Q2 2024 Xerox Holdings Corp Earnings Call

Questions & Answers Session. To ask a question at that time, please press star 11 at any time during this call. You can withdraw your question simply by pressing star 11 again. At this time, I'd like to turn the program over to today's...

Operator: You can withdraw your question simply by pressing star one one again.

David Beckel: At this time, I'd like to turn the program over to today to Mr. David Beckel, Vice President and Head of Investor Relations. Please go ahead, sir.

Operator: To Mr. David Beckel, Vice President and Head of Investor Relations. Please go ahead, sir.

To Mr. David Beckel, Vice President and Head of Invest Relations. Please go ahead, sir.

David Beckel: Good morning, everyone. I'm David Beckel, Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation's second quarter 2024 earnings release conference call hosted by Steve Bandrowczak, Chief Executive Officer. He's joined by John Bruno, President and Chief Operating Officer, and Xavier Heiss, Executive Vice President and Chief Financial Officer. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and/or rebroadcasting in this call are prohibited without the express permission of Xerox. During the call, Xerox executives will refer to slides that are available on the web at www.xerox.com slash investor.

David James Beckel: Morning, everyone. I'm David Beckel, Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation's second quarter 2024 earnings release conference call, hosted by Steve Bandrowczak, Chief Executive Officer. He's joined by John Bruno, President and Chief Operating Officer, and Xavier Heiss, Executive Vice President and 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 is prohibited without the express permission of Xerox.

David James Beckel: Good morning, everyone. I'm David Beckel, Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation's second quarter 2024 earnings release conference call, hosted by Steve Bandrowczak, Chief Executive Officer.

Speaker Change: He's joined by John Bruno, President and Chief Operating Officer, and Xavier Heiss, Executive Vice President and Chief Financial Officer.

Speaker Change: 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.

David James Beckel: During the call, Xerox executives will refer to slides that are available on the web at www.xerox.com slash invest. 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'd like to turn the meeting over to Mr. Bandrowczak.

Speaker Change: During the call, Xerox executives will refer to slides that are available on the web at www.xerox.com slash investor.

David Beckel: And we'll make comments that contain forward-looking statements, which by their nature address matters that are in the future and are uncertain.

Speaker Change: 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'd like to turn the meeting over to Mr. Bandrowczak.

David Beckel: Actual future financial results may be materially different than those expressed herein.

Steven Bandrowczak: At this time, I'd like to turn the meeting over to Mr. Bandrowczak. Good morning, and thank you for joining our Q2 2024 earnings call. Sequential improvements in adjusted operating income lodging, cash flow, and revenue validate the comprehensive and strategic organizational changes implemented in Q1. Reinvention is a multi-year strategy to simplify operations and reposition Xerox towards market opportunities in print, digital, and IT services with the highest rates of underlying growth. The transformational changes of this magnitude progress may not always unfold in a linear fashion. We experienced a short period of disruption in the first quarter during implementation of the redesigned operating model, but continued to execute reinvention according to plan.

Steven John Bandrowczak: Good morning, and thank you for joining our Q2 2024 earnings call. Sequential improvements in adjusted operating income margin, cash flow, and revenue validate the comprehensive and strategic organizational changes implemented in Q1. Reinvention is a multi-year strategy to simplify operations and reposition Xerox towards market opportunities in print, digital, and IT services with the highest rates of underlying growth. With transformational changes of this magnitude, progress may not always unfold in a linear fashion. We experienced a short period of disruption in the first quarter during implementation of the redesigned operating model, but we continue to execute reinvention according to plan.

Steven John Bandrowczak: Good morning, and thank you for joining our Q2 2024 earnings call.

Bandrowczak: Sequential improvements in adjusted operating income margin, cash flow, and revenue validate the comprehensive and strategic organizational changes implemented in Q1.

Speaker Change: Reinvention is a multi-year strategy to simplify operations and reposition Xerox towards market opportunities in print, digital, and IT services with the highest rates of underlying growth.

Speaker Change: With transformational changes of this magnitude, progress may not always unfold in a linear fashion.

Speaker Change: We experienced a short period of disruption in the first quarter during implementation of the redesigned operating model, but continue to execute reinvention according to plan.

Steven John Bandrowczak: Notable improvements in operating processes and financial results since the reorganization further our confidence in this strategy's ability to deliver a targeted $300 million improvement in adjusted operating income above 2023 levels by the end of 2026. Summarizing results for the quarter, revenue of $1.6 billion decreased 10% in actual and constant current.

Steven Bandrowczak: Notable improvements in operating processes and financial results since the reorganization further out confidence in this strategy's ability to deliver a targeted $300 million improvement in adjusted operating income above 2023 levels by the end of 2026.

Speaker Change: Notable improvements in operating processes and financial results since the reorganization further out confidence

Speaker Change: And this strategy's ability to deliver a targeted $300 million improvement in adjusted operating income above 2023 levels by the end of 2026.

Steven Bandrowczak: Summarizing results for the quarter, revenue of 1.6 billion decreased 10% in actual and constant currency. Excluding the impact of year-over-year fluctuations in backlog and reduction in non-strategic revenue associated with the reinvention, court business revenue declined only modestly. Adjusted EPS was 29 cents, 15 cents lower year-over-year, primarily reflecting higher taxes and interest. Free cash flow was 115 million, an increase of 27 million compared to Q2 of last year. An adjusted operating margin of 5.4% was lower year-over-year by 70 basis points due to lower revenue, all set by operating cost reductions. With the disruption in Q1 firmly behind us, the benefits of streamlined organizations with improved operating focus on materializing in the financial results.

Speaker Change: Summarizing results for the quarter, revenue of $1.6 billion decreased 10% in actual and constant currency.

Steven John Bandrowczak: Excluding the impact of year-over-year fluctuations in backlog and reduction in non-strategic revenue associated with the reinvention, Core Business Revenue Declined Only Modestly, Adjusted EPS was $0.29, $0.15 lower year-over-year, primarily reflecting higher taxes and increased Free cash flow was $115 million, an increase of $27 million compared to Q2 of last year. An adjusted operating margin of 5.4% was lower year-over-year by 70 basis points due to lower revenue offset by operating cost reduction.

Speaker Change: Excluding the impact of year-over-year fluctuations in backlog and reduction in non-strategic revenue associated with the reinvention, core business revenue declined only modestly.

Speaker Change: Adjusted EPS was $0.29, $0.15 lower year-over-year, primarily reflecting higher taxes and interest.

Speaker Change: Free cash flow was $115 million, an increase of $27 million compared to Q2 of last year.

Speaker Change: An adjusted operating margin of 5.4% was lower year-over-year by 70 basis points due to lower revenue offset by operating cost reductions.

Steven John Bandrowczak: With the disruption in Q1 firmly behind us, the benefits of streamlined organizations with improved operating focus are materializing in the financial results. Q2 revenue was largely in line with expectations, marking an improvement in trajectory from Q1. Adjusted operating income margin improved more than 300 basis points on a sequential basis, and free cash flow grew sequentially and year over year. Momentum and Equipment Orders and Pipeline, New Product Launches, and Improved Sales Processes are expected to drive stronger revenue growth in the second half of the year than originally expected.

Speaker Change: With the disruption in Q1 firmly behind us, the benefits of streamlined organizations with improved operating focus are materializing in the financial results.

Steven Bandrowczak: Q2 revenue was largely in line with expectations, marking an improvement in trajectory from Q1. Adjusted operating income margin improved more than 300 basis points on a sequential basis, and free cash flow grew sequentially and year over year. Momentum and equipment orders and pipeline, new product launches and improved sales processes are expected to drive stronger revenue growth in the second half of the year than originally expected.

Speaker Change: Q2 revenue was largely in line with expectations, marking an improvement in trajectory from Q1.

Speaker Change: Adjusted operating income margin improved more than 300 basis points on a sequential basis and free cash flow grew sequentially and year-over-year.

Speaker Change: Momentum in equipment orders and pipeline, new product launches, and improved sales processes are expected to drive stronger revenue growth in the second half of the year than originally expected.

Steven Bandrowczak: Despite an improved outlook in the back half of the year, we lowered full year revenue, adjusted operating income, and free cash flow guidance. The reduction in full year guidance primarily reflects the impact of incremental reinvention actions, including geographic and offering simplification. The savings of which are now expected to be realized predominantly in 2025. Other impacts to margin, including higher freight and product costs, are also expected to be mitigated over time. Accordingly, the reduction in 2024 guidance has no bearing on our confidence in the three-year 300 million dollar adjusted operating income improvement target. In fact, our confidence in the three-year outlook has grown over the past quarter due to progress in the identification and estimation of reinvention cost reduction initiatives, now totaling more than 700 million between 2023 and 2026.

Steven John Bandrowczak: Despite an improved outlook in the back half of the year, we lowered full-year revenue, adjusted operating income, and free cash flow guidance. The reduction in full-year guidance primarily reflects the impact of incremental reinvention actions, including geographic and offering simplification, savings of which are now expected to be realized predominantly in 2025. Other impacts to margin, including higher freight and product costs, are also expected to be mitigated over time. Accordingly, the reduction in 2024 guidance has no bearing on our confidence in the three-year, $300 million Adjusted Operating Income Improvement Target.

Speaker Change: Despite an improved outlook in the back half of the year, we lowered full year revenue, adjusted operating income, and free cash flow guidance.

Speaker Change: The reduction in full-year guidance primarily reflects the impact of incremental reinvention actions including geographic and offering simplification.

Speaker Change: The savings of which are now expected to be realized predominantly in 2025.

Speaker Change: Other impacts to margin, including higher freight and product costs, are also expected to be mitigated over time.

Speaker Change: Accordingly, the reduction in 2024 guidance has no bearing on our confidence in the three-year $300 million Adjusted Operating Income Improvement Target.

Steven John Bandrowczak: Fact, our confidence in the three-year outlook has grown over the past quarter due to progress in the identification and estimation of reinvention cost reduction initiatives, now totaling more than $700 million between 2023 and 2026, and the quality and rigor behind the management infrastructure recently put in place to execute those initiatives. John and Xavier will discuss the timing and consistency of future operating cost reductions in more detail. I'll now turn to our strategic priorities, which continue to guide our decision framework as we execute the re-invention, Starting with a Stronger Core.

Speaker Change: In fact, our confidence in the three-year outlook has grown over the past quarter.

Speaker Change: Due to progress in the identification and estimation of reinvention cost reduction initiatives.

Speaker Change: Now totaling more than $700 million between 2023 and 2026, and the quality and rigor behind the management infrastructure recently put in place to execute those initiatives.

Steven Bandrowczak: And the quality and rigor behind the management infrastructure recently put in place to execute those initiatives.

Steven Bandrowczak: John and Xavier will discuss the timing and consistency of future operating cost reductions in more detail. I'll now turn to our strategic priorities, which continue to guide our decision framework as we execute the reinvention. Starting with a stronger core, the change to the business unit-led operating model in Q1 and related changes to the sales organization was designed to catalyze market share growth by bringing sales and operations in closer alignment with the economic buyer of Xerox, offering long-proving sales efficiencies. We are seeing early evidence of the success of both fronts, now that our sales team has settled into the new operating model.

Speaker Change: John and Xavier will discuss the timing and consistency of future operating cost reductions in more detail.

Speaker Change: I'll now turn to our strategic priorities which continue to guide our decision framework as we execute the reinvention.

Steven John Bandrowczak: The change to the business unit-led operating model in Q1 and related changes to the sales organization were designed to catalyze market share growth by bringing sales and operations in closer alignment with the economic buyer of Xerox's offering while improving sales. We are seeing early evidence of the success of both fronts now that our sales team has settled into the new operating model. Sales, Marketing, and Pricing teams are working more collaboratively to design offerings and marketing strategies specific to client segments and routes to market.

Speaker Change: Starting with a Stronger Core

Speaker Change: The change to the business unit-led operating model in Q1 and related changes to the sales organization were designed to catalyze market share growth by bringing sales and operations in closer alignment with the economic buyer of Xerox offering while improving sales efficiency.

Speaker Change: We are seeing early evidence of the success of both fronts now that our sales team has settled into the new operating model.

Steven Bandrowczak: The sales, marketing, and pricing teams are working more collaboratively to design offerings and marketing strategies specific to client segments and routes to market. Sales efficiency has improved through enhanced intelligence, better planning tools, and optimize sales coverage models. And work continues to reduce administrative burden, giving the sales team what time to focus on the highest quality opportunities and target new accounts. These improvements are bearing out across top line key performance indicators. Equipment auto momentum continued in Q2 with orders and pipeline both higher year over year. Supplies revenue also grew in the second quarter and the first half of the year.

Speaker Change: The sales, marketing, and pricing teams are working more collaboratively to design offerings and marketing strategies specific to client segments and routes to market.

Steven John Bandrowczak: Sales efficiency has improved through enhanced intelligence, better planning tools, and optimized sales coverage. And work continues to reduce the administrative burden, giving the sales team more time to focus on the highest quality opportunities and target new ones. These improvements are bearing out across top-line key performance indicators. Equipment order momentum continued in Q2, with orders and pipeline both higher year-over-year.

Speaker Change: Sales efficiency has improved through enhanced intelligence, better planning tools, and optimized sales coverage models.

Speaker Change: And work continues to reduce administrative burden given the sales team more time to focus on the highest quality opportunities and target new accounts.

Speaker Change: These improvements are bearing out across top-line key performance indicators.

Speaker Change: Equipment order momentum continued in Q2, with orders and pipeline both higher year over year.

Steven John Bandrowczak: Supplies revenue also grew in the second quarter and the first half of the year. Services KPIs are also very strong. Revenue renewal rates for large accounts remained above 100% in Q2 and for the last 12 months, and across both print and digital services.

Speaker Change: Supplies revenue also grew in the second quarter and the first half of the year.

Steven Bandrowczak: Services KPIs are similarly strong. Revenue renewal rates for large accounts remained above 100% in Q2 and for the last 12 months, and across both print and digital services. New business signings are higher year-to-date, with renewal rates ahead of internal targets. The benefit-improved sales operations will be augmented in the second half with a refreshed A3 product lineup. The largest and most successful product category. The lineup features what we believe is the world's first AI-assisted multi-functional printers. The devices come with adaptive learning modules, which save clients time by suggesting new and optimized workflows using AI-based algorithms to analyze device-yushed patterns and user preferences.

Speaker Change: Services KPIs are similarly strong.

Speaker Change: Revenue renewal rates for large accounts remained above 100% in Q2 and for the last 12 months, and across both print and digital services. New business signings are higher year-to-date with renewal rates ahead of internal targets.

Steven John Bandrowczak: New business signings are higher year-to-date, and renewal rates are ahead of internal targets. The benefit of improved sales operations will be augmented in the second half with a refreshed A3 product lineup, our largest and most successful product category. The lineup features what we believe is the world's first AI-assisted, multifunctional print. The devices come with adaptive learning modules that save clients time by suggesting new and optimized workflows using AI-based algorithms to analyze device use patterns and user preferences. Also included are preloaded AI applications that enable users to summarize, convert handwritten notes, and automatically auto-redact any scanned document.

