DXC Technology Delivers Second Quarter Growth in Earnings per Share and EBIT Margins

DXC Technology (NYSE: DXC) today reported results for the second quarter of fiscal year 2019, representing the period from July 1 through September 30, 2018.

In the second quarter, DXC Technology delivered year-over-year and sequential growth in earnings per share and margins, said Mike Lawrie, chairman, president and CEO. We continue to see strong demand for our digital solutions, and we are helping clients leverage efficiency gains in their existing IT environment to reinvest in digital transformations. We also continue to strengthen our industry-leading partner network, and we are making strategic investments in the business, including our recent acquisitions of argodesign, Molina Medicaid Solutions, TESM, and BusinessNow.

Financial Highlights – Second Quarter Fiscal 2019

  • Diluted earnings per share from continuing operations was $0.92 in the second quarter, including $(0.41) per share of restructuring costs, $(0.34) per share of transaction, separation and integration-related costs, and $(0.35) per share of amortization of acquired intangible assets. This compares with $0.67 in the year ago period.
  • Non-GAAP diluted earnings per share from continuing operations was $2.02. This compares with $1.67 in the year ago period.
  • Revenue in the second quarter was $5,013 million. Revenue decreased 8.1% compared with $5,453 million in the prior year, reflecting a stronger dollar, completion of several large transformation projects, and slower ramp-up on a few large Digital contracts.
  • Income from continuing operations before income taxes was $332 million in the second quarter, including $(157) million of restructuring costs, $(128) million of transaction, separation and integration-related costs, and $(132) million of amortization of acquired intangibles. This compares with $284 million in the year ago period.
  • Non-GAAP income from continuing operations before income taxes was $749 million compared with $683 million in the year ago period.
  • Income from continuing operations was $259 million in the second quarter, including $(116) million of restructuring costs, $(98) million of transaction, separation and integration-related costs, and $(100) million of amortization of acquired intangibles. This compares with $205 million in the year ago period.
  • Non-GAAP income from continuing operations was $573 million compared with $492 million in the year ago period.
  • Adjusted EBIT was $799 million in the second quarter compared with $740 million in the prior year. Adjusted EBIT margin was 15.9% compared with 13.6% in the year ago quarter.
  • Net cash provided by operating activities was $412 million in the second quarter, compared with $991 million in the year ago period.
  • Adjusted free cash flow was $604 million in the second quarter.

Global Business Services (GBS)

 Stay Updated To Save Money & Time. Join Our Free Newsletter 
. Indepth Analysis & Opinion       . Interviews      . Exclusive Reports  
. Free Digital Magazines      News & updates      . Event Invitations 
                     
& Much More Delivered To Your Inbox For Free.
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.

 

GBS revenue was $2,111 million in the quarter compared to $2,311 million for the prior year. GBS revenue decreased 8.7% year-over-year, primarily driven by a decline in the traditional application maintenance and management business. This was partially offset by growth in the Enterprise and Cloud Applications business. GBS profit margin in the quarter was 18.9%, up from 16.0% in the prior year, reflecting ongoing cost actions including the in-sourcing of contract labor and shift to near-shore and low-cost locations. New business awards for GBS were $2.2 billion in the second quarter.

Global Infrastructure Services (GIS)

GIS revenue was $2,902 million in the quarter compared to $3,142 million for the prior year. GIS revenues decreased 7.6% year-over-year, reflecting the timing of client migrations from traditional to cloud environments. GIS profit margin in the quarter was 16.3%, up from 14.3% in the prior year, reflecting the impact of actions taken to drive greater operating efficiencies. These include broader deployment of our Bionix automation program and the ongoing rationalization of hardware, software, and maintenance spend. New business awards for GIS were $2.5 billion in the second quarter.

Returning Capital to Shareholders

During the second quarter, DXC Technology returned $181 million to shareholders, consisting of $54 million in common stock dividends and $127 million in share repurchases.

