Q4 2024 DXC Technology Company Earnings Call

Hello, and welcome to the DXP Technology Q4 earnings call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session and if you would like to ask a question. During this time simply press star one on your telephone keypad.

Operator: Hello, and welcome to the DXC Technology Q4 earnings call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, simply press star one on your telephone keypad. I would now like to turn the conference over to John Sweeney, Vice President, Investor Relations. You may begin.

I would now like to turn the conference over to John Sweeney, Vice President of Investor Relations you may begin.

John Sweeney: Thank you and good afternoon, everybody I'm pleased that you're joining us for the <unk> technologies fourth quarter fiscal year 2024 earnings call. Our speakers on the call today will be Raul Fernandez, President and CEO and Rob <unk>, our EVP and CFO. This call is being webcast the DXP Investor Relations web.

John Sweeney: Thank you and good afternoon, everybody. I'm pleased that you're joining us for DXC Technology's fourth quarter fiscal year 2024 earnings call. Our speakers on the call today will be Raul Fernandez, President and CEO, and Rob DelBene, our EVP and CFO. The call is being webcast on DXC's Investor Relations website, and the webcast includes slides that will accompany this discussion today. Today's presentation includes certain non-GAAP financial measures, which we believe provide useful information to our investors.

Speaker Change: The webcast includes slides that will accompany this discussion today today's presentation includes certain non-GAAP financial measures, which we believe provide useful information to our investors in accordance with FCC rules. We provide a reconciliation of these measures to their respective and most directly comparable GAAP measures. These reconciliations can.

John Sweeney: In accordance with SEC rules, we provide a reconciliation of these measures to their respective and most directly comparable gap measures. These reconciliations can be found in the tables, including today's earnings release and in the webcast. Certain comments we make on the call will be forward-looking. These statements are subject to known risks and uncertainties, which could cause actual results to differ materially from those expressed on the call. A discussion of these risks and uncertainties is included in our annual report on Form 10-K and other SEC filings.

Speaker Change: Can be found in the tables included in today's earnings release and in the webcast slides.

Speaker Change: Certain comments, we make on the call will be forward looking these statements are subject to known risks and uncertainties, which could cause actual results to differ materially from those expressed on the call. A discussion of these risks and uncertainties is included in our annual report on Form 10-K, and other SEC filings I would now like to remind our listeners that <unk> technology assumes no.

John Sweeney: I'd now like to remind our listeners that DXC Technology assumes no obligation to update the information presented on the call except as required by law. And with that, I'd like to introduce DXC's President and CEO, Raul Fernandez.

Speaker Change: Asian to update the information presented on the call, except as required by law and with that I'd like to introduce <unk>, President and CEO Ralph Hernandez route.

Raul J. Fernandez: Thank you. I will give you a brief introduction, review our financial performance, and update you on the progress we are making with our offerings. Then Rob will take us through the fourth quarter financial results and discuss our fiscal year 25 guidance. I will also make some final remarks before opening the call to questions. In Q4 of fiscal year 24, total revenue declined 5% on a constant currency basis, above our expectations, an adjusted EBIT margin of 8.4%, down 50 basis points year over year, and non-gap EPS of 97 cents was also above our guidance. Free cash flow equaled $155 million for a total of $756 million for the full year.

Speaker Change: Thank you <unk>.

Speaker Change: Give a brief introduction and review our financial performance update you on the progress we are making with our offerings then Rob will take us through the fourth quarter financial results and discuss our fiscal year 'twenty five guidance I will also make some final remarks before opening the call up for questions.

Rob: In Q4 of fiscal year $2000 for total revenue declined 5% on a constant currency basis above our expectation.

Rob: Adjusted EBIT margin of eight 4% down 50 basis points year over year.

Speaker Change: non-GAAP EPS of <unk> 97.

Speaker Change: Was also above our guidance range.

Speaker Change: Free cash flow equal to $155 million for a total of $756 million for the full year.

Raul J. Fernandez: This is the third consecutive year that DXC has achieved free cash flow of more than $700 million. While we met or beat expectations in Q4, we know we can operate at a higher level and are not satisfied with the current state. In my five month tenure, I have met with more than three dozen customers globally, along with thousands of our employees in small and large settings, in person and virtually. I have engaged with dozens of investors and have successfully recruited very strong, experienced executives to join our team.

Speaker Change: This is the third consecutive year that <unk> has achieved free cash flow of more than 700 million.

Speaker Change: While we met or beat expectations. In Q4, we know we can operate at a higher level and are not satisfied with the current state.

Speaker Change: And my five month tenure I have met with more than three dozen customers globally.

Speaker Change: Long with thousands of our employees and small and large settings in person and virtual.

Speaker Change: I have engaged with dozens of investors and have successfully recruited very strong experienced executives to join our team.

Speaker Change: I believe we have a global team that has re energized to make the company better and more effective.

Raul J. Fernandez: I believe we have a global team that is re-energized to make the company better and more effective. I've also gotten a deeper understanding of all of our business units, so let me quickly recap a few thoughts, starting with insurance. DXC is the largest provider of insurance software and insurance business process services globally.

Speaker Change: I have also gotten a deeper understanding of all of our business units. So let me quickly recap a few thoughts starting with insurance.

Speaker Change: DXP is the largest provider of insurance software and insurance business process services globally from origination to claims processing.

Raul J. Fernandez: From Origination to Claims Process. We are the category leader, providing software and service, in three out of four insurance segments: Life and Wealth, Global Specialty, and Reinsurance.

Speaker Change: We are the category leader, providing software and services in three out of four insurance segments life and wealth global specialty and reinsurance.

Speaker Change: As an example, our technology and services process, one in five property and casualty transactions worldwide.

Raul J. Fernandez: As an example, our technology and services process one in five property and casualty transactions worldwide. Our global customer base includes 21 of the top 25 global insurance carriers. In short, we are a key strategic technology partner supporting global insurance companies with their customers, their agents, and their employees. The Strong Recurring and Reoc, coupled with 90 plus percent customer retention, and an average customer tenure of 18 years, make this a very interesting business unit for me to focus on. As Rob will comment, the insurance, software, and services business, representing approximately three-quarters of the total insurance revenue, grew at a very respectable 4.5% in the quarter.

Speaker Change: Our global customer base includes 21 of the top 25 global insurance carriers in.

Speaker Change: In short we are a key strategic technology partner supporting global insurance companies with their customers their agents and their employees.

Speaker Change: The strong recurring and reoccurring revenue, coupled with 90 plus percent customer retention.

Speaker Change: At an average customer tenure of 18 years makes this a very interesting business unit for me to focus on.

Speaker Change: As Rob will comment the insurance software and services business, representing approximately three fourths of the total insurance revenue grew at a very respectable four 5% in the quarter.

Raul J. Fernandez: It's an incredibly strong foundation to build on and continue to grow and also to rotate our revenue mix more towards SaaS and recurring services. So we are actively working on a focused plan to further accelerate the growth of this business and also highlight the value of its leadership role in the industry and its mix of software and recurring services. Continuing with GBS, we're bringing together the best capabilities of our analytics and engineering and applications business, now called consulting and engineering services, with industry veteran Howard Boville as our general manager.

Speaker Change: It's an incredibly strong foundation to build on and continue to grow and also to rotate our revenue mix more towards SaaS and reoccurring services.

Speaker Change: So we are actively working on a focused plan to further accelerate the growth of this business unit and also highlight the value of its leadership role in the industry and its mix of software and reoccurring services.

Continuing with GBS, we're bringing together the best capabilities of our analytics and engineering and applications business now called consulting and engineering services.

Speaker Change: With industry veteran Howard Bogo as our general manager.

Raul J. Fernandez: Our consulting and engineering services business has a rich and extensive history of driving transformative change for some of the world's biggest brands. In financial services, we provide core banking solutions to numerous banks globally. In automotive and manufacturing, we are deeply involved in their digital transformation. We enable major auto brands to operate their research and development efforts for autonomous driving on our platform, enabling the ingestion and analysis of large amounts of data. We have built and run in-car infotainment systems across most of the luxury brands. While our technology solutions and operations are critical for our customers, our execution is below average, and we are focused on improving the profitability of our consulting and engineering services business.

Speaker Change: Our consulting and engineering services business has a rich and extensive history of driving transformative change for some of the world's biggest brands.

Speaker Change: In financial services, we provide core banking solutions two numerous banks globally.

Speaker Change: Within automotive and manufacturing we are deeply involved in their digital transformation.

Speaker Change: We enable major auto brands to operate their research and development efforts for autonomous driving on our platform, enabling the ingestion and analysis of large datasets.

Speaker Change: We have built and run in car infotainment systems across most of the luxury brands.

Speaker Change: While our technology solutions and operations are critical for our customers. Our execution is below average and we are focused on improving the profitability.

Speaker Change: Of our consulting and engineering services business unit.

Raul J. Fernandez: Moving on to security, a key thing to note about our security business is that it is an enabler of many of our other services. Customers in our ITO and modern workplace rely on us to provide services in a secure, resilient way. Our security teams embed themselves in those offerings to do that in cooperation with our clients. We have over 3000 security professionals operating across eight global security operation centers where we provide around the clock coverage for our customers. As cyber threats increase by the day, not a week goes by that our teams are not called in to assist companies dealing with a security incident.

