57
Xerox Investor Handout Xerox Strategy Overview / Quarter 2 2015 Results
Xerox Investor Handout
Xerox Strategy Overview / Quarter 2 2015 Results
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 identify forward-looking
statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that
may cause actual results to differ materially. Such factors include but are not limited to: changes in economic conditions, political conditions, trade
protection measures, licensing requirements and tax matters in the United States and in the foreign countries in which we do business; changes in
foreign currency exchange rates; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual
property rights; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or
criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; the
risk that our bids do not accurately estimate the resources and costs required to implement and service very complex, multi-year governmental
and commercial contracts, often in advance of the final determination of the full scope and design of such contracts or as a result of the scope of
such contracts being changed during the life of such contracts; the risk that subcontractors, software vendors and utility and network providers will
not perform in a timely, quality manner; service interruptions; actions of competitors and our ability to promptly and effectively react to changing
technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost
efficiency of operations, including savings from restructuring actions and the relocation of our service delivery centers; the risk that individually
identifiable information of customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security
systems; the risk in the hiring and retention of qualified personnel; the risk that unexpected costs will be incurred; our ability to recover capital
investments; the risk that our Services business could be adversely affected if we are unsuccessful in managing the start-up of new contracts; the
collectability of our receivables for unbilled services associated with very large, multi-year contracts; reliance on third parties, including
subcontractors, for manufacturing of products and provision of services; our ability to expand equipment placements; interest rates, cost of
borrowing and access to credit markets; the risk that our products may not comply with applicable worldwide regulatory requirements, particularly
environmental regulations and directives; the outcome of litigation and regulatory proceedings to which we may be a party; and other factors that
are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” section and other sections of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and our 2014
Annual Report on Form 10-K filed with the Securities and Exchange Commission. Xerox assumes no obligation to update any forward-looking
statements as a result of new information or future events or developments, except as required by law.
2
Our Message to You: Xerox is…
3
• Well-positioned and investing to grow in attractive services markets
• Applying innovation to lead transition of BPO to automated, analytics-driven outsourcing
• Focusing to improve Services performance and consistency
• Leading in attractive areas of document technology while delivering strong
profitability and cash flow
• Disciplined in our capital allocation with focus on delivering shareholder value
• On a journey to be the most sought after customer partner and place to work
in our industry
Xerox Strategy
Apply technology and innovation to transform the way people work and live
Drive Operational Excellence Across Our Businesses
Innovate to
Differentiate Our
Offerings
Leverage Brand
Strength and Market
Position
Profitably Grow
Services in Attractive
Markets
Lead in Document
Technology
Engage, Develop and Support Our People
4
Document Technology
Document Technology Strategy
6
Grow in
Developing
Markets
Innovate in All
We Do
Market focused strategy underpinned by operational excellence and talented workforce
Operational Excellence, Global Delivery and Economy of Scale
Engage, Develop and Support Our People
Lead in
Managed Print
Services
Channel
Expansion and
Market Reach
Lead in Graphic
Communications
Market Dynamics
7
Overall print market at one percent decline;
underlying dynamics offer opportunities
• Shift from traditional office printing to
Document Outsourcing
• Graphic Communications market is growing
– Driven by expanding digital and inkjet
capabilities
• Significant SMB market
– Also shifting to Print Services via direct
and indirect sales
• Growth in Developing Markets
– Enhanced by MPS and Production
markets
Source: internal Xerox estimates; excludes Asia-Pacific FX territories
Overall Print Market 2014 $ Billions, ‘14 – ’17 CAGR
Office (non-DO)
Total DO1
Prod / GC
(4)%
7%
3%
$66
$19
Total Market $91B (1)%
SMB – 71% Enterprise – 29%
(1)% (4)%
$6
NA – 38% DMO – 28%
(3)% 1%
EU – 34%
(3)%
Note 1: DO includes MPS, CPS and Workflow market estimates.
Note 2: SMB/LE and NA/EU/DMO only include Office non-DO and MPS.
Market Components - % of Market2
WW 2014 Equipment Sale Revenue Share %
Xerox has been the leader
for 22 consecutive quarters
Technology Advances Sustain Industry Leadership
Sustained Market Share Leadership
Industry Recognition
Gold Ink Awards Europe Digital Press Award
Magic Quadrant for Managed Print Services,
Worldwide
IDC MarketScape WW MPS & Document
Services Hardcopy Vendor Analysis
2014 Quocirca MPS Landscape
A leader in The Forrester Wave™:
Managed Print Services
Xerox Corporation Mobile Print Solution 2
Outstanding Enterprise Mobile Print Solution
Xerox Corporation 2014 Document Imaging Solutions
Line of the Year
8
IDC: Published September 2014
Forrester: Published Q2 2012, Forrester Research, Inc.
