Good day, and welcome to the CSC Fourth Quarter 2017 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Neil DeSilva, DXC Technology's Head of M&A Investor Relations. Please go ahead, sir. .

Thanks very much. Thank you, and good afternoon, everyone. Welcome to CSC's Fourth Quarter and Fiscal Year 2017 Earnings Call and Webcast. Our speakers on today's call will be Mike Lawrie, DXC Technology's Chairman, President and Chief Executive Officer; and Paul Saleh, DXC Technology's Chief Financial Officer..

The call is being webcast at dxc.technology/investorrelations, and we've posted some slides to our website which will accompany our discussion today.

On the slides, on Slide 2, you'll see that, as previously disclosed, effective April 1, 2017, CSC became a wholly-owned subsidiary of DXC Technology Company, an independent public company formed in connection with the spinoff and combination with CSC with the Enterprise Services business of the Hewlett Packard Enterprise Company or HPES. .

CSC common stock was suspended from trading on the New York Stock Exchange effective as of the opening of trading on April 3, 2017. CSC filed a Form 15 with the SEC on April 18, 2017, to deregister the shares of CSC common stock. DXC common stock began regularly trading under the symbol DXC on the New York Stock Exchange on April 3, 2017. .

DXC Technology is today reporting CSC's results for the fourth quarter and fiscal year 2017 on a standalone basis, as CSC is deemed the acquirer in this combination for accounting purposes under U.S. generally accepted accounting principles, and therefore, CSC is considered DXC's predecessor.

As such, the financial information set forth herein relates only to CSC and its subsidiaries and does not include the financial results for HPES for any period. Corresponding pro forma financial information will be disclosed at a subsequent date..

Beginning with DXC's first quarter 2018 ending June 30, 2017, DXC will report on a consolidated basis representing the combined operations of CSC and HPES and their respective subsidiaries..

Slide 3 informs our participants that certain comments we make on the call will be forward looking. These statements are subject to known and unknown risks and uncertainties, which would cause actual results to differ materially from those expressed on the call.

A discussion of risks and uncertainties is included in our Form 10-K and other SEC filings..

Slide 4 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..

I would like to remind finally our listeners that DXC Technology assumes no obligation to update information presented on the call except, of course, as required by law.

And now I would like to introduce DXC Technology's Chairman and CEO, Mike Lawrie.

Mike?.

Okay, Neil, thank you. Again, good afternoon, everyone. In short, this is the last call we'll do around CSC. So this is CSC's fourth quarter and the fiscal year for CSC that ended March 31. As I always do, I've got 4 or 5 key points here which I will go through in a little detail and then turn it over to Paul, and then we'll open it up to Q&A..

So our fourth quarter non-GAAP EPS from continuing operations was $1.15. And for fiscal 2017, non-GAAP EPS from continuing operations was $3.10. In the fourth quarter, our commercial operating margin was 13.1% and for fiscal 2017 it was 10.6%.

And we generated $204 million of adjusted free cash flow in the fourth quarter, and for fiscal 2017, adjusted free cash flow was $610 million, which was up 91% year-over-year. .

Now the second point is that revenue in the fourth quarter was up over 7.5% year-over-year in constant currency, inclusive of our Xchanging and UXC acquisitions. And for fiscal 2017, revenue was up 10.2% over fiscal 2016, and we had a book-to-bill of 1.1x for the quarter..

Third point, our momentum in next generation or digital technologies continued in the fourth quarter. Our next-gen revenues were up over 50% year-over-year in constant currency and our next-gen book-to-bill was 1.6x. And for fiscal 2017, our next-generation revenue grew over 75% year-over-year..

The fourth point I'd like to make is, as everyone knows, on April 1 we completed our merger between CSC and the Enterprise Services business of HPE, and this was done on schedule. We then launched DXC Technology at the New York Stock Exchange on April 3, which was our day 1. Our integration is proceeding as planned.

And as a combined company, we have progressed in our first 8 weeks through a number of operational milestones as well as advanced key partnerships..

And then finally, as we discussed at our recent DXC Technology Investor Day, for fiscal 2018 we're targeting revenue to be in the $24 billion to $24.5 billion, our non-GAAP EPS from continuing operations target is $6.50 to $7, and our adjusted free cash flow target is 100% or more of adjusted net income..

Now let me just go into a little more detail. Fourth quarter non-GAAP EPS from continuing operations for CSC was $1.15, reflecting both the impact of positive factors like a more favorable tax rate and our CSRA payment, as well as negative factors such as our currency headwinds and IFRS to U.S. GAAP conversion in our acquisitions.

