3rd quarter fy 2017 earnings...
TRANSCRIPT
3RD QUARTER FY 2017EARNINGS PRESENTATION
February 2, 2017
2 February 2, 20173rd Quarter FY 2017 Earnings Presentation
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 differmaterially 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.
3 February 2, 20173rd Quarter FY 2017 Earnings Presentation
Non-GAAP Reconciliations
This presentation includes certain non-GAAP financial measures such as consolidated segment operating income, consolidated segment adjusted operating income, consolidated segment operating and consolidated segment adjusted operating margin, consolidated segment commercial operating income, consolidated segment commercial adjusted operating income, consolidated segment commercial operating and consolidated segment commercial adjusted operating margin, earnings before interest and taxes (EBIT), EBIT margin, adjusted EBIT, adjusted EBIT margin. Also included are certain non-GAAP results such as non-GAAP income from continuing operations and non-GAAP EPS from continuing operations and adjusted free cash flow. We present these non-GAAP financial measures to provide investors with meaningful supplemental financial information, in addition to the financial information presented on a GAAP basis. Non-GAAP financial measures exclude certain items otherwise required by GAAP which management believes are not indicative of core operating performance. We believe these non-GAAP measures allow investors to better understand the financial performance of CSC exclusive of the impacts of corporate wide strategic decisions. We believe that adjusting for these items provides investors with additional measures to evaluate the financial performance of our core business operations on a comparable basis from period to period and are also considered important measures by financial analysts covering CSC. There are limitations to the use of the non-GAAP financial measures we present. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies.
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.
3RD QUARTER FY 2017EARNINGS PRESENTATION
Mike LawrieChief Executive Officer
5 February 2, 20173rd Quarter FY 2017 Earnings Presentation
Key Messages
*Non-GAAP EPS from continuing operations excludes restructuring costs, transaction and integration-related costs, certain overhead costs,impact of transfer of U.S. Pension and OPEB assets to CSRA, net actuarial pension and OPEB gains/losses, SEC settlement-related items, and tax adjustment
(see slides 7, 14 – 20 for non-GAAP reconciliations)
Q3 FY17 revenue up YoY approximately 14% in constant currency, inclusive of acquisitions
Q3 FY17 adjusted GBS and GIS consolidated margin up YoY and sequentially
Q3 FY17 non-GAAP EPS* of $0.81
CSC/HPE-ES merger on track; all regulatory clearances required for closing are secured
Continued positive momentum in next-gen offerings
FY17 non-GAAP EPS* target of $2.75 – $3.00
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3RD QUARTER FY 2017EARNINGS PRESENTATION
Paul SalehChief Financial Officer
7 February 2, 20173rd Quarter FY 2017 Earnings Presentation
Reconciliation of Non-GAAP Results
*EPS from continuing operations and per-share values of certain items may not sum to non-GAAP EPS due to rounding
Q3 FY17
$M Except EPS GAAP Restructuringcosts
Transaction and integration-
related costs Non-GAAP
results
Income from continuing operations, before taxes 50 (12) (109) 171
Income tax expense 13 (4) (31) 48
Income from continuing operations 37 (8) (78) 123
Diluted EPS from continuing operations* $ 0.21 (0.06) (0.54) $ 0.81
Q3 FY16
$M Except EPS GAAP Restructuringcosts
Transaction and integration-
related costs
Certainoverhead
costs
U.S. Pensionand OPEB
Pension and OPEB actuarial and settlement
gains
Taxadjustment
Non-GAAPresults
Income from continuing operations, before taxes 78 (25) (28) (22) 10 19 - 124
Income tax expense 56 (8) (9) (8) 4 6 50 21
