Xerox Holdings Corporation (XRX) Q1 2026 Earnings Call Transcript
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Overview
The earnings call summary reflects strong financial performance, with significant growth in equipment revenue and IT solutions gross billings. Positive factors include a 33% increase in equipment revenue, a 21% growth in IT solutions billings, and improved margins. Despite some concerns about cash flow and memory costs, the optimistic guidance and strategic focus on profitability and leverage reduction are promising. The market cap suggests moderate price sensitivity, leading to a positive prediction of 2% to 8% stock price increase over the next two weeks.
Key Financial Performance
Revenue Revenue of $1.85 billion increased nearly 27% in actual currency and 24% in constant currency year-over-year, reflecting the inorganic benefits of the Lexmark acquisition. On a pro forma basis, revenue declined 4%. The improvement was attributed to the Lexmark acquisition and a pull-forward of post-sale revenue, primarily in supplies, driven by customer and channel concerns around potential supply disruptions related to the conflict in the Middle East.
Adjusted Operating Margin Adjusted operating margin of 3.9% was up 240 basis points year-over-year on a reported basis and was also up on a pro forma basis. This improvement reflects cost discipline and integration synergies.
Print Segment Equipment Revenue Equipment revenue was $378 million, up 33% as reported or up 31% in constant currency year-over-year. On a pro forma basis, equipment revenue declined 2%, driven by stronger year-over-year trends at both legacy Xerox and Lexmark and fewer one-time headwinds.
Print Post-Sales Revenue Print post-sales revenue was $1.31 billion, up 30% as reported and up 27% in constant currency year-over-year. On a pro forma basis, print post-sale revenue declined 4%, mainly due to lower financing income and service rental and other declines within legacy Xerox.
IT Solutions Gross Billings Gross billings grew 21% year-over-year. Total bookings increased 32% year-over-year. The growth was attributed to cross-selling into the existing Xerox Print client base and strategic investments in the sales and delivery organization.
Adjusted Gross Margin Adjusted gross margin was 30.3%, up 60 basis points year-over-year, driven by Lexmark's contribution and transformation benefits, partially offset by increased product costs and declines in high-margin finance-related fees.
Segment Profit for IT Solutions Segment profit was $6 million with a profit margin of 3.9%, up 80 basis points year-over-year. This was driven by higher gross profit, changes in revenue mix, and synergies, partially offset by higher memory costs and investments in technical talent.
Operating Cash Flow Operating cash was a use of $144 million compared to a use of $89 million last year, reflecting the inclusion of Lexmark, lower proceeds from finance receivable sales, and working capital timing.
Free Cash Flow Free cash flow was a use of $165 million for the quarter, down $56 million year-over-year, attributed to seasonal cash flow patterns and the inclusion of Lexmark.
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Operating Highlights
Proficio Production Devices: Strong demand for the new production devices developed in partnership with Fujifilm, tracking well ahead of plan.
Xerox PrimeLink Printers: Toshiba Americas added Xerox PrimeLink color and monochrome light production printers to their portfolio, validating the competitiveness of Xerox's production portfolio.
Partnership Expansion: Actively seeking to expand distribution reach through partnerships with other OEMs, as demonstrated by the Toshiba Americas partnership.
IT Solutions Growth: Bookings grew 32%, billings grew 21%, and the total contract value of new deals continues to rise, with more managed services contracts being won.
Cost Discipline: Eliminated the President and COO role to reflect cost discipline and operational efficiency.
Revenue Stabilization: Focused on stabilizing revenue through better products, reduced manufacturing costs, stronger routes to market, and improved service offerings.
Manufacturing Control: Taking greater ownership of product design and manufacturing to strengthen control over quality, cost, and speed to market.
Debt Reduction: Prioritizing debt reduction through EBITDA growth and continued debt paydown, with leverage expected to decrease significantly by year-end 2026.
Integration of Lexmark: Integration of Lexmark expected to deliver $150 million to $200 million in savings in 2026, contributing to long-term profitability.
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Risk or Challenges
Memory lead times and prices: Extended memory lead times and higher memory prices are compressing margins in the IT Solutions business, creating near-term pressure on profit expansion.
Increased product costs: Higher memory, toner, plastic, and metal prices, as well as transportation costs, are negatively impacting the cost structure.
Debt and leverage: The company has a high gross leverage of 7x trailing 12 months EBITDA, with significant debt levels impacting financial flexibility.
Supply chain disruptions: Potential supply disruptions related to the Middle East conflict have caused customer and channel concerns, leading to revenue pull-forwards.
Economic and geopolitical risks: Higher oil prices and exposure to international markets affected by the Middle East conflict are creating cost pressures and uncertainties.
Regulatory and tax challenges: The company faces unusual tax rates due to valuation allowances against deferred tax assets, which do not generate corresponding tax benefits.
Secular headwinds in the print market: The $50 billion print market is facing secular declines, posing challenges to revenue stabilization.
