Q2 2020 Earnings Call

Conference call todays call is being recorded not decided not to turn the conference over to Mr., Jonathan Ford head of Investor Relations. Please go ahead Sir.

Thank you and good afternoon, everyone I'm pleased to joining us for do you actually technologies second quarter fiscal 2020 earnings call.

Our speakers on today's call will be Mike Smith, our President and Chief Executive Officer, and also our Chief Financial Officer call is being webcast do you actually dot com slashed Investor relations and the webcast include slice it will accommodate discussion today after the call we oppose the slides on the Investor Relations section of our website.

So I to.

Participants do you actually technologies presentation includes certain non-GAAP financial measures and certain further adjustments to these measures, which we believe provides useful information to our investors in accordance with FCC rules. We provided a reconciliation of these measures to their respective most directly comparable GAAP measures.

These reconciliations can be found in the tables included in todays earnings release.

Three you'll see that certain comments will make on the call. The forward looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those expressed on the call discussion of risks and uncertainties is included in our annual report on Form 10-K , and other SEC filings.

I'd also like to take this opportunity to announce it should watch Murali do you actually is current head of M&A and strategy well also be leading investor relations moving forward.

Finally, I would like to remind our listeners the DMC technology assumes no obligation to update the information presented on the call except as required by law.

Now I'd like to introduce the Xcede technologies, President and CEO Mark Savino, Mike.

Thanks, Good afternoon, everyone and thanks for joining the call today.

My style is one of focus and clarity, which is what we plan to provide during this call.

Begin by covering a few highlights from my observations on the business that I'll hand, the call over to Paul to discuss the second quarter results and full year outlook.

After that I'll walk through Dx see strategy moving forward, specifically the enterprise technology stack.

Next we will cover the results of the strategic review of our assets then I'll close by providing additional color on our priorities.

Over the past two months I've met with 40 of our largest customers each of our strategic partners in more than 80000 of our people around the world.

Do you see has experienced and loyal global talent base.

And I've had the opportunity to me many of these people since taking the role and I've been extremely impressed with the quality of our talent.

Our global operations talent, the people, who work with our customers every day.

Very loyal to D.A.C. and to our customers.

I personally met numerous people who've been with the company for more than 30 years.

Do you see has significant scale and global reach across technology offerings for example.

We have over 2 billion of cloud and security revenue.

Also have 1.4 billion of revenue and data analytics and digital engineering.

Building on that point Dx. He has a loyal customer base that includes many of the largest companies in the world, where we run their mission critical systems.

We have the opportunities in many of these accounts to increase share of wallet.

As I've taken a fresh look at Dx. These businesses I've been very pleased with our core capabilities. This includes IPO and applications as well as digital solutions, we have a strong foundation to build on.

I've also been very pleased with Dx sees differentiated solutions and IP in key industries, such as automotive insurance health care and travel and transportation.

Finally, I've been impressed with with the company's track record of enhancing capabilities through targeted strategic acquisitions.

Including innovative assets like Luxoft, and recently Blue leader and virtual clarity.

Blue leader will enhance our sep application capabilities and virtual clarity will strengthen our capabilities in delivering cloud assessments and transformation roadmaps to our customers.

I've also seen several areas for improvement that Dx dfc needs to address to enable growth first our delivery teams were not able to execute the more complicated phase of operational cost improvements.

This includes areas like pyramid optimization.

The broader deployment of Dx sees automation program called bionics, along with operational excellence leveraging six Sigma principles.

We need to focus more on our people and strengthening our employee value proposition our people need to be clear about their career path. The DMC the opportunities to work with new clients and also the opportunities for re skilling and retraining.

The ink clear about these items will help create an environment, where people are acknowledge recognizing rewarded which will improve employee satisfaction and increase retention.

We also need to focus more on selling integrated solutions, we have an opportunity to shift from providing individual services for many of our customers to integrated industry solutions, leveraging multiple dfc offerings and capabilities.

Next execution challenges from recent delivery actions have negatively impacted some of our large customers, which results in lower margins.

Late revenue and bookings as customers have placed the additional work on hold.

We have recovery plans underway for these accounts, but we need to do a better job running operations.

By doing this we will earn the right to expand our footprint with customers.

The current operating model is complex, resulting in unclear accountability as well as slow decision making.

We will be simplifying the structure with greater emphasis on our regions and industries finally.

DSD provides mission critical services to many of our customers, particularly an IPO.

