Convergys Corporation, Inc. Q1 2009 Earnings Call Transcript

Convergys Corporation (CVG)

Q1 2009 Earnings Call

April 28, 2009 10:00 am ET

Executives

David Stein - VP, IR

Dave Dougherty - President and CEO

Earl Shanks - CFO

Tim Wesolowski - Senior VP and Controller

Analysts

Kevin McVeigh - Credit Suisse

Jason Kupferberg - UBS

David Koning - Robert W. Baird

Ashwin Shirvaikar - Citigroup

Matt McCormack - Brigantine Advisors

Karl Keirstead - Kaufman Brothers

Shaul Eyal - Oppenheimer

Eric Boyer - Wachovia

Scott Sutherland - Wedbush Morgan Securities

Shlomo Rosenbaum - Stifel Nicolaus

Presentation

Operator

Good morning and welcome to the Convergys First Quarter Earnings Teleconference. At this time all participants are in a listen-only mode. (Operator Instructions). Also this call is being recorded, if you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to Mr. David Stein, Vice President of Investor Relations. Sir, you may begin.

David Stein

Thank you, [Shelly] and good morning. Welcome to Convergys' first quarter 2009 earnings call and webcast presentation. This call is the property of Convergys. Please note that slide accompanying today's prepared remarks are available on the Convergys Investor Relations website under events and webcast.

Today's call contains forward-looking statements that address our expected future performance, and that by their nature address matters that are uncertain. Uncertainties that could adversely or positively affect our future results include the behavior of the financial 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 we serve, loss of a significant client or a significant business from a client, difficulties in completing a contract or implementing its provisions and other matters of national, regional and global scale.

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. Also during the call, we'll discuss non-GAAP financial measures including free cash flow. 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.

With me on the call today are Dave Dougherty, our President and Chief Executive Officer; Earl Shanks, our Chief Financial Officer and Tim Wesolowski, our Senior Vice President and Controller.

Dave will provide a summary of our operational results. Earl has a cold and bad case of laryngitis this morning, so Tim will cover our financial performance and business outlook. Then, we'll open the call for your questions. Earl will participate in the Q&A session.

Now, I'll turn the call over to Dave.

Dave Dougherty

Thank you, David and good morning. In a challenging environment, I'm encouraged that we are able to meet consensus revenue and exceed earnings expectations for the quarter. We further strengthen our cash position and are on track to achieve our free cash flow target for the year. We are reaffirming our earnings guidance.

I'll now discuss performance of each of our business segments. Let me begin with our largest segment, customer management.

I'm very pleased with the performance of this business in the first quarter. This segment is key to executing our relationship management strategy as the principal driver of our revenue and earnings growth.

Importantly, I wanted to discuss the impact the economy is having on our clients and the implications for Convergys. Many of our clients have seen a slowdown in their business because of the economy. Because of this, more than ever there is a focus on retaining current customers.

To increase retention, many clients want to increase customer satisfaction while simultaneously reducing costs. Increasingly, they are looking for an outside partner with all of the necessary capabilities to help them accomplish this.

What that means for us is, we are well positioned to be the partner our clients turn to in this difficult environment.

With the addition of Intervoice, we're now a world leader in high quality Asian assistant and automated customer care solutions.

While we're seeing volume declines with some of our existing programs we run for clients, we're also winning new programs with existing clients and we are winning new clients.

In a measurable way, our relationship management solutions deliver higher levels of customer satisfaction at lower cost which is the key differentiator for us in the marketplace.

As the economy impacts our clients, we're seeing that reflected in our transaction volumes. This pattern is extending into the second quarter which historically is lighter than our first. This is not a client retention problem but is volume related.

Our client retention remains strong, largely because of our superior operating performance. We are now ranked number one or number two on client performance metrics with most of our largest accounts.

In the first quarter, customer management revenue grew 9% from year ago. We signed several renewals and new programs with existing clients and signed new client contracts. This positions us well for growth, particularly in the second half of the year.

We signed several new contracts for live agent services during the quarter. For example, we won collections work for several financial institutions, added support for video services with a large communications client, and signed a contract to provide live agent services in Latin America for another large communications client.

We'll see the impact of these contracts beginning in the second half of the year. These new programs have an estimated 2009 revenue value, $41 million. This is less than the run rate in the last two quarters as sales cycles have lengthened a bit. However, we've seen an acceleration of signings here in the first three weeks of April.

Our contract renewal rate in the quarter was strong for both, the live agent and relationship technology management business. We're also improving pricing, and benefiting from pay per performance pricing with key clients.

Our pipeline for agent-assisted and automated solutions remains robust. And we continue to get positive feedback from our clients as I mentioned on the addition of Intervoice capability to our automated technology solution set.

Despite the challenging economy, we expect customer management 2009 revenue to be up year-over-year. Operating income margin of 7.8% was up 320 basis points year-over-year.

