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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-02-02 · 106 added, 210 removed, 223 unchanged (59% 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 third quarter and first nine months of fiscal 2024 and our financial condition as of December 31, 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 first quarter of fiscal 2025 and our financial condition as of June 30, 2024.

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 third quarters and first nine months of fiscal 2024 and fiscal 2023.

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the first quarters of fiscal 2025 and fiscal 2024.

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

DXC helps global companies run their mission critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private and hybrid clouds.

The world’s largest companies and public sector organizations trust DXC to deploy services to drive new levels of performance, competitiveness, and customer experience across their IT estates.

Many of the world’s largest companies and public sector organizations trust DXC to deploy services to drive new levels of performance, competitiveness, and customer experience across their IT estates.

We generate revenue by offering a wide range of information technology services and solutions primarily in North America, Europe, Asia, and Australia.

3 unchanged sentences

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

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

Key metrics for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 are included below.

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

For more information, see “Non-GAAP Financial Measures.”

• Revenues of $3.4 billion, down 4.7% compared to prior year period, and down 4.5% on an organic basis;

• Diluted earnings per share of $0.81, compared to $0.25 in the third quarter of fiscal 2023;

adjusted diluted earnings per share of $0.87, compared to $0.95 in the third quarter of fiscal 2023, a decrease of 8.4%;

• For the first nine months of fiscal 2024, operating cash flow of $1,081 million, less capital expenditures of $480 million, resulted in free cash flow of $601 million;

• Returned $252 million to shareholders through share repurchases in the third quarter of fiscal 2024.

Results of Operations for the Third Quarter and First Nine Months of Fiscal 2024 and Fiscal 2023

Our revenue by geography and operating segment are provided below:

• Revenues of $3.2 billion, down 6.1% compared to the same period a year ago, and down 4.4% on an organic basis;

• Diluted earnings per share of $0.14, compared to $0.17 in the same period a year ago;

adjusted diluted earnings per share of $0.74, compared to $0.63 in the same period a year ago;

• For the first quarter of fiscal 2025, operating cash flow of $238 million, less capital expenditures of $193 million, resulted in positive free cash flow of $45 million, compared to negative free cash flow of $75 million in the same period a year ago.

Results of Operations for the Three Months Ended June 30, 2024 and the Three Months Ended June 30, 2023

Revenues across operating segments and geographies are provided below:

Three Months Ended Three Months Ended

(in millions) December 31, 2023 December 31, 2022 Percentage Change Constant Currency

December 31, 2023 (1)

Percentage Change in Constant Currency (1)

Geographic Market

United States $ 967 $ 1,054 (8.3) % $ 967 (8.3) %

465 469 (0.9) % 438 (6.6) %

Other Europe 1,075 1,119 (3.9) % 1,028 (8.1) %

Australia 297 343 (13.4) % 300 (12.5) %

Other International 595 581 2.4 % 604 4.0 %

Total Revenues $ 3,399 $ 3,566 (4.7) % $ 3,337 (6.4) %

Operating Segments

GBS $ 1,696 $ 1,738 (2.4) % $ 1,672 (3.8) %

GIS 1,703 1,828 (6.8) % 1,665 (8.9) %

Total Revenues $ 3,399 $ 3,566 (4.7) % $ 3,337 (6.4) %

Nine Months Ended Nine Months Ended

(in millions) December 31, 2023 December 31, 2022 Percentage Change Constant Currency

December 31, 2023 (1)

(in millions) June 30, 2024 June 30, 2023 Percentage Change Constant Currency

June 30, 2024 (1)

Percentage Change in Constant Currency (1)

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United States $ 897 $ 1,002 (10.5) % $ 897 (10.5) %

United Kingdom

448 465 (3.7) % 445 (4.3) %

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Total Revenues $ 3,236 $ 3,446 (6.1) % $ 3,285 (4.7) %

Operating Segments

Reportable Segments

GBS $ 1,673 $ 1,703 (1.8) % $ 1,703 — %

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

For the third quarter of fiscal 2024, our total revenue was $3.4 billion, a decrease of $167 million or 4.7%, compared to the same period a year ago.

