Xerox Releases Fourth-Quarter and Full-Year Results

·11 min read

Exceeds free cash flow guidance while investing for growth; announces 2022 guidance

Financial Summary

  • $1.78 billion of revenue in Q4, down 7.9 percent year-over-year, or down 7.4 percent in constant currency; $7.04 billion of FY revenue, up 0.2 percent year-over-year, or down 1.4 percent in constant currency.

  • Q4 and FY GAAP (loss)/earnings per share (EPS) of $(3.97) and $(2.56), down $4.33 and $3.40 year-over-year, respectively. Both Q4 and FY GAAP EPS include an after-tax non-cash goodwill impairment charge of $750 million or $4.38 and $4.08 per share, respectively.

  • Q4 and FY adjusted EPS of $0.34 and $1.51, down $0.24 and up $0.10 year-over-year, respectively.

  • Q4 adjusted operating margin of 4.8 percent, down 470 basis points year-over-year; FY adjusted operating margin of 5.3 percent, down 130 basis points year-over-year.

  • $198 million of operating cash flow in Q4, down $37 million year-over-year; $629 million of FY operating cash flow, up $81 million year-over-year.

  • $182 million of free cash flow in Q4, down $39 million year-over-year; $561 million of FY free cash flow, up $87 million year-over-year.

  • Delivered $375 million of targeted 2021 gross cost savings through Project Own It, or $1.8 billion since inception.

  • Returned more than $1 billion to shareholders, close to double FY 2021 free cash flow.

NORWALK, Conn., January 25, 2022--(BUSINESS WIRE)--Xerox Holdings Corporation (NASDAQ: XRX) today announced 2021 fourth-quarter and full-year results and guidance for 2022.

"Our team’s focus and dedication drove improved results in 2021 despite ongoing challenges caused by the pandemic and global supply chain disruptions," said Xerox Vice Chairman and CEO John Visentin. "Our ability to increase free cash flow, while investing for sustainable, long-term growth and improving our operations, highlights the quality of our team and strategy. We stood up Xerox Financial Services, CareAR and Innovation (PARC), while laying the foundation for growth in print, digital solutions and IT services. We look forward to sharing more detail about our long-term plans and strategies for monetizing our investments in growth at our Investor Day in February."

Fourth-Quarter Key Financial Results:

(in millions, except per share data)

Q4 2021

Q4 2020

B/(W)
YOY

% Change
YOY

Revenue

$1,777

$1,930

$(153)

(7.9) % AC (7.4) % CC1

Gross Margin

32.9%

36.2%

(330) bps

RD&E %

4.2%

3.9%

(30) bps

SAG %

23.8%

22.8%

(100) bps

Pre-Tax (Loss) Income1

$(711)

$103

$(814)

NM

Pre-Tax (Loss) Income Margin

(40.0)%

5.3%

NM

Operating Income - Adjusted2

$86

$184

$(98)

(53.3)%

Operating Margin - Adjusted2

4.8%

9.5%

(470) bps

GAAP (Loss) Earnings per Share1

$(3.97)

$0.36

$(4.33)

NM

Earnings Per Share - Adjusted2

$0.34

$0.58

$(0.24)

(41.4)%

Full-Year Key Financial Results:

(in millions, except per share data)

FY 2021

FY 2020

B/(W)
YOY

% Change
YOY

Revenue

$7,038

$7,022

$16

0.2 % AC (1.4) % CC1

Gross Margin

34.1%

37.4%

(330) bps

RD&E %

4.4%

4.4%

-

SAG %

24.4%

26.4%

200 bps

Pre-Tax (Loss) Income1

$(475)

$252

$(727)

NM

Pre-Tax (Loss) Income Margin

(6.7)%

3.6%

NM

Operating Income - Adjusted2

$375

$464

$(89)

(19.2)%

Operating Margin - Adjusted2

5.3%

6.6%

(130) bps

GAAP (Loss) Earnings per Share1

$(2.56)

$0.84

$(3.40)

NM

Earnings Per Share - Adjusted2

$1.51

$1.41

$0.10

7.1%

________________
(1) Q4 and full year earnings and EPS include an after-tax non-cash goodwill impairment charge of $750 million ($781 million pre-tax) or $4.38 and $4.08 per share, respectively.
(2) 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.

2022 Guidance
The company expects to grow revenue in 2022. Guidance assumes supply chain and pandemic-related disruptions persist through the first half of the year. The company also expects to generate at least $400 million of free cash flow, inclusive of incremental cash investments in new businesses.

