Xerox said it plans to “stand up” three separate businesses in software, financing and innovation by next year, though it has not determined a corporate structure for them.
“We are positioned to return to growth in 2021 and expand into new markets,” said Xerox CEO John Visentin on an earnings call Tuesday. “We plan to stand up three separate businesses: software, financing and innovation by 2022 to provide greater focus, flexibility, and visibility. We plan to identify the right long-term structure for each of these businesses, which may include utilizing the holding company structure.”
During a question-and-answer period, one analyst asked if “stand up” meant to spin them out as separate companies, to include individual headquarters and boards of directors, or if they would be included under the Xerox Holding Company structure, Visentin said “stay tuned.”
“The revenue trajectory and the market opportunity that we see in these three areas gives us confidence to stand them up as a separate business,” Visentin said. “To become a separate business it will allow each area to be more focused and flexible in responding to the demands of the market. We are working to identify a long-term structure for each of these businesses which may include the use of the holding company structure for finance and innovation.”
The software business will fall under the leadership of Xerox President and Chief Operations Officer Steve Bandrowczak. Prior to working at Xerox, he has held senior executive roles at Lenovo, Nortel, Avaya and HP. Whatever structure the software business takes, it will include DocuShare, the company’s cloud-based content management application, XMPie, multi-channel marketing software, and the Xerox Content Hub, that uses XMPie and Xerox printers to create content.
Additionally, Xerox said its acquisition of CareAR, an augmented reality business that offers live virtual assistance technology, will also part of that business.
Xerox CFO Xavier Heiss said the company had not yet determined costs that could be associated with creating the three companies.
Additionally, Xerox said it will launch a $250 million venture capital fund to invest in startups and early- to mid-stage growth companies that are focused on IT software services and artificial intelligence.
“The corporate venture capital fund will act as a bridge between internal and external innovation and commercialization efforts, building an ecosystem that drives growth through investment commercial partnerships and co development of new technologies,” Visentin said.
Xerox sales for the fourth quarter came in at $1.93 billion, down 21 percent from a year ago. Earnings per share came in at $0.36, off 69.2 percent from a year ago. For the fiscal year, Xerox revenue was down 22.5 percent to $7.02 billion. Earnings per share for the fiscal year was also down 69.8 percent to $0.84. Xerox shares closed up $0.32 to 21.07 yesterday following earnings.
“In 2021, we expect revenue to be at least $7.2 billion in constant currency, operating cash flow from continuing operation to be at least $600 million and free cashflow to be at least $500 million,” Visentin said. “We believe this is achievable even in the unlikely scenario that businesses don’t start opening in the first half.”
However, Visentin said the company-wide efficiency plan he introduced in 2018 has resulted in $1.4 billion in savings thus far, with another $375 million expected to be saved in 2021. He said they returned 112 percent of free cash to share holders last year, even as revenue was down double digits, and offices were closed in nearly every geography.
“Despite global office closure and widespread economic impact of the virus, Xerox regained the top spot in total equipment sales revenue market share in our territory, held the No. 1 position in both mid and production segments and took share in entry (level equipment),” Visentin said.