The 4.7% decrease against the comparative period includes a 1.7% favorable foreign currency exchange rate impact, a 1.9% decline in revenue from the disposition of certain businesses, and a 4.5% decline in organic revenue.

For the first quarter of fiscal 2025, our total revenue was $3.2 billion, a decrease of $0.2 billion or 6.1%, compared to the same period a year ago.

The 6.1% decrease against the comparative period includes a 1.4% unfavorable foreign currency exchange rate impact, a 0.3% decline in revenue from the disposition of certain businesses, and a 4.4% decline in organic revenue.

Organic revenue growth is a non-GAAP measure.

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

For the first nine months of fiscal 2024, our total revenue was $10.3 billion, a decrease of $558 million or 5.1%, as compared to the same period a year ago.

The 5.1% decrease against the comparative period includes a 1.0% favorable foreign currency exchange rate impact, a 2.2% decline in revenue from the disposition of certain businesses, and a 3.9% 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, 2024.

Global Business Services

For the third quarter of fiscal 2024, GBS revenue was $1.7 billion, a decrease of $42 million or 2.4%, as compared to the same period a year ago.

The 2.4% decrease against the comparative period includes a 4.1% decline in revenue from the disposition of certain businesses, partially offset by 0.3% organic revenue growth and a 1.4% favorable foreign currency exchange rate impact.

For the first nine months of fiscal 2024, GBS revenue was $5.1 billion, a decrease of $101 million or 1.9%, as compared to the same period a year ago.

The 1.9% decrease against the comparative period includes a 4.6% decline in revenue from the disposition of certain businesses, partially offset by 2.0% organic revenue growth from additional services provided to new and existing customers, and a 0.7% favorable foreign currency exchange rate impact.

For the first quarter of fiscal 2025, GBS revenue was $1.7 billion, a decrease of $30 million or 1.8% compared to the same period a year ago.

The 1.8% decrease against the comparative period includes a 1.8% unfavorable foreign currency exchange rate impact and a 0.5% decline in revenue from the disposition of certain businesses, partially offset by 0.5% organic revenue growth from additional services provided to new and existing customers.

GBS accounts for 51.7% of total revenue, an increase of 230 basis points against the comparative period.

Global Infrastructure Services

For the third quarter of fiscal 2024, our GIS revenue was $1.7 billion, a decrease of $125 million or 6.8%, as compared to the same period a year ago.

The 6.8% decrease against the comparative period includes a 8.9% decline in organic revenue from project completions and lower resale revenue, partially offset by a 2.1% favorable foreign currency exchange rate impact.

For the first nine months of fiscal 2024, our GIS revenue was $5.2 billion, a decrease of $457 million or 8.1%, as compared to the same period a year ago.

The 8.1% decrease against the comparative period includes a 9.3% decline in organic revenue from project completions and lower resale revenue, partially offset by a 1.2% favorable foreign currency exchange rate impact.

For the first quarter of fiscal 2025, GIS revenue was $1.6 billion, a decrease of $180 million or 10.3% compared to the same period a year ago.

The 10.3% decrease against the comparative period includes a 1.0% unfavorable foreign currency exchange rate impact and a 9.3% decline in organic revenue from project completions, early terminations, and lower resale revenue.

