Good morning, and welcome to the Xerox Holdings Corporation First Quarter twenty twenty one Earnings Release Conference Call hosted by John Visentin, Vice Chairman and Chief Executive Officer. He is joined by Xavier Heiss, Chief Financial Officer. During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com/investor. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and or rebroadcasting of this call are prohibited without the expressed permission of Xerox.
After the presentation, there will be
a question and answer session. During
this conference call, Xerox executives will make comments that contain the 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 would like to turn the meeting over to mister Visentin. Visentin, you may begin.
Good morning, and thank you for joining our Q1 twenty twenty one earnings call. I hope everyone is safe and healthy. Our first quarter results were in line with our expectations. Revenue totaled $1,710,000,000 down 8.1% year over year or 10.4% in constant currency. Free cash flow was $100,000,000 down $50,000,000
Adjusted earnings per share totaled $0.22 up $01 year over year. And adjusted operating margin was 5.2%, up 50 basis points year over year. In the first quarter, in an environment where many offices remain closed, we grew equipment sales and IT services revenue year over year. I am proud of how our employees have continued to deliver for our customers during pandemic. With small and medium sized businesses and enterprise clients planning to return more employees to the office, our differentiated offerings are well positioned to serve their growing needs.
The strength of our performance, portfolio and strategy gives us confidence we will return Xerox to growth in 2021. The team remains laser focused on our four strategic initiatives: optimize operations, drive revenue, reenergize the innovation engine, and focus on cash flow and increasing capital returns. We made progress across each of these initiatives during quarter. Continuing to optimize operations for simplicity, improve our cost structure and expand margins must be balanced against investing in growth. Project Own It helps us strike the right balance as does our focus on cash.
Project Own It is on track to deliver $375,000,000 of gross cost savings this year. Part of these savings are funding investments in growth areas and transformational initiatives such as our effort to reimagine the service experience from supply chain logistics to customer care. Our investments in artificial intelligence, augmented reality, predictive analytics, robotics, and workflow automation are reducing our costs and making it easier to work with Xerox. We have now integrated these technologies to create software solutions that can transform how service teams support customers. We deployed these software solutions within our technical service organization.
Our differentiated capabilities paired with our experience have allowed us to commercialize both the software solutions and a technical services offering, creating new revenue streams for Xerox. In fact, we recently signed our first competitive OEM customer for technical service. This OEM will outsource parts of their field service operations to Xerox. Our solution will help them gain efficiencies and provide quality service to their customers. We plan to introduce this offering to other OEMs and companies outside of our industry as well.
We have observed a positive correlation between vaccination distribution, people returning to the workplace, and page volumes from our equipment. For the quarter, volumes on the whole remained relatively flat versus q four. As vaccination distribution progressed, we saw volumes in certain geographies start to increase modestly in late March. For example, in Israel, where more than half the population is vaccinated, the highest vaccination rate in the world, work from home transition to more of a hybrid work environment, and page volumes return to near pre COVID levels. The return to the office and accelerating vaccine distribution, combined with strong demand for our equipment during the first quarter, are leading indicators that the improvement in our revenue trend will continue throughout the year.
Investments in our workplace A3 and A four and production portfolios have allowed us to grow equipment sales revenue in every category year over year and take share in our territory according to the most recent IDC data. New capabilities in workflow automation and enhanced security are driving increased interest in our workplace products and earning Xerox industry recognitions. Corsica recently recognized the strength of our hardware and security as well as our cloud, software, and delivery capabilities by naming Xerox the leader in its worldwide managed print services market report. Our IT service business grew for the third consecutive quarter. Services portfolio by launching robotic process automation as a service, leveraging our own experience deploying this technology internally across all of Xerox.
The pandemic has challenged SMBs to find sustainable cost reductions while maintaining productivity. Our offerings to automate routine tasks such as deal pricing, order processing, payroll, and resource management have already gained traction In software, the team started to integrate Carrier, an enterprise augmented reality company we acquired in late twenty twenty, both operationally and from a portfolio perspective. CarryR makes any user and expert capable of solving issues remotely through live visual interactions, self guided instructions, and contextual data for greater insight. This technology provides many benefits, from reducing costs and downtime to improving the customer experience and eliminating many on-site visits.
