Good day, everyone, and welcome to the CSC Fourth Quarter 2014 Earnings Conference Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. George Price. Please go ahead, sir.

Great. Thank you, operator, and good afternoon, everyone. I'm pleased you've joined us for CSC's fourth quarter and fiscal year 2014 earnings call and webcast. Our speakers on today's call will be Mike Lawrie, our Chief Executive Officer; and Paul Saleh, our Chief Financial Officer. As usual, the call is being webcast at csc.com\investorrelations, and we have posted some slides to our website, which will accompany our discussion today. On Slide 2, you'll 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 risks and uncertainties is included in our Form 10-K, Form 10-Q and other SEC filings. Slide 3 informs our participants that CSC's presentation includes certain non-GAAP financial measures, which we believe will 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, as well as in our supplemental slides. Those documents are available on the Investor Relations section of our website. Briefly, I'd like to highlight 2 things in particular. First, unless otherwise indicated, Mike's comments on margins and earnings will exclude a $21 million reversal of contingent consideration in the fourth quarter associated with the ServiceMesh acquisition. Please see the related reconciliations included in the earnings press release and the slide presentation. Second, also included in today's earnings press release are quarterly historical income statements for fiscal years 2012, 2013 and 2014 on a continuing operations basis, that is, which adjusts for the divestitures CSC has completed to date. Some of this information was disclosed in our 8-K filed on February 7, 2014, and we believe that full quarterly income statements on this basis provide additional useful information to our investors. Finally, I'd like to remind our listeners that CSC assumes no obligation to update the information presented on the call, except, of course, as required by law. And now I'd like to introduce CSC's CEO, Mike Lawrie.

All right. George, thank you. Welcome, everyone. Thanks, again, for your interest. As is my normal practice here, I've got several key messages that I will highlight and then go into a little more detail on each and then turn this over to Paul Saleh, and then we'll open it up to questions. The first key message here is, we continue to progress with our turnaround. We've delivered another quarter of margin expansion, a good earnings performance and solid free cash flow. So for fiscal '14, we reported EPS from continuing operations of $3.91. And as George says, this does not include -- this includes the reversal of liability associated with the ServiceMesh acquisition. So this $3.91 was slightly above our target range, again, driven primarily by cost takeout. Second message is, we continue to see some early positive signs of demand for our commercial offerings, and we delivered our second consecutive quarter of sequential revenue growth, which was up 5%. We did come in around $30 million shy of our target to grow commercial revenue year-over-year in constant currency in the fourth quarter as we continued to reposition our consulting business. And we also saw strong commercial bookings in the quarter. Another key message is, we continue to expand our partnerships with leading technology companies to leverage their R&D and deliver innovative next-generation offerings. And we're working closely with Amazon Web Services, Microsoft, VMware, HCL, AT&T and others to differentiate the company as a leader in hybrid cloud-related services and solutions. Our NPS business is performing in line with our expectations. We're seeing encouraging signs of growth in the pipeline, as well as stabilization in the government procurement environment. And NPS's book-to-bill of 1.0 in the quarter improved from 0.7 in the year ago period and 0.6 in our…

Thank you, Mike, and good evening, everyone. I'll discuss our results for the quarter and the year, and I'll review our targets for fiscal 2015. Revenue was $3.33 billion in the quarter as compared with $3.5 billion in the prior year. When you adjust for $14 million from our divested IT staffing business, our revenues decreased by 4.7%, primarily in constant currency, and that was due to a decline in our federal business, as well as the impact of repositioning our commercial consulting business. When you look at the sequential basis, total revenue increased by 3%, led by growth in our commercial business, and that was particularly the case for our Global Business Services. Operating income in the quarter was $338 million and operating margin was 10.2%, excluding the benefit of $21 million in contingent consideration from the ServiceMesh acquisition. On the same basis, earnings before interest and taxes were $271 million, and EBIT margin was 8.1%, which represents strong improvement year-over-year. Income from continuing operations was $165 million in the quarter and EPS from continuing operations was $1.09. Now this compares with income from continuing operations of $247 million in the year ago quarter and an EPS of $1.56 last year. Now last year's results included a number of special items such as $162 million tax benefit and a gain on a divested business. Now there's a schedule of these items that can be found on Slide 21 of our presentation. It is also contained in today's earnings release. Bookings in the quarter were $4.3 billion, up 43% from the prior year, with good momentum in both our commercial and federal business. Our book-to-bill was 1.3x in the quarter and an improvement from 0.9x in the prior year. For the full year, revenue was $13 billion, down 6.8% in…

