Neil DeSilva - Head, M&A and Investor Relations John Michael Lawrie - Chairman, President & Chief Executive Officer Paul N. Saleh - Chief Financial Officer & Executive Vice President.

Amit Singh - Jefferies LLC James Schneider - Goldman Sachs & Co. Keith Frances Bachman - BMO Capital Markets (United States) Tien-Tsin Huang - JPMorgan Securities LLC Brian L. Essex - Morgan Stanley & Co. LLC Darrin Peller - Barclays Capital, Inc..

Good day, ladies and gentlemen, and welcome to the CSC First Quarter 2017 Earnings Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Neil DeSilva, Head of Investor Relations and Global M&A. Please go ahead, sir..

Thank you. Thank you very much and good afternoon, everyone. I'm pleased you've joined us for CSC's first quarter 2017 earnings call and webcast. Our speakers on today's call will be Mike Lawrie, our Chairman and Chief Executive Officer, and Paul Saleh, our Chief Financial Officer.

As usual, the call is being webcast at csc.com/investor_relations and we've posted some slides to our website, which will accompany our discussion today. On the slides, on slide two, 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 the actual results to differ materially from those expressed on the call. A discussion of risks and uncertainties is included in our Form 10-Q and other SEC filings.

Slide three informs our participants that CSC'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, as well as in our supplemental slides. Both documents are available on the Investor Relations section of our website.

Finally, I would like to remind our listeners that CSC assumes no obligation to update the information presented on the call except, of course, as required by law. And now, I'd like to introduce CSC's Chairman and CEO, Mike Lawrie.

Mike?.

MyWorkStyle, we've talked about many times, our next-generation virtualized desktop offering, saw its revenue in the first quarter up nearly 70% year-over-year with a book-to-bill of eight, that's 8x.

And our next-generation network offering with our partner AT&T also continued its positive momentum in the first quarter with revenue up more than 100% year-over-year, and a book-to-bill of 4x. And our Storage-as-a-Service revenue was up nearly 2.5x year-over-year.

So our next-generation offerings are key to expanding CSC's leadership in the market, and reflects our focus on aiding our clients on their journey from legacy environments to next-generation IP infrastructure and applications.

And building on the strategy that we outlined last November, we've taken several steps to expand leadership in a key next-generation service, such as cloud migration and Service Management.

Now, during the first quarter, we also extended our capabilities with Amazon Web Services by completing a strategic investment in Racemi, a specialist in helping clients migrate their applications to AWS.

CSC and Racemi have already signed four joint client engagements, and together we're delivering automated highly secure migrations of client infrastructures and application workloads to virtually any cloud environment. In addition, CSC was recently recognized by a leading analyst firm as a global Service Management leader.

CSC's Fruition Partners is the leading provider of technology-enabled solutions for the Service Management sector, and the largest ServiceNow-exclusive Service Management consulting firm and was recognized as having the highest number of ServiceNow deployments in 2015.

And our Australia-based UXC is the leader in enterprise application capabilities and ServiceNow implementations. And on July 5, CSC acquired Aspediens, one of Europe's leading providers of technology-enabled solutions for this important Service Management sector.

So we hold a real leadership advantage in Service Management and we're going to continue to invest in this important segment. And within our financial services vertical, our Fixnetix IP is opening up a new set of next-generation growth opportunities for CSC.

We recently won a $20 million new client account with a leading bank in Europe, which I think demonstrates the power of combining next-generation capabilities with our industry vertical expertise as we leverage our Fixnetix IP to help sell CSC's broader solutions. Now, let me move to the point I made around integration.

The first quarter we continued the integration of our recent acquisitions of UXC and Xchanging. These acquisitions are performing as expected, and we're on track to deliver the expected synergies of these acquisitions in the second half of 2017. Now, let me just briefly touch on our merger with the Enterprise Services segment of HPE.

Since we announced our intent to merge, we've seen positive responses, really across the board. Our clients – I was out for two weeks or three weeks making many calls on clients in the United States and Europe, and this announcement was received well.