Excluding the restructuring charges from last years results; operating margin was up 210 basis points. This improvement in customer management operating margin was driven by a number of factors, including our ability to increase prices and manage labor costs.

More effective workforce management is improving billing yield and agent productivity, and no surprise, attrition and absenteeism have improved in the current environment.

We continued our build out in the Philippines during the quarter heading over 1,700 seats and four new centers in the first four months of the year. At the same time, overall seat utilization is up compared to year ago.

In the US, our virtual workstation efforts are paying off as we now have over 1,600 full-time home-based agents working in 29 states. This enables us to access high-quality staff and reduces our investment in facilities as we expand our workforce.

Our small but growing collections business reported its best ever quarter. Just a reminder, unlike others in the sector we do not purchase debt.

I'll now discuss information management performance in the first quarter. Revenues were affected by the communications industry slowdown in capital spending and investment in new IT projects.

We continue to see clients delay projects that otherwise we would have expected to see close, particularly outside North America. Those projects are not being won by competition nor are they being canceled.

While it is difficult to declare a trough in an environment such as this, we believe information management will begin to see sequential revenue improvement later this year.

Furthermore, we had visibility into our reoccurring revenue stream of data processing, managed services and ongoing software support in maintenance services. This comprises more than 60% of our total information management revenues.

Information management was able to maintain double-digit operating margins despite the revenue softness. The business leadership is focused on driving value for clients while improving productivity. And the team continues to demonstrate its ability to reduce costs across the organization and preserve profitability.

Confident of our competitive position, we're increasing our investment in R&D and in sales resources. We're investing in enhanced capabilities for information management and delivering new components of Infinys to the marketplace.

In recent months, we won multi-year managed services contracts for our customer service and billing functionality, proving that our investment is being accepted by the marketplace.

We also deployed our product catalog at a North American cable provider during the quarter, leveraging the asset we acquired with [CM].

Our investment in cable has increased year-over-year. This investment is focused on increasing cable functionality by integrating key components. For example, Infinys/customer service manager or CSM will be deployed in a fully integrated fashion with ICOMS for a large North American cable provider next quarter.

We've also increased our investment in sales resources with teams now solely focused on selling the products and services of the information management segment.

Importantly, the pipeline is growing for information management's broad set of business solutions and capabilities.

As technology evolves, the type and complexity of electronic transactions around the globe also evolves. Emerging customer needs matched very well with our capabilities and enhanced technology footprint.

We are involved in opportunities that are departure from our traditional markets which could reshape our business going forward. With these offerings and increased market coverage, we are positioned to return this business to growth.

Given the continued challenges in IT spending by carriers and the uncertain financial markets, we don't have any update on the potential spin-off of information management at this time.

Let me now move to HR Management. Our HR Management clients are benefiting from our service quality and capability.

With the announcement earlier in the quarter of the Fortune 50 Companies go-live, we've completed the implementation phase covering over half of the employees under our two largest contracts. We have live operations in multiple countries for both clients.

While we are making progress on key 2009 implementation milestones, we continue to be challenged by project complexities and higher than expected implementation costs.

During the quarter, we significantly increased utilization of partners, and we continue to take actions to limit risk and reduce cost.

Going forward, our focus is on executing a partner-based implementation strategy and continuing our track record of honoring our commitments and delivering quality services to our clients and employees globally.

As we stated previously, we will not sign any new HR outsourcing contracts with significant implementation risk.

To summarize, in what we knew would be a challenging year, the leadership team is focused on improving operating performance and positioning the business to emerge even stronger as the economy rebounds.

Our priorities for 2009 remain. Number one, focus on managing cash and liquidity. Number two, continue to sharpen our strategic focus and concentrate resources on executing our relationship management strategy.

This will enable us to realize our vision of being the voice and technology behind all superior service experiences.

Number three, position information management for growth. Number four, execute a partner-based strategy for HR Management.

And last but certainly not least, number five, ensure our cost structure is aligned with our revenue. We are making progress on all these fronts.

At this time, I'd like to turn the call over to Tim.

Tim Wesolowski

Thank you, Dave and good morning. Let me begin with the review of first quarter financial results.

For the quarter, consolidated Convergys revenues were $695 million. Operating income in the first quarter was $39 million. Net income was $28 million or $0.23 per share.

Free cash flow was $33 million and our cash balance at the end of the quarter increased to $278 million.

Turning now to the segments. In the first quarter, customer management revenues were up 9% year-over-year to $517 million.

Excluding the Intervoice acquisition, revenues were essentially flat. In addition to the environmental factors Dave discussed earlier, more of our agent-assisted services are now being delivered from the Philippines.

With this service migration, our margins improved even as our revenues are negatively impacted. We now have about 24% of our customer management employees working in the Philippines, 15% in India, and 13% in Canada.

Customer management operating income and margin increased both, year-over-year and sequentially in the first quarter to $40 million and 7.8% respectively.

