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XH

Xerox Holdings Corp (XRX)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue of $1.96B missed consensus by ~3.6% while adjusted EPS of $0.20 materially beat a negative consensus; margins compressed and guidance was cut across revenue growth, adjusted OI margin, and FCF, outweighing a raised synergy target to ≥$300M . Revenue: $1.961B vs $2.036B*; EPS: $0.20 vs -$0.18*; EBITDA: $48M vs $149M* .
  • Management cited tariff costs and government funding uncertainty delaying transactional print equipment purchases; IT Solutions remained a bright spot with double-digit pro forma growth and 19.5% gross margin expansion .
  • 2025 outlook cut: CC revenue growth trimmed to ~13% (from 16–17%), adjusted OI margin to ~3.5% (from ~4.5%), and FCF to ~$150M (from ~$250M), reflecting softer sales and slower price realization vs rising product/tariff costs; tariff headwind now guided to ~$35M net in 2025 .
  • Integration momentum: Lexmark synergy forecast raised by $50M to at least $300M; net debt reduced by $226M since close; management targets ~3x gross leverage medium-term, though Q3 non-financing interest expense jumped to $80M with higher post-deal debt costs .

What Went Well and What Went Wrong

What Went Well

  • IT Solutions strength: segment revenue up 163% YoY to $226M (ITsavvy), pro forma double-digit growth; segment margin 8.1% and IT Solutions gross margin 19.5% (+320 bps YoY) on platform leverage and mix .
  • Integration and synergy trajectory: “we’ve identified meaningful incremental value—with cost synergies now forecasted to be at least $300 million.” – CEO Steve Bandrowczak .
  • Cash generation and balance sheet focus: Operating cash flow $159M (+$43M YoY), FCF $131M (+$24M YoY), and $226M of net debt paydown since July 1 close; management reiterated debt reduction as top capital priority .

What Went Wrong

  • Top-line shortfall and margin compression: Revenue $1.961B missed consensus and adjusted OI margin fell 190 bps YoY to 3.3% on higher product/tariff costs and unfavorable mix; adjusted gross margin declined 350 bps to 28.9% .
  • Print pressures: On a pro forma basis, total revenue -7.8% YoY; Print & Other segment margin fell to 3.7% (from 7.1%) with lower managed print volumes and reduced high-margin financing fees; Lexmark equipment sales were lumpy among channel/OEMs .
  • Higher interest expense: Non‑financing interest expense rose to $80M (vs $31M LY) tied to acquisition financing; EBITDA also under-ran consensus materially, constraining near-term leverage optics [*Estimates table below].

Financial Results

Headline Metrics vs Prior Year, Prior Quarter, and Street

MetricQ3 2024Q2 2025Q3 2025 ActualQ3 2025 Consensus*
Revenue ($M)$1,528 $1,576 $1,961 $2,035.4*
Adjusted Gross Margin (%)32.4% 29.3% 28.9% —
Adjusted Operating Margin (%)5.2% 3.7% 3.3% —
Adjusted EPS ($)$0.25 $(0.64) $0.20 $(0.18)*
GAAP EPS ($)$(9.71) $(0.87) $(6.01) —
Operating Cash Flow ($M)$116 $(11) $159 —
Free Cash Flow ($M)$107 $(30) $131 —
EBITDA ($M)——$48.0*$148.9*

Values with * are from S&P Global consensus/actuals. Values retrieved from S&P Global.

Notes: GAAP Q3 2025 includes a $102M Lexmark inventory step-up and a $467M tax valuation allowance charge; Q3 2024 included ~$1.1B goodwill impairment and a $161M tax valuation allowance charge .

Segment Performance (Q3 2025 vs Q3 2024)

SegmentRevenue Q3’24 ($M)Revenue Q3’25 ($M)YoY %Segment Profit Q3’24 ($M)Segment Profit Q3’25 ($M)Segment Margin Q3’24Segment Margin Q3’25
Print & Other1,442 1,739 +20.6% 103 64 7.1% 3.7%
IT Solutions86 226 +162.8% — 18 — 8.1%
Intersegment Elim.—(4) NM————
Total Adjusted Profit80 65 (18.8)% 5.2% 3.3%

KPIs and Mix

KPIQ3 2024Q2 2025Q3 2025
Equipment Sales ($M)$339 $336 $383
Post-Sale Revenue ($M)$1,189 $1,240 $1,578
Equipment Mix – Entry ($M)$53 $51 $119
Equipment Mix – Mid-Range ($M)$224 $235 $222
Equipment Mix – High-End ($M)$57 $44 $39
IT Solutions Gross Margin (%)——19.5%
Non-financing Interest Expense ($M)$31 $55 $80

Context: IT Solutions bookings +11% YoY in Q3 (vs +10% in Q2), and gross billings +27% YoY, led by public sector deployments and cloud/networking strength .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue Growth (CC)FY 202516–17% CC growth ~13% CC growth Lowered
Adjusted Operating MarginFY 2025~4.5% ~3.5% Lowered
Free Cash Flow ($M)FY 2025~250 ~150 Lowered
Tariff Headwind (Net, $M)FY 2025$30–35 (assumed in prior guide) ~$35 (high end) At high end
Lexmark Synergy (Gross)Multi-yr≥$250M (prior) [implied]≥$300M (↑ $50M) Raised
Non-financing Interest Exp. (FY, $M)FY 2025~240 ~230 (in guidance bridge) Slightly lower in updated bridge

