Xerox Holdings Corporation
Q3 2016 Earnings Call Transcript

Published: 29 Oct 2016

[Operator:]

Good morning and welcome to the Xerox Corporation Third Quarter 2016 Earnings Release Conference Call hosted by Ursula Burns, Chairman of the Board and Chief Executive Officer. She is joined by Leslie Varon, Vice President and Interim Chief Financial Officer. During this call, Xerox executives will refer to slides that are on the Web at www.xerox.com/investor. At the request of Xerox Corporation, today's conference call is being recorded. Other recordings and/or rebroadcasting of this call are prohibited without the express 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 Burns:]

Good morning, everyone. Welcome to Xerox's third-quarter 2016 earnings conference call. At the beginning of the year we committed to an ambitious agenda that included delivering on our financial goals for 2015 while creating a new path forward that will make our businesses more agile, focused and competitive. I am pleased to report that we are on track to meet all of these commitments and that we achieved solid financial results this quarter. Our third-quarter EPS was within our guidance range. Cash flow generation was strong, and we realized solid margins in both segments despite a challenging global market environment. At the same time, our strategic transformation and separation activities have accelerated significantly. I want to emphasize that these actions are not just about delivering for the quarter or the year. Our strategic transformation program and separation are designed to fundamentally strengthen our businesses and align them closely with the demand of our clients and opportunities in the market. We are embedding productivity and cost efficiency into all areas of our business, which will benefit us for years to come. We're driving operational excellence and innovation to meet our clients' evolving needs. And we are establishing the new companies with talent, business strategies and operating models that will enable them to become more profitable and drive growth over the long-term. You will hear much more about these initiatives and strategies, structures and financial plans of the two post-separation companies at their investor events in December. But I am pleased to have the leaders of our new companies, Jeff Jacobson and Ashok Vemuri, here with me today to answer questions about results in their respective businesses during the Q&A. Before we turn to financial results, let me share some highlights of our progress towards separation. With two months to go before we complete the separation, we have passed a number of major milestones in the process. The rating agencies released updates on Xerox's credit ratings, which will continue to be investment-grade. Conduent Incorporated is expected to be a high-noninvestment-grade-rated company following the separation. These ratings are in line with our expectations. Upon completion of the spin, Conduent will be listed on the New York Stock Exchange, where Xerox will continue to trade. Additionally, we were excited to introduce Conduent's new logo and brand identity. Ashok selected Brian Walsh as the CFO of Conduent. Brian has 20 years of experience in Xerox's finance organization, spanning both operating and corporate roles, and he is currently the CFO of Xerox Services. He is a great fit for the role. And last week, we announced seven of the nine directors that will serve on Conduent's board, as well as Conduent's named executive officers. With that, the majority of Conduent's leadership team and Board of Directors is in place. We're in the process of filling the remaining two board seats, and we will make those announcements as they become available. All of this information about Conduent, along with updated information on its expected capitalization, pro forma financials, compensation plans and governance, was included in several amendments to Conduent's Form 10 registration statement. For Xerox, Jeff is implementing a new, more streamlined operating model, and has identified the operations leaders for the standalone company, building on our strong, well-established infrastructure and executive team. Jeff continues to focus on filling the remaining executive roles and strengthening the bench, including identifying the right, high-quality individual for the CFO role. In the interim, Leslie Varon continues to provide strong leadership to our finance organization and will remain in her current role until we have a new CFO in place. I should point out that, beyond senior executive appointments, both Jeff and Ashok have put in place the necessary leadership teams for the major corporate functions. We are now just two days away from what we call our soft separation phase. This involves separating our corporate functions, business infrastructure and IT systems into discrete capabilities for each company. It is a test run at operating independently for the new companies that will help us ensure a smooth day-one launch. In short, we are moving rapidly toward our separation and remain on schedule to complete it by year-end. The benefits of our three-year strategic transformation program also continue to ramp across both businesses and can clearly be seen in our third-quarter performance. We remain on track to deliver $700 million in annualized savings from productivity and cost initiatives this financial year. With that, I will move to our third-quarter results. As I said, this was a good quarter. We delivered adjusted earnings of $0.27 per share, which was within our guidance range and in line with the same period last year. Total revenue of $4.2 billion showed a 3% decline year over year, or 4% on an adjusted constant currency basis, which excludes the 2015 charge related to our Health Enterprise strategy change. Operating margin was solid at 9.2%. We saw strong year-over-year margin expansion in our Services segment, driven by gains across our BPO businesses, while Document Technology margins remained strong. Cash flow from operations was $370 million, reflecting a $99 million increase from prior year, and we ended the quarter with a cash balance of $1.4 billion as a result. Overall, our underlying results demonstrated ongoing progress in our productivity and cost savings initiatives and our ability to generate strong cash flows. In addition, we continued to innovate, deepen our client relationships and extend our capabilities. Let me highlight a few of our achievements during the quarter. Starting with our Services segment, which had a number of business wins and high-profile recognitions across the portfolio. We were honored to receive Outstanding Corporate Innovator Award from the Product Development and Management Association for automation, analytics and personalization capabilities. Another notable recognition was by HfS, which named Xerox Healthcare to its Winner's Circle, the highest-ranking in its report on business services for health care payers and providers. In the Public Sector, the state of Tennessee selected Xerox to provide EMV-enhanced benefit cards to over 120,000 citizens receiving child support, unemployment compensation and state pension payment. Our Document Outsourcing business secured a 10-year contract worth $110 million with the USDA for managed print services. We will be installing and supporting up to 16,000 Xerox ConnectKey-enabled printers and multifunction devices at more than 3,000 USDA locations around the world. Document Outsourcing was also recognized for its market-leading offerings by prominent industry analyst groups including leadership positions in Quocirca's MPS market landscape report and IDC's MarketScape's document workflow services assessment. Now turning to our Document Technology business, in September we showcased our portfolio of the latest printing technologies, workflow solutions and business development resources at Graph Expo 2016. This is North America's largest graphic arts tradeshow. We also brought a number of innovative products for small and midsize businesses to market as we continued to expand our offerings in this space. At the corporate level, I am proud to share that Xerox released its 2016 Global Citizenship Report highlighting our approach to social responsibility. Our citizenship efforts continue to be widely recognized. And during the quarter we were named to the Dow Jones Sustainability World Index, the Dow Jones Sustainability Index for North America and Corporate Responsibility Magazine's 100 Best Corporate Citizens. I will now turn it over to Leslie, who will provide more detail on our third-quarter results and 2016 guidance.

