Conference Transcript - DXC 2026-03-02

Keith Weiss, Analyst — Morgan Stanley

With DXC, the senior management team, we have Raul Fernandes, CEO, and Rob DelBene, CFO. But before we get started, let me just say, first, I've got an important disclosure to read. Please see the Morgan Stanley Research Disclosure website at morganstanley.com slash research disclosures. If you have any questions, please reach out to your Morgan Stanley rep. So, Raul, I'm always excited to see you. How do I put this? you always have so many things going on that are really interesting. And so I'm glad that you're taking time to be here with us today to talk about DXC, et cetera. So maybe I'll just start. Can you just give us a progress report on the timeline as you're thinking about, you know, this work in process of turning the business and as you work to return to flat growth? and help us understand what has happened and what you still feel like needs to be done. And in particular, what are the remaining progress, how much of the remaining progress is going to be driven by your own actions versus the environment and the world out there?

Raul J. Fernandez, CEO

Great, great. Well, thank you. Great conference, and you've got a great lineup all week, so congratulations. Wish I could stay longer. So we defined our journey in two tracks, core track and bass track. CoreTrack is, as a professional service company, if we're all going to start something that's rates times hours, whether it's a law firm or a tech services company, there's certain things you do at a certain level that make you good and some make you great and some make you less than good. And that is billing the right amount against a cost basis, having the right forward visibility and utilization, having the right solutioning so you don't have mistakes in what you said you could do versus what you delivered. Those are basics of professional services. And if you looked at the metrics across the board, and I did as a board member, and I did as an interim CEO, and it was one of the things that convinced me to do this full time, is that I saw upside. We were below average. There's upside to operating at average, and that's before AI. So operating the business in a better way, having more deals to chase, having the conversion of those deals hit, being able to estimate those time of conversion, not losing your business that you already have. So your NPS scores and all the satisfaction scores and performance scores are good. So that is our day job, is to constantly get better at the basics of delivering services, whether it's rates times hours, outcome-based. So I get paid the process of an insurance claim in one of my businesses or in the fixed delivery of a solution against the cost. But at the end of the day, the math behind that is still rates times hours. So working on that, new people, 26 months in, restructured a lot of people, have some openings at a lower level, but making good progress on the basics of the business pre-AI or pre-huge infusion of AI. Then the fast-track businesses are taking an agentic approach. It'll be no question when you come to Investor Day in June why it's a fast-track project versus just another tech project. It'll have different metrics in terms of gross margin, net margin. They'll be bought differently, so it'll be more outcome-based, compute-based, et cetera. And those projects we started building. And time to product has been faster. Time to revenue will be faster than I initially predicted. And really the holdup in trying to do more, do it faster, is the right product teams because this is a new DNA to work with these new tool sets to develop these agentic solutions. But some of what they have in common is that they work and build upon a moat that we have. So one of the things we're building is built upon the extension of a core banking system that is still being used in the world called Hogan. It was built in the 70s and 80s. Wells Fargo still uses it. A whole bunch of other banks still uses it. It's public information. 300 million accounts are still on it. Many people have tried to get off of it. The previous administrations here have not invested in it. So we said, okay, let's create a way to bring Hogan back to life with an agentic light layer where we can offer new financial products to that old base of code and extend what a bank can offer you and I as consumers. So buy now, pay later that can be enabled on a transaction split fee basis. Remittance, stablecoin, all these things that we're lining up. And you'll see some, if you go back to our press releases, you'll see some of the array of partners that we're putting on that side of the question. That product is being finalized. We're pre-selling that product. That's coming to life. And then I've got other fast tracks that we'll be showing there. When you say showing there, at the analyst day. Yeah, June 11. Those are smaller teams, faster teams, teams that are using code generation across the board. That doesn't mean, though, that in my traditional service delivery, I'm not measuring how much agentic code support you're getting to write the code, document the code, test the code, deploy the code. Everyone's got a bar in their line of work to be better with AI. And I personally have a more glass half full, and I get asked this question around the world, is AI going to replace your job? If you don't do anything, yes, it will replace your job.

Keith Weiss, Analyst — Morgan Stanley

Right, right, right.

