Xerox Holdings(XRX) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q4 2025 was $2.03 billion, an increase of approximately 26% in actual currency and 24% in constant currency, primarily due to the acquisitions of Lexmark and ITsavvy. Pro forma for these acquisitions, revenue declined 9% [3][4] - For the full year, revenue reached $7.02 billion, up roughly 13% in actual currency and 12% in constant currency, but excluding acquisition benefits, revenue declined approximately 8% [4] - Adjusted operating income margin for Q4 was 5%, down 140 basis points year-over-year, while free cash flow was $184 million, a decrease of $150 million compared to the prior year [3][4] - Adjusted loss per share for Q4 was $0.10, a decrease of $0.46 year-over-year, and for the full year, adjusted loss per share was $0.60, down $1.57 year-over-year [4][21] Business Line Data and Key Metrics Changes - In the Print and Other segment, Q4 equipment revenue was $485 million, up 23% as reported, but down approximately 10% on a pro forma basis [21][22] - Print post-sale revenue was $1.39 billion, up 25% as reported, but down 9% on a pro forma basis [22] - IT Solutions revenue increased 39% year-over-year, reflecting the full quarter inclusion of ITsavvy, with pro forma gross billings up 13% [23][24] Market Data and Key Metrics Changes - The company noted that macroeconomic challenges, including tariffs and increased product costs, continued to impact performance, particularly in the print equipment sales [3][5] - The company experienced a spike in DRAM prices affecting costs across various segments, particularly in IT solutions [5][6] Company Strategy and Development Direction - The company is focused on three strategic priorities: executing reinvention, realizing acquisition benefits, and maintaining balance sheet strength [7][14] - The integration of Lexmark and ITsavvy is expected to unlock operational efficiencies and enhance the product offering, particularly in the IT solutions space [10][11] - The company plans to leverage AI capabilities to drive efficiencies and improve customer experience [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about improving business trends despite ongoing macroeconomic headwinds [3][4] - The company anticipates a stronger pipeline entering 2026, with improved cancellation and renewal rates [4][5] - Management expects to achieve adjusted operating income in the range of $450 million to $500 million for 2026, driven by integration synergies and reinvention savings [28][29] Other Important Information - The company announced a special pro rata distribution of warrants to shareholders, which is seen as a balance sheet-friendly way to reward loyalty and provide bondholders with options [30] - The company ended Q4 with $565 million in cash and cash equivalents, and total debt of $4.2 billion, down $160 million sequentially [26] Q&A Session Summary Question: Are orders back to normal post-government shutdown? - Management indicated that there are broader opportunities due to the expanded portfolio and the strategy is working well [31] Question: Clarification on the impact of memory prices on ITsavvy and print business? - Management noted that memory prices are creating uncertainty across all industries, and they are working to help clients navigate these challenges [32][33] Question: How does the company prioritize various initiatives amidst challenges? - Management emphasized that the reinvention strategy and acquisitions are progressing well, and they are seeing positive results from integration efforts [36][37] Question: How does the company protect against potential challenges in IT services? - Management highlighted their ability to help clients navigate increased costs and emphasized the importance of their product portfolio in addressing these challenges [39][42] Question: What are the assumptions regarding operating cash flow to free cash flow for 2026? - Management explained that higher EBITDA driven by operating income increases and lower finance receivables are key factors in the cash flow forecast [44][45]