Balanced execution drives growth in revenue and
profitability
Financial Summary
Q1 2023
- Revenue of $1.72 billion, up 2.8 percent year-over-year or up
5.5 percent in constant currency.
- GAAP earnings per share (EPS) of $0.43, up $0.81
year-over-year.
- Adjusted EPS of $0.49, up $0.61 year-over-year.
- Adjusted operating margin of 6.9 percent, up 710 basis points
year-over-year.
- Operating cash flow of $78 million, up $12 million
year-over-year.
- Free cash flow of $70 million, up $20 million
year-over-year.
- Donated Palo Alto Research Center (PARC) to SRI International
in April, providing Xerox greater capacity to pursue innovation
projects in Print, IT, and Digital Services.
- Repaid $450 million of debt during the quarter.
Xerox Holdings Corporation (NASDAQ: XRX) today announced its
2023 first-quarter results.
“Our team delivered another quarter of strong performance while
remaining laser-focused on our three strategic priorities for 2023:
client success, profitability, and shareholder returns,” said Steve
Bandrowczak, chief executive officer at Xerox. “Despite a
challenging macroeconomic climate, demand for our equipment and
services remains resilient and is supported by service offerings
that help our clients mitigate current macro headwinds like higher
inflation, labor shortages, and tighter liquidity conditions.
Further, the benefits of a more flexible cost base and ongoing
operational efficiencies helped drive improvements in profitability
in the first quarter.”
First-Quarter Key Financial Results
(in
millions, except per share data)
Q1 2023
Q1 2022
B/(W)
YOY
% Change
B/(W) YOY
Revenue
$1,715
$1,668
$47
2.8% AC 5.5% CC (1)
Gross Margin
34.3%
31.8%
250 bps
RD&E %
3.7%
4.7%
100 bps
SAG %
23.7%
27.3%
360 bps
Pre-Tax Income (Loss)
$85
$(89)
$174
NM
Pre-Tax Income (Loss) Margin
5.0%
(5.3)%
NM
Operating Income - Adjusted (1)
$118
$(3)
$121
NM
Operating Income Margin - Adjusted (1)
6.9%
(0.2)%
710 bps
GAAP Diluted Earnings (Loss) per
Share
$0.43
$(0.38)
$0.81
NM
Diluted Earnings Per Share - Adjusted
(1)
$0.49
$(0.12)
$0.61
NM
_____________
(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.
First-Quarter Segment Results
(in
millions)
Q1 2023
Q1 2022
B/(W)
YOY
% Change
B/(W) YOY
Revenue
Print and Other
$1,613
$1,550
$63
4.1%
Financing (FITTLE)
154
158
(4)
(2.5)%
Intersegment Elimination (1)
(52)
(40)
(12)
30.0%
Total Revenue
$1,715
$1,668
$47
2.8%
Profit
Print and Other
$106
$(20)
$126
NM
Financing (FITTLE)
12
17
(5)
(29.4)%
Total Profit
$118
$(3)
$121
NM
_____________
(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 growth: flat to down low-single-digits in constant
currency
- Adjusted Operating Margin: 5.0% to 5.5%
- Free cash flow: at least $500 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.
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.
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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
March 31,
(in millions, except per-share data)
2023
2022
Revenues
Sales
$
659
$
592
Services, maintenance and rentals
1,004
1,023
Financing
52
53
Total Revenues
1,715
1,668
Costs and Expenses
Cost of sales
425
435
Cost of services, maintenance and
rentals
665
679
Cost of financing
36
24
Research, development and engineering
expenses
64
78
Selling, administrative and general
expenses
407
455
Restructuring and related costs, net
2
18
Amortization of intangible assets
11
11
Other expenses, net
20
57
Total Costs and Expenses
1,630
1,757
Income (Loss) before Income Taxes &
Equity Income(1)
85
(89
)
Income tax expense (benefit)
14
(31
)
Equity in net income of unconsolidated
affiliates
—
1
Net Income (Loss)
71
(57
)
Less: Net loss attributable to
noncontrolling interests
—
(1
)
Net Income (Loss) Attributable to Xerox
Holdings
$
71
$
(56
)
Basic Earnings (Loss) per Share
$
0.43
$
(0.38
)
Diluted Earnings (Loss) per
Share
$
0.43
$
(0.38
)
___________________________
(1)
Referred to as “Pre-tax income
(loss)” throughout the remainder of this document.
