Reinvention drives increased profitability despite a challenging
quarter for equipment sales; pending acquisition of ITsavvy to
improve revenue mix from higher growth businesses
Financial Summary Q3 2024
- Revenue of $1.53 billion, down 7.5 percent, or 7.3 percent in
constant currency.
- GAAP net (loss) of $(1.2) billion, or $(9.71) per share, a
decrease of $1.3 billion or $9.99 per share, year-over-year,
respectively. This quarter includes an after-tax non-cash goodwill
impairment charge of $1.0 billion, or $8.16 per share and a charge
to tax expense related to the establishment of a valuation
allowance of $161 million, or $1.29 per share.
- Adjusted net income of $34 million, or $0.25 per share, down
$43 million or $0.21 per share, year-over-year, respectively.
- Adjusted operating margin of 5.2 percent, up 110 basis points
year-over-year.
- Operating cash flow of $116 million, down $8 million
year-over-year.
- Free cash flow of $107 million, down $5 million
year-over-year.
- Lowered 2024 revenue guidance to a decline of around 10% in
constant currency, adjusted operating margin guidance to around
5.0%, and free cash flow guidance to a range of $450 to $500
million.
Xerox Holdings Corporation (NASDAQ: XRX) today announced its
2024 third-quarter results.
"While equipment revenue fell short of expectations, we continue
to see steady progress from Reinvention initiatives taken to date.
Adjusted operating income and margin grew year-over-year, and the
pending acquisition of ITsavvy will improve Xerox's value
proposition with clients, as well as the mix of revenue from
growing businesses,” said Steve Bandrowczak, chief executive
officer at Xerox. “Q3 results demonstrate no single quarter or
performance metric in isolation defines our Reinvention.
Operational improvements and enterprise-wide efficiencies are
driving services signings momentum, improved decision-making and a
sustainably lower cost base. These gains give us confidence
Reinvention will enable long-term profitable growth as we continue
this multi-year journey."
Third-Quarter Key Financial Results
(in millions,
except per share data)
Q3 2024
Q3 2023
B/(W)
YOY
% Change
B/(W) YOY
Revenue
$1,528
$1,652
$(124)
(7.5)% AC (7.3)% CC1
Gross Margin
32.4%
32.4%
—
RD&E %
2.9%
3.1%
20 bps
SAG %
24.2%
25.2%
100 bps
Pre-Tax (Loss) Income2
$(1,087)
$64
$(1,151)
NM
Pre-Tax (Loss) Income Margin2
(71.1)%
3.9%
NM
Operating Income - Adjusted1
$80
$68
$12
17.6%
Operating Income Margin - Adjusted1
5.2%
4.1%
110 bps
GAAP Diluted (Loss) Earnings per
Share2
$(9.71)
$0.28
$(9.99)
NM
Diluted Earnings Per Share - Adjusted1
$0.25
$0.46
$(0.21)
(45.7)%
Third-Quarter Segment Results
(in
millions)
Q3 2024
Q3 2023
B/(W) YOY
% Change B/(W)
YOY
Revenue
Print and Other
$1,457
$1,575
$(118)
(7.5)%
XFS
88
98
(10)
(10.2)%
Intersegment Elimination3
(17)
(21)
4
(19.0)%
Total Revenue
$1,528
$1,652
$(124)
(7.5)%
Profit
Print and Other
$67
$64
$3
4.7%
XFS
13
4
9
225.0%
Total Profit
$80
$68
$12
17.6%
_____________
- 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.
- Third quarter 2024 Pre-Tax (Loss) and EPS include a pre-tax
non-cash goodwill impairment charge of approximately $1.1 billion,
and approximately $1.0 billion after-tax, respectively, or $8.16
per diluted share. EPS includes a tax expense charge of $161
million, or $1.29 per share, related to the establishment of a
valuation allowance against certain deferred tax assets to reflect
their realizability. This adjustment was excluded due to its unique
nature and significant impact which is not considered part of our
core operations.
- Reflects revenue, primarily commissions and other payments,
made by the XFS segment to the Print and Other segment for the
lease of Xerox equipment placements.
