Xerox’s Reinvention Continues in 2024

In 2024, Xerox continued its multi-year Reinvention strategy to transform the company and position it for long-term, sustainable growth. Total revenue declined 9.7% to $6.2 billion, reflecting lower post-sale and equipment sales revenue. However, the company made significant progress on its three Reinvention priorities: Geographic Simplification, Operational Simplification, and Commercial Optimization & Growth.

Geographic Simplification Xerox replaced direct-to-end-customer models with partner-led distribution in Latin America and parts of Europe. This simplified the company’s geographic footprint and reduced operating costs.

Operational Simplification Xerox implemented a business unit-led operating model and established a Global Business Services (GBS) organization to centralize key processes. These changes improved efficiency and enabled the acquisitions of ITsavvy and the pending acquisition of Lexmark. Xerox achieved over $200 million in gross savings from Reinvention actions in 2024.

Commercial Optimization & Growth Xerox stopped manufacturing certain high-end production equipment to focus on higher-growth and higher-return production submarkets. The company also deployed AI-enabled pricing tools and revamped sales territory coverage. The acquisitions of ITsavvy and Lexmark are expected to diversify Xerox’s revenue mix and strengthen its core businesses.

Financial Performance Total revenue declined 9.7% in 2024, including a 0.7 percentage point benefit from acquisitions and a 0.2 percentage point adverse impact from currency. Post-sale revenue, which accounts for 78% of total revenue, decreased 7.4%. Equipment sales revenue declined 16.7%.

The company reported a net loss of $1.32 billion in 2024, primarily due to a $1.06 billion pre-tax goodwill impairment charge. Adjusted net income was $135 million. Gross margin declined 2.1 percentage points to 31.5%, reflecting lower revenue, higher costs, and the impact of exiting certain production print manufacturing.

Segment Performance The Print and Other segment, which accounts for 95% of total revenue, saw revenue decline 9.7%. Equipment sales decreased 16.8% due to unfavorable mix, backlog fluctuations, and the decision to stop manufacturing certain high-end equipment. Post-sale revenue declined 7.2%, driven by lower managed print services, rental revenue, and sales of non-strategic IT devices and paper. Segment profit margin decreased to 4.6%.

The Xerox Financial Services (XFS) segment, which provides financing solutions, saw revenue decline 11.0%. Financing revenue decreased 20.9% due to a reduction in the finance receivables portfolio from sales to third parties. XFS segment margin increased to 9.5%.

Liquidity and Capital Resources Xerox ended 2024 with $631 million in cash, cash equivalents and restricted cash. Total debt was $3.4 billion, with $1.7 billion allocated to the finance assets. The company issued $900 million in new senior notes in 2024 and used the proceeds to repay existing debt.

Xerox amended its $425 million asset-based revolving credit facility in 2024, increasing the commitment amount and improving the covenant trigger. The company also continued to sell finance receivables, receiving $752 million in proceeds during the year.

Looking ahead to 2025, Xerox expects total revenue to grow low single-digits in constant currency, including the full-year impact of the ITsavvy acquisition. Adjusted operating margin is expected to be at least 5.0%, and operating cash flow is projected between $420-$470 million.

Key Risks and Challenges Xerox faces several risks and challenges as it continues its Reinvention journey:

• Goodwill Impairment: The company recognized a $1.06 billion pre-tax goodwill impairment charge in 2024 due to lower-than-expected financial performance and a decline in market capitalization. Future impairments are possible if financial results or market conditions deteriorate further.

• Macroeconomic Conditions: Inflationary pressures on product and labor costs, as well as geopolitical uncertainty, could impact Xerox’s financial performance and the success of its Reinvention initiatives.

• Execution of Reinvention: There is execution risk associated with Xerox’s complex transformation, including the ability to achieve targeted cost savings and productivity gains.

• Integration of Acquisitions: The successful integration of ITsavvy and Lexmark will be critical to realizing the expected benefits and diversifying Xerox’s revenue mix.

Overall, Xerox made meaningful progress on its Reinvention strategy in 2024, streamlining operations, reducing costs, and positioning the company for future growth. However, the company faces near-term headwinds from lower revenue and profitability, as well as the significant goodwill impairment charge. Continued execution of the Reinvention plan and successful integration of recent acquisitions will be key to Xerox’s long-term success.