Q4 2024 Xerox Holdings Corp Earnings Call

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. If your question has been answered and you'd like to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Mr.

David <unk>: David <unk>, Vice President and head of Investor Relations at Xerox Holdings Corporation. Please go ahead Sir.

Speaker Change: Good morning, everyone I'm, David Buckler, Vice President and head of Investor Relations at Xerox Holdings Corporation and welcome to the Xerox Holdings Corporation fourth quarter 2024 earnings release Conference call hosted by Steve <unk>, Chief Executive Officer.

Speaker Change: He is joined by John Bruno President and Chief operating Officer, <unk> incoming Chief Financial Officer at.

Speaker Change: At the request of Xerox Holdings Corporation today's conference call is being recorded.

Speaker Change: The recording and or rebroadcast of this call are prohibited without the express permission of Xerox. During this call Xerox executives will refer to slides that are available on the web at www Dot Xerox Dot com slash investor and we will make comments that contain forward looking statements, which by their nature address matters that are in the future and uncertain actual.

Speaker Change: Today's program, Mr. David Beckel, Vice President and Head of Invest Relations at Xerox Holdings Corporation. Please go ahead, sir.

Speaker Change: Good morning, everyone. I'm David Beckel, Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation Fourth Quarter 2024 Earnings Release Conference Call, hosted by Steve Bandrowczak, Chief Executive Officer.

Speaker Change: Future financial results may be materially different than those expressed herein at this time I'd like to turn the meeting over to Mr. <unk>.

Speaker Change: He's joined by John Bruno, President and Chief Operating Officer, and Mirlanda Getzai, Incoming Chief Financial Officer.

Speaker Change: Good morning, and thank you for joining our Q4 2024 earnings call.

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.

Speaker Change: 2024 was an important year for Xerox, we executed a critical phase of our reinvention journey by implementing widespread structural changes all in efforts to better position Xerox for sustainable growth in revenue and profit chain.

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

Speaker Change: Changes include the shift through geographic to a business unit led operating model.

Speaker Change: And we'll make comments that contain forward-looking statements which by their nature address matters that are in the future and 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: Realignment of our sales organization and the centralization of key business processes within our newly formed global business service organization.

Bandrowczak: Good morning, and thank you for joining our Q4 2024 earnings call.

We now have stronger alignment with the economic buyer of our offerings and improved organizational efficiencies both of which are critical enablers of our long term reinvention goals further a simpler and more resilient operating model put us in a better position to acquire and integrate it savvy and lexmark.

Mr. Bandrowczak: 2024 was an important year for Xerox. We executed a critical phase of our reinvention journey by implementing widespread structural changes, all in efforts to better position Xerox for sustainable growth in revenue and profit.

Speaker Change: Transactions, which are expected to accelerate our path towards revenue stabilization and double digit adjusted operating income margins.

Mr. Bandrowczak: Changes include the shift from a geographic to a business unit led operating model, realignment of our sales organization, and the centralization of key business processes within a newly formed global business service organization.

Speaker Change: We ended the year with improved execution, achieving revised full year revenue and free cash flow guidance and for the second consecutive quarter adjusted operating income and margin improved year over year. Despite a decline in total revenue, which we view as a proof point of the intended benefits of <unk>.

Mr. Bandrowczak: We now have stronger alignment with the economic buyer of our offerings and improved organizational efficiencies, both of which are critical enablers of our long-term reinvention goals.

Mr. Bandrowczak: Further, a simpler and more resilient operating model put us in a better position to acquire and integrate IT Savvy and Lexmon.

Speaker Change: More efficiently run business.

Speaker Change: Summarizing our results for the year revenue of $6 2 billion decreased nine 7% in actual currency and nine 5% in constant currency.

Mr. Bandrowczak: Transactions which are expected to accelerate our path towards revenue stabilization and double-digit adjusted operating income margins.

Speaker Change: Excluding the benefits of around five weeks of savvy results revenue declined 10, 2% in constant currency.

Mr. Bandrowczak: We ended the year with improved execution, achieving revised full-year revenue and free cash flow guidance.

Mr. Bandrowczak: And for the second consecutive quarter, adjusted operating income and margin improved year over year despite a decline in total revenue, which we view as a proof point of the intended benefits of a more efficiently run business.

Speaker Change: Adjusted EPS was <unk> 97.

Speaker Change: 85, lower year over year.

Speaker Change: We generated $467 million of free cash flow, which was $182 million lower year over year and adjusted operating income margin of four 9% was lower year over year by 70 basis points.

Mr. Bandrowczak: Summarizing results for the year, revenue of $6.2 billion decreased 9.7% in actual currency and 9.5% in constant currency.

Speaker Change: The decline in full year revenue was affected in part by backlog reductions in the previous year, the impacts of geographic and offerings simplification and other intentional reduction of non core revenue.

Mr. Bandrowczak: Excluding the benefits of around 5 weeks of IT-savvy results, revenue declined 10.2% in constant currency.

Speaker Change: We expect reinvention related reductions in revenue to largely ceased after 2025.

Adjusted EPS was $0.97, $0.85 lower year over year.

Mr. Bandrowczak: We generated $467 million of free cash flow, which was $182 million lower year-over-year. And the adjusted operating income margin of 4.9% was lower year-over-year by 70 basis points.

Speaker Change: Core organic revenue, which excludes these effects and the acquisition of savvy declined around 4% in 2024, reflecting modest market share losses in equipment and lower page volumes offset by growth in digital and legacy managed it services.

Mr. Bandrowczak: The decline in full-year revenue was affected in part by backlog reductions in the previous year, the impacts of geographic and offerings simplification, and other intentional reduction of non-core revenue.

Speaker Change: Throughout the year underlining print market conditions were stable and demand for our products and services remains strong we.

Speaker Change: We attribute the decline in our equipment market share primarily to the pace and scale our business model changes implemented at the beginning of last year.

Mr. Bandrowczak: We expect reinvention-related reductions in revenue to largely cease after 2025.

Mr. Bandrowczak: Core organic revenue, which excludes these effects, and the acquisition of IT Savvy, declined around 4% in 2024, reflecting modest market share losses in equipment and lower page volumes.

Speaker Change: With the benefit of lessons learned from 2024, we are confident our team has the experience and knowledge to once again grow print equipment share helping drive an improved trajectory in core print revenue in 2025.

Offset by growth in digital and legacy managed IT services.

Speaker Change: I commend the teams hard work and resiliency over the past year and driving structural improvements to Xerox core business and sustainable operating efficiencies the mist widespread organizational change starting with our core business the organizational redesign streamlined our sales.

Mr. Bandrowczak: Throughout the year, underlining print market conditions were stable and demand for our products and services remained strong.

Mr. Bandrowczak: We attributed the decline in our equipment market share primarily to the pace and scale of business model changes implemented at the beginning of last year.

Speaker Change: Marketing and distribution teams, allowing a more efficient and effective means of driving positive outcomes for our clients through Xerox offerings.

Speaker Change: Sales force productivity is an important leading indicator to our ability to improve revenue trajectory as we continue optimizing our go to market operations.

Mr. Bandrowczak: I commend the team's hard work and resiliency over the past year in driving structural improvements to Xerox's core business and sustainable operating efficiencies amidst widespread organizational change.

Speaker Change: We did not experience a large enough increase in sales productivity in 2024 to fully offset reductions in head count. However.

Speaker Change: However, the ongoing implementation of productivity initiatives drove a 20% sequential improvement in sales force productivity in Q4, continuing the progress observed earlier in the year.

Mr. Bandrowczak: Starting with our core business, the organizational redesign streamlined our sales, marketing, and distribution teams, allowing a more efficient

for our clients through Xerox offerings.

Speaker Change: Greater alignment with our client a more focused selling approach and improve client perception resulted in an increase in new business signings year over year.

Mr. Bandrowczak: Salesforce productivity is an important leading indicator to our ability to improve revenue trajectory as we continue optimizing our go-to-market operations.

Speaker Change: And for the year, we once again grew our digital and legacy managed service businesses key contributors to our planned shift in revenue mix towards markets with higher underlying rates of growth.

Speaker Change: We expect the acquisition of savvy and the pending acquisition of Lexmark to further strengthen our core businesses.

Speaker Change: Savi as enhanced offerings should drive increased penetration of Xerox It solutions business across our existing client base and lexmark provides an opportunity to strengthen the print business by diversifying our supply chain market reach and exposure to growing markets within print such as a floor.