Costs and Expenses

Our total costs and expenses are provided below:

Dollar Amount Dollar Amount

Three Months Ended December 31,

Change Nine Months Ended December 31,

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

Costs of services $ 2,636 $ 2,799 $ (163) (5.8) % $ 7,988 $ 8,504 $ (516) (6.1) %

Selling, general and administrative 294 315 (21) (6.7) % 949 988 (39) (3.9) %

Dollar Amount

Three Months Ended June 30, Change

(in millions)

2024 2023 Dollar Percent

Costs of services (excludes depreciation and amortization and restructuring costs) $ 2,526 $ 2,719 $ (193) (7.1) %

Selling, general and administrative (excludes depreciation and amortization and restructuring costs) 301 327 (26) (8.0) %

Depreciation and amortization 326 344 (18) (5.2) %

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Interest income (51) (49) (2) 4.1 %

(Gain) loss on disposition of businesses (103) 9 (112) NM (1)

(96) 12 (108) NM (1)

Loss on disposition of businesses — 5 (5) (100.0) %

Other income, net (45) (64) 19 (29.7) %

Total costs and expenses $ 3,168 $ 3,368 $ (200) (5.9) %

(1) NM - Calculation is not meaningful

Costs of Services

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.6 billion and $8.0 billion for the third quarter and first nine months of fiscal 2024, respectively, a decrease of $163 million and $516 million, respectively, as compared to the same periods of the prior fiscal year.

The decrease in expenses 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 a $9 million severance expense in the third quarter of fiscal 2024 related to the departure of the Company’s prior Chief Executive Officer and an unfavorable foreign currency exchange rate impact of $45 million and $74 million, respectively, for the third quarter and first nine months of fiscal 2024.

Gross margin (Revenues less COS as a percentage of revenue) was 22.4% and 22.3% for the third quarter and first nine months of fiscal 2024, respectively, an increase of 0.9% and 0.8% against the comparative period.

Costs of services, excluding depreciation and amortization and restructuring costs (“COS”), were $2.5 billion for the first quarter of fiscal 2025, a decrease of $193 million compared to the same period a year ago.

The $193 million decrease was primarily due to a decrease in costs from lower revenue levels, a reduction in professional services and contractor-related expenses from our cost optimization efforts, and a favorable foreign currency exchange rate impact.

Gross margin (Revenues less COS as a percentage of revenue) was 21.9% and 21.1% for the first quarters of fiscal 2025 and 2024, respectively.

Selling, General and Administrative

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $294 million and $949 million for the third quarter and first nine months of fiscal 2024, respectively, a decrease of $21 million and $39 million, respectively, as compared to the same periods of the prior fiscal year.

For the third quarter of fiscal 2024, the $21 million decrease in expenses against the comparative period was primarily due to an $11 million charge for merger-related indemnification expenses and a $9 million expense for an arbitration loss in the third quarter of fiscal 2023, and a reduction in professional services and other vendor-related expenses in the third quarter of fiscal 2024, partially offset by a $7 million unfavorable foreign currency exchange rate impact.

For the first nine months of fiscal 2024, the $39 million decrease in expenses against the comparative period was primarily due to a $9 million expense for an arbitration loss and an $8 million expense for the SEC Matter in the first nine months of fiscal 2023, lower merger related indemnification expenses, lower transaction, separation and integration-related (“TSI”) costs, and reduced professional services and other vendor-related expenses in the first nine months of fiscal 2024, partially offset by a $7 million unfavorable foreign currency exchange rate impact.

Selling, general and administrative expense, excluding depreciation and amortization and restructuring costs (“SG&A”), was $301 million for the first quarter of fiscal 2025, a decrease of $26 million compared to the same period a year ago.

During this quarter, SG&A as a percentage of revenues was 9.3%, a decrease of 20 basis points from the prior year period.

The $26 million decrease in SG&A expenses was primarily driven by lower payroll and related expenses, and lower merger-related indemnification expenses, partially offset by higher transaction, separation and integration-related (“TSI”) costs.

Depreciation and Amortization

Depreciation expense was $105 million and $330 million for the third quarter and first nine months of fiscal 2024, respectively, a decrease of $18 million and $60 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 $245 million and $725 million for the third quarter and first nine months of fiscal 2024, respectively, a decrease of $7 million and $29 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.

Depreciation expense was $94 million for the first quarter of fiscal 2025, a decrease of $19 million compared to the same period a year ago.

