SEC Charges IT Services Provider DXC Technology Co. for Misleading Non-GAAP Disclosures
Washington, D.C.–(Newsfile Corp. – March 14, 2023) – The Securities and Exchange Commission today charged DXC Technology Company, an IT services company in Ashburn, Virginia, with making misleading disclosures about its non-GAAP financial performance in multiple reporting periods from 2018 until early 2020.
According to the SEC’s order, DXC materially increased its reported non-GAAP net income by negligently misclassifying tens of millions of dollars of expenses as non-GAAP adjustments for so-called transaction, separation, and integration-related (TSI) costs and improperly excluding them from its non-GAAP earnings. While DXC publicly claimed that its non-GAAP metrics allowed investors “to better understand the financial performance of DXC,” the SEC’s order finds that the company’s non-GAAP disclosure controls and procedures were inadequate to ensure that the company’s expense classifications were consistent with its own public description of TSI costs. According to the order, by misclassifying TSI costs, DXC materially overstated its non-GAAP net income in three fiscal quarters. DXC also failed to evaluate the company’s non-GAAP disclosures concerning TSI costs.
“Issuers that choose to report non-GAAP financial metrics must accurately describe those metrics in their public disclosures,” said Mark Cave, Associate Director of the SEC’s Division of Enforcement. “As the order finds, DXC’s informal procedures and controls were not up to the task, and, as a result, investors were repeatedly misled about its non-GAAP financial performance.”
The Commission’s order finds that DXC negligently violated the anti-fraud provisions of the Securities Act of 1933 and reporting provisions of the federal securities laws. Without admitting or denying the findings in the order, DXC consented to a cease-and-desist order, to pay an $8 million penalty, and to undertake to develop and implement appropriate non-GAAP policies and disclosure controls and procedures. In determining to accept DXC’s offer of settlement, the SEC considered DXC’s cooperation and remedial actions.
The SEC’s investigation was conducted by Matthew Finnegan, John Rossetti, and Gary Peters and was supervised by Jeff Leasure and Mr. Cave.