Xerox Holdings Corporation · NASDAQ:XRX
Xerox — Investor Conference 2008
22 slides from Xerox's conference presentation, Dec 3, 2008
Slide 1: Financial Overview
Financial Overview Larry Zimmerman Executive Vice President & CFO 1
Slide 2: Today's Discussion
Today’s Discussion Business Model Fundamentals Performance Business Model Cash Generation Current Environment Questions 2
Slide 3: Business Model Fundamentals
Business Model Fundamentals Annuity Model Cash Generation Expanded Earnings • + 70% recurring revenue • Modest revenue growth • Consistent cash flow from Driven by: operations • Ability to drive cost • Equipment installs • Driven by recurring revenue efficiencies to balance gross profit / expense •
Slide 4: Performance
Performance Annuity Performance Cash Generation Q3 YTD ’05 ’06 ’07 ’08 (in millions, except per share data) ’05 ’06 ’07 Annuity Revenue $11.2B $11.4B $12.5B $9.9B Cash from Operations $1,420 $1,617 $1,871 Growth % (CC*) (1)% 2% 3%1 3%1 Capital Investments $237 $294 $359 Q3 YTD ‘08 Digital MIF Growth
Slide 5: Q3 2008 Year-to-Date Performance
Q3 2008 Year-to-Date Performance Q3 YTD Q3 YTD (in millions, except per share data) ’08 ’07 Revenue $ 13,238 $12,346 Driven by annuity growth Lower gross margin driven by channel and Gross Margin 39.3% 40.3% geographic mix R,D&E % of Revenue 5.1% 5.5% Consistent investment levels Investments in cove
Slide 6: Business Model Principles
Business Model Principles • Modest revenue growth driven by annuity • Over 70% of revenue from Post Sale • Global company – over 50% of revenue generated from customers outside the U.S. • Accretive acquisitions to drive organic growth • Balance gross profit margin with expense ratio • Modest increas
Slide 7: Cash Generation
Cash Generation • Investment Grade • Deliver and grow cash consistent with earnings • Conservative approach to use of cash • Improving market conditions will provide further flexibility Core Cash Flow2 Conservative approach Use of Core Cash Flow 2 Capital Dividend Cash Debt $1.7B - $2.0B 9/30/08 - C
Slide 8: Current Environment Questions
Current Environment Questions Have you seen any increase in bad debt write-offs? What are the 2009 pension expectations? How will you meet 2009 capital requirements? How does currency impact your results? Can you give us your thinking on 2009 expectations? 8
Slide 9: Have you seen any increase in bad debt write-offs?
Have you seen any increase in bad debt write-offs? Receivables 3.0% Write-offs % Revenue Bad Debt Provision% Revenue 2.0% 1.0% 0.0% 2005 2006 2007 Last 12 months* Provision and write-off ratios remain in historical ranges 9 *Last 12 months as of Q3 YTD
Slide 10: What are the 2009 pension expectations?
What are the 2009 pension expectations? Basic Assumptions: – Discount rate – Return on assets – Settlements – Service life Expense* Cash Funding • Recognizes long term nature of • Local law / regulatory requirements pensions, allows for smoothing • Smoothing effect is less effect $350M2 $202M $195M2
Slide 11: How will you meet 2009 capital requirements?
How will you meet 2009 capital requirements? • Cash flow Use of Cash – $873M on hand 9/30/08 Cash Debt – Strong Q4 cash generation 9/30/08 - Cash / Debt $0.9B $8.2B Q4’08 / 2009 Cash flow $2.7B • $2 billion Revolving Credit Facility thru 2012 Q4’08 Litigation $(0.3)B – $248M drawn at 9/30/08 Q4’08 /
Slide 12: How does currency impact your results?
How does currency impact your results? Translation Transaction • Conversion of functional currency • Cost of Sales to US Dollars – Largest exposure is Yen given sourcing from Asia 1.60 164 (24)% Mvmt Monthly Average Rate 1.55 154 1.50 144 1.45 US $ to Euro 134 Euro 1.40 Yen 1.35 124 US $ (18)% Mvmt
Slide 13: Can you give us your thinking on 2009 expectations?
Can you give us your thinking on 2009 expectations? Tailwinds Headwinds • Over 70% annuity revenue • Economic conditions • $200M restructuring savings • Currency • Expansive offerings delivering • Product / Geographic mix effect on customer savings Gross Margin • Expanded distribution Guidance • Bal
Slide 14: Key Messages
Key Messages Business Model fundamentals performing – Annuity / recurring revenue – Cash generation Well positioned with offerings and distribution Restructuring protects downside with opportunity for upside in current environment We continue to set our expectations high on delivering Shareholder Va
Slide 15: Non-GAAP Measures
Non-GAAP Measures “Constant Currency”: To understand trends in the 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 growth as “constant currency”. Currencies for our develo
Slide 16: Non-GAAP Measures
Non-GAAP Measures “Adjusted Diluted EPS”: Earnings per share (EPS) for the periods 2004 through 2006 as well as for the Q3 2008 year-to-date, Q4 2008 and 2008 full-year expectations are discussed in this presentation using non-GAAP financial measures that exclude the effects associated with the foll
Slide 17: Non-GAAP Reconciliation
Non-GAAP Reconciliation Annuity Performance – Growth % Actual and Constant Currency Q3 YTD ’05 ’06 ’07 ’08 Annuity Revenue $11.2B $11.4B $12.5B $9.9B Growth % (Constant Currency) (1)% 2% 3%1 3%1 Growth % (Actual Currency) (1)% 2% 6%1 6%1 Annuity Performance – Growth % Nine Months Ended % Change at S
Slide 18: Non-GAAP Reconciliation
Non-GAAP Reconciliation Free Cash Flow / Free Cash Flow per share (in millions, except share data in thousands) 2005 2006 2007 Income from continuing operations $ 933 $ 1,210 $ 1,135 Adj. Weighted Average Shares Outstanding 1,045,353 996,522 952,941 Diluted Earnings per share $ 0.90 $ 1.22 $ 1.19 In
Slide 19: Non-GAAP Reconciliation
Non-GAAP Reconciliation Q3 YTD 2008 Adjusted Effective Tax Rate Nine Months Ended September 30, 2008 Pre-Tax Income Effective (in millions) Income Taxes Tax Rate As Reported $ (35) $ (172) 491.4% Restructuring 77 25 Tax Settlements - 41 Litigation 795 304 As Adjusted $ 837 $ 198 23.7% 19
Slide 20: Non-GAAP Reconciliation
Non-GAAP Reconciliation Adjusted Diluted EPS Q3 YTD Diluted EPS 2004 2005 2006 2007 2008 As Reported $0.86 $0.94 $1.22 $1.19 $0.25 Adjustments Restructuring and asset impairment charges $0.05 $0.24 $0.25 Integic Gain ($0.06) ContentGuard Gain ($0.08) Tax Audit Benefits ($0.34) ($0.50) Litigation Mat
Slide 21: Non-GAAP Reconciliation
Non-GAAP Reconciliation Q4 2008 and FY 2008 Adjusted Diluted EPS Expectations Q4 2008 Full Year 2008 GAAP EPS $0.03 - $0.05 $0.28 - $0.30 Q1 ’ 08 Litigation $0.55 Q4 ’ 08 Restructuring $0.31 $0.31 Adjusted Diluted EPS $0.34 - $0.36 $1.14 - $1.16 21
Slide 22: 22
22