Income from continuing operations 22 (17) (19) (14) 6 13 (50) 103
Diluted EPS from continuing operations* $ 0.15 (0.12) (0.13) (0.10) 0.04 0.09 (0.35) $ 0.73
8 February 2, 20173rd Quarter FY 2017 Earnings Presentation
3rd Quarter Results
*Non-GAAP EPS from continuing operations excludes restructuring costs, transaction and other integration-related costs, certain overhead costs,impact of transfer of U.S. Pension and OPEB assets to CSRA, net actuarial pension and OPEB gains/losses, SEC settlement-related items, and tax adjustment
(see slides 7, 14 – 20 for non-GAAP reconciliations)
FY17 FY16 FY17 FY16Revenue ($M) 1,917$ 1,750$ 5,718$ 5,299$
YoY Growth – GAAP 9.5% 7.9%
YoY Growth – cc 13.7% 11.1%
QoQ Growth – cc 4.6%
Consolidated Segment Adjusted Commercial Operating Income ($M) 227 195 559 504
Consolidated Segment Adjusted Commercial Operating Margin (%) 11.8% 11.1% 9.8% 9.5%
Consolidated Segment Adjusted Operating Income ($M) 216 190 520 494
Consolidated Segment Adjusted Operating Margin (%) 11.3% 10.9% 9.1% 9.3%
Adjusted EBIT ($M) 185 147 411 380
Adjusted EBIT Margin (%) 9.7% 8.4% 7.2% 7.2%
Non-GAAP Income from Continuing Operations ($M)* 123 103 293 247
Non-GAAP EPS from Continuing Operations* 0.81$ 0.73$ 1.95$ 1.74$
Bookings ($B) 2.4$ 2.7$ 6.5$ 6.3$
Q3 YTD
9 February 2, 20173rd Quarter FY 2017 Earnings Presentation
$3.2 $3.9
YTD FY16 YTD FY17
$2,696 $3,130
YTD FY16 YTD FY17
11.8% 11.3%
YTD FY16 YTD FY17
Growth in cc of 19.3%
*Segment adjusted operating income and margin exclude, as applicable, restructuring costs, transaction and integration-related costs, and impact of transfer of U.S. Pension & OPEB assets to CSRA
Global Business Services (GBS)
Segment Adjusted OI Margin %*Revenue ($M) Bookings ($B)Year to Date
Q3 FY17 Q3 FY16Revenue ($M) 1,046$ 886$ – YoY growth - GAAP 18.1%– YoY growth - cc 22.3%– QtQ growth - cc 3.2%
Segment adjusted operating income ($M)* 139 116 Segment adjusted operating margin (%)* 13.3% 13.1%Bookings ($B) 1.1$ 1.6$
10 February 2, 20173rd Quarter FY 2017 Earnings Presentation
$3.1 $2.6
YTD FY16 YTD FY17
$2,603 $2,588
YTD FY16 YTD FY17
Segment Adjusted OI Margin %*Revenue ($M) Bookings ($B)
7.1% 7.9%
YTD FY16 YTD FY17
Growth in cc of 2.5%
Global Infrastructure Services (GIS)
*Segment adjusted operating income and margin exclude, as applicable, restructuring costs, transaction and integration-related costs, and impact of transfer of U.S. Pension & OPEB assets to CSRA
Year to Date
Q3 FY17 Q3 FY16Revenue ($M) 871$ 864$ – YoY growth - GAAP 0.8%– YoY growth - cc 4.9%– QtQ growth - cc 6.4%
Segment adjusted operating income ($M)* 88 79 Segment adjusted operating margin (%)* 10.1% 9.1%Bookings ($B) 1.3$ 1.0$
11 February 2, 20173rd Quarter FY 2017 Earnings Presentation
Financial Highlights
Q3 FY17 YTD FY17
Adjusted Free Cash Flow $299M $406M
Cap Ex — Including Capital Leases $119M $443M
Cap Ex as a % of Revenue 6.2% 7.8%
Cash Flow Performance
Q3 FY17 YTD FY17
Dividends $20M $59MCapital to Shareholders
Q3 FY17 Q3 FY16
Cash and Equivalents $1.1B $1.8B
Net Debt-to-Total Capitalization Ratio 35.4% 17.2%
Capital Structure
• Syndicated $2B term loan
• Increased revolving credit facility to $3B
• Closed on a $250M accounts receivable facility
Financing Update
12 February 2, 20173rd Quarter FY 2017 Earnings Presentation
Up low double digits (cc)Revenue
FY 2017 Targets
$2.75 – $3.00Non-GAAP EPS* from Continuing Operations
100%+ of Adj. Net IncomeAdjusted Free Cash Flow
*Non-GAAP EPS from continuing operations excludes restructuring costs, transaction and other integration-related costs, certain overhead costs,impact of transfer of U.S. Pension and OPEB assets to CSRA, net actuarial pension and OPEB gains/losses, SEC settlement-related items, and tax adjustment
(see slides 7, 14 – 20 for non-GAAP reconciliations)
3RD QUARTER FY 2017EARNINGS PRESENTATION
Supplemental Information
14 February 2, 20173rd Quarter FY 2017 Earnings Presentation