For fiscal 2017, non-GAAP EPS from continuing operations was $3.10, up 21% year-over-year, reflecting the same factors as our fourth quarter. And in the fourth quarter, the commercial profit margin was 13.1%, and this was up 130 basis points sequentially.

Year-over-year, our margin was up 450 basis points, reflecting the cost synergy realization in the fourth quarter of our UXC and Xchanging acquisitions as well as the typical seasonality in the second half of our fiscal year.

And for fiscal 2017, commercial operating margin was 10.6% and this was up 130 basis points year-over-year, despite our ongoing reinvestment into our business. And our adjusted EBIT margin in fiscal 2017 was 8.2%, which was up 115 basis points year-over-year..

Adjusted free cash flow for the quarter was $204 million. And for fiscal 2017, adjusted free cash flow was $610 million or 136% of adjusted net income. Adjusted free cash flow was up, as I said, 91% year-over-year..

Now let me turn to the second point here around revenue. So revenue was $1.9 billion in the fourth quarter. This was up 7.5% year-over-year, essentially flat sequentially. For fiscal 2017, revenue was up over 10% in constant currency, again, inclusive of our Xchanging and UXC acquisitions. .

In the fourth quarter, Global Business Services, or GBS, revenue was up 14.2% year-over-year in constant currency and flat sequentially from our last quarter. For fiscal 2017, GBS was up 18% in constant currency..

Just breaking that down a little more for the fourth quarter, IS&S or industry software and solutions business was up approximately 28% year-over-year in constant currency, which included the contribution of Xchanging's global insurance business. And for fiscal 2017, IS&S was up 27% in constant currency..

Digital applications, the combination of our previous consulting and apps business, was up over 4% year-over-year in constant currency. And for fiscal 2017, digital applications was up approximately 12% in constant currency, inclusive of UXC and Xchanging. GBS's operating margin was 13.8%, up 50 basis points sequentially.

And for fiscal 2017, GBS's operating margin was 12%, up 30 basis points from the prior year. GBS's operating margin reflected the ongoing investments we're making in our next-gen and BPS solutions as well as the accounting impact of transitioning our UXC and Xchanging acquisitions from IFRS to U.S. GAAP..

In the fourth quarter, our global services or GIS revenue was flat year-over-year in constant currency and was down 2.6% sequentially. For fiscal 2017, GIS was up 2% in constant currency. The GIS operating margin was 12.4%, which was up 230 basis points sequentially.

And for fiscal 2017, GIS's operating margin was 9%, it was up 220 basis points from the prior year. GIS's operating margin reflected operating efficiencies and positive second half mix shift toward our cloud-based software solutions..

Turning to bookings. Our bookings in the fourth quarter were $2.1 billion and represented a book-to-bill of 1.1x. GBS bookings of $1.1 billion represented a book-to-bill of 1x compared to 1.2x last year. And GIS bookings of $1 billion represented a book-to-bill of 1.2x compared to 1.4x last year.

CSC continued to introduce our portfolio of digital and industry IP solutions to new clients. We added 155 new logos in the fourth quarter with over 70% of these coming from outside of the Americas..

Revenue from our next-generation offerings was up 50% year-over-year and up 11% sequentially, and our book-to-bill was 1.6x. For fiscal 2017, next-generation revenue grew 75% year-over-year. And I just want to touch briefly on a few recent next-gen highlights.

MyWorkStyle, our next-generation digital workplace offering, continued its positive momentum in the fourth quarter with revenue up 64% year-over-year. And our next-gen network offering, delivered with our partner AT&T, saw its revenue up 33% year-over-year in the fourth quarter and our Storage as a Service revenue was up 17% year-over-year. .

We also continued to extend our next-gen digital momentum in the most recent quarter in several ways, with a sizable new digital win in the fourth quarter with a leading client in the aerospace and defense vertical making a $150 million-plus commitment to MyWorkStyle in which DXC will refresh and replace a range of IT services, allowing their staff to conduct their critical work in a newly responsive way leveraging the latest tools and technologies.

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And in March, we also completed a strategic investment in Virtual Clarity, a leader in digital transformation advisory services.

This partnership will allow us to better help our clients define their strategy and understand how to effectively operate in a hybrid world that includes leading cloud environments such as Microsoft Azure and Amazon Web Services..

Now just a couple of points on an update on DXC Technology. The creation of DXC Technology on April 1 was a significant milestone for both CSC and HPE. We've been up and running for nearly 8 weeks now, making progress on the comprehensive integration plan we developed over the 10 months since announcing the merger in May of 2016.

