Q1 2022 Xerox Holdings Corp Earnings Call
Welcome to the Seaworld Holdings Corporation first quarter 2022 earnings release conference call. After the presentation. There will be a question and answer session to ask a question at that time. Please press star one at any time during this call you can.
Withdraw your question by pressing the pound key at this time I would like to turn the meeting over to Mr. David <unk>, Vice President and head of Investor Relations.
Good morning, everyone I'm, David Buckler, Vice President and head of Investor Relations at Xerox Holdings Corporation and welcome to the Xerox Holdings Corporation first quarter 2022 earnings release Conference call hosted by John <unk>, Vice Chairman and Chief Executive Officer. He is joined by that'd be a high <unk> executive Vice President and Chief.
Natural officer 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. During this call Xerox executives will refer to slides that are available on the web at www Dot Xerox Dot com slash investor.
It will make comments that contain forward looking statements, which by their nature address matters that are in the future and are uncertain.
Actual future financial results may be materially different than those expressed herein at this time I'd like to turn the meeting over to Mr visited Mr. Visiting you may begin.
Good morning, and thank you for joining our Q1 2022 earnings call I hope, everyone is safe and healthy.
Before I get to the results I want to start by acknowledging the humanitarian tragedy, taking place in Ukraine.
Our thoughts are with all those who have been affected.
As the situation began to unfold in late February we took swift and decisive actions to ensure the safety and security of our people.
We suspended all but emergency support operations in Ukraine, and provided emergency cash grants to the Ukrainian employees through our employee relief fund.
Shipments to Russia were halted as soon as the conflict started.
We continue to evaluate the situation in this region and we will adapt our response, hoping for the restoration of peace as soon as possible.
In total as a percentage of our revenue exposed to the Eurasia region is in low single digits.
The operating environment was once again challenged in Q1 and it will remain fluid in Q2.
At the beginning of Q1, the AMA crime variance resulted in office closures in our largest markets affecting page volumes in January and February .
Supply chain I still disrupted by Covid related factory closures and parts of Asia.
Inflationary pressure is building across our cost base, including cost of goods sold labor and logistics.
At this point, we continue to expect supply chain conditions to ease beginning in the second half of the year, albeit at a slower pace than originally anticipated.
Return to office trends are improving as Deanna convent receded page volumes increased result in March being one of the highest months of post sale revenue since the beginning of the pandemic.
The continued correlation between an office work in print activity and strong demand for equipment and consumables confirms that employees are using our equipment and services when they return to the office.
Third party data points, the momentum and increasing offense attendance and we continue to expect a gradual return of workers to the office in Q2 with momentum building in the second half of the year barring another variant outbreak.
Summarizing results for the quarter revenue of $1 67 billion declined two 5% in actual currency and 7% in constant currency.
Adjusted EPS was negative <unk> 12.
34 cents lower year over year.
Free cash flow was $50 million compared to $100 million in Q1 last year.
And adjusted operating margin of negative <unk>, 2% was lower year over year by 540 basis points.
Revenue was in line with our expectations.
Equipment revenue declined 17, 6% or 16, 1% at constant currency as expected with supply chain disruptions limiting our ability to fulfill demand.
Total backlog grew 21% sequentially to $422 million as demand for our equipment continued to outpace supply.
Post sale revenue grew one 9% or three 7% in constant currency, reflecting improvements in print activity.
Our it services business grew double digits on an organic basis, and we expanded its reach with the acquisition of powerline Canadian It services provider.
Operating costs in the quarter were higher than expected, resulting in a small adjusted operating loss and negative earnings per share.
Going into the quarter with new supply chain constraints and investments in new businesses would weigh on our margins.
What was unexpected was the magnitude of intensity of inflationary pressure across our cost base and the growth in supply chain costs.
We expect the margin dilutive effects of supply chain costs, and new business investments to subside as constraints ease and our new businesses scale. The effect of inflationary pressure is more difficult to predict but we plan to offset most inflation related cost growth with price adjustments and additional project one.
Savings.
