The paragraph is an introduction to the DXC Technology Q2 FY2025 earnings call. The conference operator, Aaron, welcomes participants and states that all lines are muted to avoid noise. After the speaker remarks, a Q&A session will follow. Roger Sachs, VP of Investor Relations, thanks the operator and introduces the call, mentioning that Raul Fernandez, the President and CEO, and Rob Del Bene, the CFO, will speak. Raul will discuss the company's results and strategic initiatives, while Rob will cover financial performance and future outlooks. The call will include forward-looking statements subject to risks, as noted in the company's SEC filings. Non-GAAP financial measures will also be discussed. Raul then begins his remarks.

The article discusses the company's strong performance in the second quarter of fiscal 2025, with adjusted EBIT margin and non-GAAP EPS exceeding guidance and revenue nearing the top of the expected range. Given these results, the company is raising its full-year guidance. Despite a 5.6% year-over-year decline in total revenue on an organic basis, the adjusted EBIT margin improved to 8.6%, and non-GAAP EPS increased by 33%. The company generated $48 million in free cash flow this quarter, totaling $93 million year-to-date. The company is optimistic about its self-help initiatives amid ongoing pressure on corporate discretionary spending, and it expects an improved book-to-bill ratio in the third quarter. Emphasizing its global and local presence as a competitive edge, the company has implemented several new initiatives to enhance sales discipline and execution.

The paragraph discusses various initiatives undertaken to enhance client relationships and improve service offerings. It mentions a new client relationship training program and initiatives in sales performance reviews and executive client sponsorship. In the Global Business Services segment, efforts include refining delivery models and enhancing enterprise application capabilities, such as using DXC Fast RISE with SAP for faster cloud implementations. The focus on GenAI offerings has led to successful engagements, including deploying a GenAI virtual service agent for Equitable Holdings, significantly boosting efficiency and expanding their collaboration. Additionally, a GenAI solution is helping a large bank speed up its credit card product development by automating code conversion.

The bank is enhancing its competitive position by integrating AI into its solutions, focusing on opportunities in the GenAI cycle, and ensuring reliable data access. They are strategically investing in various areas, including their insurance business, to improve performance and value for clients and stakeholders. Recent actions to boost long-term sales and profitability include implementing a new workforce management system, appointing innovation-driven leaders, and streamlining operations under a unified leader, resulting in improved service quality and reduced contract terminations. The fully implemented global shared services model enhances agility and cost optimization.

The paragraph discusses the company's progress in its ERP consolidation plan, including the initiation of its first migration wave from legacy systems. This strategy aims to support margin expansion and revenue growth in the long term. The company is leveraging strong partner ecosystems, engineering capabilities, and cloud migration to pursue cost-effective opportunities. Over the past 11 months, the global team has shown capability and commitment to clients, with a focus on consistent and scalable success. The company has recruited innovative leaders to drive this vision, emphasizing tactical execution, accountability, and rewards for measurable success. The CEO expresses confidence in this strategy for achieving stronger results moving forward. The call is then handed over to Rob Del Bene, who will review the second quarter results and update on the fiscal 2025 outlook, noting a change in the reporting of adjusted EBIT.

Starting in the second quarter, DXC Technology will exclude gains and losses from real estate and facility sales from adjusted EBIT calculations, as these are considered non-operational. In the quarter, $60 million in sales resulted in a $27 million loss, not reflected in adjusted EBIT or free cash flow. Historical results with the new reporting change are available on their website. Revenue declined 5.6% year-over-year to $3.2 billion, within the guidance range. The book-to-bill ratio improved slightly to 0.81, with the 12-month ratio steady at 0.88. Adjusted EBIT margin increased 130 basis points to 8.6%, due to cost management and a legal settlement benefit. Non-GAAP gross margin rose to 25.1%, aided by a reclassification of business development costs to SG&A. Without this change, the gross margin improved by 70 basis points, driven by GIS segment cost management. Non-GAAP SG&A rose to 10.4% of revenue, up from 9.4% due to the reclassification.

