DXC Technology Q1 2026 Earnings Report

DXC Technology EPS Results

• Actual EPS: $0.68
• Consensus EPS: $0.64
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.74

DXC Technology Revenue Results

• Actual Revenue: $3.16 billion
• Expected Revenue: $3.06 billion
• Beat/Miss: Beat by +$99.29 million
• YoY Revenue Growth: -2.40%

DXC Technology Announcement Details

• Quarter: Q1 2026
• Date: 7/31/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 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 Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q1 beat expectations with non-GAAP EPS of $0.68 and an adjusted EBIT margin of 6.8%, while organic revenue declined 4.3% and free cash flow more than doubled to $97 million.
• Positive Sentiment: Bookings grew 14% year-over-year with a trailing 12-month book-to-bill of 1.06, including a 1.2 book-to-bill in Consulting and Engineering Services, setting up pipeline-driven revenue potential.
• Positive Sentiment: DXC is enhancing its AI credentials, training 50,000 Generative AI engineers, receiving Gartner recognition, and securing AI-centric deals such as Unigaha and a strategic Boomi partnership.
• Negative Sentiment: Segment revenues remain under pressure with CES down 4.4% and Global Infrastructure Services down 5.7% organically, as clients favor longer-duration strategic deals over short-cycle projects.
• Positive Sentiment: Financial strength improved as net debt fell by ~$630 million to $4 billion, cash rose to $1.8 billion, and DXC repurchased 3.3 million shares for $50 million in Q1 with $150 million planned for FY26.

Presentation

[Operator]

Hello, and welcome to the DXC Technology First Quarter Fiscal twenty twenty six Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Roger Sachs, Vice President of Investor Relations. You may begin.

[Roger Sachs, VP & Head - IR at DXC Technology]

Thank you, operator. Good afternoon, everybody, and welcome to DXC Technology's first quarter fiscal twenty twenty six earnings conference call. We hope you've had a chance to review our earnings release posted to the IR section of DXC's website. Speaking on today's call are Rahul Fernandes, our President and CEO Ramnit Venkataraman, our new President of our Consulting and Engineering Services segment and Rob DelBenny, our Chief Financial Officer. Let me walk you through today's agenda.

[Roger Sachs, VP & Head - IR at DXC Technology]

First, Rahul will provide an overview of our results and update on our strategic initiatives. Rob will then walk you through our financial performance for the quarter as well as provide some thoughts on our second quarter and fiscal full year guidance. Rob and Raul will then take your questions. Certain comments made during today's call are forward looking and subject to risks and uncertainties that can cause actual results to differ materially from those expressed on the call. You can find details of these risks and uncertainties in our annual report on Form 10 ks and other SEC filings.

[Roger Sachs, VP & Head - IR at DXC Technology]

We do not commit to updating any forward looking statements during today's call. 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 included in today's earnings release. And with that, let me turn the call over to Raul.

[Raul Fernandez, President & CEO at DXC Technology]

Thank you, Roger.

[Raul Fernandez, President & CEO at DXC Technology]

We delivered first quarter results at the high end of our guided ranges for both organic revenue growth and adjusted EBIT margin with non GAAP EPS above the high end of guidance. Specifically, during the quarter, revenue declined 4.3% year to year on an organic basis, adjusted EBIT margin was 6.8%, Non GAAP diluted EPS was $0.68 and we also had another strong quarter of free cash flow generating $97,000,000 compared to $45,000,000 last year in Q1. Bookings increased 14% year over year, our third consecutive quarter of double digit growth resulting in a trailing twelve month book to bill ratio of 1.06, up from 1.03 at the end of fiscal twenty twenty five. Growth was broad based across many of our industry verticals. This trajectory underscores the emerging stronghold of our new go to market initiatives and improved execution.

[Raul Fernandez, President & CEO at DXC Technology]

We saw strong bookings in both Europe and Asia Pacific this quarter with book to bill ratios well above one driven by public sector strength across both regions and solid deal flow in manufacturing and consumer goodsretail in Europe. With a healthy pipeline and steady deal inflows, we remain confident in our ability to consistently drive a trailing twelve month book to bill ratio above one point zero. We continue to attract top tier experienced talent to our leadership team with a shared passion to win. I'm thrilled to welcome industry veteran Ramnath Venkatarman as President of Consulting and Engineering Services to lead the business into its next phase of growth. Ramnath brings nearly thirty years of global experience from Accenture where he built and grew high performing businesses across industries and regions.

[Raul Fernandez, President & CEO at DXC Technology]

He has a strong track record of helping clients embrace next generation technologies, especially AI, and delivering operational excellence through innovation and disciplined execution. Ramnav brings fresh perspective to CES and we're confident his leadership will help sharpen our go to market focus, drive growth and unlock the segment's full potential. Let me hand the call to Ramna to make a few brief comments.