2024 Guidance Update
- Revenue: from a decline of 5% to 6% in constant currency1 to a
decline of around 10% in constant currency 1
- Adjusted 1 Operating Margin: from at least 6.5% to around
5.0%
- Free cash flow1: from at least $550 million to a range of $450
to $500 million
2024 guidance excludes any impact from the pending acquisition
of ITsavvy. Revenue guidance was lowered to reflect additional
reductions in non-strategic revenue and lower-than-expected
equipment sales. Adjusted 1 operating income margin guidance was
lowered primarily to reflect the reduction in revenue guidance.
Free cash flow1 guidance was lowered to reflect the after-tax
impact of lower adjusted 1 operating income margin guidance.
Due to lower-than-expected revenue in 2024, we no longer expect
to grow adjusted 1 operating income $300 million above 2023 levels
by 2026. However, we continue to expect growth in adjusted1
operating income and a return to double-digit adjusted1 operating
income margin over the course of our Reinvention.
Non-GAAP Measures
This release refers to the following non-GAAP financial
measures:
- Adjusted1 EPS, which excludes the Goodwill impairment charge
and a tax expense charge related to the establishment of a
valuation allowance against certain deferred tax assets, as well as
Restructuring and related costs, net, Amortization of intangible
assets, non-service retirement-related costs, and other discrete
adjustments from GAAP EPS, as applicable.
- Adjusted 1 operating income and margin, which exclude the EPS
adjustments noted above, except the tax expense charge related to
the establishment of a valuation allowance against certain deferred
tax assets, as well as the remainder of Other expenses, net from
pre-tax (loss) income and margin.
- Constant currency (CC) revenue change, which excludes the
effects of currency translation.
- Free cash flow 1, which is operating cash flow less capital
expenditures.
_____________
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.
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, 2023. 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
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https://www.instagram.com/xerox/,
http://www.youtube.com/XeroxCorp.
Xerox® is a trademark of Xerox in the United States and/or other
countries.
XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED
STATEMENTS OF (LOSS) INCOME (UNAUDITED)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions, except per-share data)
2024
2023
2024
2023
Revenues
Sales
$
588
$
644
$
1,722
$
1,999
Services, maintenance and rentals
902
962
2,768
2,975
Financing
38
46
118
147
Total Revenues
1,528
1,652
4,608
5,121
Costs and Expenses
Cost of sales
390
435
1,117
1,312
Cost of services, maintenance and
rentals
617
651
1,951
1,987
Cost of financing
26
30
82
100
Research, development and engineering
expenses
45
52
144
173
Selling, administrative and general
expenses
370
416
1,160
1,256
Goodwill impairment
1,058
—
1,058
—
Restructuring and related costs, net
56
10
107
35
Amortization of intangible assets
10
12
30
33
Divestitures
—
—
51
—
PARC Donation
—
—
—
132
Other expenses, net
43
(18
)
120
33
Total Costs and Expenses
2,615
1,588
5,820
5,061
(Loss) Income before Income
Taxes(1)
(1,087
)
64
(1,212
)
60
Income tax expense
118
15
88
1
Net (Loss) Income
(1,205
)
49
(1,300
)
59
Less: Preferred stock dividends, net
(4
)
(4
)
(11
)
(11
)
Net (Loss) Income attributable to
Common Shareholders
$
(1,209
)
$
45
$
(1,311
)
$
48
Basic (Loss) Earnings per Share
$
(9.71
)
$
0.29
$
(10.55
)
$
0.31
Diluted (Loss) Earnings per
Share
$
(9.71
)
$
0.28
$
(10.55
)
$
0.30
___________________________
(1) Referred to as “Pre-tax (loss) income” 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)
2024
2023
2024
2023
Net (Loss) Income
$
(1,205
)
$
49
$
(1,300
)
$
59
Other Comprehensive Income (Loss),
Net
Translation adjustments, net
192
(123
)
140
19
Unrealized gains, net
5
1
4
—
Changes in defined benefit plans, net
(24
)
55
18
14
Other Comprehensive Income (Loss),
Net
173
(67
)
162
33
Comprehensive (Loss) Income,
Net
$
(1,032
)
$
(18
)
$
(1,138
)
$
92
XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
(in millions, except share data in
