DXC CEO Salvino: Cost Optimization Push Will Include Sale Of Noncore Assets

‘’We have identified businesses with roughly $500 million in revenues that are not strategic and will not help us grow. Selling these businesses will improve our organic revenue growth and our overall margin,’ says DXC President and CEO Mike Salvino.

Global systems integrator and solution provider DXC Technology Wednesday made a bullish case for its future, citing growth in key areas of its business and a steadily falling reduction in others.

Ashburn, Va.-based DXC, formed in 2017 by the merger of former solution provider CSC and Hewlett Packard Enterprise’s Enterprise Services division, is looking to fuel growth by divesting itself of noncore parts of its business while giving a mixed message about future potential acquisitions.

Mike Salvino, DXC president and CEO, Wednesday told financial analysts on the company’s quarterly financial conference call that DXC is making progress on what he called its “transformation journey.”

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During the third fiscal quarter of 2022, which ended Dec. 31, DXC increased its head count by about 3 percent and increased project work by 13 percent, Salvino said.

“We continue to see our people-first strategy and our virtual-first model is resonating in the market and helping us in our recruiting efforts. ... In addition, I am pleased with how we continue to deliver for our people through the COVID pandemic. It is due to all these points that our attrition at DXC has stabilized and it remains below industry average,” he said.

The growth strategy for DXC, ranked No. 4 on CRN’s Solution Provider 500 list, calls for it to increasingly run its customers’ mission-critical systems primarily via its Global Infrastructure Services, or GIS, business, and ultimately getting new work from those customers, Salvino said.

“Running these mission-critical systems builds trust with our customers,” he said. “This strategy is being successful because we are winning more work from our customers in both GIS and GBS [Global Business Services], and our revenues are clearly not going backwards. ... Simply put, leveraging the trust we have built with our customers by running their mission-critical systems is how we are stabilizing our revenues and setting ourselves up for growth.”

DXC is also investing in growing, as seen by the expansion of its relationship with ServiceNow unveiled last month, Salvino said.

“We are leveraging our proprietary technology called Platform X, which is a data-driven, intelligent automation platform that helps us detect, prevent and address issues before they happen within our customers’ cloud and on-prem IT estates. ... We believe that the ServiceNow relationship will help us execute on a unique opportunity to drive growth in the enterprise service management market due to our capability with Platform X,” he said.

DXC is also on a cost optimization push, which includes the sale of some of its noncore businesses, Salvino said.

“Managing our costs includes executing portfolio-shaping initiatives,” he said. “We have identified businesses with roughly $500 million in revenues that are not strategic and will not help us grow. Selling these businesses will improve our organic revenue growth and our overall margin. We expect to sell these businesses to result in an additional $500 million in proceeds within the next 12 months.”

In the DXC investor presentation, the company emphasized that it will not for the time being engage in acquisitions. When asked by an analyst about whether that really means no acquisitions, Salvino replied that DXC is focused on building a strong foundation and that there is work to do,. He also said that with the company’s business prospects looking up, it feels the best use of cash in the next 20 months is to return it to the shareholders.

“And we never say never,” he said. “I know there’s a big red X on that slide, but we look at stuff all the time, and if we think it’s the right thing to do, and we can absolutely bring it in as part of our growth agenda, then absolutely we’ll do it.”

In the first couple of hours of after-hours trading, DXC shares were up about 2.7 percent to $31.52 per share. That compared with a 10 cent drop in share prices during the trading day.

For its third fiscal quarter 2022, DXC reported total revenue of $4.09 billion, down about 4.6 percent over the $4.29 billion the company reported for its third fiscal quarter 2021.

That was $10 million lower than analyst expectations, according to Seeking Alpha.

Net income on a GAAP basis reached $102 million, or 38 cents per share, a huge drop from the $1.10 billion, or $4.29 per share, the company reported for the same period last year. On a non-GAAP basis, DXC reported earnings of 92 cents per share, up from last year’s 84 cents per share. Analysts had been expecting 91 cents per share, according to Seeking Alpha.

On a business segment basis, DXC reported revenue of $1.95 billion from its Global Business Services business, up 1.3 percent over last year. That business had a profit of $315 million, up 15.4 percent over last year. Its Global Infrastructure Services revenue fell 9.5 percent to $2.14 billion. Profit for the business, however, rose 15.9 percent to $102 million.

When DXC’s revenue was broken down by technology, the company reported third fiscal quarter 2022 analytics and engineering revenue of $545 million, up from last year’s $462 million; application revenue of $1.27 billion, up from $1.13 billion; business process services revenue of $116 million, down from $128 million; cloud and security revenue of $471 million, down from $543 million; IT outsourcing revenue of $1.11 billion, down from $1.14 billion; and modern workplace revenue of $561 million, down from $676 million.

DXC expects fourth fiscal quarter 2022 revenue of $4.11 billion to $4.15 billion, which is 1.2 percent to 1.7 percent lower than last year’s revenue. The company also expects non-GAAP earnings of 98 cents to $1.03 per share.

For all of fiscal year 2022, the company lowered its previously offered revenue guidance to $16.4 billion, which would be 2.2 percent to 2.3 percent lower than for fiscal 2021. Non-GAAP earnings are expected to be $3.64 to $3.69 per share on a non-GAAP basis.