The paragraph outlines the company's financial performance and segment results. Non-GAAP EPS increased by $0.23 to $0.93, driven by higher adjusted EBIT and a lower share count. The GBS segment, making up 52% of total revenue, saw a 1.6% organic decline, but its profit margin improved by 30 basis points to 12.8%. Consulting & Engineering Services within GBS declined 3.4% due to market pressures, while Insurance and horizontal BPS grew 4.4%, with core insurance services up 5%. The GIS segment, comprising 48% of revenue, experienced a 9.6% organic decline. Despite this, its profit margin improved to 8.2% due to better resource management and network optimization. Cloud, ITO, and Security revenues in GIS dropped 10.1% with a focus on reducing low-margin deals.

The paragraph discusses the company's financial performance and operations. The book-to-bill ratios for the quarter and trailing 12 months are down, indicating fewer orders relative to billings, with Modern Workplace declining year-over-year. Free cash flow for the quarter was $48 million, a decrease from the previous year due to deteriorating DSO performance. Capital expenditures and leasing originations also decreased, improving their percentage of revenue. For the first half of fiscal 2025, free cash flow improved compared to the previous year. The company reduced its planned spending increase from $250 million to $150 million and achieved cost-saving measures by reducing headcount by 4,500. They plan to utilize the full $250 million into fiscal 2026.

During the quarter, the company reduced its debt by $227 million, primarily by paying off commercial paper and capital leases, although some of this was offset by the stronger euro affecting euro-denominated bonds. For the full year, the company expects organic total revenue to decline by 4.5% to 5.5%, with a slight decline in GBS revenue and slightly better-than-expected GIS performance. As a result of strong performance in the first half, the full-year adjusted EBIT margin outlook has been raised to 7.0%-7.5%. However, the second half EBIT margin is expected to be lower due to merit increases and investments. The non-GAAP effective tax rate remains at 32%, and non-GAAP diluted EPS is revised to $3-$3.25, driven by increased EBIT margin expectations. The full-year free cash flow forecast has increased to $550 million from $450 million due to improved EBIT outlook and lower restructuring costs, even though working capital expansion partially offsets these benefits.

The paragraph discusses the financial expectations and forecast for a company. It highlights predicted declines in total organic revenue and improvements in the book-to-bill ratio, with an anticipated adjusted EBIT margin of 7.0% to 7.5%. Non-GAAP diluted EPS is projected to be $0.75 to $0.80. During the Q&A session, Zack Ajzenman inquires about the sustainability and growth of free cash flow amid restructuring. Rob Del Bene responds by noting that the company's free cash flow for fiscal 2025, excluding restructuring and lease changes, aligns with previous years, indicating a stable base of free cash flow generation.

In the paragraph, the company discusses its financial outlook and expectations for the coming quarters. Despite restructuring and lease origination changes, the foundation for free cash flow remains strong and is expected to be consistent through fiscal 2026. As the year ends, more precise guidance will be provided, with a focus on the extent to which restructuring will continue. Zack Ajzenman highlights revenue stabilization, inquiring about segment-specific factors affecting bookings. Rob Del Bene expresses confidence in improved bookings for the second half of the year, especially in the CES and GIS segments, driven by a growing pipeline and improved closure rates. Insurance remains unpredictable, and the company anticipates a better book-to-bill ratio, which was 0.93 in the second quarter.

The article discusses the performance and expectations for the CES business, which comprises Modern Workplace and ITO, noting that their performance can be inconsistent due to reliance on large renewals. Despite this, the company is optimistic about improved bookings in the third quarter and stronger performance in the fourth quarter compared to the first half of the year. Raul Fernandez mentions the addition of 13 new senior leaders with significant experience to bolster both GIS and GBS operations, expecting these changes to drive better results. Zack Ajzenman acknowledges the input and Tyler DuPont from BofA questions the growth prospects within GBS, noting a deceleration in year-on-year growth primarily due to CES and raising concerns about potential negative growth for the full year.

