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XH

Xerox Holdings Corp (XRX)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $1.613B, down 8.6% YoY; GAAP EPS was -$0.20 and adjusted EPS was $0.36; adjusted operating margin improved to 6.4% (+100bps YoY) .
  • Operating cash flow was $351M and free cash flow was $334M; FY24 revenue was $6.221B with adjusted EPS $0.97 and adjusted operating margin 4.9% .
  • 2025 guidance: low single-digit revenue growth (constant currency), adjusted operating margin ≥5.0%, FCF $350–$400M; dividend policy reduced to $0.50/year (from $1.00) to prioritize deleveraging amid the pending Lexmark acquisition closing in 2H25 .
  • Strategic narrative: Reinvention cost savings and organizational simplification supporting margin resilience despite revenue pressure; catalysts include A4 equipment share gains, Digital/IT Services growth, and integration of ITsavvy (closed) plus Lexmark synergies (> $200M) .

What Went Well and What Went Wrong

What Went Well

  • Adjusted operating margin expanded to 6.4% (+100bps YoY) on lower SAG and reinvention benefits; adjusted operating income rose to $104M (+8% YoY) .
  • Installations grew ~19% YoY, led by entry-level and mid-range devices; management highlighted pricing tools and productivity initiatives supporting 2025 trajectory .
  • Strategic M&A: ITsavvy closed in November and Lexmark announced, with >$200M cost synergies over 2 years and expected accretion to adjusted EPS and FCF; “We continue to see steady progress in our Reinvention…realizing the benefits of the ITsavvy and pending Lexmark acquisitions” — CEO Steve Bandrowczak .

What Went Wrong

  • Top-line contraction: Q4 revenue -8.6% YoY; equipment sales -14.2% YoY on unfavorable mix, prior-year backlog release, and a large prior-year Production sale; post-sale revenue -6.7% YoY .
  • Gross margin pressure: total GM fell 240bps YoY to 31.1% (adjusted -190bps to 31.6%) driven by product mix (more A4), lower page volumes, and inclusion of ITsavvy .
  • Adjusted EPS fell to $0.36 from $0.43; GAAP net loss included a $37M pre-tax intangible write-off and $19M of reinvention/transaction costs; FY24 reflected the Q3 goodwill impairment and DTA valuation allowance .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Billions)$1.765 $1.528 $1.613
GAAP EPS ($)-$0.50 -$9.71 (impairment) -$0.20
Adjusted EPS ($)$0.43 $0.25 $0.36
Adjusted Operating Margin (%)5.4% 5.2% 6.4%
Gross Margin (%)33.5% 32.4% 31.1%
Operating Cash Flow ($USD Millions)$389 $116 $351
Free Cash Flow ($USD Millions)$379 $107 $334

Segment breakdown (Q4 2024 vs Q4 2023):

SegmentQ4 2023 Revenue ($MM)Q4 2024 Revenue ($MM)YoY %Q4 2023 Profit ($MM)Q4 2024 Profit ($MM)
Print and Other$1,686 $1,540 -8.7% $89 $87
XFS$100 $89 -11.0% $7 $17
Intersegment Elimination$(21) $(16) (23.8%) ——
Total Adjusted Operating Income$96 $104 +8.3% ——

KPIs and mix:

KPIQ4 2023Q4 2024
Equipment Sales ($MM)$458 $393
Entry ($MM)$56 $60
Mid-range ($MM)$302 $260
High-end ($MM)$94 $68
Equipment Gross Margin (%)32.4% 27.4%
Post-sale Gross Margin (%)34.0% 32.4%
Total Gross Margin (%)33.5% 31.1%
RD&E as % of Revenue3.2% 2.9%
SAG as % of Revenue24.9% 23.4%
Equipment Installations YoY—~+19%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue growth (constant currency)FY 2025—Low single-digit growth New
Adjusted Operating MarginFY 2025—≥5.0% New
Free Cash Flow ($MM)FY 2025—$350–$400 New
Dividend per share (annual)Ongoing$1.00 $0.50 Lowered

Note: Guidance excludes impacts from the pending Lexmark acquisition, expected to close in 2H 2025 .

