Company Announcements

DXC Technology Reports Second Quarter Fiscal Year 2023 Results

  • Revenues of $3.57 billion for Q2 FY23, down 11.4% as compared to prior year period, and down 1.5% on an organic basis
  • Diluted Earnings Per Share was $0.12 and Non-GAAP Diluted Earnings Per Share was $0.75 in Q2 FY23
  • Q2 FY23 operating cash flow of $212 million, less capital expenditures of $195 million, results in $17 million of free cash flow
  • Trailing twelve-month book-to-bill ratio of 1.04x and book-to-bill of 0.83x in the quarter

ASHBURN, Va.--(BUSINESS WIRE)--Nov. 3, 2022-- DXC Technology (NYSE: DXC) today reported results for the second quarter of fiscal year 2023.

Mike Salvino, DXC Chairman, President and Chief Executive Officer commented: "I am pleased with our second quarter results where we delivered organic revenue, margin, and EPS at the top end of our guidance range. This is the kind of strong performance that we are accustomed to, as our revenue performance is one of the best results we have delivered, and our margins are clearly benefiting from our cost optimization program. All of this gives us confidence that we have built a quality company that is well positioned to achieve our short-term and long-term goals."

Financial Highlights(1)

 

Q2 FY23

 

Q2 FY22

Revenue

 

$

3,566

 

 

$

4,027

 

YoY Revenue Growth

 

 

(11.4

)%

 

 

(11.6

)%

YoY Organic Revenue Growth(2)

 

 

(1.5

)%

 

 

(2.4

)%

 

 

 

 

 

Net Income/(Loss)

 

$

28

 

 

$

(187

)

Net Income as a % of Sales

 

 

0.8

%

 

 

(4.6

)%

 

 

 

 

 

EBIT(2)

 

$

70

 

 

$

(203

)

EBIT Margin % (2)

 

 

2.0

%

 

 

(5.0

)%

 

 

 

 

 

Adjusted EBIT(2)

 

$

269

 

 

$

346

 

Adjusted EBIT Margin % (2)

 

 

7.5

%

 

 

8.6

%

 

 

 

 

 

Earnings/(Loss) Per Share (Diluted)

 

$

0.12

 

 

$

(0.74

)

Non-GAAP EPS (Diluted)(2)

 

$

0.75

 

 

$

0.90

 

 

 

 

 

 

Book-to-Bill (TTM)

 

1.04x

 

1.06x

Book-to-Bill

 

0.83x

 

0.91x

(1) In millions, except per-share amounts and numbers presented as percentages and ratios

(2) Reconciliation of GAAP to Non-GAAP measures provided in Non-GAAP Results.

Financial Highlights - Second Quarter of Fiscal Year 2023

Revenue was $3.57 billion for the second quarter of fiscal year 2023, down 11.4% as compared to prior year period, and down 1.5% on an organic basis. Second quarter revenues came in within our guidance range.

Net income was $28 million, or 0.8% of sales for the second quarter of fiscal year 2023, compared to $(187) million, or (4.6)% of sales, in the prior year quarter. EBIT was $70 million or 2.0% of sales. Net income and EBIT in the quarter included the following items: amortization of acquired intangible assets of $101 million, restructuring costs of $53 million, loss on disposition of $32 million, a settlement charge of $8 million, a mark-to-market pension charge of $1 million, and transaction, separation, and integration costs of $4 million. Excluding these items, Adjusted EBIT margin was 7.5% in the second quarter, a reduction of 110 bps as compared to the prior year quarter.

Diluted earnings per share was $0.12 and Non-GAAP diluted earnings per share was $0.75 for the second quarter of fiscal year 2023. Compared to the prior year quarter, non-GAAP diluted earnings per share was adversely impacted by unfavorable currency fluctuations, lower pension income, and higher than expected tax expense, partially offset by lower interest expenses and a lower share count.

On a trailing twelve months basis, the company delivered a book to bill of 1.04x.

Financial Information by Segment

Global Business Services ("GBS")(1)

 

Q2 FY23

 

Q2 FY22

Revenue

 

$

1,713

 

$

1,873

YoY Revenue Growth

 

 

(8.5)%

 

 

(16.5)%

YoY Organic Revenue Growth(2)

 

 

3.4%

 

 

3.4%

 

 

 

 

 

Segment Profit

 

$

218

 

$

298

Segment Profit Margin

 

 

12.7%

 

 

15.9%

 

 

 

 

 

Book-to-Bill (TTM)

 

1.18x

 

1.19x

Book-to-Bill

 

0.96x

 

0.92x

(1) In millions

(2) Reconciliation of GAAP to Non-GAAP measures provided in Non-GAAP Results.

GBS segment revenue was $1,713 million in the second quarter of fiscal year 2023, down 8.5% compared to the prior year period and up 3.4% on an organic basis. GBS performance was driven by strong growth in the Analytics & Engineering business, where revenue increased 14.0% on an organic basis. GBS segment profit was $218 million and segment profit margin was 12.7%, down 320 bps compared to prior year period, due mainly to investments in our workforce and the costs related to the exit of our business in Russia. GBS bookings for the quarter were $1.7 billion for a book-to-bill of 0.96x, and 1.18x on a trailing twelve months basis.

Global Infrastructure Services ("GIS")(1)

 

Q2 FY23

 

Q2 FY22

Revenue

 

$

1,853

 

$

2,154

YoY Revenue Growth

 

 

(14.0)%

 

 

(6.8)%

YoY Organic Revenue Growth(2)

 

 

(5.8)%

 

 

(8.0)%

 

 

 

 

 

Segment Profit

 

$

114

 

$

118

Segment Profit Margin

 

 

6.2%

 

 

5.5%

 

 

 

 

 

Book-to-Bill (TTM)

 

0.91x

 

0.95x

Book-to-Bill

 

0.71x

 

0.91x

(1) In millions

(2) Reconciliation of GAAP to Non-GAAP measures provided in Non-GAAP Results.

