All right, there's a counter here that helps me. Good afternoon, everybody. Day two of Citi's TMT conference. My name is Asiya Merchant. I cover the tech hardware, tech supply chain companies here at Citi Research. We're very pleased to have management here from Xerox. I apologize if I don't mispronounce some names, but we have Steve Bandrowczak, CEO-
Mm-hmm.
Xavier Heiss, CFO, and John Bruno, COO. How did I do?
Great.
Okay.
This is perfect.
All right. Okay, I have a bunch of prepared questions. This session is obviously for Citi clients only, so I do have a bunch of prepared questions I would like to go through. If the audience has some questions, we will give some opportunity, you know, during the session to ask questions. I just request that you do use your mics or raise your hands to use the mics. Thank you, so I'll kick it off, and, you know, we can tag team here who wants to take this, but we've been sitting here asking all our companies about end demand. As we sit here in calendar 3Q, how you guys are thinking about end demand, you know, at right now, and if you dial it back maybe to the start of the year, what has surprised you?
And how do you think about the puts and takes to end demand from here on to the end of the year?
Yeah, let me start. So the underlying demand since the beginning of the year has been pretty consistent throughout the year. In January and February, we made some very significant organizational changes as part of our Reinvention program. And so we saw a slowdown in January and February, but as we aligned both sales, marketing, we aligned our teams in and around clients and focused on it. We've seen year-over-year order growth and continue to see strong demand as we build the integration between our sales team and our go-to-market energy in the field. And so order flows, order increases year-over-year has been increasing, and we have no change to our guidance for the balance of the year. Xavier, comment?
Yeah, just to give maybe a revenue trajectory for this year as well.
So you're aware we have provided guidance for the years. We are not expecting change versus the guidance here. We expect we have some launch of new products, so we expect also some equipment order. The pipeline trend is quite positive. The backlog situation is much clearer than what it was last year with, you know, some comparison, negative comparison versus a backlog flush that we were doing last year. So to give you a sequential view of the revenue trajectory, we did -12%, which includes the backlog flush of last year. Total revenue, -12% in Q1.
In Q2, -10%, so small improvement there, but we are clearly expecting in quarter three to have a much improved trajectory, will be to a low single digit, you know, decline in quarter three, and we'll be in growth mode in Q4. So you look at this trajectory, this trajectory is improving significantly and is also putting us in a good momentum entering into 2025.
All right. And then maybe if you can. You know, what gives you the confidence, like, whether it is anecdotally or even. I mean, obviously, you have a pretty strong pipeline or backlog that's giving you confidence that the improvement in growth. You know, improvement in the growth trajectory, both in 3 Q, and then, like you said, positive growth in 4 Q. If you could double-click on, you know, what's driving that confidence in growth, is that any particular geos? Is it particular end markets? That would be helpful. Yeah.
Yeah, so we-
Customer size? Yeah.
Yeah. So the improvement is mainly driven, so I mentioned we have a backlog flush comparison versus last year, so which gives this double-digit number. If you neutralize this, we were, you know, like in a slow decline when you remove this here. If you remember as well, we have, you know, communicated that, we are doing the exit of some non-strategic activity, which is part of Reinvention, geography or paper, what we call offering simplification, paper on the IT type of devices. So some of it is behind us there. So it's giving us also as well the confidence that, this is building up.
But as I mentioned it as well, what we see from an order pipeline point of view, from a signings point of view, on the metrics that I like, you know, flashing, that we indicated to our investors during the day. The revenue renewal rate, which is what is the revenue we had every time we renew a contract with a client, specifically on the service area. So if a client was paying XYZ before, what will be the revenue we'll generate in the future with this client? Now, for five consecutive quarter, this revenue renewal rate has been above 100%. What it mean here is that a lot of people have in mind that every time we renew with print and with the services we are putting, the revenue will be less. This is not the case.
Mm-hmm.
This come from the combination of having, you know, control of the trajectory of the print revenue.
Mm-hmm.
At the same time, IT and digital services that we are able to add on top of this deal, which help us, you know, to grow this outsourcing business here.
