Dxc Technology Company · NYSE:DXC
Dxc Technology — Q3 2023 Earnings Presentation
47 slides from Dxc Technology's earnings presentation, Feb 1, 2023
Slide 1: 3rd Quarter FY 2023 Earnings Presentation
3rd Quarter FY 2023 Earnings Presentation February 1, 2023
Slide 2: Non-GAAP Financial Measures
Non-GAAP Financial Measures We present Non-GAAP financial measures which are derived from the statements of operations, cash flow and balance sheets of DXC. These Non-GAAP financial measures include earnings before interest and taxes ("EBIT"), adjusted EBIT, adjusted earnings before interest, taxes,
Slide 3: Forward-Looking Statements
Forward-Looking Statements All statements and assumptions contained in this earnings presentation that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” Forward-looking statements often include words such as “anticipates,” “believes,” “estimates,” “e
Slide 4: Agenda for Today
Agenda for Today 1 Overview of Q3 FY23 Results 2 Progress on Our Transformation Journey 3 Q3 FY23 Financial Results and Guidance 4 Closing Remarks 4
Slide 5: Q3 FY23 Financial Performance
Q3 FY23 Financial Performance Q3 FY23 – Key Metrics and Drivers Organic revenue growth* of (3.8%), second quarter of Revenue $3.57B sequential organic revenue growth, same constant currency revenues in all three quarters of FY23 Adjusted Margin up 120 bps sequentially & flat YoY due to cost EBIT Mar
Slide 6: Transformation Journey: Inspire and Take Care of Our Colleagues
Transformation Journey Proof points: • Improved attrition due to the way we take care of our people and our efforts to change the culture • Continue to support our ~4,000 colleagues in Ukraine as the war Inspire and continues Take Care of • Awarded the prestigious President’s Certificate of Commenda
Slide 7: Transformation Journey: Focus on Customers
Transformation Journey Proof points: • Most recent NPS score was 27 – near the top end of industry benchmark range • Solid customer delivery has driven the second consecutive quarter of Focus on sequential organic revenue growth; delivered roughly same level of revenue in constant currency, excludin
Slide 8: Transformation Journey: Optimize Costs
Transformation Journey Proof points: • Adjusted EBIT margin expanded from 7.5% in Q2 to 8.7% in Q3 • Continue to thoughtfully take out costs throughout the entire organization while delivering for our customers Optimize Costs • Efforts are ongoing through Q4 and into FY24 • Portfolio shaping, includ
Slide 9: Transformation Journey: Seize the Market
Transformation Journey Proof points: • New sales model showing early signs of success – record bookings in the quarter raise YTD book-to-bill over 1.0x • GBS: All three offerings delivered a book-to-bill over 1.0x; strong momentum in Applications Seize the • GIS: More disciplined deal making paying
Slide 10: Transformation Journey: Financial Foundation
Transformation Journey Proof points: • Free cash flow generation outstanding: $463 million in Q3 • Generated ~$840 million in cash, including sale of German banks for ~$320 million in early January Financial Foundation • Expect to reduce debt by ~$400 million, improving our investment-grade profile
Slide 11: Transformation Journey Continues Forward
Financial Update Transformation Journey Continues Forward Organic Revenue Growth Trends* (YoY) Adjusted EBIT Margin* FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Q3 8.0% 8.6% 8.7% 8.5% 8.7% 7.5% 7.0% (1.4%) (1.5%) (2.4%) (2.6%) (2.8%) (3.7%) (3.8%) FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Q3 Non-GAAP Diluted EPS* Free Cash Flow*
