Q2 2021 Xerox Holdings Corp Earnings Call
Good morning, everyone I am David Beckham, Vice President and head of Investor Relations at Xerox Holdings Corporation and welcome to the Xerox Holdings Corporation second quarter 2021 earnings release Conference call hosted by John <unk>, Vice Chairman and Chief Executive Officer.
He is joined by Zombie, a hoist chief financial officer. During this call Xerox executives will refer to slides that are available on the web at www Dot Xerox Dot com slash investor.
At the request of Xerox Holdings Corporation today's conference call is being recorded other recording and or rebound.
Forecasting 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 1 at any time. During this call you can withdraw your question by pressing the pound key.
During this conference call Xerox executives will make comments.
We brought in forward looking statements, which by their nature address matters that are in the future and are uncertain.
Actual future financial results may be materially different than those expressed herein.
At this time I would like to turn the meeting over to Mr. <unk>.
Morning, and thank you for joining our Q2.2021 earnings call.
I hope everyone is safe and healthy.
We saw growing demand for our products and services in the second quarter.
Revenue totaled $1.79 billion up 22, 4% year over year or 18, 1% in constant currency.
Free cash flow was 190.
98 million up $183 million year over year.
Adjusted earnings per share totaled 47.
Up 32 cents year over year.
And adjusted operating margin was 7% up 280 basis points year over year.
Increased equipment sales.
<unk> and print volumes are consistent with our continuing gradual return to the office and give us confidence to reaffirm our revenue and free cash flow guidance for the year.
In the second quarter, we increased investments in our operations and targeted growth areas, while generating greater free cash flow.
Our reaffirmed full year cash flow guidance reflects our commitment to fund initiatives that will return Xerox to long term growth.
Our 4 strategic initiatives optimize operations drive revenue re energize the innovation engine and focus on cash flow on increasing capital returns.
<unk> continue to guide Us and services the foundation of our transformation.
The operating discipline instilled through project own it has enabled our team to navigate through an unprecedented level of uncertainty, including a pandemic and the resulting disruption of the global supply chain while continuing.
To deliver value to our clients.
Increased demand and material shortages impacted the supply chain of certain products to our customers this quarter, creating a backlog of equipment, including product that is nearly double that of last years.
Despite these constraints.
<unk> delivered strong equipment sales result in the second quarter.
We expect that supply chain challenges to persist through at least the third quarter and possibly through the year. We are working with our global suppliers on transportation partners to mitigate the impact to both Xerox and to our clients.
The team remains committed to further optimizing operations to make it easier for customers and partners to work with Xerox, while reducing costs.
Project on it is on track to deliver $375 million of growth cost savings this year.
At the same time project on it has freed up.
We are allowing us to reinvest in targeted growth areas and digital transformation technologies.
Robotic process automation and analytics, where our initial areas of focus for digital transformation.
Bots on now managing increasingly more complex transactions across the enterprise.
Cash every business and function completing 4 million transactions per quarter up 300% year over year.
We have expanded our investment focus to include augmented reality and artificial intelligence.
Utilizing these technologies internally will improve the service experience for.
And the Mers.
Make us more efficient and create additional opportunities for project on it related savings in the future.
Gradual return of workers to the office combined with strong demand for our products and services positions Xerox to return to growth this year.
The correlation between.
Costa levels of in office work and increased page volumes continued on the second quarter as page volumes increased slightly compared to the first quarter.
Based on what we know today more customers are planning to bring employees back on site beginning in the third quarter building to a more fulsome return.
Greater by the end of the year.
With this we expect page volumes in post sale revenue to improve driving higher margins in the second half of the year.
In preparation for bringing more employees back on site customers are investing in more office technology. This is demonstrated by our year over year growth.
Turn equipment sales revenue for office centric devices.
<unk> in every category grew compared to Q2.2020.
And prints taking market share is an important part of our strategy to return to growth.
Enhancements to our print portfolio, coupled with investments in.
On security cloud and automation are enabling us to capture share.
According to the latest data available from research firm IDC, our market share performance for the first quarter was our best in the past 3 years, having taken share in all product segments in the regions Xerox serves.
Both in the managed print services also benefited from these investments. According to the most recent IDC NPS 2020 market share report Xerox continues to be the global and U S leader and we expanded our lead in the U S, where we grew our share to 21% in.
In fact, we were the only provider to grow market share in 2020.
