Q1 2021 DXC Technology Co Earnings Call
[music].
Good day and welcome to the de Xcede technologies first quarter fiscal year 21 earnings call.
Today's conference is being recorded.
This time I would like to turn the conference over to Shailesh Murali. Please go ahead Sir.
Thank you good afternoon, everyone.
The Georgia, joining us do you see technologies first quarter fiscal year 2021 earnings call.
Oh speakers on today's call will be myself.
President and Chief Executive Officer and culturally.
Financial system.
This call is being webcast Dx you dot com slash Investor Relations.
Webcasting slides that accompany the discussion.
After the call you posted slides on our Investor Relations section.
Yes, she's website.
Right.
Participants do you exceed technologies presentation includes certain non-GAAP financial measures in certain further adjustments to these measures, which we believe provide useful information to our investors.
So that's easy to use you provided reconciliation of these mashes together specter most directly comparable GAAP measures.
These are constantly Asians can be found in tables included in todays earnings release.
On slide three you see that certain Collins, who make on this call before.
These statements are subject to known and unknown risks and uncertainties, which would cause actual results to differ GDV from those expressed on the call.
Our discussion of these risks and uncertainties somebody's going out and you report on form 10-K.
Other FCC fighters.
I'd like to remind our listeners to do you see technology assumes no obligation to update information presented on the call except as required by law.
And now I'd like to introduce do you see technologies, President and CEO, Mike Savino, Mike.
Thank you shall I should I appreciate everyone joining the call today.
I Hope you in your families are doing wells, we all continue to navigate through the covert 19 pandemic.
I'm going to start today's call by giving you an update on our Q1 performance and how we're progressing on our transformation journey to position Dx see for growth.
Oh, well then share our financials for Q1, our guidance for Q2 and update you all on our strategic alternatives, including the recent sale of our health care providers software business.
I will make some closing remarks before opening the call up for questions.
I was very pleased with our performance during the quarter, which has allowed us to have a strong start tell slide 21.
Our revenues came in higher than we thought in may highlighting the resiliency of our business. During cobot 19 margins also came in higher underscoring the effectiveness of our program to optimize cost.
And our book to Bill for the quarter was 1.2 X underscoring the we're successfully bringing the new Dx C, which focuses on our customers and our people to the market.
This new approach is allowing us to cross sell our capabilities to our existing customers when new logos and renew existing work.
Results in Q1 show the DMC is very relevant to our customers, especially during tough times.
Now I'd like to discuss our transformation journey and give you some specifics concerning how we're doing in the three key areas, which are focused on our customers.
Optimize cost and sees the market opportunity.
We are focused on customers is really starting to pay off simply put this focus allowed us to deliver higher revenue in Q1 and will enable us to stabilize revenue in Q2.
We give you an example.
This week, we renewed and expanded our relationship with Sabre, an account where our standing was not in good shape.
We brought the new Dx seemed to be account and now we're looking forward to working with Sean His leadership team had sabre, along with Google to transform and modernize Sabres <unk> state to the Google cloud.
I'm happy to report that with the sabre, signing and US working through the final details with two other accounts, we have successfully fix 38 of the identified 40 challenged accounts.
We have re rebuilt these relationships and we are winning more work, let me give you some stats.
31 out of the 40 accounts have given us new work in excess of 10 million since the start of the program in Q3 about flight 20.
We're now done what this program and this customer centric mindset is fundamental to the new Dx C.
Our people are the cornerstone to delivering for our customers. The investment we made to enable 99% of our workforce to work virtually has resulted in dfc delivering on our customers' expectations during the cobot 19 pandemic.
The Australian tax office is a great example of where our people delivered for key customer during Tobin 19.
Do you see healthy Australian tax office to live won't deliver wholesale changes to systems and operations in two weeks to support troubled businesses and workers. The CIO commented the way our teams collaborated and worked as one was truly inspiring.
I'm also extremely proud of how are people handled the ransomware attack, which impacted the exchanging business. Our team immediately implemented a series of containment and remediation measures got our customers up and running and kept our customers updated every step of the way.
Under the leadership of our new CIO, Chris strong goal and Mark Harris Hughes, who runs our security business our people did a great job.
Resolving the situation quickly and protecting the interest of our customers and Dx C.
