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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 189 added, 110 removed, 232 unchanged (56% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the first quarter of fiscal 2024 and our financial condition as of June 30, 2023.

The purpose of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the second quarter and first six months of fiscal 2024 and our financial condition as of September 30, 2023.

The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and accompanying notes.

3 unchanged sentences

• Critical Accounting Estimates

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the first quarters of fiscal 2024 and fiscal 2023.

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the second quarters and first six months of fiscal 2024 and fiscal 2023.

References are made throughout to the numbered Notes to the Condensed Consolidated Financial Statements (“Notes”) in this Quarterly Report on Form 10-Q.

6 unchanged sentences

Our customers include commercial businesses of many sizes and in many industries and public sector clients.

Key metrics for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 are included below.

Key metrics for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023 are included below.

We have presented organic revenue and diluted earnings per share on a non-GAAP basis.

1 unchanged sentence

• Revenues of $3.4 billion, down 3.6% compared to prior year period, and down 3.6% on an organic basis;

• Diluted earnings per share of $0.17, compared to $0.43 in the first quarter of fiscal 2023;

adjusted diluted earnings per share of $0.63, compared to $0.75 in the first quarter of fiscal 2023, a decrease of 16.0%;

• Q1 FY24 operating cash flow of $127 million, less capital expenditures of $202 million, resulted in free cash flow of $(75) million;

• Returned $280 million to shareholders through share repurchases.

Results of Operations for the Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Revenues across operating segments and geographies are provided below:

• Diluted earnings per share of $0.49, compared to $0.12 in the second quarter of fiscal 2023;

adjusted diluted earnings per share of $0.70, compared to $0.75 in the second quarter of fiscal 2023, a decrease of 6.7%;

• Fiscal 2024 operating cash flow of $375 million, less capital expenditures of $359 million, resulted in free cash flow of $16 million;

• Returned $214 million to shareholders through share repurchases in the second quarter of fiscal 2024.

Results of Operations for the Second Quarter and First Six Months of Fiscal 2024 and Fiscal 2023

Our revenue by geography and operating segment are provided below:

Three Months Ended Three Months Ended

(in millions) June 30, 2023 June 30, 2022 Percentage Change Constant Currency

June 30, 2023 (1)

(in millions) September 30, 2023 September 30, 2022 Percentage Change Constant Currency

September 30, 2023 (1)

Percentage Change in Constant Currency (1)

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Total Revenues $ 3,436 $ 3,566 (3.6) % $ 3,368 (5.6) %

Reportable Segments

Operating Segments

GBS $ 1,709 $ 1,713 (0.2) % $ 1,683 (1.8) %

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Total Revenues $ 3,436 $ 3,566 (3.6) % $ 3,368 (5.6) %

Six Months Ended Six Months Ended

(in millions) September 30, 2023 September 30, 2022 Percentage Change Constant Currency

September 30, 2023 (1)

Percentage Change in Constant Currency (1)

Geographic Market

United States $ 2,004 $ 2,224 (9.9) % $ 2,004 (9.9) %

925 925 0.0 % 893 (3.5) %

Other Europe 2,115 2,202 (4.0) % 2,037 (7.5) %

Australia 672 762 (11.8) % 709 (7.0) %

Other International 1,166 1,160 0.5 % 1,199 3.4 %

Total Revenues $ 6,882 $ 7,273 (5.4) % $ 6,842 (5.9) %

Operating Segments

GBS $ 3,412 $ 3,471 (1.7) % $ 3,401 (2.0) %

GIS 3,470 3,802 (8.7) % 3,441 (9.5) %

Total Revenues $ 6,882 $ 7,273 (5.4) % $ 6,842 (5.9) %

(1) Constant currency revenues are a non-GAAP measure calculated by translating current period activity into U.S.

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For more information, see "Non-GAAP Financial Measures."

For the first quarter of fiscal 2024, our total revenue was $3.4 billion, a decrease of $0.3 billion or 7.0%, compared to the same period a year ago.

The 7.0% decrease against the comparative period includes a 0.7% unfavorable foreign currency exchange rate impact, a 2.7% decline in revenue from the disposition of certain businesses, and a 3.6% decline in organic revenue.

For the second quarter of fiscal 2024, our total revenue was $3.4 billion, a decrease of $130 million or 3.6%, compared to the same period a year ago.

