DXC Technology Company (NYSE:DXC) Q4 2025 Earnings Call Transcript

DXC Technology Company (NYSE:DXC) Q4 2025 Earnings Call Transcript May 14, 2025

Operator: Hello and welcome to the DXC Technology Fourth Quarter and Fiscal Year End 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Roger Sachs, Vice President of Investor Relations. You may begin.

Roger Sachs: Thank you, operator. Good afternoon, everybody, and welcome to DXC Technology’s fourth quarter and fiscal year-end 2025 earnings call. We hope you had a chance to review our earnings release posted to the IR section of DXC’s website. Speaking on today’s call are Raul Fernandez, our President and CEO; and Rob Del Bene, our Chief Financial Officer. Let me walk you through today’s agenda. First, Raul will share an overview of our results and provide an update on our strategic initiatives. And, Rob, will take you through our financial performance, full year fiscal 2026 guidance, and offer some thoughts on our outlook for the first quarter. After that, both Raul and Rob will take your questions. Certain comments made during today’s call are forward-looking and subject to risks and uncertainties that could cause actual results to differ materially from those expressed on the call.

You can find details of these risks and uncertainties in our annual report on Form 10-K and other SEC filings. We do not commit to updating any forward-looking statements during today’s call. Additionally, during this call, we will be discussing non-GAAP financial measures that we believe provide useful information to our investors. Reconciliations to the most comparable GAAP measures are included in the tables that are in today’s earnings release. And with that, let me turn the call over to Raul.

Raul Fernandez: Thank you, Roger. Our fourth quarter results represent another important step towards our goal of achieving sustainable, profitable revenue growth. We are gaining momentum with bookings up more than 20%, resulting in a book-to-bill ratio of 1.2. This marks our second consecutive quarter above 1.0, bringing us to a second half bookings growth rate of 24%, a clear indication of traction in the market and building the foundation to drive long-term top line growth. Reversing eight consecutive years of revenue decline remains the highest priority for me, our leadership team, and the entire DXC organization. The rebuilding of our operational capabilities is deeper and more extensive than I originally appreciated. But the work the team is doing is addressing structural, operational, and cultural issues that will better position us going forward.

Great companies are built by teams of experienced people who share an intense passion to win. I am proud that we have recruited 22 great new members of our extended leadership team in the last 15 months. Each brings exceptional skills with the intensity to win. And in that time, we also rotated out 14 executives. DXC has had significant turnover in top executive leadership since its inception. And leadership stability is absolutely critical to ensuring we give our turnaround the time, attention, and persistence it deserves. In that spirit, I’m happy to announce that Rob and I have received equity grants designed to secure our continued leadership through fiscal year 2028. These grants align our compensation with sustainable long-term shareholder value creation.

Another area of critical importance to us is to deepen our customer relationships and identify new opportunities to expand our pipeline. I recognized this gap in our organization and started rebuilding these capabilities from the ground-up with an eye toward operational discipline and improved execution. My team and I have reviewed quota attainment data and segmented the existing population. Based on achievement, we developed strict quantitative performance criteria for 2025 year-end reviews with a documented process. We held CEO calls with HR business partners and sales leaders to communicate changing expectations and initiated better reporting for tracking sales performance. In preparation for our new fiscal year, we completed a quota deployment audit to ensure proper coverage for fiscal year 2026, further aligned pay incentives for our sales organization and onboarded our first chief revenue officer, T.R. Newcomb, someone I’ve worked with in the past and who brings an incredible amount of focus, energy, and operational excellence to the role.

Our work has led to continuous improvement in our systems, processes, and pay structures, all of which will lay an even stronger foundation. DXC has been a significant global technology player for over 40 years in four major technology cycles, personal computing in the 80s, Internet computing in the 90s, mobile and cloud computing in the 2000 era, and now AI in 2020 and beyond. This is a company with tremendous assets, loyal customers, deep and broad capabilities, and a global footprint with local excellence. The impact of AI is just beginning to accelerate within our client base, and AI spending is increasing year to year. This comes at a time when our customers are favoring further consolidation of their IT spending, putting DXC in a unique position to compete with the combined power of our full stack, infrastructure, and app management capabilities.