thousands)
September 30, 2024
December 31, 2023
Assets
Cash and cash equivalents
$
521
$
519
Accounts receivable (net of allowance of
$71 and $64, respectively)
821
850
Billed portion of finance receivables (net
of allowance of $3 and $4, respectively)
50
71
Finance receivables, net
664
842
Inventories
732
661
Other current assets
223
234
Total current assets
3,011
3,177
Finance receivables due after one year
(net of allowance of $68 and $88, respectively)
1,275
1,597
Equipment on operating leases, net
255
265
Land, buildings and equipment, net
225
266
Intangible assets, net
149
177
Goodwill, net
1,709
2,747
Deferred tax assets
635
745
Other long-term assets
1,063
1,034
Total Assets
$
8,322
$
10,008
Liabilities and Equity
Short-term debt and current portion of
long-term debt
$
519
$
567
Accounts payable
895
1,044
Accrued compensation and benefits
costs
227
306
Accrued expenses and other current
liabilities
752
862
Total current liabilities
2,393
2,779
Long-term debt
2,752
2,710
Pension and other benefit liabilities
1,126
1,216
Post-retirement medical benefits
166
171
Other long-term liabilities
354
360
Total Liabilities
6,791
7,236
Noncontrolling Interests
10
10
Convertible Preferred Stock
214
214
Common stock
124
123
Additional paid-in capital
1,123
1,114
Retained earnings
3,570
4,977
Accumulated other comprehensive loss
(3,514
)
(3,676
)
Xerox Holdings shareholders’ equity
1,303
2,538
Noncontrolling interests
4
10
Total Equity
1,307
2,548
Total Liabilities and Equity
$
8,322
$
10,008
Shares of Common Stock Issued and
Outstanding
124,363
123,144
XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)
2024
2023
2024
2023
Cash Flows from Operating
Activities
Net (Loss) Income
$
(1,205
)
$
49
$
(1,300
)
$
59
Adjustments to reconcile Net (loss)
income to Net cash provided by operating activities
Depreciation and amortization
59
63
177
189
Provisions
13
16
92
37
Net gain on sales of businesses and
assets
(2
)
(35
)
(3
)
(37
)
Divestitures
—
—
51
—
PARC Donation
—
—
—
132
Stock-based compensation
9
12
38
40
Goodwill impairment
1,058
—
1,058
—
Restructuring and asset impairment
charges
46
11
80
25
Payments for restructurings
(11
)
(9
)
(58
)
(23
)
Non-service retirement-related costs
25
4
74
14
Contributions to retirement plans
(56
)
(43
)
(114
)
(75
)
Decrease (increase) in accounts receivable
and billed portion of finance receivables
50
(11
)
18
(47
)
Decrease (increase) in inventories
12
38
(136
)
50
Increase in equipment on operating
leases
(28
)
(32
)
(78
)
(109
)
Decrease in finance receivables
97
83
496
490
Decrease (increase) in other current and
long-term assets
2
(23
)
16
(8
)
Decrease in accounts payable
(55
)
—
(143
)
(290
)
Increase (decrease) in accrued
compensation
15
23
(78
)
16
Decrease in other current and long-term
liabilities
(31
)
(20
)
(83
)
(159
)
Net change in income tax assets and
liabilities
108
(7
)
44
(24
)
Net change in derivative assets and
liabilities
3
(6
)
9
16
Other operating, net
7
11
—
1
Net cash provided by operating
activities
116
124
160
297
Cash Flows from Investing
Activities
Cost of additions to land, buildings,
equipment and software
(9
)
(12
)
(27
)
(27
)
Proceeds from sales of businesses and
assets
8
37
27
40
Acquisitions, net of cash acquired
—
—
—
(7
)
Other investing, net
(6
)
—
(26
)
(3
)
Net cash (used in) provided by investing
activities
(7
)
25
(26
)
3
Cash Flows from Financing
Activities
Net (payments) proceeds on debt
(42
)
495
(7
)
(131
)
Purchases of capped calls
—
—
(23
)
—
Dividends
(36
)
(43
)
(107
)
(131
)
Payments to acquire treasury stock,
including fees
—
(544
)
(3
)
(544
)
Other financing, net
4
(2
)
(9
)
(13
)
Net cash used in financing activities
(74
)
(94
)
(149
)
(819
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
4
(7
)
(12
)
(3
)
Increase (decrease) in cash, cash
equivalents and restricted cash
39
48
(27
)
(522
)
Cash, cash equivalents and restricted cash
at beginning of period
551
569
617
1,139
Cash, Cash Equivalents and Restricted
Cash at End of Period
$
590
$
617
$
590
$
617
Third Quarter 2024 Overview
In the third quarter of 2024, the benefits of Reinvention drove
improved financial results, albeit at a slower pace than expected.
