Financial Summary
Q3 2023
- Revenue of $1.65 billion, down 5.7 percent, or 7.4 percent in constant currency.
- GAAP net income of $49 million, or $0.28 per share, up $432 million or $2.76 per share, year-over-year, respectively.
- Adjusted net income of $77 million, or $0.46 per share, up $44 million or $0.27 per share, year-over-year, respectively.
- Adjusted operating margin of 4.1 percent, up 40 basis points year-over-year.
- Operating cash flow of $124 million, up $132 million year-over-year.
- Free cash flow of $112 million, up $130 million year-over-year.
- Announces Reinvention, expected to deliver improvement in adjusted operating income of at least $300 million by 2026.
NORWALK, Conn.–(BUSINESS WIRE)–Xerox Holdings Corporation (NASDAQ: XRX) today announced its 2023 third-quarter results.
“Growth in adjusted profit, EPS and free cash flow reflects solid execution of our strategic priorities amid a challenging macro backdrop,” said Steve Bandrowczak, chief executive officer at Xerox. “As we continue simplifying and focusing our operations, Reinvention will reposition our business to enable sustainable profit improvement and revenue growth through the expansion of services that best serve our clients’ needs.”
Third-Quarter Key Financial Results
|
(in millions, except per share data) |
Q3 2023 |
Q3 2022 |
B/(W) YOY |
% Change B/(W) YOY |
|
Revenue |
$1,652 |
$1,751 |
$(99) |
(5.7)% AC |
|
Gross Margin |
32.4% |
31.8% |
60 bps |
|
|
RD&E % |
3.1% |
4.2% |
110 bps |
|
|
SAG % |
25.2% |
23.9% |
(130) bps |
|
|
Pre-Tax Income (Loss)(2) |
$63 |
$(380) |
$443 |
NM |
|
Pre-Tax Income (Loss) Margin(2) |
3.8% |
(21.7)% |
NM |
|
|
Operating Income – Adjusted (1) |
$68 |
$65 |
$3 |
4.6% |
|
Operating Income Margin – Adjusted (1) |
4.1% |
3.7% |
40 bps |
|
|
GAAP Diluted Earnings (Loss) per Share(2) |
$0.28 |
$(2.48) |
$2.76 |
NM |
|
Diluted Earnings Per Share – Adjusted (1) |
$0.46 |
$0.19 |
$0.27 |
142% |
_____________
(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) Third quarter 2022 pre-tax loss and EPS include a $412 million non-cash goodwill impairment charge ($395 million after-tax), or $2.54 per share.
Third-Quarter Segment Results
|
(in millions) |
Q3 2023 |
|
Q3 2022 |
|
B/(W) YOY |
|
% Change B/(W) YOY |
|
Revenue |
|
|
|
|
|
|
|
|
Print and Other |
$1,575 |
|
$1,676 |
|
$(101) |
|
(6.0)% |
|
Financing (FITTLE) |
98 |
|
98 |
|
— |
|
—% |
|
Intersegment Elimination (1) |
(21) |
|
(23) |
|
2 |
|
(8.7)% |
|
Total Revenue |
$1,652 |
|
$1,751 |
|
$(99) |
|
(5.7)% |
|
Profit |
|
|
|
|
|
|
|
|
Print and Other |
$64 |
|
$63 |
|
$1 |
|
1.6% |
|
Financing (FITTLE) |
4 |
|
2 |
|
2 |
|
100.0% |
|
Total Profit |
$68 |
|
$65 |
|
$3 |
|
4.6% |
_____________
(1) Reflects revenue, primarily commissions and other payments, made by the FITTLE segment to the Print and Other segment for the lease of Xerox equipment placements.
2023 Guidance
- Revenue: flat to down low-single-digits in constant currency
- Adjusted Operating Margin: 5.5% to 6.0%
- Free cash flow: at least $600 million
Non-GAAP Measures
This release refers to the following non-GAAP financial measures:
- Adjusted 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.
- Adjusted 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 flow, which is operating cash flow less capital expenditures.
A reconciliation of the estimated adjusted 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.
