DXC Technology Company

Good day and welcome to the DXC conference call. Today's conference is being recorded at this time. I would like to turn the conference over to Shailesh Murali. Please go ahead, sir.

Thank you and good afternoon, everyone. I am pleased that you are joining us for DXC's fourth quarter and full year fiscal 2020 earnings call. Our speakers on today's call will be Mike Salvino, our President and Chief Executive Officer and Paul Soleil, our chief financial officer. This call is being webcast at dxc.com slash investor relations, and the webcast includes slides that will accompany the discussion today. After the call, we will post these slides on the investor relations section of our website. Slide two informs our participants that DXC Technologies' presentation includes certain non-GAAP financial measures and certain further adjustments to these measures, which we believe provide useful information to our investors. In accordance with SEC rules, we have provided a reconciliation of these measures to their respective and most directly comparable gap measures. These reconciliations can be found in the tables included in today's earnings release. On slide three, you will see that certain comments we make on the call will be forward-looking. These statements are subject to known and unknown risks and uncertainties, which could cause the actual results to differ materially from those expressed on the call. A discussion of these risks and uncertainties is included in our annual report on Form 10-K and other SEC findings. I would like to remind our listeners that DXC technology assumes no obligation to update the information presented on the call, except as required by law. And now I'd like to introduce TXC Technologies President and CEO, Mike Salvino. Mike?

