Q1 2024 DXC Technology Company Earnings Call

August 2, 2023

Hello, and welcome to the D X T technologies Q1 earnings call oranges and placed on need to prevent any background noise. After the speakers are much there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad. If you would like to withdraw your question again press Star one now.

In the conference over to John Sweeney P as Investor Relations.

Please go ahead.

Thank you well good afternoon, everybody I'm pleased that you're joining us for D X C technologies first quarter of fiscal year 2024 earnings call. Our speakers on the call today will be Mike Salvino, Our chairman President C E O and Rob dealt Betty R. E V. P N C Apple.

This call is being webcast at <unk>.

Website on the webcast include slides that will accompany this discussion today. Today's presentation include certain non-GAAP financial measures, which we believe provide useful information to our investors and according to the SEC rules. We provide a reconciliation of these measures the respected and most directly counter measures. The reconciliation as can be.

Under the table, including today's earnings release and in the webcast slides certain common to be making a call before it lucky in the state of the subject of known risks uncertainties, which could cause actual results to differ materially from those expressed on the call a discussion that these risks and uncertainties are included in our quarterly report on Form 10-Q, and other S. A.

C filings.

I would like to remind our listeners that <unk> technology assumes no obligations to update the information presented on this call except as required by law and with that I'd like to introduce D X C technologies, Chairman, President and CEO , Mike Selvey It up Mike.

Thanks, John and I appreciate everyone joining the call today and I Hope you and your families are doing well.

<unk> gender will begin with an update on our overall business performance next I will update you on the performance of our GBS and Gis businesses Rebel then discuss our financial results in detail provide his perspective on <unk> and his focus moving forward and then discuss our updated guidance.

And finally, I will provide some closing remarks before opening the call up for questions.

Before I get into the results of Q1 I wanted to give you. Some context, we are taking the right steps to shape <unk> into a company that consistently delivers revenue growth and expanded margins EPS and free cash flow.

We're doing this by focusing on our high value growth business of GBS and fixing this historical challenges of our Gis business, along with changing the revenue mix. So that GBS represents the majority of our revenue.

As we began F Y 24, we saw resiliency in our business because in FY twenty-three, we delivered four quarters of revenue stability and a swelling market.

Currently we are seeing customer demand for hardware P. C. As in network devices, along with some project work either stopped or delay to the second half of the year at a higher rate than we anticipated you will see that the resiliency in our GBS business held up GBS performed as we had planned in Dillon.

<unk> solid growth.

In contrast, the Gis did not show the resiliency that we had hoped.

This is not great news I would like to point out that a major piece of the revenue shortfall with resale revenue, which is low margin and we have conscientiously reduced over the last few years to limit our dependency on this type of revenue.

We have made measurable improvements this quarter to proactively change our organization to be more competitive in this market environment, we have changed how <unk> engages with the market by moving to an offering led operating model.

Offering led operating model moves us from a regional model, where leaders were generalists concerning offerings to a global offering model, where the leaders are experts and focused on 100% on growing revenue and margin for their offerings.

This model increases our customer coverage and assures we bring the right skills to our customers to deliver and when new work.

Now let me discuss R Q1 results in the performance of our GBS and Gis businesses.

Organic revenue growth was minus 3.6%, which is about $75 million lower than the mid point of our guidance range.

Or even margin was 6.5% the lower than expected margin was a result of us needing to fine tune, our new operating model to better manage supply and demand.

Our free cash flow was better than expected due to our strong execution around are working capital management <unk>.

<unk> was 63.

And finally after having a strong second half booked a bill for FY twenty-three, we delivered a book to Bill a 0.89 as we continue to replenish our pipeline are trailing 12 month book. The Bill is now 1.03.

Now turning to our GBS business. The G. B S business grew 3.3% in Q1.

We look at G. B S. As a flywheel for <unk> that provides sustainable growth at double digit margins. It has now grown nine consecutive quarters also GBS is 49.4% of our overall revenue.

