DXC Technology Co

Previous wording

The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the third quarter and first nine months of fiscal 2024 and our financial condition as of December 31, 2023. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and accompanying notes.

Current wording

The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the first quarter of fiscal 2025 and our financial condition as of June 30, 2024. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and accompanying notes.

Previous wording

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the third quarters and first nine months of fiscal 2024 and fiscal 2023. References are made throughout to the numbered Notes to the Condensed Consolidated Financial Statements (“Notes”) in this Quarterly Report on Form 10-Q.

Current wording

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the first quarters of fiscal 2025 and fiscal 2024. References are made throughout to the numbered Notes to the Condensed Consolidated Financial Statements (“Notes”) in this Quarterly Report on Form 10-Q.

Previous wording

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. The world’s largest companies and public sector organizations trust DXC to deploy services to drive new levels of performance, competitiveness, and customer experience across their IT estates.

Current wording

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. Many of the world’s largest companies and public sector organizations trust DXC to deploy services to drive new levels of performance, competitiveness, and customer experience across their IT estates.

Previous wording

Key metrics for the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023 are included below. We have presented organic revenue and diluted earnings per share on a non-GAAP basis. For more information see “Non-GAAP Financial Measures.”

Current wording

Key metrics for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 are included below. We have presented organic revenue and diluted earnings per share on a non-GAAP basis. For more information, see “Non-GAAP Financial Measures.”

Previous wording

•Revenues of $3.4 billion, down 4.7% compared to prior year period, and down 4.5% on an organic basis;

Current wording

•Revenues of $3.2 billion, down 6.1% compared to the same period a year ago, and down 4.4% on an organic basis;

Previous wording

•For the first nine months of fiscal 2024, operating cash flow of $1,081 million, less capital expenditures of $480 million, resulted in free cash flow of $601 million;

Current wording

•For the first quarter of fiscal 2025, operating cash flow of $238 million, less capital expenditures of $193 million, resulted in positive free cash flow of $45 million, compared to negative free cash flow of $75 million in the same period a year ago.

Previous wording

Our effective tax rate (“ETR”) was 34.0% and 40.2% for the three months ended December 31, 2023 and December 31, 2022, respectively, and 32.8% and 30.9% for the nine months ended December 31, 2023 and December 31, 2022, respectively. For the three months ended December 31, 2023, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, and the foreign tax credit. For the nine months ended December 31, 2023, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, a decrease in valuation allowances on deferred tax assets, and the foreign tax credit. For the three months ended December 31, 2022, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, a decrease in the base erosion and anti-abuse tax, and an increase in unrecognized tax benefits primarily related to foreign tax credits. For the nine months ended December 31, 2022, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, a decrease in the base erosion and anti-abuse tax, and the tax impact of business divestitures.

Current wording

Results of Operations for the Three Months Ended June 30, 2024 and the Three Months Ended June 30, 2023

Previous wording

For the third quarter of fiscal 2024, our total revenue was $3.4 billion, a decrease of $167 million or 4.7%, compared to the same period a year ago. The 4.7% decrease against the comparative period includes a 1.7% favorable foreign currency exchange rate impact, a 1.9% decline in revenue from the disposition of certain businesses, and a 4.5% decline in organic revenue. Organic revenue growth is a non-GAAP measure. For more information, see "Non-GAAP Financial Measures".

Current wording

For the first quarter of fiscal 2025, our total revenue was $3.2 billion, a decrease of $0.2 billion or 6.1%, compared to the same period a year ago. The 6.1% decrease against the comparative period includes a 1.4% unfavorable foreign currency exchange rate impact, a 0.3% decline in revenue from the disposition of certain businesses, and a 4.4% decline in organic revenue. Organic revenue growth is a non-GAAP measure. For more information, see "Non-GAAP Financial Measures".

Previous wording

For the first nine months of fiscal 2024, GBS revenue was $5.1 billion, a decrease of $101 million or 1.9%, as compared to the same period a year ago. The 1.9% decrease against the comparative period includes a 4.6% decline in revenue from the disposition of certain businesses, partially offset by 2.0% organic revenue growth from additional services provided to new and existing customers, and a 0.7% favorable foreign currency exchange rate impact.

Current wording

For the first quarter of fiscal 2025, GBS revenue was $1.7 billion, a decrease of $30 million or 1.8% compared to the same period a year ago. The 1.8% decrease against the comparative period includes a 1.8% unfavorable foreign currency exchange rate impact and a 0.5% decline in revenue from the disposition of certain businesses, partially offset by 0.5% organic revenue growth from additional services provided to new and existing customers. GBS accounts for 51.7% of total revenue, an increase of 230 basis points against the comparative period.

