Q4 2025 DXC Technology Co Earnings Call
Operator: Hello and welcome to the DXC Technology 4th Quarter and Fiscal Year-End 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. 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, please press star 1 on your telephone keypad.
Hello, and welcome to the DXP technology fourth quarter and fiscal year end 'twenty 25 earnings call. All lines have been placed on mute to prevent any background 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. Please press star one on your telephone keypad.
Roger Sachs: I would now like to turn the conference over to Roger Sachs, Vice President of Investor Relations. You may begin. Thank you, operator. Good afternoon, everybody, and welcome to DXC Technology's fourth quarter and fiscal year end 2025 earnings call. We hope you had a chance to review our earnings release posted to the IR section of DXC's website.
I would now like to turn the conference over to Roger Sachs, Vice President of Investor Relations you may begin.
Roger Sachs: Thank you operator, good afternoon, everybody and welcome to the T X C Technologies' fourth quarter and fiscal year end 2025 earnings call. We hope you had a chance to review our earnings release posted to the IR section of <unk> website speaking on today's call are old Fernandez, our president and CEO.
Roger Sachs: Speaking on today's call are Raul Fernandez, our President and CEO, and Rob DelVene, our Chief Financial Officer. Let me walk you through today's agenda. First, Raul will share an overview of our results and provide an update on our strategic initiatives, and Rob will take you through our financial performance, full-year fiscal 2026 guidance, and offer some thoughts on our outlook for the first quarter. After that, both Raul and Rob will take your questions. Certain comments made during today's call are forward-looking and subject to risks and uncertainties that could cause actual results to differ materially from those expressed on the call.
Speaker Change: And Rob they'll Denny our Chief Financial Officer, Let me walk you through today's agenda first I will share an overview of our results and provide an update on our strategic initiatives and Rob will take you through our financial performance full year fiscal 2026 guidance and offer some thoughts on our outlook for the <unk>.
First quarter after that the relevant Rob will take your questions.
Speaker Change: Certain comments made during today's call are forward looking and subject to risks and uncertainties that could cause actual results to differ materially from those expressed on the call. You can find details of these risks and uncertainties in our annual report on Form 10-K, and other SEC filings, we do not commit to updating.
Roger Sachs: You can find details of these risks and uncertainties in our annual report on Form 10-K and other SEC filings. We do not commit to updating any forward-looking statements during today's call. Additionally, during this call, we will be discussing non-GAAP financial measures that we believe provide useful information to our investors. Reconciliations to the most comparable GAAP measures are included in the tables that are in today's earnings release.
Speaker Change: Any forward looking statements during today's call.
Speaker Change: Additionally, during this call we will be discussing non-GAAP financial measures that we believe provide useful information to our investors.
Conciliations to the most comparable GAAP measures.
Speaker Change: In the tables in today's earnings release, and with that let me turn the call a little bit to roll.
Raul Fernandez: And with that, let me turn the call over to Raul. Thank you, Roger. Our fourth quarter results represent another important step towards our goal of achieving sustainable, profitable revenue growth. We are gaining momentum with bookings up more than 20% resulting in a book to bill ratio of 1.2. This marks our second consecutive quarter above 1.0, bringing us to a second half bookings growth rate of 24%.
Thank you Roger.
Speaker Change: Our fourth quarter results represent another important step towards our goal of achieving sustainable profitable revenue growth.
Speaker Change: We are gaining momentum with bookings up more than 20%, resulting in a book to bill ratio of one point to.
Speaker Change: This marks our second consecutive quarter above one point out, bringing us to a second half bookings growth rate of 24%.
Raul Fernandez: Clear Indication of Traction in the Market and Building the Foundation to Drive Long-Term Top-Line Growth.
Speaker Change: Clear indication of traction in the market and building the foundation to drive long term top line growth.
Raul Fernandez: Reversing eight consecutive years of revenue decline remains the highest priority for me, our leadership team, and the entire DXC organization. The rebuilding of our operational capabilities is deeper and more extensive than I originally appreciated, but the work the team is doing is addressing structural, operational, and cultural issues that will better position us going forward. Great companies are built by teams of experienced people who share an intense passion. I am proud that we have recruited 22 great new members of our extended leadership team in the last 15 months. Each brings exceptional skills with the intensity to win.
Reversing eight consecutive years of revenue decline remains the highest priority for me and our leadership team and the entire Dx organization.
Speaker Change: The rebuilding of our operational capability is deeper and more extensive than I originally appreciated but the work. The team is doing is addressing structural operational and cultural issues that will better position us going forward.
Speaker Change: Great companies are built by teams of experienced people to share an intense passion to win.
I am proud that we have recruited 22, great new members of our extended leadership team in the last 15 months.
Speaker Change: Each brings exceptional skills with the intensity of the wind and in that time, we also rotated out 14 executives.
Raul Fernandez: And in that time, we also rotated out 14 executives.
Raul Fernandez: DXC has had significant turnover in top executive leadership since its inception, and leadership stability is absolutely critical to ensuring we give our turnaround the time, attention, and persistence it deserves. In that spirit, I'm happy to announce that Rob and I have received equity grants designed to secure our continued leadership through fiscal year 2028. These grants align our compensation with sustainable long-term shareholder value creation.
DXP has had significant turnover in top executive leadership since its inception and leadership stability is absolutely critical to ensuring we give our turnaround the time attention and persistence it deserves.
Speaker Change: That spirit I'm happy to announce that Rob and I have received equity grants designed to secure our continued leadership through fiscal year 2028.
Speaker Change: These grants align our compensation with sustainable long term shareholder value creation.
Raul Fernandez: Another area of critical importance to us. is to deepen our customer relationships and identify new opportunities to expand our pipeline. I recognized this gap in our organization and started rebuilding these capabilities from the ground up. with an eye toward operational discipline and improved My team and I have reviewed quota attainment data and segmented the existing population. Based on achievement, we developed strict quantitative performance criteria for 2025 year-end reviews with a documented process. We held CEO calls with HR business partners and sales leaders to communicate changing expectations and initiated better reporting for tracking sales performance. In preparation for our new fiscal year, we completed a quota deployment audit to ensure proper coverage for fiscal year 2020.
Speaker Change: Another area of critical importance to us.
Speaker Change: Is to deepen our customer relationships and identify new opportunities to expand our pipeline.
Speaker Change: I recognize this gap in our organization and started rebuilding these capabilities from the ground up with.
Speaker Change: And with an eye toward operational discipline and improved execution.
Speaker Change: My team and I have reviewed quota attainment data and segmented existing population based on achievement. We developed strict quantitative performance criteria for 2025 year end reviews with a documented process. We held CEO calls with HR business partners and sales leaders.
Speaker Change: To communicate changing expectations and initiated better reporting for tracking sales performance.
Speaker Change: In preparation for our new fiscal year, we completed a quota deployment audit to ensure a proper coverage for fiscal year 2026.
Raul Fernandez: further align pay incentives for our sales organization, and onboarded our first chief revenue officer. TR Newcomb, someone I've worked with in the past and who brings an incredible amount of focus, energy, and operational excellence to the role.
Speaker Change: Further aligning pay incentives for our sales organization and on boarded our first chief revenue officer Dr. NUKEM.
Speaker Change: I've worked with in the past and who brings an incredible amount of focus energy and operational excellence to the role.
Raul Fernandez: Our work has led to continuous improvement in our systems, processes and pay structures, all of which will lay an even stronger foundation. DXC has been a significant global technology player for over 40 years in four major technology cycles. Personal Computing in the 80s, Internet Computing in the 90s, Mobile and Cloud Computing in the 2000 era, and now AI in 2020 and beyond. This is a company with tremendous assets, loyal customers, deep and broad capabilities, and a global footprint with local The impact of AI is just beginning to accelerate within our clients. And AI spending is increasing year to year.
Speaker Change: Our work has led to continuous improvement in our systems processes and pay structures, all of which will lay an even stronger foundation.
Speaker Change: DXP has been a significant global technology player for over 40 years in four major technology cycles.
Speaker Change: Final computing in the eighties Internet computing in the nineties mobile and cloud computing and the 2000 era and now AI in 2020 and beyond.
This is a company with tremendous assets loyal customers deep and broad capabilities and a global footprint with local excellence.
Speaker Change: The impact of AI is just beginning to accelerate within our client base and AI spending is increasing year to year.
Raul Fernandez: This comes at a time when our customers are favoring further consolidation of their IT spending, putting DXC in a unique position to compete with the combined power of our full stack, infrastructure, and app management capability. We have built an early but strong track record of delivering real bottom line results for our customers. in key areas including modernization, technical support, development time, testing, process improvement, deployment, and maintenance by harnessing the power of AI.
Speaker Change: This comes at a time when our customers are favoring further consolidation of their it spending putting <unk> in a unique position to compete with the combined power of our full stack infrastructure and management capabilities.
Speaker Change: We have built an early but strong track record of delivering real bottom line results for our customers.
Speaker Change: Key areas, including modernization.
Technical support development time testing process improvement deployment and maintenance by harnessing the power of AI.
Raul Fernandez: While it's very early in the gen AI adoption cycle, it is clear to me that we are very well positioned to lead our clients into what I believe is the largest transformational technology opportunity of our life.
