DXC Technology(US:DXC)2022-08-04 01:25Financial Data and Key Metrics Changes - Revenue for Q1 was $3.71 billion, representing a decline of 2.6% organically, with a book-to-bill ratio of 0.87 for the quarter [12][23] - Adjusted EBIT margin was 7%, and EPS was $0.75, with free cash flow at negative $12 million, an improvement from negative $304 million the previous year [13][24] - The trailing 12-month book-to-bill ratio is 1.06, with expectations to exceed 1 in Q2 [13][20] Business Line Data and Key Metrics Changes - Global Business Services (GBS) grew organically by 2.8%, marking five consecutive quarters of growth, while Global Infrastructure Services (GIS) saw a decline of 7.2% [16][30] - GBS now constitutes 47.4% of total revenue, an increase of 180 basis points [29] - Analytics and engineering within GBS experienced a strong organic growth of 15.7% [31] Market Data and Key Metrics Changes - The company faced a $1 billion headwind from foreign currency fluctuations, impacting revenue and margins significantly [28][39] - The demand for IT outsourcing (ITO) and Modern Workplace services remains strong, with customers seeking financially stable providers [20][48] Company Strategy and Development Direction - The company is focused on a transformation journey aimed at improving margins and customer relationships, with a target to eliminate $500 million in costs by year-end [11][17] - There is a disciplined approach to deal-making, prioritizing economically viable contracts from the outset [21][49] - The company aims to improve its governance and financial stability while enhancing its reputation in the industry [22][42] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for GBS services and the potential for margin improvement in the second half of the year [50][66] - The company acknowledges the challenges posed by foreign exchange rates and cost optimization efforts but remains optimistic about achieving long-term margin targets of 10% to 11% [39][60] Other Important Information - The company has returned $900 million to shareholders through stock repurchases, with plans to complete a $1 billion repurchase program [37] - Capital expenditures as a percentage of revenue decreased to 6.4% from 11.9% in the previous year [35] Q&A Session Summary Question: Demand and Client Conversations - Management noted no significant differences in demand between U.S. and international clients, with strong demand in GBS and GIS [46][50] Question: Free Cash Flow Projections - Management indicated that the reduction in free cash flow guidance was primarily due to margin impacts, with expectations for cash flow to build throughout the year [51][52] Question: Margin Shortfall in GBS - Management explained that the margin shortfall was due to investments in the global delivery network and the impact of foreign exchange rates [54][57] Question: Long-term Margin Targets - Management reiterated confidence in achieving long-term margin targets, emphasizing structural fixes and cost optimization efforts [59][61] Question: Turnaround Journey and Margin Trade-offs - Management acknowledged recent bumps in the turnaround journey but emphasized ongoing investments and a focus on revenue growth to achieve long-term margin targets [63][66] Question: Performance of Analytics and Engineering Business - Management highlighted strong performance in analytics and engineering, attributing it to effective data management and technology integration [70][72] Question: Application Business within GBS - Management expressed confidence in the application business, particularly in custom applications, and anticipated stabilization in growth [76][78] Question: GIS Performance and Future Outlook - Management indicated that improvements in the Modern Workplace segment would positively impact GIS performance moving forward [86]