IT services provider DXC Technology Co. has agreed to pay an $8 million penalty for making misleading disclosures related to its financials from 2018 to 2020. In addition to the penalty, the company has promised to improve its financial reporting protocols in a settlement with the Securities and Exchange Commission (SEC). While DXC has neither admitted nor denied wrongdoing, the SEC has accused the company of inflating its non-GAAP net income by incorrectly classifying expenses as non-GAAP adjustments for so-called transactions.
DXC, which provides a range of IT services including cloud computing and cybersecurity, had been under investigation by the SEC for over a year prior to this settlement. According to the agency, the company’s failure to properly disclose these expenses led to it overstating its financial results in press releases and earnings calls. This, in turn, deceived investors who relied on the company’s publicly available financial statements to make investment decisions.
In the SEC’s order against DXC, it stated that the company used a “non-standard” approach to calculating its adjusted earnings in order to make it easier to meet its quarterly and annual earnings targets. This was achieved by misclassifying tens of millions of dollars of expenses as non-GAAP adjustments. The SEC also accused DXC of failing to properly disclose the reasons for changes in the company’s financial performance from quarter to quarter, and for making inaccurate statements about how those changes could impact future results.
In response to the SEC’s accusations, DXC has agreed to pay the $8 million penalty and to take steps to prevent similar issues from occurring in the future. Specifically, the company has promised to:
– Improve its internal accounting controls and financial reporting protocols to ensure compliance with SEC regulations and accurate financial disclosures
– Provide training to its finance employees on how to properly categorize expenses and differentiate between GAAP and non-GAAP reporting metrics
– Undergo an independent review of its financial reporting practices to ensure that all necessary controls are in place to prevent future misclassifications or misleading disclosures
In a statement, DXC’s CEO Mike Salvino emphasized that the company has already taken steps to address the issues identified by the SEC, and that it is committed to maintaining the highest standards of transparency and accountability in its financial reporting. He also noted that the company will continue to work closely with the SEC to ensure full compliance with all relevant regulations.
The settlement with the SEC is seen as a significant blow to DXC, which has struggled with declining revenues and a shrinking customer base in recent years. In addition to the reputational damage caused by the SEC’s accusations, the company is also facing increased competition within the IT services industry from companies such as IBM, Accenture, and Cognizant.
Despite these challenges, however, DXC remains optimistic about its future prospects. In a recent earnings call, the company noted that it had seen a 10% increase in sales bookings for its cloud offerings, and that it had secured more than $1 billion in new contract wins during the first quarter of 2021 alone.
To maintain this positive momentum, the company will need to continue to focus on improving its financial reporting practices and ensuring that it is fully compliant with all relevant regulations. By doing so, DXC can rebuild the trust of investors and customers alike, and position itself for sustained growth in the years to come.