Welcome to the Xerox Holdings Corporation's Fourth Quarter 2025 Earnings Conference Release. After the presentation, there will be a question and answer session. To ask a question at that time, please press 11 at any time during this call. You can withdraw your question by pressing 11 again. At this time, I would like to turn the meeting over to Greg Stein, Senior Vice President and Investor Relations. Please go ahead, sir. Good morning, everyone. I'm Greg Stein, Senior Vice President and Head of Investor Relations at Xerox Holdings Corporation.

Welcome to the Xerox Holdings Corporation Fourth Quarter 2025 Earnings Release Conference Call. Hosted by Steven John Bandrowczak, Chief Executive Officer. He is joined by Chuck Butler, Chief Financial Officer. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and or rebroadcasting of this call are prohibited without the express permission of Xerox. During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com/investor. And we'll make comments that contain forward-looking statements, which by their nature address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I would like to turn the meeting over to Mr. Bandrowczak. Good morning, and thank you for joining our Q4 2025 earnings conference call. On the Q3 call, I highlighted the macroeconomic challenges we are facing and the continued disruption associated with the tariff and government funding-related uncertainty. Macro headwinds continue to persist, but we are cautiously optimistic that the business trends are starting to improve. Revenue in the quarter of $2.03 billion increased roughly 26% in actual currency and 24% in constant currency. Reflecting the inorganic benefits of the Lexmont and IT Savvy Pro forma for these acquisitions, revenue declined 9%. Adjusted operating income margin of 5% was lower year over year by 140 basis points. Free cash flow was $184 million, a decrease of $150 million versus the prior year. And adjusted loss per share of 10¢ decreased by 46¢ year over year. For the year, revenue of $7.02 billion increased roughly 13% in actual currency, and 12% in constant currency. Excluding the benefits of the acquisitions, revenue declined approximately 8%. Adjusted loss per share of 60¢ was $1.57 lower year over year. We generated…

On a pro forma basis, print post-sale revenue declined 9%. Excluding reinvention effects, pro forma post-sale revenue declined approximately 5% a modest improvement from last quarter, reflecting moderating declines across supplies, services, and outsourcing at Legacy Xerox. Print and other adjusted gross margin was 29.8%, down two eighty basis points year over year due to higher tariff and product cost, lower managed print volumes and lower high-margin finance-related fees, partially offset by reinvention savings. Print segment margin was 5.8%, down two seventy basis points due to lower gross profit partially offset by reinvention savings and Lexmark's contribution. Turning to IT solutions results. Revenue increased 39% year over year, reflecting the inclusion of IT Savvy for the entire quarter versus a partial quarter in the comparative period last year. Pro forma gross billings a reflection of business activity, increased 13% year over year in the fourth quarter. Total bookings, an indication of future billings, increased 8% in the fourth quarter. We continue to see growth in sales activity for IT products and service to existing Xerox print clients with more than $60 million of pipeline creation in 2025. IT solutions gross profit was $36 million, with gross margin of 22.7%, up 610 basis points year over year due primarily to IT savvy. On a pro forma basis, gross profit expanded by nearly $6 million versus prior year or nearly 20%. Segment profit grew $9 million year over year, with profit margin reaching 5.8% helped by the inclusion of IT Savvy. On a pro forma basis, segment profit grew almost $7 million due primarily to increased gross profit and cost structure improvements. Moving to our cash flow and capital structure. For the quarter, operating cash flow was $208 million compared to $351 million last year reflecting lower net income, lower proceeds from…

Certainly. And our first question for today comes from the line of Ananda Baruah from Loop Capital. Your question please. Yeah. Good morning, guys. Thanks a lot. Lots going on. And so I guess just just a few if I could. Steve, is is you mentioned, you know, you're starting to see orders come back post government shutdown. Are things back to normal there?

Sorta, like, order wise?

Yeah. A couple of things on the Thanks for the question. We're clearly seeing in certain areas the portfolio that we have has given us a broader TAM that we're going after. And we got the opportunity to bring more products and services into state fed local government. The strategy is working in terms of the acquisition of IT Savvy and Lexmont, bringing more products and services into it. So I would say we're expanding and we're growing. Even in areas where we're seeing a slowdown in spend, there are other opportunities that we can bring solutions into the Fed space.

