Xerox Holdings Corporation (XRX) Earnings Call Transcript & Summary

Good afternoon, everybody. Day 2 of Citi's TMT Conference. My name is Asiya Merchant. I cover the tech hardware tech supply chain companies here at Citi Research. We're very pleased to have management here from Xerox. I apologize if I don't mispronounce the name, but we have Steve Bandrowczak, CEO; Xavier Heiss, CFO; and John Bruno, COO. How do we do? Okay. All right. I have a bunch of prepared questions. This session is obviously for Citi clients only. So I do have a bunch of prepared questions I would like to go through. If the audience has some questions, we will give some opportunity during the session to ask questions. I just request that you do use your mics or raise your hands to use the mics. Thank you.

So I'll kick it off, and we can tag team here who wants to take this. But -- we've been sitting here asking all our companies about end demand. As we secure at calendar 3Q, how you guys are thinking about end demand right now. And if you dial it back maybe to the start of the year, what has surprised you? And how do you think about the puts and takes to end demand from here on to the end of the year?

Yes, let me start. So the underlining demand since the beginning of the year has been pretty consistent throughout the year in January and February, we made some very significant organizational changes as part of our reinvention program. And so we saw a slowdown in January and February. But as we align both sales, marketing, we aligned our teams in and around clients and focus on it .We've seen year-over-year order growth and continue to see strong demand as we build the integration between our sales team and our go-to-market energy in the field. And so order flows, order increases year-over-year has been increasing. And we have no change to our guidance for the balance of the year. Xavier comment?

Just to give maybe a revenue trajectory for this year -- so we -- so onward, you have provided guidance for the year. We are not expecting any change versus the guidance -- we expect with some launch of new products. So we expect also some equipment as a pipeline trend is quite positive. The backlog situation is much clearer than what it was last year with some comparison, negative comparison versus a backlog flush that we were doing last year. So to give you a sequential view of the revenue trajectory, we did minus 12%, it includes the [indiscernible] of last year, total revenue minus 12% in Q1, in Q2, minus 10%, so small improvement here that we are really expecting in quarter 3 to have a much improved trajectory will be to a low single-digit decline in quarter 3, but it will be in gross [indiscernible] in Q4. So if you look at this trajectory, this trajectory is improving significantly and is also putting us in a good momentum entering into 2025.

All right. And then maybe if you can -- what gives you the confidence, like whether it is anecdotally or even -- I mean, obviously, you have a pretty strong pipeline or backlog that's giving you confidence that the improvement in growth or improvement in the growth trajectory, both in 3Q and then like you said, positive growth in 4Q. If you could double-click on what's driving that confidence in growth? Are you -- is that any particular geos? Is it particular end markets? That would be helpful... customer size.

Yes. So the improvement is mainly to them. So I mentioned we have a backlog [indiscernible] comparison versus last year, so which gives this double-digit number. If you neutralize this, we were like in a slow decline when you remove this year. If you remember as well, we have communicated that we are doing the exit of some nonstrategic activity, which is part of reinvention, geography or paper, what you call offering simplification paper on the IT [indiscernible] devices. So some of it is behind us there. So it's giving us also as well the confidence that this is building up. But as I mentioned it as well, what we see from an overall pipeline point of view, from a signings point of view. On the metrics that I [indiscernible] that I -- we indicated to our investors during the day. The revenue renewal rate, which is what is the revenue we had every time we renew a contract with the client, specifically on the service area. So if a client was paying XYZ before, how much will we have to -- what will be the revenue we'll generate in the future with this client. Now for the 5 consecutive quarter, this revenue renewal rate has been above 100%. What it means here is that a lot of people have in mind that every time we renew we split and with the services we are putting, so revenue will be less. This is not the case. And this comes from the combination of having control of the trajectory of the print revenue, at the same time, IT and digital services that we are able to add on top of this deal, which help us to grow this outsourcing business here.

