with many of Convergys' top 20 clients including several clients in the
financial services sector. CMG revenues were essentially flat versus the fourth
quarter of 2002, reflecting a normal seasonal progression.
CMG's operating income declined 2 percent to $43.0 million compared to $44.0
million in the prior year. CMG reported an 11.8 percent operating margin in the
first quarter of 2003, down from the 12.4 percent reported in the first quarter
of 2002. The decline reflects increases in wage, medical, and pension benefit
costs, and increased investment in the Employee Care business, partially offset
by the increase in revenues.
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Business Outlook
The following forward looking-statements reflect Convergys Corporation's
expectations as of April 22, 2003. Given the various risk factors discussed
below, actual results may differ materially. The company intends to continue its
practice of not updating forward-looking statements until its next quarterly
results announcement, other than in publicly available statements.
2003 Financial Guidance
For the full year of 2003, IMG revenue could decline by 7 to 15 percent from
2002 levels, and operating margin could be from 15 to 19 percent.
IMG second quarter revenue could be flat to up slightly from first quarter
levels due primarily to a possible increase in international revenue, which
could be partially offset by a further reduction in professional and consulting
revenue. The operating margin for IMG in the second quarter could improve from
first quarter levels, as the benefits of the restructuring initiative announced
last December begin to have a greater impact.
For the full year of 2003, CMG revenue could increase 6 to 11 percent from the
2002 level, and operating margin could be from 11 to 13 percent.
CMG second quarter revenue could be up slightly from the first quarter level as
revenue from the United States Postal Service begins to increase, and the first
parts of the initial implementation phase with the State of Florida are
completed. Operating margin could experience slight pressure from the first
quarter level as a result of continued investment in our Employee Care business.
Given the dynamics in the second quarter as described above, we expect second
quarter EPS to be $0.26 to $0.29. Including the settlement outlined for the
cellular partnership, for the full year of 2003 we expect EPS to be $1.01 to
$1.31.
ABOUT CONVERGYS
Convergys Corporation (NYSE: CVG), a member of the S&P 500 and the Forbes'
Platinum 400, is the global leader in integrated billing, employee care, and
customer care services provided through outsourcing or licensing. We serve top
companies in telecommunications, Internet, cable and broadband services,
technology, financial services, and other industries in more than 40 countries.
We also provide integrated, outsourced, human resource services to leading
companies across a broad range of industries.
We bring together world-class resources, software, and expertise to help create
valuable relationships between our clients and their customers and their
employees. This commitment is validated by the more than 1.5 million individual
bills our software produces each day to support more than 120 million
subscribers, and by the more than
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1.7 million separate customer and employee contacts we manage each day, both
live and via electronic interaction.
Convergys[r] employs more than 44,000 people in 45 customer contact centers and
in our data centers and other offices in the United States, Canada, Latin
America, Europe, the Middle East, and Asia. Convergys is on the net at
www.convergys.com, and has world headquarters in Cincinnati.
(Geneva is a trademark and Convergys, the Convergys logo, and Atlys are
registered trademarks of Convergys Corporation.)
NON-GAAP MEASURES:
This news release contains non-GAAP financial measures, including pro forma net
income and pro forma diluted earnings per share, which are not prepared in
accordance with GAAP. A reconciliation of these non-GAAP measures to the
comparable GAAP measures is included in the attached financial tables.
CONFERENCE CALL NOTE:
Convergys will host a one-hour conference call on Wednesday, April 23, at 10:00
AM, EDT, to discuss the company's first quarter results. It will feature Jim
Orr, Chairman, President, & CEO, and Steve Rolls, CFO. This call will be carried
live (with scheduled repeats) on the Internet. A link to the conference call is
available at www.convergys.com.
In addition to the non-GAAP financial measures contained in this news release,
during this conference call Convergys will disclose free cash flow, which is a
non-GAAP financial measure defined as cash flows from operations less the change
in the balance of the accounts receivable securitization and capital
expenditures. A reconciliation of free cash flow is available at
www.convergys.com in the section "Invest in Convergys."
"SAFE HARBOR" NOTE:
Information included in this news release may contain forward-looking statements
that involve potential risks for Convergys Corporation. The future results of
Convergys could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
the loss of a significant client or significant business from a client,
difficulties in completing a contract or implementing its provisions, or
completing or implementing an acquisition, potential terrorist activities and
the United States' response thereto, and competitive and other factors disclosed
in the Form 10-K for the year ended December 31, 2002, filed with the SEC by
Convergys Corporation. The company has no current intention of updating any
forward-looking statements that may be included herein.
Investor Contacts:
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Steve Rolls, Chief Financial Officer, +1 513 723 3440 or +1 888 284 9900 Taylor
Greenwald, Director of Investor Relations, +1 513 723 3961 or +1 888 284 9900 or
investor@convergys.com
Media Contact:
John Pratt, Convergys Corporate PR
+1 513 723 3333 or +1 888 284 9900 or john.pratt@convergys.com
International FreeFone, access AT&T, then 1 888 284 9900
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