Xerox Holdings(US:XRX)2024-11-04 21:39Revenue Performance - Equipment sales in Q3 2024 declined by 12.2% to $339 million compared to Q3 2023, driven by backlog fluctuations, delayed product launches, and lower sales force productivity[128] - Post-sale revenue in Q3 2024 decreased by 6.1% to $1.2 billion, primarily due to lower outsourcing and service revenue, and intentional reductions in non-strategic revenue[128] - Total revenue for Q3 2024 was $1.53 billion, a 7.5% decline from Q3 2023, with a 0.2% unfavorable currency impact[134] - Print and Other segment revenue declined by 7.5% to $1.457 billion in Q3 2024, while Xerox Financial Services (XFS) revenue decreased by 10.2% to $88 million[135] - Total revenue for Q3 2024 decreased by 7.5% to $1.528 billion compared to Q3 2023, with a 0.2% adverse currency impact[137] - Equipment sales revenue for Q3 2024 decreased by 12.2% to $339 million, primarily due to delayed product launches and lower sales productivity[137][140] - Post-sale revenue for Q3 2024 decreased by 6.1% to $1.189 billion, with a 0.4% adverse currency impact, driven by declines in contractual print services and IT endpoint device placements[137][138] - Financing revenue for Q3 2024 decreased by 17.4% to $38 million, reflecting a reduction in average finance receivables balance[138] - Total revenue for the nine months ended September 30, 2024, decreased by 10.0% to $4.608 billion compared to the same period in 2023[137] - Equipment sales revenue for the nine months ended September 30, 2024, decreased by 17.7% to $985 million, impacted by unfavorable product mix and backlog fluctuations[137][140] - Post-sale revenue for the nine months ended September 30, 2024, decreased by 7.7% to $3.623 billion, driven by lower contractual print services and the termination of Fuji royalty income[137][138] - Supplies, paper, and other sales revenue for Q3 2024 decreased by 3.5% to $249 million, with a 1.2% adverse currency impact[138] - Services, maintenance, and rentals revenue for Q3 2024 decreased by 6.2% to $902 million, primarily due to declines in contractual print services[138] - Print and Other segment revenue decreased by 7.5% in Q3 2024 compared to Q3 2023, and by 10.0% for the nine months ended September 30, 2024 compared to the prior year period[164][165] - Equipment sales revenue decreased by 12.1% in Q3 2024 and by 17.7% for the nine months ended September 30, 2024 compared to the prior year periods[165][166] - Post sale revenue decreased by 5.8% in Q3 2024 and by 7.4% for the nine months ended September 30, 2024 compared to the prior year periods[165][166] - Entry product group revenue decreased by 5.4% in Q3 2024 and by 14.9% for the nine months ended September 30, 2024 compared to the prior year periods[167] - Mid-range product group revenue decreased by 13.8% in Q3 2024 and by 16.6% for the nine months ended September 30, 2024 compared to the prior year periods[167] - High-end product group revenue decreased by 14.9% in Q3 2024 and by 26.1% for the nine months ended September 30, 2024 compared to the prior year periods[167] - XFS segment revenue decreased by 10.2% in Q3 2024 compared to Q3 2023, and by 11.0% for the nine months ended September 30, 2024[171][172] - Financing revenue decreased by 17.4% in Q3 2024 compared to Q3 2023, and by 19.7% for the nine months ended September 30, 2024[171][172] - Other Post sale revenue decreased by 2.1% in Q3 2024 compared to Q3 2023, and by 0.7% for the nine months ended September 30, 2024[171][172] - Revenue for the three months ended September 30, 2024, was $1.528 billion, compared to $1.652 billion for the same period in 2023[198] - Revenue for 2024 was $4.608 billion, a decrease from $5.121 billion in 2023[199] Profitability and Margins - Net loss in Q3 2024 was $(1,205) million, compared to a net income of $49 million in Q3 2023, largely due to a $1.1 billion goodwill impairment charge[134] - Adjusted net income for Q3 2024 was $34 million, a decrease of $43 million from Q3 2023, reflecting lower revenue and higher expenses[134] - Gross margin for Q3 2024 remained flat at 32.4% compared to Q3 2023, primarily due to lower revenue, higher transportation costs, and unfavorable equipment mix, partially offset by cost and productivity actions[142] - Equipment gross margin for Q3 2024 decreased by 2.5 percentage points to 28.5% compared to Q3 2023, driven by lower revenue, higher transportation costs, and the release of a tariff accrual in the prior year[142] - Post-sale gross margin for Q3 2024 increased by 0.6 percentage points to 33.5% compared to Q3 2023, reflecting benefits from cost and productivity actions and favorable currency[142] - Adjusted operating income for Q3 2024 increased by $12 million to $80 million compared to Q3 2023, with the margin improving by 1.1 percentage points to 5.2%[141] - Third quarter 2024 pre-tax loss margin was (71.1)%, a 75.0-percentage point increase from third quarter 2023, primarily due to a $1,058 million pre-tax non-cash goodwill impairment charge[155] - Third quarter 2024 adjusted operating income margin increased by 1.1-percentage points to 5.2%, reflecting cost and productivity actions and lower selling, administrative, and general expenses[157] - Total Print and Other segment margin increased by 0.6 percentage points to 4.7% in Q3 2024 compared to Q3 2023[170] - Total Print and Other segment margin decreased by 1.4 percentage points to 4.2% for the nine months ended September 30, 2024 compared to the prior year period[170] - XFS segment margin increased by 10.7 percentage points to 14.8% in Q3 2024 compared to Q3 2023[174] - Adjusted profit for 2024 was $198 million, with an adjusted