Yeah. That makes sense. Okay. Yeah. No. Thanks for that extra context. And then maybe just sticking with with IT savvy. So it sounded like just and this is more of a clarification. Memory isn't actually, could you just sorta unpack or clarify? The impact of memory in the IT savvy business And then it sounds like you also said there's an impact to the print business. Or the copier business, or maybe it's both. Is that distinct from what you're seeing in IT Savvy? Thanks. Yeah. I think it's a couple of things. So memory

across all the industries, whether it's IT IT services, whether it's in print, is gonna be a lot of uncertainty as we think about the year both in terms of pricing availability, and so forth. So one of the things we're doing as we highlighted is we're trying to look at our IT solutions portfolio as we're seeing memory prices go up. Maybe there'll be a stall in some end points, but we can help our clients to extend their life of their products, We can help them with moving to as a service such as what we talked about with HP's HPE's offering, Dell's offering. There's a lot of SaaS platforms and things that we can move to that we're gonna help our clients to navigate through the memory challenge. On the print side, first half of the year, little impact because we've got a lot of the products teed up or already in motion. We'll see what the second half of the year is in terms of availability and pricing, but we'll navigate through both of those.

And how let's just on the memory side, you know, for kind of across the portfolio, I guess, But Savvy is distinct from from the copy or print business. What's the useful way for for folks to think about well, first of all, you hit are you hitting elasticity yet? And then or are are you starting to see an elasticity, headwind yet? From rising memory costs? Are you passing are you raising prices? You know? And and sort of to what degree should we think of the margins the margin impact also?

Yeah. Look, think the industry is uncertain around what is happening with pricing and what is happening with availability throughout the year. What we're trying do, working with our suppliers, making sure that we get the product availability with our clients to try to put in the right so we can optimize their return on investment, the things that they're trying to drive. And, you know, when we see these things and historically, when you think about supply chain challenges and shortages, we look at how do we help in trying to navigate that. So we're working with all suppliers. We're working with manufacturers, working with our end products in terms of the products that they're giving to us and trying to navigate through that. And, you know, it'll be a mix shift of products. It'll be a combination of extending warranties, extending service. Helping to navigate through this. There's gonna be some uncertainty, and, you know, we'll just see how we play it out. We'll navigate through it.

Alright. I appreciate that. I'll leave it there. Thanks so much, guys.

Thank you. And our next question comes from the line of Erik Woodring from Morgan Stanley. Your question please.

Guys, good morning. Thank you for taking my questions. I have two for you. Steve, maybe just to start, and I think I've asked this before, but would just love an update is you know, obviously, there's a there's a lot going on at Xerox right now between reinvention, absorbing Lexmark, managing leveraging cash flow, kind of trying to protect the core business, and all amidst this kind of very volatile macro obviously memory situation. Just how do you prioritize all of these different kind of moving pieces? Because, you know, you if we go to Chuck's comments, you know, we we wanna talk about improving execution. Obviously, that makes execution risk higher with all these moving pieces. So just how are you prioritizing? How are you managing? And how are you making sure that you can do all of this while pushing this business forward? Then a quick follow-up, please. Thank you.

