The paragraph is an introduction to the DXC Technology Third Quarter Fiscal Year 2025 Earnings Conference Call. Krista, the conference operator, opens the call, introduces Roger Sachs, the Head of Investor Relations, and outlines the agenda. Roger welcomes participants and introduces the speakers: Raul Fernandez, President and CEO, and Rob Del Bene, CFO. The call will cover the company's results, strategic initiatives, financial performance, and outlook. It also notes that some comments are forward-looking with associated risks, and non-GAAP financial measures will be discussed. Roger hands the call over to Raul.

The paragraph highlights the company's positive performance in the third quarter of fiscal 2025, with revenue, adjusted EBIT margin, and non-GAAP EPS exceeding guidance. The CEO is optimistic about the company's direction, emphasizing priorities such as profitable and sustainable revenue growth, client-centric culture, and performance management. Although total revenue declined 4.2% year-over-year on an organic basis, the adjusted EBIT margin expanded to 8.9%, and non-GAAP EPS increased by 7% year-over-year. The company also generated strong free cash flow. Despite global economic uncertainties affecting corporate spending, there is a balanced focus on cost optimization and AI-driven transformation initiatives. The revamped go-to-market approach has led to improved bookings, indicating better customer engagement. Overall, the company believes it is well-positioned for future success.

The company is experiencing strong growth momentum, as reflected in its highest book-to-bill ratio in eight quarters. The pipeline includes larger consulting and engineering deals, which, while slower for near-term revenue, set a solid foundation for future growth. Investments are being made in training and performance management to support pipeline expansion. Progress continues in their Global Business Services segment, focusing on scalable digital transformation solutions. They have enhanced enterprise application capabilities, increasing bookings by integrating AI technology in collaboration with companies like SAP and ServiceNow. They're aiding clients in maximizing the potential of GenAI with data reliability for secure, scalable solutions. Noteworthy projects include an AI solution for Singapore General Hospital that improves patient treatment plans by analyzing clinical data for efficient antibiotic use.

The paragraph outlines DXC's recent initiatives and achievements, including expanding its partnership with Ferrari to develop software for the F80 supercar's next-gen infotainment system, emphasizing enhanced user experience. DXC continues to strengthen its insurance software offerings and invest in cloud-based solutions, aiming for scalability and cost efficiency. The company is exploring new markets and enhancing its Global Infrastructure Services with AI capabilities, partnering with clients to design industry-specific AI accelerators. DXC reports improved delivery metrics and record Net Promoter Scores. Additionally, Brad Novak has joined as the new CIO to enhance AI usage, advance data strategy, and oversee ERP consolidation.

The paragraph discusses the accomplishments and future goals of DXC under its CEO, who is pleased with the ability to attract top talent and new leaders to drive strategic priorities. The focus is on improving business effectiveness to achieve revenue growth by expanding the pipeline and bookings. The CEO reflects on the company's essential role in global commerce and expresses confidence in DXC's IT services and leadership team to build long-term success. The paragraph concludes with Rob Del Bene taking over to review the company's third-quarter results and guidance, reporting a total revenue of $3.2 billion and an organic revenue decline of 4.2%, in line with expectations despite FX headwinds.

The paragraph highlights the company's financial performance improvements, including a book-to-bill ratio increase to 1.33x and a year-over-year adjusted EBIT margin expansion of 140 basis points to 8.9%. The improvements were due to effective cost management, deferred investments, and savings from executive leadership changes. Despite a $10 million charge for hardware asset disposal, non-GAAP gross margin increased by 150 basis points to 25.1% due to resource management and restructuring. Non-GAAP SG&A rose by 70 basis points due to lower revenue and investments, partially offset by executive savings. Non-GAAP EPS increased to $0.92 from $0.86 year-over-year.

