Xerox (XRX) 26 Jan 232022 Q4 Earnings call transcript

Welcome to the Xerox Holdings Corporation’s Fourth Quarter and 2022 Earnings Release Conference Call. [Operator Instructions]

At this time, I would like to turn the meeting over to Mr. David Beckel, Vice President of Investor Relations. Please go ahead, sir.

everyone. morning, Good Vice Xerox Beckel, Head Investor of I’m Corporation. President at Holdings Relations David and Welcome Holdings Chief the Call to Xerox hosted Release XXXX by Conference Earnings Steve Bandrowczak, Executive Corporation Officer. Fourth Quarter Officer. by Xavier Vice Chief He is Heiss, joined President Executive and Financial request today’s call At recorded. of is Holdings Xerox being Corporation, the conference call Other this without express are recording and/or rebroadcasting permission the prohibited of of Xerox.

are at which, that executives future that matters are turn their the in At web During contain materially address those uncertain. slides available comments to the make statements, this to this www.xerox.com/investor, will call, that will future and refer meeting by herein. the financial different are Actual Bandrowczak. expressed Xerox nature, to be results forward-looking Mr. and may like over time, on I’d than

were and we conditions to face the year. have tragedy operations chains to been led and chain One joining XXXX our Good you and In further and that many shutdown difficult disrupted Supply obstacles of would and for humanitarian markets. Ukraine invaded other would QX in severity challenged in year it effective morning earnings our the thank of XXXX. ago, number Russia supply February, predict the this call. companies those entering

in fueled rates. the aftereffects Central increases of inflation unprecedented These And and inflation the an interest currency control of historic drove dislocation. pandemic and level Bank to efforts

leader, John Xerox, for lost last our Finally, Visentin. year, and we friend dear unexpectedly

to to inflationary lower proud offset report managed cost these actions and match am I demand corrective we headwinds. taking with through challenges that supply significant to

in and X% increased in constant $X.X currency the For of year, currency. revenue X.X% billion actual

separation revenue from currency Our first constant year growth Conduent. since of our

focus pressure, resilient our never more clients. revenue last year, by a important, value savings than effort free cash above people offset given quarterly remained that resulting and in delivered cash our highest quarter profits we above providing full since lost cash flow. quarter. accomplishment and our and were revenues operating on guidance most and Throughout cost our revised expended levels company of and broad-based an XXXX, to couldn’t in the team free our growth and the I in flow fourth the free instrumental However, revenue driving Still what decline more inflationary year the flow in level deliver revenue equipment be of revised in is guidance. proud was to the

long Global the for recently We priority the the A Knights has of sustainability momentum transparencies, in values sustainable most corporate named performance. in was environmental Climate the XXX ended for corporations world climate Disclosure the and an from leading the Project evaluators our efforts with marketplace. been of of Xerox and Corporate one top in and recognized reporting efforts. one by year being rating received business Xerox, our a Sustainability are

progress improve their the the competitive clients’ made And improvement of to goals. manage goals driving a we clients Importantly, our marketplace. at our the differentiator own to have help sustainability ability increasingly is in our is offerings sustainability sustainability

the highest revenue, at Go including services, print Turning currency, and since Consumables due largest, improved supply. digits grew quarter and contributions to rate stable again our and equipment grew supplies acquired source most product performance. low constant contractual from to as Print the Print In Services, before paper, Managed our Inspire. in single of this revenue pandemic such grew recently

digital AX plans in improve series of devices for reality and applications office small QX, towards technology. twin customer setup, of support CareAR launch Instruct, is geared provides to of Included the productivity these experience and users. a which launch the to In augmented plan we home security our using equipment

Xerox services year, a deep The quarter Automation, we the understanding level our breadth business, Enabling Canada. that object mid-market process customized in by the with basis. for digits including double revenue contributions technologies team enterprise-class drive is growth solutions, on leading clients. at and automation productivity meaningfully once recognition solutions. industry is Powerland again signings grew business to to content wins grew Services robotics and of quarter-over-quarter IT success our Increasingly, group the integrating bring automation machine use needs from clients’ our customer automation through a learning drive that such enhancements. other and knowledge as and then to

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In their December, assist a Provider named Top Xerox recognition Accounts by with to process. transformation CFO of payables Solution Outlook in ability digital of Tech was Payable clients our

our Our AP digital of many in offer. processing services workflow just optimization is capital reduction working for clients improvement and delivers solution a costs in one we and

we total noncaptive single will digital our the leases, this begin of we off originations including augmenting more XX% and than quarter growth solution services double-digit to types both mid-market, and services FITTLE XXXX, In capping leases. can to originations captive grew suite for in enterprise-class sets year a grew offering bring noncaptive the of digits, high further where mid-market clients.

enabling detail. in allows best-in-class funding solution We FITTLE’s focus of recently agreement the portfolio to also Xavier for its a use innovative in sheet. leasing for without This funding FITTLE, of model solutions. announced provider explain and in shift balance more services business an strategic Xerox solution funding growth this being on an asset-light will

