Xerox Holdings(US:XRX)2024-01-25 17:33Financial Data and Key Metrics Changes - Revenue for 2023 was $6.89 billion, a decline of 3.1% in actual currency and 3.3% in constant currency, with adjusted EPS at $1.82, an increase of $0.70 year-over-year [5][6] - Free cash flow reached $649 million, an increase of $547 million over 2022, and adjusted operating margin improved to 5.6%, up 170 basis points year-over-year [6][11] - In Q4, adjusted EPS was $0.43, down $0.46 from the prior year, with a GAAP loss per share of $0.50, reflecting a $78 million after-tax restructuring charge [26][36] Business Line Data and Key Metrics Changes - Equipment sales in Q4 were $458 million, down 17.3% year-over-year, primarily due to backlog reductions [26][27] - Post-sales revenue was $1.3 billion, a decline of 5.8% in actual currency year-over-year, impacted by non-strategic revenue reductions [27][28] - FITTLE origination volume declined 25% year-over-year, while captive product origination increased by 2% [31] Market Data and Key Metrics Changes - Revenue from core businesses grew low-single-digit in Q4 when excluding the effects of backlog and non-strategic items, indicating stable demand [29] - Both regions experienced revenue declines in actual and constant currency, with significant impacts from non-strategic items [28][29] Company Strategy and Development Direction - The company is focused on a multi-year strategy called "reinvention" aimed at repositioning for sustainable growth, emphasizing client success and operational efficiency [6][11] - A significant reorganization was announced, shifting to a business unit-led operating model to enhance client-centricity and operational efficiency [12][20] - The company aims to achieve $300 million in net adjusted operating income improvements above 2023 levels by 2026, with over one-third expected in 2024 [13][14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging macroeconomic environment but expressed confidence in achieving profit and cash flow targets through operational discipline [4][6] - The company expects revenue to decline by 3% to 5% in constant currency in 2024, with core business revenue expected to be roughly flat year-over-year [34][36] - Free cash flow is projected to be at least $600 million in 2024, with plans for strategic reinvestment and shareholder returns [36][69] Other Important Information - The company reduced total debt by more than $600 million in 2023 and plans to continue this trend while maintaining a balanced capital structure [11][33] - The focus on client outcomes has improved the Net Promoter Score and revenue renewal rates above 100% across large account contract renewals [9][10] Q&A Session Summary Question: Revenue headwinds and their timeline for resolution - Management indicated that backlog impacts are expected to normalize by the end of Q2 2024, with other non-strategic items phasing out throughout the year [40][41] Question: Profit forecast for 2024 - Management confirmed expectations for operating profit to increase by $80 million to $100 million year-over-year, driven by margin improvements [42][43] Question: Revenue guidance context - Management noted that while there are macroeconomic challenges, strong signings and backlog in services provide a foundation for stability and growth [51][52] Question: Cash flow guidance for 2024 - Management explained that the $600 million cash flow guidance accounts for restructuring costs and increased pension contributions, with a conversion rate from operating income to free cash flow expected to remain strong [53][54] Question: Renewal rates for large and SMB customers - Management stated that large customers represent about one-third of overall revenue, with significant opportunities for growth in both large and SMB segments [56][57] Question: Trajectory of gross margins and OpEx - Management expects slight expansion in gross margins and significant improvements in OpEx due to restructuring and simplification efforts [60][62] Question: Capital allocation priorities - Management confirmed that there are no plans for buybacks in 2024, focusing instead on strategic reinvestment and debt reduction [66][67]