Good day and welcome to the DXC Conference Call. Today's conference is being recorded. At this time, I would like to hand things over to Shailesh Murali. Please go ahead, sir.

Thank you and good afternoon everyone. I'm pleased that you are joining us for DXC's Fourth Quarter and Full-Year Fiscal 2020 Earnings Call. Our speakers on today's call will be Mike Salvino, our President and Chief Executive Officer; and Paul Saleh, our Chief Financial Officer. This call is being webcast at dxc.com/investorrelations, and the webcast includes slides that will accompany the discussion today. After the call, we will post these slides on the Investor Relations section of our website. Slide 2 informs our participants that DXC Technology's presentation includes certain non-GAAP financial measures and certain further adjustments to these measures, which we believe 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. On Slide 3, 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 these risks and uncertainties is included in our Annual Report on Form 10-K 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 President and CEO, Mike Salvino. Mike?

Thank you, Shailesh, and I appreciate everyone joining us today. This is the first time we've connected since the COVID crisis, and I hope you and your families are staying well. I'm going to start today's call by sharing some big picture context about what we've accomplished since the last time we spoke. I will then discuss feedback we've been receiving from our customers who are recognizing our outstanding operational performance during the COVID-19 crisis. Before I hand the call over to Paul, I will also provide an update on our transformation journey. Paul will then share our financials including an update on the actions we have taken to strengthen our liquidity and enhance our financial flexibility. Then I'll make some closing remarks before opening the call up for questions. I'm pleased with the quarter we have been making good progress with our customers. Since I started in September, we have been focused on improving customer delivery and building stronger customer relationships and we have done both this quarter. On customer delivery, we have now fixed 35 of the 40 challenged accounts of the remaining five, two have decided to leave us and we are still working the other three. Investing to fix these accounts was something I highlighted during my first earnings call and I'm happy to report this is pretty much behind us. The investment is also paying off, as we now have sold 2.1 billion in TCV over the last two quarters to these accounts. The work consists of renewals and new work. Some of this new work was previously put on hold and some of the work is in new areas, like analytics and engineering. New work is the best evidence to describe a turnaround. On building stronger customer relationships, we have significantly increased our focus…

Thank you, Mike, and greetings everyone. As usual, I'll start by covering some items that are excluded from our non-GAAP results. In the current quarter, we have restructuring costs are $4 million on a pretax basis or $0.01 per diluted share. Also in the quarter, we had $92 million on a pretax basis or $0.28 per diluted share for transaction separation and integration related costs, primarily from external spend associated with assets under strategic review. In the fourth quarter, amortization of acquired intangibles was $148 million on a pretax basis or $0.45 per diluted share. Also in the quarter, we recorded a $3.9 billion non-cash goodwill impairment charge or $15 per diluted share. Also in the quarter, our annual re-measurement of pension assets and liabilities resulted in an accounting gain of $244 million. As of year-end, we have pension assets of $11.1 billion and pension liabilities of $10.2 billion for an overfunded position of $940 million. Excluding the impact of these special items, non-GAAP income before taxes from continuing operations was $292 million for the quarter and our non-GAAP EPS was a $1.20 driven by a tax benefit from the release of the valuation allowance in a key foreign jurisdiction as well as the benefit from other tax planning initiatives. For the full year, restructuring, transaction, separation and integration costs amounted to $570 million on a pretax basis or a $1.78 per diluted share. For the full year, amortization of acquired intangibles was $583 million on a pretax basis or a $1.73 per diluted share. Our full year non-GAAP earnings also include the impact of goodwill impairment losses in Q2, as well as the gain on HPE arbitration award. So for the full year, our non-GAAP income before taxes from continuing operations, which also includes the gain on the HP…

