DXC Fined by the SEC for Misleading Non-GAAP Disclosures
DXC Technology Company DXC has been penalized by the U.S. Securities and Exchange Commission for allegedly making misleading disclosures regarding its non-GAAP financial performance between 2018 and early 2020.
The SEC has charged DXC for negligently misclassifying millions of dollars of expenses as non-GAAP adjustments for its self-defined transaction, separation and integration-related (TSI) costs. The agency alleged that DXC failed to evaluate the non-GAAP disclosures concerning TSI costs and improperly excluded them from non-GAAP earnings, materially increasing its reported non-GAAP net income.
In its statement, the SEC said that DXC has neither admitted nor denied the agency’s charges. However, it has agreed to pay a fine of $8 million related to the allegations and has consented to a cease-and-desist order. It has also agreed to make and implement non-GAAP policies, and disclosures controls and procedures.
DXC Technology Company. Price and Consensus
DXC Technology Company. price-consensus-chart | DXC Technology Company. Quote
Notably, the TSI costs in question pertain to the non-GAAP merger & acquisition costs primarily related to the 2017 merger of Computer Sciences Corporation and Enterprise Services Division of Hewlett Packard Enterprise that formed DXC. From fiscal 2018 till third-quarter fiscal 2023, DXC has made non-GAAP adjustments in the name of TSI costs of $1.48 billion.
It’s a sigh of relief for DXC that the matter has closed now, and a fine of $8 million will have no material impact on its forthcoming quarterly results. The SEC’s statement is also a big relief for investors because the agency’s investigation ensures that DXC’s recent quarterly reports are appropriate and correctly follow the GAAP and non-GAAP accounting principles.
DXC is underway a massive restructuring journey to transform the company from a struggling, highly leveraged entity to a high-growth business-oriented firm. CSC, prior to the completion of the merger, took an additional debt. This amplified DXC’s total long-term liability, thereby increasing its interest cost burden while limiting its scope for investing in growth opportunities.
To overcome this situation, DXC resorted to debt refinancing, divestment and a spin-off of non-core assets. The strategy significantly reduced its outstanding debt level to $3.85 billion as of Dec 31, 2022, from $10.33 billion as of Jun 30, 2020. Its interest expenses decreased to $56 million in third-quarter fiscal 2023 from $106 million in first-quarter fiscal 2021.
Divestment and spinning off non-core assets have improved DXC’s focus on its core businesses. Also, it enhances the firm’s ability to execute acquisition strategies across high-growth businesses, including enterprise software-as-a-service, technology security solutions and autonomous driving.
Zacks Rank & Stocks to Consider
DXC currently carries a Zacks Rank #3 (Hold). Shares of DXC have plunged 25% over the past year.
Some better-ranked stocks from the broader technology sector are Wix.com WIX, Aspen Technology AZPN and ServiceNow NOW, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Wix.com’s first-quarter 2023 earnings has been revised upward to 23 cents per share from 16 cents seven days ago. For 2023, earnings estimates have been revised northward by 7 cents to $1.49 per share in the past seven days.
Wix.com's earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing the same on one occasion, the average surprise being 225%. Shares of WIX have gained 4.7% in the trailing 12 months.
The Zacks Consensus Estimate for Aspen Technology's third-quarter fiscal 2023 earnings has been revised upward by 17 cents to $1.66 per share in the past 60 days. For fiscal 2023, earnings estimates have been revised northward by 25 cents to $7.10 per share in the past 60 days.
Aspen Technology’s earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing the same on one occasion, the average surprise being 5.2%. Shares of AZPN have rallied 56.7% over the past year.
The Zacks Consensus Estimate for ServiceNow's first-quarter 2023 earnings has been revised southward by 2 cents to $2.02 per share over the past 60 days. For 2023, earnings estimates have moved downward by 3 cents to $9.15 per share in the past 30 days.
ServiceNow's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 6.9%. Shares of NOW have plunged 22.5% in the trailing 12 months.
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