The 3.6% decrease against the comparative period includes a 2.0% favorable foreign currency exchange rate impact, a 2.0% decline in revenue from the disposition of certain businesses, and a 3.6% decline in organic revenue.

Organic revenue growth is a non-GAAP measure.

For more information, see "Non-GAAP Financial Measures".

The unfavorable foreign currency exchange rate impact is primarily driven by the strengthening of the U.S.

dollar against the Australian Dollar.

For the first six months of fiscal 2024, our total revenue was $6.9 billion, a decrease of $391 million or 5.4%, as compared to the same period a year ago.

The 5.4% decrease against the comparative period includes a 0.5% favorable foreign currency exchange rate impact, a 2.3% decline in revenue from the disposition of certain businesses, and a 3.6% decline in organic revenue.

The favorable foreign currency exchange rate impact is primarily driven by the weakening of the U.S.

dollar against the Euro and British Pound.

For the discussion of risks associated with our foreign operations, see Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Global Business Services

For the first quarter of fiscal 2024, GBS revenue was $1.7 billion, a decrease of $55 million or 3.1% compared to the same period a year ago.The 3.1% decrease against the comparative period includes a 0.8% unfavorable foreign currency exchange rate impact and a 5.6% decline in revenue from the disposition of certain businesses, partially offset by 3.3% organic revenue growth from additional services provided to new and existing customers.

GBS accounts for 49.4% of total revenue, an increase of 2.0% against the comparative period.

For the second quarter of fiscal 2024, GBS revenue was $1.7 billion, a decrease of $4 million or 0.2%, as compared to the same period a year ago.

The 0.2% decrease against the comparative period includes a 4.2% decline in revenue from the disposition of certain businesses, partially offset by 2.4% organic revenue growth from additional services provided to new and existing customers and a 1.6% favorable foreign currency exchange rate impact.

For the first six months of fiscal 2024, GBS revenue was $3.4 billion, a decrease of $59 million or 1.7%, as compared to the same period a year ago.

The 1.7% decrease against the comparative period includes a 4.8% decline in revenue from the disposition of certain businesses, partially offset by 2.8% organic revenue growth from additional services provided to new and existing customers, and a 0.3% favorable foreign currency exchange rate impact.

Global Infrastructure Services

For the first quarter of fiscal 2024, GIS revenue was $1.7 billion, a decrease of $206 million or 10.6% compared to the same period a year ago.

The 10.6% decrease against the comparative period includes a 0.7% unfavorable foreign currency exchange rate impact, and a 9.9% decline in organic revenue from project completions, early terminations, and lower resale revenue.

GIS accounts for 50.6% of total revenue, a decrease of 2.0% against the comparative period.

For the second quarter of fiscal 2024, our GIS revenue was $1.7 billion, a decrease of $126 million or 6.8%, as compared to the same period a year ago.

The 6.8% decrease against the comparative period includes a 9.1% decline in organic revenue from project completions and lower resale revenue, partially offset by a 2.3% favorable foreign currency exchange rate impact.

For the first six months of fiscal 2024, our GIS revenue was $3.5 billion, a decrease of $332 million or 8.7%, as compared to the same period a year ago.

The 8.7% decrease against the comparative period includes a 9.5% decline in organic revenue from project completions and lower resale revenue, partially offset by a 0.8% favorable foreign currency exchange rate impact.

Costs and Expenses

Our total costs and expenses are provided below:

Dollar Amount

Three Months Ended June 30, Change

(in millions)

2023 2022 Dollar Percent

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

$ 2,719 $ 2,930 $ (211) (7.2) %

Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 327 349 (22) (6.3) %

Dollar Amount Dollar Amount

Three Months Ended September 30, Change Six Months Ended September 30, Change

(in millions) 2023 2022 Dollar Percent 2023 2022 Dollar Percent

Costs of services $ 2,633 $ 2,775 $ (142) (5.1) % $ 5,352 $ 5,705 $ (353) (6.2) %

Selling, general and administrative 328 324 4 1.2 % 655 673 (18) (2.7) %

Depreciation and amortization 361 380 (19) (5.0) % 705 769 (64) (8.3) %

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Interest income (53) (28) (25) 89.3 % (102) (48) (54) 112.5 %

Loss (gain) on disposition of businesses 5 (29) 34 (117.2) %

Loss on disposition of businesses 2 32 (30) (93.8) % 7 3 4 133.3 %

Other income, net (76) (68) (8) 11.8 % (140) (172) 32 (18.6) %

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Costs of Services

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.7 billion for the first quarter of fiscal 2024, a decrease of $211 million compared to a year ago.

