DXC Technology reveals first post-merger financials

DXC Technology reveals first post-merger financials

Reports US$245 million in pre-tax earnings

Seelan Nayagam - Managing Director A/NZ, DXC Technology

Seelan Nayagam - Managing Director A/NZ, DXC Technology

DXC Technology has reported US$245 million ($311.3 million) in earnings before interest and tax (EBIT) in its first quarterly financials since the company officially launched its new brand.

The official launch and public listing of DXC Technology, the IT services company arising from the spin-merger of Hewlett Packard Enterprise’s (HPE) Enterprise Services (ES) business and Computer Sciences Corporation (CSC), came on 3 April.

The company’s adjusted EBIT for the quarter was US$679 million, compared with US$310 million in the prior year on a pro forma combined company basis – that is, including the balance sheets of both of the pre-merger businesses.

At the same time, income before income taxes was US$185 million in the first quarter, including US$190 million of restructuring costs, US$124 million of transaction and integration-related costs, and US$120 million of amortisation of acquired intangibles.

During the quarter, the company’s Global Business Services (GBS) business revenue was US$2.27 billion in the quarter, compared to US$1 billion for the comparable period of the prior fiscal year. New business awards for GBS were US$2.4 billion in the first quarter, the company said.

Meanwhile, the company’s Global Infrastructure Services (GIS) revenue was US$2.97 billion in the quarter, compared to US$881 million for the comparable period of the prior fiscal year.

According to Technology Business Research analyst, Kevin Collupy, DXC reported 2Q17 revenues of US$5.9 billion, the rapid growth driven by the addition of the HPE ES business being compared against just the legacy CSC business, last year.

Yet the quarterly revenues come in under what the combined businesses cumulatively pulled in last year during the quarter. The combined former businesses of both HPE ES and CSC reported approximately US$6.5 billion during the 2Q16 quarter.

"Similar to most large scale M&A activity, a major internal transformation takes time and money to complete," Collupy said. "Both legacy businesses were undergoing internal transformations before combining, and we suspect that transformation efforts will accelerate during the integration process. 

"This will be driven by a rejuvenated leadership team and updated solutions as the company pivots to adapt to new technologies creating services to accommodate the changing needs of clients. Likewise staff roles will change and redundancies will continue to be eliminated to keep costs in line with revenues," he said.

Regardless, DXC Technology chairman, president and CEO, Mike Lawrie, talked up the results, revealing that the company had achieved several key merger integration milestones and is now executing on its synergy plan. 

"We have implemented the first phase of the plan and are on track to meet our targets of [US]$1 billion of year-one cost savings in fiscal 2018 as well as [US]$1.5 billion of run-rate cost savings exiting the year,” Lawrie said.

"We continue to lead our clients on their digital transformation journeys, leveraging efficiency gains in traditional IT to reinvest in digital solutions, including our own.

"We are strengthening our partnerships and expanding our partnered offerings, and we are making strategic investments in the business, including our recent acquisition of Tribridge on July 5th, making DXC a leading global integrator of Microsoft Dynamics,” he said.

The results follow some major deals landed by DXC Technology’s local operation, with the company being dealt a massive $394.2 million multi-year end user computing contract with the South Australian Government in February, back when it was still called CSC.

In June, the company was also handed a $27.2 million, multi-year contract from the Department of Defence for the provision of managed services, along with a number of other substantial government contracts over the past several months.

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