DXC Technology Q3 2025 Earnings Report

DXC Technology EPS Results

• Actual EPS: $0.92
• Consensus EPS: $0.69
• Beat/Miss: Beat by +$0.23
• One Year Ago EPS: N/A

DXC Technology Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $3.25 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

DXC Technology Announcement Details

• Quarter: Q3 2025
• Date: 2/4/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, February 4, 2025
• Conference Call Time: 5:00PM ET

DXC Technology (NYSE:DXC) Company, together with its subsidiaries, provides information technology services and solutions in the United States, the United Kingdom, rest of Europe, Australia, and internationally. It operates in two segments, Global Business Services (GBS) and Global Infrastructure Services (GIS). The GBS segment offers a portfolio of analytics services and extensive partner ecosystem that help its customers to gain insights, automate operations, and accelerate their transformation journeys; and software engineering, consulting, and data analytics solutions, which enable businesses to run and manage their mission-critical functions, transform their operations, and develop new ways of doing business. This segment also simplifies, modernize, and accelerate mission-critical applications that support business agility and growth through applications services; provides proprietary modular insurance software and platforms; and operates a wide spectrum of insurance business process services, as well as helps to operate and improve bank cards, payment and lending process and operations, and customer experiences. The GIS segment offers security services, such as IT security, operations and culture for migrating to the cloud, protecting data with a zero-trust strategy, and manage a security operation center; and cloud infrastructure and IT outsourcing services. This segment also delivers a consumer-like experience, centralize IT management, and support services, as well as improves the total cost of ownership; and orchestrates hybrid cloud and multicloud environments. The company markets and sells its products through direct sales force to commercial businesses and public sector enterprises. DXC Technology Company was founded in 1959 and is headquartered in Ashburn, Virginia.

DXC Technology Q3 2025 Earnings Call Transcript

Presentation

[Operator]

Thank you.

[Operator]

And I would now like to turn the conference over to Roger Sachs, Head of Investor Relations. Roger, you may begin.

[Roger Sachs, Vice President, Investor Relations at DXC Technology]

Thank you, operator. Good afternoon, everybody, and welcome to DXC Technologies' third quarter earnings call. We hope you had a chance to review our earnings release to the IR section of DXC's website. Speakers on today's call are Raul Fernandez, our President and CEO and Rob Del Bene, our Chief Financial Officer. Our agenda will be as follows: Raul will provide an overview of our results and an update on our strategic initiatives.

[Roger Sachs, Vice President, Investor Relations at DXC Technology]

Rob will then walk you through our financial performance for the quarter as well as update you on our full year outlook and provide some thoughts on our fourth quarter. Raul and Rob will then take your questions. Certain comments made during today's call are forward looking and subject to risks and uncertainties that could cause actual results to differ materially from those expressed on the call. You combine details of those risks and uncertainties in our annual report on Form 10 ks and other SEC filings. We do not commit to updating any forward looking statements during today's call.

[Roger Sachs, Vice President, Investor Relations at DXC Technology]

Additionally, during this call, we will be discussing non GAAP financial measures that we believe provide useful information to our investors. Reconciliations to the most comparable GAAP measures are included in the tables that are in today's earnings release. And with that, let me turn the call over to Raul.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Thank you, Roger. Good afternoon, everyone, and thank you for joining us today for our third quarter fiscal twenty twenty five earnings call. I'm pleased with our third quarter performance, Our operating model changes and focused on disciplined execution is reflected in our results. Revenue, adjusted EBIT margin and non GAAP EPS all came in ahead of guidance. We also delivered strong free cash flow.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Our revamped go to market approach is paying off, driving a meaningful uptick in bookings. Reflecting on my first year as CEO, I'm more convinced than ever that we are on the right path. Our top priority is to drive profitable and sustainable revenue growth. Our evolving leadership team is establishing a culture grounded in client centricity, performance management and accountability. As a result, we're becoming more innovative, faster and better positioned to win in the market.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

We have a strong portfolio of complementary and transformative IT services, all of which we plan to invest in and grow. Specifically, during the quarter, total revenue declined 4.2% year over year on an organic basis. Adjusted EBIT margin equaled 8.9%, expanding 140 basis points year over year. Non GAAP diluted EPS was $0.92 up 7% year over year. And we generated free cash flow of $483,000,000 for a year to date total of $576,000,000 exceeding our full year fiscal twenty twenty five guidance.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Global uncertainties ranging from trade policy, geopolitical conflicts, inflation and labor costs continue to pressure corporate spending for discretionary projects. At the same time, clients are balancing cost optimization with investments in AI driven transformation programs. We also see some clients committing to projects for the full year ahead. Our revamped go to market approach is beginning to deliver results. As expected, bookings across our offerings improved significantly over the last quarter with gains in both large and shorter cycle projects, a clear sign we're connecting better with customers.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

This momentum is evident in our book to bill ratio of 1.3x, the highest in eight quarters. Our pipeline continues to grow, including a higher mix of larger deals in consulting and engineering services. While these engagements have less near term revenue impact, we believe they build on a solid foundation for future growth. We continue to invest in training our client partners and refining our performance management processes to drive the continued expansion of our pipeline and grow future bookings. Additionally, during the third quarter, we continued to progress on the tactical actions we began earlier in the fiscal year.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