Previous wording

For the first nine months of fiscal 2024, our GIS revenue was $5.2 billion, a decrease of $457 million or 8.1%, as compared to the same period a year ago. The 8.1% decrease against the comparative period includes a 9.3% decline in organic revenue from project completions and lower resale revenue, partially offset by a 1.2% favorable foreign currency exchange rate impact.

Current wording

For the first quarter of fiscal 2025, GIS revenue was $1.6 billion, a decrease of $180 million or 10.3% compared to the same period a year ago. The 10.3% decrease against the comparative period includes a 1.0% unfavorable foreign currency exchange rate impact and a 9.3% decline in organic revenue from project completions, early terminations, and lower resale revenue.

Previous wording

The decrease in expenses against both comparative periods was primarily due to a decrease in costs from lower revenue levels and a reduction in professional services and contractor-related expenses from our cost optimization efforts, partially offset by a $9 million severance expense in the third quarter of fiscal 2024 related to the departure of the Company’s prior Chief Executive Officer and an unfavorable foreign currency exchange rate impact of $45 million and $74 million, respectively, for the third quarter and first nine months of fiscal 2024.

Current wording

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.5 billion for the first quarter of fiscal 2025, a decrease of $193 million compared to the same period a year ago. The $193 million decrease was primarily due to a decrease in costs from lower revenue levels, a reduction in professional services and contractor-related expenses from our cost optimization efforts, and a favorable foreign currency exchange rate impact.

Previous wording

Gross margin (Revenues less COS as a percentage of revenue) was 22.4% and 22.3% for the third quarter and first nine months of fiscal 2024, respectively, an increase of 0.9% and 0.8% against the comparative period.

Current wording

Gross margin (Revenues less COS as a percentage of revenue) was 21.9% and 21.1% for the first quarters of fiscal 2025 and 2024, respectively.

Previous wording

Depreciation expense was $105 million and $330 million for the third quarter and first nine months of fiscal 2024, respectively, a decrease of $18 million and $60 million, respectively, as compared to the same periods of the prior fiscal year. The decrease in depreciation expense against both comparative periods was primarily due to lower average net property and equipment balances.

Current wording

Depreciation expense was $94 million for the first quarter of fiscal 2025, a decrease of $19 million compared to the same period a year ago. The decrease in depreciation expense was primarily due to lower average net property and equipment balances.

Previous wording

During fiscal 2024, management approved global cost savings initiatives designed to better align our workforce, facility and data center requirements. During the third quarter and first nine months of fiscal 2024, total restructuring costs recorded, net of reversals, were $36 million and $91 million, respectively, a decrease of $13 million and $44 million, respectively, as compared to the same periods of the prior fiscal year.

Current wording

During fiscal 2025, management approved global cost savings initiatives designed to better align our workforce, facility and data center requirements. Total restructuring costs recorded, net of reversals, was $39 million for the first quarter of fiscal 2025, an increase of $19 million compared to the same period a year ago.

Previous wording

Net interest expense (interest expense less interest income) was $22 million and $64 million for the third quarter and first nine months of fiscal 2024, respectively, an increase of $7 million and $16 million as compared to both periods of the prior fiscal year.

Current wording

Net interest expense (interest expense less interest income) was $21 million for the first quarter of fiscal 2025, an increase of $4 million as compared to the same period a year ago primarily due to lower net interest income from lower levels of global cash balances.

Previous wording

(Gain) Loss on Disposition of Businesses

Current wording

Loss on Disposition of Businesses

Previous wording

During the first nine months of fiscal 2024 and fiscal 2023, the Company sold insignificant businesses and made adjustments to estimated amounts from prior years’ dispositions that resulted in a gain of $96 million and loss of $12 million, respectively.

Current wording

During the first quarter of fiscal 2024, the Company sold insignificant businesses that resulted in a loss of $5 million.

Previous wording

Other income, net comprises non-service cost components of net periodic pension income, movement in foreign currency exchange rates on our foreign currency denominated assets and liabilities and the related economic hedges, and other miscellaneous gains and losses.

Current wording

Other income, net comprises non-service cost components of net periodic pension income, pension and other post-retirement benefit (“OPEB”) actuarial and settlement losses (gains), movement in foreign currency exchange rates on our foreign currency denominated assets and liabilities and the related economic hedges, gains on sales of assets, and other miscellaneous gains and losses. The following table summarizes components of other income, net.

Previous wording

•net periodic pension income decreased by $25 million and $79 million primarily due to changes in expected returns on assets and other actuarial assumptions.

Current wording

•a $3 million increase in net periodic pension income, primarily due to changes in expected returns on assets and other actuarial assumptions;

Previous wording

•foreign currency gains decreased by $13 million and $7 million primarily due to movements of exchange rates on our foreign currency-denominated assets and liabilities, related hedges including forward contracts to manage our exposure to economic risk, and the cost of our hedging program.

