Q2 2025 Financial Performance Overview Financial Highlights Xerox reported stable Q2 2025 revenue at $1.58 billion, but profitability declined significantly to a $106 million GAAP net loss Q2 2025 Key Financial Results (vs Q2 2024) | (in millions, except per share data) | Q2 2025 | Q2 2024 | Change YOY | | :--- | :--- | :--- | :--- | | Revenue | $1,576 | $1,578 | $(2) | | Gross Profit | $451 | $520 | $(69) | | Gross Margin | 28.6% | 33.0% | (440) bps | | Pre-Tax (Loss) Income | $(60) | $25 | $(85) | | Adjusted Operating Income | $59 | $85 | $(26) | | Adjusted Operating Income Margin | 3.7% | 5.4% | (170) bps | | GAAP Diluted (Loss) per Share | $(0.87) | $0.11 | $(0.98) | | Adjusted Diluted (Loss) per Share | $(0.64) | $0.29 | $(0.93) | - Key performance indicators for Q2 2025 showed significant year-over-year declines: - GAAP net loss was $(106) million, a decline of $124 million - Adjusted net loss was $(77) million, a decline of $118 million - Operating cash flow was $(11) million, down $134 million - Free cash flow was $(30) million, down $145 million5 - Management stated that the completion of the Lexmark acquisition is a key milestone in the company's "Reinvention," aiming to create a vertically integrated market leader, with growth in IT and Digital Solutions helping stabilize revenue3 Segment Performance IT Solutions revenue grew 153.6% due to acquisitions, offsetting an 8.6% decline in Print and Other revenue and a 39.3% drop in its profit Q2 2025 Segment Results (vs Q2 2024) | (in millions) | Q2 2025 | Q2 2024 | Change YOY | % Change YOY | | :--- | :--- | :--- | :--- | :--- | | Revenue | | | | | | Print and Other | $1,366 | $1,494 | $(128) | (8.6)% | | IT Solutions | $213 | $84 | $129 | 153.6% | | Profit | | | | | | Print and Other | $65 | $107 | $(42) | (39.3)% | | IT Solutions | $10 | $1 | $9 | NM | - Effective Q1 2025, the company changed its reportable segments to "Print and Other" and "IT Solutions" to align with its key growth strategies, with prior period results recast for comparability8 2025 Full-Year Guidance Xerox revised 2025 guidance to include Lexmark, targeting ~4.5% adjusted operating margin and ~$250 million free cash flow, factoring in tariffs and integration costs Revised 2025 Full-Year Guidance (in % and millions) | Metric | Guidance | | :--- | :--- | | Revenue Growth (Constant Currency) | 16-17% | | Adjusted Operating Margin | ~4.5% | | Free Cash Flow | ~$250 million | - The updated guidance includes several key factors: - Expected tariff-related expenses of $30 to $35 million - One-time synergy implementation costs of $50 to $75 million - A more conservative outlook for Print equipment demand due to tariff and policy uncertainty1025 Detailed Financial Review Management Discussion and Analysis Management noted "Reinvention" improved revenue resilience, but Q2 profitability was impacted by a 5.6% equipment sales decline, increased costs, tariffs, and higher Lexmark acquisition interest - Equipment sales fell 5.6% (6.7% in constant currency) due to lower installations, soft demand in April/May amid tariff uncertainty, and the impact of Reinvention-related actions24 - Post-sale revenue grew 1.5%, but this was driven by a 10.6 percentage point benefit from the ITsavvy acquisition, with organic post-sale revenue declining due to lower managed print services revenue and tariff-related delays in supplies sales24 - The pre-tax loss of $60 million was primarily due to lower gross profit, which was affected by product cost increases, incremental tariffs, and reduced financing fees, with higher non-financing interest expense also contributing to the loss24 Lexmark Acquisition Xerox finalized Lexmark acquisition on July 1, 2025, for ~$1.5 billion, anticipating over $1/share accretion and mitigating U.S. tariff impacts via its Mexico manufacturing facility - The acquisition of Lexmark was completed on July 1, 2025, for approximately $1.5 billion, which included ~$860 million in cash and the assumption of $327 million in debt26 - Xerox continues to expect over $1/share of accretion from the transaction, despite higher-than-expected funding costs27 - The company anticipates no material impact from proposed U.S. tariffs on Lexmark's results, as its manufacturing facility in Juarez, Mexico can support U.S. imports on a USMCA compliant basis27 Revenue Analysis Total Q2 2025 revenue was nearly flat at $1.576 billion, with a 5.6% equipment sales decline offset by a 1.5% post-sale revenue increase, shifting IT Solutions to 13% of total revenue Q2 2025 Revenue Breakdown (vs Q2 2024) | (in