You could place your handler at dl level. Note that in this case the pretty_print do not work properly. The code looks a little simpler though:

#!/usr/bin/perl -w
use strict;
use XML::Twig;

XML::Twig->new( twig_roots => { dl => sub { $_->subs_text( qr/(.+?)\s+
+(.+?)\n/, 
                                                           '&elt(first
+ => $1)&elt( second => $2)'
                                                         )
                                              ->print;
                                          },
                              },
                 twig_print_outside_roots => 1,
               )
           ->parse( \*DATA);

__DATA__
<c>
<dl>
ABC  CDE
add  eerwe
sdfsdfs  erewrwe
</dl>
</c>
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