- Third quarter contract signings of $5.7 billion, up 61% versus a year ago
Third quarter revenue increased 6 percent to $5.63 billion from $5.29 billion in the year-ago quarter(1). Third quarter revenue increased 4 percent on an organic basis, which excludes the impact of currency fluctuations, acquisitions and divestitures.
"EDS posted solid results during the quarter and made significant strides to boost its long-term profitability and competitiveness," said Ron Rittenmeyer, president and chief executive officer. "Our earnings tracked to the high end of our guidance, our win rates continued to trend upward, and we announced a number of initiatives that will expand our presence in the highest value areas of the applications market."
Contract signings for the quarter represented the best third quarter signings performance in five years. EDS signed $5.7 billion in contracts versus $3.5 billion in the year-ago quarter. This included eight contracts with values greater than $100 million with clients in the government, financial services, manufacturing and transportation industries.
Third quarter wins included a $630 million renewal with Sabre Holdings to provide a full range of IT services in support of Sabre's continued business transformation; a $489 million amendment to the UK Ministry of Defence (MoD) Defence Information Infrastructure contract to support the deployed military operations environment by creating a single, modernized MoD information infrastructure; and a $310 million renewal with the Commonwealth Bank of Australia.
Rittenmeyer added that the company's 2008 sales pipeline increased by more than 20 percent, year-over-year, with particular strength in financial services and government.
EDS also continued to expand its presence in applications, while adding significant capabilities in higher-margin services.
Applications-related revenue increased 9 percent versus the third quarter of 2006 and represented 31 percent of EDS' total revenue for the quarter. Future contract opportunities also increased, as the company's applications pipeline rose more than 15 percent in the quarter versus the year-ago period.
To move its applications business further up the value chain, EDS recently announced the launch of its Global Testing Services offering and an agreement with long-time alliance partner SAP to develop a high-value, end-to-end SAP consulting practice. These two initiatives address what the company estimates to be an approximately $285 billion market opportunity.
EDS has also seen increasing market interest in its network services offerings, powered by the company's Global Services Network. The contract value for network service deals in the sales pipeline is up more than 60 percent since January of this year.
Third quarter 2007 operating margin was 6.4 percent on an adjusted basis versus 4.0 percent in the year-ago quarter (See discussion of adjusted operating margin under "Non-GAAP Financial Measures" below).
Free cash flow was $181 million in the third quarter of 2007 versus $171 million for the year-ago period (See discussion of free cash flow under "Non- GAAP Financial Measures" below).
"While we have made significant progress, work remains for EDS to reach its long-term goals, and we will not settle for the status quo," said Rittenmeyer. "Moving forward, our focus will be on improving our mix of higher-margin work, driving productivity and improving our working capital management."
Reported third quarter 2007 net income was $225 million, or 42 cents per diluted share, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), versus net income of $125 million, or 24 cents per diluted share, in the prior year's third quarter. A statement reconciling GAAP and adjusted results follows this release.
Third Quarter Results by Segment * Americas: Third quarter revenue was $2.63 billion, up 2 percent compared to the prior-year period. Operating profit was $425 million, up 8 percent from $393 million in the prior-year period. * EMEA: Third quarter revenue was $1.59 billion, up 3 percent compared to the prior-year period. Operating profit was $226 million, up 2 percent from $222 million in the prior-year period. * Asia-Pacific: Third quarter revenue was $465 million, up 18 percent compared to the prior-year period, primarily due to India revenues. Operating profit was $49 million, down 5 percent from $51 million in the prior-year period. * U.S. Government: Third quarter revenue was $710 million, up 4 percent compared to the prior-year period. Operating profit was $179 million, up 14 percent from $157 million in the prior-year period.
All segment comparisons are at constant currency, exclude corporate expenses, and include intersegment transactions.
2007 Guidance * Revenue of $22.0 billion to $22.5 billion. * Adjusted EPS of $1.55 to $1.60 (see discussion of adjusted EPS under Non-GAAP Financial Measures below). * Free cash flow of $900 million to $1 billion. * Updated total contract value of $21 billion to $23 billion.
EDS' earnings conference call will be broadcast live on the Internet today at 8:00 a.m. Central time (9:00 a.m. Eastern). To access the call and view related financial information, go to www.eds.com/call. The call and financial information will be archived for 30 days at www.eds.com/call.
(1) Excludes discontinued operations for all periods presented.
EDS (NYSE: EDS) is a leading global technology services company delivering business solutions to its clients. EDS founded the information technology outsourcing industry 45 years ago. Today, EDS delivers a broad portfolio of information technology and business process outsourcing services to clients in the manufacturing, financial services, healthcare, communications, energy, transportation, and consumer and retail industries and to governments around the world. Learn more at eds.com.
The statements in this news release that are not historical statements, including statements regarding the amount of new contract values, are forward- looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond EDS' control, which could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see EDS' most recent Form 10-K. EDS disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Non-GAAP Financial Measures
In addition to GAAP results, EDS discloses the non-GAAP measures of adjusted operating margin, net income, and earnings per share (EPS), and free cash flow.
Adjusted operating margin, net income and EPS exclude the impact of certain amounts, specifically earnings/losses from discontinued operations net of taxes, gains and losses from divestitures, reversals of previously recognized restructuring expense, charges to earnings attributable to early retirement offers, and other identified items that management believes are not reflective of EDS' core operating business. Such amounts may have a material impact on EDS' operating margin, net income and EPS. Refer to the Reconciliation of GAAP Results to Adjusted Results below for a reconciliation of GAAP results to adjusted results for the three and nine months ended September 30, 2007 and 2006.
EDS defines free cash flow as net cash provided by operating activities, less capital expenditures. Capital expenditures is the sum of (i) net cash used in investing activities, excluding proceeds from sales of marketable securities, proceeds related to divested assets and non-marketable equity investments, payments for acquisitions, net of cash acquired, and non- marketable equity investments, and payments for purchases of marketable securities, and (ii) payments on capital leases. Free cash flow excludes items that are actual expenses that impact cash available to EDS for other uses and should not be considered a measure of liquidity or an alternative to the cash flow measurements required by GAAP, such as net cash provided by operating activities or net increase/decrease in cash and cash equivalents. Refer to the Reconciliation of Free Cash Flow to Net Change in Cash and Cash Equivalents below for a reconciliation of free cash flow to the net decrease in cash and cash equivalents for the nine months ended September 30, 2007 and 2006.