DXC Technology Company — Form 10-Q Summary
Reporting period: Fiscal third quarter ended December 31, 2023, with nine-month results for the period ended December 31, 2023. DXC provides IT services through Global Business Services (GBS) and Global Infrastructure Services (GIS). Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Revenue | $3.399B | $3.566B | $10.281B | $10.839B |
| Income attributable to DXC common stockholders | $156M | $59M | $291M | $188M |
| Diluted EPS | $0.81 | $0.25 | $1.43 | $0.80 |
| Adjusted diluted EPS (non-GAAP) | $0.87 | $0.95 | $2.18 | $2.45 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $1.081B | $1.000B |
| Free cash flow (non-GAAP) | Not stated for quarter | Not stated for quarter | $601M | Not stated |
- Q3 revenue fell 4.7% year over year; organic revenue declined 4.5%. Nine-month revenue fell 5.1%, including a 3.9% organic decline.
- Q3 gross margin was 22.4%, up 0.9 percentage points year over year; nine-month gross margin was 22.3%, up 0.8 points.
- GAAP diluted EPS increased, while adjusted diluted EPS declined 8.4% in Q3 and 11.0% for the nine-month period. GAAP results benefited from disposition gains, and EPS also benefited from lower weighted-average share counts following repurchases.
- Nine-month operating cash flow rose $81M, primarily from a $272M favorable working-capital change, partly offset by lower net income. Capital expenditures were $480M.
Segments and material changes
- Q3 GBS revenue was $1.696B, down 2.4%; organic revenue grew 0.3%. Nine-month GBS revenue was $5.108B, down 1.9%; organic revenue grew 2.0%.
- Q3 GIS revenue was $1.703B, down 6.8%; organic revenue fell 8.9%. Nine-month GIS revenue was $5.173B, down 8.1%; organic revenue fell 9.3%. DXC cited project completions and lower resale revenue.
- Q3 adjusted EBIT was $258M versus $309M; nine-month adjusted EBIT was $733M versus $837M. Segment profit for all reportable segments also declined in both periods.
- Q3 net interest expense was $22M, up $7M year over year; nine-month net interest expense was $64M, up $16M, mainly due to higher global interest rates affecting commercial paper and receivables-facility borrowings.
- DXC recorded $96M in net gains on business dispositions during the first nine months, compared with a $12M net loss in the prior-year period.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1.691B at December 31, 2023, down from $1.858B at March 31, 2023. Total debt was $4.541B, up $141M; the filing attributes the increase mainly to commercial paper borrowings and foreign-exchange effects, partly offset by repayments of lease and asset-financing obligations.
- Total liquidity was $4.9B, comprising cash and $3.2B of available revolving-credit borrowings. The revolver was extended and its availability increased on November 1, 2023. DXC reported compliance with financial covenants.
- DXC said existing cash and expected operating cash flows should meet normal operating needs for the next 12 months, while noting that future financing may not be available on acceptable terms.
- DXC repurchased $755M of shares in the first nine months, including $252M in Q3. It suspended quarterly dividends for fiscal 2024 to preserve financial flexibility.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Remaining performance obligations were approximately $18.5B; DXC expected to recognize about 14% in fiscal 2024.
- Management cited cost optimization and a new fiscal 2024 restructuring plan to align workforce, facilities and data-center requirements. Nine-month restructuring costs were $91M.
- DXC disclosed approximately $499M of potential incremental federal and state tax expense and cash payments, including estimated interest and penalties, if it does not prevail on disputed IRS tax positions being contested in U.S. Tax Court. The company said it believes it will prevail and does not expect resolution within 12 months.
- A jury awarded DXC $210M in its TCS trade-secret case; the verdict is advisory, remains subject to court review, and no amount was recognized in the financial statements.
- Potential U.S. sanctions and export-control violations connected with DXC’s exit from Russia remain under review by OFAC and BIS. DXC also disclosed ongoing securities litigation, other ordinary-course claims, and a proposed employment-litigation settlement pending court approval.
- Principal stated risks include declining customer spending, competition, contract execution and cost-estimation challenges, cybersecurity and data-protection issues, foreign-exchange exposure, indebtedness and refinancing, and execution of restructuring plans.
Most important facts for investors to verify
- Whether the continuing organic revenue declines—particularly in GIS—stabilize, and whether GBS growth continues.
- Whether cash conversion and free cash flow remain strong as revenue and adjusted earnings decline.
- How share repurchases, commercial-paper usage and debt levels affect liquidity and financial flexibility.
- The outcomes and timing of the disputed tax matters, the TCS award, and the OFAC/BIS reviews; the filing does not quantify a likely loss for several contingencies.
- The difference between GAAP and adjusted results: Q3 GAAP diluted EPS was $0.81 versus adjusted EPS of $0.87, and adjusted EPS was down year over year.