Rob Del Bene
Executive Vice President and Chief Financial Officer at DXC Technology
Thank you, Mike. Before I get into the numbers, I would like to say the team has made good progress with the implementation of the offering-based operating model with improved execution, and I expect us to build on this performance going forward. I'll now provide you with a quick rundown of our 2Q performance.
Organic revenue is down 3.6%, which came in above our organic revenue guidance range and in line with first quarter's performance. Of the 3.6% year-to-year decline. 160 basis points came from a reduced level of low margin resale revenues, which was in line with our expectation.
Adjusted EBIT margin came in at 7.3%, also above our guidance range. The margin increased 80 basis points sequentially and was down 20 basis points on a year-to-year basis. Within this number, there is a significant reduction of 60 basis points from the pension income contribution on a year-to-year basis. So without the pension income, our non-GAAP EBIT margin moved from 6.3% in 2Q '23 to 6.7%.
Non-GAAP EPS was $0.70 at the high end of our guidance range, down $0.05 year to year and up $0.07 sequentially. SG&A was well managed in the quarter with spending in line with our expectations. Free cash flow for the quarter was $91 million, benefiting from our continued focus on working capital management and a lower level of capex.
In the quarter, our book-to-bill was 0.81 and the trailing 12 months is now 1.02. The level of bookings through the first half of the year is similar to the first half of fiscal '23, and the 0.81 is factored into our annual guidance. Looking forward, based on our pipelines, we expect book-to-bill to improve in the second half of the fiscal year.
Moving to our key financial metrics. Our second quarter gross margin of 23.4% was up 120 basis points year over year and 230 basis points sequentially, benefiting from our cost reduction initiatives. SG&A was 9.4% of revenues, up 60 basis points year over year. Depreciation and amortization was down $7 million compared to the prior year. Other income decreased $28 million year to year, driven primarily by a $25 million decline in non-cash pension income.
Taking this all together, adjusted EBIT margin was down 20 basis points year over year. Excluding pension income in both periods, the EBIT margin would have been up about 40 basis points year to year. Net interest expense increased $9 million year over year to $25 million, primarily due to a higher level of variable interest expense on short-term debt. Non-GAAP EPS was down $0.05 compared to the prior year, driven by a $0.03 decline from higher interest expense, a $0.06 reduction from a higher tax rate, and a $0.06 reduction due to lower pension income. These increases were partially offset by a $0.09 improvement due to lower share count driven by our ongoing share repurchase activity.
Now, turning to our segment results. Our business mix continues to trend to our higher margin GBS segment. As a percentage of total revenue, GBS is now very close to 50% of revenues. We anticipate that this trend will continue and that, shortly, the GBS segment will be the majority of our revenue. GBS grew 2.4% organically and posted the 10th consecutive quarter of organic growth, which reflects the deep industry-based customer value delivered by the GBS teams. The GBS profit margin declined 20 basis points year over year, with the decrease driven by the impact of lower pension income.
Turning to GIS. Organic revenue declined 9.1% with a modest reduction of the decline sequentially. GIS profit margin decreased 40 basis points year over year, again driven by the reductions in pension income.
Now, let's take a closer look at our offerings. Analytics and Engineering revenue performance was up 5.3%, below the first quarter growth rate. We are seeing a moderating level of demand as customers are more cautious due to the current macroeconomic environment. Applications revenue declined 80 basis points similar to first quarter performance. While our applications performance has been stable, we are expecting to see improving book-to-bill performance in the second half of the year based on the opportunities we see in our Enterprise Applications business, in public sector and in banking.
Insurance software and BPS continued to grow with revenue up 5.2%. The insurance SaaS component of the portfolio accelerated to high single-digit growth. The insurance platform and deep industry BPS skills of our team is resonating in the market. Security declined 1.8% year to year. Cloud infrastructure and IT outsourcing revenues declined 9.8% year to year organically.
The year-to-year performance continues to be impacted by two primary factors that I outlined in the first quarter earnings call, the impact of which were anticipated in our 2Q guide. The first is declines from contracts that were terminated some time ago and continue to wind down. The second factor is a decline in resale revenues, which drove 41% of our second quarter decrease in cloud and ITO. The Modern Workplace business declined 9% year to year. And as with ITO, the business performed as expected in our 2Q guide. Our expectation is that the sequential performance in revenue will stabilize through the second half of this year.
Turning to financial foundation metrics. Debt levels decreased modestly in the first quarter to $4.5 billion. Restructuring and TSI expense increased to $38 million with the increase entirely due to the restructuring of facility leases, part of our effort to right size our facility footprint. We are tightly managing restructuring and will continue to evaluate opportunities to streamline our operations. Operating lease payments and related expenses were $91 million, down $17 million year to year, reflecting continued management of our real estate commitments.
In the quarter, capital expenditures were $157 million, down $38 million year to year. Finance lease originations were $24 million flat year to year. As a percentage of revenue, capital expenditures and lease originations declined to 5.3% of revenues as we tightly manage our capital leasing commitments.
As I mentioned earlier, free cash flow for the quarter was $91 million, bringing our first half total to $16 million, slightly better than last year's performance. We have several large drivers of cash expenditures in the first half of the year, such as bonus payments, payments to suppliers for annual renewals of software and related maintenance, and cash taxes. These cash outflows will be significantly lower in the second half of the fiscal year. And combined with a higher adjusted EBIT and continued progress on working capital efficiency, we are maintaining our free cash flow goal of $800 million.
Turning to capital deployment. We made continued progress on our $1 billion share repurchase program for fiscal year 2024. Year to date, DXC has repurchased about 10% of our shares outstanding. This is in addition to the 7.4% of shares that we repurchased in fiscal year '22 and 10.6% in fiscal year '23. It is important to note that, in aggregate, our $1 billion share repurchase program will be funded through free cash flow and our asset sale program. And just to note, there's approximately $500 million remaining for the second half of the fiscal year.
Turning now to third quarter. We expect Q3 organic revenue to decline from minus 4% to minus 5%, reflecting the weaker demand environment; adjusted EBIT margin of 7% to 7.5%; and non-GAAP diluted EPS of $0.75 to $0.80.
Turning to our full year guidance. We are reaffirming our organic revenue growth from negative 3% to negative 4%, our adjusted EBIT margin of 7% to 7.5% and EPS from $3.15 to $3.40. We are also maintaining our free cash flow guidance of $800 million. We have increased the tax rate. Our non-GAAP EPS guidance reflects a tax rate of 30%, up from our previous expectation of 29%.
We are making progress on our $250 million asset sale program, which is a planned source of cash in fiscal year '24. In 2Q, we realized $61 million, bringing our year-to-date asset sale total to $65 million. We have a portfolio of assets that will enable us to achieve the $250 million objective and expect to execute by the end of the fiscal year. These cash generating transactions could result in a non-cash loss that is not factored into our guidance. And as we have more clarity on the specific assets and timing, we'll provide an update in 4Q guidance.
With that, let me turn the call back to Mike for his final thoughts.