Raul J. Fernandez, CEO

It will replace my job. But if you use the skills that got you here, you're curious, you're leaning in, you seek down information, and if you take advantage of the opportunities I give you in the company to use any tool you want in our sandboxes, they're like protected little sandboxes, I want people to use that. The other thing about building these products that are pretty complex, compute cost is tiny. I mean, we kind of know that because we use things all over the place to do some research for us or build something for us, and you're like, oh, that cost me like $1.25. it's unbelievable how small the tab is for the compute. So it's really about the staging of the product plan or the product idea, the business plan and testing the product and building the product, deploying the product, servicing the product and answering Q&A on the product as you've launched the product. So you just have a different way of engaging in this and that's going to require a different human being or the same human being that just acts in a different way. I think it's a superpower. I think AI gives each and every one of us the ability, and I'm old enough to use this analogy, the bionic man. It used to be a $6 million man, probably the $27 million man today with inflation. But you can have that. We can all have that with almost no cost, but you have to lean in. And by the way, people go, well, aren't you putting classes together? I'm not going to put a class together. Anything I put up today that I structure is stale tomorrow. You have to go out and find sources, podcasts, TikTok, Insta, X. You have to follow people that are doing this and being disruptive, that are credible, and you have to learn yourself. And by the way, I also provide you a sandbox to learn yourself. So it's a cultural shift. It's a business shift. It's a product shift. But at the end of the day, I have a company that is super low valued by any metric. We're at the bottom of the heap. There's not a lot of downside to what we're doing. We generate cash in a normal way that's not questioned, and I don't have to do things like our partner had to do. And, you know, we've got incredibly sticky, complex, regulated clients. You're not going to go grab some anthropic salt and just throw it on a server and go, okay, it's AI tomorrow. It's not going to happen. I'll tell you that. I'm still making money on stuff that hasn't been touched since the 80s, and I'm trying desperately to change that. So defensible poor, great attitude, great direction, great trajectory, and great set of new innovative partners that are starting to put some stuff up. And part of the challenge now is, frankly, to make sure that the market, meaning the buy side, and I'm saying solution buy side, is educated, that our sellers are educated. And just an example from a couple weeks ago, I had an A-class seller, somebody who I would rate as an all-star, helped win a huge account, maintains that huge account, introduced the new product that we're developing because we wanted them to potentially be a lighthouse. One executive said to another, don't pitch it that way. I don't think they're going to buy it that way. So this is an all-star that I would have never questioned, kind of giving another all-star that I brought in to build the product direction. started with this point of view in line it wasn't selling reverted back and then they sold it with the other point of view but it showed me that i have to be educating and evangelizing even the best of my people to sell the new stuff before that incident i would have said they can sell anything so just give them the content now it's not true so that those little things uncover as you you only you only know how good you are until you play the game right and you don't know how good you are until the game's over we're starting to play the game we're good and i know that we're going to win when the game's over so let me ask you what did you know it sounds like at least the first announcement was around the banking software piece like why kind of start there and what's the extensibility into your other platforms so um a easy to create this lightweight layer okay be my contracts on hogan and give the credit to you know back into the 80s and 90s and 2000s when they started writing this contract have um legal moats you can't like bank x can't have company c touch that code right i'm the only one that can touch the code right so i have a moat like a i'm the only one that knows how those hooks work and b i'm the only one that can touch the code so it gives so those our first wave are going to be completely structured to be disproportionately beneficial to where we are strategically or tactically in that account and that product set.

Keith Weiss, Analyst — Morgan Stanley

Right. Got it. Got it. So let's talk about kind of, so if that's where your product is, et cetera, how are clients and customers responding? Like what's the spending intentions? How does that vary right now from geography, you know, and in particular, where are you seeing movement in terms of willingness to spend?