Thank you, Paul. And I just wanted to take a moment to recognize all the great work that you and your team have done to position us for success during the COVID-19 crisis. I'm pleased with the progress we're making on our strategic initiatives, which should allow us to have a stronger balance sheet enabling us to execute our transformation. As part of our ongoing strategy, we will continue to assess the competitive position of our business portfolio and develop plans to unlock future value either organically or inorganically. In summary, we are making good progress on our transformation journey. We are fixing our delivery and customer relationships that will stem the revenue runoff that has impacted us in FY '20 and FY '21. We are executing our cost optimization plans to better serve our customers by eliminating complexity and confusion. And finally, we are seizing the market opportunity where the criticality of the IT estate is top of mind for customers, which is highlighting our expertise. This allows us to set to cross sell our capabilities across the enterprise technology stack. All these points will create the foundation that will position DXC for growth. Now, before opening the call out for questions, I just want to wish you and your families all the best during this time and please stay healthy time. Todd, please open the call up for questions.

Yes, sir. [Operator instructions] We'll take our first question from Darrin Peller with Wolfe Research.

All right. Thanks, guys. Glad to hear you're all doing well and safe. Mike, can you give us a deeper understanding of the conversations you're having with clients, the responses that you're getting back from these clients? They really recognized, I guess, the renewed focus DXC is getting on the ITO business. And then overall, would you say you think these conversations are getting will -- has helped you conservatively capture what you're seeing in that $1 billion impact in '21?

Darrin, thanks. Look, the bottom line is I think we're making great progress. That's why we put together the customer quote slide. And what they're basically seeing is if you think about the environment right now, basically almost overnight, people had to start working from home. And the CEOs and CIOs that I'm talking to are saying, all right, look, what do I do with my existing estate because now I've got my entire workforce hitting up against that estate pretty much every day. So when I start talking about the IT estate again and say, hey, it's become relevant, is I think we've all experienced some level of, call it whatever, slow times or what have you against what you're trying to do from a virtual standpoint. So that's top of mind for the senior level folks. How do I make sure I can bring my entire workforce together to communicate virtually, so those are the conversations, and then the key thing for us is the fact that it was an outpouring of, look, you guys really showed up. I really appreciate what you've done. And it wasn't just showing up, Darrin, with normal-type things. But it was finishing transition that was important. It was thinking innovatively, and it was making sure that we went above and beyond the call of duty to get them where they need to be. So that's why I highlighted for you all that, look, the plan was always to go cross-sell these customers. That's why I focused on the customers to begin with. And what this has enabled us to do is look at those customers now and say, all right, what else can we be doing. And I wanted to highlight that, look, I have been having discussions with analysts for a while now about the cloud. And I'm very, very supportive of the cloud. But when I analyzed our IT estate and the criticality of that, that isn't just going to move to the cloud quickly, I've been saying that all along, Darrin, all right, And the fact of the matter is now I'm sitting there going, we have the facts because we use Virtual Clarity. We made the investment in Virtual Clarity, and we got to the over 60% number, and now we got to go tackle that opportunity. And some of it is in that $2.1 billion that I mentioned, and some of that is in the 23% qualified pipeline uptick over the last couple of months.

Okay. And just a follow-up on the comment you made around the impact of what you're seeing on pricing and other factors. It sounds like you've done a pretty good bottoms-up analysis across your client base now. So we do feel pretty good about your conservatism or your -- really how comprehensive that review was around that $1 billion?

Yes. Look, we -- I've taken my time. Okay. And the plan we've got set, I think, is at a very detailed level. And hence, the reason why I highlighted again the Virtual Clarity stuff, all right. And the fact that we are -- I know -- and the fact that, Darrin, I also highlighted for you all from a very transparent standpoint the 40 challenged accounts, okay. And the fact that in seven months, we stabilized the majority of those accounts and delivered in the COVID-19 environment, that's special. We've got a good team here. We're doing good stuff, okay

Thank you. We'll take our next question from Ashwin Shirvaikar of Citibank.