[Ramnath Venkataraman, President - Consulting & Engineering Services at DXC Technology]

Thank you, Rahul for the warm welcome. I'm excited to join the DXC family and lead our CES business at such a pivotal time. The first few weeks have been energizing and I've been extremely impressed with our exceptional talent and the value that we're delivering for our clients. As I focus on driving profitable growth, the effort will be on delivery excellence through greater consistency, accountability and operational rigor. I look forward to scaling our innovation agenda to keep pace with the rapidly changing technology landscape and deliver greater value for our clients and our shareholders. Back to you, Rahul.

[Raul Fernandez, President & CEO at DXC Technology]

Thank you, Ramnath. AI is redefining every business process and redefining every customer interaction. Our approach to AI solutions is centered around integrating AI seamlessly into the fabric of our clients' operations, ensuring that AI is not just an add on, but a core component of their business strategy and go to market. Combining our deep domain expertise with advanced AI capabilities, we help clients across our segments move faster, operate smarter and unlock outcomes that were previously out of reach. Recognizing that technology is only as good as the people behind it, We're investing with urgency and talent, training over 50,000 Gen AI enabled engineers and achieving AI readiness across 92% of our technical teams.

[Raul Fernandez, President & CEO at DXC Technology]

Combined with our deep industry expertise, these capabilities are positioning DXC to lead with AI and deliver real enterprise grade impact. We are seeing results from our investments. We 're proud to share that DXC has been recognized by Gartner as an emerging leader in the inaugural consulting and implementation services market quadrant for generative AI. We believe this recognition reflects both the strength of our current AI capabilities and our clear strategic vision for helping clients deploy Gen AI at scale, with speed, security and real business value. It reinforces our position as a trusted transformation partner for enterprises navigating complex regulated industries with emerging technologies.

[Raul Fernandez, President & CEO at DXC Technology]

Let me share a couple of examples of how we are using AI based solutions to deliver impact for clients. First, we signed a long term agreement with Unigaha, one of Spain's top banks to modernize core operations, including mortgages, payments, procurement and loan management, tackling fragmented processes, limited agility and rising costs. At the heart of the transformation is AI and GenAI, empowering document automation, intelligent customer communication, virtual assistance and frictionless resolution of customer needs. The result, faster service, smarter operations and significant cost savings over time. Next, a leading German automotive supplier turned to us to take control of a fragmented SAP environment spread across six vendors in multiple countries and sites.

[Raul Fernandez, President & CEO at DXC Technology]

They needed one partner to help them streamline SAP service across manufacturing, supply chain, logistics, finance and procurement. We're delivering exactly that, standardizing processes, cutting through complexity and building a unified efficient SAP service landscape that enhances productivity and drives growth. As we expand our market reach, we know partnerships are key to scaling, which is why we continue to deepen our global ecosystem to unlock new opportunities. That's why I'm thrilled to announce that DXC entered into a strategic partnership with Boomi, a leader in AI driven integration automation. Boomi connects applications, automates workflows, manages APIs, and ensures data integrity across cloud and on premise environments.

[Raul Fernandez, President & CEO at DXC Technology]

By combining Boomi's AI tools with DXC's full stack engineering talent, our customers can link their different systems like orders, inventory and shipping, so everything works together seamlessly. This end to end connectivity helps clients streamline operation, automate routine tasks, and reduce complexity. It also enables faster, smarter decision making by surfacing insights faster to accelerate transformation. Internally, we are embedding AI across all corporate functions. In IT, we're enhancing developer productivity and automating service desk support.

[Raul Fernandez, President & CEO at DXC Technology]

Our security teams are leveraging AgenTik AI to deliver real time threat intelligence providing an almost 70% reduction in investigation time with 95% investigation accuracy. In marketing, we've cut content creation and video production time down by 30%. In HR, predictive analytics are helping us identify attrition risks, accelerate talent matching and improve general workforce utilization. Our legal team is automating contract reviews and risk assessments. And lastly, in finance, we're improving forecasting speed and accuracy through AI driven insights.

[Raul Fernandez, President & CEO at DXC Technology]

We're not just applying AI to improve our operations, we're pressure testing and documenting our journey as client zero. This hands on experience helps us move faster, learn in real time and bring smarter, more scalable solutions to our clients. While first quarter organic revenue growth came in at the high end of our guide, we know we need to do better and we're taking action. Our pipeline continues to expand and we're building toward more consistent bookings growth. Our focus is clear, driving sustainable profitable growth.

[Raul Fernandez, President & CEO at DXC Technology]

We're sharpening execution across the company with our leaders, instilling a winning culture and tackling the structural and operational issues that matter the most. As part of this journey, we continue to build a workplace where all 120,000 colleagues feel valued, supported and empowered. That commitment was recently recognized by Newsweek, which named DXC one of America's greatest workplaces for the second consecutive year. Over the past eighteen months, we've rebuilt our foundation, streamlining operations, strengthening leadership, reorienting around innovation, proactive solutioning, performance management, execution and talent. Turnarounds of this magnitude take time, but we're clear on the road ahead. We're moving in the right direction and we have confidence in achieving our full year guidance. Now let me turn it back over to Rod.

