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DXC Technology Co (DXC)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 delivered ahead of internal guidance: revenue $3,225M, non-GAAP EPS $0.92, adjusted EBIT margin 8.9%; book-to-bill hit 1.33x, the highest in eight quarters .
  • Management raised full-year FY25 guidance for adjusted EBIT margin to ~7.9%, non-GAAP EPS to ~$3.35, and free cash flow to ~$625M; organic revenue decline outlook improved to (4.9)–(4.7)% .
  • Margin outperformance benefited from disciplined cost actions, deferred marketing/IT investments, and a one-time equity comp reversal (~40 bps); partially offset by a ~$10M hardware asset disposal charge as data centers were consolidated .
  • Strong free cash flow ($483M) and asset sale proceeds drove cash to $1,723M; net debt reduced by >$750M YTD to $2.1B, positioning capital allocation optionality into FY26 .

What Went Well and What Went Wrong

What Went Well

  • Bookings momentum: company-wide book-to-bill of 1.33x; segment book-to-bill improved (GBS 1.23x; GIS 1.44x). CEO: “Revenue, adjusted EBIT margin and non-GAAP EPS all came in ahead of guidance… meaningful improvement in bookings performance.”
  • Cost discipline translated to margin: adjusted EBIT margin expanded to 8.9% (+140 bps YoY); CFO: “performance was primarily driven by higher yields from cost management initiatives… and the deferral of certain planned marketing and IT investments” .
  • AI and enterprise applications traction: initiatives with SAP business AI and ServiceNow gen AI COE; tangible wins like Singapore General Hospital and expanded Ferrari partnership in automotive software .

What Went Wrong

  • Top-line headwinds persist: organic revenue declined 4.2% YoY; GIS down 7.8% organically with profit margin at 6.5% amid lower resale/hardware disposal charge .
  • Sequential margin outlook softer for Q4: guide to ~7% adjusted EBIT margin given expected revenue decline, merit increases, and stepped-up investments (sales, marketing, IT) .
  • Non-GAAP SG&A rose to 10.3% of revenue (+70 bps YoY) amid investment in sales and ERP consolidation; gross margin improvement tempered by restructuring and hardware asset disposal .

Financial Results

MetricQ1 FY25Q2 FY25Q3 FY25
Revenue ($USD Millions)$3,236 $3,241 $3,225
Organic Revenue Growth (%)(4.4)% (5.6)% (4.2)%
Adjusted EBIT Margin (%)6.9% 8.6% 8.9%
Non-GAAP Diluted EPS ($)$0.74 $0.93 $0.92
Book-to-Bill (x)0.77x 0.81x 1.33x

Segment breakdown:

Segment MetricQ1 FY25Q2 FY25Q3 FY25
GBS Revenue ($USD Billions)$1.67 $1.68 $1.67
GBS Profit Margin (%)10.8% 12.8% 13.4%
GBS Book-to-Bill (x)0.83x 0.90x 1.23x
GIS Revenue ($USD Billions)$1.56 $1.56 $1.56
GIS Profit Margin (%)7.3% 8.2% 6.5%
GIS Book-to-Bill (x)0.70x 0.71x 1.44x

Offering revenue detail:

Offering ($USD Millions)Q1 FY25Q2 FY25Q3 FY25
Consulting & Engineering Services$1,284 $1,281 $1,270
Insurance Software & BPS$389 $396 $396
Cloud, ITO & Security$1,206 $1,188 $1,184
Modern Workplace$357 $376 $375

KPIs:

KPIQ1 FY25Q2 FY25Q3 FY25
Cash from Operations ($USD Millions)$238 $195 $650
Free Cash Flow ($USD Millions)$45 $48 $483
Capital Expenditure ($USD Millions)$193 $147 $167
Cash and Equivalents ($USD Millions)$1,317 $1,245 $1,723

Notes:

  • Q3 margin outperformance benefited from a one-time equity comp reversal (~40 bps) and deferred investments; offset by ~$10M hardware asset disposal charge .
  • GIS sequential margin decline owed to asset disposal and absence of prior-quarter discrete legal settlement benefit .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Revenue Decline (%)FY25(5.5)% to (4.5)% (4.9)% to (4.7)% Raised (less negative)
Adjusted EBIT Margin (%)FY257.0%–7.5% ~7.9% Raised
Non-GAAP Diluted EPS ($)FY25$3.00–$3.25 ~$3.35 Raised
Free Cash Flow ($USD Millions)FY25~$550 ~$625 Raised
Total Revenue ($USD Billions)Q4 FY25N/A$3.10–$3.13 Initiated
Adjusted EBIT Margin (%)Q4 FY25N/A~7.0% Initiated
Non-GAAP Diluted EPS ($)Q4 FY25N/A~$0.75 Initiated

