Resilient demand and balanced execution drive growth in revenue
and profits
Financial Summary Q2 2023
- Revenue of $1.75 billion, up 0.4 percent, or 0.5 percent in
constant currency.
- GAAP (loss) earnings per share (EPS) of $(0.41), down $0.36
year-over-year.
- Adjusted EPS of $0.44, up $0.31 year-over-year.
- Adjusted operating margin of 6.1 percent, up 410 basis points
year-over-year.
- Operating cash flow of $95 million, up $180 million
year-over-year.
- Free cash flow of $88 million, up $186 million
year-over-year.
- Increasing guidance for adjusted operating margin to a range of
5.5% to 6.0%, and free cash flow to at least $600 million.
Xerox Holdings Corporation (NASDAQ: XRX) today announced its
2023 second-quarter results.
“Over the last 12 months, Xerox has taken significant steps to
strengthen its operating and financial discipline, leading to
another quarter of profitable growth amid a dynamic macroeconomic
backdrop,” said Steve Bandrowczak, chief executive officer at
Xerox. “I’m proud of the part all Xerox employees and partners have
played in our continued success. An improved operating system
leaves us well positioned to pursue growth opportunities as we
focus on meeting clients’ evolving needs in today’s hybrid
workplace.”
Second-Quarter Key Financial Results
(in millions,
except per share data)
Q2 2023
Q2 2022
B/(W) YOY
% Change B/(W)
YOY
Revenue
$1,754
$1,747
$7
0.4% AC 0.5%
CC(1)
Gross Margin
34.0%
31.9%
210 bps
RD&E %
3.2%
4.8%
160 bps
SAG %
24.7%
26.3%
160 bps
Pre-Tax (Loss)
$(89)
$(5)
$(84)
NM
Pre-Tax (Loss) Margin
(5.1)%
(0.3)%
(480) bps
Operating Income - Adjusted (1)
$107
$35
$72
205.7%
Operating Income Margin - Adjusted (1)
6.1%
2.0%
410 bps
GAAP Diluted (Loss) per Share
$(0.41)
$(0.05)
$(0.36)
NM
Diluted Earnings Per Share - Adjusted
(1)
$0.44
$0.13
$0.31
238.5%
____________
(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.
During the second quarter of 2023, the Company recast FITTLE’s
segment revenues and profit measures to reflect the recent
strategic shift in the Company’s approach to funding FITTLE’s
growth through receivable funding agreements that involve the sale
of lease receivables. Refer to 2023 Segment Reporting Change for
FITTLE’s recast Segment revenues and profits for FY 2022 and Q1
2023.
Second-Quarter Segment Results
(in
millions)
Q2 2023
Q2 2022
B/(W) YOY
% Change B/(W) YOY
Revenue
Print and Other
$1,674
$1,673
$1
0.1%
Financing (FITTLE)
101
96
5
5.2%
Intersegment Elimination (1)
(21)
(22)
1
(4.5)%
Total Revenue
$1,754
$1,747
$7
0.4%
Profit
Print and Other
$107
$29
$78
269.0%
Financing (FITTLE)
-
6
(6)
(100.0)%
Total Profit
$107
$35
$72
205.7%
_____________
(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.
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 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.
