DXC Technology Company

C Technology's fourth quarter fiscal year 2024 earnings call. Our speakers on the call today will be Raul Fernandez, President and CEO, and Rob Del Bene, our EVP and CFO. The call has been webcast at DXC 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 SEC rules, we provide a reconciliation of these measures to their respective and most directly comparable GAAP measures. These reconciliations can be found in the tables, including 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 no 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 10K 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's President and CEO, Raul Fernandez. Raul?

Thank you. I will give a brief introduction, review our financial performance, update you on the progress we are making with our offerings. Then Rob will take us through the fourth quarter financial results and discuss our fiscal year 25 guidance. I will also make some final remarks before opening the call up for questions. In Q4 of fiscal year 24, total revenue declined 5% on a constant currency basis, above our expectation. Adjusted EBIT margin of 8.4%, down 50 basis points year over year. Non-GAAP EPS of 97 cents was also above our guidance range. Free cash flow equaled $155 million, for a total of $756 million for the full year. This is the third consecutive year that DXC has achieved free cash flow of more than $700 million. While we met or beat expectations in Q4, we know we can operate at a higher level and are not satisfied with the current state. In my five month tenure, I have met with more than three dozen customers globally, along with thousands of our employees in small and large settings, in person and virtual. I have engaged with dozens of investors and have successfully recruited very strong, experienced executives to join our team. I believe we have a global team that is re-energized to make the company better and more effective. I've also gotten a deeper understanding of all of our business units, so let me quickly recap a few thoughts, starting with insurance. DXC is the largest provider of insurance software and insurance business process services globally, from origination to claims processing. We are the category leader providing software and services in three out of four insurance segments, life and wealth, global specialty and reinsurance. As an example, our technology and services process one in five property and casualty transactions worldwide. Our global customer base includes 21 of the top 25 global insurance carriers. In short, we are a key strategic technology partner, supporting global insurance companies with their customers, their agents and their employees. The strong recurring and reoccurring revenue, coupled with 90 plus percent customer retention and an average customer tenure of 18 years, makes this a very interesting business unit for me to focus on. As Rob will comment, the insurance software and services business, representing approximately three fourths of the total insurance revenue, grew at a very respectable .5% in the quarter. It's an incredibly strong foundation to build on and continue to grow and also to rotate our revenue mix more towards SAS and reoccurring services. So we are actively working on a focused plan to further accelerate the growth of this business unit and also highlight the value of its leadership role in the industry and its mix of software and reoccurring services. Continuing with GBS, we're bringing together the best capabilities of our analytics and engineering and applications business, now called consulting and engineering services. With industry veteran Howard Boville as our general manager. Our consulting and engineering services business has a rich and extensive history of driving transformative change for some of the world's biggest brands. In financial services, we provide core banking solutions to numerous banks globally. Within automotive and manufacturing, we are deeply involved in their digital transformation. We enable major auto brands to operate their research and development efforts for autonomous driving on our platform, enabling the ingestion and analysis of large data sets. We have built and run in car infotainment systems across most of the luxury brands. While our technology solutions and operations are critical for our customers, our execution is below average and we are focused on improving the profitability of our consulting and engineering services business unit. Moving on to security, a key thing to note about our security business is that it is an enabler of many of our other services. Customers in our ITO and modern workplace rely on us to provide services in a secure resilient way. Our security teams embed themselves in those offerings to do that in cooperation with our clients. We have over 3000 security professionals operating across eight global security operations centers where we provide around the clock coverage for our customers. As cyber threats increase by the day, not a week goes by that our teams are not called in to assist companies dealing with a security incident. The pace and complexity of these attacks are growing as the regulatory requirements for companies dealing with them. Our focus in the security business is to continue to leverage our expertise to enhance our GBS and GIS offerings, while also focusing on accelerating growth of our standalone services. With the recent addition of several industry veterans, we expect to enable that growth. Moving on to cloud and ITO. For our cloud and ITO offering, we provide business and mission critical services for some of the world's most essential workloads. As I have spent time in the business, I meet more and more customers who reiterate how critical our work is. Many of the world's largest airlines, energy companies, financial institutions, along with government organizations count on DXC for the systems at the heart of their business. Our teams around the globe work 24 seven to keep their operations running seamlessly and securely. This is a core competency of the company. We operate across the entire technology domain from legacy core mainframes all the way through the most cutting edge serverless cloud environments on AWS, Azure and Google Cloud. As our customers modernize their states, moving on to more cloud and modern architecture, often with the help of our GBS business unit, we are well positioned to help them securely operate across multiple environments. This is the foundation we are building on as we pivot our focus in this business to high quality, profitable, cash generating service revenue. And away from the heavy hardware, software and data center outsourcing style deals of the past, with drove higher revenue at the expense of profit. Continuing with modern workplace, we support over 7 million devices and employees all day every day. The employee experience is more mission critical than ever. Today we operate services with a combination of human and non human workforce globally and at scale. Driven by AI, we believe we will reach a point soon where at least 75% of our workforce capacity is non human. We are building and demonstrating expertise and how to manage the non human workforce at this scale. In dialogue across our customer base, the message is clear. Embracing AI technology is a central part of their digital strategy going forward and we are well positioned to lead this. As I mentioned before, and it's even more clear to me now, there were missed opportunities in the past to rationalize systems, processes, legal entities, go to market and delivery functions. Therefore, to strengthen our market position, we're undertaking a restructuring initiative aimed at simplifying and enhancing our operational efficiency. We will simplify our processes, increase visibility to eliminate redundancies, reduce costs, improve resource management and ultimately drive a more streamlined, agile and competitive organization. One specific example of this enterprise initiative is consolidating our five acquired enterprise business systems and optimizing our back end office functions. We anticipate not only a material reduction in our operating costs, but also improvements in our service delivery and responsiveness to our customers. We are also aligning our organizational structure to support streamlined operations with improved and faster decision making. This realignment will make us more competitive. Now Rob will walk you through the financials.

