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.
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 (7.4)% CC(1)
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 % Change
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 Revenue
Intersegment Revenue(1)
Total Segment Revenue
% of Total Revenue
Segment Profit
Segment Margin(2)
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
)%
_____________ (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
September 30,
% of Equipment Sales
(in millions)
2023
2022
%
Change
CC % Change
2023
2022
Entry
$
56
$
74
(24.3
)%
(25.3
)%
15
%
19
%
Mid-range
260
246
5.7
%
4.3
%
67
%
63
%
High-end
67
65
3.1
%
0.5
%
17
%
17
%
Other
3
5
(40.0
)%
(40.0
)%
1
%
1
%
Equipment Sales (1),(2)
$
386
$
390
(1.0
)%
(2.1
)%
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 $5 million and $6 million for the third
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
September 30,
(in millions)
2023
2022
%
Change
Equipment sales
$
5
$
6
(16.7
)%
Financing
46
51
(9.8
)%
Other Post sale revenue (1)
47
41
14.6
%
Total FITTLE Revenue
$
98
$
98
—
%
_____________ (1) Other Post sale revenue includes lease renewal
and fee income.
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.
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 third
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:
- Goodwill impairment
- Tax Indemnification - Conduent
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 September
30,
2023
2022
(in millions, except per share
amounts)
Net Income
Diluted EPS
Net (Loss) Income
Diluted EPS
Reported(1)
$
49
$
0.28
$
(383
)
$
(2.48
)
Adjustments:
Goodwill impairment
—
412
Restructuring and related costs, net
10
22
Amortization of intangible assets
12
10
Non-service retirement-related costs
4
(7
)
Tax Indemnification - Conduent
(7
)
—
Income tax on adjustments(2)
9
(21
)
Adjusted
$
77
$
0.46
$
33
$
0.19
Dividends on preferred stock used in
adjusted EPS calculation(3)
$
4
$
4
Weighted average shares for adjusted
EPS(3)
159
157
Fully diluted shares at end of
period(4)
125
_____________ (1) Net income (loss) and EPS attributable to
Xerox Holdings. Net loss and EPS for the third quarter 2022 include
an after-tax non-cash Goodwill impairment charge of $395 million or
$2.54 per 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) Common shares outstanding at
September 30, 2023, plus potential dilutive common shares used for
the calculation of adjusted diluted EPS for the third quarter 2023.
Excludes shares associated with our Series A convertible preferred
stock, which were anti-dilutive for the third quarter 2023.
Adjusted Effective Tax Rate reconciliation
Three Months Ended September
30,
2023
2022
(in millions)
Pre-Tax Income
Income Tax Expense
Effective Tax Rate
Pre-Tax (Loss) Income
Income Tax Expense
Effective Tax Rate
Reported(1)
$
63
$
15
23.8
%
$
(380
)
$
3
(0.8
)%
Goodwill impairment
—
—
412
17
Non-GAAP adjustments(2)
19
(9
)
25
4
Adjusted(3)
$
82
$
6
7.3
%
$
57
$
24
42.1
%
_____________ (1) Pre-tax income (loss) and income tax 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 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 September
30,
2023
2022
(in millions)
Profit
Revenue
Margin
(Loss)
Profit
Revenue
Margin
Reported(1)
$
63
$
1,652
3.8
%
$
(380
)
$
1,751
(21.7
)%
Adjustments:
Goodwill impairment
—
412
Restructuring and related costs, net
10
22
Amortization of intangible assets
12
10
Other expenses, net
(17
)
1
Adjusted
$
68
$
1,652
4.1
%
$
65
$
1,751
3.7
%
_____________ (1) Pre-tax income (loss).
Free Cash Flow reconciliation
Three Months Ended
September 30,
(in millions)
2023
2022
Reported(1)
$
124
$
(8
)
Less: capital expenditures
12
10
Free Cash Flow
$
112
$
(18
)
_____________ (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
~ $7,000
~ 1.8%
Adjustments:
PARC donation
132
Restructuring and related costs, net
65
Amortization of intangible assets
40
Other expenses, net
40
Adjusted (4)
~ $400
~ $7,000
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 $7.0 billion reflects the midpoint of
the guidance range. (3) See "Constant Currency" in the Non-GAAP
Financial Measures section for a description of constant currency.
(4) Adjusted pre-tax income reflects the mid-point of the adjusted
operating margin guidance range.
Free Cash Flow
(in millions)
FY 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 Earnings (Loss) per
Share
(in millions, except per-share data,
shares in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Basic Earnings (Loss) per
Share:
Net Income (Loss) Attributable to Xerox
Holdings
$
49
$
(383
)
$
59
$
(443
)
Accrued dividends on preferred stock
(4
)
(4
)
(11
)
(11
)
Adjusted net income (loss) available to
common shareholders
$
45
$
(387
)
$
48
$
(454
)
Weighted average common shares
outstanding
157,132
155,697
156,914
155,799
Basic Earnings (Loss) per Share
$
0.29
$
(2.48
)
$
0.31
$
(2.91
)
Diluted Earnings (Loss) per
Share:
Net Income (Loss) Attributable to Xerox
Holdings
$
49
$
(383
)
$
59
$
(443
)
Accrued dividends on preferred stock
(4
)
(4
)
(11
)
(11
)
Adjusted net income (loss) available to
common shareholders
$
45
$
(387
)
$
48
$
(454
)
Weighted average common shares
outstanding
157,132
155,697
156,914
155,799
Common shares issuable with respect
to:
Stock Options
—
—
—
—
Restricted stock and performance
shares
1,761
—
1,305
—
Convertible preferred stock
—
—
—
—
Adjusted weighted average common shares
outstanding
158,893
155,697
158,219
155,799
Diluted Earnings (Loss) per
Share
$
0.28
$
(2.48
)
$
0.30
$
(2.91
)
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
245
598
245
598
Restricted stock and performance
shares
5,233
5,222
5,688
5,222
Convertible preferred stock
6,742
6,742
6,742
6,742
Total Anti-Dilutive Securities
12,220
12,562
12,675
12,562
Dividends per Common Share
$
0.25
$
0.25
$
0.75
$
0.75
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. 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 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 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.
In December 2022, the Company entered into a finance receivables
funding agreement with an affiliate of HPS Investment Partners
(HPS) pursuant to which the Company agreed to offer for sale, and
HPS agreed to purchase, certain eligible pools of finance
receivables on a monthly basis. During the second quarter 2023, the
finance receivables funding agreement with HPS was amended to
expand the pools of finance receivables eligible for sale and to
include the sale of the underlying leased equipment to HPS. In the
third quarter 2023, the Company entered into an agreement with PEAC
Solutions (a subsidiary of HPS) that named PEAC as the provider of
certain leasing and financial services programs for non-Xerox
equipment in the U.S. network of independent dealers and
resellers.
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231024519357/en/
Media: Justin Capella, Xerox, +1-203-258-6535,
Justin.Capella@xerox.com
Investor: David Beckel, Xerox, +1-203-849-2318,
David.Beckel@xerox.com
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