Improved revenue trajectory driven by resilience in demand amid
a challenging macro environment
Financial Summary
- $1.75 billion of revenue, down 0.4 percent year-over-year or up
4.7 percent in constant currency.
- GAAP (loss) earnings per share (EPS) of $(2.48), down $2.96
year-over-year. GAAP EPS includes an after-tax non-cash goodwill
impairment charge of $395 million or $2.54 per share.
- Adjusted EPS of $0.19, down $0.29 year-over-year.
- Adjusted operating margin of 3.7 percent, down 50 basis points
year-over-year.
- Operating cash flow use of $8 million, lower by $108 million
year-over-year.
- Free cash flow use of $18 million, lower by $99 million
year-over-year.
- Lowered 2022 revenue guidance to a range of $7.0B to $7.1B in
actual currency; lowered 2022 free cash flow guidance to at least
$125 million.
Xerox Holdings Corporation (NASDAQ: XRX) today announced its
2022 third-quarter results.
“Over the past few months, I’ve met in-person with customers,
partners and employees across the globe and I’ve gained greater
insight into the range of opportunities we have to grow our
business,” said Steve Bandrowczak, chief executive officer at
Xerox. “Top-line strength and cost discipline resulted in
sequential improvement to our adjusted operating margin this
quarter, but profitability remains challenged by persistently high
inflation and continued supply chain constraints. In the near-term,
we are focused on improving operating margins and free cash flow
amid a challenging macroeconomic environment. Longer-term, I am
confident we can expand and capture more of the addressable market
within – and create value for – our existing client base by further
embedding our offerings into their workflows.”
Third-Quarter Key Financial
Results
(in millions,
except per share data)
Q3 2022
Q3 2021
B/(W)
YOY
% Change
B/(W) YOY
Revenue
$1,751
$1,758
$(7)
(0.4) % AC
4.7% CC2
Gross Margin
31.8%
32.4%
(60) bps
RD&E %
4.2%
4.7%
50 bps
SAG %
23.9%
23.5%
(40) bps
Pre-Tax (Loss) Income1
$(380)
$84
$(464)
NM
Pre-Tax (Loss) Income Margin1
(21.7)%
4.8%
NM
Operating Income - Adjusted2
$65
$74
$(9)
(12.2)%
Operating Income Margin - Adjusted 2
3.7%
4.2%
(50) bps
GAAP Diluted (Loss) Earnings per
Share1
$(2.48)
$0.48
$(2.96)
NM
Diluted Earnings Per Share - Adjusted2
$0.19
$0.48
$(0.29)
(60.4)%
___________
(1) Third quarter 2022 pre-tax
loss and EPS include a $412 million non-cash goodwill impairment
charge ($395 million after-tax), or $2.54 per share.
(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.
Beginning in the first quarter of 2022, the Company made a
change to its reportable segments from one reportable segment to
two reportable segments - Print and Other, and Financing
(FITTLE).
Third-Quarter Segment
Results
(in
millions)
Q3 2022
Q3 2021
B/(W)
YOY
% Change
B/(W) YOY
Revenue
Print and Other
$1,641
$1,636
$5
0.3%
Financing (FITTLE)
150
171
(21)
(12.3)%
Intersegment Elimination1
(40)
(49)
9
(18.4)%
Total Revenue
$1,751
$1,758
$(7)
(0.4)%
Profit
Print and Other
$57
$50
$7
14.0%
Financing (FITTLE)
8
24
(16)
(66.7)%
Total Profit
$65
$74
$(9)
(12.2)%
___________
(1) Reflects net revenue,
primarily commissions and other payments, made by the Financing
segment (FITTLE) to the Print and Other Segment for the lease of
Xerox equipment placements.
2022 Guidance
- Revenue from at least $7.1 billion to a range of $7.0 billion
to $7.1 billion in actual currency.
- Free cash flow from at least $400 million to at least $125
million.
- Return at least 50% of free cash flow to shareholders.
We adjusted our revenue guidance primarily to reflect
higher-than-expected currency effects associated with a weaker Euro
and British Pound. We lowered our free cash flow guidance due to
slower-than-expected supply chain improvements and persistently
high rates of inflation, which negatively affected operating
profit, as well as a greater-than-expected use of working capital
to fund growth of originations and operating leases at FITTLE and
inventories. Our free cash flow guidance excludes a one-time
payment associated with a product supply contract termination
charge.
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, non-service retirement-related costs, and other
discrete adjustments from GAAP EPS, as applicable.
- Adjusted operating (loss) income and margin, 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
pandemics, such as 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 successfully
develop new products, technologies and service offerings and to
protect our intellectual property rights; reliance on third
parties, including subcontractors, for manufacturing of products
and provision of services and the shared service arrangements
entered into by us as part of Project Own It; our ability to
attract and retain key personnel; the severity and persistence of
global supply chain disruptions and inflation; 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 cyberattacks or other intentional acts or that
cyberattacks could result in a shutdown of our systems; 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 and
transformation actions; our ability to manage changes in the
printing environment like the decline in the volume of printed
pages and extension of equipment placements; 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 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;
interest rates, cost of borrowing and access to credit markets; the
imposition of new or incremental trade protection measures such as
tariffs and import or export restrictions; funding requirements
associated with our employee pension and retiree health benefit
plans; changes in foreign currency exchange rates; 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;
and any impacts resulting from the restructuring of our
relationship with Fujifilm Holdings Corporation. Additional risks
that may affect Xerox’s operations and other factors 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 2021 Annual Report
on Form 10-K and combined Quarterly Reports on Form 10-Q, as well
as in Xerox Holdings Corporation’s and Xerox Corporation’s Current
Reports on Form 8-K filed with the Securities and Exchange
Commission.
