DXC Technology Reports Second Quarter Fiscal Year 2024 Results

• Revenues of $3.44 billion, down 3.6% as compared to prior year period, and down 3.6% on an organic basis

• Diluted Earnings Per Share was $0.49 vs. $0.12 in the prior year quarter. Non-GAAP Diluted Earnings Per Share was $0.70 vs. $0.75 in the prior year quarter

• Q2 FY24 operating cash flow of $248 million, less capital expenditures of $157 million, results in $91 million of free cash flow

• Book-to-bill ratio of 0.81x and trailing twelve-month book-to-bill of 1.02x

• Returned $214 million to shareholders through share buyback in Q2 FY24, reducing DXC shares outstanding by 4.9%. DXC remains on-track to complete the $1 billion share repurchase program in FY24

ASHBURN, Va.–(BUSINESS WIRE)–DXC Technology (NYSE: DXC) today reported results for the second quarter of fiscal year 2024.

Mike Salvino, DXC Chairman, President and Chief Executive Officer commented: “We are pleased with our Q2 financial performance, where we began to demonstrate the benefits of our new operating model as we move the company from stability to sustained financial improvement. We now have the right model and the right leaders in place to consistently deliver on our financial goals, and are focused intently on making sure this continues. Adding three impactful new senior leaders over the past five months to an already talented team will allow us to more effectively deliver for our customers and on our goal to consistently grow revenue and expand margins, EPS, and free cash flow. Quarter on quarter, we made positive progress in each of those categories in Q2 and we expect this execution will continue.”

Financial Highlights – Second Quarter of Fiscal Year 2024

Revenue was $3.44 billion for the second quarter of fiscal year 2024, down 3.6% as compared to prior year period, and down 3.6% on an organic basis. Second quarter organic revenue growth came in above the high end of DXC’s guidance range, with continued growth in GBS segment revenues, and a moderation of the rate of decline in our GIS segment revenues.

Net income was $99 million, or 2.9% of sales for the second quarter of fiscal year 2024, compared to $28 million, or 0.8% of sales, in the prior year quarter. Net income was higher due to lower depreciation and amortization and lower restructuring costs. EBIT was $153 million or 4.5% of sales. Net income and EBIT in the quarter included the following items: amortization of acquired intangible assets of $89 million, restructuring costs of $35 million, net gains on dispositions of $33 million, merger related indemnification charges of $2 million, impairment charges of $2 million, and transaction, separation, and integration costs of $3 million. Excluding these items, Adjusted EBIT margin was 7.3% in the second quarter, a reduction of 20 bps as compared to the prior year. Adjusted EBIT margin was below prior year due to a lower level of pension income, which declined $22 million year over year.

Diluted earnings per share was $0.49 and Non-GAAP diluted earnings per share was $0.70 for the second quarter of fiscal year 2024.

On a trailing twelve months basis, the company delivered a book to bill of 1.02x.

During the second quarter of fiscal year 2024, the Company repurchased 10 million shares of common stock for a total of $214 million. DXC has retired over 25% of its shares outstanding since the start of fiscal year 2022.

Financial Information by Segment

GBS segment revenue was $1,709 million in the second quarter of fiscal year 2024, down 0.2% compared to the prior year period and up 2.4% on an organic basis. The GBS organic growth performance was driven by continued growth in the Analytics & Engineering and Insurance offerings. GBS segment profit was $213 million and segment profit margin was 12.5%, down 20 bps compared to prior year as a result of lower pension segment income. GBS bookings for the quarter were $1.3 billion for a book-to-bill of 0.76x, and 0.96x on a trailing twelve months basis.

GIS segment revenue was $1,727 million in the second quarter of fiscal year 2024, down 6.8% compared to the prior year period, and down 9.1% on an organic basis. GIS segment revenue performance was impacted by organic revenue declines in Cloud Infrastructure & ITO, and in Modern Workplace. GIS segment profit was $101 million with a segment profit margin of 5.8%, down 40 bps as compared to prior year. GIS segment profit declined due to a lower level of pension income, which declined $22 million as compared to prior year. GIS bookings were $1.5 billion in the quarter for a book-to-bill of 0.87x, and 1.08x on a trailing twelve months basis.