Okay. Great. Just maybe, you know, we've been talking to, obviously, HP, we've talked to Dell. They're talking about, obviously, different end markets, perhaps, than where you guys are, on the enterprise demand side. A little bit more caution, I sense, just on enterprise demand, maybe some of it just because IT spending has been shifted to, AI, for example. So within that context, can you remind me how you think about demand for print, print services? And then we can also shift into IT and digital services. But what is your long-term outlook, perhaps, on print demand? And more in the near term, what are those drivers that gives you confidence, on, that secular trend?
Yeah, I think if you think about print, low single-digit decline over the next several years. But if you just think about print in itself, you've missed the whole picture in terms of the value that we bring inside the enterprise. And so if you think about today, people are putting information on paper, taking it off of paper, and we're adding value-added services in and around that, driving productivity. So think about workflow solutions, where you scan an invoice, and it goes automatically into a back-end accounts payable process. You scan a resume, goes automatically back into a recruiting process. You think about the environment that we're in, and we drive productivity in and around things like language translation, driving productivity in administration, in hospitals, and in law firms.
So it's not just the actual device itself, it's driving productivity inside of these devices, specifically with workflow and adding insight to the data that goes to our environment. So that's the first number one important thing. The second thing is we continue to add more value in and around this environment. So the same economic buyer in the mid-market that's buying our print devices is also buying other IT solutions-
Mm-hmm.
Whether it's software as a service, security as a service, network as a service, et cetera. In the mid-market, the same economic buyer doesn't have the skills, doesn't have the resources, doesn't have the capabilities to be able to deal with these technology trends that allow them to drive productivity in and around AI, in and around RPA, in and around document flow and process improvement, in and around those flows. We bring all those services in that mid-market space. So it's not just about print, it's everything we do in and around the environment, and we're a trusted advisor and a trusted partner inside those clients today.
Yeah, we're not, we're not forecasting any declines or drops in our machines in field, what we refer to as MIF, but you have to break the business down. As Steve pointed out, the enterprise is very different than, say, the low-end entry points in, in the enterprise. So in our A4 business, we're building more solutions to have more channel-ready products to feed the channel. We're investing in more demand gen. We're doing things in that space because we're seeing more demand for units in that space as people reconfigure their offices, as office floors consolidate, as people work in more hybrid environments, a distributed workforce, a hybrid workplace. In the A3 part of the business, that's all about reducing our configurations, maintaining our share position, and adding a lot of the features and functionalities that Steve pointed to.
Because personalization, when you're in front of those machines, on the type of documents you use, whether you scan to a document repository, or other workflow related, whether it's an invoice processing or something on paper that needs to be either redacted or something that's handwritten that needs to be translated to digital, these are services that get added on top of print in the enterprise, and so we protect our machines and in our environment by adding more value there. We're adding more configurations on the low end. In the high end-
Mm-hmm
... where we have the large production presses, it's less about the machine itself, which is why we've made the decision after many, many years to stop manufacturing our high-end machines ourselves, and to actually embrace the consolidation in the marketplace, because we know with declining print overall, you're gonna have fewer players in that space. And so we're gonna be OEM-ing a product in that. But when you look at the production environment, the machine itself has become a component of the overall workflow, but not the component. You have many pre-production press processes-
Mm-hmm
... the production press itself, and then post-production binding, cutting, you know, roll-to-roll feed, inkjet, cut-sheet inkjet. So software and services has become more important to those clients because they're trying to drive higher levels of productivity on fewer machines, which means availability, operator uptime, and all those types of issues needs to be more incredibly important. So we're investing more in services-led and software strategy around our production environment and less around differentiating on the print itself, but buying from an OEM partner in that space, the actual engine-
Mm
... and then wrapping that. So it's a different story between low, mid, and high-
Okay.
to protect our MIF.
Okay. And just more even on the... I know, I understand that there's this, OEM option that you're doing on the higher-end print. Any specific seasonality within each of those low, mid, and high end that we should be aware of?
Very much so, and it's an OEM strategy for us in each one of our environments because we procure OEM product and put controller, our controller software and capabilities, services, sales, distribution around that environment. But yes, it all depends. In the, you know, in our government business and state and local and education, you have the seasonality of the summer months, where people are preparing for back to school. In the enterprises, you have the end of quarter, for people that are statement press printers and so forth. They have an awful lot of work that's getting done in the December and the January.