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

Amortization expense was $232 million for the first quarter of fiscal 2025, consistent with the prior year period.

Restructuring Costs

During fiscal 2025, management approved global cost savings initiatives designed to better align our workforce, facility and data center requirements.

During the third quarter and first nine months of fiscal 2024, total restructuring costs recorded, net of reversals, were $36 million and $91 million, respectively, a decrease of $13 million and $44 million, respectively, as compared to the same periods of the prior fiscal year.

Total restructuring costs recorded, net of reversals, was $39 million for the first quarter of fiscal 2025, an increase of $19 million compared to the same period a year ago.

See Note 10 – “Restructuring Costs” for additional information about our restructuring actions.

Interest Expense and Interest Income

Net interest expense (interest expense less interest income) was $22 million and $64 million for the third quarter and first nine months of fiscal 2024, respectively, an increase of $7 million and $16 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 borrowings.

(Gain) Loss on Disposition of Businesses

During the first nine months of fiscal 2024 and fiscal 2023, the Company sold insignificant businesses and made adjustments to estimated amounts from prior years’ dispositions that resulted in a gain of $96 million and loss of $12 million, respectively.

Net interest expense (interest expense less interest income) was $21 million for the first quarter of fiscal 2025, an increase of $4 million as compared to the same period a year ago primarily due to lower net interest income from lower levels of global cash balances.

Loss on Disposition of Businesses

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

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, and other miscellaneous gains and losses.

Three Months Ended Nine Months Ended

(in millions) December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022

Other income, net comprises non-service cost components of net periodic pension income, pension and other post-retirement benefit (“OPEB”) actuarial and settlement losses (gains), movement in foreign currency exchange rates on our foreign currency denominated assets and liabilities and the related economic hedges, gains on sales of assets, and other miscellaneous gains and losses.

The following table summarizes components of other income, net.

The components of other income, net for the first quarters of fiscal 2025 and 2024 were as follows:

Three Months Ended

(in millions) June 30, 2024 June 30, 2023 Dollar Change

Non-service cost components of net periodic pension income $ (40) $ (37) $ (3)

Foreign currency loss (gain)

5 (8) (4) (11)

Gain on sale of assets (14) (28) (41) (72)

(4) (2) (35) —

(Gain) loss on sales of assets

Other loss (gain)

Total $ (45) $ (64) $ 19

Other income, net, was $48 million for the third quarter of fiscal 2024, a decrease of $50 million against the comparative period.

Other income, net, was $188 million for the first nine months of fiscal 2024, a decrease of $82 million against the comparative period.

The change against the comparative period was primarily due to:

• net periodic pension income decreased by $25 million and $79 million primarily due to changes in expected returns on assets and other actuarial assumptions.

• foreign currency gains decreased by $13 million and $7 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 $14 million and $31 million;

• an increase in other gains of $2 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 34.0% and 40.2% for the three months ended December 31, 2023 and December 31, 2022, respectively, and 32.8% and 30.9% for the nine months ended December 31, 2023 and December 31, 2022, respectively.

For the three months ended December 31, 2023, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, and the foreign tax credit.

For the nine months ended December 31, 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 December 31, 2022, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, a decrease in the base erosion and anti-abuse tax, and an increase in unrecognized tax benefits primarily related to foreign tax credits.

For the nine months ended December 31, 2022, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, a decrease in the base erosion and anti-abuse tax, and the tax impact of business divestitures.

Net loss attributable to non-controlling interest

The net loss attributable to non-controlling interest, net of tax, was $16 million and $10 million for the third quarter and first nine months of fiscal 2024, respectively, a change of $18 million and $14 million as compared to both periods of the prior fiscal year.

The change against both comparative periods is primarily due to an adjustment to prior period amounts recognized in the third quarter of fiscal 2024.