In our Global Business Services segment, where we help clients accelerate digital transformations, we continued to drive more scalable and standardized solutions to support growth. Specifically, in consulting and engineering, first, we expanded our enterprise application capabilities that help clients leverage AI, driving increased bookings. Examples include collaborating with SAP to incorporate their business AI solutions into our industry frameworks and helping clients accelerate their SAP S4HANA cloud projects as well as the formation of a new center of excellence with ServiceNow, combining DXC's deep IT industry expertise with ServiceNow's Gen AI solutions, creating a powerful platform to help clients increase their AI adoption. And second, we are also helping clients unlock the full potential of GenAI by ensuring their data is clean, current and reliable, paving the way for secure deployments and scalable solutions tailored to their evolving needs. Let me highlight details of two examples of recent Gen AI engagements.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

We worked with Singapore General Hospital to create an AI powered solution to help doctors quickly analyze clinical data to improve patient treatment plans and alleviate the overuse of antibiotics. With just a few clicks, doctors can assess if antibiotics are needed and recommend the right treatment and dosage quickly. Next, building on DXC's deep automotive expertise, we expanded our partnership with Ferrari to develop the software that powers the next gen infotainment system for the recently launched F80 supercar. The new digital cockpit delivers an enhanced user experience, providing real time performance data through seamless high speed displays for public road use that transforms into a racing display when the drivers are on the track. Our capabilities in the insurance business remain strong.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

We are the category leading software and services provider for life and wealth, global specialty and reinsurance industries. We continue to invest to grow our cloud based software solutions and are well positioned to help clients migrate their workloads to the cloud for scalability and cost efficiency. At the same time, we're exploring new markets to drive further growth. In our Global Infrastructure Services segment, which represents our portfolio of technology solutions, we focused on delivering secure cutting edge services to meet our clients' evolving needs. During the quarter, we laid the groundwork for the redesign and expansion of our AI capabilities in the software platforms across our cloud and ITO security and modern workplace offerings.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

We are partnering with clients to design and build industry specific AI accelerators that will drive innovation in cloud infrastructure security and data management. We continue to improve our delivery metrics and overall quality of service, leading to record Net Promoter Scores. These efforts reflect our commitment to driving innovation and measurable value for our clients. I'm also excited to announce that Brad Novak has joined our leadership team as our new CIO, bringing over thirty years of experience in data architecture and technology strategy. Brad's mission is clear: increase AI usage across DXC's infrastructure and operations, advance our data strategy and deliver on our ERP consolidation road map.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Brad is the latest example of top tier talent DXC is able to attract. I am pleased with our ability to bring in new leaders, both on my executive team and throughout the organization, to help execute on our strategic priorities. To conclude, we believe that our biggest near term opportunities lie in our initiatives to improve effectiveness across the full cycle of capturing new business, including better solutioning, using the right pricing models and driving better economics on renewals. With revenue growth being our clear goal, I'm encouraged by the positive progress we've made in expanding our pipelines and bookings. Looking back over my first year as CEO, I've gained a deeper appreciation of the essential services we provide.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

We play a pivotal role in driving global commerce. We have strong and lasting relationships with clients that view us as strategic partners, leveraging our global delivery capabilities to help them with their transformation journeys. That said, our goal remains clear: to drive profitable revenue growth. Together with our experienced leadership team, I'm confident we have a strong portfolio of complementary and transformative IT services to deliver long term success and continue building strong value for all stakeholders. The past is history.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Today, we are a coordinated team running fast, breaking out of silos and bringing out the best in each other. With that, let me turn the call over to Rob for a detailed review of our third quarter results.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Thank you, Raul, and good afternoon. Today, I'll go over our third quarter results, provide our view for the fourth quarter and update our full fiscal year 2025 guidance. While facing incremental FX headwinds, 3Q total revenue of $3,200,000,000 fell in line with our expectation, while organic revenue declined 4.2% ahead of the top end of our guidance range. As Raul mentioned earlier, our book to bill ratio significantly improved to 1.33, driving a trailing twelve month ratio to 0.96 up from 0.88 last quarter. Adjusted EBIT margin expanded 140 basis points year over year to 8.9% ahead of our expectations.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

This performance was primarily driven by higher yields from cost management initiatives as well as the deferral of certain planned marketing and IT investments to ensure they are more closely aligned with our evolving business priorities. In the quarter, we also recognized a 50 basis point benefit from equity compensation savings associated with executive leadership changes made during the quarter as we continue to reshape and strengthen our senior team. These tailwinds were partially offset by $10,000,000 charge related to the disposal of hardware assets as we consolidate our data centers. Non GAAP gross margin for the third quarter came in at 25.1%, an improvement

[Robert Del Bene, Executive VP & CFO at DXC Technology]

of 150

[Robert Del Bene, Executive VP & CFO at DXC Technology]

basis points year to year. This expansion was primarily driven by savings from disciplined resource management practices and the impact from restructuring, more than offsetting lower revenue and the data center hardware asset disposal. Non GAAP SG and A as a percentage of revenue increased 70 basis points year over year to 10.3%. This was primarily driven by lower revenue and investments in our sales team as well as IT infrastructure related to our ERP consolidation efforts. These impacts were partially offset by the equity savings from recent executive leadership changes.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

As a reminder, the year to year changes in our non GAAP gross margin and non GAAP SG and A are normalized for the reclassification of certain business development costs to SG and A that I discussed last quarter. Non GAAP EPS was 0.92 up from $0.86 in the third quarter of last year. The $0.06 increase was primarily driven by higher adjusted EBIT of $0.1 lower net interest expense and taxes of $0.02 each and the impact of a lower share count of $0.03 partially offset by an $0.11 decline to non controlling interest that included as non recurring benefit in the third quarter of last year. Now turning to our segments. GBS, which represents 52% of total revenue, was down 50 basis points year to year organically.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

