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Convergys Reveals Its Financial Results for Q2 2006

Convergys Corporation has announced its financial results for the second quarter of 2006.

Highlights:
== Convergys total revenue up 10 percent; operating income up 65 percent
== Customer Care operating income jumped 146 percent; revenue up 14 percent
== Strong international growth in Information Management
== Employee Care revenue up 32 percent; operating losses reduced by 34 percent
== 2006 GAAP EPS guidance increased to at least $1.11 per share

Revenues of $691.8 million were up 10 percent compared to the second quarter of 2005 reflecting growth in both Customer Care and Employee Care.

Operating income increased 65 percent to $62.8 million compared with $38.0 million in the prior year. Second quarter 2005 results included a restructuring charge of $8.9 million. Revenue growth and cost savings from 2005 initiatives at both Customer Care and Employee Care contributed to the improvement in results. Net income increased 55 percent to $39.8 million versus $25.6 million in the prior year. EPS increased 56 percent to $0.28 per diluted share versus $0.18 per diluted share in the prior year.

Non-cash stock-based compensation expense in the second quarter was $7.4 million, or $0.04 per diluted share, compared to $6.5 million in the prior year.

Operating Performance by Segment

* Customer Care
Customer Care revenues of $446.2 million were up 14 percent compared to prior year. Revenues increased in each Customer Care industry vertical - Communications, Financial, Technology and Other. Customer Care's operating income and operating margin were $48.2 million and 10.8 percent, respectively, compared with $19.6 and 5.0 percent in the prior year.

Second quarter 2005 results included an $8.3 million restructuring charge. The operating income improvement reflects both revenue growth and operational efficiencies. Increased costs caused by the impact of a weakened U.S. versus Canadian dollar partially offset these items.

* Information Management
Information Management revenues were down to $195.4 million from $200.7 million in the same period last year. Strong growth in international operations largely offset declines in North America. Information Management operating income of $30.5 million was down 16 percent compared to prior year. Operating income margin of 15.6 percent was down 250 basis points from the prior year. The majority of the decrease from last year was due to changes in the revenue mix from data processing to license and professional services, partially offset by operational improvements.

* Employee Care
Employee Care revenues of $50.2 million were up 32 percent compared to $38.0 million in the same period last year. Revenues increased from two recent client implementations. Employee Care operating loss improved 34 percent to $8.2 million compared to an operating loss of $12.5 million in the prior year. Improvements resulted from cost reductions initiated in 2005 and on-going operating efficiencies.

* Other Items
== The cellular partnerships contributed pre-tax equity earnings of $1.5 million during the quarter. This compares to $5.8 million during the same period last year.
== The effective tax rate declined from 36.7 percent in the first quarter to 32.9 percent in the second quarter due to declines in taxes paid outside the United States and changes in certain state income tax laws. The effective tax rate for the full year is expected to be approximately 35 percent.
== Cash from operating activities was $63.3 million. Free cash flow was $36.4 million compared to $4.9 million in the prior year.
== Net increase in deferred charges in the quarter was $22.7 million.
== Net capital expenditures for the quarter were $26.9 million.
== During the second quarter, Convergys repurchased 1.7 million shares at a cost of $31.7 million and an average price of $18.82 per share. Total shares repurchased during the first six months were 2.1 million at an average price of $18.44 per share.

* Financial Guidance
== Convergys is increasing full year 2006 guidance and now expects GAAP EPS of at least $1.11 per share, including non-cash stock-based compensation expense of approximately $29 million, or $0.13 per share.
== For the third quarter 2006, Convergys expects GAAP EPS to be $0.27 to $0.28, including non-cash stock-based compensation expense of approximately $7.5 million, or $0.03 per share.
== Convergys expects 2007 GAAP EPS to exceed $1.20.



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