It is still early days, but we've seen the ability to sell new G. B S work too long standing Gis customers and scaling this will provide a source of upside revenue to our GBS business or.

G. B S offerings are all uniquely positioned in their respective markets.

Analytics and engineering as well position due to our engineering talent are skilled team does not just write code, but they've ring the code together and engineering solutions to make things work better.

A great example are the solutions, we've developed for the dashboard and the cars a b M W and Mercedes.

Our insurance offering is the world's largest provider of insurance software and bps solutions working with 18 of the top 20 global insurers.

Our unique position as we run the platform from Lloyds of London. This platform brings together brokers and writers to create insurance policies for the European market.

We are currently using our customer application team to modernize this important platform, which we believe will be another source of revenue growth.

Along with our custom application skills, we have unique capabilities with enterprise application providers like service now we run one of our largest instances of the service now product.

And we have used our customer application team to embed service now into platform, Max which is our AI tool that monitors and fixes the states of many of our Gis customers.

Moving now to our Gis business as I mentioned, we did not make the progress we had hoped and G. I S and it declined 9.9%.

Let me give you a quick performance recap of our three G. I S offerings are security offering grew this offering provide security strategies and valuable resource to devote proactively in reactively help our customers protect themselves against security threats.

Cloud I T O experienced the largest decline Chris Dromgoole, our former C O O and I are working closely together.

To fix our dependency on underutilized data centers, we own develop a solid pipeline and path to move work to the cloud and use our unique position in the I T O market to take market share from our competitors and improved economics.

An example of US taking market share it better economics was our recently announced a T and T deal, where we will be providing securely managed server storage enterprise back up and maintenance services to a T N T.

After three quarters of consistent revenue in FY twenty-three modern workplace declined in Q1.

We expected that cloud <unk> in modern workplace would perform better in F. Y 24 based on the following three actions we have taken to fix them first we manage the disruption from terminated contracts that happened two to three years ago.

This work takes multiple years to fall off and for the most part it will be out of our numbers. After this year <unk>.

Second, we bolstered our customer delivery and offshore delivery capability to secure the revenue, we maintain and deliver it at better margins.

Third to win more work, we improved our market reputation for example, gardener now ranks us as a leader in modern workplace, we invested in tools to be more competitive like platform X enough time, we're bringing in new work have better economics, and we position ourselves to become the partner of choice to <unk>.

Loud providers as they move workloads that are essential to customer operations to the clouds.

All that being said it will take a little bit more time to get these two offerings to perform as we expected.

Before turning the call over to Rob I want to comment on our AI capability that we have built into both R. G. B S. In Gis businesses, because we believe we are in position to lead the market in this area.

As many of you know AI has been a passion for me I brought this passion to Dixie and we've made focus investments in a I every year that I've been C E O.

We have over 10000 women and men that are trained in AI and we have AI capability and now for out of our six offerings and G. B S. We have embedded our AI capability into boat insurance and analytics and the engineering offerings.

An insurance DSC assure uses AI to better serve customers by providing them insights and answers about the most complex policy questions.

And analytics and engineering robotic drive uses a I to enable cars to be self driving ranging from driving technology to assist drivers to full driving automation.

And G. I S. We have developed AI capability and both our cloud I T O and modern workplace offerings and cloud I T. O R platform X tool uses a I to proactively monitor itea state to detect and resolve issues with one of our 10000 baht to avoid costly business <unk>.

Options.

In modern workplace AI is built into our uptime platform, which we leverage across 7 million devices.

We use a I every time, an employee reaches out for assistance and can resolve up to 80% of those interactions without human intervention, along with using a I to predict issues with P c's and reduce the carbon footprint for our customers <unk>.

The bottom line is all of these solutions are at scale are providing enhance customer delivery capability and are driving new revenue for us.

Now I want to turn the call over to Rob who has been a pleasure to work with and I have complete trust that he will transform our finance organization to deliver the financial analytics to make our results more predictable and repeatable Rob over to you.

