DXC Technology Reports Third Quarter Fiscal Year 2023 Results

About Non-GAAP Measures

In an effort to provide investors with supplemental financial information, in addition to the preliminary and unaudited financial information presented on a GAAP basis, we have also disclosed in this press release preliminary Non-GAAP information including: earnings before interest and taxes ("EBIT"), EBIT margin, Adjusted EBIT, Adjusted EBIT margin, Non-GAAP diluted EPS, organic revenue growth, and free cash flow.

We believe EBIT, EBIT margin, Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS provide investors with useful supplemental information about our operating performance after excluding certain categories of expenses. Free cash flow represents cash flow from operations, less capital expenditures.

One category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, incremental amortization of intangible assets acquired through business combinations, may result in a significant difference in period over period amortization expense on a GAAP basis. We exclude amortization of certain acquired intangible assets as these non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Although DXC management excludes amortization of acquired intangible assets primarily customer-related intangible assets, from its Non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and support revenue generation. Any future transactions may result in a change to the acquired intangible asset balances and associated amortization expense.

Another category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, impairment losses, may result in a significant difference in period over period expense on a GAAP basis. We exclude impairment losses as these non-cash amounts, reflect generally an acceleration of what would be multiple periods of expense and do not expect to occur frequently. Further assets such as goodwill may be significantly impacted by market conditions outside of management’s control.

We believe organic revenue growth provides investors with useful supplemental information about our revenues after excluding the effect of currency exchange rate fluctuations for currencies other than U.S. dollars and the effects of acquisitions and divestitures in the periods presented. See below for a description of the methodology we use to present organic revenues.

Selected references are made to revenue growth on an “organic basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates and without the impacts of acquisitions and divestitures from “organic basis” financial results, thereby providing comparisons of operating performance from period to period of the business that we have owned during all periods presented. Organic revenue growth is calculated by dividing the year-over-year change in GAAP revenues attributed to organic growth by the GAAP revenues reported in the prior comparable period. This approach is used for all results where the functional currency is not the U.S. dollar.

There are limitations to the use of the Non-GAAP financial measures presented in this press release. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our Non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate Non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies.

 

Condensed Consolidated Statements of Operations

(preliminary and unaudited)

 

 

Three Months Ended

 

Nine Months Ended

(in millions, except per-share amounts)

 

December 31,
2022

 

December 31,
2021

 

December 31,
2022

 

December 31,
2021

 

 

 

 

 

 

 

 

 

Revenues

 

$

3,566

 

 

$

4,089

 

 

$

10,839

 

 

$

12,257

 

 

 

 

 

 

 

 

 

 

Costs of services (excludes depreciation and amortization and restructuring costs)

 

 

2,799

 

 

 

3,179

 

 

 

8,504

 

 

 

9,522

 

Selling, general and administrative (excludes depreciation and amortization and restructuring costs)

 

 

315

 

 

 

340

 

 

 

988

 

 

 

1,093

 

Depreciation and amortization

 

 

375

 

 

 

424

 

 

 

1,144

 

 

 

1,294

 

Restructuring costs

 

 

49

 

 

 

36

 

 

 

135

 

 

 

248

 

Interest expense

 

 

56

 

 

 

38

 

 

 

137

 

 

 

161

 

Interest income

 

 

(41

)

 

 

(15

)

 

 

(89

)

 

 

(51

)

Debt extinguishment costs

 

 

 

 

 

2

 

 

 

 

 

 

311

 

Loss (gain) on disposition of businesses

 

 

9

 

 

 

4

 

 

 

12

 

 

 

(373

)

Other income, net

 

 

(98

)

 

 

(85

)

 

 

(270

)

 

 

(290

)

Total costs and expenses

 

 

3,464

 

 

 

3,923

 

 

 

10,561

 

 

 

11,915

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

102

 

 

 

166

 

 

 

278

 

 

 

342

 

Income tax expense

 

 

41

 

 

 

64

 

 

 

86

 

 

 

145

 

Net income

 

 

61

 

 

 

102

 

 

 

192

 

 

 

197

 

Less: net income attributable to non-controlling interest, net of tax

 

 

2

 

 

 

4

 

 

 

4

 

 

 

9

 

Net income attributable to DXC common stockholders

 

$

59

 

 

$

98

 

 

$

188

 

 

$

188

 

 

 

 

 

 

 

 

 

 

Income per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.26

 

 

$

0.39

 

 

$

0.82

 

 

$

0.74

 

Diluted

 

$

0.25

 

 

$

0.38

 

 

$

0.80

 

 

$

0.73

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for:

 

 

 

 

 

 

 

 

Basic EPS

 

 

229.54

 

 

 

250.27

 

 

 

230.65

 

 

 

252.44

 

Diluted EPS

 

 

233.00

 

 

 

254.82

 

 

 

234.38

 

 

 

257.59

 

 

Selected Condensed Consolidated Balance Sheet Data

(preliminary and unaudited)

 

 

As of

(in millions)

 

December 31, 2022

 

March 31, 2022

Assets

 

 

 

 

Cash and cash equivalents

 

$

2,091

 

$

2,672

Receivables, net

 

 

3,454

 

 

 

3,854

 

Prepaid expenses

 

 

653

 

 

 

617

 

Other current assets

 

 

218

 

 

 

268

 

Assets held for sale

 

 

577

 

 

 