Q3 FY17 Non-GAAP Reconciliation
Operating Income ($M) Q3 FY17 Q3 FY16
Consolidated segment adjusted operating income 216$ 190$ Restructuring costs (12) (25) Transaction and integration-related costs (39) (15) Certain overhead costs - (12) U.S. Pension and OPEB - 10 Consolidated segment operating income 165$ 148$ Corporate G&A (92) (60) Pension and OPEB actuarial and settlement gains (losses) - 19 Interest expense (33) (33) Interest income 8 8 Other income (expense), net 2 (4) Income from continuing operations, before taxes 50$ 78$
Earnings Before Interest and Taxes ($M) Q3 FY17 Q3 FY16
Adjusted EBIT 185$ 147$ Restructuring costs (12) (25) Transaction and integration-related costs (98) (26) Certain overhead costs - (22) U.S. Pension and OPEB - 10 SEC settlement-related items - - Pension and OPEB actuarial and settlement gains - 19 EBIT 75$ 103$ Interest expense (33) (33) Interest income 8 8 Income tax (expense) benefit (13) (56) Income from continuing operations 37$ 22$ Income from discontinued operations, net of taxes - 30 Net income 37$ 52$
Operating Margin % Q3 FY17 Q3 FY16
Consolidated segment adjusted operating margin 11.3% 10.9%Consolidated segment operating margin 8.6% 8.5%
EBIT Margin % Q3 FY17 Q3 FY16
Adjusted EBIT margin 9.7% 8.4%EBIT margin 3.9% 5.9%
15 February 2, 20173rd Quarter FY 2017 Earnings Presentation
YTD FY17 Non-GAAP Reconciliation
Operating Income ($M) YTD FY17 YTD FY16
Consolidated segment adjusted operating income 520$ 494$ Restructuring costs (94) (45) Transaction and integration-related costs (111) (17) Certain overhead costs - (48) U.S. Pension and OPEB - 38 Consolidated segment operating income 315$ 422$ Corporate G&A (237) (181) Pension and OPEB actuarial and settlement gains (losses) (1) 19 Interest expense (87) (92) Interest income 26 26 Other income (expense), net (3) 3 Income from continuing operations, before taxes 13$ 197$
Earnings Before Interest and Taxes ($M) YTD FY17 YTD FY16
Adjusted EBIT 411$ 380$ Restructuring costs (94) (45) Transaction and integration-related costs (243) (36) Certain overhead costs - (88) U.S. Pension and OPEB - 38 SEC settlement-related items - (5) Pension and OPEB actuarial and settlement gains - 19 EBIT 74$ 263$ Interest expense (87) (92) Interest income 26 26 Income tax (expense) benefit 25 (17) Income from continuing operations 38$ 180$ Income from discontinued operations, net of taxes - 216 Net income 38$ 396$
Operating Margin % YTD FY17 YTD FY16
Consolidated segment adjusted operating margin 9.1% 9.3%Consolidated segment operating margin 5.5% 8.0%
EBIT Margin % YTD FY17 YTD FY16
Adjusted EBIT margin 7.2% 7.2%EBIT margin 1.3% 5.0%
16 February 2, 20173rd Quarter FY 2017 Earnings Presentation
Q3 FY17 Non-GAAP Results
*EPS from continuing operations and per-share values of certain items may not sum to non-GAAP EPS due to rounding
$M Except EPS GAAP Restructuring costs
Transaction and integration-related costs
Non-GAAP results
Costs of services (excludes depreciation and amortization and restructuring costs) 1,347$ -$ -$ 1,347$
Selling, general and administrative (excludes depreciation and amortization, restructuring costs and transaction costs) 333 - (78) 255
Income from continuing operations, before taxes 50 (12) (109) 171
Income tax expense 13 (4) (31) 48
Income from continuing operations 37 (8) (78) 123
Net income 37 (8) (78) 123
Less: net income attributable to noncontrolling interest, net of tax 6 - - 6
Net income attributable to CSC common stockholders 31$ (8)$ (78)$ 117$
Effective Tax Rate 26.0% 28.1%
Basic EPS from continuing operations* 0.22$ (0.06)$ (0.55)$ 0.83$
Diluted EPS from continuing operations* 0.21$ (0.06)$ (0.54)$ 0.81$
Weighted average common shares outstanding for:Basic EPS 140.88 140.88 140.88 140.88Diluted EPS 144.81 144.81 144.81 144.81
17 February 2, 20173rd Quarter FY 2017 Earnings Presentation
YTD FY17 Non-GAAP Results