Among the many thank you notes, we received from our customers Lloyds market Association summed it up the best saying the transparent and collaborative way in which do you see has addressed the challenge has been first class.
I would like to thank all of our people as they are clearly engaged and delivering for our customers.
Now, let me turn to our cost optimization program, where we continue to make good progress.
Here, we were able to move faster than anticipated simplifying our management layers and taking the appropriate steps to rightsize our cost structure to our revenue we have achieved better than expected margins in Q1 due to these efforts.
We're on track to achieve our goal of taking out 550 million this year and ensuring our people are focused on making business impact for our customers. We expect to expand our margins from Q1 Q2.
Finally, let me comment on the third key area of our transformation journey, which is sees the market opportunity.
We are focused on cross selling to existing accounts and winning work with new customers.
Book to Bill ratio of 1.2 X. This quarter is good evidence that we are indeed, seizing the market opportunity.
The Q1 bookings were comprised of one third new work into third renewals new work was generated through a combination of cross selling to our existing customers and winning work from new customers. Let me give you an example of each.
Eric Insurance Group is an example of cross selling new work to an existing customer insert we expanded our relationship.
We're helping them transform and modernize their applications and security globally.
A great example of new work from a new customer is a bargain.
Where we were selected to help modernize the bar is legacy systems provide policy administration and customer support services.
Also I don't want to ignore renewals are they as they are solid evidence that we're delivering for our existing customers who are willing to make additional multiyear commitments to de exceed.
All of this is evidence that our strategy is working and we expect to hit a book to Bill of Onex in Q2.
Now before I turn the call over to Paul I want to reiterate I was pleased with our performance in Q1, and we are well positioned for Q2.
Now, let me turn the call over to Paul.
Well, thank you, Mike and greetings, everyone before I cover our financial results for the first quarter I'd like to Echo Mikes comments about our performance.
We delivered results, which were ahead of the revenue and profit targets, we shared with you on our last earnings call.
Hi, This is clear indication that we are making solid progress not transformation journey.
Our business has proven to be more resilient in this call that environment.
Offerings are clearly relevant to our customers.
However, our first quarter results may not reflect the extra making due to the lag effect from prior terminations price downs and regardless, we expect these headwinds to subside starting in Q2.
Now turning to business under strategic reviews.
Remain on track to close the sale, if I state and local health and human services business in the current quarter.
This will allow us to reduce debt and further strengthen our balance sheet.
Recent agreement to set our healthcare software business will further enhance our financial flexibility.
Although we quite encouraged by the progress we're making on multiple fronts.
So operating in an uncertain combing environment.
As a result, it's not yet the time to provide you with full year guidance as we will continue to update you on our progress on a quarterly basis.
That's what a second quarter, we expect revenue to stabilize margins to improve and our bookings to continue to reflect the relevance of our new Dx see in the market.
Now, let me turn into our first quarter financial results.
Sorry by covering the items that are excluded from our non-GAAP results.
In the first quarter, we had restructuring costs of $72 million on a pre tax basis, our 24 cents per diluted share.
These costs related to the cost optimization program, we discussed previously.
Also during the quarter, we had $110 million on a pre tax basis for 32 cents per diluted share of transaction separation and integration related costs and those are primarily driven by the external spend associated with the assets under strategic review.
During the first quarter amortization of acquired intangibles was $148 million on a pretax basis or 45 cents per diluted share.
Excluding the impact of these special items non-GAAP income before taxes from continuing operations.
Great and $7 million for the quarter I know non-GAAP EPS was 21 cents, which is higher than we had indicated during our last earnings call.
Our non-GAAP EPS in the quarter was impacted by a higher than expected tax rate of 45%, reflecting our mix up income.
And the coral related to every turn to provision adjustment associated with prior tax filings as well as a valuation allowance in certain certain foreign jurisdictions.
Turning now to our first quarter results in more detail.
Always all revenue comparisons I'll discuss won't be in constant currency.
GAAP revenue in the first quarter was $4.5 billion, representing a sequential decline of 5.7%, but an improvement over the guidance. We provided during our last earnings call.
Revenue for the quarter reflect the resiliency of our business with a lower than anticipated impact from 12 it during the quarter.
Currency in the corner wasn't incremental headwind of about $40 million sequentially and $101 million compared with the prior year.
Adjusted EBITDA in the quarter was $190 million adjusted EBIT margin was 4.2%, reflecting the acceleration of some of our cost optimization initiatives.