NPS remains an attractive market for Xerox.
MPS spend in both the enterprise and SMB markets is projected to grow over the next 3 years.
On the SMB market continues to play a key role in our strategy.
Due to returns Xerox to growth.
To accelerate our expansion in this market we acquired 2 document solution providers in the second quarter, 1 in the U S and 1 in Canada.
Each acquired company is well established and a growing local market, giving us an opportunity to knock out competitors and provide M.
MPS and adjacent offerings, such as <unk> services.
In the second quarter Ice's services sales and signed deals continued to be strong.
Our managed it services includes high growth offerings, such as advanced security services and RPI.
<unk> launched in February.
February and is already seeing early success with Smbs in various industries, including legal health care and financial services.
Earlier in the year zero financial services expanded its leasing platform to provide customers and Oems with a total solution for finance.
Financing equipment software it.
Services and other office needs.
In the quarter, we used $60 million of cash to fund originations growth.
<unk> grew originations compared to last year, and the first quarter up 54% year over year.
And 7% compared to last quarter, we expect <unk> to carry this momentum throughout the remainder of the year.
In software, we are revolutionizing the way service technicians and customer solve technical challenges.
At the same time, we are helping businesses solve 3 of their biggest challenge.
<unk> the.
On the skills gap talent shortages and greenhouse gas emissions.
Companies are looking to technology to overcome these challenges, which is why the total addressable market for next generation service delivery software is expected to reach $80 billion by 2027.
Our software solution. It makes expertise instantly accessible for customers employees and field workers through live visual interactions instructions and insights as part of a seamless digital workflow experience.
To deliver this experience we integrated augmented reality from cash.
Gary Our dock you share is content management system personalization software from X M pie.
And artificial intelligence from park to create the industry's first service experience management platform.
Making any user and expert capable of solving technical issues means.
Means companies can service their customers with fewer dispatches of highly experienced technicians. This is why blue chip companies such as Verizon are starting to use our service experience management platform.
Park continues to execute on its commitment to monetize innovation.
Part of our strategy.
<unk> includes working with strategic partners to accelerate the commercialization of new technologies in our focus areas 3 D printing industrial Iot and clean Tech.
Collaborating with partners provides several benefits from speeding up product development to expanding our reach 1 example of.
This is our partnership with Vic track a stay.
On the enterprise in Victoria, Australia, together, we announced <unk> a joint venture to commercialize park developed industrial Iot technology that will remotely monitor the structural health of critical infrastructure assets such as road.
Roads and railway bridges this solution tackles on global secular challenge on.
A world crumbling infrastructure.
In the U S alone, 42% of bridges are at least 50 years old and nearly 231000 bridges are an immediate need of repair.
Per and preservation work.
The recent closure of the I 40 bridge over to Mississippi River demonstrates the fragility of the worlds aging bridges, the safety issues and the economic impact that results when they fail or need to be closed.
The bridge has now been closed on an emergency basis for more.
More than 75 days since a crack steel being was first discovered.
And there is no reopening date yet set.
The U S trucking industry loses $2 million every day. The bridge is closed and this ongoing closure further strength the country's already fragile supply chain.
Our <unk> solution uses tiny fiber optic sensors debt attached to a bridge to accurately measure structural health.
Advanced analytics are then used to evaluate the sensors data and deliver insights directly to the bridge owners and operators in real time, revealing if the bridge has structural problems.
Albums or damage that needs repair.
As a result infrastructure operators can rely on technology and data to prioritize repairs rather than waiting until a physical inspection reveals a major problem.
The Victorian government has already committed 50 million Australian dollars to <unk>.
Deploy <unk> technology on bridges across the state, including several of its high priority bridges by year end.
The team is now engaging public officials on infrastructure managers in the U S and other countries about deploying this new technology elsewhere.
For the quarter.
Warner free cash flow was $198 million up $183 million year over year.
We delivered strong improvement in free cash flow, while investing in our operations and our targeted growth areas such as X F. F Software Park innovation in.
In the quarter, we also reap.
$251 million of outstanding shares demonstrating our continued commitment to shareholder returns in the second half, we expect free cash flow to grow as revenue and margins improve.
This gives us confidence in our ability to generate at least $500 million of free cash flow for 2020.
<unk>.
While we continue to make investments that position the company for long term sustainable growth.
