DXC Technology Company (DXC) — Q2 2019 Earnings Call Transcript

Thank you, and good afternoon, everyone. I'm pleased you're joining us for DXC Technology's Second Quarter Fiscal 2019 Earnings Call. Our speakers on today's call will be Mike Lawrie, our Chairman, President and Chief Executive Officer; and Paul Saleh, our Chief Financial Officer. The call is being webcast at dxc.com/investorrelations, and we posted slides to our website, which will accompany the discussion today. Slide 2 informs our participants that DXC Technology's presentation includes certain non-GAAP financial measures and certain further adjustments to these measures, which we believe provide useful information to our investors. In accordance with SEC rules, we have provided a reconciliation of these measures to their respective and most directly comparable GAAP measures. These reconciliations can be found in the tables included in today's earnings release, as well as in our supplemental slides, both documents are available on the Investor Relations section of our website. On Slide 3, you'll see that certain 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. A discussion of risks and uncertainties is included in our annual report on Form 10-K and other SEC filings. I'd like to remind our listeners that DXC Technology assumes no obligation to update the information presented on the call except as required by law. And now I'd like to introduce DXC Technology's Chairman, President and CEO, Mike Lawrie.

Okay, thank you, and good afternoon everyone. Thanks for taking the time with us. As usual, I have four or five key points which I will develop a little bit and then turn it over to Paul, and then we will open it up to any questions that you have. First, non-GAAP EPS in the second quarter was $2.02, adjusted EBIT was $799 million, and adjusted EBIT margin was 15.9%, and we generated $604 million of adjusted free cash flow in the second quarter. Revenue in the second quarter was $5.013 billion on a GAAP basis; in constant currency revenue was down 6.2% year-over-year, and roughly $200 million below our expectations for the quarter. The two primary causes were slower ramp-up on a few large digital contracts and a decline in our application and maintenance management business, and I'll talk more about each of these in a moment. The book-to-bill was 0.9x for the quarter. Third point, in constant currency our digital revenue grew 6.4% year-over-year, and 2.5% sequentially reflecting the slower ramp-up on a few large digital contracts. Bookings in the quarter were up 50% year-over-year for a book-to-bill of 1.8x. Our industry IP and BPS revenue was down 2.1% year-over-year and up 1.7% sequentially, and the industry IP and BPS book-to-bill was 1.1x. At the end of the second quarter we completed the acquisition of Molina Medicaid Solutions, a Medicaid management information systems business; and we will continue to execute on our margin improvement plan and now expect to deliver $575 million savings this year versus our original target of $400 million, and I'll talk more about our margin improvement plans in a moment. And finally, we now expect to have $300 million of currency headwinds for the full year and combined with the revenue shortfall this quarter and the delays on digital contracts, we're revising our revenue guidance for the full year to a range of $20.7 billion to $21.2 billion. And given the progress we're making in our cost takeout plans, we're raising our non-GAAP EPS target to a range of $7.95 to $8.20, and we continue to target adjusted free cash flow of 90% or more of adjusted net income. Now let me just briefly go into each of those five points. Our second quarter non-GAAP EPS as I said was $2.02 and the effective tax rate was 23.5%. Second quarter adjusted EBIT was $799 million, the adjusted EBIT margin was 15.9%, this was up 230 basis points year-over-year and 70 basis points sequentially. GBS segment profit margin was 18.9%, this was up 290 basis points year-over-year and 70 basis points sequentially. In GIS, profit margin was 16.3%, and this was up 200 basis points year-over-year and 90 basis points sequentially. The margin improvement reflects continued execution of the savings lever that we previously discussed, including workforce optimization, supply chain efficiencies and facilities rationalization. And as I said, adjusted free cash flow for the quarter was $604 million, or 105% of adjusted net income, and for the year-to-date, adjusted free cash flow was $925 million or 81% of adjusted net income. Now onto revenue; as I said, revenue in the second quarter was $5.013 billion on a GAAP basis. In constant currency, revenue was down 6.2% year-over-year, and the