Computer Sciences Corporation (NYSE:CSC) Q3 2017 Earnings Conference Call - Final Transcript

Feb 02, 2017 • 05:00 pm ET


Computer Sciences Corporation (NYSE:CSC) Q3 2017 Earnings Conference Call - Final Transcript


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J. Michael Lawrie

track to close the merger between CSC and Enterprise Services business of Hewlett Packard Enterprise on or about April 1st of this year. We have made substantial progress over the past several months, which includes completing all the regulatory clearances required to close the merger. We continued our operational prep process via regular integration summits with HPES. We named last week a NewCo senior leadership team, and tomorrow we'll be naming NewCo's Board of Directors.

And lastly, as we -- as part of our ongoing CSC registration process, we do expect to file our next round of SEC filings in the coming weeks.

And then finally, for fiscal 2017, we continue to target revenue to be up in the low double-digits in constant currency, and our target for non-GAAP EPS from continuing operations remains $2.75 to $3. And our adjusted free cash flow target is unchanged at 100%-plus of adjusted net income.

So, now let me just delve into each of those points in a little more detail. As I said, our third quarter non-GAAP EPS from continuing operations was $0.81, which includes the impact of a stronger U.S. dollar and the impact of IFRS to U.S. GAAP conversion in our acquisitions. Adjusted free cash flow for the quarter was $299 million.

And the third quarter commercial profit margin was 11.8%, this was up 270 basis points sequentially. And year-over-year, our margin was up over 70 basis points, despite our ongoing investments in key areas such as BPS and our next-gen offerings. And I'll return to this in a little greater detail in a moment.

Now, ahead of our planned merger with HPE's Enterprise Services business, we continue to execute on our existing revenue and margin roadmap for CSC. In the past quarter, our ongoing next-generation revenue growth in bookings continued to reflect our leadership in critical growth market segments, such as BPS, population, healthcare and managed services in capital markets. We largely completed the integration of our acquisitions, Xchanging and UXC, whose contributions to our performance have resulted in positive year-on-year growth as well as margin improvement due to cost synergy realization in the third quarter.

And finally, we continue to take actions to drive forward our longer-term margin initiatives, including the ongoing reengineering of our delivery model. As I have discussed over the past several quarters, we're continuing to make an ongoing strategic investment into our Business Process Services, or BPS platform. And while this incremental investment continued to somewhat offset our margin improvement actions in the third quarter, we do expect this investment to benefit our market-leading position in BPS.

In the third quarter, our previously announced agreement with MetLife went live as planned and began generating revenue. CSC will administer nearly 7 million policies for MetLife, and this contract has established CSC as the largest provider of insurance BPS processing for life, annuities and pensions in North America, where we will administer over 14 million policies.

In the third quarter, we also had another BPS win