Price adjustments are being implemented but it will take time to realize given most of our revenue is contractual disc.
Despite the challenges we face some of which are new since issuing our 2022 guidance, we are maintaining our revenue and free cash flow targets for the year subject to our return to office and supply chain assumptions.
Xavier will provide more color on guidance.
We continue to focus on the same four strategic initiatives that guided us over the years.
Optimize operations drive revenue monetize innovation and focus on cash flow.
Project on it has become institutionalized and ingrained in our culture driving each employee to pursue operational efficiencies and excellence in everything we do.
To help stabilize our profitability and maintain our free cash flow target I, Miss inflationary pressures and a challenging operating environment.
We plan to increase our targeted savings of $300 million for 2022 by 50%.
These efficiencies will catalyze operating margin improvement as our business recovers from the pandemic in recent supply chain disruptions.
Moving beyond the supply constrained environment, we are confident in our ability to grow the print and services business.
Growth will be driven by factors largely within our control, including market share gains and a greater strategic emphasis on secular growth verticals, such as it and digital services.
For the full year of 2021, we gained approximately 200 basis points of equipment sales market share and achieved the number one share in our markets.
These share gains reflect our differentiated go to market strategy and broad suite of products and services offerings.
Our services offerings include our leading managed print services business integrated workflow solutions, and a growing portfolio of IP and digital services.
We continue to deliver innovation relevant for our customers. Most recently refreshing our low end a for desktop cloud connected models and <unk> III entry models with significant improvement in productivity and enhanced security with Mcafee embedded security all of which supports our award winner.
Workflow central platform.
Yesterday, it was announced that our managed print services business. We're the sole winner of the buyers Lab 2022, 2023, Pacesetter Award and comprehensive NPS programs from key points intelligence.
This award reflects the breadth of our MPS offering as well as our cloud first development path pivot to add homeworkers and inclusion of dealer channel partners.
In digital services will become a more significant part of our print and services business over time.
It services is a natural adjacency for Xerox given the expansive direct sales force deployed through Xps, our unit, serving small and medium sized businesses.
The SMB it services market as attractive as it is growing mid single digits in.
Competition is highly fragmented and our it services business scales efficiently.
In Q1, it services grew more than 20% on an organic basis.
And we expanded our geographic reach by acquiring power line.
Leading it services provider in Canada.
Our it services business is experiencing strong interest in some of the newest offerings.
As robotic process automation IPA data solutions and managed security.
We launched our commercial <unk> business, only recently and are already seeing repeat business from customers wanting to add bots to improve operational efficiency.
Our boss help customers with invoice processing order entry financial reporting and document classification and the pipeline of use cases continues to expand.
In Q2, we will offer an AI solution that automates data extraction from high volumes of unstructured documents for our legal clients.
Xerox digital services offerings are resonating with new and existing managed print services clients.
These offerings help clients navigate their digital documentation transformation by providing intelligent document processing and personalized customer communications.
For capturing content, which includes digital mailroom data extraction and processing services signings grew 72% in the quarter with new business signings growing more than 100%.
We continue to invest in federal carry our in park in Q1 fill increase its focus on providing financing solutions that extend beyond Xerox equipment and services.
This quarter, Phil added 24 dealers and grew indirect origination, 7%, including a doubling of non Xerox product.
This growth was offset by 22% decline in Xerox direct originations for the quarter due to an equipment shortage.
Phil remains on track to achieve the financial targets provided at our Investor day.
As a new business within Xerox, we expect carrier to make consistent progress on Kpis that will drive strong revenue growth for the year.
In Q1 carry outgrew its pipeline $22 million or 34% sequentially.
It added three system integrator partners 47, new customers and expanded HCV at another 60 customers.
<unk> now serves clients across 13 industries and added solutions for banking education oil and gas and pharmaceutical clients during the quarter.
Kerry I also announced the launch of carry our instruct its second major product offering and a key competitive differentiator.
Instruct expands on its flagship assist product to incorporate self serve capabilities for service agents and end users of complex devices.
