DXC Technology (NYSE: DXC) today reported results for the first quarter of fiscal year 2024.
Mike Salvino, DXC Chairman, President and Chief Executive Officer commented: “Our first quarter FY24 financial performance was mixed. While revenue and margin fell short of our expectations, free cash flow was better than expected. Our performance was impacted by lower than anticipated resale and project revenues. As a result of these factors, today we are reducing our guidance to reflect the challenging economic environment."
Mr. Salvino continued: “We are proud of the continued strong performance of our higher margin GBS segment. With our new operating model in place, we are confident that we can drive continued strong business momentum for GBS and improve the performance of GIS. We remain confident in our execution and are committed to delivering on our $1 billion share repurchase, which we believe will drive significant value for our shareholders."
Financial Highlights(1) | Q1 FY24 | Q1 FY23 | ||||||
Revenue | $ | 3,446 | $ | 3,707 | ||||
YoY Revenue Growth | (7.0 | )% | (10.5 | )% | ||||
YoY Organic Revenue Growth(2) | (3.6 | )% | (2.6 | )% | ||||
Net Income | $ | 42 | $ | 103 | ||||
Net Income as a % of Sales | 1.2 | % | 2.8 | % | ||||
EBIT(2) | $ | 95 | $ | 139 | ||||
EBIT Margin %(2) | 2.8 | % | 3.7 | % | ||||
Adjusted EBIT(2) | $ | 224 | $ | 259 | ||||
Adjusted EBIT Margin %(2) | 6.5 | % | 7.0 | % | ||||
Earnings Per Share (Diluted) | $ | 0.17 | $ | 0.43 | ||||
Non-GAAP EPS (Diluted)(2) | $ | 0.63 | $ | 0.75 | ||||
Book-to-Bill (TTM) | 1.03x | 1.06x | ||||||
Book-to-Bill | 0.89x | 0.87x | ||||||
(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 - First Quarter of Fiscal Year 2024
Revenue was $3.45 billion for the first quarter of fiscal year 2024, down 7.0% as compared to prior year period, and down 3.6% on an organic basis. First quarter revenues and organic revenue growth came in below the guidance range, primarily due to a slowdown in client expenditures that are, in the short term, discretionary. This included the resale of IT equipment, such as PCs, and services project work. These are projects that are typically below $5 million in size, and are sold into our existing account base.
Net income was $42 million, or 1.2% of sales for the first quarter of fiscal year 2024, compared to $103 million, or 2.8% of sales, in the prior year quarter. EBIT was $95 million or 2.8% of sales. Net income and EBIT in the quarter included the following items: amortization of acquired intangible assets of $89 million, restructuring costs of $20 million, tax indemnification charges of $11 million, impairment charges of $3 million, a loss on disposition of $5 million, and transaction, separation, and integration costs of $1 million. Excluding these items, Adjusted EBIT margin was 6.5% in the first quarter, a reduction of 50 bps as compared to the prior year quarter.
Diluted earnings per share was $0.17 and Non-GAAP diluted earnings per share was $0.63 for the first quarter of fiscal year 2024. GAAP and Non-GAAP earnings per share were adversely impacted by lower revenues, and higher than expected tax expense, partially offset by a lower share count.
On a trailing twelve months basis, the company delivered a book to bill of 1.03x.
During the first quarter of fiscal year 2024, the Company repurchased 11.0 million shares of common stock for a total of $280 million. The Company has retired 21% of its shares outstanding since the start of fiscal year 2022.
Financial Information by Segment
Global Business Services ("GBS")(1) | Q1 FY24 | Q1 FY23 | ||||||
Revenue | $ | 1,703 | $ | 1,758 | ||||
YoY Revenue Growth | (3.1 | )% | (6.8 | )% | ||||
YoY Organic Revenue Growth(2) | 3.3 | % | 2.8 | % | ||||
Segment Profit | $ | 192 | $ | 210 | ||||
Segment Profit Margin | 11.3 | % | 11.9 | % | ||||
Book-to-Bill (TTM) | 1.01x | 1.17x | ||||||
Book-to-Bill | 0.84x | 0.98x | ||||||
(1) In millions | ||||||||
(2) Reconciliation of GAAP to Non-GAAP measures provided in Non-GAAP Results. | ||||||||
GBS segment revenue was $1,703 million in the first quarter of fiscal year 2024, down 3.1% compared to the prior year period and up 3.3% on an organic basis. The GBS performance was driven by strong growth in the Analytics & Engineering offering. GBS segment profit was $192 million and segment profit margin was 11.3%, down 60 bps compared to prior year, reflecting investments in building the skills and capacity required to continue to drive future growth, as well as the impact of lower pension income. GBS bookings for the quarter were $1.4 billion for a book-to-bill of 0.84x, and 1.01x on a trailing twelve months basis.
