Xerox Holdings Corporation (NASDAQ: XRX) today announced its 2023 third-quarter results.
“Growth in adjusted profit, EPS and free cash flow reflects solid execution of our strategic priorities amid a challenging macro backdrop,” said Steve Bandrowczak, chief executive officer at Xerox. “As we continue simplifying and focusing our operations, Reinvention will reposition our business to enable sustainable profit improvement and revenue growth through the expansion of services that best serve our clients’ needs.”
Third-Quarter Key Financial Results
(in millions, except per share data) | Q3 2023 | Q3 2022 | B/(W) YOY | % Change B/(W) YOY |
Revenue | $1,652 | $1,751 | $(99) | (5.7)% AC
|
Gross Margin | 32.4% | 31.8% | 60 bps | |
RD&E % | 3.1% | 4.2% | 110 bps | |
SAG % | 25.2% | 23.9% | (130) bps | |
Pre-Tax Income (Loss)(2) | $63 | $(380) | $443 | NM |
Pre-Tax Income (Loss) Margin(2) | 3.8% | (21.7)% | NM | |
Operating Income - Adjusted (1) | $68 | $65 | $3 | 4.6% |
Operating Income Margin - Adjusted (1) | 4.1% | 3.7% | 40 bps | |
GAAP Diluted Earnings (Loss) per Share(2) | $0.28 | $(2.48) | $2.76 | NM |
Diluted Earnings Per Share - Adjusted (1) | $0.46 | $0.19 | $0.27 | 142% |
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(1)Refer to the “Non-GAAP Financial Measures” section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.
(2)Third quarter 2022 pre-tax loss and EPS include a $412 million non-cash goodwill impairment charge ($395 million after-tax), or $2.54 per share.
Third-Quarter Segment Results
(in millions) | Q3 2023 | Q3 2022 | B/(W) YOY | % Change B/(W) YOY | |||
Revenue | |||||||
Print and Other | $1,575 | $1,676 | $(101) | (6.0)% | |||
Financing (FITTLE) | 98 | 98 | — | —% | |||
Intersegment Elimination (1) | (21) | (23) | 2 | (8.7)% | |||
Total Revenue | $1,652 | $1,751 | $(99) | (5.7)% | |||
Profit | |||||||
Print and Other | $64 | $63 | $1 | 1.6% | |||
Financing (FITTLE) | 4 | 2 | 2 | 100.0% | |||
Total Profit | $68 | $65 | $3 | 4.6% |
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(1)Reflects revenue, primarily commissions and other payments, made by the FITTLE segment to the Print and Other segment for the lease of Xerox equipment placements.
2023 Guidance
- Revenue: flat to down low-single-digits in constant currency
- Adjusted Operating Margin: 5.5% to 6.0%
- Free cash flow: at least $600 million
Non-GAAP Measures
This release refers to the following non-GAAP financial measures:
- Adjusted EPS, which excludes Restructuring and related costs, net, Amortization of intangible assets, non-service retirement-related costs, and other discrete adjustments from GAAP EPS, as applicable.
- Adjusted operating income and margin, which exclude the EPS adjustments noted above as well as the remainder of Other expenses, net from pre-tax income (loss) and margin.
- Constant currency (CC) revenue change, which excludes the effects of currency translation.
- Free cash flow, which is operating cash flow less capital expenditures.
A reconciliation of the estimated adjusted operating income expected to be delivered by the Reinvention to the closest GAAP financial measure, pre-tax income, is not provided because pre-tax income for those periods is not available without unreasonable effort, in part because the amount of estimated restructuring and other incremental costs related to the Reinvention is not available at this time.
Refer to the “Non-GAAP Financial Measures” section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.
