Business Overview and History: DXC Technology Company (DXC) is a global information technology (IT) services and solutions provider that has established itself as a formidable player in the dynamic and fast-paced technology industry. With a rich history spanning decades, DXC has successfully navigated through various market cycles, adapting its strategies to meet the evolving needs of its diverse client base.
DXC Technology was formed in 2017 through the merger of Computer Sciences Corporation (CSC) and the Enterprise Services business of Hewlett Packard Enterprise (HPE), creating a combined entity with a strong global presence and a comprehensive suite of IT services. The merger created a leading global IT services company with revenues of over $25 billion and a presence in more than 70 countries. The combined company aimed to leverage its scale, expertise, and global reach to provide innovative technology solutions to clients across various industries.
In the early years following the merger, DXC faced several challenges, including the complexities of integrating two large organizations with different cultures and systems. There were also concerns around revenue declines and margin pressure as the company worked to transform its business model and reduce costs. To address these issues, DXC underwent a major restructuring program, which involved significant workforce reductions, facility consolidations, and the sale of non-core business units. The company also invested heavily in automation, artificial intelligence, and other digital technologies to improve service delivery and profit margins.
Despite the initial struggles, DXC was able to make progress in strengthening its competitive position. The company focused on expanding its capabilities in areas like cloud computing, cybersecurity, and industry-specific solutions. DXC also worked to deepen its partnerships with leading technology providers like Amazon Web Services, Microsoft, and ServiceNow.
Since the merger, DXC has continued to evolve, emphasizing its focus on delivering innovative and client-centric services. The company has made strategic investments in emerging technologies, such as artificial intelligence (AI), automation, and cybersecurity, to stay ahead of the curve and provide cutting-edge solutions to its customers.
Financial Performance and Metrics: DXC's financial performance has been marked by its ability to generate consistent revenues and maintain a strong balance sheet. In the fiscal year ended March 31, 2024, the company reported total revenues of $13.67 billion, a slight decline compared to the previous year's $14.43 billion. However, the company's focus on cost optimization and operational efficiency has helped it maintain profitability, with a net income of $91 million for the same period.
For the second quarter of fiscal year 2025, DXC reported total revenues of $3.24 billion, representing a decrease of 5.7% compared to the same period a year ago. On an organic basis, revenues declined 5.6%. Despite the revenue decline, the company demonstrated improved profitability, with adjusted EBIT increasing by 11.2% to $279 million compared to the same period a year ago. The adjusted EBIT margin expanded by 130 basis points to 8.6%, reflecting the company's efforts in disciplined cost management.
The revenue decline was largely attributed to a slowdown in custom application development projects within the Consulting & Engineering Services business. However, this was partially offset by continued strong performance in the Insurance and horizontal BPS businesses. The improvements in profitability were driven by disciplined cost management and a non-recurring legal settlement benefit.
Liquidity: The company's liquidity position remains robust, with a cash and cash equivalents balance of $1.22 billion as of March 31, 2024. DXC's free cash flow generation has also been a strength, with $954 million in the fiscal year 2024, providing the company with the financial flexibility to invest in growth initiatives and return capital to shareholders. For the second quarter of fiscal year 2025, the company reported operating cash flow of $433 million and free cash flow of $93 million.
DXC maintains a strong financial position with a debt-to-equity ratio of 1.45, a current ratio of 1.17, and a quick ratio of 1.17. The company also has access to a $4 billion revolving credit facility, with $3.2 billion available, further enhancing its financial flexibility.
Segmental Performance: DXC operates through two main business segments: Global Business Services (GBS) and Global Infrastructure Services (GIS). The GBS segment, which accounts for approximately 52% of the company's total revenue, focuses on providing innovative technology solutions to help clients accelerate their digital transformations. This segment has demonstrated resilience, with organic revenue declines of 1.8% in the fiscal year 2024, primarily due to market pressures impacting custom application projects.
