Xerox Holdings(US:XRX)2025-08-07 21:02markdown [Part I — Financial Information](index=4&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Xerox Holdings Corporation and Xerox Corporation for the quarterly period ended June 30, 2025, including statements of income, balance sheets, and cash flows, reflecting key events such as segment changes, new debt issuance for the Lexmark acquisition, and a valuation allowance against deferred tax assets [Xerox Holdings Corporation Condensed Consolidated Financial Statements](index=4&type=section&id=Xerox%20Holdings%20Corporation%20Condensed%20Consolidated%20Financial%20Statements) Xerox Holdings Corp. Statement of (Loss) Income Highlights (Unaudited) | Metric (in millions, except per-share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $1,576 | $1,578 | $3,033 | $3,080 | | **(Loss) Income before Income Taxes** | $(60) | $25 | $(127) | $(125) | | **Net (Loss) Income** | $(106) | $18 | $(196) | $(95) | | **Net (Loss) Income attributable to Common Shareholders** | $(109) | $15 | $(203) | $(102) | | **Diluted (Loss) Income per Share** | $(0.87) | $0.11 | $(1.62) | $(0.83) | Xerox Holdings Corp. Balance Sheet Highlights (Unaudited) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $449 | $576 | | Total current assets | $3,543 | $2,935 | | **Total Assets** | **$8,874** | **$8,365** | | Short-term debt and current portion of long-term debt | $458 | $585 | | Long-term debt | $3,484 | $2,814 | | **Total Liabilities** | **$7,523** | **$7,061** | | **Total Equity** | **$1,127** | **$1,080** | Xerox Holdings Corp. Cash Flow Highlights (Unaudited) | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(100) | $44 | | Net cash used in investing activities | $(12) | $(19) | | Net cash provided by (used in) financing activities | $459 | $(75) | [Xerox Corporation Condensed Consolidated Financial Statements](index=8&type=section&id=Xerox%20Corporation%20Condensed%20Consolidated%20Financial%20Statements) Xerox Corp. Statement of (Loss) Income Highlights (Unaudited) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $1,576 | $1,578 | $3,033 | $3,080 | | **(Loss) Income before Income Taxes** | $(58) | $26 | $(122) | $(124) | | **Net (Loss) Income** | $(104) | $19 | $(191) | $(94) | Xerox Corp. Balance Sheet Highlights (Unaudited) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$8,832** | **$8,324** | | **Total Liabilities** | **$7,510** | **$7,018** | | **Total Equity** | **$1,312** | **$1,296** | Xerox Corp. Cash Flow Highlights (Unaudited) | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(100) | $44 | | Net cash used in investing activities | $(12) | $(19) | | Net cash provided by (used in) financing activities | $459 | $(75) | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - In Q1 2025, the company changed its reportable segments from 'Print and Other' and 'Xerox Financial Services (XFS)' to two new segments: **'Print and Other'** and **'IT Solutions'**. This change aligns reporting with how the CEO allocates resources and assesses performance. Prior period results have been restated to conform to the new structure[39](index=39&type=chunk)[65](index=65&type=chunk) - A valuation allowance of approximately **$59 million** was recorded in Q1 2025, primarily against certain U.S. deferred tax assets, due to changes in tax planning strategies making their realization not more-likely-than-not[48](index=48&type=chunk) - In April 2025, Xerox Corporation issued **$400 million** of **10.250%** Senior Secured First Lien Notes due 2030 and **$400 million** of **13.500%** Senior Secured Second Lien Notes due 2031. An additional **$100 million** of the Second Lien Notes were issued in May 2025. Proceeds were used to fund the Lexmark acquisition, redeem 2025 Senior Notes, and repay other debt[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) - On July 1, 2025, subsequent to the reporting period, Xerox completed its acquisition of Lexmark International II, LLC for approximately **$841 million** in cash and the assumption of **$327 million** in debt[202](index=202&type=chunk) - The annual dividend on common shares was reduced twice in 2025: first from **$1.00** to **$0.50** per share in Q1, and then further to **$0.10** per share in Q2[183](index=183&type=chunk)[193](index=193&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting revenue stability and adjusted operating income supported by its 'Reinvention' strategy, with Q2 2025 total revenue flat year-over-year at $1.58 billion, a pre-tax loss of $60 million, and details on segment performance, liquidity, and the Lexmark acquisition [Overview](index=47&type=section&id=Overview) - Q2 2025 results demonstrated resilience due to the company's **'Reinvention' strategy**, which shifted the revenue mix towards higher-growth businesses and simplified the operating structure[216](index=216&type=chunk) Q2 2025 Performance vs. Q2 2024 | Metric | Q2 2025 | Change vs. Q2 2024 | Key Drivers | | :--- | :--- | :--- | :--- | | Equipment Sales | $336M | -5.6% (-6.7% CC) | Lower installations amid tariff uncertainty. | | Post-Sale Revenue | $1.2B | +1.5% (+0.5% CC) | 10.6 ppt benefit from ITsavvy acquisition. | | Pre-tax Loss | $(60)M | -$85M | Lower gross profit, higher interest expense. | | Adjusted Operating Income | $59M | -$26M | Lower gross profit, partially offset by cost savings. | - The acquisition of Lexmark was completed on July 1, 2025. The company expects the acquisition to be accretive to **adjusted earnings** and **EPS**, with no material impact from proposed U.S. tariffs due to Lexmark's manufacturing facility in Mexico[220](index=220&type=chunk) - 2025 guidance was updated to include the Lexmark acquisition, with expected revenue growth of **16%-17%** in constant currency. However, operating cash flow guidance was lowered to approximately **$345 million** due to higher tariff expenses and synergy implementation costs[232](index=232&type=chunk) [Financial Review](index=51&type=section&id=Financial%20Review) Revenue Breakdown (in millions) | Revenue Line | Q2 2025 | Q2 2024 | % Change | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Equipment sales | $336 | $356 | (5.6)% | $620 | $646 | (4.0)% | | Post sale revenue | $1,240 | $1,222 | 1.5% | $2,413 | $2,434 | (0.9)% | | **Total Revenue** | **$1,576** | **$1,578** | **(0.1)%** | **$3,033** | **$3,080** | **(1.5)%** | Key Financial Ratios | Ratio | Q2 2025 | Q2 2024 | Change (pts) | H1 2025 | H1 2024 | Change (pts) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Gross Margin | 28.6% | 33.0% | (4.4) | 28.9% | 31.3% | (2.4) | | RD&E as a % of Revenue | 2.7% | 3.2% | 0.5 | 2.8% | 3.2% | 0.4 | | SAG as a % of Revenue | 23.4% | 24.9% | 1.5 | 24.6% | 25.6% | 1.0 | | Pre-tax (Loss) Income Margin | (3.8)% | 1.6% | (5.4) | (4.2)% | (4.1)% | (0.1) | | Adjusted Operating Margin | 3.7% | 5.4% | (1.7) | 2.7% | 3.8% | (1.1) | - Q2 2025 gross margin declined by **4.4 percentage points** to **28.6%**, primarily due to unfavorable product mix, tariff and product-related cost increases (**2.0 ppt** adverse impact), and the impact of the ITsavvy acquisition (**1.0 ppt** adverse impact)[247](index=247&type=chunk) - Worldwide employment decreased by approximately **200 people** since year-end 2024 to **16,600** as of June 30, 2025, mainly due to the company's Reinvention and workforce reduction initiatives[267](index=267&type=chunk) [Capital Resources and Liquidity](index=66&type=section&id=Capital%20Resources%20and%20Liquidity) Cash Flow Summary (in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(100) | $44 | | Net cash used in investing activities | $(12) | $(19) | | Net cash provided by (used in) financing activities | $459 | $(75) | | **Increase (decrease) in cash** | **$354** | **$(66)** | - The **$144 million decrease** in operating cash flow for H1 2025 compared to H1 2024 was primarily driven by lower net proceeds from finance receivable sales and lower profitability, partially offset by favorable timing of working capital payments[229](index=229&type=chunk)[323](index=323&type=chunk) - Total cash, cash equivalents, and restricted cash increased to **$985 million** at June 30, 2025, from **$631 million** at year-end 2024. This includes **$492 million** in restricted cash from debt proceeds for the Lexmark acquisition, which was released on July 1, 2025[322](index=322&type=chunk) Debt Breakdown (in millions) | Debt Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Financing debt | $1,635 | $1,741 | | Core debt | $2,307 | $1,658 | | **Total Debt** | **$3,942** | **$3,399** | [Non-GAAP Financial Measures](index=70&type=section&id=Non-GAAP%20Financial%20Measures) - The company uses non-GAAP measures such as **Adjusted Net Income**, **Adjusted EPS**, and **Adjusted Operating Income** to provide investors with a better understanding of business trends. These measures exclude items like restructuring costs, amortization of intangible assets, non-service retirement costs, and other discrete or unusual items[345](index=345&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk) Reconciliation