I volatility growth we, Amid what control can marketplace, are Xerox, the we and priorities at will in all to XXXX. focused the on in shareholder and drive on for value. now uncertainty profits our touch

our with clients more customer it priorities main our can meeting the customer X with to success, clients our relationships shareholder partners additional Xerox Xerox. to becoming Starting with through profitability services. making success, discuss to value-added Our business CEO digital extend this I spent we we returns. lot a deliver since can of do year value have and by are time easier and ways

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win within the our markets Xerox business of IT that from providing built apparent research path Digital the our Service has time, and is it to Further, market clients. to we because value have a trust clear more over

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million, XXXX a cornerstone our of focal Another priority It our point XXXX is to more efforts and base. reached total bringing since cost savings of focus savings XXXX the XXXX, on $X Own profitability. targeted for for the Project been has cost transformation We continued gross than billion. a our of Since optimization $XXX

as Project as system, in measuring of the monitoring around savings, business by the processes organizational Just operating disciplines however, culture was Own important set It. that our and instilled these is management

more savings annual forward, the We continuous model. going targets will implement our behaviors operating a but in cost and do engendered to aid effort flexible to the by not plan program provide base

will make required to collaboration within Xerox it organizational investing do that business to solutions in drive we types processes to holistic as Just do easier by incremental clients. we our of easier it the will offer Xerox, business with efficiencies enable to make and

some where the business, and Accordingly, investment The how on such operating current few about near-term taken do macroeconomic cases, profit, and become R&D. discipline projects applied as months, been In environment necessitates a with profitability actions returns. have lower greater just on focus and investments we of offerings on and to disciplined the more return and certain in generation to past and we we R&D This revenue already in metrics of emphasis placing have more dollars. has scrutiny our our units. towards in redirect investments not the

We at investments our businesses these growth venture projects more external that X XD Xerox, focused but the and be and exited innovation capital and and and clear, their a at on in digital partnerships allowing businesses print, will investments IT own our Mojave, in freedom services. existing pace. pared to printing. out, successful joint within and augment Novity To were opportunities flexibility strengths be remain at priority growth PARC attract spun Eloque incubated

expectations. not result in on returns, will fell flow we strong and profits, to but our higher remain shareholder in an on we XXXX a a Finally, below focus trend. customer continue finish laser-focused initial generation. free anomaly, to cash success naturally greater year, also will the Despite was a profitability flow cash XXXX prioritize

funding in free FITTLE’s steps capacity per improvements improve generate expected profitability already to we receivable have dollars, more flow as profit agreement. such our to Beyond for XXXX, cash taken

stable of margin operating returns details improving free Each reflected on cornerstones success, full year in the plan. for as profitability volatile in improvements these guidance, adjusted are these also our in growth strategic will We which revenues conditions supply cash economic And our calls focused of each inventory a amid and challenging Xavier efficiency remain which XXXX and and chain flow, income and will and of normalize. remain capital shareholder environment long-term expect priorities priorities, of provide. working in customer

serve on the profits. the ‘XX our model. our plan employees long-term the delivering The growth that execute in learned resolve sustainable overcoming priorities will our foundation will well for strategic for To was these these challenges as one recap, a business we challenging year. form strength of tested year, ultimately priorities and of And the from us a lessons of

I Xavier. will over now hand to

and Thank good Steve, you, morning, everyone.

As least XXXX and Revenue at of than macroeconomic environment. the consequence headwinds a Ukraine, profitability inflation, billion, a with an full of ended stronger challenging a despite more supply as halting sales was million higher by year war million fronts. challenges, revenue the surging currency of more exceeding we a chain uncertain currency to Steve from were and and our rate in number disruption, and than year mentioned, on guidance impacted interest $X.X year $XX Encouragingly, headwinds initial Russia. $XXX unpredictable

Adjusting cash improved generation free in product growth. in year-over-year demand to operating future and and since due in resilient services and sequentially revised quarter year a grew supplies product improved our availability. flow XXXX Full QX first supporting and to improvements improve flow and actual will the free and each quarter our place this in revenue funding cash product for in grew X for constant FITTLE’s of we solution exceeded time XXX mix. QX, while basis of guidance, part due currency put FITTLE points that large margin year at

to X.X% supply was grew headwind, QX highest and negatively notably level Revenue points since XXX of the at pound. currency currency reaching in British basis chain an of euro revenue growth by significantly, due conditions. its Equipment impacted improvement XXXX of actual

$XXX IT As XX% including equipment sequentially a our result, backlog, million. to on hardware, declined

elevated, Our backlog it’s remains but healthy.