The paragraph discusses the company's financial performance, highlighting a $0.06 increase driven by higher adjusted EBIT and lower interest and tax expenses, partially offset by a decline in non-controlling interest. The GBS segment, accounting for 52% of total revenue, saw a slight organic decline but improved profit margins due to efficient resource management. Consulting and Engineering Services within GBS faced a revenue decline due to market pressures but were partially offset by growth in Enterprise Applications. The book-to-bill ratio improved to 1.28, maintaining stability over 12 months. Insurance and horizontal BPS saw a 5.6% revenue growth, particularly driven by mid-teen growth in software license revenue. The book-to-bill ratio for insurance was higher at 1.05 but lower on a 12-month basis at 0.82. The GIS segment, 48% of total revenue, experienced a 7.8% decline, with both services and resale revenues down.

The paragraph discusses the company's financial performance, highlighting a year-to-year decline in profit margin by 50 basis points to 6.5% due to lower revenue and a hardware asset disposal charge. Despite resource management and cost optimization, GIS profit margin decreased by 170 basis points sequentially, influenced by the hardware charge and absence of a legal settlement benefit. GIS segments like cloud, ITO, and security saw a 6.6% organic revenue decline, with services specifically dropping 7%, though improving from last quarter. Resale fell 2%, showing less severe declines, while resale selectivity improved book-to-bill ratios. Modern Workplace revenue fell 11.3%, with services and resale dropping 5% and 30%, respectively. Free cash flow for the quarter was $483 million, down from $585 million last year, affected by working capital changes. CapEx rose by $46 million to $167 million, aiming to reduce financial lease origins, which were minimal. Fiscal year-to-date free cash flow exceeded previous guidance, totaling $576 million.

The company has outperformed expectations primarily due to higher adjusted EBIT and lower restructuring charges. Effective resource management, including a significant reduction in headcount, has aided in meeting cost-saving targets. Restructuring charges are now anticipated to be $100 million above last year, less than the initially projected $250 million. The company plans further targeted restructuring into fiscal 2026 with remaining funds allocated for fiscal 2025. At the end of the quarter, total debt stands at $3.8 billion while cash increased by $480 million, driven by strong free cash flow and asset sales, including $80 million from divestitures. Cash generated from asset sales totals $150 million, reducing net debt by over $750 million to $2.1 billion. With $1.7 billion cash on hand, the company has strengthened its capital structure and will revise capital deployment priorities for the new fiscal year.

The article discusses the company's financial outlook, indicating an expected decline in total organic revenue by 4.5% to 5.5%. The adjusted EBIT margin is projected to be around 7%, taking into account lower revenue, merit increases, and increased investments. Non-GAAP diluted EPS for the quarter is expected to be $0.75. For the full year, the company now anticipates a total revenue decline of 4.7% to 4.9% compared to the previous estimate of 4.5% to 5.5%. GBS revenue is expected to slightly decline, and GIS revenue is expected to decline at a high single-digit rate. The full-year adjusted EBIT margin is projected to be 7.9%, an increase from the previous estimate of 7.0% to 7.5%, marking the third upward revision this year. The non-GAAP effective tax rate is expected to be around 33%, with a non-GAAP diluted EPS of $3.35, up from $3 to $3.25. Free cash flow is expected to be around $625 million, up from $550 million, due to higher adjusted EBIT guidance and less restructuring spending. The paragraph ends with transitioning to a Q&A session, where Bryan Keane from Deutsche Bank asks about organic growth performance transitioning from the third to the fourth quarter.

In the discussion, Rob Del Bene explains the factors impacting the company's financial outlook. The decrease in quarter-to-quarter guidance is attributed to lower bookings in the first half of the year, which will affect revenue in the upcoming quarters. However, better bookings in the third quarter are expected to have a positive impact in the future. Additionally, the adjusted EBIT margins exceeded expectations in the third quarter due to one-time equity compensation benefits, but are projected to decrease in the fourth quarter due to a decline in revenue and increased employee merit costs. Despite these fluctuations, the full-year guidance is raised. Bryan Keane and Rob Del Bene clarify the reasons behind these financial movements.

