Executive Summary / Key Takeaways

• DXC Technology is engaged in a deep operational and go-to-market turnaround aimed at reversing years of revenue decline and driving sustainable, profitable growth, leveraging its global scale and extensive customer base.
• Recent financial results for Fiscal Year 2025 show progress, with adjusted EBIT margin expanding to 7.9% (up 50 bps year-over-year) and free cash flow exceeding expectations at $687 million, driven by disciplined cost management and improved working capital.
• Bookings momentum is building, with the second half of FY25 seeing over 20% growth and the full year book-to-bill reaching 1.03x, indicating improved go-to-market execution and pipeline quality despite cautious customer spending on discretionary projects.
• The company is strategically investing in high-potential areas like AI/GenAI, enterprise applications (SAP, ServiceNow), and modernizing its own infrastructure, while streamlining operations and enhancing delivery quality (record Net Promoter Scores).
• Fiscal Year 2026 guidance projects continued organic revenue decline (3-5%), but with an improving rate in GIS, alongside stable margins (7-8%) reflecting ongoing investments, and free cash flow of approximately $600 million, signaling a focus on disciplined execution and building future growth capabilities.

A Legacy Forged in Merger, Focused on Reinvention

DXC Technology was born from the ambitious 2017 merger of Computer Sciences Corporation (CSC) and the Enterprise Services business of Hewlett Packard Enterprise (HPES), combining decades of experience in the complex world of enterprise IT. This union created a global giant, positioned to manage the mission-critical systems of large corporations and governments across more than 60 countries. Over its history, DXC has navigated multiple technology cycles, from the rise of personal computing and the internet to the pervasive influence of mobile and cloud. Today, it stands at the precipice of the AI era, seeking to leverage its foundational strengths – a vast global footprint, deep customer relationships, and a workforce of over 120,000 professionals – to reverse a challenging period of revenue contraction that has spanned eight consecutive years.

The company operates through two primary segments: Global Business Services (GBS) and Global Infrastructure Services (GIS). GBS focuses on accelerating digital transformation through consulting, engineering, and specialized software and business process services, particularly strong in areas like insurance. GIS is the backbone, managing the essential IT infrastructure that underpins global operations, encompassing cloud, IT outsourcing (ITO), security, and modern workplace solutions.

Under new leadership, DXC has embarked on a comprehensive turnaround strategy. This involves a deep rebuild of operational capabilities, a significant refresh of the leadership team (with 22 new senior leaders added in the last 15 months), a revamped go-to-market approach, and a disciplined focus on cost optimization and strategic investments. The objective is clear: establish a foundation for sustainable, profitable revenue growth by enhancing execution across the entire customer lifecycle, from initial pursuit and solutioning to delivery and renewal.

Technological Foundation and the AI Imperative

DXC's ability to compete and grow hinges on its technological capabilities and its strategic approach to innovation, particularly in the burgeoning field of Artificial Intelligence. The company's core offerings span the critical layers of enterprise IT, from managing complex hybrid cloud environments and securing digital assets to modernizing applications and automating business processes.

In GIS, DXC leverages an AI-driven Intelligent Operations approach to manage client infrastructure, aiming to enhance reliability and cost efficiency. Its security practice, backed by 3,500 professionals and eight global Security Operations Centers, provides 24/7 protection, a critical differentiator in an increasingly threat-laden environment. The Modern Workplace offering incorporates AI/GenAI tools to improve employee support through enhanced chatbots, streamlining operations and reducing the burden on internal IT teams.

Within GBS, technology is central to accelerating digital transformation. The Consulting & Engineering Services (CES) arm focuses on integrating AI and data analytics into solutions. Recent initiatives include expanding enterprise application capabilities, notably through DXC Fast RISE with SAP (SAP), designed to accelerate SAP S/4HANA cloud implementations. While specific quantitative metrics for the speed acceleration were not provided, the strategic intent is to leverage pre-built frameworks and expertise to reduce implementation timelines and costs for clients. DXC is also building a Center of Excellence model for GenAI, aiming to scale deployments beyond initial proofs of concept. Early GenAI engagements highlight tangible benefits: a virtual service agent for a financial services client achieved an 80% faster response time and led to a 10x growth in the relationship, while a solution for a global bank accelerated legacy code conversion by 50% with fewer errors. These examples underscore the potential for AI to drive significant operational efficiencies and business outcomes for customers.

The Insurance Software and Business Process Services unit relies on proprietary software platforms and is investing to grow its cloud-based offerings and integrate advanced AI-powered solutions to modernize insurer operations.

The "so what" for investors is that DXC's technological strategy is focused on embedding AI and automation into its core service delivery to drive efficiency and improve margins, while simultaneously developing new, higher-value offerings in areas like GenAI and enterprise application modernization. Success here is critical to moving beyond commoditized services and capturing growth in areas where technology provides a competitive moat. The ability to demonstrate quantifiable ROI from these tech-enabled solutions, as seen in early GenAI wins, is key to converting pipeline into profitable bookings.