Well the quarter, we delivered $60 million of cost optimization savings, which is about four.
Million dollars better than originally planned.
Has helped offset at $36 million in accruals related to the resolution of certain prior customer disputes.
And at this time I'm able to report that we have dealt with the vast majority of outstanding disputes.
Non-GAAP EPS was 21 cents in the quarter and that's I previously mentioned.
So I was impacted by the higher than usual tax rate of 45%.
Normalizing foreign tax rate up 28%.
EPS would have been 28 cents.
In the quarter bookings were $5.3 billion for a book to Bill of 1.2 times.
Turning now to our segment results I'll start with the GBS segment, which includes the two top players our enterprise technology stocks.
And analytics and engineering as well as the applications business.
GBS segment for now also includes three businesses under strategic review.
You must state and local health and human services business.
The healthcare software business, which we recently agreed to sell to demos.
And the horizontal DBS business.
DDS revenue was $2.17 billion in the quarter down 5.2 sequentially.
Year over year, GBS revenue was up 2.5%.
I think the acquisition of Luxoft.
In the first quarter GBS profit.
2000, $215 million and our profit margin was 9.9%.
Excluding the impact of dispute related accruals of $26 million a profit margin for GBS would have been 11.1%.
GBS bookings for the quarter or $3.5 billion for in book to Bill of 1.6 times.
Turning to Archie I asked segment, our G. I asked segment consists of the IPO and the cloud and security layers of our enterprise technology stack.
It also includes our workplace and mobility business.
I asked segment revenue was $2.33 billion into first quarter down, 6.1% sequentially and 12.4% year over year.
The decline was primarily driven by the impact of prior terminations price down and run offs that we previously discussed.
Segment profit in the quarter was $23 million and profit margin was 1%, reflecting the timing of our costs auctions.
No we expect margins to improve for the remainder of the here as we execute on our cost improvement plans and align our cost structure to revenue.
Yes bookings for the corner was $1.8 billion for a book to Bill of 0.8 times.
Well, let me comment on the performance of the layers of the enterprise technology stock.
The highlight again that in the first quarter revenues in each layer of the stock and the ensuing sequential.
And year over year comparisons are not truly indicative of the trajectory of the business and this is due to the lag effect from prior terminations price down and write offs.
Hi, Joe revenue was down 5.2% sequentially and down 87% year over year, driven by the termination is price down and run offs, we discussed previously.
Book to Bill was 0.6 time in the quarter, reflecting the timing of large contract awards, which typically take at least six to nine months to negotiate and close.
Now we are encouraged by the progress we're making in there.
There, which is evidenced by the strength of our qualified pipeline.
And we are targeting and book to Bill off one times for the second quarter.
Oh that security revenue was down 11.1% sequentially and down 6% year over year.
The revenue decline in this layer of the stack was driven primarily by run offs as well as deferral project related spending.
Book to Bill was one.
In the quarter.
Moving up the stock the application layer was down 8.7% sequentially and down 7.5% year over year. The decline was primarily driven by some terminations and project completions as well as delayed work in industries, most impacted by Covance such as travel.
Fatality and consumer goods.
Book to Bill for this layer of the stock was 1.5 times in the quarter, reflecting a number of long term applications management contract renewals.
And the analytics and engineering layer on the stock revenue was down 2% sequentially, primarily due to delays in project work.
Year over year revenue was up 52.1% driven by the acquisition of Luxoft.
Book to Bill in the quarter was 1.3 times.
Turning now to the business under strategic review.
We remain on track to sell the U.S. state and local health and human services business to Veritas and the current quarter.
We completed and delivered audited carve out financials for the business, which was an important closing milestones.
And as we discussed previously we plan to use the after tax proceeds from this transaction to pay down debt.
Additionally on July Twentyth, we reach an agreement to set our health care software business to identify those group for $525 million in cash.
This was an opportunistic transaction.
This was looking to broaden the software portfolio.
And we were able to realize an attractive value for the asset.
This transaction is expected to close by our fiscal yearend.
And we plan to use the after tax proceeds of $425 million or $400 million to $50 million to pay down debt.
Turning now to the horizontal DPF business and the workplace assets.
We continue to be in discussions with interested parties.
Strategic evaluation process has taken longer than anticipated due to due to the current coven environments.