Gartner: Published October 21, 2013 by Ken Weilerstein, Sharon McNee, Elizabeth Kim. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise
technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed
as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
Xerox
21 17
15
11
[------- Competitors -------]
Market Leading Portfolio – SMB and Large Enterprise Broadest Portfolio of Print and Document Outsourcing Capabilities will enable MPS growth with the market and increased share of SMB market
15 New Workflow Offerings in 2014
Workflow Integration for Mobile and Cloud
Industry Leading Security
Cost Control and Sustainability
IT Enablers
ConnectKey®
Xerox® WorkCentre®
7845/7855
Xerox® WorkCentre®
5945/5955
Xerox® Color
C60/70
Xerox®
WorkCentre®
6655
Xerox® WorkCentre®
7220/7225
Xerox® WorkCentre®
7970
Xerox® WorkCentre® 3655
Xerox® WorkCentre®
5865/5875/5890
19 New Technology Offerings in 2014
ConnectKey®
ConnectKey®
ConnectKey®
ConnectKey®
ConnectKey®
ConnectKey®
9
Market Leading Portfolio – Graphic Communications Broadest Portfolio of Graphic Communications Offerings
to capture increased share of color growth and inkjet opportunity within the 50 trillion total production pages
Web-to-print
Variable Data Cross Media
Pre-press Color Management
Automation
7 New Workflow Offerings in 2014
Xerox® 8250 Production Printer
Xerox® Color J75 Press
Xerox® Color 800/1000 Presses
Xerox ® Versant 2100 Press
Xerox® Reference®
Xerox® CiPress® 500
Xerox® CiPress® 325
Xerox® eVolution® 150 /250
Xerox® iGen® 150 Digital Press
Xerox® Compact®
4 New Technology Offerings in 2014
10
Demonstrated Operational Excellence Across Value Chain…
Global Reach
Direct Sales Capability
Extensive Channels and
Partnerships
Broad Customer Relationships Sales Excellence and Productivity
Global Service
Remote Connectivity and Diagnostics
Global Delivery Center
Automation
Offering Innovation
Offshoring and Right-shoring
…drives sustained market share and strong operating margin.
Global Delivery
Manufacturing Productivity
Global Sourcing
Product Cost and Portfolio Simplification
RD&E Efficiency and Alignment
Infrastructure Optimization 20%
45%
31%
4%
SAG
Equipment
Post Sale
& Managed
Services
Over $9B of
Addressable Spend1
% of Total
RD&E
Note 1: Includes operating expenses for Document Technology and Document Outsourcing.
11
Services
Services Strategy…
Manage Our
Portfolio of
Businesses
Grow
Globally
Transform the
Way We Work
Deliver
Operational
Excellence
Use Analytics
to Increase
Value
13
Engage, Develop and Support Our People
...will drive revenue growth and margin improvement.
$172 $203
$119
$145
$19
$23
2014 2017
Attractive Market Opportunity
$26 7%
$30 6%
$65 8%
$67 4%
Finance &Accounting
TransactionProcessing
HumanResources
CustomerCare
2017 Multi-Industry BPO
Notes: Market sizing based upon external sources and Xerox internal analysis. Document Outsourcing includes Managed Print
Services, Centralized Print Services and Workflow Solutions. Transaction processing includes outbound print management (non-DO).
$ Billions
$310B
$371B
Industry
Specific BPO
Multi-Industry
BPO
Document
Outsourcing
+7%
CAGR
+6%
CAGR
+7%
CAGR
$11 7%
$15 5%
$16 7%
$21 9%
Health Payer
Transportation
Insurance(Life, P&C)
Government BPO(excl. health)
2017 Industry-Specific BPO
Total BPO
$348B
6% CAGR
14
Services Evolution Progressing…
Optimize Realize
Transition
15
Transition from decentralized
business unit structure to a global
operating model with industry go-to-
market and service delivery via
capabilities
Optimize performance through
platform consolidation, organizational
alignment, cost transformation and
industry driven solution sales.
Realize and enhance market
leading positions through industry
insight, innovative offerings and
delivery excellence.
Margin Focus
Growth Focus
...will drive margin expansion and revenue growth.
Industry Verticals and Global Capabilities Alignment
Financial
Services 13% of
Revenue
High Tech &
Comms 16% of
Revenue
Industrial,
Retail &
Hospitality 15% of
Revenue
Commercial
Healthcare 15% of
Revenue
Government
Healthcare 13% of
Revenue
Public
Sector (including
Transportation)
28% of
Revenue
16
Document Outsourcing
Managed Print Services / Centralized Print Services
Business Process Outsourcing
Customer Care / Communication & Marketing / Human Resources / Transaction Processing / Finance & Accounting
Professional Services
Note: Graphic has been updated to exclude the ITO business which was moved to discontinued operations following
announcement of planned sale to Atos
Margin Expansion Roadmap
GHS Recovery Plan (primarily Health Enterprise)
Global Capability Model Implementation Workforce and Non-Labor Cost Optimization /
Structural Optimization
Portfolio Management / Contract Management
17
2014 Margin 9.0%
Target Margin
10 - 12%
Investments: Sales, Leadership, Training, Tools, Offerings
25+ bps
Target Contribution
100+ bps
75 - 100 bps
(50 - 60) bps
Platform Development 25+ bps
Note: 2015 Services margin guidance is 8.5%- 9% (low-end) as
announced in the Xerox Q2 2015 earnings release on July 24, 2015
Revenue Growth Acceleration Levers…
Acquisitions More Rapid
Growth Outside
the U.S.
Industry
Verticals /
Cross Selling /
Signings
Acceleration
New Large
Contract Yield
Reduced
Large Contract
Run-offs
...will drive revenue growth back to target model.
