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 second quarter and first six months of fiscal 2025 and our financial condition as of September 30, 2024. 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 third quarter and first nine months of fiscal 2025 and our financial condition as of December 31, 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 second quarters and first six months 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.

Current 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 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

Key profitability metrics for the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 as well as year to date cash flow comparisons 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 profitability metrics for the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024 as well as year to date cash flow comparisons 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 $3.2 billion, down 5.7% compared to prior year period, and down 5.6% on an organic basis;

Current wording

•Revenues of $3.2 billion, down 5.1% compared to prior year period, and down 4.2% on an organic basis;

Previous wording

•Diluted earnings per share of $0.23, compared to $0.49 in the second quarter of fiscal 2024; adjusted diluted earnings per share of $0.93, compared to $0.70 in the second quarter of fiscal 2024, an increase of 32.9%;

Current wording

•Diluted earnings per share of $0.31, compared to $0.81 in the third quarter of fiscal 2024; adjusted diluted earnings per share of $0.92, compared to $0.86 in the third quarter of fiscal 2024, an increase of 7.0%;

Previous wording

•Fiscal 2025 operating cash flow of $433 million, less capital expenditures of $340 million, resulted in free cash flow of $93 million, compared to free cash flow of $16 million in the same period a year ago.

Current wording

•Fiscal 2025 operating cash flow of $1,083 million, less capital expenditures of $507 million, resulted in free cash flow of $576 million, compared to free cash flow of $601 million in the same period a year ago.

Previous wording

Results of Operations for the Second Quarter and First Six Months of Fiscal 2025 and Fiscal 2024

Current wording

Results of Operations for the Third Quarter and First Nine Months of Fiscal 2025 and Fiscal 2024

Previous wording

For the second quarter of fiscal 2025, our total revenue was $3.2 billion, a decrease of $195 million or 5.7%, compared to the same period a year ago. For the first six months of fiscal 2025, our total revenue was $6.5 billion, a decrease of $405 million or 5.9%, as compared to the same period a year ago. The 5.9% decrease against the comparative period includes a 0.7% unfavorable foreign currency exchange rate impact, a 0.2% decline in revenue from the disposition of certain businesses, and a 5.0% decline in organic revenue. Organic revenue growth is a non-GAAP measure. For more information, see "Non-GAAP Financial Measures".

Current wording

For the third quarter of fiscal 2025, our total revenue was $3.2 billion, a decrease of $174 million or 5.1%, compared to the same period a year ago. The 5.1% decrease against the comparative period includes a 0.7% unfavorable foreign currency exchange rate impact, a 0.2% decline in revenue from the disposition of certain businesses, and a 4.2% 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 six months of fiscal 2025, GBS revenue was $3.4 billion, a decrease of $62 million or 1.8%, as compared to the same period a year ago. The 1.8% decrease against the comparative period includes a 0.6% decline in organic revenue, 0.3% decline in revenue from the disposition of certain businesses, and a 0.9% unfavorable foreign currency exchange rate impact.

Current wording

For the first nine months of fiscal 2025, GBS revenue was $5.0 billion, a decrease of $92 million or 1.8%, as compared to the same period a year ago. The 1.8% decrease against the comparative period includes a 0.5% decline in organic revenue, 0.4% decline in revenue from the disposition of certain businesses, and a 0.9% unfavorable foreign currency exchange rate impact.

Previous wording

For the second quarter of fiscal 2025, our GIS revenue was $1.6 billion, a decrease of $163 million or 9.4%, as compared to the same period a year ago. The 9.4% decrease against the comparative period includes a 9.6% decline in organic revenue from project completions and lower resale revenue, partially offset by a 0.2% favorable foreign currency exchange rate impact.

Current wording

For the third quarter of fiscal 2025, GIS revenue was $1.56 billion, a decrease of $144 million or 8.5%, as compared to the same period a year ago. The 8.5% decrease against the comparative period includes a 7.8% decline in organic revenue from project completions and lower resale revenue and a 0.7% unfavorable foreign currency exchange rate impact.

Previous wording

For the first six months of fiscal 2025, our GIS revenue was $3.1 billion, a decrease of $343 million or 9.9%, as compared to the same period a year ago. The 9.9% decrease against the comparative period includes a 9.4% decline in organic revenue from project completions and lower resale revenue and a 0.5% unfavorable foreign currency exchange rate impact.

Current wording

For the first nine months of fiscal 2025, GIS revenue was $4.7 billion, a decrease of $487 million or 9.4%, as compared to the same period a year ago. The 9.4% decrease against the comparative period includes a 8.9% decline in organic revenue from project completions and lower resale revenue and a 0.5% unfavorable foreign currency exchange rate impact.

