Q2 2022 DXC Technology Co Earnings Call
Good afternoon. My name is Julie and I will be a conference operate are today.
This time I would like to welcome everyone to the X C technologies Q2 F Y 22 earnings call.
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John Sweeney, Vice President Industrial relations if D. C. You may begin your conference.
Thank you good afternoon, everyone. Please.
Georgia for Dixie Technology second quarter F Y 22 orders cool our speakers on the call today will be myself Dino approach see Yo, we can shop or executive Vice President CFO. This call is being webcast. The D. C Dot coms industrial relations website on the webcast include slides companies presentation today.
Today's presentation will include certain non-GAAP financial measures, which we believe provide useful information to our investors in accordance with FCC rules you provide a reconciliation of these measures to their respective at most comparable GAAP measures. These reconciliations can be found in the tables, including today enjoy these cool the webcast.
Certain comments you make them. This cold forward looking statements. These are known them at certain risks uncertainties, which could cause actual results to differ materially from those expressed on the call. A discussion of these risks uncertainties is included in our annual report and Form 10-K, SEC filings and then I'd like to remind our listeners a TXT.
Technology assumes no obligation to update the information present sounds cool, except as required by law.
And with that I'd like to introduce Dixie technologies, President and CEO myself Mike.
Thanks, John and I appreciate everyone joining the call today and I Hope you and your families are doing well.
Today's agenda will begin with an update on our queue to performance, which shows hard evidence that we are delivering on our transformation journey and building the foundation to make Dixie operationally efficient sustainable and ultimately grow.
Next I will provide you with additional insights as to the operational work we are performing as we execute our transformation journey than I will hand, the call over to Ken to share our queue to financials guidance and more details of the financial resolved driven by our strong operational execution.
Finally, I'll need some closing remarks before opening the call up for questions.
Regarding our queue to performance our revenues were 4.03 billion organic revenue growth continue to show progress as we improve from minus 3.7% in Q1 to minus 2.4% in queue to also I was very pleased to see that.
G B S business segment group for the second quarter in a row from positive 2% in Q1, two positive three 4% in queue too. We also continue to improve the organic revenue of the Gis business segments from minus nine 1% in Q1, two minus 8%.
You too.
Now all of these results show our organic revenue is on the right trajectory.
Are adjusted EBIT margin was eight 6% and was driven by the operational work that we're doing to optimize our business.
This is the third straight quarter of both improving organic revenue growth and sequential margin expansion and we expect both trends to continue <unk>.
Q3.
Look to bill for the quarter was nine one which came in below our goal of one due to the timing of a couple of deals I'm happy to report they're both deals are hybrid cloud slash IPO deals and are now close we continue to track to a book to bill over one year to date, and we expect to be back above one O in queue.
Two three.
Our non-GAAP EPS was 90 cents in the quarter, which is up 41% as compared to 64 cents a year ago. Finally, we are encouraged by the strength of our queue to free cash flow, which moved us into positive territory on.
On a year to date basis, we have now produced roughly $100 million in cash.
Now, let me turn to the progress we're making on our transformation journey. The first step is inspire and take care of our colleagues. We are executing the people first strategy and attracting and retaining talent is fundamental to enable our growth.
We know our strategy is working we saw a higher percentage of our employees complete our September employee engagement survey and we are showing improved and stable engagement scores. These engagement scores give us confidence that we have a motivated workforce and we will be able to manage attrition, which we've seen an uptick to.
Offset this increase in nutrition and demand, we hired a known boarded more colleagues and any other quarter since I became CEO key advantage to our hiring efforts is that we have implemented and are running a virtual first model.
Hiring has been a focus for us and we will continue while hiring improved we left some open demand and project work unconverted and we are focused on capturing Miss moving forward.
Focus on the customer is the second step of our transformation journey and continues to be the primary driver of our success in improving our organic revenue growth a.
A key metric that we measures are net promoter score and we are seeing continued improvement. The last time. We gave you our MTS score was during the Investor day in June and it was 18 almost within the industry best practice range of 20 to 30.
Currently are 12 months Rolling NPS score is at the midpoint of the best practice range. This is the most positive our customers have been since IRI. This improvement is due to our strong service delivery and gives us the ability to sell up the enterprise technology stacked from our Gis business to our GBS.
Business now, let me remind you that the way we will get to grow is to deliver the Gis services that are critical for our customers and build trusted relationships. Once these trust. Your relationships are built we can move our customers up the enterprise technology stack towards the services of our GBS business.
This is exactly what we're doing and the organic revenue trajectory of Gis GBS and the overall business is great evidence that this strategy is working.
