DXC Technology Earnings Call: AI Pivot vs. Revenue Drag

Dxc Technology Company ((DXC)) has held its Q3 earnings call. Read on for the main highlights of the call.

DXC Technology Balances AI Ambition With Persistent Revenue Headwinds

DXC Technology’s latest earnings call struck a mixed tone, pairing clear strategic progress in AI, productization and bookings momentum with ongoing revenue declines and margin pressure. Management emphasized the rapid build-out of its AI-first strategy, strong cash generation and meaningful balance-sheet repair, but also acknowledged near-term execution risk as the company invests ahead of growth while revenues in core segments continue to fall and Q4 guidance points to further organic decline.

AI-First Strategic Shift and Fast Track Initiative

DXC is repositioning itself as an AI-first services and solutions provider, anchored by its new Fast Track portfolio of AI-infused, repeatable offerings. These productized solutions are designed to move clients from idea to production in weeks, layering AI on top of existing systems instead of forcing costly and risky core replacements. Management set an ambitious target for Fast Track to reach about 10% of run-rate revenue by the end of Q2 FY2029, framing this as a key driver of future growth and an avenue to higher-quality, more scalable revenue.

Customer Zero: Internal AI Deployment at Full Scale

To validate its AI capabilities, DXC has rolled out AI tools across its own 115,000-employee base, integrating all major AI providers and routing workloads to the best model for each task. This “customer zero” deployment serves as a large-scale proof point to show clients that DXC’s architecture can handle complex, real-world environments. The company is actively converting these internal learnings into productized offerings and go-to-market (GTM) plays, using its own operations as a live showcase for prospective customers.

Commercializing Agentic Security Operations

Security remains a highlight for DXC. Its AI-driven, agentic security operations center now defends the company from roughly 4.5 million threats per day, with more than 90% of alerts resolved automatically. Management is turning this capability into a commercial offering targeted at banking, healthcare and government customers, sectors where regulatory requirements are high and security budgets are robust. The combination of scale, automation and demonstrable internal use is being positioned as a competitive differentiator in a crowded cybersecurity market.

Hogan and Core Ignite Extend Banking Franchise

DXC’s Hogan core banking platform continues to be a strategic asset, processing about $2.5 trillion in transactions daily across roughly 300 million accounts. Building on this, the company introduced Core Ignite, a solution that lets banks modernize customer experiences without ripping out their existing core systems. DXC also announced partnerships with Ripple, Euronet, Aptys and Splitit to expand into real-time payments and new product flows. Together, Hogan, Core Ignite and these partnerships are meant to reinforce DXC’s relevance in global payments and transaction processing, areas with durable demand despite macro uncertainty.

New Logos and Go-to-Market Improvements

On the commercial front, DXC highlighted a notable new win as master vendor for the London Metropolitan Police, taking the lead on enterprise transformation including ERP and resource management modernization. The company also disclosed a refreshed brand and the launch of its first truly centralized sales enablement function. Early feedback from third-party advisers has been positive, with advisors saying DXC’s differentiation is clearer than in the past. Management is counting on these GTM changes to translate the company’s technical strengths into a more consistent flow of new deals.

Bookings Momentum and Healthier Order Book

Bookings were a bright spot in an otherwise pressured revenue picture. DXC’s Q3 book-to-bill ratio improved to 1.12, with the trailing 12-month figure at 1.02 — the fourth consecutive quarter above 1. The CES segment posted a strong 1.20 book-to-bill (1.13 on a trailing 12-month basis), while GIS came in at 1.09 for the quarter. These metrics indicate that new contract signings are outpacing current revenue, bolstering the future backlog and suggesting that the demand environment is better than the current top-line performance implies.

Cash Generation and Balance-Sheet Deleveraging

Despite the revenue decline, DXC delivered solid cash performance and continued to strengthen its balance sheet. Free cash flow in Q3 was $266 million, bringing year-to-date FCF to $603 million and keeping the company on pace to meet its roughly $650 million full-year target. Cash on the balance sheet rose to about $1.7 billion, while total debt fell by approximately $465 million to around $3.6 billion, reducing net debt by roughly $970 million. This deleveraging provides financial flexibility to keep investing in AI, products and sales while still funding shareholder returns.

