Business Wire | Aug 6, 2020 04:16PM EDT

DXC Technology Reports First Quarter Fiscal 2021 Results

Aug. 06, 2020

TYSONS, Va.--(BUSINESS WIRE)--Aug. 06, 2020--DXC Technology (NYSE: DXC) today reported results for the first quarter of fiscal year 2021. Revenue of $4.5 billion and non-GAAP EPS of $0.21 were better than expected.

"I was very pleased with our first quarter results as we exceeded our revenue and EPS targets along with delivering a strong book-to-bill of 1.2x. This is clear evidence that we are executing on our transformation journey," said Mike Salvino, president and chief executive officer of DXC. "Our focus on customers is allowing us to stabilize revenues, expand margins, and bring the "new DXC" to the market, helping us win more work. We are also making solid progress on our strategic alternatives. We remain on-track to complete the sale of the US State and Local Health and Human Services business in the second quarter. The recent announcement of the sale of our healthcare software business will further enhance our financial flexibility. Finally, I am very proud of how our people have been delivering for our customers during COVID-19."

Salvino added that the company expects to build on the current momentum in the second quarter by stabilizing revenues, improving margins and targeting a book-to-bill of 1x.

Financial Highlights - First Quarter Fiscal 2021

* Revenue in the first quarter was $4,502 million. * Net loss was $199 million for the first quarter including $72 million in restructuring costs, $110 million in transaction and separation costs and $148 million in amortization of acquired intangibles. * Non-GAAP net income was $59 million, excluding those special items. * Diluted earnings per share was $(0.81) in the first quarter; non-GAAP diluted earnings per share was $0.21. * Net cash provided by operating activities was $119 million in the first quarter. * Adjusted free cash flow was $(28) million in the first quarter.

Financial Information by Segment

Global Business Services (GBS)

* GBS bookings for the quarter totaled $3.5 billion for a book-to-bill ratio of 1.6x. * GBS revenue was $2,174 million in the quarter. GBS revenue increased 0.7% year-over-year, despite an unfavorable foreign currency exchange rate impact of 1.8%. * In constant currency, GBS revenues increased 2.5% year-over-year and decreased 5.2% sequentially. * GBS profit margin in the quarter was 9.9%, compared with 17.0% in the prior year, reflecting one-time accruals related to certain customer disputes and impact of prior terminations, price-downs and run-offs.

Global Infrastructure Services (GIS)

* GIS bookings for the quarter was $1.8 billion for a book-to-bill ratio of 0.8x. * GIS revenue was $2,328 million in the quarter. GIS revenues decreased 14.8% year-over-year, including an unfavorable foreign currency exchange rate impact of 2.4%. * In constant currency, GIS revenues decreased 12.4% year-over-year and decreased 6.1% sequentially. * GIS profit margin in the quarter was 1.0%, compared with 12.4% in the prior year due to the impact of prior terminations, price-downs and run-offs as well as the timing of cost take out initiatives.

Earnings

* EBIT and adjusted EBIT in the quarter were $(142) million and $190 million, respectively. EBIT and adjusted EBIT margins were (3.2)% and 4.2%, respectively. Adjusted EBIT margins in the quarter were better than anticipated, benefitting from accelerated cost optimization initiatives which helped offset accruals related to the resolution of certain prior customer disputes. * Diluted EPS and non-GAAP diluted EPS were $(0.81) and $0.21, respectively, in the quarter. Non-GAAP diluted EPS was impacted by a higher than usual tax rate of 45% due to mix of income, a tax accrual related to final return to provision adjustment as well as valuation allowances in certain foreign jurisdiction.

Cash Flow

* Net cash provided by operating activities was $119 million in the first quarter and adjusted free cash flow was $(28) million. Adjusted free cash flow reflects the timing of annual payments for software licenses and maintenance, and also a slight increase in working capital in the current COVID environment.

