Hello, and welcome to the DXC Technology Q4 Earnings Call. [Operator Instructions] I would now like to turn the conference over to John Sweeney, Vice President, Investor Relations. You may begin.

Thank you, and good afternoon, everybody. I'm pleased that you're joining us for the DXC Technology's fourth quarter fiscal year 2024 earnings call. Our speakers on the call today will be Raul Fernandez, President and CEO; and Rob Del Bene, our EVP and CFO. The call is being webcast at DXC Investor Relations website, 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 their 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 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 other 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's President and CEO, Raul Fernandez. Raul?

Thank you. I will give a brief introduction, review our financial performance, update you on the progress we are making with our offerings. Then Rob will take us through the fourth quarter financial results and discuss our fiscal year 2015 guidance. I will also make some final remarks before opening the call up for questions. In Q4 of fiscal year 2024, total revenue declined 5% on a constant currency basis, above our expectation. Adjusted EBIT margin of 8.4%, down 50 basis points year-over-year. Non-GAAP EPS of $0.97 was also above our guidance range. Free cash flow equaled $155 million for a total of $756 million for the full year. This is the third consecutive year that DXC has achieved free cash flow of more than $700 million. While we met or beat expectations in Q4, and we know we can operate at a higher level and are not satisfied with the current state. In my five-month tenure, I have met with more than three dozen customers globally, along with thousands of our employees in small and large settings, in-person and virtual. I have engaged with dozens of investors and have successfully recruited very strong, experienced executives to join our team. I believe we have a global team that is reenergized to make the company better and more effective. I've also gotten a deeper understanding of all of our business units. So let me quickly recap a few thoughts, starting with insurance. DXC is the largest provider of insurance software and insurance business process services globally from origination to claims processing. We are the category leader providing software and services in three out of four insurance segments: Life & Wealth, Global Specialty and Reinsurance. As an example, our technology and services process one in five property and casualty transactions worldwide. Our…

Thank you, Raul, and good afternoon everyone, and thanks for joining our call. Today, I'll review our fourth quarter financial results and then provide you with our outlook for the full year and for the first quarter of fiscal 2025. Total organic revenue growth declined 4.9% year-to-year, ahead of our fourth quarter guidance. GBS revenue was nearly flat, while GIS top line declined 9.3%. Adjusted EBIT margin was 8.4%, above the top end of our guidance, representing an 80 basis point improvement sequentially, driven by our cost reduction initiatives. Margin was down 50 basis points year-to-year, primarily driven by lower non-cash pension income and the impact of gains from asset sales booked in the fourth quarter of fiscal 2023. Non-GAAP EPS was $0.97, down $0.05 from last year's fourth quarter. The year-to-year change was driven by a negative $0.13 adjusted EBIT impact, higher taxes of $0.08 and the non-controlling interest impact of $0.03. These reductions were partially offset by a $0.19 benefit from our share repurchase program. Free cash flow, defined as operating cash flow less CapEx, for the quarter equaled $155 million compared to our expectation of about $200 million. The shortfall was due to a combination of a smaller benefit from working capital and higher than anticipated cash tax levels. For the year, our free cash flow totaled $756 million, which was the third straight year above $700 million, demonstrating consistency of cash generation performance. And now, I'll turn to our fourth quarter key financial metrics. Gross margin equaled 23.6%, flat year-to-year as we continue to drive workforce optimization and reduce our real estate footprint in the face of declining revenue. SG&A was 8.7% of revenue, down 70 basis points year-to-year, largely driven by ongoing spending management and a $10 million non-recurring insurance reimbursement. Depreciation and amortization was…

Thank you, Rob. There is quite a lot to do to operate at a higher level. That's why I'm so happy with the additions to our executive team in the last 60 days. They are all industry veterans with proven track records. We will define success by continuing to perform better every quarter, while we transform as quickly as possible. Thank you for attending the call. Operator, we're going to open it up for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Bryan Keane with Deutsche Bank. Your line is open.