We have built an early but strong track record of delivering real bottom-line results for our customers in key areas, including modernization, technical support, development time, testing, process improvement, deployment, and maintenance by harnessing the power of AI. While it’s very early in the GenAI adoption cycle, it is clear to me that we are very well positioned to lead our clients into what I believe is the largest transformational technology opportunity of our lifetime. One of my top commitments as President and CEO is to spend as much time with our current and prospective customers as possible. During my tenure, I’ve met with over 100 customers, which has equipped me to better understand how we can more effectively meet their changing needs and identify new opportunities for mutual growth.

New logos of significant size have been scarce in DXC’s recent history. And this is something we have been laser focused on improving. We are thrilled to share that Carnival Cruise Line just tapped DXC to manage its critical infrastructure, powering operations across the entire fleet. This was a highly competitive bid with ISG advising throughout the selection process, and we won. We won because we are uniquely qualified. We brought the full weight of our infrastructure capabilities, enterprise applications, and technical muscle to the table, and DXC was chosen to be their critical partner. Carnival is one of the largest cruise lines in the world that hosts over 6 million guests a year. Their bar is very high. Everything must run safely and flawlessly, from shore to ship, with great customer experiences.

That’s where we come in. We deliver complete operational confidence, so Carnival can focus on their customers, knowing every system is firing on all cylinders and running smoothly no matter where they are. This win isn’t just about one client. It’s a clear signal that we are a trusted partner and operator for some of the world’s largest brands. Creating a winning culture, which sets the foundation for us to win consistently in the marketplace is not an overnight mission. It requires experienced leaders who are able to translate vision into action with sustainable results. Since becoming CEO, I have focused on increasing the clarity, consistency, and transparency of internal communication, embedding a startup ethos that emphasizes flat, fast, and learning-focused collaboration, and ensuring that we all think in terms of generating sound financial results while driving profitable growth, not just growth for growth’s sake.

Over the past year, we’ve made targeted investments and brought in new leaders to jumpstart innovation across all our offerings, redesign and expand our AI capabilities and software platforms, and streamline how we develop applications using GenAI. We expect fiscal 2026 to be a year of continued disciplined execution to sharpen operations and drive efficiencies. Despite near-term uncertainty over tariffs, we are clear on our strategy, confident in our team, and committed to executing with the discipline required for DXC to generate sustainable and profitable growth. Reflecting our confidence in the company’s future, we will restart our share repurchase program. This underscores our commitment to delivering long-term value to shareholders. With that, let me turn it over to Rob.

Rob Del Bene: Thank you, Raul, and good afternoon, everyone. Today, I’ll go over our fourth quarter results, touch upon our full year performance, and then provide guidance for the full fiscal year 2026 and the first quarter. Now, starting with the fourth quarter, total revenue of $3.2 billion was slightly above our expectations, declining 4.2% year-to-year on an organic basis. We delivered another strong quarter of bookings, up more than 20% year-to-year, resulting in a book-to-bill ratio of 1.2. Growth was broad-based across all of our offerings and markets. Adjusted EBIT margin was 7.3%, down 110 basis points year-to-year, and like revenue, slightly above our expectations. Performance was driven by investments in our employee base, improving the capability of our sales force and investments in marketing and communications and IT.

Similar to the dynamics we saw during the first three quarters, the decline in revenue was offset by labor and non-labor efficiencies. Non-GAAP gross margin for the fourth quarter came in at 24.2%, down 40 basis points year-to-year, and non-GAAP SG&A as a percentage of revenue expanded 160 basis points year-to-year to 11.3%. Our gross margin and SG&A performance were driven by the same factors just mentioned for adjusted EBIT. As a reminder, the year-to-year changes in our non-GAAP gross margin and non-GAAP SG&A are normalized for the reclassification of certain business development costs to SG&A. Non-GAAP EPS was $0.84, down from $0.97 in the fourth quarter of last year, driven by lower adjusted EBIT, partially offset by a decline to non-controlling interest and lower net interest expense.

Now, turning to our segments. GBS, which represents 51% of total revenue, was down 2.4% year-to-year organically, with a profit margin decrease of 240 basis points to 10.9%. The margin decline was driven by investments in our employees and to further build our industry-leading insurance capabilities. Within GBS, consulting and engineering services had a second straight quarter of strong bookings, up 9% year-to-year with a book-to-bill ratio of 1.22. The trailing 12-month book to bill for CES has now increased to 1.08. Last quarter, we noted an increase in larger projects in our CES pipeline, and in the fourth quarter, we converted those opportunities to bookings. While these bookings have less revenue yield in the short term, they contribute to building our backlog and future revenues.

