Q3 2021 DXC Technology Co Earnings Call
Good day, everyone and thank you for standing by and welcome to today's Dx free technology third quarter fiscal year, 'twenty and 'twenty, one and earnings call.
Quick reminder, that today's conference is being recorded and at this time I'd like to turn the floor over to Murali. Please go ahead Sir.
Thank you and good afternoon, everyone I'm pleased that youre, joining us the EXE technologies third quarter fiscal 2021 earnings call. Our speakers on today's call will be Mike Salvino, co President and Chief Executive Officer, and Ken shock, Although executive Vice President and.
<unk> financial officer.
This call is being webcast Dx and dot com Slash Investor Relations and webcast includes slides that will accompany the discussion today.
After the call Neil posting slides to the Investor Relations section of our website.
Slide two informs our participants per Dx and technologies presentation includes certain non-GAAP financial measures, which we believe provides useful information to our investors.
In accordance with FCC 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 and the webcast slides.
On slide three you will see that second comments, we make on the call will be forward. Looking these statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those expressed on the call. Our discussion on these risks and uncertainties is included in our annual report on form 10.
K and other SEC filings I would like to remind our listeners and technology assumes no obligation to update the information presented on the call except as required by law.
And now I'd like to introduce Dfc technology, as President and CEO, Mike Salvino, Mike.
Thank you Sheila and I appreciate everyone joining the call today and I Hope you and your families are doing well.
I will walk through today's agenda, and a moment, but before I do that I want to briefly discuss the press release, we issued on Monday February 1st.
As we announced last month, we received an unsolicited and nonbinding proposal from <unk> to purchase DXP.
Our board reviewed the proposal carefully with our financial and legal advisors and found it to be inadequate and lacking certainty given the value. Our board believes we can create on a standalone basis by executing on our transformation journey.
After sharing some high level information with that so as to help them understand why their proposal undervalued Dx seat <unk> agreed to discontinue further discussions.
We are confident and our transformation journey and our Q3 results show strong evidence that our team is executing we're flattered that after we saw the value we are creating and clearly has taken notice of our new leadership team and how we are delivering for our customers and winning and the market.
I was pleased with how we manage the proposal as it did not linger we stayed focused on our business and it helps highlight some areas, where we can accelerate our transformation journey and create additional value.
With the new leadership team in place I'm looking forward to sharing the details of our FY 'twenty two.
Full year plan and longer term expectations on our Q4 earnings call. We are also planning on Investor day to discuss in more detail our plans and introduce you to our leadership team.
Now, let me turn to today's agenda I will start by giving you a quick update on our strong Q3 performance next I will highlight the progress we're making on our transformation journey.
Our strong Q3 results were driven by executing against the three key areas of our transformation journey.
Our focus on customers optimize costs and sees the market.
I will then hand, the call over to our new CFO, Ken sharp to share our detailed Q3 financial results and guidance for Q4 and.
Finally, I will make some closing remarks before opening the call up for questions.
Regarding our Q3 performance our revenues were 4.29 billion approximately $90 million above the top end of our guidance. This is the second straight quarter of revenue stabilization and we expect this trend to continue in Q4.
Our sequential revenue stabilization as positive evidence that we will achieve year on year revenue stability.
Concerning adjusted EBIT margin, we delivered 7% also higher than the top end of our guidance like revenue, we expect margins to continue to expand in Q4 looked.
Book to Bill for the quarter was one one and three underscoring the success of bringing the new <unk>, which focuses on our customers and people to the market. This is the third straight quarter that we've delivered a one point or better book to Bill and we also expect this trend to continue in Q4.
I'm pleased about the level of stability and momentum we are achieving we have done well attracting talent and improving the environment for our people and strengthening our customer relationships, taking out cost without disruption and continuing to win and the market.
Now before I go through the progress of our transformation journey I would like to comment on two recent hires that have allowed me to finalize our new leadership team.
We completed our CFO search and hired Ken Sharp turn returns to DXP after being the CFO of Northrop Grumman's defense systems business prior to that Ken was SVP of finance at orbital ATK and has over a decade of experience and our industry.
And as a strong operational focus and has led large scale finance transformations. These skills are important to us as we continue executing on our transformation journey. We also added Michael Corker and to our team Michael has joined US as Chief strategy Officer, and has a track record of transforming and growing.
