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Perplexity Finance

XRX

Xerox Holdings Corporation

XRX

NASDAQ

Market Closed

Saturday, May 24, 2025

$4.50

-$0.63

12.21%

At close: May 23, 4:00:01 PM EDT

$4.51

+$0.02

0.33%

After hours: 7:59:15 PM EDT

Change

-$0.63

12.21%

Financial Profile

Prev Close

$5.12

Market Cap

$565.43M

Day Range

$4.20 - $4.75

Open

$4.54

P/E Ratio

-0.4

52W Range

$3.45 - $14.81

24H Volume

$59.93M

Dividend Yield

19.47%

EPS

-10.56

Earnings

Report Date

May 1, 2025

Reported Revenue

1.5B

Miss -2.96%

Avg 1d Change

8.23%

Report Period

Q1 2025

Reported EPS

-0.06

Miss -20%

Implied Move 1d

16.87%

Transcript

9m 46s

Good morning, everyone. I'm David Beckel, Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation First Quarter twenty twenty five Earnings Release Conference Call. Hosted by Steve Vanderzak, Chief Executive Officer. He's joined by John Bruno, President and Chief Operating Officer and Miranda Getzai, Chief Financial Officer. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and or rebroadcasting of this call are prohibited without the express permission of Xerox. During this call, Xerox executives will refer to slides that are available on the web, at www.xerox.com/investor. And 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'd like to turn the meeting over to Mr. Bandershak.

10m 42s

Good morning, and thank you for joining our Q1 twenty twenty five earnings conference call.

10m 48s

In the first quarter, balanced execution the benefits of last year's reinvention related organizational changes and ongoing reinvention initiative resulted in an improved revenue trajectory and another quarter of double digit declines in operating expenses. Excluding one time cost and IT savvy. Sales activity has normalized and the IT Savvy integration and reinvention related cost reduction programs are running ahead of plan. Placing us firmly on a path for near term revenue stabilization and growth in adjusted operating income. Amid an increasingly uncertain and unprecedented operating environment, we remain focused on what we can control. Delivering industry leading document workflow and IT solutions to our more than 200,000 clients. And the successful execution of our reinvention. I commend our team who are working tirelessly to navigate the nearly daily developments in trade policies to ensure we can continue providing the workplace technologies our clients need most. And do so profitably, all while implementing over 100 reinvention initiatives designed to further improve our core operations and drive additional operating efficiencies. Summarizing results for the quarter, revenue of around 1,500,000,000.0 decreased 3% in actual currency and 1.1% in constant currency, inclusive of IT Savvy. Adjusted operating income margin of 1.5% was lower year over year by 70 basis points.

12m 31s

Free cash flow in what is our seasonally lowest quarter of the year was the use of cash of 109,000,000 compared to a use of $89,000,000 in the prior year. And adjusted loss per share was $0.6.12 lower year over year. This quarter's year over year decline in revenue on a constant currency basis and the decline in adjusted operating income margin primarily reflects the mix of IT solution products and services build in Q1. As well as higher than expected costs associated with the recent trade and macroeconomic related disruptions. While the near term operating environment has been clouded by tariff and trade related uncertainty, it is increasingly clear that the benefits of our last year's organizational changes and the reinvention actions taken to date are delivering the intended improvements in Xerox's operating results. This quarter, we saw improvements across a range of important operating metrics, equipment revenue adjusted for currency, backlog fluctuation, and reinvention effects declined approximately 1%. A 500 basis point improvement from the pace of the decline in 2024. Equipment installation grew 24% the third consecutive quarter of double digit growth driven by initiatives to grow share in A four and with channel partners as well as the successful global launch of our new PrimeLink product.

14m 10s

Service renewal rates for large client contracts were at a multi year high and in the first full quarter following the acquisition of IT Savvy, Synergy Realization, IT Solutions order volumes and the cross sell opportunities between the Print and IT Solutions businesses are already ahead of plan. These improvements reflect the culmination of intense often difficult decisions taken over the past two years to reengineer Xerox. Positioning the company to take advantage of favorable secular trends in and adjacent to print and IT services. With a streamlined and agile operating structure. In Q1, we made progress across each of our three strategic priorities for the year. Starting with the execution of reinvention initiatives. In Q1, sales force productivity advanced 13% year over year, a key contributor to this quarter's improved equipment revenue trajectory. Sales productivity improvements reflect a reduced administrative burden on our sales force, enabled by a host of simplification and optimization initiatives recently put in place. These initiatives include standardized bidding, ordering and post signature processes, and AI enabled pricing tools which helps our sales team optimize sales opportunities. We also implemented a refined approach to client segmentation providing our sales organization with greater focus when serving clients and developing bids.

15m 47s

An example of refined client segmentation is the expansion of our inside sales organization to support small and medium businesses in The U. S. In Q1, we refined our coverage model for 35,000 small client accounts by adding support capacity through our centralized inside sales team. This team will focus on proactive customer support upsell and cross sell opportunities and the retention of clients with lower levels of existing revenue, allowing our field sales team to focus on providing improved service quality to large clients and the development of new businesses and new logo opportunities. One month into the expansion, the inside sales team is seeing strong growth in pipeline and client engagement metrics. And sales activity in the regions where accounts were transferred is pacing 10% higher year over year. We expect initiatives like these and other plan to drive further productivity gains and contribute to our goal of growing equipment share in 2025 and beyond. Moving to acquisition benefits. The integration of IT Savvy is running ahead of plan with our collective IT solution strategies aligned and IT savvy's people and IT operations now fully integrated. Systems and process integration is a expected to be complete by Q3.

