Good morning, and welcome to the Xerox Corporation Second Quarter 2018 Earnings Release Conference Call, hosted by John Visentin, Vice Chairman of the Board and 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. Visentin. Mr. Visentin you may begin.

Good morning, and welcome to Xerox's second quarter 2018 earnings conference call. Before we go through our second quarter results, I'd like to take a few moments to share with you my initial thoughts about Xerox since becoming CEO and the priorities we have set to drive value for all our stakeholders. I joined the company because I saw an opportunity to rebuild Xerox into a leading tech company. I've spent considerable time talking with customers, partners and employees. There is one common theme: they want us to succeed. We are an important and often critical component of our customers' and partners' work processes and their success. They recognize the quality and ease of use of our products and many have strong personal relationships with our company. Channel partners work with us because of the breadth of our portfolio and because of the support we provide, such as the marketing and training tools and resources that help them grow their business. Our customers and partners expect Xerox to bring breakthrough solutions to the market more quickly to help them keep pace with continuously changing technology landscape and we need to be easier to do business with. Xerox employees care deeply about our company. One of the first things I did as CEO was reach out to employees and ask them to share with me what they think of Xerox. What do we do well? And where do we need to improve? Their responses reaffirmed my assumption that the team has the knowledge and enthusiasm to transform this company and they want change. They want to be part of a company that is growing, a company with a new way of working, a company they can be proud of. We have a portfolio of leading-edge, feature-rich products and solutions that support…

Thanks, John. I'll start with a review of the income statement. Revenue in the quarter was down 4% in constant currency, while at actual currency was down 2.2%, reflecting almost 2 points of translation currency tailwinds, a diminishing benefit from the approximate 4% top line currency impact in Q1. As John highlighted, we're not seeing the degree of turnaround in revenue that we believe should follow our recent significant product launches. And while equipment revenue market share improved 1 point year-over-year in Q1, the latest available share data, we need our market share to recover over multiple quarters to drive increases in machines in fields and improve trends in post sale. I'll cover in more detail what we're seeing in revenue by geography and product area on the next slide. Turning to profitability, adjusted operating margin of 11.9% declined 130 basis points year-over-year. The decline came from the combination of insufficient productivity to offset revenue declines as well as a few quarter-specific headwinds. Gross margin of 39.9% was down 70 basis points in the quarter, driven in part by a less profitable mix of revenues. From a stream perspective we had a higher percentage of equipment versus post sale. And within equipment, we weighted toward lower end product sales. Additionally, last year's results included positive impacts in post sale from a contract buyout and higher licensing revenue. Within SG&A, as forecasted last quarter, we were impacted by $13 million of accelerated depreciation related to a decision to consolidate facilities in Rochester. The combined Q1 and Q2 impact was $22 million. Going forward it will save us about $13 million annually. We also had a $7 million impact from the write-off of an IT project within delivery that was deemed to no longer have a sufficient return on invested capital due…

Thank you, Bill. Let me wrap up the presentation with a few closing remarks. We have an opportunity to transform Xerox to return to a technology powerhouse. We are starting from an enviable position. We have tremendous assets. We have great product portfolio and robust innovation capabilities. We have a recognized and respected brand. We have a great customer base, supportive partners and committed employees who are ready for change. We are ready. We will now open the line for questions. Jennifer?

Thanks, John. Before we get to the Q&A with John and Bill, I will point out that we have posted on our Xerox Investor Relations website a full set of earnings materials to provide you with a review of our second quarter earnings. During Q&A, I would ask participants to limit follow-on and multi-part questions, so we can get to everyone. At the end of our Q&A session, I will turn it back to John to close the call. Operator, please open the line for questions now.

Thank you. Our first question comes from the line of Ananda Baruah of Loop Capital. Your line is now open.

Hey, good morning, guys, and welcome back online here. I appreciate all the – John and Bill, thanks for all the incremental context, that's helpful to start. Just, I guess, a couple if I could and I'll try to be brief. Just, John, going back to some of your remarks about initial impression when kind of peeling back, how you see Xerox to start, you made comments about opportunities to get more quickly to market, comments about opportunities to be easier to do business with, could you maybe talk a little bit more about that? Are those significant opportunities? And how quickly can those things be addressed? Those seem to be things that might speak to being able to impact the last year revenue growth. And then I have a quick follow-up also. Thanks.