[Rob Del Bene, CFO at DXC Technology]

Thank you, Raul, and good afternoon, everyone. Today, I'll go over our first quarter results and provide guidance for the second quarter and our updated full fiscal year 2026 outlook. Before I begin, a quick reminder. Starting with first quarter, we're reporting our financial results in three segments that better align with how we run the business. These are Consulting and Engineering Services or CES Global Infrastructure Services or GIS, which includes cloud and ITO, modern workplace, security, and horizontal BPO, and finally, insurance software and services or simply insurance.

[Rob Del Bene, CFO at DXC Technology]

For reference, we filed an eight ks last week that includes two years of revenue, organic revenue growth and segment profitability under the new structure. This information is also available in our Excel data sheet, which will be posted to DXC's Investor Relations website immediately following today's call. And now starting with the first quarter results. Total revenue is 3,200,000,000.0 declining 4.3% on an organic basis towards the top end of our guidance range. As Rahul noted earlier, bookings grew by 14% year to year, marking our third straight quarter of double digit growth.

[Rob Del Bene, CFO at DXC Technology]

Our book to bill ratio of 0.9 for the quarter moderated from the levels we achieved during the second half of last year, largely reflecting typical seasonality in our business and the deferral of a couple of longer term larger deals in GIS. Adjusted EBIT margin was 6.8%, down modestly by 10 basis points year to year. We're investing to support future top line growth while continuing to drive productivity to offset revenue declines. With the transition to three segments, we adopted an updated classification of spending between cost of goods sold and SG and A. As a result, non GAAP gross margin expanded by 140 basis points, while SG and A as a percent of revenue increased by two thirty basis points, reflecting the reclassification and investments.

[Rob Del Bene, CFO at DXC Technology]

Given the reclassifications, we believe adjusted EBIT represents the clearest view of profitability for our results in the near term. Non GAAP EPS was $0.68 down from $0.75 in the first quarter of last year, largely driven by lower adjusted EBIT and higher taxes, partially offset by lower net interest expense. Now turning to our segment results. CES, which represents 39% of total revenue, declined 4.4% year over year on an organic basis. This reflects ongoing pressure in short cycle custom application projects with clients continuing to invest in larger strategic deals, which typically have significantly longer duration than short term project based services.

[Rob Del Bene, CFO at DXC Technology]

Underscoring client confidence in our capabilities, we drove bookings growth of 32% year to year for a strong book to bill ratio of 1.2, the third straight quarter of good performance. Our trailing twelve month book to bill also stands at approximately 1.2, which we expect to lead to improving CES revenue performance in the second half of this year and in fiscal twenty twenty seven. GIS, which represents 51% of total revenue, declined 5.7% year to year organically, which was consistent with our fourth quarter performance and in line with our full year expectation. Bookings for GIS grew modestly year to year with a book to bill of 0.7 driven by a couple of large deals that got deferred out of the quarter, which we expect to close in the coming quarters. The trailing twelve month book to bill improved to approximately 1.1.

[Rob Del Bene, CFO at DXC Technology]

Insurance, which represents 10% of total revenue, grew 3.6 year to year organically, largely due to growth in software and volume based increases in existing accounts. We continue to expect business to grow at mid single digit rates for the year. Now turning to our cash flow and balance sheet. During the quarter, we generated $97,000,000 of free cash flow, up from $45,000,000 last year. This increase was largely driven by lower in period capital requirements and the timing of certain software payments.

[Rob Del Bene, CFO at DXC Technology]

As a result, capital expenditures as a percentage of revenue declined to 2.8% compared to 6% in the same period last year. We also continued to minimize new financial lease originations, recording only $1,000,000 this quarter. Restructuring payments for the quarter were an incremental $4,000,000 year to year. Since the start of fiscal twenty twenty five, we've taken deliberate steps to strengthen our balance sheet by reducing debt and building cash to create financial flexibility. Over the past five quarters, we paid down nearly $350,000,000 of capital leases while eliminating new finance lease originations to just $25,000,000 These efforts, partially offset by currency movements in our euro denominated bonds, have brought our total debt down $60,000,000 to approximately $4,000,000,000 Over the same time period, our ability to consistently generate strong free cash flow enabled us to increase our cash balance by almost $570,000,000 since the start of fiscal twenty twenty five, bringing it to 1,800,000,000.0 As a result, we have reduced our net debt by approximately $630,000,000 With this solid financial foundation, we will continue to execute with focus and discipline against our capital allocation priorities for the year that include continuing to invest in our business to accomplish our top priority, sustained profitable revenue growth further strengthening our balance sheet by minimizing new financial lease originations and retiring a portion of our senior notes maturing in January 2026 and returning capital to shareholders with plans to spend 150,000,000 on share repurchases in fiscal twenty twenty six.

