Convergys' CEO Discusses Q2 2011 Results - Earnings Call Transcript

Aug. 2.11 | About: Convergys Corporation (CVG)

Convergys (NYSE:CVG)

Q2 2011 Earnings Call

August 02, 2011 8:30 am ET

Executives

Earl Shanks - Chief Financial Officer

Jeffrey Fox - Chief Executive Officer, President, Non Independent Director and Member of Executive Committee

David Stein - Vice President of Investor Relations

Analysts

Philip Stiller

Giridhar Krishnan - Credit Suisse

Vincent Lin - Goldman Sachs Group Inc.

Manish Hemrajani - Oppenheimer & Co. Inc.

David Koning - Robert W. Baird & Co. Incorporated

Eric Boyer - Wells Fargo Securities, LLC

Matthew McCormack - BGB Securities, Inc.

Kevin McVeigh - Macquarie Research

Operator

Welcome to Convergys' Second Quarter 2011 Earnings Teleconference. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] I would now like to turn the meeting over to your host, Mr. David Stein, Vice President of Investor Relations.

David Stein

Thank you, Sherry, and good morning. Welcome to the Convergys Second Quarter 2011 Earnings Call and Webcast Presentation. This call is the property of Convergys. Please note that slides accompanying today's prepared remarks are available on the Convergys Investor Relations website under Events and Webcasts.

Today's call contains forward-looking statements that address our expected future performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future events or developments. Please refer to yesterday's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could adversely or positively affect our future financial results. This includes the risk factors provided in our Form 10-K for the year ended December 31, 2010.

Also, during the call, we'll discuss non-GAAP financial measures, including free cash flow and EBITDA. A reconciliation of these non-GAAP measures is available on the news release and on the Convergys Investor Relations website.

With me on the call today are Jeff Fox, our President and Chief Executive Officer; and Earl Shanks, our Chief Financial Officer. Jeff will provide a summary of our operating results. Earl will cover our financial performance and business outlook. Then we'll open the call for your questions.

Now I'll turn the call over to Jeff.

Jeffrey Fox

Good morning, everyone. I'll begin with a review of our overall company performance and discuss the progress we're making executing our plan. Then, I'll provide an update on operations in each of our segments.

Our core business execution continued to improve in the quarter. Revenue of $552 million was up 4% compared with last year. Setting aside special items recorded last year, operating income increased 35% to $38 million, up from $28 million last year.

EBITDA was up 8% to $72 million, and EPS of $0.26 per share in the second quarter was up 35%. Our operations produced solid free cash flow of $48 million, which allowed us to purchase $20 million worth of stock during the second quarter and improve our cash position by $25 million.

Based on the improving performance in Customer Management and the continued stabilization of Information Management, we are raising our overall revenue and earnings expectations for the full year.

It is important to remember that our sale of the Cellular Partnerships closed on July 1. Completing this transaction for $320 million pretax further simplifies our company and provides substantial strategic flexibility. The net impact of this on our 2011 results is an increase of $234 million of EBITDA and $1.22 of EPS.

Overall, I'm encouraged by the continued progress in the quarter across all of our businesses.

We are investing in what matters to our clients, which is producing value in both new and existing relationships. We are continuing to simplify each of our businesses strategically and operationally, and we are taking actions that allow us to capture our share of industry growth, improve our cost structure and expand our operating margins.

Now let's review our second quarter results for each segment. I will begin with Customer Management.

Customer Management had a strong second quarter. Segment revenue was up 5% year-over-year. In terms of live agent services, the number of agent calls we handled in the quarter increased 10% compared with last year. As a result, revenue increased with over a dozen of our top 20 clients.

We also had another good quarter of new business signings. 11 large clients awarded new business to us during the quarter, and we signed 2 important new logos, one with a large healthcare company, and the other with one of the largest telecom carriers in the United States. We remain focused on proactively delivering solutions to all of our clients.

During the quarter, we signed new live agent business worth $84 million of revenue that we expect to deliver next year. We continue to see excellent uptake on our investments in offshore capabilities, work-at-home, consulting, analytics and technology solutions with many of these clients.