The clients are supportive, they see the benefits of bringing together our two companies' offerings and respective capabilities. Our employees are excited to complete the work ahead to establish a new dynamic company of such scale and potential. And our partners, we've reached out to our partners.

They've reached out to us, and they're eager to work with us on extending their reach in the market. And the industry analysts have acknowledged that the company is transformed reach (19:46) and potential for industry leadership with this proposed merger.

We're working very closely with our counterparts at HPE in dozens of work streams, including sales, finance, contracts, facilities, HR and IT, and from a personal perspective, after having spent a lot of time with clients and partners and employees and the integration teams, frankly my conviction – my personal conviction around the strategic rationale and the synergy potential of this merger has frankly only increased since our announcement.

And given our progress, we continue to target the end of March 2017 to close the transaction and the merger.

Now, just to conclude here before I turn it over to, Paul, we're continuing for 2017 to expect GBS revenues to be up, and GIS revenues to be down in low-single-digits, both on a constant currency basis, and inclusive of the contributions of our UXC and Xchanging acquisition.

And as I mentioned previously, this relates to total revenue being up in the low-double-digits on a constant currency basis. We're continuing to target non-GAAP EPS of $2.75 to $3, and free cash flow of 100%-plus of net income.

Near-term, we expect our results to be impacted by currency headwinds attributable to the strengthening of the dollar against the pound and the euro, as well as our investments in the BPS platform, as we just mentioned. However, we expect with synergies being realized in the second half of the year, that will play out with a stronger earnings.

So with that, let me turn it over to, Paul, who will go through a little more detail, and then we'll both be back for any questions that you might have..

Well, thank you, Mike, and greetings, everyone. Let me start by covering some items that are included in our GAAP results. In the current quarter, we have the restructuring costs of $57 million on a pre-tax basis, or $0.32 per diluted share.

These restructuring costs relate primarily to the acquisition of Xchanging, and they're consistent with our synergy plans for the year. Also in the quarter, we had transaction and integration-related costs of $70 million pre-tax, or $0.36 per diluted share.

These costs relate to our recent acquisitions of UXC and Xchanging, and our announced merger with the Enterprise Services segment of Hewlett-Packard Enterprise.

Now, excluding the impacts of these items, non-GAAP income from continuing operations before taxes was $91 million or $0.53 per share and this compares with $97 million or $0.47 per share in the prior-year. Now, let's turn to our first quarter results.

Revenue in the quarter was $1.9 billion, up approximately 9% year-over-year in constant currency, and up 7% sequentially, reflecting our recent acquisitions of UXC and Xchanging.

Commercial operating income, which is the operating income for our combined GBS and GIS segments was $161 million in the quarter after adjusting for restructuring, transaction and integration-related cost. Commercial operating margin was 8.3%, up 80 basis points from the prior year.

Sequentially, commercial operating margin was down 30 basis points, reflecting our investments in next-generation offerings, and in our BPS platform. Operating income, which includes segment stock-based compensation was $144 million in the quarter after adjusting for restructuring, transaction and integration-related costs.

Operating margin was 7.5% compared with 8.2% in the prior year. Now last year's first quarter operating margin included the benefit from a change in accounting methodology for employee equity plans. Non-GAAP diluted EPS from continuing operations was $0.53 in the quarter, up 13% from the year-ago.

In the quarter, our effective tax rate was 16.5%, reflecting our mix of global income and our discrete tax benefits. For fiscal 2017, we continue to expect a tax rate of approximately 20%. Bookings in the quarter were $1.6 billion for an overall book-to-bill of 0.8 times. Turning now to our segment results.

Global Business Services revenue was up over $1 billion in the first quarter, a 16.4% increase year-over-year in constant currency, and up 11.5% sequentially, reflecting the contributions of our UXC and Xchanging acquisitions.

Operating income for GBS was $110 million in the quarter, adjusted for restructuring, transaction, and integration-related costs. Operating margin was 10.5%, up 40 basis points year-over-year.

Sequentially, GBS operating margin was down approximately 55 basis points, reflecting seasonal factors and the investment we are making in next-generation and BPS offerings. Now our next-generation investments are directed at key IP areas, including insurance, healthcare, and banking, and to support our quick start offerings program.