Instruct utilizes a full range of carriers IP, including AI.
Documents storage and content creation to provide critical insights.
At Park, <unk> alum additive manufacturing and Nova T targets significant market opportunities and each continue to gain traction within their respective markets this quarter.
In Q1.
<unk> announced partnerships with vertex.
<unk> National Laboratory and Siemens <unk>.
These partners are using our three D printers, and working with <unk> to expand its industrial use cases.
<unk> plans to triple the number of bridges deployed in Australia during the first half of the year.
It's also making headway in negotiations with several U S States and European countries.
Novelties and newly launched company that will use parks Iot expertise to commercialize a predictive maintenance platform for process manufacturing.
Nobody has a healthy pipeline of companies in the manufacturing and the oil and gas industry and has signed to customers, including a pilot at PNC supply one of the leading manufacturers of building materials in the U S.
We continue to fund investments in innovation and launch new products and businesses.
Going forward, we will increasingly look to monetize investments and innovation through strategic transactions.
These transactions can take the form of minority investments sales partnerships are mergers of our businesses.
We expect these transactions to create shareholder value by providing a newer businesses access to additional capital and domain expertise.
We delivered positive free cash flow this quarter 50 million based on improved working capital discipline and returned $159 million of cash to shareholders through dividends and buybacks notwithstanding an increasingly challenging operating environment, we expect to deliver at least $400 million of free cash flow this year, while continuing.
To invest in new businesses.
We will return at least 50% of free cash flow generated to shareholders.
Additionally, cash may be used for value accretive M&A and debt reduction.
To recap our backlog remains strong and page volumes are moving in the right direction as offices reopen.
Supply chain challenges and broad based inflationary pressures will challenge us to be smarter and more productive and we remain committed to the guidance issued at the beginning of the year.
With that I'll hand, it over to Xavier.
Thank you John and good morning, everyone as John mentioned operational challenges. This quarter, we continued to face constrained on our ability to deliver on in store order on the cost of fulfilling Zeus order of increased.
Additionally, we halted shipments to Russia, a market that comprised of low single digit percentage of our revenue and profit in 2021, and we're seeing inflationary pressure across our cost base on deals are armed revenue was in line with our expectation on demand for our product and services remained strong.
As evidenced by increasing our backlog to $422 million in quarter, one which is close to three times higher than prior year levels.
<unk> grew in actual on constant currency due to growth in <unk> services on growth in salt supplies on paper, which reflects how you a printed pages. We also benefited from growth in our page volume driven contractual business, which continued to correlate with the return of Walker to the office.
Yeah.
Turning to profitability similar to recent quarters lower equipment sales are less profitable mix of equipment install higher supply chain cost lower margin on Paul <unk> to review on incremental cost associated with new businesses growth, our profitability lower year over year.
In addition, we are seeing is the effect of higher inflation across our cost base.
Gross margin declined 390 basis points in the first quarter 280 basis points of this decline is attributable to supply chain cost on capacity restriction, including higher freight and shipping costs.
The constrained availability of higher margin <unk> devices.
10 basis point of the decline related to investment to support future growth lower royalty revenue from Fuji film business innovation on lower government subsidies.
We continue to expect supply chain headwinds to moderate beginning in the second half of the year.
Adjusted operating margin of minus <unk>, 2% decreased 540 basis point year over year, reflecting lower gross profit higher bad debt expense prior year benefit from temporary government subsidies on furlough measures on investment associated with our new businesses.
And the wins were partially offset by lower selling expenses, resulting from lower sales volume on project or net savings.
Sag expense of 455 million increased $7 million year on year.
The increase was primarily driven by investment in new businesses prior year benefit from temporary government subsidies on furlough measure higher bad debt provision, resulting from the.
Political on demand in Eurasia on acquisition.
These increases were partially offset by savings from project own it lower sales and marketing expenses on currency.
<unk> was 78 million in the quarter or four 7% of revenue, which was an increase of 40 basis points as a percentage of revenue year over year.
The increase was driven primarily by continued investment in our new business each quarter specifically.
