Xerox Holdings Corp. Q1 FY2025 earnings call

Steve Bandrowczak noted that balanced execution of last year's reinvention and organizational changes led to an improved revenue trajectory and double-digit declines in operating expenses excluding one-time costs and ITsavvy. Sales activity normalized, and ITsavvy integration and reinvention-related cost reduction programs were running ahead of plan. John Bruno discussed reinvention initiatives grouped into four categories (geographic simplification, operational simplification, commercial optimization, growth, and realization of acquisition benefits) and progress made in each. Mirlanda Gecaj detailed financial results, including revenue decline, profitability changes, and cash flow details such as operating cash flow, investing activity, and financing activity.

In the Print and other segment, Q1 equipment sales were $284 million, decreasing 2.1% in actual currency and 0.7% in constant currency. Print post sale revenue of around $1 billion declined 11.2% in actual currency and 9.2% in constant currency. For the IT Solutions segment, revenue and gross profit increased more than 100% year-over-year, including the benefit of a full quarter of ITsavvy. IT Solutions gross margin was 17.1%, expanding 280 basis points year-over-year.

Given the evolving and fluid nature of proposed tariff policies and uncertain impact on macroeconomic conditions, Xerox has not adjusted its full-year outlook. Guidance excludes the potential adverse effects of tariffs and any associated impact on the economy, as well as any impact from the pending acquisition of Lexmark. It is expected that in Q2, revenue decline in constant currency will be consistent with that of Q1, and adjusted operating margin is expected to be between 4% and 4.5% lower than the prior year quarter to account for the phasing of tariff-related price increases relative to costs incurred and the timing of reinvention savings.

Tariff and trade policy uncertainty poses a risk. The fluid nature of tariff policies makes it difficult to accurately forecast financial impacts, and there is potential for higher product costs to impact operating income.

Q: Ananda Baruah asked about market communications and the feedback from VARs on SMB.

A: John Bruno and Steve Bandrowczak responded that there was some softening in the market with people monitoring and some trepidation initially, but no cancellations, and spending was seen where it drives productivity.

Q: Eric Woodring inquired about maintaining full-year guidance and the margins of IT Solutions.

A: Mirlanda Gecaj explained that guidance was maintained due to the fluid nature of tariff policies, and Steve Bandrowczak and John Bruno discussed driving double-digit operating profit in the IT Solutions segment and the margin dynamics.

Q: Samik Chatterjee asked about the drivers of post sale revenue decline and free cash flow.

A: John Bruno and Mirlanda Gecaj responded on the drivers of post sale revenue decline related to supplies and managed print volumes, and on free cash flow being more resilient due to factors like working capital discipline and finance receivables.