We'll have much more detail on DXC's first quarter on our next earnings call in August. But for now, let me provide just a few highlights from our first couple of months operating together. .

Our day 1 activities went smoothly, both operationally and from a systems standpoint, and that's really a testament to the hard work done by our integration planning teams. And I do want to just take a moment to publicly acknowledge and thank them for their efforts. .

More significantly, the response to the launch of DXC has been very favorable from our key stakeholders and especially our employees. Our sentiment tracking analysis post day 1 showed strong affirmative responses from our clients, our partners as well as our industry analysts. The DXC name and brand has been well received.

Our key stakeholders have a good understanding of our brand, what it stands for, and they've shown that they're open to DXC's leadership in the industry around digital transformation..

Now on day 1, we launched a brand campaign that began with media placements in the key global media as well as a year-long campaign focused on the business traveler.

If any of you have passed through airports in San Francisco or Singapore or Sydney you may have seen us, and there will be more locations to come as well as campaigns online and in global media.

Our brand-building work underscores our pivot to digital solutions through our stronger focus on our clients' missions and our role in guiding them through this rapidly evolving IT landscape. .

And DXC Technology Board of Directors convened and approved the establishment of a share repurchase program for the new company with an initial authorization of $2 billion for future repurchases of outstanding shares of our common stock.

And the board also declared a dividend of $0.18 per share, payable in July of 2017, and announced a dividend policy targeting $0.72 per share for full year fiscal 2018, which represents a 29% increase over the dividend policy paid by CSC in fiscal 2017..

Importantly, we've also advanced 4 significant partnerships recently that demonstrate commitment to leading the next cycle of the IT services industry. First, with Microsoft [ Win ] apps, Dx services for Azure, an extension of our hybrid cloud solution.

As traditional hosting and outsourcing services transition to new digital solutions, clients require a cloud platform with a common operating model that can be consistently delivered across both traditional private cloud infrastructure and hyperscale public clouds.

Together, DXC and Microsoft will enable consistent service management of Azure services across private DXC data centers and Microsoft's public cloud..

Secondly, DXC has also expanded our alliance with Amazon Web Services, making DXC a preferred provider for AWS hybrid and innovation cloud enablement services.

Building on DXC's existing global AWS migration to managed services offerings, this step forward lets us combine AWS's cloud infrastructure with DXC's ability to provide hybrid offerings like VMware Cloud on AWS and AWS edge services to accelerate our clients' use of cloud services..

And third, DXC today announced a partnership with MphasiS to jointly pursue application migration opportunities. As you may recall, HPE had an equity stake in MphasiS, a publicly listed IT services provider in Bangalore that it sold to Blackstone Group.

Now since that disposition, Blackstone has continued to develop MphasiS, allowing DXC to now leverage their technical expertise, talent management capabilities and cloud-enabling app migration capabilities with our global reach, broad client base and domain knowledge in the industries that we jointly target. .

And we also announced today that, building on our long-standing strategic alliance with AT&T, DXC will be the first IT services company to launch a third-party virtual network function based on AT&T's FlexWare.

By employing AT&T FlexWare, DXC can enable clients to provide significantly improved network services and security across their cloud networks. And in this way, DXC will allow clients to maximize investments, reduce capital outlays and enhance operational scale and consistency for cloud platforms..

Now before I turn this over to Paul, I'd just like to reiterate again, for fiscal 2018, we expect revenue to be $24 billion to $24.5 billion, excluding FX. Our reporting segments for fiscal 2018 will be GBS, GIS and USPS. And we're targeting non-GAAP EPS of $6.50 to $7 and adjusted free cash flow to be 100% or more of adjusted net income..

So with that, I'd like to turn it over to Paul for some additional comments on CSC's results in the fourth quarter and our full year fiscal 2017. .

Thank you, Mike, and greetings, everyone. As Neil mentioned, this will be our last quarter reporting CSC standalone results. Our next reporting period will cover DXC's first quarter fiscal 2018 results. And at that time, we will also provide comparable pro forma historical financial results for DXC for fiscal 2017..

Before I review the fourth quarter and full year for CSC, let me cover some items that are included in those GAAP results. In the current quarter, we had restructuring costs of $153 million pretax or $0.93 per diluted share, primarily from restructuring actions in the U.K.

and Germany to rightsize the businesses in advance of CSC's merger with the Enterprise Services business of HPE. .