Speaker Change: <unk>.

Speaker Change: Assuming the second half closing of the <unk> transaction, we plan to begin realizing the benefits of both transactions in 2025 with greater benefits expected in 2026.

Speaker Change: Moving to costs in 2024, we achieved the targeted $200 million of gross reinvention cost savings and total company operating expenses declined close to 12%, excluding savvy and onetime transaction costs the successful execution.

Speaker Change: <unk> of geographic and offerings simplification efforts resulted in a more efficient distribution model in select countries and streamline print portfolio, both of which are critical enablers of future cost reductions.

Speaker Change: Finally in 2024, we executed a balanced approach to capital allocations, we used $467 million of free cash flow generated to pay 141 million in dividends.

Speaker Change: Repay secured debt obligations as they came due and acquire it savvy to a series of debt refinancing transactions, we improved liquidity by extending the maturity of our unsecured debt obligations.

Speaker Change: The announced acquisition of <unk> is expected to result in an immediate reduction in pro forma debt leverage and free cash flow accretion from that transaction should improve our capacity to reduce debt further.

Speaker Change: Finally, additional forward flow programs, such as the recently executed deal with the log landed financial services, Canada, Inc. Are expected to support free cash flow generations over the next few years.

Speaker Change: I'll now move to 2025 priorities in 2025, we plan to build on the structural changes implemented in the past year to focus on one executing the next phase of our reinvention strategy to realizing the benefits associated with the savvy and.

The announced acquisition of <unk> is expected to result in an immediate reduction in pro forma debt leverage and free cash flow accretion from that transaction should improve our capacity to reduce debt further.

Speaker Change: Announced lexmark acquisition.

Finally, additional forward flow programs, such as the recently executed deal with the log landed financial services, Canada, Inc. Are expected to support free cash flow generation over the next few years.

Speaker Change: And three improving balance sheet health.

Speaker Change: Starting with the execution of reinvention.

Speaker Change: The focus of reinvention in 2025, we will progress to specific initiatives designed to further optimize our commercial operations and simplify the business and we will continue to leverage the GBS organization to design and implement continuous operating efficiencies John.

Now move to 2025 priorities in 2025, we plan to build on the structural changes implemented in the past year to focus on one executing the next phase of our reinvention strategy to realizing the benefits associated with the savvy and announced.

Speaker Change: John Bruno will describe some of the reinvention initiatives is expected to be implemented this year in more detail.

Speaker Change: <unk> 2025 is an important year for realizing the benefits of the savvy acquisition, which closed last November and planned acquisition of <unk> with.

Lexmark acquisition, and three improving balance sheet health.

Starting with the execution of reinvention.

The focus of reinvention in 2025, we will progress to specific initiatives designed to further optimize our commercial operations and simplify the business and we will continue to leverage the GBS organizations to design and implement continuous operating efficiencies.

Speaker Change: With the addition of savvy Xerox It solutions business offers clients a more comprehensive suite of it infrastructure solutions better positioned Xerox to target a wider spectrum of clients budgets, a tam we estimate to be around 10 times the size of print.

Speaker Change: John Bruno will describe some of the reinvention initiatives is expected to be implemented this year in more detail.

Speaker Change: Our it solutions business is favorably positioned to take advantage of key market <unk>, including growth and end points driven by hardware refreshes window 11 upgrades and the AIP see Microsoft cloud solution adoption and spend on the modern data.

Speaker Change: Center aided by returned to work trends.

Speaker Change: We expect an enhanced solutions offering to drive incremental penetration of these services within our existing client base.

Speaker Change: <unk> solutions will be a separately reported segment beginning Q1 of this year.

Speaker Change: Our it solutions business is favorably positioned to take advantage of key market <unk>, including growth and end points driven by hardware refreshes window 11 upgrades and the AIP see Microsoft cloud solution adoption and spend on the modern data center.

Speaker Change: We will provide updates on client penetration and other kpis associated with the growing business as the integration is completed.

Speaker Change: And we are well on our way to realizing the more than $15 million of expected run rate cost synergies from this acquisition most of which we intend to realize this year.

Speaker Change: <unk> aided by returned to work trends.

Speaker Change: We expect an enhanced IP solutions offering to drive incremental penetration of these services within our existing client base.

Speaker Change: Separately, we are working diligently to close the <unk> transaction and began integration planning in order to capture the more than $200 million of expected cost synergies over a two year period.

Speaker Change: Xerox It solutions will be a separately reported segment beginning Q1 of this year.

Speaker Change: Finally balance sheet strength, we continue negotiations to expand our forward flow program to Europe.

Speaker Change: Finance receivables sales associated with the expansion are expected to generate incremental free cash flow as we reduce our finance receivable portfolio.

Speaker Change: And we are well on our way to realizing the more than $15 million of expected run rate cost synergies from this acquisition most of which we intend to realize this year separately. We are working diligently to close the <unk> transaction and began integration planning in order to capture the more than two.

Speaker Change: As noted during the <unk> acquisition conference call. Our primary capital allocation priority is now the repayment of debt and we plan to return cash to shareholders via an annual dividend of <unk> 50 per share.

Bandrowczak: Million of expected cost synergies over a two year period.

Speaker Change: I'll now hand, the call over to John to provide an overview of our operational roadmap as we move forward in our reinvention journey.

Finally balance sheet strength, we continue negotiations to expand our forward flow program to Europe.

John Bruno: Thank you Steve SD.

John Bruno: As Steve noted and I have discussed on previous calls we have implemented comprehensive and widespread organizational changes last year aligned to a new operating model, which were necessary to streamline decision rights and improve accountability. These changes created headwinds to our performance and we worked through them, However, never wavered and our resolve to realize.

Mr. Bandrowczak: <unk> finance receivable sales associated with the expansion are expected to generate incremental free cash flow as we reduce our finance receivables portfolio.

Mr. Bandrowczak: As noted during the <unk> acquisition conference call. Our primary capital allocation priority is now the repayment of debt and we plan to return cash to shareholders via an annual dividend of <unk> 50 per share.

John Bruno: <unk> of the targeted improvements to our operating model organizational structure and management system supporting the strategy. We've applied any lessons learned in 2024, as we plan and execute our operational roadmap as shown on slide six and we are encouraged with our progress.

Mr. Bandrowczak: I'll now hand, the call over to John to provide an overview of our operational roadmap as we move forward in our reinvention journey.

John Bruno: Thank you Steve.

John Bruno: As Steve noted and I have discussed on previous calls we have implemented comprehensive and widespread organizational changes last year aligned to a new operating model, which were necessary to streamline decision rights and improve accountability. These changes created headwinds to our performance. When we worked through them, However, never wavered and our resolve to realize.

John Bruno: 2025 blocks to start the third year of our reinvention and the previous two years, we remove structural and business segment complexity clearing the way for us to implement additional tactical initiatives going forward.

John Bruno: This year, we will continue the implementation more than 100 reinvention initiatives designed to enhance revenue and profitability.

Mr. Bandrowczak: <unk> targeted improvements to our operating model organizational structure and management system supporting the strategy. We've applied any lessons learned in 2024, as we plan and execute our operational both app as shown on slide six and we are encouraged with our progress.

John Bruno: We classified initiatives across four broad categories.

John Bruno: Simplification operational simplification.

John Bruno: Commercial optimization and growth and the realization of acquisition benefits starting with geographic simplification.

Mr. Bandrowczak: 2025 blocks to start the third year of our reinvention and the previous two years, we remove structural and business segment complexity clearing the way for us to implement additional tactical initiatives going forward.

John Bruno: In the past 15 months, we took a targeted approach to optimize the markets. We serve in 2024, we executed transitions of our direct operations in 11 countries to art reliant box. This year, we're slated to complete up to an additional four primarily in Europe.

Mr. Bandrowczak: This year, we will continue the implementation more than 100 reinvention initiatives designed to enhance revenue and profitability.

John Bruno: This will mark an end to the geographic simplification program as we now work to maximize our <unk>.

Mr. Bandrowczak: We classified initiatives across four broad categories.

Speaker Change: The stability of our operations in these regions we.

Mr. Bandrowczak: <unk> location operational simplification.

Speaker Change: We have full confidence our partners in these countries, while delivering Xerox products and services in line with our own high standards for client success.

Mr. Bandrowczak: Commercial optimization and growth and the realization of acquisition benefits starting with geographic simplification.