Other income, net, was $45 million and $64 million during the first quarters of fiscal 2025 and fiscal 2024, respectively, a change of $19 million compared to the same period a year ago that was primarily due to:

• a $3 million increase in net periodic pension income, primarily due to changes in expected returns on assets and other actuarial assumptions;

• a $9 million increase in foreign currency losses, 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 $15 million decrease in gains from sales of assets, partially offset by a $2 million reduction in other losses.

Our effective tax rate (“ETR”) was 63.2% and 46.2% for the first quarter of fiscal 2025 and the first quarter of fiscal 2024, respectively.

For the first quarter of fiscal 2025, the primary drivers of the ETR were the global mix of income, U.S.

tax on foreign income, a reduction in a deferred tax asset for stock based compensation, and a decrease in a deferred tax liability for estimated taxes associated with the repatriation of foreign earnings.

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.

Earnings Per Share

Diluted EPS for the third quarter and first nine months of fiscal 2024 was $0.81 and $1.43, respectively, an increase of $0.56 and $0.63, 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 third quarter of fiscal 2024 includes $0.16 per share of restructuring costs, $0.01 per share of transaction, separation and integration-related costs, $0.39 per share of amortization of acquired intangible assets, $(0.49) per share of net gains on dispositions, $0.01 per share of merger related indemnification costs, and $(0.03) per share of tax adjustments.

Diluted EPS for the first nine months of fiscal 2024 includes $0.36 per share of restructuring costs, $0.02 per share of transaction, separation and integration-related costs, $1.05 per share of amortization of acquired intangible assets, $(0.55) per share of net gains on dispositions, $0.01 per share of merger related indemnification costs, $0.04 per share of impairment losses, and $(0.18) per share of tax adjustments.

Diluted EPS for the first quarter of fiscal 2025 was $0.14, compared to $0.17 in the first quarter of fiscal 2024.

The decrease in earnings per share was primarily due to a decrease of $10 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 2025 includes $0.17 per share of restructuring costs, $0.03 per share of transaction, separation and integration-related costs, and $0.39 per share of amortization of acquired intangible assets.

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.

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 Dollar Amount

Three Months Ended December 31,

Change Nine Months Ended December 31,

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

Dollar Amount

Three Months Ended June 30, Change

(in millions) 2024 2023 Dollar Percent

Income before income taxes $ 68 $ 78 $ (10) (12.8) %

$ 212 $ 102 $ 110 107.8 % $ 418 $ 278 $ 140 50.4 %

Non-GAAP income before income taxes $ 201 $ 207 $ (6) (2.9) %

$ 140 $ 61 $ 79 129.5 % $ 281 $ 192 $ 89 46.4 %

Net income $ 25 $ 42 $ (17) (40.5) %

Adjusted EBIT $ 222 $ 224 $ (2) (0.9) %

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• Restructuring costs – includes costs, net of reversals, related to workforce and real estate optimization and other similar charges.

• Transaction, separation and integration-related (“TSI”) costs – includes costs related to integration, separation, planning, financing and advisory fees and other similar charges associated with mergers, acquisitions, strategic investments, joint ventures, and dispositions and other similar transactions incurred within one year of such transactions closing, except for costs associated with related disputes, which may arise more than one year after closing.

• Transaction, separation and integration-related (“TSI”) costs – includes third party costs related to integration, separation, planning, financing and advisory fees and other similar charges associated with mergers, acquisitions, strategic investments, joint ventures, and dispositions and other similar transactions incurred within one year of such transactions closing, except for costs associated with related disputes, which may arise more than one year after closing.

• 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, primarily represents the Company’s current estimate of potential liability to HPE for a tax related indemnification;

and in fiscal 2023, represents the Company’s then current estimate of potential liability to HPE for indemnification on the Forsyth v.

and HPE litigation, and the Company’s final liability to HPE on the Oracle v.

HPE litigation.

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.

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

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

• Arbitration loss - reflects a loss arising from an arbitration decision in the third quarter of fiscal 2023.

