Item 1. Business
ITEM 1. BUSINESS
Overview
DXC, a Nevada corporation, is a global IT services market leader. We provide mission-critical IT services that transform global businesses. We deliver excellence for our customers and colleagues around the world.
Our more than 130,000 people in approximately 70 countries are entrusted by our customers, nearly half of today’s Fortune 500 companies, to provide solutions across the Enterprise Technology Stack for new levels of performance, scale and competitiveness.
DXC was formed on April 1, 2017 by the merger of CSC and HPES (the "HPES Merger").
Transformation Journey
DXC's transformation journey focuses on building stronger relationships with customers, its people, and unlocking value across the Enterprise Technology Stack.
Key transformation journey priorities include:
• Inspire and Take Care of our Colleagues – Ensuring the health and safety of our people is a top priority, especially in the current environment
Continuing to bring in new technology, account and delivery talent across the world, and making investments that recognize and reward our people
• Focus on Customers – Strengthening our customer relationships and ensuring we are proactively delivering for customers
• Optimize Costs – Optimizing value to better serve our customers by eliminating confusion and complexity
• Seize the Market – Seizing the market opportunity by cross-selling and expanding what we do with our customers across the Enterprise Technology Stack
• Financial Foundation – Unlocking value by pursuing strategic alternatives, rationalizing our portfolio, and strengthening our balance sheet through creating a firm foundation that reflects our commitment to running a long-term sustainable business
The Company will continue to focus on execution of its transformation journey in the next fiscal year, with a continued focus on our people, revenue stabilization, cost optimization and winning in the market. The Company is continuing with its portfolio shaping efforts, making the right investments and divesting assets that the Company does not believe are well integrated with its enterprise technology stack and its strategic direction in order to better focus on its strategy.
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Important Acquisitions and Divestitures
During the third quarter of fiscal 2022, a subsidiary of DXC entered into a purchase agreement to sell (the "FDB Sale") its German financial services subsidiary ("FDB" or the "FDB Business") to the FNZ Group ("FNZ") for €300 million (approximately $335 million as of March 31, 2022), subject to certain adjustments. The closing of the transaction is subject to certain conditions, including receipt of certain regulatory consents. At March 31, 2022, FDB held approximately $572 million in cash which primarily related to customer deposit liabilities. The Company expects to complete the FDB Sale in fiscal 2023.
During the first quarter of fiscal 2022, DXC completed the sale of its healthcare provider software business (“HPS” or the “HPS Business”) to Dedalus Holding S.p.A. (“Dedalus”). The sale was accomplished by the cash purchase of all equity interests and assets attributable to the HPS Business for €468 million (approximately $551 million), subject to certain adjustments.
During fiscal 2021, DXC completed the sale of its U.S. State and Local Health and Human Services business ("HHS" or the "HHS Business") to Veritas Capital Fund Management, L.L.C. ("Veritas Capital") to form Gainwell Technologies. The sale was accomplished by the cash purchase of all equity interests and assets attributable to the HHS Business together with future services to be provided by the Company for a total enterprise value of $5.0 billion, subject to net working capital adjustments and assumed liabilities.
During fiscal 2020, DXC completed the acquisition of Luxoft Holding, Inc., a global scale digital service provider whose offerings encompass strategic consulting, custom software development, and digital solution engineering services. We also completed other acquisitions during fiscal 2020 to complement our offerings and to provide opportunities for future growth.
See Note 2 - "Acquisitions" and Note 3 - "Divestitures" for further information on acquisitions and divestitures.
Segments and Services
Our reportable segments are Global Business Services ("GBS") and Global Infrastructure Services ("GIS").
Global Business Services
GBS provides innovative technology solutions that help our customers address key business challenges and accelerate transformations tailored to each customer’s industry and specific objectives. GBS offerings include:
• Analytics and Engineering. Our portfolio of analytics services and extensive partner ecosystem help customers gain rapid insights, automate operations, and accelerate their transformation journeys. We provide software engineering, consulting, and data analytics solutions that enable businesses to run and manage their mission-critical functions, transform their operations, and develop new ways of doing business.
