Xerox Holdings Corporation — 2023 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2023, not a standalone fourth-quarter report. Xerox Holdings’ primary operating subsidiary is Xerox Corporation, which accounts for nearly all consolidated operations. Xerox provides workplace printing technology, document and IT services, software, and equipment financing through its Print and Other and FITTLE segments. About 45% of revenue came from outside the U.S.; 76% was post-sale revenue.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $6.886 billion | $7.107 billion |
| GAAP net income (loss) | $1 million | $(322) million |
| GAAP diluted EPS | $(0.09) | $(2.15) |
| Adjusted net income (non-GAAP) | $287 million | $189 million |
| Adjusted operating margin (non-GAAP) | 5.6% | 3.9% |
| Gross margin | 33.6% | 32.6% |
| Cash provided by operating activities | $686 million | $159 million |
| Cash, cash equivalents and restricted cash | $617 million | $1.139 billion |
| Total debt | $3.277 billion | $3.726 billion |
Revenue fell 3.1%; equipment sales rose 1.9%, while post-sale revenue declined 4.6%. Reported earnings include a $132 million pre-tax charge for the PARC donation. The 2022 comparison includes a $412 million pre-tax goodwill impairment, an important factor in the reported net-income improvement. Adjusted figures are non-GAAP and should be considered alongside GAAP results.
Operating cash flow improved by $527 million year over year, supported substantially by reduced finance receivables, including about $1.1 billion of receivables sold to HPS in 2023. Accounts payable and other working-capital movements partly offset the improvement. Of year-end cash and restricted cash, $98 million was restricted. Debt included $2.428 billion allocated to financing assets and $849 million attributed to the core business. Xerox had no borrowings under its $300 million ABL facility at year-end. The $550 million Term Loan B carried an average rate of 9.34% at December 31, 2023; $300 million of senior notes mature in the second quarter of 2024.
Material changes versus the prior comparable period
- Revenue declined from 2022, reflecting lower paper and IT endpoint sales, termination of Fuji royalty income, the PARC donation, and softer contractual print activity. Digital and Managed IT Services growth and higher equipment sales partly offset the decline.
- Gross margin rose 1.0 percentage point and adjusted operating margin rose 1.7 points, aided by lower supply-chain costs, pricing, favorable equipment mix, and cost actions.
- Print and Other revenue decreased 3.4% to $6.571 billion; segment profit increased to $360 million from $258 million. FITTLE revenue rose 2.0% to $401 million and segment profit increased to $29 million from $17 million.
- Finance receivables declined to $2.510 billion from $3.102 billion, principally reflecting receivable sales. Cash and restricted cash fell by $522 million, including significant financing outflows and the $544 million share repurchase from Carl Icahn and affiliates.
Outlook, management commentary, risks and unusual items
- For 2024, management expects core print and services revenue to be roughly flat, with stable print demand and growth in Digital and IT Services. Total revenue is expected to be moderately negatively affected by prior-year backlog reductions and exits or reductions in non-strategic businesses.
- Management expects 2024 operating cash flow of approximately $650 million and capital expenditures of approximately $50 million. It expects improved profit margins from restructuring and simplification, while higher cash taxes, pension contributions, and restructuring payments are expected to offset some underlying cash-flow improvement.
- Reinvention targets at least $300 million of annual net adjusted operating-income improvement above 2023 levels through 2026, with more than one-third expected in 2024. In January 2024, Xerox announced a reorganization, a Global Business Services organization, and a targeted 15% workforce reduction.
- Material execution risks include weak or changing demand, competition and technology shifts, supply-chain and supplier dependence, restructuring disruption, foreign exchange and interest-rate volatility, and the company’s non-investment-grade credit rating and leverage. Xerox also identifies cybersecurity, privacy, pension funding, environmental, tax, government-contract, and litigation risks.
- Defined benefit plan obligations exceeded plan assets by approximately $1.19 billion at year-end. Estimated 2024 pension and retiree-health contributions total approximately $150 million, subject to actuarial updates.
- Brazilian tax contingencies included $375 million unreserved at year-end; management assessed the majority as remote. The filing also describes COVID-19 business-interruption insurance litigation and other legal matters, whose outcomes could affect results if estimates change or adverse judgments occur.
- In 2023 Xerox donated PARC, sold its Russian subsidiary and XRCC, and reduced certain non-core activities. The PARC donation resulted in a $132 million pre-tax charge. The auditor identified realizability of deferred tax assets, particularly U.S. foreign tax credit carryforwards, as a critical audit matter; the financial statements received an unqualified opinion, and internal control over financial reporting was deemed effective.
Important facts for investors to verify
- Whether operating cash flow can be sustained without continued large receivable sales, and how those sales affect FITTLE revenue, funding, and risk.
- Progress against the $300 million Reinvention target, the timing and costs of workforce reductions, and any effects on service quality, revenue, or key personnel.
- Plans to refinance or repay 2024 maturities, the cost of debt, covenant headroom, and the availability of the ABL facility and receivables funding.
- Whether pension funding needs, tax-asset realizability, receivable credit losses, or disclosed legal contingencies change materially.
- How 2024 core revenue, margins, and cash flow compare with management’s outlook, including the contribution from Digital and IT Services.