Good afternoon. My name is Julien (ph) and I will be your conference operator today. At this time. I would like to welcome everyone to DXC Technology 's Q2 FY22 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. . . Thank you. John Sweeney, Vice President Investor Relations of DXC, you may begin your conference.

Thank you. good afternoon, everyone. I'm pleased that you're joining us for DXC Technologies. Second Quarter FY 22 earnings call. Our speakers on the call today will be Mike Salvino, our President and CEO, and Ken Sharp, our Executive Vice President and CFO. This call is being webcast at dxc.com Investor Relations website and the webcasts includes slides that will acCompany the presentation today. Today's presentation includes certain non-GAAP financial measures, which we believe provide useful information to our investors. In accordance with SEC rules, you provide a reconciliation of these measures to the respect to the most comparable GAAP measures. These reconciliations can be found in the table including today's earnings call on the webcast slides, Certain comments we'll make on this call will be forward-looking statements. These are known and uncertain risks and uncertainties which could cause actual results to differ materially from those expressed on the call. A discussion of these risks and uncertainties will be included our annual report and Form 10-K and other SEC filings. And now I'd like to remind our listeners that DXC Technology assumes no obligation to update the information presented on this call, except as required by law. And with that, I'd like to introduce DXC Technology's President and CEO, Mike Savino, Mike.

Thanks John, and I appreciate everyone joining the call today, and I hope you and your families are doing well. Today's agenda will begin with an update on our Q2 performance, which shows hard evidence that we're delivering on our transformation journey and building the foundation to make DXC operationally efficient, sustainable and ultimately grow. Next, I will provide you with additional insight as to the operational work we are performing as we execute our transformation journey. Then I will hand the call over to Ken to share our Q2 financials, guidance and more details of the financial results driven by our strong operational execution. Finally, I'll make some closing remarks before opening the call up for questions. Regarding our Q2 performance, our revenues were $4.03 billion. Our organic revenue growth continue to show progress as we improved from minus 3.7% in Q1 to minus 2.4% in Q2. Also, I was very pleased to see the GBS business segment grew for the second quarter in a row from positive 2% in Q1 to positive 3.4% in Q2. We also continue to improve new organic revenue of the GIS business segment from minus 9.1% in Q1 to minus 8% in Q2. Now, all of these results show our organic revenue is on the right trajectory. Our adjusted EBITDA margin was 8.6% that was driven by the operational work that we're doing to optimize our business. This is the third straight quarter of both improving organic revenue growth and sequential margin expansion and we expect both trends to continue in Q3. Book-to-bill for the quarter was 0.91, which came in below our goal of 1 due to the timing of a couple of deals. I'm happy to report that both deals are hybrid cloud slash IPO deals and are now close. We…

Thank you, Mike. Turning to our quarterly financial performance on Slide 11, as you can see, our progress continues. Our organic revenue improved to a decline of 2.4% or a 130 basis points points improvement from Q1. This represents our third consecutive quarterly improvement. As you can see, we have come a long way from double-digit organic revenue declines in Q1 FY21, to low single-digit declines in FY22. Our adjusted EBIT margin continues to improve as well, delivering 8.6% in Q2 up 60 basis points as compared to the first quarter. Year-over-year, our adjusted EBITDA margins have expanded 240 basis points or 460 basis points excluding the disposed businesses. Our book-to-bill for Q2 was 0.91, below our goal of 1 due to timing and remains over one year-to-date. Further, we expect to deliver a book-to-bill of over one for Q3 and for the full year, non-GAAP diluted earnings per share was $0.90 up $0.06 from Q1 and healthy 41% increase as compared to the prior year. Our earnings per share expanded due to increased margins. lower interest expense and a lower tax rate. Moving to our segment results on slide 12, our GBS segment continued its strong growth performance posting its second quarter of positive organic revenue growth of 3.4%, an improvement from 2% in the first quarter. The GBS growth is a positive sign as we continue to deliver higher value for our customers. Our GBS business has higher margins and lower capital intensity, so as we grow this business, it has a more positive impact on margins and cash flow. Our GBS margin was 15.9% up a 150 basis points compared to the first quarter and up a 180 basis points compared to prior year. Our GIS segment, organic revenue declined 8%, a full 110 basis point improvements…