Speaker Change: Moving on to security.

Speaker Change: A key thing to note about our security business is that it is an enabler.

Speaker Change: Of many of our other services custom.

Speaker Change: Customers in our IPO and modern workplace rely on us to provide services in a secure resilient way our security teams embed themselves in those offerings to do that in cooperation with our clients.

Speaker Change: We have over 3000 security professionals operating across eight global security operation centers, where we provide a round the clock coverage for our customers as.

Speaker Change: As cyber threats increase by the day.

Speaker Change: Not a week goes by that our teams are not called in to assist companies dealing with a security incident, the pace and complexity of these attacks are growing as the regulatory requirements for companies dealing with them.

Raul J. Fernandez: The pace and complexity of these attacks are growing as the regulatory requirements for companies dealing with them grow. Our focus in the security business is to continue to leverage our expertise to enhance our GBS and GIS offerings while also focusing on accelerating growth of our standalone service. With the recent addition of several industry veterans, we expect to enable that growth. Moving on to cloud and ITO.

Speaker Change: Our focus in the security business is to continue to leverage our expertise to enhance our GBS and Gis offerings, while also focusing on accelerating growth of our Standalone services.

Speaker Change: With the recent addition of several industry veterans, we expect to enable that growth.

Speaker Change: Moving onto cloud an IPO.

Raul J. Fernandez: For our cloud and ITO offering, we provide business and mission-critical services for some of the world's most essential workloads. As I've spent time in the business, I meet more and more customers who reiterate how critical our work is. Many of the world's largest airlines, energy companies, financial institutions, along with government organizations count on DXC for the systems at the heart of their business.

Speaker Change: For our cloud and IPO offering we provide business and mission critical services for some of the worlds most essential workloads.

Speaker Change: I've spent time in the business I mean, more and more customers, who reiterate how critical our work is.

Speaker Change: Many of the world's largest airlines energy companies financial institutions.

Speaker Change: Along with government organizations count on DXP for the systems at the heart of their business.

Raul J. Fernandez: Our teams around the globe work 24-7 to keep their operations running seamlessly and securely. This is a core competency of the company. We operate across the entire technology domain, from legacy core mainframes all the way through the most cutting-edge serverless cloud environments on AWS, Azure, and Google Cloud. As our customers modernize their estates, moving on to more cloud and modern architecture, often with the help of our GBS business unit, we are well positioned to help them securely operate across multiple environments.

Speaker Change: Our teams around the globe were $24 seven to keep their operations running seamlessly and securely.

Speaker Change: This is a core competency of the company.

Speaker Change: We operate across the entire technology domain from legacy core mainframes, all the way through the most cutting edge server list cloud environments on AWS Azure and Google cloud.

Speaker Change: As our customers modernize their states moving onto more cloud and modern architecture, often with the help of our GBS business unit, we are well positioned to help them securely operate across multiple environments.

Speaker Change: This is the foundation, we are building on as we pivot our focus in this business to high quality profitable cash generating service revenue.

Raul J. Fernandez: This is the foundation we are building on as we pivot our focus in this business to high quality, profitable, cash-generating service revenue and away from the heavy hardware, software, and data center outsourcing style deals of the past, which brought higher revenue at the expense of profit. Continuing with the modern workplace, we support over 7 million devices and employees all day, every day. The employee experience is more mission critical than ever.

Speaker Change: And away from the heavy hardware software and data center outsourcing style deals of the past with drove higher revenue at the expense of profit.

Speaker Change: Continuing with modern workplace, we support over 7 million devices and employees all day every day the.

Speaker Change: The employee experience is more mission critical than ever today, we operate services with a combination of human and non human workforce globally and at scale.

Raul J. Fernandez: Today, we operate services with a combination of human and non-human workforce globally and at scale. Driven by AI, we believe we will reach a point soon where at least 75% of our workforce capacity is non-human. We are building and demonstrating expertise in how to manage the non-human workforce at this scale. In dialogue across our customer base, the message is clear. Embracing AI technology is a central part of their digital strategy going forward, and we are well positioned to lead. As I mentioned before, and it's even more clear to me now.

Speaker Change: Driven by AI, We believe we will reach a point soon where at least 75% of our workforce capacity is nonhuman we're building in demonstrating expertise in how to manage the non human workforce at this scale.

Speaker Change: And dialogue across our customer base. The message is clear embracing AI technology is a central part of their digital strategy going forward and we are well positioned to lead this.

Speaker Change: As I mentioned before and it's even more clear to me now.

Raul J. Fernandez: There have been missed opportunities in the past to rationalize systems, processes, legal entities, go-to-market, and delivery functions. Therefore, to strengthen our market position, we're undertaking a restructuring initiative aimed at simplifying and enhancing our operational efficiency. We will simplify our processes, increase visibility to eliminate redundancies, reduce costs, improve resource management, and ultimately drive a more streamlined, agile, and competitive organization. One specific example of this enterprise initiative is consolidating our five acquired enterprise businesses and optimizing our back end office function.

Speaker Change: There were missed opportunities in the past to rationalize systems processes legal entities go to market and delivery functions.

Speaker Change: Therefore, it does strengthen our market position, we are undertaking a restructuring initiative aimed at simplifying and enhancing our operational efficiency.

Speaker Change: We will simplify our processes increase visibility to eliminate redundancies reduce costs.

Speaker Change: Prove resource management, and ultimately drive a more streamlined agile and competitive organization.

Speaker Change: One specific example of this enterprise initiative is consolidating our five acquired enterprise business systems and optimizing our back end office functions.

Raul J. Fernandez: We anticipate not only a material reduction in our operating costs but also improvements in our service delivery and responsiveness to our customers. We are also aligning our organizational structure to support streamlined operations with improved and faster decision making. This realignment will make us more competitive. Now Rob will walk you through the financials

Speaker Change: We anticipate not only a material reduction in our operating costs, but also improvements in our service delivery and responsiveness to our customers.

Speaker Change: We are also aligning our organizational structure to support streamlined operations with improved and faster decision making.

Speaker Change: This realignment will make us more competitive.

Speaker Change: Now Rob will walk you through the financials.

Rob Will: Thank you Rocco and good afternoon, everyone and thanks for joining our call.

Robert F. Del Bene: Thank you, Raul, and good afternoon, everyone, and thanks for joining our call. Today, I'll review our fourth-quarter financial results and then provide you with our outlook for the full year and for the first quarter of fiscal 25. Total organic revenue growth declined 4.9% year-to-year ahead of our fourth quarter guidance. GBS revenue was nearly flat, while GIS's top line declined 9.3%. Adjusted EBIT margin was 8.4% above the top end of our guidance, representing an 80 basis point improvement sequentially, driven by our cost reduction initiatives.

Robert F. Del Bene: Margin was down 50 basis points year-to-year, primarily driven by lower non-cash pension income and the impact of gains from asset sales booked in the fourth quarter of fiscal 23. Non-GAAP EPS was $0.97, down $0.05 from last year's fourth quarter. The year-to-year change was driven by a negative $0.13 adjusted EBIT impact, higher taxes of $0.08, and a non-controlling interest impact of $0.03. These reductions were partially offset by a $0.19 benefit from our share repurchase program.

Rob Will: Today I'll review, our fourth quarter financial results and then provide you with our outlook for the full year and for the first quarter of fiscal 'twenty five.

Rob Will: Total organic revenue growth declined four 9% year to year ahead of our fourth quarter guidance.

Rob Will: <unk> revenue was nearly flat, while Gis topline declined nine 3%.

Rob Will: Adjusted EBIT margin was eight 4% above the top end of our guidance, representing an 80 basis point improvement sequentially driven by our cost reduction initiatives.

Rob Will: Margin was down 50 basis points year to year, primarily driven by lower noncash pension income and the impact of gains from asset sales booked in the fourth quarter of fiscal 'twenty three.

Rob Will: non-GAAP EPS was <unk> 97.

Rob Will: Down five from last year's fourth quarter, the year to year change was driven by a negative 13% adjusted EBIT impact higher taxes of <unk> <unk>.

Rob Will: The noncontrolling interest impact of <unk>.

Rob Will: These reductions were partially offset by a <unk> 19 benefit from our share repurchase program.

Robert F. Del Bene: Pre-cash flow, defined as operating cash flow less capex for the quarter equal to $155 million compared to our expectation of about $200. The shortfall was due to a combination of a smaller benefit from working capital and a higher than anticipated cash tax rate. For the year, our free cash flow totaled $756 million, which was the third straight year above $700 million, demonstrating consistency of cash generation performance.

Rob Will: Free cash flow defined as operating cash flow less capex for the quarter equal to $155 million compared to our expectation of about 200. The shortfall was due to a combination of a smaller benefit from working capital and higher than anticipated cash tax levels.

Rob Will: For the year, our free cash flow totaled $756 million, which was the third straight year of about $700 million demonstrating consistency of cash generation performance.

