DXC Technology Company — FY2023 Form 10-K
Period note: This is an annual report for the fiscal year ended March 31, 2023, compared mainly with the year ended March 31, 2022. The supplied filing text does not provide a clear standalone fourth-quarter 2022 results summary.
Business context
DXC provides global IT services through Global Business Services (GBS) and Global Infrastructure Services (GIS), including applications, analytics, insurance software, security, cloud and IT outsourcing, and modern workplace services. It reported more than 130,000 employees across approximately 70 countries.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $14.430 billion | $16.265 billion |
| GAAP net income (loss) | $(566) million | $736 million |
| Diluted EPS | $(2.48) | $2.81 |
| Operating cash flow | $1.415 billion | $1.501 billion |
| Total debt | $4.400 billion | $4.965 billion |
| Cash and cash equivalents | $1.858 billion | $2.672 billion |
- Revenue declined 11.3% reported, including a 6.0% adverse foreign-exchange impact, a 2.6% decline from business dispositions, and a 2.7% decline in organic revenue. Constant-currency revenue fell 5.3%.
- GBS revenue declined 8.4% reported but grew 2.4% organically. GIS revenue declined 13.8% reported and 7.2% organically, reflecting project completions, early terminations, and lower resale revenue.
- Gross margin was 22.1%, versus 22.0%. Adjusted EBIT was $1.157 billion, down 15.9%; adjusted EBIT margin was approximately 8.0% of revenue. Non-GAAP diluted EPS was $3.47 versus $3.50.
- The GAAP loss chiefly reflects $1.431 billion of pension and other post-employment benefit actuarial and settlement losses, versus gains of $684 million in FY2022. This included a $1.070 billion mark-to-market pension loss and a $361 million U.K. pension settlement loss.
- Operating cash flow decreased $86 million. Management cited lower earnings, partly offset by a favorable $369 million year-over-year working-capital change. The cash conversion cycle improved to 17 days from 24.
- Year-end liquidity was $5.4 billion: $1.9 billion cash, $3.0 billion available under the revolving facility, and $500 million available under a term loan facility. DXC said existing cash and expected operating cash generation should cover normal operating needs for the next 12 months.
- DXC reported compliance with its financial covenants and investment-grade ratings with stable outlooks. It had $4.4 billion of total debt, including approximately $0.1 billion of floating-rate debt.
- Segment profit was $912 million for GBS and $507 million for GIS, compared with $1.160 billion and $475 million, respectively, in FY2022.
Material changes, outlook, and unusual items
- In January 2023, DXC sold its German financial services business for approximately $329 million and recorded a $215 million pretax gain. FY2022 included a $331 million pretax gain on the sale of its healthcare provider software business.
- DXC recorded $216 million of restructuring costs in FY2023 and continued cost optimization, portfolio shaping, and efforts to stabilize revenue. Management described priorities for the next fiscal year as revenue stabilization, cost optimization, and winning in the market; the filing gives no specific financial guidance.
- Remaining performance obligations were approximately $19.7 billion at March 31, 2023; the company expected to recognize about 39% in FY2024. These estimates can change with contract terminations, scope changes, and currency movements.
- DXC repurchased 24.4 million shares for $679 million during FY2023. Dividends remain suspended, with no current intent to reinstate them. On May 18, 2023, after fiscal year-end, the Board authorized an additional $1.0 billion of repurchases.
- Tax authorities’ disputed positions in U.S. Tax Court could require approximately $477 million of incremental federal and state tax expense and cash payments, including estimated interest and penalties, if DXC does not prevail. The matters are not expected to be resolved within 12 months.
- DXC disclosed an ongoing voluntary self-disclosure review concerning potential U.S. sanctions and export-control violations associated with its exit from Russia. The filing does not state a clear estimate of any potential loss.
- The SEC matter concerning historical non-GAAP cost disclosures was settled in March 2023 for an $8 million civil penalty; DXC said it would implement remedial measures. A securities lawsuit remained in discovery, with trial scheduled for September 2025.
- Deloitte issued unqualified opinions on the financial statements and internal controls over financial reporting. Revenue recognition for complex new and modified contracts was identified as a critical audit matter.
Key risks
- Execution of the transformation strategy, persistent revenue declines—particularly in GIS—and intense pricing competition.
- Cybersecurity incidents, data-protection obligations, service disruptions, and dependence on third-party suppliers and partners.
- Debt, refinancing and credit-rating risks; foreign-exchange exposure; inflation, labor costs, and potential customer spending weakness.
- Restructuring execution, contract-cost estimation, customer retention and collection risks, and potential impairment of assets.
- Pension obligations and market-sensitive actuarial assumptions, as well as tax examinations, litigation, and regulatory contingencies.
Investor verification priorities
- Reconcile the GAAP loss to pension actuarial and settlement charges, and assess the sustainability of adjusted EBIT and non-GAAP earnings.
- Track organic revenue trends by segment, especially whether GBS growth can offset continued GIS declines.
- Verify cash conversion, working-capital performance, and available liquidity against debt, leases, pension contributions, and planned repurchases.
- Monitor the $477 million IRS dispute and the Russia-related OFAC/BIS review for developments, cash exposure, or changes in estimates.
- Assess whether restructuring delivers durable savings without impairing service delivery, customer retention, or growth.