DXC targets doubling SAP and SaaS revenue over next 2-3 years while advancing AI-driven fast track solutions

Earnings Call Insights: DXC Technology Company (DXC) Q2 2026

MANAGEMENT VIEW

* Raul Fernandez, President and CEO, stated that the quarter's financial performance was mixed, exceeding guidance on adjusted EBIT margin and non-GAAP diluted EPS, with strong free cash flow, but underperforming on revenue and bookings. Fernandez emphasized, "We are laser-focused on building a predictable and growing company with better execution and pipeline conversion in the quarters ahead." He introduced a formalized two-track strategy: the core track, which aims to scale established businesses like SAP (targeting a doubling of SAP revenue over the next three years), and the fast track, focused on AI-native or AI-infused solutions with the goal "to be 10% of our business within 36 months."
* Fernandez highlighted the launch of products such as DXC CoreIgnite for financial services, which aims to modernize bank infrastructure and create new revenue streams, as well as a partnership with Splitit to enable banks to offer Buy Now, Pay Later from existing accounts. He also introduced OASIS, an AI-powered orchestration platform soon to be piloted in managed services, and noted plans to double SaaS revenue in the insurance business in each of the next two years. "These are 3 of our many fast-track pilots that are in the works," Fernandez added, pointing to broad AI adoption internally and the launch of the Xponential AI framework for clients.
* Robert Del Bene, Chief Financial Officer, reported, "Total revenue was $3.2 billion, declining 4.2% year-to-year on an organic basis within our guidance range and consistent with the past several quarters." Del Bene commented on three consecutive quarters with a trailing 12-month book-to-bill ratio above 1 and stated, "Adjusted EBIT margin was 8%, coming in above the high end of our guidance range, reflecting disciplined cost management across the company."

OUTLOOK

* The company now expects total revenue of $12.67 billion to $12.81 billion for fiscal 2026, narrowing the organic revenue year-to-year decline to 3.5%–4.5%. CES is expected to decline low single digits organically, GIS to decline mid-single digits, and insurance to grow mid-single digits. Adjusted EBIT margin is anticipated between 7%–8%, and non-GAAP diluted EPS between $2.85 and $3.35. Free cash flow guidance increased to approximately $650 million for the year. For Q3, DXC anticipates a 4%–5% organic revenue decline, adjusted EBIT margin of 7%–8%, and non-GAAP diluted EPS of $0.75 to $0.85. Del Bene stated, "We anticipate a third quarter book-to-bill ratio greater than 1."

FINANCIAL RESULTS

* Total revenue for the quarter was $3.2 billion, down 4.2% year-over-year. Bookings increased approximately 2% year-over-year for a book-to-bill ratio of 0.85. The trailing 12-month book-to-bill ratio was 1.08. Adjusted EBIT margin reached 8%. Non-GAAP diluted EPS was $0.84, compared to $0.93 in the same quarter last year. Free cash flow for the quarter was $240 million, up from $48 million year-over-year. CES segment revenue declined 3.4% organically, GIS declined 6.3%, while insurance grew 3.6% organically. The company repurchased $75 million in shares during the quarter, with $467 million remaining under the repurchase program.

Q&A

* Bryan Bergin, TD Cowen, asked about CES performance and early improvement areas. Fernandez explained the focus on both core and fast track, with targeted plans to improve SAP revenue and leverage legacy assets like Hogan software for new fast-track AI solutions. Bergin also inquired about the sustainability of higher free cash flow, to which Del Bene responded, "It's sustainable. We're going to keep that benefit."
* Antonio (for James Faucette, Morgan Stanley) questioned GIS trends and Hogan’s role. Fernandez clarified that Hogan is part of CES, and GIS is seeing improved customer metrics and new product pipeline momentum. Del Bene added that project-based services in both CES and GIS have faced difficulties, but pipelines are building.
* Yu Lee, Guggenheim Securities, asked about assumptions in revenue and margin outlook, and customer confidence in closing large deals amid pricing competition. Del Bene described macro assumptions as stable and based on backlog and pipelines, with pricing remaining stable over recent quarters.
* Tien-Tsin Huang, JPMorgan, focused on the CoreIgnite product and revenue model shift. Fernandez confirmed CoreIgnite is "accretive and additive" without impacting existing Hogan terms and sees value-based pricing as a future evolution.
* James Friedman, Susquehanna, asked about managing and disclosing fast track, and the scale of Hogan. Fernandez will provide more product details next year and said, "Not all of them will be successful, but only a few of them need to be successful to help change the revenue trajectory of this company."
* Bradley Clark, BMO, pressed on cost discipline and margin sustainability. Del Bene expressed confidence in continued cost management and margin improvement, assisted by AI tools.
* Paul Obrecht, Wolfe Research, inquired about headcount strategy with AI integration. Fernandez sees a shift from a labor pyramid to a diamond, with AI agents at the base and ongoing workforce upskilling.
* Rod Bourgeois, DeepDive Equity Research, asked about milestones enabling fast track. Fernandez attributed progress to new talent and the pivot from defensive turnaround work to innovative fast-track execution.

SENTIMENT ANALYSIS

* Analysts voiced cautious optimism but probed on execution, pipeline conversion, and the sustainability of improved metrics, with a focus on the timing and impact of AI initiatives. Questions reflected a neutral to slightly positive tone, with some skepticism around revenue growth and margin improvement.
* Management maintained a confident and proactive tone in both prepared remarks and Q&A, frequently referencing pipeline strength, AI-driven transformation, and cost discipline, with statements such as "We are confident our book-to-bill will move back above 1 in the second half of the fiscal year."
* Compared to the previous quarter, analyst sentiment was slightly more probing regarding the tangible impact of new initiatives, while management’s tone grew more assertive about the potential of their AI strategy and new product launches.

QUARTER-OVER-QUARTER COMPARISON

* The company’s two-track strategy and fast track AI initiatives were more explicitly articulated this quarter, with defined revenue growth targets for SAP and SaaS products. Guidance for organic revenue decline was narrowed, and free cash flow expectations were raised by $50 million. Bookings growth moderated from the previous quarter’s double digits to 2% growth. Management’s tone indicated increased confidence in AI strategy execution and pipeline conversion, whereas previously, focus was more on foundational turnaround and new leadership appointments. Analysts’ questions shifted from general transformation progress to more specific inquiries about product execution, sustainability of gains, and competitive positioning.

RISKS AND CONCERNS

* Management acknowledged underperformance in revenue and bookings, the need for improved pipeline conversion, and ongoing pressure in discretionary project-based services. Del Bene noted that project-based services have experienced difficulty across the board. Fernandez highlighted the challenge of ensuring that strong technical capabilities translate into revenue growth, particularly in SAP and fast track products. Analysts questioned the predictability of revenue and the sustainability of cost savings, as well as the risk of shifting labor models with greater AI integration.

FINAL TAKEAWAY

DXC Technology signaled a transition from foundational turnaround to growth, centering on an ambitious AI-driven fast track strategy and setting targets to double SAP and SaaS revenues in the next several years. Management highlighted tangible progress in cost control, free cash flow generation, and product innovation, but also acknowledged the need for stronger booking conversion and top-line growth. The company’s focus on leveraging legacy assets, expanding AI-powered solutions, and sustaining disciplined execution underpins its outlook for improved profitability and renewed market confidence.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/dxc/earnings/transcripts]

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