The growth profile of bookings in the quarter was more heavily weighted to enterprise applications and data and AI, consistent with our growth strategy of CES. Organic revenue for CES declined 3.9% year-to-year, reflecting ongoing market pressures on custom application projects. Insurance and BPS organic revenue grew 2.7% year-to-year. Our insurance services and software business, which accounts for about 80% of the total, grew 1% year-to-year organically. Through the first three quarters of the year, the insurance business grew at mid-single-digit rates. Underlying performance in the fourth quarter was similar, with the growth rate largely impacted by one-time items. We have confidence that the growth rate for the insurance business will continue to perform at mid-single-digit growth rates for fiscal 2026.

GIS, which represents 49% of total revenue, declined 6% year-to-year organically, the second consecutive quarter of narrowing the year-to-year revenue decline. The improvement was driven by cloud offerings and workplace support services. Fourth quarter bookings for GIS grew 33% year-to-year with a book-to-bill of 1.28. It was the second consecutive quarter of strong bookings, exiting the year with a 12-month book-to-bill of 1.03. Profit margin declined 50 basis points year-to-year to 7.0%, primarily reflecting our increased investments in our workforce. We continue to drive cost savings through optimization of software and data center costs. Now, let me briefly touch upon our full year fiscal 2025 results. Fueled by our strong performance in the second half of the year, full year bookings increased 7% year-to-year, significantly better than the fiscal 2024 performance.

With bookings up 24% in the second half of the year, the book-to-bill ratio was 1.28 in the second half and 1.03 for the full year. Total revenue was $12.9 billion, down 4.6% year-to-year on an organic basis with GBS declining 1% and GIS down 8.2%. Adjusted EBIT margin expanded 50 basis points year-to-year to 7.9%, driven by the execution of our cost reduction initiatives, which we accomplished with significantly less restructuring than originally estimated. Non-GAAP diluted EPS was $3.43, up 11% year-to-year, primarily driven by a lower share count and a higher adjusted EBIT. Now turning to our cash flow and balance sheet. For our full year fiscal 2025, we generated $687 million of free cash flow, above our most recent expectation of $625 million, largely driven by lower restructuring spend and better working capital management.

In the year, we executed on our strategy of minimizing new financial lease originations and funding equipment purchases primarily through capital expenditures, which is a negative impact of free cashflow, but reduces our debt levels. As a result, capital expenditures increased year-to-year. Without this change in approach, free cashflow would have increased year-to-year and CapEx would have declined. Total debt at fiscal year-end 2025 was equal to $3.9 billion, down $213 million year-to-year, including $298 million of capital lease and asset financing paydowns. Total cash in our balance sheet increased by approximately $570 million year-to-year to $1.8 billion. This was driven by our free cash flow generation and asset sale proceeds of approximately $190 million.

As a result, we lowered net debt by $785 million to approximately $2.1 billion. As a reminder, we do not include asset sales in our reported free cash flow. At the beginning of fiscal 2025, our financial priorities centered around strengthening our balance sheet, creating financial flexibility, and reducing excess capacity with the help of restructuring spending. We accomplished these objectives while spending less than originally planned on restructuring. With our improved financial position in fiscal 2026, we will focus on the following financial priorities. We will continue to invest in our business to accomplish our top priority, driving sustained profitable revenue growth. We will continue to reduce outstanding debt by minimizing financial lease originations and paying down a portion of our senior notes maturing in January of 2026.

And finally, we plan to return $150 million to shareholders in fiscal 2026 in the form of share repurchases. Now, let me provide you with our full year fiscal 2026 guidance. We expect total organic revenue to decline 3% to 5%. GBS is projected to be down low single-digits with consistent performance during the year, reflecting the larger, longer duration deals booked in the second half of fiscal ‘25 and increased economic uncertainty, particularly with shorter term project-based services. In GIS, we’re projecting organic revenue to decline mid-single-digits, which reflects an improvement to last year’s rate of decline. We expect adjusted EBIT margin to be between 7% to 8%, which reflects our intent to continue to build our revenue growth capabilities and invest in the business.