Mike Thanks to the introduction and thank you for the opportunity to be part of the D X C team in my brief time here I've been impressed by the intense focus on delivery excellence culture and customers I can clearly see the strategic and long term value of the business.

I'll now provide you with a quick rundown of our first quarter performance covering the important to highlight of where we executed well and where are we fell short of our expectations.

Organic revenue growth for the quarter was down 3.6% with consistent ear tier growth of the G. B S segment being offset by a greater than expected decline in the G. I a segment.

And a quarter, we were impacted by slowdown in customer expenditures. This is mainly the resale of I T equipment, such as P. CS networking gear and servers and project work.

These are projects that are typically below $5 million in size and are sold into our existing account pace. The G. I a segment experienced the bulk of the slowdown the declines and resell and projects are consistent with what is taking place in the industry, but the economic environment impacting spending.

This we believe accounted for the bulk of our revenue underperforming versus expectation with half of the missing <unk> and have an project revenues.

And the first quarter revenue shortfall impacted profitability, particularly since the revenue weakness was not evident until late in the quarter.

All the resale revenue provides little to no bottom line profit it does provide modest cross profit and absorb overhead.

So in the short term the underground and resale revenue impacts bottom line profit.

That's communicated by Mike and the team and prior calls strategy over the longer term is to reduce resale revenue and focus the team on driving services revenues.

The project based services revenue shortfall has a greater impact on profitability as the resources to deliver the higher revenue levels already on board <unk>.

Reducing this excess capacity will be a focus going forward.

<unk> expenses were while managed in the quarter with spending in line with our expectations.

Free cash flow for the quarter was negative $75 million ahead of our expectations due to continued focus on working capital management, including strong collections performance as.

As a reminder of the first quarter seasonally our latest free cash flow quarter. As we made previously planned annual vendor payments for software maintenance and paid annual bonuses.

And I'm moving to our key financial metrics or first quarter gross margin of 21.1% was up 10 basis points year over year of below our expectation due to the revenue shortfall.

SG&A spending was down 6.5% year to year flat as a percentage of sales dip.

Depreciation and amortization was down 10.5% lower by 30 basis points are.

Their income decreased 40 million near tier lower by 90 basis points driven by two factors 30 million dollar decline and pension income and a lower level of gains on sales of assets, which reduced adjusted Ebert by 17 million year over year <unk>.

Taking this all together adjusted EBIT margin was down by 50 basis points year over year, excluding pension income and asset sales EBIT margin is up 60 basis points year to year.

non-GAAP EPS was down 12 cents compared to the prior year.

The E. P. S reduction was driven mainly by the lower pension income and a lower level of asset sales in the current ear.

A higher tax rate compared to the prior year reduced non-GAAP E. P. S by eight cents, but this was fully offset by the lower share count, resulting from our ongoing share repurchase program.

Now turning to our segment results.

Our business mix continues to trend to our higher margin G. B a segment.

As a percent of total revenue G. B S is now 49.4% up 60 basis points sequentially mantis.

We anticipate that this trend will continue and that in a matter of quarters. The G. P. S segment will be the majority of our revenue.

G. B S grew 3.3% organically and posted a ninth consecutive quarter of organic growth, which reflects the deep industry based customer value delivered by the G. P. S team.

The G. P. S profit margin declined 60 basis points year over year, reflecting the capacity required to continue to drive future growth and the impact of lower pension income.

Turning now to G. I S organic revenue declined 9.9% driven by declines in cloud infrastructure, and Ikea and moderating declines in modern workplace.

I asked profit margin decreased 130 basis points year over year, driven by the reductions and pension income reduce gains an asset sales and revenue impact of clients to laying project based services.

Now, let's take a closer look at our offerings.

Analytics and engineering revenue performance was up 8.8%, which is slightly ahead of the fourth quarter growth rate.