[Leslie Varon:]

Thanks, Ursula, and good morning, everyone. I will start with the earnings slide and cover the rest of the financials as well as our guidance before handing it back to Ursula to wrap up. Our third-quarter results reflect operational discipline and good progress in key areas that will set the foundation for the two companies post-separation. These include cost and productivity progress from our strategic transformation, resulting in broad-based margin improvement in BPO and solid margins in Document Technology. Overall, Services signings growth, as we renewed 86% in a quarter with high renewal opportunities, reflecting the continued confidence our customers have in us. Strong operating cash generation reflective of the durability of our annuity-based business model. So, while revenues in both businesses were a bit soft, we delivered overall good results in a somewhat volatile macro environment. Total revenue of $4.2 billion was down 3% at actual currency and down 4% on an adjusted constant currency basis, including 1 point of negative currency. I will be discussing our results on an adjusted basis when making comparisons against the prior year, as the third quarter 2015 included the $389 million pre-tax charge, including a revenue reduction of $116 million related to our Health Enterprise strategy change. Adjusted gross margin of 31.3% was up 10 basis points year over year, driven by improvements in both segments, partially offset by a greater mix of Services, which structurally has a lower gross margin. There was a modest negative transaction currency impacting quarter three, reflecting the yen's strength against the euro, pound and US dollar, partially mitigated by our hedging and currency risk-sharing with Fuji Xerox. At current rates, we are expecting some additional pressure in quarter four. Adjusted RD&E was down $10 million year over year and adjusted SAG was down $28 million, driven by productivity and cost initiatives, which were partially offset by higher expenses related to prior-year compensation and benefits reduction. Overall flow-through from our strategic transformation actions resulted in good margins in both segments and a solid 9.2% total Company operating margin. Adjusted other net expense was down $17 million year over year, driven by lower interest expense. Equity income of $39 million in the quarter was down slightly year over year. Our third-quarter adjusted tax rate of 25.3% was 1.8 points below last year and just under our guidance range of 26% to 28%, reflecting the geographic mix of our profit. Bottom line

