Despite a "challenging macroeconomic climate,” print giant Xerox recorded first quarter revenue of $US1.72 billion, up 2.8% year-over-year, with equipment sales revenue up 24% to $US391 million. Xerox also announced the donation of its famed Palo Alto Research Center (PARC) to non-profit research institute SRI International (SRI).
'Demand remains resilient': Steve Bandrowczak CEO Xerox"Our team delivered another quarter of strong performance while remaining laser-focused on our three strategic priorities for 2023: client success, profitability, and shareholder returns,” said Steve Bandrowczak, chief executive officer at Xerox.
“Despite a challenging macroeconomic climate, demand for our equipment and services remains resilient and is supported by service offerings that help our clients mitigate current macro headwinds like higher inflation, labour shortages, and tighter liquidity conditions.
“Further, the benefits of a more flexible cost base and ongoing operational efficiencies helped drive improvements in profitability in the first quarter.”
First Quarter 2023 Overview
Balanced execution drove growth in revenue and profits for the first quarter, Xerox said. "Amid a challenging operating environment, Xerox remains focused on the execution of our 2023 priorities and the goal of delivering client success through products and services that address the productivity challenges of today’s hybrid workplace. Demand for our print equipment and related services remains resilient despite continued economic uncertainty, as evidenced by another quarter of growth in both equipment revenue and constant currency post sale revenue, which included a benefit from prior year acquisitions. Consistent with recent quarters, we are seeing isolated pockets of softer installation activity - often the result of delays in project deployments rather than order reductions. This softness, however, is being offset by continued strength in our office print business, particularly for state and local government, education and mid-market accounts, as well as strength in our print and digital service offerings. As a result, we continue to expect a stable revenue and demand outlook for the full year."
Equipment sales revenue of $391 million in first quarter 2023 increased 24.5% in actual currency and 27.0% in constant currency as compared to the prior year. Backlog declined for the third consecutive quarter as supply chain conditions further normalized. Post-sale revenue declined 2.2% in actual currency and increased 0.5% in constant currency. Post-sale growth in constant currency was driven by growth in consumables and contractual print and digital services, including the acquisition of Go Inspire, partially offset by lower sales of IT Hardware.
Pre-tax income and adjusted operating income were both higher year-over-year, primarily due to increased revenues as well the benefits from continued cost reduction actions, supply chain-related cost improvements, price increases and lower bad debt expense due to reserve releases. "We expect to deliver low-to-mid single digit gross operating cost efficiencies for the year, driven by continuous productivity improvement and specific cost reductions. Total Revenue is expected to be flat to down low-single-digits in constant currency in 2023."
WFOL publisher Andy McCourt visited PARC in 1996Donation of Palo Alto Research Center (PARC)
PARC was born as a a 'private university' that Xerox established in 1970 as a no-limits research centre. From PARC, the world received the PC, Laser printer, the GUI, PostScript, WYSIWYG, The Mouse, Ethernet, Fiber optics, Object-oriented programming and much more. Several major IT companies spun out of PARC.
On April 24, 2023, Xerox entered into an agreement to donate its PARC subsidiary to SRI International (SRI), a non-profit research institute. The donation enables Xerox to focus on its core businesses and prioritize growth through its business technology solutions for customers in Print, as well as Digital Services and IT Services, the company said.
As part of the donation, Xerox will enter into a preferred research agreement, called the Technology Exploration and Innovation Program, in which SRI will provide contracted research and development services to Xerox and its clients.
“The donation also allows PARC to reach its full potential through SRI’s resources and deep-tech expertise that will enable PARC to focus exclusively on the development of pioneering new technologies,” Xerox said. “The majority of patents held by PARC will be retained by Xerox with a perpetual license to use those patents being provided to SRI. Xerox, at its option, will also continue to receive certain research services from SRI. The donation is expected to be completed by the end of the month. The donation is not expected to materially impact earnings or cash flow for the company.”
Bandrowczak: “For more than half a century, PARC and its employees have been at the forefront of some of the world’s most important technological developments. Xerox will forever be proud of PARC's role in our history and its continued innovation that solves the world’s most pressing challenges.”
Xerox Financial Summary
Q1 2023
- Revenue of $1.72 billion, up 2.8 percent year-over-year or up 5.5 percent in constant currency.
- GAAP earnings per share (EPS) of $0.43, up $0.81 year-over-year.
- Adjusted EPS of $0.49, up $0.61 year-over-year.
- Adjusted operating margin of 6.9 percent, up 710 basis points year-over-year.
- Operating cash flow of $78 million, up $12 million year-over-year.
- Free cash flow of $70 million, up $20 million year-over-year.
- Donated Palo Alto Research Center (PARC) to SRI International in April, providing Xerox greater capacity to pursue innovation projects in Print, IT, and Digital Services.
- Repaid $450 million of debt during the quarter.