The second quarter results reflects strong demand for our services delivered from our centers in the U.S., Philippines, India and Latin America, and revenue was up in each of these geographies. This growth was partially offset by a decline in Canada.

We continue to put capacity where our clients need it in order to get them the right solution at the right price. Our investments and account management are making a difference as we focus on leveraging our unique breadth and depth of customer care solutions, expertise and technology.

We also continue to refine our global operating model, which is important to deliver consistent quality service to our clients. Our goal is for our clients to receive the same standard of service regardless of the mode of communication or the region of the world in which we operate.

I want to thank our team for delivering an excellent second quarter revenue growth. In terms of profitability, Customer Management operating income margin increased 270 basis points, and EBITDA margin increased 200 basis points in the second quarter. We are making investments in new clients and program ramps. As a result of this ongoing investment, we continue to see elevated agent training cost in the second quarter.

In the short term, this is pressuring our gross margin for what we believe will result in long-term gains. Recall that increased training cost is the result of ramping new programs, and maintaining and growing existing programs require training for normal attrition. The impact of the additional agent training cost was more than offset by an insurance reimbursement in the second quarter related to a flood in one of our centers last year.

Year-over-year, our cost initiatives paid off as we also saw the benefits of SG&A reduction in the quarter. As I said on our last call, the key for us remains growing our topline while holding SG&A tight for continued margin expansion.

Regarding our Relationship Technology Management unit, the second quarter revenue was consistent with the prior quarter. Strategically, our continued investment in technology and expertise is complementary to our Live Agent business. We are seeing an increased engagement in a number of accounts.

For the Customer Management segment overall, we expect to see continued improvement in performance for the rest of the year. Now I will discuss Information Management segment operating results.

Information Management results for the second quarter reflect the stabilization of the business over the past year. Second quarter revenue was consistent with the prior year. As expected, we delivered a number of critical project implementations in the second quarter.

As we told you in May, we deployed a next-generation solution for a U.S. wireless firm and our Rating and Billing Manager went live at a small U.S. satellite provider early in the quarter. We also began serving 2 additional clients during the second quarter. One is a large U.S. wireless provider, and the other is a large carrier in Europe.

During the quarter, we announced our next-generation solution, ICOMS 9 for cable, broadband and satellite providers. This solution enables operators to easily configure personalized services to build an integrated customer experience. We also announced the availability of Convergys CRM, which is powered by Microsoft Dynamics CRM. Both of these solutions help our clients to grow revenue, improve profitability and increase loyalty.

We signed a major win this quarter to provide wholesale and machine-to-machine billing and rating for a large U.S. wireless provider. This is a multi-year, multi-million dollar managed services deal that we expect to go live later in the year.

Operating income in the quarter was negatively impacted by an unfavorable shift in the mix of revenues from data processing to professional services. We remain focused on getting this business back to growth and continue to expect double-digit operating margins for Information Management in 2011.

In summary, we've produced another quarter of solid results with strong revenue and profit growth in Customer Management. We are executing our operating plans across all of our businesses and expect Information Management revenue and profit improvement in the third and fourth quarters.

Overall, we are investing in solutions that bring value to our clients, and we are increasing our guidance for the year. The sale of the Cellular Partnerships further simplifies our business and provides flexibility for us to invest in the core business and return capital to our shareholders.

I would like to thank all of our employees for their professionalism and dedication, which is at the root of our continued success. We also thank our clients, including over half of the Fortune 50, for their trust in Convergys. Together, as business partners, we are supporting their critical customer service functions to help strengthen and grow their businesses.

Now I'll turn the call over to Earl to provide more detail on our financial results and business outlook.

Earl Shanks

Thank you, Jeff, and good morning. Overall, we had another quarter of solid performance. Consolidated revenue in the second quarter was $552 million. This increase of $23 million reflects growth in Customer Management live agent call volumes. Second quarter revenue also includes $5 million for transition services related to the HR Management business that was sold last year.

Excluding this severance and HR Management-related costs incurred last year, operating income increased 35% to $38 million. EBITDA was $72 million, and EPS from continuing operations increased to $0.26 compared with $0.19 last year.