This is very solid performance and the current demand environment.

The book to Bill was 1.03 acts and trailing 12 months number is a strong 1.1 xxxx.

Applications revenue declines 70 basis points similar to the fourth quarter decline the.

Trailing 12 months of the Bill is 1.06 X.

The application offering team has made good progress expanding our capabilities and success and enterprise applications, such as S. A P and service now.

Insurance sophomore bps continued to grow out with revenue up 5.1%.

The insurance SAS component of the portfolio grew 8.5% <unk>.

Insurance software and deep insurance industry bps skills of our team is resonating in the market.

Security had strong performance up 6.8% year to year <unk>.

Cloud infrastructure in I T outsourcing declined 12.7%.

This business was significantly impacted by slowdown in both resale revenue and project based services revenue to.

The resale reduction accounted for almost five points of the revenue declined while project based services revenue accounted for two and a half points.

Also impacting revenue as the wind down of several contracts had terminated some time ago.

The headwinds from these contracts will continue throughout the year and combined with the reduced resale revenue will result in I T O and in the negative high single digit range for the remainder of the year.

Now turning to modern workplace.

Based on our performance last fiscal year, we anticipated moderating declines going forward. However.

However, like cloud infrastructure in I T O, we experienced the slow down and project based services that impacted revenue.

We have also experienced several clients moving from a virtual model and taking work back in house further impacting revenue. These.

These two factors drove the five per cent decline in one too.

And we are anticipating continued year on year declines for the remainder of the year.

Turning to our financial Foundation, which the team has consistently managed.

As anticipated three months ago that levels increased modestly in the first quarter to 4.6 billion.

We continued to tightly manage restructuring tsi expense, which was 21 million in the first quarter.

Operating lease payments and the related expenses were 90 million down $16 million a year to year.

Continue to manage new lease commitments in an effort to reduce our real estate footprint.

Capital expenditures picked up to 202 million in the first quarter impacted by plant annual software renewables.

Going forward, we expect to continue the progress that has been made lowering our capital requirements and drive free cash flow.

Alright, and suddenly so rich of nations were reduced by 14 millionaires here in the first quarter. Another indication that we are lowering future commitments.

As a percentage of revenue capital expenditures at least originations increased to 7.3 per cent of revenues with the increased due to the annual software renewal.

Turning to capital deployment, we made continue progress on our latest billion dollars share repurchase program during the quarter.

As you remember from our last earnings call, we completed our previous billion dollars share repurchase program in April .

Assuming the current share price the approximately 800 million remaining from the billion dollar program would equate to removing approximately 15% of the current outstanding shares and please remember this is on top of the 21% of shares we've already removed from the share base.

As a result of the areas of weakness that I discussed earlier, we are lowering our guidance.

We expect second quarter organic revenue to decline minus 4.5 per cent to minus 5.5%, reflecting that continued difficult economic environment impacting resale and projects.

Most significantly in I T O in modern workplace.

Ah just it EBIT margin of 6.5% to 7% with a revenue shortfalls continuing to impact profitability.

We expect to improve adjusted EBITDA margins in the second half of the year is our cost optimization efforts to take hold.

non-GAAP diluted EPS of 65 cents to 70 cents.

Turning to our full year guidance.

We are reducing our organic revenue growth to negative 3% to negative 4%.

Ah Justice EBIT margin is now 7% to 7.5% impacted by the lower revenue and partially offset by cost reductions in the second half of the year.

We're continuing the successful initiatives from fiscal year of 23.

<unk> on staff and contractor optimization, reducing our real estate footprint in third party spending.

Noncapital looted earnings per share of $3.15 to $3.40 or non-GAAP EPS guidance reflects a tax rate of 29% and our expectations for the timing of our share repurchase initiative.

Our non-cash EPS guidance does not reflect potential losses on asset sales that we are evaluating.

While potential sales drive cash they may have an associate it non-cash book loss.

And lastly, free cash flow of $800 million down from our previous guidance of $900 million.