Yeah. A couple of things, Erik. First of all, you know, as we look at Q4 and navigating revenue, operating profit cash came in as we expected, and we navigated through that. I gotta tell you from a strategic standpoint, reinvention strategy, the acquisition of IT Savvy, the acquisition of Lexmont, is working. We're heading in the right direction. And we're seeing that examples of that. The Morrison account where we bring in all of our capabilities. Lexmod their NPS, our production, our GoInspire, all of it coming together and driving value in a large retail account. Expansion in channels. We're seeing channels now picking up on our a three product that we manufacture internally. We drive better serviceability, better profitability as it returns as we look at supplies expansion. We're seeing the launch in IT solutions of our CyberShield, which is a combination of Palo Alto and insurance nobody can bring that to the market, the SMB space like we can bring that. So the strategy is working. The execution is working. When we look at the reinvention and integration, it's one project to us. Right? We have one enterprise transformation office that looks at the entire suite of all the work streams, all the things that we follow. So the management operating system, it's all under one management operating system that we've been executing here. Since the reinvention launch. So I know from an outside, it looks like a lot of moving parts. But I gotta tell you, it's coming together, and it's heading in the right direction. And as you look at our guidance in 2026, the strategic things that we've put in place give us confidence to deliver. Last point. When you bring IT serve savvy together and you bring Lexmark together and you look at integration, culture is important. And I gotta tell you, the culture and the combination of these three assets has been absolutely outstanding. Working together, bringing value to our clients, internal synergies, all the things that we've been working on, have been extremely, extremely important. And then the last piece of it, as we're going through this, we talk about reinvention. Reinvention, our end to end operating reinvention, everything we do. We've now added an AI center of to that. We're now bringing technologies that we've never had before as opposed to two years ago or three years ago when you look at integration. We didn't have some of the capabilities and technology we have today. So I am very optimistic, very, very comfortable, and very excited about where we are in the process, and the team is doing an outstanding job.

Alright. No. That that's super helpful. Thank you, Steven. You know, I I wanna press you on the the the answer that you provided to Ananda earlier just on kind of the memory stuff. And and really, my high-level question is how are you protecting yourself against kind of pull forward and the risk of a tough second half in IT services? And and and really the point that I'd that I'd love to try to kind of better understand is, I know you speak to double-digit growth in booking and billings in IT services. And just based on some of the what we hear from a pricing standpoint, things look like we're we're we're going through a a mega giga period of inflation, however you wanna, however you wanna characterize it. Just just in the event things get tougher than expected in the second half of the year, Obviously, you're trying to reorient your cost base. How do you protect yourself with all of that going on? Again, just in a world where things do get a little bit more challenging. I'd just love to hear kind of the strategy behind you think about that. Thank you so much. Sure. Three things.

Yeah. So three things. You know my background as a CIO, so I'm gonna speak from a CIO perspective. The budget that I have is the budget that I've had. Right? And so I have to drive value for business. I've gotta drive value for internal, whether it's driving more revenue or driving more profitability. And what we're gonna see from our clients is, yes, endpoints may go up, servers may go up, I could sweat those assets. I could extend them. I can move to more towards software as a service and look at some of these other platforms. Right? And we have a full portfolio that we could take advantage of where clients are gonna ship to. We can help them with sweating their assets. We can help them with bringing more productivity. We talked about AI-powered platform around end-to-end support in terms of the service ITIL stack. And so we're shifting, and we're helping our clients navigate the increase in memory prices and ultimately the increase in end devices. So I'm very confident that we have the capabilities, and we've got all the infrastructure to help our clients to navigate through this. Look. You can't predict the pricing. I can't predict the pricing, what's gonna happen with chips, memory over the next you know, eighteen months. What I can do is control the factors that we have, and that is knowing there's always signs of headwinds, shifting our demand, and helping our clients to navigate through this. And I'm confident we've got the products and we've got the line card that allows us to do that.

Awesome. Thank you very much, Steve. Best of luck to you guys.

Thank you. And our next question comes from the line of Samik Chatterjee from JPMorgan. Your question please. Samik, you might have your phone on mute.

Yes. Sorry about that. Hello. Good morning. This is Mark. This is Tom. Hello. Good morning. So my question is regarding the operating cash flow to free cash flow bridge. You go from $3.60 to $2.50 based on the 2026 guide. So I guess what are some of the assumptions with regards to that, like the working capital assumptions, CapEx, and the split between operations versus finance receivable runoff.

Yeah. You're talking year to year, and thanks for the question, by the way. If you think about year to year free cash flow from 2025 to 2026, there's a lot of puts and takes that can go on in between, that bridge and the walk down. But the essential gist of it, if you boil it all down, is we'll have a higher EBITDA driven by, you know, operating income increases of $225 to $250 million, and then you'll have less finance receivables. And the net of those two kinda gets you to the year over year improvement. And free cash flow. There are some puts and takes in there. You'll have a little bit higher cash taxes, a little bit higher interest. A little bit less restructuring. But if you netted it all down, it it comes down to a higher operating income income offset by lower finance receivables.

