Good day, and welcome to the DXC Technology Fourth Quarter and Fiscal Year 2018 Results Call. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Jonathan Ford, Head of Investor Relations. Please go ahead sir.

Thank you and good afternoon everyone. I'm pleased you are joining us for the DXC Technology's fourth quarter and year-end fiscal 2018 earnings call. Our speakers on today's call will be Mike Lawrie, our Chairman, President and Chief Executive Officer; and Paul Saleh, our Chief Financial Officer. The call is being webcast at dxc.com/investorrelations and we posted slides to our website which will accompany the discussion today. Slide 2 explains that the discussion will include comparisons of our results for the fourth quarter and full year fiscal 2018 to our pro forma combined company results for the fourth quarter and full year fiscal 2017. The pro forma results are based on the historical quarterly statements of operations of each of CSC and the legacy Enterprise Services business of HPE or HPES, giving effect to the merger as if it had been consummated on April 2, 2016. As a consequence of CSC and HPES having different fiscal year-end dates, the pro forma combined company results include the results of operations of CSC for the three and 12 months ending March 31, 2017 and of HPES for the three and 12 months ending January 31, 2017. Slide 3 and 4 as our participant -- the DXC Technology's presentation includes certain non-GAAP financial measures and certain further adjustments to these measures, which we believe provide useful supplemental 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. Both documents are available on the Investor Relations section of our website. On Slide 4 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 quarterly reports on Form 10-Q, our annual report on Form 10-K that we'll file in the next few days 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'd like to introduce DXC Technology's Chairman, President and CEO, Mike Lawrie.

Okay, thank you. Welcome everyone. Thanks for taking the time this afternoon. As is my practice I've got four or five key points which I'll go over briefly and then get into a little more detail before I turn it over to Paul and then we'll have plenty of time for any questions that you may have. So, first point here is our fourth quarter non-GAAP EPS was $2.28. For fiscal 2018 our non-GAAP EPS was $7.94. Adjusted EBIT was $1.17 billion in the quarter and adjusted EBIT margin was 16.2%. For fiscal 2018 adjusted EBIT was $3.499 billion, and adjusted EBIT margin was 14.2%. We generated $557 million of adjusted free cash flow in the fourth quarter and for fiscal 2018 adjusted free cash flow was $2.427 billion. Our revenue in the fourth quarter was $6.294 billion, on a GAAP basis and revenue grew 4.3% year-over-year and was up 1.7% sequentially. In constant currency revenue was down 1.3% year-over-year, is roughly flat sequentially, and for fiscal 2018, revenue was $24.556 billion, the book-to-bill in the fourth quarter was 0.9, and for the full year it was 1x. In the fourth quarter our digital revenue grew 21.6% year-over-year and 8.5% sequentially. For fiscal 2018 digital revenue grew 17%. And in the fourth quarter our industry IP and BPS revenue was up 7.9% year-over-year and was up 5.7% sequentially. For fiscal 2018 our industry IP and BPS revenue was roughly flat. In the fourth quarter, our digital book-to-bill was 1x and our industry IP and BPS book-to-bill was 0.7. Throughout fiscal 2018 we achieved key merger integration milestones and exceeded our synergy targets, delivering $1.1 billion of year one cost savings as well as $1.6 billion of run rate cost savings exiting the year. Also the separation of our U.S. public…

