XRX
#I think just focus a little bit on your question, yes, what we're seeing in the business and the actions that we're taking is to assure that we when we separate these two businesses, and obviously in 2016 as well, that we get the cost structure and operating model right for these two businesses.
When we look at restructuring and all of the strategic transformation programs, it's focused on leaning out the infrastructure of the business, so spans and layers, everything from spans and layers to how we approach the market from a selling perspective, how we approach the market from a supply chain perspective, etc.
All in leaning out cost and efficient operation not to impact our revenue flow or how we service our customers.
And I think that what we've shown in the first quarter is the ability to actually do that, to drive restructuring and kind of fall in our expectation range and hold up our full-year commitments in both BPO and in Doc Tech and in the full Company perspective.
So I think you're right, we're trying to balance all of these things.
There's a lot of stuff going on but I think we're keeping our eye on the ball and delivering fairly well.
In line with separation as well by the way, we'll do that by the end of the year.
Hi, <UNK>, it's <UNK>.
So first of all with regard to the $700 million of annualized savings this year, it's consistent with what we had previously said and underscores our commitment to deliver adjusted earnings of $1.10 to $1.20 this year.
We, as you noted, increased the restructuring.
Quite frankly we did that in order to underscore our ability to deliver the range, even though Document Technology revenues have begun the year a bit softer than we would have liked.
So this year we don't anticipate investing any of the $700 million.
Any investments of restructuring savings are ahead of us, not in 2016.
With regard to the tax-free spin, I think what we've said is it's tax-free from a federal income tax perspective.
Any tax dis-synergies associated with the spin or any one-time tax costs associated with the spin will be explicitly identified post the Form 10 filing, so as we get to quarter-two earnings announcement at the end of July.
So you should think about them benefiting both gross margin and SAG.
In both businesses, by the way, in both the BPO and the Doc Tech business.
So <UNK>, what we're going to do on dis-synergies is we're going to try to hold that conversation until the middle of the year when we can get a better grasp on what they are specifically and not kind of dribble it out.
But some of the general dis-synergies are what you call independent company cost dis-synergies.
Setting up a board, those types of things are the general buckets, but we don't want to get too far ahead of ourselves and kind of piecemeal it out.
We will have some very specific clarity in the middle of the year when we file some of the Form 10 documents and start to communicate more.
But think about setting up two independent companies and the structures that you need for that.
So <UNK>, it's <UNK>.
If I could just add onto that a bit.
We certainly expect that over time the benefits from our strategic transformation will significantly outweigh any of the dis-synergies associated with running two companies.
As you know, as <UNK> just mentioned, there are certainly public company costs.
But when you look at dis-synergies that typically impact other companies, there will be less that we face because we haven't done a tremendous amount of integration of BPO with what was the Doc Tech organization.
Yes, think about expansion throughout the year quarter by quarter.
That's the expectation, the plan.
Services margins came in about where we would have expected them to come in.
We expected to be below at the lower end of our full-year ranges in the first quarter, it's a seasonally lighter quarter for us in general, and second quarter will be better third and fourth, like that.
We are fairly confident of coming in and that's why we are reiterating the guidance on our Services margins for the full year.
And by the way for our EPS for the adjusted EPS for the full year, our cash flow, we've adjusted down and our Doc Tech we've reiterated as well, so it's kind of come in where we expected.
So <UNK>, a couple of things.
You know we took $126 million of restructuring charges in quarter one.
That should benefit both businesses as we move through the year.
We've announced another $100 million of restructuring in quarter two which should also benefit the margins of both businesses as we move through the year.
We called out a specific weakness in quarter one in customer care where we have new leadership that we've recently brought into the Company and we do expect to be able to address some of those operational and efficiency challenges as we move through the year.
So we're pretty optimistic about delivering the 8% to 9.5% Services segment margin for the year.
Yes, so I will start and then <UNK> will chime in.
And I just want to start with a level of clarity about what we are reiterating.
We are absolutely reiterating full-year Doc Tech margin in the 12% to 14% range.
That is we are confident that we can deliver that.
We are also reiterating Services margins in the 8% to 9.5% range.
We're reiterating revenue, our revenue guidance and we're reiterating our adjusted EPS guidance.
All of those things, four or five I just mentioned, are not changed at all.
We did have a lower delivery of margin in the first quarter for Doc Tech but we are very confident drupa, other product launches, timing of our savings, the flow of currency and how it affects our margins, they will all come out in the next three quarters, delivering somewhere between the 12% and 14% margins that we spoke about.
<UNK> can speak more on this as well.
So, <UNK>, just to reiterate, transaction currency cost us about 100 basis points year over year in terms of the Doc Tech margin.