In BPS, we're investing in our platform to support the accelerating outsourcing trends we're seeing in the insurance markets. (26:45) contract with MetLife will double the number of life, property, and casualty policies under our management, and our pipeline in this offering is continuing to expand.

GBS bookings were $740 million in the quarter for a book-to-bill ratio of 0.7 times. Turning to our Global Infrastructure Services, revenue was $881 million in the quarter, up 1.7% year-over-year in constant currency, and 1.7% sequentially, inclusive of our acquisitions.

GIS operating income in the quarter, adjusted for restructuring, transaction, and integration-related costs, was $51 million. GIS operating margin was 5.8%, up 90 basis points year-over-year, and sequentially GIS operating margin was relatively flat. We're continuing to execute on our roadmap for delivery excellence and workforce optimization.

On year-over-year, in GIS, we improved our offshore mix by approximately five percentage points. We've also made progress in rebalancing our labor pyramid. Year-over-year, we've driven nearly five percentage points improvement in the base layer of our labor pyramid, and are reducing our management layers in the middle management.

Bookings for GIS were approximately $870 million in the quarter for a book-to-bill of 1 times. Now, let's turn to other financial highlights for the quarter. Free cash flow in the quarter was $32 million in line with seasonal trends.

In the first quarter, our days sales outstanding were 85 days reflecting the transition to a new financial system, and milestone-related billing. We expect working capital to improve in the coming quarters as we focus on reducing our DSOs. Last year's first quarter free cash flow included the contribution of our U.S.

Federal business, which was subsequently spun-off in the third quarter of 2016. Our commercial CapEx was $148 million in the quarter or 7.7% of revenue, down 70 basis points year-over-year. We're making progress on our roadmap to reduce CSC's capital intensity.

Our recent agreement with IBM to variabilize our Mainframe offering spend by converting to an as-a-Service utility is illustrative of the steps we're taking to move to an asset-light model. During the quarter, CSC returned $20 million to shareholders in the form of dividends.

And cash at the end of the quarter was $1 billion, and our net debt to capital ratio was at 41%. Year-over-year, our cash position reflects the completion of our purchases of Xchanging and UXC. So in closing, let me reiterate our financial targets for fiscal 2017.

We continue to target revenue for the year to be up in the low-double-digits in constant currency. We continue to target fiscal 2017 non-GAAP EPS from continuing operations of $2.75 to $3.

Near-term, we expect higher sequential investment in our BPS platform as well as currency headwinds attributable to a strengthening dollar against the UK pound and the euro. We continue to expect stronger earnings in the second half of the year as we realize synergies related to UXC and Xchanging, and we benefit from other cost initiatives.

Our EPS target assume a tax rate of approximately 20%. Our free cash flow target for 2017 remains 100%-plus of net income. And with that, I'll hand the call back to the operator for our Q&A session..

Thank you, sir. All right, and our first question from Jefferies, we'll hear from Jason Kupferberg..

Hi, guys. This is Amit Singh for Jason. Just wanted to start-off, and get color on what was the organic constant currency revenue growth this quarter? And also, if you can lead that into, now with Brexit, sort of – you talked about the currency impacts that you could witness for the whole year.

If you could talk about, if you've seen any impact to your overall business when it comes to spending by clients because of Brexit, and when you talk about currency, what was your expectation sort of for the full year before and what it is now?.

Yeah. Let me take a shot. The organic growth was still down, down slightly.

So most of the growth came as a result of the UXC and the Xchanging acquisitions, although the gap between the decline in legacy and the growth of our next-generation offerings continued to narrow as we said, it would at our Investor Day, and that trend continued in the first quarter.

It's going to get increasingly difficult to carve that out, because UXC now, for example, we've got pretty well integrated into our financial systems. In terms of Brexit, it's really too early to ascribe any major impact in terms of client behavior or client plans.