Let's move to the segments beginning with Customer Management. Customer Management revenue in the second quarter was $470 million, up 5% year-over-year. Call volume increases with existing and new client programs more than offset lower sales from the Relationship Technology Management unit and the continued shift of revenue to offshore geographies. We continue to expect growth in the second half of the year from new program ramps and expansion, pipeline conversions and positive seasonal impacts.

At the end of the quarter, Customer Management had 41% of its contact center employees in the United States, including more than 3,000 home agents. 35% of employees were in the Philippines, 15% in India, 4% in Latin America, 4% in Canada and 1% of employees were in the U.K.

Customer Management's segment quarter operating income was $37 million. This was up 60% compared with the prior year. Adjusted EBITDA increased 26% in the second quarter.

Operating margin increased 270 basis points to 7.9% in the quarter. The majority of this improvement reflects flow-through from increased call volumes. About 100 basis points of this improvement came from a reimbursement related to the flood we experienced in Clarksville last year. This recovery was anticipated and was taken into account when we established guidance at the beginning of the year.

We continue to invest in agent training and program ramps in the second quarter. Cost we incurred ramping new programs continued to pressure margins in the quarter. Though, as Jeff mentioned, this investment will drive further profit improvement in the second half. SG&A held steady with the first quarter, excluding the insurance reimbursement impact.

I'll now move to Information Management. Information Management revenue was $77 million for the second quarter. This was consistent with the prior year. Revenue from new project work increased in the quarter. This reflects the continuing shift in the mix of services from data processing to professional services.

As Jeff said, we now anticipate sequential growth in the second half versus the first. This will be driven by our continued successful cut-over of several key projects as well as additional pipeline conversions.

Moving to Information Management earnings. Information Management operating income was $7 million in the second quarter. Operating margin was 8.4%, and EBITDA margin was 13.4%. As compared to last year, the decline in data processing revenue, offset by an increase in professional services revenue, had a negative impact on profitability.

Regarding corporate and other results. The $6 million loss in the second quarter largely reflects expected long-term compensation expense.

Moving to non-operating items. The Cellular Partnerships contributed $10 million in earnings during the second quarter. The year-over-year tax increase in the second quarter reflects a more normalized tax rate for 2011. We expect the effective tax rate will be higher next quarter due to the relatively higher tax rate related to the Cellular Partnerships.

Turning to free cash flow. Free cash flow in the second quarter was $48 million. Capital expenditures were up, as we continue ramping capacity in offshore locations. We received $10 million in cash from Cellular Partnerships' distributions in the quarter.

Let's now move -- let's now review the balance sheet. Cash at the end of the second quarter was $181 million, more than 90% of which is held offshore. Given the solid cash generation in the quarter, we have moved to a net cash position. This is before any impact from the Cellular Partnerships sale proceeds. We will record that sale in our third quarter results. Cash proceeds will be about $255 million after-tax, and the net gain from the sale will be about $170 million.

As Jeff said, we purchased 1.5 million shares for an average price of $13.14 in the second quarter. Year-to-date, we have used $39 million of cash to purchase 2.9 million shares. At the end of the second quarter, about 1.8 million shares remained authorized for repurchase.

We also negotiated more attractive terms for our accounts receivable securitization facility in the second quarter and extended its maturity to June of 2014. This gives us financial flexibility as we implement our multi-year capital allocation strategy.

Let me take a moment to discuss our philosophy and uses of cash. Given the strength of our balance sheet and liquidity position, our current plan uses of cash include growing the company's core businesses and returning money to our shareholders.

Provided the implied return on capital is sufficient, growing the company's core businesses could include investment in the future enhancement of our English, Spanish and technology capabilities and/or strategic acquisition of businesses that improve the company's competitive position. Otherwise, we may invest excess cash to retire substantial portions of our shares outstanding. We would do this as market and business conditions warrant, typically through multi-year stock repurchase programs.

