Xerox Investor Handout. Xerox Strategy Overview / Quarter Results

Transcription

1 Xerox Investor Handout Xerox Strategy Overview / Quarter Results

2 Forward-Looking Statements This presentation contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 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. These 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; actions of competitors; 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 multi-year contracts with governmental entities could be terminated prior to the end of the contract term; the risk in the hiring and retention of qualified personnel; the risk that unexpected costs will be incurred; the risk that subcontractors, software vendors and utility and network providers will not perform in a timely, quality manner; our ability to recover capital investments; the risk that our Services business could be adversely affected if we are unsuccessful in managing the ramp-up of new contracts; development of new products and services; our ability to protect our intellectual property rights; our ability to expand equipment placements; 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; service interruptions; interest rates, cost of borrowing and access to credit markets; reliance on third parties, including subcontractors, for manufacturing of products and provision of services; our ability to drive the expanded use of color in printing and copying; 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, 2014 and our 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The Company 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

3 Xerox Direction Grow revenue Generate profits in line with industry s best Strengthen and differentiate the portfolio Support customers and our people Allocate capital to enhance shareholder returns Annuity 85% of Total Revenue Services 57% of Total Revenue 3

4 Xerox Value Proposition Mix to Services Advantaged Verticals Margin Opportunity Sustainable Shareholder Value ~2/3 rds of revenue by 2017 >$2B Healthcare revenue Services Margin Expansion >50% FCF return to shareholders 4

5 Differentiate and Deliver Differentiate: by investing in areas of strength and opportunity Advantaged verticals Commercial BPO Healthcare BPO Government & Transportation BPO International Innovation Customer Care Document Technology & Outsourcing IT Outsourcing Deliver: best-in-class across the Enterprise Improve cost structure and delivery Leverage partners where appropriate 5

6 Segment Business Models Services (~56% of Total Revenue) 2014 Document Technology (~41% of Total Revenue) 2014 Revenue Growth Low-single digit growth Revenue Growth Mid-single digit decline Segment Margin 9.4% - 9.8% (low-end) Segment Margin Above 9 11% target range Portfolio Dynamics Secular Dynamics Broad and diverse BPO portfolio Two-thirds of BPO portfolio with margins 10% Currently experiencing pressure from student loan and government healthcare businesses Long-term contracts with high renewal rates Target renewal rate 85 to 90% Solid signings trends despite no mega deals Relatively modest CAPEX, around 3% of revenue ITO and Transportation more capital intensive Decline in B&W high-end Migration to Services Growth in developing markets Offset to digital transition ~8% of Doc Tech Revenue ~(2)% pts impact on Tech Revenue 2% market CAGR 12 to 16 only 2% of pages are done on digital high-end printing devices Limited macro sensitivity given largely recurring revenue and diversity of business Moderate macro sensitivity especially on hardware and unbundled supplies sales 6 Note: Expect Other segment revenue decline of mid-single digits 2014 guidance as communicated during Q2 earnings on July 25, 2014

7 2014 Guidance Revenue CC Services Document Technology 2014 Low-single digit decline Low-single digit growth Mid-single digit decline Adjusted EPS 1 (incl restructuring) $ $1.13 GAAP EPS $ $0.96 Cash From Operations $1.8 - $2.0B CAPEX $ 0.5B Revenue Document Technology trending as expected Services growth anticipated to show low-single digits growth in second half Earnings Expect FY EPS of $1.09 to $1.13 Drivers Margin upside in Document Technology offsets Services pressure FY Tax Rate of 24% to 26% Fewer shares Cash flow guidance remains $1.8 - $2.0B Free Cash Flow $1.3 - $1.5B Share Repurchase Acquisitions Dividend >$700M <$500M ~$300M guidance as communicated during Q2 earnings on July 25, 2014 Note: Revenue growth guidance excluding potential divestitures 1 Adjusted for amortization of intangible assets Constant Currency (CC), Adjusted EPS and Free Cash Flow: see non-gaap measures

