With DXC, the senior management team, we have Raul Fernandez, CEO, and Rob Del Bene, CFO. 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/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley rep. Raul, I'm always excited to see you. You always... How do I put this? You always have so many things going on that are really interesting. I'm glad that you're taking time-
Thank you.
... to be here with us today to talk about DXC, et cetera. 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 as you work to return to flat growth? Help us understand what has happened and what you still feel like needs to be done. In particular, what are the remaining progress, how much of the remaining progress is gonna be driven by your own actions versus the environment and the world out there?
Okay. Great. Great. Well, thank you. Great conference, you got a great lineup all week, so congratulations. Wish I could stay longer. So we defined our journey in two tracks: core track and fast track. Core track is as a professional service company, if we're all gonna start something that's rates times hours, there's a 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. 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.
If you looked at the metrics across the board, and I did, you know, 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. 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.
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 to process of an insurance claim in one of my businesses, or in the fixed delivery of a solution against a cost. At the end of the day, the math behind that is still rates times hours. 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. 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.
Mm-hmm.
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. Those projects, we started building. Time to product has been faster. Time to revenue will be faster than I initially predicted. Really, the hold up in trying to do more, do it faster is the right product teams, because this is a new DNA...
Right
... to work with these new tool sets to develop these agentic solutions. Some of what they have in common is that they work and build upon a moat that we have. 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 1970s and 1980s. Wells Fargo still uses it. A whole bunch of other banks still use 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.
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." Buy now, pay later, that can be enabled on a transaction split fee basis.
Right.
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 equation. That product is being finalized. We're pre-selling that product. That's coming to life. I've got other fast tracks that we'll be showing there.
Showing. When you say showing, or at the analyst date?
Yeah, June 11.
Right.
Those are smaller teams, faster teams that are using, you know, 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. I personally have a more glass half full, and I get asked this question around the world: Is AI gonna replace your job? If you don't do anything, yes, it will replace your job.
Right. Right. Right.
It will replace my job. If you use the skills that got you here, you are curious, you are 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 kinda 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. It's really about the staging of the product plan.
Mm-hmm
... or the product idea, the business plan, then testing the product, then building the product, deploying the product, servicing the product, and answering Q&A on the product as you've launched the product. You just have a different way of engaging in this, and that's gonna 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.
Right, right.
Probably the $27 million man today with inflation. You can have that. We can all have that with almost no cost, but you have to lean in. By the way, people go, "Well, aren't you putting classes together?" I'm not gonna put a class together. Anything I put up today that I structure is stale tomorrow.
Right.
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.
Mm-hmm.
You have to learn yourself. By the way, I also provide you a sandbox to learn yourself. It's a cultural shift, it's a business shift, it's a product shift. 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.
Mm-hmm, mm-hmm
... things like our unfortunately our partner had to do. You know, we've got incredibly sticky, complex, regulated clients. You're not gonna go grab some Anthropic salt and just throw it on a server and go, "Okay, it's AI tomorrow.
Right, right.
Not gonna 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. Defensible core, great attitude, great direction, great trajectory, and great set of new innovative partners that are starting to put some stuff up. Part of the challenge now is frankly to make sure that the market, meaning the buy side, is, and I'm saying solution buy side, is educated, that our sellers are educated. Just an example from two 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 'cause we wanted them to potentially be a lighthouse.
Mm-hmm.
One executive said to another, "Don't pitch it that way. I don't think they're gonna buy it that way." This is an all-star that I would have never questioned you know, 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. It showed me that I have to be educating and evangelizing even the best of my people.
Mm
... to sell the new stuff. Before that incident, I would've said, "Yeah, they can sell anything.
Right.
Just give them the content." Now it's not true. Those little things uncover as you only know how good you are until you play the game.
Right.
You only 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 gonna win when the game's over.
Let me ask you: 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?
Yeah
your other platforms, et cetera?
A, easy to create this lightweight layer.
Okay.
B, 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 legal moats.
Mm-hmm.
You like, Bank X can't have Company C touch that code.
Oh, right.
I'm the only one that can touch that code.
Right.
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. Those are-- first wave are gonna be completely structured to be disproportionately beneficial to where we are strategically or tactically in that account-
Right, right.
in that product set.
Right. Got it. Got it. Let's talk about. 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, in particular, where are you seeing movement in terms of willingness to spend?