Businesses.
Michael joins us from W. P P, where he led strategy and operations Friday and W. P. P. Michael was add Accenture, where he spent a number of years with me and created the strategy for Accenture operations.
The amount of transformation and industry experience and this team is substantial and they are the main reason for our strong execution and results.
You will hear and a moment why Ken joined <unk> and his comments concerning the opportunity to create value through a really nice job capturing wide talent joins DXP.
Now I will cover the good progress, we're making on our transformation journey, starting with our customers.
Our focus on customers continues to be the primary driver of revenue stabilization as I've said time and time again, when we deliver for our customers and are seen as a trusted partner customers are more likely to renew existing work and consider us for new work. Let me give you two good examples.
<unk> that have happened in Q3, Molson and Coors renewed two pieces of work with US. This quarter. The first is an application management and the second is across multiple layers of the enterprise technology stack, including IPO modern workplace cloud and security.
Next our strong relationship and flexible delivery model led to an expanded agreement with Pacific Life insurance, which includes application development and support for its retirement and life divisions, enabling them to reduce cost and improve efficiency.
These are two perfect examples of the great job, we're doing strengthening our customer relationships and gives us confidence that we can continue to stabilize revenue.
Now, let me turn to our cost optimization program, we will achieve our goal of $550 million of cost savings this year.
Our cost optimization program was responsible for our strong adjusted EBIT margin of 7% in Q3.
We were able to expand margins. Despite a 200 basis point headwind from the sale of the U S state and local health and human services business, we have done well optimizing our costs and continuing to deliver for our customers without disruption.
Sees the market as the final area of our transformation journey and this area. We are focused on cross selling to our existing accounts and winning work with new customers. The 1.13 book to Bill number that we delivered this quarter is consistent evidence that our plan is working in Q3 15.
5% of our bookings were new work and 45% were renewals. Let me give you a good example of new work with a new customer we signed a three year deal with Ferrari, where we will modernize their it platforms with services, including security and modern workplace.
Our ability to deliver a consistent book to bill number of over one O and the first three quarters of FY 'twenty. One is clear evidence that our transformation journey is not only working but we can absolutely win and the services market.
Turning now to our health care provider software business. We are on track to complete the sale of this business and use the roughly $450 million and net proceeds to pay down debt further strengthening our balance sheet and before I turn the call over to Ken I would like to thank our people.
Customers and shareholders for supporting us throughout our transformation journey now let me turn the call over to Ken. Thank you, Mike Let me begin by saying how excited I am to joined EXE and be part of the team that Mike has assembled.
And we provide you some insight and to my thought process on why I joined and when it came down to three main factors the team Mike assemble the transformation journey and third the investment thesis of how <unk> would create value after spending time with Mike and the team and convinced.
Debt Dx C can execute on the investment thesis I was contemplating this includes stabilizing revenue and expanding margins and delivering free cash flow.
And we achieved this thesis I believe DXP will be successful and unlocking significant value.
Now, let me talk about the team Mike assembled let's face it companies with the best people when the strength of the team delivering on the transformation journey is clearly visible and our Q3 results.
At <unk> there are three main areas that our finance team will focus on first we will work hard to demonstrate the true earnings power of DXP.
We will focus on cash flow paying particular attention to reducing outflows.
We intend to continue investing and our people and delivering for our customers at the same time, we will be disciplined and reducing spend in areas such as restructuring transaction and integration capital expenditures excess facilities and our outsized overhead.
And the earnings release today, you will see that we're providing organic revenue something that we feel will help our investors better understand the underlying performance of the business.
We believe we will create the most value by growing the underlying business and that means organic growth and at the same time, improving cash flow second we are committed to putting in place a disciplined capital deployment program that will maximize the value creation of our cash flow engine.
Based on rigorous analysis, we will carefully evaluate the returns associated with capital deployment options.
And now that we've strengthened our balance sheet, we are turning to solidify our cash flow with a strong balance sheet and a cash flow outlook, we will be and a position to execute a disciplined capital allocation program.
Third we will improve our financial visibility, we are committed to providing annual guidance and our longer term expectations on our next earnings call.
We are also planning and Investor day to discuss in more detail our longer term plans and introduce you to our leadership.