Robert F. Del Bene: And now I'll turn to our fourth quarter key financial measure, Gross margin equal 23.6% flat year to year as we continue to drive workforce optimization and reduce our real estate footprint in the face of declining revenue. SG&A at 8.7% of revenue, down 70 basis points year to year, largely driven by ongoing spending management and a $10 million non-recurring insurance reimbursement. Amortization and amortization was flattened year to year as a percent of revenue down 17 million dollars, reflecting continued capital discipline. Other income for the quarter was $39 million, a year-to-year reduction of $48 million, which is a 120 basis point impact on EBIT Now, I'm turning to our segment results.

Speaker Change: And now I'll turn to our fourth quarter key financial metrics.

Speaker Change: Gross margin equaled 23, 6% flat year to year as we continued to drive workforce optimization and reduce our real estate footprint in the face of declining revenue.

Speaker Change: SG&A was eight 7% of revenue down 70 basis points year to year, largely driven by ongoing spending management and a $10 million nonrecurring insurance reimbursement.

Speaker Change: Depreciation and amortization was flat year to year as a percent of revenue down $17 million, reflecting continued capital discipline.

Speaker Change: Other income for the quarter was $39 million a year to year reduction of $48 million, which is a 120 basis point impact to EBIT margin driven by lower pension income of $26 million and lower gains on asset sales of $19 million.

Speaker Change: Now turning to our segment results for GBS organic revenue performance was nearly flat year to year, but the deceleration largely driven by the ongoing challenging market environment for analytics and engineering and applications.

Robert F. Del Bene: For GBS, organic revenue performance was nearly flat year-to-year, with the deceleration largely driven by the ongoing challenging market environment for analytics and engineering and applications. GBS profit margin was 13.3%, down 40 basis points year to year, but up 140 basis points sequentially, primarily driven by a more favorable mix of higher-margin services revenue. For GIS, organic revenue declined 9.3%, largely consistent with our performance throughout the year. We have taken a very disciplined financial approach with new deals and renewals, and this has been reflected in our bookings and revenue performance for both cloud and ITO and the modern workplace. G.I.S.

Speaker Change: GBS profit margin equaled 13, 3% down 40 basis points year to year, but up 140 basis points sequentially, primarily driven by more favorable mix of higher margin services revenue.

Speaker Change: For Gis organic revenue declined nine 3% largely consistent with our performance throughout the year.

We have taken a very disciplined financial approach with new deals and renewals and this has been reflected in our bookings and revenue performance of both cloud and IPO and modern workplace.

Speaker Change: Gis margins declined 40 basis points year to year with operational improvements more than offset by a lower level of pension income.

Robert F. Del Bene: Margin declined 40 basis points year to year with operational improvements more than offset by a lower level of pension income. Let me now provide some detail on our individual offerings, first in GBS. Both analytics and engineering and applications organic revenue declined 1% year to year as performance continues to be impacted by the current challenging market environment. However, while revenue declined, the book-to-bill ratios for these two businesses were 1.0 or better with strong renewal activity that does not provide incremental short-term revenue but provides longer-term revenue stability. Insurance organic revenue increased 1% year to year.

Speaker Change: Let me now provide some detail on our individual offerings first in GBS.

Speaker Change: Both analytics and engineering and applications organic revenue declined 1% year to year as performance continues to be impacted by the current challenging market environment.

Speaker Change: While the revenue decline the book to Bill ratios for these two businesses were one point or better with strong renewal activity that does not provide incremental short term revenue, but provides longer term revenue stability.

Speaker Change: Insurance organic revenue increased 1% year to year.

Robert F. Del Bene: Embedded in this performance is our insurance software and services business, which represents approximately three quarters of the total and continued its strong momentum of four and a half percent in the quarter. Normalizing for a significant large perpetual license sale in the fourth quarter of last year, the insurance software and services business grew approximately 9% year to year. For the insurance book, the bill was 0.8X.

Speaker Change: Embedded in this performance as our insurance software and services business, which represents approximately three quarters of the total that continued its strong momentum up four 5% in the quarter nor.

Speaker Change: Normalizing for significant large perpetual license sale in the fourth quarter of last year, the insurance software and services business grew approximately 9% year to year.

Speaker Change: The insurance book to Bill was <unk> eight X <unk>.

Robert F. Del Bene: As a reminder, bookings in this business can vary significantly quarter to quarter based on the timing of large renewals. For example, last quarter, we had two significant renewals, and our book-to-bill was 1.58. Now moving to our GIS segment.

Speaker Change: As a reminder, bookings in this business can vary significantly quarter to quarter based on the timing of large renewals.

Speaker Change: For example last quarter, we had two significant renewals in our book to Bill was 158.

Now moving to our Gis segment.

Robert F. Del Bene: Security declined 9% year-over-year on an organic basis with a book-to-bill ratio of 0.96. Cloud Infrastructure and IT Outsourcing Organic Revenue declined 7%, an improvement from double-digit declines we saw in the prior three quarters due to significant resale transactions delivered in the quarter. The book to bill was.75x, the result of the ongoing challenging ITO market and our selective approach to New Deal. Modern Workplace Organic Revenue declined year to year in the mid-teens, impacted by resale revenue, which was down 30%.

Speaker Change: Security declined 9% year over year on an organic basis with a book to bill ratio of <unk> 96.

Speaker Change: Cloud infrastructure in outsourcing organic revenue declined 7% an improvement from double digit declines we saw in prior in the prior three quarters due to a significant resale transaction delivered in the quarter.

Speaker Change: The book to Bill was <unk> 75, ex the result of the ongoing challenging IPO market and our selective approach to new deals.

Speaker Change: Modern workplace organic revenue declined year to year in the mid teens impacted by resale revenue, which was down 30%.

Robert F. Del Bene: Book to bill performance this quarter was a strong 1.29x due to several large renewals. Now turning to our financial foundation. We sequentially reduced our total debt levels by $450 million, and for the full year, our total debt levels have been reduced by $300 million. Our interest expense for the quarter was $20 million, up $3 million year-to-year, reflecting the higher interest rate environment on our short-term borrowing.

Speaker Change: Book to Bill performance. This quarter was a strong 129 X due to several large renewals.

Speaker Change: Now turning to our financial Foundation.

Robert F. Del Bene: Restructuring and TSI expenses were $21 million and for the full year was $118 million, about half of the level spent in fiscal 23. Operating lease payments of $84 million. We're down $9 million year-to-year due to the management of our real estate footprint. The fourth quarter capital expenditures were $125 million, and lease originations were $21 million. Our finance lease and asset financing payments continue to trend down. And as a percentage of revenue, capital expenditures and lease originations declined to 4.3%, down more than a point year over year, representing a multi-year low.

We sequentially reduced our total debt levels by $450 million and for the full year, our total debt levels have been reduced by $300 million.

Speaker Change: Net interest expense for the quarter was $20 million up $3 million year to year, reflecting the higher interest rate environment on our short term borrowings.

Speaker Change: Restructuring and Tsi expense was $21 million and for the full year was $118 million about half of the level spent in fiscal 'twenty three.

Speaker Change: Operating lease payments of 84 million were down $9 million year to year due to the management of our real estate footprint.

Speaker Change: The fourth quarter capital expenditures were $125 million and lease originations were $21 million.

Speaker Change: Our finance lease and asset financing payments continue to trend down and as a percentage of revenue capital expenditures and lease originations declined to four 3%.

Down more than a point year over year, representing a multiyear low.

Speaker Change: Turning to capital deployment.

Robert F. Del Bene: Turning to capital deployment. As I mentioned, in the fourth quarter, we deployed approximately $450 million of cash to reduce our debt level. We accomplished this by retiring our outstanding balance of commercial paper and continuing to decrease our lease portfolio. Additionally, we returned $138 million of capital to shareholders, repurchasing 6.2 million shares at a weighted average price per share of $22.30. For the full year, we repurchased over 18% of our shares outstanding at a total cost of $883 million.

Speaker Change: As I mentioned in the fourth quarter, we deployed approximately $450 million of cash to reduce our debt levels. We accomplish this by retiring our outstanding balance of commercial paper.

Speaker Change: And continuing to decrease our lease portfolio.

Speaker Change: We returned $138 million of capital to shareholders repurchasing $6 2 million shares at a weighted average price per share of $22 30.

Speaker Change: For the full year, we repurchased over 18% of our shares outstanding at a total cost of $883 million.

Robert F. Del Bene: Since the beginning of fiscal year 22, we have reduced our share count by more than 30%. As we enter a new fiscal year, I would like to provide clarity on our updated financial priorities. Our plan is to deploy our capital to accomplish two things. First, given our recent revenue performance, we will execute a restructuring program to address excess capacity, largely concentrated in GIS, and right-size our infrastructure throughout the company to improve profitability. The second priority is to further reduce debt levels, including significantly minimizing finance lease origination.

Speaker Change: Since the beginning of the fiscal year 'twenty, two we have reduced our share count by more than 30%.

Speaker Change: As we enter a new fiscal year I would like to provide clarity on our updated financial priorities.

Speaker Change: Our plan is to deploy our capital to accomplish two things first given our recent revenue performance, we will execute a restructuring program to address excess capacity largely concentrated in Gis and.

Speaker Change: And right size, our infrastructure throughout the company to improve profitability.

Speaker Change: The second priority is to further reduce debt levels, including significantly minimizing finance lease originations.

Speaker Change: Now turning to our full year 25 guidance.