So there is seasonality. Fortunately, for us, each is different.
Right.
So it's not like, you know, one quarter is terrible. We do always have our strongest quarter in the fourth quarter across all, but we and generally see more sluggishness in the third quarter just because of seasonality and the distribution of our business across the European region. But each one of those individual businesses has a different trend and seasonality.
Okay. And, AI, I know a lot of people talk about AI. We've been asking all our companies here to talk about how AI impacts their end market, their core offerings. Maybe if you could talk a little bit about how you think Xerox's offerings play in the world of AI?
Yeah, I think there's a couple of places. First of all, if you think about the environment we play in today, AI without data is completely useless, and that's the world that we play in. The ability to be able to understand where data is coming from, where it's going to, how to redact it, how to encrypt it, how to make sure that you understand how data is changed in motion, that's what we've been doing, and that's part of the DNA of inside of Xerox. So one of the things that we do for our clients today is, as you think about information coming through our environment, so think about scanning something, we can automatically recognize what the attributes of that document is. It's an invoice. How do we take that invoice and then put it through a workflow process?
You think about a resume that gets scanned. You think about all different types of documents, legal documents. We have the ability to recognize what that document is, take the data off of that document, index it, put information and value around it, and then feed it back to our clients going forward. So that's the first thing that we can do inside of that environment. If you think about all the different public domains that are out there today that are serving up LLMs, you have to have data that is normalized, that is understood, and it's fed into that environment. So think about things like just scanning, capturing content. When you scan data, index it, take data off of paper that's out there, and then put it in a repository that allows us to serve up into an AI model.
We think we can play very strongly in workflow. We're gonna play very strongly in different verticals in terms of how you take data, serve it up into a lot of these LLMs, and serve it up into these specific algorithms. More importantly, we're gonna help our clients be able to take that environment and orchestrate that data.
Mm-hmm. Are you guys using AI internally? It's one of the questions we've been asking all our companies.
Yeah.
Maybe perhaps you can talk a little bit about, you know, what are you seeing in terms of whether it's productivity, savings or-
A couple of examples, so if you go back just five years ago, just like any service company, you know, you've got an aging workforce, you've got an inability to be able to recruit young talent, in an industry where are you gonna go, and you're gonna service printers, and so what we came up with is: How do we solve that problem with somebody you hire that has a thirty-day experience versus a thirty-year experience inside of the environment, and so what we've created was, now you've got multiple millions of devices around the world. Each one of those devices, when it has an error, it goes into a data lake. We then look at that error. We take that error and send it back to our call center up in St. John's.
AI identifies what that error is, runs it against all of our ServiceNow tickets, all of our R&D tickets, all the specific faults on that device, and what the end client service rep sees is the top three ways to go fix that environment long before our client calls us. We then have the ability to send you a link, where we open an augmented virtual reality session, and the client can self-serve that problem. 50% of all those calls that come in now, the client solves on their own with a 90+% satisfaction rate. If that doesn't get resolved, then when the technician goes out, AI further looks into what is happening with the history of the particular environment. For example, how much utilization is on the board? What is the particular way to fix that problem?
And we further enhance our technician when they go out using artificial intelligence. So AI in the service industry, for us, has helped us tremendously with productivity in the service field, return calls, faster time to resolution. It's also have a positive impact on the environment, right? When you think about a client can solve their problem before we dispatch a truck, we save, and we have a positive impact on the client. So that's a real-world example where we're using AI internally.
Mm-hmm. Okay. All right,
I can add, if I may, an example which is more finance related there.
Yeah.
We are using AI for pricing.
Mm-hmm.
It's machine learning on AI there, combined there. And then at the end of the day, we do that in order to validate each of our transaction. This is how this industry is working, is customized. So you don't go outside, and you have a list price, and then you buy based on the discount. Each of the transaction is mainly a bundle transaction, where the customer buy a fee per month. We pay Xerox per month in order to get an equipment, a service, and a lease element as part of this there. With AI, we've been able to identify very clearly what are the key driver of the pricing and in which cases we win and we lose versus competition.
