The paragraph is an introduction to DXC Technology's fourth quarter and fiscal year-end 2025 earnings call. The operator introduces Roger Sachs, Vice President of Investor Relations, who outlines the agenda for the call. Speaking will be Raul Fernandez, President and CEO, and Rob Del Bene, CFO. They will discuss the company's results, strategic initiatives, financial performance, and future guidance. The call will include forward-looking statements and non-GAAP financial measures, with associated risks detailed in their SEC filings. Raul Fernandez concludes by noting the importance of the fourth quarter results in achieving sustainable, profitable revenue growth.

The DXC organization is experiencing positive momentum with a 20% increase in bookings and a book-to-bill ratio of 1.2, indicating market traction and potential for long-term growth. The leadership team is focused on reversing eight years of revenue decline by addressing structural, operational, and cultural challenges. Recent changes include recruiting 22 new executives and rotating out 14, with an emphasis on leadership stability to support the company's turnaround. Equity grants for leaders are aligned with creating sustainable shareholder value. The company is also working on strengthening customer relationships and enhancing operational discipline, with new performance criteria set for 2025 reviews.

In the paragraph, the company has implemented strategic changes, including enhanced reporting systems and aligned pay incentives, in preparation for fiscal year 2026. They've also appointed T.R. Newcomb as their first chief revenue officer to bolster operational excellence. DXC, a prominent technology player for over 40 years, is focusing on AI, which is increasingly influencing their client base and IT spending. The company is leveraging its comprehensive capabilities to deliver significant results in areas such as modernization and process improvement, positioning itself as a leader in the emerging AI transformation landscape.

The President and CEO of DXC emphasizes the company's commitment to understanding and meeting customer needs through direct engagement, which recently paid off with a major contract win from Carnival Cruise Line. This achievement reflects DXC's robust infrastructure and technical expertise, positioning them as a critical partner for large-scale operations that require seamless and reliable service. The successful bid with Carnival is a testament to DXC's ability to deliver operational excellence, further establishing its reputation as a trusted partner for major global brands. The CEO highlights that creating a winning culture requires strategic leadership and sustainable actions.

Since becoming CEO, the focus has been on improving internal communication transparency, fostering a startup-like collaborative culture, and prioritizing profitable growth. Over the past year, significant investments have been made in innovation, AI enhancement, and application development efficiency, with expectations for fiscal 2026 to focus on operational sharpening and efficiency. Despite tariff uncertainties, the strategy remains clear with a commitment to sustainable growth, highlighted by the resumption of the share repurchase program to deliver shareholder value. Regarding financial performance, the fourth quarter saw a slight revenue decline of 4.2% year-over-year to $3.2 billion, but bookings grew by over 20%. The adjusted EBIT margin was 7.3%, influenced by investments in employee capabilities and marketing.

In the fourth quarter, the company experienced a revenue decline offset by labor and non-labor efficiencies, resulting in a non-GAAP gross margin of 24.2% and an SG&A increase to 11.3% of revenue. The non-GAAP EPS decreased to $0.84 due to lower adjusted EBIT, mitigated somewhat by reductions in non-controlling interest and net interest expense. The GBS segment, composing 51% of total revenue, saw a 2.4% organic decline and a profit margin drop to 10.9%, driven by investments in workforce and insurance capabilities. Despite a 3.9% organic revenue decline in CES, strong bookings growth of 9% and a healthy book-to-bill ratio promise future growth. Insurance and BPS saw a 2.7% organic revenue increase, aligning with the company's strategic focus on enterprise applications and AI.

In the insurance and software sector, accounting for 80% of their business, there was a 1% organic growth year-to-year, with mid-single-digit growth in the first three quarters, expected to continue into fiscal 2026. The GIS sector, representing 49% of revenue, saw a 6% year-to-year decline but improved due to cloud offerings and services, with a 33% increase in fourth quarter bookings. Despite a profit margin decline due to workforce investments, cost savings were made in software and data centers. For fiscal 2025, there was a notable 7% year-to-year increase in bookings, with overall revenue at $12.9 billion, down 4.6% organically. Adjusted EBIT margin rose by 50 basis points to 7.9%, and non-GAAP diluted EPS increased by 11% to $3.43 due to a lower share count and higher EBIT. The firm's focus now shifts to cash flow and the balance sheet.