Thank you, Raul, and good afternoon everyone and thanks for joining our call. Today I'll review our fourth quarter financial results and then provide you with our outlook for the full year and for the first quarter of fiscal 25. Total organic revenue growth declined .9% year to year ahead of our fourth quarter guidance. GBS revenue was nearly flat while GIS top line declined 9.3%. Adjusted EBIT margin was .4% above the top end of our guidance representing an 80 basis point improvement sequentially driven by our cost reduction initiatives. Margin was down 50 basis points year to year primarily driven by lower non cash pension income and the impact of gains from asset sales booked in the fourth quarter of fiscal 23. Non gap EPS was 97 cents down 5 cents from last year's fourth quarter. The year to year change was driven by a negative 13 cent adjusted EBIT impact. Higher taxes of 8 cents and a non controlling interest impact of 3 cents. These reductions were partially offset by 19 cent benefit from our share repurchase program. Pre cash flow defined as operating cash flow less capex for the quarter equal to 155 million compared to our expectation of about 200. The shortfall was due to a combination of a smaller benefit from working capital and higher than anticipated cash tax levels. For the year are free cash flow totaled 756 million, which was the third straight year above 700 million demonstrating consistency of cash generation performance. And now I'll turn to our fourth quarter key financial metrics. Gross margin equal .6% flat year to year as we continue to drive workforce optimization and reduce our real estate footprint in the face of declining revenue. SG&A was .7% of revenue down 70 basis points year to year largely driven by ongoing spending management and a $10 million non recurring insurance reimbursement. Depreciation and average ization was flat year to year as a percent of revenue down $17 million reflecting continued capital discipline. Other income for the quarter was 39 million a year to year reduction of 48 million, which is 120 basis point impact to EBIT margin driven by lower pension income of 26 million and lower gains on asset sales of 19 million. Now turning to our segment results. For GBS organic revenue performance was nearly flat year to year. With the deceleration largely driven by the ongoing challenging market environment for analytics and engineering and applications. GBS profit margin equal .3% down 40 basis points year to year, but up 140 basis point sequentially primarily driven by more favorable mix of higher margin services revenue. For GIS organic revenue decline .3% largely consistent with our performance throughout the year. We have taken a very disciplined financial approach with new deals and renewals and this has been reflected in our bookings and revenue performance of both cloud and ITO and modern workplace. GIS margins declined 40 basis points year to year with operational improvements more than offset by a lower level of pension income. Let me now provide some detail on our individual offerings first in GBS. Both analytics and engineering and applications organic revenue declined 1% year to year as performance continues to be impacted by the current challenging market environment. While the revenue decline the book to bill ratios for these two businesses were 1.0 or better with strong renewal activity that does not provide incremental short term revenue but provides longer term revenue stability. Insurance organic revenue increased 1% year to year embedded in this performance is our insurance software and services business. Which represents approximately three quarters of the total that continued at strong momentum of four and a half percent in the quarter. Normalizing for a significant large perpetual license sale in the fourth quarter of last year, the insurance software and services business grew approximately 9% year to year. The insurance book to bill was 0.8X. As a reminder bookings in this business can vary significantly quarter to quarter based on the timing of large renewals. For example, last quarter we had two significant renewals and our book to bill was 1.58. Now moving to our GIS segment security declined 9% year over year on an organic basis with a book to bill ratio of 0.96. Cloud infrastructure and IT outsourcing organic revenue declined 7% an improvement from double digit declines we saw in prior in the prior three quarters due to significant resale transaction delivered in the quarter. The book to bill was 0.75X result of the ongoing challenging ITO market and our selective approach to new deals. Modern workplace organic revenue declined year to year in the mid teens impacted by resale revenue which was down 30%. Book to bill performance this quarter was a strong 1.29X due to several large renewals. Now turning to our financial foundation. We sequentially reduced our total debt levels by 450 million and for the full year our total debt levels have been reduced by 300 million. That interest expense for the quarter was 20 million up 3 million year