Now, let me turn to our cost optimization program, we continue to make progress in optimizing our costs and delivering for our customers without disruption.
Mentioned at the beginning of this call that we are doing the operational work to make DSC efficient sustainable and ultimately grow.
I have already commented on some of the operational work, we are doing like motivating our colleagues hiring new talent and implementing a virtual first model. In addition to this work. We're also improving the efficiency of our service delivery implementing better tools and actively managing our real estate footprint.
Let me provide you with some additional color considering the operational work we are doing with real estate. This quarter, we closed our Tyson facility and are moving to a much smaller footprint in the D. C area, where our colleagues that need to come into a facility will share space versus having dedicated space.
This work emphasize our commitment to a virtual first model reduce our carbon footprint and represents our desire to maintain a much smaller real estate footprint.
General detail out the financial results of all of this operational work, but simply put this work is allowing us to improve margins from 8% in Q1, 286% in queue too and gives us the confidence to increase our margin and EPS guidance for FY 22.
Next sees the market is where we are focused on cross selling for our existing customers and winning new work cause I. Previously mentioned, we had two significant deal slip into Q3 and are now sign the great news about these deals as they were both hybrid cloud slash deals with longstanding customers.
Specifically, we are helping these customers modernise their existing Ipsa's and building new private cloud capability to run their mission critical applications.
In queue to 59% of our bookings were new work and 41% were renewals.
The new work continues to increase due to the focus on another piece of our strategy, which is our platinum customer channel taking our offerings through this channel is another key foundation piece for growth.
We are now starting to see evidence that we are being successful taking luck soft which drives our analytics and engineering services through our platinum customer channel.
The evidence that analytics and engineering grew 17.3% in queue, too, which is clearly helping us create growth and our GBS business segment now let me give you. An example of what the platinum customer of the future looks like a Dixie.
We have a 14 year relationship with one of the world's largest specialty retailers now before I arrived and implemented this strategy. Our revenues were roughly $80 million per year split one third GBS and two thirds Gis by continuing to deliver our Gis services for this customer we were offered the opportune.
To sell our GBS services that resolved as we have increased the total revenue on this account by 13% in the mix between GBS in Gis is now split 50 50, as we are now providing them analytics and engineering services.
We're in the early innings of this strategy, but we feel confident that we can implement this approach to our other platinum customers successfully delivering Gis services and growing GBS services to have the same or more revenue at better margins now, let me turn the call over to Ken.
Thank you, Mike turning to our quarterly financial performance on Slide 11, as you can see our progress continues our organic revenue improve to a decline of 2.4% or 130 basis point improvement from tier one this represents our third consecutive.
Quarterly improvement as you can see we have come a long way from double digit organic revenue declines in Q1, FY 21 to low single digit declines in FY 2002.
Are adjusted EBIT margin continues to improve as well delivering eight 6% in queue to up 60 basis points as compared to the first quarter year over year are adjusted EBIT margin have expanded 240 basis points or 460 basis points.
Excluding the dispose businesses.
Our book to Bill for Q2 was nine one below our goal of one due to timing and remains over one year to date further we expect to deliver a book to bill of over one for Q3 and for the full year.
Non-GAAP diluted earnings per share was 90 cents up six cents from Q1, and a healthy 41% increase as compared to the prior year our earnings per share expanded due to increased bargains.
Lower interest expense and a lower tax rate.
Moving to a segment results on slide 12.
Our GBS segment continue that strong growth performance hosting its second quarter of positive organic revenue growth of three 4% an improvement from 2% in the first quarter. The GBS growth as a positive sign as we continue to deliver higher value.
For our customers are GBS business has higher margins and lower capital intensity. So as we grow this business. It has a more positive impact on margins and cash flow.
Our GBS margin was $15, 9% up 150 basis points compared to the first quarter and up 180 basis points compared to prior year.
Our Gis segment organic revenue declined 8%, a full 110 basis points improvement compared to the first quarter and improved 380 basis points.
Byrd to the decline from prior year, Gis margins, where five 5% an improvement of 390 basis points compared to prior year.
Turning to the enterprise technology stack analytics and engineering revenue was 520 million up 17, 3% analytics and engineering book to Bill was 0.95 and 113 year to date, we continue to see it in high demand in this area.
The applications layer was up 1.5% book to Bill was 0.94 and 113 year to date.
Yes, our smallest layer of the enterprise technology stacked at 118 million of revenue was down 13.7% book to Bill was 269 and nine one year to date cloud and security revenue was $521 million down 1.5%.
<unk> book, the Bill was that 0.8 in the quarter and eight two year to date.
