Good evening. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the DXC Technology Q3, FY22 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. Thank you. John Sweeney, Vice President of Investor Relations, you may begin your conference.

Thank you, and good afternoon, everybody. I'm pleased that you're joining us for DXC Technology's third quarter 2022 Earnings Call. Our speakers on the call today will be Mike Salvino, our President and CEO; and Ken Sharp, our EVP and CFO. This call is being webcast at dxc.com Investor Relations, and the webcast includes slides that will accompany this discussion today. Today's presentation includes certain non-GAAP financial measures, which we believe provide useful information to our investors. In accordance with SEC rules, we provide a reconciliation of these measures to respective and most directly comparable GAAP measures. These reconciliations can be found in the tables included in today's earnings release and in the webcast slides. Certain comments we make on the call will be forward-looking. These statements are subject to 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 is included in our annual report on Form 10-K and our SEC filings. I'd now like to remind our listeners that DXC Technology assumes no obligation to update the information presented on the call except as required by law. And with that, I'd like to introduce DXC Technology's President and CEO, Mike Salvino. 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 Q3, which was another strong quarter of operational execution for DXC. Next, I will cover how we are consistently delivering on our transformation journey. As a result of this execution, organic revenue, margin and EPS all continue to improve. In addition, you will see the outstanding results for book-to-bill and free cash flow. The best part about this performance is we expect it to be sustainable. Then I will hand the call over to Ken to share our Q3 results along with our Q4 and full year guidance. Finally, I will add some closing remarks before opening the call up for questions. Regarding our Q3 performance, our revenues were $4.09 billion compared to $4.03 billion in Q2. Organic revenue continued to improve as we progressed from minus 2.4% in Q2 to minus 1.4% in Q3. I see this as a significant improvement as only a year ago our organic revenues were minus 9.7%. And I was also very pleased to see the organic revenue growth in GBS accelerate from positive 3.4% in Q2 to positive 7% in Q3. Our strategy to grow DXC relies on GBS consistently growing, and we are clearly delivering against this piece of our growth strategy. Our adjusted EBIT margin was 8.7%, up 170 basis points as compared to last year, driven by our operational work that we are doing to optimize our business. Our non-GAAP diluted EPS was $0.92 in the quarter, which is up 10% as compared to $0.84 last year. While the quarter was strong across the board, the two strongest financial results were book-to-bill and free cash flow generation. We delivered $5 billion in…

Thank you, Mike. Turning to Slide 11. Our transformation journey remains on track with strong progress across all 4 key metrics. Organic revenue improved 100 basis points from Q2 to a decline of 1.4%. Adjusted EBIT margin is up to 8.7%. Year-over-year, our adjusted EBIT margin expanded 170 basis points, while we substantially reduced our restructuring and TSI expense. Q3 book-to-bill was 1.23 and 1.08 on a trailing 4 quarters. From our perspective, looking at book-to-bill over a trailing 4 quarters is more meaningful than looking at one quarter in isolation. Non-GAAP diluted earnings per share was $0.92, up $0.08 compared to the prior year. Our earnings per share expanded despite $0.23 of headwinds from taxes. The tax rate headwinds were more than offset by increased margins and lower interest expense. Moving to our segment results on Slide 12. GBS continued its strong performance, accelerating organic revenue growth to 7%, our third consecutive quarter of organic revenue growth. GBS is benefiting as we leverage our relationships with our Platinum customers. Our GBS business has higher margins and lower capital intensity. So as we grow this business, it has a disproportionately positive impact on margins and cash flow. Our GBS profit margin was 16.2%, up 200 basis points compared to the prior year. GIS organic revenue declined 8.3%. GIS profit margin was 4.8%, an improvement of 110 basis points compared to prior year. Our focus with GIS heretofore has been on improving delivery to deliver for our customers while stabilizing the margins. As we set up for next year, we are putting in place a program to drive cost out of GIS to move the margins forward. Turning to our enterprise technology stack. Analytics and Engineering revenue was $545 million, and organic revenue was up 18.7%. We continue to see high…