book-to-bill was 0.9x. As I mentioned, revenue was roughly $200 million below our expectations for the quarter. First, we saw delays in the ramp-up of a few large digital contracts. While we continue to see strong market demand for our digital solutions, it is taking us longer than expected to bring on resources to support the digital growth. Several clients were also behind in scaling their digital transformations; together these delays impacted revenue in the quarter by roughly $100 million. To accelerate our hiring, we're creating a dedicated digital hiring engine. Since DXC's launch we've had a significant focus on synergy realization and cost takeout, and as a result, we had very limited bench. Now that we've been still the more disciplined cost and labor management process, we're building bench in our fastest growing capabilities to rapidly staff digital contracts and accelerate revenue. On the client side, we're leveraging Bionix to generate savings in other parts of the business that can be used upon accelerated digital transformations. The second reason for our $200 million revenue miss was the decline in our application maintenance and management business. This business missed expectations by roughly $80 million. The miss was largely driven by a reduction in application maintenance spend in several large accounts, particularly in the Americas, including HPE, as these clients remix their IT investments. Adjusting for this miss in the previously disclosed ramp down of integration projects for HPE and HPI, the Americas business was down about 3.5% year-over-year and was up 3% sequentially. Now we're taking steps to improve performance in these businesses; we recently made leadership changes in both, our Americas region and global application services business, and we also added applications sales specialists in the Americas to more effectively identify and pursue add-on projects. We believe these actions will drive sequential growth in the second half of the year. In the second quarter, GBS revenue was $2.1 billion, down 7% year-over-year and constant currency. The year-over-year decline was driven by the completion of transformation projects with HPE and the traditional application services business I just discussed. GBS book-to-bill in the quarter was 1x. GIS revenue in the quarter was $2.9 billion. GIS revenue was down 5.7% year-over-year in constant currency reflecting the expected decline in the traditional business but less offset from cloud growth. Cloud had strong bookings in the quarter with a book-to-bill of 2.2x, and was up 37% year-over-year and 99% sequentially. Given this bookings, we expect GIS revenue to return to more normal levels moving forward. Overall, GIS book-to-bill in the quarter was 0.9x. Now we move on to our digital business and our industry IP and BPS results. In constant currency, digital revenue was up 6.4% year-over-year, again reflecting the slower ramp-up on a few digital contracts that I mentioned earlier. Bookings in the quarter were very strong with a 1.8x book-to-bill driven by our cloud infrastructure and digital workplace offerings. Our digital pipeline is also up more than 80% year-over-year and 50% sequentially, reflecting the strong demand we're seeing for these capabilities. Our security business continues to gain traction with 9.8% growth in constant currency year-over-year, and 1.4x book-to-bill. Bookings in the quarter include a risk automation solution for a large Australian bank where we're working with the bank to identify risk in the digital domain and we're developing predictive risk models integrated with the bank's existing enterprise risk solutions. We're also investing to more tightly integrate security and operations automation as part of platform DXC. This addresses strong client demand for security orchestration and automated response and solutions. In digital workplace, we grew 25% in constant currency with a 4x book-to-bill. Bookings in the quarter included large deals with the UK Ministry of Defence and a European energy provider. Enterprise cloud apps in consulting grew 6.6% year-over-year and were impacted by the client delays that I previously discussed. Bookings in the quarter were strong with a book-to-bill of 1.3x. We continue to leverage our QuickStarts offerings to rapidly diagnose client environments and develop large-scale transformation roadmaps. Key wins in the quarter include an Oracle deal with the New South Wales Ministry of Health, a ServiceNow deal with a major aerospace client, and an SAP deal with a large European railway. In constant currency, cloud infrastructure grew 1.9% in the quarter. Lower year-over-year growth reflects a strong second quarter last year, including