Speaker Change: The benefit of improved sales operations will be augmented in the second half with a refreshed A3 product lineup, our largest and most successful product category.

Speaker Change: The lineup features what we believe is the world's first AI-assisted multifunctional printers.

Speaker Change: The devices come with adaptive learning modules which save clients time by suggesting new and optimized workflows using AI-based algorithms to analyze device use patterns and user preferences.

Steven Bandrowczak: Also included are pre-loaded AI applications that enable users to summarize, convert handwritten notes, and automatically auto-redact any scanned documents. More importantly, these AI-enabled devices serve as a platform for a broader range of AI-assisted workflows, including intelligent document processing currently deployed by Xerox as a digital service. The updated platform combined with cloud-hosted AI applications and integration opens the door for innovative new use cases. The change to the business unit operating model has also brought increased focus on expanding digital and IT service penetration across our client base. Stronger alignment between product development, solutioning, and sales teams is driving differentiated digital workflow solutions for traditional print clients who are increasingly looking to partners like Xerox to improve their most critical document workflow processes.

Speaker Change: Also included are preloaded AI applications that enable users to summarize, convert handwritten notes, and automatically auto-redact any scanned documents.

Steven John Bandrowczak: More importantly, these AI-enabled devices serve as a platform for a broader range of AI-assisted workflows, including intelligent document processing currently deployed by Xerox as a digital service. The updated platform, combined with cloud-hosted AI applications, and integration, opens the door for innovative new uses. The change to the business unit operating model has also brought increased focus on expanding digital and IT service penetration across our client base. Stronger alignment between product development, solutioning, and sales teams is driving differentiated digital workflow solutions for traditional print clients who are increasingly looking to partners like Xerox to improve their most critical document workflow processes.

Speaker Change: More importantly, these AI-enabled devices serve as a platform for a broader range of AI-assisted workflows, including intelligent document processing currently deployed by Xerox as a digital service.

Speaker Change: The updated platform combined with cloud-hosted AI applications and integration opens the door for innovative new use cases.

Speaker Change: The change to the business unit operating model has also brought increased focus on expanding digital and IT service penetration across our client base.

Speaker Change: Stronger alignment between product development, solutioning, and sales teams is driving differentiated digital workflow solutions for traditional print clients who are increasingly looking to partners like Xerox to improve their most critical document workflow processes.

Steven Bandrowczak: Our strategy of expanding total addressable market with every print client is progressing accordingly. In Q2, we signed a deal with an existing print client in the European telecom space to provide an end-to-end customer acquisition solution for the client's new home broadband service. With the help of a strategic partner, we sourced unique customer data and applied proprietary intelligence to identify an optimum set of customer targets. We designed and executed an omnichannel marketing campaign across both digital and print media and are using the response data from the campaign to recalibrate the targeting strategy, improving marketing effectiveness for the client over time.

Steven John Bandrowczak: Our strategy of expanding the total addressable market with every print client is progressing accordingly. In Q2, we signed a deal with an existing print client in the European telecom space to provide an end-to-end customer acquisition solution for the client's new home broadband service. With the help of a strategic partner, we sourced unique customer data and applied proprietary intelligence to identify an optimum set of customer targets.

Speaker Change: Our strategy of expanding total addressable market with every print client is progressing accordingly.

Speaker Change: In Q2, we signed a deal with an existing print client in the European telecom space to provide an end-to-end customer acquisition solution for the client's new home broadband service.

Speaker Change: With the help of a strategic partner, we sourced unique customer data and applied proprietary intelligence to identify an optimum set of customer targets.

Steven John Bandrowczak: We designed and executed an omnichannel marketing campaign across both digital and print media and are using the response data from the campaign to recalibrate the targeting strategy, improving marketing effectiveness for the client over time. This solution demonstrates our ability to integrate print with advanced digital capabilities to provide incremental value to our clients. Increasingly, we are utilizing artificial intelligence to optimize our digital solutions.

Speaker Change: We designed and executed an omni-channel marketing campaign across both digital and print media, and are using the response data from the campaign to recalibrate the targeting strategy, improving marketing effectiveness for the client over time.

Steven Bandrowczak: This solution demonstrates our ability to integrate print with advanced digital capabilities to provide incremental value to our clients. Increasingly, we are utilizing artificial intelligence to optimize our digital solutions. This past quarter we signed a deal with an existing print client in the insurance industry to provide a digital workflow solution leveraging AI and machine learning, which assists in the prevention of money laundering and financing of terrorists. This unique solution automates processes involved in the screening and detecting of fraud and other non-compliant activities, greatly reducing the need for manual processes and client risk. The ability to sell advanced digital solutions such as intelligent document processing by leveraging print customer relationships as a key competitive advantage as we expand our digital services business.

Speaker Change: This solution demonstrates our ability to integrate print with advanced digital capabilities to provide incremental value to our clients.

Speaker Change: Increasingly, we are utilizing artificial intelligence to optimize our digital solutions.

Steven John Bandrowczak: This past quarter, we signed a deal with an existing print client in the insurance industry to provide a digital workflow solution leveraging AI and machine learning which assists in the prevention of money laundering and financing of terrorism. This unique solution automates processes involved in the screening and detection of fraud and other non-compliant activities, greatly reducing the need for manual processes and client involvement. The ability to sell advanced digital solutions such as intelligent document processing by leveraging print-customer relationships is a key competitive advantage as we expand our digital services business.

Speaker Change: This past quarter we signed a deal with an existing print client in the insurance industry to provide a digital workflow solution leveraging AI and machine learning which assists in the prevention of money laundering and financing of terrorism.

Speaker Change: This unique solution automates processes involved in the screening and detecting of fraud and other non-compliant activities, greatly reducing the need for manual processes and client risk.

Speaker Change: The ability to sell advanced digital solutions such as intelligent document processing by leveraging print-customer relationships is a key competitive advantage as we expand our digital services business.

Steven Bandrowczak: The new business signing for digital services are up. Double digits year to date, and we expect increased demand for solutions utilizing AI to provide a tailwind to growth for our digital services businesses in 2025.

Steven John Bandrowczak: The new business signings for digital services are up, double digits year to date, and we expect increased demand for solutions utilizing AI to provide a tailwind to growth for our digital services businesses in 2025. Moving to Cost Improvement. In Q2, operating expense decreased nearly 50 million year-over-year, reflecting the benefits of the strategic actions taken in the prior year, the use of AI to optimize internal processes, and the planned reduction in headcount associated with the structural reorganization.

Speaker Change: The new business signing for digital services are up double digits year to date and we expect increased demand for solutions utilizing AI to provide a tailwind to growth for our digital services businesses in 2025.

Steven Bandrowczak: Moving to cost improvements, in Q2, operating expense decreased nearly 50 million year-over-year, reflecting the benefits of the strategic actions taken in the prior year. The use of AI to optimize internal processes and the planned reduction in headcount associated with the structural reorganization. With headcount reduction lodged behind us, our focus this quarter turned to identifying future cost reduction initiatives and developing the systems and processes required to ensure the successful delivery of those initiatives. Our Global Business Service Organization, or GBS, is a key to the delivery of future savings as it enables continuous operating efficiencies through shared capabilities and platforms. Louis Pasteur, our Chief Administration Officer, leads the GBS Organization.

Speaker Change: Moving to Cost Improvements.

Speaker Change: In Q2, operating expense decreased nearly 50 million year-over-year reflecting the benefits of the strategic actions taken in the prior year.

Speaker Change: The use of AI to optimize internal processes and the planned reduction in headcount associated with the structural reorganization.

Steven John Bandrowczak: With headcount reduction largely behind us, our focus this quarter turned to identifying future cost reduction initiatives and developing the systems and processes required to ensure the successful delivery of those initiatives. Our Global Business Service Organization, or GBS, is the key to the delivery of future savings as it enables continuous operating efficiencies through shared capabilities and platforms. Louis Pasteur, our Chief Administration Officer, leads the GBS organization.

Speaker Change: With headcount reduction largely behind us, our focus this quarter turned to identifying future cost reduction initiatives and developing the systems and processes required to ensure the successful delivery of those initiatives.

Speaker Change: Our Global Business Service Organization, or GBS, is the key to the delivery of future savings as it enables continuous operating efficiencies through shared capabilities and platforms.

Speaker Change: Louis Pasteur, our Chief Administration Officer, leads the GBS organization.

Steven Bandrowczak: He is also a Chief Transformation Officer, putting control of both the design and implementation of the end-to-end structural changes in the hands of one leader. I am pleased with the progress his team has made to identify more than 700 million of gross cost savings through reinvention from 2023 to 2026.

Steven John Bandrowczak: He is also our Chief Transformation Officer, putting control of both the design and implementation of the end-to-end structural changes in the hands of one leader. I am pleased with the progress this team has made to identify more than $700 million of gross cost savings through reinvention from 2023 to 2026. Balance Capital Allocation. This quarter, we delivered year-over-year growth in free cash flow despite lower operating income and lower sales of finance receivables.

Speaker Change: He is also our Chief Transformation Officer, putting control of both the design and implementation of the end-to-end structural changes in the hands of one leader.

Speaker Change: I am pleased with the progress this team has made to identify more than $700 million of gross cost savings through reinvention from 2023 to 2026.

Steven Bandrowczak: Finally, balanced capital allocation. This quarter we delivered year-over-year growth in free cash flow despite lower operating income and lower sales of finance receivables. We are in advanced talks to expand our forward flow agreement outside the US, which will enhance the company's free cash flow profile by reducing capital required to fund future lease originations in other regions. Bound sheet health and liquidity improved this quarter through the reduction of 300 million of debt and expansion of the ABL facility by 125 million. We expect free cashflow in future periods to be sufficient to both fund value, accretive growth, individual and IT services, and reduce debt.

Speaker Change: Finally, balanced capital allocation. This quarter we delivered year-over-year growth in free cash flow despite lower operating income and lower sales of finance receivables.

Steven John Bandrowczak: We are in advanced talks to expand our Forward Flow Agreement outside the US, which will enhance the company's free cash flow profile by reducing capital required to fund future lease originations in other regions. Balance Sheet Health and Liquidity improved this quarter through the reduction of $300 million of debt and expansion of the ABL facility by $125 million.

Speaker Change: We are in advanced talks to expand our Forward Flow Agreement outside the U.S., which will enhance the company's free cash flow profile by reducing capital required to fund future lease originations in other regions.

Speaker Change: Balance Sheet Health and Liquidity improved this quarter through the reduction of $300 million of debt and expansion of the ABL facility by $125 million.

Steven John Bandrowczak: We expect free cash flow in future periods to be sufficient to both fund value-accretive growth in digital and IT services and reduce debt. Through reinvention, we intend to reduce leverage below three times EBITDA by the end of 2021. The payment of our $1 per share dividend remains a key priority.

Speaker Change: We expect free cash flow in future periods to be sufficient to both fund value-accretive growth in digital and IT services and reduce debt. Through reinvention, we intend to reduce leverage below three times EBITDA by the end of 2026.

Steven Bandrowczak: Through reinvention, we intend to reduce leverage below three times EBITDA by the end of 2026. The payment of our $1 per share dividend remains a key priority. Our dividend yield is well above that of our peers, but we fully expect our yield to return to more normalized levels as we execute our reinvention.

Speaker Change: The payment of our $1 per share dividend remains a key priority. Our dividend yield is well above that of our peers, but we fully expect our yield to return to more normalized levels as we execute our reinvention.

John Bruno: Our dividend yield is well above that of our peers, but we fully expect our yield to return to more normalized levels as we execute our reinvention. I will now hand the call over to John to provide an update on specific reinvention initiatives. Thank you, Steve.

John Bruno: I will now hand the call over to John to provide an update on specific reinvention initiatives. Thank you, Steve. As Steve noted, we made progress this quarter in the design, planning, and implementation of structural changes expected to drive reductions in operating costs to meet our three-year 300 million adjusted operating income growth target. I'll spend time on today's call discussing the mechanics and assumptions underlying the target and key progress made in Q2. Sequentially higher operating income requires a leaner, less complex organization, fit for purpose to the market opportunities available to us.

Speaker Change: I will now hand the call over to John to provide an update on specific reinvention initiatives.

John Bruno: As Steve noted, we made progress this quarter in the design, planning, and implementation of structural changes expected to drive reductions in operating costs to meet our three-year $300 million Adjusted Operating Income Growth Target. I'll spend time on today's call discussing the mechanics and assumptions underlining the target and key progress made. Higher sequential operating income requires a leaner, less complex organization fit for purpose for the market opportunities available. The structural reduction and organizational complexity through reinvention will be driven by three primary levers: geographic, offering, and continuous operating models.

John Bruno: Thank you, Steve. As Steve noted, we made progress this quarter in a design, planning, and implementation of structural changes expected to drive reductions in operating costs to meet our three-year $300 million adjusted operating income growth target.

John Bruno: I'll spend time on today's call discussing the mechanics and assumptions underlining the target and key progress made in Q2.

John Bruno: Sequentially higher operating income requires a leaner, less complex organization fit for purpose to the market opportunities available to us.

John Bruno: The structural reduction in organizational complexity through reinvention will be driven by three primary levers: geographic, offering, and continuous operating model simplification. These savings unlocks require structural reduction in operating costs, which, when combined with a more favorable mix of revenue towards markets with higher underlying growth rates, will drive cash flow sufficient to fund growth while reducing leverage.

John Bruno: The structural reduction and organizational complexity through reinvention will be driven by three primary levers, geographic, offering, and continuous operating model simplification.

John Bruno: These savings unlocks require structural reduction in operating costs, which when combined with a more favorable mix of revenue towards markets with higher underlying growth rates, will drive cash flow sufficient to fund growth while reducing leverage. I'll start with an update on geographic simplification.

John Bruno: These savings unlocks require structural reduction in operating costs, which when combined with a more favorable mix of revenue towards markets with higher underlying growth rates, will drive cash flow sufficient to fund growth while reducing leverage.

John Bruno: I'll start with an update on geographic simplification. We are currently executing a shift in how we distribute product in certain markets from a direct to an indirect model. This shift in distribution strategy does two things. One, it allows greater focus on providing print and digital service capabilities for channel partners who are best positioned to serve our clients within their region; and two, allocates more time and resources on being the leader in the markets in which we maintain direct operations. This quarter, we transitioned our operations in Ecuador and Peru from a direct to an indirect model, following a similar move in Chile and Argentina in the prior quarter.

John Bruno: We are currently executing a shift in how we distribute product in certain markets from a direct to an indirect model. This shift in distribution strategy does two things. One, it allows a greater focus on providing print and digital service capabilities for channel partners who are best positioned to serve our clients within their region. And two, it allocates more time and resources to being the leader in the markets in which we maintain direct operations. This quarter, we transitioned our operations in Ecuador and Peru from a direct to an indirect model, following a similar move in Chile and Argentina in the prior quarter.

John Bruno: I'll start with an update on geographic simplification.

John Bruno: We are currently executing a shift in how we distribute product in certain markets from a direct to an indirect model.

John Bruno: This shift in distribution strategy does two things.

