Xerox Releases First-Quarter Results

Financial Results

• $173 million of operating cash flow from continuing operations, down $49 million year-over-year, and $150 million of free cash flow, down $57 million year-over-year
• Adjusted operating margin of 4.7 percent, down 630 basis points year-over-year
• $1.86 billion of revenue, a decrease of 14.7 percent year-over-year or 13.9 percent in constant currency
• GAAP loss from continuing operations of $(0.03) per share, down $0.37 year-over-year, and adjusted earnings per share (EPS) of $0.21, down $0.45 year-over-year
• Withdraws 2020 financial guidance due to economic uncertainty caused by COVID-19

NORWALK, Conn.--(BUSINESS WIRE)--$XRX--Xerox Holdings Corporation (NYSE: XRX) announced its first-quarter 2020 financial results.

“During this unprecedented time, we are committed to doing everything in our power to protect our employees, customers, partners and society, because we all have a critical role to play battling the COVID-19 pandemic,” said Xerox Vice Chairman and CEO John Visentin. “While Xerox saw an immediate impact to our business due to the rapid implementation of lockdown measures globally, the disciplined approach we implemented over the last two years provided a foundation to move quickly to preserve cash, continue operations, provide support to our many clients on the frontlines, and apply our manufacturing and R&D expertise to help save lives. I’m incredibly proud of the Xerox team’s dedication and ingenuity during this extraordinary time.”

First-Quarter Key Financial Results - Continuing Operations

(in millions, except per share data)	Q1 2020	Q1 2019	B/(W) YOY	% Change YOY
Revenue	$1,860	$2,180	$(320)	(14.7)% AC (13.9)% CC1
Gross Margin	38.3%	40.2%	(190) bps
RD&E %	4.5%	4.2%	(30) bps
SAG %	29.1%	25.0%	(410) bps
Pre-Tax (Loss) Income	$(5)	$73	$(78)	nm
Pre-Tax (Loss) Income Margin	(0.3)%	3.3%	(360) bps
Operating Income - Adjusted1	$87	$239	$(152)	(63.6)%
Operating Margin - Adjusted1	4.7%	11.0%	(630) bps
GAAP (Loss) Earnings per Share	$(0.03)	$0.34	$(0.37)	nm
EPS - Adjusted1	$0.21	$0.66	$(0.45)	(68.2%)

^{(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.}

First-Quarter Business Highlights

• Identified ways to address some of society’s biggest needs created by the COVID-19 crisis such as producing FDA-approved, low cost ventilators; antiseptic hand sanitizer; and medical-grade face masks.
• Supported clients on the frontlines including federal, state, and local governments; healthcare providers; retailers; and emergency responders such as Imperial College Healthcare NHS Trust, Cleveland Clinic, the Defense Logistics Agency, Morrisons, and the Bank of New York Mellon.
• Expanded Xerox’s portfolio with the launch of IT Services for remote workers and learners, Virtual Print Management Service and Workplace Cloud Fleet Management, three offerings designed to support and accelerate digital transformation efforts of clients.
• Closed four acquisitions, expanding Xerox’s small and medium-sized business market presence in the U.K. and Canada.

2020 Guidance

The company is withdrawing its 2020 financial guidance for revenue, adjusted operating margin, EPS and free cash flow due to the high level of economic uncertainty and disruption caused by COVID-19.

About Xerox

Xerox Holdings Corporation 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 first-quarter 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 (loss)/earnings per share 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 (loss)/income.
• Constant currency (CC) revenue change, which excludes the effects of currency translation.
• Free cash flow, which is operating 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: 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.

The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remain uncertain.

The COVID-19 pandemic has negatively impacted the global economy, disrupted customer spending and global supply chains, and created significant volatility and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives within the expected time frames, will depend on future developments, including the duration and severity of the pandemic and the extent and effectiveness of containment actions, the availability of therapeutics and the development of a vaccine, which are uncertain and cannot be predicted.

Our operations are being negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, most countries, states, counties and cities have imposed and continue to impose a wide range of restrictions on our employees’, partners’ and customers’ physical movement to limit the spread of COVID-19 including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Such restrictions limit our ability, as well as that of our channel partners, to sell, install and service our equipment for our customers, negatively impacting our operations and financial performance. Further, many countries are requiring businesses to remain closed unless they or their employees are deemed essential. In turn, businesses are requiring their office employees to work from home for extended periods of time, which is negatively impacting both sales and use of Xerox products, supplies and services. The longer this persists, the greater effect it will have on our business.

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^® is a trademark of Xerox in the United States and/or other countries.

XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)
		Three Months Ended March 31,
(in millions, except per-share data)		2020				2019
Revenues
Sales		$	565			$	724
Services, maintenance and rentals		1,236				1,393
Financing		59				63
Total Revenues		1,860				2,180
Costs and Expenses
Cost of sales		387				450
Cost of services, maintenance and rentals		731				821
Cost of financing		30				32
Research, development and engineering expenses		84				92
Selling, administrative and general expenses		541				546
Restructuring and related costs		41				112
Amortization of intangible assets		11				15
Transaction and related costs, net		17				—
Other expenses, net		23				39
Total Costs and Expenses		1,865				2,107
(Loss) Income before Income Taxes & Equity Income(1)		(5		)		73
Income tax benefit		(1		)		(10		)
Equity in net income of unconsolidated affiliates		2				2
(Loss) Income from Continuing Operations		(2		)		85
Income from discontinued operations, net of tax		—				51
Net (Loss) Income		(2		)		136
Less: Income from continuing operations attributable to noncontrolling interests		—				1
Less: Income from discontinued operations attributable to noncontrolling interests		—				2
Net (Loss) Income Attributable to Xerox Holdings		$	(2	)		$	133
Amounts Attributable to Xerox Holdings:
(Loss) Income from continuing operations		$	(2	)		$	84
Income from discontinued operations		—				49
Net (Loss) Income Attributable to Xerox Holdings		$	(2	)		$	133
Basic (Loss) Earnings per Share:
Continuing operations		$	(0.03	)		$	0.35
Discontinued operations		—				0.22
Basic (Loss) Earnings per Share		$	(0.03	)		$	0.57
Diluted (Loss) Earnings per Share:
Continuing operations		$	(0.03	)		$	0.34
Discontinued operations		—				0.21
Diluted (Loss) Earnings per Share		$	(0.03	)		$	0.55

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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 March 31,
(in millions)		2020				2019
Net (Loss) Income		$	(2	)		$	136
Less: Income from continuing operations attributable to noncontrolling interests		—				1
Less: Income from discontinued operations attributable to noncontrolling interests		—				2
Net (Loss) Income Attributable to Xerox Holdings		(2		)		133
Other Comprehensive (Loss) Income, Net
Translation adjustments, net		(197		)		37
Unrealized gains, net		5				2
Changes in defined benefit plans, net		54				1
Other Comprehensive (Loss) Income, Net Attributable to Xerox Holdings		(138		)		40
Comprehensive (Loss) Income, Net		(140		)		176
Less: Comprehensive income, net from continuing operations attributable to noncontrolling interests		—				1
Less: Comprehensive income, net from discontinued operations attributable to noncontrolling interests		—				2
Comprehensive (Loss) Income, Net Attributable to Xerox Holdings		$	(140	)		$	173

XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data in thousands)		March 31, 2020				December 31, 2019
Assets
Cash and cash equivalents		$	2,622			$	2,740
Accounts receivable, net		1,060				1,236
Billed portion of finance receivables, net		108				111
Finance receivables, net		1,104				1,158
Inventories		824				694
Other current assets		259				201
Total current assets		5,977				6,140
Finance receivables due after one year, net		1,929				2,082
Equipment on operating leases, net		335				364
Land, buildings and equipment, net		426				426
Intangible assets, net		263				199
Goodwill		3,941				3,900
Deferred tax assets		604				598
Other long-term assets		1,309				1,338
Total Assets		$	14,784			$	15,047
Liabilities and Equity
Short-term debt and current portion of long-term debt		$	1,050			$	1,049
Accounts payable		1,122				1,053
Accrued compensation and benefits costs		271				349
Accrued expenses and other current liabilities		930				984
Total current liabilities		3,373				3,435
Long-term debt		3,238				3,233
Pension and other benefit liabilities		1,689				1,707
Post-retirement medical benefits		340				352
Other long-term liabilities		530				512
Total Liabilities		9,170				9,239
Convertible Preferred Stock		214				214
Common stock		213				215
Additional paid-in capital		2,712				2,782
Treasury stock, at cost		—				(76		)
Retained earnings		6,252				6,312
Accumulated other comprehensive loss		(3,784		)		(3,646		)
Xerox Holdings shareholders’ equity		5,393				5,587
Noncontrolling interests		7				7
Total Equity		5,400				5,594
Total Liabilities and Equity		$	14,784			$	15,047
Shares of common stock issued		212,831				214,621
Treasury stock		—				(2,031		)
Shares of Common Stock Outstanding		212,831				212,590

XEROX HOLDINGS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Three Months Ended March 31,
(in millions)		2020				2019
Cash Flows from Operating Activities
Net (Loss) Income		$	(2	)		$	136
Income from discontinued operations, net of tax		—				(51		)
(Loss) income from continuing operations		(2		)		85
Adjustments required to reconcile Net (loss) income to Cash flows from operating activities
Depreciation and amortization		94				118
Provisions		80				22
Net gain on sales of businesses and assets		(1		)		(1		)
Stock-based compensation		11				15
Restructuring and asset impairment charges		29				54
Payments for restructurings		(35		)		(33		)
Defined benefit pension cost		24				36
Contributions to defined benefit pension plans		(33		)		(34		)
Decrease in accounts receivable and billed portion of finance receivables		166				38
Increase in inventories		(126		)		(48		)
Increase in equipment on operating leases		(32		)		(30		)
Decrease in finance receivables		93				81
Increase in other current and long-term assets		(16		)		(2		)
Increase (decrease) in accounts payable		51				(32		)
Decrease in accrued compensation		(108		)		(73		)
(Decrease) increase in other current and long-term liabilities		(38		)		47
Net change in income tax assets and liabilities		(10		)		(21		)
Net change in derivative assets and liabilities		8				8
Other operating, net		18				(8		)
Net cash provided by operating activities of continuing operations		173				222
Net cash provided by operating activities of discontinued operations		—				4
Net cash provided by operating activities		173				226
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software		(23		)		(15		)
Proceeds from sales of businesses and assets		2				1
Acquisitions, net of cash acquired		(193		)		(4		)
Net cash used in investing activities		(214		)		(18		)
Cash Flows from Financing Activities
Net proceeds (payments) on debt		2				(402		)
Dividends		(58		)		(62		)
Payments to acquire treasury stock, including fees		—				(103		)
Other financing, net		(4		)		(2		)
Net cash used in financing activities		(60		)		(569		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(29		)		(1		)
Decrease in cash, cash equivalents and restricted cash		(130		)		(362		)
Cash, cash equivalents and restricted cash at beginning of period		2,795				1,148
Cash, Cash Equivalents and Restricted Cash at End of Period(1)		$	2,665			$	786

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⁽¹⁾ Balance at March 31, 2019 includes $1 million associated with discontinued operations.

Impact of COVID-19 on Our Business Operations and Withdrawal of Guidance

In response to the global COVID-19 pandemic crisis, we have prioritized the health and safety of our employees, customers and partners and continue to work to support their needs. While we continue to implement actions to mitigate the effect of this crisis on our business and operations, the uncertainty around the duration and economic impact of this crisis, makes it difficult for the company to predict the full impact on our business operations and financial performance. As a result, we have determined that it is necessary to withdraw our previously issued full year 2020 financial guidance.