a large non-recurring deal. Sequentially, we grew 5.6% and bookings in the quarter were up 37% for a book-to-bill of 2.2x, including multiple deals larger than $100 million in the U.S., Germany, and UAE. In constant currency, cloud infrastructure, as I said, was up 1.9% in the quarter. Now moving to industry IP and BPS; this revenue was down 2.1% year-over-year and in constant currency driven primarily by delays in a few healthcare and insurance contracts, including deals with health agencies in Queensland and Norway. Second half revenue will also benefit from revenue ramping on some of our BPS life insurance contracts, including Brighthouse. We continue to invest in our digital portfolio; for example, in response to the rapidly growing need to accelerate the migration of data and analytics to the cloud, we established the industry's first analytics migration factory for Microsoft Azure in Bangalore. DXC's dedicated Azure factory and Azure certified teams help clients achieve faster, more efficient cloud migrations which rapidly implement new applications with innovative tools and integrated pre-built analytics and AI services. We plan to establish two additional analytics migration factories in Warsaw and Manila by the end of December. Last month, we completed the acquisition of Molina Medicaid Solutions from Molina Healthcare. This expands our business supporting state agencies in the administration of Medicaid programs and adds to our healthcare IP portfolio. Combining the Molina business with DXC's existing platforms will provide opportunities for us to expand the margins in the business while enhancing the services we can provide to state agencies and Medicaid recipients. We also recently announced the acquisition of argodesign, a digital design consultancy based in Austin. Argodesign will enhance DXC's capabilities in interface design and user experience which are key elements in developing and delivering digital transformation solutions at scale. DXC will build on argo's world-class design talent as part of its services portfolio to accelerate and lead client digital transformations. Yesterday, we announced two acquisitions; BusinessNow and TESM which will further expand our industry-leading ServiceNow practice. BusinessNow is a global end-to-end ServiceNow partner, and TESM is the largest independent ServiceNow partner in the Nordics. These acquisitions will further enable our clients to leverage ServiceNow as a foundation for enterprise-wide digital transformation. As I mentioned, we continue to execute on our margin improvement plan, and now expect to deliver $575 million in savings for the year versus our original target of $400 million. In addition, we believe we can drive 250 basis points to 350 basis points of further margin expansion by fiscal '22 versus our current margin of 15.9%. Our automation program, Bionix, drives significant savings for DXC and our clients while also improving service levels. Our automated digital workforce is now responsible for resolving more incidents than our largest physical delivery center, and where deployed we're exceeding 99% of our service level agreements and have driven a 40% reduction in high-priority incidents. We expect to shift roughly 10% of our workforce to near shore and low-cost centers and plan to improve our labor pyramid by 10 points as well. We'll continue to execute similar efficiency improvements in our third-party labor spend, as well as actions to reduce non-labor expenses. We're standardizing and optimizing specifications to reduce hardware costs and lower maintenance spend, and we also continue to consolidate vendors to increase scale and drive more favorable rates. In facilities, we will optimize our data center footprint and drive greater asset utilization. We'll continue to exit low utilization and subscale facilities and are leveraging our talent cloud to further decrease our needs for physical locations. We'll provide more detail on each of these levers and our margin expansion plan at our Investor Day on Thursday. In conclusion, as I said earlier, we expect to have $300 million of currency headwind for the full year. Combined with the revenue shortfall this quarter and the delays on some digital contracts, we're revising our revenue guidance for the full year to a range of $20.7 billion to $21.2 billion. Our cost takeout actions are mitigating the impact of this revenue decline. Given the progress we're making on cost takeout, as I said, we're raising our non-GAAP EPS target to a range of $7.95 to $8.20, and we expect adjusted free cash flow to be 90% or more of adjusted net income. With that, I'll turn it over to Paul and then come back when we get to the question period.

