Convergys Reports Second Quarter Results: Customer Management Operating Income Up 90 Percent; Charges Related to Two HR Management Contracts; Strong Free Cash Flow; Improved Liquidity

CINCINNATI--(Business Wire)--
Convergys Corporation (NYSE: CVG), a global leader in relationship management,
today announced its financial results for the second quarter of 2009, including
strong free cash flow, significantly improved liquidity, year-over-year
improvement in Customer Management operations, and sequential improvement in
Information Management operations. Second quarter results also include charges
of $121 million associated with the two remaining HR Management implementations.
These charges principally relate to one client that delayed go-live on the next
phase of implementation.

Second Quarter Highlights

* Strong free cash flow of $103 million compared with negative $6 million in the
prior year period.
* Cash balance increased to $336 million, after retiring $55 million of Senior
Notes, compared with $278 at the end of the 2009 first quarter; also established
a new $125 million accounts receivable securitization facility which remains
undrawn.
* Non-GAAP operating income was $50 million, a 5 percent increase compared with
the prior year period, excluding implementation-related and asset impairment
charges of $121 million associated with two HR Management contracts; GAAP
operating loss of $71 million in the second quarter.
* Non-GAAP net income was $35 million, or $0.28 per diluted share, excluding the
HR Management-related charges; GAAP net loss of $61 million, or $0.50 per
diluted share, in the second quarter.
* Customer Management revenue was up 5 percent, operating income was up 90
percent, and operating margin improved 340 basis points compared with the prior
year period.

"We delivered very strong free cash flow and significantly improved our
liquidity position in a challenging economic environment," said David Dougherty,
President and CEO of Convergys. "I`m particularly pleased with the improvement
in Customer Management and the sequential improvement in Information Management.
Customer Management operating performance improved despite call volume softness
with some existing clients. Information Management grew revenues sequentially,
maintained double-digit margins, and continued to build the pipeline for its
existing and new applications. However, the impact of the charges related to the
remaining two HR Management implementations was significant."

Dougherty continued, "Most of the charges in HR Management relate to one client
that delayed go-live on the next phase of implementation beyond what we
expected. We`re negotiating with both clients to reach mutually acceptable plans
and financial outcomes and we`ve taken actions to reduce costs."

Second Quarter Performance

HR Management-Related Charges - Second quarter 2009 charges of $121 million
associated with two HR Management contracts principally reflect the following:

* The decision by one client to delay go-live with the next phase of
implementation on the expected schedule. Convergys is negotiating with the
client to enable the parties to accomplish the project objectives while meeting
the financial requirements of both parties and has taken actions to reduce the
rate of spend.
* A charge related to the other client implementation, as Convergys is actively
negotiating and has made a proposal to the client that changes scope and
eliminates future implementation cost. Convergys would continue to provide
ongoing HR services for select geographies.

The HR Management-related charges include: $88 million reported as cost of goods
sold relating to excess implementation costs that were expensed rather than
capitalized in accordance with Convergys` accounting policy, and anticipated
costs to restructure a contract; and $33 million recorded as asset impairment
representing impairment of previously deferred costs related to contracts the
company anticipates restructuring.

Cash to be spent in future quarters associated with the HR Management-related
charges represents less than one-third of the total charges.

Revenues - Second quarter 2009 revenues were $683 million compared with $690
million in the same period last year. Revenue growth from Customer Management
and HR Management largely offset the expected decline in Information Management.

Operating Income (Loss) - Operating loss in the second quarter of 2009 was $71
million. Operating income would have been $50 million, excluding the HR
Management-related charges, compared with operating income of $47 million in the
same period last year.

Net Income(Loss) - Net loss in the second quarter of 2009 was $61 million, or
$0.50 per diluted share. Net income would have been $35 million, or $0.28 per
diluted share, excluding the HR Management-related charges, compared with net
income of $41 million, or $0.32 per diluted share, in the same period a year
ago.

Cash Flow - Second quarter 2009 cash flow from operating activities and free
cash flow were $126 million and $103 million, respectively, compared with $17
million and negative $6 million in the same period a year ago. The strong free
cash flow was largely due to a 6-day reduction in days sales outstanding from 66
days at the end of the prior quarter to 60 days. Cash balance increased to $336
million at the end of the second quarter, after repurchasing $55 million of
Senior Notes during the quarter, compared with $278 million at the end of the
2009 first quarter. In addition, Convergys established a new $125 million
accounts receivable securitization facility which remains undrawn.