Speaker Change: While it is very early in the Gen. AI adoption cycle. It is clear to me that we are very well positioned to lead our clients into what I believe is the largest transformational technology opportunity of our lifetime.
Raul Fernandez: One of my top commitments as president and CEO is to spend as much time with our current and prospective customers as possible. During my tenure, I've met with over a hundred customers. which has equipped me to better understand how we can more effectively meet their changing needs and identify new opportunities for mutual growth.
One of my top commitments as president and CEO is to spend as much time with our current and prospective customers as possible.
During my tenure I have met with over 100 customers, which has equipped me to better understand how we can more effectively.
Speaker Change: Their changing needs and identify new opportunities for mutual growth.
Raul Fernandez: New logos of significant size have been scarce in DXC's recent history. And this is something we have been laser focused on improving. We are thrilled to share that Carnival Cruise Line just tapped DXC to manage its critical infrastructure, powering operations across the entire fleet. This was a highly competitive bid, with ISG advising throughout the selection process, and we won. We won because we are uniquely qualified. We brought the full weight of our infrastructure capabilities enterprise applications and technical muscle to the table. And DXC was chosen to be their critical part Carnival is one of the largest cruise lines in the world that hosts over six million guests a year.
New logos of significant size have been scarce <unk> recent history and this is something we have been laser focused on improving.
Speaker Change: We are thrilled to share that carnival cruise line, just tap DXP to manage its critical infrastructure.
Speaker Change: <unk> operations across the entire fleet. This was a highly competitive bid with ISG advising throughout the selection process and we won.
Speaker Change: We won because we are uniquely qualified we brought the full weight of our infrastructure capabilities.
Speaker Change: Enterprise applications and technical muscle to the table and DXP was chosen to be their critical partner.
Speaker Change: Carnival is one of the largest cruise lines in the world that hosts over 6 million guests a year Theyre bar is very high everything must run safely and flawlessly from shore to ship with great customer experiences.
Raul Fernandez: Their bar is very high. Everything must run safely and flawlessly from shore to ship with great customer experience. That's where we. we deliver complete operational So Carnival can focus on their customers, knowing every system is firing on all cylinders and running smoothly, no matter where they are.
Speaker Change: That's where we come in we deliver complete operational confidence so carnival can focus on their customers. Knowing every system is firing on all cylinders and running smoothly no matter where they are.
Raul Fernandez: This one isn't just about one client. It's a clear signal that we are a trusted partner and operator. for some of the world's largest brands.
Speaker Change: This win isn't just about one client it's a clear signal that we are a trusted partner and operator for some of the worlds largest brands.
Raul Fernandez: Creating a winning culture, which sets the foundation for us to win consistently in the marketplace, is not an overnight success. It requires experienced leaders who are able to translate vision into action with sustainable results. Since becoming CEO, I have focused on increasing the clarity, consistency, and transparency of internal communication. Embedding a startup ethos that emphasizes flat, fast, and learning focused collaboration. and ensuring that we all think in terms of generating sound financial results while driving profitable growth, not just growth for growth sake.
Speaker Change: Creating a winning culture, which sets the foundation for us to win consistently in the marketplace is not an overnight mission.
Speaker Change: It requires experienced leaders who are able to translate vision into action with sustainable results.
Speaker Change: Since becoming CEO I have focused on increasing the clarity consistency and transparency of internal communication and.
Speaker Change: Embedding a startup ethos that emphasizes flat fast and learning focused collaboration.
Speaker Change: And ensuring that we all think in terms of generating sound financial results, while driving profitable growth not just growth for growth's sake.
Raul Fernandez: Over the past year, we've made targeted investments and brought in new leaders to jumpstart innovation across all our offices. redesign and expand our AI capabilities and software platform. and streamline how we develop applications using Gen AI.
Speaker Change: Over the past year, we've made targeted investments and brought in new leaders to jumpstart innovation across all our offerings redesign and expand our AI capabilities and software platforms and streamline how we develop applications using gen AI.
Raul Fernandez: We expect fiscal 2026 to be a year of continued disciplined execution to sharpen operations and drive efficiency. Despite near-term uncertainty over tariffs, we are clear on our strategy, confident in our team, and committed to executing with the discipline required for DXC to generate sustainable and profitable growth.
Speaker Change: We expect fiscal 2026 to be a year of continued disciplined execution to sharpen operations and drive efficiencies.
Speaker Change: Despite near term uncertainty over tariffs, we are clear on our strategy confident in our team and committed to executing with the discipline required for DXP to generate sustainable and profitable growth.
Raul Fernandez: reflecting our confidence in the company's future, we will restart our share repurchase program. This underscores our commitment to delivering long term value to shareholders.
Speaker Change: Reflecting our confidence in the company's future, we'll restart our share repurchase program. This underscores our commitment to delivering long term value to shareholders.
Rob DelVene: With that, let me turn it over to Thank you, Raul, and good afternoon, everyone. Today, I'll go over our fourth quarter results, touch upon our full year performance, and then provide guidance for the full fiscal year 2026 and the first quarter.
Speaker Change: With that let me turn it over to Rob.
Rob Denny: Thank you Raul and good afternoon, everyone today I'll go over our fourth quarter results touch upon our full year performance and then provide guidance for the full fiscal year 2026 in the first quarter.
Rob DelVene: starting with the fourth chord. Total revenue of $3.2 billion was slightly above our expectations, declining 4.2% year-to-year on an organic basis. We delivered another strong quarter of bookings, up more than 20% year-to-year, resulting in a book-to-bill ratio of 1.2. Growth was broad-based across all of our offerings and markets. The adjusted EBIT margin was 7.3%, down 110 basis points year-to-year, and like revenue, slightly above our expectations. Performance was driven by investments in our employee base. improving the capability of our sales force and investments in marketing and communications and IT. Similar to the dynamics we saw during the first three quarters, the decline in revenue was offset by labor and non-labor efficiencies.
Starting with the fourth quarter total revenue of $3 2 billion was slightly above our expectations declining four 2% year to year on an organic basis, we delivered another strong quarter of bookings up more than 20% year to year, resulting in a book to bill ratio of 1.2.
Rob Denny: Growth was broad based across all of our offerings and markets.
Rob Denny: Adjusted EBIT margin was seven 3% down 110 basis points year to year and like revenue slightly above our expectations performance.
Performance was driven by investments in our employee base, improving the capability of our sales force and investments in marketing and communications and Iot.
Rob Denny: Similar to the dynamics, we saw during the first three quarters. The decline in revenue was offset by labor and non labor efficiencies.
Rob DelVene: Non-GAAP gross margin for the fourth quarter came in at 24.2%, down 40 basis points year-to-year, and non-GAAP SG&A as a percentage of revenue expanded 160 basis points year-to-year to 11.3%. Our gross margin and SG&A performance were driven by the same factors just mentioned for adjusted EBIT. As a reminder, the year-to-year changes in our non-GAAP gross margin and non-GAAP SG&A are normalized for the reclassification of certain business development costs to SG&A. Non-GAAP EPS was $0.84, down from $0.97 in the fourth quarter of last year, driven by lower adjusted EBIT, partially offset by a decline to non-controlling interest and lower net interest expense.
Rob Denny: non-GAAP gross margin for the fourth quarter came in at 24, 2% down 40 basis points year to year.
Rob Denny: non-GAAP SG&A as a percentage of revenue expanded 160 basis points year to year to 11, 3%.
Rob Denny: Our gross margin and SG&A performance were driven by the same factors just mentioned for adjusted EBIT.
Rob Denny: As a reminder of the year to year changes in our non-GAAP gross margin and non-GAAP SG&A are normalized for the reclassification of certain business development costs to SG&A.
Rob Denny: non-GAAP EPS was <unk> 84 down from 97 in the fourth quarter of last year, driven by lower adjusted EBIT, partially offset by a decline to noncontrolling interest and lower net interest expense.
Rob DelVene: Now, turning to our second GBS, which represents 51% of total revenue, was down 2.4% year-to-year organically, with a profit margin decrease of 240 basis points to 10.9%. The margin decline was driven by investments in our employees and to further build our industry-leading insurance capability. Within GBS, Consulting and Engineering Services had a second straight quarter of strong bookings up 9% year-to-year with a book-to-bill ratio of 1.22. The trailing 12-month book to bill for CES has now increased to $1.08. Last quarter, we noted an increase in larger projects in our CES pipeline, and in the fourth quarter, we converted those opportunities to book .
Rob Denny: Now turning to our segments.
Rob Denny: GBS, which represents 51% of total revenue was down two 4% year to year organically with a profit margin decrease of 240 basis points to 10, 9%.
Rob Denny: Margin decline was driven by investments in our employees and to further build our industry leading insurance capabilities.
Rob Denny: Within GBS consulting and engineering services had a second straight quarter of strong bookings up 9% year to year with a book to bill ratio of one two to the.
Rob Denny: The trailing 12 month book to Bill for CES has now increased to one point.
Rob Denny: Last quarter, we noted an increase in larger projects in our CES pipeline and then the fourth quarter, we converted those opportunities to bookings.
