Financial Summary
- $1.76 billion of revenue, down 0.5 percent year-over-year or
down 1.6 percent in constant currency.
- GAAP earnings per share (EPS) of $0.48, up $0.07
year-over-year, and adjusted EPS of $0.48, flat
year-over-year.
- Adjusted operating margin of 4.2 percent, down 320 basis points
year-over-year.
- $100 million of operating cash flow, down $6 million
year-over-year.
- $81 million of free cash flow, down $7 million
year-over-year.
- Reduced FY21 revenue guidance to approximately $7.1 billion in
actual currency ($7.0 billion in constant currency). Reaffirmed
free cash flow guidance of at least $500 million.
- Completed expected $500 million of buybacks for 2021; Board
approves an additional $500 million share repurchase program to be
used opportunistically.
Xerox Holdings Corporation (NASDAQ: XRX) today announced 2021
third-quarter results.
“Our revenue this quarter was essentially flat year-over-year,
despite a deterioration in global supply chain conditions and the
Delta variant, which caused delays in many of our clients’ plans to
return employees to the workplace,” said Xerox Vice Chairman and
CEO John Visentin. “As a result of these ongoing challenges, we are
revising our revenue guidance lower, but we are maintaining our
free cash flow guidance of at least $500 million. Our focus on
generating cash allows us to preserve, and in some cases increase,
investments in innovation, while continuing to return more than 50%
of free cash to shareholders and pursue M&A.”
Third-Quarter Key Financial
Results:
(in millions, except per share
data)
Q3 2021
Q3 2020
B/(W) YOY
% Change YOY
Revenue
$1,758
$1,767
$(9)
(0.5) % AC (1.6) % CC1
Gross Margin
32.4%
36.8%
(440) bps
RD&E %
4.7%
4.3%
(40) bps
SAG %
23.5%
25.1%
160 bps
Pre-Tax Income
$84
$119
$(35)
(29.4)%
Pre-Tax Income Margin
4.8%
6.7%
(190) bps
Operating Income - Adjusted1
$74
$131
$(57)
(43.5)%
Operating Margin - Adjusted1
4.2%
7.4%
(320) bps
GAAP Earnings per Share
$0.48
$0.41
$0.07
17.1%
Earnings Per Share - Adjusted1
$0.48
$0.48
$—
___________
(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.
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, Transaction and related costs, net and
other discrete adjustments from GAAP-EPS, as applicable.
- Adjusted operating margin and income, which exclude the EPS
adjustments noted above as well as the remainder of Other expenses,
net from pre-tax income and margin.
- Constant currency (CC) revenue change, which excludes the
effects of currency translation.
- Free cash flow, which is operating cash flow less capital
expenditures.
Refer to the “Non-GAAP Financial Measures” section of this
release for a discussion of these non-GAAP measures and their
reconciliation to the reported GAAP measures.
Forward-Looking Statements
This release, and other written or oral statements made from
time to time by management contain “forward-looking statements” as
defined in the Private Securities Litigation Reform Act of 1995.
The words “anticipate”, “believe”, “estimate”, “expect”, “intend”,
“will”, “should”, "targeting", "projecting", "driving" and similar
expressions, as they relate to us, our performance and/or our
technology, are intended to identify forward-looking statements.