Thank you. Hey, thanks, guys, and good to hear from you. Mike, I want to take up on your last comment, where 35 of 40 problem clients resolved, two of them are leaving. As a problem, this is behind you. I wanted to understand a couple of things. One is if I could figure out where I would see maybe the various financial impact of this. The amount that mentioned was, I think, $73 million in quarter seemed relatively small impact. Is there ongoing impact of pricing concessions? Is there ongoing impact on cash flow or terms, easier comps that you had to give? Where would I see the impact of that ongoing?

Ashwin, are you talking about the $2.1 billion of new work? Are you talking about the $1 billion of revenue run-off? What exactly -- help me understand that a little bit more.

The combination of that and then taking that down to, are we going to be faced with sort of a structurally lower margin because you might have given significant price concessions to resolve these problems? Get a little bit into the solution. What was the solution? How did you fix these things so quickly so that we can understand what the ongoing impact is?

Okay. Well, here's the three things that we did, right. First of all, moving forward, obviously, we've got significant pricing discipline. So we're not doing that anymore. The second thing is, like I had mentioned, right out of the shoot, I started investing in those customers to get the delivery sound, all right. Because I didn't want to have any other discussions about revenue run-off, and now those discussions are over. Paul mentioned that the majority of that revenue run-off will be in the first half of FY '21. And then the last thing is -- the last thing that we did around there is when we secured our delivery operations, okay. And we've put in place various mechanisms to make sure that not only were we delivering, but Ashwin, I'm calling these customers on a regular basis. I'm sitting in weekly meetings. I am having dialogues with these customers to make sure I hear not only what they're saying, but I'm also pushing on them a little bit when I hear what our competitors potentially are saying about us, all right. And I'm giving them the facts around what we're doing at DXC. That's why when I thanked Paul about the liquidity process and the financial flexibility, all right, that we've got over the next 24 months, we've got the runway to go make this thing happen.

Understood. Understood. And you said an important thing. You kind of said it wasn't the secular impact of cloud. It was really suboptimal delivery, the way things were being done. Is it possible to kind of do an attribution analysis of sorts to kind of figure out -- you have had terminations, price downs, so optimal delivery. Cloud is something of an impact. Maybe it's incorporated in the price downs. There's a short-term impact here from COVID. As we think of growth going forward, how should we think of that in terms of all these factors?

Well, look, in terms of growth moving forward, before I give any other guidance, I want to get further down my transformation journey. But the -- what I will tell you is this. When I think about what we're doing with these customers, it was really important for us to show up and deliver for them, okay. And when you show up and deliver for a customer, the immediate thing that happens is I had one of our largest customers tell me two weeks ago after delivering, you're going to get the first shot at the new work, okay. And what I have seen in the analysis, Ashwin, is the fact that at a detailed level, what we're doing is making sure that we understand and listening to the voice of the customer, and then we're starting to cross-sell what's happening. And the environment just helped us because outsourcing always does better in a down market, and our clients want cost savings. So not only are we coming to the table, but they're coming to the table. Paul, would you have anything else to add on Ashwin's comments about numbers or what have you?

No, Mike. I think we're seeing it across the board. This cross-sell that you're talking about, certainly, I mentioned $1 billion in new pipeline that just really got generated by the workplace business. The ability -- and also to build actually on what you just said, Mike, because I think it's an important, Ashwin, to know. I think I should have made it clearer during our -- my presentation, and I think it was on one of the slides that our business is actually quite resilient in economic uncertainties. If you think about it, 30% of our business is only exposed to project work. So we have the opportunity, as Mike has mentioned, of stabilizing the customer and securing them to come back and just really meet their core need. And their core need right now has shifted to make sure that their on-prem ITO environment is resilient and secure. And so that gives us really a great opportunity to showcase the rest of our product -- of our offering across the enterprise technology stack.

So Ashwin, just to close on that, the bottom line is this. I've been saying since I showed up here, that I have a hard time believing everything is just moving to the cloud because when I analyze these accounts and the critical nature, people have described us as being at the heartbeat of our clients. People have described us as being as part of the fabric of what they do. That stuff is going to thoughtfully move to the cloud. And by the way, when it does move to the cloud, they still need our capabilities. All the knowledge, everything that we do on-prem is needed in the cloud, except for walking into a data center. So look, getting back out there in the market, Ashwin, and having those discussions with clients and them knowing we care is, it's turned the tone. So when I say a new DXC is showing up, that's what we're doing.

