DXC Technology reported results for the first quarter of fiscal year 2023.
Mike Salvino, DXC Chairman, President and Chief Executive Officer commented: “Our transformation journey is creating value and we are confident that we are taking the right steps for DXC in the short term that will set us up for success in the long term. I am pleased with the quality of company DXC has become with our stable debt, sound capital allocation strategy, focus on free cash flow generation, investment grade credit profile, improved governance, and our consistent growth in GBS. Our focus now is to accelerate our cost optimization to drive out $500 million in cost by year end, setting the company up for long term success.”
Financial Highlights - First Quarter of Fiscal Year 2023
Revenue was $3.71 billion for the first quarter of fiscal year 2023, down 10.5% as compared to prior year period, and down 2.6% on an organic basis. First quarter revenues came in towards the bottom end of our previous guidance range, while organic revenue growth was slightly below the bottom end of our guidance range.
Net income was $103 million, or 2.8% of sales for the first quarter of fiscal year 2023, compared to $282 million, or 6.8% of sales, in the prior year quarter. EBIT was $139 million or 3.7% of sales. Net income and EBIT in the quarter included the following items: amortization of acquired intangible assets of $104 million, restructuring costs of $33 million, gain on disposition of $29 million, a merger related indemnification charge of $10 million, and transaction, separation, and integration costs of $2 million. Excluding these items, Adjusted EBIT margin was 7.0% in the first quarter, a reduction of 100 bps as compared to the prior year quarter.
Diluted earnings per share was $0.43 and Non-GAAP diluted earnings per share was $0.75 for the first quarter of fiscal year 2023. GAAP and Non-GAAP earnings per share were adversely impacted by investments and higher costs, a slower than anticipated ramp of our cost optimization efforts, unfavorable currency fluctuations, and higher than expected tax expense, partially offset by lower interest expense and share count.
On a trailing twelve months basis, the company delivered a book to bill of 1.06x.
During the first quarter of fiscal year 2023, the Company repurchased 8.9 million shares of common stock for a total of $266 million.
Financial Information by Segment
GBS segment revenue was $1,758 million in the first quarter of fiscal year 2023, down 6.8% compared to the prior year period and up 2.8% on an organic basis. The GBS performance was driven by strong growth in the Analytics & Engineering business, where revenue increased 15.7% on an organic basis. GBS segment profit was $210 million and segment profit margin was 11.9%, down 250 bps compared to prior year, due to investments and higher costs and the costs related to the exit of our business in Russia. GBS bookings for the quarter were $1.7 billion for a book-to-bill of 0.98x, and 1.17x on a trailing twelve months basis.
GIS segment revenue was $1,949 million in the first quarter of fiscal year 2023, down 13.5% compared to the prior year period, and down 7.2% on an organic basis. GIS segment organic revenue performance improved slightly, due to a lower level of declines in Security and Modern Workplace revenues, which declined by 0.3% and 16.1% on an organic basis, respectively. GIS segment profit was $127 million with a segment profit margin of 6.5%, a 70 bps margin expansion as compared to first quarter of fiscal year 2022. GIS bookings were $1.5 billion in the quarter for a book-to-bill of 0.77x, and 0.96x on a trailing twelve months basis.
Cash Flow
Cash flow from (used in) operations was $163 million in the first quarter of fiscal year 2023, as compared to $(29) million in the first quarter of fiscal year 2022, and capital expenditures were $175 million in the first quarter of fiscal year 2023, as compared to $275 million in the first quarter of fiscal year 2022. Free cash flow (cash flow from operations, less capital expenditures) was $(12) million in the first quarter of fiscal year 2023, as compared to $(304) million in the first quarter of fiscal year 2022.
Guidance
The Company reaffirmed its longer-term guidance:
- Positive organic revenue growth of 1% to 3% for fiscal year 2024
- Adjusted EBIT margin of 10% to 11% in fiscal year 2024
- Non-GAAP diluted Earnings Per Share of $5.00 to $5.25 in fiscal year 2024
- Free cash flow of approximately $1.5 billion in fiscal year 2024
- Restructuring and TSI of approximately $100 million in fiscal year 2024
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.
Ken Sharp, Chief Financial Officer, commented: “In Q1 FY23, we continued to drive down uses of cash, including restructuring, transaction, separation and integration expenses, capital expenditures, capital lease originations, and our facility footprint. These initiatives allowed us to deliver a $292 million improvement in free cash flow over the first quarter of FY22. We continued to execute on our capital deployment program, returning $266 million to shareholders by repurchasing 8.9 million shares during the quarter to complete $500 million of our $1 billion repurchase commitment."
Earnings Conference Call and Webcast
DXC Technology senior management will host a conference call and webcast to discuss these results on August 3, 2022, 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 August 10, 2022. The phone number for the replay is +1 (800) 770-2030 or +1 (647) 362-9199. The replay passcode is 4164760.