Raul J. Fernandez, CEO

Yeah. Okay. So agentic AI clearly has mindshare at the boardroom, at the divisional level, at every level. It is not ready for prime time in every situation. A lot of our clients are highly regulated businesses that have to run 99.9% of the time. So even if we could all vibe code a solution and get it to 85%, you're not going to go switch out an insurance system that's working today and making you money for something that, yes, may be cheaper because you made your own code and doesn't work. So the promise is there, and that will happen, that in complex regulated or complex workflow or data-sensitive businesses, which we operate highly in and we're highly concentrated in, it will take a while, and you will need a partner. And we're a partner, because we're so close to it, that can be best positioned, if we're honest, on the AI side, what tools to use today and tomorrow. And I think the other thing, and when I started, I put up these 10 rules of AI, and then I stopped using it because I used it at the beginning of the internet, and it was good, and then nobody was paying attention to it. But one of my rules was portability. I've seen the movie where somebody you rely on to build your business changes how they do what they do. And I'll give you a perfect example. Google ad tech metadata, they decided 10 years ago, I forget when it was, to switch the algorithm and to take a little bit of what others were getting paid on and get paid on it themselves. And if you built your whole solution around that and there was no portability or no other way out, your business got hurt. So I've seen this before. So one of the big things that architecturally we talk about is portability. Does that mean agnostic? No, it means pick the best thing, but also be ready in case your partner turns out to be your competitor. And by the way, you're spending all this money. These guys have to make money, so I don't blame them to look for pockets where people make money. But another example that I wouldn't have predicted, Friday night, the Defense Department says, Claude, can't be used by anybody in the government. And even though I don't have any U.S. government business, because we hesitated that business, I still do work for people that do work for the government. Boeing, Raytheon, Collins, others. So now I have to go back and say, hey, guys, anything you're working on that's cloud-based? First of all, A, was it portable? Because it's going to have to be. And B, let's make sure that we have that in our thinking and our architecture because things can change. Never would have predicted that. But our approach protects you. And to have a partner that is working in with multiple clients and multiple technologies, this stuff moves so fast that even your best teams that are handling their day jobs, which is keeping the systems up and running, they have limited ability to figure out what's next. And that's the opportunity we have.

Keith Weiss, Analyst — Morgan Stanley

Got it. So when you think about those customer engagements, and you talked a little bit a few weeks ago when you reported earnings on what was happening from revenue and bookings perspective, and it seems like people are kind of going through extended decision processing, et cetera, because of all the things you're talking about. Where are you identifying those bottlenecks and bottlenecks that you can address?

Raul J. Fernandez, CEO

So having been on a lot of boards in different companies and having talked to board members and executives in these companies, I can tell you that there's no big ticket item, $50, $100, $150, $200 million massive software and services purchase that today isn't being questioned a little bit more. Everyone is saying before they sign off at the approval level in the executive stack, and in some cases this has to go to the board for a sign off, are you sure that we can't do this agentically? Because it's in the headlines. So guess what? At the end of the day, SAP will still get that deal. I'll still get the deal to implement it. But it may take three or four or five more weeks for the internal people to say, yes, I looked at it, and here's my PowerPoint on what this can do and why we decided to go this way versus this way. It does introduce some time, ultimately beneficial, but near-term, more volatility.

Keith Weiss, Analyst — Morgan Stanley

Got it. Got it. And is that something that you feel like that process can become more standardized, like evaluating, okay, what are our best alternatives to this deal? Or is this just going to be the new way that every project is evaluated? Like, okay, we've got this project coming up. It's either for renewal or it's a new project. But let's evaluate it, like you said, against the very dynamic backdrop of agentic solution sets, et cetera.

Raul J. Fernandez, CEO

I'm planning things in 12, 24, and 36 months. In my longest time period, 36 months, I think that dynamic stays in there because things are changing so fast, but yet there's such a base. And then you also have to see what the larger players, like I think the world of monolithic products that do everything but maybe only use a subset of those things, over time that'll end because you can build smaller, tighter things in smaller, tighter teams. So over time that'll end. But the other thing, don't forget, it's the sell side, me, But it's the buy set. The procurement people have to be ready to buy this way. And a subset are and a subset are good and smart and creative and curious and risk taking enough to do it. But these organizations, thousands of people, you know, thousands of man years, processes, procedures are all built around buying P times Q and getting the best out of me at P times Q. So I can be ready to sell an outcome. I can be ready to sell something, and it works, and it costs less, and I'm making more money, and maybe the top line is a little less, but I'm making more money, you're going to pay less money. But they have to be ready to buy that way. And if you've talked to some of these procurement people, it's not exactly the fastest-moving groups in the organization. And unless there's pressure from the top in their side of the organization to change how they buy, I'll be ready, but will they all be ready at the same time?

Rob Del Bene, CFO

From a strategic relationship perspective, what we are seeing, and it's reflected in our pipeline, is that while a decision process could be elongated, customers are going to pick partners and vendors who could take them into the future, right? they're going to want to know that you have what it takes to take them to an agentic future or cloud migrations or whatever it may be so being proactive and having the capability visible externally which is what we're trying to do and especially on investor day is to advance that for for DXV and we're starting to see that resonate albeit on a smaller scale now and in selective of engagements, but we see it resonating in engagements.