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; 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 (LOSS) INCOME
(UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in millions, except per-share data)
2023
2022
2023
2022
Revenues
Sales
$
696
$
667
$
1,355
$
1,259
Services, maintenance and rentals
1,009
1,028
2,013
2,051
Financing
49
52
101
105
Total Revenues
1,754
1,747
3,469
3,415
Costs and Expenses
Cost of sales
452
487
877
922
Cost of services, maintenance and
rentals
671
677
1,336
1,356
Cost of financing
34
26
70
50
Research, development and engineering
expenses
57
84
121
162
Selling, administrative and general
expenses
433
459
840
914
Restructuring and related costs, net
23
1
25
19
Amortization of intangible assets
10
10
21
21
PARC donation
132
—
132
—
Other expenses, net
31
8
51
65
Total Costs and Expenses
1,843
1,752
3,473
3,509
Loss before Income Taxes & Equity
Income(1)
(89
)
(5
)
(4
)
(94
)
Income tax (benefit) expense
(28
)
1
(14
)
(30
)
Equity in net income of unconsolidated
affiliates
1
1
1
2
Net (Loss) Income
(60
)
(5
)
11
(62
)
Less: Net income (loss) attributable to
noncontrolling interests
1
(1
)
1
(2
)
Net (Loss) Income Attributable to Xerox
Holdings
$
(61
)
$
(4
)
$
10
$
(60
)
Basic (Loss) Earnings per Share
$
(0.41
)
$
(0.05
)
$
0.02
$
(0.43
)
Diluted (Loss) Earnings per
Share
$
(0.41
)
$
(0.05
)
$
0.02
$
(0.43
)
___________________________
(1)
Referred to as “Pre-tax loss” throughout
the remainder of this document.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2023
2022
2023
2022
Net (Loss) Income
$
(60
)
$
(5
)
$
11
$
(62
)
Less: Net income (loss) attributable to
noncontrolling interests
1
(1
)
1
(2
)
Net (Loss) Income Attributable to Xerox
Holdings
(61
)
(4
)
10
(60
)
Other Comprehensive Income (Loss),
Net
Translation adjustments, net
49
(287
)
141
(359
)
Unrealized losses, net
(5
)
(14
)
(1
)
(25
)
Changes in defined benefit plans, net
(27
)
3
(41
)
42
Other Comprehensive Income (Loss),
Net
17
(298
)
99
(342
)
Less: Other comprehensive loss, net
attributable to noncontrolling interests
—
—
(1
)
—
Other Comprehensive Income (Loss), Net
Attributable to Xerox Holdings
17
(298
)
100
(342
)
Comprehensive (Loss) Income,
Net
(43
)
(303
)
110
(404
)
Less: Comprehensive income (loss), net
attributable to noncontrolling interests
1
(1
)
—
(2
)
Comprehensive (Loss) Income, Net
Attributable to Xerox Holdings
$
(44
)
$
(302
)
$
110
$
(402
)
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data in
thousands)
June 30, 2023
December 31, 2022
Assets
Cash and cash equivalents
$
477
$
1,045
Accounts receivable (net of allowance of
$58 and $52, respectively)
903
857
Billed portion of finance receivables (net
of allowance of $4 and $4, respectively)
70
93
Finance receivables, net
940
1,061
Inventories
782
797
Other current assets
218
254
Total current assets
3,390
4,107
Finance receivables due after one year
(net of allowance of $99 and $113, respectively)
1,697
1,948
Equipment on operating leases, net
259
235
Land, buildings and equipment, net
281
320
Intangible assets, net
194
208
Goodwill, net
2,751
2,820
Deferred tax assets
620
582
Other long-term assets
1,377
1,323
Total Assets
$
10,569
$
11,543
Liabilities and Equity
Short-term debt and current portion of
long-term debt
$
891
$
860
Accounts payable
1,041
1,331
Accrued compensation and benefits
costs
251
258
Accrued expenses and other current
liabilities
766
881
Total current liabilities
2,949
3,330
Long-term debt
2,225
2,866
Pension and other benefit liabilities
1,206
1,175
Post-retirement medical benefits
179
184
Other long-term liabilities
394
411
Total Liabilities
6,953
7,966
Noncontrolling Interests
10
10
Convertible Preferred Stock
214
214
Common stock
157
156
Additional paid-in capital
1,607
1,588
Retained earnings
5,057
5,136
Accumulated other comprehensive loss
(3,437
)
(3,537
)
Xerox Holdings shareholders’ equity
3,384
3,343
Noncontrolling interests
8
10
Total Equity
3,392
3,353
Total Liabilities and Equity
$
10,569
$
11,543
Shares of Common Stock Issued and
Outstanding
157,105
155,781
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2023
2022
2023
2022
Cash Flows from Operating
Activities
Net (Loss) Income
$
(60
)
$
(5
)
$
11
$
(62
)
Adjustments required to reconcile Net