Let's now move to our business outlook. We are raising our revenue and earnings expectations for 2011. Our revenue expectations reflect our view of the improving environment for Customer Management services and stabilization in the Information Management business. We increased Customer Management revenue expectations by $35 million to more than $1.875 billion. We reduced the low end of Information Management revenue expectations by $10 million. This creates a range from $330 million to $340 million. There will also be about $15 million of revenue this year from the transition service agreement related to the old HR Management business.

Our earnings expectations reflect the improving environment in our Customer Management business. Specifically, we raised the low end of the EBITDA range and the entire EPS range to reflect overperformance in the first half of the year. The low end of the EBITDA range was raised $10 million, and EPS was raised $0.08 on the low end of the range and $0.06 on the high end of the range. Our revised guidance also includes the Cellular Partnerships sale impacts to help avoid confusion.

As Jeff said a moment ago, the net contributions from the Cellular Partnerships sale included an additional $234 million of EBITDA and $1.22 of EPS impact. These impacts are due to the sale in the third quarter and the reduction in equity earnings for the year. The gain in the sale of the Cellular Partnerships is $264 million or $1.38 per share.

Going into the year, we have planned for about $50 million of equity earnings versus the $20 million we booked prior to the sale. As a result, our earnings expectations for the year are now EBITDA of $539 million to $559 million, adjusted EBITDA of $275 million to $295 million, GAAP EPS of $2.30 to $2.43 and non-GAAP EPS of $0.92 to $1.05 per share. We continue to expect free cash flow to exceed net income for the full year.

Tables reconciling our prior GAAP guidance to revised non-GAAP guidance were provided in the filings last night.

At this time, Sherry, please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Matt McCormack from BGB Securities, your line is open.

Matthew McCormack - BGB Securities, Inc.

Obviously, strong results in the Customer Management segment. I was wondering if you could kind of characterize the growth in the industry, and then as well as how much of this is due to other factors such as taking market share in vendor consolidation?

Jeffrey Fox

Clearly, versus this time last year, there's more stability in the industry. Not only for us, but we suspect for competitors. I don't -- Earl, correct me, I don't know that we've seen results for all of our competitors. We do feel like that we're proactively and positively engaged with a number of our customers, and we feel like the results we're getting in at least a number of our accounts is a reflection of that engagement. But the growth we're getting is from a number of sources. I wouldn't say it's -- I would tell you, I think that our competitors are growing as well, and our goal is to make sure that we at least grow with, if not exceed, our competitors over time. It's a multiphase question as you know.

Matthew McCormack - BGB Securities, Inc.

Right. Well, drilling down into the verticals, I mean, obviously, telecommunications was strong and technology was very strong. How much of it is just -- is the client specific? Specifically -- or how much is it -- is it the vertical itself that's growing? And any color on the specific verticals would be great.

Jeffrey Fox

Yes. So just a reminder, we have the U.S. Census in our other category last year, and so the growth is actually incrementally stronger than it even appears. The telecom sector clearly, this time last year, was -- there were volumes that weren't in the system that are there now across our client base. And as you know, that is our largest vertical. So we feel good about that. But we also feel like our investment in offshore analytics, work-at-home, we feel like the investments we're making are engaging our clients with us and bringing us extra work across new programs and new geographies, not just the volume stack in the system. As it relates to our other verticals, I think that we're still working hard to get those verticals to have more growth than they have so far this year. We're real pleased with some of the progress we're making on new logos. But net-net, we were fortunate that volumes were better in the telecom vertical or the communications vertical, and that we're doing a good job for a number of those customers to expose our business to those opportunities.

Matthew McCormack - BGB Securities, Inc.

Okay. And then volumes were double your revenue. So you did mention migration. You're continuing to migrate work. At what point down the road should we begin to see a convergence in volumes and revenue?

Earl Shanks

Matt, I think we've got a while yet where we will continue to see offshore migration in the industry and in our portfolio. And so I don't expect that to be -- I don't expect to see convergence of that anytime soon. So that's just part of the dynamics of the industry. It's one of the things that we planned for as we think out multiple years. It's one of the things we will plan for multiple years, given our relatively substantial still U.S. presence.

