0001688568-25-000098
SEC filingDXC's Q2 FY2026 revenue fell 2.5% YoY to $3.2B, with adjusted EBIT margin of 8.0% as segment profit declined.
For the second quarter of fiscal 2026, DXC reported total revenue of $3.2 billion, a 2.5% decline year-over-year (4.2% on an organic basis). The decrease was driven by a 4.2% organic revenue decline partially offset by a 1.9% favorable foreign currency impact. Gross margin was 24.6%, down 0.5 percentage points from the prior-year quarter, reflecting cost realignment and higher SG&A expenses. Adjusted EBIT decreased 9.0% to $254 million, with margin contracting to 8.0% from 8.6% in Q2 FY2025. GAAP diluted EPS was $0.20, down from $0.23, while adjusted diluted EPS fell to $0.84 from $0.93. The effective tax rate spiked to 69.5% from 51.6%, driven by global income mix, US tax on foreign income, and a worthless stock deduction.
Segment performance varied widely. Consulting & Engineering Services (CES) revenue fell 1.9% YoY to $1,255 million, with organic decline of 3.4%. Segment profit dropped 17.1% to $145 million, margin compressing to 11.6% from 13.8%. Global Infrastructure Services (GIS) revenue declined 4.2% to $1,586 million (organic -6.3%), but profit improved 1.7% to $122 million, margin expanding to 7.7% from 7.3%. Insurance Services revenue grew 4.6% to $320 million (organic +3.6%), yet profit fell 24.3% to $28 million, margin narrowing to 8.8% from 12.0%. The mix shift toward lower-margin GIS and profit declines in CES and Insurance pressured overall profitability.
DXC did not provide explicit quantitative guidance, but highlighted several strategic priorities. The company is executing cost optimization initiatives, with restructuring costs of $35 million in Q2. Free cash flow year-to-date improved to $337 million from $93 million, driven by working capital improvements and lower capital expenditures. The One Big Beautiful Bill Act (OBBBA) enacted in July 2025 is expected to reduce US federal and state income tax payments in fiscal 2026. Management continues share repurchases, and liquidity stands at $5.1 billion including cash and undrawn revolver capacity. The book-to-bill ratio improved to 0.85x from 0.81x, suggesting modest stabilization in demand.
As of September 30, 2025, DXC held $1,888M in cash and equivalents, relatively flat from $1,796M at March 31, 2025. Total debt stood at $3,982M, up from $3,876M, mainly due to the reclassification of €650M senior notes (1.75% due 2026) and $700M senior notes (1.80% due 2027) to current maturities. Shareholders' equity decreased slightly to $3,071M from $3,229M, driven by share repurchases and other comprehensive losses. The company maintains a $400M receivables facility with $394M drawn.
DXC disclosed $2,182M in minimum purchase commitments as of September 30, 2025, primarily related to multi-year software licenses and maintenance. Undiscounted payments are $160M within one year, $883M in years 1-3, and $1,139M beyond three years. Operating lease obligations total $776M undiscounted, with $712M recognized on balance sheet. Finance lease obligations are $241M undiscounted. Off-balance-sheet commitments include $394M sold receivables under the receivables facility.
Share repurchases totaled $125M (8.6M shares at average $14.55) in the first six months of FY2026, with no remaining authorization disclosed. No dividends were paid. Capital expenditures were $200M (purchases of property and equipment $87M, software developed $113M), representing 3.2% of six-month revenue. Debt increased net $106M; interest expense was $107M for the six months. DXC also entered into a $165M of new operating lease ROU assets (net of modifications).
DXC adopted a new three-segment structure in Q1 FY2026: Consulting & Engineering Services (CES), Global Infrastructure Services (GIS), and Insurance Services. For Q2 FY2026, CES generated $1,255M revenue (down 1.9% YoY) and segment profit of $145M (11.6% margin); GIS revenue $1,586M (down 4.2%) with profit $122M (7.7% margin); Insurance revenue $320M (up 4.6%) with profit $28M (8.8% margin). Total reportable segment profit was $295M, reconciled to consolidated pre-tax income of $131M after corporate expenses, restructuring, amortization, and other items. Geographically, US revenue was $821M (26% of total), UK $464M, other Europe $1,040M, Australia $275M, and other international $561M.
Operating cash flow of $595M significantly exceeded net income of $58M, indicating strong cash conversion. Key non-cash items included $611M depreciation and amortization, $46M share-based compensation, and $14M goodwill impairment. Working capital provided a net inflow of $211M from decreases in assets, partially offset by decreases in liabilities. Capital expenditures totaled $200M (capex intensity ~3.2% of revenues), down from $267M in the prior period, driven by lower software purchases. No free cash flow or capital returns were disclosed. Investing activities used $222M, mainly for capex and contract costs. The financing section was incomplete, but initial lines show no commercial paper activity and $107M in finance lease payments. Overall, the company generated solid cash flow from operations with reduced investment spending.