DXC Technology Company (DXC) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals. While there are positive aspects such as strong bookings growth, leadership changes, AI investments, and a share repurchase program, the overall guidance is negative with expected revenue declines, modest EBIT margins, and cautious EPS projections. The Q&A reveals some optimism about future bookings and AI potential, but also highlights uncertainties in transitioning to SaaS and AI's impact. Considering these factors and the company's mid-cap size, a negative stock price movement of -2% to -8% is anticipated over the next two weeks.
Key Financial Performance
Total Revenue $3.2 billion, declining 4.3% year-over-year on an organic basis. The decline was attributed to ongoing pressure in short-cycle custom application projects and deferred deals in GIS.
Adjusted EBIT Margin 6.8%, down modestly by 10 basis points year-over-year. The decline was due to investments to support future top-line growth while driving productivity to offset revenue declines.
Non-GAAP Diluted EPS $0.68, down from $0.75 in the first quarter of last year. The decrease was driven by lower adjusted EBIT and higher taxes, partially offset by lower net interest expense.
Free Cash Flow $97 million, up from $45 million last year in Q1. The increase was largely driven by lower in-period capital requirements and the timing of certain software payments.
Bookings Increased 14% year-over-year, marking the third consecutive quarter of double-digit growth. Growth was broad-based across many industry verticals, driven by public sector strength in Europe and Asia Pacific and solid deal flow in manufacturing and consumer goods/retail in Europe.
CES Revenue Declined 4.4% year-over-year on an organic basis. The decline reflects ongoing pressure in short-cycle custom application projects, with clients investing in larger strategic deals.
GIS Revenue Declined 5.7% year-over-year organically. The decline was consistent with the previous quarter and attributed to deferred large deals expected to close in future quarters.
Insurance Revenue Grew 3.6% year-over-year organically. The growth was driven by increases in software and volume-based growth in existing accounts.
Capital Expenditures 2.8% of revenue, down from 6% in the same period last year. The decline was due to lower in-period capital requirements and minimized new financial lease originations.
Net Debt Reduced by approximately $630 million since the start of fiscal 2025. This was achieved through consistent free cash flow generation and debt reduction efforts.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
AI Integration: DXC is integrating AI into client operations as a core component of business strategy, not just an add-on. They are training over 50,000 GenAI-enabled engineers and achieving AI readiness across 92% of technical teams.
Generative AI Recognition: DXC was recognized by Gartner as an Emerging Leader in the Consulting and Implementation Services Market Quadrant for Generative AI.
AI-based Client Solutions: DXC signed a long-term agreement with Unicaja, a Spanish bank, to modernize operations using AI and GenAI. They also partnered with a German automotive supplier to streamline SAP services.
Geographic Expansion: Strong bookings in Europe and Asia Pacific, driven by public sector strength and deal flow in manufacturing and consumer goods/retail in Europe.
Strategic Partnership: DXC entered a partnership with Boomi to enhance AI-driven integration automation, enabling seamless system connectivity for clients.
Operational Efficiencies: DXC is embedding AI across corporate functions, improving productivity in IT, security, marketing, HR, legal, and finance. Examples include a 70% reduction in investigation time in security and a 30% reduction in content creation time in marketing.
Financial Performance: Generated $97 million in free cash flow in Q1 2026, up from $45 million last year. Reduced net debt by approximately $630 million since fiscal 2025.
Leadership Changes: Appointed Ramnath Venkataraman as President of Consulting & Engineering Services to drive growth and innovation.
Cultural and Structural Improvements: Focused on building a winning culture, streamlining operations, and enhancing performance management. Recognized by Newsweek as one of America's Greatest Workplaces for the second consecutive year.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Revenue Decline: Total revenue declined 4.3% year-over-year on an organic basis, with GIS segment declining 5.7% and CES segment declining 4.4%. This reflects ongoing pressure in short-cycle custom application projects and deferred large deals.
Bookings and Pipeline Challenges: GIS bookings had a book-to-bill ratio of 0.7% due to deferred large deals, which may impact future revenue growth. CES bookings, while growing, are tied to longer-duration deals, delaying immediate revenue realization.
