Reinvention drives sequential operating and financial
improvements in Q2; Company revises full-year outlook, reiterates
three-year adjusted operating income improvement target
Financial Summary
Q2 2024
- Revenue of $1.58 billion, down 10 percent, or 9.6 percent in
constant currency.
- GAAP net income of $18 million, or $0.11 per share, up $79
million or $0.52 per share, year-over-year, respectively.
- Adjusted net income of $41 million, or $0.29 per share, down
$31 million or $0.15 per share, year-over-year, respectively.
- Adjusted operating margin of 5.4 percent, down 70 basis points
year-over-year.
- Operating cash flow of $123 million, up $28 million
year-over-year.
- Free cash flow of $115 million, up $27 million
year-over-year.
- Lowered 2024 revenue guidance to a range of -5% to -6% in
constant currency to reflect incremental strategic actions,
adjusted operating income guidance to at least 6.5%, and free cash
flow guidance to at least $550 million.
- Maintained $300 million adjusted operating income improvement
target over 2023 levels by the end of 2026.
Xerox Holdings Corporation (NASDAQ: XRX) today announced its
2024 second-quarter results.
“The comprehensive and strategic operating model changes
implemented in Q1 caused a short period of disruption but are
delivering the intended improvements in financial results. Adjusted
operating income margin, free cash flow and revenue trajectory
improved sequentially in Q2. Momentum in orders, enhanced sales
operations and new product initiatives are expected to drive a
return to revenue growth in the second half of the year,” said
Steve Bandrowczak, chief executive officer at Xerox. “Q2 results
give us confidence Xerox’s new operating model, which is more
streamlined and closely aligned to the economic buyers of our
products and services, is enabling the operating improvements
required to deliver an incremental $300 million of adjusted
operating income over 2023 levels and a return to double-digit
adjusted operating income margin by 2026.”
Second-Quarter Key Financial Results
(in millions,
except per share data)
Q2 2024
Q2 2023
B/(W) YOY
% Change B/(W)
YOY
Revenue
$1,578
$1,754
$(176)
(10.0)% AC (9.6)% CC1
Gross Profit
$520
$597
$(77)
(12.9)%
Gross Margin
33.0%
34.0%
(100) bps
RD&E %
3.2%
3.2%
—
SAG %
24.9%
24.7%
(20) bps
Pre-Tax Income (Loss)2
$25
$(89)
$114
NM
Pre-Tax Income (Loss) Margin2
1.6%
(5.1)%
670 bps
Gross Profit - Adjusted1
$528
$597
$(69)
(11.6)%
Gross Margin - Adjusted1
33.5%
34.0%
(50) bps
Operating Income - Adjusted1
$85
$107
$(22)
(20.6)%
Operating Income Margin - Adjusted1
5.4%
6.1%
(70) bps
GAAP Diluted Earnings (Loss) per
Share2
$0.11
$(0.41)
$0.52
NM
Diluted Earnings Per Share - Adjusted1
$0.29
$0.44
$(0.15)
(34.1)%
Second-Quarter Segment Results
(in
millions)
Q2 2024
Q2 2023
B/(W) YOY
% Change B/(W)
YOY
Revenue
Print and Other
$1,508
$1,674
$(166)
(9.9)%
XFS
89
101
(12)
(11.9)%
Intersegment Elimination3
(19)
(21)
2
(9.5)%
Total Revenue
$1,578
$1,754
$(176)
(10.0)%
Profit
Print and Other
$81
$107
$(26)
(24.3)%
XFS
4
—
4
NM
Total Profit
$85
$107
$(22)
(20.6)%
_____________
(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)
Second quarter 2023 Pre-Tax (Loss) and
Margin, and (Loss) per Share, includes the net after-tax PARC
donation charge of $92 million ($132 million pre-tax), or $0.58 per
diluted share.