Go ahead, operator.

[Operator Instructions] We'll go first to Tien-tsin Huang from JP Morgan. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: I'm curious, just given the strength in the bookings, I'm curious if the pace of bookings conversion into revenue should be faster in '14 versus '13, given your comments around the smaller transactions. I heard the comment around second half, et cetera, but just trying to understand it conceptually.

Yes, you're right. Some of the smaller transactions will convert into revenue more quickly, although we still have bookings in some areas that do take longer to convert into revenue. And the other factor here, particularly in the GIS business, is a significant percentage of those bookings were recompetes. And often, in those recompete contracts, we wind up actually with slightly less revenue. So that acts as a counter to the increased number of smaller transactions in the GBS business. So that's a little deeper commentary on how that plays out throughout the year. But we're expecting continued improvement in these smaller transactions. We're investing in there. And we're putting more people, more salespeople on that because we -- quite candidly, it's less competitive. We often don't have to go through big procurements, and we're really seeing a lot of commoditization, particularly on these very large deals. So we're pivoting to those smaller transactions. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: That makes sense. That makes sense. Just 2 quick follow-ups. First, did you give a bookings outlook for the year, a book-to-bill range for the year? And then also on the buyback, obviously, a pretty big number, $1.5 billion, 2 years of free cash flow, it looks like. How quickly could you spend that?

Yes, one, we haven't provided any target for book-to-bill, but obviously, as I've said many times, we need to have a book-to-bill of over 1 to be replenishing our business. In terms of the buyback, as we always have, we put a program in place every quarter, and that program gets executed at different levels depending on the price of the stock. So we plan to execute that over the next several years. So really no change there other than we will probably begin to increase that on a quarterly basis, the number of shares. And it turns out that it has been really a fantastic investment for us over the last 2 years since Paul shared with you the average purchase price that we've been able to get the stock back at.

We'll go to the next question from Keith Bachman with Bank of Montréal.

I wanted to first ask Mike on sustainability. And what I mean by that is the margins on GBS at 18 were substantially higher than we were thinking. What's a sustainable number? And on the other side, GIS, while it was good bookings, the margins were actually down on a year-over-year basis and a little lower than we were thinking. If you could just give a little color on how we should be thinking about that. And I have a follow-up.

Yes, I think the GBS margins will be somewhere in the range we've talked about before, which is sort of mid-double digits. So I think we got a little benefit in the fourth quarter. In terms of GIS, the margins did decline in the fourth quarter, but that was primarily the result of some of the investments that we were making. The key point here is, although we've taken a lot of cost out of this business and we've improved the margins. I mean, I didn't know whether I was going to see a 10% operating margin in this company, and we delivered that last year. But the key point is we're not just taking cost out here. We are reinvesting a lot of money in this business, hundreds of millions of dollars we're plowing back into our people in terms of skills, skill development, training, hiring new salespeople, which we need because we're chasing a higher number of smaller transactions. We're continuing to move to lower-cost delivery centers. Everybody in this call knows that we were well behind in moving to lower-cost centers. There's a cost associated with that, because you often have dual jobs or dual people as you begin that skills transfer. We've made a big investment now in Louisiana and a big investment in Pittsburgh that is going to become 2 of our key domestic U.S. delivery centers, and we're investing in new offerings. These partnerships are delivering great new offerings that we're developing and beginning to move into the marketplace. And we're continuing to restructure the business. So that gives you a little color on what we think the normalized margins are for GBS and why we see some decline in the margins in the quarter on GIS.