Navigating a Highly Competitive Arena

The IT and professional services market is intensely competitive, populated by a diverse array of players ranging from global behemoths to niche specialists. DXC faces direct competition from large multinational enterprises like Accenture (ACN), IBM (IBM), and Cognizant (CTSH), as well as smaller, focused firms, offshore service providers, and even clients' internal IT departments. Competition is based on factors including technical expertise, industry knowledge, global delivery capabilities, reputation, and increasingly, the ability to deliver innovative solutions incorporating technologies like AI.

Comparing DXC to its key publicly traded rivals reveals a nuanced competitive position. Financially, DXC's scale is significant, with fiscal 2025 revenue of $12.87 billion. However, its profitability metrics, while improving, still trail some peers. DXC's TTM operating profit margin stands at 2.92%, and its TTM net profit margin is 3.02%. While direct comparable TTM figures for competitors are not readily available, historical annual data shows Accenture with operating margins in the 15-18% range and net margins of 11-13%, IBM with operating margins of 18-20% and net margins of 10-12%, and Cognizant with operating margins of 14-16% and net margins of 9-11%. This suggests DXC has room to improve its profitability relative to peers, a key focus of its cost optimization and operational efficiency initiatives.

DXC's strength lies in its extensive installed base of large enterprise and government clients and its deep expertise in managing complex, often legacy, IT environments. Its global delivery network and scale in IT outsourcing provide a cost advantage in certain mature segments. The company is strategically leveraging this foundation to cross-sell newer, higher-value services. The recent win with Carnival Cruise Line, described as a highly competitive bid won on capability and proven partnership rather than just price, highlights DXC's ability to secure significant deals by bringing the full weight of its integrated offerings and technical muscle.

However, DXC faces vulnerabilities. Its historical revenue decline contrasts with the growth trajectories of competitors like Accenture (5-7% YoY growth) and Cognizant (3-5% YoY growth). While IBM's recent growth has been more modest (2-4% YoY), it maintains higher margins and a strong position in enterprise AI. DXC's debt levels, with a TTM Debt/Equity ratio of 0.44, are higher than Cognizant's (0.10) and Accenture's (0.15), though lower than IBM's (2.14), which could impact financial flexibility. Furthermore, the pace of innovation and R&D investment, while increasing, may still lag behind leaders like Accenture and IBM, potentially affecting its ability to compete in rapidly evolving digital and AI-centric markets.

The strategic response involves focusing on disciplined deal selection, prioritizing profitable growth over sheer volume, and enhancing the go-to-market structure with dedicated client partners and industry alignment to better articulate and deliver value. By improving execution and leveraging its existing client relationships, DXC aims to capture a greater share of wallet and improve its win rates against competitors.

Financial Performance: Signs of Stabilization and Efficiency Gains

Fiscal Year 2025 demonstrated tangible progress in DXC's turnaround efforts, particularly on the profitability and cash flow fronts, even as revenue continued its downward trend. Total revenue for the year ended March 31, 2025, was $12.87 billion, a decline of 5.8% year-over-year, or 4.6% on an organic basis. This was influenced by both ongoing market pressures on discretionary spending and unfavorable foreign currency impacts.

Despite the revenue contraction, adjusted EBIT margin expanded by 50 basis points year-over-year to 7.9%. This improvement was a direct result of disciplined cost management and operational efficiency initiatives implemented across the business. Costs of services decreased due to lower revenue and reductions in professional services and contractor expenses. Gross margin improved by 150 basis points in FY25. While selling, general, and administrative expenses saw an increase, this was partly attributed to the strategic alignment of business development costs and increased transaction/integration expenses, partially offset by cost savings elsewhere.

Segment performance showed divergence. GBS revenue declined by 2.6% (1.0% organic) in FY25, with segment profit margin slightly decreasing to 12.0%. GIS revenue saw a steeper decline of 9.1% (8.2% organic), but notably, GIS segment profit increased, leading to a margin expansion to 7.2% (up from 6.3% in FY24). This GIS margin improvement reflects successful efforts in resource management, automation, and optimizing data center and network costs, as highlighted by management.

Cash flow generation was a notable positive in FY25. Net cash provided by operating activities was $1.40 billion, a slight increase from $1.36 billion in FY24. Free cash flow came in at $687 million, exceeding the company's most recent expectation. This strong performance was attributed to improved adjusted EBIT and better working capital management, alongside lower restructuring spending than initially planned. The company also strategically shifted away from new financial lease originations, funding equipment purchases through capital expenditures instead, which impacts free cash flow but reduces debt.