8 Services

9 Diversified Offerings with a Deep Vertical Focus Document Outsourcing ~27% of revenue Commercial ~37% of revenue Health Care ~19% of revenue Transportation/ Government ~17% of revenue $35B Market 6% CAGR $420B Market 5% CAGR $40B Market 8% CAGR $35B Market 4% CAGR Market leader, industry leading portfolio of offerings Diverse set of offerings, market leader in several areas $2B+ Business, among largest players in U.S. Healthcare Market leader in Transportation and key Gov t BPO offerings Enterprise Print Services Partner Print Services Next Generation MPS Customer Care HR Services Financial Services C&MS ITO Student Loan MMIS HIX Provider Payer Pharma Analytics Tolling and Fare Parking Photo enforcement EBT/Debit Cards Child Support IT Services Student Loan 9 Market data based on internal market analysis; CAGR is for years Percent of revenue represents percent of total Services segment revenue

10 Operating Margin % Services Portfolio Dynamics Commercial BPO/ITO Student Loan 1 Healthcare BPO Government & Transportation Document Outsourcing Retail, Litigation Learning State Gov t Financial Services Transportation Healthcare Provider Healthcare Payer/Pharma Federal Gov t Document Outsourcing Human Resources CMS Commercial ITO Customer Care Gov t Healthcare 0% Revenue Growth 10 Note: The graphic above is a relative representation of the Services lines of business in Graphic not to scale for Student Loan revenue which is expected to decline by approximately 40% in 2014

11 Xerox Services Five Plank Growth and Profit Strategy Portfolio Management Improve mix to drive higher growth and margins Global Growth Enhanced focus on profitable growth outside the United States Cost Transformation Margin expansion through cost competitiveness Operational Excellence Foundational for leverage and scale, and delivering predictable, high-quality results Analytics Use the power of our big data to extract and transfer value to our customers 11

12 $2B+ Healthcare Services Business Govt Health Medicaid Administration Health Insurance Exchanges Pharmacy Benefit Management Health Information Exchanges % Total ~40% 40% 14 Growth Above average 14 Margin Low, with improvement opportunity Drivers New offerings, contract ramp and platform roll-out pressures margin Payer Business Process Outsourcing Business Communications Services Call Center and Cost Recovery Solutions 36% Above average In-line with BPO average Strong BPO platform base, well positioned to expand offerings Provider (incl ITO & Consulting) ITO platforms, including Pharma Consulting Solutions for EMR and Financial Systems, including Buck Healthcare Analytics for Care and Quality Learning Management Solutions 24% Above average Above average Higher level of software and consulting drive higher margin Employer Private Exchange solutions Emerging Opportunity Healthcare is a catalyst for Services revenue growth and margin expansion 12

13 Healthcare Back-up Services Margin - GHS Impairment Impact Q2 14 Services Margin excl impairment 9.2% GHS non-cash impairment (net) 1 (0.6)% Services Margin reported 8.6% Healthcare Overview As a % of (estimated FY 2014) Revenue Services Xerox Margin Total Healthcare* $2.3B 19% 11% Government (GHS) $0.9B 7% 4% Pressured Commercial (Payer & Provider) $1.4B 12% 7% >10% Two thirds of GHS revenue has operating margin >10% * Excludes private exchange revenue which is included in Xerox s Buck consulting results Market leader in Medicaid as new platform matures, profitability will improve - well positioned to retain and win new business Recently awarded New York Texas Medicaid to run-off : ~$40M quarterly revenue at lower margin Successful in five of six Health Insurance Exchanges - providing services in support of exchanges well positioned to grow Working with Nevada on transition plan onto the Federal Exchange Q2 GHS non-cash impairment associated with HIX platform Market leader in both Payer and Provider - well positioned to help customers adapt to market shifts 100% of top 20 managed U.S. healthcare plans are clients 1,700 hospitals served globally Commercial Healthcare revenue up over 10% with margin over 10% in Q2 Differentiated offering in emerging private exchange market 13 1 GHS non-cash impairment (net): see non-gaap measures

14 Our Services Align to Healthcare Industry Priorities Xerox Solutions Shift to Individual Consumer Model Changing Payment and Risk Model Medicaid Management Information System (MMIS) platform to support increased eligibility BPO platforms to support customer enrollments Public Healthcare Exchange (HIX) and Private Exchanges BPO and technology solutions Communications services and platforms Managed Care payment consulting and performance measurement Recovery services and fraud, waste and abuse analytics Provider credit balances BPO platforms to reduce operational cost Increasing Care and Quality Measurement Midas+ analytics platform to measure quality of provider care Care Quality Services (CQS) for population management Healthcare Consulting covering EHR, ERP, Meaningful Use, ICD-10, etc. 14