conditions to acquisition of observed backlog of print Growth quarter by revenue digit half for IT quarter, of Post-sale constant action by in this services, Powerland chain pricing year again contractual services aided currency revenue expect and consumable. Go the resiliency was and through Inspire. The the as the decline fourth grew which driven We recent this mid-single was first includes normalize. supply acquisition quarter. the consecutive the of further

and to year-over-year, bad higher Turning partially driven mix offset by equipment logistics higher sales, lower geography profitability. expense. costs, were by mainly debt better improved Profits and product

benefit XXXX and additional XXXX, realize improvement of further We expect we the efficiency. logistic in further price availability, improve lower cost product taken in action to profitability in cost operating and as

product the cost year, costs throughout acquisitions. over points the actions in by ongoing geography basis by XXX improved driven favorable margin of mainly and Gross lower year and increases effect mix, offset partially shift and associated quarter, product taken recent with supply prior and benefit price a cost chain-related the

points operating on Own points bad the debt supply XXX was on release chain-related reductions focus on X.X% from XXX of R&D currency. It return basis cost prior OpEx, improvement, investment excluding Project in increased offsetting bad debt this of from basis action our Partially were XXX higher basis points action. points to year-over-year, by XXX price Adjusted and improved and basis due expense reserve cost expense, of benefit associated year-over-year the with increase driven lower margin year.

the of increase XX.X% largely adjusted geographies. tax due was were certain was million benefit last offset expense changes remeasurement and to minus by tax retirement-related $X in sales rate quarter nonservice million costs noncore business in Fourth assets, Other to prior tax in to uncertain higher year. volatility compared year-over-year net due position. losses benefit to The a X.X% currency lower due currency from an partially for $XX increase of

a the higher year, a the count, rate. than noncore earnings $XXX higher $X.XX by was in million share year. of operating lower of driven was per a prior share tax prior charge higher, mainly by quarter to share the EPS due or offset $X.XX noncash higher of Adjusted of income, impairment $X.XX goodwill assets GAAP $X.XX adjusted in per sales partially fourth and $X.XX,

Let more in cash review details. me and revenue, profitability now flow

$XXX the currency. currency across QX, grew Growth in year-over-year the equipment in availability product Turning revealing in Equipment categories in backdrop. backlog, sequential macroeconomic higher-margin better activity of driven amid actual of mirrors decline resilient a revenue growth equipment by to constant all order in in million or for was sales and particularly The regions, an revenue. XX% uncertain region. devices AX XX% Americas

Russia actions. Equipment for We our demand product outpaced continue office pricing to outperformed revenue Color AX due was AX product and AX see mix Installation equipment. of mono quarter recent mid-range Color benefit stop machines. for and strongest favorable & Black product higher-margin shortage. installation particular a the in growth to and this AX of due White growth to supply strength to multifunction shipment in

billion, $X.XX X.X% currency of grew declined constant in revenue X.X% currency. Post-sales in year-over-year actual and

of growth the and growth revenue slower-than-expected IT component in Post-sales Canada services by was in in XXXX, ongoing including driven low constant our Go associated Contractual benefit grew and in acquisition Powerland resilient in was single services, recent of currency constant consumable. digit with currency, benefit Notably, reflecting this the year-over-year and offices grew important to of annuity Inspire. and recent macroeconomic employees revenue action acquisition of modestly of concern. a return pricing despite print

sales. this product post-sales as Americas consumable grew We normalized mainly have was better for region growth mix we Growth by constant than in at a receivable stream. believe now currency. offset faster balance. reflecting a The both financing due in FITTLE revenue, in lower as to revenue level Geographically, regions lower reached availability EMEA currency and well revenue grew partially constant stronger

cash of the in flow QX capital compared Working million. year-over-year now Let’s $XXX lower of flow. in in cash $XXX QX, flow cash prior $XXX $XX to higher review $XXX a was was than million partially year. million higher prior of lower year, the Operating to by cash $XX QX, accounts quarter, million receivable Free by by driven payable. inventories was million million position source account a the use cash of ahead on offset this

quarter in quarter of in payment. reflecting the FITTLE and use Positively operating cash favorable in the higher compared other receivable offsetting $XX effect million activity $XXX this improved strategy. operating to equipment was finance growth Additionally, the used and of lease fund cash were timing current sales of million year, income liability a to and prior

of collection receivables expect receivable being to cash finance by receivable funded new increasingly we result as existing partner in are of FITTLE funding Going financing third-party source runoff originations while agreement a forward, continues.

slightly of of were cash offset investments support activities payment sale $XX mainly comprised $XX notes, prior dividend higher to of XXXX by part netted consumed this partially cash an cash our Investing from million quarter, $XX payment of year a a compared the our in quarter, is a Financing early due infrastructure. on million finance source the portion securitizations. CapEx, by in activities which in million receivable of of large current which the use in of IT proceeds to of asset

During repurchase did million $XX totaling the quarter, shares. and not paid we dividend any

a Quarter grew operating Turning on previously year-over-year basis X reasons to profitability. adjusted substantially sequential margin for profit the discussed.

our implemented and Importantly, an portfolio margin year and or across certain. this price costs, and successfully across in increases years period ongoing extend was challenges. of areas corrective across We of expanded measure investment sequentially quarter we each products expected inflationary notably, of chain took most multiple as the pressure action took services offset level unprecedented to where payback rein less to supply