In fiscal year 2025, the company generated $687 million in free cash flow, surpassing expectations due to reduced restructuring expenses and improved working capital management. They focused on minimizing financial lease originations and funding equipment purchases through capital expenditures, which increased year-over-year but helped reduce debt to $3.9 billion by the end of the fiscal year. The company's cash balance increased by $570 million to $1.8 billion, aided by asset sale proceeds, leading to a net debt reduction of $785 million to $2.1 billion. In fiscal 2026, the company aims to focus on investing in sustained profitable revenue growth, reducing debt by minimizing financial leases and paying down senior notes, and returning $150 million to shareholders through share repurchases.

The fiscal year 2026 guidance projects a decline in total organic revenue by 3% to 5%, with GBS expected to decrease slightly and GIS to decline in mid-single digits. The adjusted EBIT margin is anticipated to be between 7% and 8%, with non-GAAP diluted EPS ranging from $2.75 to $3.25. Free cash flow is estimated at approximately $600 million, accounting for increased restructuring costs. The strongest free cash flow will occur in the second half of the year. For the first quarter of fiscal 2026, a 4.0% to 5.5% decline in organic revenue is expected, with adjusted EBIT margins between 6% and 7% and non-GAAP diluted EPS of $0.55 to $0.65. Additionally, the company will adopt a new segment structure, focusing on insurance services and software, consulting and engineering services, and GIS.

The paragraph discusses a company's performance and industry demand dynamics as observed during a specific period. Raul Fernandez mentions significant progress and wins in high-value contracts, but notes some discretionary spending volatility in smaller deals. Rob Del Bene adds that demand has decreased in consumer industries, retail, and, unexpectedly, in media and entertainment, particularly in project-based services. They highlight ongoing adjustments and evaluations of the situation.

The paragraph discusses the robust performance of various industries, highlighting strong pipelines for project-based services in strategic segments between $5 and $100 million. Bryan Bergin inquires about free cash flow targets for fiscal year 2026 and asks for a bridge from the fiscal year 2025 levels, as well as expectations post-capital lease financing. Rob Del Bene explains that the bridge to 2026 is based on the 2025 result adjusted for after-tax EBIT guidance and a $30 million increase in restructuring. Despite a decrease in headline free cash flow from 2024 to 2025, underlying free cash flow performance is consistently strong due to capital lease financing, which amounts to around $300 million for the past fiscal year. Bergin questions whether the capital finance lease amount will remain similar or decrease in 2025.

In the conversation, Rob Del Bene discusses the company's fiscal outlook, noting that for the first quarter of fiscal '26, they are projecting a revenue decline of 4% to 5.5%. They have widened their traditional forecast range to account for uncertainty, reflecting potential macroeconomic challenges. For the full year '26, they maintain a two-point range and consider possible deterioration at the lower end. Regarding the pricing environment, Del Bene states that it has been stable, especially favorable for mega deal renewals and consistent in both strategic projects and smaller project categories. Jonathan Lee from Guggenheim Partners asked these questions to gain insight into the company's outlook and pricing stability.

In the paragraph, James Faucette from Morgan Stanley inquires about the impact of increasing generative AI (GenAI) spending on the company's financials, specifically the profit and loss statement, and the growth and size of these projects. Raul Fernandez responds by stating that recent corporate spending on GenAI is mainly in smaller-scale projects, serving as pilot programs to demonstrate benefits like improved development time and documentation. He is optimistic about the increasing demand as the company builds scalable solutions, emphasizing the importance of data, infrastructure, and process readiness. Fernandez believes the company is well-positioned to capitalize on this opportunity, with early positive results and strong foundational work, indicating potential future growth.

The paragraph discusses the company's efforts to improve revenue visibility through a restructured sales operation and a stronger leadership team. Raul Fernandez highlights the foundational work done in rebuilding the sales pipeline and scaling operations with a new leader, Newcomb. Rob Del Bene adds that the company's CES business has seen strong bookings in strategic projects ranging from $5 million to $100 million, which are more complex and have longer durations. This has influenced the company's backlog and revenue projections, with these trends becoming more evident in the third and fourth quarters.