(3)
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 Update
- Revenue: from a decline of 3% to 5% to a decline of 5% to 6% in
constant currency 1
- Adjusted 1 Operating Margin: from at least 7.5% to at least
6.5%
- Free cash flow1: from at least $600 million to at least $550
million
2024 revenue guidance was lowered to reflect additional
reductions in non-strategic revenue, including those associated
with incremental Reinvention actions. Adjusted 1 operating income
margin guidance was lowered primarily to reflect the reduction in
revenue guidance, as well as higher-than-expected freight and
product costs. Free cash flow 1 guidance was lowered to reflect
lower revenue and adjusted 1 operating income margin guidance.
Guidance assumes growing Print demand and growth in Digital and
IT Services in the second half of the year. The expected
year-over-year decline in full-year revenue is attributable to the
following: around 200 basis points of headwind from prior-year
backlog reduction and 350 basis points from a reduction in certain
non-strategic revenue, including lower sales of paper, financing
income and Reinvention actions. Adjusted1 Operating Margin guidance
implies full-year improvement of at least 90 basis points,
primarily reflecting structural reductions in operating expense
associated with our Reinvention.
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 the end
of 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 income (loss) and margin.
- Constant currency (CC) 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 three-year target for
Adjusted1 Operating Income and Margin to the closest GAAP financial
measures, Net Income (loss) and Pre-tax Margin, is not provided.
GAAP measures for those periods are not available without
unreasonable effort, in part because certain incremental costs
related to the Reinvention, as well as Restructuring and related
costs, net, Amortization of intangible assets, amounts included in
Other expenses, net, which are primarily non-financing interest
expense and certain other non-operating costs and expenses, and
other discrete, unusual or infrequent items, are 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
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http://www.facebook.com/XeroxCorp,
https://www.instagram.com/xerox/,
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
INCOME (LOSS) (UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in millions, except per-share data)
2024
2023
2024
2023
Revenues
Sales
$
611
$
696
$
1,134
$
1,355
Services, maintenance and rentals
929
1,009
1,866
2,013
Financing
38
49
80
101
Total Revenues
1,578
1,754
3,080
3,469
Costs and Expenses
Cost of sales
387
452
727
877
Cost of services, maintenance and
rentals
642
671
1,334
1,336
Cost of financing
29
34
56
70
Research, development and engineering
expenses
50
57
99
121
Selling, administrative and general
expenses
393
433
790
840
Restructuring and related costs, net
12
23
51
25
Amortization of intangible assets
10
10
20
21
Divestitures
(3
)
—
51
—
PARC Donation
—
132
—
132
Other expenses, net
33
31
77
51
Total Costs and Expenses
1,553
1,843
3,205
3,473
Income (Loss) before Income
Taxes(1)
25
(89
)
(125
)
(4
)
Income tax expense (benefit)
7
(28
)
(30
)
(14
)
Net Income (Loss)
18
(61
)
(95
)
10
Less: Preferred stock dividends, net
(3
)
(3
)
(7
)
(7
)
Net Income (Loss) attributable to
Common Shareholders
$
15
$
(64
)
$
(102
)
$
3
Basic Earnings (Loss) per Share
$
0.12
$
(0.41
)
$
(0.83
)
$
0.02
Diluted Earnings (Loss) per
Share
$
0.11
$
(0.41
)
$
(0.83
)
$
0.02
___________________________
(1) Referred to as “Pre-tax income (loss)”
throughout the remainder of this document.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2024
2023
2024
2023
Net Income (Loss)
$
18
$
(61
)
$
(95
)
$
10
Other Comprehensive (Loss) Income,
Net
Translation adjustments, net
(20
)
49
(52
)
142
Unrealized losses, net
—
(5
)
(1
)
(1
)
Changes in defined benefit plans, net
6
(27
)
42
(41
)
Other Comprehensive (Loss) Income,
Net
(14
)
17
(11
)
100
Comprehensive Income (Loss),
Net
$
4
$
(44
)
$
(106
)
$
110
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except share data in
thousands)
June 30, 2024
December 31, 2023
Assets
Cash and cash equivalents
$
485
$
519
Accounts receivable (net of allowance of
$66 and $64, respectively)
847
850
Billed portion of finance receivables (net
of allowance of $4 and $4, respectively)