The GBS profit margin increased by 150 basis points year to year to 13.4% largely due to more efficient resource management. Within the GBS segment, consulting and engineering services organic revenue declined 2.2% year to year. This was primarily driven by ongoing market pressures affecting custom application projects, which account for roughly two thirds of CES revenue. However, this decline was partially offset by momentum in our enterprise applications business as we continue to increase our capabilities. The book to bill ratio improved in the quarter to 1.28 due to third quarter seasonality and our improving go to market execution.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

The trailing twelve month book to bill ratio remains stable at slightly more than one point zero. Insurance and horizontal BPS organic revenue grew 5.6% year to year. Our insurance services and software business, representing approximately 80% of the total, continued to deliver mid single digit growth. This performance was driven in part by expanding software license revenue that increased at a mid teen rate. The book to bill ratio for insurance and horizontal BPS was 1.05, including a higher mix of new work compared to bookings during the first half of the year.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

On a trailing twelve month basis, that book to bill ratio was 0.82. GIS, which represents 48% of total revenue, declined 7.8% year to year organically, and services revenue was down approximately 7% and resale fell approximately 16%. Profit margin declined 50 basis points year to year to 6.5%, reflecting the impact of lower revenue and the hardware asset disposal charge that I referred to earlier. These headwinds offset the benefit of our ongoing efforts in resource management and optimizing software and data center costs. On a sequential basis, the GIS profit margin declined 170 basis points, primarily due to the hardware asset charge and last quarter's discrete benefit related to the settlement of a legal matter.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Within GIS, cloud IT owned security organic revenue declined 6.6% year to year with services down approximately 7%, narrowing the rate of year to year decline by two points from last quarter. 3Q resale was down approximately 2%, improving from steeper declines in recent quarters and we continue to be selective on our resale opportunities based on deal economics. The book to bill ratio of 1.51 was driven by timing of renewals and our improving go to market effectiveness. The trailing twelve month book to bill ratio equaled 0.9. Modern Workplace declined 11.3% year to year organically with services revenue down approximately 5% and resale revenue down about 30%.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

The book to bill ratio equaled 1.25 and the trailing twelve month book to bill ratio was 1.04. Turning to our cash flow and balance sheet. During the quarter, we generated $483,000,000 of free cash flow compared to $585,000,000 in the same period last year with the delta primarily driven by working capital. Additionally, CapEx increased by $46,000,000 to $167,000,000 largely reflecting our efforts to reduce new financial lease originations, which were limited to just $3,000,000 in the quarter. Taken together, CapEx and lease originations as a percent of revenue equal 5.3%.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

As a reminder, financial lease originations are not included in free cash flow. Fiscal year to date free cash flow through 12/31/2024 totaled $576,000,000 exceeding our prior full year guidance of approximately $550,000,000 This outperformance was primarily driven by adjusted EBIT for the first nine months of the year exceeding our expectations along with lower than anticipated restructuring charges. Our disciplined resource management practices, which have driven a net headcount reduction of nearly 5,900 since the start of the year, have enabled us to remain on track to meet our cost saving targets for the year. With our measured and deliberate approach on directing actions to the right areas across our organization, we are now expecting restructuring charges to be a maximum of $100,000,000 above last year compared to the $250,000,000 we initially outlined. We will continue to drive targeted restructuring reductions across our operations into fiscal twenty twenty six, utilizing the remaining funding planned for fiscal twenty twenty five.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Total debt at the end of the quarter was equal to 3,800,000,000 reflecting approximately $80,000,000 of capital lease pay down and the currency impact on our euro denominated bonds. Total cash on our balance sheet increased by approximately $480,000,000 quarter over quarter. This was driven by strong free cash flow and asset sale proceeds of more than $80,000,000 from facility sales and the divestiture of a non core business in Asia Pacific. Through December 31, we've generated approximately $150,000,000 of cash through dispositions and sale of other assets with line of sight to additional transactions. As a reminder, these proceeds are not included in our reported free cash flow.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

As a result of our strong free cash flow generation, asset sales and debt reduction over the first nine months of the fiscal year, we have lowered net debt by more than $750,000,000 to $2,100,000,000 With approximately $1,700,000,000 of cash on hand, we have delivered on our objective of strengthening our capital structure and will update our capital deployment priorities as we enter the new fiscal year. Now let me provide you with a view of our fourth quarter. We expect total organic revenue to decline 5.5% to 4.5%. We anticipate adjusted EBIT margin to be about 7%, reflecting the expected sequential decline in revenue, the impact from merit increases and increased investments in sales, marketing and IT. We expect non GAAP diluted EPS of about $0.75 And now for the full year, we now expect total revenue to decline between 4.74.9% year to year organically compared to the prior guide calling for a decline of 5.5 to 4.5%.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

We continue to anticipate full year GBS revenue to decline slightly year to year and GIS to decline at high single digit rates. We now expect our full year adjusted EBIT margin to be approximately 7.9%, up from our prior guide range of 7% to 7.5%, this being the third time this year that the guide has been increased. We now expect a full year non GAAP effective tax rate of approximately 33%, bringing our full year non GAAP diluted EPS to be about $3.35 an increase from our prior guide of $3 to $3.25 Free cash flow for the year is now expected to be approximately $625,000,000 an increase from our prior view of about $550,000,000 This improvement is largely due to the increase in our adjusted EBIT guidance and the lower anticipated restructuring spending. And with that, let me turn the call back over to Roger.