*EPS from continuing operations and per-share values of certain items may not sum to non-GAAP EPS due to rounding
$M Except EPS GAAP Restructuring costs
Transaction and integration-related costs
Non-GAAP results
Costs of services (excludes depreciation and amortization and restructuring costs) 4,131$ -$ -$ 4,131$
Selling, general and administrative (excludes depreciation and amortization, restructuring costs and transaction costs) 931 - (187) 744
Income from continuing operations, before taxes 13 (94) (257) 364
Income tax (benefit) expense (25) (22) (74) 71
Income from continuing operations 38 (72) (183) 293
Net income 38 (72) (183) 293
Less: net income attributable to noncontrolling interest, net of tax 13 - - 13
Net income attributable to CSC common stockholders 25$ (72)$ (183)$ 280$
Effective Tax Rate (192.3)% 19.5%
Basic EPS from continuing operations* 0.18$ (0.51)$ (1.31)$ 2.00$
Diluted EPS from continuing operations* 0.17$ (0.50)$ (1.27)$ 1.95$
Weighted average common shares outstanding for:Basic EPS 140.13 140.13 140.13 140.13Diluted EPS 143.80 143.80 143.80 143.80
18 February 2, 20173rd Quarter FY 2017 Earnings Presentation
Q3 FY16 Non-GAAP Results
*EPS from continuing operations and per-share values of certain items may not sum to non-GAAP EPS due to rounding
$M Except EPS GAAPCertain
overheadcosts
U.S. Pensionand OPEB
Restructuring costs
Transaction and integration-related costs
Pension and OPEB actuarial and settlement
gains
Tax adjustment Non-GAAP results
Costs of services (excludes depreciation and amortization and restructuring costs) 1,216$ (7)$ 8$ -$ (5)$ 16$ -$ 1,228$
Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 259 (15) 2 - (15) 3 - 234
Income from continuing operations, before taxes 78 (22) 10 (25) (28) 19 - 124
Income tax expense 56 (8) 4 (8) (9) 6 50 21
Income from continuing operations 22 (14) 6 (17) (19) 13 (50) 103
Net income 52 (14) 6 (17) (19) 13 (50) 133
Less: net income attributable to noncontrolling interest, net of tax 2 - - - - - - 2
Net income attributable to CSC common stockholders 50$ (14)$ 6$ (17)$ (19)$ 13$ (50)$ 131$
Effective Tax Rate 71.8% 16.9%
Basic EPS from continuing operations* 0.16$ (0.10)$ 0.04$ (0.12)$ (0.14)$ 0.09$ (0.36)$ 0.74$
Diluted EPS from continuing operations* 0.15$ (0.10)$ 0.04$ (0.12)$ (0.13)$ 0.09$ (0.35)$ 0.73$
Weighted average common shares outstanding for:Basic EPS 138.86 138.86 138.86 138.86 138.86 138.86 138.86 138.86Diluted EPS 141.57 141.57 141.57 141.57 141.57 141.57 141.57 141.57
19 February 2, 20173rd Quarter FY 2017 Earnings Presentation
YTD FY16 Non-GAAP Results
*EPS from continuing operations and per-share values of certain items may not sum to non-GAAP EPS due to rounding
$M Except EPS GAAPCertain
overheadcosts
U.S. Pensionand OPEB
Restructuring costs
Transaction and integration-related costs
Pension and OPEB actuarial and settlement
gains
SEC settlement-related items Tax adjustment Non-GAAP
results
Costs of services (excludes depreciation and amortization and restructuring costs) 3,725$ (41)$ 32$ -$ (5)$ 16$ -$ -$ 3,727$
Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 799 (47) 6 - (25) 3 (5) - 731
Income from continuing operations, before taxes 197 (88) 38 (45) (38) 19 (5) - 316
Income tax expense 17 (34) 15 (14) (13) 6 (2) (10) 69
Income from continuing operations 180 (54) 23 (31) (25) 13 (3) 10 247
Net income 396 (54) 23 (31) (25) 13 (3) 10 463
Less: net income attributable to noncontrolling interest, net of tax 12 - - - - - - - 12
Net income attributable to CSC common stockholders 384$ (54)$ 23$ (31)$ (25)$ 13$ (3)$ 10$ 451$
Effective Tax Rate 8.6% 21.8%
Basic EPS from continuing operations* 1.29$ (0.39)$ 0.17$ (0.22)$ (0.18)$ 0.09$ (0.02)$ 0.07$ 1.78$
Diluted EPS from continuing operations* 1.27$ (0.38)$ 0.16$ (0.22)$ (0.18)$ 0.09$ (0.02)$ 0.07$ 1.74$
Weighted average common shares outstanding for:Basic EPS 138.36 138.36 138.36 138.36 138.36 138.36 138.36 138.36 138.36Diluted EPS 141.39 141.39 141.39 141.39 141.39 141.39 141.39 141.39 141.39