18
Government Healthcare Overview
Xerox Government Healthcare Facts:
• 36 states and DC supported by our solutions and services
• Almost 500 million claims processed annually
• Manage more than $59 billion in annual provider payments
• Largest provider of MMIS solutions
US healthcare spending is >15% of GDP and
growing, US government funding is >50%:
• XRX revenue nearly $1B, operating margin will
improve over time
Growth Opportunities:
• Medicaid expansion and continued implementation
of ACA mandates, shift to managed care
• New states and broader participation with existing
clients
We are evolving our offerings and innovating to
address market changes:
• Enterprise – exclusively and specifically for Medicaid
• Analytics – fraud, waste & abuse (Metal Detector),
managed care
• Leveraging new technologies (mobile, social) to
improve health outcomes to new Medicaid consumer
19
Government Healthcare Enterprise Implementations Strategic change announced June 17, 2015
• Focus on existing implementations / operations
• Highly selective responding to new HE opportunities
NH
• Live April 2013, extended “burn in” period, currently
performing well
• Enterprise enabled subsequent implementation of
managed care and Medicaid expansion programs
• CMS certification received June, 2015
AK
• Live October 2013, extended “burn in” period
• Performing well today
CA
• In development, phased “go-live” started Q4’14, program
progressing
ND
• “Go-live” in 2015, testing and operational readiness
activities underway
MT
• Working corrective action plan with the state
• “Go-live” 2017
NY
• Contract finalized April 2015
• Invested ahead of contract to ensure success
• “Go-live” end 2016
20
In Process and Going forward actions:
• Increasing leadership focus and adding external talent
• Revamping governance model for improved control, decreased risk
• Implementing platform approach for increased code reuse
• Increasing software quality and testing and release practices
• Reengineering “tech stack” for better scalability, lower cost
• Streamlining support model, expanding supplier base and increasing
offshore capabilities for higher productivity, lower cost
Commercial Healthcare Overview
The global healthcare market is ~$48 billion, 7%
CAGR
• XRX revenue in excess of $1B, operating margin
and annual growth above target model
Healthcare Mega Trends:
Shift to consumer model, changing payment and risk
model, increasing care and quality measurement
Our Growth Strategy:
• Leverage core scale-based services
• Accelerate growth in vertical specific services
• Build and acquire new capabilities
We are evolving our offerings and innovating to
address market changes:
• Analytics – Juvo, Digital Assistant, managed care
and fraud, waste & abuse
• Investment in HealthSpot
Patient Becoming key
decision maker
21
Xerox Commercial Healthcare Facts:
• 2/3 of US insured patients are touched by XRX
• 1,900+ hospitals served
• 100% of top 20 US managed healthcare plans are clients
• Industry leader in size/capability across a number of key categories
Transportation Overview
The global transportation market is ~$13 billion,
5% CAGR
• XRX revenue nearly $1B, operating margin above
target model
Global Transportation Mega Trends:
Urbanization, changing demographics, always
connected, new business models
Our Growth Strategy – Urban Mobility: Series of
interrelated solutions designed to satisfy mobility
needs of mega cities, businesses and their citizens
today and in the future
We are evolving our offerings and innovating to
address market changes:
• Parking – Merge® A smart grid for parking
• Electronic Tolling – Xerox Vehicle Passenger
Detection System™
Xerox Transportation Facts:
• US Industry leader across several offerings, also high global ranking
and industry recognition for leadership in excellence and innovation
• 35 countries host our transportation solutions worldwide
• $5 billion in electronic toll payments processed annually
• 37 billion public transit transactions managed annually
22
Human Resources Outsourcing and Consulting
The global HRS BPO market is ~$65 billion, 8% CAGR
• XRX revenue over $1B, operating margin and growth
varies by business area
Global HRS Mega Trends:
Private exchanges, focus on employee productivity, shift
to defined contribution versus defined benefit, employee
engagement, Business/Learner centric solutions
HRS and Professional Services Capabilities:
• Learning
• Buck Consulting
• Total Benefits and HR Outsourcing
We are evolving our offerings and innovations to
address market changes:
• Private Healthcare Exchange – RightOpt®
• BPaaS solutions – fully integrated SaaS applications
• Data Analytics – diagnostic, prescriptive and
predictive
• Learning Hub – integrated learning platform
23
Xerox HR Services Facts:
• Over 2,000 clients with 9M+ employees and retirees served
• Global footprint across 72 countries; addressing 23 languages
• 5M+ Learners supported globally
• Highly ranked by industry analysts across all major offerings
Document Outsourcing Overview
11.4 13.7
5.4
5.6 2.4
4.1
2014 2017
CAGR
+7%
$19.3B
$23.4B
Xerox Document Outsourcing
• Industry leader in market share and offerings as recognized by
several leading industry analyst firms
• Manage greater than:
– 1.5 million devices, Xerox and multi-vendor
– 5 billion printed pages per month
– 4 thousand sites
The global document outsourcing market is ~$19
billion, 7% CAGR
• XRX revenue exceeds $3B, operating margin above
Services average
Global Document Outsourcing Mega Trends:
Mobility, workflow automation, vertical applications
Our Global Growth Strategy:
• Lead with Next Gen MPS and CPS offerings
• Capture SMB share through channels
• Invest in and grow workflow automation
We are evolving our offerings and innovating to
address market changes:
• Document Analytics – CompleteView Pro and Asset
DB, unique printing data assessment
• Secure Print Manager and Mobile Print Solution –
improved security and mobility
• Ignite Educator Support – efficiency and customized
approach in education
• Digital Alternatives – paperless workflow
Automate
and
Simplify
Secure
and
Integrate
Assess
and
Optimize
Market Sizing and Growth
CPS
Production
24
MPS
Office
Workflow
25
Gartner Magic Quadrant for Managed Print and Content Services
Source: Gartner, Inc. “Magic Quadrant for Managed Print and Content Services,
Worldwide” By Ken Weilerstein, Elizabeth Kim, Sharon McNee, November 6, 2014
Xerox has been positioned the furthest for Completeness of Vision and Ability to Execute within the 2014 Leaders quadrant for Managed Print and Content Services.
The Gartner Magic Quadrant is copyrighted 6 November 2014 by Gartner, Inc., and is reused with permission. This graphic was published by Gartner, Inc. as part of a larger research
document and should be evaluated in the context of the entire document. The Gartner document is available upon request from Xerox.
Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest
ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner
disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
The Magic Quadrant graphic was published by Gartner, Inc. as part of a larger research note and should be evaluated in the context of
the entire report. The Gartner report is available upon request from Xerox.
