Xerox Holdings Corporation · NASDAQ:XRX
Xerox — Q3 2016 Earnings Presentation
30 slides from Xerox's earnings presentation, Oct 28, 2016
Slide 1: Third Quarter 2016 Earnings Presentation
Third Quarter 2016 Earnings Presentation Ursula Burns Chairman & CEO Leslie Varon Chief Financial Officer October 28, 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: New Path Forward Progress
New Path Forward Progress • High non-investment grade credit rating anticipated, in- • Filed Form 10 amendments with pro-forma capitalization line with management expectations and historical financials • Appointed majority of directors and executive officers • Unveiled new global brand identity ̵ Br
Slide 4: Third-Quarter Overview
EPS: GAAP1 17 cents, up 21 cents YOY; adjusted2 27 cents, flat YOY Third-Quarter Revenue: $4.2B down 3%; 4% adjusted CC2 Overview Services: revenue up 1%; down 2% adjusted CC2; margin 9.4% • Growth continues in Document Outsourcing (DO), Business Process EPS middle of guidance Outsourcing (BPO) reve
Slide 5: Earnings
Earnings (in millions, except per share data) Q3 2016 B/(W) YOY Revenue $ 4,212 $ (237) Adjusted Gross Margin1 31.3% 0.1 pt Adjusted RD&E1 $ 119 $ 10 Adjusted SAG1 $ 813 $ 28 Adjusted Operating Income1 $ 388 $ (28) Operating Income % of Revenue 9.2% (0.2) pts Adjusted Other, net1 $ 59 $ 17 Equity In
Slide 6: Services Segment
Revenue Trend (CC1) Revenue 4% 2% 2% 2% 2 Services • DO down 1%, up 1% CC1 • BPO down 4%2 2% 0% 1% 0% (1)% (2)% 2 Segment • BPO/DO renewal rate of 86% (2)% (4)% Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Adj2 % B/(W) Margin 11% Q3 9.7% YOY 9.6% 9.4% (in millions) 2016 Act Cur CC1 • Strong segm
Slide 7: Document Technology Segment
Revenue Trend (CC1) Revenue Document • Printing revenue down 5% at CC1 including 0% Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 (3)% (3)% (3)% (4)% (5)% Technology Document Outsourcing • Equipment share leader for 27 straight (5)% (5)% (6)% (5)% (5)% (6)% (7)% Segment quarters (10)% (8)% Doc Te
Slide 8: Cash Flow
Cash Flow Operating cash flow generation of $370M; strong ending cash balance (in millions) Q3 2016 Net Income $ 184 Depreciation and amortization 275 Restructuring and asset impairment charges 13 Operating Cash Flow of $370M, Restructuring payments (55) up $99M YOY Contributions to defined benefit
Slide 9: Capital Structure and Allocation
Capital Structure and Allocation Solid capital structure and cash flow generation support shareholder returns Financing and Leverage • Value proposition includes leasing of Xerox equipment • Maintain 7:1 debt to equity leverage ratio on these finance assets Q3 2016 Core debt level managed to (in bil
Slide 10: 2016 Guidance
2016 Guidance 2016 Narrowing full-year earnings range and Revenue Growth @ CC1 Down 2 - 4% maintaining cash flow guidance Revenue Growth @ CC1 Flat to down 1% Capital Allocation guidance Services Segment Margin 8% - 9.5% (high-end) • Dividends: ~$350M • Acquisitions: $30M - $50M Document Revenue Gro
Slide 11: Summary
Solid third-quarter results • Earnings in-line with guidance Summary • Services delivered strong operating profit growth and total signings growth • Document Technology reported solid margins while maintaining market share leadership • Strong cash flow; ending cash balance of $1.4B Confident deliver
Slide 12: Appendix
Appendix 12
Slide 13: Revenue Trend
Revenue Trend 2015 2016 (in millions) Q1 Q2 Q3* Q4 FY* Q1 Q2 Q3* YTD* Total Revenue $4,469 $4,590 $4,449 $4,653 $18,161 $4,281 $4,385 $4,212 $12,878 Growth (6)% (7)% (7)% (8)% (7)% (4)% (4)% (5)% (5)% CC1 Growth (2)% (2)% (3)% (4)% (3)% (3)% (4)% (4)% (3)% Annuity $3,845 $3,871 $3,781 $3,883 $15,380
Slide 14: Segment Revenue Trend
Segment Revenue Trend 2015 2016 (in millions) Q1 Q2 Q3* Q4 FY* Q1 Q2 Q3* YTD* Services $2,467 $2,526 $2,483 $2,602 $10,078 $2,482 $2,470 $2,398 $7,350 Growth (2)% (2)% (3)% (3)% (3)% 1% (2)% (3)% (2)% CC1 Growth 2% 2% 1% Flat 1% 2% (1)% (2)% Flat Document Technology $1,830 $1,880 $1,778 $1,877 $7,36
Slide 15: Services Segment to Conduent Walk
Services Segment to Conduent Walk FY15 Revenue FY15 Margin (in millions) $12,000 DO 10.0% $10,253 ($3,265) 8.1%2 DO (2.0 pts) $10,000 Doc Tech Transfers1 & 8.0% Doc Tech Additional Corporate Intercompany Transfers1 Allocations3 & Other $8,000 ($210) (0.2 pts) (1.1 pts) $6,7784 6.0% 4.8%4 $6,000 4.0%
Slide 16: Non-GAAP Financial Measures
Non-GAAP Financial Measures 16
Slide 17: Non-GAAP Financial Measures
