Good afternoon. My name is Julien (ph) and I will be your conference operator today. At this time. I would like to welcome everyone to DXC Technology 's Q2 FY22 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. . . Thank you.

John Sweeney, Vice President Investor Relations of DXC, you may begin your conference..

Thank you. good afternoon, everyone. I'm pleased that you're joining us for DXC Technologies. Second Quarter FY 22 earnings call. Our speakers on the call today will be Mike Salvino, our President and CEO, and Ken Sharp, our Executive Vice President and CFO.

This call is being webcast at dxc.com Investor Relations website and the webcasts includes slides that will acCompany the presentation today. Today's presentation includes certain non-GAAP financial measures, which we believe provide useful information to our investors.

In accordance with SEC rules, you provide a reconciliation of these measures to the respect to the most comparable GAAP measures. These reconciliations can be found in the table including today's earnings call on the webcast slides, Certain comments we'll make on this call will be forward-looking statements.

These are known and uncertain risks and uncertainties which could cause actual results to differ materially from those expressed on the call. A discussion of these risks and uncertainties will be included our annual report and Form 10-K and other SEC filings.

And now I'd like to remind our listeners that DXC Technology assumes no obligation to update the information presented on this call, except as required by law. And with that, I'd like to introduce DXC Technology's President and CEO, Mike Savino, Mike..

Thanks John, and I appreciate everyone joining the call today, and I hope you and your families are doing well. Today's agenda will begin with an update on our Q2 performance, which shows hard evidence that we're delivering on our transformation journey and building the foundation to make DXC operationally efficient, sustainable and ultimately grow.

Next, I will provide you with additional insight as to the operational work we are performing as we execute our transformation journey. Then I will hand the call over to Ken to share our Q2 financials, guidance and more details of the financial results driven by our strong operational execution.

Finally, I'll make some closing remarks before opening the call up for questions. Regarding our Q2 performance, our revenues were $4.03 billion. Our organic revenue growth continue to show progress as we improved from minus 3.7% in Q1 to minus 2.4% in Q2.

Also, I was very pleased to see the GBS business segment grew for the second quarter in a row from positive 2% in Q1 to positive 3.4% in Q2. We also continue to improve new organic revenue of the GIS business segment from minus 9.1% in Q1 to minus 8% in Q2. Now, all of these results show our organic revenue is on the right trajectory.

Our adjusted EBITDA margin was 8.6% that was driven by the operational work that we're doing to optimize our business. This is the third straight quarter of both improving organic revenue growth and sequential margin expansion and we expect both trends to continue in Q3.

Book-to-bill for the quarter was 0.91, which came in below our goal of 1 due to the timing of a couple of deals. I'm happy to report that both deals are hybrid cloud slash IPO deals and are now close. We continue to attract to a book-to-bill over one year-to-date. And we expect to be back above 1 O in Q3.

Our non-GAAP EPS was $0.90 in the quarter, which is up $0.41 as compared to $0.64, a year ago. Finally, we are encouraged by the strength of our Q2 free cash flow which moved us into positive territory. On a year-to-date basis, we have now produced roughly a $100 million in cash.

Now, let me turn to the progress we're making on our transformation journey. The first step is inspire and take care of our colleagues. We are executing New People First strategy and attracting and retaining talent is fundamental to enable our growth. We know our strategy is working.

We saw a higher percentage of our employees complete our September employee engagement survey and we're showing improved and stable engagement scores. These engagement scores give us confidence that we have a motivated workforce and we will be able to manage attrition, which we've seen an uptick.

To offset this increase in attrition and demand, we hired an onboarded, more colleagues than any other quarter since I became CEO. Key advantage to our hiring efforts is that we have implemented and are running a virtual first model. Hiring has been a focus for us and we will continue.

While hiring improved, we left some open demand and project work unconverted, and we're focused on capturing this moving forward. Focused on the customers the second step of our transformation journey and continues to be the primary driver of our success in improving our organic revenue growth.

A key metric that we managers our Net Promoter Score, and we're seeing continued improvement. The last time we gave you our NPS score of is during the Investor Day in June 2018, almost within the industry best practice range of 20 million-30. Currently, our 12-month rolling NPS score is as a midpoint of our best practice range.

This is the most positive our customers have been since I arrived.

This improvement is due to our strong service delivery and gives us the ability to sell up the enterprise technology stack from our GIS business to our GBS business Now let me remind you that the way we will get to grow is to deliver the GIS services that are critical for our customers and build trusted relationships.

Once these trusted relationships are build, we can move our customers up the enterprise technology stack towards the services of our GBS business. This is exactly what we're doing in the organic revenue trajectory of GIS, GBS, and the overall business is great evidence that this strategy is working. Now let me turn to our cost optimization program.

