DXC Technology Company (NYSE:DXC) is a leading global technology services provider, helping enterprises worldwide run their mission-critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private and hybrid clouds. With a strong focus on innovation and customer-centricity, DXC has established itself as a trusted partner for the world's largest companies and public sector organizations.

For the first nine months of fiscal 2024, DXC reported revenue of $10,281 million. The company generated robust operating cash flow of $1,361 million and free cash flow of $756 million, demonstrating its ability to consistently deliver strong financial performance.

Business Overview

DXC operates through two primary segments: Global Business Services (GBS) and Global Infrastructure Services (GIS). The GBS segment provides innovative technology solutions that help customers address key business challenges and accelerate transformations tailored to each customer's industry and specific objectives. This includes offerings in analytics and engineering, applications, and insurance software and business process services.

The GIS segment, on the other hand, provides a portfolio of technology offerings that deliver predictable outcomes and measurable results while reducing business risk and operational costs for customers. GIS offerings include security, cloud infrastructure and IT outsourcing, and modern workplace services.

Geographic Breakdown

DXC generates revenue across various geographic regions, with the United States accounting for 27.4% of total revenue, the United Kingdom contributing 12.8%, Other Europe making up 29.4%, Australia representing 8.9%, and Other International regions comprising the remaining 21.5% in the latest quarter.

Quarterly Performance

In the third quarter of fiscal 2024, DXC reported revenue of $3,399 million, a 4.7% decrease compared to the prior-year period. This decline was driven by a 4.5% decrease in organic revenue, partially offset by a 1.7% favorable foreign currency exchange rate impact. The GBS segment saw a 2.4% revenue decline, while the GIS segment experienced a 6.8% decrease.

Adjusted EBIT margin for the quarter was 8.4%, down 50 basis points year-over-year, primarily due to lower non-cash pension income and the impact of gains from asset sales in the prior-year period. Non-GAAP EPS was $0.87, compared to $0.95 in the same quarter last year.

For the first nine months of fiscal 2024, DXC reported revenue of $10,281 million, a 5.1% decrease compared to the same period in the prior year. Net income for the nine-month period was $281 million, and the company generated $1,081 million in operating cash flow and $601 million in free cash flow.

Outlook

Looking ahead to fiscal 2025, DXC expects total organic revenue to decline 4% to 6%. In the GBS segment, the company anticipates a slightly positive full-year outlook, with the first half performance in line with the fourth quarter of fiscal 2024 and a return to growth in the second half of the year. For the GIS segment, DXC expects a low double-digit organic revenue decline due to last year's bookings and the resulting impact on opening backlog, combined with continued lower resale revenue and a selective approach to new deals.

The company's adjusted EBIT margin guidance for fiscal 2025 is 6% to 7%, reflecting the impact of lower year-over-year revenue and investments in productivity improvements. DXC also plans to execute a restructuring program to address excess capacity, largely concentrated in the GIS segment, and right-size its infrastructure to improve profitability. The company expects the restructuring savings to put it on a sustainable path of free cash flow generation above fiscal 2024 levels in fiscal 2026.

For the first quarter of fiscal 2025, DXC expects total organic revenue to decline 7% to 8%, with adjusted EBIT margins in the range of 5.5% to 6% and non-GAAP diluted EPS of $0.55 to $0.60.

Financials

DXC's financial ratios demonstrate its strong financial position. As of the latest quarter, the company had a current ratio of 1.17, a quick ratio of 1.17, and a cash ratio of 0.28, indicating ample liquidity to meet short-term obligations. The debt-to-equity ratio stood at 1.47, and the interest coverage ratio was 2.7, suggesting a manageable debt burden.

Liquidity

In terms of liquidity, DXC had $1.7 billion in cash and cash equivalents as of December 31, 2023, of which $1.0 billion was held outside the U.S. The company's total liquidity, including available borrowings under its revolving credit facility, amounted to $4.9 billion, providing a solid foundation to fund its operations and strategic initiatives.

Risks and Challenges

DXC faces several risks and challenges that investors should be aware of. These include the company's ability to successfully execute its transformation and restructuring initiatives, manage the competitive landscape, maintain strong customer relationships, and navigate the evolving technology landscape. Additionally, macroeconomic conditions, such as the potential for a slowdown in IT spending, could impact the company's performance.

Conclusion

DXC Technology is navigating a critical transformation period, focused on streamlining its operations, improving profitability, and positioning itself for sustainable growth. The company's new leadership team has a clear vision and is taking decisive actions to address the company's challenges and unlock shareholder value. While the near-term outlook reflects ongoing headwinds, DXC's strong financial foundation, diversified service offerings, and commitment to innovation position it well to capitalize on the long-term opportunities in the global technology services market.