[Rob Del Bene, CFO at DXC Technology]

During the first quarter, we used our free cash flow to support these priorities, reducing both debt and returning capital to shareholders. This included $49,000,000 of capital lease paydowns and repurchase of 3,300,000 shares for $50,000,000 with a cash outlay of $48,000,000 Now let me provide you with our full year fiscal twenty twenty six guidance. We continue to expect total organic revenue to decline 3% to 5%. As a result of the benefit from currency tailwinds, we now expect total reported revenue in the range of 12,600,000,000.0 to $12,900,000,000 an increase of approximately $430,000,000 at the midpoint of the guide. At the segment level, we expect CES to decline low single digits organically with an improving performance in the second half of the year as the larger, longer duration deals ramp.

[Rob Del Bene, CFO at DXC Technology]

GIS is anticipated to decline at a mid single digit rate organically and insurance is expected to grow organically at a mid single digit rate in line with recent performance. We continue to expect adjusted EBIT margin to be between 78%. We now expect non GAAP diluted EPS to be between $2.85 and $3.35 an increase from our prior guide of $2.75 to $3.25 reflecting our higher reported revenue projection. We continue to expect free cash flow for the full year to be approximately $600,000,000 reflecting our EBIT guidance and our continued expectation of $30,000,000 of incremental restructuring spend in the year. For the 2026, we expect total organic revenue to decline 3.5% to 4.5%.

[Rob Del Bene, CFO at DXC Technology]

We anticipate adjusted EBIT margin in the range of 6.5% to 7.5%. And finally, non GAAP diluted EPS of $0.65 to $0.75 With that, let me turn the call back over to Roger.

[Roger Sachs, VP & Head - IR at DXC Technology]

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

[Operator]

And our first question comes from the line of Brian Berge with TD Cowen. Please go ahead.

[Bryan Bergin, Managing Director at TD Cowen]

Hey guys, can you hear me?

[Rob Del Bene, CFO at DXC Technology]

Sure, Cass. Hey Brian.

[Bryan Bergin, Managing Director at TD Cowen]

Sorry about that. Wanted to ask about just free cash flow, the puts and takes as you move through the balance of fiscal twenty twenty six? Just the confidence you have there, anything we should be mindful of as you move through the remaining quarters?

[Rob Del Bene, CFO at DXC Technology]

We're confident in the guide we gave. We did, as we just mentioned, did a little better in the first quarter. Have levers. We still have room for improvement in working capital. So that's a lever going forward.

[Rob Del Bene, CFO at DXC Technology]

Ryan, we expect we're going through the analysis of of the new tax legislation, and that we think will be a modest improvement from perspective going forward, which is not baked into the current guide yet. We have to do our work, and we'll update you in ninety days on that. So there's ample evidence here that we are going to continue to work the number. And so I feel really good about the guide. And from a risk perspective, feel really good about it.

[Bryan Bergin, Managing Director at TD Cowen]

Okay. Okay. That's clear. As it relates to bookings, it sounds like some things may have moved to the right a little bit, understandable in this environment. Just your 2Q expectations, just comment on pipeline view, replenishment post 1Q signings, those kind of things.

[Rob Del Bene, CFO at DXC Technology]

Yes. Our pipeline for 2Q is strong. And the way in the short term, the best indicator of general strength is the non mega pipeline, below $100,000,000 deals, if you will. That's not skewed by one or two big deals. And that pipeline shows solid growth across the board.

[Rob Del Bene, CFO at DXC Technology]

It's most pronounced in CES. So the expectation is we'll have another good quarter in 2Q on bookings generally. I'm expecting we have the opportunity, let me put it that way, we have the opportunity to further expand the trailing twelve months in 2Q. So it would be three quarters in a row, four quarters in a row of expanded trailing twelve months. So that's our expectation. Okay, very good. Thank you.

[Operator]

Thanks.

[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. Can you walk us through what contemplated in your fiscal twenty twenty six revenue growth outlook from a macro perspective across the range as well as across each of the segments? And can you also talk through the thought process of maintaining your revenue growth outlook despite an incremental quarter of visibility and the outperformance in the quarter?

[Rob Del Bene, CFO at DXC Technology]

Yes. Yes. So thanks for the question, Jonathan. Look, from a macro perspective, my comments will be similar to last quarter in that in our guide, our minus three to minus five guide, we left room for economic uncertainty. And I should say a worsening of conditions because of economic uncertainty.

[Rob Del Bene, CFO at DXC Technology]

So, you know, that still stands said it last quarter, still stands. We haven't seen a worsening in conditions. So we I feel like we still have room at the at the low end of the guide should conditions change. So feeling solid in our guidance range from that perspective. And in our prepared comments, we mentioned that we do expect narrowing of the declines in CES as we progress through the year.