Shareholder Returns and Liability Reduction

DXC continued to return capital to shareholders while cutting future obligations. Year-to-date share repurchases totaled $190 million, including $65 million in Q3, and the company expects to complete about $250 million in buybacks for the full year. On the liability side, DXC prepaid $300 million of a $700 million bond due in September and paid down $47 million of capital lease obligations in the quarter, contributing to more than $450 million in capital lease reduction since FY2025. The overall message was that capital allocation remains balanced between strengthening the balance sheet and rewarding equity holders.

Profitability Slightly Ahead, but Under Investment Pressure

Profitability metrics came in modestly better than guidance even as DXC increased spending on future growth. Adjusted EBIT margin in Q3 was 8.2%, slightly above the high end of guidance, and non-GAAP EPS rose to $0.96 from $0.92 a year ago, helped by a lower share count and favorable interest and tax effects. However, adjusted EBIT margin was down about 70 basis points year-over-year, largely due to higher planned investments in offering development and marketing. Management signaled that margins will step down further in Q4 as these investments continue.

Top-Line Decline at the Total Company Level

The main drag on the story remains revenue. Total Q3 revenue came in at $3.2 billion, a 4.3% year-over-year decline. Management now expects full-year FY2026 organic revenue to decline by roughly 4.3%, with Q4 organic revenue projected to fall 4–5%. The company framed this period as a transition phase in which legacy revenues are shrinking faster than new AI-led and productized offerings can grow, leaving the top line under pressure despite healthier bookings.

Segment Pressure in GIS and CES

Within the portfolio, both major segments remained in decline. The Global Infrastructure Services (GIS) segment, which represents about 50% of revenue, fell 6.2% year-over-year in Q3, in line with full-year expectations. The Customer Engagement Services (CES) segment, about 40% of revenue, declined 3.6% year-over-year, reflecting ongoing pressure on short-term discretionary projects even as longer-term bookings improve. This mix underscores the challenge: contracts are being won, but revenue from those wins is not yet offsetting the run-off and price pressure in legacy services.

U.S. Weakness and Booking Delays Cloud Near Term

DXC reported a notable divergence between geographies. While the rest of the world showed improvement, U.S. performance decelerated, with short-term project bookings coming in below expectations. Some deals anticipated in Q3 slipped into Q4, and a portion of expected Q4 bookings is now pushed further out. These timing issues delay revenue recognition and add volatility to near-term results, amplifying the sense that execution and deal closure cadence are critical watch items for investors.

Insurance BPS Delays Amid Mixed Insurance Results

The Insurance business, about 10% of company revenue, delivered a 3.2% year-over-year increase driven primarily by software. However, a couple of sizable business process services (BPS) opportunities were delayed from Q3 into Q4, leaving BPS largely flat in the period. While the software side of Insurance is performing well, the delays in BPS deals highlight the uneven nature of demand and the dependence on timely execution in closing large, complex contracts.

Execution and Talent as the Key Constraints

Management was explicit that the main constraint on scaling Fast Track and the AI-led strategy is execution and talent, not demand. The company needs more product teams capable of building repeatable solutions and must fully embed the new centralized sales enablement model across its global sales force. Achieving consistent execution at scale will likely take time and discipline, and represents a key risk factor in whether DXC’s strategic pivot can translate into sustainable top-line growth and margin expansion.

Guidance: Continued Revenue Decline, Investment-Weighted Margins

Looking ahead to Q4 FY2026, DXC guided to organic revenue down 4–5%, with CES expected to decline in the low-single-digits, GIS in the mid-single-digits, and Insurance to grow in the low-single-digits. Adjusted EBIT margin is forecast at 6.5–7.5% for the quarter, implying a full-year margin around 7.5% as investments weigh on near-term profitability. Non-GAAP diluted EPS guidance stands at $0.65–$0.75 for Q4, or about $3.15 for the full year, and free cash flow is projected to be roughly $650 million. Management reiterated its medium-term ambition for Fast Track offerings to reach around 10% of run-rate revenue by the end of Q2 FY2029, underscoring the long runway for its AI product strategy.

DXC’s earnings call painted the picture of a company in the midst of a complex transformation: strategically progressing in AI, productization, security and bookings while still battling declining revenues in legacy segments and margin pressure from deliberate investment. Investors will likely view the strong cash generation, reduced leverage and improving order book as key positives, but the story hinges on execution—scaling product teams, tightening U.S. performance and converting backlog into growth. Until those elements visibly translate into top-line stabilization and margin expansion, DXC remains a turnaround and execution story rather than a fully realized growth one.