DXC Technology Reports Fourth Quarter And Full Fiscal Year 2023 Results

Revenues of $3.59 billion for Q4 FY23, down 10.4% as compared to prior year period, and down 2.9% on an organic basis
Diluted Loss Per Share was $(3.38) and Non-GAAP Diluted Earnings Per Share was $1.02 in Q4 FY23
Book-to-bill of 1.04x in the fourth quarter of FY23; book-to-bill in the quarter for both GBS and GIS segments was greater than 1.0x
Q4 FY23 operating cash flow of $415 million, less capital expenditures of $146 million, resulted in free cash flow of $269 million
The Company completed its $1 billion share repurchase initiative in April 2023. Today, DXC is announcing a new $1 billion share repurchase

ASHBURN, Va.--(BUSINESS WIRE)--Today, DXC Technology (NYSE: DXC) reported results for the fourth quarter and the full fiscal year 2023.

“We are pleased with our performance in the fourth quarter and fiscal 2023, as it demonstrates that we are executing and positions us for more progress in fiscal year 2024.” said Mike Salvino, Chairman, President, and CEO of DXC. “The clear execution on our transformation journey by our talented team has delivered a better culture, stronger customers relationships, an improved sales model, revenue stability, expanded margins, free cash flow, and a solid investment grade credit profile, while returning $1 billion back to our shareholders. This is great execution and I am happy that our future focus will not be fixing challenges, but on continuing to deliver higher quality revenue, margin, earnings per share, expanding free cash flow, and returning another $1 billion to shareholders, while maintaining our solid financial foundation.”

Financial Highlights⁽¹⁾	Q4 FY23			Q4 FY22			FY23			FY22
Revenue	$	3,591		$	4,008		$	14,430		$	16,265
YoY Revenue Growth		(10.4	)%		(8.6	)%		(11.3	)%		(8.3	)%
YoY Organic Revenue Growth⁽²⁾		(2.9	)%		(2.8	)%		(2.7	) %		(2.6	)%

Net Income/(Loss)	$	(758	)	$	539		$	(566	)	$	736
Net Income as a % of Sales		(21.1	)%		13.4	%		(3.9	) %		4.5	%

EBIT⁽²⁾	$	(1,146	)	$	828		$	(820	)	$	1,280
EBIT Margin %⁽²⁾		(31.9	)%		20.7	%		(5.7	) %		7.9	%

Adjusted EBIT⁽²⁾	$	320		$	342		$	1,157		$	1,375
Adjusted EBIT Margin %⁽²⁾		8.9	%		8.5	%		8.0	%		8.5	%

Earnings/(Loss) Per Share (Diluted)	$	(3.38	)	$	2.14		$	(2.48	)	$	2.81
Non-GAAP EPS (Diluted)⁽²⁾	$	1.02		$	0.84		$	3.47		$	3.50

Book-to-Bill	1.04x			1.20x			1.02x			1.11x
⁽¹⁾ In millions, except per-share amounts and numbers presented as percentages and ratios
⁽²⁾ Reconciliation of GAAP to Non-GAAP measures provided in Non-GAAP Results.

Financial Highlights - Fourth Quarter of Fiscal Year 2023

Revenue was $3.59 billion for the fourth quarter of fiscal year 2023, down 10.4% as compared to the prior year period, and down 2.9% on an organic basis. The organic revenue decline was the result of a lower level of resale revenues and a lower level of project revenues in the fourth quarter of fiscal year 2023.

Net income was $(758) million, or (21.1)% of sales for the fourth quarter of fiscal year 2023, compared to $539 million, or 13.4% of sales, in the prior year quarter. EBIT was $(1,146) million or (31.9)% of sales. Adjusted EBIT margin was 8.9% in the fourth quarter, up 40 basis points as compared to the prior year quarter.

Loss per share was $(3.38) and Non-GAAP diluted earnings per share was $1.02 for the fourth quarter of fiscal year 2023. Compared to the prior year quarter, loss per share and non-GAAP diluted earnings per share were impacted by a lower share count and lower net interest expense, partially offset by foreign exchange headwinds and lower sales volumes. GAAP loss per share was negatively impacted by a higher tax rate, while Non-GAAP diluted earnings per share benefited from a lower Non-GAAP tax rate.

In the fourth quarter of fiscal year 2023, the annual pension plan mark-to-market evaluation resulted in a net mark-to-market loss of $1,070 million primarily due to the performance of plan assets. In addition, the Company executed a buy-out of one of its defined benefit pension plans in the UK in coordination with the plan trustees. The buy-out removes the funding risk from DXC's balance sheet and resulted in a loss of $361 million. Both of these non-cash items are excluded from the Company's Non-GAAP results.