But this business has been under emphasized we have the opportunity to invest and strengthen this business.

Doing this well, we'll provide a foundation of future growth with our existing customers.

Overall.

I believe that each of these points as fixable and we're already on the case may five senior hires to augment our leadership team focused on each of these challenges.

Mary will focus on our people as our Chr Roe.

Chris and we'll focus on simplifying our operating model as VP of corporate operations.

No we will focus on global delivery innovation, specifically pyramid scaling technology and six Sigma to deliver enhanced service to our customers as SVP of global delivery transformation.

Steven David will focus on running our accounts to make sure we're listening to the voice of the customer when we're providing services in two of our largest regions of the Americas and UK EIMEA.

Again, we believe there was an exciting path forward to run these businesses business more effectively while also unlocking value.

On the left side running the business involves a stronger focus on customers people and operational execution.

On customers, we will invest to stabilize key accounts and assure that our delivery is meeting our clients expectations.

Doing this will ensure that we earn the right to walk the halls and help them with additional work as they think through their strategies.

On people, we will make investments to acknowledge recognize and reward our people, which will strengthen our employee value proposition.

As I discussed we have started adding outstanding talent to our Dx see leadership team and we will continue to add in the areas of account management sales and delivery.

On an operational execution, we will invest to enhance delivery.

We will simplify the way we work together to drive increased accountability and going forward. We will also reemphasize, our IPO business, which is critical to our success.

On the right side of the slight unlocking value includes a clear outlook.

Execution of a new strategy as well as evaluating strategic alternatives.

We will execute a focused strategy around what I call the enterprise technology stack.

We will sell industry solutions and focus on our existing customers.

We will also be pursuing strategic alternatives for three businesses that do not fit in our focus strategy.

These businesses comprise roughly of 25% of our current revenue.

Additionally, we will continue to pursue a balanced capital allocation approach, while maintaining our investment grade credit profiles.

Paul will now cover our second quarter results and update around our our second half outlook.

Thank you, Mike and greetings everyone.

As usual I'll start by covering some items that are excluded from our non-GAAP results.

In the second quarter, we have restructuring costs up $32 million pretax or 11 cents per diluted share primarily related to workforce optimization.

Also in the quarter, we had $53 million free tax or 18 cents per diluted share of integration and transaction related costs.

The second quarter amortization of acquired intangible was $151 million pre tax or 45 cents per diluted share.

Also in the quarter, we recorded at goodwill impairment, which was triggered by the decline in our market capitalization.

As part of the reconciliation off the balance sheet carrying value of our reported units to market values. We recorded a $2.9 billion non cash impairment charge or $11, a 10 cents per diluted share.

During the second quarter, we received $666 million from HP for the Arbitration award related to the capital lease dispute.

We exclude at $632 million or $2.43 per diluted share from our results and this represents the damage portions of the award.

In the quarter, we added $29 million tax adjustment related to a reconciliation of prior restructuring charges specific to a paring back in the fiscal 13 or 11 cents per diluted share.

Excluding the impact of these special items, our non-GAAP income before taxes from continuing operations was $492 million and our non-GAAP EPS was a $1.38.

This includes 10 cents benefit from the interest portion of the HP Arbitration award and a four cents of expense related to payments made to Mike lottery in connection with his retirement.

Now, let me turn to our second quarter result in more detail.

Revenue in the second quarter was $4.85 billion on a GAAP basis.

All revenue comparisons I'll discuss will be in constant currency.

In the second quarter revenue was down 0.8% year over year, driven by the impact Thats continued acceleration of cloud migrations.

Digital revenue in the second quarter was $1.51 billion up 52% year over year, including Luxoft and up 30% excluding luxoft.

Additional revenue was $2.4 billion down, 18%, which was a few points off.

What we had anticipated.

Industry, IP and bps revenue was $908 million up 0.3%.

Adjusted EBITDA into quarter was $529 million and our adjusted EBIT margin was 10.9%.

In the quarter continued delays in our delivery cost actions as well as cost over runs on a few European transformation contracts contributed to lower than expected profit performance.

In the quarter, our non-GAAP tax rate was 26.4%, reflecting our global mix I think.

And the benefit of ongoing tax planning initiatives.

Book to Bill in the quarter was 0.8 times as we've seen further delays on several large deals.

Digital book to Bill was 1.2 times traditional book to Bill was 0.6 times.

And industry IP Mbps book to Bill was 0.7 times.