Excluding the restructuring charges in 2008, operating income was up 48% year-over-year and 10% sequentially.

On the same basis, operating margin improved by 210 basis points year-over-year and 80 basis points sequentially.

In order of relative impact this was due to tighter workforce management, increased pricing, and reduced operating overhead.

Foreign currency fluctuations hurt us by about a 100 basis points in the quarter and strengthen our leadership position in relationship management. We continued to invest in technology infrastructure, additional sales resources and consulting during the quarter.

Moving on to information management, revenues were $108 million in the first quarter. New revenue from a North American client partially offset the negative impact of client migrations in North America, completion of international projects and continuing slowdown in industry spending.

As Dave mentioned, we expect most of the revenue declines are behind us, and we have visibility into some exciting opportunities in new markets and applications that leverage our enhanced technology footprint.

First quarter information management operating income was $13 million. This reflects the expected revenue declines partially offset by good cost management.

We also focused increased R&D spending on strategic initiatives to enhance the functionality of our BSS and OSS offerings. Operating margin was 11.6%.

Now moving on to HR Management, first quarter HR Management revenues were $70 million. We saw a substantial revenue growth in the quarter from the two large client go-lives.

However, this was more than offset by the large contract termination payment in the first quarter of last year, and elimination of pass-through revenue in the second quarter of last year.

First quarter HR Management operating loss was $10 million. This includes $9 million for expensing of excess implementation costs for one of the remaining projects which remains profitable.

As you may recall, we typically [differ] direct costs associated with the implementation, and then amortize them over the life of the contract.

When implementation costs exceed the termination fees payable in a contract, even for a profitable contract, we account for this by expensing costs in the quarter instead of capitalizing them on the balance sheet.

As Dave mentioned, we're taking actions to limit risk and reduce cost of the future phases on our two remaining large implementations. Among the potential outcomes, some are inside and some are outside our current guidance.

We do believe the likely outcome was within our current EPS range. Now let me turn to some other items.

Non-operating income was down $3 million in the quarter compared to the prior year. Earnings from the cellular partnerships were more than offset by other expense which was due to currency fluctuations from non-US dollar denominated asset and interest expense due to both higher debt and higher interest rates.

Tax rate was 25% in the first quarter, and will likely remain below 30% for the full-year. Free cash flow in the quarter was $33 million, up substantially from the same period last year. And this was driven by improvement in receivables.

We also received a $10 million quarterly cash distribution from the partnership in the first quarter and that is not included in our free cash flow number.

Cash on the balance sheet at the end of quarter was $278 million. Net deferred charges were $16 million in the first quarter, down from $22 million a year ago and $19 million in the fourth quarter.

Recall that net deferred charges are the cash spent on implementations, less amortization and cash which we received from clients for those implementations.

Moving on to our guidance, our 2009 business outlook assumes, one, the continuation of the challenging economic environment and also that we will make satisfactory progress with our two large HRM implementations.

Our earnings guidance for 2009 remains unchanged at $0.90 to $1.10 per share, and approximately $200 million of free cash flow.

Let me spend just a moment on how we expect to achieve this $200 million of [flat] cash flow in 2009. There is three key items that will get us there.

About 60% comes from net income, assuming the midpoint of the earnings guidance range driven by contributions from information management and customer management, as well as reductions in cash usage in HR Management.

About 20% will come from the cash tax benefit in 2009 from the impact of deferred taxes, principally due to HR Management implementation costs.

And about 20% will come from the difference between anticipated depreciation and amortization, and the capital spending for the year.

We expect free cash flow in the second quarter to be stronger than the first quarter and we expect free cash flow in the second half will be better than the first half.

At this time operator, please open up the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Kevin McVeigh with Credit Suisse.

Kevin McVeigh - Credit Suisse

Great, thank you. I wonder if you could just talk a little bit about the comment relating to the HR Management. I just want to clarify, it seemed like there are couple of probable outcomes, one would be within and outside of guidance. Could you just clarify that a little bit?

Earl Shanks

Hi Kevin, this is Earl. I'm not exactly sure what your question is. Certainly, as with many things in business, there is a whole variety of potential outcomes.

We believe that likely outcomes are inside the guidance range that we provided but there are some of the outcomes, some things that could happen that would be outside the guidance range and that's all we were trying to express.

Kevin McVeigh - Credit Suisse

Okay. Probably I was just trying to clarify, it looks like there is an incremental $9 million implementation cost. And then they talked about additional risks within the range of outcomes just trying to frame out what the potential exposure is within HR Management itself as we work with the year?

Earl Shanks

Kevin, again, as I said there is a variety of exposures on that and we've tried to take into account the variety of things that could go on there, as well as the variety of things that could go on in the information management and customer management.

And that provides balance guidance in total to put it into that range of $0.90 to $1.10. There is good and bad things that can happen in each of those businesses to get to that outcome.