On three D cleantech on Iot business is at.
Mark.
Other expenses net was 53 million higher year over year.
The increase was primarily driven by a 33 million charge associated with the termination of a product supply agreement.
So chart reflects the payment of a contract to a cancellation fee plus increased unrelated legal fee, which we expect to more than make up for grabs tightened by yellow vest you blend cost.
Additionally, 13 million of the increase related to higher non service retirement related increased cost due to an increase in interest costs associated with our year discount rates on higher settlement losses.
On 5 million related to increasing non financing interest expenses, reflecting a higher allocation of interest because our non financing debt.
First quarter adjusted tax rate was 52, 9% compared to 27, 7% last year.
Since we generated a pre tax loss for higher tax rate reduced our tax obligations. This reduction was driven by benefit from additional tax incentives on a lower indefinite reinvestment tax liability due to a recent acquisition.
Adjusted EPS of minus 12% in the first quarter was 34 cents lower than in the prior year.
The decline was primarily driven by your year over year reduction in adjusted income gap.
GAAP EPS of minus 38 was 56% lower year over year due to lower GAAP net income.
Turning to revenue total revenue was in line with our expectation, albeit with a less favorable product mix with equipment sales decline offset by modest improvement in <unk> revenue.
The underlying fundamental of our business remain stronger equipped.
Equipment orders once again outpaced supplies, resulting in a community backlog this quarter of equipment on outerwear of 422 million, a 21% increase over quarter four on close to three times higher than prior year level.
For context, our backlog is now larger than a full quarter's worth of equipment on hardware sales.
<unk> continued growth in our backlog so quality of our backlog remain high.
Close to half of our backlog is less than 60 days old we have seen minimal cancellation of orders as far as customer often willing to extend their existing leases we are.
Waiting for new equipment.
Further we saw an uptick in petroleum on petroleum driven post sales revenue in March has <unk> return to office following the omicron volume.
So continued correlation between page volume on workplace attendance on strong growth in usage based revenue such as paper on supply suggest workers <unk> printing has returned to <unk> as we expected.
Equipment sales of $314 million in Q1 declined roughly 18% year over year or 16% in constant currency.
The decline was primarily driven by continued supply chain disruption, which limited our ability to fulfill demand.
Installation work down year over year across all product guidance on high margin mid range product continued to be the most impacted by supply chain issues.
Post sale revenue of $1 35 billion grew one 9% year over year or three 7% in constant currency.
Growth was driven by <unk> services, which increased more than 20% year over year, excluding two months of revenue from our recent acquisition of <unk> as well as our salt supplies on paper revenues with Trixie rate with printing volume, we saw modest growth in petroleum driven contractual revenue.
Corresponding with growth in printed pages post sales revenue growth was partially offset by lower off Fuji film business innovation royalties on lower <unk> financing Commission.
In <unk>, new business, signing grew roughly 10% year over year led by strong double digit growth in signing of our capture on content digital services.
We generated free cash flow of $50 million in Q1 down from 100 millions of prior year.
Lower cash earnings, which including investment in our new businesses on lower royalty payments were offset by working capital improvement on lower restructuring payments.
We generated 66 million of operating cash flow in the quarter compared to 117 million in the prior year.
Working capital was a source of cash of $93 million this quarter.
$50 million higher than the prior year, mainly driven by accounts payable.
Investing activity, where our use of cash of 75 million compared to a use of $17 million in the prior year due to an increase in cash used for acquisition on venture investment.
Capex of $16 million was slightly lower year over year.
Thanks, primarily to support our strategic growth program on investment in 19 prospect here.
Financing activity consume $149 million of cash during the quarter, we utilized the remaining $113 million of our buyback authorization on paid dividend totaling $46 million.
We also repaid 300 million of maturing senior notes, we screened out $22 million of net securitization proceeds.
For the year, we remain committed to returning at least 50% of our free cash flow to shareholder.
Next looking at profitability has noted earlier adjusted operating income was negatively affected this quarter by incremental cost associated with supply constrained inflation on investment in our new businesses, which had a negative impact to adjusted operating income margin of 407.