Thanks, Ken. Let me leave you now with a few key takeaways. As I think about finishing out FY22, we are making great progress. During our June Investor Day, we committed to making progress on all 9 of these points. And let me quickly give you an update on each. Win in the market and a book-to-bill of greater than one. Our trailing 12-month average is now 1.08. Sequential revenue stability. This year, we produced relatively stable revenues in Q2, Q3, and we expect this to continue in Q4. Strengthening the balance sheet. Our debt is now at $4.9 billion, and our refinancing has significantly lowered our interest expense. Achieve organic revenue growth of minus 1% to minus 2% in FY22. This is where we're coming up a little short anticipating negative 2.2% to negative 2.3% organic revenue growth. Remediate material weakness and improve governance score. As Ken indicated, we will remediate the material weakness in Q4, and we have plans to continue to improve our governance score. Reduce restructuring in TSI. We have taken it from over $900 million to roughly $400 million in FY22. Continue margin expansion. We have expanded margins every quarter throughout FY22. Improve free cash flow. We exceeded the $500 million guidance for FY22. And finally, resume capital deployment to shareholders. We have repurchased $363 million and plan to do another $1 billion over the next 12 months. In addition to this progress, we are also committed to portfolio shaping. What this means is we are making the right bets and investments like what we are doing with Platform X and ServiceNow and divesting assets that are not core to our strategy and will not help us grow. Our portfolio shaping is anticipated to drive $500 million in excess cash in the next year. In closing, I am confident that by staying focused on our transformation journey, we will continue to deliver on our commitments both in the short term and the long-term. And with that, operator, please open the call up for questions.

Thank you. And we'll take our first question from Ashwin Shirvaikar with Citi.

Hey, Mike. Hey, Ken.

Hey, Ashwin.

Hey. Congratulations. I guess my first question is, the last 4 quarters, it's been quite a turn in your cash flow. And I get the points you made in your prepared comments. Could you comment on what investors should expect as it relates to sort of a good net income to free cash flow conversion ratio? And then in terms of use of cash, if you don't mind revisiting what you said on Slide 19, are you seeing no acquisitions at all? Or could you kind of just clarify that point?

Okay. So look, I'll start and then I'll hand it over to Ken. And then, Ken, you hand it back to me on the acquisition. So look, in terms of the last 4 quarters, Ashwin, what you're seeing - and this is the thing that we talk about all the time - is the operational execution. And what that operational execution is doing across the board is literally starting now to drive the free cash flow. And what was interesting is when we were in Q1 and we went minus 300. I know that was a little hard to believe. But what we could see was that the business was starting to turn both in terms of what we were doing in terms of driving good revenue along with good margin, along with just stopping certain things and putting in the operational rigor that we needed to do. Ken, do you want to comment on the other piece, and then I'll go do the acquisition stuff?

Yeah, sure, Mike. So Ashwin, look we've been working pretty hard, the finance team, Mike's team kind of down in the bowels of the organization, making sure that we're executing pretty disciplined fashion. And I think if you look at the kind of quarter-over-quarter, there's some pretty good structural improvements around bringing down the restructuring and TSI cost is about $195 million, dealing with the interest that we dealt with last quarter when we refinanced our debt, that's about $70 million or so. Capital expenditures and capital leases, so just being more disciplined, managing the contracts, managing our performance. And the great news is when you have happy customers, they tend to pay you and things work so much better. And that's what Mike and his team have really brought forward. So what I would say just kind of maybe looking back, because it is a little hard to your first 2 quarters in as CFO, you print negative cash, maybe it's my first 3 quarters. But it's nice to see the almost $1 billion in cash generation since then. And now we're year-to-date at $650 million. So as you think about cash conversion, I think it's a great question. Certainly, it's something that's on our mind. We'd certainly like to see that correlation between earnings and cash flow, GAAP earnings and cash flow to get really close. And that's certainly we certainly guided to when you think about FY24. That should give you a pretty good perspective of where we think we'll be. But we'll certainly kind of keep you updated on that. And as far as percentages, I think you probably maybe let us work through that next quarter as we guide for '23 and '24. We can be a little clearer on that. But we think we're absolutely in a better place for sure. With that, I'll turn it back to Michael on the acquisition piece.