GIS segment revenue was $1,853 million in the second quarter of fiscal year 2023, down 14.0% compared to the prior year period, and down 5.8% on an organic basis. GIS segment organic revenue performance improved slightly, due to a lower level of declines in Cloud Infrastructure & ITO revenues, which declined by 0.9% on an organic basis. GIS segment profit was $114 million with a segment profit margin of 6.2%, a 70 bps margin expansion as compared to second quarter of fiscal year 2022. GIS bookings were $1.3 billion in the quarter for a book-to-bill of 0.71x, and 0.91x on a trailing twelve months basis.

Offering Highlights

The results for our six offerings are as follows:

Offerings Revenues

 

Q2 FY23

 

Q1 FY23

 

Q4 FY22

 

Q3 FY22

 

Q2 FY22

Analytics and Engineering

 

$

524

 

$

503

 

$

529

 

$

506

 

$

490

Applications

 

 

825

 

 

882

 

 

925

 

 

988

 

 

915

Insurance Software & BPS

 

 

363

 

 

368

 

 

385

 

 

383

 

 

384

Security

 

 

108

 

 

105

 

 

120

 

 

116

 

 

133

Cloud Infrastructure & ITO

 

 

1,309

 

 

1,395

 

 

1,479

 

 

1,460

 

 

1,432

Modern Workplace

 

 

436

 

 

448

 

 

507

 

 

555

 

 

575

Subtotal

 

 

3,565

 

 

3,701

 

 

3,945

 

 

4,008

 

 

3,929

M&A and Divestitures

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

1

 

 

6

 

 

63

 

 

81

 

 

98

Total Revenues

 

$

3,566

 

$

3,707

 

$

4,008

 

$

4,089

 

$

4,027

Cash Flow

Cash Flow(1)

 

Q2 FY23

 

Q2 FY22

Cash Flow from Operations

 

$

212

 

 

$

563

 

Less Capital Expenditures:

 

 

 

 

Purchase of property and equipment

 

 

(78

)

 

 

(67

)

Transition and transformation contract costs

 

 

(57

)

 

 

(52

)

Software purchased or developed

 

 

(60

)

 

 

(40

)

Free Cash Flow

 

$

17

 

 

$

404

 

(1)In millions

Cash flow from operations was $212 million in the second quarter of fiscal year 2023, as compared to $563 million in the second quarter of fiscal year 2022, and capital expenditures were $195 million in the second quarter of fiscal year 2023, as compared to $159 million in the second quarter of fiscal year 2022. Free cash flow (cash flow from operations, less capital expenditures) was $17 million in the second quarter of fiscal year 2023, as compared to $404 million in the second quarter of fiscal year 2022. Free cash flow in the second was impacted by lower deposits at our German Banks of approximately $100 million as well as the timing of certain cash receipts and disbursements.

Guidance

The Company's guidance for the third quarter and full fiscal year 2023 is as follows:

Key Metrics(1)

 

Q3 FY23 Guidance

 

FY23 Guidance

 

Lower End

Higher End

Prior Year Actuals

 

Lower End

Higher End

Prior Year Actuals

Organic Revenue Growth %

 

(2.5)%

(1.5)%

(1.4)%

 

(2.0)%

(1.0)%

(2.6)%

Adjusted EBIT Margin

 

8.0%

8.5%

8.7%

 

8.0%

8.5%

8.5%

Non-GAAP Diluted EPS

 

$0.80

$0.85

$0.92

 

$3.45

$3.75

$3.50

Free Cash Flow

 

 

$550

 

~$700

$743

Revenue

 

 

 

 

 

 

Revenue

 

$3,550

$3,580

$4,089

 

$14,400

$14,540

$16,265

Acquisition & Divestitures Impact on Revenues

 

(2.4)%

(2.2)%

 

(2.3)%

(6.5)%

Foreign Exchange Impact on Revenues

 

(8.2)%

(1.0)%

 

(7.3)%

0.8%

Others

 

 

 

 

 

 

Pension Income Benefit*

 

~$45

$69

 

~$180

$298

Net Interest Expense

 

~$25

$23

 

~$85

$139

Non-GAAP Tax Rate

 

~25%

28.0%

 

~25%

26.6%

Weighted Average Diluted Shares Outstanding

 

230

233

255

 

225

228

255

Restructuring & TSI Expense

 

 

 

 

$300

$344

Capital Lease / Asset Financing payments

 

 

 

 

~$500

$990

Foreign Exchange Assumptions

 

Current Estimate

Prior Year Actuals

 

Current Estimate

Prior Year Actuals

$/Euro exchange rate

 

$0.99

$1.14

 

$1.01

$1.16

$/GBP exchange rate

 

$1.13

$1.35

 

$1.17

$1.37

$/AUD exchange rate

 

$0.64

$0.73

 

$0.67

$0.74

(1) In millions except for ratios, rates and per share numbers

*Pension benefit is split between Cost Of Sales (COS) & Other Income:
Fiscal year 2023: $75 million service cost in COS, $255 million pension benefit in Other income
Fiscal year 2022: $88 million service cost in COS, $386 million pension benefit in Other income

The Company reaffirmed its longer-term guidance:

  • Positive organic revenue growth of 1% to 3% for fiscal year 2024
  • Adjusted EBIT margin of 10% to 11% in fiscal year 2024
  • Non-GAAP diluted Earnings Per Share of $5.00 to $5.25 in fiscal year 2024
  • Free cash flow of approximately $1.5 billion in fiscal year 2024
  • Restructuring and TSI of approximately $100 million in fiscal year 2024

DXC does not provide a reconciliation of Non-GAAP measures that it discusses as part of its guidance because certain significant information required for such reconciliation is not available without unreasonable efforts or at all, including, most notably, the impact of significant non-recurring items. Without this information, DXC does not believe that a reconciliation would be meaningful.

