Ken Sharp
Executive Vice President and Chief Financial Officer at DXC Technology
Thank you, Mike. Turning to our progress on our transformation journey. There is no doubt we are in a much better place. Our Q4 organic revenue declined 2.8% impacted by 75 basis points due to Russia's invasion of Ukraine. Adjusted EBIT margin of 8.5% year-over-year and margin expanded 100 basis points. Margins were impacted by 40 basis points related to taking care of our Ukraine and Russian colleagues in exiting our Russian business. Our trailing 12 month book-to-bill is 1.11. Non-GAAP diluted earnings per share of $0.84 up $0.10 compared to prior year.
Moving to our income statement on Slide 11. During the fourth quarter gross margin was lower by 210 basis points, due to accelerated hiring and higher utility costs in Europe. SG&A as a percentage of sales was down 180 basis points, as our business optimization efforts yielded results. Other income increased due to a gain on sale of assets. In total adjusted EBIT margin expanded a 100 basis points. Interest benefited from our debt retirement and refinancing Q4 was $4 million higher than anticipated due to unwinding a legacy financial structure.
Adjusted EPS is up 13.5%, boosted by increased EBIT margin, lower interest and a lower share count. Our EPS for Q4 came in below our guidance by $0.14 due to three items, aggregating $0.17, $0.04 Russian invasion of Ukraine, $0.06 increased European utility costs and $0.07 higher tax rate. For FY '23, we expect additional costs related to taking care of our colleagues in exiting Russia of $50 million and our tax rate will be back to a normalized level of 25%.
Turning to our segment results. A key part of Mike's strategy is to continue to improve the business mix and ultimately move GBS to be a larger portion of the business. For the quarter, our GBS mix improved 160 basis points to 47.2%. GBS continues with its fourth consecutive quarter of organic growth of 3.4%. GBS growth was impacted by about 150 basis points due to Russian's invasion of Ukraine. Our GBS profit margin was 14.5%, down 130 basis points year-over-year. GBS margins were impacted by about 100 basis points due to Russia's invasion of Ukraine.
GIS organic revenue declined 8%. GIS profit margin was 5.9%, an improvement of 180 basis points, benefiting from operational improvements as well as a gain on the sale of assets. We continue to work plans to move the GIS margin forward. As Mike articulated, our growth strategy has two parts. First, consistently grow GBS, which we feel good about; second, moderate the GIS organic revenue declines, we see early success with our IT outsourcing business. Our GBS and GIS businesses are each comprised three offerings. Turning to our GBS offerings. Analytics and engineering continued its strong organic growth of 19.7%. Applications decreased 0.6% due to timing. We expect applications to return to growth in Q1. BPS generated $112 million of revenue, down 12.8%.
Moving to our GIS offerings. Cloud and infrastructure and security was down 6.9% with a book-to-bill of 1.04. It's great to see that our IT outsourcing declines moderated in the low single-digits for two consecutive quarters with a decline of 2.1%. Modern workplace was down 19.6% due to a difficult compare as the prior year quarter included a higher than normal level of resale of approximately $60 million or 930 basis points of growth rate. We believe the fourth quarter represents a low watermark for modern workplace based on our investments in the business and its ability to win in the market. For FY '23, we plan to make three updates to how we operate and report our offerings. First, we will bring our insurance and banking software assets and related business process outsourcing together. Second, combine our cloud and infrastructure with our ITO infrastructure business. And third, security will be standalone.
Slide 14, debt was reduced to our target debt level and remain there the entire year. Interest is down significantly, and restructuring and TSI expense were reduced $565 million. We also reduced operating lease payments by $132 million. Lastly, capital expenditures and capital lease originations as a percentage of revenue was 7% in FY '22, down from roughly 10% in FY '20, and presents a significant opportunity to improve cash generation, as we look forward.
Slide 16 demonstrates how our progress translates into improved cash flow. Our performance in the last three quarters of FY '22, provides a solid platform to build off of in FY '23, and ultimately gives us confidence as we work towards delivering our longer-term guidance of $1.5 billion in free cash flow. I should note this cash improvement has come while we've been reducing capital leases and related financing payments that sit outside of free cash flow.
Cash flow from operations in the quarter totaled an inflow of $271 million. Free cash flow for the quarter was $93 million. For the full year, we delivered $743 million of free cash flow exceeding our initial guidance of $500 million. As Mike mentioned earlier, our financial foundation is in a much better place. We achieved a lot in the year, improving transparency into our performance, strengthening our balance sheet, significantly improving free cash flow, reducing restructuring and TSI expense, and executing on our capital allocation program. Now that our financial foundation is much improved, we will pivot to providing more details on our business optimization efforts, particularly focused on improving GIS margins led by our Chief Operating Officer, Chris Drumgoole.