E outsourcing revenue was 1.05 billion down nine 6% Ico book to Bill was eight one in nine two year to date, we expect our IPO declines that continue to gradually moderate as we move through FY 2002.
The two deals Mike mentioned earlier that slipped out of Q2 that were subsequently closed where in the ico and cloud and security layers of our technology Sag and would have boosted our Gis book to bill for the quarter to over one one.
Lastly, modern workplace revenues, where 581 million downturn, 9% as compared to prior year. This is an improvement from last quarter. When modern workplace was down 19, 7% year over year book to Bill was one too and.
One one year to date.
Next up let me touch on our efforts to build our financial Foundation. This quarter, we made particularly strong progress on strengthening our balance sheet and solidifying our financial position cash generation and reducing restructuring and tsi expense.
As Mike pointed out earlier, we've made measurable improvements driving our business to improve our financial foundation that will ultimately allow us to increase our deployable cash affording us more opportunities to create value.
We reduced our debts and 12 billion to $5.1 billion, the refinancing of all of our high rate bonds during the quarter culminate our collective efforts to transform the business improve its trajectory and strengthen our balance sheet.
There is no simpler and clear way of seeing the impact that Mike and his team have made improving the operations of the business than what was accomplished with our debt over the last year.
Net interest expense has been reduced from $83 million in the first quarter of FY 21 to 45 million this quarter with the full benefit of our refinancing we anticipate interest expense to be reduced to approximately $33 million in Q3.
We also continue to deliver on reducing restructuring tsi expense, while increasing our margins. This not only improves our cash flow. It also narrows the difference between gap and non-GAAP earnings finally capital lease an asset financing is an area that was overused.
And the last year or so we've significantly curtailed new capital lease originations from $1.1 billion in FY 20, and are on track to reduce originations to approximately $500 million this year.
These efforts to better manage this form of financing allowed us to reduce our debt and ultimately our capital lease cash outflows from $245 million in Q1, FY 21 to 177 million. This quarter, we expect further reductions in our.
Quarterly cash outflows to around $150 million per quarter at the end of FY 22, and further below that level going forward.
We deliver these reductions while also better managing capital expenditures are capital expenditures were reduced from $225 million in Q1, FY 21 to 159 million Q2 FY 2002.
I used on our reductions to capital lease originations a more meaningful metric that demonstrate our progress as capex spend and capital lease originations as a percent of revenue Capex and capital lease originations as a percent of revenue or 10.2% for FY 20.
8% for FY 2001, and now down to five 3% for Q2 FY 2002.
Delivering five 3% is a good step forward related to better managing our capital spend as it gets us in the peer range, albeit at the top and and as a proof point of our improved operational rigor.
Returning to our dead on slide 16, I want to spend a minute on a recent refinancing.
This chart shows how the refinancing further solidifies our financial position by extending maturities. We now have no bond maturities before FY 2006, lowering maturity towers, and reducing annual interest expense and cash outflows by about $50 million a year.
From our improved balance sheet, let's move to cash flow cash flow from operations totaled an inflow of $563 million free.
Free cash flow for the quarter was $404 million up 33% compared to prior year and moves us a positive free cash flow for the first half of FY 2002 of $100 million.
The second quarter was impacted by previously disclosed cash tax payments related to business disposals accelerated interest payments due to a refinancing and a payment related to restructuring a vendor relationship to take greater control over our delivery.
Further as part of our strategy to focus on customers, we were able to better manage working capital in the quarter.
As we look to the second half, we expect the fourth quarter of free cash flow to be stronger our third quarter has two discrete non-recurring cash payments, including a 60 billion dollar payment associated with a legacy vendor that has a take or pay agreement and a $90 million payment associated with Kobe.
Relief legislation, where we differed certain tax payments and now have opted to accelerate the tax payments to utilize a tax deduction.
Slide 18 shows are trended free cash flow profile, the negative cash flow over the last three quarters was due in large part to absorbing a number of nonrecurring cash outflows of over $1.7 billion to flip the business on a better trajectory building our foundation.
These cash outflows include 700 million tax payments associated with taxable gains on our divestitures 500 million to normalize vendor payments 332 million related to ready the U S state and local health and human services business for sale.
114 million to end in a ER securitization program 88 million, two and a value destructive take or pay agreement.
One 7 billion dollar headwinds put into perspective, the 749 million trailing four quarters negative free cash flow.
A key driver of improving cash flow is to continue to reduce our restructuring and tsi spend a restructuring tsi efforts are highly focused and we believe are a prudent investment in the business addressing our outsize cost structure in certain countries and.
Reduce our facilities footprint to align to our virtual model, we remain on track to reduce restructuring and tsi from an average of 900 million per year over the last four years to $550 million in FY 2002, and about $100 million in FY two.