With this revenue and adjusted EBIT margin guidance, we expect non-GAAP diluted EPS to be between $2.75 and $3.25. We expect free cash flow for the fiscal year 2026 of about $600 million, reflecting our EBIT guidance and about $30 million of increased restructuring spending as we complete the execution actions planned in fiscal ‘25. Consistent with prior years, free cash flow generation will be strongest in the second half of the fiscal year. And now, for the first quarter of fiscal 2026, we expect total organic revenue to decline between 4.0% and 5.5%. We anticipate adjusted EBIT margin to be in the range of 6% to 7%, a function of lower revenue and first quarter seasonality with margins improving throughout the second half of the year. And finally, we expect non-GAAP diluted EPS of $0.55 to $0.65.

Before wrapping up, I want to highlight that beginning in the first quarter, we will report our financial results under a new segment structure that better aligns with how we now run the business. We will report three segments, insurance services and software, consulting and engineering services, and GIS, which will include cloud and ITO, modern workplace, security, and horizontal BPO. We plan to provide restated historical results under our new reporting segments prior to the release of our fiscal first quarter results. And with that, let me turn the call back over to Roger.

Roger Sachs: Thank you, Rob. We now like to open the call for your questions. Operator, can you please provide the instructions?

Operator: [Operator Instructions] Your first question comes from Bryan Bergin with TD Cowen. Your line is open.

Q&A Session

Bryan Bergin: Hey, guys. Good afternoon. Thanks. I wanted to just kick off on demand and the broader question about kind of what you saw as you moved through the quarter and then post-quarter April into May. And if you can comment on kind of what you’ve been seeing by industry as it relates to the ones that are more product-based that would have direct implications for tariff dynamics versus those that are not. So, any commentaries as you’ve seen demand evolve, particularly if you’ve seen anything in the most recent week change just given, I guess, better directionality in geopolitics?

Raul Fernandez: Sure, it’s Raul here. Let me start. Look, we’ve had really good progress and good wins at the mega level, $100 million plus, and at the strategic level, the $5 million to $100 million. The $5 million and under is the category that’s highly discretionary and easier for corporations to turn on and turn off. There are some segments where there has been some softness since early April. And those are, I’m going to hand it over to Rob now.

Rob Del Bene: Yes, as we — hi, Bryan, as we look at the pipeline, consumer industries and retail, the pipeline has dropped particularly in project-based services. So it’s been concentrated, the drops have been concentrated there and a little bit in also in the media and entertainment industry, which is not obvious why, but it has in those two industries, the pipeline has gone down a bit. The rest of the industries are all strong, but banking capital markets, manufacturing, public sector, insurance are all really robust for us. The other thing Raul mentioned, I’ll just second, is that project-based services pipelines are solid, meaning to below $5 million, but really robust in the– we call them the strategic segments between $5 million and $100 million, which are more complex, a little longer in duration, but the pipelines there are really solid.

Bryan Bergin: Okay, I appreciate that. And then for my follow-up on free cash flow. So the $600 million target, can you help — can you bridge from fiscal ‘25 levels to this ‘26 target and also speak to kind of free cash flow post finance lease expectations as you go through the year?

Rob Del Bene: Yes, the bridge going year-to-year into ‘26 is simply the ‘25 result adjusted for the after-tax EBIT guidance that we gave and the increase in restructuring by about $30 million. So, that implies the rest of the dynamics of free cash flow are essentially flat in our guide. And the chart we showed in the earnings presentation is meant to demonstrate the strength of our underlying free cash flow and the consistency of performance. And while the number — the headline number for free cash flow was down year-to-year ‘24 to ‘25, when you take into consideration the lease originations on a capital lease financing that we have done in the past and factor that into the equation if we had in the past instead of financing those capital purchases, run them through capital and free cash flow, it shows that we’re improving free cash flow consistently over the last two years.

So strong underlying, very good underpinning of free cash flow performance for the company.

Bryan Bergin: Okay. I know the capital finance lease piece was like just under around $300 million for this past fiscal year. Do you expect that to be comparable or do you still see that being lower for ‘25?

Rob Del Bene: We see those — because the originations were far lower in fiscal ‘25, that amount is going to drop year-to-year.

Bryan Bergin: Okay.

Rob Del Bene: So, yeah, that’s going to decline nicely in ‘26.

Operator: The next question comes from Jonathan Lee with Guggenheim Partners. Your line is open.