Okay. Right. Just maybe we've been talking to, obviously, HPQ, we've talked to Dell. They're talking about obviously, different end markets, perhaps and where you guys are on the enterprise demand side. A little bit more caution, I sense just on enterprise demand. Maybe some of it just because IT spending has been shifted to AI, for example. So within that context, can you remind me how you think about demand for print, print services and then we can also shift into IT and digital services. But what is your long-term outlook perhaps on print demand. And more in the near term, what are those drivers that gives you confidence on that secular trend?

Yes. I think if you think about print low single-digit decline over the next several years. But if you just think about print in itself, you've missed the whole picture in terms of the value that we bring inside the enterprise. And so if you think about today, people are putting information on paper, taking it off of paper. And we're adding value-added services in and around that driving productivity. So think about workflow solutions where you scan an invoice and it goes automatically into a back-end accounts payable process, you scan a resume goes automatically back into a recruiting process. You think about the environment that we're in and we drive productivity in and around things like language translation, driving productivity and administration in hospitals and in law firms. So it's not just the actual device itself. It's driving productivity inside of these devices, specifically with workflow and adding insight to the data that goes through our environment. So that's the first #1 important thing. The second thing is we continue to add more value in and around this environment. So the same economic buyer in the mid-market that's buying our print devices is also buying other IT solutions, whether it's software, security as a service, network as a service, et cetera. In the mid-market, the same economic buyer doesn't have the skills, doesn't have the resources, doesn't have the capabilities to be able to deal with these technology trends that allow them to drive productivity in and around AI, in and around RPA, in and around document flow and process improvement in and around those flows. We bring all those services in that mid-market space. So it's not just about print. It's everything we do in and around the environment, and we're a trusted adviser and a trusted partner inside those clients today.

Yes. We're not forecasting any declines or drops in our machines in field what we refer to as MIP, but you have to break the business down as Steve pointed out, the enterprise is very different than, say, the low-end entry points in the enterprise. So in our A4 business, we're building more solutions to have more channel-ready products to feed the channel. We're investing in more demand gen. We're doing things in that space because we're seeing more demand for units in that space. As people reconfigure their offices as office floors consolidate as people work in more hybrid environments, a distributed workforce, a hybrid workplace. In the A3 part of the business, that's all about reducing our configurations, maintaining our share position and adding a lot of the features and functionalities that Steve pointed to. Because personalization when you're in front of those machines on the type of documents you use, whether you scan to a document repository, or other workflow related, whether it's an invoice processing or something on paper that needs to be either redacted or something that's handwritten that needs to be translated to digital. These are services that get added on top of print in the enterprise. And so we protect our machines in our environment by adding more value there. We're adding more configurations on the low end. In the high end, where we have the large production presses, it's less about the machine itself, which is why we've made the decision after many, many years to stop manufacturing our high-end machines ourselves. And to actually embrace the consolidation in the marketplace because we know with declining print overall, you're going to have fewer players in that space. And so we're going to be OEMing a product in that. But when you look at the production environment, the machine itself has become a component of the overall workflow, but not the component, you have many preproduction press processes. The production press itself and then postproduction binding, cutting roll-to-roll, feed inkjet cut-sheet inkjet. So software and services has become more important to those clients because they're trying to drive higher levels of productivity on fewer machines, which means availability operator uptime and all those types of issues needs to be more incredibly important. So we're investing more in services-led and software strategy around our production environment and less around differentiating on the print itself, but buying from an OEM partner in that space, the actual engine and then wrapping that. So it's a different story between low, mid and high to protect our math.

Okay. And just more even on the -- I know I understand that there's this OEM option that you're doing on the higher-end print any specific seasonality within each of those low, mid- and high end that we should be aware of?