Rob DelVene: While these bookings have less revenue yield in the short term, they contribute to building our backlog and future revenue. The growth profile of bookings in the quarter was more heavily weighted to enterprise applications and data and AI, consistent with our growth strategy of CES. Organic revenue for CES declined 3.9% year to year, reflecting ongoing market pressures on custom application projects. Insurance and BPS organic revenue grew 2.7% year to year. Our insurance services and software business, which accounts for about 80% of the total, grew 1% year to year organic. Through the first three quarters of the year, the insurance business grew at mid-single-digit rate.
While these bookings have less revenue yield in the short term they contribute to building our backlog and future revenues.
Rob Denny: The growth profile of bookings in the quarter was more heavily weighted to enterprise applications and data and AI consistent with our growth strategy of CES orgs.
Rob Denny: Organic revenue for CES declined three 9% year to year, reflecting ongoing market pressures on custom application projects.
Rob Denny: Insurance and bps organic revenue grew two 7% year to year, our insurance services and software business, which accounts for about 80% of the total grew 1% year to year organically.
Rob Denny: Through the first three quarters of the year the insurance business grew at mid single digit rates underlying performance in the fourth quarter was similar with the growth rate largely impacted by one time items, we have confidence that the growth rate for the insurance business will continue to perform at mid single digit growth rates.
Rob DelVene: Underlying performance in the fourth quarter was similar, with the growth rate largely impacted by one-time items. We have confidence that the growth rate for the insurance business will continue to perform at mid-single-digit growth rates for fiscal 2026.
Rob Denny: For fiscal 2026.
Rob DelVene: GIS, which represents 49% of total revenue, declined 6% year-to-year organically, the second consecutive quarter of narrowing the year-to-year revenue decline. The improvement was driven by cloud offerings and workplace support service. Fourth quarter bookings for GIS grew 33% year-to-year with a book-to-bill of 1.28. It was the second consecutive quarter of strong bookings exiting the year with a 12-month book-to-bill of 1.03. Profit margin declined 50 basis points year to year to 7.0%, primarily reflecting our increased investments in our workforce. We continue to drive cost savings through optimization of software and data center costs.
Rob Denny: Gis, which represents 49% of total revenue declined 6% year to year organically.
Rob Denny: Second consecutive quarter of narrowing the year to year revenue decline.
Speaker Change: <unk> was driven by cloud offerings and workplace support services.
Speaker Change: Fourth quarter bookings for Gis grew 33% year to year with a book to Bill of one two way it was the second consecutive quarter of strong bookings.
Speaker Change: Sitting the year with a 12 month book to Bill of 1.03.
Speaker Change: Profit margin declined 50 basis points year to year to seven <unk> percent, primarily reflecting our increased investments in our workforce. We continued to drive cost savings through optimization of software and data center costs.
Rob DelVene: Now, let me briefly touch upon our full year fiscal 2025 results. Fueled by our strong performance in the second half of the year, full-year bookings increased 7% year-to-year, significantly better than the fiscal 2024 performance. If booking's up 24% in the second half of the year, the book-to-bill ratio is 1.28 in the second half and 1.03 for the full year. Total revenue was $12.9 billion, down 4.6% year-to-year on an organic basis, with GBS declining 1% and GIS down 8.2%. Adjusted EBIT margin expanded 50 basis points year to year to 7.9%, driven by the execution of our cost reduction initiatives, which we accomplished with significantly less restructuring than originally estimated.
Speaker Change: Now, let me briefly touch upon our full year fiscal 2025 results.
Speaker Change: Fueled by our strong performance in the second half of the year full year bookings increased 7% year to year significantly better than the fiscal 2020 for performance.
Speaker Change: With bookings up 24% in the second half of the year. The book to Bill ratio was one to wait in the second half and 1.03 for the full year.
Speaker Change: Total revenue was $12 9 billion down four 6% year to year on an organic basis with GBS declining, 1% and Gis down eight 2%.
Speaker Change: Adjusted EBIT margin expanded 50 basis points year to year to seven 9% driven by the execution of our cost reduction initiatives, which we accomplished with significantly less restructuring than originally estimated.
Rob DelVene: Non-gap diluted EPS was $3.43, up 11% year-to-year, primarily driven by a lower share count and a higher adjusted EBIT.
Speaker Change: non-GAAP diluted EPS was $3 43.
Speaker Change: Up 11% year to year, primarily driven by a lower share count and a higher adjusted EBIT.
Rob DelVene: Now turning to our cash flow and balance For a full year fiscal 2025, we generated $687 million of free cash flow, above our most recent expectation of $625 million. Largely driven by lower restructuring spend and better working capital manag- In the year, we executed on our strategy of minimizing new financial lease origination. funding equipment purchases primarily through capital expenditures, which is a negative impact of free cash flow, but reduces our debt level. As a result, capital expenditures increased year-to-year. Without this change in approach, free cash flow would have increased year-to-year and CapEx would have declined.
Speaker Change: Now turning to our cash flow and balance sheet.
Speaker Change: For our full year fiscal 2025, we generated $687 million of free cash flow above our most recent expectation of $625 million, largely driven by lower restructuring spend and better working capital management.
Speaker Change: In the year, we executed on our strategy of minimizing new financial lease originations and funding equipment purchases, primarily through capital expenditures, which is a negative impact of free cash flow, but reduces our debt levels.
Speaker Change: As a result capital expenditures increased year to year.
Speaker Change: Without this change in approach free cash flow would have increased year to year and capex would've declined.
Rob DelVene: Total debt at fiscal year-end 2025 was equal to $3.9 billion, down $213 million year-to-year, including $298 million of capital lease and asset financing paydown. Total cash on our balance sheet increased by approximately $570 million year-to-year to $1.8 billion. This was driven by our free cash flow generation and asset sale proceeds of approximately $190 million. As a result, we lowered net debt by $785 million to approximately $2.1 billion. As a reminder, we do not include asset sales in our reported free cash flow.
Speaker Change: Total debt at fiscal year end 2025 was equal to $3 9 billion down $213 million year to year, including $298 million of capital lease and asset financing paydowns.
Speaker Change: Total cash on our balance sheet increased by approximately $570 million year to year to $1 8 billion.
Speaker Change: This was driven by our free cash flow generation and asset sale proceeds of approximately $190 million.
Speaker Change: As a result, we lowered net debt by $785 million to approximately $2 1 billion.
Speaker Change: As a reminder, we do not include asset sales and our reported free cash flow.
Rob DelVene: At the beginning of fiscal 2025, our financial priorities centered around strengthening our balance sheet, creating financial flexibility, and reducing excess capacity with the help of restructuring spending. We accomplish these objectives while spending less than originally planned on restructuring. With our improved financial position in fiscal 2026, we will focus on the following financial priorities. continue to invest in our business to accomplish our top priority, driving sustained profitable revenue We will continue to reduce outstanding debt by minimizing financial lease originations and paying down a portion of our senior notes maturing in January of 2026. And finally, we plan to return $150 million to shareholders in fiscal 2026 in the form of share repurchase.
Speaker Change: At the beginning of fiscal 2025, our financial priorities centered around strengthening our balance sheet, creating financial flexibility and reducing excess capacity with the help of restructuring spending.
Speaker Change: We accomplished these objectives, while spending less than originally planned on restructuring.
Speaker Change: With our improved financial position in fiscal 2026, who will focus on the following financial priorities.
Speaker Change: We'll continue to invest in our business to accomplish our top priority driving sustained profitable revenue growth.
Speaker Change: We will continue to reduce outstanding debt by minimizing financial lease originations and paying down a portion of our senior notes maturing in January of 2026.
Speaker Change: Finally, we plan to return $150 million to shareholders in fiscal 2026 in the form of share repurchases.
Rob DelVene: Now let me provide you with our full year fiscal 2026 guidance. We expect total organic revenue to decline 3% to 5% GVS is projected to be down low single digits with consistent performance during the year, reflecting the larger, longer duration deals booked in the second half of fiscal 25 and increased economic uncertainty, particularly with shorter-term project-based services. In GIS, we're projecting organic revenue to decline mid-single digits, which reflects an improvement to last year's rate of decline. We expect adjusted EBIT margin to be between 7 to 8%, which reflects our intent to continue to build our revenue growth capabilities and invest in the business.
Speaker Change: Now let me provide you with our full year fiscal 2026 guidance.
Speaker Change: We expect total organic revenue declined 3% to 5%.
Speaker Change: GBS is projected to be down low single digits with consistent performance during the year, reflecting a larger longer duration deals booked in the second half of fiscal 'twenty, five and increased economic uncertainty, particularly with shorter term project based services.
And Gis, we're projecting organic revenue to decline mid single digits, which reflects an improvement to last year's rate of decline.
Speaker Change: We expect adjusted EBIT margin to be between 7% to 8%, which reflects our intent to continue to build our revenue growth capabilities and invest in the business.
Rob DelVene: With this revenue and adjusted EBIT margin guidance, we expect non-GAAP diluted EPS to be between $2.75 and $3.25. We expect free cash flow for the fiscal year 2026 of about $600 million, reflecting our EBIT guidance and about $30 million of increased restructuring spending as we complete the execution actions planned in fiscal 25. Consistent with prior years, pre-cash flow generation will be strongest in the second half of the fiscal year.
Speaker Change: With this revenue and adjusted EBIT margin guidance, we expect non-GAAP diluted EPS to be between $2 75, and $3 25.