• Applications. We use advanced technologies and methods to accelerate the creation, modernization, delivery and maintenance of high-quality, secure applications allowing customers to innovate faster while reducing risk, time to market, and total cost of ownership. We support customers across all industries, including public sector, insurance, banking and capital markets, and automotive.
• Business process services. We perform the integration and optimization of front and back office processes, as well as agile process automation. This helps companies to reduce cost and minimize business disruption, human error, and operational risk while improving customer experiences.
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Global Infrastructure Services
GIS provides a portfolio of technology offerings that deliver predictable outcomes and measurable results while reducing business risk and operational costs for customers. GIS offerings include:
• Cloud and Security. We help customers rapidly modernize by adapting legacy apps to cloud, migrate the right workloads, and effectively manage their multi-cloud environments. Our security solutions help predict attacks, proactively respond to threats, ensure compliance and protect data, applications and infrastructure.
• IT Outsour cing ("ITO"). Our ITO services help customers securely and cost-effectively run mission-critical systems and IT infrastructure. We manage and simplify our customers’ existing IT investments, reduce the costs to run them and provide a path for customers to move portions of their IT estates to the cloud to drive innovation and additional savings.
• Modern Workplace. We provide services to fit our customer’s employee, business and IT needs from intelligent collaboration, modern device management, digital support services, and mobility services. Our focus on the employee experience provides a consumer-like, digital experience that fits the needs of today's professional.
See Note 20 - "Segment and Geographic Information" for additional information related to our reportable segments, including the disclosure of segment revenues, segment profit, and financial information by geographic area.
Sales and Marketing
We market and sell our services to customers through our direct sales force, which operates out of various locations around the world. Our customers include commercial businesses of many sizes and across many industries, as well as public sector enterprises. No individual customer exceeded 10% of our consolidated revenues for fiscal 2022, fiscal 2021, or fiscal 2020.
Seasonality
General economic conditions have an impact on our business and financial results. The markets in which we sell our solutions, services and products occasionally experience weak economic conditions that may negatively affect sales. We also experience some seasonal trends in the sale of our services. For example, contract awards and certain revenue are often tied to the timing of our customers' fiscal year-ends, and we also experience seasonality related to our own fiscal year-end selling activities.
Competition
The IT and professional services markets we compete in are highly competitive and are not dominated by a single company or a small number of companies. A substantial number of companies offer services that overlap our offerings and are competitive with our services. In addition, the increased importance of offshore labor centers has brought several foreign-based competitors into our markets.
Our competitors include:
• large multinational enterprises that offer some or all of the services and solutions that we offer;
• smaller companies that offer focused services and solutions similar to those that we offer;
• offshore service providers in lower-cost locations, particularly in India that sell directly to end-users;
• solution or service providers that compete with us in a specific industry segment or service area; and
• in-house functions of corporations that use their own resources rather than engaging an outside IT services provider.
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The principal methods of competition in the markets for our solutions and services include:
• vision and strategic advisory ability;
• integrated solutions capabilities;
• performance and reliability;
• global and diverse talent;
• delivery excellence and ongoing support;
• responsiveness to customer needs;
• competitive pricing of services;
• technical and industry expertise;
• reputation and experience;
• quality of solutions and services; and
• financial stability and strong corporate governance.
Our ability to obtain new business and retain existing business is dependent upon the following:
• technology, industry and systems know-how with an independent perspective on best solutions across software, hardware, and service providers;
• ability to offer improved strategic frameworks and technical solutions;
• investments in our services and solutions;
• focus on responsiveness to proactively address customer needs, provide quality services and competitive prices;
• successful management of our relationships with leading strategic and solution partners in hardware, networking, cloud, applications and software;
• project management experience and capabilities, including delivery;
• end-to-end spectrum of IT and professional services we provide; and
• financial stability and strong corporate governance.
Intellectual Property
We rely on a combination of trade secrets, patents, copyrights, and trademarks, as well as contractual protections to protect our business interests. While our technical services and products are not generally dependent upon patent protection, we do selectively seek patent protection for certain inventions likely to be incorporated into products and services or where obtaining such proprietary rights will improve our competitive position.
As our patent portfolio has been built over time, the remaining terms of the individual patents across the patent portfolio vary. We believe that our patents and patent applications are important for maintaining the competitive differentiation of our solutions and services and enhancing our freedom to sell solutions and services in markets in which we choose to participate.