Very much so. And it's an OEM strategy for us in each one of our environments because we are procured OEM product and put controller, our controller software and capabilities, services, sales, distribution around that environment. But yes, it all depends in our government business in state and local and education, you have the seasonality of the summer months where people are preparing for back-to-school. In the enterprise as you have the end of quarter for people and other statement, press printers and so forth. They have an awful lot of work that's getting done in the December and January. So there is seasonality. Fortunately, for us, each is different. So it's not like 1 quarter is terrible. We do always have a strongest quarter in the fourth quarter across all -- but we -- and generally see more sluggishness in the third quarter just because of seasonality in the distribution of our business across the European region. But each one of those individual businesses has a different trend and seasonality.

Okay. And AI, I know a lot of people talk about AI, we've been asking all our companies here to talk about how AI impacts their end markets, their core offerings. Maybe if you could talk a little bit about how you think Xerox' offerings play in the world of AI.

Yes, I think a couple of places. First of all, if you think about the environment we play in today, AI would add data which is completely useless. And that's the world that we play in, the ability to be able to understand where data is coming from, where it's going to how to, how to redact it, how to encrypt it, how to make sure that you understand how data has changed in motion. That's what we've been doing, and that's part of the DNA inside of Xerox. So one of the things that we do for our clients today is as you think about information coming through our environment. So think about scanning something. We can automatically recognize what the attributes of that document is. It's an invoice. How do we take that invoice and then put it through a workflow process. You think about a resume that gets scanned, you thinking about all different types of documents, legal documents. We have the ability to recognize what that document is, take the data off of that document index, it put information and value around it and then feed it back to our clients going forward. So that's the first thing that we can do inside of that environment. If you think about all the different public domains that are out there today that are serving up [ LMs ], you have to have data that is normalized, that is understood and it's fed into that environment. So think about things like just scanning, capturing content, when you scan data index it [indiscernible] data offer paper that's out there and then put in a repository that allows us to serve up into an AI model. So we think we can play very strongly in workflow. We're going to play very strongly in different verticals in terms of how you take data, serve it up into a lot of these [ LMs ] and serve it up into these specific algorithms. But more importantly, we're going to help our clients be able to take that environment and orchestrate that data.

Are you guys using AI internally? It's one of the questions we've been asking all our companies -- and maybe perhaps you can talk a little bit about what are you seeing in terms of whether it's productivity savings or some...

Couple of examples. So if you go back five years ago, just like any service company, you've got an agent workforce. You've got an inability to be able to recruit young talent in an industry where you're going to go and you're going to service printers. And so what we came up with is how do we solve that problem with somebody hired that has a 30-day experience versus a 30-year experience inside of the environment. And so what we've created was now we got multiple millions of devices around the world. Each 1 of those devices when it has an error goes into a data lake. We then look at that error. We take that error and send it back to our call center up in St. John's. AI identifies what that error is, runs it against all of our ServiceNow tickets, all of our R&D tickets all the specific faults on that device and what the end client service rep sees is the top 3 ways to go fix that environment long before our client calls us, we then have the ability to send you a link, we open an augmented virtual reality session, and the client can self-serve that problem. 50% of all those calls that come in now, the client solves on their own with a 90-plus percent satisfaction rate. If that doesn't get resolved, then when the technician goes out, AI further looks into what is happening with the history of the particular environment. For example, how much utilization is on the [ board ], what is the particular way to fix that problem, and we further enhance our technician when they go out using artificial intelligence. So AI in the service industry for us has helped us tremendously with productivity in the service field, return calls, faster time to resolution. It also have a positive impact on the environment, right? When you think about a client can solve their problem before we dispatch a truck, we save and we have a positive impact on the clients. So that's a real-world example where we're using AI internally.

If I can add, if I may, an example which is more finance-related here. We are using AI for pricing. It's machine learning on AI there combined [ there ]. At the end of the day we do that in order to evaluate each of our transactions are -- this is how this industry is working is customized. So you don't go outside nor you have a list price and then you buy based on the discount. Each of the transaction is mainly a bundled transaction, where the customer buy a fee per month. And will pay XYZ per month in order to get an equipment, a service and lease element as part of this [ year.] With AI, we have been able to identify very clearly what are the key driver of the pricing and in which cases, we win and we lose versus competition. And then when a salesperson is now coming on price a new deal or an existing deal with an existing customer to give an indication to the salesperson, this is the price to win, and this is quite interesting because behind the indication, there is also margin accretion, which is coming beyond this year.

Okay. All right. Maybe we can talk a little bit about the project Reinvention. And I know in the past, you've also done Project Own It. Maybe just talk about what is -- why is project Reinvention different from project Own It. And for those in the audience who may not know maybe you can just give a little bit of introduction.

I'm going to turn it over to John to double click on the element. So project Own It. I invented back in 2018 when I joined the company. And the idea was how do we take cost out and create cash in the balance sheet, we were ultimately going to try to consolidate the industry. If you follow the history a little bit, we were trying to purchase Hewlett Packard. And the idea was we're taking costs out, we weren't reinventing the company in terms of end-to-end process. My view was that we would do that during the integration of the roll-up. So the idea was, as we were integrating HP and Xerox together, we would reinvent end-to-end processes, we reinvent our supply chain, we reinvent our go-to-market. Well, obviously, that didn't happen. COVID hit and then we had a period of both COVID supply chain issues, et cetera, et cetera. And so we took out close to $4 billion -- of created $4 billion of cash, right? We invested or did share buyback, never invested back in the company in terms of reinventing the company. Reinvention is dramatically different. It is all about literally rewiring and reconstructing our entire processes end-to-end from order to cash from procure to pay from hire to retire. So it's a full program. John, you want to take a thing of the program?

Yes. I do think it's a great analogy. And if you think back at the time when the company went for Own It, company was roughly a $9 billion-ish type business, probably had nearly 2x the labor. The company currently has today from a pure FTE headcount perspective. And so when you deal with actually the structural decline in print, you accelerate that because of COVID, you then reformat your fit-for-purpose print business. You have a lot of infrastructure and existing systems that were built for a business that was much larger and different at that time. The whole idea of reinvention is to reposition the platforms for the business for the foreseeable future, the next 3, 5, 10-plus. So we have thousands of applications. We had acquired assets. We had multiple order and inventory management systems. We had structuring businesses the way things were built over time, which the volumes changed quite a bit. Reinvention is about disassembling the business and then reassembling it in the likeness that we need with the right process, order management from every which way in which we manage from prospecting through order management through fulfillment, customer services and supply chain everything from single instances of our ERP systems and retiring legacy platforms. Consolidating on our order management systems, using the same customer relationship management system, getting the right employee back to the point of these workflows that Steve pointed out. So it is really truly a redesign of the business model, the operating model, which then turned into what we did in the first quarter was realigning the resources against it. We rewired over 6,000 physicians in the company under different spans of controls greater consolidation. We wanted to remove the complexity in our system where there were multiple touch points that made it very difficult to do business with us and to do business within our business because it was built around a business that was significantly larger. So moving forward, if we want to -- if we want to dramatically improve double our business in the indirect markets, well, we have to build products for the indirect market. We have to make it easier to procure by our indirect partners, build more channel-ready products, do more demand gen and those types of things. So it was really a disassemblement of the business. And then a reassembling and a replatform and looking for places in which we can leverage technology to get greater insight, more of the AI examples and so forth that you've described. So therefore, we can scale and grow, but not linearly through headcount growth but through the leverage of systems, technologies and tools.

And as we reassemble, one of the key drivers for me is to drive a consumer experience at every touch point, meaning frictionless, easy . So you think about order management, you think about invoicing, all the internal processes around hiring in toward a processes around supply and demand shaping. All of those have to have a consumer-like experience. So driving simple, single processes and order booking and putting AI and RPA on top of it as much as we can.

Related to that, I know you guys have -- and related to your reinvention, I think you have some operating income targets that you've shared with the investment community. I know it's over 3 years or '24,' 25, '26 of $300 million incremental operating income improvements. And so one of the questions I get is, help us understand from the structural cost savings that you've talked about and project Reinvention what gives you confidence that, that kind of flows through into the operating income line that what investors will be focused on?

Yes, let me start with that...

And there's the cadence of that...

Yes, let me start with the program instruction, and then Xavier can comment on the financials. So if you think about how we build the reinvention program, right? It's looking at our entire business and looking at areas that we can drive transformation and change kind of sizing what that looks like. So a simple example, if we're going from 1,400 applications to 400. What does that look like? What does that end state? What does that cost? And then you create a program and you could set a milestones to go deliver that. We created something called Global Business Services, GBS, John and I both ran GBS organizations. He did on Aon I did at HP. We know that's an engine for driving efficiency, driving continuous improvement. We know when you take that cost basis and you put it inside that engine, what an end state could look like. what do you do with things like billing, touchless orders and so forth. And so we create these models, which is kind of the out of a possible. We talked about we builded now a funnel roughly $700 million of areas that we've defined and identified now putting programs and projects behind that, that allow us to get to that $350 million. So it's looking at the cost bases, creating very specific programs and projects along very specific areas that allow us to go drive and have the confidence that we can do that. That's something John and I have done our entire careers. It's very similar to what we did with Own It, except now we're reassembling disassembling and reassembling our business. Xavier on the finance.

Just maybe to give some background. So where -- what was the starting point, where we were 3 years ago, where we are going to. So 3 years ago, the operating margin of the company was 4%, okay, 2022. 2023, we were at 4.4%. And then last year, we did 5.6%. So we started the reinvention. And then this year, we are guiding towards 6.5%. So journey is to go to 10%. In order to get 10%, you need net in order to have $300 million coming here. Steve mentioned it, in order to get this $300 million, you need to target growth because you have some other dynamic like some price pressure erosion, cost inflation coming within this, you need to get growth to $170 million. So proof point, we are bringing currently and we're sharing with the [indiscernible] . We did it during quarter 2 earnings, already $400 million out of the $700 million had been action. Action mean at a different level of capturing it either captured into the P&L, and it's visible. And you will see, as I mentioned it, you heard I was mentioning the revenue trajectory improvement from Q1 to Q4, the operating margin will see a very similar trajectory. We started the year with a bright operating margin around of 2.3% we did 5.6%, 5.4% in quarter 2 in order to arrive or to achieve 6.5% for this year, you can guess that quarter 3 and quarter 4 will be higher than what we have delivered so far. So we are seeing now the benefit of this $400 million of action. Some of them have already been delivered visible in the P&L. Some of them are completely booked but will happen from a timing point of view later in the year. I'll give you an example. When you go through a people action or refraction there, you could have all the transactions being agreed but from a work concept point of view, union point of view, it could take time in order to enact it there. So the message I want to pass is that a lot of this is in control is at play. It's a highly structure, it's is also managed by, I would say, an operator growth here, which knows how to drive this year. And you will see year-over-year on the proof point that I was sharing from an operating point of view, you will see and we'll share it quarter-over-quarter, how this profitability trajectory is improved.

Okay. All right. We can switch to digital and IT services maybe as key growth drivers. I know you both talked about that. And just maybe for the purpose of the audience, how do you define digital services? How is that different than IT services and the key drivers of growth for each of these subsegments of the business?

