DXC Technology 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 |
||||||
|
Lower |
Higher |
Q1 |
Lower |
Higher |
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 |
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.