Now before I turn the call back over to Mike allow me to comment on my immediate priority.

Which is to produce the metrics and analytics, meaning the financial headlights to drive predictable and repeatable results.

I will add a line of financial teams to support the offering led model and drive enhancements to our processes and systems.

The offering led model fully supported.

They'll give us transparency of financial performance and financial returns of the offerings, enabling focused operational management targeted investments portfolio management and help us confirm our strategy.

I expect us to make steady progress with this finance transformation.

And with that let me turn the call back over to Mike for his final thoughts. Thank.

Thank you, Rob and let me leave you with a few key takeaways G. B S. R. A high quality growth business that we are proud of and is performing in a tough project based environment.

We are actioning the cloud a T O in modern workplace offerings of G. I S, which had been impacted by the slowing I T market and are keeping us from making the progress. We desire. We are still confident that we will stabilize the performance of these two offerings.

We have made improvements in both leadership and our operating model to grow our company and to be even more competitive.

We are managing areas that we can control very well like free cash flow and restructuring and tsi and the financial analytics that Robin is team are focused on building will allow us to deliver more predictable and repeatable results.

We can see the value we are creating in D C and because of this we will continue to deliver on a 1 billion dollar buyback, while maintaining our investment grade credit profile.

While the execution of any transformation journey is never a straight line. We feel strongly that we are making the right longterm decisions to position <unk> for success with that operator, please open the call up for questions.

Thank you if you have a question. Please press star one on your telephone keypad, if you wish you remove yourself.

He was just on again one moment. Please for your first question.

Your first question comes from the line of Brian Bergen Cowan. Please go ahead.

Hi, Thank Ms <unk> on for Brian <unk>.

On the corner at a higher level do you think about the man played off just kind of looking to dig further until what changed so quickly here and and two and a half months just to cause the magnitude of this guidance and and also as we think about the guidance framework has anything changed their given the lower visibility that is seemingly an issue.

You hear in the current environment.

So is that thanks for the questions. The first thing I would I would draw back to when when we guided.

We began F Y 24, and we saw resiliency in our business and specifically I would highlight the fact that we just came off of delivering four quarters of stable revenue and we saw the slowing environment during Q3, and Q4 last year, but the revenue stayed stable.

The second thing that's really key in this in this whole situation.

Nation is the fact that the work we do is essential for our customers and because of that we saw the levels of spend continue in terms of hardware P. C's and also the maintenance projects that go around maintaining these I T a state.

<unk> F Y twenty-three so when we got it F Y 24, we expected that the revenue could stay stable and that we could continue to play through a slowing iced tea environment, because we had fax around what the revenue was.

So when I look at two one and also the four year basically what we've done if you take a step back you will see the G. B S is fine he grew exactly the way we thought it was we're happy with it and if when you dig into the offerings the offerings seem to be doing just as well so.

<unk> the issue that we're talking about here is contained to cloud a T O N modern workplace a G I S S.

And when I say contain when I look at the the numbers the numbers basically haven't changed much we actually thought the numbers, which start heading towards mid negative single digits and now that you've heard from us they will stick around high negative single digits and there's.

Two reasons for that the first one is now the resale revenue in the resale revenue is the revenue we get by selling hardware and P. C's and so forth that we've consistently told everybody that's low margin and our strategy is to take that revenue down and as we take it <unk>.

Down replace it with service revenue and what's happened is that's accelerated we've clearly seen that in the quarter half of the medicine. The quarter. If you look at the mid point being 75 million half of that was resale and then we carry that thinking all the way through the rest of the year and.

And the reason why we carried it through the rest of the year was because we don't plan to chase that low margin revenue.

So if it if it makes sense will do it but we're not going to all of a sudden try to chase that and that goes back to the whole sales philosophy that we've had around making sure that we do these new deals that better economics. So that's resale revenue.

