Xerox Exceeds Q4 EPS Guidance, Delivers Strong Cash Flow and Operating Margin

Announces 2020 guidance consistent with three-year plan, including further EPS expansion and revenue trend improvement 

2019 Full-Year Financial Highlights:

  • GAAP earnings per share (EPS) from continuing operations of $2.78, up $1.62 year-over-year (YOY); adjusted EPS from continuing operations of $3.55, up $0.67 YOY.
  • Adjusted operating margin of 13.1 percent, up 180 basis points YOY.
  • $1.24 billion of operating cash flow from continuing operations, up $162 million YOY; $1.18 billion of free cash flow, up $187 million YOY.
  • $9.07 billion of revenue, a decrease of 6.2 percent in actual currency YOY or 4.7 percent in constant currency YOY.
  • Achieved gross savings of $640 million under Project Own It, Xeroxs enterprise-wide initiative to simplify operations, drive continuous improvement and free up capital to reinvest in the business.
  • Returned 72 percent of free cash flow to shareholders.

 

Xerox Holdings Corporation (NYSE: XRX) announced its fourth-quarter and full-year 2019 financial results and 2020 guidance.

"We are delivering on our three-year plan. We grew earnings per share, increased cash flow and expanded adjusted operating margin for the full year, and we improved our revenue trajectory in the second half of the year as our investments in the business gained traction," said Xerox Vice Chairman and CEO John Visentin. "We accomplished this while returning more than 70 percent of free cash flow to shareholders, paying down approximately $950 million in debt and increasing investments in our innovation areas. We are well-positioned to carry this momentum into 2020 and lead the way for long-overdue industry consolidation."

Fourth-Quarter Key Financial Results - Continuing Operations:

(in millions, except per share data)

 

Q4 2019

 

Q4 2018

 

B/(W)
YOY

 

% Change
YOY

Revenue

 

$2,444

 

$2,498

 

$(54)

 

(2.2)% AC
(1.6)% CC 1

Gross Margin

 

41.6%

 

40.0%

 

160 bps

 

 

RD&E %

 

3.8%

 

3.8%

 
 

 

SAG %

 

20.9%

 

22.1%

 

120 bps

 

 

Pre-Tax Income

 

$336

 

$124

 

$212

 

171.0%

Pre-Tax Income Margin

 

13.7%

 

5.0%

 

 

 

 

Operating Income - Adjusted 1

 

$411

 

$352

 

$59

 

16.8%

Operating Margin - Adjusted 1

 

16.8%

 

14.1%

 

270 bps

 

 

GAAP EPS

 

$1.17

 

$0.37

 

$0.80

 

216.2%

EPS - Adjusted 1

 

$1.33

 

$0.94

 

$0.39

 

41.5%

Full-Year Key Financial Results - Continuing Operations:

(in millions, except per share data)

 

2019

 

2018

 

B/(W)
YOY

 

% Change
YOY

Revenue

 

$9,066

 

$9,662

 

$(596)

 

(6.2)% AC
(4.7)% CC1

Gross Margin

 

40.3%

 

40.0%

 

30 bps

 

 

RD&E %

 

4.1%

 

4.1%

 

0

 

 

SAG %

 

23.0%

 

24.6%

 

160 bps

 

 

Pre-Tax Income

 

$822

 

$549

 

$273

 

49.7%

Pre-Tax Income Margin

 

9.1%

 

5.7%

 

 

 

 

Operating Income - Adjusted 1

 

$1,192

 

$1,093

 

$99

 

9.1%

Operating Margin - Adjusted 1

 

13.1%

 

11.3%

 

180 bps

 

 

GAAP EPS

 

$2.78

 

$1.16

 

$1.62

 

139.7%

EPS - Adjusted 1

 

$3.55

 

$2.88

 

$0.67

 

23.3%

(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.

Fourth-quarter and full-year 2019 results include the benefit from $77 million of revenue associated with an OEM license agreement with Fuji Xerox received as part of a series of transactions with FUJIFILM Holdings Corporation (FUJIFILM). This benefit was included in Xeroxs updated 2019 guidance measures filed with the U.S. Securities and Exchange Commission on Form 8-K on December 3, 2019 that reflected adjustments resulting from the transactions with FUJIFILM.