Dave Dougherty

Kevin, it's Dave again. I just want to emphasize, we've modeled and looked at it closely and the most likely outcomes are in the earnings guidance range that we've given.

Kevin McVeigh - Credit Suisse

It's great. And Dave, it sounds like again you're continuing to make real nice progress in the pricing environment. Can you just talk about that where the success has been and how receptive funds have been to the pricing?

Dave Dougherty

Here we've had some success with some of our large clients in renegotiating the pricing. And principally I think that speaks when I talked about I'm very proud of what our organization is doing in terms of superior service delivery and superior operating performance.

I've been in this business a long time and find when we consistently do that, our clients will pay for that better value.

Operator

Thank you. Our next question comes from Jason Kupferberg with UBS

Jason Kupferberg - UBS

I was hoping you could elaborate a little bit on the partner-based implementation strategy in HRM. Is this to mean that going forward you might have some more pass-through revenues in the mix here to subcontractors? And how would that potentially filter through into margin potential for this business?

Dave Dougherty

That certainly could be one scenario the pass-through revenues but Jason we talked about that. I think on that last call we really started to communicate, we're taking a very different approach to how we run the business and reducing our implementation risk.

So we've brought partners in many cases; partners with a labor cost that's dramatically lower than ours. And our expectation is that we're going to continue to rely on those partners if anything and increasing way as we go forward in those implementations. So that's on the existing work we're doing.

Having said that as I've said before, as we look to additional opportunities in this business; new deals that we win, we are not going to take implementation risks. So we will have a partner.

In most cases my guess is that partner would be the prime on the deal, and then we would be the sub running the service center operation once the implementation is complete.

Jason Kupferberg - UBS

Okay. So to the extent that you're accelerating the partner-based strategy, does that change the breakeven point for the business in HRM, in other words, relative to the $300 million revenue mark that you described in the past?

Earl Shanks

Jason, not directly. Again, there is two ways that we're thinking about partners as Dave just said. One is to help us with the implementation cost and obviously, we are struggling with that and we're working hard to reduce cost in that business, and one of the ways to do that is with partners.

The other side of the partner equation is what we do if we sign future contracts with customers in this business, who does the implementation?

And with that, our expectation is that we would have similar profitability on the ongoing services that we would have otherwise expected but the profitability that should have been related to the implementation and all of that revenue is likely to be excluded from our P&L in all respects.

So I don't think when I think about would materially impact that kind of breakeven analysis. I don't see that as a material impact.

Dave Dougherty

And Jason that's why I have said, once we get these operations live, the revenue and profit stream for us is very attractive. We overtime continue to drive up employee's healthcare. And as we do that, it becomes a more and more profitable contract for us and those economics remain attractive to us.

Jason Kupferberg - UBS

Okay. And just to switch gears into customer management for a minute, with the new administration exhibiting some more affectionate tendencies some might say, is there any change that you are seeing among customers, decision makers in terms of their desire to move new or existing call center work offshore?

Dave Dougherty

We're certainly seeing some of that having some conversations. What I'll say is that I think, we've got a big advantage over a number of our competitors and that we still have a large US base footprint.

So to the extent that there is a move in that direction, I think we've got certainly the capacity and capability to handle that. Having said that, what we're still seeing is a pretty significant amount of demand in growth for our offshore operations principally in the Philippines.

Jason Kupferberg - UBS

Last question on the sales cycle as you mentioned I think in the first few weeks of April, since [signings] came through in customer management. Too early to tell whether or not that's an actual trend or is that just a little bit of catch up?

I mean, how are you guys assessing the sales cycle or do you think the worst is over there or how are you think about how it might play out over the next quarter or two based on what customers are telling you now?

Dave Dougherty

I'd say it was a bit of a catch up because those are deals we thought we are going to get done before the end of the quarter and we didn't and we quickly, early on in the next quarter got them completed. So, deals are still getting over the finish line.

We remain optimistic in terms of demand and what we're seeing in the marketplace, the pipeline values, if anything may have gone up a bit relative to where we were six months ago. So, that's encouraging.

We're aggressively investing in sales resource. We're finding that there are certain vertical markets and certain solutions that we didn't have enough sales coverage. So, we're investing and adding to our sales headcount to drive more revenue capture.

As I said in the prepared remarks, our expectation is that we will see these contracts that we're winning really take hold in the second half of the year.

Operator

Thank you. Our next question comes from David Koning with Robert W. Baird.

David Koning - Robert W. Baird

First of all, just on the customer management margins, the margins got quite a bit better sequentially and in terms of year-over-year.

Dave Dougherty

Isn't that a good thing?

David Koning - Robert W. Baird

Yeah, that's a great thing.

Dave Dougherty

Okay, all right.

David Koning - Robert W. Baird

And I would imagine some of that is related to the licensed component of Intervoice. But going forward, is there further upside at some of these FX hedges roll off because that's also moved in a good direction for you?

