DXC Earnings Preview: 4 Biggest Things To Focus On
DXC Technology earnings preview, from partnerships with VMware and AWS to increasing cash flow, DXC is positioning itself for growth in 2022.
DXC Technology Q1 Financial Earnings Report Is August 4
DXC Technology is set to deliver its first quarter financial earnings report on Wednesday that will answer a multitude of questions about the company’s strategy, from improving quarterly organic revenue to expanding its partnerships with Amazon Web Services and VMware.
The Tysons, Virginia-based solution provider powerhouse’s stock has been on a roll so far this year, up more than 66 percent to $43.23 as of Tuesday, even as revenue has declined. The company, No. 4 on CRN’s 2021 Solution Provider 500, reported total revenue of $17.73 billion for its 2021 fiscal year, down about $2 billion in revenue from the previous year.
CRN breaks down the four most interesting things to watch for during DXC’s financial earnings report on Wednesday.
DXC is forecasting first-quarter revenue between $4.08 billion and $4.13 billion, with the Zacks consensus estimate of $4.11 billion, which would be an 8.7 percent year-over-year decline.
Zacks attributes the estimated decline to the COVID-19 pandemic and business disruptions. Quarterly results may also be affected by soft IT spending due to the global economic downturn induced by the pandemic.
DXC says its adjusted diluted earnings per share of between 72 cents and 76 cents.
DXC Technology CEO Mike Salvino said during the 2021 fourth quarter financial earnings call that fiscal year 2022, “will be the year we build the foundation for growth.”
“What that means is we will retain and continue to attract talent,” Salvino said during the call. “We will build off our customer intimacy to deliver revenue stability and continue to win in the market all while we expand margins and deliver increased free cash flow. Finally, we expect to deliver positive organic revenue growth longer term.”
Future Of DXC’s VMware And AWS Partnerships
Before reporting its first quarter finances, one key aspect to look for is what DXC says regarding its VMware and AWS expansion.
The solution provider in July accelerated its partnerships with VMware and AWS by launching a “pay-per-use” cloud consumption service model as part of a hybrid cloud and multi-cloud offering.
Dubbing it as the first of its kind in the Asia-Pacific region, DXC customers in Australia and New Zealand can now migrate and expand their current VMware environments to AWS all while maintaining their existing infrastructures.
“With this new platform, our customers will be able to modernize from the core and migrate their workloads seamlessly to the cloud, taking advantage of scalability and cost benefits,” said Seelan Nayagam, president of the Asia Pacific region for DXC Technology, in a statement.
Updates on this expansion will be noteworthy as DXC is the first VMware partner in the Asia Pacific region to offer the multi-tenant platform at scale. It will be interesting to hear during the earnings call what DXC’s top executives say about its future with VMware and AWS.
Can DXC Improve Its Organic Revenue Growth In 2022?
In a 2021 investor day call in June, DXC CEO Mike Salvino, said the company continues to retain and attract talent and customers while taking costs out without disruption.
“These efforts are leading to stable revenues and expanded margins,” he said during the investor day call. “As a result of the execution of our transformation journey, we are on the right trajectory and expect our momentum to continue in FY22, to ultimately deliver organic revenue growth.”
An example of that, he said during the company’s fourth-quarter earnings call, is an existing customer that renewed its work with DXC as well as given the solution provider the ability to provide more services.
Zaandam, Netherlands-based retail company, Ahold Delhaize, has turned to DXC to provide infrastructure services, application outsourcing, cloud migration and workplace services in a hybrid cloud environment that will reduce costs and support its business-critical systems, Salvino explained during the call.
“Our ability to deliver a consistent book-to-bill of over 1.0 in each of the four quarters of FY ‘21 is clear evidence that we can win in the IT services industry,” he added. “This is translating into improving quarterly organic revenue growth, which we expect will flatten during FY ’22.”
What to watch for is if this model for organic revenue growth holds true in its new fiscal year.
What Is DXC Focusing On To Increase Cash Flow In 2022?
Ken Sharp, executive vice president and CFO of DXC, said on a fourth-quarter earnings call that going forward the company will remediate “our material weakness and the impact it has on our corporate governance” and having a strong balance sheet going into 2022.
“We paid down $6.5 billion of debt in the past nine months and subsequent to year-end, retired an additional $500 million,” Sharp said during a fourth-quarter earnings call. “We are now approaching a far more manageable $5 billion debt level. Further, we have relatively low maturities over the next three years. We remain committed to an investment-grade credit profile, and I believe our actions more than demonstrate our commitment. Third, we will focus on improving cash flow.”
To improve cash flow, Sharp said DXC will reduce restructuring and TSI expense from about $500 million in the 2022 fiscal year to under $100 million in fiscal year 2024.
“As we generate free cash flow, we will appropriately deploy capital to invest in our business and return capital to our shareholders, all the while staying focused on maintaining our investment-grade credit rating,” he said during the earnings call.
It’ll be noteworthy to watch if this plan of action holds true and will be reflected in its fiscal year 2022 first-quarter earnings.