Thanks, Ken. Let me leave you with the following key takeaways. We are building a foundation to make DXC operationally efficient, sustainable, and ultimately grow. By focusing on the operations work of motivating our colleagues and hiring new talent. Moving to a virtual first model, making service delivery more efficient in implementing better IT tools and reducing real estate. We're able to deliver better for our customers and gives us the ability to sell up the enterprise technology stack to GBS. The good news is the financial results they can just took us through, reduce debt, shrinking, restructuring, and TSI costs, increased margin and EPS and stronger free cash flow are all sustainable on a result of the operational work we are doing. This gives us confidence that we will achieve our FY24 double-digit margin guidance. On growth, Q2 confirms that we're on the right trajectory for growth. Our folks on delivering and fixing the GIS business develops trusted relationships with our Platinum customer s. We are negotiating our GBS offerings to our Platinum customer s, selling up the enterprise technology stack. The evidence that this is working is in our organic revenue results of GIS, GBS and the overall Company. This also gives us confidence that we will achieve our FY24 guidance of 1% to 3% growth. In closing, I'm confident that by staying focused on our transformation journey and building the foundation, we will continue to deliver in the short term and ultimately deliver our long-term financial targets of margin, growth, and free cash flow. Operator, please open the call up for questions.

Your first question comes from Brian Keane from Deutsche Bank. Please go ahead. Your line is open.

Hi, guys. Good afternoon. Just want to ask about the bookings in demand picture, I guess kind of a 2 part question. Obviously, the bookings saw a little bit below 1 in the quarter, but you didn't have to change your organic growth for the fiscal year. And that might just have to be just due to a timing issue, can you just explain that a little bit and then secondly, there was some talk about it. It seemed like the demand was strong enough that if you had some more , she could have fulfilled even a higher demand. So I just want to understand a little bit of, do you have the right amount of people and I know you had a big quarter hiring, but just trying to fulfill the demand that you have. Thanks.

Thanks, Brian. So, look on Book-to-bill, the focus for us is around the year-to-date. We're over one that gives us a lot of confidence. And like Ken said, total year, we should be over one. I don't see a problem in the demand that's why I called out a couple of deals. If you look at a couple of deals, they were hybrid clouds and ITO deals. So when you look at our Page 13, you would see that they would push that Book-to-bill for GIS up around 1.1. So the deals are there, we're definitely winning in the market. The comment I made in terms of demand and projects is that when I talked about us getting additional at that because we're delivering on GIS now, is the fact that it's there for us to take. And I think we got to continue to be more aggressive. You guys know that ever since I've been here, I've been very customer focused and with that focus, I think we can do even more in the market. So that was the purpose for my comment. We do have the people, I called that out in terms of I think we're managing the attrition well, so our positioning and what we're doing in the market, Brian.

Got it and then how do you do more? I mean what is that going to take for you guys to fulfill that extra push to grow a little bit faster is there is there something there that you need to do or is that just executing at a high level?

I think it's continuing to deliver and continuing to knock on the doors of our Platinum accounts. The reason I gave you guys the example of the Platinum accounts at the end of my prepared remarks is the fact that when we are delivering, we do get those opportunities. And we get those opportunities you are seeing that now we're growing GBS. So, the key green shoot in this whole organic revenue story is the fact that GBS now has grown for the second quarter in a row. Before I got here, that business had never grown. So like what we're doing, have confidence in terms of us being able to compete in the market and so far so good.

Your next question comes Jianwu Wang from JP Morgan, please go ahead. Your line is open.