We continue to make progress in optimizing our costs in delivering for our customers without disruption. Mentioned at the beginning of this call that we are doing these operational work to make DXC efficient, sustainable, and ultimately grow.

I've already commented on some of the operational work we're doing like motivating our colleagues, hiring new talent and implementing a virtual first model. In addition to this work, we're also improving the efficiency of our service delivering, implementing better IT tools, and actively managing our real estate footprint.

Let me provide you with some additional color concerning the operational work we're doing with real estate. This quarter, we closed our Tyson facility and are moving to a much smaller footprint in the DC area, where our colleagues that need to come into a facility, will share space versus having dedicated space.

This work emphasize our commitment to a virtual first model, reduce our carbon footprint and represents our desire to maintain a much smaller real estate footprint.

Ken will detail out to financial results of all of this operational work that simply put, this work is allowing us to improve margins from 8% in Q1 to 8.6% in Q2 and gives us the confidence to increase our margin and EPS guidance for FY22. Next season market is where we're focused on cross-selling for our existing customers and winning new work.

As I previously mentioned, we had two significant deals slipped into Q3 and are now signed. The great news about these deals is they were both, hybrid clouds with long-standing customers.

Specifically, we are helping these customers modernize their existing idea stains and building new private cloud capability to run their mission critical applications. In Q2, 59% of our bookings were new work and 41% were renewals.

The new works continues to increase due to those focus on another piece of our strategy, which is our Platinum customer channel. Taking our offerings through this channel is another key foundation piece for growth.

We're now starting to see evidence that we are being successful taking Luxoft, which drives our analytics and engineering services, through our Platinum customer channel. The evidence is that analytics and engineering grew 17.3% in Q2 which is clearly helping us create growth in our GBS business segment.

Now, let me give you an example of what the Platinum customer in the future looks like at DXC. We have a 14-year relationship with one of the world's largest specialty retailers. Now, before I arrived and implemented this strategy, our revenues were roughly $80 million per year, split 1/3 GBS and 2/3 GIS.

By continuing to deliver our GIS services for this customer, we were offered the opportunity to sell our GBS services as a result. And we have increased the total revenue on this account by 13% and the mix between GBS and GIS is now split 50-50 as we are now providing them analytics and engineering services.

We're in the early innings of this strategy but we feel confident that we can implement this approach to our other platinum customers, successfully delivering GIS services and growing GBS services. They have the same or more revenue at better margins. Now, let me turn the call over to Ken..

Thank you, Mike. Turning to our quarterly financial performance on Slide 11, as you can see, our progress continues. Our organic revenue improved to a decline of 2.4% or a 130 basis points points improvement from Q1. This represents our third consecutive quarterly improvement.

As you can see, we have come a long way from double-digit organic revenue declines in Q1 FY21, to low single-digit declines in FY22. Our adjusted EBIT margin continues to improve as well, delivering 8.6% in Q2 up 60 basis points as compared to the first quarter.

Year-over-year, our adjusted EBITDA margins have expanded 240 basis points or 460 basis points excluding the disposed businesses. Our book-to-bill for Q2 was 0.91, below our goal of 1 due to timing and remains over one year-to-date.

Further, we expect to deliver a book-to-bill of over one for Q3 and for the full year, non-GAAP diluted earnings per share was $0.90 up $0.06 from Q1 and healthy 41% increase as compared to the prior year. Our earnings per share expanded due to increased margins. lower interest expense and a lower tax rate.

Moving to our segment results on slide 12, our GBS segment continued its strong growth performance posting its second quarter of positive organic revenue growth of 3.4%, an improvement from 2% in the first quarter. The GBS growth is a positive sign as we continue to deliver higher value for our customers.

Our GBS business has higher margins and lower capital intensity, so as we grow this business, it has a more positive impact on margins and cash flow. Our GBS margin was 15.9% up a 150 basis points compared to the first quarter and up a 180 basis points compared to prior year.

Our GIS segment, organic revenue declined 8%, a full 110 basis point improvements compared to the first quarter and improved 380 basis points compared to the decline from prior year. GIS margins were 5.5%. An improvement of 390 basis points compared to prior year.

Turning to the enterprise technology stack, analytics and engineering revenue was 520 million up 17.3% analytics and engineering book-to-bill was 0.95 and 1.13 years-to-date. We continue to see high demand in this area. The applications layer was up 1.5% book-to-bill was 0.94 and 1.13 year-to-date.

