DXC Earnings Preview: 4 Big Things To Focus On

DXC Technology is a major player in the global IT services market and as it is set to report its financial earnings Wednesday, all eyes will be on the lookout for signs of growth.

The past six years have not been kind to DXC Technology. The Ashburn, Va.-based global IT solution provider and consulting company, which was founded in April 2017 when Hewlett Packard Enterprise’s enterprise services business merged with Computer Science Corp., or CSC, has gradually been slipping down the financial hill.

DXC, No. 9 on the CRN 2022 Solution Provider 500, is a true powerhouse in the IT global technology services business. The company in 2022 reported revenue of about $16.27 billion with an employee base of 130,000.

Revenue has fallen every fiscal year since DXC was founded, and while net income is showing signs of recovery, the company has seen a cumulative net loss during that time of about $4.2 billion. DXC watchers will be watching for signs of growth during the company’s financial earnings report Wednesday.

The other big question about DXC is whether the company is in talks to be acquired. Discussions around that question have been swirling since 2020 when France-based global solution provider Atos pursued an acquisition of DXC for a reported $10 billion. Atos in early 2021 pulled out of its bid for DXC.

CRN breaks down four key things to watch for during DXC’s financial earnings report.

Is DXC Still Talking With Potential Suitors?

Perhaps the biggest question about DXC for the time being is how serious the talk is about a potential acquisition of the solution provider.

DXC in September was reported to be the target of acquisition talks by at least one unnamed private equity firm after DXC abruptly pulled out of its investor presentation at a Deutsch Bank conference earlier that month. Bloomberg at the time said DXC had started working with advisers after receiving interest from private equity.

DXC in October confirmed that it was in discussions with a “financial sponsor” that could lead to an acquisition, and in a statement said, “Management has been approached by a financial sponsor regarding a potential acquisition of the company. Management remains focused on the company’s transformation journey. Consistent with its fiduciary responsibility to maximize shareholder value, the company is engaged in preliminary discussions and is sharing information. However, to date no formal proposal has been received. There are no assurances that any proposal will be received or determined to be adequate by the board of directors.”

That was further confirmed in November when, during the company’s second fiscal quarter 2023 quarterly conference call, DXC Chairman, President and CEO Mike Salvino again confirmed that talks were still on.

“We have been approached by a financial sponsor regarding a potential acquisition of DXC,” he said. “Consistent with our fiduciary responsibility to maximize shareholder value, we have engaged in preliminary discussions and are sharing information. However, to date, no formal proposal has been received. Also, there are no assurances that any proposal will be received or determined as adequate by our board of directors. We do not intend to comment further on this matter.”

Can DXC Beat Consensus?

DXC provided guidance for third fiscal quarter 2023 revenue of between $3.55 billion and $3.58 billion, while Zacks Investment Research’s consensus estimate for the quarter is $3.58 billion, which would represent a decline over revenue for third fiscal quarter 2022 of 12.5 percent. However, the analyst revenue consensus according to Earnings Whispers for the quarter is $3.67 billion.

The non-GAAP earnings per share consensus, according to Zacks, is 84 cents per share, which would be down 8.7 percent over last year. DXC itself is expecting earnings between 80 cents and 85 cents per share.

On the earnings side, in the previous four quarters, DXC’s earnings exceeded analyst expectations once, matched once and missed twice, Zacks said.

Can DXC Pull Out Of Its Revenue Decline?

Because DXC was founded in 2017 by the combination of HPE’s enterprise services business and CSC, it has had a financial history of only five years as an independent entity. Revenue has fallen year over year all five years:

DXC Technology, Fiscal Year Revenue

FY 2018 $21.73B

FY 2019 $20.75B

FY 2020 $19.58B

FY 2021 $17.73B

FY 2022 $16.27B

Source: DXC Technology financials

As far as fiscal third quarter is concerned, the general trend is the same, with revenue falling year over year the last five years:

DXC Technology, Fiscal 3Q Revenue

FY 2018 $5.46B

FY 2019 $518B

FY 2020 $502B

FY 2021 $439B

FY 2022 $4.09B

Source: DXC Technology financials

With company guidance and analyst consensus for third fiscal quarter 2023 revenue ranging from $3.55 billion to $3.67 billion, fiscal 2023 appears to be yet another year of revenue decline.

Can DXC Continue Its Net Income Climb?

DXC on the net income front has seen cumulative GAAP net losses over the past five years of about $4.2 billion. However, three of the last five years have seen positive net income, with fiscal 2020 showing a massive net loss:

DXC Technology, Fiscal Year Net Income (Loss)

FY 2018 $1.78B

FY 2019 $1.23B

FY 2020 ($5.36B)

FY 2021 ($146M)

FY 2022 $736M

Source: DXC Technology financials

Fiscal third quarter GAAP net income has moved in a different pattern from fiscal year net income. Unlike all of fiscal 2022, third fiscal quarter 2022 revenue fell significantly compared with the previous year:

DXC Technology, Fiscal 3Q Net Income (Loss)

FY 2018 $799M

FY 2019 $466M

FY 2020 $90M

FY 2021 $1.10B

FY 2022 $102M

Source: DXC Technology financials