• Impairment losses – non-cash charges associated with the permanent reduction in the value of the Company’s assets (e.g., impairment of goodwill and other long-term assets including fixed assets and impairments to deferred tax assets for discrete changes in valuation allowances).

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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 nine months of fiscal 2024, the Company sold insignificant businesses and a strategic investment and made adjustments to estimated amounts from prior years’ dispositions that resulted in a net gain of $132 million.

During the first nine months of fiscal 2023, the Company sold insignificant businesses that resulted in a net loss of $12 million.

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

Impairment losses on dispositions for the first nine months 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 December 31, 2023

Three Months Ended June 30, 2024

(in millions, except per-share amounts) As

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Integration-Related Costs Amortization

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

Assets Non-GAAP

Income before income taxes $ 68 $ 39 $ 7 $ 87 $ 201

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Diluted EPS 182.93 182.93 182.93 182.93 182.93

Nine Months Ended December 31, 2023

Three Months Ended June 30, 2023

(in millions, except per-share amounts) As

4 unchanged sentences

Assets Merger Related

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

Income before income taxes $ 418 $ 91 $ 6 $ 266 $ 15 $ (132) $ 5 $ — $ 669

Income tax expense 137 18 1 53 12 (20) 1 37 239

Net income 281 73 5 213 3 (112) 4 (37) 430

net loss attributable to non-controlling interest, net of tax

(10) — — — — — (4) — (14)

Net income attributable to DXC common stockholders $ 291 $ 73 $ 5 $ 213 $ 3 $ (112) $ 8 $ (37) $ 444

Effective Tax Rate 32.8 % 35.7 %

Basic EPS $ 1.45 $ 0.36 $ 0.02 $ 1.06 $ 0.01 $ (0.56) $ 0.04 $ (0.18) $ 2.21

Diluted EPS $ 1.43 $ 0.36 $ 0.02 $ 1.05 $ 0.01 $ (0.55) $ 0.04 $ (0.18) $ 2.18

Weighted average common shares outstanding for:

Basic EPS 200.68 200.68 200.68 200.68 200.68 200.68 200.68 200.68 200.68

Diluted EPS 203.55 203.55 203.55 203.55 203.55 203.55 203.55 203.55 203.55

Three Months Ended December 31, 2022

(in millions, except per-share amounts) As

Reported Restructuring costs Transaction,

Separation and

Integration-Related Costs Amortization

Assets Merger Related Indemnification and Arbitration Loss Gains and Losses on Dispositions Impairment Losses Non-GAAP

Income before income taxes $ 102 $ 49 $ 6 $ 100 $ 20 9 $ 8 $ 294

Income tax expense 41 10 1 20 4 (7) 1 70

Net income 61 39 5 80 16 16 7 224

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

Net income attributable to DXC common stockholders $ 59 $ 39 $ 5 $ 80 $ 16 $ 16 $ 7 $ 222

Effective Tax Rate 40.2 % 23.8 %

Basic EPS $ 0.26 $ 0.17 $ 0.02 $ 0.35 $ 0.07 $ 0.07 $ 0.03 $ 0.97

Diluted EPS $ 0.25 $ 0.17 $ 0.02 $ 0.34 $ 0.07 $ 0.07 $ 0.03 $ 0.95

Weighted average common shares outstanding for:

Basic EPS 229.54 229.54 229.54 229.54 229.54 229.54 229.54 229.54

Diluted EPS 233.00 233.00 233.00 233.00 233.00 233.00 233.00 233.00

Nine Months Ended December 31, 2022

(in millions, except per-share amounts) As

Reported Restructuring

Costs Transaction,

Separation and

Integration-Related Costs Amortization

Assets Merger Related Indemnification, Arbitration Loss, and SEC Matter Gains and Losses on Dispositions Impairment Losses Pension and OPEB Actuarial and Settlement Gains and Losses Non-GAAP