The $211 million decrease was primarily due to a favorable foreign currency exchange rate impact of $23 million, a decrease in costs from lower revenue levels, and a reduction in professional services and contractor-related expenses from our cost optimization efforts.

Gross margin (Revenues less COS as a percentage of revenue) was 21.1% and 21.0% for the first quarter of fiscal 2024 and 2023, respectively.

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.6 billion and $5.4 billion for the second quarter and first six months of fiscal 2024, respectively, a decrease of $142 million and $353 million, respectively, as compared to the same periods of the prior fiscal year.

The decrease in expense against both comparative periods was primarily due to a decrease in costs from lower revenue levels and a reduction in professional services and contractor-related expenses from our cost optimization efforts, partially offset by an unfavorable foreign currency exchange rate impact of $52 million and $29 million, respectively, for the second quarter and first six months of fiscal 2024.

Gross margin (Revenues less COS as a percentage of revenue) was 23.4% and 22.2% for the second quarter and first six months of fiscal 2024, respectively, an increase of 1.2% and 0.6% against the comparative period.

Selling, General and Administrative

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $327 million for the first quarter of fiscal 2024, a decrease of $22 million compared to a year ago.

During the first quarter of fiscal 2024, SG&A as a percentage of revenues was 9.5%, an increase of 10 basis points against the comparative period.

The $22 million decrease in SG&A expenses was primarily driven by reductions in professional services and vendor-related expenses, partially offset by increases in payroll and related expenses.

In the first quarter of fiscal 2024 and fiscal 2023, there was a merger-related indemnification expense of $11 million and $10 million, respectively.

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $328 million and $655 million for the second quarter and first six months of fiscal 2024, respectively, an increase of $4 million and a decrease of $18 million, respectively, as compared to the same periods of the prior fiscal year.

The $4 million increase in expense for the second quarter of fiscal 2024 was primarily due to an increase in professional services and other vendor-related expenses, partially offset by reductions in payroll related expenses.

The $18 million decrease in expense for the first six months of fiscal 2024 was primarily due to reductions in payroll related expenses, partially offset by an increase in professional services and other vendor-related expenses.

Depreciation and Amortization

Depreciation expense was $113 million for the first quarter of fiscal 2024, a decrease of $25 million compared to a year ago.

The decrease in depreciation expense was primarily due to lower average net property and equipment balances.

Amortization expense was $231 million for the first quarter of fiscal 2024, a decrease of $20 million compared to a year ago.

The decrease in amortization expense was primarily due to a decrease in software amortization and a reduction in transition and transformation contract cost amortization due to contract completions.

Depreciation expense was $112 million and $225 million for the second quarter and first six months of fiscal 2024, respectively, a decrease of $17 million and $42 million, respectively, as compared to the same periods of the prior fiscal year.

The decrease in depreciation expense against both comparative periods was primarily due to lower average net property and equipment balances.

Amortization expense was $249 million and $480 million for the second quarter and first six months of fiscal 2024, respectively, a decrease of $2 million and $22 million, respectively, as compared to the same periods of the prior fiscal year.

The decrease in amortization expense against both comparative periods was primarily due to lower software amortization.

Restructuring Costs

During fiscal 2024, management approved global cost savings initiatives designed to better align our facilities and data centers.

Total restructuring costs recorded, net of reversals, was $20 million for the first quarter of fiscal 2024, a decrease of $13 million compared to a year ago.

During fiscal 2024, management approved global cost savings initiatives designed to better align our facility and data center requirements.

During the second quarter and first six months of fiscal 2024, total restructuring costs recorded, net of reversals, were $35 million and $55 million, respectively, a decrease of $18 million and $31 million, respectively, as compared to the same periods of the prior fiscal year.

See Note 12 – “Restructuring Costs” for additional information about our restructuring actions.

Interest Expense and Interest Income

For the first quarter of fiscal 2024 and fiscal 2023, net interest expense (interest expense less interest income) was $17 million, respectively.

Net interest expense was flat against the comparative period primarily due to increases in interest expense from securitization and commercial paper expense offset by higher income from cash deposits, both of which are driven by higher interest rates globally.

