Good morning, and welcome to the Xerox Corporation First Quarter 2017 Earnings Release Conference Call hosted by Jeff Jacobson, Chief Executive Officer. He is joined by Bill Osbourn, 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 the expressed permission of Xerox. After the presentation, there will be a question-and-answer session. 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 Mr. Jacobson. Mr. Jacobson, you may begin.

Good morning, and welcome to Xerox's first quarter 2017 earnings conference call. During today's call, we will provide an update on our financial progress in the quarter as well as our expectations for 2017. Let me begin by saying that overall, I am pleased with our start to the year. Our operational performance delivered revenue, operating margin and cash flow that were all in line with our expectations for the quarter. Additionally, we made progress on our strategy to pursue the growing segments in the market. Recognizing that this is the first quarter out of four, and we still have a lot to do, our performance laid the foundation for us to deliver on our full year commitments. Let me walk you through an overview of our first quarter financial results. The first quarter was a good start to the year. We delivered GAAP EPS of $0.02 and adjusted EPS of $0.15. Our earnings were impacted by a charge related to our 25% equity ownership of Fuji Xerox resulting in the $0.03 reduction in our GAAP and adjusted EPS. If this charge was excluded, our first quarter EPS was in line with our expectations for the quarter. Revenue of $2.45 billion was down 6.2% year-over-year or 4.3% on a constant-currency basis consistent with 2016. We experienced softness in Europe which was offset by improvements in our developing markets. We saw a rebound in equipment sale revenue. While down 7.4% or 5.7% at constant currency it was better than the declines of 10.1% in the fourth quarter and 8.7% during the full year of 2016 in constant currency. High-end products recovered and we had better results in entry products driven by developing markets and early benefits from newly introduced color products. Post sale revenue was 80% of total revenue, and declined…

Thanks, Jeff. Before diving into quarter one results, I want to highlight a few changes we've made to our reporting beginning in 2017. As we previewed last quarter, post the spinoff of Conduent, we have streamlined the management of the business along geographic sales channels and, therefore, now have one reportable segment. We are at the same time enhancing our disclosures to provide additional insight on our results. Around revenue, we are providing additional details by geographic sales channel, by product grouping for equipment sales revenue, and will continue to provide line-of-sight to our document outsourcing, or what we now call Manage Document Services revenues, as well as progress on the shift over time of our revenues toward our strategic growth areas. On profitability, we'll be providing gross margins for both equipment and post sale revenues. On cash flow, we're providing some commentary around our expectations for normalized operating cash flow after we get past near-term higher restructuring payments and pension contributions. We believe these reporting changes will give greater context to our results and perspective of our business model. I'll talk more about them as we go through the presentation. With that, let's start with the review of the income statement, which I'm going to mainly talk to on an adjusted basis that excludes non-service retirement-related costs, restructuring and related costs, and amortization of intangible assets. In addition, this quarter, we had two other discrete items that we adjusted for, and that essentially offset, a $13 million charge related to the extinguishment of debt and a $16 million benefit from the remeasurement of a tax matter related to a previously-adjusted item. Revenue, which I will cover in more detail on the next slide, was down $161 million, or 6.2% in actual currency, or 4.3% at constant currency, which is…

Thank you, Bill. During the quarter, I made several international and domestic trips to meet with customers, partners and employees; it's one of the most important parts of my job. It enables me to have an unfiltered view of what is occurring in our operations, while having direct discussions with our stakeholders. Our customers are always candid in their assessments of how we are doing. They have told me they are pleased with our renewed focus on the document technology market and the new products we've introduced, and that we can never let up on our efforts to serve them better and bring innovations to market that make the way they work easier; they depend on Xerox to keep them at the forefront of technology. Our partners and potential partners provide a great perspective on their local markets. They continue to challenge us to be better and our team has stepped up with new products, tools and support to make us the partner of choice. And employees, the heart and soul of our company, are engaged and excited about the opportunities we have before us. We understand the realities of the market and the needs of our customers and partners, and we are laying the foundation to deliver what is needed to win. I feel good about the new products and offerings being launched, our strategic direction and our operating discipline. The strategic transformation program remains a critical focus to continue to drive strong margins and cash flow while we work on reversing the revenue trajectory. All in all, we made good progress in the first quarter. We have more work to do and the team is intensely focused on delivering on our full-year commitments. We will now open up the line for questions. Jennifer?

Thanks, Jeff. Before we get to your questions for Jeff and Bill, let me point out that we have a number of supplemental slides at the end of our deck which provide more financial details to support today's presentation and complement our prepared remarks. For the Q&A, I would ask participants to limit follow-on and multipart questions so we can get to everyone. At the end of our Q&A session, I will turn it back to Jeff for closing comments. Operator, please open the line for questions now.