Yeah. Okay. Agentic AI clearly has mind share 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, even if we could all vibe code a solution and get it to 85%, you're not gonna 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. You know, the promise is there, and that will happen. 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.
We're a partner because we're so close to it that can, that can be best positioned, if we're honest on the AI side, what tools to use today and tomorrow. I think the other thing, when I started, I put up these 10 rules of AI and then I stopped using it 'cause 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. Like, I've seen the movie where somebody you rely on to build your business changes how they do what they do. I'll give you a perfect example.
Google Adtech 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. If you built your whole solution around that and there was no portability or no other way out, your business got hurt. I've seen this before. 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. By the way, you're spending all this money. These guys have to make money, I don't blame them to look for pockets where people make money.
Another example that I wouldn't have predicted, Friday night, Department of Defense says Claude can't be used by anybody in the government. Even though I don't have any U.S. government business because we exited that business, I still do work for people that do work for the government, Boeing, Raytheon, Collins, others.
Mm-hmm.
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? 'Cause it's gonna have to be. B, let's make sure that we have that in our thinking, in our architecture, because things can change.
Mm-hmm.
Never would have predicted that.
Mm-hmm.
Our approach protects you. To have a partner that is working in with multiple clients and multiple technologies, the stuff moves so fast, even your best teams that are handling their day jobs, which is keeping the systems up and running.
Right
they have limited ability to figure out what's next, and that's the opportunity we have.
Got it. When you think about, like, 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.
Yeah
et cetera, because of all the things you're talking about. Where are you identifying those bottlenecks and bottlenecks that you can address?
Having been on a lot of boards in different companies.
Mm-hmm
... and having talked to board members and executives in these companies, I can tell you that there's no big-ticket item, $50 million, $100 million, $150 million, $200 million massive software and services purchase that today isn't being questioned a little bit more.
Mm-hmm.
Everyone is saying before they sign off at the approval level in the, in the executive stack, 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. Guess what? At the end of the day, SAP will still get that deal. I'll still get the deal to implement it. 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.
Got it. Got it. Is that something you feel like that 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.
I'm planning things in 12, 24, and 36 months. In my longest time period, 36 months, I think that dynamic stays in there 'cause things are changing so fast, but yet there's such a base. You also have to see what the larger players... I think the world of monolithic products that do everything, but maybe you only use a subset of those things.
Mm-hmm
... over time, that'll end because you can build smaller, tighter things in smaller, tighter teams. Over time, that'll end. The other thing, don't forget, it's the sell side, me, but it's the buy side. The procurement people have to be ready to buy this way.
Mm-hmm.
A subset are good and smart and creative and curious and risk-taking enough to do it. These organizations, thousands of people, you know, thousands of man-years, processes, procedures are all built around buying P times Q.
Right
... getting the best out of me at P times Q. 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 gonna pay less money. They have to be ready to buy that way. If you've talked to some of these procurement people, it's not exactly the fastest-moving groups in the organization.
Right.
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? That's a key question.
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 gonna wanna know that you have what it takes to take them to an agentic future or cloud migration, so 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 DXC. We're starting to see that resonate, albeit on a smaller scale now and in.
Right. Right.
engagements, but we see it resonating in engagements. Raul, I wanna 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. 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 faster because the returns are there. 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?
Yeah. Large corporations usually have an annual and maybe best, you know, twice a year massive capital expenditures because they have to also report on what they're doing, right?
Yep. Yep.
This is moving so quickly that it's gonna miss a lot. The on and off ramp in that type of cadence is not gonna give the feedback loop to make the uptick, I think, as quick as it should be. That's.
Right.
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.
Right. Their process internally.
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. That because we now are more modular, our TAM increases.
Mm-hmm. Yeah.
We can go after things that we didn't.
Right.
We couldn't go after before. 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 as a very big deal that they had 500 customers. 500 customers. They were paying $1 million. Okay? That's one of the leading companies in this space that are touting a headline number of only 500 customers. I have a lot more customers pay me $1 million. They don't pay me $1 million for the agentic stuff, and I'm not worth $380 billion.
Right. Right. Right.
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, ChatGPT, Claude, HeyGen, ElevenLabs, 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.
Mm-hmm.
It's not that high. Frankly, we're all being subsidized by a lot of expenditure here.