Speaker Change: Moving to operational simplification in 2024, we established a global business services organization to enable technology, driven operating efficiencies and execute a multi year 700 million gross cost reduction program.

Mr. Bandrowczak: In the past 15 months, we took a targeted approach to optimize the markets. We serve in 2024, we executed transitions of our direct operations in 11 countries aren't reliant box. This year, we're slated to complete up to an additional four primarily in Europe.

GBS move quickly throughout the year to build Roadmaps for enterprise by operational enhancements and implement foundational enablers for immediate and future operating efficiencies.

Mr. Bandrowczak: This will mark and to the geographic simplification program as we now work to maximize the <unk>.

Mr. Bandrowczak: Stability of our operations in these regions.

Speaker Change: As an example is the restructuring of our commercial arrangements with some of our largest technology and business process outsourcing partners to create greater flexibility and inline incentives.

Mr. Bandrowczak: We have full confidence our partners in these countries will deliver Xerox products and services in line with our own high standards for client success.

Mr. Bandrowczak: Moving to operational simplification in 2024, we established a global business services organization to enable technology, driven operating efficiencies and execute a multi year 700 million gross cost reduction program.

Speaker Change: In 2025, GBS plans to leverage these foundational enable us along with the tools technology and client centric process flows to reduce operating expenses, while also making it easier to do business, both with and without Xerox.

Mr. Bandrowczak: <unk> quickly throughout the year to build Roadmaps for enterprise wide operational enhancements and implement foundational enablers for immediate and future operating efficiencies.

Speaker Change: Additionally, this year GBS will begin implementing a new enterprise wide technology platform that will both drive and automate the standardization of our business processes greatly reducing the complexity associated with our legacy infrastructure.

Mr. Bandrowczak: As an example is the restructuring of our commercial arrangements with some of our largest technology and business process outsourcing partners to create greater flexibility and inline incentives.

Speaker Change: Moving to commercial optimization and growth.

Speaker Change: This category encapsulates the gain share mix shift component of our reinvention strategy in 2024, we stopped manufacturing of high end production equipment to focus on production printers submarkets with the most favorable growth and return profiles and create a services led software enabled ecosystem designed to enable superior operator productivity we all.

Mr. Bandrowczak: In 2025.

Mr. Bandrowczak: The tools technology and client centric process flows to reduce operating expenses, while also making it easier to do business, both with and without Xerox.

Mr. Bandrowczak: Additionally, this year GBS will begin implementing a new enterprise wide technology platform that will both drive and automate the standardization of our business processes.

Speaker Change: Also began utilizing AI based pricing tools in select markets to optimize pricing structures across our client base.

Speaker Change: In 2025, we look to extend these pricing tools across additional geographies and routes to market.

Speaker Change: Other initiatives planned for this year seek to optimize service delivery costs and further strength in go to market performance to improve sales coverage and additional productivity tools.

Speaker Change: We expect improved revenue diversification as we integrate recent acquisitions and expand our investment in and focus on key channel partners.

Speaker Change: Since establishing our global partner group last year payback from this client segment has improved.

Speaker Change: Accordingly partner score a third party gauge of partner sentiment reached new highs in Q4.

Speaker Change: The final operating objective on our road map is the realization of acquisition benefits, which I will mention shortly.

Speaker Change: Collectively these initiatives are expected to drive a more favorable revenue mix and unlock additional gross cost savings, which are key to driving higher operating margins over time.

Speaker Change: In 2024, we achieved our targeted gross cost savings of more than $200 million and we continue to expect our pipeline of reinvention initiatives to deliver gross cost savings of more than 400 clients.

Speaker Change: Before handing the call to our incoming CFO are allowed to get Sai.

I want to spend a minute, reflecting on two recently announced acquisitions.

Speaker Change: Savi, which closed in November and Lexmark, which was announced last month.

Speaker Change: Both transactions demonstrate progress against our gain share mix shift strategy by diversifying <unk> revenue mix and strengthening our core print business.

Speaker Change: Starting with IP savvy to be known as Xerox It solutions the.

Speaker Change: The combined team under the leadership of the acquired company is aggressively working on the integration of both businesses to leverage best practices and drive growth in 2025.

Speaker Change: In 2024 on a standalone basis, <unk> grew revenue double digits, leveraging our proven business model and a team that has delivered organic inorganic growth for the past several years, we expect the integration to be complete before the lexmark transaction closes.

Speaker Change: The acquisition of Lexmark was announced a little more than a month ago. The proposed transaction combines two leaders in print familiar with each other through our current OEM relationship with complementary sensitive operations.

Speaker Change: Lexmark adds manufacturing capacity for our <unk> office product lines expand our market reach and provides greater exposure to growing segments within print.

Speaker Change: The transaction is expected to be immediately accretive to adjusted EPS and free cash flow improve our adjusted operating income margin and lower our pro forma debt leverage ratio from $6. One today to about five four.

Speaker Change: The realization of more than $200 million of cost synergies is expect to drive more than a dollar a share of adjusted EPS accretion and reduce debt average by one times EBITDA. We are working to close this transaction look forward to welcoming lexmark to the Xerox team.

Speaker Change: I'll now hand, the call over timber alonza, our incoming CFO, who replaces our very highest at the end of this month of Xavier begins his well deserved retirement on a personal note I am excited for Milan.

Transaction is expected to be immediately accretive to adjusted EPS and free cash flow improve our adjusted operating income margin and lower our pro forma debt leverage ratio from $6. One today to about five four.

Speaker Change: Yes, if I didn't say how much <unk> is unique style and his unwavering commitment to Xerox for over three decades, you will be missed by Brian. Thank.

Timber Alonza: Thank you John and good morning, everyone I am honored to join you today on my first earnings call as <unk> incoming CFO.

Speaker Change: Before I discuss our results I want to convey my genuine excitement for the opportunity to lead <unk> Finance organization to the next phase of the company's reinvention Mike.

Speaker Change: My transition has been facilitated by the steady leadership of my predecessor Xavier head.

Speaker Change: Officially transfer his responsibilities to me at the end of this month.

Speaker Change: In Q4 revenue declined eight 6% in actual currency and 8% in constant currency in line with our expectations.

Speaker Change: Excluding the effects of backlog fluctuations and reinvention actions.

Speaker Change: Before I discuss our results I want to convey my genuine excitement for the opportunity to lead <unk> Finance organization to the next phase of the company's reinvention Mike.

Speaker Change: <unk> revenue trajectory improved quarter over quarter, reflecting sequential improvement in sales force productivity. The successful launch of our refreshed, Brian Lynn product in EMEA and growth in equipment revenue.

Speaker Change: The transition has been facilitated by the steady leadership of my predecessor Xavier has.

Speaker Change: Wholesale revenue declines were roughly consistent with the prior quarter inclusive of the benefits of IQ seven results since the close of that acquisition on November 20th.

Speaker Change: Officially transferred his responsibilities to meet at the end of this month.

Speaker Change: In Q4 revenue declined eight 6% in actual currency and 8% in constant currency in line with our expectations.

Speaker Change: Turning to profitability.

Speaker Change: Adjusted gross margin declined 190 basis points year over year as the higher mix of entry for equipment lower print volumes and the inclusion of <unk> results were somewhat offset by the beneficial impacts of reinvention savings and favorable currency effects.

Speaker Change: Excluding the effects of backlog fluctuations.

Speaker Change: Reinvention actions.

Speaker Change: <unk> revenue trajectory improved quarter over quarter, reflecting sequential improvement in sales force productivity. The successful launch of our refreshed Brian linked product in EMEA and growth in equipment revenue.

Speaker Change: Adjusted operating margin of six 4% was 100 basis points higher year over year, due principally to reinvention related cost reductions and lower executive compensation expense, partially offset by the effects of lower revenue and gross profit.

Speaker Change: Wholesale revenue declines were roughly consistent with the prior quarter inclusive of the benefits of <unk> results since the close of that acquisition on November 20th.

Speaker Change: Turning to profitability adjusted gross margin declined 190 basis points year over year as the higher mix of entry for equipment lower print.

Speaker Change: A focus on operating discipline drove total operating expenses lower by almost $19 million year over year or 18% when adjusting for reinvention and transaction related costs as well as the inclusion of <unk> savi.

Speaker Change: <unk> volumes and the inclusion of <unk> results were somewhat offset by the beneficial impacts of reinvention savings and favorable currency effects.