Speaker Change: We expect free cash flow for the fiscal year 2026 of about $600 million, reflecting our EBIT guidance and about $30 million of increased restructuring spending as we complete the execution actions planned in fiscal 'twenty five.
Speaker Change: Consistent with prior years free cash flow generation will be strongest in the second half of the fiscal year.
Rob DelVene: And now for the first quarter of fiscal 2026, we expect total organic revenue to decline between 4.0 and 5.5%. We anticipate adjusted EBIT margin to be in the range of 6% to 7%, a function of lower revenue and first quarter seasonality, with margins improving throughout the second half of the year. And finally, we expect non-GAAP diluted EPS of 55 to 65 cents.
Speaker Change: And now for the first quarter of fiscal 2026, we expect total organic revenue to decline between 4.0 and five 5%.
Speaker Change: We anticipate adjusted EBIT margin to be in the range of 6% to 7% a function of lower revenue in first quarter seasonality with margins improving throughout the second half of the year and finally, we expect non-GAAP diluted EPS of <unk> 55 to 65.
Rob DelVene: Before wrapping up, I want to highlight that beginning in the first quarter, we will report our financial results under a new segment structure that better aligns with how we now run the business. We will report three sec- Insurance Services and Software. Consulting and Engineering Services, and GIS, which will include Cloud NITO, Modern Workplace, Security, and Horizontal BPO. We plan to provide restated historical results under our new reporting segments prior to the release of our fiscal first quarter results.
Speaker Change: Before wrapping up I want to highlight that beginning in the first quarter. We will report our financial results under our new segment structure that better aligns with how we now run the business. We will report three segments insurance services and software.
Speaker Change: Salting and engineering services, and Gis, which will include cloud and IPO modern workplace security and horizontal BPL.
Speaker Change: We plan to provide restated historical results under our new reporting segments prior to the release of our fiscal first quarter results.
Roger Sachs: And with that, let me turn the call back over to Roger. Thank you, Rob.
Roger Sachs: And with that let me turn the call back over to Roger.
Speaker Change: Thank you Rob we now to open the call to your questions. Operator can you. Please provide the instructions.
Operator: We now like to open the call for your questions.
Operator: Operator, can you please provide the instructions? Yes, 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. Please ensure that your phone is not on mute when called upon. Thank you.
Roger Sachs: Yes. Thank you.
Speaker Change: I'd 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, please ensure that your phone is not on mute when called upon thank you.
Bryan Bergin: Your first question comes from Bryan Bergin with TD Cowan. Your line is open. Hey, guys. Good afternoon. Thanks.
Speaker Change: Your first question comes from Bryan Bergin with TV Cowen Your line is open.
Bryan Bergin: Hey, guys. Good afternoon. Thanks.
Raul Fernandez: I wanted to just kick off on demand and the broader question about kind of what you saw as you moved through the quarter and then post-quarter, April into May. And if you can comment on kind of what you've been seeing by industry as it relates to, you know, the ones that are more product-based that would have direct implications for tariff dynamics versus those that are not. So any comments or as you've seen a demand evolve, particularly if you've seen anything in the most recent week change, just given, I guess, better directionality and geopolitics.
Bryan Bergin: Wanted to just kick off on demand and the broader question about kind of what you saw as you move through the quarter and then post quarter April into May and if you can comment on kind of what you've been seeing by industry as it relates to the ones that are more product base that would have direct implications for tariff dynamics versus those that are not so is there any.
Bryan Bergin: Commentary is as you've seen in demand evolve, particularly if you've seen anything in the in the most recent week change just given I guess better directionality and geopolitics.
Raul Fernandez: Sure, it's Raul here. Let me start. Look, we've had really good progress and good wins at the mega level, $100 million plus, and at the strategic level, the $5 to $100 million. The $5 million and under is the category that's highly discretionary and easier for corporations to turn on and turn off. There are some segments where there has been some softness since early, early April. And those are, I'm going to hand it Yes, as we look at the pipeline, consumer industries and retail, the pipeline has dropped, particularly in project-based services. The so it's been concentrated, the drops have been concentrated there.
Sure. Its Raul here, let me start look we've had really good progress.
Bryan Bergin: And good wins at the Mega level of $100 million, plus and at the strategic level, the $5 million to $100 million.
Bryan Bergin: $5 million and under is a category thats highly discretionary and easier for corporations to turn on and turn off and there are some segments, where there has been some softness.
Bryan Bergin: Since early early April.
Bryan Bergin: <unk>.
Russ: Those are I'm going to hand, it over to Russ now yes.
Bryan Bergin: Hey, Brian as we look at the look at the pipeline consumer industries and retail.
Bryan Bergin: Pipeline has dropped particularly in project based services.
Bryan Bergin: So it's been concentrated drops have been concentrated there.
Raul Fernandez: And a little bit in also in the media and entertainment industry, which is not obvious why, but it has in those two industries, the pipelines gone down a bit. The, the rest of the industries are all strong, but banking, capital markets, manufacturing, public sector, insurance, are all, you know, really robust for us. The other thing I will mention, I'll just second is that project-based services pipelines are solid, meaning to blow 5 million, but, but really robust in the, we call them the strategic segments between 5 and 100 million, which are more complex, a little longer in duration.
Bryan Bergin: And a little bit and also in.
Bryan Bergin: Okay.
Bryan Bergin: The media and entertainment industry at which was not obvious why but it hasnt those two industries the pipeline has gone down a bit.
Bryan Bergin: The rest of the industries are all strong banking capital markets manufacturing public sector insurance are all really robust for us.
Bryan Bergin: The other thing we're all mentioned I'll just second is that project based services pipelines are solid.
Bryan Bergin: Meaning to below $5 million.
Bryan Bergin: But.
Bryan Bergin: It's really robust.
Bryan Bergin: We call them the <unk>.
Bryan Bergin: Strategic segments between 500 million, which are more complex a little longer in duration.
Raul Fernandez: But, but the pipelines there are, are really solid. Okay, okay, I appreciate that.
Bryan Bergin: But the pipelines there are really solid.
Bryan Bergin: Okay. Okay I appreciate that and then for my follow up on free cash flow. So the 600 million target can you help can you bridge from fiscal 2005 levels to this 26 target and also speak to kind of free cash flow post finance lease expectations as you go through the year.
Rob DelVene: And then for my follow up on free cash flow, so the 600 million target, can you help? Can you bridge from fiscal 25 levels to this 26 target and also speak to kind of free cash flow post finance lease expectations as you go through the year? Yes, the the bridge going year to year into 26 is simply the 25 result adjusted for the after tax EBIT guidance that we gave and the increase in restructuring by about $30 million. So that, you know, that implies the rest of the dynamics of free cash flow are essentially flat in our in our guide.
Bryan Bergin: Yes.
Bryan Bergin: The bridge going year to year into 26 is.
Bryan Bergin: Simply the 25 result, adjusted for the after tax EBIT guidance that we gave.
Bryan Bergin: And the increase in restructuring by about $30 million.
Bryan Bergin: So that implies the rest of the dynamics of free cash flow or essentially flat in our in our guide.
Rob DelVene: And the chart the chart we showed in the earnings presentation is meant to demonstrate the strength of our underlying free cash flow and the consistency of performance. And while the number the headline number for free cash flow was down year to year 24 to 25, when you take into consideration the lease originations on a capital lease financing that we have done in the past, and factor that into the equation, if we had in the past, instead of financing those capital purchases, run them through capital and free cash flow, it shows that we're improving free cash flow consistently over the last over the last two years.
Bryan Bergin: And the chart. The chart we showed in the earnings presentation is meant to demonstrate the strength of our underlying free cash flow and the consistency of performance.
While the number the headline number for free cash flow was down year to year 'twenty four to 'twenty five.
Bryan Bergin: And you take into consideration.
Bryan Bergin: <unk> lease originations capital lease financing that we have done in the past.
Bryan Bergin: And factor that into the equation, if we had in the past instead of financing those capital purchases.
Bryan Bergin: And then through capital and free cash flow, which shows that we're improving free cash flow consistently over the last over the last two years so strong underlying.
Rob DelVene: So strong underlying, you know, very good underpinning of free cash flow performance for the company. Okay, I know the capital finance lease piece was like just under around 300 million for this past fiscal year. Where do you expect that to be comparable? Or do you still see that? We see those because the originations were far lower in fiscal 25. That amount is going to drop year to year.
Bryan Bergin: Very good underpinning of free cash flow performance for the company.
Bryan Bergin: Okay I know.
Bryan Bergin: The capital Finance lease piece was like just under around 300 million for this past fiscal year, where do you expect that to be comparable or do you still see that.
Bryan Bergin: We see those paying because the originations were far lower in fiscal 'twenty five that amount is going to drop year to year.
Rob DelVene: Okay, so yeah, that's going to decline nicely in 26.
Bryan Bergin: Okay.
Bryan Bergin: Yes.
Bryan Bergin: Declined nicely in 'twenty six.
Jonathan Lee: The next question comes from Jonathan Lee with Guggenheim Partners. Your line is open. Great, thanks for taking my questions.
Speaker Change: The next question comes from Jonathan Lee with Guggenheim Partners. Your line is open.
Jonathan Lee: Great. Thanks for taking my questions.