Approved for External Use by Xerox Only through November 10, 2015 Partners can access materials via http://www.consulting.xerox.com/gartners-magic-quadrant/enus.html
"The Completeness of Vision axis reflects each MPS and MCS
provider's prospects for success by analyzing its view of the
market, service operating model, and strategic plans for growth
and service improvements.“
"The Ability to Execute axis position for each MPS and MCS
provider is based on its success in delivering results today, as
well as its preparation to deliver results in the future."
Xerox
Financial Overview
Note: Xerox closed on it’s divestiture of its ITO
business to Atos at the end of the second quarter 2015.
As a result, ITO is excluded from our results and
guidance unless otherwise noted.
Segment Business Dynamics
Mid-term Target
Revenue Growth Mid-to-High single digit growth
Segment Margin 10 – 12%
• Services mix: ~68% BPO, ~32% DO
• Geographic mix: ~75% U.S., ~25% International
• Attractive market growth: BPO 6%+, DO 7%
• Broad and diverse BPO portfolio
– Over 60% of BPO portfolio with margins ≥10%
– Long-term contracts with high renewal rates
• Relatively modest CAPEX, < 3% of revenue
Services (~54% of Total Revenue) Document Technology (~43% of Total Revenue)
Macroeconomic sensitivity especially on hardware and
unbundled supplies sales
Limited macroeconomic sensitivity given largely
recurring revenue and diversity of business
1Office includes both Mid-Range and Entry products
Note: Expect “Other” segment revenue to decline mid-single digits
Mid-term Target
Revenue Growth Mid-single digit decline
Segment Margin 10 – 12%
27
• Product mix: ~57% Mid-Range, ~23% High-End, ~20% Entry
• Geographic mix: ~62% N. America, ~26% Europe, ~12%
developing markets
• Office1 market declining 4%, High-End market growing 3%
driven by Color growth of 8%
– Migration to Doc Outsourcing impacts Office
– Area of highest secular decline, High-End B&W represents <8%
of Doc Tech business
• Ongoing restructuring and productivity actions support
continued strong margin
2015 Guidance
2015
Revenue Growth @ CC1 Down ~2%
Services Up 2 to 4% (low-end)
Document Technology Down ~6%
Adjusted EPS1 (incl restructuring) $0.95 - $1.01
GAAP EPS2 $0.69 - $0.75
Cash From Ops $1.7 - $1.9B
CAPEX $0.4B
Free Cash Flow1 $1.3 - $1.5B
Share Repurchase ~$1.3B
Acquisitions $100 - $400M
Dividend ~$300M
Note: Revenue growth guidance excluding potential divestitures 1Constant Currency (CC), Adjusted EPS and Free Cash Flow: see Non-GAAP Financial Measures 2GAAP EPS from Continuing Operations
Expect Total Revenue to be down ~2% CC
– Doc Tech continues to be negatively impacted by developing
markets
– Slower pace of acquisitions
Expect Services margin to be at low-end of 8.5 to
9.0% range
– Focusing on six states where currently operating or
implementing the new HE platform
– Prioritizing investments
– Accelerating cost / restructuring actions
FY EPS range remains $0.95 - $1.01
– Expect to be at lower-end
Maintaining $1.7 - $1.9B Operating Cash Flow
guidance
– Increasing share repurchase to $1.3B
– Decreasing acquisitions to $100 - $400M, completed $48M YTD
28
(Reflects guidance from Q2 2015 Earnings call on 7/24/15)
$0
$100
$200
$300
$400
2012 2013 2014 2015E
DB Plan Cost DB Settlement Loss DC Plan Cost
$0
$100
$200
$300
$400
$500
2012 2013 2014 2015E
DB Cash Contribution DB Stock Contribution
Pension Expectations*
Expense DB Pension Funding
• DB plan cost has declined with pension plan freezes
• U.S. plan lump sum (settlement) option creates volatility
− 2012/2014 lower; 2015 expect higher settlements similar to 2013
$230M
• Local law / regulatory requirements
• U.S. legislation lowered near term requirements
• Increasing funding to gradually address liabilities
• Low interest rate environment impacts funding requirements and settlement loss volatility
• All major defined benefit (DB) pension plans frozen – reduces burden over time
~$340M $284M $363M $192M ~$335M $363M
$300M
$267M
~$82M ~$226M
$494M
29 *As disclosed in Xerox’s 2014 Annual Report on For 10-K
Cash Flow Dynamics
Continued strong cash flow
2015 reflects moderating impact from
previous Finance Receivable sales
• Partially offset by higher pension
funding, ITO divestiture timing and
negative currency
No Finance Receivable sales planned
in 2015
2015 Cash From Ops guidance of $1.7
to $1.9B, FCF of $1.3 to $1.5B
30
(in billions) 2012 2013 2014 2015 Est.
Operating Cash Flow (OCF) $2.6 $2.4 $2.1 $1.7 - $1.9
Adjustments:
Cash from F/R Sales $(0.6) $(0.6) - -
Impact from prior F/R Sales - $0.3 ~$0.4 ~$0.3
Underlying OCF* $2.0 $2.1 $2.5 $2.0 - $2.2
Operating Cash Flow Trend
*Underlying OCF is reported OCF adjusted for the impacts of Finance Receivable sales. See non-GAAP measures.