Loss (Gain) on Disposition of Businesses

During the first quarter of fiscal 2024 and fiscal 2023, the Company sold insignificant businesses that resulted in a loss of $5 million and a gain of $38 million, respectively.

During the first quarter of fiscal 2023, the Company also classified certain insignificant businesses as held for sale and recognized a loss of $9 million.

Net interest expense (interest expense less interest income) was $25 million and $42 million for the second quarter and first six months of fiscal 2024, respectively, an increase of $9 million as compared to both periods of the prior fiscal year.

The increase in net interest expense against both comparative periods was primarily due to higher interest rates globally that increased interest expense from securitization and commercial paper, partially offset by higher income from cash deposits.

Loss on Disposition of Businesses

During the first six months of fiscal 2024 and fiscal 2023, the Company sold insignificant businesses that resulted in a loss of $7 million and $3 million, respectively.

Other Income, Net

Other income, net comprises non-service cost components of net periodic pension income, movement in foreign currency exchange rates on our foreign currency denominated assets and liabilities and the related economic hedges, equity earnings of unconsolidated affiliates and other miscellaneous gains and losses.

The components of other income, net for the first quarter of fiscal 2024 and 2023 were as follows:

Three Months Ended

(in millions) June 30, 2023 June 30, 2022 Dollar Change

Three Months Ended Six Months Ended

(in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Non-service cost components of net periodic pension income $ (36) $ (60) $ (73) $ (127)

Foreign currency gain

(1) (1) (9) (3)

Gain on sale of assets (6) (8) (27) (46)

Other loss 2 3 (1)

Other (gain) loss

(33) 1 (31) 4

Total $ (76) $ (68) $ (140) $ (172)

Other income, net, was $64 million and $104 million during the first quarter of fiscal 2024 and fiscal 2023, respectively, a change of $40 million compared to a year ago that was primarily due to:

• net periodic pension income decreased by $30 million primarily due to changes in expected returns on assets and other actuarial assumptions.

• foreign currency gains increased by $6 million primarily due to movements of exchange rates on our foreign currency-denominated assets and liabilities, related hedges including forward contracts to manage our exposure to economic risk, and the cost of our hedging program.

• a $17 million decrease in gains from sales of assets.

Our effective tax rate (“ETR”) was 46.2% and 15.6% for the first quarter of fiscal 2024 and the first quarter of fiscal 2023, respectively.

For the first quarter of fiscal 2024, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, and a decrease in uncertain tax positions due to an income tax audit settlement.

For the first quarter of fiscal 2023, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income and base erosion payments, and a decrease in uncertain tax positions due to statute of limitation expirations.

Other income, net, was $76 million for the second quarter of fiscal 2024, an increase of $8 million against the comparative period.

Other income, net, was $140 million for the first six months of fiscal 2024, a decrease of $32 million against the comparative period.

The change against the comparative period was primarily due to:

• net periodic pension income decreased by $24 million and $54 million primarily due to changes in expected returns on assets and other actuarial assumptions.

• foreign currency gains were immaterially different and increased by $6 million, primarily due to movements of exchange rates on our foreign currency-denominated assets and liabilities, related hedges including forward contracts to manage our exposure to economic risk, and the cost of our hedging program.

• a decrease in gains from sales of assets of $2 million and $19 million;

• an increase in other gains of $34 million and $35 million, primarily from the sale of a strategic investment in the second quarter of fiscal 2024.

Our effective tax rate (“ETR”) was 22.7% and 48.1% for the three months ended September 30, 2023 and September 30, 2022, respectively, and 31.6% and 25.6% for the six months ended September 30, 2023 and September 30, 2022, respectively.

For the three and six months ended September 30, 2023, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, a decrease in valuation allowances on deferred tax assets, and the foreign tax credit.

For the three months ended September 30, 2022, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, and the tax impact of business divestitures.

For the six months ended September 30, 2022, the primary drivers of the ETR were the global mix of income, tax impact of business divestitures, U.S.

tax on foreign income, and a decrease in unrecognized tax benefits due to income tax audit settlements and statute of limitation expirations.

Earnings Per Share

Diluted EPS for the first quarter of fiscal 2024 was $0.17, compared to $0.43 in the first quarter of fiscal 2023.