In the second quarter of fiscal 2025, the GBS segment reported revenue of $1.68 billion, a decrease of 1.9% compared to the same period a year ago. The decrease was driven by a 1.6% decline in organic revenue and a 0.2% decline from the disposition of certain businesses. For the first six months of fiscal 2025, GBS revenue was $3.35 billion, a decrease of 1.8% compared to the same period a year ago.
The GIS segment, representing the remaining 48% of revenue, offers a portfolio of technology solutions that deliver predictable outcomes and measurable results to customers. This segment has faced more significant challenges, with organic revenue declines of 9.9% in the fiscal year 2024, driven by the completion of certain projects and a reduction in lower-margin resale revenue.
In the second quarter of fiscal 2025, the GIS segment reported revenue of $1.56 billion, a decrease of 9.4% compared to the same period a year ago. The decrease was driven by a 9.6% decline in organic revenue from project completions and lower resale revenue. For the first six months of fiscal 2025, GIS revenue was $3.13 billion, a decrease of 9.9% compared to the same period a year ago.
Navigating Challenges and Adapting Strategies: DXC has proactively addressed the challenges faced in its GIS segment, implementing strategic initiatives to optimize its operations and improve profitability. The company has streamlined its Cloud and ITO, security, and Modern Workplace delivery under a single leader, enhancing consistency and accountability. Additionally, DXC has rolled out a new workforce management system to better manage its resources, while also investing in product innovation and strengthening its public sector presence.
In the GBS segment, DXC has sharpened its focus on delivering more scalable and standardized solutions, particularly in its Consulting & Engineering Services business. The company has hired a new global delivery leader to strengthen project management and ensure contract requirements are met. Furthermore, DXC has been expanding its GenAI offerings, leveraging a center of excellence model to scale beyond proof-of-concepts to production.
These strategic initiatives, combined with the company's commitment to cost optimization and operational efficiency, have enabled DXC to navigate the challenges posed by the evolving market landscape. The company's global delivery and sales footprint, complemented by its local presence, have been instrumental in understanding and responding to regional dynamics, allowing DXC to tailor solutions to meet specific client needs.
Outlook and Future Prospects: Looking ahead, DXC remains cautiously optimistic about its growth prospects, with a focus on further strengthening its competitive position and expanding its market share. The company's efforts to enhance its go-to-market approach, including the implementation of new sales team performance reviews and an executive client sponsorship program, are expected to drive improved sales discipline and execution.
DXC has raised its guidance for the full fiscal year 2025, reflecting increased confidence in its operational improvements and financial performance. The company now expects an adjusted EBIT margin of 7.0% to 7.5%, up from the previous guidance of 6.5% to 7.0%. Non-GAAP diluted EPS guidance has been raised to $3.00 to $3.25, up from the previous $2.75 to $3.00. Additionally, DXC has increased its free cash flow guidance to approximately $550 million, up from the previous $450 million.
For the third quarter of fiscal 2025, DXC anticipates a total organic revenue decline of 5.5% to 4.5%, with an adjusted EBIT margin of 7.0% to 7.5% and non-GAAP diluted EPS of $0.75 to $0.80.
Furthermore, DXC's ongoing investments in emerging technologies, such as AI and cloud-native applications, position the company to capture opportunities in the rapidly evolving IT services market. The company's strong partner ecosystem and top-tier engineering capabilities are expected to be key differentiators, enabling DXC to help clients optimize their software expenses and maximize the returns on their cloud migrations.
Despite the challenges faced in recent years, DXC's resilience and adaptability have been evident in its ability to navigate through market cycles. The company's commitment to innovation, operational excellence, and client-centric service delivery continue to be the driving forces behind its success. As DXC continues to evolve and adapt to the changing industry landscape, investors will closely monitor the company's ability to capitalize on emerging opportunities and deliver sustained growth and shareholder value.
The IT services industry continues to be shaped by several key trends, including increased demand for digital transformation, cloud migration, and data/AI services. There is also an ongoing shift towards as-a-service and subscription-based models, along with competitive pricing pressure and the need for operational efficiency. DXC's strategic initiatives and focus on emerging technologies position the company well to address these industry trends and maintain its competitive edge in the global IT services market.