Implemented comprehensive changes to operating model; on track
to meet Reinvention targets despite a challenging first quarter
Financial Summary
Q1 2024
- Revenue of $1.50 billion, down 12.4 percent, or 13.2 percent in
constant currency.
- GAAP net loss of $(113) million, or $(0.94) per share, a
decrease of $184 million or $1.37 per share, year-over-year,
respectively. This quarter includes after-tax Project Reinvention
related charges of $100 million, or $0.80 per share.
- Adjusted net income of $11 million, or $0.06 per share,
declined by $71 million or $0.43 per share, year-over-year,
respectively.
- Adjusted operating margin of 2.2 percent, 470 basis points
lower year-over-year.
- Operating cash flow of $(79) million, lower by $157 million
year-over-year.
- Free cash flow of $(89) million, lower by $159 million
year-over-year.
Xerox Holdings Corporation (NASDAQ: XRX) today announced its
2024 first-quarter results.
“This quarter, Xerox orchestrated one of its most intense
periods of structural change in recent history, continuing the hard
work required to reposition our business for long-term, sustainable
growth. We implemented comprehensive and strategic operating model
changes to align our organization more closely with our buyers’
needs and improve efficiency,” said Steve Bandrowczak, chief
executive officer at Xerox. “While results were below our
expectations in Q1, I have full confidence we have the right team
and the right strategy to execute Xerox’s Reinvention and deliver
on our adjusted operating income targets.”
First-Quarter Key Financial Results
(in millions,
except per share data)
Q1 2024
Q1 2023
B/(W)
YOY
% Change
B/(W) YOY
Revenue
$1,502
$1,715
$(213)
(12.4)% AC (13.2)%
CC(1)
Gross Profit
$443
$589
$(146)
Gross Margin
29.5%
34.3%
(480) bps
RD&E %
3.3%
3.7%
40 bps
SAG %
26.4%
23.7%
(270) bps
Pre-Tax (Loss) Income (2)
$(150)
$85
$(235)
NM
Pre-Tax (Loss) Income Margin
(2)
(10.0)%
5.0%
NM
Gross Profit - Adjusted (1)
$479
$589
$(110)
Gross Margin - Adjusted (1)
31.9%
34.3%
(240) bps
Operating Income - Adjusted (1)
$33
$118
$(85)
(72.0)%
Operating Income Margin - Adjusted (1)
2.2%
6.9%
(470) bps
GAAP Diluted (Loss) Earnings per Share
(2)
$(0.94)
$0.43
$(1.37)
NM
Diluted Earnings Per Share - Adjusted
(1)
$0.06
$0.49
$(0.43)
(87.8)%
First-Quarter Segment Results
(in
millions)
Q1 2024
Q1 2023
B/(W)
YOY
% Change
B/(W) YOY
Revenue
Print and Other
$1,430
$1,636
$(206)
(12.6)%
Xerox Financial Services (XFS) (3)
91
102
(11)
(10.8)%
Intersegment Elimination (4)
(19)
(23)
4
(17.4)%
Total Revenue
$1,502
$1,715
$(213)
(12.4)%
Profit
Print and Other
$33
$100
$(67)
(67.0)%
Xerox Financial Services (XFS) (3)
—
18
(18)
(100.0)%
Total Profit
$33
$118
$(85)
(72.0)%
_____________
(1)
Refer to the “Non-GAAP Financial
Measures” section of this release for a discussion of these
non-GAAP measures and their reconciliation to the reported GAAP
measures.
(2)
First quarter 2024 Pre-Tax (Loss)
and Margin, and (Loss) per Share, include restructuring-related
charges associated with the Company's Reinvention, primarily
related to the exit of certain Production Print manufacturing
operations and geographic simplification.
(3)
Xerox Financial Services (XFS)
(formerly FITTLE)
(4)
Reflects revenue, primarily
commissions and other payments, made by the XFS segment to the
Print and Other segment for the lease of Xerox equipment
placements.
2024 Guidance
- Revenue: decline of 3% to 5% in constant currency
- Adjusted Operating Margin: at least 7.5%
- Free cash flow: at least $600 million
Guidance assumes stable Print demand, growth in Digital and IT
Services and neutral macroeconomic conditions. The guided
year-over-year decline in revenue is attributable to the following:
around 200 basis points of headwind from prior-year backlog
reduction and around 200 basis points from the deemphasis of
certain non-strategic revenue, including lower sales of paper.
Margin guidance implies adjusted1 operating income margin
improvement of more than 190 basis points, and adjusted1 operating
income improvement of more than $100 million, year-over-year.
The company maintains its three-year target of $300 million of
incremental adjusted1 operating income above 2023 levels and a
return to double-digit adjusted1 operating income margin by
2026.
Non-GAAP Measures
This release refers to the following non-GAAP financial
measures:
- Adjusted1 Gross Profit and Margin, which exclude the inventory
impact related to the exit of certain Production Print
manufacturing operations, included in Cost of services, maintenance
and rentals.
- Adjusted1 EPS, which excludes Restructuring and related costs,
net, Amortization of intangible assets, non-service
retirement-related costs, and other discrete adjustments from GAAP
EPS, as applicable.