On a trailing twelve months basis, the company delivered a book to bill of 1.02x.

Financial Information by Segment

Global Business Services ("GBS")⁽¹⁾	Q4 FY23			Q4 FY22			FY23			FY22
Revenue	$	1,751		$	1,892		$	6,960		$	7,598
YoY Revenue Growth		(7.5	)%		(5.4	)%		(8.4	)%		(8.9	)%
YoY Organic Revenue Growth⁽²⁾		3.3	%		3.4	%		2.4	%		3.9	%

Segment Profit	$	240		$	275		$	912		$	1,160
Segment Profit Margin		13.7	%		14.5	%		13.1	%		15.3	%

Book-to-Bill	1.04x			1.46x			1.05x			1.24x
⁽¹⁾ In millions, except numbers presented as percentages and ratios
⁽²⁾ Reconciliation of GAAP to Non-GAAP measures provided in Non-GAAP Results.

GBS segment revenue was $1,751 million in the fourth quarter of fiscal year 2023, down 7.5% compared to the prior year period and up 3.3% on an organic basis. GBS performance was driven by continued growth in the Analytics & Engineering business, where revenue increased 8.5% on an organic basis. GBS segment profit was $240 million and segment profit margin was 13.7%, down 80 bps compared to prior year period due to increased investments as we implement our offering-led sales model, partially offset by cost optimization initiatives. GBS bookings for the quarter were $1.8 billion for a book-to-bill of 1.04x, and 1.05x on a trailing twelve months basis.

Global Infrastructure Services ("GIS")⁽¹⁾	Q4 FY23			Q4 FY22			FY23			FY22
Revenue	$	1,840		$	2,116		$	7,470		$	8,667
YoY Revenue Growth		(13.0	)%		(11.3	)%		(13.8	)%		(7.7	)%
YoY Organic Revenue Growth⁽²⁾		(8.5	)%		(8.0	)%		(7.2	)%		(8.4	)%

Segment Profit	$	143		$	124		$	507		$	475
Segment Profit Margin		7.8	%		5.9	%		6.8	%		5.5	%

Book-to-Bill	1.03x			0.96x			0.99x			1.01x
⁽¹⁾ In millions, except numbers presented as percentages and ratios
⁽²⁾ Reconciliation of GAAP to Non-GAAP measures provided in Non-GAAP Results.

GIS segment revenue was $1,840 million in the fourth quarter of fiscal year 2023, down 13.0% compared to the prior year period, and down 8.5% on an organic basis. GIS segment revenue performance was driven by lower Modern Workplace and Cloud Infrastructure & ITO revenues. GIS segment profit was $143 million with a segment profit margin of 7.8%, a 190 bps margin expansion as compared to fourth quarter of fiscal year 2022, driven by efficiencies from our cost optimization initiatives, a favorable sales mix shift with lower resale activity, partially offset by increased investments as we implement our offering-led sales model. GIS bookings were $1.9 billion in the quarter for a book-to-bill of 1.03x, and 0.99x on a trailing twelve months basis.

Offering Highlights

The results for our six offerings are as follows:

Offerings Revenues⁽¹⁾	Q4 FY23		Q3 FY23		Q2 FY23		Q1 FY23		Q4 FY22
Analytics and Engineering	$	558	$	535	$	524	$	503	$	529
Applications		786		832		825		882		827
Insurance Software & BPS		390		371		363		368		385
Security		113		112		108		105		120
Cloud Infrastructure & ITO		1,270		1,283		1,309		1,395		1,479
Modern Workplace		457		433		436		448		507
Subtotal		3,574		3,566		3,565		3,701		3,847
M&A and Divestitures
Revenues		17		—		1		6		161
Total Revenues	$	3,591	$	3,566	$	3,566	$	3,707	$	4,008
⁽¹⁾In millions

Cash Flow

Cash Flow⁽¹⁾	Q4 FY23			Q4 FY22			FY23			FY22
Cash Flow from Operations	$	415		$	271		$	1,415		$	1,501
Less Capital Expenditures:
Purchase of property and equipment		(55	)		(37	)		(267	)		(254	)
Transition and transformation contract costs		(57	)		(57	)		(223	)		(209	)
Software purchased or developed		(34	)		(84	)		(188	)		(295	)
Free Cash Flow	$	269		$	93		$	737		$	743
⁽¹⁾In millions