BPS, our smallest layer of the enterprise technology stack at a 118 million of revenue was down 13.7% book-to-bill was 0.69 and 0.91 year-to-date. Cloud and Security revenue was $521 million down 1.5%. Book-to-bill was at 0.8 in the quarter and 0.82 year-to-date. IT Outsourcing revenue was $1.05 billion down 9.6%.

ITO book-to-bill was 0.81 and 0.92 to year-to-date. We expect our ITO declines to continue to gradually moderates as we move through FY22.

The two deals Mike mentioned earlier that slipped out of Q2 that were subsequently closed were in the ITO and Cloud and Security layers of our technology stack and order boosted our GIS book-to-bill for the quarter to over 1.1. Lastly, modern workplace revenues were 581 million down 10.9% as compared to prior year.

This is an improvement from last quarter when modern workplace was down 19.7% year-over-year. Book-to-bill was 1.2 and 1.1 year-to-date. Next up, let me touch on our efforts to build our financial foundation.

this quarter we made particularly strong progress on strengthening our Balance Sheet and solidifying our financial position, cash-generation, and reducing restructuring and TSI expense.

As Mike pointed out earlier, we've made measurable improvements driving our business to improve our financial foundation that will ultimately allow us to increase our deployable cash, affording us more opportunities to create value. We reduced our debt from $12 billion to $5.1 billion.

The refinancing of all of our high rate bonds during the quarter, culminates our collective efforts to transform the business, improve its trajectory, and strengthen our Balance Sheet.

There is no similar and clear way of seeing the impact that Mike and his team have made, improving the operations of the business than what was accomplished with our debt over the last year. Net interest expense has been reduced from $83 million in the first quarter of 21 to 45 million this quarter.

With the full benefit of our refinancing, we anticipate interest expense to be reduced to approximately $33 million in Q3. We also continue to deliver on reducing, restructuring TSI expense while increasing our margins. This not only improved our cash flow, it also narrows the difference between GAAP and non-GAAP earnings.

Finally, capital lease and asset financing is an area that was overused. In the last year or so, We've significantly curtailed new capital lease origination's from $1.1 billion in FY20 and are on track to reduce the origination's to approximately $500 million this year.

These efforts to better manage this form of financing allowed us to reduce our debt and ultimately our capital lease cash outflows from $245 million in Q1 half-life 21 to a $177 million this quarter, we expect further reductions, in our quarterly cash outflows to around a $150 million per quarter at the end of FY22 and further below that level going forward We delivered these reductions while also better managing capital expenditures.

Our capital expenditures were reduced from $225 million in Q1 FY21 to $159 million Q2 FY22. Based on our reductions to capital lease originations, a more meaningful metric that demonstrate our progress is CapEx spend and capital lease originations as a percent of revenue.

CapEx and Capital lease originations as a percent of revenue were 10.2% for FY20, 8% for FY21, and now down to 5.3% for Q2 FY22, delivering 5.3% is a good step forward related to better managing our capital spend as it gets us in the peer range or be it at the top end and as a proof point of our improved operational rigor.

Returning to our debt on slide 16, I want to spend a minute on our recent refinancing. This chart shows how the refinancing further solidifies our financial position by extending maturities. We now have no bond maturities before FY 26, lowering maturity towers and reducing annual interest expense and cash outflows by about $50 million a year.

From our improved balance sheet, let's move to cash flow. Cash flow from operations totaled an inflow of $563 million. Free cash flow for the quarter was $404 million, up 33% compared to prior year and moves us to positive free cash flow for the first half of FY22 of a $100 million.

The second quarter was impacted by previously disclosed cash tax payments related to business disposals, accelerated interest payments due to our refinancing, and the payment related to restructuring a vendor-relationship to take greater control over our delivery.

Further, as part of our strategy to focus on customers, we were able to better manage working capital in the quarter. As we look to the second half we expect the fourth quarter of free cash flow to be stronger.

Our third quarter has two discrete non-recurring cash payments, including a $60 million payment associated with a legacy vendor that has a take-or-pay agreement and a $90 million payment associated with COVID relief legislation where we deferred certain tax payments and now have opted to accelerate the tax payments to utilize the tax deduction.

Slide 18 shows our trended free cash flow profile. The negative cash flow over the last 3 quarters was due in large part to absorbing a number of non-recurring cash outflows of over 1.7 billion to put the business on a better trajectory, building our foundation.

These cash outflows include $700 million tax payments associated with taxable gains on our divestitures, $500 million to normalize vendor payments, $332 million related to readying the U.S.

state and local health and human services business for sale, $114 million to end an AR Securitization program, $88 million to end a value destructive pay-to-pay agreement. So $1.7 billion headwinds put into perspective, to $749 million trailing 4 quarters negative free cash flow.

