Xerox Releases Fourth-Quarter and Full-Year Results

Plans to create separate Software, Financing and Innovation businesses, launch corporate venture capital fund

Financial Summary

• $235 million of operating cash flow from continuing operations in Q4, up $129 million from Q3 and down $163 million year-over-year (YOY); $548 million of full-year (FY) operating cash flow from continuing operations, down $696 million YOY.
• $221 million of free cash flow in Q4, up $133 million from Q3 and down $160 million YOY; $474 million of FY free cash flow, down $705 million YOY.
• Q4 adjustedoperating margin of 9.5 percent, up 210 basis points from Q3 and down 730 basis points YOY; FY adjustedoperating margin of 6.6 percent, down 650 basis points YOY.
• Q4 GAAP earnings per share (EPS) from continuing operations of $0.36, down $0.05 from Q3 and down $0.81 YOY; FY GAAP EPS from continuing operations of $0.84, down $1.94 YOY.
• Q4 adjusted EPS of $0.58, up $0.10 from Q3 and down $0.75 YOY; FY adjusted EPS of $1.41, down $2.14 YOY.
• $1.930 billion of Q4 revenue, up 9.2 percent or 8.5 percent in constant currency compared to Q3 and down 21.0 percent or 22.3 percent in constant currency YOY.
• $7.022 billion of FY revenue, down 22.5 percent YOY or 22.7 percent in constant currency YOY.
• Delivered $450 million of gross savings in 2020 under Project Own It.
• Returned 112 percent of free cash flow to shareholders in 2020.

NORWALK, Conn.–(BUSINESS WIRE)–$XRX—Xerox Holdings Corporation (NYSE: XRX) today announced 2020 fourth-quarter and full-year results and guidance for 2021.

“Times of adversity require working in unison, and I couldn’t be prouder of the way our team came together. We put our strategy to the test in 2020, delivering positive earnings per share and free cash flow, while returning capital to shareholders and continuing to invest in our future. The team’s discipline allowed us to turn on a dime, tightly controlling expenses while steadfastly supporting clients,” said Xerox Vice Chairman and CEO John Visentin. “Though the impact of the pandemic continues in 2021, we expect to return to growth this year as we increase the breadth of offerings and reach new customers in existing and new businesses.”

Fourth-Quarter Key Financial Results – Continuing Operations:

Full-Year Key Financial Results – Continuing Operations:

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^{(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.}

New Businesses to Deliver Continuous Growth

Xerox announced its intention to stand up its Software, Financing and Innovation organizations as separate and distinct businesses by 2022.

• The Software business will include a growing portfolio comprised of: DocuShare^®, a cloud-based content management system; XMPie, software that supports multichannel marketing campaigns; and CareAR, an augmented reality business Xerox acquired in late 2020. CareAR has signed agreements with a number of major companies.

• Xerox Financial Services (XFS) will become a global payment solutions business, offering leasing for Xerox and third-party technology and office equipment. This will expand the company’s customer base, create cross-selling opportunities and provide more leasing options for small and medium-sized businesses.

• The Palo Alto Research Center (PARC) has been central in advancing the company’s innovation portfolio including 3D Printing and Digital Manufacturing, IoT Sensors and Services, and Clean Technology. Xerox installed its first 3D printer for a client in December, and IoT solutions are at work with the U.S. Defense Advanced Research Projects Agency and other clients.

In the coming months, Xerox will establish a $250 million corporate venture capital fund to invest in start-ups and early and mid-stage growth companies aligned with the company’s innovation pillars and targeted adjacencies. The corporate venture capital fund will further enhance the company’s existing innovation ecosystem and drive growth through investment, commercial partnerships and co-development of new technologies.

2021 Guidance

Despite the high-level of economic uncertainty, the company expects continued progress on its strategic initiatives as projected in its 2021 financial guidance:

• Revenue of at least $7.2 billion in constant currency or approximately 2.5 percent growth
• Operating cash flow from continuing operations of at least $600 million and free cash flow of at least $500 million

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:

• 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 income and margin.
• 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 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; and the shared services arrangements entered into by us as part of Project Own It. 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 2019 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 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.

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Xerox^® and DocuShare^® are trademarks of Xerox in the United States and/or other countries.

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

Impact of COVID-19 on Our Business Operations

In response to the COVID-19 pandemic, we have prioritized the health and safety of our employees, customers and partners to support their needs in the current hybrid environment so work can be done flawlessly, migrating between the workplace and the home-office. The pandemic has significantly impacted our sales of equipment and unbundled supplies as businesses hold off or delay purchases; due to their transactional nature, we expect that these sales will continue to fluctuate and gradually improve concurrent with office building reopenings and the roll-out of vaccinations, which is anticipated to allow more of our customers’ employees to return to the office. Our bundled services contracts, on average, include a significant variable component based on print volumes, and a minimum fixed charge. The variable charges are impacted by our customers’ employees not being in the office using our equipment and services due to lock-downs or capacity restrictions in office buildings; we expect that this contractual relationship will continue to enable us to ramp up and support our customers’ needs as businesses resume operations.

We have a strong balance sheet and sufficient liquidity, including access to our undrawn $1.8 billion revolver. We further strengthened our liquidity with the early-redemption of all of our 2021 senior unsecured debt maturities during fourth quarter 2020, with the proceeds from the issuance of new senior unsecured notes and from finance receivables securitizations. With our Project Own It transformation and cost savings, we built a leaner and more flexible cost structure, and have also focused our efforts on incremental actions to prioritize and preserve cash as we manage through the pandemic. These actions include the use of available temporary government assistance measures and furlough programs, and the reduction of discretionary spend such as near-term targeted marketing programs, the use of contract employees, and the temporary suspension of 401(k) matching contributions, as well as lower compensation incentives consistent with lower sales and operating results.

The recent resurgence of the virus in several European countries and U.S. regions contributes to the remaining uncertainty around the trajectory, duration and economic impact of the pandemic in the near term, however we expect that measures to control the infection rate and expand economic activity will result in a moderate economic improvement in 2021. We expect to continue our actions to mitigate the effects of the pandemic on our business operations and financial performance.

Government Assistance and Furlough Programs

In response to the COVID-19 pandemic, various governments have enacted temporary measures to provide aid and economic stimulus directly to companies through cash grants and credits or indirectly through payments to temporarily furloughed employees.

In March 2020, in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Contacts

Media:

Caroline Gransee-Linsey, Xerox, +1-203-849-2359, Caroline.Gransee-Linsey@xerox.com

Investors:

Ann Pettrone, Xerox, +1-203-849-2590, Ann.Pettrone@xerox.com

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