Additionally, we own or have rights to various trademarks, service marks, and trade names that are used in the operation of our business. We also own or have the rights to copyrights that protect the content of our products and other proprietary materials.
In addition to developing our intellectual property portfolio, we license intellectual property rights from third parties as we deem appropriate. We have also granted and plan to continue to grant licenses to others under our intellectual property rights when we consider these arrangements to be in our interest.
Environmental, Social and Governance ("ESG")
In 2021, we enhanced the governance of our ESG program to include a multitiered process involving the Board of Directors, members of our executive staff and internal leadership. Our Board of Directors provides oversight of our ESG program, enabling us to have the governance, long-term strategy and processes to manage ESG outcomes and meet the needs of our stakeholders. The Nominating and Corporate Governance Committee of our Board of Directors has specific oversight of ESG. Our ESG leadership team regularly updates the committee on ESG status and provides an update to the full board annually.
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Our ESG strategy reflects our ongoing commitment to being a responsible corporate citizen. We are proud to be part of the global movement to minimize the impact of climate change on the world, and we are dedicated to driving sustainable growth by setting ambitious, science-based emissions reduction targets in the next two years.
We strive to minimize our impact on the environment and improve resource efficiency in the areas of energy consumption, data center management and travel and transportation. Our conservation efforts are supported in part by our shift to a virtual-first operating model, which enables our workforce to be largely remote and helps us reduce our greenhouse gas emissions and our overall energy consumption. While the virtual-first model mainly helps reduce the size of our office footprint, we are also pursuing efficiency programs for data centers and data center rationalization programs to reduce energy consumption.
DXC also partners with customers to help them achieve their own climate-related goals. In response to shifting customer demand, we offer a number of products and services that can have a significant impact on our customers’ sustainability objectives, delivering climate-related benefits far greater than what we could achieve alone through our internal carbon-reduction efforts. Offerings such as DXC Modern Workplace, cloud migration services and data-driven sustainability services directly reduce carbon emissions for our customers. (1)
Additional information about our ESG initiatives is available on our website at http://dxc.com/us/en/about-us/corporate-responsibility . The information on our website is not incorporated by reference into, and is not a part of, this report.
Environmental Regulation
Our operations are subject to regulation under various federal, state, local, and foreign laws concerning the environment and sustainability, including laws addressing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, and the clean-up of contaminated sites. Environmental costs and accruals are presently not material to our operations, cash flows or financial position; and, we do not currently anticipate material capital expenditures for environmental control facilities. However, we could incur substantial costs including clean-up costs, fines and civil or criminal sanctions and third-party damage or personal injury claims if we were to violate or become liable under existing and future environmental laws or legislation. To limit future risks, DXC has committed to set near-term company-wide emission reductions in line with the Science Based Targets initiative (SBTi).
Human Capital Management
As a leading global information technology services company, we attract highly skilled and educated people. As of March 31, 2022, we employed more than 130,000 people worldwide. At DXC we value our people and the opportunity to engage with them - we are at our best when our people feel valued and respected.
Value of Employee Engagement
We value our people and take various actions for employee engagement. We assess employee engagement at least annually through a global engagement survey. During the past surveys, we have approximately 80% of our people participating in the survey with an employee engagement score measuring above 70%, and employees rated DXC highly on career path, communication, and culture. Based on feedback received through periodic engagement surveys, management has implemented several initiatives to improve the employee experience through rewards and recognition, open communications and process improvement. Various platforms like Global Talent Management, Coaching & Mentoring, Career Development programs, and global recognition are also used to improve employee experiences and engagement.
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(1) The information in this section is based in part on data provided to us by our customers, and we do not,and do not intend to, independently verify such information or claims.
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Management During COVID-19
We are committed to keeping our people safe and well. DXC employees are equipped and enabled to work virtually and flexibly from home and continue to deliver results for our customers. Science and data will remain the drivers of our approach as we continue to navigate through COVID-19, and promote the safety and well-being of our people. We will remain flexible and ready to react quickly if required to deliver for our customers. We recognize that this is an opportunity for DXC to change employee experience in an impactful way.
