Xerox Holdings(US:XRX)2024-08-01 20:37Part I — Financial Information Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for both Xerox Holdings Corporation and Xerox Corporation for the three and six months ended June 30, 2024, including statements of income, comprehensive income, balance sheets, and cash flows, along with detailed notes Xerox Holdings Corporation Financial Statements Xerox Holdings Corporation reported a net income of $18 million for Q2 2024, a significant improvement from a net loss of $61 million in Q2 2023, with total assets decreasing to $9.49 billion from $10.01 billion at year-end 2023 Xerox Holdings Corporation - Condensed Consolidated Statements of Income (Loss) | Indicator (in millions) | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,578 | $1,754 | $3,080 | $3,469 | | Income (Loss) before Income Taxes | $25 | $(89) | $(125) | $(4) | | Net Income (Loss) | $18 | $(61) | $(95) | $10 | | Diluted Earnings (Loss) per Share | $0.11 | $(0.41) | $(0.83) | $0.02 | Xerox Holdings Corporation - Condensed Consolidated Balance Sheet Highlights | Indicator (in millions) | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $485 | $519 | | Total Assets | $9,491 | $10,008 | | Long-term debt | $3,174 | $2,710 | | Total Liabilities | $6,902 | $7,236 | | Total Equity | $2,365 | $2,548 | Xerox Holdings Corporation - Condensed Consolidated Statements of Cash Flows | Indicator (in millions) | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $44 | $173 | | Net cash used in investing activities | $(19) | $(22) | | Net cash used in financing activities | $(75) | $(725) | | Decrease in cash, cash equivalents and restricted cash | $(66) | $(570) | Xerox Corporation Financial Statements Xerox Corporation reported a net income of $19 million for Q2 2024, compared to a net loss of $61 million in Q2 2023, with total assets at $9.46 billion and operating cash flow at $44 million for the six-month period Xerox Corporation - Condensed Consolidated Statements of Income (Loss) | Indicator (in millions) | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,578 | $1,754 | $3,080 | $3,469 | | Income (Loss) before Income Taxes | $26 | $(89) | $(124) | $(4) | | Net Income (Loss) | $19 | $(61) | $(94) | $10 | Xerox Corporation - Condensed Consolidated Balance Sheet Highlights | Indicator (in millions) | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $9,455 | $9,982 | | Long-term debt | $1,154 | $1,213 | | Related party debt | $2,020 | $1,497 | | Total Liabilities | $6,859 | $7,194 | | Total Equity | $2,586 | $2,778 | Xerox Corporation - Condensed Consolidated Statements of Cash Flows | Indicator (in millions) | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $44 | $173 | | Net cash used in investing activities | $(10) | $(19) | | Net cash used in financing activities | $(86) | $(728) | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, revenue recognition, segment performance, divestitures, financial instruments, debt, restructuring activities, and contingencies, including the sale of operations in Argentina and Chile, significant debt refinancing, and ongoing costs related to the company's 'Reinvention' strategy Revenue by Geography (Six Months Ended June 30) | Geography (in millions) | 2024 | 2023 | | :--- | :--- | :--- | | United States | $1,683 | $1,929 | | Europe | $912 | $971 | | Canada | $247 | $280 | | Other | $238 | $289 | | Total Revenues | $3,080 | $3,469 | - In March 2024, Xerox sold its direct business operations in Argentina and Chile, resulting in a net disposal loss of $51 million, which included a $40 million currency translation loss and a $10 million goodwill allocation46 - In Q1 2024, Xerox Holdings issued $500 million of 8.875% Senior Notes due 2029 and $400 million of 3.75% Convertible Senior Notes due 2030, with proceeds used to repay existing debt and fund capped call transactions to reduce potential dilution899193 - Restructuring and related costs for the first six months of 2024 were $51 million, up from $25 million in the prior year, driven by strategic actions under 'Project Reinvention' including geographic simplification and exiting certain manufacturing operations7276 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting progress on its 'Reinvention' strategy, with Q2 2024 revenue declining 10.0% to $1.58 billion but pre-tax income improving significantly, leading to updated full-year 2024 guidance with lower revenue expectations and adjusted operating income margin - The company's multi-year 'Reinvention' strategy is progressing, with the new operating model showing early benefits in Q2 2024 through sequential improvements in adjusted operating income margin, cash flow, and revenue trajectory141 Q2 2024 vs Q2 2023 Performance | Metric (in millions) | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,578 | $1,754 | (10.0)% | | Pre-tax Income (Loss) | $25 | $(89) | +$114 | | Net Income (Loss) | $18 | $(61) | +$79 | | Adjusted Operating Income | $85 | $107 | $(22) | - Full-year 2024 guidance was revised downwards: - Revenue: Decline of 5% to 6% in constant currency (previously 3% to 5%) - Adjusted Operating Income Margin: At least 6.5% (previously at least 7.5%) - Operating