Current wording

•a $9 million increase in foreign currency losses, primarily due to movements of exchange rates on our foreign currency-denominated assets and liabilities, related hedges including forward contracts to manage our exposure to economic risk, and the cost of our hedging program; and

Previous wording

•a decrease in gains from sales of assets of $14 million and $31 million; and

Current wording

•a $15 million decrease in gains from sales of assets, partially offset by a $2 million reduction in other losses.

Previous wording

Diluted EPS for the third quarter of fiscal 2024 includes $0.16 per share of restructuring costs, $0.01 per share of transaction, separation and integration-related costs, $0.39 per share of amortization of acquired intangible assets, $(0.49) per share of net gains on dispositions, $0.01 per share of merger related indemnification costs, and $(0.03) per share of tax adjustments.

Current wording

Diluted EPS for the first quarter of fiscal 2025 includes $0.17 per share of restructuring costs, $0.03 per share of transaction, separation and integration-related costs, and $0.39 per share of amortization of acquired intangible assets.

Previous wording

Diluted EPS for the first nine months of fiscal 2024 includes $0.36 per share of restructuring costs, $0.02 per share of transaction, separation and integration-related costs, $1.05 per share of amortization of acquired intangible assets, $(0.55) per share of net gains on dispositions, $0.01 per share of merger related indemnification costs, $0.04 per share of impairment losses, and $(0.18) per share of tax adjustments.

Current wording

Diluted EPS for the first quarter of fiscal 2024 includes $0.07 per share of restructuring costs, $0.32 per share of amortization of acquired intangible assets, $0.02 per share of net losses on dispositions, $0.03 per share of impairment losses, and $0.01 per share of tax adjustments.

Previous wording

•Transaction, separation and integration-related (“TSI”) costs – includes costs related to integration, separation, planning, financing and advisory fees and other similar charges associated with mergers, acquisitions, strategic investments, joint ventures, and dispositions and other similar transactions incurred within one year of such transactions closing, except for costs associated with related disputes, which may arise more than one year after closing.

Current wording

•Transaction, separation and integration-related (“TSI”) costs – includes third party costs related to integration, separation, planning, financing and advisory fees and other similar charges associated with mergers, acquisitions, strategic investments, joint ventures, and dispositions and other similar transactions incurred within one year of such transactions closing, except for costs associated with related disputes, which may arise more than one year after closing.

Previous wording

•Merger related indemnification – in fiscal 2024, primarily represents the Company’s current estimate of potential liability to HPE for a tax related indemnification; and in fiscal 2023, represents the Company’s then current estimate of potential liability to HPE for indemnification on the Forsyth v. HP Inc. and HPE litigation, and the Company’s final liability to HPE on the Oracle v. HPE litigation. These obligations are related to the HPES merger.

Current wording

•Merger related indemnification - in fiscal 2024, represents the Company’s then current estimate of potential liability to HPE for a tax related indemnification.

Previous wording

•Gains and losses on dispositions – gains and losses related to dispositions of businesses, strategic assets and interests in less than wholly-owned entities.(1)

Current wording

•Gains and losses on dispositions – gains and losses related to dispositions of businesses, strategic assets and interests in less than wholly-owned entities.

Previous wording

•Impairment losses – non-cash charges associated with the permanent reduction in the value of the Company’s assets (e.g., impairment of goodwill and other long-term assets including fixed assets and impairments to deferred tax assets for discrete changes in valuation allowances). Future discrete reversals of valuation allowances are likewise excluded.(2)

Current wording

•Impairment losses – non-cash charges associated with the permanent reduction in the value of the Company’s assets (e.g., impairment of goodwill and other long-term assets including fixed assets and impairments to deferred tax assets for discrete changes in valuation allowances). Future discrete reversals of valuation allowances are likewise excluded.

Previous wording

As of December 31, 2023, our cash and cash equivalents (“cash”) were $1.7 billion, of which $1.0 billion was held outside of the U.S. As of March 31, 2023, our cash was $1.9 billion, of which $0.7 billion was held outside of the U.S. We maintain various multi-currency, multi-entity, cross-border, physical and notional cash and pool arrangements with various counterparties to manage liquidity efficiently that enable participating subsidiaries to draw on the Company’s pooled resources to meet liquidity needs.

Current wording

As of June 30, 2024, our cash and cash equivalents (“cash”) were $1.3 billion, of which $0.7 billion was held outside of the U.S. As of March 31, 2024, our cash was $1.2 billion, of which $0.6 billion was held outside of the U.S. We maintain various multi-currency, multi-entity, cross-border, physical and notional cash and pool arrangements with various counterparties to manage liquidity efficiently that enable participating subsidiaries to draw on the Company’s pooled resources to meet liquidity needs.

