Xerox's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Xerox (XRX)

Q1 2012 Earnings Call

April 23, 2012 10:00 am ET

Executives

Ursula M. Burns - Chairman and Chief Executive Officer

Luca Maestri - Chief Financial Officer and Executive Vice President

Lynn R. Blodgett - Corporate Executive Vice President and President of Services Business

Analysts

Shannon S. Cross - Cross Research LLC

Richard Gardner - Citigroup Inc, Research Division

Benjamin A. Reitzes - Barclays Capital, Research Division

Deepak Sitaraman - Crédit Suisse AG, Research Division

Chris Whitmore - Deutsche Bank AG, Research Division

Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good morning, and welcome to the Xerox Corporation First Quarter 2012 Earnings Release Conference Call hosted by Ursula Burns, Chairman of the Board and Chief Executive Officer. She is joined by Luca Maestri, Executive Vice President and Chief Financial Officer.

During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com/investor. At the request of Xerox Corporation, today's conference call is being recorded. Other recording and/or rebroadcasting of this call are prohibited without expressed permission of Xerox.

[Operator Instructions]

During this conference call, Xerox executives will make comments that contain forward-looking statements which, by their nature, address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I would like to turn the meeting over to Ms. Burns. Ms. Burns, you may begin.

Ursula M. Burns

Good morning, and thanks for joining us today. We'll get started on Slide 3 with a review of the strategic imperatives that define our business and align with our financial performance.

First, accelerating our Services business, growing it faster by diversifying our offerings; aggressively pursuing opportunities in key growth areas like HR outsourcing, customer care, transportation and health care; and expanding globally. In Q1, revenue from Services grew 10% in constant currency and now represents more than half of our total revenue.

Second, maintaining our leadership in Technology. Our Printing business continues to benefit our bottom line and remains core to our business model. We are focusing investments on innovation that drives down the cost of color printing, and we're expanding distribution to extend our reach to small and midsized businesses. We made good progress in Q1 with installs of Xerox products up 7%. According to recent external market share reports, we remain the leader in equipment revenue share for the ninth straight quarter. In fact, we're taking share from competitors, strengthening our leadership position.

And third, driving operational excellence across our enterprise. This means adjusting our cost model so we're competitively advantaged and have the financial flexibility to quickly adapt to changing marketplace needs while scaling in key growth areas. During Q1, Services margin pressure was partially offset by a 5% decline in selling, administrative and general expenses.

By executing well on these 3 priorities, we're delivering on the fourth, creating value for our shareholders. Doing so by growing revenue, delivering solid earnings and allocating capital in the areas of acquisitions, dividends and share repurchase. So our execution is well aligned with our strategy and is reflected in our performance. But the heavy lifting is in the details. Since acquiring ACS more than 2 years ago, we're making a seismic shift in our business. It's not just in how we operate, but also in what we do and for whom we do it, all driven by the diversity of our offerings. As a result, the Xerox brand is now in places you wouldn't expect and serving industries where our relevance extends way beyond printing.

For example, just in the past 2 weeks, we've been part of the conversations at 2 major health care conferences: TEDMED and the World Health Care Congress. At both, we were acknowledged as playing an important role in simplifying the business of health care through electronic medical records, health information exchanges and digital protocols, all of which help lift administrative burdens for providers. Our technology, like advanced imaging, tends to enable these activities, but our deep expertise and customized outsourcing offerings make up the total solution. Please turn to Slide 4 for more examples of what I mean.

We read in the headlines that governments need to be more efficient, but we don't often hear how that is happening each day. For example, last month, the State of Texas announced an $848 million contract with Xerox for a significant overhaul of their IT systems that will simplify and greatly improve the efficiency of the state's operations. We're consolidating 28 data facilities into 2 centralized centers, modernizing one of the largest IT systems in the country with improved cloud services and overall security and disaster recovery capabilities. And while deals like this get a lot of attention, cloud services are not just built for large enterprises. Through our new cloud-based platform for small and midsized companies, SMBs benefit from the same infrastructure investments that we make for our largest clients. For all of our clients, large to small, data security is paramount to maintaining the integrity of their operation. That's why we teamed up with McAfee and Cisco to help secure the -- ensure the security of data across every touch point, our PCs, in servers, in the cloud, all the way through to the output on multifunction printers. With this technology backbone, our services to industries like health care take on an even more relevant position. When we're dealing with patient data and the complexities of modern-day pharmaceuticals, all of our innovation, from Digital Nurse Assistants to customized medication packaging, is based on strong security protocols and infrastructures.

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