Also in the current quarter, we had transaction and integration costs of $147 million pretax or $0.76 per diluted share. Those related primarily to our merger with HPES as well as our UXC and Xchanging acquisitions.

Additionally, we had a pretax charge of $86 million or $0.47 per diluted share that was related to our annual remeasurement of pension plan assets and liabilities..

Now excluding the impact of these special items, our non-GAAP income from continuing operations before taxes was $199 million or $1.15 per share. This compares with $109 million or $0.82 per share in the prior year..

Turning now to our fourth quarter and full year results. Revenue in the quarter was $1.9 billion, up 7.5% year-over-year in constant currency, reflecting the contributions of our UXC and Xchanging acquisitions as well as growth in our next-gen offerings and BPS business.

Sequentially, revenue was down slightly, 1.2% in constant currency, due to seasonality in our GIS business..

Now in the fourth quarter, the profitability of our combined GBS and GIS segments was $248 million after adjusting for special items. Our profit margin on that basis was 13.1% compared with 8.6% in the prior year.

Our profit margin in the quarter reflects approximately a 100 basis point contribution from the net incremental benefit of an IP-related payment from CSRA, which was partially offset by incremental investments in the business and a higher-than-expected IFRS to GAAP impact from the recent acquisitions..

Adjusted EBIT was $216 million in the quarter after adjusting for special items. Our non-GAAP diluted EPS from continuing operations in the fourth quarter was $1.15 compared with $0.82 in the prior year..

In the quarter, our tax rate was 11.1%, reflecting the benefit of tax planning strategies that materialized in the quarter as well as our global mix of income. Now this rate compares with a tax rate of negative 6.4% in the prior year..

Bookings in the quarter were $2.1 billion for a book-to-bill of 1.1x. And for fiscal 2017, bookings were $8.6 billion, flat compared with the prior year..

Now for the full year, revenue was $7.6 billion, up 10.2% in constant currency, in line with our previous fiscal 2017 guidance. Commercial operating income adjusted for special items was $807 million, and on that basis, margin was 10.6% for the year.

Adjusted EBIT was $627 million for the year after adjusting for special items, and our profit margin on that basis was 8.2%, up from 7.1% in the prior year. Non-GAAP EPS from continuing operations was $3.10 for the year, reflecting a lower tax rate driven by our ongoing tax planning strategies..

Let me turn now to our segment results. Our Global Business Services revenue was $1.043 billion in the quarter, up 14.2% year-over-year in constant currency and flat sequentially, reflecting the contributions of acquisitions as well as growth in our Business Process Services and next-gen offerings..

In the fourth quarter, GBS segment profitability was $144 million after adjusting for special items. Our GBS profit margin on that basis was 13.8%, up from 11.1% in the prior year, primarily reflecting synergy realization from our acquisitions of Xchanging and UXC. And sequentially, our GBS margin was up 50 basis points.

GBS bookings were $1.1 billion in the quarter for a book-to-bill ratio of 1x. For the full year, GBS revenue was $4.2 billion, up 18% in constant currency, operating margin was 12% and our bookings were $4.9 billion..

Turning now to Global Infrastructure Services. Revenue was $846 million in the quarter, flat year-over-year in constant currencies and down 2.6% sequentially. GIS revenue reflects the benefit of our acquisitions as well as growth in our next-gen cloud solutions, which helped to offset contract wind-downs and seasonal price-downs.

GIS segment profitability in the quarter was $104 million after adjusting for special items. GIS profit margins on that basis was 12.3%, including the net incremental benefit of the CSRA IP payment. Normalizing for this payment and offsetting headwinds, project -- profit margin in the segment was 8.5%, up year-over-year..

Bookings for GIS were $1 billion in the quarter, for a book-to-bill of 1.2x, reflecting our continued strength in next-gen solutions. And for the full year, GIS revenue was $3.4 billion, adjusted operating margin was 9% and bookings were $3.6 billion..

Now for some other financial highlights. In the quarter, CSC's adjusted free cash flow was $204 million. For the full year, adjusted free cash flow was $610 million, and that is up from the $319 million in the prior year. For the full year, free cash flow was 136% of adjusted net income..

Adjusted free cash flow reflects the strong operating performance of the business, tighter working capital management and disciplined capital spending. CapEx for the quarter was $98 million or 5.2% of revenue, which is consistent with our capital-light strategy. For fiscal 2017, CapEx was $542 million or 7.1% of revenue..

During the fourth quarter, CSC returned $20 million to shareholders in the form of dividends and for the full year $78 million. Cash on hand at the end of the quarter was $1.3 billion. And our net debt to total capitalization ratio was 33%..

