DXC Technology Reports Fourth Quarter and Fiscal Year 2021 Results
Fourth quarter revenues of $4.385 billion
• Diluted EPS was $(3.14) and non-GAAP diluted EPS was $0.74 in Q4 FY21
• Bookings of $4.7 billion and book-to-bill ratio of 1.08x in Q4 FY21
• Revenue, margin and non-GAAP EPS exceeded our guidance range
• Paid down debt of $724 million in Q4 FY21, further strengthening the balance sheet
TYSONS, Va., May 26, 2021 – DXC Technology (NYSE: DXC) today reported results for the fourth quarter and fiscal year 2021.
“I am pleased to report a solid fourth quarter as the leadership team continues to execute on our transformation journey. Our results clearly indicate that we are winning in the marketplace, which in turn is driving improved sequential revenue and adjusted EBIT margin performance,” said Mike Salvino, DXC president and chief executive officer. “I would like to thank the entire DXC team for their continued strong execution. Our FY22 and longer-term expectations reflect continuing solid business momentum and our confidence that we are building a people and customer focused organization that will compete and win in the IT services industry.” Mr. Salvino continued, “As the world is witnessing the ongoing impact of COVID-19, our focus continues to be on our people, particularly in the more severely impacted areas including India and the Philippines. The dedication and perseverance on display by our team is a source of the great pride I have as our people continue to take care of themselves, each other, their families, and deliver for our customers.”
Financial Highlights - Fourth Quarter of Fiscal Year 2021
Revenue was $4.385 billion, down 8.9% as compared to prior year, and down 7.0% on an organic basis. Fourth quarter revenues exceeded the Company’s previous revenue guidance range. Revenues increased 2.3% as compared to the third quarter of fiscal year 2021 and were up 0.4% on a sequential organic basis. This represents the third sequential quarter of organic revenue stabilization for DXC, and management anticipates this trend to continue into fiscal year 2022.
Net loss and EBIT included a $517 million pension and other post-employment benefits mark-to-market actuarial and settlement loss, asset impairment charges of $190 million, amortization of intangibles of $116 million, restructuring charges of $110 million, transaction, separation and integration cost of $51 million, loss on disposition of $42 million and a $41 million debt extinguishment charge resulting in EBIT margin of (16.8)% in the fourth quarter of fiscal 2021. Excluding these items, adjusted EBIT margin was 7.5% in the fourth quarter, an improvement of 50 basis points from the third quarter of fiscal year 2021. Fourth quarter adjusted EBIT margin came in above our guidance range.
Diluted earnings per share was $(3.14) and non-GAAP diluted earnings per share was $0.74 in the fourth quarter of fiscal year 2021, above our guidance range.
Book-to-bill for the quarter was 1.08x, underscoring the Company’s continued focus on customers and our people, which in turn is driving ongoing success in the market. This represents the fourth straight quarter that the Company has delivered a book-to-bill of over 1.0x. The Company expects the new business momentum to continue in FY22.
Financial Information by Segment
GBS segment revenue was $1.999 billion in the fourth quarter of fiscal year 2021, down 13.4% compared to prior year, and down 4.0% on an organic basis. On a sequential basis, GBS revenues increased 4.1% and on an organic basis, increased 2.0%, driven by growth in Analytics and Engineering, Applications and Business Process Solutions ("BPS"). GBS Segment profit was $315 million and segment profit margin was 15.8%, up 160 bps as compared to the third quarter of fiscal year 2021. GBS bookings for the quarter were $2.4 billion for a book-to-bill of 1.20x.
GIS Segment revenue was $2.386 billion in the fourth quarter of 2021, down 4.8% compared to prior year, and down 9.3% on an organic basis. On a sequential basis, GIS revenues increased 0.8% and decreased 0.9% on an organic basis, driven by low-single digit revenue growth in IT Outsourcing, offset by declines in Cloud and Security and Modern Workplace. GIS segment profit was $98 million with a segment profit margin of 4.1%, a 40 basis points segment margin expansion as compared to third quarter of fiscal year 2021. GIS bookings were $2.3 billion in the quarter for a book-to-bill of 0.98x.
Enterprise Technology Stack Highlights
The components of the Enterprise Technology Stack are as follows:
Cash Flow
Cash flow used in operations was $280 million in the fourth quarter of fiscal year 2021, and capital expenditures were $163 million, resulting in free cash flow (cash flow used in operations less capital expenditures) of $(443) million. Cash flow in the fourth quarter was impacted by the payment of taxes related to disposed businesses of $531 million. In fiscal year 2021, cash flow was reduced by the $531 million payment of taxes for the disposed businesses, $500 million normalization of payments to our partners and vendors, and $323 million related to the unwinding of the securitization of receivables and purchase of software license in connection with the sale of the U.S. State & Local Health and Human Services business. The aforementioned payments in fiscal year 2021 are not expected to reoccur.
Guidance
The Company's guidance for the first quarter and full fiscal year 2022 is as follows:
The Company's longer-term guidance(1):
• Positive organic revenue growth of 1% to 3% for fiscal year 2024
• Adjusted EBIT margin of 10% to 11% in fiscal year 2024
• Adjusted diluted EPS of $5.00 to $5.25 in fiscal year 2024
• Free cash flow of approximately $1.5 billion in fiscal year 2024
• Restructuring and TSI of approximately $100 million in fiscal year 2024
Ken Sharp, chief financial officer, commented: “We made continued progress in strengthening our balance sheet, retiring $0.7 billion of debt in the fourth quarter, bringing our total debt retirement to $6.5 billion in the last nine months. These actions clearly demonstrate our ongoing commitment to an investment grade credit rating. Once we achieve our targeted debt levels, and have improved our free cash flow generation, we will balance our capital deployment activity and resume returning cash to our shareholders. Our FY22 and longer-term guidance demonstrates the continued momentum in our business, the confidence we have in our people, and the execution of our strategy.”
