Earnings Presentation
Q1 2024 Results
April 23, 2024
Forward-Looking Statements
This presentation and other written or oral statements made from time to time by management contain "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words "anticipate", "believe", "estimate", "expect", "intend", "will", "should", "targeting", "projecting", "driving" and similar expressions, as they relate to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: Global macroeconomic conditions, including inflation, slower growth or recession, delays or disruptions in the global supply chain, higher interest rates, and wars and other conflicts, including the current conflict between Russia and Ukraine; our ability to succeed in a competitive environment, including by developing new products and service offerings and preserving our existing products and market share as well as repositioning our business in the face of customer preference, technological, and other change, such as evolving return-to-office and hybrid working trends; failure of our customers, vendors, and logistics partners to perform their contractual obligations to us; our ability to attract, train, and retain key personnel; execution risks around our Reinvention; the risk of breaches of our security systems due to cyber, malware, or other intentional attacks that could expose us to liability, litigation, regulatory action or damage our reputation; our ability to obtain adequate pricing for our products and services and to maintain and improve our cost structure; changes in economic and political conditions, trade protection measures, licensing requirements, and tax laws in the United States and in the foreign countries in which we do business; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; interest rates, cost of borrowing, and access to credit markets; risks related to our indebtedness; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; funding requirements associated with our employee pension and retiree health benefit plans; changes in foreign currency exchange rates; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; laws, regulations, international agreements and other initiatives to limit greenhouse gas emissions or relating to climate change, as well as the physical effects of climate change; and other factors as set forth from time to time in the Company's Securities and Exchange Commission filings, including the Company's Annual Report on Form 10-K for the year ended December 31, 2023. The Company intends these forward-looking statements to speak only as of the date of this presentation and does not undertake to update or revise them as more information becomes available, except as required by law.
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Q1 2024 Key Financial Measures
Revenue ($B)
$1.72
$1.50
20232024
2024 % Change: (12.4)% @ AC, (13.2)% @ CC1
Adj1 Operating Margin
6.9%
2.2%
20232024
Free Cash Flow1 ($M)
$70
$(89) | ||
Operating | 2023 | 2024 |
Cash Flow | $78 | $(79) |
Revenue Trend ($M)
$2,000 $1,500 $1,000 $500
$0 | ||||||
Q1 23 | Q2 23 | Q3 23 | Q4 23 | Q1 24 | ||
Post Sale Revenue | Equipment Sale Revenue | |||||
Adj1 Earnings Per Share
$0.49 | |
$0.06 | |
2023 | 2024 |
GAAP Earnings (Loss) | ||
Per Share2 | $0.43 | $(0.94) |
Shareholder Returns ($M)
$45
$37
20232024 Dividends1 Adjusted measures, Free Cash Flow and Constant Currency (CC): see Non-GAAP Financial Measures. 2 Q1 2024 GAAP loss per share includes after-tax, Project Reinvention related charges of approximately $100 million, or $0.80 per share.
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Strategic Priorities for 2024
Strengthen Core Businesses
Structural Cost Improvements
Balanced Capital Allocation
- Re-alignproducts, services and distribution with the needs of economic buyers of today's hybrid workplace
- Business unit-led operating model to drive incremental Print, Digital and IT services penetration with existing and prospective clients
- Pursue strategic market share gains by increasing indirect channel reach, improving cost to serve, and enhancing partner profitability
- Leverage newly-formed Global Business Services (GBS) organization to drive enterprise-wide efficiencies and technology-enabled productivity gains
- Optimize global routes-to-market, leveraging partners over direct distribution where reach and regional profitability can be improved
- Narrow offerings to focus on products and services with greatest levels of competitive differentiation
- Optimize free cash flow1 generation through working capital efficiencies and forward flow finance receivable funding program
- Maintain $1/share dividend and pay down existing debt obligations as they come due
- Invest in projects or acquisitions with high rates of return on invested capital
4 1 Free Cash Flow: see Non-GAAP Financial Measures
Reinvention Progress Update
Reinvention Goal: Strengthen core businesses while building the foundation for long-term, sustainable growth in revenue and profits through
expanded penetration of services that address clients' workplace productivity needs.
