DXC Technology Company - Earnings Call - Q4 2025

Executive Summary

• Q4 FY25 revenue $3.17B (-6.4% YoY; -4.2% organic) and non-GAAP EPS $0.84; revenue and EPS modestly exceeded S&P Global consensus, while adjusted EBIT margin contracted YoY to 7.3% as DXC invested in sales/marketing and people. Consensus: EPS $0.77 vs actual $0.84; revenue $3.13B vs $3.17B (S&P Global)*.
• Bookings momentum continued: book-to-bill 1.22x (vs 0.94x LY) with bookings up >20% YoY; second straight quarter >1.0x and second-half book-to-bill 1.28x, building future revenue visibility.
• FY26 outlook calls for another transition year: organic revenue -3% to -5%, adjusted EBIT margin 7%–8%, non-GAAP EPS $2.75–$3.25, FCF ~$600M, and Q1 FY26 revenue -4% to -5.5% organic with 6%–7% adj. EBIT margin.
• Strategic narrative: leadership deepening go-to-market rebuild (22 senior hires), re-segmenting reporting in FY26, restarting share repurchases ($150M plan), highlighting early GenAI wins (e.g., Carnival infrastructure win; AI Workbench with Ferrovial) as catalysts for medium-term inflection.

What Went Well and What Went Wrong

• What Went Well

  • Bookings strength and quality: second consecutive quarter >20% bookings growth; book-to-bill 1.22x, with GIS bookings +33% YoY and CES pipeline skewing to longer, strategic enterprise apps and data/AI engagements.
  • Disciplined cost execution: full-year adj. EBIT margin expanded 50 bps to 7.9% and FY25 FCF $687M (above ~$625M raised guide), deleveraging net debt by ~$785M YoY; Q4 non-GAAP gross margin 24.2% despite investments.
  • Strategic wins and AI positioning: Carnival chose DXC to manage critical infrastructure after a 12-vendor competition on capability (not price), and AI Workbench is scaling at Ferrovial with 30+ AI agents deployed.

• What Went Wrong

  • Topline pressure and margin mix: Q4 revenue -6.4% YoY; adj. EBIT margin 7.3% vs 8.4% LY, reflecting higher SG&A (11.3%) and investment in sales/people; non-GAAP EPS down 13.4% YoY to $0.84.
  • Segment profitability down: GBS margin 10.9% (↓240 bps YoY) on insurance investments; GIS margin 7.0% (↓50 bps YoY) as workforce investments continued.
  • Macro/pipeline softness in discretionary projects: signs of weaker demand in consumer/retail and media/entertainment projects < $5M; FY26 guide implies organic decline (-3% to -5%) and Q1 seasonality.

Transcript

Operator (participant)

I would now like to turn the conference over to Roger Sachs, Vice President of Investor Relations. You may begin.

Roger Sachs (VP of Investor Relations)

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. Speaking on today's call are Raul Fernandez, our President and CEO, and Rob Del Bene, 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.

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. With that, let me turn the call over to Raul.

Raul Fernandez (President and CEO)

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%, a clear indication of traction in the market and building the foundation to drive long-term top-line growth. 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 to win.

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, and in that time, we also rotated out 14 executives. 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. Another area of critical importance to us is to deepen our customer relationships and identify new opportunities to expand our pipeline.

I recognize this gap in our organization and started rebuilding these capabilities from the ground up with an eye toward operational discipline and improved execution. 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 2026, further aligned 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.

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 1980s, internet computing in the 1990s, 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 excellence. The impact of AI is just beginning to accelerate within our client base, and AI spending is increasing year-to-year. 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 capabilities.

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. 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 lifetime. 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 100 customers, which has equipped me to better understand how we can more effectively meet their changing needs and identify new opportunities for mutual growth.

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 partner. Carnival is one of the largest cruise lines in the world that hosts over 6 million guests a year. Their bar is very high. Everything must run safely and flawlessly from shore to ship with great customer experiences. 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. This win is not just about one client. It is a clear signal that we are a trusted partner and operator for some of the world's largest brands. Creating a winning culture, which sets the foundation for us to win consistently in the marketplace, is not an overnight mission. 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's sake.

Over the past year, we've made targeted investments and brought in new leaders to jump-start innovation across all our offerings, redesign and expand our AI capabilities and software platforms, and streamline how we develop applications using Gen AI. We expect fiscal 2026 to be a year of continued disciplined execution to sharpen operations and drive efficiencies. 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. 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. With that, let me turn it over to Rob.

