0001688568-26-000005
SEC filingRevenue declined 1% YoY to $3.2B, adjusted EBIT margin contracted 50bps, but EPS rose on lower share count and tax benefits.
For the third quarter of fiscal 2026, total revenue was $3.194 billion, a decrease of 1.0% year-over-year (YoY) from $3.225 billion in the prior-year period. The decline was driven by a 4.3% organic revenue contraction, partially offset by a 3.3% favorable impact from foreign currency exchange rate fluctuations. Gross margin decreased from 24.3% to 23.8%, reflecting higher cost of services as a percentage of revenue. EBIT improved 22.6% to $179 million, with margins expanding from 4.5% to 5.6%, largely due to lower restructuring charges, depreciation, and interest expense. Adjusted EBIT, however, declined 8.0% to $263 million, with margin contracting 70 basis points to 8.2%, as revenue decline outpaced cost savings. Diluted earnings per share (EPS) rose to $0.61 from $0.31 in Q3 FY25, aided by a lower effective tax rate (35.7% vs. 51.9%), reduced share count from buybacks, and the reversal of merger-related indemnification liabilities.
Segment performance varied. Consulting & Engineering Services (CES) revenue was nearly flat at $1.266 billion (-0.1% YoY) but organic revenue fell 3.6%. Segment profit declined 12.2% to $144 million, with margin compressing from 12.9% to 11.4%, impacted by higher costs and weaker demand. Global Infrastructure Services (GIS) revenue decreased 2.7% to $1.607 billion (organic -6.2%), though segment profit edged up 0.9% to $113 million, with margin improving 30 bps to 7.0% due to cost optimization. Insurance Services posted the strongest top-line growth, with revenue up 4.6% to $321 million (organic +3.2%), but segment profit dropped 30.0% to $35 million, resulting in a margin decline from 16.2% to 10.9%, likely from investments and higher costs.
The MD&A does not provide explicit quantitative guidance for upcoming periods. Management emphasizes ongoing cost optimization initiatives, including restructuring actions ($92 million year-to-date) and realignment of expenses from cost of services to SG&A under the new segment structure. The book-to-bill ratio of 1.12x (vs. 1.33x a year ago) suggests slowing order momentum, particularly in GIS (1.09x vs. 1.43x) and Insurance (0.93x vs. 1.04x). The company maintains ample liquidity with $1.7 billion in cash and a $3.0 billion revolving credit facility. The effective tax rate benefited from the One Big Beautiful Bill Act enacted in July 2025, and management expects lower federal and state income taxes for fiscal 2026. Share repurchases continued, with $169 million more used than last year, signaling commitment to shareholder returns despite revenue headwinds. Overall, the focus remains on margin recovery through cost discipline and portfolio rationalization.
As of December 31, 2025, DXC held $1.73B in cash and equivalents, with total debt of $3.62B, resulting in net debt of $1.89B. Shareholders' equity stood at $3.15B. The company has a $400M accounts receivable sales facility, with $394M available and $400M sold as of period end. Goodwill was $530M after a $14M impairment on the GIS reporting unit.
DXC has $2.3B in minimum purchase commitments, with $100M due in the remainder of fiscal 2026, $501M in fiscal 2027, $504M in fiscal 2028, and the balance thereafter. Additionally, $16.4B of remaining performance obligations (RPO) are expected to be recognized, with 14% in fiscal 2026. Deferred revenue totaled $1.30B.
In the first nine months of fiscal 2026, DXC repurchased 13.1M shares for $190M (average $14.52 per share), with no dividend payments. Debt management included issuing €650M 4.25% senior notes due 2031, using proceeds to repay €650M 1.75% notes due 2026 and redeem $300M of $700M 1.80% notes due 2027. Capital expenditures (property, equipment, and software) totaled $321M, or 3.4% of revenue.
DXC reports three segments: CES ($1.27B revenue, $144M profit), GIS ($1.61B revenue, $113M profit), and Insurance ($321M revenue, $35M profit). Segment margins were 11.4%, 7.0%, and 10.9%, respectively. Revenue mix by geography (based on billing location) shows United States 25%, United Kingdom 14%, Other Europe 34%, Australia 9%, and Other International 18% for the quarter.
For the nine months ended December 31, 2025, DXC Technology generated $1,009M in operating cash flow, compared to $1,083M in the prior year, a decline of 6.8%. Net income for the period was $168M, indicating strong cash conversion driven by non-cash charges such as depreciation and amortization ($899M), goodwill impairment ($14M), and share-based compensation ($69M). Working capital provided a net benefit of $260M from asset decreases, partially offset by $422M reduction in other liabilities.
Capital expenditures, including property and equipment ($142M) and software development ($179M), totaled $321M, resulting in a capex-to-CFO ratio of approximately 32%. Investing activities also included $85M for transition costs, which may be considered growth-related. The company did not disclose financing cash flows, share repurchases, or dividends in the excerpt provided.
Overall, operating cash flow remains healthy and sufficiently covers capex, though the year-over-year decline warrants monitoring. No significant anomalies were noted, though the large swing in deferred taxes ($65M vs. -$182M) and unrealized FX gains ($54M) should be considered when assessing recurring cash generation.