In the paragraph, Jonathan Lee asks Raul Fernandez about the impact of seasonal budget activities on the company's bookings and the deal environment for the fiscal fourth quarter. Raul responds by emphasizing that their success is not solely dependent on demand but rather on operational execution, such as having the right leaders, improving pipeline quality, increasing conversion rates, and enhancing sales and marketing efforts. He also mentions adjustments in compensation plans to optimize the sales force. When asked about the demand outlook for 2025, Raul expresses confidence in the demand for their services, noting their role as trusted partners with global companies that engage in long-term commitments, while also highlighting that their consulting and engineering services are more transformational and operate on shorter timelines.

The paragraph primarily discusses the strategic focus on improving internal operations and management performance to achieve predictability and growth, despite a rapidly changing technological landscape influenced by AI. It mentions a solid demand environment and strong performance across all verticals in the last quarter. There is an acknowledgment of potential external challenges, such as trade policy changes, but the focus remains on successful execution and new opportunities. Later, Tien-Tsin Huang from JPMorgan inquires about the deferral of marketing expenses and whether they will extend into fiscal 2026, as well as clarification on the restructuring charges being adjusted from a previous target. Rob Del Bene responds that there were investments factored into the guidance for the third quarter and a slight increase for the fourth quarter.

The paragraph discusses recent organizational changes and investments, highlighting the addition of new marketing and IT leaders in Europe and the Americas. The company is being deliberate in its investment strategy, taking time to onboard new leaders and assess current resources. They plan to rebuild their marketing function and invest in IT systems, including AI capabilities, aiming for increased efficiency and future revenue growth. The emphasis is on thoughtful, targeted investments and restructuring, balancing immediate actions with long-term strategic planning. Additionally, the new marketing team, established six to seven months ago, is still acclimating, and the company is cautious in utilizing resources.

The paragraph discusses the financial plans and performance of a company, focusing on its free cash flow. Rob Del Bene explains their current strategy to rationalize spending and improve efficiency, aiming to carry $150 million into fiscal 2026. The company anticipates a $50 million year-to-year increase. For fiscal 2025, the free cash flow guide has been raised from $550 million to $625 million, influenced by restructuring costs and a shift from capital leases to capital expenditures. Despite these factors, the underlying free cash flow remains stable at approximately $750 million. The company considers the $625 million figure a good foundation for 2026.

The company plans to minimize capital leases, which may put some pressure on capital in the short term. They are currently holding $150 million for fiscal 2026, facing $50 million of pressure on a $625 million target but have other drivers of free cash flow to explore. Bryan Bergin inquires about capital allocation and potential M&A activity, noting the reduced net leverage and gross debt. Raul Fernandez states they will provide an update on capital allocation in the next call, focusing on maximizing investment returns and ensuring operational effectiveness for potential M&A. Rob Del Bene adds that the company is executing its strategy as planned, having suspended buybacks to improve the balance sheet.

In the paragraph, Rob Del Bene discusses the company's stable pricing dynamics and renewal strategies, aiming for improved economics and mutually beneficial outcomes with customers. He notes that the company has been successful in achieving better terms for targeted contracts. Del Bene also mentions that the company's win rates have been stable throughout the year, with an improvement in the third quarter, indicating positive effects from recent go-to-market strategy changes.

Raul Fernandez, after a year of overseeing the company's segments, states that all of them have potential for growth and improvement. He highlights that their portfolio is in demand and well-positioned for future opportunities. The focus is on building across geographies and maintaining strong client relationships while aiming for new accounts. There's optimism about enhancing their market presence and conversion rates by improving execution, including offering the right solutions, sales and marketing materials, pitches, and pricing. Fernandez does not specify any particular segment as needing a major turnaround but suggests all have room for development.