Rob Del Bene (CFO)

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. Now, starting with the fourth quarter, 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. 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. 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.

Now, turning to our segments, 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 capabilities. 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 bookings. While these bookings have less revenue yield in the short term, they contribute to building our backlog and future revenues.

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 organically. 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 for fiscal 2026. 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 services. 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. 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. With bookings up 24% in the second half of the year, the book-to-bill ratio was 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. Non-GAAP diluted EPS was $3.43, up 11% year-to-year, primarily driven by a lower share count and a higher adjusted EBIT. Now, turning to our cash flow and balance sheet. 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.

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 to free cash flow but reduces our debt levels. 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. 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. Total cash in 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. 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 accomplished 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. We will continue to invest in our business to accomplish our top priority, driving sustained profitable revenue growth. 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. Finally, we plan to return $150 million to shareholders in fiscal 2026 in the form of share repurchases. Now, let me provide you with our full-year fiscal 2026 guidance.

We expect total organic revenue to decline 3% to 5%. GBS 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 2025 and increased economic uncertainty, particularly with shorter-term project-based services. In GIS, we are 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%-8%, which reflects our intent to continue to build our revenue growth capabilities and invest in the business. 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 2025. Consistent with prior years, free cash flow generation will be strongest in the second half of the fiscal year. 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%-7%, a function of lower revenue and first quarter seasonality, with margins improving throughout the second half of the year. Finally, we expect non-GAAP diluted EPS of $0.55-$0.65.

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 segments: insurance services and software, consulting and engineering services, and GIS, which will include cloud and ITO, 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. With that, let me turn the call back over to Roger.

Roger Sachs (VP of Investor Relations)

Thank you, Rob. We now get to open the call for your questions. Operator, can you please provide the instructions?

Operator (participant)

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. Your first question comes from Bryan Bergin with TD Cowen. Your line is open.

Bryan Bergin (Managing Director)

Hey, guys. Good afternoon. Thanks. 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. If you can comment on kind of what you've been seeing by industry as it relates to the ones that are more product-based that would have direct implications for tariff dynamics versus those that are not. Any commentary as you've seen demand evolve, particularly if you've seen anything in the most recent week change, just given, I guess, better directionality and then geopolitics?

Raul Fernandez (President and CEO)

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 million-$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 April. Those are—I'm going to hand it over to Rob now.

Rob Del Bene (CFO)

Yeah. Hi, Bryan. As we look at the pipeline, consumer industries and retail, the pipeline has dropped, particularly in project-based services. It has been concentrated, the drops have been concentrated there and a little bit also in the media and entertainment industry, which is not obvious why, but it has in those two industries. The pipeline's gone down a bit.

The rest of the industries are all strong, but banking, capital markets, manufacturing, public sector, insurance are all really robust for us. The other thing I will mention, I'll just second, is that project-based services pipelines are solid, meaning the below $5 million, but really robust in the—we call them the strategic segments between $5 million and $100 million, which are more complex, a little longer in duration. The pipelines there are really solid.

Bryan Bergin (Managing Director)

Okay. Okay. I appreciate that. For my follow-up on free cash flow, so the $600 million target, can you bridge from fiscal 2025 levels to this 2026 target and also speak to kind of free cash flow post-finance lease expectations as you go through the year?

Rob Del Bene (CFO)

Yes.

The bridge going year-to-year into 2026 is simply the 2025 result adjusted for the after-tax EBIT guidance that we gave and the increase in restructuring by about $30 million. That implies the rest of the dynamics of free cash flow are essentially flat in our guide. 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 headline number for free cash flow was down year-to-year 2024 to 2025, when you take into consideration the lease originations on 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 two years. Strong underlying, very good underpinning of free cash flow performance for the company.

Bryan Bergin (Managing Director)

Okay. I know the capital finance lease piece was just under around $300 million for this past fiscal year. Do you expect that to be comparable, or do you still see that being lower for 2025?

Rob Del Bene (CFO)

We see those payments because the originations were far lower in fiscal 2025. That amount is going to drop year-to-year.

Yeah, that's going to decline nicely in 2026.

Operator (participant)

The next question comes from Jonathan Lee with Guggenheim Partners. Your line is open.