John Bruno: One, it allows greater focus on providing print and digital service capabilities for channel partners who are best positioned to serve our clients within their region. And two, allocates more time and resources on being the leader in the markets in which we maintain direct operations.

John Bruno: This quarter we transitioned our operations in Ecuador and Peru from a direct to an indirect model, following a similar move in Chile and Argentina in the prior quarter.

John Bruno: We continue to evaluate the optimal mix of direct versus indirect distribution by country across our operations in Western and Eastern Europe and will provide updates as transition decisions are made.

John Bruno: We continue to evaluate the optimal mix of direct versus indirect distribution by country across our operations in Western and Eastern Europe, and we'll provide updates as transition decisions are made. Offering simplification will narrow and optimize our offerings over time to those with the greatest levels of competitive differentiation and profitability. Last quarter, we announced our decision to exit the manufacturing of certain production print equipment. We did this to refine our focus on the sub-markets within production that are growing fastest and put more resources behind the development of a services-led, software-enabled production print ecosystem, leveraging our FreeFlow and XMPI software as executants.

John Bruno: We continue to evaluate the optimal mix of direct versus indirect distribution by country across our operations in Western and Eastern Europe and will provide updates as transition decisions are made.

John Bruno: Offering simplification will narrow and optimize our offerings over time to those with the greatest levels of competitive differentiation profitability. Last quarter, we announced our decision to exit the manufacturing of certain production print equipment. We did this to refine our focus to the submarkets within production that are growing fastest and put more resources behind the development of a services-led, software-enabled production print ecosystem, leveraging our FreeFlow and XMPI software as examples. This quarter, we consolidate our remaining manufacturing operations globally and our head of plan in the sale of discontinued products. We continue to explore further rationalizations of our offerings to drive closer alignment with the needs of our clients and channel partners.

John Bruno: Offering simplification will narrow and optimize our offerings over time to those with the greatest levels of competitive differentiation and profitability.

John Bruno: Last quarter we announced our decision to exit the manufacturing of certain production print equipment.

John Bruno: We did this to refine our focus to the sub-markets within production that are growing fastest and put more resources behind the development of a services-led, software-enabled production print ecosystem, leveraging our FreeFlow and XMPI software as examples.

John Bruno: This quarter, we consolidated our remaining manufacturing operations globally and are ahead of plan in the sale of discontinued products. We continue to explore further rationalizations of our offerings to drive closer alignment with the needs of our clients and channel partners. One such example is the optimization of our A4 product for specific markets within a distribution channel where we have the most opportunity to gain share.

John Bruno: This quarter we consolidate our remaining manufacturing operations globally and are ahead of plan in the sale of discontinued products. We continue to explore further rationalizations of our offerings to drive closer alignment with the needs of our clients and channel partners.

John Bruno: One such example is the optimization of our A4 product for specific markets within the distribution channel where we have the most opportunity to gain share.

John Bruno: One such example is the optimization of our A4 product for specific markets within the distribution channel where we have the most opportunity to gain share.

John Bruno: As we discussed last quarter, operating model simplification will leverage the global business services organization to drive long-term enterprise-wide efficiencies and technology-enabled productivity gains. During the second quarter, the GBS organization began implementing 60 new initiatives to accelerate savings across key business functions, including reports report, order to cash, global spend management, and the people operations. These efforts will help streamline and standardize global internal processes, making it easy to do business with and within Xerox. Also in the second quarter, we entered into agreements with technology partners to transform our operations with enterprise-wide technology-led, process and proof. And over the next few years, we plan to greatly reduce the technological debt associated with our legacy infrastructure by implementing a technology stack that mirrors the standardization of our global business processes.

John Bruno: As we discussed last quarter, Operating Model Simplification will leverage the Global Business Services Organization to drive long-term, enterprise-wide efficiencies and technology-enabled productivity. During the second quarter, the GBS organization began implementing 60 new initiatives to accelerate savings across key business functions, including report-to-report, order-to-cash, global spend management, and the people operation. These efforts will help streamline and standardize global internal processes, making it easier to do business with and within Xerox.

John Bruno: As we discussed last quarter, Operating Model Simplification will leverage the Global Business Services Organization to drive long-term enterprise-wide efficiencies and technology-enabled productivity gains.

John Bruno: During the second quarter, the GBS organization began implementing 60 new initiatives to accelerate savings across key business functions, including report-to-report, order-to-cash, global spend management, and the people operations.

John Bruno: These efforts will help streamline and standardize global internal processes, making it easier to do business with and within Xerox.

John Bruno: Also, in the second quarter, we entered into agreements with technology partners to transform our operations with enterprise-wide, technology-led process improvements. And over the next few years, we plan to greatly reduce the technological debt associated with our legacy infrastructure by implementing a technology stack that mirrors the standardization of our global business processes. These agreements allow us to reduce IT costs and improve business insights while providing greater flexibility and expanding our offerings and services.

John Bruno: Also, in the second quarter, we entered into agreements with technology partners to transform our operations with enterprise-wide, technology-led process improvements.

John Bruno: And over the next few years, we plan to greatly reduce the technological debt associated with our legacy infrastructure by implementing a technology stack that mirrors the standardization of our global business processes.

John Bruno: These agreements allow us to reduce the IP costs and improve business insights while providing greater flexibility and expanding our offerings and solutions.

John Bruno: These agreements allow us to reduce the IT costs and improve business insights while providing greater flexibility and expanding our offerings and solutions.

John Bruno: Another witness quarter was the redesign of our transportation network. Our teams negotiated key transportation contracts to derive economies of scale savings to the optimization of our transportation costs across our carrier network, reducing supply chain costs in future periods. These onlocks are critical enablers of broad-based organizational efficiencies and the operating savings that accompany those efficiencies.

John Bruno: Another win this quarter was the redesign of our transportation network. Our teams negotiated key transportation contracts to derive economies-of-scale savings through the optimization of our transportation costs across our carrier network, reducing supply chain costs in future periods. These unlocks are critical enablers of broad-based organizational efficiencies and the operating savings that accompany those efficiencies. And to date, the reinvention office has identified over 300 savings initiatives resulting in more than 700 million in gross cost savings through 2026 across seven primary cost categories. In the second quarter, the reinvention office implemented a new management operating system, including comprehensive change management and accountability structures to ensure the successful realization of these initiatives and the continuous identification of further initiatives.

John Bruno: Another win this quarter was the redesign of our transportation network. Our teams negotiated key transportation contracts to derive economies of scale savings through the optimization of our transportation costs across our carrier network, reducing supply chain costs in future periods.

John Bruno: These unlocks are critical enablers of broad-based organizational efficiencies and the operating savings that accompany those efficiencies.

John Bruno: And to date, the reinvention office has identified over 300 savings initiatives resulting in more than 700 million in gross cost savings through 2026 across seven primary cost categories. In the second quarter, the reinvention office implemented a new management operating system, including comprehensive change management and accountability structures to ensure the successful realization of these initiatives and the continuous identification of further initiatives. With reinvention momentum and progress made thus far, we are confident in our ability to deliver 300 million of incremental adjusted operating income by the end of 2026. Even after accounting for the shift in certain markets from direct to indirect distribution, a narrow production equipment focus, and potential erosion in our core print business and ongoing reinvestments in our growth businesses.

John Bruno: And to date, the Reinvention Office has identified over 300 savings initiatives, resulting in more than $700 million in gross cost savings through 2026 across seven primary cost categories.

John Bruno: In the second quarter, the reinvention office implemented a new management operating system including comprehensive change management and accountability structures to ensure the successful realization of these initiatives and the continuous identification of further initiatives.

John Bruno: With the reinvention momentum and progress made this far, we are confident in our ability to deliver $300 million of incremental adjusted operating income by the end of 2026. Even after accounting for the shift in certain markets from direct to indirect distribution, a narrowed production equipment focus, Potential Erosion in our Core Print Business, and Ongoing Reinvestments in our Growth Business. When we enter 2027, we expect Xerox to be a transformed business with double-digit operating margins and more than 20% of revenue coming from higher-growth digital and IT services businesses as we reinvest growing levels of free cash flow and are disciplined in our organic and inorganic investment options. I'll now hand the call over to John. Thank you, John. And good morning, everyone.

John Bruno: With reinvention momentum and progress made thus far, we are confident in our ability to deliver 300 million of incremental adjusted operating income by the end of 2026.

John Bruno: Even after accounting for the shift in certain markets from direct to indirect distribution, a narrowed production equipment focus,

John Bruno: and potential erosion in our core print business and ongoing reinvestments in our growth businesses.

John Bruno: When we enter 2027, we expect Xerox to be a transformed business with double-digit operating margins and more than 20% of revenue coming from higher-growth digital and IT services businesses as we reinvest growing levels of free cash flow and our discipline in our organic and inorganic investment opportunities.

John Bruno: When we enter 2027, we expect Xerox to be a transformed business, with double-digit operating margins and more than 20% of revenue coming from higher-growth digital and IT services businesses, as we reinvest growing levels of free cash flow.

Xavier Heiss: I'll now hand the call over to Xavier. Thank you, John, on good morning, everyone. As Steve mentioned, the benefits associated with this year's organizational redesign are materializing in financial results. In Q2, adjusted operating income margin, adjusted operating profit, free cash flow on revenue, old, improved secondary, while free cash flow improved year over year, despite a lower contribution from financial receivables activity. Total revenue declined 10% in actual on constant currency, exceeding the effect of backlog fluctuation, reduction in non-strategic revenue on other reinvention action. Total revenue this quarter declines 3% in constant currency, more than 200 basis point improvement from Q1.

John Bruno: and our disciplines in our organic and inorganic investment opportunities.

Xavier Heiss: As Steve mentioned, the benefits associated with this year's organizational redesign are materializing in financial results. In Q2, Adjusted Operating Income Margin, Adjusted Operating Profit, Free Cash Flow, and Revenue Hold improved sequentially, while Free Cash Flow improved year over year despite a lower contribution from finance receivables activity. Total Revenue Declined 10% in Both Real and Constant Current, Excluding the effect of backlog fluctuation, reduction in non-strategic revenue, and other reinvention action, total revenue this quarter declined 3% in constant currency, a more than 200 basis point improvement from QE. Core revenue in the first half of 2024 was below our expectations, mainly due to the first quarter.

John Bruno: I'll now hand the call over to Xavier.

Xavier Heiss: Thank you John and good morning everyone. As Steve mentioned, the benefits associated with this year's organizational redesign are materializing in financial results.

Xavier Heiss: In Q2, Adjusted Operating Income Margin, Adjusted Operating Profit, Free Cash Flow, and Revenue Hold improved sequentially, while Free Cash Flow improved year over year, despite a lower contribution from finance receivables activity.

Xavier Heiss: Total Revenue Declined 10% in Actual and Constant Currency

Speaker Change: Excluding the effect of backlog fluctuation, reduction in non-strategic revenue and other reinvention action, total revenue this quarter declines 3% in constant currency, a more than 200 basis point improvement from Q1.

Xavier Heiss: Core revenue in the first half of 2024 was below our expectations, mainly due to the first quarter performance. However, continued momentum in equipment orders on pipeline, supported by the improvement in certain operations Steve noted earlier, new product launches on continued strengths in signings activity, give us increased confidence, both core on reported revenue will grow in the seventh half of the year.

John Bruno: Co-review in the first half of 2024 was below our expectations, mainly due to the first quarter performance.

Xavier Heiss: However, continued momentum in equipment orders and pipelines, supported by the improvement in sales operations Steve noted earlier, new product launches, and continued strength in signing activity give us increased confidence both core and reported revenue will grow in the second half of the year. Turning to Profitability. Similar to Q1, we incurred an inventory charge associated with the exit of certain production print manufacturing operations. All profitability commentary to follow excludes this episode. Growth margin declined 50 basis points year-over-year due to lower volume and higher freight costs, partially countered by favorable currency effects on revenue.

John Bruno: However, continued momentum in equipment orders and pipeline, supported by the improvement in sales operations Steve noted earlier, new product launches and continued strength in signings activity give us increased confidence both core and reported revenue will grow in the second half of the year.

Xavier Heiss: Turning to profitability. Similar to Q1, we incurred inventory chart associated with the exit of certain production print manufacturing operations. All profitability commentary to follow excludes this impact. Gross margin declined 50 basis points year over a year, due to lower volume on higher freight costs, partially countered by favorable currency effects on revenue mix. Adjusting operating margin of 5.4 percent declined 70 basis points year over a year, due mainly to lower gross profit, partially offset by the benefit of structural cost reductions. Total operating expense in Q2 declined 47 million year over a year, or close to 10 percent, reflecting Ed Count reduction action taken in Q1, non-labor reduction in overhead, on the flow through of cost reduction implemented in the prior year.

Speaker Change: Turning to Profitability.

Speaker Change: Similar to Q1, we incurred inventory charges associated with the exit of certain production print manufacturing operations.

Speaker Change: All profitability commentary to follow excludes this impact.

Speaker Change: Growth margin declined 50 basis points year-over-year due to lower volume and higher freight costs partially countered by favorable currency effects on revenue mixed.

Xavier Heiss: Adjusting operating margin of 5.4% declines 70 basis points year over year due mainly to lower gross profit partially offset by the benefit of structural cost reduction. Total operating expense in Q2 declined $47 million year-over-year, or close to 10%, reflecting headcount reduction action taken in Q1, non-labor reduction in overhead, and the flow-through of cost reduction implemented in the prior year. Adjusted Other Expenses, NET, were $13 million higher year-over-year due to an increase in non-financed interest expense associated with our recent debt refinancing activity.

Speaker Change: Adjusting operating margin of 5.4% declines 70 basis points year-over-year, due mainly to lower growth profit, partially offset by the benefit of structural cost reductions.

Speaker Change: Total operating expense in Q2 declined $47 million year-over-year, or close to 10%, reflecting headcount reduction action taken in Q1, non-labor reduction in overhead, and the flow-through of cost reduction implemented in the prior year.

Xavier Heiss: Adjusted other expenses, net, where certain million higher year over a year, due to an increase in non-finance interest expense, associated with our recent debt refinancing activities. While our debt balance is not significantly higher year over year, non-finance interest expense increased due to higher interest rates on the lower portion of debt being allocated to our financing business, reflecting lower finance receivable balance year over year. Adjusted tax rate of 25.5 percent compared to a 20 percent tax rate in the prior year period. This increased tax rate is a result of settling certain non-US tax rate. Adjusted EPS of 29 cents in the second quarter was 15 cents lower than the prior year, driven by lower adjusted operating income, higher interest expense on the higher tax rate, partially helped by your lower share count.

Speaker Change: Adjusted Other Expenses, NET, were $13 million higher year-over-year due to an increase in non-finance interest expense associated with our recent debt refinancing activities.

Xavier Heiss: While our debt balance is not significantly higher year over year, non-financed interest expense increased due to higher interest rates on the lower portion of debt being allocated to our financing business, reflecting a lower finance receivable balance year over year. Adjusted tax rate of 25.5% compared to a 20% tax rate in the prior year. This increase in the tax rate is a result of settling certain non-U.S. taxes.