Earnings Conference Call and Webcast

DXC Technology senior management will host a conference call and webcast to discuss these results today at 5 p.m. EDT. The dial-in number for domestic callers is 877-260-1479. Callers who reside outside of the United States should dial +1-334-323-0522. The passcode for all participants is 4189723. The webcast audio and any presentation slides will be available on DXC Technologys Investor Relations website.

A replay of the conference call will be available from approximately two hours after the conclusion of the call until November 13, 2018. The replay dial-in number is 888-203-1112 for domestic callers and +1-719-457-0820 for callers who reside outside of the United States. The replay passcode is also 4189723. A replay of this webcast will also be available on DXC Technologys Investor Relations website.

Non-GAAP Measures

In an effort to provide investors with supplemental financial information, in addition to the preliminary and unaudited financial information presented on a GAAP basis, we have also disclosed in this press release preliminary non-GAAP information including: constant currency, earnings before interest and taxes (“EBIT”), adjusted EBIT, adjusted EBIT margin, adjusted free cash flow, and non-GAAP results including non-GAAP income from continuing operations before taxes, non-GAAP income from continuing operations and non-GAAP EPS from continuing operations.

About DXC Technology

DXC Technology is a world leading independent, end-to-end IT services company, serving nearly 6,000 private and public-sector clients from a diverse array of industries across 70 countries. The company’s technology independence, global talent and extensive partner network delivers transformative digital offerings and solutions that help clients harness the power of innovation to thrive on change. DXC Technology is recognized among the best corporate citizens globally. For more information, visit www.dxc.technology.

All statements in this press release that do not directly and exclusively relate to historical facts constitute forward-looking statements. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. For a written description of these factors, see the section titled Risk Factors in DXC’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018, and DXC’s Form 10-Q for the quarterly period ended June 30, 2018 and any updating information in subsequent SEC filings, including DXC’s upcoming Form 10-Q for the quarter ended September 30, 2018. No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events except as required by law.

 

Condensed Consolidated Statements of Operations

(preliminary and unaudited)

       
Three Months Ended Six Months Ended
(in millions, except per-share amounts)

September 30, 2018

   

September 30, 2017

September 30, 2018

   

September 30, 2017

 
Revenues $ 5,013   $ 5,453   $ 10,295   $ 10,689  
 
Costs of services 3,518 3,870 7,385 8,179
Selling, general and administrative 569 644 1,009 1,037
Depreciation and amortization 484 482 955 824
Restructuring costs 157 188 342 375
Interest expense 83 73 168 147
Interest income (33 ) (16 ) (65 ) (32 )
Other income, net (97 ) (72 ) (191 ) (216 )
Total costs and expenses 4,681   5,169   9,603   10,314  
 
Income from continuing operations before income taxes 332 284 692 375
Income tax expense 73   79   202   62  
Income from continuing operations 259 205 490 313
Income from discontinued operations, net of tax   60   35   125  
Net income 259 265 525 438
Less: net (loss) income attributable to non-controlling interest, net of tax (3 ) 9   4   23  
Net income attributable to DXC common stockholders $ 262   $ 256   $ 521   $ 415  
 
Income per common share:
Basic:
Continuing operations $ 0.93 $ 0.69 $ 1.72 $ 1.02
Discontinued operations   0.21   0.12   0.44  
$ 0.93   $ 0.90   $ 1.84   $ 1.46  
Diluted:
Continuing operations $ 0.92 $ 0.67 $ 1.69 $ 1.00
Discontinued operations   0.21   0.12   0.43  
$ 0.92   $ 0.88   $ 1.81   $ 1.43  
 
Cash dividend per common share $ 0.19 $ 0.18 $ 0.38 $ 0.36
 
Weighted average common shares outstanding for:
Basic EPS 281.37 284.87 282.89 284.35
Diluted EPS 285.78 289.29 287.53 289.38
 
 

Selected Consolidated Balance Sheet Data

(preliminary and unaudited)
   