Third quarter 2024 included a second consecutive period of
moderating revenue declines, year over year improvements in
adjusted1 operating income and income margin, and more than 100
percent free cash flow conversion from adjusted1 operating income.
Further, the pending acquisition of ITsavvy is expected to improve
our mix of revenue from complementary, value-added businesses with
higher underlying rates of revenue growth.
Equipment sales of $339 million in the third quarter 2024
declined 12.2% in actual and constant currency1, as compared to the
third quarter 2023. The effects of fluctuations in backlog2 in the
prior and current years and other Reinvention actions drove
approximately 4.0-percentage points of the year-over-year decline.
The remainder of the decline primarily reflects the delayed global
launch of two new products, lower-than-expected improvements in
sales force productivity, delays in the timing of installations
associated with Hurricane Helene, unfavorable mix, and a large
Production equipment sale in the prior year. Total equipment
installations increased approximately 17.0% year-over-year, due to
growth in entry level equipment.
Post-sale revenue of $1.2 billion declined 6.1% in actual
currency, or 5.7% in constant currency1, as compared to third
quarter 2023. The decline was primarily due to lower outsourcing
and service revenue, intentional reductions in non-strategic
revenue, and the effects of geographic simplification. Excluding
non-strategic effects, post sale revenue decreased low-single
digits.
Pre-tax loss of approximately $1.1 billion for the third quarter
2024 decreased by approximately $1.2 billion as compared to pre-tax
income of $64 million in the third quarter 2023. Third quarter 2024
includes a pre-tax, non-cash goodwill impairment charge of $1.1
billion ($1.0 billion after-tax) or $8.16 per share. As a result of
a sustained market capitalization below our book value and current
results, in the third quarter 2024 we performed a quantitative
assessment of Goodwill. Although operating results and related cash
flows are expected to sequentially improve in the fourth quarter
2024, and in 2025, we see greater risk to our previous outlooks and
estimates, at least in the near term. This impact and the resulting
effect on discounted future cash flows, continues to negatively
impact the Company’s valuation resulting in the goodwill impairment
charge for the third quarter 2024. The decrease associated with
this charge was partially offset by an increase in adjusted1
operating income.
Adjusted1 operating income increased by $12 million as compared
to third quarter 2023, reflecting lower Selling, administrative and
general expenses associated with actions taken to simplify our
organization, partially offset by lower equipment and post sale
revenue and associated gross profits.
Revenue guidance was reduced from a decline of 5% to 6% in
constant currency¹ to a decline of about 10% in constant currency¹,
reflecting the incremental effects of intentional reductions in
non-strategic revenue and lower equipment revenue associated with
the delayed global launch of two new products and
lower-than-expected improvements in sales force productivity.
The reduction in adjusted1 operating income guidance, from at
least 6.5% to around 5.0%, reflects the effects of gross profit
declines associated with the decline in revenue guidance, and to a
lesser extent, delays in the implementation of certain cost
reduction initiatives to 2025.
Free cash flow1 guidance was reduced from at least $550 million
to a range of $450 million to $500 million, reflecting the
after-tax effects of the reduction in adjusted1 operating income
guidance.
Due to lower-than-expected revenue in 2024, we no longer expect
to grow adjusted1 operating income $300 million above 2023 levels
by 2026. However, we continue to expect growth in adjusted1
operating income and a return to double-digit adjusted1 operating
income margin over the course of our Reinvention.