Full-Year Key Business Highlights:

  • Implemented a new supply chain and supplier strategy, which included expanding Xeroxs relationship with HP and favorably structuring terms with FUJIFILM that monetized the companys investment in Fuji Xerox at over 20 times 2019 expected aggregate cash flow.
  • Expanded Xeroxs services portfolio with the launch of Intelligent Workplace Services; IT Services for the small and mid-size business market in the U.S.; and vertical services targeting healthcare, retail, insurance, and the public sector.
  • Invested in several industry firsts within Xeroxs core technology business such as the Iridesse ® Production Press , Baltoro " HF Inkjet Press and Adaptive CMYK Plus Technology .
  • Made progress on our three-year innovation roadmap with products for 3D printing and AI Workflow Assistants becoming commercially available in 2020 and monetizing innovations through partners.
  • Added and renewed several Fortune 500 and public sector clients such as Morgan Stanley, Office Depot, Generali, BAE Systems, the Commonwealth of Massachusetts, the Texas Department of Information Resources and the California Department of State Hospitals.

2020 Guidance:

The company expects continued progress on its strategic initiatives, as projected in its 2020 financial guidance:

  • Revenue decline of approximately 4 percent at constant currency, excluding revenue from the $77 million OEM license in 2019. 2
  • Adjusted operating margin of approximately 13 percent.
  • GAAP EPS from continuing operations in the range of $2.80 to $2.90.
  • Adjusted EPS in the range of $3.60 to $3.70.
  • Operating cash flow from continuing operations of approximately $1.3 billion and free cash flow of approximately $1.2 billion.
  • Company expects at least $300 million of share repurchases and return of at least 50 percent of annual free cash flow to shareholders in 2020.

(2) Revenue decline of approximately 4.9 percent including the $77 million OEM License in 2019.

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

Non-GAAP Measures
This release refers to the following non-GAAP financial measures for the Fourth Quarter and Full-Year 2019 and Full-Year 2020 guidance:

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

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

Forward-Looking Statements
This release, and other written or oral statements made from time to time by management contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words "anticipate", "believe", "estimate", "expect", "intend", "will", "should", "targeting", "projecting", "driving" and similar expressions, as they relate to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements reflect managements current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; our ability to attract and retain key personnel; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; changes in foreign currency exchange rates; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; the risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring actions; the risk that confidential and/or individually identifiable information of ours, our customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyber attacks or other intentional acts; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; the exit of the United Kingdom from the European Union; our ability to manage changes in the printing environment and expand equipment placements; interest rates, cost of borrowing and access to credit markets; funding requirements associated with our employee pension and retiree health benefit plans; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; any impacts resulting from the restructuring of our relationship with Fujifilm Holdings Corporation; the shared services arrangements entered into by us as part of Project Own It; the ultimate outcome of any possible transaction between Xerox Holdings Corporation ("Xerox") and HP Inc. ("HP"), including the possibility that the parties will not agree to pursue a business combination transaction or that the terms of any definitive agreement will be materially different from those proposed; uncertainties as to whether HP will cooperate with Xerox regarding the proposed transaction; the ultimate result should Xerox determine to commence a proxy contest for election of directors to HPs board of directors; Xeroxs ability to consummate the proposed transaction with HP; the conditions to the completion of the proposed transaction, including the receipt of any required shareholder approvals and any required regulatory approvals; Xeroxs ability to finance the proposed transaction with HP; Xeroxs indebtedness, including the substantial indebtedness Xerox expects to incur in connection with the proposed transaction with HP and the need to generate sufficient cash flows to service and repay such debt; the possibility that Xerox may be unable to achieve expected synergies and operating efficiencies within the expected time-frames or at all and to successfully integrate HPs operations with those of Xerox; that such integration may be more difficult, time-consuming or costly than expected; that operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers or suppliers) may be greater than expected following the proposed transaction or the public announcement of the proposed transaction; the retention of certain key employees may be difficult; and general economic conditions that are less favorable than expected. Additional risks that may affect Xeroxs operations and other factors that are set forth in the "Risk Factors" section, the "Legal Proceedings" section, the "Managements Discussion and Analysis of Financial Condition and Results of Operations" section and other sections of Xerox Corporation's 2018 Annual Report on Form 10-K, as well as in Xerox Corporation's and Xerox Holdings 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 release or as of the date to which they refer, and Xerox assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.