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://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
September 30,
Nine Months Ended
September 30,
(in millions, except per-share data)
2022
2021
2022
2021
Revenues
Sales
$
690
$
657
$
1,949
$
1,929
Services, maintenance and rentals
1,010
1,046
3,061
3,166
Financing
51
55
156
166
Total Revenues
1,751
1,758
5,166
5,261
Costs and Expenses
Cost of sales
508
498
1,430
1,386
Cost of services, maintenance and
rentals
659
662
2,015
1,971
Cost of financing
28
29
78
85
Research, development and engineering
expenses
73
82
235
235
Selling, administrative and general
expenses
418
413
1,332
1,295
Goodwill impairment
412
—
412
—
Restructuring and related costs, net
22
10
41
39
Amortization of intangible assets
10
13
31
42
Other expenses, net
1
(33
)
66
(28
)
Total Costs and Expenses
2,131
1,674
5,640
5,025
(Loss) Income before Income Taxes &
Equity Income(1)
(380
)
84
(474
)
236
Income tax expense (benefit)
3
(4
)
(27
)
19
Equity in net income of unconsolidated
affiliates
1
1
3
2
Net (Loss) Income
(382
)
89
(444
)
219
Less: Net income (loss) attributable to
noncontrolling interests
1
(1
)
(1
)
(1
)
Net (Loss) Income Attributable to Xerox
Holdings
$
(383
)
$
90
$
(443
)
$
220
Basic (Loss) Earnings per Share
$
(2.48
)
$
0.48
$
(2.91
)
$
1.12
Diluted (Loss) Earnings per
Share
$
(2.48
)
$
0.48
$
(2.91
)
$
1.10
___________________________
(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
September 30,
Nine Months Ended
September 30,
(in millions)
2022
2021
2022
2021
Net (Loss) Income
$
(382
)
$
89
$
(444
)
$
219
Less: Net income (loss) attributable to
noncontrolling interests
1
(1
)
(1
)
(1
)
Net (Loss) Income Attributable to Xerox
Holdings
(383
)
90
(443
)
220
Other Comprehensive (Loss) Income,
Net
Translation adjustments, net
(277
)
(125
)
(636
)
(122
)
Unrealized gains (losses), net
6
4
(19
)
(3
)
Changes in defined benefit plans, net
54
51
96
122
Other Comprehensive Loss, Net
Attributable to Xerox Holdings
(217
)
(70
)
(559
)
(3
)
Comprehensive (Loss) Income,
Net
(599
)
19
(1,003
)
216
Less: Comprehensive income (loss), net
attributable to noncontrolling interests
1
(1
)
(1
)
(1
)
Comprehensive (Loss) Income, Net
Attributable to Xerox Holdings
$
(600
)
$
20
$
(1,002
)
$
217
XEROX HOLDINGS
CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED)
(in millions, except share data in
thousands)
September 30, 2022
December 31, 2021
Assets
Cash and cash equivalents
$
932
$
1,840
Accounts receivable (net of allowance of
$51 and $58, respectively)
835
818
Billed portion of finance receivables (net
of allowance of $4 and $4, respectively)
91
94
Finance receivables, net
995
1,042
Inventories
777
696
Other current assets
265
211
Total current assets
3,895
4,701
Finance receivables due after one year
(net of allowance of $113 and $114, respectively)
1,814
1,934
Equipment on operating leases, net
216
253
Land, buildings and equipment, net
315
358
Intangible assets, net
216
211
Goodwill
2,753
3,287
Deferred tax assets
496
519
Other long-term assets
1,715
1,960
Total Assets
$
11,420
$
13,223
Liabilities and Equity
Short-term debt and current portion of
long-term debt
$
1,070
$
650
Accounts payable
1,213
1,069
Accrued compensation and benefits
costs
250
239
Accrued expenses and other current
liabilities
810
871
Total current liabilities
3,343
2,829
Long-term debt
2,676
3,596
Pension and other benefit liabilities
1,298
1,373
Post-retirement medical benefits
209
277
Other long-term liabilities
416
481
Total Liabilities
7,942
8,556
Noncontrolling Interests
10
10
Convertible Preferred Stock
214
214
Common stock
156
168
Additional paid-in capital
1,577
1,802
Treasury stock, at cost
—
(177
)
Retained earnings
5,057
5,631
Accumulated other comprehensive loss
(3,547
)
(2,988
)
Xerox Holdings shareholders’ equity
3,243
4,436
Noncontrolling interests
11
7
Total Equity
3,254
4,443
Total Liabilities and Equity
$
11,420
$
13,223
Shares of common stock issued
155,570
168,069
Treasury stock
—
(8,675
)
Shares of Common Stock
Outstanding
155,570
159,394
XEROX HOLDINGS
CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)
2022
2021
2022
2021
Cash Flows from Operating
Activities
Net (Loss) Income
$
(382
)
$
89
$
(444
)
$
219
Adjustments required to reconcile Net
(loss) income to Cash flows (used in) provided by operating
activities
Depreciation and amortization
65
79
205
249
Provisions
13
4
48
38
Net gain on sales of businesses and
assets
(16
)
(39
)
(17
)
(40
)
Stock-based compensation
13
14
63
44
Goodwill impairment
412
—
412
—
Restructuring and asset impairment
charges
22
3
44
28
Payments for restructurings
(17
)
(12
)
(38
)
(61