The paragraph discusses the impact of macroeconomic factors on the company's business outlook, specifically within the Custom Enterprise Solutions (CES) sector. Rob Del Bene notes that the economic slowdown has affected custom application development more than enterprise applications, prompting a downward adjustment in their outlook for the second half of the year, despite an improved project pipeline and strong deal closing rates. Raul Fernandez adds that internal initiatives and new team members are expected to positively impact the business in the near term. Tyler DuPont then shifts focus to changes in the company's go-to-market strategy, emphasizing sales execution and geographic focus over the past quarters.

In the paragraph, Raul Fernandez discusses the progress and strategy of their company with Rob over the past 11 months. They initially focused on improving fundamentals and mechanics, which were below average, and establishing a fair and effective reward system for sales executives globally. Raul emphasizes the importance of their global footprint and customer base, noting his deeper understanding of the value they provide through their global offerings and local delivery capabilities. He expresses confidence in the foundation they have laid for future growth. Subsequently, Tyler DuPont thanks Raul for his insights, and James Friedman from Susquehanna asks about Raul's comments regarding growth in the insurance business, particularly in software and recurring services.

In the paragraph, Raul Fernandez discusses improving the execution of a business unit within the company by enhancing go-to-market strategies and optimizing systems and rewards. They've focused on analyzing their product offerings, pricing, and where price increases are necessary, along with recruiting talent to innovate and shift towards higher-margin, recurring revenue streams. James Friedman then inquires about the GIS margin improvements. Rob Del Bene explains that the improvements are largely due to disciplined resource and non-people-related cost management rather than resale elements.

In a discussion between Rod Bourgeois from DeepDive Equity Research and Rob Del Bene, they talk about the structured changes in the ITO business regarding the decline in the resale mix. This decline impacts revenue but improves margins. Rob Del Bene explains that the decrease has been ongoing for over a year and a half and is expected to stabilize in the next six to nine months. This shift is intentional, as the company is being disciplined with margin thresholds, often losing deals to maintain their desired margins, which results in reduced revenue from product pass-through.

In the paragraph, Raul Fernandez discusses the impact of the AI era on data centers, highlighting the need for advanced compute capabilities compared to legacy systems. He expresses excitement about integrating their services to cleanse and analyze data, select appropriate language models, and rapidly build and scale prototypes. Fernandez cites a successful SaaS deployment with significant ROI, leading to increased demand and growth. He emphasizes the importance of consistency and scalability in their approach. Rod Bourgeois acknowledges this, and the conversation shifts to a question from Tien-Tsin Huang regarding Raul's experience and thoughts on visibility amid election certainty and potentially falling interest rates.

In this dialogue, Raul Fernandez addresses a question about whether there will be an improvement in visibility, particularly concerning Global Business Services (GBS) and its sensitivity to demand changes. He emphasizes that the key to success in the near term lies in executing well on existing opportunities, supported by ongoing self-help initiatives that will have a significant impact over the next 12 to 24 months, rather than relying heavily on macroeconomic factors. Tien-Tsin Huang acknowledges the clarity of this perspective. Jonathan Lee from Guggenheim then asks about the dynamics between the softness in GBS and improvement in Global Infrastructure Services (GIS) and how these affect the company's outlook. Rob Del Bene acknowledges the question, indicating a particular focus on the needed factors to reach the higher end of the company's expectations.

In the article paragraph, Rob Del Bene discusses the potential for improved performance in the CES business by accelerating customer projects and moving from custom to enterprise solutions, which promises higher margins and stable pricing in the long term. Jonathan Lee acknowledges this insight, and the call concludes with Roger Sachs thanking participants and expressing eagerness for future discussions.

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