DXC Technology's second quarter fiscal year 2024 earnings call will be led by CEO Mike Salvino and CFO Rob Del Bene. The call will be webcasted with accompanying slides. Non-GAAP financial measures will be discussed and forward-looking statements will be made. The company will provide updates on its overall business performance, specifically its GBS and GIS businesses. The financial results and guidance will be discussed before closing remarks and a Q&A session. The company is pleased with its Q2 performance and is continuing to strengthen and execute on its offering based operating model.

In the second quarter, the company's organic revenue was better than expected, with GBS performing well and GIS showing progress. The EBIT margin improved, EPS was at the high end of guidance, and book-to-bill ratio improved. The company's new offering-based operating model is starting to show benefits, with improved revenue growth, margins, EPS, and free cash flow. The management team is focused on transitioning the company to higher performance and has added new senior executives to help execute growth and expansion goals.

The third paragraph discusses the leadership changes within the company, with Howard taking charge of applications, Andrew leading modern workplace, and Rob as the new CFO. Howard and Andrew bring valuable experience from their previous roles at IBM, Bank of America, Microsoft, and Accenture. Their expertise and relationships with customers will help drive the company's growth. The GBS business has also shown consistent growth and now accounts for almost 50% of the company's revenue. This aligns with the company's goal of making GBS the majority revenue source.

In the second quarter, the company saw a 2.4% organic revenue growth, exceeding expectations due to strong performance across all three offerings. Margins also increased from the previous quarter, with the insurance offering benefiting the most from the new operating model. The company is also successfully selling GBS offerings to GIS customers, generating $370 million in revenue and growing 11% in FY '24. The applications offering, however, is not growing and addressing this is a top priority for Howard, who is tasked with responding to the demand for AI and preparing customers for its implementation. Overall, the company's new operating model and strong leadership are leading to positive financial performance and there is potential for further growth.

In the second quarter, the GIS business showed improvement with a decrease in revenue decline and an increase in margin. The company is making progress in fixing their ITO business by selling facilities and partnering with AWS. The team has also implemented an offering-based operating model which has improved execution. Organic revenue was down 3.6%, mainly due to a reduction in low-margin resale revenues. Adjusted EBIT margin was 7.3%, above the company's guidance range.

The company's margin increased 80 basis points sequentially and was down 20 basis points compared to the previous year. This was mainly due to a reduction in pension income contribution. Excluding pension income, the non-GAAP EBIT margin improved from 6.3% to 6.7%. Non-GAAP EPS was $0.70, meeting the high end of guidance. SG&A was well managed and free cash flow was $91 million. The book-to-bill ratio was 0.81 for the quarter and 1.02 for the trailing 12 months. Gross margin improved by 120 basis points year-over-year and 230 basis points sequentially, while SG&A increased by 60 basis points. Adjusted EBIT margin was down 20 basis points year-over-year, but would have been up 40 basis points without pension income. Net interest expense also increased due to higher variable interest expense on short-term debt.

Non-GAAP EPS was down compared to the prior year due to higher interest expense, a higher tax rate, and lower pension income. The GBS segment, which is now close to 50% of total revenue, saw organic growth and a decline in profit margin due to lower pension income. The GIS segment saw a decline in both organic revenue and profit margin. The company's analytics and engineering revenue growth has moderated due to cautious customers, but they expect improving book-to-bill performance in the second half of the year. Insurance software and BPS continue to grow, with the insurance SaaS component showing high single-digit growth. The company's insurance platform and industry expertise are well-received in the market.

In the second quarter, security declined by 1.8% and cloud infrastructure and IT outsourcing revenues declined by 9.8% due to terminated contracts and a decrease in resale revenues. The modern workplace business also declined by 9%. Debt levels decreased slightly to $4.5 billion and restructuring expenses increased to $38 million. Operating lease payments and related expenses were down by $17 million. Capital expenditures and lease originations were also down, making up 5.3% of revenues. Free cash flow for the quarter was $91 million, bringing the first half total to $16 million, slightly better than last year.