Maybe you can just talk a little bit about puts and takes to margins and how it progresses over the next few quarters?

Earl Shanks

Sure David, we'd be happy. As Tim highlighted as he went through the results, there were three big things that drove the margin improvement in that business. One is our workforce management practices and what we were able to do to decrease costs in that space, that's primarily live agent.

Two is what we were able to do on pricing. Dave touched on that a minute ago as well. And then across the business we were able to take out some costs, you can think of it as overhead cost, that's generally how we think of it. So those are the drivers across the business.

As you can tell by the nature of those, those are all principally related to the legacy Convergys businesses, the agent business, and not related to Intervoice. So it wouldn't have been licensed revenue at all that would have driven those improvements from what happened in the first quarter perspective.

As we look to the balance of the year, the team is doing a fabulous job taking cost out of that business, and so we are very pleased with that. And we continue to see more opportunity in that regard.

We will also see an expectation that in the second half of the year we will see tailwind from currency as compared to headwind from currency. As Tim also noted, we had about a 100 basis points of headwind from currency in the first quarter.

So I do expect that will turn around in the balance of the year.

David Koning - Robert W. Baird

Okay, great. I guess secondly on the information management segment, on the revenue side the $108 million include some AT&T and some of that goes away. Can you give us a ballpark estimate? Is there $10 million a quarter still of AT&T in there just so we can get a base line?

Earl Shanks

I'm not sitting here with that number in front of me but directionally David, you're not too far off in terms what I think it is.

David Koning - Robert W. Baird

Okay. And I guess finally, the margins in that business as we get a little more decline from AT&T migrating off, should we have margins keep going down a little bit until in the back half of the year you start getting sequential growth back?

Earl Shanks

I think the AT&T revenue in general is a pretty average margin business, it's not a particularly high margin business. So I don't think that will drive margins one-way or another in terms of the change in the revenue mix.

Right, I think the team in information management is working hard to do cost reductions in the business and they've obviously done a lot to get to where we are with the margin decline that we've seen. And I would expect that the cost reductions that they've laid out and are in the process of executing will cause us to see improving margins as we progress through the year.

Operator

Thank you. Our next question comes from Ashwin Shirvaikar with Citigroup.

Ashwin Shirvaikar - Citigroup

My first question is on cash flow. The $200 million this year, the 60%-20%-20% split you gave; it seems like forward into next year, hopefully the 60% of net income can repeat. But the 20%, that's a cash tax benefit, won't that go away and then the difference between D&A and CapEx goes up? Won't that reverse as well?

So I'm kind of looking at maybe 2010 being a worst cash flow year. So, this 2009 looks like a one timer.

Earl Shanks

Ashwin, let me start with D&A and CapEx first. If you look back at the history of what we've done in the last four or five years in D&A and CapEx, in general we've been able to build a pretty good spread in there, largely I think because of what's happened to the cost of computing and frankly my expectation is that we'll continue to see cost of computing decline.

And as a result of that since most of the CapEx we spend is on technology, I'd continue to expect a spread there and don't expect a ramp. I think with respect to the net income, I do expect a ramp but obviously that's where we're trying to drive the team to although it's a little hard to start forecasting 2010 at this point.

And you're right on the cash tax benefit. I would expect that we begin to pay cash taxes again, more inline with the tax provision that we book into the account.

Although we've had good track record of being able to defer taxation to numbers below the actual reported tax expense also for several years, my expectation is that the team will be able to deliver ideas that will continue that to some extent, although probably not at this year.

Ashwin Shirvaikar - Citigroup

Thanks, that's useful. I have a follow-up question on the changing delivery mix in the call center business. As you move more towards Asia from places like Canada, can you provide an update on the foreign exchange hedging, where you stand with that now? I know second half is going to be a benefit but are you correspondingly taking up hedge positions in the Philippines, for example?

Earl Shanks

Sure. Our overall hedge positions at the moment, we are pretty much hedged for most of our exposure for the remainder of this year in all currencies, some marginal exposure left but not much.

And then we have a fair amount of coverage in both, the Philippines and India for both next year and the year after, and don't have much coverage in Canada beyond this year at this point. And there is more details on all of that laid out in 10-K in terms what the actual numbers were at the end of the quarter, and you'll see it again in a week when we file the 10-Q.

Ashwin Shirvaikar - Citigroup

Okay. And if I can squeeze one in on tax rate, you said less than 30%, anything more specific than that?

Earl Shanks

No.

Ashwin Shirvaikar - Citigroup

Okay. Get well soon, Earl. Thanks.

Dave Dougherty

Thanks, Ashwin.

Operator

Thank you. Our next question comes from Matt McCormack with Brigantine Advisors.

Matt McCormack - Brigantine Advisors

In terms of the volume declines in the customer care business, how was the trend during the quarter and how was it now? Are you still seeing further deterioration or has there been any kind of stabilization?