But Mike, can GIS, you think, go to the 9% to 10% range for FY '15? Or is that perhaps a bit ambitious as you're investing?

I'd say that's a bit ambitious, but I mean, that ought to be the goal for that business. There's no reason why that business shouldn't be at those levels. So we do have to invest, though, to get this workload to new places. And I think, what I'm going to be looking at is where we get to the second half of next year and where we exit the year in terms of margins. This is a key point. We are not just taking cost out of this company. We're investing, we're really comfortable with the traction on some of these new offerings, in these new partnerships. So we're not only improving the in-year and in-quarter performance, but we're also trying to set the business up for sustainability as we go forward.

Okay. Then my follow-up is, you talked about last quarter that commercial would actually -- I know you only missed by a very small amount. But it seems like you're pushing more towards the second half of the year for the commercial to grow. Is that variance, as you identified previously, the consulting side? Or is there something else there? And that's it for me.

Yes. That was -- one, we did miss it by about $30 million. That was largely due to consulting, and we are taking a major shift in consulting to technology consulting that drives our other offering. We were doing a lot of consulting for consulting's sake, but we're beginning to move consulting -- think of it as a sort of the tip of the spear here, tip of the arrow. It drives our downstream offerings, like cyber, like cloud, like apps modernization. So that was the cause -- I am cautious, a little more cautious in the first half of the year. I've got -- when we started out here, we had about 50 contracts that were really in trouble. We're down to 4 or 5. I want to get those cleaned up in the first half of our new fiscal year. So we are going to clean those up. I'm glad to report that of all the new major contract starts we've had here in the last 8 or 9 months, we had virtually no problems in the startups in these contracts. This was a gigantic problem that we had in this company years ago, and that's largely behind us. It's been helped by the fact that we're doing smaller contracts that have less onerous transition terms and conditions and transition milestones associated with them. But I just want to get these last 4 or 5 things really cleaned up. So those are the reasons for the more cautious outlook for the first half of the year.

We'll take the next question from Moshe Katri with Cowen.

You actually used 2 terms on the call that I think you've used a bit more often that you haven't used as often in the past: leveraging on-site offshore centers and moving workloads to low-cost locations. I think it will be helpful if you give us some color on where you are in this process. As I understand, it's just starting. Maybe you can talk about some of the centers that you're opening, talk a bit about what you're doing with your development capabilities or delivery capabilities out of India, that's the -- I'm assuming a lot of that headcount came from the legacy Kanbay acquisition. What do you have to do to actually make that global delivery network work more effectively? And obviously, that brings down your cost structure and makes you more -- makes you -- I mean, that makes CSC more competitive.

Yes, that's a very good question. So listen, when we started out here 2 years ago with this turnaround, we were at about 15% or so offshore. We are targeting by the end of fiscal '15 to be in the mid-40s. So that is a significant move, and I'll give you an example here. Take Zurich Financial, one of our very large customers. We sat down with them, and we were about 25% offshore. As we exited this fourth quarter, we were about 70% offshore. And what we saw was we saw an improvement in customer satisfaction. We saw -- as a matter of fact, they just awarded us another large contract in the fourth quarter. And we also saw a significant improvement in our margins. But what we are doing is we're taking that basic model and we are now applying that to 45 to 50 accounts worldwide. And part of this is responding to our clients. Our clients are asking us to do more to improve their savings. These guys are under a lot of cost pressures themselves, and we are returning some of those savings to them, and we are returning, obviously, some of those savings to our bottom line. So we've piloted this now. We've got a methodology in place for this, and we're now going to take the next step, which is applying this to a larger subset of our customers. And as we move, we're automating workloads, we're making a big investment in tooling, as we still do a lot of the monitoring work and other things manually, so this is all part of the investment that we are making. Does that answer your question?