70
71
Finance receivables, net
713
842
Inventories
737
661
Other current assets
199
234
Total current assets
3,051
3,177
Finance receivables due after one year
(net of allowance of $75 and $88, respectively)
1,277
1,597
Equipment on operating leases, net
253
265
Land, buildings and equipment, net
227
266
Intangible assets, net
155
177
Goodwill, net
2,719
2,747
Deferred tax assets
760
745
Other long-term assets
1,049
1,034
Total Assets
$
9,491
$
10,008
Liabilities and Equity
Short-term debt and current portion of
long-term debt
$
129
$
567
Accounts payable
936
1,044
Accrued compensation and benefits
costs
205
306
Accrued expenses and other current
liabilities
776
862
Total current liabilities
2,046
2,779
Long-term debt
3,174
2,710
Pension and other benefit liabilities
1,180
1,216
Post-retirement medical benefits
164
171
Other long-term liabilities
338
360
Total Liabilities
6,902
7,236
Noncontrolling Interests
10
10
Convertible Preferred Stock
214
214
Common stock
124
123
Additional paid-in capital
1,114
1,114
Retained earnings
4,810
4,977
Accumulated other comprehensive loss
(3,687
)
(3,676
)
Xerox Holdings shareholders’ equity
2,361
2,538
Noncontrolling interests
4
10
Total Equity
2,365
2,548
Total Liabilities and Equity
$
9,491
$
10,008
Shares of Common Stock Issued and
Outstanding
124,319
123,144
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2024
2023
2024
2023
Cash Flows from Operating
Activities
Net Income (Loss)
$
18
$
(61
)
$
(95
)
$
10
Adjustments required to reconcile Net
income (loss) to net cash provided by operating activities
Depreciation and amortization
59
62
118
126
Provisions
22
21
79
21
Net gain on sales of businesses and
assets
(1
)
(2
)
(1
)
(2
)
Divestitures
(3
)
—
51
—
PARC Donation
—
132
—
132
Stock-based compensation
17
14
29
28
Restructuring and asset impairment
charges
3
13
34
14
Payments for restructurings
(31
)
(8
)
(47
)
(14
)
Non-service retirement-related costs
26
11
49
10
Contributions to retirement plans
(27
)
(15
)
(58
)
(32
)
Increase in accounts receivable and billed
portion of finance receivables
(13
)
(75
)
(32
)
(36
)
(Increase) decrease in inventories
(15
)
76
(148
)
12
Increase in equipment on operating
leases
(28
)
(37
)
(50
)
(77
)
Decrease in finance receivables
189
247
399
407
Decrease in other current and long-term
assets
16
12
14
15
Decrease in accounts payable
(105
)
(249
)
(88
)
(290
)
(Decrease) increase in accrued
compensation
(7
)
9
(93
)
(7
)
Increase (decrease) in other current and
long-term liabilities
25
(11
)
(52
)
(139
)
Net change in income tax assets and
liabilities
(20
)
(35
)
(64
)
(17
)
Net change in derivative assets and
liabilities
—
9
6
22
Other operating, net
(2
)
(18
)
(7
)
(10
)
Net cash provided by operating
activities
123
95
44
173
Cash Flows from Investing
Activities
Cost of additions to land, buildings,
equipment and software
(8
)
(7
)
(18
)
(15
)
Proceeds from sales of businesses and
assets
15
2
19
3
Acquisitions, net of cash acquired
—
—
—
(7
)
Other investing, net
(9
)
—
(20
)
(3
)
Net cash used in investing activities
(2
)
(5
)
(19
)
(22
)
Cash Flows from Financing
Activities
Net (payments) proceeds on debt
(300
)
(174
)
35
(626
)
Purchases of capped calls
—
—
(23
)
—
Dividends
(34
)
(43
)
(71
)
(88
)
Payments to acquire treasury stock,
including fees
—
—
(3
)
—
Other financing, net
(2
)
(3
)
(13
)
(11
)
Net cash used in financing activities
(336
)
(220
)
(75
)
(725
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(6
)
2
(16
)
4
Decrease in cash, cash equivalents and
restricted cash
(221
)
(128
)
(66
)
(570
)
Cash, cash equivalents and restricted cash
at beginning of period
772
697
617
1,139
Cash, Cash Equivalents and Restricted
Cash at End of Period
$
551
$
569
$
551
$
569
Second Quarter 2024 Overview
In the second quarter of 2024, Xerox progressed in the design,
planning and implementation of structural changes that will drive
the Company's multi-year Reinvention strategy. The intended
benefits of the new operating model implemented in the first
quarter 2024 are materializing in financial results. In second
quarter 2024, adjusted1 operating income margin, cash flow and
revenue trajectory all improved sequentially. These improvements,
and ongoing enhancements to management processes, further our
confidence that we have the right strategy in place to deliver our
targeted $300 million of improvement in adjusted1 operating income
by the end of 2026.
