DXC Technology Company

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, again, just press star one. I would now like to turn the call over to Roger Sachs, VP of Investor Relations. You may begin.

Thank you, Operator. Good afternoon, everybody, and welcome to DXC Technologies' first quarter earnings conference call. We hope you had a chance to review our earnings release posted to the IR section of DXC's website. Speakers on today's call are Raul Fernandez, our president and CEO, and Rob DelBene, our chief financial officer. Our agenda will be as follows. Raul will provide an overview of our results and update on our strategic initiatives. Rob will then walk you through our financial performance for the quarter, as well as update you on our full year outlook and provide some thoughts on our fiscal second quarter. Raul and Rob will then take your questions. Certain comments we make on today's call will be forward-looking, These statements are subject to 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-K and other SEC filings. We do not undertake any obligation to update or release any revisions to any forward-looking statements. Also during this call, we will discuss 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 direct comparable gap measures. These reconciliations can be found in the tables included in today's earnings release. Now with that, let me turn the call over to Raul.

Thank you, Roger. Good afternoon, everyone, and thank you for joining us today for our first quarter fiscal 2025 earnings call. I'm pleased with our first quarter results that came in ahead of our expectations on top line, adjusted EBIT margin, and adjusted diluted EPS. Our performance is an early testament to the improved execution by our teams along many fronts. Our teams are focused on designing and implementing solutions that embed engineering skills, AI, and industry expertise to capture opportunities in an expanding addressable technology market. As our enhanced operating model gains traction, we believe it positions us well to deliver greater value for our customers, improve financial performance, and drive long-term shareholder value. Specifically during the quarter, total revenue declined 4% year-over-year on an organic basis, adjusted EBIT margin of 6.9%, expanding 40 basis points year-over-year, non-GAAP diluted EPS of 74 cents, was up 17% year over year, and we generated free cash flow during the first quarter of last year. In light of ongoing market uncertainty, we continue to see cautious behavior from many of our customers. This has resulted in an ongoing, restrained, discretionary spending environment on short-term project work. down modestly from the prior year across both our global business services and global infrastructure service segments. Therefore, along with our selective new approach to deals, overall bookings during the first quarter remained under pressure. We had factored this lower level of bookings going into the full year outlook that we provided this past May. We are revamping our go-to-market approach within our sales organizations. A few examples include dedicated client partners having significant domain expertise tied to specific clients and industries, updated compensation structure that includes bookings, revenue, and profitability, as well as elevated incentives to expand client relationships, and a clear delineation between existing and new logo account teams. We are beginning to see some early success from our efforts. Our pipeline has expanded nicely, largely driven by new deal inflows in consulting and engineering services, which is our largest segment. Additionally, within our pipe, we are seeing a greater mix of larger deals progressing to the later stages of the sales cycle. Although these engagements are expected to have a lesser contribution to near-term revenue, we believe they provide a solid foundation for long-term stability. Let me take a minute to quickly highlight details of two new deal wins led by our technology and engineering expertise, together with deep vertical domain knowledge. For Contitech, one of the world's leading industrial suppliers, our consulting and engineering services business is leading the effort to consolidate multiple SAP legacy ERP systems to a new SAP S4 HANA platform. This migration allows greater process optimization across the company and provides timely, actionable insights for strategic decision-making to drive business performance. Within our cloud and infrastructure business, we recently entered into a long-term IBM mainframe managed service agreement with First Horizon Bank for ongoing management and support. During the first quarter, we initiated several tactical actions under our enhanced operating model. Within GBS, where we help clients accelerate digital transformation, we are doing the following. Last quarter, we consolidated our analytics, engineering, and applications business, and now call it consulting and engineering services under industry veteran Howard Boville. This streamlines our offering structure and enhances our ability to design and go to market with more standardized, scalable enterprise applications. Additionally, under Howard's leadership, we've aligned the business to five verticals, financial services, automotive and manufacturing, healthcare and life sciences, airlines, and public sector, where we have significant domain expertise, allowing