Offering Highlights

The results for our six offerings are as follows:

Cash Flow

Cash flow from operations was $248 million in the second quarter of fiscal year 2024, as compared to $212 million in the second quarter of fiscal year 2023, and capital expenditures were $157 million in the second quarter of fiscal year 2024, as compared to $195 million in the second quarter of fiscal year 2023. Free cash flow (cash flow from operations, less capital expenditures) was $91 million in the second quarter of fiscal year 2024, as compared to $17 million in the second quarter of fiscal year 2023. During the quarter, DXC realized $50 million in cash from the sale of a strategic investment, as part of the Company’s previously announced $250 million asset sale program.

Guidance

The Company’s guidance for the third quarter and full fiscal year 2024 is as follows:

^*Pension benefit is split between Cost Of Sales (COS) & Other Income:

Fiscal year 2024: Net pension benefit of $80 million; $65 million service cost in COS, $145 million pension benefit in Other income

Fiscal year 2023: Net pension benefit of $178 million; $73 million service cost in COS, $251 million pension benefit in Other income

DXC does not provide a reconciliation of Non-GAAP measures that it discusses as part of its guidance because certain significant information required for such reconciliation is not available without unreasonable efforts or at all, including, most notably, the impact of significant non-recurring items. Without this information, DXC does not believe that a reconciliation would be meaningful.

Earnings Conference Call and Webcast

DXC Technology senior management will host a conference call and webcast to discuss these results on November 1, 2023, at 5:00 p.m. EDT. The dial-in number for domestic callers is +1 (888) 330-2455. Callers who reside outside of the United States should dial +1 (240) 789-2717. The passcode for all participants is 4164760. The webcast audio and any presentation slides will be available on DXC Technology’s Investor Relations website.

A replay of the conference call will be available from approximately two hours after the conclusion of the call until November 8, 2023. The phone number for the replay is +1 (800) 770-2030 or +1 (647) 362-9199. The replay passcode is 4164760.

About DXC Technology

DXC Technology (NYSE: DXC) helps global companies run their mission critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private and hybrid clouds. The world’s largest companies and public sector organizations trust DXC to deploy services to drive new levels of performance, competitiveness, and customer experience across their IT estates. Learn more about how we deliver excellence for our customers and colleagues at DXC.com.

Forward-Looking Statements

All statements in this press release that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” Forward-looking statements often include words such as “anticipates,” “believes,” “estimates,” “expects,” “forecast,” “goal,” “intends,” “objective,” “plans,” “projects,” “strategy,” “target,” and “will” and words and terms of similar substance in discussions of future operating or financial performance. Forward-looking statements include, among other things, statements with respect to our future financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, divestitures, competitive position, growth opportunities, share repurchases, dividend payments, plans and objectives of management and other matters. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. Furthermore, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the on-going coronavirus disease 2019 (“COVID-19”) pandemic and the impact of varying private and governmental responses that affect our customers, employees, vendors and the economies and communities where they operate. Important factors that could cause actual results to differ materially from those described in forward-looking statements include, but are not limited to: our inability to succeed in our strategic objectives; the risk of liability or damage to our reputation resulting from security incidents, including breaches, and cyber-attacks to our systems and networks and those of our business partners, insider threats, disclosure of sensitive data or failure to comply with data protection laws and regulations in a rapidly evolving regulatory environment; in each case, whether deliberate or accidental; our inability to develop and expand our service offerings to address emerging business demands and technological trends, including our inability to sell differentiated services amongst our offerings; our inability to compete in certain markets and expand our capacity in certain offshore locations and risks associated with such offshore locations, such as the on-going conflict between Russia and Ukraine and the conflict between Israel and Hamas; failure to maintain our credit rating and ability to manage working capital, refinance and raise additional capital for future needs; public health crises such as the COVID-19 pandemic; our indebtedness; the competitive pressures faced by our business; our inability to accurately estimate the cost of services, and the completion timeline of contracts; execution risks by us and our suppliers, customers, and partners; the risks associated with climate change and natural disasters; increased scrutiny of, and evolving expectations for, sustainability and environmental, social, and governance initiatives; our inability to retain and hire key personnel and maintain relationships with key partners; the risks associated with prolonged periods of inflation or current macroeconomic conditions, including the current decline in economic growth rates in the United States and in other countries, the possibility of reduced spending by customers in the areas we serve, the success of our cost-takeout efforts, continuing unfavorable foreign exchange rate movements, and our ability to close new deals in the event of an economic slowdown; the risks associated with our international operations, such as risks related to currency exchange rates; our inability to comply with existing and new laws and regulations, including social and environmental responsibility regulations, policies and provisions, as well as customer and investor demands; our inability to achieve the expected benefits of our restructuring plans; inadvertent infringement of third-party intellectual property rights or our inability to protect our own intellectual property assets; our inability to procure third-party licenses required for the operation of our products and service offerings; risks associated with disruption of our supply chain; our inability to maintain effective disclosure controls and internal control over financial reporting; potential losses due to asset impairment charges; our inability to pay dividends or repurchase shares of our common stock; pending investigations, claims and disputes and any adverse impact on our profitability and liquidity; disruptions in the credit markets, including disruptions that reduce our customers’ access to credit and increase the costs to our customers of obtaining credit; counterparty default risk in our hedging program; our failure to bid on projects effectively; financial difficulties of our customers and our inability to collect receivables; our inability to maintain and grow our customer relationships over time and to comply with customer contracts or government contracting regulations or requirements; our inability to succeed in our strategic transactions; changes in tax rates, tax laws, and the timing and outcome of tax examinations; risks following the merger of Computer Sciences Corporation (“CSC”) and Enterprise Services business of Hewlett Packard Enterprise Company’s (“HPES”) businesses, including anticipated tax treatment, unforeseen liabilities, and future capital expenditures; risks following the spin-off of our former U.S. Public Sector business (the “USPS”) and its related mergers with Vencore Holding Corp. and KeyPoint Government Solutions in June 2018 to form Perspecta Inc. (including its successors and permitted assigns, “Perspecta”), which was acquired by Peraton in May 2021 For a written description of these factors, see the section titled “Risk Factors” in DXC’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023, and any updating information in subsequent SEC filings, including DXC’s upcoming Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023.

