Xerox Holdings Corporation · NASDAQ:XRX
Xerox — Q4 2015 Earnings Presentation
46 slides from Xerox's earnings presentation, Jan 29, 2016
Slide 1: Fourth-Quarter 2015 Earnings Presentation
Fourth-Quarter 2015 Earnings Presentation Ursula Burns Chairman & CEO Leslie Varon Chief Financial Officer (Interim) January 29, 2016
Slide 2: Forward Looking Statements
Forward Looking Statements 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 id
Slide 3: Xerox to separate into two market-leading companies
Xerox to separate into two market-leading companies Creating two focused companies with improved value creation potential Printing Market leader Document Global leader in document management ~$11B ~40K Technology and document outsourcing with superior FY15 Employees technology, solutions and innovat
Slide 4: Compelling rationale for two companies
Compelling rationale for two companies Best-positions both companies to capitalize on value creation opportunities Document Technology Business Process Outsourcing Enhanced Focus on continued operational discipline and Focus on leadership in attractive market Strategic and capturing transformative p
Slide 5: Document Technology: Global Leader in $90B Document Management and Outsourcing Market
Document Technology: Global Leader in $90B Document Management and Outsourcing Market The first name in printing, helping clients harness the benefits of document management in an increasingly interconnected, digital world 13% 31% Entry • Annuity driven revenue, more than 70% ~$11B Mid • Strong cost
Slide 6: BPO: Leading Enterprise for the next generation of Business Process Outsourcing
BPO: Leading Enterprise for the next generation of Business Process Outsourcing Differentiated capabilities in managing transaction intensive processes and applying new innovations in a high growth market 27% 29% • Large base of recurring revenues (>90%) with Healthcare Financials ~$7B Commercial hi
Slide 7: 3 Year 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 Clients Investors • Simplified and focused • Rapid response to • Unique and compelling decision making changing needs investment cases • Direct alignment of • Services delivery • Better positions companies performance and excellence for long-term value creation i
Slide 9: Transaction Overview
Transaction Overview Transaction • Separation into two strong, independent, publicly-traded companies Structure • 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
Slide 10: 4th Quarter Earnings
4th Quarter Earnings
Slide 11: Fourth-Quarter Overview
Fourth-Quarter Overview 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% • Document Outsourcing revenue up 3%, BPO revenue down 2% CC1 • Margin up 130 bps sequentially and above our expectations Document T
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 productiv
Slide 13: Services Segment
Services Segment Q4 % B/(W) YOY Adj2 FY % B/(W) YOY Revenue flat at CC1 (in millions) 2015 Act Cur CC1 2015 Act Cur CC1 • Document Outsourcing up 3%, BPO down 2% Total Revenue $2,638 (3)% - $10,253 (3)% - Margin of 9.4% up sequentially and above Segment Profit $249 (7)% $835 (13)% guidance of 9.0% S
Slide 14: Document Technology Segment
Document Technology Segment Q4 % B/(W) YOY FY % B/(W) YOY Revenue down 10% at CC1,2 (in millions) 2015 Act Cur CC1 2015 Act Cur CC1 • Driven by lower supplies and continued pressure in Total Revenue $1,877 (13)% (10)% $7,365 (12)% (8)% developing markets Segment Profit $221 (29)% $879 (23)% • Equipm
Slide 15: Cash Flow