Earnings Conference Call and Webcast

DXC Technology senior management will host a conference call and webcast to discuss these results today at 4:45 p.m. EDT. The dial-in number for domestic callers is 800-367-2403. Callers who reside outside of the United States should dial +1-334-777-6978. The passcode for all participants is 2141116. 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 August 13, 2020. The replay passcode is 2141116.

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 deploy our 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. Furthermore, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the recent outbreak of the novel coronavirus ("COVID-19") pandemic and the impact of varying private and governmental responses that affect our customers, employees, vendors and the economies and communities where they operate. 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, 2020, and any updating information in subsequent SEC filings including DXC's upcoming Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020. 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: 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.

We present these non-GAAP financial measures of performance which are derived from the statements of operations of DXC. These non-GAAP financial measures include 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 and adjusted free cash flow.

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 targets.

Non-GAAP financial measures exclude certain items from GAAP results which DXC management believes are not indicative of operating performance such as the amortization of acquired intangible assets and transaction, separation and integration-related costs.

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 intangibles 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.

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.

Condensed Consolidated Statements of Operations (preliminary and unaudited)

Three Months Ended

(in millions, except per-share amounts) June 30, June 30, 2020 2019



Revenues $ 4,502 $ 4,890



Costs of services 3,629 3,622

Selling, general and administrative 539 507

Depreciation and amortization 492 470

Restructuring costs 72 142

Interest expense 106 91

Interest income (23 ) (30 )

Other income, net (88 ) (118 )

Total costs and expenses 4,727 4,684



(Loss) income before income taxes (225 ) 206

Income tax (benefit) expense (26 ) 38

Net (loss) income (199 ) 168

Less: net income attributable to non-controlling 6 5 interest, net of tax

Net (loss) income attributable to DXC common $ (205 ) $ 163 stockholders



(Loss) income per common share:

Basic $ (0.81 ) $ 0.61

Diluted $ (0.81 ) $ 0.61



Cash dividend per common share $ - $ 0.21



Weighted average common shares outstanding for:

Basic EPS 253.63 267.00

Diluted EPS 253.63 268.97

Selected Consolidated Balance Sheet Data (preliminary and unaudited)

As of

(in millions) June 30, March 31, 2020 2020

Assets

Cash and cash equivalents $ 5,509 $ 3,679

Receivables, net 4,271 4,392

Prepaid expenses 667 646

Other current assets 261 270

Total current assets 10,708 8,987



Intangible assets, net 5,540 5,731

Operating right-of-use assets, net 1,602 1,428

Goodwill 2,057 2,017

Deferred income taxes, net 285 265

Property and equipment, net 3,503 3,547

Other assets 4,199 4,031

Total Assets $ 27,894 $ 26,006



Liabilities

Short-term debt and current maturities of long-term $ 1,682 $ 1,276 debt

Accounts payable 1,522 1,598

Accrued payroll and related costs 766 630

Current operating lease liabilities 488 482

Accrued expenses and other current liabilities 2,756 2,801

Deferred revenue and advance contract payments 1,030 1,021

Income taxes payable 81 87

Total current liabilities 8,325 7,895



Long-term debt, net of current maturities 10,334 8,672

Non-current deferred revenue 733 735

Non-current operating lease liabilities 1,208 1,063

Non-current income tax liabilities and deferred tax 1,075 1,157 liabilities

Other long-term liabilities 1,277 1,355

Total Liabilities 22,952 20,877



Total Equity 4,942 5,129



Total Liabilities and Equity $ 27,894 $ 26,006

Condensed Consolidated Statements of Cash Flows (preliminary and unaudited)

Three Months Ended

(in millions) June 30, June 30, 2020 2019

Cash flows from operating activities:

Net (loss) income $ (199 ) $ 168

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Depreciation and amortization 496 474

Operating right-of-use expense 156 176

Pension & other post-employment benefits, actuarial & 2 - settlement losses

Share-based compensation 16 18

Loss (gain) on dispositions 4 (8 )

Provision for losses on accounts receivable 35 (4 )

