Xerox Holdings Corporation (XRX) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights several negative aspects: a significant decline in revenue and free cash flow, lower operating margins, and increased losses per share. Although there are positive elements like acquisitions boosting certain segments, the Q&A reveals concerns about memory cost impacts and vague management responses on risk mitigation. The strategic guidance also reflects lower future expectations. Given these factors, the stock is likely to experience a negative reaction, particularly as a small-cap stock with a market cap of $1.5 billion.
Key Financial Performance
Revenue (Q4 2025) $2.03 billion, increased roughly 26% in actual currency and 24% in constant currency year-over-year. Pro forma for acquisitions, revenue declined 9%. The increase was due to the inorganic benefits of the Lexmark and ITsavvy acquisitions.
Adjusted Operating Income Margin (Q4 2025) 5%, lower year-over-year by 140 basis points. The decline was driven by higher tariff costs and increased product costs.
Free Cash Flow (Q4 2025) $184 million, a decrease of $150 million year-over-year. The decline was attributed to lower net income, lower proceeds from finance receivable sales, and working capital timing.
Adjusted Loss Per Share (Q4 2025) $0.10, decreased by $0.46 year-over-year. The decline was primarily due to higher interest expenses.
Revenue (Full Year 2025) $7.02 billion, increased roughly 13% in actual currency and 12% in constant currency year-over-year. Excluding acquisitions, revenue declined approximately 8%. The increase was driven by the Lexmark and ITsavvy acquisitions.
Adjusted Loss Per Share (Full Year 2025) $0.60, $1.57 lower year-over-year. The decline was due to higher interest expenses and other financial impacts.
Free Cash Flow (Full Year 2025) $133 million, $334 million lower year-over-year. The decline was due to lower net income, lower proceeds from finance receivable sales, and working capital timing.
Adjusted Operating Income Margin (Full Year 2025) 3.5%, lower year-over-year by 140 basis points. The decline was driven by higher tariff costs and increased product costs.
Print and Other Equipment Revenue (Q4 2025) $485 million, up 23% as reported or 21% in constant currency year-over-year. Pro forma, equipment revenue declined approximately 10%. The increase was due to Lexmark's contribution, while the decline was due to reinvention-related actions and other onetime items.
Print Post-Sale Revenue (Q4 2025) $1.39 billion, up 25% as reported and 23% in constant currency year-over-year. Pro forma, post-sale revenue declined 9%. The increase was due to Lexmark's contribution, while the decline was due to reinvention effects.
IT Solutions Revenue (Q4 2025) Increased 39% year-over-year, reflecting the inclusion of ITsavvy for the entire quarter. Pro forma gross billings increased 13% year-over-year.
IT Solutions Gross Profit (Q4 2025) $36 million, with gross margin of 22.7%, up 610 basis points year-over-year. The increase was due to ITsavvy's contribution.
IT Solutions Segment Profit (Q4 2025) Grew $9 million year-over-year, with profit margin reaching 5.8%. The increase was due to ITsavvy's contribution and cost structure improvements.
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Operating Highlights
AI-powered service agents: Introduced across XBS U.S. and Latin America, handling thousands of real customer interactions via chat and voice, leveraging prior service cases, engineering content, and large language models to deliver immediate support. Resulted in higher success rates, reduced waiting times, and improved customer experience at lower costs.
Xerox TriShield 360 Cyber Solution: Launched as a holistic cybersecurity offering targeted specifically for SMBs, built upon Palo Alto Networks' advanced detection technology, continuous monitoring and response platform, and cyber insurance coverage. Designed to offer enterprise-grade security for SMBs.
Lexmark-produced A3 devices: Rolled out in Eastern Europe with positive channel reaction due to better features and design innovation focused on serviceability and reliability. A larger global rollout is planned for 2026.
Unified Xerox Lexmark sales organization: Expected to drive market expansion and better integration of offerings.
Morrisons partnership: Secured a global first joint win with Morrisons, expanding Xerox's relationship with the U.K. grocery retailer. Includes operational print infrastructure, customer marketing communications, and adoption of Go Inspire platform for targeted customer engagement.
RJ Young partnership: Extended Xerox portfolio with RJ Young's service capabilities to their customer base, stemming from an existing Lexmark partnership.
AI-driven analytics: Utilized to protect supplies business by identifying counterfeit and third-party activity, strengthening supply chain integrity and customer trust.
