2nd quarter fy 2016 earnings presentation · 2017-03-30 · 2nd quarter fy 2016 earnings...

1November 4, 20152nd Quarter FY 2016 Earnings Presentation

2nd QUARTER FY 2016EARNINGS PRESENTATIONNovember 4, 2015


Forward-Looking Statements

All written or oral statements made by CSC at this meeting or in these presentation materials that do not directly and exclusively relate to historical facts constitute

“forward-looking statements”. These statements represent CSC’s expectations and beliefs, and no assurance can be given that the results described in such statements

will be achieved. These statements are subject to risks, uncertainties, and other factors, many outside of CSC’s control, that could cause actual results to differ materially from the

results described in such statements. For a description of these factors, please see CSC’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.


Non-GAAP Reconciliations

This presentation includes certain non-GAAP financial measures such as operating income, operating margin, adjusted operating income, adjusted operating margin, earnings before interest and taxes (EBIT), EBIT margin, adjusted EBIT, adjusted EBIT margin, free cash flow and capital

expenditures. Also included are certain non-GAAP results such as non-GAAP income from continuing operations and non-GAAP EPS. These non-GAAP financial measures are not meant to

be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States (GAAP). A reconciliation of non-GAAP financial

measures included in this presentation to the most directly comparable financial measures calculated and presented in accordance with GAAP accompanies this presentation and is on our website at www.csc.com. CSC management believes that these non-GAAP financial measures

provide useful information to investors regarding the Company’s financial condition and results of operations as they provide another measure of the Company’s profitability and ability to service its

debt, and are considered important measures by financial analysts covering CSC and its peers.

Selected references are made on a “constant currency basis” (cc) so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby providing

comparisons of operating performance from period to period. Financial results on a “constant currency basis” are non-GAAP measures calculated by translating current period activity into U.S. dollars using the comparable prior period’s currency conversion rates. This approach is used for

all results where the functional currency is not the U.S. dollar.


2nd QUARTER FY 2016EARNINGS PRESENTATION

Mike LawrieChief Executive Officer


Key Messages

Positive momentum in next-gen offerings & partnerships

Q2 FY16 non-GAAP EPS* of $1.26 up 7% YoY

Expect to complete separation on November 30th, 2015

Commercial margin up YoY

Strong profit margins and bookings in NPS

*Non-GAAP EPS from continuing operations excludes certain items including separation, merger, & other transaction costs, SEC settlement-related items, real estate restructuring charge, and tax valuation allowance benefit

(see slides 7, 15 – 19 for non-GAAP reconciliations)

Maintaining FY16 targets



Paul SalehChief Financial Officer


Reconciliation of Non-GAAP ResultsQ2 FY16 and YTD FY16

*EPS from continuing operations and per-share values of certain items may not add to non-GAAP EPS due to rounding

$M Except EPS GAAPSeparation,

merger, & other transaction costs

Gain on business

divestiture

SEC settlement-related items

Real estate restructuring

charge

Tax valuation allowance

benefit

Non-GAAP results

Income (loss) from continuing operations, before taxes 176 (48) - (2) (21) - 247

Income tax expense (benefit) 3 (6) - - (2) (53) 64

Income (loss) from continuing operations 173 (42) - (2) (19) 53 183

Diluted EPS from continuing operations* $ 1.19 (0.30) - (0.01) (0.14) 0.38 $ 1.26



Gain on business

divestiture



charge

Tax valuation allowance

benefit

Non-GAAP results

Income (loss) from continuing operations, before taxes 404 (66) 22 1 (21) - 468

Income tax expense (benefit) 67 (13) 8 1 (2) (53) 126

Income (loss) from continuing operations 337 (53) 14 - (19) 53 342

Diluted EPS from continuing operations* $ 2.32 (0.38) 0.10 - (0.14) 0.38 $ 2.36

Q2 FY16

YTD FY16


2nd Quarter Results

*Adjusted for full impact of extra week in Q1 of the prior year

**Non-GAAP and adjusted results exclude certain fiscal 2016 items including separation, merger, & other transaction costs, the gain on a business divestiture, SEC settlement-related items, real estate restructuring charge, and tax valuation allowance benefit, as applicable

(see slides 7, 15 – 19 for non-GAAP reconciliations)