Moving on to that and then moving on to our Q3 results.
And the quarter DXP exceeded the top end of our revenue and adjusted EBIT and non-GAAP EPS guidance GAAP revenue was $429.088 billion better than the top of our guidance range.
Currency was a tailwind of $58 million sequentially and $118 million year over year on an organic basis revenue increased one 7% sequentially organic revenue declined 10, 5% year over year due to previously.
Disclosed runoffs and terminations, we expect this to be the high watermark for organic year over year revenue declines.
As you will see from our Q4 guidance, we expect to continue delivering stable sequential revenue and during fiscal year 'twenty. Two we expect this to translate into year over year revenue stability and.
Adjusted EBIT was $300 million, our adjusted EBIT margin was 7% a sequential improvement of 80 basis points. Despite an approximate 200 basis point headwind from the HHS sale non-GAAP income before taxes was 240 <unk>.
$6 million non-GAAP diluted earnings per share was 84 cents due to a lower than expected tax rate of 10, 2% using our guidance tax rate of 30% non-GAAP EPS was <unk> 65. This was eight tenths and this was.
10 cents higher than the top end of our guidance range.
Q3 tax rate, primarily benefited from the reversal of certain tax reserves related to tax audits. The ex the expectation of higher utilization of foreign net operating losses, and the ability to utilize state tax credits related to the HHS sale and <unk>.
Q3 bookings were $4 9 billion for a book to Bill of 113 like.
Like Mike mentioned earlier, we are encouraged to see three consecutive quarters with a book book to Bill greater than one point out.
Turning now to our segment results. The GBS segment, the top of our technology stack includes analytics and engineering applications and the horizontal bps business. The GBS segment previously included the HHS business, which we sold on <unk>.
Cobra <unk> and includes the health care provider software business, which we are and the process of selling.
GBS revenue was $1 92 billion or 45% of our total Q3 revenue organic revenues increased two 2% sequentially, primarily reflecting the strength of our analytics and engineering business.
Year over year GBS revenue was down 7% on an organic basis GBS segment profit was $273 million and profit margin was 14, 2%.
Margins improved 10 basis points sequentially. Despite a headwind of about 300 basis points from the H H S sale.
GBS bookings for the quarter were $2 7 billion for a book to Bill of 135.
Now turning to our Gis segment, which consist of it outsourcing cloud and security and the modern workplace layers of our enterprise technology stack revenue was $2 $3 7 billion up one 3% sequentially and down 13, 2%.
Year over year on on organic basis, Gis segment profit was $88 million with a profit margin of three 7% a 210 basis points margin expansion over Q2.
Gis bookings were $2 2 billion for a book to Bill of <unk> 95.
Now before I discuss the details of the enterprise technology stack on slide 13, I wanted to point out that there is no better slide that drives home the positive impact of our transformation journey.
The proof points on the slide include continued revenue stabilization and strengthening.
Of our book to Bill for each layer of our stack that has been part of the transformation journey since Q1 as.
As you can see and Q1, all four layers of our stack had negative sequential growth, whereas we are now reporting sequential growth improvement for all layers and Q3 on.
Also it is positive to see the revenue mix beginning to change and shifting up the stack.
Now, let me drill down one level of the comment on the performance of the layers of our enterprise technology stack.
Outsourcing revenue was down one 8% sequentially and an improvement as compared to Q2, where it was down four 7%.
<unk> revenues declined 17, 7% year over year due to the previously disclosed Runoffs and terminations book to Bill was zero point 96, and the quarter. We believe building strong relationships with our IPO customers and delivering effective solutions will improve.
Revenue performance.
Cloud and security revenue was up four 7% sequentially and down 1% year over year book to Bill was one point, though and the quarter moving up the stack the applications layer posted two 6% sequential revenue growth and was down nine 3% year.
Over year book to Bill was one five.
Analytics and engineering was up four 6% on a sequential basis and flat compared to the prior year analytics and engineering book to Bill was one two and the quarter.
Modern workplace and bps businesses increased two 6% sequentially and was down $12 six compared to the prior year.
I should note that Q3 positively benefited from increased volume of <unk> sales.
As you May recall. These two businesses were part of the strategic alternatives initiative and are just beginning their transformation journey.
