Xerox Releases First-Quarter Results

Financial Results

  • $173 million of operating cash flow from continuing operations, down $49 million year-over-year, and $150 million of free cash flow, down $57 million year-over-year
  • Adjusted operating margin of 4.7 percent, down 630 basis points year-over-year
  • $1.86 billion of revenue, a decrease of 14.7 percent year-over-year or 13.9 percent in constant currency
  • GAAP loss from continuing operations of $(0.03) per share, down $0.37 year-over-year, and adjusted earnings per share (EPS) of $0.21, down $0.45 year-over-year
  • Withdraws 2020 financial guidance due to economic uncertainty caused by COVID-19

NORWALK, Conn.–(BUSINESS WIRE)–$XRXXerox Holdings Corporation (NYSE: XRX) announced its first-quarter 2020 financial results.

During this unprecedented time, we are committed to doing everything in our power to protect our employees, customers, partners and society, because we all have a critical role to play battling the COVID-19 pandemic,” said Xerox Vice Chairman and CEO John Visentin. “While Xerox saw an immediate impact to our business due to the rapid implementation of lockdown measures globally, the disciplined approach we implemented over the last two years provided a foundation to move quickly to preserve cash, continue operations, provide support to our many clients on the frontlines, and apply our manufacturing and R&D expertise to help save lives. I’m incredibly proud of the Xerox team’s dedication and ingenuity during this extraordinary time.”

First-Quarter Key Financial Results – Continuing Operations

(in millions, except per share data)

Q1 2020

Q1 2019

B/(W)

YOY

% Change

YOY

Revenue

$1,860

$2,180

$(320)

(14.7)% AC

(13.9)% CC1

Gross Margin

38.3%

40.2%

(190) bps

 

RD&E %

4.5%

4.2%

(30) bps

 

SAG %

29.1%

25.0%

(410) bps

 

Pre-Tax (Loss) Income

$(5)

$73

$(78)

nm

Pre-Tax (Loss) Income Margin

(0.3)%

3.3%

(360) bps

 

Operating Income – Adjusted1

$87

$239

$(152)

(63.6)%

Operating Margin – Adjusted1

4.7%

11.0%

(630) bps

 

GAAP (Loss) Earnings per Share

$(0.03)

$0.34

$(0.37)

nm

EPS – Adjusted1

$0.21

$0.66

$(0.45)

(68.2%)

(1) Refer to the “Non-GAAP Financial Measures” section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.

First-Quarter Business Highlights

  • Identified ways to address some of society’s biggest needs created by the COVID-19 crisis such as producing FDA-approved, low cost ventilators; antiseptic hand sanitizer; and medical-grade face masks.
  • Supported clients on the frontlines including federal, state, and local governments; healthcare providers; retailers; and emergency responders such as Imperial College Healthcare NHS Trust, Cleveland Clinic, the Defense Logistics Agency, Morrisons, and the Bank of New York Mellon.
  • Expanded Xerox’s portfolio with the launch of IT Services for remote workers and learners, Virtual Print Management Service and Workplace Cloud Fleet Management, three offerings designed to support and accelerate digital transformation efforts of clients.
  • Closed four acquisitions, expanding Xerox’s small and medium-sized business market presence in the U.K. and Canada.

2020 Guidance

The company is withdrawing its 2020 financial guidance for revenue, adjusted operating margin, EPS and free cash flow due to the high level of economic uncertainty and disruption caused by COVID-19.

About Xerox

Xerox Holdings Corporation makes every day work better. We are a workplace technology company building and integrating software and hardware for enterprises large and small. As customers seek to manage information across digital and physical platforms, Xerox delivers a seamless, secure and sustainable experience. Whether inventing the copier, the Ethernet, the laser printer or more, Xerox has long defined the modern work experience. Learn how that innovation continues at xerox.com.

Non-GAAP Measures

This release refers to the following non-GAAP financial measures for the first-quarter and full-year 2020 guidance:

  • Adjusted EPS, which excludes restructuring and related costs, the amortization of intangible assets, non-service retirement-related costs, transaction and related costs, net and other discrete adjustments from GAAP (loss)/earnings per share from continuing operations.
  • Adjusted operating margin and income, which exclude the EPS adjustments noted above as well as the remainder of other expenses, net from pre-tax margin and (loss)/income.
  • Constant currency (CC) revenue change, which excludes the effects of currency translation.
  • Free cash flow, which is operating cash flow from continuing operations less capital expenditures.

