DXC Technology Company

Good afternoon. My name is Julianne and I will be your conference operator today. At this time, I would like to welcome everyone to DXC Technologies Q2-SY22 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. If you require operator assistance at any time, please press star zero. Thank you. John Sweeney, Vice President, Investor Relations at DXC, you may begin your conference.

Thank you. Good afternoon, everyone. I'm pleased that you're joining us for DXC Technology's second quarter FY22 earnings call. Our speakers on the call today will be Mike Saldino, our President and CEO, and Ken Sharp, our Executive Vice President and CFO. This call is being webcast at DXC.com's investor relations website, and the webcast includes slides that will accompany the presentation today. Today's presentation will include certain non-GAAP financial measures, which we believe provide useful information to our investors. In accordance with SEC rules, we provide a reconciliation of these measures to their respective and most comparable GAAP measures. These reconciliations can be found in the tables, including today during this call, on the webcast slides. Certain comments you make on this call will be forward-looking statements. These are known and certain risks and uncertainties which could cause actual results to differ materially from those expressed on the call. A discussion of these risks and uncertainties is included in our annual report in Form 10-K and other SEC filings. I'd now like to remind our listeners that DXC Technology assumes no obligation to update the information presented on this call, except as required by law. And with that, I'd like to introduce DXC Technology's President and CEO, Mike Salvino. Mike.

Thanks, John, and I appreciate everyone joining the call today, and I hope you and your families are doing well. Today's agenda will begin with an update on our Q2 performance, which shows hard evidence that we are delivering on our transformation journey and building the foundation to make DXC operationally efficient, sustainable, and ultimately grow. Next, I will provide you with additional insights as to the operational work we are performing as we execute our transformation journey. Then I will hand the call over to Ken to share our Q2 financials, guidance, and more details of the financial results driven by our strong operational execution. Finally, I will make some closing remarks before opening the call up for questions. Regarding our Q2 performance, our revenues were $4.03 billion. Our organic revenue growth continued to show progress as we improved from minus 3.7% in Q1 to minus 2.4% in Q2. to see that the GBS business segment grew for the second quarter in a row from positive 2% in Q1 to positive 3.4% in Q2. We also continue to improve the organic revenue of the GIS business segment from minus 9.1% in Q1 to minus 8% in Q2. Now, all of these results show our organic revenue is on the right trajectory. Our adjusted even margin was 8.6% and was driven by the operational work that we are doing to optimize our business. This is the third straight quarter of both improving organic revenue growth and sequential margin expansion, and we expect both trends to continue in Q3. Book to build for the quarter was 0.91, which came in below our goal of one due to the timing of a couple of deals. I'm happy to report that both deals are hybrid cloud slash IPO deals and are now closed. We continue to track to a book to bill over one year to date, and we expect to be back above 1.0 in Q3. Our non-GAAP EPS was 90 cents in the quarter, which is up 41 cents as compared to 64 cents a year ago. Finally, we are encouraged by the strength of our Q2 free cash flow, which moved us into positive territory. On a year-to-date basis, we have now produced roughly $100 million in cash. Now let me turn to the progress we are making on our transformation journey. The first step is inspire and take care of our colleagues. We are executing a people-first strategy, and attracting and retaining talent is fundamental to enable our growth. We know our strategy is working. We saw a higher percentage of our employees complete our September employee engagement survey, and we are showing improved and stable engagement scores. These engagement scores give us confidence that we have a motivated workforce and we will be able to manage attrition, which we've seen an uptick. To offset this increase in attrition and demand, we hired and onboarded more colleagues than any other quarter since I became CEO. Key advantage to our hiring efforts is that we have implemented and are running a virtual first model. Hiring has been a focus for us and will continue. While hiring improved, we left some open demand and project work unconverted, and we are focused on capturing this moving forward. Folks on the customer is the second step of our transformation journey and continues to be the primary driver of our success in improving our organic revenue growth. A key metric that we measure is our net promoter score, and we are seeing continued improvement. The last time we gave you our MPS score was during the investor day in June, and it was 18, almost within the industry best practice range of 20 to 30. Currently, our 12-month rolling MPS score is at the midpoint of the best practice range. This is the most positive our customers have been since I arrived. This improvement is due to our strong service delivery and gives us the ability to sell up the enterprise technology stack from our GIS business to our GBS business. Now, let me remind you that the way we will get to grow is to deliver the GIS services that are critical for our customers and build trusted relationships. Once these trusted relationships are built, we can move our customers up the enterprise technology stack towards the services of our GBS business. This is exactly what we are doing. And the organic revenue trajectory of GIS, GBS, and the overall business is great evidence that this strategy is working. Now let me turn to our cost optimization program. We continue to make progress in optimizing our costs and delivering for our customers without disruption. I mentioned at the beginning of this call that we are doing the operational work to make DOC efficient, sustainable, and ultimately grow. I've already commented on some of the operational work we are doing, like motivating our colleagues, hiring new talent, and implementing a virtual first model. In addition to this work, we're also improving the efficiency of our service delivery, implementing better IT tools, and actively managing our real estate footprint. Let me provide you with some additional color concerning the operational work we are doing with real estate. This quarter we closed our Tyson facility and are moving to a much smaller footprint in the D.C. area where our colleagues that need to come into a facility will share space versus having dedicated space. This work emphasized our commitment to a virtual first model, reduce our carbon footprint, and represents our desire to maintain a much smaller real estate footprint. Tim will detail out the financial results of all of this operational work, but simply put, this work is allowing us to improve margins from 8% in Q1 to 8.6% in Q2 and gives us the confidence to increase our margin and EPS guidance for FY22. Next, seize the market is where we are focused on cross-selling for our existing customers and winning new work. As I previously mentioned, we had two significant deals slip into Q3 and are now signed. The great news about these deals is they were both hybrid cloud slash ITO deals with longstanding customers. Specifically, we are helping these customers modernize their existing IT estates and building new private cloud capability to run their mission-critical applications. In Q2, 59% of our bookings were new work and 41% The new work continues to increase due to the focus on another piece of our strategy, which is our platinum customer channel. Taking our offerings through this channel is another key foundation piece for growth. We're now starting to see evidence that we are being successful taking Luxoft, which drives our analytics and engineering services, through our platinum customer channel. The evidence is that analytics and engineering proves 17.3% in Q2, which is clearly helping us create growth in our GBS business segment. Now, let me give you an example of what the platinum customer of the future looks like at DXE. We have a 14-year relationship with one of the world's largest specialty retailers. Now, before I arrived and implemented this strategy, our revenues were roughly $80 million per year, split one-third GBS and two-thirds GIS. By continuing to deliver our GIS services for this customer, we were offered the opportunity to sell our GBS services. The result is we have increased the total revenue on this account by 13% and the mix between GBS and GIS is now split 50-50 as we are now providing them analytics and engineering services. We're in the early innings of this strategy, but we feel confident that we can implement this approach to our other platinum customers, successfully delivering GIS services and growing GBS services to have the same or more revenue at better margins. Now let me turn the call over to Ken.