Profitability Pressures: Adjusted EBIT margin declined modestly by 10 basis points year-over-year to 6.8%, reflecting investments to support future growth and productivity challenges.
Debt and Financial Flexibility: While debt has been reduced, the company still carries approximately $4 billion in total debt, which could limit financial flexibility in addressing operational or strategic challenges.
Operational and Structural Issues: The company acknowledged structural and operational issues that need to be addressed to drive sustainable, profitable growth.
Market and Client Investment Trends: Clients are shifting investments from short-cycle projects to larger strategic deals, which may delay revenue recognition and create near-term financial pressures.
Seasonality and Deal Deferrals: Typical seasonality and deferral of large deals in GIS segment impacted quarterly bookings and could affect near-term revenue.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Full Year Fiscal 2026 Guidance: Total organic revenue is expected to decline 3% to 5%. Total reported revenue is projected to be in the range of $12.6 billion to $12.9 billion, reflecting a $430 million increase at the midpoint due to currency tailwinds. Adjusted EBIT margin is expected to be between 7% and 8%. Non-GAAP diluted EPS is projected to be between $2.85 and $3.35, an increase from the prior guidance of $2.75 to $3.25. Free cash flow for the full year is expected to be approximately $600 million.
Segment-Level Guidance for Fiscal 2026: Consulting & Engineering Services (CES) is expected to decline low single digits organically, with improving performance in the second half of the year as larger, longer-duration deals ramp up. Global Infrastructure Services (GIS) is anticipated to decline at a mid-single-digit rate organically. Insurance is expected to grow organically at a mid-single-digit rate, consistent with recent performance.
Second Quarter Fiscal 2026 Guidance: Total organic revenue is expected to decline 3.5% to 4.5%. Adjusted EBIT margin is anticipated to be in the range of 6.5% to 7.5%. Non-GAAP diluted EPS is projected to be between $0.65 and $0.75.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
Share Repurchase Program: DXC Technology plans to spend $150 million on share repurchases in fiscal 2026. During the first quarter, the company repurchased 3.3 million shares for $50 million, with a cash outlay of $48 million.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:What is the confidence level in free cash flow guidance for fiscal '26 and any factors to consider?
A:The management is confident in the guidance provided. They performed better in the first quarter and see room for improvement in working capital. They are analyzing new tax legislation, which could modestly improve cash tax perspective, though this is not yet included in the guidance. Updates will be provided in 90 days.
Q:What are the expectations for bookings in the second quarter and the pipeline view?
A:The pipeline for 2Q is strong, particularly in non-mega deals (below $100 million), showing solid growth across the board, especially in CES. Management expects another good quarter in 2Q bookings and anticipates further expansion in trailing 12-month bookings.
Q:What is included in the fiscal '26 revenue growth outlook from a macro perspective and across segments?
A:The guidance of -3% to -5% accounts for economic uncertainty. Management has not seen worsening conditions and feels solid about the guidance range. CES is expected to show narrowing declines as larger contracts layer in. Insurance has a solid backlog with mid-single-digit growth expected, and GIS performance is expected to remain consistent with the first half of the year.
Q:Have there been any changes to yield or win rates around bookings?
A:Win rates increased by low to mid-single digits in the first quarter, with improvements in both CES and GIS. Pricing has remained consistent year-to-year and quarter-to-quarter.
Q:Has the company started transitioning insurance bookings from term to subscription?
A:The company has not yet made a significant transition to SaaS for insurance bookings. They are currently planning this transition, which will be unveiled later.
Q:What is the management's perspective on AI's impact on competitive positioning?
A:AI is seen as a significant opportunity, creating new possibilities for established players and start-ups. While AI has shown gains in areas like code conversion, it still requires more testing for accuracy, security, and compliance. Management is optimistic about AI's potential and is in the early stages of learning and implementation.
Q:What are the expectations for bookings trends throughout the year and the required book-to-bill ratio for revenue growth in fiscal '27?
A:Full-year pipelines are healthy, and bookings are expected to remain strong. The required book-to-bill ratio for sustained growth varies by segment, with CES needing a higher ratio (1.05 to 1.11) compared to GIS. Management is focusing on proactive solutioning to enhance bookings.