Let's turn to our segment results.

GBS revenue was $2.29 billion up 10.5% year over year.

Excluding luxoft GBS revenue was up 0.4% year over year.

GBS segment profit was $359 million and profit margin for that segment was 15.7%.

Our GBS margin reflect the investment were making in hiring and training digital talent as well as the slower pace up cost takeout in complex countries.

GBS book to Bill in the quarter, Let's 0.9 times, primarily driven by lower than expected bookings and industry IP and Dps.

Our G. I asked revenue was $2.57 billion down 9.1% year over year.

Joe Yes segment profit was $243 million and profit margins was 9.5%.

I asked margin reflect the impact of stranded costs related to the decline in our traditional IPO business as well as a slowdown in our delivery cost takeout actions as we work with select customers to improve service.

Gee I ask book to Bill in the quarter was 0.7 times, reflecting delayed deals and lower than expected conversion of pipeline opportunities.

Now, let me turn into other financial results in the quarter.

Adjusted free cash flow in the quarter was $739 million ours or about 204% of adjusted net income.

Now this reflects improved working capital management and expanded use of our receivable facility by $235 million in the quarter.

No. This facility is a true sale non recourse facility.

Our capex was $342 million into quarter or 7.1% for revenue.

During the quarter, we repurchased $250 million of shares.

And paid $56 million in dividends.

In total we returned $306 million in capital to our shareholders.

We have limited opportunities to repurchase more shares during the quarter because of the CEO transition and ongoing evaluation of strategic alternatives for several of our businesses.

We now expect to be more opportunistic and returning capital to our shareholders. We will maintain a very close look at our investment credit profile.

Gosh the ended the quarter was $2.9 billion and at the end of the quarter total debt was $9.2 billion.

And including capitalized leases, so our net debt to total capital ratio was 34.9%.

Now, let me turn and provide more details on our new financial targets for the fiscal year.

We're now targeting revenue in the range up 19.5 to 19.8.

The in dollars.

This revised revenue guidance is driven by three primary factors.

First we've had seen additional delays in several large deals that we expected to close during the second quarter and that was particularly in the Americas and the UK.

We also lost a few deals during the quarter that were previously included in our second half revenue plants.

And as a result, no we expect about $275 million less revenue this year.

So I can do to execution I think existing customers, we now expect $250 million less revenue this year.

75 million up that amount as you just certain customers, placing revenue opportunities on all.

This is due to recent delivery execution issues.

Now we have recovery plans underway.

Service levels on these accounts.

We also adjusted our revenue outlook by $175 million to reflect potential disruptions given the announcements that we are pursuing strategic alternatives for three of our businesses.

Third we now expect a $100 million less revenue in our traditional infrastructure and application businesses.

We're investing in our IPO business to mitigate these declines and capitalize on the pipeline of opportunities with an aggressive focus on modernization of customer environments.

On the revised revenue outlook up $19.5 billion to $19.8 billion for the year assume a slight increase in the second half revenue.

Paired with the first half.

Turning to EPS, we're now targeting adjusted EPS in the range of 5.25 to five point $75 per share.

Let me cover some of the key drivers of this revised outlook.

First the reduced revenue forecast will translate to roughly $275 million less EBIT for this year or 73 cents per share, including the impact of potential disruptions related to the strategic alternatives announcements.

Second we now expect a $170 million less benefit from cost takeout actions this year.

47 cents per share.

As we move into this more complex phase of operational improvements, including the broader deployment of bionics.

We've seen a needs for greater customer engagement as well as more experienced talent, which is impacting the pace of our cost takeout.

We've also experienced delays et cetera of global the initiatives such as delivery center consolidation maintenance optimization and enterprise license rationalization and those translates into an additional 10 cents per share in EPS.

We continue to believe that these cost actions are achievable, but it is taking longer to execute than we had originally planned.

Third we expect $70 million are 20 cents.

Yes from higher than expected cost overruns on a few large complex custom customer transformation programs.

This is concentrated to a few European contracts and we expect to resolve this issue.

These issues within this fiscal year.

Fourth our revised EPS outlook includes $100 million are 28 cents per share of additional second half investments to strengthen our operations in core infrastructure services and to augment talent in key areas such as accounts management.

And industry sales.

This investment also includes our recovery plans on key accounts.

The revised EPS target of 525 to 575 per share I assume a range of $2.13 to $2.63 versus $3.12 in the first half of the year and our EBIT margin between 9.5% antenna.

