- Total Revenue: Declined 5% on a constant currency basis.
- Adjusted EBIT Margin: 8.4%, down 50 basis points year-over-year.
- Non-GAAP EPS: $0.97, above guidance range.
- Free Cash Flow: $155 million for the quarter, totaling $756 million for the year.
- Insurance Revenue Growth: Grew at 4.5% in the quarter.
- GBS Revenue: Nearly flat, with GIS top line declining 9.3%.
- Gross Margin: 23.6%, flat year-to-year.
- SG&A: 8.7% of revenue, down 70 basis points year-to-year.
- Depreciation and Amortization: Flat year-to-year as a percent of revenue, down $17 million.
- Other Income: $39 million, a reduction of $48 million year-to-year.
- Organic Revenue Growth: Declined 4.9% year-to-year.
- Adjusted EBIT Margin: 8.4%, an 80 basis point improvement sequentially.
- Non-GAAP EPS: $0.97, down $0.05 from last year's fourth quarter.
- Free Cash Flow: $155 million for the quarter, below the expected $200 million.
- GBS Profit Margin: 13.3%, down 40 basis points year-to-year.
- GIS Margin: Declined 40 basis points year-to-year.
- Insurance Organic Revenue: Increased 1% year-to-year.
- Security Revenue: Declined 9% year-over-year on an organic basis.
- Cloud & ITO Revenue: Declined 7%.
- Modern Workplace Revenue: Declined in the mid-teens year-to-year.
- Total Debt Reduction: $450 million for the quarter, $300 million for the year.
- Net Interest Expense: $20 million, up $3 million year-to-year.
- Restructuring and TSI Expense: $21 million for the quarter, $118 million for the year.
- Operating Lease Payments: $84 million, down $9 million year-to-year.
- Capital Expenditures: $125 million for the quarter.
- Share Repurchase: 6.2 million shares at $22.30 per share.
- Full Year '25 Revenue Guidance: Expected to decline 4% to 6%.
- Adjusted EBIT Margin Guidance: 6% to 7% for fiscal year '25.
- Non-GAAP Diluted EPS Guidance: $2.50 to $3 for fiscal year '25.
- Free Cash Flow Guidance: Approximately $400 million for fiscal year '25.
Release Date: May 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DXC Technology Co (DXC, Financial) achieved a free cash flow of $756 million for the fiscal year, marking the third consecutive year of achieving more than $700 million.
- The company's insurance software and services business grew by 4.5% in the quarter, demonstrating strong momentum.
- DXC Technology Co (DXC) has a high customer retention rate of over 90% and an average customer tenure of 18 years in its insurance business.
- The company is actively working on a restructuring initiative aimed at simplifying and enhancing operational efficiency, which includes consolidating enterprise business systems to reduce operating costs.
- DXC Technology Co (DXC) has reduced total debt levels by $300 million over the full year and plans to further decrease debt levels, including minimizing finance lease originations.
Negative Points
- Total organic revenue declined by 4.9% year-over-year, indicating challenges in revenue growth.
- Adjusted EBIT margin decreased by 50 basis points year-over-year due to lower noncash pension income and the impact of gains from asset sales in the previous fiscal year.
- The company's free cash flow for the quarter was $155 million, below the expected $200 million, due to a smaller benefit from working capital and higher-than-anticipated cash tax levels.
- DXC Technology Co (DXC)'s GIS segment experienced a significant decline, with organic revenue down 9.3% largely due to ongoing challenges in the market and selective approach to new deals.
- The company's full-year guidance anticipates a total organic revenue decline of 4% to 6%, reflecting continued challenges in both the GBS and GIS segments.
Q & A Highlights
Q: Raul, can you explain how your restructuring plans differ from previous CEOs who also undertook significant restructuring efforts at DXC?
A: Raul J. Fernandez, President and CEO of DXC Technology, emphasized that unlike previous efforts, his restructuring plan is a comprehensive reset from the ground up, focusing on integrating and streamlining systems, processes, and entities to set a solid foundation for profitable growth. He highlighted the need for a real, clean, and fully integrated baseline, which previous restructurings failed to achieve.
Q: Are the restructuring charges included in the margin targets, and what gives you confidence in the GBS recovery for positive organic growth in the second half of the year?
A: Robert F. Del Bene, EVP and CFO of DXC Technology, clarified that restructuring costs are not included in the adjusted EBIT margin but are reflected in the free cash flow numbers. He expressed confidence in the GBS recovery based on improving pipelines and consistent conversion rates, expecting a shift from low single-digit negatives to positives in the second half of the year.
Q: Can you provide more detail on the bookings relative to the last forecast and expectations for fiscal year '25?
A: Robert F. Del Bene noted that bookings were consistent with or slightly better than the last forecast, particularly in GBS due to strong renewals in A&E. For fiscal '25, they anticipate strong renewal activity in both GBS and GIS, with new content improving throughout the year in GBS.
Q: What are the levers for free cash flow sustainability amid ongoing top line and margin pressure?
A: Robert F. Del Bene explained that DXC plans to leverage working capital for improvements and execute restructuring to shore up EBIT for fiscal '26. He also mentioned the reduction of physical capacity and overhead within accounts as key strategies.
Q: How are you addressing the potential growth of the GIS market and DXC's position within it?
A: Robert F. Del Bene and Raul J. Fernandez discussed aligning DXC's growth with market rates, which are currently in the low negative single digits. They aim to rationalize the portfolio, exit unprofitable contracts, and achieve growth rates comparable to competitors.
Q: Can you discuss the broader strategic or tactical opportunities within the insurance business?
A: Raul J. Fernandez highlighted the significant opportunity in the insurance business unit and mentioned exploring partnerships to accelerate growth while maintaining control of the unit. He emphasized the strong foundation and critical partnerships in the insurance sector.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
