Segment Reporting

6 Months Ended

Jun. 30, 2023

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

Our reportable segments are aligned with how we manage the business and view the markets we serve. We have two reportable segments - Print and Other, and Financing (FITTLE). Our two reportable segments are determined based on the information reviewed by the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), together with the Company’s management to evaluate performance of the business and allocate resources.

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 include A4 devices and desktop printers and multifunction devices that primarily serve small and medium workgroups/work teams.

•“Mid-Range”, which include A3 devices that generally serve large workgroup/work team environments as well as products in the Light Production product groups serving centralized print centers, print for pay and low volume production print establishments.

•“High-End”, which include production printing and publishing systems that generally serve the graphic communications marketplace and print centers in 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 our FITTLE 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 FITTLE segment provides global leasing solutions and currently offers lease financing for direct channel customer purchases of Xerox equipment through bundled lease agreements, lease financing to end-user customers who purchase Xerox and non-Xerox equipment through our indirect channels and leasing solutions for OEMs of print and non-print related office equipment and IT services equipment. Segment revenues primarily include financing income on sales-type leases (including month-to-month extensions) and leasing fees. Segment revenues also include gains/losses from the sale of finance receivables including commissions, fees on the sales of underlying equipment residuals and servicing 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 as well as the allocation of expenses for shared selling and administrative services. Accordingly, the financial results for the segments may not be indicative of the results the businesses would have as on a standalone basis or what might be presented for the businesses 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 FITTLE segment also includes interest expense associated with allocated debt of the Company in support of its Finance Receivables, 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 June 30,
	2023									2022(1)
	Print and Other			FITTLE			Total			Print and Other			FITTLE			Total
External revenue	$	1,653		$	101		$	1,754		$	1,651		$	96		$	1,747
Intersegment revenue(2)	21			—			21			22			—			22
Total Segment revenue	$	1,674		$	101		$	1,775		$	1,673		$	96		$	1,769
Segment profit	$	107		$	—		$	107		$	29		$	6		$	35
Segment margin(3)	6.5		%	—		%	6.1		%	1.8		%	6.3		%	2.0		%
Depreciation and amortization	$	52		$	—		$	52		$	58		$	—		$	58
Interest income	—			49			49			—			52			52
Interest expense	—			34			34			—			26			26

	Six Months Ended June 30,
	2023									2022(1)
	Print and Other			FITTLE			Total			Print and Other			FITTLE			Total
External revenue	$	3,266		$	203		$	3,469		$	3,221		$	194		$	3,415
Intersegment revenue(2)	44			—			44			45			—			45
Total Segment revenue	$	3,310		$	203		$	3,513		$	3,266		$	194		$	3,460
Segment profit	$	207		$	18		$	225		$	18		$	14		$	32
Segment margin(3)	6.3		%	8.9		%	6.5		%	0.6		%	7.2		%	0.9		%
Depreciation and amortization	$	105		$	—		$	105		$	119		$	—		$	119
Interest income	—			101			101			—			105			105
Interest expense	—			70			70			—			50			50

_____________

(1)Amounts for 2022 have been recasted to conform to the current year's reporting presentation. See the Segment Reporting Change section below.

(2)Intersegment revenue is primarily commissions and other payments made by the FITTLE Segment to the Print and Other Segment for the lease of Xerox equipment placements.

(3)Segment margin based on External revenue only.