Matthew McCormack - BGB Securities, Inc.

Okay. And then just a last question. Given the strength that you're seeing, you're obviously talking about a higher training cost. Could you talk about wage inflation in the geographies that you participate in and if there's anything unexpected going on?

Earl Shanks

I'd say, not really anything unexpected, Matt. I mean, certainly, we see wage inflation, particularly in the offshore geographies. Obviously, lots of experience in terms of dealing with that and managing that and knowing how to think about that. And we have embedded that also, as we think about multi-year planning. We've embedded that into our multi-year planning as well.

Operator

Our next question comes from Dave Koning with Baird.

David Koning - Robert W. Baird & Co. Incorporated

First of all, I just want to run through Customer Management. As we look forward, typically, Q3 is seasonally stronger than Q2, I think every year except for maybe it was '09, I think. Q3 growth was a little better than Q2 -- meaning Q3 revenues were above Q2. Is it fair to just characterize that, since it seems like the momentum is getting a little better? There's no reason we shouldn't expect normal seasonality to play out?

Earl Shanks

You have correctly described the normal seasonal pattern we have created. That is what we are expecting.

David Koning - Robert W. Baird & Co. Incorporated

Okay. Okay, good. Secondly, the $0.16 headwind that you described from Cell Partnerships, does that just assume that the $264 million just goes to cash? And then any either repurchases or debt paydowns would be kind of accretive to that $0.16?

Earl Shanks

Yes, sort of, David. Obviously, cash returns at the moment are not anything to write home about. We haven't assumed in our future guidance additional share repurchases. We never do when we lay out that guidance. We have assumed the easy short-term debt repayment, which is embedded into the numbers that we've given you in terms of the EPS guidance, but really, only the immediate short-term debt paydown that we can do, not paying down any of the longer-term facilities.

David Koning - Robert W. Baird & Co. Incorporated

Okay, that's great color. And then finally, I think you mentioned the tax rate goes up a little in Q3. But longer term, I would imagine your tax rate, your overall company tax rate, might actually go down because I would imagine that the Cell Partnerships come on at U.S. tax rates where the broader business isn't fully U.S. Is it fair to say that longer term, the tax rate comes down a bit?

Earl Shanks

I think you're right about that one particular aspect. As always, with tax rate, there's a number of moving parts. So I think our objective is to keep the tax rate below 30%, which is really where we've been for a while. And I wouldn't expect that it's going to move down really noticeably when you think about it. Certainly, that factor helps. There are some other factors that go the other way at the moment.

Operator

Our next question comes from Kevin McVeigh from Macquarie.

Kevin McVeigh - Macquarie Research

Earl, you talked about the multi-year capital allocation strategy. Given the tremendous job you folks have done on the balance sheet, and without getting too specific, you have about 1.8 million shares left on the buyback. How should we think about that on a go-forward basis? You bought back 1.5 million in the second quarter. As you think about a boost to that, can you help us size how big that would be?

Earl Shanks

Well, look. I think that's a question that the board will address at the appropriate time. They haven't obviously made a change to that at this point, and so we have 1.8 million shares authorized. But that certainly is -- as I said in my prepared comments, that's certainly one of the option that we're actively considering. We're also very actively considering investments we can make in the business on a go-forward basis that will improve our competitive position from any number of perspectives, and pretty focused on the businesses we have. So investing close to home in that process as we think about it. We'll be very cautious about what we're doing in that regard so that we get an appropriate return for the shareholders in the process and not really jump to any conclusions unless we are really convinced that it is the best alternative to provide the best return.

Kevin McVeigh - Macquarie Research

Understood. As you think about potential acquisitions, do you have any kind of size or targeted range in terms of what you would think about, just from a dollar amount?

Jeffrey Fox

This is Jeff. No, not really. I do want to reiterate. We're going to be very disciplined in that process. I think I've said this before. But as our business execution improves and our engagement with our customer improves, our ability to find capabilities where we add value and can generate a good return on a manageable basis, those are the type of investments we would be looking for. We're going to be conservative and thoughtful on all of this.