17m 22s

The vast majority of the expected run rate synergies totaling more than million dollars have been implemented and are expected to contribute to improved IT solutions and total company profit in future periods. Through the design of IT savvy integration, we also see early signs of success in the cross sell of IT solutions to existing print clients a key tenant of our acquisition thesis and confirmation of the value we bring to clients when our industry leading print and IT solutions are combined. Melanda will provide additional color on early cross sales success and its contribution to IT Solutions pipeline. Early integration planning for the Lexmont acquisition is well underway. With IT savvy's integration expected to be complete by the time the Lexmark deal closes, we will focus our complete attention on the integration of Lexmont operations in the second half of this year. Finally, balance sheet strength In Q1, when we excluded the impact of finance receivable benefits, improved working capital drove an increase in free cash flow. As a reminder, our top capital allocation priority is the repayment of debt. In Q1, Xerox total debt balance decreased by around 100,000,000 following the repayment of secured debt. In April, we issued $800,000,000 of secured notes, a portion of which will be used to refinance existing debt and a portion of which will be used to fund the Lexmont acquisition.

19m 5s

Following the repayment of our twenty twenty five notes and prepayment of our current term loan, we have less than $200,000,000 of debt obligations coming due until 2028. We will incur additional debt to fund the Lexmont acquisition, but the level of acquired EBITDA is expected to result in a lower pro form a debt leverage level. I will now hand the call over to John to discuss reinvention progress made in Q1 and provide an update on Lexmont acquisition.

19m 36s

Thank you, Steve. As Steve noted, we exhibited greater stability in our business this quarter.

19m 41s

With sales activity normalized and execution more balanced, our reinvention efforts have turned to the execution of more than 100 tactical initiatives to drive further revenue stabilization and improve profitability. These initiatives are grouped across four categories, geographic simplification, operational simplification, commercial optimization and growth, the realization of acquisition benefits. In this quarter, we made progress across each of these categories. The execution of our geographic simplification program is now largely complete. Bringing the total number of countries to 18 where direct operations were transitioned to partners. Our focus in these countries now turns to maximizing profitability, and the expansion of business with local and regional distribution partners. Our operational simplification efforts this quarter were focused on building scalable service capabilities within the global business service organization. That leverage technology to drive sustainable cost reductions throughout the organization. Examples this quarter included the creation of an enterprise wide contract life cycle management platform and the absorption of IT Savvy's people and IT operations functions. Steve addressed some of the sales productivity initiatives driving commercial optimization and growth and the quick wins associated with realizing the expected benefits of the IT Savvy acquisition. I'll spend a few minutes now providing an update on the pending acquisition of Lexmark.

21m 6s

We continue to make progress toward the closing of this acquisition We received several key regulatory approvals in the past few months, including clearance of HSR in The U. S, antitrust in UK and Canada, and most major EU countries. Remaining approvals are expected by the June. Outside of country specific approvals, the last significant condition to close is the nine star shareholder vote and Chinese Securities Exchange approval, both of which are expected to take place in the coming months. As previously disclosed, we secured 32% of the required shareholder vote as part of the acquisition agreement. We continue to expect over $1 share accretion associated with the Lexmark transaction despite a slightly higher than expected cost of funding and the potential for incremental tariff expenses. Importantly, based on U. S. Tariffs currently in place, we expect little to no product cost impact from tariffs on Lexmark's branded business within a few quarters of acquisition close. Lexmark has a large manufacturing facility in Juarez, Mexico that can support all expected imports of branded product into The U. S. Market on a USMCA compliant basis. In 2024, Lexmark exhibited growth on the top and bottom lines, confirming our acquisition thesis.

22m 24s

Revenue grew 9% through share gains in branded A3 and A four, and the expansion of its OEM business into the A3 category. Adjusted operating income grew nearly 40% in 2024, reflecting operating leverage and its own cost reduction and efficiency initiatives. We are actively engaged with the Lexmark team in integration planning and are excited to bring Lexmark's leading A four platform under the Xerox umbrella and help expand its A3 OEM business. Before I hand the call to Rolanda, I want to address Xerox exposure to tariffs on products imported into The U. S. Market. Xerox current exposure to purchase is subject to reciprocal tariffs in The U. S, excluding China, is less than 10% of total company cost of sales. Product purchases imported to The U. S. That are subject to China tariffs are expected to be limited to a low single digit percentage of total company cost of sales by the end of twenty twenty five. Plans are in place today to shift most China produced goods to countries with lower tariffs, Our print services and financing business, which is more than 60% of the total print revenue, has minimal reliance on imported products. In IT Solutions, tariff exposure varies by OEM partner and we expect associated costs to be passed through to end users through price increases or surcharges.

