Release Date: January 28, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Xerox Holdings Corp (XRX, Financial) achieved revised full-year revenue and free cash flow guidance, demonstrating improved execution.
- The company successfully implemented structural changes, including a shift to a business unit-led operating model and centralization of key business processes.
- Xerox Holdings Corp (XRX) reported a 20% sequential improvement in sales force productivity in Q4 2024.
- The acquisition of ITsavvy and the pending acquisition of Lexmark are expected to strengthen core businesses and drive revenue stabilization.
- Xerox Holdings Corp (XRX) achieved targeted $200 million of gross reinvention cost savings in 2024, contributing to a 12% decline in total company operating expenses.
Negative Points
- Full-year revenue for 2024 decreased by 9.7% in actual currency, with a 10.2% decline excluding ITsavvy results.
- Adjusted EPS for 2024 was $0.97, which is $0.85 lower year-over-year.
- Free cash flow generation in 2024 was $467 million, $182 million lower than the previous year.
- The company experienced modest market share losses in equipment and lower page volumes.
- Adjusted gross margin declined by 190 basis points year-over-year in Q4 2024, impacted by a higher mix of entry A4 equipment and lower print volumes.
Q & A Highlights
Q: Can you describe how ITsavvy operates and its role within Xerox?
A: Steven Bandrowczak, CEO: ITsavvy functions as a value-added reseller (VAR) with strong relationships with major suppliers, addressing a significant portion of a CIO's budget. They offer services around AI-enabled endpoints and infrastructure, aiding clients in transitioning to cloud solutions and Microsoft upgrades. John Bruno, COO, added that ITsavvy's model is differentiated by its value-added services, focusing less on reselling and more on providing comprehensive IT solutions, particularly in North America and Western Europe.
Q: What is the expected revenue growth potential for ITsavvy with Xerox's backing?
A: Steven Bandrowczak, CEO: The industry ITsavvy operates in is expected to grow at high single digits over the next three to five years. Xerox plans to leverage its existing client base to expand ITsavvy's reach, integrating IT solutions into current Xerox relationships and introducing Xerox's print solutions to ITsavvy's customers. This strategy aims to stabilize and grow Xerox's core business.
Q: Can you explain the impact of Project Reinvention on 2025 revenue and its continuation into 2026?
A: Unidentified Company Representative: The 400 basis points headwind in 2025 is due to ongoing effects from prior actions. The focus in 2025 is on tactical initiatives rather than deep organizational changes. John Bruno, COO, noted that foundational elements like geographic and product simplification are largely complete, and no significant carryover into 2026 is expected. The Lexmark acquisition will be integrated separately.
Q: What are the drivers behind the 2025 free cash flow guidance, and how does it compare to 2024?
A: Unidentified Company Representative: The lower free cash flow guidance for 2025 is primarily due to reduced inflow from finance receivable sales, which is planned. Improvements in operating margin and working capital are expected to partially offset this. The forward flow program is a four-year initiative, with significant progress already made.
Q: How is Xerox addressing the decline in gross margins, and what is the outlook for 2025?
A: Unidentified Company Representative: The decline in gross margin in 2024 was due to a mix of lower-margin A4 equipment and ITsavvy's inclusion. For 2025, gross margins are expected to be lower due to ITsavvy's lower margins and product cost increases. However, Xerox plans to offset these with technology-enabled pricing and productivity initiatives. Steven Bandrowczak, CEO, emphasized the growth in A4 business, which, despite lower initial margins, promises high-margin supplies revenue in the future.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
