Xerox Holdings(XRX) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q3 2024 was $1.5 billion, a decline of 7.5% in actual currency and 7.3% in constant currency [8] - Adjusted EPS was$ 0.25, $0.21 lower year-over-year due to the one-time sale of non-core business assets in the prior year [9] - Free cash flow was$ 107 million, $5 million lower year-over-year [9] - Adjusted operating margin improved by 110 basis points year-over-year to 5.2% [9] - GAAP loss per share of$ 9.71 included a non-cash goodwill impairment charge of approximately $1 billion [39] Business Line Performance - Print equipment sales declined by 12% due to delays in global product launches and lower-than-expected sales force productivity [11][41] - Digital and managed IT services revenue grew double digits, with new business signings up double digits [17] - Services revenue retention rate for large client renewals remained above 100% [16] - Entry-level equipment revenue declined despite higher installations due to an unfavorable mix of low-end black-and-white multifunction printers [42] Market Performance - Revenue in the Americas showed improvement in client perception, with a net promoter score increase of 11 points [15] - Geographic simplification efforts included transitioning Hungary and Bulgaria to an indirect distribution model and selling the EMEA paper business [26] - The pending acquisition of ITsavvy is expected to improve revenue mix and market coverage, particularly in IT services [32] Strategic Direction and Industry Competition - The company is focused on reinvention, aiming to streamline operations and benefit from long-term trends in print, digital, and IT services [10] - Strategic priorities include aligning the organization with economic buyers, improving sales productivity, and expanding digital and IT services [13][17] - The acquisition of ITsavvy is expected to enhance the company's IT services portfolio and drive growth in existing client penetration [32][33] Management Commentary on Operating Environment and Future Outlook - Management acknowledged challenges in equipment sales but expressed confidence in resolving product launch delays and improving sales productivity [11][14] - The company expects a return to revenue growth in 2025, supported by new product launches, improved sales productivity, and the ITsavvy acquisition [53] - Adjusted operating income is expected to grow, with a return to double-digit margins over the course of the reinvention [54] Other Important Information - The company reduced operating expenses by more than$ 50 million year-over-year in Q3 and $125 million year-to-date [18] - A pipeline of over$ 400 million in gross cost savings is expected to be realized by 2026 [20][50] - The company signed agreements to sell future finance receivable originations in Canada, improving balance sheet health [21] Q&A Session Summary Question: Product Delays and Sales Productivity - The product delay was attributed to poor forecasting and timing issues between demand and supply signaling [59][60] - Sales productivity was impacted by organizational changes and a reduction in sales headcount, but improvements are expected in Q4 and 2025 [58][62] Question: Confidence in 2025 Growth and Margin Expansion - Management expressed confidence in achieving revenue growth and margin expansion in 2025 due to strategic initiatives, cost reductions, and the ITsavvy acquisition [70][72] Question: ITsavvy Acquisition Accretion - The ITsavvy acquisition is expected to be immediately accretive to EPS and free cash flow, with $15 million in cost synergies and improved EBITDA margins [75][76] Question: ITsavvy Revenue Classification - ITsavvy revenue will be distributed similarly to current revenue streams, with a focus on IT and digital services, which are expected to grow to 15% of total revenue [79][80]