Fourth Quarter 2008 Earnings Presentation
                              January 27, 2009
Forward-Looking Statements and Non-GAAP Measures


 This presentations contains “forward-looking statements,” - that is, s...
Agenda


  Operating Results


  Financial Review


  Business Outlook




                      3
Financial Summary – Q4’08

 • Revenue: $704 million
    – down 1% Y/Y, up 4% Q/Q
    – guidance was $725 – 745 million

 •...
STRATEGY

Focus on Relationship Management Approach

  • Strengthen relationships between clients and their
    customers
...
CUSTOMER MANAGEMENT

Focal Point - Relationship Management Strategy


  Q4’08 Progress
                                   ...
CUSTOMER MANAGEMENT

Continuing Sequential Live Agent Improvement
                                  – billable hours up sl...
CUSTOMER MANAGEMENT

Comprehensive Relationship Technologies Suite


  • Achieving Intervoice acquisition targets
      – ...
CUSTOMER MANAGEMENT

Continuing Demand in Q4’08



             Live Agent               Automated Care


  • Pipeline and...
INFORMATION MANAGEMENT

Facing Industry Slowdown

  • Revenues and operating income decline
  • Carrier investments curtai...
HR MANAGEMENT

Taking Actions to Improve Earnings and Cash Flow

  • Achieved key go-live milestones
      – completed key...
Attacking Costs Across The Company


 • Bonuses
 • Salary
 • Pension
 • Travel
 • Hiring
 • Restructuring
 • Facilities
 •...
Summary


 • Difficult economic environment
 • Sufficient liquidity
 • Executing relationship management strategy
 • Manag...
Agenda


  Operating Results


  Financial Review



  Business Outlook




                      14
Financial Highlights – Q4’08


 • Strong cash flow
 • Improving Customer Management operating margins
 • Cost reduction pl...
Goodwill Impairment and Restructuring Charges


 Goodwill Impairment                    Restructuring Costs
              ...
Convergys Revenues

    Quarterly Revenues
                              • Continuing demand in Q4’08
                ($M)...
Convergys Profitability


                  $Millions             Q4’07   Q3’08     Q4’08
         Operating income       ...
CUSTOMER MANAGEMENT

Revenues


                                       Q4 Summary
        Customer Management            •...
CUSTOMER MANAGEMENT

Operating Income


       $Millions                                      Q4’07          Q3’08    Q4’0...
INFORMATION MANAGEMENT

Revenues


                                    Q4 Summary
         Information Management     •   ...
INFORMATION MANAGEMENT

Operating Income


       $Millions                      Q4’07     Q3’08     Q4’08
       Restruct...
HR MANAGEMENT

Revenues


                                        Q4 Summary
               HR Management            •   I...
HR MANAGEMENT

Operating Income


       $Millions                           Q4’07   Q3’08    Q4’08
       Implementation,...
Non-operating Items


      $Millions                                Q4’07        Q3’08       Q4’08
      Cellular partner...
Free Cash Flow



    $Millions                                Q4’07         Q3’08         Q4’08
    Cash provided by oper...
Key Balance Sheet Accounts



   $Millions                   Q4’07   Q3’08   Q4’08
   Cash and cash equivalents   $120    ...
Agenda


  Operating Results


  Financial Review



  Business Outlook




                      28
2009 Business Outlook

                                     2009 Estimates
       Revenue
         Customer Management

  ...
Financial Summary – Q4’08

 • Revenue: $704 million
    – down 1% Y/Y, up 4% Q/Q
    – guidance was $725 – 745 million

 •...
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Convergys 4Q 2008 earnings release

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Convergys 4Q 2008 earnings release

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Convergys 4Q 2008 earnings release