Refer to the “Non-GAAP Financial Measures” section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.

Forward-Looking Statements

This release and other written or oral statements made from time to time by management contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “should”, “targeting”, “projecting”, “driving” and similar expressions, as they relate to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; our ability to attract and retain key personnel; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; changes in foreign currency exchange rates; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; the risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring actions; the risk that confidential and/or individually identifiable information of ours, our customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyber attacks or other intentional acts; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; the exit of the United Kingdom from the European Union; our ability to manage changes in the printing environment and expand equipment placements; interest rates, cost of borrowing and access to credit markets; funding requirements associated with our employee pension and retiree health benefit plans; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; any impacts resulting from the restructuring of our relationship with Fujifilm Holdings Corporation; and the shared services arrangements entered into by us as part of Project Own It. Additional risks that may affect Xerox’s operations and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of Xerox Holdings Corporation’s and Xerox Corporation’s 2019 Annual Report on Form 10-K, as well as in Xerox Holdings Corporation’s and Xerox Corporation’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC.

The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remain uncertain.

The COVID-19 pandemic has negatively impacted the global economy, disrupted customer spending and global supply chains, and created significant volatility and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives within the expected time frames, will depend on future developments, including the duration and severity of the pandemic and the extent and effectiveness of containment actions, the availability of therapeutics and the development of a vaccine, which are uncertain and cannot be predicted.

Our operations are being negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, most countries, states, counties and cities have imposed and continue to impose a wide range of restrictions on our employees’, partners’ and customers’ physical movement to limit the spread of COVID-19 including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Such restrictions limit our ability, as well as that of our channel partners, to sell, install and service our equipment for our customers, negatively impacting our operations and financial performance. Further, many countries are requiring businesses to remain closed unless they or their employees are deemed essential. In turn, businesses are requiring their office employees to work from home for extended periods of time, which is negatively impacting both sales and use of Xerox products, supplies and services. The longer this persists, the greater effect it will have on our business.

These forward-looking statements speak only as of the date of this release or as of the date to which they refer, and Xerox assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.

Note: To receive RSS news feeds, visit https://www.news.xerox.com. For open commentary, industry perspectives and views, visit http://twitter.com/xerox, http://www.facebook.com/XeroxCorp, https://www.instagram.com/xerox/, http://www.linkedin.com/company/xerox, http://www.youtube.com/XeroxCorp.

Xerox® is a trademark of Xerox in the United States and/or other countries.

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)

 

 

 

Three Months Ended

March 31,

(in millions, except per-share data)

 

2020

 

2019

Revenues

 

 

 

 

Sales

 

$

565

 

 

$

724

 

Services, maintenance and rentals

 

1,236

 

 

1,393

 

Financing

 

59

 

 

63

 

Total Revenues

 

1,860

 

 

2,180

 

Costs and Expenses

 

 

 

 

Cost of sales

 

387

 

 

450

 

Cost of services, maintenance and rentals

 

731

 

 

821

 

Cost of financing

 

30

 

 

32

 

Research, development and engineering expenses

 

84

 

 

92

 

Selling, administrative and general expenses

 

541

 

 

546

 

Restructuring and related costs

 

41

 

 

112

 

Amortization of intangible assets

 

11

 

 

15

 

Transaction and related costs, net

 

17

 

 

 

Other expenses, net

 

23

 

 

39

 

Total Costs and Expenses

 

1,865

 

 

2,107

 

(Loss) Income before Income Taxes & Equity Income(1)

 

(5

)

 

73

 

Income tax benefit

 

(1

)

 

(10

)

Equity in net income of unconsolidated affiliates

 

2

 

 

2

 

(Loss) Income from Continuing Operations

 

(2

)

 

85

 

Income from discontinued operations, net of tax

 

 

 

51

 

Net (Loss) Income

 

(2

)

 

136

 

Less: Income from continuing operations attributable to noncontrolling interests

 

 

 

1

 

Less: Income from discontinued operations attributable to noncontrolling interests

 

 

 

2

 

Net (Loss) Income Attributable to Xerox Holdings

 

$

(2

)

 

$

133

 

 

 

 

 

 

Amounts Attributable to Xerox Holdings:

 

 

 