Earnings Conference Call and Webcast

DXC Technology senior management will host a conference call and webcast to discuss these results on November 3, 2022, at 5:00 p.m. EDT. The dial-in number for domestic callers is +1 (888) 330-2455. Callers who reside outside of the United States should dial +1 (240) 789-2717. The passcode for all participants is 4164760. The webcast audio and any presentation slides will be available on DXC Technology’s Investor Relations website.

A replay of the conference call will be available from approximately two hours after the conclusion of the call until November 10, 2022. The phone number for the replay is +1 (800) 770-2030 or +1 (647) 362-9199. The replay passcode is 4164760.

About DXC Technology

DXC Technology (NYSE: DXC) helps global companies run their mission-critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private, and hybrid clouds. The world’s largest companies and public sector organizations trust DXC to deploy services to drive new levels of performance, competitiveness, and customer experience across their IT estates. Learn more about how we deliver excellence for our customers and colleagues at DXC.com.

Forward-Looking Statements

All statements in this press release that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” Forward-looking statements often include words such as “anticipates,” “believes,” “estimates,” “expects,” “forecast,” “goal,” “intends,” “objective,” “plans,” “projects,” “strategy,” “target,” and “will” and words and terms of similar substance in discussions of future operating or financial performance. Forward-looking statements include, among other things, statements with respect to our future financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, divestitures, competitive position, growth opportunities, share repurchases, dividend payments, plans and objectives of management and other matters. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. Furthermore, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the ongoing coronavirus disease 2019 (“COVID-19”) pandemic and the impact of varying private and governmental responses that affect our customers, employees, vendors and the economies and communities where they operate. Important factors that could cause actual results to differ materially from those described in forward-looking statements include, but are not limited to: the uncertainty of the magnitude, duration, geographic reach of the COVID-19 crisis, its impact on the global economy and the impact of current and potential travel restrictions, stay-at-home orders, vaccine mandates and economic restrictions implemented to address the crisis; our inability to succeed in our strategic objectives; the risk of liability or damage to our reputation resulting from security incidents, including breaches, and cyber-attacks to our systems and networks and those of our business partners, insider threats, disclosure of sensitive data or failure to comply with data protection laws and regulations in a rapidly evolving regulatory environment, in each case, whether deliberate or accidental; our inability to develop and expand our service offerings to address emerging business demands and technological trends, including our inability to sell differentiated services amongst our offerings; our inability to compete in certain markets and expand our capacity in certain offshore locations and risks associated with such offshore locations such as Russia’s recent invasion of Ukraine and our exit from the Russian market; failure to maintain our credit rating and ability to manage working capital, refinance and raise additional capital for future needs; our indebtedness; the competitive pressures faced by our business; our inability to accurately estimate the cost of services, and the completion timeline of contracts; execution risks by us and our suppliers, customers, and partners; the risks associated with natural disasters; our inability to retain and hire key personnel and maintain relationships with key partners; the risks associated with prolonged periods of inflation or current macroeconomic conditions, including the current decline in economic growth rates in the United States and in other countries, including the possibility of reduced spending by customers in the areas we serve, the success of our cost-takeout efforts, continuing unfavorable foreign exchange rate movements, and our ability to close new deals in the event of an economic slowdown; the risks associated with our international operations, such as risks related to currency exchange rates and Brexit; our inability to comply with governmental regulations or the adoption of new laws or regulations, including social and environmental responsibility regulations, policies and provisions; our inability to achieve the expected benefits of our restructuring plans; inadvertent infringement of third-party intellectual property rights or our inability to protect our own intellectual property assets; our inability to procure third-party licenses required for the operation of our products and service offerings; risks associated with disruption of our supply chain; our inability to maintain effective internal control over financial reporting; potential losses due to asset impairment charges; our inability to pay dividends or repurchase shares of our common stock; pending investigations, claims and disputes and any adverse impact on our profitability and liquidity; disruptions in the credit markets, including disruptions that reduce our customers’ access to credit and increase the costs to our customers of obtaining credit; our failure to bid on projects effectively; financial difficulties of our customers and our inability to collect receivables; our inability to maintain and grow our customer relationships over time and to comply with customer contracts or government contracting regulations or requirements; our inability to succeed in our strategic transactions; changes in tax laws and any adverse impact on our effective tax rate; risks following the merger of Computer Sciences Corporation and Enterprise Services business of Hewlett Packard Enterprise Company's businesses, including anticipated tax treatment, unforeseen liabilities and future capital expenditures; and risks following the spin-off of our former U.S. Public Sector business and its related mergers with Vencore Holding Corp. and KeyPoint Government Solutions in June 2018 to form Perspecta Inc., which was acquired by Peraton in May 2021. For a written description of these factors, see the section titled “Risk Factors” in DXC’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022, and any updating information in subsequent SEC filings, including DXC’s upcoming Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022.

No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events except as required by law.