A key driver of improving cash flow is to continue to reduce our restructuring in TSI spend.

Our restructuring in TSI efforts are highly focused and we believe our improving investment in the business, addressing our outsize costs structure in certain countries, and to reduce our facilities footprint to align to our virtual model, we remain on track to reduce restructuring in TSI from an average of $900 million per year over the last 4 years to $550 million in FY22.

And about a $100 million in FY24 '24. I would like to take a moment to update our capital deployment expectations from Investor Day. The Investor Day chart calls for 55% of our free cash flow to be used to pay debt and capital lease obligations.

As a result of our progress, our cash outflows for debt and capital lease financing are now expected to be about 20% of our free cash flow. Then leave 80% of our expected free cash flow to invest in our business and we will repurchase our stock.

I should note, we like the business we have and believe that we have the right level of investment in GBS and GIS. We believe our technology stack has critical mass and capability at each layer.

We believe we will create more value by continuing to focus on driving the transformation journey across our business, improving the fundamentals, and continuing to build organic growth up the stack. Ultimately delivering 1 to 3% organic growth in FY24.

Related to acquisitions, our focus is to ensure our Platinum channel strategy will be fully vetted and proven out. So eventually, when we are acquisitive with tuck-in size acquisitions, we will have a clear path to deliver value.

Related to our debt, we have a clear line of sight to achieving our targeted debt level of $5 billion near term as we have scheduled debt repayments via our capital lease financing and commercial paper. Our preference is to maintain approximately $2.5 billion of cash on hand to fund an appropriate level of working capital.

When we have cash in excess of $2.5 billion, we will determine how best to deploy the cash as we do not expect to leave significant levels of excess cash generating no meaningful returns on our Balance Sheet for an extended period of time. At this point in our journey, we favor share repurchases as our valuation is attractive.

In Q2, we repurchased $83 million of our common stock bringing the FY22 year-to-date repurchases to $150 million or 3.9 million in shares.

Our share repurchases are a disciplined approach to capital allocation and are expected to be self-funding using a rather simple formulaic approach of deploying cash in excess of $2.5 billion when we are at our target debt level of approximately $5 billion. We remain very focused on our investment-grade credit profile.

Turning to our third quarter guidance, we expect revenue between $4.08 billion and $4.13 billion. If exchange rates were at the same level as when we gave guidance last quarter, our third quarter revenue guidance range would be $90 million higher.

Organic revenue decline improved to down 1% to down 2.5%, adjusted in the margin of 8.6% to 8.9% non-GAAP diluted earnings per share is expected to be in the range of $0.88 to $0.93 per share.

We're pleased by our progress as we look to the second half of half life 22, I would like to update our current fiscal year guidance based on the strengthening U.S. dollar. Our revenues are expected to be negatively impacted by approximately $200 million which has been reflected in our revised guidance range of $16.4 billion to $16.6 billion.

Reaffirming organic revenue growth at down 1% to down 2%, increasing adjusted EBIT to a range of 8.5% to 8.9%. Increasing non-GAAP diluted earnings per share to $3.62 to $3.72 per share. and reaffirming free cash flow guidance of $500 million. We are reaffirming our guidance for FY24.

This reflects our strong execution in driving forward on our transformation journey. Before I turn the call back to Mike, I want to reflect a moment. As I'm closing out on my first year at DXC, we are clear eyed on the value we are driving with the transformation journey.

We feel, strongly, there is more opportunity in front of us to continue to improve the business and the underlying economics. With that, I will now turn the call back over to Mike for his closing remarks..

Thanks, Ken. Let me leave you with the following key takeaways. We are building a foundation to make DXC operationally efficient, sustainable, and ultimately grow. By focusing on the operations work of motivating our colleagues and hiring new talent.

Moving to a virtual first model, making service delivery more efficient in implementing better IT tools and reducing real estate. We're able to deliver better for our customers and gives us the ability to sell up the enterprise technology stack to GBS.

The good news is the financial results they can just took us through, reduce debt, shrinking, restructuring, and TSI costs, increased margin and EPS and stronger free cash flow are all sustainable on a result of the operational work we are doing. This gives us confidence that we will achieve our FY24 double-digit margin guidance.

On growth, Q2 confirms that we're on the right trajectory for growth. Our folks on delivering and fixing the GIS business develops trusted relationships with our Platinum customer s. We are negotiating our GBS offerings to our Platinum customer s, selling up the enterprise technology stack.

The evidence that this is working is in our organic revenue results of GIS, GBS and the overall Company. This also gives us confidence that we will achieve our FY24 guidance of 1% to 3% growth.