 

(Loss) Income from continuing operations

 

$

(2

)

 

$

84

 

Income from discontinued operations

 

 

 

49

 

Net (Loss) Income Attributable to Xerox Holdings

 

$

(2

)

 

$

133

 

 

 

 

 

 

Basic (Loss) Earnings per Share:

 

 

 

 

Continuing operations

 

$

(0.03

)

 

$

0.35

 

Discontinued operations

 

 

 

0.22

 

Basic (Loss) Earnings per Share

 

$

(0.03

)

 

$

0.57

 

 

 

 

 

 

Diluted (Loss) Earnings per Share:

 

 

 

 

Continuing operations

 

$

(0.03

)

 

$

0.34

 

Discontinued operations

 

 

 

0.21

 

Diluted (Loss) Earnings per Share

 

$

(0.03

)

 

$

0.55

 

___________________________

(1) Referred to as “Pre-Tax (Loss) Income” throughout the remainder of this document.

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

 

 

 

Three Months Ended

March 31,

(in millions)

 

2020

 

2019

Net (Loss) Income

 

$

(2

)

 

$

136

 

Less: Income from continuing operations attributable to noncontrolling interests

 

 

 

1

 

Less: Income from discontinued operations attributable to noncontrolling interests

 

 

 

2

 

Net (Loss) Income Attributable to Xerox Holdings

 

(2

)

 

133

 

 

 

 

 

 

Other Comprehensive (Loss) Income, Net

 

 

 

 

Translation adjustments, net

 

(197

)

 

37

 

Unrealized gains, net

 

5

 

 

2

 

Changes in defined benefit plans, net

 

54

 

 

1

 

Other Comprehensive (Loss) Income, Net Attributable to Xerox Holdings

 

(138

)

 

40

 

 

 

 

 

 

Comprehensive (Loss) Income, Net

 

(140

)

 

176

 

Less: Comprehensive income, net from continuing operations attributable to noncontrolling interests

 

 

 

1

 

Less: Comprehensive income, net from discontinued operations attributable to noncontrolling interests

 

 

 

2

 

Comprehensive (Loss) Income, Net Attributable to Xerox Holdings

 

$

(140

)

 

$

173

 

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

(in millions, except share data in thousands)

 

March 31, 2020

 

December 31, 2019

Assets

 

 

 

 

Cash and cash equivalents

 

$

2,622

 

 

$

2,740

 

Accounts receivable, net

 

1,060

 

 

1,236

 

Billed portion of finance receivables, net

 

108

 

 

111

 

Finance receivables, net

 

1,104

 

 

1,158

 

Inventories

 

824

 

 

694

 

Other current assets

 

259

 

 

201

 

Total current assets

 

5,977

 

 

6,140

 

Finance receivables due after one year, net

 

1,929

 

 

2,082

 

Equipment on operating leases, net

 

335

 

 

364

 

Land, buildings and equipment, net

 

426

 

 

426

 

Intangible assets, net

 

263

 

 

199

 

Goodwill

 

3,941

 

 

3,900

 

Deferred tax assets

 

604

 

 

598

 

Other long-term assets

 

1,309

 

 

1,338

 

Total Assets

 

$

14,784

 

 

$

15,047

 

Liabilities and Equity

 

 

 

 

Short-term debt and current portion of long-term debt

 

$

1,050

 

 

$

1,049

 

Accounts payable

 

1,122

 

 

1,053

 

Accrued compensation and benefits costs

 

271

 

 

349

 

Accrued expenses and other current liabilities

 

930

 

 

984

 

Total current liabilities

 

3,373

 

 

3,435

 

Long-term debt

 

3,238

 

 

3,233

 

Pension and other benefit liabilities

 

1,689

 

 

1,707

 

Post-retirement medical benefits

 

340

 

 

352

 

Other long-term liabilities

 

530

 

 

512

 

Total Liabilities

 

9,170

 

 

9,239

 

 

 

 

 

 

Convertible Preferred Stock

 

214

 

 

214

 

 

 

 

 

 

Common stock

 

213

 

 

215

 

Additional paid-in capital

 

2,712

 

 

2,782

 

Treasury stock, at cost

 

 

 

(76

)

Retained earnings

 

6,252

 

 

6,312

 

Accumulated other comprehensive loss

 

(3,784

)

 

(3,646

)

Xerox Holdings shareholders’ equity

 

5,393

 

 

5,587

 

Noncontrolling interests

 

7

 

 

7

 

Total Equity

 

5,400

 

 

5,594

 

Total Liabilities and Equity

 

$

14,784

 

 

$

15,047

 

 

 

 

 

 

Shares of common stock issued

 

212,831

 

 

214,621

 

Treasury stock

 

 

 

(2,031

)

Shares of Common Stock Outstanding

 

212,831

 

 

212,590

 

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

Three Months Ended

March 31,

(in millions)

 

2020

 

2019

Cash Flows from Operating Activities

 

 

 

 

Net (Loss) Income

 

$

(2

)

 

$

136

 

Income from discontinued operations, net of tax

 

 

 

(51

)

(Loss) income from continuing operations

 

(2

)

 

85

 

Adjustments required to reconcile Net (loss) income to Cash flows from operating activities

 

 

 

 

Depreciation and amortization

 

94

 

 

118

 

Provisions

 

80

 

 

22

 

Net gain on sales of businesses and assets

 

(1

)

 

(1

)

Stock-based compensation

 

11

 

 

15

 

Restructuring and asset impairment charges

 

29

 

 

54

 

Payments for restructurings

 

(35

)

 

(33

)

Defined benefit pension cost

 

24

 

 

36

 

Contributions to defined benefit pension plans

 

(33

)

 

(34

)

Decrease in accounts receivable and billed portion of finance receivables

 

166

 

 

38

 

Increase in inventories

 

(126

)

 

(48

)

Increase in equipment on operating leases

 

(32

)

 

(30

)

Decrease in finance receivables

 

93

 

 

81

 

Increase in other current and long-term assets

 

(16

)

 

(2

)

Increase (decrease) in accounts payable

 

51

 

 

(32

)

Decrease in accrued compensation

 

(108

)

 

(73

)

(Decrease) increase in other current and long-term liabilities

 

(38

)

 

47

 

Net change in income tax assets and liabilities

 

(10

)

 

(21

)

Net change in derivative assets and liabilities

 

8

 

 

8

 

Other operating, net

 

18

 

 

(8

)

Net cash provided by operating activities of continuing operations

 

173

 

 

222

 

Net cash provided by operating activities of discontinued operations

 

 

 

4

 

Net cash provided by operating activities

 

173

 

 

226

 

Cash Flows from Investing Activities

 

 

 

 

Cost of additions to land, buildings, equipment and software

 

(23

)

 

(15

)

Proceeds from sales of businesses and assets

 

2

 

 

1

 

Acquisitions, net of cash acquired

 

(193

)

 

(4

)

Net cash used in investing activities

 

(214

)

 

(18

)

Cash Flows from Financing Activities

 

 

 

 

Net proceeds (payments) on debt

 

2

 

 

(402

)

Dividends

 

(58

)

 

(62

)

Payments to acquire treasury stock, including fees

 

 

 

(103

)

Other financing, net

 

(4

)

 

(2

)

Net cash used in financing activities

 

(60

)

 

(569

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(29

)

 

(1

)

Decrease in cash, cash equivalents and restricted cash

 

(130

)

 

(362

)

Cash, cash equivalents and restricted cash at beginning of period

 

2,795

 

 

1,148

 

Cash, Cash Equivalents and Restricted Cash at End of Period(1)

 

$

2,665

 

 

$

786

 

____________________________

(1)Balance at March 31, 2019 includes $1 million associated with discontinued operations.

Impact of COVID-19 on Our Business Operations and Withdrawal of Guidance

In response to the global COVID-19 pandemic crisis, we have prioritized the health and safety of our employees, customers and partners and continue to work to support their needs. While we continue to implement actions to mitigate the effect of this crisis on our business and operations, the uncertainty around the duration and economic impact of this crisis, makes it difficult for the company to predict the full impact on our business operations and financial performance. As a result, we have determined that it is necessary to withdraw our previously issued full year 2020 financial guidance.