As of
(in millions) September 30, 2018     March 31, 2018
Assets
Cash and cash equivalents $ 2,780 $ 2,593
Receivables and contract assets, net 4,928 5,481
Prepaid expenses 630 496
Other current assets 477 469
Assets of discontinued operations   581
Total current assets 8,815 9,620
 
Intangible assets, net 6,602 7,179
Goodwill 7,417 7,619
Deferred income taxes, net 326 373
Property and equipment, net 3,281 3,363
Other assets 2,441 2,404
Assets of discontinued operations – non-current   3,363
Total Assets $ 28,882   $ 33,921
 
Liabilities
Short-term debt and current maturities of long-term debt $ 1,618 $ 1,918
Accounts payable 1,358 1,513
Accrued payroll and related costs 734 744
Accrued expenses and other current liabilities 3,268 3,120
Deferred revenue and advance contract payments 1,442 1,641
Income taxes payable 94 127
Liabilities of discontinued operations   789
Total current liabilities 8,514 9,852
 
Long-term debt, net of current maturities 5,409 6,092
Non-current deferred revenue 301 795
Non-current income tax liabilities and deferred tax liabilities 1,219 1,166
Other long-term liabilities 1,602 1,723
Liabilities of discontinued operations – long-term   456
Total Liabilities 17,045 20,084
 
Total Equity 11,837 13,837
   
Total Liabilities and Equity $ 28,882   $ 33,921
 
 

Condensed Consolidated Statements of Cash Flows

(preliminary and unaudited)
   
Six Months Ended
(in millions) September 30, 2018     September 30, 2017
Cash flows from operating activities:
Net income $ 525 $ 438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,002 904
Share-based compensation 41 58
Gain on dispositions (65 )
Unrealized foreign currency exchange (gains) losses (12 ) 4
Other non-cash charges, net (18 ) 15
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
(Increase) decrease in assets (447 ) 45
(Decrease) increase in liabilities (141 ) 46  
Net cash provided by operating activities 885   1,510  
 
Cash flows from investing activities:
Purchases of property and equipment (133 ) (123 )
Payments for transition and transformation contract costs (183 ) (176 )
Software purchased and developed (125 ) (86 )
Cash acquired through Merger 974
Payments for acquisitions, net of cash acquired (43 ) (152 )
Business dispositions (65 )
Deferred purchase price receivable 409 33
Proceeds from sale of assets 57 20
Other investing activities, net (1 ) 6  
Net cash (used in) provided by investing activities (84 ) 496  
 
Cash flows from financing activities:
Borrowings of commercial paper 1,158 1,182
Repayments of commercial paper (1,158 ) (1,067 )
Repayment of borrowings under lines of credit (335 )
Borrowings on long-term debt, net of discount 483 615
Principal payments on long-term debt (2,036 ) (1,109 )
Payments on capital leases and borrowings for asset financing (475 ) (443 )
Borrowings for USPS spin transaction 1,114
Proceeds from bond issuance 753 647
Proceeds from stock options and other common stock transactions 36 92
Taxes paid related to net share settlements of share-based compensation awards (20 ) (66 )
Repurchase of common stock (447 ) (66 )
Dividend payments (105 ) (72 )
Other financing activities, net 11   1  
Net cash used in financing activities (686 ) (621 )
Effect of exchange rate changes on cash and cash equivalents (64 ) 49  
Net increase in cash and cash equivalents 51 1,434
Cash and cash equivalents at beginning of year 2,729   1,268  
Cash and cash equivalents at end of period $ 2,780   $ 2,702  
 

Segment Results

The following table summarizes segment revenue for the second quarter and first six months of fiscal 2019 and fiscal 2018:

             

Segment Revenue

Three Months Ended
(in millions)

September 30, 2018

September 30, 2017

% Change

% Change in Constant Currency

Global Business Services $ 2,111 $ 2,311 (8.7)% (6.9)%
Global Infrastructure Services 2,902   3,142 (7.6)% (5.7)%
Total Revenues $ 5,013   $ 5,453 (8.1)% (6.2)%
 
 
Six Months Ended

(in millions)

