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

November 6, 2018

TYSONS, Va.--(BUSINESS WIRE)--Nov 6, 2018--DXC Technology (NYSE: DXC) today reported results for the second quarter of fiscal year 2019, representing the period from July 1 through September 30, 2018.

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

Financial Highlights - Second Quarter Fiscal 2019

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

Global Business Services (GBS)

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

Global Infrastructure Services (GIS)

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

Returning Capital to Shareholders

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

Earnings Conference Call and Webcast

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

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

Non-GAAP Measures

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

About DXC Technology

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

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

Segment Results

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

Segment Profit

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

Non-GAAP Financial Measures

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

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

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

Reconciliation of Non-GAAP Financial Measures

DXC’s non-GAAP adjustments include:

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

EBIT and Adjusted EBIT

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

Adjusted Free Cash Flow

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

Non-GAAP Results

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

View source version on businesswire.com:https://www.businesswire.com/news/home/20181106005906/en/

CONTACT: DXC Technology

Rich Adamonis, Corporate Media Relations

+1-862-228-3481

radamonis@dxc.com

or

Jonathan Ford, Investor Relations

+1-703-245-9700

jonathan.ford@dxc.com

KEYWORD: UNITED STATES NORTH AMERICA VIRGINIA

INDUSTRY KEYWORD: TECHNOLOGY DATA MANAGEMENT NETWORKS SOFTWARE SECURITY

SOURCE: DXC Technology

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PUB: 11/06/2018 04:15 PM/DISC: 11/06/2018 04:15 PM

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