Now let me close with key takeaways. CSC delivered on its financial targets for fiscal 2017 with revenue growing double digits in constant currency, non-GAAP EPS of $3.10 and adjusted free cash flow of $610 million. We closed CSC's merger with HPES, and we launched DXC Technology.

We are now executing on our integration and cost synergy plans consistent with the framework we laid out at our recent investor day. Now we will be updating you on our progress toward our fiscal 2018 targets on our upcoming DXC earnings call, where we will cover our first quarter results for DXC..

With that, I'll now hand the call back to the operator for the Q&A session. .

[Operator Instructions] We'll take our first question from Brian Essex with Morgan Stanley. .

Paul, maybe if I could touch base with you. Nice exit rate in terms of margin trajectory.

How do you think about where your focus is going to be for fiscal '18, given your previous 11% to 12% EBIT margin targets and what you've accomplished so far? Can we think about this as more of a run rate and then the focus is more on the HPE side as you look through the year? Or is there still a substantial focus on legacy CSC?.

I think, as we laid out at the Investor Day, actually, the effort that we're going -- that are underway is to extract synergies from the combined entity, not just from HPES. We laid it out very clearly, some of it having to do with workforce optimization and consolidation of overlap functions.

We also had facilities integration that would be another opportunity and the harmonization of our policies. Again, I would suggest that it is across the board, not necessarily [indiscernible]... .

And also automation plays across the entire state. We are in the early stages of doing some things, for example, in our call centers and introducing some new technology to automate some of that. So that will affect not only ex CSC installations and implementations but also ES. .

Got it. Maybe just as a follow-up, when I spoke with UXC in particular, they were very excited about the combination with CSC.

And now that you have an even larger platform combining with HPE Services, understanding it's still early days, but maybe could you point out where you see the most substantial advantages with the consolidated platform and where you might bring the capabilities of the acquisitions you've made and leverage them across the broader platform?.

Yes, that's a great question. I think we've got fantastic leverage, for example, in some of our enterprise apps practices, like SAP, Oracle, Microsoft. I think you know that UXC had a very strong Microsoft practice, and we see some real benefits around the merger there. ServiceNow.

ServiceNow had a very strong practice in Australia as well as Fruition in the United States, and that is a huge opportunity for us in the ES installed base. So yes, there is a lot of leverage. .

I'd also say there's some very strong consulting capability around cyber in UXC and that certainly will be benefited by the great strength that ES brings from a cyber standpoint. .

And I think the big thing is, we just finished up a 2-day sales conference where we brought our whole worldwide sales team together to really kick everything off, and I've got to tell you, they were blown away by the partnerships and the partnership network that we have put together with all of our strategic partners.

And I think all of those partnerships can be extensively leveraged across the ES installed base. And our partners are even more excited about gaining access to that installed base. .

At this time, we'll move to Tien-tsin Huang with JPMorgan. .

Just -- so good book-to-bill here. I'm curious, the quality of the book-to-bill and retention, how that would have translated, I know it's a tough -- or maybe a pointless question.

But just how that would have translated on a go-forward basis for the business? But then just looking forward, book-to-bill, is 1 sort of an achievable target going forward? I know it's pretty complicated. Just trying to get an understanding of -- better understanding of how you're looking at the total pipeline. .

We're going to use some other metrics as we go forward. We're still working on that. For example, we are moving the sales force to much more of an annual billing metric. So to be quite candid with you, we are going to deemphasize TCV.

I have long wanted to get -- start to move away from TCV because in many cases it's a little inflated, and it's such a larger number than what actually drops to the top line and to the bottom line in a given increment of time, in this case a year. So we are going to be moving to much more of an annual billing type of metric.

Now we'll probably still use TCV or a surrogate just to get a total handle on book-to-bill, but we are going to be moving in a slightly different direction with the combined company. .

Okay. Yes, I know duration and everything else makes it tricky to use. So fair enough. And then I guess just... .

The other thing that's happening here is we're seeing a big increase in smaller transactions. I mean, we're planning to do 75,000 transactions in DXC this fiscal year. And we're also seeing a big increase in our SaaS model.

So I said before, the IT landscape is evolving here, and we're going to have to adjust some of the metrics by which we look at the business. And we'll share some of that thinking when we talk again in August. And that will also evolve over time.

But what I'm trying to get to here is a much better handle on how sales relates to our revenue and profit in a given increment of time and then a handle on what the total backlog is as we look out, because that helps us with our workforce management programs.

Does that make sense?.