September 30, 2018

September 30, 2017

% Change

% Change in Constant Currency

Global Business Services $ 4,324 $ 4,578 (5.5)% (5.8)%
Global Infrastructure Services 5,971   6,111 (2.3)% (2.8)%
Total Revenues $ 10,295   $ 10,689 (3.7)% (4.1)%
 

Segment Profit

We define segment profit as segment revenues less costs of services, segment selling, general and administrative, depreciation and amortization, and other income (excluding the movement in foreign currency exchange rates on our foreign currency denominated assets and liabilities and the related economic hedges). We do not allocate to our segments certain operating expenses managed at the corporate level. These unallocated costs include certain corporate function costs, stock-based compensation expense, pension and OPEB actuarial and settlement gains and losses, restructuring costs, transaction, separation and integration-related costs and amortization of acquired intangible assets.

       
Three Months Ended Six Months Ended
(in millions)

September 30, 2018

   

September 30, 2017

September 30, 2018

   

September 30, 2017

Profit
GBS profit $ 400 $ 369 $ 803 $ 643
GIS profit 473 450 947 721
All other loss (74 ) (79 ) (148 ) (54 )
Interest income 33 16 65 32
Interest expense (83 ) (73 ) (168 ) (147 )
Restructuring costs (157 ) (188 ) (342 ) (375 )
Transaction, separation and integration-related costs (128 ) (66 ) (198 ) (190 )
Amortization of acquired intangible assets (132 ) (145 ) (267 ) (255 )
Income from continuing operations before income taxes $ 332   $ 284   $ 692   $ 375  
 
Segment profit margins
GBS 18.9 % 16.0 % 18.6 % 14.0 %
GIS 16.3 % 14.3 % 15.9 % 11.8 %
 

Non-GAAP Financial Measures

We present non-GAAP financial measures of performance which are derived from the unaudited condensed consolidated statements of operations of DXC. These non-GAAP financial measures include earnings before interest and taxes (EBIT), EBIT margin, adjusted EBIT, adjusted EBIT margin, adjusted free cash flow, and non-GAAP results including non-GAAP income from continuing operations before taxes, non-GAAP income from continuing operations and non-GAAP EPS from continuing operations.

We present these non-GAAP financial measures to provide investors with meaningful supplemental financial information, in addition to the financial information presented on a GAAP basis. Non-GAAP financial measures exclude certain items from GAAP results which DXC management believes are not indicative of core operating performance. DXC management believes these non-GAAP measures allow investors to better understand the financial performance of DXC exclusive of the impacts of corporate wide strategic decisions. DXC management believes that adjusting for these items provides investors with additional measures to evaluate the financial performance of our core business operations on a comparable basis from period to period. DXC management believes the non-GAAP measures provided are also considered important measures by financial analysts covering DXC as equity research analysts continue to publish estimates and research notes based on our non-GAAP commentary, including our guidance around non-GAAP EPS.

There are limitations to the use of the non-GAAP financial measures presented in this report. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies.

Reconciliation of Non-GAAP Financial Measures

DXC’s non-GAAP adjustments include:

  • Restructuring costs – reflects restructuring costs, net of reversals, related to workforce optimization and real estate charges.
  • Transaction, separation and integration-related costs – reflects costs related to integration planning, financing, and advisory fees associated with the HPES Merger and other acquisitions and costs related to the separation of USPS.
  • Amortization of acquired intangible assets – reflects amortization of intangible assets acquired through business combinations.
  • Tax adjustment – reflects the estimated non-recurring benefit of the Tax Cuts and Jobs Act of 2017 for fiscal 2019, and the application of an approximate 28% tax rate for fiscal 2018, which is within the targeted effective tax rate range for the prior year.

