Dxc Technology Company · NYSE:DXC
Dxc Technology — Q2 2023 Earnings Presentation
42 slides from Dxc Technology's earnings presentation, Nov 3, 2022
Slide 1: 2nd Quarter FY 2023 Earnings Presentation
2nd Quarter FY 2023 Earnings Presentation November 3, 2022
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 in this 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,” “expects,” “forecast,” “goal,” “inten
Slide 4: Agenda for Today
Agenda for Today 1 Overview of Q2 FY23 Results 2 Progress on Our Transformation Journey 3 Q2 FY23 Financial Results and Guidance 4 Closing Remarks 4
Slide 5: Q2 FY23 Financial Performance
Q2 FY23 Financial Performance Q2 FY23 – Key Metrics and Drivers Organic revenue growth* of (1.5%): a top-end result Revenue $3.57B over the last three years Adjusted EBIT Margin* 7.5% 110 bps margin decline YoY & up 50 bps sequentially Book-to-bill of 0.83x in Q2; TTM Book-to-Bill 1.04x $2.96 billio
Slide 6: Transformation Journey: Inspire and Take Care of Our Colleagues
Transformation Journey Proof points: • Attrition is well under control • GBS growth demonstrates our ability to recruit and retain top talent, whose skills are highly sought after Inspire and Take Care of • DXC leadership team is changing the culture – Taking care of our people Our Colleagues – Team
Slide 7: Transformation Journey: Focus on Customers
Transformation Journey Proof points: • Most recent NPS score was 33 – above the industry benchmark range • Customers value our services – driving sequential organic revenue growth and improved YoY organic revenue growth Focus on Customers • Our model is repeatable within GBS – now growing for six co
Slide 8: Transformation Journey: Optimize Costs
Transformation Journey Proof points: • We are delivering on all five levers of our $500 million cost optimization initiative • Our levers: Optimize – Staff optimization Costs – Contractor conversions – Office and data center – Network and telecommunications – Third-party spend • Adjusted EBIT margin
Slide 9: Transformation Journey: Seize the Market
Transformation Journey Proof points: • Implementing a new sales model to accelerate new work vs. renewals • Two distinct sales forces: Seize the – “Relationship Selling” in GBS – “Disciplined Selling” in GIS Market • GBS: Gaining momentum as to what DXC is known for because of our success in areas l
Slide 10: Transformation Journey: Financial Foundation
Transformation Journey Proof points: • Due to our financial foundation, DXC has created a quality company that is creating shareholder value • Debt of $4.5B, below our targeted debt level of $5.0B Financial Foundation • $500M has been returned to shareholders since February 2022 • Q2 results show th
Slide 11: Transformation Journey Continues Forward
Financial Update Transformation Journey Continues Forward Organic Revenue Growth Trends* (YoY) Adjusted EBIT Margin* FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 8.0% 8.6% 8.7% 8.5% 7.5% 7.0% (1.4%) (1.5%) (2.4%) (2.6%) (2.8%) (3.7%) FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Non-GAAP Diluted EPS* Free Cash Flow* ($M) $0.90 $0.92
Slide 12: Q2 Key Financial Metrics
Q2 Key Financial Metrics (in $M, except EPS and shares) Q2 FY23 Q2 FY22 Change Revenue 3,566 4,027 (11.4%) Non-GAAP Gross Profit 791 939 (15.8%) As % of sales 22.2% 23.3% (110) bps Non-GAAP SG&A Expenses (312) (357) (12.6%) As % of sales (8.8%) (8.9%) 10 bps Non-GAAP Depreciation & Amortization (279
Slide 13: Currency Impact
Currency Impact Quarterly averages Q2 Q3 Q4 Q1 Q2 YoY Spot Q3 Q4 FY23E (US$ per currency) FY22 FY22 FY22 FY23 FY23 Change 10/21/22 FY23E FY23E Euro 1.18 1.14 1.12 1.07 1.01 (15%) 0.99 (14%) (12%) (13%) Pound sterling 1.38 1.35 1.34 1.26 1.18 (15%) 1.13 (16%) (16%) (15%) Australian dollar 0.74 0.73 0
Slide 14: GBS/GIS Results
GBS/GIS Results GBS Organic Revenue Growth* (YoY) GIS Organic Revenue Growth* (YoY) FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 7.0% 3.4% 3.4% 3.4% 2.8% (5.8%) 2.0% (7.2%) (8.0%) (8.3%) (8.0%) (9.1%) GBS Segment Profit Margin GIS Segment Profit Margin 15.9% 16.2% 14.4% 14.5% 6.5% 12.7% 5
Slide 15: GBS/GIS Offerings
GBS/GIS Offerings Q2 FY23 YoY Organic TTM Revenue ($M) Book-to-Bill Growth* Book-to-Bill Analytics & Engineering 524 14.0% 1.18x 1.33x Applications 825 (1.1%) 0.95x 1.09x GBS Insurance Software & BPS 363 1.1% 0.62x 1.22x Mergers, Acquisitions & Divestitures 1 - - - GBS Total 1,713 3.4% 0.96x 1.18x S
Slide 16: Continuing Progress on Our Financial Foundation
Financial Update Continuing Progress on Our Financial Foundation Total Debt ($M) Net Interest Expense ($M) 5,108 45 42 4,933 4,942 4,965 4,778 29 23 4,529 17 16 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 Restructuring/Transaction, Separation & Integration ($M) Cash Payments for Operatin
Slide 17: Continuing Progress on Our Financial Foundation
Financial Update Continuing Progress on Our Financial Foundation Capital Expenditures ($M) Finance Lease & Asset Financing Payments ($M) 275 191 184 177 195 159 178 175 159 135 146 115 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 FY22 Q1 Q2 Q3 Q4 FY23 Q1 Q2 FY22 Q1 excludes $303 million of non-scheduled accelerated