Note: 2012 thru 2014 Operating Cash Flow includes a full-year of ITO contribution
$0
$1
$2
$3
2012 2013 2014 2015E
OCF Underlying OCF
(in
bill
ion
s)
Capital Allocation
2013
2015 balanced to deliver shareholder returns while continuing to invest in the business
• Dividend: ~$300M, ability to grow modestly in-line with share reduction and cash flow
• Acquisitions: $100 - $400M, focused on Services
• Share Repurchase: ~$1.3B
• Debt Repayment: none anticipated in 2015
2015 Plan
Opportunistic
Acquisitions
Share Repurchase
Dividend Acquisitions
Dividend
Debt
Repayment
Share
Repurchase
$696M
$296M
$434M
$155M
31
Share
Repurchase
Dividend
Debt
Repayment
Acquisitions
2014 Outlook
$1.07B
$340M
$300M ~$200M
~$1.3B
~$200M
$100 –
$400M
~$300M
Xerox Performance Based Incentive System (2014)
Short Term
Metric Weight
Adjusted EPS 50%
Operating Cash Flow 20%
Revenue Growth CC* 30%
Stock Ownership Guidelines
Annual
Cash
Pay-out
Role
Multiple
of Base
Salary
Named Officers 3x
All Other Officers 2x
32
Long Term – Annual / 3yr Cumulative Targets
Metric Weight
Adjusted EPS 50%
Adjusted Operating Cash Flow 20%
Revenue Growth CC* 30%
Equity performance shares
3 year vesting from grant date
*Constant Currency (CC): see non-GAAP measures
Second-Quarter 2015 Earnings Presentation
July 24, 2015
Ursula Burns Chairman & CEO Kathy Mikells Chief Financial Officer
Xerox Direction
Annuity 84% of Total Revenue
Services 56% of Total Revenue
34
• Grow revenue
• Generate profits in line with industry’s best
– Optimizing new Services operating model to accelerate improvements
• Strengthen and differentiate the portfolio
– Government Healthcare changes recently announced to improve focus and
execution
• Lead in Document Technology
• Support customers and our people
• Allocate capital to enhance shareholder returns
– Increasing Share Repurchase to $1.3 billion
Second-Quarter Overview Adjusted EPS1 of 22 cents, GAAP EPS2 of 9 cents
• Adjusted EPS excludes previously announced 8 cent non-cash impairment of Government Healthcare software platforms
Total revenue of $4.6B, down 7% or 3% CC1
Services revenue down 3% or up 1% CC1; margin of 7.5%
• Performance consistent with guidance
• Reflects investments in advance of productivity yield and continued higher Health Enterprise costs
Document Technology revenue down 12% or 7% CC1; margin of 12.1%
• Modestly weaker top-line driven by developing markets; margin consistent with guidance
Operating margin1 of 8.2%, down 160 bps YOY Cash from operations of $349M
• Share repurchase of $395M Q2, $611M June YTD
1Adjusted EPS, Constant Currency (CC) and Operating Margin: see Non-GAAP Financial Measures
2GAAP EPS from Continuing Operations 35
Earnings
(in millions, except per share data) Q2 2015 B/(W) YOY Comments
Revenue $ 4,590 $ (351) Down 3% CC – Services up 1%, Document Technology down 7%
Gross Margin 31.1% (1.0) pt
RD&E $ 142 $ 1
SAG $ 906 $ 53
SAG % of Revenue 19.7% (0.3) pts
Adjusted Operating Income1 $ 378 $ (105) Decline driven by lower Services and Document Technology
margins Operating Income % of Revenue 8.2% (1.6) pts
Adjusted Other, net1 $ 84 $ 26 Restructuring $28M lower YOY
Equity Income $ 29 $ (4) Decline driven by translation currency
Adjusted Tax Rate1 25.8% 1.4 pts Within guidance range of 25 to 27%
Adjusted Net Income – Xerox1 $ 246 $ (57)
Adjusted EPS1 $ 0.22
$ (0.03)
Guidance range $0.21 - $0.23
Software impairment 0.08 (0.08)
Amortization of intangible assets 0.05 (0.01)
GAAP EPS2 $ 0.09
$ (0.12)
1Adjusted Operating Income, Adjusted Other, net, Adjusted Tax Rate, Adjusted Net Income – Xerox and Adjusted EPS: see Non-GAAP Financial Measures
2GAAP EPS from Continuing Operations 36
Services Segment Revenue growth of 1% at CC1
• Document Outsourcing up 4%, BPO down 1%
Margin of 7.5% in line with expectations
• Reflects investments in advance of productivity yield and
continued higher Health Enterprise costs
Signings
• BPO/DO renewal rate of 82%
• New business signings2 up 9% YOY and (15)% TTM
• Q2 includes New York MMIS but not pending Florida
Tolling deal
Q2 % B/(W) YOY
(in millions) 2015 Act Cur CC1
Total Revenue $2,569 (3)% 1%
Segment Profit $192 (15)%
Segment Margin 7.5% (1.0) pt
Segment Margin Trend
Revenue Growth Trend (CC1)
37 1Constant currency (CC): see Non-GAAP Financial Measures
2New Business Signings = ARR (Annual Recurring Revenue) + NRR (Non-Recurring Revenue)
Signings (TCV) Q2 H1
Business Process Outsourcing $2.4 $4.2
Document Outsourcing $0.8 $1.4
Total $3.2B $5.6B
YOY Growth 20% 3%
TTM Growth 1% 1%
0% 1% 1%
3%
1% 1%
0%
2%
4%
Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15
8.6% 8.5% 9.1%
9.8%
7.5% 7.5%
6%
8%
10%
Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15
Document Technology Segment
Segment Margin Trend
Revenue Growth Trend (CC1)
Q2 % B/(W) YOY
(in millions) 2015 Act Cur CC1
Total Revenue $1,880 (12)% (7)%
Segment Profit $228 (25)%
Segment Margin 12.1% (2.3) pts
Revenue down 7% at CC1; actual results further
pressured by currency
• Including Document Outsourcing, revenue decline stable,
down 4% CC
• Revenue improvement in High-End offset by higher declines
in Entry driven by developing markets
Margin in line with expectations, down YOY and up
