DXC Technology Company

Good day, everyone. My name is Kellyanne, and I'll be your conference operator for today. At this time, I'd like to welcome everyone to the DXC Technology Q1 2023 Earnings Conference Call. Today's call is being recorded. 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 would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. At this time, I'd like to turn the conference over to Mr. John Sweeney, head of marketing and investor relations. Please go ahead, sir.

Thank you. Good afternoon, everyone. I'm pleased that you're joining us today for DXC Technologies' first quarter fiscal year 2023 earnings call. Our speakers today on the call will be Mike Salvino, our chairman, president, and CEO, and Ken Sharp, our EVP and CFO. The call is being webcast at dxcinvestorrelations.com. And the webcast includes slides that will accompany this discussion today. Today's presentation includes certain non-GAAP financial measures which we believe provide useful information to our investors in accordance with SEC rules and provide a reconciliation of those measures to their respective and most directly comparable GAAP measures. These reconciliations can be found in the tables included in today's earnings release and in the webcast slides. Certain comments we make on the call will be forward-looking. These statements are subject to known 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 on Form 10-Q and other SEC filings. I'd now like to remind our listeners that DXC technology assumes no obligation to update information presented on the call, except as required by law. And with that, I'd like to introduce DXC Technologies Chairman, 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 overview of our Q1 results. Next, I will update you on the progress we are making with our transformation journey. Ken will then discuss our financial results in more detail and our updated guidance. And finally, I will make some closing remarks before opening the call up for questions. Our transformation journey is creating value, but as you can see with the shortfalls in the quarter, we need to do better. The good news is we have the right plan for FY23. We are laser focused on executing this plan with my team of operators. And the work that needs to be accelerated is within our control. We've done a nice job of investing in our business that has produced a stronger quality company and deeper customer relationships that have positively changed our reputation in the industry. When I talk about the quality of company that we are, I want to highlight we continue to improve our free cash flow generation. Debt and capital allocation is being well-managed. We have portfolio shaped and sold off businesses that were distractions to our strategy. We've consistently grown GBS and narrowed the declines of GIS while moving our revenue mix towards the higher value business of GBS. And finally, we've improved our governance significantly. Concerning customer relationships, the NPS score that we communicate during these calls shows that we now have deep customer relationships because we are delivering. Our customers trust us with their mission-critical systems and now trust us with their higher-value business needs, which is evidenced by the consistent growth of our GBS business. New and existing customers are turning to us for their ITO and modern workplace needs, because of the quality of company we have built and our reputation that we deliver for our customers. As you heard last quarter, our plan for FY23 was to begin the year with lower margins and to increase them throughout the year. We are accelerating our cost optimization to reduce $500 million in cost by the end of the year. Not only is my management team focused on this, but so am I. I want to remind everyone that roughly the same team of operators took out $700 million of annualized cost in FY21 while delivering for both our customers and colleagues and clearly expanding our margin. It's this experience that gives us confidence that we can do it again. The Q1 results are as follows. Revenue was $3.71 billion and minus 2.6% organic. Book-to-bill was 0.87 in the quarter. This shortfall was within our control. We purposely pushed out deals in the areas of ITO and modern workplace due to poor economics. All that being said, we are currently at a trailing 12-month book-to-bill of 1.06, and we expect to be back over 1 in Q2. Adjusted EBIT margin was 7%, and EPS was 75 cents. And finally, free cash flow was negative $12 million, which is a significant improvement from the negative $304 million that we produced last year. Now, let me give you some additional color around our transformation journey. The first step is to inspire and take care of our colleagues. It is very clear that people want to join DXC, which used to be an issue in the markets. I'm very pleased by the way we have taken care of our people impacted by the Russian-Ukraine conflict and COVID-19. Concerning our customers, our most recent MPS score was 30, which is on the high end of the industry benchmark range. I mentioned earlier that customers are now trusting us with their higher value business needs, and our analytics and engineering offering is a great example of where we have consistently performed well in the markets. From one of the world's leading retailers, we are changing the way their loyalty program works to enable the company to increase revenues and decrease costs. We are transforming their loyalty technology and data to better ingest and manage the right data. This data-led transformation is delivering their customers more personalized offers so that they can use their loyalty points where they are most impactful across all channels. This has increased loyalty and spending, which has helped the retailer grow. In addition, the transformation has lowered costs by managing the right data versus all the data. Analytics and engineering is an offering that we have consistently grown in double digits, which has helped us with our strategy to grow GBS. In Q1, the 2.8% growth in GBS is the fifth quarter of consecutive growth. And we narrowed the declines of GIS, producing negative 7.2% growth due to the improvement in modern workplace. Optimized cost is the next step. As I stated earlier, we have high confidence that our cost optimization will improve our margins and make DXC easier for our colleagues to work here, easier for our customers to work with us, and position us well for the future. We expect to eliminate $500 million of cost. This is comprised of the following areas, staff optimization, including increasing productivity and offshoring, contractor conversions, office and data center space, network and telecommunications, and third-party spend in the areas of hardware and software. I also want to highlight a reminder that I discussed with my management team that along with these actions, we will continue to run the business. This means we will continue to hire for the businesses that are growing like GVS and to scale the offshore presence of our global delivery network. The fourth step is seize the market. Our Q1 book-to-bill of 0.87 was a direct result of more disciplined deal-making, and our trailing 12-month book-to-bill is still a healthy 1.06%. New work for the quarter was 57%, and renewals were 43%. As I said before, we pushed out a number of deals in the ITO and modern workplace areas because we believe we can get better economics. The demand in the ITO and modern workplace market is there, and customers want providers that are financially stable, are investment-grade, and will deliver. That is now DXE, and due to these points, our reputation has changed in the industry, and that is why we are now the safe pair of hands. Deals are coming our way, and we are being very disciplined in our deal-making. Providers have given customers aggressive deals in the past with hopes that they can improve the economics over time, and the old DXE was part of that trend. We all know that these deals were hard to economically make work. The new DXC is focused on doing good deals from the start, and although this disciplined deal-making may have a short-term impact on our book-to-bill, we believe that it will help us longer-term improve margins and deliver for our customers. All that being said, we expect Q2 to be back over 1. And finally, I am pleased with the Financial Foundation and how far we have improved the quality of DXC over the last couple of years. We're doing a nice job improving free cash flow, and the business is producing results that has helped us manage our debt below $5 billion. We've also delivered $900 million to shareholders through our capital allocation program while being below our target debt level. And finally, we have significantly improved our corporate governance. And with that, now let me turn the call over to Ken.