When a salesperson is now coming to price a new deal or existing deal with an existing customer, to give an indication to the salesperson this is the price to win.
Mm-hmm.
This is quite interesting because behind the indication, there is also margin accretion, which is coming behind this there.
Okay. All right, maybe we can talk a little bit about the project, Reinvention. And I know in the past you've also done Project Own It. Maybe just talk about, you know, what is... Why is Project Reinvention different than Project Own It? And, you know, for those in the audience who may not know, maybe you can just give a little bit of introduction as well.
Yeah, let me start.
Yes.
-and I'm gonna turn it over to John to double-click on all the elements. So Project Own It, I invented, back in 2018 when I joined-
Right
... the company. And the idea was, how do we take cost out and create cash in the balance sheet? We were ultimately going to try to consolidate the industry. If you follow the history a little bit, we were trying to purchase Hewlett-Packard. And the idea was we were taking cost out. We weren't reinventing the company in terms of end-to-end process. My view was that we would do that during the integration of the roll-up. So the idea was, as we were integrating HP and Xerox together, we would reinvent end-to-end processes. We'd reinvent our supply chain, we'd reinvent our go-to-market. Well, obviously, that didn't happen... COVID hit, and then we had a period of both COVID, supply chain issues, et cetera, et cetera. And so, you know, we took out close to $4 billion or created $4 billion of cash, right?
We invested or did share buyback, never invested back in the company in terms of reinventing the company. Reinvention is dramatically different. It is all about literally rewiring and reconstructing our entire processes end-to-end, from order to cash, from procure to pay, from hire to retire. So it's a full program. John, you wanna take them through the program?
Yeah, I think it's a great analogy, and if you think back at the time when the company went through Own It, company was roughly a nine billion-ish type business, probably had nearly 2x the labor-
Mm-hmm
... that the company currently has today from a pure FTE headcount perspective, and so when you deal with actually the structural decline in print, you accelerate that because of COVID. You then reformat your fit-for-purpose print business. You have a lot of infrastructure and existing systems that were built for business that was much larger and different at that time. The whole idea of Reinvention is to reposition the platforms for the business for the foreseeable future, the next three, five, ten plus. So we had thousands of applications, we had acquired assets, we had multiple order and inventory management systems. We had structure in businesses, the way things were built over time, which the volumes changed quite a bit.
Reinvention is about disassembling the business and then reassembling it in the likeness that we need with the right process, order management from every which way in which we manage, from prospecting, through order management, through fulfillment, customer services, and supply chain. Everything from, you know, single instances of our ERP systems and retiring legacy platforms, consolidating on our order management systems, using the same customer relationship management system, getting the right employee back to the point of these workflows that Steve pointed out. So it is really, truly a redesign of the business model, the operating model, which then turned into what we did in the first quarter, was realigning the resources against it. We rewired over six thousand positions in the company under different spans of controls, greater consolidation.
We wanted to remove the complexity in our system, where there were multiple touch points that made it very difficult to do business with us and to do business within our business, 'cause it was built around a business that was significantly larger. So moving forward, if we wanna dramatically improve, double our business in the indirect markets, well, we have to build products for the indirect market. We have to make it easier to procure by our indirect partners, build more channel-ready products, do more demand gen and those types of things. So it was really a disassembling of the business, and then a reassembling and a re-platform, and looking for places in which we can leverage technology to get greater insight, more of the AI examples and so forth that you've described.
Therefore, we can scale and grow, but not linearly through headcount growth, but through the leverage of systems, technologies, and tools.
Okay.
As we reassemble, you know, one of the key drivers for me is to drive a consumer experience at every touch point, meaning frictionless, easy, so you think about order management, you think about invoicing, you think about all the internal processes around hiring, internal processes around supply and demand shaping. All those have to have a consumer-like experience, so driving simple, single processes and automating and putting AI and RPA on top of it as much as we can.
Related to that, I know you guys have... And related to your Reinvention, I think you have some operating income targets-
Mm-hmm
... that you've shared with the investment community.
Mm-hmm.
I know it's over three years, so 2024, 2025, 2026, of $300 million incremental operating income improvements.
Yeah.
