Executive Summary
DXC Technology reported a mixed Q2 FY2026 with a revenue shortfall relative to plan but meaningful progress on profitability and free cash flow. Total revenue was $3.161 billion, a year-over-year organic decline of 4.2%, while the adjusted EBIT margin stood at 8% and non-GAAP EPS reached $0.84, underscoring disciplined cost management amidst top-line pressure. Free cash flow generation was robust, with $240 million in the quarter and $337 million in the first half of the year, driving a stronger balance sheet and operational flexibility. Management reaffirmed a two-track strategy—Core (existing offerings accelerated to their full potential) and Fast Track (AI-native/SaaS solutions targeting rapid, repeatable deployments). The firm is embedding AI across its portfolio (CoreIgnite, OASIS, Xponential) and expanding its SaaS footprint (from 30 to 45 products) with a goal of Fast Track representing 10% of revenue within 36 months. The revenue outlook remains conservative near-term, with FY2026 guidance for revenue of $12.67-$12.81 billion, organic decline of 3.5%-4.5%, and adjusted EBIT margin of 7%-8%, alongside non-GAAP EPS of $2.85-$3.35 and up to $650 million in free cash flow. The market is watching for meaningful bookings conversion and faster SAP/GIS pipeline realization, but DXC projects an improving trajectory into fiscal 2027 as AI-enabled offerings gain momentum. Investors should monitor pipeline conversion, SAP and GIS go-to-market execution, and the cadence of free cash flow generation as catalysts for a re-rated risk-adjusted return profile.
Key Performance Indicators
QoQ: 125.00% | YoY:-14.29%
QoQ: 126.50% | YoY:-13.04%
Key Insights
Revenue performance: Q2 FY2026 revenue of $3.161B, down 4.2% YoY on an organic basis; Bookings rose ~2% YoY, leading to a trailing twelve-month book-to-bill of 1.08 and a Q2 book-to-bill of 0.85. Margin and profitability: Adjusted EBIT margin of 8% (above the high end of guidance) and non-GAAP EPS of $0.84; GAAP net income of $36M and GAAP EPS of $0.20. Cash flow and liquidity: Free cash flow of $240M in the quarter; first-half FCF of $337M; cash balance ~$1.89B; total debt ~$2.324B; net debt ~$...
Financial Highlights
Revenue performance: Q2 FY2026 revenue of $3.161B, down 4.2% YoY on an organic basis; Bookings rose ~2% YoY, leading to a trailing twelve-month book-to-bill of 1.08 and a Q2 book-to-bill of 0.85. Margin and profitability: Adjusted EBIT margin of 8% (above the high end of guidance) and non-GAAP EPS of $0.84; GAAP net income of $36M and GAAP EPS of $0.20. Cash flow and liquidity: Free cash flow of $240M in the quarter; first-half FCF of $337M; cash balance ~$1.89B; total debt ~$2.324B; net debt ~$436M after debt repayment and stronger working capital, driving greater financial flexibility. Capital allocation: 1H24 buybacks of $125M (Q1 $50M, Q2 $75M) with $467M remaining under authorization; capex as a percentage of revenue at ~5.3% for the quarter. Segment dynamics: CES ~40% of revenue declined ~3.4% organically; GIS ~50% of revenue declined ~6.3% organically; Insurance ~10% of revenue grew ~3.6% organically. Outlook: FY2026 guidance raised to $12.67B-$12.81B revenue; organic decline narrowed to 3.5%-4.5%; adjusted EBIT margin 7%-8%; non-GAAP EPS $2.85-$3.35; full-year FCF ~ $650M; Q3 guidance implies organic revenue -4% to -5% and EPS of $0.75-$0.85.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
3.16B |
-2.47% |
0.06% |
| Net Income |
36.00M |
-14.29% |
125.00% |
| EPS |
0.20 |
-13.04% |
126.50% |
Management Commentary
Key management themes from the earnings call:
- AI-driven strategy and two-track operating model: Raul Fernandez outlined a core track (existing offerings scaled for revenue growth) and a fast track (AI-native SaaS solutions) with a target for fast track to reach 10% of total revenue within 36 months. He highlighted examples like Hogan/CoreIgnite, payment-enabled offerings with Splitit, and the OASIS AI orchestration platform (GIS) as core elements of this transformation.
- Xponential framework and enterprise AI adoption: The AI framework, Xponential, is designed to move clients from pilots to real business impact with governance, automation, and human expertise. Early client wins and broad market recognition (ISG, IDC, Everest Group) support the narrative of DXC as an AI transformation partner.
- Strong financial discipline and cash flow: Rob Del Bene emphasized that Q2 revenue was within guidance, with adjusted EBIT margin above the high end of guidance and free cash flow of $240M for the quarter. The company generated $337M in FCF for the first half and has reduced net debt by about $770M since fiscal 2025.
- Pipeline growth and bookings discipline: While Q2 bookings were down modestly YoY for CES, total bookings were up ~2% YoY, and the trailing book-to-bill remained above 1 (1.08). Management expects Q3 bookings to exceed 1 and foresees a stronger H2, driven by AI-enhanced offerings and an expanding pipeline of large deals.
- Strategic commentary on Hogan and Hogan CoreIgnite: Management views Hogan as a growth platform when extended via CoreIgnite, which is additive and not a substitution to existing Hogan terms. They emphasized the potential to convert the Hogan relationship into new revenue streams through API-enabled, cloud-native services.
- Competitive pricing and client economics: The leadership stressed that pricing has been stable and emphasized a focus on value-based discussions as AI-enabled, repeatable SaaS solutions scale across clients.
The absolute number #1 pivot point is new talent that has come in with the skill sets to do this.
— Raul Fernandez
Fast track solutions have a goal to be 10% of our business within 36 months.
— Raul Fernandez
Forward Guidance
Assessment of the forward-looking guidance indicates a conservative to mid-range outlook reflecting a measured path to profitability and revenue stability amid ongoing AI investments. Management maintained full-year revenue guidance of $12.67B-$12.81B with an organic decline of 3.5%-4.5% and a target Adjusted EBIT margin of 7%-8%, alongside non-GAAP EPS of $2.85-$3.35 and FCF of about $650M. The Q3 guide of $0.75-$0.85 in non-GAAP EPS and a 4%-5% organic revenue decline suggests modest sequential normalization as fast-track AI solutions begin to contribute more meaningfully to revenue and as GIS and CES pipelines convert. Risks to the outlook include potential protraction of large deal closures given longer closing cycles in GIS, macro variability, and competitive pricing dynamics in AI-enabled offerings. Key monitoring factors for investors include: (1) book-to-bill trajectory into fiscal 2027, (2) pipeline-to-revenue conversion, (3) progress on CoreIgnite and OASIS adoption in GIS and CES, (4) tempo of free cash flow generation and working capital efficiency, and (5) the pace of buybacks relative to remaining authorization.