to year reflecting the higher interest rate environment on our short term borrowings. Restructuring and TSI expense was 21 million and for the full year was 118 million about half of the level spent in fiscal 23. Operating lease payments of 84 million were down 9 million year to year due to the management of our real estate footprint. The fourth quarter capital expenditures were 125 million and lease originations were 21 million. Our finance lease and asset financing payments continue to trend down and as a percentage of revenue capital expenditures and lease originations declined to .3% down more than a point year over year representing a multi year low. Turning to capital deployment. As I mentioned in the fourth quarter we deployed approximately 450 million of cash to reduce our debt levels. We accomplished this by retiring our outstanding balance of commercial paper and continuing to decrease our lease portfolio. We returned 138 million of capital to shareholders repurchasing 6.2 million shares at a weighted average price per share of $22.30. For the full year we repurchased over 18% of our shares outstanding at a total cost of 883 million. Since the beginning of the fiscal year 22 we have reduced our share account by more than 30%. As we enter a new fiscal year I'd like to provide clarity on our updated financial priorities. Our plan is to deploy our capital to accomplish two things. First, given our recent revenue performance, we will execute a restructuring program to address excess capacity largely concentrated in GIS and right size our infrastructure throughout the company to improve profitability. The second priority is to further reduce debt levels, including significantly minimizing finance lease originations. Now turning to our full year 25 guidance. We expect our total organic revenue to decline 4% to 6%. In GBS we expect our full year outlook to be slightly positive with the first half performance in line with our fourth quarter fiscal 24 and with a return to growth in the second half of the year. In GIS, given last year's bookings and the resulting impact opening backlog, combined with continued expected lower resale revenue and deal selectivity in fiscal 25 we anticipate full year organic revenue to decline in the low double digit range. Our guidance for adjusted EBIT margin is 6 to 7%. This guidance primarily reflects the impact from lower year tier revenue and investments we're making in the business to drive productivity improvements. Additionally, we will be executing on the previously mentioned restructuring action to improve margins on a sustainable basis going forward. With the impact of the savings largely materializing in late fiscal 25 and into fiscal 26. As I've mentioned on previous calls, we continue to rationalize our real estate portfolio. These potential sales will provide a cash inflow outside of free cash flow, but will have a negative impact on our adjusted EBIT margin. The potential loss in these sales is not included in the guidance as the market remains difficult and the timing is uncertain. And with this expected adjusted EBIT margin levels, our full year non-GAAP diluted EPS guidance is $2.50 to $3.00 with an assumed non-GAAP effective tax rate of 30%. Our free cash flow guidance for fiscal 25 is about $400 million. There are two main drivers contributing to the lower year over year level. And without these changes, free cash flow would be at levels consistent with fiscal 24 performance. As I previously mentioned, we will be reducing our debt levels in fiscal 25 and a component of our debt reduction strategy is significantly reducing finance lease originations, which were $185 million in fiscal 24. This change in funding approach will reduce our overall debt levels, but will increase our capital expenditures impacting free cash flow. Also impacting free cash flow will be spending related to the increased level of restructuring, which will be an increase of approximately $250 million year to year. Our expectation is that the restructuring savings will put us on a sustainable path of free cash flow generation above fiscal 24 levels in fiscal 26. As a reminder, our Q1 free cash flow is seasonally lowest primarily due to the timing of bonus payouts and certain annual supplier payments. Consistent with prior years, cash flow generation will be strongest in the second half of the year. And now our first quarter outlook. In GBS, we anticipate that revenue performance in A&E and applications will continue to reflect the current challenging market environment. And in GIS, services revenue will decline in the mid to high single digit range with resale taking the GIS decline to double digits. With these factors, we expect total company organic revenue to decline 7% to 8%. We anticipate adjusted EBIT margins in the range of .5% to 6%, a function of the lower revenue and first quarter seasonality, which has consistently impacted our results in prior years. And finally, non-GAAP diluted EPS of $0.55 to $0.60. With that, let me turn the call back over to Raul for key takeaways.