So Doc Tech margin of 10.2% down 250 basis points, 100 of that was transaction currency.
We believe that $19 million pressure in quarter one turns to essentially negligible in quarter two.
And when you add on top of that the restructuring benefits that we expect to capture from the restructuring that we did in quarter one and that we're doing more of in quarter two we're very, very confident of being able to get to the 12% to 14% range for the year.
With regard to drupa, you're absolutely right, it is an investment that we make once every four years.
But it is relatively modest compared to, for instance, the transaction currency headwind that we faced in quarter one.
So the answer to that in general is no.
I'll answer the question from the combined Company perspective; that's the best way to address it.
And we'll talk about the split companies when we get further in the year.
Our ability to generate cash and to have it available to operate the business in 2016 is identical, nearly identical, to our ability to generate cash and have it available in 2015.
It's really important that we understand that, that you understand that.
About $1.6 billion operating cash flow in the year in 2016.
We have to spend more on restructuring, which we talked about.
I think that's a good investment, a very solid investment in 2016, and will benefit us some in 2016 and will definitely benefit the two companies as we separate.
We have separation costs which are unique in 2016.
We will have some in 2017, but a very small amount, a very, very small amount.
We have normal CapEx of about $300 million.
We have an additional $50 million of CapEx associated with separation that is also unique in 2016.
That gives us a cash balance, a new free cash flow, of somewhere between $600 million and $850 million.
But most of that $850 million to $600 million, the reason why we're there is because of things that we don't expect to repeat in 2017.
So as we flow into 2017 and leave 2016, we'll have a cash ability, generating ability of the two new companies that will be circa $1.6 billion just like it is this year without these one-time costs associated with the separation and with the big restructuring that we're taking.
So we don't say ---+ we don't view that a lot has changed over the last four months that we've talked to at all.
We're getting more clear which we expect to do.
We get more clear as we speak to you throughout the year but it is important that you keep an eye on the fact that the fundamental cash flow and fundamental operations of the business hasn't changed that much.
Yes, I will start with the M&A and I will have <UNK> take the share repurchase.
Last quarter we guided that we would be in the $100 million to $400 million but at the lower end of the range.
What we're doing this quarter is we're narrowing it to the lower end of the range.
We don't expect for us to be in the $400 million range so we've actually taken that off.
Most of the change is driven by the fact that we're doing the separation.
It's not really a big indication of any significant change in the market.
We are pushing hard for the $100 million as I said between both Doc Tech and Services with a big focus on starting these two companies with the right financial position and capital structures.
And that's why share repurchase, M&A, debt reduction are all being played against each other to ensure that we have good capital structures.
For M&A $100 million towards the lower end of the range, we're zeroing there.
Share repurchase, <UNK> will talk about it, but we've moved share repurchase off the table, did $1.3 billion last year, a very, very large amount of share repurchase last year.
And we don't think that we'll do any this year with a focus on debt reduction.
So I think <UNK> has stolen most of my thunder.
As she said, we did do $1.3 billion of share repurchase last year and we have also increased the dividend which is the other way that we return capital to our shareholders.
With modest M&A this year, we are going to prioritize the remaining cash toward debt reduction in order to optimize the capital structure of both companies.
So we're pretty intent on insuring that each of the two new companies starts competitive, starts lean and starts with an optimized capital structure.
And that's where we're focusing our efforts.
So it's actually lower renewal opportunities in the quarter.
So we're really pleased with the renewal rate that we delivered in the quarter of 89% which is at the high-end of our 85% to 90% target range.
But there were less renewal opportunities.
We're also really pleased that the business signings in the quarter were up 6% year over year.
So strong new business, less renewal opportunity but strong renewal rate.
We do expect the renewal opportunities for the full year to be essentially the same as it was in 2015.
But as you probably know, if you don't know now that renewals come in the year at various times.
So we expect the full-year bucket to be about what it was in 2015, maybe a little bit higher.
Okay, so it's <UNK>.
I think over the longer term we are certainly focused on growing at the market.
There are clear industries where we participate well like healthcare, like transportation, like customer care where over time we for sure should grow at the market rate.
In the near term, we do have some puts and takes associated with some contracts that we have opted out of or contracts that we've lost.
So we're pleased with the BPO growth in quarter one and believe that for the year it will enable ---+ BPO combined with Document Outsourcing will enable us to deliver the Services revenue growth that we've committed which is flat to up 3%.
BPO will be a little lumpy in certain quarters depending upon the prior-year compare.