__________
(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)
2024
2023
%
Change
CC % Change
2024
2023
Equipment sales
$
339
$
386
(12.2
)%
(12.2
)%
22
%
23
%
Post sale revenue
1,189
1,266
(6.1
)%
(5.7
)%
78
%
77
%
Total Revenue
$
1,528
$
1,652
(7.5
)%
(7.3
)%
100
%
100
%
Reconciliation to Condensed
Consolidated Statements of (Loss) Income:
Sales
$
588
$
644
(8.7
)%
(8.3
)%
Less: Supplies, paper and other sales
(249
)
(258
)
(3.5
)%
(2.3
)%
Equipment Sales
$
339
$
386
(12.2
)%
(12.2
)%
Services, maintenance and rentals
$
902
$
962
(6.2
)%
(6.1
)%
Add: Supplies, paper and other sales
249
258
(3.5
)%
(2.3
)%
Add: Financing
38
46
(17.4
)%
(17.6
)%
Post Sale Revenue
$
1,189
$
1,266
(6.1
)%
(5.7
)%
Segments
Print and Other
$
1,457
$
1,575
(7.5
)%
95
%
95
%
XFS
88
98
(10.2
)%
6
%
6
%
Intersegment elimination (1)
(17
)
(21
)
(19.0
)%
(1
)%
(1
)%
Total Revenue(2)
$
1,528
$
1,652
(7.5
)%
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 XFS segment, to the
Print and Other segment for the lease of Xerox equipment
placements. (2) Refer to Appendix II, Reportable Segments, 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)
2024
2023
B/(W)
Gross Profit
$
495
$
536
$
(41
)
RD&E
45
52
7
SAG
370
416
46
Equipment Gross Margin
28.5
%
31.0
%
(2.5
)
pts.
Post sale Gross Margin
33.5
%
32.9
%
0.6
pts.
Total Gross Margin
32.4
%
32.4
%
—
pts.
RD&E as a % of Revenue
2.9
%
3.1
%
0.2
pts.
SAG as a % of Revenue
24.2
%
25.2
%
1.0
pts.
Pre-tax (Loss) Income
$
(1,087
)
$
64
$
(1,151
)
Pre-tax (Loss) Income Margin
(71.1
)%
3.9
%
(75.0
)
pts.
Adjusted(1) Operating Income
$
80
$
68
$
12
Adjusted(1) Operating Income Margin
5.2
%
4.1
%
1.1
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
September 30,
(in millions)
2024
2023
Non-financing interest expense
$
31
$
14
Interest income
(3
)
(3
)
Non-service retirement-related costs
25
4
Gains on sales of business and assets
(2
)
(35
)
Currency losses, net
2
6
Tax Indemnification - Conduent
—
(7
)
Transaction and related costs, net
(15
)
—
All other expenses, net
5
3
Other expenses, net
$
43
$
(18
)
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)
2024
Print and Other
$
1,440
$
17
$
1,457
94
%
$
67
4.7
%
XFS
88
—
88
6
%
13
14.8
%
Total
$
1,528
$
17
$
1,545
100
%
$
80
5.2
%
2023
Print and Other
$
1,554
$
21
$
1,575
94
%
$
64
4.1
%
XFS
98
—
98
6
%
4
4.1
%
Total
$
1,652
$
21
$
1,673
100
%
$
68
4.1
%
_____________
(1) Reflects revenue, primarily
commissions and other payments, made by the XFS 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)
2024
2023
%
Change
Equipment sales
$
335
$
381
(12.1
)%
Post sale revenue
1,105
1,173
(5.8
)%
Intersegment revenue (1)
17
21
(19.0
)%
Total Print and Other Revenue
$
1,457
$
1,575
(7.5
)%
_____________
(1) Reflects revenue, primarily commissions and other payments,
made by the XFS 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)
2024
2023
%
Change
CC % Change
2024
2023
Entry
$
53
$
56
(5.4
)%
(4.4
)%
16
%
15
%
Mid-range
224
260
(13.8
)%
(13.4
)%
66
%
67
%
High-end
57
67
(14.9
)%
(15.1
)%
17
%
17
%
Other
5
3
66.7
%
66.7
%
1
%
1
%
Equipment Sales (1),(2)
$
339
$
386
(12.2
)%
(12.2
)%
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, for definitions.
(2) Includes equipment sales related to the XFS segment of $4
million and $5 million for the third quarter 2024 and 2023,
respectively.
Xerox Financial Services
Xerox Financial Services (XFS), represents a global financing
solutions business, primarily enabling the sale of our equipment
and services.
Revenue
Three Months Ended
September 30,
(in millions)
2024
2023
%
Change
Equipment sales
$
4
$
5
(20.0
)%
Financing
38
46
(17.4
)%
Other Post sale revenue (1)
46
47
(2.1
)%
Total XFS Revenue
$
88
$
98
(10.2
)%
_____________
(1) Other Post sale revenue includes lease renewal and fee
income as well as gains, commissions and servicing revenue
associated with sold finance receivables.