Global Infrastructure Services ("GIS")(1) | Q1 FY24 | Q1 FY23 | ||||||
Revenue | $ | 1,743 | $ | 1,949 | ||||
YoY Revenue Growth | (10.6 | )% | (13.5 | )% | ||||
YoY Organic Revenue Growth(2) | (9.9 | )% | (7.2 | )% | ||||
Segment Profit | $ | 91 | $ | 127 | ||||
Segment Profit Margin | 5.2 | % | 6.5 | % | ||||
Book-to-Bill (TTM) | 1.04x | 0.96x | ||||||
Book-to-Bill | 0.94x | 0.77x | ||||||
(1) In millions | ||||||||
(2) Reconciliation of GAAP to Non-GAAP measures provided in Non-GAAP Results. | ||||||||
GIS segment revenue was $1,743 million in the first quarter of fiscal year 2024, down 10.6% compared to the prior year period, and down 9.9% on an organic basis. GIS segment revenue performance was impacted by declines in Cloud Infrastructure & ITO, and moderating declines in Modern Workplace. GIS segment profit was $91 million with a segment profit margin of 5.2%, a 130 bps margin compression as compared to first quarter of fiscal year 2023. GIS bookings were $1.7 billion in the quarter for a book-to-bill of 0.94x, and 1.04x on a trailing twelve months basis.
Offering Highlights
The results for our six offerings are as follows:
Offerings Revenues | Q1 FY24 | Q4 FY23 | Q3 FY23 | Q2 FY23 | Q1 FY23 | ||||||||||
Analytics and Engineering | $ | 546 | $ | 558 | $ | 535 | $ | 524 | $ | 503 | |||||
Applications | 770 | 780 | 762 | 755 | 785 | ||||||||||
Insurance Software & BPS | 382 | 390 | 371 | 363 | 367 | ||||||||||
Security | 111 | 113 | 112 | 108 | 105 | ||||||||||
Cloud Infrastructure & ITO | 1,209 | 1,270 | 1,283 | 1,309 | 1,396 | ||||||||||
Modern Workplace | 423 | 457 | 433 | 436 | 448 | ||||||||||
Subtotal | 3,441 | 3,568 | 3,496 | 3,495 | 3,604 | ||||||||||
M&A and Divestitures | |||||||||||||||
Revenues | 5 | 23 | 70 | 71 | 103 | ||||||||||
Total Revenues | $ | 3,446 | $ | 3,591 | $ | 3,566 | $ | 3,566 | $ | 3,707 | |||||
Cash Flow
Cash Flow | Q1 FY24 | Q1 FY23 | ||||||
Cash Flow from Operations | $ | 127 | $ | 163 | ||||
Less Capital Expenditures: | ||||||||
Purchase of property and equipment | (55 | ) | (68 | ) | ||||
Transition and transformation contract costs | (62 | ) | (57 | ) | ||||
Software purchased or developed | (85 | ) | (50 | ) | ||||
Free Cash Flow | $ | (75 | ) | $ | (12 | ) | ||
Cash flow from operations was $127 million in the first quarter of fiscal year 2024, as compared to $163 million in the first quarter of fiscal year 2023, and capital expenditures were $202 million in the first quarter of fiscal year 2024, as compared to $175 million in the first quarter of fiscal year 2023. Free cash flow (cash flow from operations, less capital expenditures) was $(75) million in the first quarter of fiscal year 2024, as compared to $(12) million in the first quarter of fiscal year 2023.
Guidance
The Company's guidance for the second quarter and full fiscal year 2024 is as follows:
Key Metrics | Q2 FY24 Guidance | FY24 Guidance | ||||||
Lower End | Higher End | Q2 FY23 | Lower End | Higher End | FY23 | |||
Organic Revenue Growth % | (5.5)% | (4.5)% | (1.5)% | (4.0)% | (3.0)% | (2.7)% | ||
Adjusted EBIT Margin | 6.5% | 7.0% | 7.5% | 7.0% | 7.5% | 8.0% | ||
Non-GAAP Diluted EPS | $0.65 | $0.70 | $0.75 | $3.15 | $3.40 | $3.47 | ||
Free Cash Flow | $17 | $800 | $737 | |||||
Revenue | ||||||||
Revenue $ | $3,430 | $3,460 | $3,566 | $13,880 | $14,030 | $14,430 | ||
Acquisition & Divestitures Revenues % | (2.0)% | (2.5)% | (1.8)% | (2.6)% | ||||
Foreign Exchange Impact on Revenues % | 3.6% | |||||||