Indemnification Gains and

Dispositions Impairment Losses Tax

Adjustments Non-GAAP

Income before income taxes $ 78 $ 20 $ 1 $ 89 $ 11 $ 5 $ 3 $ — $ 207

10 unchanged sentences

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

Three Months Ended Nine Months Ended

(in millions) December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022

Three Months Ended

June 30, 2024 June 30, 2023

Total revenue growth (6.1) % (7.0) %

(4.7) % (12.8) % (5.1) % (11.6) %

Foreign currency 1.4 % 0.7 %

(1.7) % 6.6 % (1.0) % 6.6 %

Acquisition and divestitures 0.3 % 2.7 %

1.9 % 2.4 % 2.2 % 2.4 %

Organic revenue growth (4.4) % (3.6) %

(4.5) % (3.8) % (3.9) % (2.6) %

GBS revenue growth (1.8) % (3.1) %

(2.4) % (10.7) % (1.9) % (8.7) %

Foreign currency 1.8 % 0.8 %

(1.4) % 6.4 % (0.7) % 6.6 %

Acquisition and divestitures 0.5 % 5.6 %

4.1 % 4.5 % 4.6 % 4.2 %

GBS organic revenue growth 0.5 % 3.3 %

0.3 % 0.2 % 2.0 % 2.1 %

GIS revenue growth (10.3) % (10.6) %

(6.8) % (14.7) % (8.1) % (14.1) %

Foreign currency 1.0 % 0.7 %

(2.1) % 6.7 % (1.2) % 6.7 %

Acquisition and divestitures — % — %

— % 0.6 % — % 0.6 %

GIS organic revenue growth (9.3) % (9.9) %

(8.9) % (7.4) % (9.3) % (6.8) %

Reconciliations of net income to adjusted EBIT are as follows:

Three Months Ended Nine Months Ended

(in millions) December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022

Three Months Ended

(in millions) June 30, 2024 June 30, 2023

Net income $ 25 $ 42

2 unchanged sentences

Interest expense 72 66

EBIT 234 117 482 326

Restructuring costs 39 20

2 unchanged sentences

Merger related indemnification — 11

SEC Matter — — — 8

(Gains) losses on dispositions

(104) 9 (132) 12

Arbitration loss

Loss on disposition of businesses

Impairment losses — 3

Pension and OPEB actuarial and settlement losses — — — 1

Adjusted EBIT $ 222 $ 224

1 unchanged sentence

Cash and Cash Equivalents and Cash Flows

As of December 31, 2023, our cash and cash equivalents (“cash”) were $1.7 billion, of which $1.0 billion was held outside of the U.S.

As of June 30, 2024, our cash and cash equivalents (“cash”) were $1.3 billion, of which $0.7 billion was held outside of the U.S.

As of March 31, 2024, our cash was $1.2 billion, of which $0.6 billion was held outside of the U.S.

10 unchanged sentences

The following table summarizes our cash flow activity:

Nine Months Ended

(in millions) December 31, 2023 December 31, 2022 Change

Three Months Ended

(in millions) June 30, 2024 June 30, 2023 Change

Net cash provided by (used in):

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents 2 — 2

Cash classified within current assets held for sale — (494) 494

Net decrease in cash and cash equivalents $ (167) $ (581) $ 414

Net increase (decrease) in cash and cash equivalents $ 93 $ (282) $ 375

Cash and cash equivalents at beginning of year 1,224 1,858

1 unchanged sentence

Operating cash flow

Net cash provided by operating activities was $1,081 million and $1,000 million, respectively, during the first nine months of fiscal 2024 and fiscal 2023, reflecting a year-over-year increase of $81 million.

Net cash provided by operating activities was $238 million and $127 million, respectively, during the first quarters of fiscal 2025 and fiscal 2024, reflecting a year-over-year increase of $111 million.

The increase was primarily due to:

• a $272 million favorable change in working capital primarily from improvements in our cash conversion cycle;

partially offset by

• a $162 million favorable change in working capital during the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 primarily from improvements in our cash conversion cycle, partially offset by

• a decrease in net income, net of adjustments of $51 million.