Carrier is at the center of our software solution, which integrates PARC's artificial intelligence technology, Alto AI, our content management system, DocuShare, and XMPie's personalization software. These solutions focus on three main digital platform as a service, content creation and management, and automated workflows and intelligence, and have several industry specific applications. Use cases include training retail associates, virtually processing claims, helping with facility related issues, and troubleshooting data center operations. Within a few months' time, we launched pilots with several global businesses in hospitality, high-tech, and IT services. We also signed up major partners, ServiceNow, Deloitte, and HCL.
These partnerships are already helping us reach new prospective clients and build a strong and growing pipeline. Regarding Xerox Financial Services, we signed our first OEM partner. Our strategy focuses on adding other OEMs customers outside of our industry while increasing penetration rates of Xerox accounts, all of which should enable us to grow the portfolio. Park Innovation has continued to make progress across our focus areas, including three d printing, industrial IoT, and Cleantech. In additive manufacturing, our solutions are designed to integrate into manufacturing operations to reduce risk in the supply Global supply chains that rely on just in time model are becoming increasingly more vulnerable.
The recently launched Xerox LMX three d liquid metal printer can help alleviate some of that vulnerability. This printer provides advantages over powder based metal three d printing, which is predominantly deployed technology today. The LMX printer is safer, more cost effective, and faster. At the end of last year, we established a product development collaboration with US Naval Postgraduate School. This collaboration will aid NPS in pushing the adoption of three d printing throughout the US Navy.
The military supply chain is among the most complex in the world, and NPS understands firsthand the challenges manufacturers must address. Their feedback is helping us refine the LMX's roadmap, which includes incorporating additional metal alloys, more complex geometries, and larger build volumes of production parts. In IoT, we are preparing to commercialize solutions that monitor health and critical infrastructure, such as bridges and roads. Aging infrastructure is a global challenge. We recently completed a pilot with Victrac, a state owned enterprise in Victoria, Australia, to monitor various infrastructure assets for structural degradation and prioritize maintenance.
Publicprivate partnerships will be critical in solving the infrastructure challenges there and throughout the world. Xerox has a long history of inventing technologies that make the world more sustainable, and we are now carrying forward our legacy with our clean technologies. The team continues to make progress on engineering an air conditioning solution that significantly reduces greenhouse gas emissions through greater energy efficiencies. Other research projects include batteries, green hydrogen, and environmental sensing and monitoring. These innovations will open the doors to new partnerships for park innovation and can potentially have major impact on the world.
Given the progress we've made, we are accelerating our plans to stand up XFS, Xerox Software and Park Innovation as separate businesses, which will provide greater focus, visibility and flexibility for each expect to complete this in 2021, and we'll provide more information on each business, including financial metrics and relevant KPIs, such as loan originations for XFS. Balancing investments in new and existing businesses while generating cash continues to remain a focus for this team. Our free cash flow in the first quarter was in line with our expectations. The first quarter is seasonally our smallest quarter and the business continued to experience headwinds from the impacts of COVID-nineteen. Though we kept investing because we are managing the company to deliver long term sustainable growth.
We closed the quarter with $2,500,000,000 of cash, cash equivalents and restricted cash on hand. In the quarter, we purchased $162,000,000 of shares, demonstrating our confidence in the company's long term trajectory. We remain committed to our shareholders' return policy, including our current dividend rate and plan to return at least 50% of annual free cash flow. Before turning it over to Xavier, let me address some of the frequently asked questions we receive. We expect the improvement in our revenue trend to continue.
More employees returning to offices, the acceleration of vaccine distribution and increased demand for our equipment during the first quarter give us confidence that we will meet our full year guidance. We are managing modest supply constraints. The investments we have made in our portfolio of offerings are starting to pay off. Organically for the third consecutive quarter. Expanding this portfolio to include robotic process automation as a service will further enhance our momentum.
We are seeing increased interest in our differentiated software solutions, which have the potential transform the service experience across many industries. We will continue to invest in our future while managing our expense profile. We are accelerating our plans to stand up XFS, Xerox software, and park innovation, positioning Xerox to return to growth and unlock value sooner. Now I'd like to hand it over to Xavier to cover our financial results in detail.
Thank you, John, and good morning, everyone. As John mentioned, we are pleased with quarter one performance. For revenue, we delivered a strong improvement compared to the trend over the last three quarters. Both equipment and post sales revenue improved in March, consistent with the progress of vaccinations on the gradual reopening of workplaces. Equipment revenue growth was stronger than higher margin post sales revenue, driving the two sixty basis point gross margin erosion year over year.
I will provide more details on revenue in the next slide. Adjusted operating margin of 5.2% in the first quarter increased 50 basis points year over year. The 50 basis point improvement in margins reflects a favorable impact from lower bad debt expense, savings from project owned it and discretionary spend action partially offset by the impact of lower post sales gross profit. SAG expense of EUR448 million decreased EUR93 million year over year reflecting a continuous focus on cost. The improvement includes the impact of an incremental €60,000,000 bad debt reserve taken in the first quarter of twenty twenty, lower selling expense, cost savings associated with project only and temporary cost reduction measure.
RD and A investment were maintained to protect innovation in future revenue streams. Investments focused on existing on new product and solution in the print business as well as adjacencies on innovation power. Quarter one RD and E as a percent of revenue was 4.3, 20 basis points lower year over year reflecting continuous optimization of the print portfolio. Other expenses net of €4,000,000 were €19,000,000 lower year over year primarily driven by a reduction in non service retirement related costs partially offset by higher net interest expense. First quarter adjusted tax rate was 27.7% compared to 29.4% last year.
The 170 basis point year over year decrease
from a
change in the geographical mix of earnings. Adjusted EPS of $0.22 compared to $0.21 in the same quarter last year reflecting a slightly lower adjusted net income impacted by €10,000,000 higher net non financing interest expense which was more than offset by a reduced share count. GAAP EPS of €0.18 was €0.21 higher year over year due to lower year over year restructuring and related costs, non service retirement related costs and transaction and related costs. Turning to revenue, trend improved across all geographies. In EMEA, the rate of revenue decline moderated more significantly than in The US in part due to the earlier onset of COVID-nineteen in EMEA last year and partly due to a higher proportion of SMB customers in the region.
SMB customer had been returning to workplace more rapidly than large enterprises who are slower to return to large office building. Equipment sales of $381,000,000 increased 17.2% year over year or 14.2% in constant currency. Sales increased across 3, mid range and high end product and in both North America and EMEA. We are encouraged by the increased activity indicating customers' confidence in returning to the workplace. Indirect channel sales in EMEA on The US remain strong in entry mono.
Channel sales of mid range product including low end color on black and white devices as well as a recently launched PrimeLink light production devices grew significantly. Researchers continue to manage inventory below pre pandemic levels, but are modestly increasing inventory based upon firming demand. In The Americas, sales in North America were in line with expectation. In The US, federal government sales remain strong and education is starting to recover as schools prepare to reopen. Post sales revenue of 1,300,000,000.0 in quarter one declined 13.4% year over year or 15.6% in constant currency.
However, sequentially, the rate of decline in post sales revenue improved by 7.9% in constant currency. Post sales revenue is largely contractual and most of our contract include a minimum fixed charge on a variable charge based upon print volume. Print volumes remained below twenty nineteen levels, e. G. Pre COVID-nineteen in the quarter primarily as a result of COVID-nineteen related business closures.
However, we saw a modest sequential increase in page volume as the quarter progressed consistent with the rollout of vaccination on more employees returning to offices. Post sales also include unbundled supplies, paper and other sales, which are largely sold through indirect channels and are more transactional. The rate of decline of unbundled supplies improved sequentially across all geographies reflecting higher equipment sales and increasing page volume in the quarter. IT services sales for the quarter which are included in other sales grew organically in XBS in The U. S.
And grew in The UK and Canada as a result of prior year acquisitions. We are pleased with the traction in IT Services and we are continuing to expand the coverage of these offerings to SMB customers. While the environment remain uncertain, we are encouraged by the quarter performance, the strength of the service contract pipeline on installed backlog which provide confidence that businesses are ready to reopen and resume investing. Turning to cash, we closely manage cash at every level of the organization. Also COVID-nineteen headwinds continue to impact quarter one result.
We generated EUR117 million of cash from operation. So continued focus on working capital management resulted in a EUR43 million source of cash in the quarter, down €48,000,000 year over year with strong year over year improvement in cash from inventory, partially offset by lower cash from accounts receivable and accounts payable. Cash from accounts receivable was impacted by a lower sequential decrease in revenue as compared to the prior year. For accounts payable, cash was impacted by the timing of payment as well as lower purchase in Q1 twenty twenty one due to inventory reduction effort on lower expenses. CapEx was EUR17 million in the quarter supporting the strategic growth program and continued investment in IT infrastructure.
We continue to expect CapEx of EUR100 million for the full year. Within financing cash flow, we repaid EUR 94,000,000 of debt from securitizations. This debt amortized monthly and we expect to refinance this with new securitizations in support of XFS, the global payment solution business. We also repurchased €162,000,000 of share in the quarter and paid €54,000,000 in dividends. We expect to repurchase share opportunistically and had €338,000,000 of repurchase authority remaining as of March 31.
Free cash flow for the quarter was 100,000,000 With a maniacal focus on cash, we remain confident in the guidance of generating at least EUR 500,000,000 of free cash flow in 2021. Regarding profitability, we are relentless in the effort to optimize operations to drive profit on cash. Since its inception in late twenty eighteen, we have taken €1,400,000,000 of gross costs out of operations through the Project Own It cost transformation program. Another €375,000,000 of gross cost savings is targeted in 2021. We generated positive cash flow on adjusted earnings in every quarter impacted by the pandemic due to a flexible cost structure and disciplined expense management.
Not only do we expect margin on cash flow to improve in 2021 as the economy recover, but through continuous focus action, we expect margin to improve beyond this year. Let's focus on XFS now. In January, we discussed plan to stand up three businesses:
Innovation.
Looking at XFS, Xerox has provided leasing option to customer for decades. XFS product enables customer to purchase the newest technology on office equipment while managing their cash flow. NCFS growth strategy include expanding leasing options beyond print to adjacencies like IT services and software. We are also expanding leasing beyond Xerox product and solution through OEM partner such as Lexmark, which we announced will be partnering with Xerox to provide financing for managed print services engagement. We know and understand leasing in this space.
Today XFS manage over 700,000 equipment leases across a diverse portfolio of customer and geographies. We employ a proprietary and disciplined credit approval process that drive low annualized loss rate while allowing for wide credit window. Lease origination increased in the quarter as compared to first quarter twenty twenty due to an increased level of XBS origination in line with the strategy. At the March, XFS has €3,400,000,000 of finance assets consisting of finance receivable on equipment on operating lease. We leverage finance asset at a seven:one debt to equity ratio to date, therefore €2,900,000,000 of total debt support XFS assets.
XFS debt includes senior unsecured bond and securitization and we plan to increase the amount of securitization which provide cost effective funding. Looking at capital structure, net core cash was €1,000,000,000 at the end of the first quarter on €4,400,000,000 of debt outstanding, the majority of which €2,900,000,000 support XFS. The remaining debt of around €1,500,000,000 supports the core business. Debt primarily consists of senior unsecured bond and securitization and there are no bond maturing in 2021. We had €2,500,000,000 of cash, cash equivalent and restricted cash at the end of the quarter, which when netted again core debt result in a net core cash position of €1,000,000,000 The decline in cash from year end primarily reflects the initiation of opportunistic share repurchase given the confidence in our strategy.
Now to wrap up, we are pleased with the gradual recovery during the first quarter given the evolution of the pandemic. The pace of global rollout of the vaccinations should result in more employees returning to the workplace in the coming weeks and months. Therefore, we expect a recovery in the business throughout the year, especially in the second half. This along with first quarter result provide us confidence in delivering full year revenue of at least CHF 7,200,000,000.0 and generating at least CHF 500,000,000 of free cash flows in 2021. Thank you.
And now back to John.
Thank you, Xavier. Now let's open the line for questions.
