Q1 2021 Xerox Holdings Corp Earnings Call

[music].

Good morning, and the welcome to the Xerox Holdings Corporation first quarter 2021 earnings release Conference call hosted by John <unk>, Vice Chairman and Chief Executive Officer. He is joined by the <unk> Chief Financial Officer. During this call Xerox executives will refer to slides that are available on the <unk>.

Web at Www.

<unk> Dot Xerox stock comp for slash investor at the request of Xerox Holdings Corporation. Today's conference call is being recorded other recording and or rebroadcast of this call are prohibited without the express permission of Xerox.

After the presentation, there will be a question and answer session to ask your questions at that time. Please press star one at anytime during the call you.

You can withdraw your question by pressing the pound key.

During this conference call Xerox executives will make comments that could paint the forward looking statements, which by their nature address matters that are and the future and are uncertain.

Actual future financial results may be materially different than those expressed herein.

At this time I would like to turn of the meeting over to Mr. <unk>. Mr. <unk> you may begin.

Good morning, and thank you for joining our Q1 2021 earnings call I hope, everyone is safe and healthy.

Our first quarter results were in line with our expectations.

Revenue totaled $1 71 billion down eight 1% year over year, or 10, 4% and constant currency.

Free cash flow was $100 million down $50 million from last year adjusted earnings per share totaled 22.

The <unk> year over year.

And adjusted operating margin was five 2% up 50 basis points year over year.

And the first quarter and an environment, where many offices remain closed we grew equipment sales and services revenue year over year.

I am proud of how our employees have continued to deliver for our customers during the pandemic.

With small and medium sized businesses and enterprise clients planning to return more employees to the office, our differentiated offerings are well positioned to serve their growing needs.

The strength of our performance portfolio and strategy gives us confidence, we will return Xerox to growth and 2021.

The team remains laser focused on our four strategic initiatives of.

Optimize operations drive revenue re energize, the innovation engine and focus on cash flow and increasing capital returns.

We made progress across each of these initiatives during the quarter.

Continuing to optimize operations for simplicity improve our cost structure and expand margins must be balanced against investing in growth.

Project own it helps the strike the right balance as does our focus on cash.

<unk> on and is on track to deliver $375 million of gross cost savings this year.

Part of the savings are funding investments and growth areas and transformational initiatives such as our effort to re imagine the service experience from supply chain logistics the customer care.

Our investments and artificial intelligence augmented reality predictive analytics, robotics, and workflow automation and reducing our costs and making it easier to work with Xerox.

We have now integrated these technologies to create software solutions that can transform how service teams support customers.

We deployed the software solutions within our technical services organization or.

Our differentiated capability of these paired with our experience has allowed us to commercialize both of the software solutions and a technical services offering creating new revenue streams for Xerox.

In fact, we recently signed our first competitive OEM customer for technical services.

This OEM will outsource parts of their field service operations to Xerox.

Our solution will help them gain efficiencies and provide quality service to their customers.

We plan to introduce this offering to other Oems and companies outside of our industry as well.

We have observed a positive correlation between vaccination distribution people returning to the workplace and page volumes from our equipment.

For the quarter volumes on the whole remained relatively flat versus Q4.

As vaccination distribution progressed, we saw volumes in certain geographies start to increase modestly in the late March.

For example, and Israel, where more than half the population is vaccinated the highest vaccination rate and the world work from home transition to more of a hybrid work environment and page volumes returned to near pre Covid levels.

The return to the office and accelerating vaccine distribution combined with strong demand for our equipment during the first quarter, our leading indicators that the improvement and our revenue trend will continue throughout the year.

Investments and our workplace Ace III and a four and production portfolios have allowed us to grow equipment sales revenue and every category of year over year and take share and our territory. According to the most recent IDC data.

New capabilities and workflow automation and enhanced security are driving increased interest and our workplace products and earnings Xerox industry recognitions.

Corsica recently recognized the strength of our hardware and security as well as our cloud software and delivery capabilities by naming Xerox the leader and its worldwide managed print services market report.

Our it service business grew for the third consecutive quarter.

The team is winning increasingly sizable and comprehensive deals can manage the full stack for SMB customers.

In the quarter, we expanded our it services portfolio by launching robotic process automation as a service leveraging our own experience deploying this technology internally across all of the Xerox.

The pandemic has challenged smb's defiance of sustainable cost reductions, while maintaining productivity.

Our offerings to automate routine tasks, such as deal pricing order processing payroll and resource management have already gained traction with customers.

And software the team started to integrate carrier.

And enterprise augmented reality company, we acquired in late 2020, both operationally and from a portfolio perspective.

Carey or makes any user and expert capable of solving issues remotely through live visual interactions self guided instructions and contextual data for greater insight.

This technology provides many benefits from reducing costs and downtime to improving the customer experience and eliminating many onsite visits.

Carey of hours at the center of our software solutions, which integrates parks artificial intelligence technology also AI, our content management system dock your share and XM pies personalization software.

These solutions focus on three main areas digital platform as a service content creation and management and the automated workflows and intelligence.

And have several industry specific applications.

Use cases include training retail associates virtually processing claims, helping with facility related issues and troubleshooting data center operations.

Within a few months' time, we launched pilots with several global businesses and hospitality high Tech and.

Services.

We also signed up major partners, including service now Deloitte and Hcl.

These partnerships are already helping us reach new perspective clients and build a strong and growing pipeline.

Regarding Xerox financial services, we signed our first OEM partner.

Our strategy focuses on adding other Oems and customers outside of our industry, while increasing penetration rates of Xerox accounts, all of which should enable us to grow the portfolio.

Part of innovation has continued to make progress across our focus areas, including three D printing industrial Iot and clean Tech.

And additive manufacturing our solutions are designed to integrate into manufacturing operations to reduce risk and the supply chain.

Global supply chains that rely on just in time model are becoming increasingly more vulnerable.

And the recently launched Xerox <unk> III, the liquid metal printer can help alleviate some of that vulnerability.

This printer provides advantages over of powder based metal <unk> printing, which is predominantly deploy technology today.

The <unk> printer is safer and more cost effective and faster.

At the end of last year, we established a product development collaboration with the U S Naval postgraduate school.

This collaboration will aid NPS and pushing the adoption of three D printing throughout the U S Navy.

The military supply chain is among the most complex and the world and MTS understands firsthand the challenges manufacturers must address.

The feedback is helping us refine the <unk> roadmap, which includes incorporating additional metal alloys.

More complex geometries and larger build volumes of production parts.

And the Iot, we are preparing to commercialize solutions the monitor the health and critical infrastructure, such as the bridges and roads.

Aging infrastructure is a global challenge.

We recently completed a pilot with Vic track the state owned Enterprise and Victoria, Australia.

The monitor various infrastructure assets for structural degradation and prioritize maintenance.

Public private partnerships will be critical and solving the infrastructure challenges there and throughout the world.

Xerox has the long history of inventing technologies and make the world more sustainable and we are now carrying forward our legacy with the clean technologies.

The team continues to make progress on engineering and air conditioning solution that significantly reduces greenhouse gas emissions through greater energy efficiencies.

Other research projects include batteries, green hydrogen and environmental sensing and monitoring.

These innovations will open the doors to new partnerships for park innovation and can potentially have major impact on the world.

Given the progress we've made we are accelerating our plans to stand up ex FX Xerox software and park innovation as separate businesses, which will provide greater focus visibility and flexibility for each business.

And now we expect the complete this and 2021 and we'll provide more information on each business, including financial metrics and relevant kpis such as loan originations for ex FX.

Balancing investments and new and existing businesses, while generating cash continues to remain a focus for this team.

Our free cash flow and the first quarter was in line with our expectations the <unk>.

First quarter is seasonally our smallest quarter and the business continued to experience headwinds from the impacts of COVID-19.

But we kept investing because we are managing the company to deliver long term sustainable growth.

We closed the quarter with $2 5 billion of cash cash equivalents and restricted cash on hand.

In the quarter, we purchased $162 million of shares the.

Demonstrating our confidence and the company's long term trajectory.

We remain committed to our shareholders' return policy, including our current dividend rate and plan to return at least 50% of annual free cash flow.

Before turning it over to Xavier let.

Well, let me address some of the frequently asked questions we receive.

We expect the improvement and our revenue trend to continue.

Our employees returning to offices, the acceleration of vaccine distribution and increased demand for our equipment. During the first quarter give us confidence that we will meet our full year guidance.

We are managing modest supply constraints.

The investments we have made and our portfolio of offerings are starting to pay off of it services grew organically for the third consecutive quarter.

Expanding the portfolio to include robotic process automation as a service will further enhance our momentum.

We are seeing increased interest and our differentiated software solutions, which have the potential to transform the service experience across many industries.

We will continue to invest and our future of while managing our expense profile.

