Computer Sciences' Management Hosts U.K. NHS Contractual Relationship Update Call (Transcript)

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

Presentation

Operator

Good day, everyone, and welcome to CSC's update call on the NHS. Just a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Mr. Bryan Brady, Vice President of Investor Relations. Please go ahead, sir.

Bryan Brady

Thank you, operator. Good evening, ladies and gentlemen, and welcome to CSC's update on the progress regarding our contractual relationship with the U.K. NHS.

We issued a press release and an 8-K yesterday containing the company's most recent update. And so I hope you've had an opportunity to read those.

This call is being webcast on csc.com, and we have posted a slide to our website containing our usual reminder cautioning participants about forward-looking statements. I'd also like to remind our listeners that CSC assumes no obligation to update the information provided on this conference call except, of course, as may be required by law.

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 health care 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 was 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. had signed a letter of 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 here 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 merit 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's, with the NHS, moving to much more devolved [ph] power in 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 the four 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-odd other systems that we've installed continue as before, as does 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 health care business mix. As we said in the past, we expect our U.K. health care 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, its 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 country 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

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