Customer Management - Second quarter 2009 Customer Management revenues increased
5 percent to $495 million, including $39 million from Intervoice [R], compared
with $469 million in the same period last year. Operating income nearly doubled
to $37 million compared with $19 million in the same period last year, largely
driven by effective workforce management and disciplined cost management.
Operating margin increased 340 basis points to 7.5 percent compared with 4.1
percent in the same period last year. Second quarter 2009 results include
approximately $4 million of benefit due to the strengthened US dollar compared
with the same period last year.

Information Management - Information Management revenues in the 2009 second
quarter were $115 million compared with $161 million in the same period last
year, due to expected client migrations in North America and international
project completions. Operating income was $17 million compared with $38 million
in the same period last year primarily due to the revenue declines. Operating
margin was 14.8 percent in the 2009 second quarter, compared with 23.5 percent
in the same period last year.

HR Management - Second quarter 2009 HR Management revenues were $73 million
compared with $59 million in the same period last year. This reflects revenue
growth from early-stage live operations of the two large contracts discussed
above. The operating loss was $119 million. Operating income would have been $2
million, excluding the charges discussed above, compared to a loss of $4 million
in the same period last year.

Business Outlook

For the full year 2009, Convergys currently expects:

* Revenue growth in HR Management, flat revenue in Customer Management, and
revenue declines in Information Management.
* Convergys is working with two clients to restructure HR Management
implementation contracts. However, as Convergys is in the negotiating process,
it is not possible to estimate the timing or the amount of potential impact
these contract restructurings could have on 2009 earnings. Given this
uncertainty, Convergys is now providing full year 2009 earnings guidance on a
non-GAAP basis, which excludes the impact of HR Management-related charges in
2009 ($9 million in the 2009 first quarter, $121 million in the 2009 second
quarter, and potential future charges in the second half of 2009). Accordingly,
this revised non-GAAP earnings guidance is not directly comparable to the 2009
GAAP earnings guidance previously provided. Future HR Management-related charges
could be material to Convergys consolidated financial results and balance sheet.
Excluding the HR Management-related charges in 2009, Convergys expects non-GAAP
2009 earnings of $1.00 to $1.10 per diluted share.
* Convergys expects 2009 free cash flow of $160 million to $200 million. In
addition, Convergys expects approximately $40 million cash flow from the
cellular partnership that is not included in free cash flow. This revised
outlook reflects the uncertainty regarding the timing of future HR
Management-related implementation spending and revenues received.

Forward-Looking Statements Disclosure and "Safe Harbor" Note:

This news release contains forward-looking statements that reflect Convergys'
expectations as of July 30, 2009. Actual results of Convergys could differ
materially from those discussed herein. 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.

Non-GAAP Financial Measures:

This news release contains non-GAAP financial measures as defined by the
Securities and Exchange Commission Regulation G. Pursuant to the requirements of
this regulation, reconciliations of these non-GAAP measures to their comparable
GAAP measures are included in the attached financial tables.

Management uses free cash flow to assess the financial performance of the
company. Convergys` management believes that free cash flow is useful to
investors because it relates the operating cash flow of the company to the
capital that is spent to continue and improve business operations, such as
investment in the company`s existing businesses. Further, free cash flow
facilitates management`s ability to strengthen the company`s balance sheet, to
repurchase the company`s stock and to repay the company`s debt obligations.
Limitations associated with the use of free cash flow include that it does not
represent the residual cash flow available for discretionary expenditures as it
does not incorporate certain cash payments including payments made on capital
lease obligations or cash payments for business acquisitions. Management
compensates for these limitations by using both the non-GAAP measure, free cash
flow, and the GAAP measure, cash from operating activities, in its evaluation of
performance. There are no material purposes for which we use this non-GAAP
measure beyond the purposes described above.

Management uses operating income and earnings per share data excluding the
implementation-related and asset impairment charges to assess the current
operational performance of the business for the year and to have a basis to
compare results to prior and future periods. The implementation-related and
asset impairment charges are relevant in evaluating the overall performance of
the business. Limitations associated with the use of the non-GAAP measure
include that this measure does not include all of the amounts associated with
our results as determined in accordance with GAAP. Management compensates for
these limitations by using both the non-GAAP measure, operating income and
diluted earnings per share excluding the charges, and the GAAP measure operating
income and diluted earnings per share, in its evaluation of performance. There
are no material purposes for which we use this non-GAAP measure beyond described
above.