Cash flow from operations was $415 million in the fourth quarter of fiscal year 2023, as compared to $271 million in the fourth quarter of fiscal year 2022, and capital expenditures were $146 million in the fourth quarter of fiscal year 2023, as compared to $178 million in the fourth quarter of fiscal year 2022. Free cash flow (cash flow from operations, less capital expenditures) was $269 million in the fourth quarter of fiscal year 2023, as compared to $93 million in the fourth quarter of fiscal year 2022. For the fiscal year 2023, operating cash flow and free cash flow were negatively impacted by a lower level of deposits at the German Banks of approximately $70 million. The German banks were sold on January 3, 2023.

Guidance

The Company's guidance for the first quarter and full fiscal year 2024 is as follows:

Key Metrics⁽¹⁾	Q1 FY24 Guidance			FY24 Guidance
Key Metrics⁽¹⁾	Lower End	Higher End	Q1 FY23	Lower End	Higher End	FY23
Organic Revenue Growth %	(2.0)%	(1.0)%	(2.6)%	(0.5)%	0.5%	(2.7)%
Adjusted EBIT Margin	7.5%	8.0%	7.0%	8.0%	8.5%	8.0%
Non-GAAP Diluted EPS	$0.80	$0.85	$0.75	$3.80	$4.05	$3.47
Free Cash Flow			$(12)	$900		$737
Revenue
Revenue	$3,540	$3,580	$3,707	$14,400	$14,550	$14,430
Acquisition & Divestitures Impact on Revenues	(2.6)%		(2.1)%	(1.7)%		(2.6)%
Foreign Exchange Impact on Revenues	—%		(5.8)%	2.0%		(6.0)%
Others
Pension Income Benefit⁽²⁾	~$20		$48	~$80		$178
Net Interest Expense	~$23		$17	~$90		$65
Non-GAAP Tax Rate	~29%			~29%
Weighted Average Diluted Shares Outstanding	212	216	237	196	205	233
Restructuring & TSI Expense			$35	~$100		$232
Capital Lease / Asset Financing payments			$97	~$415		$511
Foreign Exchange Assumptions	Current Estimate		Q1 FY23	Current Estimate		FY23
$/Euro exchange rate	$1.10		$1.07	$1.10		$1.04
$/GBP exchange rate	$1.26		$1.26	$1.26		$1.21
$/AUD exchange rate	$0.68		$0.72	$0.68		$0.69
⁽¹⁾ In millions except for ratios, rates and per share numbers
⁽²⁾Pension benefit is split between Cost Of Sales (COS) & Other Income:
Fiscal year 2024: Net pension benefit of $80 million;$65 million service cost in COS, $145 million pension benefit in Other income
Fiscal year 2023: Net pension benefit of $178 million; $73 million service cost in COS, $251 million pension benefit in Other income

DXC does not provide a reconciliation of Non-GAAP measures that it discusses as part of its guidance because certain significant information required for such reconciliation is not available without unreasonable efforts or at all, including, most notably, the impact of significant non-recurring items. Without this information, DXC does not believe that a reconciliation would be meaningful.

Earnings Conference Call and Webcast

DXC Technology senior management will host a conference call and webcast to discuss these results on May 18, 2023, at 5:00 p.m. EDT. The dial-in number for domestic callers is +1 (888) 330-2455. Callers who reside outside of the United States should dial +1 (240) 789-2717. The passcode for all participants is 4164760. The webcast audio and any presentation slides will be available on DXC Technology’s Investor Relations website.

A replay of the conference call will be available from approximately two hours after the conclusion of the call until May 25, 2023. The phone number for the replay is +1 (800) 770-2030 or +1 (647) 362-9199. The replay passcode is 4164760.

About DXC Technology

DXC Technology (NYSE: DXC) helps global companies run their mission-critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private, and hybrid clouds. The world’s largest companies and public sector organizations trust DXC to deploy services to drive new levels of performance, competitiveness, and customer experience across their IT estates. Learn more about how we deliver excellence for our customers and colleagues at DXC.com.

Forward-Looking Statements

All statements and assumptions contained in this press release that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” Forward-looking statements often include words such as “anticipates,” “believes,” “estimates,” “expects,” “forecast,” “goal,” “intends,” “objective,” “plans,” “projects,” “strategy,” “target,” and “will” and words and terms of similar substance in discussions of future operating or financial performance. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved.

