xerox.com

Business Model Fundamentals

Our annuity-based business model yields strong and stable cash generation and earnings growth.

Through our annuity-based business model, we deliver significant cash generation and have a strong foundation upon which we can expand earnings.

Annuity Model
The fundamentals of our business rest upon an annuity model that drives significant recurring revenue and cash generation. Over 80% of our 2010 total revenue was annuity-based revenue that includes contracted services, equipment maintenance and consumable supplies, among other elements. Some of the key indicators of annuity revenue growth include:

  • The number of page-producing machines in the field (“MIF”), which is impacted by the number of equipment installations
  • Page volume and the mix of color pages, as color pages generate more revenue per page than black-and-white
  • Services signings growth, which reflects the year-over-year increase in estimated future revenues from contracts signed during the period as measured on a trailing 12-month basis
  • Services pipeline growth, which measures the year-over-year increase in new business opportunities
  • Expanding the digital production printing market, as this is key to increasing pages.
Revenue Stream

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82% Annuity
Approximately 82% of our revenue, annuity includes revenues from services, maintenance, supplies, rentals and financing.

18% Equipment Sales
The remaining 18% of our revenue comes from equipment sales, from either lease arrangements that qualify as sales for accounting purposes or outright cash sales.

Cash Generation
The combination of consistently strong cash flow from operations and modest capital investments enabled us in 2010 to pay down a significant amount of the debt associated with the ACS acquisition. Cash generation in the future will continue to provide a return to shareholders through:

  • Buying back shares under our share repurchase program once debt leverage targets are met
  • Expanding our distribution and business process outsourcing capabilities through acquisitions
  • Maintaining and, over time, increasing our quarterly dividend.

Expanded Earnings
We will expand our operating margin and future earnings through:

  • Modest revenue growth
  • Driving cost efficiencies to balance gross profit and expense
  • Repurchasing shares
  • Making accretive acquisitions.