Previous wording

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.4 billion and $5.0 billion for the second quarter and first six months of fiscal 2025, respectively, a decrease of $206 million and $399 million, respectively, as compared to the same periods of the prior fiscal year.

Current wording

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.4 billion and $7.4 billion for the third quarter and first nine months of fiscal 2025, respectively, a decrease of $220 million and $619 million, respectively, as compared to the same periods of the prior fiscal year.

Previous wording

Gross margin (Revenues less COS as a percentage of revenue) was 25.1% and 23.5% for the second quarter and first six months of fiscal 2025, respectively, an increase of 1.7% and 1.3% against the comparative period.

Current wording

Gross margin (Revenues less COS as a percentage of revenue) was 25.1% and 24.0% for the third quarter and first nine months of fiscal 2025, respectively, an increase of 2.7% and 1.7% against the comparative period.

Previous wording

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $353 million and $654 million for the second quarter and first six months of fiscal 2025, respectively, an increase of $25 million and a decrease of $1 million, respectively, as compared to the same periods of the prior fiscal year.

Current wording

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $335 million and $989 million for the third quarter and first nine months of fiscal 2025, respectively, an increase of $41 million and $40 million, respectively, as compared to the same periods of the prior fiscal year.

Previous wording

The $1 million decrease in expense for the first six months of fiscal 2025 was primarily due to a reduction in payroll related expenses, lower merger-related indemnification expenses, and a gain from a legal settlement in the second quarter of fiscal 2025, partially offset by higher TSI costs and an alignment of business development expenses from COS in support of the offering model.

Current wording

The $41 million increase in expense for the third quarter of fiscal 2025 was primarily due to an alignment of business development expenses from COS in support of the offering model and an increase in professional services and other vendor-related expenses, partially offset by reductions in payroll related expenses.

Previous wording

The $25 million increase in expense for the second quarter of fiscal 2025 was primarily due to an increase in higher transaction, separation and integration-related (“TSI”) costs and an alignment of business development expenses from COS in support of the offering model, partially offset by a gain from a legal settlement in the second quarter of fiscal 2025 and reductions in payroll related expenses.

Current wording

The $40 million increase in expense for the first nine months of fiscal 2025 was primarily due to an alignment of business development expenses from COS in support of the offering model and an increase in transaction, separation and integration-related (“TSI”) costs, partially offset by lower merger-related indemnification expenses and a gain from a legal settlement in fiscal 2025.

Previous wording

Depreciation expense was $94 million and $188 million for the second quarter and first six months of fiscal 2025, respectively, a decrease of $18 million and $37 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 $87 million and $275 million for the third quarter and first nine months of fiscal 2025, respectively, a decrease of $18 million and $55 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.

Previous wording

Amortization expense was $235 million and $467 million for the second quarter and first six months of fiscal 2025, respectively, a decrease of $14 million and $13 million, respectively, as compared to the same periods of the prior fiscal year. The decrease in amortization expense against both comparative periods was primarily due to lower software amortization.

Current wording

Amortization expense was $233 million and $700 million for the third quarter and first nine months of fiscal 2025, respectively, a decrease of $12 million and $25 million, respectively, as compared to the same periods of the prior fiscal year. The decrease in amortization expense against both comparative periods was primarily due to lower software amortization.

Previous wording

During fiscal 2025, management approved global cost savings initiatives designed to better align our facility and data center requirements. During the second quarter and first six months of fiscal 2025, total restructuring costs recorded, net of reversals, were $42 million and $81 million, respectively, an increase of $7 million and $26 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 facility and data center requirements. During the third quarter and first nine months of fiscal 2025, total restructuring costs recorded, net of reversals, were $43 million and $124 million, respectively, an increase of $7 million and $33 million, respectively, as compared to the same periods of the prior fiscal year.

Previous wording

Net interest expense (interest expense less interest income) was $18 million and $39 million for the second quarter and first six months of fiscal 2025, respectively, a decrease of $7 million and $3 million, respectively, as compared to the same periods of the prior fiscal year.

Current wording

Net interest expense (interest expense less interest income) was $15 million and $54 million for the third quarter and first nine months of fiscal 2025, respectively, a decrease of $7 million and $10 million, respectively, as compared to the same periods of the prior fiscal year.

Previous wording

The decrease in net interest expense against both comparative periods was primarily due to decreased interest expense from lower levels of asset financing and commercial paper liabilities, partially offset by lower net income from cash deposits.