Got it. And I guess piggybacking off that with regards to the finance receivable sales and the prior question regarding prioritization between P and L and balance sheet. How do you think about finance receivables sales over the course of the year in 2026?

Yeah. We, you know, we had $335 million of finance receivable sales. Our forward flow benefit baked into our forecast for 2026. If you think about where we have stated, we will take our finance receivables to it via balance sheet of about a billion dollars, which is where we'll exit the year. I anticipate the larger piece of that happening in the back half of the year to get to that. And then we'll see if we can be opportunistic beyond 2026.

Got it. Thank you for taking my question.

Thank you. Our next question comes from the line of Asiya Merchant from Citigroup. Your question please.

Hi. Good morning. This is Mike Cadiz for Asiya Merchant at Citi. Good to meet you, Chuck, and we look forward to to working with you in the coming quarters. So my one question is can you talk about any cross-selling progresses that you've seen and any milestones or targeting for this year, given the large 200,000 plus client base. And what kind of penetration is targeted for this year? And also, the last thing is, are are the sales motions somewhat different in selling IT services to a Lexmark print client versus a legacy Xerox client? Thanks.

Let me start with that. So as you know, we talked about our IT solution strategy in selling into our mid-market clients where typically the same buyer is the buyer about print equipment as well as IT equipment. So we already have the relationship. We've already have a trusted partner and a trusted client We've talked about, you know, our printers are behind the firewall. We're integrated into a security stack. By the way, we're integrated into their overall data security. So it's the same economic buyer. We're now bringing IT solutions into. So for us, the go-to-market motion is leverage the relationship, but bring a broader set of portfolios and products and capabilities such as we just announced with CyberShield. That would never happen without the 200,000 plus clients that we already have that we know struggle with being able to get both cybersecurity insurance and get the scale and get the capabilities of a Palo Alto network. So the go-to-market motion for us is leverage the relationship we already have, bring in the portfolio and the capabilities from IT solution, and continue the expansion and the penetration into those accounts. What we've also seen and recently at the retail show as we start to look at expansion and bringing these together, we now start to see the things that everything that Lexmont had done in the retail space around signage, around IoT, AI capabilities, we now can bring IT solutions in a store the same way, and we now can bundle and package a broader set of portfolios. Including, by the way, adding production capabilities. So what we're seeing is an expansion of route to market and then penetration in existing TAM. We already have relationships, we're already trusted partners, and now we're bringing new products and services that drive meaningful outputs for our clients, which is really exciting as think about the go-to-market motion. Chuck, anything you wanna comment?

If I would add a little bit to to how does that translate into bottom line performance. You know, someone mentioned all the different projects and areas that we're working right now. But they all have one intended focus, and that's to increase the financial profile this company. And I see all that occurring. I see you know, we performed as expected in Q4 on a bottom line basis. We performed as expected or better than expected from a cash flow generation. So you're seeing some of that working capital discipline. And some of the synergy savings being realized. So where we stand right now is in control of our own destiny. With good momentum going into 2026.

Thank you.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Steven John Bandrowczak for any further remarks.

Thank you. While 2025 brought meaningful challenges, we exit the year with strengthening fundamentals and clear momentum. The integration of LexSmart and IT Savvy is unlocking tangible commercial and operational benefits. Our core print business is showing signs of stabilization, and IT solutions delivered double-digit bookings and billings growth. All of which gives us optimism for an improved in 2026. Looking ahead, we have high convictions in our ability to expand margins, and return to profitable growth. Many of the cost and product-related headwinds began to ease as the year progresses while new product launches and unified IT solutions and sales organizations and disciplined execution of our reinvention program, provide meaningful tailwinds. With a clear deleveraging plan, and a robust synergy pipeline, we are confident in our path we are on. You for your continued support. We look forward to delivering a stronger 2026 for our employees, clients, partners, and shareholders. Have a great day.

Thank you, ladies and gentlemen, for your participation in today's This does conclude the program. You may now disconnect. Good day.