The decrease in earnings per share was primarily due to a decrease of $66 million in net income attributable to DXC common stockholders, partially offset by a lower weighted average common shares outstanding.

Diluted EPS for the first quarter of fiscal 2024 includes $0.07 per share of restructuring costs, $0.32 per share of amortization of acquired intangible assets, $0.02 per share of net losses on dispositions, $0.03 per share of impairment losses, and $0.01 per share of tax adjustments.

Diluted EPS for the first quarter of fiscal 2023 includes $0.11 per share of restructuring costs, $0.01 per share of transaction, separation and integration-related costs, $0.34 per share of amortization of acquired intangible assets, $0.16 per share of net gains on dispositions, and $0.03 per share of merger related indemnification costs.

Diluted EPS for the second quarter and first six months of fiscal 2024 was $0.49 and $0.65, respectively, an increase of $0.37 and $0.10, respectively, as compared to the same periods of the prior fiscal year.

The increase in diluted EPS against both comparative periods was primarily due to increases in net income attributable to DXC common stockholders and lower weighted average share counts from the Company’s share repurchases.

Diluted EPS for the second quarter of fiscal 2024 includes $0.13 per share of restructuring costs, $0.01 per share of transaction, separation and integration-related costs, $0.34 per share of amortization of acquired intangible assets, $(0.11) per share of net gains on dispositions, $0.01 per share of impairment losses, and $(0.17) per share of tax adjustments.

Diluted EPS for the first six months of fiscal 2024 includes $0.20 per share of restructuring costs, $0.01 per share of transaction, separation and integration-related costs, $0.66 per share of amortization of acquired intangible assets, $(0.09) per share of net gains on dispositions, $0.04 per share of impairment losses, and $(0.15) per share of tax adjustments.

Non-GAAP Financial Measures

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Certain non-GAAP financial measures and the respective most directly comparable financial measures calculated and presented in accordance with GAAP include:

Dollar Amount

Three Months Ended June 30, Change

(in millions) 2023 2022 Dollar Percent

Dollar Amount Dollar Amount

Three Months Ended September 30, Change Six Months Ended September 30, Change

(in millions) 2023 2022 Dollar Percent 2023 2022 Dollar Percent

Income before income taxes

$ 128 $ 54 $ 74 137.0 % $ 206 $ 176 $ 30 17.0 %

Non-GAAP income before income taxes $ 226 $ 253 $ (27) (10.7) % $ 433 $ 495 $ (62) (12.5) %

Net income $ 42 $ 103 $ (61) (59.2) %

$ 99 $ 28 $ 71 253.6 % $ 141 $ 131 $ 10 7.6 %

Adjusted EBIT $ 251 $ 269 $ (18) (6.7) % $ 475 $ 528 $ (53) (10.0) %

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• Amortization of acquired intangible assets – includes amortization of intangible assets acquired through business combinations.

• Pension and OPEB actuarial and settlement gains and losses – pension and OPEB actuarial mark to market adjustments and settlement gains and losses.

• Merger related indemnification – in fiscal 2024, represents the Company’s current estimate of potential liability to HPE for a tax related indemnification;

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These obligations are related to the HPES merger.

• SEC Matter - represents the Company’s liability related to a previously disclosed investigation into its historical determination and disclosure of certain “transaction, separation, and integration-related costs” as part of the Company’s non-GAAP adjustments.

• Gains and losses on dispositions – gains and losses related to dispositions of businesses, strategic assets and interests in less than wholly-owned entities.

3 unchanged sentences

Income tax expense of all other (non-discrete) non-GAAP adjustments is based on the difference in the GAAP annual effective tax rate (AETR) and overall non-GAAP provision (consistent with the GAAP methodology).

(1) During the first quarter of fiscal 2024 and fiscal 2023, the Company sold insignificant businesses that resulted in a loss of $5 million and a gain of $38 million, respectively.

During the first quarter of fiscal 2023, the Company also classified certain insignificant businesses as held for sale and recognized a loss of $9 million.

(2) Impairment losses for the first quarter of fiscal 2024 include a $3 million and $4 million impairment charge associated with two strategic investments accounted for within Other income, net and Net income attributable to non-controlling interest, net of tax, respectively.

(1) During the first six months of fiscal 2024, the Company sold insignificant businesses and a strategic investment that resulted in a net gain of $28 million.