Non-GAAP Financial Measures NOTE: In 2016 we revised our calculation of Adjusted Earnings Measures to exclude the following items in addition to the amortization of intangibles: • Restructuring and related costs including those related to Fuji Xerox • The non-service related elements of our defined
Slide 18: Non-GAAP Financial Measures
Non-GAAP Financial Measures Restructuring and related costs: Restructuring and related costs include restructuring and asset impairment charges as well as costs associated with our Strategic Transformation program beyond those normally included in restructuring and asset impairment charges. Restruct
Slide 19: 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 costs noted for our Adjusted Earnings measures, operating income and marg
Slide 20: Q3 GAAP EPS to Adjusted EPS Track
Q3 GAAP EPS to Adjusted EPS Track Three Months Ended Three Months Ended September 30, 2016 September 30, 2015 Net Diluted Net (Loss) Diluted (in millions, except per share amounts) Income EPS Income EPS As Reported (1) $ 181 $ 0.17 $ (31) $ (0.04) Amortization of intangible assets 77 77 HE charge -
Slide 21: GAAP EPS to Adjusted EPS Guidance Track
GAAP EPS to Adjusted EPS Guidance Track Earnings Per Share Q4 2016 FY 2016 GAAP EPS from Continuing Operations $0.11 - $0.14 $0.45 - $0.48 Non-GAAP Adjustments 0.21 0.66 Adjusted EPS $0.32 - $0.35 $1.11 - $1.14 Note: Adjusted EPS guidance excludes amortization of intangible assets, restructuring and
Slide 22: Q3 Adjusted Operating Income/Margin
Q3 Adjusted Operating Income/Margin Three Months Ended Three Months Ended September 30, 2016 September 30, 2015 (Loss) (in millions) Profit Revenue Margin Profit Revenue Margin (1) Reported Pre-tax Income (Loss) $ 150 $ 4,212 3.6% $ (173) $ 4,333 (4.0)% Adjustments: Amortization of intangible assets
Slide 23: Q3 Adjusted Other, Net
Q3 Adjusted Other, Net Three Months Ended Three Months Ended (in millions) September 30, 2016 September 30, 2015 Other expenses, net - Reported $ 56 $ 73 Adjustments: Net income attributable to noncontrolling interests 3 3 Other expenses, net - Adjusted $ 59 $ 76 23
Slide 24: Q3 Adjusted Effective Tax Rate
Q3 Adjusted Effective Tax Rate Three Months Ended Three Months Ended September 30, 2016 September 30, 2015 Income Pre-Tax Income Tax Pre-Tax Tax Effective (Loss) (Benefit) Effective (in millions) Income Expense Tax Rate Income Expense Tax Rate Reported (1) $ 150 $ 5 3.3% $ (173) $ (105) 60.7% Non-GA
Slide 25: Q3 Services Revenue Breakdown
Q3 Services Revenue Breakdown Three Months Ended September 30, % CC % (in millions) 2016 2015 Change Change Business Process Outsourcing $ 1,607 $ 1,566 3% 4% Document Outsourcing 791 801 (1%) 1% Total Revenue - Services $ 2,398 $ 2,367 1% 3% As Adjusted: Business Process Outsourcing $ 1,607 $ 1,682
Slide 26: Q3 Adjusted Key Financial Ratios
Q3 Adjusted Key Financial Ratios Three Months Ended September 30, 1 2016 2015 Adjusted 1 1 2016 2015 B/(W) Adjusted Adjusted B/(W) Total Gross Margin 31.0% 22.8% 8.2 pts. 31.3% 31.2% 0.1 pts. RD&E as a % of Revenue 3.0% 3.1% 0.1 pts. 2.8% 2.9% 0.1 pts. SAG as a % of Revenue 19.6% 19.7% 0.1 pts. 19.3
Slide 27: Q3 Gross Margin, RD&E and SAG Reconciliation
Q3 Gross Margin, RD&E and SAG Reconciliation Three Months Ended Three Months Ended September 30, 2016 September 30, 2015 Non-service Non-service As retirement- As retirement- (in millions) Reported(1) related costs Adjusted Reported(1) HE Charge related costs Adjusted Revenue $ 4,212 $ - $ 4,212 $ 4
Slide 28: Q3 2015 Adjusted Total Revenue/Margin
Q3 2015 Adjusted Total Revenue/Margin Three Months Ended September 30, 2015 Outsourcing, Maintenance Total Total Annuity and Rentals Total Segment Segment (in millions) Revenue Revenue Revenue (Loss) Profit(2) Margin(2) Reported(1) $ 4,333 $ 3,665 $ 3,098 $ (3) (0.1)% Adjustment: HE Charge 116 116 1
Slide 29: Q3 2015 Adjusted Services Segment
Q3 2015 Adjusted Services Segment Three Months Ended September 30, 2015(1) Annuity BPO Segment % of Total Segment (Loss) Segment (in millions) Revenue Revenue Revenue Revenue Profit(3) Margin(3) Reported(2) $ 2,250 $ 1,566 $ 2,367 55% $ (196) (8.3%) Adjustment: HE Charge 116 116 116 389 Adjusted $ 2
Slide 30: ©2016 Xerox Corporation. All rights reserved. Xerox®, Xerox and Design® and Conduent are trademarks
©2016 Xerox Corporation. All rights reserved. Xerox®, Xerox and Design® and Conduent are trademarks of Xerox Corporation in the United States and/or other countries.