Global Business Services organization: Streamlined centralized operating processes, leveraging AI capabilities to lower operating costs and improve quality.
Cost rationalization: Achieved through Lexmark acquisition synergies and reinvention program, targeting $1 billion+ profit improvement.
IT Solutions business: Strategically positioned for growth through differentiated platforms like the network operating center, delivering scalable AI-enabled automation and operational intelligence.
Reinvention priorities: Focused on integration execution and building durable transformation capabilities through the Enterprise Transformation Office.
Debt reduction strategy: Prioritized using excess free cash flow to repay debt, with a medium-term target of approximately 3x trailing 12 months EBITDA.
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Risk or Challenges
Macroeconomic Challenges: Continued macroeconomic headwinds, including tariff and government funding-related uncertainty, are impacting transactional print equipment sales and overall business trends.
Revenue Decline: Pro forma revenue declined 9% in Q4 2025 and 8% for the year, excluding acquisition benefits, indicating challenges in organic growth.
Free Cash Flow Decrease: Free cash flow decreased by $150 million in Q4 2025 and $334 million for the year, reflecting financial pressures.
DRAM Price Spike: Recent increases in DRAM prices are affecting costs across storage, servers, endpoints, and networking equipment, particularly impacting the IT Solutions business.
Tariff Costs: Higher tariff costs negatively impacted adjusted gross margin by 160 basis points in Q4 2025.
Product Cost Increases: Increased product costs reduced adjusted gross margin by 160 basis points in Q4 2025.
Delayed Enterprise Deals: Delays in enterprise deals due to memory price spikes have impacted revenue in the IT Solutions segment.
Supply Chain Disruptions: Supply chain issues, including elevated backlog and delays in federal and SLED orders, are affecting equipment revenue and operational efficiency.
Debt Levels: High debt levels, with gross leverage at 6.7x trailing 12 months EBITDA, pose financial risks.
Regulatory and Policy Uncertainty: Ongoing macro and policy-related uncertainty, including budget-related delays, is affecting revenue and operational planning.
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Guidance & Outlook
Revenue Expectations: For 2026, Xerox expects greater than $7.5 billion in revenue, representing approximately 7% growth versus 2025, inclusive of a full year of Lexmark. Organic year-over-year revenue performance is expected to improve as headwinds dissipate and tailwinds materialize.
Margin Projections: Adjusted operating income is projected to be in the range of $450 million to $500 million, an increase of more than $200 million versus 2025. This is driven by $150 million to $200 million of integration synergies and $100 million of reinvention savings.
Capital Expenditures and Free Cash Flow: Free cash flow is expected to be approximately $250 million, driven by higher adjusted operating income, partially offset by higher interest expense and reduced forward flow benefits. Free cash flow assumes roughly $335 million of forward flow benefits.
Market Trends and Business Segment Performance: Xerox anticipates growth within IT Solutions, supported by a strong pipeline and increased bookings, billings, and backlog. The company expects tailwinds from new product launches, a fully integrated IT solutions organization, and a unified Xerox Lexmark sales organization. Tariffs are expected to be a profit headwind in the first half of 2026 but a tailwind in the second half as A3 production shifts in-house. Memory price increases are expected to offset some benefits.
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Shareholder Return Plan
Special Pro Rata Distribution of Warrants: Xerox announced a special pro rata distribution of warrants to holders of Xerox common stock, preferred stock, and convertible notes. For holders as of the record date, February 9, Xerox will issue 1 warrant for every 2 shares held. These warrants will be tradable and exercisable with cash or certain debt instruments at face value. The issuance is intended as a balance sheet-friendly way to reward shareholders and provides bondholders the optionality to participate in Xerox equity.
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Key Q&A
Q:Are things back to normal order-wise post government shutdown?
A:Yes, the portfolio has allowed for a broader TAM, and there are opportunities to bring more products and services into state, federal, and local government. The strategy with ITsavvy and Lexmark acquisitions is working, and there are opportunities even in areas with spending slowdowns.
Q:What is the impact of memory on ITsavvy and the Print business?
A:Memory impacts both IT services and print industries with uncertainty in pricing and availability. The company is helping clients extend product life and move to SaaS platforms. The print business had little impact in the first half of the year, but the second half remains uncertain.
Q:Are you seeing elasticity headwinds from rising memory costs, and how are you managing margins?