Yes, so outside of the government healthcare space where we've made, and Health Enterprise in particular where we've made a set of very conscious decisions to not complete the platforms, in general if we move out of a contract it's because the contract profitability doesn't meet our thresholds.
That's basically we don't have a lot of these, this is not a large bucket of business, but we are being very disciplined in assuring that as we move forward with contracts that it's, particularly if they are not in the areas of focus for us, which are transportation and healthcare, if they are not in those areas and they have a very low profitability or marginal profitability we will move out of those contracts, obviously working with the client and not leaving them in the lurch.
And as we think about the new business that we compete for, we're also being very measured in ensuring that the new business that we take on has the margin profile that we're seeking longer term for the Services business.
So, <UNK>, there's a few things that I think you should understand about the impact of the yen.
First of all, we have a currency risk sharing arrangement with Fuji Xerox where they take half the good news or the bad news and we take the other half.
That happens over time.
Second of all, we do hedge.
And therefore the impacts of currency movements will be more muted and will flow in over time.
The last point that I would make vis-a-vis the yen strengthening in particular is that it tends to lead to a less competitive or a more muted competitive pricing environment, a good thing.
And we also have the benefit of translating our equity income from Fuji Xerox at a more attractive rate when the yen is strong.
I think we've had a pretty intense engagement over the last I think let's say six weeks or so that has been refreshing, painful but refreshing in many ways.
And for both our Doc Tech business, Doc Tech with DO now, and our BPO business we have found ways to improve three major areas.
One is how we approach our customers, how we approach them organizationally and in what areas we dive deep with them.
And that help us on the top line, how do we organize that go-to-market in a little bit more efficient way.
Second is how do we adjust our cost base inside particularly, we've talked about this a lot, spans and layers where we've done a lot of work but with the help of some outside resources we've been able to look at to find ways to even be more sharp there.
Then as we separate the two companies we're taking this chance to look at just about every other piece of the business that moves and figuring out a way to lean that out those pieces of business that move, lean them out and be significantly more efficient.
The fundamental strategies, though, of the Doc Tech business and the BPO business, the fundamental strategies are the same.
What we're doing here is we're rounding the edges a bit to make ourselves even more efficient.
I was pleased with the work that we've done so far.
But we still have some work to do.
<UNK> said I think there's two primary outcomes.
One is sharpening the strategy for each of the two businesses.
And the second is for sure improving our strategic execution.
And part of the strategic execution is the transformation that we've been talking about.
So the separation costs are dominated by both cost and outflows this year.
There will be minimal costs that are incurred and cash outflows that are incurred in 2017.
No, I was just asking if you had more questions.
So continue, please.
Thanks, <UNK>.
Full year, we were careful to be clear about the full year this year because we know that we had ---+ we have a lot of ups and downs in any given quarter.
On a full-year basis Doc Tech margins, Doc Tech revenue, we are reiterating our guidance and confidence that we'll be able to get there.
So no debate there.
As far as the margins go and the revenue in the first quarter, they were a little bit lighter than we would have expected but not anything that would allow us, that would cause us as I said to change our guidance.
If you think about what we did in the second half of last year, and actually in the first quarter so far of this year, but in the second half of last year, we took no restructuring in the Doc Tech business.
We did all of our restructuring in the Services segment.
So we knew that we would have pressure in margins in the first quarter because we had literally no restructuring to offset the revenue declines.
We've doubled up on restructuring in the first quarter.
We have even more to do and we've announced an additional $100 million in the second quarter and we'll top the year at $300 million of restructuring which is why we are confident that we'll be able to actually hit the margin range for the full Company that we talked about, the EPS that we talked about and the adjusted EPS that we talked about.
And the revenue shouldn't change that much.
So the way the business is flowing, no restructuring second half of the year, big restructuring this year, help us to maintain and drive the margin range that we talked about in Doc Tech and in Services.
And no, we're not moving away from focusing on the market and we will be able to actually hit the revenue guidance that we've given as well.
This is, as you can sense from listening to the call, this is a significant year for Xerox.
We have three fundamental commitments that we have made to our shareholders.
The first is to deliver our 2016 guidance.
We are on track to do that.
We are reiterating our full-year guidance in EPS and in revenue, we're doing that for both BPO and for Doc Tech and for the full Company.
Second is to actually implement a strategic transformation that gives us two very strong companies, well seeded companies on January 1 of 2017.
And we are well on board, well on past to do that.
And we are very confident in our ability to hit the second.
The third is to hit the separation date which is January 1, 2017.
A lot of work on that going very well.
And we're very confident in our ability to do that.
So these three things we are focused on and we're pleased with the progress we are making and very confident in our ability to pull it off.
So thank you for joining our call today and we'll see you next quarter.