But were focusing also on finding the right strategic fit for our customers and employees.
And so that's part of this process. We're also evaluating the benefit of retaining these assets.
We expect to make and final decision on the best path forward for these assets by our next earnings call.
Turning to other financial highlights.
Free cash flow in the quarter was a negative $28 million, reflecting the timing of annual payments of software licenses and maintenance and also a slight increase in working capital in the current coven environment.
We expect adjusted free cash flow to be positive in the second quarter.
Our capital expenditures, including the payment on capital leases was $382 million into quarter or 8.5% of revenue.
Cash at the end of the quarter was $5.5 billion, our total debt, including capitalized leases was $12 million for a net debt to total capitalization ratio of 38.4%.
As we stated previously we plan to use the proceeds from the sale of the U.S. state and local health and human services business to pay down debt.
On a pro forma basis total debt, including capital leases would have been less than $5.5 billion at the end of the first quarter.
That this assumes we had a minimum cash balance of $2 billion, which has a more normalized level absent this cove it environments.
During the quarter S&P and Fitch revise their ratings.
See to triple B minus and triple via respectively, but upgraded our credit outlook from negative to stable.
Now we remain committed to maintaining a strong financial position consistent with an investment grade credit profile.
The after tax proceeds from the sale of the health care software business will only serve to enhance our financial flexibility.
So in closing, we expect revenue to stabilize in the second quarter in the range, our $4.4 billion to $4.45 billion.
Margin in the second quarter should improve sequentially to 5% to 5.5%, reflecting additional contributions from our cost optimization initiatives.
We are targeting on non-GAAP EPS into second quarter to be 30 cents to 35 cents based on an effective tax rate of about 35%.
And with that I'll now turn the call to Mike for his closing remarks.
Thanks, Paul in summary, we had a positive start to the year.
Now, let me share with you three key takeaways first on customers I'm pleased to say that we have fixed the challenged accounts and those issues are behind US, which was one of my top priorities when I started with the ICSI.
We've rebuilt our customer relationships and re instill confidence in our delivery capabilities, enabling us to stabilize revenue.
Our people in the new leadership team are key to this turnaround.
They are fully engaged in their efforts are being recognized by our customers.
Second on profitability, we're making clear progress on our cost reduction target of 550 million for this year.
We're ahead of plans, but clearly this is not the end state.
We know the industry profitability benchmarks and have a number of levers that we will execute over time to close our gap.
Beyond this year the opportunities that we have already started to include the consolidation of real estate in data centers.
The use of technology like bionics across more of our delivery footprint.
And finally further optimization of our organization through pure emitting offshoring and contractor conversion.
Third on the market, we're making good progress capturing an opportunity that is unique to us.
In challenging times, we've seen customers turned to us for their 18 needs because they know us They trust us and we've delivered for them for years.
So in closing we believe the positive momentum that we created in Q1 will carry over to Q2 and will be another positive step full forward on our transformation journey.
And with that operator, please open the call up for questions.
Thank you if you would like to ask your question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.
Again, Please press star one to ask a question, we will pause momentarily to allow everyone an opportunity to signal for questions.
And we will take our first question this will come from Lisa Ellis with Moffett Nathanson.
Staff here and I never got six quarter look I know that.
Rapid revenue stabilization quarter to quarter. Its is a key is a key factor watching very closely Mike I know you highlighted some things like that 40 challenged accounts, but can you maybe give a little bit more commentary I know you'd mentioned in the past the top 200 accounts just what what are the factors, giving you confidence that we're gonna see that's.
Revenue stability, when we get into to queue. Thank you.
Lisa Thanks for the question I don't always good to hear from you be a look at ever since I started securing the customers and it's not just the 40 right. It's all of our customers.
Around making sure that they had confidence and not only are delivery, but also how we were dealing with them. So when I talk about the new Dx see I talk about it being focused on our people in our customers because we've always said right. If you lose the people you lose the business. So we're very focused on that are people.
Our engaged our customers are seeing it and based on that we feel very good about the stability of the revenue.
And that's what that's what we're saying around Q2, I think that's going to be the step in the right direction and then specifically what we mean by stabilize revenues is that you ought to expect it will be either flat or slightly up quarter on quarter.