Basis points.
We expect supply channel new business cost to normalize our supply chain condition improve on our new business is scale.
In French rate pressure may persist for some time, but we expect to pass on most of the effect of inflation through pricing action.
Beat by a delayed basis.
Offsetting these cost pressure will be additional savings generated through project own it.
Last quarter, we announced $300 million of targeting gross savings in 2022, which we will use to offset planned cost increase as well as the investment in innovation across our offerings.
Due to incremental inflation across our cost base. We are now planning a 50% increase in our targeted savings amount for the year.
We're expecting quarterly sequential margin improvement towards a year, but the realization of this improvement will largely depend on macroeconomic factor.
Turning to segment, we are now providing segment level operating detail from print on user on financing or fetal.
We provide this information to help investors understand the print on wholesale business, excluding financing as well as fetal financing business, which.
<unk> in the future is expected to become less dependent on Xerox for origination growth.
Peter revenue declined 12, 2% in Q1, primarily due to a reduction in financing income on the operating lease revenue, which reflect lower equipment in storage.
Segment profit was lower by $1 million or five 6% has higher gross profit were offset by incremental cost associated with standing up the business.
Segment margin of 11% was higher than our full year estimate of 8% to 9%.
We expect fetal margin to normalize as volumes pick up driving increases in commission.
In Q1, Peter finance assets were down slightly quarter over quarter as portfolio runoff outpace origination.
Peter origination volume declined 10% year over year, due primarily to a declining xerox product origination of 22%, which were negatively affected by product availability constraint.
In direct origination, which includes third party dealers on non Xerox vendor grew 7% year over year due to growth in new deterioration chip on non Xerox originations volume.
Print on Oeser revenue declined 2% in Q1, primarily due to equipment sales, partially offset by modest improvement in post sales revenue as previously discussed.
This segment generated a loss due to lower equipment sales are less profitable mix of equipment installed higher supply chain cost lower margin on post sales revenue on incremental cost associated with new business.
Regarding capital structure. We ended Q1 was a net cash position of around 400 million $2 9 billion of the $4 3 billion of our outstanding debt is allocated to support so fetal lease portfolio.
So remaining debt of around one 4 billion is attributable to the coal business.
Primarily consist of senior unsecured bonds on finance asset securitization.
We have a balanced bond maturity ladder on no unsecured maturities for the remainder of the year in the first quarter, we will return $159 million of cash back to shareholder return with acquisition on investment comprised a majority of the 200 million quarter over quarter decrease in net cash.
Finally, I will address guidance, we are maintaining our guidance of at least $7 1 billion of revenue at actual currency on free cash flow of at least $400 million.
Our free cash flow guidance exclude cash cost associated with this quarter product supplies termination charge as it is a onetime in nature, an obscure true cash generation potential of our operation.
Our business faced significant challenges that presents a degree of risk to our outlook.
But we continue to expect supply chain improvement on a broader return of employees to <unk> in just about half of the year.
Additionally, we are implementing counteractive measure in response to geopolitical uncertainty on inflationary pressure in creating a relocation of equipment and supplies from Russia to market facing significant backlogs on additional project O&M savings to offset inflationary pressure.
We will now open the line for Q&A.
Thank you and ladies and gentlemen, if you have a question simply press star one on your telephone to withdraw your question press the pound or hash key.
First question comes from Ananda Baruah with loop capital Your line is open.
Hey, good morning, guys. Thanks for taking the question and good to see the revenue.
Continuing to trend as expected as well.
I have just a few for me if I could.
How should we anticipate that the pacing of the margin recovery as we move through the year.
And maybe for both gross margin and operating margin and Opex.
Yes, so hi, and good morning.
As you have seen it we face some inflationary cost pressure during quarter one on the as we mentioned at our macroeconomic andujar months, we're expecting them to improve over time.
Even by two driver number one would be back to office in quarter, One January and February activity was impacted by omicron in.
Some of the geographies, but we saw March recovering so we're expecting a gradual recovery on back to office.