Speaker Change: While our debt balance is not significantly higher year over year, non-financed interest expense increased due to higher interest rates on the lower portion of debt being allocated to our financing business, reflecting lower finance receivable balance year over year.

Speaker Change: Adjusted tax rate of 25.5% compared to a 20% tax rate in the prior year period.

Speaker Change: This increase in tax rate is a result of settling certain non-U.S. tax audits.

Xavier Heiss: Adjusted EPS of $0.29 in the second quarter was $0.15 lower than the prior year, driven by lower adjusted operating income, higher interest expense, and a higher tax rate, partially helped by a lower share price. Gap PPS of $0.11 was $0.52 higher year-over-year, as the prior year quarter included a $92 million net after-tax charge associated with the donation of the park of $0.58 per share. Let me now review revenue and cash flow in more detail. Stockingwoods revenue. On an actual and constant currency basis, Q2 equipment sales of 356 million declined around 15% year-over-year, compared to a roughly 26% decline in Q1.

Speaker Change: Adjusted EPS of $0.29 in the second quarter was $0.15 lower than the prior year, driven by lower adjusted operating income, higher interest expense, and a higher tax rate, partially helped by a lower share count.

Xavier Heiss: GAPPS of 11 cents was 52 cents higher year over year, as the prior year quarter included a 92 million net after tax chart associated with the donation of PAC of 58 cents per share.

Speaker Change: Gap PPS of $0.11 was $0.52 higher year-over-year as the prior year quarter included a $92 million net after-tax charge associated with the donation of park of $0.58 per share.

Xavier Heiss: Let me now review revenue on cash flow in more detail. Starting with revenue. On the natural and constant currency basis, Q2 equipment sales of $350.6 million decline around 15 percent year over a year, compared to roughly 26 percent decline in Q1. The effect of backlog fluctuation in the current on prior year, on re-invention action, including the O simplification, accounted for most of the decline. Excluding this effect, equipment sales decline modestly, an improvement relative to Q1, which was negatively affected by the sales reorganization. After a brief period of disruption in Q1, we have seen consistent improvement in equipment order velocity on pipeline, reflecting the intended benefit of closer alignment between ourselves on offering teams, on the economic buyer of our product.

Speaker Change: Let me now review revenue and cash flow in more detail.

Speaker Change: Stockingwoods Revenue.

Speaker Change: On an actual and constant currency basis, Q2 equipment sales of 356 million declined around 15% year-over-year, compared to a roughly 26% decline in Q1.

Xavier Heiss: The effect of backlog fluctuation in the current and prior year on reinvention action, including geo-simplification, accounted for most of the decline. Excluding this effect, equipment sales declined modestly, an improvement relative to Q1, which was negatively affected by the sales reorganization. After a brief period of disruption in Q1, we have seen consistent improvement in equipment order, velocity, and piping, reflecting the intended benefit of closer alignment between our sales and offering teams and the economic buyer of our products.

Speaker Change: The effect of backlog fluctuation in the current and prior year on reinvention action, including geo-simplification, accounted for most of the decline.

Speaker Change: Excluding this effect, equipment sales declined modestly, an improvement relative to Q1, which was negatively affected by the sales reorganization.

Speaker Change: After a brief period of disruption in Q1, we have seen consistent improvement in equipment order velocity and pipeline, reflecting the intended benefit of closer alignment between our sales and offering teams and the economic buyer of our product.

Xavier Heiss: Easier backlog compares, continuous momentum in order on a refreshed A3 product line-up featuring a range of AI enabled capabilities, give us confidence equipment review will return to growth in the second half of the year. Equipment review declined outpace decline in installation activity in Q2 due to unfavorable bulk product mix. Decline in installation activity mainly reflect the prior failure of reduction in backlog on the slight increase in current quarter.

Xavier Heiss: If your backlog compares, continuous momentum in order on a refreshed A3 product lineup featuring a range of AI-enabled capabilities gives us confidence Equipment Review will return to growth in the second half of the year. However, equipment revenue declined, and outpace declined in installation activity in Q2 due to an unfavorable product mix. Declining installation activity mainly reflects the prior period reduction in backlog on a slight increase in the current quarter. However, other activity outpaced installations again in this quarter, providing a tailwind to equipment revenue for Q3. Post self-revenue of 1.2 billion declined approximately 8% in actual and constant current.

Speaker Change: As your backlog compares, continuous momentum in order on a refreshed A3 product lineup featuring a range of AI-enabled capabilities gives us confidence Equipment Review will return to growth in the second half of the year.

Speaker Change: Equipment revenue decline, outpace decline in installation activity in Q2 due to unfavorable product mix.

Speaker Change: Decline in installation activity mainly reflects the prior period reduction in backlog on a slight increase in current quarter backlog.

Xavier Heiss: Cracklub. Order activity outpaced installations again in this quarter, providing a tailwind to equipment review for Q3. Post-cells review of 1.2 billion decline approximately 8% in actual on constant currency. Excluding the reduction in non-strategic lower margin paper on IT and point device placement on other reinvention actions, including geosimplification, post-cells review decline modestly. Consistent with past quarter, I will provide additional commentary to help clarify underline trends in our core businesses, which include the effect of backlog fluctuation on reduction in non-strategic review, including reinvention actions. For Q2, the effect of equipment backlog fluctuation in the current on prior year quarters contributed around 300 basis points to the year of our year of decline in total review.

Speaker Change: Other activity outpaced in-stations again in this quarter, providing a tailwind to equipment revenue for Q3.

Speaker Change: Post self-revenue of 1.2 billion declined approximately 8% in actual and constant currency.

Xavier Heiss: Excluding the reduction in non-strategic lower margin paper on IT endpoint device placement on other reinvention actions, including geo-simplification, post-sales revenue declined modestly. Consistent with the past quarter, I will provide additional commentary to help clarify underlying trends in our core businesses, which exclude the effect of backlog fluctuation on the reduction in non-strategic review, including reinvention. For Q2, the effect of equipment backlog fluctuation in the current and prior year quarters contributed around 300 basis points to the year-over-year decline in total revenue.

Speaker Change: Excluding the reduction in non-strategic, lower-margin paper on IT endpoint device placement on other reinvention actions, including geo-simplification, post-sales revenue declined modestly.

Speaker Change: Consistent with past quarters, I will provide additional commentary to help clarify underlying trends in our core businesses, which exclude the effect of backlog fluctuations on reduction in non-strategic revenue, including reinvention actions.

Speaker Change: For Q2, the effect of equipment backlog fluctuations in the current and prior year quarters contributed around 300 basis points to the year-over-year decline in total revenue.

Xavier Heiss: Additionally, lower sales of non-strategic paper, IT and point device on decline in finance review, reflecting the change in our finance retrieval strategy, contributed more than 200 basis points to the decline. Finally, all those strategic actions to simplify our business on improved profitability, including geographic simplification, contributed around 150 basis points to the decline. When this impact is removed, revenue declined low single digit, primarily reflecting decline in printed paid volume, partially balanced by growth in digital on managed IT services as well as growth in supplies.

Xavier Heiss: Additionally, lower sales of non-strategic paper, and IT Endpoint Device on decline in finance revenue, reflecting the change in our finance receivable strategy, contributed more than 200 basis points to the. Finally, other strategic actions to simplify our business and improve profitability, including geographic simplification, contributed around 150 basis points to the... When these impacts are removed, revenue declined by a low single digit, primarily reflecting a decline in printed page volume, partially balanced by growth in digital or managed IT services, as well as growth in supply. For the second half of the year, we expect revenue growth on both a reported basis and when adjusted for reinvention. Let's now review Cashew.

Speaker Change: Additionally, lower sales of non-strategic paper, IT endpoint device, on decline in finance revenue, reflecting the change in our finance receivable strategy, contributed more than 200 basis points to the decline.

Speaker Change: Finally, other strategic actions to simplify our business and improve profitability, including geographic simplification, contributed around 150 basis points to the decline.

Speaker Change: When these impacts are removed, revenue declined low single digit, primarily reflecting decline in printed page volume, partially balanced by growth in digital or managed IT services, as well as growth in supplies.

Xavier Heiss: For the second half of the year, we expect revenue growth on both an early reporting basis and when adjusted for reinvention actions.

Speaker Change: For the second half of the year, we expect revenue growth on both a reported basis and when adjusted for reinvention actions.

Xavier Heiss: Let's now review cash flow. Pre-cash flow was underton 15 million in Q2, higher by 27 million year over year. Operating cash flow was underton 23 million in Q2, 28 million higher than the prior year quarter. The increase was mainly driven by working capital benefit, partially counterbalance by lower adjusted operating profit, lower cash from finance receivable, higher restructuring payment associated with reinvention on higher pension contribution. Finance assets were a source of cash of underton 61 million, reflecting the benefit of our HPS-4 workflow program on lower origination year over year. This compared to a source of cash of 210 million in the prior year quarter, which included a large one-time set of finance receivable.

Xavier Heiss: Free cash flow was $115 million in Q2, higher by $27 million year-over-year. Operating cash flow was $123 million in Q2, $28 million higher than the prior year quarter. The increase was mainly driven by a working capital benefit, partially counterbalanced by lower adjusted operating profit, lower cash from finance receivable, higher restructuring payment associated with reinvention, and higher pension contribution. Finance assets were a source of cash of $161 million, reflecting the benefit of our HPS Forward Flow program on lower origination year-over-year.

Speaker Change: Let's now review Cash Flow.

Speaker Change: Free cash flow was $115 million in Q2, higher by $27 million year-over-year.

Speaker Change: Operating cash flow was $123 million in Q2, $28 million higher than the prior year quarter.

Speaker Change: The increase was mainly driven by working capital benefit, partially counterbalanced by lower adjusted operating profit, lower cash from finance receivable, higher restructuring payment associated with reinvention, and higher pension contribution.

Speaker Change: Finance assets were a source of cash of $161 million, reflecting the benefits of our HPS Forward Flow program on lower originations year-over-year.

Xavier Heiss: This compares to a source of cash of $210 million in the prior quarter, which included a large one-time set of financial resources. Working capital was a use of cash of $133 million, a $115 million year-over-year improvement, driven mainly by the timing of accounts paid. Investing activities were a use of cash of $2 million, largely consistent with the prior year quarter. Financing activities consumed $336 million, reflecting the $217 million pay-down of the remaining 2024 unsecured senior notes, along with the $82 million of secured debt payment on dividends of $34 million.

Speaker Change: This compared to a source of cash of $210 million in the prior quarter, which included a large one-time set of finance receivables.

Xavier Heiss: Working capital was a use of cash of underton 33 million, a underton 15 million year over year improvement driven mainly by the timing of accounts payable. Investing activity were a use of cash of 2 million, largely consistent with the prior year quarter. Financing activities consume 336 million, reflecting the 217 million paydown of the remaining 2024 unsecured senior notes, along with the 82 billion of secured payment on dividend of 34 million.

Speaker Change: Working capital was a use of cash of $133 million, a $115 million year-over-year improvement, driven mainly by the timing of accounts payable.

Speaker Change: Investing activities were a use of cash of $2 million, largely consistent with the prior year quarter.

Speaker Change: Financing activities consumed $336 million, reflecting the $217 million paydown of the remaining 2024 unsecured senior notes, along with the $82 billion of secured debt payment on dividends of $34 million.

Xavier Heiss: 2. Turning to segment, Xerox Financial Services or XFS or radiation volume decline 41% year over year, reflecting XFS change in strategy to return its focus toward captive only financing solution. XFS financial resources were balanced decline 9% secondally in natural currency due to the run-up on sales of U.S. XFS origination on existing finance receivable on HPF funding of XFS origination. As previously highlighted, we expect our finance receivable balance to continue to decline, on normalized closer to 1 billion by 2027, benefiting free cash flow in future period. In Q2, XFS revenue was bound 12% year over year due to lower financing common other fees associated with the decline in XFS financial resource balance, partially offset by higher commissions from the sales of finance receivable asset.

Xavier Heiss: Turning to Segment. Xerox Finance Services, or XFS, or Reduction Volume declined 41% year-over-year, reflecting XFS's change in strategy to return its focus toward captive-only financing solutions. XFS finance receivable balance declined 9% sequentially in actual currency due to the run-up on sales of US XFS origination on existing finance receivable on HBS funding of XFS origination

Speaker Change: Turning to segment.

Speaker Change: Xerox Finance Services, or XFS, or Reduction Volume, declined 41% year-over-year, reflecting XFS's change in strategy to return its focus toward captive-only financing solutions.

Speaker Change: XFS finance receivable balance declined 9% sequentially in actual currency due to the run-up on sales of U.S. XFS origination on existing finance receivables on HBS funding of XFS origination.

Xavier Heiss: As previously highlighted, we expect our finance receivable balance to continue to decline or normalize closer to $1 billion by 2027, benefiting free cash flow in future payments. In Q2, XFS revenue was down 12% year over year due to lower finance income and other fees associated with the decline in XFS finance receivable balance, partially offset by higher commissions from the Centre of Finance Receivable. Q2 ESFS segment profit was 4 million higher year over year, mainly due to lower bad debt expense, reflecting lower ordination and a lower finance risk.

Speaker Change: As previously highlighted, we expect our finance receivable balance to continue to decline or normalize closer to $1 billion by 2027, benefiting free cash flow in future periods.

Speaker Change: In Q2, XFS revenue was down 12% year-over-year due to lower finance income and other fees associated with the decline in XFS finance receivable balance, partially offset by higher commissions from the sales of finance receivable assets.

Xavier Heiss: Q2, XFS segment profit was 4 million higher year over year, mainly due to lower bad debt expense, reflecting lower ordination on the lower financial resource balance. Print on other reviews fell 10% year over year in Q2 due to lower equipment on post-self-renew for the reasons previously mentioned. Print on other segment profit declined 25 million versus the prior quarter, driven by lower revenue, partially offset by structural cost efficiencies.

Speaker Change: Q2, XFS segment profit was 4 million higher year over year, mainly due to lower bad debt expense, reflecting lower ordination on a lower financial balance.

Xavier Heiss: Print and other reviews fell 10% year-over-year in Q2 due to lower equipment and post-self-review for the reasons previously mentioned. Print-on-order segment profit declined $25 million versus the prior quarter, driven by lower revenue, partially offset by structural cost efficiency.

Speaker Change: Print and other reviews fell 10% year-over-year in Q2 due to lower equipment and post-self-review for the reasons previously mentioned.

Speaker Change: Print-on-order segment profit declined $25 million versus the prior quarter, driven by lower revenue, partially offset by structural cost efficiencies.

Xavier Heiss: Turning to capital structure, we ended Q2 with 551 million of cash, cash equivalence on restricted cash. Around 2 billion of the remaining 3.3 billion of our outstanding debt support our finance asset, with the remaining debt of around 1.3 billion attributable to the non-financing business. Total debt consists of senior unsecured bond, finance receivable, secure borrowing, term loan on a convertible note. During the second quarter, we repaint the remaining 217 billion of 2024 senior note. As a result, we have only 67 million of secure debt coming due in the balance of the year.