Dave Dougherty

We have seen some continuing softness as we're moving through here in the second quarter. But as I talked about and said this to others, we're really kind of in a race as we face those declines. The flipside or the offset to that is the pipeline we have in the rate at which we're winning new business and anything; those two should offset one another as you look at the year as a whole.

Matt McCormack - Brigantine Advisors

Okay. And then in terms of bookings the $42 million number, I don't believe you gave it out for the year ago quarter. And the back half of the year, you're between I guess 70 and 90. Can you talk about what your expectations were and in what verticals you were seeing particular delays in signing deals during the quarter?

Dave Dougherty

It was a bit below what we expected for the quarter. And then as I referenced, we did kind of a quick catch up in the early part of the second quarter. So that kind of in total for like the first four months of the year or so we're roughly where we want to be in terms of new business capture.

Matt McCormack - Brigantine Advisors

Okay. And then lastly, in terms of a potential GM bankruptcy, I guess could you remind us what would happen with the services you provide to them and then also the receivables that are at risk? Thanks.

Earl Shanks

Our expectations when we look at the kind of automotive industry and what's going on there is that post bankruptcy we would likely be continuing to provide services at similar levels. Now obviously, that depends on exactly what happens to their business and is little hard to predict that in a crystal clear fashion, but that's certainly how it looks to us.

So not a lot of future disruption out there. Although our volume there is trying to call by our car sales volumes as well, but low car sales volumes is a bad thing. On the other hand, it is a much better thing for our accounts receivable position as we stand with them. In total in the auto industry, we've got generally and it varies a bit. But it's generally less than $20 million, but they are outstanding to the auto industry at any given point in time. So that's probably our total exposure in a bankruptcy case in a worst case scenario.

Operator

Thank you. Our next question comes from Karl Keirstead with Kaufman Brothers.

Karl Keirstead - Kaufman Brothers

Hi. Thanks for taking my call. I got a couple of questions around the guidance. In the last quarter's press release and call, Convergys was fairly explicit about targeting positive growth for the entire business in '09. That language is missing from this call. So, I'm just wondering, am I reading too much into that, if you could clarify whether you are still planning on full-year growth for the overall business? Thanks.

Earl Shanks

I think you are bit reading too much into it, Karl.

Karl Keirstead - Kaufman Brothers

Okay. So, I take that to mean you still hope for positive growth.

Earl Shanks

We do.

Karl Keirstead - Kaufman Brothers

Okay, great. And then secondly, we are starting the March quarter down 3% year-over-year, so to get to full-year growth not to force you into a quarterly guidance, but can we expect the June quarter to stabilize and then uptick in the back half. What would the path be to full-year growth, if you can provide directionally some guidance?

Earl Shanks

Sure. It's pretty typically a seasonal pattern in the business when we look at it. So second quarter is pretty typically our softest quarter and we would expect that to be true this year as well. And then, we would expect a seasonal uptick in the back half of the year. When we look across businesses that pattern is really what we see across [this].

Karl Keirstead - Kaufman Brothers

Okay, great. And then maybe one last one on the EPS guidance. I understand, things are pretty uncertain out there. But with three quarters to go, the EPS band of $0.20 is still relatively wide and I'm wondering if you could identify maybe the one or two biggest variables that you are thinking through in terms of keeping the EPS band that wide?

Earl Shanks

Certainly, one of them that we highlighted it what's going on with HRM, our HR management business. When I touched on that, the first set of questions that we took as well. On the other side the positives, we are seeing in performance in customer management are pretty encouraging for us as well. So, that gives us more comfort on the high-end of the range.

We believe, this is a pretty appropriate guidance range given the number of variables. There is a lot of uncertainty in the marketplace today and lot of companies aren't giving guidance may be beyond what they just reported or the next quarter. So for us to go out for the full-year, I think we have got strong basis to do it based on the recurring revenue nature of the business and based on the cost reduction programs we got in place, but still there is some risk.

Operator

Our next question comes from Shaul Eyal with Oppenheimer.

Shaul Eyal - Oppenheimer

Thank you. Hi, good morning guys and thank you for taking my questions. Couple of quick questions. Dave, in your prepared remarks, I believe you mentioned obviously positive trends on the customer care side, one of them being the need to retain customer satisfaction. I wonder whether how you look at compliance, regulation, risk management being a driver for that division?

Dave Dougherty

I'm not sure I understand the question.

Shaul Eyal - Oppenheimer

By that I mean, maybe there is a growing regulation to store, to record, to interact on the customer side and how do you see that being a driver or continued driver for the CNP Group or the focus is strictly on the customer satisfaction side?

Earl Shanks

Shaul, let me try this a little bit. Certainly we are investing reasonably aggressively in our compliance and technology side of the business because it's very important for customers that they have comfort around the protection particularly of person identifiable information and obviously we touched that all the time. And our ability to do that likely over time and doing that well over time likely becomes a competitive differentiation against the most smaller players in the process. So a bigger barrier to increase on a longer term basis. But in terms of driving near term revenue, per se, the things we are doing now are, this is what we got to do with the business to be successful in the business.