Slide 12: Q3 Key Financial Metrics
Q3 Key Financial Metrics (in $M, except EPS and shares) Q3 FY23 Q3 FY22 Change Revenue 3,566 4,089 (12.8%) Non-GAAP Gross Profit 775 910 (14.8%) As % of sales 21.7% 22.3% (60) bps Non-GAAP SG&A Expenses (289) (329) (12.2%) As % of sales (8.1%) (8.0%) (10) bps Non-GAAP Depreciation & Amortization (27
Slide 13: GBS/GIS Results
GBS/GIS Results GBS Organic Revenue Growth* (YoY) GIS Organic Revenue Growth* (YoY) FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Q3 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Q3 7.0% 3.4% 3.4% 3.4% 2.8% (5.8%) 2.0% (7.2%) (7.4%) (8.0%) (8.3%) (8.0%) 0.2% (9.1%) GBS Segment Profit Margin GIS Segment Profit Margin 15.9% 16.2% 14.4%
Slide 14: GBS/GIS Offerings
GBS/GIS Offerings Q3 FY23 YoY Organic TTM Revenue ($M) Book-to-Bill Growth* Book-to-Bill Analytics & Engineering 535 11.7% 1.15x 1.25x Applications 832 (6.8%) 1.32x 1.08x GBS Insurance Software & BPS 371 3.0% 1.06x 1.24x Mergers, Acquisitions & Divestitures - - - - GBS Total 1,738 0.2% 1.21x 1.16x S
Slide 15: Setting the Foundation For Sequential CC Revenue Growth
Setting the Foundation For Sequential CC Revenue Growth* 3,552 3,553 3,566 FY23 Q1 Q2 Q3 Reconciliation ($M) Q1 FY23 Q2 FY23 Q3 FY23 GAAP Revenue 3,707 3,566 3,566 Fx impact @ Q3 FY23 rates (130) (12) - Dispositions (25) (1) - CC revenue @ Q3 FY23 rates 3,552 3,553 3,566 * Constant Currency Revenues
Slide 16: Continuing Progress on Our Financial Foundation
Continuing Progress on Our Financial Foundation Total Debt ($M) Net Interest Expense ($M) 5,108 45 42 4,933 4,942 4,965 4,778 29 4,723 23 4,529 17 16 15 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Q3 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Q3 Restructuring/Transaction, Separation & Integration ($M) Cash Payments for Operating
Slide 17: Continuing Progress on Our Financial Foundation
Continuing Progress on Our Financial Foundation Capital Expenditures ($M) Finance Lease & Asset Financing Payments ($M) 275 191 184 177 195 159 178 175 159 162 135 125 146 115 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Q3 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Q3 FY22 Q1 excludes $303 million of non-scheduled accelerated pay
Slide 18: Capital Generation
Capital Generation $630 $500 $250 FY23 FCF Portfolio-Shaping Proceeds Facility Sale Proceeds • FY23E free cash flow generation of $630 million, including (~$70) million impact from lower German bank customer deposits • Portfolio-shaping and asset sale proceeds of $500 million – complete • Executed $
Slide 19: Capital Allocation
Capital Allocation Planned Capital Allocation • Repurchased ~$600 million of shares under current $1 billion share repurchase program – Repurchased ~18 million shares or ~7% of outstanding shares • Intend to repurchase $400 million of DXC shares Completing the $1 billion share repurchase program 19
Slide 20: Q4 FY23 Outlook
Q4 FY23 Outlook YoY Organic Adjusted Non-GAAP Revenue Growth EBIT Margin Diluted EPS (2.6%) – (3.1%) 8.7% – 9.2% $1.00 – $1.05 20
Slide 21: FY23 Outlook
FY23 Outlook YoY Organic Adjusted Non-GAAP Free Cash Flow Revenue Growth EBIT Margin Diluted EPS (2.6%) – (2.7%) 8.0% – 8.1% $3.45 – $3.50 $630M(1) (1) Includes a $70M adjustment for the reduction in German banks deposits, which directly reduced FY23 FCF and was not incorporated in previous FY23 gui
Slide 22: Preliminary FY24 Expectations