Cash Flow: At least $600 million (previously at least $650 million)147 Segment Review The company operates through two segments, Print and Other, and Xerox Financial Services (XFS), with Print and Other revenue decreasing 9.9% to $1.51 billion and XFS revenue declining 11.9% to $89 million in Q2 2024 Segment Performance (Q2 2024 vs Q2 2023) | Segment (in millions) | Revenue Q2 2024 | Revenue Q2 2023 | % Change | Profit Q2 2024 | Profit Q2 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | Print and Other | $1,508 | $1,674 | (9.9)% | $81 | $107 | | XFS | $89 | $101 | (11.9)% | $4 | $0 | - Print and Other revenue decline was driven by a 15.2% drop in equipment sales and an 8.2% drop in post-sale revenue, reflecting backlog fluctuations and strategic exits from non-core IT placements and paper sales173174 - XFS financing revenue declined 22.4% due to a smaller finance receivables balance resulting from ongoing sales to HPS Investment Partners and lower originations181 Capital Resources and Liquidity As of June 30, 2024, Xerox Holdings had $551 million in total cash, cash equivalents, and restricted cash, with total debt at $3.3 billion, following significant debt refinancing and an increased ABL credit facility, while operating cash flow for the first six months decreased significantly to $44 million Liquidity and Debt Summary (as of June 30, 2024) | Metric (in millions) | Amount | | :--- | :--- | | Total Cash, Cash Equivalents & Restricted Cash | $551 | | Total Debt | $3,303 | | ABL Facility Capacity | $425 | | ABL Facility Drawn | $0 | - The $129 million year-over-year decrease in operating cash flow was primarily driven by lower pre-tax income, higher inventory purchases, higher accrued compensation and restructuring payments, and higher net tax payments187 - In Q2 2024, Xerox entered into long-term technology agreements with Tata Consulting Services (TCS), SAP, Microsoft, and Verizon, with aggregate spending commitments totaling approximately $610 million over the next 5-7 years to support its 'Reinvention'201202 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the 'Financial Risk Management' section from Item 2, detailing the company's exposure to market risks from foreign currency exchange rates and interest rates and its use of derivative financial instruments to manage these risks - The company is exposed to market risk from foreign currency exchange rates (primarily Euro, U.K. Pound Sterling, Japanese Yen) and interest rates, which it manages through operating activities and derivative instruments203 Item 4. Controls and Procedures Management, including the principal executive and financial officers of both Xerox Holdings Corporation and Xerox Corporation, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2024, with no material changes to internal control over financial reporting identified - Management of both Xerox Holdings and Xerox Corporation concluded that their respective disclosure controls and procedures were effective as of the end of the reporting period215216 - No changes in internal control over financial reporting occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting217218 Part II — Other Information Item 1. Legal Proceedings This section refers to Note 21 of the financial statements for information on legal proceedings, detailing various contingencies, with a significant focus on ongoing tax assessments in Brazil and a shareholder derivative lawsuit which has reached a preliminary settlement - The company has significant unreserved tax contingencies in Brazil totaling $339 million as of June 30, 2024, primarily related to indirect and other taxes, which management assesses as remote in likelihood of loss131132 Item 1A. Risk Factors This section refers to the Risk Factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023, indicating no material changes to the company's risk profile during the quarter - No new or materially changed risk factors were reported for the quarter; investors are referred to the 2023 Form 10-K220 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 30, 2024, Xerox Holdings Corporation did not repurchase any shares under its publicly announced buyback program, with a small number of shares repurchased indirectly through a net-settlement feature of its restricted stock compensation programs to satisfy tax-withholding requirements Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1-30 | 7,364 | $17.33 | | May 1-31 | — | — | | June 1-30 | — | — | | Total | 7,364 | n/a | - The repurchases were not part of the publicly announced share repurchase program but were related to satisfying tax-withholding requirements for employee stock compensation223 Item 5. Other Information The company reports that none of its directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarterly period - No directors or officers adopted or terminated Rule 10b5-1 trading plans during the second quarter of 2024221 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, officer certifications, and interactive data files (XBRL) - Key exhibits filed include amendments to credit agreements, indentures for new senior and convertible notes, and CEO/CFO certifications224225