23m 51s

Given the fluid and uncertain nature of tariff policies and rate proposals, estimating Xerox ultimate exposure to tariff related costs remains difficult. That said, I'll provide some details to help frame our potential exposures in 2025. Based on tariffs in place on May 1, the expected reduction in operating income net of price and supply chain mitigation measures already in place or planned, would be around 50,000,000 in 2025. If China tariffs are reduced from 145% to 60%, we expect to be able to offset the impact of tariffs through a comprehensive set of price increases, surcharges, geographic rebalancing and supply chain related mitigation efforts as well as incremental reinvention related savings. This is a very fluid environment, and financial impacts are difficult to forecast we will do our best to share further forecasted impacts and our mitigation plans as they evolve. I'll now turn the call over to Miranda to discuss the financial results in more detail. Thank you, John, and good morning, everyone. As Steve noted, the cumulative effect of reinvention initiatives implemented to date resulted in an improved trajectory in revenue and another quarter of double digit declines in operating expenses, adjusting for reinvention costs and the inclusion of IT savvy.

25m 15s

In Q1, revenue declined 3% in actual currency or 1.1% year over year in constant currency including the benefit of a full quarter of IT savvy. Organic core revenue, which excludes IT Savvy, the impact of backlog fluctuations, and reinvention actions declined a little more than 2% in constant currency this quarter. An improvement over prior year's 4% pace of decline and in line with our expectations for core revenue declines for the year. The improved trajectory in core revenue primarily reflects lower declines in equipment sales and growth in legacy IT solutions bookings. Turning to profitability. Adjusted gross margins declined approximately two twenty basis points year over year reflecting higher product costs, the inclusion of IT savvy, lower print volumes, and finance receivable related fees and the initial impact of tariffs partially offset by reinvention savings. First quarter results do not include any benefits from tariff related price increases surcharges, or supply chain modifications. Which we expect will help offset tariff related product cost increases in future periods. Adjusted operating margin of 1.5% was 70 basis points lower year over year due to lower revenue and gross profit and higher advertising expense partially offset by reinvention savings lower bad debt expense, and the inclusion of IT savvy which carries a lower operating expense base than our print business.

26m 59s

A continued focus on cost reduction resulted in a decline in operating expenses of $26,000,000 Included in operating expenses are $9,000,000 of reinvention related costs and $12,000,000 of IT savvy operating expenses. Excluding these impacts, operating expenses declined 46,000,000 a reduction of 10% on a year over year basis. Adjusted other expenses net were $40,000,000 higher year over year due primarily to higher net interest expense. Adjusted tax rate of 60% compared to a negative 22% in the same quarter last year. The current year rate reflects lower benefits from certain current year losses and expenses whereas the prior year rate reflected tax benefits from the redetermination of certain unrecognized tax positions. Adjusted loss per share of $0 was $0.12 lower than prior year. Reflecting lower adjusted operating income higher interest expense and unfavorable currency. GAAP loss per share of $0.75 improved $0.19 year over year and includes a charge to tax expense related to the establishment of $59,000,000 in valuation allowances totaling $0.47 per share and after tax financing related charges associated with a recent debt offering of 14,000,000 zero one one dollars per share. The prior year quarter included after tax reinvention related charges of $100,000,000 or $0.81 per share.

28m 35s

Let me now review segment results. We have updated our segment reporting to reflect changes in our organizational structure and strategic priorities following the successful acquisition of IT Savvy in November 2024. Effective Q1 twenty twenty five. We introduced a new operating segment IT Solutions, to better reflect the contribution of IT Solutions to the long term growth of Xerox. This new segment includes IT savvy, as well as IT related products and services previously reported under the Print and Other segment. Our former XFS segment is now reported within Print and Other. Starting with print and other results. Q1 equipment sales of $284,000,000 declined 2.1% in actual currency and 0.7% in constant currency. A reduction in backlog in the current period offset the effects of free invention related actions, resulting in a normalized or core equipment decline of around 1% an improvement in trajectory over the prior year's core mid single digit pace of the client. And better than what we believe is the underlying rate of decline in the industry. For the third consecutive quarter, total equipment installations grew at a double digit pace and exceeded equipment revenue declines. Entry installations grew about 33% reflecting our efforts to gain share in the A four category.

30m 3s

Entry installations outpaced revenue growth due to higher mix of of low end product and sales through indirect channels. Mid range installations and constant currency equipment revenue both grew mid single digits aided by the global launch of our PrimeLink C9200 series. As a reminder, improved entry and midrange installations will support post sale trends in future periods. High end equipment installations and revenue both declined year over year reflecting the ongoing evolution of our production print portfolio and high end offering simplification actions taken last year. Brink post sale revenue of around 1,000,000,000 declined 11.2% in actual currency and 9.2% in constant currency Excluding the effects of reinvention actions, core print post sale revenue declined around 5% in constant currency reflecting lower supplies and page volumes offset by growth in digital services. Print segment adjusted gross margin of 31.4% declined 140 basis points year over year due to higher product costs lower print volumes and finance receivable related fees and the impact of tariffs partially offset by reinvention savings. Print segment margin of 3.2% declined 90 basis points due to lower revenue and gross profit partially offset by reinvention savings. Turning to IT Solutions. In Q1, IT Solutions revenue and gross profit increased more than 100% year over year reflecting the inclusion of IT Savvy in segment results.