Per cent for the second half of the year versus a 12.1% in the first half.

Our cash flow targets for the full year is now 80% are more up adjusted net income.

And this reflects more conservative working capital assumptions for the second half as well as the timing of contract settlement payment.

We expect to make this year, but we will cover recover that amount and fiscal 21 from insurance coverage.

I'll turn back to call to Mike to discuss our strategic priorities and planned actions.

Thanks, Paul.

We are clearly not pleased with this revised guidance and the poor execution against our cost plans.

We are taking steps to improve our performance with a focus on customers people and operational execution.

We also believe that we will be able to unlock value due to a focus strategy.

Going forward Dfc will run as one company focused on the enterprise technology stack versus a traditional business and a digital business customers will see one dx see not too.

Total left of this slide is what I referred to as the enterprise technology stack.

The enterprise technology stack mimics the strategic thinking of how our customers view their technology journey and it starts with Ita.

This is the foundation and Dfc has an installed base that is second to none.

The next level includes cloud with security services, which reflects the fact that customers are buying those services bundle.

Moving up the stack the application layer is critical where we rationalize and modernize and manage customer workloads.

Then we can leverage analytics capabilities to harvest data and ultimately provide engineering services to generate business insights.

For our customers.

We cannot deliver the technology stack on its own.

We have to also provide deep industry expertise and we will do this by providing integrated industry solutions to our customers.

Let me share with you some of the feedback I've heard from our customers, which is on the right side of this slide.

Do you see runs mission critical systems and operations for our customers they expect.

These to be run silently and effectively.

Many of our customers need to upgrade these systems and they want to partner with someone they can trust. This trust requires a deep understanding of their environments with demonstrated experience executing at scale.

Also our customers recognize that not all the workloads are going to migrate to the cloud.

They need a provider who can support on premise assets as well as private and public cloud environments.

Security is also a top concern and customers expect us to bring deep expertise to them in this area.

Our customers are looking to scale their digital capabilities that includes analytics that produce business insights and they want to grow with the service provider who has scaled.

Overall, the key message is that DXP is missing opportunities with our customers.

We need to show visible reinvestment to strengthen customer confidence.

Capture these opportunities moving forward and physician Dfc for growth.

With that in mind, we've conducted a review of our portfolio to understand how well Dx. These current businesses aligned against the enterprise technology stack.

And our focus strategy.

First I was very pleased to see that Dfc has capabilities at scale against each layer of the enterprise technology stack.

We have 5.4 billion, an IPO revenue 2.1 billion in cloud and security 5.4 billion and applications and industry, IP, and 1.4 billion and data analytics and engine engineering services, including the Luxoft business and roughly 500 million of advisory revenue.

Now I'd like to discuss the outcome of the review of Dx. These current businesses.

We evaluated each of our businesses against the following criteria one importance to the enterprise technology stack to the ability to create industry solutions.

Three what our customers wanted and for the potential to unlock value.

Out of that analysis, we decided to pursue strategic alternatives for three businesses, the us state and local health and human services business.

Our horizontal bps business and our workplace in mobility business combined these businesses represent about 25% of Dxps total revenue.

These businesses are strong.

Our workplace and our us state and local health and human services businesses, our market leaders and we have meaningful IP and our horizontal bps business.

When I say strategic alternatives that could involve a range of actions to unlock value, including potential the divestitures to strategic or financial buyers.

A spin off or other transactions.

Throughout this process, we will remain closely engaged with our customers and our people ensuring we are meeting our commitments to both.

I'll now provide some color on our longer term financial expectations based on these plans.

By executing on those strategic alternatives, Mike just discussed will created more focused portfolio strengthen VX sees ability to grow and unlock value.

Now excluding those three businesses by fiscal 22.

We would expect the company to have more than $15 billion up revenue with at least half of the revenue coming from digital offerings.

We also expect margins to be at 12% or more even after accounting for investments.

This margin level is consistent with global industry peers.

We're also taking a conservative view on cash flow conversion, while continuing to perform above industry benchmarks.

We also assumed that we will be able to generate net.

Capital proceeds of roughly $5 billion from these three businesses.

We expect to deploy $4.25 billion or more to repurchase shares and pay dividends over the next 10 quarters. Now this represents about 50% of our current markets cap.

We also expect to reduce our debt by more than $2.5 billion. As we will continue to pursue it balanced capital allocation approach and protect our investment grade credit profile with a target debt to EBITDA of two times or less.

