Xerox Holdings Corp to Acquire Lexmark Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ananda Baruah - Loop Capital - Analyst : Yeah, good morning guys and happy holidays and thanks taking the questions. This is actually pretty interesting. I guess Steve just to pick up right where you left off talking about, sort of road to approval. Do you anticipate any sort of regulatory challenges? I mean, anything that would be sort of more than typical routine?

Question: Ananda Baruah - Loop Capital - Analyst : Okay, great. That's helpful. And then Xavier can you remind us the debt levels that you just went over and the 5 times that are current, that debt ladder is that -- it says total debt, is that -- so that's not the core debt, the core debt would be lower than that. Can you just walk us through that?

Question: Ananda Baruah - Loop Capital - Analyst : I got it. And just to ask a clarifying question there. This includes the debt that you guys take on based on your finance receivables that the rating agencies are, that partner with you and telling you where you can go. So the core debt -- is the core debt lower actually than these levels.

Question: Ananda Baruah - Loop Capital - Analyst : And that sort of the -- got it.

Question: Ananda Baruah - Loop Capital - Analyst : I got it. And then John did I hear accurately, so sort of $50 million is -- I'm going to say gross margin is the cost of production benefit from the vertical integration.

Question: Ananda Baruah - Loop Capital - Analyst : And Lex seeing --

Question: Ananda Baruah - Loop Capital - Analyst : Yeah. So yeah, no of you guys in Lexmark of the combined company, I thought I heard you mentioned that $50 million was the synergy benefit of the vertical integration.

Question: Ananda Baruah - Loop Capital - Analyst : Got it. Awesome, That's super helpful and --

Question: Ananda Baruah - Loop Capital - Analyst : When do you think? --

Question: Ananda Baruah - Loop Capital - Analyst : Yeah. No, I mean, listen, it's very accretive if you guys can hit your sign post here.

Question: Ananda Baruah - Loop Capital - Analyst : And without trying to get 2Q, when -- the two years to hit the $200 million is that run rate $200 million? So $50 million a quarter, it takes eight quarters.

Question: Ananda Baruah - Loop Capital - Analyst : Got it. That's helpful. And okay, sort of strategic question here. What to the best of your ability, can you give us any sense of sort of what managed print services, conversations? Have you guys not had access to or sort of haven't been as firm, sort of in your go to market about without having your own sort of print technology in house, and like how much -- and you made mention that you touched on this a couple of times in the presentation but sort of the plugging in of this asset, to what degree do you think that sort of substantially addresses those conversations?

Question: Ananda Baruah - Loop Capital - Analyst : No. No, go for it. Go for it, John.

Question: Ananda Baruah - Loop Capital - Analyst : That's super helpful. Thanks guys, really appreciate it. I'll see before there. Thanks a lot.

Question: Erik Woodring - Morgan Stanley - Analyst : Hey guys, thank you for taking my questions and congrats on this deal. It is very interesting here.

Question: Erik Woodring - Morgan Stanley - Analyst : Steve, I maybe just high level big picture. I just wanted to ask kind of, you're undertaking -- Xerox is undertaking a number of significant initiatives right now under reinvention, right? You've done a sizable workforce reduction, you're changing your go to market. You're shifting into services. Obviously, you're going through a CFO transition in the future as well. Can you maybe just big picture, why is now the right time to acquire Lexmark? Obviously, it introduces even more operational complexities into what has already been a complex reinvention. I understand the accretion math. So financially, assuming hit the numbers, I can understand the accretion side, but just from a timing perspective and how you think about balancing the complexities of absorbing another business on top of all of the changes that you guys have been -- that you've been doing over the last 12 months and then I have a quick follow up.

Question: Erik Woodring - Morgan Stanley - Analyst : No, totally understand. And I want to give you credit because, excuse me, with the challenging and market backdrop you face and sometimes you need to make a challenging and big decisions and this is obviously one of them. So I applaud you guys for going after it. Maybe my follow up question, Steve and John too is maybe broader and that is just, I understand the EPS accretion math that you can do here and that there's a lot of kind of cost synergies that you can capture in the backdrop. How do we think about this combined entity from a growth perspective? Because the way that I'm thinking about this is clearly there's cost synergies that you can get out in the near term. But once we get through that, what is the combined Lexmark Xerox entity is the top line trajectory any different than it is today? Some of the considerations I consider is, Lexmark in 2016 was sold for $3.6 billion to private equity. You're buying them, I assume with some embedded premium for $1.5 billion today. So it is clearly a smaller business. I realize they sold their software business. But still, how do we think about the prospects of growth going forward? Does this change that all? And if you could also incorporate just your views on services and the importance of services? Because obviously at one point, we thought services would become 20% of the business. Now, it's obviously you're kind of doubling down on print. So that's a long winded way of just asking how we think about the future growth of this combined entity once we get past cost synergies. Thanks so much.

Question: Erik Woodring - Morgan Stanley - Analyst : Awesome. I appreciate all the detail guys. Congrats and best of luck with everything.

Question: Asiya Merchant - Citi - Analyst : Good morning. Thank you for taking the question. On slide 9, just kind of curious if you can double down a little bit on what the OEM relationships are that Lexmark engages in today and the crossover there and what's going to stay post the acquisition? Thank you.

Question: Asiya Merchant - Citi - Analyst : And is the expectation that the combined entity would do these A4 OEM relationships. And I don't know to the extent that you've had discussions with these 7 of the 10, I'm assuming they're your large competitors, the usual suspects. And are they still planning to continue this relationship with a combined entity?

Question: Asiya Merchant - Citi - Analyst : Okay, thank you.

Question: Ananda Baruah - Loop Capital - Analyst : Yeah, thanks guys for the follow up. Just guys when Lexmark went private, they had been in the couple of years prior talking about and highlighting actually the development of domain specific services and solutions. And some of this is based on software development. Is there anything there that's interesting that you guys see? And if there is anything interesting that you guys see is that portable, is any of that IT portable sort of across the broader wheat portfolio?

Question: Ananda Baruah - Loop Capital - Analyst : Yeah, that's great. That's helpful. Appreciate it guys. Thanks a lot.