Xerox Holdings Corporation · NASDAQ:XRX
Xerox — Q3 2020 Earnings Presentation
26 slides from Xerox's earnings presentation, Oct 27, 2020
Slide 1: Earnings Presentation Q3 2020 Results
Earnings Presentation Q3 2020 RESULTS I OCTOBER 27, 2020
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation, 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”,
Slide 3: Q3 2020 Key Financial Measures
Q3 2020 Key Financial Measures Adj1 Earnings Per Share Revenue ($B) Adj1 Operating Margin $0.80 12.0% $2.2 $1.8 $0.48 7.4% 2020 2019 2020 2019 2020 2019 GAAP EPS $0.41 $0.68 2020 % Change: (18.9)% @ AC, (19.7)% @ CC1 Free Cash Flow1 ($M) Shareholder Returns ($M) $331 $61 $150 $61 $88 $68 2020 2019 2
Slide 4: Strategic Initiatives to Transform Xerox
Strategic Initiatives to Transform Xerox • Continuously improve operating model for greater efficiency Optimize operations • Further optimize the supply chain and supplier competitiveness for simplicity • Leverage digital technologies to make it easier to work with Xerox • Enhance the customer exper
Slide 5: Frequently Asked Questions
Frequently Asked Questions Do you expect long-term What actions have you taken What areas are you investing Have your capital allocation impacts to your business as a to mitigate the impact of in that could improve your priorities changed for 2020? result of the COVID-19 revenue declines as a result
Slide 6: Financial Results Summary
Financial Results Summary (in millions, except per share data) Q3 B/(W) % Change P&L Measures 2020 YOY YOY P&L Ratios Q3 2020 B/(W) YOY (18.9)% AC Revenue $ 1,767 $ (412) Gross Margin 36.8% (320) bps (19.7)% CC1 Operating Income – $ 131 $ (131) (50.0)% RD&E % 4.3% 30 bps Adjusted1 Other Expenses, ne
Slide 7: Cash Flow
Cash Flow (in millions) Q3 2020 Q3 2019 Pre-tax Income $ 119 $ 223 Non-cash add-backs1 122 141 Restructuring Payments (11) (17) Pension Contributions (33) (37) Working Capital, net2 (55) 88 Change in Finance Assets3 - (36) Other4 (36) (14) Cash from Operations $ 106 $ 348 Cash from Investing $ 9 $ 4
Slide 8: Revenue
Revenue B/(W) B/(W) YOY Equipment Revenue YOY 1% 16% 13% Q3 Q3 Q2 Q3 (in millions) % Mix 2020 2020 2020 2020 AC CC1 CC1 Entry Mid-Range Equipment $ 419 24% (15.2)% (16.1)% (38.0)% High-End Post Sale $1,348 76% (20.0)% (20.7)% (33.6)% Other Total Revenue $1,767 100% (18.9)% (19.7)% (34.6)% 70% Americ
Slide 9: Profitability and Earnings
Profitability and Earnings Adjusted1 Operating Margin Project Own It Contribution: 16.8% Target at least $450M of Gross Savings in 2020 14.1% 12.4% 12.0% Achieved ~$640M of Gross Savings in 2019 10.5% 11.0% 7.4% 4.7% 4.2% 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 Transaction Currency Impact • Pro
Slide 10: Capital Structure
Capital Structure Debt and Cash ($B) 9/30/2020 12/31/2019 Leverage Total Debt $ 5.1 $ 4.3 • Maintain 7:1 debt to equity leverage ratio on $3.4B of finance assets as of 9/30/2020 Less: Finance Debt (3.0) (3.3) • In Q3, refinanced 2020 debt maturities with proceeds Core Debt 2.1 1.0 from securitizatio
Slide 11: Q3 2020 Summary and Wrap Up
Q3 2020 Summary and Wrap Up Q3 2020 Results Revenue: $1.77B, down 19.7% year-over-year at CC1 Free Cash Flow1: $88M, down 73% ($243M) year-over- year Adjusted1 Operating Margin: 7.4%, a decrease of 460 basis points year-over-year Capital Allocation: Returned $211M to shareholders Adjusted1 EPS: $0.4
Slide 12: Appendix
© xerox Appendix
Slide 13: Operating Trends – Continuing Operations