Jonathan Lee: Great. Thanks for taking my questions. First, can you help decompose what’s contemplated in your outlook at both the high end and the low end of the range from a macroeconomic perspective?

Rob Del Bene: Yes. Hi, Jonathan. So, we’ve — and let’s take the first quarter revenue outlook of minus 4% to minus 5.5%. In that range, we’ve left room at the low-end for uncertainty. So we traditionally have given a 1 point range one quarter out. We widened it to 1.5 points to give us that room at the low end. So we don’t see that exposure sitting here today, but we left room for it. And we gave a traditional 2 point range on the full year ‘26, but we did account for, similar to first quarter, we did account for within that range, some exposure at the low end if conditions deteriorate. So, we’ve taken the uncertainty — we think we’ve taken the uncertainty into account in both the first quarter and full year guides.

Jonathan Lee: Appreciate that color. And just as a follow-up, how would you characterize the pricing environment and sort of what you’ve seen through the quarter and how that may compare to what you saw last year?

Rob Del Bene: Yeah, the — for us, the pricing environment has been very stable. And when I say that, for us in particular, for mega deals, we’ve made improvements as we have renewals coming due. So that environment has been favorable for us. In project-based services, everything below the mega deal, both strategic projects in the $5 million to $100 million category and the below $5 million categories have both been very stable for us. So that’s actually been good for us.

Jonathan Lee: Thanks for that, Rob.

Operator: The next question comes from James Faucette with Morgan Stanley. Your line is open.

James Faucette: I just want to ask structurally, your GenAI spend or GenAI spend generally has been increasing. How’s that being reflected in your P&L now and where are you seeing that show up? And I guess maybe more importantly, how fast are these projects growing and what’s their relative size compared to your typical engagements?

Raul Fernandez: Yeah, look, the spend from major corporations in the last two years have been in the smaller side, so the $5 million and under, and there have been pilots to prove out proof points, meaning faster, better development time, faster, better documentation, et cetera. And we see across every industry a considerable amount of pilot work. And that’s an area that I’m super excited about because we’ve got a great set of building blocks that we’re putting in place with regards to replicability, with regards to scale of our solutions. And that’s key for us in terms of taking the opportunity, the AI opportunity for our clients in different industries and being able to bring them real results, real case studies that have ROI behind them and having them quickly adopt.

So, I’m super excited about the demand on that front. We are still very, very early in the cycle, but we are very, very, very well positioned for several reasons. And let me just add two more. One of the clear considerations for companies as they’re looking to engage any part of their business functions into any sort of GenAI work is to look at their data readiness, their infrastructure readiness, and their people and process readiness. And we are uniquely positioned to have incredible insight there. So, I feel very, very strong about our early returns on that front with our customers and the foundation we’re building because that foundation will be part of our growth in the future.

James Faucette: Got it. Appreciate that. And it seems like you’re seeing increasing bookings. Obviously, the time to convert that to revenue is — takes a little while, and that makes sense. But I wonder if you can talk about how the duration of the new contracts you’re signing compares to what you’ve done in the past and how that may be improving if at all your revenue visibility.

Raul Fernandez: I think number one, and I’ll turn it over to Rob in a second, is we’re building a bigger, more qualified pipeline through the fundamental restructuring and rebuilding of our sales operation. I went into a lot of detail in the remarks to begin with around that because it gives you some insight as to the level of foundational work that was needed in that particular area. And now with a great new leader that I’ve worked with in the past here, Newcomb, taking that and operationalizing it and scaling it is key for us. And we’ve got the building blocks in place now. And frankly, if you think about the type of work that we’ve done in sales, we’re doing similar work across every business function. And now with our leadership team in place, we’ve got not just the foundation set in the right direction, but leaders that can continue to grow.

Rob Del Bene: Yeah, James, it’s Rob. Let me just throw in one more comment. So, in our CES business, where the pipeline has been very good and the bookings were very strong in the strategic project category, that means between $5 million and $100 million dollars, the — those projects are typically more complex, they’re longer in duration. So we are experiencing within the CES business that longer duration entering into our backlog and revenue projections going forward. That’s reflected in our guide. So that became more pronounced in the third quarter and into the fourth quarters where it was really evident to us. So if we continue to see, and hopefully we will, the bookings in that category increase because there’s strategic enterprise apps related as opposed to custom apps, it will be really good for the business, but the yield, turning the conversion into revenue is extended a bit versus traditional custom apps, smaller projects.