These non-GAAP measures should be considered supplemental in nature and should
not be considered in isolation or be construed as being more important than
comparable GAAP measures. The non-GAAP financial information that we provide may
be different from that provided by our competitors or other companies.

Webcast Presentation:

Convergys will hold its Second Quarter Financial Results webcast presentation at
10:00 A.M., Eastern Daylight Time, Thursday, July 30, 2009. It will feature
President and CEO David F. Dougherty and Earl C. Shanks, CFO. The webcast
presentation will take place live and will then be available for replay via the
following link --
http://investor.shareholder.com/convergys/eventdetail.cfm?eventid=70756 The
replay will be available through August 31, 2009.

About Convergys

Convergys Corporation (NYSE: CVG) is a global leader in relationship management.
We provide solutions that drive more value from the relationships our clients
have with their customers and employees. Convergys turns these everyday
interactions into a source of profit and strategic advantage for our clients.

For more than 30 years, our unique combination of domain expertise, operational
excellence, and innovative technologies has delivered process improvement and
actionable business insight to clients that now span more than 70 countries and
35 languages.

Convergys is a member of the S&P 500 and has been voted a Fortune Most Admired
Company for nine consecutive years. We have approximately 75,000 employees in 86
customer contact centers and other facilities in the United States, Canada,
Latin America, Europe, the Middle East, and Asia, and our global headquarters in
Cincinnati, Ohio. For more information, visit www.convergys.com

(Convergys, Intervoice, and the Convergys logo are registered trademarks of
Convergys Corporation.)

To receive Convergys news releases by email, click HERE.

Convergys Corporation
Consolidated Statements of Income
(Unaudited)

For the Three Months For the Six Months
Ended Jun. 30, % Ended Jun. 30, %
(In millions except per share amounts) 2009 2008 Change 2009 2008 Change

Revenues $ 682.7 $ 689.5 (1) $ 1,377.4 $ 1,405.9 (2)

Costs and Expenses:
Cost of Providing Services and Products Sold 505.9 459.6 10 948.9 931.6 2
Selling, General and Administrative 161.6 139.7 16 321.8 289.9 11
Research and Development Costs 20.3 11.7 74 39.5 22.3 77
Depreciation 30.5 29.1 5 60.8 57.8 5
Amortization 3.0 2.0 50 6.2 3.9 59
Restructuring Charges 0.0 0.0 NA 0.0 14.1 (100)
Asset Impairment 32.5 0.0 NA 32.5 0.0 NA
Total Costs and Expenses 753.8 642.1 17 1,409.7 1,319.6 7

Operating Income (Loss) (71.1 ) 47.4 NA (32.3 ) 86.3 NA

Equity in Earnings of Cellular Partnerships 10.8 11.3 (4) 21.5 18.1 19
Other Income, net (4.4 ) (0.8 ) NA (9.8 ) (1.9 ) NA
Interest Expense (6.9 ) (4.0 ) 73 (13.7 ) (7.8 ) 76

Income (Loss) Before Income Taxes (71.6 ) 53.9 NA (34.3 ) 94.7 NA

Income Tax Expense (Benefit) (10.7 ) 13.4 NA (1.4 ) 18.3 NA

Net Income (Loss) $ (60.9 ) $ 40.5 NA $ (32.9 ) $ 76.4 NA

Earnings (Loss) Per Common Share
Basic $ (0.50 ) $ 0.33 NA $ (0.27 ) $ 0.61 NA
Diluted $ (0.50 ) $ 0.32 NA $ (0.27 ) $ 0.60 NA

Weighted Average Common Shares Outstanding
Basic 122.8 123.0 122.6 125.0
Diluted 122.8 125.3 122.6 127.2

Market Price Per Share
High $ 10.58 $ 16.75 $ 10.58 $ 16.75
Low $ 8.38 $ 14.62 $ 5.56 $ 13.66
Close $ 9.28 $ 14.86 $ 9.28 $ 14.86

Convergys Corporation
Consolidated Balance Sheets

(Unaudited)
Jun. 30, Dec. 31,
(In millions) 2009 2008

Assets

Cash and Cash Equivalents $ 336.0 $ 240.0
Receivables - Net 452.8 523.8
Other Current Assets 190.3 214.2
Property and Equipment - Net 405.4 420.9
Other Assets 1,462.0 1,442.5
Total Assets $ 2,846.5 $ 2,841.4

Liabilities and Shareholders' Equity

Debt Maturing in One Year $ 200.7 $ 259.5
Other Current Liabilities 527.7 538.7
Other Liabilities 538.2 486.7
Long-Term Debt 407.1 406.4
Common Shareholders' Equity 1,172.8 1,150.1
Total Liabilities and Shareholders' Equity $ 2,846.5 $ 2,841.4