XEROX HOLDINGS
CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Three Months Ended
March 31,
(in millions)
2023
2022
Net Income (Loss)
$
71
$
(57
)
Less: Net loss attributable to
noncontrolling interests
—
(1
)
Net Income (Loss) Attributable to Xerox
Holdings
71
(56
)
Other Comprehensive Income (Loss),
Net
Translation adjustments, net
92
(72
)
Unrealized gains (losses), net
4
(11
)
Changes in defined benefit plans, net
(14
)
39
Other Comprehensive Income (Loss),
Net
82
(44
)
Less: Other comprehensive loss, net
attributable to noncontrolling interests
(1
)
—
Other Comprehensive Income (Loss), Net
Attributable to Xerox Holdings
83
(44
)
Comprehensive Income (Loss),
Net
153
(101
)
Less: Comprehensive loss, net attributable
to noncontrolling interests
(1
)
(1
)
Comprehensive Income (Loss), Net
Attributable to Xerox Holdings
$
154
$
(100
)
XEROX HOLDINGS
CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED)
(in millions, except share data in
thousands)
March 31, 2023
December 31, 2022
Assets
Cash and cash equivalents
$
591
$
1,045
Accounts receivable (net of allowance of
$53 and $52, respectively)
818
857
Billed portion of finance receivables (net
of allowance of $4 and $4, respectively)
94
93
Finance receivables, net
1,022
1,061
Inventories
863
797
Other current assets
252
254
Total current assets
3,640
4,107
Finance receivables due after one year
(net of allowance of $97 and $113, respectively)
1,864
1,948
Equipment on operating leases, net
250
235
Land, buildings and equipment, net
311
320
Intangible assets, net
202
208
Goodwill, net
2,850
2,820
Deferred tax assets
598
582
Other long-term assets
1,331
1,323
Total Assets
$
11,046
$
11,543
Liabilities and Equity
Short-term debt and current portion of
long-term debt
$
553
$
860
Accounts payable
1,301
1,331
Accrued compensation and benefits
costs
243
258
Accrued expenses and other current
liabilities
782
881
Total current liabilities
2,879
3,330
Long-term debt
2,726
2,866
Pension and other benefit liabilities
1,168
1,175
Post-retirement medical benefits
182
184
Other long-term liabilities
400
411
Total Liabilities
7,355
7,966
Noncontrolling Interests
10
10
Convertible Preferred Stock
214
214
Common stock
157
156
Additional paid-in capital
1,594
1,588
Retained earnings
5,162
5,136
Accumulated other comprehensive loss
(3,454
)
(3,537
)
Xerox Holdings shareholders’ equity
3,459
3,343
Noncontrolling interests
8
10
Total Equity
3,467
3,353
Total Liabilities and Equity
$
11,046
$
11,543
Shares of Common Stock Issued and
Outstanding
156,958
155,781
XEROX HOLDINGS
CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
(in millions)
2023
2022
Cash Flows from Operating
Activities
Net Income (Loss)
$
71
$
(57
)
Adjustments required to reconcile Net
income (loss) to cash flows provided by operating
activities
Depreciation and amortization
64
72
Provisions
—
19
Stock-based compensation
14
15
Restructuring and asset impairment
charges
1
20
Payments for restructurings
(6
)
(7
)
Non-service retirement-related costs
(1
)
(7
)
Contributions to retirement plans
(17
)
(38
)
Decrease in accounts receivable and billed
portion of finance receivables
39
13
Increase in inventories
(64
)
(31
)
Increase in equipment on operating
leases
(40
)
(36
)
Decrease in finance receivables
160
41
Decrease (increase) in other current and
long-term assets
3
(1
)
(Decrease) increase in accounts
payable
(41
)
111
(Decrease) increase in accrued
compensation
(16
)
22
Decrease in other current and long-term
liabilities
(128
)
(43
)
Net change in income tax assets and
liabilities
18
(39
)
Net change in derivative assets and
liabilities
13
7
Other operating, net
8
5
Net cash provided by operating
activities
78
66
Cash Flows from Investing
Activities
Cost of additions to land, buildings,
equipment and software
(8
)
(16
)
Proceeds from sales of businesses and
assets
1
—
Acquisitions, net of cash acquired
(7
)
(54
)
Other investing, net
(3
)
(5
)
Net cash used in investing activities
(17
)
(75
)
Cash Flows from Financing
Activities
Net (payments) proceeds on debt
(452
)
22
Dividends
(45
)
(46
)
Payments to acquire treasury stock,
including fees
—
(113
)
Other financing, net
(8
)
(12
)
Net cash used in financing activities
(505
)
(149
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
2
10
Decrease in cash, cash equivalents and
restricted cash
(442
)
(148
)
Cash, cash equivalents and restricted cash
at beginning of period
1,139
1,909
Cash, Cash Equivalents and Restricted
Cash at End of Period
$
697
$
1,761
First Quarter 2023 Overview
Balanced execution drove growth in revenue and profits for the
first quarter. Amid a challenging operating environment, Xerox
remains focused on the execution of our 2023 priorities and the
goal of delivering client success through products and services
that address the productivity challenges of today’s hybrid
workplace. Demand for our print equipment and related services
remains resilient despite continued economic uncertainty, as
evidenced by another quarter of growth in both equipment revenue
and constant currency1 post sale revenue, which included a benefit
from prior year acquisitions. Consistent with recent quarters, we
are seeing isolated pockets of softer installation activity - often
the result of delays in project deployments rather than order
reductions. This softness, however, is being offset by continued
strength in our office print business, particularly for state and
local government, education and mid-market accounts, as well as
strength in our print and digital service offerings. As a result,
we continue to expect a stable revenue and demand outlook for the
full year.