Turning to Chart 18. Let me expand a bit on what Mike discussed earlier that improve the GIS economics is a top priority. Let's think about our business optimization in two parts. First, improving disciplined execution with a focus on driving higher quality revenues. And second, optimizing costs that will allow us to expand margins. On disciplined execution, this starts with putting disciplined processes, metrics and incentives in place to ensure our team is committed to finding profitable new business with favorable economic terms. We are moving away from leveraging our balance sheet to sell work that does not yield quality revenue with appropriate margins and cash flow.
We are actively solutioning underperforming relationships and reviewing our contracts to ensure we can provide a high level of service, but also make a proper return to allow us to invest in our business. Cost optimization, there is clearly a lot of opportunity in front of us, whether it is addressing our underutilized data centers and office buildings, software agreements, contractors, delivery standardization or offshore mix. We feel that we have enough levers to improve the GIS margin to circa 10%. We believe more than ever, we can make these changes as the competitive landscape has improved.
Moving to capital allocation on Slide 19. We returned $634 million to our shareholders, repurchasing $18.8 million shares or over 7% of our outstanding shares. We expect to repurchase an additional $770 million or about 10% of our outstanding shares over the next three quarters. We continue to believe our stock is undervalued. As a reminder, when our debt is at our target debt level, we expect to deploy any cash over $2.5 billion. Additionally, we expect to generate $500 million of cash from our disclosed portfolio shaping initiatives. Related to portfolio shaping, we are committed to ensuring we have the right portfolio to drive organic growth. We will continually assess our portfolio with specific focus on GIS to ensure our portfolio is aligned to our strategy and value creation to reduce complexity and allow management more time to focus on the critical parts of the business.
Moving to governance. Mike and I are committed to improving our corporate governance. To be clear, our low governance floor is not and will not be our brand. In that vein, we are pleased the legacy material weakness is remediated. As part of our efforts to past Say on Pay, we have proactively engaged many of our shareholders obtain their feedback and use their feedback to reshape our pay practices. You can see in the improvements we committed to make, that will be fully detailed in our proxy.
Turning to our FY '23 guidance. Revenue of $14.9 billion to $15.05 billion. Two key items, we are addressing in our revenue guidance. Foreign currency has expected to be a headwind of 4.6% or almost $800 million based on the strengthening U.S. dollar. Divestitures that are announced and closed, lower revenue by approximately 2% or about $300 million. We have additional divestitures in process, including Fondsdepot Bank and we'll update you accordingly.
Organic revenue growth of minus 1% to minus 2%, which is a combination of continued growth in GBS and moderating declines in GIS. Adjusted EBIT margin of 8.5% to 9%. Our margin guidance takes into consideration $100 million decline in our non-cash pension income for FY '23, and a $50 million of cost associated with taking care of our colleagues in Ukraine and Russia, as we reposition our business to put it in a better place and exit Russia. The non-cash pension income is due to expected returns on our pension assets exceeding pension costs, as several of our pension plans are overfunded. We are focused on locking down these plans and further de-risking our balance sheet. Non-GAAP diluted earnings per share $3.85 to $4.15 or a 15% growth at the midpoint. Free cash flow $800 million.
Our guidance for the first quarter of FY '23. Revenue of $3.7 billion to $3.75 billion. Foreign currency is estimated to be 6% or about $250 million headwind. Divestitures are expected to reduce revenue by about $100 million. Organic revenue decline of 1.5% to 2.5%. Adjusted EBIT margin in the range of 7.5% to 8%, due to the lower non-cash pension income of $25 million and a cost to reposition our Ukraine and Russia business. Non-GAAP diluted earnings per share of $0.80 to $0.85. Free cash flow of minus $100 million due to seasonally high level of cash payments in Q1.
We are reaffirming our guidance for FY '24, this reflects our strong progress on our transformation journey and our belief in the company's capability to execute over the next two fiscal years. As we think about our FY '24 goals, it's important to realize how far we've come, as we've improved the transparency of the financials and the investability of DXC. We improved year-over-year cash generation by $1.4 billion. We tackled the issues that negatively impacted our ability to generate and hang on to cash. And we are in the process of reshaping our portfolio to drive higher value for our customers [Technical Issues] so that we can grow organically and generate cash flow.
As we close on FY '22, let me point out two key points that demonstrates we are in a better place. First GBS never grew before FY '22, and has now grown four consecutive quarters. Second, GIS is no longer declining double-digits. We will bring this positive momentum into FY '23, which sets us up well for FY '24.
With that, I'll turn the call back to Mike for his final thoughts.