[Rob Del Bene, CFO at DXC Technology]

We're starting we could see the layering in of the larger contracts that have come from the solid book to bills over the last three quarters. So it will start to turn into better revenue performance progressively as we go through the year and into fiscal 'twenty seven. So feeling good about that trajectory. Insurance, we've got a solid backlog, confident in single the digit projections for the year, maybe a little better in the second half than the first half is my expectation. And GIS is going to be in the range of the first half of the year, will carry over into the second half of the year.

[Rob Del Bene, CFO at DXC Technology]

That's the current expectation. Although the pipelines are good in GIS as well. So hopefully, we can improve that performance, but that's the current view.

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

Thanks for that color, Rob. And just to follow-up. I mean, you seen any changes to yield or win rates around your bookings given liberation Yes. Or any other macro

[Rob Del Bene, CFO at DXC Technology]

So we've been extremely consistent. And first, from a pricing perspective, our pricing has been very, very consistent year to year, quarter to quarter. In the first quarter, our win rates increased low to mid single digits, And that increase came in both CES and GIS, which was encouraging to us. So good performance from that perspective.

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

Appreciate that Rob.

[Rob Del Bene, CFO at DXC Technology]

Thank you.

[Operator]

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

[Jamie Friedman, Senior FinTech & IT Services Research Analyst at Susquehanna International Group]

Hi. I had a couple of questions. I'll just ask them both upfront. So in terms of the decline in the insurance bookings, has the company begun the journey of transitioning from like term to subscription yet? And if not, when do you expect that or would you expect that to occur?

[Jamie Friedman, Senior FinTech & IT Services Research Analyst at Susquehanna International Group]

That's the first one. And then just a very big picture question, but I'd love to get your perspective on if AI improves or in any way deteriorates your perception of your competitive position? Thank you.

[Raul Fernandez, President & CEO at DXC Technology]

Sure. Let me start with the last part and then Rob will pick up on the insurance question. No, look from at any time a new cycle of technology where literally we're reinventing every process, every customer interaction, every business to business interaction, It creates a great opportunity not just for established players but obviously for startups and disruptors. We've got an incredible foundation with our long history of relationships running very complex systems for our customers in many cases in highly regulated industries and a proven partner over time. So AI is a huge opportunity for us.

[Raul Fernandez, President & CEO at DXC Technology]

That's why we've talked about it so much in the prepared script of what we're doing internally and then what we're taking to market. But we are still in the early stages of this. As an example, we've seen like others have commented dramatic gains in code conversion and requirements validation, but quality assurance remains super time intensive. AI can produce code fast, but it often lacks the conceptual depth needed for accuracy, security and compliance. And so it requires basically more testing.

[Raul Fernandez, President & CEO at DXC Technology]

So while coding time goes down, testing time goes up slightly. Again, super early stage of learning by doing and we're learning by doing across all of our business functions and then across our companies that we serve globally. Rob, back on insurance?

[Rob Del Bene, CFO at DXC Technology]

Yes. Jamie, on your insurance question, the dynamics, the bookings and backlog dynamics in insurance are different than the other two the other two offerings that we have. It's it's it's the offering that has the most revenue coverage from in the in the backlog. So the the booking cycles are there there tend to be larger renewals that come periodically. So so in in period and even the trailing twelve months of bookings for the insurance business doesn't have the same relationship to near term revenues as it does in the rest of the business.

[Rob Del Bene, CFO at DXC Technology]

And that's why I'm confident even with the bookings well below a book to bill of one in the last few quarters, I know we have the backlog to deliver the mid single digit revenue progression throughout the year. So I'm feeling you know, I feel good about that. We haven't and your second point on that question was the transition to SaaS, and we have not had a significant transition yet. It's you know, strategically, we're going to get there, and we're gonna go you know, we're going through the the planning of that transition as we speak, and that'll be unveiled at a later time.

[Jamie Friedman, Senior FinTech & IT Services Research Analyst at Susquehanna International Group]

Got it. Thank you both.

[Raul Fernandez, President & CEO at DXC Technology]

Thank you.

[Operator]

Our next question comes from the line of Keith Bachman with BMO. Please go ahead.

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

Hi. Thank you very much. I know Brian had asked about the bookings outlook for the September. I wanted to raise that up a little bit and just how should we be thinking about bookings through the year in terms of the pipeline? And really the orientation of my question, just what do you think the book to bill needs to be such that when you arrive at 27%, a 0% or in terms of revenue growth might be possible?

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

But I'm just trying to can you talk about bookings trends that we might expect for the year? And what does it need to be to get to a zero?

[Rob Del Bene, CFO at DXC Technology]

Yes. So Keith, thanks for the question. And there's a lot packed into that question. First, I'll just preface everything. We don't give guidance on bookings.

[Rob Del Bene, CFO at DXC Technology]

But I'll tell you that the full year pipelines we have are healthy. They're strong. So that is a good indicator and gives us confidence in future bookings and heard Raul's comments at the beginning at the beginning of the call. So it's prefaced on data. It's prefaced on on what's in our current pipelines.