(loss) income to cash flows provided by (used in) operating
activities
Depreciation and amortization
62
68
126
140
Provisions
21
16
21
35
Net gain on sales of businesses and
assets
(2
)
(1
)
(2
)
(1
)
PARC donation
132
—
132
—
Stock-based compensation
14
35
28
50
Restructuring and asset impairment
charges
13
2
14
22
Payments for restructurings
(8
)
(14
)
(14
)
(21
)
Non-service retirement-related costs
11
(4
)
10
(11
)
Contributions to retirement plans
(15
)
(34
)
(32
)
(72
)
Increase in accounts receivable and billed
portion of finance receivables
(75
)
(62
)
(36
)
(49
)
Decrease (increase) in inventories
76
(64
)
12
(95
)
Increase in equipment on operating
leases
(37
)
(11
)
(77
)
(47
)
Decrease (increase) in finance
receivables
247
(24
)
407
17
Decrease in other current and long-term
assets
12
36
15
35
(Decrease) increase in accounts
payable
(249
)
61
(290
)
172
Increase (decrease) in accrued
compensation
9
(15
)
(7
)
7
Decrease in other current and long-term
liabilities
(11
)
(5
)
(139
)
(48
)
Net change in income tax assets and
liabilities
(35
)
(37
)
(17
)
(76
)
Net change in derivative assets and
liabilities
9
(13
)
22
(6
)
Other operating, net
(19
)
(14
)
(11
)
(9
)
Net cash provided by (used in) operating
activities
95
(85
)
173
(19
)
Cash Flows from Investing
Activities
Cost of additions to land, buildings,
equipment and software
(7
)
(13
)
(15
)
(29
)
Proceeds from sales of businesses and
assets
2
26
3
26
Acquisitions, net of cash acquired
—
2
(7
)
(52
)
Other investing, net
—
(2
)
(3
)
(7
)
Net cash (used in) provided by investing
activities
(5
)
13
(22
)
(62
)
Cash Flows from Financing
Activities
Net payments on debt
(174
)
(401
)
(626
)
(379
)
Dividends
(43
)
(42
)
(88
)
(88
)
Payments to acquire treasury stock,
including fees
—
—
—
(113
)
Other financing, net
(3
)
5
(11
)
(7
)
Net cash used in financing activities
(220
)
(438
)
(725
)
(587
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
2
(24
)
4
(14
)
Decrease in cash, cash equivalents and
restricted cash
(128
)
(534
)
(570
)
(682
)
Cash, cash equivalents and restricted cash
at beginning of period
697
1,761
1,139
1,909
Cash, Cash Equivalents and Restricted
Cash at End of Period
$
569
$
1,227
$
569
$
1,227
Second Quarter 2023 Overview
In the second quarter 2023, resilient demand and balanced
execution drove another quarter of growth in revenue, profits, and
cash flow. Recent improvements in financial performance are driven
by an intense focus on our three strategic priorities, which
includes a focus on delivering client success through products and
services that address the productivity challenges of today’s hybrid
workplace.
Equipment sales revenue of $420 million in the second quarter
2023 increased 14.8% in actual currency and 14.3% in constant
currency1 as compared to the prior year period, reflecting stable
demand and improved product availability, particularly in the
Americas, and for our higher margin A3 devices. As expected,
backlog2 returned to normalized levels and since we do not expect
changes in backlog2 to materially affect results going forward, we
will no longer provide detailed backlog2 information. Consistent
with recent quarters, revenue growth outpaced equipment
installations due to favorable mix and pricing. Post-sale revenue
of $1.3 billion in the second quarter 2023 declined 3.4% in actual
currency as compared to the prior year period and 3.2% in constant
currency1. The decrease was driven primarily by non-contractual
items, including lower IT hardware and paper sales, lower finance
income and the cessation of Fuji royalties, partially offset by
gains and commissions on sales of finance receivables.
Pre-tax loss increased year-over-year driven by a net pre-tax
charge of $132 million related to the donation of our Palo Alto
Research Center (PARC), partially offset by continued cost
reduction actions, supply chain-related cost improvements and
higher revenues. Adjusted1 operating income, which excludes the
PARC donation, was also higher year-over-year as a result of these
impacts. These benefits were partially offset by currency, the
cessation of Fuji royalty income, higher bad debt and employee
compensation expenses. We continue to expect to deliver low to
mid-single digit gross operating cost efficiencies for the
year.