us to develop very targeted solutions to address industry-specific challenges. To enhance our operating and delivery model during the quarter, we began to execute on the following initiatives. optimizing our global delivery network to quickly identify and leverage the best available talent in geographic regions, increasing adoption of Gen AI capabilities for application development, testing, and maintenance, implementing a new workforce planning management system to better manage resources in all market conditions through predictive modeling, and restructuring our account pyramids to drive further offshore delivery. Within insurance software and BPS, we continue to explore a range of opportunities to accelerate the already strong performance of our market leading insurance software and services unit that generates more than a billion dollars of annual revenue. We anticipate providing you a further update in the near future. Moving to GIS, which represents our portfolio of technology solutions, we are bringing together our infrastructure, security, and modern workplace teams under the trusted leadership of Chris Drumgoole, a tenured DXE executive. This better enables us to develop and deliver unique and mission-critical secure technology solutions to meet the evolving needs of our customers. Our integrated GIS workforce of almost 50,000 practitioners across 70 countries will be one of the largest, most experienced, and best equipped in the marketplace. These professionals have over 49,000 certifications across AWS, Google Cloud, and Microsoft Azure, as well as specialized security technologies. While each of our offerings will continue to innovate and maintain distinct market identities, this combination helps that our solutions are designed, built, sold, and operated to work together seamlessly. Specifically within cloud, ITO, and security, we are executing on the following. Developing a targeted set of offerings, investing in and growing top performing accounts, and winding down select non-performing accounts, and driving deeper penetration of our AI data-driven intelligent automation platform that helps customers quickly detect and resolve IT issues and prevents future problems before they occur. Within Modern Workplace, we're continuing to implement AI and GenAI tools to enhance the capability of our chatbots to handle increasing inbound service requests. Additionally, during the quarter, we took steps to improve our operational efficiency. We began to consolidate, standardize, and eliminate redundant processes across our sales, business, and account operations. through the implementation of a global shared services model. As part of our consolidation plan, we are in the final stages of upgrading our targeted ERP system to S4 HANA and expect to start an initial phase of migrations later in this year. Revamping our go-to-market approach as well as the actions we are taking across GBS, GIS, and our internal infrastructure enables us to reduce overhead and redirect investments towards more value-added front-end initiatives. The impact is already being felt as we are realizing a notable improvement in delivery metrics and overall quality of our services that has resulted in higher client satisfaction net promoter scores. I want to now take a moment to briefly comment on an area that I am deeply passionate about, protecting intellectual property. This mission has been a cornerstone of my career as a leader, investor, and entrepreneur. At DXC, we are defining how to embrace innovation ethically and responsibly, helping our customers navigate digital transformation with confidence. We believe our commitment to IP protection represents a cornerstone to company advancement and stakeholder value. We also take extensive measures to safeguard our own technology while ensuring excellence. As such, I'm very pleased with the recent favorable judgment by the United States District Court, which endorses our commitment to responsible innovation and protecting our intellectual property from certain actions by one of our competitors, TCS. Before concluding, I want to express my gratitude to our global team who diligently worked with customers that were recently impacted by the CrowdStrike software update that led to widespread disruption. Our response demonstrated that our dedication to our customers goes well beyond transforming their operations. We assembled a dedicated team that quickly implemented a recovery plan, leveraging our extensive experience with similar incidents. Our technicians worked directly with end customers, guiding them through complex restoration processes to keep customers' operations up and running. For example, our efforts enabled a regional airline carrier, a global petroleum company, a worldwide logistics company, and a global manufacturing company to have their operations restored shortly after the event, minimizing disruption. To conclude, We believe our greatest near-term opportunities will come from being much more effective across the life cycle of capturing new business, solutioning it correctly, incorporating proper pricing, and creating better economic models for renewals. Our success will be defined by our ability to execute against these opportunities. And I am determined to drive the transformation of our company as quickly as possible. Now let me turn the call over to Rob to review our first quarter results.