Equipment sales of $356 million in the second quarter 2024
declined 15.2% in actual currency, or 14.9% in constant currency1,
as compared to the second quarter 2023. The prior year effect of
backlog2 reduction and geographic simplification drove an
approximate 14-percentage point year-over-year decline. Total
equipment revenue declines outpaced equipment installation
activity, due to unfavorable product mix. Revenue declined across
all product groups, primarily due to the effects of backlog2
fluctuations in the current and prior year. Post-sale revenue of
$1.2 billion declined 8.4% in actual currency, or 7.9% in constant
currency1, as compared to second quarter 2023. The decline was
primarily due to lower outsourcing and service revenue, reductions
in non-strategic, lower margin IT endpoint device placements and
paper sales, as well as the effects of geographic simplification.
Excluding non-strategic effects, post sale revenue decreased
mid-single digits.
Pre-tax income of $25 million for the second quarter 2024
increased by $114 million as compared to a pre-tax (loss) of $(89)
million in the second quarter 2023, and was primarily driven by the
net pre-tax charge of $132 million related to the donation of our
Palo Alto Research Center (PARC), in the prior year period. The
increase also reflects lower Selling, administrative and general
expenses, due to actions taken to improve our cost structure, and
lower Restructuring and related costs, net. These benefits were
partially offset by lower revenues and associated gross profit.
Adjusted1 operating income decreased $22 million as compared to
second quarter 2023, due to lower equipment and post sale revenue,
and associated gross profits. These impacts were partially offset
by benefits from cost reduction actions associated with structural
simplification efforts and lower bad debt expense.
Due primarily to incremental reductions in revenue associated
with geographic simplification and the decision to exit the
manufacturing of certain Production equipment, we are lowering our
full-year revenue guidance from a decline of 3% to 5% in constant
currency1 to a decline of 5% to 6% in constant currency1. Core
business revenue in 2024 is expected to be roughly flat
year-over-year in constant currency1, consistent with our prior
outlook, reflecting growing demand for our products and services in
the second half of the year.
As a result of lower expected revenues, and to a lesser extent
rising freight and product costs, we are lowering adjusted1
operating income margin guidance from at least 7.5% to at least
6.5%.
Free cash flow1 is now expected to be at least $550 million in
2024 versus prior guidance of at least $600 million. The reduction
in free cash flow1 is in-line with the after-tax reduction in
adjusted1 operating income expectations.