Equipment sales revenue of $391 million in first quarter 2023
increased 24.5% in actual currency and 27.0% in constant currency1
as compared to the prior year. Growth was driven by better
availability of product in both the Americas and EMEA, particularly
for our higher margin A3 devices and production equipment. Backlog2
declined for the third consecutive quarter as supply chain
conditions further normalized. Post-sale revenue declined 2.2% in
actual currency and increased 0.5% in constant currency1. Post-sale
growth in constant currency1 was driven by growth in consumables
and contractual print and digital services3, including the
acquisition of Go Inspire, partially offset by lower sales of IT
Hardware.
Pre-tax income and adjusted1 operating income were both higher
year-over-year, primarily due to increased revenues as well the
benefits from continued cost reduction actions, supply
chain-related cost improvements, price increases and lower bad debt
expense due to reserve releases. We expect to deliver low-to-mid
single digit gross operating cost efficiencies for the year, driven
by continuous productivity improvement and specific cost
reductions.
Total Revenue is expected to be flat to down low-single-digits
in constant currency1 in 2023. We are increasing our adjusted1
operating income margin guidance from at least 4.7% to a range of
5.0% to 5.5%, reflecting better than expected profitability in the
first quarter of 2023 and the success of ongoing efficiency
programs. We expect to generate at least $500 million of free cash
flow1, which reflects the benefits of FITTLE's finance receivables
funding agreement.
Donation of Palo Alto Research Center (PARC)
On April 24, 2023, Xerox entered into an agreement to donate its
PARC subsidiary to SRI 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
new 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 is
expected to be completed by the end of the month. The donation is
not expected to materially impact earnings or cash flow for the
Company.
_____________
(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.
First quarter 2023 backlog of $179 million excludes sales orders
from Russia and Powerland Computers, Ltd.
(3)
Includes revenue from Services,
maintenance and rentals.
Financial Review
Revenues
Three Months Ended
March 31,
% of Total Revenue
(in millions)
2023
2022
%
Change
CC %
Change
2023
2022
Equipment sales
$
391
$
314
24.5
%
27.0
%
23
%
19
%
Post sale revenue
1,324
1,354
(2.2
)%
0.5
%
77
%
81
%
Total Revenue
$
1,715
$
1,668
2.8
%
5.5
%
100
%
100
%
Reconciliation to Condensed
Consolidated Statements of Income (Loss):
Sales
$
659
$
592
11.3
%
13.1
%
Less: Supplies, paper and other sales
(268
)
(278
)
(3.6
)%
(2.6
)%
Equipment Sales
$
391
$
314
24.5
%
27.0
%
Services, maintenance and rentals
$
1,004
$
1,023
(1.9
)%
1.4
%
Add: Supplies, paper and other sales
268
278
(3.6
)%
(2.6
)%
Add: Financing
52
53
(1.9
)%
0.3
%
Post Sale Revenue
$
1,324
$
1,354
(2.2
)%
0.5
%
Segments
Print and Other
$
1,613
$
1,550
4.1
%
94
%
93
%
FITTLE
154
158
(2.5
)%
9
%
9
%
Intersegment elimination (1)
(52
)
(40
)
30.0
%
(3
)%
(2
)%
Total Revenue(2)
$
1,715
$
1,668
2.8
%
100
%
100
%
Go-to-Market
Operations
Americas
$
1,114
$
1,071
4.0
%
4.6
%
65
%
64
%
EMEA
556
554
0.4
%
7.3
%
32
%
33
%
Other
45
43
4.7
%
4.7
%
3
%
3
%
Total Revenue(2)
$
1,715
$
1,668
2.8
%
5.5
%
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
March 31,
(in millions)
2023
2022
B/(W)
Gross Profit
$
589
$
530
$
59
RD&E
64
78
14
SAG
407
455
48
Equipment Gross Margin
36.5
%
20.4
%
16.1
pts.