Robert F. Del Bene: Now turning to our full year 25 guidance. We expect our total organic revenue to decline 4% to 6%. In GBS, we expect our full-year outlook to be slightly positive, with the first-half performance in line with our fourth quarter fiscal 24, and with a return to growth in the second half of the year. In GIS, given last year's bookings and the resulting impact opening backlog, combined with continued expected lower resale revenue and deal selectivity in fiscal 25, we anticipate full year organic revenue to decline in the low double-digit range.

Speaker Change: We expect our total organic revenue to decline 4% to 6%.

Speaker Change: In GBS, we expect our full year outlook to be slightly positive with the first half performance in line with our fourth quarter of fiscal 'twenty four.

Speaker Change: And with a return to growth in the second half of the year.

Speaker Change: And Gis given last year's bookings and the resulting impact of opening backlog combined with continued expected lower resale revenue and deal selectivity in fiscal 'twenty five we anticipate full year organic revenue to decline in the low double digit range.

Our guidance for adjusted EBIT margin is 6% to 7%.

Robert F. Del Bene: Our guidance for adjusted EBIT margin is 6 to 7%. This guidance primarily reflects the impact of lower year-to-year revenue and investments we're making in the business to drive productivity improvement. Additionally, we will be executing on the previously mentioned restructuring action to improve margins on a sustainable basis going forward, with the impact of the savings largely materializing in late fiscal 25 and into fiscal 26. As I've mentioned on previous calls, we continue to rationalize our real estate portfolio. These potential sales will provide a cash inflow outside of free cash flow but will have a negative impact on our adjusted EBIT margin. The potential loss from these sales is not included in the guidance.

Speaker Change: This guidance, primarily reflects the impact from lower year to year revenue and investments, we're making in the business to drive productivity improvements.

Speaker Change: Additionally, we will be executing on the previously mentioned restructuring action to improve margins on a sustainable basis going forward.

Speaker Change: With the impact of the savings largely materializing in late fiscal 'twenty, five and into fiscal 'twenty six.

Speaker Change: As I've mentioned on previous calls we continue to rationalize our real estate portfolio.

These potential sales will provide a cash inflow outside of free cash flow, but will have a negative impact on our adjusted EBIT margin.

Speaker Change: The potential loss on these sales is not included in the guidance as the market remains difficult and the timing is uncertain.

Robert F. Del Bene: As the market remains difficult, and the timing is uncertain, and with these expected adjusted EBIT margin levels, our full year non-GAAP diluted EPS guidance is $2.50 to $3.00, with an assumed non-GAAP effective tax rate of 30%. Our free cash flow guidance for fiscal 25 is about $400 million. There are two main drivers contributing to the lower year-over-year level, and without these changes, free cash flow would be at levels consistent with fiscal 24 performance.

Speaker Change: And with this expected adjusted EBIT margin levels, our full year non-GAAP diluted EPS guidance is $2 50 to $3.

Speaker Change: The assumed non-GAAP effective tax rate of 30%.

Speaker Change: Our free cash flow guidance for fiscal 'twenty five is about $400 million.

Speaker Change: The two main drivers contributing to the lower year over year level and without these changes free cash flow would be at levels consistent with fiscal 'twenty for performance.

Robert F. Del Bene: As I previously mentioned, we will be reducing our debt levels in fiscal 25, and a component of our debt reduction strategy is significantly reducing finance lease originations, which were $185 million in fiscal 24. This change in funding approach will reduce our overall debt levels but will increase our capital expenditures, impacting free cash flow. Also impacting free cash flow will be spending related to the increased level of restructuring, which will be an increase of approximately $250 million year to year.

Speaker Change: As I previously mentioned, we will be reducing our debt levels in fiscal 'twenty five.

Speaker Change: A component of our debt reduction strategy significantly, reducing finance lease originations, which were $185 million in fiscal 'twenty four.

Speaker Change: This change in funding approach will reduce our overall debt levels, but will increase our capital expenditures impacting free cash flow.

Speaker Change: Also impacting free cash flow will be spending related to the increased level of restructuring, which will be an increase of approximately $250 million year to year.

Robert F. Del Bene: Our expectation is that the restructuring savings will put us on a sustainable path of free cash flow generation above fiscal 24 levels in fiscal 26. As a reminder, our Q1 free cash flow is seasonally lowest, primarily due to the timing of bonus payouts and certain annual supplier payments. Consistent with prior years, cash flow generation will be strongest in the second half of the year, and now our first quarter outlook.

Speaker Change: Our expectation is that the restructuring savings will put us on a sustainable path of free cash flow generation.

Speaker Change: Above fiscal 'twenty four levels in fiscal 'twenty six.

Speaker Change: As a reminder, our Q1 free cash flow is seasonally lowest primarily due to the timing of bonus payouts and certain annual supplier payments consistent with prior years cash flow generation will be strongest in the second half of the year.

Speaker Change: And our first quarter outlook.

Robert F. Del Bene: In GBS, we anticipate that revenue performance in A&E and applications will continue to reflect the current challenging market environment, and in GIS, services revenue will decline in the mid to high single-digit range, with resale taking the GIS decline to double-digit. With these factors, we expect total company organic revenue to decline 7% to 8%. We anticipate adjusted EBIT margins in the range of 5.5% to 6%, a function of the lower revenue and first quarter seasonality, which has consistently impacted our results in prior years. And finally, non-GAP diluted EPS of 55 cents to 60 cents. With that, I will turn the call back over to Raul for key takeaways.

Speaker Change: In GBS, we anticipate that revenue performance in A&D and applications will continue to reflect the current challenging market environment.

Speaker Change: And in Gis services revenue will decline in the mid to high single digit range with resale, taking the Gis declined double digits with these factors, we expect total company organic revenue to decline 7% to 8%.

Speaker Change: We anticipate adjusted EBIT margins in the range of five 5% to 6% a function of the lower revenue and first quarter seasonality, which has consistently impacted our results in prior years.

And finally, non-GAAP diluted EPS of <unk> 55 to 60.

Speaker Change: With that let me turn the call back over to Raul for key takeaways.

Raul J. Fernandez: Thank you, Rob. There is quite a lot to do to operate at a higher level. That's why I'm so happy with the additions to our executive team in the last 60 days. They are all industry veterans with proven track records. We will define success by continuing to perform better every quarter while we transform as quickly as possible. Thank you for attending the call. Operator, we're going to open it up for questions. Thank you.

Raul J. Fernandez: Thank you Rob there is quite a lot to do to operate at a higher level. That's why I'm. So happy with the additions to our executive team in the last 60 days.

We are all industry veterans with proven track records.

Raul J. Fernandez: We will define success by continuing to perform better every quarter, while we transform as quickly as possible.

Speaker Change: Thank you for attending the call operator, we're going to open it up for questions.

Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star one again.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. One moment, please, for your first question. Your first question comes from the line of Bryan Keane with Deutsche Bank. Your line is open.

Speaker Change: One moment. Please for your first question.

Speaker Change: Your first question comes from the line of Bryan Keane with Deutsche Bank. Your line is open.

Bryan Connell Keane: Hi, guys. Thanks for taking the question maybe you could just help us understand how year restructuring might be different than many of the Ceos that are.

Bryan Connell Keane: Hi guys, thanks for taking the question. Raul, maybe you could just help us understand how your restructuring might be different than many of the CEOs that came before you that had a lot of restructuring as well. It seems like every, you know, five years or so, a CEO comes in, looks at the business, and restructures it. Just trying to get a sense of how maybe your plans might look different than what we've seen over the last few decades at CSC and now DX

Bryan Connell Keane: That came before you that had a lot of restructuring as well it seems like every.

Bryan Connell Keane: Five years or so as CEO comes in and looks at the business and restructured it just trying to get a sense of how maybe your plans might look different than what we've seen over the last few decades.

Speaker Change: CSC and <unk>.

Raul J. Fernandez: Yeah, okay, a great question. Thank you.

Speaker Change: Yes, great question. Thank you.

Speaker Change: I know that as you've mentioned in the short history of this public company.

Raul J. Fernandez: I know that, as you've mentioned in the short history of this public company, there have been previous restructurings, but as someone who just got here and has really spent a lot of time operationally looking at our systems, our processes, our entities, our distribution of headcount, it's clear to me that the previous restructurings did not set a real, clean, solid, fully integrated baseline for profitable growth. You can look at that in multiple ways: number of systems still in place that were acquired over time but never integrated, never deduped, number of business processes that got stacked on top of each other, number of legal entities.

Speaker Change: There have been previous restriction restructurings, but as someone who just got here.

Speaker Change: And really spend a lot of time operationally looking at our systems our processes, our entities are distribution of head count.

Speaker Change: It's clear to me that the previous restructurings did not set a real clean solid fully integrated baseline for profitable growth you can look at that in multiple ways number of systems still in place that were acquired over time never integrated never de duped number of <unk>.

Speaker Change: Business processes that got stacked on top of each other number of legal entities I think anyone that came in would look at the previous work and again I know the history. There so im not running away from it but I can tell you. This is a real reset it is bottoms up it has a strong foundation to go from.