__________
(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 June 30,
% of Total Revenue
(in millions)
2024
2023
% Change
CC % Change
2024
2023
Equipment sales
$
356
$
420
(15.2)%
(14.9)%
23%
24%
Post sale revenue
1,222
1,334
(8.4)%
(7.9)%
77%
76%
Total Revenue
$
1,578
$
1,754
(10.0)%
(9.6)%
100%
100%
Reconciliation to Condensed
Consolidated Statements of Income (Loss):
Sales
$
611
$
696
(12.2)%
(12.0)%
Less: Supplies, paper and other sales
(255
)
(276
)
(7.6)%
(7.7)%
Equipment Sales
$
356
$
420
(15.2)%
(14.9)%
Services, maintenance and rentals
$
929
$
1,009
(7.9)%
(7.3)%
Add: Supplies, paper and other sales
255
276
(7.6)%
(7.7)%
Add: Financing
38
49
(22.4)%
(21.2)%
Post Sale Revenue
$
1,222
$
1,334
(8.4)%
(7.9)%
Segments
Print and Other
$
1,508
$
1,674
(9.9)%
95%
95%
XFS
89
101
(11.9)%
6%
6%
Intersegment elimination (1)
(19
)
(21
)
(9.5)%
(1)%
(1)%
Total Revenue(2)
$
1,578
$
1,754
(10.0)%
100%
100%
______________
CC -
See "Constant Currency" in the Non-GAAP
Financial Measures section for a description of constant
currency.
(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)
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 June 30,
(in millions)
2024
2023
B/(W)
Gross Profit
$
520
$
597
$
(77
)
RD&E
50
57
7
SAG
393
433
40
Equipment Gross Margin
34.5
%
35.2
%
(0.7
)
pts.
Post sale Gross Margin
32.5
%
33.6
%
(1.1
)
pts.
Total Gross Margin
33.0
%
34.0
%
(1.0
)
pts.
RD&E as a % of Revenue
3.2
%
3.2
%
—
pts.
SAG as a % of Revenue
24.9
%
24.7
%
(0.2
)
pts.
Pre-tax Income (Loss)
$
25
$
(89
)
$
114
Pre-tax Income (Loss) Margin
1.6
%
(5.1
)%
6.7
pts.
Adjusted(1) Operating Income
$
85
$
107
$
(22
)
Adjusted(1) Operating Income Margin
5.4
%
6.1
%
(0.7
)
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 June 30,
(in millions)
2024
2023
Non-financing interest expense
$
31
$
12
Interest income
(4
)
(4
)
Non-service retirement-related costs
26
11
Currency losses, net
2
5
Transaction and related costs, net
(23
)
—
Loss on early extinguishment of debt
—
3
All other expenses, net
1
4
Other expenses, net
$
33
$
31
Segment Review
Three Months Ended June 30,
(in millions)
External Revenue
Intersegment Revenue(1)
Total Segment Revenue
% of Total Revenue
Segment Profit
Segment Margin(2)
2024
Print and Other
$
1,489
$
19
$
1,508
94
%
$
81
5.4
%
XFS
89
—
89
6
%
4
4.5
%
Total
$
1,578
$
19
$
1,597
100
%
$
85
5.4
%
2023
Print and Other
$
1,653
$
21
$
1,674
94
%
$
107
6.5
%
XFS
101
—
101
6
%
—
—
%
Total
$
1,754
$
21
$
1,775
100
%
$
107
6.1
%
_____________
(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.
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
June 30,
(in millions)
2024
2023
% Change
Equipment sales
$
351
$
414
(15.2)%
Post sale revenue
1,138
1,239
(8.2)%
Intersegment revenue (1)
19
21
(9.5)%
Total Print and Other Revenue
$
1,508
$
1,674
(9.9)%
_____________
(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.
Detail by product group is shown below.
Three Months Ended June 30,
% of Equipment Sales
(in millions)
2024
2023
% Change
CC % Change
2024
2023
Entry
$
56
$
63
(11.1)%
(11.4)%
16%
15%
Mid-range
235
270
(13.0)%
(12.7)%
66%
64%
High-end
60
82
(26.8)%
(26.6)%
17%
20%
Other
5
5
—%
—%
1%
1%
Equipment Sales (1),(2)
$
356
$
420
(15.2)%
(14.9)%
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 second quarter
2024 and 2023, respectively.