During the first six months of fiscal 2023, the Company sold insignificant businesses that resulted in a net loss of $3 million.

(2) Impairment losses on dispositions for the second quarter and first six months of fiscal 2024 include a $2 million and a $5 million, respectively, of charges associated with certain strategic investments accounted for within Other income, net.

Impairment losses on dispositions for the first quarter of fiscal 2024 included $4 million of Net income attributable to non-controlling interest, net of tax.

A reconciliation of reported results to non-GAAP results is as follows:

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

(in millions, except per-share amounts) As

3 unchanged sentences

Integration-Related Costs Amortization

Assets Merger Related

Indemnification Gains and

Dispositions Impairment Losses Tax

Adjustments Non-GAAP

Assets Merger Related Indemnification Gains and Losses on Dispositions Impairment Losses Tax Adjustment Non-GAAP

Income before income taxes $ 128 $ 35 $ 3 $ 89 $ 2 $ (33) $ 2 $ — $ 226

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Diluted EPS 203.06 203.06 203.06 203.06 203.06 203.06 203.06 203.06 203.06

Three Months Ended June 30, 2022

Six Months Ended September 30, 2023

(in millions, except per-share amounts) As

4 unchanged sentences

Assets Merger Related

Indemnification Gains and

Dispositions Non-GAAP

Indemnification Gains and Losses on Dispositions Impairment Losses Tax Adjustment Non-GAAP

Income before income taxes $ 206 $ 55 $ 4 $ 178 $ 13 $ (28) $ 5 $ — $ 433

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Diluted EPS 208.90 208.90 208.90 208.90 208.90 208.90 208.90 208.90 208.90

Three Months Ended September 30, 2022

(in millions, except per-share amounts) As

Reported Restructuring costs Transaction,

Separation and

Integration-Related Costs Amortization

Assets SEC Matter Gains and Losses on Dispositions Pension and OPEB Actuarial and Settlement Gains and Losses Non-GAAP

Income before income taxes

$ 54 $ 53 $ 4 $ 101 $ 8 32 $ 1 $ 253

Income tax expense

26 10 1 18 1 22 — 78

28 43 3 83 7 10 1 175

net income attributable to non-controlling interest, net of tax 1 — — — — — — 1

Net income attributable to DXC common stockholders

$ 27 $ 43 $ 3 $ 83 $ 7 $ 10 $ 1 $ 174

Effective Tax Rate 48.1 % 30.8 %

Basic EPS $ 0.12 $ 0.19 $ 0.01 $ 0.36 $ 0.03 $ 0.04 $ 0.00 $ 0.76

Diluted EPS $ 0.12 $ 0.18 $ 0.01 $ 0.36 $ 0.03 $ 0.04 $ 0.00 $ 0.75

Weighted average common shares outstanding for:

Basic EPS 229.96 229.96 229.96 229.96 229.96 229.96 229.96 229.96

Diluted EPS 233.17 233.17 233.17 233.17 233.17 233.17 233.17 233.17

Six Months Ended September 30, 2022

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction,

Separation and

Integration-Related Costs Amortization

Assets Merger Related indemnification SEC Matter Gains and Losses on Dispositions Pension and OPEB Actuarial and Settlement Gains and Losses Non-GAAP

Income before income taxes $ 176 $ 86 $ 6 $ 205 $ 10 $ 8 $ 3 $ 1 $ 495

Income tax expense 45 18 1 42 2 1 31 — 140

Net income 131 68 5 163 8 7 (28) 1 355

net income attributable to non-controlling interest, net of tax 2 — — — — — — — 2

Net income attributable to DXC common stockholders $ 129 $ 68 $ 5 $ 163 $ 8 $ 7 $ (28) $ 1 $ 353

Effective Tax Rate 25.6 % 28.3 %

Basic EPS $ 0.56 $ 0.29 $ 0.02 $ 0.70 $ 0.03 $ 0.03 $ (0.12) $ 0.00 $ 1.53

Diluted EPS $ 0.55 $ 0.29 $ 0.02 $ 0.69 $ 0.03 $ 0.03 $ (0.12) $ 0.00 $ 1.50

Weighted average common shares outstanding for:

Basic EPS 231.21 231.21 231.21 231.21 231.21 231.21 231.21 231.21 231.21

Diluted EPS 234.93 234.93 234.93 234.93 234.93 234.93 234.93 234.93 234.93

Reconciliations of revenue growth to organic revenue growth are as follows:

Three Months Ended

June 30, 2023 June 30, 2022

Three Months Ended Six Months Ended

(in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Total revenue growth

(3.6) % (11.4) % (5.4) % (11.0) %

Foreign currency

(2.0) % 7.4 % (0.5) % 6.7 %

Acquisition and divestitures

2.0 % 2.5 % 2.3 % 2.2 %

Organic revenue growth

(3.6) % (1.5) % (3.6) % (2.1) %

GBS revenue growth

(0.2) % (8.5) % (1.7) % (7.7) %

Foreign currency

(1.6) % 7.4 % (0.3) % 6.7 %

Acquisition and divestitures

4.2 % 4.5 % 4.8 % 4.1 %

GBS organic revenue growth

2.4 % 3.4 % 2.8 % 3.1 %

GIS revenue growth

(6.8) % (14.0) % (8.7) % (13.7) %

Foreign currency

(2.3) % 7.5 % (0.8) % 6.6 %

Acquisition and divestitures

— % 0.7 % — % 0.6 %

GIS organic revenue growth

Reconciliations of net income to adjusted EBIT are as follows:

Three Months Ended

(in millions) June 30, 2023 June 30, 2022

(9.1) % (5.8) % (9.5) % (6.5) %

Reconciliations of net income (loss) to adjusted EBIT are as follows:

Three Months Ended Six Months Ended

(in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Net income $ 99 $ 28 $ 141 $ 131

2 unchanged sentences

Interest expense 78 44 144 81

EBIT 153 70 248 209

Restructuring costs 35 53 55 86

2 unchanged sentences

Merger related indemnification 2 — 13 10

Loss (gain) on disposition of businesses 5 (29)

SEC Matter — 8 — 8

(Gains) losses on dispositions

(33) 32 (28) 3

Impairment losses

Pension and OPEB actuarial and settlement losses — 1 — 1

Adjusted EBIT $ 251 $ 269 $ 475 $ 528

1 unchanged sentence

Cash and Cash Equivalents and Cash Flows

As of June 30, 2023, our cash and cash equivalents (“cash”) were $1.6 billion, of which $0.8 billion was held outside of the U.S.

As of September 30, 2023, our cash and cash equivalents (“cash”) were $1.4 billion, of which $0.7 billion was held outside of the U.S.

As of March 31, 2023, our cash was $1.9 billion, of which $0.7 billion was held outside of the U.S.

10 unchanged sentences

The following table summarizes our cash flow activity:

Three Months Ended

(in millions) June 30, 2023 June 30, 2022 Change

Six Months Ended

(in millions) September 30, 2023 September 30, 2022 Change

Net cash provided by (used in):

8 unchanged sentences

Operating cash flow

Net cash provided by operating activities was $127 million and $163 million, respectively, during the first quarters of fiscal 2024 and fiscal 2023, reflecting a year-over-year decrease of $36 million.

The decrease was primarily due to:

Net cash provided by operating activities during the first six months of fiscal 2024 of $375 million was flat as compared to the first six months of the prior fiscal year.

Operating cash flow against the comparative period included:

• a decrease in net income, net of adjustments of $154 million;

• a $73 million favorable change in working capital during the first quarter of fiscal 2024 compared to the first quarter fiscal 2023 primarily from improvements in our cash collection cycle.

• offset by a $154 million favorable change in working capital.

The following table contains certain key working capital metrics:

June 30, 2023 June 30, 2022

Three Months Ended

September 30, 2023 September 30, 2022

Days of sales outstanding in accounts receivable 65 70

2 unchanged sentences

Investing cash flow

Net cash used in investing activities was $199 million and $192 million, respectively, during the first quarters of fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $7 million.

The change was primarily due to:

• a $29 million year-over-year decrease in cash outflows from business dispositions.

• a $27 million year-over-year increase in capital expenditures primarily from software purchased and developed.

• a $9 million year-over-year decrease in cash flows from other net investing activities.

Net cash used in investing activities was $284 million and $193 million, respectively, during the first six months of fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $91 million.

The change against the comparative period was primarily due to:

• a decrease in proceeds from sales of assets and business dispositions of $44 million and $51 million, respectively;

• a decrease in cash flows from other net investing activities of $7 million;

• partially offset by an $11 million decrease in capital expenditures.