What the impact for us is that, we obviously have greater exposure to the pound, and the pound certainly weakened – or the dollar strengthened vis-à-vis the pound as a result of Brexit. That impact we are seeing, and we expect to see that throughout the year. But in terms of client buying behaviors, candidly, I have not seen any significant changes..

All right. Great. And then just a quick one on the MetLife contract. If you could talk about sort of the broader size, scope and margin profile of that contract, and what type of revenue run rate should we expect this year, and into next few years..

Yeah. I'm not – I can't tell you the size of it. What I can say is, it's one of the largest contracts we've signed in the last five years. And it's for a long period of time, 10-plus years. This is a market that is really beginning to accelerate in United States.

We saw this happen in the UK, frankly years ago, and new businesses were created as a result of this market opportunity. So we are seeing the same trend now in the United States that we saw six years ago, seven years ago, eight years ago in the UK. We expect this to accelerate. This is a pretty large market now.

I'd estimate it's probably a $2 billion to $3 billion market today in United States. It's growing low-double-digits, but scale is really important here. So the number of policies and the scale associated with that allows you to price and allows you to drive margins.

So the margin profile on this business is good, and is accretive to our overall margin profile of CSC. So that was one of the reasons why this became apparent to us last year, in particular, when we signed three or four smaller contracts, that the margins were good here. There is a need for industry domain knowledge here.

So this isn't your classic BPS sort of outsourcing that doesn't have the margins. This requires actuarial skills and other insurance domain skills, which allows you to maintain a higher margin. So we think this is a growing segment. And we think it's going to accelerate in the coming years, and as a result, we are investing in it.

We started to invest in the first quarter. We didn't make as a substantial investment as we thought we would, because we didn't finalize the contract until the early part of this quarter. So we will now begin to accelerate some of that investment in the second quarter. But we're really bullish on this.

We think this can be a substantial business for CSC. This is mostly in United States, tied to life and annuity and pensions, whereas in the UK, we have a growing commercial lines, property and casualty business associated with our Xchanging acquisition.

So that gives you a flavor of what that's all about, and most importantly, why we are investing in it..

Perfect. Thank you very much..

Moving on, our next question comes from James Schneider with Goldman Sachs..

Good afternoon. Thanks for taking my question. I was wondering if you can maybe expand on the outsourcing comment you made about the five percentage points of increased offshoring among the bottom part of the pyramid.

Can you maybe talk a little bit about what that stands at as an absolute percentage today, and then where you hope to drive that, say, by the end of the fiscal year?.

Yeah. I – (37:56) I think, we increased the absolute offshoring number by 2% or 3%. I think it stands at about 48%, to be exact, but Paul, will check my numbers because, I'm just doing this off the top of my head.

Is that right?.

That's right, Mike..

That's helpful, Mike. Thanks. And then maybe just as kind of an update, you can talk pretty consistently from the Investor Day on forward about getting to crossover in the back-half of this fiscal year in terms of the legacy run-off gap being then less than the next-generation business growth.

And so, getting to kind of an organic positive number; do you still expect that is going to happen or what's your confidence interval on that?.

Yeah, I do expect that to happen. That gap, I mean, just in round numbers here, it used to be up $250 million, $300 million a quarter. The difference; the difference between the legacy run-off and next-gen, and that number is down to now less than $70 million. So it's gone from roughly $300 million to less than $70 million over last year-and-a-half.

So that's a pretty significant closing. Every quarter we continue to see that gap narrow so, yes, I think, we'll get that crossover. Of course, with these acquisitions, we've been able to accelerate that crossover with the acquisition of Xchanging and UXC.

These quick start offerings; and really, these are really important because we're spending and recalibrated our sales model, our sales coverage model to these, what I'll call middle-sized enterprise accounts.

They require more standardized offerings that can be more quickly priced, more quickly configured, and where we have greater certitude around delivery. So those are all parts, and that drives increased automation, and all the other things that we had talked about. So it's a much more cost-effective sales coverage model for us.

We're in the early stages of that. We only kicked this off in the beginning of the first quarter, but we are beginning to see some encouraging signs around that..

That's helpful. Thank you..

And our next question comes from Keith Bachman with Bank of Montreal..