[Roger Sachs, Vice President, Investor Relations at DXC Technology]

Thank you, Rob. We now like to open the call for your questions. Operator, can you please provide the instructions?

[Operator]

Thank you. We will now begin the question and answer session. Your first question comes from the line of Brian Keane with Deutsche Bank. Please go ahead.

[Bryan Keane, Managing Director, Senior Equity Analyst - Payments, Processors, and IT Services at Deutsche Bank]

Hey guys, thanks for taking the question. Just wanted to ask about the organic growth in the third quarter kind of beat expectations in your guidance. But for the fourth quarter as we jump over to that quarter, it's still it's a slight decrease from where we did in the third quarter. And I know the bookings are up. So just trying to reconcile the increase in the book to bill and what that means for organic growth, especially as we turn into fourth quarter and into next year?

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Brian, it's Rob. Thanks for the question. The reason for that slight decrease in quarter to quarter guidance is related to the bookings in the first half of the year. And you recall, our bookings were in the range of 0.8 for the first half and that takes time to flow through bookings into the pipeline into the backlog rather into revenue. So that will be a bit of a drag for the next couple of quarters.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

And the better bookings that we experienced in third quarter will start to layer in over time. So it's primarily the first half that causes the decrease.

[Bryan Keane, Managing Director, Senior Equity Analyst - Payments, Processors, and IT Services at Deutsche Bank]

Got it. And that's helpful.

[Bryan Keane, Managing Director, Senior Equity Analyst - Payments, Processors, and IT Services at Deutsche Bank]

And then just obviously turning to the adjusted EBIT margins, quite a bit above our expectations in the quarter and you're raising guidance again. Just trying to make sure I understand the puts and takes between where we were in

[Bryan Keane, Managing Director, Senior Equity Analyst - Payments, Processors, and IT Services at Deutsche Bank]

the third quarter to the fourth quarter because it's a

[Bryan Keane, Managing Director, Senior Equity Analyst - Payments, Processors, and IT Services at Deutsche Bank]

little bit lower level even though we're increasing the full year.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Yes. So the drivers, the 8.9 had we referred in the call to some equity comp benefits that we experienced in the third quarter, which were one time in nature. So that drove about a 40 basis point help. So the bridge is really going from about 8.5% to 7% and the primary driver of the reduction is going to be the revenue decline quarter to quarter dropping down to the bottom line. And along with that, we have merit increases that we've given to employees where we had one month in the third quarter and three months' worth in the fourth quarter.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

So those are the two primary drivers of the margin degradation.

[Bryan Keane, Managing Director, Senior Equity Analyst - Payments, Processors, and IT Services at Deutsche Bank]

Okay. That's really helpful. Thanks for taking the questions.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Thank you.

[Operator]

Your next question comes from the line of Jonathan Lee with Guggenheim Partners. Please go ahead.

[Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners]

Great. Thanks for taking my questions.

[Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners]

Tremendous to see the book

[Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners]

to bill strength in the quarter. How much of the bookings momentum was driven by seasonal budget flush activities? And how would you characterize the deal environment into fiscal 4Q?

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

So it's Raul here. Thank you for the question. Look, the demand environment is not a big factor for us because we've got to execute operationally across the board from pursuits through pitches and conversion, etcetera. And really, that is what had a big impact in terms of getting that book to build up. It starts with people, right leaders in the right place.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Pipeline, obviously, bigger is better and better quality is better. We're working on that and making progress. Conversion rate increasing, another factor. Again, getting better but still a lot more to do. And then we did some revisions of comp plans within the year and we're carrying that forward as we're smarter about what we need to get out of our sales force.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

But across the board, better proposals, better sales and marketing material all had an impact on that.

[Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners]

Thanks for the detail there, Raul. As you think about calendar year '25, and I know it may be early, is there anything in your customer conversations that would give you confidence that perhaps calendar twenty five should be better than calendar twenty four for you from a demand perspective?

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

I think the demand for the set of services that we have is very solid. We are operators and we're trusted partners with global companies that make multiyear commitments to us to help them run their businesses. And that is longer term, multiyear, larger. Then on the other side of our business, on consulting and engineering, they're shorter term. They're more transformational.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

They get booked and they get burned on a quicker sequence. So, for us, it's more of the mechanics of getting the right combination of those in place so that we can have more predictability and see an upward slope. But I'm more focused on internal operations management, measurement, performance than I am the external environment is good. I mean, look, technology is changing every industry in every country, everywhere. And it's not going to stop.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

If anything, it's going to get faster. Pace of change increases. AI adds another dimension of complexity. Complexity means that our customers need people who are experienced and can bring very relevant and current expertise to the table. So, demand environment's solid.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

But we also, looking across all of our verticals, had a pretty solid across every single vertical performance in the last quarter. And, again, I don't see anything today that shows a blip. Obviously, there is you can read in the newspaper every day there is trade policy that can change certain industries and have big impacts and could impact demand. But right now, performance against the backdrop of demand that we have and then being successful in new pursuits, that's the key to success for us. Appreciate it.

[Operator]

Your next question comes from the line of Tianxing Huang with JPMorgan. Please go ahead.