Keith Weiss, Analyst — Morgan Stanley

Ro, I want to ask you kind of a more of a macro question on the back of this, is that one of the things that I grapple with is that, generally speaking, like we do a quarterly CIO survey, and our most recent CIO survey has indicated that the growth in IT budget this year will be similar to last year, maybe even down slightly. And like I can talk about the factors maybe why that should not be surprising. The flip side of it is that if we were seeing kind of improving returns on agentic projects or incremental projects generally, I would think that people would find ways to expand the budget fast because the returns are there. So how do you think about like this budget allocation question in your customers? Like, how are they deciding between, you know, how much to spend on, you know, traditional roadmap versus AI driven and, you know, what does that mean for their overall budget trajectory?

Raul J. Fernandez, CEO

Yeah. Large corporations usually have an annual and maybe best, you know, twice a year massive capital expenditures. They have to also report on what they're doing, right? This is moving so quickly that it's going to miss a lot. The on and off ramp and that type of cadence is not going to give the feedback loop to make the uptick, I think, as quick as it should be. But that's not a function of the capability or what can be done. It's a function of how they're buying and how they're planning to buy.

Keith Weiss, Analyst — Morgan Stanley

Right, their process internally.

Raul J. Fernandez, CEO

So I think for us, we're counting on two things. One, we're better, faster. We can get things done using agentic both in core and then obviously in fast track. and that because we now are more modular, our TAM increases. We can go after things that we didn't, we couldn't go after before, so our TAM actually gets bigger, which is going to fight the deflationary impact of the headline numbers. I think one of the things, I was looking at the investment memo for Anthropic a couple of weeks ago, and they touted it as a very big deal that they had 500 customers, 500 customers that were paying $1 million. okay that's one of the leading companies in this space that are counting a headline number of only 500 i have a lot more customers pay me a million dollars they don't pay me a million dollars for the eugenics stuff and i'm not worth 380 billion but my point is you can get a lot done even in the solutions that i'm prototyping and they're all multimodal so i'm using you know chat gbt Claude, Hygen, 11 Labs, a combo of things that you're buying tokens on. I am stunned at how cheap that part of the build is. Like, I'm just stunned. It's like the electric bill. It's not that high. And frankly, we're all being subsidized by a lot of expenditure here in the world. But it is stunning.

Keith Weiss, Analyst — Morgan Stanley

Which I often think about. if they're going to subsidize me, I need to find more ways to take advantage of subsidization, right? I want to make sure, if there are any questions in the audience, please raise your hand. We'll get you a mic. I want to go to your core track versus fast track. And that construct, in my mind, seems pretty strategically compelling. For fast track, you describe, or at least the way I characterize your description of it is that it's replicable, high-margin, AI-based SaaS solutions. Can you give us a sense of what the unit economics of these types of engagements might be and how your fast-track offerings are differentiated from Gen.AI offerings from some of your peers or competitors?

Raul J. Fernandez, CEO

Yeah. Again, we are picking pockets of protection. So these are things where we're either managing the proprietary data flow, we're managing an outcome like the processing of a premium, we're managing the data or the customer data behind that, and we have either system or people that are critical in that workflow. So, A, we have a unique point of view to certain things that you need to get right to make the eugenic solution work. So risk of our eugenic failures because we're so close to that stuff is lower because literally we're the primary responsible. So that's one. B, like I mentioned with Hogan, no one else can touch Hogan in most of our contracts, so it's an easier one to greenlight. And then C, on some of the stuff that's net new, we have approached the build of the product in an agentic way, and it looks different, it's consumed differently, but yet it's built on the back of delivering X results in, let's just say it's an orchestration tool for SOX and NOX. we have a point of view having operated socks and knocks for 30 years 40 years that now as we take a ai approach to it um and don't have any legacy issues so i don't have to i'm not worried in that scenario about cannibalizing any product that i have i will have displacement of people um we are doing everything we can to train and retrain our people to use them somewhere else but i've told i've been very honest like my job is going to change your job is going to change some jobs will get eliminated. You saw what Dorsey did last week, and that's an extreme. But it's also a moment in time where I think people are feeling more vulnerable than they ever had in their careers in the tech world.

Keith Weiss, Analyst — Morgan Stanley

Right, right, right. Yeah, for sure. For sure. Let's talk about specific vertical insurance. You've discussed investing to expand the SaaS portfolio and accelerate growth there. What is the proof, or at least the clearest proof points to you that those investments are paying off, and where's competitive intensity the highest in insurance?