Thank you, Rob. There's quite a lot to do to operate at a higher level. That's why I'm so happy with the additions to our executive team in the last 60 days. They are all industry veterans with proven track records. We will define success by continuing to perform better every quarter while we transform as quickly as possible. Thank you for attending the call, operator. We're going to open it up for questions.

Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. One moment, please, for your first question. Your first question comes from the line of Brian Keane with Deutsche Bank. Your line is open.

Hi, guys. Thanks for taking the question. Raul, maybe you could just help us understand how your restructuring might be different than many of the CEOs that came before you that had a lot of restructuring as well. It seems like every, you know, five years or so a CEO comes in, looks at the business and restructures it. Just trying to get a sense of how maybe your plans might look different than what we've seen over the last few decades at the CSE and now DXC.

Yeah. Okay. Great question. Thank you. I know that, as you mentioned in the short history of this public company, there have been previous restructuring, but as someone who just got here and have really spent a lot of time operationally looking at our systems, our processes, our entities, our distribution of headcount, it's clear to me that the previous restructuring did not set a real, clean, solid, fully integrated baseline for profitable growth. You can look at that in multiple ways. Number of systems still in place that were acquired over time, never integrated, never deduped. Number of business processes that got stacked on top of each other. Number of legal entities. I think anyone that came in would look at, you know, the previous work and again, I know the history is there, so I'm not running away from it. But I can tell you that this is a real reset. It is bottoms up. It is a strong foundation to go from and it's absolutely needed because otherwise we just continue to carry a really not fully functional organization that can take advantage of the opportunities that we have.

Got it. And then just as a follow up, are any of the restructuring charges, are those going to be, are those through the P&L, so they're in the margin targets that we're looking at or those outside those targets? And then secondly to that, just on GBS, a little bit of a recovery. I think you talked about in the second half of the year, so what gives you confidence in that GBS recovery for positive organic growth in the second half?