millions) | 2025 | 2024 | % Change | % of Total Revenue 2025 | | :--- | :--- | :--- | :--- | :--- | | Equipment sales | $336 | $356 | (5.6)% | 21% | | Post sale revenue | $1,240 | $1,222 | 1.5% | 79% | | Total Revenue | $1,576 | $1,578 | (0.1)% | 100% | Q2 2025 Revenue by Segment (vs Q2 2024) | (in millions) | 2025 | 2024 | % Change | % of Total Revenue 2025 | | :--- | :--- | :--- | :--- | :--- | | Print and Other | $1,366 | $1,494 | (8.6)% | 87% | | IT Solutions | $213 | $84 | 153.6% | 13% | | Total Revenue | $1,576 | $1,578 | (0.1)% | 100% | Costs, Expenses, and Profitability Q2 2025 profitability deteriorated, with total gross margin falling 440 bps to 28.6%, and other expenses, net, increasing from $33 million to $80 million due to higher acquisition-related interest Key Profitability Ratios (Q2 2025 vs Q2 2024) | | 2025 | 2024 | Change (pts.) | | :--- | :--- | :--- | :--- | | Total Gross Margin | 28.6% | 33.0% | (4.4) pts. | | RD&E as a % of Revenue | 2.7% | 3.2% | 0.5 pts. | | SAG as a % of Revenue | 23.4% | 24.9% | 1.5 pts. | | Pre-tax (Loss) Income Margin | (3.8)% | 1.6% | (5.4) pts. | | Adjusted Operating Income Margin | 3.7% | 5.4% | (1.7) pts. | - Other expenses, net, increased to $80 million in Q2 2025 from $33 million in Q2 2024, primarily driven by non-financing interest expense, which rose to $55 million from $31 million38 Reportable Segments Analysis Overview of Segment Changes and Performance Xerox realigned into "Print and Other" and "IT Solutions" segments in 2025; Q2 results show IT Solutions growing to 13% of total revenue, with both segments achieving a 4.8% profit margin - The company has two reportable segments: Print and Other, and IT Solutions, a change made to align reporting with how the CEO allocates resources and assesses performance against key growth strategies4091 Segment Performance Summary (Q2 2025 vs Q2 2024) | (in millions) | Print and Other | IT Solutions | | :--- | :--- | :--- | | 2025 Revenue | $1,366 | $213 | | 2025 Segment Profit | $65 | $10 | | 2025 Segment Margin | 4.8% | 4.8% | | 2024 Revenue | $1,494 | $84 | | 2024 Segment Profit | $107 | $1 | | 2024 Segment Margin | 7.2% | 1.2% | Print and Other The largest Print and Other segment experienced an 8.6% revenue decline to $1.37 billion, driven by a 5.6% drop in equipment sales and a 9.5% fall in post-sale revenue, with high-end products falling 26.7% Print and Other Revenue (Q2 2025 vs Q2 2024) | (in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Equipment sales | $336 | $356 | (5.6)% | | Post sale revenue | $1,030 | $1,138 | (9.5)% | | Total Revenue | $1,366 | $1,494 | (8.6)% | Equipment Sales by Product Group (Q2 2025 vs Q2 2024) | (in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Entry | $51 | $56 | (8.9)% | | Mid-range | $235 | $235 | 0.0% | | High-end | $44 | $60 | (26.7)% | IT Solutions IT Solutions segment reported explosive revenue growth of 153.6% to $213 million, primarily fueled by the ITsavvy acquisition, with IT Products surging 173.2% and IT Services growing 103.6% IT Solutions Revenue (Q2 2025 vs Q2 2024) | (in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | IT Products | $153 | $56 | 173.2% | | IT Services | $57 | $28 | 103.6% | | Total IT Solutions | $213 | $84 | 153.6% | - This segment is comprised of the recent acquisition of ITsavvy, Canadian IT provider Powerland, and legacy XBS IT solutions48 Recast 2024 Segment Results Xerox provided recast 2024 segment results for comparison, showing Print and Other generated $5.86 billion revenue with a 6.8% margin, while IT Solutions generated $358 million revenue with break-even profit Full Year 2024 Recast Segment Results | (in millions) | Print and Other | IT Solutions | Total | | :--- | :--- | :--- | :--- | | Revenues | $5,864 | $358 | $6,221 | | Segment Profit | $396 | $0 | $302 | | Segment Margin | 6.8% | 0.0% | 4.9% | Consolidated Financial Statements Statements of (Loss) Income For Q2 2025, Xerox reported total revenues of $1.576 billion, nearly flat year-over-year, but lower gross profit and increased 'Other expenses, net' led to a pre-tax loss of $60 million and a net loss of $106 million Condensed Consolidated Statements of (Loss) Income (Three Months Ended June 30) | (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Total Revenues | $1,576 | $1,578 | | Total Costs and Expenses | $1,636 | $1,553 | | (Loss) Income before Income Taxes | $(60) | $25 | | Net (Loss) Income | $(106) | $18 | | Diluted (Loss) Earnings per Share | $(0.87) | $0.11 | Balance Sheets As of June 30, 2025, Xerox's total assets increased to $8.87 billion