Forward Looking Statements
This release and other written or oral statements made from time to time by management contain “forward looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “should”, “targeting”, “projecting”, “driving” and similar expressions, as they relate to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: Global macroeconomic conditions, including inflation, slower growth or recession, delays or disruptions in the global supply chain, higher interest rates, and wars and other conflicts, including the current conflict between Russia and Ukraine; our ability to succeed in a competitive environment, including by developing new products and service offerings and preserving our existing products and market share as well as repositioning our business in the face of customer preference, technological, and other change, such as evolving return-to-office and hybrid working trends; failure of our customers, vendors, and logistics partners to perform their contractual obligations to us; our ability to attract, train, and retain key personnel; execution risks around our Reinvention; the risk of breaches of our security systems due to cyber, malware, or other intentional attacks that could expose us to liability, litigation, regulatory action or damage our reputation; our ability to obtain adequate pricing for our products and services and to maintain and improve our cost structure; changes in economic and political conditions, trade protection measures, licensing requirements, and tax laws in the United States and in the foreign countries in which we do business; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; interest rates, cost of borrowing, and access to credit markets; risks related to our indebtedness; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; funding requirements associated with our employee pension and retiree health benefit plans; changes in foreign currency exchange rates; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; laws, regulations, international agreements and other initiatives to limit greenhouse gas emissions or relating to climate change, as well as the physical effects of climate change; and other factors as set forth from time to time in the Company’s Securities and Exchange Commission filings, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The Company intends these forward-looking statements to speak only as of the date of this release and does not undertake to update or revise them as more information becomes available, except as required by law.
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Xerox®® is a trademark of Xerox in the United States and/or other countries.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in millions, except per-share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||
Revenues | |||||||||||||||
Sales | $ | 644 | $ | 690 | $ | 1,999 | $ | 1,949 | |||||||
Services, maintenance and rentals | 962 | 1,010 | 2,975 | 3,061 | |||||||||||
Financing | 46 | 51 | 147 | 156 | |||||||||||
Total Revenues | 1,652 | 1,751 | 5,121 | 5,166 | |||||||||||
Costs and Expenses | |||||||||||||||
Cost of sales | 435 | 508 | 1,312 | 1,430 | |||||||||||
Cost of services, maintenance and rentals | 651 | 659 | 1,987 | 2,015 | |||||||||||
Cost of financing | 30 | 28 | 100 | 78 | |||||||||||
Research, development and engineering expenses | 52 | 73 | 173 | 235 | |||||||||||
Selling, administrative and general expenses | 416 | 418 | 1,256 | 1,332 | |||||||||||
Goodwill impairment | — | 412 | — | 412 | |||||||||||
Restructuring and related costs, net | 10 | 22 | 35 | 41 | |||||||||||
Amortization of intangible assets | 12 | 10 | 33 | 31 | |||||||||||
PARC donation | — | — | 132 | — | |||||||||||
Other expenses, net | (17 | ) | 1 | 34 | 66 | ||||||||||
Total Costs and Expenses | 1,589 | 2,131 | 5,062 | 5,640 | |||||||||||
Income (Loss) before Income Taxes & Equity Income(1) | 63 | (380 | ) | 59 | (474 | ) | |||||||||
Income tax expense (benefit) | 15 | 3 | 1 | (27 | ) | ||||||||||
Equity in net income of unconsolidated affiliates | 1 | 1 | 2 | 3 | |||||||||||
Net Income (Loss) | 49 | (382 | ) | 60 | (444 | ) | |||||||||
Less: Net income (loss) attributable to noncontrolling interests | — | 1 | 1 | (1 | ) | ||||||||||
Net Income (Loss) Attributable to Xerox Holdings | $ | 49 | $ | (383 | ) | $ | 59 | $ | (443 | ) | |||||
Basic Earnings (Loss) per Share | $ | 0.29 | $ | (2.48 | ) | $ | 0.31 | $ | (2.91 | ) | |||||
Diluted Earnings (Loss) per Share | $ | 0.28 | $ | (2.48 | ) | $ | 0.30 | $ | (2.91 | ) | |||||
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(1) Referred to as “Pre-tax income (loss)” throughout the remainder of this document.
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||
Net Income (Loss) | $ | 49 | $ | (382 | ) | $ | 60 | $ | (444 | ) | |||||
Less: Net income (loss) attributable to noncontrolling interests | — | 1 | 1 | ||||||||||||