Slide 18: Capital Allocation
Capital Allocation • FY23E free cash flow generation of $700 million • Continue to target debt level of $5 billion and $2.5 billion cash (net debt of $2.5 billion) • Portfolio-shaping and asset sale proceeds of $500 million • Expect an additional $250 million of proceeds from real estate sales – Wil
Slide 19: Q3 FY23 Outlook
Q3 FY23 Outlook YoY Organic Adjusted Non-GAAP Revenue Growth EBIT Margin Diluted EPS (1.5%) – (2.5%) 8.0% – 8.5% $0.80 – $0.85 19
Slide 20: FY23 Outlook
FY23 Outlook YoY Organic Adjusted Non-GAAP Free Cash Flow Revenue Growth EBIT Margin Diluted EPS (1.0%) – (2.0%) 8.0% – 8.5% $3.45 – $3.75 $700M 20
Slide 21: FY24 Long-Term Outlook
FY24 Long-Term Outlook YoY Organic Adjusted Non-GAAP Free Cash Flow Revenue Growth EBIT Margin Diluted EPS 1% – 3% 10% – 11% $5.00 – $5.25 ~$1.5B FY24 Financial Targets Reaffirmed 21
Slide 22: Transformation Journey – Repeatable Drivers of the Business
Transformation Journey – Repeatable Drivers of the Business 1 Hiring and retaining the best talent Due to the culture change at DXC 2 Delivery driving customer satisfaction Allowing us to stabilize revenue and setting us up for growth 3 Executing on our cost optimization to expand margins Driven by
Slide 23: Supplemental Information
Supplemental Information Q2 FY23 Quarterly Result Details Non-GAAP Reconciliations Definitions 23
Slide 24: Organic Revenue Growth
Organic Revenue Growth GBS ($M) Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 GBS revenue 1,887 1,873 1,946 1,892 7,598 1,758 1,713 YoY GBS revenue growth (13.2%) (16.5%) 1.3% (5.4%) (8.9%) (6.8%) (8.5%) Foreign currency (4.7%) (0.9%) 1.3% 3.2% (0.4%) 5.9% 7.4% Acquisitions and divestit
Slide 25: 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 GBS 2.0% 3.4% 7.0% 3.4% 3.9% 2.8% 3.4% Analytics & Engineering 12.9% 17.3% 18.7% 19.7% 17.3% 15.7% 14.0% Applications 0.1% (2.6%) 5.5% (1.1%) 0.5% (2.0%) (1.1%)
Slide 26: Reconciliation of Segment Profit to Pretax Income
Reconciliation of Segment Profit to Pretax Income GBS ($M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Total FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Total FY22 Q1 FY23 Q2 FY23 Segment revenue 2,174 2,242 1,921 1,999 8,336 1,887 1,873 1,946 1,892 7,598 1,758 1,713 Segment profit 215 317 273 315 1,120 272 298 315 27
Slide 27: Adjusted EBIT and Adjusted EBITDA Reconciliation
Adjusted EBIT and Adjusted EBITDA Reconciliation EBIT to Adjusted EBIT ($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 Net income (loss) (199) (246) 1,103 (804) (146) 282 (187) 102 539 736 103 28 Income tax expense (benefit) (26) (60) 875 11
Slide 28: 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 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 Less: Impairment losses — — — (190)
Slide 29: 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 Adjusted EBIT 190 283 300 329 1,102 332 346 355 342 1,375 259 269 Interest expe
Slide 30: 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 Net income (loss) attributable to DXC (205) (244) 1,098 (798) (149) 278 (188) 98 530 718 102 27 Restructuring costs 60 213 93 93 459 57
Slide 31: 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 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 Restructuring costs 0.24 0.83 0.36 0.36 1.
Slide 32: 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 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 Receivables, net 4,271 4,194 4,130 4,156 4,156 4,081 3,8
Slide 33: 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 Short term debt & current LT debt 1,682 1,622 795 1,167 1,167 817 745 706 900 900 904 834 Accounts payable 1,522 1,345 852 914 914 857 724 7
Slide 34: 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 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 Revenue 4,5
Slide 35: 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 Net Income (199) (246) 1,103 (804) (146) 282 (187) 102 539 736 103 28 Depreciation & amortization 496 529 481 48
Slide 36: 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 Payments on finance leases & borrowings for (245) (242) (207) (236) (930) (494) (177) (184) (135) (990) (159) (115) asset financing Less: Originations Capital expen
Slide 37: 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 Cash paid for restructuring (61) (99) (149) (133) (442) (115) (86) (78) (75) (354) (48) (63) Cash paid for TSI(1) (88) (81) (135) (56) (360) (9) (3) (11) (3) (26) (2) (
Slide 38: 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 Cash flows from operating activities 119 472 (187) (280) 124 (29) 563 696 271 1,501 163 212 Less capex Purchase of property & equipment (95) (61) (59) (46)
Slide 39: Q2 FY23 Non-GAAP Reconciliation: Organic Revenue – Offerings
Q2 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 524 825 363 108 1,309 436 1 $ 3,566
Slide 40: 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 41: 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 42: TECHNOLOGY
XK TECHNOLOGY
DXC Technology Company — Q2 2023 Earnings Presentation on 6ix