As a result, you should expect some unevenness in performance moving on to cash flows on slide 14, our cash flow from operations totaled and outflow of $187 million and adjusted free cash flow for the quarter came in at negative $318 million.
As discussed on our prior earnings call, we had cash disbursements of $332 million that impacted free cash flow related to the HHS sale. In addition, during the quarter, we normalized payments to our suppliers and partners.
Our effort to normalize our supplier and partner payments is not expected to reoccur and had an approximate 400 million negative cash flow impact and the quarter and 500 million negative cash flow impact through the first three quarters of our fiscal year.
We believe trading our partners appropriately will allow us to further leverage the partner ecosystem.
These two items had not occurred our free cash flow would have been more than $700 million higher in the quarter.
The company has traditionally reported adjusted free cash flow that adjust for capital expenditures restructuring transaction and separation and integration costs. We are considering changing our free cash flow presentation going forward on slide 15, we detail the efforts.
We have undertaken to strengthen our balance sheet as we previously disclosed we utilized $3 5 billion of net proceeds from our HHS sale to reduce debt. Additionally, we continue to make progress on our plan to sell our health care provider software business.
And we will use the proceeds to pay down debt and further strengthen our balance sheet cash at the end of the quarter was $3 9 billion total debt, including capitalized leases was $6 2 billion for a net debt of $2 3 billion.
We expect to make tax payments of approximately 900 million and Q4 related to our divestitures.
I would like to emphasize our commitment to and investment grade credit rating as you can see our net debt to EBITDA improved more than one full turn from two four times at the end of September 2020, 212 times at the end of December we fully expect.
Our leverage ratio to continue to improve.
Moving on to guidance on Slide 16, we are targeting Q4 revenues of 44 point to $5 billion to $4 3 billion adjusted EBIT margins of 7% to seven 4% non-GAAP diluted earnings per share of <unk> 60.
5% to 70.
Net interest expense of $60 million and and effective non-GAAP tax rate of about 28%.
With that I will now turn the call back to Mike.
Thanks, Ken and let me share three key takeaways on our progress we are making a D. C. First we're bringing the new D exceeded the market and have demonstrated solid momentum and executing on our transformation journey.
This is translating into consistent quarter on quarter revenue stability sequential margin expansion and a book to Bill number of one or greater second as we are on track to complete the sale of the health care provider software business and use the proceeds to pay down debt further strengthening our <unk>.
Alan sheet third with the additions of Ken and Michael We Havent, Bill and finalized and the new leadership team that is executing on our transformation journey and producing strong results and closing.
<unk> I am pleased with the level of stability and momentum we are achieving we have done well attracting talent and improving the environment for our people and strengthening our customer relationships and taking out costs without disruption and continuing and win in the market. We expect all of this positive momentum to continue in Q.
Four and with that Greg. Please open the call up for questions.
Absolutely, Sir and ladies and gentlemen, if you do have any questions. At this time. Please signal by pressing star one on your telephone keypad and if you can.
Just to make sure that mute function and turned off so we can receive that signal.
Again, Thats star one for any questions at this time.
And our first question and I'm going to come from Ashwin <unk> from Citi.
Thank you.
Mike Hi, Ken and welcome.
Good to see the progress here.
Mike you alluded to.
And process off sort of enhancing the customer relationships and.
And I wanted to ask.
What part of it.
And what extent you still playing defense, which is keeping what is figuring out what your clients want and what their perspective is worsening offense and on how successful has the recent push to cross selling day in and so on and what percentage of solid work its sole source and is there a target for debt.
Ashwin first of all good to hear you.
On on the customer relation and.
Shifts the key thing is like page 13, a lot.
That's where we show the enterprise technology stack and the key testament to customers getting better or the fact that they're giving us more work. So I look at that and the reason why I wanted to show you that progress was when you looked at Q1 this year and the minus five points.
And five 7% Youll see that all of that was negative and what we have said point time and time again is that we're going to rebuild these relationships and then we're going to start stabilizing the revenue.
So having all four of the areas of the enterprise technology stack negative in Q1, and then flipping those two three positive with only one negative.
Is huge and that's a testament to what what myself and the team are doing I think the customer relationship area went from a and area of weakness to now and area of strength and then Ashwin just to finish that when you look at that one eight per cent negative on it.