Forward-looking statements include, among other things, statements with respect to our future financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, divestitures, competitive position, growth opportunities, share repurchases, dividend payments, plans and objectives of management and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control.

Important factors that could cause actual results to differ materially from those described in forward-looking statements include, but are not limited to:

our inability to succeed in our strategic objectives;
the risk of liability or damage to our reputation resulting from security incidents, including breaches, and cyber-attacks to our systems and networks and those of our business partners, insider threats, disclosure of sensitive data or failure to comply with data protection laws and regulations in a rapidly evolving regulatory environment; in each case, whether deliberate or accidental;
our inability to develop and expand our service offerings to address emerging business demands and technological trends, including our inability to sell differentiated services amongst our offerings;
our inability to compete in certain markets and expand our capacity in certain offshore locations and risks associated with such offshore locations such as the ongoing conflict between Russia and Ukraine;
failure to maintain our credit rating and ability to manage working capital, refinance and raise additional capital for future needs;
public health crises such as the COVID-19 pandemic
our indebtedness;
the competitive pressures faced by our business;
our inability to accurately estimate the cost of services, and the completion timeline of contracts;
execution risks by us and our suppliers, customers, and partners;
the risks associated with climate change and natural disasters;
increased scrutiny of, and evolving expectations for, sustainability and environmental, social, and governance initiatives;
our inability to retain and hire key personnel and maintain relationships with key partners;
the risks associated with prolonged periods of inflation or current macroeconomic conditions, including the current decline in economic growth rates in the United States and in other countries, the possibility of reduced spending by customers in the areas we serve, the success of our cost-takeout efforts, continuing unfavorable foreign exchange rate movements, and our ability to close new deals in the event of an economic slowdown;
the risks associated with our international operations, such as risks related to currency exchange rates;
our inability to comply with existing and new laws and regulations, including social and environmental responsibility regulations, policies and provisions, as well as customer and investor demands;
our inability to achieve the expected benefits of our restructuring plans;
inadvertent infringement of third-party intellectual property rights or our inability to protect our own intellectual property assets;
our inability to procure third-party licenses required for the operation of our products and service offerings;
risks associated with disruption of our supply chain;
our inability to maintain effective disclosure controls and internal control over financial reporting;
potential losses due to asset impairment charges;
our inability to pay dividends or repurchase shares of our common stock;
pending investigations, claims and disputes and any adverse impact on our profitability and liquidity;
disruptions in the credit markets, including disruptions that reduce our customers’ access to credit and increase the costs to our customers of obtaining credit;
counterparty default risk in our hedging program;
our failure to bid on projects effectively;
financial difficulties of our customers and our inability to collect receivables;
our inability to maintain and grow our customer relationships over time and to comply with customer contracts or government contracting regulations or requirements;
our inability to succeed in our strategic transactions;
changes in tax laws and any adverse impact on our effective tax rate;
risks following the merger of Computer Sciences Corporation (“CSC”) and Enterprise Services business of Hewlett Packard Enterprise Company’s (“HPES”) businesses, including anticipated tax treatment, unforeseen liabilities, and future capital expenditures;
risks following the spin-off of our former U.S. Public Sector business (the “USPS”) and its related mergers with Vencore Holding Corp. and KeyPoint Government Solutions in June 2018 to form Perspecta Inc. (including its successors and permitted assigns, “Perspecta”), which was acquired by Peraton in May 2021; and
the other factors described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events, except as required by law.

About Non-GAAP Measures

In an effort to provide investors with supplemental financial information, in addition to the preliminary and unaudited financial information presented on a GAAP basis, we have also disclosed in this press release preliminary Non-GAAP information including: earnings before interest and taxes ("EBIT"), EBIT margin, Adjusted EBIT, Adjusted EBIT margin, Non-GAAP diluted EPS, organic revenue growth, free cash flow, and Non-GAAP tax rate.

We believe EBIT, EBIT margin, Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS provide investors with useful supplemental information about our operating performance after excluding certain categories of expenses. Free cash flow represents cash flow from operations, less capital expenditures.

One category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, incremental amortization of intangible assets acquired through business combinations, may result in a significant difference in period over period amortization expense on a GAAP basis. We exclude amortization of certain acquired intangible assets as these non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Although DXC management excludes amortization of acquired intangible assets primarily customer-related intangible assets, from its Non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and support revenue generation. Any future transactions may result in a change to the acquired intangible asset balances and associated amortization expense.

