Improving revenue trajectory and cost actions expected to drive
profitability growth in second half
Financial Summary
- $1.75 billion of revenue, down 2.6 percent year-over-year or up
1.1 percent in constant currency.
- GAAP (loss) earnings per share (EPS) of $(0.05), down $0.51
year-over-year, and adjusted EPS of $0.13, down $0.34
year-over-year.
- Adjusted operating margin of 2.0 percent, down 500 basis points
year-over-year.
- Operating cash flow use of $85 million, lower by $299 million
year-over-year.
- Free cash flow use of $98 million, lower by $296 million
year-over-year.
Xerox Holdings Corporation (NASDAQ: XRX) today announced its
2022 second-quarter results.
“While we mourn the passing of our leader and friend, John
Visentin, we continue to be guided by – and benefit from – the four
strategic initiatives he articulated for returning Xerox to
long-term, sustainable growth,” said Xerox interim CEO Steve
Bandrowczak. “Our revenue grew in constant currency in the second
quarter, driven by improving demand for our products and services
and the realization of pricing growth. Inflation and supply chain
challenges affected margins this quarter, but we expect sequential
margin improvement throughout the remainder of the year as we
realize further price increases, Project Own It savings, and
benefits from a more favorable supply chain environment. Strong
demand and line of sight to margin improvement give us confidence
to reiterate full-year guidance.”
Second-Quarter Key Financial Results
(in millions, except per share
data)
Q2 2022
Q2 2021
B/(W) YOY
% Change B/(W)
YOY
Revenue
$
1,747
$
1,793
$
(46
)
(2.6) % AC 1.1 % CC1
Gross Margin
31.9
%
35.6
%
(370) bps
RD&E %
4.8
%
4.4
%
(40) bps
SAG %
26.3
%
24.2
%
(210) bps
Pre-Tax (Loss) Income
$
(5
)
$
99
$
(104
)
NM
Pre-Tax (Loss) Income Margin
(0.3
)%
5.5
%
(580) bps
Operating Income - Adjusted1
$
35
$
126
$
(91
)
(72.2
)%
Operating Income Margin - Adjusted1
2.0
%
7.0
%
(500) bps
GAAP Diluted (Loss) Earnings per
Share
$
(0.05
)
$
0.46
$
(0.51
)
NM
Diluted Earnings Per Share - Adjusted1
$
0.13
$
0.47
$
(0.34
)
(72.3
)%
(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.
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).
Second-Quarter Segment Results
(in millions)
Q2 2022
Q2 2021
B/(W) YOY
% Change B/(W)
YOY
Revenue
Print and Other
$
1,633
$
1,672
$
(39
)
(2.3
)%
Financing (FITTLE)
151
177
(26
)
(14.7
)%
Intersegment Elimination1
(37
)
(56
)
19
(33.9
)%
Total Revenue
$
1,747
$
1,793
$
(46
)
(2.6
)%
Profit
Print and Other
$
18
$
111
$
(93
)
(83.8
)%
Financing (FITTLE)
17
15
2
13.3
%
Total Profit
$
35
$
126
$
(91
)
(72.2
)%
(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
We are maintaining our revenue and free cash flow guidance for
2022. Our guidance assumes supply chain disruption will begin to
subside and return-to-office trends will continue to improve
throughout the second half of the year. Our free cash flow guidance
excludes a one-time payment associated with a product supply
contract termination charge.