Okay. We'll stay tuned for that, then.

And just quickly, just -- I guess the $1 billion in savings, I don't know what else you could tell us in terms of the spread here between the June quarter, say, and rest of year, any new thoughts on the speed with which that gets realized?.

There's no new thoughts from what we covered at the Analyst Day. We did some restructuring in the fourth quarter, as we said we were going to do, to get prepared so we could monetize those savings, not all in the first quarter but in the first half of the year.

So we pretty much are executing along the trajectory that we laid out in the -- in our analyst meeting in April -- March, actually. .

At this time we'll move to Darrin Peller with Barclays. .

Mike, if you could just start off by maybe giving us a little more color on, I know it's only been about a month or a little more than that since your Investor Day, but incremental feedback you're having from your discussions with clients around either revenue opportunities or dis-synergies or even just the integration side.

Anything change at all in terms of further color you can give us would be great, to start off, and then just a quick couple of questions for Paul after. .

Okay, yes. Listen, I'm really pleased with the integration effort so far. I've got to tell you, we're operating as one company. As I said, we just had our whole worldwide sales force together in Dallas the earlier part of this week.

And I was -- I had a chance to address the team and Paul had a chance to address the team, and we're operating as one company. And there's -- we all talk about the business the same way. We've got a unified management team now in each of the regions. Our offering organization is beginning to come together.

Steve Hilton, who leads our delivery organization, was down talking about how we've consolidated that. So from a pure integration standpoint, I think it's going quite well. .

And our clients -- our partners, our partners, not to put words in their mouth, they couldn't believe it. I mean, within 7 weeks this thing was operating the way it is. .

I think a lot of the employees really appreciate the transparency, because we share with our employees everything we share with our investors and analysts, so they know exactly what we're trying to accomplish. We're marching through the synergy case.

So the streamlining of the organization, the de-layering of the organization, the work we're doing on procurement, all the things we outlined at the analyst meeting is progressing at pace. .

The big thing for me is everything worked. I mean, we -- April 3, everything worked. We've got -- put our sales force instances together, we've got our billing systems, all that stuff. the financial systems, we closed April, we were able to close April well.

We were able to see the numbers, we were able to see it along the structures that we have, so there's a lot of hard work. Don't misunderstand me here. I don't want to minimize this. There's a lot of heavy lifting ahead of us here. But as a first month or first 8 weeks of operation, great. .

Clients, I probably talk to 8 or 10 clients a week, they're not -- they're actually quite pleased. They haven't seen any disruptions in their delivery. They're seeing some innovation and new ideas that are being brought to the table. So, so far I would say things are progressing along the lines that we had outlined at the analyst meeting. .

So would you say the guidance you gave around dis-synergies is coming in a little in line or better or basically it's too early to tell? But the conversation sounds strong. .

I think it's still early. I think it's still early. I don't want to call that yet. There's a lot of things that are on the table that we've got to work our way through, so I think there will be some dis-synergies, but it's way too early to make a definitive call on that. .

And just quickly on the organic side. I mean I know it's tough right now, but last quarter CSC standalone was probably negative 1%, negative 2% growth, and the HP side was probably negative, I don't know, 3%, 4%, 5%. I think it was negative 5%.

Is there any direction you can give us, I mean in terms of the organic trends, if you were to either pro forma out for the deals you've done? Is that in line, similar rates now? It's a little hard to parse. .

I think it's pretty much along the lines that we talked about. It's going to be a little more difficult now that we've get everything smashed together. But as I've said before, the so-called crossover points sort of varied a little bit quarter-to-quarter.

Third quarter, our organic growth was a little positive; in the fourth quarter, it was a little on the negative side. .

Now when you throw in the acquisitions like UXC and Xchanging, which is really how we look at the business, I mean, we're getting substantial now revenue growth from these new offerings, including our acquisitions.

I think the revenue case that we laid out at the analyst meeting from a constant currency basis is still the range that we see operating in as we go through fiscal 2018. So really no change. .

Just last question. Paul, I mean, just for a little bit of housekeeping. But the USPS business you said you were going to break out separately.

Is that intended for reasons of potential financial engineering methods or -- and then the tax rate, are we still thinking mid-20s just versus what -- it's a little hard to see right now versus the mix of business [indiscernible]... .

Yes, those are very good questions. The reason we want to separate the USPS business is that historically, if you recall, we had our commercial business of GBS and GIS, so it will align a little more readily that way if we split the USPS business. It also has a different set of customers and different also cadence of business.

And so that's the work that's underway right now. .