[Ursula Burns:]

Thank you, Leslie. In summary, we are pleased with our results in the third quarter, which were in line with our expectations and driven by our ongoing operational and cost discipline. We are on track to deliver on all of our objectives for the year and establish two companies that will be well-positioned to drive shareholder value over the long-term. Before we open the line for questions, I would like to note that today has particular significance for Xerox, as this will be our last earnings call as a combined entity. Next time we report earnings, we will be two separate companies, each on their own path to enhance value for our clients, employees, investors and other stakeholders. I look forward to watching both Xerox and Conduent prosper in the future. We will now open up the line for questions. Jennifer?

[Jennifer Horsley:]

Thanks, Ursula. Joining us today are Jeff Jacobson, Head of our Document Technology business and CEO of new Xerox following separation; Ashok Vemuri, Chief Executive Officer Xerox Business Services and CEO of Conduent post-separation; and Brian Webb-Walsh, CFO Xerox Services, who will be CFO of Conduent post-separation. Before we get to your questions, let me point out that we have several 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 multi-part questions so we can get to everyone. At the end of our Q&A session, I will turn it back to Ursula for closing comments. Operator, please open the line for questions now.

[Operator:]

[Operator Instructions] Our first question comes from the line of George Tong from Piper Jaffray. Your line is open.

[George Tong:]

Hi. Thanks. Good morning. Ashok, first of all, welcome to Xerox.

[Ashok Vemuri:]

Hi, George.

[George Tong:]

Understanding more details will be provided at the upcoming analyst day, Ashok, can you provide or touch on what your top three strategic priorities are to improve growth and margin performance in the BPO business?

[Ashok Vemuri:]

Yes, sure. George, I think the focus for us continues to be to drive profitable growth. We have demonstrated a very strong margin performance. We continue to invest in the strategic transformation to turn the business so that we are invested and investing in areas that are our traditional strengths. We have certain areas where we would like to continue to drive a higher degree of transformation, especially customer care. But we are pleased with the progress that we have made on the margin front, and I think that will give us the momentum to be able to continue to drive the transformation that we seek in our business.

[George Tong:]

Very helpful. And the earnings release this quarter disclosed that work to implement the health enterprise platform in New York has been elongated and could result in material increases in future costs to complete. Can you help frame or quantify the potential cost overruns and comment on your desire to remain in the government health care business given some of the recent difficulties in ramping contracts in the segment?

[Ashok Vemuri:]

Yes, so, we are working in a very collaborative fashion with the state. The good news is that we have learned our lessons and have gained some experience based on our prior implementations. We are working closely with the state. We are making progress on the implementation. And given that these contracts and implementations are usually long-tenor and have changing requirements and ups and downs, I think we are, given all of that, making very decent progress.

[George Tong:]

Thanks very much.

[Jennifer Horsley:]

Operator, next question.

[Operator:]

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

[Shannon Cross:]

Thank you. I have two questions. The first is for Jeff. How do we think about what's going on the underlying business in the printing business? Equipment was down 13% in Doc Tech, and then combined it was – I don't know what equipment was down, but overall the printing business was down about 5% constant currency when you add in Document Outsourcing. So, I am just curious how you see the competitive landscape. The yen has obviously moved significantly. Your competitors in Japan are not reporting particularly good numbers. So, what are you seeing out there as you head into 2017? And then I have a question for Ashok.

[Jeff Jacobson:]

Sure, Shannon. Thanks very much. First, let me address it from a global market and macro standpoint. The global market environment continues to be challenging. As you mentioned, Shannon, there are uncertainties with currencies fluctuating, the yen and the pound. Certainly the uncertainty of the presidential election in the US; Brexit adds a certain degree of uncertainty in the UK and Europe. But these complexities are obviously what we deal with all the time, and the important thing are the countermeasures. So, what we are doing is we are very aggressive on the productivity measures to drive down our total delivery cost and enhance the operating margins. As you know, what we have done over the last couple of years has been pretty aggressive on productivity, and we are taking that to the next level. We are very focused on innovation and defending our market share, and we are focused on the growth areas. So, specific to this quarter, what I would say, our revenue was in line and was stable in this challenging market environment. You are correct that we were pressured on the equipment side, and some of that was more on the high end and government bids due to these uncertainties. But we are also pleased with the annuity business driven by supplies. And we were also pleased on the high end. We saw the impact of drupa, which will benefit us for the next couple of quarters. And then at the end of September we obviously had Graph Expo in the US, and we think that will benefit us. So, overall, in line, good color installs and pressure on more the mono side as we are moving more to color in the macro environment.