sequentially
YOY Install growth improved across most product
segments
Entry Installs Q2 H1
A4 Mono MFDs (12)% (18)%
A4 Color MFDs 9% (12)%
Color Printers (24)% (12)%
Mid-Range Installs
Mid-Range B&W MFDs (2)% (1)%
Mid-Range Color MFDs 4% 2%
High-End Installs
High-End B&W 4% -
High-End Color2 16% 12%
38 1Constant currency (CC): see Non-GAAP Financial Measures
2High-end color up 12% in Q2 and down 7% in H1 excluding DFE’s
(5)%
(7)% (6)% (6)% (6)% (7)% (8)%
(4)%
0%Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15
12.2% 14.4% 14.0% 14.4%
11.1% 12.1%
5%
10%
15%
Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15
Cash Flow
39
Cash From Ops $349M
Working capital improved YOY
CAPEX $102M
Acquisitions $20M
Investing includes proceeds of
$930M from ITO divestiture2
Share Repurchase of $395M and
$77M of Common Stock Dividends
1Accounts receivable includes collections of deferred proceeds from sales of receivables and finance receivables includes collections on
beneficial interest from sales of finance receivables
2Continue to expect net after-tax proceeds from the ITO divestiture of ~$850 million
(in millions) Q2 2015 H1 2015
Net Income $ 17 $ 247
Depreciation and amortization 297 593
Restructuring and asset impairment charges 157 171
Restructuring payments (30) (61)
Contributions to defined benefit pension plans (57) (98)
Inventories (67) (193)
Accounts receivable and Billed portion of finance receivables1 56 (111)
Accounts payable and Accrued compensation (21) (38)
Equipment on operating leases (69) (139)
Finance receivables1 18 105
Other 48 (14)
Cash from Operations $ 349 $ 462
Cash from Investing $ 831 $ 733
Cash from Financing $ (423) $ (908)
Change in Cash and Cash Equivalents 769 230
Ending Cash and Cash Equivalents $ 1,641 $ 1,641
Capital Structure
Core debt level managed to maintain investment grade
Over half of Xerox debt supports finance assets
Continue to expect ~$7.7B of debt at year-end
40
Financing and Leverage
• Xerox’s value proposition includes leasing of Xerox equipment
• Maintain 7:1 leverage ratio of debt to equity on these finance assets
Debt and Finance Asset Trend (in millions)
Q2 2015
(in billions) Fin. Assets Debt
Financing $ 4.5 $ 3.9
Core - 3.7
Total Xerox $ 4.5 $ 7.6
$
0
2,000
4,000
6,000
8,000
10,000
2011 2012 2013 2014 Q1 2015 Q2 2015
Finance Debt Core Debt Finance Assets
Capital Allocation Enhances Shareholder Returns
ITO divestiture closed at end of Q2
Adjusting Capital Allocation
• Increasing FY share repurchase plan
by $300M to $1.3B
– Repurchased $611M H1
• Decreasing acquisitions, now expect
to spend from $100 to $400M
Quarterly common dividend at 7
cents per share2
Expect ~$300M in FY dividend
payments
41
Share Repurchase Program
Dividend Program
1Ending fully diluted: see Non-GAAP Financial Measures 2Dividend effective for common dividend payable on April 30, 2015
Shares Repurchased ($M)
Shares Outstanding (ending fully diluted1, in millions)
Dividend per share (annualized)
$0.17 $0.17 $0.23 $0.25 $0.28
$0.00
$0.20
$0.40
2011 2012 2013 2014 2015
H1
$701
$1,052
$696
$1,071 ~$1.3B
$0
$300
$600
$900
$1,200
$1,500
2011 2012 2013 2014 2015
1,391 1,271 1,235 1,159 1,146 1,113
8001,0001,2001,4001,600
2011 2012 2013 2014 Q1 2015 Q2 2015
2015 Guidance
2015
Revenue Growth @ CC1 Down ~2%
Services Up 2 to 4% (low-end)
Document Technology Down ~6%
Adjusted EPS1 (incl restructuring) $0.95 - $1.01
GAAP EPS2 $0.69 - $0.75
Cash From Ops $1.7 - $1.9B
CAPEX $0.4B
Free Cash Flow1 $1.3 - $1.5B
Share Repurchase ~$1.3B
Acquisitions $100 - $400M
Dividend ~$300M
Note: Revenue growth guidance excluding potential divestitures 1Constant Currency (CC), Adjusted EPS and Free Cash Flow: see Non-GAAP Financial Measures 2GAAP EPS from Continuing Operations
Expect Total Revenue to be down ~2% CC
– Doc Tech continues to be negatively impacted by
developing markets
– Slower pace of acquisitions
Expect Services margin to be at low-end of 8.5 to
9.0% range
– Focusing on six states where currently operating or
implementing the new HE platform
– Prioritizing investments
– Accelerating cost / restructuring actions
FY EPS range remains $0.95 - $1.01
– Expect to be at lower-end
Maintaining $1.7 - $1.9B Operating Cash Flow
guidance
– Increasing share repurchase to $1.3B
– Decreasing acquisitions to $100 - $400M, completed
$48M YTD 42
Summary Continue to optimize our business model to drive improvement in revenue and profit
Focused on driving improvements in Services
• Accelerating cost and productivity benefits from Services transformation
• Have taken incremental actions to sharpen focus in Government Healthcare
Consistent execution in Document Technology
• Continuing to see stable rates of revenue decline
• Remain focused on leadership in attractive market segments and operational excellence
Solid Q2 Cash Flow; maintaining full year guidance
EPS guidance
• Q3 Adjusted EPS1 $0.22 - $0.24, GAAP EPS2 $0.17 - $0.19
– Includes approximately 1 cent restructuring
• FY Adjusted EPS1 $0.95 - $1.01 (lower-end), GAAP EPS2 $0.69 - $0.75
43 1Guidance - Adjusted EPS: see Non-GAAP Financial Measures
2GAAP EPS from Continuing Operations
Appendix
Revenue Trend
(in millions) FY Q1 Q2 Q3 Q4 FY Q1 Q2 YTD