In closing, I'm confident that by staying focused on our transformation journey and building the foundation, we will continue to deliver in the short term and ultimately deliver our long-term financial targets of margin, growth, and free cash flow. Operator, please open the call up for questions..

Your first question comes from Brian Keane from Deutsche Bank. Please go ahead. Your line is open..

Hi, guys. Good afternoon. Just want to ask about the bookings in demand picture, I guess kind of a 2 part question. Obviously, the bookings saw a little bit below 1 in the quarter, but you didn't have to change your organic growth for the fiscal year.

And that might just have to be just due to a timing issue, can you just explain that a little bit and then secondly, there was some talk about it. It seemed like the demand was strong enough that if you had some more , she could have fulfilled even a higher demand.

So I just want to understand a little bit of, do you have the right amount of people and I know you had a big quarter hiring, but just trying to fulfill the demand that you have. Thanks..

Thanks, Brian. So, look on Book-to-bill, the focus for us is around the year-to-date. We're over one that gives us a lot of confidence. And like Ken said, total year, we should be over one. I don't see a problem in the demand that's why I called out a couple of deals. If you look at a couple of deals, they were hybrid clouds and ITO deals.

So when you look at our Page 13, you would see that they would push that Book-to-bill for GIS up around 1.1. So the deals are there, we're definitely winning in the market.

The comment I made in terms of demand and projects is that when I talked about us getting additional at that because we're delivering on GIS now, is the fact that it's there for us to take. And I think we got to continue to be more aggressive.

You guys know that ever since I've been here, I've been very customer focused and with that focus, I think we can do even more in the market. So that was the purpose for my comment. We do have the people, I called that out in terms of I think we're managing the attrition well, so our positioning and what we're doing in the market, Brian..

Got it and then how do you do more? I mean what is that going to take for you guys to fulfill that extra push to grow a little bit faster is there is there something there that you need to do or is that just executing at a high level?.

I think it's continuing to deliver and continuing to knock on the doors of our Platinum accounts. The reason I gave you guys the example of the Platinum accounts at the end of my prepared remarks is the fact that when we are delivering, we do get those opportunities. And we get those opportunities you are seeing that now we're growing GBS.

So, the key green shoot in this whole organic revenue story is the fact that GBS now has grown for the second quarter in a row. Before I got here, that business had never grown. So like what we're doing, have confidence in terms of us being able to compete in the market and so far so good..

Your next question comes Jianwu Wang from JP Morgan, please go ahead. Your line is open..

Thanks so much the slides are really helpful. I want to ask on GBS since you mentioned that just -- the demand environment seems pretty good there, Mike.

Do you see continued progress there on the revenue front? Can you bring that into the mid-single digits or higher and on the margin front as well, with the high water market 15.9, Can you bring the margins up even higher from that level?.

I mean that progress engine is that's pretty special because when you look at the top of the stack which is what we've been saying all along. Let's make sure we deliver the critical applications in GIS to make sure we get those at bats and then start selling through that Platinum channel.

So when you look at that -- the GBS, I mean analytics and engineering. I will tell you we can compete with anybody. That 17.3%, that's good work. Okay.

The second thing is, I know it's small growth, but applications that's the second quarter in a row, we've grown applications to, again, we're competing in the high-end work and what we need to continue to do is make sure that we're also fixing the GIS business and what you're seeing there is that we got to continue to stay focused on Modern Workplace.

Modern Workplace saw some really good results this quarter, going from 19.7 negative to now, 10.9. Now that business is going to continue to be lumpy because we're still seeing some runoffs.

But the other thing I'm happy to report is when I look at the ITO business, remember all those customer run-offs we had because of non-delivery and so forth? For the most part, that stuff now is done and we can start seeing good progress in ITO in the second half of the year.

Okay. That's encouraging here. My quick follow-up just maybe for Ken just on the, I know good work and reduce the capital lease obligations, on Slide 20, just want to clarify the excess cash allocation inside the circle there, that means after retaining the $2.5 billion in cash to run the business I just want to make sure I understood that, thanks..

Yes, that's correct Jianwu. So we'll keep $2.5 billion of cash on the Balance Sheet. And when we have excess cash, we'll look to deploy it..

Your next question comes from Jason Kupferberg from Bank of America. Please go ahead. Your line is open..

Great. Thanks, guys. Just wanted to start on the organic growth side based on what you are guiding to for Q3. I know that implies there will be a ramp in Q4 to get to the full-year target, which is unchanged.

Can you just talk to us a little bit about the visibility on that additional acceleration in the force order? I think you can probably get to positive territory in Q4 if I'm not mistaken. Thanks..