Thank you, Raul, and good afternoon, everyone. Today I'll review details of our first quarter results and then provide you with our latest thinking regarding our full year fiscal 2025 outlook along with our view for the second quarter. Please note that the additional financial information we have historically provided as an appendix to our slide presentation is now being made available as an Excel file for your convenience. You can download it from the IR section of DXC's website immediately following our call. Additionally, given our leadership changes Raul discussed, we have reassessed how we will report results. Moving forward, we will continue to disclose revenue, book-to-bill ratios, and profitability by our two segments, global business services and global infrastructure services. Within GBS, we will now report revenue and book-to-bill ratios for consulting and engineering services, as well as for our insurance, software, and BPS offerings. Under GIS, we will now disclose revenue and book-to-bill ratios for cloud, ITO, and security, and our modern workplace offerings. And now onto our results. Total revenue of 3.2 billion declined 4% year-over-year on an organic basis, which was better than our expectation. GBS revenue, which now represents 52% of total revenue, increased 1% year-over-year on an organic basis. GIS revenue, which represents 48% of total revenue, declined 9% year-over-year. With continued pressure to customer discretionary spending and our more selective approach to new deals, our book-to-bill ratio for the quarter was 0.77, with a trailing 12-month book-to-bill ratio of 0.88. declining modestly from last quarter. Adjusted EBIT margin expanded 40 basis points year-over-year to 6.9%. This better-than-anticipated performance was largely due to top-line results ahead of our expectations. Gross margin for the first quarter was 21.9%, expanding 80 basis points year-over-year, largely driven by disciplined cost management within GIS. SG&A, the percentage of revenue was 9.1% flat year over year, largely due to prudent spending management. Non-GAAP net income attributable to DXC shareholders was 2 million year over year. Non-GAAP EPS was 74 cents, up 17% from 63 cents in the first quarter of last year. The 11 cent increase was primarily related to the benefit from lower outstanding shares. Free cash flow for the quarter was $45 million. Now turning to our segment results. For GVS, organic revenue increased 1% year over year, largely driven by mid-single-digit growth of our insurance, software, and BPS business. Profit margin declined 50 basis points year over year to 10.8%. The changes we are making to the operating model of our CES business including the restructuring actions we are targeting, are expected to provide future margin growth. Consulting and engineering services declined 1% year-over-year on an organic basis, consistent with the trends we saw last quarter. The book-to-bill ratio of .88 was impacted by the ongoing short-term project pressures reflected in both our revenue and bookings for the quarter. The trailing 12-month book-to-bill ratio was stable quarter over quarter at 0.96. Insurance and horizontal BPS grew 5% year-over-year on an organic basis. Embedded in this performance is our core insurance and software business, representing approximately 75% of the total, which was up 6% organically year-over-year, continuing the strong momentum we saw during 2024. The book-to-bill ratio was 0.65. As a reminder, bookings in this business tend to be lumpy with significant variation quarter-to-quarter. Moving to GIS, revenue declined 9% year-over-year on an organic basis, in line with recent trends and ahead of our expectations. While resale revenues performed as expected down 28% year-over-year, services revenues when you declined 8% held by higher than anticipated in quarter volumes. Profit margin expanded over two points to 7.3%. This performance was largely driven by better resource management as we embedded automation in our delivery processes and take disciplined cost actions to optimize our data centers and networks. The lower mix of resale revenue also contributed to the year to year margin improvement. Within GIS, cloud ITO and security declined 8% year-over-year on an organic basis, with resale revenue down 24%, impacting the total growth rate by about one point. The book-to-bill ratio is 0.67, primarily attributed to the ongoing challenging ITO market, coupled with our disciplined approach to new deals. The trailing 12-month book-to-bill ratio equaled 0.76. Modern workplace is down 14% year-over-year on an organic basis with a book-to-bill ratio of 0.80 and trailing 12-month ratio of 0.92, consistent with last quarter. Turning to our cash flows and balance sheet. During the quarter, our free cash flow defined as operating cash flow less capex equaled $45 million compared to a use of $75 million in the same period last year. This improvement was primarily driven by a stronger working capital position, as we saw a sequential improvement in our DSO, as well as lower CapEx spending. Capital expenditures equaled $193 million, down $9 million year over year, and new lease originations were $7 million, down $37 million from last year. Taken together, CapEx expenditures and lease originations declined 46 million year over year and as a percent of revenue improved to 6.2% compared to 7.1% for the fiscal first quarter of 2024. We began to execute upon the incremental 250 million of restructuring initiatives we announced last quarter. While we saw minimal impact to our cash flow in the first quarter, we expect the program will ramp throughout the year with the majority of spending being back half loaded. Our balance sheet remains strong with cash and cash equivalents totaling 1.3 billion. As planned, we incurred a modest increase to our debt levels to 4.1 billion due to first quarter seasonal needs. With our cash flow generation and existing cash balances, we have ample flexibility to execute on our capital allocation plan and invest in our business. As a reminder, Our capital allocation plans for the year prioritize $250 million of incremental restructuring, as well as reducing our debt levels, which includes minimizing new financial lease originations that equaled $185 million during fiscal year 2024. Now, let me provide you with our latest thinking on our full year outlook. We continue to expect total revenue to decline between 6% to 4% year over year on an organic basis. With a better than expected start to the year, we remain confident in our ability to achieve our full year revenue outlook. For GBS, we are maintaining our full year outlook calling for slightly positive top line growth. We now expect first half revenues to be roughly flat year over year improving to low single-digit growth in the second half given our pipeline and stable conversion rates. We continue to anticipate GIS full-year top line to decline at low double-digit rates given expected lower resale revenues and deal selectivity. Based on first quarter performance and with our updated view of projected cost savings initiatives, we now expect full-year adjusted EBIT margins to be in the range of 6.5% to 7% compared to our prior outlook of 6.0 to 7.0. We now expect a full year non-GAAP effective tax rate of approximately 32% compared to our prior expectation of approximately 30%. This increase is largely due to an updated mix of jurisdictional income. Full year non-GAAP diluted EPS is now anticipated to be between $2.75 and $3 compared to our prior outlook of $2.50 to $3. This update is driven primarily by the increase of our adjusted EBIT margin outlook. Free cash flow for the year is now expected to be approximately $450 million, an increase from our prior view of around $400 million. This improved outlook is largely due to the increase of our adjusted EBIT outlook as well as better working capital performance for the year. We still expect the increased level of restructuring year-over-year to be about $250 million skewed to the second half of the year. As a reminder, our year-over-year free cash flow expectation is largely driven by the incremental $250 million restructuring program as well as our efforts to minimize new financial lease originations that expect to lead to higher levels of capital expenditures compared to fiscal 2024. Absent these elements, our free cash flow for fiscal 2025 would be more in line with last year's performance. And now for the second quarter, we expect total organic revenue to decline 6.5% to 5.5% year over year. This decline from the Q1 growth rate is based on our backlog and the projected view of current contract volume activity. We anticipate adjusted EBIT margins in the range of 6.5% to 7%. And finally, non-GAAP diluted EPS of 70 cents to 75 cents. And with that, let me turn the call back over to Raul for some closing remarks.