Q:What is the approach to addressing lower-margin contracts?
A:The company works with customers during renewal periods to improve pricing and terms for mutual benefit. They do not have a definitive list of contracts to exit but aim to enhance margins through negotiations.
Q:What is the investment strategy for GenAI, and how is it being integrated into engagements?
A:The company is pursuing both organic and inorganic strategies for GenAI. They are in the early stages of learning and applying AI across internal functions and customer engagements. The focus is on efficiency gains, with broader scaling expected in the next fiscal year.
Q:Are existing clients reengaging with the company to add AI content, and how is it impacting bookings and ARR?
A:Yes, existing clients are reengaging to add AI content. This is seen as additive to bookings and ARR. The company is focusing on scalable, replicable AI-centric solutions tailored to specific industries and customer needs.
Q:What is the readiness of enterprises to leverage AI solutions?
A:Enterprise readiness for AI varies. Many companies need to address data readiness, privacy, and regulatory issues. The company is documenting its learning process to help customers streamline their AI adoption journey.
Q:How are employees responding to the changes in the company?
A:Employees are energized and committed to a winning culture. The company has been focusing on laying a strong foundation, bringing in new talent, and scaling new go-to-market solutions. The impact of these changes is becoming evident.
Q:Why does the guidance not imply seasonally better margins later in the fiscal year?
A:Margins are expected to increase in the second half of the year, but the pattern differs from previous years. The guidance reflects this expectation.
Q:What factors give confidence in achieving profitable revenue growth?
A:Key factors include a strong trailing book-to-bill ratio, effective renewal strategies, competitive RFP processes, and the introduction of proactive, AI-driven solutions. These elements are expected to drive sustainable growth.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance on bookings trends for the year and the exact book-to-bill ratio required for fiscal '27 revenue growth. They also did not provide a clear timeline for the transition to SaaS in insurance bookings or detailed metrics on AI's impact on bookings and ARR.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI capability
AI solution
Bene Chief
Bookings
CES
Consulting Engineering
Del Bene
Engineering Services
Europe
Fernandez President
Financial
GenAI
LLC
President Consulting
Ramnath
Research Division
SAP service
accuracy
automation
balance sheet
complexity
currency
digit rate
finance
good
guide
investigation
landscape
margin non
month book
payment
period
priority
procurement
productivity
region
solution client
speed
transformation AI
DXC Transcript
DXC Technology Company (DXC) Presents at J.P. Morgan 2025 Ultimate Services Investor Conference Transcript
Neutral11-18
Calix, Inc. (CALX) Q3 2025 Earnings Call Transcript
Positive10-31
The earnings call highlights strong financial metrics, including record gross margin and free cash flow, alongside growth in RPOs. The company shows optimism in AI monetization, international expansion, and partnerships, particularly with Google Telecom. Despite guidance of declining organic revenue, the company's strategic initiatives and positive Q&A insights suggest potential for growth. The market cap indicates moderate volatility, but the overall sentiment is positive due to operational efficiency and strategic growth plans.
DXC Technology Company (DXC) Q2 2026 Earnings Call Transcript
Unknown10-31
The earnings call summary presents mixed signals. While there are positive aspects like sustainable cost management, AI investment, and a robust CES pipeline, the overall guidance indicates a decline in organic revenue and EBIT margins. The Q&A section reveals stable win rates and sustainable cash flow, but management's avoidance of specific details raises uncertainty. Given the company's market cap and the mixed nature of information, a neutral sentiment (-2% to 2%) is justified as the market may await clearer signals in the next fiscal year.
DXC Technology Company (DXC) Q1 2026 Earnings Call Transcript
Unknown7-31
The earnings call presents mixed signals. While there are positive aspects such as strong bookings growth, leadership changes, AI investments, and a share repurchase program, the overall guidance is negative with expected revenue declines, modest EBIT margins, and cautious EPS projections. The Q&A reveals some optimism about future bookings and AI potential, but also highlights uncertainties in transitioning to SaaS and AI's impact. Considering these factors and the company's mid-cap size, a negative stock price movement of -2% to -8% is anticipated over the next two weeks.
DXC Slides
DXC Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