[Tien-tsin Huang, Senior Analyst at JP Morgan]

Hi, Rob. I wanted to ask on the margins. I heard that there was a deferral, I think of some marketing expenses. Just curious if I heard that correctly. And did you size that?

[Tien-tsin Huang, Senior Analyst at JP Morgan]

And is that going to be pushed out into fiscal twenty twenty six? And same question on the restructuring charges, the $100,000,000 max now that's below the $250,000,000 is the $250,000,000 target now lower or is it just a push out of that as well? Yes. So

[Robert Del Bene, Executive VP & CFO at DXC Technology]

the investments we had some investments included in the guide for 3Q and a modest increase in 4Q as well. And I just want to take back Tien Tsin. We've had new marketing leaders added, a new CIO added, new leaders in our go to market in both Europe and The Americas. And these leaders are being really we're being really deliberate and thoughtful on where we make our investments. So while we left room in the guide, they're onboarding, they're evaluating what we have in house and we're again, we're being very deliberate and a little slower than I originally plugged into the guide in terms of incremental investments.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

So, we'll continue to be extremely thoughtful and prudent as we go forward with the investments. We do expect an uptick. We're basically rebuilding our marketing function. So we are expecting increased investments over time and we have system consolidations in IT that we're going to be investing in along with providing much better AI capability in house to become more efficient and streamlined. So the IT investments will increase modestly over time and then perhaps once we get past the bubble, they'll come back down.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

And from a sales perspective, we'll continue to build our capability and drive in an effort to drive future revenue growth.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Yes. Just a data point to back that up. Our marketing leader came in, in June, right? So we're talking about six, seven months of effectively being on the ground and rebuilding the team. So relatively new team getting a handle on what we had and what we need to do and just taking a little bit more time.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

But I'd rather be thoughtful and deliberate and use the dry powder at a later date.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

And so, Tien Tsin, on your question on restructuring, I mentioned in the prepared remarks that we've been able to execute on our cost reductions with less restructuring similar to the investments we're being extremely targeted and thoughtful about where we deploy the restructuring dollars. So we do plan on continuing that effort. We're going to keep drilling down and rationalizing our spend profile, our overhead become more efficient and carry that $150,000,000 into fiscal twenty twenty six, which on the surface would be a $50,000,000 year over year increase. So that's our current plan and we'll add more to that ninety days from now when we do the year end call.

[Tien-tsin Huang, Senior Analyst at JP Morgan]

Understood. Thank you.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Thank you.

[Operator]

Your next question comes from the line of Brian Bergin with TD Cowen. Please go ahead.

[Bryan Bergin, MD - Equity Research at TD Cowen]

Hi, guys. Good afternoon. Thank you. Wanted to dig in on the free cash flow outperformance here. And first, Rob, just to clarify on the margin that rolls into that.

[Bryan Bergin, MD - Equity Research at TD Cowen]

Was the 8.5% the clean margin relative to your plan for the quarter?

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Yes.

[Bryan Bergin, MD - Equity Research at TD Cowen]

And then as we think about the sustainable versus the transitory factors that you talk more about here, things like timing on some of the restructuring and these margin items versus more efficient working capital and CapEx. Like what are the puts and takes as we look forward here and consider your prior view of returning to a foundational level of roughly $700,000,000 of free cash flow?

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Yes. So, no, thanks for the question, Brian. So, let me step through this. So, our guide is for the full year is now $625,000,000 up from the $550,000,000 If we think of that, the two primary impacts to that, which we have gone through all year is the incremental restructuring, which is now targeted at a max of $100,000,000 and then the shift of capital leases to capital expenditures. If you make those two adjustments, our free cash flow for fiscal twenty twenty five is right on top of where we were in fiscal twenty twenty four around $7.50 in that ballpark.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

So our underlying free cash flow generation is stable. Now going from 2025 to 2026, I would think of that 06/25 as a good foundation. We will continue to minimize capital leases, which will put a little pressure on capital going forward and we have to work through the dynamics going forward ninety days from now. The restructuring right now, what I'm suggesting is we are holding that $150,000,000 and we'll spend that as needed in fiscal twenty twenty six. So that would be a $50,000,000 worth of pressure on that $625,000,000 but we have working capital, we have our EBIT profile, we have cashed out.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

So we have a number of significant drivers of free cash flow that we'll be working through during the fourth quarter before we set our guide for next year.

[Bryan Bergin, MD - Equity Research at TD Cowen]

Okay. Okay. That's helpful.

[Bryan Bergin, MD - Equity Research at TD Cowen]

And then as we kind of marry the cash flow, the balance sheet, net leverage looks like it's down to about one turn gross debt down. Just how are you thinking about capital allocation here? I know there wasn't much buyback in the quarter. I'm curious if anything would preclude you to start becoming more active there or are you reaching a point where M and A starts to become more of a priority?

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

We're going to give an update on capital allocation for next year at the next call. We're going to evaluate what we have in terms of opportunities to get the biggest return for our investments. As you know, part of what I've been doing is with the team is making sure that we've got an operating system that is effective on a stand alone basis, but more importantly, if we were to do any sort of smaller M and A, that we can be super accretive, both in terms of revenue, clients, people, etcetera. So, those are not fully aligned yet, and we'll give you more color on capital use in the next quarter, but we're making progress along that front so that we have the optionality.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

And Brian, I would just add that we're executing exactly as we told you we would at the beginning of the year. We suspended the buyback. We focused on improving our balance sheet this year. We've accomplished that and we're going to reevaluate our priorities next quarter as we head into fiscal twenty twenty six. All three levers are still important to us, having the right capital profile, investment in the business and return to shareholders are all important to us.