About Non-GAAP Measures

In an effort to provide investors with supplemental financial information, in addition to the preliminary and unaudited financial information presented on a GAAP basis, we have also disclosed in this press release preliminary Non-GAAP information including: earnings before interest and taxes ("EBIT"), EBIT margin, Adjusted EBIT, Adjusted EBIT margin, Non-GAAP diluted EPS, organic revenues, organic revenue growth, and free cash flow.

We believe EBIT, EBIT margin, Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS provide investors with useful supplemental information about our operating performance after excluding certain categories of expenses. Free cash flow represents cash flow from operations, less capital expenditures.

One category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, incremental amortization of intangible assets acquired through business combinations, may result in a significant difference in period over period amortization expense on a GAAP basis. We exclude amortization of certain acquired intangible assets as these non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Although DXC management excludes amortization of acquired intangible assets primarily customer-related intangible assets, from its Non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and support revenue generation. Any future transactions may result in a change to the acquired intangible asset balances and associated amortization expense.

Another category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, impairment losses, may result in a significant difference in period over period expense on a GAAP basis. We exclude impairment losses as these non-cash amounts, reflect generally an acceleration of what would be multiple periods of expense and do not expect to occur frequently. Further assets such as goodwill may be significantly impacted by market conditions outside of management’s control.

We believe organic revenue growth provides investors with useful supplemental information about our revenues after excluding the effect of currency exchange rate fluctuations for currencies other than U.S. dollars and the effects of acquisitions and divestitures in the periods presented. See below for a description of the methodology we use to present organic revenues.

Selected references are made to revenue growth on an “organic basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates and without the impacts of acquisitions and divestitures from “organic basis” financial results, thereby providing comparisons of operating performance from period to period of the business that we have owned during all periods presented. Organic revenue growth is calculated by dividing the year-over-year change in GAAP revenues attributed to organic growth by the GAAP revenues reported in the prior comparable period. This approach is used for all results where the functional currency is not the U.S. dollar.

There are limitations to the use of the Non-GAAP financial measures presented in this press release. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our Non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate Non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies.

 

Condensed Consolidated Statements of Operations

(preliminary and unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

(in millions, except per-share amounts)

 

September 30, 2022

 

September 30, 2021

 

September 30, 2022

 

September 30, 2021

 

 

 

 

 

 

 

 

 

Revenues

 

$

3,566

 

 

$

4,027

 

 

$

7,273

 

 

$

8,168

 

 

 

 

 

 

 

 

 

 

Costs of services

 

 

2,775

 

 

 

3,088

 

 

 

5,705

 

 

 

6,343

 

Selling, general and administrative

 

 

324

 

 

 

370

 

 

 

673

 

 

 

753

 

Depreciation and amortization

 

 

380

 

 

 

448

 

 

 

769

 

 

 

870

 

Restructuring costs

 

 

53

 

 

 

145

 

 

 

86

 

 

 

212

 

Interest expense

 

 

44

 

 

 

61

 

 

 

81

 

 

 

123

 

Interest income

 

 

(28

)

 

 

(16

)

 

 

(48

)

 

 

(36

)

Debt extinguishment costs

 

 

 

 

 

281

 

 

 

 

 

 

309

 

Loss (gain) on disposition of businesses

 

 

32

 

 

 

 

 

 

3

 

 

 

(377

)

Other income, net

 

 

(68

)

 

 

(102

)

 

 

(172

)

 

 

(205

)

Total costs and expenses

 

 

3,512

 

 

 

4,275

 

 

 

7,097

 

 

 

7,992

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

54

 

 

 

(248

)

 

 

176

 

 

 

176

 

Income tax expense (benefit)

 

 

26

 

 

 

(61

)

 

 

45

 

 

 

81

 

Net income (loss)

 

 

28

 

 

 

(187

)

 

 

131

 

 

 

95

 

Less: net income attributable to non-controlling interest, net of tax

 

 

1

 

 

 

1

 

 

 

2

 

 

 

5

 

Net income (loss) attributable to DXC common stockholders

 

$

27

 

 

$

(188

)

 

$

129

 

 

$

90

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

 

$

(0.74

)

 

$

0.56

 

 

$

0.35

 

Diluted

 

$

0.12

 

 

$

(0.74

)

 

$

0.55

 

 

$

0.35

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for:

 

 

 

 

 

 

 

 

Basic EPS

 

 

229.96

 

 

 

252.40

 

 

 

231.21

 

 

 

253.53

 

Diluted EPS

 

 

233.17

 

 

 

252.40

 

 

 

234.93

 

 

 

258.90

 

 

 

Selected Condensed Consolidated Balance Sheet Data

(preliminary and unaudited)

 

 

 

As of

(in millions)

 

September 30, 2022

 

March 31, 2022

Assets

 

 

 

 

Cash and cash equivalents

 

$

2,260

 

$

2,672

Receivables, net

 

 

3,467

 

 

3,854

Prepaid expenses

 

 

662

 

 

617

Other current assets

 

 

289

 

 

268

Assets held for sale

 

 

 

 

35

Total current assets

 

 

6,678

 

 

7,446

 

 

 

 

 

Intangible assets, net

 

 

2,884

 

 

3,378

Operating right-of-use assets, net

 

 

927

 

 

1,133

Goodwill

 

 

562

 

 

617

Deferred income taxes, net

 

 

205

 

 

221

Property and equipment, net

 

 

2,039

 

 

2,412

Other assets

 

 

4,403

 

 

4,850

Assets held for sale - non-current

 

 

39

 

 

82

Total Assets

 

$

17,737

 

$

20,139

 

 

 

 

 

Liabilities

 

 

 

 

Short-term debt and current maturities of long-term debt

 

$

834

 

$

900

Accounts payable

 