Xerox Financial Services
Xerox Financial Services (XFS), represents a global financing
solutions business, primarily enabling the sale of our equipment
and services.
Revenue
Three Months Ended
June 30,
(in millions)
2024
2023
% Change
Equipment sales
$
5
$
6
(16.7)%
Financing
38
49
(22.4)%
Other Post sale revenue (1)
46
46
—%
Total XFS Revenue
$
89
$
101
(11.9)%
_____________
(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 second
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.
Transaction and related costs, net:
Transaction and related costs, net are costs and expenses primarily
associated with certain major or significant strategic M&A
projects. These costs are primarily for third-party legal,
accounting, consulting and other similar type professional services
as well as potential legal settlements that may arise in connection
with those M&A transactions. These costs are considered
incremental to our normal operating charges and were incurred or
are expected to be incurred solely as a result of the planned
transactions. Accordingly, we are excluding these expenses from our
Adjusted Earnings Measures in order to evaluate our performance on
a comparable basis.
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-related impact - exit of certain production print
manufacturing operations
- PARC donation
- Divestitures
- Loss 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 above 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 June 30,
2024
2023
(in millions, except per share
amounts)
Net Income
Diluted EPS
Net (Loss) Income
Diluted EPS
Reported(1)
$
18
$
0.11
$
(61
)
$
(0.41
)
Adjustments:
Inventory-related impact - exit of certain
production print manufacturing operations
8
—
Restructuring and related costs, net
12
23
Amortization of intangible assets
10
10
Divestitures
(3
)
—
PARC Donation
—
132
Non-service retirement-related costs
26
11
Transaction and related costs, net
(23
)
—
Loss on early extinguishment of debt
—
3
Income tax on PARC donation(2)
—
(40
)
Income tax on adjustments (excluding PARC
donation)(2)
(7
)
(6
)
Adjusted
$
41
$
0.29
$
72
$
0.44
Dividends on preferred stock used in
adjusted EPS calculation(3)
$
3
$
3
Weighted average shares for adjusted
EPS(3)
126
158
Fully diluted shares at end of
period(4)
126
_____________
(1)
Net Income (Loss) 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 June 30,
2024, plus potential dilutive common shares used for the
calculation of adjusted diluted EPS for the second quarter 2024.
Excludes shares associated with our Series A convertible preferred
stock, which were anti-dilutive for the second quarter 2024 and
2023, respectively.
Adjusted Effective Tax Rate
reconciliation
Three Months Ended June 30,
2024
2023
(in millions)
Pre-Tax Income
Income Tax Expense
Effective Tax Rate
Pre-Tax (Loss) Income
Income Tax (Benefit) Expense
Effective Tax Rate
Reported(1)
$
25
$
7
28.0
%
$
(89
)
$
(28
)
31.5
%
PARC donation(2)
—
—
132
40
Non-GAAP adjustments(2)
30
7
47
6
Adjusted(3)
$
55
$
14
25.5
%
$
90
$
18
20.0
%
_____________
(1)
Pre-tax income (loss) and income tax
expense (benefit).
(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 Income (Loss) under ASC 740, which employs an
annual effective tax rate method to the results.
Adjusted Operating Income and Margin
reconciliation
Three Months Ended June 30,
2024
2023
(in millions)
Profit
Revenue
Margin
Profit
Revenue
Margin
Reported(1)
$
18
$
1,578
$
(61
)
$
1,754
Income tax expense (benefit)
7
(28
)
Pre-tax income (loss)
$
25
$
1,578
1.6
%
$
(89
)
$
1,754
(5.1
)%
Adjustments:
Inventory-related impact - exit of certain
production print manufacturing operations
8
—
Restructuring and related costs, net
12
23
Amortization of intangible assets
10
10
Divestitures
(3
)
—
PARC Donation
—
132
Other expenses, net (2)
33
31
Adjusted
$
85
$
1,578
5.4
%
$
107
$
1,754
6.1
%
_____________
(1)
Net Income (Loss).