These statements reflect management’s current beliefs, assumptions
and expectations and are subject to a number of factors that may
cause actual results to differ materially. Such factors include but
are not limited to: the effects of the COVID-19 pandemic on our and
our customers' businesses and the duration and extent to which this
will impact our future results of operations and overall financial
performance; our ability to address our business challenges in
order to reverse revenue declines, reduce costs and increase
productivity so that we can invest in and grow our business; our
ability to attract and retain key personnel; changes in economic
and political conditions, trade protection measures, licensing
requirements and tax laws in the United States and in the foreign
countries in which we do business; the imposition of new or
incremental trade protection measures such as tariffs and import or
export restrictions; changes in foreign currency exchange rates;
our ability to successfully develop new products, technologies and
service offerings and to protect our intellectual property rights;
the risk that multi-year contracts with governmental entities could
be terminated prior to the end of the contract term and that civil
or criminal penalties and administrative sanctions could be imposed
on us if we fail to comply with the terms of such contracts and
applicable law; the risk that partners, subcontractors and software
vendors will not perform in a timely, quality manner; actions of
competitors and our ability to promptly and effectively react to
changing technologies and customer expectations; our ability to
obtain adequate pricing for our products and services and to
maintain and improve cost efficiency of operations, including
savings from restructuring actions; the risk that confidential
and/or individually identifiable information of ours, our
customers, clients and employees could be inadvertently disclosed
or disclosed as a result of a breach of our security systems due to
cyber attacks or other intentional acts; reliance on third parties,
including subcontractors, for manufacturing of products and
provision of services; the exit of the United Kingdom from the
European Union; our ability to manage changes in the printing
environment and expand equipment placements; interest rates, cost
of borrowing and access to credit markets; funding requirements
associated with our employee pension and retiree health benefit
plans; the risk that our operations and products may not comply
with applicable worldwide regulatory requirements, particularly
environmental regulations and directives and anti-corruption laws;
the outcome of litigation and regulatory proceedings to which we
may be a party; any impacts resulting from the restructuring of our
relationship with Fujifilm Holdings Corporation; the shared
services arrangements entered into by us as part of Project Own It;
whether CareAR’s service experience management platform will
achieve expectations regarding customer adoption, integration with
ServiceNow’s platform, and cost and carbon emission reduction; and
the financial performance of CareAR, including projected revenue
for fiscal years 2021 and 2022. Additional risks that may affect
Xerox’s operations and other factors that are set forth in the
“Risk Factors” section, the “Legal Proceedings” section, the
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” section and other sections of Xerox Holdings
Corporation’s and Xerox Corporation’s combined 2020 Annual Report
on Form 10-K, as well as in Xerox Holdings Corporation's and Xerox
Corporation's Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K filed with the SEC.
These forward-looking statements speak only as of the date of
this presentation or as of the date to which they refer, and Xerox
assumes no obligation to update any forward-looking statements as a
result of new information or future events or developments, except
as required by law.
Note: To receive RSS news feeds, visit
https://www.news.xerox.com. For open commentary, industry
perspectives and views, visit
https://www.linkedin.com/company/xerox, https://twitter.com/xerox,
https://www.facebook.com/XeroxCorp,
https://www.instagram.com/xerox/,
https://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 INCOME (UNAUDITED)
Three Months Ended September
30,
Nine Months Ended September
30,
(in millions, except per-share data)
2021
2020
2021
2020
Revenues
Sales
$
657
$
651
$
1,929
$
1,676
Services, maintenance and rentals
1,046
1,061
3,166
3,246
Financing
55
55
166
170
Total Revenues
1,758
1,767
5,261
5,092
Costs and Expenses
Cost of sales
498
476
1,386
1,201
Cost of services, maintenance and
rentals
662
611
1,971
1,875
Cost of financing
29
29
85
89
Research, development and engineering
expenses
82
76
235
236
Selling, administrative and general
expenses
413
444
1,295
1,411
Restructuring and related costs, net
10
20
39
64
Amortization of intangible assets
13
13
42
34
Transaction and related costs, net
—
(6
)
—
18
Other expenses, net
(33
)
(15
)
(28
)
15
Total Costs and Expenses
1,674
1,648
5,025
4,943
Income before Income Taxes & Equity
Income(1)
84
119
236
149
Income tax (benefit) expense
(4
)
29
19
36
Equity in net income of unconsolidated
affiliates
1
—
2
2
Net Income
89
90
219
115
Less: Net loss attributable to
noncontrolling interests
(1
)
—
(1
)
—
Net Income Attributable to Xerox
Holdings
$
90
$
90
$
220
$
115
Basic Earnings per Share
$
0.48
$
0.41
$
1.12
$
0.49
Diluted Earnings per Share
$
0.48
$
0.41
$
1.10
$
0.49
___________________________
(1)
Referred to as “Pre-Tax Income” throughout
the remainder of this document.