 

857

 

 

840

Accrued payroll and related costs

 

 

537

 

 

570

Current operating lease liabilities

 

 

318

 

 

388

Accrued expenses and other current liabilities

 

 

2,321

 

 

2,882

Deferred revenue and advance contract payments

 

 

867

 

 

1,053

Income taxes payable

 

 

131

 

 

197

Liabilities related to assets held for sale

 

 

 

 

23

Total current liabilities

 

 

5,865

 

 

6,853

 

 

 

 

 

Long-term debt, net of current maturities

 

 

3,695

 

 

4,065

Non-current deferred revenue

 

 

789

 

 

862

Non-current operating lease liabilities

 

 

667

 

 

815

Non-current income tax liabilities and deferred tax liabilities

 

 

819

 

 

994

Other long-term liabilities

 

 

966

 

 

1,136

Liabilities related to assets held for sale - non-current

 

 

 

 

39

Total Liabilities

 

 

12,801

 

 

14,764

 

 

 

 

 

Total Equity

 

 

4,936

 

 

5,375

 

 

 

 

 

Total Liabilities and Equity

 

$

17,737

 

$

20,139

 

Condensed Consolidated Statements of Cash Flows

(preliminary and unaudited)

 

 

 

Six Months Ended

(in millions)

 

September 30, 2022

 

September 30, 2021

Cash flows from operating activities:

 

 

 

 

Net income

 

$

131

 

 

$

95

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

 

786

 

 

 

879

 

Operating right-of-use expense

 

 

214

 

 

 

254

 

Share-based compensation

 

 

55

 

 

 

51

 

Deferred taxes

 

 

(103

)

 

 

(41

)

Gain on dispositions

 

 

(32

)

 

 

(415

)

Provision for losses on accounts receivable

 

 

 

 

 

(2

)

Unrealized foreign currency exchange loss (gain)

 

 

69

 

 

 

(19

)

Impairment losses and contract write-offs

 

 

21

 

 

 

17

 

Debt extinguishment costs

 

 

 

 

 

309

 

Other non-cash charges, net

 

 

(2

)

 

 

3

 

Changes in assets and liabilities, net of effects of acquisitions and dispositions:

 

 

 

 

(Increase) decrease in assets

 

 

(185

)

 

 

348

 

Decrease in operating lease liability

 

 

(214

)

 

 

(254

)

Decrease in other liabilities

 

 

(365

)

 

 

(691

)

Net cash provided by operating activities

 

 

375

 

 

 

534

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

 

(146

)

 

 

(165

)

Payments for transition and transformation contract costs

 

 

(114

)

 

 

(107

)

Software purchased and developed

 

 

(110

)

 

 

(162

)

Business dispositions

 

 

51

 

 

 

513

 

Proceeds from sale of assets

 

 

109

 

 

 

87

 

Short-term investing

 

 

 

 

 

24

 

Other investing activities, net

 

 

17

 

 

 

9

 

Net cash (used in) provided by investing activities

 

 

(193

)

 

 

199

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings of commercial paper

 

 

710

 

 

 

703

 

Repayments of commercial paper

 

 

(657

)

 

 

(679

)

Borrowings on long-term debt

 

 

 

 

 

19

 

Principal payments on long-term debt

 

 

(1

)

 

 

(2,871

)

Payments on finance leases and borrowings for asset financing

 

 

(274

)

 

 

(671

)

Proceeds from bond issuance

 

 

 

 

 

2,918

 

Proceeds from stock options and other common stock transactions

 

 

1

 

 

 

12

 

Taxes paid related to net share settlements of share-based compensation awards

 

 

(14

)

 

 

(13

)

Payments for debt extinguishment costs

 

 

 

 

 

(344

)

Repurchase of common stock and advance payment for accelerated share repurchase

 

 

(272

)

 

 

(150

)

Other financing activities, net

 

 

(6

)

 

 

13

 

Net cash used in financing activities

 

 

(513

)

 

 

(1,063

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(91

)

 

 

(2

)

Net decrease in cash and cash equivalents including cash classified within current assets held for sale

 

 

(422

)

 

 

(332

)

Cash classified within current assets held for sale

 

 

10

 

 

 

63

 

Net decrease in cash and cash equivalents

 

 

(412

)

 

 

(269

)

Cash and cash equivalents at beginning of year

 

 

2,672

 

 

 

2,968

 

Cash and cash equivalents at end of period

 

$

2,260

 

 

$

2,699

 

Segment Profit

We define segment profit as segment revenues less costs of services, segment selling, general and administrative, depreciation and amortization, and other income (excluding the movement in foreign currency exchange rates on our foreign currency denominated assets and liabilities and the related economic hedges). The Company does not allocate to its segments certain operating expenses managed at the corporate level. These unallocated costs include certain corporate function costs, stock-based compensation expense, pension and other post-retirement benefits (“OPEB”) actuarial and settlement gains and losses, restructuring costs, transaction, separation and integration-related costs, and amortization of acquired intangible assets.