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, 2022. 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, http://twitter.com/xerox, 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 September 30, |
|
Nine Months Ended September 30, |
|||||||||||
|
(in millions, except per-share data) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|||||||
|
Revenues |
|
|
|
|
|
|
|
|
|||||||
|
Sales |
|
$ |
644 |
|
|
$ |
690 |
|
|
$ |
1,999 |
|
$ |
1,949 |
|
|
Services, maintenance and rentals |
|
|
962 |
|
|
|
1,010 |
|
|
|
2,975 |
|
|
3,061 |
|
|
Financing |
|
|
46 |
|
|
|
51 |
|
|
|
147 |
|
|
156 |
|
|
Total Revenues |
|
|
1,652 |
|
|
|
1,751 |
|
|
|
5,121 |
|
|
5,166 |
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|||||||
|
Cost of sales |
|
|
435 |
|
|
|
508 |
|
|
|
1,312 |
|
|
1,430 |
|
|
Cost of services, maintenance and rentals |
|
|
651 |
|
|
|
659 |
|
|
|
1,987 |
|
|
2,015 |
|
|
Cost of financing |
|
|
30 |
|
|
|
28 |
|
|
|
100 |
|
|
78 |
|
|
Research, development and engineering expenses |
|
|
52 |
|
|
|
73 |
|
|
|
173 |
|
|
235 |
|
|
Selling, administrative and general expenses |
|
|
416 |
|
|
|
418 |
|
|
|
1,256 |
|
|
1,332 |
|
|
Goodwill impairment |
|
|
— |
|
|
|
412 |
|
|
|
— |
|
|
412 |
|
|
Restructuring and related costs, net |
|
|
10 |
|
|
|
22 |
|
|
|
35 |
|
|
41 |
|
|
Amortization of intangible assets |
|
|
12 |
|
|
|
10 |
|
|
|
33 |
|
|
31 |
|
|
PARC donation |
|
|
— |
|
|
|
— |
|
|
|
132 |
|
|
— |
|
|
Other expenses, net |
|
|
(17 |
) |
|
|
1 |
|
|
|
34 |
|
|
66 |
|
|
Total Costs and Expenses |
|
|
1,589 |
|
|
|
2,131 |
|
|
|
5,062 |
|
|
5,640 |
|
|
Income (Loss) before Income Taxes & Equity Income(1) |
|
|
63 |
|
|
|
(380 |
) |
|
|
59 |
|
|
(474 |
) |
|
Income tax expense (benefit) |
|
|
15 |
|
|
|
3 |
|
|
|
1 |
|
|
(27 |
) |
|
Equity in net income of unconsolidated affiliates |
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
3 |
|
|
Net Income (Loss) |
|
|
49 |
|
|
|
(382 |
) |
|
|
60 |
|
|
(444 |
) |
|
Less: Net income (loss) attributable to noncontrolling interests |
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
|
(1 |
) |
|
Net Income (Loss) Attributable to Xerox Holdings |
|
$ |
49 |
|
|
$ |
(383 |
) |
|
$ |
59 |
|
$ |
(443 |
) |
|
|
|
|
|
|
|
|
|
|
|||||||
|
Basic Earnings (Loss) per Share |
|
$ |
0.29 |
|
|
$ |
(2.48 |
) |
|
$ |
0.31 |
|
$ |
(2.91 |
) |
|
Diluted Earnings (Loss) per Share |
|
$ |
0.28 |
|
|
$ |
(2.48 |
) |
|
$ |
0.30 |
|
$ |
(2.91 |
) |
___________________________
(1) Referred to as “Pre-tax income (loss)” throughout the remainder of this document.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|||||||||||
|
(in millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|||||||
|
Net Income (Loss) |
|
$ |
49 |
|
|
$ |
(382 |
) |
|
$ |
60 |
|
$ |
(444 |
) |
|
Less: Net income (loss) attributable to noncontrolling interests |
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
|
(1 |
) |
|
Net Income (Loss) Attributable to Xerox Holdings |
|
|
49 |
|
|
|
(383 |
) |
|
|
59 |
|
|
(443 |
) |
|
|
|
|
|
|
|
|
|
|
|||||||
|
Other Comprehensive (Loss) Income, Net |
|
|
|
|
|
|
|
|
|||||||
|
Translation adjustments, net |
|
|
(122 |
) |
|
|
(277 |
) |
|
|
19 |
|
|
(636 |
) |
|
Unrealized gains (losses), net |
|
|
1 |
|
|
|
6 |
|
|
|
— |
|
|
(19 |
) |
|
Changes in defined benefit plans, net |
|
|
55 |
|
|
|
54 |
|
|
|
14 |
|
|
96 |
|
|
Other Comprehensive (Loss) Income, Net |
|
|
(66 |
) |
|
|
(217 |
) |
|
|
33 |
|
|
(559 |
) |
|