Thank you, Rob. Before I turn it over for questions, I would like to briefly comment. on the recent speculative reporting in the press. It is our policy not to comment on market rumors, and we do not intend to break from that policy today. As we have been discussing, we are 100% focused on building a great company by executing against our enhanced operating model that highlights our differentiated global industry-focused offering and aligns our sales and account organization by geographic markets. Our commitment will help drive more business outcomes and deliver significant value for our customers. I remain confident we will see continued progress of our efforts and our results during the coming quarters. And we'll now turn it over for your questions. Thank you.

All right. Thank you so much. And just as a reminder, to ask a question today, please press star followed by the number one on your telephone keypad. I'll give it just one moment to compile the roster. All right, our first question comes from Tinson Wong from JPMorgan. Please go ahead.

Hey, thanks a lot. Good quarter here. I'll ask on the revenue with that coming in ahead of expectations. Can you give a little more detail on where the sources upside came from, and was there any pull forward? Because it does look like revenue does assume some deterioration here in the fiscal second quarter. So anything you can share would be terrific.

Yeah, Tingen, it's Rob. Thanks for the question. The strength came primarily in our ITO versus expectation came primarily in our ITO business. And it really came from in-quarter volume activity in our client base. And that increase in volume activity was fairly widespread. So it didn't come from a concentrated short list of customers. So that's what really drove the outperformance relative to our original guidance. Now, we haven't factored an increased activity in the second quarter in our outlook. So when you come to one Q to two Q comparisons, that increase, we're not counting on a repeat of that increase in the second quarter.

Got it. I think that's prudent. My follow-up, Jen, if you don't mind, just the disciplined approach to new deals. I know that you talked about that for a little bit. I'm just curious, the discipline here, I'm sure it's more than just price. Is there a need to then lower your delivery cost in order to be able to be more available to attack some of these deals? I know there was a talk, I think, Ro, you mentioned optimizing the global delivery network. I'm just curious if those are all related. Thank you.