Financing cash flow

Net cash used in financing activities was $210 million and $394 million, respectively, during the first quarters of fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $184 million.

The lower net cash used in financing activities was primarily due to:

Net cash used in financing activities was $521 million and $513 million, respectively, during the first six months of fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $8 million.

The change against the comparative period was primarily due to:

• a $254 million increase in cash used for share repurchase activity and related taxes paid on net share settlements;

partially offset by

• a $203 million increase in cash inflows from commercial paper borrowings, net of repayments and other financing activities;

• a $43 million decrease in payments on capital leases and borrowings for asset financings, as the Company continues reducing the volume of these financing arrangements.

• a $188 million increase in cash inflows from commercial paper borrowings, net of repayments.

• $35 million of higher cash outflows from increased share repurchase activity and related taxes paid on net share settlements.

Debt Financing

The following table summarizes our total debt:

(in millions) June 30, 2023 March 31, 2023 Change

(in millions) September 30, 2023 March 31, 2023

Short-term debt and current maturities of long-term debt $ 672 $ 500

1 unchanged sentence

Total debt $ 4,463 $ 4,400

The $185 million increase in total debt during the first quarter of fiscal 2024 was primarily attributable to the increase in borrowings of commercial paper and an unfavorable foreign currency exchange rate of U.S.

dollar against the Euro, partially offset by decreases in finance leases and borrowings for asset financing attributable to payments exceeding additions.

We were in compliance with all financial covenants associated with our borrowings as of June 30, 2023 and June 30, 2022.

The $63 million increase in total debt during the first six months of fiscal 2024 was primarily attributable to the increase in borrowings of commercial paper partially offset by decreases in finance leases and borrowings for asset financing attributable to payments exceeding additions and a favorable foreign currency exchange rate of U.S.

dollar against the Euro.

We were in compliance with all financial covenants associated with our borrowings as of September 30, 2023 and September 30, 2022.

Our credit ratings are as follows:

6 unchanged sentences

We expect to continue using cash generated by operations as a primary source of liquidity;

however, should we require funds greater than that generated from our operations to fund discretionary investment activities, such as business acquisitions, we have the ability to raise capital through debt financing, including the issuance of capital market debt instruments such as commercial paper, and bonds.

In addition, we currently utilize, and will further utilize accounts receivables, sales facilities, and our cross currency cash pool for liquidity needs.

In addition, we currently utilize, and further utilize accounts receivables, sales facilities, and our cross-currency cash pool for liquidity needs.

However, there is no guarantee that we will be able to obtain debt financing, if required, on terms and conditions acceptable to us, if at all, in the future.

1 unchanged sentence

The recovery of these investments is over the life of the contracts and is dependent upon our performance as well as customer acceptance.

Our total liquidity of $5.1 billion as of June 30, 2023, includes $1.6 billion of cash and cash equivalents, $3.0 billion of available borrowings under our revolving credit facility, and $500 million of available borrowings under our USD Term Loan.

Our total liquidity of $4.4 billion as of September 30, 2023, includes $1.4 billion of cash and cash equivalents and $3.0 billion of available borrowings under our revolving credit facility.

On November 1, 2023, the Company extended the term and increased its available borrowings under our revolving credit facility to $3.2 billion.

Share Repurchases

9 unchanged sentences

For further information see “Cash Commitments” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

For our minimum purchase cash commitments in connection with our long-term purchase agreements with certain software, hardware, telecommunication, and other service providers, see Note 19 – “Commitments and Contingencies.”

For our minimum purchase cash commitments as of September 30, 2023, in connection with our long-term purchase agreements with certain software, hardware, telecommunication, and other service providers, see Note 19 – “Commitments and Contingencies.”

Critical Accounting Estimates

6 unchanged sentences

We have discussed the selection of our critical accounting policies and the effect of estimates with the Audit Committee of our Board of Directors.

During the three months ended June 30, 2023, there were no changes to our critical accounting policies and estimates from those described in our fiscal 2023 Annual Report on Form 10-K except as mentioned in Note 1 – “Summary of Significant Accounting Policies.”

During the three months ended September 30, 2023, there were no changes to our critical accounting policies and estimates from those described in our fiscal 2023 Annual Report on Form 10-K except as mentioned in Note 1 – “Summary of Significant Accounting Policies.”

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis