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Xerox posts $US2 billion revenue hit from Covid-19

US print giant Xerox reported full-year revenue of $US7 billion for 2020, a 22.5% fall from 2019’s revenue of $US9.1 billion. “Though the impact of the pandemic continues in 2021, we expect to return to growth this year,” said CEO John Visentin. The company also unveiled plans to create separate Software, Financing and Innovation businesses, and will launch a $US250m corporate venture capital fund. 

 

xerox earnings 2020.jpeg

visentin xerox 2021“Times of adversity require working in unison, and I couldn’t be prouder of the way our team came together,” said Visentin (pictured, right). “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. 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.”

In its Q4 and FY20 Earnings Presentation to the US Securities and Exchange Commission, Xerox added: “While the near-term economic impacts of COVID-19 remain a headwind, we are optimistic with regards to tailwinds later in the year as the vaccine rollout progresses. Within print solutions, we are strengthening our go-to-market, pushing into higher margin portions of the value chain, and expanding professional services for print management.”

‘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 also 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.

Equipment sales

xerox installs“The COVID-19 pandemic significantly impacted our equipment sales revenue during the fourth quarter 2020 as a result of business closures and office building capacity restrictions that slowed our customers' purchasing decisions," Xerox said. "In addition, our mix of revenues from lower-end and black-and-white devices has increased as a result of hybrid workplace trends associated with the COVID-19 pandemic. The decline at constant currency reflected the following:

- Entry - "The decrease was driven primarily by lower sales of colour devices and product constraints with our black and white devices as a result of high demand for lower-end printers and MFPs (primarily of black-and-white devices) in part associated with hybrid-workplace trends and promotions, partially offset by higher sales of mono personal printers and MFPs in our developing regions in EMEA and Latin America.

- Mid-range - "The decrease was driven primarily by the COVID-19 pandemic and related office closures, which slowed sales of this group of products due to their prevalence in office-team settings. School closures in the U.S. also impacted sales of our PrimeLink light production mono devices. Higher sales to government accounts as well as demand for our new-generation of ConnectKey multi-function devices and successful demand campaigns in EMEA for our recently launched PrimeLink mono devices provided a partial offset.

- High-end - "The decrease reflected primarily lower installs of our Iridesse, iGen and Versant entry-production colour presses, partially offset by higher demand for our larger Baltoro cut-sheet inkjet press and higher sales in the U.S. of our continuous-feed colour systems, as well as higher installs of our Nuvera mono production presses in North America as a result of cyclical account refreshes. The decrease in our equipment sales revenue from production colour systems was greater for sales of our Iridesse and Versant systems in the SMB segment, where production printing applications depend on business reopenings."

xerox revenue 2020Financial 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 adjusted operating margin of 9.5 percent, up 210 basis points from Q3 and down 730 basis points YOY; FY adjusted operating 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.

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.