Thanks. Brian, this is Rob Del Vetti. Thanks for the question. First on restructuring. Restructuring is not included, consistent with the approach taken since the beginning of the company. Restructuring is not included in the adjusted EBIT margin. It obviously is included in the free cash flow numbers. So that's the answer to your first question. On the GBS first half to second half dynamic, with the difficult marketplace, we do see the first half of the year performance similar to the back half of fiscal 24. We have some encouragement. Our pipelines have been improving and our conversion rates are consistent. So with that improved pipeline and conversion rates, we see us going from low single digit negatives to low single digit positives in the second half of the year.

And

it's

all built on again, new leadership there, new lifecycle management in terms of opportunities. So pre-proposal, proposal, pitching, smarter, better, faster, and also eliminating, frankly, some self-inflicted delivery issues that we have had and in some cases we're still working our way out of. As I've mentioned before, this isn't one lever. This is a lot of little levers. And I think one of the things that has given me additional encouragement that I'm looking at it correctly and the team's looking at it correctly, is that as we've brought on great new experience, you know, executives from great companies that have been succeeding in the marketplace, you know, all over the world, they have confirmed that it's a very opportunity rich environment, meaning we have a lot of things that we can be doing better. And if we do those things better, again, not rocket science, operational excellence, and I'd say in some cases just getting the average, that will show up top line and bottom line and conversion and show up in gross margins, net margins, etc. So I feel like we've got a way to go to get to a base and then we from that base, we're going to continue to grow off of it. But I think we've got the right people, the right structure, and now the right go to market model and incentives. And I'm encouraged.

Great. I'll pass the line. Thanks.

Your next question comes from the line of Tianjin Huang of JP Morgan. Your line is open.

Hi, thanks so much for going through all this. I'm just curious on the on the booking side, how that came in versus plan in a little bit more detail and what we might expect as the fiscal year plays out here in terms of replenish either new logo or renewal.

Yes, attention. Thanks. So the bookings relative to the to the last forecast we gave 90 days ago were pretty pretty consistent and actually a little better in GBS. And that was really, really due to renewals and A&E were strong. And it's the second quarter of the year. In a row, they've been strong. And in my in my remarks, I mentioned that those renewals, they don't translate into revenue growth in the first half of the year, but they do produce, they provide rather a solid foundation for for the second half. So that's so we did a little better than anticipated. We did as expected in GIS and we going into fiscal 25 we expect a very similar picture where we have, you know, strong renewal activity in both GBS and GIS and then new content in based on the pipeline, new content in GBS filtering in throughout and improving throughout the year in fiscal 25.

Perfect. Thank you for that. And then maybe we'll just quickly, my quick follow up just with the additions to the management team and are you bringing some people in from from familiar places? Are you done with with some of the additions? Do you expect some some other turnover or maybe new roles that you'd expand into the management team? Just curious what you're thinking is there. Thank you.

Yeah, and you look, you've seen some of the some of the releases, right? So we've obviously announced some publicly and then there are others that we didn't announce, but they've joined the team across the organization. Yeah, I've had the pleasure of working with a lot of great executives over my 25 plus years in technology and in that in that journey. You know, we've had the opportunity to work together. Many of the executives that have come here, we've had the opportunity to compete together, work together and win together. So, yes, we've got a few more that are coming. But in terms of looking at the people that we need to execute, building on top of the team that's here, the great team that's here and adding some great executives that are fit for the roles where we need an additional horsepower. I feel like I've got the team, you know, 90 plus percent in place. Good, good to know. Thank you.

Your next question comes from the line of Brian Bergen with TD Cowan. Your line is open.