Okay, and then could you give me maybe for my follow up just a question on talent I know you just highlighted that and I know Dx he doesn't disclosed talent metrics like head count attrition or utilization and but can you give us a sense for how those metrics are trending maybe maybe like voluntary attrition in particular.
Larry just over these last few quarters, how are you feeling about that the morale in the labor base. Thank you.
So let me give you you know one let me give you even a different stat. When I started we took an employee engagement survey.
We recently finished that we've got our board meeting next week and employee engagement is significantly up significantly and they were actually seeing the fact that the town halls that I'm doing that the town halls that the leadership team is doing the engagement on how we've dealt with them during covert now.
19, and also social in just as it matters and they're definitely paying attention I can't think them enough because without them.
Right, we don't stabilizes revenue without them, we don't deliver for the customers. So very pleased with our employees are engaged.
Excellent. Thank you Aaron nice personal tough environment in flat.
Thanks Lisa.
And we will take our next question this will come from Rob Borgias with deep dive equity research.
Oh, Hey, guys, Hey, so I want to ask more about where you're going with margins I recognize there's there's definitely definitely a bunch of cove, it impacts and moving parts with your divestitures, but.
But at the same time, you're citing revenue stabilization and progress on your cost actions. So it'd be great to get your thoughts on your margin prospects for the rest of this school 21, if you can say a little bit even beyond Q2 that would be really helpful.
Right. Thanks, and again always good to hear your voice be up first let me give you some context right to the when you look at what we're doing first of all we're managing a transformation journey second now we have added another strategic alternative that we're managing and then.
Obviously, we're managing covert 19, and I think for doing that incredibly well, meaning we're making very good progress. So again I don't think it's the right time to give guidance, but here's what I can tell you I've got the entire organization focused on expanding margins and that's where you're going to see.
In Q2, and should continue to see quarter on quarter for the rest of the year.
Now what do I say that I say that because we're making very good progress against the 550 million in cost savings now beyond Matt we still have the multiple levers that I talked about in my prepared comments and that stuff that we're already working on flight consolidation of.
Real estate.
In data centers right I mean, we what we want to do with our employee base is defined a new employee experience. So the folks that are working virtual are incredibly excited about that and that will allow us to deal with a the consolidation of real estate second is the use of technology alright.
You know that's part of my play book, you know I've used that in my past bionics is very good but there's more technology that we can put on this delivery footprint with the node.
And then last.
We're very focused around starting to optimize the organization the organization was not ready to optimize.
So when we started a here a de exceed okay. Now we've got things stabilize with customers alright, we like where are the the revenue is so us now looking at pyramid and also offshoring to rate make sure. We've got there right mix is important and then.
Look I talk a lot about the employees, okay and.
We're very focused on contractor conversion.
Because it's very hard to build a culture, if a significant portion of that workforces contractors and we're definitely all over that alright, and you know the contractor base sees it in feels it.
So what I would say rod summarizing that whole thing is that look all of these points will help us close the gap on the industry benchmarks. So I'm pretty pleased with where we're going I'm not only immediately but also long term.
Great and just just a quick follow up you mentioned the sabre deal I'm very interested in that contract since Sabre had earlier announced they were moving to Google cloud. It seems significant now that sabre is now signing a deal with the exceed two.
Can you talk more about that situation, particularly if it's indicative of what's going on at other accounts.
Is the sabre situation, a case of a customer facing challenges to switch away from a from a legacy service provider or is that just a case of de ICSI fixing a customer relationship can you just elaborate there.
Okay. So.
Look right on Sabre, we're thrilled right, we're thrilled to be working with.
Sean we're thrilled to be working with Google.
And it wasn't just fix in a relationship right.
When I talk about the new Dx see it was literally bringing our analytics our apps, our cloud and security in our IPO capability to showcase in front of Sabre. So when you look at dead deal. The thing I like best about that deal, which is indicative of other deals large deals that that we've gotten a pipeline is it.
Full enterprise stack now what do I mean by that.
It's got every single layer in the stack that are that we show roughly 70% of it is IPO.
Roughly 40% of it as cloud and security in apps and then the final 15 is analytics and engineering. So we're we're thrilled.
Right by by that deal. The other thing I will tell you is this the industry continues to talk about the cloud to cloud to cloud.
Right and we believe in the cloud we always have believed in the cloud we think that the industry, though is going to take a very balanced approach, but we talked about during the last earnings call is that we views virtual clarity across 135 of our top 200 accounts.