One of the questions I get is, you know, help us understand from those structural cost savings that you've talked about and Project Reinvention, you know, what gives you confidence that that kind of flows through into the operating income line, that what investors will be focused on?
Yeah, let me start with the-
And then the cadence of that as well.
Let me start with the program instruction, and let Xavier comment on the financial. So if you think about how we build the Reinvention program, right? It's looking at our entire business and looking at areas that we can drive transformation and change, kind of sizing it, what that looks like. So simple example, if we're going from 1,400 applications to 400, what does that look like? What is that end state? What's that cost? And then you create a program, and you create a set of milestones to go deliver that. We created something called Global Business Services, GBS. John and I both ran GBS organizations. He did at Aon. I did at HP. We know that's an engine for driving efficiency, driving continuous improvement.
We know when you take that cost basis and you put it inside that engine, what an end state could look like. What do you do with things like billing, touchless orders, and so forth? And so we create these models, which is kind of the art of the possible, and we talked about, we've pulled in our funnel roughly $700 million of areas that we've defined and identified, now putting programs and projects behind that, that allow us to get to that $350 million. So it's looking at the cost basis, creating very specific programs and projects along very specific areas that allow us to go drive and have the confidence that we can go do that. That's something John and I have done our entire careers.
It's very similar to what we did with Own It, except now we're reassembling, disassembling and reassembling our business. Xavier, on the financials?
Just to maybe give some background. So what was the starting point, where we were three years ago, where we are going to? So three years ago, the operating margin of the company was 4%, okay, 2022. 2023, we were at 4.4%. And then last year, we did 5.6%, so we started, you know, the Reinvention. And then this year, we are guiding towards 6.5%.
Mm-hmm.
So the journey is to go to 10%. In order to get 10%, you need net, you know, to have $300 million-
Mm
... you know, coming here. As Steve mentioned it, in order to get this $300 million, you need to target growth because you have some other dynamic, like some price pressure, erosion, you know, cost, inflation, you know, coming within this. You need to get growth around $700 million.... So proof point we are bringing currently on, we are sharing with the street, we did it during quarter two earnings. Already $400 million out of the $700 million had been actioned. Action mean at a different level of capturing it, easier capture into the PNL on the- it's visible, and you will see, as I mentioned it, you know, I was mentioning the revenue trajectory improvement from Q1 to Q4. The operating margin will see a very similar trajectory. We started the year with a very operating margin in the round of 2.3%.
We did 5.6, 5.4 in quarter two. In order to arrive or to achieve 5.65 for this year, you can rest that quarter three and quarter four will be higher than what we have delivered so far.
Okay.
So we are seeing now the benefit of this $400 million of action. Some of them are already been very visible in the PNL. Some of them are completely booked, but will happen from a timing point of view later in the year. I give you an example. When you go through a people action, a reduction there, you could have all the transaction being agreed, but from a works council point of view, union point of view, it could take time in order to enact it there. So the message I want to pass is that a lot of this is in control, is at play. It's highly structured, is also managed by, I would say, an operator group here, which know how to drive this here.
You will see year-over-year on the proof point that I was sharing, you know, from an operating point of view, you will see, and we'll share it quarter-over-quarter, how this profitability trajectory is improving.
Okay. All right. We can switch to digital and IT services maybe as key growth drivers. I know you both talked about that. Just maybe for purpose of the audience here, how do you define digital services, right? How is that different than IT services and the key drivers of growth for each of these two business sub-segments of the business?
You want me to start? Sure. So I'd like you to think about IT services as managed provision IT services. So in the SMB space, you know, we have about roughly call it, say, two hundred somewhat thousand clients in the SMB space, which we service each and every day with managed print services. We cross their threshold, we cover their accounts, we have sales, we have service, we have capabilities. That economic buyer who is buying from us-
Mm-hmm
... is also buying and procuring from a highly fragmented set of evaluated resellers in their local markets, a set of IT services, who they buy their laptop PC from. They manage that hosting. It has kits configured with Office 365 and a suite of Office applications. It has a security profiling on it to ensure that it's protected against things like ransomware and denial of service attacks, et cetera, et cetera. They're procuring more and more of those things through the IT services space. We've done propensity analysis, and we've done third-party research. We already have a sizable IT service business, already today, and we want to expand that business.
We want to double that business in that SMB space, because when asked, "What type of services are you looking for, and what do you want from vendors?" the feedback was very clear. They're looking for more managed services in the IT space. It's getting more complex for them. They want to buy everything as a service as they can. It's more predictable from an OpEx perspective, and they want the capabilities of leveraging someone's network operating center, someone's provisioning and control, and all of that, and so the IT services expansion for us is to be able to offer those capabilities to our existing clients and to net new prospects, but we really don't even have to have new prospects.
We really just have to have that offering and being able to do that through the existing sales force, through our existing channels in that space. A digital service is different. A digital service, as you think about it, probably a good example, maybe I'll choose the enterprise instead of the small business. In the enterprise, you have accounts receivable, accounts payable, credit card registration, people that are... have very paper-intensive, moving to digital-intensive capabilities. They're looking to, "How do I migrate into digital? How do I converge both digital services and physical print together?" A good indication of that is client engagement services, a marketing manager. There's printed marketing materials. You've seen banners and print ads with PDF icons on the bottom of them.
People want to understand, the marketing manager wants to know: Where am I getting the greatest eyeball impressions and so forth through my digital campaigns, my physical campaigns-
Mm-hmm
... and where?
Okay.
A digital service could be around that client engagement capability. We've made acquisitions in that space. In the UK, we bought a company called Go Inspire that did that type of business, and we help optimize that and deliver a more omni-channel experience of digital and physical. We also do robotic process automation, and we analyze the workflows of paper processes and how to help move things more into the digital processes, and back again, because some things move into digital repositories, and then they move from digital repositories back to physical. So that's these are examples of the types of digital services we provide. Some are professional services, reselling other RPA products in that space, and what we really provide is the intimacy and the knowledge of the process workflows for print in the large enterprises, and we'll apply digital services on top of that.
Can you remind us, like, how much of the revenues right now are from each of these two sub-segments, like digital versus IT?
Yeah. So we discussed that in the last quarter for the first time, that about 10% of our revenue is derived from the combination of IT services and digital services.
Mm-hmm.
On the IT services is the larger of the two.
Okay, and how fast have they been growing for you, let's say, over the last, I don't know, 12 months or really-
Yeah, they've been. These are more in the higher single digits, so they're accretive to both our revenue growth and to our margin growth. And this is what we talked about as our stated objective is through this Reinvention period, we want to double that business. We want to, upon exiting the Reinvention period, is to have that be, contribute 20% of our revenue versus 10% of our revenue today.
Okay. All right. And then obviously the question I get is, you know, how much investment do you need to double that-
Yeah
- business, and how does that factor into your operating margin income improvement that you saw?
It's factored into. So, you know, if you look at the trajectory, that's why the $700 million that was discussed here being a gross down to a net. Under normal operating speeds, you know, we factored in the ability to generate and to do small tuck-in acquisitions, where we're looking for capabilities that are specific to a particular vertical market. These are not, you know, big, major acquisitions in this space. This is how do we enhance our digital services specifically for law firms, for e-discovery and document management? Or how do we do it for the redaction of testing processes or handwriting recognition, or language translations, and those types of things? So that's factored into those types of businesses as we drive them, because we already have an installed base, especially across our IT services.
But we will continue to invest in them organically and inorganically.
Okay.
One point, which is important as well there, the investment that we will make in this business will not drive margin dilution. Okay? We are currently... You know, when we look at the investment, organic or inorganic there, what we want is to drive the margin up of these different operation on which, you know, currently the highest margin we're achieving is on the print business here. But over time, we are planning to have the margin for these businesses to be at the level of the print business, even beyond, specifically on the services side.
Correct.
Okay. A little bit about your forward flow agreement. You know, if you can remind investors what's the impact to free cash flow. Or sorry, free cash flow, and how is that expected to fund your Project Reinvention initiatives?
Yeah. So, it's a-- I won't go through a technical, you know, discussion here because it's a frequently asked questions there. But, to make it very simple there, Xerox have been, it was invented, by the way, the subscription model in the '60s. So the first product we put on the market, we were not selling it, we were renting it, and then you have a click model. We kept this in the DNA, which means that the entire print industry is currently governed by, at the end of the day, selling a monthly subscription to a client. So financing is an important part. Then, when you have a good balance sheet, when you have access to good, I would say, market rate or good interest rate there, then you can have this as a captive operation. Okay?