margin of 4.3%, compared to $293 million and 5.7% in 2023[199] - Pre-tax loss for 2024 was $1.212 billion, representing a margin of -26.3%, compared to a pre-tax income of $60 million and a margin of 1.2% in 2023[199] Cash Flow and Debt - Cash flows from operating activities for the nine months ended September 30, 2024, were $160 million, a decrease of $137 million from the prior year period[136] - Operating cash flows for 2024 are now expected to be between $490 million and $540 million, compared to prior guidance of at least $600 million[136] - Total cash, cash equivalents, and restricted cash decreased by $27 million to $590 million as of September 30, 2024[175][176] - Net cash provided by operating activities decreased by $137 million to $160 million for the nine months ended September 30, 2024[176][177] - Total debt increased to $3,271 million as of September 30, 2024, with $1,963 million allocated to finance assets[175][182] - Total finance assets, net decreased by $531 million to $2,244 million as of September 30, 2024[183] - Capital expenditures for 2024 are now expected to be approximately $40 million, down from previous guidance of approximately $50 million[175] - Total debt decreased slightly from $3,277 million in December 2023 to $3,271 million in September 2024, with core debt increasing from $849 million to $1,308 million[185] - Principal debt maturities over the next five years total $3,315 million, with $2,038 million from Xerox Holdings Corporation and $1,129 million from Xerox Corporation[186] Restructuring and Costs - Restructuring and related costs for Q3 2024 increased to $56 million compared to $10 million in Q3 2023, primarily due to strategic actions related to the company's Reinvention[145] - Worldwide employment decreased by approximately 2,800 to 17,300 as of September 30, 2024, primarily due to workforce reduction decisions and net attrition[145] - Bad debt provision for the nine months ended September 30, 2024 increased by $18 million to $35 million compared to the prior year period, reflecting higher provisions for aged accounts receivables[144] - Third quarter 2024 non-financing interest expense increased by $17 million to $31 million compared to third quarter 2023, primarily due to higher interest rates on new debt issued in the first quarter of 2024[147] - Third quarter 2024 non-service retirement-related costs increased by $21 million to $25 million compared to third quarter 2023, driven by higher actuarial losses and lower expected return on plan assets[148] - Xerox reported restructuring and related costs of $56 million for the three months ended September 30, 2024[198] - The company recorded amortization of intangible assets of $10 million for the three months ended September 30, 2024[198] - Restructuring and related costs for 2024 were $107 million, compared to $35 million in 2023[199] - Amortization of intangible assets for 2024 was $30 million, compared to $33 million in 2023[199] - Divestitures in 2024 resulted in a cost of $51 million, with no comparable cost in 2023[199] - PARC donation in 2023 was $132 million, with no comparable donation in 2024[199] - Other expenses, net for 2024 were $120 million, compared to $33 million in 2023[199] - Inventory-related impact due to the exit of certain production print manufacturing operations was $44 million in 2024, with no comparable impact in 2023[199] Strategic Agreements and Investments - Xerox entered into a seven-year agreement with TCS for technology services consolidation, cloud migration, and GenAI integration, with a spending commitment of $490 million[188][190] - Xerox signed a seven-year agreement with Microsoft for Azure cloud platform services, committing $125 million[188][190] - Xerox committed $50 million to SAP for a cloud-based digital ERP platform over seven years[188][190] - Xerox entered into a five-year agreement with Verizon for Network as a Service (NaaS) solutions, with a spending commitment of $85 million[188][190] - Xerox renewed its shared services arrangement with HCL, committing $590 million over five years[189][190] Financial Risk Management - Xerox's financial risk management includes hedging against foreign currency and interest rate risks using derivative instruments[191] - Adjusted earnings measures exclude restructuring costs, amortization of intangible assets, and non-service retirement-related costs to provide a clearer view of operational performance[192][193] - Adjusted operating income and margin exclude non-financing interest expense and other non-operating costs to better evaluate business trends[194] Other Financial Metrics - Adjusted net income for the three months ended September 30, 2024, was $34 million, with an adjusted diluted EPS of $0.25[195] - Xerox recorded a goodwill impairment charge of $1.058 billion pre-tax ($1.015 million after-tax) for the three months ended September 30, 2024[195] - The company established a deferred tax asset valuation allowance of $161 million, resulting in a tax expense charge of $1.29 per diluted share for the three months ended September 30, 2024[195] - Adjusted operating income for the three months ended September 30, 2024, was $80 million, with an adjusted operating margin of 5.2%[198] - Adjusted effective tax rate for the three months ended September 30, 2024, was 27.7%, compared to 7.2% for the same period in 2023[196] - Adjusted pre-tax income for the three months ended September 30, 2024, was $47 million, compared to $83 million for the same period in 2023[196] - Net loss for the three and nine months ended September 30, 2024 was $1.3 billion, including a non-cash goodwill impairment charge of $1.058 billion pre-tax[199]