Thank you. We'll take our next question from James Faucette with Morgan Stanley.

Great. Thank you very much. I wanted to ask about -- as you look at the cost run-offs and the progress you're making with your customers and as you referenced, the new DXC, how confident are you that the revenue run-offs will kind of end in fiscal year '21? And what do you need to see happen from this point for that to be the case so that you can kind of get yourself back into a firm footing and headed in the positive direction you want to be going from a financials perspective?

Okay. So four things. The first one is we need to continue to deliver for these customers, because that's going to stem any future revenue run-off. Second is we got to continue to build trust. And we got a huge opportunity to build trust in the COVID-19 environment, all right. And I don't want to minimize COVID-19, but like I said, I take it very seriously, but we had a heck man opportunity to deliver for our customers. So now the key thing is what additional new work is potentially out there. And that's just in the existing environment every day. Upgrade -- updating a network, updating a server, putting in patches, we need to be doing that. The third thing is the cross-selling, and the cross-selling is meaningful because now we've got an open door based on those relationships that they trust us. And then the last thing is we want to continue, obviously, to optimize our cost. I wasn't kidding about me doing the analysis about the detailed people doing the work, and the number of layers between them and the customer. And getting that more simplified and streamlined that's going to help us in that environment. So I see those four things, James.

Thank you. We'll take our next question from Bryan Bergin with Cowen.

Hey, good afternoon. Thank you, guys. I wanted to ask on the cost optimization plan. So how much of that $550 million is a net cost savings versus reinvestment that you may plan to make? And then Paul, just as it relates to the $700 million too, as we think about the following fiscal year?

The cost optimization of $550 million is all going to be net incremental to the bottom line. And as I mentioned, not much of it was in the first quarter. So we're going to see it accelerate throughout the quarter. You'll see it starting to show up in the second quarter. And I think from a timing perspective, some of these initiatives that you can imagine in complex countries as we begin to execute them, and we're way on our way now to getting the work done, we'll have basically a carry-on effect in fiscal '22. That's the difference between the $700-million-plus that we're going after and the $550 million. So that will add further to the run rate actually as we exit fiscal '22. And we're not just done with that. This is just really a part of the plan of continuing to optimize. Of course, there are other opportunities that we're looking at. We're looking at, for example, our real estate footprint, for example, in this new redefined work environment. We're also looking at contractor costs or further opportunity within the pyramid of how we serve our customers. All of these things are still things that are going to be top-of-mind for us as we progress through the year, and we start to look to fiscal '22.

Okay. Is there a -- as we think about cash flow then, how should we think about conversion here and really just absolute cash flow generation levels. I'm understanding you've given yourself more flexibility in financials. But from a cash generation perspective, anything changed in the model going forward?

You know what it's hard to give you, again, guidance at this point in time. One thing that I can tell you that a lot of people worry about the fact that maybe customers will defer payment in this environment of COVID, for example. And another interesting statistics is that only about 15%, one-five, 15% of our revenue comes from industries that have been really high-risk exposed to COVID, like the airline, for example, or the hospitality sector or some of the consumer goods players or retail. And then the rest of it is 85% of our business is in industries -- come from industries or customers in industries that are moderate to lower risk. So that's a good sign for us. Right now, our cash flow has been very solid. You can see from the data that I gave you as of April 30 that we continue to generate solid cash flow. And I mentioned that we are over $5.5 billion of cash at the end of April. And so we're just watching the market carefully, managing our working capital, being very prudent in our cost -- or in our spend. So I can't give you a precise number in terms of netting -- how much of the cash flow as a percent of net income, but in due time, as we get a little bit more clarity, I'll be able to give you that.

Thank you. We'll take our next question from Rod Bourgeois with DeepDive Equity Research.