Many in achievement of Project reflecting were savings of of these our the million. It actions $XXX Own targeted

be we’ll beyond. noted, efficiency Steve for important Own instilled our margin XXXX, not in will the improvement continuous amount but As targeted driving an in improvement providing savings operating It of expected principle and role play XXXX by Project and

non-Xerox to billion, finance grew up FITTLE XX% relationships includes growth segment. origination and origination XX%, FITTLE volume product new for third-party as Both more in X% than origination In more were a lease. captive function as year-over-year. grew equipment higher and well currency. of third-party channel and noncaptive Turning origination, Xerox dealers dealer in QX, assets equipment than $X.X actual sequentially which vendor

on investment. quarter, prior intersegment net higher release financing revenue, profit $XX to equipment start-up revenue higher and was debt with cost QX, lower origination, X.X% FITTLE installed Segment Xerox due reserve in year-over-year $X of a prior reflect million to minus higher operating profit, $XX a million, declined in lease bad the down in in reduction mainly commission lower associated million strategic which year periods. due expenses

time, receivable we compared offset servicing was revenue. XX.X% for in and and Over Segment a by be year lower in solution partially to fee-based financing funding current profit which X.X% expect positive future revenue and negative result ago. FITTLE, will to margin commission growth

not we offset material or profit as higher and XXXX, a expense. finance revenue lower debt lower FITTLE commission upfront do in expect be by revenue will However, change in bad

year-over-year, in the grew profit year. QX. XX.X% price XXX-basis tripled revenue cost in improved and year Other throughout product Print mix and segment resulting point Print and by the quarter, Other and and margin of prior expansion segment in benefit the profit the supplies over taken actions driven

of discuss the how time affiliate FITTLE and free in sales this arrangement flow contemplates I’d with HPS have to funding will This Xerox to The otherwise reduction agreement year. by in obligation like to flow. Xerox, for lease operating FITTLE funding of receivable a signed XXXX. direct spend $XXX some million FITTLE recently our receivable will result in around is cash to affect Partners now Investment cash so of expecting benefit an been amount funded

However, partially our this is offset lease benefit expected to growth by portfolio. receivable in be

free cash cash in When free considering flow, the benefit receivable the flow. net will year-over-year be change to additive funding

covering Additional year. prior free to for multiple of flow receivable agreement a timing non-direct free guidance increase runoff. years, contribute cash receivables in flow included the agreements controlling due U.S. Receivable for cash decreasing level expected the expected to but are are would funding not further to but at lease

of $X.X million $X.X remaining with debt of portfolio. The $XXX is attributable restricted cash allocated debt We Debt of to FITTLE lease consists Turning billion equivalents unsecured securitization. senior bond to billion the structure. of ended around finance is the and cash. to core capital cash, business. outstanding $X.X asset QX our billion onto -- of and

over this few balanced a million next of have bond debt We repay $XXX year remaining March and the expect in XXXX. to maturing the maturity years ladder

guidance. Finally, address I will

constant down in in XXXX. be expect We currency to revenue to single digit flat low

particularly Contractual largest of material remain products As and for most service AX and steady. devices. revenue, to our demand revenue, noted remain post-sales our resilient, print contributor expected earlier, office is services portfolio for profitable to our

account product a While revenue macroeconomic not due macroeconomic or experienced in for to our yet pullback conditions. deterioration we meaningful a demand potential pressure, have outlook in for our does services

Offsetting IT reduction are on which likely IT If economic the most equipment the demand cancellation degrade future even in will implementing digital are risks increase and order business price increases. nature difficulty we rationalized. service budgets effect conditions be annuity-like or were countercyclicality these our our of post-sell or further, to many implementations, purchases believe of if to not the services for and is of expected delays

This adjusted year, for income reinstituting guidance we operating are margin.

operating to as point over XX-basis logistic enacted level, year, at driven income and XXXX cost X.X%, an the lower be and recent margin For expected action adjusted we expect increase by price as costs. least well

free of solution. generate expect least to including flow, funding of million at We FITTLE benefit the receivable $XXX cash

cash Excluding range benefit solution, receivable to income. of the be operating in XX% free the net flow of expect funding of to we XXX% the adjusted

remain least XX% our policy flow to unchanged. shareholders free of of Finally, cash at returning

While expected provide quarterly cadence to quarterly we I our result. do not the of color guidance, provide want some on

equipment be time, First, sales products-to-price in expect not to rate half of post-sales first revenue. compare. is to the the on do due we easier this expected in growth growth And deviation higher revenue, quarterly at significant a

adjusted margin For sequential increase reflects margin, in first operating spend, after and The quarter the sequential to in benefit backlog in and half the lower year-over-year of to margin the quarter clearing remaining expected R&D seasonality, relative X normal the to cumulative which X. second improvement we effect of quarter half. the is expect X in margin improvement

cash of free benefit throughout to expected flow year revenue. receivable flow. roughly as the at be same cadence The the Finally, realized the equipment arrangement sales cash funding are

open line We Q&A. will the for now

Capital. And of Loop our from line Baruah Instructions] [Operator Ananda first from question comes the

to Xavier, it you’re sort from like kick-starting seem enterprise? of doesn’t It and yet. context about there, just you have are comments of you customers. guess some your right being meaningfully folks customers, what started kind slowing Can guys what seeing hearing us seeing in the about give seeing for see I sort from with of and enterprise guidance risk you’re any

risk I you out kind -- is sales primary just to think pointed did like see. now the forecast you the you of equipment so And that

And have there. quick follow-up context I So after just that. then some a

well. as you to Year New Happy Ananda,

AX a SMB demand noticed, been driven point equipment enterprise But for strong. seeing from It reduce ability have a pattern demand QX, mainly of strong. still as backlog, very quarter good to here customer, was you from with the equipment. same our is So order the it yes, customer, the we and And time, has so by the us. at what backlog -- are remains view,

should our So on services. and flag I offering, we still see also a demand

I commented have contracted look there, comment early if the is of strong. you in post-sales the demand seen So have we being equipment revenue, activities. post-sales at But made

So related, print of some print of this it is not some related. is

at side forecast, in And are we also we is that equipment we demand, for realistic look it. same because when we balanced look our an sure, at want Realistic this the environment to be, and we the only macro At I’m let’s here. not is bringing confident offerings way the currently the approach comment environment Steve time, to which are demand driving the call the solution what will the side. able when and for be balanced but uncertainty.

am I Steve. Yes.

to able we’re that trends. the macro if seeing, with higher you are inflation, all macro our cost be the about of the ability dealing customers with those of environment one to think with things So increases,

as and customer about existing have we’re base opportunity specific today. for our to success inside think of we driving expand customer And driving we to so a solutions great think productivity customers, we really in that the

do things our equipment grade plagiarisms like, language their and with our our less, can think do documents. do more, equipment doing can in about Simple can workflow, challenge papers, we and more having look teachers, how administrators, districts example, equipment drive more on with school at like things you translation, productivity if

play actually small and a with the workflow So trends, and and productivity, of space. help mid-market and inside very to driving specific we’ve their great macro verticals, we drive our believe we penetrate driving in customers got can opportunity certainly help

And from our line next the of Erik Woodring question comes from Morgan Stanley.

businesses we the you Steve, settled like as on question December down wanted really guess, work small upon of that I quarter. into strong set bigger ask may a be. I kind their XXXX, enterprises and enter to and that based feels whatever results is conversations most picture Congrats our it the hybrid that have up, in just,

what terms learned from -- to just in follow-up. I’m then I just new seen What consuming that. of enterprises What’s in normalize, get to work how feedback curious your home bit is Xerox kind on Would maybe unexpected seen this now work world? have and came are a you’ve of you? hybrid SMBs we’ve a you? love of what you kind surprising maybe as have and to And

Yes.

couple things, I a think of there’s Erik.

of do you’re all, the are data company, hybrid drive it’s but First companies challenges in into how this and security right, significant settled driving security around happen workflows documents getting and around environment, in you of productivity. new how

through what of a so wherever play individual And innovative an us years new couple been we’re for around is. seeing workplaces just for is in right, we the terms to a actually workplace of One, a have things. is incredibly space, we great how opportunity that area in drive productivity. This

a to we things. so opportunity couple And an see do of

drive workflow have inside data to can workflows. they and our with One, our what with those we AI customers augmented actually we reality, products with solutions, importantly, insights do that productivity, solutions, think more drive we solutions, the but can of cloud help

to that believe really be So insights a great in the provider for of in productivity there’s to we to choice us play and drive wherever opportunity this and are help data. space their and new employees customers drive world

the So first thing. that’s

workflow macro are specific about to think Second, bit a drive facing, earlier an solutions. some customers I little the very as that talked headwinds we to opportunity Ananda, have you as

verticals in like and can specifically specific We we’re end accounts talk things me very heard do but very and around help what doing customer about drive productivity our customers success. payable. You in around workflow, their

a have in area, accounts we and And so wallet inside our this of expand customer can we think we play opportunity great to there. share

to -- into Super. maybe Steve. expansion is, can see really operating the us help And about for levels? gross be of to us would Can XXXX, That’s example, some between more two-part maybe question in help how then Okay. get influential question, you that have XXXX margins a help to and helpful, the each or nice XXXX. of for margin Xavier, you in understand those? what closer to, maybe to factors then, see you super XXXX you some better XXXX margins trade-off would OpEx And think you

Yes. Thanks, Erik.

have quarter, been you QX you it up for QX as for an able company noticed the was the X, So it overall us. important up have we we that and the margin there. on have was that, year strong a in and drive to commented margin for And quarter noticed driving quarter

will -- we it in make quarter work that quite in ingredients the that have and be plan the to XXXX that simple. the ingredients So are required achieve

#X that in we is things put already have place.

some be XXXX. and know have the Price increase, put during in the price X/X rebuild and revenue valid it, a the place been margin to increases flow-through lasts for when we annuity-based, it it the that is price year are and means measured order have price price a of is This year after for our price contractual. you and year which contractual, lasts, as enact and that phase cost be also after. XXXX, here. increase the the to still have These will year, in of inflation, but towards in of enacted increase. increases we’ll We increases

improvement on the So supply point is chain. second

supply say, You literally point of have know would this that the around say cost And of year. been, supply chain mainly a XXXX and crazy the XXXX view. I and I from chain uncertainty

what And seen we crisis the the the not We seeing will the up. help mean margin I it, cost it chain great of situation, COVID are to which pre-supply at the condition if container yet have already improve we’re was even -- and shipment, to in or of container supply normalize. cost expecting pre-Ukraine is improvement and gross chain

our we But return will we be the commented last way we just it place the environment, prioritize base. point we is And is high in cost the very selective investment. And longer-term putting we uncertain responsibility means make that important. We Finally, earnings to are in in invest. ensure our that that quite flexible, investment in in term investment. a for versus will flexible is an macro way the yield

that’s component. key So a

that have the some why could have and inflation royalty, we Xerox we you, that of mentioned costs X chain headwinds exist. the price, Technically, the reason that still to But Obviously, there. the supply you to main offset that’s benefit will of the components have I to we back Fuji know some investment.

margin. in in to ability operating expand confident are XXXX our our We

our And from from question Morgan. the comes of line JP Chatterjee next Samik

Chatterjee. a for Samik strong Jin Congrats Angela is quarter. on This on

backlog. about question a So

I $XXX came equipment saw backlog are about and $XXX So down up sales quarter-on-quarter, million that quarter-on-quarter. million

quarter? can continue that will should walk you’re reach here within So seeing just of we about rate, order of backlog the if into dropping? is rates And you cadence implication back Like, how So in gap an or equipment the XXXX. you us a through cancellations first at you uptick quarter sort think the levels pre-pandemic are this there? of the

XX% good of because Yes. decrease so say there. related of know to conditions mainly a a you a in be able of backlog related building we the this is would some Angela, We level coming profit sorry, to the the and started to XX%, it’s is XX% that decline X, were I this equipment. to -- the see we agility decline chain improving and AX equipment backlog these have, a we just story what to here, get and normal also back backlogs This in have high up. supply was pleased the backlog to logistics quarter call reducing to and quarter And speeds -- logistics X.

bringing story. mix. a I it story a would was the was good That that to, that because good back So products it normalized say, of we are mix helped selling, more

equipment margin gross the overall are here. the improvement of post-sales on and both profit side, revenue helped good products these some it point, also driving Second but

we patterns that quite for QX. regarding the mix demand same very a strong seeing that’s see we still are at of here, look products. order still we the So When

of our here. to of current Steve product, need productivity and this drive don’t hybrid them in as the described AX of product, they capability only, So some they our customers at working that are for new essential ways this printer look workflow

balance we the at we that equipment in were growth So for. that we works, the the growth on well on decline, we expecting see inventory and math backlog when have it line planning with as you in mean, can versus those I look what versus was on the at we look mean I the you the what it, was measure the channels equipment backlog, decline

you backlog we have the -- Looking normalized at flush what of a number, expecting we backlog. next X.Xx backlog, what that if versus year to give the you at during the first backlog this we is a to the now, normalized are half look at And backlog year. today the currently are is normal

or expecting quarter in X quarter to So this we’re X. in cleaned remaining with flushed be impact some

of year. of the second a Assuming mode for for half manufacturing the good you be chain the stay year, in and rest BAU should the supply

FITTLE? just your Got attributable about of point follow-up, is flow in now can your the sort to It XXXX. free very that for versus of ramp it. $XXX And thinking so core then in that right least plan helpful. guide That’s million, what cash maybe range the is, for a dig at XXXs flow some cash to unless free portion core in seems into, of low at originations meaningfully more business you really my there’s

Yes.

-- go So for said is to XXXX, specifically have in XXXX. free reasons. we anomaly reduced anomaly In related cash an we if One with that it And to XXXX. anomaly. profitability the X start I is is back an let’s flow

and The cholesterol. call bad point, good I it, cholesterol, second

is FITTLE is when cholesterol good has cash that So cash it means going, growing. that And it is on FITTLE impact using FITTLE the and free an flow. was

normalized XX% will to by in flow? around there, flow this, So indication in free without gave FITTLE movement free be We saying you free cash and a this expect an project cash -- we I here, of in to now earlier normal flow my gave be XXX% if what cash I adjusted normalize you operating profit. I comment XXXX, XXXX

of it indication earlier what a could that’s be. So

forward have of of we you agreement. the top the on Then call that, will flow what benefit

flow, Xerox this like as with agreement should the saying FITTLE, to party that from do won’t look and agreement FITTLE future get the flow. is You will [indiscernible] we forward by at this receivable look we great should this managed the fund balance who of to you being fact By the simply sheet. a from at forward that have or future origination

the was What on flow offset does will that means by will mean? that It this runoff forward agreement that sheet completely balance the you that Xerox here. book of be have

it X as You an in have illustration. chart account, deck explain to the of take into the that

is that growing You have same account time. to into at still FITTLE take the

the X the $XXX by million offset this quarter So FITTLE X, growing. that waive is is that fact affects we have signed in