- 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 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 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 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
Corporations 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 June 30,
Six Months Ended June 30,
(in millions, except per-share data)
2022
2021
2022
2021
Revenues
Sales
$
667
$
670
$
1,259
$
1,272
Services, maintenance and rentals
1,028
1,067
2,051
2,120
Financing
52
56
105
111
Total Revenues
1,747
1,793
3,415
3,503
Costs and Expenses
Cost of sales
487
468
922
888
Cost of services, maintenance and
rentals
677
658
1,356
1,309
Cost of financing
26
28
50
56
Research, development and engineering
expenses
84
79
162
153
Selling, administrative and general
expenses
459
434
914
882
Restructuring and related costs, net
1
12
19
29
Amortization of intangible assets
10
14
21
29
Other expenses, net
8
1
65
5
Total Costs and Expenses
1,752
1,694
3,509
3,351
(Loss) Income before Income Taxes &
Equity Income(1)
(5
)
99
(94
)
152
Income tax expense (benefit)
1
9
(30
)
23
Equity in net income of unconsolidated
affiliates
1
1
2
1
Net (Loss) Income
(5
)
91
(62
)
130
Less: Net loss attributable to
noncontrolling interests
(1
)
—
(2
)
—
Net (Loss) Income Attributable to Xerox
Holdings
$
(4
)
$
91
$
(60
)
$
130
Basic (Loss) Earnings per Share
$
(0.05
)
$
0.47
$
(0.43
)
$
0.64
Diluted (Loss) Earnings per
Share
$
(0.05
)
$
0.46
$
(0.43
)
$
0.64
(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 June 30,
Six Months Ended June 30,
(in millions)
2022
2021
2022
2021
Net (Loss) Income
$
(5
)
$
91
$
(62
)
$
130
Less: Net loss attributable to
noncontrolling interests
(1
)
—
(2
)
—
Net (Loss) Income Attributable to Xerox
Holdings
(4
)
91
(60
)
130
Other Comprehensive (Loss) Income,
Net
Translation adjustments, net
(287
)
54
(359
)
3
Unrealized losses, net
(14
)
—
(25
)
(7
)
Changes in defined benefit plans, net
3
16
42
71
Other Comprehensive (Loss) Income, Net
Attributable to Xerox Holdings
(298
)
70
(342
)
67
Comprehensive (Loss) Income,
Net
(303
)
161
(404
)
197
Less: Comprehensive loss, net attributable
to noncontrolling interests
(1
)
—
(2
)
—
Comprehensive (Loss) Income, Net
Attributable to Xerox Holdings
$
(302
)
$
161
$
(402
)
$
197
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data in
thousands)
June 30, 2022
December 31, 2021
Assets
Cash and cash equivalents
$
1,151
$
1,840
Accounts receivable (net of allowance of
$63 and $58, respectively)
852
818
Billed portion of finance receivables (net
of allowance of $3 and $4, respectively)
83
94
Finance receivables, net
1,019
1,042
Inventories
765
696
Other current assets
232
211
Total current assets
4,102
4,701
Finance receivables due after one year
(net of allowance of $113 and $114, respectively)
1,845
1,934
Equipment on operating leases, net
226
253
Land, buildings and equipment, net
334
358
Intangible assets, net
223
211
Goodwill
3,217
3,287
Deferred tax assets
539
519
Other long-term assets
1,784
1,960
Total Assets
$
12,270
$
13,223
Liabilities and Equity
Short-term debt and current portion of
long-term debt
$
1,108
$
650
Accounts payable
1,207
1,069
Accrued compensation and benefits
costs
233
239
Accrued expenses and other current
liabilities
867
871
Total current liabilities
3,415
2,829
Long-term debt
2,764
3,596
Pension and other benefit liabilities
1,310
1,373
Post-retirement medical benefits
242
277
Other long-term liabilities
433
481
Total Liabilities
8,164
8,556
Noncontrolling Interests
10
10
Convertible Preferred Stock
214
214
Common stock
155
168
Additional paid-in capital
1,564
1,802
Treasury stock, at cost
—
(177
)
Retained earnings
5,484
5,631
Accumulated other comprehensive loss
(3,330
)
(2,988
)
Xerox Holdings shareholders’ equity
3,873
4,436
Noncontrolling interests
9
7
Total Equity
3,882
4,443
Total Liabilities and Equity
$
12,270
$
13,223
Shares of common stock issued
154,966
168,069
Treasury stock
—
(8,675
)
Shares of Common Stock
Outstanding
154,966
159,394
XEROX HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2022
2021
2022
2021
Cash Flows from Operating
Activities
Net (Loss) Income
$
(5
)
$
91
$
(62
)
$
130
Adjustments required to reconcile Net
(loss) income to Cash flows (used in) from operating
activities
Depreciation and amortization
68
84
140
170
Provisions
16
14
35
34
Net gain on sales of businesses and
assets
(1
)
(1
)
(1
)
(1
)
Stock-based compensation
35
14
50
30
Restructuring and asset impairment
charges
2
4
22
25
Payments for restructurings
(14
)
(22
)
(21
)
(49
)
Non-service retirement-related costs
