Xerox (NASDAQ:XRX) Holdings Corporation (NASDAQ:XRX) reported its third-quarter 2023 earnings, showing a decline in revenue but growth in adjusted operating income, EPS, and free cash flow. Despite the decrease in revenue, the company's "Reinvention" strategic plan and operational efficiencies have led to improvements in key financial metrics.
Key takeaways from the earnings call:
- Xerox reported a revenue of $1.65 billion for the quarter, down 5.7% in actual currency and 7.4% in constant currency.
- Adjusted EPS was $0.46, a $0.27 increase from the previous year.
- Free cash flow improved by $130 million year-over-year.
- Xerox outlined its multiyear strategic transformation plan, "Reinvention," aiming to optimize its geographic presence, product offerings, and pricing models.
- The company repurchased 34 million shares from Carl Icahn and affiliates, reducing its share count by around 22%.
Despite a decrease in revenue, Xerox's adjusted operating margin increased by 40 basis points year-over-year, offsetting lower revenue and gross profit with operating efficiencies and pricing actions. The adjusted tax rate decreased to 7.3% compared to 42.1% in the same quarter last year, primarily due to the release of uncertain tax positions and the remeasurement of deferred tax assets.
Equipment sales declined by 1% in actual currency or 2% in constant currency, while post-sales revenue declined by 9% in constant currency. The decline in post-sales revenue was mainly driven by a reduction in cyclical transactional items and a decline in low-margin paper sales. Geographically, both regions (EMEA and Americas) declined in revenue.
Xerox's outlook for full-year revenue remained unchanged at flat to down low single digits at constant currency. Despite a slight reduction in revenue outlook, the company maintains its guidance for full-year adjusted operating margin of 5.5% to 6% and free cash flow of at least $600 million.
The company's "Reinvention" strategy includes geographic optimization, simplification of product offerings and pricing, and operational efficiencies. The goal is to achieve double-digit operating income margins and $300 million of operating income by 2026. Xerox is also aiming to shift its revenue mix from print-centric to IT services and digital services, targeting the growing markets in those areas.
During the earnings call, Xerox executives discussed their strategy to expand wallet share with existing clients by offering new IT services and digital services. This strategy has resulted in a revenue renewal rate of over 100%. The company is focused on verticals such as healthcare, education, and law firms, providing specific solutions to drive client success.
Xerox has no plans to expand into the Asian market, instead focusing on growth opportunities in its existing accounts in the Americas and EMEA regions. The company also discussed its change in strategy with FITTLE, transitioning from using its balance sheet for leasing to partnering with HPS and PEAC.
CEO Steve Bandrowczak discussed the headwinds the company is facing, including inflation, interest rates, and labor challenges. However, he expressed confidence in Xerox's strategy alignment with client needs, focusing on driving success through solutions and products. He highlighted Robotics-as-a-Service and digital workflow as areas of expansion. CFO Xavier Heiss also expressed confidence in meeting revenue, profitability, and free cash flow guidance, despite a softening in the European market and challenges in the paper and high-end production businesses.
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