Hey guys, good afternoon. Thank you. First question on just on free cash flow. So understanding you have that, I believe, that 250 million restructuring headwind that seems to be the biggest chunk in your your bridge. But can you talk about otherwise, maybe the levers for free cash flow sustainability amid ongoing top line and potentially margin pressure and And can you also talk about maybe the annual outflows associated with capital lease payments going forward to after free cash flow?

Yes. Yes. So in terms of free cash flow, we We start from a base of strength three years in a row over $700 million, 750 and fiscal 24. And we have that solid base moving into fiscal 25. And as I mentioned, the two impacts to that number are the increase in restructuring of 250 And then the curtailment or significantly curtailing new lease originations, which does shift the spend over to capex impacting our free cash flow number in the year. Now we do have Operating leverage here with or leverage with working capital. So there, there is room for improvement and working capital. We're going to be taking advantage of that in fiscal 25 and beyond. And again, with the purpose of the restructuring is to shore up EBIT moving forward 25 into fiscal 26 and curtail that headwind that we faced for the last, you know, for the last couple of years. So that's the plan. In terms of capital lease payments where we're in the low 200s and that will that will continue to wind down in 26 it'll be in the go from a 200 range to 100 range and then down from there.

And just to footstomp this the lease originations will go from 185 million in FY 24 to 0 and 25 So a very small number and that's 185 million reduction in the free cash flow.

Thank you, Joe. Okay, okay. That's, that's very helpful. Okay. And I guess the follow up, just as we think about the top line. The 25 guide is we try and unpack some of the factors you considered here. As it relates to kind of revenue retention and whether you're also working to actively prune out any unfavorable basis of business contracts, you know, any, any Pieces of business you're looking at assessing it's not strategic to the company. Anything like that working through kind of here to be mindful of as you built the outlook.

Yeah, especially in it and modern workplace where historically there's been the packaging of, you know, less than optimal profitable reselling of product reselling of software. That that guidance or that direction change when I got here and we are going to have profitable contracts profitable relationships. To the extent we don't have them right now as we get into renewals of contracts. We're going to address that and then put them on the right footing. But that the mandate is clear now that these this isn't growth growth at all costs growth at a at a loss. This is growth with real profitability and a real foundation.

Yeah, Brian just piggybacking on that we've we've incorporated that selectivity and into our into our guide on on revenue. So that that's included, along with continued reduction of low margin resale.

If

all of that is packed into the G G. S. Element of the guide.

Okay, did. If I missed it. I apologize. Did you quantify that piece, just so we can parse that out.

Didn't plot quantify specifically the the various elements in the in my opening remarks. I mentioned that will be high negative single digits and GIS and with the resale. It'll be negative double digits low double digits.

Okay, thank you very much. Thank you.

Your next question comes from the line of Darren Peller with wolf research. Your line is open.

Hi, thanks. This is Paul. I'm right on for Darren. Can you just provide some color on what you're seeing in the broader macro environment and client behavior and maybe how that relates to three months ago. And as you built your fiscal year 25 outlook. Were you assuming any improvement in the broader demand as we go through the year.

Sure.

Look, I think there are a couple of factors right with with companies that are operating at different different levels of efficiency. And I think our issue is being more effective across the whole lifecycle of capturing business new business. Solutioning it correctly pricing it correctly as well as on our existing business obviously winning the recompete and being able to create the right economic Model for those recompete. We have plenty of opportunity in in in the universe that we operate in. I think from a macro standpoint, you know, I echo what others have said in the space that Some discretionary spending is paused and has light and has lighted up. I do think that that is less of a headwind for us. Than optimizing our go to market and sales functions and getting those better we we can do we have our destiny in our hands by being better against the opportunities that we get to compete on and that will be a bigger factor for us in the near term than the general macro environment.

Got it. That's helpful. And then as a follow up, you mentioned in modern workplace, you could see or you reach a point where 75% of the workforce is non human. Can you just touch on the path to get there and what you're doing right now in the business to improve efficiency.