(4
)
(22
)
(11
)
(42
)
Contributions to retirement plans
(34
)
(39
)
(72
)
(80
)
(Increase) decrease in accounts receivable
and billed portion of finance receivables
(62
)
(55
)
(49
)
37
(Increase) decrease in inventories
(64
)
22
(95
)
4
Increase in equipment on operating
leases
(11
)
(35
)
(47
)
(63
)
(Increase) decrease in finance
receivables
(24
)
(25
)
17
12
Decrease in other current and long-term
assets
36
48
35
66
Increase (decrease) in accounts
payable
61
(2
)
172
(33
)
(Decrease) increase in accrued
compensation
(15
)
26
7
16
(Decrease) increase in other current and
long-term liabilities
(5
)
127
(48
)
92
Net change in income tax assets and
liabilities
(37
)
(4
)
(76
)
2
Net change in derivative assets and
liabilities
(13
)
(5
)
(6
)
(2
)
Other operating, net
(14
)
(6
)
(9
)
(17
)
Net cash (used in) provided by operating
activities
(85
)
214
(19
)
331
Cash Flows from Investing
Activities
Cost of additions to land, buildings,
equipment and software
(13
)
(16
)
(29
)
(33
)
Proceeds from sales of businesses and
assets
26
1
26
1
Acquisitions, net of cash acquired
2
(37
)
(52
)
(37
)
Other investing, net
(2
)
(3
)
(7
)
(3
)
Net cash provided by (used in) investing
activities
13
(55
)
(62
)
(72
)
Cash Flows from Financing
Activities
Net payments on debt
(401
)
(114
)
(379
)
(209
)
Dividends
(42
)
(54
)
(88
)
(108
)
Payments to acquire treasury stock,
including fees
—
(251
)
(113
)
(413
)
Other financing, net
5
(10
)
(7
)
(17
)
Net cash used in financing activities
(438
)
(429
)
(587
)
(747
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(24
)
12
(14
)
—
Decrease in cash, cash equivalents and
restricted cash
(534
)
(258
)
(682
)
(488
)
Cash, cash equivalents and restricted cash
at beginning of period
1,761
2,461
1,909
2,691
Cash, Cash Equivalents and Restricted
Cash at End of Period
$
1,227
$
2,203
$
1,227
$
2,203
Second Quarter 2022 Overview
During the second quarter 2022, we continued to see strong
demand for our products and services despite a challenging
operating environment. Supply constraints continued to inhibit our
ability to fulfill demand, resulting in the growth of our backlog1
to $440 million, a 4.3% sequential increase and more than double
prior year period's levels. Although backlog remains elevated, it
is considered manageable and its growth rate did decline quarter
over quarter reflecting a slowing increase as product supply
improves. Post sale revenue grew in actual and constant currency,
due to growth in IT Services, which included the benefits from
recent acquisitions, and print activity-driven revenue, such as
consumables and services. Consistent with prior quarters, we see a
very strong correlation between return-to-office trends and page
volumes. Although return-to-office trends have been gradual, in Q2
2022, service revenue growth outpaced page volumes growth as
contractual price increases began to materialize. We expect that
trend to continue through the remainder of the year. The Company
expects profitability to improve sequentially for the remaining two
quarters of the year as supply chain costs normalize, particularly
freight costs, and through an easing of product supply constraints,
which will not only improve equipment sales but equipment gross
margins, as product mix normalizes. Inflationary pressures are
expected to continue in the near-term, but we expect to offset a
large portion of inflation-related cost growth with price increases
for our products and services. The effects of our price increases
will compound over time, particularly for our contractual business,
where price increases are enacted at specific times throughout the
year, or upon contract renewal. Further offsetting these cost
pressures will be savings generated through Project Own It. The
Company is targeting gross cost savings of $450 million in 2022,
the vast majority of which will be realized in the second half of
the year. With respect to the war in Ukraine, we halted shipments
to Russia when sanctions were imposed. The resulting financial
impact has thus far been minimal. The Eurasian region in total
comprised a low single digit percentage of our revenue and
operating profits in 2021. Despite this challenging operating
environment, we are maintaining our revenue and cash flow outlook,
as we continue to expect supply chain constraints and
return-to-office trends to improve in the second half of the year,
and we are implementing counteractive measures in response to
geopolitical uncertainty and inflationary pressures. Our outlook is
also based on current exchange rates.
