Slide 1: Fourth-Quarter 2015 Earnings Presentation
Fourth-Quarter 2015 Earnings Presentation January 29, 2016 Ursula Burns Chairman & CEO Leslie Varon Chief Financial Officer (Interim)
Slide 2: Forward Looking Statements
Forward Looking Statements 2 This presentation contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to
Slide 3: Xerox to separate into two market-leading companies
Business Process Outsourcing Document Technology Xerox to separate into two market-leading companies 3 Printing Market leader Business Process Outsourcing leader Global leader in document management and document outsourcing with superior technology, solutions and innovation capabilities A leader in
Slide 4: Compelling rationale for two companies
4 Compelling rationale for two companies 4 Best-positions both companies to capitalize on value creation opportunities Enhanced Strategic and Operational Focus Distinct and Clear Financial Profiles Compelling Investment Cases Focus on continued operational discipline and capturing transformative pro
Slide 5: Document Technology: Global Leader in $90B Document Management and Outsourcing Market
Document Technology: Global Leader in $90B Document Management and Outsourcing Market 5 The first name in printing, helping clients harness the benefits of document management in an increasingly interconnected, digital world • Annuity driven revenue, more than 70% • Strong cost discipline • Strong f
Slide 6: BPO: Leading Enterprise for the next generation of Business Process Outsourcing
BPO: Leading Enterprise for the next generation of Business Process Outsourcing 6 Differentiated capabilities in managing transaction intensive processes and applying new innovations in a high growth market • Large base of recurring revenues (>90%) with high renewal rates • Driving for leadership in
Slide 7: Strategic Transformation Program
3 Year Strategic Transformation Program Comprehensive program to deliver operational competitiveness and agility, spans both Document Technology and Business Process Outsourcing businesses • Focus on sustainable strategic and operational initiatives • Strong track record of delivering productivity a
Slide 8: Value for all Stakeholders
Value for all Stakeholders Employees • Simplified and focused decision making • Direct alignment of performance and incentives • Attractive career development paths Clients • Rapid response to changing needs • Services delivery excellence • Continued innovation expertise Investors • Unique and compe
Slide 9: Transaction Overview
Transaction Structure • Separation into two strong, independent, publicly-traded companies • Intended to be tax-free to Xerox shareholders for federal income tax purposes Timing • Transaction is expected to be completed by year-end 2016 • Subject to market, regulatory and other conditions Key Steps
Slide 10: 4th Quarter Earnings
4th Quarter Earnings
Slide 11: Fourth-Quarter Overview
Fourth-Quarter Overview 1Adjusted EPS, Constant Currency (CC) and Operating Margin: see Non-GAAP Financial Measures 2GAAP EPS from Continuing Operations 11 Adjusted EPS1 of 32 cents; GAAP EPS2 of 27 cents Total revenue of $4.7B, down 8% or 5% CC1 Services revenue down 3% or flat CC1; margin of 9.4%
Slide 12: Earnings
Earnings (in millions, except per share data) Q4 2015 B/(W) YOY Comments Revenue $ 4,653 $ (380) Decline driven by Document Technology and currency Gross Margin 31.3% (0.8) pts RD&E $ 145 $ 5 SAG $ 883 $ 59 Adjusted Operating Income1 $ 428 $ (96) Lower revenues pressure margin; accelerating producti
Slide 13: Services Segment
Services Segment Revenue flat at CC1 • Document Outsourcing up 3%, BPO down 2% Margin of 9.4% up sequentially and above guidance of 9.0% Seeing benefits of new Services operating model, expect further improvement in 2016 Signings • New business signings3 up 22% YOY, down 1% TTM • Includes FL Tolling
Slide 14: Document Technology Segment
Document Technology Segment Segment Margin Trend Revenue Growth Trend (CC1) Revenue down 10% at CC1,2 • Driven by lower supplies and continued pressure in developing markets • Equipment share leader for 24 straight quarters Including Document Outsourcing, printing revenue down 6% in Q4 and 5% FY at
Slide 15: Cash Flow
Cash From Ops $878M in Q4, $1.6B FY • Free Cash Flow $798M in Q4, $1.3B FY Higher contribution from working capital CAPEX $80M in Q4, $342M FY Acquisitions $9M in Q4, $210M FY Share Repurchase of $1.3B FY Common Stock Dividends $71M in Q4, $302M FY Cash Flow 15 1Accounts receivable includes collecti
Slide 16: Capital Structure