Yeah, look, I think at a macro level, the headline is a relentless focus on all aspects of execution. And that starts with existing customers, because I think one of the things that I've continued to appreciate more and more as I spend more and more time with customers that have been with us 5, 10, 15, 20 years plus, is that we have an incredible beachhead. Our work is valued. Our professionals are very valued. and that is a great base to build off of so when when you when you think about you know what we've been doing over the last quarter it's been focusing on all aspects of execution from existing customers and getting those renewals and having line of sight on those renewals and making sure the economics of those renewals are good for for both sides and that's both pricing as well as cost It's also a focus on net new deals, new logos. The number of new logos in the pipeline is at a level that I hadn't seen before. The pipeline is growing very nicely. So the focus on execution from pre-solutioning to sales, to delivery, to then client management, you can weave in updated compensation metrics. It's a lot, as I mentioned in my first few calls, It's a lot of little things that are basic that weren't being done at the right level, and we're beginning to take them up to the right level. We are not done. There's a lot more work ahead, but the good news is that we're seeing early results and early returns on it. Good. That's encouraging. Thank you.

Our next question comes from the line of Brian Version from Cohen. Please go ahead.

Thanks. This is Zach Aisman on for Brian. Maybe just picking up on that last point, Raul, the early self-help focus areas that you've put into play here. Can you maybe just update us on some of the nearer term initiatives that the company has prioritized and where have you seen the most progression to date and where do you continue to see more room for improvement?

Well, room for improvement. everywhere. We're nowhere near getting through the punch list of kind of operational, I won't even call it excellence, I'd call it getting to a level of operational discipline and execution that's commensurate with a good company. And so it's a lot of small initiatives, but with the follow-up and the accountability that just wasn't there in the past. And it's here now, both with our existing team that was here, plus the new teammates that we've brought in. But it really is balanced. It's existing delivery, existing global delivery networks and locations where we are servicing existing clients, where we're investing to bring in new talent. The mix of talent, we talked a little bit about having our obviously technology talent, which is very appreciated, but also having a better fit or a better combination with industry knowledge. We have really deep industry expertise in various areas and our consulting and engineering group is continuing to build up those capabilities. And then frankly, you know, just step back a second. I talked a lot about storytelling on the first few calls and marketing. We've got a world-class head of marketing that we recruited who has been here a couple of months, but having a huge impact. So it really is across the board, taking it up a level in terms of just operational execution. And again, early results are good, but there's still a long way to go across all those areas.

Got it. And on that consulting and engineering piece within gbs um what can you say about what you're seeing more recently in terms of stabilization or is there still some further deterioration at play here and then within that any noteworthy vertical or geo call outs in either direction just kind of curious what would give clients the confidence to begin releasing spend that has been delayed and deferred in that area within services yeah look i think it's it's it's

differs vertical by vertical, industry group by industry group. For us, from a business execution, our ability to, as you said, self-help and get better with everything that we've got in front of us is going to have a bigger impact than the overall environment. The overall environment obviously affects us all, but we have so much upside based on the relentless focus on getting better at execution and all aspects of execution. That is a much bigger factor by multiples than the spend environment. I think the spend environment, again, from my checking in with customers and hearing other companies and their comments and talking to other CEOs, I think it's as you've heard, right? It's tepid. But we do have some early signs that some of our areas where we have, again, invested in are beginning to show uptick above and beyond where the market is. Let me turn it over.

Yeah, Zach, so there's a couple of green shoots. We're undergoing a pretty significant operating model enhancement in our CES business. And as Raul described in his opening remarks, we're focused on establishing practices and industry verticals. So we've invested in resources in CES to help drive this change in the marketplace. And that's the primary reason the margins declined a little bit year to year in the first quarter for GBS. But as we progress and organize around these verticals, we're shifting from custom applications, which is two-thirds of that business, to enterprise applications. in those specific industry verticals. And so in those new practice areas, we're beginning to see green shoots in terms of pipeline growth and in terms of revenue growth in the first quarter in certain areas like data and AI and SAP and other enterprise applications that Howard's team is focusing on. So it's early days, but we are seeing benefits starting to accrue. Thanks for all the color.

Our next question comes from the line of Jamie Friedman from Suscona. Please go ahead.

Hi. I was hoping to get some perspective specifically on the GIS margin. 210 basis points year over year and um i'm wondering raul how you're prioritizing margin expansion you know full stop relative to revenue growth or relative to anything is that the north star of this and do you have any perspective on and some of your competitors disclose this the margin on renewal or on new signings? How much of the margin expansion is here due to leaving contracts that are losing money? Any inputs that you can unpack on the GIS margin would be helpful.