We are accelerating our plans to stand up ex FX, Xerox software and park innovation positioning Xerox to return to growth and unlock value sooner.

Now I'd like to hand, it over to Xavier to cover our financial results in detail.

Thank you John and good morning, everyone. As John mentioned, we are pleased with quarter one per per months for revenue. We did he built the strong improvement compared to the kind of the answer last three quarters.

Gross equipment and <unk> revenue improved in March consistent with the progress of vaccinations onto the gradual reopening of workplaces.

Equipment revenue growth was stronger and higher margin pulse and from new writings of 260 basis point gross margin erosion year over year.

And I will provide more detail on revenue in the next slide.

Adjusted operating margin of five 2% in the first quarter increased 50 basis points year on year.

And so if he'd keep basis point improvement in margins reflect the favorable impact from lower bad debt expense savings from project own it on discretionary spend action, partially offset by the impact of lower percentage of gross.

Gross profit.

So that the expense of $448 million decreased 93 million year of down year, reflecting our continuous focus on cost.

<unk> includes the impact of an incremental 60 million and bad debt reserve taken in the first quarter of 2020, lower selling expense cost savings associated with project own it and temporary cost reduction measure and.

The DNA investment were maintained to protect innovation and future revenue streams in the.

And then focus on existing and new product and solution in the print business as well as adjusted on Seaton.

On the innovation power.

And after one <unk> as a percent of revenue was $4 three person 20 basis points lower of yoga year, reflecting continuous optimization of the prime portfolio.

Wholesale and expenses net of $4 million with 19 billion lower year over year, primarily driven by a reduction in non service retirement related costs, partially offset by higher net.

Net interest expense.

First quarter adjusted.

That's right and was 27 seven per cent compared to $29.

And last year.

He owned it and 70 basis point year over year decrease result, primarily from the change in the geographical mix of earnings.

Adjusted EPS of <unk> 22 cents compared to 21 <unk> the same quarter last year, reflecting the slightly lower adjusted net income impacted by $10 million higher net non financing interest expense, which was more than offset by a reduced share count.

GAAP EPS of <unk> 18 was 21 high year of yogurt and year due to lower yoga of restructuring and breakage costs non service retirement related costs on transaction and related costs.

Turning to revenue trend improved across all geographies.

In EMEA and the rate of revenue decline moderated more significantly than in the U S.

Due to the earlier onset of COVID-19, the EMEA last year and partly due to a higher proportion of SMB customers in the region.

The semi customer had been true.

No need to workplace more rapidly and large enterprises.

Slow with the return to launch of this building.

Equipment sales of 381 million increased 17, 2% yield per year of 14, 2% in constant currency.

Sales increased across entry mid range on the eye and product on in both North America on EMEA.

The anchorage by the increased activity, indicating customers' confidence in returning to the wellness.

Indirect channel of sales in EMEA on the U S remains chrome and entry model.

Channel sales of mid range product, including low and color and black and white devices, as well and Hudson and recently launched primarily the night production devices grew significantly.

<unk> continued to manage the inventory below pre pandemic levels, but down modestly increasing inventory based upon some in the month.

And the Emory Kelsen sales in North America were in line with the expectation.

And the U S. Federal government sales remained strong on education is starting to look over our schools prepare to reopen.

Both central revenue of once we began the quarter when declined 13, 4% year over year of 15, 6% and constant currency.

The labor Secretary of the rate of decline in post sales revenue improved by seven 9% and constant currency.

Consents from new is larger the contract driller on most of our contract incurred the minimum charge on the valuable charge of base upon print volume.

Print volumes remain below 2019 level.

Pre COVID-19 in the quarter, primarily as a result of COVID-19, and <unk> business closures.

We saw a modest sequential increase and page volume as the quarter progress consistent with the rollout of vaccination on more inquiries retail and into offices.

Post sales also include unbundled supplies paper on the order of sense.

Which are larger lease true source through indirect channels on a more transactional.

So the rate of decline of unbundled supplies, the improved sequentially across all geographies, reflecting a year of equipment sales and an increasing page volume in the quarter.

<unk> sales for the quarter, which are included in order sales.

Grew organically in each of the S&P U S. On grew in the U K and Canada as a result of prior year acquisitions.

We are pleased with the correction of <unk> services on and we're continuing to expand the coverage of each of race to SMB customers.

While the amount of remain uncertain, we are encouraged by the quarter per per months.

Strength of the service contract pipeline on installed backlog, which provide confidence that businesses are ready to reopen and resume investing.

Turning to cash we closely manage cash at every level of the organization.

Also COVID-19, and we just continue to impact quarter, one resort, we generated $117 million of cash from operation.

So the continued focus on working capital management budget of 40.

43 billion source of cash in the quarter.

Down 48 million year of a year with strong year over year improvement in cash from inventory, partially offset by lower cash from our country's seaborne and accounts payable.

Cash from accounts receivable was impacted by the lower sequential decrease in revenue as compared to the prior year.

Well I kind of payable cash was impacted by the timing of payment as well as lower purchase in Q1, and 2021 due to inventory reduction efforts and lower expenses.

Capex was 17 billion needs of quarters, Reportings and strategic gross program on continued investment in infrastructure.

We continue to expect Capex of $100 million for the full year.

Within financing cash flow repaid $94 million of debt from securitization.

The depth amortize monthly and we expect to refinance with new takeaway physicians in support of ex FX, So global payments solution business.

We also repurchased $162 million of share in the quarter on page $54 million in dividend.

We expect to repurchase share opportunistically on <unk> hundred $38 million of repurchase authority remaining as of March 30 sales.

Free cash flow for the quarter was under $1 million with the manual focus on cash we remain confident and the guidance of generating at least $500 million of free cash flow in 2021.

Regarding profitability, we are relentless NGA flow to optimize operations to drive profit and cash.

And each inception and late 2018, we have taken $1 4 billion of gross cost out of operations through the project or need cost transformation program and <unk>.

$375 million of gross cost savings is targeted in 2021.

We generated positive cash flow on adjusted earnings in every quarter impacted by the pandemic due to our flexible cost structure and disciplined expense management.

Not only do we expect margin on cash flow to improve in 2021 as the economy recover.

The true continues focus section, we expect margin to improve beyond this year.

Let's focus on ex FX now.

And generally we discussed plan to stand up three businesses ex FX software, Kentucky innovation.

Looking at the surface.

Xerox has provided leading option to customer for decades.

The first product enables customers to purchase and use technology on office equipment, while managing our cash flow.

Etfs gross strategy include expanding the leasing of shouldnt be on print to Adjacencies like <unk> on software.

We are also expanded leading beyond Xerox product and solution to OEM partner, such as <unk>, which we announced will be partnering with Xerox to provide financing for managed print services engagement.

We know and understand leasing and the space to the Hff's manager of around 700000 equipment lease east across a diverse portfolio of customers and geographies.

And we employee of appropriate dairy and disciplined credit approval process that drive the low annualized loss rate, while allowing for wide credit window.

Etfs lease origination increasing in the quarter as compared to first quarter 'twenty due to an increased level of <unk> origination and in line with the strategy.

At the end of March <unk> of three $4 billion of finance asset consisting of finance receivable on the equipment on the operating lease.

The leverage finance asset of the seven to one debt to equity ratio to date is therefore, $2 9 billion of total debt shipboard ex asset.

Each surface that includes 10 year unsecured bond and securitization and we plan to increase the amount of securitization, which provide cost ex it differently.

Looking at capital structure net cash was 1 billion at the end of the first quarter on $4 4 billion of debt outstanding the majority of which $2 9 billion support the ex FX. So.

So the remaining depth of the on the $1 5 billion support the core business.

The <unk> primarily consist of 10 year unsecured bond on securitization under our new bond maturing in 2021.

We had $2 5 billion of cash cash equivalent unrestricted cash at the end of the quarter.

And when netted against Corp debt.

And the net cash position of $1 billion.

The decline in cash from year end, primarily reflects the initiation of opportunistic share repurchase.

And the confidence in our strategy.

Now to wrap up.

We are pleased with the gradual recovery during the first quarter I gave you and the evolution of the pandemic.

So the pace of group board of rollout of the vaccinations should result in more of <unk>, returning to the workplace and the coming weeks and months.

Therefore, we expect of recovery in the business throughout the year, especially in the second half.

Along with first quarter results provide us confidence in delivering full year revenue of at least $7 2 billion on generating at least $500 million of free cash flows in 2021.

Thank you and now back to James.

Thank you the RBA now, let's open the line for questions.

Thank you as a reminder to ask a question of the press star one on the telephone.

Of all of your question press the pound key.

The first question comes from Ananda Baruah with loop capital Your line is open.

Hi, Good morning, guys and congrats on a solid progress.

Hey, a few a few if I could.