Sure. If you think about a lot of the work there. It's a lot of resolution small resolution of items across multiple people humans devices countries companies, etc. If you look at the focus of AI specifically co pilot and the ability for agents to use large language models small language models real precise models to Really proactively and interactively answer and deal with questions. That's the shift where we're going to be using AI in in a manner where we can handle the workload. Same or more. With a greater infusion of technology and not relying on an increase of humans or people for that as we transition that you'll go from a ratio of roughly 40% to 70 plus percent. And that's the reference that I made there, but that's real. That's happening. It's actionable. We're experimenting with it across multiple accounts and the other piece of good news is that the speed of compute behind AI is doubling every six months. So the speed accuracy and multimodal ability for a virtual agent to really be A great partner in delivering these services that are high quality is there today and getting better. And we're going to take full full advantage of it. Great. Thank you.

Your next question comes from the line of Jonathan Lee with Guggenheim securities. Your line is open.

Great. Thanks for taking our questions. Appreciate the level of detail here. You talked about working through some of the resale dynamics to help profitability. Can you help us understand any other levers you have across contract profitability, whether that's pricing or delivery.

Yes. So, so Jonathan, there's I think there's leverage across the board, in particular, and in the ITO business. I'll just take that first. We've, we've got, we've been on a march to reduce physical capacity with the revenue reductions we've experienced and we will continue that this year as well. And the The hundred million of restructuring between the 250 year year growth and the base of 350 that hundred million is predominantly on physical capacity. So that's, that's one element that will deliver savings into the future. The second element is just efficiency and Infrastructure at the account level and we are going after that with the restructuring funding. So while we're, you know, we're, we're very good at our service delivery levels. We've got high NPS scores are restructuring is designed to eliminate the overhead within the accounts as opposed to the direct delivery population that we have So, and, and we are, you know, we're firmly on that track. And that's how we're going to execute the restructuring and in the GPS business. We have room to improve margins. Specifically in the in the consulting and engineering business, our margins are below competition. And again, the restructuring is designed to help us narrow that gap to competition in that business unit. That's another lever for us.

Great. Thanks for that. And just as a follow up, you know, as you think about the realignment the company on a business unit basis versus geographic prior. Can you, can you talk about some of the client receptivity there.

Yeah, and it's really the intersection. Right. Because it's the intersection of the talent, the managers, the delivery at the geography. In tight coordination with the offering. And so what what you're getting just from the beginning of the lifecycle is better, you know, pre bid solutioning better solutioning Better deployment. Once you win, you know, one of one of the things that that companies, you know, can can trip themselves up on and we certainly have Is not being timely in the staffing or fully staffing of something that's one that leads to SLAs that's completely self inflicted 100% avoidable. If you plan better you execute better. So that's another example of seeing a lot of little things that you know other organizations can do and I know we can do better that can have an impact, you know, and that impact will be every month, every quarter. And and and we'll see that. So, Those are just some of the elements that that I think, you know, our new go to market really resonates with both The local geography engaging the offering at a global level and ultimately the most important thing, which is the customer and in my, you know, several dozen conversations. In the last 150 days in talking through why we think this is a better way of serving our customers. It's been very receptive and very engaging with with our customers.

Appreciate that clarity. Thank you.

Your next question comes from the line of Spencer Hansen with Susquehanna. Your line is open.

Great. Thanks for taking my question. Right. Well, you, you had some really interesting call outs on the insurance business. Can you just speak to any broader strategic or even tactical opportunities. You see, you see there with the insurance business.

Thanks. Great. Yeah, as I looked at every business unit, you know, I think, you know, I very early on became It became clear to me that we have an outsized opportunity in terms of a return on effort with our insurance business unit. With that opportunity in hand. We're exploring a small select and experience group of partners that could help us accelerate growth. With a good staff and reoccurring services mix while maintaining control of that business unit. So we're in that process right now. It's, it's a great foundation. It's a great set of customers, a great history with those customers and really a critical partnership across the world in every aspect of supporting the different product lines that are that our customers bring

to

the marketplace.