Yes. Do you have a very specific target in terms of headcount additions in your global delivery model, global delivery centers from now, I mean, throughout fiscal year 2015 that we should look for?

Well, it's a rebalancing. So you've got to think of this as we are reducing work in certain on-site centers and we're moving that to lower-cost centers. So the headcount is not the principal savings here; it's the overall labor costs and efficiencies we get from the tooling and automation in these centers. So that's the big difference. But the overall percentage, if anything, it'll probably reduce marginally the headcount, but it does reduce the cost associated with that headcount significantly.

And is there a way to quantify that reduction in terms of delta?

I don't have those numbers off the top of my head, other than to say that we're moving from a roughly, let's say, 20% offshore to 40% to 45% offshore, which is a doubling over 2 years, which is pretty significant.

All right. The last question for me, you've had a pretty nice uptick in commercial bookings. Can you -- I mean, since you came on board, and obviously, you've been here for a couple of years, what are clients telling you in terms of why are you winning these deals today versus some of these deals that probably you wouldn't have won a couple years ago? What's changed at CSC? What are clients kind of noticing? And what do you think you need to improve to actually -- even improve those win rates down the road?

That's a great question also. I'd say it's transparency. We've become a much more transparent company. What I mean, transparent, it's not only what we're doing internally and how we're communicating, but we've become very transparent with our partners. Our partners are a significant, significant part of our differentiation and our value-add to our clients. They're seeing that. We are building offerings with our partners. We're taking those offerings to market, and those offerings are not only innovative in the eyes of our clients, but they're also tangible value-add that they're adding to their businesses. And then finally, I don't mean this to be flippant, but we're showing up. We're showing up. So we've made a big investment in people in getting coverage out there and giving our clients choice. So we're not locking them into any one technology. We're giving them choice. That's why all these hybrid cloud announcements that you see us making with VMware and Microsoft and AWS and others, this allows us not only the innovation, but it gives our customers the ability not to get locked in to a given platform or a given technology. And then finally, we're focused on smaller deals. So those smaller deals are giving us greater access to the market but also allowing us to deliver quickly, and that tends to build confidence in the client and then they give us opportunities for more business.

We'll move to the next question. It comes from Bryan Keane with Deutsche Bank.

Just a couple of clarifications. Paul, maybe you can help me with fiscal year '15, I guess. GBS, mid-double digits, I think Mike said. But I assume that means in mid-teens margins. And then just what's the outlook for the other divisions as well as GIS and NPS?

Yes, I think we've talked about somewhere in the 14% to 15% margins for GBS. In our Global Infrastructure business, as Mike said, it's going to be starting a little bit slow. And then the exit that Mike was mentioning, looking at the end of the year, it's probably more in the high-single digits of plus [ph]. And then in the NPS, we've just also said that we're going to be in the 9%, 10%, I think more 10% I think would be our goal.

And I just -- I mean, this is really an opportunity. As you guys all know on the call here, we were able to reduce our cost structure. But now, we've got another leg of the story, which is around moving workload to these lower-cost, more automated centers. So there's a whole other leg here that we're embarking on this year that we're really encouraged about.

So what does that make for total EBIT expansion? I know we're at 7.8%. So just backing into the guidance, I'm just trying to figure out how much is margin expansion versus share buyback. And then maybe you can also give us the restructuring number, Paul?

Yes, I think as we have said, revenue for the whole company would be flat to slightly up, so you have to assume again, given what we have shared with you in terms of our targets of the EPS, that we're going to see some operating leverage or an improvement year-over-year in our overall margins at the EBIT level.

And is there -- is buybacks in the EPS guidance? Or is that not in? And then if you could just give us the restructuring we should expect maybe on an annual quarterly basis.

Well, I would let Paul talk a little bit about the EPS and the stock buyback and that. But from the restructuring standpoint, I consider somewhere in the neighborhood of $30 million to $40 million on a quarterly basis would be about right. We continue to model it that way. Could be a little less, could be a little more, but roughly in that range. And the question, Paul, was the stock buyback and the EPS projection.