Management highlighted 2025 adjusted OI reflects ~$100–110M contribution from Lexmark and ~$35M incremental tariff costs net of mitigations; FY FCF reduction also reflects ~$25M post-acquisition transaction costs and lower profits .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Tariffs & cost pass-throughExpected minimal tariff impact in Q2; full-year tariff net ~$50M sensitivity in early-year commentary; later Q2 guide included $30–35M net .Tariff headwind now ~$35M net in 2025; measured price hikes due to demand softness; expecting fuller offsets over time .Headwind at high end of range; mitigation slower.
Government funding uncertaintyNoted macro/trade policy uncertainty impacting demand (Q2) .Government funding delays depressed transactional print equipment; expectation for delayed purchases to convert once clarity returns .Ongoing headwind; recovery contingent on policy clarity.
IT Solutions growthITsavvy integration ahead of plan; double-digit growth helping stabilize revenue (Q1/Q2) .Pro forma bookings +11%, billings +27% YoY; GM 19.5%; segment margin 8.1% .Strengthening; margin expansion.
Lexmark integration & synergiesDeal closed Jul 1; guided modest 2025 contribution; accretive to FCF/EPS .Synergy target raised to ≥$300M; 1,200 roles eliminated; >$125M run-rate gross savings by YE; AI CoE to enhance productivity .Positive trajectory; acceleration vs plan.
Product portfolio & go-to-marketShift away from high-end manufacturing; expand IT/digital; reinforce channel .Launch of IJP900; adopting Lexmark A3 platform to reduce cost-to-serve; inside sales ESR +30% YTD; channel optimization .Portfolio refresh; sales productivity initiatives scaling.
Balance sheet & leveragePrepared to finance acquisition; targeting deleveraging .Net debt down $226M post-close; gross debt leverage ~4.3x; target ~3x medium-term .Deleveraging path reiterated.

Management Commentary

  • Strategy and integration: “The combined Xerox and Lexmark team is aligning go‑to‑market structure, blending complementary portfolios, and standardizing operating processes… cost synergies now forecasted to be at least $300 million.” – Steve Bandrowczak, CEO .
  • Macro headwinds and demand timing: “We experienced continued disruption associated with tariff and government funding‑related uncertainty… delays in purchasing decisions… However, page volume trends remained consistent… indicating unchanged demand for printed pages.” – Press release overview .
  • Cost and operating model: “We launched an AI Center of Excellence… expect AI productivity solutions to de‑risk, if not add to, existing synergy savings opportunities.” – COO Louis Pastor .
  • Capital allocation: “We returned to positive free cash flow and took net debt down by $226 million… With the Lexmark acquisition now closed, we expect most, if not all, free cash flow to be used to repay debt.” – CEO .

Q&A Highlights

  • Tariff headwind sizing and pricing: 2025 net tariff impact now at high end (~$35M); price increases continue but are measured given demand softness; offsets expected over time .
  • Synergy flow-through: Of the additional $50M in synergies, roughly half expected in 2026, benefiting both gross and operating margins .
  • Demand dynamics: Weakness concentrated in equipment (ESR) due to government/commercial delays; page volumes and supplies steady; management expects deferred purchases to materialize as uncertainty clears .
  • Share position: Management does not see share loss; characterizes pullback as industry-wide .
  • 2026 cash scaffolding: ~$400M proceeds from finance receivables reduction; ~$50M one-time synergy costs; better working capital and higher operating income anticipated .

Estimates Context

  • Q3 2025 results vs S&P Global consensus: Revenue $1.961B vs $2.035B* (miss ~3.6%); EPS $0.20 vs -$0.18* (beat by ~$0.38); EBITDA $48M vs $149M* (miss) (3 revenue/3 EPS estimates) .
  • Implications: The top-line shortfall and EBITDA miss reflect heavier-than-expected tariff/product cost and mix pressures; EPS beat reflects non-operating/tax items and cost control. The cut to FY revenue growth, adjusted OI margin, and FCF should drive downward estimate revisions despite synergy momentum and IT Solutions strength .

Values with * are from S&P Global consensus/actuals. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Guidance reset dominates the narrative: Lowered FY revenue growth (~13% CC), adjusted OI margin (3.5%), and FCF ($150M) signal a softer back half given slower price realization and ongoing tariff/macros .
  • Durable positives: IT Solutions scaling with improving margins and cross-sell into the print base; Lexmark synergies raised to ≥$300M with early actions already driving run-rate savings .
  • Near-term pressure points: Transactional print equipment demand remains paused pending tariff/government clarity; adjusted gross margin erosion from tariffs/product cost/mix and higher interest expense weigh on EBITDA/leverage optics .
  • Cash and leverage discipline intact: Q3 FCF inflection and $226M net debt paydown since close, with FCF prioritized to deleveraging toward ~3x target over the medium term .
  • Watch for catalysts: Policy clarity unlocking deferred equipment orders; execution on price actions and supply chain shifts; cadence of synergy capture and AI-enabled productivity; product launches (IJP900, Lexmark A3 platform) supporting mix and service margin uplift .
  • Estimate risk skewed negative near term: Guidance cut and EBITDA miss likely prompt downward revisions; synergy upside and IT Solutions momentum offer medium-term offsets as cost actions flow through .