Ashwin, so look on your acquisitions and what's on Slide 19. We talk about building a strong foundation. And we still got work to do, right? I mean sometimes our team makes this look easy, and there's still a lot of work that we need to do as it relates to for instance, the Platinum channel and, for instance, still what I'd like to see happen with some of our offerings. The other key thing is I believe we've got enough to grow. And when I think about our growth equation around GBS consistently growing and then GIS driving to a negative low single digit. We've got what we need to get there, all right? So I look at the next 12 months and say the best use of that cash is the return to the shareholders. And we never say never. So we're not - I know there's a big red X on that slide, but we look at stuff all the time. And if we think it's the right thing to do, that we can absolutely create it, bring it in as part of our growth agenda then, absolutely, we'll do it. Ashwin, did you have a second question?

I did have a second question. Thank you for the response. And also thank you for the cash flow performance. The question on bookings. As you deliver on your bookings, presumably, I would think industry reputation goes up, you're attracting talent. Are you seeing the top of your funnel grow in size as well? And is there a way to quantify that or comment on that?

Well, look - I mean, the bookings are we seeing the top of the funnel increase? I would tell you, we are seeing an increase in a good - a better number of qualified deals. And that's what I'm looking at in terms of quality. Because when you produce a $5 billion quarter, which is a big quarter for us, that means the quality that was sitting there was something that we really could convert. And I understand that the Q2 number wasn't where we needed to be. But look, we've got a team that can convert the pipeline into good deals. And that's why I said. I mean, Ashwin the market right now we see there's a lot of opportunities. Here's the good news. We are winning. And with the execution that we're investing in, we're turning those good deals and the good revenue. And that's what I would highlight what we're doing. And for instance, the two that I called out, both analytics and engineering, there's no question. And that's more of a project-based business. And then when you look at an outsourcing-based business, like what we've done with ITO. That's converting good deals to good revenue. Otherwise, there's no way you can take the business from minus 17.7% to a minus 1.9% when most people kept telling me when I joined that we had secular issues with that. And I kept saying no, we have customer delivery issues. And that's what we're going to go fix. And I think we've done a pretty good job with that.

Understood. Thank you.

Good. Next, we'll go to Bryan Keane with Deutsche Bank.

Hey, guys. I just want to ask about the GIS segment profit margin. It slipped a little bit sequentially to 4.8 Just thinking about some of the factors there and what might be the outlook in that segment. Because obviously, there's some room for improvement there going forward in the out years.

Bryan, so let me give you a little color there. That's - you'll see - what is that? On Slide 12? Slide 12, you'll see that what we did originally is we put together a plan to take out a chunk of cost in that business, which we successfully did and then make sure that we focused on no customer disruptions. So we let that bed down. As Ken mentioned, our next step now is we're in the 2023 planning. And we're putting together our next program. And our next program, that's why I had Ken highlight those 4 areas. We're going to be focused on contractor reduction. Now we're including our data centers in our colocation leases, Bryan, which I think we can take a nice chunk of cost out of that. Scaling our GIDC is important. And then to try to tie a few things together, automation will be the last. That deal that we cut with ServiceNow around Platform X that was literally the automation that I've been talking about for a while that we can monitor cloud and on-prem estates. And now to have ServiceNow validate that and say they want to go out in the market with us to go to the enterprise service management market and hopefully dominate it, that's a good win. So what we'll do is we will take the next chunk out of that. I think we can. But again, we're going to be very focused on making sure we're delivering for our customers too.

Got it. And then as a follow-up, just thinking about the portfolio pruning. I think you mentioned it was about $500 million in revenue, which generated about the equal amount in proceeds. Just trying to figure out how fast or how much of a decline that piece of business was in and what maybe the margin impact was there. Just trying to get to an EPS impact versus the proceeds? Thanks.