Training and Education
We view professional development as a corporate responsibility — a strategic investment in our employees’ and the company’s future. Through our global learning management ecosystem, we offer hundreds of learning programs as well as a career development system to help employees reach their potential. Providing ways to learn, grow, and explore new and challenging opportunities contribute to our ability to retain a motivated, knowledgeable workforce. Assessing employee abilities and contributions is a cornerstone of development at DXC. Our self-directed learning culture encourages employees to learn at their own pace and in a learning environment of their preference. Key to our people development is the role managers play – we remain focused on equipping and enabling our people leaders so that our people have leaders that guide and support them in their development and success.
Inclusion & Diversity
We are committed to an Inclusive and Diverse workforce. The DXC Global Diversity and Non-Discrimination Policy guides our engagement in management and hiring practices that promote diversity and inclusion.
Human Rights
We are committed to the protection and advancement of human rights and to enabling our operations in communities around the world to function with integrity. DXC is firmly committed to preventing the exploitation of vulnerable groups. Our main human rights–related focus areas are promoting good practice through our large and diverse global supply chain and supporting a diverse and inclusive corporate culture.
Available Information
We use our corporate website, www.dxc.technology , as a routine channel for distribution of important information, including detailed company information, financial news, SEC filings, Annual Reports, historical stock information and links to a recent earnings call webcast. DXC’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and the Proxy Statements for our Annual Meetings of Stockholders are made available, free of charge, on our corporate website as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. They are also available through the SEC at www.sec.gov. Our corporate governance guidelines, Board committee charters (including the charters of the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee) and code of ethics entitled "Code of Conduct" are also available on our website. The information on our website is not incorporated by reference into, and is not a part of, this report.
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Information About Our Executive Officers
Name Age Year First Elected as Officer Term as an Officer Position Held with the Registrant as of the filing date Family Relationship
Michael J. Salvino 56 2019 Indefinite President and Chief Executive Officer None
Kenneth P. Sharp 51 2020 Indefinite Executive Vice President and Chief Financial Officer None
William L. Deckelman, Jr. 64 2017 Indefinite Executive Vice President and General Counsel None
Mary E. Finch 52 2019 Indefinite Executive Vice President and Chief Human Resources Officer None
Vinod Bagal 56 2019 Indefinite President, Cloud and Infrastructure Services None
Christopher R. Drumgoole 47 2021 Indefinite Executive Vice President and Chief Operating Officer None
Christopher A. Voci 50 2021 Indefinite Senior Vice President, Corporate Controller and
Principal Accounting Officer None
Business Experience of Executive Officers
Michael J. Salvino became the President and Chief Executive Officer of DXC in September 2019 and has been a member of the Board of Directors of DXC since May 2019. Prior to joining DXC, Mr. Salvino served as managing director of Carrick Capital Partners from 2016 to 2019, where he was directly involved with Carrick's portfolio companies and in sourcing new investments, growing and managing large scale tech-enabled services businesses, specifically business process outsourcing, security and machine learning. Prior to his tenure at Carrick, from 2009 to 2016, Mr. Salvino served as group chief executive of Accenture Operations, where he led a team of more than 100,000 consulting and outsourcing professionals focused on providing business process outsourcing, infrastructure, security and cloud services to deliver business value and drive productivity and digital improvements for clients. P rior to that, he held leadership roles in the HR outsourcing business at Hewitt Associates Inc. and as president of the Americas Region at Exult Inc. Mr. Salvino is a board member of the Atrium Health Foundation, the largest healthcare system in the Carolinas, where he serves on the Investment Oversight Committee for both the hospital and the foundation. Mr. Salvino graduated from Marietta College with a Bachelor of Science degree in industrial engineering. He serves on the Marietta College Board of Trustees and is also a member of the Board of Visitors of the Duke University Pratt School of Engineering.
Kenneth P. Sharp became the Executive Vice President and Chief Financial Officer of DXC in November 2020. Prior to joining DXC, Mr. Sharp served as Vice President and Chief Financial Officer, Defense Systems Sector for Northrop Grumman (“NOC”) from June 2018 to November 2020. From January 2016 to June 2018, Mr. Sharp served as Senior Vice President, Finance of Orbital ATK (subsequently purchased by NOC). Prior to that, he served as Senior Vice President, Chief Accounting Officer and Corporate Controller of Leidos, Inc. (formerly SAIC, Inc.). Before joining Leidos, Mr. Sharp spent a decade at CSC, the predecessor company to DXC and eight years at Ernst & Young. Mr. Sharp also served in the United States Marine Corps.