Hi, guys. Thanks for taking the question. Raul, maybe you could just help us understand how your restructuring might be different than many of the CEOs that came before you that had a lot of restructuring as well. It seems like every 5 years or so, a CEO comes in, looks at the business and restructures it. Just trying to get a sense of how maybe your plans might look different than what we've seen over the last few decades at CSC and now DXC?

Yes. Okay, great question. Thank you. I know that as you've mentioned, in the short history of this public company, there have been previous restructurings. But as someone who just got here and have really spent a lot of time operationally looking at our systems, our processes, our entities, our distribution of headcount, it's clear to me that the previous restructurings did not set a real, clean, solid, fully integrated baseline for profitable growth. You can look at that in multiple ways. Number of systems still in place that were acquired over time, never integrated, never deduped. Number of business processes that got stacked on top of each other. Number of legal entities. I think anyone that came in would look at the previous work. And again, I know the history is there so I'm not running away from it. But I can tell you that this is a real reset. It is bottoms up. It is a strong foundation to go from and it is absolutely needed because otherwise, we just continue to carry a really not fully functional organization that can take advantage of the opportunities that we have.

Got it. And then just as a follow-up, are any of the restructuring charges, are those going to be -- are those through the P&L so they're in the margin targets that we're looking at or are those outside those targets? And then secondly to that, just on GBS, a little bit of a recovery I think you talked about in the second half of the year. What gives you confidence in that GBS recovery for positive organic growth in the second half? Thanks.

Yes, Bryan. This is Rob Del Bene. Thanks for the question. First on restructuring. Restructuring is not included. Consistent with the approach taken since the beginning of the company, restructuring is not included in the adjusted EBIT margin. It obviously is included in the free cash flow numbers. So, that's the answer to your first question. On the GBS first half to second half dynamic, with a difficult marketplace, we do see the first half of the year performance similar to the back half of fiscal 2024. We have some encouragement. Our pipelines have been improving, and our conversion rates are consistent. So, with that improved pipeline and conversion rates, we see us going from low single-digit negatives to low single-digit positives in the second half of the year.

And it's all built on, again, new leadership there, new life cycle management in terms of opportunities. So, preproposal, proposal, pitching smarter, better, faster, and also eliminating frankly, some self-inflicted delivery issues that we have had, and in some cases, we're still working our way out of. As I've mentioned before, this isn't one lever. This is a lot of little levers. And I think one of the things that has given me additional encouragement that I'm looking at it correctly and the team is looking at it correctly is that as we've brought on great new experienced executives from great companies that have been succeeding in the marketplace all over the world, they have confirmed that it's a very opportunity-rich environment, meaning we have a lot of things that we can be doing better. And if we do those things better, again, not rocket science, operational excellence, and I'd say in some cases, just getting the average, that will show up top line and bottom-line and conversion and show up in gross margins, net margins, et cetera. So, I feel like we've got a way to go to get to a base and then we -- from that base, we're going to continue to grow off of it. But I think we've got the right people, the right structure and now the right go-to-market model and incentives, and I'm encouraged.

Great. I'll pass the line. Thanks.

Your next question comes from the line of Tien-Tsin Huang of JPMorgan. Your line is open.

Thanks so much. I'm just curious on the bookings side, how that came in versus plan in a little bit more detail and what we might expect as the fiscal year plays out here in terms of replenish either new logo or renewal?

Yes. So, Tien-Tsin, thanks. So, the bookings relative to the last forecast we gave 90 days ago were pretty consistent and actually a little better in GBS. And that was really, really due to renewals in A&E were strong and it's the second quarter in a row they've been strong. And in my remarks, I mentioned that those renewals, they don't translate into revenue growth in the first half of the year, but they do produce -- they provide rather a solid foundation for the second half. So that's -- so we did a little better than anticipated. We did as expected in GIS. And we -- going into fiscal 2025, we expect a very Similar picture where we have strong renewal activity in both GBS and GIS and then new content, and based on the pipeline, new content in GBS filtering in throughout and improving throughout the year in fiscal 2025.

Perfect. Thank you for that. And then maybe, Raul, just quickly, my quick follow-up, just with the additions to the management team. I know you're bringing some people in from familiar places. Are you done with some of the additions? Do you expect some other turnover or maybe new roles that should expand into the management team? Just curious what your thinking is there? Thank you.