Thank you. Our first question comes from the line of Shannon Cross of Cross Research. Your line is now open.

Thank you very much. I wanted to ask first about cash flow. It seems like you're a little bit more positive in terms of the normalized cash flow at $1 billion. So sort of what's getting you there? What are you seeing in terms of opportunity on the working capital side? Again, I understand this year you have puts and takes with more restructuring and that, but when you get into 2018, can you talk a little bit about how you are thinking about cash flow? And then if you can talk a bit about how you are thinking about cash usage, if anything has changed and where you plan on sort of targeting it? Especially given the stock at this point is down in – at $6.73 you could probably buy back a fair amount?

Yeah. Hi, Shannon. This is Bill Osbourn. I'll touch on that. So, cash flow, as we talked about at the year-end earnings call, it's really the same thoughts or similar thoughts that – both 2017 and 2018 would be below what we would think our normalized cash flow would be, about $1 billion. And the two primary items which you mentioned are the higher pension contributions over that period of time being approximately $100 million-plus higher each given year. And then also, we were going to have higher restructuring payments each of those two years as we were doing our strategic transformation. We would expect those to normalize and have a $200 million-plus benefit versus to get to a more normalized $1 billion cash flow in 2019 and beyond. So similar to what we said at year-end both 2017 and 2018 would be dampened by approximately $200 million. We are working continuously to improve our working capital both from an inventory management perspective, managing receivables, payables, timing, et cetera, and we have some specific projects in place to really focus on inventory management, but the primary things impacting the normalized cash flow are the higher restructuring payments this year and next year, and the higher pension contributions. As far as your second part of your question regarding the uses of cash, similar thoughts to year-end. Given the $700 million to $900 million of operating cash flow we're expecting this year, and our cash on hand on the balance sheet at the end of the year, we projected to have about $1 billion to $1.2 billion in cash available. We're going to pay down incremental $300 million of debt, which we did during the quarter; dividends around $280 million, CapEx we're guiding about $175 million and M&A in the $100 million range. That left, if you're doing the math, about $100 million to $300 million that we're evaluating the best uses of, whether that's paying down additional debt, whether M&A opportunities come along, et cetera. At this point, although we continually look at it regarding share repurchases, we're not planning on making any share repurchase at this time, but as you state, we'll look at the market and factors, share price, and we evaluate it, but at this point our goal is to invest in future growth opportunities and maintain the quality of our balance sheet.

Okay. Great.

Thank you. And then just one quick follow-up.

Yes.

Jeff, can you talk a bit about what you're seeing in terms of pricing environment and specifically as the yen has moved between JPY 100 and JPY 120 in the last few months, and now it's sort of in the middle, how are you sort of thinking about, and seeing, from the Japanese competitors, their reaction in terms of being able to use the yen for pricing or perhaps pulling back a little bit? Thank you.

Yeah. Hi, Shannon. How are you? Yeah. We've seen pricing being very stable in our market. If we look at the last few quarters, extremely stable both certainly in equipment as you've seen from some of our Japanese competitors. They've actually made some public statements about trying to manage their businesses more for profitability. So, we've seen relatively stable market dynamic as we go through.

Great. Thanks, Shannon. Operator, next question please.

Thank you. Our next question comes from the line of George Tong of Piper Jaffray. Your line is now open. George K. F. Tong - Piper Jaffray & Co.: Hi. Thanks. Good morning. I'd like to dig deeper into the transformation savings program. You provided some examples of efficiencies you've achieved including better sales force, business intelligence, better supply chain management. As you look ahead, can you elaborate on what additional actions are required to unlock the remaining strategic transformation savings to get to your $600 million gross savings target this year?

Yes. So, George, how are you? This is Jeff, and then I'll let Bill supplement. We have a really diligent process, where literally the team goes through this on a weekly basis. It's a cadence of literally hundreds of projects from the way we deliver products, the way we build into our technical services group, remote connectivity, remote call assist, what we do in manufacturing, as I talked about we outsourced our warehouses. So when you look at the supply chain procurement, what we're doing in delivery, what we're bringing down – or doing to bring down our unit manufacturing costs, and certainly the area that we will continue to hit hard will be G&A. So as we move forward and we delayer the organization and continue to reduce the number of layers and our spans of control – actually, increase our spans of control, I think, we'll be seeing G&A come out even more. We're looking at things in our IT of how we can become more efficient in IT. I think, G&A is certainly an area where we can do a lot more work.