$XXX then normalized So look $XXX And provided. on million of say, then we add let’s million, million this roughly cash top this million, you $XXX when of have have account million. and guidance FITTLE, between flow at you into this $XXX takes without $XXX that free to that you our guidance

squeeze And right. in just one. quick if I All last could one

equipment margins up XX%. So to are

a lot It with mix being sales. of this favorable upside quarter. the it more strong like AX than drove seems U.S. So usual is units shipped in and

the level So equipment is sustainable margins what forward? of going

the were protected a I driver. margins, not during this price look equipment you’re is stopping X, intact have But driver for increases we say, to quarter And in the one to done. the pricing on as at the mix customers. year. I’m ability I year, have of us, with way or So was, the is key when we pattern to margin look across margin what This had equipment we well to key evolved only at I how keep important And dealing our pass customers. would right,

have the that and have enacted offset expecting sustain the cost be able that pricing here. or inflation some impact with we And XXXX, we that will in we and will prices of to the we’re believe it

margin around at is -- more rest X give -- you how representative. normalized you margin entirely via what provide year. seen. far I not IR for quarter guidance the have want the is the to from won’t can look if also But we of So say our team, we

from And Credit a next comes Cross of from Shannon question Suisse. our

I’m cash wondering requirements. sheet just about balance

As more model assume the more become services, inventory should you time? inventory-light I from level this itself changes of on a about what you’re shifting, maybe side, but move financing also model how just the and we bit your solutions an as will more equipment? Because as little over of business obviously, would to think away

because business run figure And to going is think to where needed what then also as -- cash you in just you’re the trying of XX about already ‘XX, I we’re guess, ‘XX? excess in I’m core be exiting your terms out to maybe cash

Shannon, articulation. provided let’s go I so some back, just

repeat clarify I of some or So maybe the will points here.

would our at business can FITTLE. without -- FITTLE in for So business cash next free and you I you have for ways, year say, guidance look flow X with the

due was of mentioned in margin XXXX to erosion we as the the the during the it, first margin, cash FITTLE, pressure flow way of specifically without specifically free came, an year. business the So half anomaly and

can adjusted is at normalized flow look put you we if $XXX have million XX% for million. the a what count XXX% to to without and on Now number around year, FITTLE guided $XXX on This free of for cash operating normalized profit. next you between

The second part...

about flow. cash. asking was wasn’t I about I actual cash asking Xavier,

cash cash to debt understand saying level because, your obviously, to like, business? what now. you I some do of -- of sheet so ‘XX? kind have might just cash And generate you year, down if next $XXX free company just then be think if wondering, I’m do million be flow. run us need So But of So excess of off idea deploy right of the coming flow you to in elsewhere. clear, you the just you give the that cash of the I think what total need right about to balance pay terms to now, I’m in you your out use will where an what cash

Yes.

and I’d so been returned is it, cash to, question the capital allocation we say, the to did we So to priority related change shareholders. with XX% quite way. we here, of your simple, and is flow what is by free not if -- do cash have

dividend. by will first The a be part

even know COVID-XX As you this, have during and maintained dividend our period. we

our and to keep drive to this the will the on cash dividend, the $X we driver way cash So back to shareholders. of the -- bring and be one

take XX% $XXX out you million, $XXX So if million. are of you at

this to dividend related with free in be and come the during the The $XXX funding, if $XXX So come way FITTLE, and cash it be year will the range million. is cash will will will flow of million, progressing. not the

earnings we the for in invest on shareholders business the and to So or have strategies and just of during the use the return or more of return -- what investment offerings and the cash have the we digital how before, would we between order that pushing provide also Steve we described will say, workflow a customers. low we and also will low comment on will this automation automation information are potentially that product services, time on support quarter we to all will I like high a but the yield, next that

on because the over the your are of one cash balance basically, due guess Okay. is the maturities you I about the my And hand. you and have will obviously, on sheet other near-term Is leverage utilizing cash from do sheet FITTLE that keeping time delever you Or you to level balance anticipate coming the areas debt idea you shrinking think be question as then paid -- with higher in on generate the a going business? FITTLE forward? and your

what is So do obligation. face to simply we debt our plan to

and March, based the debt on pay we So we in to it business. $XXX and on by generated million plan the are cash we pay line to a have

ladder are or the that that And be to able clean. if debt time that XXXX, this debt add I’ll face like XXXX, leverage you we’ll highly have a sheet. to say, in obligation. planning overall we not of at the at balance quite We And we think look

our about versus a concerned debt specifically to type prevalence to not I’m ability we take So investments how and other debt phase of do. will plan

talked is customers that in contracts terms quarter, up normalizing? Are open and services equipment? of size I you going Or discussion as you out in my management customers of And what as last lower have last seeing just is offices that at of are negotiating things of the Okay. page you volumes think some to I about some volumes, page sort question there, these forward, look talk guess, -- then you you continuing? is,