Sure. Look, it is holistic. There isn't one magic lever that you can pull on this front. It is, first of all, doing an analysis for your existing install base and your renewals, where you're at, at the gross and net level. Are the utilization numbers correct? Is the labor mix correct? And then looking at other third-party costs like software pass-throughs, et cetera. But then it's being smart about how you're pricing both the renewal and how you're pricing net new work. to factor your offering, your value add, et cetera. So it's not one lever that I can point to. I think by each business unit, and Rob will give a little bit more color commentary, they have taken a bottoms-up approach to looking at their business, looking at their customers, looking at their profitability, looking at their mix of talent. And by deal, by customer approach, by net new opportunity, they're making smart business decisions and pricing things and then competing effectively to be able to show the differentiated value that we bring to the table. So it is holistic from not just numeric and spreadsheet, but also, you know, are we telling the story correctly so that we can get the value that we're actually delivering? And again, early returns are that it's beginning to get better across the board in the complete life cycle.

Yeah. And so, Jamie, it's Rob. I'll just add that the team has done a very nice job of driving automation into the accounts. So they're becoming more labor efficient, if you will. And that is a sustainable change. I think we'll continue to see the driven down real estate costs, networking costs. So very good job on cost management. On your point on are the margins getting any better in new deals? I have seen an improvement in signed margins, but I will say the bulk of that, the important thing is delivering to those margins. So, a maniacal focus on executing the automation plays that we have on, we've already started enabling. focus on driving down the fixed cost structure is paramount and delivering with quality and not incurring SLA penalties. I have to say the team is at an all-time low in terms of delivery SLA penalties, which means they're meeting customer commitments at an amazingly high rate. So they're delivering with quality, improving costs, driving automation, all of the above. led to the two points in the first quarter, so the trend is positive.

And for my follow-up, Rob, sorry if I missed it, but are you guiding margins at a segment level for the year, or at least if you could share a trajectory, that would be helpful.

No, we haven't guided margins at a segment level, but Yeah, I think we'll see stability and margins in both GBS and GIS.

Okay, I'll drop back. Thank you.

Thank you.

Our next question comes from Jason Kupferberg from Bank of America. Please go ahead.

Thank you, guys. I just wanted to come back on the book, Bill. I know you talked about the soft discretionary spending environment, and I think it's good to see you're being more collective on some of the large deals that are out there. But can you give us a sense of how you're developing through the fiscal year? And we know it can be lumpy in a given quarter, but .

Yeah, you cut out a little bit, but I think the question is on color commentary on book to bill.

Yeah, so Jay, just let me...

Yeah, sorry, just forward-looking on book-to-bill, how you're thinking about it. Thanks.

Yeah, so the book, let me just take that in two parts, cover GBS and then GIS. In GBS, our book-to-bill in the first quarter was down low single digits, low to mid single digits, and that's really a reflection of the CES market. Right, and the book to bill of the trailing 12 months is consistent. We had all of that factored into our revenue forecast, so that was in line with expectation and our outlooks. And as Merle mentioned earlier, our pipelines are improving and our conversion rates are stable. So I would expect to see as it really in that business and CES, it will really depend on the marketplace. So we're not counting on an extraordinary, higher conversion rates. We're not counting on an outsized improvement in bookings. We're just going to, we have stability, we're counting on stability, and the pipeline supports that in GBS. In GIS, you know, GIS has larger deals in both modern workplace and ITO. And there we had a more significant increase near-to-year decline. It was around 30% in larger deals that occur typically in those business units. There again, the pipelines are improving, so that is very encouraging. The deals are lumpy in nature, so it's hard to predict with certainty within a quarter what the bookings will be. I will say, though, based on the pipeline, Based on the named list of opportunities we have, we do expect bookings improvements through the rest of the year.

Yeah. And just to reiterate, it really does start with the quality of the pipeline for net new business and the quality of the renewal pursuit. And in both cases, I've been involved in multiple, you know, very, very large pursuits where the teams are really operating again at a new level. And so I'm encouraged that all those factors will lead to, you know, over a 12-month period, a very, very solid book-to-bill number. As you know, in my mind, there's book-to-bill that burns in the next 12 months and book-to-bill that burns beyond that. And I think that's a distinction that I've gotten better at. But I'm confident that, you know, the pipeline, our existing customers will lead to a good full year on that.

Okay, now that's good color. And then I wanted to just come back on the new go-to-market strategy and the operating model. I mean, what's your general sense, Raul, of how long you think it'll take to fully implement that across the organization?

