DXC Technology's Cost-Cutting Efforts Remain 'On Track' As Company Reduces Workforce By 4 Percent

Solution provider giant DXC Technology continued to remake itself in its second fiscal quarter, cutting expenses by $110 million on its way toward $1 billion in savings this year.

DXC's preparations to divest its U.S. government business, a plan announced Oct. 11, also remain on track, company executives said Tuesday in discussing the company's results for its fiscal 2018 second quarter ended Sept. 30.

The Tysons, Va.-based company, No. 11 on the CRN Solution Provider 500, reported that revenue for the quarter was $6.16 billion and net income for the period was $256 million.

[Related: DXC Technology Shuts 58 Facilities, Makes Broad Management Cuts In A $1B Cost Savings Push]

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DXC, created earlier this year by the combination of CSC and Hewlett Packard Enterprise's Enterprise Service business, has been working to reduce its expenses since the merger.

On a conference call, DXC executives said cost-cutting efforts are proceeding according to plan, including workforce reductions, reducing real estate and facility expenses, and implementing "supply chain efficiencies and consolidations."

"We continue to achieve key merger integration milestones," president and CEO Mike Lawrie said. "We're executing our synergy plan, and we're on track to meet our targets of $1 billion of year-one cost savings, as well as a billion and a half [dollars] of run-rate cost savings exiting the year."

Lawrie said the company cut its costs by $110 million in the quarter, including reducing its workforce by about 4 percent.

Last month DXC announced a deal to spin off its U.S. government business and merge it with federal government consultancy Vencore and background investigation service provider KeyPoint. That will create a new top-five IT service provider to federal government, state government and U.S. defense customers with annual revenue of $4.3 billion, Lawrie said on the call.

That $2.9 billion U.S. public sector business comes from the HPE Enterprise Services business merger: CSC spun off its own public sector business in November 2015 and merged it with CSRA.

"We're also on track in the early stages of separating our U.S. public sector business and combining that company with Vencore Holdings Company and KeyPoint government solutions," Lawrie said on the call Tuesday.

"This will create a separate, mission-focused, independent, publicly traded company to serve U.S. government clients," he said.

Lawrie provided few additional details on the call about the progress of the planned spinoff. The separation of the federal government business and follow-on merger are expected to be completed by March 31, 2018.

DXC's digital transformation services grew 23 percent in the second quarter, the company said. Those services span the company's three business segments and include cloud computing, enterprise cloud applications, analytics and security.

Lawrie said those services are generating about $4 billion in annual revenue. "We're seeing good growth in our digital offerings," the CEO said.

Also during the call, Lawrie and CFO Paul Saleh said it is too soon to tell what impact proposed tax reform legislation and tax cuts would have on DXC's finances. Lawrie said the proposed cut in the corporate tax rate from 35 percent to 20 percent "would certainly be a benefit," but too much of the legislation remained in flux to comment further.

The quarterly results include revenue from DXC's July 5 acquisition of Tribridge, a solution provider that focuses on Microsoft Dynamics 365 applications. During the quarter DXC also announced plans to buy Netherlands-based Logicalis SMC to boost its ServiceNow practice, but that acquisition is still in progress.

DXC said its $6.16 billion revenue in the second quarter was down 3.0 percent on a pro forma basis from $6.36 billion one year earlier. DXC offered the pro forma year-to-year comparisons because the company was created this year.

In the second quarter DXC's Global Business Services unit generated $2.31 billion in revenue while the Global Infrastructure Services unit reported revenue of $3.14 billion. The U.S. Public Sector business generated $710 million in revenue in the quarter.

DXC expects revenue for all of fiscal 2018 to be in the range of $24 billion to $24.5 billion.