Total Revenue $20,006 $4,771 $4,941 $4,795 $5,033 $19,540 $4,469 $4,590 $9,059
Growth (2)% (2)% (2)% (2)% (3)% (2)% (6)% (7)% (7)%
CC1 Growth (3)% (2)% (3)% (2)% (1)% (2)% (2)% (3)% (3)%
Annuity $16,648 $4,056 $4,160 $4,047 $4,173 $16,436 $3,845 $3,871 $7,716
Growth (2)% (2)% (1)% (1)% (2)% (1)% (5)% (7)% (6)%
CC1 Growth (2)% (2)% (2)% (1)% Flat (1)% (1)% (3)% (2)%
Annuity % Revenue 83% 85% 84% 84% 83% 84% 86% 84% 85%
Equipment $3,358 $715 $781 $748 $860 $3,104 $624 $719 $1,343
Growth (3)% (1)% (9)% (8)% (11)% (8)% (13)% (8)% (10)%
CC1 Growth (4)% (2)% (9)% (8)% (9)% (7)% (8)% (3)% (6)%
2014
45 1Constant currency: see Non-GAAP Financial Measures
2015 2013
Segment Revenue Trend
(in millions) FY Q1 Q2 Q3 Q4 FY Q1 Q2 YTD
Services $10,479 $2,585 $2,651 $2,623 $2,725 $10,584 $2,514 $2,569 $5,083
Growth 2% Flat 1% 1% 1% 1% (3)% (3)% (3)%
CC1 Growth 2% Flat 1% 1% 3% 1% 1% 1% 1%
Document Technology $8,908 $2,044 $2,126 $2,029 $2,159 $8,358 $1,830 $1,880 $3,710
Growth (6)% (4)% (6)% (6)% (8)% (6)% (10)% (12)% (11)%
CC1 Growth (6)% (5)% (7)% (6)% (6)% (6)% (6)% (7)% (7)%
Other $619 $142 $164 $143 $149 $598 $125 $141 $266
Growth (10)% 3% (1)% (1)% (12)% (3)% (12)% (14)% (13)%
CC1 Growth (10)% 3% (2)% (2)% (11)% (3)% (11)% (14)% (13)%
2014
46
2015
1Constant currency: see Non-GAAP Financial Measures
2013
Discontinued Operations Summary
47
(1) ITO Income from operations for second quarter 2015 and six months ended June 30, 2015 excludes approximately $41 million and
$80 million, respectively, of depreciation and amortization expenses (including $7 million and $14 million, respectively, for intangible
amortization) since the business was held for sale.
(2) ITO Income from operations for the second quarter 2014 and six months ended June 30, 2014 includes intangible amortization and
other expenses of approximately $8 million and $16 million, respectively.
Three Months Ended June 30,
2015 2014
(in millions) ITO Other Total ITO Other Total
Revenues $ 308 $ — $ 308 $ 341 $ 17 $ 358
Income from operations (1) (2)
$ 43 $ — $ 43 $ 23 $ — $ 23
Loss on disposal (68 ) — (68 ) — (2 ) (2 )
Net (loss) income before income taxes (25 ) — (25 ) 23 (2 ) 21
Income tax expense (70 ) — (70 ) (9 ) (1 ) (10 )
(Loss) income from discontinued operations, net of tax $ (95 ) $ —
$ (95 ) $ 14
$ (3 ) $ 11
Six Months Ended June 30,
2015 2014
(in millions) ITO Other Total ITO Other Total
Revenues $ 619 $ — $ 619 $ 669 $ 38 $ 707
Income (loss) from operations (1) (2)
$ 104 $ — $ 104 $ 44 $ (1 ) $ 43
Loss on disposal (72 ) — (72 ) — — —
Net income (loss) before income taxes 32 — 32 44 (1 ) 43
Income tax expense (93 ) — (93 ) (16 ) (1 ) (17 )
(Loss) income from discontinued operations, net of tax $ (61 ) $ —
$ (61 ) $ 28
$ (2 ) $ 26
Non-GAAP Measures
49
“Adjusted Earnings Measures”: To better understand the trends in our business, we believe it is necessary to adjust the following amounts determined in accordance
with GAAP to exclude the effects of certain items as well as their related income tax effects.
• Net income and Earnings per share (EPS)
• Effective tax rate
In 2015 and 2014, we adjusted for the amortization of intangible assets. The amortization of intangible assets is driven by our acquisition activity which can vary in size,
nature and timing as compared to other companies within our industry and from period to period. Accordingly, due to the incomparability of acquisition activity among
companies and from period to period, we believe exclusion of the amortization associated with intangible assets acquired through our acquisitions allows investors to
better compare and understand our results. The use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future
period revenues as well. Amortization of intangible assets will recur in future periods.
The following items represent the current adjustments to our reported earnings measures:
Amortization of intangible assets - The amortization of intangible assets is driven by our acquisition activity which can vary in size, nature and timing as compared to
other companies within our industry and from period to period. The use of intangible assets contributed to our revenues earned during the periods presented and will
contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.
Software impairment charge - The software impairment charge is excluded due to its non-cash impact and the unique nature of the item both in terms of the amount and
the fact that it was the result of a specific management action involving a change in strategy in our Government Healthcare Solutions business.
Deferred tax liability adjustment - The deferred tax liability adjustment was excluded due to its non-cash impact and the unusual nature of the item both in terms of
amount and the fact that it was the result of an infrequent change in a tax treaty impacting future distributions from Fuji Xerox.
We also calculate and utilize an Operating income and margin earnings measure by adjusting our pre-tax income and margin amounts to exclude certain items. In
addition to the amortization of intangible assets, operating income and margin also exclude Other expenses, net as well as Restructuring and asset impairment charges.