Speaker Change: This represents an acceleration of cost reductions from recent periods.

Speaker Change: Adjusted operating margin of six 4% was 100 basis points higher year over year, due principally to reinvention related cost reductions and lower executive compensation expense.

Speaker Change: Adjusted other expenses net were 1 million higher year over year as changes in various nonoperating expenses largely offset one another.

Adjusted tax rate of 32, 9% compared to 15, 2% in the same quarter last year.

Speaker Change: Actually offset by the effects of lower revenue and gross profit.

Bandrowczak: A focus on operating discipline drove total operating expenses lower by almost $90 million year over year or 18% when adjusting for reinvention and transaction related costs as well as the inclusion of IP savvy.

Speaker Change: Greece was largely due to lower nonrecurring tax benefits from the release of deferred tax asset valuation allowances and the release of reserves from tax audit settlement.

Speaker Change: Adjusted EPS of <unk>, 36 was 7% lower than the prior year as the benefits of higher adjusted operating income were more than offset by a higher tax rate and currency effects.

Mr. Bandrowczak: This represents an acceleration of cost reductions from recent periods.

Mr. Bandrowczak: Adjusted other expenses net were million higher year over year as changes in various nonoperating expenses largely offset one another.

Speaker Change: GAAP loss per share of <unk> 20 improved 30% year over year and includes an after tax intangibles write off of 28 million or <unk> 22 per share.

Mr. Bandrowczak: Adjusted tax rate of 32, 9% compared to 15, 2% in the same quarter last year.

Speaker Change: And after tax reinvention and transaction related costs of $15 million or <unk> <unk> per share.

Mr. Bandrowczak: The increase was largely due to lower nonrecurring tax benefits from the release of deferred tax asset valuation allowances and the release of reserves from tax audit settlement.

Speaker Change: The prior year quarter included an after tax restructuring charge of 78 million or <unk> 62 per share.

Speaker Change: Adjusted EPS of <unk>, 36 was 7% lower than the prior year as the benefits of higher adjusted operating income were more than offset by a higher tax rate and currency effects.

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

Speaker Change: Starting with revenue Q4 equipment sales of $393 million declined 14, 2% in actual currency and 13, 4% in constant currency.

Mr. Bandrowczak: GAAP loss per share of <unk> 20, improved 30 year over year and includes an after tax intangibles write off of 28 million or <unk> 22 per share.

Speaker Change: The effects of backlog fluctuations in the prior year and reinvention actions accounted for close to 900 basis points of the decline.

Mr. Bandrowczak: And after tax reinvention and transaction related costs was $15 million or <unk> 12 per share.

Speaker Change: The remainder of the decline reflects unfavorable mix between and within product families and a large production equipment sale in the prior year quarter.

Mr. Bandrowczak: The prior year quarter included an after tax restructuring charge of 78 million or <unk> 62 per share.

Speaker Change: For the second consecutive quarter total equipment installations increased double digits.

Mr. Bandrowczak: Let me now review revenue and cash flow in more detail.

Mr. Bandrowczak: Starting with revenue Q4 equipment sales of $393 million declined 14, 2% in actual currency and 13, 4% in constant currency <unk>.

Speaker Change: Installations grew 19% year over year in the fourth quarter, reflecting growth in entry and mid range products.

Speaker Change: Equipment is sold at a lower price and margin in the mid range and high end categories, but drives high margin supplies revenue in future periods.

Mr. Bandrowczak: The effects of backlog fluctuations in the prior year and reinvention actions accounting for close to 900 basis points of the decline.

Speaker Change: Entry installations grew approximately 28% at decent revenue growth due to a higher mix of sales to indirect channels.

Mr. Bandrowczak: The remainder of the decline reflects unfavorable mix between and within product families and a large production equipment sale in the prior year quarter.

Speaker Change: Mid range installations grew modestly but revenue declined due to unfavorable <unk> III product mix and higher sales through channel partners.

Mr. Bandrowczak: For the second consecutive quarter total equipment installations increased double digits.

Speaker Change: Improved mid range installations will support wholesale trends in future periods.

Mr. Bandrowczak: Installations grew 19% year over year in the fourth quarter, reflecting growth in entry and mid range products.

Speaker Change: High end equipment installations and revenue both declined year over year, reflecting the ongoing evolution of our production print portfolio and high end offerings rationalization actions taken this year.

Equipment is sold at a lower price and margin in the mid range and high end categories, but drives high margin supplies revenue in future periods.

Speaker Change: For the full year equivalent revenue declined around 17% in actual and constant currency, excluding the impact of backlog fluctuations and reinvention actions equipment revenue declined around 6% for the year.

Speaker Change: In 2025, we expect to grow equipment market share through expanded channel partner participation. The full global rollout of our refreshed prime linked product ongoing salesforce productivity enhancements and early benefits of initiatives designed to double our share of the <unk> market.

Speaker Change: For Q4 wholesale revenue of $1 2 billion declined six 7% in actual currency and six 1% in constant currency.

Speaker Change: That is consistent with the prior quarter.

Speaker Change: Excluding reductions of non strategic revenue and the effects of reinvention actions wholesale revenue declined 2% in actual currency, reflecting lower supply and page volumes, partially offset by the inclusion of <unk> revenue since the acquisition closing and growth in digital and legacy managed service.

Speaker Change: Yes.

Speaker Change: For the full year wholesale revenue declined approximately 7% in actual and constant currency.

Speaker Change: Excluding reductions in non strategic revenue and effects of other reinvention actions.

Speaker Change: <unk> revenue declined 3% in actual currency inclusive of benefits from <unk> revenue in the period since the acquisition closing.

Speaker Change: In 2025, we expect organic core post sale revenue trajectory to improve driven by AI enabled pricing benefits initiatives designed to improve client retention rates and growth in digital services and legacy solutions.

Speaker Change: Let's now review the cash flow.

Free cash flow in the quarter was $334 million lower by $45 million year over year.

Reductions in non strategic revenue and effects of other reinvention actions.

Speaker Change: Operating cash flow was $351 million $38 million lower than the prior year quarter due to a higher restructuring payments and the timing of executive compensation interest and tax payments, partially offset by a higher source of cash from working capital and higher cash from finance risk.

Wholesale revenue declined 3% in actual currency inclusive of benefits from <unk> revenue in the period since the acquisition closing.

In 2025, we expect organic core post sale revenue trajectory to improve driven by AI enabled pricing benefits initiatives designed to improve client retention rates and growth in digital services and legacy solutions.

Speaker Change: <unk>.

Investment activity was a use of cash of $172 million compared to $8 million in the prior year due primarily to the cash payment for IP savvy.

Let's now review the cash flow.

Free cash flow in the quarter was $334 million lower by $45 million year over year.

Speaker Change: Financing activity consumed $122 million this quarter, reflecting 78 million of net debt repayments dividends of $34 million and $10 million of other financing cash outflows.

Operating cash flow was $351 million $38 million lower than the prior year quarter due to a higher restructuring payments and the timing of executive compensation interest and tax payments.

Speaker Change: Turning to the segments in Q4, <unk> revenue was down around 11% year over year due to lower finance income and other fee revenue associated with a decline in our finance receivable balance partially offset by higher commission from the sale of finance receivable assets in line with <unk>.

Shall be offset by a higher source of cash from working capital and higher cash from finance receivables.

Investment activity was a use of cash of $172 million compared to $8 million in the prior year due primarily to the cash payment for IP savvy.

Speaker Change: Our forward flow strategy.

Speaker Change: <unk> finance receivable balance declined around 12% sequentially and around 30% year over year in actual currency, mainly due to <unk> strategy to return its focus to captive only financing solutions.

Financing activity consumed $122 million this quarter, reflecting $78 million of net debt repayments dividends of $34 million and $10 million of other financing cash outflows.

Turning to segments in Q4, <unk> revenue was down around 11% year over year due to lower finance income and other fee revenue associated with a decline in our finance receivable balance partially offset by higher commission from the sale of finance receivable assets.

Speaker Change: Q4, <unk> segment profit increased by 10 million as lower operating expenses more than offset reductions in gross profit associated with lower revenue.

Speaker Change: Print and other revenue fell 9% and segment profit decreased by 2% as gross profit declines associated with the print and other segment exceeded the reduction in direct and indirect operating expenses allocated to this segment.

Speaker Change: In line with our forward flow strategy.

Speaker Change: <unk> finance receivable balance declined around 12% sequentially and around 30% year over year in actual currency, mainly due to <unk> strategy to return its focus to captive only financing solutions.

Speaker Change: Focusing on capital structure.

Speaker Change: We ended Q4 with $631 million of cash cash equivalents and restricted cash around.

Speaker Change: Around $1 7 billion of the remaining $3 4 billion of outstanding debt supports our finance assets with remaining core debt of $1 7 billion attributable to the non finance and business.

Speaker Change: Q4, <unk> segment profit increased by 10 million as lower operating expenses more than offset reductions in gross profit associated with lower revenue.

Speaker Change: Print and other revenue fell 9% and segment profit decreased by 2% as gross profit declines associated with our print and other segment exceeded the reduction in direct and indirect operating expenses allocated to this segment.

Speaker Change: Debt increased sequentially due to the addition of a 220 million southern note associated with the IP savvy acquisition, partially offset by secured debt repayments.

Speaker Change: Core debt increased by a larger amount due to a 250 million sequential decline in total finance assets.

Speaker Change: Focusing on capital structure.

Speaker Change: We ended Q4 with $631 million of cash cash equivalents and restricted cash.

Speaker Change: I'll now provide an update on reinvention savings.

Speaker Change: In 2024, we realized more than $200 million of gross cost savings, bringing the combined total to date to more than 300 million. We continue to maintain a pipeline of around 400 million of gross cost savings, which includes close to 175 million of savings related to.

Speaker Change: Around $1 7 billion of the remaining $3 4 billion of outstanding debt supports our finance assets with remaining core debt of $1 7 billion attributable to the non finance and business.

Speaker Change: Total debt increased sequentially due to the addition of a 220 million southern note associated with the IP savvy acquisition.

Speaker Change: <unk> already implemented or expect it to be implemented in the near term.

Speaker Change: Partially offset by secured debt repayments.

Speaker Change: Core debt increased by a larger amount due to a 250 million sequential decline in total finance assets.

Speaker Change: We expect to realize more than $100 million of gross cost savings associated with reinvention related actions in 2025.

Bandrowczak: I'll now provide an update on reinvention savings.

Speaker Change: Finally, I will address guidance, which does not include any impact associated with the pending acquisition of lexmark.

Bandrowczak: In 2024, we realized more than $200 million of gross cost savings, bringing the combined total to date to more than $300 million. We continued to maintain a pipeline of around $400 million of gross cost savings, which includes close to $175 million of savings related to.

Speaker Change: We expect revenue in 2025 to grow low single digits in constant currency inclusive of a full year of revenue associated with our recent IP savvy acquisition.

Speaker Change: Revenue guidance includes around 400 basis points of headwinds from ongoing reinvention actions, including the flow through of geographic simplification effects.

Mr. Bandrowczak: <unk> already implemented or expect it to be implemented in the near term.

Mr. Bandrowczak: We expect to realize more than $100 million of gross cost savings associated with reinvention related actions in 2025.

Speaker Change: Reductions in high end equipment sales associated with our decision to end the manufacturing of high end production print equipment. The sale of our European paper business and the continued reduction of excess revenue associated with a decline in finance receivable portfolio.

Mr. Bandrowczak: Finally, I will address guidance, which does not include any impact associated with the pending acquisition of lexmark.

Mr. Bandrowczak: We expect revenue in 2025 to grow low single digits in constant currency inclusive of a full year of revenue associated with our recent IP savvy acquisition.

Speaker Change: Organic core revenue is expected to decline, but at a lower rate than we experienced in 2024.

Speaker Change: An improved core revenue trajectory is expected to be driven by stable print market demand.

Mr. Bandrowczak: Revenue guidance includes around 400 basis points of headwinds from ongoing reinvention actions, including the flow through of geographic simplification effects.

Speaker Change: Equipment market share gains as well as higher rates of growth from digital services and legacy solutions.

Mr. Bandrowczak: Reductions in high end equipment sales associated with our decision to end the manufacturing of high end production print equipment. The sale of our European paper business and the continued reduction of excess revenue associated with a decline in finance receivable portfolio.

Speaker Change: In 2025, adjusted operating income margin is expected to be at least 5% less.

Speaker Change: A slight year over year improvement reflects incremental gross cost savings, partially offset by higher product costs.

Speaker Change: Finally, we expect full year free cash flow to be in the range of $3 $50 million to $400 million the year over year decline in free cash flow is primarily attributable to reduction in finance receivable forward flow benefits as expected, partially offset by improved adjusted operating income in working cap.

Mr. Bandrowczak: Organic core revenue is expected to decline, but at a lower rate than we experienced in 2024.

Mr. Bandrowczak: An improved core revenue trajectory is expected to be driven by stable print market demand and equipment market share gains as well as higher rates of growth from digital services and legacy solutions.

Speaker Change: <unk>.

Speaker Change: As a reminder, Q1 is seasonally our lowest quarter for revenue and adjusted operating income.

Mr. Bandrowczak: In 2025, adjusted operating income margin is expected to be at least 5% a slight year over year improvement reflects incremental gross cost savings, partially offset by higher product costs.

Speaker Change: In line with our guidance for the year, we expect only modest year over year growth in revenue and adjusted operating income margin in Q1.

Mr. Bandrowczak: Finally, we expect full year free cash flow to be in a range of $3 50 to 400 million the year over year decline in free cash flow is primarily attributable to reduction in finance receivable forward full benefits as expected, partially offset by improved adjusted operating income and working capital.

Speaker Change: In summary, we ended the year with stronger execution, a slate of reinvention actions aimed at improving revenue trajectory and profitability and an enhanced IP solutions business give us confidence in our outlook for 2025.

Speaker Change: I'll now open the line for Q&A.

Mr. Bandrowczak: <unk>.

Speaker Change: Certainly and our first question for today comes from the line of Ananda.

Mr. Bandrowczak: As a reminder, Q1 is seasonally our lowest quarter for revenue and adjusted operating income.

Ananda: Loop capital your question please.

Mr. Bandrowczak: In line with our guidance for the year, we expect only modest year over year growth in revenue and adjusted operating income margin in Q1.

Ananda: Yes. Good morning, Thanks for taking the question really appreciate it and Orlando welcome looking forward to.

Speaker Change: They are working with you and <unk>.

Mr. Bandrowczak: In summary, we ended the year with stronger execution, a slate of reinvention actions aimed at improving revenue trajectory and profitability and then enhanced IP solutions business give us confidence in our outlook for 2025.

Speaker Change: If you're if you're out there listen we'll miss working with you really enjoyed it.

Speaker Change: Yes.

Speaker Change: I guess, Steve and maybe John just real quick on Saturday.

Speaker Change: And you.

Speaker Change: Sort of you got Lucky walk you a lot of the details on the last couple of calls.

Mr. Bandrowczak: We'll now open the line for Q&A.

Speaker Change: This call in greater detail.

Mr. Bandrowczak: Certainly and our first question for today comes from the line of Ananda.

Speaker Change: Can you describe to us.

Speaker Change: How they operate.

Speaker Change: From loop capital your question please.

Speaker Change: And then to their website.

Speaker Change: <unk> solutions company with deep relationships with vendors or they have like.

Speaker Change: Yeah, Hey, guys. Good morning, Thanks for taking the questions really appreciate it and Orlando welcome I'm looking forward to.

Speaker Change: Like a systems integrator bar type.

Speaker Change: They're working with you and and <unk>.

Speaker Change: As well as just being on the website it looks like they sell you guys sell everything from from rack servers and networking.

Mr. Bandrowczak: If you're if you're out there with all Miss working with you really enjoyed it.

Mr. Bandrowczak: Yes.

Speaker Change: I guess, Stephen and maybe John just real quick on Saturday.

Speaker Change: S relationships across all verticals.

Speaker Change: Can you.

Speaker Change: You've got what you've walked a lot of details on the last couple of calls.

Speaker Change: All end customer verticals, so I guess, just a bit more of a description there would be super helpful. For me I appreciate it.

Mr. Bandrowczak: During this call in greater detail.

Can you describe to us.

Speaker Change: Yes, great. Thank you I'll start and I'll turn it over to John for enhancement on a conversation so think of ITC savvy as a bar with tremendous relationship with some of the largest suppliers that can address 90 plus percent of the total addressable spend within a cio's budget with that we then added services.

Mr. Bandrowczak: How they operate.