2023
Q1 2024 Milestones
2025-2026
- Divested or deemphasized businesses that are noncore to Print, Digital and IT Services
-
Established strategic Program Management Office to define, design and execute Xerox's
Reinvention
Operating Model
Simplification
Geographic
Simplification
Offering
Simplification
- Transitioned from a geographic, to business unit-led operating model
- Consolidated sales, marketing, product development and services to one team, reporting to COO
- Created Global Business Services organization to centralize and optimize internal processes
- Initiated 15% reduction in headcount
- Sold, or agreed to sell direct operations in Argentina, Chile, Ecuador and Peru, shifting to partner-led distribution model in each country
- Took initial actions to simplify and improve Production Print profitability by exploring strategic options for the manufacture of certain Production Print equipment
Operating Model Simplification
Geographic and Offering Simplification
Reposition for Growth
Adj.1 Operating Income | >$100M (FY 2024) | >$300M (FY 2026) |
Improvement2 | ||
Total Adjusted1 Operating | ~$500m (FY 2024) | ~$700m (FY 2026) |
Income Objective |
5 | 1 Adjusted measures: see Non-GAAP Financial Measures. 2 Profit improvement above 2023 adjusted1 operating income of $389M. |
Frequently Asked Questions
Demand Outlook
How is underlying demand for Xerox products and services trending?
Demand for our products and services remains stable amid a corporate spending environment that is improving yet somewhat cautious. Excluding the impact of backlog reductions in the prior year quarter and the intentional reduction of non-strategic revenue, Q1 revenue would have declined mid single-digits. Revenue fell short of expectations in Q1, due in part to company-wide organizational changes, which affected the continuity of our sales operations, as well as A4 supply constraints. Growth in services signings remains strong, particularly for our growing portfolio of Digital Services, as clients seek both digital and physical solutions to address their most important document workflow needs.
Revenue Guidance
Has your 2024 revenue outlook changed since Q4 2023 earnings?
Our outlook for full-year revenue has not changed despite a slower-than-expected start to the year. While initially disruptive to sales operations, we are seeing the benefits of the new business unit-led operating model in equipment order momentum. Equipment orders grew double digits year-over-year in February and March, with rates of growth accelerating as the quarter progressed. For the year, we continue to expect a revenue decline of 3% to 5% in constant currency, which includes 400 basis points of non-recurring headwinds associated with backlog reduction in the prior year, the strategic deemphasis of certain businesses and other simplification actions. Revenue trajectory is expected to improve sequentially throughout the year.
Operating
Profit and Cash
Flow Outlook
What gives you confidence in your ability to achieve full-year adjusted¹ operating income margin & free cash flow¹ guidance?
A significant portion of the expected year-over-year improvement in adjusted¹ operating income is associated with cost reduction actions already taken, including the reduction in workforce announced in January. In addition, our new Global Business Services (GBS) organization is driving a series of near-term operating efficiency initiatives to deliver the 2024 adjusted¹ operating income margin target of at least 7.5%. We continue to expect more than $600 million of free cash flow¹ in 2024, aided by the reduction in our finance receivable balance. Free cash flow¹ is expected to improve throughout the year in conjunction with an increase in adjusted¹ operating income and working capital normalization.
Reinvention
Targets
Are you on track to achieve your adjusted¹ operating profit improvement target of $300 million above 2023 levels by 2026?
We remain on track to achieve our three-year adjusted¹ operating profit improvement target. Due to the timing of certain actions taken this year, a portion of the run-rate benefits of 2024 actions will be realized in 2025, giving us a high degree of visibility to progress toward the three-year profit improvement target in 2025. We expect to deliver the remainder of the targeted improvement through further operating efficiencies, enabled by our GBS organization, geographic and offering simplifications, and a more favorable profit profile associated with growth in Digital and IT Services.
6 1 Adjusted measures and Free Cash Flow: see Non-GAAP Financial Measures.
Financial Results Summary
(in millions, except per share data)
B/(W) | % Change | ||
P&L Measures | Q1 2024 | YOY | YOY |
Revenue | $ 1,502 | $ (213) | (12.4)% AC |
(13.2)% CC1 | |||
Operating Income - | 33 | (85) | (72)% |
Adjusted1 | |||
Other Expenses, net | 24 | (3) | 14% |
- Adjusted1 | |||
Net (Loss)² | (113) | (184) | NM |
Net Income - | 11 | (71) | (87)% |
Adjusted1 | |||
GAAP (Loss) Per | (0.94) | (1.37) | NM |
Share² | |||
Earnings per Share - | 0.06 | (0.43) | (88)% |
Adjusted1 | |||
P&L Ratios | Q1 2024 | B/(W) YOY |
Gross Margin - Adjusted1 | 31.9% | (240) bps |
RD&E % | 3.3% | 40 bps |
SAG % | 26.4% | (270) bps |
Operating Margin - | 2.2% | (470) bps |
Adjusted1 | ||
Tax Rate - Adjusted1 | (22.2)% | NM |
1 Adjusted Measures and Constant Currency (CC): see Non-GAAP Financial Measures. Q1 2024 adjusted tax rate was a 22.2% benefit compared to 15.5% expense in the prior 7 quarter last year. The decrease reflects additional tax benefits in the current quarter from the redetermination of certain unrecognized tax positions and mix of earnings. 2 Q1 2024
GAAP Net loss and Loss per share includes after-tax Project Reinvention related charges of approximately $100 million, or $0.80 per share.