Unrealized foreign currency exchange gain (11 ) (14 )

Other non-cash charges, net 7 (1 )

Changes in assets and liabilities, net of effects of acquisitions and dispositions:

Increase in assets (100 ) (335 )

Decrease in operating lease liability (156 ) (174 )

Decrease in other liabilities (131 ) (366 )

Net cash provided by (used in) operating activities 119 (66 )



Cash flows from investing activities:

Purchases of property and equipment (95 ) (105 )

Payments for transition and transformation contract (82 ) (72 )costs

Short-term investing - (75 )

Software purchased and developed (48 ) (63 )

Payments for acquisitions, net of cash acquired (10 ) (1,911 )

Cash collections related to deferred purchase price 159 371 receivable

Proceeds from sale of assets 6 21

Other investing activities, net 9 12

Net cash used in investing activities (61 ) (1,822 )



Cash flows from financing activities:

Borrowings of commercial paper 748 1,401

Repayments of commercial paper (317 ) (1,401 )

Borrowings under lines of credit 2,500 -

Repayment of borrowings under lines of credit (750 ) -

Borrowings on long-term debt, net of discount 993 2,198

Principal payments on long-term debt (1,084 ) (509 )

Payments on finance leases and borrowings for asset (245 ) (210 )financing

Proceeds from stock options and other common stock - 7 transactions

Taxes paid related to net share settlements of (3 ) (12 )share-based compensation awards

Repurchase of common stock and advance payment for - (500 )accelerated share repurchase

Dividend payments (53 ) (51 )

Other financing activities, net (3 ) (36 )

Net cash provided by financing activities 1,786 887

Effect of exchange rate changes on cash and cash (14 ) (30 )equivalents

Net increase (decrease) in cash and cash equivalents 1,830 (1,031 )

Cash and cash equivalents at beginning of year 3,679 2,899

Cash and cash equivalents at end of period $ 5,509 $ 1,868

Segment Results

The following table summarizes segment revenue for the first quarter of fiscal 2021 and 2020:

Segment Revenue

Three Months Ended

June 30, June 30, % Change in(in millions) 2020 2019 % Change Constant Currency

Global Business Services $ 2,174 $ 2,159 0.7 % 2.5%

Global Infrastructure 2,328 2,731 (14.8 )% (12.4)%Services

Total Revenues $ 4,502 $ 4,890 (7.9 )% (5.9)%

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). The Company does not allocate to its 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.

Segment Profit

Three Months Ended

(in millions) June 30, June 30, 2020 2019

Profit

GBS profit $ 215 $ 366

GIS profit 23 340

All other loss (48 ) (54 )

Interest income 23 30

Interest expense (106 ) (91 )

Restructuring costs (72 ) (142 )

Transaction, separation and integration-related (110 ) (105 )costs

Amortization of acquired intangible assets (148 ) (138 )

Pension and OPEB actuarial and settlement losses (2 ) -

(Loss) income before income taxes $ (225 ) $ 206



Segment profit margins

GBS 9.9 % 17.0 %

GIS 1.0 % 12.4 %

Reconciliation of Non-GAAP Financial Measures

Our non-GAAP adjustments include:

* Restructuring costs - reflects costs, net of reversals, related to workforce optimization and real estate charges. * Transaction, separation and integration-related costs - reflects costs to execute on strategic alternatives, 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. * Pension and OPEB actuarial and settlement gains and losses - reflects pension and OPEB actuarial and settlement gains and losses. * Income tax expense of non-GAAP adjustments is computed by applying the jurisdictional tax rate to the pre-tax adjustments on a jurisdictional basis.