Bryan, so we call it portfolio shaping, not pruning, that's a better word than you think. So what we're doing is, look, we - let's be clear. If I think something is a distraction for our team and it is not where it needs to be, then that's what we're looking at. And you've seen over the course of my 2-plus years that, if I think that's happening, we're going to action it. So those businesses, when Ken literally has said, they will be accretive, they will not impact our FY24 numbers, and they will be accretive to our organic revenue and margin. Look, I'm not going to give you the details, but safe to say they weren't performing where they need to be. The second thing is strategically. I mean, Bryan if I came to you and said, why don't you put your assets in our bank? You scratch your head. Because that's not a Platinum account offering. And there's a number of things that look like that. And to me, that's a distraction. And what we need to do is do the hard work much like I said when I answered Ashwin's question. Because there's still stuff that we can go do to make DXC a much better place. So Bryan, thanks for that question. Next question?

Thanks.

Anything further, Mr. Keane?

No, that's it. Thanks so much.

Okay. Thank you. We'll take our next question from Lisa Ellis with MoffetNathanson.

Terrific. Thanks, guys. I was looking back at my notes from when DXC bought Luxoft. And it looks like about half of Luxoft head count within the Russia and in the Ukraine at the time. Can you just comment on whether or not - I mean, they are the foundation of Analytics and Engineering that's performing fantastically well. So I'm just - are you seeing or do you anticipate any disruption to that business given the conflict in the region? Or how should we be thinking about that?

Okay. So Lisa, first of all, it's half of Analytics and Engineering. Remember, we still had - before we bought Luxoft, we had DXC capability in that space. But look, when I look at that situation, again, this is what we do. It's what we do for living. We run customers' mission-critical systems. So we've had business continuity plans in that region for a while. We've also operated in the Ukraine for 15 years, in Russia for 20 years. And we've managed through events like this. And we've done a nice job supporting both our customers and our colleagues and the focus. So look, if need be we're ready to support a movement of our folks to Poland. And when I say that, we've outfitted all of our folks with technology, so think computers, cell phones, network connections. We've also secured lodging. We've also had multiple town halls communicating with them and getting their buy-in that that's a good plan. Now in terms of the stats, the stats are - we have 4,000 colleagues in the Ukraine out of 130,000-plus. And they're across 3 main cities. These folks drive roughly about $250 million in annual revenues, and 70% of those revenues come from 20 customers. And we obviously have been communicating with those customers and are coordinated around what to do there if we need to. So I think, Lisa, we've got a very good plan. And we'll continue to execute.

Good. Yeah. And thanks for the clarification on the size of that business. A follow-on one, again I'm just looking at the growth of that business. I like this concept of the Platinum channel that you were describing on the call. Is that an area where you're focused on cross-selling in that digital engineering business? I would imagine, because a portion of it came from Luxoft, the customer base might still be a bit different. Is that part of what's driving that growth? Or is that kind of - is that an example of sort of this cross-selling into the Platinum channel?

Exactly. So one of the things when I talk about doing the hard work - before I got here, we didn't have any Platinum accounts. So now our team in the various businesses are laser-focused on those customers to make sure that we deliver, we're proactive and we listen. So taking an offering like Luxoft into those Platinum accounts is huge. Now the only way we can do that is - you heard me talk about running mission-critical systems. What happens is we run these mission-critical systems. When we do the GIS business, we build that trust, which gives us more, just call it, plate appearances using a baseball analogy. Those plate appearances allow us to introduce new offerings like Luxoft, like Analytics and Engineering. Because Lisa, quite frankly, DXC was never known for that work. A lot of times, we'll show up at our clients. And they will be surprised at a lot of the examples we have for instance, in the banking space or in the automotive space. So what we're doing is we're planting a lot of seeds in those areas. And you know that business is you started with delivering 5 or 10 people, 5 or 10 people grows into 50 people very quickly when you deliver. So that's exactly our strategy. And I appreciate you asking the question.

Thank you. Good luck.

Okay. Next, we'll go to Bryan Bergin with Cowen.