Before turning it over to Zavvi, let me recap a few key points, we expect the return to the workplace around the world and increasing demand will enable xerox to return to growth in 2021.
Along the way there will be challenges, we can predict such as supply constraints and challenges we cannot predict such as the impact of the Delta variant.
But the Xerox team has demonstrated it can navigate through difficult periods full of unanticipated challenges.
Long term sustainable.
Growth will be driven by taking share in print and growing our adjacent offerings as well as excess fast software and park innovation, we plan to provide more details on our strategy at our November Investor Day.
Now I'd like to hand, it over to Xavier to cover our financial results in.
Yeah.
Thank you John on good morning, everyone.
We are pleased with our Q2 results, we experienced significant year over year growth in all key financial metrics on sequential improvement in revenue free cash flow on earnings revenue growth reflected strong demand for both equipment on ship.
Indeed on page volume, which grew sequentially from Q1 to Q2 continue to demonstrate a high degree of correlation which a gradual reopening of work places.
Strong demand along with ongoing supply chain disruption resulted in an order backlog for equipment in creating product.
That is significantly higher than last quarter.
Higher revenue on operating leverage of growth significant growth in our profitability in Q2.
Gross margin declined 290 basis point year over year due to a year on mix of equipment sales lower government subsidies net of protect only.
Net settings low way, our food you've seen business innovation, while you're on to your revenue on the high yield trade on debt a very cost.
Adjusted operating margin of 7% increased 280 basis points year over year, reflecting the flow through of higher revenue lower bad debt expense on savings.
Savings from project own it which were partially offset by the impact of lower government subsidies increase R&D investments supporting our targeted growth areas on higher compensation accruals.
Sag expense of foreign debt on $34 million increased $8 million.
Per year, including a $15 million negative impact from translation currency.
This increase was partially offset by lower bad debt expense of $10 million, which included a 6 million net reserve reduction.
<unk> grew year over year, yet improved 80.
But at this point as a percentage of revenue.
We remain committed to investing in box innovation powerhouse cash a next generation <unk> experience management platform on.
Enhanced product on solution for our print on.
Services clients.
<unk> expenses net of 1 million.
<unk> was $6 million lower year on year over year, primarily driven by a reduction in non service retirement related costs, partially offset by higher on net interest expense.
Second quarter adjusted tax rate was 9.7 per cent compared to $23.4 per cent last year.
So <unk>.
1.7 percentage year over year decrease primarily reflect a 16 percentage point benefit from a change in tax law when duty in the remeasurement of deferred tax asset as well as a geographical mix of earnings.
Adjusted EPS of <unk> 47 in the second quarter increased sales.
32 cents year over year.
This increase reflects higher profit from operation lower taxes reduced share count on lower bad debt expense, partially offset by higher net interest expense.
GAAP EPS of <unk> 46 cents was 35 cents a year on year over year.
30, due to a decrease in adjusted items, including lower year over year non service retirement related costs, partially offset by higher restructuring charges.
Turning to revenue, we continued to see improving trends across geographies on customer segment on solid demand growth.
<unk> increased sales in the quarter.
Sales were particularly strong for indirect channel partners, which have begun rebuilding inventory levels in anticipation of a recovery.
EMEA as a larger indirect channel compared to the U S. On grew 33, 2% in constant currency year on year.
Year compared to 12, 7% in the America.
<unk> had strong growth in equipment and supply sales.
Despite growth in revenue, we like many of our businesses have experienced supply chain challenges.
As a result, our backlog for equipment, including <unk> product.
In the June quarter was almost double that of the prior year on our equipment backlog is well ahead of pre COVID-19 levels.
We expect supply chain disruption to continue in the third quarter, but we are actively working with current on alternative suppliers to mitigate any potential dis.
Disruption to our customers.
Equipment sales of 400 on $2000.9 million in Q2 increased 38 on 4% year on year or 34% in constant currency.
Similar to Q1 sales increased across entry mid range on the high end product on in both north.
North America on EMEA.
This quarter sets us on office centric devices, <unk>, increasing indicating a trend toward business is planning for return to work.
Post sales revenue of $1.4 billion increased 18, 1% year over year or 13, 8% in consumer.
<unk>.
Page volume modestly increased sequentially in quarter, 2 with economies, such as U K, France on Germany, beginning to come out of partial lockdown in the quarter.
While we are seeing a correlation between return to office trend on print volume so pace.
