Convergys boosts fourth quarter earnings

Convergys grew revenues in the final quarter of 2004 by 13% thanks to a 21% increase by its Customer Management Group, which provides customer care and employee care services. The company’s Information Management Group looks to get back on track with four new contracts.

Convergys’ $672.2 million in fourth quarter revenue was up $77.7 million from the same quarter in 2003. GAAP net income was $20.2 million or $0.14 per diluted share compared with $48.4 million or $0.33 in the fourth quarter of 2003.

The revenue increase from Convergys’ CMG was due largely from growth in its Sprint-IBM partnership, a large employee care contract and continued growth with DIRECTV. The company’s recent acquisitions of Encore, DigitalThink, and Finali accounted for approximately one-third of the growth.

During the quarter Convergys extended its contract with Sprint to support the operator’s wireless wholesale billing. Sprint will transition from an in-house system based on a competitor's platform to an outsourced Convergys billing platform. Sprint also will license Convergys’ Infinys software to combine its rating activities.

As for the Sprint Nextel merger, James Orr, chairman, president and chief CEO of Convergys said, “While we can’t predict what decisions Sprint and Nextel will make, we believe the acquisition provides Convergys an important opportunity. We look forward to working closely with the combined company upon completion of their merger.”

Orr added that on the customer care side of the business, he is optimistic about the initial opportunities represented by the combination.

Orr pointed to the part Convergys is playing in Cingular’s transition after the close of the operator’s acquisition of AT&T Wireless in October. “Convergys has been a partner in the integration efforts since that point in time,” he said. “Convergys is committed to helping the new Cingular implement their billing strategy and maintain the highest levels of customer service.”

Orr expects the Cingular relationship to evolve over time, but said, “Based on our current dialogue, we expect Convergys to have an important roll in both billing and customer care at Cingular for the foreseeable future.”

Also in the quarter, the IMG signed what Orr said was a large, five-year, outsourced customer care agreement with a communications company valued at $300 million. Convergys also got its first customer care agreement with an Australian-based integrated communications provider, Optus, for which it will provide domestic contact center operations from a facility in India.

The CMG helped Qatar telecom launch advanced billing applications using Infinys technology. The billing system supports fixed and mobile telephony, video, and data.

“This robust solution clearly represents the future of communications billing services,” Orr said.

Orr said the company would continue the restructuring plan it announced in October and would make further management cuts in the IMG. “"Our restructuring efforts should be substantially concluded by June 30, 2005. When complete, we expect to generate annual savings in excess of $50 million," he said.

Convergys recorded a net, pre-tax restructuring charge of $30.4 million, which included a severance charge of $36.7 million related to the reduction in force initiated during the fourth quarter.

Convergys IMG's external revenues decreased 3 percent to $197.9 million in the fourth quarter of 2004 from $203.7 million in the same period last year. However, professional and consulting revenues of $38.4 million more than doubled from the prior year. This increase reflects revenues resulting from the acquisition of the ALLTEL billing assets as well as an increase in services provided to various wireless and cable clients. License and other revenues increased 18 percent from the prior year to $19.4 million thanks to expanded relationships with North American cable and wireless clients. International revenues decreased 17% percent. Orr also sees significant outsourcing opportunities in the pipeline and expects overall revenue to grow approximately 10 percent in 2005 with operating income, excluding the costs of the fourth quarter 2004 restructuring charge. He expects CMG’s first quarter revenue to increase approximately 20% and IMG’s to be flat.