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, 2023. 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 2024 presentation slides available at www.xerox.com/investor.
Adjusted Earnings Measures
- Adjusted Net Income and Earnings per share (Adjusted 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.
Transaction and related costs, net:
Transaction and related costs, net are costs and expenses primarily
associated with certain major or significant strategic M&A
projects. These costs are primarily for third-party legal,
accounting, consulting and other similar type professional services
as well as potential legal settlements that may arise in connection
with those M&A transactions. These costs are considered
incremental to our normal operating charges and were incurred or
are expected to be incurred solely as a result of the planned
transactions. Accordingly, we are excluding these expenses from our
Adjusted Earnings Measures in order to evaluate our performance on
a comparable basis.
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
- Deferred Tax Asset Valuation Allowance
Adjusted Operating Income and Margin
We calculate and utilize adjusted operating income and margin
measures by adjusting our reported pre-tax (loss) income and margin
amounts. In addition to the costs and expenses noted above 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.
Adjusted Gross Profit and Margin
We calculate non-GAAP gross Profit and Margin by excluding the
inventory impact related to the exit of certain Production Print
manufacturing operations, included in Cost of services, maintenance
and rentals.
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,
2024
2023
(in millions, except per share
amounts)
Net (Loss) Income
Diluted EPS
Net Income
Diluted EPS
Reported(1)
$
(1,205
)
$
(9.71
)
$
49
$
0.28
Adjustments:
Goodwill impairment
1,058
—
Restructuring and related costs, net
56
10
Amortization of intangible assets
10
12
Non-service retirement-related costs
25
4
Transaction and related costs, net
(15
)
—
Tax Indemnification - Conduent
—
(7
)
Deferred tax asset valuation allowance
161
Income tax (benefit) on Goodwill
impairment
(43
)
—
Income tax on adjustments(2)
(13
)
9
Adjusted
$
34
$
0.25
$
77
$
0.46
Dividends on preferred stock used in
adjusted EPS calculation(3)
$
4
$
4
Weighted average shares for adjusted
EPS(3)
126
159
Fully diluted shares at end of
period(4)
126
_____________
(1) Net (Loss) Income and EPS. Third
quarter 2024 Net (Loss) and EPS include an after-tax non-cash
goodwill impairment charge of approximately $1.0 billion
(approximately $1.1 billion pre-tax), or $8.16 per share. In
addition, third quarter 2024 includes a tax expense charge of $161
million, or $1.29 per share, related to the establishment of a
valuation allowance against certain deferred tax assets to reflect
their realizability. This adjustment was excluded due to its unique
nature and significant impact which is not considered part of our
core operations. (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, 2024, plus potential dilutive common shares used for
the calculation of adjusted diluted EPS for the third quarter 2024.
Excludes shares associated with our Series A convertible preferred
stock, which were anti-dilutive for the third quarter 2024 and
2023, respectively.
Adjusted Effective Tax Rate reconciliation
Three Months Ended September
30,
2024
2023
(in millions)
Pre-Tax (Loss) Income
Income Tax Expense
Effective Tax Rate
Pre-Tax Income
Income Tax Expense
Effective Tax
Rate
Reported(1)
$
(1,087
)
$
118
(10.9
)%
$
64
$
15
23.4
%
Goodwill impairment
1,058
43
—
—
Deferred tax asset valuation
allowance(2)
—
(161
)
—
—
Non-GAAP adjustments(3)
76
13
19
(9
)
Adjusted(4)
$
47
$
13
27.7
%
$
83
$
6
7.2
%
_____________
(1) Pre-tax (loss) income and income tax
expense. Third quarter 2024 Pre-Tax (Loss) includes a non-cash
goodwill impairment charge of approximately $1.1 billion
(approximately $1.0 billion after-tax).
(2) Refer to Adjusted Net Income and EPS
reconciliation for details.