And in terms of the tax rate, we have had a number of tax plans in place and we were very fortunate to be able to land them in the fourth quarter and that resulted in a lower tax rate in our fourth quarter. .

Now when I look forward to 2018, it's a little bit trickier to read it, just because at one point we thought that the U.S. administration may pass some tax reform. Not sure exactly how that will play out.

I think the guidance that we have given you, which was in the mid-20s to 27%, 28% or so, is going to hold for now until we get some greater clarity of which way the administration goes. Otherwise, we'll have to just really accelerate other tax planning strategies to optimize our rate across the world. .

We'll now move to Jim Schneider with Goldman Sachs. .

I was wondering if you can maybe just give us a sense about, relative to the $1 billion of cost takeout, you talked about some of the actions you took in legacy CSC in terms of the restructuring.

But could you maybe go through for us, Paul, each of the 4 buckets, whether that's workforce, supply chain, policy or facilities, and kind of lay out for us what activities have already taken place so far and kind of what we can expect in terms of the inning we're at in each of those 4 buckets?.

Yes, I mean, as you know, Jim, we couldn't begin to do a lot of this until we actually merged. So we were able to do some things on the CSC side which we did particularly into [ Europe ] because we wanted to get a head start on that. .

In terms of some of the harmonization of the business policies, that is largely progressing as we had planned. .

In terms of some of the workforce optimization things, the delayering of the organization and beginning to make some of the cuts that we were planning to make, that also is progressing. When I say progressing, I mean, we've got the organization now pretty much in place. We've got 7 layers of management, on average, across the whole company worldwide.

We've probably got about 6 layers of those all named now. And as a result of naming those people, that then creates surplus. Then that gets tracked through our labor -- what we call our labor war room, and we begin to disposition it. That takes some time, depending on what country you are in. .

Some of the supply chain work that we're doing, that is progressing. We've got most of the agreements in place with our key suppliers. We have begun to get a more centralized procurement system in place so we're able to manage those supply agreements the way we want to. .

This is all new, particularly for ES, this more centralized planning and procurement process. So that's in the early stages of getting done. We've already made a couple facility changes. We've moved -- in London we are moving out of 1 facility into a combined facility. But as I said, the facilities will be a longer -- a little longer term. .

So the net of all this, Jim, is it's pretty much progressing the way we thought. I mean, there's some ups and downs, there are some things that are going a little better, some things that are going a little worse. But on average, it's progressing along the lines that we thought. .

Jim, what I will add to what Mike was saying, in terms of timing of some of these actions, you saw us take some restructuring actions in the fourth quarter, particularly in Germany, because that is a market that we had long overdue of taking some cost actions there. .

And the way we look at it in terms of our plan, we break it down in 3 major buckets, if you think about it. Internal labor, we have contractor labor, and then we have other purchases that impact the P&L and the balance sheet in terms of hardware, software and some of our indirect spend.

And so the sequencing a little bit of what you are seeing is more of the action that Mike was mentioning which has to do with the internal labor and the reorganization and consolidation of our effort.

There are certain things that are on the indirect spend, for example, that is easier to get to, such as travel policies and alignment of some of those other benefit plans. .

And then we're attacking now, some of the other buckets are equally important, such as contractors and some of the spend in software and hardware. .

And then keep in mind that, when it comes down to some of the labor cost take-out, that's why you'll see it phase very rapidly over the course of the year with actions we take in the first quarter but it will accelerate in subsequent quarters, because you have to think about complex and noncomplex countries, and sometimes there is a period of time from notification to exit.

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Yes, this ramps up as we go through the fiscal year. But I'll tell you, this tracking, Jim, sorry to try to get you more than you asked for here, but I'll tell you, we track this stuff. I mean, every Thursday morning, 7:00 a.m. Eastern Daylight Time, I mean, we know every person that's hired, we know what level of the pyramid they're coming in at.

We know what country they're coming in at. We know every person that's leaving, what skill they have that's walking out the door. We are managing this thing very, very tightly. So we know exactly what's going on, and then we make adjustments as we go forward. .

That's helpful. And then maybe if I can try a different way on the revenue side of things.

Maybe, Mike, can you provide a little bit of kind of anecdotal color among some of your largest customers, the kind of discussions you've had around larger customers about what they're telling you in terms of dis-synergies, and then, probably just as important, how the conversations are going in terms of the cross-sell and upsell of contracts that you mentioned during the Investor Day, where you hope to get kind of additional revenue from an existing outsourcing customer, for instance?.