The second piece is what we referred to with services project work in that project work typically is the essential maintenance that needs to be done to these at night T. S States and what we've seen is those projects have been pushed and what we that's the other half.

Of the missing Q1.

And what we did with looking at the project work as we first of all said look the clients need to spend this and what what we're seeing is it looks like they will spend it in the back half of this year.

Was we adjusted the operating model, so I'm looking to see the getting the benefits out of that operating model change towards the back half of the year and what I mean by that is customer coverage to literally sell these projects you Gotta you gotta sit with the client and describe the value or potentially the risk.

And we think to the adjustment in the operating model will move this forward. So that we will recover some of this in the back half of the year.

Zac hopefully that that takes into account your your questions.

It does and just a follow up on on free cash flow and and related on margins I guess given.

Given the cut off on the revenue and earnings supporter surprise treat the free cash flow via without reduced even further so maybe you can speak the levels that are partly insulating free casual here and and maybe what you're doing to touch support expenses without cutting into the bone.

Yeah exactly robbed <unk>. So thanks, thanks for the question.

Look what when we take a look at the EBIT margin that we expect to perform at that level for the remainder of the year.

<unk> take a look at the working capital levers we have.

Taken altogether, we we are confident that we could achieve the suggested level of of $800 million.

So we have.

What we have cost reduction plans that support the ebay.

At the margin that reduce margin and we have no operational actions in line of sight.

To deliver working capital and capital expenditure reductions to get to the 800.

<unk>, let me add to that because you have seen that we've been focused and will continue to focus on our expenses and we still think there's more room. There. In addition to that we think that our cost takeout initiatives will deliver at the same levels of F Y twenty-three if they did.

<unk> at the same levels of the FY twenty-three then.

Remember we generated 737, so we're gonna be we're gonna be right. There. So we think we think that's that's a good guide so thanks for that question.

Thanks.

J L next question.

Next question comes from the line of Rod Bushwa of deep dive equity research. Please go ahead.

Okay, guys, Hey, thank you so but when I ask a question about maybe the linearity of what you're seeing in the more cyclical part of your business. This project base work in this resale work have you seen any improvement maybe since the corridor.

Close that gives you.

<unk> I'm more encouraged outlook as you moved into the later stages of the year and I guess I guess more specifically on that you indicated that you do expect some project work to return in the back half of the year, but I think you also earlier said that you think it will take time to essentially get the I T O and the <unk>.

Place business is back on track. So my question is about the linearity of this cyclical demand issue that you have and and whether your guide and your updated guidance.

<unk> that the project based work will improve meaningfully in the back half of the year. Thank you.

Okay. So ride if you if you take them in both pieces first of all the resale revenue. We didn't expect that so if you didn't expect that to to get better throughout the year.

So you will see that in the guide the majority of the the the adjustment is around their resale revenue cause like I said.

We've typically seen that it's been around 25% down we seem to have been able to play through that and 2324, but we definitely didn't do it in Q1, so we carry that all the way through.

On the project stuff. The project work doesn't always just impact I T O cloud a T O N modern workplace, so glad I T on modern workplace. We're gonna go hard after that project work, but there's project work in the other offerings that are performing wealth and we <unk>.

Back that we can increase that project work in the in the back half of the year. So that's basically the guy. So you should take what we're doing in Q1 and push it all the way through the year and then for resale and for the for the project based services and stuff.

You should see an uptick in the back half of the year.

Okay, and I want to ask another question that I'm seeing you know it kind of on the heels of this this update that you've given you definitely saw other big players in the industry have to lower their guidance for the year because of a cyclical challenges.

Accents, you're an emphasis both had big guidance reductions Uhm you also during that same corridor had a CFO transition. So I guess, it's worth asking if the CFO transition contributed at all to the shortfall and the expectations.

And then and then perhaps if something was learned about ways to kind of stay in front of that to be able to track. These things to to recognize them a S. A P and make and make adjustments and I'm I'm really asking that because I do think it was a challenging quarter on the macro but I also want to get these investor <unk>.