XEROX HOLDINGS CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended September
30,
Nine Months Ended September
30,
(in millions)
2021
2020
2021
2020
Net Income
$
89
$
90
$
219
$
115
Less: Net loss attributable to
noncontrolling interests
(1
)
—
(1
)
—
Net Income Attributable to Xerox
Holdings
90
90
220
115
Other Comprehensive (Loss) Income,
Net
Translation adjustments, net
(125
)
179
(122
)
7
Unrealized gains (losses), net
4
1
(3
)
4
Changes in defined benefit plans, net
51
(92
)
122
42
Other Comprehensive (Loss) Income, Net
Attributable to Xerox Holdings
(70
)
88
(3
)
53
Comprehensive Income, Net
19
178
216
168
Less: Comprehensive loss, net attributable
to noncontrolling interests
(1
)
—
(1
)
—
Comprehensive Income, Net Attributable
to Xerox Holdings
$
20
$
178
$
217
$
168
XEROX HOLDINGS CORPORATION CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data in
thousands)
September 30, 2021
December 31, 2020
Assets
Cash and cash equivalents
$
2,209
$
2,625
Accounts receivable (net of allowance of
$62 and $69, respectively)
891
883
Billed portion of finance receivables (net
of allowance of $4 and $4, respectively)
100
99
Finance receivables, net
1,039
1,082
Inventories
788
843
Other current assets
209
251
Total current assets
5,236
5,783
Finance receivables due after one year
(net of allowance of $123 and $129, respectively)
1,936
1,984
Equipment on operating leases, net
254
296
Land, buildings and equipment, net
370
407
Intangible assets, net
216
237
Goodwill
4,066
4,071
Deferred tax assets
511
508
Other long-term assets
1,492
1,455
Total Assets
$
14,081
$
14,741
Liabilities and Equity
Short-term debt and current portion of
long-term debt
$
646
$
394
Accounts payable
1,032
983
Accrued compensation and benefits
costs
262
261
Accrued expenses and other current
liabilities
844
840
Total current liabilities
2,784
2,478
Long-term debt
3,673
4,050
Pension and other benefit liabilities
1,381
1,566
Post-retirement medical benefits
333
340
Other long-term liabilities
491
497
Total Liabilities
8,662
8,931
Noncontrolling Interests
10
—
Convertible Preferred Stock
214
214
Common stock
182
198
Additional paid-in capital
2,080
2,445
Treasury stock, at cost
(87
)
—
Retained earnings
6,348
6,281
Accumulated other comprehensive loss
(3,335
)
(3,332
)
Xerox Holdings shareholders’ equity
5,188
5,592
Noncontrolling interests
7
4
Total Equity
5,195
5,596
Total Liabilities and Equity
$
14,081
$
14,741
Shares of common stock issued
182,217
198,386
Treasury stock
(3,731
)
—
Shares of Common Stock
Outstanding
178,486
198,386
XEROX HOLDINGS CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended September
30,
Nine Months Ended September
30,
(in millions)
2021
2020
2021
2020
Cash Flows from Operating
Activities
Net income
$
89
$
90
$
219
$
115
Adjustments required to reconcile Net
income to Cash flows from operating activities
Depreciation and amortization
79
90
249
272
Provisions
4
23
38
124
Net gain on sales of businesses and
assets
(39
)
(28
)
(40
)
(29
)
Stock-based compensation
14
8
44
32
Restructuring and asset impairment
charges
3
20
28
47
Payments for restructurings
(12
)
(11
)
(61
)
(63
)
Defined benefit pension cost
(3
)
9
(5
)
46
Contributions to defined benefit pension
plans
(33
)
(33
)
(102
)
(97
)
(Increase) decrease in accounts receivable
and billed portion of finance receivables
(67
)
(96
)
(30
)
332
Decrease (increase) in inventories
6
(49
)
10
(274
)
Increase in equipment on operating
leases
(29
)
(31
)
(92
)
(86
)
Decrease in finance receivables
21
31
33
221
(Increase) decrease in other current and
long-term assets
(2
)
17
64
2
Increase (decrease) in accounts
payable
107
90
74
(69
)
Decrease in accrued compensation
(21