Xavier Heiss: Turning to Capital Strip, we ended Q2 with $551 million of cash and cash equivalents on restricted. Around $2 billion of the remaining $3.3 billion of our outstanding debt support our finances, with a remaining debt of around 1.3 billion attributable to the non-financing. Total debt consists of senior unsecured bonds, finance receivable secured borrowing, term loan, and a convertible. During the second quarter, we will repay the remaining $217 million of 2024 senior unemployment. As a result, we have only 67 million of secure debt coming due in the balance of the year.

Speaker Change: Turning to Capital Structure.

Speaker Change: We ended Q2 with $551 million of cash, cash equivalents on restricted cash.

Speaker Change: Around $2 billion of the remaining $3.3 billion of our outstanding debt supports our finance assets, with the remaining debt of around $1.3 billion attributable to the non-financing business.

Speaker Change: Total debt consists of senior unsecured bond, finance receivable secure borrowing, term loan, and a convertible note.

Speaker Change: During the second quarter, we repaid the remaining $217 million of 2024 senior note. As a result, we have only $67 million of secure debt coming due in the balance of the year.

Xavier Heiss: Before addressing guidance, I want to provide additional details behind the more than 700 million in gross cost savings identified to date through re-investment. In the past year, we have implemented or are close to implementing initiatives that are expected to result in more than 425 million in run rate gross cost savings through 2020. We have identified around $275 million of additional savings opportunities to date, including override savings associated with geographic and offering simplification that will be implemented in 2025 and 2026, bringing total realized and estimated gross cost savings to more than $700 million through 2021, and our work continues to identify additional savings opportunities.

Xavier Heiss: Before addressing the items, I want to provide additional details behind the more than 700 million of gross cost savings identified today through reinvention. In the past year, we have implemented or are close to implementing initiatives that are expected to result in more than 400 on 25 million of run rate gross cost savings through 2026. We have identified around 275 million of additional savings opportunity to date, including overhead savings associated with geographic and offering simplification that will be implemented in 2025 on 2026, bringing total realize on estimated gross cost savings to more than 700 millions full 2026.

Speaker Change: Before addressing guidance, I want to provide additional details behind the more than $700 million of gross cost savings identified to date through re-invention.

Speaker Change: In the past year, we have implemented, or are close to implementing, initiatives that are expected to result in more than 425 million of run rate gross cost savings through 2026.

Speaker Change: We have identified around 275 million of additional savings opportunities to date.

Speaker Change: Including overhead savings associated with geographic and offering simplification that will be implemented in 2025 and 2026, bringing total realized and estimated gross cost savings to more than $700 million through 2026.

Xavier Heiss: On our work continues to identify additional savings opportunity. We expect to realize close to 200 million of gross cost savings in 2024. I'm already have a line of sight to nearly 100 million of savings in 2025 from project easier currently implemented or those that will be shortly. We expect to realize additional savings in 2025 from initiative not yet implemented, and we'll update investor each quarter as we move projects through the stages of implementation.

Speaker Change: And our work continues to identify additional savings opportunities.

Xavier Heiss: We expect to realize close to $200 million of growth cost savings in 2024 and already have a line of sight to nearly $100 million of savings in 2025 from projects either currently implemented or those that will be implemented shortly.

Speaker Change: We expect to realize close to $200 million of gross cost savings in 2024 and already have a line of sight to nearly $100 million of savings in 2025 from projects either currently implemented or those that will be implemented shortly.

Xavier Heiss: We expect to realize additional savings in 2025 from initiatives not yet implemented and will update investors each quarter as we move projects through the stages of re-implementation. As John noted, progress in the identification of structural cross-production to date gives us confidence in our ability to grow adjusted operating income at least 300 million above 2023 levels by the end of 2020. To put this expected operating income improvement in context, assuming our adjusted operating income target is rich as planned, in 2026, we expect EPS of more than $3 per share, adjusted EBITDA north of $900 million, and cumulative free cash flow from 2024 to 2026 of more than $1.5 billion.

Speaker Change: We expect to realize additional savings in 2025 from initiatives not yet implemented and will update investors each quarter as we move projects through the stages of re-implementation.

Xavier Heiss: As John noted, forgetting the identification of structural cross-relicion today gives us confidence in our ability to grow adjusted operating income at least 300 million above 2023 levels by the end of 2026. To put this expected operating income improvement in context, assuming our adjusted operating income target is rich as planned, in 2026 we expect EPS of more than $3 per share, adjusted EB down north of 900 million on cumulative free cash roll from 2024 to 2026 of more than 1.5 billion.

Speaker Change: As John noted, progress in the identification of structural cost reduction to date give us confidence in our ability to grow adjusted operating income at least $300 million above 2023 levels by the end of 2026.

John Bruno: To put the Segregated Operating Income Improvement in context,

John Bruno: Assuming our adjusted operating income target is rich as planned, in 2026,

Speaker Change: We expect EPS of more than $3 per share, adjusted EBITDA north of $900 million, on cumulative free cash flow from 2024 to 2026 of more than $1.5 billion.

Xavier Heiss: Finally, I will address full year 2024 guidance. For revenue, we now expect a decline of 5 to 6% in constant currency versus a decline of 3 to 5% previously. The entirety of the reduction in revenue guidance is attributable to intentional reduction in non-strategic revenue, including incremental geographic simplification action. The decision to exit the manufacturing of certain production print equipment on lower than expected revenue from fermenting income on low margin IT hardware and post devices. Full year revenue guidance now includes 550 basis points of effect from non-recurring edwins associated with backlog reduction in the prior year, reduction in non-strategic revenue on other re-invention actions, including geographic on offering simplification.

Xavier Heiss: Finally, I will address the full year 2024. For revenue, we now expect a decline of 5% to 6% in constant currency versus a decline of 3% to 5% previously. The entirety of the Reduction in Revenue Guidance is attributable to intentional reduction in non-strategic revenue, including incremental geographic simplification. The decision to exit the manufacturing of certain production print equipment on lower than expected revenue from financing income on low margin IT hardware and, Full Year Revenue Guidelines now include 550 basis points of effect from non-recurring headwinds associated with backlog reduction in the prior year, and reduction in non-strategic revenue on other reinvention actions, including geographic on offering simply. Excluding the cumulative effect of this site,

Speaker Change: Finally, I will address full year 2024 guidelines.

Speaker Change: For revenue, we now expect a decline of 5% to 6% in constant currency versus a decline of 3% to 5% previously.

Speaker Change: The entirety of the Reduction in Revenue Guidance is attributable to intentional reduction in non-strategic revenue.

Speaker Change: including Incremental Geographic Simplification Action.

Speaker Change: The decision to exit the manufacturing of certain production print equipment on lower than expected revenue from financing income on low-margin IT hardware and power devices.

Speaker Change: Full Year Revenue Guidelines now include 550 basis points of effect from non-recurring headwinds associated with backlog reduction in the prior year.

Speaker Change: Reduction in non-strategic revenue and other reinvention actions, including geographic and offering simplification.

Xavier Heiss: Excluding the cumulative effect of this item, expectation for core business revenue in 2024 is unchanged, a roughly flat year of our year. We expect revenue in the second half of the year to increase on both core unreported basis, which reflect improvement in our print business on continued growth in digital on managed IT services. For adjusted operating income margin, we now expect a margin of at least 6.5% versus our prior outlook of at least 7.5%. This reduction mainly reflects the effect of low-world revenue guidance, including geographic on offering simplification action, as well as higher than expected freight on product cost.

Xavier Heiss: The expectation for core business review in 2024 is unchanged at roughly flat year over year. We expect revenue in the second half of the year to increase on both a core and reported basis, which reflects improvement in our print business and continued growth in digital and managed IT services. For Adjusted Operating Income Margin, we now expect a margin of at least 6.5% versus our prior outlook of at least 7%. This reduction mainly reflects the effect of lowered revenue guidance, including geographic and offering simplification actions, as well as higher than expected freight on product.

Speaker Change: Excluding the cumulative effect of this item, expectation for core business revenue in 2024 is unchanged at roughly flat year-over-year.

Speaker Change: We expect revenue in the second half of the year to increase on both a core and reported basis, which reflects improvement in our print business and continued growth in digital and managed IT services.

Speaker Change: For adjusted operating income margin, we now expect a margin of at least 6.5% versus our prior outlook of at least 7.5%.

Speaker Change: This reduction mainly reflects the effect of lowered revenue guidance, including geographic and offering simplification action, as well as higher than expected freight on product cost.

Xavier Heiss: Over the course of re-invention, reduction in non-strategic revenue, such as zoos associated with geographic on offering simplification, are expected to improve total profitability on margin. However, so reduction in overhead cost associated with many geographic simplification action expected to be implemented in 2024 will not be realized until 2025, delaying the net savings benefit associated with this action to 2025. As given just noted, despite the reduction to 2024 guidance, confidence in our three-year adjusted operating income improvement objective has increased in recent years. Mons, leveraging a strong managerial infrastructure to support the identification on delivery of cross-rediction initiative currently contemplated.

Xavier Heiss: Over the course of reinvention, reductions in non-strategic revenue, such as those associated with geographic and offering simplification, are expected to improve total profitability on-market. However, the reduction in overhead costs associated with many geographic simplification actions expected to be implemented in 2024 will not be realized until 2025, delaying the net savings benefits associated with this action to 2022. As Steven just noted, despite the reduction to 2024 guidance, confidence in our three-year adjusted operating income improvement objective has increased in recent, leveraging a strong managerial infrastructure to support the identification and delivery of cost reduction initiatives currently. We now expect free cash flow of at least $515M versus prior guidance of at least $600M. The reduction in free cash flow is in line with the after-tax reduction in adjusted operating income.

Speaker Change: Over the course of reinvention, reductions in non-strategic revenue, such as those associated with geographic and offering simplification, are expected to improve total profitability on margin.

Speaker Change: However, the reduction in overhead costs associated with many geographic simplification actions expected to be implemented in 2024 will not be realized until 2025, delaying the net savings benefits associated with this action to 2025.

Speaker Change: As Steven just noted, despite the reduction to 2024 guidance, confidence in our three-year Adjusted Operating Income Improvement Objective has increased in recent months.

Steven: Leveraging a strong managerial infrastructure to support the identification and delivery of cost reduction initiatives currently contemplated.

Xavier Heiss: We now expect free cash flow of at least 5.5 million versus prior guidance of at least 600 million. So reduction in free cash flow is in line with the effort tax reduction in adjusted operating income expectation. As increases of around 100 million expected restructuring payment on 50 million of incremental year-value pension payment. In February, recent change to our operating model growth second-gen improvement in result is quarter. And we expect the new product launch on growing demand for our equipment on service to support a return to top-line growth in the second half of the year. So reduction in full year guidance mainly reflects the timing of incremental re-invention action taken in 2024, with the benefit of this action now expected in 2025.

Steven: We now expect free cash flow of at least $515 million versus prior guidance of at least $600 million.

Steven: The reduction in free cash flow is in line with the after-tax reduction in adjusted operating income expectation.

Xavier Heiss: As a reminder, free cash flow guidance is inclusive of around $100 million of expected restructuring payments and $50 million of incremental year-over-year pension. In summary, recent changes to our operating model drove sequential improvement in results this quarter, and we expect the new product launch and growing demand for our equipment and services to support our return to top-line growth in the second half of the year. The reduction in full-year guidelines mainly reflects the timing of incremental reinvention actions taken in 2020, with the benefit of this action now expected in 2020.

Steven: As a reminder, free cash flow guidance is inclusive of around $100 million of expected restructuring payments and $50 million of incremental year-over-year pension payments.

Steven: In summary, recent changes to our operating model drove sequential improvement in results this quarter, and we expect the new product launch and growing demand for our equipment and services to support our return to top-line growth in the second half of the year.

Steven: The reduction in full-year guidance mainly reflects the timing of incremental reinvention actions taken in 2024, with the benefit of this action now expected in 2025.

Xavier Heiss: We remain confident in our ability to grow adjusted operating income by at least 300 million over 2023 level by the end of 2026, a view supported by observable momentum in our business, on a team on management operating system capable of delivering a successful re-invention of Xerox.

Xavier Heiss: We remain confident in our ability to grow adjusted operating income by at least 300 million over 2023 levels by the end of 2026. A view supported by observable momentum in our business and a team on management operating system capable of delivering a successful reinvention of. We now open the line for Q&A.

Steven: We remain confident in our ability to grow adjusted operating income by at least 300 million over 2023 level by the end of 2026, a view supported by observable momentum in our business.

Speaker Change: on a team on management operating system capable of delivering a successful reinvention of Xerox. We now open the line for Q&A.

Unknown Attendee: We've now opened our line for Q&A. Certainly. And our first question for today comes from the line of Ananda Buruha from Loop Capital. Your question, please. Yes, thanks, guys. Thanks for taking the question. A couple of if I could.

Speaker Change: Certainly, and our first question for today comes from the line of Ananda Baruah from Loop Capital. Your question please.

Operator: And our first question for today comes from the line of Ananda Baruah from Loop Capital. Your question, please. Yeah, thanks guys. Thanks for taking the question. A couple if I could,

Xavier Heiss: Yeah, and Xavier, just picking up right where you talked a moment ago, where you talked about the reinvention initiative. Yeah, so thanks, Ananda. So yeah, we are executing the strategy as we planned there. And as you mentioned, we go into the strategy, and we assess each of the initiatives individually here. As you know, we have not changed the guidelines that we have for the entire program.

Ananda Baruah: Yeah, thanks guys. Thanks for taking the question. A couple if I could. Yeah, and Xavier, just picking up right where you talked a moment ago, where you talked about the reinvention initiative.

Ananda Baruah: Yeah, in Zavia just sticking up right where you talked about the re-invention initiative being the catalyst for the guidance lower, is it is it is it is it's an intro quarter you guys moved around some of the timing of the initiatives and and that's what's causing the impact or is it you're just learning more the last 90 days about the impact of the initiatives but the timing of the initiatives are relatively the same. And then I have a quick follow-up. Thanks. Yeah, so thanks, thanks, Ananda. So yeah, so we are executing the strategy as we spland there on the as you mentioned it.

Speaker Change: Being the Catalyst for the Guidance Lohr.

Speaker Change: Unknown Speaker Is it, is it you, is it intra quarter?

Speaker Change: You guys moved around some of the timing.

Speaker Change: of the initiatives, and that's what's causing the impact? Or is it you're just learning more the last 90 days about the impact of the initiatives, but the timing of the initiatives are relatively the same? And then I have a quick follow up. Thanks.

Xavier Heiss: So we stick with the three guidelines that we have there. Regarding the specific guidance for this year, if you look at the revenue guidance change, it is entirely related to the reimagined action, specifically offering on view simplification. If you exclude this, the core business is behaving as we are expecting. And, as we mentioned, it is like a modest decline, even like a status situation when you look at a certain line of revenue. Hey Ananda, Steve, just a real quick reminder.

Speaker Change: Yeah, so thanks Ananda there. So, yeah, so we are executing the strategy as we planned there, and as you mentioned it, we go into the strategy and we assess each of the initiatives individually here. As you know it, we have not changed the guidelines that we have for the entire program, so we stick with the three guidelines that we have there.