Total Revenue is expected to be flat to down low-single-digits
in constant currency1 in 2023. Adjusted1 operating income margin is
expected to increase from a range of 5.0% to 5.5%, to a range of
5.5% to 6.0%, due to a stronger-than-expected realization of
operating efficiencies and revenue mix. We also expect free cash
flow1 for 2023 to increase from “at least $500 million” to “at
least $600 million”. The increase reflects an improvement in
expected operating income and incremental sales of finance
receivables.
Segment Reporting Change
During the second quarter 2023, as a result of the recent
strategic shift in the Company’s approach to funding FITTLE’s
growth through finance receivables funding agreements that involve
the sale of lease receivables, the measures of the FITTLE’s segment
revenues and profits used by our Chief Operating Decision Maker
(CODM), our Chief Executive Officer, were recast as follows to
correspond with this change in strategy:
- The management and oversight of the equipment on operating
leases portion of our financing business was transferred from the
FITTLE segment to the marketing and sales groups in the Print and
Other segment since the finance receivables funding agreements
currently exclude the sale of operating lease arrangements.
- The allocation of shared expenses as well as commissions and
other payments made by the FITTLE segment to the Print and Other
segment were recast to better reflect the operations of FITTLE in
line with the change in strategic direction.
The recast to our segment measures align with the financial
information used by our CODM in evaluating our reportable segments’
performance and allocating resources. The prior period amounts have
been recast to reflect the change in segment measures of revenue
and profits. See Segment Review - 2023 Segment Reporting
Change for recast made to conform to our new segment
measurements.
________
(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.
Donation of Palo Alto Research Center (PARC)
On April 29, 2023, Xerox completed the donation of its Palo Alto
Research Center (PARC) subsidiary to Stanford Research Institute
International (SRI), a nonprofit research institute. The donation
enables Xerox to focus on its core businesses and prioritize growth
through its business technology solutions for customers in Print,
as well as Digital Services and IT Services. The donation also
allows PARC to reach its full potential through SRI’s resources and
deep-tech expertise that will enable PARC to focus exclusively on
the development of pioneering innovative technologies. The majority
of patents held by PARC will be retained by Xerox with a perpetual
license to use those patents being provided to SRI. Xerox, at its
option, will also continue to receive certain research services
from SRI. The donation resulted in a net pre-tax charge of $132
million in the second quarter 2023, which includes allocated
Goodwill of $115 million. Xerox also recorded a net income tax
benefit of $40 million related to the donation for a net after-tax
loss on the donation of $92 million.
Financial Review
Revenues
Three Months Ended June 30,
% of Total Revenue
(in millions)
2023
2022
% Change
CC % Change
2023
2022
Equipment sales
$
420
$
366
14.8%
14.3%
24%
21%
Post sale revenue
1,334
1,381
(3.4)%
(3.2)%
76%
79%
Total Revenue
$
1,754
$
1,747
0.4%
0.5%
100%
100%
Reconciliation to Condensed
Consolidated Statements of (Loss) Income:
Sales
$
696
$
667
4.3%
4.1%
Less: Supplies, paper and other sales
(276)
(301)
(8.3)%
(8.5)%
Equipment Sales
$
420
$
366
14.8%
14.3%
Services, maintenance and rentals
$
1,009
$
1,028
(1.8)%
(1.6)%
Add: Supplies, paper and other sales
276
301
(8.3)%
(8.5)%
Add: Financing
49
52
(5.8)%
(4.0)%
Post Sale Revenue
$
1,334
$
1,381
(3.4)%
(3.2)%
Segments
Print and Other
$
1,674
$
1,673
0.1%
95%
96%
FITTLE
101
96
5.2%
6%
5%
Intersegment elimination (1)
(21)
(22)
(4.5)%
(1)%
(1)%
Total Revenue(2)
$
1,754
$
1,747
0.4%
100%
100%
Go-to-Market
Operations
Americas
$
1,154
$
1,150
0.3%
0.7%
66%
66%
EMEA
570
551
3.4%
3.1%
32%
31%
Other
30
46
(34.8)%
(34.8)%
2%
3%
Total Revenue(2)
$
1,754
$
1,747
0.4%
0.5%
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 June 30,
(in millions)
2023
2022
B/(W)
Gross Profit
$
597
$
557
$
40
RD&E
57
84
27
SAG
433
459
26
Equipment Gross Margin
35.2
%
23.5
%
11.7
pts.