Management reiterated that Q4 margin is pressured by sequential revenue decline, merit increases, and increased sales/marketing/IT investments .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY25, Q2 FY25)Current Period (Q3 FY25)Trend
Go-to-market discipline & bookingsQ1 B2B 0.77x; Q2 B2B 0.81x; pipeline and win rates improving; expectation for Q3 bookings >1.0x B2B 1.33x, highest in 8 quarters; strong mix across segments Improving
AI initiatives & enterprise appsQ1 emphasized embedding AI; Q2 highlighted gen AI CoEs and client deployments (Equitable, global bank) Expanded SAP business AI, ServiceNow gen AI COE; SG Hospital AI; Ferrari software expansion Accelerating
Restructuring/cost actionsQ2 cut restructuring increase to max ~$150M; disciplined resource management Max ~$100M above last year; net headcount reduction ~5,900 YTD More targeted
GIS resale reductionQ2 resale down (19%) aiding margins; intentional margin thresholds Resale down ~16%; selective resale; Cloud/ITO services down ~7% Continuing, stabilizing ahead
ERP consolidation & CIOQ2 first migration wave initiated New CIO (Brad Novak) to drive ERP consolidation and AI usage Progressing
Balance sheet & capital allocationQ2 debt reduction (CP retirement); focus on balance sheet Net debt down >$750M; cash $1.7B; buybacks suspended; priorities to be updated next quarter Strengthening, TBD FY26

Management Commentary

  • CEO: “Revenue, adjusted EBIT margin and non-GAAP EPS all came in ahead of guidance… The go to market changes we have made are starting to take hold, driving a meaningful improvement in bookings performance.”
  • CEO on bookings: “book-to-bill ratio of 1.3x and the highest in 8 quarters” .
  • CFO: “Adjusted EBIT margin expanded 140 basis points year-over-year to 8.9%… driven by cost management initiatives and the deferral of certain planned marketing and IT investments… offset by a $10 million charge related to the disposal of hardware assets” .
  • CFO on FY25 outlook: raised adjusted EBIT margin to ~7.9%, non-GAAP EPS to ~$3.35, and FCF to ~$625M; Q4 non-GAAP EPS ~$0.75 and adjusted EBIT margin ~7% .
  • Strategic AI examples: SG Hospital antibiotic decision support; expanded Ferrari infotainment platform for F80’s “digital cockpit” .
  • Leadership: appointment of Brad Novak as CIO to lead AI across operations and ERP consolidation .

Q&A Highlights

  • Bookings vs growth trajectory: Q4 organic decline driven by weak H1 bookings lag; stronger Q3 bookings to layer in over time .
  • Margin bridge and sustainability: Q3 margin includes ~40 bps one-time equity comp reversal; Q4 lower margins on revenue decline and three months of merit increases vs one in Q3 .
  • Capital allocation: buybacks suspended in FY25 to strengthen balance sheet; will reevaluate priorities (debt, investment, shareholder returns) entering FY26 .
  • Dispositions: ~$150M executed YTD with additional opportunities under pursuit, timing uncertain .
  • Pricing/renewals: pricing stable; targeted renewal strategies improving economics and terms; win rates improved in Q3 .
  • Q4 revenue guide: “right down the middle”; primary driver of sequential decline is H1 bookings, not unusual runoff .

Estimates Context

  • Wall Street consensus estimates from S&P Global were unavailable at the time of analysis due to data access limits; therefore beat/miss vs consensus cannot be assessed. The company reported Q3 results ahead of its internal guidance (non-GAAP EPS $0.92 vs guided $0.75–$0.80; adjusted EBIT margin 8.9% vs guided 7.0%–7.5%) .

Key Takeaways for Investors

  • Bookings inflection: broad-based B2B improvement (1.33x) and segment B2B >1.2x suggest pipeline conversion is improving; watch Q4 bookings to confirm sustainability .
  • Margins resilient despite revenue pressure: structural cost actions and mix management are expanding margins; Q4 margin reset (~7%) reflects investments and merit increases—monitor FY26 margin outlook .
  • FCF strength: $483M in Q3; FY25 FCF raised to ~$625M, underpinned by EBIT and lower restructuring; supports deleveraging and optionality on buybacks/M&A into FY26 .
  • GIS strategy: continued selective resale (short-term revenue headwind) improves profitability; look for stabilization in resale declines over next 6–9 months .
  • AI-led growth vectors: tangible AI deployments and partnerships (SAP, ServiceNow, healthcare, automotive); potential medium-term revenue catalysts as enterprise applications scale .
  • Execution vs macro: management emphasizes self-help (pricing discipline, ERP, leadership hires) over macro tailwinds; conversion and renewals economics are key near-term drivers .
  • Risk watch: Q4 sequential revenue decline from H1 bookings; merit and investment spend pressure margins; monitor GIS margins post asset disposal and SG&A trajectory as ERP consolidation advances .