This is what Xerox have done for quite a long time. But when the business is growing, you then have an impact on your free cash flow because you need to raise more debt, but also you need, you know, to impact directly the cash sector you need in order to fund this business. So what we found is a good compromise with a forward flow agreement, which is a company called HPS. HPS is like a funding partner. So you can look at it, if I simplify it, by saying we have managed to put out of Xerox balance sheet the benefit of this model here. What does that mean? Three years ago, two years ago, we have $2.6 billion of finance receivable, which is all the debt related to the financing business, usually a five-year duration type of contract.
Across the next five years, so until 2027, we will have, you know, the benefit of this finance receivable going down, and it will generate free cash flow.
Right.
The number to have in mind, $2.6 billion at that time, we will be left with $1 billion, $1.6 billion across a full average four-year period is $400 million of free cash flow, and it come exactly at the time we are doing the Reinvention, and it help supporting the investment, John was mentioning in organic or inorganic growth here, so a very elegant mechanism of balance sheet type of treatment here, but also generating free cash flow, helping us to fund the Reinvention.
Mm-hmm. Okay. You talked a little bit, Steve, about consolidation at some point. I mean, you know, it's an industry that is flattish, let's say. You know, goes through these periods where there's declines, obviously, macro-related otherwise. Generally, investors don't view as more print. People are printing less, and that's why you're adding on value-added services there. Still quite a few players in this space.
So what's your view on consolidation? You know, when does the market get there? What's preventing the market from consolidation?
Yeah, look, the industry will consolidate. There's no question about it.
Okay.
There's no IT industry that we've seen that has the amount of pressure that we have, that has the amount of players that we have, that doesn't consolidate.
Right.
You're actually seeing consolidation. There's different types of consolidation. So if you think about today, OEMs selling products to competitors-
Right
... and they're selling it. You're seeing the Konica Minolta, Fuji alliance recently, where they're joining and trying to get economies of scale in purchasing and leveraging their manufacturing and leveraging their supply chain. You saw it with Ricoh, so there's... You saw it with Toshiba as well. So there's a variety of different consolidations that has happened in the industry. They just haven't consolidated the way you and I think about it, how do we put two companies together?
Yes.
And, you know, part of it is, you know, cultural in Japan, candidly. Consolidation in Japan doesn't happen real easy. I do believe it'll happen anyway. We are going to be a part of driving that consolidation, and we will be a consolidator. I've said it for many years. It's just a matter of you gotta have willing partners on both sides.
Mm-hmm. Yeah. Let's see. Actually, first, let me just ask the audience. Any questions from the audience? Yes, please raise your hand so we can bring the mic. If not, I have a few more questions here. Capital allocation, you know, I know you talk about that. You know, given your growth and the free cash flow generation from the sale of receivables here, you will be generating $1.5 billion or expecting to generate $1.5 billion of free cash flow by 2027. Can you talk to us about how you think about capital allocation in light of those funds? And, should we expect, like, significant debt paydown here?
So it, it's very simple there. So first priority is debt, so paying down debt. We have been able, with Citi's support, you know, to push down, you know, some of the debt that we have here. So if you look at the next three years, how much debt we will have to pay? Roughly $500 million in 2025, $66 million in 2026, and $70 million in 2027. So quite a clean pass there. Not a lot of debt, you know, that will come, then the next maturity will be in 2028. So a lot of this cash will be available here so as to pay down debt. The second point, we still have a dividend of $1. This one dollar dividend represents roughly $140 million.
If you look at the number that we are generating of free cash flow this year, we are guiding, taking into account restructuring on some one-off item above $600 million. So we have ample room, you know, still for the dividend, which is a question we have been asked as well, what you plan to do with the dividend? I mean, currently, we can afford it. Clearly, we have the trust that with the Reinvention strategy, you know, this dividend yield will be much more normalized in 2027, if the share price on the valuation of the company will improve based on the Reinvention outcome there. So last item, on the, you know, remaining cash here is everything that John described. This is investing in the business, you know, acquisition.