Dave Dougherty

Also that does mean that the highest hurdle is what you have to have in your platform for home-based agents and we've been able to build that in, in terms of data security and we are seeing reasonable demand from our customers for that solution as Earl said, and that increasingly becomes a differentiator for us.

Shaul Eyal - Oppenheimer

Absolutely. That's fair enough. That's a great answer. One quick thing with respect to the band, the EPS band just discussed I believe in the former question. I think also you mentioned potential sequential improvement in the second half on the IMG front. Does that trend take into consideration a potential sequential improvement on the IMG?

Earl Shanks

Yes.

Shaul Eyal - Oppenheimer

Got it. Fair enough. Looking into the Intervoice contribution and I know you guys don't break it out per se, already having it under your belt for the past few quarters, all in all are you guys happy. Are the results coming better in line or below what you guys had anticipated heading into the acquisition?

Dave Dougherty

As I alluded to you in my remarks, I think in this environment, but I think it will hold for a good long time, our clients are increasingly want to drive automation of the care experience and then have the live agents handle more difficult and more complex tasks. What we're seeing is more and more of our clients want a partner that can have both those capabilities to bring to the table, to create kind of the best blended solution that meets their needs from both their customer satisfaction standpoint and also a cost standpoint. We feel very, very good about the addition of that to our portfolio.

As we mentioned in one of the other questions, certainly there has been some softness in demand for technology sales and certainly the Intervoice business is being impacted by that a bit particularly in the international markets, but we continue to be very encouraged by the margin progress in that business and what it contributed in the first quarter.

Operator

Thank you. Our next question comes from Eric Boyer with Wachovia.

Eric Boyer - Wachovia

Thanks. Much of you have addressed this. Could you just quickly, go over the call volume performance you are seeing in terms of specific verticals and then give us a sense for your exposure to the travel industry within CMG?

Dave Dougherty

Sure. I mean, as you would expect, retail automotive, our verticals that there is some softness in volume. The other thing again just from my perspective, as you know we serve a lot of communications companies and kind of depending on who you serve, the volumes can be very different. As some of the leading providers are taking share quarterly from some of the less strong competitors in those verticals.

To some extent it really matters, who your clients are and what your client portfolio is. We also are seeing some softness in the financial vertical. However, that's being offset by dramatic increases of demand for collections. So, we referenced in the prepared remarks, our collection business be at still somewhat small and had the best quarter it ever had and my expectation is, that business continues to grow throughout the balance of the year.

Eric Boyer - Wachovia

And then just as the travel industry, is that a large piece or small?

Earl Shanks

It's not a large piece.

Dave Dougherty

We don't have much exposure there.

Eric Boyer - Wachovia

Okay. Then could you give us a sense of a magnitude of the sales increases that you were talking about on IMG and maybe as a percentage of your overall sales force today there?

Dave Dougherty

It's a magnitude of the increases. What I would say is they are pretty substantial, both in infield sales people, sales support and marketing resource to enhance our sales effort. It is a significant investment that I don't feel comfortable quantifying.

Eric Boyer - Wachovia

Okay, great. Earl, another good DSO number. Any sense of a range we should be thinking about that's sustainable going forward. Is there more room for improvement?

Earl Shanks

This is pretty close to what I would consider the team is doing as far as good as they can do. So, I'm very pleased to what they've done. I do think it's generally sustainable. Although as always what they are, I worry a little bit about volatility and a few miss payments at the end of the quarter or something like that which some clients can have a big impact. But the team has done a pretty good job and there is some big receivables. This quarter, I know that we were scheduled to collect that have been a bit old. So they are probably some upside on that, but not a lot.

Eric Boyer - Wachovia

And then finally just the amount or percentage of your cash, is that outside of the United States.

Earl Shanks

About two-thirds of it is in the US.

Operator

Thank you. Our next question comes from Scott Sutherland with Wedbush Morgan Securities.

Scott Sutherland - Wedbush Morgan Securities

Great. Thank you. Couple of questions and good morning. Perhaps, [you can give] a little more color on your HR Management segment. How much are you kind of putting your guidance additional implementation cost? I know you had $9million this quarter which is a great improvement. Are you assuming this round out level for the rest of the year or declining from that level?

Earl Shanks

Well Scott, as we said there is a range of potential outcomes there. Certainly that is one of the outcomes that's potential, current course of speed. We try to take into account a range of outcomes and that's why we left the guidance where we have done. And we believe that guidance encompasses the likely outcomes in that business including the risks.

Dave Dougherty

Scott we do expect to complete the next phase of implementation for one of the big clients here in the second half of the year. And certainly then our expectation is after that, that would be a step down in spending.