Operator: The next question comes from Keith Bachman of BMO. Your line is open.

Keith Bachman: Yeah, thank you very much. My question follows that is more broadly, what are the conditions in order to generate revenue growth? And so I think investors are a little bit disappointed with the fiscal year ‘26 guidance, call it negative 4% at the midpoint. You talked about maybe duration is impacting that conversion of what appears to be solid bookings into revenues, but what longer term message do you want to leave with investors about what would cause the business to turn to a positive number? And don’t know if you want to venture this far, but when would that be?

Raul Fernandez: Sure. So the foundation elements there, both quantitative and qualitative. On the quantitative side, we spoke a little bit about the progress we’ve made in bookings, the trailing book-to-bill, and also the increase in size and quality of our pipeline, that’s key. The size and quality of our pipeline and also the effectiveness of our ability to win those are all part of execution. And having better sales and marketing capabilities, and that’s both in terms of human capital and actual materials that we’re bringing to market are a key to that. So, for me, it falls into two areas. Are the — is the foundation in place, meaning the stories in place, the solutioning in place, the bidding proposals in place, the people to lead those?

Do we get the opportunities? Absolutely get the opportunities. Can we execute? Yes. Can we execute at scale? That’s the key in terms of timing. How quickly can we get to scale? And again, the rebuild was pretty substantial. We’ve got that in place and we’ve got key leaders in place. As we go throughout the year, I feel that we’ll have better insight as to when we’ll see the turn.

Keith Bachman: Okay, maybe my follow-on then is, do you think the underlying markets you serve are growing in your seating share or do you think the markets that you serve, not the broader IT services, are contracting and you’re doing better so to speak? And I’d like to hear within that context, maybe you could flush out a little bit on the Carnival Cruise Line deal about why do you think that you won that deal and how important was price in the ultimate conclusion?

Raul Fernandez: Yeah, great question. We have more than enough opportunities in every vertical that we serve and every geography that we’re in. AI is not an AI adoption, isn’t segmented by geographies or verticals. It’s happening across every industry and every company. So the opportunity is there. That’s a full stop. Our ability to win is executing on the big and small things. And one of the things that I’m reflecting on, which has been great with regards to the Carnival, is that I was in one of the very early pitches with the team. New teammates that had just joined us were part of the bid and proposal and solutioning team and we competed against 12 others and it was a very, very good competition. At the end, we won across the board on all the key metrics, but it wasn’t down on price.

It was on capability. It was on being a proven partner. It was on having the foundation, technical foundation, leadership, partnership to take them to another level. And we were able to clearly convey that in terms of what we bring to the table and that was a great proof, a great win. The key here is to scale that over and over again. Demand is there. We have presence, we have customers. We just have to scale the winning emotions that led to a great, great new partnership with Carnival.

Keith Bachman: Thank you very much. I’ll cede the floor.

Operator: The next question comes from Darrin Peller with Wolfe Research. Your line is open.

Paul Obrecht: Hi, thanks. This is Paul Obrecht on for Darrin. So, now that we’re a few quarters into the revamped go-to-market approach, can you just touch on what the company’s cross-sell motion looks like today and as you’re improving engagement with clients and helping build their understanding of all of DXC’s offerings, are you seeing incremental demand from GIS clients for the GBS offerings?

Raul Fernandez: Yes. We’ve recently begun to hold client engagement insight forums where we bring multiple clients across different industries together to really talk about the current challenges, the opportunities there are with AI, the proof points that we’ve got with real case studies and real return on investments. And they’ve been great to participate in, and I’ve been in a couple of them. And it’s clear — what’s clear is that when customers appreciate the full breadth of capabilities that we have from the infrastructure side, all the way to the application and AI and the customer development side, we are one of only a handful of players that both have the end-to-end capabilities and also can deliver it globally with local excellence.

So, we are very, very well positioned to continue to build on that. We have to just get the motions in place to scale solutioning, to scale pre-marketing, to target opportunities better within our existing customer base and turn that into revenue quicker.

Paul Obrecht: Great. That’s helpful. And then, Rob, if we look at the margin guide for 7% to 8% for the year, can you just walk us through the bridge from the fiscal ’25 margin to this range? And then you’re guiding to 6% to 7% for the first quarter. So just curious on the drivers for expanding margins throughout the year.