Look, I think I mentioned earlier that it's a full-year journey because you're putting in new processes, you're making sure those processes are followed, you're taking any sort of action if they're not being followed. But in many cases, You've got to have a couple of quarters worth of execution to get it, you know, kind of fully right, you know, at least at an initial stage. So I expect to see continued improvement across all these metrics for all the businesses quarter over quarter. Again, it's not one lever that is going to give you a stair step. It's steady progress across all aspects. that they'll continue to deliver the results that, you know, we are beginning to see today.

All right. Good stuff. Thank you.

Our next question comes from the line of Jonathan Lee from Duganheim. Please go ahead.

Great. Thanks for taking our questions. You know, it's tremendous to hear the push toward a more effective sales team. Are there any signs of or early signs of success from clients there, you know, given some of the changes you've made to the business so far?

Yeah, I think the number of new logos that have won and with these, you've got to get permission to talk about them. So hopefully we get more permission to talk about them in more detail in the next call. I think the early signs are, at least for me in looking at the business in detail, a lot more new logo wins than what we had traditionally. A lot better positioning on the resale, a lot better planning on the, not resale, on the renewal, a lot better planning, you know, many, many quarters out on renewal, making sure that we're going into the renewal period and, you know, the strongest possible fashion. And then a lot of learnings. We're, you know, we're looking at, you know, deals that we lose and deals that we win and why. And I think for me, it's been, you know, really encouraging because, On the ones that I've gone deep on that we've lost, it's been a lot of errors that we committed that we can fix. So it wasn't that we didn't have the talent. It wasn't that we didn't have the credentials. It was some other part of the sales process and capture. And it's been great to go back and look at the wins and losses to really fine tune how we can continue to get better on it. So I'm very encouraged.

appreciate your insight there. As a follow-up, you know, it's good to see the project discipline you're showing. How would you characterize the current pricing environment across both GIS and GBS, and how has that evolved relative to earlier this year?

So, it's Rob Johnson. I mean, from my perspective and the data we have, the pricing has been stable. So, I haven't seen any notable changes up or down in the pricing environment. So I would just characterize it as stable.

Thanks for the detail there.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Rod Bourgeois from Deep Dive Activity. Please go ahead.

Hey, guys. Hey, I want to first ask about investment plans. DXC has leaned into share buybacks over the past couple years and reduced the share count. You're also working to improve free cash flow. So I want to ask, are you feeling that you currently have sufficient capacity to invest to be competitive in your key markets while also doing the buybacks and the free cash flow improvement? So essentially, do you have room to invest And how much and where are you making investments in your future growth? Thanks.

So one of the themes that I talked about early on was that as I came in and off the board and got deep, there was a lot more to do on integration, deduplication of back office functions, deduplication of legal entities, etc., So we are going on a very thorough and consistent plan to just operate better in a more streamlined way, taking a look at things that weren't looked at before. That's providing us the ability to reinvest some of that back into the business, back into talent, back into training, back into differentiation at an industry level. And then back into innovation, innovation around generative AI, innovation around helping our customers get their data ready to begin to use generative AI. I think there's obviously been a lot of talk and a lot of hype around that, which is correct. But I think one of the things that hasn't really been discussed is all of the process that currently is in place to do what companies do. the data and the cleanup of the data before you can actually begin to apply some of these generative AI tools, all that is going to fuel business for companies like ours and others in the industry. So we're very well positioned to capture that. And, you know, as you know, we've got a mix of business with our customers, many customers, we help run their operations. So we're very well positioned to look at their internal data and be a great partner and a great leader for them in the gen AI space. Um, but I think that across the board, uh, with regards to your, your question, uh, on, on, on go to market, do you want to make some comments?

Yeah, Rod. So we, with, with the geographic market organization that we're establishing, we, we are investing in the markets and, um, As Raul mentioned, now with GenAI, we're investing in the CES practices that Howard is standing up. So those are two areas in particular that we're investing in. And our cash generation is very stable. Our balance sheet is strong. So we have ample flexibility to invest as we see fit in the business.

Okay, great. And it's encouraging on the bookings outlook. It sounds like the operating model makes sense that it takes a while to get the traction, but it's encouraging in the outlook for the second half. My question on the operating model is really a clarification one. Last year the prior leadership was pivoting to an operating model that it called offering-led operating model. And this year you've been emphasizing this geography-oriented sales model. So I just wanted to clarify, maybe give us a little more color on the geography oriented sales model and how it's different. And I assume how you feel like it's better than the operating model that was being pursued last year. Can you just juxtapose the current operating model with the prior one that was being pursued? Thanks.