You guys mentioned that that money and businesses opening up fast and the large enterprise makes sense.

And I know the small medium business expansion and gambro and important part of the of the structural strategy and so I was wondering if theres anything that youre doing there to accelerate.

The small medium business the expansion given given the debt the net prior to the economy that you see opening up more quickly and then add but keep follow ups quickly.

And under with small and medium business, we're seeing progress and different areas of our IP services business. So we're helping them not only open up again, but we're helping them focus on their cost reductions and managing their businesses. So our it services offerings, we've seen some good progression and SMB, we just announced six broad offerings.

The inside of the first quarter, we already had clients that are taking it over so its a full solution for SMB and that's how we've been approaching it.

And John do you have.

And I guess like sort of as you dial it back and kind of.

Five six quarters ago.

Do you believe the revenue opportunity there over time because of the solution. Some of the new solutions that have arisen as a result of the last 12 months and as you think that level of up the revenue opportunity there.

Yes, I think what gives us confidence of if you look back we announced the services we continue to announce the offerings in the SMB. We've also expanded our it services and the <unk>.

The U K and what gives us confidence of things not only our growth and the services, but also our growth and the ESR and and the hardware and we saw in the first quarter.

And just real quick on large enterprise or just the enterprise and gambro and seeing domestic day.

Do you of any context, you can share and the <unk>.

Conversations with enterprise customers.

And sort of the timing of after they.

And when they may begin.

How long do you plan to begin the print projects on.

What we've noticed is as clients Olson.

Think of it as clients often.

Of our clicks as we call them or continue to increase.

But I think as well.

We're looking at the correlation between the vaccination rates the page volumes and our geographies.

And our pulp sales growth as well and.

The more and more Ceos I'm talking not if they're going to reopen the when and at what speed.

Okay. That's helpful. And then one quick one for the IV.

And any reason that long term of free cash flow should not return to the same percentage of net income and historically it's been.

So as John mentioned.

And our business is based on a true revenue streams, the equivalent stream and the focus.

The full sales training to gradually recover.

And this is the fifth.

Screamed that the.

The higher margin.

The Wednesday, the overall kind of this mix will improve and we see the US we have seen for the design and page volume coming back and also activities as the revenue.

And then we can metagalaxy rated to frame the critique and transaction volume is William are increasing we see really beautiful beautiful income growing and then free.

Free cash flow.

Okay. That's helpful guys, Thanks, a lot and pretty soon.

Thank you Rob.

Thank you our next slot.

<unk> comes from Matt Cabral with Credit Suisse. Your line is open.

Yes. Thank you good bounce back and the equipment side this quarter I guess as we dig underneath there and I'm curious how much you'd characterize as some sort.

Sort of backlog or pent up demand as employees of returning to the office versus more of just the underlying demand and picture that you're seeing and.

Just going forward, how we should think about the cadence of equipment revenue for the balance of the year.

So net.

What do we see that the.

Net interest and profit growth grew in the air.

Every segment.

And it and the April interest segment. It was a significant significant growth, but also a suite and predictions grew during the quarter, we see of confidence from customer bringing back in line with recognition of employees and GOP and.

Okay.

And we can make treatment, so which will drive agenda that is the page volume on the annuity stream that is one of the mainstream and color. Thank you.

And so it's not only and where that goes.

We have we ended the quarter with the product backlog, but there is nothing really like and backlog. The link of very fleet literally really feel confident that the feed net hedge currently in order to bring back employees and DLP.

And thanks for that and then.

On the ex.

And on the <unk> I'm wondering if you could expand a little more and the opportunity you see the securitized in the cheaper way to get access to financing versus.

Historically, you used the wider Xerox balance sheet is as you've tried to get capital and I guess as that securitization picks up going forward I'm curious what that means in terms of incremental balance sheet capacity for more of the core business and.

And assuming that does free of some capacity and just what you'd look to do with it going forward.

Yes, so first of all in securitization as you mentioned and give us true benefit the sales benefit is it more day rate of decrease in and with the cost of funds that we have to support the business.

And this is part of the strategy that we.

<unk>.

Initiated by signing up ex FX.

Generate the ex FX is a significant part of the.

And the enablement that we bring and the fitness and I'm sure use of it as well.

<unk> expanded the ex FX third and fourth for your own offering not only to demo the product, but two older aircraft Oems and the order of vendor here. So tickled edition and pets from the point of view segregation and first of all true.

And our ability to expand this activity and from electrical cutting our free cash flow and this one we.

We will definitely be more.

I would say industry or the more structure and the way we reported the securitization quarter by quarter and of homes. We have started last year.

And with true main countries of the secret vision, and we're coming out of this year and securitization of late.

Thank you.

Thank you. Our next question comes from Katy Huberty with Morgan Stanley. Your line is open.

Thank you and good morning, and a little surprised to see the Americas revenue. So just given the success of the vaccine rollout here and also given all of the surveys are showing the U S. Tech spending has rebounded much faster than the in Europe. I know you made a few comments about SMB exposure in Europe, but can you talk a little bit more about why that.

It is our European customers less likely to be on contract. So that's just a more transactional business and then just the second part of that what do you think the contribution to the equipment sales was in the quarter from the inventory rebuild that some of those channel partners.

Okay.

And we wouldn't take care and <unk>.

Free cash flow.

The revenue is in line with our expectation.

You mentioned in the recognition of progress here.

Israel and large enterprise.

Starting in Australia to bring people on and SMB, we saw growth specifically on our SMB business EPS I think both we saw improvement in a window of pages of our union coming back to you.

Europe as you know it has been the last year earlier of whaler.

And when you look at the end of year over year compare you had more weeks of the Covid impact impact in Europe compared to the here you have seen as well.

Both in both geography, EMEA and in Europe.

After the quarter four where we see we saw some activity coming back and say the volume December and we've seen some locked down and then January February and Kathryn geographies, EMEA kind of dies and exemplary Kathryn steak and view it as Kathryn Youll revenue, which rewards the.

<unk> signed an indicator of that we're seeing currently is and mark in both geographies. Both territory, we saw page volumes, improving and transaction equally.

And you could give us confidence as well.

And to the effects of that the PSA of revenue.

And give us confidence in the revenue trajectory.

Commencing now and.

The equivalent status on the building inventory there and there is no direct correlation what can we so we've got the.

The four received.

Of the rebound.

The step by step improvement in inventory level, but this level of the illness elevators.

And before.

Okay, and as you think longer term about the more Highbred work force would you expect page volumes and the sales revenue to return to pre Covid levels of do you think.

Should contemplate pet of sales revenue, that's maybe a little bit below where we were pre COVID-19 once once the the end market stabilize.

We have the kpis the agenda mechanics, when that's the point.

Country, and which has a high penetration rate with the use of rail and <unk>.

The monitoring of these countries specifically here on <unk>.

The router with more than 60% of the population needed escalated we of self pay the volume coming back to free very close.

Lately to work on the.

Pre COVID-19 level and what will serve as well is that the even when you are in the night reading of the government on the.

We see a brief be having different definition company by company.

And when we are night breed modal unplugging of return to the of the serial case.

Volume is also of patient volume that the will cover some of the <unk> printing of uplift and so so far and little bit early to confirm all of the pages here, but as I mentioned in March we showcased volume increasing we clearly monitor on trucks the correlation between the recognition of it.

The present on page volume of these three indicator correlate very strongly.

Great and then just lastly, the $60 million of bad debt expense is that largely coming from some of your your small medium business customers is that kind of channel partners and was there any concentration by region.

So the $60 million <unk> was the provision we took last year across our entire portfolio on the other.

The committed here.

The very strict rules on the streak the ways of looking at the credit risk of our portfolio.

The reason of diversified by geography, but also by customer type and we.

Have you know where like the triple Ratably on the.

High level type of pricing and rated the company here.

Provision was put zero in order to assess.

And what could be the impact we are ready and.

The quarter.

Test and our portfolio on the currently we are confident that this provision is the agenda.

Correct level.

Of our lease contract.

A heavy and a range of four year of failures. So it's too early at this stage.

To declare that those of provision is the.

And with the holder of valued currently what we are just assessing it and this provision is sufficient to cover the least conclude the feasible.

Okay understood. Thank you so much.

Thank you and Kathy.

Thank you again, if you would like to ask a question press. The Star then the one key on your Touchtone telephone and again Thats Star one to ask a question.

Our next question comes from Shannon Cross with Cross Research Your line is open.

Thank you very much of a few questions as well.

John just kind of a big picture standpoint, and some of the air carriers in Japan have had started talking about this more when we go out say three or four years, how do you envision Xerox and and what I'm trying to figure out and.

You know, what what kind of revenue percentages would be coming from <unk> versus some of your more focused areas and our software Park ex SaaS services.