Post sale Gross Margin
33.6
%
34.1
%
(0.5
)
pts.
Total Gross Margin
34.0
%
31.9
%
2.1
pts.
RD&E as a % of Revenue
3.2
%
4.8
%
1.6
pts.
SAG as a % of Revenue
24.7
%
26.3
%
1.6
pts.
Pre-tax (Loss)
$
(89
)
$
(5
)
$
(84
)
Pre-tax (Loss) Margin
(5.1
)%
(0.3
)%
(4.8
)
pts.
Adjusted(1) Operating Income
$
107
$
35
$
72
Adjusted(1) Operating Income Margin
6.1
%
2.0
%
4.1
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)
2023
2022
Non-financing interest expense
$
12
$
23
Interest income
(4
)
(3
)
Non-service retirement-related costs
11
(4
)
Currency losses, net
5
1
Loss on early extinguishment of debt
3
4
Excess contribution refund
—
(16
)
All other expenses, net
4
3
Other expenses, net
$
31
$
8
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)
2023
Print and Other
$
1,653
$
21
$
1,674
94
%
$
107
6.5
%
FITTLE
101
—
101
6
%
—
—
%
Total
$
1,754
$
21
$
1,775
100
%
$
107
6.1
%
2022
Print and Other
$
1,651
$
22
$
1,673
95
%
$
29
1.8
%
FITTLE
96
—
96
5
%
6
6.3
%
Total
$
1,747
$
22
$
1,769
100
%
$
35
2.0
%
_____________
(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 June 30,
(in millions)
2023
2022
% Change
Equipment sales
$
414
$
361
14.7
%
Post sale revenue
1,239
1,290
(4.0
)%
Intersegment revenue (1)
21
22
(4.5
)%
Total Print and Other Revenue
$
1,674
$
1,673
0.1
%
_____________
(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.
Detail by product group is shown below.
Three Months Ended June 30,
% of Equipment Sales
(in millions)
2023
2022
% Change
CC % Change
2023
2022
Entry
$
63
$
66
(4.5
)%
(4.3
)%
15
%
18
%
Mid-range
270
221
22.2
%
21.9
%
64
%
60
%
High-end
82
76
7.9
%
8.0
%
20
%
21
%
Other
5
3
66.7
%
66.7
%
1
%
1
%
Equipment Sales (1),(2)
$
420
$
366
14.8
%
14.3
%
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 and Geographic Sales
Channels, for definitions.
(2)
Includes equipment sales related to the FITTLE segment of $6
million and $5 million for the second quarter 2023 and 2022,
respectively.
FITTLE
FITTLE represents a global financing solutions business,
primarily enabling the sale of our equipment and services.
Revenue
Three Months Ended June 30,
(in millions)
2023
2022
% Change
Equipment sales
$
6
$
5
20.0
%
Financing
49
52
(5.8
)%
Other Post sale revenue (1)
46
39
17.9
%
Total FITTLE Revenue
$
101
$
96
5.2
%
_____________
(1)
Other Post sale revenue includes lease renewal and fee
income.
2023 Segment Reporting Change
The following provides segment revenues and profits for each
quarter and full-year 2022, and the first quarter 2023 periods,
recast to conform to our new segment measurements:
2022
2023
Q1
Q2
Q3
Q4
Full-Year
Q1
Segment
Revenues:
As
Reported:
Print and Other
$
1,550
$
1,633
$
1,641
$
1,843
$
6,667
$
1,613
FITTLE
158
151
150
151
610
154
Intersegment revenue(1)
(40
)
(37
)
(40
)
(53
)
(170
)
(52
)
Total External Revenue
$
1,668
$
1,747
$
1,751
$
1,941
$
7,107
$
1,715
Change:
Print and Other
43
40
35
19
137
23
FITTLE
(60
)
(55
)
(52
)
(50
)
(217
)
(52
)
Intersegment revenue(1)
17
15
17
31
80
29
Total External Revenue
$
—
$
—
$
—
$
—
$
—
$
—
As
Recast:
Print and Other
1,593
1,673
1,676
1,862
6,804
1,636
FITTLE
98
96
98
101
393
102
Intersegment revenue(1)
(23
)
(22
)
(23
)
(22
)
(90
)
(23
)
Total External Revenue
$
1,668
$
1,747
$
1,751
$
1,941
$
7,107
$
1,715
_____________
(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.
