Business News
EDS Reports First Quarter 2008 Results
Friday 25. April 2008 - - First quarter EPS of 12 cents, revenues of $5.37 billion ... exceeded guidance - First quarter signings of $5.6 billion, up 66% versus a year ago - 12 megadeals ... most in any quarter since 2002
EDS today reported first quarter 2008 adjusted net income of $63 million, or 12 cents per share, versus first quarter 2007 adjusted net income of $165 million, or 31 cents per share. First quarter 2008 net income, in accordance with U.S. GAAP, was $62 million, or 12 cents per share, versus $164 million, or 31 cents per share, in the prior year’s first quarter (a statement reconciling GAAP and adjusted results is included in this release).
Results for the first quarter of 2007 reflect $100 million of a previously disclosed $225 million contract termination payment from Verizon in that quarter, impacting the year-over-year comparisons.
First quarter 2008 revenue increased 3 percent to $5.37 billion from $5.22 billion in the year-ago quarter(1). First quarter 2008 revenue decreased 2 percent on an organic basis, which excludes the impact of currency fluctuations, acquisitions and divestitures, and would have been flat year- over-year excluding the impact of the Verizon payment.
“EDS’ first quarter contract signings performance was exceptional, particularly in light of uncertain global economic conditions,” said Ron Rittenmeyer, EDS chairman, president and CEO. “EDS also got off to a strong start operationally with both earnings per share and revenue exceeding our previous guidance.”
EDS signed $5.6 billion in contracts in the first quarter of 2008, up 66 percent from $3.4 billion in the year-ago quarter. EDS’ twelve $100 million- plus contract signings were the most it has signed in any quarter since 2002.
First quarter 2008 signings included billion-dollar new contract wins with Royal Dutch Shell and the Infocomm Development Authority of Singapore — and significant contract renewals with SR Technics, U.S. Defense Manpower Data Center and Blue Cross Blue Shield of Arizona.
On the Royal Dutch Shell account, EDS will not only manage end-user computing services, but also act as the “operational integrator” toward Shell’s other key partners. With multisourcing becoming more commonplace, EDS’ capabilities as an integrator are becoming a significant market differentiator.
EDS also continued to grow its applications services business in the first quarter of 2008. Signings increased 19 percent versus a year ago to nearly $1.4 billion and represented 25 percent of total contract value (TCV).
The company continued to invest in its capabilities in the first quarter. EDS acquired the assets of UK-based Nexagent, strengthening the company’s networking services capabilities and EDS’ Global Services Network. Additionally, on April 3, the company expanded its presence in the information security services market by acquiring Vistorm Holdings Limited, creating one of the largest information assurance and managed security services organizations in Europe. Finally, the company strengthened its long-term alliance with Microsoft, becoming its enterprise partner to deliver Microsoft Dynamics CRM consulting and solutions.
Free cash flow was an outflow of $126 million in the first quarter of 2008, down $118 million from the year-ago period. Free cash flow in the first quarter of 2007 included a previously disclosed $225 million Verizon contract termination payment (see discussion of free cash flow under “Non-GAAP Financial Measures” below). EDS’ free cash flow is typically lowest in the first quarter, due primarily to seasonal payments.
First Quarter Results by Segment
— Americas: First quarter revenue was $2.45 billion, down 9 percent
compared to the prior-year period. Operating profit was $267 million,
down from $404 million in the prior-year period. Both revenue and
operating profit comparisons were primarily impacted by the previously
disclosed Verizon contract termination payment received in the year-
ago quarter.
— EMEA: First quarter revenue was $1.73 billion, up 6 percent compared
to the prior-year period as a result of new contract signings.
Operating profit was $182 million, down from $196 million in the
prior-year period, impacted by price adjustments and investments.
— Asia Pacific: First quarter revenue was $522 million, up 9 percent
compared to the prior-year period, due primarily to growth from
MphasiS. Operating profit was $53 million, up 14 percent from $47
million in the prior-year period, driven primarily by improved
contract performance.
— U.S. Government: First quarter revenue was $654 million, up 5 percent
compared to the prior-year period, driven primarily by the Saber
Government Solutions acquisition. Operating profit was $101 million,
down from $126 million in the prior-year period, due primarily to
previously disclosed price adjustments.
All segment comparisons are at constant currency(2), exclude corporate expenses and include intersegment transactions.
“We continued to take steps in the quarter to build a foundation for long- term sustainable improvement in our operating margin and free cash flow,” Rittenmeyer said. “To this end, we continue to drive productivity while enhancing our ability to deliver technology services and solutions that help drive our clients’ business success.”
In the quarter, the company further globalized its ITO organization and realigned its applications services into global competency centers. In addition, EDS expanded its Best Shore(R) capabilities with the opening of centers in Argentina and Canada. The company now has approximately 43,000 employees in low-cost, high-quality locations.
Updated 2008 Guidance
For the full year 2008, EDS is updating its guidance as follows:
— Revenue of $22.5 billion to $23 billion.
— Adjusted EPS of $1.35 to $1.39.
Previous guidance for both free cash flow and TCV remain unchanged.
For the second quarter of 2008, EDS currently expects:
— Revenue of $5.6 billion to $5.8 billion.
— Adjusted EPS of $0.24 to $0.27.