Operator

Our next question comes from Gary Krishnan of Credit Suisse.

Giridhar Krishnan - Credit Suisse

I guess, Jeff, you spoke about volume and volume growth. And sort of building up on a question asked earlier, given what seems to be a slightly weakening macroenvironment, is there any sign to date in this quarter that you've seen that would make you maybe a little bit concerned about the sustainability of volume growth? And any signs you're hearing from clients that might give you any concern at all?

Jeffrey Fox

Yes. I mean, I'm going to tell you that we really can't comment on anything like that. Our guidance -- I think our guidance reflects some degree of our view of the economy remaining roughly stable. I don't -- and so if their economy goes backwards, I think we and a number of folks will have the risk of some negative to our plans.

Earl Shanks

Yes. I mean, I think that's always -- as Jeff said, I think that's always a risk. I think when we look backwards at the second quarter, what you see is that we've seen the second quarter where the volumes have been pretty solid and pretty consistent. We're always cautious about what the future looks like and always thoughtful about what the ranges of outcome can be in the future. And certainly, we read what's going on around the country. But the historical data we've got supports what we've said about guidance and our optimism and why we raised the revenue guidance range.

Giridhar Krishnan - Credit Suisse

Okay, and any thoughts at all on the pricing environment within Customer Management?

Jeffrey Fox

I think we've been consistent. It's a competitive business. We feel like we have to work hard to make our margins, and our customers know our costs. And so we continue to feel like when we do good work, we should be able to make a reasonable return. And we reflect that with our customers. We have some customers we're proud to do business with, and I think they know that we and everybody else have to make some return in order to do quality work for them. So I'd find it to be a reasonably disciplined environment, and we really do work hard for our money, and we want to continue to work hard for the clients we have.

Operator

Our next question comes from Manish Hemrajani from Oppenheimer.

Manish Hemrajani - Oppenheimer & Co. Inc.

This question, on the Philippines. With Philippines being such as an integral part of the offshore mix, and it's obviously getting crowded there especially on the voice end of the business, are you starting to see higher-than-anticipated attrition and rate inflation pressures there? And if so, how do you intend to tackle that?

Jeffrey Fox

We are obviously watching that very close given the scale of our Philippine investments. I'm not going to comment on the specifics. Our guidance and our margin improvement reflects the fact that we feel like those are issues to watch. But at least, at this point, we're handling all that within our operating plans.

Manish Hemrajani - Oppenheimer & Co. Inc.

Okay, got it. And then when we look at your adjusted EPS guidance for the year, given the $0.16 dilution from Cell Partnerships, how much of that dilution is being offset by improvement in margins? And how much of that is through buybacks and lower interest expense?

Earl Shanks

As I said, we haven't baked in any future buybacks into the guidance. We have offset a little bit of it by -- we paid off our short-term facility early in the third quarter, but that was a short-term facility. That was pretty low cost. So it was effective better yield than investing it in cash, but still pretty low impact. So really, just modest offsets against the $0.16 in dilution.

Manish Hemrajani - Oppenheimer & Co. Inc.

So most of that would be coming from the margin side?

Earl Shanks

The improvement in the EBITDA guidance range obviously was all margins. None of it interest, none of it dilution. So if that's your question, certainly. It's all coming from the operating side of the business as compared to what we've done with the cash from the Partnerships.

Operator

Our next question comes from Vincent Lin from Goldman Sachs.

Vincent Lin - Goldman Sachs Group Inc.

I just wanted to follow up on the Information Management segment. It looks like the -- so the kind of the toning down adjustment in terms of the range for the year, was that more a function of the 2Q results coming in a little bit lower than expected? Or are you adjusting kind of the go-forward target for the second half? And if you are, can you provide a little bit more color in terms of what's driving the adjustments?