Yes. And look, you've seen some of the releases, right? So we've obviously announced some publicly, and then there are others that we didn't announce but they've joined the team across the organization. I've had the pleasure of working with a lot of great executives over my 25-plus years in technology. And in that journey, we've had the opportunity to work together and many of the executives that have come here, we've had the opportunity to compete together, work together and win together. So yes, we got a few more that are coming. But in terms of looking at the people that we need to execute, building on top of the team that's here, the great team that's here and adding some great executives that are fit for the roles where we need an additional horsepower, I feel like I've gotten the team 90-plus percent in place.

Okay. Good to know. Thank you.

Your next question comes from the line of Bryan Bergin with TD Cowen. Your line is open.

Hi, guys. Good afternoon. Thank you. First question just on free cash flow. So understanding you have, I believe, the $250 million restructuring headwind that seems to be the biggest chunk in the year-over-year bridge. But can you talk about otherwise maybe the levers for free cash flow sustainability amid ongoing top line and potentially margin pressure? And can you also talk about maybe the annual outflows associated with capital lease payments going forward, too, after free cash flow?

Yes. So in terms of free cash flow, we start from a base of strength three years in a row, over $700 million, $750 million in fiscal 2024. And we have that solid base moving into fiscal 2025. And as I mentioned, the two impacts to that number are the increase in restructuring of $250 million and then the curtailment or significantly curtailing new lease originations, which does shift the spend over to CapEx impacting our free cash flow number in the year. Now we do have operating leverage here with or leverage with working capital. So there is room for improvement in working capital. We're going to be taking advantage of that in fiscal 2025 and beyond. And again, with the purpose of the restructuring is to shore up EBIT moving forward 2025 into fiscal 2026 and curtail that headwind that we faced for the last couple of years. So that's the plan. In terms of cap lease payments, we're in the low 200 range to 100 range and then down from there.

And just to foot-stomp this, the lease originations will go from $185 million in FY 2024 to zero in 2025.

So a very small number.

And that's a $185 million reduction in the free cash.

Yes. Thank you, John.

Okay, okay. That's very helpful. Okay. And I guess a follow-up. Just as we think about the top line, the 2025 guide, as we try to unpack some of the factors you considered here as it relates to kind of revenue retention and whether you're also working to actively prune out any unfavorable basis of business contracts, any pieces of business you're looking at and assessing that's not strategic to the company? Anything that working through kind of here to be mindful of as you build the outlook?

Yes, especially in ITO and Modern Workplace, where historically, there's been the packaging of less-than-optimal profitable reselling of products, reselling of software. That guidance or that direction changed when I got here, and we are going to have profitable contracts, profitable relationships. To the extent we don't have them right now, as we get into renewals of contracts, we're going to address that and then put them on the right footing. But the mandate is clear now that this isn't growth, growth at all costs, growth at a loss. This is growth with real profitability and a real foundation.

Yes. And Bryan, just piggybacking on that, we've incorporated that selectivity into our guide on revenue, so that's included, along with continued reduction of low-margin resale. All of that is packed into the GIS element of the guide.

Okay. If I missed it, I apologize. Did you quantify that piece just so we can kind of parse that out?

Didn't quantify specifically the various elements. But in the -- in my opening remarks, I mentioned that we'll be high negative single-digits in GIS. And with the resale, it will be negative double-digits, low double-digits.

Okay. Thank you very much.

Thank you.

Your next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.

Hi, thanks. This is Paul Obrecht on for Darrin. Can you just provide some color on what you're seeing in the broader macro environment and client behavior and maybe how that relates to three months ago? And as you built your fiscal year 2025 outlook, were you assuming any improvement in the broader demand as we go through the year?

Sure. Look, I think there are a couple of factors, right, with companies that are operating at different levels of efficiency. And I think our issue is being more effective across the whole life cycle of capturing business, new business, solutioning it correctly, pricing it correctly, as well as on our existing business, obviously winning the recompetes and being able to create the right economic model for those recompetes. We have plenty of opportunity in the universe that we operate in. I think from a macro standpoint, I echo what others have said in the space that some discretionary spending is paused and has lightened up. I do think that, that is less of a headwind for us than optimizing our go-to-market and sales functions and getting those better. We can do -- we have our destiny in our hands by being better against the opportunities that we get to compete on, and that will be a bigger factor for us in the near term than the general macro environment.