Hi, thanks. This is Zack Ajzenman on for Bryan. First question, we were looking to dig a bit more into the moving pieces within GIS. ITO trends, notably better, but kind of surprised by the weakness in Cloud and Security, particularly against something like the more well-known industry tailwinds in those areas. So could you just help us better understand the current dynamics that's weighing on that stack layer?

Okay. So on - when we look at GIS, let's take a step back again. Because when I look at what we were focused on doing in FY22 is to stabilize the revenue, and I think we've done that. If you look at Page 11, when you look at what we've done year-over-year, we've gone from minus 9.7% to minus 1.4%. And then I look at it also as quarter-over-quarter. And we've increased our revenue Q2-Q3. And we're guiding towards increased revenue in Q4. So when I look at the equation to grow DXC, the first thing we got to do is consistently grow GBS. And we just printed our third quarter of growth at 7%. Then the second thing we got to do is we got to get GIS, all right, into negative single digits. And right now, we're sitting roughly at about minus 8%. So then if you look at Page 13, the real piece that we got to focus on is Modern Workplace. The cloud business has been lumpy for us. We've had some good quarters and we've had some bad quarters. What I can tell you is that we're building the right team. And it looks like we've got some decent momentum in that business having a book-to-bill of 1.23. When I look at the GIS weakness and the revenue weakness, it literally has come for the most part from Modern Workplace. Meaning when you put a business up into strategic alternatives, which, quite frankly, it seems to have - the market right now, there seems to be a lot of that going on. And I'm happy that we're through that. And so when we put that business up for strategic alternatives, we thought that there would be revenue declines. And what we saw in '22, they were a little bit deeper than we thought. The good news is the uptime solution, which is our new solution that we use at DXC, is really taking shape in the market. Now why do I tell you all that? Because that business is sitting at minus 16%. I think it's going to follow the exact same track as IPO. So with what we've done with ITO, minus 17.7% now to minus 1.9. So if we do anything close to that, we will end up getting GIS right where we want it, and DXC will ultimately grow. So hopefully, that gives you enough color on your question.

It does. Thanks for the bridge there. And just a follow-up is on cost savings. I think back at the Analyst Day, one of the levers you guys focused on as it relates to improved margins was reducing the contractor mix, which you did at 17% last year. Any update on the mix today? And any context on how challenging it might be to move away from contractors with the attrition expected to kind of remain at elevated levels? I know I heard you guys say you're below industry average. But it sounds like attrition is kind of here to stay on an elevated basis over the coming quarters.

Okay. Well, thanks for that question. So let me talk a little bit about attrition. And the first thing is, when you think about what we're doing first, our people first strategy is resonating. So you'll see that we are changing the culture. And I appreciate what the women and men of DXC are doing to do that. The second is our virtual-first model, meaning people love it. And uptime, which is the Modern Workplace solution, is totally supporting us to be able to do that in a very effective manner. And then last thing is I think we're doing a very good job taking care of our colleagues during the COVID situation. So all that boils into us stabilizing our attrition and staying well below the industry average. So look, when I think about the employee base as a whole, I think we're doing a very good job.

Thank you.

What's the next question, David?

Sorry about that. We have Tien-Tsin Huang from JPMorgan.

Hey, thanks so much. Good to connect with all you guys. A couple of questions. I guess, first on the - just the quality of the backlog in the pipeline. Just curious about the mix of larger deals versus some of the short-cycle work and just new logo versus renewals et cetera. I know you talked about last quarter Mike that you saw a little bit of a pushout. It sounds like you signed some of those bigger deals. Just curious how things working out so far in this calendar year.

Okay. Well, look, the - one of the things that we have done with book-to-bill now is we think the 12-month - the rolling 12-month average is the best way to look at it. We said we were at 1.08. I expect to keep that number over 1. Quite frankly, I expect to be over 1 in Q4, too. When you look at new logos or what I say new work versus renewals, that 58%-42% is a very good mix still. I think that's our third quarter with us driving that kind of new work. And the reason why that's so important is, if you go back to '11 and you see the organic revenue, I mean that's the stuff that we're driving through to take us from minus 9.7 to minus 1.4

Yeah. No, that makes sense. I get it. So just on the free cash flow and the cash generation, good work there. So the $1 billion in share repurchase, should we expect that to be a programmatic or opportunistic sort of idea? Or is there some other structure you might put in place to enact that? Just curious about the execution on that. Thanks.