Thank you, Shelesh, and I appreciate everyone joining us today. This is the first time we've connected since the COVID crisis, and I hope you and your families are staying well. I'm going to start today's call by sharing some big picture context about what we've accomplished since the last time we spoke. I will then discuss feedback we have been receiving from our customers who are recognizing our outstanding operational performance during the COVID-19 crisis. Before I hand the call over to Paul, I will also provide an update on our transformation journey. Paul will then share our financials, including an update on the actions we have taken to strengthen our liquidity and enhance our financial flexibility. Then I'll make some closing remarks. before opening the call up for questions. I am pleased with the quarter. We have been making good progress with our customers. Since I started in September, we have been focused on improving customer delivery and building stronger customer relationships, and we have done both this quarter. On customer delivery, we have now fixed 35 of the 40 challenged accounts. Of the remaining five, Two have decided to leave us, and we are still working the other three. Investing to fix these accounts was something I highlighted during my first earnings call, and I'm happy to report this is pretty much behind us. The investment is also paying off, as we now have sold $2.1 billion in TCV over the last two quarters to these accounts. The work consists of renewals and new work. Some of this new work was previously put on hold, and some of the work is in new areas like analytics and engineering. New work is the best evidence to describe a turnaround. On building stronger customer relationships, we have significantly increased our focus on our top 200 accounts. During this quarter, I have personally checked in with these customers numerous times, making sure I gave them an update on how DXC was doing, assuring them we were focused on delivering, and asking them to please let me know if they ever see any issues. As unfortunate as the COVID-19 crisis is, and I don't want to minimize that point, the crisis has caused customers to see heightened needs for our capabilities. specifically having reliable and secure on-prem IT infrastructure and workplace and mobility services. The customer feedback has been overwhelmingly positive for the way we have delivered, and I could not be more proud of how our team at DXE has delivered. Clearly, the investment we have been making in our people in the business over the past seven months was the right thing to do. It allowed us to fully support our customers when they needed us most, and customers remember when you deliver in tough times. We have pulled together a slide with a sampling of quotes that captures some of the stories concerning how we've delivered for our customers. The IT challenges that our customers has faced during the crisis have highlighted the criticality of our distinctive workplace and mobility services, our on-prem IT infrastructure and cloud capabilities, and finally, our ability to innovate and execute in a very demanding environment. Let me bring a couple of these quotes to life. For a major defense contractor, we delivered 1,200 fully imaged computers for their employees in one week. Also, in one day, we fielded a 200% surge in service desk calls, to enable half of their employees to work from home. In addition, we delivered a dashboard showing their devices across their 119 locations, which delighted the customer. For a leading health tech company, we anticipated a surge in service desk calls from the employees working from home. And we built a chat bot in 30 hours to reduce the call volume by 12% on the first day. The customer was thrilled, as you'll see in the quote. They highlighted our proactiveness, out-of-the-box thinking, speed, and collaboration. And I want to highlight for you all, this is the new DXC at work. I want to thank our 137,000 women and men who deliver every day for our customers. They have done a phenomenal job taking care of themselves, their families, and our customers during the COVID-19 crisis. Over 99% of our people are enabled to work virtually. This 99% number is industry leading, which is expected because we've got the number one workplace and mobility business in the industry. But nonetheless, it was great to see us deliver for our customers. The actions we have taken to improve customer delivery and focus on our people have enabled us to meet and exceed our customers' expectations during this challenging time. And I also want to take a moment and thank our customers for reaching out and recognizing the outstanding performance of our people. Our strategy to position DXD for growth has always been based on taking care of our customers and the people who do the detailed work. The financial payoff from this strategy will materialize over time, but I am very encouraged about our progress. As we discussed in the last couple of earnings calls, DXC's main fundamental challenge has been revenue runoff from existing contracts. With everything we've been doing for our existing customers, we should be able to stem future revenue runoff. I say this because over the last seven months, we've done a lot of work to secure our customers, improve delivery, and study our customers' IT estates. Here's the key finding from all this work. A revenue runoff was not caused by cloud trends prompting customers to move away from DXE. Instead, this runoff was due to suboptimal customer delivery and weakening customer relationships. As a result, we lost roughly $1 billion of revenue in FY20 and expect to lose a similar amount in FY21 from price downs and terminations decisions made by customers in the last 12 to 18 months. For FY21, the impact will be more pronounced in the first half of the year. The good news is that this fundamental problem is absolutely within our control and fixable. In fact, we're making good progress on bringing the new DXD to our customers, which should help stem future revenue runoff. Now I'd like to turn to our people. We continue to hire talented people to serve our customers, both at the account level and within delivery. My focus has been to reward our people who are closest to our customers. You might have heard we announced pay increases for our people that are delivering the detailed work. The first phase of these increases were done in January, and the final phase will be done in August. The health and safety of our people has always been and remains a top priority for me as we navigate the COVID-19 crisis. I am personally keeping our people informed of the evolving situation through town halls and emails on a regular basis. My leadership team has done a fantastic job throughout this quarter. We are meeting daily to ensure that we are supporting our people and our customers by acting on the information from our COVID-19 command center. This center works around the clock to monitor the evolving situation. It guides our actions to help reduce the spread of the virus, ensures our people can work safely in critical on-site roles, and enables our people to work from home securely. Now, let me turn to our transformation journey, which consists of three initiatives focused on our customers, cost optimization, and the market. All of these initiatives will help us build the foundation for growth. Now, I've already given you a lot of context on our first initiative, which focused on customer delivery and building stronger customer relationships. But I want to spend time clarifying our cost optimization and seize the market initiatives. Being well on our way to securing our customer base and taking care of our people, it's now time to focus on the second initiative, which is to optimize the cost. Our cost optimization will be initially focused on simplifying our management layers and taking the appropriate steps to right-size our cost structure to our revenue. What I've learned by doing countless customer calls and account reviews is that we have too many people between our customers and the people doing the detailed work. This causes complexity and confusion. It also erodes profitability and shareholder value. By eliminating unnecessary layers, our people will be able to deliver for our customers faster, drive meaningful revenue growth, and help deepen customer relationships. This is why we are accelerating our cost optimization initiative. We expect to eliminate about 700 million of costs on an annualized basis with about 550 million coming this year. We expect roughly 4,500 people or 3.5% of our workforce to be impacted. I also want to highlight a reminder that I communicated to our people four weeks ago that along with these actions, we will continue to run our business. This means we will continue to hire and exit people at all levels as we see the needs and the performance of the business changing. This cost optimization initiative will allow us to better serve our customers and help us seize the market, which is our third initiative. The current environment has reaffirmed that what we do at DXE is incredibly relevant. We see this demand as a revival. of the on-prem IT estate market, and this is an opportunity that is unique to us. I've mentioned before that we were going to tap into the strategic advisory capabilities of Virtual Clarity, a DXC company that we acquired this past year, to provide greater insights to us concerning how our customers are considering moving their existing on-prem IT estate to the clouds. We have worked with 95 of our top customers who represent nearly half of our key accounts to assess their current IT estate and the expected evolution of these estates to the cloud over the next two years. The data shows our customers aspire to move 20% of their current on-prem IT estate to the cloud over the next two years. However, After careful analysis and considering the technical feasibility, risk, and business case, along with the ability to execute, this number drops to 5%. In addition, we found these customers wanting to modernize over 60% of their on-prem IT estate and do not plan to touch the remaining on-prem estate in the next two years. This also highlights the criticality of the IT estates that we run for our customers and the thoughtfulness concerning how they will move the next pieces of these estates to the cloud. These on-prem IT infrastructure capabilities have always been essential, but now they're both essential and top of mind for our customers. I want to underscore here that reliable and secure work-from-home capabilities have become a must-have for our customers. The work-from-home trend is becoming a demand game-changer for our IT infrastructure and workplace and mobility businesses, and we are eager to capitalize on these opportunities. You will hear from Paul that we are currently in the market with the workplace and mobility business, But given the importance of working from home to our customers, we are reevaluating, retaining the business to capitalize on this strong demand. It is now time for us to focus on cross-selling our services to our customers that we have worked so hard to take care of, which is exactly what we are doing. We are in the market right now cross-selling to our top 200 accounts, We have spoken to 90% of them concerning our workplace and mobility offering, our ITO and cloud capabilities, and our analytics and engineering offering. All of these actions have enabled us to increase our qualified pipeline by 23% over the last couple of months. I am looking forward to working with our teams and customers to seize this market opportunity that this third initiative has created. and convert this cross-selling pipeline into new revenue for DXC. Now, let me please turn the call over to Paul.