FY16 FY15 FY16 FY15

Revenue ($M) 2,712$ 3,080$ 5,473$ 6,317$

YoY Growth – GAAP (11.9%) (13.4%)

YoY Growth – cc (7.2%) (6.8%)*

QoQ Growth – GAAP (1.8%)

Adjusted Operating Income ($M)** 331 349 629 653

Adjusted Operating Margin (%)** 12.2% 11.3% 11.5% 10.3%

Adjusted EBIT ($M)** 94 - 109 -

Adjusted EBIT Margin (%)** 3.5% 0.0% 2.0% 0.0%

Non-GAAP Income from Continuing Operations ($M)** 183 177 342 336

Non-GAAP EPS from Continuing Operations** 1.26$ 1.18$ 2.36$ 2.22$

Bookings ($B) 2.9$ 3.0$ 6.1$ 5.7$

Q2 YTD


NPS 36%

GIS31%

GBS33%

Global Business Services (GBS)

$2.4 $1.6

YTD FY15 YTD FY16

$2,091$1,810

YTD FY15 YTD FY16

OI Margin %Revenue ($M) Bookings ($B)Year to Date

11.4% 11.7%*

YTD FY15 YTD FY16

Decline in cc of 4.0%**

Q2 FY16 Q2 FY15

Revenue ($M) 891$ 1,003$ – YoY growth - GAAP (11.2%)– YoY growth - cc (3.7%)– QoQ growth - GAAP (3.0%)

Operating Income ($M)– Adjusted* 114 130

Operating Margin (%) – Adjusted* 12.8% 13.0%

Bookings ($B) 0.7$ 1.2$

*Adjusted operating income and margin exclude impact of second quarter fiscal 2016 real estate restructuring charge and transaction costs**Adjusted for full impact of extra week in Q1 of the prior year


Global Infrastructure Services (GIS)

NPS 36%

GIS31%

GBS33%

$1.8 $2.1

YTD FY15 YTD FY16

$2,167$1,739

YTD FY15 YTD FY16

6.4% 7.2%*

YTD FY15 YTD FY16

Revenue ($M) Bookings ($B)Year to DateDecline in cc of 11.4%**

Q2 FY16 Q2 FY15

Revenue ($M) 854$ 1,036$ – YoY growth - GAAP (17.6%)– YoY growth - cc (10.8%)– QoQ growth - GAAP (3.5%)



Bookings ($B) 0.7$ 0.6$

*Adjusted operating income and margin exclude impact of second quarter fiscal 2016 real estate restructuring charge and transaction costs**Adjusted for full impact of extra week in Q1 of the prior year

OI Margin %


North American Public Sector (NPS)

DoD 53%Civil 36%Other 11%

NPS 36%

GBS33%

GIS31%

$1.4

$2.5

YTD FY15 YTD FY16

$2,059 $1,924

YTD FY15 YTD FY16

15.1% 15.4%*

YTD FY15 YTD FY16

OI Margin %Revenue ($M) Bookings ($B)Year to DateDecline of 4.8%**

Q2 FY16 Q2 FY15

Revenue ($M) 967$ 1,041$ – YoY growth - GAAP (7.1%)– QoQ growth - GAAP 1.0%



Bookings ($B) 1.5$ 1.1$

*Excludes impact of second quarter fiscal 2016 real estate restructuring charge**Adjusted for full impact of extra week in Q1 of the prior year


Q2 FY16 YTD FY16

Free Cash Flow $53M $170M

Cap Ex — Including Capital Leases $215M $385M

Cap Ex as a % of Revenue 7.9% 7.0%

Cash Flow Performance

Financial Highlights

Q2 FY16 Q2 FY15

Cash and Equivalents $1.8B $1.9B

Net Debt to Capital Ratio 14.0% 13.2%

Capital Structure

Q2 FY16 YTD FY16

Dividends $32M $64M

Share Repurchases0.2M shares

—2.0M shares

$118M

Capital to Shareholders


FY 2016 Targets

Free Cash Flow $750 – $800 million

RevenueFlat to slightly down (cc)• NPS slightly up• Commercial flat to slightly down in cc

Non-GAAP EPS from Continuing Operations* $4.75 – $5.05

*Non-GAAP EPS from continuing operations excludes net actuarial pension and OPEB gains/losses, separation, merger, & other transaction costs, the gain on a business divestiture, SEC settlement-related items, real estate restructuring charge, and tax valuation allowance benefit