Mr. Bandrowczak: And their website.

Speaker Change: Are they in Iot solutions company with deep relationships with.

Speaker Change: With Daiichi vendors or they have like a systems integrator bar type.

Speaker Change: As well as just being on the website it looks like they sell you guys sell everything from.

Speaker Change: Around that so if you think about endpoints that are now AI enabled how do we put services and wrap services around that tie that into infrastructure as companies are building out infrastructure for AI capacity, we have the ability to build and help them along that journey the ability to take workloads and move it into the cloud.

Mr. Bandrowczak: Iraq servers, and networking, whereas relationships across all verticals.

Mr. Bandrowczak: All end customer verticals, so I guess, just a bit more of a description there.

Mr. Bandrowczak: Would be Super helpful for me I appreciate it.

Mr. Bandrowczak: Yeah, great. Thank you I'll start and I'll turn it over to John for enhancement on the conversation. So think of Itt's Abbvie is a bar with tremendous relationship with some of the largest suppliers that can address you know 90 plus percent of the total addressable spend within a cio's budget with that we then added services.

Speaker Change: <unk> on Microsoft to version 11 at what Microsoft is trying to drive their clients to the cloud in their utilization of things like AI and so we have the ability to wrap services around that help our clients along that journey and it's both a combination of obviously great relationship with our partners and you saw some of the partners on that.

Mr. Bandrowczak: Around that so if you think about endpoints that are now AI enabled how do we put services and wrap services around that tie that into infrastructure as companies are building out infrastructure for AI capacity, we have the ability to build and help them along that journey the ability to take workloads and move it into the cloud.

Speaker Change: Website, but more importantly, adding value added services around that so we can help our clients and the journey many of our clients today and we've talked about this before especially in the mid market don't have the expertise and the capabilities to put these things together to create and solutions that drive outcomes. So that's really where we stand we have.

Mr. Bandrowczak: Transition on Microsoft to version 11 at what Microsoft is trying to drive their clients to the cloud in their utilization of things like AI and so we have the ability to wrap services around that help our clients along that journey and it's both a combination of obviously great relationship with our partners. We saw some of the partners.

Speaker Change: <unk> ability to drive and outcomes and implement these solutions. So that we can help companies and specifically in verticals, whether its an education, whether it's in law firms whether it's in hospitals, we have the ability to take these technologies rapid together put it inside of each of the verticals or horizontal processes to drive outcomes and that's really where we have a.

Mr. Bandrowczak: As on our website or more importantly, adding value added services around that so we can help our clients and the journey many of our clients today and we've talked about this before especially in the mid market don't have the expertise and the capabilities to put these things together to create and solutions that drive outcomes. So that's really where we stand.

Speaker Change: Tremendous differentiator as we go forward, we have the ability to be that value added reseller and actually add value and services around some of these great technologies, John anything else you want it I think the only thing I would add.

Speaker Change: That is <unk>.

Speaker Change: As far as probably a term that's very well it is but as it relates to high Tech savvy I would call them I would put the emphasis on the way and a lot less emphasis on the reseller part the reseller part is an important component we were very attracted to their model because their flow throw it equipment margins are quite good because of they not.

Mr. Bandrowczak: We have the ability to drive and outcomes and implement these solutions. So that we can help companies and specifically in verticals, whether its an education, whether it's in law firms whether it's in hospitals, we have the ability to take these technologies rapid together put it inside of your verticals or horizontal processes to drive outcomes and that's really where we have.

Speaker Change: Not only what they do on the installation and the maintenance and the lifecycle, but on the reclamation on the turnovers, they do product refreshes, but their business differentiated from a lot of others in this space.

Mr. Bandrowczak: A tremendous differentiator as we go forward, we have the ability to be that value added reseller and actually add value and services around some of these great technologies, John anything else you want it I think the only thing I would add.

Speaker Change: Many of them are private companies a lot of regional players.

Speaker Change: Because of their value added services are the ones that Steve pointed out and with such movement moving into the cloud hosted space for all of these Iot related activities from provisioning of laptops for the refresh us as to the emergence of AI laptops for all the stuff that you've heard us described.

Mr. Bandrowczak: And as you know.

Mr. Bandrowczak: As far as probably a term that's very well used as it relates to high Tech savvy I would call them I would put the emphasis on the way and a lot less emphasis on the reseller part the reseller part is an important component we were very attracted to their model because they are full of a throw in equipment margins are quite good because of the <unk>.

Speaker Change: They're very well positioned in this and have capabilities largely in North America somewhere in Western Europe, and if you add to that the capabilities that we did we essentially double that business and it's a reverse into an already existing operating model that they've demonstrated over the last several years, if they can show a consistent growth both organically and inorganically.

Mr. Bandrowczak: Not only what they do on the installation and maintenance in the lifecycle, but on the reclamation on the turnovers, they do product refreshes, but their business differentiated from a lot of others in this space.

Mr. Bandrowczak: Any of them are private companies a lot of regional players.

Speaker Change: So theres a number of very large Si systems integrator vars out there, but most of them have very large businesses and a lot of emphasis on the on the resell of part of the program.

Mr. Bandrowczak: Because of their value added services are the ones that Steve pointed out and with such movement moving into the cloud hosted space for all these IC related activities from provisioning of laptops for the refresh us as to the emergence of AI laptops for all the stuff that you've heard us described.

Speaker Change: Savi has great comparable reseller contracts with discounts add them two hours, Texas to much higher levels of platinum sensitive platinum diamond et cetera, which will help margin expansion purely just in the hardware space, but it also allows them to cross the threshold of all of our captive clients with a set of offers that are value added of that that will differentiate them we've been.

Mr. Bandrowczak: They're very well positioned in this and have capabilities.

Mr. Bandrowczak: Largely in North America somewhere in Western Europe, and if you add to that the capabilities. We did we essentially double that business and it's a reverse into an already existing operating model that they have demonstrated over the last several years. It takes you show a consistent growth both organically and inorganically. So theres a number of very large Si systems.

Speaker Change: Talking about that all year that as you know we are pretty excited to have the opportunity to add these guys to the company.

Speaker Change: And so just a quick follow up there John and Steve I appreciate it and what's what's a useful way to think about.

Mr. Bandrowczak: Greater bars out there, but most of them have very large businesses and a lot of emphasis on the on the resell of part of the program.

Speaker Change: Savi.

Mr. Bandrowczak: Savi has great comparable reseller contracts with discounts and then two hours, Texas to much higher levels of platinum sensitive platinum diamond et cetera, which will help margin expansion purely just from the ICU hardware space, but it also allows them to cross the threshold with all of our captive clients with a set of offers that are value added of that that will differentiate them we've been.

Speaker Change: Yeah kind of revenue growth or amplification potential now with the Xerox backing.

Speaker Change: Yes, I think it was a couple of things first of all the industry that they ran at high single digit growth over the next three to five years. The CAGR is there and you can take a look at whether the big trends, whether it's around endpoints, whether it's around infrastructure movement to the cloud all of those are big <unk> that are growing over the next three to five years, but more importantly, you think about the 200 plus.

Mr. Bandrowczak: Talking about that all year that as you know we were pretty.

Mr. Bandrowczak: Very excited to have the opportunity to add these guys to the company.

Speaker Change: <unk> thousand medium SMB clients that we have today that we can now take IP savvy and put them through those clients in those infrastructure I've said this before if you take a look at our addressable market with the existing Xerox clients. We now have the ability to look at the full spend in full it stack so our execution and.

John Bruno: And so just a quick follow up there John.

Speaker Change: Steve I appreciate it and what's what's a useful way to think about IC IC Saturdays.

Speaker Change: Kind of revenue growth or amplification potential now with the Xerox backing.

Speaker Change: Yes, I think it was a couple of things first of all the industry that they're in right at high single digit growth over the next three to five years. The CAGR was there and you can take a look at whether the big trends, whether it's around endpoints, whether it's around infrastructure movement to the cloud all of those are big towns that are growing over the next three to five years, but more importantly, you think about the 200 plus.

Speaker Change: Bringing solutions into existing Xerox relationships is very significant in terms of the ability to grow. It also I think will help with helping stabilize our core business. If you think about our core business print is really with the with the real estate team with the procurement team. We now have conversations at the.

Speaker Change: Medium SMB clients that we have today that we can now take IP savvy and put them through those clients in those infrastructure I've said this before if you take a look at our addressable market with the existing Xerox clients. We now have the ability to look at the full spend in full it stack, so our execution and <unk>.