Thanks so much the slides are really helpful. I want to ask on GBS since you mentioned that just -- the demand environment seems pretty good there, Mike. Do you see continued progress there on the revenue front? Can you bring that into the mid-single digits or higher and on the margin front as well, with the high water market 15.9, Can you bring the margins up even higher from that level?

I mean that progress engine is that's pretty special because when you look at the top of the stack which is what we've been saying all along. Let's make sure we deliver the critical applications in GIS to make sure we get those at bats and then start selling through that Platinum channel. So when you look at that -- the GBS, I mean analytics and engineering. I will tell you we can compete with anybody. That 17.3%, that's good work. Okay. The second thing is, I know it's small growth, but applications that's the second quarter in a row, we've grown applications to, again, we're competing in the high-end work and what we need to continue to do is make sure that we're also fixing the GIS business and what you're seeing there is that we got to continue to stay focused on Modern Workplace. Modern Workplace saw some really good results this quarter, going from 19.7 negative to now, 10.9. Now that business is going to continue to be lumpy because we're still seeing some runoffs. But the other thing I'm happy to report is when I look at the ITO business, remember all those customer run-offs we had because of non-delivery and so forth? For the most part, that stuff now is done and we can start seeing good progress in ITO in the second half of the year

Okay. That's encouraging here. My quick follow-up just maybe for Ken just on the, I know good work and reduce the capital lease obligations, on Slide 20, just want to clarify the excess cash allocation inside the circle there, that means after retaining the $2.5 billion in cash to run the business I just want to make sure I understood that, thanks.

Yes, that's correct Jianwu. So we'll keep $2.5 billion of cash on the Balance Sheet. And when we have excess cash, we'll look to deploy it.

Your next question comes from Jason Kupferberg from Bank of America. Please go ahead. Your line is open.

Great. Thanks, guys. Just wanted to start on the organic growth side based on what you are guiding to for Q3. I know that implies there will be a ramp in Q4 to get to the full-year target, which is unchanged. Can you just talk to us a little bit about the visibility on that additional acceleration in the force order? I think you can probably get to positive territory in Q4 if I'm not mistaken. Thanks.

So Jason, look the -- in terms of what we're doing, the guide in Q3 is not only solid but also it winds us up directly for FY22. And when I look at our strategy in terms of the GIS business and the GBS business. Look, that's going to get us there. What we're focused on with GIS, just to be specific, when you look at Page 12, we're looking to drive that to negative single-digits over time. Now I keep saying it's going to be lumpy this year, so it's going to sort of hang around the 8% range as we fix Modern Workplace. So that's sort of the bottom end of the equation when you're looking at organic growth. The top end of the equation is I've also been very clear to GBS now is growing and it's going to continue to grow. So when I look at the business, that's how we're going to get to our minus 1 to minus 2 for the full year, and I would tell you the visibility on that is pretty good.

Excellent. On free cash flow, I'm just curious just regarding the Q3 outlook, I know you called out that will be a couple of nonrecurring items. How should we be modeling the overall free cash flow in the third quarter? I know you don't have typical favorable seasonality in Q4 and it gets into the full-year number, but want to make sure our expectations are calibrated for the current quarter.

There. I mean, we haven't really given quarter-to-quarter free cash flow guidance, but I think if you back those items out, I would expect to be around plus or minus $50 million positive, maybe $50 million negative, a $100 million, call it $50 million to a $100 million somewhere in that range.

Your next question comes from James Faucette from Morgan Stanley. Please go ahead. Your line is open.

Hey, my name is John. Good afternoon. Thanks for taking our questions. You mentioned an uptick in attrition, where across the technology stack are you seeing more or less attrition? And what's contemplated in your guidance on a directional basis as it relates to that?