Well signaled by external debt upon showings.
Employees are going back to the interface March was a good data point on we're expecting these to continue in quarter two on gradually improving potash with quarter four as well.
Regarding back to office on print volume, we're getting supply chain. We are monitoring this very closely.
We mentioned it in our quote in Q4 and during the Investor Day, we were expecting to have a gradual improvement or we just don't want to half of the year. We are still monitoring see some improvement in the situation, but this has impacted strongly our equipment gross margin because of mix of products that we have.
Ignite.
Stall during this quarter was not the traditional high mix high margin mix of products that we could have in store.
In summary, we expect gradual improvement in margin quarter, two will be an improvement over quarter one but.
Expecting that the second half will be better than the total up to first off.
Okay got it that's helpful.
Yes.
Just on supply chain was it.
Yeah.
Was it tougher that I know I know with increased fuel crop costs that was certainly incremental but just in general.
Excluding the fuel costs and maybe yesterday transportation is impacted by that we supply chain, how supply chain availability relative to your expectations.
Quarter.
So the supply chain is to eliminate one element is capacity a second element discussed so from a capacity point of view, we were impacted in quarter. One as I mentioned at our new stores are key equipment revenue was down year over year.
We have not achieved so mix of equipment was at high margin <unk> product equipment.
You saw the strength of the backlog as well our backlog is still growing 22% quarter over quarter close to now more than a quarter of revenue that we have here. So we are quite confident in our ability to get over.
Orders from customer on having this backlog being installed overtime. So quality of the backlog is also strong.
We are currently monitoring how long it would take in a branch.
In store product and I would say close to 50% of our backlog is less than 60 days or so we tell on it but at the end of the day, we don't have the equipment, we're expecting in order to close the gap in equipment revenue.
So I touch capacity, we're adding cost.
We have.
During the first half it.
Started last year, but during the first half cost pressure intrapreneur shape pressure on specifically containing our cost but also in country. It could be I would say freight truck train cost pressure here.
We are expecting is to ease you read as we read out some information regarding that consumer demand could decrease in just one half of the year should it should give more capacity on potentially price reduction.
For the type of demand our company our costs that we're expecting.
That's really helpful I'll cede the floor. Thanks, so much.
Thank you Rhonda.
Your next question comes from Erik Woodring with Morgan Stanley . Your line is open.
Hey, good morning, guys. Thank you for taking my questions I have two here as well maybe just to start maybe John . This this would be for you you know in the in the <unk>.
A key part of your earnings deck, and you alluded to it here in the prepared remarks.
Felt like there was a bit of a tone shift in your and your comments on monetizing our realizing shareholder value from some of your investments in innovation.
Just talking about increasingly looking to do strategic reaction. So am I correct in saying that and maybe can you just parse that out maybe one level further just in terms of what that could actually mean in terms of in terms of potential actions, you could take or timing or anything along those lines and then I have a follow up.
Yeah Eric.
If there was a shift I apologize I don't think Theres a shift we're continuing to fund the investments in innovation.
We know it's margin dilutive in the quarter.
We're launching new products and businesses, we've spoken about what we're doing at <unk> and <unk>.
And that novelty novelty being the latest one in predictive maintenance.
We have we have already two clients and we have a pilot going with pansy supply going forward, we're going to we're going to continue to look at monetizing. These investments like we said through strategic transactions and it could take form of a minority investment or sale or partnership a merger of our businesses. We stated that we want these transactions to <unk>.
Shareholder value by providing a new businesses access to capital and speeds and a little bit of what we see you and I spoke about also at the analyst day.
Okay, Great. That's really helpful. And then maybe a maybe it's a very one for you and just to follow up on a non discussion.
I appreciate the color that operating margins or margins and generally should improve sequentially through the year second half better than first half, but we're now starting obviously off of a lower base in <unk> than was expected. So is it possible that operating margins could be down year over year I know you guided them to grow last quarter. So just any color.
That you can share on how we should maybe think about the year over year change in margins. Realizing that there are some macro factors that could impact that and that's it for me. Thank you.