Preliminary FY24 Expectations YoY Organic Adjusted Free Cash Flow Revenue Growth EBIT Margin(1) Expect to drive organic Expand margins above Increase FCF above revenue improvement FY23 levels - do not FY23 levels - do not from FY23 - expect margins to expect to exceed $900M flat to 1% exceed 9.0% (1
Slide 23: Transformation Journey – Delivering a Quality Company
Transformation Journey – Delivering a Quality Company Where we are now… Where we are poised to go in Where we were… Quality Company FY24… stopped the revenue declines expect to drive organic rev. Organic Revenue declining double digits & shifted mix toward GBS improvement flat to +1% Adjusted EBIT ~
Slide 24: Supplemental Information
Supplemental Information Q3 FY23 Quarterly Result Details Non-GAAP Reconciliations Definitions 24
Slide 25: Organic Revenue Growth and Backlog
Organic Revenue Growth and Backlog GBS ($M) Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 GBS revenue 1,887 1,873 1,946 1,892 7,598 1,758 1,713 1,738 YoY GBS revenue growth (13.2%) (16.5%) 1.3 % (5.4%) (8.9%) (6.8%) (8.5%) (10.7%) Foreign currency (4.7%) (0.9%) 1.3 % 3.2 % (0.4%
Slide 26: Organic Revenue Growth and Book-to-Bill by Offering
Organic Revenue Growth and Book-to-Bill by Offering Organic Revenue Growth (YoY) Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 GBS 2.0% 3.4% 7.0% 3.4% 3.9% 2.8% 3.4% 0.2% Analytics & Engineering 12.9% 17.3% 18.7% 19.7% 17.3% 15.7% 14.0% 11.7% Applications 0.1% (2.6%) 5.5% (1.1%)
Slide 27: Services and Resale Revenue by Offering
Services and Resale Revenue by Offering Services Revenue ($M) Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Analytics & Engineering 451 484 498 523 1,956 496 515 523 Applications 925 887 918 858 3,588 846 790 788 Insurance Software & BPS 385 384 383 384 1,536 367 362 370 GBS 1,7
Slide 28: Reconciliation of Segment Profit to Pretax Income
Reconciliation of Segment Profit to Pretax Income GBS ($M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Segment revenue 2,174 2,242 1,921 1,999 8,336 1,887 1,873 1,946 1,892 7,598 1,758 1,713 1,738 Segment profit 215 317 273 315 1,120
Slide 29: Adjusted EBIT and Adjusted EBITDA Reconciliation
Adjusted EBIT and Adjusted EBITDA Reconciliation EBIT to Adjusted EBIT ($M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Net income (loss) (199) (246) 1,103 (804) (146) 282 (187) 102 539 736 103 28 61 Income tax expense (benefit) (26)
Slide 30: Non-GAAP Reconciliation – Income Statement Measures
Non-GAAP Reconciliation – Income Statement Measures COS, SG&A, D&A ($M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Cost of services 3,629 3,563 3,333 3,561 14,086 3,255 3,088 3,179 3,161 12,683 2,930 2,775 2,799 Less: Impairment loss
Slide 31: Non-GAAP Reconciliation – Income Statement Measures
Supplemental Financial Information Non-GAAP Reconciliation – Income Statement Measures EBIT to EPS (in $M, except EPS) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Adjusted EBIT 190 283 300 329 1,102 332 346 355 342 1,375 259 269 309 I
Slide 32: Non-GAAP Reconciliation – EPS
Non-GAAP Reconciliation – EPS Non-GAAP EPS (in $M, except EPS) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Net income (loss) attributable to DXC (205) (244) 1,098 (798) (149) 278 (188) 98 530 718 102 27 59 Restructuring costs 60 213 9
Slide 33: Non-GAAP Reconciliation – EPS
Non-GAAP Reconciliation – EPS Non-GAAP EPS Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 GAAP EPS (diluted) $ (0.81) $ (0.96) $ 4.29 $ (3.14) $ (0.59) $ 1.07 $ (0.74) $ 0.38 $ 2.14 $ 2.81 $ 0.43 $ 0.12 $ 0.25 Restructuring costs 0.24 0.