What's contemplated our guidance is that one, we're managing it well and we're managing incredibly well because ever since I've gotten here we've taken a people-first strategy that means we're taking care of our folks. The second thing that we're seeing in the market is the fact that not only our people, but future recruits like our virtual first mindset. The third thing is, we continue to keep a pulse on our folks. So that's why I mentioned the September employee engagement results in terms of we had more people participate and we also have a very motivated workforce. and then the last thing that I think people miss is we're also in the right locations. When we're looking to hire folks, I do think our footprint is an advantage for us. Having said that, we're doing great on analytics and engineering, being able to keep up with that demand. And then our other focus is in application and cloud. That's the stuff that we're focused on in terms of our market and being able to compete. And so far so good.

Got it. Thanks, Mike. And quick follow-up. What are you seeing in terms of the pricing dynamics across this technology stack? Presumably there are some pricing pressure given. The -- given the mix there and as well as the cost of labor. are you able to pass on that pricing, to your end customers?

I mean to look the pricing all you got to do is look at 12 all right 12. We're definitely getting good margins for our GBS business. And then love the right side of 12 because you will see the discipline in terms of the new deals were also doing in GIS. Okay. So when we grow, this growth will be a good margin. And like I said, that's why I like what we're doing. The EBIT margin progress and us having the ability to raise guidance on both margin EPS is strong and on the revenue, we're doing exactly what we said we're going to do.

Your next question comes from Ashwin Shirvaikar from Citi, please go ahead. Your line is open.

Hey Mike, hey Ken.

Good Ashwin.

So my first question was, what percent of GBS currently stems from GIS trusted relationships? And the reason I'm asking is, does it make sense or are you making progress on also perhaps building out GBS independent of GIS just to go out and get it s own? I wanted to figure out the dynamic there.

So look, the thing with GBS, a lot of that is being fueled by analytics and engineering. Then you take the next cut of analytics and engineering, and what's fueling analytics and engineering, that's Luxoft. Luxoft, when we bought, we knew there wasn't a lot of overlap, hence, the reason why I called out in my prepared remarks that we're now starting to see us taking Luxoft through that Platinum channel, that's goodness. Because not only did Luxoft have their own customers and they continue to go get their own customer but now we're also seeing conversion on the Platinum accounts. And that's again good tenants of green shoots for growth. Hence the reason why we have confidence that we'll get the organic revenue where it needs to be.

Got it. Okay. Understood. And then these structuring in TSI, as I look at what you've done year-to-date and the full-year projection, it would seem like the current level probably be maintained for the next couple of quarters. I just want to make sure that it's accurate and what leads to the quarter-to-quarter step-up step-down be that any particular call outs on what you're specifically doing there? Sorry if I missed that one.

You know, we've guided to $550 million for the full year. We're running probably a little bit light of that at this point. What I would say Ashwin, we've taken a very disciplined focus effort on every dollar spend. So we make sure that business cases is being deployed thoughtfully. So you could see it take up in the second half of the year to get to the $550, but I would just say we're working diligently to manage it. So I would say that $550 is a good number, but if we don't need the money, we certainly won't spend it.

Our next question comes from Rod Bourgeois, from Deep Dive Equity Research. Please go ahead. Your line is open.

Alright. Thanks, guys. Hey, so Mike, just a big picture question. I wanted to ask about what stage of turnaround you're in. You clearly have margin on the rise despite all the talent challenges out there and you actually had a string of 5 quarters with Book-to-bill above 1 and it's actually a little above 1.1 until you experienced the a couple of delays apparently this quarter. So just stepping back, it would be great to hear where this now places you on the turnaround trajectory. Can you give us a sense of what inning you're in and if you add any kind of inflection point given the progression of clients and what's happening in the pipeline?