[Shannon Cross:]

Great. Thank you. And then, Ashok, can you talk a bit about how you think about the balance between revenue and margin? Because over the last three years Xerox has bounced between wanting a lot of revenue growth out of BPO, but then that is obviously an impact to margin depending on what you sign, versus at sometimes saying, no, we're going to focus more on margin, and therefore, we saw our revenue declines and impact to billings or bookings. So, just philosophically, how do you think about it? I know it is a balancing act, but what you put more weight to? Thank you.

[Ashok Vemuri:]

Shannon, my philosophy on this is we need profitable growth. Revenue growth is important in order to demonstrate that the investments are in the right place and we are continuing to provide value to our clients. Margin is an indicator of two things for me. One is the value that our clients perceive that we are bringing to the table and are willing to pay for it. And secondly, it is a report card on management's ability to effectively and efficiently run a business. So both of these are important for the reasons I just described. And I think even though there is certain degree of elasticity between them, it is important to manage that elasticity in a way that we control on both fronts.

[Jennifer Horsley:]

Thanks, Shannon. Operator, next question.

[Operator:]

Our next question comes from the line of Tien-tsin Huang from JPMorgan Securities. Your line is open.

[Tien-Tsin Huang:]

Hi, great. Thank you. Just wanted to dig in here, just on the revenue coming in somewhat soft. I know that profitability came in nicely, but just how much of that do you think is macro versus your profitability focus versus maybe, I guess, distractions from the split of the spend? Can you maybe rank those?

[Ursula Burns:]

We will start on the Services side with Ashok and then switch a little bit to the Tech side with Jeff.

[Ashok Vemuri:]

Okay. I think what we have seen in terms of the margin improvement is clearly the flow-through of all of the strategic transformation activities that we've been doing. There is a higher degree of discipline that we have driven. We have balanced some of the revenue reduction because we are being much more selective in terms of the deals we are doing. Deal qualification has improved. The bars that we have put in terms of pricing and the kind of deals that we want to do, we have raised that. So, margin, as I have said in answer to the previous question, is extremely important for us, but we need to balance that by also driving revenue growth.

[Jeff Jacobson:]

Yes, and I think from the Tech standpoint when you see the equipment revenues, that would tend to be impacted more by uncertainties and the macro issues. We are very fortunate from the standpoint of 75% of our business is annuity, which provides a strong foundation, strong base. We're also very fortunate that the vast majority of our contracts are bundled contracts with supplies, which provide stability for us. So, yes, what we are doing is we're not getting out ahead of our headlights. We are managing our cost and productivity very strongly, and we are looking for the opportunities of growth certainly in Document Outsourcing, Graphic Communications and in some underpenetrated markets for us such as SMB.

[Jennifer Horsley:]

Thanks, Tien-tsin.

[Tien-Tsin Huang:]

Thanks.

[Jennifer Horsley:]

Operator, next question, please.

[Operator:]

Thank you. Our next question comes from the line of Ananda Baruah from Brean Capital. Your line is open.

[Ananda Baruah:]

Hey, thanks guys. Congrats on the progress, and looking forward to talking to you guys going forward post the split. Really my question right now, I have one, is really for Jeff and maybe for Ursula on the Xerox side. As we think about where the opportunities for incremental efficiencies could be, as you get post-split, and then as we think about where the opportunity for I guess increased velocity around decision-making could be post-split, how should we be thinking about it? What things have you guys learned about this opportunity so far? And understanding you probably don't have numbers to give us yet, I guess from a magnitude perspective – I guess from – what context in terms of – how should we think about it in terms of potential to be impactful on the P&L? What is the right context there as well? And that's it. Would love your thoughts there. Thanks.