Thank you, Mike, and greetings, everyone. I'll start by covering some items that are excluded from our non-GAAP results this quarter. In the current quarter, we had restructuring costs of $157 million pretax or $0.41 per diluted share. These costs represent severance related to workforce optimization programs, particularly in complex countries, and expenses associated with facilities and data center rationalization. Also in the quarter, we had $128 million pretax or $0.34 per diluted share of integration, separation, and transaction-related costs reflecting the cost of the IT systems separation from legacy systems. Year-to-date restructuring, integration, and transaction costs amounted to $540 million pretax or $1.43 per diluted share. In the second quarter, amortization of acquired intangibles was $132 million pretax or $0.35 per diluted share. Excluding the impact of these special items, non-GAAP income before taxes from continuing operations was $749 million, and our non-GAAP EPS was $2.02. Now let me turn to our second quarter results in more detail. GAAP revenue in the second quarter was $5.013 billion. Adjusted EBIT in the quarter was $799 million. Adjusted EBIT margin was 15.9% compared with 13.6% in the prior year. This year-over-year improvement reflects the progress we're making in executing our cost takeout and synergy plans. During the second quarter, we continued to optimize our workforce. We further reduced total headcount by over 2,000 people driven by the ongoing deployment of Bionix, overhead rationalization, and elimination of stranded costs associated with our USPS business. In supply chain, we are driving additional procurement efficiencies, we're rationalizing our software portfolio, and standardizing around a few partner solutions. We're also benefiting in the quarter from the consolidation of enterprise license agreements, and we're opportunistically sourcing contract labor for strategic capabilities that align with our long-term demand. Turning to real estate; we eliminated an additional 700,000 square feet of office space during the quarter and we remain on track to rationalize nine data centers during fiscal 2019. In total, these actions contributed $100 million of incremental synergies during the second quarter. We're now on track to deliver $575 million of cost takeout for the year versus our original target of $400 million. The incremental savings will help us offset the impact of the revised revenue guidance. We remain on track to reinvest roughly $200 million to $250 million in the business this fiscal year. These investments include the continued deployment of Bionix, expansion of our digital transformation centers, and the buildout of our integrated practice with Amazon Web Services. In the quarter, our non-GAAP tax rate was 23.5%, reflecting our global mix of income and certain tax attributes in key foreign jurisdictions. For the full year, we still expect a tax rate of 24% to 28% as we continue to work through the impact of U.S. tax reform. Now let's turn to our segment results. GBS revenue was $2.11 billion in the second quarter. GBS segment profit was $400 million, and our profit margin was 18.9%, compared with 16% in the prior year. GBS margin improvements reflect cost takeout actions, including productivity gains on our fixed-price contracts, consolidation of our vendor base, and the insourcing of contract labor. Year-to-date GBS revenue was $4.3 billion, segment profit was $803 million, margin was 18.6%, and bookings were $4.2 billion for a book-to-bill of 1x. GIS revenue was $2.9 billion in the quarter. GIS segment profit in the second quarter was $473 million, and the profit margin was 16.3%, up 200 basis points year-over-year. This profitability improvement reflects the impact of actions we've taken to drive greater operating efficiencies from the rollout of our Bionix program, as well as the benefit from consolidated suppliers and lower rates on enterprise licenses. Year-to-date, GIS revenue was $5.97 billion, segment profit was $947 million, margin was 15.9%, and bookings were $5.1 billion for a book-to-bill of 0.9x. Turning to other financial highlights for the quarter; adjusted free cash flow in the quarter was $604 million or 105% of adjusted net income. This is despite an additional pay cycle in the quarter and the payout of annual bonuses. Adjusted free cash flow excludes the impact from receivable securitization programs. Year-to-date, adjusted free cash flow was $925 million or 81% of adjusted net income. Our CapEx was $308 million in the quarter or 6.1% of revenue, and on a year-to-date basis, CapEx was $676 million or 6.6% of revenue. Cash at the end of the quarter was $2.8 billion, our total debt was $7 billion including capitalized leases for a net debt to total capitalization ratio of 22.5%. During the quarter, the company issued two bond offerings in Europe to further rebalance its debt portfolio, and in the quarter, the rating agencies reaffirmed their ratings for DXC with S&P upgrading its rating outlook to stable. During the quarter, we paid $54 million in dividends, and repurchased $127 million of shares for a total of $181 million in capital returned to shareholders. Year-to-date, we've returned $552 million of capital to our shareholders in the form of $105 million in dividends and $447 million in share repurchases. In the second half of the year, we expect to allocate more of our operating cash flow to shareholders through share repurchases. In closing, we've revised our revenue target for the year to $20.7 billion to $21.2 billion, reflecting $300 million of currency headwinds, the $200 million revenue shortfall in the quarter that Mike just discussed, and an additional $300 million from revised phasing of contracts in our digital and applications business. At the same time, we are raising our targeted EPS range to $7.95 to $8.20 reflecting the progress we're making on our cost takeout programs. I'll now hand the call back to the operator for the Q&A session.