- Adjusted1 operating income and margin, which exclude the EPS
adjustments noted above as well as the remainder of Other expenses,
net from pre-tax (loss) income and margin.
- Constant currency (CC)1 revenue change, which excludes the
effects of currency translation.
- Free cash flow1, which is operating cash flow less capital
expenditures.
A reconciliation of the estimated adjusted1 operating income
expected to be delivered by the Reinvention to the closest GAAP
financial measure, pre-tax income, is not provided because pre-tax
income for those periods is not available without unreasonable
effort, in part because the amount of estimated restructuring and
other incremental costs related to the Reinvention is not available
at this time.
_________
(1) Refer to the “Non-GAAP Financial
Measures” section of this release for a discussion of these
non-GAAP measures and their reconciliation to the reported GAAP
measures.
Forward Looking Statements
This release and other written or oral statements made from time
to time by management contain “forward looking statements” as
defined in the Private Securities Litigation Reform Act of 1995.
The words “anticipate”, “believe”, “estimate”, “expect”, “intend”,
“will”, “should”, “targeting”, “projecting”, “driving” and similar
expressions, as they relate to us, our performance and/or our
technology, are intended to identify forward-looking statements.
These statements reflect management’s current beliefs, assumptions
and expectations and are subject to a number of factors that may
cause actual results to differ materially. Such factors include but
are not limited to: Global macroeconomic conditions, including
inflation, slower growth or recession, delays or disruptions in the
global supply chain, higher interest rates, and wars and other
conflicts, including the current conflict between Russia and
Ukraine; our ability to succeed in a competitive environment,
including by developing new products and service offerings and
preserving our existing products and market share as well as
repositioning our business in the face of customer preference,
technological, and other change, such as evolving return-to-office
and hybrid working trends; failure of our customers, vendors, and
logistics partners to perform their contractual obligations to us;
our ability to attract, train, and retain key personnel; execution
risks around our Reinvention; the risk of breaches of our security
systems due to cyber, malware, or other intentional attacks that
could expose us to liability, litigation, regulatory action or
damage our reputation; our ability to obtain adequate pricing for
our products and services and to maintain and improve our cost
structure; changes in economic and political conditions, trade
protection measures, licensing requirements, and tax laws in the
United States and in the foreign countries in which we do business;
the risk that multi-year contracts with governmental entities could
be terminated prior to the end of the contract term and that civil
or criminal penalties and administrative sanctions could be imposed
on us if we fail to comply with the terms of such contracts and
applicable law; interest rates, cost of borrowing, and access to
credit markets; risks related to our indebtedness; the imposition
of new or incremental trade protection measures such as tariffs and
import or export restrictions; funding requirements associated with
our employee pension and retiree health benefit plans; changes in
foreign currency exchange rates; the risk that our operations and
products may not comply with applicable worldwide regulatory
requirements, particularly environmental regulations and directives
and anti-corruption laws; the outcome of litigation and regulatory
proceedings to which we may be a party; laws, regulations,
international agreements and other initiatives to limit greenhouse
gas emissions or relating to climate change, as well as the
physical effects of climate change; and other factors as set forth
from time to time in the Company’s Securities and Exchange
Commission filings, including the Company’s Annual Report on Form
10-K for the year ended December 31, 2023. The Company intends
these forward-looking statements to speak only as of the date of
this release and does not undertake to update or revise them as
more information becomes available, except as required by law.
Note: To receive RSS news feeds, visit
https://www.news.xerox.com. For open commentary, industry
perspectives and views, visit http://www.linkedin.com/company/xerox
or http://www.youtube.com/XeroxCorp.
Xerox® is a trademark of Xerox in the United States and/or other
countries.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
(LOSS) INCOME (UNAUDITED)
Three Months Ended
March 31,
(in millions, except per-share data)
2024
2023
Revenues
Sales
$
523
$
659
Services, maintenance and rentals
937
1,004
Financing
42
52
Total Revenues
1,502
1,715
Costs and Expenses
Cost of sales
340
425
Cost of services, maintenance and
rentals
692
665
Cost of financing
27
36
Research, development and engineering
expenses
49
64
Selling, administrative and general
expenses
397
407
Restructuring and related costs, net
39
2
Amortization of intangible assets
10
11
Divestitures
54
—
Other expenses, net
44
20
Total Costs and Expenses
1,652
1,630
(Loss) Income before Income
Taxes(1)
(150
)
85
Income tax (benefit) expense
(37
)
14
Net (Loss) Income
(113
)
71
Less: Preferred stock dividends, net
(4
)
(4
)
Net (Loss) Income attributable to
Common Shareholders
$
(117
)
$
67
Basic (Loss) Earnings per Share
$
(0.94
)
$
0.43
Diluted (Loss) Earnings per
Share
$
(0.94
)
$
0.43
___________________________
(1) Referred to as “Pre-tax (loss) income”