And over the next two years those clients aspired.
To move 20% of that critical work, which is where the industry is now moving critical work to the cloud, which won't happen overnight, but when you went through the process of technical feasibility risk business case and.
The ability to execute.
That cloud percentage dropped to 5% and what was telling about all that analysis is the existing IPO work.
Our clients one at 60% of there the remaining work to be modernized now what do I tell you all that I tell you all that because it's a balanced approach. It's an end right you got to do I T O and you got to be able to do cloud.
And what I had a client tell me this quarter was wouldn't Deoxi is the engineers for engineers like we know how to do the engineering work, whether it's on prem or in the cloud. So I like I said I like the sabre deal not just because it got us back in to a client that was.
Moving away, but more importantly, it's a full enterprise stack deal. So that's probably more than you wanted to hear but those are my thoughts on the sabre deal.
All helpful. Thanks, guys.
And we will take our next question this will come from James Fossett with Morgan Stanley.
Hey, guys. This is Jonathan on for James Congrats on a quarter.
Can you talk through some of the mix of work you're seeing from the challenge accounts and potentially some of the pricing considerations and those accounts.
So Jonathan Thanks, So first of all in the pricing.
You know I, just talked about our margin alright. So.
We're very focused on obviously growing revenue and stabilizing that revenue, but also making sure. Those margins are good all right. So we like the margins were getting with the new work and we're we're incredibly disciplined around that now that the work on the challenged accounts.
Is again full enterprise stack I mentioned during the last earnings call, but we were pursuing our top 200 accounts to cross sell that's one of the reasons why you spend all this time to make sure. These customer relationships a rebuild I've said it over and over again that.
Lines give trusted people that have delivered for them more work and what we're seeing is we're seeing the work across the stack.
We're seeing in the analytics in engineering.
Offering primarily fueled by not only dfc, but luxoft. We're also seeing it with cloud and security in apps and then the final piece is again as people move to the whole virtual.
Mindset is people started to take real notice to be I T. O layer. So in some cases, we've helped them sure up that layer in some cases weve quite frankly shut down some of <unk>.
The IPO layer, because we can we can see great ways to get cost savings. So that's what we see and that's just not for the 40 accounts are a foot. It's also a crossed our our top accounts Jonathan.
I appreciate the color. There can you also walk through the puts and takes around horizontal b P. S and the considerations you're taking there in terms of evaluate potentially keeping that asset I believe that that disclosures netting to you.
Yeah, I mean look that the the way I always look at these alternatives in first and foremost is it the right thing for customers and as at the right thing for our people, Okay, and you know my background pretty well I'm pretty deep and VPO, alright, and if I cant feel comfortable with that.
Ed and if I cant feel comfortable with the value that we're getting out of that then we think we can create shareholder value by keeping it. That's clearly one of my strengths in my past and I can see clear to Oh, yeah to fix in that business, if we need to now having said.
That you shouldn't take away that we're still not trying to work deals okay and we've got a few work in immediately and like Paul said, we plan on landing both the bps in the workplace strategic alternatives.
Basically before the next earnings call Jonathan.
Super helpful. Thank you.
And we will take our next question this will come from Ashwin Shirvaikar with Citi.
Hi, Thank you Hi, Mike Hi, Paul.
I guess, what whiplash good to see me hey, good to see any quarter to quarter program, but the strategic and tactical I wanted to start by asking you about.
About being caught some what is your target to neighboring I'm thinking post take it to ask Andy Andy have can.
Software sales and the associated pay down.
Shouldn't you be getting to a inappropriate and level of leverage with other uses of cash become a more like.
So ashwin the thanks for that question, all right and much like the guidance I'm not going to talk about the alternative uses of cash whether it be dividends, whether it be buybacks, whether it be potential acquisitions because again we.
Where we ours, we're laser focused right this quarter to quarter progress. The you all have seen now there's a lot of work, okay and couldn't be more thrilled with the progress that we're making but with the transformation journey, we got going on with now before.
A strategic alternatives and covert 19.
You know look we just don't thing, it's the right timing to comment on that.
Gotcha Okay.
What I would add as that we're just really as we mentioned all along we're committed to an investment grade credit profile and our balance sheet.
You heard today isn't stronger.
We have quite a bit of liquidity and all these transactions are going to the two particularly the.