DXC's balance sheet shows total debt of $3.88 billion as of March 31, 2025, a decrease of $213 million year-over-year, primarily from paying down finance leases and asset financings. Net debt was reduced by $785 million to approximately $2.1 billion. The company maintains investment-grade credit ratings (Fitch BBB Negative, Moody's Baa2 Negative, S&P BBB- Stable) and has ample liquidity, including $1.8 billion in cash and $3.2 billion available under its revolving credit facility (extended to 2029). While quarterly cash dividends remain suspended to prioritize financial flexibility, the company plans to restart its share repurchase program in FY26, signaling confidence.

Outlook and the Path to Sustainable Growth

Looking ahead, DXC's guidance for Fiscal Year 2026 reflects a continued focus on disciplined execution and investment, with the aim of narrowing the revenue decline and building momentum towards future growth.

For FY26, the company expects total organic revenue to decline between 3% and 5%. This forecast incorporates the impact of cautious customer spending on discretionary projects and the longer conversion cycle of larger deals booked in the latter half of FY25. Segmentally, GBS organic revenue is projected to be down low single-digits, while GIS organic revenue is expected to decline mid-single-digits, representing an improvement compared to the FY25 rate of decline.

Adjusted EBIT margin for FY26 is guided to be between 7% and 8%. This range reflects management's intent to continue investing in the business, particularly in revenue growth capabilities, while also driving ongoing operational efficiencies. Non-GAAP diluted EPS is expected to be between $2.75 and $3.25.

Free cash flow for FY26 is projected to be approximately $600 million. This outlook factors in the expected EBIT performance and about $30 million of increased restructuring spending as previously planned actions are completed. Consistent with historical trends, free cash flow generation is expected to be strongest in the second half of the fiscal year.

The guidance for Q1 FY26 anticipates total organic revenue decline between 4.0% and 5.5%, with adjusted EBIT margin in the range of 6% to 7%, reflecting lower revenue and typical first-quarter seasonality. Margins are expected to improve throughout the second half of FY26.

Management's commentary emphasizes that while the macro backdrop remains uncertain, the focus is on self-help initiatives – improving go-to-market effectiveness, enhancing solutioning, optimizing pricing, and driving better economics on renewals. The recent uptick in bookings, particularly the second consecutive quarter with a book-to-bill above 1.0 in Q4 FY25, is seen as a clear indication of traction and a foundation for future revenue. The strategic investments in AI, enterprise applications, and operational platforms are expected to enhance DXC's competitive positioning and drive long-term growth.

Risks and Challenges Ahead

Despite the positive signs of operational improvement and building bookings momentum, DXC faces significant risks that could impact its turnaround trajectory and financial performance.

• Execution Risk: The success of the turnaround hinges on the effective implementation of numerous complex initiatives across a large, global organization. Failure to fully realize expected cost savings, integrate new leaders, or execute the revamped go-to-market strategy could hinder progress.
• Market Uncertainty and Revenue Decline: Ongoing cautious customer spending on discretionary projects and the secular decline in certain legacy IT services continue to pressure revenue. The projected organic revenue decline in FY26, while an improvement, indicates the challenge of returning to growth.
• Competition: The highly competitive IT services market, coupled with aggressive pricing and the rapid evolution of technology (especially AI), poses a constant threat to market share and margins. Competitors with stronger balance sheets or faster innovation cycles could gain ground.
• Technology Adoption Risk: While investing in AI and GenAI, DXC must ensure its offerings meet evolving customer needs, demonstrate clear ROI, and avoid issues like flawed algorithms or biased data. Failure to keep pace with technological change could erode competitiveness.
• Debt and Financial Flexibility: Although debt has been reduced, the company still carries a significant balance. Maintaining credit ratings and managing refinancing needs are important, especially in volatile credit markets.
• Litigation and Contingencies: Pending legal matters, such as the appeal in the TCS litigation and ongoing tax examinations, could result in substantial costs or liabilities that impact profitability and liquidity.
• Supply Chain and Operational Disruptions: Global events, geopolitical tensions, or natural disasters could disrupt supply chains or impact operations, affecting service delivery and costs.

Conclusion

DXC Technology is in the midst of a critical transformation, seeking to leverage its established market position and operational scale to pivot towards sustainable, profitable growth. Fiscal Year 2025 results provided tangible evidence of progress, particularly in enhancing profitability and cash flow through disciplined cost management and operational efficiencies. The recent momentum in bookings, driven by a revamped go-to-market approach and investments in key areas like AI and enterprise applications, offers a promising signal for future revenue stabilization and potential growth.

While the path ahead involves navigating ongoing market uncertainties and executing complex strategic initiatives, the company's focus on operational rigor, leadership stability, and targeted investments in high-potential technologies positions it to compete more effectively. The FY26 guidance reflects a realistic view of continued, albeit moderating, revenue challenges balanced by expected margin stability and solid free cash flow generation. For investors, the core thesis rests on DXC's ability to successfully execute its turnaround plan, convert bookings momentum into revenue growth, and demonstrate that its strategic investments and technological capabilities can drive improved financial performance and competitive standing in the dynamic IT services market. The coming quarters will be crucial in demonstrating sustained progress against these objectives.