31m 43s

Pro form a for the acquisition of IT Savvy IT Solutions gross billings a useful metric for understanding the volume of our business activity, and a metric used internally to manage performance increased slightly year over year. The increase in pro form a gross billing reflects growth infrastructure and networking products and associated advanced solutions offset by lower endpoints reflecting the timing of large deals in the prior year. Despite an increasingly uncertain operating environment, and elevated client caution observed at the end of the quarter, IT Solutions order activity in Q1 was strong. Pro form a gross bookings a measure of sign in activity, increased 30% year over year. With particular strength in infrastructure and networking endpoints and advanced solutions. Total IT solutions pipeline since the date of the acquisition increased 26% reflecting the same trend. An important contributor of expected growth for the IT Solutions business is the ability to grow IT Solutions penetration of Xerox existing print client base. Which is currently low single digits. Early gross sales traction is encouraging. In the first quarter, IT Solutions added more than 20 deals to its pipeline, sourced from existing print clients with a total sign in value of over 20,000,000 IT Solutions gross profit grew $18,000,000 and gross margin of 17.1% expanded two eighty basis points year over year due primarily to the inclusion of IT savvy which has a higher gross margin profile than the legacy IT Solutions business.

33m 28s

Segment profit grew $6,000,000 year over year, due to the inclusion of IT Savvy. As Steve noted, the vast majority of run rate synergies expected from IT Savvy acquisition have been implemented Accordingly, we expect IT Solutions segment profitability to expand throughout the remainder of the year. Let's now review cash flow. Operating cash flow was a use of $99,000,000 higher than the prior year quarter due to lower adjusted net income partially offset by lower incentive compensation payments. Lower proceeds from finance receivables were largely offset by improvements in working capital. Investing activity was a source of cash of 6,000,000 compared to a use of cash of $17,000,000 in the prior year. Due primarily to higher proceeds from the sale of assets. Free cash flow is a use of 109,000,000 compared to a use of $89,000,000 in the prior year. Reflecting the changes in operating cash flow previously noted and slightly higher capital expenditures. Q1 typically marks a seasonal low in free cash flow generation for Xerox so it is not uncommon for free cash flow to be negative in the first quarter of the year. We expect seasonal improvements in operating income continued working capital discipline and additional proceeds from finance receivables to deliver positive free cash flow in quarters two through four, with quarter four being our seasonally strongest quarter of free cash flow generation.

34m 59s

Importantly, in Q1, cash flow excluding the benefits of finance receivables improved more than $60,000,000 year over year reflecting working capital discipline partially offset by the items previously mentioned. Financing activity consumed $159,000,000 this quarter, reflecting $104,000,000 of net debt repayments dividends of 39,000,000 and $16,000,000 of other financing cash outflows. Moving to capital structure. We ended Q1 with $390,000,000 of cash, cash equivalents, and restricted cash. Total debt of 3,300,000,000.0 declined around hundred million dollars from Q4 levels due to the repayment of secured debt. Around $1,700,000,000 of the remaining $3,300,000,000 of outstanding debt supports our finance assets. With remaining core debt of $1,600,000,000 related to the non financing business. As Steve noted, we recently raised $800,000,000 of debt to repay $95,000,000 of our Term Loan B and the remaining portion of our 2025 notes due in August. As well as fund a portion of the Lexmark purchase price. Following the repayment of the 2025 notes due in August, and the prepayment of our term loan, we only have around $200,000,000 of debt coming due until August 2028. I'll now provide an update on reinvention savings. During the first quarter, we implemented initiatives with an expected $50,000,000 of incremental gross cost savings increasing the amount of expected gross cost savings from actions currently in place to around $225,000,000 full amount of which is expected to be realized by the end of twenty twenty six.

36m 48s

In addition, to a portion of the $175,000,000 of savings from actions not yet implemented. We continue to expect more than $100,000,000 of gross cost savings in 2025 and are regularly adding to our reinvention savings pipeline of more than $700,000,000 Finally, I will address guidance. Given the evolving and fluid nature of proposed tariff policies, and the uncertain impact of future policy outcomes on macroeconomic conditions we have not adjusted our full year outlook. As such, our guidance excludes the potential adverse effects of tariffs. And any associated impact on the economy. Guidance also excludes any impact from the pending acquisition of Lexmark. We see no discernible effect on demand from prevailing concerns about the economy, or the initial implementation of tariff related price increases. Therefore, we expect minimal tariff or macro related impacts to our financial results in Q2. In the second quarter, we currently expect a revenue decline in constant currency consistent with that of the first quarter. Due in large part to the mix of IT Solutions products and services expected to be built in Q2. Adjusted operating margin is expected to be between 44.5% lower than the prior year quarter to account for the phasing of tariff related price increases relative to costs incurred and the timing of reinvention savings.

38m 23s

For purposes of modeling adjusted earnings per share in quarter two, we expect a similar adjusted tax rate to that realized in Q1. Due to lower allowed deductions of certain expenses but no change in our cash taxes. In the second quarter, non financing interest expense net is expected to be slightly higher quarter over quarter. It is important to remember, our business is naturally hedged to short term fluctuations in demand. As more than 60% of Xerox revenues are derived from long term contracts and are suite of productivity solutions are designed to provide clients with IT related cost savings.

39m 5s

Further, free cash flow tends to fluctuate less than adjusted operating income, due to our ability to improve working capital and increase proceeds from finance receivables independently of operating results. We will provide updated 2025 guidance including a more refined view of tariff related impacts on full year results following the transaction close. To recap, a fluid tariff and trade policy environment has resulted in an increased level of near term operating uncertainty particularly as it relates to product costs and the potential impact of higher product and services prices on demand. We are working actively with supplier partners to minimize tariff related cost increases and will monitor client sentiment and demand in response to price increases and surcharges used to mitigate the potential financial impact of tariffs. We will manage through this period of uncertainty leveraging the improved operating flexibility predictability and cost efficiencies afforded by our reinvention strategy. We'll now open the line for Q and A. Thank you.