So Jason, look the -- in terms of what we're doing, the guide in Q3 is not only solid but also it winds us up directly for FY22. And when I look at our strategy in terms of the GIS business and the GBS business. Look, that's going to get us there.

What we're focused on with GIS, just to be specific, when you look at Page 12, we're looking to drive that to negative single-digits over time. Now I keep saying it's going to be lumpy this year, so it's going to sort of hang around the 8% range as we fix Modern Workplace.

So that's sort of the bottom end of the equation when you're looking at organic growth. The top end of the equation is I've also been very clear to GBS now is growing and it's going to continue to grow.

So when I look at the business, that's how we're going to get to our minus 1 to minus 2 for the full year, and I would tell you the visibility on that is pretty good..

Excellent. On free cash flow, I'm just curious just regarding the Q3 outlook, I know you called out that will be a couple of nonrecurring items.

How should we be modeling the overall free cash flow in the third quarter? I know you don't have typical favorable seasonality in Q4 and it gets into the full-year number, but want to make sure our expectations are calibrated for the current quarter..

There. I mean, we haven't really given quarter-to-quarter free cash flow guidance, but I think if you back those items out, I would expect to be around plus or minus $50 million positive, maybe $50 million negative, a $100 million, call it $50 million to a $100 million somewhere in that range..

Your next question comes from James Faucette from Morgan Stanley. Please go ahead. Your line is open..

Hey, my name is John. Good afternoon. Thanks for taking our questions.

You mentioned an uptick in attrition, where across the technology stack are you seeing more or less attrition? And what's contemplated in your guidance on a directional basis as it relates to that?.

What's contemplated our guidance is that one, we're managing it well and we're managing incredibly well because ever since I've gotten here we've taken a people-first strategy that means we're taking care of our folks.

The second thing that we're seeing in the market is the fact that not only our people, but future recruits like our virtual first mindset. The third thing is, we continue to keep a pulse on our folks.

So that's why I mentioned the September employee engagement results in terms of we had more people participate and we also have a very motivated workforce. and then the last thing that I think people miss is we're also in the right locations. When we're looking to hire folks, I do think our footprint is an advantage for us.

Having said that, we're doing great on analytics and engineering, being able to keep up with that demand. And then our other focus is in application and cloud. That's the stuff that we're focused on in terms of our market and being able to compete. And so far so good..

Got it. Thanks, Mike. And quick follow-up. What are you seeing in terms of the pricing dynamics across this technology stack? Presumably there are some pricing pressure given. The -- given the mix there and as well as the cost of labor.

are you able to pass on that pricing, to your end customers?.

I mean to look the pricing all you got to do is look at 12 all right 12. We're definitely getting good margins for our GBS business. And then love the right side of 12 because you will see the discipline in terms of the new deals were also doing in GIS. Okay. So when we grow, this growth will be a good margin.

And like I said, that's why I like what we're doing. The EBIT margin progress and us having the ability to raise guidance on both margin EPS is strong and on the revenue, we're doing exactly what we said we're going to do..

Your next question comes from Ashwin Shirvaikar from Citi, please go ahead. Your line is open..

Hey Mike, hey Ken..

Good Ashwin..

So my first question was, what percent of GBS currently stems from GIS trusted relationships? And the reason I'm asking is, does it make sense or are you making progress on also perhaps building out GBS independent of GIS just to go out and get it s own? I wanted to figure out the dynamic there..

So look, the thing with GBS, a lot of that is being fueled by analytics and engineering. Then you take the next cut of analytics and engineering, and what's fueling analytics and engineering, that's Luxoft.

Luxoft, when we bought, we knew there wasn't a lot of overlap, hence, the reason why I called out in my prepared remarks that we're now starting to see us taking Luxoft through that Platinum channel, that's goodness.

Because not only did Luxoft have their own customers and they continue to go get their own customer but now we're also seeing conversion on the Platinum accounts. And that's again good tenants of green shoots for growth. Hence the reason why we have confidence that we'll get the organic revenue where it needs to be..

Got it. Okay. Understood. And then these structuring in TSI, as I look at what you've done year-to-date and the full-year projection, it would seem like the current level probably be maintained for the next couple of quarters.

I just want to make sure that it's accurate and what leads to the quarter-to-quarter step-up step-down be that any particular call outs on what you're specifically doing there? Sorry if I missed that one..

You know, we've guided to $550 million for the full year. We're running probably a little bit light of that at this point. What I would say Ashwin, we've taken a very disciplined focus effort on every dollar spend. So we make sure that business cases is being deployed thoughtfully.