Yes, so I used the example in the analyst meeting of how we're using leverage with our ITO base to drive additional incremental revenue. And that's progressing, we've had another couple major wins or contracts that we've either signed or are very close to signing.

So that's moving along, and we're getting more and more confident in our ability to do that. .

But feedback from the customers has been very clear. One, you've got to make sure that your delivery is good. "We count on you. We trust you to deliver.".

The second thing, second message equally clear is "We are looking for your ideas. We are looking for innovation and we love the partnership network that you have." I mean, this stuff with Microsoft and AWS and AT&T, this is -- these are important things for our client base. .

So what they are looking for is rock-solid delivery and then "Please help us innovate and navigate this digital transformation" that every client, everyone is going through. So this is, I'd say this is -- it was a sort of theory that our customers would respond this way.

But it's now -- it's clear that the door is open, and we have got brand permission to go do this. And now it's up to us to walk through that door and take advantage of the opportunity. .

We'll move now to James Friedman with Susquehanna. .

Paul, did you call out the constant currency, the foreign exchange impact in the quarter?.

No, we did not but it's about -- I want to say about $0.06 or so. .

But how about on the revenue side?.

On the revenue side, I think you can see the difference. I'll get you that as you ask something else. .

Yes. And then I just want -- I just wanted to ask -- my second one was about the IFRS. If -- where are we in that journey? Are we -- I'm [indiscernible].

Are we closer to the middle than the beginning? I mean, is this just going to get diluted in the numbers of the bigger company?.

Certainly we were hoping to get more of that conversion of IFRS to GAAP. And what happened is that some of the contracts needed to be modified by the customer to be able to realize those revenue and the profitability associated with that.

Unfortunately, we were not able, with all the things that are going on with the merger, we were not able to get the attention of the customers to just really execute on some of these changes. We will get them. This is not money that disappears. I think we'll just really get those benefits.

They will start to be reflected in our 2018 -- fiscal '18 as part of DXC. .

Our final question will be from Ramsey El-Assal with Jefferies. .

I'll also make it quite brief.

I was wondering if you could drill down into that healthy 1.6x book-to-bill for next-gen, understanding it's just legacy CSC, but can you give us a little more granularity there on the products and services? Are there any key drivers to call out? Or is it broad-based?.

No, there's some drivers. One is MyWorkStyle. So I highlight that, that is an offering that has done consistently well for us in 2017, and we continue to see a lot of opportunities, and we've had some really big ones, big wins. The $150 million win I talked about in my comments was MyWorkStyle. Our Storage as a Service continues to grow.

Our network offerings with AT&T, which we just enhanced with this FlexWare announcement this week, they continue to grow. .

We did see some really good business around our cloud software, particularly our Agility Platform. And that helped us from a margin expansion standpoint the second half of our fiscal year. .

So it's been -- it's really been pretty broad-based across a lot of our new platforms. Now I caution you that those aren't huge numbers. As you know from our Analyst Day, they're still a smaller overall percentage of our revenue. So -- but we're encouraged that they continue to grow at the rates that we had expected that they would grow.

But it's pretty broad-based. .

Okay.

Lastly, on the talent and staffing side of your next-gen and digital offerings, where are you in terms of being sufficiently staffed in order to execute against this opportunity? Is growth constrained at all by having to sort of go out and find the right folks to implement? Or is it -- are you comfortable where you're at?.

No, we are definitely constrained by the skills. No question. I mean I'll just give you an example. Security. I mean security, we could grow faster than we are currently growing. And with some of the events that we had 2 or 3 weeks ago, that just highlights that question. We did this investment in clarity, which is a consultancy. .

So what we are doing is, rather than try to go hire all this stuff, we are hiring, we are doing graduate programs and hiring people in and training and retraining the existing workforce. But we are also looking creatively for other ways to gain access to these skills.

But there is -- as I said at the Analyst Day, we've got a major transformation with our own workforce over the next 3 years and there's -- we certainly have a long ways to go to get that completed. But we're trying to innovate and come up with a lot of different ways of accessing those skills.

Does that make sense?.

That does. That helps a great deal. .

Jamie, this is Paul. I think the FX impact was about $55 million or 3 points. So 7.5% was the constant currency growth, 4.5% on a GAAP basis, $55 million of revenue impact from the dollar to local currency. .

That concludes our call. Thank you, everyone, for joining us for CSC's final call covering fourth quarter and full year fiscal 2017. We look forward to our next call, which will cover our first quarter as DXC Technology. .

Thank you, guys. .

And again, this does conclude today's conference call. [indiscernible].