Convergys Corporation Q2 2010 Earnings Call Transcript

Convergys Corporation Q2 2010 Earnings Call Transcript
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Convergys Corporation (CVG)

Q2 2010 Earnings Call

August 10, 2010 8:30 AM ET

Executives

David Stein – Vice President, Investor Relations

Jeff Fox – President and CEO

Earl Shanks – Chief Financial Officer

Analysts

Kevin Mcveigh – Macquarie

Scott Sutherland – Wedbush Securities

Jason Kupferberg – UBS

Matt McCormack – BGB Securities

Gary Bisbee – Credit Suisse

T.C. Robillard – Signal Hill Capital Group

Dave Koning – Baird

Ashwin Shirvaikar – Citi

Presentation

Operator

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Welcome to the Convergys Second Quarter 2010 Earnings Teleconference. Today’s conference is being recorded. If anyone objects they may disconnect. All parties will be on listen-only for the presentation. (Operator Instructions)

I’d like to turn the conference over to Mr. David Stein, Vice President of Investor Relations. Sir, you may begin.

David Stein

Thank you, Catherine and good morning. Welcome to Convergys’ second quarter 2010 earnings call and webcast presentation. This call is the property of Convergys. Please note that slides accompanying today’s prepared remarks are available on the Convergys Investor Relations website under events and webcasts.

Today’s call contains forward-looking statements that address our expected future performance and that by their nature address matters that are uncertain. Uncertainties that could adversely or positively affect our future results include the behavior of financial markets, the impact of regulation and regulatory, investigative and legal actions, strategic actions including acquisitions and dispositions, future integration of acquired businesses, future financial performance of major industries we serve, loss of a significant client or significant business from a client, difficulties in completing a contract or implementing its provisions, and other matters of national, regional and global scale.

These uncertainties may cause our actual future results to be materially different from those expressed in our forward-looking statements. Please refer to Convergys’ most recent filings with the SEC for additional information including risk factors. We do not undertake to update our forward-looking statements as a result of new information or future events or developments.

During the call, we’ll discuss non-GAAP financial measures including free cash flow and results from continuing operations, adjusted for impacts related to the sale of the HR Management business and charges related to restructuring the business. Non-GAAP measures should not be construed as being more important than comparable GAAP measures.

Convergys’ management believes free cash flow and results from continuing operations adjusted for HR Management-related impacts and charges related to restructuring the business, provides the users of the financial statements with a more comprehensive understanding of the company’s underlying performance. A reconciliation of these non-GAAP measures is available in the news release and on the Convergys website at www.convergys.com.

With me on the call today are Jeff Fox, our President and Chief Executive Officer and Earl Shanks, our Chief Financial Officer. Jeff will provide a summary of our operating results, Earl will cover our financial performance and business then we’ll open the call for your questions.

Now, I’ll turn the call over to Jeff.

Jeff Fox

Good morning, everyone and thank you for joining us. On a consolidated basis, total earnings from the company in the second quarter were $0.22 per diluted share. EPS from continuing operations was $0.19 per share on a non-GAAP basis. These results exclude charges of approximately $18 million for actions we took in the quarter to reduce costs. In addition, some items related to the successful sale of our HR Management business are also excluded from these numbers. Earl will provide more detail on the specifics around EPS in a few minutes.

Now, I’d like to talk about the results from our continuing operations in the quarter. Revenue from continuing operations totaled $528 million. While consistent with the caution we expressed on our last call, this was a bit lower than we expected. Adjusting EBITDA came in at $67 million for the second quarter. This was $5 million less than last quarter.

We generated strong adjusted free cash flow of $79 million and strengthened the balance sheet during the quarter. This helped drive the $73 million improvement in net debt compared with the first quarter. We also took material steps during the quarter to simplify the business and improve our cost structure. As Earl will review later, we are tightening our 2010 business outlook to reflect the progress we’ve made and the opportunities we see near term in our client base.

To be frank, the $67 million of EBITDA generated this quarter is not enough, given the collective opportunities we have here at Convergys. As a team, we are focused on simplifying the business and executing a plan to get back to profit and revenue growth.

The first step we took to focus and simplify our business was to substantially complete the sale of the HR Management business in the second quarter. This allows us to simplify our business and focus on investment of capital in businesses where we are a market leader. We are simplifying the way we engage our clients. We are focusing on the metrics that matter most and I’m personally listening to our clients in order to understand how we can provide the most value to them in this challenging business environment.

Specifically, we are hearing that our clients need technology and processes for [right showing], call type handling and customer life cycle management. I believe we have made the investments to be positioned to help our clients with these complex issues. Our clients are eager to hear our ideas since we spend so much time interacting with our customers and I see evidence that our clients value us as a partner. Several clients have told me that they value our scale and skill and our overall client satisfaction level remains strong.

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