Raul J. Fernandez: I think anyone that comes in would look at, you know, the previous work, and again, I know the history is there, so I'm not running away from it, but I can tell you that this is a real reset. It is from bottom up. It is a strong foundation to go from, and it's absolutely needed because, otherwise, we just continue to carry a really not fully functional organization that can't take advantage of the opportunities that we have.

Speaker Change: And it is absolutely needed because otherwise we just continue to carry a really not fully functional organization that can take advantage of the opportunities that we have.

Speaker Change: Got it and then just as a follow up.

Robert F. Del Bene: Got it. And then just as a follow-up, are any of the restructuring charges going to be, are those through the P&L? So are they in the margin targets that we're looking at, or are they outside those targets? And then secondly, to that, just on GBS, a little bit of a recovery, I think you talked about in the second half of the year. What gives you confidence in that GBS recovery for positive organic growth in the second half?

Speaker Change: Are any of the restructuring charges are those going to be are those through the P&L. So they're in the margin targets that we're looking at or are those outside those targets and then secondly to that just on GBS, a little bit of a recovery I think you've talked about in the second half of the year. What gives you confidence in that GBS recut.

Every four for positive organic growth in the second half thanks.

Rob Will: Yes, Brian this is rob thanks.

Robert F. Del Bene: Yeah, Brian, this is this is Rob DelVetti. Thanks for the question. First, restructuring is not included, consistent with the approach taken since the beginning of the company. Restructuring is not included in the adjusted EBIT margin, but it obviously is included in the free cash flow numbers.

Rob Will: Thanks for the question first on restructuring restructuring is not included consistent with the approach taken since the beginning of the company restructuring is not.

Speaker Change: Included in the adjusted EBIT margin. Obviously is included in the free cash flow numbers.

Robert F. Del Bene: So that's the answer to your first question. On the GBS, first half to second half is dynamic. With the difficult marketplace, we do see the first half of the year performance similar to the back half of fiscal 24. We have some encouragement, our pipelines have been improving, and our conversion rates are consistent. So with that improved pipeline and conversion rates, we see us going from low single-digit negatives to low single-digit positives in the second half of the year.

Speaker Change: So that's the answer to your first question.

Speaker Change: <unk>.

Speaker Change: On the GBS first half to second half dynamic.

Speaker Change: It's a difficult marketplace, we do see the first half of the year performance similar to the back half of fiscal 'twenty four.

Speaker Change: We have some encouragement our pipelines have been improving.

And our conversion rates are are consistent so with that improved pipeline and conversion rates, we see us going from low single digit negative low single digit positive in the second half of the year.

Raul J. Fernandez: And it's all built on, again, new leadership there, new lifecycle management in terms of opportunities, so pre-proposal, proposal, pitching smarter, better, faster, and also eliminating, frankly, some self-inflicted delivery issues that we have had, and in some cases, we're still working our way out of. This isn't just one lever. This is a lot of little levers.

Speaker Change: And it's all built on again, new leadership there new.

Speaker Change: Lifecycle management in terms of opportunities so pre proposal proposal.

Speaker Change: Pitching smarter better faster.

Speaker Change: And and also eliminating frankly, some self inflicted delivery issues that we have had and in some cases, we're still working our way out of.

Speaker Change: As I've mentioned before.

Speaker Change: This isn't one lever. This is a lot of little levers and I think one of the things that is giving me additional encouragement that I'm looking at it correctly and the team is looking at it correctly is that as we brought on great new experienced executives from great companies.

Raul J. Fernandez: And I think one of the things that has given me additional encouragement that I'm looking at it correctly, and the team's looking at it correctly, is that as we've brought in great new experience, you know, executives from great companies that have been succeeding in the marketplace, all over the world, they have confirmed that it's a very opportunity-rich environment, meaning we have a lot of things that we can be doing better. And if we do those things better, again, not rocket science, operational excellence, and I'd say in some cases, just getting the average, that will show up on the top line and bottom line and conversion and show up in gross margins, net margins, etc.

Speaker Change: That had been succeeding in the marketplace all over the world.

Speaker Change: They have confirmed that it is a very opportunity rich environment, meaning we have a lot of things that we can be doing better and if we do those things better again, not rocket science operational excellence and I'd say in some cases, just getting the average that will show up topline and Bottomline and conversion and show up in gross.

Speaker Change: Margins net margins et cetera, So I feel like we've got a way to go to get to our base and then from that base, we're going to continue to grow off of it but I think we've got the right people the right structure and now the right go to market model.

Raul J. Fernandez: So, I feel like we've got a way to go to get to a base, and then from that base, we're going to continue to grow off of it. But I think that we've got the right people, the right structure, and now the right go-to-market model and incentives, and I'm encouraged.

Speaker Change: And incentives.

Speaker Change: And I am encouraged.

Speaker Change: Great I'll pass the line thanks.

Bryan Connell Keane: Great, I'll pass the line, thanks.

Your next question comes from the line of Tien Tsin Huang of Jpmorgan. Your line is open.

Operator: Your next question comes from the line of Tin Jin Hwang of J.P. Morgan. Your line is open.

Speaker Change: Yes.

Tin Jin Hwang: Hi, thanks so much for going through all this. I'm just curious on the booking side, how that came in versus plan in a little bit more detail and what we might expect as the fiscal year plays out here in terms of replenishment, either new logo or renewal.

Speaker Change: Hi, Thanks, so much for going through all this I'm just curious on the bookings side, how how that came in versus plan and then a little bit more detail and what we might expect as the fiscal year plays out here in terms of replenish either new logo or or renewal.

Speaker Change: Yes, so tien tsin. Thanks.

Robert F. Del Bene: Yes, attention. Thanks.

Speaker Change: So the bookings.

Speaker Change: <unk> to be.

Speaker Change: To the last forecast, we gave 90 days ago.

Robert F. Del Bene: So the bookings, relative to the last forecast we gave 90 days ago, were pretty consistent and actually a little better in GBS. And that was really, really due to renewals in A&E being strong. And it's the second quarter in a row they've been strong. And in my remarks, I mentioned that. Those renewals don't translate into revenue growth in the first half of the year, but they do produce, and they provide rather a solid foundation for the second half.

Speaker Change: We're pretty pretty consistent in <unk>.

Speaker Change: Actually a little better in GBS.

Speaker Change: And that was really really.

Speaker Change: Due to renewals in A&D were strong in the second quarter in a row. They have been strong and in my in my remarks, I mentioned that.

Speaker Change: Those renewals.

Speaker Change: They don't translate into revenue growth in the first half of the year.

Speaker Change: To produce provide rather a solid foundation for for the second half.

Robert F. Del Bene: So that's, we did a little better than anticipated. We did as expected in GIS, and we, Going into fiscal 25, we expect a very similar picture where we have, you know, strong renewal activity in both KBS and GIS, and then new content based on the pipeline, new content in GBS, filtering in throughout and improving throughout the year in fiscal 25.

Speaker Change: So that's so we did a little better than anticipated, we did as expected and Gis.

Speaker Change: And we.

Going into fiscal 'twenty, five we expect a very similar picture, where we have.

Strong renewal activity in both GBS and Gis.

And then new content and based on the pipeline new content in GBS.

Speaker Change: Filtering in throughout and improving throughout the year in fiscal 'twenty five.

Speaker Change: Yeah.

Speaker Change: Perfect. Thank you for that and then maybe Rob will just quickly as my quick follow up just with the additions to the management team and are you, bringing some people in from from familiar places.

Tin Jin Hwang: Perfect. Thank you for that.

Speaker Change: Are you done with but some of the additions do you expect some.

Speaker Change: Some other.

Tin Jin Hwang: And then maybe, Raul, just quickly, my quick follow-up, just with the additions to the management team. I know you're bringing some people in from familiar places. Are you done with some of the additions? Do you expect some other turnover or maybe new roles that you'd expand into the management team? Just curious what you're thinking is there. Thank you.

Speaker Change: Turnover or.

Speaker Change: Maybe new roles that you would expand into the management team just curious what your thinking is there. Thank you.

Speaker Change: Yes, and you look you've seen some of the some of the releases right. So.

Raul J. Fernandez: Yeah, and you look, you've seen some of the releases, right? So we've obviously announced some publicly. And then there are others that we didn't announce, but they've joined the team across the organization. Yeah, I've had the pleasure of working with a lot of great executives over, you know, my 25 plus years in technology. And in that, in that journey, you know, we've had the opportunity to work together; many of the executives that have come here, we've had the opportunity to compete together, work together, and win together.

Speaker Change: Obviously announce publicly.

Speaker Change: Publicly and then there are others that we didnt announcement, they've joined the team across the organization.

Speaker Change: I've had the pleasure of working with a lot of great executives over my 25, plus years in technology and in that in that journey.

Speaker Change: We've had the opportunity to work together and many of the executives have come here, we've had the opportunity to compete together work together and win together.

Raul J. Fernandez: So, yes, we've got a few more that are coming. But in terms of looking at the people that we need to execute, building on top of the team that's here, the great team that's here, and adding some great executives that are fit for the roles where we need additional horsepower, I feel like I've got the team, you know, 90 plus percent in place. Good.

No.

Speaker Change: Yes, we've got a few more that are coming but in terms of looking at the people that we need to execute.