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

Xerox ® , Iridesse ® , and Baltoro " are trademarks of Xerox in the United States and/or other countries.

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

(in millions, except per-share data)

 

2019

 

2018

 

2019

 

2018

Revenues

 

 

 

 

 

 

 

 

Sales (1)

 

$

919

 

 

$

958

 

 

$

3,227

 

 

$

3,454

 

Services, maintenance and rentals (1)

 

1,465

 

 

1,476

 

 

5,595

 

 

5,940

 

Financing

 

60

 

 

64

 

 

244

 

 

268

 

Total Revenues

 

2,444

 

 

2,498

 

 

9,066

 

 

9,662

 

Costs and Expenses

 

 

 

 

 

 

 

 

Cost of sales (1)

 

605

 

 

613

 

 

2,097

 

 

2,188

 

Cost of services, maintenance and rentals (1)

 

790

 

 

855

 

 

3,188

 

 

3,473

 

Cost of financing

 

33

 

 

32

 

 

131

 

 

132

 

Research, development and engineering expenses

 

93

 

 

94

 

 

373

 

 

397

 

Selling, administrative and general expenses

 

512

 

 

552

 

 

2,085

 

 

2,379

 

Restructuring and related costs

 

53

 

 

67

 

 

229

 

 

157

 

Amortization of intangible assets

 

10

 

 

12

 

 

45

 

 

48

 

Transaction and related costs, net

 

4

 

 

5

 

 

12

 

 

68

 

Other expenses, net

 

8

 

 

144

 

 

84

 

 

271

 

Total Costs and Expenses

 

2,108

 

 

2,374

 

 

8,244

 

 

9,113

 

Income before Income Taxes & Equity Income (2)

 

336

 

 

124

 

 

822

 

 

549

 

Income tax expense

 

73

 

 

34

 

 

179

 

 

247

 

Equity in net income of unconsolidated affiliates

 

3

 

 

2

 

 

8

 

 

8

 

Income from Continuing Operations

 

266

 

 

92

 

 

651

 

 

310

 

Income from discontinued operations, net of tax

 

553

 

 

49

 

 

710

 

 

64

 

Net Income

 

819

 

 

141

 

 

1,361

 

 

374

 

Less: Income from continuing operations attributable to noncontrolling interests

 


 

 

1

 

 

3

 

 

4

 

Less: Income from discontinued operations attributable to noncontrolling interests

 

1

 

 

3

 

 

5

 

 

9

 

Net Income Attributable to Xerox Holdings

 

$

818

 

 

$

137

 

 

$

1,353

 

 

$

361

 

 

 

 

 

 

 

 

 

 

Amounts Attributable to Xerox Holdings:

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

266

 

 

$

91

 

 

$

648

 

 

$

306

 

Income from discontinued operations

 

552

 

 

46

 

 

705

 

 

55

 

Net Income Attributable to Xerox Holdings

 

$

818

 

 

$

137

 

 

$

1,353

 

 

$

361

 

 

 

 

 

 

 

 

 

 

Basic Earnings per Share:

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.22

 

 

$

0.37

 

 

$

2.86

 

 

$

1.17

 

Discontinued operations

 

2.56

 

 

0.19

 

 

3.17

 

 

0.23

 

Basic Earnings per Share

 

$

3.78

 

 

$

0.56

 

 

$

6.03

 

 

$

1.40

 

 

 

 

 

 

 

 

 

 

Diluted Earnings per Share:

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.17

 

 

$

0.37

 

 

$

2.78

 

 

$

1.16

 

Discontinued operations

 

2.44

 

 

0.19

 

 

3.02

 

 

0.22

 

Diluted Earnings per Share

 

$

3.61

 

 

$

0.56

 

 

$

5.80

 

 

$

1.38

 

___________________________

(1) Certain prior year amounts have been conformed to the current year presentation. See Appendix III for this change in presentation.
(2) 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
December 31,

 

Year Ended
December 31,

(in millions)

 

2019

 

2018

 

2019

 

2018

Net income

 

$

819

 

 

$

141

 

 

$

1,361

 

 

$

374

 

Less: Net income attributable to noncontrolling interests (1)

 

1

 

 

4

 

 

8

 

 

13

 

Net Income Attributable to Xerox Holdings

 

818

 

 

137

 

 

1,353

 

 

361

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net

 

 

 

 

 

 

 

 

Translation adjustments, net

 

184

 

 

(83

)

 

62

 

 

(242

)

Unrealized (losses) gains, net

 

(9

)

 

11

 

 

(6

)

 

16

 

Changes in defined benefit plans, net

 

37

 

 

218

 

 

(1

)

 

409

 

Other Comprehensive Income, Net

 

212

 

 

146

 

 

55

 

 

183

 

Less: Other comprehensive loss, net attributable to noncontrolling interests (1)

 

(1

)

 


 

 


 

 


 

Other Comprehensive Income, Net Attributable to Xerox Holdings

 

213

 

 

146

 

 

55

 

 

183

 

 

 

 

 

 

 

 

 

 

Comprehensive Income, Net

 

1,031

 

 

287

 

 

1,416

 

 

557

 

Less: Comprehensive income from continuing operations, net attributable to noncontrolling interests (1)

 


 

 

4

 

 

8

 

 

13

 

Comprehensive Income, Net Attributable to Xerox Holdings

 

$

1,031

 

 

$

283

 

 

$

1,408

 

 

$

544

 

___________________________

(1) Includes continuing and discontinued operations.

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

(in millions, except share data in thousands)

 

December 31, 2019

 

December 31, 2018

Assets

 

 

 

 

Cash and cash equivalents

 

$

2,740

 

 

$

1,081

 

Accounts receivable, net

 

1,236

 

 

1,270

 

Billed portion of finance receivables, net

 

111

 

 

105

 

Finance receivables, net

 

1,158

 

 

1,218

 

Inventories

 

694

 

 

829

 

Assets of discontinued operations

 


 

 

19

 

Other current assets

 

201

 

 

191

 

Total current assets

 

6,140

 

 

4,713

 

Finance receivables due after one year, net

 

2,082

 

 

2,149

 

Equipment on operating leases, net

 

364

 

 

442

 

Land, buildings and equipment, net

 

426

 

 

498

 

Intangible assets, net

 

199

 

 

220

 

Goodwill

 

3,900

 

 

3,858

 

Deferred tax assets

 

596

 

 

740

 

Assets of discontinued operations

 


 

 

1,352

 

Other long-term assets

 

1,349

 

 

902

 

Total Assets

 

$

15,056

 

 

$

14,874

 

Liabilities and Equity

 

 

 

 

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

 

$

1,049

 

 

$

961

 

Accounts payable

 

1,053

 

 

1,073

 

Accrued compensation and benefits costs

 

349

 

 

348

 

Liabilities of discontinued operations

 


 

 

21

 

Accrued expenses and other current liabilities

 

984

 

 

848

 

Total current liabilities

 

3,435

 

 

3,251

 

Long-term debt

 

3,233

 

 

4,269

 

Pension and other benefit liabilities

 

1,707

 

 

1,482

 

Post-retirement medical benefits

 

352

 

 

350

 

Other long-term liabilities

 

512

 

 

269

 

Total Liabilities

 

9,239

 

 

9,621

 

 

 

 

 

 

Convertible Preferred Stock

 

214

 

 

214

 

 

 

 

 

 

Common stock

 

215

 

 

232

 

Additional paid-in capital

 

2,782

 

 

3,321

 

Treasury stock, at cost

 

(76

)

 

(55

)

Retained earnings

 

6,312

 

 

5,072

 

Accumulated other comprehensive loss

 

(3,637

)

 

(3,565

)

Xerox Holdings shareholders equity

 

5,596

 

 

5,005

 

Noncontrolling interests

 

7

 

 

34

 

Total Equity

 

5,603

 

 

5,039

 

Total Liabilities and Equity

 

$

15,056

 

 

$

14,874

 

 

 

 

 

 

Shares of common stock issued

 

214,621

 

 

231,690

 

Treasury stock

 

(2,031

)

 

(2,067

)

Shares of Common Stock Outstanding

 

212,590

 

 

229,623

 

...

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

(in millions)

 

2019

 

2018

 

2019

 

2018

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net Income

 

$

819

 

 

$

141

 

 

$

1,361

 

 

$

374

 

Income from discontinued operations, net of tax

 

(553

)

 

(49

)

 

(710

)