Xavier Heiss: We go into the strategy on the we assess each of the initiative individually here. As you know, it will not change the guidance that we have for the entire program. So we stick with the three of guidance that we have there. Regarding the specific guidance for this year, if you look at the revenue guidance change, is this entirely related to the re-invention action, specifically offering on geo simplification here. If you exclude this, the core business is behaving as we're expecting. And as we mentioned it, it is like modest decline, even like flatish situation when you look at the certain line of the review.

Speaker Change: Regarding the specific guidance for this year, if you look at the Revenue Guidance Change, it is entirely related to the Reinvestment Action, specifically offering on due simplification here.

Speaker Change: If you exclude this, the core business is behaving as we are expecting, and as we mentioned it, it is like modest decline, even like status situation when you look at a certain line of the review.

Xavier Heiss: From a profit point of view or pointing, a margin point of view, it's simply the timing of the action. I can give you an example. When you do a geo simplification action here, you have the impact from a revenue immediately, and you move from a indirect to a direct model, and then comes the action of taking the cost out of the cost base in the country that I impact it, but also in our corporate overhead. It's just a timing point. The overall program is executed as what we're expecting, and we're sticking to the three of guidance.

Speaker Change: from a profit point of view, operating margin point of view, is simply the timing of the action. I can give you an example. When you do a geosimplification action here, you have the impact from a revenue immediately, you move from an indirect to a direct model, and then comes the action of taking the cost out of the cost base in the country that are impacted, but also in our corporate override. It's just a timing point. The overall program is executed as what we're expecting, and we are sticking to the three guidelines.

Steven Bandrowczak: Hey Ananda, see just a real quick reminder. One of the things that we talked about is we had to make very large structural changes going back to early 2023, so we think about what we did with CARP, what we do with XRCC, our fiddle change, implementing an operating model in the beginning of the year, what we did with production and manufacturing, now what we're doing in geo. It is a basket of activities that drives that end $300 million incremental operating improvement adjusted. And so what I want you to think about is this is not a linear, meaning that not every action drives a quarterly return, but the bucket drives what we want to do, and we've got enough in that bucket that makes us confident that we're going to be able to deliver the end results.

Steven John Bandrowczak: One of the things that we talked about was that we had to make very large structural changes going back to early 2023. So we think about what we did with CARC, what we do with XRCC, our FIDL change, implementing an operating model at the beginning of the year, what we did with production and manufacturing, now what we're doing in geo, it is a basket of activities that drives that end $300 million incremental operating improvement adjusted.

Speaker Change: Hey Ananda, Steve, just a real quick reminder.

Speaker Change: One of the things that we we talked about is we had to make very large structural changes going back to early 2023 so if you think about what we did with Cork

Speaker Change: What we do at XRCC, how FIT will change.

Speaker Change: Implementing an operating model in the beginning of the year.

Speaker Change: what we did with production and manufacturing, now what we're doing in geo.

Speaker Change: It is a basket of activities that drives that end $300 million incremental operating improvement adjusted.

Steven John Bandrowczak: And so what I want you to think about is this is not a linear meaning that not every action drives a quarterly return, but the bucket drives what we want to do. And we've got enough in that bucket that makes us confident that we're going to be able to deliver the end results. There are things that are out of control; we talk about geo simplification, what happens with approval in a country, what happens with labor, what happens with the things that you need to do to get regulatory approval for the deal.

Speaker Change: And so what I want you to think about is this is not a linear, meaning that not every action drives a quarterly return, but the bucket drives what we want to do, and we've got enough in that bucket that makes us confident that we're going to be able to deliver the end results.

Steven Bandrowczak: There are things that are out about controlling, talking about geo simplification. What happens with approval in a country? What happens with labor? What happens with the things that you need to do to get regulatory approval for the deal. So these are not straight where you can set up a plan. You know exactly what's going to happen in a quarter. However, with that bucket, we can feel confident that we're going to deliver over the next three years the exact financial results that we're talking about. That's super helpful.

Speaker Change: There are things that are out of our control. We talk about geo simplification, what happens with approval in a country, what happens with labor, what happens with the things that you need to do to get regulatory approval for the deal. So these are not straight where you can set up a plan. You know exactly what's going to happen in a quarter. However.

Steven John Bandrowczak: So these are not straight forward where you can set up a plan; you know exactly what's going to happen in a quarter. However, with that bucket, we can feel confident that we can deliver the exact financial results that we're talking about over the next three years. That's super helpful.

Speaker Change: With that bucket, we can feel confident that we're going to deliver over the next three years the exact financial results that we're talking about.

Ananda Baruah: You know, guys, given the time, I'll just leave it there, and we can get it on the call back. I appreciate it. Thank you. And our next question comes from the line, Samik Chatterjee from J.P. Morgan. Your question, please. Hi, thank you for taking my question.

Unknown Attendee: You know, guys, I'll just leave the fair given the time, and we can get it on the callback. I appreciate it. Thank you.

Speaker Change: That's super helpful. You know guys, I'll just leave it there given the time and we can get it on the callback. I appreciate it.

Samik Chatterjee: And our next question comes from the line of Samik Chatterjee from JP Morgan. Your question, please. Hi, thank you for taking my question. So, if I can start off with falling up on the question that I'm on the head, but partly on sort of timing. I heard you say that the two Q revenues were largely in line, if I heard you correctly. So my question is when we think about this incremental lowered guide for the full year, the one and a half percent roughly sort of change. Is it primarily in the second half in terms of rebasing the second half?

Speaker Change: Thank you. And our next question.

Speaker Change: comes from the line of Simik Chatterjee from JP Morgan. Your question please.

Operator: So I can start off with following up on the question that Ananda had, but partly on sort of timing here. I heard you say that the 2Q revenues were largely in line, if I heard you correctly. So my question is, when we think about this incremental load guide for the full year, the one and a half percent roughly sort of change, is it primarily in the second half in terms of rebasing the second half? Is that impact going to be more in the second half than in the first half? Or rather, the second half versus two Q? How should we think about timing?

Samik Chatterjee: Hi, thank you for taking my question. So, if I can start off with following up on the question that Ananda had, but partly on sort of timing here. I heard you say that the 2Q revenues were largely in line, if I heard you correct. So, my question is, when we think about this incremental load guide for the full year, the 1.5% roughly sort of change,

Xavier Heiss: Is that in back going to be more in the second half than the first half or rather second half versus two Q? How should we think about timing? So timing was so just to go back to Q to give a little bit more detail on the, you know, the impact in quarter 2 here. So if you look at the, you know, our total revenue decline was 10 percent, including, you know, all the impacts that we mentioned. Now to give more clarity on what we have mentioned in our script, there is 300 of basis point of this impact come from backlog.

Samik Chatterjee: Is it primarily in the second half in terms of rebasing the second half? Is that impact going to be more in the second half than the first half? Or rather second half versus 2Q, how should we think about timing?

Xavier Heiss: So just to go back to Q2 and give a little bit more detail on the impact in Q2. So if you look at, you know, our total revenue decline was 10%, including, you know, all the impacts that we mentioned. Now to give more clarity on what we have mentioned in our script, there are 300 basis points of this impact coming from backlog. So if you remember, year over year backlog last year was very strong because we were crushing backlog.

Speaker Change: So just to go back to Q2 and give a little bit more detail on the impact in Q2 here. So if you look at our total revenue decline was 10% including all the impact that we mentioned.

Speaker Change: Now, to give more clarity on what we have mentioned in our script, there is 300 basis points of this impact come from backlog. So if you remember, year-over-year backlog, last year was very strong because we were pushing backlog. If you think about the second half, we won't have this impact anymore, and this is the reason why we are saying second half will be in a growth mode there.

Xavier Heiss: So if you remember, the year of the year backlog last year was very strong because we were pushing backlog.

Xavier Heiss: If you think about the second half, we won't have this impact anymore, and this is the reason why we are saying the second half will be in a growth mode. The second point was related to 200 basis points.

Xavier Heiss: If you think about the second half, we won't have this impact anymore. This is the reason why we are saying second half would be in a growth model. So second point was related to 200 basis points. So 300 on backlog 200 additional basis point related to what we call the end of non strategic revenue paper and point devices on some related to the forward for agreement, which is generated less interesting content. On lastly, 150 basis points was related to Geo's simplification on offering completion. So you take all of this there. So 10 percent for new declared, but the same time 6 out of 50 are rationally explained on driven by this section here.

Xavier Heiss: So 300 basis points related to backlog, 200 additional basis points related to what we call the end of non-strategic revenue paper, endpoint devices on the sum related to the forward flow agreement, which has generated less interest income there. And lastly, 150 basis points were related to Geo's simplification and offering simplification. So you take all of this there. So 10% revenue decline, but at the same time, 650 are rationally explained and driven by this section here. When you look into the second half now, you won't have the backlog flush anymore.

Samik Chatterjee: The second point was related to 200 basis points, so 300 on backlog, 200 additional basis points related to what we call the end of non-strategic revenue paper, endpoint devices, on the sum related to the forward flow agreement, which is generated less interest income there.

Samik Chatterjee: And lastly, $150 basis point was related to GEO's simplification and offering simplification. So you take all of this, so 10% revenue decline, but at the same time, $650 are rationally explained and driven by this section here.

Xavier Heiss: When you look into the second half now, you won't have the backlog flush anymore. We will still apply, you know, our decision on non-strategic value on the geos simplification impact will still continue.

Samik Chatterjee: When you look into the second half now...

Samik Chatterjee: You won't have the backlog flush anymore. We will still apply our decision on non-strategic revenue, and the geosimplification impact will still continue. When you look at this there, and this is the reason why we commented there,

Xavier Heiss: But when you look at this here on this is the reason why we come into here, the backlog flush on the ability for us to drive the equipment for the second half, give us a confidence that we drive revenue growth during the second half of the year.

Xavier Heiss: We will still apply, you know, our decision on non-strategic revenue, and the Geo simplification impact will still continue. But when you look at this there, and this is the reason why we commented there, the backlog flush on the ability for us to drive equipment production in the second half gives us confidence that we will drive revenue growth during the second half of the year. Okay, I guess I'll just sort of rephrase that in the sense that what I'm trying to get to is, did Q2 have an incremental impact on revenues coming in below consensus on account of the changes that you decided to do between the intra-quarter?

Samik Chatterjee: The Backlog Flush on the ability for us to drive the equipment production in the second half gives us the confidence that will drive revenue growth during the second half of the year.

Samik Chatterjee: Okay, I guess I'll just rephrase that in the sense what I'm trying to get to is did Q2 have an incremental impact in revenues coming in below consensus on account of the changes that you decided to do in between intra quarter and is that the and is more of or is more of the impact really more in the second half from these incremental changes. And secondly, maybe just for my follow-on, like it seems like you're waiting for the deals to be finalized before you incrementally account for them in the revenue guide for your revenue guide.

Speaker Change: Okay, Javier, I guess I'll just sort of rephrase that in the sense what I'm trying to get to is did Q2 have an incremental impact in revenues coming in below consensus on account of the changes that you decided to do

Xavier Heiss: And is that the end, or is the impact really more in the second half from these incremental changes? And secondly, maybe just for my follow-on question: it seems like you're waiting for the deals to be finalized before you incrementally account for them in the revenue guide for your revenue guide. So how do we get confidence that there's no more sort of some of these deals in the pipeline in terms of which geographies you want to exit later in the year? Thank you. Yeah, so I will answer the first question.

Speaker Change: is that the end is more of or is more of the impact really more in the second half from these incremental changes.

Speaker Change: And secondly, maybe just for my follow on, like, it seems like you're waiting for the deals to be finalized before you incrementally account for them in the revenue guide for your revenue guide. So how do we get confidence that there's no more sort of some of these deals in the pipeline in terms of which geographies you want to exit subsequently in the year? Thank you.

Xavier Heiss: So how do we get confidence that there's no more sort of some of these deals in the pipeline in terms of which geographies you want to exit subsequently in the year. Thank you. Yeah, so I will answer the first question. So on the consensus, I don't think the consensus was taking into account, you know, some of the action because, as we said it, every time we have action ready to deal, offering simplification, we will invest investor on calls and outs. This is, you know, what we're doing here with you on the 50 bit is point here.

Xavier Heiss: So on the consensus, I don't think the consensus was taking into account, you know, some of the action, because, as we said, every time we have action related to geo offering simplification, we will invest in investors and call them out. This is, you know, what we're doing here, with the 100.50 business point here. Now, regarding the second point on the second half there, we are executing, you know, as we plan the strategy here.

Speaker Change: Yeah, so I will answer the first question. So on the consensus, I don't think the consensus was taking into account, you know, some of the actions, because as we said it,

Speaker Change: Every time we have action related to geo-offering simplification, we will invest investors and call them out. This is, you know, what we are doing here with the 100.50 business point here.

John Bruno: Now we're getting the second point on the second half there; we are executing, you know, as we splung the strategy here. I won't say the vast majority, but you know, some of the action are already at play as we describe it here. And if there are additional, I call that major or significant action during the second half, we'll inform, you know, investor doing our next course. I do think it's John; I do think it's a fair point. And I think to just kind of add something to that, it is about not only the mix, the mix of the types of geographies that we're looking to exit, the timing and the pacing, the sequencing, but also the mix of the revenue types and the deals that we look at, some of the lower profitable deals and some of the areas and low hardware.

John Bruno: Now, regarding the second point on the second half there, we are executing, you know, as we plan the strategy here, I won't say the vast majority, but you know, some of the actions are already at play, as we described it here. And if there are additional, major or significant action during the second half, we will inform, you know, investors during our earnings calls. I do think it's, John , I do think it's a fair...

Xavier Heiss: I won't say the vast majority, but you know, some of the action is already at play as we describe it here. And if there are additional major or significant actions during the second half, we will inform investors during our earnings calls. I do think it's John, I do think it's a fair point.

John Bruno: And I think to just kind of add something to that, it is about not only the mix, the mix of the types of geographies that we're looking to exit, the timing and pacing, the sequencing, but also the mix of the revenue types and the deals that we look at and some of the lower profitable deals in some of the areas and low hardware. We're just being very disciplined with regard to balanced execution across both geographic makeshift and products and offerings And because we're at the halfway point of the year, it's not as if there are things in the back end part of the year that we're very concerned about to answer your question directly. It's actually the opposite.

Speaker Change: point. And I think to just kind of add something to that, it is about not only the mix, the mix of the types of geographies that we're looking to exit, the timing, the pacing, the sequencing, but also the mix of the revenue types and the deals that we look at and some of the lower profitable deals in some of the areas and low hardware. We're just being very disciplined with regard to balanced execution across both geographic makeshift and products and offerings. And because we're at the halfway point of the year, it's not as if that there's things in the back end part of the year that we're very concerned about to answer your question directly. It's actually the opposite. It gives us, it gave us all the information in our learnings through Q1 and Q2, give us a good guide of what's in the pipeline and how we pace and sequence them. So it definitely is a timing and a mix.