Hi. Thank you. I had just a couple. The first is, I wanted to focus on the restructuring and the integration.

This quarter the almost $130 million was a little bit larger than we were thinking; a) was there activities outside the recent deals that were part of that? In other words, was there base level integration? Was there something else in there besides the two deals? And then, Paul, as you talk about $2.75 to $3, is there some dimensions that you can give us about what acquisition or integration costs would be excluded from that number?.

All right. I think, our restructuring was very much consistent with the actions that we needed to take to deliver on the synergies that we have highlighted, particularly for our businesses at UXC and Xchanging, right? So nothing unusual. Now the transactions and related integration cost represent a number of factors.

And for example, the closing of our Xchanging acquisition in the second quarter. You had bankers' fees, you had legal and other type of external advisor type of fees that was included in that.

We also are in full-fledge going through the integration, as we have mentioned, of UXC and as well as Xchanging within our businesses, so the cost related to that are also included in that. We also have, in addition to those two areas; we have already began to invest in the integration effort with HPE Services.

That's quite a – launch of work that we have done in the quarter. So those are the items that are coming into play. And as far as the acquisitions you were saying, the thing that we have in those numbers also is about – I think, you asked me about purchase price accounting impact of those acquisition would be about maybe $8 million per quarter..

Okay. But....

But the key thing here – hang on just, the key thing here is the actual restructuring costs with UXC and Xchanging came in right around where we expected it to.

The new news, which I covered at our earnings call after the – our full year 2016 call, was that we have been able to identify some synergies that we had not seen before, primarily in Xchanging.

So we are at least restructuring costs that were consistent, what we've talked about before, will begin to show some results in second half of the year as we capitalize on those synergies.

The length of time is primarily due to the length of the consultation process, and the other things that we have to go through, in – not in the UK, but in Continental Europe. That's why the slight delay in the capture of those synergies.

But the real news is, is that we – the restructuring is basically consistent, but we're going to be able to offset those with some operating performance improvement due to the capture of those synergies..

Okay.

Well, let me ask my follow-up, then, Mike, for you is, with the benefit of, call it, 90 days from the announcement to the HPE deal, how are you thinking about the cost reduction activities associated with the larger transaction of HPE Services? Is there any incremental dimensions you can think about given the benefit of the time since you've announced the deal?.

No. I think the big thing is, we announced the synergies that we saw when we made the announcement, and that hasn't changed. What has changed in my mind is the level of conviction around that.

So as I've gone out and met with people and now we're into the integration planning – we're well into the integration planning, and we're taking a look at everything very carefully, my conviction on those synergies has increased. But there's no incremental new news to what we conveyed when we announced the merger..

Okay. All right. That's it from me. Thank you, gentlemen..

Okay..

Our next question comes from Tien-Tsin Huang with JPMorgan..

Hi, thank you. Just on the bookings outlook.

Obviously, a great MetLife win, but I'm curious, that deal aside, can we see book-to-bill run on 1 times or maybe below 1 times until the HPE deal closes, given the requirements around the wait period here?.

No. I don't see any big delay right now in any decision-making. So I think the book-to-bills will be 1 times or – certainly it's going to be greater than 1 times with the MetLife deal, but underneath that, we're seeing good momentum, particularly in two areas.

In our $100 million-plus deal, we put a very strident (47:46) process in place to qualify price, make sure we can get the margins that we need. That pipeline is actually expanding. And I think, I mentioned in my commentary, it's up over 50% or 35% the actual pipeline.

Our win rates on that have more than doubled over the last year, so that is a very encouraging sign, those sales cycles are longer, so it does take time to bring a lot of those deals to contract closure and execution. And then the second investment is in the middle enterprise market, where we've reoriented our sales coverage that I just talked about.

And there, too, we're seeing significant increase in the pipeline. So to answer your question, no, I don't see, at this moment as we speak, a pause in the sales activity as a result of the proposed merger..

Yes. That's encouraging to hear. Just as my follow-up, I'll ask on – I guess, I'll ask on Consulting. How did that come in versus plan? Maybe, if you can comment both organically and inorganically, that'd be great. Thanks..