So that's probably and the number on most positive about and proud of on that whole stack because that was the thing when I came in that everybody said that that was the work.
That was moving away from us and it's actually not moving away from us anymore.
The last thing is this.
When I look at the amount of work that we're winning 55% new work, 45% from renewals you can see that the renewals are usually sole sourced and a good portion of the new work also is sole sourced on those customer relationships.
That's great to hear and see.
Yes.
The obvious follow up and become as you look at you in margin sort of business profile, if you bill posted divestitures, including the improving stack.
Can you comment on what and.
And sort of normalized margin profile might look like on at least help us frame debt.
Yeah.
The way I would frame the margin profile as you've seen us all throughout this year continue to expand the adjusted EBIT margin.
We also see that there are still levers we can pull so when I mentioned, the fact of what we've gone through over the next 30 days that we've sharpened our pencil.
And on other areas that we can also pull so those levers would include things like real estate things like overhead Ken's all over the.
The overhead and I've talked before about contractor conversion what that means is on stock I'm going to stop paying a premium for a contractor and hire the person and then the other thing that I am excited about is our operation automation and something I'm done with in my past were done with.
Our our pilot the note has done a great job with that so you should expect from US continued margin expansion.
Got it thank you keep up the good work.
Yes.
Thanks Ashwin, Greg next question absolutely Sir next from Morgan Stanley, We have James Faucette.
Thank you very much.
Mike building on on kind of Ashwin comments, obviously, you've done a lot to kind of re orient the business, you've highlighted multiple times stabilizing and nuts.
Obviously, I think been surprising some people you've been able to do that so quickly sitting here today and we look forward. How are you thinking about quote unquote, where the puck is going like what kinds of.
Abilities are practicing and <unk>.
Think are going to be important for DXP to add and how do you think about going about adding on.
So the James good to hear your voice and thanks for the question.
I have I have said before that when you look at the enterprise technology stack on <unk>.
Take the hand that we have we've got good scope and scale are crossed.
The way that our clients think about technology.
So when you think about whether it's <unk> cloud security application and analytics and engineering. There is stuff that we have to do there and look I know that youre not thrilled about us rationalizing and then delivering but that focus will allow us.
To get to where we need to be on revenue growth because we've got too many things going on and the industry right now and.
And we need more focus that along with the decision that we made.
To keep our modern workplace couldnt be more thrilled that the ecosystem has decided to partner with us specifically, Microsoft and get into to that area with US now having said that we obviously want to see the mix changing too weak.
We've got to move from the bottom of the stack in terms of the top of the stack, but the other stat I will give you is we still have a customer base, where they are aspiring to move roughly 20% of their work over the next two years to the cloud.
But 80% of that work day.
And as remaining 60% they want to see modernized.
So look I like the hand that we have James we're going to continue to make sure we're focused on cell and the stuff that debt we have.
And then I think I will and with you've seen I've got a propensity to buy tactical tuck ins.
I'm not big on buying big things I'm Big on buying things that helped me focus on net enterprise technology stack and then I know can scale through our best accounts, So that's where I take the relationships.
And push it against our offerings and Mary and the two I should be able to sell more to.
Do those best clients.
And that's really useful and then I know you and Ken and Bill talked about preparing a broader presentation for the investment community and a future analyst meeting et cetera, but.
And particularly as it relates to capital allocation and returns but.
As you think about those type of tactical tuck in and is that something that you think you can go through a period of time and and or just be opportunistic or is that something that you end up being kind of similar to the big players and the space on doing on on a on a consistent and kind of proscribed basis net lease in terms of the proportion of capital.
Allocation.
I'll stay James with what we said in our script and.
The fact that we plan on coming back in Q4 and.
And showing you our capital allocation strategy, so and that strategy Youll see.
And our thoughts on dividend and our thoughts on buyback and then our thoughts on investment and with can have and 60 days in the seat 30 of which were were spent in the deal and with the latest proposal I just want a little bit more time to go through that.
That's great. Thanks, a lot.
Thank you James Greg next question Alright.
Alright, and next we have from deep dive equity we have rod bourgeois.
Please go ahead Sir.
Hey, guys, Hey, nice incremental turnaround progress and the December quarter, and you're guiding toward revenue stability.
But the guidance, let me, let me ask about the elephant in the room.