Okay. Hi, Ananda. If you think of – if I look at the initial perspective on the business, I see tremendous opportunity. And we're focused on the priorities we discussed. But the complexity of the business is greater than I thought. So part of what we're doing in cost opportunities is we're looking at it in an operational way. Let me give you just an example. If you're looking at manufacturing a box for a client, you need to look at it end-to-end from the manufacturing, what the costs are, to the development of it, to what's the value to the client and how do you maintain it and how you ship it. And something as simple as if you can manufacture and ship a box under 45 pounds, you only need one person to deliver that box versus having two people delivering it. So when we're looking at optimizing the business, we need to look at things differently. Today, as an example, we have 1,400 IT applications to support our business. How do we simplify that? How do we take resources that manage all these systems and put it into an end-to-end solution? And our job is to identify all these issues in our processes, so we can drive a clear end-to-end accountability for decision-making and financial performance.

Got it. Got it. And then just quickly, comments about new market opportunities, you highlighted software in a couple of different context. How prominent do you think software can become at the company? And then to the extent you can share now, what might be sort of (36:21), I believe, philosophically some other market segments that you guys think could be attractive to look at?

Yeah. Capitalizing on our innovation is a key priority, Ananda. Look, so we have assets like XMPie and DocuShare that we have not fully looked at the potential of both these offerings. We also have new technologies that have potential to be disruptive. 3D printing, to make printheads that could change the industry in 3D printing. Packaging, we're creating inks that could revolutionize the way the packaging industry is out there today. We're working on artificial intelligence. We're looking at augmenting reality innovations that will bring more content and more useful, more valuable to our clients. So our researchers are putting a lot of efforts. It's how do we take all of this and how do we capitalize on it. So, I see a lot of opportunity in our innovation and in our software business, which albeit today is small but growing but how do we continue to focus on that.

Thanks, Ananda.

Okay. Great. Thanks so much.

Thanks, Ananda. Operator, next question?

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

Thank you very much for taking my questions. I guess, John you commented that auctions are off the table and that if a buyer presents itself, you would consider it. So should we read from that that there are no active engagements right now for a deal? Are you committed to the fact that there is no relationship or no potential for an actual deal with Fuji Xerox to come together?

No. So, an auction – first of all, hi, Shannon. To run an auction, it's time consuming and it's costly and it's taking our people away from what's important, which is what we said our priority is to fix the business. So we are first and foremost focused on doing what's right for Xerox and strengthening the company. If – the board will evaluate a strategic alternative as indicated but at the end of the day, if someone wants to offer – wants to come in with a strategic offer, we would need to evaluate it and bring it to the board.

Okay. And then -

But I would not – yeah, so, I'm not commenting on any potential discussions. So...

Okay. And then what are your thoughts – one other things that didn't come up during the call were thoughts on investment grade. That's been something that Xerox has maintained for many, many years since the challenges back in like 2000. So, and – or actually, I guess, it took a while to get back. But what do you think about investment grade? Is it something that you need to keep? And then, obviously, there was commentary in the press about the leasing business. What are your thoughts on the leasing business at this point?

Yeah, I would say we're currently committed to our investment grade rating. Nothing we announced today should signal otherwise. We have a strong balance sheet. We've met our commitments on paying down debt earlier this year. So we've got priorities in place to strengthen even further our business. So the board, in keeping with its responsibilities, will consider, when appropriate, strategic alternatives for the company but there is no changes to communicate at this time.

Okay, and then just my final question, I appreciate you're not providing earnings guidance because you're still going through the strategic review. But I don't know if you or Bill could possibly just talk about some of the trends or thoughts that you think will happen over the next couple of quarters, just so people's numbers don't get sort of massively out of whack in terms of where you guys think things will flow through because, obviously, with cash flow there are a lot of different levers you can pull to generate the cash flow but in light of where we are in earnings, it would be great to have some color.

Yeah. Thanks, Shannon. So, yeah, just a few things, to reiterate a few of my comments on the prepared comments, we are very confident in the business. We think that the share repurchase is a clear indication of that confidence in the business and that we believe that our current stock price does not reflect its true value of the company. We're driving for improvement on all measures, not just the cash flow measure. And as you know, 75% of our revenues are recurring in nature and thus you wouldn't expect our results to differ significantly from recent trends overall. And specifically I know you understand, we're early in the new leadership here at Xerox and we're specifically looking at all things, and we're making decisions for the longer-term on sustainability. But our overall commitment is to do what's best for Xerox and that won't be measured by the next three to six months of an adjusted EPS number. With that said, we do believe that the cash flow guidance does provide some guide rails as far as overall expectations on where we'd be for the rest of the year. A few things to think about when you look back last year's results, obviously, Q4 will be a tougher compare versus Q3. There was some one-time items, you can go back to, specifically looking at what we reported last year in Q3 and Q4, which is calling out like the headwind in Q3 would be – there was a Grenoble technology sale that created about a $0.09 headwind. There was a lower tax rate during Q3 of last year due to some tax reserve adjustments that took place. But overall – and then you look at the seasonality of the business, it's still true, no matter what. Q3 tends to have lower operating margins than Q4. And then, I guess, I'm trying to think through (42:24), finally, on share repurchase, people can model through the impact, but we don't expect much of an impact in Q1. It could be up to $0.05 or so potentially depending if you go to the higher end of the range of the up to $500 million in Q4. Those are sort of things at a higher level to give some context on year-over-year thinking.

