Exchange: NYSE | Sector: Technology | Industry: Information Technology Services
Q3 2025
Published: Feb 5, 2025
Earnings Highlights
Revenue of $3.23B down 5.1% year-over-year
EPS of $0.31 decreased by 62.2% from previous year
Gross margin of 25.1%
Net income of 57.00M
""We have strong and lasting relationships with clients that view us as strategic partners, leveraging our global delivery capabilities to help them with their transformation journeys."" - Raul Fernandez
In the third quarter of fiscal year 2025, DXC Technology Company (DXC) reported total revenue of $3.225 billion, reflecting a 4.2% decline year-over-year on an organic basis, slightly better than market expectations. The company achieved a gross profit of $809 million, resulting in a gross profit margin of 25.1%, an increase from the prior year. Adjusted EBIT margin expanded by 140 basis points to 8.9%, reinforcing management's focus on disciplined cost management and strategic execution. Non-GAAP diluted EPS stood at $0.92, up 7% year-over-year, while the company generated significant free cash flow of $483 million, contributing to a robust cash position of $1.723 billion by the end of the quarter. Management's commentary highlighted improvements in bookings, particularly a book-to-bill ratio of 1.3, indicating stronger demand in consulting and engineering services, as well as a cautious optimism about pipeline growth despite ongoing market pressures from inflation and geopolitical factors.
Key Performance Indicators
Revenue
3.23B
QoQ: -0.49% | YoY:-5.12%
Gross Profit
809.00M
25.09% margin
QoQ: -0.61% | YoY:6.03%
Operating Income
154.00M
QoQ: 16.67% | YoY:-49.67%
Net Income
57.00M
QoQ: 35.71% | YoY:-63.46%
EPS
0.31
QoQ: 34.78% | YoY:-62.20%
Revenue Trend
Margin Analysis
Key Insights
**Total Revenue:** $3.225 billion, a 4.2% decline YoY
**Gross Profit:** $809 million (25.1% margin), an increase from 23.6% last year
**Operating Income:** $154 million (operating margin of 4.8%) down YoY due to lower revenues
**Net Income:** $57 million, down 63.5% YoY
**Non-GAAP EPS:** $0.92, up 7% YoY
Financial Highlights
### Revenue and Profitability
- Total Revenue: $3.225 billion, a 4.2% decline YoY
- Gross Profit: $809 million (25.1% margin), an increase from 23.6% last year
- Operating Income: $154 million (operating margin of 4.8%) down YoY due to lower revenues
- Net Income: $57 million, down 63.5% YoY
- Non-GAAP EPS: $0.92, up 7% YoY
### Cash Flow and Balance Sheet
- Free Cash Flow: $483 million, total YTD of $576 million, exceeding guidance of $550 million
- Cash and Cash Equivalents: $1.723 billion
- Total Debt: $3.8 billion, down from $4.55 billion
- Net Debt Reduction: Over $750 million in the past year
### Key Financial Ratios
- Adjusted EBIT Margin: 8.9%
- Debt to Equity Ratio: 1.505
- Current Ratio: 1.34
- Quick Ratio: 1.34
- Net Profit Margin: 1.77%
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
3.23B
-5.12%
-0.49%
Gross Profit
809.00M
6.03%
-0.61%
Operating Income
154.00M
-49.67%
16.67%
Net Income
57.00M
-63.46%
35.71%
EPS
0.31
-62.20%
34.78%
Key Financial Ratios
currentRatio
1.34
grossProfitMargin
25.1%
operatingProfitMargin
4.78%
netProfitMargin
1.77%
returnOnAssets
0.44%
returnOnEquity
1.91%
debtEquityRatio
1.51
operatingCashFlowPerShare
$3.59
freeCashFlowPerShare
$2.85
priceToBookRatio
1.21
priceEarningsRatio
15.86
Net Income vs. Revenue
Expense Breakdown
Management Commentary
### Management Commentary:
- Raul Fernandez, CEO: "Reflecting on my first year as CEO, I'm more convinced than ever that we are on the right path. Our top priority is to drive profitable and sustainable revenue growth."
- Rob Del Bene, CFO: "Our adjusted EBIT margin expanded 140 basis points year-over-year to 8.9%, ahead of our expectations, driven primarily by higher yields from cost management initiatives."
- Commenting on bookings: "Bookings across our offerings improved significantly over the last quarter with a book-to-bill ratio of 1.3, the highest in eight quarters."
- On market challenges: "Global uncertainties ranging from trade policy, geopolitical conflicts, inflation, and labor costs continue to pressure corporate spending for discretionary projects."
"We have strong and lasting relationships with clients that view us as strategic partners, leveraging our global delivery capabilities to help them with their transformation journeys."
— Raul Fernandez
"Our evolving leadership team is establishing a culture grounded in client centricity, performance management and accountability."
— Raul Fernandez
Forward Guidance
Looking forward into the fourth quarter of fiscal 2025, management anticipates total organic revenue to decline between 5.5% and 4.5%. Adjusted EBIT margin is projected at about 7%, reflecting anticipated pressures on profitability. Management expects non-GAAP diluted EPS for the full year to be around $3.35, an increase from previous guidance due to improved adjusted EBIT forecasts and reduced restructuring spending. Key factors to watch include the effectiveness of the revamped go-to-market strategy and the impact of macroeconomic conditions on client spending decisions going into fiscal 2026.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DXC Focus
25.09%
4.78%
1.91%
15.86%
CACI
9.06%
9.06%
3.02%
18.27%
CDW
21.80%
8.73%
13.50%
23.87%
JKHY
41.80%
23.70%
5.46%
29.92%
BR
31.80%
19.00%
10.20%
29.22%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Overall, DXC Technology’s performance in Q3 2025 shows resilience amidst a challenging environment, with a solid foundation for future growth. Strong management commentary demonstrates commitment to driving positive outcomes and adapting to market demands. While the decline in revenue is a concern, the expanded gross margins, robust free cash flow, and effective restructuring strategies place DXC in a favorable position compared to its peers in the industry. Investors should monitor upcoming quarters closely, particularly around the market reaction to client spending as well as the effectiveness of the company’s strategic initiatives in maintaining service demand and mitigating risks.
Key Investment Factors
Growth Potential
DXC Technology's focus on AI-driven transformation, a strong increase in bookings, and an expanding pipeline indicate substantial growth potential, particularly in the consulting and engineering sectors, supported by a robust book-to-bill ratio of 1.3.
Profitability Risk
Current geopolitical tensions and inflationary pressures pose significant risks to corporate spending, potentially impacting future consulting revenues and overall demand in the IT services space.
Financial Position
DXC has significantly improved its financial position with a reduction in net debt by over $750 million, strong free cash flow generation, and a healthy cash position of $1.723 billion, positioning the company for opportunistic investments.
SWOT Analysis
Strengths
Improved financial metrics including adjusted EBIT margin and free cash flow generation
Strategic partnerships in AI and cloud services
Established client relationships as trusted partners in business transformations
Weaknesses
Organic revenue decline of 4.2% YoY
Challenges in market conditions affecting discretionary spending
Opportunities
Increasing demand for AI-driven consulting and engineering services
Expansion of higher order IT solutions and services in response to digital transformation needs
Potential for M&A as cash reserves and capital structure improve
Threats
Global economic pressures including inflation and geopolitical tensions affecting client budgets