So you could see it take up in the second half of the year to get to the $550, but I would just say we're working diligently to manage it. So I would say that $550 is a good number, but if we don't need the money, we certainly won't spend it..

Our next question comes from Rod Bourgeois, from Deep Dive Equity Research. Please go ahead. Your line is open..

Alright. Thanks, guys. Hey, so Mike, just a big picture question. I wanted to ask about what stage of turnaround you're in.

You clearly have margin on the rise despite all the talent challenges out there and you actually had a string of 5 quarters with Book-to-bill above 1 and it's actually a little above 1.1 until you experienced the a couple of delays apparently this quarter.

So just stepping back, it would be great to hear where this now places you on the turnaround trajectory.

Can you give us a sense of what inning you're in and if you add any kind of inflection point given the progression of clients and what's happening in the pipeline?.

Okay, Rod, thanks for that question. I'll stay with -- I'll stay with you baseball analogy. How about that? And in my mind we're in the early innings for both organic revenue and also margin. Let's tackle the margin first because the margin is -- the progression is clear that we're delivering.

Remember the cost levers that we're dealing with and they're mostly all related to our people. So, the first one is we have a bias towards making sure that our own people do the work for our clients and customers instead of contractors. So we're very focused on contractor conversion. Second is we want to get the right people on the right location.

That's why I mentioned the footprint. So that's scaling our GIDC. Third, the virtual first model so that's why I continue to talk about real estate. We should be minimizing or definitely taking down our real estate footprint. And the last thing is, let's not have our folks do stuff that we can automate.

So when I look at those 4 levers of cost, I would say we're definitely in the early innings because there's still much more to do. That's what gives us confidence that we can reach the double-digits in FY24. Quite frankly, that's also what gives us confidence to raise the guidance in terms of the margin and EPS for FY22.

On revenue, what I would tell you there is the payoffs going to occur over time, but we're seeing a lot of good things happening. When I talk about green shoot, green shoot number one is NPS is up that means customers are happy with our delivery. Second is we're definitely getting to see more of that.

Those at bats are coming both in terms of the GIS business, but we're now seeing all those at-bats happening in GBS. But what will happen as those will convert over time. and the best proof of those at-bats converting is the fact that we are growing analytics and engineering, we're also growing applications.

So look, when I say the early innings, I would also say that the margins a little bit ahead of the revenue. But the revenues there I think over time you're going to continue to see that the strategy we laid out to deliver the GIS business and to continue to try to grow up the stack, the GBS, is one that will serve us incredibly well..

That's helpful and thanks for dealing with the baseball analogy. Can you also speak to the competitive landscape that you're seeing? It does seem you have 2 large infrastructure competitors that are amidst and pretty big distractions. It would be helpful just to hear how you're competitive position is tracking in your major markets..

When I look at that, I like the hand that we have, Rod. And when I look at it, it's different set of competitors for GBS than it is GIS. So on GBS you can see not only are we competing, but we're winning more than our fair share, especially in analytics and engineering. When I look at GIS, we just need to stay focused.

I mean, we're laser-focused on making sure that we take care of those Platinum accounts. We're also in those Platinum accounts where we can expand, we will, and again, I like our position there to..

Your next question comes from Bryan Bergin from Cowen. Please go ahead. Your line is open..

Hey, guys. Good afternoon. Thank you. Question on bookings too. So, hoping you can dig in a bit more on GBS Book-to-bill performance in the quarter.

And then Mike, just more broadly, you've had a good mix of new work in bookings but can you comment on renewals? I hear your commentary around GIS discipline, so hoping you could dig in a little bit more there..

Okay. So Brian, what are you at? Tell me a little bit more about what you're looking for on GBS the first part of your question..

Yes. So when we look at GBS book-to-bill in the quarter, so that was 0.9 or 0.5, just comment there on anything that may have slipped in that segment as well, or if it's just some lumpiness, and then on the renewals, anything to tease out around GIS discipline as it relates to renewals in that business..

So look, on the top portion that's -- to be honest with you, that's why we gave you the year-to-date stuff because I'm not really that concerned about it at all, and the fact that I'm guiding towards 10 in Q3, we should be fine. In terms of the renewals, I always say.

Look, we're going to continue to have a healthy dose of both because we had to continue to renew the work we have but also win new work. And a lot of that new work is still coming on our existing client base.

And that's why I give you both numbers because when I started this whole endeavor 2 years ago, people thought that the revenue is going to run away from us. And clearly, we're showing now, it's not and that's why I continue to show you the renewal number.

I always want the new work to be a little bit higher than the renewals, that's why I like the numbers we've got so far..

And then just on the Platinum accounts, those good example you provided curious how -- how broad-based or are those types of experiences that you are having across the Platinum accounts channel today. How far along.

