Workflow
Xerox Holdings(XRX) - 2023 Q2 - Earnings Call Transcript
XRXXerox Holdings(XRX)2023-07-25 14:44
Filings
Slide

Financial Data and Key Metrics - Revenue for Q2 2023 was 1.75billion,growing0.51.75 billion, growing 0.5% in constant currency and 0.4% in actual currency [4] - Adjusted EPS was 0.44, 0.31higheryear−over−year[4]−Freecashflowwas0.31 higher year-over-year [4] - Free cash flow was 88 million, compared to negative 98millionintheprioryearquarter[4]−Adjustedoperatingmarginimprovedby410basispointsyear−over−yearto6.198 million in the prior year quarter [4] - Adjusted operating margin improved by 410 basis points year-over-year to 6.1% [4] - Gross margin improved by 210 basis points, driven by better product mix and lower supply chain costs [23] - Adjusted other expenses net were 9 million higher year-over-year due to a 16millionbenefitfromapensionplanrefundintheprioryear[24]−GAAPlosspersharewas16 million benefit from a pension plan refund in the prior year [24] - GAAP loss per share was 0.41, 0.36higherthantheprioryear,mainlyduetoa0.36 higher than the prior year, mainly due to a 132 million charge related to the donation of PARC [24] Business Line Performance - Equipment sales grew 14% year-over-year in constant currency to 420million,drivenbybetterproductavailabilityandhigher−marginA3devices[25]−Post−salesrevenuedeclined3420 million, driven by better product availability and higher-margin A3 devices [25] - Post-sales revenue declined 3% year-over-year to 1.3 billion, mainly due to lower IT hardware and paper sales, reduced finance income, and the elimination of Fuji royalties [26] - Digital services revenue was slightly down, offset by growth from recent acquisitions and pricing improvements [27] - FITTLE origination volume grew 36% year-over-year, with captive product originations up 45% and non-captive channel originations up 26% [29] - Print and other segment profit improved by 78millionyear−over−year,witha470basispointexpansioninsegmentprofitmargin[30]MarketPerformance−EMEAgrewfasterthantheAmericas,drivenbyhigherpost−salerevenuegrowth,includingtheprioryearacquisitionofGoInspire[27]−Xeroxgained2pointsofglobalmarketshareinQ12023,withstrongperformanceinA3andproductionmarkets[9]CompanyStrategyandIndustryCompetition−Thecompanyisfocusingonthreestrategicpriorities:clientsuccess,profitability,andshareholderreturns[5]−Xeroxisleveragingitsleadershipincloudprintservicesandprintsecuritytowinnewbusinessandretainclients[6][7]−Thecompanylaunchedanewintegratedbrandcampaign,"Wemakework,work,"todriveawarenessofitsdigitizationandworkflowsolutions[8]−Xeroxisshiftingitsrevenuemixtowardsservicesthataddressthehybridworkenvironment,withafocusonadvancedprint,digital,andITsolutions[20]−Thecompanyhasreduceditsdebtbalancebyaround78 million year-over-year, with a 470 basis point expansion in segment profit margin [30] Market Performance - EMEA grew faster than the Americas, driven by higher post-sale revenue growth, including the prior year acquisition of Go Inspire [27] - Xerox gained 2 points of global market share in Q1 2023, with strong performance in A3 and production markets [9] Company Strategy and Industry Competition - The company is focusing on three strategic priorities: client success, profitability, and shareholder returns [5] - Xerox is leveraging its leadership in cloud print services and print security to win new business and retain clients [6][7] - The company launched a new integrated brand campaign, "We make work, work," to drive awareness of its digitization and workflow solutions [8] - Xerox is shifting its revenue mix towards services that address the hybrid work environment, with a focus on advanced print, digital, and IT solutions [20] - The company has reduced its debt balance by around 600 million year-to-date and plans to return at least 50% of free cash flow to shareholders [11] Management Commentary on Operating Environment and Future Outlook - Management highlighted the resilience of demand for Xerox's products and services, particularly in the mid-market segment [4] - The company is optimistic about future growth opportunities, driven by its focus on client success and the evolving hybrid workplace [19] - Xerox expects full-year revenue to be at the upper end of the flat to low-single-digit decline range, with adjusted operating margin guidance increased to 5.5%-6% [32] - Free cash flow guidance for the year has been raised to at least 600million,reflectingimprovedoperatingincomeandincrementalsalesoffinancereceivables[34]OtherImportantInformation−XeroxsolditsResearchCenterofCanada(XRCC)toMyantCapitalPartnerstofocusoncoreoperationsandgrowthopportunities[10]−ThecompanyhasinstitutionalizedtheuseofadvancedtechnologieslikeRPA,augmentedreality,andAItodriveoperationalefficiency[13]−Xeroxhasreduceditsdebtbalancebyaround600 million, reflecting improved operating income and incremental sales of finance receivables [34] Other Important Information - Xerox sold its Research Center of Canada (XRCC) to Myant Capital Partners to focus on core operations and growth opportunities [10] - The company has institutionalized the use of advanced technologies like RPA, augmented reality, and AI to drive operational efficiency [13] - Xerox has reduced its debt balance by around 760 million over the past 12 months, improving its financial outlook [18] Q&A Session Summary Question: Structural changes in the market and Xerox's revenue stability [36] - Management attributed the resilience in revenue to a strategic shift towards client success, digital services, and the hybrid workplace [37][38] - Equipment revenue remains strong, particularly for A3 products, and post-sales revenue is supported by strong contractual trends [39] Question: Strategy shift towards services and reinvention [40] - Xerox is focusing on vertical and horizontal solutions in its existing customer base, with a strong emphasis on client success and digital transformation [41] Question: Resilience in small and medium business (SMB) demand [42] - SMB demand has been more resilient compared to larger enterprises, which have deferred some installations [43] Question: Normalized revenue growth and margins in a post-COVID world [45] - Management believes the hybrid workplace is still evolving, with significant growth opportunities in productivity and digital transformation [46][47] - Xerox expects strong equipment sales and post-sales revenue to continue driving growth, with upgraded margin guidance for 2023 [49][50] Question: Upside in Q2 operating margins and sustainability [51] - The upside in Q2 margins was driven by one-off items like Fuji royalties and bad debt releases, which are not expected to repeat in the second half [52] - The company remains confident in maintaining margins in the 5.5%-6% range for the full year [53] Question: Seasonality and equipment sales outlook [55] - Q3 is expected to be softer than Q4, with normal seasonality in equipment sales and no significant backlog impact [56][57] Question: Free cash flow and working capital trends [58] - The second half is expected to be stronger for free cash flow, driven by working capital normalization and the HPS receivable funding program [59][60] Question: Impact of the 9-star product ban [62] - The ban had no material impact on Xerox, as the company adheres to all regulatory requirements and has adjusted its supply chain accordingly [63] Question: Cash balance and use of cash [64] - Xerox maintains a cash balance of around $500 million and focuses on shareholder returns, debt repayment, and potential M&A opportunities [65][66] Closing Remarks [69] - Management reiterated its focus on helping clients solve workplace challenges and expressed confidence in the company's growth trajectory [69]