DXC Technology’s Earnings Call: Growth Amid Challenges

Dxc Technology Company ((DXC)) has held its Q1 earnings call. Read on for the main highlights of the call.

DXC Technology’s recent earnings call painted a picture of mixed fortunes, with the company experiencing both promising developments and notable challenges. On the positive side, there was significant growth in bookings, free cash flow, and strategic partnerships. However, these were offset by declines in revenue, adjusted EBIT margin, and EPS. The company’s focus on AI integration and leadership enhancements suggests potential for future growth, though current financial hurdles temper the overall optimism.

Strong Free Cash Flow

DXC Technology reported a substantial increase in free cash flow, reaching $97 million for the quarter, more than doubling the $45 million recorded in the same period last year. This improvement highlights the company’s effective cash management strategies and operational efficiencies.

Bookings Growth

The company achieved a 14% year-over-year increase in bookings, marking the third consecutive quarter of double-digit growth. This resulted in a trailing 12-month book-to-bill ratio of 1.06, underscoring the strong demand for DXC’s services across various industry verticals and regions.

AI Integration and Recognition

DXC’s capabilities in AI were recognized by Gartner, which named the company an Emerging Leader in the Consulting and Implementation Services Market Quadrant for Generative AI. This recognition reflects DXC’s strategic vision and commitment to integrating AI into its service offerings.

New Strategic Partnership

In a move to enhance connectivity and streamline operations for clients, DXC entered into a strategic partnership with Boomi. This collaboration aims to reduce complexity and improve end-to-end solutions, positioning DXC as a leader in innovative client solutions.

Talent and Leadership Enhancements

DXC bolstered its leadership team by attracting top-tier talent, including Ramnath Venkataraman as President of Consulting & Engineering Services. With nearly 30 years of experience from Accenture, Venkataraman is expected to drive growth and innovation within the company.

Revenue Decline

Despite the positive developments, DXC faced a 4.3% year-over-year decline in total revenue on an organic basis. The GIS segment saw a 5.7% decline, while the CES segment decreased by 4.4%, reflecting challenges in maintaining revenue growth.

Adjusted EBIT Margin Decrease

The company’s adjusted EBIT margin saw a modest decrease of 10 basis points year-over-year, settling at 6.8%. This decline indicates pressure on profitability, despite efforts to optimize operations.

Non-GAAP EPS Decline

DXC reported a decrease in non-GAAP diluted EPS, from $0.75 in the previous year to $0.68. This drop was largely attributed to lower adjusted EBIT and higher taxes, impacting overall earnings.

Deferred Large Deals

In the GIS segment, the deferral of some large deals affected the book-to-bill ratio, which stood at 0.7 for the quarter. This postponement highlights challenges in closing significant contracts within the expected timeframe.

Forward-Looking Guidance

Looking ahead, DXC Technology expects a decline in total organic revenue for fiscal 2026 by 3% to 5%, with reported revenue ranging from $12.6 billion to $12.9 billion. The company anticipates an adjusted EBIT margin between 7% and 8%, and non-GAAP diluted EPS projected to fall between $2.85 and $3.35. Despite these forecasts, DXC remains confident in achieving its full-year guidance, supported by a robust pipeline and strategic initiatives.

In conclusion, DXC Technology’s earnings call revealed a blend of positive strides and financial challenges. While the company is making significant progress in areas like AI and strategic partnerships, it faces hurdles in revenue growth and profitability. The forward-looking guidance suggests cautious optimism, with expectations of continued strategic advancements and financial improvements.