Jonathan Lee: First, can you help decompose what's contemplated in your outlook at both the high end and the low end of the range from a macroeconomic perspective? Yes, hi, Jonathan. So we've in let's take the first quarter revenue, revenue outlook of minus four to minus five and a half in that, in that range, we've left room at the low end for uncertainty. So we traditionally have given a one point range, one quarter out, we widened it to a point and a half to give us that room at the low end. The so we don't, you know, we don't see that exposure sitting here today, but we left room for it.
Jonathan Lee: First can you help decompose what's contemplated in your outlook at both the high end and the low end of the range from a macroeconomic perspective.
Speaker Change: Yes, hi, Jonathan so.
Speaker Change: Let's take the first quarter revenue revenue outlook of minus four to minus five and a half.
Speaker Change: In that.
Speaker Change: In that range, we've left room at the low end for uncertainty.
Speaker Change: So we traditionally have given a one point range one quarter out we widened it to a point and a half to give us that room at the low end.
So we don't we don't see that exposure sitting here today, but we left room for it.
Jonathan Lee: And we gave a traditional two point range on the full year 26. But we did we did account for similar to first quarter, we did account for within that range, some exposure at the low end if conditions deteriorate. So we've taken the uncertainty, we think we've taken the uncertainty into account in both the first quarter and full year, guys.
Speaker Change: And we gave a traditional two point range on the full year 'twenty six but we did we did account for similar to first quarter. We did account for within that range. Some exposure at the low end if conditions deteriorate.
Speaker Change: So we've taken the uncertainty we think we've taken the uncertainty into account in both the first quarter and full year guys.
Jonathan Lee: Appreciate that color.
Speaker Change: I appreciate that color and just as a follow up how would you characterize the pricing environment and sort of what you've seen through the quarter and how that may compare to what you saw last year.
Rob DelVene: And just as a follow up, how would you characterize the pricing environment and sort of what you've seen through the quarter and how that may compare to what you saw last year? Yeah, the for us, the pricing environment has been has been very stable. And when I say that for for us in particular, at for mega deals, we've, we've made improvements as we have renewals, you know, coming due. So that environment has been favorable for us. In project based services, everything below the mega deal, both strategic projects in the five to $100 million category and the below five categories have both been very stable for us.
Speaker Change: Yes.
For us the pricing environment has been has been very stable.
When I say that for us in particular.
Speaker Change: For Mega deals we've.
Speaker Change: Made improvements as we have renewals coming due.
Speaker Change: So that environment has been favorable for us.
And project based services everything below the Mega deal.
Speaker Change: Strategic projects in the 500 to 100 million.
Speaker Change: $1 million category in the below five categories have both been very stable for us.
Rob DelVene: So that's actually been good for us.
Speaker Change: So that's.
Speaker Change: That's actually been good for us.
Rob DelVene: Thanks for that, Rob.
Speaker Change: Thanks for that Rob.
James Faucette: The next question comes from James Faucette with Morgan Stanley, your line is open. I just want to ask structurally Gen AI, Spen How's that being reflected in your P&L? Now, and where are you seeing that show up? And I guess maybe more importantly, how fast are these projects growing? What's their relative size? Yeah, look, the the spend from major corporations in the last two years have been in the smaller side. So it's the 5 million and under. And they've been pilots to prove out proof points, meaning, you know, faster, better development time, faster, better documentation, etc.
Speaker Change: The next question comes from James Faucette with Morgan Stanley. Your line is open.
James Faucette: Yes, I just wanted to ask.
Speaker Change: Structurally Gen AI spend.
Speaker Change: Or generally I spend generally hasnt been increasingly how is that being reflected in your P&L.
Speaker Change: Now in and where are you seeing that show up and I guess, maybe more importantly, how fast are these projects growing in and what's the relative size compared to your typical engagements.
Speaker Change: Yes look.
Speaker Change: The spend for major corporations in the last two years have been in the smaller side.
Speaker Change: $5 million and under and they've been pilots to prove out proof points, meaning faster better development time faster better documentation.
Speaker Change: Et cetera, and we see across every industry a considerable amount of pilot work and that's an area that I'm Super excited about because we've got a great.
Raul Fernandez: And we see across every industry, a considerable amount of pilot work. And that's an area that I'm super excited about, because we've got a great set of building blocks that we're putting in place with regards to replicability, with regards to scale of our solutions. And that's key for us in terms of taking the AI opportunity for our clients in different industries, and being able to bring them real results, real case studies that have ROI behind them, and having them quickly adopt. So I'm super excited about the demand on that front. We are still very, very early in the in the cycle.
Speaker Change: Set of building blocks that we're putting in place with regards to replica ability with regards to scale of our solutions and Thats key for us in terms of taking the opportunity the opportunity for our clients in different industries and being able to bring them.
Speaker Change: Real results real case studies that have ROI behind them and having them quickly adopt so I'm super excited about the demand on that front. We are still very very early in the cycle, but we are very very very well positioned for.
Raul Fernandez: But we are very, very, very well positioned for several reasons. And let me just add two more. One of the clear considerations for companies, as they're as they're looking to engage any part of their business functions in into any sort of gen AI work is to look at their data readiness, their infrastructure readiness, and their people and process readiness. And we are positioned to have incredible insight there. So I feel very, very strong about our early returns on that front with our customers, and the foundation we're building, because that foundation will be part of our growth in the future.
Speaker Change: For several reasons and let me just add two more.
Speaker Change: One of the clear.
Speaker Change: Considerations for companies as they are as they are looking to engage any part of their business functions into any sort of journey II work is to look at their data readiness their infrastructure readiness and there are people on process readiness.
Speaker Change: And we are uniquely positioned to have incredible insight there. So I feel very very strong about our early returns on that front with our customers and the foundation. We are building because that foundation will be part of our growth in the future.
Raul Fernandez: Got to appreciate that. And, you know, it seems like you're seeing increasing bookings, obviously, the time to convert that to takes a little while and that makes sense. But I wonder if you can talk about how the duration of the new contracts you're signing compares to what you've done in the past. and how that may be improving, if at all, your revenue. I think number one, and I'll turn it over to Rob in a second, is we're building a bigger, more qualified pipeline through the fundamental restructuring and rebuilding of our sales operation. I went into a lot of detail in the remarks to begin with, around that, because it gives you some insight as to the level of foundational work that was needed in that particular area.
Speaker Change: Got it appreciate that and it.
Speaker Change: It seems like Youre seeing increasing bookings obviously.
Speaker Change: The time to convert that to revenue.
Speaker Change: It takes a little while and that makes sense, but I'm wondering if you could talk about how the duration of the new contracts, you're signing compares to what you've done in the past.
Speaker Change: And how that may be improving if at all your revenue visibility.
Speaker Change: I think number one and I'll turn it over to Rob. The second is we're building a bigger more qualified pipeline through the fundamental restructuring and rebuilding of our sales operation I went into a lot of detail.
Speaker Change: In the remarks to begin with around that because it gives you some insight as to the level of foundational work that was needed in that particular area and now with a great new leader that I've worked with in the past year Newcombe, taking that and operationalized and scaling it is key for us and we've got the building block.
Raul Fernandez: And now with a great new leader that I've worked with in the past here at Newcomb, taking that and operationalizing it and scaling it is key for us. And we've got the building blocks in place now. And frankly, if you think about the type of work that we've done in sales, we're doing similar work across every business function. And now with our leadership team in place, we've got not just the foundation set in the right direction, but leaders that can continue to grow.
Speaker Change: <unk> in place now and frankly, if you think about the type of work that we've done in sales. We're doing similar work across every business function and now with our leadership team in.
Speaker Change: In place we've got not just the foundation.
Speaker Change: In the right direction, but leaders that can continue to grow.
Rob DelVene: Yeah, James, it's Rob. Let me just throw one more comment. So in our CES business where the pipeline has been very good, and the bookings were very strong in the strategic project category, that means between five and $100 million. The those projects are typically more complex, they're longer in duration. So we are experiencing within the CES business that that longer duration entering into our entering into our backlog and revenue projections going forward. So that's reflected in our guide. So that became more pronounced in the third quarter and into the fourth quarters where it was, you know, really evident to us.
James Faucette: Yes James.
James Faucette: James It's Ron let me just throw in one more comment so in our CES business, where the pipeline.
James Faucette: Has been very good and the bookings were very strong in the strategic project category that means between $5 $100 million.
James Faucette: The.
James Faucette: <unk> are typically more complex there are longer in duration. So we are experiencing within the CES business.
James Faucette: That that longer duration entering into or enter into our backlog and revenue projections going forward. So thats reflected in our guide.
James Faucette: So that became more pronounced in the third quarter and into the fourth quarters, where it was really evident to us. So if we continue to see and hopefully we will.
Rob DelVene: So if we continue to see, and hopefully we will, the bookings in that category increase because they're strategic enterprise apps related as opposed to custom apps. It'll be really good for the business, but the conversion into revenue is extended a bit versus traditional custom apps, smaller projects.
James Faucette: The bookings in that category increase because they are strategic enterprise apps related as opposed to custom apps that'll be really good for the business, but the yield turn it.
James Faucette: The conversion into revenue is extended a bit versus traditional custom Mac, perhaps smaller projects.
Yes.
James Faucette: Yeah.
Keith Bachman: The next question comes from Keith Bachman of BMO. Your line is open. Yeah, thank you very much.