And then how do you sort of again 50000 foot level and see the margin shifting because you know obviously prentiss of very high margin business, but not growing and.

And some of the others have more opportunities and I'm just trying to get an idea of of maybe from the high level. How you see the business shifting and that of a couple of them.

And I'll, let Shan Shan and what excites US is our four pronged strategy, so one of them being monetize and innovation and driving revenue and hence we've seen progress and our software business, we've seen progress and ex of fast we've seen progress also and.

All of our innovation and.

We did just say that we're going to be standing up these businesses before the end of the year, we're doing that for a few reasons one of its focus its flexibility, but also to provide transparency to our investors. So you can expect us to have and analyst day and the second half of the year, we will be going through the <unk> and explaining to investors.

Xerox is a good investment for now and for the future.

Okay.

And we can't get it quite yet.

I guess then and.

In terms of cash usage, and you use $216 million during the quarter and you said Youll return at least 50% of shareholders and targeting and $500 million at the minimum per cash. So clearly there is a little more around but if I add and what you've done so far of plus keeping the dividend youre going to be somewhere around 75 per cent of cash usage.

Already our cash sorry free cash generation already so how are we how should we think about share.

Share repurchase as you go forward and.

And obviously I'm, assuming the dividend and solid thank you.

Hey, Shannon.

And so yes, we mentioned if we look when we look at our share repurchase.

And of course.

And here as you mentioned it.

And we rebuilt.

462 million of.

Share during the quarter.

And we mentioned in prior quarters there.

The ratio of $500 million, so and there is still more than 300 of Beacon, which is currently left here and we.

And we will do that opportunistically for the year.

Okay, and then and then my final question is just the way and to some extent going back the case as you and you talk to comp of two customers. These days and now that we're a year plus through the the pandemic and people are kind of reevaluating how their offices are gonna look and and what theyre going to do what kind of changes are you.

Hearing in terms of structure of people looking at more distributed printing I would assume so given the growth and the low end, but.

And then how are they how are they thinking about you know what contract levels. They are willing to sort of commit to given there is still uncertainty in terms of who's going to be and the office and how many people are kind of go hybrid. Thank you.

Shannon and if we look at just surveys that were done with CEO of last summer you had like 69% on the sensitivity.

And on a certain survey that we're CEO said theyre going to downsize the real estate footprint. This was just re conducted recently and if sales of 17% I think the focus is going to be at what rate and pace will employees be going back to the office and it's a direct correlation to the vaccination of the safety and the other.

Thing that we're starting to see a little trend on is that they go back to the office even in the hybrid environment the prim.

And volumes go up.

And for cost reasons for security reasons less expenses to print.

And an office and it is the print at home for security reasons. So we're seeing that trend and that's what gives us confidence with our guidance for this year to get back to the revenue growth.

What what's your plan for Xerox when are you going back to the office.

April 19.

[laughter].

Thank you.

And Shannon just back to your question of the customer what customer and currently.

By the multi function and it is much more of the printer the.

Mr. <unk> is of course of the workflow that customers are looking at and.

There is something that we learned and COVID-19, the psyche of distance.

The digital transformation and Emily.

The workflow, which is much more efficient and read the <unk>.

Wired.

<unk>, which is able to simple these professional information and multi function of true then country by customer.

Prime.

The value price.

Yes.

Thank you.

Thank you. Our next question comes from Paul Coster with Jpmorgan. Your line is open.

Chang on for <unk>. Thanks for taking our question. So just on the Opex side, we saw a big decline on cost of execution lower discretionary spend in 'twenty and.

And once you run rate is pretty in line as well just wanted to get a sense for.

What do you think about Opex and the back half and some of those costs come back and then secondly, where are you targeting those investments and marketing spend and when it does come back. Thank you.

And so opex.

You need to look at it by looking at last year versus last year.

As the here we are at the last year from the tailwind.

And we declare the deals.

The amendment <unk>, we benefit from and also look at the whole product opportunity we had the wides.

The midpoint of the unit.

And specifically in quarter two quarter three this year, we resumed and with some of the video of.

And the benefit of the provision and we have full compensation and also the.

And when the right breadth of again.

And 82.

And the governments of disease.

However, what we see is the.

And from the point.

Point of view, we have.

And one from the focus of <unk>.

Lease product.

And we declare therefore this year and we will run and those are 375 million force.

The savings driven by this program and.

It is again across.

And the different geographies different kind of back to you we.

We have of specific focus on the <unk>.

<unk>.

And we should flow Commission.

And the improving our current profit making.

Customer relationship and customer transaction easier on the fee growth by bringing the simplification theme.

So you should look at sales of being like a maniacal focus that we have and cuts.

You mentioned it informing of course, we have data for the EPS and positive free cash flow every quarter. Despite COVID-19, and this is a key driver.

Currently.

Thanks, that's very helpful.

Thank you. Our next question comes from Jim Suva with Citigroup. Your line is open.

Thank you.

And I have a question probably for each of you and I'll ask them.

At this time, so you can decide how the answer them and then the order you want but.

John or James.

David can you talk about the services that are being offered.

So many services out there and the world Where's the success at Xerox is having on the type of services because I find it very intriguing and quite encouraging it seems like it's on the small and mid size, but is it.

<unk> helped us goods. The robots are bought programming or what are some examples. So we can kind of graphs and visualize it and then my second question is has there been the impact from the semi conductor shortages globally, some sectors like automobiles or Pcs have seen a of.

Very severe shortage of semiconductor chips. So I'm just kind of wondering if that has replicated the found its way into the the sectors you deal with or maybe it has it. Thank you.

Yes.

Yes, Hi, Jim.

Alright.

Services is focused primarily on SMB and basically our mission is to provide end to end the professional it solutions to them, we've introduced new offerings, such as <unk> and service.

But at the end of the day, we're not of our design is to manage the stack of and SMB, the build and virtual <unk> for them.

And our customers are largely served by our Xps organization and the U S. They are served by our channels and Europe and these are the direct sales of organizations that have skills of local touch points. So that we can expand our offerings cross sell and the existing accounts and the new customers and we've seen a lot of good traction even with our arps.

The products that we've been focused on and we've seen traction on the whole area of the whole area of how do we help them and it will.

The more efficient and they're coming back to the office and we've been very pleased with our results and all of that.

Semiconductor okay.

You kind of be maybe better.

Semiconductor of.

And on the Virginia also true towards our offerings, where we see.

Section currently everything around the type of of digital transformation, but the behind contained on the calf care and customer engagement.

The services that we have.

And our global business services offerings here.

And is currently having a lot of the.

Okay.

And the customer interested in transforming digitizing and vehicle and making the profit leaner.

And by combining both the print of the digital processes.

I would say and highlight I would like to flag ease of use.

And then.

And a unique Italy and here, we made the accretion of this company in December.

2020 and.

And currently.

Augmented reality to forcing field service management and customer service management.

See initial traction and B.

<unk> and firm will be.

Deborah.

Signing such way of lease customer would be interested in the six month review of how we transform the way.

And we see the service management and customer services.

Yes.

Your question are we getting a semiconductor shortage here and.

We see like are you observing here.

And with some shortages on sales and component of the Olson and will materially.

Believe at this stage it is impacting us that Ricky we are monitoring it.

And we are looking at the potential backlog that we could have related to it but the <unk>.

Got it.

This stage tight level of Ohio, Rayos and <unk>.

Central line.

Great and then a quick follow up.

On the bad debt reserve is it it sounds like it was a release.

And that was a positive.

And you reserved a year ago, a higher amount for potential uncertainty of customers.

<unk> be able to pay given the pandemic uncertainties and it turns out that you can.

Collecting better than previously thought and am I correct on that and is that kind of the.

Annual assessment or quarterly assessment, where there could be some more positive releases.

Jimmy towards net already so it's a different feature of yoga yocum payout last year, we book line.

The $60 million of.

Provision for personal insurance and debt relief across our leasing portfolio.

You know as you know in this portfolio is in that range of maturity of data for the full year. So the heath the regarding to currently of the future of even and that put up and to the CDC.

We did not release any provision and we kept the provision because it's very early in the cycle for us to assess.

And on the win which was already and.

And any of these provisions of the state.

Currently great.

Assessment is of the provision levels that we have is sufficient to cover the potentially.

Thank you so much for the details and clarifications, it's greatly appreciated.

Thank you Jim.

Thank you and ladies and gentlemen that does conclude our Q&A session for today.

I would now like to turn the call over to John <unk> for closing remarks.

Thank you for your question.

This past Sunday, we celebrated our 115 year anniversary.

We believe today, our future is filled with exciting possibilities, yes, we are working to make reality.

<unk> has repeatedly redefine how the world works and we are well on our way of doing it yet again.

Safe and be well.

Ladies and gentlemen, this concludes today's conference call.

