Xerox Releases Fourth-Quarter and Full-Year Results

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

Financial Summary 

• $1.78 billion of revenue in Q4, down 7.9 percent year-over-year, or down 7.4 percent in constant currency; $7.04 billion of FY revenue, up 0.2 percent year-over-year, or down 1.4 percent in constant currency.
• Q4 and FY GAAP (loss)/earnings per share (EPS) of $(3.97) and $(2.56), down $4.33 and $3.40 year-over-year, respectively. Both Q4 and FY GAAP EPS include an after-tax non-cash goodwill impairment charge of $750 million or $4.38 and $4.08 per share, respectively.  
• Q4 and FY adjusted EPS of $0.34 and $1.51, down $0.24 and up $0.10 year-over-year, respectively.
• Q4 adjusted operating margin of 4.8 percent, down 470 basis points year-over-year; FY adjusted operating margin of 5.3 percent, down 130 basis points year-over-year.
• $198 million of operating cash flow in Q4, down $37 million year-over-year; $629 million of FY operating cash flow, up $81 million year-over-year.
• $182 million of free cash flow in Q4, down $39 million year-over-year; $561 million of FY free cash flow, up $87 million year-over-year.
• Delivered $375 million of targeted 2021 gross cost savings through Project Own It, or $1.8 billion since inception.
• Returned more than $1 billion to shareholders, close to double FY 2021 free cash flow.

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

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

Fourth-Quarter Key Financial Results:
(in millions, except per share data)	Q4 2021	Q4 2020	B/(W) YOY	% Change YOY
Revenue	$1,777	$1,930	$(153)	(7.9) % AC (7.4) % CC1
Gross Margin	32.9%	36.2%	(330) bps
RD&E %	4.2%	3.9%	(30) bps
SAG %	23.8%	22.8%	(100) bps
Pre-Tax (Loss) Income1	$(711)	$103	$(814)	NM
Pre-Tax (Loss) Income Margin	(40.0)%	5.3%	NM
Operating Income – Adjusted2	$86	$184	$(98)	(53.3)%
Operating Margin – Adjusted2	4.8%	9.5%	(470) bps
GAAP (Loss) Earnings per Share1	$(3.97)	$0.36	$(4.33)	NM
Earnings Per Share – Adjusted2	$0.34	$0.58	$(0.24)	(41.4)%

Full-Year Key Financial Results:
(in millions, except per share data)	FY 2021	FY 2020	B/(W) YOY	% Change YOY
Revenue	$7,038	$7,022	$16	0.2 % AC (1.4) % CC1
Gross Margin	34.1%	37.4%	(330) bps
RD&E %	4.4%	4.4%	–
SAG %	24.4%	26.4%	200 bps
Pre-Tax (Loss) Income1	$(475)	$252	$(727)	NM
Pre-Tax (Loss) Income Margin	(6.7)%	3.6%	NM
Operating Income – Adjusted2	$375	$464	$(89)	(19.2)%
Operating Margin – Adjusted2	5.3%	6.6%	(130) bps
GAAP (Loss) Earnings per Share1	$(2.56)	$0.84	$(3.40)	NM
Earnings Per Share – Adjusted2	$1.51	$1.41	$0.10	7.1%

<sup>________________

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

(2) Refer to the “Non-GAAP Financial Measures” section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.</sup>

2022 Guidance

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

• Revenue of at least $7.1 billion in actual currency
• Free cash flow of at least $400 million
• Return at least 50% of free cash flow to shareholders

Non-GAAP Measures

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

• Adjusted EPS, which excludes the Goodwill impairment charge as well as Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net, non-service retirement-related costs, and other discrete adjustments from GAAP-EPS, as applicable.
• Adjusted operating margin and income, which exclude the EPS adjustments noted above as well as the remainder of Other expenses, net from pre-tax (loss) income and margin.
• Constant currency (CC) revenue change, which excludes the effects of currency translation.
• Free cash flow, which is operating cash flow less capital expenditures.