)
Non-service retirement-related costs
(7
)
(22
)
(18
)
(64
)
Contributions to retirement plans
(34
)
(39
)
(106
)
(119
)
Decrease (increase) in accounts receivable
and billed portion of finance receivables
1
(67
)
(48
)
(30
)
(Increase) decrease in inventories
(41
)
6
(136
)
10
Increase in equipment on operating
leases
(27
)
(29
)
(74
)
(92
)
(Increase) decrease in finance
receivables
(27
)
21
(10
)
33
Decrease (increase) in other current and
long-term assets
1
(2
)
36
64
Increase in accounts payable
26
107
198
74
Increase in accrued compensation
22
4
29
20
(Decrease) increase in other current and
long-term liabilities
(25
)
(12
)
(73
)
80
Net change in income tax assets and
liabilities
(5
)
(13
)
(81
)
(11
)
Net change in derivative assets and
liabilities
(4
)
1
(10
)
(1
)
Other operating, net
2
7
(7
)
(10
)
Net cash (used in) provided by operating
activities
(8
)
100
(27
)
431
Cash Flows from Investing
Activities
Cost of additions to land, buildings,
equipment and software
(10
)
(19
)
(39
)
(52
)
Proceeds from sales of businesses and
assets
23
38
49
39
Acquisitions, net of cash acquired
(41
)
(1
)
(93
)
(38
)
Other investing, net
(5
)
—
(12
)
(3
)
Net cash (used in) provided by investing
activities
(33
)
18
(95
)
(54
)
Cash Flows from Financing
Activities
Net (payments) proceeds on debt
(126
)
76
(505
)
(133
)
Dividends
(43
)
(49
)
(131
)
(157
)
Payments to acquire treasury stock,
including fees
—
(87
)
(113
)
(500
)
Other financing, net
1
14
(6
)
(3
)
Net cash used in financing activities
(168
)
(46
)
(755
)
(793
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(17
)
(13
)
(31
)
(13
)
(Decrease) increase in cash, cash
equivalents and restricted cash
(226
)
59
(908
)
(429
)
Cash, cash equivalents and restricted cash
at beginning of period
1,227
2,203
1,909
2,691
Cash, Cash Equivalents and Restricted
Cash at End of Period
$
1,001
$
2,262
$
1,001
$
2,262
Third Quarter 2022 Overview
Revenue growth this quarter accelerated in constant currency,
reflecting the benefit from recent acquisitions as well as
resilient demand for our products and services amid an increasingly
challenging macroeconomic environment. Equipment revenue increased
0.8% in actual currency and included a 5.9-percentage point adverse
impact from currency. The 6.7% increase in constant currency
reflects the first quarter of equipment revenue growth since the
supply chain constraints began last year. As expected, backlog1
slightly declined sequentially, reflecting sustained order flow,
offset by a gradual easing of supply constraints. While we were
encouraged by supply chain improvements, the pace of improvement
was slower than expected. The increase in Post sale revenue was
driven by another strong quarter for paper and supplies. Growth in
these consumables reflects the early benefits of recent pricing
actions, and for supplies, an ongoing, gradual recovery of
print-related activity. Post sale revenue also benefited from
strong growth in IT and Digital Services, including contributions
from recent acquisitions. Adjusted2 operating profit margin
declined 0.5-percentage points year-over-year but improved
sequentially, reflecting the benefits of price and cost actions
taken year-to-date. Improvement was slower than expected due to
persistently high rates of inflation across our cost base, an
unfavorable geographic mix in equipment sales, and a
slower-than-expected easing of supply chain constraints.
The global macroeconomic outlook has become more volatile in the
past three months but we are not yet seeing a meaningful effect of
a global slowdown on our revenues. We continue to see resiliency in
demand for our office products, particularly our A3 devices.
However, consistent with the uncertain macro environment, we are
beginning to see longer project deployment times, and in some
cases, lower page volume commitments.
Due to the recent weakening of the Euro and British Pound, and
an uncertain outlook for global foreign exchange rates, we are
adjusting our full-year revenue guidance from at least $7.1 billion
to a range of $7.0 billion to $7.1 billion in actual currency.
Additionally, we are lowering our free cash flow guidance from at
least $400 million to at least $125 million, both of which exclude
a $41 million one-time payment associated with the termination of a
product supply agreement. We lowered our free cash flow guidance
due to slower-than-expected supply chain improvements and
persistently high rates of inflation, which negatively affected
operating profit, as well as a greater-than-expected use of working
capital to fund originations growth at FITTLE and inventories.