Less: Other comprehensive income, net attributable to noncontrolling interests |
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
Other Comprehensive (Loss) Income, Net Attributable to Xerox Holdings |
|
|
(67 |
) |
|
|
(217 |
) |
|
|
33 |
|
|
(559 |
) |
|
|
|
|
|
|
|
|
|
|
|||||||
|
Comprehensive (Loss) Income, Net |
|
|
(17 |
) |
|
|
(599 |
) |
|
|
93 |
|
|
(1,003 |
) |
|
Less: Comprehensive income (loss), net attributable to noncontrolling interests |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
(1 |
) |
|
Comprehensive (Loss) Income, Net Attributable to Xerox Holdings |
|
$ |
(18 |
) |
|
$ |
(600 |
) |
|
$ |
92 |
|
$ |
(1,002 |
) |
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
(in millions, except share data in thousands) |
|
September 30, 2023 |
|
December 31, 2022 |
||||
|
Assets |
|
|
|
|
||||
|
Cash and cash equivalents |
|
$ |
532 |
|
|
$ |
1,045 |
|
|
Accounts receivable (net of allowance of $61 and $52, respectively) |
|
|
880 |
|
|
|
857 |
|
|
Billed portion of finance receivables (net of allowance of $4 and $4, respectively) |
|
|
80 |
|
|
|
93 |
|
|
Finance receivables, net |
|
|
906 |
|
|
|
1,061 |
|
|
Inventories |
|
|
728 |
|
|
|
797 |
|
|
Other current assets |
|
|
228 |
|
|
|
254 |
|
|
Total current assets |
|
|
3,354 |
|
|
|
4,107 |
|
|
Finance receivables due after one year (net of allowance of $95 and $113, respectively) |
|
|
1,605 |
|
|
|
1,948 |
|
|
Equipment on operating leases, net |
|
|
257 |
|
|
|
235 |
|
|
Land, buildings and equipment, net |
|
|
273 |
|
|
|
320 |
|
|
Intangible assets, net |
|
|
183 |
|
|
|
208 |
|
|
Goodwill, net |
|
|
2,716 |
|
|
|
2,820 |
|
|
Deferred tax assets |
|
|
701 |
|
|
|
582 |
|
|
Other long-term assets |
|
|
1,355 |
|
|
|
1,323 |
|
|
Total Assets |
|
$ |
10,444 |
|
|
$ |
11,543 |
|
|
Liabilities and Equity |
|
|
|
|
||||
|
Short-term debt and current portion of long-term debt |
|
$ |
870 |
|
|
$ |
860 |
|
|
Accounts payable |
|
|
1,031 |
|
|
|
1,331 |
|
|
Accrued compensation and benefits costs |
|
|
276 |
|
|
|
258 |
|
|
Accrued expenses and other current liabilities |
|
|
829 |
|
|
|
881 |
|
|
Total current liabilities |
|
|
3,006 |
|
|
|
3,330 |
|
|
Long-term debt |
|
|
2,739 |
|
|
|
2,866 |
|
|
Pension and other benefit liabilities |
|
|
1,131 |
|
|
|
1,175 |
|
|
Post-retirement medical benefits |
|
|
175 |
|
|
|
184 |
|
|
Other long-term liabilities |
|
|
371 |
|
|
|
411 |
|
|
Total Liabilities |
|
|
7,422 |
|
|
|
7,966 |
|
|
|
|
|
|
|
||||
|
Noncontrolling Interests |
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
||||
|
Convertible Preferred Stock |
|
|
214 |
|
|
|
214 |
|
|
|
|
|
|
|
||||
|
Common stock |
|
|
157 |
|
|
|
156 |
|
|
Additional paid-in capital |
|
|
1,619 |
|
|
|
1,588 |
|
|
Treasury stock, at cost |
|
|
(553 |
) |
|
|
— |
|
|
Retained earnings |
|
|
5,070 |
|
|
|
5,136 |
|
|
Accumulated other comprehensive loss |
|
|
(3,504 |
) |
|
|
(3,537 |
) |
|
Xerox Holdings shareholders’ equity |
|
|
2,789 |
|
|
|
3,343 |
|
|
Noncontrolling interests |
|
|
9 |
|
|
|
10 |
|
|
Total Equity |
|
|
2,798 |
|
|
|
3,353 |
|
|
Total Liabilities and Equity |
|
$ |
10,444 |
|
|
$ |
11,543 |
|
|
|
|
|
|
|
||||
|
Shares of common stock issued |
|
|
157,151 |
|
|
|
155,781 |
|
|
Treasury stock |
|
|
(34,245 |
) |
|
|
— |
|
|
Shares of Common Stock Outstanding |
|
|
122,906 |
|
|
|
155,781 |
|
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
||||||||||||
|
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