40m 24s

To withdraw your question, please press 11 again. Our first question comes from Ananda Baruah with Loop Capital. You may proceed. Hey, guys. Yeah. Good morning. Appreciate the questions, and and and all the helpful context, by the way. That was that that's that really covers a lot of the waterfront. So excuse me, let me just start with this. You're not seeing any discernible impact from macro yet. Are you getting, I guess, sort of conversationally, what is some of the some of the communications and messaging that that both your you know, sort of large corporate customers you guys deal with directly are conveying to you? And then what are the VARs telling you about SMB right now? So to say some of the underlying context. And then I have a quick follow-up. Thanks.

41m 21s

Sure. It's John. I'll kick it off and I'm sure Steve will add some commentary as well as we spent a lot of time with our teams in the field and with in front of our clients.

41m 32s

It's a volatile environment. People are monitoring and looking at everything. You are correct. We have not seen and did not see real impact in Q1 other than kind of the tail off that Marlon de mentioned with the fentanyl China tariffs and before our price increases and so forth went out to mitigate them.

41m 51s

Everyone is expecting similar type issues and everyone is in a similar boat. I would say that it was a more of an acute focus on some of the SMBs and others if they were dependent on previously, I'd say a month or so ago, DOGE and its related potential cuts in areas if they were funded government and other government related areas. That has died down quite a bit from where it was. We just saw people wondering am I gonna be funded for certain upgrades and so forth and little bit trepidation is to holding back as to whether or not they could move forward. But we've seen that begin to ease off a bit. It could heat up again, obviously, as these things are fluid and change, but that's kind of run the gamut. And And it's been very consistent between the reaction SMB as well as in enterprise. There's not been a discernible difference.

42m 41s

Yeah, I'll add a couple of things on the macro trends, As you think about just endpoints and PCs and the overall Windows 11 upgrade and AIPCs there's going to be a lot of spend in driving and refreshing those endpoints for security reasons. For productivity reasons. We're seeing more in putting the infrastructure inside of data centers that allow for the driving of AI implementation as customers are really trying to drive productivity. So we will see spending where it drives productivity and drives overall bottom line performance, as well as we'll see spending in areas where customers have to upgrade because of end of life or because of next generation Microsoft or next generation endpoint devices.

43m 27s

And just one point to make here is what we've seen in Nandar is yes, there's some delays, and that's what we meant when we said the softening. We have not seen cancellations as a result of what we are experiencing in the market right now.

43m 42s

Got it. That's all really great context. Appreciate that. And I guess my quick follow-up, it sounds like the IT savvy high level metrics sound sound, you know, really positive. Any underlying context you can share about you know, things that you did or that occurred as you continue to integrate you know, IT savvy into into the broader corporate processes would be would be helpful. Thanks.

44m 15s

Yeah, Nanda, we're very encouraged. We talked a little bit about this, the total TAM or the wallet share that we can go acquire by bringing IT Savvy's products and services into the existing account base that we have. Just to give you a data point, if we penetrate literally just 5% of our existing accounts today, with IT savvy and IT solutions we can double that business literally. That's the type of opportunity we have in front of us. We saw really good encouraging signs. We talked about the pipeline build Q1. We talked about the bookings in Q1. But more importantly, we're seeing the adoption of the conversations across our entire print sales team now having the conversations with our clients around what IT savvy can bring, what IT solutions can bring in the future. So we're excited about that penetration. We've got a big opportunity out there in terms of expanding our wallet share and existing accounts. The way, we're seeing it on the other side as well, where we have IT savvy having their clients now adopting and driving print initiatives. So clearly, the cross sell is going to work. We got a long way to go to get full penetration but the opportunity is very exciting.

45m 27s

We're starting to see early shoots of that. I will also indicate, during an integration, you normally see a slowdown and a pause of sales. We're actually seeing the opposite. We're seeing acceleration of pipeline, and we're seeing acceleration of book So we're very excited about what's going on right now.

45m 43s

And I'll add the color to that as to why. We talked about this previously. We did a reverse in this business. We acquired an outstanding team. The Chief Revenue Officer, the Chief Financial Officer, the CEO of the company, the the Head of Sales, the entire team has been incredibly effective and we put our business into their business and we've seen great collaboration between, as Steve pointed out, our print sales force and theirs. So, you know, other than coming together, they done a tremendous job and exceeded expectations with regard to the speed in which not only they executed the beginning parts of their synergy plans to control cost, but how collaboratively everyone is working to develop the pipeline Look, let's face it, print is not the sexiest thing to sell all the time to a CIO, as Steve pointed out many times over. We've been able to change the conversation and dialogue and really strengthen our digital services discussions, our print and document processing discussions and now IT solutions. So there's more relevance in the discussions and there's excitement in field to bring these teams together. And I'm very pleased with the alignment and the execution under that team in the reverse in the way we described it.

46m 52s

Working as planned. Remember we did a study when we talked about before we were going to get into this business, we went and we pulled all of our existing clients for propensity to buy Xerox IT solutions. Overwhelmingly, they said they trusted us. Right? And we're seeing that play out. They trust us in this environment. And they like what we're bringing to them as offerings going forward.