15 Xerox Next Generation MPS What We Do Client Value Xerox Capabilities Synergies Automate and Simplify Productivity Insight Workflow Automation Content Management Document Analytics Digital Alternatives BPO Secure and Integrate Security Mobility Security and Compliance Mobile and Cloud Solutions Print Server Mgmt. Services Help Desk Integration ITO Assess and Optimize Savings Sustainability Assessment Services and Tools Xerox ConnectKey TM Transition Management Business Intelligence 15

16 Gartner Magic Quadrant for MPS, Worldwide 16

17 Document Technology

18 An Advantaged Strategy Continue to Lead in Managed Print Services Market leader with new technology such as ConnectKey and our Next Generation MPS offering Drive innovation with new Workflow Automation software solutions that generate higher value and margins Leverage BPO and ITO synergies and increase industry vertical capabilities Lead Graphic Communications Transformation Market leader with world class capabilities in productivity, digital workflow and automation Deliver new growth via inkjet and next generation technologies Realize digital transition with expanded workflow and services for GC customers Capture the SMB Opportunity Industry leading offerings such as Xerox Partner Print Services Continue to invest in indirect channels Provide greater value for partners Align coverage and offerings to developing markets Focus on Profitability and Cash Flow 18

19 Printing Market: Focus on Attractive Segments Office (non-do) non-mps Total DO Production/GC B/W Color 2012 Market Size $55B $35B $2B $4B CAGR ( 12-16) 8% 6% 13% 9% Total Xerox print markets in slow contraction, down low single digits 19 Market data based on internal analysis

20 Digitizing Graphic Communications We are and will continue to be the preeminent leader in the graphic communications industry. Superior Customer Intimacy and Value Creation Lead In Core Market Winning Cut-Sheet Capture New Growth Inkjet-driven Applications Enable Digital Transition Workflow & Services Effective Operations to Serve Our Customers Of 50 trillion worldwide Production Print pages, only 2% are digital Investment in Inkjet provides access, over time, to 10 trillion or more of additional eligible pages (eg collaterals, direct mail, signage) 20

21 Additional Back-up

22 (in billions) Cash Flow Dynamics $3 Operating Cash Flow Trend $2 $1 $ E OCF Underlying OCF Focused on underlying Cash Flow improvement - Working Capital Opportunistic Finance Receivable (F/R) Sales in 12 and 13 - Attractive transaction economics - Supported capital deployment objectives (in billions) Est. Operating Cash Flow (OCF) $2.0 $2.6 $2.4 $1.8 - $2.0 Adjustments: Cash from F/R Sales $(0.6) ~$(0.6) - Impact from prior F/R Sales - ~$0.3 ~$0.4 Underlying OCF* $2.0 $2.0 $2.1 $2.2 - $ guidance does not include Finance Receivable sales - Reflects evolving market; less attractive economics 22 *Underlying OCF is reported OCF adjusted for the impacts of Finance Receivable sales

23 Capital Allocation Plan Acquisitions $276M $255M Dividend Acquisitions $155M $468M Debt Reduction Acquisitions <$500M ~$200M Debt Reduction Dividend ~$300M $1.1B Share Repurchase Share Repurchase $696M $272M Dividend ~$200M Opportunistic >$700M Share Repurchase 2014 balanced to deliver shareholder returns while maintaining investment grade leverage Dividend: ~$300M, ability to grow modestly in line with share reduction and cash flow Acquisitions: up to $500M, focused on Services Share Repurchase: at least $700M Debt Reduction: ~$200M, pre-funded in Dec 13 $200M of the $1.1B May 14 note 23

24 Pension Expectations Low interest rate environment greatly impacted 2011 and 2012 All major defined benefit (DB) pension plans frozen Expense Shift to defined contribution plans will reduce burden over time 2013 Estimate above 10-K forecast due to higher Settlement Losses DB Pension Funding Local law / regulatory requirements 2012 U.S. legislation lowers near term requirements $350M $363M $363M ~$250M $556M $494M $284M $300M $267M ~$145M $230M ~$250M E DB Cost DB Settlement Loss Defined Contribution Cost E DB Cash Contribution DB Stock Contribution 24