Convergys Corporation
Summarized Statement of Cash Flow
(Unaudited)

For the Three Months For the Six Months
Ended Jun. 30, Ended Jun. 30,
(In millions) 2009 2008 2009 2008

Cash provided by operating activities $ 125.8 $ 16.6 $ 181.6 $ 42.1

Cash used in investing activities (11.4 ) (a) (26.4 ) (a) (27.3 ) (b) (37.4 ) (b)

Cash used in financing activities (55.9 ) (15.3 ) (58.2 ) (70.1 )

Net increase (decrease) in cash $ 58.5 ($25.1 ) $ 96.1 ($65.4 )

(a) Includes $22.5 and $22.5 of capital expenditures, net, for the three months ended Jun. 30, 2009 and 2008, respectively.

(b) Includes $45.3 and $41.4 of capital expenditures, net, for the six months ended Jun. 30, 2009 and 2008, respectively.

Convergys Corporation
Segment Revenues and Operating Income
(Unaudited)

For the Three Months For the Six Months
(In millions) Ended Jun. 30, % Ended Jun. 30, %
2009 2008 Change 2009 2008 Change

Revenues:
Customer Management $ 494.6 $ 469.0 5 $ 1,011.5 $ 945.0 7
Information Management 115.1 161.1 (29) 222.7 324.3 (31)
HR Management 73.0 59.4 23 143.2 136.6 5
Total $ 682.7 $ 689.5 (1) $ 1,377.4 $ 1,405.9 (2)

Operating Income (Loss):
Customer Management $ 36.9 $ 19.4 90 $ 77.2 $ 41.3 87
Information Management 17.0 37.9 (55) 29.5 67.4 (56)
HR Management (119.4 ) (4.2 ) NA (128.9 ) (9.1 ) NA
Corporate and Other (5.6 ) (5.7 ) (2) (10.1 ) (13.3 ) (24)
Total $ (71.1 ) $ 47.4 NA $ (32.3 ) $ 86.3 NA

CONVERGYS CORPORATION
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow
(Unaudited)

For the Three Months For the Six Months
Ended Jun. 30, Ended Jun. 30,
(In millions) 2009 2008 2009 2008

Cash provided by operating activities $ 125.8 $ 16.6 $ 181.6 $ 42.1

Capital expenditures, net (22.5 ) (22.5 ) (45.3 ) (41.4 )

Free cash flow (a non-GAAP measure) $ 103.3 $ (5.9 ) $ 136.3 $ 0.7

Free cash flow - Management uses free cash flow to assess the financial performance of the Company. Convergys' Management believes that free cash flow is useful to investors because it relates the operating cash flow of the Company to the capital that is spent to continue and improve business operations, such as investment in the Company`s existing businesses. Further, free cash flow facilitates Management`s ability to strengthen the Company`s balance sheet, to repurchase the Company`s common shares and to
repay the Company`s debt obligations. Limitations associated with the use of free cash flow include that it does not represent the residual cash flow available for discretionary expenditures as it does not incorporate certain cash payments including payments made on capital lease obligations or cash payments for business acquisitions. Management compensates for these limitations by using both the non-GAAP measure, free cash flow, and the GAAP measure, cash from operating activities, in its evaluation of
performance. There are no material purposes for which we use this non-GAAP measure beyond the purposes described above. This non-GAAP measure should be considered supplemental in nature and should not be considered in isolation or be construed as being more important than comparable GAAP measures.

Convergys Corporation
Reconciliation of GAAP EPS to Non-GAAP EPS
(In Millions Except Per Share Amounts)

Consolidated Income Income Tax Net Income Diluted
Operating (Loss) (Expense)/ (Loss) EPS
Income Before Tax Benefit
(Loss)

Second Quarter 2009

Results as reported under U.S. GAAP $ (71.1 ) $ (71.6 ) $ 10.7 $ (60.9 ) $ (0.50 )

Less:
Implementation-related and asset impairment charges (121.0 ) (121.0 ) 25.2 (95.8 ) (0.78 )

Adjusted results (a non-GAAP measure) 49.9 49.4 $ (14.5 ) 34.9 0.28

Year to Date 2009

Results as reported under U.S. GAAP $ (32.3 ) $ (34.3 ) $ 1.4 $ (32.9 ) $ (0.27 )

