Segment Reporting

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

Our reportable segments are aligned with how we manage the business and view the markets we serve. During the first quarter of 2022, the Company changed to its reportable segments from one reportable segment to two reportable segments - Print and Other, and Financing (FITTLE) to align with a change in how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company’s key growth strategies. Our two reportable segments are based on the information reviewed by the CODM together with the Company’s management to evaluate performance of the business and allocate resources. As such, prior period reportable segment results and related disclosures have been conformed to reflect the Company’s current reportable segments.

During 2021 we progressed with the standing up of three new businesses: Software (CareAR), Financing (FITTLE) and Innovation (PARC). As a result of this effort, during the first quarter of 2022, we reassessed our operating and reportable segments and determined that, based on the financial information reviewed by our CODM as well as the CEO’s management and assessment of the Company’s operations, we had two operating and reportable segments - Print and Other, and Financing.

•Print and Other - the design, development and sale of document management systems, solutions and services as well as associated technology offerings including IT and software products and services.

•Financing (FITTLE) – primarily provides financing for the sales of Xerox equipment.

We also determined that the other businesses – Software and Innovation - did not meet the requirements to be considered separate operating segments largely due to their continued management through the Print and Other Segment as well as their immateriality to our results at this stage. Accordingly, those groups will continue to be reported as part of the Print and Other Segment.

Our Print and Other segment includes the sale of document systems, supplies and technical services and managed services. The segment also includes the delivery of managed services that involve a continuum of solutions and services that help our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security. This segment also includes IT services and software. Our product groupings range from:

•“Entry,” which includes A4 devices and desktop printers; to

•“Mid-range,” which includes A3 devices that generally serve workgroup environments in mid to large enterprises and includes products that fall into the following market categories: Color 41+ ppm priced at less than $100 thousand and Light Production 91+ ppm priced at less than $100 thousand; to

•“High-end,” which includes production printing and publishing systems that generally serve the graphic communications marketplace and large enterprises.

Customers range from small and mid-sized businesses to large enterprises. Customers also include graphic communication enterprises as well as channel partners including distributors and resellers. Segment revenues also include commissions and other payments from the Financing segment for the exclusive right to provide lease financing for Xerox products. These revenues are reported as part of Intersegment Revenues, which are eliminated in consolidated revenues.

The Financing (FITTLE) segment provides leasing solutions through either bundled or unbundled lease agreements of Xerox products or direct purchases of equipment. These leasing solutions support a wide range of customers, from government to graphic communications and SMB to Enterprise as well as financing for direct channel customer purchases of both Xerox and non-Xerox equipment. Segment revenues primarily includes financing income on sales-type leases, operating lease income (including month to month rentals and extensions) and leasing fees.

Segment Policy

We derive the results of our business segments directly from our internal management reporting system. The accounting policies that the Company uses to derive its segment results are substantially the same as those used by the Company in preparing its consolidated financial statements. The segment results include a significant level of management estimates regarding the allocation of revenues such as finance income in bundled lease arrangements and other leasing revenues and operating lease revenues embedded in our managed services contracts as well as the allocation of expenses for shared selling and administrative services. Accordingly, the financial results for the Financing segment may not be indicative of the results the business would have as on a standalone basis or what might be presented for the business in stand-alone financial statements. The CODM measures the performance of each segment based on several metrics, including segment revenues and profit. The CODM uses these results, in part, to evaluate the performance of, and to allocate resources to each segment. The Financing (FITTLE) segment also includes interest expense associated with allocated debt of the Company in support of its Finance assets, while no interest expense is allocated to the Print and Other segment.

Selected financial information for our reportable segments was as follows:

	Three Months Ended March 31,
	2022									2021
	Print and Other			Financing (FITTLE)			Total			Print and Other			Financing (FITTLE)			Total
External net revenue	$	1,513		$	155		$	1,668		$	1,533		$	177		$	1,710
Intersegment net revenue(1)	37			3			40			48			3			51
Total Segment net revenue	$	1,550		$	158		$	1,708		$	1,581		$	180		$	1,761
Segment (loss) profit	$	(20)		$	17		$	(3)		$	71		$	18		$	89
Segment margin(2)	(1.3)		%	11.0		%	(0.2)		%	4.6		%	10.2		%	5.2		%
Depreciation and amortization	$	29		$	32		$	61		$	29		$	42		$	71
Interest income	—			53			53			—			55			55
Interest expense(3)	—			26			26			—			30			30

_____________

(1)Intersegment net revenue is primarily commissions and other payments made by the Financing Segment to the Print and Other Segment for the lease of Xerox Equipment placements.

(2)Segment margin based on External net revenue only.

(3)Interest expense for the Financing Segment includes $2 and $2 of non-financing interest expense on allocated debt associated with Equipment on operating lease for the three months ended March 31, 2022 and 2021, respectively.

Selected financial information for our reportable segments was as follows:

	Three Months Ended March 31,
	2022		2021
Pre-tax (Loss) Income
Total reported segments	$	(3)	$	89
Restructuring and related costs, net	(18)		(17)
Amortization of intangible assets	(11)		(15)
Other expenses, net	(57)		(4)
Total Pre-tax (loss) income	$	(89)	$	53
Depreciation and Amortization
Total reported segments	$	61	$	71
Amortization of intangible assets	11		15
Total Depreciation and amortization	$	72	$	86
Interest Expense
Total reported segments	$	26	$	30
Corporate	27		22
Total Interest expense	$	53	$	52
Interest Income
Total reported segments	$	53	$	55
Corporate	1		1
Total Interest income	$	54	$	56