On current produce return into office has been gradual.
We expect continued improvement in page volume. So how is the remainder of the year consistent with the pace of workplace on school reopening.
Post sales also include unbundled supplies, which grew significantly reflecting.
This of increased demand, particularly through resellers.
It services, which is included in those ourselves was impacted by global supply constraint that affected outerwear technology in store.
Demand for our services offerings, including our <unk> solution.
<unk> was a small or medium sized business is growing across industry verticals on signings continue to be stronger.
Last our services signings grew in the quarter as did our on your win rate our services pipeline is strong.
Turning to cash.
Cash flow, we are pleased with our free cash flow result.
Cash flow grew significantly in the quarter from 15 million in the prior year $298 million this year.
Importantly, we generated solid growth in free cash flow, while continuing to invest in our operations on targeting.
Good day growth area.
We generated $214 million of operating cash flow in the quarter, which was an increase of 100 on $18 million compared to prior year.
Working capital was a use of cash of 35 million, but was 12 million better than prior year.
This reflect.
Year over year improvement in the inventory on accounts payable.
Which was partially offset by an increased use of cash from accounts receivable driven by revenue growth.
However, DSO was significantly better than Q2 'twenty.
Wholesale notable cash related items in the quarter income.
Include 100 million, 1 time payment from Fujifilm business innovation related to the 2 year extension of our license for the continued use of our brand in Asia Pacific.
This increase was partially offset by a 60 million on use of cash to grow as the lease portfolio of our.
Surface business I will talk more about <unk> shortly.
Cash from investing was a 55 million views on includes the acquisition of Ddos in Canada on the U S to support our SMB growth strategy.
Capex was 16 million in Jakarta.
It's primarily support our strategic growth program on investment in it infrastructure.
Within financing cash flow $115 million of securitization debt was repaid.
His depth amortize, mostly on we expect to issue additional securitizations in.
Capex of <unk> growth in 2021.
Finally in the quarter, we repurchased $251 million of share on paid $54 million in dividend, resulting in a return of cash to share holder of 300 on 5 million well in excess of free cash flow.
<unk> hundred $98 million.
Looking at profitability second quarter improvement in adjusted operating margin reflects the flow through of higher revenue.
Planned expense management on cost savings generated by project own it which is on track to deliver 370.
Million of growth cost savings this year.
Further we are managing supply chain disruptions impacting our business, including increased delivery on freight costs.
We are confident in our ability to mitigate these impacts from both a price on cost perspective, we.
We.
5 new any improvement in operating margin in 2021 day.
Given by improvement in revenue as more people return to the office on do we execute on our strategy to gain share in print on grow our exercise it services on software businesses.
Turning to accept FES, where.
We're progressing on our growth plan on look forward to providing more financial on operating detail about this business at our Investor day in November.
<unk> lease originations increased in the quarter, both sequentially on year over year, mainly driven by <unk>.
We expanded our portfolio will.
<unk> continued to grow throughout the year on we execute on our strategy to expand except that presents beyond Xerox equipment on services.
Cash wise et cetera.
Net portfolio growth created a 60 million use of operating cash compared to a source of cash of $74 million in the prior year's quarter.
Continued growth of <unk> portfolio is included in our cash flow guidance for 2021.
Next looking at capital structure, we ended June with a net cash position of $1 billion.
<unk> of the $4.2 billion of debt outstanding is allocated to on support.
Except that lease portfolio.
So the remaining debt of around $1.2 billion is attributable to the core business.
Debt, primarily consist of senior unsecured bonds on asset securitization.
We have a balance of bond maturity ladder with no bonds maturing in 2021.
1.300 million maturing in 2022.
We also had $2.2 billion of cash cash equivalent on restricted cash at the end of the quarter.
We have spend 400 on 13 billion on share repurchases since the beginning of the year, which contributed to the 300 million decrease in net Corp.
Since the end of 2020.
Finally, we will move to guidance.
Growth in in store activity, our backlog on print volume indicate our customers are planning for a broader return of employee 2 offices in the back half of the year.
Accordingly, we expect.
An encouraging level of in office work more weighted to the end of Q3 on Q4 on a gradual recovery in our business.
We remain focused on executing our strategy to grow revenue on cash flow.
We are maintaining our full year guidance of at least $7.2.
To signoff revenue on despite ongoing supply chain disruption, we remain confident in our ability to generate at least $500 million of free cash flow in 2021.