And for participating you may now disconnect everyone have a great day.

And.

Okay.

And.

[music].

[music].

[music].

Good morning, and the welcome to the Xerox Holdings Corporation first quarter 2021 earnings release Conference call hosted by John <unk>, Vice Chairman and Chief Executive Officer. He is joined by the <unk> Chief Financial Officer. During this call Xerox executives will refer to slides that.

Are available on the web.

Www Dot Xerox stock comp or slash investor at the request of Xerox Holdings Corporation Today's conference call is being recorded.

The recording and or re broadcasting of this call are prohibited without the express permission of Xerox.

After the presentation, there will be a question and answer session to ask your questions at that time. Please press star one at any time during this call you.

You can withdraw your question by pressing the pound key.

During this conference call Xerox executives will make comments that could paint the forward looking statements, which by their nature address matters that are and the future and are uncertain.

Actual future financial results may be materially different than those expressed herein.

At this time I would like to kind of the meeting over to Mr. <unk>. Mr. <unk> you may begin.

Good morning, and thank you for joining our Q1 2021 earnings call I hope, everyone is safe and healthy.

Our first quarter results were in line with our expectations.

Revenue totaled $1 71 billion down eight 1% year over year, or 10, 4% and constant currency.

Free cash flow was $100 million down $50 million from last year adjusted earnings per share totaled 22.

One sense of year over year.

And adjusted operating margin was five 2% up 50 basis points year over year.

And the first quarter and an environment, where many offices remain closed we grew equipment sales and services revenue year over year.

I am proud of how our employees have continued to deliver for our customers during the pandemic.

With small and medium sized businesses and enterprise clients planning to return more employees to the office, our differentiated offerings are well positioned to serve their growing needs.

The strength of our performance portfolio and strategy gives us confidence, we will return Xerox to growth and 2021.

The team remains laser focused on our four strategic initiatives of.

Optimize operations and drive revenue re energize, the innovation engine and focus on cash flow and increasing capital returns.

We made progress across each of these initiatives during the quarter.

Continuing to optimize operations for simplicity improve our cost structure and expand margins must be balanced against the investing in growth.

Project own it helps the strike the right balance as does our focus on cash.

Don and is on track to deliver $375 million of gross cost savings this year.

Part of the savings are funding investments and growth areas and transformational initiatives such as our effort to re imagine the service experience from supply chain logistics the customer care.

Our investments and artificial intelligence augmented reality predictive analytics robotics, and workflow automation are reducing our costs and making it easier to work with Xerox.

We have now integrated these technologies to create software solutions that can transform how service teams support customers.

We deployed the software solutions within our technical service organization or.

And our differentiated capability of these paired with our experience have allowed us to commercialize both of the software solutions and a technical services offering creating new revenue streams for Xerox.

In fact, we recently signed our first competitive OEM customer for technical services.

This OEM will outsource parts of their field service operations to Xerox.

Our solution will help them gain efficiencies and provide quality service to their customers.

We plan to introduce this offering to other Oems and companies outside of our industry as well.

We have observed a positive correlation between the vaccination distribution people returning to the workplace and page volumes from our equipment.

For the quarter volumes on the whole remained relatively flat versus Q4.

As vaccination distribution progressed, we saw volumes in certain geographies start to increase modestly in the late March.

For example, and Israel, where more than half the population of its vaccinated, the highest vaccination rate and the world work from home and transitioned to more of a hybrid work environment and page volumes returned to year of pre COVID-19 levels.

The return to the office and accelerating vaccine distribution combined with strong demand for our equipment during the first quarter, our leading indicators that the improvement and our revenue trend will continue throughout the year.

Investments and our workplace Ace III and a four and production portfolios have allowed us to grow equipment sales revenue and every category of year over year and take share and our territory. According to the most recent IDC data.

New capabilities and workflow automation and enhanced security are driving increased interest and our workplace products and earnings Xerox industry recognitions.

Corsica recently recognized the strength of our hardware and security as well as our cloud software and delivery capabilities by naming Xerox the leader and its worldwide managed print services market report.

Our service business grew for the third consecutive quarter.

The team is winning increasingly sizable and comprehensive deals to manage the full stack for SMB customers.

And the quarter, we expanded our it services portfolio of by launching robotic process automation as a service leveraging our own experience deploying this technology internally across all of Xerox the.

And the pandemic has challenged smb's defiance of sustainable cost reductions, while maintaining productivity.

Our offerings to automate routine tasks, such as deal pricing order processing payroll and resource management have already gained traction with customers.

And software the team started to integrate carrier and enterprise augmented reality company. We acquired in late 2020, both operationally and from a portfolio perspective.

Kerrey, our mix any user and expert capable of solving issues remotely through live visual interactions self guided instructions and contextual data for greater insight.

This technology provides many benefits from reducing costs and downtime to improving the customer experience and eliminating many onsite visits.

Carey Ara is at the center of our software solutions, which integrates parks artificial intelligence technology Aalto AI.

Our content management system dock, your share and X and pies personalization software.

These solutions focus on three main areas digital platform as a service content creation and management and the automated workflows and intelligence and have several industry specific applications.

Use cases include training retail associates virtually processing claims, helping with facility related issues and troubleshooting data center operations.

Within a few months time, we launched pilots with several global businesses and hospitality high Tech and it.

Services.

We also signed up major partners, including service now the Lloyd and Hcl.

These partnerships are already helping us reach new perspective clients and build a strong and growing pipeline.

Regarding Xerox financial services, we signed our first OEM partner.

Our strategy focuses on adding other Oems and customers outside of our industry, while increasing penetration rates of Xerox accounts, all of which should enable us to grow the portfolio.

Part of innovation has continued to make progress across our focus areas, including three D printing industrial Iot and clean Tech.

And additive manufacturing our solutions are designed to integrate into manufacturing operations to reduce risk and the supply chain.

Global supply chains that rely on just in time model are becoming increasingly more vulnerable.

And the recently launched Xerox <unk> III, the liquid metal printer can help alleviate some of that vulnerability.

This printer provides advantages over powder based metal <unk> printing, which is predominantly deploy technology today.

And the <unk> printer of safer and more cost effective and faster.

At the end of last year, we established a product development collaboration with the U S Naval postgraduate school.

This collaboration will aid NPS and pushing the adoption of <unk> printing throughout the U S Navy.

The military supply chain is among the most complex and the world and MTS understands firsthand the challenges manufacturers must address.

The feedback is helping us refine the <unk> roadmap, which includes incorporating additional metal alloys.

More complex geometries and larger build volumes of production parts.

And Iot, we are preparing to commercialize solutions the monitor the health and critical infrastructure, such as the bridges and roads.

Aging infrastructure is a global challenge.

We recently completed a pilot with Vic track of state owned Enterprise and Victoria, Australia to monitor various infrastructure assets for structural degradation and prioritize maintenance.

Public private partnerships will be critical and solving the infrastructure challenges there and throughout the world.

Xerox has the long history of inventing technologies that make the world more sustainable and we are now carrying forward our legacy with our clean technologies.

The team continues to make progress on engineering and air conditioning solution that significantly reduces greenhouse gas emissions through greater energy efficiencies.

Other research projects include batteries, green hydrogen and environmental sensing and monitoring.

These innovations will open the doors to new partnerships for park innovation and can potentially have major impact on the world give.

Given the progress we've made we are accelerating our plans to standup ex Fas the Xerox software and park innovation at separate businesses, which will provide greater focus visibility and flexibility for each business.

And now we expect the complete this and 2021 and we'll provide more information on each business, including financial metrics and relevant kpis such as loan originations for ex FX.

Balancing investments and new and existing businesses, while generating cash continues to remain a focus for this team.

Our free cash flow and the first quarter was in line with our expectations.

The first quarter is seasonally our smallest quarter and the business continued to experience headwinds from the impacts of COVID-19 the.

And we kept investing because we are managing the company to deliver long term sustainable growth.

We closed the quarter with $2 5 billion of cash cash equivalents and restricted cash on hand.

In the quarter, we purchased $162 million of shares demonstrating our confidence and the company's long term trajectory.

We remain committed to our shareholders' return policy, including our current dividend rate and plan to return at least 50% of annual free cash flow.

Before turning it over to the <unk>.

Let me address some of the frequently asked questions we receive.

We expect the improvement and our revenue trend to continue.

Our employees returning to offices, the acceleration of vaccine distribution and increased demand for our equipment. During the first quarter give us confidence that we will meet our full year guidance.

We are managing modest supply constraints.

The investments we have made and our portfolio of offerings are starting to pay off of it services grew organically for the third consecutive quarter and.

Expanding the portfolio to include robotic process automation as a service will further enhance our momentum.

We are seeing increased interest and our differentiated software solutions, which have the potential to transform the service experience across many industries.