 

 

Three Months Ended

 

Six Months Ended

(in millions)

 

September 30, 2022

 

September 30, 2021

 

September 30, 2022

 

September 30, 2021

GBS profit

 

$

218

 

 

$

298

 

 

$

428

 

 

$

570

 

GIS profit

 

 

114

 

 

 

118

 

 

 

241

 

 

 

249

 

All other loss

 

 

(63

)

 

 

(70

)

 

 

(141

)

 

 

(141

)

Subtotal

 

$

269

 

 

$

346

 

 

$

528

 

 

$

678

 

Interest income

 

 

28

 

 

 

16

 

 

 

48

 

 

 

36

 

Interest expense

 

 

(44

)

 

 

(61

)

 

 

(81

)

 

 

(123

)

Restructuring costs

 

 

(53

)

 

 

(145

)

 

 

(86

)

 

 

(212

)

Transaction, separation and integration-related costs

 

 

(4

)

 

 

(3

)

 

 

(6

)

 

 

(12

)

Amortization of acquired intangible assets

 

 

(101

)

 

 

(110

)

 

 

(205

)

 

 

(219

)

Merger related indemnification

 

 

 

 

 

 

 

 

(10

)

 

 

 

SEC Matter

 

 

(8

)

 

 

 

 

 

(8

)

 

 

 

(Losses) gains on dispositions

 

 

(32

)

 

 

 

 

 

(3

)

 

 

347

 

Impairment losses

 

 

 

 

 

(10

)

 

 

 

 

 

(10

)

Debt extinguishment costs

 

 

 

 

 

(281

)

 

 

 

 

 

(309

)

Pension and OPEB actuarial and settlement losses

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

Income (loss) before income taxes

 

$

54

 

 

$

(248

)

 

$

176

 

 

$

176

 

 

 

 

 

 

 

 

 

 

Segment profit margins

 

 

 

 

 

 

 

 

GBS

 

 

12.7

%

 

 

15.9

%

 

 

12.3

%

 

 

15.2

%

GIS

 

 

6.2

%

 

 

5.5

%

 

 

6.3

%

 

 

5.6

%

Reconciliation of Non-GAAP Financial Measures

Our Non-GAAP adjustments include:

  • Restructuring costs – includes costs, net of reversals, related to workforce and real estate optimization and other similar charges.
  • Transaction, separation and integration-related (“TSI”) costs – includes costs related to integration, planning, financing and advisory fees and other similar charges associated with mergers, acquisitions, strategic investments, joint ventures, and dispositions and other similar transactions.(1)
  • Amortization of acquired intangible assets – includes amortization of intangible assets acquired through business combinations.
  • Pension and OPEB actuarial and settlement gains and losses – pension and OPEB actuarial mark to market adjustments and settlement gains and losses.
  • Merger related indemnification – represents the Company’s current estimate of potential liability to HPE for indemnification following the outcome of the Oracle v. HPE litigation in June 2022; obligation pursuant to ES-CSC merger.(2)
  • SEC Matter - represents the Company’s current estimate of potential liability related to a previously disclosed investigation into its historical determination and disclosure of certain “transaction, separation, and integration-related costs” as non-GAAP adjustments.(3)
  • Gains and losses on dispositions – gains and losses related to dispositions of businesses, strategic assets and interests in less than wholly-owned entities.(4)
  • Impairment losses – impairment losses on assets classified as long-term on the balance sheet.(5)
  • Debt extinguishment costs – costs associated with early retirement, redemption, repayment or repurchase of debt and debt-like items including any breakage, make-whole premium, prepayment penalty or similar costs as well as solicitation and other legal and advisory expenses.(6)
  • Tax adjustments – discrete tax adjustments to impair or recognize certain deferred tax assets, adjustments for changes in tax legislation and the impact of merger and divestitures. Income tax expense of all other (non-discrete) non-GAAP adjustments is based on the difference in the GAAP annual effective tax rate (AETR) and overall non-GAAP provision (consistent with the GAAP methodology).(7)

(1)

TSI-Related costs for both periods presented include fees and other internal and external expenses associated with legal, accounting, consulting, due diligence, investment banking advisory, and other services, as well as financing fees, retention incentives, and resolution of transaction related claims in connection with, or resulting from, exploring or executing potential acquisitions, dispositions and strategic investments, whether or not announced or consummated.

 

The TSI-Related costs for the second quarter and first six months of fiscal 2023 include $4 million and $6 million, respectively, of costs incurred in connection with activities related to acquisitions and divestitures.

 

The TSI-Related costs for the second quarter of fiscal 2022 include $2 million of costs to execute the strategic alternatives; $2 million credit to legal costs for Peraton Arbitration; and $3 million of costs incurred in connection with activities related to other acquisitions and divestitures.

 

The TSI-Related costs for the first six months of fiscal 2022 include $13 million of costs to execute the strategic alternatives; $4 million legal costs and $14 million credit towards Peraton Arbitration settlement, $4 million in expenses related to integration projects resulting from the HPES merger (including costs associated with continuing efforts to separate certain IT systems) and $5 million of costs incurred in connection with activities related to other acquisitions and divestitures.

 

(2)

See Note 19 – “Commitments and Contingencies,” Oracle America, Inc., et al. v. Hewlett Packard Enterprise Company.

 

(3)

See Note 19 – “Commitments and Contingencies,” SEC Matter.

 

(4)

Gains and losses on dispositions for the first six months of fiscal 2023 include a net loss of $3 million on dispositions related to certain insignificant businesses.

 

Gains and losses on dispositions for the first six months of fiscal 2022 include a $341 million gain on sale of the HPS business, gains of $19 million on other dispositions partially offset by $13 million of adjustments relating to the sale of the HHS business.

 

(5)

Impairment losses on dispositions for the second quarter and first six months of fiscal 2022 includes a $10 million impairment charge of capitalized transition and transformation costs.

 

(6)

Debt extinguishment costs were $281 million and $309 million for the second quarter and first six months of fiscal 2022, respectively, for the partial and full redemption of term loans, senior notes, and extinguishment of debt associated with asset financing.

 

(7)

Tax adjustment for the first six months of fiscal 2022 reflects net revaluation of deferred taxes resulting from changes in non-US jurisdiction tax rates.