Slide 34: Income Statement Drivers – Headcount
Income Statement Drivers – Headcount DXC Employees Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 GBS 72,500 72,786 75,587 76,718 76,718 75,527 76,233 76,284 GIS 46,540 47,868 49,438 50,333 50,333 50,221 49,252 48,273 Other 11,314 10,655 10,512 10,078 10,078 10,293 10,263 9,478 T
Slide 35: Income Statement Drivers – Other Income and Pension Income
Income Statement Drivers – Other Income and Pension Income Total Total Other Income ($M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q3 FY23 FY21 FY22 Non-service cost components of net (95) (99) (103) 407 110 (97) (96) (87) (786) (1,066) (67) (60) (60) periodic p
Slide 36: DXC Historical Balance Sheet
DXC Historical Balance Sheet Assets (in $M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Cash and cash equivalents 5,509 3,079 3,919 2,968 2,968 2,460 2,699 2,919 2,672 2,672 2,209 2,260 2,091 Receivables, net 4,271 4,194 4,130 4,156 4
Slide 37: DXC Historical Balance Sheet
DXC Historical Balance Sheet Liabilities & Equity (in $M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Short term debt & current LT debt 1,682 1,622 795 1,167 1,167 817 745 706 900 900 904 834 873 Accounts payable 1,522 1,345 852 914 9
Slide 38: DXC Working Capital Key Metrics
DXC Working Capital Key Metrics Cash Flows from Operating Activities (in $M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Billed & unbilled accounts receivable 3,428 3,363 3,203 3,222 3,222 3,205 3,053 2,905 3,065 3,065 2,852 2,724 2,6
Slide 39: DXC Cash Flows from Operating Activities
DXC Cash Flows from Operating Activities Cash Flows from Operating Activities (in $M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Net Income (199) (246) 1,103 (804) (146) 282 (187) 102 539 736 103 28 61 Depreciation & amortization 496
Slide 40: DXC Key Cash Flow Drivers
DXC Key Cash Flow Drivers (in $M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Payments on finance leases & borrowings for (245) (242) (207) (236) (930) (494) (177) (184) (135) (990) (159) (115) (125) asset financing Less: Originations
Slide 41: DXC Cash Flow Drivers
DXC Cash Flow Drivers (in $M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Cash paid for restructuring (61) (99) (149) (133) (442) (115) (86) (78) (75) (354) (48) (63) (43) Cash paid for TSI (1) (88) (81) (135) (56) (360) (9) (3) (11)
Slide 42: DXC Free Cash Flow
DXC Free Cash Flow Free Cash Flow (in $M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Q3 FY23 Cash flows from operating activities 119 472 (187) (280) 124 (29) 563 696 271 1,501 163 212 625 Less capex Purchase of property & equipment (95) (61
Slide 43: Q3 FY23 Non-GAAP Reconciliation: Organic Revenue – Offerings
Q3 FY23 Non-GAAP Reconciliation: Organic Revenue – Offerings Insurance Software Analytics & Cloud Infrastructure Acquisitions & (in $M) Applications & Business Process Security Modern Workplace Total Engineering & IT Outsourcing Divestitures Services (BPS) Revenue 535 832 371 112 1,283 433 0 $ 3,566
Slide 44: Currency Impact
Currency Impact Quarterly averages Q2 Q3 Q4 Q1 Q2 Q3 YoY Spot Q4 FY23E (US$ per currency) FY22 FY22 FY22 FY23 FY23 FY23 Change 1/19/23 FY23E Euro 1.18 1.14 1.12 1.07 1.01 1.02 (11%) 1.08 (4%) (10%) Pound sterling 1.38 1.35 1.34 1.26 1.18 1.17 (13%) 1.24 (8%) (12%) Australian dollar 0.74 0.73 0.72 0.
Slide 45: Non-GAAP and Other Definitions
Non-GAAP and Other Definitions Segment profit: Segment revenue less costs of services, segment selling, general and administrative, depreciation and amortization, and other income, excluding the movement in foreign currency exchange rates on our foreign currency denominated assets and liabilities an
Slide 46: Non-GAAP Adjustments
Non-GAAP Adjustments Our Non-GAAP adjustments include: • Restructuring costs: Includes costs, net of reversals, related to workforce and real estate optimization and other similar charges. • Transaction, separation and integration-related (“TSI”) costs: Includes costs related to integration, plannin
Slide 47: TECHNOLOGY
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DXC Technology Company — Q3 2023 Earnings Presentation on 6ix