The two that are have been teed up already.
Well it has our financial flexibility longer term I guess I'm going to work or two to maintain that set us on financial.
Position and.
Debt to EBITDA of two times, our last would be probably our targets.
Understood.
The second question is about the 515 cost saving can I ask this because one of the private portions of cost cutting and optimization.
Excellent too fast to de Klerk customers talking please.
So let me say you're going faster.
How are these cost optimization initiate is different and how to be smarter, what specific action taken out taking any any incremental kind of Dan.
Okay. So the key thing is this right.
Is with the 550 and cost reductions we're focused on the delayering and what I said in.
The last call is that look what I've seen in this okay and its key right because you can't fix customers and take the cost out right. You know you would you would hear some rumblings, but what I noticed in my detailed reviews that I didn't the first six months is we've got layer.
Others.
Within de exceed that are causing complexity and confusion.
And I validated that with our customers almost to using individual names to say have you seen these folks show up.
On the account.
Okay and look what I want to do is I want to make sure in this what we're doing is that our detailed folks that are doing the work.
I have a direct line to our customers and our account teams and that's what we're doing we're cleaning that up and you know so I'm very proud about the work we've done I'm also very proud about how we've how we've simplified the organization because that's you know that's incredibly important.
The second thing I would say is this we're being very transparent with other people.
Okay, I do monthly town halls, with our people we talk about it.
I've talked about what we're doing where we're going and the specific words are we want our people to be making customer impact.
So I would say three things one the delayering is is key to his customer impact right, if you're not making customer impact and I want to understand you know what we're doing and then the last thing is the fact of we're simplifying the organization.
Ashwin.
And you know I think that's that's basically the the right way of looking at the 550 and why we're being successful this time around versus last.
Understood. Thank you for Nick.
And we will take our next question this will come from Jason Kupferberg with Bank of America.
Good afternoon, I know you're targeting the a book to Bill of one data and the second quarter. I was curious if your expectation is that that would be weighted towards GBS again, similar to Q1 or do you think it'll be more balance based on what you're seeing around near term pipeline conversion.
No. So it definitely will not be focused on on a on GBS. It will be much more balanced between GBS. Some GE is actually when I look at them, they're both at at Onex. So it should be it should be a it should be very balanced but.
Like remember, what Paul said about the the IPO pipeline those deals take a little bit longer to do but when you get unlike sabre, they're meaningful and that pipeline a with our focus is has grown significantly we expect to harvest that.
Great. Okay, well, that's good to hear maybe just sort of a follow up along those lines.
I know that a pre coated you guys had talked about investing 100 million into the legacy I T outsourcing business can we just get an update on those investment plans is that all still on track over what period of time sounds like maybe you're starting to see some crudes from Matt.
I mean, Jason had done.
Right I mean, so when I said that basically our focus on our customers is really starting to pay off that investment is what's making that work.
Alright, so us getting closer to those customers.
Making sure that the folks on the account team have the tools the training and then making sure that we also not only use that hundred million on people, but also some of the automation.
You know helps us basically move that forward. The last thing as I said on the last fall is that we're rewarding our folks right. In fact, it's this month, where rewarding our folks that are doing the detailed work all right what I call layers.
One through four with pay increases and again I think that's incredibly important that the leadership of Dixie recognize and rewards our folks for the the work they're doing and that's that's what's happening.
Well congrats on the quarter. Thanks.
Thanks, Jason.
And our next question will come from Darrin Peller with Wolfe research.
Alright, Thanks, guys just to hone in a little more on the bookings again, it's obviously great to see the 1.2 and then the 1.0 for next quarter, but when we think about the types of contracts, you're having obviously one thirtys new can you give us a little bit more of a sense of the actual hard from an horizontal standpoint or workflows standpoint, what exactly.
The is resonating with your clients to most of your offering that you're winning over others.
And just maybe consider also thinking about both for this quarter, what's going on for next quarter and then the pipeline in a similar question.
Okay. So darren back to the pipeline the pipeline like Paul said.
We're seeing an increase in pipeline, obviously across the board most significant an IPO. Okay. The the second thing is what I would say is the analytics in engineering capability that we have is significant and I was actually.
A little bit surprised with how resilient. It was so when we looked at our pre you know our Ur cobot numbers are a pre actually selling into this quarter. We thought that piece of the business was going to be impacted more and it wasn't in fact, they did very well.