of Reported to Adjusted Net (Loss) Income (in millions) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | **Reported Net (Loss) Income** | **$(106)** | **$18** | **$(196)** | **$(95)** | | Adjustments | $29 | $23 | $115 | $147 | | **Adjusted Net (Loss) Income** | **$(77)** | **$41** | **$(81)** | **$52** | Reconciliation of Pre-tax (Loss) Income to Adjusted Operating Income (in millions) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | **Pre-tax (loss) income** | **$(60)** | **$25** | **$(127)** | **$(125)** | | Adjustments | $119 | $60 | $208 | $243 | | **Adjusted Operating Income** | **$59** | **$85** | **$81** | **$118** | [Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages market risks from foreign currency exchange rates and interest rates through operating activities and derivative financial instruments, used solely for risk management, not speculation - The company is exposed to market risk from **foreign currency exchange rates** (primarily Euro, U.K. Pound Sterling, Japanese Yen) and **interest rates**[341](index=341&type=chunk) - Derivative instruments like **interest rate swaps**, **caps**, and **foreign currency contracts** are used to hedge economic exposures and reduce earnings volatility, not for trading or speculative purposes[341](index=341&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting identified during the last fiscal quarter - Management of both Xerox Holdings Corporation and Xerox Corporation concluded that their respective **disclosure controls and procedures were effective** as of the end of the period covered by the report (June 30, 2025)[367](index=367&type=chunk)[368](index=368&type=chunk) - There were no changes in **internal control over financial reporting** during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[369](index=369&type=chunk)[370](index=370&type=chunk) [Part II — Other Information](index=76&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) [Legal Proceedings](index=76&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, including unreserved tax contingencies in Brazil totaling $345 million and a shareholder derivative lawsuit that has reached a preliminarily approved settlement - The company faces numerous governmental assessments in Brazil related to indirect taxes, with an unreserved tax contingency of **$345 million** as of June 30, 2025, up from **$305 million** at year-end 2024. Management believes the likelihood of loss is remote[196](index=196&type=chunk) - The shareholder derivative lawsuit, Miami Firefighters' Relief & Pension Fund v. Icahn, et al., has reached a settlement which has received **preliminary court approval**[197](index=197&type=chunk)[198](index=198&type=chunk) [Risk Factors](index=76&type=section&id=Item%201A.%20Risk%20Factors) This section introduces new risk factors related to the Lexmark acquisition, including difficulties in realizing synergies, integration challenges, and adverse effects of increased indebtedness on financial flexibility - A new risk factor is the potential inability to realize anticipated **synergies**, **cost-savings**, and **revenue benefits** from the Lexmark acquisition due to various assumptions and potential offsetting costs[373](index=373&type=chunk)[374](index=374&type=chunk) - The company may face significant difficulties integrating Lexmark's business, which is a complex process involving different operations (like **hardware manufacturing**), systems, and corporate cultures, potentially disrupting business and limiting expected benefits[377](index=377&type=chunk)[382](index=382&type=chunk) - The company's level of indebtedness has increased significantly post-acquisition, which could adversely affect financial condition by diverting cash flow to service debt, limiting flexibility due to covenants, and increasing vulnerability to adverse economic conditions[383](index=383&type=chunk)[394](index=394&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=78&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2025, Xerox Holdings Corporation made no open-market repurchases but repurchased 5,942 shares for tax-withholding requirements of stock compensation programs - There were no open-market repurchases of Xerox Holdings Corporation's Common Stock during Q2 2025 under the **board-authorized program**[388](index=388&type=chunk) - The company repurchased **5,942 shares** during the quarter through a net-settlement feature of its stock compensation programs to satisfy employee tax-withholding requirements[389](index=389&type=chunk)