The paragraph discusses a conversation between James Friedman and Rob Del Bene regarding the potential for revenue growth and margin improvement in GBS (Global Business Services) and GIS (Global Infrastructure Services). Rob believes there are opportunities for improvement and margin growth across both business units, noting the differences in business dynamics. Steve Bachman from BMO Capital Markets asks about the company's strategy on dispositions, acknowledging recent efforts to pare back certain businesses, and inquires about the potential for further reductions, particularly in managed services, which has struggled despite a positive book-to-bill ratio.

In the article paragraph, Rob Del Bene discussed the company's success in achieving $150 million in asset dispositions this year, with more potential opportunities being pursued. Although they aimed for a couple of hundred million initially, they are optimistic about exceeding that target despite uncertain timing. Raul Fernandez highlighted their investment in managed services, focusing on hiring talent with experience in scaling SaaS products. This team is working on enhancing their current offering, with a rollout planned in six to nine months. Keith Bachman inquired about the stability and adequacy of their senior leadership team and sought clarification on a margin gain from equity, suggesting possible recent departures.

In the paragraph, Raul Fernandez expresses satisfaction with the speed at which experienced talent has joined their team, attributing it to his network built over 20-25 years. He is pleased with the talent acquisition and its impact, and he is prepared to make changes if necessary. Keith Bachman expresses thanks, and the operator introduces Tyler DuPont from Bank of America, who asks about bookings. Tyler highlights positive quarterly bookings for GBS and GIS, asking about the influence of large versus small deals and the expected timeline for these bookings. Rob Del Bene responds, mentioning a significant $400 million renewal that was booked shortly after slipping out of the previous quarter.

The paragraph discusses the company's financial performance and future expectations. Without a major renewal, the company maintained a healthy book-to-bill ratio around 1.2, with strong bookings across project-based services and long-term outsourcing. These bookings are expected to impact fiscal 2026 positively. The pipeline looks promising for the fourth quarter, with anticipated strong bookings. Tyler DuPont asks about margin sustainability, noting outperformance in the quarter but concerns about a step down in the fourth quarter. Rob Del Bene indicates that both revenue declines and merit increases will affect all segments in the fourth quarter, but he refrains from commenting on fiscal 2026 expectations. James Faucette inquires about industry verticals with unexpected growth or weakness, but Del Bene does not provide specific details.

In the conversation, Raul Fernandez discusses the performance of the Global Business Services (GBS) and Global Infrastructure Services (GIS) sectors, highlighting strong performances in areas such as insurance, public sector, communications, media, and healthcare for GBS, and travel, transportation, healthcare, and energy for GIS. He clarifies that the company's focus on public sector work is outside the United States, mainly in the UK, Ireland, and Australia, thus unaffected by U.S. policy changes. Rod Bourgeois from DeepDive Equity Research inquires about the company's turnaround strategy, seeking insight into their current phase and future plans. Raul Fernandez begins to address these inquiries, indicating they will soon guide investment priorities for the next year.

The paragraph is a dialogue between Rod Bourgeois and Rob Del Bene discussing Q4 revenue guidance. While Rod is questioning if the guidance is conservative due to historical positive seasonality into the March quarter, Rob clarifies that the guidance is neither conservative nor overly optimistic. He emphasizes that the primary driver behind the anticipated sequential revenue decline is the weak bookings from the first half of the year, which are impacting the second half and the fourth quarter. There are no new runoffs or exposures affecting the revenue.

In the paragraph, Raul Fernandez explains that a decline in revenues requires a runoff of the existing run rate, particularly during a quarter with positive seasonality. He acknowledges weak bookings and a net runoff, noting that not all bookings are equal in terms of performance timelines. Large deals often have slow ramp-ups, while smaller ones are processed quickly. Fernandez emphasizes the need to increase revenue to smooth transitions in the upcoming quarters. After his remarks, the session concludes with Roger Sachs thanking participants and looking forward to the next quarterly meeting.

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