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.
- 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. Second quarter 2022
backlog of $440 million excludes sales orders from Russia and
Powerland Computers, Ltd., which was acquired in the first quarter
of 2022.
Financial Review
Revenues
Three Months Ended June 30,
% of Total Revenue
(in millions)
2022
2021
% Change
CC % Change
2022
2021
Equipment sales
$
366
$
429
(14.7
)%
(11.4
)%
21
%
24
%
Post sale revenue
1,381
1,364
1.2
%
5.0
%
79
%
76
%
Total Revenue
$
1,747
$
1,793
(2.6
)%
1.1
%
100
%
100
%
Reconciliation to Condensed
Consolidated Statements of (Loss) Income:
Sales
$
667
$
670
(0.4
)%
2.8
%
Less: Supplies, paper and other sales
(301
)
(241
)
24.9
%
28.0
%
Equipment Sales
$
366
$
429
(14.7
)%
(11.4
)%
Services, maintenance and rentals
$
1,028
$
1,067
(3.7
)%
0.2
%
Add: Supplies, paper and other sales
301
241
24.9
%
28.0
%
Add: Financing
52
56
(7.1
)%
(4.5
)%
Post Sale Revenue
$
1,381
$
1,364
1.2
%
5.0
%
Segments
Print and Other
$
1,633
$
1,672
(2.3
)%
93
%
93
%
Financing (FITTLE)
151
177
(14.7
)%
9
%
10
%
Intersegment elimination (1)
(37
)
(56
)
(33.9
)%
(2
)%
(3
)%
Total Revenue(2)
$
1,747
$
1,793
(2.6
)%
100
%
100
%
Go-to-Market
Operations
Americas
$
1,150
$
1,133
1.5
%
2.0
%
66
%
63
%
EMEA
551
617
(10.7
)%
(1.1
)%
31
%
35
%
Other
46
43
7.0
%
7.0
%
3
%
2
%
Total Revenue(2)
$
1,747
$
1,793
(2.6
)%
1.1
%
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 June 30,
(in millions)
2022
2021
B/(W)
Gross Profit
$
557
$
639
$
(82
)
RD&E
84
79
(5
)
SAG
459
434
(25
)
Equipment Gross Margin
23.5
%
28.1
%
(4.6
)
pts.
Post sale Gross Margin
34.1
%
38.1
%
(4.0
)
pts.
Total Gross Margin
31.9
%
35.6
%
(3.7
)
pts.
RD&E as a % of Revenue
4.8
%
4.4
%
(0.4
)
pts.
SAG as a % of Revenue
26.3
%
24.2
%
(2.1
)
pts.
Pre-tax (Loss) Income
$
(5
)
$
99
$
(104
)
Pre-tax (Loss) Income Margin
(0.3
) %
5.5
%
(5.8
)
pts.