We have modeled the potential impacts on our business of several recovery scenarios. Our base model assumes the greatest impact to our revenues from business closures to be during the second quarter, with an inflection point late in that period, and a gradual recovery during the third quarter. For the fourth quarter, we expect to get closer to our planned levels for that period. The most significant near-term impact from the crisis is on our equipment and unbundled supplies sales which are transactional in nature. Sales are expected to decline significantly as businesses hold off or delay purchases during the closure period. However, we expect this portion of the business to rebound in the second half as businesses reopen. The impact on revenues from lower equipment and supply sales is somewhat mitigated by bundled services, which are more contractual in nature. Our bundled services contracts, on average, include a minimum fixed charge and a significant variable component linked to print volumes. The variable charges are impacted by our customers’ employees not being in the office and using our equipment due to current lock-down restrictions, however, we expect the contractual relationship with our customers will enable us to ramp up quickly for them when businesses resume operations. We expect that as closures are lifted, we will see more normalized trends emerge over the course of 2020.

We have a strong balance sheet and sufficient liquidity including the access to our undrawn $1.8 billion revolver as well as to receivables securitization and capital markets. We have also focused our efforts on incremental actions to prioritize and preserve cash as we manage through this crisis. These actions include the reduction of discretionary spend, such as compensation incentives, near term targeted marketing spend and the use of contract employees.

Revenues

 

 

 

Three Months Ended

March 31,

 

 

 

 

 

% of Total Revenue

(in millions)

 

2020

 

2019

 

%

Change

 

CC %

Change

 

2020

 

2019

Equipment sales

 

$

325

 

 

$

448

 

 

(27.5)%

 

(27.0)%

 

17%

 

21%

Post sale revenue

 

1,535

 

 

1,732

 

 

(11.4)%

 

(10.5)%

 

83%

 

79%

Total Revenue

 

$

1,860

 

 

$

2,180

 

 

(14.7)%

 

(13.9)%

 

100%

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation to Condensed Consolidated Statements of (Loss) Income:

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

565

 

 

$

724

 

 

(22.0)%

 

(21.2)%

 

 

 

 

Less: Supplies, paper and other sales

 

(240

)

 

(276

)

 

(13.0)%

 

(11.7)%

 

 

 

 

Equipment Sales

 

$

325

 

 

$

448

 

 

(27.5)%

 

(27.0)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services, maintenance and rentals

 

$

1,236

 

 

$

1,393

 

 

(11.3)%

 

(10.5)%

 

 

 

 

Add: Supplies, paper and other sales

 

240

 

 

276

 

 

(13.0)%

 

(11.7)%

 

 

 

 

Add: Financing

 

59

 

 

63

 

 

(6.3)%

 

(5.6)%

 

 

 

 

Post Sale Revenue

 

$

1,535

 

 

$

1,732

 

 

(11.4)%

 

(10.5)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

1,239

 

 

$

1,410

 

 

(12.1)%

 

(11.8)%

 

67%

 

65%

EMEA

 

575

 

 

712

 

 

(19.2)%

 

(17.6)%

 

31%

 

33%

Other

 

46

 

 

58

 

 

(20.7)%

 

(20.7)%

 

2%

 

2%

Total Revenue(1)

 

$

1,860

 

 

$

2,180

 

 

(14.7)%

 

(13.9)%

 

100%

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

Memo:

 

 

 

 

 

 

 

 

 

 

 

 

Xerox Services

 

$

776

 

 

$

853

 

 

(9.0)%

 

(8.1)%

 

42%

 

39%

____________________________

CC – Constant Currency (see “Non-GAAP Financial Measures” section).

(1) Refer to Appendix II for our Geographic Sales Channels and Products and Offerings Definitions.

First quarter 2020 total revenue decreased 14.7% as compared to first quarter 2019, including a 0.8-percentage point unfavorable impact from currency and an approximate 0.8-percentage point favorable impact from recent partner dealer acquisitions. The global COVID-19 pandemic crisis significantly impacted our first quarter 2020 revenues due to business closures during the month of March that impacted our customers’ purchasing decisions, and caused delayed installations and lower printing volumes on our devices. While the global pandemic affected our European and North American operations only in March, the impact to our financial performance is disproportionate, as a significant portion of our revenues and profits are typically earned during the last month of the quarter as a result of purchase patterns and relatively complex installations of printing solutions at our customers’ sites.

Contacts

Media Contact:
Caroline Gransee-Linsey, Xerox, +1-203-849-2359, Caroline.Gransee-Linsey@xerox.com

Investor Contact:
Ann Pettrone, Xerox, +1-203-849-2590, Ann.Pettrone@xerox.com

Read full story here

error: Content is protected !!