Current wording

The decrease in net interest expense against both comparative periods was primarily due to decreased interest expense from lower levels of asset financing and commercial paper liabilities, partially offset by lower interest from cash deposits.

Previous wording

During the first six months of fiscal 2024, the Company sold insignificant businesses that resulted in a loss of $7 million.

Current wording

During the first nine months of fiscal 2025 and fiscal 2024, the Company sold insignificant businesses and made adjustments to estimated amounts from prior years’ dispositions that resulted in a gain of $7 million and $96 million, respectively.

Previous wording

Other income, net, was $21 million for the second quarter of fiscal 2025, a decrease of $55 million against the comparative period. Other income, net, was $66 million for the first six months of fiscal 2025, a decrease of $74 million against the comparative period. The change against the comparative period was primarily due to:

Current wording

Other income, net, was $28 million for the third quarter of fiscal 2025, a decrease of $20 million against the comparative period. Other income, net, was $94 million for the first nine months of fiscal 2025, a decrease of $94 million against the comparative period. The change against the comparative period was primarily due to:

Previous wording

•net periodic pension income increased by $4 million and $7 million primarily due to changes in expected returns on assets and other actuarial assumptions.

Current wording

•net periodic pension income increased by $5 million and $12 million primarily due to changes in expected returns on assets and other actuarial assumptions.

Previous wording

•foreign currency gains for the six months ended decreased by $10 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

•foreign currency gains increased by $6 million and decreased by $4 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.

Previous wording

•net losses on real estate and facility sales increased by $27 million and $35 million; and

Current wording

•net losses on real estate and facility sales increased by $5 million and $40 million; and

Previous wording

•a decrease in other gains of $31 million and $36 million, primarily from the sale of a strategic investment in the second quarter of fiscal 2024.

Current wording

•a decrease in other gains of $26 million and $62 million, primarily from an impairment loss in the third quarter of fiscal 2025 and the sale of a strategic investment in the first nine months of fiscal 2024.

Previous wording

Our effective tax rate (“ETR”) was 51.6% and 22.7% for the three months ended September 30, 2024, and September 30, 2023, respectively, and 56.5% and 31.6% for the six months ended September 30, 2024, and September 30, 2023, respectively. For the three months ended September 30, 2024, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, the foreign tax credit, and an increase in interest receivables due from tax authorities. For the six months ended September 30, 2024, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, the foreign tax credit, an increase in interest receivables due from tax authorities, and a decrease in a deferred tax asset for stock based compensation. For the three and six months ended September 30, 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.

Current wording

Our effective tax rate (“ETR”) was 51.9% and 34.0% for the three months ended December 31, 2024, and December 31, 2023, respectively, and 54.5% and 32.8% for the nine months ended December 31, 2024, and December 31, 2023, respectively. For the three months ended December 31, 2024, 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, 2024, the primary drivers of the ETR were the global mix of income, U.S. tax on foreign income, the foreign tax credit, and an increase in interest receivables due from tax authorities. 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.

Previous wording

Diluted EPS for the second quarter and first six months of fiscal 2025 was $0.23 and $0.37, respectively, a decrease of $0.26 and $0.28, respectively, as compared to the same periods of the prior fiscal year. The decrease in diluted EPS against both comparative periods was primarily due to decreases in net income attributable to DXC common stockholders, partially offset by lower weighted average share counts from the Company’s share repurchases.

Current wording

Diluted EPS for the third quarter and first nine months of fiscal 2025 was $0.31 and $0.68, respectively, a decrease of $0.50 and $0.75, respectively, as compared to the same periods of the prior fiscal year. The decrease in diluted EPS against both comparative periods was primarily due to decreases in net income attributable to DXC common stockholders, partially offset by lower weighted average share counts from the Company’s share repurchases.

Previous wording

Diluted EPS for the second quarter of fiscal 2025 includes $0.18 per share of restructuring costs, $0.07 per share of transaction, separation and integration-related costs, $0.38 per share of amortization of acquired intangible assets, $(0.03) per share of merger related indemnification costs, $(0.03) per share of gains on dispositions, $0.11 per share of net losses on real estate and facility sales, and $0.03 per share of tax adjustments.

Current wording

Diluted EPS for the third quarter of fiscal 2025 includes $0.18 per share of restructuring costs, $0.01 per share of transaction, separation and integration-related costs, $0.37 per share of amortization of acquired intangible assets, $0.05 per share of impairment losses, $(0.01) per share of gains on dispositions, $0.01 per share of net losses on real estate and facility sales, and $(0.01) per share of tax adjustments.