0 2,000 4,000 6,000 8,000 10,000 2011 2012 2013 2014 2015 Finance Debt Core Debt Finance Assets Capital Structure Core debt level managed to maintain investment grade rating Over half of Xerox debt supports finance assets $7.4B of debt at year-end 16 Financing and Leverage • Xerox’s value propositio
Slide 17: Capital Allocation Enhances Shareholder Returns
Capital Allocation Enhances Shareholder Returns Share Repurchase of $1.3B FY • Reduced shares ~10% in 2015 Acquisitions of $210M FY Common Stock dividends of $302M FY Announcing 11% common dividend increase2 to 31 cents per share annually 17 Share Repurchase Program Dividend Program 1Ending fully di
Slide 18: 2016 Guidance
2016 Guidance (reflects new reporting basis) Notes: • Revenue growth guidance excluding potential divestitures • Constant Current calculation to include developing markets beginning in 2016 • Segment definitions to be adjusted to move Education/Student Loan business to the Other Segment and to exclu
Slide 19: Xerox Separation is the best path to enhance shareholder value
Xerox Confidential Separation is the best path to enhance shareholder value Key Takeaways • Two strong market-leading companies positioned to capture unique industry opportunities and maximize value • Each company with resources and focus to capitalize on growth opportunities in its respective marke
Slide 20: Appendix
Appendix
Slide 21: Revenue Trend
Revenue Trend (in millions) FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3* Q4 FY** Total Revenue $20,006 $4,771 $4,941 $4,795 $5,033 $19,540 $4,469 $4,590 $4,449 $4,653 $18,161 Growth (2)% (2)% (2)% (2)% (3)% (2)% (6)% (7)% (7)% (8)% (7)% CC1 Growth (3)% (2)% (3)% (2)% (1)% (2)% (2)% (3)% (4)% (5)% (3)% Annuity $16,64
Slide 22: Segment Revenue Trend
Segment Revenue Trend (in millions) FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3* Q4 FY** Services $10,479 $2,585 $2,651 $2,623 $2,725 $10,584 $2,514 $2,569 $2,532 $2,638 $10,253 Growth 2% Flat 1% 1% 1% 1% (3)% (3)% (3)% (3)% (3)% CC1 Growth 2% Flat 1% 1% 3% 1% 1% 1% Flat Flat Flat Document Technology $8,908 $2,044 $
Slide 23: Discontinued Operations Summary
Discontinued Operations Summary (1) ITO Income from operations for fourth quarter 2014 and full year 2014 includes approximately $40 million and $161 million, respectively, of depreciation and amortization expenses (including intangible amortization of approximately $6 million and $27 million, respe
Slide 24: 2016 Planned Reporting Changes
2016 Planned Reporting Changes
Slide 25: 2016 Planned Reporting Changes
2016 Planned Reporting Changes Adjusted EPS1 to also exclude • Restructuring and asset impairment costs • Retirement related costs2 • Separation and related costs Segments • Moving Education / Student Loan business from Services to Other segment • Excluding retirement related costs2 Constant Currenc
Slide 26: Revised 2015 EPS - New Reporting Basis
Revised 2015 EPS - New Reporting Basis 26 (1) Net income (loss) and EPS from continuing operations attributable to Xerox. (2) The tax impact on the Adjusted Pre‐Tax Income from continuing operations is calculated under the same accounting principles applied to the As Reported Pre-Tax Income under AS
Slide 27: Revised 2015 Adjusted Effective Tax Rate - New Reporting Basis
Revised 2015 Adjusted Effective Tax Rate - New Reporting Basis 27 (1) Pre-Tax Income (Loss) and Income Tax Expense (Benefit) from continuing operations. (2) See Net Income/EPS reconciliation for details. (3) The tax impact on the Adjusted Pre‐Tax Income from continuing operations is calculated under
Slide 28: Revised 2015 Segments - New Reporting Basis
Revised 2015 Segments - New Reporting Basis 28 (in $ millions) Reported Adj Reported Education/ Retirement Adj Revised FY 15 FY15 Student Loan Related Costs FY15 Revenues Services 10,137 10,253 (175) 10,078 Document Technology 7,365 7,365 7,365 Other 543 543 175 718 Total Revenues 18,045 18,161 - 18
Slide 29: Revised 2015 Segments - New Reporting Basis (quarterly)
Revised 2015 Segments - New Reporting Basis 29 (in $ millions) Q1 Q2 Q3 Q4 Full Year Adjusted Q3 Full Year Revenues Services 2,467 2,526 2,367 2,602 9,962 2,483 10,078 Document Technology 1,830 1,880 1,778 1,877 7,365 1,778 7,365 Other 172 184 188 174 718 188 718 Total Revenues 4,469 4,590 4,333 4,6
Slide 30: Non-GAAP Measures
Non-GAAP Measures
Slide 31: Adjusted Revenue, Costs and Expenses, and Margin
“Adjusted Revenue, Costs and Expenses, and Margin”: During third quarter 2015, we recorded a pre-tax charge – the Health Enterprise (HE) charge – of $389 million ($241 million after-tax or 23 cents per share), which included a $116 million reduction to revenues. As a result of the significant impact
Slide 32: Operating Income/Margin