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

Forward-Looking Statements

This release, and other written or oral statements made from time to time by management contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “will”, “should”, “targeting”, “projecting”, “driving” and similar expressions, as they relate to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include but are not limited to: the effects of the COVID-19 pandemic on our and our customers’ businesses and the duration and extent to which this will impact our future results of operations and overall financial performance; our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; our ability to attract and retain key personnel; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; changes in foreign currency exchange rates; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; the risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring actions; the risk that confidential and/or individually identifiable information of ours, our customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyber attacks or other intentional acts; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; the exit of the United Kingdom from the European Union; our ability to manage changes in the printing environment and expand equipment placements; interest rates, cost of borrowing and access to credit markets; funding requirements associated with our employee pension and retiree health benefit plans; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; any impacts resulting from the restructuring of our relationship with Fujifilm Holdings Corporation; the shared services arrangements entered into by us as part of Project Own It; whether CareAR’s service experience management platform will achieve expectations regarding customer adoption, integration with ServiceNow’s platform, and cost and carbon emission reduction; and the financial performance of CareAR, including projected revenue for fiscal years 2021 and 2022. Additional risks that may affect Xerox’s operations and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of Xerox Holdings Corporation’s and Xerox Corporation’s combined 2020 Annual Report on Form 10-K, as well as in Xerox Holdings Corporation’s and Xerox Corporation’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC.

These forward-looking statements speak only as of the date of this presentation or as of the date to which they refer, and Xerox assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.

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XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)
		Three Months Ended December 31,							Year Ended December 31,
(in millions, except per-share data)		2021				2020			2021				2020
Revenues
Sales		$	653			$	773		$	2,582			$	2,449
Services, maintenance and rentals			1,069				1,101			4,235				4,347
Financing			55				56			221				226
Total Revenues			1,777				1,930			7,038				7,022
Costs and Expenses
Cost of sales			476				541			1,862				1,742
Cost of services, maintenance and rentals			691				658			2,662				2,533
Cost of financing			26				32			111				121
Research, development and engineering expenses			75				75			310				311
Selling, administrative and general expenses			423				440			1,718				1,851
Goodwill impairment			781				—			781				—
Restructuring and related costs, net			(1	)			29			38				93
Amortization of intangible assets			13				22			55				56
Transaction and related costs, net			—				—			—				18
Other expenses, net			4				30			(24	)			45
Total Costs and Expenses			2,488				1,827			7,513				6,770
(Loss) Income before Income Taxes & Equity Income(1)			(711	)			103			(475	)			252
Income tax (benefit) expense			(36	)			28			(17	)			64
Equity in net income of unconsolidated affiliates			1				2			3				4
Net (Loss) Income			(674	)			77			(455	)			192
Less: Net income attributable to noncontrolling interests			1				—			—				—
Net (Loss) Income Attributable to Xerox Holdings		$	(675	)		$	77		$	(455	)		$	192
Basic (Loss) Earnings per Share		$	(3.97	)		$	0.37		$	(2.56	)		$	0.85
Diluted (Loss) Earnings per Share		$	(3.97	)		$	0.36		$	(2.56	)		$	0.84

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⁽¹⁾ Referred to as “Pre-Tax (Loss) Income” throughout the remainder of this document.

XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
		Three Months Ended December 31,							Year Ended December 31,
(in millions)		2021				2020			2021				2020
Net (Loss) Income		$	(674	)		$	77		$	(455	)		$	192
Less: Net income attributable to noncontrolling interests			1				—			—				—
Net (Loss) Income Attributable to Xerox Holdings			(675	)			77			(455	)			192
Other Comprehensive (Loss) Income, Net
Translation adjustments, net			(19	)			234			(141	)			241
Unrealized (losses) gains, net			(1	)			—			(4	)			4
Changes in defined benefit plans, net			367				27			489				69
Other Comprehensive Income, Net Attributable to Xerox Holdings			347				261			344				314
Comprehensive (Loss) Income, Net			(327	)			338			(111	)			506
Less: Comprehensive income, net attributable to noncontrolling interests			1				—			—				—
Comprehensive (Loss) Income, Net Attributable to Xerox Holdings		$	(328	)		$	338		$	(111	)		$	506

XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data in thousands)		December 31, 2021				December 31, 2020
Assets
Cash and cash equivalents		$	1,840			$	2,625
Accounts receivable (net of allowance of $58 and $69, respectively)			818				883
Billed portion of finance receivables (net of allowance of $4 and $4, respectively)			94				99
Finance receivables, net			1,042				1,082
Inventories			696				843
Other current assets			211				251
Total current assets			4,701				5,783
Finance receivables due after one year (net of allowance of $114 and $129, respectively)			1,934				1,984
Equipment on operating leases, net			253				296
Land, buildings and equipment, net			358				407
Intangible assets, net			211				237
Goodwill			3,287				4,071
Deferred tax assets			519				508
Other long-term assets			1,960				1,455
Total Assets		$	13,223			$	14,741
Liabilities and Equity
Short-term debt and current portion of long-term debt		$	650			$	394
Accounts payable			1,069				983
Accrued compensation and benefits costs			239				261
Accrued expenses and other current liabilities			871				840
Total current liabilities			2,829				2,478
Long-term debt			3,596				4,050
Pension and other benefit liabilities			1,373				1,566
Post-retirement medical benefits			277				340
Other long-term liabilities			481				497
Total Liabilities			8,556				8,931
Noncontrolling Interests			10				—
Convertible Preferred Stock			214				214
Common stock			168				198
Additional paid-in capital			1,802				2,445
Treasury stock, at cost			(177	)			—
Retained earnings			5,631				6,281
Accumulated other comprehensive loss			(2,988	)			(3,332	)
Xerox Holdings shareholders’ equity			4,436				5,592
Noncontrolling interests			7				4
Total Equity			4,443				5,596
Total Liabilities and Equity		$	13,223			$	14,741
Shares of common stock issued			168,069				198,386
Treasury stock			(8,675	)			—
Shares of Common Stock Outstanding			159,394				198,386

XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Three Months Ended December 31,								Year Ended December 31,
(in millions)		2021				2020				2021				2020
Cash Flows from Operating Activities
Net (loss) income		$	(674	)		$	77			$	(455	)		$	192
Adjustments required to reconcile Net (loss) income to Cash flows from operating activities
Depreciation and amortization			78				96				327				368
Provisions			8				23				46				147
Net gain on sales of businesses and assets			—				(1	)			(40	)			(30	)
Stock-based compensation			10				10				54				42
Goodwill impairment			781				—				781				—
Restructuring and asset impairment charges			(1	)			40				27				87
Payments for restructurings			(11	)			(18	)			(72	)			(81	)
Defined benefit pension cost			(5	)			12				(10	)			58
Contributions to defined benefit pension plans			(33	)			(42	)			(135	)			(139	)
Decrease in accounts receivable and billed portion of finance receivables			71				37				41				369
Decrease (increase) in inventories			78				140				88				(134	)
Increase in equipment on operating leases			(37	)			(32	)			(129	)			(118	)
(Increase) decrease in finance receivables			(13	)			(38	)			20				183
Decrease in other current and long-term assets			4				6				68				8
Increase (decrease) in accounts payable			44				(54	)			118				(123	)
Decrease in accrued compensation			(39	)			(40	)			(95	)			(189	)
Increase (decrease) in other current and long-term liabilities			9				(19	)			89				(165	)
Net change in income tax assets and liabilities			(68	)			19				(79	)			32
Net change in derivative assets and liabilities			3				2				2				1
Other operating, net			(7	)			17				(17	)			40
Net cash provided by operating activities			198				235				629				548
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software			(16	)			(14	)			(68	)			(74	)
Proceeds from sales of businesses and assets			5				1				44				30
Acquisitions, net of cash acquired			(15	)			(10	)			(53	)			(203	)
Other investing, net			(5	)			—				(8	)			1
Net cash used in investing activities			(31	)			(23	)			(85	)			(246	)
Cash Flows from Financing Activities
Net (payments) proceeds on debt			(75	)			(636	)			(208	)			133
Dividends			(49	)			(54	)			(206	)			(230	)
Payments to acquire treasury stock, including fees			(388	)			(150	)			(888	)			(300	)
Other financing, net			(5	)			—				(8	)			(19	)
Net cash used in financing activities			(517	)			(840	)			(1,310	)			(416	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(3	)			22				(16	)			10
Decrease in cash, cash equivalents and restricted cash			(353	)			(606	)			(782	)			(104	)
Cash, cash equivalents and restricted cash at beginning of period			2,262				3,297				2,691				2,795
Cash, Cash Equivalents and Restricted Cash at End of Period		$	1,909			$	2,691			$	1,909			$	2,691

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 at a remote location.