All right thank you Mike and greetings everyone. Before I review the fourth quarter and full year for DXC I'd like to take a moment to clarify the basis of our financial presentation. First, all the references to the unaudited pro forma statements of operations from the prior year include the results of operations of CSC for the three and 12 months ended March 31, 2017 and of HPES for the three and 12 months ended January 31, 2017. Second, the fiscal '17 pro forma statements of operations and those have been now revised to reflect purchase price accounting and lease adjustments as if the merger had occurred on April 2, 2016. In addition we have continued to assume a flat tax rate of 27.5% in the prior year pro forma non-GAAP results. And lastly our non-GAAP results exclude special items such as restructuring, integration, separation and amortization of intangibles consistent with DXC's non-GAAP method from prior years. And with that I'll now [Technical Difficulty] items that are excluded from our non-GAAP results this quarter. In the current we have restructuring costs of $208 million pretax or $0.50 per diluted share. These costs represent severance related to workforce optimization programs and expense associated with facilities and data center rationalization. Also in the quarter we had a $124 million pretax or $0.33 per diluted share of integration, separation and transaction related costs. Amortization of acquired intangibles was $153 million pretax or $0.37 per diluted share in the quarter. Also in the quarter our annual re-measurement of pension assets and liabilities resulted in a gain of $203 million. So adjusted EBIT excluding the impact of these special items was $1.017 billion for the quarter and non-GAAP EPS was $2.28. For the full-year restructuring, integration, separation and transaction costs amounted to $1.2 billion…

Will take our first question from Ashwin Shirvaikar with Citi.

I want to start with asking Paul can you talk about the cadence of revenues and profit improvement for the quarters through fiscal '19 as the layout and perhaps also provide clarification on some of the basic stuff and I can expect in FX will impact kind of the mixed pack state and the share comp that you are using?

Yes. So I think right now if you look at the guidance that -- the target that we have given you for the full-year of $21.5 billion to $22 billion, it will be right now -- and we expect that this is again for the commercial business only because USPS is going to be spun-off as of June 1st. I want to make sure everybody is clear on that. And I think what we will see is a relatively consistent performance throughout the year growing a little bit more in the second half of the year on a sequential basis. I mentioned the tax rate again of 24% to 28% I think using a midpoint right now would be appropriate and as I mentioned we will resume our share buybacks so we would expect to retire more shares this year than we have done this past year and will try to catch up on our capital. There is something aligned more with our capital allocation model.

Got it. And the incremental synergies $400 million it sounds good on top of what you have already achieved. But can you speak as to whether that includes the impact of Bionix and I guess the improvements seen on a smaller scale as you try these things out but the industrialization of Bionix can you talk about that the potential for that?

It's hard to gauge what the long-term effect would be of the industrialization of Bionix. But this is going to have an impact and we are just counting on that right now. How much it is I don't -- I honestly can't quantify right now. But as we apply this capability to different aspects of our business we are seeing significant reductions in labor or said another way increased productivity. And we are marching along here sort of offering-by-offering, function-by-function, so we're doing this very deliberately and we started out the call centers and that will expand to other functional areas. But it's not just that it's also the whole approach to analytics and a whole set of other disciplines and methodologies to drive that. So the synergy target encompasses more than just effort. We're going to do more facilities rationalization. We're going to continue to move our resources around the world. We're going to continue to focus on our pyramid. We've launched a major program to hire students and bring them in and interns and co-ops and a whole host of things to continue to lower our overall labor costs. We're making good progress with the Talent Cloud and we got 7,000 subscribers. So we're now publishing tasks or jobs or components of projects and putting that out to not only internal employees but to the external world. That will expand. That creates less friction and provides a highly value skills at lower cost. So you need to add those things altogether and I think of it more of an integrated program to continue to drive these synergies as we go forward. Does that help?

Thank you. We'll take our next question from Bryan Keane with Deutsche Bank.

I just wanted to know about operating margins for GIS and for GBS. Just how we think about those throughout the year? Will they improve year-over-year each quarter as we go through the year? And then secondly, on the investments I know we're talking about $200 million and $250 million, just curious exactly what those investments are going into, and should we think about that as an annual expense in the business so even beyond this fiscal year that's something that's kind of necessary to keep the investment going into business?

