DXC Q4 2025: 20% bookings growth, FY26 organic revenue down 3-5%
- Strong Bookings & Pipeline: The Q&A highlighted sustained booking strength—with bookings up over 20% and improving book‐to‐bill ratios in both CES and GIS—which supports a solid pipeline expected to convert into future revenue growth [Index: 11][Index: 17].
- High-Profile Strategic Wins: Executives emphasized winning major deals, such as the Carnival Cruise Line contract, secured on the basis of robust capabilities rather than price, underscoring DXC’s competitive edge and long-term revenue potential [Index: 11][Index: 13].
- Enhanced Leadership & Go-to-Market Strategy: The discussion pointed to strategic leadership improvements and a revamped cross-sell approach that are building a more scalable and efficient organization, which is critical for accelerating execution and improving revenue visibility [Index: 16][Index: 17].
- Negative near-term revenue outlook: Investors expressed disappointment with fiscal ’26 guidance indicating a decline in organic revenue (−3% to −5%) and margin pressures, suggesting the turnaround remains challenging.
- Extended contract durations delaying revenue recognition: The increasing share of longer-term, strategic projects in CES, while improving backlog quality, may delay the conversion of bookings into revenue and impact short-term financial performance.
- Weakness in key industry pipelines: Declines in the pipeline for consumer industries, retail, and media/entertainment segments indicate potential headwinds in converting opportunities into bookings, which could pressure future revenue growth.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | –6% | The Q4 2025 total revenue of $3,169 million reflects a continued decline, following –4.7% in Q3 2024 and –5.1% in Q3 2025. This decline is driven by persistent underperformance in key segments and geographies, including lower service and resale revenues amid global uncertainties and market pressures. |
Global Infrastructure Services | –8% | Q4 2025 GIS revenue declined by 8% YoY as ongoing organic challenges—including project completions and lower resale revenue—continued to weigh on performance. This is in line with the –6.8% drop in Q3 2024 and a further decline of –8.5% in Q3 2025, even though an improved book-to-bill ratio suggests better future prospects. |
United States Revenue | –7% | The United States revenue fell by 7% YoY in Q4 2025, which is consistent with previous declines (an –8.3% drop in Q3 2024 and –6.7% in Q3 2025). This persistent weakness indicates ongoing market challenges in the US, with significant contribution from underperforming segments such as GIS. |
Australia Revenue | –14% | Australia's revenue experienced a dramatic decline of –14% YoY in Q4 2025, worsening from a –13.4% drop in Q3 2024 after a milder –3.7% decline in Q3 2025. This suggests that region-specific challenges, possibly including adverse currency effects and weakened demand, have intensified in Q4. |
Net Income | Turnaround from –$195M to +$263M | Net Income dramatically rebounded to $263 million in Q4 2025 from a loss of $195 million in Q4 2024. This turnaround is driven by improved non‐operating income, better cost and expense management (including reduced interest and restructuring costs), and contrasts with the volatile trends seen in Q3 (where income swung from $140 million in Q3 2024 to $63 million in Q3 2025 due to gains on disposals and other adjustments). |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Organic Revenue | Q1 2026 | no prior guidance | decline between 4.0% and 5.5% | no prior guidance |
Adjusted EBIT Margin | Q1 2026 | no prior guidance | in range of 6% to 7% | no prior guidance |
Non-GAAP Diluted EPS | Q1 2026 | no prior guidance | between $0.55 to $0.65 | no prior guidance |
Total Organic Revenue | FY 2026 | no prior guidance | decline 3% to 5% | no prior guidance |
GBS Revenue | FY 2026 | no prior guidance | down low single digits | no prior guidance |
GIS Revenue | FY 2026 | no prior guidance | decline mid-single digits | no prior guidance |
Adjusted EBIT Margin | FY 2026 | no prior guidance | between 7% to 8% | no prior guidance |
Non-GAAP Diluted EPS | FY 2026 | no prior guidance | between $2.75 and $3.25 | no prior guidance |
Free Cash Flow | FY 2026 | no prior guidance | about $600 million | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent bookings and pipeline strength with conversion risks | From Q1 to Q3, executives highlighted strong pipeline quality with book‐to‐bill ratios as high as 1.3x, noted the mix of short- and long-term deals, and discussed conversion risks—especially for multi-year or complex CES deals ( ). | In Q4, the focus remained on robust bookings with a book-to-bill ratio of 1.2x and an increased emphasis on strategic, longer-duration CES projects that are building backlog yet delaying near-term revenue conversion ( ). | Recurring focus with a slight shift towards strategic, longer-term deals that delay revenue recognition. |
Mixed revenue outlook and margin pressures | Q1–Q3 discussions detailed organic revenue declines, segment-specific pressures, and fluctuating adjusted EBIT and gross margins with cautious sentiment about future performance ( ). | Q4 presented a 4.2% organic revenue decline, highlighted margin pressures driven by investments in growth areas, and maintained a balanced sentiment of optimism (from strong bookings) against cost challenges ( ). | Persistent revenue and margin pressures with evolving guidance and mixed segment sentiment. |
Robust free cash flow and capital structure stability | Across Q1–Q3, DXC emphasized steady free cash flow generation improvements, ongoing debt reductions, and reinforcing liquidity through effective working capital management ( ). | Q4 underscored robust free cash flow performance with FY 2025 free cash flow reaching $687 million, along with continued debt reductions and a strengthened cash position ( ). | Consistent financial stability with improved free cash flow and disciplined capital management. |