Goodwill Impairment
Third quarter 2022 includes an after-tax non-cash goodwill
impairment charge of $395 million ($412 million pre-tax) or $2.54
per share. As a result of recent macroeconomic volatility and
continued supply chain constraints, our current results and
internal forecasts indicate that the Company could have a slower
than expected recovery from the impacts of the COVID pandemic and
supply chain issues experienced over the past few years. Although
operating results and related cash flows are expected to improve in
the fourth quarter 2022, and in 2023, we see greater risk to our
previous outlooks and estimates, at least in the near term. This
impact combined with higher market interest rates and the resulting
effect on valuation discount rates, continues to negatively impact
the Company’s valuation resulting in the goodwill impairment charge
for the third quarter 2022.
Reportable Segment Change
During the first quarter of 2022, the Company made a change to
its reportable segments from one reportable segment to two
reportable segments - Print and Other, and Financing (FITTLE) to
align with a change in how the Chief Operating Decision Maker
(CODM), our Chief Executive Officer (CEO), allocates resources and
assesses performance against the Company’s key growth strategies.
As such, prior period reportable segment results and related
disclosures have been conformed to reflect the Company’s current
reportable segments.
__________________
(1)
Order backlog is measured as the
value of unfulfilled sales orders, shipped and non-shipped,
received from our customers waiting to be installed, including
orders with future installation dates. It includes printing devices
as well as IT hardware associated with our IT services offerings.
Third quarter 2022 backlog of $429 million excludes sales orders
from Russia and Powerland Computers, Ltd., which was acquired in
the first quarter of 2022. Prior quarter backlog was revised to
conform to current reporting methodology.
(2)
Refer to the Non-GAAP Financial
Measures section for an explanation of the non-GAAP financial
measure.
Financial Review
Revenues
Three Months Ended
September 30,
% of Total Revenue
(in millions)
2022
2021
%
Change
CC %
Change
2022
2021
Equipment sales
$
390
$
387
0.8%
6.7%
22%
22%
Post sale revenue
1,361
1,371
(0.7)%
4.1%
78%
78%
Total Revenue
$
1,751
$
1,758
(0.4)%
4.7%
100%
100%
Reconciliation to Condensed
Consolidated Statements of (Loss) Income:
Sales
$
690
$
657
5.0%
10.4%
Less: Supplies, paper and other sales
(300
)
(270
)
11.1%
15.9%
Equipment Sales
$
390
$
387
0.8%
6.7%
Services, maintenance and rentals
$
1,010
$
1,046
(3.4)%
1.4%
Add: Supplies, paper and other sales
300
270
11.1%
15.9%
Add: Financing
51
55
(7.3)%
(2.9)%
Post Sale Revenue
$
1,361
$
1,371
(0.7)%
4.1%
Segments
Print and Other
$
1,641
$
1,636
0.3%
94%
93%
Financing (FITTLE)
150
171
(12.3)%
8%
10%
Intersegment elimination (1)
(40
)
(49
)
(18.4)%
(2)%
(3)%
Total Revenue(2)
$
1,751
$
1,758
(0.4)%
100%
100%
Go-to-Market
Operations
Americas
$
1,140
$
1,127
1.2%
1.7%
65%
64%
EMEA
567
594
(4.5)%
9.3%
32%
34%
Other
44
37
18.9%
18.9%
3%
2%
Total Revenue(2)
$
1,751
$
1,758
(0.4)%
4.7%
100%
100%
____________________________
CC - See "Constant Currency" in
the Non-GAAP Financial Measures section for a description of
constant currency.
(1)
Reflects net revenue, primarily
commissions and other payments, made by the Financing segment
(FITTLE) to the Print and Other segment for the lease of Xerox
equipment placements.
(2)
Refer to Appendix II, Reportable
Segments and Geographic Sales Channels, for definitions.
Costs, Expenses and Other
Income
Summary of Key Financial
Ratios
The following is a summary of key
financial ratios used to assess our performance:
Three Months Ended
September 30,
(in millions)
2022
2021
B/(W)
Gross Profit
$
556
$
569
$
(13
)
RD&E
73
82
9
SAG
418
413
(5
)
Equipment Gross Margin
21.0
%
18.3
%
2.7
pts.
Post sale Gross Margin
34.9
%
36.4
%
(1.5
)
pts.
Total Gross Margin
31.8
%
32.4
%
(0.6
)
pts.
RD&E as a % of Revenue
4.2
%
4.7
%
0.5
pts.
SAG as a % of Revenue
23.9
%
23.5
%
(0.4
)
pts.
Pre-tax (Loss) Income
$
(380
)
$
84
$
(464
)
Pre-tax (Loss) Income Margin
(21.7
)%
4.8
%
(26.5
)
pts.
Adjusted(1) Operating Profit
$
65
$
74
$
(9
)
Adjusted(1) Operating Income Margin
3.7
%
4.2
%
(0.5
)
pts.
____________________________
(1)
Refer to the Non-GAAP Financial
Measures section for an explanation of the non-GAAP financial
measure.
Other Expenses, Net
Three Months Ended
September 30,
(in millions)
2022
2021
Non-financing interest expense
$
21
$
23
Interest income
(4
)
(1
)
Non-service retirement-related costs
(7
)
(22
)
Gains on sales of businesses and
assets
(16
)
(39
)
Currency losses, net
1
3
Litigation matters
4
—
All other expenses, net
2
3
Other expenses, net
$
1
$
(33
)
Segment Review
Three Months Ended September
30,
(in millions)
External Net
Revenue
Intersegment
Net
Revenue(1)
Total
Segment
Revenue
% of Total
Revenue
Segment
Profit
Segment
Margin(2)
2022
Print and Other
$
1,604
$
37
$
1,641
92
%
$
57
3.6
%
Financing (FITTLE)
147
3
150
8
%
8
5.4
%
Total
$
1,751
$
40
$
1,791
100
%
$
65
3.7
%
2021
Print and Other
$
1,590
$
46
$
1,636
91
%
$
50
3.1
%
Financing (FITTLE)
168
3
171
9
%
24
14.3
%
Total
$
1,758
$
49
$
1,807
100
%
$
74
4.2
%
_____________
(1)
Reflects net revenue, primarily
commissions and other payments, made by the Financing segment
(FITTLE) to the Print and Other segment for the lease of Xerox
equipment placements.
(2)
Segment margin based on external
net revenue only.
Print and Other
Print and Other includes the design, development and sale of
document management systems, solutions and services as well as
associated technology offerings including IT and software products
and services.
Revenue
Three Months Ended
September 30,
(in millions)
2022
2021
%
Change
Equipment sales
$
384
$
381
0.8%
Post sale revenue
1,220
1,209
0.9%
Intersegment net revenue (1)
37
46
(19.6)%
Total Print and Other Revenue
$
1,641
$
1,636
0.3%
___________________________
(1)
Reflects net revenue, primarily
commissions and other payments, made by the Financing segment
(FITTLE) to the Print and Other segment for the lease of Xerox
equipment placements.
Detail by product group is shown below.
Three Months Ended
September 30,
% of Equipment Sales
(in millions)
2022
2021
%
Change
CC %
Change
2022
2021
Entry
$
74
$
69
7.2%
13.1%
19%
18%
Mid-range
246
244
0.8%
6.7%
63%
63%
High-end
65
68
(4.4)%
1.0%
17%
18%
Other
5
6
(16.7)%
(16.7)%
1%
1%
Equipment Sales (1),(2)
$
390
$
387
0.8%
6.7%
100%
100%
_____________
CC - See "Constant Currency" in
the Non-GAAP Financial Measures section for a description of
constant currency.
(1)
Refer to Appendix II, Reportable
Segments and Geographic Sales Channels, for definitions.
(2)
Includes $6 million of equipment
sales related to the Financing (FITTLE) segment for the three
months ended September 30, 2022 and 2021, respectively.
Financing (FITTLE)
Financing (FITTLE) represents a global financing solutions
business, primarily enabling the sale of our equipment and
services.
Revenue
Three Months Ended
September 30,
(in millions)
2022
2021
%
Change
Equipment sales
$
6
$
6
—%
Financing
51
55
(7.3)%
Other Post sale revenue (1)
90
107
(15.9)%
Intersegment net revenue(2)
3
3
—%
Total Financing (FITTLE)
Revenue
$
150
$
171
(12.3)%
___________________________
(1)
Other Post sale revenue includes
operating lease/rental revenues as well as lease renewal and fee
income.
(2)
Reflects net revenue, primarily
commissions and other payments, made by the Financing segment
(FITTLE) to the Print and Other segment for the lease of Xerox
equipment placements.
2021 Segment Review
The following are our 2021 results that correspond, for
comparison purposes, to the new segment reporting in 2022.
(in millions)
External Net
Revenue
Intersegment
Net
Revenue(1)
Total
Segment
Revenue
% of Total
Revenue
Segment
Profit
Segment
Margin(2)
Q1 2021
Print and Other
$
1,533
$
48
$
1,581
90
%
$
71
4.6
%
Financing (FITTLE)
177
3
180
10
%
18
10.2
%
Total
$
1,710
$
51
$
1,761
100
%
$
89
5.2
%
Q2 2021
Print and Other
$
1,619
$
53
$
1,672
90
%
$
111
6.9
%
Financing (FITTLE)
174
3
177
10
%
15
8.6
%
Total
$
1,793
$
56
$
1,849
100
%
$
126
7.0
%
Q3 2021
Print and Other
$
1,590
$
46
$
1,636
91
%
$
50
3.1
%
Financing (FITTLE)
168
3
171
9
%
24
14.3
%
Total
$
1,758
$
49
$
1,807
100
%
$
74
4.2
%
Q4 2021
Print and Other
$
1,613
$
46
$
1,659
91
%
$
61
3.8
%
Financing (FITTLE)
164
3
167
9
%
25
15.2
%
Total
$
1,777
$
49
$
1,826
100
%
$
86
4.8
%
2021
Print and Other
$
6,355
$
193
$
6,548
90
%
$
293
4.6
%
Financing (FITTLE)
683
12
695
10
%
82
12.0
%
Total
$
7,038
$
205
$
7,243
100
%
$
375
5.3
%
_____________
(1)
Reflects net revenue, primarily
commissions and other payments, made by the Financing segment
(FITTLE) to the Print and Other segment for the lease of Xerox
equipment placements.
(2)
Segment margin based on external
net revenue only.
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
pandemics, such as 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 successfully
develop new products, technologies and service offerings and to
protect our intellectual property rights; reliance on third
parties, including subcontractors, for manufacturing of products
and provision of services and the shared service arrangements
entered into by us as part of Project Own It; our ability to
attract and retain key personnel; the severity and persistence of
global supply chain disruptions and inflation; 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 cyberattacks or other intentional acts or that
cyberattacks could result in a shutdown of our systems; 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 and
transformation actions; our ability to manage changes in the
printing environment like the decline in the volume of printed
pages and extension of equipment placements; 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 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;
interest rates, cost of borrowing and access to credit markets; the
imposition of new or incremental trade protection measures such as
tariffs and import or export restrictions; funding requirements
associated with our employee pension and retiree health benefit
plans; changes in foreign currency exchange rates; 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;
and any impacts resulting from the restructuring of our
relationship with Fujifilm Holdings Corporation. Additional risks
that may affect Xerox’s operations and other factors 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 2021 Annual Report
on Form 10-K and combined Quarterly Reports on Form 10-Q, as well
as in Xerox Holdings Corporation’s and Xerox Corporation’s Current
Reports on Form 8-K filed with the Securities and Exchange
Commission.
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.
Non-GAAP Financial Measures
We have reported our financial results in accordance with
generally accepted accounting principles (GAAP). In addition, we
have discussed our financial results using the non-GAAP measures
described below. We believe these non-GAAP measures allow investors
to better understand the trends in our business and to better
understand and compare our results. Management regularly uses our
supplemental non-GAAP financial measures internally to understand,
manage and evaluate our business and make operating decisions.
These non-GAAP measures are among the primary factors management
uses in planning for and forecasting future periods. Compensation
of our executives is based in part on the performance of our
business based on these non-GAAP measures. Accordingly, we believe
it is necessary to adjust several reported amounts, determined in
accordance with GAAP, to exclude the effects of certain items as
well as their related income tax effects.
However, these non-GAAP financial measures should be viewed in
addition to, and not as a substitute for, the Company’s reported
results prepared in accordance with GAAP. Our non-GAAP financial
measures are not meant to be considered in isolation or as a
substitute for comparable GAAP measures and should be read only in
conjunction with our Condensed Consolidated Financial Statements
prepared in accordance with GAAP.
A reconciliation of these non-GAAP financial measures to the
most directly comparable financial measures calculated and
presented in accordance with GAAP are set forth below, as well as
in the third quarter 2022 presentation slides available at
www.xerox.com/investor.
Adjusted Earnings Measures
- Net (Loss) Income and Earnings per share (EPS)
- Effective Tax Rate
The above measures were adjusted for the following items:
- Restructuring and related costs,
net: Restructuring and related costs, net include
restructuring and asset impairment charges as well as costs
associated with our transformation programs beyond those normally
included in restructuring and asset impairment charges.
Restructuring consists of costs primarily related to severance and
benefits paid to employees pursuant to formal restructuring and
workforce reduction plans. Asset impairment includes costs incurred
for those assets sold, abandoned or made obsolete as a result of
our restructuring actions, exiting from a business or other
strategic business changes. Additional costs for our transformation
programs are primarily related to the implementation of strategic
actions and initiatives and include third-party professional
service costs as well as one-time incremental costs. All of these
costs can vary significantly in terms of amount and frequency based
on the nature of the actions as well as the changing needs of the
business. Accordingly, due to that significant variability, we will
exclude these charges since we do not believe they provide
meaningful insight into our current or past operating performance
nor do we believe they are reflective of our expected future
operating expenses as such charges are expected to yield future
benefits and savings with respect to our operational
performance.
- Amortization of intangible assets:
The amortization of intangible assets is driven by our acquisition
activity which can vary in size, nature and timing as compared to
other companies within our industry and from period to period. The
use of intangible assets contributed to our revenues earned during
the periods presented and will contribute to our future period
revenues as well. Amortization of intangible assets will recur in
future periods.
- Non-service retirement-related
costs: Our defined benefit pension and retiree health costs
include several elements impacted by changes in plan assets and
obligations that are primarily driven by changes in the debt and
equity markets as well as those that are predominantly legacy in
nature and related to employees who are no longer providing current
service to the Company (e.g. retirees and ex-employees). These
elements include (i) interest cost, (ii) expected return on plan
assets, (iii) amortization of prior plan amendments, (iv) amortized
actuarial gains/losses and (v) the impacts of any plan
settlements/curtailments. Accordingly, we consider these elements
of our periodic retirement plan costs to be outside the operational
performance of the business or legacy costs and not necessarily
indicative of current or future cash flow requirements. This
approach is consistent with the classification of these costs as
non-operating in Other expenses, net. Adjusted earnings will
continue to include the service cost elements of our retirement
costs, which is related to current employee service as well as the
cost of our defined contribution plans.
- Other discrete, unusual or infrequent
items: We exclude these items, when applicable, given their
discrete, unusual or infrequent nature and their impact on our
results for the period.
- Non-cash goodwill impairment charge
Adjusted Operating (Loss) Income and Margin
We calculate and utilize adjusted operating (loss) income and
margin measures by adjusting our reported pre-tax (loss) income and
margin amounts. In addition to the costs and expenses noted as
adjustments for our adjusted earnings measures, adjusted operating
(loss) income and margin also exclude the remaining amounts
included in Other expenses, net, which are primarily non-financing
interest expense and certain other non-operating costs and
expenses. We exclude these amounts in order to evaluate our current
and past operating performance and to better understand the
expected future trends in our business.
Constant Currency
To better understand trends in our business, we believe that it
is helpful to adjust revenue to exclude the impact of changes in
the translation of foreign currencies into U.S. dollars. We refer
to this adjusted revenue as “constant currency.” This impact is
calculated by translating current period activity in local currency
using the comparable prior year period's currency translation rate.
This impact is calculated for all countries where the functional
currency is not the U.S. dollar. Management believes the constant
currency measure provides investors an additional perspective on
revenue trends. Currency impact can be determined as the difference
between actual growth rates and constant currency growth rates.
Free Cash Flow
To better understand trends in our business, we believe that it
is helpful to adjust operating cash flows by subtracting amounts
related to capital expenditures. Management believes this measure
gives investors an additional perspective on cash flow from
operating activities in excess of amounts required for
reinvestment. It provides a measure of our ability to fund
acquisitions, dividends and share repurchase.
Net (Loss) Income and EPS
reconciliation:
Three Months Ended
September 30, 2022
Three Months Ended
September 30, 2021
(in millions, except per share
amounts)
Net (Loss)
Income
Diluted EPS
Net Income
Diluted EPS
Reported(1)
$
(383
)
$
(2.48
)
$
90
$
0.48
Adjustments:
Goodwill impairment
412
—
Restructuring and related costs, net
22
10
Amortization of intangible assets
10
13
Non-service retirement-related costs
(7
)
(22
)
Income tax on adjustments(2)
(21
)
(1
)
Adjusted
$
33
$
0.19
$
90
$
0.48
Dividends on preferred stock used in
adjusted EPS calculation(3)
$
4
$
4
Weighted average shares for adjusted
EPS(3)
157
182
Fully diluted shares at end of
period(4)
157
____________________________
(1)
Net (loss) income and EPS
attributable to Xerox Holdings. Third quarter 2022 Net loss and EPS
include an after-tax non-cash goodwill impairment charge of $395
million or $2.54 per share.
(2)
Refer to Effective Tax Rate
reconciliation.
(3)
For those periods that include
the preferred stock dividend, the average shares for the
calculations of diluted EPS exclude the 7 million shares associated
with Xerox Holdings Corporation's Series A Convertible preferred
stock.
(4)
Common shares outstanding at
September 30, 2022 and potential dilutive common shares used for
the calculation of adjusted diluted EPS for the third quarter 2022.
Excludes shares associated with our Series A convertible preferred
stock, all of which were anti-dilutive for the third quarter
2022.
Effective Tax Rate
reconciliation:
Three Months Ended
September 30, 2022
Three Months Ended
September 30, 2021
(in millions)
Pre-Tax
(Loss)
Income
Income Tax
Expense
Effective Tax
Rate
Pre-Tax
Income
Income Tax
(Benefit)
Effective Tax
Rate
Reported(1)
$
(380
)
$
3
(0.8
)%
$
84
$
(4
)
(4.8
)%
Goodwill impairment
412
17
—
—
Other Non-GAAP Adjustments(2)
25
4
1
1
Adjusted(3)
$
57
$
24
42.1
%
$
85
$
(3
)
(3.5
)%
____________________________
(1)
Pre-tax (loss) income and income
tax expense (benefit).
(2)
Refer to Net (Loss) Income and
EPS reconciliation for details.
(3)
The tax impact on Adjusted
Pre-Tax Income is calculated under the same accounting principles
applied to the Reported Pre-Tax (Loss) Income under ASC 740, which
employs an annual effective tax rate method to the results.
Operating (Loss) Income and
Margin reconciliation:
Three Months Ended
September 30, 2022
Three Months Ended
September 30, 2021
(in millions)
(Loss)
Profit
Revenue
Margin
Profit
Revenue
Margin
Reported(1)
$
(380
)
$
1,751
(21.7
)%
$
84
$
1,758
4.8
%
Adjustments:
Goodwill impairment
412
—
Restructuring and related costs, net
22
10
Amortization of intangible assets
10
13
Other expenses, net
1
(33
)
Adjusted
$
65
$
1,751
3.7
%
$
74
$
1,758
4.2
%
___________________________
(1)
Pre-tax (loss) income.
Free Cash Flow
reconciliation:
Three Months Ended
September 30,
(in millions)
2022
2021
Reported(1)
$
(8
)
$
100
Less: capital expenditures
10
19
Free Cash Flow
$
(18
)
$
81
____________________________
(1)
Net cash (used in) provided by
operating activities.
Guidance:
Cash Flow
(in millions)
FY 2022
Operating Cash Flow (1)
At least $180
Less: capital expenditures
55
Free Cash Flow
At least $125
____________________________
(1)
Net cash provided by operating
activities.
NOTE: Free cash flow guidance
excludes the second quarter 2022 payment of a one-time product
supply contract termination charge.