Got it. That's helpful. And then as a follow-up, you mentioned in Modern Workplace, you could see or you'll reach a point where 75% of the workforce is nonhuman. Can you just touch on the path to get there and what you're doing right now in the business to improve efficiency?

Sure. If you think about a lot of the work there, it's a lot of resolution, small resolution of items across multiple people, humans, devices, countries, companies, et cetera. If you look at the focus of AI, specifically Copilot and the ability for agents to use large language models, small language models, real precise models to really proactively and interactively answer and deal with questions, that's the shift where we're going to be using AI in a manner where we can handle the workload, same or more, with a greater infusion of technology and not relying on an increase of humans or people for that. As we transition that, you'll go from a ratio of roughly 40% to 70-plus percent and that's the reference that I made there. But that's real. That's happening. It's actionable. We're experimenting with it across multiple accounts. And the other piece of good news is that the speed of compute behind AI is doubling every six months. So the speed, accuracy, and multimodal ability for a virtual agent to really be a great partner in delivering these services at a high quality is there today and getting better, and we're going to take full advantage of it.

Great. Thank you.

Your next question comes from the line of Jonathan Lee with Guggenheim Securities. Your line is open.

Great. Thanks for taking my question. Appreciate the level of detail here. You talked about working through some of the resale dynamics to help profitability. Can you help us understand any other levers you have across contract profitability, whether that's pricing or delivery?

Yes. So Jonathan, there's -- I think there's leverage across the board, in particular, in the ITO business. I'll just take that first. We've been on a march to reduce physical capacity with the revenue reductions we've experienced, and we will continue that this year as well. And the $100 million of restructuring between the $250 million year-to-year growth and the base of $350 million, that $100 million is predominantly on physical capacity. So that's one element that will deliver savings into the future. The second element is just efficiency and infrastructure at the account level, and we are going after that with the restructuring funding. So while we're very good at our service delivery levels, we've got high NPS scores, our restructuring is designed to eliminate the overhead within the accounts as opposed to the direct delivery population that we have. And we're firmly on that track and that's how we're going to execute the restructuring. In the GBS business, we have room to improve margins. And specifically, in the Consulting and Engineering business, our margins are below competition, and again, the restructuring is designed to help us narrow that gap to competition in that business unit. That's another lever for us.

Great. Thanks for that. And just as a follow-up. As you think about the realignment of the company on a business unit basis versus geographic prior, can you talk about some of the client receptivity there?

Yes. It is really the intersection, right? Because it's the intersection of the talent, the managers of delivery at the geography in tight coordination with the offering. And so what you're getting just from the beginning of the life cycle is better pre-bid solutioning, better solutioning, better deployment once you win. One of the things that companies can trip themselves upon, and we certainly have, is not being timely in the staffing or fully staffing of something that's won. That leads to SLAs. That's completely self-inflicted, 100% avoidable. If you plan better, you execute better. So that's another example of seeing a lot of little things that other organizations can do and I know we can do better that can have an impact. And that impact will be every month, every quarter, and we'll see that. So those are just some of the elements that I think our new go-to-market really resonates with, both the local geography, engaging the offering at a global level and ultimately, the most important thing, which is the customer. And in my several dozen conversations in the last 150 days, in talking through why we think this is a better way of serving our customers, it's been very receptive and very engaging with our customers.

Appreciate that. Thank you.

Your next question comes from the line of Spencer Anson with Susquehanna. Your line is open.

Great. Thanks for taking my question. Raul, you had some relationship callouts on the insurance business. Can you just speak to any broader strategic or even tactical opportunities you see there with the insurance business? Thanks.