Post sale Gross Margin
33.7
%
34.4
%
(0.7
)
pts.
Total Gross Margin
34.3
%
31.8
%
2.5
pts.
RD&E as a % of Revenue
3.7
%
4.7
%
1.0
pts.
SAG as a % of Revenue
23.7
%
27.3
%
3.6
pts.
Pre-tax Income (Loss)
$
85
$
(89
)
$
174
Pre-tax Income (Loss) Margin
5.0
%
(5.3
)%
10.3
pts.
Adjusted(1) Operating Profit (Loss)
$
118
$
(3
)
$
121
Adjusted(1) Operating Income (Loss)
Margin
6.9
%
(0.2
)%
7.1
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
March 31,
(in millions)
2023
2022
Non-financing interest expense
$
14
$
29
Interest income
(5
)
(1
)
Non-service retirement-related costs
(1
)
(7
)
Currency losses, net
11
—
Contract termination costs - product
supply
—
33
All other expenses, net
1
3
Other expenses, net
$
20
$
57
Segment Review
Three Months Ended March 31,
(in millions)
External
Revenue
Intersegment
Revenue(1)
Total
Segment
Revenue
% of Total
Revenue
Segment
Profit
(Loss)
Segment
Margin(2)
2023
Print and Other
$
1,564
$
49
$
1,613
91
%
$
106
6.8
%
FITTLE
151
3
154
9
%
12
7.9
%
Total
$
1,715
$
52
$
1,767
100
%
$
118
6.9
%
2022
Print and Other
$
1,513
$
37
$
1,550
91
%
$
(20
)
(1.3
)%
FITTLE
155
3
158
9
%
17
11.0
%
Total
$
1,668
$
40
$
1,708
100
%
$
(3
)
(0.2
)%
_____________
(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
March 31,
(in millions)
2023
2022
%
Change
Equipment sales
$
385
$
309
24.6
%
Post sale revenue
1,179
1,204
(2.1
)%
Intersegment revenue (1)
49
37
32.4
%
Total Print and Other Revenue
$
1,613
$
1,550
4.1
%
_____________
(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
March 31,
% of Equipment Sales
(in millions)
2023
2022
%
Change
CC %
Change
2023
2022
Entry
$
62
$
61
1.6
%
2.3
%
16
%
19
%
Mid-range
252
194
29.9
%
32.4
%
64
%
62
%
High-end
73
54
35.2
%
38.3
%
19
%
17
%
Other
4
5
(20.0
)%
(20.0
)%
1
%
2
%
Equipment Sales (1),(2)
$
391
$
314
24.5
%
27.0
%
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 $6 million and $5
million of equipment sales related to the FITTLE segment for the
three months ended March 31, 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
March 31,
(in millions)
2023
2022
%
Change
Equipment sales
$
6
$
5
20.0
%
Financing
52
53
(1.9
)%
Other Post sale revenue (1)
93
97
(4.1
)%
Intersegment revenue(2)
3
3
—
%
Total FITTLE Revenue
$
154
$
158
(2.5
)%
_____________
(1)
Other Post sale revenue includes
operating lease/rental revenues as well as lease renewal and fee
income.
(2)
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.
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 first
quarter 2023 presentation slides available at
www.xerox.com/investor.
Adjusted Earnings Measures
- Adjusted Net Income (Loss) 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.
- Contract termination cost - product supply
Adjusted Operating Income (Loss) 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 (Loss) and
EPS reconciliation
Three Months Ended March 31,
2023
2022
(in millions, except per share
amounts)
Net
Income
Diluted
EPS
Net
(Loss)
Diluted
EPS
Reported(1)
$
71
$
0.43
$
(56
)
$
(0.38
)
Adjustments:
Restructuring and related costs, net
2
18
Amortization of intangible assets
11
11
Non-service retirement-related costs
(1
)
(7
)
Contract termination cost - product
supply
—
33
Income tax on adjustments(2)
(1
)
(13
)
Adjusted
$
82
$
0.49
$
(14
)
$
(0.12
)
Dividends on preferred stock used in
adjusted EPS calculation(3)
$
4
$
4
Weighted average shares for adjusted
EPS(3)
158
156
Fully diluted shares at end of
period(4)
158
_____________
(1)
Net income (loss) and EPS
attributable to Xerox Holdings.