[Bryan Bergin, MD - Equity Research at TD Cowen]

Okay, understood. Thank you.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Thanks.

[Operator]

Your next question comes from the line of Matthew Rothwell with RBC Capital Markets. Please go ahead.

[Matthew Roswell, Research Analyst at RBC Capital Markets]

Yes, good evening. Congratulations on a good quarter. I guess,

[Matthew Roswell, Research Analyst at RBC Capital Markets]

could you talk a

[Matthew Roswell, Research Analyst at RBC Capital Markets]

little bit about what you're seeing in terms of win rates and pricing? And for pricing, especially around renewals and whether you're kind of through most of the legacy not very profitable contracts?

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Thanks, Matthew. It's Rob. So, I would describe our pricing dynamics this year as being stable and that is across the board. Now with regard to renewals, there are, this is a very targeted conversation, contract by contract. We have renewal strategies for each of our contracts.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

And in cases where we set out to have better economics going forward, it's both economics and terms going forward, we have been able to accomplish that. Our intention is to go into every renewal coming out of it with good economics for us, having a customer who is equally happy with the outcome of the discussions and the negotiations and have a win win. So we've done a good job in the contracts we've targeted for better terms and better prices. And we'll continue to operate that way. We go into each renewal with the intention of renewing that contract.

[Matthew Roswell, Research Analyst at RBC Capital Markets]

And I guess in terms of the win rates, are you seeing

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Win rates have been very stable. Through the first half of the year stable, in the third quarter, we actually did better. So we had improved win rates in the quarter and it's another indication that the go to market changes that we're making are taking hold. Along with the pipeline generation and the bookings improvement, the win rates have improved. And I'd also had I mentioned earlier that our pipeline in the fourth quarter is also in a position very well for us.

[Matthew Roswell, Research Analyst at RBC Capital Markets]

Excellent. Thank you very much.

[Operator]

Your next question comes from the line of Jamie Friedwin with Susquehanna. Please go ahead.

[Jamie Friedman, Analyst at SIG]

Hi, good evening. Raul, I was hoping to get your perspective as to which of these segments have the most opportunity for improvement. The book to bills by segment really vary or they diverge from the reported revenue growth rates. So maybe that's part of the answer. But from your perspective, which of these segments do you think is under indexing either the market or your objectives?

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Yes. So look, one point I want to make is that now having been here a full year operating all of the units that we have, that I feel that we've got a very solid portfolio that is in current demand and that is well positioned for future demand. So we are focused on building across every one of our segments our two offerings in the geographies, building on top of the great clients that we have today and then being worthy of competing and winning on net new accounts. And we're starting to get great early indicators that as we bring the new face of DXC into the marketplace and tell our story in a more efficient and effective way that we can click up on our conversion rate. So, I wouldn't I'd say across the board, they are all they all have room to improve.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

And that improvement is in execution. That improvement, when you get down into the ingredients of what it takes to win, it's the right solution, it's the right sales and marketing material, it's the right pitch, it's the right price. So I don't have a segment where, oh, gosh, we've got that's a big turnaround there. They all have room to grow and they all have room to improve. Insurance is performing very, very well and will continue to perform well.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

And I think we're very well positioned globally in multiple areas there. And so I'm excited to continue to build upon that success. But my approach is holistic, and there's upside across the entire portfolio.

[Jamie Friedman, Analyst at SIG]

Thanks for that. And then if I could just ask Raul or Rob, how should we be thinking about the opportunities between revenue growth and margin between GBS and GIS? Is there a zero sum there? Or can they both move in the same direction, hopefully up? But how do we think about the dynamic of those two revenue and margin?

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Yes. So, Jamie, it's Rob. Look, I think we have opportunity across the board for improvement as Raul mentioned. From an opportunity standpoint, the dynamics of the businesses are different as you know. CES is more project oriented with the GIS business units being longer term in nature in terms of the contracts, longer term outsourcing contracts.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

So the dynamics are different in that regard. There's opportunity for improvement in both, there's margin opportunity also across the board. So, we're going after all of it. We're going after all of it. And we'll give you more color for '26 as we get to next year's guide.

[Jamie Friedman, Analyst at SIG]

Okay. Thank you, guys.

[Operator]

Your next question comes from the line of Steve Bartman with BMO Capital Markets. Please go ahead.

[Keith Bachman, Senior Research Analyst at BMO Capital Markets]

Hi. It's Keith Bachman from BMO. Sorry about the background noise. I wanted to ask about dispositions. You've been doing a nice job of pairing back in some businesses.

[Keith Bachman, Senior Research Analyst at BMO Capital Markets]

You did some more this quarter. Is there more room to run? And I have to ask about managed services, which has been a drag for years. And I understand that the book to bill was positive. But, mainly, when your revenue is declining 10%, it's easier to have a positive book to bill.