throughout the remainder of this document.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
Three Months Ended
March 31,
(in millions)
2024
2023
Net (Loss) Income
$
(113
)
$
71
Other Comprehensive (Loss) Income,
Net
Translation adjustments, net
(32
)
93
Unrealized (losses) gains, net
(1
)
4
Changes in defined benefit plans, net
36
(14
)
Other Comprehensive Income, Net
3
83
Comprehensive (Loss) Income,
Net
$
(110
)
$
154
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except share data in
thousands)
March 31, 2024
December 31, 2023
Assets
Cash and cash equivalents
$
685
$
519
Accounts receivable (net of allowance of
$65 and $64, respectively)
846
850
Billed portion of finance receivables (net
of allowance of $3 and $4, respectively)
67
71
Finance receivables, net
783
842
Inventories
736
661
Other current assets
231
234
Total current assets
3,348
3,177
Finance receivables due after one year
(net of allowance of $85 and $88, respectively)
1,408
1,597
Equipment on operating leases, net
257
265
Land, buildings and equipment, net
245
266
Intangible assets, net
165
177
Goodwill, net
2,720
2,747
Deferred tax assets
749
745
Other long-term assets
1,052
1,034
Total Assets
$
9,944
$
10,008
Liabilities and Equity
Short-term debt and current portion of
long-term debt
$
405
$
567
Accounts payable
1,046
1,044
Accrued compensation and benefits
costs
213
306
Accrued expenses and other current
liabilities
774
862
Total current liabilities
2,438
2,779
Long-term debt
3,199
2,710
Pension and other benefit liabilities
1,183
1,216
Post-retirement medical benefits
167
171
Other long-term liabilities
352
360
Total Liabilities
7,339
7,236
Noncontrolling Interests
10
10
Convertible Preferred Stock
214
214
Common stock
124
123
Additional paid-in capital
1,099
1,114
Retained earnings
4,828
4,977
Accumulated other comprehensive loss
(3,673
)
(3,676
)
Xerox Holdings shareholders’ equity
2,378
2,538
Noncontrolling interests
3
10
Total Equity
2,381
2,548
Total Liabilities and Equity
$
9,944
$
10,008
Shares of Common Stock Issued and
Outstanding
124,185
123,144
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
(in millions)
2024
2023
Cash Flows from Operating
Activities
Net (Loss) Income
$
(113
)
$
71
Adjustments required to reconcile Net
(loss) income to cash flows (used in) provided by operating
activities
Depreciation and amortization
59
64
Provisions
57
—
Divestitures
54
—
Stock-based compensation
12
14
Restructuring and asset impairment
charges
31
1
Payments for restructurings
(16
)
(6
)
Non-service retirement-related costs
23
(1
)
Contributions to retirement plans
(31
)
(17
)
(Increase) decrease in accounts receivable
and billed portion of finance receivables
(19
)
39
Increase in inventories
(133
)
(64
)
Increase in equipment on operating
leases
(22
)
(40
)
Decrease in finance receivables
210
160
(Increase) decrease in other current and
long-term assets
(2
)
3
Increase (decrease) in accounts
payable
17
(41
)
Decrease in accrued compensation
(86
)
(16
)
Decrease in other current and long-term
liabilities
(77
)
(128
)
Net change in income tax assets and
liabilities
(44
)
18
Net change in derivative assets and
liabilities
6
13
Other operating, net
(5
)
8
Net cash (used in) provided by operating
activities
(79
)
78
Cash Flows from Investing
Activities
Cost of additions to land, buildings,
equipment and software
(10
)
(8
)
Proceeds from sales of businesses and
assets
4
1
Acquisitions, net of cash acquired
—
(7
)
Other investing, net
(11
)
(3
)
Net cash used in investing activities
(17
)
(17
)
Cash Flows from Financing
Activities
Net proceeds (payments) on debt
335
(452
)
Purchase of capped calls
(23
)
—
Dividends
(37
)
(45
)
Payments to acquire treasury stock,
including fees
(3
)
—
Other financing, net
(11
)
(8
)
Net cash provided by (used in) financing
activities
261
(505
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(10
)
2
Increase (decrease) in cash, cash
equivalents and restricted cash
155
(442
)
Cash, cash equivalents and restricted cash
at beginning of period
617
1,139
Cash, Cash Equivalents and Restricted
Cash at End of Period
$
772
$
697
First Quarter 2024 Overview
In the first quarter of 2024, Xerox implemented a comprehensive
organizational redesign, marking an important milestone in the
Company's multi-year journey to build a stronger, more stable
business that is operationally efficient and responsive to the
evolving workplace needs of our clients. During the quarter, we
took initial actions to unlock savings associated with a simplified
product offering and global routes to market, including the
decision to exit certain Production Print manufacturing operations
and sell, or agree to sell, direct operations in four Latin
American countries.
Equipment sales of $290 million in the first quarter 2024
declined 25.8% in actual currency, or 26.3% in constant currency1,
as compared to the first quarter 2023. The prior year effect of
backlog2 reduction and geographic simplification drove a
16-percentage point year-over-year decline. Total equipment revenue
outpaced equipment installation activity, due to favorable product
mix. Installations declined across all product groups primarily due
to prior year backlog2 reductions. Post-sale revenue of $1.2
billion declined 8.5% in actual currency, or 9.3% in constant
currency1, as compared to first quarter 2023. The decline was
primarily due to reductions in non-strategic, lower margin paper
and IT endpoint device placements, as well as the effects of
geographic simplification, the termination of the Fuji Royalty and
the absence of PARC revenue. Excluding these effects, post sale
revenue decreased low-single digits in actual currency.