Cash Flow (in millions) Q4 2015 FY 2015 Net Income $ 290 $ 506 HE Charge add back (after-tax) - 241 Depreciation and amortization 2 280 1,155 Cash From Ops $878M in Q4, $1.6B FY Restructuring and asset impairment charges (5) 186 • Free Cash Flow $798M in Q4, $1.3B FY Restructuring payments (17) (98)
Slide 16: Capital Structure
Capital Structure Debt and Finance Asset Trend (in millions) $10,000 Core debt level managed to 8,000 maintain investment grade rating 6,000 4,000 Over half of Xerox debt supports 2,000 finance assets 0 2011 2012 2013 2014 2015 Finance Debt Core Debt Finance Assets $7.4B of debt at year-end Financin
Slide 17: Capital Allocation Enhances Shareholder Returns
Capital Allocation Enhances Shareholder Returns Share Repurchase Program Shares Outstanding (ending fully diluted1, in millions) 1,600 1,391 Share Repurchase of $1.3B FY 1,271 1,235 1,159 1,046 1,200 • Reduced shares ~10% in 2015 800 Acquisitions of $210M FY 2011 2012 2013 2014 2015 Shares Repurchas
Slide 18: 2016 Guidance
2016 Guidance (reflects new reporting basis) 2016 Earnings Revenue Growth @ CC1 Down 2 - 4% - Revenue trend to improve modestly • Currency remains a headwind of (1) to (2) pts Revenue Growth @ CC1 Flat to up 3% Services - Margin improvement in Services; Document Technology Segment Margin 8% - 9.5% m
Slide 19: Key Takeaways
• Two strong market-leading companies positioned to capture unique industry opportunities and maximize value Key Takeaways • Each company with resources and focus to capitalize Separation is the best on growth opportunities in its respective market segment path to enhance shareholder value • Leverag
Slide 20: Appendix
Appendix
Slide 21: Revenue Trend
Revenue Trend 2013 2014 2015 (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)%
Slide 22: Segment Revenue Trend
Segment Revenue Trend 2013 2014 2015 (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
Slide 23: Discontinued Operations Summary
Discontinued Operations Summary Three Months Ended December 31, 2015 2014 (in millions) ITO Other Total ITO Other Total Revenues $ - $ - $ - $ 327 $ - $ 327 (1) Income from operations $ - $ - $ - $ 16 $ - $ 16 Loss on disposal - - - (181) - (181) Net loss before income taxes - - - (165) - (165) Inco
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 Q1 Q2 Q3 Q4 FY 2015 Net Diluted Net Diluted Net (Loss) Diluted Net Diluted Net Diluted (in millions; except per share amounts) Income EPS Income EPS Income EPS Income EPS Income EPS As Reported (1) $ 191 $ 0.16 $ 107 $ 0.09 $ (31) $ (0.04) $ 285 $ 0.27 $ 552 $
Slide 27: Revised 2015 Adjusted Effective Tax Rate - New Reporting Basis
Revised 2015 Adjusted Effective Tax Rate - New Reporting Basis Q1 Q2 Q3 Q4 FY 2015 Income Income Income Income Tax Pre-Tax Tax Income Tax Pre-Tax Tax Effective Pre-Tax (Benefit) Effective (Loss) (Benefit) Effective Pre-Tax Tax Effective Pre-Tax (Benefit) Effective (in millions) Income Expense Tax Ra
Slide 28: Revised 2015 Segments - New Reporting Basis
Revised 2015 Segments - New Reporting Basis New Reporting Basis (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 1
Slide 29: Revised 2015 Segments - New Reporting Basis
Revised 2015 Segments - New Reporting Basis Revised 2015 (in $ millions) Revised 2015 Adjusted for HE charge 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 71
Slide 30: Non-GAAP Measures
Non-GAAP Measures
Slide 31: Non-GAAP Financial Measures
Non-GAAP Financial Measures “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 resu
Slide 32: Non-GAAP Financial Measures
Non-GAAP Financial Measures “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
Slide 33: Non-GAAP Financial Measures
Non-GAAP Financial Measures 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.
