DXC Technology Co Q3 FY2025 earnings call

• Raul noted the third quarter performance was strong with revenue, adjusted EBIT margin, and non-GAAP EPS ahead of guidance, and strong free cash flow. The revamped go-to-market approach is paying off with better bookings. Highlights in GBS: expanded enterprise application capabilities, GenAI engagements like working with Singapore General Hospital and Ferrari. In GIS: laid groundwork for AI capabilities. Brad Novak joined as CIO. - Rob discussed financial results: total revenue fell in line with expectation, adjusted EBIT margin expanded, non-GAAP EPS increased. Cash flow details: generated $483 million free cash flow in the quarter, year-to-date free cash flow exceeded guidance. Balance sheet details: total debt and cash positions.

GBS (Global Business Services) represents 52% of total revenue. It was down 50 basis points year-to-year organically. The GBS profit margin increased by 150 basis points year-to-year to 13.4%. Within GBS, Consulting and Engineering Services organic revenue declined 2.2% year-to-year, but Enterprise Applications had momentum. Insurance and horizontal BPS organic revenue grew 5.6%. GIS (Global Infrastructure Services) represents 48% of total revenue. It declined 7.8% year-to-year organically. Profit margin declined 50 basis points year-to-year to 6.5%. Cloud, ITO and security organic revenue declined 6.6% year-to-year. Modern Workplace declined 11.3% year-to-year organically.

• Fourth quarter: expected total organic revenue to decline 5.5% to 4.5%, adjusted EBIT margin about 7%, non-GAAP diluted EPS about $0.75. - Full-year: now expects total organic revenue decline between 4.7% and 4.9% year-to-year, adjusted EBIT margin to be approximately 7.9%, non-GAAP diluted EPS to be about $3.35, free cash flow to be approximately $625 million.

• Global uncertainties such as trade policy, geopolitical conflicts, inflation and labor costs pressure corporate spending for discretionary projects. - Uncertainty in timing of dispositions. - Execution risk related to restructuring spending.

Q: Bryan Keane asked about organic growth beating expectations and reconciling book-to-bill increase with organic growth.

A: Rob Del Bene explained the slight decrease in quarter-to-quarter guidance is due to bookings in the first half and that better bookings will layer in over time.

Q: Jonathan Lee asked about bookings momentum and demand environment.

A: Raul Fernandez said demand environment isn't a big factor, but better proposals, sales and marketing material, and revised comp plans impacted book-to-bill.

Q: Tien-Tsin Huang asked about marketing expenses deferral and restructuring charges.

A: Rob Del Bene and Raul Fernandez discussed being deliberate and thoughtful with investments and restructuring, with marketing leader new and taking time, and restructuring being targeted.

Q: Bryan Bergin asked about free cash flow outperformance and capital allocation.

A: Raul Fernandez and Rob Del Bene talked about free cash flow drivers and that capital allocation will be updated next call.

Q: Matthew Roswell asked about win rates and pricing.

A: Rob Del Bene said pricing is stable, renewals are contract-by-contract with good economics, and win rates improved.

Q: James Friedman asked about segments under-indexing.

A: Raul Fernandez said all segments have room to improve in execution.

Q: Keith Bachman asked about dispositions and managed services.

A: Rob Del Bene said there's more room for dispositions, and Raul Fernandez talked about investment in managed services.

Q: Tyler DuPont asked about bookings and margins.

A: Rob Del Bene discussed bookings mix and margins will be impacted by revenue decline and merit increases.

Q: James Faucette asked about industry verticals.

A: Rob Del Bene mentioned strong sectors in GBS and GIS.

Q: Rod Bourgeois asked about turnaround phase and Q4 revenue guidance.

A: Raul Fernandez and Rob Del Bene discussed turnaround phase and that revenue decline is due to booking nature and need to increase topline.