In fiscal 22, we expect that at least $7 per share up adjusted EPS and at least $5.25 EPS.

After restructuring transaction and integration costs.

This outlook reflects our plan to moderate these costs over the next couple of years.

Now I'll turn the call back to Mike.

Thanks, Paul So in conclusion, here's why I'm excited to lead Dfc at this particular point in time.

Someone who has lived in the IP services industry for over 30 years and has seen all the different ways service firms can compete it's very clear to me that Dfc has a unique opportunity due to three factors one.

The assay has significant scope and scale along with mission critical positions at large customers to the axiom recent history has reduced its cost structure in an industry, we're being cost efficient boost your ability to compete.

Three customers are facing transformation challenges across the enterprise technology stack and they are in need of Dx These deep IPO capabilities and experience.

Customers need a partner like Dfc to help them modernize their righty IPO layer.

Optimize their data architectures and make it all secure an orchestrated across the public private and hybrid clouds.

This will now be our main thrust in d. exceeds focused strategy to leverage our IPO expertise to help customers across the enterprise technology stack.

We are equipped with a much improved cost structure and we're going to raise the bar by investing in our people and then our customer service plus we're going to move away from businesses that are not core to transforming the enterprise technology stack.

And focus on the businesses that are integral to our focus strategy and our customers needs.

With that operator, please open the call up for questions.

Thats of course, if you like to ask your question. Please press star one of your tell from Cape Cod.

Using a speakerphone. Please make sure your mute function is turned off color signal to return equipment.

Got press Star one to pose the question, we'll pause for just a moment until everyone an opportunity for questions.

I'll take a first question from Robert Deep dive Acquity equity research. Please go ahead.

Okay, guys. So I have a question for Mike about strategy and a quick follow up for Paul.

So Mike your your stressing in your comments that your strategy will reemphasize your infrastructure outsourcing business. So my question is why today is that a sound strategy to focus on IPO.

In light of the erosion that's occurring in that business.

Hey, good to hear from you and looked at the bottom line is the way I see it is we've got a unique position of strength in the IPO layer.

Alright, we also have.

Have unfis sized the IPO by emphasizing again, what I clearly heard from customers in through my industry expertise and experience is that when you deliver for your customers simply put you get more business you get the ability to move up the stack not just stay in the IPO layer. So what this.

Strategy is all about isn't and strategy.

Both digital along with IPO and applications.

The other thing is because of this underperformance what you heard Paul say is that we've had worked put on hold we've had growth put on hold and the market is not going away.

Right, meaning.

I understand that look its decreasing but we also said and validated that not all the workloads are going to go to the cloud.

70% of today's workloads will continue to be on prem or in the private clouds. In 2023, So look rod I put all that together and basically said look our focus strategy needs to be around the enterprise technology stack anything that is going to London.

Lend itself to not allow us to focus on that.

We should put in the strategic alternative bucket, but the bottom line is the and strategy will help us grow.

All right and then just Mike in the revenue breakdown numbers it sort of implies that the revenue challenges.

And particularly in the G. I ask business. It is very heavily attributable to execution.

Clearly also had some secular headwinds.

What's your take on how much of the problem in the G.I.S. business is secular versus execution.

So I think look that our focus with the Reemphasis rod will be on mot moderation of.

You know that.

That negative.

Revenue decline I think the majority of that is execution from what I've seen certainly there is some market movements away. That's all we were studying but I think the majority of that.

Is execution because the market is declining roughly around five to maybe 10% and were much higher than that.

Okay. All right and then then Paul I appreciate the fiscal 22 PNM now estimates.

I'd like to get some more color on how you've modeled.

Particularly on the revenue side out the 22 so.

What's the trajectory look like in fiscal 2001, and then for fiscal 2002 or are you viewing that level of revenue estimate as a conservative number at this stage or is that a revenue estimate that you're expected case scenario more color on how you've modeled out to get to that PML.

Would be helpful.

That's very thank you for the question as Mike mentioned.

We're going to be making investments and reemphasizing the traditional business, but it also particularly the IPO business as well the application business and that's a result of that in our outlook for fiscal 22, we are.

Being a moderation in the decline.

Those businesses too.

Hi, a single digit.

And for the rest of the businesses across the stock to continue to grow at or above market rates, which we have already been.

Showing through our results. So that's basically what the assumptions are on the near term and we're confident that the outlook that we are.