Speaker Change: Building on top of the team that she has a great team this year and adding some great.

Speaker Change: <unk> that are fit for the roles, where we need an additional horsepower I feel like I've got the team 90 plus percent in place okay.

Tin Jin Hwang: Okay, good. It's good to know. Thank you.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Bryan Bergin with TD Cowen Your line is open.

Operator: Your next question comes from the line of Bryan Bergin with TD Cowan. Your line is open.

Speaker Change: Yes.

Speaker Change: Hey, guys. Good afternoon. Thank you.

Bryan C. Bergin: Hey guys, good afternoon. Thank you.

Speaker Change: First question on just on free cash flow. So understanding you have that I believe that $250 million restructuring headwind that seems to be the biggest chunk and year over year bridge, but can you talk about otherwise the maybe the levers for free cash flow sustainability amid ongoing top line in and potentially margin pressure and.

Speaker Change: And can you also talk about maybe the annual outflows associated with capital lease payments going forward to after free cash flow.

Speaker Change: Yes.

Speaker Change: Yeah, so in terms of free cash flow.

Speaker Change: Yeah.

Bryan C. Bergin: First question on just free cash flow. So understanding you have, I believe, a 250 million restructuring headwind, that seems to be the biggest chunk in the year over year bridge. But can you talk about otherwise, though, maybe the levers for free cash flow sustainability amid ongoing, you know, top line and, and potentially margin pressure? And, and can you also talk about maybe the annual outflows associated with capital lease payments going forward after free cash flow?

Speaker Change: We start from a base of.

Speaker Change: <unk> strength three years in a row over $700 million 750 in fiscal 'twenty four.

Speaker Change: And we have that solid base moving into fiscal 'twenty, five and as I mentioned, the two impacts to that number or the increase in restructuring of $2 50.

Robert F. Del Bene: Yes. Yeah, so in terms of free cash flow, we start from a base of strength three years in a row, over $700 million, and 750 million in fiscal 24. And we have that solid base moving into fiscal 25. And as I mentioned, the two impacts on that number are the increase in restructuring of 250. And then the curtailment or significantly curtailing new lease originations, which does shift the spend over to CapEx, impacting our free cash flow number for the year. Now we do have operating leverage here with or leverage with working capital.

Speaker Change: And then the.

Speaker Change: The curtailment or significantly curtailing, new lease originations, which does shift the spend over to capex impacting our free cash flow number in the year now we do have.

Speaker Change: Operating leverage here with or leveraged with.

Speaker Change: Working capital. So there is room for improvement in working capital were going to be taking advantage of that in fiscal 'twenty five and beyond.

Robert F. Del Bene: So there is room for improvement in working capital. We're gonna be taking advantage of that in fiscal 25 and beyond. And again, the purpose of the restructuring is to shore up EBIT moving forward from fiscal 25 into fiscal 26, and curtail that headwind that we faced for the last, you know, the last couple of years. So that's the plan. In terms of cap lease payments, we're in the low 200s, and that will continue to wind down.

Speaker Change: And again with the purpose of the restructuring is to shore up.

Speaker Change: Moving forward <unk>.

Speaker Change: <unk> 25 into fiscal 'twenty six.

Speaker Change: Curtail that headwind that we faced for the last for the last couple of years.

Speaker Change: So that's the plan.

Speaker Change: In terms of cap lease payments, where we're in the low two hundreds and that will that.

Speaker Change: That will continue to wind down in 2006, it will be in May.

Robert F. Del Bene: In 26, it'll go from a 200 range to a 100 range and then down from there. And just to footstep this, the lease originations will go from $185 million in FY24 to 0 in 25. So a very small number. And that's a $185 million reduction in the free cash flow. Thank you, Jeremy.

Speaker Change: From a 200 range to 100 range and then down from there.

Just a foot stomped us the lease originations will go from $185 million in FY 'twenty four to zero in 2020.

Speaker Change: Very small number.

Speaker Change: $185 million reduction in the free cash yes. Thank you Jim.

Speaker Change: Okay.

Bryan C. Bergin: Okay, okay, that's very helpful. Okay, and I guess a follow up, just as we think about the top line, the the 25 guide, as we try and unpack some of the factors you considered here, as it relates to kind of revenue retention, and whether you're also working to actively prune out any unfavorable basis of business contracts, you know, any, any pieces of business you're looking at and assessing, it's not strategic to the company, anything like that working through, kind of here to be mindful of, as you build the outlook.

Speaker Change: Okay, that's very helpful.

Speaker Change: I guess a follow up just as we think about the top line. The 25 guide as we try and unpack some of the factors you considered here as it relates to kind of revenue retention and whether you are also working to actively prune out any unfavorable basis of business contracts any any pieces of business youre looking at and assessing its not.

Jake: Jake to the covenant any like that working through kind of here to be mindful of as you build the outlook.

Speaker Change: Yes, especially in ico in modern workplace, where historically, there's been the packaging of less than optimal profitable reselling of product reselling of software.

Raul J. Fernandez: Yeah, especially in ITO and the modern workplace, where historically, there's been the packaging of, you know, less than optimal, profitable, reselling of products, reselling of software. That guidance there, or that direction changed when I got here. And we are going to have profitable contracts, profitable relationships, to the extent we don't have them right now. As we get into renewals of contracts, we're going to address that and then put them on the right footing. But the mandate is clear now that this isn't growth at all costs, growth at a loss; this is growth with real profitability and a real foundation.

Speaker Change: That that guidance or that direction change when I got here.

Speaker Change: And we are going to have profitable contracts profitable relationships.

Speaker Change: To the extent, we don't have them right now as we get into renewals of contracts, we're going to address that and then put them on the right footing.

Speaker Change: But that the mandate is clear now that this isn't a growth growth at all cost growth.

Speaker Change: At a loss this is growth with real profitability and a real foundation.

Robert F. Del Bene: Yeah, Bryan, just piggybacking on that, we've incorporated that selectivity into our guide on revenue. So that's included, along with continued reduction of low margin resale. All of that is packed into the GIS element of the guide.

Speaker Change: Ryan just piggybacking on that.

Speaker Change: Incorporated that selectivity and tour and tour guide on revenue.

Speaker Change: That's included along with continued reduction of low margin resale.

All of that is packed into the Gis element of the.

Speaker Change: <unk>.

Speaker Change: Okay.

Bryan C. Bergin: Okay, if I missed it, I apologize. Did you quantify that piece just so we can kind of parse that out? Uh, no.

Speaker Change: If I missed it I apologize, but did you quantify that piece just so we can kind of parse that out.

Robert F. Del Bene: I didn't quantify specifically the various elements, but in my opening remarks, I mentioned that it would be high negative single digits in GIS, and with the resale, it'll be negative double digits, low double digits. Okay, thank you very much. Thank you. Your next question comes from the line of Darrin Peller with Wolf Research.

Speaker Change: Didn't quantify specifically the various elements.

Speaker Change: In my opening remarks.

Speaker Change: I mentioned that will be high negative single digits in Gis and what the resale it'll be negative double digits low double digits.

Speaker Change: Okay. Thank you very much.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.

Operator: Your next question comes from the line of Darrin Peller with Wolf Research. Your line is open. Hi, thanks. This is Paul Ebrecht speaking on behalf of Darrin. Can you just provide some color on what you're seeing in the broader macro environment?

Paul: Hi, Thanks. This is Paul <unk> on for Darren can you just provide some color on what youre seeing in the broader macro environment and client behavior, and maybe how that relates to three months ago.

Speaker Change: And as you build your fiscal year 'twenty five outlook, what are you assuming any improvement in the broader demand as we go through the year.

Speaker Change: Sure.

Raul J. Fernandez: Sure. Look, I think there are a couple of factors, right, with companies that are operating at different levels of efficiency. And I think our issue is being more effective across the whole lifecycle of capturing business, new business, solving it correctly, pricing it correctly, as well as on our existing business, obviously winning the re-competes and being able to create the right economic model for those re-competes. We have plenty of opportunity in the universe that we operate in.

Speaker Change: Look I think there are a couple of factors right.

Speaker Change: With companies that are operating at different levels of efficiency.

Speaker Change: And I think our issue.

Speaker Change: Is being more effective across the whole lifecycle of capturing business new business.

Speaker Change: <unk> solutions, it correctly pricing it correctly as well as on our existing business, obviously, winning the re competes.

Speaker Change: And being able to create the right economic.

Speaker Change: Our model for those re competes.

Speaker Change: We have plenty of opportunity and in the universe that we operate in I think from a macro standpoint, I Echo what others have said in the space that some discretionary spending is paused and has lightened has lightened up I do think that that is less of a headwind for us than optimizing our go to market and sales functions and getting those.

Raul J. Fernandez: I think from a macro standpoint, you know, I echo what others have said in the space that some discretionary spending has paused and has lightened up. But I do think that that is less of a headwind for us than optimizing our go-to-market and sales functions and getting those better. We have our destiny in our hands by being better at the opportunities that we get to compete on, and that will be a bigger factor for us in the near term than the general macro environment. Got it. That's helpful.

Better we can do we have our destiny in our hands by being better against the opportunities that we get to compete on and that will be.

Speaker Change: Be a bigger factor for us in the near term than the general macro environment.