Yes. Good Shannon. question,

increase data showing on are We I minimums. So the reached And like point and I see position we here. our erosion believe see price have commented, sticking. see currently normalized what ability passing as don’t well, as a higher a from to page negotiate had contracts some that we customers volume. product around, we well that have are points think that a would to with we say, We price are we we

at there, So flattish is lines, like look like year line, way we revenue type this this lines we we the is contracted call not the is an decline. this revenue way of look accelerated a at line what next print a because from good which

it say, we would slow I been, the for quarters, had in I flattish, has But in office certain to places, call steady. look the and way return higher line last that at So been, X some like this would little geographies. a bit X,

look it year. that’s at So we for the way the next

And our final question Suva today Citi. comes from of from Jim the line

modeling rates be that, interest especially a that lot? rates thinking of then you it you have the relationship follow-up. us you And kind just can little of have about kind what comments, and outlook because that. changing Federal like Reserve more a your prepared or things expense mentioned for all But with a with gets give FITTLE we your swinging about interest interest now should I some complicated, In about and of

a or X? your expense moving just QX interest divide a use number the like long-term There’s that we could number use year Is and lot just of in of number it full kind by item. the parts

rate, and look at debt. to I’m way core speaking the so here about Jim, the interest

core this based debt a fixed mainly all, rate. interest of our on So first is

the Fed that -- there. on had can that or increase rate inflation we right debt is related the see we for to increase all the or directly maturing not our rates So indexed

are #X, December and have a noticed March as debt, it. opportunity million. $XXX you down of paying pay year. coming down We to maturity in took had March we early our in $X around We We it million, XXXX. billion in this the already did $XXX also

have do and $XXX to we X, we left there. that million [X, have do, to plan We $XXX million],

cash. our pay to down on concern no So ability

doing we interest really this be one take in in just other means interest you the an on and the on of not From the you’re expenses being if side, charge view, closing will had quarter interest business X you directly interest and have point that the that well FITTLE this have side. debt the reported reported in is you income because interest ,

change reported. the FITTLE for the point FITTLE. interest in So on will to flow will be just the forward the opportunity business obviously me X way give the the Maybe, agreement on how future reinforce

an equipment, lease office-related becoming With -- business, And industry-related agreement non-equipment that FITTLE business the servicing our to of asset Xerox model related there. specifically line model or asset-light forward that is of signed, now for and changing. flow type have the FITTLE is we

strong mean? the to at cash not signed or outside is competitive, adjusted the detriment ability to flow. means the the cash or potentially, detriment support of the FITTLE the free and make to rate at signed without our we business we of this that that sheet a is What highlighted, has and Xerox it ability growth help does of the It leverage this now grow get done for with a of FITTLE as partner you enabled, rate to could on that And having agreement flow. strong balance that impact us it

kind kind XXXX? XXXX my flow your XX always the to cash with the we’re of Page of arrangement. this benefit equal financing a your is they seeing talk this follow-up. funding the the and kind of funding kind cash meaning benefit of equal then Okay. partners know growth of should funding receivables, inaugural out? flow. effect free presentation, should be agreement And out, Or on of net like term, the they in receivable your earnings positive, in where quick net the impacted I On net year your they about year should of you year Long

to the have to which on we portfolio, you’re the that call in the So of by, sheet while FITTLE balance The runoff be place. it let’s programs will X right, been Xerox time look time that over funded Jim. the is and way existing X at years, has acquisition

done So and Xerox balance this sheet. be time, decline over agreement. that funding agreement this funding And is one-off will by replaced of will outside it this

specifically point erode will FITTLE fact cash will not will by but as a to that It from receiving it by XXXX, over and way free is in a Xerox. in of XXXX offset partner. see, that benefit this this flow time. be at mentioned, every will offset sell work. be time we are also we this receivable it in be the of offset, commission But the will our agreement, P&L that the view, So some way of I future It we and shift looking

how But we we and will fact benefit also, we are rewarded this say, service still highly, I would also have this and by the will manage portfolio. fees some that business from of

this growth in the while preserve to this use the would the revenue is the shift is FITTLE for and change, a Xerox is built. the to profit of balance So less This I of Xerox business. business the is of way being say, good, sheet, this able a preserving on FITTLE related being because

for back to Steve Bandrowczak program hand the remarks. the further session any question-and-answer conclude I’d does today’s program. This like of to

for our you call Thank morning. listening to earnings this conference

turned deliver growth right have day. returns react call page has beyond. our a place Macroeconomic profitable I that results. We remain you team the the we to profitability past conditions strategy great but can at am have this proven drive Thank for and uncertain, year and and on have XXXX we in XXXX. shareholder Xerox in and confident joining and and

participation This program. you, for and gentlemen, does ladies today’s in conclude conference. the your Thank

may disconnect. Good now You day.