Okay, Rod, thanks for that question. I'll stay with -- I'll stay with you baseball analogy. How about that? And in my mind we're in the early innings for both organic revenue and also margin. Let's tackle the margin first because the margin is -- the progression is clear that we're delivering. Remember the cost levers that we're dealing with and they're mostly all related to our people. So, the first one is we have a bias towards making sure that our own people do the work for our clients and customers instead of contractors. So we're very focused on contractor conversion. Second is we want to get the right people on the right location. That's why I mentioned the footprint. So that's scaling our GIDC. Third, the virtual first model so that's why I continue to talk about real estate. We should be minimizing or definitely taking down our real estate footprint. And the last thing is, let's not have our folks do stuff that we can automate. So when I look at those 4 levers of cost, I would say we're definitely in the early innings because there's still much more to do. That's what gives us confidence that we can reach the double-digits in FY24. Quite frankly, that's also what gives us confidence to raise the guidance in terms of the margin and EPS for FY22. On revenue, what I would tell you there is the payoffs going to occur over time, but we're seeing a lot of good things happening. When I talk about green shoot, green shoot number one is NPS is up that means customers are happy with our delivery. Second is we're definitely getting to see more of that. Those at bats are coming both in terms of the GIS business, but we're now seeing all those at-bats happening in GBS. But what will happen as those will convert over time. and the best proof of those at-bats converting is the fact that we are growing analytics and engineering, we're also growing applications. So look, when I say the early innings, I would also say that the margins a little bit ahead of the revenue. But the revenues there I think over time you're going to continue to see that the strategy we laid out to deliver the GIS business and to continue to try to grow up the stack, the GBS, is one that will serve us incredibly well.

That's helpful and thanks for dealing with the baseball analogy. Can you also speak to the competitive landscape that you're seeing? It does seem you have 2 large infrastructure competitors that are amidst and pretty big distractions. It would be helpful just to hear how you're competitive position is tracking in your major markets.

When I look at that, I like the hand that we have, Rod. And when I look at it, it's different set of competitors for GBS than it is GIS. So on GBS you can see not only are we competing, but we're winning more than our fair share, especially in analytics and engineering. When I look at GIS, we just need to stay focused. I mean, we're laser-focused on making sure that we take care of those Platinum accounts. We're also in those Platinum accounts where we can expand, we will, and again, I like our position there to.

Your next question comes from Bryan Bergin from Cowen. Please go ahead. Your line is open.

Hey, guys. Good afternoon. Thank you. Question on bookings too. So, hoping you can dig in a bit more on GBS Book-to-bill performance in the quarter. And then Mike, just more broadly, you've had a good mix of new work in bookings but can you comment on renewals? I hear your commentary around GIS discipline, so hoping you could dig in a little bit more there.

Okay. So Brian, what are you at? Tell me a little bit more about what you're looking for on GBS the first part of your question.

Yes. So when we look at GBS book-to-bill in the quarter, so that was 0.9 or 0.5, just comment there on anything that may have slipped in that segment as well, or if it's just some lumpiness, and then on the renewals, anything to tease out around GIS discipline as it relates to renewals in that business.

So look, on the top portion that's -- to be honest with you, that's why we gave you the year-to-date stuff because I'm not really that concerned about it at all, and the fact that I'm guiding towards 10 in Q3, we should be fine. In terms of the renewals, I always say. Look, we're going to continue to have a healthy dose of both because we had to continue to renew the work we have but also win new work. And a lot of that new work is still coming on our existing client base. And that's why I give you both numbers because when I started this whole endeavor 2 years ago, people thought that the revenue is going to run away from us. And clearly, we're showing now, it's not and that's why I continue to show you the renewal number. I always want the new work to be a little bit higher than the renewals, that's why I like the numbers we've got so far.

And then just on the Platinum accounts, those good example you provided curious how -- how broad-based or are those types of experiences that you are having across the Platinum accounts channel today. How far along

Early innings -- early innings. So those take time to do, right? So think about the journey that we've been on. The first step was to get those customers to believe in us again. The second step was did then deliver for them alright? And that just doesn't happen overnight. Third step 1 then was to start talking to them and being proactive in innovative with them. And that's not just 1 conversation and the reason I gave you that example is that that's the way this hings can look. They take time that's why I answered Rod 's question the way I did in terms of early innings. But we have the confidence that the front-end account executive model that I'm putting in place is going to be able to deliver those type customers for us in the future.

Your next question comes from Jamie Friedman from Susquehanna. Please go ahead. Your line is open.

