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    DXC Technology Co (DXC)

    DXC Q3 2025: Q4 Revenue Forecasted to Decline 4.5%-5.5%

    Reported on Jun 4, 2025 (After Market Close)
    Pre-Earnings Price$22.61Last close (Feb 4, 2025)
    Post-Earnings Price$23.28Open (Feb 5, 2025)
    Price Change
    $0.67(+2.96%)

    What went well

    • Robust Booking Momentum: Improved win rates and a healthy book‐to‐bill ratio—with a notable $400 million renewal deal—underscore strong demand and a solid pipeline for future revenue growth.
    • Strong Free Cash Flow and Capital Structure: Adjusted free cash flow is stabilized around $750 million after key nonrecurring adjustments, supported by asset sales and reduced net debt.
    • Strategic Leadership & Operational Enhancements: New executive hires (e.g., a new CIO and marketing leader) alongside disciplined cost management and resource optimization are expected to drive operational efficiencies and support sustainable growth.

    What went wrong

    • Declining Q4 revenue guidance: Management expects total organic revenue to decline by 4.5%–5.5% in Q4 due to weak booking performance in the first half that is delaying revenue realization, which raises concerns about revenue momentum.
    • Margin pressure: Adjusted EBIT margins are projected to drop from 8.9% in Q3 to about 7% in Q4 — driven by the loss of one-time equity compensation savings and increased merit expenses — potentially threatening profitability going forward.
    • Execution and booking conversion risks: The variability in booking quality—with large deals exhibiting slower ramp-ups and differences in burn rates—creates uncertainty in reliably converting new business into revenue, posing challenges for sustained growth.

    Q&A Summary

    1. Revenue Guidance
      Q: Why will Q4 revenue decline?
      A: Management explained that the Q4 decline stems from first‐half low bookings bleeding into later quarters, not from overly conservative estimates, as deal timing varies.

    2. Free Cash Flow
      Q: What about free cash flow sustainability?
      A: They noted the full‑year free cash flow target of $625M reflects underlying strength near $750M once adjustments, like restructuring and lease changes, are factored in.

    3. Margin Outlook
      Q: Are margins sustainable into Q4?
      A: Management expects margins to soften in Q4 due to revenue declines and additional merit increases, though overall margin health remains solid.

    4. Capital Allocation
      Q: How will capital be deployed?
      A: They plan to reassess capital allocation next quarter, balancing reinvestment, debt reduction, and accretive M&A, having paused buybacks for now.

    5. Organic Growth
      Q: Why is organic growth lower in Q4?
      A: The organic growth slowdown is attributed to earlier low first‑half bookings, meaning improved third‑quarter bookings won’t immediately boost revenue.

    6. Bookings Composition
      Q: What mix drives the bookings?
      A: A sizable $400M renewal, along with a healthy mix of project‐based and longer-term deals, drives the bookings, with ramp-up timing varying by deal size.

    7. Cost Deferral
      Q: Were expenses deferred?
      A: Yes, management is deferring some marketing spend while targeting restructuring charges capped at $100M, shifting portions to fiscal ‘26.

    8. Segment Potential
      Q: Which segment shows improvement potential?
      A: No single segment stands apart – all have room to grow through execution improvements, though the insurance business remains particularly strong.

    9. Pricing Renewal
      Q: How are pricing and renewals managed?
      A: Renewal discussions are handled case‑by‑case, maintaining stable win rates with improved proposals and terms that support better economics.

    10. GBS vs GIS
      Q: How do GBS and GIS differ?
      A: Both segments face distinct challenges: GBS is project‑oriented while GIS is anchored in longer contracts, and opportunities exist in both without a zero‑sum tradeoff.

    11. Asset Dispositions
      Q: What is the progress on dispositions?
      A: They have achieved $150M in dispositions so far and are actively pursuing additional opportunities, though timing remains uncertain.

    12. Leadership Stability
      Q: Is the leadership team stable?
      A: Management is satisfied with its seasoned team, having quickly filled key roles and reversed previous equity accruals related to departures.

    13. Seasonal Impact
      Q: Did seasonality boost bookings?
      A: While seasonal budget flushes helped, improvements stem from enhanced operational execution driving a better book‑to‑bill ratio.

    14. Calendar Outlook
      Q: Will calendar ’25 improve over ’24?
      A: Demand remains solid through multiyear client commitments, though continued operational enhancements are essential for sustained growth.

    15. Turnaround Phase
      Q: Is the turnaround entering a new phase?
      A: Management emphasized that while consistent progress is evident, the turnaround remains an ongoing process focused on sustaining improved behaviors.

    16. Public Policy
      Q: How do public policies affect the public sector?
      A: They clarified that their public sector exposure is outside the U.S., so domestic policy shifts have minimal impact on their business.

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