Supplemental Information


Q2 Non-GAAP Reconciliation

Operating Income ($M) Q2 FY16 Q2 FY15

Adjusted operating income 331$ 349$ Real estate restructuring charge (21) - Transaction costs (2) - Operating income 308$ 349$ Corporate G&A (61) (67) Separation and merger costs (46) - Interest expense (35) (36) Interest income 7 5 Other income, net 3 (6) Income from continuing operations before taxes 176$ 245$

Earnings Before Interest and Taxes ($M) Q2 FY16 Q2 FY15

Adjusted EBIT 275$ 276$ Separation, merger, & other transaction costs (48) - Gain on divestiture - - SEC settlement-related items (2) - Real estate restructuring charge (21) - EBIT 204$ 276$ Interest expense (35) (36) Interest income 7 5 Income tax expense (3) (68) Income from continuing operations 173$ 177$

Margin % Q2 FY16 Q2 FY15

Revenue ($M) 2,712$ 3,080$ Adjusted operating margin 12.2% 11.3%Operating margin 11.4% 11.3%Adjusted EBIT margin 10.1% 9.0%EBIT margin 7.5% 9.0%


YTD Non-GAAP Reconciliation

Operating Income ($M) YTD FY16 YTD FY15

Adjusted operating income 629$ 653$ Real estate restructuring charge (21) - Transaction costs (2) - Operating income 606$ 653$ Corporate G&A (115) (123) Pension & OPEB actuarial & settlement losses - (1) Separation and merger costs (64) - Interest expense (70) (75) Interest income 18 10 Other income, net 29 (5) Income from continuing operations before taxes 404$ 459$

Earnings Before Interest and Taxes ($M) YTD FY16 YTD FY15

Adjusted EBIT 520$ 524$ Separation, merger, & other transaction costs (66) - Gain on divestiture 22 - SEC settlement-related items 1 - Real estate restructuring charge (21) - EBIT 456$ 524$ Interest expense (70) (75) Interest income 18 10 Income tax expense (67) (123) Income from continuing operations 337$ 336$

Margin % YTD FY16 YTD FY15

Revenue ($M) 5,473$ 6,317$ Adjusted operating margin 11.5% 10.3%Operating margin 11.1% 10.3%Adjusted EBIT margin 9.5% 8.3%EBIT margin 8.3% 8.3%


Q2 FY16 Non-GAAP Results






charge

Tax valuation allowance benefit

Non-GAAPresults

Costs of services (excludes depreciation and amortization and restructuring costs) 1,970$ -$ -$ -$ -$ 1,970$

Selling, general and administrative (excludes restructuring costs) 286$ (2)$ (2)$ -$ -$ 282$

Income (loss) from continuing operations, before taxes 176$ (48)$ (2)$ (21)$ -$ 247$ Income tax expense (benefit) 3$ (6)$ -$ (2)$ (53)$ 64$ Income (loss) from continuing operations 173$ (42)$ (2)$ (19)$ 53$ 183$

Net income (loss) 173$ (42)$ (2)$ (19)$ 53$ 183$ Less: net income attributable to noncontrolling interest, net of tax 6$ -$ -$ -$ -$ 6$ Net income (loss) attributable to CSC common stockholders 167$ (42)$ (2)$ (19)$ 53$ 177$

Effective tax rate 1.7% 26.0%

Basic EPS from continuing operations* 1.21$ (0.30)$ (0.01)$ (0.14)$ 0.38$ 1.28$ Diluted EPS from continuing operations* 1.19$ (0.30)$ (0.01)$ (0.14)$ 0.38$ 1.26$

Weighted average common shares outstanding for:Basic EPS 138.295 138.295 138.295 138.295 138.295 138.295 Diluted EPS 140.532 140.532 140.532 140.532 140.532 140.532


YTD FY16 Non-GAAP Results




Gain on business divestiture



charge

Tax valuation allowance benefit

Non-GAAPresults

Costs of services (excludes depreciation and amortization and restructuring costs) 3,996$ -$ -$ -$ -$ -$ 3,996$

Selling, general and administrative (excludes restructuring costs) 570$ (2)$ -$ 1$ -$ -$ 569$