Speaker Change: The next question comes from Keith Bachman of BMO. Your line is open.
Speaker Change: Yes. Thank you very much my question follows that is more broadly.
Keith Bachman: My question follows that is, more broadly, what are the conditions in order to generate revenue growth? And so I think investors a little bit disappointed with the, you know, the fiscal year 26 guidance.
Speaker Change: What are the conditions in order to generate revenue growth and so I think investors a little bit disappointed with.
Speaker Change: The fiscal year 2006 guidance.
Raul Fernandez: Call it negative 4 at the midpoint, you talked about maybe duration is impacting that conversion of what appears to be solid bookings into revenues, but what longer term message Do you want to leave with investors about what would cause the business to turn to a positive number? and don't know if you want to venture this far but when would that be? So, the foundation elements there are both quantitative and qualitative. On the quantitative side, we spoke a little bit about the progress we've made in bookings, the trailing book to bill, and also the increase in size and quality of our pipeline.
Speaker Change: Call it negative for at the midpoint you talked about maybe duration has is impacting that conversion of what appears to be solid bookings into revenues, but how what.
Speaker Change: What longer term message.
Speaker Change: Want to leave with investors about.
Speaker Change: It would cause the business to do.
Speaker Change: Turned to a positive number.
Speaker Change: And don't know if you want to venture this far but when would that be.
Speaker Change: Sure. So the foundation elements there both quantitative and qualitative on the quantitative side, we spoke a little bit about the progress we've made in bookings the trailing book to Bill and also the increase in size and quality of our pipeline, that's the size and quality of our pipeline and also the effectiveness.
Raul Fernandez: That's key. The size and quality of our pipeline and also the effectiveness of our ability to win those are all part of execution and having better sales and marketing capabilities, and that's both in terms of human capital and actual materials that we're bringing to market are a key to that. So, for me, it falls into two areas. Is the foundation in place, meaning the stories in place, the solutioning in place, the bid and proposals in place, the people to lead those? Do we get the opportunities? Absolutely get the opportunities. Can we execute? Yes. Can we execute at scale?
Speaker Change: Our ability to win those are all part of that of execution and having a better sales and marketing capabilities and that's both in terms of human capital and actual materials that we're bringing to market are a key to that so for me. It falls into two areas are the is the foundation.
Speaker Change: <unk> in place, meaning the story is in place the solution in place the bidding proposals in place the people to lead does do we get the opportunities absolutely get the opportunities can we execute yes can we execute at scale.
Raul Fernandez: That's the key in terms of timing. How quickly can we get to scale? And again, the rebuild was pretty substantial. We've got that in place and we've got key leaders in place as we go throughout the year.
Speaker Change: The key in terms of timing how quickly can we get to scale and again the rebuild was pretty substantial we've got we've got that in place and we've got key leaders in place as we go throughout the year I think I feel that we will have better insight as to when we'll see the turn.
Raul Fernandez: I feel that we'll have better insight as to when we'll see the turn.
Okay, maybe my follow on then is.
Raul Fernandez: Okay, maybe my follow on then is, do you think the underlying markets you serve are growing in your seeding share? Or do you think the markets that you serve, not the broader IT services, are contracting and you're doing better, so to speak?
Speaker Change: Do you think the underlying markets you serve are growing.
Speaker Change: In your ceding share or do you think the markets that you serve not the broader it services are contracting.
Speaker Change: Youre doing better so to speak and I'd like to hear within that context, maybe you could flush out a little bit on.
Raul Fernandez: And I'd like to hear within that context, maybe you could flesh out a little bit on The Carnival Cruise Line deal about why do you think that why do you think that you won that deal and and how important was price in the ultimate conclusion. Yeah, great, great question. We have more than enough opportunities in every vertical that we serve in every geography that we're in. And AI is not an AI adoption isn't segmented by geographies or verticals. It's happening across across every industry and every company. So the opportunity is there. That's that's a full stop.
Speaker Change: The Carnival cruise line deal about.
Speaker Change: Why do you think that why do you think that you won that deal.
Speaker Change: How important was price.
Speaker Change: In the ultimate conclusion.
Speaker Change: Yes, great Great question.
Speaker Change: We have more than enough opportunities in every vertical that we serve in every geography that we're in AI is not an AI adoption and then segmented by geographies or vertical that's happening across across every industry and every company. So the opportunity is there.
That's a full stop our ability to win is executing on the big and small things and one of the one of the things that im reflecting on which has been great with regards to carnival and that I was in one of the very early pitches with the team.
Raul Fernandez: Our ability to win is executing on the big and small things. And one of the one of the things that I'm reflecting on, which has been great with regards to Carnival, is that I was in one of the very early pitches with the team. New teammates that had just joined us were part of the bid and proposal and solutioning team. And we competed against 12 others. And it was a very, very good competition. At the end, we won across the board on all the key metrics. And but it was on capability, it was on being a proven partner, it was on having the foundation, technical foundation, leadership, partnership to take them to another level.
Speaker Change: New teammates that have just joined US we're part of the bid and proposal and solutions team and we competed against 12, others and it was a very very good competition at the end.
Speaker Change: We won across the board on all the key metrics and but it wasn't down on price. It was on capability. It was on being a proven partner. It was on having the foundation Technical Foundation leadership partnership to take them to another level and we were able to clearly convey that in terms.
Raul Fernandez: And we were able to clearly convey that, in terms of what we bring to the table. And that was a great proof point and a great win.
Speaker Change: What we bring to the table and that was a great proof point and a great win the key here is to scale that over and over again demand is there.
Raul Fernandez: The key here is to scale that over and over again. Demand is there. We have presence, we have customers, we just have to scale the the winning emotions that led to a great, great new partnership with Carnival. Thank you very much.
Speaker Change: We have presence we have customers, we just have to scale the low winning emotions that led to a great great new partnership with Carnival.
Speaker Change: Okay. Thank you very much I'll cede the floor.
Raul Fernandez: I'll cede the floor.
Darren Peller: The next question comes from Darren Peller with Wolf Research.
Speaker Change: The next question comes from Darrin Peller with Wolfe Research Your line is open.
Paul Obrecht: Your line is open. Hi, thanks.
Speaker Change: Hi, Thanks. This is Paul <unk> on for Darrin, so none of them or a few quarters into the revamp. The go to market approach can you just touch on what the company's cross sell motion looks like today and.
Paul Obrecht: This is Paul Obrecht, on for Darrin.
Raul Fernandez: So now that we're a few quarters into the revamped go-to-market approach, can you touch on what the company's cross-sell motion looks like today? And, you know, as you're improving engagement with clients and helping build their understanding of all of DXC's offerings, are you seeing incremental demand from GIS clients for the GBS offerings? Yes, we've recently begun to help to hold client engagement insight forums where we bring multiple clients across different industries together to really talk about the current challenges, the opportunities there are with AI, the proof points that we've got with real case studies and real return on investments.
Speaker Change: Proving engagement with clients and helping build their understanding of all of these offerings are you seeing incremental demand from Gis clients for the GBS offerings.
Speaker Change: Yes, we've recently begun to hold client engagement insight forums, where we bring.
Speaker Change: Multiple clients across different industries together to really talk about the current challenges the opportunities there are with AI and the proof points that we've got with real case studies and real return on investments and they've been great to participate in and have been in a couple of them and what it's clear what's clear is that when customers appreciate the full breadth.
Raul Fernandez: And they've been great to participate in. I've been in a couple of them. And what it's clear, what's clear is that when customers appreciate the full breadth of capabilities that we have from the infrastructure side, all the way to the application and AI and custom development side, we are one of only a handful of players that both have the end to end capabilities, and also can deliver it globally with with local excellence. So we are very, very well positioned to continue to build on that.
Speaker Change: The capabilities that we have from the infrastructure side, all the way to the application and AI in the custom.
Speaker Change: Custom development side, we are one of only a handful of players that both have the end to end capabilities and also can deliver globally with local excellence. So we are very very well positioned.
Speaker Change: Two to continue to.
Raul Fernandez: We have to just get the motions in place to scale solutioning, to scale pre marketing, to target opportunities better within our existing customer base, and then turn that into revenue quicker. Great, that's helpful.
Speaker Change: Build on that.
Speaker Change: We have to just get the motions in place to scale solutions to scale pre marketing.
Speaker Change: Target opportunity is better within our existing customer base.
Speaker Change: Turn that into revenue quicker.
Speaker Change: Great. That's helpful and then Rob if we look at the margin guide for 7% to 8% for the year can you just walk us through the bridge from the fiscal 'twenty five margin to this range and then you're guiding to six to seven for the first quarter. So just curious on the drivers for expanding margins throughout the year.
Rob DelVene: And then Rob, if we look at the margin guide for seven to 8% for the year, can you just walk us through the bridge from the fiscal 25 margin to this range, and then you're going to six to seven for the first quarter. So just curious on the drivers for expanding margins throughout the year. Yes, the So from the mid to the midpoint, the drop is about 40 basis points. It's a midpoint of the guide on a year-to-year basis, and it is a combination of the revenue declines offset by cost, you know, discipline cost management, which we demonstrated we are capable of achieving in fiscal 25.
Speaker Change: Yes.
Speaker Change: So that so from the mid <unk> to the mid point see the drop is about 40 basis points.