In the first half of the fiscal year, the company will have significant cash expenditures for bonuses, software renewals, and taxes, but these will decrease in the second half. They are maintaining their goal of $800 million in free cash flow and are making progress on their $1 billion share repurchase program. They expect a decline in organic revenue and lower margins in the third quarter, but are reaffirming their full year guidance. They have increased their tax rate and are making progress on their asset sale program, which is expected to generate $250 million by the end of the fiscal year.

The company is experiencing positive results from their new operating model and financial performance. They have a goal to grow revenue, expand margins, EPS, and free cash flow. They have made progress in each of these areas in the previous quarter. They are also focused on improving their relationships with existing CIOs and selling their offerings to existing customers. The company's high-value GBS business is now a larger part of their overall revenue. The call is now open for questions. The first question is about demand and outlook.

The company's trailing 12-month bookings remain above 1, but the quarterly book-to-bill was below 1 for the second consecutive quarter. The CEO explains that the bookings were factored into their previous guidance and the key takeaway from this earnings report is their improved ability to convert the pipeline to revenues. The company's operating model is starting to work and they expect the book-to-bill to improve, particularly in the area of GBS. On free cash flow, the CFO mentions several factors that hit free cash flow in the first half of the year that won't be repeated in the second half, such as bonus payments.

The company discussed their free cash flow and how it is projected to improve in the second half of the year. They also mentioned their plans for capital allocation, including share buybacks, debt management, and investments. The company has made investments in their brand and evaluating SG&A costs, and is also modernizing their software for growth in the insurance business.

The speaker is answering a question about non-discretionary revenue in the company's offerings. They mention that GBS is growing at a lower rate due to a tough market, but the addition of Howard may improve this. Applications have remained flat, but the company is bullish about insurance. In terms of GIS, the speaker believes that it will maintain its current performance and that both Chris and Andrew are focused on positioning the business for future success. They also mention efforts to sell underutilized assets and the success of AWS.

The speaker discusses the company's recent lack of success in the cloud business and how being chosen as a partner by AWS will greatly benefit them. They also mention the company's strong customer relationships and ability to successfully migrate to the cloud. The speaker then answers a question about the company's impressive free cash flow, attributing it to the value delivered by their offerings, cost reduction efforts, and profitability.

The company has placed emphasis on managing capital outlays and longer-term commitments, resulting in a decrease in commitments over time. They remain focused on driving down working capital metrics. The cyclical demand trends have affected project-based revenues, but the company's new operating model may offset any weaknesses. The company's main source of revenue is still outsourcing, and they are working on converting their pipeline into revenue.

The industry is facing challenges in analytics and engineering, but insurance and software businesses are doing well. The applications sector has potential for growth under Howard's leadership, as he focuses on preparing clients for AI. The cloud infrastructure business is also performing well under Chris' leadership. Andrew, who used to be a client, is expected to improve the demand for GBS. The company is focused on increasing their free cash flow to $800 million, despite the cyclical challenges in the industry.

The company is adjusting their capacity based on demand, which will result in higher free cash flow over time. They are also seeing benefits from their operating model, which has improved their ability to manage margins and generate free cash flow. The company is satisfied with their current level of free cash flow and is confident in their future performance.

Brad Clark asks two questions to Mike Salvino during an earnings call. The first question is about cost reduction and how much room there is left for DXC to reduce costs. Salvino mentions four levers they are focusing on, including facilities, staff optimization, and onshore/offshore balance. The second question is about the modern workplace and how it will be improved. Salvino says there is still demand for virtual solutions and they have a strong offering.

The speaker discusses their expectations for the company's performance, specifically mentioning the new leader, Andrew, and his role in securing deals, improving the value proposition, and reducing costs. They express confidence in the company's execution and progress with their new operating model, and anticipate continued financial success in the future. The call concludes with a reminder to join for the next update in February.

This summary was generated with AI and may contain some inaccuracies.