Taking acquisition in order to support the growth in IT services. On the digital services, there are some organic requirement as well, some CapEx that we are making on the other things, potentially as well, capability acquisition, you know, to do that there. Ample cash being generated so far, as you mentioned it. The overall forward flow is providing the tailwind of $400 million and will be in the future, offset by the normalized of the core free cash flow.
Okay. If I may, you know, Steve, you've been a CEO at the company since mid-2022?
Mm-hmm.
Hope I have my dates right. What are some of the biggest challenges that you've seen in this industry? And just, you know, as you've taken the helm at Xerox, and the strategic changes that maybe you think investors don't necessarily appreciate, and that you'd like to highlight.
I think if you, you know, if you go back to 2018 to now, and you look at the strategy, you got to question what's going on and what's changed.
Mm-hmm.
But you also have to understand what's happening in the industry and the changes. So when I got here in twenty eighteen, it was very clear we were gonna consolidate the industry. We were gonna try to purchase Hewlett-Packard, consolidate, drive the Reinvention of Xerox through the integration, and we were on our way, right? Stock was north of $35, $36, $37. COVID hits. Dramatically changes the environment that we were playing in. Think about the office space, the hybrid workplace. You're dealing with the whole issue of COVID and what's happening. And the first year, it's: Okay, everything's gonna go back to kind of normal. And so you're planning for a return to the office of, you know, 90%-95%. Well, if we had known what we know now back then, you probably would've made some different decisions, right? You then have the supply chain challenges.
You then have Ukraine, Russia, the passing of our CEO, right? So all these things over this period of time, you think about dramatically changing, and then you get interest rates change. You think about VC investments five years ago, when we were trying to do things like build some of the parts, where we were trying to monetize value out of Palo Alto Research Center, as opposed to in August of 2022, interest rates had changed, VC investment had changed, startups had changed, what we did with Fiddler. So the biggest challenge in, you know, for me, is the changing dynamics of the environment has caused significant shift in the strategy over the last couple of years. You asked a question about Own It versus, you know, the Reinvention. Big difference. The two different times in terms of revenue, in terms of what's happened in the industry.
When I first got here, we were generating $1.2 billion, $1.3 billion free cash flow, right? So much different time. So for me, it's the changing dynamics. But what I love about this company is the resilience to be able to deal through those changing dynamics. You think about the belly punch that we took. You're talking about $2 billion of top line overnight going away. You think about the resilience of what we went through. You think about all the things that we've done. I'm really extremely proud of where we are in this Reinvention. Now, you think about. And no small task, but we changed significantly our investor base, right? Last September and beginning of October, we bought out one of our largest shareholder, put a new board in.
Take a look at our board today and the people that we have on our board, and the pride, the skills, and the talent that we brought onto the board and where we're going. For me, the challenge was just dealing with the different economic, the different things that we were dealing with, talking about black swans, all the different things we're dealing with. We're proud of the resilience, but more importantly, we got a company that absolutely is worth investing in and is absolutely gonna drive what we need to go do.
Mmm-hmm. All right, great. Any other parting remarks, maybe what, you know, what you're most excited about, John, at Xerox?
You know, Reinvention is a challenge. It's a difficult thing to transform a business as complex as ours in the public eye.
Mm-hmm.
Right? You're dealing with all the issues that you have to satisfy quarterly. It's why most people don't do it in the public eye. They take companies private and do these types of things. But when you look at the underlying fundamentals, Xavier pointed to our ability through all of the challenges to be able to improve our operating income, to reduce our leverage, to change our revenue mix shift, to move and to be growing our IT services and our digital services, to have the contract renewal rates at above 100%. When you look at the core underlying parts of the business, it gives you a lot to really feel good about and to feel grounded about.
Knowing that while it is complex, as long as we can stay steady and delever our business, generate higher levels of free cash flow through a diversified revenue mix, while improving our operating income and deleveraging, these are all very good fundamental things, and that's what we look for as a management team.
All right. Thank you very much.
Mm-hmm.
That about wraps up for today.
Thank you very much.
Thank you, Jessica.