Operating Trends – Continuing Operations 2018 2019 2020 (in millions, except EPS) FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Total Revenue $9,662 $2,180 $2,263 $2,179 $2,444 $9,066 $1,860 $1,465 $1,767 % Change (3.3)% (8.4)% (8.3)% (5.8)% (2.2)% (6.2)% (14.7)% (35.3)% (18.9)% CC1 % Change (4.0)% (6.0)% (6.7)% (4.7)
Slide 14: Non-GAAP Financial Measures
Non-GAAP Financial Measures 14 —
Slide 15: Non-GAAP Financial Measures
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 unders
Slide 16: Non-GAAP Financial Measures (cont’d)
Non-GAAP Financial Measures (cont’d) • 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 s
Slide 17: Non-GAAP Financial Measures (cont’d)
Non-GAAP Financial Measures (cont’d) Adjusted Operating Income/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, adj
Slide 18: Net Income and EPS reconciliation
Net Income and EPS reconciliation Three Months Ended Three Months Ended September 30, 2020 September 30, 2019 Net Net (in millions, except per share amounts) Income EPS Income EPS Reported(1) $ 90 $ 0.41 $ 157 $ 0.68 Adjustments: Restructuring and related costs 20 27 Amortization of intangible asset
Slide 19: Effective Tax Rate reconciliation
Effective Tax Rate reconciliation Three Months Ended Three Months Ended September 30, 2020 September 30, 2019 Pre-Tax Income Tax Effective Pre-Tax Income Tax Effective (in millions) Income Expense Tax Rate Income Expense Tax Rate Reported(1) $ 119 $ 29 24.4% $ 223 $ 66 29.6% Non-GAAP Adjustments(2)
Slide 20: Operating Income / Margin reconciliation
Operating Income / Margin reconciliation Three Months Ended Three Months Ended September 30, 2020 September 30, 2019 (in millions) Profit Revenue Margin Profit Revenue Margin Reported (1) $ 119 $ 1,767 6.7% $ 223 $ 2,179 10.2% Adjustments: Restructuring and related costs 20 27 Amortization of intang
Slide 21: Free Cash Flow reconciliation
Free Cash Flow reconciliation Three Months Ended September 30, (in millions) 2020 2019 Change Reported (1) $ 106 $ 348 $ (242) Capital expenditures (18) (17) (1) Free Cash Flow $ 88 $ 331 $ (243) ____________________ (1) Net cash provided by operating activities of continuing operations. 21 —
Slide 22: Other Expenses, Net reconciliation
Other Expenses, Net reconciliation Three Months Ended September 30, (in millions) 2020 2019 Reported $ (15) $ (1) Less: Non-service retirement-related costs (13) (2) Less: Contract termination costs – IT services - (8) Adjusted $ (2) $ 9 22 —
Slide 23: Net Income (Loss) and EPS reconciliation – historical
Net Income (Loss) and EPS reconciliation – historical Year Ended Year Ended December 31, December 31, Q3-18 Q4-18 2018 Q1-19 Q2-19 Q3-19 Q4-19 2019 Q1-20 Q2-20 Net Net Net Net Net Net Net Net Net (Loss) Net (Loss) (in millions, except per share amounts) Income EPS Income EPS Income EPS Income EPS In
Slide 24: Operating Income / Margin reconciliation – historical
Operating Income / Margin reconciliation – historical Year Ended Year Ended Q3-18 Q4-18 Decem ber 31, 2018 Q1-19 Q2-19 Q3-19 Q4-19 Decem ber 31, 2019 Q1-20 Q2-20 (Loss) (in millions) Profit Revenue Margin Profit Revenue Margin Profit Revenue Margin Profit Revenue Margin Profit Revenue Margin Profit
Slide 25: Free Cash Flow reconciliation – historical
Free Cash Flow reconciliation – historical Year Ended Year Ended December 31, December 31, 2018 Q1-19 Q2-19 Q3-19 Q4-19 2019 Q1-20 Q2-20 (in millions, except per share amounts) Reported (1) $ 1,082 $ 222 $ 276 $ 348 $ 398 $ 1,244 $ 173 $ 34 Capital expenditures (90) (15) (16) (17) (17) (65) (23) (19
Slide 26: © 2020 Xerox Corporation. All rights reserved. Xerox® is a trademark of Xerox Corporation
© 2020 Xerox Corporation. All rights reserved. Xerox® is a trademark of Xerox Corporation in the United States and/or other countries.