24.
I would like to take a moment to update our capital deployment expectations from Investor Day, The Investor Day chart called for 55% of our free cash flow to be used to pay debt and capital lease obligations.
As a result of our progress our cash outflows for that and capital lease financing are now expected to be about 20% of our free cash flow.
That leaves, 80% of our expected free cash flow to invest in our business and or repurchase our stock.
I should note we liked the business, we have and believe that we have the right level of investment in GBS and Gis, We believe our technology stack has critical mass and capability at each layer. We believe we will create more value by continuing to focus on <unk>.
Driving the transformation journey across our business, improving the fundamentals and continuing to build organic growth up the stack.
Ultimately delivering 1% to 3% organic growth in FY 2004.
Related to acquisitions.
Our focus is to ensure our platinum channel strategy will be fully vetted improve and al. So eventually when we are acquisitive with tuck in size acquisitions, we will have a clear path to deliver value related to our that we have a clear line of sight to achieving are targeted that level of five.
Billion dollars near term as we have scheduled debt repayment via our capital lease financing and commercial paper.
Our preferences to maintain approximately $2.5 billion of cash on hand to fund an appropriate level of working capital when we have cash in excess of $2.5 billion, we will determine how best to deploy the cash as we do not expect to leave <unk>.
<unk> levels of excess cash generating no meaningful returns on our balance sheet for an extended period of time at this point in our journey, we favor share repurchases as our valuation is attractive and Q2, we repurchased $83 million of our common stock but.
Aiming the FY 22 year to date repurchases to $150 million or $3 9 million shares our share repurchases are a disciplined approach to capital allocation and are expected to be self funding using a rather simple formulaic approach of deploying cash in.
<unk> of $2.5 billion. When we are at our target that level of approximately $5 billion. We remain very focused on our investment grade credit profile.
Turning to our third quarter guidance, we expect revenue between $4.08 billion and 4.13 billion. If exchange rates were at the same level as when we gave guidance last quarter, our third quarter revenue guidance range would be $90 million higher.
Organic revenue decline improve sit down 1% that down to 5% adjusted EBIT margin of eight 6% to eight 9%.
Non-GAAP diluted earnings per share is expected to be in the range of 88 to 93 cents per share.
We are pleased by our progress as we look to the second half of FY 2002, I would like to update our current fiscal year guidance.
Based on the strengthening U S. Dollar our revenues are expected to be negatively impacted by approximately $200 million, which has been reflected in our revised guidance range of $16 four to $16 6 billion reaffirming organic revenue growth at down 1% that down.
2%, increasing adjusted EBIT to a range of eight 5% to eight 9% increase.
Increasing non-GAAP diluted earnings per share to $3 and 52 to $3.72 per share and reaffirming free cash flow guidance of $500 million.
We are reaffirming our guidance for FY 2000 for this reflects our strong execution and driving forward on our transformation journey.
Before I turn the call back to Mike I want to reflect a moment as I am closing out on my first year at Dfc, We're clear eyed on the value we are driving with the transformation journey. We feel strongly there is more opportunity in front of us to continue to improve the business and the underline.
Economics with that I will now turn the call back over to Mike for his closing remarks.
Thanks, Ken Let me leave you with the following key takeaways, we're building the foundation to make Dixie operationally efficient sustainable and ultimately grow by focusing on the operational work of motivating our colleagues in hiring new town moving to a virtual first model, making service delivery.
More proficient in implementing better tools and reducing real estate, we're able to deliver better for our customers and gives us the ability to sell up the enterprise technology stack to GBS.
The good news is the financial results that can just took us through a reduced at shrinking restructuring and tsi costs increased margin in EPS and stronger free cash flow are all sustainable on a result of the operational work. We are doing this gives us confidence that we will achieve our FY 2004 double digit mom.
<unk> guidance.
On growth Q2 confirms that we're on the right trajectory for growth are focused on delivering and fixing the Gis business develops trusted relationships with our platinum customers were then taking our GBS offerings to our platinum customers selling up the enterprise technology stack. The evidence that this is working as.
In our organic revenue results of Gis GBS and the overall company.
This also gives us confidence that we will achieve our FY 24 guidance of 1% to 3% growth.
In closing I'm confident that by staying focused on our transformation journey and building. The foundation, we will continue to deliver in the short term and ultimately deliver our long term financial targets of margin growth and free cash flow.
Operator, please open the call up for questions.
Thank you as a reminder to ask a question. Please pass star followed by the number one on your telephone keypad.
To withdraw your question Please press, Taiwan again Manny.
Management ask that you please limit yourself to one question and one follow up question. Thank you you're.