Rob Del Bene: Yes. The — so the — from the — to the midpoint, the drop is about 40 basis points to the midpoint of the guide on a year-to-year basis. And it is a combination of the revenue declines offset by cost — disciplined cost management, which we demonstrated we are capable of achieving in fiscal ’25. So we’re going to repeat that to offset any revenue declines. And then we have other cost reductions in excess of that to cover investments for the most part, but we have left room in our guide for an increase in investments year-to-year. And bottom line, that’s — that really accounts at the midpoint for the decline in margin is leaving room for investments to help us continue to progress on this growth journey. So that is the number one factor in the margins at the midpoint. And again, like we did in — as we did in ’25, we’ll monitor that throughout the year and invest appropriately and make sure we’re getting the yields we need to from the investments.

Paul Obrecht: Great. That’s helpful color. Thank you.

Operator: [Operator Instructions] Your next question comes from Jason Kupferberg with Bank of America. Your line is open.

Tyler DuPont: Hi, good afternoon, Raul and Rob, this is Tyler DuPont on for Jason. Thanks for taking the question. Raul, I wanted to start by asking about the current leadership structure. You mentioned you’ve onboarded 22, give or take, new members. If I heard you correctly to the extended leadership team since you are at the helm of DXC. The new three-year employment agreement was interesting to see this evening. So at this point, what gives you the confidence that you have all the building blocks in place to improve the second derivative and growth rate and ultimately end up in positive territory?

Raul Fernandez: Yeah. Look, one of the things that gives me confidence is that these great leaders that I’ve worked with in other companies have voted with their feet and they’ve joined us. They see what I see. They see an opportunity to take an incredible company that has incredible customers and solutions that have been deployed and use that as a launch pad to really take advantage of the AI opportunity that’s in front of us. And so I’m very encouraged that we’ve been able to give the caliber of new talent in. And again, some like TR are just in for a month or two, some have been here for a year. But in total, I’ve been here 15 months. And I think that the team that we’ve got in place has both the experience and the capacity from an execution standpoint to take what we have been fixing and building and scale it.

Tyler DuPont: Okay. Great. And so I guess as a follow-up, I mean there have been several bookings related questions after night, and I thought it might be able to pile on and ask one more myself, but from a slightly different lens. It was encouraging to see book-to-bill on an LTM basis above 1 for both GBS and GIS. I think that’s the first time since June of ’23 that we’ve seen that. But just given we’ve seen a decent amount of these contracts moving from pipeline into bookings and then ultimately into revenue, just from a sustainability standpoint, what’s the level of visibility that DXC has into being able to backfill that pipeline to make sure that once the bookings convert to revenue, we’re still on a strong footing.

Rob Del Bene: So, we have — the visibility begins with the opportunity pipeline and we have a pipeline that supports sustainability. We have confidence that pipeline will progress, turn into actual bookings and then convert to revenue. So, it all starts with identification pipeline and progression, and we’ve improved performance in all areas throughout ’25, and we expect to continue to both improve that performance and progress the current pipeline, which is good and continue to add more opportunities as we progress throughout the year.

Raul Fernandez: And we’ve talked a lot about the pipeline, the opportunities, both quantitatively increasing. But also just from a qualitative standpoint, from a renewal standpoint, we’re also more successful in renewing existing contracts on terms that both the customer and we are happy with. So that’s another factor in terms of being able to build a solid foundation to growth. But it really does begin and end with a better, bigger qualified pipeline and then getting that timed correctly so that we can convert that to revenue and building it quarter-over-quarter to a point where, mathematically, you can see a trajectory that’s positive.

Tyler DuPont: Great. Well, thank you both. That’s very helpful.

Operator: The next question comes from Jamie Friedman with Susquehanna. Your line is open.

Jamie Friedman: Hi, good evening. Thanks for taking my questions. I wanted to ask about insurance. So, are you — did I hear you say that you’re going to break that out as a segment in more detail. I was wondering if that’s the case, and sorry, if I heard you wrong, I’m sorry. And then if so, what’s the rationale for that? That’s the first one on insurance. And also on insurance, could you just revisit where you are in the revenue recognition? I remember there was some journey between like term and license and subscription. Is that still part of the plan? Is that underway? Where are we in that process? Thank you.