47m 16s

That's really great guys. I really appreciate it. Thanks.

47m 21s

Thank you.

47m 22s

Our next question comes from Eric Woodring with Morgan Stanley. You may proceed.

47m 28s

Hey, good morning, guys. Thank you for taking my questions.

47m 31s

Maybe the first one for you, Miranda, was just I understand you haven't necessarily seen an impact to demand and the tariff situation remains fluid. I'm just curious, the thought process behind maintaining full year guidance as we sit here today, just I think there's a perception that growth is slowing. I understand you have long term contracts, but at the same time, noted $50,000,000 net of potential tariff costs. That are not included in your guidance. And so just kind of given how your stock has performed why not set the bar lower rather than put potentially incur, you know, what I would call negative estimate revisions in the event tariff policy doesn't change and or demand slows. And then I have a follow-up, please. Thank you.

48m 27s

Eric, thank you for the question. So our thoughts around guidance is that, you know, as we mentioned, tariffs are not enacted, they're not final. They could change tomorrow. Our goal is to deliver and push for what we have put for ourselves to deliver for the year. So, maintained the guidance until the tariffs are final. We gave the impact, right? So, the investors have an idea as to what that would be. We felt that changing the guidance now while tariffs are so fluid it was very helpful for the investors and also for us to keep ourselves accountable and be able to deliver what we have planned for 2025 and beyond.

49m 9s

Okay. Okay. I appreciate that. And then my follow-up, and it could be for, you know, Steve, John, or you, Miranda, is just I appreciate the new disclosures on IT solutions. As we just think about the margin rates that we see for that business right now, realizing that you can gain benefits of scale, realizing that you should be able to capture synergies, as you've mentioned. How do I think if I look, you know, one, two, three years out for this business, how do I think about the gross and operating margin rate for your IT Solutions business? Where can they go to as you sit here today and think about the initiatives and growth opportunities you have in place? Thanks so much.

49m 53s

Yeah, thank you, Eric. A couple of things there. We'll look at, you know, how do we drive productivity and we can get to double digit operating profit in that space, right? Well, it's got lower margins, got lower SG and A. And lower costs. And so we're trying to drive that growth in that business and get to double digit operating profit. It has a lower SG and A. Remember, we'll be able to take that entire portfolio, run it through both our partner channel and our existing sales channel So we'll be able to hold our SG and A flat as we go drive the revenue on that business.

50m 26s

Yes. And we've discussed this in previous calls This is a business that you're absolutely correct from a gross margin perspective. Doesn't have the same type of ambition as we've had But for an operating profit, does because it's mix of services and the company that we acquired, it's not a reseller, it's more a value added reseller endpoints, although they're able to position and sell endpoints more profitably than Xerox has, which is part of the reverse part of this and deal with the full life cycle of those endpoints. Including reclamation. They've been able to get good gross margins competitive with print. In a commodity business in that space that runs aligned with the industry. And then on top of that, all the additional cloud based services and all the trajectory that Microsoft AI enabled PCs and security and all of that type of stuff that has very healthy operating margins associated with the flow through and that's where that mix within that business is positive as well as the overall mix shift of IT solutions to print. [indiscernible] on margins from Q1 data. Just you look at our growth in entry in A four, right? That has lower margins on the product sales.

51m 39s

But as you look at future quarters, we pull through supplies which has higher margins, And that's a very strategic tactical thing for us to go grow that entry, which you saw at 33% growth, in our entry, very strategic for us, and that will have higher margins in the future as we pull through supply of sales.

51m 59s

Awesome. Thanks, guys, for all the color, and good luck.

52m 2s

Thank you.

52m 4s

Thank you.

52m 5s

Our next question comes from Samik Chatterjee with JPMorgan. You may proceed. Hi, good morning and thanks for taking my question. I guess for the first one, if I can ask on wholesale, and I'm looking at the Q1 performance there, where in constant currency, the decline was about 9%. And I know you don't really break out the impact of non strategic revenue and other reinvention items to post sales specifically. But just looking just looking directionally, it looks like a mid single digit decline at least. Maybe if you can talk about the drivers there in terms of what's what are you seeing in terms of the what's driving the decline on the on an organic basis in that post sale revenue, where do you expect to exit the year? And in relation to sort of stabilization trends, what you're seeing on that wholesale revenue, particularly given that you have No.

52m 55s

You're you're a % correct. Yes, the decline in core print sale revenue does reflect lower supplies managed print volumes and most of that has to do with just the number of machines because that is all derived by price per page, number of pages printed, number of machines in field. And as of course, we normalize and rationalize that part of it out through the reinvention, that's exactly correct is what you saw is the 9.2% constant currency, 11.2% in actual currency. Though we expect that corporate post sale trend to improve, they're going to improve following a lot of the extended period of installation growth that we've had Steve just pointed out entry mid supplies typically lag about six to nine months. Then the services myth follows after that. So that's that will stabilize and continue to improve.

53m 40s

Yeah, and Samik in relation to just print and other segment, it relates to post sale there and revenue. You asked about the one off items. If you were to exclude the backlog reinvention and intentional reduction reduction of non strategic revenue that we took in 2024, that impact would be about 4% decline. So, constant currency 7.6% excluding the impacts 4% decline. The trajectory is expected to improve and John mentioned all the reasons around supplies around the installation base that has been growing double digits in the last three quarters and post sales usually follow six to nine months after those installations.