Adjusted(1) Operating Profit
$
35
$
126
$
(91
)
Adjusted(1) Operating Income Margin
2.0
%
7.0
%
(5.0
)
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 June 30,
(in millions)
2022
2021
Non-financing interest expense
$
23
$
24
Interest income
(3
)
(1
)
Non-service retirement-related costs
(4
)
(22
)
Loss on early extinguishment of debt
4
—
Excess contribution refund
(16
)
—
All other expenses, net
4
—
Other expenses, net
$
8
$
1
Segment Review
Three Months Ended June 30,
2022
(in millions)
External Net Revenue
Intersegment Net Revenue(1)
Total Segment Revenue
% of Total Revenue
Segment Profit
Segment Margin(2)
2022
Print and Other
$
1,599
$
34
$
1,633
92
%
$
18
1.1
%
Financing (FITTLE)
148
3
151
8
%
17
11.5
%
Total
$
1,747
$
37
$
1,784
100
%
$
35
2.0
%
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
%
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 June 30,
(in millions)
2022
2021
% Change
Equipment sales
$
361
$
422
(14.5
)%
Post-sale revenue
1,238
1,197
3.4
%
Intersegment net revenue (1)
34
53
(35.8
)%
Total Print and Other Revenue
$
1,633
$
1,672
(2.3
)%
- 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 June 30,
% of Equipment Sales
(in millions)
2022
2021
% Change
CC % Change
2022
2021
Entry
$
66
$
69
(4.3
)%
(0.5
)%
18
%
16
%
Mid-range
221
276
(19.9
)%
(17.0
)%
60
%
64
%
High-end
76
80
(5.0
)%
(0.8
)%
21
%
19
%
Other
3
4
(25.0
)%
(25.0
)%
1
%
1
%
Equipment Sales (1),(2)
$
366
$
429
(14.7
)%
(11.4
)%
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 $5 million and $7
million of equipment sales related to the Financing (FITTLE)
segment for the three months ended June 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 June 30,
(in millions)
2022
2021
% Change
Equipment sales
$
5
$
7
(28.6
)%
Financing
52
56
(7.1
)%
Other Post-sale revenue (1)
91
111
(18.0
)%
Intersegment net revenue
3
3
—
%
Total Financing (FITTLE)
Revenue
$
151
$
177
(14.7
)%
- Other Post-sale revenue includes operating lease/rental
revenues as well as lease renewal and fee income.
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 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
Corporations 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. 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.
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 second quarter 2022 presentation slides available at
www.xerox.com/investor.
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.
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.
- Accelerated share vesting - stock compensation expense
associated with the accelerated vesting of all outstanding equity
awards, according to the terms of the award agreement, in
connection with the passing of Xerox Holding's former CEO.
- Loss on extinguishment of debt
We believe the exclusion of these items allows investors to
better understand and analyze the results for the period as
compared to prior periods and expected future trends in our
business.
Adjusted Operating (Loss) Income and Margin
We calculate and utilize adjusted operating (loss) income and
margin measures by adjusting our reported pre-tax income and margin
amounts. In addition to the costs and expenses noted as adjustments
for our adjusted earnings measures, adjusted operating 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.
Summary
Management believes that all of these non-GAAP financial
measures provide an additional means of analyzing the current
period’s results against the corresponding prior period’s results.
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. Our 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.
A reconciliation of these non-GAAP financial measures and the
most directly comparable measures calculated and presented in
accordance with GAAP are set forth on the following tables:
Net (Loss) Income and EPS reconciliation:
Three Months Ended June 30,
2022
Three Months Ended June 30,
2021
(in millions, except per share
amounts)
Net (Loss) Income
EPS
Net Income
EPS
Reported(1)
$
(4
)
$
(0.05
)
$
91
$
0.46
Adjustments:
Restructuring and related costs, net
1
12
Amortization of intangible assets
10
14
Non-service retirement-related costs
(4
)
(22
)
Accelerated share vesting
21
—
Loss on extinguishment of debt
4
—
Income tax on adjustments(2)
(4
)
(1
)
Adjusted
$
24
$
0.13
$
94
$
0.47
Dividends on preferred stock used in
adjusted EPS calculation(3)
$
3
$
3
Weighted average shares for adjusted
EPS(3)
156
189
Fully diluted shares at end of
period(4)
157
1. Net (loss) income and EPS attributable to Xerox Holdings. 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 June 30, 2022 and
potential dilutive common shares used for the calculation of
adjusted diluted EPS for the second quarter 2022. Excludes shares
associated with our Series A convertible preferred stock, all of
which were anti-dilutive for the second quarter 2022.
