Release Date: November 07, 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 a solid quarter with adjusted EBIT margin and non-GAAP EPS exceeding guidance.
- The company raised its full-year guidance for adjusted EBIT margin and non-GAAP EPS.
- DXC Technology Co (DXC) generated free cash flow of $48 million for the quarter, significantly higher than the same period last year.
- The company is expanding its gen AI offerings, which have shown successful client engagements and increased revenue.
- DXC Technology Co (DXC) has implemented a global shared services model to consolidate and optimize processes, improving agility and cost efficiency.
Negative Points
- Total revenue declined 5.6% year-over-year on an organic basis.
- The book-to-bill ratio for the quarter was 0.81, indicating challenges in securing new business.
- Corporate spending on discretionary projects remains under pressure, affecting potential growth.
- The GIS segment saw a 9.6% year-over-year decline in revenue, with services revenue down 8%.
- Free cash flow for the quarter was lower compared to the same period last year, driven by deteriorated DSO performance.
Q & A Highlights
Q: Can you provide more details on the sustainability and growth of free cash flow in the coming quarters and years?
A: Robert Del Bene, CFO, explained that the fundamental base of free cash flow generation remains strong, consistent with previous years. The restructuring and lease origination changes are accounted for, and the foundation of $700 million in free cash flow is expected to be maintained into fiscal '26.
Q: What are the expectations for bookings improvement in the coming quarters, particularly in GIS and GBS segments?
A: Robert Del Bene, CFO, expressed confidence in improved bookings for both CES and GIS segments due to better pipeline and closure rates. Raul Fernandez, CEO, highlighted the recruitment of new senior leaders, which is expected to positively impact results.
Q: What factors have influenced the growth outlook for GBS, and is it more macro-specific or client-specific?
A: Robert Del Bene, CFO, noted that the slowdown is tied to macroeconomic factors, particularly affecting custom application development. Despite improved pipelines and closing rates, the outlook was adjusted due to slower project rollouts.
Q: How has the go-to-market strategy evolved, and what are the key indicators of progress?
A: Raul Fernandez, CEO, emphasized improvements in sales execution and global-local balance. The focus has been on fundamentals, mechanics, and rewarding sales success, with a strong global footprint and customer engagement.
Q: What tactics are being used to grow the software and recurring services mix in the insurance business?
A: Raul Fernandez, CEO, mentioned better execution, portfolio evaluation, pricing strategies, and recruiting talent to boost the product portfolio and shift towards higher-margin recurring revenue.
Q: How is the GIS margin improving, and what role does the resale mix play?
A: Robert Del Bene, CFO, attributed the margin improvement mainly to disciplined resource management and cost management, with the resale mix being a smaller component.
Q: How much room is there to reduce the resale mix in the ITO business, and is it intentional?
A: Robert Del Bene, CFO, stated that the decline in resale mix is intentional, with a focus on maintaining margin thresholds. The decline is expected to stabilize in the next 6 to 9 months.
Q: How is the AI era affecting the migration of legacy data centers to the cloud?
A: Raul Fernandez, CEO, highlighted the evolving compute needs for AI and the opportunity to integrate DXC's services, including data cleansing and language model selection, to drive demand and scale AI solutions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