I just wanted to do a housekeeping check; Mike, you were going kind of quickly there but I thought you had said, and I apologize if I got this wrong, 250 basis points to 350 basis points of margin expansion. I missed the year, but if that's right, Paul, I'm just coming up with a $6 billion EBITDA number. Does that sound in the ballpark?

I mentioned by 2022. We will discuss this further at the Investor Day on Thursday; however, the timeframe indicates that we announced a 15.9% margin, and I am indicating there is an additional 250 to 350 basis points of margin expansion expected between now and fiscal 2022.

Could you discuss the application management aspect of the business? Mike, can you address the feedback from your customers regarding the mix in their investments? Is this related to insourcing or something different, and is it primarily a short-term or long-term trend?

What we are seeing is in some instances, as clients begin to contemplate upgrades to some of their systems, they are scaling back on the maintenance of those existing systems. That did cause some of the shortfall, I think it was about $80 million, particularly in the U.S. where we're seeing substantial plans to upgrade some of the big application platforms that our large clients have. I cited HPE as an example of that. This was to be honest a little unplanned on our part, we didn't see that as clearly as we exited the first quarter, but we saw it throughout this quarter. I don't see that as widespread, I don't see that as continuing in the future but it did impact this quarter, particularly in the United States.

6.2% down on a constant currency basis.

My first question here is, maybe you could just talk a little bit about when you're expecting the business to accelerate? I don't want to take anything away from the Analyst Day but I think there is some concern that top line growth is taking a long time to come through and clearly, this quarter's results would mean that maybe it takes a while for the crossover to happen. So maybe you could talk a little bit about that.

We're going to discuss this in much greater detail on Thursday at the Investor Conference, so I won't go too deep here. However, I want to note that the mainstream business is declining at about the rate we had projected; some quarters it's slightly less, and some it's a bit more, but overall, it's in line with our expectations. We're observing a slower ramp in our digital sector; there's strong demand and bookings, and the numbers reflect that. However, we're experiencing delays in recognizing revenue after contracts are signed, which can take three to four months. Some of these delays are initiated by clients, while others stem from our inability to staff quickly. As we mentioned, we're focused on hiring to better support these contracts. In summary, the revenue from our digital bookings is coming in a bit slower than we anticipated at the beginning of the fiscal year.

I was wondering if you could talk Mike a little bit about relative to some of the revenue shortfalls you saw in the quarter. How much of those do you view as transitory? And for the ones you do view as transitory, how quickly do you expect those pieces of revenue to recover back to their prior state? Is that something that's going to be one or two quarter thing or is it going to take longer?

I do think we are projecting and we think we will stage some improvement beginning in the third quarter. So I think we'll see some sequential growth as we go through the second half of this year. But in this business when you miss by $80 million in our application maintenance business in the second quarter, you don't make that up. Now what you do is, you fix the execution as I mentioned around the sales force and some other things, so that weakness doesn't persist in the out quarters. The ability to staff a little more quickly on some of these large digital projects then allows you to recognize the revenue a little more quickly. Yes, we expect improvement in the second half of the year but outside of the currency headwinds, it's hard to project exactly what that's going to be.

Thank you. As a follow-up, I wanted to ask about the potential increase in margins of 250 to 350 basis points over three years that we'll hear more about at the Analyst Day. Could you provide some insight into the primary factor driving that, especially since it's significantly higher than our current position?

What I've been saying overall, it really revolves around workforce optimization; our program, Bionix, is driving significant savings for DXC and our clients while also improving service levels. Our automated digital workforce is resolving more incidents than our largest physical delivery center, and where deployed we're exceeding 99% of our service level agreements and driven a 40% reduction in high-priority incidents. The biggest contributor to margin expansion over this timeframe is workforce optimization and the continued work around automation. There will be supply chain efficiencies, and we still have 28 million square feet of real estate around the world which we certainly don't need. So there will be continued efficiencies in that arena as well.

Just a couple of clarifications on the revenue growth picture. So, do you feel like your intense focus on cost takeout where you seem to be outperforming your expectations; is that intense focus part of the cause of some of these revenue challenges? And do you feel like if that's the case, there is a cost versus revenue trade-off, are you starting to see an ability to turn the corner on that to sort of mitigate that trade-off?

We have managed our workforce and labor programs very carefully and entered this quarter with a limited team. We are becoming more confident in our capacity to handle this digital workload and growth. Additionally, many of these digital projects have a much shorter sales cycle. Unlike previous business models that could take six months to a year, these projects are often completed in two to three months. This increases the pressure on how we manage our workforce and how we incorporate new talent and skills into the business. There is clearly demand; the growth in bookings reflects that this is not a demand issue but rather a challenge in meeting that demand.

It seems that the main issues to address for revenue are related to staffing in digital, and regarding application maintenance, the focus should be on the sales approach. Additionally, recent software upgrades have disrupted client spending on maintenance work. Are these the two main issues in the applications business?

Yes, I think that's well said. We did not observe a decline in the maintenance business; I didn't notice it, although perhaps Paul did. This surprised us because it varies from client to client as they start to adjust their IT investments in preparation for their digital projects, including upgrades to major applications. We did not anticipate that. The second issue was our shift to a generalist sales model in the United States. After monitoring that for two quarters, I realized it wasn't the right strategy. We have returned to a dedicated application sales force, which will help us capture some of the additional projects we missed, especially this quarter. Those are the two main issues.

Final clarification; on the digital side, we talked about the staffing challenge there. Is this a case where you actually have an ability to win a deal and have strong digital growth but the inability to ramp the staffing fast enough actually prevents you from being able to land the deal? The demand is there; if you could staff it, you'd have more revenues; is that the case?