from $8.37 billion, driven by inventories and goodwill, while total liabilities rose to $7.52 billion due to increased long-term debt for the Lexmark acquisition Condensed Consolidated Balance Sheet Highlights | (in millions) | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $449 | $576 | | Total current assets | $3,543 | $2,935 | | Total Assets | $8,874 | $8,365 | | Long-term debt | $3,484 | $2,814 | | Total Liabilities | $7,523 | $7,061 | | Total Equity | $1,127 | $1,080 | Statements of Cash Flows Q2 2025 cash flow saw a significant downturn, with net cash used in operating activities of $11 million, negative free cash flow of $30 million, and a $618 million net inflow from financing due to Lexmark acquisition debt Condensed Consolidated Statements of Cash Flows (Three Months Ended June 30) | (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(11) | $123 | | Net cash used in investing activities | $(18) | $(2) | | Net cash provided by (used in) financing activities | $618 | $(336) | Non-GAAP Financial Measures & Reconciliations Explanation of Non-GAAP Measures Xerox uses non-GAAP measures like Adjusted EPS, Operating Income, Constant Currency revenue, and Free Cash Flow to show underlying business trends by excluding restructuring, amortization, non-service retirement, and other discrete items - The company adjusts for several items, including: - Restructuring and related costs - Amortization of intangible assets - Non-service retirement-related costs - Transaction and related costs (e.g., M&A) - Other discrete, unusual or infrequent items61626365 - Free Cash Flow is defined as operating cash flow less capital expenditures, providing a measure of cash available to fund acquisitions and pay dividends70 Reconciliation of Adjusted Net (Loss) Income and EPS After adjustments, Xerox's Q2 2025 adjusted net loss was $77 million, or ($0.64) per share, compared to an adjusted net income of $41 million, or $0.29 per share, in the prior year Adjusted Net (Loss) Income and EPS Reconciliation (Q2 2025 vs Q2 2024) | (in millions, except per share) | 2025 | 2024 | | :--- | :--- | :--- | | Reported Net (Loss) Income | $(106) | $18 | | Total Adjustments | $29 | $23 | | Adjusted Net (Loss) Income | $(77) | $41 | | Reported Diluted EPS | $(0.87) | $0.11 | | Adjusted Diluted EPS | $(0.64) | $0.29 | Reconciliation of Adjusted Operating Income and Margin Xerox's Q2 2025 adjusted operating income was $59 million, with a 3.7% margin, declining from $85 million and 5.4% in Q2 2024, after removing restructuring, amortization, and other non-operating expenses Adjusted Operating Income Reconciliation (Q2 2025 vs Q2 2024) | (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Pre-tax (loss) income | $(60) | $25 | | Total Adjustments | $119 | $60 | | Adjusted Operating Income | $59 | $85 | | Adjusted Operating Margin | 3.7% | 5.4% | Reconciliation of Free Cash Flow Free cash flow for Q2 2025 was negative $30 million, a significant decrease of $145 million from the positive $115 million in Q2 2024, driven by lower net cash from operating activities Free Cash Flow Reconciliation (Q2 2025 vs Q2 2024) | (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(11) | $123 | | Capital expenditures | $(19) | $(8) | | Free Cash Flow | $(30) | $115 | Appendices Appendix I: (Loss) Earnings per Share Calculation This appendix details basic and diluted EPS calculation for Q2 2025 and 2024, outlining adjustments from net income to common shareholders and listing anti-dilutive securities excluded from the calculation - For Q2 2025, a total of 44.6 million securities were anti-dilutive and therefore excluded from the diluted EPS calculation, including restricted stock, performance shares, convertible preferred stock, and convertible notes89 Appendix II: Reportable Segments Definitions This appendix explains the Q1 2025 segment change to "Print and Other" and "IT Solutions," linking it to growth strategies and the ITsavvy acquisition, providing detailed definitions and product groupings - The change in segments was made in Q1 2025 to align with how the CEO allocates resources and assesses performance, with the former Xerox Financial Solutions (XFS) segment now included within the Print and Other segment9192 - The Print and Other segment's product groups are defined as: - Entry: A4 devices and desktop printers for small/medium workgroups - Mid-Range: A3 devices for large workgroups and light production - High-End: Production printing systems for graphic communications and large enterprises96
Xerox Holdings(XRX) - 2025 Q2 - Quarterly Results