Okay. The second thing is exactly what I said.
About the IPO in the cloud what we're seeing is we are the engineers of engineers, what that means is as people move to the cloud they need our help and it's a balanced approach my view of the cloud business right now is the easy stuff moved to the public.
That was the first 25% now what we're dealing with is we're dealing with the critical applications. Those don't move to the cloud quick that doesn't mean that the cloud does not play a pivotal rolling it absolutely does but it's definitely right a balanced approach and that's what we're saying we're seeing.
Some of that work moved to the cloud.
Other of the work they want it modernize our clients want the IPO the IP estate modernized. So darrin hopefully that gives you a flavor. It's a balanced pipeline, we expect to deliver a balanced book to bill across GBS and GE is next quarter.
But we do feel confident about doubt that onex.
Okay, I'm trying to get a sense of what you're you know your clients thing that you have that really your competitors don't have and that's why they're choosing you when those new logos that one third of the bookings that's new sounds like it is a lot of what you're saying around the analytics, though.
Obviously, your capabilities and conversions as well as well. It's also look at it it's the ability to migrate right. The IPO work.
Okay. I mean, you know this IPO business is great a favor for us because every single client we walk into not everything is in the cloud alright. So the net net is us being able to deal with mainframes us being able to deal with areas for hundreds us being able to deal with that kind of stuff that not all of.
Our competition has Darren that's unique okay, and then when we can show up speaking the cloud for Google for Microsoft for Vmware for Amazon That's huge okay. So that's why keep saying if demand story.
Got it that's at that actually makes less sense, just one quick follow up as and when you talked about how you're done with really trying to fix the challenged accounts what are the implications of that I mean, it seem like you were uncovering different issues for the first couple of quarters, you came as CEO, Mike, but now that you're done do you feel like you can really put that to arrest there's no other issues.
You're you're expecting to uncover and just look forward now.
No I mean look different for his many times as I can you just think about.
Basically a week of my time.
Probably everyday that goes by I'm on a customer call in some fashion could be a status call could be means just checking in and then look I'm constantly sending these customers emails about what's going on all right and they would tell me if stuff was not working they.
Because they've got every opportunity to alright.
And they certainly are engaged and in fact, there more inquisitive than I thought about what other capability does do you actually have and us being able to get out there and tell that story is huge okay. So.
Again like to position we're in like the fact that the the customers are our are engaged what I would finish with is this.
This new D. exceed thing is not like a logo.
It is is what we believe it.
Okay and part of that is around being customer focus so when I mentioned about that customer Centricity mindset is built and that's where we're going so I do not expect us to go backwards alright. So again, that's that's the culture that we're dealing with.
Got it.
We see that guys. Thanks.
And we will take our next question this will come from Bryan Bergin with Cowen.
Because actually cheered living on for Brian can you give just a quick update on how the workplace and mobility business performed in the quarter.
Paul the the details of the workplace mobility business again, we saw the demand we converted a two very nice deals that were up over 200 million and TCV in the quarter one for a large.
Electronics company another one for pharmaceutical company, where Jerry we showed up in.
In their time of need and that allowed us right to compete even better for that work.
Because we delivered so Paul would you add anything about the performance of the workplace business.
Yes.
No no revenue side in constant currency I think it was down about a few points Oh close to four point.
4% more again timing of some other things a in the first quarter.
Cobot environments.
What customers were looking to do so.
Overall I think there's our pipeline also is pretty strong right now.
Okay, Great and are there any other opportunistic sales and within the portfolio being evaluated at the moment.
Jerry Lewis and again, our focus is on those for the fact that we added another one you know we've got lot of work and we're doing great at it. We certainly we'll always look to unlock value in our portfolio, especially as we continue to.
Focus on the enterprise technology stack.
So that's a that's how I'd answer that question.
So listen yeah, yeah, Thanks, Jerry what I'd like to do as I want to thank each and every one of you for joining the call and I'd like to highlight that look our strategy to position Dfc for growth has always been based on taking care of our customers and our people.
This focus has allowed us to make good progress on our transformation during Q1, and we're confident that this momentum will continue in Q2, so with that I want to wish you and your families. All the best and operator, please close the call.
This concludes todays call. Thank you for your participation you may now disconnect.
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