25 Xerox Performance Based Incentive System (2014) Short Term Stock Ownership Guidelines Annual Cash Pay-out Long Term Annual / 3yr Cumulative Targets Equity performance shares 3 year vesting from grant date 25 *Constant Currency (CC): see non-gaap measures

26 Second-Quarter 2014 Earnings Presentation Ursula Burns Chairman & CEO Kathy Mikells Chief Financial Officer July 25, 2014

27 Xerox Direction Grow revenue Generate profits in line with industry s best Strengthen and differentiate the portfolio Support customers and our people Allocate capital to enhance shareholder returns Annuity 85% of Total Revenue Services 57% of Total Revenue 27

28 Second-Quarter Overview Adjusted EPS 1 of 27 cents, GAAP EPS 2 of 22 cents Total revenue of $5.3B, down 2% or 2.5% CC 1 Services revenue up 2% or 1% CC 1 ; margin of 8.6% Revenue growth improving, driven by BPO Margin increased sequentially excluding government healthcare non-cash impairment Document Technology revenue down 6% or 7% CC 1 ; margin of 14.4% Revenue in-line with expectations; challenging compare from prior year ConnectKey launch Profit expansion driven by continued operational discipline Operating margin 1 of 9.7%, up 30 bps YOY Cash from operations of $325M in Q2, $611M for first half Share repurchase of $204M in Q2, $479M for first half Acquisitions of $227M in Q2, $281M for first half 28 1 Adjusted EPS, Constant Currency (CC) and Operating Margin: see non-gaap measures 2 GAAP EPS from Continuing Operations

29 Earnings (in millions, except per share data) Q B/(W) Comments Revenue $ 5,292 $ (99) Services up 2%, Document Technology down 6% Gross Margin 30.8% (0.7) pts RD&E $ 142 $ 7 SAG $ 972 $ 69 SAG % of Revenue 18.4% 0.9 pts Adjusted Operating Income 1 $ 514 $ 7 Growth in Operating Profit driven by Document Operating Income % of Revenue 9.7% 0.3 pts Technology Adjusted Other, net 1 $ 112 $ (14) Restructuring $5M higher YOY and O(I)D $9M higher YOY Equity Income $ 33 $ (3) Adjusted Tax Rate % (3.6) pts Compares to prior year tax rate of 24.1% Adjusted Net Income Xerox 1 $ 322 $ (23) Adjusted EPS 1 $ 0.27 Flat High-end of 25 to 27 cents guidance Amortization of intangible assets 0.05 (0.01) GAAP EPS 2 $ 0.22 $(0.01) 1 Adjusted Operating Income, Adjusted Other, net, Adjusted Tax Rate, Adjusted Net Income Xerox and Adjusted EPS: see non-gaap 29 measures 2 GAAP EPS from Continuing Operations

30 Services Segment Q2 % B/(W) YOY (in millions) 2014 Act Cur CC 1 Total Revenue $2,992 2% 1% Segment Profit $257 (15)% Segment Margin 8.6% (1.6) pts R Revenue continues to improve Margin flat sequentially Includes 60 basis point negative impact from noncash HIX platform impairment Five-Plank Strategy benefits ramp second half 8% 6% 4% 2% 0% (2)% (4)% 11% 9% 7% 5% Revenue Growth Trend (CC 1 ) 6% 4% 3% (2)% 0% 1% Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Segment Margin Trend 10.2% 9.4% 10.0% 9.6% 8.6% 8.6% Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Signings BPO/ITO renewal rate of 63%, below target due to TX Medicaid loss New business signings 2 improved sequentially, down 4% YOY driven by ITO Total signings impacted by fewer renewal decisions Signings (TCV) Q2 Business Process Outsourcing $2.0 Document Outsourcing $0.7 Information Technology Outsourcing Total $0.1 $2.8B YOY Growth (25)% TTM Growth (14)% 1 Constant currency (CC): see non-gaap measures 30 2 New Business Signings = ARR (Annual Recurring Revenue) + NRR (Non-Recurring Revenue) Note: Historical data updated to reflect Truckload Management Services divestiture and reclassification to Discontinued Operations