||||||||
|
Net Income (Loss) |
|
$ |
49 |
|
|
$ |
(382 |
) |
|
$ |
60 |
|
|
$ |
(444 |
) |
|
|
|
|
|
|
|
|
|
|
||||||||
|
Adjustments required to reconcile Net income (loss) to cash flows provided by (used in) operating activities |
|
|
|
|
|
|
|
|
||||||||
|
Depreciation and amortization |
|
|
63 |
|
|
|
65 |
|
|
|
189 |
|
|
|
205 |
|
|
Provisions |
|
|
16 |
|
|
|
13 |
|
|
|
37 |
|
|
|
48 |
|
|
Net gain on sales of businesses and assets |
|
|
(35 |
) |
|
|
(16 |
) |
|
|
(37 |
) |
|
|
(17 |
) |
|
PARC donation |
|
|
— |
|
|
|
— |
|
|
|
132 |
|
|
|
— |
|
|
Stock-based compensation |
|
|
12 |
|
|
|
13 |
|
|
|
40 |
|
|
|
63 |
|
|
Goodwill impairment |
|
|
— |
|
|
|
412 |
|
|
|
— |
|
|
|
412 |
|
|
Restructuring and asset impairment charges |
|
|
11 |
|
|
|
22 |
|
|
|
25 |
|
|
|
44 |
|
|
Payments for restructurings |
|
|
(9 |
) |
|
|
(17 |
) |
|
|
(23 |
) |
|
|
(38 |
) |
|
Non-service retirement-related costs |
|
|
4 |
|
|
|
(7 |
) |
|
|
14 |
|
|
|
(18 |
) |
|
Contributions to retirement plans |
|
|
(43 |
) |
|
|
(34 |
) |
|
|
(75 |
) |
|
|
(106 |
) |
|
(Increase) decrease in accounts receivable and billed portion of finance receivables |
|
|
(11 |
) |
|
|
1 |
|
|
|
(47 |
) |
|
|
(48 |
) |
|
Decrease (increase) in inventories |
|
|
38 |
|
|
|
(41 |
) |
|
|
50 |
|
|
|
(136 |
) |
|
Increase in equipment on operating leases |
|
|
(32 |
) |
|
|
(27 |
) |
|
|
(109 |
) |
|
|
(74 |
) |
|
Decrease (increase) in finance receivables |
|
|
83 |
|
|
|
(27 |
) |
|
|
490 |
|
|
|
(10 |
) |
|
(Increase) decrease in other current and long-term assets |
|
|
(23 |
) |
|
|
1 |
|
|
|
(8 |
) |
|
|
36 |
|
|
Increase (decrease) in accounts payable |
|
|
— |
|
|
|
26 |
|
|
|
(290 |
) |
|
|
198 |
|
|
Increase in accrued compensation |
|
|
23 |
|
|
|
22 |
|
|
|
16 |
|
|
|
29 |
|
|
Decrease in other current and long-term liabilities |
|
|
(20 |
) |
|
|
(25 |
) |
|
|
(159 |
) |
|
|
(73 |
) |
|
Net change in income tax assets and liabilities |
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(24 |
) |
|
|
(81 |
) |
|
Net change in derivative assets and liabilities |
|
|
(6 |
) |
|
|
(4 |
) |
|
|
16 |
|
|
|
(10 |
) |
|
Other operating, net |
|
|
11 |
|
|
|
2 |
|
|
|
— |
|
|
|
(7 |
) |
|
Net cash provided by (used in) operating activities |
|
|
124 |
|
|
|
(8 |
) |
|
|
297 |
|
|
|
(27 |
) |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
||||||||
|
Cost of additions to land, buildings, equipment and software |
|
|
(12 |
) |
|
|
(10 |
) |
|
|
(27 |
) |
|
|
(39 |
) |
|
Proceeds from sales of businesses and assets |
|
|
37 |
|
|
|
23 |
|
|
|
40 |
|
|
|
49 |
|
|
Acquisitions, net of cash acquired |
|
|
— |
|
|
|
(41 |
) |
|
|
(7 |
) |
|
|
(93 |
) |
|
Other investing, net |
|
|
— |
|
|
|
(5 |
) |
|
|
(3 |
) |
|
|
(12 |
) |
|
Net cash provided by (used in) investing activities |
|
|
25 |
|
|
|
(33 |
) |
|
|
3 |
|
|
|
(95 |
) |
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
||||||||
|
Net proceeds (payments) on debt |
|
|
495 |
|
|
|
(126 |
) |
|
|
(131 |
) |
|
|
(505 |
) |
|
Dividends |
|
|
(43 |
) |
|
|
(43 |
) |
|
|
(131 |
) |
|
|
(131 |
) |
|
Payments to acquire treasury stock, including fees |
|
|
(544 |
) |
|
|
— |
|
|
|
(544 |
) |
|
|
(113 |
) |
|
Other financing, net |
|
|
(2 |
) |
|
|
1 |
|
|
|
(13 |
) |
|
|
(6 |
) |
|
Net cash used in financing activities |
|
|
(94 |
) |
|
|
(168 |
) |
|
|
(819 |
) |
|
|
(755 |
) |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
(7 |
) |
|
|
(17 |
) |
|
|
(3 |
) |
|
|
(31 |