35

 

Total current assets

 

 

6,993

 

 

 

7,446

 

 

 

 

 

 

Intangible assets, net

 

 

2,741

 

 

 

3,378

 

Operating right-of-use assets, net

 

 

954

 

 

 

1,133

 

Goodwill

 

 

535

 

 

 

617

 

Deferred income taxes, net

 

 

219

 

 

 

221

 

Property and equipment, net

 

 

2,044

 

 

 

2,412

 

Other assets

 

 

4,653

 

 

 

4,850

 

Assets held for sale - non-current

 

 

115

 

 

 

82

 

Total Assets

 

$

18,254

 

 

$

20,139

 

 

 

 

 

 

Liabilities

 

 

 

 

Short-term debt and current maturities of long-term debt

 

$

873

 

 

$

900

 

Accounts payable

 

 

852

 

 

 

840

 

Accrued payroll and related costs

 

 

520

 

 

 

570

 

Current operating lease liabilities

 

 

320

 

 

 

388

 

Accrued expenses and other current liabilities

 

 

1,932

 

 

 

2,882

 

Deferred revenue and advance contract payments

 

 

969

 

 

 

1,053

 

Income taxes payable

 

 

166

 

 

 

197

 

Liabilities related to assets held for sale

 

 

538

 

 

 

23

 

Total current liabilities

 

 

6,170

 

 

 

6,853

 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

3,850

 

 

 

4,065

 

Non-current deferred revenue

 

 

804

 

 

 

862

 

Non-current operating lease liabilities

 

 

691

 

 

 

815

 

Non-current income tax liabilities and deferred tax liabilities

 

 

784

 

 

 

994

 

Other long-term liabilities

 

 

992

 

 

 

1,136

 

Liabilities related to assets held for sale - non-current

 

 

11

 

 

 

39

 

Total Liabilities

 

 

13,302

 

 

 

14,764

 

 

 

 

 

 

Total Equity

 

 

4,952

 

 

 

5,375

 

 

 

 

 

 

Total Liabilities and Equity

 

$

18,254

 

 

$

20,139

 

 

Condensed Consolidated Statements of Cash Flows

(preliminary and unaudited)

 

 

Nine Months Ended

(in millions)

 

December 31, 2022

 

December 31, 2021

Cash flows from operating activities:

 

 

 

 

Net income

 

$

192

 

 

$

197

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

 

1,169

 

 

 

1,309

 

Operating right-of-use expense

 

 

311

 

 

 

371

 

Pension & other post-employment benefits, actuarial & settlement losses

 

 

 

 

 

7

 

Share-based compensation

 

 

81

 

 

 

77

 

Deferred taxes

 

 

(170

)

 

 

17

 

Gain on dispositions

 

 

(43

)

 

 

(402

)

Unrealized foreign currency exchange loss (gain)

 

 

80

 

 

 

(20

)

Impairment losses and contract write-offs

 

 

31

 

 

 

21

 

Debt extinguishment costs

 

 

 

 

 

311

 

Other non-cash charges, net

 

 

(3

)

 

 

2

 

Changes in assets and liabilities, net of effects of acquisitions and dispositions:

 

 

 

 

Decrease in assets

 

 

84

 

 

 

386

 

Decrease in operating lease liability

 

 

(311

)

 

 

(371

)

Decrease in other liabilities

 

 

(421

)

 

 

(675

)

Net cash provided by operating activities

 

 

1,000

 

 

 

1,230

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

 

(212

)

 

 

(217

)

Payments for transition and transformation contract costs

 

 

(166

)

 

 

(152

)

Software purchased and developed

 

 

(154

)

 

 

(211

)

Business dispositions

 

 

52

 

 

 

519

 

Proceeds from sale of assets

 

 

165

 

 

 

95

 

Short-term investing

 

 

 

 

 

24

 

Other investing activities, net

 

 

16

 

 

 

35

 

Net cash (used in) provided by investing activities

 

 

(299

)

 

 

93

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings of commercial paper

 

 

1,363

 

 

 

840

 

Repayments of commercial paper

 

 

(1,312

)

 

 

(821

)

Borrowings on long-term debt

 

 

 

 

 

19

 

Principal payments on long-term debt

 

 

 

 

 

(2,872

)

Payments on finance leases and borrowings for asset financing

 

 

(399

)

 

 

(855

)

Proceeds from bond issuance

 

 

 

 

 

2,918

 

Proceeds from stock options and other common stock transactions

 

 

1

 

 

 

12

 

Taxes paid related to net share settlements of share-based compensation awards

 

 

(15

)

 

 

(15

)

Payments for debt extinguishment costs

 

 

 

 

 

(344

)

Repurchase of common stock

 

 

(325

)

 

 

(352

)

Other financing activities, net

 

 

(6

)

 

 

10

 

Net cash used in financing activities

 

 

(693

)

 

 

(1,460

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(95

)

 

 

25

 

Net decrease in cash and cash equivalents including cash classified within current assets held for sale

 

 

(87

)

 

 

(112

)

Change in cash classified within current assets held for sale

 

 

(494

)

 

 

63

 

Net decrease in cash and cash equivalents

 

 

(581

)

 

 

(49

)

Cash and cash equivalents at beginning of year

 

 

2,672

 

 

 

2,968

 

Cash and cash equivalents at end of period

 

$

2,091

 

 

$

2,919

 


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