Speaker Change: Okay.

Speaker Change: Got it that's helpful and then as a follow up you mentioned in modern work place you could see as you reach a point where 75% of the workforce is non human can you just touch on the path to get there and what Youre doing right now in the business to improve efficiency.

Raul J. Fernandez: And then as a follow-up, you mentioned in the modern workplace that you could see, or you have reached a point where 75% of the workforce is non-human. Can you just touch on the path to get there and what you're doing right now in the business to improve efficiency? Sure. If you think about a lot of the work there, it's a lot of resolution, a small resolution of items across multiple people, humans, devices, countries, companies, etc.

Speaker Change: Sure. If you think about a lot of the work there is a lot of resolution small resolution of items across multiple people humans devices countries companies et cetera.

Raul J. Fernandez: If you look at the focus of AI, specifically Copilot, and the ability for agents to use large language models, small language models, real precise models to really proactively and interactively answer and deal with questions, that's the shift where we're going to be using AI in a manner where we can handle the workload, same or more, with a greater infusion of technology and not relying on an increase of humans or people for that. So the speed, accuracy, and multimodal ability of a virtual agent to really be a great partner in delivering these services at a high quality are there today and getting better. And we're going to take full advantage of it. Great, thank you. Your next question comes from the line of Jonathan Lee.

Speaker Change: Look at the focus of AI, specifically co pilot and the ability for agents to use large language models small language models real precise models too.

Speaker Change: Really proactively and interactively.

Speaker Change: Answer and deal with questions. That's the shift where we're going to be using AI in a manner, where we can handle the workload same or more.

With a greater infusion of technology and not relying on an increase.

Speaker Change: Humans are people for that as we transition that you'll go from a ratio of roughly 40% to 70 plus percent.

Speaker Change: And Thats the reference that I made there, but thats real.

Speaker Change: That's happening it's actionable.

Speaker Change: We're experimenting with it across multiple accounts and the other piece of good news is that the speed of compute behind AI is doubling every six months so.

Speaker Change: Speed accuracy, and multimodal ability for virtual agent to really be.

Speaker Change: A great partner in delivering these services at a high quality is there today and getting better and we're going to take full advantage of it.

Speaker Change: Alright, thank you.

Speaker Change: Your next question comes from the line of Jonathan When you with Guggenheim Securities. Your line is open.

Operator: Your next question comes from the line of Jonathan Lee with Guggenheim Securities. Your line is open.

Jonathan: Great. Thanks for taking my questions I appreciate the level of detail here you talked about working through some of the retail dynamic to help profitability can you help us understand any other levers you have across contract profitability, whether that's pricing or delivery.

Jonathan: Yes.

Jonathan Lee: Yes. So Jonathan, there's, I think there's, leverage across the board, in particular, and in the ITO business. I'll just take that first.

Speaker Change: So Jonathan there is.

Speaker Change: I think there is less.

Speaker Change: Leverage across the board.

Speaker Change: In particular in the Ico business I'll, just take that first.

Robert F. Del Bene: We've, We've been on a march to reduce physical capacity with the revenue reductions we've experienced, and we will continue that this year as well. And the $100 million of restructuring between the $250 million year-to-year growth and the base of $350 million, that $100 million is predominantly for physical capacity. So that's one element that will deliver savings into the future. The second element is just efficiency and infrastructure at the account level.

Speaker Change: We've.

Speaker Change: We've got we've been on a march to reduce physical capacity with the revenue reductions we've experienced and we will continue that.

Speaker Change: This year as well.

Speaker Change: <unk>.

Speaker Change: The $100 million of restructuring between the $2 50, a year to year growth in the base of $3 50 of that $100 million is predominantly on physical capacity.

Speaker Change: That's that's one element that will deliver savings into the future. The second element is just the efficiency and.

Speaker Change: Infrastructure at the account level and we are going after that with the restructuring funding.

Robert F. Del Bene: And we are going after that with the restructuring funding. So while we're, you know, we're very good at our service delivery levels, we've got high NPS scores, our restructuring is designed to eliminate the overhead within the accounts as opposed to the direct delivery population that we have. So and, and we are, you know, we're firmly on that track, and that's how we're going to execute the restructuring. And in the GBS

Speaker Change: So what where we are.

Speaker Change: We're very good at our service delivery levels. We've got high NPS scores are restructuring is designed to eliminate the overhead within the accounts as opposed to the direct.

Speaker Change: <unk> population that we have.

Speaker Change: So.

Speaker Change: And we are.

Speaker Change: We're firmly on track and that's how we're going to execute the restructuring.

In the GBS business we.

Robert F. Del Bene: We have room to improve margins, specifically in the consulting and engineering business. Our margins are below competition, and again, the restructuring is designed to help us narrow that gap with competition in that business unit. That's another lever for us.

Speaker Change: We have room to improve margins.

Speaker Change: And specifically in the.

In the consulting and engineering business, our margins are below competition and again the restructuring is designed to help us narrow that gap to competition in that business unit.

Speaker Change: That's another lever for us.

Speaker Change: Yeah.

Great. Thanks for that and just as a follow up as you think about the realignment of the company on a business unit basis versus geographic prior.

Can you talk about some of the client receptivity there.

Speaker Change: Yeah, and then it's really the intersection right because it's the intersection.

Raul J. Fernandez: Yeah, and it's really the intersection, right? Because it's the intersection of the talent, the managers, the delivery, at the geography, in tight coordination with the offering. And so what you're getting just from the beginning of the lifecycle is better, you know, pre-bid solutioning, better solutioning, better deployment once you win. You know, one of the things that companies can trip themselves up on, and we certainly have, is not being timely in the staffing or fully staffing of something that's won. That leads to SLAs, that's completely self-inflicted, 100% avoidable; if you plan better, you can execute better.

Speaker Change: Of the talent the managers the delivery.

Speaker Change: At the geography.

In tight coordination with the offering and so what you're getting just from the beginning of the lifecycle is better.

Speaker Change: <unk> bid solutions better solutions.

Speaker Change: Better deployment once you win.

Speaker Change: One of the things that companies.

Speaker Change: Ken Tripp themselves up on and we certainly have is not being timely in the staffing or fully staffing of something thats. One that leads to SLA, that's completely self inflicted 100% avoidable. If you planned better you execute better. So that's another example of seeing a.

Speaker Change: A lot of little things that other organizations can do and I know, we can do better that can have an impact.

Speaker Change: And that impact will be every month every quarter.

Speaker Change: And we will see that so.

Those are just some of the elements that I think our new go to market.

Raul J. Fernandez: So that's another example of seeing a lot of little things that other organizations can do, and I know we can do better, that can have an impact. You know, and that impact will be every month, every quarter. And, and we'll see that. So those are just some of the elements that I think, you know, our new approach to market really resonates with both the local geography, engaging the offering at a global level, and ultimately, the most important thing, which is the customer.

Speaker Change: Really resonates with both.

Speaker Change: The local geography, engaging the offering at a global level and ultimately the most important thing which is the customer and in my several dozen conversations.

Raul J. Fernandez: And in my, you know, several dozen conversations in the last 150 days, in talking through why we think this is a better way of serving our customers, they've been very receptive and very engaging with our customers.

Speaker Change: And the last 150 days and talking through why we think this is a better way of serving our customers, it's been very receptive and very engaging with our customers.

Speaker Change: Yes.

I appreciate the clarity thank you.

Speaker Change: Your next question comes from the line of Spencer Hanson with Susquehanna. Your line is open.

Operator: Your next question comes from the line of Spencer Hansen with Susquehanna. Your line is open. Great. Thanks for taking my question, Raul.

Spencer Hanson: Great. Thanks for taking my question.

Spencer Hanson: You had some real interesting call outs on the insurance business.

Could you just speak to any broader strategic and tactical opportunities you see you see there with the insurance business.

Speaker Change: Great Yeah as I looked at every business unit.

Raul J. Fernandez: Great. Yeah, as I looked at every business unit, you know, I think, you know, it became clear to me very early on that we had an outsized opportunity in terms of a return on effort with our insurance business units. With that opportunity in hand, we're exploring a small, select, and experienced group of partners that could help us accelerate growth with a good SaaS and recurring services mix while maintaining control of that business unit.

Spencer Hanson: I think.

Spencer Hanson: Very early on became.

Spencer Hanson: It became clear to me that we have an outsized opportunity in terms of return on effort with our insurance business unit.

Spencer Hanson: With that opportunity in hand, we're exploring a small select an experienced group of partners that can help us accelerate growth with a good SaaS and reoccurring services mix, while maintaining control of that business unit. So we are in that process right now.

Raul J. Fernandez: So we're in that process right now. It's a great foundation. It's a great set of customers, a great history with those customers, and really a critical partnership across the world in every aspect of supporting the different product lines that our customers bring to the marketplace.

Spencer Hanson: It's a great foundation, it's a great set of customers a great history with those customers and really a critical partnership across the world.

Spencer Hanson: And every aspect of supporting.

Spencer Hanson: The different product lines that are that our customers bring to the marketplace.

Speaker Change: Great. Thank you I appreciate it.

Speaker Change: Your next question comes from the line of James Faucette with Morgan Stanley. Your line is open.