APPENDIX I
Xerox Holdings
Corporation
(Loss) Earnings per Common
Share
(in millions, except per-share data,
shares in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Basic (Loss) Earnings per
Share:
Net (loss) income attributable to Xerox
Holdings
$
(383
)
$
90
$
(443
)
$
220
Accrued dividends on preferred stock
(4
)
(4
)
(11
)
(11
)
Adjusted net (loss) income available to
common shareholders
$
(387
)
$
86
$
(454
)
$
209
Weighted average common shares
outstanding(1)
155,697
179,408
155,799
187,549
Basic (Loss) Earnings per Share
$
(2.48
)
$
0.48
$
(2.91
)
$
1.12
Diluted (Loss) Earnings per
Share:
Net (Loss) income attributable to Xerox
Holdings
$
(383
)
$
90
$
(443
)
$
220
Accrued dividends on preferred stock
(4
)
(4
)
(11
)
(11
)
Adjusted net (loss) income available to
common shareholders
$
(387
)
$
86
$
(454
)
$
209
Weighted average common shares
outstanding(1)
155,697
179,408
155,799
187,549
Common shares issuable with respect
to:
Stock Options
—
—
—
—
Restricted stock and performance
shares
—
2,168
—
2,120
Convertible preferred stock
—
—
—
—
Adjusted weighted average common shares
outstanding
155,697
181,576
155,799
189,669
Diluted (Loss) Earnings per
Share
$
(2.48
)
$
0.48
$
(2.91
)
$
1.10
The following securities were not
included in the computation of diluted earnings per share as they
were either contingently issuable shares or shares that if included
would have been anti-dilutive:
Stock options
598
622
598
622
Restricted stock and performance
shares
5,222
4,387
5,222
4,435
Convertible preferred stock
6,742
6,742
6,742
6,742
Total Anti-Dilutive Securities
12,562
11,751
12,562
11,799
Dividends per Common Share
$
0.25
$
0.25
$
0.75
$
0.75
__________
(1)
Includes unissued shares
associated with the accelerated share vesting since all
contingencies regarding issuance have lapsed.
APPENDIX II
Xerox Holdings Corporation
Reportable Segments and Geographic Sales Channels
Our business is organized to ensure we focus on efficiently
managing operations while serving our customers and the markets in
which we operate.
During 2021 we progressed with the standing up of three new
businesses: Software (CareAR), Financing (FITTLE) and Innovation
(PARC). As a result of this effort, during the first quarter 2022,
we reassessed our operating and reportable segments and determined
that, based on the financial information reviewed by our chief
operating decision maker (CODM), who is the Chief Executive Officer
(CEO), as well as the CEO’s management and assessment of the
Company’s operations, we had two operating and reportable segments
- Print and Other, and Financing (FITTLE).
- Print and Other - the design, development and sale of
document management systems, solutions and services as well as
associated technology offerings including IT and software products
and services.
- Financing (FITTLE) - a financing solutions business
primarily providing financing for the sales of Xerox
equipment.
We also determined that the other businesses - Software and
Innovation - did not meet the requirements to be considered
separate operating segments largely due to their continued
management through the Print and Other Segment as well as their
immateriality to our results at this stage. Accordingly, those
groups will continue to be reported as part of the Print and Other
segment.
Our Print and Other segment includes the sale of document
systems, supplies and technical services and managed services. The
segment also includes the delivery of managed services that involve
a continuum of solutions and services that help our customers
optimize their print and communications infrastructure, apply
automation and simplification to maximize productivity, and ensure
the highest levels of security. This segment also includes IT
services and software. Our product groupings range from:
- “Entry”, which includes A4 devices and desktop printers
and multifunction devices that primarily serve small and medium
workgroups/work teams.
- “Mid-Range”, which include A3 devices that generally
serve large workgroup/work team environments as well as products in
the Light Production monochrome and color segments serving
centralized print centers, print for pay and lower volume
production print establishments.
- “High-End”, which include production printing and
publishing systems that generally serve the graphic communications
marketplace and print centers in large enterprises.
The Financing (FITTLE) segment provides leasing solutions
through either bundled or unbundled lease agreements of Xerox
products or direct purchases of equipment. These leasing solutions
support a wide range of customers, from government to graphic
communications and SMB to Enterprise as well as financing for
direct channel customer purchases of both Xerox and non-Xerox
equipment. Segment revenues primarily include financing income on
sales-type leases, operating lease income (including month to month
rentals and extensions) and leasing fees.
We also operate a matrix organization that includes a geographic
focus that is primarily organized from a sales perspective on the
basis of “go-to-market” (GTM) sales channels as follows:
- Americas, which includes our sales channels in the U.S.
and Canada, as well as Mexico, and Central and South America.
- EMEA, which includes our sales channels in Europe, the
Middle East, Africa and India.
- Other, primarily includes sales to Fuji Xerox as well as
royalties and licensing revenue.
These GTM sales channels are structured to serve a range of
customers for our products and services, including financing.
Accordingly, we will continue to provide information, primarily
revenue related, with respect to our principal GTM sales
channels.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221025005379/en/
Media Contact: Justin Capella, Xerox, +1-203-258-6535,
Justin.Capella@xerox.com
Investor Contact: David Beckel, Xerox, +1-203-849-2318,
David.Beckel@xerox.com
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