31 Document Technology Segment Q2 % B/(W) YOY (in millions) 2014 Act Cur CC 1 Total Revenue $2,125 (6)% (7)% Segment Profit $306 25% Segment Margin 14.4% 3.6 pts Strong segment profit growth and margin Driven by significant cost actions, favorable mix, pension and currency Revenue and activity impacted by challenging compare 0% (2)% (4)% (6)% (8)% (10)% 15% 13% 11% 9% 7% 5% Revenue Growth Trend (CC 1 ) Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 (5)% (5)% (5)% (6)% (7)% (9)% Segment Margin Trend 14.4% 10.8% 12.1% 11.7% 12.2% 8.8% Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Equipment revenue drove the higher Q2 decline, annuity improved sequentially First half revenue down 5%, 6% CC 1 Upcoming product launches across the portfolio benefits second half activity Entry Installs Q2 A4 Mono MFDs (38)% A4 Color MFDs (18)% Color Printers 5% Mid-Range Installs Mid-Range B&W MFDs (21)% Mid-Range Color MFDs (2)% High-End Installs High-End B&W (16)% High-End Color 2 (28)% 31 1 Constant currency (CC): see non-gaap measures 2 High-end color install growth impacted by high digital front end (DFE) sales to Fuji Xerox, High-end down 16% in Q2 excluding DFE s.

32 Cash Flow (in millions) Q H Net Income $ 272 $ 558 Depreciation and amortization Restructuring and asset impairment charges Restructuring payments (36) (72) Contributions to defined benefit pension plans (68) (105) Inventories (43) (103) Accounts receivable and Billed portion of finance receivables 1 (44) (163) Accounts payable and Accrued compensation (96) (88) Equipment on operating leases (66) (123) Finance receivables Other (47) (175) Cash from Operations $ 325 $ 611 Cash from Investing $ (326) $ (446) Cash From Ops $325M First half of $611M, up $165M YOY Underlying Cash from Ops 2 $437M in Q2, $846M for first half First half working capital improves 2014 more balanced, with continued progress on improving cash conversion CAPEX $123M Acquisitions $227M Share Repurchase of $204M and $73M of Common Stock Dividends Cash from Financing $ (561) $ (910) Change in Cash and Cash Equivalents (560) (757) Ending Cash and Cash Equivalents $ 1,007 $ 1, Accounts receivable includes collections of deferred proceeds from sales of receivables and finance receivables includes collections on beneficial interest from sales of finance receivables 2 See Underlying Cash Flow slide in Appendix

33 Capital Structure Debt and Finance Asset Trend (in millions) 8,000 6,000 4,000 2, Q Q Finance Debt Core Debt Finance Assets 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 Q Core debt level managed to maintain investment grade Over half of Xerox debt supports finance assets Retired $1.1B May note and issued $700M in senior notes $400M at 2.8% due 2020 and $300M at 3.8% due 2024 Continue to expect to end 2014 with ~$7.8B of debt (in billions) Fin. Assets Debt Financing $5.0 $ 4.4 Core - $ 3.3 Total Xerox $ 5.0 $

34 Capital Allocation Enhances Shareholder Returns Share Repurchase Program Shares Outstanding (ending fully diluted 1, in millions) 1,400 1,200 1,000 $1,200 $900 $600 $300 $0 1,391 1,271 1,235 1,213 1, Q Q Shares Repurchased ($M) $1,052 $701 $696 FY: >$700 H Repurchased $479M shares in first half Continue to expect to do at least $700M FY in share repurchase Quarterly common dividend at 6.25 cents per share 2 following April increase Dividend Program Dividend per share (annualized) $0.30 $0.23 $0.17 $0.17 $0.20 $0.25 Expect ~$300M in dividend payments Full Year $ Ending fully diluted: see non-gaap measures 2 Dividend increase effective for common dividend payable on April 30, 2014

35 Summary Growing operating profit with strong cash flow Document Technology delivering strong profitability and in-line revenue Improving Services revenue and margin outside government healthcare Executing on Services profitability and growth initiatives Driving cost efficiencies throughout business and making progress on resolving challenges in government healthcare Improved level of acquisitions Cash flow supports capital deployment objectives EPS guidance Q3 Adjusted EPS 1 $ $0.27, GAAP EPS 2 $ $0.23 Includes approximately 2 cents restructuring FY Adjusted EPS 1 $ $1.13, GAAP EPS 2 $ $ Guidance - Adjusted EPS: see non-gaap measures 2 GAAP EPS from Continuing Operations