Early innings -- early innings. So those take time to do, right? So think about the journey that we've been on. The first step was to get those customers to believe in us again. The second step was did then deliver for them alright? And that just doesn't happen overnight.

Third step 1 then was to start talking to them and being proactive in innovative with them. And that's not just 1 conversation and the reason I gave you that example is that that's the way this hings can look. They take time that's why I answered Rod 's question the way I did in terms of early innings.

But we have the confidence that the front-end account executive model that I'm putting in place is going to be able to deliver those type customers for us in the future..

Your next question comes from Jamie Friedman from Susquehanna. Please go ahead. Your line is open..

Hi. It's Jamie Friedman. I had a couple of kind of housekeeping questions on FX but I did want to tease those out, maybe better for Ken but -- by the way, this Slide 22 disclosure on FX is a great slide. But I wanted to ask, I see that you're calling out $200 million of FX impact on the year.

Did you say what it is for the Q3? I saw that you had $57 million in the Q2. That's the first one. What's the Q3 FX? If you happen to have that. I know it's very detailed.

And then, is your bookings adjusted for FX2 because if not, would that have impacted the Book-to-bill at all?.

Partner, you take Q2, I'll do the book-to-bill. So the Q3 FX impact is about $90 million, Jamie..

Got it. Okay..

And Jamie, listen on the Book-to-bill now, I'm not that -- the FX that flat out is knocking down the deals and -- look, the great part about where we are now is we're pretty specific about what we can do in each quarter and to be able to have that forecast figured out and the deals that we need to the land.

I really like the fact that we've got that discipline and that's quite frankly why I called out a couple of deals. And better yet, the fact that they are behind us, and we're now fully into Q3. That's goodness..

Got it. I'll jump back into queue. Thanks for that..

Go ahead..

We have one last question from Keith Bachman from BMO. Please go ahead. Your line is open..

You, Mike and Ken you guys trying to cut me off..

Now you get even more time,.

Good ahead you going to have 3.

I got my study 2 questions lined up, but I wanted to down on the first one is in terms of the cash flow in the distribution. Essentially, when you reached the targets, you're prioritizing buybacks.

It sounds like over M&A and I was just wanted to tease that out a little bit in particularly as you're on your journey here to try to get the positive growth rate, why not tilt a little bit more selective M&A to try to accelerate that formed the growth. And I'm not saying use M&A to get growth.

But once you buy some companies, you know, it helps you as you even anniversary getting new areas like blocks off. But why the emphasis on buybacks over a little bit about M&A..

Keith I will start and Ken will way in. The key thing that Ken said is we've got what we need. Okay. Got to do is continue to execute what we have. Alright.

So think about the strategies we're putting in place for growth Deliver in fixed GIS, and continue to make sure that we're selling the offerings that we have in applications and analytics and engineering. That's piece 1. Piece 2 is the Platinum customer channel and being able to take new things like Luxoft through that channel.

So, my point right now is we've got more than enough to get us to where we need to be for FY24. Now, having said that, you should have also heard that if something falls in our lap, we will absolutely do it. All right? And look at it, we got the money.

And don't take Ken's comments as etched totally in stone I mean, we can pivot one way or the other, but we definitely think we're undervalued right now, therefore, we think a good use of the cash there is to buy our stock.

The last thing I will tell you is we continue to go through this business and do the hard work around making sure that we don't have any distractions from the enterprise technology back. So we continue to divest small piece of this businesses that quite frankly, we are not a 100% focused on our enterprise technology stack.

So Keith, I look at that work and I look at how we're undervalued. And I say, okay, best usually the cash right now in the short term buyback, Alright. All while we continue to balance that investment-grade profile, I think that balances is important..

Yeah and maybe just to add to that because the conversation around free cash flow versus excess cash, I think is an important concept. So when we laid it out at Investor Day, we spend some time talking about free cash flow. The reason excess cash comes to the forefront is really what Mike talked about a few seconds ago.

Which is as we dispose of assets that are non-core, aren't really productive for us, we'll generate cash. And we also want to use that cash to -- deploy that cash in an appropriate fashion..

Okay. Well, why don't I leave it there, I'll ask my other questions and follow-up, but I appreciate it. Thank you very much..

Keith. Sorry about that..

That's okay..

In closing what I want to do is thank everybody. We really appreciate your interest in DXC. Our team really believes that we are building the foundation to make DXC operationally efficient, sustainable, and ultimately grow and I am confident that we just stay focused on our transformation journey and continue to build the foundation, we'll deliver.

So with that, all the best to you and your families and Operator, please close the call..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect..