Operating Performance
Affiliated Computer Services, Inc. (ACS) reported second-quarter 2010 pro forma earnings of $1.07 per share, an increase of 25.9% from 85 cents reported in the year-ago period. Earnings for the quarter beat the Zacks Consensus Estimate of 99 cents a share by 8 cents.
Adjusted non-GAAP operating income was $182.8 million or 11.0% of total revenue in the quarter, compared to $172.6 million or 10.7% of total revenue in the year-ago period. The quarter benefited from new business and renewed contracts.
Revenue
Total revenue increased 2.7% to $1.66 billion from the year-ago quarter. The entire increase was attributed to acquisitions.
The Commercial segment was particularly strong, while Government was flat year over year. The Commercial segment contributed 61% of revenues and grew 5% year over year, with internal growth of 1% and acquisition-related growth of 4%. The Government segment contributed 39% of total revenues.
New Business Signings
The quarter represented the second highest growth in terms of new signings in the company’s history. ACS’s new business signings totaled approximately $275 million of annual recurring revenue (ARR), amounting to an estimated contract value of $1.7 billion. This compares with the previous quarter’s new business signings, which totaled approximately $212 million of annual recurring revenue (ARR) amounting to an estimated contract value of $833 million. Total contract value of all signings, including new business signings, renewals and non-recurring revenue was $3.4 billion in the quarter.
Signings were strong in the Government segment, which represented 53% of new business signings. The Commercial segment contributed 47%. Business process outsourcing contributed 88% of new business signings, while 12% came from information technology outsourcing.
Robust Cash Flow and Balance Sheet
ACS generated $367 million cash from operations in the second quarter, versus $21 million cash used in the previous quarter. Free cash flow generated was $252 million in the quarter versus $149 million generated in the previous quarter. Capital expenditures were $114 million at the end of the quarter.
ACS exited the September quarter with $825 million in cash and cash equivalents, versus $558.8 million in the previous quarter. The company had $2.33 billion in long term debt (including the current portion) at the end of the quarter versus $2.32 billion in the previous quarter.
Xerox-ACS Merger
The company did not hold a Conference call to discuss its results, nor did it give any forward guidance due to its pending acquisition by Xerox Corp. (XRX). Both companies will discuss the acquisition at shareholders meetings on February 5, 2010.
On September 27, Xerox Corp. agreed to acquire ACS in a cash and stock transaction valued at $6.4 billion ($63.11 per ACS share). This represents a 33.6% premium to the closing price of ACS as on September 25, which was $47.25 per share. The transaction is expected to be accretive to the combined company in fiscal 2010. Affiliated shareholders will receive $18.60 per share in cash and 4.935 shares of Xerox.
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