)
(20
)
(56
)
(149
)
(Decrease) increase in other current and
long-term liabilities
(12
)
(16
)
80
(146
)
Net change in income tax assets and
liabilities
(13
)
10
(11
)
13
Net change in derivative assets and
liabilities
1
1
(1
)
(1
)
Other operating, net
7
1
(10
)
23
Net cash provided by operating
activities
100
106
431
313
Cash Flows from Investing
Activities
Cost of additions to land, buildings,
equipment and software
(19
)
(18
)
(52
)
(60
)
Proceeds from sales of businesses and
assets
38
27
39
29
Acquisitions, net of cash acquired
(1
)
—
(38
)
(193
)
Other investing, net
—
—
(3
)
1
Net cash provided by (used in) investing
activities
18
9
(54
)
(223
)
Cash Flows from Financing
Activities
Net proceeds (payments) on debt
76
1,077
(133
)
769
Dividends
(49
)
(61
)
(157
)
(176
)
Payments to acquire treasury stock,
including fees
(87
)
(150
)
(500
)
(150
)
Other financing, net
14
(10
)
(3
)
(19
)
Net cash (used in) provided by financing
activities
(46
)
856
(793
)
424
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(13
)
12
(13
)
(12
)
Increase (decrease) in cash, cash
equivalents and restricted cash
59
983
(429
)
502
Cash, cash equivalents and restricted cash
at beginning of period
2,203
2,314
2,691
2,795
Cash, Cash Equivalents and Restricted
Cash at End of Period
$
2,262
$
3,297
$
2,262
$
3,297
Impact of COVID-19 on Our Business Operations
In response to the COVID-19 pandemic, we continue to prioritize
the health and safety of our employees, customers and partners and
support their needs so they can perform their work flawlessly,
whether in the office or a remote location.
During the third quarter 2021, our business continued to be
impacted by the COVID-19 pandemic. The prolonged and extensive
impact of the Delta variant drove many of our customers to delay
their plans to return employees to offices. As a result, while we
continued to see a correlation between the roll-out of
vaccinations, the return of employees to the office, and the
gradual recovery of our post sale revenues, the marginal
improvement in our page volume-driven post sale revenues was less
than previously anticipated. In addition, global supply chain
issues, created in part by the COVID-19 pandemic, have resulted in
an unprecedented level of disruption that has led to shortages and
transportation delays of our products and third-party IT hardware.
This has resulted in lower than anticipated equipment and IT sales,
higher transportation and logistics costs and growth of our order
backlog1 at the end of the quarter, as our customers continued to
invest in our print technology and services. We expect the ongoing
effects of the COVID-19 pandemic, including the potential emergence
of new variants, as well as the global supply chain disruption, to
delay economic recovery and continue to affect our revenues and
margins into 2022.
We have a strong balance sheet and sufficient liquidity,
including approximately $2.3 billion of cash and cash equivalents
and access to our undrawn $1.8 billion revolver. With our Project
Own It transformation and cost savings, we have built a leaner and
more flexible cost structure. In addition, in response to the
COVID-19 pandemic, various governments continue to employ temporary
measures to provide aid and economic stimulus directly to companies
through cash grants and credits, or indirectly through payments to
temporarily furloughed employees. During the third quarter 2021, we
recognized savings of $9 million from the use of such measures in
the U.S., Canada and Europe. We continue to monitor government
programs and actions being implemented, or expected to be
implemented, to counter the economic impacts of the COVID-19
pandemic.