Scott Sutherland - Wedbush Morgan Securities

All right. (Inaudible) be my next question. You've indicated that your last two major contracts over 50% implemented over the customer employee base. Are these implementations going to run through 2010 or what do you think they're going to be fully implemented?

Earl Shanks

They will run into 2010, Scott.

Scott Sutherland - Wedbush Morgan Securities

Okay. Lastly on the information management group, you already addressed a little bit of legacy AT&T and charter looks like they are consolidating billing vendors at the end of the year. What's giving you confidence to see growth there? Do you have other things in the pipeline? I know you mentioned [Leap], is there some other things there?

Dave Dougherty

Scott, a couple of things. One is I want to emphasize that we talked about the re-occurring revenue stream that we see in that business, 60% to 65% of the revenues that we can count on. So we feel good about that.

And we are seeing significant opportunities -- I want to make sure it's [plural] in the pipeline, some of which are in our core markets that we've traditionally served and some of those opportunities are very significant.

And then as we talked about that we're also starting to see applications of our technology outside of the traditional communications market which we believe, assuming we can be successful landing the opportunities creates future platforms for growth for that business that quite frankly we haven't had in quite sometime.

Dave Dougherty

Operator there is time for just one more question.

Operator

Thank you. Our final question comes from Shlomo Rosenbaum with Stifel Nicolaus.

Shlomo Rosenbaum - Stifel Nicolaus

Hi. Thank you very much for squeezing me in at the end over here. Just a few questions, most of my questions have been asked. I want to ask, number one about the unemployment impact on turnover and how much do you guys assume that they had positively impacted the margins? You had good margin improvement in customer management.

Dave Dougherty

Shlomo, Dave. It certainly had a positive impact in the quarter. We're seeing a reduction in turnover and importantly also absenteeism, which means people are showing up for the work and we can build the hours at an increasing rate.

So I think that is again a reflection of the environment that's going on out there in terms of increased unemployment, and I think people want to keep their jobs and be doing what they are doing.

So we've seen improvement in both those metrics and certainly my expectation as the environment continues, we ought to see some continued improvement in those.

Earl Shanks

And what I'd add to that Shlomo just to think about it is, I talked about three big things in CM that's driving the improvements in margin. Workforce management being the first out of three embedded in the workforce management is certainly an improvement in attrition, and they impacted the unemployment.

But we're also embedded and there is another example as the impact of more people showing up for work because they need job, they need the money, and that helps as well.

And then some other practices that the team is managing against. So there is a variety of factors there. It's one we know it's having an impact, but it's not one that I'd say is the driver by itself or anything close to that.

Shlomo Rosenbaum - Stifel Nicolaus

Could you just quantify year-over-year what the improvement is in turnover in the US? Is it down 25%, 30% in attrition?

Earl Shanks

It's improved but not nearly by those kind of percentage.

Shlomo Rosenbaum - Stifel Nicolaus

Okay, thanks. Is there some kind of seasonality in Intervoice between 4Q and 1Q? And how should we think about that over the year?

Earl Shanks

I think you should think about that as probably some of the softness in technology spending that Dave referred in his comments.

Shlomo Rosenbaum - Stifel Nicolaus

Okay. Earl, have the dead markets opened up enough that you think you're close to being able to refinance the bond?

Earl Shanks

As our plan A for paying the bond off is using the cash we're going to generate it, I'm pretty confident in plan A as the solution for the problem.

The markets still aren't very open as I look at what's been issued out there at the double B and double B-plus range at the moment. The things that I've seen that are issued out there are primarily companies that issue a lot of debt and they are sort of frequent issuers which we're obviously not.

And sometimes they are going for more size and more scale. So I'm still little concerned about whether or not the debt market is open as I look at it. Unfortunately, that's a test that is pretty hard to really know the truth about until you actually try to do the issue.

Shlomo Rosenbaum - Stifel Nicolaus

Right. Switching back to CM, did you have organic growth in any of the verticals outside of communications?

Earl Shanks

We saw organic growth in communications and in financials.

Shlomo Rosenbaum - Stifel Nicolaus

Okay. And last question, have you been able to migrate some of your technologies to the applications or in the cloud and have been able to migrate some of your clients over to the thinking that you could reuse some the seats in order to get better seat utilization? I hear about that from time to time but it doesn't seem like it's very widespread within the industry?

Earl Shanks

I think there are a number of problems with that that make that pretty difficult. It is not just a technology constraint. There are some things that we are doing on a technology side which I think we're all pretty encouraged about that it will improve on how we deliver and the opportunities to improve the quality and the cost of delivery on the technology side that we're in the process of doing. But it's not primarily driven by cloud computing as you described.

Dave Dougherty

Thanks, Shlomo. I'd like to add that Earl and I will be available for the rest of the day to answer any questions about our first quarter results or the business outlook that we've discussed during this call. Thanks for all for participating today.

Operator

Thank you. This does conclude today's conference. You may disconnect at this time.

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