Non-GAAP Results

A reconciliation of reported results to Non-GAAP results is as follows:

 

 

Three Months Ended September 30, 2022

(in millions, except per-share amounts)

 

As
Reported

 

Restructuring
Costs

 

Transaction,
Separation and
Integration-
Related Costs

 

Amortization
of Acquired
Intangible
Assets

 

SEC Matter

 

Gains and
Losses on
Dispositions

 

Pension and
OPEB
Actuarial and
Settlement
Gains and
Losses

 

Non-GAAP
Results

Income before income taxes

 

$

54

 

 

$

53

 

$

4

 

$

101

 

$

8

 

$

32

 

$

1

 

$

253

 

Income tax expense

 

 

26

 

 

 

10

 

 

1

 

 

18

 

 

1

 

 

22

 

 

 

 

78

 

Net income

 

 

28

 

 

 

43

 

 

3

 

 

83

 

 

7

 

 

10

 

 

1

 

 

175

 

Less: net income attributable to non-controlling interest, net of tax

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Net income attributable to DXC common stockholders

 

$

27

 

 

$

43

 

$

3

 

$

83

 

$

7

 

$

10

 

$

1

 

$

174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

48.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

$

0.12

 

 

$

0.19

 

$

0.01

 

$

0.36

 

$

0.03

 

$

0.04

 

$

0.00

 

$

0.76

 

Diluted EPS

 

$

0.12

 

 

$

0.18

 

$

0.01

 

$

0.36

 

$

0.03

 

$

0.04

 

$

0.00

 

$

0.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

 

229.96

 

 

 

229.96

 

 

229.96

 

 

229.96

 

 

229.96

 

 

229.96

 

 

229.96

 

 

229.96

 

Diluted EPS

 

 

233.17

 

 

 

233.17

 

 

233.17

 

 

233.17

 

 

233.17

 

 

233.17

 

 

233.17

 

 

233.17

 

 

 

 

Six Months Ended September 30, 2022

(in millions, except per-share amounts)

 

As
Reported

 

Restructuring
Costs

 

Transaction,
Separation and
Integration-
Related Costs

 

Amortization
of Acquired
Intangible
Assets

 

Merger
Related
Indemnification

 

SEC
Matter

 

Gains and
Losses on
Dispositions

 

Pension and
OPEB
Actuarial and
Settlement
Gains and
Losses

 

Non-GAAP
Results

Income before income taxes

 

$

176

 

 

$

86

 

$

6

 

$

205

 

$

10

 

$

8

 

$

3

 

 

$

1

 

$

495

 

Income tax expense

 

 

45

 

 

 

18

 

 

1

 

 

42

 

 

2

 

 

1

 

 

31

 

 

 

 

 

140

 

Net income

 

 

131

 

 

 

68

 

 

5

 

 

163

 

 

8

 

 

7

 

 

(28

)

 

 

1

 

 

355

 

Less: net income attributable to non-controlling interest, net of tax

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Net income attributable to DXC common stockholders

 

$

129

 

 

$

68

 

$

5

 

$

163

 

$

8

 

$

7

 

$

(28

)

 

$

1

 

$

353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

25.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

$

0.56

 

 

$

0.29

 

$

0.02

 

$

0.70

 

$

0.03

 

$

0.03

 

$

(0.12

)

 

$

0.00

 

$

1.53

 

Diluted EPS

 

$

0.55

 

 

$

0.29

 

$

0.02

 

$

0.69

 

$

0.03

 

$

0.03

 

$

(0.12

)

 

$

0.00

 

$

1.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

 

231.21

 

 

 

231.21

 

 

231.21

 

 

231.21

 

 

231.21

 

 

231.21

 

 

231.21

 

 

 

231.21

 

 

231.21

 

Diluted EPS

 

 

234.93

 

 

 

234.93

 

 

234.93

 

 

234.93

 

 

234.93

 

 

234.93

 

 

234.93

 

 

 

234.93

 

 

234.93

 

 

 

 

Three Months Ended September 30, 2021

(in millions, except per-share amounts)

 

As
Reported

 

Restructuring
Costs

 

Transaction,
Separation and
Integration-
Related Costs

 

Amortization
of Acquired
Intangible
Assets

 

Impairment
Losses

 

Debt
Extinguishment
Costs

 

Non-GAAP
Results

(Loss) income before income taxes

 

$

(248

)

 

$

145

 

$

3

 

$

110

 

$

10

 

$

281

 

$

301

 

Income tax (benefit) expense

 

 

(61

)

 

 

34

 

 

1

 

 

26

 

 

2

 

 

66

 

 

68

 

Net (loss) income

 

 

(187

)

 

 

111

 

 

2

 

 

84

 

 

8

 

 

215

 

 

233

 

Less: net income attributable to non-controlling interest, net of tax

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Net (loss) income attributable to DXC common stockholders

 

$

(188

)

 

$

111

 

$

2

 

$

84

 

$

8

 

$

215

 

$

232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

24.6

%

 

 

 

 

 

 

 

 

 

 

 

 

22.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

$

(0.74

)

 

$

0.44

 

$

0.01

 

$

0.33

 

$

0.03

 

$

0.85

 

$

0.92

 

Diluted EPS

 

$

(0.74

)

 

$

0.43

 

$

0.01

 

$

0.33

 

$

0.03

 

$

0.84

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

 

252.40

 

 

 

252.40

 

 

252.40

 

 

252.40

 

 

252.40

 

 

252.40

 

 

252.40

 

Diluted EPS

 

 

252.40

 

 

 

257.20

 

 