John Bruno: We're just being very disciplined with regard to balanced execution across both geographic mix shift and products and offerings, and because we're at the halfway point of the year, it's not as if that there's a things in the back end part of the year that we're very concerned about. To answer your question directly. It's actually the opposite. It gives us all the information, and our learnings through Q1 and Q2 give us a good guide of what's in the pipeline and how we pace and sequence them. So it definitely is a timing and a mix issue. Thank you.

John Bruno: It gives us all the information and our learnings through Q1 and Q2 give us a good guide of what's in the pipeline and how we pace and sequence them. So it's that's definitely is a timing and a mix issue. Thank you. Thanks for taking the time. You're welcome.

Unknown Attendee: Thanks for taking my question. You're welcome. Thank you.

John Bruno: Issue.

Speaker Change: Thank you. Thanks for taking my questions.

Maya Neuman: And our next question comes from the line of Erik Woodring from Morgan Stanley. Your question, please. Hi, this is Maya on for Erik. So I think just to start, if we think about, let's say, roughly a $6 billion revenue base and with services being less than 10% today, that means it's maybe around 500 to 600. 100 million annual revenue roughly.

Operator: Thank you. And our next question comes from the line of Erik Woodring from Morgan Stanley. Your question, please. Hi, this is Maya. I'm for Erik.

Speaker Change: You're welcome.

Speaker Change: Thank you.

Speaker Change: And our next question comes from the line of Erik Woodring from Morgan Stanley . Your question, please.

Operator: So I think just to start, if we think about, let's say roughly $6 billion in annual revenue, which may be around. Think about that mix can more than double by 2026, but what's your assumption about your total revenue base at that point? Are you telling us services revenue is going to double in two years, or how should we be thinking about that? Any color will help.

Speaker Change: Hi, this is Maya. I'm for Erik. So I think just to start, if we think about, let's say, roughly a $6 billion revenue base, and with services being less than 10% today, that means it's maybe around $500 to $600 million in annual revenue, roughly.

John Bruno: You think about that mix more than double by 2026, but what's your assumption about your total revenue base at that point, meaning are you telling us services revenue is going to double into years or how should we be thinking about that? Any color will help. I think it's, I think it's a combination of both. So yes, you do have to think about the broad base services, big-ass services as a growth business for us. We really see an opportunity, a very good one, in the middle market across our IT services business because our brand is very well recognized.

Speaker Change: You think about that mix can more than double by 2026, but what's your assumption about your total revenue base at that point? Meaning, are you telling us services revenue is going to double in two years? Or how should we be thinking about that? Any color will help.

John Bruno: I think it's I think it's a combination of both. So, yes, you do have to think about broad-based services, big S services, as a growth business for us. You know, we really see an opportunity, a very good one, in the middle market across our IT services business because our brand is very well recognized. Those those environments are dealing with lots of issues regarding technological upgrades.

Speaker Change: I think it's a combination of both. So yes, you do have to think about the broad-based services, big-ass services.

Speaker Change: As a growth business for us.

Speaker Change: We really see an opportunity, a very good one, in the middle market across our IT services business because our brand is very well recognized.

John Bruno: Those environments are dealing with lots of issues on technological upgrades. We're in there having conversations with customers, and we think that that IT services part of our business has very good growth in the SMB space. We're seeing similar items and digital services, but they're not as mature. And that is absolutely offset by the declines that we've shared with you over the same period of time on print. So we want to make sure that we get the print mix rate both in production in the enterprise and on the low end. So it does; you will see a mix shift within our print portfolio between our low end A4, our A3, and our production. At the same time, you'll see an increase of our IT services and digital services.

Speaker Change: Those environments are dealing with lots of issues on technological upgrades. We're in there having conversations with customers, and we think that that IT service is part of our business, has very good growth in the SMB space. We're seeing similar items in digital services, but they're not as mature. That is absolutely offset by the declines that we've shared with you over the same period of time on print. We want to make sure that we get the print mix right, both in production, in the enterprise, and on the low end, so you will see a mix shift within our print portfolio between our low end, A4, our A3, and our production. At the same time, you'll see an increase of our IT services and digital services, and that's the whole point of ensuring that the geographies we position these offers in, the offers themselves.

John Bruno: We're in there having conversations with customers, and we think that the IT services part of our business is seeing very good growth in the SMB space. We're seeing similar things in digital services, but they're not as mature. And that is absolutely offset by the declines that we've shared with you over the same period of time on print. So we want to make sure that we get the print mix right, both in production, in the enterprise, and on the low end. So it does do it.

John Bruno: You will see a makeshift within our print portfolio between our low-end A4, our A3 and our production. At the same time, you'll see an increase in our IT services and digital services. And that's the whole point of ensuring that the geographies we position these offers and the offers themselves and how we grow them is how we're getting to this, these makeshift changes over time. And the savings that we're driving through them just give us the ability to invest in them. So, yes, that's why it's kind of complex by its very nature.

John Bruno: And that's the whole point of ensuring that the geographies we position these offers and the offers themselves and how we grow them is how we're getting to this mix shift changes over time. And the savings that we're driving through them is this gives us the ability to invest in them. So yes, that's why it's kind of, it's complex by its very nature, and it's a multi-year program over a period of time, as both Steve and Savvy pointed out to. But yes, you are thinking about it correctly with regard to growing the services business offsetting the declines in print.

Speaker Change: Beckel, Steven Bandrowczak, Unknown Executive, John Bruno

John Bruno: And it's a multiyear program over a period of time, as both Steve and Xavier pointed out, too. But yes, you are thinking about it correctly with regard to growing the services business, offsetting the declines in print. Yeah, I want to also just highlight that. So when you do the comparison, you look at Q1 or Q2 revenue, and you say, OK, this is like a double-digit revenue decline there. So is it like a future trend?

John Bruno: Yeah, I won't also just to highlight there.

Xavier Heiss: So when you do the compare on you look at QR and Q2 revenue and you say, okay, this is like a double-digit revenue declines. So is it like, is the future trend. We should not forget that the last year we have significant backlog flush share on the we know that the starting Q3 and Q4 we will be no more apples to Apple compare on that the reason why we are saying for the second half. Our view is that will be on a growth board on both, you know, this adjusted revenue taking into account, you know, all the different strategic actions that we're doing.

Speaker Change: Yeah, I want also just to highlight there, so when you do the comparison, you look at Q1 or Q2 revenue, and you say, okay, this is like a double-digit revenue decline there, so is it like a future trend?

Xavier Heiss: We should not forget that last year, we had a significant backlog flush share, and we know that starting Q3 and Q4, we will be in a more Apple to Apple comparison. And that's the reason why we are saying for the second half, our view is that we will be in a growth mode on both, you know, this adjusted revenue taking into account, you know, all the different strategic actions that we are doing. But also, if you look at the different lines of revenue that we are driving here, the outcome will be positive. So we should not forget that last year the backlog had an impact in the first half.

Speaker Change: We should not forget that last year, we had significant backlog flush share, and we know that starting Q3 and Q4, we will be in a more apples-to-apples compare. And that's the reason why we are saying for the second half, our view is that we will be on a growth board on both, you know, this adjusted revenue taking into account, you know, all the different strategic actions that we are doing. But also, if you look at the different line of revenue that we are driving here, the outcome will be positive. So we should not forget last year, the backlog had an impact in the first half.

Xavier Heiss: But also, if you look at the different line of revenue that we're driving here, the outcome will be positive. So we should not forget last year, the backlog had an impact in the first off. Got it. That's helpful to remember.

Xavier Heiss: And so I guess when we talk about kind of this business being a significant growth business, the digital 19 services. Are you looking at breaking services out? When should we kind of expect that to become. A part of your regular disclosure. Yeah, so this is a good question on the, you know, this is one of the most demanded questions we have from the investor here. So our plan so far is at the beginning of next year, we would like, you know, to present the company results in two seconds. So we are working on this one currently to businesses, one will be print or co print on the other one will be IT or digital services.

Speaker Change: Got it. That's helpful to remember. And so I guess when we talk about kind of this business being a significant growth business, the digital and IT services,

Xavier Heiss: Got it. [inaudible] Growth Business, the Digital and IT Service. Unknown Speaker Are you looking at breaking, Ananda Baruah, David Beckel, Steven Bandrowczak, Erik Woodring, David Beckel, Steven Bandrowczak, Yeah, so this is a good question on the, this is one of the most demanded questions we have from investors here. So our plan so far is at the beginning of next year, we would like, you know, to present the company results in two segments.

Speaker Change: Are you looking at breaking services out? When should we kind of expect that to become a part of your regular disclosures?

Xavier Heiss: So we are working on this one currently two businesses; one will be print or co-print, and the other one will be IT or digital services. I'm not commiting to this error because it's worthwhile for us, you know, to work on the reporting, so we can be compliant, you know, with the reporting requirement. But we understand that this is clearly a requirement, and so we have a much better understanding of the hydraulics between these two businesses. I got it.

Speaker Change: Yeah, so this is a good question on the, you know, this is one of the most demanded questions we have from investors here. So our plan so far is at the beginning of next year. We would like, you know, to present the company result in two segments. So we are working on this one currently, two businesses. One will be print or co-print and the other one will be IT or digital services. I'm not committing to this area because it's required for us, you know, to work on the reporting so we can be compliant, you know, with the reporting requirement. But we understand that this is clearly a requirement. So we have a much better understanding of the hydraulics between these two businesses.

Xavier Heiss: I'm not committing to this area because it's work wise for us, you know, to work on the reporting so we can be compliant, you know, with the reporting requirement. But we understand that this is clearly a requirement, so we have a much better understanding of the ideal experience is to businesses. Got it. Thank you. And then I just have one last question.

Xavier Heiss: Thank you. And then I just have one last question. We've heard in a few different checks about some, think this could have an impact on customer spending or purchase intentions, or even channel partner behavior. No, we don't know.

Speaker Change: Got it. Thank you. And then I just have one last question. We've heard in a few different checks about some potential product or supply shortages potentially being caused by the reinvention and actions you're taking internally.

Unknown Attendee: We've heard in a few different checks about some potential product or supply shortages potentially being caused by the reinvention and actions you're taking internally. Do you think this could have an impact on customer spending or purchase intention, or even channel partner behavior? No, we don't know if we've got no issues with supply, internal shortage, or I don't know what it's coming from. Yeah, we're fine with inventory, and we'll fight with supplies. It's not an issue. Great. Thank you so much. You're welcome. Thank you.

Speaker Change: Do you think this could have an impact on customer spending or purchase intentions or even channel partner behavior?

Steven John Bandrowczak: We've got no issues with supply internal shortages, so I don't know what it's coming from. Yeah, we're fine with inventory, and we're fine with supplies. Not an issue. Great, thank you so much. You're welcome.

Speaker Change: We've got no issues with supply internal shortages, so I don't know where it's coming from. We're fine with inventory and we're fine with supplies. Not an issue.

Operator: Thank you. And our next question comes from the line of Lathea Merchant from Citigroup. Your question, please. Great, thank you for the opportunity. Good morning.

Speaker Change: Great, thank you so much.

Asiya Merchant: And our next question comes from the line of, let's see, a merchant from City Group. Your question, please. Great. Thank you for the opportunities in the morning.

Speaker Change: You're welcome.

Speaker Change: Thank you and our next question comes from the line of Athea Merchant from Citigroup. Your question please.

Steven Bandrowczak: I just at high level, I guess I wanted to dig into the revenues that you guys are thinking about over this next three or period, you know, party guys are thinking about the operational improvements that you've already discussed, but what's kind of the revenue trajectory post 24 and to what extent is that they can, you know, whether it's print market. Decline, you know, your own market share positions within that. And if I can double click on the digital and IP services, you know, areas which are that you present our growth opportunities. Where are you seeing success in those? If you could double click on those in terms of drivers of growth there, whether it's geographical vertical.

Operator: Just at a high level, I guess I wanted to dig into the revenues that you guys are thinking about over this next three-year period. You know, how you guys are thinking about the Operational Improvements that you've already discussed. But what's the revenue trajectory post-24?

Athea Merchant: Great, thank you for the opportunity. Good morning. Just at a high level, I guess I wanted to dig into the revenues that you guys are thinking about over this next three-year period, you know, how you guys are thinking about the

John Bruno: And to what extent is that possible, you know, whether it's the print market declining, you know, your own market share position within that. And if I can double-click on the digital and IT services, you know, areas which are, you present as our growth opportunities, where are you seeing success in those? If you could double-click on those in terms of drivers of growth there, whether it's geographical or vertical, I know you talked about the mid market.

Speaker Change: Operational Improvements that you've already discussed.

Speaker Change: But what's kind of the revenue trajectory post-24? And to what extent is that vacant, you know, whether it's print market declines?

Speaker Change: you know, your own market share position within that. And if I can double-click on the digital and IT services, you know, areas which are — which you present are growth opportunities. Where are you seeing success in those? If you could double-click on those.

Speaker Change: In terms of drivers of growth there, whether it's geographical, vertical, I know you talked about the mid-market. So if you could just double click a little bit on that, that would be great. And lastly, you know, the

Steven Bandrowczak: I know you talked about the mid market. So if you could just double-click a little bit on that, that would be great. And lastly, you know, the operational investments that you need to do in order to drive close there. If you could double-click on that as well, that would be great. Thank you. Yeah, great question. Let me start with the strategy as we've been talking about as part of the whole reinventing. First of all, we believe that the existing TAM inside of existing clients and accounts is a great opportunity for us very specifically. In mid market and helping a lot of our mid market clients, being able to absorb new technology, whether it's AI, RPA, intelligent document flow, looking at IT services and how do they embed it.

John Bruno: So if you could just double click a little bit on that, that would be great. And lastly, you know, the operational investments that you need to do in order to drive growth there. If you could double click on that as well, that would be great.

Speaker Change: the operational investments that you need to do in order to drive growth there. If you could double click on that as well, that would be great. Thank you.

Steven John Bandrowczak: Thank you. Yeah, a great question. Let me start with the strategy we've been talking about as part of the whole reinvention. First of all, we believe that the existing TAM inside of existing clients and accounts is a great opportunity for us, very specifically in the mid market, and helping a lot of our mid market clients to absorb new technology, whether it's AI, RPA, intelligent document flow, looking at IT services, and how do they embed it.

Speaker Change: Yeah, great question. Let me start with the strategy as we've been talking about as part of the whole reinvention. First of all, we believe that the existing TAM inside of existing clients and accounts is a great opportunity for us very specifically in mid-market and helping a lot of our mid-market clients.

Speaker Change: being able to absorb new technology, whether it's AI, RPA, intelligent document flow, looking at IT services and how do they embed it. So we're in perfectly positioned.

Steven John Bandrowczak: So we're perfectly positioned as a trusted partner in that ecosystem to be able to bring products and services, and we see that across our offerings. In addition to that, if you think about what's happening today in the world of AI, in the world of intelligent documents, and you take a look at RPA, we are greatly positioned because we are already behind our clients' firewalls. What does that mean?

Steven Bandrowczak: So we're in perfectly positioned as a trusted partner in that ecosystem to be able to bring products and services, and we're seeing that across our offerings. In addition to that, if you think about what's happening today in the world of AI, in the world of Intel's and documents, you take a look at RPA, we are greatly positioned because we are already behind our clients' firewall. What does that mean? That means we're embedded in their security; we're embedded in their business processes. And therefore, we can create capabilities and solutions that brings client success and client value.