2022
2023
Q1
Q2
Q3
Q4
Full-Year
Q1
Segment
Profit/(Loss):
As
Reported:
Print and Other
$
(20
)
$
18
$
57
$
183
$
238
$
106
FITTLE
17
17
8
(5
)
37
12
Total
$
(3
)
$
35
$
65
$
178
$
275
$
118
Change:
Print and Other
9
11
6
(6
)
20
(6
)
FITTLE
(9
)
(11
)
(6
)
6
(20
)
6
Total
$
—
$
—
$
—
$
—
$
—
$
—
As
Recast:
Print and Other
(11
)
29
63
177
258
100
FITTLE
8
6
2
1
17
18
Total
$
(3
)
$
35
$
65
$
178
$
275
$
118
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; 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.
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 2023 presentation slides available at
www.xerox.com/investor.
Adjusted Earnings Measures
- Adjusted Net Income and Earnings per share (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:
- PARC donation
- Accelerated share vesting - stock compensation expense
associated with the accelerated vesting of all outstanding equity
awards, according to the terms of the award agreement, in
connection with the passing of Xerox Holding's former CEO.
- Loss on early extinguishment of debt
Adjusted Operating Income and Margin
We calculate and utilize adjusted operating income (loss) and
margin measures by adjusting our reported pre-tax income (loss) 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.
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,
2023
2022
(in millions, except per share
amounts)
Net (Loss) Income
Diluted EPS
Net (Loss) Income
Diluted EPS
Reported(1)
$
(61
)
$
(0.41
)
$
(4
)
$
(0.05
)
Adjustments:
Restructuring and related costs, net
23
1
Amortization of intangible assets
10
10
Non-service retirement-related costs
11
(4
)
PARC donation
132
—
Accelerated share vesting
—
21
Loss on early extinguishment of debt
3
4
Income tax on PARC donation(2)
(40
)
—
Income tax on adjustments (excluding PARC
donation)(2)
(6
)
(4
)
Adjusted
$
72
$
0.44
$
24
$
0.13
Dividends on preferred stock used in
adjusted EPS calculation(3)
$
3
$
3
Weighted average shares for adjusted
EPS(3)
158
156
Fully diluted shares at end of
period(4)
158
_____________
(1)
Net (loss) and EPS attributable to Xerox
Holdings. Second quarter 2023 includes the after-tax PARC donation
charge of $92 million ($132 million pre-tax), or $0.58 per diluted
share.
(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)
Reflects common shares outstanding at June
30, 2023, plus potential dilutive common shares used for the
calculation of adjusted diluted EPS for the second quarter 2023.
The amount excludes shares associated with our Series A convertible
preferred stock, which were anti-dilutive for the second quarter
2023.
Adjusted Effective Tax Rate reconciliation
Three Months Ended June 30,
2023
2022
(in millions)
Pre-Tax (Loss) Income
Income Tax (Benefit) Expense
Effective Tax Rate
Pre-Tax (Loss) Income
Income Tax Expense
Effective Tax Rate
Reported(1)
$
(89
)
$
(28
)
31.5
%
$
(5
)
$
1
(20.0
)%
PARC donation(2)
132
40
—
—
Non-GAAP adjustments(2)
47
6
32
4
Adjusted(3)
$
90
$
18
20.0
%
$
27
$
5
18.5
%
_____________ (1)
Pre-tax (loss) 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) 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,
2023
2022
(in millions)
(Loss) Profit
Revenue
Margin
(Loss) Profit
Revenue
Margin
Reported(1)
$
(89
)
$
1,754
(5.1
)%
$
(5
)
$
1,747
(0.3
)%
Adjustments:
Restructuring and related costs, net
23
1
Amortization of intangible assets
10
10
PARC donation
132
—
Accelerated share vesting
—
21
Other expenses, net
31
8
Adjusted
$
107
$
1,754
6.1
%
$
35
$
1,747
2.0
%
_____________
(1)
Pre-tax (loss).