Rob Del Bene: So, Jamie, it’s Rob. We are going to break out — you did hear that correctly. We’re going to break out insurance as a separate segment beginning in ’26. And the rationale for that is simply — it’s a reflection of how we manage the business. And the three segments that we are going to be disclosing in ’26 are the management system we use internally, right? And so that’s the rationale. The — your last question, I think it’s related to, in the past, we’ve discussed progressing and developing our SaaS business within insurance. And that is a longer-term strategy that we have. We’ve started down that road and as we progress down that journey, we’ll think about the appropriate time to break that out separately as we report insurance as a separate segment.

Jamie Friedman: Okay. Thanks for that, Rob. And then for my follow-up, by the way, I like a lot of these new slides to Slide 6 on the technology innovation cycle is helpful. I guess, bigger picture, do you feel like if you look at this continuum, where you put Internet, mobile, cloud, AI, I’m just looking at Slide 6, is this — like some of these technologies, I think are — can be deflationary for the service provider, some create more advantage. How do you feel about your hand and your view of the technology estate relative to what’s going on in tech innovation right now?

Raul Fernandez: Yeah. No, I feel great. I think that — and I spoke about it earlier, our insight in terms of our customers with regards to their infrastructure, their people, their processes, their data readiness, that insight is incredibly valuable, and it makes us best positioned0020to help them take on journeys in the AI front that are both targeted and meaningful and have a real ROI. So for us, it’s marrying the existing knowledge and relationships that we have with the proven capabilities that we’ve deployed across multiple industries that have real return on investment and cross-selling that more effectively and frankly, just being better at communicating the real results that we’re seeing. But we are very, very well positioned.

If you look at that set of technology super cycles that you were referring to. I started my career after the PC super cycle and the Internet super cycle. And I believe that this actually has more disruption and more capability to really change how companies operate globally, and we’re in a great position to be their partner.

Jamie Friedman: Okay. Thank you both. I’ll jump back in queue.

Operator: [Operator Instructions] The next question comes from Rod Bourgeois from DeepDive Equity Research. Your line is open.

Rod Bourgeois: Thank you. And I just want to hone in on one topic, and that is the investment plans going forward. So I just want to ask about your priorities or investing in new solution capabilities in order to drive that more positive growth. If you could give us any sense also of the magnitude of investments that you’re planning over the next year relative to your current investment pace. You said a little bit about that in the margin bridge, but it might be helpful to say more. But the main question really is what are the specific solution areas that you’re investing most in to drive the profitable and positive growth? Thank you.

Raul Fernandez: Yeah, it’s replicability of large capabilities that are repeatable capabilities that our clients are asking for. And we’re in the process of putting together great frameworks that we’re going to be rolling out again as part of the new team that’s come in place to take the point work that we’ve got going around the globe, package that up, create a comprehensive story and be able to both not just cross pollinate internally, but use that as an ability to generate what I believe is going to be great sales opportunities for us because we have proven ROI proof points. And we’ve got the other factor, which is industry knowledge. And probably most importantly, we’ve got a great client base. So for us, it’s internal optimization, internal collaboration, internal knowledge sharing and then external packaging. I mean those are the key ingredients.

Rob Del Bene: And I’d just add to what Raul said that we are also investing in sales and marketing. So that’s the other area where we’re building our capabilities, and that’s part of the plans for next year as well — for ’26 as well. And, Rod, if just look at the guide and the bridge I gave, I think that’s a pretty good indication of the magnitude of the year-to-year investment profile.

Rod Bourgeois: Okay. Are there specific market segments that you want to major in or deal types like core modernization or I mean, I get the investment in sales and marketing and working on the pipeline in a more rigorous way. But in terms of how you go to market and differentiate yourself, are there certain solution or market categories that you really want to major in? Thanks.

Raul Fernandez: We’re seeing a lot of traction in financial services, and we’re seeing a lot of replicability there in terms of deployments that we have and deployments that we can scale and bring to our customers in new ways of consuming them. So that is one probably was the biggest industry that both we have a footprint in, and we’ve got some great ROI models and that we’re beginning to share with the larger client base.

Rod Bourgeois: Okay. Thank you.

Rob Del Bene: Thanks, Rod.

Operator: This concludes the question-and-answer session. I’ll turn the call to Roger Sachs for closing remarks.

Roger Sachs: Thank you, operator, and thank you, everybody, for joining us today, and we look forward to speaking with you again next quarter.

Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.