Yes, I think in the EPS again, you were talking about, I would take you back to the EBIT margins. I think we were close to about 8% in the fourth quarter. For the full year, we're about 7.8%. So our objective would be to see at least an improvement in the 52 basis points or 100 basis points for the full year.

And buyback, it is or isn't in the EPS?

I think the buyback would be a net reduction on a year-over-year basis, but not a significant reduction, because there's some issuances also.

We'll be issuing stock, we always do this time of the year to the employees, so we backed that in plus the buyback.

And then you get some -- when you look at it - we look at it on a fully diluted basis. And as the stock price goes up, the option themselves become -- also factor into the EPS from continuing operations.

All right. Last 2 questions for me. Free cash flow, $689 million. We're only guiding to $700 million. I guess I would have expected that to grow more in line with EPS. Maybe give some clarity there. And then secondly, Mike, high level, what kind of impact is the cloud having on cannibalizing your older traditional legacy services revenue. Although you're definitely growing quickly in all the numbers you gave us on the next-generation stuff, especially in the cloud. What is it having as an impact on the traditional revenues?

Yes, that's a good question. I'll answer that, while Paul figures out the free cash flow.

Let me get that out of the way very quickly. Our objective is just to be about $700 million. And again, hopefully, we'll do better. But to start with, cash taxes are going to be higher on a year-over-year basis. This year, we benefited from lower cash taxes, a lot of it having to do with the tax planning that we did last year in 2013. The other element of it is we will have higher cash associated with the restructuring that we have taken in the last 2 years.

Now in terms of cannibalization, yes, there is cannibalization. So when you put cloud in over time, that is a lower upfront value. Although over a longer period of time, the cloud revenue stream can be as great and often more profitable than the existing contract. In our case, a lot of our cloud sales are not only going into existing clients but they're going into new clients. It's one of the offerings that's helping us attract new clients. In that case, we don't suffer any cannibalization, because they're net new customers to us. So we're using cloud as a way of helping clients modernize and move to this next-generation IT infrastructure. They typically do not make that move all at once. They pilot certain areas or certain applications, so in that sense, it's not highly cannibalized. And when we get cloud in there, what we're finding is that it drags along other offerings, like application modernization, cyber, in some cases, big data. But the real point of cloud and some of these new innovative offerings with our partners, is it's allowing us to get into new clients that heretofore we've not been in.

We'll take the next question from David Grossman with Stifel. David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division: Mike, if you go back to when you first took the job, I think one of the observations that you made was how few large clients at CSC were buying multiple services. So now you've been there a couple of years and we've made some substantial investments in the sales force, can you give us a better feel for how the revenue per client is trending? Obviously, after you back out any noise associated with exiting underperforming contracts, et cetera?

Yes, we are definitely seeing an improvement in cross-sell. There is much, much more to do. When I got here a couple years ago, our cross-sell was probably less than 5%, less than 5%. And the root cause of that, as I commented before, is that we really didn't have salespeople on our accounts per se. We had people that were managing contracts or managing delivery, and they were incented to deliver those contracts. As we look out, as we exit this year, the cross-sell is more in the 10% to 15% range, still very low. There's no confusion about that. But we are beginning to see that uptick, and this is a result of some of the investments we've made in our coverage schemes, things like our account general managers that we now have on most of our large accounts. We've changed compensation plans that now incent those people for cross-sell. And then also our clients are beginning to look at us differently than they looked at us before. So as we become more proactive with them, as we bring these new offerings to them, they're beginning to look at us in a different light than they did 2 years ago. But still, much, much work ahead of us, but encouraging in terms of the trend line. David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division: So getting back to a couple of questions that have been already asked about the bookings conversions, et cetera, and when you start seeing the bookings being a better predictor of future growth. When does all these positive things, the new services, the higher cross-sell and, in fact, pretty good bookings, particularly in GBS, when do those things supersede some of the runoff that you have in the base? Do you have any better visibility when that should happen?