Hey guys. So I have a question on revenues and then a follow-up about the cost takeout plan. So first, on the revenues, your commentary has conveyed enthusiasm about the progress you're making with clients. On the other hand, it's hard to see the benefits from that progress in looking at the near-term financials and the outlook for the June quarter, which, of course, we understand is affected by COVID and the contract run-offs that seemingly were started into motion in earlier periods. But with that as the backdrop, I want to ask, particularly, Mike, what are the metrics you're looking at concerning DXC's turnaround? And can you also comment on how those metrics are making you think the worst should be over on the revenue run-off as of the first half of fiscal '21?

Okay. So the three metrics, Rod, that I would lay out is, first of all, the customer delivery and the relationships because that is going to stem the revenue runoff. And being conservative -- I can't predict everything that every single one of these customers is going to do, but I'll tell you, I have gone out of my way to make sure that they've seen the -- what I call new DXC showing up, all right. So the first one is the delivery and am I hearing any problems that are out there. And I've made myself personally available along with the leadership team. So that's the first thing. Second thing is we're obviously very serious about this the second initiative, which is optimize cost, because there's too many people between the folks doing the work and the customers, all right. So we need to make sure we get that cleaned up. I think that will continue to help us deliver. I just -- I look at also some basic things in that bucket, too, right, around just the operational performance. Our P1s are down, our service -- SLA penalties are down. That's all metrics that I'm looking at. And then the final thing I gave you all a glimpse as to the campaigns we're running, all right. And we're at the front end of it because I'm on my team every day about the cross-selling. The fact that we're at 90%, I would have liked to have been a little bit better on that, but the 23% uptick, now what I'll be measuring is the conversion of that qualified pipe. So it's those three things. It's the customer delivery and the relationship, all right. The second one is the optimized cost, and then the third is the cross-selling, Rod.

Thank you. This concludes today's question-and-answer session. We appreciate your participation.

Hey Todd, hang on. Rod had another piece of that question. Are you guys still there?

Rod, you're back in line.

Great, thank you. Thanks for letting me in.

Rod, sorry about that.

No problem. So listen, in the past, we've seen firms pursue cost takeout and then sometimes there's a revenue trade-off. So my question is, how do you take out substantial costs without sort of timing the progress on the customer service improvements that you're seeing and also just laying a better groundwork for growth? It sounds like you see ways to take out costs that may actually make things smoother with clients, but it'd be great if you could explain more about how to avoid trade-offs on growth as you pursue the cost takeout?

Okay. Thanks, Rod. And again, sorry about cutting you off. Look, the first one is you got to over-communicate with the customers. So my third message during this quarter, I highlighted exactly what we were doing in de-layering to our top 200 accounts. So I've proactively communicated with them. And then when I've had the virtual meetings or the conversations, I've reiterated what we're doing. So it's not a surprise, okay. I've also given them some examples, right. And the examples, Rod, came from the second piece, which was the detailed analysis. I kept saying over the last seven months, I'm going to go review these accounts. I'm going to go review these accounts. Well, we went and did the work, and we identified the layers. And when you identify the layers, you can actually give the customer some examples of, have you seen so and so, have they shown up and made an impact. And when they recognize that, all right, well, that's part of our management structure, but that person really isn't showing up every day, they get the concept, all right. And then the last thing is you got to continue to take care of the people that are doing the work. So that's why I wanted to make sure that I highlighted for you all that we -- we gave them raises, all right. The folks that are coming in today that are doing the detailed work, we've locked those folks down. We started in January and then we'll be done -- we started in January in India to get ahead of the industry in terms of salary increases, and then we will finish with the rest of the world in August. So, it's really doing those three things, proactively talking or communicating to the customer, second is the detailed analysis, then three is taking care of the people. So Todd, with that -- hey, thanks, Rod. Todd, sorry, I interrupted you. You can probably close the call now.

Thank you, sir. Again, we appreciate your participation. Ladies and gentlemen, this concludes today's call. You may now disconnect.