Yeah. I think, it's pretty much coming in on plan. The Consulting business was really helped by the, particularly, the UXC acquisition. So those growth rates that we reported were largely due to the UXC acquisition. Organically, the business performed pretty much where it's been performing, but the big difference there is UXC.

That's why we bought UXC, was we were going to gain a significant presence in some really important application areas, our Microsoft practice, for example, the ServiceNow practice, and we think, ServiceNow Service Management is another really important segment for us as we go forward.

That's why we bought Aspediens, and we've really created a market-leading position in Service Management, which we plan to leverage as we go forward. But our Oracle practice in UXC performed very well. The SAP practice in UXC performed very well. So all of those practice areas performed, frankly, a little better than what we had anticipated.

And that, coupled with the synergies that we've been able to crystallize, or will crystallize as we get into the second half of the year, is making us feel very comfortable about that acquisition..

Good. Thank you, Mike. Appreciate it..

Yeah..

Operator, let's plan on two final questions. Thank you..

Of course, sir. Moving on, we'll hear from Brian Essex with Morgan Stanley..

Hi. Good afternoon, and thank you for taking a questions.

I was wondering, maybe, Mike, if you could expand a little bit on the IBM agreement and your effort to variabilize the fixed costs, how – what the rationale on both sides of that agreement are, and can we – when we look at particularly the GIS business, do we think about that from a longer-term perspective as maybe capping some leverage in that model? Or maybe just a little bit of context so we understand how to forecast that group with that agreement in place?.

Yeah. I think, this will play out in a couple of ways. One, really from my perspective, why I was interested in this deal was, it gave us three benefits. One, over time it does begin to reduce our capital requirements, and we are hell-bent on trying to reduce the capital in this business. So from a return on capital, that becomes very important.

It's one of the things that has dogged this outsourcing, ITO outsourcing business for a long time. We continue to make progress on this. This will again help us move the needle. It's just one of many things that we're doing to try to reduce the capital intensity. The second thing it does is it allows us to aggregate our software costs.

So we're now aggregating some of our software costs where we can lower the cost of software licensing. I don't want to talk about any specific vendors, but you can imagine that the software cost associated with the Mainframe environment is pretty heavy.

This allows us over the course of this contract to begin to reduce those software costs that CSC incurs. And then the third benefit is, it does variabilize as-a-service some of the Mainframe compute costs themselves.

So it allows us to begin to pay for the Mainframe capacity as it is consumed as opposed to having to buy that capacity upfront then the client grows into that capacity over time. So those are three very clear benefits, which will show up in our operating performance in that business segment over time.

For IBM, it's a great deal, because it also is a large contract that they now have access to, and they can leverage that over time. So it's clearly a win-win, and that's why we did it.

Now, the other benefit to us was, Agility, because we continue to invest in the Agility platform, and I think, IBM using Agility to help integrate their hybrid cloud environments is a positive for IBM, and it's also a positive for the Agility platform.

So when you add it all up, it was a real benefit for both companies, and I think IBM talked about it in their most recent earnings call, and it's a clear benefit for us as well..

That's very helpful. Thank you. And just to maybe one finer point on that.

Is there any way to think about how they share in the margin upside? Does that agreement scales? And what that net benefit to you should be longer-term?.

We have a rough idea of what we think it will do over time. I want to see several quarters of performance and see the results before I quantify them or certainly before we would publicly quantify that. So there's still a lot to play out, and we're just getting started – we've started with it this quarter, second quarter.

So I think it's a little premature to put numbers on it and model it, but it's again, a significant additional step that we're taking to try to improve and expand the margins in the GIS business, in this case, the Mainframe segment..

Fair enough. Thank you..

And operator, let's take our last question. Thank you..

Of course, sir. Our final question of the day comes from Darrin Peller with Barclays..

Thanks, guys.

Just want to start off – I mean, I know somebody asked earlier around organic growth, I guess, I'm kind of more interested in hearing what the pro forma growth rate would have been had you owned both Xchanging and UXC last year's quarter? Just really what the run rate of the story is today, given that is what you are now going forward?.