Speaker Change: As a trusted partner in that ecosystem to be able to bring products and services and we're seeing that across our offerings

Speaker Change: In addition to that, if you think about what's happening today, in the world of AI, in the world of intelligent documents, you take a look at RPA, we are greatly positioned because we are already behind our client's firewall. What does that mean? That means we're embedded in their security, we're embedded in their business processes, and therefore, we can create capabilities and solutions that brings client success and client value.

Steven Bandrowczak: We talked about changing and really focusing on client outcomes about a year and a half ago. And that really means how do we bring more value to our clients throughout technology and not just bring solutions from a product standpoint. So that's where we get services, and that's where you saw some of the things that we highlighted in the opening comments around the things that we're doing from our clients.

John Bruno: We talked about changing and really focusing on client outcomes about a year and a half ago. And that really means how do we bring more value to our clients, to our technology, and not just bring solutions from a product standpoint. So that's where we get services, and that's where you saw some of the things that we highlighted in the opening comments around the things that we're doing from our clients. John , you want to talk about some specifics?

Steven John Bandrowczak: That means we're embedded in their security, we're embedded in their business processes, and therefore, we can create capabilities and solutions that bring client success and client value. We talked about changing and really focusing on client outcomes about a year and a half ago. And that really means how do we bring more value to our clients through our technology and not just bring solutions from a product standpoint. So that's where we get services. And that's where you saw some of the things that we highlighted in the opening comments around the things that we're doing for our clients. John, do you want to talk about some specifics? Yeah, for sure, Steve.

John Bruno: John, you want to talk about some specifics? Yeah, for sure, Steve. So I'd like you to think about digital services and two ways for large enterprise clients. They look at work streams like invoice processing, invoice accuracy. The types of things that are both ingested be a scanning and things that are printed PDFs and their formats. The from the two and all the handling of all of that robotic robotic process automation and all the types of advancements in that space is just helping clients be much more efficient. And that's that's kind of more of a large play.

John Bruno: So I'd like you to think about digital services in two ways. For large enterprise clients, they look at work streams like invoice processing, invoice accuracy, the types of things that are both ingested via scanning and things that are printed, PDFs and their formats, the from, the to, and all of the handling of all of that, robotic process automation, and all the types of advancements in that space are just helping clients be much more efficient.

John Bruno: Yeah, for sure, Steve.

John Bruno: So, I'd like you to think about digital services in two ways. For large enterprise clients,

John Bruno: They look at work streams like invoice processing, invoice accuracy, the types of things that are both ingested via scanning and things that are printed, PDFs and their formats.

Speaker Change: Unknown Speaker, The From, The To, and all of the handling of all of that robotic process automation and all the types of advancements in that space is just helping clients be much more efficient. And that's kind of more of a larger play in that space. You're seeing in the graphic communications and in the marketing space.

John Bruno: And that's kind of more of a larger play in that space. You see, in graphic communications and in the marketing space, chief marketing officers are trying to understand the efficacy of both print and digital ads. That's why you see barcodes embedded on so many index cards or on various different offerings and physical items or watermarks.

John Bruno: A larger play in that space. You're seeing in the graphic communications and in the marketing space, cheap marketing offices to try and understand the efficacy of both print and digital ads. That's why you see barcodes embedded on so many index cards or on various different offerings and physical items or watermark. We're trying to understand what the effectiveness is on a printed page, on a digital page, on programs overall, and make better decisions in that space. These types of things are the types of current today's issues. The advancements in AI and some of the areas that both, you know, Steve talked to and Zavi talked to earlier, you know, in gen AI is dependent upon good data, and good data comes from documents. The repositories that these documents have to be scanned, have to be indexed, have to be redacted.

Speaker Change: Chief Marketing Officers are trying to understand the efficacy of both print and digital ads. That's why you see barcodes embedded on so many index cards or on various different offerings and physical items or watermark. We're trying to understand what the effectiveness is on a printed page, on a digital page, on programs overall, and make better decisions in that space. These types of things are

John Bruno: They're trying to understand what the effectiveness is on a printed page, on a digital page, on programs overall, and make better decisions in that space. These types of things are the types of current, everyday issues. You see advancements in AI in some of the areas that both Steve talked about and Xavier talked about earlier. Next-gen AI is dependent upon good data, and good data comes from documents. The repositories of these documents have to be scanned, have to be indexed, and have to be redacted. You need to understand the chain of custody across these items.

Speaker Change: are the types of current today's issues, the advancements in AI and some of the areas that both, you know, Steve talked to and Xavier talked to earlier, you know,

Speaker Change: And Gen-AI is dependent upon good data, and good data comes from documents.

Speaker Change: The repositories of these documents have to be scanned, have to be indexed, have to be redacted, you need to understand chain of custody.

John Bruno: You need to understand Shane Acusty across these items. So the whole digitization of the document, the origination of the document, the ability to redact, the ability to secure, are these types of digital services and they are combined. It is not, it is very much a kind of a multi multi-prong approach because there is no one particular area. That's why people say on the commerce on the channel. That's what they mean. It's coming both physical, both digital, but the processes are the same. So we're seeing both these types of things emerge in digital services and the IT services around it: managed cloud, just like our managed print, managed IT security, and those things. We believe that that's an SMB opportunity for us.

John Bruno: So the whole digitization of a document, the origination of the document, the ability to redact, the ability to secure are these types of digital services, and they are combined. It is very much a kind of a multi-pronged approach because there is no one particular area. That's why people say omni-commerce, omni-channel. That's what they mean.

John Bruno: across these items. So the whole digitization of a document, the origination of the document, the ability to redact, the ability to secure are these types of digital services and they are combined. It is very much a

Speaker Change: kind of a multi...

John Bruno: It's coming both in the physical world and in the digital world, but the processes are the same. So we're seeing these types of things emerge in digital services. And the IT services around it are managed cloud, just like our managed print, managed IT security, and those things. And we believe that that's an SMB opportunity for us more than the large market because that's where we see the market need. That's where it's very highly fragmented. It's very geographically put in place, really like NFL cities, if you will, in the US.

Speaker Change: multi-pronged approach because there is no one particular area. That's why people say omni commerce, omnichannel. That's what they mean. It's coming both physical, both digital, but the processes are the same. So we're seeing these types of things emerge in digital services and the IT services around it is managed cloud, just like our managed print managed IT.

Speaker Change: Security, and those things. And we believe that that's an SMB opportunity for us.

John Bruno: More than the large market because that's where we see the market need. That's where it's very highly fragmented. It's very geographically put in place, really like NFL cities, if you will, in the US. We have an opportunity to do some consolidation in that area and extend our services through our brand and through our distribution easily without having to invest a lot more in that space. And so that's how we're balancing those issues.

Speaker Change: more than the large market, because that's where we see the market need. That's where it's very highly fragmented. It's very geographically put in place, really like NFL cities, if you will, in the US. We have an opportunity to do some consolidation in that area, and extend our services through our brand and through our distribution easily without having to invest.

John Bruno: We have an opportunity to do some consolidation in that area and extend our services through our brand and through our distribution easily without having to invest a lot more in that space. And so that's how we're balancing those issues. Okay, and to what extent do you think about this, the broader print market?

Speaker Change: a lot more in that space. And so that's how how we're balancing those issues.

John Bruno: Okay, and to what extent, you know, what about this, the broader print market? I mean, to what extent is your operational income improvement speaking and, you know, just. Sector challenges in the overall print market. Yeah, so any overall print markets pretty, it's pretty simple. If you look at our, if you look at our positions across the three main categories more broadly. It is a game share program in a, in a secular challenge markets, right? So that means refactoring our offers in each of those three pillars. So it's a grow our market share position in the low end in the A4 and our offerings and expanding in that space and creating more opportunities.

John Bruno: I mean, to what extent is your operational, income improvement speaking and, you know, just Unknown Speaker, Unknown Speaker, Unknown Speaker. Yeah, so in the overall print market, it's pretty, it's pretty simple. If you look at our positions across the three main categories more broadly, it is a gain share program in secularly challenged markets, right? So that means refactoring our offers in each of those three pillars.

Speaker Change: Okay, and to what extent, you know, what about this, the broader print market? I mean, to what extent is your operational income improvement speaking in, you know, just

John Bruno: So it's growing our market share position in the low end of the A4 and our offerings and expanding in that space and creating more opportunities, mostly through our indirect channels. As we look at this makeshift and you look at our geo strategies, these are tied together; we want to build more channel-ready products, higher velocity, and capabilities across our A4 portfolio. And that's a gain share program; we are the leader in A3, that's a whole share and will continue to differentiate. That's why you hear all the issues we're talking about AI and enhancements.

Speaker Change: Secular challenges in the overall French market.

Speaker Change: Yeah, so in the overall print market, it's pretty, it's pretty simple. If you look at our, if you look at our positions across the three main categories more broadly.

Speaker Change: It is a gain share program in a secular challenged markets, right? So that means.

Speaker Change: Refactoring our offers in each of those three pillars, so it's a grow our market share position in the low end in the A4 and our offerings and expanding in that space and creating more opportunities.

John Bruno: Mostly through our indirect channels as we look at this mix shift and you look at our geo strategies. These are tied together. We want to build more channel-ready product higher velocity and capabilities across our A4 portfolio. And that's a game share program. We are the leader in A3. That's a whole share and continue to differentiate. That's why you hear all the issues we're talking about AI and enhancements, and we focus on that. That's a reshaping and continue to be competitive in the leader in that space because we are the leader. This is why we want to make sure that the places in which we're direct.

Xavier Heiss: mostly through our indirect channels. As we as we look at this mix shift, and you look at our geo strategies, these are tied together, we want to build more channel ready products, higher velocity and capabilities across our A4 portfolio. And that's a gain share program, we are the leader in A3, that's a hold share and continue to differentiate. That's why you hear all the issues we're talking about AI and enhancements. And we focus

John Bruno: And we focus on that that's a reshaping and continue to be competitive and the leader in that space because we are the leader. This is why we want to make sure that the places in which we're direct, we're surrounding that A3 market with more value added services to continue to enhance and protect print. And then on the production side, those are areas if you break the production market down, there's parts that are growing in that space, you see cut sheet inkjet, we see specialty labels, and really all the productivity that surrounds the presses, all the pre press post press items and making the presses run most more efficiently because runtime and optimization for a large production clients is critically important down machines aren't making money for them. These are complex ecosystems.

Speaker Change: On that, that's a reshaping and to continue to be competitive and a leader in that space because we are the leader. This is why we want to make sure that the places in which we're direct.

John Bruno: We're surrounding that A3 market of more value added services to continue to enhance and protect print. And then on the production side, those are areas if you break the production market down. There's parts that are growing in that space. You see cut sheet ink jet. We see specialty labels and really all the productivity that surrounds the presses. All the pre press post press items and making the presses run most more efficiently because runtime and optimization for a large production clients is critically important. Down machines aren't making money for them. These are complex ecosystems. So you're seeing advancements on our side.

Speaker Change: We're surrounding that A3 market with more value-added services to continue to enhance and protect print. And then on the production side, those are areas, if you break the production market down, there's parts that are growing in that space. You see cut sheet inkjet, we see specialty labels, and really all the productivity that surrounds the presses.

Speaker Change: All the pre-press, post-press,

Speaker Change: items and making the presses run most more efficiently because runtime and optimization for a large production clients is critically important down machines.

John Bruno: So you're seeing advancements on our side; we want to gain share in the software and services. That's why it's a services-led, software-enabled program there. We have to bring more capabilities to our print clients to help them bridge the digital divide there, which is very much a laggard; a lot of that stuff is still analog processes. We want to make sure that we're bringing productivity tools, and we're making these print shops or these embedded print customers inside large enterprises more practical.

Speaker Change: are not making money for them. These are complex ecosystems. You are seeing advancements on our side. We want to gain share in the software and services. That is why it is a services-led software-enabled program there. We have to bring more capabilities.

John Bruno: We want a game share in the software and services. That's why it's a services-led, software-enabled program there. We have to bring more capabilities to our print clients to help them as the digital divide there, which is very much a laggard. A lot of that stuff is still analog processes. We want to make sure that we're bringing productivity tools, and we're making these print shops or these embedded print customers inside the large enterprises more practical. So it's a it's different for each of the main three categories. It's gain in the low end. It's hold and surround and strengthen in the mid, and it's enter new segments by repositioning our production portfolio to where the markets moving versus where it has been and where we've been in previously.

Speaker Change: to our print clients to help them as the digital divide there, which is very much a laggard. A lot of that stuff are still analog processes.

Speaker Change: We want to make sure that we're bringing productivity tools and we're making these print shops or these embedded print customers inside the large enterprises more practical. So it's different for each of the main three categories. It's gain in the low end, it's hold and surround and strengthen in the mid, and it's enter new segments by repositioning our production portfolio to where the market's moving versus where it has been and where we've been in previously.

John Bruno: So it's different for each of the main three categories; gain in the low end, hold and surround and strengthen in the mid, and enter new segments by repositioning our production portfolio to where the market's moving versus where it has been and where we've been previously.

Unknown Attendee: Okay, thank you. Thank you.

John Bruno: Okay, thank you. Thank you. This does conclude the question and answer session for today's program. I'd like to hand the program back to Steve Bandrowczak for any further remarks. Recapping today's call, structural changes implemented in Q1 resulted in a short period of disruption but are driving notable improvements in operating efficiencies and sales effectiveness. The sequential improvement in financial results observed in Q2 and improvements in underlying processes designed to enable future cost reductions gives us confidence the reinvention strategy is working and will deliver the targeted $300 million of improvement in adjusted operating income by the end of 2026.

Speaker Change: Okay, thank you.

Steven Bandrowczak: This does conclude the question and answer session of today's program.

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

Steven Bandrowczak: I'd like to head the program back to Steve Bandrowczak for any further remarks. Recapping today's call, structural changes implemented in Q1 resulted in a short period of disruption, but are driving notable improvements in operating efficiencies and cell defectiveness. The sequential improvement in financial results, observing Q2 and improvements in underlying processes designed to enable future cost reductions, gives us confidence the reinvention strategy is working and will deliver to target a 300 million of improvement in adjusted operating income by the end of 2026.

Steven John Bandrowczak: Recapping today's call, structural changes implemented in Q1 resulted in a short period of disruption, but are driving notable improvements in operating efficiencies and sales effectiveness.

Speaker Change: The sequential improvement in financial results observed in Q2 and improvements in underlying processes designed to enable future cost reductions

Steven John Bandrowczak: It gives us confidence the reinvention strategy is working and will deliver the targeted $300 million of improvement in adjusted operating income by the end of 2026. I thank you for joining the Q2 earnings call and I wish everybody a great day.

Steven John Bandrowczak: I thank you for joining the Q2 earnings call, and I wish everybody a great day. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Operator: I thank you for joining the Q2 earnings column. I wish everybody a great day. Thank you, ladies and gentlemen, for participation at today's conference.

This does conclude the program. You may now disconnect. Good day. Thank you very much.

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