Raul J. Fernandez, CEO

Yeah, so originally when I got here, I looked at the insurance business. I looked at some comps. I thought, obviously, the sum of the parts, you could get a point of view that we should be valued more than we are as we trade today. And my initial objective was to just get a partner to own a little piece of that, and then we would ride the upside together. When we ran the process, people were like, great, we love the business, but we want to own the whole thing. So we kind of finished it. And what's happened to us is we realized, hey, here's a punch list of 10 things to make this business better. Many of which we knew and some of which we got through the potential partner process, sale process. I've been taking that list and I've been jamming through it. So the creation of new lightweight apps to extend and expand what an insurance company can offer their end customers to reduce the cost of processing within customers. I do a lot of B2B. I run the Lloyd's Marketplace. So there's a lot of B2B stuff. It's not just the initiation of a life insurance policy for him, but it's also the reinsuring of that in that whole complex, highly regulated world. So I think for us, it's picking spots where we've got some competitive moat around us and executing quickly on that building trust and credibility um and and look i i believe that we there are great companies that have great internal teams and they'll continue to do well but the things are changing so fast that you need a player that's in the game working with many different customers because i have some really cool things that i'm doing in a semi b2b b2c side that clearly has a b2b impact right and it's kind of the AI personification of knowledge, taking a lot of data sets, creating a user interface that's more avatar-like, and having a very easy back and forth that makes me smarter and get an answer faster. That is interesting in the context of history and history books and teaching, but it's also interesting in the context of a broker in London wanting to know the exposure for their oil tanker policies that are underwritten and potentially what if this, what if that. The ability to use AI to extract better, deeper information at a faster rate is a killer app here, and we're in the middle of that.

Keith Weiss, Analyst — Morgan Stanley

100%. A couple of financial questions here. First, in the last few minutes, first, you've indicated share repurchases are likely to increase this coming year and are on pace to match your fiscal year 26 levels here in the first half of fiscal year 27. How are you thinking about the decision to step up buybacks and how are you balancing that against other capital uses such as investment, priorities, debt reduction, or even M&A?

Raul J. Fernandez, CEO

Yeah, so the good news is in AI you can do more with less and you have tighter teams. And also you have teams that are more full stack, so they're less specialist and more full stack. And so having that profile and background is super important and I've worked with many of those teams in the past and I've recruited a lot of them. But you don't need a lot of them to make a lot of impact. So A, you know, from investing in ourselves organically to get this growth, got that covered. As I look across the landscape, I question what value there is in adding anything that is an M&A because I have so much opportunity in my existing base. I have so much opportunity in my existing geography, and I'm probably more motivated to do a decent aqua hire of killer superheroes than I am about buying something that costs a lot of money because I think I can get more out of a small team than I can out of an infrastructure that's overdone. So that's a quick answer. And then buybacks will continue. Invest will continue. Pay down some debt will continue. And then, frankly, every company here is going to have some level of restructuring of people. People are going to change. That's going to cost some money. So we've got to factor all that in.

Keith Weiss, Analyst — Morgan Stanley

You've got to be prepared for that. So conversely, are you evaluating any strategic alternatives, such as monetizing specific assets or the broader business? And what kind of conditions would you be looking for to make that happen?

Raul J. Fernandez, CEO

Great question. So goal is, as a combined unit with all of the units working together, get it to another level of valuation. I believe we're undervalued. I think that fair value is a higher level from now. We're doing all the groundwork to make that happen. Hopefully we can deliver the quantification of the message and sell the message and get the message received, and then people buy the stock and the stock goes up. If that doesn't happen, I know there's breakup value here. That's above and beyond where we have today. And it's been public. We've had different suitors, and they've leaked stuff. The breakup value is there today. I'd like to get it to a different level. I'm not saying never, but I am saying today I've got great assets, great footprint, great people, great trajectory, great direction, and I want to give our people a chance. And we're generating cash. We're going to stabilize the revenue profile, and I think Investor Day would be a great day to show how that picture really frames out.

Keith Weiss, Analyst — Morgan Stanley

But I'm also a realist. if the play doesn't work we're going to change the play and we know how to get value for all of us as investors if we have to change the play so I know it's still a few months away but how do you think about the key things that you would like investors to take away from that June analyst meeting like what are the top two or three messages?

Raul J. Fernandez, CEO

I want you to say wow at least once so that's one thing two I want you to see just how innovative a big company can be and how disruptive in a creative way a big company can be and then how select we were in our first wave and then also believe that that same team can not just execute the first wave but can execute the second and third wave problem Rob thank you very much for being here at the morning standing TMT conference been great great conference Thank you. Thanks so much. Appreciate it, buddy.