Slide 34: Non-GAAP Financial Measures
Non-GAAP Financial Measures “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-
Slide 35: Q4 GAAP EPS to Adjusted EPS Track
Q4 GAAP EPS to Adjusted EPS Track Three Months Ended Three Months Ended December 31, 2015 December 31, 2014 (in millions; except per share amounts) Net Income EPS Net Income EPS Reported(1) $ 285 $ 0.27 $ 349 $ 0.30 Adjustments: Amortization of intangible assets 48 0.05 52 0.05 Deferred tax liabilit
Slide 36: FY GAAP EPS to Adjusted EPS Track
FY GAAP EPS to Adjusted EPS Track Year Ended Year Ended December 31, 2015 December 31, 2014 (in millions; except per share amounts) Net Income EPS Net Income EPS Reported(1) $ 552 $ 0.49 $ 1,128 $ 0.94 Adjustments: Amortization of intangible assets 193 0.18 196 0.17 Software impairment 90 0.08 - - H
Slide 37: GAAP EPS to Adjusted EPS Guidance Track
GAAP EPS to Adjusted EPS Guidance Track Earnings Per Share Q1 2016 FY 2016 GAAP EPS from Continuing Operations $0.05 - $0.08 $0.66 - $0.76 Non-GAAP Adjustments $0.16 $0.44 Adjusted EPS $0.21 - $0.24 $1.10 - $1.20 Note: Adjusted EPS guidance excludes amortization of intangible assets, restructuring a
Slide 38: Q4 Adjusted Operating Income/Margin
Q4 Adjusted Operating Income/Margin Three Months Ended Three Months Ended December 31, 2015 December 31, 2014 (in millions) Profit Revenue Margin Profit Revenue Margin (1) Reported Pre-tax Income $ 310 $ 4,653 6.7% $ 348 $ 5,033 6.9% Adjustments: Amortization of intangible assets 77 83 Restructuring
Slide 39: FY Adjusted Operating Income/Margin
FY Adjusted Operating Income/Margin Year Ended Year Ended December 31, 2015 December 31, 2014 (in millions) Profit Revenue Margin Profit Revenue Margin (1) Reported Pre-tax Income $ 412 $ 18,045 2.3% $ 1,206 $ 19,540 6.2% Adjustments: Amortization of intangible assets 310 315 Restructuring and asset
Slide 40: Q4 and FY Adjusted Other, Net
Q4 and FY Adjusted Other, Net Three Months Ended (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 Year Ended (in m
Slide 41: Q4 and FY Adjusted Effective Tax Rate
Q4 and FY Adjusted Effective Tax Rate Three Months Ended Three Months Ended December 31, 2015 December 31, 2014 Income Pre-Tax Income Tax Effective Pre-Tax Tax Effective (in millions) Income Expense Tax Rate Income Expense Tax Rate Reported(1) $ 310 $ 52 16.8% $ 348 $ 34 9.8% Adjustments: Amortizati
Slide 42: Q4 and FY Services Revenue Breakdown
Q4 and FY Services Revenue Breakdown Three Months Ended December 31, % CC % Year Ended December 31, 2015 2015 CC (in millions) 2015 2014 Change Change 2015 2014 2013 % Change % Change Business Processing Outsourcing $ 1,786 $ 1,858 (4%) (2%) $ 6,872 $ 7,218 $ 7,161 (5%) (3%) Document Outsourcing 852
Slide 43: FY Adjusted Total Revenue/Margin
FY Adjusted Total Revenue/Margin Year Ended December 31, 2015 Outsourcing, Maintenance Total Total Total Annuity and Rentals Segment Segment (in millions) Revenue Revenue Revenue Profit Margin Reported(1) $ 18,045 $ 15,264 $ 12,951 $ 1,058 5.9% Adjustment: HE Charge 116 116 116 389 Adjusted $ 18,161
Slide 44: FY Adjusted Services Segment
FY Adjusted Services Segment Year Ended December 31, 2015 Annuity BPO Segment % of Total Segment Segment (in millions) Revenue Revenue Revenue Revenue Profit 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% $ 835 8
Slide 45: FY Adjusted Key Financial Ratios
FY Adjusted Key Financial Ratios Year Ended December 31, 2015 Gross RD&E as % of SAG as % of (in millions) Margin Revenue Revenue Reported(1) 29.2% 3.1% 19.7% Adjustment: HE Charge 1.9% - (0.1)% Adjusted 31.1% 3.1% 19.6% (1) Revenue from continuing operations. 45
Slide 46: Xerox
XeCrOX @,