Operator: Your next question comes from the line of James Faucette with Morgan Stanley. Your line is open.

James Eugene Faucette: Thank you very much I wanted to ask about.

James Eugene Faucette: Thank you very much. I wanted to ask about going to market and the sales process. I know Raul, in past conversations, you've talked a lot about improving and tightening up the message to customers so that they understand the value that DXC can deliver, etc. And it sounds like, you know, with some of the changes that you've made that the pipeline is expanding, but conversion rates are pretty stable. And it sounds like that's kind of the assumption for right now. But like, how should we think about the process and the time to start to even improve conversion rates and how that may be helpful to getting the business back to growth?

Speaker Change: Go to market and sales process on all roll off conversations you've talked a lot about <unk>.

Speaker Change: Improving and tightening up the message to customers so that they understand the value of the DXP can deliver et cetera, and it sounds like.

Speaker Change: Some of the changes that you've made that the pipeline is expanding but on conversion rates are pretty stable and it sounds like thats kind of the assumption for right now but.

Speaker Change: How should we think about.

Speaker Change: The process and the time to start to even improve conversion rates and how that may be helpful to getting the business back to growth.

Yes, I think it's a function of the fundamentals right the fundamentals of our operating under an IPO.

Raul J. Fernandez: Yeah, I think it's a function of the fundamentals, right? The fundamentals that we're operating under in ITO and the modern workplace, the new leadership, and the focus on key vertical solutions and replicability in consulting and engineering services. And also, you know, in talking to customers, I always, you know, if it's an ITO customer or a modern workplace, I always come prepared to discuss something relevant to another business unit that they may or may not be aware of.

Speaker Change: Modern workplace.

Speaker Change: The new leadership and the focus on key verticals solutions Replicable Litty.

Speaker Change: In consulting and engineering services.

Speaker Change: And.

Speaker Change: Also.

Speaker Change: In talking to customers I always if it's an IPO customer modern workplace I always come prepared to discuss something relevant and another business unit that they may or may not be aware of and frankly, it's a good surprise, but I'm surprised that many of our existing customers, where we've got <unk>.

Raul J. Fernandez: And frankly, it's a good surprise, but I'm surprised that many of our existing customers where we've got, you know, 10s, in some cases, hundreds of millions of business in one division do not know and do not appreciate the talent, the experience, that another division has. So just the more effective cross pollination cross sale, you know, in existing accounts, is something that I see as a, as an opportunity, and it's relatively low hanging.

Speaker Change: Turns in some cases hundreds of millions of business in one division do not know and do not appreciate the talent the experience that the division has so just the more effective cross pollination cross sale.

Speaker Change: In existing accounts.

Speaker Change: Something that I see as an opportunity and its relative relatively low hanging because again in my several dozen meetings I've always tried to say and pay as Youre thinking about this did you know we did this and most of the time. The answer is no I didn't know that please let's follow up so if you scale that.

Raul J. Fernandez: Because again, in my several dozen meetings, I've always tried to say, and hey, as you think about this, did you know we did this? And most of the time, the answer is, oh, no, I didn't know that, please, let's follow up. So if you scale that And then, you know, operationalize that, we are going to be able to get incremental demand from our existing base. Because in many cases, we've got a great beachhead, a great history, and a great relationship with one offering and a customer, but that should be a gateway, an effective gateway, a fast gateway to compete with the other offerings. And that mechanism, that orchestration, that collaboration, that packaging up of stories, as I've mentioned before, all of that is happening as we speak. And frankly, it wasn't happening at a good level before.

Speaker Change: And then operationalize that we're going to be able to get incremental demand from our existing base.

Speaker Change: In many cases, we've got a great beachhead, a great history, and a great relationship with one offering and a customer but that should be a gateway and effective gateway a fast gateway to compete with the other offerings and that that mechanism that orchestration that collaboration.

Speaker Change: That packaging up of stories as I've mentioned before all of that is happening as we speak and frankly it wasn't happening at a at a good level before it.

And it sounds like then for the most part I mean, you've talked about some incremental partnerships for example on the insurance side, but it sounds like you feel like you have all the.

James Eugene Faucette: And it sounds like then, for the most part, I mean, you've talked about some incremental partnerships, for example, on the insurance side, but it sounds like you feel like you have all or at least the majority of assets to be able to execute and deliver that cross-sell. Is that fair, or are there other things that you think you're going to need to add into the mix?

Speaker Change: Or at least the majority of assets to be able to execute and deliver that cross sell is that fair or are there. Other things that you think youre going to need to add into the mix.

Raul J. Fernandez: Now, we have what we need to compete. We have what we need to compete profitably and grow. We have to get some internal systems aligned. We've got to, as I mentioned earlier, de-duplication, streamline, and do some work that should have been done before, but it wasn't. But we're going to get it done with speed, and we've got to perform every day, every week, every quarter, while we transform. And transformation is restructuring, and we've got to do both quickly.

Speaker Change: No. We have we have what we need to compete we have what we need to compete profitably and grow we have to get some internal systems aligned we've got a as I mentioned earlier de dupe streamline and do some work that should have been done before and it wasn't but we're going to get it done with speed and we've got.

Speaker Change: To perform every day every week every quarter, while we transform and transformation as the restructuring and we got to do both quickly.

Speaker Change: Great. Thank you so much.

James Eugene Faucette: Great! Thank you so much.

Speaker Change: Your next question comes from the line of Bradley Clark with BMO capital markets. Your line is open.

Operator: Your next question comes from the line of Bradley Clark with BMO Capital Markets. Your line is open.

Speaker Change: Hi.

Bradley Reiss Clark: Hi, thank you. This is Brad on behalf of Keith Bachman.

Brad on for Keith Bachman.

I wanted to ask about your thoughts on Gis and market overtime, you've alluded to sort of participating in.

Speaker Change: Gis market, both very compliant.

Speaker Change: No.

Speaker Change: Single digit decline over time.

Bradley Reiss Clark: I want to ask about your thoughts on GIS and market growth over time. You've alluded to sort of participating in this broader GIS market growth rate, implying perhaps low single-digit decline over time. Is that still how you're thinking about potential growth of both the market and or GIS longer term, given the changes you'll be making to the

Speaker Change: Is that still how you're thinking about potential growth.

Speaker Change: The market Angola, Gis longer time, given the changes you'll be making to the business.

Brian: Yes, Brian I think Thats about right. We we have a very realistic view of the market.

Robert F. Del Bene: Yeah, yes, Bradley, I think that's about right. We have a very realistic view of the market. And our goal is, after rationalizing the portfolio and focusing on, you know, exiting unprofitable contracts and being selective, our goal is to get to market growth rates, which we see in the low negative single-digit range. So that's where we're pointing the business in that direction. And just to be clear, we're... We're operating at a worse level than that.

Speaker Change: <unk>.

Speaker Change: Our goal.

Is after rationalizing the portfolio and focusing on.

Speaker Change: Exiting unprofitable contracts and being selective.

Speaker Change: Our goal is to get to market growth rates, which we see in the low negative single digit range.

Speaker Change: That's where we're appointing the business.

Speaker Change: In that direction and just to be clear.

Speaker Change: Sure.

Speaker Change: We're operating at a worst level on that so the first goal is to.

Robert F. Del Bene: So the first goal is to, you know, get to a quote unquote, normal or more baseline level with other competitors. Once we get there, then obviously, the next step is to find another target and try to meet and beat it. But in the near term, it is to get in line with our competitors with regard to our growth rate.

Speaker Change: Get to quote unquote normal or.

Speaker Change: More baseline with competitors and once we get there then obviously the next step is to visit.

Speaker Change: Find another target and try to meet and beat it but in the near term.

Speaker Change: It is to get in line with.

Speaker Change: Our competitors.

Speaker Change: With regards to <unk>.

Our growth rate.

Speaker Change: Where it is today and where it should be.

Raul J. Fernandez: where it is today and where it should be as a cop.

Speaker Change: As a comp.

Speaker Change: Okay I appreciate that.

Bradley Reiss Clark: Okay, I appreciate your insight.

Speaker Change: Yeah.

Speaker Change: This.

Operator: This concludes the question and answer session. I'll turn the call over to Raul Fernandez for closing remarks.

Speaker Change: The question and answer session I'll turn the call to Raul Fernandez for closing remarks.

Raul J. Fernandez: Thank you very much for joining us. I appreciate all of the employees that come together every day to deliver great services for our customers, and I value all the investors. I definitely also appreciate the sense of frustration and urgency to get things done, and that is what I'm a hundred percent focused on. So thank you very much for coming today.

Raul J. Fernandez: Thank you very much for joining us I appreciate all of the employees that come together every day to deliver great services for our customers value all the investors I definitely also appreciate the sense of frustration and urgency to get things done and that is what I am 100.

Raul J. Fernandez: Percent focused on so thank you very much for attending today.

Raul J. Fernandez: Yes.

Operator: This concludes today's conference call. Thank you for joining us. You may now disconnect your lines.

Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect your lines.

Speaker Change: Very much for attending today.

Raul J. Fernandez: Thank you very much for attending today.

Speaker Change: This concludes today's conference call. Thank you for joining.

Operator: This concludes today's conference call. Thank you for joining us.