[Keith Bachman, Senior Research Analyst at BMO Capital Markets]

But is there more that you can do on, more broadly pairing back on areas that you don't see performance improving? And is there any like just is there a magnitude that you can help us think about? Thank you. And that's my first question.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Yes, I'll take let me take the first one on the dispositions. We've had $150,000,000 in dispositions so far this year and we do have a list of other opportunities that we're actively pursuing. So, there is more room to run and I'm not going to quantify that. But I think yes, at the beginning of the year, we set out to get a couple of hundred million dollars of dispositions. And the timing is uncertain with these, especially when you're trying to sell facilities.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

But we're happy that we're at the 150 mark. I've got an opportunity list that would be in excess of what we originally were earmarking and the time I think we'll be successful in executing on that list, but the timing is uncertain.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Yes. And just on the managed services, one of the areas of investment has been in bringing talent that has great track records of success in building SaaS products in scale in various industries. They're here less than six months. They're actively working on the internal offering that we currently have today that supports our existing managed services account. And they'll be having a rollout of new features, functionality, essentially a relaunch of the whole product set, in the next six to nine months.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

So, that's an area that we're investing in. It's an area that I expect to see improvement, and it's an area where the talent that we brought in is making an impact, but a little bit too early to roll out today.

[Keith Bachman, Senior Research Analyst at BMO Capital Markets]

That leads into my second question. But how able do you think your very senior leadership team is? Do you think there's more you need to add? Or do you feel like you have the team in place? And related to that, I'm not quite clear what there was a gain on your margin from equity.

[Keith Bachman, Senior Research Analyst at BMO Capital Markets]

Does that mean that some folks didn't stay who were recently hired? I wasn't clear what the genesis

[Robert Del Bene, Executive VP & CFO at DXC Technology]

of that was. No, this is certainly Thanks and congrats. Yes. I'll let Raul take the question. But just on the financial impact in the third quarter, the benefit was just a reversal of equity that we had accrued that the executives left and we reversed those accruals.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Yes. And I'm super happy with the velocity that we've been able to bring in super experienced talent that I've worked with in many cases across different companies over the last twenty, twenty five years. Having them join, having them have an impact, has been terrific for me personally. And so, the good news is that that network is in place. That network still has more to go if needed.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

But, as you know, as you bring on every team, you get everybody settled and you get everybody going in the same direction. And that's what's happening today. So I'm super happy on the talent side and, and we'll make changes as needed, but very satisfied with where we are today.

[Keith Bachman, Senior Research Analyst at BMO Capital Markets]

Okay. Many thanks.

[Operator]

Your next question comes from the line of Jason Kupferberg with Bank of America. Please go ahead.

[Tyler DuPont, Analyst at Bank of America]

Good afternoon, Raul and Rob, this is Tyler Dupont on for Jason. Thanks for taking the questions. I wanted to start by touching on bookings.

[Tyler DuPont, Analyst at Bank of America]

It was

[Tyler DuPont, Analyst at Bank of America]

nice to see positive bookings on a quarterly basis for both GBS and GIS for the first time in quite a while. Can you maybe discuss how much of that was due to large deal wins versus the smaller deals? I guess, what I'm trying to get at is the duration and ramp timeline and what that looks like for these new bookings as well as the potential ability to backfill as we move through calendar '20 '20 '5?

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Yes. Thanks for the question, Tyler. We did have a significant renewal in the third quarter and we mentioned that in the call at the end of the second quarter that there was a big opportunity that slipped out of the quarter, which we ended up booking like the next week or within ten days of the beginning of this quarter. And that was approximately $400,000,000 So our book to bill without that big renewal was still very healthy in the $1,200,000 range approximately. The rest of the bookings were they were healthy across the board.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

There was a good mix of project based services and outsourcing longer term outsourcing services. So, the strength of those bookings will start manifesting themselves as we progress through fiscal twenty twenty six. And as I mentioned earlier, the pipeline looks good for the fourth quarter and we're expecting another good bookings quarter in the fourth.

[Tyler DuPont, Analyst at Bank of America]

That's helpful, Rob. Just shifting gears a bit, I also wanted to ask about margins. I know it's been brought up a couple of times, but it's nice to see the outperformance in the quarter. But just want to get your take on the sustainability of the margins by segment. I know 4Q is taking a step down and in 3Q we saw GBS really outperform on the segment level.

[Tyler DuPont, Analyst at Bank of America]

But just as we look through 4Q and we look through calendar twenty five, just sort of what sort of dynamics are you expecting? What segments you anticipate will drive further expansion? Anything along those lines would be helpful.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Yes. The expect again, I will pass on commenting on fiscal 'twenty six expectations. But on the fourth quarter, the items we mentioned earlier, both the revenue declines and the merit increases will be across the board. So they will impact both of the segments in the fourth quarter from a quarter to quarter perspective.

[Tyler DuPont, Analyst at Bank of America]

Understood. Thank you.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Thank you.

[Operator]

Your next question comes from the line of James Faucette with Morgan Stanley. Please go ahead.

[James Faucette, Managing Director at Morgan Stanley]

Great. Thanks very much. You guys have answered a lot of my questions today and appreciate all the details. Just wondering if you can give us a little bit of incremental color on what industry verticals you see delivering kind of better than expected growth versus maybe which ones were weaker than maybe you would have thought?

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Yes. So let me, so James, let me take that and to address that for both GBS and GIS separately. But from a GBS perspective, we had strength in the quarter and the insurance sector, public sector was strong, did well in communications and media and in healthcare as well. So those were our better performers, growth sectors for GBS. And in GIS, we did well in travel and transportation and healthcare, energy, those were primarily the better performing sectors.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

And from a quarter to quarter perspective, we had kind of broad based improvements quarter to quarter in both GES and GIS.