Revenue
% Change YOY
(in millions) | Q1 | % Total | AC | CC1 | |
2024 | |||||
Equipment | $290 | 19% | (25.8)% | (26.3)% | |
Post Sale | $1,212 | 81% | (8.5)% | (9.3)% | |
Total Revenue | $1,502 | 100% | (12.4)% | (13.2)% | |
Impacts to y/y change in Total Revenue: | |||||
Prior year reduction in backlog | ~4% | ||||
Reductions in non-strategic revenue | ~2% | ||||
Lower Fuji royalties/strategic actions | ~2% |
1 Constant Currency (CC): see Non-GAAP Financial Measures
Quarterly Revenue Trend ($B)
$1.72 | $1.75 | $1.65 | $1.77 |
$1.50 | |||
Q1 23 | Q2 23 | Q3 23 | Q4 23 | Q1 24 | ||
Q1 Installs & CC¹ Equipment Revenue B/(W) YOY | ||||||
Total | CC1 Equipment | |||||
Color | B&W | Installs | Revenue | |||
Entry | (37)% | (47)% | (44)% | (27)% | ||
Mid-Range | (18)% | (28)% | (21)% | (24)% | ||
High-End | (42)% | (22)% | (40)% | (36)% | ||
Total | (28)% | (44)% | (38)% | (26)% | ||
Impact of PY reduction in back log | ||||||
and geographic optimization | (16)% | |||||
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Cash Flow
(in millions) | Q1 2024 | Q1 2023 |
Pre-tax (Loss) Income | ($150) | $85 |
Non-CashAdd-Backs1 | 236 | 78 |
Restructuring Payments | (16) | (6) |
Pension Contributions | (31) | (17) |
Working Capital, net2 | (135) | (66) |
Change in Finance Assets3 | 188 | 120 |
Other4 | (171) | (116) |
Cash (used in) provided by Operations | (79) | 78 |
Cash used in Investing | (17) | (17) |
Cash provided by (used in) Financing | 261 | (505) |
Ending Cash, Cash Equivalents and Restricted Cash5 | 772 | 697 |
Free Cash Flow6 | (89) | 70 |
- Non-cashadd-backs include depreciation & amortization (including equipment on operating lease), provisions, stock-based compensation, non-serviceretirement-related costs, restructuring and asset impairment charges and gain on sales of businesses and assets (as applicable). 2 Working Capital, net includes accounts receivable, accounts payable and inventory. 3 Includes equipment on operating leases (excluding its related depreciation) and finance receivables. 4 Includes other current and long-term assets and liabilities, accrued compensation, derivative assets and liabilities, other operating, net, distributions from net income of unconsolidated affiliates and taxes. 5 Includes restricted cash of $87 million in Q1 2024 and $106 million in Q1 2023.
- Free Cash Flow: see Non-GAAP Financial Measures.
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Segment Results
Revenue and Profit
Q1 2024 | B/(W) YoY | |||||||||||||||
Print & | Intersegment | Print & | ||||||||||||||
(in millions) | Other | XFS1 | Eliminations2 | Total Xerox | Other | XFS1 | Total Xerox | |||||||||
Total Revenue | $ | 1,430 | $ | 91 | $ | (19) | $ | 1,502 | Total Revenue | (12.6)% | (10.8)% | (12.4)% | ||||
Segment Profit | $ | 33 | $ | - | $ | - | $ | 33 | Segment Profit | (67)% | (100)% | (72)% | ||||
Segment Margin3 | 2.3% | 0.0% | 2.2% | Segment Margin (bps)3 | (390) | (1,760) | (470) |
Financing Assets and Debt
(in billions) | Q1 2024 | Q4 2023 | ||||
Equipment on Operating Leases | $ | 0.26 | $ | 0.27 | ||
XFS Finance Receivables | $ | 2.26 | $ | 2.51 | ||
Total Finance Assets | $ | 2.52 | $ | 2.78 | ||
Financing Allocated Debt | $ | 2.20 | $ | 2.43 |
Xerox Financial Services (XFS): Key Performance Indicators
- XFS finance receivables: $2.3 billion, ~10% lower Q/Q due primarily to the run-off of existing finance receivables and lower originations
- Originations in Q1: 35% Y/Y decline in originations, due to lower originations of Xerox and third-party equipment
- TTM originations sold to HPS: 41%
- TTM Net Loan Loss Rate: 1.0%
Note: 1 Xerox Financial Services (XFS) (formerly FITTLE). 2 Reflects revenue, primarily commissions and other payments, made by the XFS segment to the Print and Other segment, for the
10 lease of Xerox equipment placements. 3 Segment margin based on external revenue only.
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Xerox Holdings Corporation published this content on 23 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 April 2024 18:04:06 UTC.