The paragraph discusses the company's strategy for generating revenue growth amidst investor disappointment with fiscal year '26 guidance predicting a negative 4% midpoint. Raul Fernandez emphasizes both quantitative and qualitative factors, such as solid bookings, an improved sales pipeline, and enhanced sales and marketing capabilities. He identifies key areas for growth as building a strong foundation, executing opportunities, and achieving scalability. Fernandez acknowledges that while progress is being made, the substantial ongoing rebuild is crucial to turning the business toward positive growth.

The paragraph discusses the company's strategic position and recent success in securing a deal with Carnival Cruise Line. Raul Fernandez highlights that there are ample opportunities across industries and geographies, driven by widespread AI adoption. The company's recent win with Carnival was not due to pricing but rather due to demonstrated capability, proven partnership, and technical foundation. Fernandez emphasizes the importance of replicating this successful approach to continue securing partnerships. The conversation concludes with Keith Bachman ceding the floor.

In the paragraph, Paul Obrecht, speaking on behalf of Darrin Peller from Wolfe Research, asks about DXC's updated go-to-market strategy and whether there is increased demand for the company's Global Business Services (GBS) offerings among its Global Infrastructure Services (GIS) clients. Raul Fernandez responds by describing the company's new client engagement forums, which discuss AI opportunities and showcase DXC's end-to-end capabilities. He emphasizes the company's strong positioning in delivering comprehensive solutions globally. Rob Del Bene then explains the expected fiscal year margin guidance, noting a slight decrease to the midpoint compared to the previous year, and outlines the drivers for expanding margins throughout the year.

The paragraph discusses a company's financial strategy, highlighting their approach to managing revenue declines by implementing disciplined cost management, which they successfully executed in fiscal '25. They plan to repeat this strategy to counteract revenue drops while also finding additional cost reductions to fund investments. The company has allowed room for increased investments year-on-year, which is the primary reason for the anticipated decline in margins. They intend to monitor these investments throughout the year to ensure they yield the desired results. Raul Fernandez expresses confidence in their leadership structure, noting that 22 new leaders have joined the team, many of whom he has worked with before, which further boosts his confidence in achieving growth.

The paragraph discusses the strategic opportunity to enhance a company's growth by leveraging its existing customer base and solutions with a focus on AI advancements. The speaker, who's been at the company for 15 months, emphasizes the strength of the current team in executing this strategy. Tyler DuPont inquires about maintaining a strong pipeline as contracts move from pipeline to bookings and then revenue. Rob Del Bene expresses confidence in the company's ability to sustain and progress the pipeline, ensuring ongoing bookings and revenue. Raul Fernandez notes that the pipeline and opportunities are increasing quantitatively.

The paragraph discusses plans to break out insurance as a separate segment starting in 2026, reflecting the internal management structure. This decision was confirmed by Rob Del Bene. Additionally, the company is working on developing its SaaS business within the insurance sector as part of a long-term strategy. Jamie Friedman from Susquehanna asked about these plans, including the transition between term, license, and subscription revenue recognition.

In the discussion, Raul Fernandez expresses confidence in their company's position within the current technology landscape, highlighting their valuable insights into customer infrastructure, processes, and data readiness. He emphasizes their strong positioning to assist customers in AI-related initiatives that offer real ROI. Fernandez believes their proven capabilities and industry relationships allow them to capitalize on the ongoing technology innovation cycles, which he considers potentially more disruptive and transformative than past cycles like the Internet and PC super cycles. Jamie Friedman appreciates the detailed insights and indicates an interest in further discussion.

In the paragraph, Rod Bourgeois from DeepDive Equity Research inquires about the company's future investment priorities, particularly in developing new solution capabilities to drive growth. Raul Fernandez responds by emphasizing the focus on replicable large capabilities aligned with client demands, using frameworks to package and share internal knowledge and industry expertise to create sales opportunities. He highlights the importance of internal optimization, collaboration, and knowledge sharing in their strategy. Rob Del Bene adds that they are also investing in enhancing their sales and marketing capabilities, which is part of their plan for the upcoming year and beyond.

In the conference call, Rod Bourgeois inquires about specific market segments or solutions that the company plans to focus on, particularly in areas like core modernization and differentiation strategies. Raul Fernandez responds by highlighting the significant traction and replicability in the financial services sector, noting it's a major industry for their footprint and offering good ROI models to customers. As the session concludes, Rob Del Bene and Roger Sachs thank participants and express anticipation for the next quarterly conversation. The operator ends the call.

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