Free Cash Flow reconciliation
Three Months Ended June 30,
(in millions)
2023
2022
Reported(1)
$
95
$
(85
)
Less: capital expenditures
7
13
Free Cash Flow
$
88
$
(98
)
_____________
(1)
Net cash provided by (used in) operating
activities.
GUIDANCE
Adjusted Operating Income and
Margin
FY 2023
(in millions)
Profit
Revenue (CC)(2,3)
Margin
Estimated(1)
~ $125
~ $7,100
~ 1.8%
Adjustments:
PARC donation
132
Restructuring and related costs, net
75
Amortization of intangible assets
40
Other expenses, net
40
Adjusted (4)
~ $410
~ $7,100
5.5% - 6.0%
_____________
(1)
Pre-tax income and Revenue.
(2)
Full-year revenue is estimated to be flat
to down low-single-digits in constant currency. Revenue of $7.1
billion reflects the high end 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 2023
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 June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Basic (Loss) Earnings per
Share:
Net (Loss) Income Attributable to Xerox
Holdings
$
(61
)
$
(4
)
$
10
$
(60
)
Accrued dividends on preferred stock
(3
)
(3
)
(7
)
(7
)
Adjusted net (loss) income available to
common shareholders
$
(64
)
$
(7
)
$
3
$
(67
)
Weighted average common shares
outstanding
157,009
155,170
156,817
155,897
Basic (Loss) Earnings per Share
$
(0.41
)
$
(0.05
)
$
0.02
$
(0.43
)
Diluted (Loss) Earnings per
Share:
Net (Loss) Income Attributable to Xerox
Holdings
$
(61
)
$
(4
)
$
10
$
(60
)
Accrued dividends on preferred stock
(3
)
(3
)
(7
)
(7
)
Adjusted net (loss) income available to
common shareholders
$
(64
)
$
(7
)
$
3
$
(67
)
Weighted average common shares
outstanding
157,009
155,170
156,817
155,897
Common shares issuable with respect
to:
Stock Options
—
—
—
—
Restricted stock and performance
shares
—
—
1,078
—
Convertible preferred stock
—
—
—
—
Adjusted weighted average common shares
outstanding
157,009
155,170
157,895
155,897
Diluted (Loss) Earnings per
Share
$
(0.41
)
$
(0.05
)
$
0.02
$
(0.43
)
The following securities were not included
in the computation of diluted earnings per share as they were
either contingently issuable shares or shares that if included
would have been anti-dilutive:
Stock options
287
693
287
693
Restricted stock and performance
shares
7,174
6,178
6,096
6,178
Convertible preferred stock
6,742
6,742
6,742
6,742
Total Anti-Dilutive Securities
14,203
13,613
13,125
13,613
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 Financing (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 IT
services and software. Our 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 FITTLE 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 FITTLE segment provides global leasing solutions and
currently offers financing for direct channel customer purchases of
Xerox equipment through bundled lease agreements, lease financing
to end-user customers who purchase Xerox and non-Xerox equipment
through our indirect channels and leasing solutions for OEMs of
print and non-print related office equipment and IT services
equipment. 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.
Geographic Sales Channels
We also operate a matrix organization that includes a geographic
focus that is primarily organized from a sales perspective on the
basis of “go-to-market” (GTM) sales channels as follows:
- Americas, which includes our sales channels in the U.S.
and Canada, as well as Mexico, Brazil and Central and South
America.
- EMEA, which includes our sales channels in Europe, the
Middle East, Africa and India.
- Other, which includes royalties and licensing
revenue.
These GTM sales channels are structured to serve a range of
customers for our products and services, including financing.
Accordingly, we will continue to provide information, primarily
revenue related, with respect to our principal GTM sales
channels.
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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
Xerox (NASDAQ:XRX)
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