No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events except as required by law.

About Non-GAAP Measures

In an effort to provide investors with supplemental financial information, in addition to the preliminary and unaudited financial information presented on a GAAP basis, we have also disclosed in this press release preliminary Non-GAAP information including: earnings before interest and taxes (“EBIT”), EBIT margin, Adjusted EBIT, Adjusted EBIT margin, Non-GAAP diluted EPS, organic revenues, organic revenue growth, free cash flow, and non-GAAP tax rate.

We believe EBIT, EBIT margin, Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS provide investors with useful supplemental information about our operating performance after excluding certain categories of expenses.

One category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, incremental amortization of intangible assets acquired through business combinations, may result in a significant difference in period over period amortization expense on a GAAP basis. We exclude amortization of certain acquired intangible assets as these non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Although DXC management excludes amortization of acquired intangible assets primarily customer-related intangible assets from its Non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and support revenue generation. Any future transactions may result in a change to the acquired intangible asset balances and associated amortization expense.

Another category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, impairment losses, may result in a significant difference in period-over-period expense on a GAAP basis. We exclude impairment losses as these non-cash amounts, reflect generally an acceleration of what would be multiple periods of expense and are not expected to occur frequently. Further assets such as goodwill may be significantly impacted by market conditions outside of management’s control.

We believe organic revenue growth provides investors with useful supplemental information about our revenues after excluding the effect of currency exchange rate fluctuations for currencies other than U.S. dollars and the effects of acquisitions and divestitures in the periods presented. See below for a description of the methodology we use to present organic revenues.

Selected references are made to revenue growth on an “organic basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates and without the impacts of acquisitions and divestitures, thereby providing comparisons of operating performance from period to period of the business that we have owned during all periods presented. Organic revenue growth is calculated by dividing the year-over-year change in GAAP revenues attributed to organic growth by the GAAP revenues reported in the prior comparable period. Organic revenue is calculated as constant currency revenue excluding the impact of mergers, acquisitions or similar transactions until the one-year anniversary of the transaction and excluding revenues of divestitures during the reporting period. This approach is used for all results where the functional currency is not the U.S. dollar.

Free cash flow represents cash flow from operations, less capital expenditures. Free cash flow is utilized by our management, investors, and analysts to evaluate cash available to pay debt, repurchase shares, and provide further investment in the business.

There are limitations to the use of the Non-GAAP financial measures presented in this press release. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our Non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate Non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies.

Contacts

John Sweeney, CFA, VP of Investor Relations, +1-980-315-3665, john.sweeney@dxc.com
Sean B. Pasternak, Corporate Media Relations, +1-647-975-7326, sean.pasternak@dxc.com

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