Great. Yes. As I looked at every business unit, I think very early on, it became clear to me that we have an outsized opportunity in terms of a return on effort with our insurance business unit. With that opportunity in hand, we're exploring a small select and experienced group of partners that could help us accelerate growth with a good SaaS and reoccurring services mix while maintaining control of that business unit. So we're in that process right now. It's a great foundation. It's a great set of customers, a great history with those customers and really a critical partnership across the world in every aspect of supporting the different product lines that our customers bring to the marketplace.

Great. Thank you. appreciate it.

Your next question comes from the line of James Faucette with Morgan Stanley. Your line is open.

Thank you very much. I wanted to ask about go-to-market and sales process. I know, Raul in past conversations, you talked a lot about improving and tightening up the message to customers so that they understand the value that DXC can deliver, et cetera. And it sounds like with some of the changes that you've made, that the pipeline is expanding, but conversion rates are pretty stable. And it sounds like that's kind of the assumption for right now. But like how should we think about the process and the time to start to even improve conversion rates and how that may be helpful to getting the business back to growth?

Yes. I think it's a function of the fundamentals, right? The fundamentals that we're operating under in ITO and Modern Workplace. The new leadership and the focus on key vertical solutions, replicability in Consulting and Engineering Services. And also in talking to customers, I always -- if it's an ITO customer or a Modern Workplace, I always come prepared to discuss something relevant in another business unit that they may or may not be aware of. And frankly, it's a good surprise, but I'm surprised that many of our existing customers where we've got tens, in some cases, hundreds of millions of business in 1 division, do not know and do not appreciate the talent, the experience that another division has. So just the more effective cross-pollination, cross-sale in existing accounts is something that I see as an opportunity, and it's relatively low-hanging because, again, in my several dozen meetings, I've always tried to say, and hey, as you're thinking about this, did you know we did this? And most of the time, the answer is, oh no, I didn't know that. Please, let's follow up. So if you scale that and then operationalize that, we're going to be able to get incremental demand from our existing base because in many cases, we've got a great beachhead, a great history and a great relationship with 1 offering and a customer, but that should be a gateway, an effective gateway, a fast gateway to compete with the other offerings. And that mechanism, that orchestration, that collaboration, that packaging up of stories, as I've mentioned before, all of that is happening as we speak. And frankly, it wasn't happening at a good level before.

And it sounds like then for the most part, I mean, you've talked about some incremental partnerships, for example, on the insurance side. But it sounds like you feel like you have all the, or at least a majority of assets to be able to execute and deliver that cross-sell. Is that fair or are there other things that you think you're going to need to add into the mix?

No. We have what we need to compete. We have what we need to compete profitably and grow. We have to get some internal systems aligned. We've got a, as I mentioned earlier, a deduped streamline and do some work that should have been done before that wasn't, but we're going to get it done with speed. And we've got to perform every day, every week, every quarter, while we transform and transformation is the restructuring, and we've got to do both quickly.

Great. Thank you so much.

Your next question comes from the line of Bradley Clark with BMO Capital Markets. Your line is open.

Hi. Thank you. This is Brad on for Keith Bachman. I want to ask about your thoughts on GIS and market growth over time. You've alluded to sort of participating in just broader GIS market growth where you're complying perhaps low single-digit decline over time. Is that still how you're thinking about potential growth of both the market and/or GIS longer term, given the changes you'll be making to the business?

Yes. Bradley, I think that's about right. We have a very realistic view of the market. And our goal is after rationalizing the portfolio and focusing on exiting unprofitable contracts and being selective, our goal is to get to market growth rates, which we see in the low negative single-digit range. So that's where we're pointing the business in that direction.

And just to be clear, we're operating at a worse level than that. So the first goal is to get to "normal" or more baseline with other competitors. And once we get there, then obviously the next step is just to find another target and try to meet and beat it. But in the near term, it is to get in line with our competitors with regards to our growth rate where it is today and where it should be as a comp.

Okay. Appreciate it guys.

This concludes the question-and-answer session. I'll turn the call to Raul Fernandez for closing remarks.

Thank you very much for joining us. I appreciate all of the employees that come together every day to deliver great services for our customers, and value all the investors. I definitely also appreciate the sense of frustration and urgency to get things done, and that is what I'm 100% focused on. So thank you very much for attending today.

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.