EBIT and Adjusted EBIT

A reconciliation of net income to adjusted EBIT is as follows:

       
Three Months Ended Six Months Ended
(in millions)

September 30, 2018

   

September 30, 2017

September 30, 2018

   

September 30, 2017

Net income $ 259 $ 265 $ 525 $ 438
Income from discontinued operations, net of taxes (60 ) (35 ) (125 )
Income tax expense 73 79 202 62
Interest income (33 ) (16 ) (65 ) (32 )
Interest expense 83   73   168   147  
EBIT 382 341 795 490
Restructuring costs 157 188 342 375
Transaction, separation, and integration-related costs 128 66 198 190
Amortization of acquired intangible assets 132   145   267   255  
Adjusted EBIT $ 799   $ 740   $ 1,602   $ 1,310  
 
Adjusted EBIT margin 15.9 % 13.6 % 15.6 % 12.3 %
EBIT margin 7.6 % 6.3 % 7.7 % 4.6 %
 

Adjusted Free Cash Flow

A reconciliation of net cash provided by operating activities to adjusted free cash flow is as follows:

       
(in millions)

Three Months Ended September 30, 2018

Six Months Ended September 30, 2018

Net cash provided by operating activities $ 412 $ 885
Net cash provided by (used in) investing activities 200 (84 )
Acquisitions, net of cash acquired 43
Business dispositions 65
Payments on capital leases and other long-term asset financings (216 ) (475 )
Payments on transaction, separation and integration-related costs 86 191
Payments on restructuring costs 122 270
Sale of accounts receivables, net DPP (1)   30  
Adjusted free cash flow $ 604   $ 925  
 

_________________

(1)

 

Adjusted free cash flow excludes the impacts from the sale of accounts receivables, net DPP

 

Non-GAAP Results

A reconciliation of reported results to non-GAAP results is as follows:

   
Three Months Ended September 30, 2018
(in millions, except per-share amounts) As Reported    

Restructuring Costs

   

Transaction, Separation and Integration-Related Costs

   

Amortization of Acquired Intangible Assets

   

Non-GAAP Results

Costs of services (excludes depreciation and amortization and restructuring costs) $ 3,518 $ $ $ $ 3,518
Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 569 (128 ) 441
 
Income from continuing operations before income taxes 332 157 128 132 749
Income tax expense 73   41   30   32   176  
Income from continuing operations 259 116 98 100 573
Income from discontinued operations, net of tax          
Net income 259 116 98 100 573
Less: net loss attributable to non-controlling interest, net of tax (3 )       (3 )
Net income attributable to DXC common stockholders $ 262   $ 116   $ 98   $ 100   $ 576  
 
Effective tax rate 22.0 % 23.5 %
 
Basic EPS from continuing operations $ 0.93 $ 0.41 $ 0.35 $ 0.36 $ 2.05
Diluted EPS from continuing operations $ 0.92 $ 0.41 $ 0.34 $ 0.35 $ 2.02
 
Weighted average common shares outstanding for:
Basic EPS 281.37 281.37 281.37 281.37 281.37
Diluted EPS 285.78 285.78 285.78 285.78 285.78
 
   
Six Months Ended September 30, 2018
(in millions, except per-share amounts) As Reported    

Restructuring Costs

   

Transaction, Separation and Integration-Related Costs

   

Amortization of Acquired Intangible Assets

   

Tax Adjustment

   

Non-GAAP Results

Costs of services (excludes depreciation and amortization and restructuring costs) $ 7,385 $ $ $ $ $ 7,385
Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 1,009 (198 ) 811
 
Income from continuing operations before income taxes 692 342 198 267 1,499
Income tax expense (benefit) 202   82   46   65   (33 ) 362  
Income from continuing operations 490 260 152 202 33 1,137
Income from discontinued operations, net of tax 35           35  
Net income 525 260 152 202 33 1,172
Less: net income attributable to non-controlling interest, net of tax 4           4  
Net income attributable to DXC common stockholders $ 521   $ 260   $ 152   $ 202   $ 33   $ 1,168  
 
Effective Tax Rate 29.2 % 24.1 %
 
Basic EPS from continuing operations $ 1.72 $ 0.92 $ 0.54 $ 0.71 $ 0.12 $ 4.01
Diluted EPS from continuing operations $ 1.69 $ 0.90 $ 0.53 $ 0.70 $ 0.11 $ 3.94
 