Speaker Change: The CIO level and very strategic different ways. So we can wrap that and we can put that in there. The other thing is IP savvy has not been selling print solutions and managed print solutions. So we can take Xerox solutions and bring it into IP savvy customer base. So it's all about execution now that it's all about getting my sales team and by the way.

Speaker Change: In it solutions into existing Xerox relationships is very significant in terms of the ability to grow. It also I think will help with helping stabilize our core business. If you think about our core business print is really with the with the real estate team with the procurement team. We now have conversations at the <unk>.

Speaker Change: By partners right, we have thousands of partners that want to be able to grow in the Iot solutions space, we have to enable them train them and bringing them. The solutions so that they can grow as well.

Speaker Change: Some guys Super helpful. Thank you.

Speaker Change: Thank you and our next question comes from the line of semi challenging from J P. Morgan Your question. Please.

Speaker Change: Oh level and very strategic different ways. So we can wrap that and we can put that in there. The other thing is IP savvy has not been selling print solutions and managed print solutions. So we can take Xerox solutions and bring it into IP savvy customer base. So it's all about execution and it's all about getting my sales team and by the way.

Speaker Change: Alright, Thank you for taking my questions and congrats on the retirement millennials look forward to working with you.

Speaker Change: If I can start with project reinvention and I think if I got the numbers right, you're saying about 400 basis points of headwind in 2025 from.

Speaker Change: Partners right, we have thousands of partners that want to be able to grow in the Iot solutions space, we have to enable them train them and bring them. The solutions so that they can grow as well.

Speaker Change: From the effects of project reinvention, that's comparable to what we saw in 2024 on the revenue line, maybe just sort of.

Speaker Change: Outline for us what the spillover effect largely is in but it seems like most of the actions you took in 2024 have that have a spillover effect in 2025 revenue is that fair to assume that sort of cut.

Speaker Change: Some guys Super helpful. Thank you.

Speaker Change: Thank you and our next question comes from the line of somebody.

Speaker Change: <unk> from Jpmorgan your question please.

Speaker Change: Hi, Thank you for taking my questions and.

Speaker Change: You will see this headwind continuing into late 2006, as well and then Doug.

Speaker Change: Hum.

Speaker Change: The graph on the right I'm in Milan and look forward to working with you.

Speaker Change: Is there sort of an expansion of project reinvention, given the pending lexmark acquisition and I have a quick follow up thank you.

Speaker Change: Maybe if I can start with project reinvention and I think if I got the numbers right you are saying about 400 basis points of headwind in 2025.

Speaker Change: Yep. Thank you submit.

Speaker Change: So our headwinds that we are describing a 400 basis points in 2025. They are a continuation of actions that we took in prior years.

Speaker Change: From the effects of project reinvention, that's comparable to what we saw in 2024 on the revenue line, maybe just sort of outlined.

Speaker Change: Outline for us what the spillover effect largely is and particularly it seems like most of the actions you took in 2024 have that or.

Speaker Change: We are looking for in 2025 as it relates to reinvention, it's more tactical we have kind of finished.

Speaker Change: Deep organizational changes that we saw in 2020 four so yes, that's the difference and what we see in 2025.

Speaker Change: Spillover effect in 2025 of revenue is that fair to assume that sort of continue to see this headwind continuing into 2020 six as well and then Doug.

Speaker Change: And we will continue to implement the reinvention actions to deliver our gross cost savings of about 400 million that were still has to deliver in the next couple of years as it relates to Lexmark and rain mentioned our plan is to continue to deliver on reinvention and then once we close lexmark, we'll reassess.

Speaker Change: Is there sort of an expansion of project reinvention, given the pending lexmark acquisition and I have a quick follow up thank you.

Speaker Change: Yeah. Thanks, Amit.

Speaker Change: So our headwinds that we are describing a 400 basis points in 2025. They are a continuation of actions that we took in prior years.

Speaker Change: See what we need to do from a synergy perspective, but those two just see them for now is separate and US continue in full speed with lean, but yes, and I would just add that to answer your question specifically on 26, no theres not a carryover.

Speaker Change: What we are looking for in 2025 as it relates to reinvention, it's more tactical we have kind of finished.

Speaker Change: Deep organizational changes that we saw in 2020 four so yes, that's the difference and what we see in 2025.

Speaker Change: That you said that you should forecast look as a headwind the foundational elements that Ron pointed out are correct.

Speaker Change: And we will continue to implement the our reinvention actions to deliver our gross cost savings of about 400 million that were still has to deliver in the next couple of years.

Speaker Change: The Geo simplification in the product simplification that we did in <unk>.

Speaker Change: The.

Speaker Change: Production side of our business are the ones that are behind us or the OTA model issues.

Speaker Change: As it relates to lexmark and reinvention. Our plan is to continue to deliver on reinvention and then once we close lexmark, we'll reassess we will see what we need to do from a synergy perspective, but those to just see them for now is suppressed and US continue in full speed with lean, but yeah and I would just add that to answer your question specifically on <unk>.

Speaker Change: Still have more work to do on the on the technology platform upgrades and other process optimization, but think about that as all the simplification necessary to manage the bank acquisition integration easier to attain and to drive the type of business that we want moving forward as we do our gain share mix shift strategy of mowry for color <unk>.

Speaker Change: No theres not a carryover.

Speaker Change: That you said that you should forecast or look as a headwind the foundational elements that Ron and I pointed out are correct.

Speaker Change: <unk> integration more IC solutions, so first first year and a half going behind us at this point as we exit kind of middle of this year is the foundational elements that will carry through this year, but we do not expect that into 2026, and we will handle the standalone integration of lexmark separately. The $200 million is they is the is the Standalone go we have at cost.

Speaker Change: The Geo simplification in the product simplification that we did in <unk>.

Speaker Change: Yeah.

Speaker Change: Production side of our business are the ones that are behind us or the OTA model issues, we still have more work to do on the on the technology platform upgrades and all the process optimization, but think about that as all of the simplification necessary to make acquisition integration easier to attain and to drive the type of business that we want moving forward.

Speaker Change: Duration is one of the things I'd ask you to think about we get asked the question around it savvy integration now lexmark reinvention, how do you think about that in terms of is it too much. So a couple of key points savvy will be largely done before the lexmark acquisition closes right. So that integration will be done behind us we'll be running the reinvent.

Speaker Change: As we do our gain share mix shift strategy of Moray four color print more lexmark integration more IC solutions. So first first year and a half going behind us at this point as we exit kind of middle of this year is the foundational elements that will carry through this year, but we do not expect that into 2026, and we will handle the standalone integration of <unk>.

Speaker Change: And with two and a half years into it right. So we talked about a three year journey. We're at the tail end of implementing those programs in running that out whatever is left we will put that as part of the overall <unk> integration. So think about IC savvy done.

Speaker Change: Separately the $200 million.

Speaker Change: Is the is the Standalone go we have on cost integration one of the things I'd ask you to think about we get asked the question around it savvy integration now lexmark reinvention, how do you think about that in terms of is it too much. So a couple of key points savvy will be largely done before the lexmark acquisition closes right. So that integration will be done.

Speaker Change: Good portion if not three quarters of the reinvention dawn will wrap that and roll that into the overall X smart integration. So we don't see it as trying to run with three different balls Lex <unk> will be really all encompassing in terms of an overall program will roll reinvention into that and we will have one integration strategy as we go forward.

Speaker Change: Done behind US, we'll be running the reinvention with two and a half years into it right. So we talked about a three year journey or at the tail end of implementing those programs and running that out whatever is left we will put that as part of the overall <unk> integration. So think about it savvy done.

Speaker Change: Into 2026.

Speaker Change: Got it and quickly for my follow up maybe just.

Speaker Change: And just to walk through the <unk>.

Speaker Change: Puts and takes on the free cash flow guidance, particularly the step down from 464. This year at $3 75, I'm, sorry, 460% range four to 375 at the midpoint in 2025 on what's largely it looks like you're guiding to sort of similar operating profit can you just walk me through the drivers of it less forward flow or.

Speaker Change: Good portion if not three quarters of the reinvention done, we'll wrap that roll that into the overall X smart integration. So we don't see it as trying to run with three different balls.

Speaker Change: The underlying business.

Speaker Change: <unk> will be really all encompassing in terms of an overall program will roll reinvention into that and we will have one integration strategy as we go forward into 2026.