Putting here is.

To be able to achieve in fact, our internal plan actually would be to try to do better than that's why you have the pluses are showing up across that page.

And as far as your trends are the trajectory right now as Mike mentioned, we are just really.

Got to be looking at strategic alternatives for 25% of the revenue at the company those three businesses and then as we have a whole lot of work ahead of US right now and then we'll learn more over the coming months. So one thing we can say to you as our window, where we're headed our near term were nowhere way going.

Fiscal 20 to us or in due time.

Provide you with some of the.

Greater visibility into fiscal 2000, Taylor not one that will be shaping up.

All right. Thank you guys.

Hi, Good question. It's been answered you may remember yourself from the Cuba pressing star to we're not taking next question from Darrin Peller at Wolfe Research. Please go ahead.

Alright, Thanks, guys. We heard on the call does now about investments being made which is great to hear obviously, Mike. After your review, but we're also still hearing you guys talk about cost cuts that I guess came from the prior plans and now some of that was coming at a different piece I guess I'm just curious why you're even bothering on a net basis.

Shouldn't we just be talking about investments now in the business given that you really do have a target of a margin profile that is now in the low double digits and potentially could even be lower I think investors would probably be okay with that if it meant.

Revenue payback.

To sum inflection.

So could you just talk about where we are on the net basis are you investing now a lot more than you're cutting in costs.

And is that the re margin profile that low double digit 12% range and then I just have one follow.

Okay. So let me let me take it from there and Paul can also weigh in but.

Look we are definitely going to invest more for the rest of 2020, then the cost takeout.

The problem is there's still opportunities rate for us to to get costs. So I want to make sure that we are gearing up.

To go after those when I look at Paramount optimization.

The bionics tool right than we have is as a strong tool, but it needs to be scaled across the regions and then when I look at operational excellence I want to make sure. We've got an organization that is refining the cost structure alright.

Maybe not as cutting is as much as we have alright. The second thing is on the investments the investments are very targeted towards our customers towards our people and also be operational execution. So when I say that operational execution piece, that's where I'm coming back to bill.

Building teams and augmenting this the the capabilities that are here to continue to come after that I mean, I said in my comments that part of the things of that I'm excited about is you got to continue to look at that cost structure to compete in this space and I think with our new focused strategy alright.

Around the enterprise technology stack I think we're focused on the right areas with the right cost structure with the right customers and we should be able to grow but I would definitely leave you with its a lot more investment than it is caught okay.

The other thing I would say on the numbers.

Is when you listen to Paul those numbers are relatively flat across the board on revenue and.

On on EPS.

Right Okay.

We just touch area than Margo columns.

No dairy also for your question I think you said about the.

Were you asking about the margins for fiscal 2002 or just near term.

More really more longer term is terms of whether that 12% as the is the right number in your minds versus what are we.

Versus potentially even lower.

Yes, when we put a 12 plus on the page for a reason because not only as Mike mentioned, we have opportunity to continue to extract greater efficiencies.

From the business so over the next.

Two years, and particularly with building the team to help execute on that.

And then why we felt also the 12% does it you don't see it but some of the businesses that we're looking at for strategic alternative to one that we have mentioned there a dilutive to our margins because particularly the two of them.

Fully loaded margins that are above corporate average so.

Thats, a one thing and then you'll see that in the long term also our EPS also is going up.

Sorry that actually is really thats really helpful. Thanks, just the one quick follow up is around those strategic alternatives just help us understand maybe a parameter around timing and then the growth profile of those assets that the five billing and total perhaps and then just thinking about the assumptions you're you're talking about 15 billing the revenue by 22, and I guess as a follow on to the prior questions.

Is that assuming it sounds like that's assuming you can maintain flat revenues of everything that you are the best everything that you don't divest.

Yes, I think the first one is about those business as we don't provide a lot of.

Not going to provide details about each one of those businesses timing I would say within the next 12 months Thats what were targeting as lot of Thats hard to add for our teams and so we're going to get going.

Tomorrow and were lined up.

To go get that think Don and.

And furniture from revenue growth I think thats, what I mentioned to write a few minutes ago that is weve assume and a.

But overall will be able to grow and we've also assumed the.

Additional act.

Some acquisition over that timeframe maybe about.

Consistent with what we've done before 1% to 2%.

Growth coming from acquisitions, so thats part of the capital allocation over that timeframe.