Great. Thank you. Appreciate it.

Your next question comes from the line of James Fossett with Morgan Stanley. Your line is open.

Thank you very much. I wanted to ask about go to market and sales process. I know role and ask conversations. You've talked a lot about Improving and tightening up the message to customers so that they understand the value that the XC can deliver, etc. And it sounds like You know, with some of the changes that you've made that the pipeline is expanding but on conversion rates are pretty stable. And it sounds like that's kind of the assumption. For right now. But like, how should we think about the process and the time to start to even improve conversion rates and how that may be helpful to getting the business back to grow.

Yeah, I think it's a function of the fundamentals right the fundamentals that we're operating under in ITO and modern workplace. The new leadership and the focus on key vertical solutions replicability. In consulting and engineering services and Also, you know, in talking to customers. I always, you know, if it's an ITO customer modern workplace. I always come prepared to discuss Something relevant in another business unit that they may or may not be aware of. And frankly, it's a good surprise, but I'm surprised that many of our existing customers where we've got, you know, 10s, in some cases, hundreds of millions of business in one division. Do not know and do not appreciate the talent, the experience that another division has. So just the more effective cross pollination. Cross sale, you know, in existing accounts is something that I see as a as an opportunity and it's relatively low hanging Because again in my several dozen meetings. I've always tried to say, and hey, as you're thinking about this. Did you know we did this. And most of the time, the answer is, oh no, I didn't know that please. Let's follow up. So I have you scale that And then, you know, operationalize that we are going to be able to get incremental demand from our existing base. Because in many cases, we've got a great beachhead a great history and a great relationship with one offering and a customer. But that should be a gateway and effective gateway a fast gateway to compete with the other offerings and that that mechanism that orchestration that collaboration. That packaging up of stories, as I've mentioned before, all that is happening as we speak. And frankly, it wasn't happening at a good level before

And and it sounds like then for the most part. I mean, you've talked about some incremental partnerships, for example, on the insurance side, but it sounds like you feel like you have all the Or at least the majority of assets to be able to execute and deliver that cross sell that pair or there are other things that you think you're going to need to add into the mix.

Now we have we have what we need to compete. We have what we need to compete profitably and grow. We have to get some internal systems aligned. We've got a, you know, as I mentioned earlier, D dupe streamline and do some work that should have been done before it. It wasn't, but we're going to get it done with speed and we've got to perform. Every day every every week every quarter while we transform and transformation is is the restructuring and we've got to do both quickly.

Great. Thank you so much.

Your next question comes from the line of Bradley Clark with BMO capital markets. Your line is open.

Hi, thank you. This is Brad on for case. I mean, I want to ask about your thoughts on GIS and market growth over time. You've alluded to sort of participating in just broader GIS market growth rates implying well Single digit decline over time. Is that still how you're thinking about potential growth of both the market and or GIS longer term, given the changes you'll be making to the business?

Yeah, yes, Bradley. I think that's about right. We, we have a very realistic view of the market and our, our goal is after rationalizing the portfolio and focusing on on, you know, exiting unprofitable contracts and being selective. We are our goal is to get to market growth rates, which we see in the low negative single digit range. So that that's where we're pointing the business in that direction.

And just to be clear, we're, we're, we're operating at a worse level than that. So the first goal is to, you know, get to quote unquote normal or more baseline with with other competitors. Once we get there, then obviously the next step is to is to just to find another target and try to meet and beat it. But in the near term, it is to get in line with our competitors with regards to our growth rate. Where it is today and where it should be as a comp.

Okay, appreciate your insights.

This concludes the question and answer session. I'll turn the call to Raul Fernandez for closing remarks.

Thank you very much for joining us. I appreciate all of the employees that come together every day to deliver great services for our customers, value all the investors. I definitely also appreciate the sense of frustration and urgency to get things done. And that is what I'm 100% focused on. So thank you very much for attending today.

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.

Very much for attending today.

This concludes today's conference call.