(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 March 31, 2023, plus potential dilutive common
shares used for the calculation of adjusted diluted EPS for the
first quarter 2023. The amount excludes shares associated with our
Series A convertible preferred stock, which were anti-dilutive for
the first quarter 2023.
Adjusted Effective Tax Rate
reconciliation
Three Months Ended March 31,
2023
2022
(in millions)
Pre-Tax
Income
Income Tax
Expense
Effective Tax
Rate
Pre-Tax
(Loss)
Income Tax
(Benefit)
Effective Tax
Rate
Reported(1)
$
85
$
14
16.5
%
$
(89
)
$
(31
)
34.8
%
Non-GAAP adjustments(2)
12
1
55
13
Adjusted(3)
$
97
$
15
15.5
%
$
(34
)
$
(18
)
52.9
%
_____________
(1)
Pre-tax income (loss) and income
tax expense (benefit).
(2)
Refer to Adjusted Net Income
(Loss) and EPS reconciliation for details.
(3)
The tax impact on Adjusted
Pre-Tax Income (Loss) 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
(Loss) and Margin reconciliation
Three Months Ended March 31,
2023
2022
(in millions)
Profit
Revenue
Margin
(Loss)
Revenue
Margin
Reported(1)
$
85
$
1,715
5.0
%
$
(89
)
$
1,668
(5.3
)%
Adjustments:
Restructuring and related costs, net
2
18
Amortization of intangible assets
11
11
Other expenses, net
20
57
Adjusted
$
118
$
1,715
6.9
%
$
(3
)
$
1,668
(0.2
)%
_____________
(1)
Pre-tax income (loss).
Free Cash Flow reconciliation
Three Months Ended
March 31,
(in millions)
2023
2022
Reported(1)
$
78
$
66
Less: capital expenditures
8
16
Free Cash Flow
$
70
$
50
_____________
(1)
Net cash provided by operating
activities.
GUIDANCE
Adjusted Operating Income and
Margin
FY 2023
(in millions)
Profit
Revenue (CC)(2,3)
Margin
Estimated(1)
~ $220
~ $7,100
~ 3.1%
Adjustments:
Restructuring and related costs, net
75
Amortization of intangible assets
40
Other expenses, net
40
Adjusted (4)
~ $375
~ $7,100
5.0% - 5.5%
_____________
(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 $550
Less: capital expenditures
50
Free Cash Flow
At least $500
_____________
(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
March 31,
2023
2022
Basic Earnings (Loss) per
Share:
Net Income (Loss) Attributable to Xerox
Holdings
$
71
$
(56
)
Accrued dividends on preferred stock
(4
)
(4
)
Adjusted net income (loss) available to
common shareholders
$
67
$
(60
)
Weighted average common shares
outstanding
156,661
156,362
Basic Earnings (Loss) per Share
$
0.43
$
(0.38
)
Diluted Earnings (Loss) per
Share:
Net Income (Loss) Attributable to Xerox
Holdings
$
71
$
(56
)
Accrued dividends on preferred stock
(4
)
(4
)
Adjusted net income (loss) available to
common shareholders
$
67
$
(60
)
Weighted average common shares
outstanding
156,661
156,362
Common shares issuable with respect
to:
Stock Options
—
—
Restricted stock and performance
shares
1,085
—
Convertible preferred stock
—
—
Adjusted weighted average common shares
outstanding
157,746
156,362
Diluted Earnings (Loss) per
Share
$
0.43
$
(0.38
)
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
561
612
Restricted stock and performance
shares
6,402
6,470
Convertible preferred stock
6,742
6,742
Total Anti-Dilutive Securities
13,705
13,824
Dividends per Common Share
$
0.25
$
0.25
APPENDIX II
Xerox Holdings Corporation
Reportable Segments
Our business is organized to ensure we focus on efficiently
managing operations while serving our customers and the markets in
which we operate. We have two operating and reportable segments -
Print and Other and FITTLE.
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 includes 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 lower 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, operating lease income (including month-to-month
rentals and extensions) and leasing 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 primarily 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/20230425005494/en/
Media Contact: Justin Capella, Xerox, +1-203-258-6535,
Justin.Capella@xerox.com
Investor Contact: David Beckel, Xerox, +1-203-849-2318,
David.Beckel@xerox.com
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