Xerox Holdings Corporation

Thank you for standing by. Welcome to the Xerox Holdings Corporation's first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. David Beckel, Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone. I'm David Beckel, Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation first quarter 2024 earnings release conference call hosted by Steve Bandersack, Chief Executive Officer. He's joined by John Bruno, President and Chief Operating Officer, and Xavier Heiss, Executive Vice President and Chief Financial Officer. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and or rebroadcasting of this call are prohibited without the express permission of Xerox. During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com slash investor, and will make comments that contain forward-looking statements, which by their nature address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I'd like to turn the meeting over to Mr. Bandrzak.

Good morning, and thank you for joining our Q1 2024 earnings call. This past quarter, our organization implemented one of its most intense periods of structural change in recent history. As part of reinvention, we redesigned and restructured our organization from top to bottom, letting a lot of good people go in the process. This work was hard, but necessary to position Xerox for long-term success as we navigate the secular challenges associated with print and repositioning our business for long-term sustainable growth. Summarizing results for the quarter, revenue of $1.5 billion decreased 12.4% in actual currency and 13.2% in constant currency. Excluding the impact of backlog reductions in the prior year quarter and the intentional de-emphasis of certain non-strategic businesses, revenue declined mid-single digits. Adjusted EPS was 6 cents, 43 cents lower year over year. Free cash flow was a use of $89 million, a decrease of $159 million compared to Q1 of last year. and adjusted operating margin of 2.2% was lower year-over-year by 470 basis points. Q1 results were below our expectations and are not representative of the operating improvements already observed following the organizational redesign. We experienced a short period of disruption associated with the reorganization, particularly as it relates to sales of equipment but momentum in equipment orders and continued strength in services signings activity, along with enhanced operating visibility and speed of decisioning, suggests the structural changes implemented this quarter can deliver the improved in-year revenue trajectory, operating margins, and free cash flow required to achieve our full-year guidance. This past quarter, the employees of Xerox demonstrated the resilience and dedication required to enable a successful multi-year strategic repositioning of the company. I have more confidence than ever that we have the right team and the right strategy in place to execute Xerox's reinvention and deliver our three-year adjusted operating income improvement target. We will continue to build on early momentum following the reorganization, guided by a clear focus on the strategic priorities we established to start the year. Starting with a stronger core, a strong stable print business provides the financial foundation for investments in new digital and IT services capabilities and the strategic platform from which new services can be deployed. This quarter we took important steps to strengthen our core business by deploying a business unit rather than geographic-led operating model. This new model more closely aligns operations with the economic buyer of our products and services, which is critical as we navigate the risks and opportunities presented by an evolving hybrid workplace. As part of the realignment, we integrated go-to-market, marketing, service delivery, product development, and engineering teams to ensure client feedback is quickly and accurately incorporated into key product and marketing decisions. We elevated a broader set of go-to-market leaders representing key customer types to improve accountability and visibility into the effectiveness of our sales strategies. and we tasked one of the most senior sales leaders to establish a global partner ecosystem, improving indirect channel sales reach and ensuring broader access to Xerox products globally. These organizational changes improve speed of product and marketing decisions and enhance opportunities to expand client wallet by enabling greater coordination in the sales of digital and IT services to print clients. We expect the new operating model will provide incremental tailwinds to the momentum currently observed in our services business. Print and digital services signings grew double digits again this quarter, and the revenue renewal rate among large clients remained above 100% on a trailing 12-month basis, driven by the cross-sale of digital services into existing print clients and vice versa. Our portfolio of digital services provides stability to our core print business and drives opportunities for growth as clients seek both digital and physical solutions to address their most important document workflow needs. I'll share an example of the digital service signings we completed this quarter with a large print client in the medical devices space. At this client, we leveraged our print relationship to design a comprehensive, intelligent document process solution that streamlines and automates critical document workflow processes, resulting in expansion in annual contract value of 35%. The solution utilizes AI and RPA to digitize and classify and extract data for automatic integration with important client workflows, including the classification of device-related records, manuals, clinical records, and office documents. The solution also improves data and process accuracy while lowering the client's labor costs. This is one of the many case studies at Xerox that illustrate our ability to provide digital and print solutions that grow our share of wallet to improve client outcomes. Moving to structural cost improvements. This quarter we took significant steps to improve our cost structure, most notably through the implementation of reorganization that is expected to result in a 15% reduction of our employee base. Difficult decisions were made across the organization. but a streamlined employee base and simplified operating model positions us better to respond to market opportunities and provide incremental financial capacity to reinvents in our growth businesses. The financial benefit of these headcount reductions will build throughout the year, with carryover benefits expected in 2025. Operating efficiency remains a focus throughout our reinventions. The newly formed Global Business Services Organization will leverage advanced technologies like machine learning and AI to drive continuous improvement in productivity across the organization. Examples already in flight include the use of AI to optimize services pricing, reduce service technician resolution time, and improve the timing and quality of customer service responses. The financial benefit of these and other productivity initiatives are expected to grow as our business is further simplified through geographic and offering optimization. Accordingly, we took initial actions this quarter to simplify our product offering and global routes to market. We are exploring strategic options for our production print manufacturing operations and sold or signed agreements to sell our direct operations in four Latin American countries. These and future simplification actions will be key to unlock operational savings throughout our reinvention journey. John will discuss these actions in more detail. Finally, balance capital allocation. Capital allocation priorities for the year remain the payment of our dividend, reduction of debt, and investment in projects and acquisitions with high rates of return on invested capital. This quarter, we executed a series of refinancing transactions that extend the maturity profile of our debt. Xavier will discuss these transactions in more detail. When combined with free cash flow expected from a stronger, more operationally efficient print business, the refinancing enhances near-term flexibility to invest in growing our digital and IT services capabilities. I will now hand the call over to John to provide an update on reinvention.