Income (loss) from continuing operations, before taxes 404$ (66)$ 22$ 1$ (21)$ -$ 468$ Income tax expense (benefit) 67$ (13)$ 8$ 1$ (2)$ (53)$ 126$ Income (loss) from continuing operations 337$ (53)$ 14$ -$ (19)$ 53$ 342$

Net income (loss) 337$ (53)$ 14$ -$ (19)$ 53$ 342$ Less: net income attributable to noncontrolling interest, net of tax 10$ -$ -$ -$ -$ -$ 10$ Net income (loss) attributable to CSC common stockholders 327$ (53)$ 14$ -$ (19)$ 53$ 332$

Effective tax rate 16.6% 26.9%

Basic EPS from continuing operations* 2.37$ (0.38)$ 0.10$ -$ (0.14)$ 0.38$ 2.40$ Diluted EPS from continuing operations* 2.32$ (0.38)$ 0.10$ -$ (0.14)$ 0.38$ 2.36$

Weighted average common shares outstanding for:Basic EPS 138.106 138.106 138.106 138.106 138.106 138.106 138.106 Diluted EPS 140.699 140.699 140.699 140.699 140.699 140.699 140.699


Selected Cash Flow Items and Non-GAAP Reconciliation

$M Q2 FY16 Q2 FY15 YTD FY16 YTD FY15Net cash provided by operating activities 117$ 217$ 441$ 490$ Net cash used in investing activities (397) (184) (481) (298) Acquisitions, net of cash acquired 236 35 236 35 Business dispositions - 18 (34) 13 Payments on capital leases and other long-term asset financings (42) (55) (111) (139) Payments on separation, merger, and other transaction costs 49 - 57 - Payments on special restructuring costs 32 - 51 - SEC settlement-related payments 1 - 187 - Sale of NPS accounts receivable 57 - (176) - Free cash flow 53$ 31$ 170$ 101$


$B

North American Public SectorNPSGlobal Business ServicesGBS Global Infrastructure ServicesGIS

Bookings*

*Segment bookings may not add to total due to rounding

FY15 FY16


• Operating income: Revenue less costs of services, segment selling, general and administrative (SG&A) expenses, depreciation and amortization expense, and restructuring costs. Operating income excludes corporate G&A, actuarial and settlement charges related to CSC’s pension and other post-employment benefit (OPEB) plans, and separation and merger costs

• Operating income margin: Operating income as a percentage of revenue

• Adjusted operating income: Operating income excluding the impact of the second quarter fiscal 2016 real estate restructuring charge and transaction costs associated with fiscal 2016 acquisitions

• Adjusted operating margin: Adjusted operating income as a percentage of revenue

• Earnings before interest and taxes (EBIT): Income from continuing operations less interest expense, interest income and income tax expense

• EBIT margin: EBIT as a percentage of revenue

• Adjusted EBIT: EBIT excluding the impact of certain items in the second quarter and first 6 months of fiscal 2016, including separation and merger costs, transaction costs associated with fiscal 2016 acquisitions, the gain on a business divestiture, SEC settlement-related items, and the real estate restructuring charge

• Adjusted EBIT margin: Adjusted EBIT as a percentage of revenue

• Free cash flow: Equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions, dispositions, and investments (including short-term investments and purchase or sale of available for sale securities), and (3) payments on capital leases and other long-term asset financings. Free cash flow is further adjusted for certain non-recurring cash flow items, such as (i) payments related to separation, merger, and transaction costs related to fiscal 2016 acquisitions, (ii) payments related to the fiscal 2015 fourth quarter special restructuring, (iii) SEC settlement-related payments, and (iv) benefit from sale of NPS accounts receivable

• Capital expenditures: Equal to sum of cash flows for purchases of property, equipment, and software (excluding purchases for separation related activities) and payments on outsourcing contracts, capital leases and other asset financings, less proceeds from sales of assets

• Net debt: Calculated as the sum of long-term and short-term debt, less cash and cash equivalents

• Net debt to capital: Calculated as the ratio of net debt to capital (total debt plus equity)

Non-GAAP and Other Definitions



Thank You

2nd quarter fy 2016 earnings presentation · 2017-03-30 · 2nd quarter fy 2016 earnings...

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