Great. Thank you. That was very helpful.

Great. Thanks, Shannon. Operator, next question?

Our next question comes from the line of Paul Foster (sic) [Paul Coster] of JPMorgan. Your line is now open.

Yes, thank you very much for taking my question, and thank you John for the clarity and candor of your assessment of the company. I think it really helps preferencerize (43:07) the risks for us to understand the opportunities better. That said, obviously, there is a ton of action points falling out of your assessment already and I'm sure you're going to bring it all together into some kind of program that you'll disclose at the Analyst Day event. Can you, though, give us your hunch as to how long you think it will take to sort of bring about the sort of change in direction that you seek? And to save time, just a quick question for Bill, on total contract value, look like there's a little bit of weakness in that enterprise segment, if you could just provide some color there. Thank you very much.

Thank you, Paul. Look, as I said in my statement, those are significant opportunities to optimize our business. And we're looking at how we do things differently and it's always focused on how we even better serve our clients. In terms of timing, by fourth quarter, end of fourth quarter, early first quarter, we'll have an Analyst Day and we'll take you through the whole plan and everything. But we're focused starting today on doing everything that we've said in our business, which is how do we help drive revenue, how do we optimize our operations, how do we re-energize the innovation engine and our continuous focus on capital returns and on cash flows. So that starts today. In fact, it started eight weeks ago but – and we're continuing to focus on that.

Yeah. Hey, Paul, it's Bill. Yeah, regarding if you're looking at signings in the quarter being down, MDS signings down 20.6%, just breaking that down in a little bit more detail, new business signings, which are really the – all signings are important, but it's critical to say that (44:55) new business signings were actually up 2% during the quarter. Renewals, somewhat can be lumpy in nature depending on what is the opportunity and what's available. And actually the amount that came up for renewal during the quarter had a fair amount of impact. There was just less coming up in Q2 of this year versus Q2 of last year. But renewals were down and part of that was also due to the win rate percentage that was clearly lower than our targeted 90% plus win rate and lower than our prior year win rate, we were at about year 75%. But really that was driven by two larger enterprise deals and so like I said, there's lumpiness and there's also just large deals can drive that percentage from quarter-to-quarter. And clearly you look at it, we're striving to do well in all parts of the market. But clearly, we're also very pleased with what's happening in the SMB side of the signings area, where we don't get as quite as much detailed (46:03) information, because we're dealing with partners a lot, but the end results when you look at what's happening in MDS, we feel good about that.

Thank you.

Thanks, Paul. Operator, next question?

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

Thank you very much, John and Bill. I'll ask my questions and you guys can decide how to divide it up and thank you for the details so much. So, first of all, John, in your prepared comments, you mentioned several times about Xerox needing to come to market faster and be more efficient. For myself as well as many of us on the call, we've heard this many, many, many times in the past. So can you help us understand about really what's new or what you found that has prevented this from happening, because it feels like a little bit of a broken record? And then my follow-up question is on the renewal rate of 75%. That seems to actually counter to your prepared comments of the great relationships you have and the need and the value that Xerox is providing because the renewal rate of 75% is not overly encouraging. So can you help us bridge the gap of those prepared comments and kind of what we're seeing and maybe it's just a matter of time or timing, but something just I'm not grasping there? Thank you.

Okay. So look, Jim, let me start with answering it. We've talked to a lot of clients, talked to a lot of partners and what came out was a common theme. One, they want us to win. Two, they like the products we have. As we look inside of our own technologies and our own innovations, the questions that they were asking us is how do you take this to market faster and how do we help you take it to market faster. So we have existing products today that go through our channels, go through our different channels. But how do you take other products whether it's a new technology that you have in your innovation, those are some of the best kept secrets out there in the industry. So as recently as a few days ago, I spoke to a very high level executive in a financial organization and just took them through some of the offerings we have over and above what we offer today, the MDS, the services. And we're going to do an Innovation Day with their team. And this is in a competitive environment, so it's a non-Xerox account. And they want to see because most of our clients are asking us tell us what we don't know. You have these great products but what else do you have? And that's where I got excited when asked, hey, John, what's different when I got here? That's one of the area that's different is that our innovation assets are much better than I even assumed when I was looking at it. But how do we get it to market faster? And that's part of getting it to market faster. It's not just what we have today but a lot more. How do we capitalize on that? We have tremendous assets like DocuShare, whether it's XMPie. These are game changers for clients. How do we assure ourselves that we use our go-to-market in our (49:25) channels to help us get that to clients faster?