EBIT and Adjusted EBIT

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

Three Months Ended

(in millions) June 30, June 30, 2020 2019

Net (loss) income $ (199 ) $ 168

Income tax (benefit) expense (26 ) 38

Interest income (23 ) (30 )

Interest expense 106 91

EBIT (142 ) 267

Restructuring costs 72 142

Transaction, separation, and integration-related 110 105 costs

Amortization of acquired intangible assets 148 138

Pension and OPEB actuarial and settlement losses 2 -

Adjusted EBIT $ 190 $ 652



Adjusted EBIT margin 4.2 % 13.3 %

EBIT margin (3.2 )% 5.5 %

Adjusted Free Cash Flow

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

Three Months(in millions) Ended June 30, 2020

Net cash provided by operating activities $ 119

Net cash used in investing activities ^(1) (61 )

Acquisitions, net of cash acquired 10

Payments on capital leases and other long-term asset (245 )financings

Payments on transaction, separation and integration-related 88 costs

Payments on restructuring costs 61

Adjusted free cash flow $ (28 )

^(1) Excludes short-term investments.

Non-GAAP Results

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

Three Months Ended June 30, 2020

Transaction, Pension(in millions, Separation Amortization andexcept As Restructuring and of OPEB Non-GAAPper-share Reported Costs Integration- Acquired Actuarial Resultsamounts) Related Intangible and Costs Assets Settlement Losses

Costs ofservices(excludesdepreciationand $ 3,629 $ - $ - $ - $ - $ 3,629 amortizationandrestructuringcosts)

Selling,general andadministrative(excludesdepreciation 539 - (110 ) - - 429 andamortizationandrestructuringcosts)

(Loss) incomebefore income (225 ) 72 110 148 2 107 taxes

Income tax(benefit) (26 ) 12 28 34 - 48 expense

Net (loss) (199 ) 60 82 114 2 59 income

Less: netincomeattributable to 6 - - - - 6 non-controllinginterest, netof tax

Net (loss)incomeattributable to $ (205 ) $ 60 $ 82 $ 114 $ 2 $ 53 DXC commonstockholders



Effective tax 11.6 % 44.9 %rate



Basic EPS $ (0.81 ) $ 0.24 $ 0.32 $ 0.45 $ 0.01 $ 0.21

Diluted EPS $ (0.81 ) $ 0.24 $ 0.32 $ 0.45 $ 0.01 $ 0.21



Weightedaverage commonshares outstandingfor:

Basic EPS 253.63 253.63 253.63 253.63 253.63 253.63

Diluted EPS 253.63 254.41 254.41 254.41 254.41 254.41

Three Months Ended June 30, 2019

Transaction,(in millions, Separation Amortizationexcept As Restructuring and of Acquired Non-GAAPper-share Reported Costs Integration- Intangible Resultsamounts) Related Assets Costs

Costs ofservices(excludesdepreciationand $ 3,622 $ - $ - $ - $ 3,622 amortizationandrestructuringcosts)

Selling,general andadministrative(excludesdepreciation 507 - (105 ) - 402 andamortizationandrestructuringcosts)

Income before 206 142 105 138 591 income taxes

Income tax 38 28 22 31 119 expense

Net income 168 114 83 107 472

Less: netincomeattributable to 5 - - - 5 non-controllinginterest, netof tax

Net incomeattributable to $ 163 $ 114 $ 83 $ 107 $ 467 DXC commonstockholders



Effective Tax 18.4 % 20.1 %Rate



Basic EPS $ 0.61 $ 0.43 $ 0.31 $ 0.40 $ 1.75

Diluted EPS $ 0.61 $ 0.42 $ 0.31 $ 0.40 $ 1.74



Weightedaverage commonshares outstandingfor:

Basic EPS 267.00 267.00 267.00 267.00 267.00

Diluted EPS 268.97 268.97 268.97 268.97 268.97

The above tables serve to reconcile the Non-GAAP financial measures to the most directly comparable GAAP measures. Please refer to the "About Non-GAAP Financial Measures" section of our press release for further information on the use of these Non-GAAP measures.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200806006012/en/

CONTACT: Richard Adamonis, Corporate Media Relations, +1-862-228-3481, radamonis@dxc.com Shailesh Murali, M&A and Investor Relations, +1-703-245-9700, shailesh.murali@dxc.com