Managed services News
DXC CEO Outlines Initiatives To Continue Growth Into Fiscal 2024
Joseph F. Kovar
‘In FY23, we were able to maintain our solid investment-grade credit profile, deliver over $700 million of free cash flow for the second straight year, and deliver on our $1-billion commitment to repurchase our shares. In FY24, we plan to do more of the same: maintain our investment-grade credit profile, expand our free cash flow, deliver higher quality revenue margin and EPS, and repurchase another billion dollars of our shares,’ says DXC Chairman, President, and CEO Mike Salvino.
Global IT technology solution provider DXC Technology reported revenue and earnings misses for its fiscal fourth quarter 2023, causing its stock to slip.
However, upbeat remarks by the company’s top exec, who used his prepared remarks on late Thursday’s quarterly financial conference call to discuss DXC’s transformation and projected impact on the company’s finances going forward led to a Friday gain in share prices.
DXC Chairman, President, and CEO Mike Salvino opened his remarks by noting DXC’s fourth fiscal quarter fourth organic revenue drop of 2.9 percent, but said the company has driven roughly the same revenue level in terms of constant currency, excluding disposition for all four quarters of 2023, excluding dispositions, which positions the company to continue improving revenue performance in fiscal 2024.
[Related: DXC Technology Ends Takeover Talks With ‘Financial Sponsor’ ]
Furthermore, Salvino told financial analysts on the call, Ashburn, Va.-based DXC recording increasing EBIT (earnings before interest and taxes) margins and increased free cash flows. That, he said, combined with the first quarter in three years that DXC has reported non-GAAP earnings per share exceeding $1 per share, points the way towards a good fiscal 2024.
“We were pleased with our performance in Q4 and in FY23, as it shows that we can execute and positions us for more progress in FY24,” he said.
For DXC, which is ranked No. 9 in the CRN Solution Provider 500, a large transformation the company executed in fiscal 2023 not only gave the company a good fourth fiscal quarter, but also positioned the company for success in fiscal 2024, Salvino said.
The first part of that transformation is in DXC’s culture and personnel, where the company changed its operating model to be led by its offering leaders, Salvino said.
“Our new operating model gives our organization clarity, and places seven of our most experienced leaders into the market focused on growth, differentiation, coaching our people, and actively managing the details of our business,” he said.
The second part of that transformation journey is focused on customers as a way to lead to revenue stability, Salvino said. This has led to four consecutive quarters of similar revenue, once currency and divestitures are removed, he said.
“We feel strongly that our revenue is now stable, is higher quality, and is trending more towards GBS due to our customer delivery and our enhanced relationships we have developed,” he said.
DXC has also worked to improve the external perception of the company, which led to a net promoter score for the quarter of 29, which Salvino said is near the top-end of the industry benchmark range.
“We wanted to get more insight into what our customers thought of us as we have seen the external perception of DXC change,” he said. “So we hired an outside firm to do a deeper survey of our customers. What we got back gives us confidence that we are positioned for future success concerning revenues because our customers view the work we do for them as essential, they want us to help them evolve to their technology future, and they trust us.”
The consistent growth of DXC’s GBS revenue over the last two years and its continually rising part of the company’s overall revenue is proof point that this strategy is working, Salvino said.
“And in FY24, we expect to be even more aggressive with this strategy due to our new operating model that takes our most experienced leaders and focuses them on spending even more time with our customers during relationship selling, which was the change we made in our sales approach two quarters ago,” he said.
The third step was to optimize cost, which Salvino said has resulted in expanding margin through fiscal 2023. That was also helped with optimization of staff, contractors, real estate and data centers, and third-party expenses, he said.
“Specifically, in the ITO (information technology outsourcing) space, we’re moving towards what we call ‘infrastructure light,’ which means we will not use our balance sheet to do deals, we will shed a significant number of our data centers, and we will shed existing contractors in favor of full-time employees,” he said. These are the key items around our more disciplined approach to deal making and managing our ITO work. These items, along with us managing the decline of our pension income that does not generate cash, will produce higher quality margin for us in FY24.”
The final step in DXC’s transformation is its financial foundation, which has put the company in a position of financial strength heading into fiscal 2024, Salvino said.
“In FY23, we were able to maintain our solid investment-grade credit profile, deliver over $700 million of free cash flow for the second straight year, and deliver on our $1-billion commitment to repurchase our shares,” he said. “In FY24, we plan to do more of the same: maintain our investment-grade credit profile, expand our free cash flow, deliver higher quality revenue margin and EPS, and repurchase another billion dollars of our shares.”
For its fourth fiscal quarter 2023, which ended March 31, DXC reported revenue of $3.59 billion, which was down 10.4 percent over the $4.01 billion the company reported for its fourth fiscal quarter 2022.
Revenue for the quarter missed analyst expectations by $30 million, according to Seeking Alpha.
Included in that figure was GBS revenue of $1.75 billion, down 7.5 percent over last year, and GIS (Global Infrastructure Services) revenue of $1.84 billion, down 13.0 percent.
In terms of specific product offerings, DXC reported cloud infrastructure and information technology outsourcing revenue of $1.27 billion, down from last year’s $1.48 billion; application revenue of $786 million, down from $827 million; analytics and engineering revenue of $558 million, up from $529 million; modern workplace revenue of $457 million, down from $507 million; insurance software and business process solutions revenue of $390 million, up from $385 million; and security revenue of $113 million, down from $120 million.
For the quarter, DXC reported a GAAP net loss of $758 million or $3.38 per share compared to last year’s net income of $539 million or $2.18 per share. On a non-GAAP basis, DXC reported a net income of $1.02 per share. That compared to analyst expectation of $1.04 per share, according to Seeking Alpha.
For all of fiscal 2023, DXC reported revenue of $14.43 billion, which was down 11.3 percent from the $16.27 billion the company reported for fiscal 2022.
Included in that figure was GBS revenue of $6.96 billion, down 8.4 percent over last year, and GIS revenue of $7.47 billion, down 13.8 percent.
For the quarter, DXC reported a GAAP net loss of $566 million or $2.48 per share compared to last year’s net income of $736 million or $2.81 per share. On a non-GAAP basis, DXC reported a net income of $13.47 per share.
Looking ahead, DXC expects first fiscal quarter revenue of $3.54 billion to $3.58 billion, down from last year’s $3.70 billion. The company also expects non-GAAP earnings of 80 cents to 85 cents per share, up from last year’s 75 cents per share.
For all of fiscal 2024, DXC expects revenue of $14.40 billion to $14.55 billion, higher than the $14.43 billion the company reported last year. Non-GAAP earnings for the coming year are expected to be $3.80 to $4.05 per share, up from $3.47 per share.