Yes, listen, we are -- we concluded this year towards the high-end of our range on the margins and as I said in my commentary that was a reflection of doing better in the synergy arena than what we had originally forecasted. We also saw less in dissynergies on the revenue side and we still expect to see some of those dissynergies on the revenue side and as we just talked about for the previous question, there're some additional cost synergies. But I'd say those margins will over time continue to increase. But the key point here is we are investing back in the business. So this is not just about taking costs out. We are continuing to invest in our Bionix program and we'll spend tens of millions of dollars in that program this year. We are continuing to invest in our offerings, our digital workplace offerings, an example is gaining a lot of traction in the marketplace. We're continuing to invest in cyber. We're continuing to invest in analytics. So another investment area is the investment we're making with our partners, beginning to move some of our industry IP to different cloud platforms with our partners. So we moved some of our healthcare IP platform to Azure for example. We're making investments in IoT. We're making investments in Blockchain. So these are all areas of our offering portfolio where we're going to continue to make investments because we're seeing a return, we're seeing a return in terms of increased sales and revenue. And in terms of other areas where the other major investment we're making is in our people. And we're continuing to invest very heavily in the re-training and re-skilling of employees, particularly those that want to re-skill and prepare themselves for the opportunities that marketplaces present. So, those are the three primary areas that we're continuing to invest in.

And Bryan I think in terms of the margin on the GBS side I think we would expect them to be in the high double digit to 20% starting a little bit lower in the first quarter and then moving on throughout the year because we have some seasonality typically in our GIS margins and the post separation is on somewhere in the -- between the 13% to 16% and I think again it will be growing reflecting as some of these margins also reflect the investment that we are making in the business. Now that's I hope answer your question.

Thank you. Our next question is from Arvind Ramnani with KeyBanc.

When I look at the last year and certainly we have been busy with kind of some of the cost cuts and of course the USPS spin and when you look into the next like 12 to 18 months I mean you outlined some of your priorities but kind of can you more broadly outline what some of the major priorities are and in particular can you talk about some of the work that we will be doing that's going to drive revenue growth or are you going to be looking to do some larger deals?

Well I would say all of the above. So our fundamental priorities as we look out at over the next 12 to 18 months is when we want to continue to drive productivity and the quality of our service delivery and it's still the major cost element in our business. And the degree that we can improve productivity and continue to see improved service levels that has a enormously positive impact on our business. Our customer satisfaction -- I said this in my commentary, our customer satisfaction actually went up. So in the first year of integration all we did customer satisfaction continued to increase. So continuing to drive our cost structure and the productivity and improve service delivery is an absolutely critical objective as we look out. Digital, so yes we are making huge shift in our digital offerings. I have chronicled thus, I have shared with you what the growth is. We are beginning to change our route to market in terms of investing in our large accounts to put more digital resources. Our digital delivery centers we just opened or cut the ribbon yesterday on our digital delivery center down in New Orleans. So we are continuing to make a very significant investment in digital. We're engaging our delivery teams and helping us drive growth to our delivery teams. It's something we call our delivery led growth initiative. And then of course the other priority is to continue to focus on our workforce management and this includes our ability to more accurately predict what skills we're going to need, how many we're going to need, how we source them. I just talked about the dynamic Talent Cloud, that's a whole different way of sourcing skills and capabilities, how we onboard people, how we retain people and how we are able to move them around from project to project. So workforce management, the re-skilling of our people is a key priority, our whole digital initiative as we continue to want to increase the percent of revenue that we get from digital to offset the natural headwinds we have in the ITO business, some of the other legacy businesses and then continue to focus on the quality of delivery and the productivity of delivery. So that's how we're driving growth, that's how we're driving the cost envelope and we're always looking opportunistically for acquisitions that would align with the strategy that I just outlined and as we've done the past years make those type of acquisitions, and I expect that that will continue.

And one quick follow-up. Looks like you're making good progress internally on automation and AI, are you able to take some of these solutions to your clients to actually drive revenue?