We have modeled the potential impacts on our business of several recovery scenarios. Our base model assumes the greatest impact to our revenues from business closures to be during the second quarter, with an inflection point late in that period, and a gradual recovery during the third quarter. For the fourth quarter, we expect to get closer to our planned levels for that period. The most significant near-term impact from the crisis is on our equipment and unbundled supplies sales which are transactional in nature. Sales are expected to decline significantly as businesses hold off or delay purchases during the closure period. However, we expect this portion of the business to rebound in the second half as businesses reopen. The impact on revenues from lower equipment and supply sales is somewhat mitigated by bundled services, which are more contractual in nature. Our bundled services contracts, on average, include a minimum fixed charge and a significant variable component linked to print volumes. The variable charges are impacted by our customers' employees not being in the office and using our equipment due to current lock-down restrictions, however, we expect the contractual relationship with our customers will enable us to ramp up quickly for them when businesses resume operations. We expect that as closures are lifted, we will see more normalized trends emerge over the course of 2020.

We have a strong balance sheet and sufficient liquidity including the access to our undrawn $1.8 billion revolver as well as to receivables securitization and capital markets. We have also focused our efforts on incremental actions to prioritize and preserve cash as we manage through this crisis. These actions include the reduction of discretionary spend, such as compensation incentives, near term targeted marketing spend and the use of contract employees.

Revenues
		Three Months Ended March 31,												% of Total Revenue
(in millions)		2020				2019				% Change		CC % Change		2020		2019
Equipment sales		$	325			$	448			(27.5)%		(27.0)%		17%		21%
Post sale revenue		1,535				1,732				(11.4)%		(10.5)%		83%		79%
Total Revenue		$	1,860			$	2,180			(14.7)%		(13.9)%		100%		100%
Reconciliation to Condensed Consolidated Statements of (Loss) Income:
Sales		$	565			$	724			(22.0)%		(21.2)%
Less: Supplies, paper and other sales		(240		)		(276		)		(13.0)%		(11.7)%
Equipment Sales		$	325			$	448			(27.5)%		(27.0)%
Services, maintenance and rentals		$	1,236			$	1,393			(11.3)%		(10.5)%
Add: Supplies, paper and other sales		240				276				(13.0)%		(11.7)%
Add: Financing		59				63				(6.3)%		(5.6)%
Post Sale Revenue		$	1,535			$	1,732			(11.4)%		(10.5)%
Americas		$	1,239			$	1,410			(12.1)%		(11.8)%		67%		65%
EMEA		575				712				(19.2)%		(17.6)%		31%		33%
Other		46				58				(20.7)%		(20.7)%		2%		2%
Total Revenue(1)		$	1,860			$	2,180			(14.7)%		(13.9)%		100%		100%
Memo:
Xerox Services		$	776			$	853			(9.0)%		(8.1)%		42%		39%

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CC - Constant Currency (see "Non-GAAP Financial Measures" section).
⁽¹⁾ Refer to Appendix II for our Geographic Sales Channels and Products and Offerings Definitions.

First quarter 2020 total revenue decreased 14.7% as compared to first quarter 2019, including a 0.8-percentage point unfavorable impact from currency and an approximate 0.8-percentage point favorable impact from recent partner dealer acquisitions. The global COVID-19 pandemic crisis significantly impacted our first quarter 2020 revenues due to business closures during the month of March that impacted our customers' purchasing decisions, and caused delayed installations and lower printing volumes on our devices. While the global pandemic affected our European and North American operations only in March, the impact to our financial performance is disproportionate, as a significant portion of our revenues and profits are typically earned during the last month of the quarter as a result of purchase patterns and relatively complex installations of printing solutions at our customers' sites.

Contacts

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

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

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