DXC Technology saw promising signs in the third quarter (ended Dec. 31) as progress was made on its new business strategy, according to company executives.
“I’m pleased with the initial progress we’ve made on the priorities of running the business and unlocking value,” Mike Salvino, CEO and president, told analysts on an earnings call Feb. 6.
Pointing out the company reported financial results that were “in-line with our plan,” he said the firm “did what we said we’re going to do and we are executing nicely against our new focus strategy.”
He again conceded that DXC’s “transformation will not be a quick fix,” but said he is “confident that our new focus strategy will position DXC to compete in the IT services space.”
Salvino had pointed out on DXC’s prior earnings call that the company was out to make improvements in its information technology outsourcing (ITO) business. On that front, he told analysts Feb. 6, DXC has “been focusing on account management and delivery capabilities and we’re making good progress.”
During Q3, DXC “established a very focused program that includes 40 accounts to address” issues meeting service level requirements, he said, noting those accounts “represent about a quarter of our revenue.”
Discussing the progress made so far, he said: “Overall this program is off to a good start, with seven accounts graduating out of this program. We expect the majority of these accounts to be turned around by the end of Q4 and the program to be completed in the first half of fiscal ’21.”
The new DXC program for its ITO business has “clearly created positive momentum with our customers,” he said, adding, “we’ve already been awarded over $500 million of business from several of these accounts in the form of renewal and new work.” Some of that “network was previously put on hold, and some of the new work is in analytics, which is at the top of the enterprise technology stack,” he said, calling that “solid evidence that leveraging the ITO business and focusing on our customers, people and operational execution is the right strategy to grow DXC.”
The company, meanwhile, is also “executing well in pursuing strategic alternatives” for the three businesses that Salvino said on the Q2 call don’t fit into the firm’s new “focused strategy,” he said. The firm is now “on track to hit the timeline we set for ourselves [and] have retained several world class advisors to help us with this effort and our plan is to be in the market this month,” he said. Those three businesses are DXC’s U.S. state and local health and human services business, Business Process Services (BPS), and the workplace and mobility business.
Total DXC Q3 revenue grew 3% from Q2 to $5.02 billion, he said.
“While we typically experience a pick-up in activities in Q3 compared with Q2, our revenue growth this quarter … reflects, in-part, add on and project work from customers, who have previously put business with us on hold,” CFO Paul Saleh told analysts. “Now these are encouraging signs that the investments we are making to turn around challenged accounts are starting to pay off,” he said.
Global Business Services (GBS) performance was especially strong for DXC in Q3, driven by the firm’s purchase of Luxoft in 2019. GBS revenue grew 8.8% from last year, to $2.36 billion, and was up 3% from Q2, Saleh pointed out. GBS profit margin in the quarter was 15%, compared to 18.2% a year ago, “reflecting investments we are making in digital hiring as well as the slower pace of cost takeout,” he said. New business awards for GBS were $2.5 billion in Q3. “In particular, we saw strength in our data, analytics and engineering services business,” he noted.