[Jeff Jacobson:]

Yes, sure, Ananda. Thanks very much, and certainly we will cover a lot more of the details at the investor conference. But the way we look at it is this – if you look at the strategic transformation we announced over a three-year period as a combined entity, about $2.4 billion, and we said that Tech would be about two-thirds of that. So, the linchpin to our strategy is driving that strategic transformation very hard, and the reason is this. In past years, basically, we have offset the headwinds of annuity, price erosion and done just enough. What we want to do now is take this to a totally another level so that we can reinvest back in the business, bring some back down to the bottom line and invest in some of the growth areas we see certainly in Document Outsourcing, Graphic Communications and being able to invest a little more into Entry. And we will talk a little bit more about that at investor day. In terms of the strategic transformation, we're driving it very hard. We are looking at things such as supply chain optimization, technical service excellence with remote call assist, remote connectivity, real estate optimization, how we can design our products with more efficiency, and then delayering and simplifying the organization. So, we have a pretty detailed plan. We are tracking very well towards it, and we are pleased with where we are right now.

[Ananda Baruah:]

That's really helpful, Jeff. I have got a quick follow-up to that, if I could. Are those moves, the nonrevenue moves, the core organizational moves you talked to, are those incremental to business-as-usual Xerox? And if they're incremental to business-as-usual Xerox, would you favor the incremental op profit dollars to be dropped to the bottom line or invested back in the growth, or both of those things? Thanks.

[Jeff Jacobson:]

Yes, one of the things that we message is that there is no business as usual Xerox. So, what we are going to do as we separate our companies, we're going to take all the good things that we bring from Xerox, and there are a lot of great things, but we are going to be a much more simplified, delayered organization. And what we're going to do with the efficiencies we drive in taking strategic transformation to the next level, some will certainly drop to the bottom line and some of it will be invested to improve the revenue trajectory.

[Jennifer Horsley:]

Thanks, Ananda. Operator, next question, please.

[Operator:]

Thank you. Our next question comes from line of Brian Essex from Morgan Stanley. Your line is open.

[Brian Essex:]

Hi, good morning, and thank you for taking the question. Ashok, I was wondering if I could maybe ask you about the Services performance. And now that you have been there for a little while and you are rolling up your sleeves, how much of the lower guidance is due to the more – the greater degree of selectivity in contrasts? And I notice the margins are now pointed towards the high end. How much of the margin is due to your strategic transformation versus pricing?

[Ashok Vemuri:]

Well, I think the margin improvements, Brian, are to a great extent driven by the efficiency that we have seen. And remember that this margin improvement that we have seen comes despite our performance in customer care, and I will elaborate more on that as we go into the investor event in December, et cetera. But, clearly, where our business is actually clicking in and the ones that we are vesting and amplifying, these are coming in at decent margins and actually much-improved margins than previous periods. But we still have a ways to go in terms of being able to transform some of our businesses, which are core to us. And as we do that, as we get more selective, we drive a much more predictable and sustainable, scalable business. And we have the foundation for it. I think we would be able to see the performance of that in future quarters.

[Brian Essex:]

Okay. And maybe as a follow-up, in terms of transforming the business again, as I think back to conversations that we have previously had with Bob, for example, we have talked about centralizing the legacy relatively distributed nature of the legacy ACS business. How far along from previous initiatives are we? And then how much more room is there to go within that organization in terms of increasing its efficiency? If we can just get a sense of your fresh take on the business and what is new in a way that you view it.

[Ashok Vemuri:]

Yes, the good news is that this is not something that we have just decided or contemplated to do. This is in progress, so we have taken enough initiatives and more, if you will, on transforming the business. In some places, we have been effective. We clearly have a business which is very widespread, both from a – the range of business that we do, the range of clients that we have and the geographical spread. So we need to refocus ourselves on those things that we are really good at, amplify those and invest in them. And continue to drive through the strategic transformation initiative, drive this to success. But I think the important thing is to also understand that this is not something that is going to happen overnight or in a few quarters. This is a transformation. It is going to transition over a period of time. And we will discuss the appropriate metric as we bridge from where we are to where we really want to be.

[Jennifer Horsley:]

Thanks, Brian. Operator, next question.

[Operator:]

Thank you. Our next question comes from line of Frank Atkins from SunTrust. Your line is open.