During the fourth quarter 2021, our business continued to be impacted by the COVID-19 pandemic. Although the current trajectory of the Omicron variant suggests its impact may be shorter and less severe than previous variants, the Omicron variant continued to negatively impact workplace attendance and post sale revenue in the fourth quarter as compared to prior year. We experienced a modest increase in post sale revenue in fourth quarter 2021, as compared to third quarter 2021, however, the prolonged and extensive impact of the COVID-19 variants continue to cause many of our customers to delay their plans of returning employees to the office. We currently anticipate an increase in workplace attendance and post sale revenue in the second half of 2022. Although we are seeing improvements in overall global supply chain issues created in part by the COVID-19 pandemic, such as those relating to transportation and logistics, these issues continue to result in unprecedented levels of disruption, causing shortages and transportation delays of both our products and third-party IT hardware. These supply chain disruptions have not materially improved in the fourth quarter of 2021 and we expect they will remain a challenge throughout the first half of 2022. 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, with improvements anticipated in the second half of 2022.

Goodwill Impairment

Fourth quarter 2021 includes an after-tax non-cash goodwill impairment charge of $750 million ($781 million pre-tax) or $4.38 per share. This charge largely reflects the fact that Xerox’s print business has been and will continue to be impacted by the economic disruption caused by the COVID-19 pandemic, and includes a recognition that some companies will maintain some form of a hybrid workplace indefinitely. This development will continue to have an impact on the print business as compared to pre-pandemic levels. We expect to mitigate some of this impact by offering more digital services and other offerings that are targeted for the hybrid business model. Additionally, the Company is currently pursuing a strategy to develop and expand certain growth businesses such as financing, software and innovation to offset and eventually exceed the reduced cash flows from the print business.

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⁽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 December 31,										% of Total Revenue
(in millions)		2021			2020			% Change		CC % Change		2021		2020
Equipment sales		$	384		$	510		(24.7)%		(23.9)%		22%		26%
Post sale revenue			1,393			1,420		(1.9)%		(1.4)%		78%		74%
Total Revenue		$	1,777		$	1,930		(7.9)%		(7.4)%		100%		100%
Reconciliation to Condensed Consolidated Statements of (Loss) Income:
Sales		$	653		$	773		(15.5)%		(14.8)%
Less: Supplies, paper and other sales			(269)			(263)		2.3%		2.7%
Equipment Sales		$	384		$	510		(24.7)%		(23.9)%
Services, maintenance and rentals		$	1,069		$	1,101		(2.9)%		(2.4)%
Add: Supplies, paper and other sales			269			263		2.3%		2.7%
Add: Financing			55			56		(1.8)%		(1.9)%
Post Sale Revenue		$	1,393		$	1,420		(1.9)%		(1.4)%
Americas		$	1,096		$	1,208		(9.3)%		(9.5)%		62%		63%
EMEA			636			675		(5.8)%		(3.9)%		36%		35%
Other			45			47		(4.3)%		(4.3)%		2%		2%
Total Revenue(1)		$	1,777		$	1,930		(7.9)%		(7.4)%		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 December 31,										% of Equipment Sales
(in millions)		2021			2020			% Change		CC % Change		2021		2020
Entry		$	76		$	70		8.6%		10.1%		20%		14%
Mid-range			214			309		(30.7)%		(30.3)%		56%		61%
High-end			86			119		(27.7)%		(26.5)%		22%		23%
Other			8			12		(33.3)%		(33.3)%		2%		2%
Equipment Sales		$	384		$	510		(24.7)%		(23.9)%		100%		100%

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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 December 31,
(in millions)		2021				2020				B/(W)
Gross Profit		$	584			$	699			$	(115	)
RD&E			75				75				—
SAG			423				440				17
Equipment Gross Margin			22.0	%			28.9	%			(6.9	)	pts.
Post sale Gross Margin			35.8	%			38.8	%			(3.0	)	pts.
Total Gross Margin			32.9	%			36.2	%			(3.3	)	pts.
RD&E as a % of Revenue			4.2	%			3.9	%			(0.3	)	pts.
SAG as a % of Revenue			23.8	%			22.8	%			(1.0	)	pts.
Pre-tax (Loss) Income(1)		$	(711	)		$	103			$	(814	)
Pre-tax (Loss) Income Margin			(40.0	) %			5.3	%			(45.3	)	pts.
Adjusted(2) Operating Profit		$	86			$	184			$	(98	)
Adjusted(2) Operating Margin			4.8	%			9.5	%			(4.7	)	pts.

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⁽¹⁾ Includes a pre-tax non-cash goodwill impairment charge of $781 million.

⁽²⁾ Refer to the Non-GAAP Financial Measures section for an explanation of the non-GAAP financial measure.

Contacts

Media Contact:
Callie Ferrari, APR, Xerox, +1-203-615-3363, [email protected]

Investor Contact:
David Beckel, Xerox, +1-203-849-2318, [email protected]

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