54m 25s

Got And quickly for my follow-up. I You mentioned in the prepared remarks that free cash flow is more resilient than the operating profit performance. And you mentioned sort of the sort of pull the lever on finance receivables. Can you just outline in terms of maintaining the free cash flow guide for the year, what you're seeing in terms of core cash flow from the business relative to what are the incremental changes you're making on the finance receivables? That's enabling you to maintain the free cash flow guide Yeah. So as it relates [indiscernible] maintain the outlook and we're not included in impacts of tariffs there. But as it relates to the cash flow for 2025, when we guided, we said our free cash flow will be between $350,000,000 and $400,000,000 and that would be lower than the prior year.

55m 28s

Improved adjusted operating income and working capital. We still expect those to be the same in 2025. Now, beyond 2025, from a trend perspective, we expect our free cash flow to approach historical ranges of about 40% of adjusted operating income. And as that operating operating income improves and working capital headwinds and reinvention abate, you'll see those results improving as it relates to the free cash flow. Lexmark acquisition just wanted to put it out there and bring it to everybody's top of the inbox as expected to be accretive immediately as it relates to free cash flow with accretion of the $200,000,000 of synergies that are realized within a two year period. Okay. Maybe if I can just sneak in a quick clarification here. So in terms of the finance receivables and the benefit from that to free cash flow, that's largely unchanged relative to your prior for 2025? That's correct. Okay, thank you. That's correct. The Q1, we're starting Q1, it's slightly lower than expected, but full year we expect to have the same benefit from finance receivables in 2025.

56m 40s

Thank you. Thanks for taking my questions. Thank you. I would now like to turn the call back over to Steve Bandurzak for any closing remarks.

56m 50s

Recapping today's call.

56m 52s

Improved execution and cumulative benefits of reinvention actions taken to date drove stabilization in revenue and a double digit reduction in operating expense for the quarter. Overall revenue mix continues to improve led by growth in A four equipment and IT solutions. As we progress through the remainder of the year, we will continue to focus on what we can control and adapt as needed to changes in tariff policies. Dependent acquisition of Lexmont is expected to further strengthen the momentum we currently see in operating results and contribute to our target of sustainable growth in revenue and adjusted operating income and free cash flow. Thank everybody for joining today's earnings call. Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Key Insights

Q1 2025 revenue was approximately $1.5 billion, down 3% in actual currency and 1.1% in constant currency, with adjusted operating income margin at 1.5%, 70 basis points lower year over year; free cash flow was a use of $109 million.
Reinvention initiatives and the IT Savvy acquisition are delivering benefits: sales force productivity improved 13% YoY, equipment installation grew 24% (third consecutive quarter of double-digit growth), and cross-sell opportunities between print and IT solutions are ahead of plan.
The integration of IT Savvy is ahead of schedule, with most run-rate synergies already implemented; Lexmark acquisition is expected to close in the coming months, with over $1/share accretion anticipated and minimal tariff impact due to manufacturing shifts.
Print segment saw equipment sales decline 0.7% in constant currency, but entry-level installations grew 33%; core print post-sale revenue declined ~5% in constant currency, with stabilization expected as recent installation growth pulls through.
Full-year guidance is maintained (excluding potential tariff and Lexmark impacts): Q2 revenue decline expected to be consistent with Q1, adjusted operating margin to be 4-4.5% lower YoY, and free cash flow guidance remains $350–400 million; over $100 million in gross cost savings targeted for 2025 from reinvention actions.

Recent Transcripts

Revenue declined 3%, but expense reductions and IT Solutions growth improved trajectory.

Xerox delivered on cost savings and reinvention goals despite a 9.7% revenue decline in 2024.

Income Statement

Revenue

	2020	2021	2022	2023	2024
Revenue	$7B	$7B	$7.1B	$6.9B	$6.2B
Cost of Revenue	$4.4B	$4.6B	$4.8B	$4.6B	$4.3B
Gross Profit	$2.6B	$2.4B	$2.3B	$2.3B	$2B
Gross Profit %	37%	34%	33%	34%	32%
R&D Expenses	$311M	$310M	$304M	$229M	$191M

2020

2021

2022

2023

2024

Revenue

$7B

$7.1B

$6.9B

$6.2B

Cost of Revenue

$4.4B

$4.6B

$4.8B

$4.6B

$4.3B

Gross Profit

$2.6B

$2.4B

$2.3B

$2B

Gross Profit %

37%

34%

33%

34%

32%

R&D Expenses

$311M

$310M

$304M

$229M

$191M

Cash Flow

Net Income

	2020	2021	2022	2023	2024
Net Income	$192M	-$455M	-$322M	$1M	-$1.3B
Dep. & Amort.	$368M	$327M	$270M	$251M	$274M
Def. Tax	$34M	-$89M	-$27M	-$68M	$90M
Stock Comp.	$42M	$54M	$75M	$54M	$52M
Chg. in WC	-$130M	$123M	-$172M	$252M	$278M

2020

2021

2022

2023

2024

Net Income

$192M

-$455M

-$322M

$1M

-$1.3B

Dep. & Amort.

$368M

$327M

$270M

$251M

$274M

Def. Tax

$34M

-$89M

-$27M

-$68M

$90M

Stock Comp.