Speaker Change: The midpoint of the guide on the year to year basis.
Speaker Change: And it is a combination of.
Speaker Change: Of the revenue declines offset.
Speaker Change: By cost discipline cost management, which we demonstrated we are capable of achieving in fiscal 'twenty five so we're going to repeat that.
Rob DelVene: So we're going to repeat that to offset any revenue declines. And then we have other cost reductions in excess of that to cover investments for the most part, but we have left room in our guide for an increase in investments year-to-year. And bottom line, that really accounts at the midpoint for the decline in margin, is leaving room for investments to help us continue to progress on this growth journey. So that is the number one factor in the margins at the midpoint. And again, we'll like we did, and as we did in 25, we'll monitor that, you know, throughout the year and invest appropriately, and make sure we're getting the yield we need to from the investment.
Speaker Change: To offset any any revenue declines.
Speaker Change: And then we.
Speaker Change: Have other other cost reductions in excess of that.
Two to cover investments.
Speaker Change: For the most part, but we have left room in our guide for an increase in investments year to year in bottom line Thats really it.
Speaker Change: Really accounts at the midpoint for the decline in margin is leaving room for investments to help us continue to progress on this growth journey.
Speaker Change: So that is that is the number one factor in the margins at the midpoint.
Speaker Change: And again like we did and as we did in 'twenty five we'll monitor that throughout the year and invest appropriately and make sure we're getting the yield we need to from the investments.
Operator: Great, that's a helpful caller. Thank you. Once again, if you have a question, it is star one on your telephone keypad.
Speaker Change: Great. That's helpful color. Thank you.
Yeah.
Speaker Change: Once again, if you have a question it is star one on your telephone keypad.
Tyler Dupont: Your next question comes from Jason Kupferberg with Bank of America. Your line is open. Hi, good afternoon Raul and Rob.
Speaker Change: Your next question comes from Jason Kupferberg with Bank of America. Your line is open.
Tyler: Hi, Good afternoon, everyone. Rob This is Tyler on for Jason Thanks for taking the questions. This evening.
Tyler Dupont: This is Tyler DuPont on for Jason. Thanks for taking the question. Raul, I wanted to start by asking about the current leadership structure. You mentioned you've onboarded 22, give or take, new members, if I heard you correctly, to the extended leadership team since you've been at the helm of DXC. You know, when the new three-year employment agreement was interesting to see this evening, sort of at this point, what gives you the confidence that you have all the building blocks in place to improve the second derivative and growth rate and ultimately end up in positive Yeah, look, one of the things that gives me confidence is that these great leaders that I've worked with in other companies have voted with their feet, they've joined us, they see what I see, they see an opportunity to take an incredible company that has incredible customers and solutions that have been developed.
Speaker Change: Well I wanted to start by asking about the current leadership structure, you mentioned you've on boarded.
Tyler: Two give or take new members.
Tyler: If I heard you correctly to the extended leadership team since you've been at the helm of <unk> now and then.
Tyler: New three year employment agreement was interesting to see this evening. So at this point what gives you the confidence that you have all the building blocks in place to improve the second derivative in growth rate and ultimately end up in positive territory.
Tyler: Yes, one of the things that gives me confidence is that these great leaders that I've worked with and other companies have voted with their feet and they joined us they see what I see they see an opportunity to take an incredible company that has incredible customers and solutions that have been deployed and use that as a launch pad to really.
Raul Fernandez: use that as a launchpad to really take advantage of the AI opportunity that's in front of us. And so I'm very encouraged that, you know, we've been able to get a caliber of new talent in. And, again, some like TR are just in for a month or two, some have been here for a year. But in total, I've been here 15 months. I think that the team that we've got in place has both the experience and the capacity from an execution standpoint to take what we have been fixing and building and scale it.
Take advantage of the opportunity that's in front of us and so I'm very encouraged that we've been able to get the caliber of new talent in and again, some like TR just in for a month or two some have been here for a year.
Tyler: In total I've been here 15 months and I think that the team that we've got in place.
Tyler: The experience and.
The capacity from an execution standpoint to <unk>.
Tyler: Take what we have been.
Tyler: <unk> been fixing and building and scaling.
Raul Fernandez: Okay, great. And so I guess as a follow-up, you know, I mean, there have been several bookings-related questions asked tonight, and I thought I might be able to pile on and ask one more myself. But from a slightly different lens, you know, it was encouraging to see book-to-bill on an LTM basis above 1 for both JBS and GIS. I think that's the first time. ended June of 23 that we've seen that, but just given we've seen a decent amount of these contracts moving from pipeline into bookings and then ultimately into revenue, just from a sustainability standpoint, what's the level of visibility that DXC has into being able to backfill that pipeline to make sure that, you know, one.
Tyler: Okay great.
Tyler: And so I guess theres a follow up.
Speaker Change: There have been several bookings related questions asked Tonight, and I thought it might be able to pile on and ask one more myself.
Tyler: But from a slightly different lens.
Tyler: It was encouraging to see book to Bill on a LTM basis above one for both GBS and Gis I think that's the first time since June of 'twenty three that we've seen that.
Tyler: Given we've seen a decent amount of these contracts moving from pipeline into bookings and then ultimately to revenue.
Speaker Change: From a sustainability standpoint, what's the level of visibility that DXP has into being able to backfill that pipeline to make sure that.
Speaker Change: The bookings convert to revenue, where we're still on strong footing.
Raul Fernandez: Convert to Revenue, we're still on strong. So we have the visibility begins with the opportunity pipeline, and we have a pipeline that supports sustainability, and we have confidence, you know, that pipeline will progress, turn into actual bookings, and then convert to revenue. So, you know, it all starts with an opportunity identification pipeline and progression. And we've, you know, we've improved performance in all areas throughout 25. And we expect to continue to both improve that performance and and progress the current pipeline, which is good and continue to add more opportunities as we progress throughout the year.
Speaker Change: So we have.
Speaker Change: The visibility begins with the opportunity pipeline.
And and.
Speaker Change: We have a pipeline that supports sustainability.
Speaker Change: I have confidence that pipeline progress turn into actual bookings and then and then convert to revenue. So it all starts with opportunity identification pipeline them progression.
Speaker Change: And we've we've improved performance in all areas throughout 'twenty, five and we expect to continue to.
Speaker Change: Both improve that performance and.
Speaker Change: And progress the current pipeline, which is good and continue to add more opportunities as we progress throughout the year and we've talked a lot about.
Raul Fernandez: And we've talked a lot about the pipeline, the opportunities, both quantitatively increasing, but also just from a qualitative standpoint, from a renewal standpoint, we're also more successful in renewing existing contracts on terms that both the customer and we are happy with. So that's another factor in terms of being able to build a solid foundation to growth. But it really does begin and end with a better, bigger qualified pipeline, and then getting that timed correctly so that we can convert that to revenue and building it quarter over quarter to a point where mathematically you can see a trajectory that's positive.
Speaker Change: The pipeline and the opportunity is both quantitatively increasing but also just from a qualitative standpoint.
Speaker Change: From a renewal standpoint, we're also more successful in renewing existing contracts on terms that both the customer and we are happy with so that's another factor in terms of being able to build a solid foundation to growth, but it really does begin and end with a with a better bigger qualified pipeline and then getting that time.
Speaker Change: Correctly, so that we can convert that to revenue and building it quarter over quarter to a point, where mathematically you can see a trajectory that's positive.
Tyler Dupont: Great. Well, thank you both.
Great well. Thank you Bob that's very helpful.
Jamie Friedman: That's very The next question comes from Jamie Friedman with Susquehanna. Your line is open. Hi, good evening. Thanks for taking my question. I wanted to ask about insurance. So I Are you, did I hear you say that you're going to break that out as a segment in more detail?
Speaker Change: The next question comes from Jamie Friedman with Susquehanna. Your line is open.
Speaker Change: Okay.
Jamie Friedman: Hi, good evening, Thanks for taking my question.
Jamie Friedman: Wanted to ask about insurance.
Hi.
Jamie Friedman: Are you did I hear you say that youre going to break that out as a segment in more detail I was wondering if thats the case and so I heard you wrong I'm, sorry, and then if so what the rationale for that that's the first one on insurance and also on insurance could you just revisit we were in the revenue recognition I remember there was some journey between the like term and license.
Rob DelVene: I was wondering if that's the case, if I heard you wrong, I'm sorry, and then if so, what the rationale for that? That's the first one on insurance and also on insurance. Could you just revisit where you are in the revenue recognition? I remember there was some journey between the like term and license and subscription. Is that still part of the plan? Is that underway? Where are we in that process?
Jamie Friedman: Subscription is that still part of the plan is that underway where are we in that process. Thank you.
Rob DelVene: Thank you. So Jamie, we are going to break out, you did hear that correctly, we're going to break out insurance as a separate segment beginning in 26. And the rationale for that is simply it's a reflection of how we manage the business. And we, the three segments that we are going to be disclosing in 26 are the management system we use internally, right, and that's So that that's that's the rationale. The Your last question, I think it's related to in the past, we've discussed progressing and, and developing our SAS business within within insurance. And that is a that is a longer term strategy that we have.
Rob Denny: So Jeremy it's Rob.
Rob Denny: We are going to break out you did hear that correctly, we're going to break out insurance as a separate segment beginning in 2006.