[Rob Del Bene, CFO at DXC Technology]

The the the level of book to bill required does vary by offerings. Just heard my comments related to the insurance business. So I'm gonna set that aside as I answer this question because that has different dynamics. The the portfolio the rest of the portfolio, CES has less in backlog than GIS as you enter a year or enter a quarter. So the bookings dynamics are more important in CES to get higher book to bills consistently, to get a trailing twelve month above one, to get to sustained to stabilize and get to sustained growth, a little less so in GIS.

[Rob Del Bene, CFO at DXC Technology]

So when when I think about without any precision, what I think about on a sustained basis and the other thing I'd point out, Keith, is that all of these businesses have a natural level of erosion in the backlog. Every company has it, right? So you have to factor that in to the answer. So you need I I I'd say you you need you need a pipeline I'm sorry. A trailing twelve months between one point zero five and one point one one on a sustained basis, depending on on the on the line of business.

[Rob Del Bene, CFO at DXC Technology]

They're a little higher for CES, but lower for GIS.

[Raul Fernandez, President & CEO at DXC Technology]

And let me just give some additional color just on the dynamics of this. As I've been here eighteen months, realized early on that the company had done obviously a good job historically in responding to RFPs and being competitive in renewals. We are much better competitively in our RFP process and we're getting much better in our renewal statistics. But we're also adding proactive solutioning and that is key. That is us bringing net new ideas, net new solutions that leverages some aspect of our implementation heritage and that leads to more opportunities with a higher probability of wins.

[Raul Fernandez, President & CEO at DXC Technology]

So this proactive solutioning that we're literally rolling out this quarter and beyond and scaling will add to the pipe that Rob commented on.

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

Makes sense. And just any comments on how duration may change as the year unfolds of your backlog?

[Rob Del Bene, CFO at DXC Technology]

Yes. Keith, hard to predict. It depends entirely on the mix of smaller project based services and larger deals. I'll tell you the project based services, as I described them, burn in six to nine months, and and the larger the larger, more strategic deals burn anywhere in the range of fifteen to twenty five months. So that mix really determines what the average duration is.

[Rob Del Bene, CFO at DXC Technology]

So a mix in any quarter could vary pretty significantly. And so we have had a larger mix to the more strategic deals the last three quarters, which is why in CES, we have not had revenue improvements to date, but could see it on a going forward basis.

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

All right. Makes sense. Many thanks, gentlemen. Cheers.

[Rob Del Bene, CFO at DXC Technology]

Thank you.

[Raul Fernandez, President & CEO at DXC Technology]

Thank you.

[Operator]

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

[Antonio Jaramillo, Equity Research Senior Associate at Morgan Stanley]

Hey guys, thanks for the question. It's Antonio on for James. I wanted to double click into the contracts that you guys are looking into like as far as shutting some of the lower margin contracts and how the sales traction around that is going with those new pricing constructs?

[Rob Del Bene, CFO at DXC Technology]

Yes. Antonio, we so the approach we've taken on from a contractual standpoint, where we have a contract that where the where the margins are not favorable, we always enter into the the renewal period with a strategy to work with the customer on both price and terms to improve the situation for us and to deliver more value to the customer. So that's the way we approach this. We don't approach it with a definitive list of contracts we want to exit. So I'd say over the last couple of years, as we've approached the market upon renewal, we've been able to get more favorable terms and arrive at a mutually beneficial relationship going forward.

[Antonio Jaramillo, Equity Research Senior Associate at Morgan Stanley]

That's helpful. And then on Gen AI, what type of investment strategy are you pursuing there? Is it more like organic, more like inorganic? And then how is that baked into some of these new engagements as far as pricing goes as well?

[Raul Fernandez, President & CEO at DXC Technology]

Sure. Look, I think all companies that have got a history or heritage of using technology to advance their businesses are actively learning by doing. And we are doing the same thing across our internal functions and also across key functions such as our security operation centers where we're deploying disruptive but proven technology, testing that technology, getting KPIs that are clear in early POCs and learning how to scale those in a much broader way. So we are getting and seeing the impact of efficiency. How that efficiency then leads to both revenue growth as well as cost optimization is work in progress.

[Raul Fernandez, President & CEO at DXC Technology]

And I think this calendar year is about learning by doing and applying those lessons learned in a much more scaled manner in the next fiscal year. But I am very, very positive and happy with the breadth and depth of where we're applying AI not just for our own internal operations but being thought leaders with our customers.

[Antonio Jaramillo, Equity Research Senior Associate at Morgan Stanley]

Got it. Thank you.

[Operator]

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

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

Thanks so much, Raul. I also want to pick your brain on AI. I'm curious if you're seeing existing clients look to reengage with DXC to consider adding AI content. And if that's happening already, is it impacting your bookings and ARR in any way? It's always that question of addition or subtraction that kind of thing. Just wanted to pick your brand on that.