[Frank Atkins:]

Hi, thanks for taking my questions. I want to ask, Ashok, what are the major levers that you see you could pull to drive profitability going forward?

[Ashok Vemuri:]

Well, I think the number one, of course, is we have to refocus on our delivery model. Customer care is a big part of what we do. Innovation in that, either through robotics and automation, is a key part of what we do. There are some internal processes in how we run our sales, which we could use some of those similar processes and tools to make us much more effective and efficient. We have to look for businesses that will provide us profitable growth. We have to exploit and monetize all the assets that we have within the Company, and we have a ton of them, which need to be deployed across the board. We have to look at businesses and segments and geographies, which will help us meet those profitability goals. And in certain situations we also have to sort of run off businesses that we are deliberately taking a view on running off.

[Jennifer Horsley:]

Thanks, Frank. Operator, next question.

[Operator:]

Thank you. Our next question comes from the line of Matt Cabral from Goldman Sachs. Your line is open.

[Matt Cabral:]

Thank you. I wanted to ask about the proposed Conduent balance sheet. I guess on my estimates it looks like the business will start off with north of 3 times gross leverage, which seemed a little bit high relative to where some of the pure-play BPO competitors are and given the meaningful turnaround that this business faces going forward. So what gives you the confidence that this is the right capital structure for Conduent going forward? And does this level of leverage still give you room to make either the organic or inorganic investments needed to transform this business ahead?

[Brian Webb-Walsh:]

Matt, it's Brian. As Ursula and Leslie both mentioned, we anticipate being a high-non-investment-grade rated Company. We believe the leverage that we are starting with is manageable. We intend to improve the leverage over time through operational performance improvement. So, again, we will use cost transformation to create run to make organic investments, and the inorganic investments will be timed as we can afford them, but we believe that it is a manageable starting point.

[Matt Cabral:]

Thank you. And then...

[Jennifer Horsley:]

Sorry, Matt. Do you have another question?

[Matt Cabral:]

Yes, I was just going to ask one for Jeff more on the legacy Xerox business. I guess I wanted to ask around the USDA contract, when that was mentioned in the prepared remarks. And, first of all, if there is any help around the ramp of that contract. And then more just taking a step back and looking at that vertical in particular, around US federal, was that an opportunistic one-off win, or is that an area where there might be a little bit more of a robust pipeline, particularly given the pending Lexmark acquisition that is out there?

[Jeff Jacobson:]

Yes, thanks, Matt. Not specific to the Lexmark acquisition, but I think more the USDA win, we are very strong in federal; we are very strong in public sector. Document Outsourcing is a strong and really good business for us. We are the clear market leader, and we continue to see growth and strong margins in that business. It is an area of focused strategic importance to us. And we had a good renewal rate; we continue to. We are very strong in the large enterprise sector. We are always focused on new logos and new customers, and this was a big part of that. In addition to that, we're going to apply that same expertise, if I can call it that, to the managed print services in the SMB sector as well, where we even have a lot more opportunity for growth there.

[Jennifer Horsley:]

Thanks, Matt.

[Matt Cabral:]

Thank you.

[Jennifer Horsley:]

Thanks, Matt. Operator, next question.

[Operator:]

Thank you. Our next question comes from the line of Keith Bachman from BMO Capital Markets. Your line is open.

[Steve Schneiderman:]

Hi, this is Steve Schneiderman pinch hitting for Keith today. Thank you for taking my question. I wanted to direct this to Ashok. As we think about getting an update on the sales cycle, signings for the quarter were up about 15%. And I understand this includes Document Outsourcing. But signings were down by about the same amount, as you talked about trying to be more selective on profitable growth. My question is where are we in the cycle in terms of churning out these low-profit, potential new deals and being able to – once again, being able to look at it more steady-state, so get signings growth?

[Ashok Vemuri:]

Yes, from our signings growth perspective we grew about 17%, and the bulk of that actually came from renewals. So that is actually good news. We have eight out of our 10 BPO clients actually renewed with us. So, obviously whatever we are bringing to the party, our clients like and they want to continue to do business with us. The area of concern, if you will, for us is new deal signings. That is down, and that is an area of focus. I called in my go-to-market team in October. We basically sat down to look at the opportunities in the market. In the spaces that we are strong in, there continues to be headroom for growth, and there are opportunities out there which we will selectively pick to drive profitable growth.