(3) The tax impact on Adjusted Pre-Tax
Income is calculated under the same accounting principles applied
to the Reported Pre-Tax (Loss) Income 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,
2024
2023
(in millions)
(Loss)
Profit
Revenue
Margin
Profit
Revenue
Margin
Reported(1)
$
(1,205
)
$
1,528
$
49
$
1,652
Income tax expense
118
15
Pre-tax (loss) income
$
(1,087
)
$
1,528
(71.1
)%
$
64
$
1,652
3.9
%
Adjustments:
Goodwill impairment
1,058
—
Restructuring and related costs, net
56
10
Amortization of intangible assets
10
12
Other expenses, net (2)
43
(18
)
Adjusted
$
80
$
1,528
5.2
%
$
68
$
1,652
4.1
%
_____________
(1) Net (Loss) Income. Third quarter 2024
Net (Loss) includes an after-tax non-cash goodwill impairment
charge of approximately $1.0 billion (approximately $1.1 billion
pre-tax), or $8.16 per share. In addition, third quarter 2024
includes a tax expense charge of $161 million, or $1.29 per share,
related to the establishment of a valuation allowance against
certain deferred tax assets to reflect their realizability. This
adjustment was excluded due to its unique nature and significant
impact which is not considered part of our core operations.
(2) Includes non-service
retirement-related costs.
Free Cash Flow reconciliation
Three Months Ended
September 30,
(in millions)
2024
2023
Reported(1)
$
116
$
124
Less: capital expenditures
9
12
Free Cash Flow
$
107
$
112
_____________
(1) Net cash provided by operating activities.
GUIDANCE
Adjusted Operating Income and Margin
FY 2024
(in millions)
Profit
Revenue (CC)(2,3)
Margin
Estimated(1)
~ $(1,170)
~ $6,200
~ (19.0)%
Adjustments:
Goodwill impairment
1,058
Restructuring and related costs, net
110
Amortization of intangible assets
40
Other expenses, net
272
Adjusted (4)
~ $310
~ $6,200
~ 5.0%
_____________
(1) Pre-tax (loss) and Revenue (2) Full-year revenue estimated
to decline around 10% in constant currency. (3) See "Constant
Currency" in the Non-GAAP Financial Measures section for a
description of constant currency. (4) Adjusted pre-tax income
reflects the adjusted operating margin guidance of around 5.0%.
Free Cash Flow
(in millions)
FY 2024
Operating Cash Flow (1)
$490 - $540
Less: capital expenditures
40
Free Cash Flow
$450 - $500
_____________
(1) Net cash provided by operating activities.
APPENDIX I
Xerox Holdings Corporation (Loss) Earnings per
Share
(in millions, except per-share data,
shares in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Basic (Loss) Earnings per
Share:
Net (Loss) Income
$
(1,205
)
$
49
$
(1,300
)
$
59
Accrued dividends on preferred stock
(4
)
(4
)
(11
)
(11
)
Adjusted net (loss) income available to
common shareholders
$
(1,209
)
$
45
$
(1,311
)
$
48
Weighted average common shares
outstanding
124,344
157,132
124,149
156,914
Basic (Loss) Earnings per Share
$
(9.71
)
$
0.29
$
(10.55
)
$
0.31
Diluted (Loss) Earnings per
Share:
Net (Loss) Income
$
(1,205
)
$
49
$
(1,300
)
$
59
Accrued dividends on preferred stock
(4
)
(4
)
(11
)
(11
)
Adjusted net (loss) income available to
common shareholders
$
(1,209
)
$
45
$
(1,311
)
$
48
Weighted average common shares
outstanding
124,344
157,132
124,149
156,914
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
124,344
158,893
124,149
158,219
Diluted (Loss) Earnings per
Share
$
(9.71
)
$
0.28
$
(10.55
)
$
0.30
The following securities were not included
in the computation of diluted (loss) earnings per share as they
were either contingently issuable shares or shares that if included
would have been anti-dilutive:
Stock options
155
245
155
245
Restricted stock and performance
shares
7,973
5,233
7,973
5,688
Convertible preferred stock
6,742
6,742
6,742
6,742
Convertible notes
19,196
—
19,196
—
Total Anti-Dilutive Securities
34,066
12,220
34,066
12,675
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 Xerox Financial Services
(XFS) (formerly 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 Digital
and 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 XFS 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 XFS 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241029488988/en/
Media Contact: Justin Capella, Xerox, +1-203-258-6535,
Justin.Capella@xerox.com Investor Contact: David Beckel,
Xerox, +1-203-849-2318, mailto:David.Beckel@xerox.com
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