A:The industry is uncertain about pricing and availability. The company is working with suppliers and clients to optimize ROI and navigate supply chain challenges. They are extending warranties, services, and shifting product mixes to manage the situation.
Q:How is Xerox prioritizing reinvention, acquisitions, and managing leverage amidst a volatile macro environment?
A:The reinvention strategy and acquisitions of ITsavvy and Lexmark are working. The company has a unified enterprise transformation office managing all work streams. They are integrating AI technologies and focusing on cultural synergy among assets. Execution is on track, and guidance for 2026 reflects confidence in the strategy.
Q:How is Xerox protecting against risks in IT services due to memory price inflation?
A:The company is helping clients extend asset life, shift to SaaS platforms, and navigate memory price increases. They are confident in their product portfolio and infrastructure to manage these challenges, despite uncertainties in pricing.
Q:What are the assumptions behind the operating cash flow to free cash flow bridge for 2026?
A:The bridge assumes higher EBITDA driven by operating income increases of $225-$250 million, offset by lower finance receivables. Other factors include higher cash taxes, higher interest, and less restructuring.
Q:How does Xerox plan to manage finance receivable sales in 2026?
A:The company plans $335 million in finance receivable sales, with a target balance sheet of $1 billion by year-end 2026. Most sales are expected in the second half of the year.
Q:What progress has been made in cross-selling and what are the milestones for 2026?
A:Xerox is leveraging existing client relationships to cross-sell IT solutions. They are targeting mid-market clients and expanding their portfolio with products like CybersShield. The go-to-market strategy focuses on integrating IT solutions with existing print and security offerings.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the potential elasticity headwinds from rising memory costs and provided vague responses about navigating uncertainties in pricing and availability. Additionally, the response to how they would protect against risks in IT services due to memory price inflation lacked specific details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
ETO
ITsavvy
Inspire
Officer Butler
President Investor
RJ Young
Senior Vice
account
addition
agent
agreement
analytics
automation
center
communication
confidence
credit
currency benefit
customer experience
cyber
device
disruption
excellence
flow debt
forma
government
hundred
interaction
launch
leader
marketing
office
reinvention
release
resilience
response
security
site
spike
store
stream
tariff
thousand
win
XRX Transcript
Xerox Holdings Corporation (XRX) Q4 2025 Earnings Call Transcript
Unknown1-29
The earnings call highlights several negative aspects: a significant decline in revenue and free cash flow, lower operating margins, and increased losses per share. Although there are positive elements like acquisitions boosting certain segments, the Q&A reveals concerns about memory cost impacts and vague management responses on risk mitigation. The strategic guidance also reflects lower future expectations. Given these factors, the stock is likely to experience a negative reaction, particularly as a small-cap stock with a market cap of $1.5 billion.
Xerox Holdings Corporation (XRX) Q3 2025 Earnings Call Transcript
Unknown10-30
Despite strong revenue growth due to acquisitions, the company faces challenges such as declining pro forma revenue, increased debt, and lower margins. The Q&A highlighted concerns about government shutdowns, tariff impacts, and competitive pressures, with management providing vague responses. While there are positive aspects like IT growth and cost synergies, the overall sentiment is negative, especially given the high debt and macroeconomic uncertainties. The market cap suggests moderate volatility, leading to a likely negative stock price movement of -2% to -8%.
Xerox Holdings Corporation (XRX) Q2 2025 Earnings Call Transcript
Unknown8-1
The earnings call reflects several negative factors: a dividend reduction to manage debt, a significant decline in adjusted operating income margin and gross margin, and an adjusted loss per share. Despite strong IT Solutions growth due to ITsavvy, core segments like equipment and print post-sale revenue declined. The Q&A highlighted concerns about DOGE-related issues, tariff impacts, and unclear management responses. Additionally, the weak guidance and intentional product declines suggest a cautious outlook. Given the market cap, these factors are likely to result in a negative stock price reaction.
Xerox Holdings Corporation (XRX) Q1 2025 Earnings Call Transcript
Unknown5-1
The earnings call reveals mixed results: strong IT Solutions growth and improved sales force productivity are positives, but declining margins, higher losses, and cautious SMB sentiment offset these gains. The Q&A section highlights management's optimism about ITsavvy integration but also reveals concerns about post-sale revenue decline and vague responses on tariffs. With a market cap of $1.5 billion, these mixed signals suggest a neutral stock movement, as positive and negative factors balance each other out.
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Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