Yeah. And I would just add on, Jim, that as I said in a response to previous comment, the 75% was driven by primarily two larger enterprise contracts that came up for renewal. We don't want to lose any contract, obviously, we would prefer not lose any, but I would not extrapolate from just two renewals that we didn't win to how our overall customer base, how satisfied they are with us. And as John said, based upon our discussions and our overall feedback, our customers are clearly with us and want us to do well and serve them well.

Great. And then my quick follow-up is, in the past the management team kind of gave, I believe, some EPS ranges of, I think, it was, if I remember right, $3.50 to $3.70 and revenues of down 2% to 4% (50:18). You reiterated cash flow for this year. Is it fair to say that the revenue and EPS is something that you guys are no longer affirming to?

Yeah. Effectively that's – in my response to Shannon's earlier question, really just giving the rationale, that we have guide rails, we believe, by pointing to the cash. People know, as you know, the industry that there the trends, 75% recurring revenues, et cetera. But – and you wouldn't expect significant changes from recent trends. With that said, over the next six months, we have a new leadership team in here. John has been here for roughly 10 weeks and we're making decisions that are going to benefit Xerox's shareholders for the longer-term. And we don't want to be bound just by the next three to six months of results. With that said, we are very confident overall in our business. And there is stability in the organization. We are back to work, not that we are away from work or anything but there was a lot of noise out there in the media earlier in the year but that didn't impact us while we were going through that and certainly now we're all back to work.

Thanks for the details. Greatly appreciate it. Thank you.

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

Thank you. Our last question comes from the line of Katy Huberty of Morgan Stanley. Your line is now open. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Thank you. Good morning. Just following on some of the last few questions, obviously, there is some concern around the weaker MDS signings, high-end equipment sales were also weaker. And so just speaks to confidence around the strategy and stability in your large enterprise customer base. So I wonder if you can comment now that the leadership team has been put in place for a couple of months, as you said, everybody is back engaged at work. Have you seen stabilization in those two metrics, MDS signings and high-end equipment sales in the month of July? And then I'll just ask my follow-up. Bill, on cash flow, you talked about needing to improve working capital. When should we expect to see that impact? What are you specifically doing? And do you need improved working capital in order to hit the free cash flow targets for the remainder of the year? Thanks.

Great. Let me – I think most of those questions all fall towards me. Let me answer the last one first regarding working capital. There has always been a focus on working capital within the company. I would tell you with John coming onboard that there has been even more. John said in his comments, maniacal focus on cash. I would view it in terms of that we're comfortable with the cash flow guidance that we provided originally, that we're reiterating, that we provided originally in January. As far as working capital pillars, days sales outstanding, days sales in inventory, days payable outstanding, we're working to improve all of those significantly even though (53:27) we had originally planned that. It's just that the need to actually – those will make it even better I guess, I would view it from a cash flows perspective that if you look at where we're at year-to-date on cash flows, we're already at $400 million of free cash flow year-to-date. And seasonally, Q4 is the strongest, that improvements in working capital, additional improvements will only help us and give us upside. It's really my perspective on that. From an MDS perspective, don't like to start going to the months, as we get to the lumpiness, it can be even lumpier within months, within a quarter. With that said, overall MDS was up 2.3%. MDS revenues 2.3% in constant currency, driven by a significant improvement in ESR, equipment sales revenue, in Q2 within MDS. The channels or the SMB part of the business continues to be strong, it's growing double-digits again and up 14.4% in MDS revenues. And enterprise still continues to be – it's a more competitive, more mature market, it was down about 1% in revenues for the quarter. So overall, we view ourselves as the market leader in MDS and we expect to continue to be that. The two larger deals we lost during the quarter, we're not happy about but overall for the longer-term we're still expecting to be strong in MDS. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Thank you.

Great. Thanks. Katy. Let me hand it back to John to wrap up with a few closing comments.

Look, I'll end as I started, like this is a new beginning for Xerox. I look to updating you on our progress. We have work to do. But I want to be clear of our objectives and they include we're going to drive revenue, optimize our operations for simplicity, which is key for what our clients are looking for. Re-energize the innovation engine and we're going to focus on cash and increase capital returns. At the end of the day, our success will be measured based on our ability to satisfy our clients and deliver value to our shareholders. So I'd like to thank everyone for joining our call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.