Earnings Conference Call and Webcast
DXC Technology senior management will host a conference call and webcast to discuss these results on May 26, 2021, at 5:00 p.m. EDT. The dial-in number for domestic callers is +1 (833) 979-2847. Callers who reside outside of the United States should dial +1 (236) 714-2943. The passcode for all participants is 5488532. 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 06/02/2021 23:59 ET. Phone number for the replay is +1 (800) 585-8367 or +1 (416) 621-4642. The replay passcode is 5488532.
About DXC Technology
DXC Technology (NYSE: DXC) helps global companies run their mission critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private and hybrid clouds. With decades of driving innovation, the world’s largest companies trust DXC to provide services across the Enterprise Technology Stack to deliver new levels of performance, competitiveness and customer experiences. Learn more about the DXC story and our focus on people, customers and operational execution at www.dxc.technology.
Forward-Looking Statements
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 including the uncertainty of the magnitude, duration, geographic reach of the COVID-19 crisis, its impact on the global economy, and the impact of current and potential travel restrictions, stay-at-home orders, and economic restrictions implemented to address the crisis; the effects of macroeconomic and geopolitical trends and events; our inability to succeed in our strategic objectives; our inability to succeed in our strategic transactions; the risk of liability or damage to our reputation resulting from security breaches, cyber-attacks or disclosure of sensitive data or failure to comply with data protection laws and regulations, including the ransomware attack experienced by our subsidiary, Xchanging; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs, respond to emerging technological trends and maintain and grow our customer relationships over time; the risks associated with our international operations; our credit rating and ability to manage working capital, refinance and raise additional capital for future needs; the competitive pressures faced by our business; our inability to accurately estimate the cost of services, and the completion timeline, of contracts; execution risks by us and our suppliers, customers, and partners; our inability to retain and hire key personnel and maintain relationships with key partners; our inability to comply with governmental regulations or the adoption of new laws or regulations; our inability to achieve the expected benefits of our restructuring plans; inadvertent infringement of third-party intellectual property rights or our inability to protect our own intellectual property assets; our inability to remediate any material weakness and maintain effective internal control over financial reporting; potential losses due to asset impairment charges; our inability to pay dividends or repurchase shares of our common stock in accordance with our announced intent; pending investigations, claims and disputes and any adverse impact on our profitability and liquidity; disruptions in the credit markets, including disruptions that reduce our customers' access to credit and increase the costs to our customers of obtaining credit; our failure to bid on projects effectively; financial difficulties of our customers and our inability to collect receivables; our inability to maintain and grow our customer relationships over time and to comply with customer contracts or government contracting regulations or requirements; changes in tax laws and any adverse impact on our effective tax rate; and the other factors described in the section titled “Risk Factors” in DXC's Annual Report on Form 10-K for the year ended March 31, 2020, its Quarterly Reports on Form 10-Q for the quarters ended June 30, 2020, September 30, 2020, December 31, 2020 and any updating information in subsequent SEC filings, including DXC's upcoming Form 10-K for the fiscal year ended March 31, 2021. 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.
About 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: earnings before interest and taxes ("EBIT"), EBIT margin, adjusted EBIT, adjusted EBIT margin, non-GAAP income before income taxes, non-GAAP net income, non-GAAP EPS, organic revenues, and free cash flow.
We believe EBIT, adjusted EBIT, non-GAAP income before income taxes, non-GAAP net income and non-GAAP EPS provide investors with useful supplemental information about our operating performance after excluding certain categories of expenses.
We believe organic revenues provides investors with useful supplemental information about our revenues after excluding the effect of currency exchange rate fluctuations for currencies other than U.S. dollars and the effects of acquisitions and divestitures in the periods presented. See below for a description of the methodology we use to present organic revenues.
One category of expenses excluded from adjusted EBIT, non-GAAP income from continuing operations before tax, non-GAAP net income and non-GAAP EPS, incremental amortization of intangible assets acquired through business combinations, may result in a significant difference in period over period amortization expense on a GAAP basis. We exclude amortization of certain acquired intangible assets as these non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Although DXC management excludes amortization of acquired intangible assets primarily customer-related intangible assets, from its non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and support revenue generation. Any future transactions may result in a change to the acquired intangible asset balances and associated amortization expense.
Another category of expenses excluded from adjusted EBIT, non-GAAP income from continuing operations before tax, non-GAAP net income and non-GAAP EPS, impairment losses, may result in a significant difference in period over period expense on a GAAP basis. We exclude impairment losses as these non-cash amounts, generally an acceleration of what would be multiple periods of expense and do not expect to occur frequently. Further assets such as goodwill may be significantly impacted by market conditions outside of management’s control.
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.
Selected references are made to revenues on an “organic basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates and without the impacts of acquisitions and divestitures from “organic basis” financial results, thereby providing comparisons of operating performance from period to period of the business that we have owned during all periods presented. Revenues on an “organic basis” are non-GAAP financial measures calculated by translating current period activity into U.S. dollars using the comparable prior period’s currency conversion rates. This approach is used for all results where the functional currency is not the U.S. dollar.
