DXC Technology’s Mixed Earnings Call: AI Gains Amid Revenue Challenges

Dxc Technology Company ((DXC)) has held its Q2 earnings call. Read on for the main highlights of the call.

In a recent earnings call, DXC Technology Company presented a mixed performance, reflecting both promising advancements and significant challenges. The company showcased strong free cash flow and notable progress in its AI strategy and fast track initiatives. However, it also faced hurdles with declining revenue, disappointing bookings, and pressure in key segments. While the positive momentum in AI and industry recognition is encouraging, the financial performance and operational challenges remain areas of concern.

Strong Free Cash Flow

DXC Technology reported a robust increase in free cash flow, generating $240 million in the second quarter, a significant rise from $48 million in the previous year. The first half of the fiscal year saw free cash flow reaching $337 million, marking a year-over-year increase of $244 million. This improvement underscores the company’s effective cash management strategies.

AI Strategy and Fast Track Initiatives

The company has formalized a two-track business approach, with a focus on ‘Fast Track’ initiatives aimed at making AI solutions 10% of its business within 36 months. Key initiatives include CoreIgnite for banks and OASIS for managed services, highlighting DXC’s commitment to integrating AI into its core operations.

Recognition as Industry Leader

DXC Technology has been recognized as a leader in several industry studies, including ISG’s Provider Lens ServiceNow Ecosystem Partner Study, IDC’s MarketScape in Industrial IoT End-to-End Engineering, and Everest Group’s Custom Application Development Services PEAK Matrix. These accolades affirm the company’s strong position in the technology sector.

Improved Book-to-Bill Ratio

The trailing 12-month book-to-bill ratio remained above 1 at 1.08, positioning DXC for improved revenue performance as it enters fiscal 2027. This metric indicates a positive trend in the company’s ability to secure future business.

Revenue Decline

Despite being within the guidance range, DXC Technology reported a 4.2% year-over-year decline in total revenue, bringing it to $3.2 billion. This decline is consistent with past trends, highlighting ongoing challenges in maintaining revenue growth.

Disappointing Bookings

Bookings grew only 2% year-over-year, with a book-to-bill ratio of 0.85, falling short of expectations and potentially impacting future revenue streams. This underperformance in bookings is a critical area for the company to address.

Challenges in CES Segment

The CES segment experienced a 3.4% year-over-year revenue decline, primarily due to ongoing pressure in discretionary custom application projects. This decline has adversely affected bookings within the segment.

GIS Revenue Decline

The GIS segment also faced challenges, with a 6.3% year-over-year organic revenue decline. Longer closing cycles on several large deals contributed to this downturn, indicating potential operational inefficiencies.

Forward-Looking Guidance

Looking ahead, DXC Technology provided guidance for the third quarter and full fiscal year 2026. The company anticipates total revenue to range between $12.67 billion and $12.81 billion, with an organic revenue decline narrowed to 3.5% to 4.5%. The adjusted EBIT margin is expected to be between 7% and 8%, and non-GAAP diluted EPS is projected to range from $2.85 to $3.35. Additionally, free cash flow guidance has been increased to approximately $650 million, driven by improved working capital and favorable tax legislation.

In conclusion, DXC Technology’s earnings call revealed a complex landscape of achievements and challenges. While the company is making strides in AI and maintaining industry leadership, it must address the declining revenue and booking challenges to sustain its growth trajectory. The forward-looking guidance provides a cautious yet optimistic outlook for the upcoming fiscal periods.