Sure. So I'd like you to think about IT services as managed to provision IT services. So in the SMB space, we have about roughly cost 200-some-odd thousand clients in the SME space, which we service each and every day with Managed Print Services. We cross their threshold, we cover their accounts. We have sales, we have service, we have capabilities. That economic buyer who is buying from us is also buying and procuring from a highly fragmented set of value-added resellers in their local markets, a set of IT services, who they buy their laptop PC from -- they manage that hosting. It has its configured with Office 365 and a suite of office applications. It has a security profiling on it to ensure that it's protected against things like ransomware and denial service attacks, et cetera, et cetera. They're procuring more and more of those things through the IT services space. We've done propensity analysis, and we've done third-party research. We already have a sizable IT service business already today. And we want to expand that business. We want to double that business in that SMB space, because when asked, what type of services are you looking for? And what do you want from vendors? The feedback was very clear. They're looking for more managed services in the IT space. It's getting more complex for them. They want to buy everything as a service as they can. It's more predictable from an OpEx perspective, and they want the capabilities of leveraging someone's network operating centers, someone's provisioning and control and all of that. And so the IT services expansion for us is to be able to offer those capabilities to our existing clients and to new prospects. But we really don't even have to have new prospects. We really just have to have that offering and being able to do that through the existing sales force through our existing channels in that space. A digital service is different. At digital services, you think about it, probably a good example, maybe I'll choose the enterprise instead of the small business. In the enterprise, you have accounts receivable, accounts payable, credit card registration, people that are -- have very paper-intensive, moving to digital-intensive capabilities. They're looking to how do I migrate into digital? How do I converge both digital services and physical print together? A good indication of that is client engagement service as a marketing manager. There's printed marketing materials. You've seen banners and print ads with PDF icons on the bottom of them. People want to understand the marketing manager wants to know, where am I getting the greatest eyeball impressions and so forth through my digital campaigns, my physical campaigns and where. A digital service could be around that client engagement capability. We've made acquisitions in that space. In the U.K., we bought a company called Go Inspire that did that type of business, and we help optimize that and deliver a more omnichannel experience of digital and physical. We also do robotic process automation, and we analyze the workflows of paper processes and how to help move things more into the digital processes and back again because some things move into digital repositories and then they move from digital repository back to physical. So that's -- these are examples of the types of digital services we provide. Some of professional services reselling other RPA products in that space. And what we really provide is the intimacy and the knowledge of the process workflows for print in the large enterprises, and we will apply digital services on top of that.

And can you remind us like what how much of the revenues right now are from each of these 2 subsegments like digital versus...

Yes. So we discussed that in our last quarter for the first time that about 10% of our revenue is derived from the combination of IT services and digital services and on the IT services is the larger of the 2.

Okay. And how fast -- have they been growing for you, let's say, over the last, I don't know, 12 months.

These are more in the higher single digits, so they're accretive to both our revenue growth and to our margin growth. And this is what we talked about as our stated objective this is through this reinvention period, we want to double that business. We want to, upon exiting the reinvention period is to have that be it contribute 20% of our revenue versus 10% of our revenue today.

Okay. All right. And then obviously, the question I get is how much investment do you need to double that business? And how does that factor into your operating margin income improvement that ...

It's factored into. So if you look at the trajectory, that's why the $700 million that was discussed here being a gross down to a net under normal operating speeds, we factored in the ability to generate and to do small tuck-in acquisitions where we're looking for capabilities that are specific to a particular vertical market. These are not big major acquisitions in this space. This is how do we enhance our digital services specifically for law firms for e-discovery and document management -- or how do we do it for the reduction of testing processes or hand -- on a handwriting recognition or language translations and those types of things. So that's factored into those types of business -- into those businesses as we drive them because we already have an invested base, especially across our IT services, but we will continue to invest in them organically and inorganically.

One point which is important as well here. The investment that we will make in this business will not drive margin dilution, okay? We are currently -- when we look at the investment, organic or inorganic there -- what we wanted to drive the margin up of these different operations and which currently the highest margin we are achieving it on the print business there. But over time, we are planning to have the margin for these businesses to be at the level of the print business even beyond -- specifically on the services side.

Little bit about your forward funding agreement. If you can remind investors what's the impact of forward cash flow -- or sorry, free cash flow. And -- how is that expected to fund your project Reinvention initiatives?