257.20

 

 

257.20

 

 

257.20

 

 

257.20

 

 

257.20

 

 

 

Six Months Ended September 30, 2021

(in millions, except per-share amounts)

 

As
Reported

 

Restructuring
Costs

 

Transaction,
Separation and
Integration-
Related Costs

 

Amortization
of Acquired
Intangible
Assets

 

Gains and
Losses on
Dispositions

 

Impairment
Losses

 

Debt
Extinguishment
Costs

 

Tax
Adjustment

 

Non-GAAP
Results

Income before income taxes

 

$

176

 

 

$

212

 

$

12

 

$

219

 

$

(347

)

 

$

10

 

$

309

 

$

 

 

$

591

 

Income tax expense

 

 

81

 

 

 

44

 

 

5

 

 

50

 

 

(91

)

 

 

2

 

 

73

 

 

(28

)

 

 

136

 

Net income

 

 

95

 

 

 

168

 

 

7

 

 

169

 

 

(256

)

 

 

8

 

 

236

 

 

28

 

 

 

455

 

Less: net income attributable to non-controlling interest, net of tax

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

Net income attributable to DXC common stockholders

 

$

90

 

 

$

168

 

$

7

 

$

169

 

$

(256

)

 

$

8

 

$

236

 

$

28

 

 

$

450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

46.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

$

0.35

 

 

$

0.66

 

$

0.03

 

$

0.67

 

$

(1.01

)

 

$

0.03

 

$

0.93

 

$

0.11

 

 

$

1.77

 

Diluted EPS

 

$

0.35

 

 

$

0.65

 

$

0.03

 

$

0.65

 

$

(0.99

)

 

$

0.03

 

$

0.91

 

$

0.11

 

 

$

1.74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

 

253.53

 

 

 

253.53

 

 

253.53

 

 

253.53

 

 

253.53

 

 

 

253.53

 

 

253.53

 

 

253.53

 

 

 

253.53

 

Diluted EPS

 

 

258.90

 

 

 

258.90

 

 

258.90

 

 

258.90

 

 

258.90

 

 

 

258.90

 

 

258.90

 

 

258.90

 

 

 

258.90

 

The above tables serve to reconcile the Non-GAAP financial measures to the most directly comparable GAAP measures. Please refer to the “About Non-GAAP Measures” section of the press release for further information on the use of these Non-GAAP measures.

Year-over-Year Organic Revenue Growth

 

 

Three Months Ended

 

 

September 30, 2022

 

September 30, 2021

Total revenue growth

 

(11.4) %

 

(11.6) %

Foreign currency

 

7.4 %

 

(1.4) %

Acquisitions and divestitures

 

2.5 %

 

10.6 %

Organic revenue growth

 

(1.5) %

 

(2.4) %

 

 

 

 

 

GIS revenue growth

 

(14.0) %

 

(6.8) %

Foreign currency

 

7.5 %

 

(1.9) %

Acquisitions and divestitures

 

0.7 %

 

0.7 %

GIS organic revenue growth

 

(5.8) %

 

(8.0) %

 

 

 

 

 

GBS revenue growth

 

(8.5) %

 

(16.5) %

Foreign currency

 

7.4 %

 

(0.9) %

Acquisitions and divestitures

 

4.5 %

 

20.8 %

GBS organic revenue growth

 

3.4 %

 

3.4 %

EBIT and Adjusted EBIT

 

 

Three Months Ended

 

Six Months Ended

(in millions)

 

September 30, 2022

 

September 30, 2021

 

September 30, 2022

 

September 30, 2021

Net income (loss)

 

$

28

 

 

$

(187

)

 

$

131

 

 

$

95

 

Income tax expense (benefit)

 

 

26

 

 

 

(61

)

 

 

45

 

 

 

81

 

Interest income

 

 

(28

)

 

 

(16

)

 

 

(48

)

 

 

(36

)

Interest expense

 

 

44

 

 

 

61

 

 

 

81

 

 

 

123

 

EBIT

 

 

70

 

 

 

(203

)

 

 

209

 

 

 

263

 

Restructuring costs

 

 

53

 

 

 

145

 

 

 

86

 

 

 

212

 

Transaction, separation and integration-related costs

 

 

4

 

 

 

3

 

 

 

6

 

 

 

12

 

Amortization of acquired intangible assets

 

 

101

 

 

 

110

 

 

 

205

 

 

 

219

 

Merger related indemnification

 

 

 

 

 

 

 

 

10

 

 

 

 

SEC Matter

 

 

8

 

 

 

 

 

 

8

 

 

 

 

Losses (gains) on dispositions

 

 

32

 

 

 

 

 

 

3

 

 

 

(347

)

Impairment losses

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Debt extinguishment costs

 

 

 

 

 

281

 

 

 

 

 

 

309

 

Pension and OPEB actuarial and settlement losses

 

 

1

 

 

 

 

 

 

1

 

 

 

 

Adjusted EBIT

 

$

269

 

 

$

346

 

 

$

528

 

 

$

678

 

 

 

 

 

 

 

 

 

 

EBIT margin

 

 

2.0

%

 

 

(5.0

) %

 

 

2.9

%

 

 

3.2

%

Adjusted EBIT margin

 

 

7.5

%

 

 

8.6

%

 

 

7.3

%

 

 

8.3

%

Source: DXC Technology
Category: Investor Relations

John Sweeney, CFA, Head of Marketing and Investor Relations, +1-980-315-3665, john.sweeney@dxc.com
Sean B. Pasternak, Corporate Media Relations, +1-647-975-7326, sean.pasternak@dxc.com

Source: DXC Technology