  1. 1. Fourth Quarter 2008 Earnings Presentation January 27, 2009
  2. 2. Forward-Looking Statements and Non-GAAP Measures This presentations contains “forward-looking statements,” - that is, statements relating to future, not past, events. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest or exchange rates; continued volatility and further deterioration of the capital 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 which we serve; the loss of a significant client or significant business from a client; difficulties in completing a contract or implementing its provisions; and numerous other matters of national, regional and global scale, including those of the political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. Please refer to Convergys’ most recent news releases and 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. This presentation also includes non-GAAP financial measures including free cash flow. These non-GAAP measures should not be construed as being more important than comparable GAAP measures. Convergys’ management believes free cash flow 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 on the Convergys website at www.convergys.com Today’s presentation is intended to be reviewed in connection with Convergys’ fourth quarter 2008 earnings call. 2
  3. 3. Agenda Operating Results Financial Review Business Outlook 3
  4. 4. Financial Summary – Q4’08 • Revenue: $704 million – down 1% Y/Y, up 4% Q/Q – guidance was $725 – 745 million • EPS guidance excluded goodwill and restructuring charges – charges impact $0.54 – GAAP EPS loss $0.24 – guidance was ~$0.20 • Free cash flow: $99 million – solid cash flow Information Mgmt. and Customer Management – 9-day reduction in DSO – guidance was free cash flow > $30 million • Cash balance: $240 million 4
  5. 5. STRATEGY Focus on Relationship Management Approach • Strengthen relationships between clients and their customers – improved customer experience – lower client costs • Offer full range of interaction channels and capabilities – agent-assisted – technology – consulting • Intelligently match transactions to channels – segment transactions by value and complexity – cost-effectively direct customers to best channel Relationship management leader 5
  6. 6. CUSTOMER MANAGEMENT Focal Point - Relationship Management Strategy Q4’08 Progress Customer Management • Largest segment Revenues ($M) • Sequential progress $527 $483 $474 – Q/Q revenue up 9% – Q/Q margin up 50 bps • Intervoice acquisition contributing • Year-over-year impacts – $9 million restructuring Q4'07 Q3'08 Q4'08 – 180 bps foreign exchange Margin 7.5% 4.8% 5.3% 6
  7. 7. CUSTOMER MANAGEMENT Continuing Sequential Live Agent Improvement – billable hours up slightly • Live agent revenue up – offset by changing geographic mix – increases in communications market – turnover and absenteeism • Key factors driving – facility utilization improvement in operations – pricing – service quality – average handle time • Gaining competitive strength – first call resolution by improving client metrics – sales conversion rates – client satisfaction – closed underperforming centers in ‘08 • Managing delivery capacity – growth in Philippines to meet demand – expanding into Latin America – investing in home agent platform 7
  8. 8. CUSTOMER MANAGEMENT Comprehensive Relationship Technologies Suite • Achieving Intervoice acquisition targets – integration on track – realizing cost synergies – incremental revenue and operating income • Relationship technologies strategy – flexible delivery modes (license and services, or hosted) – offer high margin, standalone modules – deploy technologies into existing live agent operations • Benefits – better agent performance – competitive differentiation – cost advantages – client entanglement 8
  9. 9. CUSTOMER MANAGEMENT Continuing Demand in Q4’08 Live Agent Automated Care • Pipeline and win rate • Demand for technology to remained constant drive out cost • $78 million new program • Increased number of large 2009 revenue contracted deals Numerous cross-sell opportunities 9
  10. 10. INFORMATION MANAGEMENT Facing Industry Slowdown • Revenues and operating income decline • Carrier investments curtailed • Competing effectively in a challenging environment – breadth of solution offerings – winning new business – managing costs to preserve profitability • Business separation unlikely in the near term 10
  11. 11. HR MANAGEMENT Taking Actions to Improve Earnings and Cash Flow • Achieved key go-live milestones – completed key portions of 2 remaining implementations – passed peak quarterly implementation spend • Exploring with clients alternatives for future phases – partnering – modifying timing, approach, and/or scope • Driving further efficiencies and cost savings – additional automation – standardization – leveraging offshore assets • No new client contracts with implementation risk 11
  12. 12. Attacking Costs Across The Company • Bonuses • Salary • Pension • Travel • Hiring • Restructuring • Facilities • Capex 12
