DXC Technology Company — FY2022 Form 10-K
Reporting period: Fiscal year ended March 31, 2022; this is an annual report, not a standalone 2021 fourth-quarter filing. DXC provides global IT services through Global Business Services (GBS) and Global Infrastructure Services (GIS).
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $16.265 billion | $17.729 billion |
| Income (loss) before income taxes | $1.141 billion | $654 million |
| Income tax expense | $405 million | $800 million |
| Net income (loss) | $736 million | $(146) million |
| Diluted EPS | $2.81 | $(0.59) |
| Cash provided by operating activities | $1.501 billion | $124 million |
| Cash and cash equivalents at year-end | $2.672 billion | $2.968 billion |
| Total debt | $4.965 billion | $5.512 billion |
- Revenue fell 8.3% year over year, or 9.1% in constant currency. GBS revenue declined 8.9% to $7.598 billion; GIS declined 7.7% to $8.667 billion.
- Reported total costs and expenses were 93.0% of revenue, versus 96.3% in FY2021. Adjusted EBIT was $1.375 billion, up 24.8%; the filing presents this as a non-GAAP measure.
- Year-end total liquidity was $5.672 billion, comprising cash and $3.0 billion available under the revolving credit facility. DXC said existing cash and expected operating cash flow should meet normal operating requirements for the next 12 months.
- Days sales outstanding rose to 69 from 66. The company was in compliance with debt covenants at year-end and reported investment-grade ratings with stable outlooks.
Material changes and unusual items
- Net income improved by $882 million, despite lower revenue. Results included $1.066 billion of non-service pension income, largely associated with actuarial assumptions and plan asset valuations; this was a major contributor to the year-over-year improvement and is not equivalent to recurring operating performance.
- FY2022 included a $331 million pretax gain from selling the healthcare provider software business (HPS), completed April 1, 2021. FY2021 included a $2.014 billion pretax gain from the HHS divestiture, completed in October 2020.
- Debt extinguishment costs increased to $311 million from $41 million, as DXC redeemed or refinanced multiple higher-coupon obligations. Total debt fell by about $547 million.
- Operating cash flow increased substantially from FY2021; management attributed the improvement primarily to higher net income, partly offset by less favorable working-capital movements.
- DXC repurchased 18.8 million shares for $634 million and continued suspending its quarterly dividend. The company said it did not intend to reinstate the dividend at the time of filing.
Outlook, management commentary and risks
- Management said its next-year priorities include revenue stabilization, cost optimization, customer focus and continued portfolio shaping. The filing does not provide a clear numerical revenue or earnings guidance range.
- Remaining performance obligations were approximately $22 billion; DXC expected to recognize about 39% in FY2023. Contract awards declined for GBS to $9.4 billion from $11.0 billion, while GIS awards were $8.7 billion versus $8.8 billion.
- After year-end, DXC exited its domestic Russian business. Management estimated the exit would reduce annual revenue by approximately $140 million. Ukraine operations supported about $250 million of revenue, with only minor reported impact to date; more than 4,000 employees were in Ukraine at March 31, 2022.
- The planned sale of German financial services subsidiary FDB for €300 million, subject to adjustments and regulatory conditions, was expected to close in FY2023. The subsidiary held about $572 million in cash, primarily associated with customer deposit liabilities.
- Principal risks include declining or delayed customer demand, intense price competition, successful execution of the transformation and restructuring plans, talent retention and wage inflation, cybersecurity and data privacy, foreign exchange exposure, supply-chain disruption, and geopolitical disruption. Approximately 71% of FY2022 revenue was denominated in currencies other than the U.S. dollar.
- Tax authorities’ challenges to certain historical tax positions could result in approximately $458 million of federal and state tax expense, including estimated interest and penalties, if DXC does not prevail. The filing also describes ongoing securities and other litigation; for disclosed matters, the company generally could not estimate a reasonable loss range.
- The company reported a $2.133 billion valuation allowance against deferred tax assets. A previously identified material weakness in internal controls was remediated during FY2022; management and the auditor reported effective internal control at March 31, 2022.
Most important facts for investors to verify
- How much of the earnings improvement is sustainable, given the large pension-related gain, disposition effects and other adjustments; compare GAAP results with the company’s non-GAAP reconciliations.
- Whether revenue stabilization is occurring, particularly in GBS and GIS, and whether contract awards and the $22 billion remaining-performance-obligation balance convert into revenue as expected.
- Cash generation, working-capital trends, upcoming debt maturities and the availability and terms of the revolving credit and receivables facilities.
- Execution and financial effects of the Russia exit, the FDB sale, and ongoing restructuring and portfolio changes.
- Developments in the IRS disputes, the securities litigation and other contingencies, including any change in estimated exposure.