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Convergys Delivers Strong Revenue and Earnings Growth in Q1

Convergys has announced its financial results for the first quarter of 2007. Convergys first quarter revenues of $719.9 million were up 7 percent compared to the first quarter of 2006 reflecting growth from the Customer Care and Employee Care segments. Operating income in the first quarter increased 5 percent to $65.2 million compared with $62.0 million in the prior year. Significant improvement in operating results at Customer Care and Employee Care were partially offset by anticipated declines in Information Management due to the Cingular migration. First quarter net income increased 19 percent to $43.6 million, or $0.31 per diluted share, versus $36.7 million or $0.26 per diluted share in the prior year.

Operating Performance by Segment
- Customer Care - Customer Care revenues of $469.0 million were up 8 percent compared to the same period last year. Strong growth from several existing clients in the Communication, Technology, and Financial Services verticals contributed to the revenue growth. Customer Care operating income and operating margin were $56.3 million and 12.0 percent, respectively, compared with $46.2 million and 10.6 percent in the prior year. The impact of revenue growth more than offset the negative impact of a weakened U.S. dollar.
- Information Management - Information Management revenues of $185.9 million were down 2 percent compared to the same period last year. Strong growth in international operations largely offset the decline in revenue from Cingular. Information Management operating income and operating margin were $25.3 million and 13.6 percent, respectively, compared with $31.5 million and 16.7 percent in the prior year. Operating income improvements from international growth and tight cost controls largely offset the negative impact from Cingular. A significant portion of the net decline in operating income reflects the impact of severance costs incurred to further streamline the business.
- Employee Care - Employee Care revenues of $65.0 million were up 24 percent compared to $52.5 million in the same period last year. Revenue increased as a result of recent client implementations. Employee Care operating loss improved 23 percent to $7.4 million compared to an operating loss of $9.6 million in the prior year. Improvements resulted from cost reductions and operating efficiencies.
- Other Items:
* Cash flow from operating activities was $65.2 million in the first quarter. Free cash flow was $41.2 million compared to $33.7 million for the same period in the prior year.
* Net expenses related to other non-operating items were $0.6 million compared to $4.0 million for the same period in the prior year, primarily due to a reduction in net interest expense.
* During the quarter, Convergys repurchased 638, 200 shares at a cost of $16.3 million for an average price of $25.60 per share.

Financial Guidance:
- Convergys continues to expect record revenue and earnings in 2007 and confirms annual EPS guidance of more than $1.20 per share.



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