The pre-tax (loss) of $(150) million for the first quarter 2024
decreased by $235 million as compared to pre-tax income of $85
million in the first quarter 2023, primarily due to lower revenues
and associated gross profit, a loss related to the divestiture of
certain direct business operations in Latin America, higher
Restructuring and related costs, net and Other expenses, net,
partially offset by lower Research, development and engineering
expenses as well as lower Selling, administrative and general
expenses, reflecting structural actions taken to improve our cost
structure. Adjusted1 operating income decreased $85 million as
compared to first quarter 2023 due to lower equipment and post sale
revenue, including the termination of Fuji royalty income and PARC
revenue, lower gross profit and higher bad debt expense, which
primarily related to a reserve release in the prior year period.
These impacts were partially offset by the cost savings associated
with structural simplification efforts.
We continue to expect a total Revenue decline of 3% to 5% in
constant currency1 in 2024, which includes effects of prior year
backlog2 reductions and the exit of non-strategic businesses. Core
business revenue is expected to be roughly flat year-over-year,
reflecting stable Print demand, growth in Digital and IT Services
and neutral macroeconomic conditions.
We expect 2024 pre-tax income and adjusted1 operating income
margins to improve in 2024 to approximately 5.1% and at least 7.5%,
respectively. These increases will primarily be driven by
structural simplification actions enabled by our reorganization,
including the effects of the workforce reduction decisions
announced in January 2024.
Free cash flow1 is expected to be at least $600 million in 2024
(includes $50 million for capital expenditures). Free cash flow1 is
expected to benefit from a reduction in our finance receivables
balance.
__________
(1)
Refer to the "Non-GAAP Financial
Measures" section for an explanation of the non-GAAP financial
measure.
(2)
Order backlog is measured as the
value of unfulfilled sales orders, shipped and non-shipped,
received from our customers waiting to be installed, including
orders with future installation dates. It includes printing devices
as well as IT hardware associated with our IT service
offerings.
Financial Review
Revenues
Three Months Ended
March 31,
% of Total Revenue
(in millions)
2024
2023
%
Change
CC % Change
2024
2023
Equipment sales
$
290
$
391
(25.8)%
(26.3)%
19%
23%
Post sale revenue
1,212
1,324
(8.5)%
(9.3)%
81%
77%
Total Revenue
$
1,502
$
1,715
(12.4)%
(13.2)%
100%
100%
Reconciliation to Condensed
Consolidated Statements of (Loss) Income:
Sales
$
523
$
659
(20.6)%
(21.3)%
Less: Supplies, paper and other sales
(233
)
(268
)
(13.1)%
(14.1)%
Equipment Sales
$
290
$
391
(25.8)%
(26.3)%
Services, maintenance and rentals
$
937
$
1,004
(6.7)%
(7.4)%
Add: Supplies, paper and other sales
233
268
(13.1)%
(14.1)%
Add: Financing
42
52
(19.2)%
(20.8)%
Post Sale Revenue
$
1,212
$
1,324
(8.5)%
(9.3)%
Segments
Print and Other
$
1,430
$
1,636
(12.6)%
95%
95%
Xerox Financial Services (XFS) (1)
91
102
(10.8)%
6%
6%
Intersegment elimination (2)
(19
)
(23
)
(17.4)%
(1)%
(1)%
Total Revenue(3)
$
1,502
$
1,715
(12.4)%
100%
100%
______________
CC - See "Constant Currency" in
the Non-GAAP Financial Measures section for a description of
constant currency.
(1) Xerox Financial Services
(XFS) (formerly FITTLE)
(2) Reflects revenue, primarily
commissions and other payments made by the XFS segment, to the
Print and Other segment for the lease of Xerox equipment
placements.
(3) Refer to Appendix II,
Reportable Segments, for definitions.
Costs, Expenses and Other
Income
Summary of Key Financial Ratios
The following is a summary of key
financial ratios used to assess our performance:
Three Months Ended
March 31,
(in millions)
2024
2023
B/(W)
Gross Profit
$
443
$
589
$
(146
)
RD&E
49
64
15
SAG
397
407
10
Equipment Gross Margin
31.0
%
36.5
%
(5.5
)
pts.
Post sale Gross Margin
29.1
%
33.7
%
(4.6
)
pts.
Total Gross Margin
29.5
%
34.3
%
(4.8
)
pts.
RD&E as a % of Revenue
3.3
%
3.7
%
0.4
pts.
SAG as a % of Revenue
26.4
%
23.7
%
(2.7
)
pts.
Pre-tax (Loss) Income
$
(150
)
$
85
$
(235
)
Pre-tax (Loss) Income Margin
(10.0
)%
5.0
%
(15.0
)
pts.
Adjusted(1) Operating Income
$
33
$
118
$
(85
)
Adjusted(1) Operating Income Margin
2.2
%
6.9
%
(4.7
)
pts.
_____________
(1) Refer to the "Non-GAAP Financial
Measures" section for an explanation of the non-GAAP financial
measure.