You you apparently just told Actos that its takeover premium was so inadequate debt they walked away, even though it seems merging with DXP with assets that strategic idea.
So to have so clearly pushed off assets as takeover bid.
You have to be banking on a fundamental trajectory for DXP, that's more compelling and seemingly more compelling the on your outlook for revenue stability.
So here's my question.
What fundamental improvement drivers are giving you.
Such conviction to turn down the takeover premium today and im not necessarily asking for fiscal 'twenty two guidance I suspect you're waiting until fiscal 'twenty, one is over to do that but but I would like to ask.
What are the fundamental drivers that are giving you such conviction today about your trajectory and your willingness to turn down the takeover bid.
Rod Thanks, good to hear your voice.
So look I'll cover.
Three items. The first one is revenue stability and again all of these things tie back to what we've been saying all along so on revenue stability. We just delivered our second quarter of revenue stability and have guided.
Towards the third quarter.
So we believe we're headed towards revenue stability year on year in FY 'twenty, two and I think anybody that has followed <unk> would say that's pretty strong accomplishment.
Second is within revenue stability, it's those customer relationships and I know you all do your customer checks and so forth and those relationships are becoming deeper and deeper.
Where they are coming to us as a trusted partner for more work.
The second thing is adjusted EBIT margin that I mentioned to Ashwin.
Bank debt, we are expanding margin and the key thing is sustainability and we believe that we can keep it sustainable along with having levers like.
And the facilities like operational automation and contractor conversion and even overhead to name a few we think we've still got levers to pull on that continue to expand this thing the.
And the margin going forward.
And then look you can't have revenue and margin without winning and the market and we think because of the book to bill of one or greater that the pendulum swung a little bit in our favor.
And we're seeing the need to fix these environments before you can get transformed we think cio's are looking at us now and saying the biggest thing that will kill a transformation to anything digital is if the existing environment doesn't work and that's why I highlighted the green.
<unk> one eight in Q3 from a growth standpoint on a sequential basis.
The other thing is this when you look at our existing customers. There is no doubt they are buying more and I love the progress that we're making on the ecosystem. That's why when when Ken mentioned, what we did with our partners. We are now going after our partners. The same way we did our customers we're rebuilding those relationships.
And because that ecosystems important to us and again I'll highlight the fact that Microsoft was willing to team with <unk> to get into modern workplace. That's that's a game changer. So that's what we were looking at Rod and when you put all that together and take the board through it.
You see more value than than what the proposal was all about.
Alright, so great.
Good segue to my other question I wanted to ask on.
Are you seeing real evidence that dxp's competitive position has improved.
If I look at IBM. It is preparing for its spin off and Thats been a distraction for IBM and the market.
And attitudes behavior suggests that it's it's organic prospects are not too encouraging so you've got two major competitors.
Better and Thats that status.
So, especially given the competitive backdrop, there I'd really like to know if youre seeing any any tangible evidence that your turnaround is helping your competitive position can you share any tangible evidence of what's happening on the competitive front.
So rod the first thing is.
Continuing to go back to the book to Bill number. That's that's tangible evidence I mean, keeping that thing up above one point O is huge and then look it goes without saying, we recently engaged with a competitor and what a competitor wants to engage with you.
You can rest assured they have seen very good trends for us and the market.
So look that's the tangible evidence.
We're very pleased about our position. We're also very pleased that like I said during the last earnings call or at least I I mentioned and just a little bit is the fact that we're very clear about what we got to go get done.
On the strategic alternatives initiatives are over and it's all about execution now so rod Thats, how I'd answer your question. Thanks.
Thanks, guys.
Greg next question.
And.
Next question will come from Lisa Ellis with Moffett Nathanson.
Hi, good afternoon, good day.
And what it says.
First one Mike for you yet another.
Follow up on the <unk> approach.
I would imagine as you are that that's probably not the only one of those that you are going to be getting this year.
So can you just talk.
And more broadly about how you think about the pros and cons of a larger scale merger versus.
What you can do on your own.
Well look.
In terms of what.
What we can do on our own.
We really like our chances okay.
We are confident and our transformation journey and.
And like I've I've shown on laid out a plan and you guys can see that Lisa we're executing against that plan.
It was it was never part of my plan to come here and 16 months and then all of a sudden.