[Raul Fernandez, President & CEO at DXC Technology]

Yes. No, no, no. It's absolutely addition. It's additive. And what I mentioned earlier about proactive solutioning, what we're trying to do is to focus in on highly scalable replicable frameworks that are AI centric and have some other hook where we've got some advantage, right?

[Raul Fernandez, President & CEO at DXC Technology]

So we know the industry. It's a highly regulated business that we've been serving for many years. We know the existing business processes. We know the existing data situation, meaning is it ready to use? Do we both need to work on it to get it ready to use?

[Raul Fernandez, President & CEO at DXC Technology]

So we are targeting our new proactive solutions that we're bringing to our customers which by the way being everybody wants to hear new ideas that have real bottom line impact and results. And so I'm happy with the packaging up that we've got with these proactive solutions and the initial conversations we're having with great clients.

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

Okay, great. I appreciate those thoughts. Ramath, welcome to the call. If you're on the call, can I ask a question to you? Just coming from Accenture evaluating CS and the time you've been there, how how strong are the bones there?

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

Do you anticipate making, meaningful or just more modest changes? Any thoughts on the delivery capability, that kind of thing? Thank you.

[Ramnath Venkataraman, President - Consulting & Engineering Services at DXC Technology]

Thank you. Thank you for the welcome. It's been a it's been a fabulous experience coming in and taking a look at the strength of the people and the capabilities that we have at DXC, the client stories and examples that we have. What we really need to do is make sure that we follow the, pieces that Rahul mentioned at the beginning, which is sustainable profitable growth. And there are really strong foundational elements that are in there, which Rob spoke about.

[Ramnath Venkataraman, President - Consulting & Engineering Services at DXC Technology]

The book to bill is very strong with 1.2. So my focus is really going to be on how do we convert the backlog without any leakages and make sure that in a programmatic way, convert those to revenues, which is on the top line side and on the execution side. Clearly, there are efficiencies to be had, whether it's on operational efficiency or on delivery execution by streamlining some of the processes that we have and making it a lot more simpler. But the the foundational elements are extremely strong. The client base is fantastic, and and the people capability is absolutely world class.

[Ramnath Venkataraman, President - Consulting & Engineering Services at DXC Technology]

So I'm very, very bullish of being able to convert this and really translating what Rob and Rahul said from a strong book to bill to a strong revenue growth story.

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

Excellent. Roger, don't be mad. Third question. Really, really quick. Just, Rob, for you, does the gross margin comparability?

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

I haven't gotten to the restatements when we're getting this question. Is there a way to get a comparable gross margin figure for the quarter?

[Rob Del Bene, CFO at DXC Technology]

Yes. I mean, our gross margins and you'll see it in the data sheets. Gross margins are stable. We had some as we've sharpened our we've gone through a lot of integration work, systems work as we've sharpened our classification of spending between cost and expense. On a year to year basis, you see the gross margins going up.

[Rob Del Bene, CFO at DXC Technology]

So that year to year is really the result of sharpening our pencil and better aligning spending with cost versus expense. But our margins quarter to quarter are consistent. And we expect that going forward.

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

Thank you for taking Thank my you.

[Operator]

Our next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead.

[Paul Obrecht, Equity Research Associate at Wolfe Research LLC]

Hi, thanks. This is Paul Obrecht on for Darren. Raul, you obviously have extensive visibility into enterprises, infrastructures and data foundations. Can you just provide us with an update on enterprise readiness for AI? What share of enterprises are actually ready to leverage these AI solutions versus the ones who still have extensive work to do before being able to leverage it?

[Raul Fernandez, President & CEO at DXC Technology]

I spent time obviously with our customers, but I'm also an investor in earlier stage companies. So I measure ourselves not just against the big competitors and then obviously leading class companies in many industries that we serve, but also up and coming disruptors. And so I looking at it from that point of view, I'm very optimistic that this will have a profound business impact and will change every interaction, every business to business interaction, every business to consumer interaction. But that change using AI will require a rethinking process, will require a relook at data and will require a new methodology. We've talked a lot in the past about waterfall and agile.

[Raul Fernandez, President & CEO at DXC Technology]

There will be a new way that we implement and part of what we're doing, what we're documenting by doing is trying to put together a framework that we can share with our customers to take this journey in a much more streamlined fashion. We are in the era of experimentation. All of us are trying it in many ways. There is no way to learn other than doing. So curiosity is king here and it's super important for our customers.

[Raul Fernandez, President & CEO at DXC Technology]

But there is a lot of data readiness that needs to be addressed. Obviously, privacy and all other types of regulatory issues need to be addressed. So plenty of work to be done because again this isn't a plug in and just accelerate an existing process. This will be rethinking every process using AI to replicate human functions, using AI to augment human intensity by lowering operational intensity. So plenty of change and if you're in the frontline of that change and you can document that change and share that change and experience with your customers you're in a great position as a partner.