Other Expenses, Net
Three Months Ended
March 31,
(in millions)
2024
2023
Non-financing interest expense
$
26
$
14
Interest income
(3
)
(5
)
Non-service retirement-related costs
23
(1
)
Currency losses, net
11
11
Gain on early extinguishment of debt
(3
)
—
Gain on release of contingent
consideration
(5
)
—
All other expenses, net
(5
)
1
Other expenses, net
$
44
$
20
Segment Review
Three Months Ended March 31,
(in millions)
External Revenue
Intersegment Revenue(1)
Total Segment Revenue
% of Total Revenue
Segment Profit
Segment Margin(2)
2024
Print and Other
$
1,411
$
19
$
1,430
94
%
$
33
2.3
%
Xerox Financial Services (XFS) (3)
91
—
91
6
%
—
—
%
Total
$
1,502
$
19
$
1,521
100
%
$
33
2.2
%
2023
Print and Other
$
1,613
$
23
$
1,636
94
%
$
100
6.2
%
Xerox Financial Services (XFS) (3)
102
—
102
6
%
18
17.6
%
Total
$
1,715
$
23
$
1,738
100
%
$
118
6.9
%
_____________
(1)
Reflects revenue, primarily
commissions and other payments, made by the XFS segment to the
Print and Other segment for the lease of Xerox equipment
placements.
(2)
Segment margin based on external
revenue only.
(3)
Xerox Financial Services (XFS)
(formerly FITTLE).
Print and Other
Print and Other includes the design, development and sale of
document management systems, solutions and services as well as
associated technology offerings including IT and software products
and services.
Revenue
Three Months Ended
March 31,
(in millions)
2024
2023
%
Change
Equipment sales
$
285
$
385
(26.0)%
Post sale revenue
1,126
1,228
(8.3)%
Intersegment revenue (1)
19
23
(17.4)%
Total Print and Other Revenue
$
1,430
$
1,636
(12.6)%
_____________
(1)
Reflects revenue, primarily
commissions and other payments, made by the XFS segment to the
Print and Other segment for the lease of Xerox equipment
placements.
Detail by product group is shown below.
Three Months Ended
March 31,
% of Equipment Sales
(in millions)
2024
2023
%
Change
CC % Change
2024
2023
Entry
$
45
$
62
(27.4)%
(27.2)%
15%
16%
Mid-range
193
252
(23.4)%
(24.0)%
67%
64%
High-end
47
73
(35.6)%
(35.9)%
16%
19%
Other
5
4
25.0%
25.0%
2%
1%
Equipment Sales (1),(2)
$
290
$
391
(25.8)%
(26.3)%
100%
100%
_____________
CC - See "Constant Currency" in
the Non-GAAP Financial Measures section for a description of
constant currency.
(1) Refer to Appendix II,
Reportable Segments, for definitions.
(2) Includes equipment sales
related to the XFS segment of $5 million and $6 million for the
first quarter 2024 and 2023, respectively.
Xerox Financial Services
Xerox Financial Services (XFS) (formerly FITTLE), represents a
global financing solutions business, primarily enabling the sale of
our equipment and services.
Revenue
Three Months Ended
March 31,
(in millions)
2024
2023
%
Change
Equipment sales
$
5
$
6
(16.7)%
Financing
42
52
(19.2)%
Other Post sale revenue (1)
44
44
—%
Total XFS Revenue
$
91
$
102
(10.8)%
_____________
(1) Other Post sale revenue includes lease renewal and fee
income as well as gains, commissions and servicing revenue
associated with sold finance receivables.
Forward-Looking Statements
This release and other written or oral statements made from time
to time by management contain “forward looking statements” as
defined in the Private Securities Litigation Reform Act of 1995.
The words “anticipate”, “believe”, “estimate”, “expect”, “intend”,
“will”, “should”, “targeting”, “projecting”, “driving” and similar
expressions, as they relate to us, our performance and/or our
technology, are intended to identify forward-looking statements.
These statements reflect management’s current beliefs, assumptions
and expectations and are subject to a number of factors that may
cause actual results to differ materially. Such factors include but
are not limited to: Global macroeconomic conditions, including
inflation, slower growth or recession, delays or disruptions in the
global supply chain, higher interest rates, and wars and other
conflicts, including the current conflict between Russia and
Ukraine; our ability to succeed in a competitive environment,
including by developing new products and service offerings and
preserving our existing products and market share as well as
repositioning our business in the face of customer preference,
technological, and other change, such as evolving return-to-office
and hybrid working trends; failure of our customers, vendors, and
logistics partners to perform their contractual obligations to us;
our ability to attract, train, and retain key personnel; execution
risks around our Reinvention; the risk of breaches of our security
systems due to cyber, malware, or other intentional attacks that
could expose us to liability, litigation, regulatory action or
damage our reputation; our ability to obtain adequate pricing for
our products and services and to maintain and improve our cost
structure; changes in economic and political conditions, trade
protection measures, licensing requirements, and tax laws in the
United States and in the foreign countries in which we do business;
the risk that multi-year contracts with governmental entities could
be terminated prior to the end of the contract term and that civil
or criminal penalties and administrative sanctions could be imposed
on us if we fail to comply with the terms of such contracts and
applicable law; interest rates, cost of borrowing, and access to
credit markets; risks related to our indebtedness; the imposition
of new or incremental trade protection measures such as tariffs and
import or export restrictions; funding requirements associated with
our employee pension and retiree health benefit plans; changes in
foreign currency exchange rates; the risk that our operations and
products may not comply with applicable worldwide regulatory
requirements, particularly environmental regulations and directives
and anti-corruption laws; the outcome of litigation and regulatory
proceedings to which we may be a party; laws, regulations,
international agreements and other initiatives to limit greenhouse
gas emissions or relating to climate change, as well as the
physical effects of climate change; and other factors as set forth
from time to time in the Company’s Securities and Exchange
Commission filings, including the Company’s Annual Report on Form
10-K for the year ended December 31, 2023. The Company intends
these forward-looking statements to speak only as of the date of
this release and does not undertake to update or revise them as
more information becomes available, except as required by law.
