Summary of Xerox Holdings Corporation Q2 2026 Earnings Call

1Key Financial Results and Metrics

Revenue: $1.92 billion, up 22% year-over-year due to Lexmark acquisition; pro forma revenue declined nearly 7%.

Adjusted Operating Margin: 10.6%, up 690 basis points year-over-year; excluding tariff benefits, it was 5.1%, up 140 basis points.

Net Income: GAAP EPS of $0.07, adjusted EPS of $0.38, reflecting improved revenue and profit.

Debt Reduction: Total debt decreased by $223 million, with gross and net leverage ratios improving to 5.9x and 5.1x, respectively.

Free Cash Flow: $11 million for the quarter, with expectations of $250 million for the full year.

2Strategic Updates and Business Highlights

Three Priorities: Stabilizing revenue, increasing profitability, and reducing leverage are central to Xerox's strategy.

Lexmark Integration: Synergy target raised to at least $350 million, with half expected to be realized in 2026.

Product Launches: Introduction of new hardware under the unified Xerox brand, including entry-level printers and the 9-Series mid-range platform, aimed at enhancing competitiveness.

IT Solutions: Billings grew 4% year-over-year; the sales force is being rebuilt to improve productivity and cross-selling capabilities.

3Forward Guidance and Outlook

Revenue Guidance: Raised to approximately $7.6 billion for 2026, up from greater than $7.5 billion, with expectations for improved equipment and IT Solutions performance in the second half.

Adjusted Operating Income: Expected in the range of $555 million to $605 million, a $105 million increase from prior guidance.

Leverage Expectations: Anticipated to drop below 5x gross and 4x net leverage by year-end.

4Bad News, Challenges, or Points of Concern

Equipment Sales: Pro forma revenue declined due to weaker mid-range and OEM sales; backlog created from unmet demand in entry-level products.

IT Solutions Pressure: New business faced near-term challenges due to sales force transition and credit profile friction affecting working capital efficiency.

Cost Headwinds: Ongoing increases in memory and oil prices could pose risks to profit and cash flow outlook.

Market Dynamics: The mid-range segment is not expected to recover significantly, and there are concerns about the impact of external economic factors on demand.

5Notable Q&A Insights

Free Cash Flow Clarification: The $250 million guidance remains unchanged despite the $80 million tariff receivable due to offsets from restructuring costs and working capital drags.

IT Solutions Demand: While there is investment in IT infrastructure, the company does not fully benefit from AI-related spending as it does not serve that specific client base.

Gross Margin Dynamics: Continued improvements in gross margins are attributed to Lexmark synergies and transformation benefits, despite input cost inflation pressures. Overall, Xerox is making progress in stabilizing revenue and reducing leverage, but faces challenges in equipment sales and cost pressures that could impact future performance. The company remains optimistic about the second half of the year, driven by new product launches and improving operational efficiencies.