Yes.
Good point.
Eric here, which is okay macroeconomics environment as some things that are well known.
Monitoring very closely so far the leading indicator we have on the page volume.
Positive based on what we've seen.
Key point for us would be.
To address the supply chain.
Challenges that we're facing in quarter, one on there being able to address some cost pressure as you ask Stephanie noted it.
<unk> has increased our Intel known Akshay goal around project on it.
Tony It is a goal of $300 million of cost gross cost savings. This year, we have increased by 50%. So if you remember our project own. It is much more than a cost cutting type of program. This is more of a DNA on our companys and reaching so cost basis on some of the challenge when we face them.
Ensuring that we can still deliver the guidance on revenue and on free cash flow. So so far.
Assuming.
Macroeconomic some demand trend.
We did not comment too much and it had a limited impact here and we will also be able to redirect some of the product outside of Ukraine, and Russia towards their geographies. So I will say assuming economic environment on macroeconomic trends are in line with what we're commenting here, we should see as a gross.
Any improvement on the <unk>.
Achieve or being close to our goals that we have transition here.
Great. Thank you Sylvia.
Thank you Eric.
Your next question comes from <unk> <unk> with Jpmorgan. Your line is open.
Hi, Thanks for taking my question and good morning.
If I can just follow up on the last question there.
You talked about the additional savings coming from project own it.
It really is a difficult time, particularly.
Where inflation is to drive additional savings. So maybe if you can give us a bit more color are these sort of projects that were.
But away from commercialization that you're trying to pull back on like what is the source of these additional savings that you're targeting.
But it does look a bit more tougher to put an environment to drive those savings and I have a follow up thank you.
Yes.
Good morning, guys that makes sense. So we will look at.
Our scope of our cost base.
Our specific focus on what we call infrastructure cost on local and so is your ability to negotiate some known renegotiate some of the cost I mentioned.
Our freight costs on those the ability to see VSS and those of course, we see today. If these costs will decrease during the second half comps a year, but also.
Right.
I did not touch on around there.
You will have project or need to know how to make things a cross point, but some of the inflation that we're seeing here.
We passed back to customers. So we have done last year, some price increases Honda what we're doing currently as well is to plan on tap and product on their own services that we have here additional.
Rice point, so we can offset some of that.
Efficient interest rate cost pressure to customer as well, but the project is not.
Specifically directed to I would say a real one by one we look at the entire cost base with credit on the as I mentioned it infrastructure cost kind of laser focused press freight cost.
Got it.
Follow up I think at the Analyst Day, you had mentioned that your target in terms of where Williams can get to.
Sort of in the recovery is the is it like 80, plus number and you talked about improvement in both sales driven by some of the return to work. So maybe if you can ballpark, where you are in terms of page volumes relative to the 80% target today and the follow up there is you also have a big backlog on the equipment side.
Can you are you able to get a sense of how that mix is or whether equipment demand is coming in higher end or lower end.
Compared to pre pandemic through your backlog. Thank you yeah. So two good question does that mean that you're going to we are seeing some gradual improvement.
Just as a data point March was one of the highest months until we have had since the pandemic. So we still see DRAM barrel.
Monetary are very strongly or very directly to a correlation between.
Vaccination rate totaled to presents a COVID-19 vaccine ashwin right presence in the office on petroleum discolorations stick on the clearly after omicron wave in January February was over we saw people going back to <unk>, we saw a direction of magellan's CEO asking them per year to be back to <unk>.
We see that day to day with customers.
We are monitoring this on CEOC.
The positive trend in this direction. So as I mentioned, we're expecting a quarter or two to improve gradually moderately on dentists are going to have houseware exam.
So thats for your page volume at the same time.
We are also gaining market share, which mean our may four print zones here is also increasing.
They've also additional revenue coming from market share gains that we had.
Commenting on the backlog just to share with you. So does that that point is $422 million 20, more than 20% increase quarter over quarter close to I would say two to three times our usual backlog.
