DXC Technology reported results for the fourth quarter and full fiscal year 2022.
“I would like to thank our DXC colleagues across the organization for coming together to deliver excellence for our customers and colleagues in the midst of the challenges raised by the ongoing conflict in Ukraine," said Mike Salvino, DXC President and Chief Executive Officer. “Our transformation journey starts with our people, and we are honored by the commitment, dedication, and caring we have seen from our people in the region and throughout the company over the past few months.”
Mr. Salvino continued, "DXC is now in a dramatically better place and I am pleased with the ongoing business momentum that DXC has achieved in FY22. We significantly improved our organic revenue performance, expanded margins, drove strong Adjusted EPS growth, and improved free cash flow by $1.4 billion as compared to FY21. I am excited about FY23 and the clarity that our leadership team has as to what we need to execute within GBS and GIS in order to meet our long-term targets.”
Financial Highlights - Fourth Quarter of Fiscal Year 2022
Revenue was $4.01 billion for the fourth quarter of fiscal year 2022, down 8.6% as compared to prior year period, and down 2.8% on an organic basis. Fourth quarter revenues came in below the previous guidance range, as the strengthening of the U.S. dollar reduced fourth quarter fiscal year 2022 revenues by $52 million as compared to the currency rates used in our prior earnings guidance. Management estimates that Russia's invasion of Ukraine, exiting our Russian business, and the associated distraction accounted for the majority of the organic revenue miss to guidance.
Net income was $539 million, or 13.4% of sales for the fourth quarter of fiscal year 2022, compared to $(804) million, or (18.3)% of sales, in the prior year quarter. EBIT was $828 million or 20.7% of sales. Net income and EBIT in the quarter included the following items: amortization of acquired intangible assets of $109 million, restructuring costs of $70 million, mark-to-market pension gain of $691 million, loss on disposition of $2 million, asset impairment loss of $21 million, and transaction, separation, and integration costs of $3 million. Excluding these items, Adjusted EBIT margin was 8.5% in the fourth quarter, an improvement of 100 bps as compared to the prior year quarter. Fourth quarter adjusted EBIT margin was reduced by $16 million of expenses, or 40 basis points, related to Russia's invasion of Ukraine.
Diluted earnings per share was $2.14 and Non-GAAP diluted earnings per share was $0.84 for the fourth quarter of fiscal year 2022, driven by the improvement in margins, lower interest expense, and lower shares outstanding. Non-GAAP earnings per share fell below the Company's previous guidance range due to $0.04 per share of incremental costs related to Russia's invasion of Ukraine, $0.07 of headwinds related to higher than expected tax expense due to the write down of a deferred tax asset, and an incremental $0.06 in higher European energy costs that we were not able to pass on to customers.
Book-to-bill for the quarter was 1.20x. Over the trailing four quarters, the company delivered a book to bill of 1.11x.
During the fourth quarter, the Company repurchased 8.2 million shares of common stock for a total of $271 million. For the full fiscal year 2022, the company repurchased 18.8 million shares for a total of $634 million.
Ukraine / Russia Update
Subsequent to the end of the quarter, DXC exited its domestic Russian business. This action achieves a significant portion of our commitment to exit Russia. The sale of this business has provided continuing employment opportunities for many former DXC employees who have chosen to stay in Russia. The exit of this market will reduce revenues by approximately $140 million annually. The company is transitioning global business previously serviced by our DXC Russian colleagues to international teams and expects to complete this process by the end of the second quarter.
DXC's Ukraine business supported approximately $250 million of revenue, predominantly serving international customers. Despite the ongoing conflict, these revenues have only seen a minor impact stemming from the conflict. Our global teams have worked to augment their Ukrainian colleagues, and to continue to deliver for our customers through the conflict.
During the fourth quarter, DXC spent approximately $16 million related to Russia's invasion of Ukraine.
Financial Information by Segment
GBS segment revenue was $1,892 million in the fourth quarter of fiscal year 2022, down 5.4% compared to prior year period and up 3.4% on an organic basis. The GBS performance was driven by strong growth in the Analytics & Engineering business, where revenue increased 19.7% on an organic basis. GBS segment profit was $275 million and segment profit margin was 14.5%, down 130 bps compared to prior year, primarily due to expenses related to Russia's invasion of Ukraine. GBS bookings for the quarter were $2.8 billion for a book-to-bill of 1.46x.
GIS segment revenue was $2,116 million in the fourth quarter of fiscal year 2022, down 11.3% compared to prior year period, and down 8.0% on an organic basis. GIS segment performance was driven by improving Cloud and Security revenues, which declined by 6.9% on an organic basis, offset by lower resale revenues in Modern Workplace. GIS segment profit was $124 million with a segment profit margin of 5.9%, a 180 bps margin expansion as compared to fourth quarter of fiscal year 2021. GIS bookings were $2.0 billion in the quarter for a book-to-bill of 0.96x.
Cash Flow
Cash flow from (used in) operations was $271 million in the fourth quarter of fiscal year 2022, as compared to $(280) million in the fourth quarter of fiscal year 2021, and capital expenditures were $178 million in the fourth quarter of fiscal year 2022, as compared to $163 million in the fourth quarter of fiscal year 2021. Free cash flow (cash flow from operations, less capital expenditures) was $93 million in the fourth quarter of fiscal year 2022, as compared to $(443) million in the fourth quarter of fiscal year 2021.
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 FY22, we made excellent progress in building our financial foundation. We significantly lowered our debt and related interest expense, substantially reduced restructuring, transaction, separation and integration expenses, and lowered capital expenditures, capital lease originations and our facility footprint. These initiatives, and the ongoing strong business execution of our DXC colleagues, allowed us to deliver a $1.4 billion improvement in free cash flow over FY21. We continue to execute on our capital deployment program, repurchasing 18.8 million shares during the year, and expect to complete our $1 billion repurchase commitment over the next three quarters. We look forward to the opportunities presented by FY23 and expect to continue our steady progress on the transformation journey."
Earnings Conference Call and Webcast
DXC Technology senior management will host a conference call and webcast to discuss these results on May 25, 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 June 1, 2022. Phone number for the replay is +1 (800) 770-2030 or +1 (647) 362-9199. The replay passcode is 4164760.