The savings from government assistance were recorded as follows
in the Condensed Consolidated Statements of Income:
Three Months Ended September
30,
(in millions)
2021
2020
Cost of sales
$
—
$
1
Cost of services, maintenance and
rentals
4
25
Selling, administrative and general
expenses
5
9
Total Estimated Savings
$
9
$
35
_________________________
(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.
Financial Review Revenues
Three Months Ended September
30,
% of Total Revenue
(in millions)
2021
2020
% Change
CC % Change
2021
2020
Equipment sales
$
387
$
419
(7.6
)%
(8.4
)%
22
%
24
%
Post sale revenue
1,371
1,348
1.7
%
0.5
%
78
%
76
%
Total Revenue
$
1,758
$
1,767
(0.5
)%
(1.6
)%
100
%
100
%
Reconciliation to Condensed
Consolidated Statements of Income:
Sales
$
657
$
651
0.9
%
(0.1
)%
Less: Supplies, paper and other sales
(270
)
(232
)
16.4
%
15.1
%
Equipment Sales
$
387
$
419
(7.6
)%
(8.4
)%
Services, maintenance and rentals
$
1,046
$
1,061
(1.4
)%
(2.5
)%
Add: Supplies, paper and other sales
270
232
16.4
%
15.1
%
Add: Financing
55
55
—
%
(2.3
)%
Post Sale Revenue
$
1,371
$
1,348
1.7
%
0.5
%
Americas
$
1,127
$
1,152
(2.2
)%
(2.9
)%
64
%
65
%
EMEA
594
568
4.6
%
2.6
%
34
%
32
%
Other
37
47
(21.3
)%
(21.3
)%
2
%
3
%
Total Revenue(1)
$
1,758
$
1,767
(0.5
)%
(1.6
)%
100
%
100
%
____________________________
CC - Constant currency (refer to "Constant Currency" in the
Non-GAAP Financial Measures section). (1)
Refer to Appendix II for our Geographic
Sales Channels and Products and Offerings Definitions.
Equipment sales revenue
Three Months Ended September
30,
% of Equipment Sales
(in millions)
2021
2020
% Change
CC % Change
2021
2020
Entry
$
69
$
66
4.5
%
3.9
%
18
%
16
%
Mid-range
244
276
(11.6
)%
(12.2
)%
63
%
66
%
High-end
68
72
(5.6
)%
(6.5
)%
18
%
17
%
Other
6
5
20.0
%
20.0
%
1
%
1
%
Equipment Sales
$
387
$
419
(7.6
)%
(8.4
)%
100
%
100
%
____________________________
CC - Constant Currency (refer to "Constant
Currency" in the Non-GAAP Financial Measures section).
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)
2021
2020
B/(W)
Gross Profit
$
569
$
651
$
(82
)
RD&E
82
76
(6
)
SAG
413
444
31
Equipment Gross Margin
18.3
%
25.5
%
(7.2
)
pts.
Post sale Gross Margin
36.4
%
40.3
%
(3.9
)
pts.
Total Gross Margin
32.4
%
36.8
%
(4.4
)
pts.
RD&E as a % of Revenue
4.7
%
4.3
%
(0.4
)
pts.
SAG as a % of Revenue
23.5
%
25.1
%
1.6
pts.
Pre-tax Income
$
84
$
119
$
(35
)
Pre-tax Income Margin
4.8
%
6.7
%
(1.9
)
pts.
Adjusted(1) Operating Profit
$
74
$
131
$
(57
)
Adjusted(1) Operating Margin
4.2
%
7.4
%
(3.2
)
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)
2021
2020
Non-financing interest expense
$
23
$
30
Interest income
(1
)
(1
)
Non-service retirement-related costs
(22
)
(13
)
Gains on sales of businesses and
assets
(39
)
(28
)
Currency losses, net
3
—
All other expenses, net
3
(3
)
Other expenses, net
$
(33
)
$
(15
)
Forward-Looking Statements
This release, and other written or oral statements made from
time to time by management contain “forward-looking statements” as
defined in the Private Securities Litigation Reform Act of 1995.