Yeah. Yeah. For sure.
... in the world. It is stunning.
Which I often think about, like, if they're gonna subsidize me, I need to find more ways to take advantage of the subsidization, right?
Which. Yeah. Yeah.
I wanna make sure if there are any questions in the audience, please raise your hand. We'll get you a mic. I wanna go to your core track versus fast track. That construct in my mind seems pretty strategically compelling. For fast track, you describe it, 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 GenAI offerings from some of your peers or competitors?
Again, we are picking pockets of protection to. These are things where we own the proprietary data flow, we're either 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. A, we have a unique point of view to certain things that you need to get right to make the agentic solution work. Risk of our agentic failures, because we're so close to that stuff is lower because literally we're the primary responsible. That's one. B, like I mentioned with Hogan, no one else can touch Hogan in most of our contracts, it's an easier one to green-light.
C, on some of the stuff that's net new, we have approached the build of the product in an agentic way. It looks different, it's consumed differently, yet it's built on the back of delivering X results in, let's just say it's an orchestration tool for SOC and NOC. We have a point of view having operated SOC and NOC for 30 years, 40 years, that now as we take a AI approach to it, don't have any legacy issues. I'm not worried in that scenario about cannibalizing any product that I have. I will have displacement of people.
Mm-hmm.
We are doing everything we can to train and retrain our people to use them somewhere else. I've told them, I've been very honest, like, "My job is gonna change. Your job is gonna change. Some jobs will get eliminated." You saw what Dorsey did last week, and that's an extreme. You know, it's also a moment in time where I think people are feeling more vulnerable than they ever have in their careers in the tech world.
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 is competitive intensity the highest in insurance?
Originally, when I got here, I looked at the insurance business, I looked at some comps. I thought, you know, obviously the sum of the parts, you could get a point of view that we should be valued more than we are, you know, as we trade today. My initial objective was to just get a partner to own a little piece of that, and then we would ride the upside together.
Mm.
When we ran the process, people were like, "Great, we love the business, but we wanna own the whole thing.
Mm.
So we kinda finished it, what 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. 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, of a life insurance policy for 'em, but it's also the reinsuring of that in that whole-
Mm-hmm
... complex, highly regulated world. 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. Look, 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 'cause I have some really cool things that I'm doing in a semi B2B, B2C side that clearly has a B2B impact.
Right.
It's kind of the AI personification of knowledge, taking a lot of datasets, 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, you know, for their oil tanker policies that are underwritten.
Right
... 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.
100%. A couple of financial questions here. First, in the last few minutes, you've indicated share repurchases are likely to increase this coming year and are on pace to match your fiscal year 2026 levels here in the first half of fiscal year 2027. 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?
The good news is in AI, you can do more with less, and you have tighter teams. Also, you have teams that are more full stack, so they're less specialist and more full stack. 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. You don't need a lot of them to make a lot of impact. 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.
Mm
... because I have so much opportunity in my existing base. I have so much opportunity in my existing geographies. You know, I'm probably more motivated to do a decent acqui-hire of killer superheroes than I am about buying something.
Right, right.
... a lot of money-
Right
... because I think I can get more out of a small team than I can out of an infrastructure, that's overrun. That quick answer your question.
Yeah, no.
Then buybacks will continue, invest will continue, pay down some debt will continue. Then frankly, you know, every company here is gonna have some level of restructuring of people. People are gonna change. That's gonna cost money. We gotta factor all that in.
You gotta be prepared for that. Conversely, are you evaluating any strategic alternatives and such as monetizing specific assets or the broader business? What kind of conditions would you be looking for?
Yeah
to make that happen?
Great question. 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 we fair value is a higher level from now. We've been 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 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. 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 wanna give our people a chance. We're generating cash. You know, we're gonna stabilize the revenue profile, and I think Investor Day would be a great day to show how that picture really frames out. I'm also a realist. I'm.
Right. Right.
if the play doesn't work, we're gonna change the play.
Right.
We gotta how to get value for all of us as investors if we have to change the play.
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?
I want you to say wow at least once. 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 cannot just execute the first wave, but can execute the second and third wave.
Raul, thank you very much for being here at the Morgan Stanley TMT Conference. Been great to have you here.
Thank you. Great conference. Thank you.
Thanks.
Thanks so much. Appreciate it, buddy.
Thank you. Thanks.