DXC Technology Company

Hello and welcome to the DXC Technologies Q1 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 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 again, press star 1. Now I'll turn the conference over to John Sweeney, VP of Investor Relations. Please go ahead.

Thank you. Good afternoon, everybody. I'm pleased that you're joining us for DXC Technologies' first quarter fiscal year 2024 earnings call. Our speakers on the call today will be Mike Salvino, our chairman, president, CEO, and Rob DelBene, our EVP and CFO. This call has been webcast at DXC's investor relations website, 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 the SEC rules, we provide a reconciliation of these measures to the respective and most directly comparable GAAP measures. The reconciliations can be found in the tables, including 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 Form 10-Q and other SEC filings. I'd now like to remind our listeners that DXC Technology assumes no obligations to update the information presented on this call except as required by law. And with that, I'd like to introduce DXC Technology's Chairman, President, and CEO, Mike Salvita. 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 overall business performance. Next, I will update you on the performance of our GBS and GIS businesses. Rob will then discuss our financial results in detail, provide his perspective on DXE and his focus moving forward, and then discuss our updated guidance. And finally, I will provide some closing remarks before opening the call up for questions. Before I get into the results of Q1, I want to give you some context. We are taking the right steps to shape DXE into a company that consistently delivers revenue growth and expanded margins, EPS, and free cash flow. We are doing this by focusing on our high-value growth business of GBS and fixing the historical challenges of our GIS business, along with changing the revenue mix so that GBS represents the majority of our revenue. As we began FY24, we saw resiliency in our business because in FY23, we delivered four quarters of revenue stability in a slowing IT market. Also, we thought customer demand for our work would stay at the buying levels we saw in late FY23 because the work we do is essential to our customers' operations. Currently, we are seeing customer demand for hardware PCs and network devices, along with some project work, either stopped or delayed to the second half of the year at a higher rate than we anticipated. You will see that the resiliency in our GBS business held up. GBS performed as we had planned and delivered solid growth. In contrast, GIS did not show the resiliency that we had hoped. Although this is not great news, I would like to point out that a major piece of the revenue shortfall was resale revenue, which is low margin and we have conscientiously reduced over the last few years to limit our dependency on this type of revenue. We have made measurable improvements this quarter to proactively change our organization to be more competitive in this market environment. we have changed how DXC engages with the market by moving to an offering-led operating model. The offering-led operating model moves us from a regional model where leaders were generalists concerning offerings to a global offering model where the leaders are experts and focused 100% on growing revenue and margin for their offerings. This model increases our customer coverage and assures we bring the right skills to our customers to deliver and win new work. As I mentioned last quarter, our analytics and engineering and insurance offerings were early adopters of this model, and they are consistently our highest revenue growth offerings. Our intent is to get this model to work for the other four offerings. Now let me discuss our Q1 results and the performance of our GBS and GIS businesses. Our organic revenue growth was minus 3.6%. which is about $75 million lower than the midpoint of our guidance range. Our EBIT margin was 6.5%. The lower-than-expected margin was a result of us needing to fine-tune our new operating model to better manage supply and demand. Our free cash flow was better than expected due to our strong execution around our working capital management. Non-GAAP EPS was 63 cents. And finally, after having a strong second half book-to-bill for FY23, we delivered a book-to-bill of 0.89 as we continue to replenish our pipeline. Our trailing 12-month book-to-bill is now 1.03. Now turning to our GBS business, the GBS business grew 3.3% in Q1. We look at GBS as a flywheel for DXC that provides sustainable growth at double-digit margins. It has now grown nine consecutive quarters. Also, GBS is 49.4% of our overall revenue. It is still early days, but we've seen the ability to sell new GBS work to longstanding GIS customers, and scaling this will provide a source of upside revenue to our GBS business. Our GBS offerings are all uniquely positioned in their respective markets. Analytics and engineering is well positioned due to our engineering talent. Our skilled team does not just write code, but they bring the code together in engineering solutions to make things work better. A great example are the solutions we've developed for the dashboards in the cars of BMW and Mercedes. Our insurance offering is the world's largest provider of insurance software and BPS solutions. working with 18 of the top 20 global insurers. Our unique position is we run the platform for Lloyd's of London. This platform brings together brokers and writers to create insurance policies for the European market. We are currently using our custom application team to modernize this important platform, which we believe will be another source of revenue growth. Along with our custom application skills, we have unique capabilities with enterprise application providers like ServiceNow. We run one of the largest instances of the ServiceNow product, and we have used our custom application team to embed ServiceNow into PlatformX, which is our AI tool that monitors and fixes the IT estates of many of our GIS customers. Moving now to our GIS business. As I mentioned, we did not make the progress we had hoped in GIS, and it declined 9.9%. Let me give you a quick performance recap of our three GIS offerings. Our security offering grew. This offering provides security strategies and valuable resources to both proactively and reactively help our customers protect themselves against security threats. Cloud ITO experienced the largest decline. Chris Drumgoole, our former COO, and I are working closely together to fix our dependency on underutilized data centers we own, develop a solid pipeline and path to move work to the cloud, and use our unique position in the ITO market to take market share from our competitors and improve economics. An example of us taking market share at Better Economics was our recently announced AT&T deal. where we will be providing securely managed server, storage, enterprise backup, and maintenance services to AT&T. After three quarters of consistent revenue in FY23, Modern Workplace declined in Q1. We expected that Cloud ITO and Modern Workplace would perform better in FY24 based on the following three actions we have taken to fix them. First, we managed the disruption from terminated contracts that happened two to three years ago. This work takes multiple years to fall off, and for the most part, it will be out of our numbers after this year. Second, we bolstered our customer delivery and offshore delivery capability to secure the revenue we maintain and deliver it at better margins. Third, to win more work, we improved our market reputation. For example, Gartner now ranks us as a leader in modern workplace. We invested in tools to be more competitive, like Platform X and Uptime. We are bringing in new work at Better Economics, and we have positioned ourselves to become the partner of choice to cloud providers as they move workloads that are essential to customer operations to the cloud. All that being said, it will take a little bit more time to get these two offerings to perform as we expected. Before turning the call over to Rob, I want to comment on our AI capability that we have built into both our GBS and GIS businesses, because we believe we are in position to lead the market in this area. As many of you know, AI has been a passion for me. I brought this passion to DXE, and we have made focused investments in AI every year that I've been CEO. We have over 10,000 women and men that are trained in AI. And we have AI capability in now four out of our six offerings. In GBS, we have embedded our AI capability into both insurance and analytics in the engineering offerings. In insurance, DXC Assure uses AI to better serve customers by providing them insights and answers about the most complex policy questions. In analytics and engineering, robotic drive uses AI to enable cars to be self-driving, ranging from driving technology to assist drivers to full driving automation. In GIS, we have developed AI capability in both our cloud ITO and modern workplace offerings. In cloud ITO, Our platform next tool uses AI to proactively monitor IT estates to detect and resolve issues with one of our 10,000 bots to avoid costly business disruptions. In modern workplace, AI is built into our uptime platform, which we leverage across 7 million devices. We use AI every time an employee reaches out for assistance and can resolve up to 80% of those interactions without human intervention. along with using AI to predict issues with PCs and reduce the carbon footprint for our customers. The bottom line is all of these solutions are at scale, are providing enhanced customer delivery capability, and are driving new revenue for us. Now, I want to turn the call over to Rob, who has been a pleasure to work with, and I have complete trust that he will transform our finance organization to deliver the financial analytics to make our results more predictable and repeatable. Rob, over to you.