The words “anticipate”, “believe”, “estimate”, “expect”, “intend”,
“will”, “should”, "targeting", "projecting", "driving" and similar
expressions, as they relate to us, our performance and/or our
technology, are intended to identify forward-looking statements.
These statements reflect management’s current beliefs, assumptions
and expectations and are subject to a number of factors that may
cause actual results to differ materially. Such factors include but
are not limited to: the effects of the COVID-19 pandemic on our and
our customers' businesses and the duration and extent to which this
will impact our future results of operations and overall financial
performance; our ability to address our business challenges in
order to reverse revenue declines, reduce costs and increase
productivity so that we can invest in and grow our business; our
ability to attract and retain key personnel; changes in economic
and political conditions, trade protection measures, licensing
requirements and tax laws in the United States and in the foreign
countries in which we do business; the imposition of new or
incremental trade protection measures such as tariffs and import or
export restrictions; changes in foreign currency exchange rates;
our ability to successfully develop new products, technologies and
service offerings and to protect our intellectual property rights;
the risk that multi-year contracts with governmental entities could
be terminated prior to the end of the contract term and that civil
or criminal penalties and administrative sanctions could be imposed
on us if we fail to comply with the terms of such contracts and
applicable law; the risk that partners, subcontractors and software
vendors will not perform in a timely, quality manner; actions of
competitors and our ability to promptly and effectively react to
changing technologies and customer expectations; our ability to
obtain adequate pricing for our products and services and to
maintain and improve cost efficiency of operations, including
savings from restructuring actions; the risk that confidential
and/or individually identifiable information of ours, our
customers, clients and employees could be inadvertently disclosed
or disclosed as a result of a breach of our security systems due to
cyber attacks or other intentional acts; reliance on third parties,
including subcontractors, for manufacturing of products and
provision of services; the exit of the United Kingdom from the
European Union; our ability to manage changes in the printing
environment and expand equipment placements; interest rates, cost
of borrowing and access to credit markets; funding requirements
associated with our employee pension and retiree health benefit
plans; the risk that our operations and products may not comply
with applicable worldwide regulatory requirements, particularly
environmental regulations and directives and anti-corruption laws;
the outcome of litigation and regulatory proceedings to which we
may be a party; any impacts resulting from the restructuring of our
relationship with Fujifilm Holdings Corporation; the shared
services arrangements entered into by us as part of Project Own It;
whether CareAR’s service experience management platform will
achieve expectations regarding customer adoption, integration with
ServiceNow’s platform, and cost and carbon emission reduction; and
the financial performance of CareAR, including projected revenue
for fiscal years 2021 and 2022. Additional risks that may affect
Xerox’s operations and other factors that are set forth in the
“Risk Factors” section, the “Legal Proceedings” section, the
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” section and other sections of Xerox Holdings
Corporation’s and Xerox Corporation’s combined 2020 Annual Report
on Form 10-K, as well as in Xerox Holdings Corporation's and Xerox
Corporation's Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K filed with the SEC.
These forward-looking statements speak only as of the date of
this presentation or as of the date to which they refer, and Xerox
assumes no obligation to update any forward-looking statements as a
result of new information or future events or developments, except
as required by law.
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 third quarter 2021 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 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.
- Transaction and related costs,
net: Transaction and related costs, net are costs and
expenses primarily associated with certain strategic M&A
projects. These costs are primarily for third-party legal,
accounting, consulting and other similar type professional services
as well as potential legal settlements that may arise in connection
with those M&A transactions. These costs are considered
incremental to our normal operating charges and were incurred or
are expected to be incurred solely as a result of the planned
transactions. Accordingly, we are excluding these expenses from our
Adjusted Earnings Measures in order to evaluate our performance on
a comparable basis.
- 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.