Jonathan Lee (Managing Director and Equity Research Analyst)

Great. Thanks for taking my questions. 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?

Rob Del Bene (CFO)

Yes. Hi, Jonathan. Let's take the first quarter revenue outlook of -4% to -5.5%. In that range, we've left room at the low end for uncertainty. 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. We do not see that exposure sitting here today, but we left room for it.

We gave a traditional two-point range on the full year 2026, but we did account for, similar to first quarter, we did account for within that range some exposure at the low end if conditions deteriorate. We think we have taken the uncertainty into account in both the first quarter and full year guides.

Jonathan Lee (Managing Director and Equity Research Analyst)

Appreciate that color. Just as a follow-up, how would you characterize the pricing environment and sort of what you have seen through the quarter and how that may compare to what you saw last year?

Rob Del Bene (CFO)

Yeah. For us, the pricing environment has been very stable. When I say that, for us in particular, for mega deals, we have made improvements as we have renewals coming due. That environment has been favorable for us.

In project-based services, everything below the mega deal, both strategic projects in the $5 million- $100 million category and the below $5 million categories have both been very stable for us. That has actually been good for us.

Jonathan Lee (Managing Director and Equity Research Analyst)

Thanks for that, Rob.

Operator (participant)

The next question comes from James Faucette with Morgan Stanley. Your line is open.

James Faucette (Managing Director)

Yeah. I just want to ask on structurally, your GenAI spend, or GenAI spend generally has been increasing. How's that being reflected in your P&L now, and where are you seeing that show up? I guess maybe more importantly, how fast are these projects growing, and what's their relative size compared to your typical engagements?

Raul Fernandez (President and CEO)

Yeah. Look, the spend for major corporations in the last two years has been on the smaller side. It is the $5 million and under.

They've been pilots to prove out proof points, meaning faster, better development time, faster, better documentation, etc. We see across every industry a considerable amount of pilot work. 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. That's key for us in terms of taking the opportunity, 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. 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 several reasons. Let me just add two more.

One of the clear considerations for companies as they're looking to engage any part of their business functions into any sort of GenAI work is to look at their data readiness, their infrastructure readiness, and their people and process readiness. We are uniquely positioned to have incredible insight there. 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.

James Faucette (Managing Director)

Got it. Appreciate that. It seems like you're seeing increasing bookings. Obviously, the time to convert that to revenue takes a little while, and that makes sense. I'm wondering 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 visibility.

Raul Fernandez (President and CEO)

I think number one, 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. Now with a great new leader that I've worked with in the past, TR Newcomb, taking that and operationalizing it and scaling it is key for us. We've got the building blocks in place now. Frankly, if you think about the type of work that we've done in sales, we're doing similar work across every business function.

Now with our leadership team in place, we have not just the foundation set in the right direction, but leaders that can continue to grow.

Rob Del Bene (CFO)

Yeah. James, it is Rob. Let me just throw in one more comment. 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 $5 million and $100 million. Those projects are typically more complex. They are longer in duration. We are experiencing within the CES business that longer duration entering into our backlog and revenue projections going forward. That is reflected in our guide. That became more pronounced in the third quarter and into the fourth quarters where it was really evident to us.

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. The conversion into revenue is extended a bit versus traditional custom apps, smaller projects.

Operator (participant)

The next question comes from Keith Bachman of BMO. Your line is open.

Keith Bacman (Senior Research Analyst)

Yeah. Thank you very much. My question follows that is, more broadly, what are the conditions in order to generate revenue growth? I think investors are a little bit disappointed with the fiscal year 2026 guidance, call it -4 at the midpoint. You talked about maybe duration is impacting that conversion of what appears to be solid bookings into revenues. What longer-term message do you want to leave with investors about what would cause the business to turn to a positive number?

do not know if you want to venture this far, but when would that be?

Raul Fernandez (President and CEO)

Sure. The foundation elements there are both quantitative and qualitative. On the quantitative side, we spoke a little bit about the progress we have made in bookings, the trailing book-to-bill, and also the increase in size and quality of our pipeline. That is 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. That is both in terms of human capital and actual materials that we are bringing to market, which are key to that. For me, it falls into two areas. Is the foundation in place, meaning the story is 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? That is the key in terms of timing. How quickly can we get to scale? Again, the rebuild was pretty substantial. We have got that in place, and we have got key leaders in place. As we go throughout the year, I feel that we will have better insight as to when we will see the turn.

