DXC Technology Company

Good day and welcome to the DXC Technologies conference call. Today's conference is being recorded. At this time, I'd 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 Technologies' second quarter fiscal 2021 earnings call. Our speakers on today's call will be Mike Salvino, our President and Chief Executive Officer at and Neil Manna, our Senior Vice President and Corporate Controller and Interim Chief Financial Officer. This call is being webcast at dxe.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 2 informs our participants that DXC Technologies' presentation includes certain non-GAAP financial 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 GAAP measures. These reconciliations can be found in the tables included in today's earnings release and the webcast slides. 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 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 filings. 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 would like to introduce DXC Technologies President and CEO, Mike Salvino. Mike?

Thanks, Shelesh. And I appreciate everyone joining the call today. And I hope you and your families are doing well. I'm going to start today's call by giving you an update on our strong Q2 performance. I will then highlight the progress we are making on our transformation journey. Our strong Q2 performance was driven by executing against our three key areas of our transformation journey, which are focus on customers, optimize cost, and seize the market. Next, I will discuss the good progress we have made on our strategic alternatives initiative, and then I'll hand the call over to Neil to share our Q2 financial results and guidance for Q3. Finally, I will make some closing remarks before opening the call up for questions. We delivered a strong Q2, and I'm very pleased with how we are executing against our plans to stabilize revenue quarter on quarter, improve margins sequentially, and achieve a book-to-bill of 1.0. For Q2, our revenues were $4.55 billion, exceeding the top end of our guidance by $100 million. The quarter-on-quarter revenue stabilization trend is expected to continue in Q3 on a like-for-like basis. Now, when I say like-for-like, I mean excluding the U.S. state and local health and human services business. Adjusted event margin came in at 6.2%, also higher than the top end of our guidance, highlighting the effectiveness of our cost optimization program. Like revenue, we expect margins to continue to expand in Q3 on a like-for-like basis. And our book to bill for the quarter was 1.1, underscoring the success in bringing the new DXE, which focuses on customers and our people, to the market. We expect this trend of achieving a book to bill of 1.0 to continue in Q3. I'm excited about the level of stability we are achieving by executing on our transformation journey. Our customer relationships are strengthening, we are taking out cost without disruption, and we continue to win in the market. Now let me update you on the progress we are making with the three key areas of our transformation journey, starting with customers. Our focus on customers continues to pay off and is the primary reason we are stabilizing revenues sequentially. Simply put, when we deliver for our customers and build trusted relationships, they renew existing work and turn to us for new work. Now, let me give you a couple of examples. We have a longstanding relationship with BP. Like us, BP is going through their own transformation journey under a new CEO to reinvent BP and reimagine energy. We continue to help BP run their technology services, driving greater automation and flexibility into their operations. And now we are supporting their move to the cloud, from assessment to migration and then data center exit. Denmark's Ministry of Finance is another recent win with a longstanding customer. We were selected to modernize their IT platform, which will enable employees and retirees to receive their paychecks and pensions on time. These two examples, along with others, gives us confidence that we can continue to stabilize revenue quarter on quarter. The second key area of our transformation journey is optimized costs. We are on track to achieve our goal of $550 million in cost savings this year, which is the main driver of our Q2 adjusted EBIT margin of 6.2%. We expect margins to continue to expand in Q3. On a like-for-like basis, we plan to deliver roughly 200 basis points of margin improvement from Q2 to Q3. Or, looking at it on an as-reported basis, we expect adjusted EBIT margins to remain relatively flat between Q2 and Q3, even with the sale of the U.S. state and local health and human services business, which contributed roughly $95 million to our adjusted EBIT in the quarter. I'm very pleased at how we are optimizing costs while we are delivering for our customers without disruption. Seize the market is the third key area of our transformation journey. In this area, we are focused on cross-selling to our existing accounts and winning work with new customers. But the 1.1 book-to-bill number that we delivered this quarter is further evidence that our plan is working. 50% of our Q2 bookings were renewals and 50% were new work, either from existing or new customers. As I have given you a couple of examples of cross-selling to existing long-standing accounts, now let me give you a couple of examples of where we won work from new customers. In the security area, we recently signed as a new customer Beam Centauri, known for its well-established brands such as Jim Beam and Maker's Mark. We also welcomed Australia's Department of Foreign Affairs and Trade. We will provide SAP and PeopleSoft services over the next three years across nine in-country locations and 121 posts worldwide. We are encouraged by our consistent success in this area And based on our qualified pipeline, we expect to achieve a book to bill of 1.0 or greater in Q3. Now I'd like to discuss the good progress we have made on our strategic alternatives initiative. Shortly after I started with DXC, we defined this initiative consisting of three businesses under review and later added a fourth. The four businesses are the U.S. state and local health and human services business, the healthcare provider software business, workplace and mobility, and horizontal BPS. As we committed, we sold our U.S. state and local health and human services business to Veritas Capital for $5 billion on October 1. This was a major milestone in our transformation journey, and I want to thank the women and men who worked incredibly hard on this transaction. We used the net proceeds of this transaction to pay down $3.5 billion of debt. We feel comfortable that we now have a strong balance sheet and the financial flexibility to continue the execution of our transformation journey. Neil will talk more about our capital structure and liquidity in a few minutes. We also remain on track to close the sale of our healthcare provider software business to debt-a-lose by the end of the fiscal year. Again, we will use the net proceeds from this transaction to pay down debt by about $450 million, further strengthening our balance sheet. We've decided to retain both the workplace and mobility and horizontal BPS businesses. This decision completes the Strategic Alternatives Initiative. We're retaining these two businesses as a result of our strong balance sheet and our analysis that we can create more value by applying our transformation journey to these businesses as compared with the interest we receive from potential buyers. During the strategic alternatives initiatives, these two businesses were ring fenced and have been operating with an element of uncertainty. We are now looking forward to operating these businesses with clarity and being able to apply our transformation journey to improve their financial contributions to DXE. Regarding workplace, we are the market leader with nearly 2x the managed devices of our nearest competitor. The business fits nicely into our cross-selling efforts, especially as a result of the demand created by COVID-19, where our customers now need to support their employees working remotely. Given my prior experience in the BPS industry, I'm looking forward to working with our BPS team to create additional value and competing again in a market that I've known for years. Now I'd like to comment on our leadership team. The organizational changes we announced in September shows that we have worked hard to bring top talent and develop a strong senior leadership team. This team is driving the momentum in our business and helping us deliver strong financial results. The caliber of this leadership team is evidence that DXE can attract top industry talent. Now, as you know, we are conducting a detailed search for our next CFO. We are in the final stages, and I'm looking forward to concluding this search in the near term. I want to thank Neil for stepping into the interim CFO role. I have appreciated his leadership, and he's been a true partner over this transition period. Now, let me turn the call over to Neil.