DXC Earnings Report: Acquisition Talks Still On, Revenue Still Slides

‘The company is engaged in preliminary discussions and is sharing information. We do not have any further update on the situation today and we will not be commenting on it further,’ says DXC Chairman, President and CEO Mike Salvino.

Global IT solution provider DXC Wednesday said the company’s revenue and income continue to slide but the company’s business is trending toward its more profitable global business services business while its global infrastructure services business starts to stabilize.

DXC Chairman, President and CEO Mike Salvino, in his prepared remarks during the company’s third fiscal quarter 2023 quarterly financial analyst call, also confirmed that the Ashburn, Va.-based company is still in discussions about a possibly acquisition by a “financial sponsor.”

Salvino, in his comments, talked about acquisition discussions using nearly the same language in an October statement and in his second fiscal quarter 2023 comments.

[Related: DXC Earnings Preview: 4 Big Things To Focus On]

“Management has been approached by a financial sponsor regarding a potential acquisition of the company consistent with our fiduciary responsibility to maximize shareholder value,” he said. “The company is engaged in preliminary discussions and is sharing information. We do not have any further update on the situation today and we will not be commenting on it further.”

DXC, ranked No. 9 on CRN’s 2022 Solution Provider 500, was formed in 2017 by the merger of former solution provider CSC and Hewlett Packard Enterprise’s Enterprise Services division.

While DXC revenue continued to decline in the third fiscal quarter 2023, the company’s organic revenue component is improving with two consecutive quarters of growth, which Salvino said is important for future company growth.

“We are guiding to a fourth quarter at a similar organic level,” he said. “Now this is a great accomplishment as we have been a company with declining revenues for the past several years. Also you will see our strategy for GBS [global business services] and GIS [global infrastructure services] working. In GBS, we continue to grow the business and expand margins. This is the seventh quarter of consecutive organic revenue growth.”

As a result, DXC’s GBS continues to become a larger part of DXC, accounting for about 49 percent of total revenue compared with 48 percent in the second fiscal quarter, Salvino said.

“The business mix is trending towards the new tech of GBS,” he said. “In GIS, we continue to stabilize revenue and expand margins. We’re seeing our increased financial discipline in ITO [IT outsourcing] pay off as the demand we saw in the market translated into strong bookings this quarter, which we expect to drive future revenues. So you can see we are executing on both parts of our growth strategy to accelerate growth in GBS and moderate the declines in GIS.”

As a result, Salvino said, DXC expects to drive flat to 1 percent organic revenue in fiscal year 2024.

DXC significantly improved its cash position in the third fiscal quarters with two property sales, including closing a sale of German banks it owned for $323 million in cash and the sale of some data centers, Salvino said.

For its third fiscal quarter 2023, which ended Dec. 31, DXC reported total revenue of $3.57 billion, down 12.8 percent from the $4.10 billion the company reported for its third fiscal quarter 2022.

This included revenue of $1.74 billion for its GBS segment, down 10.7 percent over last year, and revenue of $1.83 billion for its GIS segment, down 14.7 percent.

By technology offering, the company reported cloud infrastructure and information technology outsourcing revenue of $1.28 billion, down from $1.46 billion; application revenue of $832 million, down from $969 million; analytics and engineering revenue of $535 million, down from $506 million; modern workplace revenue of $433 million, down from $555 million; insurance software and business process services revenue of $371 million, down from $383 million; and security revenue of $112 million, down from $116 million.

DXC reported GAAP net income of $61 million, or 25 cents per share, down from $102 million, or 38 cents per share. On a non-GAAP basis, DXC reported net income of $224 million, or 95 cents per share.

Looking ahead, DXC expects fiscal fourth quarter revenue of between $3.62 billion and $3.64 billion, down from the $4.01 billion the company reported for the same period last year. Full fiscal year 2023 revenue is expected to be between $14.46 billion and $14.47 billion, down from last year’s $16.27 billion.