Rob Denny: And the rationale for that is simply a reflection of how we manage the business.
Rob Denny: And we.
Rob Denny: The three segments that we are going to be disclosing in 'twenty six or the management system, we use internally.
Rob Denny: So that's the rationale.
<unk>.
Rob Denny: Sure.
Rob Denny: Your last question I think it's related to in the past we have discussed progressing.
Rob Denny: And developing our SaaS business within within insurance.
Rob Denny: And that is a that is.
Rob Denny: Our longer term strategy that we have.
Rob DelVene: We've started down that road.
Rob DelVene: And as we progress down that journey, we'll we'll think about the appropriate time to break that out separately as we as we report insurance as a separate segment. Okay, thanks for that, Rob.
Rob Denny: We've started down that road.
Rob Denny: And as we progress down that journey will think about the appropriate time to break that out separately as we report insurance as a separate segment.
Speaker Change: Okay. Thanks for that Rob and then for my follow up.
Raul Fernandez: And then for my follow up, by the way, I like a lot of these new slides, the slide six on the Innovation Cycles is helpful. I guess, you know, Bigger picture, Raul, do you feel like if you look at this continuum, you know, where you put internet, mobile, cloud, AI, I'm just looking at slide six, is this, like some of these technologies I think are, can be deflationary for the service provider, some create more advantage. How do you feel about your hand and your view of the technology estate relative to what's going on in tech innovation right now?
Speaker Change: Legal entities, new slides to slide six.
Speaker Change: Technology innovation cycles, it's helpful I guess.
Speaker Change: No.
Speaker Change: Bigger picture ROE do you feel like.
Speaker Change: If you look at discontinue them.
Speaker Change: Put internet mobile cloud AI I'm, just looking at slide six is this.
Speaker Change: Some of these technologies I think are.
Speaker Change: It can be deflationary for the service provider, so and create more advantage how do you feel about your hand in your view of the technologies.
Speaker Change: Relative to what's going on in Tech innovation right now.
Raul Fernandez: Yeah, no, I feel great. I think that I spoke about it earlier, our insight, in terms of our customers, with regards to their infrastructure, their people, their processes, their data readiness, that that insight is incredibly valuable. And it makes us best positioned to help them take on journeys on in the AI front, that are both targeted, and meaningful, and have a real ROI. So for us, it's marrying the existing knowledge and relationships that we have, with the proven capabilities that we've deployed across multiple industries that have real return on investment, and cross selling that more effectively.
Speaker Change: Yes, no I feel great.
Speaker Change: That I just spoke about it earlier or insight in terms of our customers.
Speaker Change: With regards to their infrastructure their people their processes their data readiness.
Speaker Change: Insight is incredibly valuable and it makes us best positioned to help them take on journeys in the AI fraud that are both targeted and meaningful and I have a real ROI. So for us it's marrying the existing knowledge and relationships that we have with the <unk>.
Speaker Change: And capabilities that we have.
Speaker Change: <unk> deployed across multiple industries that have real return on investment.
Speaker Change: And <unk>.
Speaker Change: Cross selling that more effectively and frankly, just being better at communicating the real results that we're seeing but we are very very well positioned if you look at that if that set of.
Raul Fernandez: And frankly, just being better at communicating the real results that we're seeing. But we are very, very well positioned, if you look at that, if that set of, of technology super cycles that you were referring to, you know, I started my career after the PC super cycle and the internet super cycle. And, and I believe that this actually has more disruption, and more capability to really change how companies operate globally. And we're in a great position to be their partner.
Speaker Change: Technology Super cycles that youre, referring to.
Speaker Change: Started my career after the PCC per cycle, and the Internet Super cycle, and I believe that this actually has more disruption and more capability to really change how companies operate globally and we are in a great position to be their partner.
Operator: Okay, thank you both. I'll drop... Again, if you have a question, it is star one on your telephone keypad.
Speaker Change: Okay. Thank you both I jump back into queue.
Again, if you have a question it is star one on your telephone keypad.
Rod Bourgeois: Your next question comes from Rod Bourgeois with Deep Dive Equity Research. Your line is open. Thank you. Hey, and I just want to hone in on one topic, and that is the investment plans going forward. So I just want to ask about your priorities for investing in new solution capabilities in order to drive that more positive growth. If you could give us any sense also of the magnitude of investments that you're planning over the next year relative to your current investment pace. You said a little bit about that in the margin bridge, but it might be helpful to say more.
Speaker Change: Your next question comes from Rod bourgeois with deep dive equity research. Your line is open.
Rod Bourgeois: Thank you, Hey, and I just wanted to hone in on one topic and that is the investment plans going forward. So I just wanted to ask about your priorities for investing in new solution capabilities in order to drive that more positive growth.
Rod Bourgeois: You could give us any sense also of the magnitude of investment that you're planning over the next year relative to your current investment pace, you said, a little bit about that in the margin bridge, but it might be helpful to say more but the main question really is what are the specific solution areas that you're investing most in.
Raul Fernandez: But the main question really is what are the specific solution areas that you're investing most in to drive the profitable and positive growth? Yeah, it's replicability of large capabilities that are repeatable capabilities that our clients are asking for. And we're in the process of putting together great frameworks that we're going to be rolling out again, as part of the new team that's come in place, to take the the point work that we've got going around the globe, package that up, create a comprehensive story, and be able to both not just cross pollinate internally, but use that as an ability to generate what I believe is going to be great sales opportunities for us, because we have proven ROI proof points.
Rod Bourgeois: To drive the profitable and positive growth. Thank you.
Rod Bourgeois: Yes, it's replica billety.
Rod Bourgeois: Large capabilities that didn't repeatable capabilities that our clients are asking for.
Rod Bourgeois: And we're in the process of putting together.
Rod Bourgeois: Right frameworks that we're going to be rolling out again as part of the new team that's come in place.
Rod Bourgeois: To take the work that we've got going around the globe package that up create a comprehensive story and be able to both not just cross pollinate internally, but use that as an ability to generate what I believe is going to be great sales opportunities for us because we have proven ROI proof points.
Rob DelVene: And we've got the other factor, which is industry knowledge. And probably most importantly, we've got a great client base. So for us, it's internal optimization, internal collaboration, internal knowledge sharing, and then external packaging. I mean, that those are the those are the key ingredients. And I'd just add to what Raul said, that we're We are also investing in sales and marketing. So that's the other area where we're building our capabilities. And that's part of the plans for next year as well, for 26 as well. And Rod, if you just look at the guide and the bridge I gave, I think that's a pretty good indication of the magnitude of the year-to-year investment profile.
<unk>.
Rod Bourgeois: And we've got the other factor, which is industry industry knowledge and probably most importantly, we've got a great client base so far.
Rod Bourgeois: For us it's internal optimization internal collaboration internal knowledge sharing and then external packaging I mean that those are the those are the key ingredients.
Rod Bourgeois: I'd just add to what <unk> said.
We are also investing in sales and marketing.
Rod Bourgeois: So that's the other area, where we're building our capabilities. That's part of the plans for next year as well for 2000 <unk> as well.
Rod Bourgeois: And.
Rod Bourgeois: Brian If you just look at the guide and the bridge I gave I think thats, a pretty good indication of the magnitude of the year to year investment profile.
Rod Bourgeois: Okay.
Okay.
Raul Fernandez: Are there specific market segments that you want to major in or deal types like core modernization or, I mean, I get the investment in sales and marketing and, you know, working on the pipeline in a more rigorous way, but in terms of how you go to market and differentiate yourself, are there certain solution or market categories that you really want to major in? Thanks. We're seeing a lot of traction in financial services. And we're seeing a lot of replicability there in terms of of deployments that we have and deployments that we can scale and bring to our customers and in new ways of consuming them.
Speaker Change: Are there specific market segments that you want to major in our deal types like core modernization or I mean.
Rod Bourgeois: The investment in sales and marketing.
Rod Bourgeois: Working on the pipeline and a more rigorous way, but in terms of how you go to market and differentiate yourself are there certain dilution of our market categories that you really want a major and thanks.
Rod Bourgeois: A lot of traction in financial services, and we're seeing a lot of replicable city there in terms of of.
Rod Bourgeois: Deployments that we have and deployments that we can scale and bring to our customers in new ways of consuming them.
Raul Fernandez: So that that is one probably was the biggest industry that both we have a footprint in, and we've got some great ROI models, and that we're beginning to share with a larger client base. Okay, thank you.
Rod Bourgeois: So that is one probably was the biggest industry. Thus we have a footprint in and we've got some great ROI models and that we're beginning to share with a larger client base.
Rod Bourgeois: Okay. Thank you.
Rod Bourgeois: Thanks, Alright.
Roger Sachs: This concludes the question and answer session.
Rod Bourgeois: This concludes the question and answer session I'll turn the call to Roger Sachs for closing remarks.
Roger Sachs: I'll turn the call to Roger Sachs for closing remarks. Thank you, operator, and thank you, everybody, for joining us today, and we look forward to speaking with you again next quarter.
Roger Sachs: Thank you operator, and thank you everybody for joining us today, and we look forward to speaking with you again next quarter.
Operator: This concludes today's conference call. Thank you for joining. You may now disconnect. Please wait.
Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Operator: The conference will begin shortly.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].