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 Income and Margin
We calculate and utilize adjusted operating 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 Income and EPS
reconciliation:
Three Months Ended September 30,
2021
Three Months Ended September 30,
2020
(in millions, except per share
amounts)
Net Income
EPS
Net Income
EPS
Reported(1)
$
90
$
0.48
$
90
$
0.41
Adjustments:
Restructuring and related costs, net
10
20
Amortization of intangible assets
13
13
Transaction and related costs, net
—
(6
)
Non-service retirement-related costs
(22
)
(13
)
Income tax on adjustments(2)
(1
)
1
Adjusted
$
90
$
0.48
$
105
$
0.48
Dividends on preferred stock used in
adjusted EPS calculation(3)
$
4
$
4
Weighted average shares for adjusted
EPS(3)
182
213
Fully diluted shares at end of
period(4)
181
____________________________
(1)
Net income and EPS attributable to Xerox
Holdings.
(2)
Refer to Effective Tax Rate
reconciliation.
(3)
Average shares for the calculation of
adjusted diluted EPS for the three months ended September 30, 2021
and 2020, excludes 7 million shares associated with our Series A
convertible preferred stock and therefore earnings includes the
preferred stock dividend.
(4)
Represents common shares outstanding at
September 30, 2021 plus potential dilutive common shares used for
the calculation of adjusted diluted EPS for the third quarter 2021.
The amount excludes shares associated with our Series A convertible
preferred stock as they were anti-dilutive for the third quarter
2021.
Effective Tax Rate
reconciliation:
Three Months Ended September 30,
2021
Three Months Ended September 30,
2020
(in millions)
Pre-Tax Income
Income Tax Benefit
Effective Tax Rate
Pre-Tax Income
Income Tax Expense
Effective Tax Rate
Reported(1)
$
84
$
(4
)
(4.8)
%
$
119
$
29
24.4
%
Non-GAAP Adjustments(2)
1
1
14
(1
)
Adjusted(3)
$
85
$
(3
)
(3.5)
%
$
133
$
28
21.1
%
____________________________
(1)
Pre-tax income and income tax (benefit)
expense.
(2)
Refer to Net 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 Income under ASC 740, which employs an annual
effective tax rate method to the results.
Operating Income and Margin
reconciliation:
Three Months Ended September 30,
2021
Three Months Ended September 30,
2020
(in millions)
Profit
Revenue
Margin
Profit
Revenue
Margin
Reported(1)
$
84
$
1,758
4.8
%
$
119
$
1,767
6.7
%
Adjustments:
Restructuring and related costs, net
10
20
Amortization of intangible assets
13
13
Transaction and related costs, net
—
(6
)
Other expenses, net
(33
)
(15
)
Adjusted
$
74
$
1,758
4.2
%
$
131
$
1,767
7.4
%
___________________________
(1)
Pre-tax income.
Free Cash Flow reconciliation:
Three Months Ended September
30,
(in millions)
2021
2020
Reported(1)
$
100
$
106
Less: capital expenditures
(19)
(18)
Free Cash Flow
$
81
$
88
____________________________
(1)
Net cash provided by operating
activities.
Guidance:
Cash Flow
(in millions)
FY 2021
Operating Cash Flow (1)
At least $600
Less: capital expenditures
(100)
Free Cash Flow
At least $500
____________________________
(1)
Net cash provided by operating
activities.
APPENDIX II
Xerox Holdings Corporation Geographic Sales Channels and
Products and Offerings Definitions
Our business is aligned to a geographic focus and is primarily
organized on the basis of go-to-market sales channels, which are
structured to serve a range of customers for our products and
services. In 2019 we changed our geographic structure to create a
more streamlined, flatter and more effective organization, 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 and royalties from FUJIFILM
Business Innovation Corp. (formerly Fuji Xerox) (FX), and our
licensing revenue.
Our products and offerings include:
- “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+.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211026005201/en/
Media Contact: Callie Ferrari, APR, Xerox,
+1-203-615-3363, Callie.Ferrari@xerox.com
Investor Contact: David Beckel, Xerox, +1-203-849-2318,
David.Beckel@xerox.com
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