All right. Thanks, guys.

No.

We'll now take next question from Lisa Ellis said Moffett Nathanson. Please go ahead.

Hi, good afternoon, thanks, guys.

Another follow up on the strategic alternatives good to see you guys kind of moving down this pathway.

The 5 billion you're expecting in proceeds can you just talk little bit about how you wait the decision of using the proceeds for share purchases in debt reduction in kind of maintain the financial health of CXC versus say, another luxoft or making another larger acquisition or investing more aggressively in returning to growth.

Do you kind of weigh those two thank you.

Well, we weigh all of these factors, how they might cannot yet quite a bit of time, so and that's why we said right you know a balanced approach right I mean, you know.

Paul is looking at debt you know he's we're both looking at returning value to shareholders, but I'm looking at that stack, Lisa and saying there's opportunities and hopefully you guys saw some of the flavor of it into has been in terms of blue leader in virtual clarity I love the virtual clarity.

Asset that virtual clarity asset is specifically focused on looking at the IPO layer, putting together strategies and starting to move clients you know in a very structured program management way up the stat. So.

When we started looking at.

The proceeds obviously it will be balanced alright, but we will continue to do what I call tactical tuck ins.

All while we're maintaining right our investment grade.

Okay.

And then my follow up just Oh.

With you Mike as you look out over the next you know say 90 days three to six months.

What did the areas that you personally are are focused on you mentioned you have been out.

Working with a lot of clients a lot of partners like sort of how how or what are your personal top three or four priorities. Thanks.

So mine is around mine is around customers people in operational execution I mean, I have said, so many times to our people.

Over the last 40 days when I think customers right we have.

You know an opportunity right to delight customers and we need to listen to them, even a little bit more about what do they want.

Because some of these contracts we need to adjust just from a standpoint. These contracts have been around 510 15 years. So I want to make sure. We're listening to the voice of the customers. So you'll see me do quite a bit around account management. The second is the people right I often say you lose the people you lose the business alright.

And from that standpoint that employee value proposition and my first higher being Mary Finch.

That's a key right in terms of our people and then the operational execution is what I mentioned before.

I'm, an operator, sorry by heart.

So I'm looking at the pyramids Im looking at the technology that we use right because anytime you put in technology you take out the manual handoffs.

You avoid a break and that's what I'd like to make sure we get done and then the last one is around just some of the inefficiencies around operational execution. So.

Simply put customers people in operational execution Lisa.

Terrific. Thank everyone and thanks for you've clearly been moving pretty decisively here over the last couple of months appreciate that thanks, a lot guys.

Thank you Lisa.

I'll take your next question from Bryan Bergin Cohen. Please go ahead.

Hi, guys good afternoon.

Wanted to ask on the bookings the some of the color on the deal delays can you give us a sense of what kind of clients. These were and then it has predominantly been all execution issues are there some client side factors going on I'm really curious for what's still left in the pipeline. How you. How soon you think the proposed recovery plans can take shape.

So on on the.

On the deals right now I mean, I highlighted for you guys that on some of our largest accounts right. We've been put on hold.

And.

That matters and so I believe we can get those back theres nothing better than when you actually fix a client to being better than they were before you know two to potentially get more business.

Yes.

But remember we talked about a billion dollars worth of deals that slipped from first quarter to the second quarter of those for example of 30% we were able to book they came into the quarter, 30%, we lost and we didn't lose because we didn't have a strong offerings.

Those were competitive takeouts from somebody else and we saw a different response from those.

People at a price that we would not willing to to match and then deals are moving to the right more because some of the customers are not ready to make decisions. So we've seen nielsen's does 30% move to maybe more than the fourth quarter and some deals in the second half that we had originally anticipated.

Being in the for this year ours are slipping into fiscal 21 fairly part of fiscal 21 right.

Okay. So it sounds pretty.

Widen mix here.

As far as the traditional business the cannibalization strategy. That's been in action can you give us sense on how that tradeoff is occurring any any early success cases that your that you're seeing here is that still too early to determine.

I think you're seeing some of that showing up even in the digital revenue going up about 30% and were seeing.

A positive momentum if I look at our entire pipeline across the board is up 20 plus percent.

Qualified pipeline, so I think it's.

We're seeing early signs of it but it's just some mask also by some of the other things that we have highlighted meaning that.

Some of the delivery execution issues that we encountered and.

