Computer Sciences Corporation (CSC)

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Computer Sciences (CSC)

Q3 2012 Earnings Call

February 08, 2012 11:00 am ET


Bryan Brady - Vice President of Investor Relations

Michael W. Laphen - Executive Chairman, Chief Executive Officer and President

Michael J. Mancuso - Chief Financial Officer and Vice President


David Grossman - Stifel, Nicolaus & Co., Inc., Research Division

Bryan Keane - Deutsche Bank AG, Research Division

Nathan A. Rozof - Morgan Stanley, Research Division

Darrin D. Peller - Barclays Capital, Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Ashwin Shirvaikar - Citigroup Inc, Research Division

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Moshe Katri - Cowen and Company, LLC, Research Division



Good day, everyone, and welcome to the CSC Fiscal Year 2012 Third Quarter Earnings Conference Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Bryan Brady, Vice President of Investor Relations. Please go ahead, sir.

Bryan Brady

Thank you, operator. Well, good morning, ladies and gentlemen, and welcome to CSC's earnings call for the third quarter of our fiscal year 2012. We issued our financial results earlier this morning, so hopefully you've had a good opportunity to review them. With me today are Mike Laphen, our Chairman and Chief Executive Officer; and Mike Mancuso, our Chief Financial Officer. As usual, this call is being webcast at, and we've also posted slides to our website to accompany our discussion.

So moving to Slide 2. You'll see a reminder that statements made during this call that are not historical facts may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the company's filings with the SEC. And copies of these filings are available from the SEC, also from our website and from our Investor Relations department.

On Slide 3, you'll see our acknowledgment that CSC's presentation includes certain non-GAAP financial measures. And so in accordance with SEC rules, a reconciliation of these metrics to GAAP metrics is included in the tables of the earnings release and in the appendix to our slides. Both documents are available for you to review at the Investor Relations section of the CSC website.

Finally, I'd like to remind our listeners that CSC assumes no obligation to update the information presented on this conference call, except, of course, as required by law.

Now if you'll kindly move to Slide #4, I'm pleased to turn the call over to Mike Laphen.

Michael W. Laphen

Thank you, Bryan. Good morning, ladies and gentlemen, and thank you for joining us today. First, I'd like to extend my personal welcome to Mike Lawrie as CSC's next President and CEO. I and the entire management team will do all we can to ensure a smooth, efficient transition, and we look forward to the company's future success under his leadership.

Now turning to the NHS program. We remain in discussions with U.K. government officials to reach a satisfactory way forward. Once these discussions conclude, with or without agreement, we will issue an 8-K announcement with appropriate disclosure. As indicated in this morning's press announcement, our third quarter results include the charge to the NHS program disclosed in our 8-K announcement of 27 December, 2011.

Turning to new business. We continued to see strong improvement year-over-year in our new business performance. For the third quarter, TCV bookings totaled $4.1 billion. Year-to-date, through the first 3 quarters, we have recorded $13 billion of bookings, a 26% increase over the same period in fiscal year '11. Currently, we have a total of $12 billion in submitted proposals awaiting decisions, of which $8 billion are for opportunities scheduled for award in our fiscal year '12. While some of these opportunities will undoubtedly slip into fiscal year '13, we expect a continuation of our solid bookings performance in the fourth quarter and for the full fiscal year.

Our North American Public Sector's fiscal year '12 third quarter top line results continue to reflect the ongoing uncertainty in government budgets and the day-to-day difficulties our clients are facing in awarding new initiatives. While Congress has enacted an appropriations bill for government fiscal year 2012, eliminating the possibility of a government shutdown through the first half of our fiscal year '13, the super committee empowered by the Budget Control Act of 2011 failed to reach agreement, triggering sequestration. While the ultimate impacts of sequestration are subject to debate, the industry is reaching a consensus that anticipates low- to mid-single digit revenue declines. We would concur with that perspective.

NPS's Q3 operating margin of 4.3% is net 4 percentage points of negative impacts that result from 2 specific programs. These relate to the curtailment of a large U.S. Department of Defense program that is undergoing a client-driven change in direction and the execution of a firm fixed price contract with a U.S. government civilian agency. We anticipate that the fourth quarter NPS margin performance will return to the high-single digit level.

Our commercial business delivered year-over-year growth of 4.4% year-to-date and 2.5% for the quarter, as reported and exclusive of the NHS impairment. With the start-up of several new contracts, regional growth was particularly strong in Asia and Australia.

For the third quarter, BSS growth of 5% year-over-year, exclusive of the NHS impairment, drove the top line growth of the commercial business. On a year-to-date basis, BSS growth, exclusive of the third quarter NHS reduction, is 5.1% in constant currency. Geographically, BSS saw positive demand for its services in the Americas and a weakening market in EMEA, particularly on the continent. Exclusive of NHS, we expect BSS to continue to deliver modest growth in the fourth quarter.

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