DXC Technology Co Q2 FY2025 earnings call

• Raul noted a solid quarter with adjusted EBIT margin and non-GAAP EPS exceeding guidance, leading to raising full-year guidance for adjusted EBIT margin and non-GAAP EPS. - New leadership team initiatives include a client relationship training program, sales team performance reviews, and an executive client sponsorship program. - In GBS, refined delivery models, hired a new global delivery leader for Consulting & Engineering Services, built enterprise application capabilities with DXC Fast RISE with SAP, and expanded GenAI offerings. - In GIS, rolled out a new workforce management system, brought in leaders for innovation, streamlined delivery under a single leader, and fully implemented the global shared services model. - Notable GenAI engagements include a virtual service agent for Equitable Holdings and a solution for a global bank to accelerate credit card product time-to-market.

Total revenue was $3.2 billion, declining 5.6% year-to-year organically. GBS, representing 52% of total revenue, was down 1.6% organically. The GBS profit margin increased by 30 basis points to 12.8% due to more efficient resource management. Within GBS, Consulting & Engineering Services declined 3.4% organically, while Insurance and horizontal BPS grew 4.4% organically. GIS, representing 48% of total revenue, declined 9.6% organically. Profit margin expanded almost 2.5 points to 8.2% due to disciplined resource management, optimization of data centers/networks, and lower resale mix. Cloud, ITO and Security revenues within GIS declined 10.1% organically, and Modern Workplace declined 8% organically.

• Total organic revenue expected to decline 5.5% to 4.5% in Q3. - Raised full-year adjusted EBIT margin outlook to 7.0% to 7.5% from 6.5% to 7.0%. - Full-year non-GAAP diluted EPS now anticipated to be between $3 and $3.25 vs prior $2.75 to $3. - Free cash flow for full-year expected to be approximately $550 million, up from prior $450 million. - Q3 adjusted EBIT margin expected in range of 7.0% to 7.5%, non-GAAP diluted EPS $0.75 to $0.80.

• Actual results could differ materially from forward-looking statements due to risks and uncertainties discussed in Annual Report on Form 10-K and other SEC filings. - Market conditions and execution risks related to sales, marketing, and IT investments.

Q: Hi. Good afternoon, Raul and Rob. This is Tyler DuPont on for Jason. I wanted to start by asking about growth expectations, particularly within GBS.

A: Yes. No, great question. So what we're seeing is it is tied to the economy. So it's macro, it's not company-specific or customer-specific. A little bit of color that I can give you is that in the CES business, it's hit us harder in custom application development as opposed to enterprise applications. And as I mentioned earlier, our pipelines have improved so we're encouraged by that. Our closing of deals, our close rates are good and healthy and improving. It's really just a slowdown in the rollout of projects in custom apps. And that's why we took the outlook down a little bit in the second half of the year. We were originally anticipating a little bit of an uptick in the second half, and we just don't see it yet and we took it down a bit.

Q: Great. Thanks. Just want to draw on your experience here, Raul, just thinking about visibility. And I know we have election certainty now in place, rates presumably falling further. Should we expect some improvement in visibility, generally speaking, relative to the secular question that Rod just asked? I guess I'm probably more focused on GBS here and that being more sensitive to demand changes. Any bigger picture comments there?

A: Yes. Look, I think the commentary that I've heard from other CEOs in the space and the commentary that I hear from our end customers is consistent. So I have no outlier information there. The thing that Rob and I see, the whole team sees, is just an opportunity to execute on the fundamentals better. As I mentioned before, the self-help initiatives, some of which I listed in my prepared remarks, and many more that are ongoing globally, are going to have a bigger impact in the next 12 and 24 months than the macro environment. The macro environment is good. It can get a little better, it can get a little worse. But the biggest key to success in the near term for us is executing on every single opportunity that we get a chance with. I know that we've got the right talent, and I know that we've got the right references and I know that we have the right opportunities. And it's about putting all those together consistently and scaling it.