Hi. It's Jamie Friedman. I had a couple of kind of housekeeping questions on FX but I did want to tease those out, maybe better for Ken but -- by the way, this Slide 22 disclosure on FX is a great slide. But I wanted to ask, I see that you're calling out $200 million of FX impact on the year. Did you say what it is for the Q3? I saw that you had $57 million in the Q2. That's the first one. What's the Q3 FX? If you happen to have that. I know it's very detailed. And then, is your bookings adjusted for FX2 because if not, would that have impacted the Book-to-bill at all?

Partner, you take Q2, I'll do the book-to-bill. So the Q3 FX impact is about $90 million, Jamie.

Got it. Okay.

And Jamie, listen on the Book-to-bill now, I'm not that -- the FX that flat out is knocking down the deals and -- look, the great part about where we are now is we're pretty specific about what we can do in each quarter and to be able to have that forecast figured out and the deals that we need to the land. I really like the fact that we've got that discipline and that's quite frankly why I called out a couple of deals. And better yet, the fact that they are behind us, and we're now fully into Q3. That's goodness.

Got it. I'll jump back into queue. Thanks for that.

Go ahead.

We have one last question from Keith Bachman from BMO. Please go ahead. Your line is open.

You, Mike and Ken you guys trying to cut me off.

Now you get even more time,

Good ahead you going to have 3

I got my study 2 questions lined up, but I wanted to down on the first one is in terms of the cash flow in the distribution. Essentially, when you reached the targets, you're prioritizing buybacks. It sounds like over M&A and I was just wanted to tease that out a little bit in particularly as you're on your journey here to try to get the positive growth rate, why not tilt a little bit more selective M&A to try to accelerate that formed the growth. And I'm not saying use M&A to get growth. But once you buy some companies, you know, it helps you as you even anniversary getting new areas like blocks off. But why the emphasis on buybacks over a little bit about M&A.

Keith I will start and Ken will way in. The key thing that Ken said is we've got what we need. Okay. Got to do is continue to execute what we have. Alright. So think about the strategies we're putting in place for growth Deliver in fixed GIS, and continue to make sure that we're selling the offerings that we have in applications and analytics and engineering. That's piece 1. Piece 2 is the Platinum customer channel and being able to take new things like Luxoft through that channel. So, my point right now is we've got more than enough to get us to where we need to be for FY24. Now, having said that, you should have also heard that if something falls in our lap, we will absolutely do it. All right? And look at it, we got the money. And don't take Ken's comments as etched totally in stone I mean, we can pivot one way or the other, but we definitely think we're undervalued right now, therefore, we think a good use of the cash there is to buy our stock. The last thing I will tell you is we continue to go through this business and do the hard work around making sure that we don't have any distractions from the enterprise technology back. So we continue to divest small piece of this businesses that quite frankly, we are not a 100% focused on our enterprise technology stack. So Keith, I look at that work and I look at how we're undervalued. And I say, okay, best usually the cash right now in the short term buyback, Alright. All while we continue to balance that investment-grade profile, I think that balances is important.

Yeah and maybe just to add to that because the conversation around free cash flow versus excess cash, I think is an important concept. So when we laid it out at Investor Day, we spend some time talking about free cash flow. The reason excess cash comes to the forefront is really what Mike talked about a few seconds ago. Which is as we dispose of assets that are non-core, aren't really productive for us, we'll generate cash. And we also want to use that cash to -- deploy that cash in an appropriate fashion.

Okay. Well, why don't I leave it there, I'll ask my other questions and follow-up, but I appreciate it. Thank you very much.

Keith. Sorry about that.

That's okay.

In closing what I want to do is thank everybody. We really appreciate your interest in DXC. Our team really believes that we are building the foundation to make DXC operationally efficient, sustainable, and ultimately grow and I am confident that we just stay focused on our transformation journey and continue to build the foundation, we'll deliver. So with that, all the best to you and your families and Operator, please close the call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.