Effective Tax Rate reconciliation:
Three Months Ended June 30,
2022
Three Months Ended June 30,
2021
(in millions)
Pre-Tax (Loss) Income
Income Tax Expense
Effective Tax Rate
Pre-Tax Income
Income Tax Expense
Effective Tax Rate
Reported(1)
$
(5
)
$
1
(20.0
) %
$
99
$
9
9.1
%
Non-GAAP Adjustments(2)
32
4
4
1
Adjusted(3)
$
27
$
5
18.5
%
$
103
$
10
9.7
%
1. Pre-tax (loss) income and income tax expense. 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 June 30,
2022
Three Months Ended June 30,
2021
(in millions)
(Loss) Profit
Revenue
Margin
Profit
Revenue
Margin
Reported(1)
$
(5
)
$
1,747
(0.3
) %
$
99
$
1,793
5.5
%
Adjustments:
Restructuring and related costs, net
1
12
Amortization of intangible assets
10
14
Accelerated share vesting
21
—
Other expenses, net
8
1
Adjusted
$
35
$
1,747
2.0
%
$
126
$
1,793
7.0
%
(1) Pre-tax (loss) income.
Free Cash Flow reconciliation:
Three Months Ended June 30,
(in millions)
2022
2021
Reported(1)
$
(85
)
$
214
Less: capital expenditures
(13
)
(16
)
Free Cash Flow
$
(98
)
$
198
- Net cash (used in) provided by operating activities.
Guidance:
Cash Flow
(in millions)
FY 2022
Operating Cash Flow (1)
At least $475
Less: capital expenditures
(75
)
Free Cash Flow
At least $400
- 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 June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Basic (Loss) Earnings per
Share:
Net (loss) income attributable to Xerox
Holdings
$
(4
)
$
91
$
(60
)
$
130
Accrued dividends on preferred stock
(3
)
(3
)
(7
)
(7
)
Adjusted net (loss) income available to
common shareholders
$
(7
)
$
88
$
(67
)
$
123
Weighted average common shares
outstanding(1)
155,170
187,009
155,897
191,433
Basic (Loss) Earnings per Share
$
(0.05
)
$
0.47
$
(0.43
)
$
0.64
Diluted (Loss) Earnings per
Share:
Net (Loss) Income attributable to Xerox
Holdings
$
(4
)
$
91
$
(60
)
$
130
Accrued dividends on preferred stock
(3
)
(3
)
(7
)
(7
)
Adjusted net (loss) income available to
common shareholders
$
(7
)
$
88
$
(67
)
$
123
Weighted average common shares
outstanding(1)
155,170
187,009
155,897
191,433
Common shares issuable with respect
to:
Stock Options
—
—
—
—
Restricted stock and performance
shares
—
2,012
—
2,096
Convertible preferred stock
—
—
—
—
Adjusted weighted average common shares
outstanding
155,170
189,021
155,897
193,529
Diluted (Loss) Earnings per
Share
$
(0.05
)
$
0.46
$
(0.43
)
$
0.64
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
693
694
693
694
Restricted stock and performance
shares
6,178
4,647
6,178
4,562
Convertible preferred stock
6,742
6,742
6,742
6,742
Total Anti-Dilutive Securities
13,613
12,083
13,613
11,998
Dividends per Common Share
$
0.25
$
0.25
$
0.50
$
0.50
(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, in 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.
Reportable Segments - Our reportable segments are aligned
to our primary business operations and consist of the
following:
- 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.
Product Groups - Our Equipment Sale groupings are as
follows:
- “Entry”, which includes A4 devices and desktop printers. Prices
in this product group can range from approximately $150 to
$3,000.
- “Mid-Range”, which includes A3 Office and Light Production
devices that generally serve workgroup environments in mid to large
enterprises. Prices in this product group can range from
approximately $2,000 to $75,000+.
- “High-End”, which includes production printing and publishing
systems that generally serve the graphic communications marketplace
and large enterprises. Prices for these systems can range from
approximately $30,000 to $1,000,000+.
Sales Channels - 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. These sales channels consist of the following:
- 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/20220726005463/en/
Media: Justin Capella, Xerox, +1-203-258-6535,
Justin.Capella@xerox.com
Investors: David Beckel, Xerox, +1-203-849-2318,
David.Beckel@xerox.com
Xerox (NYSE:XRX)
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