We will continue to invest and our future of while managing our expense profile.

We are accelerating our plans the standup ex FX.

<unk> software and park innovation positioning Xerox, the returned to growth and unlock value sooner.

Now I'd like to hand, it over to Xavier to cover our financial results in detail.

Thank you John and good morning, everyone. As John mentioned, we are pleased with quarter. One couple of months for revenue, we delivered the strong improvement compared to the kind of the last three quarters. Both the equipment on post sales revenue improved in March consistent with our progress of vaccinations Hangzhou gradual reopening of the.

Workplaces.

The equipment revenue growth was stronger and higher margin <unk> driving the 260 basis point gross margin erosion year over year I will provide more detail on revenue in the next slide.

Adjusted operating margin of five 2% in the first quarter increased 50 basis points year on year.

The 50 basis point improvement in margins reflect the favorable impact from lower bad debt expense savings from project own it on discretionary spend action, partially offset by the impact of lower percentage of gross.

Gross profit.

So the expense of $448 million decreased $93 million year over year, reflecting a continuous focus on cost the <unk>.

<unk> includes the impact of an incremental 60 million bad debt reserve taken in the first quarter of 2020, lower selling expense cost savings associated with project own it and temporary cost reduction measure and.

And DNA investment were maintained to protect innovation and future revenue streams.

Investment focused on existing and new product and solution in the print business as well as Adjacencies on innovation power.

Quarter, one and <unk> as a percentage of revenue was $4 three person 20 basis points lower of yoga year, reflecting continuous optimization of the prime portfolio.

<unk> expenses net of $4 million with 19 billion lower year over year, primarily driven by a reduction in non service retirement related costs, partially offset by higher net interest expense per.

First quarter adjusted tax rate was 27, 7% compared to 29, 4% last year.

The undertone 70 basis point year over year decrease result, primarily from the change in the geographical mix of earnings.

Adjusted EPS of <unk> 22 cents compared to 21 center and the same quarter last year, reflecting the slightly lower adjusted net income impacted by $10 million higher net non financing interest expense, which was more than offset by a reduced share count.

GAAP EPS of <unk> 18 was 21 high year of yoga of year due to lower year over year of restructuring and related costs non service retirement related costs on transaction and related costs.

Turning to revenue trend improved across all geographies in EMEA the rate of revenue decline moderated more significantly than in the U S. In part due to earlier onset of COVID-19, the EMEA last year and partly due to a higher proportion of SMB customers.

In the region.

SMB customer and Ben.

I'll need to workplace more rapidly and large enterprises.

Slower to return to launch of this building.

Equipment sales of $381 million increased 17, 2% year over year of 14, 2% in constant currency.

Sales increase of across entry mid range on the <unk> and product on in both North summary gallon EMEA.

We are encouraged by the increased the activity, indicating customers' confidence in returning to the Lumpiness.

Indirect channel sales in EMEA and the U S. We maintenance chrome and entry model.

<unk> sales of mid range of product, including low and color and black and white devices as well as our recently launched primarily the light production devices grew significantly.

Retailers continue to manage the inventory below pre pandemic levels, but down modestly increasing inventory days of pone terming them up.

And the memory sales in North America were in line with the expectation in the U S. Federal government sales remained strong on education and starting to look over our schools prepay of to reopen.

Both sets of revenue of $1 3 billion and quarter, one declined 13, 4% year over year of 15, 6% and constant currency.

The labor Sicker journey and the rate of decline in post sales revenue improved by seven 9% and constant currency.

Sales from new is larger the contract tutor on most of our contract include the minimum charge on the valuable charged based upon print volume.

Print volumes remain below 2019 levels EG pre COVID-19 in the quarter, primarily as a result of COVID-19, and <unk> business closure.

We saw a modest sequential increase and page volume as of quarter of progress consistent with the rollout of vaccination on more employees retail and into offices.

Post sales also include unbundled supplies paper on the order of sense.

Which are larger lease true sold through indirect channels on a more transactional.

So the rate of decline of unbundled supplies, the improved sequentially across all geographies, reflecting a year of equipment sales and an increasing page volume in the quarter.

<unk> sales for the quarter, which are including audio sales grew.

We grew organically in the S&P U S. On grew in the UK and Canada as a result of prior year acquisitions.

We are pleased with the correction and <unk> services on and we're continuing to expand the coverage of this of race to SMB customers.

While the and the amount remain uncertain. We are encouraged by the quarter performance the strength of the service contract pipeline and installed backlog, which provide confidence that business is a ready to reopen and resume investing.

Turning to cash we closely manage cash at every level of the organization.

Also COVID-19 headwinds continue to impact quarterly and research, we generated $117 million of cash from operation.

And continued focus on working capital management.

And a 43 billion source of cash in the quarter.

Down 48 million year of our year with strong year over year improvement in cash from inventory, partially offset by lower cash from accounts receivable and accounts payable.

Cash from accounts receivable was impacted by the lower sequential decrease in revenue as compared to the prior year.

Icons payable cash was impacted by the timing of payment as well as lower purchase in Q1 2021 due to inventory reduction efforts and lower expenses.

Capex was 17 billion is of quarters Reportings and strategic growth program on continued investment in infrastructure.

We continue to expect Capex of $100 million for the full year.

Within financing cash flow repaid $94 million of debt from securitization.

Is that amortized monthly and we expect to refinance these with new takeaway accusations in support of fixed FX, So global payment solution business.

We also repurchased $162 million of share in the quarter on page $54 million in dividend.

We expect to repurchase share Opportunistically on had $338 million of repurchase authority remaining as of March 30 sales.

Free cash flow for the quarter was under $1 million with the magical focus on cash we remain confident and the guidance of generating at least $500 million of free cash flow in 2021.

And regarding profitability, we are relentless in GFY, two optimize operations to drive profit and cash.

Since its inception in late 2018, we have taken $1 4 billion of gross cost out of operations, who sort of predict or net cost transformation program and.

Those are $375 million of gross cost savings is targeted in 2021.

We generated positive cash flow on adjusted earnings in every quarter impacted by the pandemic due to a flexible cost structure and disciplined expense management.

Not only do we expect margin on cash flow to improve in 2021 as the economy recover but true continuous focus section, we expect margin to improve beyond this year.

Let's focus on the surface now in.

In January we discussed plans to stand up three businesses each of the Fas software and packing innovation.

Looking at the surface Xerox has provided leading option to customer for decades.

Except as the product enables customer to purchase the newest technology on office equipment, while managing the our cash flow.

Hff's gross strategy include expanding leasing of shouldnt be on print to adjacencies like <unk> on software.

And also expanded leading beyond Xerox product and solution to OEM partner, such as Lexmark, which we announced will be partnering with Xerox to provide financing for managed print services and engagement.

We know and understand leading in the space to the <unk> manager of the 700000 equipment leases across a diverse portfolio of customers and geographies.

We employee of appropriate dairy on disciplined credit approval process that drive the low annualized loss rate, while allowing for wide credit window.

Etfs lease origination increased in the quarter as compared to first quarter 'twenty due to an increased level of <unk> nation in line with the strategy.

At the end of March <unk> of three $4 billion of finance asset consisting of finance receivable on the equipment on the operating lease.

We leverage finance asset at the 7% to one debt to equity ratio to date is therefore, $2 9 billion of total debt shipboard hff's assets.

Except that that includes 10 year unsecured bond on securitization and we plan to increase the amount of securitization, which provide cost effective funding.

Looking at capital structure net cash was $1 billion at the end of the first quarter on $4 4 billion of debt outstanding and the majority of which $2 9 billion support the campus.

So the remaining debt on the one 5 billion support the core business.

Net primarily consist of 10 year unsecured bonds on securitization under our new bond maturing in 2021.

We had $2 5 billion of cash cash equivalent on restricted cash at the end of the quarter, which when netted again corp debt with the.

And the net cash position of $1 billion.

The decline in cash from year end, primarily reflects the initiation of opportunistic share repurchase given the confidence in our strategy.

Now to wrap up we.

We are pleased with the gradual recovery during the first quarter I'll give you and the evolution of the pandemic.

The pace of group board of rollout of the vaccinations should result in more of <unk>, returning to the workplace and the community weeks and months Xerox.

And therefore, we expect of recovery in the business throughout the year, especially in the second hub.

And along with first quarter results provide us confidence in delivering full year revenue of at least $7 2 billion on generating at least $500 million of free cash flows in 2021.

Thank you and now back to John.

Thank you Xavier now, let's open the line for questions.

Thank you as a reminder to ask a question and I'll make the press star one on the telephone.

Of all of your question press the power.

The key our first question comes from Ananda Baruah with loop capital. Your line is open.

Hi, Good morning, guys and congrats on a solid progress.

Hey, a few of few if I could.