) |
|
Increase (decrease) in cash, cash equivalents and restricted cash |
|
|
48 |
|
|
|
(226 |
) |
|
|
(522 |
) |
|
|
(908 |
) |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
569 |
|
|
|
1,227 |
|
|
|
1,139 |
|
|
|
1,909 |
|
|
Cash, Cash Equivalents and Restricted Cash at End of Period |
|
$ |
617 |
|
|
$ |
1,001 |
|
|
$ |
617 |
|
|
$ |
1,001 |
|
Third Quarter 2023 Overview
In the third quarter 2023, earnings and cash flow grew despite a decline in revenue, evidencing an ability to manage profitability amid fluctuations in revenue through strategic initiatives, cost efficiency actions and productivity. The decline in revenue for the third quarter 2023 reflects declines in certain cyclical, low margin post-sale revenue categories, as well as declines in revenue associated with strategic actions put in place to simplify our business, partially offset by a stable demand for our products and services.
Equipment sales of $386 million in the third quarter 2023 declined 1.0% in actual currency, or 2.1% in constant currency1, primarily due to the prior year reduction in backlog2. Consistent with recent quarters, revenue trends outpaced equipment installation activity, due to favorable product and geographic mix, as well as higher prices. This was particularly true with our A3 products, which experienced unfavorable geographic mix effects in the prior year due to backlog2 reductions in EMEA. Entry A4 installations were lower again this quarter, due to the ongoing normalization of work from home trends. Post sale revenue of $1,266 million declined 7.0% in actual currency or 9.0% in constant currency1. Post sale declines were primarily driven by reductions in cyclical transactional items, most notably a significant decline in lower-margin paper sales and IT endpoint devices. Post sale revenue was further impacted by the termination of Fuji royalty income and specific strategic actions, resulting in lower financing and PARC revenue.
Pre-tax income increased year-over-year primarily due to the Goodwill impairment charge in the prior year period and lower RD&E expenses, Other expenses, net and Restructuring and related costs, net. Adjusted1 operating income was up slightly year-over-year as the effects of lower revenue and gross profit, along with higher incentive compensation and bad debt expenses, were offset by ongoing operating efficiencies and pricing actions.
Total Revenue is expected to be flat to down low-single-digits in constant currency1 for the full-year 2023. There continues to be momentum in demand for our products and services in the Americas, particularly for our faster-growing Digital Services. However, during third quarter 2023 there has been a mild softening of demand in our European markets, reflecting weaker macroeconomic conditions. As a result, revenue is expected to come in at the lower end of the expected range. The Company expects a difficult equipment sales revenue comparison in the fourth quarter 2023 due to the significant prior year reduction in backlog2. Further, the headwinds affecting post sale revenue in third quarter 2023 are expected to persist in fourth quarter 2023. Adjusted1 operating income margin continues to be in the expected range of 5.5% to 6.0% for full-year 2023, due to the successful implementation of ongoing cost efficiency programs and a focus on generating profitable revenue. We also expect free cash flow1 for full-year 2023 to be at least $600 million.