Selected financial information for our reportable segments was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue:
Total reported segments	$	1,775	$	1,769	$	3,513	$	3,460
Elimination of intersegment revenue	(21)		(22)		(44)		(45)
Total Revenue	$	1,754	$	1,747	$	3,469	$	3,415
Pre-tax Income (Loss)
Total reported segments	$	107	$	35	$	225	$	32
Restructuring and related costs, net	(23)		(1)		(25)		(19)
Amortization of intangible assets	(10)		(10)		(21)		(21)
PARC donation	(132)		—		(132)		—
Accelerated share vesting	—		(21)		—		(21)
Other expenses, net	(31)		(8)		(51)		(65)
Total Pre-tax loss	$	(89)	$	(5)	$	(4)	$	(94)
Depreciation and Amortization
Total reported segments	$	52	$	58	$	105	$	119
Amortization of intangible assets	10		10		21		21
Total Depreciation and amortization	$	62	$	68	$	126	$	140
Interest Expense (1)
Total reported segments	$	34	$	26	$	70	$	50
Corporate	12		23		26		52
Total Interest expense	$	46	$	49	$	96	$	102
Interest Income
Total reported segments	$	49	$	52	$	101	$	105
Corporate	4		3		9		4
Total Interest income	$	53	$	55	$	110	$	109

_____________

(1)Amounts for 2022 have been recasted to conform to the current year's reporting presentation. See the Segment Reporting Change section below.

Segment Reporting Change

During the second quarter 2023, as a result of the recent strategic shift in the Company’s approach to funding FITTLE’s growth through finance receivables funding agreements that involve the sale of lease receivables, the measures for FITTLE’s segment revenues and profits used by our CODM were recasted as follows to correspond with this change in strategy:

•The management and oversight of the equipment on operating leases portion of our financing business was transferred from the FITTLE segment to the marketing and sales groups in the Print and Other segment since the finance receivable funding agreement currently exclude the sale of operating lease arrangements.

•The allocation of shared expenses as well as commissions and other payments made by the FITTLE segment to the Print and Other segment were recasted to better reflect the operations of FITTLE in line with the change in strategic direction.

The recasting of our segment measures align with the financial information used by our CODM in evaluating our reportable segments’ performance and allocating resources. The prior period amounts have been recasted to reflect the change in segment measures of revenue and profits.

The following provides the segment revenues and profits for each of the quarters of 2022 and the full-year 2022, and the first quarter 2023 periods, recasted to conform to our new segment measurements:

	2022										2023
	Q1		Q2		Q3		Q4		Full Year		Q1
Segment Revenues:
As Reported:
Print and Other	$	1,550	$	1,633	$	1,641	$	1,843	$	6,667	$	1,613
FITTLE	158		151		150		151		610		154
Intersegment revenue(1)	(40)		(37)		(40)		(53)		(170)		(52)
Total External Revenue	$	1,668	$	1,747	$	1,751	$	1,941	$	7,107	$	1,715
Change:
Print and Other	$	43	$	40	$	35	$	19	$	137	$	23
FITTLE	(60)		(55)		(52)		(50)		(217)		(52)
Intersegment revenue(1)	17		15		17		31		80		29
Total External Revenue	$	—	$	—	$	—	$	—	$	—	$	—
As Recasted:
Print and Other	$	1,593	$	1,673	$	1,676	$	1,862	$	6,804	$	1,636
FITTLE	98		96		98		101		393		102
Intersegment revenue(1)	(23)		(22)		(23)		(22)		(90)		(23)
Total External Revenue	$	1,668	$	1,747	$	1,751	$	1,941	$	7,107	$	1,715

_____________

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

	2022										2023
	Q1		Q2		Q3		Q4		Full Year		Q1
Segment Profit/(Loss):
As Reported:
Print and Other	$	(20)	$	18	$	57	$	183	$	238	$	106
FITTLE	17		17		8		(5)		37		12
Total	$	(3)	$	35	$	65	$	178	$	275	$	118
Change:
Print and Other	$	9	$	11	$	6	$	(6)	$	20	$	(6)
FITTLE	(9)		(11)		(6)		6		(20)		6
Total	$	—	$	—	$	—	$	—	$	—	$	—
As Recasted:
Print and Other	$	(11)	$	29	$	63	$	177	$	258	$	100
FITTLE	8		6		2		1		17		18
Total	$	(3)	$	35	$	65	$	178	$	275	$	118