Computer Sciences Corporation (CSC) April 04, 2012 5:00 pm ET Executives Bryan Brady - Vice President of Investor Relations Guy M. Hains - President of International Analysts Nathan A. Rozof - Morgan Stanley, Research Division Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division David Grossman - Stifel, Nicolaus & Co., Inc., Research Division Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division Ashish Sabadra - Deutsche Bank AG, Research Division Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division Jason Kupferberg - Jefferies & Company, Inc., Research Division Jason Kupferberg - UBS Investment Bank, Research Division Presentation Operator
Now as we reported in yesterday's 8-K, Guy Hains will be leading this call. Guy is CSC's President of Healthcare, and he's joining us from CSC's offices in the U.K. Guy has been leading CSC's negotiations with the NHS and is our expert in this matter.So the purpose of today's call is to provide you with a brief update on the progress being made in our NHS discussions and in our healthcare business in general. We won't be commenting at this stage on any of our financial results or financial forecasts because these will be a topic at some later date. So with those comments, I'd now like to turn the call over to Guy. Guy M. Hains Thank you, Bryan, and good evening, ladies and gentlemen. We're looking to give you this brief business update on the NHS in the interest of transparency and to give you some background on what is happening. You'll appreciate there is only so much we can say in terms of specifics as negotiations are ongoing. But I do hope to give you some insights into where we are with the NHS and Lorenzo and answer your questions where you have them. Back on December 27, 2011, we told you that the original and much discussed MOU is not going to go ahead, and CSC was taking a write-off of $1.5 billion. On March 5, 2012, we announced that CSC and the Department of Health in the U.K. have signed a letter intent on the revised scope and volumes for the program. Both parties plan to make this a legal agreement by the end of March. At this time, CSC took action to reduce our costs by redeploying or removing some 30% of the workforce on our NHS program in the U.K., and that was aligned to the anticipated scope and volume of the new agreement. This call is to give you some color to our statement of yesterday, which said we have effectively climbed out on our LOI agreement but also said at the same time that both parties have renewed our standstill until 1st of June 2012.
I can report that the dialogue with the NHS is fundamentally going well. Both parties continue to see considerable merits in the revised structure we agreed in the LOI. I would say that the delay reflects the complexity of the change being undertaken and the need for very detailed agreements. The backdrop to this, and much of it is driven by the extent to which the NHS itself is changing and the government, with the NHS moving to much more the [indiscernible] and the trusts and therefore the need to consult very widely on this agreement. I can confirm that both parties really want this agreement to work, and no specific roadblocks have been accounted. It's rather just the detail and the length of time it's taking to put forth agreements together. I can also confirm that our discussions only relate to the re-scoping of Lorenzo and that the ongoing service provision that we provide to other -- 2,000 other [ph] systems that we've installed continue as before, as the revenue stream we enjoy.CSC has written off its investment in the Lorenzo product. Over 80% of that product is complete. And we've also got the 2 years experience in the early adopter process that we've been undertaking. Our revenue objective for Lorenzo in the near term is a modest component of our healthcare business mix. As we said in the past, we expect our U.K. healthcare revenues to be approximately 2% to 3% of CSC's overall revenues. And within that, Lorenzo will not be taking a significant part of that revenue for next year. So in this context, our go-forward risk really should be seen as modest. Nonetheless looking to the longer term, we remain confident in Lorenzo, it's technical platform, the extent to which it really answers the NHS' efficiency needs, plus the very positive feedback that we get from the field in the U.K. And additionally, we do see significant potential in applying this experience to other countries' health markets. There isn't a market, I think, globally that still doesn't have considerable interest in the learning from the U.K. NHS, both good and bad. Read the rest of this transcript for free on seekingalpha.com