  • Revenue of at least $7.1 billion in actual currency

  • Free cash flow of at least $400 million

  • Return at least 50% of free cash flow to shareholders

Non-GAAP Measures
This release refers to the following non-GAAP financial measures:

  • Adjusted EPS, which excludes the Goodwill impairment charge as well as Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net, non-service retirement-related costs, and other discrete adjustments from GAAP-EPS, as applicable.

  • Adjusted operating margin and income, which exclude the EPS adjustments noted above as well as the remainder of Other expenses, net from pre-tax (loss) income and margin.

  • Constant currency (CC) revenue change, which excludes the effects of currency translation.

  • Free cash flow, which is operating cash flow 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: the effects of the COVID-19 pandemic on our and our customers' businesses and the duration and extent to which this will impact our future results of operations and overall financial performance; 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; the shared services arrangements entered into by us as part of Project Own It; whether CareAR’s service experience management platform will achieve expectations regarding customer adoption, integration with ServiceNow’s platform, and cost and carbon emission reduction; and the financial performance of CareAR, including projected revenue for fiscal years 2021 and 2022. 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 combined 2020 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.

These forward-looking statements speak only as of the date of this presentation 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://www.linkedin.com/company/xerox, http://twitter.com/xerox, http://www.facebook.com/XeroxCorp, https://www.instagram.com/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
December 31,

Year Ended
December 31,

(in millions, except per-share data)

2021

2020

2021

2020

Revenues

Sales

$

653

$

773

$

2,582

$

2,449

Services, maintenance and rentals

1,069

1,101

4,235

4,347

Financing

55

56

221

226

Total Revenues

1,777

1,930

7,038

7,022

Costs and Expenses

Cost of sales

476

541

1,862

1,742

Cost of services, maintenance and rentals

691

658

2,662

2,533

Cost of financing

26

32

111

121

Research, development and engineering expenses

75

75

310

311

Selling, administrative and general expenses

423

440

1,718

1,851

Goodwill impairment

781

781

Restructuring and related costs, net

(1

)

29

38

93

Amortization of intangible assets

13

22

55

56

Transaction and related costs, net

18

Other expenses, net

4

30

(24

)

45

Total Costs and Expenses

2,488

1,827

7,513

6,770

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

(711

)

103

(475

)

252

Income tax (benefit) expense

(36

)

28

(17

)

64

Equity in net income of unconsolidated affiliates

1

2

3

4

Net (Loss) Income

(674

)

77

(455

)

192

Less: Net income attributable to noncontrolling interests

1

Net (Loss) Income Attributable to Xerox Holdings

$

(675

)

$

77

$

(455

)

$

192

Basic (Loss) Earnings per Share

$

(3.97

)

$

0.37

$

(2.56

)

$

0.85

Diluted (Loss) Earnings per Share

$

(3.97

)

$

0.36

$

(2.56

)

$

0.84

___________________________
(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
December 31,

Year Ended
December 31,

(in millions)

2021

2020

2021

2020

Net (Loss) Income

$

(674

)

$

77

$

(455

)

$

192

Less: Net income attributable to noncontrolling interests

1

Net (Loss) Income Attributable to Xerox Holdings

(675

)

77

(455

)

192

Other Comprehensive (Loss) Income, Net

Translation adjustments, net

(19

)

234

(141

)

241

Unrealized (losses) gains, net

(1

)

(4

)

4

Changes in defined benefit plans, net

367

27

489

69

Other Comprehensive Income, Net Attributable to Xerox Holdings

347

261

344

314

Comprehensive (Loss) Income, Net

(327

)

338

(111

)

506

Less: Comprehensive income, net attributable to noncontrolling interests

1

Comprehensive (Loss) Income, Net Attributable to Xerox Holdings

$

(328

)

$

338

$

(111

)

$

506

XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands)

December 31, 2021

December 31, 2020

Assets

Cash and cash equivalents

$

1,840

$

2,625

Accounts receivable (net of allowance of $58 and $69, respectively)

818

883

Billed portion of finance receivables (net of allowance of $4 and $4, respectively)

94

99

Finance receivables, net

1,042

1,082

Inventories

696

843

Other current assets

211

251

Total current assets

4,701

5,783

Finance receivables due after one year (net of allowance of $114 and $129, respectively)

1,934

1,984

Equipment on operating leases, net

253

296

Land, buildings and equipment, net

358

407

Intangible assets, net

211

237

Goodwill

3,287

4,071

Deferred tax assets

519

508

Other long-term assets

1,960

1,455

Total Assets

$

13,223

$

14,741

Liabilities and Equity

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

$

650

$

394

Accounts payable

1,069

983

Accrued compensation and benefits costs

239

261

Accrued expenses and other current liabilities

871

840

Total current liabilities

2,829

2,478

Long-term debt

3,596

4,050

Pension and other benefit liabilities

1,373

...