DXC Technology(US:DXC)2023-08-03 01:04Financial Data and Key Metrics Changes - Non-GAAP EPS was $0.63, down $0.12 compared to the prior year, primarily due to lower pension income and reduced asset sales [18][10] - Organic revenue growth was down 3.6%, approximately $75 million lower than the midpoint of guidance [29][39] - Adjusted EBIT margin was 6.5%, impacted by revenue shortfalls, with expectations to improve in the second half of the year [47][29] Business Line Data and Key Metrics Changes - GBS business grew 3.3% in Q1, representing 49.4% of overall revenue, marking nine consecutive quarters of growth [30][68] - GIS organic revenue declined 9.9%, with significant drops in cloud infrastructure and ITO, while security offerings grew 6.8% [19][20] - Analytics and engineering revenue increased by 8.8%, with a trailing 12-month book-to-bill ratio of 1.14x [44][10] Market Data and Key Metrics Changes - The company experienced a slowdown in customer expenditures, particularly in resale revenue from IT equipment, which accounted for half of the revenue miss [39][40] - The decline in project-based services revenue was also significant, contributing to the overall revenue shortfall [40][66] Company Strategy and Development Direction - The company is shifting to an offering-led operating model to enhance customer engagement and improve revenue and margin growth [9][26] - Focus on high-value growth in GBS while addressing historical challenges in GIS, aiming to reduce dependency on low-margin resale revenue [27][26] - Continued investment in AI capabilities across GBS and GIS to drive innovation and enhance service delivery [14][36] Management's Comments on Operating Environment and Future Outlook - Management noted a resilient business environment in FY '23 but acknowledged increased delays in customer demand for hardware and project work [8][39] - The company expects project work to improve in the second half of the year, despite current challenges [81][84] - Guidance for organic revenue growth has been reduced to negative 3% to negative 4% for the full year [48][72] Other Important Information - Free cash flow for the quarter was negative $75 million, attributed to seasonal factors and planned vendor payments [41][10] - The company is progressing with a $1 billion share repurchase program, which is expected to be self-funded by free cash flow and asset sales [22][46] Q&A Session All Questions and Answers Question: What caused the magnitude of the guidance cut? - Management highlighted that the guidance cut was primarily due to unexpected declines in resale revenue and project-based services, which were not anticipated at the start of FY '24 [78][80] Question: Has the CFO transition impacted the shortfall in expectations? - Management stated that the CFO transition had zero impact on the results, attributing the challenges to the operating model adjustments and market conditions [86][90] Question: What strategic changes are being considered to improve revenue trajectory? - Management indicated that strategic changes include focusing on high-margin services, enhancing customer delivery, and leveraging AI capabilities to drive revenue [116][120]