Previous wording

Diluted EPS for the first six months of fiscal 2025 includes $0.35 per share of restructuring costs, $0.10 per share of transaction, separation and integration-related costs, $0.77 per share of amortization of acquired intangible assets, $(0.03) per share of merger related indemnification costs, $(0.03) per share of gains on dispositions, $0.12 per share of net losses on real estate and facility sales, and $0.03 per share of tax adjustments.

Current wording

Diluted EPS for the first nine months of fiscal 2025 includes $0.54 per share of restructuring costs, $0.11 per share of transaction, separation and integration-related costs, $1.14 per share of amortization of acquired intangible assets, $(0.03) per share of merger related indemnification costs, $0.05 per share of impairment losses, $(0.04) per share of gains on dispositions, $0.13 per share of net losses on real estate and facility sales, and $0.02 per share of tax adjustments.

Previous wording

Free cash flow represents cash flow from operations, less capital expenditures. Free cash flow is utilized by our management, investors, and analysts to evaluate cash available to pay debt, repurchase shares, and provide further investment in the business.

Current wording

Free cash flow represents cash flow from operations, less capital expenditures. Free cash flow is utilized by our management, investors, and analysts to evaluate cash available for normal business operations, to pay debt, repurchase shares, and provide further investment in the business.

Previous wording

•Merger related indemnification – in fiscal 2025, represents the Company’s current net estimate to HPE for a tax related indemnification; in fiscal 2024, represents the Company’s then current estimate of potential liability to HPE for a tax related indemnification.

Current wording

•Merger related indemnification – in fiscal 2025 and fiscal 2024, represents the Company’s estimate of potential net liability to HPE for tax related indemnifications.

Previous wording

(1) Starting in the fiscal quarter ended September 30, 2024, the Company’s reported non-GAAP financial results reflect an adjustment for gains and losses on real estate and facilities dispositions, which the Company’s current management believes are not reflective of the core operating performance of our business. For comparability purposes, historical non-GAAP financial measures set forth herein have been recast to reflect this change, which included gains on dispositions of real property of approximately $6 million during the six months ended September 30, 2023. For the fiscal years ended March 31, 2024 and March 31, 2023, the Company had gains on dispositions of real property of approximately $7 million and $21 million, respectively.

Current wording

(1) Starting in the fiscal quarter ended September 30, 2024, the Company’s reported non-GAAP financial results reflect an adjustment for gains and losses on real estate and facilities dispositions, which the Company’s current management believes are not reflective of the core operating performance of our business. For comparability purposes, historical non-GAAP financial measures set forth herein have been recast to reflect this change, which included gains on dispositions of real property of approximately $2 million and $8 million during the three and nine months ended December 31, 2023, respectively. For the fiscal years ended March 31, 2024 and March 31, 2023, the Company had gains on dispositions of real property of approximately $7 million and $21 million, respectively.

Previous wording

As of September 30, 2024, our cash and cash equivalents (“cash”) were $1.2 billion, of which $0.6 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.

Current wording

As of December 31, 2024, our cash and cash equivalents (“cash”) were $1.7 billion, of which $0.9 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

Net cash provided by operating activities was $433 million and $375 million, respectively, during the first six months of fiscal 2025 and fiscal 2024, reflecting a year-over year increase of $58 million. Operating cash flow against the comparative period included:

Current wording

Net cash provided by operating activities was $1,083 million and $1,081 million, respectively, during the first nine months of fiscal 2025 and fiscal 2024, reflecting a year-over year increase of $2 million. Operating cash flow against the comparative period included:

Previous wording

•a $149 million favorable change in working capital primarily from improvements in our cash conversion cycle; partially offset by

Current wording

•a $119 million favorable change in working capital primarily from improvements in our cash conversion cycle; partially offset by

Previous wording

•a decrease in net income, net of adjustments of $91 million.

Current wording

•a decrease in net income, net of adjustments of $117 million.

Previous wording

Net cash used in investing activities was $258 million and $284 million, respectively, during the first six months of fiscal 2025 and fiscal 2024, reflecting a year-over-year change of $26 million. The change against the comparative period was primarily due to:

Current wording

Net cash used in investing activities was $343 million and $367 million, respectively, during the first nine months of fiscal 2025 and fiscal 2024, reflecting a year-over-year change of $24 million. The change against the comparative period was primarily due to:

Previous wording

•an increase in proceeds from sales of assets of $5 million; and

Current wording

•an increase in proceeds from sales of assets of $56 million; partially offset by