Weighted average common shares outstanding for:
Basic EPS 282.89 282.89 282.89 282.89 282.89 282.89
Diluted EPS 287.53 287.53 287.53 287.53 287.53 287.53
 
   
Three Months Ended September 30, 2017
(in millions, except per-share amounts) As Reported    

Restructuring Costs

   

Transaction, Separation and Integration-Related Costs

   

Amortization of Acquired Intangible Assets

   

Tax Adjustment

   

Non-GAAP Results

Costs of services (excludes depreciation and amortization and restructuring costs) $ 3,870 $ $ $ $ $ 3,870
Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 644 (66 ) 578
 
Income from continuing operations before income taxes 284 188 66 145 683
Income tax expense 79         112   191  
Income from continuing operations 205 188 66 145 (112 ) 492
Income from discontinued operations, net of tax 60           60  
Net income 265 188 66 145 (112 ) 552
Less: net income attributable to non-controlling interest, net of tax 9           9  
Net income attributable to DXC common stockholders $ 256   $ 188   $ 66   $ 145   $ (112 ) $ 543  
 
Effective Tax Rate 27.8 % 28.0 %
 
Basic EPS from continuing operations $ 0.69 $ 0.66 $ 0.23 $ 0.51 $ (0.39 ) $ 1.70
Diluted EPS from continuing operations $ 0.67 $ 0.65 $ 0.23 $ 0.50 $ (0.39 ) $ 1.67
 
Weighted average common shares outstanding for:
Basic EPS 284.87 284.87 284.87 284.87 284.87 284.87
Diluted EPS 289.29 289.29 289.29 289.29 289.29 289.29
 
   
Six Months Ended September 30, 2017
(in millions, except per-share amounts) As Reported    

Restructuring Costs

   

Transaction, Separation and Integration-Related Costs

   

Amortization of Acquired Intangible Assets

   

Tax Adjustment

   

Non-GAAP Results

Costs of services (excludes depreciation and amortization and restructuring costs) $ 8,179 $ $ $ $ $ 8,179
Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 1,037 (190 ) 847
 
Income from continuing operations before income taxes 375 375 190 255 1,195
Income tax expense 62         272   334  
Income from continuing operations 313 375 190 255 (272 ) 861
Income from discontinued operations, net of tax 125           125  
Net income 438 375 190 255 (272 ) 986
Less: net income attributable to non-controlling interest, net of tax 23           23  
Net income attributable to DXC common stockholders $ 415   $ 375   $ 190   $ 255   $ (272 ) $ 963  
 
Effective Tax Rate 16.5 % 28.0 %
 
Basic EPS from continuing operations $ 1.02 $ 1.32 $ 0.67 $ 0.90 $ (0.96 ) $ 2.95
Diluted EPS from continuing operations $ 1.00 $ 1.30 $ 0.66 $ 0.88 $ (0.94 ) $ 2.90
 
Weighted average common shares outstanding for:
Basic EPS 284.35 284.35 284.35 284.35 284.35 284.35
Diluted EPS 289.38 289.38 289.38 289.38 289.38 289.38
 

DXC Technology
Rich Adamonis, Corporate Media Relations
+1-862-228-3481
[email protected]
or
Jonathan
Ford, Investor Relations
+1-703-245-9700
[email protected]

 Stay Updated To Save Money & Time. Join Our Free Newsletter 
. Indepth Analysis & Opinion       . Interviews      . Exclusive Reports  
. Free Digital Magazines      News & updates      . Event Invitations 
                     
& Much More Delivered To Your Inbox For Free.
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.

 
Close
Stay Updated To Save Money & Time. Join Our Free Newsletter. 
. Indepth Analysis & Opinion       Interviews          . Exclusive Reports 
. Free Digital Magazines        . News & updates        . Event Invitations
& Much More Delivered To Your Inbox For Free. 
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.
 
Close