Yes, you bet. I mean that's really the whole strategy is -- we just had our global customer advisory board and that's exactly what we're doing, we closed another deal today and it's part of the same exact framework. We go in, we know what this automation and analytics and other capabilities that we have. We know we can lower the cost of the existing infrastructure, we know that. Okay. Then what we do is we say -- and here are ways that you Mr. Client can reinvest in your business with our other offerings like our application modernization, or cyber or analytics or other things and that is the strategy. Help free up the money through a simplified, more productive IT infrastructure, use those savings to reinvest in the digital platforms that help the clients on their transformation journey. That is the strategy, hasn't changed since our Investor Day. It now is beginning to get some real traction with our larger clients. And the IT industry is famous for talking about stuff years and years and years before it happens. I mean I got to tell you the Enterprise institutions around the world are now just getting to critical mass and many of these things that we in the IT industry have been talking about for five or six years. So, I think this gives us some optimism that the majority of our offerings are converging when our primary client base which is large enterprises around the world are beginning to gather pace in their own digital transformations.

And just if I could just squeeze one last one in, you mentioned Blockchain a couple of times. Are there particular types of clients that you're seeing sort of more interesting and I assume a lot of the work is still a little bit early and more sort of consulting in nature?

Well I think Blockchain is a pretty pervasive technology that is going to change a lot of how transactions are done. Now just think -- our portfolio, think of insurance claims or think of healthcare claims as areas where Blockchain can be certainly leveraged. The supply chain would be another area. Where we've a lot of intermediary transactions, Blockchain it is I think going to over time eliminate or at least reduce a lot those intermediary steps in the end to end transaction and payment systems.

Thank you. We'll move onto Jim Schneider with Goldman Sachs.

I was wondering if you can maybe provide us a little bit of color on the revenue trajectory you expect as you head throughout the year. I think Paul you referenced the back half of the year being a little bit better from a revenue standpoint. Would you expect to be executing any M&A throughout the year that could help that ultimate revenue trajectory and I guess maybe where you expect you might be from a revenue growth standpoint exiting this year?

Well as I -- I'll let Paul answer, but as I said we will do some more acquisitions that I can tell you. I mean we have a pipeline of things we're looking at. Jim you know -- we just don't know when these things are going to close. They have their own sort of lifecycle. So you just -- you don't know that and most of what we do and classify more stuck-ins that are very consistent with our overall strategy of improving our digital offerings, Ebix and Sable37 are great examples of that in the Microsoft Dynamics arena. So yes I do expect to get some help from those potential acquisitions, I just don't know when they are going to occur and I don't know what the whole year impact would be on revenue, because that's obviously time dependent. Traditionally our revenue is a little lighter in the early part of the year and stronger in the back half of the year and we saw that this past year. So I don't -- some of that seasonality is something that's just the way the year plays out, so we would expect that as we progress through a fiscal '19. Paul you may want to?

And I think Mike you captured it, if I look at it this whole year we've seen an improvement throughout the year for first quarter and second quarter sequentially all the way through the fourth quarter. We will see a similar pattern in fiscal '19. If you look at the target that we have set out and if you take the midpoint of those targets it would be relatively flat year-over-year with a similar type of progression.

And Jim I just don't know yet, I don't know some of the headwinds. I mean we -- I don't know how Brexit is going to play out. There is some great opportunities associated with Brexit to get many of those systems prepared for Brexit as an opportunity. It will also I think -- it also has created some indecision and delay and other decisions and projects we see. We expect to continue to see some revenue dissynergies as we are in the second year here, but I don't -- I can't quantify those for you. We see growing momentum with our partners. I mentioned in my commentary BPS offerings in our industry, IP and some of our digital opportunity. No question we're seeing some momentum in growth. I mean I haven't been on a lot of earnings calls where I could actually use the word growth for the number. So we are seeing that and we're just giving you our best estimate right now where we see things playing out. Does that make sense Jim?

Yes, it does, thanks. And then maybe on the cost synergy side, you've alluded to in the past of maybe being ahead on the Bionix driving the cost of sales that you mentioned, but maybe being a little bit behind on supply chain. As you look through fiscal '19 what are some of the opportunities where you might kind of reaccelerate those cost synergies relative to how you've been progressing so far?