36 Appendix

37 Healthcare Back-up Services Margin - GHS Impairment Impact Q2 14 Services Margin excl impairment 9.2% GHS non-cash impairment (net) 1 (0.6)% Services Margin reported 8.6% Healthcare Overview As a % of (estimated FY 2014) Revenue Services Xerox Margin Total Healthcare* $2.3B 19% 11% Government (GHS) $0.9B 7% 4% Pressured Commercial (Payer & Provider) $1.4B 12% 7% >10% Two thirds of GHS revenue has operating margin >10% * Excludes private exchange revenue which is included in Xerox s Buck consulting results Market leader in Medicaid as new platform matures, profitability will improve - well positioned to retain and win new business Recently awarded New York Texas Medicaid to run-off : ~$40M quarterly revenue at lower margin Successful in five of six Health Insurance Exchanges - providing services in support of exchanges well positioned to grow Working with Nevada on transition plan onto the Federal Exchange Q2 GHS non-cash impairment associated with HIX platform Market leader in both Payer and Provider - well positioned to help customers adapt to market shifts 100% of top 20 managed U.S. healthcare plans are clients 1,700 hospitals served globally Commercial Healthcare revenue up over 10% with margin over 10% in Q2 Differentiated offering in emerging private exchange market 37 1 GHS non-cash impairment (net): see non-gaap measures

38 2014 Guidance Revenue CC Services Document Technology 2014 Low-single digit decline Low-single digit growth Mid-single digit decline Adjusted EPS 1 (incl restructuring) $ $1.13 GAAP EPS $ $0.96 Cash From Operations $1.8 - $2.0B CAPEX $ 0.5B Revenue Document Technology trending as expected Services growth anticipated to show low-single digits growth in second half Earnings Expect FY EPS of $1.09 to $1.13 Drivers Margin upside in Document Technology offsets Services pressure FY Tax Rate of 24% to 26% Fewer shares Cash flow guidance remains $1.8 - $2.0B Free Cash Flow $1.3 - $1.5B Share Repurchase Acquisitions Dividend >$700M <$500M ~$300M 38 Note: Revenue growth guidance excluding potential divestitures 1 Adjusted for amortization of intangible assets Constant Currency (CC), Adjusted EPS and Free Cash Flow: see non-gaap measures

39 Revenue Trend (in millions) FY Q1 Q2 Q3 Q4 FY Q1 Q2 YTD Total Revenue $21,693 $5,192 $5,391 $5,250 $5,557 $21,390 $5,110 $5,292 $10,402 Growth (1)% (2)% 1% Flat (3)% (1)% (2)% (2)% (2)% CC 1 Growth Flat (2)% 1% (1)% (4)% (2)% (2)% (3)% (2)% Annuity $18,217 $ 4,468 $4,536 $4,439 $4,588 $18,031 $4,395 $4,511 $8,906 Growth 1% (1)% 1% Flat (3)% (1)% (2)% (1)% (1)% CC 1 Growth 2% (1)% 1% (1)% (3)% (1)% (2)% (1)% (2)% Annuity % Revenue 84% 86% 84% 85% 83% 84% 86% 85% 86% Equipment $3,476 $724 $855 $811 $969 $3,359 $715 $781 $1,496 Growth (10)% (11)% 1% 1% (4)% (3)% (1)% (9)% (5)% CC 1 Growth (8)% (11)% 1% Flat (5)% (4)% (2)% (9)% (6)% Note: 2012, 2013 and Q Services revenue are revised to remove the Truckload Management Services (TMS) business revenues that were reclassified to discontinued operations 39 1 Constant currency: see non-gaap measures