<unk> in about whether the CFO transition had any impact and whether there was some lessons learned.

So right I would say it had zero impact what I would tell you is that we change the operating model in the quarter and the operating model. We went from a regional model, which you know well right you've been in the industry for a long long time, so the regional model.

Oh Wow is our leaders to sell any of the six offerings and they typically will sell the offerings Nino best.

So if you're if you're trying to drive this sort of change and you really want to get these offerings to move within the best way to do it is go to a global offering model, which is what we've done and what we talked about his analytics and and engineering, along with insurance being our flagship two offerings.

<unk> to get benefits out of that in the back half of the year as we're still working through making some of the adjustments, but I look at the softness that we see in the project work as the the challenge to the operating model nothing else.

God, a J O next question.

Alright. Your next question comes from the line of Keith Bachman of B M O capital markets. Please go ahead.

Hi, Thank you Mike I wanted to play off something you said about asset sales, maybe being part of.

What happens over the next couple of quarters and to.

Put it in context, if I think about what's going on on essentially half of your business.

And your growth would be.

You know much improved without bumping like workforce management, so I just wanted to revisit.

On the broader to seeing is there a sense of.

Less is more in some areas that you haven't been able to turn around.

Despite.

Having some opportunity do so over the last year or so or more is there more.

That you could do on.

A <unk>.

Getting rid of underperforming assets to try to help the financial condition of the broader D. <unk>.

So keep thanks for that question, what what I would say to that is look we're always looking at all of the offerings and the key thing to the offerings is right. Now we think that we can sell new G. B S work on the G. B S.

G I S longstanding customers alright, so and we're really starting to see an uptick of that so anytime you get rid of an asset that is not the best thing for our customers. So we think collectively that.

<unk> will be better off if we keep everything together now back to your question about us not be able to move cloud.

Cloud in I T O in modern workplace.

Over the last several years.

It's not like we're not not trying to adjust the business and one of the things I keep calling out is two things one data centers. The fact that we're looking to sell those data centers and then the second thing is R. A.

<unk> now because we have delivered for these customers and we haven't sold these assets.

Because we've got an entry way into those customers the cloud providers like what we're doing and what we Wanna do is be the the partner of choice to the cloud providers as they're moving that last set of work, which is so essential and critical to our customers to the cloud.

So that's where we're headed I would tell you more to come but we are not just sitting here looking at these numbers and and not thinking about other things to do but they do take a little bit of time to get it done so.

<unk> that's the answer to that question do you have a second one.

I just wanted to go yes, Sir I did thank you uhm on the free cash flow to Ebert I heard the answer to a previous question on why the free cash flow performance is better some working capital tweaks and I wanted to ask it.

In the context of are just working capital drinks are you sort of you know borrowing from you know next year's potential free cash flow generation by some of the things that you are doing to support the 800 target versus a more significant degradation associated with the EBIT line.

Keith This is Rob the answer to that is no I mean, we we think.

Or operational improvements that will benefit us over the longterm.

Which which will help us drive capital savings over time.

And get get the receivables to what we think is the right sustainable future level.

So we're we're not trying to accelerate anything temporarily we're we're more focused on just operational discipline.

Getting to the right levels, you know as I said on a sustained basis.

Alright, Thank you very much.

Welcome.

Again, if you would like to ask a question press the start and then I have one on your telephone keypad. Your next question comes from the line of Lisa L. S of Moffitt Nathan <unk>. Please go ahead.

Terrific. Thank you for taking my question.

Maybe Mike.

Higher level and you may not really have an answer to this but just looking at the evolution of.

<unk> revenue trajectory here to start the year either.

Are there any more I guess strategic our transformation all types of changes you considering <unk> to maybe help kind of you know bend the curve here a little desk.

You know I know, obviously, you've done a lot of portfolio adjustments Uhm I'm, just thinking about what other things might might be on the table when did they be.

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