Non-GAAP Financial Measures
We have reported our financial results in accordance with
generally accepted accounting principles (GAAP). In addition, we
have discussed our financial results using the non-GAAP measures
described below. We believe these non-GAAP measures allow investors
to better understand the trends in our business and to better
understand and compare our results. Management regularly uses our
supplemental non-GAAP financial measures internally to understand,
manage and evaluate our business and make operating decisions.
These non-GAAP measures are among the primary factors management
uses in planning for and forecasting future periods. Compensation
of our executives is based in part on the performance of our
business based on these non-GAAP measures. Accordingly, we believe
it is necessary to adjust several reported amounts, determined in
accordance with GAAP, to exclude the effects of certain items as
well as their related income tax effects.
However, these non-GAAP financial measures should be viewed in
addition to, and not as a substitute for, the Company’s reported
results prepared in accordance with GAAP. Our non-GAAP financial
measures are not meant to be considered in isolation or as a
substitute for comparable GAAP measures and should be read only in
conjunction with our Condensed Consolidated Financial Statements
prepared in accordance with GAAP.
Reconciliations of these non-GAAP financial measures to the most
directly comparable financial measures calculated and presented in
accordance with GAAP are set forth below, as well as in the first
quarter 2024 presentation slides available at
www.xerox.com/investor.
Adjusted Earnings Measures
- Adjusted Net Income and Earnings per share (Adjusted EPS)
- Adjusted Effective Tax Rate
The above measures were adjusted for the following items:
Restructuring and related costs,
net: Restructuring and related costs, net include
restructuring and asset impairment charges as well as costs
associated with our transformation programs beyond those normally
included in restructuring and asset impairment charges.
Restructuring consists of costs primarily related to severance and
benefits paid to employees pursuant to formal restructuring and
workforce reduction plans. Asset impairment includes costs incurred
for those assets sold, abandoned or made obsolete as a result of
our restructuring actions, exiting from a business or other
strategic business changes. Additional costs for our transformation
programs are primarily related to the implementation of strategic
actions and initiatives and include third-party professional
service costs as well as one-time incremental costs. All of these
costs can vary significantly in terms of amount and frequency based
on the nature of the actions as well as the changing needs of the
business. Accordingly, due to that significant variability, we will
exclude these charges since we do not believe they provide
meaningful insight into our current or past operating performance
nor do we believe they are reflective of our expected future
operating expenses as such charges are expected to yield future
benefits and savings with respect to our operational
performance.
Amortization of intangible assets:
The amortization of intangible assets is driven by our acquisition
activity which can vary in size, nature and timing as compared to
other companies within our industry and from period to period. The
use of intangible assets contributed to our revenues earned during
the periods presented and will contribute to our future period
revenues as well. Amortization of intangible assets will recur in
future periods.
Non-service retirement-related
costs: Our defined benefit pension and retiree health costs
include several elements impacted by changes in plan assets and
obligations that are primarily driven by changes in the debt and
equity markets as well as those that are predominantly legacy in
nature and related to employees who are no longer providing current
service to the Company (e.g. retirees and ex-employees). These
elements include (i) interest cost, (ii) expected return on plan
assets, (iii) amortization of prior plan amendments, (iv) amortized
actuarial gains/losses and (v) the impacts of any plan
settlements/curtailments. Accordingly, we consider these elements
of our periodic retirement plan costs to be outside the operational
performance of the business or legacy costs and not necessarily
indicative of current or future cash flow requirements. This
approach is consistent with the classification of these costs as
non-operating in Other expenses, net. Adjusted earnings will
continue to include the service cost elements of our retirement
costs, which is related to current employee service as well as the
cost of our defined contribution plans.
Discrete, unusual or infrequent
items: We exclude these item(s), when applicable, given
their discrete, unusual or infrequent nature and their impact on
the comparability of our results for the period to prior periods
and future expected trends:
- Inventory impact related to the exit of certain Production
Print manufacturing operations
- Divestitures
- Gain on early extinguishment of debt
Adjusted Operating Income and Margin
We calculate and utilize adjusted operating income and margin
measures by adjusting our reported pre-tax (loss) income and margin
amounts. In addition to the costs and expenses noted as adjustments
for our adjusted earnings measures, adjusted operating income and
margin also exclude the remaining amounts included in Other
expenses, net, which are primarily non-financing interest expense
and certain other non-operating costs and expenses. We exclude
these amounts in order to evaluate our current and past operating
performance and to better understand the expected future trends in
our business.