Yeah, I think at a macro level, at a theme level, it's tighter and better coordination and collaboration. You've got the resources that are located in a geography and you've got offerings and you've got other technical skills that may span across a company and can be leveraged across the company and across the globe. What I would say is a better coordination of the two. I don't think it's one or the other. It is the fact that we've got talent in different parts of the world. we have better tools now to manage that talent, to find that talent, to find the availability of, of that talent as they come off projects and they're available to roll onto new projects. So it's, I would call it closer collaboration between the offerings and the geographies as kind of like what's different and why it's having a better impact now than, than before.

Yeah. And Rod, just to supplement that, you know, the sales, is local, right? The relationships are local. And so that's best managed in the market. So that is one fundamental shift here is having the market presence that was missing before. And then on the flip side of that, it's invest in developing offerings once, develop global pools of skills, So, you know, so development, solutioning, delivery is a business unit, core competency, and sales is local. So that, in a nutshell, is what we're trying to accomplish with the new model.

Got it. Thank you.

Welcome. Our next question comes from Darren Peller from Wolf Research. Please go ahead.

Guys, thanks. Just in terms of developing expertise and industry verticals for the consulting and engineering businesses, just help us understand where there's still room to improve and just what areas do you think you need to invest in further around that?

You know, tightening up solutions within an industry where there's some level of replicability, and that could be replicable frameworks in terms of how we walk the customer through getting the right solution defined. and then replicable code bases in terms of how we build once but use often and take that IP with us and continue to invest in it on an industry-wide basis. So I think from, you know, what's left ahead of us in terms of improvement, I'd say that we're, you know, we've got that mix today. that that mix can be stronger and have a much bigger impact. The other area that I touched on in previous calls is internal collaboration and internal communication. We have a lot of upside in being better internally collaborating, sharing case studies, sharing technical solutions, taking things that are truly innovative that are being done all around the world, and exposing them, putting a spotlight on them, and making sure that everyone's aware of them. Every time that I go into a customer, I obviously know what we're doing for that customer. And I always take the opportunity to say, and did you know that we also do this? And so far, 100% of the time, they've come back and they've said, no, I didn't know that you also do that. Can you send somebody in to help me figure out if you're a partner for us there? So that internal collaboration and that internal cross-selling, there's a lot of upside there that we are just beginning to scratch the surface on. And again, when you think about all this stuff, it just goes back to basic execution at a different level. So I'm excited about the runway that we've got there. And I'm excited about, again, the install base and the ability to be able to tag in different parts of our business into great accounts.

Can I just one quick follow up is just to make sure we're understanding the booking dynamics. And I understand you talked about macro volatility in GBS and timing, I'm sorry, and timing on GIS. But I guess the shift from what was almost 100% bookings to book to bill last quarter in GBS down to like, I think it was 0.8 or so, 0.83. It just seems like a quick move. And so I'm curious if there's anything substantial you're seeing in one particular category or some confidence you can really work on that getting a little bit better beyond just macro. Anything you can do that's in your control. Thanks, guys.

Yeah, it goes back to quality of the pipeline. As the new team has come in, you know, scorecard of existing bids and wins and losses being better. So I think it's both the funnel, right, how big and how qualified and how good those opportunities are. Our ability to address them in a more competitive way both clarity of the technical solution as well as pricing. And, you know, as I said, I've been working on multiple deals that are very, very, very big and the team has competed really well. And, you know, you can't talk about them until they're signed, but I'm very encouraged that starting with the funnel and then starting with better execution of opportunities there in the funnel, that that number will on a full year basis be in a good place. And don't forget, like some of these deals in parts of our business can be five year deals, right? So it's a little, the book to bill isn't exactly a, because it can be multi-year like that and because it can be so big, The clarity on the next 12 months really is, you know, you need more than one quarter to really look at it. So that's why I'm confident that we're in a good place there.

Yeah, I'm Darren. It's Roger. And I might recall Len Rose prepared remarks. He did mention a good part of the pipeline expansion was due to inflows in the CES business. So it's in the right direction from an opportunity standpoint. Understood.

That makes sense, guys. Thank you. Thank you.

All right, and at this time, we have no more questions in the queue, so I'll turn it back over to Roger Sachs and the team.

Great. Thank you, everybody, for joining us today, and we look forward to speaking with you again next quarter. That concludes today's call. Have a pleasant day.