Yeah. And we've been doing, right, share repurchases. We're pretty programmatic as far as timing and we stay pretty disciplined with it. It's important for us to stay self-funding around it. So we look at where our cash is and where we expect to have cash and work with the banks, of course, and buy back the shares kind of on a periodic basis. So we'll continue to do that. Our expectation is we'll be in the market, and that's kind of how it works.

Okay. Thanks, guys. Thanks for the time.

Thanks for the questions. David, next question?

Next, we'll go to James Faucette with Morgan Stanley.

Hey, guys. This is Jonathan on for James. Thanks for taking our questions. I want to build on some of the questions that we've had earlier. Can you talk through the progress of the Luxoft penetration into your platinum accounts? Are you seeing any pricing power in Analytics and Engineering there? And are you - like what are you seeing from a runway perspective?

So in terms of pricing power, we've definitely been able to increase our prices in that segment of our business. In terms of runway, I would tell you it's still very early innings. And there's a lot of juice still left in that tank. But again, I continue to look at the Analytics and Engineering business as - remember, it's a combined business. And when I think Analytics and Engineering, it's not just the stuff we do in banking, in automotive, but it's also things like data cleansing. Because the way we've tackled that market is we do a lot of what I call the hard work. And when you cleanse the data and you're the person bringing all those data lakes and so forth together, then there - then it just goes to show you that, look, we'd be the right person to then do the analytics on that data because we know the data of the best. And that's what DXC had before we built Luxoft. And bringing the 2 together is pretty phenomenal, as you can see with us getting to 18.7 in that segment.

That's good color. Thanks for that. Look, I appreciate the commentary on the attrition stabilizing. Can you talk through some of the attrition you're seeing at the top of the tech stack, particularly in the Analytics and Engineering?

Look, in terms of the top, that's not the issue. The issue is how quickly can we hire. And that's what I said on the last call, like we need to rev up our hiring engine. And because I thought we fell short in Q2, and I think I was very clear on that. So what I was pleased to see is that the hiring engine allowed us to increase our head count by 3%. When you look at our margins, we also built a little bit of a bench, right, that I was okay with us eating into our longer term margins a bit to do that. Because in the market right now, not only do you have to show up with the capabilities and the skills, but it's - if you've got the deep relationship, James, first one to the door is usually going to get the work. And that's what we've seen. So that's basically what we're doing. Fair enough, James?

Right.

David, next question.

Next, we'll go to James Friedman with Susquehanna.

Really good work here, guys. I got a couple. Ken, in your prepared remarks about BPS talking about moderating the declines you alluded to, but I don't think you elaborated on a potential new strategy. That was your language. So what's - could you elaborate on that one?

Yeah, sure. We've got some businesses. And as we've been working through our portfolio, that really align well with the BPS and the insurance business. So I think from our perspective, longer term, right, is how we leverage that customer base, bring them together and do more with it. And that's kind of where we're working through now on what's that strategy to tackle the market.

Mike, your prior answer about driving costs out of GIS in '23, it was a great answer. I heard you say before, but could you just - sorry, could you just repeat it because there's a lot of moving parts there. So taking costs out of GIS starting in '23.

Okay. So it's basically the exact same equation we did to begin with, okay? Except now the new entrant is data centers and co-locations, which Kevin - or Ken loves. Because we've got a huge opportunity there, too. But the levers are these. First one is the contractors, which that's already been discussed on this call. And what we'll do is continue to drive those down. And look, our focus is to make sure we're delivering as much of the work as we can at DXC with our own people. And it's really hard in my mind to motivate and change the culture when you've got contractors in. So it's kind of personal, is what I would tell you. The second thing is scaling our GIDC. What that means is if we do have attrition and we are hiring new people, let's hire them in the right spots. And let's make sure we're filling up the centers that we want in terms of where we can get the best talent for our skill set. Third is automation, and that's why I couldn't be more pleased about Platform X. I mean that's something that we built internally and now to be able to take that to market with somebody like ServiceNow is huge. And then the last one is data centers. So we've got not only these data centers that we've owned, but we also have these co-location leases. And if you look at what Ken and the finance team has done in the real estate area in the last 12 months, we're going to be able to take another chunk out of that because the data centers are not filled at 100% capacity. And then these co-locations, to be quite blunt with you, I've never seen before. So we're going to clean that stuff up. Hopefully, that gives you the color.