Sell the company you can't recruit a brand new leadership team.
That's your strategy, so I like our chances in terms of <unk> on a standalone basis.
Okay and then.
My follow up is just related to bookings and then also kind of thinking that the sequential improvement in revenue both of which I highlighted are very encouraging.
Can you just talk a little bit about the mechanics, I mean bookings are now been running over one one for about 12 months, which should imply something very healthy revenue acceleration at some point can you just <unk>.
On slides a bit.
And then how that conversion work, meaning are you still in a situation where your backlog is.
And we are low and so you sort of refilling the bathtub so to speak or you go on I mean like what how should we think about on.
When the when the current sequential improvement in revenue combined with like for bookings growth kind of come together.
Bill a few quarters out or how do you think about that thank you.
And we're saying is and we just delivered the second quarter's stability right. So that's debt that's stability Mary's what's happening with the revenue run off because of the terminations with a positive one point or greater bookings. Okay. So just balancing that stuff out so.
Stability means obviously that we're not we're not losing more than we're winning we also guided towards our third quarter of revenue stability. So we're clearly looking at 'twenty two is that year for year on year.
Revenue stability Lisa.
And I tell my team, it's just math.
So what we need to do is continue executing on our transformation journey. So thats the way we look at that.
Terrific. Thank you.
Greg next question.
Next will come from Bryan Bergin with Cowen and company.
Hi, Thank you and welcome.
I wanted to ask revenue trajectory around the IPO are obviously the improvement is encouraging here.
And curious whether there is anything notable on the client portfolio any large deal renewals or and patenting price down and risks to be aware of that would not enable the <unk> to maintain this type of improvement and income in the coming periods and and do you view. This as a business that can ultimately stabilize to specifically the ideal layer or are the sector.
The headwinds here just too challenging for such a plan.
I mean, Bryan I continue to talk about the fact that.
And I gave the stats.
And I took virtual clarity and I went and studied.
And our best clients and again, what they told me was the aspire over the next two years to to move another 20% of the existing work on sitting on to the cloud.
Now after I took them through the analysis, the virtual clarity does which is technical feasibility risk business case and their ability to deliver that 20% dropped to five now.
I don't much care, whether it's 20 or five we need to win our fair share, but Bryan what that means is there's still a healthy dose of this whole secular run off certainly that stuff's going to move to the cloud, but the other thing I would tell you is we are now into the and phase of.
The cloud journey and now what is that.
The ore phase was.
Joe or cloud, which meant that most of this work on on Prem moved to the public cloud one or the other.
When you are now and we and phase you're dealing with critical applications and those critical applications just don't move directly to the cloud in fact here now managing workloads and.
Sometimes the application will move to the cloud sometimes the data will stay there why am I going to this level of detail because the bottom line is the fact that that's opportunity for us.
Meaning if clients want to move to the cloud they need our expertise knowing how to run what they have to move to the cloud and then what I'm focused our team on is the existing states.
So when you talked to a number of our customers you will see that we are building. These estate maps and these are state maps is basically a roadmap for us to say what else needs to be updated on those environments. And then that is the thing thats, helping that green layer and get back to zero look I'm not trying to sell to you that the green light.
There is going to be some sort of growth, but I am selling.
Fact that net thing can be stabilized if you take care of your customers.
So Bryan the answer to that question.
Okay makes sense and then.
And just talking about the workforce and what stage of the talent and refresh are you at how are you thinking about head count and hiring here.
A couple of quarters.
So look I mean.
Absolutely thrilled about our new leadership team and when we hire a new leader and I always talk about the fact that they only 10, new hires and we're going to continue to augment the talent that we have and DXP. So we're now going through.
I think the leadership team has rebuilt on when it get to the middle managers and see how they're doing and then continue to put them into.
Our new operating model that is very customer focused.
So Bryan that's the way I would answer that question too.
So listen I'm on.
And thank each of you for joining the call today.
And I couldnt be more pleased about the level of stability and momentum we're achieving by executing on our transformation journey and we are confident that the momentum we created and Q3 will continue in Q4.
With that all the best to you and your families and Greg Please close the call.
Absolutely, Sir and once again, ladies and gentlemen, thank you for joining us today that will conclude our call. We do appreciate your dialing in and participating and you may now disconnect.
Okay.
And.