Your first question comes from Brian team from Deutsche Bank. Please go ahead. Your line is open.
Hi, guys could afternoon, just wanted to ask about the bookings in demand picture I guess kind of a two part question.
Obviously, the bookings fell a little bit below one quarter, but you didn't have to change the organic growth for the fiscal year and that might just have to be done just due to a timing issue. So can you just explain that a little bit and then secondly, there was some talk about.
It seemed like the demand was strong enough that if you had some more.
Able body should go fulfilled even a higher demand. So I just want to understand a little bit of do you have the right amount of people and I know you had a big quarter hiring, but just trying to fulfill a demand that you have.
Thanks, Brian So look on book to Bill.
The focus for US is around the year to date were over one that gives us a lot of confidence and like Ken said.
Total year, we should be over one so I don't see a problem and the demand that's why I called out a couple of deals.
If you look at the couple of deals they were hybrid cloud of 90, Oh deals. So when you look at.
Our page 13, you would see that that would push that book to bill for Gis up around one one so the deals are there were definitely winning in the market. The comment I made in terms of demand and projects is that when I talked about us getting additional edge.
<unk> because we're delivering on Gis now is the fact that that it's there for us to take and I think we got to continue to be more aggressive you guys know that ever since I've been here I've been very customer focused.
And with that focus I think we can do even more in the market. So that was that was the purpose for my comment.
We do have the people I called that out in terms of I think we're managing the attrition well so.
Like our positioning and like what we're doing in the market Brian.
Got it and then how do you do more I mean, what is that gonna take for you guys to fulfill that extra push to grow with even a little bit faster or is there something there that you need to do or is that just executing at a high level.
I think it's continuing to deliver and continuing to knock on the doors of our platinum accounts.
The reason I gave you guys. The example of the platinum account at the end of my prepared remarks is the fact that when we are delivering we do get those opportunities and we'll get those opportunities you're seeing that now we're growing GBS I mean, the key green shoot in this whole organic revenue story is a fact.
GBS now has grown for the second quarter in a row before I got here that business had never grown so like what we're doing have confidence in terms of us being able to compete in the market and so far so good.
Our next question comes from Kingston, Wang from J P. Morgan. Please go ahead. Your line is open.
Thanks, so much besides it really helpful. I want to ask on G. B S. Since you since you mentioned that just the demand environment seems pretty good there Mike do you see.
<unk> progress there on the revenue Fry can you bring that into the mid single digits or higher and.
Stay on the margin front as well with the high watermark of cooking Dot nine can you bring.
Bringing the margins up even higher from that level. Thanks.
Yeah, I mean that that progress Tenjin is.
That's pretty special because when you look at the top of the stack, which is what we've been saying all along right, let's let's make sure we deliver the critical applications in Gis to make sure we get those at bats, and then start selling through that platinum channels. So when you look at that the GBS I mean analytics an engineer.
<unk> I will tell you we can compete with anybody that's 17.3%. That's good work. Okay. The second thing is I know, it's small growth, but applications. That's the second quarter in a row, we've grown applications too. So again, we're competing in the high end work and what we need to continue to do.
Do is make sure that.
We're we're we're also fixing the the Gis business and what you're seeing there is that we got to continue to stay focused on modern workplace modern workplace saw some really good results of this quarter going from 19.7 negative two now.
10, nine now that business is going to continue to be lumpy, because we're still seeing some runoffs.
But the other thing I'm happy to report is when I look at the business remember all those customer Runoffs, we had because of non delivery and so forth for the most part that stuff now is done and we can start seeing.
Good progress in <unk> in the second half of the year to engine.
Okay. So it's encouraging here right quick follow up just maybe if we can just on the.
No good work and reduce the capital lease obligations on slide 20, just want to clarify the excess cash allocation inside the circle there that means after returning between a half billion in cash to run the business I just want to make sure I understood that <unk>, Yes, that's correct engine. So, we'll we'll keep $2 $5 billion of cash on the balance sheet.
And when we have excess cash will look to deploy it.
Your next question comes from adjacent Kupferberg Bank of America. Please go ahead. Your line is open.
Great. Thanks, guys Uhm just wanted to start on the organic right side based on what you're guiding too for Q3.
It implies there will be a ramp in queue for to get to the full year target, which is unchanged and you just talk to us a little bit about the the visibility on that additional acceleration in the in the fourth quarter I think you probably need to get the positive territory in queue for if I'm not mistaken. Thanks.
So Jason look the in terms of in terms of what we're doing the.
The guide in Q3.
Is is not only solid but also it lines us up directly for FY 22.
And when I look at our strategy in terms of the.