Yeah. Darrin, I think it's very hard to do that, just because first of all, we're going to have to make a whole lot of assumptions about what would be the impact last year of IFRS to GAAP translation. So I think, our best bet is just to focus on the – as Mike mentioned, if you look at the quarter, the quarter was declining slightly this quarter.

A little bit better when I compare it to the prior year, for example, from a core (55:53) perspective, and then the acquisition certainly has helped us just deliver the revenue growth of 9% that we have indicated. And that's – the acquisitions are helping us also this year point to a up lower-double-digit for the full year..

Okay. Would you say just quickly, organically it was similar to last quarter? I know you mentioned down slightly.

I guess we're just trying to little parse out directionally better or worse?.

I think, the first quarter, actually, as you remember, we mentioned it in our comments; it's seasonally a lower quarter on a sequential basis. And when I compare on the year-over-year, I see an improvement in the decline of – on that core.

And as Mike mentioned, if you look at it, we're seeing the growth in our next-generation offering picking up and offsetting a diminishing decline in our core business..

Yeah. This is – from my perspective, this is – what we were looking at three years ago – when you're seeing a $250 million, $300 million a quarter fall-off in your legacy business, that leaves you something to think about, okay? And we've made a lot of investments in some smaller acquisitions.

We're doing some slightly bigger ones now, and for that gap to go from $250 million to $300 million a quarter to $70 million or less, that's really good progress. So that's going to continue, that's why we made these investments. I think the important thing here is that, we are investing in these offerings.

And they're important offerings, we've really uncovered two additional areas that we're really bullish on, this BPS segment, and this deal that we did with MetLife, and there's a significant pipeline behind that.

These are really important new revenue streams that we're beginning to tap into, and these acquisitions, UXC and Xchanging just feed all those investments that we have made.

And then our partner organization; we're continuing to make great progress with some of our partners in these new offerings because all these offerings are really built with our partners.

And then on top of that, you do the proposed merger with HPE to give you even greater scale on the synergies where this looks a lot different than it looked three years or four years ago. I'll just tell you that. And as I said, we're getting more and more conviction as we get to know the Enterprise Services segment of HPE.

I mean, the cultures are much more similar than they are dissimilar. So there's a lot of positives. I don't want to minimize the amount of hard work that's involved. This has been heavy-lifting. There's a lot heavy-lifting to go. And there's continued headwinds in the business, but from my perspective as the CEO, we recognize those headwinds.

We're making investments. We're making improvement in the business now. We're taking a bigger step here with the merger with Enterprise Services. But I feel much stronger about the hand that we're holding right now than the hand we were holding three years or four years ago..

Okay. You know, I think just in follow-up with that and finalize with this, but you mentioned your win rates are doubling in those large contracts. I mean, is that from these specific area? Maybe if you could list to us maybe the top three areas that you think you'd differentiate versus your competitors for those big contracts everyone goes after.

Is that the BPS side? Is that the – maybe just give us a little more examples....

Well, I think the BPS side for sure. But we're also getting much better at qualifying what opportunities to want to go after. We'd like to go after opportunities where we have value at. BPS is an example of that. Where we have strong intellectual property. So in the insurance space, in the healthcare space. And now increasingly in the banking space.

Particularly capital markets with our Fixnetix IP. We're bringing in our partners very early. We just did a survey of 50 or 60 engagements, both where we've won and where we lost. An independent survey to understand where we differentiate ourselves.

And we know, from feedback from our clients that where we show up very early in the process with our partners and we come to these opportunities as one team not a prime and a bunch of subs. I'm talking about one team, when we do that our win rates have increased dramatically.

So we learn from that and that helps us better qualify opportunities where we have that value-add differentiation. I think that is what is driving the increased win rate in those deals..

Okay. Thanks, guys. That's helpful..

Okay..

Thanks, everyone, for being on the call. We will talk to everyone next quarter..

Thank you..

My apologies. That does conclude today's conference, ladies and gentlemen. We appreciate your participation and you may now disconnect..