Yes. So it's I won't go to a technical discussion here because it's a frequently asked question here. But to make it very simple, the works have been used invented by the way, the subscription model in the 60s. So the fourth product we put in the market, we were not selling it, we were renting it and then you have a [indiscernible] model. We kept this in the DNA, which means that the entire print industry is currently governed by, at the end of the day, selling a monthly subscription to a client. So financing is an important part. And when you have a good balance sheet, when you have access to good, I would say, market rate or good interest rate there, and you can have this as a captive operation. okay? This is what Xerox has done for quite a long time. But when the business is growing, you will then have an impact on the free cash flow because you need to raise more debt but also you need to impact directly the cash set you need in order to fund this business. So what we found is the good compromise with a fruitful agreement, which was with a company called HPS. HPS is like a funding partner. So you can look at it if I simplify it by saying we have managed to put out at Xerox's balance sheet, the benefit of this model here. What does that mean? 3 years ago, 2 years ago, we have $2.6 billion of finance receivable, which is all the debt related to the financing business, usually a 5-year duration type of contract. Across the next 5 years, so until 2027, we will have the benefit of this finance receivable going down, and it will generate free cash flow. The number to have in mind, $2.6 billion at that time, we will be left with $1 billion, $1.6 billion across the 4 -- average 4 year program is $400 million of free cash flow. And did come exactly at the time [indiscernible] I mentioned, and it helps supporting the investment John was mentioning in organic or inorganic growth there. So a very elegant mechanism of balance sheet that has [indiscernible] here, but also generating free cash flow, helping us to fund the Reinvention.

Okay. You talked a little bit, Steve, about consolidation at some point. I mean, it's an industry that is flattish, let's say, goes through these periods where there's declines, obviously, macro-related otherwise. Generally, investors don't view as more print. People are printing less, and that's why you're adding on value-added services there. Still quite a few players in this space. So what's your view on consolidation? When does the market get there? What's preventing the market from consolidation?

The industry will consolidate. There's no question about it. There's no IT industry that we've seen has the amount of pressure that we have that has the amount of players that we have that doesn't consolidate. You're actually seeing consolidation. There's different types of consolidation. So if you think about today, OEMs selling products to competitors and they're selling it. You're seeing the Konica Minolta, Fuji Alliance recently where they're joining and trying to get economies of scale and purchasing and leveraging their manufacturing and leveraging their supply chain. You saw with Ricoh, -- saw with Toshiba as well. So there's a variety of different consolidations that has happened in the industry. They just haven't consolidated the way you and I think about it, how do we put 2 companies together. And part of it is cultural in Japan, candidly. -- consolidation in Japan doesn't have been real easy. I do believe it will happen anyway. We are going to be a part of driving that consolidation, and we will be a consolidator. I've said it for many years. It's just a matter of you got to have willing partners on both sides.

Yes. Let's see. On your -- let me -- actually, first, let me just ask the audience. Any questions from the audience? Yes, please raise your hand, so we can bring the mic. If not, I have a few more questions here. Capital allocation. I know you talked about that, you have points of -- given your growth and the free cash flow generation from the sale of receivables here, you will be generating $1.5 billion or expecting to generate $1.5 billion of free cash flow by 2027. Can you talk to us about how you think about capital allocation in light of those funds? And should we expect like significant debt pay down here?

So it's very simple there. So first priority is debt. So paying down debt. We have been able with the city supporters to push down some of the debt that we have here. So if you look at the next 3 years, how much debt we will have to pay $500 million roughly in 2025, $66 million in 2026 and $70 million in 2027. So quite a [indiscernible] there. Not a lot of debt will come then the next maturity will be in 2028. So a lot of this cash will be available here to have to pay down debt. The second point, we still have a dividend of $1. This $1 dividend represents roughly $140 million. If you look at the numbers that we are generating on free cash flow, this year, we are guiding taking into account or structuring on some one-off item above $600 million. So we have ample room still for the dividend, which is a question we have been asked as well when you plan to do with the dividend that is currently, we can afford it. And clearly, we have the trust set with the reinvention strategy. This dividend yield will be much more normalized in 2027 in the share price and the valuation of the company will improve based on the reinvention outcome there. So last item on the remaining cash share is other things that John described. This is investing in the business, acquisition. So talking acquisition in order to support the growth in IT services. On the digital services, there are some organic requirement as well, some CapEx that we are making on the offerings, potentially as well, capability, acquisition, talking acquisition to do that there. But so far, ample cash being generated, as you mentioned it, the overall forward flow is providing the tailwind of $100 million and will be in the future offset by the normalized or the core free cash flow.