Yes. We're winning a lot of deals, that's clear; but what's happening to our book-to-bill and pipelines and everything else, all of those metrics are very positive, but yes, we have had some slowness, I don't want to blame it all on this but it is a factor. Some of this is client-driven as well. Many of these projects when they get to scale involve very short periods of time and can include hundreds of thousands of users. In some instances, the client is moving more slowly. That coupled with the more difficulty in bringing and onboarding the skills necessary to adequately staff some of the new sales that we have has contributed to that roughly $100 million shortfall that I talked about. So it's two things, it's not just one thing.

How long do you think it will take for your staffing in digital to be at the right level? I understand you're discussing various plans related to it, but could you elaborate on the partnerships you're announcing regarding cloud enablement? Are there revenues expected from those that are still forthcoming? Do you have the right talent for these initiatives, or can you share resources with those new partners?

Part of our acquisition strategy is to help acquire the skills that we need. When we source these new skills, this is a different staffing model than we've had in the business before. For example, we're hiring many more people out of universities worldwide and bringing them into our training program, that's new. This takes longer than just hiring a professional. So the whole staffing model; how we source, how we recruit is changing as we change the revenue mix of our business to more digital. We are also working with our partners; so a lot of our partners are very helpful here in training and certifying skills. AWS is an example of this, Microsoft Azure is an example of this. So it's a combination of things that need to be done to build up the bench and build up digital skills capability to source some of the contracts that we're winning.

You increased your buyback from a capital allocation perspective. We will likely hear more about this at the Investor Day, but Mike, what are your current thoughts on capital allocation considering the current share prices and your cash flow opportunities?

At this point, more capital should be allocated to share buybacks, that's pretty simple, it's a tremendous investment. As Paul said, we're planning to do that, we'll cover that in a little more detail on Thursday; but yes, you can expect as part of our capital allocation model to allocate much more to shareholder return and buybacks at this level.

I was wondering with the senior management changes and the cost-saving initiatives, just trying to figure out how the morale is going at DXC and maybe is that having an impact on the top line?

Where our accounts are growing and where we're involved in the future around digital, I think the morale is quite good. We're moving the senior managers in most instances, improved morale, because whenever you delay an organization or you remove positions that aren't adding a lot of value, the workforce understands that. On the other hand, where you've got accounts that are declining and aren't moving forward as quickly on digital, the morale isn't as good and it varies a lot by geography. For example, I was in Asia and India recently, and we're seeing tremendous opportunity, as well as improvements in innovation. So the people are very upbeat about that. Where we have been slower to make the transition to digital, yes, you would expect people to be less happy and a little more concerned about their future.

I think for the full year it will be less than 1%. I think in the past we said 1% to 2%, but I think we'll be a little lower this year. And I'll have to get back to you, I don't have the number in front in terms of what's in the number this quarter on a year-over-year basis.

Not a lot because Molina didn't close until the end of the quarter; the two acquisitions we announced yesterday obviously have no impact in the quarter, and we had a couple of smaller acquisitions in Australia that contributed minimally in the second quarter.

Yes, for the full year, it's $300 million compared with the rates we set at the beginning of the year.

Yes, I'll break it down for you. So it's roughly $300 million from currency, it's roughly the $200 million that we talked about in the second quarter. And then what we're doing is we are re-phasing what we expect to happen around some of the digital contracts that have already been signed and what we expect to sign. Given our experience this quarter, we are re-phasing how quickly we will be able to go from contract signing to revenue; that's another roughly $300 million. I will tell you that last part is the least precise just because of all the factors we've discussed, how quickly we can ramp-up some of the skills and other factors, but that's how it breaks down.

And the EPS number you put out and the margin implied there; should we assume that our incremental costs are also baked-in for such things you mentioned like hiring ahead, training, hiring from colleges, are potentially paying more?

All the projections that we've given you include the investments we are planning to make; that is some of the hiring investments we need to make to build out a digital bench. We're doing this differently, we're doing this at our digital delivery centers, not embedding all this resource in our accounts; we're doing this in a much more disciplined way. Yes, those investments are factored into the projections we gave you on margin expansion and on EPS.

We've already had $575 million of incremental synergy savings this year compared to the $400 million when we started the year. So we're able to absorb some of those revisions that we've made on our outlook for revenue.

Got it, understood.

And operator, we'll conclude the call now. Thank you.