40 Segment Revenue Trend (in millions) FY Q1 Q2 Q3 Q4 FY Q1 Q2 YTD Services $11,484 $2,909 $2,946 $2,932 $3,027 $11,814 $2,912 $2,992 $5,904 Growth 6% 4% 5% 3% (1)% 3% Flat 2% 1% CC 1 Growth 7% 4% 6% 3% (2)% 3% Flat 1% 0% Document Technology $9,462 $2,135 $2,263 $2,159 $2,351 $8,908 $2,045 $2,125 $4,170 Growth (8)% (9)% (5)% (4)% (6)% (6)% (4)% (6)% (5)% CC 1 Growth (6)% (9)% (5)% (5)% (6)% (6)% (5)% (7)% (6)% Other $747 $148 $182 $159 $179 $668 $153 $175 $328 Growth (7)% (14)% (5)% (6)% (16)% (11)% 3% (4)% (1)% CC 1 Growth (6)% (14)% (5)% (8)% (17)% (11)% 3% (4)% (1)% 40 Note: 2012, 2013 and Q Services revenue are revised to remove the Truckload Management Services (TMS) business revenues that were reclassified to discontinued operations 1 Constant currency: see non-gaap measures

41 Metrics Reference Signings and Renewal Rate H1 Business Process Outsourcing $4.1 Document Outsourcing $1.3 Information Technology Outsourcing $0.3 Total $5.7B Signings Growth YOY (22)% Signings Growth TTM (14)% H1 Renewal Rate (BPO and ITO) 74% Install, MIF and Page Growth Entry Installs H1 A4 Mono MFDs (23)% A4 Color MFDs (1)% Color Printers 3% Mid-Range Installs Mid-Range B&W MFDs (18)% Mid-Range Color MFDs 2% High-End Installs High-End B&W (15)% High-End Color 1 (7)% H1 Digital MIF 2% Color MIF 13% Digital Pages (3)% Color Pages 6% Color Revenue (CC 2 ) (1)% 41 Installs, color revenue, pages and MIF include both the Document Technology and Services segments. Color revenue and color pages reflect revenue and pages from color capable devices. 1 High-end color install growth impacted by high digital front end (DFE) sales to Fuji Xerox, High-end up 7% YTD excluding DFE s. 2 Constant currency: see non-gaap measures

42 Underlying Cash Flow June YTD Estimated June YTD (in millions) Q Q FY 2014 Q Q FY 2013 Operating Cash Flow (OCF) $286 $325 $611 $1.8 - $2.0B ($87) $533 $446 $2.4B Adjustments: Cash From F/R Sales $(0.6)B Impact from prior F/R Sales 1 $123 $112 $235 $0.4B $89 $58 $147 $0.3B Underlying OCF 2 $409 $437 $846 $2.2 - $2.4B $2 $591 $593 $2.1B 1 Represents cash that would have been collected if we had not sold finance receivables. Net of collections on beneficial interest. 2 Underlying OCF is reported OCF adjusted for the impacts of Finance Receivable sales: see non-gaap measures 42

43 Discontinued Operations Summary Three Months Ended Six Months Ended June 30, June 30, (in millions) Revenues $ 7 $ 144 $ 17 $ 308 Income from operations $ - $ 2 $ - $ 7 Loss on disposal (2) (23) - (23) Net loss before income taxes (2) (21) - (16) Income tax expense Loss from discontinued operations, net of tax $ (4) $ (23) $ (2) $ (20) Diluted earnings per share from discontinued operations $ - $ (0.02) $ - $ (0.02) Total diluted earnings per share, inclusive of discontinued operations $ 0.22 $ 0.21 $ 0.45 $ 0.44 Note: 2013 Discontinued Operations includes the results related to our North American and European Paper businesses which we sold in In addition, 2013 and 2014 Discontinued Operations includes the results related to our Truckload Management Services business which we sold in Q2 of

44 Discontinued Operations Restatement Summary (in millions) Q1 Q2 Q3 Q4 FY Q1 Services Segment Revenue $ 2,909 $ 2,946 $ 2,932 $ 3,027 $ 11,814 $ 2,912 Total Performance Revenue $ 5,192 $ 5,391 $ 5,250 $ 5,557 $ 21,390 $ 5,110 Services Segment Profit $ 272 $ 301 $ 292 $ 290 $ 1,155 $ 250 Total Segment Profit $ 389 $ 484 $ 498 $ 528 $ 1,899 $ 449 Services Segment Margin 9.4% 10.2% 10.0% 9.6% 9.8% 8.6% Total Segment Margin 7.5% 9.0% 9.5% 9.5% 8.9% 8.8% Detailed above is the restatement for Services Segment and Total Segment results by quarter for 2014 and 2013 related to the sale of our Truckload Management Services (TMS) business in May The entire restated income statement for these periods can be found in the financial model included on our website at 44

