Despite a fourth quarter revenue loss driven by reduced carrier spending in Information Management and other factors, Convergys grew free cash to $99 million and positioned itself for an unpredictable 2009.
The Information Management group at Convergys continues to be a drag on earnings, dropping from $176.1 million in the fourth quarter last year to $113.6 million this year. But improved margins in Customer Management and a solid performance by recently acquired Intervoice offset the group’s performance, which was less than expected.
CEO David Dougherty said plans announced in early September to separate Information Management have been put on hold for now. “We want to keep our options open [for Information Management] but don’t think it’s doable in the current environment,” he said.
Instead, the company is working to manage both costs and expectation for 2009. For example, Convergys issued no management bonuses for 2008, eliminated salary increases for officers for 2009, made changes to the pension plan, reduced travel significantly, reduced contractor headcount and closed or sold 30 facilities in 2008.
“We’re being cautious particularly in revenue planning. We’re in a strong cash position and expect to increase cash flow in 2009,” Dougherty said.
Convergys’ fourth quarter revenue was $703.7 million, resulting in a net loss of $29.3 million. This included a non-cash goodwill impairment in the HR Management segment of $61.1 million. However, Convergys went live in the quarter with a major HR services contract for a Fortune 50 company. “The majority of the implementation expense is now behind us,” Dougherty said.
Analysts congratulated Convergys on its performance in creating cash flow from operating activities. It was $127.3 million in the quarter and ended the year with $99.1 million in free cash flow. The company’s full year 2008 consolidated results include revenue of $2,785.8 million and net loss of $92.9 million.
The improved liquidity and balance sheet puts Convergys in position to both invest in the business and pay off the $250 million bond due in December, Dougherty said.
Convergys’ Customer Management group performed well with fourth quarter revenue increasing to $526.6 million compared to $473.6 million in the same period last year.
Dougherty said forecasting 2009 is difficult and assumes the economic environment in 2009 will be generally consistent with current conditions, but that markedly different economic conditions could impact 2009 performance.
The company will be looking to its Relationship Management business to set the pace for the future. “We set out in 2007 to transform Convergys to [have a] focus in Relationship Management; our goal is to be the undisputed leader,” he said, adding that live agent opportunities continue to improve.
Although he believes lower call center volumes in 2009 may be the norm, improved client satisfaction will result in business drifting toward Convergys as companies look for the best performing call centers.
The remote agent field will also grow in 2009, he said. The company currently has 1,500 full time home-based agents in 22 states. While Convergys has closed four call center sites in Canada, it continues to invest in the Philippines and will approach 12,000 seats there in 2009. It also is partnering to expand into the Latin American market.
