Convergys Corp. acknowledged some tough times in its HR Management business today during its third-quarter earnings call, but reported that income and margins in its Customer Management business grew by 20 percent.
Consolidated revenue dropped to $676.2 million in the quarter from $703.7 million in the same period last year. The company lost $140 million due in large part to a write down of deferred charges related to HR Management contracts of $272.9 million.
Customer Management revenue grew to $483.2 million compared with $462.9 million in the same period last year. Operating income and margins improved on a sequential basis by 20 percent and 70 basis points, respectively, reflecting tight labor and cost management.
The Information Management group, which Convergys has been contemplating splitting off, saw revenues drop to $133.6 million compared with $177.6 million in the same period last year. The Information Management group remains on track to meet the company’s 2008 guidance.
David Dougherty, president and CEO of Convergys, said the company is making progress in its evaluation of its Information Management business, however, he said economic and financial environment is different today from when the company made the announcement and his team is taking that into consideration.
“We continue the evaluation of a potential separation of the Information Management business against the backdrop of the current credit markets and currently expect to provide an update after the first of the year,” Dougherty said.
The verdict is in, however, on the operational improvements the company has made to its Customer Management business, particularly its acquisition of Intervoice in September for $335 million.
“The Intervoice integration is off to a strong start. There are immediate benefits taking shape,” Dougherty said, pointing out that the companies already have their first joint implementation for their combined automated and live agent solution.
“Even with the challenging economic environment, we're beginning to see the benefit of the changes we've made in the Customer Management segment reflected in sequential revenue and operating margin improvement. The Intervoice acquisition, completed in the quarter, has positioned Convergys for growth and continued leadership in relationship management,” Dougherty said.
Convergys expects Intervoice to generate $200 million in revenue next year and expects standalone profit margins for Intervoice to increase.
The company said its cash flow is still strong. Cash flow from operating activities was $26.2 million in the third quarter. Free cash flow in the quarter was $3.7 million.
Dougherty did say that he sees volume softness in some programs and a softening in client forecasts for the fourth quarter as more evidence of a slowing economy. However, the sector overall is holding up well, he said. “Communications companies are doing pretty darn well. It’s a good thing to be attached to the communications market right now.”
CFO Earl Shanks said it is not yet clear how the global financial crisis may affect the company’s clients and its guidance reflects that volatility and uncertainty. Convergys’ fourth quarter expectations put revenue in the range of $725 million to $745 million. It expects earnings of approximately $0.20 per diluted share, driven by sequential revenue growth and improved operating margins.
The company will provide more guidance for 2009 in its fourth quarter call, but at this point expects year-over-year revenue growth and improved operating performance excluding discrete charges.