Less:
Implementation-related and asset impairment charges (129.6 ) (129.6 ) 28.4 (101.2 ) (0.82 )

Adjusted results (a non-GAAP measure) 97.3 95.3 (27.0 ) 68.3 0.55

Second Quarter 2008

Results as reported under U.S. GAAP $ 47.4 $ 53.9 $ (13.4 ) $ 40.5 $ 0.32

Less:
Restructuring Charges - - - - -

Adjusted results (a non-GAAP measure) $ 47.4 $ 53.9 $ (13.4 ) $ 40.5 $ 0.32

Year to Date 2008

Results as reported under U.S. GAAP $ 86.3 $ 94.7 $ (18.3 ) $ 76.4 $ 0.60

Less:
Restructuring charges (14.1 ) (14.1 ) 4.5 (9.6 ) (0.08 )

Adjusted results (a non-GAAP measure) $ 100.4 $ 108.8 $ (22.8 ) $ 86.0 $ 0.68

In the second quarter of 2009, the Company recorded implementation-related and asset impairment charges associated with two HR Management contracts, of which (a) $88 recorded within the cost of providing services and products sold caption, related to excess implementation costs that were expensed rather than capitalized in accordance with the Company's accounting policy and anticipated costs to restructure a contract and (b) $33 for impairment of previously deferred costs related to contracts the Company
anticipates restructuring. First quarter 2009 results include $9 recorded within the cost of providing services and products sold caption, related to excess implementation costs that were expensed rather than capitalized in accordance with the Company's accounting policy. The Company uses operating income and earnings per share data excluding the implementation-related and asset impairment charges to assess the current operational performance of the business for the year and to have a basis to compare
results to prior and future periods. The implementation-related and asset impairment charges are relevant in evaluating the overall performance of the business. Limitations associated with the use of the non-GAAP measure include that this measure does not include all of the amounts associated with our results as determined in accordance with GAAP. Management compensates for these limitations by using both the non-GAAP measure, operating income and diluted earnings per share excluding the charges, and the
GAAP measure operating income and diluted earnings per share, in its evaluation of performance. There are no material purposes for which we use this non-GAAP measure beyond described above.

Convergys Corporation
Reconciliation of HR Management GAAP Operating Income to Non-GAAP Operating Income
(In Millions Except Per Share Amounts)

HR Management
Operating
Income (Loss)
Second Quarter 2009

Results as reported under U.S. GAAP $ (119.4 )

Less:
Implementation-related and asset impairment charges (121.0 )

Adjusted results (a non-GAAP measure) 1.6

Year to Date 2009

Results as reported under U.S. GAAP $ (128.9 )

Less:
Implementation-related and asset impairment charges (129.6 )

Adjusted results (a non-GAAP measure) 0.7

Second Quarter 2008

Results as reported under U.S. GAAP $ (4.2 )

Less:
Restructuring Charges -

Adjusted results (a non-GAAP measure) (4.2 )

Year to Date 2008

Results as reported under U.S. GAAP $ (9.1 )

Less:
Restructuring charges (1.8 )

Adjusted results (a non-GAAP measure) (7.3 )

In the second quarter of 2009, the Company recorded implementation-related and asset impairment charges associated with two HR Management contracts, of which (a) $88 recorded within the cost of providing services and products sold caption, related to excess implementation costs that were expensed rather than capitalized in accordance with the Company's accounting policy and anticipated costs to restructure a contract and (b) $33 for impairment of previously deferred costs related to contracts the Company
anticipates restructuring. First quarter 2009 results include $9 recorded within the cost of providing services and products sold caption, related to excess implementation costs that were expensed rather than capitalized in accordance with the Company's accounting policy. The Company uses operating income and earnings per share data excluding the implementation-related and asset impairment charges to assess the current operational performance of the business for the year and to have a basis to compare
results to prior and future periods. The implementation-related and asset impairment charges are relevant in evaluating the overall performance of the business. Limitations associated with the use of the non-GAAP measure include that this measure does not include all of the amounts associated with our results as determined in accordance with GAAP. Management compensates for these limitations by using both the non-GAAP measure, operating income and diluted earnings per share excluding the charges, and the
GAAP measure operating income and diluted earnings per share, in its evaluation of performance. There are no material purposes for which we use this non-GAAP measure beyond described above.

Convergys Corporation
David Stein, Investor Relations
+1 513 723 7768 or investor@convergys.com
or
John Pratt, Corporate Communications
+1 513 723 3333 or john.pratt@convergys.com

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