The Gis business in the GBS business.
Look that is going to get us there what we're focused on with Gis just to be specific when you look at page 12, we're looking to drive that too negative single digits overtime now it keeps saying it's going to be lumpy. This year, so it's going to sort of hanging around the 8% range as we.
Fix modern workplace, so that's sort of the bottom end of the equation when you're looking at organic growth. The top end of the equation is I've also been very clear that GBS now is growing and it's going to continue to grow so when I look at the business. That's how we're going to get two or minus one to minus two for the full year.
<unk> and I would tell you the visibility the visibility on Mad is pretty good.
Excellent excellent.
So on free Cashflow I'm, just curious just regarding the Q3 outlook I know you called out that there will be a couple of non-recurring items, but how should we be modeling that'd be overall free cash flow in the in the third quarter. I know you will then have typical favorable seasonality in queue for to get you need a full year number about off wanted.
To make sure our expectations are calibrated for for the current quarter there.
I forgot.
Yeah, I mean, we haven't really given quarter to quarter free cash flow guidance, but.
I think you've you back those items out.
I would expect to be around plus or minus 50 million positive, maybe 50 million negative 100 million called $50 million to 100 million somewhere in that range.
Your next question comes from James Classic from Morgan Stanley. Please go ahead. Your line is open.
As Jonathan offer James Thanks for your questions.
You mentioned, an uptick in attrition where across the technology stack are you seeing more or less nutrition and what's contemplated in your guidance on a directional basis as it relates to that.
What's contemplated in our guidance is that one we're managing a well and we're manage it incredibly well because ever since I've gotten here we've taken on people for strategy that means we're taking care of our folks.
The second thing that we're seeing in the market is the fact that not only are people, but future recruits like our virtual first mindset. The the third thing is we continue to keep a pulse on our folks. So that's why I mentioned the September employee engagement.
Results in terms of we had more people participate and we also have a very motivated workforce. So and then the last thing that I think.
People misses were also in the right locations. So when we're looking to hire folks I.
I do think our footprint.
As an advantage for us so having said that we're doing great on analytics and engineering being able to keep up with that demand and then our other focus as an application in cloud. So that's the stuff that we're focused on in terms of our market and being able to compete in so far so good.
Got it thanks, Mike quick follow up you know what are you seeing in terms of the pricing dynamics across the Sky technology stack, presumably there there's some pricing.
Pricing pressure given.
Given the mix, there and as well as the cost of labor. So are you able to pass on that pricing.
To your end customers.
I mean look the pricing all you Gotta do is look at 12 or a 12, we are definitely getting good margins for our GBS business and then love the the right side of 12, because you will see the discipline in terms of the new deals were also doing in Gis. Okay. So when we.
Grow this growth will be a good margins and like I said, that's why I like what we're doing I mean, the the EBIT margin progress in us having the ability to raise guidance on both margin EPS is strong and.
On the the the revenue we're doing exactly what we said we were gonna do.
Your next question comes from Ashwin Schanbacher City. Please go ahead your line is open.
I <unk> I.
Alright, I guess.
Good Ashwin.
Eight so my first question was.
What percent of G. D. S. Currently stems from Gis trusted relationships and and the reason I'm asking you does it make sense or are you, making progress on hold so perhaps building out G. B S. Independent dusk, yes, just to go out and get it soon and I wanted to figure out.
D D. The dynamic there.
So look the the thing with the thing with GBS GBS a lot of that has been fueled.
By analytics and engineering. So then you take the next cut of analytics in engineering, and what's fueling analytics and engineering. That's luck soft okay look soft when we bought that we knew there wasn't a lot of overlap. Hence the reason why I called out in my Premier prepared remarks that we are now starting to see us taking <unk>.
Saw through that platinum channel, that's goodness, because not only did look soft have their own customers and they continue to go get their own customers, but now we're also seeing conversion on the platinum accounts and that's again good tenants of green shoots for growth. Hence the reason why we have confidence that will get the order.
<unk> revenue, where it needs to be.
Got it okay, understood and and he's stretching and cafe.
As I look at what you've done year to date and the full year projection.
Seemed like the.
The current level probably be maintained for the next couple of quarters.
Uhm I just want to make sure that that's accurate and what work needs to sort of be.
Quarter to quarter step up stepped down.
Particular.
Callouts on what can you specify can be doing better so do you play mistake.
Yeah.
<unk> guided the $550 million for the full year, we're running file a little bit light of that at this point, what I would say ash when we've taken a very disciplined focus effort on every dollar has been so we make sure there's business cases, it's being deployed thoughtfully. So.