20 February 2, 20173rd Quarter FY 2017 Earnings Presentation
Selected Cash Flow Items and Non-GAAP Reconciliation
*Excludes capital expenditures financed through CSC Finco and other investments
$M FY17 FY16 FY17 FY16Net cash provided by operating activities 563$ 258$ 805$ 742$
Net cash used in investing activities* (78) (198) (756) (679)
Acquisitions, net of cash acquired - 29 434 265
Business dispositions - (3) - (37)
Short-term investments - 71 - 71
Payments on capital leases and other long-term asset financings (24) (24) (119) (135)
Payments on separation and other transaction costs 55 11 198 71
Payments on special restructuring costs 24 66 85 117
SEC settlement-related payments - - - 187
Sale of accounts receivables (241) (63) (241) (239)
Certain overhead costs - 22 - 22
Adjusted free cash flow 299$ 169$ 406$ 385$
Q3 YTD
21 February 2, 20173rd Quarter FY 2017 Earnings Presentation
$B
Global Business ServicesGBS Global Infrastructure ServicesGIS
Bookings*
*Segment bookings may not sum to total due to rounding
$1.0 $1.2 $0.9
$0.5
$1.3
$1.6 $1.1
$0.7 $2.0
$1.1
$2.7
$2.3
$1.6
$2.5 $2.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17
FY16 FY17
22 February 2, 20173rd Quarter FY 2017 Earnings Presentation
• Consolidated segment operating income: Revenue less costs of services, depreciation and amortization expense, restructuring costs and segment selling, general and administrative (G&A) expenses. Consolidated segment operating income excludes corporate G&A, and pension and OPEB actuarial and settlement losses
• Consolidated segment operating margin: Consolidated segment operating income as a percentage of revenue• Consolidated segment adjusted operating income: Consolidated segment operating income excluding restructuring costs, transaction and integration-related costs,
certain overhead costs, and U.S. Pension and OPEB• Consolidated segment adjusted operating margin: Consolidated segment adjusted operating income as a percentage of revenue• Consolidated segment commercial operating income: Consolidated segment operating income for the combined GBS and GIS segments• Consolidated segment commercial operating margin: Consolidated segment commercial operating income as a percentage of revenue• Consolidated segment adjusted commercial operating income: Consolidated segment adjusted commercial operating income for the combined GBS and GIS
segments• Consolidated segment adjusted commercial operating margin: Consolidated segment adjusted commercial operating income as a percentage of revenue• Earnings before interest and taxes (EBIT): Net (loss) income less income from discontinued operations, net of taxes, interest expense, interest income, and income tax
benefit (expense)• EBIT margin: EBIT as a percentage of revenue• Adjusted EBIT: EBIT excluding the impact of certain items, including restructuring costs, transaction and integration-related costs, certain overhead costs, U.S. Pension
and OPEB, and SEC settlement-related items• Adjusted EBIT margin: Adjusted EBIT as a percentage of revenue• Adjusted 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. Adjusted free cash flow is further adjusted for certain cash flow items, such as (i) payments for transaction and integration-related costs, (ii) restructuring payments, (iii) SEC settlement-related payments and (iv) cash receipts from the sale of accounts receivables
• Capital expenditure: Equal to sum of purchases of property, equipment, and software, and payments on outsourcing contracts, less proceeds from sales of assets and purchases made through CSC Finco, excluding prior year CSRA capital expenditures
• Net debt: Total debt, less cash and cash equivalents• Net debt-to-total capitalization ratio: Calculated as the ratio of net debt to total capitalization
Non-GAAP and Other Definitions
3RD QUARTER FY 2017EARNINGS PRESENTATION
Thank You