Xerox Holdings Corp. Q1 FY2026 earnings call

Louis Pastor introduced himself as CEO, emphasizing cost discipline, operational efficiency, and focus on three priorities: stabilize revenue, increase profitability, reduce leverage. He discussed the transformed go-to-market, greater manufacturing control, and key operational initiatives. Chuck Butler walked through Q1 results against the three priorities, reaffirmed full-year guidance, and discussed segment results, cash flow, and capital structure.

In Q1, revenue was $1.85 billion, up nearly 27% in actual currency and 24% in constant currency. Excluding Lexmark acquisition benefits, pro forma revenue declined 4%. Adjusted operating margin was 3.9%, up 240 basis points year-over-year. Print segment: Equipment revenue $378 million, up 33% reported or 31% constant currency; pro forma equipment revenue declined 2%. Legacy Xerox equipment revenue fell 5% vs 12% decline in Q4; Legacy Lexmark equipment revenue grew 5% vs 6% decline in Q4. Print post sales revenue $1.31 billion, up 30% reported and 27% constant currency; pro forma print post sale revenue declined 4%. Print and other adjusted gross margin was 31.3%, down 10 basis points year over year; print segment margin was 5.1%, up 190 basis points. IT solutions: Gross billings grew 21% year over year; total bookings and indication of future billings increased 32%; gap revenue fell 5% in the quarter; gross profit was $30 million with gross margin of 19.5%, up 230 basis points year over year; segment profit was $6 million with profit margin of 3.9%, up 80 basis points year over year.

For 2026, expect greater than $7.5 billion in revenue, adjusted operating income in the range of $450 million to $500 million, an increase of more than $200 million versus 2025, driven by integration synergies and transformation savings. Expect free cash flow of approximately $250 million, with greater than $400 million of free cash flow generation for the balance of 2026. Expect gross and net leverage to drop by approximately 1.5 turns to 5.6 times and 4.5 times trailing 12 months EBITDA, respectively.

Memory lead times have extended and in certain cases, higher memory prices have compressed margins. Higher oil prices impact toner, plastic, metal prices, and transportation costs. Certain international markets with exposure to the Middle East conflict could impact demand. Non-GAAP adjusted tax rate looks unusual due to valuation allowance against certain deferred tax assets.

Q: What's new and focus areas?

A: Emphasis on three priorities of stabilizing revenue, expanding profitability, reducing leverage, with strategy already in place.

Q: Thoughts on midrange?

A: Midrange is challenged, part of holistic solution, focus on entry and production.

Q: Memory impact?

A: In IT solutions, help shape customer demand; in print, significant cost increase, factored into 2026 guidance.

Q: Differ from prior management?

A: Focus on three priorities driving decision making.

Q: Margin improvement drivers?

A: Largely related to acquisition and synergy cost realization.

Q: Operating margin path?

A: Expand each quarter, peaking in fourth quarter due to seasonality and synergy realization.

Q: Segment seasonality and cash flow?

A: Revenue seasonality with fourth quarter biggest; operating cash flow typically lower in first quarter, higher in fourth; free cash flow expected more in back half due to operating income and working capital.

Q: Billings and bookings to revenues?

A: Gross billings don't always translate to P&L revenue, but higher gross billings indicate mind and wallet share growth, and investment in talent for stabilizing revenue.