Other expenses, net is primarily comprised of non-financing interest expense and also includes certain other non-operating costs and expenses. Restructuring and asset
impairment charges consist of costs primarily related to severance and benefits for employees pursuant to formal restructuring and workforce reduction plans. Such
charges are expected to yield future benefits and savings with respect to our operational performance. We exclude these amounts in order to evaluate our current and
past operating performance and to better understand the expected future trends in our business.
Non-GAAP Financial Measures
50
“Constant Currency”: To better understand trends in our business, we believe that it is helpful to adjust revenue to exclude the impact of changes in
the translation of foreign currencies into U.S. dollars. We refer to this adjusted revenue as “constant currency.” Currencies for developing market
countries (Latin America, Brazil, Middle East, India, Eurasia and Central-Eastern Europe) that we operate in are reported at actual exchange rates for
both actual and constant revenue growth rates because (1) these countries historically have had volatile currency and inflationary environments and (2)
our subsidiaries in these countries have historically taken pricing actions to mitigate the impact of inflation and devaluation. Management believes the
constant currency measure provides investors an additional perspective on revenue trends. Currency impact can be determined as the difference
between actual growth rates and constant currency growth rates.
“Free Cash Flow”: To better understand the trends in our business, we believe that it is helpful to adjust cash flows from operations to exclude amounts
for capital expenditures including internal use software. Management believes this measure gives investors an additional perspective on cash flow from
operating activities in excess of amounts required for reinvestment. It provides a measure of our ability to fund acquisitions, dividends and share
repurchase. It also is used to measure our yield on market capitalization. A reconciliation of this non-GAAP financial measure and the most directly
comparable measure calculated and presented in accordance with GAAP is set forth in the slide entitled “2015 Guidance”.
Management believes that these non-GAAP financial measures provide an additional means of analyzing the current periods’ results against the
corresponding prior periods’ results. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the
Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a
substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance
with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our
business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting
future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures.
Unless otherwise noted, reconciliations of these non-GAAP financial measures and the most directly comparable measures calculated and presented in
accordance with GAAP are set forth on the following slides.
Non-GAAP Financial Measures
51
Q2 GAAP EPS to Adjusted EPS Track
Three Months Ended
June 30, 2015 Three Months Ended
June 30, 2014
(in millions; except per share amounts) Net Income EPS Net Income EPS
Reported(1)
$ 107 $ 0.09 $ 255 $ 0.21
Adjustments:
Amortization of intangible assets 49 0.05 48 0.04
Software impairment 90 0.08 — —
Adjusted $ 246 $ 0.22 $ 303 $ 0.25
Weighted average shares for adjusted EPS(2)
1,105 1,208
Fully diluted shares at end of period(3)
1,113
(1) Net Income and EPS from continuing operations attributable to Xerox.
(2) Average shares for the calculation of adjusted EPS for second quarter 2015 exclude 27 million of shares associated with the Series A
convertible preferred stock as to include these shares would be anti-dilutive and therefore the related quarterly dividend was included.
For second quarter 2014, these shares were included in the adjusted EPS calculation and therefore the related quarterly dividend was
excluded.
(3) Represents common shares outstanding at June 30, 2015 as well as shares associated with our Series A convertible preferred stock
plus dilutive potential common shares as used for the calculation of diluted earnings per share in second quarter 2015.
52
GAAP EPS to Adjusted EPS Guidance Track
Q3 2015 FY 2015
GAAP EPS from Continuing Operations $0.17 - $0.19 $0.69 - $0.75
Adjustments:
Amortization of intangible assets 0.05 0.18
Software impairment - 0.08
Adjusted EPS $0.22 - $0.24 $0.95 - $1.01
Note: GAAP and Adjusted EPS guidance includes anticipated restructuring
Earnings Per Share
53
Q2 Adjusted Operating Income/Margin
(1) Profit and Revenue from continuing operations attributable to Xerox.
Three Months Ended
June 30, 2015 Three Months Ended
June 30, 2014
(in millions) Profit Revenue Margin Profit Revenue Margin
Reported pre-tax income(1)
$ 74 $ 4,590 1.6 % $ 301 $ 4,941 6.1 %
Adjustments: Amortization of intangible assets 79 78 Restructuring and asset impairment charges 157 39 Other expenses, net 68 65
Adjusted Operating $ 378 $ 4,590 8.2 % $ 483 $ 4,941 9.8 %
54
Q2 Adjusted Other, net
(1) Excludes $146 million software impairment charge in 2015.
Three Months Ended Three Months Ended
(in millions) June 30, 2015 June 30, 2014
Other expenses, net - Reported 68$ 65$
Adjustments:
Xerox restructuring charge(1) 11 39
Net income attributable to noncontrolling interests 5 6
Other expenses, net - Adjusted 84$ 110$
55
Q2 Adjusted Effective Tax Rate
Three Months Ended
June 30, 2015 Three Months Ended
June 30, 2014
(in millions) Pre-Tax Income
Income Tax
Expense
Effective Tax Rate
Pre-Tax Income
Income Tax
Expense Effective Tax Rate
Reported(1)
$ 74 $ (9 ) (12.2 )% $ 301 $ 73 24.3 %
Adjustments: Amortization of intangible assets 79 30 78 30 Software impairment 146 56 — —
Adjusted $ 299 $ 77 25.8 % $ 379 $ 103 27.2 %
(1) Pre-Tax Income and Income Tax Expense from continuing operations attributable to Xerox.
56
Q2 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.
Three Months Ended
June 30,
(in millions) 2015 2014 % Change CC %
Change
Business Processing Outsourcing $ 1,736 $ 1,796 (3)% (1)%
Document Outsourcing 833 855 (3)% 4%
Total Revenue - Services $ 2,569 $ 2,651 (3)% 1%
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