“Operating Income/Margin”: We also calculate and utilize operating income and margin earnings measures by adjusting our pre-tax income and margin amounts to exclude certain items. In addition to the HE charge and the amortization of intangible assets, operating income and margin also excludes Other
Slide 33: Expected reporting changes in 2016
Expected reporting changes in 2016: In 2016 we plan to revise the calculation of our Adjusted Earnings Measures to exclude the following items in addition to the amortization of intangibles: • Restructuring and asset impairment costs including those related to Fuji Xerox. • The non-service related e
Slide 34: Constant Currency
“Constant Currency”: We also plan to revise our calculation of the currency impact on revenue growth, or constant currency revenue growth, to include the currency impacts from the developing market countries (Latin America, Brazil, Middle East, India, Eurasia and Central-Eastern Europe), which are c
Slide 35: Q4 GAAP EPS to Adjusted EPS Track
(1) Net income and EPS from continuing operations attributable to Xerox. (2) Average shares for the calculation of adjusted EPS include 27 million of shares associated with the Series A convertible preferred stock. (3) Represents common shares outstanding at December 31, 2015 as well as shares assoc
Slide 36: FY GAAP EPS to Adjusted EPS Track
(1) Net income and EPS from continuing operations attributable to Xerox. (2) Average shares for the calculation of adjusted EPS include 27 million of shares associated with the Series A convertible preferred stock. (3) Represents common shares outstanding at December 31, 2015 as well as shares assoc
Slide 37: GAAP EPS to Adjusted EPS Guidance Track
37 GAAP EPS to Adjusted EPS Guidance Track Note: Adjusted EPS guidance excludes amortization of intangible assets, restructuring and asset impairment costs and certain retirement related costs. Separation and related costs are not yet finalized and thus are not included in EPS guidance, but will be
Slide 38: Q4 Adjusted Operating Income/Margin
Q4 Adjusted Operating Income/Margin (1) Profit and Revenue from continuing operations 38 (in millions) Profit Revenue Margin Profit Revenue Margin Reported Pre-tax Income (1) 310$ 4,653$ 6.7% 348$ 5,033$ 6.9% Adjustments: Amortization of intangible assets 77 83 Restructuring and asset impairment cha
Slide 39: FY Adjusted Operating Income/Margin
FY Adjusted Operating Income/Margin (1) Profit and Revenue from continuing operations 39 (in millions) Profit Revenue Margin Profit Revenue Margin Reported Pre-tax Income (1) 412$ 18,045$ 2.3% 1,206$ 19,540$ 6.2% Adjustments: Amortization of intangible assets 310 315 Restructuring and asset impairme
Slide 40: Q4 and FY Adjusted Other, Net
Q4 and FY Adjusted Other, Net 40 (in millions) December 31, 2015 December 31, 2014 Other expenses, net - Reported 46$ 57$ Adjustments: Xerox restructuring charge (5) 36 Net income attributable to noncontrolling interests 5 6 Other expenses, net - Adjusted 46$ 99$ (in millions) December 31, 2015 Dece
Slide 41: Q4 and FY Adjusted Effective Tax Rate
Q4 and FY Adjusted Effective Tax Rate (1) Pre-Tax Income and Income Tax Expense (Benefit) from continuing operations 41 (in millions) Pre-Tax Income Income Tax Expense Effective Tax Rate Pre-Tax Income Income Tax Expense Effective Tax Rate Reported(1) 310$ 52$ 16.8% 348$ 34$ 9.8% Adjustments: Amorti
Slide 42: Q4 and FY Services Revenue Breakdown
Q4 and FY Services Revenue Breakdown Note: The above table has been revised to reflect the reclassification of the ITO business to Discontinued Operations and excludes intercompany revenue. 42 % CC % 2015 2015 CC (in millions) 2015 2014 Change Change 2015 2014 2013 % Change % Change Busin ss Process
Slide 43: FY Adjusted Total Revenue/Margin
FY Adjusted Total Revenue/Margin (1) Revenue from continuing operations. 43 (in millions) Total Revenue Annuity Revenue Outsourcing, Maintenance and Rentals Revenue Total Segment Profit Total Segment Margin Reported(1) 18,045$ 15,264$ 12,951$ 1,058$ 5.9% Adjustment: HE Charge 116 116 116 389 Adjuste
Slide 44: FY Adjusted Services Segment
FY Adjusted Services Segment (1) Revenue from continuing operations. 44 (in millions) Annuity Revenue BPO Revenue Segment Revenue % of Total Revenue Segment Profit Segment Margin Reported(1) 9,644$ 6,872$ 10,137$ 56% 446$ 4.4% Adjustment: HE Charge 116 116 116 389 Adjusted 9,760$ 6,988$ 10,253$ 56%
Slide 45: FY Adjusted Key Financial Ratios
FY Adjusted Key Financial Ratios (1) Revenue from continuing operations. 45 (in millions) Gross Margin RD&E as % of Revenue SAG as % of Revenue Reported(1) 29.2% 3.1% 19.7% Adjustment: HE Charge 1.9% - (0.1)% Adjusted 31.1% 3.1% 19.6% December 31, 2015 Year Ended
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