Earl Shanks

In general, we adjusted the guidance range based on a variety of factors of where we see the revenue for the year. Part of that is what got signed and the timing of when it got signed and how the pieces fell out. I think the second quarter performance, if I just speak to that, was certainly in the range of what we expected for the quarter. There's always volatility around expectations around any particular business in terms of quarter performance, but a pretty stable quarter in that business. And one of the things that I think you've been hearing from us for a while is that we think that business is to a point of stabilization and, therefore, delivering pretty consistent revenue on a quarter-to-quarter basis. And so in that sense, we are pleased with where the business is. But when we look to both the balance of the year and what's actually been signed in terms of deals that are out there, that caused us to moderate a bit the revenue we expected for the full year.

Vincent Lin - Goldman Sachs Group Inc.

And maybe just a follow-up on the Customer Management side. Obviously, I think your expectations for continued volume growth into the second half, what should we expect in terms of the amount of technology sales from that business on a go-forward basis?

Jeffrey Fox

We don't report that specifically. I think in my comments I said that the revenue trend there was relatively consistent between Q1 and Q2. And so I think that, given the capabilities we're investing in there, that is what we continue to look for generally embedded within our forecast. We do not, in any of our businesses, have huge business signing assumptions in our go-forward forecast.

Operator

Our next question comes from Ashwin Shirvaikar from Citigroup.

Philip Stiller

This is Phil Stiller on for Ashwin. I just wanted to ask about the gross margin in the Customer Management segment. It seems like you're down about 300 basis points year-over-year in the first half. Is that a good proxy for the increased training cost that you had so far? And then what can we expect on that front in the second half?

Jeffrey Fox

Yes. So we had the Harry & David thing in Q1 in addition to the training pressure. I think that covers most of it. Earl, am I missing anything? That covers most of it from my perspective. So that's -- net-net, we were positive with the Clarksville. We were negative with the Harry & David. So that's -- I would say, the business execution of the gross margin level feels pretty solid based on the ramps we're executing.

Philip Stiller

Are you expecting an improvement in that segment gross margin in the second half?

Jeffrey Fox

Our plan would have some improvement. Obviously, if we continue to get new work orders and build revenue momentum, that might or might not all come through. But those are all -- we feel good about the leverage we're getting on our SG&A, and so we feel like that business is building value as we go forward.

Philip Stiller

Okay. And then, Earl, just on the corporate SG&A. It kind of bounced back after a couple of low quarters. Is this a good run rate going forward?

Earl Shanks

Yes, I think with the exception of the impact of Clarksville that we called out in SG&A in the quarter, I think, in general, this is a run rate that is fairly sustainable for us.

Operator

Our last question comes from Eric Boyer from Wells Fargo.

Eric Boyer - Wells Fargo Securities, LLC

I think I missed it, but Earl, what were your comments on the Customer Management margin expectations for the year?

Earl Shanks

I don't think you've missed them. I don't think I've provided you any specific comments around that other than we will see some positive impact from the training dollars we've been spending in the first half as we flow into the second half. As we look at that, we see, for some of the ramps, kind of a 6-month impact, and we've been doing a lot in the first half of this year. So that should have some positive momentum on margins in the second half.

Eric Boyer - Wells Fargo Securities, LLC

Okay. And then just, I guess, on the pipeline for new work within Customer Management. Could you just give some comments there? And do you think your sales force is that size at the right -- the right place for what you're seeing in the pipeline going forward?

Earl Shanks

I think if you look, Eric, at what we talked about, and this is in pipeline, it's what we actually closed in the quarter, we closed $84 million of business in the quarter, which is of next year's revenue, which is again the metric we give you every time. I think that's a pretty solid performance. I think it reflects, among other things, the work the team has done over the past year in terms of improving account management. And so I think -- and what we're seeing and feeling is that, that momentum seems to be generally continuing. There's obviously and always some client-specifics around that, but our confidence level was pretty good. Again, that's why we raised the revenue guidance for the year, because we looked at what was out there and said, teams getting it done, we're making progress, doing a good job at delivering quality to the clients and capturing ongoing revenue. And that gives us confidence about where the business is going.

David Stein

Okay, thank you all for participating in the call today. I'd like to add that Earl and I will be available the rest of the day to answer any questions about our results and business outlook discussed during this call. So again, thank you and have a great day.

Operator

This concludes today's conference. Thank you for participating. You may disconnect at this time.

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