Rob Del Bene
Executive Vice President and Chief Financial Officer at DXC Technology
Thank you, Raul. I'll now provide you with a review of our third quarter performance with results in-line or ahead of our 3Q guidance. Organic revenue growth was down 4.5% year-over-year, which came in at the midpoint of our organic revenue guidance. Our results continue to be impacted by the year-to-year decline of resale revenues, which was 90 basis points of the 4.5% decline. Adjusted EBIT margin came in at 7.6% above our guidance range and up 30 basis points quarter-to-quarter. Margin was down 110 basis points year-to-year, but the decline due to a 50 basis point impact of lower noncash pension income, a 40 basis point impact from a lower level of asset sales and a non-recurring 30 basis point impact from executive severance costs. Without these three impacts margins would have been up year-to-year.
Non-GAAP EPS was $0.87, $0.07 above our guidance range and up $0.17 sequentially. Free cash flow for the quarter was $585 million, as a result of disciplined operational management and improving control of capital expenditures and working capital. As I've mentioned on previous calls, our free cash flows are seasonally weighted to the second-half of the year and that played out in the quarter. Book-to-bill was 0.99 with improved performance from the first-half of the fiscal year. The trailing 12 month book-to-bill is 0.93.
Now moving to our key financial metrics. Our third quarter gross margin of 22.4% was up 70 basis points year-over-year, benefiting from our ongoing labor and non-labor cost reductions. SG&A was 8.5% of revenues, nearly flat in absolute dollars as we are maintaining our go-to-market investment levels. Other income decreased $51 million, year-to-year, driven primarily by a decline in noncash pension income, lower gains on asset sales and foreign exchange. Adjusted EBIT margins were down 110 basis points due to, as I mentioned on the first slide, lower pension income, lower asset sales and executive separation costs.
Net interest expense was $22 million, an increase of $7 million year-over-year, primarily due to a higher-level of variable interest expense on short-term debt. Net interest expense improved $3 million sequentially. Non-GAAP EPS was down $0.08 year-to-year with the main decreases being a higher tax rate of $0.12, $0.06 of lower pension income, $0.05 of lower gains on asset sales and other impacts such as executive severance and higher interest expense. These decreases were partially offset by a $0.15 benefit from a reduced share count and then $0.08 benefit from noncontrolling interest.
Now turning to our segment results. Our business mix continues to trend for higher margin GBS segment and the two segments are now almost equal, with GBS at 49.9%, up 120 basis points from a year-ago. GBS grew 30 basis points organically. The deceleration in the GBS organic growth rate is a reflection of the challenging market environment. GBS profit margin was 11.9%, consistent with the performance in the first-half of the year. We are managing our GBS resource levels to capture future growth opportunities.
Turning now to GIS. Organic revenue declined 8.9%, a modest improvement from first-half performance. GIS profit margin increased 40 basis points year-over-year, driven by the ongoing execution of cost reduction initiatives.
Now moving onto our individual offerings, first in GBS. Our analytics and engineering team, which has world-class industry capabilities in the field of design and engineering has been impacted by the economic environment, bringing our growth rate to low single digits. In the quarter, we did have an improved book-to-bill due to a high-volume of client renewals, which is a strong validation of the value delivered by the A&E team.
Moving to our applications offering. Revenue declined 2%, and is consistent with the performance of the first-half of the year and reflective of our bookings for the last two quarters. In the quarter, we improved our book-to-bill to 1.11 times with a number of large renewals, new client acquisitions and an increase in project-based services. Our insurance offering continues to grow with organic revenue up 2.1%, book-to-bill was 1.58 times, up significantly from our first-half performance.
Bookings in this business vary from quarter-to-quarter based on the timing of large renewals. In 3Q, we had two significant renewals, reflecting strong customer recognition of the value of our software platform and services capabilities. Our Insurance SaaS business continued its strong performance, growing 6% in the quarter. In the fourth quarter, we expect the growth rate to temporarily moderate due to a one-time perpetual IP license sale in the fourth-quarter of fiscal '23.
Now moving to our GIS segment. Security declined 5.1% year-to-year with revenue flat quarter-to-quarter and in-line with the first-half of the year. Bookings were 0.81 times. Cloud infrastructure and IT outsourcing revenue declined 10.9% year-to-year. This business continues to be impacted by long-term market declines and the shorter-term decreases in lower-margin resale revenues. In the third quarter, resale was over one-third of the decline and we anticipate that this trend will continue into the fourth quarter. We're taking a very disciplined approach to deal economics and contract management and we'll continue to evaluate opportunities to reduce excess capacity and capital requirements. This approach is reflected in our book-to-bill results which was 0.72 in 3Q.
Next, we have modern workplace, which declined 4.2% year-to-year. The quarter-to-quarter improvement in performance was driven by two large transactions which included resale content, which we don't anticipate to recur in the fourth quarter. Looking ahead, the fourth quarter of fiscal '24, we faced a difficult comparison due to a high-level of resale revenues in the fourth quarter of fiscal '23. As a result of the upcoming difficult comp, we expect modern workplace to decline in the mid-teens, in the fourth quarter.
Now turning to the financial foundation. Debt levels have remained stable from the beginning of the year at about $4.5 billion. Net interest of $22 million in the quarter was up $7 million as compared to prior year, reflecting the higher interest-rate environment on our short-term borrowings. Restructuring and TSR expense was down 31% year-to-year and flat sequentially. Operating lease payments and the related expenses were $88 million, down $9 million year-to-year, reflecting continued prudent management of our real estate footprint. In the quarter, capital expenditures were $121 million, down $41 million a year-to-year and $36 million sequentially. Finance lease originations were $15 million. And as a percentage of revenue, capital expenditures and lease originations declined to 5% of revenues Indicative of disciplined management of our capital expenditures and leasing commitments.
Turning to capital deployment in 3Q, we deployed $252 million and repurchased 11.3 million shares. In fiscal '24, DXC has repurchased over 15% of our shares outstanding, which is an addition to the 7.4% of shares that we repurchased in '22 and 10.6% in fiscal '23. As we've communicated in prior calls, we're funding our targeted fiscal '24, $1 billion share repurchase program through a combination of $800 million of free cash flow and asset sales.
Through the third quarter of the fiscal year, our proceeds from asset sales is now approximately $100 million. We have additional sales targeted which may extend into fiscal '25. And if so, we'll adjust our '24 repurchase plans accordingly. We remain committed to our capital deployment priorities of managing our investment grade credit rating, Investing appropriately in the operations of the company and returning capital to shareholders. There is no change to our approach or our capital deployment strategy.
Now turning to the fourth quarter outlook. In GBS, while 3Q bookings improved, we're seeing longer than anticipated conversion to revenue, which reflects continued caution on the part of our customers. As a result, we expect GBS year-over-year performance to be similar to the third quarter. GIS year-over-year organic revenue growth is expected to decelerate compared to third quarter, largely due to lower modern workplace resale revenues. This brings total Q4 organic revenue to minus 6.5% to minus 5.5%. We are expecting somewhat similar adjusted EBIT margins compared to the third quarter and anticipate a range of 7.0% to 7.5%. And finally, non-GAAP diluted EPS of $0.80 to $0.85.
Turning to our full-year '24 guidance, we are reducing our organic revenue growth to minus 4.5% to minus 4.3%, adjusted EBIT margin guidance is lowered to 7.1% to 7.2%, and EPS to $3 to $3.05, reflecting a tax rate of 34% versus prior full-year guidance of 30%, which has an EPS impact of $0.18. We are maintaining our free cash flow guidance of $800 million.
With that, let me turn the call back to Raul for key takeaways.