Yes, I think the areas where we have still a lot of opportunities will be in our contractor spend that's an area that we have made some progress, I mentioned 6% reduction year-over-year than in fiscal '18. There is more yet to be done there, particularly as we also apply our Bionix program to that segment of our spend. I do believe also that you are going to see a lot more also from our facilities, particularly in the data center arena where we have just really started. This year we have just already consolidated two of our [90 data centers. We have at least 10 in flight and more to come. So those are the areas where we see still some great opportunities.

Thank you. We'll now take our next question from David Grossman with Stifel.

So Mike growth is definitely improving, although, on an overall basis, it remains negative year-over-year. Are you seeing any light at the end of the tunnel as it relates to the legacy business and perhaps you can share some of the data points that may give us a better sense of just how that legacy business is trending and whether it is actually starting to plateau?

I think the way I look at it is I look at the amount of revenue that we're getting from these new offerings. Go back to the Investor Day that we had, whenever, when we had the chance last March. So we sort of laid out some projections around our digital growth, our industry IP and BPS growth and that's largely playing out that way slightly less growth than we laid out the first year, but it's basically playing out. The other thing is we had estimated a decline in the traditional legacy businesses primarily IP, but also our application maintenance and management business and we estimated what that curve would be. Now that curve wasn't as much as we had thought. So, what happened this year, was we didn't see the decline as rapid as we had forecasted and we didn't see quite as much growth in some of the new offerings, and that got us sort of where we were -- where we are. The other thing that we're seeing is that when we do go into a client and we help them reduce their infrastructure costs, the reduction of those infrastructure costs is usually in a shorter timeframe than the revenue that we achieve from the digital platform growth. Again I don't want to go into too many client names now, but I'll give you an example of how this works. So, we went in and reduced the infrastructure costs, by somewhere around 10% to 15% and that we began billing at a lower rate, two or three months after we initiated the agreement and then we began to get some of the reinvestment back into the digital platforms like our application modernization and some of our enterprise cloud apps business. That revenue is now starting to flow and the account is growing, so we're now forecasting growth in that account for the first time in seven years. But there was a -- not a delay but there was an interregnum where the revenue actually went down slightly more before it went up. Those are -- that is -- I got to tell you that's very difficult to model. Because each thing is different. The transition to a digital workplace offering might take longer than the transition to a new cyber offering. So each of these has their own time scales, and each customer plays out slightly different. So what we try to give you is an aggregate, but the overall revenue model that we talked about over the two or three year period of time is absolutely intact with what we've discussed at the Investor Day. Does that give you the color you're looking for?

And just to follow that up then you are talking about '20 -- sorry if I missed it but do you have any plan or did you mention whether you are going to re-class that fiscal year '20 target that you laid out a year ago?

Yes we will. I think you can see already, initially our margin expectations were 14% to 15% and now we are already closer to the 15%. So it would be probably more likely the 15% to 16% if I had to make a guess now. And then the revenue I do believe is going to be fine because we were already factoring I guess sort of the USPS business was going to be in the same range of the 3% to 4% growth over that timeframe from before. So we will have an opportunity to update some of these.

And that's why we wanted to do another meeting sometime this fall, so that we can give -- update those models and make sure everybody is on the same page post the formation of Perspecta.

So we're going to now close questions. Paul wanted to have a final comment before we close the call.

I just really wanted to make sure that as we set the targets for fiscal '19, you are at least clear on the EPS. So I just want to make sure we -- that we said that we will do $7.75 to $8.15 that's the target range that we are having -- we expect for fiscal '19. Now this is how it works out, for fiscal '18 we have reported $7.94 now if you take out the USPS contribution that's a $1.03 and there is also some stranded costs that we will have to -- we are planning to take out but we have that's about $0.20. Then do you get $7.94 less the $1.03 less the $0.20 you get to the $6.70 that I referred to. So on a year-over-year basis I want to make sure that people have the right calibration. We go from $6.70 to $7.75 to $8.15 for the commercial DXC business which is a 16% to 22% growth on a comparable basis -- on a year-over-year basis.

And with that operator we will close the call.

Thank you. And that does conclude today's conference. Thank you all for your participation.