Yeah. Just to follow-on, I was going to say the same thing. G&A, clearly, we're looking for areas to cut costs, where we are not going to be impacting future revenue growth, and G&A is one of those areas. We've done benchmark analyses and have identified areas that we plan on reducing costs in certain G&A sectors, and that will be clearly an area of focus. George K. F. Tong - Piper Jaffray & Co.: Got it, and as a follow-up, some of those strategic savings will be reinvested back into the business. Can you talk about which areas of the business are priorities for reinvestments? And how to think about the timing of reinvestments and the implications from the cadence of margin expansion as we move through the year?

Yeah. There are – the reinvestment, clearly is – part of it is offsetting various headwinds from currency transactions, et cetera, but we are also utilizing these savings to reinvest in the business. Couple examples would be in – people may not think about it this way, but we are planning on and have been selling more A4s as part of our new product launch, and those have lower margins upfront. It's really investing in the business, because you get higher margins over the life of the product due to the post sale revenues, but it is actually an investment getting those machines in field, or MIP, out there, and our goal is to – this year to increase our volume of A4s of our new product launch. That is one example in particular. We are investing in systems, as Jeff mentioned, the delivery area. There are costs there. Some of it is CapEx, some of it's OpEx, and in some of our back-office IT infrastructure, we're also doing investments to be able to do things more efficiently and cost effective.

Yeah. And, George, this is Jeff, as Bill hit on it, some of the investments is certainly going into the revenue generation to change the revenue trajectory. So Bill mentioned the product launch. If you look at channel expansion and just bringing on new partners, whether they're mono-branded, multi-branded, there's demand generation, there's training required, one of the areas that Bill talked about we did grow a little bit in signings on new business generation, but we have a concerted program to hire what we call new logo hunters, just going after non-Xerox accounts that we have today. That's an area of focus. So, in some cases, where we're making trade-offs on G&A, we're investing it back into the S part of SG&A, for the selling, because we want to change that revenue trajectory. George K. F. Tong - Piper Jaffray & Co.: And about the timing of reinvestments?

Yes. I mean, they're ongoing as we go. So what we do is we try not to get out ahead of our headlights, but if you look at it and you say basically our margin expansion was up 90 basis points offsetting the 110 basis points of currency that Bill talked about, but we're still investing in the business in a judicious way and a prudent way to change revenue trajectory. So it's ongoing.

Great. Thanks, George. Operator, next question.

Our next question comes from the line of Paul Coster from JPMorgan. Your line is now open.

Hi. Thanks. This is Paul Chung on for Paul Coster. Thanks for taking my question. Just on the new product launch, how is the firm dealing with older products, whether in existing inventory, or in the channel? Are there any promotions going on for existing inventory?

Yeah. So, Paul, good question. We try to balance that all the time. So what we try to do is manage the inventory, manage the obsolescence, so there's no question. We do try to give some incentives, so that we can clear out the existing product line, but not in an excessive rate by any means, well, I'd say a prudent rate to clear out the existing inventory as the new products are going – coming in. So, I mean, if you were to look, for example, at our high-end business that from an equipment standpoint was down 3.7% in constant currency, which was an improvement, you might misjudge things if you were to look at the installs being down. The reason was, as Bill mentioned, we had good performance at the high-end with our production inkjet, with our iGen, which is the higher production devices of the high-end. But if you look at Versant basically orders were down a little bit from that standpoint because we were just introducing the three new Versant lines. So we manage that pretty diligently and our supply chain team does a great job.

Thanks, Paul. Operator, next question.

Our next question comes from the line of Jim Suva of Citi. Your line is now open.

Thank you very much. And I just got to say the additional details provided in the slide and stuff are greatly appreciated, so we sincerely appreciate that. On the reported earnings, I think, they were about $0.15 and if I do the math correctly it looks like that includes the cost of the Fujifilm of about $0.03, and you're keep – if you can confirm that, and you're keeping the full year EPS unchanged. So in essence when you include Fuji costs, are you raising your full year because now you have Fuji costs or the investigation that's going on, or is that something that you're kind of always anticipating and maybe just now it's more communicating to us? And then I have a follow-up.

Yeah. Hey, Jim. It's Bill. Hey, great question. As far as the Fuji Xerox, just to confirm it is a $0.03 impact in our adjusted EPS, so the $0.15 adjusted EPS does include that $0.03 or $30 million charge, or we would have been say it another way, $0.18 without it. Clearly, we did not know anything when we gave guidance back in January about this charge when we were setting guidance for the full year. With that said, when you go throughout the year, and we update and we do detailed analyses internally projecting for the rest of the year, there are puts and takes that occur and I'm not going to go through all the details of those but one example of that is we give guidance at the beginning of the year and factor in a certain amount of transaction currency headwinds for the year. Updated based upon current foreign currency rates, we see that being a couple of pennies less for the rest of the year and that would be something that we factor in to our updated overall guidance analysis. So the $0.03 clearly was not expected; however, it is factored into the full year updated guidance now and when we look at other puts and takes that come into play as we update each quarter end and we're reaffirming the $0.80 and $0.88 and knowing that that $0.03 charge is in the Q1.