  13. 13. Summary • Difficult economic environment • Sufficient liquidity • Executing relationship management strategy • Managing businesses to maximize cash flow • Aggressive cost management 13
  14. 14. Agenda Operating Results Financial Review Business Outlook 14
  15. 15. Financial Highlights – Q4’08 • Strong cash flow • Improving Customer Management operating margins • Cost reduction plan and restructuring • “Go-live” in HR Management • Solid operating performance in tough environment 15
  16. 16. Goodwill Impairment and Restructuring Charges Goodwill Impairment Restructuring Costs • Streamlining business operations • Determined HR Management fair value < book value in Q3’08 • Aligning costs to future revenues • Completed impairment analysis in • Payback in less than 1 year Q4’08 • Resulted in Q4’08 charge: $61 million impairment $Millions Q4’08 Customer Management $8.6 Information Mgmt. $2.8 HR Management $8.7 16
  17. 17. Convergys Revenues Quarterly Revenues • Continuing demand in Q4’08 ($M) • Up 4% sequentially $714 $704 • Includes impact of $676 HRM – Intervoice acquisition – 3 client bankruptcies IM CM 4Q07 3Q08 4Q08 17
  18. 18. Convergys Profitability $Millions Q4’07 Q3’08 Q4’08 Operating income $59 $(242) $(36) Margin 8.2% -35.8% -5.1% Net income $45 $(140) $(30) GAAP EPS $0.34 $(1.15) $(0.24) - $1.44 $0.54 Impact of charges per share • $81 million Q4’08 impact on operating income from goodwill impairment and restructuring costs • $65 million Q4’08 impact on net income 18
  19. 19. CUSTOMER MANAGEMENT Revenues Q4 Summary Customer Management • Up 11% year-over-year Revenues ($M) • Sequential organic growth $527 $483 $474 INTV • Intervoice: $49 million • Billable hours up • More work to Philippines Q4'07 Q3'08 Q4'08 19
  20. 20. CUSTOMER MANAGEMENT Operating Income $Millions Q4’07 Q3’08 Q4’08 Restructuring costs - - $9 included in Operating income $35 $23 $28 Margin 7.5% 4.8% 5.3% • Sequential operating income and margin improvement due to: – Intervoice – program ramps and increased efficiencies in live agent operations – pay-for-performance policy • ~$9 million year-over-year foreign exchange impact • Investing in technology infrastructure, sales resources, consulting • Restructuring to streamline the business 20
  21. 21. INFORMATION MANAGEMENT Revenues Q4 Summary Information Management • North American client Revenues ($M) migration $176 • International project $134 completions $114 • Delayed project acceptance • Industry slowdown – lower subscriber growth – delayed spending – reductions in budgets Q4'07 Q3'08 Q4'08 NA consolidation 21
  22. 22. INFORMATION MANAGEMENT Operating Income $Millions Q4’07 Q3’08 Q4’08 Restructuring costs - - $3 included in Operating income $33 $17 $12 Margin 18.8% 13.0% 10.2% • Revenue decline drove reduced operating income in Q4’08 • FY2008 margin of 16.9% 22
  23. 23. HR MANAGEMENT Revenues Q4 Summary HR Management • Increases from August Revenues ($M) “go-live” $64 $64 $59 • Offset by elimination of pass-through revenues after Q2 Q4'07 Q3'08 Q4'08 Pass-through revenue 23
  24. 24. HR MANAGEMENT Operating Income $Millions Q4’07 Q3’08 Q4’08 Implementation, impairment and - $273 $70 restructuring costs included in Operating income $(6) $(280) $(70) Margin NM NM NM • Includes Q4’08 restructuring charge to drive – further efficiency – SG&A reductions – business approach modifications 24
  25. 25. Non-operating Items $Millions Q4’07 Q3’08 Q4’08 Cellular partnership earnings $7 $8 $10 Other income $0 $10 $6 Interest expense $(4) $(6) $(9) Total non-operating items $3 $12 $7 • Cellular Partnership contribution – $36 million earnings and $39 million cash in full year 2008 – $ 6 million cash in Q4’08 • Tax expense on pretax loss due to nondeductible goodwill 25
  26. 26. Free Cash Flow $Millions Q4’07 Q3’08 Q4’08 Cash provided by operating $99 $26 $127 activities Capital expenditures, net $(24) $(22) $(28) Free cash flow (non-GAAP) $75 $4 $99 • Factors impacting improvement in free cash flow include: – $ 47 million A/R collection – $ 36 million income before impairment and restructuring charges – $ 18 million other working capital – $(19) million deferred charges, net implementation revenues received amortization 26
  27. 27. Key Balance Sheet Accounts $Millions Q4’07 Q3’08 Q4’08 Cash and cash equivalents $120 $136 $240 Receivables - net $558 $594 $524 Debt maturing in one year $0 $8 $260 Long-term debt $259 $656 $406 27
  28. 28. Agenda Operating Results Financial Review Business Outlook 28
  29. 29. 2009 Business Outlook 2009 Estimates Revenue Customer Management HR Management Information Management Operating income and margin Interest expense Earnings per diluted share $0.90 to $1.10 Free cash flow ~$200 million 29
  30. 30. Financial Summary – Q4’08 • Revenue: $704 million – down 1% Y/Y, up 4% Q/Q – guidance was $725 – 745 million • EPS guidance excluded goodwill and restructuring charges – charges impact $0.54 – GAAP EPS loss $0.24 – guidance was ~$0.20 • Free cash flow: $99 million – solid cash flow Information Mgmt. and Customer Management – 9-day reduction in DSO – guidance was free cash flow > $30 million • Cash balance: $240 million 30

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