Adjusted Gross Profit and Margin
We calculate non-GAAP gross Profit and Margin by excluding the
inventory impact related to the exit of certain Production Print
manufacturing operations, included in Cost of services, maintenance
and rentals.
Constant Currency (CC)
To better understand trends in our business, we believe that it
is helpful to adjust revenue to exclude the impact of changes in
the translation of foreign currencies into U.S. dollars. We refer
to this adjusted revenue as “constant currency.” This impact is
calculated by translating current period activity in local currency
using the comparable prior year period's currency translation rate.
This impact is calculated for all countries where the functional
currency is not the U.S. dollar. Management believes the constant
currency measure provides investors an additional perspective on
revenue trends. Currency impact can be determined as the difference
between actual growth rates and constant currency growth rates.
Free Cash Flow
To better understand trends in our business, we believe that it
is helpful to adjust operating cash flows by subtracting amounts
related to capital expenditures. Management believes this measure
gives investors an additional perspective on cash flow from
operating activities in excess of amounts required for
reinvestment. It provides a measure of our ability to fund
acquisitions, dividends and share repurchase.
Adjusted Net Income and EPS
reconciliation
Three Months Ended March 31,
2024
2023
(in millions, except per share
amounts)
Net (Loss) Income
Diluted EPS
Net Income
Diluted EPS
Reported(1)
$
(113
)
$
(0.94
)
$
71
$
0.43
Adjustments:
Inventory impact related to the exit of
certain Production Print manufacturing operations
36
—
Restructuring and related costs, net
39
2
Amortization of intangible assets
10
11
Divestitures
54
—
Non-service retirement-related costs
23
(1
)
Gain on early extinguishment of debt
(3
)
—
Income tax on adjustments(2)
(35
)
(1
)
Adjusted
$
11
$
0.06
$
82
$
0.49
Dividends on preferred stock used in
adjusted EPS calculation(3)
$
4
$
4
Weighted average shares for adjusted
EPS(3)
125
158
Fully diluted shares at end of
period(4)
126
_____________
(1)
Net (Loss) Income and EPS.
(2)
Refer to Adjusted Effective Tax
Rate reconciliation.
(3)
For those periods that include
the preferred stock dividend, the average shares for the
calculations of diluted EPS exclude the 7 million shares associated
with our Series A convertible preferred stock.
(4)
Common shares outstanding at
March 31, 2024, plus potential dilutive common shares used for the
calculation of adjusted diluted EPS for the first quarter 2024.
Excludes shares associated with our Series A convertible preferred
stock, which were anti-dilutive for the first quarter 2024 and
2023, respectively.
Adjusted Effective Tax Rate
reconciliation
Three Months Ended March 31,
2024
2023
(in millions)
Pre-Tax (Loss) Income
Income Tax (Benefit) Expense
Effective Tax Rate
Pre-Tax Income
Income Tax Expense
Effective Tax
Rate
Reported(1)
$
(150
)
$
(37
)
24.7
%
$
85
$
14
16.5
%
Non-GAAP adjustments(2)
159
35
12
1
Adjusted(3)
$
9
$
(2
)
(22.2
)%
$
97
$
15
15.5
%
_____________
(1)
Pre-tax (loss) income and income
tax (benefit) expense.
(2)
Refer to Adjusted Net Income and
EPS reconciliation for details.
(3)
The tax impact on Adjusted
Pre-Tax Income is calculated under the same accounting principles
applied to the Reported Pre-Tax (Loss) Income under ASC 740, which
employs an annual effective tax rate method to the results.
Adjusted Operating Income and Margin
reconciliation
Three Months Ended March 31,
2024
2023
(in millions)
(Loss)
Profit
Revenue
Margin
Profit
Revenue
Margin
Reported(1)
$
(113
)
$
1,502
$
71
$
1,715
Income tax (benefit) expense
(37
)
14
Pre-tax (loss) income
$
(150
)
$
1,502
(10.0
)%
$
85
$
1,715
5.0
%
Adjustments:
Inventory impact related to the exit of
certain Production Print manufacturing operations
36
—
Restructuring and related costs, net
39
2
Amortization of intangible assets
10
11
Divestitures
54
—
Other expenses, net (2)
44
20
Adjusted
$
33
$
1,502
2.2
%
$
118
$
1,715
6.9
%
_____________
(1) Net (Loss) Income.
(2) Includes non-service
retirement-related costs.
Adjusted Gross Profit and
Margin
Three Months Ended March 31,
(in millions)
2024
2023
Revenue(1)
$
1,502
$
1,715
Cost of revenue (1)
(1,059
)
(1,126
)
Gross Profit and Margin (%)
443
29.5
%
589
34.3
%
Adjustment:
Inventory impact related to the exit of
certain Production Print manufacturing operations
36
—
Adjusted Gross Profit and Margin
(%)
$
479
31.9
%
$
589
34.3
%
_____________
(1) Total Revenues and cost of revenue
Free Cash Flow reconciliation
Three Months Ended
March 31,
(in millions)
2024
2023
Reported(1)
$
(79
)
$
78
Less: capital expenditures
10
8
Free Cash Flow
$
(89
)
$
70
_____________
(1) Net cash (used in) provided by operating activities.