Great. And then my follow-up is regarding this $0.03 charge, is that the full EPS impact of the estimated liability or is that like the cost quarter-to-date or expected investigation cost or how should we think about is there still more risk of additional write-down or a $0.03, $0.05, $0.10 in future quarters?

Yeah. We're not going to go into really details regarding the Fuji Xerox matter other than what they have disclosed. Fujifilm put out a press release last week that specifically cited a ¥22 billion receivable adjustment. This is our calculated estimate of the impact of that adjustment on our earnings. Fujifilm has stated that they are in the process of an investigation. The ¥22 billion is their current estimate that they put out there. With that said, as we made in our note in our disclosures that could change, but we are not aware of anything additional at this point other than the ¥22 billion, which we've calculated to have a $30 million impact.

Thanks. Thank you so much for the details. That's greatly appreciated. Thank you.

Okay. Thanks, Jim.

Great. Thanks, Jim. Operator next question please.

Thank you. Our next question comes from the line of Kulbinder Garcha of Credit Suisse. Your line is now open. Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC: Hi. Thank you for the question. Just a couple really, on the strategic part of your business, I think the $0.01 growth rate at constant currency. Am I right in thinking that accelerates in the back half driven by the product announcements? And then the second clarification I had, you mentioned the difficulty (42:54) you have in Q2. What is specifically the (42:56).

Kulbinder, how are you? This is Jeff. I was having a little difficulty hearing your question, but I think it had something to do with the strategic growth areas growing at 1% at this point. We were overall relatively pleased with where we were from a revenue standpoint. So, if you go back to our beginning of the year guidance of mid-single-digit decline, coming in at 4.3% down was what I would say good for the first quarter, especially if you consider that we had a 90-basis-point impact from our OEM business and our CMS, which was a higher deceleration rate than we had last year. So if you back that out, we would've been at about 3.4% where instead of the 90 basis points we declined about 40 basis points last year on that rate. So that was really without the benefit of any of the new products. We did get four of the A4 products in towards the end of the quarter, so we got a little bit of a boost there. But what we've been saying consistently all along, as we bring the vast majority of the products out in the second quarter, a little overhang of the remaining A4 products into the third quarter is that we'll start seeing this ramp much more in the second half of the year. We did get the 2 point year-over-year movement from the 37% to the 39% into the growth markets. So we're pretty much on track for where we thought we'd be. Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC: Thank you.

And, Kulbinder, I think there is a second part to your question that we may have missed, if you want to repeat it? Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC: Yes. Just in Q2, what is causing the difficult compares you mentioned?

Hey, Kulbinder. It's Bill. Yes. A couple of things really from a difficult compare perspective, we're expecting a little bit bigger headwind in Q2 from a transaction currency perspective. Also, if you're looking at Q1 last year, we had not fully ramped up our strategic transformation, our restructuring process. By Q2 that had ramped up; it was in full swing. So we now have full ramped-up strategic transformation this year in Q2 and in last year in Q2, so that creates a little bit tougher compare. And we won't fully benefit from all the products being out in Q2. Most of them will be out in Q2, but it won't fully be there yet. So, with that said, we don't give – we're not giving formal quarterly guidance on adjusted EPS, or anything. But I think, historically, if you do the math, Q2 has been around 25% of the full year, and it looks to be in that zone for this year. The headwinds are really that transaction currency in Q2 this year, which we do, by the way, expect to moderate in the second half of this year.

Yeah. And, Kulbinder, also just to supplement from a revenue standpoint, last year, if you remember, we had the iSeries launch in the second quarter, so our equipment revenue was down at 4.9%, overall revenue was down at 3.4%. So that was our best quarter from a revenue standpoint in terms of relative decline. So just a little tougher compare. As Bill said, tougher compare top-line and a little more transactional currency in the second quarter, which will become a better story in the second half. Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC: Thank you.

Great. Thanks, Kulbinder. Operator, next question, please.

Thank you. Our next question comes from the line of Katy Huberty of Morgan Stanley. Your line is now open. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Yes. Thanks. Good morning. With new business TCV growing again in the first quarter, albeit slightly versus the declines last year, can you just talk about where you are in terms of putting in place the sales force to chase new logos, and then just general ballpark of where you would want the new business TCV to be growing say exiting this year?