And you guys mentioned that that money and businesses opening up fast and the large enterprise makes sense.

And I know the small medium business expansion and gambro and an important part of the of the structural strategy and.

So I was wondering if there is anything that youre doing there to accelerate.

The small and medium.

And given given is that the of putting that probably of the economy that the EC opening up more quickly and then add back to follow up quickly.

Yeah, and under with small and medium business, we're seeing progress and the scenarios our it services business. So we're helping them not only open up again, but we're helping them focus on their cost reduction and managing their businesses. So our services offerings. We have seen some good progression and SMB, we just announced six broad offering.

The inside of the first quarter, we already had clients that are taking it over so its a full solution for SMB and that's how we've been approaching it.

And John do you have.

I guess like sort of as you dial it back and kind of five six quarters ago.

Do you believe the revenue opportunity there over time because of the solution and some of the installations that have arisen as a result of the last 12 months.

Think of that levels off the <unk>.

Revenue opportunity there.

Yes, I think what gives us confidence is if you look back we announced the services, we continue to announce the offerings in SMB and <unk>.

Also expanded services and the U K and what gives us confidence of thing and not only our growth and the services, but also our growth and the ESR and and the hardware and we saw in the first quarter.

And a thoughtful and.

And just real quick on large enterprise or just the enterprise and Gambro Synchromism day do you have any context, you can share from your conversations with enterprise customers.

And sort of the timing of after they open up when they may begin like how long do you plan to begin the print project side.

And what we've noticed is as clients Olson.

And I would think of it as clients often.

Of our clicks as we call them or continue to increase.

But I think as well.

We're looking at the correlation between the vaccination rates the page volumes and our geographies, we're seeing our pulp sales growth as well and.

The more and more Ceos are talking not if they're going to reopen the when and at what speed.

Okay. That's helpful. And then one quick one for the IV Xavier and any any reason that long term free cash flow should not return to the same percentage of net income and historically it's been.

So as John mentioned it.

And our business is based on the two revenue streams the equivalent streams of the process the process.

The extreme is gradually recovery and this is true.

James that the.

The higher margin here the wisdom of the overall kind of this mix will improve and we see us and we have seen positive sign and page volume coming back and also the activities as we are moving for our customer and which are not directly related to free the critics and transactional volume of diesel.

William are increasing we see the opportunity for income growing and then.

Free cash flow going up flow.

Okay. That's helpful guys, Thanks, a lot and pretty soon.

Thank you.

Thank you our next slot.

<unk> comes from Matt Cabral with Credit Suisse. Your line is open.

Yes. Thank you good bounce back and the equipment side this quarter I guess as we dig underneath there and I'm curious how much you'd characterize as some sort of backlog or pent up demand as employees of returning to the office versus more of just the underlying demand picture of that Youre seeing and just going forward.

And how we should think about the cadence of equipment revenue for the balance of the year.

So what.

What we see that the.

Our equipment profit growth grew in the.

And every segment.

And the April interest segment. It was a significant significant growth, but also a suite and predictions grew during the quarter. So we see of confidence from customer, bringing back in line with recognition and create and GOP and EBITDA.

No.

Our core revenue.

And the treatment, so which will drive agenda the days of page volume on the annuity stream.

He is one of the mainstream and color and thank you here. So it's not only the Nordic.

Backlog, we had we ended the quarter with the offer that the strong backlog, but there is nothing really like the backlog the link of very fleet literally relative to consider that the feed net hedge currently in order to bring back employees and BMP.

And thanks for that and then.

And actually I'll pass on the <unk> I'm wondering if you could expand a little more and the opportunity you see the securitized in the cheaper way to get access to financing versus.

Historically.

Here's the wider Xerox balance sheet is as you've tried to get capital and I guess as that securitization picks up going forward I'm curious what that means in terms of incremental balance sheet capacity for more of the core business and.

And assuming that does free up some capacity and just what you'd look to do with it going forward.

Yes, so share.

And in particular condition as you mentioned it gives us a true benefit the first benefit is it moderate of decrease you know with the cost of funds that we have to support the business and this is part of the strategy.

We are.

Initiated by signing up ex FX.

Ex FX is a significant part of the.

And the enablement that we're bringing the fitness and.

I'm sure use of it is when we are now ex <unk> ex FX portfolio of free not only to develop the product but to further sales of the Oems and the order of vendor here.

Secret initial interest from the one point of view segregation and helped us hold true or 81 of our ability to expand this activity and to manage a portfolio of free cash flow and this one we will definitely be more average.

Say industry of more periods and the way, we reported the securitization quarter by quarter and of whom the we have started last year and EU.

And with true.

And <unk> and kind of secret vision and will come again, this year and securitization of late.

Thank you.

Thank you. Our next question comes from Katy Huberty with Morgan Stanley. Your line is open.

Thank you and good morning, I'm, a little surprised to see the Americas revenue. So just given the success of the vaccine rollout here and also given all of the surveys are showing that U S. Tech spending is rebounding much faster than the in Europe. I know you made a few comments about SMB exposure in Europe, but can you talk a little bit more about why that is.

Our European customers less likely to be on contract. So thats just a more transactional business and then just as the second part to that what do you think the contribution to the equipment sales was in the quarter from the inventory rebuild at some of those channel partners.

Okay. So I will take care of America's first of the.

EMEA revenue was in line with our expectation.

Mentioned and vaccination of progress here.

The large enterprise.

I think in Australia to bring people on and SMB, we saw raw specifically on our SMB business, I think both which will improve lunch and the windows Peggy volume coming back to you.

And we Europe generally has been the last year earlier as well so.

So when you look at the end of the year over year compare you had more weeks of the covenant the impact.

Compared to this year UFC and as well.

Both in voice geography, EMEA and in Europe.

After the quarter four where we see we saw some activity coming back and pay the volume. This umbrella we of income looked down and then January February and ETF and geographies EMEA, Canada as an example of Kathryn stake and do it and test.

And you will revenue, which rewards the good sign on the TDK share of that we're seeing currently and in March in both geographies. Both territory, we show page volumes, improving and transaction equally and we.

Which give us confidence as well.

And I need to the fact that the key is.

Sales of revenue strength gives us confidence in the revenue trajectory.

Commenting now and.

Equivalent sales some of the building inventory there there is no direct correlation what do we so we've got the full.

Received.

The rebound.

Step by step improvement in inventory level, but this level of elements of living.

And with that.

Kind of seen before.

Okay and.

Do you think longer term about the more Highbred work force would you expect page volumes and post sales revenue to return to pre Covid levels of do you think we should contemplate.

Net sales revenue, that's maybe a little bit below where we were pre COVID-19 once once the end market stabilize.

We have the Kpis gentlemen, and it we have wind at the point.

And in the country, which has the highest attrition rate, which is Israel and we are.

The monitoring these countries specifically here on <unk>.

The router with more than 60% of the population being vaccinated.

Sales volume coming back to free very close of slightly to work on the pre COVID-19 level, what we observe as well is that the even when you are into the $93 of every month and we see a brief be having different definition and company by company.

And when we on <unk> until you return to the page volume is also and page volume that the will cover some of the <unk> sale and the printing of southwest.

So far a little bit early to confirm Boise and the pages here, but as I mentioned in March we show page volume, increasing we clearly monitor on trucks of correlation between the vaccination of the is present on page volume on this free indicator correlate very strongly.

Great and then just lastly, the $60 million of bad debt expense is that largely coming from from your small medium business customers is that kind of <unk>.

Panel partners and was there any concentration by region.

Total of 60 million and <unk> was a provision we took last year across our entire <unk> portfolio on the outside commented here et cetera.

Very strict rules on streak the ways of thinking of the credit risk of part sales.

Our portfolio of Liza is diversified by geography, but also by customer type.

You know where like the AAA and the delay on the.

A few high level type of pricing and rated the company here the probe.

Vision was put there in order to assess.

What could be the impact.

Running every quarter.

Tech and our portfolio on the currently we are confident that this provision is others.

Correct level.

And our lease contract and a break of heavy and that range of four year of failures. So it's too early at this stage.

To declare that the provision is.

And with the full drop valued currently what we are.

And just assessing as of this provision is sufficient to cover the least conclude the feasible.

Okay understood. Thank you so much thank you.

Okay.

Thank you again, if you would like to ask a question press. The Star then the one key on your Touchtone telephone again Thats star one to ask a question.

Our next question comes from Shannon Cross with Cross Research Your line is open.

Thank you very much of a few questions as well John just the big picture standpoint, and some of your and your pairs in Japan have had started talking about this more.

And when they go out of say three or four years, how do you envision Xerox and.

And what I'm trying to figure out is.

What what kind of revenue percentages would be coming from printing versus some of your more focused areas and our software park ex SaaS services.