Thank you on now.
Now back to James.
Now, let's open the line for questions.
Ladies and gentlemen.
Question at this time. Please press Star then 1 on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Ananda Baruah from loop capital. Your question. Please.
Hi, Yeah. Good morning, guys. Thanks for taking the question.
Just 2 quick ones, if I could I guess the first is on the free cash flow you guys are tracking I think $300 million year to date and typically second half of the year, particularly December quarter is strong.
Stronger in the first half of the year. So is it just a healthy dose of conservatism I know the guidance is at least 500.
But it would seem like you guys are set up to do.
Probably more than $600 million unless there's some puts and takes and I have a quick follow up thanks.
Yeah. Thanks, I'm on that so yes, so you know what.
We are pleased with our results we deliver.
On a quarter to both from a revenue, but specifically on <unk>.
Free cash flow point of view on.
As you know it too we have a plan to invest in the business in our different.
With us here, including except that there was on why we are keep this guidance to 500 million. So it's important for us to elaborate this on.
Our strategy in crude.
Well from an investment not only cash but also in our P&L that we will have for the rest of the year.
Got it.
And then just with regard John 2 tier your remarks around the business environment now that we're halfway through the day, how would you characterize sort of the tracking of the debt.
Moving to what you guys are anticipating it is it relatively.
In line or are there any meaningful differences positive or negative at this point.
Yeah morning, Amanda I would say that look June had an uptick on in Q2 in terms of employees going back to.
Okay.
And as we look at the rest of the year Youre hearing a lot of C. E O, saying that in the third quarter everyone's going back to the office vaccination going on and the way we see it is that the way we are projecting it is probably near the end of the Q3 and then we will start seeing more and more.
The off folks coming to the office in Q4.
What gives us confidence as our ESR in our pipeline and our backlog in that area. So you can see that a lot of companies are setting up hurt us.
Fact that we're gaining market share in that area gives us confidence, but yeah. That's how we see it on a number.
Alright, that's helpful.
Appreciate it thanks guys.
Thank you.
Thank you. Our next question comes from the line of Matt Cabral from Credit Suisse. Your question. Please.
Yes. Thank you.
I wanted to actually follow up on that last question I guess as we think about the correlation you guys called out between usage and the return to the office just 1.
Well I can give you a little bit more explicit on on what youre seeing in terms of usage relative to the pre COVID-19 baseline.
Both overall within the base and then within areas that have been a little bit quicker to return back to the office and as we start thinking out longer term just curious for your impact on what Covid has done to the steady state for office print.
Okay.
So as you know it on.
We are monitoring it on those there is a on a wheel chair of a strong correlation between vaccination people are returning back to the office on the print volumes on the we track it day by day month by month data point, showing how as these data current here.
Wondering so odds you observe it you know.
We don't have yet full population being vaccinated here, but we are encouraged by the progress that we have seen on we're seeing sequentially progress in print volume on their you know directly related to the presence into your face well not the only 1 you know.
Reported these type of indicator, but those give us confidence that for quarter 3 by kind of quarter 3 specifically September on for quarter..4 we will retire on to a better a print volumes that we have here.
Regarding your second point on the <unk>.
On a trend on.
How people are working what we observe today is that there is a mix of different approach company by company around bringing employees back to zero for a certain number of days, but we see that when I'm pleased on back to the office. They print on some of the volume that they print up some of the volume that easier.
On the print at home on volume so it could be printed on I would say lower or type or different type of day centralized solution I won't call. It the hybrid work, but what we see currently is that the overall print volume on the presents to a patient remained strongly correlated.
Yes.
I mean, that's that's helpful and then.
Shifting over to gross margins just wondering if you could dig a little bit more into some of the pressure points that you're seeing and I know you've got called out supply chain issues as 1 of the factors I'm wondering if you could quantify that impact and I guess similar to my last question is as we look out longer term.
Historically this business had been 1 that supported gross margins kind of around that 40 per cent range. Prior to Covid I guess I'm I'm curious do you think that's still an achievable level going forward or.
Something structurally changed as we think about emerging on the other side of Covid from a profitability standpoint.
Yep, So I will start with your first question, which is around on what has driven.
So gross margin.
The difference in this quarter here. So as you have seen at our product mix, which is a more equipment sales revenue.
It was very strong news on equipment sales for new here.
John mentioned, it, but we gain market share on both on what.
We call the base business Esa or type of business, but also on the NPS. So we are leader on our segment in our territory on this is quite important because it's clearly show so correlation between employers wanted to have employees.
Like investing in existing engineering prospect deal so.
They can oh per rate went down by <unk> office.
Regarding the specific.
Element on specific impacts.
Impacts that we have on gross margin. So product mix is the number 1 just took on the 1 is our we have faced.
So a lot of industry some increased freight on debt every cost, especially right now relative to set the intention in the content on the cost of shipment here.
As you know it does well sell debt amount. These are Fuji film, we have a lower royalty from fujifilm, even if we have had.
<unk> had some good news from a cash point of view you know on free cash flow and Fuji, but from a profit point of view, we had a lower royalty on last item on the small year over year compare.
Governments, who did is where are the highest point in quarter 2 last year due pico froze up on them.
On there as they have been low where as I mentioned it in.
My initial comment too.
So now back to the gross margin your gross margin question on what is a normalized view.
Clearly there were just tried correlation between revenue our ability to drive revenue growth.
Gross margin on specifically on post sales revenue. So is it possible you know to go back to the gross margin with all the activity gross margin we had before with all the activities that we are driving both on the or need point of view on the also supporting per sales activity.
Yes.
The trend is going on will be favorable for the second half of the year.
Thank you. Thank you. Our next question comes on the line the same chatter Chi from J P. Morgan Your question. Please.
Hi, Good morning, this is Angela Jan or on a chatter G.
You reiterated that your full year guidance of $7.2 billion in revenue. Thank you for that guidance.
So what do you see our risk to the upside and downside of that target.
So we're quite confident in reserve confidence on genome.
He is a guy you don't see them so.
Obviously, you know what there are things that we can control on the things that are more difficult to control. The things. We can control is the way we will execute a presents to the FHA. Some things that we feel I would say quite shrunk waiver. It is dependent on I would call debt to 1 element, which.
These are the.
As the pandemic is a still a presence on the dental volume could have an impact, but so far what we've seen is that the impact on our existing impact on as a geography, we're managing is quite manageable.
Second element will be supply demand so far we have a clear.
Clear line of sight on how we can manage it here, but if the supply demand on somebody's attention on shop on component on raw material will.
We'll stay specifically in the fourth quarter, then we will.
We will consider you know reaction, but so far we are managing even in Q2 I mentioned.
On it we have had a little bit tougher supply chain tension here, we manage it we find alternative ways on supply year to overcome the challenge on with real confidence at the weekend Daddy sales or $7.2 billion.
Alright, great. Thank you and just a quick follow up question. So what is your view on current market.
Consolidation broadly speaking.
Okay. So.
It's a trend that we have since it's just like a historical.
How would you audra, we always use this expression by saying you know there are 2 dumps you have you need to have 2 parties.
You know that we have been active on this 1.
On the you know we are clearly open to of course out there don't appear on finding the right parties, but the industry consolidation. These are long lead times in the print industry on the let's say some things that will happen overtime.
Great. Thank you so much.
Thank you Angela.
Thank you. Our next question comes on the line of Kathy Huberty from Morgan Stanley. Your question. Please.
Yes. Thank you good morning, with the return to the office in the fourth quarter of this year and the behavior of printing in the office that you mentioned earlier should we assume that post sales revenue and for Q2 'twenty 1.
<unk> can look more similar to for COVID-19, pre COVID-19 levels, obviously, assuming the delta variant doesn't impact current returned to our plans just want to understand how you're thinking about that yes.
Canadian on a model for our guidance, we're not assuming 2019 to go back to 2019.
<unk> numbers and <unk>.
A more modest return and then you know on AR.
And then after 2022.
Okay, and then in a normal environment EPS is typically about flat in <unk> relative to <unk>, how should we think about the EPS trajectory in the in the September.
Part of this year.
So no more on very much usually use you know.
First EPS is mainly driven by revenue. So when revenue is coming EPS is expanding so on then we manage volume.
Project on it you know all the cost element of the company are usually quarters.
Our suite is a softer quarter I'd say, usually prior to pandemic, a softer quarter on quarter to the 2 highest quarter of any quarter for first quarter or 2.
So each year is a little bit special because we see this gradual recovery on you know as an example schools on the you know what's happened you know firms have not been opened.
And for quite a long time open to presence in the office of presenting schools on the it will be you know 1 of the trends that we will monitor interest per quarter. So if.
If I look at the how we look at the quarter, we said gradual recovery on specifically by gradual we expect September to show you don't.
Clearly a pick up versus last year on than quarter..4 you know to follow this trend here.
And just just quickly the tax rate was much lower into Q cannot sustain into <unk> should we assume that the tax rate comes up and that's going to be a headwind to the sequential EPS.
Yeah. So you know.
We manage our tax rate on the global basis, we're presenting a lot of different countries. Here here. We are on international I would suppose that the exceptional items, which is a relative to a law change in 1 of our European countries that are giving us the opportunity to get a 1 off credit of a deferred tax asset after.
Celsius, depending on you know how is the slow change Ah ha apply to country by country, we will obviously.
Our tax guidance here on the adjusted tax rate, but I do not expect quarter 3 to be positively impacted on what we have in quarter 2.
Thank you very.
It is.
Thank you.
Thank you and as a reminder, ladies and gentlemen, if you have any questions. At this time. Please press Star then 1 our next question comes from the line of Shannon Cross from Cross your question. Please.
Yeah.
Thank you very much I wanted to see what's going on with regard to channel inventory.
So the I think you said something about some of the sales into the reseller channel was you know where those companies looking to replenish probably in anticipation of demand I would assume but I'm, just curious where you where you see inventory out right now thank you.
Yeah. So what we've seen on this is maybe a compare versus last.
If you remember in quarter, 2 last year channel depleted their inventories mainly to protect our cash position. So we have seen it all across the industry on a step by step. These inventories have been rebuilt our what we're pleased with is that in quarter..2 is our inventory rebuild a little bit stronger on what we.
Last year in Formula quarter waiver, it's just not like of course that the very high number I mean, our we track what we call a week of inventory on the week of inventory are still at this stage low wears on you know.
Some of the highest point, we could have had pre COVID-19. So on channel are coming back but step by step.
So rod you all as well.
As I mentioned it on you saw that on.
S M b on the meat meat on entry, which is mainly of his type of activity. We gained share on the channel are part of this share gain on being able to drive our PSA on revenue.
Our quarter over quarter.
Okay. Thanks, and then both of you I think during your script mentioned investments in growth areas as use of cash and some impact on margin can you be a bit more specific on exactly where you're putting on your investment dollars on how we should think about.
Ways to track you know.
<unk> current on investment or or how quickly you expect to see benefits on that thank you.
So as you know it we invest in the 3 I.
I would say how are we as a business on the price of ways issued CRA on these notes that we.
Inform you in deposits by saying, we will stand up these businesses.
This is a XFX software on innovation on I'm pleased to report on it in each of these areas of business, we achieve milestone on the wheat continue. Despite you know the onvia per month, we continue to invest in the business I won't give you a 2 example here on the.
The X F S on the I believe we mentioned that in our presentation.
<unk> in ex FX, we grew origin nation on the portfolio is great. When you do that it means that you use free cash flow.
And we have used this quarter 60 million of free cash flow in.
It was reported this activity.
What does that mean it means that we are building for the future of their portfolio that goes Oh, jeez origination will drive future revenue on profit growth or exercise.
In innovation, we carry on our investment.
I'm sure you remember on that though we are announcing quarter until Q on the 8 O. Q is this joint venture.
We have with Z on Australian Victoria government here on this joint venture is now running has been enabled on the we have a commitment.
On from the government to invest 50 million Dora Eaton are mostly on their house in a Z infrastructure on to set up you know more of these breach sensor that we're developing here. So it is just take zone partner sharing that email D and.
Some of our cost despite the current hungry on Mount on free cash flow, we carry on investing in or there are you know.
To develop future revenue growth of the company on analyst day will on yes on the on the channel in November.
As you know each other on the we announced that though you're not in Nova.
November will have an analyst day on we will provide you more detail on each of these towers.
Okay. Thank you.
Yeah.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to John with the team for any further remarks.
Okay. Thank you all for your questions for the events of the past 18 months have tested the Xerox team in ways, we never imagined possible.
But these unexpected challenges made the team stronger the.
On the resiliency of this team paired with our sound strategy gives me confidence that Xerox has future continues to be bright be safe.
Be well.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
[music].
Safe and.
Yes.
Okay.
Okay.