Keith Bacman (Senior Research Analyst)

Okay. Maybe my follow-on then is, do you think the underlying markets you serve are growing and you are seeding share, or do you think the markets that you serve, not the broader IT services, are contracting and you are doing better, so to speak?

I'd like to hear within that context, maybe you could flush out a little bit on the Carnival Cruise Line deal about why do you think that you won that deal and how important was price in the ultimate conclusion.

Raul Fernandez (President and CEO)

Yeah. Great question. We have more than enough opportunities in every vertical that we serve and every geography that we're in. AI adoption isn't segmented by geographies or verticals. It's happening across every industry and every company. The opportunity is there. That's a full stop. Our ability to win is executing on the big and small things. 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. 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, but it was not 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. We were able to clearly convey that in terms of what we bring to the table. That was a great proof point and a great win. 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 winning emotions that led to a great, great new partnership with Carnival.

Keith Bacman (Senior Research Analyst)

Thank you very much.

I'll cede the floor.

Operator (participant)

The next question comes from Darrin Peller with Wolfe Research. Your line is open.

Paul Obrecht (Equity Research Associate)

Hi. Thanks. This is Paul Obrecht for Darrin. Now that we're a few quarters into the revamped go-to-market approach, can you just touch on what the company's cross-sale motion looks like today? 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?

Raul Fernandez (President and CEO)

Yes. We've recently begun 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. They've been great to participate in, and I've been in a couple of them.

What is 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 the 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 local excellence. We are very, very well positioned to continue to build on that. 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 turn that into revenue quicker.

Paul Obrecht (Equity Research Associate)

Great. That is helpful. Rob, if we look at the margin guide for 7%-8% for the year, can you just walk us through the bridge from the fiscal 2025 margin to this range? You are guiding to 6%-7% for the first quarter.

Just curious on the drivers for expanding margins throughout the year.

Rob Del Bene (CFO)

Yes. From the mid to the midpoint, the drop is about 40 basis points to midpoint of the guide on year-to-year basis. It is a combination of the revenue declines offset by disciplined cost management, which we demonstrated we are capable of achieving in fiscal 2025. We are going to repeat that to offset any revenue declines. We have other cost reductions in excess of that to cover investments for the most part. We have left room in our guide for an increase in investments year-to-year. Bottom line, that really accounts at the midpoint for the decline in margin, leaving room for investments to help us continue to progress on this growth journey. That is the number one factor in the margins at the midpoint.

Again, like we did as we did in 2025, we'll monitor that throughout the year and invest appropriately and make sure we're getting the yield we need to from the investments.

Paul Obrecht (Equity Research Associate)

Great. That's helpful, Coller. Thank you.

Operator (participant)

Once again, if you have a question, it is star one on your telephone keypad. Your next question comes from Jason Kupferberg with Bank of America. Your line is open.

Tyler DuPont (Equity Research Associate)

Hi. Good afternoon, Raul and Rob. This is Tyler DuPont on for Jason. Thanks for taking the question this evening. 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. And the new three-year employment agreement was interesting to see this evening.

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 territory?

Raul Fernandez (President and CEO)

Yeah. 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 and 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 deployed and use that as a launchpad to really take advantage of the AI opportunity that's in front of us. I am very encouraged that we've been able to get the caliber of new talent in. Again, some like TR are just in for a month or two. Some have been here for a year.

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.

Tyler DuPont (Equity Research Associate)

Okay. Great. I guess as a follow-up, 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. From a slightly different lens, it was encouraging to see book to bill on an LTM basis above one for both GBS and GIS. I think that's the first time since June of 2023 that we've seen that.

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 once the bookings convert to revenue, we're still on strong footing?

Rob Del Bene (CFO)

The visibility begins with the opportunity pipeline. We have a pipeline that supports sustainability. We have confidence that pipeline will progress, turn into actual bookings, and then convert to revenue. It all starts with an opportunity identification, pipeline, and progression. We've improved performance in all areas throughout 2025. We expect to continue to both improve that performance and progress the current pipeline, which is good, and continue to add more opportunities as we progress throughout the year.

Raul Fernandez (President and CEO)

We have talked a lot about the pipeline, the opportunities, both quantitatively increasing, but also just from a qualitative standpoint, from a renewal standpoint, we are also more successful in renewing existing contracts on terms that both the customer and we are happy with. That is another factor in terms of being able to build a solid foundation to growth. 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 is positive.

