Managed services News
DXC Takeover Talks Continue, CEO Says
Joseph F. Kovar
‘We have been approached by a financial sponsor regarding a potential acquisition of DXC. Consistent with our fiduciary responsibility to maximize shareholder value, we have engaged in preliminary discussions and are sharing information. However, to date, no formal proposal has been received,’ says DXC President and CEO Mike Salvino.
Global IT services provider and takeover target DXC reported a sales decline for its most recent quarter but CEO Mike Salvino said “we have our execution momentum back.”
Salvino, president and CEO of Ashburn, Va.-based DXC, late Thursday afternoon during the company’s second fiscal quarter 2023 quarterly conference call, mentioned the disclosure by DXC earlier last month of news that it had been approached by a “financial sponsor” considering acquiring the company.
Salvino took time during his prepared remarks to again confirm the talks, using language that word for word almost matched the language of the company’s October 4 press release.
“We have been approached by a financial sponsor regarding a potential acquisition of DXC,” he said. “Consistent with our fiduciary responsibility to maximize shareholder value, we have engaged in preliminary discussions and are sharing information. However, to date, no formal proposal has been received. Also, there are no assurances that any proposal will be received or determined as adequate by our board of directors. We do not intend to comment further on this matter.”
Word about a potential private equity company looking at acquiring DXC first arose in late September when Bloomberg broke the news. DXC then released a statement on October 4 confirming that talks were under way.
DXC was formed in 2017 by the merger of former solution provider CSC and Hewlett Packard Enterprise’s Enterprise Services division. The company currently is No. 9 on the 2022 CRN Solution Provider 500.
DXC did not respond to a CRN request for more information about the potential acquisition of the company.
Salvino, discussing the company’s second fiscal quarter 2023 finances, said in his prepared remarks that the company is moving towards profitable growth despite the 11.4-percent year-over-year drop in total revenue.
Salvino, preferring to focus on 1.5-percent drop in organic revenue, which excludes foreign currency impact and impacts from acquisitions and divestitures, said the organic revenue is one of the best results that the company has produced for a quarter since he started at DXC.
“Overall, I‘m pleased with how we have delivered in Q2,” he said. “And more importantly, we have our execution momentum back.”
DXC has done well in terms of keeping its employee attrition rate low, particularly in its GBS, or global business services, business, Salvino said.
“Our growth in GBS demonstrates that we can recruit and retain top talent like engineers and software developers who create innovative solutions for our customers,” he said. “These engineers and software developers are highly sought after in the market, and we‘re doing a great job of recruiting and retaining them. The reason for all this is my leadership team is focused on changing the culture of DXC. We are making sure we’re taking care of our people, we‘re working together, and we know how to make positive business impact for our customers.”
Salvino also said that DXC is implementing a new sales model that distinguishes between its GBS and GIS, or global infrastructure services, businesses.
The GBS sales organization is focused on relationship selling, in particular selling to customers’ most senior executives based on the potential for DXC to help them increase revenue and decrease costs, Salvino said. In GIS, DXC’s sales organization is oriented toward RFP-focused selling, which is highly price competitive, he said.
“We are beginning to see this disciplined sales approach pay off internally, which gives us confidence that we‘re on the right path with GIS,” he said. “Overall, we continue to see demand in the market. And with the new sales model for GBS and GIS, you will see us accelerating new work versus renewals. In this quarter, our new work was 63 percent of our total sales, one of the best new results yet.”
During the question and answer portion of the call, when asked by a financial analyst about bookings, Salvino said the company’s new sales model is helping accelerate the new work in GBS and be very disciplined in GIS. In GBS, the 12-month book-to-build ratio is 1.18, he said. And in GIS, DXC has a backlog of about $9 billion, which however is a 12-month book-to-build ratio of only 0.91.
“And my point is, I think I can afford and we can afford to be patient,” he said. “I‘m definitely comfortable because we’re very focused on the disciplined deals that are coming in that we‘re putting on top of that business. “
When asked about the global competition for talent and wage inflation, Salvino said there is definitely a lot of competition for talent, particularly for its GBS business.
“Look, you can pay people whatever you want,” he said. “If you don‘t have the right culture, those folks will not stay around. And that’s what my team has been focused on. It‘s been focused on since we put in the transformation journey. I’m very proud of the culture that we put together, especially how we‘ve cared for people during the COVID also the Russia--Ukraine situation. That culture keeps people around. It’s not just the wages. And that‘s the way we think about it.”
For its second fiscal quarter 2023, which ended September 30, DXC reported total revenue of $3.57 billion, down 11.4 percent over the $4.03 billion the company reported for its second fiscal quarter 2022. That beat analyst revenue expectations by $20 million, according to Seeking Alpha.
This included GBS revenue of $1.71 billion, down 8.5 percent from last year’s $1.87 billion, and GIS revenue of $1.85 billion, down 14.0 percent over last year’s $2.15 billion.
For the quarter, DXC reported a GAAP net income of $28 million, or 12 cents per share, compared last year’s net loss of $187 million, or 74 cents per share. On a non-GAAP basis, the company reported net income of $175 million or 75 cents per share, compared to last year’s $233 million or 92 cents per share. That beat analyst non-GAAP per-share expectations by 2 cents per share, according to Seeking Alpha.