[James Faucette, Managing Director at Morgan Stanley]

Got it. Got it. Appreciate that. And then when you think about particularly the public sector, how should we think about potential benefits or disruptions from at least what you've seen thus far from a public policy standpoint and intentions under the new administration?

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Yes, I'll take that. Just to be clear, when we talk about public sectors, public sector outside The United States, so heavy in The U. K, and U. K, Ireland, Australia. So U.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

S. Domestic cuts or changes in budgets, etcetera, do not have an impact

[James Faucette, Managing Director at Morgan Stanley]

on us here. That's great color. Appreciate that.

[James Faucette, Managing Director at Morgan Stanley]

Thanks so much, guys.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Thank you.

[Roger Sachs, Vice President, Investor Relations at DXC Technology]

Thank you.

[Operator]

Your final question comes from Rod Bourgeois with Deep Dive Equity Research. Please go ahead.

[Rod Bourgeois, Head of Research at DeepDive Equity Research]

Hey, I want to ask a big picture question here. I think in three months when you guide to next year, I want to talk about investment priorities. But for now, I guess I'd like to ask, are you approaching a new stage in your turnaround effort? Perhaps you could characterize the phase that you've been in over the last year and if you're seeing a new phase that's on the horizon. It seems like you've been working on a lot of the blocking and tackling in the last year.

[Rod Bourgeois, Head of Research at DeepDive Equity Research]

So if you could just give us a big picture perspective on the overall turnaround trajectory there.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Sure. Let me give it a shot first. Look, we've changed behavior and now we need to sustain that behavior change and continue to get better along the way. We're getting better wired to win on a consistent basis, but it's still early and there's a lot of work left to be done. So, I think it's about consistency and scale on the positives and then getting to the next set of items that needed to be fixed on the checklist.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

It's big. It's global. It takes a little bit of time, but we're very happy with the progress that we're making and we're very happy with the plans that we have to make continued progress in the upcoming

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

year.

[Rod Bourgeois, Head of Research at DeepDive Equity Research]

Okay. All right. Well, maybe more to come on that in three months. I want to ask about your Q4 revenue guidance.

[Rod Bourgeois, Head of Research at DeepDive Equity Research]

I know you addressed that some earlier, but since you're implying a sequential revenue decline, I want to ask more about that because there is considerable history for positive quarter to quarter revenue seasonality heading into the March. So I'm wondering if your guidance is conservative or if there are some above normal revenue runoffs occurring on existing deals. I mean, I know you had weak bookings in the first half of last year, but you've also had years in the past with weak bookings, but still positive seasonality in the March. So just maybe your guidance is conservative or maybe there's another factor that's at play. Just wanted to ask on that.

[Rod Bourgeois, Head of Research at DeepDive Equity Research]

Thanks.

[Robert Del Bene, Executive VP & CFO at DXC Technology]

Yes, Rod. I describe our guidance as right down the middle. I would not characterize it, our revenue guidance as conservative. So that's for starters. In terms

[Robert Del Bene, Executive VP & CFO at DXC Technology]

of

[Robert Del Bene, Executive VP & CFO at DXC Technology]

dynamics, the overwhelming driver of the revenue decline is the first half bookings and that bleeding through the second half of the year and into the fourth quarter. So that is the primary driver. It is not new runoffs or other exposures.

[Rod Bourgeois, Head of Research at DeepDive Equity Research]

Okay. What I'm not following is bookings is adding to backlog. So, in order for revenues to decline, there has to be some form of runoff on your existing run rate, particularly in a quarter where there's positive seasonality. So I know the bookings were weak, but that's translating into a net runoff, it appears. And I'm just inquiring if that's what you're looking at.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Yes. Look, not all bookings are equal in terms of period of performance for burn, etcetera. So while it's an important number, the ingredients of the number, what can get burned within the next two quarters, within the first year of the signing, varies. In some very large deals, the ramp up is slow and then hits. In smaller ones, you book, bill and you burn, right?

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

So, it's all in the nature of what the booking was and is and how we're dealing with two or three quarters ago. But part of what we need to do is to increase the top line, the revenue side, and that will help smooth these sorts of transitions out over the next quarters.

[Rod Bourgeois, Head of Research at DeepDive Equity Research]

All right, guys. Thanks.

[Raul Fernandez, Interim President, Interim CEO & Director at DXC Technology]

Thank you.

[Operator]

And that concludes our question and answer session. And I will turn the conference back over to Roger Sachs for closing remarks.

[Roger Sachs, Vice President, Investor Relations at DXC Technology]

I want to thank everybody for joining us today and we look forward to speaking with you next quarter.

[Operator]

And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.

Participants

Executives

• Roger Sachs, Vice President, Investor Relations
• Raul Fernandez, Interim President, Interim CEO & Director
• Robert Del Bene, Executive VP & CFO

Analysts

• Bryan Keane, Managing Director, Senior Equity Analyst - Payments, Processors, and IT Services at Deutsche Bank
• Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners
• Tien-tsin Huang, Senior Analyst at JP Morgan
• Bryan Bergin, MD - Equity Research at TD Cowen
• Matthew Roswell, Research Analyst at RBC Capital Markets
• Jamie Friedman, Analyst at SIG
• Keith Bachman, Senior Research Analyst at BMO Capital Markets
• Tyler DuPont, Analyst at Bank of America
• James Faucette, Managing Director at Morgan Stanley
• Rod Bourgeois, Head of Research at DeepDive Equity Research