___________
(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 September 30, |
|
|
|
|
|
% of Total Revenue |
||||||||||||
|
(in millions) |
|
2023 |
|
2022 |
|
% Change |
|
CC % |
|
2023 |
|
2022 |
||||||||
|
Equipment sales |
|
$ |
386 |
|
|
$ |
390 |
|
|
(1.0 |
)% |
|
(2.1 |
)% |
|
23 |
% |
|
22 |
% |
|
Post sale revenue |
|
|
1,266 |
|
|
|
1,361 |
|
|
(7.0 |
)% |
|
(9.0 |
)% |
|
77 |
% |
|
78 |
% |
|
Total Revenue |
|
$ |
1,652 |
|
|
$ |
1,751 |
|
|
(5.7 |
)% |
|
(7.4 |
)% |
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Reconciliation to Condensed Consolidated Statements of Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Sales |
|
$ |
644 |
|
|
$ |
690 |
|
|
(6.7 |
)% |
|
(8.5 |
)% |
|
|
|
|
||
|
Less: Supplies, paper and other sales |
|
|
(258 |
) |
|
|
(300 |
) |
|
(14.0 |
)% |
|
(16.7 |
)% |
|
|
|
|
||
|
Equipment Sales |
|
$ |
386 |
|
|
$ |
390 |
|
|
(1.0 |
)% |
|
(2.1 |
)% |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Services, maintenance and rentals |
|
$ |
962 |
|
|
$ |
1,010 |
|
|
(4.8 |
)% |
|
(6.4 |
)% |
|
|
|
|
||
|
Add: Supplies, paper and other sales |
|
|
258 |
|
|
|
300 |
|
|
(14.0 |
)% |
|
(16.7 |
)% |
|
|
|
|
||
|
Add: Financing |
|
|
46 |
|
|
|
51 |
|
|
(9.8 |
)% |
|
(13.5 |
)% |
|
|
|
|
||
|
Post Sale Revenue |
|
$ |
1,266 |
|
|
$ |
1,361 |
|
|
(7.0 |
)% |
|
(9.0 |
)% |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Segments |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Print and Other |
|
$ |
1,575 |
|
|
$ |
1,676 |
|
|
(6.0 |
)% |
|
|
|
95 |
% |
|
96 |
% |
|
|
FITTLE |
|
|
98 |
|
|
|
98 |
|
|
— |
% |
|
|
|
6 |
% |
|
5 |
% |
|
|
Intersegment elimination (1) |
|
|
(21 |
) |
|
|
(23 |
) |
|
(8.7 |
)% |
|
|
|
(1 |
)% |
|
(1 |
)% |
|
|
Total Revenue(2) |
|
$ |
1,652 |
|
|
$ |
1,751 |
|
|
(5.7 |
)% |
|
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Go-to-Market Operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Americas |
|
$ |
1,103 |
|
|
$ |
1,140 |
|
|
(3.2 |
)% |
|
(3.6 |
)% |
|
67 |
% |
|
65 |
% |
|
EMEA |
|
|
526 |
|
|
|
567 |
|
|
(7.2 |
)% |
|
(12.1 |
)% |
|
32 |
% |
|
32 |
% |
|
Other |
|
|
23 |
|
|
|
44 |
|
|
(47.7 |
)% |
|
(47.7 |
)% |
|
1 |
% |
|
3 |
% |
|
Total Revenue(2) |
|
$ |
1,652 |
|
|
$ |
1,751 |
|
|
(5.7 |
)% |
|
(7.4 |
)% |
|
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 FITTLE segment to the Print and Other segment for the lease of Xerox equipment placements.