And then how do you sort of again 50000 foot level see the margin shifting because you know obviously prentiss of very high margin business, but not growing and some of the others have more opportunities and I'm just trying to get an idea of of maybe from the high level. How you see the business shifting and then if I could share outlet channel yes.

And what excites US is our four pronged strategy, so one of them being monetizing innovation and driving revenue and in there and we've seen progress and our software business, we've seen progress and ex of fast we've seen progress also and.

All of our innovation and we do.

I'd, just say that we're going to be standing up these businesses before the end of the year, we're doing that for a few reasons, one and focus its flexibility, but also to provide transparency to our investors and <unk>.

Can expect us to have and analyst day, and the second half of the year, we will be going through this and explaining to investors wise.

And investments for now and for the future.

Okay.

We can't get it quite yet.

I guess then in terms of cash usage.

$216 million during the quarter and you said Youll return at least 50% of shareholders and targeting 500 million of the minimum per cash. So clearly, there's a little more around but if I add and what you've done so far of plus keeping the dividend youre going to be somewhere around 75 per cent of cash usage already our cash.

Sorry free cash generation already so how are we how should we think about share.

Share repurchase as you go forward and.

And obviously I'm, assuming the dividend and saw it. Thank you.

And as Shannon.

And so yes, we mentioned that we will always look at the share repurchase.

In and of course.

Here as you mentioned it.

We repurchase 150.

462 million of the loss of share during the quarter.

And we mentioned in prior quarters there.

And if the ratio of $500 million, so and there is still more than 300 million, which is currently left here on the.

And we will do that opportunistically for the year.

Okay, and then and then my final question is just the way and to some extent going back the case as you.

And you talk to comp of two customers. These days and and now that we're a year plus sort of the pandemic and people are kind of reevaluating how their offices are going to look and what theyre going to do what kind of changes are you hearing in terms of structure of people looking at more distributed printing I would assume so given the.

Growth and the low end, but and.

And then how are they how are they thinking about what contract levels, they're willing to sort of commit to given there is still uncertainty in terms of who is going to be and the office and how many people are kind of go hybrid. Thank you.

Shannon and if we look at just surveys that were done with CEO of last summer you had like 69% on essentially the CEO of on a certain survey that we're CEO said theyre going to downsize the real estate footprint. This was just re conducted recently and if sales of 17% I think the focus is going to be at what rate of.

And the pace will employees be going back to the office and it's a direct correlation to the vaccination of the safety and the other thing that we're starting to feel of a trend on is that they go back to the office even in the hybrid environment. The print volumes go up.

For cost reasons for security reasons less expenses to print and in office and it is the print at home for security reasons. So we're seeing that trend and that's what gives us confidence with our guidance for this year to get back to the revenue growth.

What what's your plan for Xerox when are you going back to the office.

April 19.

[laughter].

Thank you.

The Shannon.

To your question of the customer what the customer in currently sales.

And they buy the multi function as you know it is much more of the printer.

The mistake from Chinese of call of the workflows that customers are looking at and there is something that we learned during the COVID-19 the site.

And types of digital transformation and Emily.

Workflow, which is much more efficient and create required.

Device, which is able to simple these per customer information and multifunction option within the country by customer.

Prime day.

The value to.

Right.

Thank you.

Thank you. Our next question comes from Paul Coster with J P. Morgan Your line is open.

Chung Entre coster, thanks for taking our question so just.

On the Opex side, we saw a big decline on cost execution, lower discretionary spending and 'twenty and.

And once your run rate is pretty in line as well just wanted to get a sense for.

What do you think about Opex and the back half and some of those costs come back and then secondly, where are you targeting those investments and marketing spend when it does come back. Thank you.

Okay.

You need to look at it by <unk>.

And at last year versus last year of the FCC here, we have had the last year some of those headwinds.

The care.

The amendment cities, we benefit from we also look at the whole product opportunity we had.

<unk>.

And daily closed at the.

Specifically in the quarter to quarter three this year.

The home and with some of the video.

And the benefit of the provision and we have for compensation and also the.

And when the right breadth of again.

<unk>.

And the governments of duties are less of a generous here.

What we see the.

From the point of view.

The Montrose and focus of 12 weeks.

At least predictable and it.

And we declare that therefore this year, we will run and those are three of them 75 million of both.

The savings driven by these programs on the.

And it is again across.

And the different approaches different Scott back to you we are of specific focus on the <unk>.

<unk>.

And when I say, new vision for the commission.

And the improving our current profit making.

Customer relationship and customer transaction easier and cheaper by bringing the simplification theme.

You should look at sales meetings.

And leading like and manipulate focus that we have and costs.

I mentioned it informing of course, we have to deliver positive EPS and positive free cash flow every quarter. Despite COVID-19, and this is key drivers et cetera and currently.

Thanks, Thats very helpful.

Thank you. Our next question comes from Jim Suva with Citigroup. Your line is open.

Thank you.

The question probably for each of you and I'll ask them.

And immediately at this time, so you can decide how the answer them and then the or do you want but.

John or.

All of our JV can you talk about the services that are being offered there is so many services out there and the world Where's the success at Xerox is having on the type of services because I find it very intriguing and quite encouraging it seems like it's on the small and mid size, but is it.

And helped us because it robots are bought programming or what are some examples. So we can kind of graphs and visualize it and then my second question is has there been the impact from the semi conductor shortages globally, some sectors like automobiles or Pcs have seen a very severe.

And your shortage of semiconductor chips some of them.

Kind of wondering if that has replicated or found its way into the.

And the sectors, you deal with or maybe it hasnt. Thank you.

Yes, Hi, Jim.

And our it.

Services is focused primarily on SMB and basically our mission is to provide end to end the professional it solutions to them, we've introduced new offerings, such as <unk> and service, but at the end of the day, we're not of our design is to manage the stack of and SMB the goal of being virtual.

<unk> for them.

And our customers are largely served by our Xps organization and the U S are served by our channels and Europe and these are direct sales of organizations that have skills and local touch points. So that we can expand our offerings cross sell and to existing accounts and new customers and we've seen a lot of good traction even with our ARPA.

The products that we've been focused on and we've seen traction on the whole area of the whole area of how do we help them.

And be more efficient as they are coming back to the office and we've been very pleased with our results and all of that.

Semiconductor okay.

You kind of maybe drilling.

The semiconductor industry.

All true true towards our offerings, where we see traction.

Production currently everything around the type of the digital transformation, but the behind the content and calf care and customer engagement.

The services that we have thought of.

And our global business services offerings here.

He is currently heading of lots of folks.

Yes.

On the.

Customer interest CD transforming digitizing the all of them.

Making the profit leaner.

By combining both the of pre some of the digital processes.

And of note the.

And we see it highlight I would like to flag is KFC.

And then a uniquely.

And we make the accretion of this company.

And.

2020.

And currently.

Augmented reality to forcing field service management and customer service management.

We see initial traction b.

<unk> confirmed will be.

Deborah.

And with signings set way of lease customers interested in the six month review and how we transformed the way.

We see the service management and customer services.

Yes.

Your question regarding semiconductor shortage here either.

We see like are you observing here.

Some shortages on sales and component of the wholesale and Kevin will material does not believe at this stage EPS impacting us that Ricky we're monitoring it.

And where we can utilize the potential of backlog that we could have related to it but the <unk>.

And at this stage.

The level of <unk>.

And central line.

Great and then a quick follow up on the bad debt reserve is it it sounds like it was of when lease.

And that it was a positive GAAP.

You reserve a year ago.

Higher amount for potential uncertainty of customers.

If they would be able to pay given the pandemic uncertainties and it turns out that youre collecting better than previously thought and my correct on that and is that kind of the annual assessment or quarterly assessment, where there could be some more positive releases.

Jimmy towards net already so it's a difference of the yoga of compare last year, we book and $60 million of.

The provision for personal insurance and expertise across our leasing portfolio.

And you know as you know in this portfolio is in that range you mentioned <unk> data for the full year. So the heath the regarding the currently of the future of even that put up and to the CDC.

And did not read any provision and we kept the provision because it's very early in the cycle.

Two asset.

And when we should already and.

Any of the provision at this day curve.

Currently great.

And this message that the provision level that we have is sufficient to cover of the potentially.

Thank you so much for the details and clarification, it's greatly appreciated thank.

Thank you James.

Thank you and ladies and gentlemen that does conclude our Q&A session for today.

I would now like to turn the call over to John <unk> for closing remarks.

Thank you for your question.

This past Sunday, we celebrated our 115 year anniversary.

We believe today, our future is filled with exciting possibilities, yes, we are working to make reality.

<unk> has repeatedly redefine how the world works and we are well on our way of doing it yet again.

Safe and be well.

Ladies and gentlemen, this concludes today's conference call.

And for participating you may now disconnect everyone have a great day.