Tyler DuPont (Equity Research Associate)

Great. Thank you both. That is very helpful.

Operator (participant)

The next question comes from Jamie Friedman with Susquehanna. Your line is open.

Jamie Friedman (Senior FinTech and IT Services Research Analyst)

Hi. Good evening. Thanks for taking my question. I wanted to ask about insurance.

Did I hear you say that you're going to break that out as a segment in more detail? I was wondering if that's the case. If I heard you wrong, I'm sorry. If so, what is the rationale for that? That's the first one on insurance. Also on insurance, could you just revisit where you are in the revenue recognition? I remember there was some journey between the term and license and subscription. Is that still part of the plan? Is that underway? Where are we in that process? Thank you.

Rob Del Bene (CFO)

Jamie, Rob, we are going to break out. You did hear that correctly. We're going to break out insurance as a separate segment beginning in 2026. The rationale for that is simply it's a reflection of how we manage the business.

The three segments that we are going to be disclosing in 2026 are the management system we use internally, right? That is the rationale. Your last question, I think it's related to in the past, we've discussed progressing and developing our SaaS business within insurance. That is a longer-term strategy that we have. We've started down that road. As we progress down that journey, we'll think about the appropriate time to break that out separately as we report insurance as a separate segment.

Jamie Friedman (Senior FinTech and IT Services Research Analyst)

Okay. Thanks for that, Rob. For my follow-up, by the way, I like a lot of these new slides, the slide six on the technology innovation cycles is helpful.

I guess bigger picture, Raul, do you feel like if you look at this continuum where you put internet, mobile, cloud, AI, I'm just looking at slide six, some of these technologies I think 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?

Raul Fernandez (President and CEO)

Yeah. No, I feel great. I think that, and 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 insight is incredibly valuable. It makes us best positioned to help them take on journeys in the AI front that are both targeted and meaningful and have a real ROI.

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 and, frankly, just being better at communicating the real results that we're seeing. We are very, very well positioned. If you look at that set of technology supercycles that you were referring to, I started my career after the PC supercycle and the internet supercycle. I believe that this actually has more disruption and more capability to really change how companies operate globally. We are in a great position to be their partner.

Jamie Friedman (Senior FinTech and IT Services Research Analyst)

Okay. Thank you both. I'll drop back into queue.

Operator (participant)

Again, if you have a question, it is star one on your telephone keypad. Your next question comes from Rod Bourgeois with DeepDive Equity Research. Your line is open.

Rod Bourgeois (Head of Research)

Thank you.

Hey, and I just want to hone in on one topic, and that is the investment plans going forward. 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. The main question really is, what are the specific solution areas that you're investing most in to drive the profitable and positive growth? Thank you.

Raul Fernandez (President and CEO)

Yeah. It's replicability of large capabilities and reputable capabilities that our clients are asking for.

We are in the process of putting together great frameworks that we are going to be rolling out again as part of the new team that has come in place to take the point work that we have 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. We have the other factor, which is industry knowledge. Probably most importantly, we have a great client base. For us, it is internal optimization, internal collaboration, internal knowledge sharing, and then external packaging. I mean, those are the key ingredients.

Rob Del Bene (CFO)

I would just add to what Raul said that we are also investing in sales and marketing.

That's the other area where we're building our capabilities. That's part of the plans for next year as well, for 2026 as well. 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.

Rod Bourgeois (Head of Research)

Okay. Are there specific market segments that you want to major in or deal types like core modernization? I mean, I get the investment in sales and marketing and working on the pipeline in a more rigorous way. 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.

Raul Fernandez (President and CEO)

We're seeing a lot of traction in financial services, and we're seeing a lot of replicability there in terms of deployments that we have and deployments that we can scale and bring to our customers in new ways of consuming them. That is probably 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 the larger client base.

Rod Bourgeois (Head of Research)

Thank you.

Rob Del Bene (CFO)

Thanks, Rod.

Operator (participant)

This concludes the question and answer session. I'll turn the call to Roger Sachs for closing remarks.

Roger Sachs (VP of Investor Relations)

Thank you, operator. Thank you, everybody, for joining us today. We look forward to speaking with you again next quarter.

Operator (participant)

This concludes today's conference call. Thank you for joining. You may now disconnect.