[Paul Obrecht, Equity Research Associate at Wolfe Research LLC]

Thanks. That's really helpful. And then there's obviously been lots of change underway at the company in the past few years with new leaders coming in and efforts to enhance the operating model, revamp the go to market approach. Can you just touch on how employees have been responding to these changes internally?

[Raul Fernandez, President & CEO at DXC Technology]

Yeah. Employees are energized, committed to a winning culture, committed to competing across every opportunity. And I think what we've brought, if you think about the last eighteen months and I think about it in six month increments, the first month was heavy assessment and beginning to bring in new talent. The second six month period was adding to new talent and laying the foundation for new go to market solutions and processes. And we're in the middle of the last period, the next six months where we're scaling those.

[Raul Fernandez, President & CEO at DXC Technology]

And as we enter the second year, we think that the foundation that we've laid is very, very strong. The new talent, has been here for a period of time and you can see the impact that they've got across the organization. But it's not going to be a linear journey. It hasn't been. And we'll have accelerations in some areas.

[Raul Fernandez, President & CEO at DXC Technology]

We'll have some areas that don't move as quickly that we feel that we've got a handle on how to turn this company into a sustainable growth company.

[Paul Obrecht, Equity Research Associate at Wolfe Research LLC]

Appreciate the color. Thank you.

[Operator]

And our next question comes from the line of Rob Borges with Deep Dive Equity Research. Please go ahead.

[Rod Bourgeois, Managing Partner & Head - Research at DeepDive Equity Research]

Great. Thank you. Rod Bourgeois here. So historically DXC's margins seasonally improved as the fiscal year would progress. I think your guidance is not implying seasonally better margins down the road.

[Rod Bourgeois, Managing Partner & Head - Research at DeepDive Equity Research]

So I'm wondering if is that reflecting some guidance conservatism? Or are there other factors at work to offset the past seasonality that would exist?

[Rob Del Bene, CFO at DXC Technology]

Yes. Thanks for the question, Rod. So you're right. 1Q to 2Q, there typically is some seasonality, and it's varied year to year, but there has been some seasonality fairly consistently. So a little less so this year.

[Rob Del Bene, CFO at DXC Technology]

So that's true. However, we do have margins increasing in the second half of the year in the guide inherent in the guide. So we do have an expectation that we'll be improving margins in the back half of the year. So a little different pattern than previous years, but nevertheless progressing margins as we go along.

[Rod Bourgeois, Managing Partner & Head - Research at DeepDive Equity Research]

Okay. Okay, great. And then just a big picture question. You've mentioned the goal of achieving profitable revenue growth. And I just wanted to ask, can you just outline the main DXC repositioning factors that give you confidence that you're going to hit that crossover point at some point where you move into profitable growth?

[Rod Bourgeois, Managing Partner & Head - Research at DeepDive Equity Research]

Or maybe it's achieving growth that's more kind of at par with a peer group or something. But what are the main factors and when do you see that crossover point being reached?

[Raul Fernandez, President & CEO at DXC Technology]

Sure. We've touched on a couple of them. Obviously, a trailing book to bill is key to that and Rob mentioned where the hurdle point is on that. But for us, it's really around sales opportunities and our effectiveness in winning. It comes down to winning renewals that make sense economically for us and the customer.

[Raul Fernandez, President & CEO at DXC Technology]

It comes down to winning situations where we get invited to compete and those are RFP or advisory driven opportunities. And then one new gear which was not here before are the new proactive solutions where we've stepped back and we thought what can we do, what can we bring using AI that leverages some heritage meaning industry knowledge, process knowledge, technology knowledge, data knowledge with proactive and highly replicable solutions. And that is just coming into the marketplace today and we are scaling that and that's what gives me confidence that we're on the right trajectory.

[Rod Bourgeois, Managing Partner & Head - Research at DeepDive Equity Research]

You. Thanks, Ryan.

[Operator]

And with no further questions in queue, I will now turn the call back over to Roger Sachs for closing remarks.

[Roger Sachs, VP & Head - IR at DXC Technology]

Great. Thank you, everybody, for joining us today, and we look forward to speaking with you again next quarter. Thank you.

[Operator]

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

Participants

Executives

• Roger Sachs, VP & Head - IR
• Raul Fernandez, President & CEO
• Ramnath Venkataraman, President - Consulting & Engineering Services
• Rob Del Bene, CFO

Analysts

• Bryan Bergin, Managing Director at TD Cowen
• Jonathan Lee, Managing Director - Equity Research at Guggenheim Partners
• Jamie Friedman, Senior FinTech & IT Services Research Analyst at Susquehanna International Group
• Keith Bachman, Senior Research Analyst at BMO Capital Markets
• Antonio Jaramillo, Equity Research Senior Associate at Morgan Stanley
• Tien-tsin Huang, Senior Analyst at JP Morgan
• Paul Obrecht, Equity Research Associate at Wolfe Research LLC
• Rod Bourgeois, Managing Partner & Head - Research at DeepDive Equity Research