Newly-Separated CSC Delivers Earnings Growth and Margin Expansion in Third Quarter Fiscal 2016
“In the third quarter, CSC successfully completed its separation into two industry-leading pure-plays, while delivering margin improvement and earnings growth through disciplined cost management," said Mike Lawrie, chairman, president and CEO. “Our results in the third quarter were consistent with the long-term outlook we presented at our Investor Day in New York. We are seeing strong momentum in our next-generation offerings and a moderation of the headwinds in our legacy business, and we delivered the strongest bookings this quarter in the last 2 years. We are also making progress in our acquisition strategy. We are on track to complete the UXC acquisition by the end of February and have successfully moved into the regulatory approval stage of our Xchanging acquisition.”
- Diluted earnings per share from continuing operations were \\$0.10 in the third quarter and included the cumulative impact of certain items of (\\$0.61) per share. These items included (\\$0.25) per share in separation, restructuring and other transaction costs, \\$0.04 per share in U.S. pension and OPEB impacts related to our separation of CSRA, (\\$0.10) per share in certain CSRA overhead costs, \\$0.09 per share in pension & OPEB actuarial and settlement gains, and (\\$0.38) per share from tax valuation allowance impacts. Excluding these items, non-GAAP diluted earnings per share from continuing operations were \\$0.71, up 16 percent when compared with \\$0.61 in the third quarter of fiscal 2015.
- Income from continuing operations before taxes was \\$78 million, which includes the cumulative cost of certain items of (\\$46) million. Excluding the impact of these items, non-GAAP income from continuing operations before taxes was \\$124 million compared with \\$109 million a year ago.
- Operating income, adjusted for certain items, was \\$190 million and compares with \\$174 million in the prior year. Operating margin on the same basis was 10.9 percent, up from 8.9 percent in the prior year.
- Income from continuing operations was \\$15 million for the third quarter. Excluding the impact of the items discussed above, non-GAAP income from continuing operations was \\$100 million, compared with \\$87 million in the prior year.
- Preliminary free cash flow of \\$120 million.
Global Business Services
GBS revenue of \\$886 million in the quarter compares with \\$965 million in the year ago quarter, a decline of 2.5 percent year-over-year in constant currency. Modest growth in our Industry Software & Solutions and Big Data businesses partially offset lower than expected Consulting and Applications revenue. GBS operating margin, excluding the impact of certain items, was 13.1 percent, up from 12.8 percent a year ago. New business awards for GBS were \\$1.6 billion in the third quarter, up 35 percent year-over-year.
Global Infrastructure Services
GIS revenue of \\$864 million in the quarter compares with \\$984 million in the year-ago quarter, a decline of 7.2 percent year-over-year in constant currency. The decline in revenue from our legacy business moderated and was partially offset by growth in next-generation offerings. GIS operating margin, excluding the impact of certain items, was 9.1 percent, up from 6.4 percent a year ago. New business awards for GIS were \\$1.0 billion in the quarter, up 4 percent year-over-year.
Completed Spin-Off of Public Sector Business
During the third quarter, CSC completed the separation of the company into two industry-leading pure-plays by spinning off its public sector business and merging it with SRA International, Inc. (SRA). The new company began trading as an independent public company on the New York Stock Exchange (“NYSE”) under the ticker symbol “CSRA.” Concurrent with the spin-off, CSC shareholders were paid a special dividend in aggregate of \\$10.50 per share.
Returning Capital to Shareholders
During the third quarter, in addition to the special dividend associated with the separation, CSC returned \\$42 million to shareholders consisting of \\$32 million in common stock dividends and \\$10 million of share repurchases. CSC repurchased 307,000 shares in the quarter at a weighted average price of \\$32.40.
CSC had 138,816,691 basic shares outstanding on January 1, 2016.
Earnings Conference Call and Webcast
CSC senior management will host a conference call and webcast at 5 p.m. ET today. The dial-in number for domestic callers is 866-290-0920. Callers who reside outside of the United States or Canada should dial 913-312-0635. The passcode for all participants is 7639844. The webcast audio and any presentation slides will be available on CSC’s Investor Relations website.
A replay of the conference call will be available from approximately two hours after the conclusion of the call until February 16, 2016. The replay dial-in number is 888-203-1112 for domestic callers and 719-457-0820 for callers who reside outside of the United States and Canada. The replay passcode is also 7639844. A replay of this webcast will also be available on CSC’s website.
In an effort to provide investors with additional information regarding the Company’s preliminary and unaudited results as determined by U.S. generally accepted accounting principles (GAAP), the Company has also disclosed in this press release preliminary non-GAAP information, and certain further adjustments thereto, which management believes provides useful information to investors, including: operating income, adjusted operating income, operating and adjusted operating margin, earnings before interest and taxes (EBIT), adjusted EBIT, EBIT and adjusted EBIT margin, free cash flow, and non-GAAP results including non-GAAP income (loss) from continuing operations and non-GAAP diluted earnings (loss) per share from continuing operations. Reconciliations of the preliminary non-GAAP measures to the respective and most directly comparable GAAP measures, as well as the rationale for management’s use of non-GAAP measures, are included below.
CSC (NYSE: CSC) leads clients on their digital transformation journeys. The company provides innovative next-generation technology services and solutions that leverage deep industry expertise, global scale, technology independence and an extensive partner community. CSC serves leading commercial and international public sector organizations throughout the world. CSC is a Fortune 500 company and ranked among the best corporate citizens. For more information, visit the company's website at www.csc.com.
All statements in this press release and in all future press releases that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” These statements represent the Company’s intentions, plans, expectations and beliefs, and are subject to risks, uncertainties and other factors, many of which are outside the Company’s control. These factors could cause actual results to differ materially from such forward-looking statements. For a written description of these factors, see the section titled “Risk Factors” in CSC’s Form 10-K for the fiscal year ended April 3, 2015 and any updating information in subsequent SEC filings. The Company disclaims any intention or obligation to update these forward-looking statements whether as a result of subsequent events or otherwise, except as required by law.