I would say a good sanity, good quality of the backlog with.
Little bit less than 50% of the backlog being.
Less and less.
Less than 60 days or so does that mean, we are installing it quite quickly.
<unk> is a mix of the backlog on the profitability on this was one of the key driver policy year gross margin erosion.
Actually we have around 50% of the backlog being on our <unk> product.
Much higher so this is one of the reason some mix on the margin mix.
We have been able to generate an install.
Been impacted.
Quarter, one so again very fluid situation, our main driver of the backlog is steel.
We see.
<unk> page of some competent on speak specifically certain chips that we're waiting for.
Great. Thank you. Thank you for taking my questions.
And using it.
Thank you and your next question comes from Jim Suva with Citigroup. Your line is open.
Thank you both of you mentioned additional auctions under project own it.
This program has been quite successful. So can you maybe explain to us or give some examples of what some of these additional auctions are.
I just kind of wanted to get a grasp of our understanding of the new actions our project own it because it's been closed more comfortable in the past and just kind of wondering where else can you find more savings.
Yes, Jim I wouldn't use the term where we find more savings you're right. We've been very successful unusually we've beat our project own it targets every year.
It's a philosophy, where we promote continual process improvements and what we plan to do this additional $150 million in gross cost savings and where it comes through as flow through of our in flight initiatives is there more we can do there.
Is there more investments in it that we can do to go get it cross functional operating operational efficiency projects. These are all things that are in flight that we're going to and we're looking at growing and we're looking at going faster of course, there could be some labor actions that are involved overhead infrastructure and investments.
Our products and our services and even internally and we look at them and say are there things that we can hold off at supply chain eases as it gets better going forward, but.
The plans are in place.
To go after it and definitely.
You'll be seeing some of it in the second half of the year. So.
But if there is no we don't look at it as something new it's always continuous improvement.
Okay.
A follow up maybe for Javier Javier can you talk a little bit about the changing interest rate environment.
<unk> is a very big and complicated company, whether it be debt obligation you're financing business or even your company pension accruals I know those rules have all changed a lot, but how should we think about a <unk>.
Using our higher interest rate environment, the impact on that on your company or cash flows. Thank you.
Thank you Jim So good question, so regarding interest rates on some pressure on our own environment, Let's say it is quite simple.
The first thing.
We have no debt so vast majority of the debt is related to the financing business to <unk>.
This debt is.
Associated to the <unk> contract will financing contract wins with customer for the vast majority as you know it we all know securitization securitizing this debt which means that.
That will be.
Your line or the cost of the capital will be aligned with market costs, but we have also as well as the ability to pass some price back to customer. So when the right costs are increasing we're able to pass.
And kosta.
Regarding core debt.
Towards the remaining part of the debt.
We have seen it in our debt ladder no obligation for this year so.
We cover our $300 million debt obligation in quarter one.
For the second part of the year, when 1 billion Honda.
At this stage no concerns on how we will be able to fund on our drive to that here. So obviously, it's not my prime concern currently interested here.
Mainly driven by the fact that we.
We can pass some of the cost increase back to customer.
Okay, and the pension and the impact of pension.
Yes.
You have an impact.
Sometimes that means when the interest rates are increasing you have the double effect you have one effect, where you have your obligations that could grow at the same times of return on your investment is also growing.
The majority of our pension.
I would say.
Lino connected with.
Deborah.
<unk> instrument instruments.
Manoj will have a way to derisk.
Andrea <unk>, specifically from an interest point of view, so I don't see this as an immediate cost pressure haswell, all dry bulk cash pressure and that pressure on Xerox.
Thank you so much for the details.
Thank you.
Thank you and ladies and gentlemen, this does conclude the Q&A session I would now like to turn the call over to John <unk> for any closing remarks.
Thank you and thank you for being on the call. Our focus remains on executing the strategic roadmap that we presented at Investor day, including a return of printing services to growth.
Monetization of our investments innovation.
Be safe and be well.
Well, ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Perfect.
[music].
Okay.
[music].
Yes.
Yes.
[music].