(2)
Includes non-service retirement-related
costs.
Adjusted Gross Profit and
Margin
Three Months Ended June 30,
2024
2023
(in millions)
Profit
Margin
Profit
Margin
Revenue(1)
$
1,578
$
1,754
Cost of revenue (1)
(1,058
)
(1,157
)
Gross Profit and Margin
520
33.0
%
597
34.0
%
Adjustment:
Inventory-related impact - exit of certain
production print manufacturing operations
8
—
Adjusted
$
528
33.5
%
$
597
34.0
%
_____________
(1)
Total Revenues and cost of revenue
Free Cash Flow reconciliation
Three Months Ended June 30,
(in millions)
2024
2023
Reported(1)
$
123
$
95
Less: capital expenditures
8
7
Free Cash Flow
$
115
$
88
_____________
(1)
Net cash provided by operating
activities.
GUIDANCE
Adjusted Operating Income and
Margin
FY 2024
(in millions)
Profit
Revenue (CC)(2,3)
Margin
Estimated(1)
~ $(10)
~ $6,500
~ (0.2)%
Adjustments:
Restructuring and related costs, net
80
Amortization of intangible assets
40
Other expenses, net
315
Adjusted (4)
~ $425
~ $6,500
At least 6.5%
_____________
(1)
Pre-tax income and Revenue.
(2)
Full-year revenue is estimated to decline
5% to 6% in constant currency. Revenue of $6.5 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
adjusted operating margin guidance of at least 6.5%.
Free Cash Flow
(in millions)
FY 2024
Operating Cash Flow (1)
At least $600
Less: capital expenditures
50
Free Cash Flow
At least $550
_____________
(1)
Net cash provided by operating
activities.
APPENDIX I
Xerox Holdings Corporation
Earnings (Loss) per Share
(in millions, except per-share data,
shares in thousands)
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
Basic Earnings (Loss) per
Share:
Net Income (Loss)
$
18
$
(61
)
$
(95
)
$
10
Accrued dividends on preferred stock
(3
)
(3
)
(7
)
(7
)
Adjusted net income (loss) available to
common shareholders
$
15
$
(64
)
$
(102
)
$
3
Weighted average common shares
outstanding
124,230
157,009
124,062
156,817
Basic Earnings (Loss) per Share
$
0.12
$
(0.41
)
$
(0.83
)
$
0.02
Diluted Earnings (Loss) per
Share:
Net Income (Loss)
$
18
$
(61
)
$
(95
)
$
10
Accrued dividends on preferred stock
(3
)
(3
)
(7
)
(7
)
Adjusted net income (loss) available to
common shareholders
$
15
$
(64
)
$
(102
)
$
3
Weighted average common shares
outstanding
124,230
157,009
124,062
156,817
Common shares issuable with respect
to:
Stock Options
—
—
—
—
Restricted stock and performance
shares
1,325
—
—
1,078
Convertible preferred stock
—
—
—
—
Adjusted weighted average common shares
outstanding
125,555
157,009
124,062
157,895
Diluted Earnings (Loss) per
Share
$
0.11
$
(0.41
)
$
(0.83
)
$
0.02
The following securities were not included
in the computation of diluted earnings (loss) per share as they
were either contingently issuable shares or shares that if included
would have been anti-dilutive:
Stock options
174
287
174
287
Restricted stock and performance
shares
6,703
7,174
8,028
6,096
Convertible preferred stock
6,742
6,742
6,742
6,742
Convertible notes
19,196
—
19,196
—
Total Anti-Dilutive Securities
32,815
14,203
34,140
13,125
Dividends per Common Share
$
0.25
$
0.25
$
0.50
$
0.50
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/20240725559026/en/
Media Contact: Justin Capella, Xerox, +1-203-258-6535,
Justin.Capella@xerox.com
Investor Contact: David Beckel, Xerox, +1-203-849-2318,
David.Beckel@xerox.com
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