(2) Refer to Appendix II, Reportable Segments and Geographic Sales Channels, 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 September 30, |
|||||||||||
|
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
|
B/(W) |
|
||
|
Gross Profit |
|
$ |
536 |
|
|
$ |
556 |
|
|
$ |
(20 |
) |
|
|
RD&E |
|
|
52 |
|
|
|
73 |
|
|
|
21 |
|
|
|
SAG |
|
|
416 |
|
|
|
418 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Equipment Gross Margin |
|
|
31.0 |
% |
|
|
21.0 |
% |
|
|
10.0 |
|
pts. |
|
Post sale Gross Margin |
|
|
32.9 |
% |
|
|
34.9 |
% |
|
|
(2.0 |
) |
pts. |
|
Total Gross Margin |
|
|
32.4 |
% |
|
|
31.8 |
% |
|
|
0.6 |
|
pts. |
|
RD&E as a % of Revenue |
|
|
3.1 |
% |
|
|
4.2 |
% |
|
|
1.1 |
|
pts. |
|
SAG as a % of Revenue |
|
|
25.2 |
% |
|
|
23.9 |
% |
|
|
(1.3 |
) |
pts. |
|
|
|
|
|
|
|
|
|
||||||
|
Pre-tax Income (Loss) |
|
$ |
63 |
|
|
$ |
(380 |
) |
|
$ |
443 |
|
|
|
Pre-tax Income (Loss) Margin |
|
|
3.8 |
% |
|
|
(21.7 |
)% |
|
|
25.5 |
|
pts. |
|
|
|
|
|
|
|
|
|
||||||
|
Adjusted(1) Operating Income |
|
$ |
68 |
|
|
$ |
65 |
|
|
$ |
3 |
|
|
|
Adjusted(1) Operating Income Margin |
|
|
4.1 |
% |
|
|
3.7 |
% |
|
|
0.4 |
|
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 September 30, |
||||||
|
(in millions) |
|
|
2023 |
|
|
|
2022 |
|
|
Non-financing interest expense |
|
$ |
14 |
|
|
$ |
21 |
|
|
Interest income |
|
|
(3 |
) |
|
|
(4 |
) |
|
Non-service retirement-related costs |
|
|
4 |
|
|
|
(7 |
) |
|
Gains on sales of businesses and assets |
|
|
(35 |
) |
|
|
(16 |
) |
|
Currency losses, net |
|
|
6 |
|
|
|
1 |
|
|
Tax indemnification – Conduent |
|
|
(7 |
) |
|
|
— |
|
|
All other expenses, net |
|
|
4 |
|
|
|
6 |
|
|
Other expenses, net |
|
$ |
(17 |
) |
|
$ |
1 |
|
Segment Review
|
|
|
Three Months Ended September 30, |
||||||||||||||||
|
(in millions) |
|
External |
|
Intersegment |
|
Total |
|
% of Total |
|
Segment |
|
Segment |
||||||
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Print and Other |
|
$ |
1,554 |
|
$ |
21 |
|
$ |
1,575 |
|
94 |
% |
|
$ |
64 |
|
4.1 |
% |
|
FITTLE |
|
|
98 |
|
|
— |
|
|
98 |
|
6 |
% |
|
|
4 |
|
4.1 |
% |
|
Total |
|
$ |
1,652 |
|
$ |
21 |
|
$ |
1,673 |
|
100 |
% |
|
$ |
68 |
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Print and Other |
|
$ |
1,653 |
|
$ |
23 |
|
$ |
1,676 |
|
94 |
% |
|
$ |
63 |
|
3.8 |
% |
|
FITTLE |
|
|
98 |
|
|
— |
|
|
98 |
|
6 |
% |
|
|
2 |
|
2.0 |
% |
|
Total |
|
$ |
1,751 |
|
$ |
23 |
|
$ |
1,774 |
|
100 |
% |
|
$ |
65 |
|
3.7 |
% |
_____________
(1) Reflects revenue, primarily commissions and other payments, made by the FITTLE 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 September 30, |
|
|
|||||
|
(in millions) |
|
|
2023 |
|
|
2022 |
|
% Change |
|
|
Equipment sales |
|
$ |
381 |
|
$ |
384 |
|
(0.8 |
)% |
|
Post sale revenue |
|
|
1,173 |
|
|
1,269 |
|
(7.6 |
)% |
|
Intersegment revenue (1) |
|
|
21 |
|
|
23 |
|
(8.7 |
)% |
|
Total Print and Other Revenue |
|
$ |
1,575 |
|
$ |
1,676 |
|
(6.0 |
)% |
Contacts
Media:
Justin Capella, Xerox, +1-203-258-6535, Justin.Capella@xerox.com
Investor:
David Beckel, Xerox, +1-203-849-2318, David.Beckel@xerox.com