Evolving leadership and operational enhancements | Q1 through Q3 covered significant leadership changes such as new CIO appointments, business unit consolidations, and operational restructuring efforts aimed at driving performance and enhanced customer focus ( ). | Q4 highlighted extensive leadership evolution with the onboarding of 22 new executives, targeted equity grants, a revamped sales force structure, and investments in AI capabilities to boost operational discipline ( ). | Recurring theme with an intensified focus on AI integration and refined operational execution. |
Strategic wins and new client/new logo acquisitions | Q1 featured strategic deal wins like ContiTech and First Horizon Bank and noted an expanding pipeline of new logos, though Q2–Q3 offered limited explicit mentions ( ). | Q4 emphasized significant strategic wins (e.g., Carnival Cruise Line) along with a renewed focus on acquiring large, new clients and logos ( ). | Heightened emphasis in Q4 on securing mega and strategic deals to expand the new client base. |
De-emphasis of extended contract durations impacting revenue recognition | This topic was not mentioned in Q1, Q2, or Q3 earnings discussions. | Q4 introduced discussion on how longer-duration CES contracts, despite building backlog, lead to a slower conversion of bookings into immediate revenue ( ). | A new emerging focus in Q4, raising concerns over delayed revenue recognition due to extended contract durations. |
Sector-specific pipeline challenges (CES, consumer, retail, media/entertainment) | Q1 and Q2 addressed challenges in the CES segment—particularly a slowdown in custom application projects and a shift toward enterprise applications—while consumer, retail, and media/entertainment sectors were not explicitly detailed in Q3 ( ). | In Q4, DXC noted declines in pipeline activity for consumer, retail, and media/entertainment sectors, while CES continued to see growth in strategic, long-duration deals ( ). | Recurring CES challenges with new concerns emerging around weakening pipelines in consumer, retail, and media/entertainment sectors. |
Emerging focus on Gen AI investments | Q1 mentioned initial investments in data preparation and Gen AI fundamentals; Q2 showcased client success stories and deployment examples; Q3 expanded on AI-driven initiatives and new centers of excellence ( ). | Q4 reaffirmed an emerging focus on scaling replicable Gen AI solutions, emphasizing data readiness and comprehensive AI integration to deliver scalable client outcomes ( ). | A consistent and growing focus on Gen AI, evolving from pilot projects to strategic, scalable investments. |
Transition to a geography-oriented sales model and associated execution risks | Q1 discussed transitioning to a geography-oriented sales model that leverages local relationships alongside centralized solutioning ( ); Q2 and Q3 did not revisit this topic. | Q4 did not mention the geography-oriented sales model or related execution risks. | Topic no longer mentioned in Q4, suggesting a de-emphasis or that the transition has been largely completed. |
-
Revenue Outlook
Q: What drives positive revenue growth?
A: Management emphasized that a stronger, higher‐quality bookings pipeline—with larger, longer-duration deals—and disciplined cost control are key to eventually turning revenue positive, despite near-term declines. -
Margin Guidance
Q: How will margins improve from FY ’25?
A: They expect adjusted EBIT margins to rebound to 7–8% as cost efficiencies offset revenue declines while investments temporarily compress margins, setting a solid base for the future. -
Free Cash Flow
Q: How is free cash flow bridging to FY ’26?
A: Management projects free cash flow of about $600 million by adjusting FY ’25 results for after-tax EBIT and a decline in capital lease originations, indicating stable underlying cash performance. -
Pipeline Visibility
Q: How visible is the pipeline converting to revenue?
A: They noted an improved, quality pipeline—with strong renewals and booking conversion—that provides clear visibility for sustained revenue over time. -
Contract Duration & Gen AI
Q: How are longer contracts and Gen AI projects impacting revenue?
A: Strategic projects, typically between $5M and $100M, are longer in duration—improving revenue visibility—while early-stage Gen AI pilots show promising ROI potential. -
Pricing & Macroeconomic Outlook
Q: What factors shape the revenue guidance range?
A: A conservative revenue decline range for Q1 reflects macroeconomic uncertainties and a stable pricing environment, leaving a narrow margin for market fluctuations. -
Investments in Growth
Q: What investments will drive future growth?
A: The focus is on replicable capabilities and bolstering sales and marketing—especially in the financial services sector—to fuel profitable expansion and scale new solution areas. -
Leadership Structure
Q: Does the new leadership improve growth prospects?
A: Management is confident that the recently onboarded leadership, with extensive experience, will enhance operational execution and support the company’s turnaround. -
Cross-Sell Opportunities
Q: How effective is the cross-selling motion?
A: By showcasing full-stack capabilities and hosting client forums to highlight real ROI, management is successfully driving incremental demand across segments. -
Insurance Segment Focus
Q: Why break out the insurance segment?
A: Separating insurance starting FY ’26 reflects its unique operational model and SaaS growth potential, aligning internal management with market performance. -
Capital Finance Lease
Q: What’s the outlook for capital finance leases?
A: Management expects a notable year-over-year decline in capital lease financing, which will further enhance free cash flow performance. -
Industry Demand Dynamics
Q: How are industry-based demand trends evolving?
A: While robust demand persists in banking, capital markets, and manufacturing, there’s some softness in retail and media for project-based services, highlighting a mixed but largely stable industry backdrop.
Research analysts covering DXC Technology.