Earnings Call Themes & Trends

TopicQ2 2024 (Prior-2)Q3 2024 (Prior-1)Q4 2024 (Current)Trend
Reinvention cost savings & marginLowered FY24 margin to ≥6.5%; sequential margin improvement; emphasis on structural simplification Margin guidance cut to ~5.0%; adjusted margin +110bps YoY despite Q3 impairment Adjusted margin 6.4% (+100bps YoY); 2025 ≥5% with ongoing cost savings Improving margin resilience
Equipment share & A4 focusBacklog/geography actions pressured equipment revenue; plan for H2 improvement Delayed new launches; equipment installs +17% YoY Entry/mid installs up; aim to double A4 share; A4 tail supports future supplies margins Positive mix shift over time
Digital/IT Services growthCore business flattish; targeted Digital & IT Services growth Reinvention continues; pending ITsavvy to diversify ITsavvy closed; enhanced IT Solutions offering; separate segment starting Q1 Accelerating
Lexmark acquisition——Announced; $1.5B EV; >$200M cost synergies; deleveraging priority; dividend cut Strategic expansion
Forward flow program/FCFAt least $550M FCF FY24; forward flow supports cash FY24 FCF lowered to $450–$500M 2025 FCF $350–$400M; lower forward flow benefits offset by working capital and margins Normalizing
Gross margin trajectoryQ2 GM 33.0% Q3 GM 32.4%; mix headwinds Q4 GM 31.1%; expect lower GM in 2025 from ITsavvy mix, offset by pricing/productivity Under pressure near-term

Management Commentary

  • “2024 was a critical year as we implemented a new operating model…In 2025, we expect to build on changes made in 2024…realizing the benefits of the ITsavvy and pending Lexmark acquisitions, and strengthening our balance sheet.” — CEO Steve Bandrowczak .
  • “We expect the acquisition of Lexmark to strengthen the print business…reduce pro forma debt leverage ratio…> $200 million of cost synergies over two years.” .
  • “In 2025, adjusted operating income margin is expected to be at least 5.0%…reflects incremental gross cost savings, partially offset by higher product costs.” .
  • “We achieved our targeted gross cost savings of more than $200 million…expect pipeline to deliver more than $400 million.” — COO John Bruno .
  • “We had very good growth in our A4 business in Q4…lower upfront GM but high-margin supplies tail.” — CEO Steve Bandrowczak .

Q&A Highlights

  • ITsavvy model and growth potential: Management described ITsavvy as a high-value VAR with deep vendor relationships, addressing >90% of CIO spend, and cross-selling opportunities into Xerox’s ~200k SMB clients; expected high single-digit industry growth and meaningful revenue penetration .
  • Reinvention headwinds: ~400bps revenue headwind in 2025 from prior actions (geographic simplification, production print exit, European paper sale, declining XFS portfolio); not expected to carry into 2026; Lexmark synergies addressed separately .
  • Gross margin trajectory: 2025 GM expected below 2024 due to ITsavvy mix and product costs; offsets from pricing technology and productivity initiatives; A4 growth supports future supplies margins .
  • Forward flow program/FCF: 4-year plan to reduce finance receivables to ~$1B (from $3.6B), with ~$800M to be sold over 2025–2026; 2025 FCF lower mainly on reduced forward flow tailwind .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue could not be retrieved due to S&P Global API request limits at the time of analysis. As a result, we cannot quantify beats/misses versus consensus for this quarter. We will update when access is restored.

Key Takeaways for Investors

  • Margin resilience despite revenue pressure: Adjusted operating margin expanded to 6.4% YoY; Reinvention savings and lower SAG underpin 2025 margin guidance ≥5% .
  • Mix shift in print: A4 and entry/mid-range unit growth indicates future supplies tail and improving share trajectory; near-term equipment GM headwinds offset by pricing/productivity .
  • Services diversification: ITsavvy integration advances Xerox’s IT Solutions strategy; separate segment reporting begins Q1—watch for incremental KPIs on client penetration .
  • Lexmark catalyst: Pending 2H25 close is a material lever for cost synergies (> $200M), portfolio breadth, and deleveraging; monitor regulatory/closing milestones and integration plans .
  • Cash generation normalizing: 2025 FCF $350–$400M reflects reduced forward flow benefits; focus shifts to core FCF, working capital discipline, and operating improvements .
  • Capital allocation reset: Dividend reduced to $0.50/year to prioritize debt reduction; enhances balance sheet flexibility ahead of integration .
  • Near-term trading implications: Stock likely sensitive to 2025 execution on A4 share gains, services growth, and delivery against cost-savings roadmaps; quarterly margin/FCF cadence and Lexmark progress are key sentiment drivers .