[Steve Schneiderman:]

Okay, is this something you think can be resolved mid-2017, or is that about a little conservative or aggressive from that perspective?

[Ashok Vemuri:]

I think it's difficult to put a timeline on this. But suffice it to say that we are intensely focused on driving revenue and driving new business growth while at the same time continuing to respond to the trust our existing clients have placed in us by bringing innovative solutions to the table.

[Steve Schneiderman:]

Okay.

[Jennifer Horsley:]

Thanks, Steve. Operator, next question.

[Operator:]

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

[Jim Suva:]

Thank you very much. I have two questions, and I will ask them both at the same time. First of all, as you prepare for separation – and I am sure the ERP or internal IT systems you have are preparing with a lot of effort ahead of that. Are you going to have a need to, say, meaningfully increase your inventory just to make sure that one system doesn't accidentally not talk to another system, or is that inventory management already ironed out? And then my second question is on the Affordable Care Act and the election, there has been a lot of talk about that and such as well as costs going up on that. Can you help us quantify what that means to Xerox? Or do we know? Or with costs going up, is that bad? Is that good? Enrollees? Is there no impact at all, or how should we think about the election and the Affordable Care Act of what is all going on in the news? Thank you.

[Ursula Burns:]

Jim, I should take that. This is Ursula. Even though I haven't spoken a lot today, that's actually a good feeling. But I will take this question. First one, on the transition and inventory and how we are looking at that, we are entering something – I talked about this in my prepared remarks, a phase that we call soft separation. And the reason why that is important for investors is that it is a time that we can essentially practice, do a phased implementation of all the complex separation activities and make sure that we don't stumble when we're actually independent. Including things like the inventory management system. Independent of the soft separation, we would have very little problem with this area, but I think the soft separation makes it such that we could actually double- and triple-check there. So I wouldn't – we don't – we are not managing inventory any differently than we normally would at the end of the year. All we are doing is making sure that as we do a separation we don't have any fumbles, which we don't expect. As far as cost and the – health care cost, the impact of ACA or any potential changes to ACA on our internal cost in the marketplace, we actually just don't see any. Internal cost – we will manage our internal health care cost in the most efficient way possible. We are a good health care provider, payer of services for our clients, our customers. That won't change. And as far as the marketplace out there, we are not really seeing a big set of headwinds or a change in the market dynamics because of any potential changes for ACA. I hope I answered both of your questions.

[Jennifer Horsley:]

Thanks, Jim. Operator, I think we have time –.

[Jim Suva:]

Thank you very much.

[Jennifer Horsley:]

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

[Operator:]

Thank you. Our last question comes from the line of Jamie Friedman from Susquehanna. Your line is open.

[Jamie Friedman:]

Hi, thank you. I just had a housekeeping question. Leslie, maybe if you could share with us what the time frame is from here. I know you have filed a Form 10 and an amended Form 10. Is there another Form 10 coming? Maybe if you could just update us on the sequence as we go out.

[Brian Webb-Walsh:]

Yes, this is Brian. There will be an amendment to the Form 10 today, actually. And then we anticipate the Form 10 being effective in early November.

[Jamie Friedman:]

Okay. And what is the anticipated date of separation?

[Brian Webb-Walsh:]

End of the year is the anticipated date of separation.

[Ursula Burns:]

Right. As it has been from the time that we started.

[Jamie Friedman:]

Yes, yes, I noticed. All right. Thank you, Brian.

[Jennifer Horsley:]

Great. Thanks, Jamie. I am going to pass it back to Ursula for some closing comments.

[Ursula Burns:]

Thank you for your questions. In the third quarter we made steady progress against all three of our commitments, delivering on our 2016 financial goals, implementing our strategic transformation and completing the separation by year-end. We remain on track to achieve all three. We look forward to sharing more details about the two companies at our investor days. And thank you, everyone, for joining the call.

[Jennifer Horsley:]

Thanks, Ursula. That concludes our call today. If you have further questions, please contact me or any member of our investor relations team.

[Operator:]

Ladies and gentlemen, thank you again for your participation. You may now disconnect at this time. Everyone have a great day.