$42M

$54M

$75M

$54M

$52M

Chg. in WC

-$130M

$123M

-$172M

$252M

$278M

Balance Sheet

Cash

	2020	2021	2022	2023	2024
Cash	$2.6B	$1.8B	$1B	$519M	$576M
ST Investments	$0	$0	$0	$0	$0
Cash & ST Inv.	$2.6B	$1.8B	$1B	$519M	$576M
Receivables	$2.1B	$2B	$2B	$1.8B	$1.5B
Inventory	$843M	$696M	$797M	$661M	$695M

2020

2021

2022

2023

2024

Cash

$2.6B

$1.8B

$1B

$519M

$576M

ST Investments

Cash & ST Inv.

$2.6B

$1.8B

$1B

$519M

$576M

Receivables

$2.1B

$2B

$1.8B

$1.5B

Inventory

$843M

$696M

$797M

$661M

$695M

Go Deeper

Financial information provided by Financial Modeling Prep. Options data provided by Unusual Whales. Live transcripts provided by Quartr. Reported revenue and EPS data from Earnings powered by FinChat.io. All data is provided for informational purposes only, and is not intended for trading purposes or financial, investment, tax, legal, accounting or other advice.

Market Cap: $565M
IPO Date: 4/17/36
CEO: Mr. Steven John Bandrowczak B.S., M.S.
Fulltime Employees: 18K
Sector: Technology
Industry: Information Technology Services
Country: US
Exchange: NASDAQ Global Select

Peers

ExlService Holdings, Inc.

Computer Task Group, Incorporated

Jack Henry & Associates, Inc.

$182.00

JKHY

0.09%

Cognizant Technology Solutions Corporation

Broadridge Financial Solutions, Inc.

$236.97

0.45%

Kyndryl Holdings, Inc.

BigBear.ai Holdings, Inc.

Fidelity National Information Services, Inc.

$78.22

FIS

0.15%

Leidos Holdings, Inc.

Watchlist

Earnings

Report Date

May 1, 2025

Reported Revenue

1.5B

Miss -2.96%

Avg 1d Change

8.23%

Report Period

Q1 2025

Reported EPS

-0.06

Miss -20%

Implied Move 1d

16.87%

Transcript

9m 46s

10m 42s

Good morning, and thank you for joining our Q1 twenty twenty five earnings conference call.

10m 48s

12m 31s

14m 10s

15m 47s

17m 22s

19m 5s

19m 36s

Thank you, Steve. As Steve noted, we exhibited greater stability in our business this quarter.

19m 41s

21m 6s

22m 24s

23m 51s

25m 15s

26m 59s

28m 35s

30m 3s

31m 43s

33m 28s

34m 59s

36m 48s

38m 23s

39m 5s

40m 24s

41m 21s

Sure. It's John. I'll kick it off and I'm sure Steve will add some commentary as well as we spent a lot of time with our teams in the field and with in front of our clients.

41m 32s

41m 51s

42m 41s

43m 27s

43m 42s

44m 15s

45m 27s

45m 43s

46m 52s

47m 16s

That's really great guys. I really appreciate it. Thanks.

47m 21s

Thank you.

47m 22s

Our next question comes from Eric Woodring with Morgan Stanley. You may proceed.

47m 28s

Hey, good morning, guys. Thank you for taking my questions.

47m 31s

48m 27s

49m 9s

49m 53s

50m 26s

51m 39s

51m 59s

Awesome. Thanks, guys, for all the color, and good luck.

52m 2s

Thank you.

52m 4s

Thank you.

52m 5s

52m 55s

53m 40s

54m 25s

55m 28s

56m 40s

Thank you. Thanks for taking my questions. Thank you. I would now like to turn the call back over to Steve Bandurzak for any closing remarks.

56m 50s

Recapping today's call.

56m 52s

Key Insights

Q1 2025 revenue was approximately $1.5 billion, down 3% in actual currency and 1.1% in constant currency, with adjusted operating income margin at 1.5%, 70 basis points lower year over year; free cash flow was a use of $109 million.
Reinvention initiatives and the IT Savvy acquisition are delivering benefits: sales force productivity improved 13% YoY, equipment installation grew 24% (third consecutive quarter of double-digit growth), and cross-sell opportunities between print and IT solutions are ahead of plan.
The integration of IT Savvy is ahead of schedule, with most run-rate synergies already implemented; Lexmark acquisition is expected to close in the coming months, with over $1/share accretion anticipated and minimal tariff impact due to manufacturing shifts.
Print segment saw equipment sales decline 0.7% in constant currency, but entry-level installations grew 33%; core print post-sale revenue declined ~5% in constant currency, with stabilization expected as recent installation growth pulls through.
Full-year guidance is maintained (excluding potential tariff and Lexmark impacts): Q2 revenue decline expected to be consistent with Q1, adjusted operating margin to be 4-4.5% lower YoY, and free cash flow guidance remains $350–400 million; over $100 million in gross cost savings targeted for 2025 from reinvention actions.

Earnings

Report Date

Reported Revenue

Avg 1d Change

Report Period

Reported EPS

Implied Move 1d

Transcript

Key Insights

Recent Transcripts

Income Statement

Cash Flow

Balance Sheet

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Recent Transcripts

Earnings

Report Date

Reported Revenue

Avg 1d Change

Report Period

Reported EPS

Implied Move 1d

Transcript

Key Insights