Previous wording

We have $0.2 billion in cash held by foreign subsidiaries used for local operations that is subject to country-specific limitations which may restrict or result in increased costs in the repatriation of these funds. In addition, other practical considerations may limit our use of consolidated cash. This includes cash of $0.1 billion held by majority-owned consolidated subsidiaries where third-parties or public shareholders hold minority interests.

Current wording

We have $0.1 billion in cash held by foreign subsidiaries used for local operations that is subject to country-specific limitations, which may restrict or result in increased costs in the repatriation of these funds. In addition, other practical considerations may limit our use of consolidated cash. This includes cash of $0.1 billion held by majority-owned consolidated subsidiaries where third-parties or public shareholders hold minority interests.

Previous wording

Net cash provided by operating activities was $1,081 million and $1,000 million, respectively, during the first nine months of fiscal 2024 and fiscal 2023, reflecting a year-over-year increase of $81 million. The increase was primarily due to:

Current wording

Net cash provided by operating activities was $238 million and $127 million, respectively, during the first quarters of fiscal 2025 and fiscal 2024, reflecting a year-over-year increase of $111 million. The increase was primarily due to:

Previous wording

•a $272 million favorable change in working capital primarily from improvements in our cash conversion cycle; partially offset by

Current wording

•a $162 million favorable change in working capital during the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 primarily from improvements in our cash conversion cycle, partially offset by

Previous wording

•a decrease in net income, net of adjustments of $191 million.

Current wording

•a decrease in net income, net of adjustments of $51 million.

Previous wording

Net cash used in investing activities was $367 million and $299 million, respectively, during the first nine months of fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $68 million. The change against the comparative period was primarily due to:

Current wording

Net cash used in investing activities was $188 million and $199 million, respectively, during the first quarters of fiscal 2025 and fiscal 2024, reflecting a year-over-year change of $11 million. The change was primarily due to:

Previous wording

•a $52 million decrease in capital expenditures.

Current wording

•a $9 million decrease in capital expenditures, and

Previous wording

•a decrease in cash flows from other net investing activities of $4 million; partially offset by

Current wording

•a $5 million decrease in cash inflows from other net investing activities.

Previous wording

Net cash used in financing activities was $877 million and $693 million, respectively, during the first nine months of fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $184 million. The change against the comparative period was primarily due to:

Current wording

Net cash provided by (used in) financing activities was $41 million and $(210) million, respectively, during the first quarters of fiscal 2025 and fiscal 2024, reflecting a year-over-year change of $251 million. The change was primarily due to:

Previous wording

•a $66 million decrease in payments on capital leases and borrowings for asset financings, as the Company continues reducing the volume of these financing arrangements.

Current wording

•a $40 million decrease in payments on capital leases and borrowings for asset financings, as the Company continues reducing the volume of these financing arrangements, partially offset by

Previous wording

•a $200 million increase in cash inflows from commercial paper borrowings, net of repayments and other financing activities; and

Current wording

•a $90 million decrease in cash inflows from commercial paper borrowings, net of repayments.

Previous wording

The $141 million increase in total debt during the first nine months of fiscal 2024 was primarily attributable to the increase in borrowings of commercial paper and unfavorable foreign currency exchange rate of U.S. dollar against the Euro, partially offset by decreases in finance leases and borrowings for asset financing attributable to payments exceeding additions.

Current wording

The $58 million increase in total debt during the first quarter of fiscal 2025 was primarily attributable to the increase in borrowings of commercial paper, partially offset by decreases in finance leases and borrowings for asset financing attributable to payments exceeding additions and a favorable foreign currency exchange rate of U.S. dollar against the Euro.

Previous wording

We expect our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our normal operating requirements for the next 12 months. We expect to continue using cash generated by operations as a primary source of liquidity; however, should we require funds greater than that generated from our operations to fund discretionary investment activities, such as business acquisitions, we have the ability to raise capital through debt financing, including the issuance of capital market debt instruments such as commercial paper, term loans, and bonds. In addition, we currently utilize, and further utilize accounts receivables, sales facilities, and our cross-currency cash pool for liquidity needs. However, there is no guarantee that we will be able to obtain debt financing, if required, on terms and conditions acceptable to us, if at all, in the future.

Current wording

We expect our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our normal operating requirements for the next 12 months. We expect to continue using cash generated by operations as a primary source of liquidity; however, should we require funds greater than that generated from our operations to fund discretionary investment activities, such as business acquisitions, we have the ability to raise capital through debt financing, including the issuance of capital market debt instruments such as commercial paper, and bonds. In addition, we currently utilize, and will further utilize accounts receivables, sales facilities, and our cross currency cash pool for liquidity needs. However, there is no guarantee that we will be able to obtain debt financing, if required, on terms and conditions acceptable to us, if at all, in the future.