Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DXC Technology Co (DXC, Financial) reported first-quarter results that exceeded expectations in terms of top-line, adjusted EBIT margin, and adjusted diluted EPS.
- The company achieved a 17% year-over-year increase in non-GAAP diluted EPS, reaching $0.74.
- DXC Technology Co (DXC) is seeing early success in its revamped go-to-market strategy, with an expanded pipeline driven by new deal inflows in consulting and engineering services.
- The company has initiated several tactical actions under its enhanced operating model, including optimizing its global delivery network and increasing the adoption of GenAI capabilities.
- DXC Technology Co (DXC) reported a notable improvement in delivery metrics and overall quality of services, resulting in higher client satisfaction net promoter scores.
Negative Points
- Total revenue declined 4% year-over-year on an organic basis, reflecting ongoing market uncertainty and cautious customer behavior.
- The book-to-bill ratio for the quarter was 0.77, indicating pressure on bookings due to restrained discretionary spending and a selective approach to new deals.
- GIS revenue, which represents 48% of total revenue, declined 9% year-over-year, continuing recent trends.
- The company is experiencing ongoing challenges in the ITO market, impacting the book-to-bill ratio for GIS, which was 0.67.
- DXC Technology Co (DXC) anticipates a full-year revenue decline of 6% to 4% year-over-year on an organic basis, with continued pressure on customer discretionary spending.
Q & A Highlights
Q: Can you provide more detail on the revenue that came in ahead of expectations? Was there any pull forward, considering the expected revenue deterioration in the fiscal second quarter?
A: The strength primarily came from our ITO business due to increased in-quarter volume activity across a broad client base. We haven't factored this increased activity into our second-quarter outlook, so we're not expecting a repeat of this increase in the next quarter. - Robert Del Bene, Manager
Q: Regarding the disciplined approach to new deals, is there a need to lower delivery costs to be more competitive?
A: Our focus is on execution across all aspects, starting with existing customers. We are enhancing our execution from pre-solutioning to sales to delivery, and updating compensation metrics. The pipeline is growing, and we're seeing early results from these efforts. - Raul Fernandez, President, CEO
Q: What are the early self-help focus areas, and where have you seen the most progression?
A: Improvement is needed everywhere. We're focusing on operational discipline and execution, investing in new talent, and enhancing our consulting and engineering capabilities. We've also recruited a world-class head of marketing, which is having a significant impact. - Raul Fernandez, President, CEO
Q: Can you provide perspective on the GIS margin, which is up 210 basis points year-over-year? How are you prioritizing margin expansion relative to revenue growth?
A: It's a holistic approach involving analysis of existing customer bases, renewals, and pricing strategies. We've improved labor efficiency through automation and cost management, leading to better margins. The focus is on delivering quality and reducing SLA penalties. - Raul Fernandez, President, CEO; Robert Del Bene, Manager
Q: How are you thinking about the book-to-bill ratio as we move through the fiscal year?
A: In GBS, the book-to-bill ratio reflects the CES market, with stable pipelines and conversion rates. In GIS, larger deals are lumpy, but pipelines are improving, and we expect booking improvements through the rest of the year. - Robert Del Bene, Manager; Raul Fernandez, President, CEO
Q: How long will it take to fully implement the new go-to-market strategy and operating model?
A: It's a full-year journey, requiring a couple of quarters of execution to get it right. We expect continued improvement across all metrics quarter-over-quarter. It's about steady progress across all aspects. - Raul Fernandez, President, CEO
Q: Are there any early signs of success from the changes made to the sales team?
A: We've seen more new logo wins and better positioning on renewals. We're analyzing wins and losses to improve our sales process. Internal collaboration and cross-selling are areas with significant upside. - Raul Fernandez, President, CEO
Q: How would you characterize the current pricing environment across GIS and GBS?
A: The pricing environment is stable, with no notable changes up or down. - Robert Del Bene, Manager
Q: Do you have sufficient capacity to invest in key markets while also focusing on share buybacks and free cash flow improvement?
A: We are streamlining operations to reinvest in talent, training, industry differentiation, and innovation, particularly in Generative AI. Our cash generation is stable, and we have ample flexibility to invest as needed. - Raul Fernandez, President, CEO; Robert Del Bene, Manager
Q: Can you clarify the new geography-oriented sales model compared to the previous offering-led model?
A: The new model emphasizes tighter coordination between offerings and geographies, leveraging global talent and managing local sales relationships. Sales is local, while development and delivery are core competencies of business units. - Raul Fernandez, President, CEO; Robert Del Bene, Manager
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