Thank you. Our first question comes from Ananda Baruah with Loop Capital. Congrats
on solid progress. Hey, a few if I could. You guys mentioned that that small, medium business is opening up faster than large enterprise makes sense. I I know that small, medium business expansion in general is an important part of the of the structural strategy. And so I was wondering if there's anything that you're doing there to accelerate the small and medium business expansion, given that that's the part
of the economy that you see opening up more quickly? And then
I have two follow ups. Thanks, quickly.
Yeah, Ananda, with small and medium business we're seeing progress in different areas. IT services business, so we're helping them not only open up again, but we're helping them focus on their cost reductions and managing their businesses. So IT services offerings, we've seen some good progression in SMB. We just announced six bot offerings that inside of the first quarter we already had clients that are taking it over. So it's a full solution for SMB, and that's how we've been approaching it.
John, do you have a I guess, like, sort of if you dial it back to, you know, kind of five, six quarters ago, do you believe the revenue opportunity there over time because of the solution some of the new solutions that have arisen as a result of the last twelve months or so? Do you think that levels up the revenue opportunity there?
Yeah. I think what gives us confidence is if you look back, we announced the IT services. We continue to announce offerings in SMB. We've also expanded IT services in The UK. And what gives us confidence is seeing not only our growth in these services, but also our growth in the ESR and in the hardware that we saw in the first quarter.
That's awesome. And just real quick on large enterprise or just enterprise in general, as I think from SMB. Do you have any context you can share from your conversations with enterprise customers, sort of the timing of after they open up, when they may begin, like how long before they begin to put print projects on?
What we've noticed is as clients open and think of as clients open, our clicks, as we call them, continue to increase. But I think as we're looking at the correlation between the vaccination rates, the page volumes in our geographies, we're seeing our post sales growth as well. And more and more CEOs are talking not if they're going to reopen, but when and at what speed.
Okay. That's helpful. And then one quick one for Xavier. Xavier, any reason that long term free cash flow should not return to the same percentage of net income as historically it's been?
So as John mentioned, it's the as you know it, our business is based on the two revenue streams, the equipment stream and the wholesale side. The wholesale stream is gradually recovering, and this is the stream that has the higher margin here. So when over time this mix will improve, and we see that we have seen some positive signs on paid volume coming back and also activities that we are doing for our customer, which are not directly related to print, but related to transactional volume. As these volume are increasing, we see clearly the opportunity for income growing and then free cash flow growing as well.
Okay, that's helpful guys. Thanks a lot. Appreciate it.
Thank you, Anato.
Thank you. Our next question comes from Matt Cabral with Credit Suisse. Your line is open.
Yes. Thank you. Good bounce back on the equipment side this quarter. I guess as we dig underneath there, I'm curious how much you'd characterize as some sort of backlog or pent up demand as employees are returning to the office versus more just the underlying demand picture that you're seeing? And just going forward, how we should think about the cadence of equipment revenue for the balance of the year?
So Matt, what we see is that first, our equipment revenue growth grew in every segment. So how you have seen it on the a four entry segment, it was a significant growth, but also a three on production growth during the quarter. So we see a confidence from customer bringing back in line with vaccination employees in the office on the, you know, acquiring or renewing, you know, some equipment. So which will drive at the end of the day the paid volume on the annuity stream that is one of the mainstream of our revenue here. So it's not only like a backlog.
We ended the quarter with I call that a strong backlog, but it's not only a backlog recovery, related to confidence that the business has currently in order to bring back employees in the office.
Thanks for that. And then on SFS, on the finco, I'm wondering if you could expand a little more on the opportunity you see to securitize in a cheaper way to get access to financing versus historically, you use the wider Xerox balance sheet as you've tried to get capital. And I guess as that securitization picks up going forward, I'm curious what that means in terms of incremental balance sheet capacity for more of the core business. And assuming that does free up some capacity, just what you'd look to do with it going forward?
Yes. So first one, securitization, as you mentioned, it gives us two benefits. The first benefit is it moderate or decrease the cost of funds that we have to support this business. And this is part of the strategy that we initiated by signing up XFS. So as you know, XFS is a significant part of the enablement that we bring in this business.
And I'm sure you saw it as well. We are now expanding the XFS portfolio and offering not only to Xerox product but to other third party OEM on other vendor here. So securitization help us from a phone point of view. Securitization help us also on our ability to expand this activity and to manage properly our free cash flow on this one. We will certainly be more, I would say, industrial, more structured in the way we approach the securitization quarter by quarter.
And we have started last year of having two main tranches of securitization and we'll carry on this year on securitization as well.
Thank you.
Thank you. Our next question comes from Katy Huberty with Morgan Stanley. Your line is open.
Thank you. Good morning. I'm a little surprised to see the Americas revenue so weak just given the success of the vaccine rollout here. And also given all the surveys are showing that U. S.
Tech spending is rebounding much faster than Europe. I know you made a few comments about SMB exposure in Europe. But can you talk a little bit more about why that is? Are European customers less likely to be on contracts? So that's just a more transactional business.
And then just as a second part to that, what do you think the contribution to equipment sales was in the quarter from inventory rebuild at some of those channel partners?
Okay. So Katie, I will take care of Americas First. The Americas revenue is in line with our expectation. As you mentioned, it's vaccination progress here. However, our large enterprise are starting slowly to bring people.
And on SMB, we saw growth specifically on our SMB businesses here. I'd say growth, we saw improvement in paid volume coming back here. Europe, as you know, it has been hit last year earlier as well. So when you look at the year over year compare, you had more weeks of COVID impact in Europe compared to this year. You have seen as well that both in both geography, EMEA and in Europe, after quarter four where we see we saw some activity coming back on page volume, December, we have seen some lockdown.
And then January, February, in certain geography, EMEA, Canada is an example, certain states in The U. S, certain geography were slower. The good sign of indicator that we are seeing currently is that in March, in both geographies, both territories, we saw page volume improving and transaction improving here, which give us confidence as well, added you know, to the fact that the ESL revenue was strong, give us confidence in the revenue trajectory. Commenting now on the, you know, equipment sales on the building inventory there, there is no What we saw is that there is a progressive, I'll say, rebound or step by step improvement in inventory level, but these levels are not the level that we were seeing before.
Okay. And if you think longer term about a more hybrid workforce, would you expect page volumes and post sales revenue to return to pre COVID levels? Or do you think we should contemplate post sales revenue that's maybe a little bit below where we were pre COVID once once the the end market stabilized?
We we we have a Katie, as John mentioned it. We have one data point, you know, on a country which has a high vaccination rate, which is Israel, and we are monitoring this country specifically here. In Israel, with more than sixty percent of the population being vaccinated, we observed page volume coming back to three very close or slightly lower than the pre COVID-nineteen level. What we observed as well is that even when you are in an hybrid environment, see hybrid being having different definition company by company. When we are in hybrid model, when employee return to the office, their page volume is also a page volume that will cover some of the pages they are not printing at home as well.
So, so far a little bit early to confirm all these pages here. But as I mentioned in March, we show page volume increasing. We clearly monitor on track the correlation between vaccination, office presence on page volume on these three indicator correlate very strongly.
Great. And then just lastly, the $60,000,000 of bad debt expense, is that largely coming from your small medium business customers? Is that from channel partners? And was there any concentration by region?
So 60,000,000 kt was a provision we took last year across our entire XFS portfolio. On the other commented here, XFS has a very strict rules and strict ways of looking at the credit risk of partners. Our portfolio is diversified by geography, but also by customer type. And we have like AAA, AA on the high level type of rating rated company here.
The
provision was put there in order to assess what could be the impact we are running every quarter what we call stress test on our portfolio. On the company, we are confident that this provision is at the correct level. Our lease contracts are in average, have been average of four years period. So it's too early at this stage to declare that the provision is, I would say, overvalued. Currently, what we are just assessing is that this provision is sufficient to cover the risk we could have in the portfolio.
Okay, understood. Thank you so much.
Thank you, Katie.
Thank you. Our next question comes from Shannon Cross with Cross Research. Your line is open.
Thank you very much. I have a few questions as well. John just from a big picture standpoint and some of your peers in Japan have started talking about this more. When you go out, say, three or four years, how do you envision Xerox? And what I'm trying to figure out is what kind of revenue percentages would be coming from printing versus some of your more focus areas, software, park, XSS, services?
And then how do you sort of, again, thousand foot level, see the margins shifting? Because obviously, print is a very high margin business, but it's not growing. And some of the others have more opportunities. So I'm just trying to get an idea of maybe from a high level how you see the business shifting. Then I have a couple of follow Shannon,
what excites us is our four pronged strategy. So one of them being monetizing innovation and driving revenue. And in there we've seen progress in our software business. We've seen progress in XFS. We've seen progress also in all our innovation.
And we did just say that we're going to be standing up these businesses before the end of the year. We're doing that for a few reasons. One is focus, it's flexibility, but also provide transparency to our investors. So you can expect us to have an Analyst Day in the second half of the year where we will be going through this and explaining to our investors why Xerox is a good investment for now and for the future.
Okay. So we can't get it quite yet. I guess then in terms of cash usage, you used $216,000,000 during the quarter. You said you'll return at least 50% to shareholders and targeting $500,000,000 at a minimum for cash. So clearly, there's a little more room.
But if I add in what you've done so far plus keeping the dividend, you're going to be somewhere around 75% of cash usage already or cash sorry, free cash generation already. So how are we how should we think about share repurchase as you go forward? And obviously, I'm assuming the dividend is solid. Thank you.
Hey, Shannon, Javier here. So yes, we mentioned it. We will always look at the share repurchase as an opportunistic in an opportunistic way here. As you mentioned it, we repurchased $452,000,000 of shares during the quarter. We mentioned in prior calls there that we have an authority of $500,000,000 So there is still more than $300,000,000 which is currently left here.
And we will do that opportunistically for the year.
Okay. And then my final question is
just and to some extent going back
to Katie's, as you talk to customers these days and now that we're a year plus through the pandemic and people are kind of reevaluating how their offices are going to look and what they're going to do, what kind of changes are you hearing in terms of structure? Are people looking at more distributed printing? I would assume so given the growth in the low end. But you know, and how are they thinking about what contract levels they're willing to sort of commit to given there's still uncertainty in terms of who's going to be in the office and how many people are going to go hybrid? Thank you.
Yeah. Shannon, if we look at just surveys that were done with CEOs last summer, you had like 69% on a certain CEO on a certain survey that were CEOs that they're gonna downsize their real estate footprint. This was just reconducted recently and it's down to 17%. I think the focus is going to be at what rate and pace will the employees be going back to the office. And it's a direct correlation to vaccination and to safety.
The other thing that we're starting to see a little trend on is that they go back to the office, even in a hybrid environment, the print volumes go up for cost reasons, for security reasons. It's a lot less expensive to print in an office than it is to print at home for security reasons. So we're seeing that trend. That's what gives us confidence with our guidance for this year to get back to revenue growth.
Your plan for Xerox? When are you going back to the office?
April 19.
Thank you.
And, Shannon, just just back to your question on the customer what customer are buying currently? They they buy the multifunction. As you know, it is much more than a printer. The multifunction is the core of the workflow that customer are looking at. And there is something that we learned during COVID nineteen.
It's like this concept of digital transformation or enabling, you know, workflow which is much more efficient for employees required a device which is able to support this process transformation. And multifunction are chosen currently by customer as a prime device in order to drive this.
Thank you.
Thank you. Our next question comes from Paul Coster with JPMorgan. Your line is open.
Chung on for Coster. Thanks for taking our question. So just on the OpEx side, we saw a big decline on cost execution, lower discretionary spend in 'twenty. And 1Q run rate is pretty in line as well. Just want to get a sense for what you think about OpEx in the back half as some of those costs come back?
And then secondly, where are you targeting those investments in marketing spend when it does come back? Thank you.
Okay. So OpEx, as you know, it is, you need to look at it by looking at last year versus last year, the year versus this year. We have had last year some tailwind. We declared the government subsidies where we benefit from. We also look at all cost opportunity we had while the pandemic was at the highest point, in quarter two, quarter '3.
This year, we resumed some of the benefit of the provision we had for compensation and also the, I would say, tailwind related to government subsidies are less, as you know, this year. However, what we see is from a cost point of view, we have kept the mantra, the focus that we have with Project Own It. We declare that for this year, we will run another €375,000,000 of growth savings driven by this program. And it is, again, across all the different areas of the Xerox cost base here. We have a specific focus on the innovation on when I say innovation, automation on improving our current processes, making, you know, customer relationship on customer transaction easier and simpler by bringing simplification here.
So you should look at this as being like a maniacal focus that we have on cost. I mentioned it in former calls, we have delivered positive EPS and positive free cash flow every quarter despite COVID-nineteen and this is a key driver that you have currently.
Thanks. That's very helpful.
Thank you. Our next question comes from Jim Suva with Citigroup. Your line is open.
Thank you. I have a question probably for each of you and I'll ask them immediately at this time so you can decide how to answer them in any order you want. But, John or or Xavier, can you talk about for the services that are being offered? You know, there's so many services out there in the world. Where's the success that Xerox is having on the type of services?
Because I find it very intriguing and quite encouraging. It seems like it's on the small and midsize, but is it, you know, help desk? Is it robots or bot programming? Or, you know, what are some examples so we can kind of grasp and visualize it? And then my second question is, there been an impact from the semiconductor shortages?
Globally, some sectors like automobiles or PCs have seen a very severe shortage of semiconductor chips. So I'm just kind of wondering if that has replicated or found its way into the sectors you deal with or maybe it hasn't. Thank you.
Yeah, hi Jim. Look, our IT services is focused primarily on FMD. And basically our mission is to provide end to end professional IT solutions to them. We've introduced new offerings such as RPA as a service, but at the end of the day, we're not a VAR. Our design is to manage the IT stack of an SMB, the goal being virtual CIOs for them.
And our customers are largely served by our XBS organization in The US. They're served by our channels in Europe. And these are direct sales organizations that have skills at local touch points so that we could expand on our offerings, cross sell, and into existing accounts and new customers. And we've seen a lot of good traction even with our RPA products that we've been focused on. We've seen traction on that whole area of how do we help them be more efficient as they're coming back to the office.
And we've been very pleased with our results and all of that.
Semiconductor? Okay. It Yeah. On the Jim, also two two other offerings where we see, you know, currently, everything around the type of digital transformation, but behind content on capture and customer engagement, you know, services that we have as part of our global business services offerings here.
It's currently having a lot of focus on the, you know, customer are interested in transforming, digitizing, or, you know, making their process leaner and by combining both print and the digital part of it. Another, I would say, I would like to flag is is CareCare. John, as you lead to it here, we made the acquisition of this company in December 2020. And currently, with augmented reality supporting field service management and customer service management, we see initial traction being confirmed or being developed by signings that were with customers being interested in this technology on how we transform the way field service management on customer service management is being delivered. Your question regarding semiconductor shortage here is on we see, like, you observe it here, some shortages on certain component, also on certain raw material.
Does not believe at this stage it is impacting us directly. We are monitoring it and we are looking at the potential backlog that we could have related to it. But it's not at this stage a high level or high area of concern for us.
Great. And then a quick follow-up. On the bad debt reserve, is it it sounds like it was a release in that it was a positive that you reserved a year ago higher amount for potential uncertainty of customers if they'd be able to pay given the pandemic uncertainties and it turns out that you're collecting better than previously thought. Am I correct on that? And is that kind of a annual assessment or quarterly assessment where there could be some more positive releases?
Jim, it was not a release. So it's a difference. It's a year over year compare. Last year, we booked around €60,000,000 of provisions for potential bad debt relief across our leasing portfolio. Know, as you know, this portfolio has an average maturity date of around four years.
So this is regarding the current lease on the future events that could happen to this lease this year. We did not release any provision. We kept this provision because it's very early in the cycle for us to assess if and when we should release any of these provisions at this stage. Currently, our assessment is that the provision level that we have is sufficient to cover the potential risk.
Thank you so much for the details and clarifications. It's greatly appreciated.
Thank you, Jim.
Thank you. And ladies and gentlemen, that does conclude our Q and A session for today. I would now like to turn the call over to John Visentin for closing remarks.
Thank you for your questions. This past Sunday, we celebrated our one hundred and fifteen year anniversary. We believe today our future is filled with exciting possibilities that we are working to make realities. Xerox has repeatedly redefined how the world works and we are well on our way to doing it yet again. Be safe and be well.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.