Yes. Hi, Katy. How are you? This is Jeff. So if we go back to last year, last year was not a great year for us on new business signings. We were down for the total year actually at 18%. And I think one of the things that's important, as we talk about signings, we're actually referring to them now as enterprise signings. So about 80% of our Managed Document Services business today is in the enterprise. We really don't track signings for Global Imaging and for our Xerox Partner Print Services, which are more in the SMB arena where we expect to see the growth. So, again, just to look at the marketplace, $13 billion is the Managed Print Services market. $6 billion of that market, which is growing at about 2% is in the enterprise, where we're really looking to capitalize on the growth of the $7 billion of the SMB Managed Print Services space, growing at 7%. We did grow at 1% on new business signings. We were down at about 12% on the renewals but, again, those were in the enterprise. The new logo hunters we're starting to bring on now, those two take time to ramp. So from the time they come, if you think about hiring somebody from the outside, calling on new accounts that would be a ramp. We expect to get better ramp from the expanded channels, getting new partners, and certainly when the new products come and then, obviously, increasing our renewal rate, which was at about 81%. So we think the biggest benefits will come in the second half of the year really with the new product launch. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: And then just as a follow-up, you saw recovery in high-end equipment sales still spotty in some of the other segments just given the product launches but most of that is now in the field. And so, do you have line of sight as to when you would expect equipment sales to stabilize and/or grow again?

Yes. So we were not dissatisfied by any means with the 5.7% decline in equipment revenue. If you look at the second half of last year, we were a little over 10% in constant currency declines in the second half and 8.7% for the full year. So the 5.7% was an improvement and, again, that was up without really getting the benefits. With the Versant launch, which was three new products, if we go back to whenever we've launched Versant in past years, we did get a nice bump. It's just coming in in April. So we would think, believe and hope and certainly in May and June we should start seeing the benefits of that. If I look at entry from an ESR standpoint, down 5.5% and if I look at the install, color installs were up 15%. Part of that was the nice bump we got towards the end when we did bring in four of the A4 products. Midrange really didn't help us. We didn't bring out any new products but in Q2 we will be bringing out all 17 of the mid-range A3 products, and again, I think that will help us much more in the second half of the year.

Great. Thanks, Katy. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Thank you very much.

Thank you, Katy.

Operator, I think we have time for one last question.

Thank you. And our last question comes from the line of Matt Cabral of Goldman Sachs. Your line is now open. Matthew Cabral - Goldman Sachs & Co.: Thank you. I kind of wanted to follow up to that last question. I guess, given that the product launch hit at the end of the quarter and it was pretty well telegraphed that you guys were going to do it. Can you just talk about either quantitatively or even just qualitatively about the amount of demand hesitation that you saw just ahead of these new products hitting the market?

Yeah. Thanks, Matt. That's a good point. You always see some of that. I mean, so that's why if you were to look – that's why you really have the disconnect, I'll say, between our installs on high end and the negative 3.7% actual equipment revenue recognized at high end. We had very positive mix with our inkjet installations as well as our iGen installations. Those are higher volume, higher-priced product or higher-priced products where the Versant, which is more of a volume type of play, what I'll call more of the entry production color. In anticipation of that, those installs were down significantly year-over-year. So, to your point, we always see that in our business that until the new products actually hit the supply chain that's when you'll see the orders start coming. Matthew Cabral - Goldman Sachs & Co.: And, maybe, Jeff, just on that same point thinking a little bit more about the mid range, given the A3 launch that you had, was there any demand hesitation there that you saw as well?

Yeah. I mean, I think we would attribute that to being down to negative 7%. Certainly, the black-and-white that was down 24%, color was flat. So I don't think there's any question about that. When you look at our order flow and backlog, I think there definitely was that hesitation and as it starts hitting our supply chain, the normal course it would be to see it starting to flow better. And again, I think we'll get those benefits in the second half. Matthew Cabral - Goldman Sachs & Co.: Thank you.

Great. Thanks, Matt. And that's all the time we have for questions today. Thanks for everyone's interest. Jeff, anything more to wrap up?

Yes. Thanks, Jennifer. Just thank you all for your questions. The first quarter was a positive beginning for the new Xerox. We are keenly focused on the work ahead of us and we are confident in our ability to meet our commitments. We look forward to updating you on our progress as we go along and I want to thank you all for joining our call.

Thanks, Jeff. That concludes our call today. If you have further questions, please don't hesitate to contact myself or anyone else from the Investor Relations team.