Computer Sciences Q4 2010 Earnings Call Transcript

Computer Sciences Q4 2010 Earnings Call Transcript
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Computer Sciences (CSC)

Q4 2010 Earnings Call

May 20, 2010 11:00 am ET

Executives

Michael Mancuso - Chief Financial Officer and Vice President

Bryan Brady - Vice President of Investor Relations

Michael Laphen - Executive Chairman, Chief Executive Officer and President

Analysts

Adam Frisch - Morgan Stanley

Srinivas Anantha - Oppenheimer & Co. Inc.

Bryan Keane - Crédit Suisse AG

Edward Caso - Wells Fargo Securities, LLC

Karl Keirstead - Kaufman Bros.

George Price - Stifel, Nicolaus & Co., Inc.

Jason Kupferberg - UBS Investment Bank

Presentation

Operator

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Good day, everyone, and welcome to the CSC Fiscal Year 2010 Fourth Quarter Earnings Conference Call. [Operator Instructions] 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. Good morning, everyone, and a warm welcome to CSC's earnings call for our fourth quarter and the full fiscal year 2010. We hope you've had the chance to review our financial results, which were issued earlier this morning.

With me today are Mike Laphen, our Chairman and Chief Executive Officer; and Mike Mancuso, our Chief Financial Officer. As usual, the call is being webcast at www.csc.com, and we've also posted slides to our website to accompany our discussion.

On Slide 2, there is 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. Copies of these filings are available from the SEC from our website and from our Investor Relations department.

Slide 3, acknowledges that CSC's presentation includes certain non-GAAP financial measures. In accordance with the 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 your 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 Laphen

Well, thank you, Bryan, and good morning, everyone. We exit fiscal year 2010 feeling very good about last year's performance, and we begin fiscal 2011 optimistic on the prospects for the new year. Fueling our optimism are generally improving market conditions, along with our improved competitive position, validated by this year's record bookings. Our continued focus on meeting our customers' mission-critical requirements resulted in fiscal '10's successes highlighted on Slide 5.

As Mike Mancuso will detail shortly, CSC had a very solid fourth quarter and an outstanding fiscal year '10. All of the key financial metrics, including operating margin, free cash flow and earnings per share were impressive. We successfully managed through a period that was extremely challenging for both our clients and ourselves. Our marketplace and competitive landscape continues to evolve at a quickening pace.

For its part, CSC enjoyed the most successful year of our 50-year history with respect to new business bookings. Led by significant awards with Zurich Financial Services Group, United Technologies Corporation and Raytheon, we closed fiscal year '10 with a record-high $19.2 billion in bookings. 70% of these bookings are attributable to new logos and/or new services. A testimonial, I believe, to our ability to innovate and adapt to an ever-changing environment.

Across the business, over 170 new logos were signed in fiscal year '10. The majority of these signings occurred in our third and fourth quarters, demonstrating real improvement in market conditions. CSC also improved its position in the Fortune 500 standings by moving up to number 138. This progression was accompanied by a significant strengthening of our financial position as we materially reduced the long-term debt, while increasing our final cash balance to $2.8 billion, up almost $500 million year-over-year.

Notwithstanding the difficult economic times, we remain true to our strategic direction. We expanded our footprint in the growing markets of Latin America and China. Benefiting from strong marketplace synergies, we closed our first outsourcing deals since our recent acquisition in Brazil. A new service center in Tianjin, China expands our capabilities in this important market. We are also seeing a healthcare services market emerge in China, where with CSC is very well-positioned.

During fiscal year '10, we continued to expand and improve our product offerings across the business. This included new industry-specific offerings from each of our verticals and a comprehensive suite of cyber offerings to assist clients in protecting their most sensitive data and defeating emerging threats. We launched an integrated portfolio of applications offerings and an array of Trusted Cloud and hosting services. Five new managed services offerings were also developed, including an exciting new virtual desktop and dynamic server offerings. Our new business success in fiscal year '10 provides solid evidence that these new offerings are being well received, not just by industry analysts but by clients in the real marketplace.

Turning to Slide 6, I'd like to note the improvements we have achieved through our long-term focus on profitability. For the last several years, this management team has focused on improving the company's profitability, as well as cash performance and we have delivered real results. Operating margins again expanded this year, resulting in a 50 basis points improvement year-over-year. Over the last five years, our continuing long-term focus on profitability has elevated our operating margin some 195 basis points.

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