DXC Technology Company

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the DXC Technology third quarter fiscal year 2023 earnings conference 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 would like to ask a question at that time, simply press star. followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. It is now my pleasure to turn today's call over to Mr. John Sweeney, Head of Marketing and Investor Relations. Sir, please go ahead.

Thank you, and good afternoon, everybody. I'm pleased that you're joining us for DXC Technologies' third quarter fiscal year 2023 earnings call. Our speakers on the call today will be Mike Salvino, our Chairman, President, and CEO, and Ken Sharpe, our EVP and CFO. This call has been webcast at dxc.com Investor Relations. 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 the SEC rules, we provide a reconciliation of these measures to the respective and most directly comparable GAAP measures. The reconciliations could be found in the tables 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 quarterly report on our 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 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 strong Q3 results. where our execution drove record bookings along with margin, EPS, and free cash flow that all exceeded expectations. Next, I will discuss our transformation journey and how it has helped us drive these strong results. Ken will then discuss our financial results in more detail and provide our updated guidance. And finally, I will make some closing remarks before opening the call up for questions. In Q3, revenues were $3.57 billion, and our organic revenue growth was negative 3.8%. This was a direct result of the weak bookings in the first half of the year. However, our organic revenue grew for the second consecutive quarter sequentially, and it is notable that we have driven the same level of revenues in constant currency, excluding dispositions for all three quarters in FY23. Our adjusted EBIT increased from 7.5% in Q2 to 8.7% in Q3, highlighting the strong execution of our cost optimization efforts while not negatively impacting our customers. Our non-GAAP EPS increased to 95 cents. Our book-to-bill of 1.34 is the strongest book-to-bill result since I've been CEO. This quarter, we almost hit on all cylinders by having five out of our six offerings deliver a book to bill of over 1.0. Overall, Q3 showed strong execution and has created good momentum for us. So now let me give you some additional color around our transformation journey, which is at the core of how we are creating these results. The first step is to inspire and take care of our colleagues. We are seeing improved attrition due to the way we are taking care of our colleagues and our efforts to change the culture at DXC. I am proud of how we are taking care of our roughly 4,000 colleagues in the Ukraine, and we continue to be impressed by their resiliency to take care of their families and our customers. Concerning COVID-19, we were just awarded the President's Certificate of Commendation in Singapore. This prestigious honor is awarded to organizations that made exceptional efforts, which had a significant impact in Singapore's fight against COVID-19. I want to thank the women and men of DXE, along with my leadership team, for their continued execution. And as we look to 24, we will continue to take care of our people and continue to adjust and add to my leadership team to deliver on our commitments. The next step in our transformation journey is to focus on our customers. The key metric here is our Net Promoter Score. And our most recent MPS score was 27, near the top end of the industry benchmark. This solid customer delivery has driven sequential organic revenue growth in constant currency for two quarters in a row. The key thing I would like to highlight is that we have now delivered roughly the same level of revenue in constant currency, excluding dispositions for all three quarters in FY23. And you will hear from Ken that we are guiding to a fourth quarter at a similar organic level. Now, this is a great accomplishment as we have been a company with declining revenues for the past several years. Also, you will see our strategy for GBS and GIS working. In GBS, we continue to grow the business and expand margins. This is the seventh quarter of consecutive organic revenue growth. As a result, GBS continues to become a larger part of DXE now accounting for approximately 49%, up from 48% in Q2, demonstrating that the business mix is trending towards the new tech of GBS. In GIS, we continue to stabilize revenue and expand margins. We are seeing our increased financial discipline and ITO pay off, as the demand we saw in the market translated into strong bookings this quarter, which we expect to drive future revenues. So you can see we are executing on both parts of our growth strategy to accelerate growth in GBS and moderate the declines in GIS. This execution of our growth strategy is why we expect to drive flat to 1% organic revenue in FY24. The third step is to optimize cost. Clearly, we are executing on our cost takeout numbers as we expanded our margins from 7.5% in Q2 to 8.7% in Q3. We continue to take a thoughtful approach to cost takeout by focusing on our entire organization while delivering for our customers. This approach gives us confidence that we can continue our efforts for the remainder of FY23 and into FY24. The other piece of our cost optimization efforts is portfolio shaping. You will hear from Ken that we were able to generate approximately $375 million of cash from the sale of data centers in the quarter along with the German banks in early January. In the area of seize the market, I am extremely pleased with our bookings this quarter. Our record book to bill of 1.34 brought us back to over 1.0. on a year-to-date basis for FY23, and this shows strong momentum as we are completing FY23 and heading into FY24. In GBS, all three offerings delivered a book-to-bill of over 1.0, and we continue to see momentum in our engineering and software capabilities that we discussed last quarter. But this quarter, we saw even greater success in applications. In GIS, our more disciplined approach to dealmaking has paid off. In Q3, we signed over $800 million of ITO deals that were delayed from the first half of the year and signed two new logos by closing deals with SAP and Yerge Fisher in Modern Workplace. Again, this shows good execution and momentum as these deals will create future revenue. It is clear that there is demand in the market for our offerings, and we need to be patient because we are taking work from our competition at Better Economics. Our final step is our financial foundation, where we generated 463 million of free cash flow this quarter. The execution in this area was outstanding, and it gives us great momentum to hit our yearly guide for free cash flows. This free cash flow result, along with the cash we generated from portfolio shaping, including the sale to the German banks in January, totaled $840 million. We anticipate that we will use approximately $400 million to pay down our debt, further enhancing our investment grade profile, and we plan to repurchase approximately $400 million of DXC shares to complete our previously announced $1 billion share repurchase program. Now, before I turn the call over to Ken, I want to reiterate what we said in our October 4th press release. Management has been approached by a financial sponsor regarding a potential acquisition of the company. Consistent with our fiduciary responsibility to maximize shareholder value, the company is engaged in preliminary discussions and is sharing information. We do not have any further update on this situation today, and we will not be commenting on it further. Now let me turn the call over to Ken. Thank you, Mike.