The impact that has had near term on the business, yes. So Brian the the thing that's been interesting is the is the debate right that the market as of this thing is all of a sudden as IPO business is going to go away.

I keep looking at it and saying you know here the specific facts I got 70% of today's workload will be content will will be still around on prem by 2023, and when I talk to our customers.

They're looking at those apps, they're looking at the data not everything is going to move to the cloud alright, and that's still good IP monetization business that we need to go get right and as ours for the taking the second thing is when I look at the decline I've seen numbers anywhere between 3% per year for the next three years I've seen them.

Market be down five to 10 and my point is with our Reemphasis on IPO, we should be able to get our fair share and when you look at what we've done in digital Thats why is that as the and strategy if that digital business continues to grow aligned with the market and we're able to two.

Moderate already what we've done an IPO this business is going to grow now.

I plan on looking at it for the rest of 2020 to make sure. We've got everything in place to get that done it will take just a little bit of time, but that's where my head that.

Okay. Thanks quicker.

I'll take the next question from Joseph Foresi at Cantor Fitzgerald. Please go ahead.

Hi, I just was wondering.

Kind of two or three questions here first.

Mike.

On me.

The shortfall in the quarter in the Lumpiness in the business.

Was it one particular client why all of the execution I know theres been some some bumps in the road leading up to this quarter, but I'm wondering why it will happen sort of this quarter and what the feedback is whether it was in a number of different accounts are they going to competitors.

I'm, just kind of curious around the timing associated with that.

Okay. So first of all.

Look I mean, when you look at the beginning I mentioned about our cost profile right. We were very focused on on cost.

You know to date in 2020.

In terms of via counts when you push on that.

I don't see the accounts is being widespread but we're definitely focused on investing in roughly 2030 accounts alright.

And I take a different lens on what good looks like you know I. Once these clients all right to be very delighted about our service Thats, how you get more work. So I sit there and go look you know I want to take a different focus on these things and make sure that.

Assuming we do the IPO layer, we can move up the enterprise stack.

What was what was your next question.

I'm just curious was it like.

A couple of up a batch of accounts that went to competitors or was it no no option to try to get a sense of like did what caused the delays and how we should think about it.

This is not accounts going to competitors okay.

This is us looking at our clients alright dealing with their movement from the IPO layer to the cloud alright and.

In terms of us what I call refocusing on IPO or not focusing deemphasizing, an IPO right. It's created some service level issues all right when that happens the clients, obviously aren't happy okay, and they put us on hold in terms of additional work.

And like I said in my customer comment customers want to grow with people They trust and they trusted us for years. So the fact that Weve deemphasizes business a bit alright, you know, we've got to get back in there and.

Basically sure up that relationship again, and then that'll help us grow so thats the logic there.

Got it Okay and then secondly, just on the outlook that you provided do you feel like you've taken de risked the numbers some degree and.

And you feel like you've got a good handle and are able to to guide appropriately and what would give us sort of.

Some level of confidence that that's taking place at this point because sometimes I mean, we built around the business along time to I guess.

While the bleed out right.

Yeah, I get it I mean look we undertook a very detailed process and along with that right I'd put my experience on top of it.

And I've got confidence around radar strategy and our numbers.

The thing that Paul highlighted for you that I would highlight again as the plus signs.

On the numbers UNEV why 22 in terms of our detailed model.

Along with I think we've taken a conservative approach in 2020 as it relates to revenue and margin.

Got it my very last one and you'll be able to answer is better than anybody.

You worked at Accenture, you've seen their execution you see what they've done.

You know do you feel like Dfc can compete against them and if so what closes that gap that you saw over there that you're missing here. Thanks.

So look I'm thrilled to be a part of DXP Sea Ray and when I look at.

The enterprise.

Technology stack strategy.

Looking forward to competing in this space right, we've got scope and scale that gives me confidence rate that we can win and along with that you know when I think about right our team and where we're going.

It's the it's the right thing so I look at my playbook in terms of what up brought to the table and I went back to customers people and operational execution, alright and from that standpoint.

That's not an accenture playbook right. That's that's a playbook that that up developed along with the team I'm starting to bring in over a number of years and I think give you get close to the customers right. If you win the hearts and minds the people and you operate businesses will totally grow.

So I appreciate the question, but thrilled to be a part of Dfc and what strategy, we just laid out.

And operator at this point, we will go adding close the call.

Perfect. Thank you. This now concludes todays call. Thanks for your participation you may now disconnect.

Okay.