Integration and transformation costs: The integration of Lexmark and ongoing transformation efforts are creating short-term cost pressures, although they are expected to yield long-term benefits.
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Guidance & Outlook
Revenue Expectations: Reaffirmed 2026 financial guidance with revenue expected to exceed $7.5 billion. Positive revenue trajectory driven by Lexmark acquisition and growth in IT solutions and digital services.
Profitability Projections: Adjusted operating income expected to range between $450 million to $500 million in 2026, reflecting $150 million to $200 million of integration synergies and $100 million of transformation savings. Long-term goal of achieving double-digit operating margins.
Free Cash Flow: Free cash flow guidance for 2026 is approximately $250 million, with over $400 million expected to be generated in the remainder of the year.
Cost Savings: Incremental savings of $250 million to $300 million expected in 2026, including $150 million to $200 million from Lexmark integration. Cost actions to benefit into 2027 and beyond.
Debt Reduction: Leverage ratios expected to improve significantly by year-end 2026, with gross leverage dropping to 5.6x and net leverage to 4.5x trailing 12 months EBITDA.
Market Trends and Business Segments: Growth expected in entry and production print markets, IT solutions, and digital services. Continued investments in technical talent and partnerships to expand market reach.
Operational Changes: Focus on stabilizing revenue, increasing profitability, and reducing leverage. Enhanced go-to-market strategy and greater control over product design and manufacturing to improve gross margins later in 2026.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is new in the company's strategy and focus?
A:The strategy is already in place and does not need to change. The new aspect is the increased rigor and focus on three priorities: stabilizing revenue, expanding profitability, and reducing leverage.
Q:How should we think about the midrange market and its role in the company's strategy?
A:The midrange market is the most challenged but remains profitable and a core component of managed print services. The focus is on growth areas like entry and production, with midrange playing a role where relevant as part of a holistic solution.
Q:What is the impact of extended memory lead times on profitability?
A:Memory impacts both IT Solutions and print segments differently. In IT Solutions, it slows customer buying patterns, but costs are largely passed to customers. In print, it increases costs, especially for higher-end products. The current forecast accounts for these factors, including macroeconomic conditions.
Q:How do the new initiatives and approaches differ from prior management?
A:The focus remains on the three priorities: stabilizing revenue, expanding profitability, and reducing leverage. The emphasis is on ensuring everyone is focused, empowered, and accountable for delivering results.
Q:What are the drivers of quarter-to-quarter improvement in print profit margins?
A:The improvement is largely due to acquisition and synergy cost savings.
Q:What is the expected quarterly cadence for operating margins and the factors driving changes?
A:Operating margins are expected to expand each quarter, peaking in Q4 due to seasonality and realization of synergy savings. The scale of business increases throughout the year, with Q4 being the largest revenue quarter.
Q:How does seasonality affect revenue and cash flow in the two segments?
A:Revenue seasonality varies, with Q4 typically being the largest revenue quarter. IT Solutions sees its biggest traction in Q3. Operating cash flow is lower in Q1 due to working capital drag and higher in Q4 due to increased revenue and better working capital.
Q:How do billings and bookings translate into revenue for IT Solutions?
A:Billings and bookings indicate growth with clients and profitability. Gross billings do not always directly translate to revenue due to customer and product mix, but they reflect operational health and wallet share.
Q:What are the company's hiring plans for IT Solutions?
A:The company continues to invest in hiring talent for IT Solutions to stabilize revenue and ensure it becomes a growth engine.
Q:Review of Unclear Management Responses
A:Management avoided providing granular details on how new initiatives differ from prior management's approaches, focusing instead on reiterating the three priorities. Additionally, responses about the impact of memory lead times and seasonality lacked specific numerical data or detailed explanations.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America Western
Americas addition
COO role
Holdings Release
President COO
Release Conference
Senior Vice
TPG venture
accountability
challenge
client partner
client relationship
contract
cost discipline
cost structure
coverage
deal
design
development
engagement
entry
forma basis
leverage priority
manufacturing control
memory price
model ownership
overlap
partnership
plan
pressure
print market
profitability leverage
route market
service offering
speed
trajectory
work
XRX Transcript
Xerox Holdings Corporation (XRX) Q1 2026 Earnings Call Transcript
Positive5-1
The earnings call summary reflects strong financial performance, with significant growth in equipment revenue and IT solutions gross billings. Positive factors include a 33% increase in equipment revenue, a 21% growth in IT solutions billings, and improved margins. Despite some concerns about cash flow and memory costs, the optimistic guidance and strategic focus on profitability and leverage reduction are promising. The market cap suggests moderate price sensitivity, leading to a positive prediction of 2% to 8% stock price increase over the next two weeks.
Xerox Holdings Corporation (XRX) Presents at Morgan Stanley Technology, Media & Telecom Conference 2026 Transcript
Neutral3-2
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%.
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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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No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
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.