William L. Deckelman, Jr. serves as Executive Vice President and General Counsel of DXC since September 2020. He previously served as Executive Vice President, General Counsel and Secretary of DXC since the completion of the HPES Merger. Prior to that, Mr. Deckelman served as Executive Vice President, General Counsel and Secretary of CSC. Mr. Deckelman joined CSC in January 2008 and served as Vice President, General Counsel and Secretary from 2008 to 2012, as Executive Vice President and General Counsel from 2012 to 2014, and as Executive Vice President, General Counsel and Secretary from August 2014 until the completion of the HPES Merger. Prior to joining CSC, Mr. Deckelman served as Executive Vice President and General Counsel of Affiliated Computer Services Inc. from 2000 to 2008, served as a director from 2000 to 2003, and previously held various executive positions there from 1989 to 1995.
Mary E. Finch was appointed as Executive Vice President and Chief Human Resources Officer of DXC in October 2019. Ms. Finch previously served as Executive Vice President and Chief Human Resources Officer of AECOM from September 2015 to October 2019. Prior to that, she served at Accenture as Senior Managing Director from September 2013 to August 2015 and as Managing Director Human Resources from January 2001 to September 2013, where she held various roles across the company including COO of Human Resources where she drove global delivery of HR services, overseeing operations supporting approximately 320,000 employees across 56 countries and multiple Accenture businesses. Ms. Finch also served as VP Human Resources of Abilizer Solutions Inc. from 2000 to 2001.
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Vinod Bagal serves as President, Cloud and Infrastructure Services since March 2022. He previously served as Executive Vice President, Global Delivery and Transformation of DXC from October 2019 to March 2022. Prior to joining DXC, Mr. Bagal served at Cognizant Technology Solutions as Senior Vice President - Global Multi-Service Integration and North America Delivery and as Senior Vice President - Global Technology Consulting and Multi-Service Integration from September 2014 to October 2019, where he led the transformation of Cognizant's client delivery organization to position it for the next wave of professional services demands. From 1994 to 2014, Mr. Bagal held a series of leadership roles at Accenture.
Christopher R. Drumgoole was appointed as Executive Vice President and Chief Operating Officer of DXC in August 2021. He previously served as Executive Vice President and Chief Information Officer since April 2020. Before joining DXC, Mr. Drumgoole served as Chief Information Officer at GE from May 2018 to April 2020, where he led the company’s global technology operations, including applications, infrastructure, and related shared services. Prior to that role, he was GE’s Chief Technology Officer from April 2014 to April 2018. Mr. Drumgoole joined GE from Verizon, where he was Chief Operating Officer of Verizon’s Terremark subsidiary, a cloud, hosting, and data center provider, from January 2012 to April 2014. Mr. Drumgoole serves on the Board of Directors of PetSmart; on the Advisory Board of Florida International University’s College of Engineering & Computing; and on the Board of Directors of ONUG, a forum for IT business leaders interested in open technologies.
Christopher A. Voci was appointed Senior Vice President, Corporate Controller and Principal Accounting Officer in June 2021. Before joining DXC, Mr. Voci served as Senior Vice President, Controller and Chief Accounting Officer for CACI International Inc. from November 2018 to May 2021. From 2016 to November 2018, Mr. Voci served as Vice President, Controller and Chief Accounting Officer of Orbital ATK (subsequently purchased by Northrop Grumman). Prior to that, he spent eleven years at Air Products and Chemicals, Inc. (“APD”). While at APD from 2004 to 2015, Mr. Voci was Global Controller Industrial Gases from 2014 to 2015, Global Controller Merchant Gases from 2011 to 2014, Director, Financial Planning & Analysis from 2007 to 2011 and Global Healthcare Controller from 2004 to 2007. Mr. Voci served as Senior Manager, Audit and Risk Advisory Services at KPMG LLP from 2002 to 2004 and in various roles at Arthur Andersen LLP from 1994 to 2002.
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