Yeah, that was great, Mike. Thank you. That seems consistent, a little more elaborate. And then if I could just ask, are you allowed to say about the share repurchase? Like what are you thinking about the time? Do you want the proceeds first from the sale, the self-funded share repurchase timing?

Yeah. We probably wouldn't get too far in the timing on that. But look, we think our stock is undervalued. Clearly last quarter, we went into the market and bought some stock back. We would expect to do the same thing based on our formula. So we've got - certainly, our formula is $2.5 billion in cash, and we're sitting with excess cash today. So we feel good about where we are. And Mike said earlier, our debt sitting at $4.9 billion. So clearly, we've done what we needed to do on the debt, and we actually have some more payments that continue to come due on these capital leases as we've been bringing it down. So expect our debt to continue to come down a bit, and we've got excess cash. So we think we're in a great spot.

So look, thanks for that question. David, I will - we'll take one more question, and then I will close the call because we're right at the top of the hour right now.

All right. Next, we'll go to Rod Bourgeois with DeepDive.

Hey, guys. Hey, thanks for feeding me in here. Very nice to see the increased free cash flow outlook. So I just want to ask, I mean, you've talked about the margin levers. That's very helpful. Besides the mix shift that's happening, which is clearly positive in the business, what are the main levers remaining to reduce capital intensity? And I especially like a view on whether you have a path to make free cash flow smoother or less lumpy and less seasonal. If you can give us an update on the capital intensity outlook, that would be really helpful.

Right. You want it all. I mean are you serious? So the free cash flow, I mean, make it less lumpy. I'd love to have that, all right? And what I can commit to you is that we're working really hard, all right around it. But you can see the levers, right? You can see some of the capital levers that I've mentioned. And those are real, and we've got to get after those to be able to drive more free cash flow. But I'll let Ken go through it, and then I may have a few more comments after that.

Yeah, Ron. I just think you'll see a greater and greater focus over time as we look at specifically the GIS layers of the stack and making sure we're being thoughtful with the kind of the CapEx upfront, the returns that we expect and the timing of cash flow. And that dialogue is really good in process for a couple of quarters at the longest. And I think Mike and his team are really working through how to engage with the customers, get something done that doesn't have us be a bank where we're buying capital putting on our books. And I mean, certainly in some cases you're going to do that. But there's assets that you immediately deliver to a customer and then you have them on your books. Those are really not appealing, right? So how to work that balance and strike that balance is important to us on the CapEx side. So we think we can kind of work that. And I think we've seen some kind of early day wins on that. I would also add, like when you look at our structural cash improvements, the restructuring and TSI is certainly a big piece. The interest is done. Everything is termed out. For the most part, the capital leases will continue to come down. But I think we have good news there. Capital expenditures, you have to, for me, put capital lease originations in there. And right now, we're doing more debt paydown on the capital lease side. So when you think about our payments sitting at $180 million this quarter, going down to $140 million next quarter, I think that's just more cash we're going to keep at the end of the day. I know a geography that shows up below the cash flow free…

So Rod, it's Mike. Do you have a follow-up question?

No, this is exactly what I'm looking for. I mean I think this is the key to the valuation. It's always been the struggle in this business is the free cash flow generation, making it steadier and on the rise. And so this detail is super helpful.

Right. Thanks so much. And look, before I close the call, what I wanted to do is thank all the women and men of DXC for their hard work in continuing to change our culture and clearly make DXC a better place for our customers, our colleagues and our shareholders. And with that, operator please close the call.

And this does conclude today's conference. You may now disconnect.