You could see it pick up in the second half of the year to get to the 550, but I would just say, we're working diligently to manage it. So I would say that 550 is a good number but if we don't need the money, we certainly won't spend it.
Your next question comes from right plus last friend Deepdive equity Research. Please go ahead. Your line is open.
Alright, Hey, Thanks, guys, Hey, so Mike just a big picture question I wanted to ask about what stage of turn around you're in.
You are clearly you clearly have margin on the rise. Despite all the talent challenges out there and you actually had a string of five quarters with book to Bill above one it was actually a little above 1.1 until you experienced a couple of delays apparently this quarter.
So just stepping back it would be great to hear where this now places you on the turnaround trajectory can you can you give us a sense of what inning, you're in and if you've had any kind of inflection point given the progression of clients and what's happening in the pipeline.
Okay Rod Thanks for that question I'll stay with I'll stay with your baseball analogy how about that.
In the in my mind, we're we're in the early innings for both.
Organic revenue and also <unk>.
Margins, so let's tackle the margin first because the margin is the margin is the progression is clear that we're delivering remember the cost levers that we're dealing with.
And they're mostly all related to our people. So the first one is we have a bias towards making sure that our own people do the work for our clients and customers instead of contractor. So we're very focused on contractor conversion second.
Is we want to get the right people in the right location. That's why I mentioned the footprint. So that's scaling are jbc's third is the virtual first model.
So that's why I continue to talk about real estate, we should be minimizing are definitely taking down our real estate footprint them and last thing is let's not have our folks do stuff that we can automate so when I look at those four levers of course I would say we're definitely.
In the early innings, because there is still much more to do.
That's what gives us confidence that we can reach the double digits in FY 2004.
Quite frankly, that's also what gives us confidence to raise the guidance in terms of the margin in EPS for FY 22.
Look on revenue what I would tell you there is the payoffs going to occur over time, but we're seeing a lot of good things happening. So when I talk about green shoots screen shoot number one is nps's up that means customers are happy with our delivery.
Second as we're definitely getting to see more at bats, those at bats are coming both in terms of the Gis business, where we're now seeing all of those at bats happening in GBS, but.
What what what will happen is those will convert over time and the best proof of those at bats, converting is the fact that we are growing analytics and engineering. We're also growing applications. So look when I see when I say the early innings I would also say that the margins a little bit of.
Head other revenue, but the revenues there and I think over time, you're going to continue to see that the strategy, we laid out to deliver the Gis business and to continue to try to grow up to stack. The GBS is is one that will serve us incredibly well.
That's that's helpful and thanks for dealing with the baseball analogy.
Can can you also speak to the competitive landscape that you're seeing it does seem you have two large infrastructure competitors that are amid some pretty big distractions.
It would be helpful. Just to hear how your competitive position is tracking and your major market. Thanks.
Now when I look at that.
I I liked the hand that we have rod.
And what I look at it it's different set of competitors for GBS than it is Gis. So on GBS you can see not only are we competing but.
We're winning are more than our fair share, especially in analytics and engineering when I look at Gis look we just need to stay focused I mean, we're we're laser focused on making sure that we take care of those platinum accounts. We also in those platinum accounts, where we can expand we will and again.
Like our position there too.
Your next question comes from Brian Bergen from Cowan. Please go ahead. Your line is open.
Hey, guys. Good afternoon. Thank you question on bugging sure. So so hoping you could dig in a bit more on GBS spoke to bill performance in the quarter and then Mikey just more broadly you've had a good mix of new work and bookings, but can you comment on on renewals adhering a commentary around Gis discipline. So so hoping you could take in a little bit more.
There.
Okay. So Brian what are you tell me a little bit more about what you're looking for on GBS. The first part of your question.
Yeah. So when we look at GBS book to Bill in the quarter. So that was set up 0.9 or five just comment there on anything that that may have slipped in that segment as well or if it's just some lumpiness and then on the renewals anything to tease out around Gis disappoint as it relates to renewals in that business.
So look on the on the top portion that's to be honest with you. That's why we gave you the year to date stuff cause I'm not really that concerned about it at all and the fact that I am guiding towards one O in Q3.
You should be fine.
In terms of the renewals.
I always say look we're going to continue to have a healthy dose of both because we got to continue to renew the work we have but also when new work and a lot of that new work is still coming on our existing client base.
And that's why why give you both numbers because when I started this whole.
Endeavour two years ago people thought that the revenue was going to run away from us and clearly we're showing now it's not.
And that's why I continue to show you the renewal number.
I always want the new work to be a little bit higher than the renewals.
So that's why I like the the numbers we've got so far.
Okay Sir.