1 unchanged sentence

Three Months Ended

December 31, 2023 December 31, 2022

June 30, 2024 June 30, 2023

Days of sales outstanding in accounts receivable 68 68

2 unchanged sentences

Investing cash flow

Net cash used in investing activities was $367 million and $299 million, respectively, during the first nine months of fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $68 million.

The change against the comparative period was primarily due to:

• a decrease in proceeds from sales of assets and business dispositions of $95 million and $21 million, respectively;

• a decrease in cash flows from other net investing activities of $4 million;

partially offset by

• a $52 million decrease in capital expenditures.

Net cash used in investing activities was $188 million and $199 million, respectively, during the first quarters of fiscal 2025 and fiscal 2024, reflecting a year-over-year change of $11 million.

The change was primarily due to:

• a $9 million decrease in capital expenditures, and

• a $7 million decrease in cash outflows from business dispositions, partially offset by

• a $5 million decrease in cash inflows from other net investing activities.

Financing cash flow

Net cash used in financing activities was $877 million and $693 million, respectively, during the first nine months of fiscal 2024 and fiscal 2023, reflecting a year-over-year change of $184 million.

The change against the comparative period was primarily due to:

• a $450 million increase in cash used for share repurchase activity and related taxes paid on net share settlements;

partially offset by

• a $200 million increase in cash inflows from commercial paper borrowings, net of repayments and other financing activities;

• a $66 million decrease in payments on capital leases and borrowings for asset financings, as the Company continues reducing the volume of these financing arrangements.

Net cash provided by (used in) financing activities was $41 million and $(210) million, respectively, during the first quarters of fiscal 2025 and fiscal 2024, reflecting a year-over-year change of $251 million.

The change was primarily due to:

• a $299 million decrease in cash outflows from no share repurchase activity during the first quarter of fiscal 2025 and a decrease in related taxes paid on net share settlements, and

• a $40 million decrease in payments on capital leases and borrowings for asset financings, as the Company continues reducing the volume of these financing arrangements, partially offset by

• a $90 million decrease in cash inflows from commercial paper borrowings, net of repayments.

Debt Financing

The following table summarizes our total debt:

(in millions) December 31, 2023 March 31, 2023

(in millions) June 30, 2024 March 31, 2024 Change

Short-term debt and current maturities of long-term debt $ 381 $ 271 $ 110

1 unchanged sentence

Total debt $ 4,147 $ 4,089 $ 58

The $141 million increase in total debt during the first nine months of fiscal 2024 was primarily attributable to the increase in borrowings of commercial paper and 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 December 31, 2023 and December 31, 2022.

The $58 million increase in total debt during the first quarter of fiscal 2025 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 June 30, 2024 and June 30, 2023.

Our credit ratings are as follows:

1 unchanged sentence

Fitch BBB F-2 Stable

Moody’s Baa2 P-2 Stable

Moody’s Baa2 P-2 Negative

S&P BBB- - Stable

2 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, term loans, and bonds.

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

In addition, we currently utilize, and will 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 $4.9 billion as of December 31, 2023, includes $1.7 billion of cash and cash equivalents and $3.2 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.

Our total liquidity of $4.5 billion as of June 30, 2024, includes $1.3 billion of cash and cash equivalents and $3.2 billion of available borrowings under our revolving credit facility.

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, 2024

For our minimum purchase cash commitments as of December 31, 2023, 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 in connection with our long-term purchase agreements with certain software, hardware, telecommunication, and other service providers, see Note 17 – “Commitments and Contingencies.”

Critical Accounting Estimates

4 unchanged sentences

We consider the following policies to be critical because of their complexity and the high degree of judgment involved in implementing them:

revenue recognition, income taxes, business combinations, defined benefit plans and valuation of assets.

revenue recognition, income taxes, defined benefit plans, valuation of assets, and loss accruals for litigation.

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 December 31, 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 June 30, 2024, there were no changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 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