45 Non-GAAP Measures

46 Non-GAAP Financial Measures 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 2014 and 2013, 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. 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. 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. 46

47 Non-GAAP Financial Measures Services Margin excluding impairment : In the second quarter 2014, we present the Services segment margin excluding the negative impact from the non-cash HIX platform impairment charge of 0.6%. The non-cash HIX platform impairment charge was a significant discrete and unusual charge in the second quarter 2014 that was primarily related to a HIX contract cancellation in Nevada. We believe exclusion of this item allows investors to better understand and analyze the Services segment results for the period as compared to prior periods as well as the expected trends in this segment. 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 Healthcare Back-up. 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 2014 Guidance. Underlying Cash Flow : To better understand the trends in our business, we believe that it is helpful to adjust cash flows from operations for the cash flow impacts from our sales of finance receivables. The sale of finance receivables has a significant impact on operating cash flows in the period of sale as well as in subsequent periods due to the amounts sold as well as the long term nature of these receivables. In addition to providing a better understanding of the underlying trends in cash flows from operations, management believes this measure gives investors an additional perspective on comparing and analyzing the year-over-year changes in our cash flows as well as the impacts of these sales on cash flows in the period. 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 Underlying Cash Flows. 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. 47

48 Q2 GAAP EPS to Adjusted EPS Track (in millions; except per share amounts) Net Income EPS Net Income EPS Reported (1) $ 270 $ 0.22 $ 294 $ 0.23 Adjustments: Three Months Ended Three Months Ended June 30, 2014 June 30, 2013 Amortization of intangible assets Adjusted $ 322 $ 0.27 $ 345 $ 0.27 Weighted average shares for adjusted EPS (2) 1,208 1,287 Fully diluted shares at end of period (3) 1,200 (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 and therefore the related quarterly dividend was excluded. (3) Represents common shares outstanding at June 30, 2014 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 the second quarter

49 GAAP EPS to Adjusted EPS Guidance Track Earnings Per Share Guidance Q FY 2014 GAAP EPS from Continuing Operations $ $0.23 $ $0.96 Adjustments: Amortization of intangible assets Adjusted EPS $ $0.27 $ $1.13 Note: GAAP and Adjusted EPS guidance includes anticipated restructuring 49

50 Q2 Adjusted Operating Income/Margin (in millions) Profit Revenue Margin Profit Revenue Margin Reported pre-tax income(1) $ 324 $ 5, % $ 332 $ 5, % Adjustments: Amortization of intangible assets Xerox restructuring charge Other expenses, net Adjusted Operating $ 514 $ 5, % $ 507 $ 5, % Three Months Ended (1) Profit and Revenue from continuing operations attributable to Xerox. Three Months Ended June 30, 2014 June 30,

51 Q2 Adjusted Other, net Three Months Ended Three Months Ended (in millions) June 30, 2014 June 30, 2013 Other expenses, net - Reported $ 68 $ 59 Adjustments: Xerox restructuring charge Net income attributable to noncontrolling interests 6 6 Other expenses, net - Adjusted $ 112 $ 98 51

52 Q2 Adjusted Effective Tax Rate (in millions) Pre-Tax Income Three Months Ended Three Months Ended June 30, 2014 June 30, 2013 Income Tax Expense Effective Tax Rate Pre-Tax Income Income Tax Expense Effective Tax Rate Reported (1) $ 324 $ % $ 332 $ % Adjustments: Amortization of intangible assets Adjusted $ 408 $ % $ 415 $ % (1) Pre-Tax Income and Income Tax Expense from continuing operations attributable to Xerox. 52

53 Q2 Services Revenue Breakdown Three Months Ended June 30, (in millions) % Change Business Processing Outsourcing $ 1,791 $ 1,773 1% Document Outsourcing % Information Technology Outsourcing % Less: Intra-Segment Eliminations (48) (44) 9% Total Revenue - Services $ 2,992 $ 2,946 2% Note: 2013 Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO) revenues have been revised to conform to the 2014 presentation of revenues. 53

54