GUIDANCE
Adjusted Operating Income and
Margin
FY 2024
(in millions)
Profit
Revenue (CC)(2,3)
Margin
Estimated(1)
~ $335
~ $6,610
~ 5.1%
Adjustments:
Restructuring and related costs, net
40
Amortization of intangible assets
40
Other expenses, net
85
Adjusted (4)
~ $500
~ $6,610
At least 7.5%
_____________
(1)
Pre-tax income and Revenue.
(2)
Full-year revenue is estimated to
decline 3% to 5% in constant currency. Revenue of $6.6 billion
reflects the midpoint of the guidance range.
(3)
See "Constant Currency" in the
Non-GAAP Financial Measures section for a description of constant
currency.
(4)
Adjusted pre-tax income reflects
the mid-point of the adjusted operating margin guidance range.
Free Cash Flow
(in millions)
FY 2024
Operating Cash Flow (1)
At least $650
Less: capital expenditures
50
Free Cash Flow
At least $600
_____________
(1) Net cash provided by operating activities.
APPENDIX I
Xerox Holdings Corporation
(Loss) Earnings per Share
(in millions, except per-share data,
shares in thousands)
Three Months Ended
March 31,
2024
2023
Basic (Loss) Earnings per
Share:
Net (Loss) Income
$
(113
)
$
71
Accrued dividends on preferred stock
(4
)
(4
)
Adjusted net (loss) income available to
common shareholders
$
(117
)
$
67
Weighted average common shares
outstanding
123,924
156,661
Basic (Loss) Earnings per Share
$
(0.94
)
$
0.43
Diluted (Loss) Earnings per
Share:
Net (Loss) Income
$
(113
)
$
71
Accrued dividends on preferred stock
(4
)
(4
)
Adjusted net (loss) income available to
common shareholders
$
(117
)
$
67
Weighted average common shares
outstanding
123,924
156,661
Common shares issuable with respect
to:
Stock Options
—
—
Restricted stock and performance
shares
—
1,085
Convertible preferred stock
—
—
Adjusted weighted average common shares
outstanding
123,924
157,746
Diluted (Loss) Earnings per
Share
$
(0.94
)
$
0.43
The following securities were not included
in the computation of diluted (loss) earnings per share as they
were either contingently issuable shares or shares that if included
would have been anti-dilutive:
Stock options
216
561
Restricted stock and performance
shares
5,950
6,402
Convertible preferred stock
6,742
6,742
Convertible notes
19,196
—
Total Anti-Dilutive Securities
32,104
13,705
Dividends per Common Share
$
0.25
$
0.25
APPENDIX II
Xerox Holdings Corporation
Reportable Segments
Our reportable segments are aligned with how we manage the
business and view the markets we serve. We have two reportable
segments - Print and Other, and Xerox Financial Services
(XFS) (formerly FITTLE). Our two reportable segments are
determined based on the information reviewed by the Chief Operating
Decision Maker (CODM), our Chief Executive Officer (CEO), together
with the Company’s management to evaluate performance of the
business and allocate resources.
Our Print and Other segment includes the sale of document
systems, supplies and technical services and managed services. The
segment also includes the delivery of managed services that involve
a continuum of solutions and services that help our customers
optimize their print and communications infrastructure, apply
automation and simplification to maximize productivity, and ensure
the highest levels of security. This segment also includes Digital
and IT services and software. The product groupings range from:
- “Entry”, which include A4 devices and desktop printers
and multifunction devices that primarily serve small and medium
workgroups/work teams.
- “Mid-Range”, which include A3 devices that generally
serve large workgroup/work team environments as well as products in
the Light Production product groups serving centralized print
centers, print for pay and low volume production print
establishments.
- “High-End”, which include production printing and
publishing systems that generally serve the graphic communications
marketplace and print centers in large enterprises.
Customers range from small and mid-sized businesses to large
enterprises. Customers also include graphic communication
enterprises as well as channel partners including distributors and
resellers. Segment revenues also include commissions and other
payments from our XFS segment for the exclusive right to provide
lease financing for Xerox products. These revenues are reported as
part of Intersegment Revenues, which are eliminated in consolidated
revenues.
The XFS segment provides global leasing solutions and
currently offers financing for direct channel customer purchases of
Xerox equipment through bundled lease agreements and lease
financing to end-user customers who purchase Xerox solutions
through our indirect channels. Segment revenues primarily include
financing income on sales-type leases (including month-to-month
extensions) and leasing fees. Segment revenues also include
gains/losses from the sale of finance receivables including
commissions, fees on the sales of underlying equipment residuals,
and servicing fees.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240423654933/en/
Media: Justin Capella, Xerox, +1-203-258-6535,
Justin.Capella@xerox.com
Investor: David Beckel, Xerox, +1-203-849-2318,
David.Beckel@xerox.com
Grafico Azioni Xerox (NASDAQ:XRX)
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