And then just just on the platinum account. So today. It was a good example, you provided curious how how broad based or those types of experiences that you're having across the platinum account channel today.
Fall early inning.
Early innings.
So those take time to do right. So think about what the journey that we've been on the.
The first step was to get those customers to believe in US again. The second step was to then deliver for them alright, and that just doesn't happen overnight third step. One then was to start talking to them and being proactive and innovative with them and that's not just one conversation and.
The reason I gave you that example is that that's the way. These things can look they take time, that's why I answer rods question. The way I did in terms of early innings, but we have confidence that the front end account executive model that I'm putting in place.
Is going to be able to deliver those type customers for us in the future.
Your next question comes from the Jamie Friedman Susquehanna. Please go ahead. Your line is open.
Hi, It's Jamie Susquehanna I had a couple of kind of housekeeping questions on F X.
But I did want to tease those out maybe.
Better for Ken but by the way this slide 22 disclosure on FX is a great slide.
But I wanted to ask so I see that you're calling about 200 million of FX impact on the year.
Did you say what it is for the Q3 I saw that you had 57 million in the queue too. So that's the first of all what's the Q3 F X. If you happen to have that I know, it's very detailed and then.
Is your bookings adjusted for FX too because if not would that have impacted the book to bill at all.
Alright, you take you to I'll do this look to go so the Q3 FX impact is about 90 million Jamie.
Got it okay, and Jamie listen on the book to Bill now I'm not that the FX.
That flat out is knocking down the deals alright, and look the great part about where we are now is we're pretty specific about what we can do in each quarter and to be able to have that forecast figured out and the deals that we need to land.
I really like the fact that we've got that discipline and that's quite frankly wide caught called out a couple of deals and better yet the fact that they're behind us and we are now fully into Q3, that's that's goodness.
Got it I'll drop back into cute thanks for that.
Horrible books first of all.
Go ahead.
We have one last question from Keith Bachmann from the email. Please go ahead your line is helping.
Yeah, Mike and Ken you guys trying to cut me off.
[laughter] yeah.
You guys you get even more time, so good that you're going to have three.
I got myself, some questions lined up but I wanted to.
On the first one is in terms of the cash flow and the distribution essentially when you reach the targets you're prioritizing bye.
Buybacks it sounds like over M&A and I was just wanted to tease that out a little bit.
Particularly as your on your journey here to try to get the positive growth rate why not tilt a little bit more selective M&A to try to accelerate that formed the growth and I'm, not saying use emanated get growth, but once you buy some companies you know it helps you as you even anniversary get a new areas like lock soft, but why the emphasis.
On buybacks over a little bit of M&A.
So Keith I will start and Ken will weigh in the key thing that Ken said is we've got what we need.
Okay got to do is kind of continue to execute what we have alright, so think about the strategies, we're putting in place for growth.
Or a delivered fixed Gis and continue to make sure that we're selling the offerings that we have in applications and analytics and engineering. That's peace. One piece two is the platinum customer channel and being able to take new things like look soft through that channel. So.
<unk> right now is we've got more than enough to get us to where we need to be for FY 24, now having said that you should have also heard that if something falls in our lab, we will absolutely do it.
Okay and look at it we got the money and don't take Ken's comments as edged totally in stone I mean, we can we can pivot one way or the other but we definitely think were undervalued right now so therefore.
And we think a good use of the cash is to buy our stock. The last thing I will tell you is we continue to go through this business and do the hard work around.
Making sure that we don't have any distractions from the enterprise technology back. So we continue to divest small piece of those businesses that quite frankly.
We.
We are.
Are not 100% focused on our enterprise technology stack. So Keith I look at that work and I look at how we're undervalued and I say, okay best use of the cash right now.
In the short term buyback alright.
All while we continue to balance that investment grade profile. Okay. So I think that balances is important and.
And maybe just add to that because the conversation around free cash flow versus excess cash I think it's an important concept. So when we laid it out an investor day.
We spent some time talking about free cash flow. The reason excess cash comes to the forefront is really what Mike talked about a few seconds ago, which is as we dispose of assets that are non or aren't really productive for us will generate cash and we also want to use that cash.
Deploy that catch in an appropriate fashion.
Okay, Okay, well why don't I leave it there all that's my other questions and follow up but I. Appreciate it. Thank you very much.
<unk> sorry about that so that's okay.
Okay.
Look at it and closing what I want to do is think everybody. We really appreciate your interest in Dixie.
Look our team really believes that we are building the foundation to make Dixie operationally efficient sustainable and ultimately grow and I am confident that we just stay focused on our transformation journey and continue to build a foundation will deliver so with that all the best to you and your families an operator please.
Close the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may not disconnect.
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