Another category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, impairment losses, may result in a significant difference in period over period expense on a GAAP basis. We exclude impairment losses as these non-cash amounts, reflect generally an acceleration of what would be multiple periods of expense and do not expect to occur frequently. Further assets such as goodwill may be significantly impacted by market conditions outside of management’s control.

We believe organic revenue growth provides investors with useful supplemental information about our revenues after excluding the effect of currency exchange rate fluctuations for currencies other than U.S. dollars and the effects of acquisitions and divestitures in the periods presented. See below for a description of the methodology we use to present organic revenues.

Selected references are made to revenue growth on an “organic basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates and without the impacts of acquisitions and divestitures, thereby providing comparisons of operating performance from period to period of the business that we have owned during all periods presented. Organic revenue growth is calculated by dividing the year-over-year change in GAAP revenues attributed to organic growth by the GAAP revenues reported in the prior comparable period. This approach is used for all results where the functional currency is not the U.S. dollar.

There are limitations to the use of the Non-GAAP financial measures presented in this press release. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our Non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate Non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies.

# # #

Condensed Consolidated Statements of Operations (preliminary and unaudited)

	Three Months Ended						Twelve Months Ended
(in millions, except per-share amounts)	March 31, 2023			March 31, 2022			March 31, 2023			March 31, 2022

Revenues	$	3,591		$	4,008		$	14,430		$	16,265

Costs of services (excludes depreciation and amortization and restructuring costs)		2,742			3,161			11,246			12,683
Selling, general and administrative (excludes depreciation and amortization and restructuring costs)		387			315			1,375			1,408
Depreciation and amortization		375			423			1,519			1,717
Restructuring costs		81			70			216			318
Interest expense		63			43			200			204
Interest income		(46	)		(14	)		(135	)		(65	)
Debt extinguishment costs		—			—			—			311
Gain on disposition of businesses		(202	)		2			(190	)		(371	)
Other expense (income), net		1,354			(791	)		1,084			(1,081	)
Total costs and expenses		4,754			3,209			15,315			15,124

(Loss) income before income taxes		(1,163	)		799			(885	)		1,141
Income tax (benefit) expense		(405	)		260			(319	)		405
Net (loss) income		(758	)		539			(566	)		736
Less: net income attributable to non-controlling interest, net of tax		(2	)		9			2			18
Net (loss) income attributable to DXC common stockholders	$	(756	)	$	530		$	(568	)	$	718

Income per common share:
Basic	$	(3.38	)	$	2.18		$	(2.48	)	$	2.87
Diluted	$	(3.38	)	$	2.14		$	(2.48	)	$	2.81

Weighted average common shares outstanding for:
Basic EPS		223.92			242.65			228.99			250.02
Diluted EPS		223.92			247.69			228.99			255.21

Selected Condensed Consolidated Balance Sheet Data (preliminary and unaudited)

	As of
(in millions)	March 31, 2023		March 31, 2022
Assets
Cash and cash equivalents	$	1,858	$	2,672
Receivables, net		3,441		3,854
Prepaid expenses		565		617
Other current assets		255		268
Assets held for sale		5		35
Total current assets		6,124		7,446

Intangible assets, net		2,569		3,378
Operating right-of-use assets, net		909		1,133
Goodwill		539		617
Deferred income taxes, net		460		221
Property and equipment, net		1,979		2,412
Other assets		3,247		4,850
Assets held for sale - non-current		18		82
Total Assets	$	15,845	$	20,139

Liabilities
Short-term debt and current maturities of long-term debt	$	500	$	900
Accounts payable		782		840
Accrued payroll and related costs		569		570
Current operating lease liabilities		317		388
Accrued expenses and other current liabilities		1,836		2,882
Deferred revenue and advance contract payments		1,054		1,053
Income taxes payable		120		197
Liabilities related to assets held for sale		9		23
Total current liabilities		5,187		6,853

Long-term debt, net of current maturities		3,900		4,065
Non-current deferred revenue		788		862
Non-current income tax liabilities and deferred income taxes		587		994
Non-current operating lease liabilities		648		815
Non-current pension obligations		463		590
Other long-term liabilities		449		546
Liabilities related to assets held for sale - non-current		3		39
Total Liabilities		12,025		14,764

Total Equity		3,820		5,375

Total Liabilities and Equity	$	15,845	$	20,139

Contacts

John Sweeney, CFA, VP of Investor Relations, +1-980-315-3665, john.sweeney@dxc.com
Sean B. Pasternak, Corporate Media Relations, +1-647-975-7326, sean.pasternak@dxc.com

Read full story here

First published on Fri, May 19, 2023

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