Okay. If I may, Steve, you've been a CEO at the company since mid-2022, I'll correct my dates, right? What are some of the biggest challenges that you've seen in this industry? And just actually you've taken the helmet Xerox, and the strategic changes that maybe you think investors don't necessarily appreciate and that you'd like to highlight?

I think if you go back to 2018 to now and you look at the strategy, you got a question what's going on and what's changed. But you also have to understand what's happening in the industry and the changes. So when I got here in 2018, very clear we're going to consolidate the industry. We're going to try to purchase Hewlett Packard consolidate, drive the reinvention of Xerox through the integration. And we were on a way, right? Stock was north of 35, 36, 37, COVID hits, dramatically changes the environment that we are playing in, you think about the office space, the hybrid workplace. Dealing with the whole issue of COVID and what's happening. And the first year, it's okay, everything is going to go back to kind of normal. And so you're planning for a return to the office of a 90%, 95%. Well, if we had known what we know now back then, you probably would have made some different decisions, right? You then have the supply chain challenges. You then have Ukraine Russia the passing of our CEO, right? So all these things over this period of time you think about dramatically changing and then you get interest rates change. You think about VC investments 5 years ago when we were trying to do things like build to sum of the parts where we're trying to monetize value out of Palo Alto Research Center as opposed to in August of 2022, interest rates have changed. VC investments had changed, start-ups had changed. What we did with FITTLE. So the biggest challenge in for me is the changing dynamics of the environment, has caused significant shift in the strategy over the last couple of years. You asked a question about Own It versus the Reinvention, a big difference. The 2 different times in terms of revenue, in terms of what's happened in the industry. When I first got it, we're generating $1.2 billion, $1.3 billion free cash flow, right? It's a much different time. So for me, it's a changing dynamics, but what I love about this company is the resilience to be able to deal through those changing dynamics. You think about the bow punch that we took, you talk about $2 billion of top line overnight going away. If you think about the resume of what we went through, you think about all the things that we've done, I'm really extremely proud where we are in this reinvention -- now you think about no small task, but we changed significantly our investor base. right? Last September and beginning of October, we brought out one of our largest shareholders. But then we bought it. Take a look at our board today and the people that we have in on board and the proud the skills and the talent that we brought on to the Board and where we're going. So for me, the challenge was just dealing with the different economic, the different things that we would deal with them of black swans, all the different things we're dealing with. We're proud of the resilience, but more importantly, we got a company that absolutely is worth investing in and it's absolutely going to drive what we need to go do.

All right. Great. Any other parting remarks, maybe what you're most excited about, John?

No. Reinvention is a challenge. It's a difficult thing to transform a business as complex as ours in the public eye, right? You're dealing with all the issues that you have to satisfy quarterly. It's why most people don't do it in the public eye, they take companies private and do these types of things. But when you look at the underlying fundamentals, Xavier pointed to our ability through these challenges to through all of the challenges to be able to improve our operating income to reduce our leverage, to change our revenue mix shift to move and to be growing our IT services and our digital services to have the contract renewal rates at above 100%. When you look at the core underlying parts of the business. It gives you a lot to really feel good about and to feel grounded about and knowing that while it is complex, as long as we can stay steady and delever our business, generate higher levels of free cash flow through a diversified revenue mix while improving our operating income and deleveraging. These are all very good fundamental things, and that's what we look for as a management team.

All right. Thank you very much. That about wraps up for today.