Yes, I really don't have any great visibility to that. What we're seeing here is as the revenue -- as the revenue begins to increase in a lot of these new offering areas, like cloud, like cyber, they will begin to offset the restructuring and the price takedowns, if you will, in the contracts. And most of these price takedowns occur in the early part of our fiscal year. That's just typically the way the contracts are set up. So I wouldn't say there's a great deal of better visibility, but as the numbers on these new offerings get bigger, it does begin to offset those headwinds associated with the restructuring. But until I get greater visibility, it becomes -- I'm reluctant to put a stake in the ground and say, it's going to happen in the second quarter, it's going to happen in the third quarter. All I can tell you is that the trend lines are there, and we're encouraged by those trend lines, and these bookings, which are improving, are beginning to convert to revenue. We're seeing revenue growth. We're seeing revenue growth in cloud, still a relatively small number. Revenue growth in cyber -- I mean, cyber is going to be a $600 million business for us in fiscal '15. That's up from about $300 million. So that's doubled in the last couple of years.

We'll go to the final question. It comes from Ashwin Shirvaikar with Citi.

Mike, I have to say I appreciate your honesty with regards to your comments on cloud and cannibalization and so on.

Yes, we get a lot of the people saying it doesn't cannibalize, but I mean, come on. We're all smart enough to realize if you're trading $1 for $0.20, that's known as cannibalization.

Right. But the question I have is, we had the announcement from HP the other day, $1 billion in open-source cloud computing. IBM is investing seriously. You look at Google, one of your partners, Amazon, literally billions of dollars. But the question is the relative scale of what you're investing, is that enough? Or are you better off making a larger investment and maybe a smaller buyback? Any thoughts on that? And I know part of this is smart investing and not just bulk investing, but I'd appreciate it.

Well, I'm a big believer that you go where the return is, and we've had a tremendous return on buying back our own stock. Although one of the key messages here today is that we are investing, and I can't tell you how much leverage we're getting from our partners. I mean, the work we're doing with AT&T and how we're building the network and how we're linking that network to ServiceMesh and how we're linking that to our next-generation delivery centers, we are getting tremendous leverage -- EMC, Hitachi in the storage arena, and I could go on and on and on, SAP and Amazon. So we're getting great leverage from those technologies. Take Amazon Web Services, fantastic job that company has done, fantastic. Now we're integrating ServiceMesh into AWS, but we're leveraging the tremendous investment that AWS has made in their next-generation infrastructure. So these are all ways that we are leveraging, which allows us to target our investments in specific areas and specific offerings that we think will drive greater value over time. But I want to emphasize that this is not just taking cost out of this place. We are investing a lot of money in the company so that we can position ourselves for future growth. And you're right. If we would see that cloud really begins to take off, it might be a better investment to do more work with the OpenStack cloud environment or other investments, and we'll be certainly willing to do that. So hopefully...

Okay. And last one is a clarification I have on the use of lower-cost resources as you go from below 20% to the low mid-40s. Is that just CSC or does that include the impact of your HCL partnership? And is this also sort of another source of revenue cannibalization, to some extent?

Yes, well, no, it does not include the HCL partnership. So I'm just talking about like-for-like in our business, so taking workload from point A to point B. The HCL partnership is incremental new headcount that we are adding around apps modernization, and there's virtually no cannibalization in that, because the truth is CSC didn't really have an apps modernization practice. What we had was an apps outsourcing or apps maintenance or apps managed ops business, which is fundamentally different than apps modernization, and we see this as a huge market. We see this as really gaining momentum as we go forward. Anything else before we conclude here? Again, thank you, everyone, for your interest and questions in the company, and I look forward to continuing to march forward here with the transformation of CSC. Thank you.

That does conclude today's presentation. Thank you for your participation.