Norwalk, CT (Jan. 25, 2024) — Xerox Holdings Corporation (NASDAQ: XRX) today announced its 2023 fourth-quarter and full-year results and guidance for 2024.
“Last year, steps we took to structurally simplify our business impacted revenue but led to 170 basis points of adjusted operating margin expansion and laid the foundation for successful execution of our Reinvention,” said Steve Bandrowczak, CEO at Xerox. “As we enter 2024, we are focused on stabilizing and strengthening our core Print business, driving enterprise-wide efficiency and productivity gains through our new Global Business Services organization, and further capturing opportunities in Digital and IT Services. We expect balanced execution on these priorities, supported by our new operating model, will yield significant progress towards our three-year adjusted operating income improvement target of $300 million above 2023 levels.”
The company expects stable Print demand, growth in Digital and IT Services and neutral macroeconomic conditions. The guided year-over-year decline in revenue is attributable to the following: around 200 basis points of headwind from prior-year backlog reduction and around 200 basis points from the de-emphasis of certain non-strategic revenue, including lower sales of paper. Margin guidance implies adjusted operating income margin improvement of more than 190 basis points, and adjusted operating income improvement of more than $100 million, year-over-year.
The company reiterates its three-year target of $300 million of incremental adjusted operating income above 2023 levels and a return to double-digit adjusted operating income margin by 2026.
Non-GAAP Measures
This release refers to the following non-GAAP financial measures:
• Adjusted EPS, which excludes the Goodwill impairment charge as well as 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 (loss) income 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.
Fourth Quarter 2023 Overview
2023 was a pivotal year for Xerox and marked the first full year of our Reinvention, a multi-year strategy to reposition our business for long-term, sustainable growth. We took structural and foundational actions to improve our core business and simplify operations, resulting in greater operational focus and a clear path for more transformative Reinvention actions this year and beyond. For the full year, the company delivered growth in earnings and operating cash flows despite a modest decline in revenue, reflecting the successful implementation of a more flexible cost structure and rigorous operating discipline. Additional structural efficiencies enabled by our Reorganization are expected to drive further profit improvement in 2024.
Equipment sales of $458 million in the fourth quarter 2023 declined 17.3% in actual currency, or 18.3% in constant currency1, as compared to the fourth quarter 2022. The prior year effect of backlog2 reduction drove more than a 25-percentage point year-over-year decline. Total equipment revenue outpaced equipment installation activity, due to favorable product mix. Installations of High-End color equipment, which were less affected by prior year backlog2 reductions, increased as compared to fourth quarter 2022, while Entry and Mid offerings declined. Declines in entry primarily reflect prior year reductions to backlog2 and current year constraints. Post-sale revenue of $1.3 billion declined 5.8% in actual currency, or 7.5% in constant currency1, as compared to fourth quarter 2022. The decline was primarily due to lower sales of non-strategic and lower margin paper and IT endpoint device placements, which we plan to reduce over time, as well as the exit of Russia, the termination of the Fuji Royalty and the absence of PARC revenue. Combined, these items contributed 500 basis points to the year-over-year decline in post-sale revenue.
The pre-tax (loss) of $(88) million for the fourth quarter 2023 decreased by $233 million as compared to pre-tax income of $145 million in the fourth quarter 2022, primarily due to lower revenue and gross profit as well as higher Restructuring and related costs, net and Other expenses, net. Adjusted1 operating income decreased $82 million as compared to fourth quarter 2022 due to lower equipment and post-sale revenue. Benefits from structural simplification efforts and pricing were partially offset by higher compensation expense and a lack of Fuji royalty income.
We expect a total Revenue decline of 3% to 5% in constant currency in 2024, which includes effects of prior year backlog2 reductions and the exit or deemphasis of non-strategic businesses – all of which are unrelated to the performance of our core print and services businesses. Core business revenue is expected to be roughly flat year-over-year, reflecting stable Print demand, growth in Digital and IT Services and neutral macroeconomic conditions.
We expect 2024 pre-tax income and adjusted1 operating income margins to improve in 2024 to approximately 5.1% and at least 7.5%, respectively. The increase in profit margins will primarily be driven by structural simplification actions enabled by our reorganization, including the effects of the workforce reduction decisions announced in January 2024.
Free cash flow1 is expected to be at least $600 million in 2024 (includes $50 million for capital expenditures). Free cash flow1 is expected to benefit from a reduction in our finance receivables balance. Improvements in cash flow from underlying operations are expected to be offset by restructuring payments, higher cash taxes and an increase in pension contributions.
Click here for the full report.
1 Refer to the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure.
2 Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates. It includes printing devices as well as IT hardware associated with our IT service offerings.