Speaker Change: Cash flow generation.

Speaker Change: Yes, so thank you <unk>.

Speaker Change: 25.

Speaker Change: Free cash flow as you mentioned or guiding more and it's primarily driven when you think about lower.

Speaker Change: Correct and quickly for my follow up maybe.

Speaker Change: Just to walk through the.

Inflow from the sale of finance receivable and business plan and this is in accordance with what we have disclosed that when we see our finance receivable assets.

Speaker Change: Puts and takes on the free cash flow guidance, particularly the step down from 464 this year.

Speaker Change: At $3 75, I'm, sorry, 464 in Greene County, four to 375 at the midpoint in 2025 on what's largely it looks like you're guiding to sort of similar operating brokerage can you just walk me through the drivers of it less forward flow or.

Speaker Change: Will it be at the end of 2026, but it also will be impacted by.

Speaker Change: Higher working capital and higher operating net income. So net net really is lower finance receivable assets inflow and improvements in operating margin and working capital for 2025.

Speaker Change: The underlying business sort of cash flow generation.

Yeah. So thank you so 2025 free cash flow as you mentioned, we're guiding more and it's primarily driven when you think about lower.

Speaker Change: Got it. Thank you thanks for taking my questions.

Speaker Change: Yes.

Speaker Change: Thank you.

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

Speaker Change: Inflow from the sale of finance receivable and business plan and this is in accordance with what we have disclosed that when we see our finance receivable assets.

Speaker Change: Super Thanks, so much for taking my question guys.

Speaker Change: The sentiment from summit and.

Speaker Change: It won't be at the end of 2026.

Speaker Change: And the rest of the team on top of his retirement and were allowed to looking forward to working with you.

Speaker Change: Also it will be impacted by.

Speaker Change: Higher working capital and higher operating net income. So net net really is lower finance receivable assets inflow and improvements in operating margin and working capital for 2025.

Sam Alondra: Yes, Sam Alondra.

Speaker Change: One of you guys.

Sam Alondra: This question is just around gross margins.

Sam Alondra: Gross margins have been on a fairly consistent downward trajectory.

Sam Alondra: Taking out a lot of costs as you go for reinvention.

Speaker Change: Alright. Thank you thanks for taking my questions.

Sam Alondra: Even with a lower share count and you still face some EPS pressure theres, some puts and takes obviously around OID and tax rate, but can you maybe just walk us through the actions you're taking to stabilize gross margins.

Erik Woodring: Thank you and our next question comes from the line of Erik Woodring from Morgan Stanley. Your question. Please.

Erik Woodring: Super Thanks, so much for taking my question guys.

Sam Alondra: Really how we should be thinking about the trajectory of total company gross margins in 2025 before accounting for anything related to Lexmark and then I have a quick follow up thank you.

Erik Woodring: Echo the sentiment from summit and in.

Erik Woodring: And the rest of the team on top of his retirement and really been looking forward to working with you.

Miranda: Yes sure Miranda.

Sam Alondra: Yep. Thank you.

Miranda: And as you guys all target this question too and it's just around gross margins.

Sam Alondra: In 2024 as I mentioned in Q4, specifically gross margin declined 190 basis points and was primarily driven by Max are for equipment.

Miranda: The gross margins have been on a fairly consistent downward trajectory, you're obviously, taking out a lot of costs as you go through reinvention, but even with a lower share count and you still face some EPS pressure theres. Some puts and takes obviously around OID and tax rate, but can you maybe just walk us through the actions you are taking to stabilize gross margin.

Sam Alondra: We had some orphan volumes and inclusion of <unk>. All of these were partially offset by benefits of reinvention and currency looking into 2025, we.

Sam Alondra: We expect gross margin to be lower than 2024, and that is primarily driven by inclusion of <unk> anti savi has a lower gross margin than on Prem.

Miranda: And really how we should be thinking about the trajectory of total company gross margins in 2025 before accounting for anything related to Lexmark and then I have a quick follow up thank you.

Sam Alondra: Business as well as some product increases.

Sam Alondra: We will and plan to offset those with benefits from technology enabled pricing and offer and productivity initiatives.

Miranda: Yep.

Miranda: Q2 in 2024 as I mentioned in Q4, specifically gross margin declined 190 basis points and was primarily driven by mix of our <unk> for equipment.

Sam Alondra: Yes, I would say the other thing to add onto that as you know we had a very good growth in our <unk> business in Q4, and a four is a growing segment.

Miranda: We had some orphan volumes and inclusion of <unk>. All of these were partially offset by benefits of reinvention and currency looking into 2025.

Sam Alondra: That has a lower upfront gross margin, but the supplies and the tail of that is high margin business right. So we won't see the effects of that until we start to see.

Miranda: We expect gross margin to be lower than 2024, and that is primarily driven by inclusion of <unk> anti savi has a lower gross margin than our print business as well as some product increases.

Sam Alondra: Third year of the actual supplies coming in but an important indicator for us as we're trying to really grow that April business actually double the share next year and growing that and we had good solid growth in Q4, and we're seeing significant unit expansion, which will pay off in future years.

Miranda: We will and plan to offset those with benefits from technology enabled pricing and offering productivity initiatives.

Miranda: Yes, I would say the other thing to add onto that as you know we had a very good growth for our business in Q4 and <unk> four is a growing segment.

Sam Alondra: And my last point that I would say as you just where we are.

Sam Alondra: To be focused on operating margin increase our profitability and our free cash flow generation. These are the things necessary as we do that and deleverage the company as we do the acquisition integrations.

Miranda: That has a lower upfront gross margin, but supplies and the tail of that is high margin business right. So we won't see the effects of that until we start to see.

Sam Alondra: Etfs in the assessed associated adjustments of EPS are different ballgame, the operating efficiency purely comes down to mix shift and the gain share strategy as we've articulated that's that's where you can see every bit of the performance of the business and the benefits of the work we're doing.

Miranda: <unk> third year of the actual supply is coming in.

Miranda: An indicator for us as we're trying to really grow that April business actually double the share next year and growing that and we had good solid growth in Q4, and we're seeing significant unit expansion, which will pay off in future years.

Sam Alondra: Okay Super Thank you guys really helpful detail.

Sam Alondra: And then maybe I just wanted to double click on <unk> question about free cash flow.

Miranda: And my last point that I would say, it's just we are continued to be focused on operating margin increase our profitability and our free cash flow generation. These are the things necessary as we do that and deleverage the company as we do the acquisition integrations.

Sam Alondra: If we kind of go back to the early days of these.

Sam Alondra: <unk> original four announcements I think you alluded to.

Sam Alondra: $400 million of cash flow tailwind per year for four consecutive years I think you've done something to the effect of almost $1 3 billion. Thus far so pulled that forward a little bit can you maybe just talk about the future of this program and how we should be thinking about the contribution from from this program.

Miranda: Etfs in the assessed associated adjustments of EPS are are different ballgame, the operating efficiency purely comes down to mix shift and the gain share strategy as we've articulated.

Miranda: That's where you can see every bit of the performance of the business and the benefits of the work we're doing.

Speaker Change: Okay Super Thank you guys really helpful detail.

Sam Alondra: Not just in 2025.

Speaker Change: And then maybe I just wanted to double click on <unk> question about free cash flow.

Sam Alondra: Beyond and really what I'm trying to get to.

Sam Alondra: Is there a point at which we should be thinking this program really comes to a halt and just focusing on your core free cash flow just trying to maybe understand the timing of that or any factors that would help us help impact that and that's it for me. Thanks, So much.

Speaker Change: If we kind of go back to the early days of these original four announcements I think you had alluded to.

Speaker Change: $400 million of cash flow tailwind per year for four consecutive years I think you've done something to the effect of almost $1 3 billion. Thus far so pulled that forward a little bit can you maybe just talk about the future of this program and how we should be thinking about the contribution from from this program.

Speaker Change: Yeah, Thanks, Eric and you are correct right we.

Speaker Change: Graham four year program, and we expect our finance receivable a balance to be around $1 billion. We started with $3 6 billion. As you mentioned, we've done about close to $1 8 billion and right. Now we have about 180 800 million of finance receivables that we think we will sell over there.

Speaker Change: Not just in 2025.

Speaker Change: Beyond <unk> and really what I'm trying to get to.

Speaker Change: Is there a point at which we should be thinking this program really comes to a halt and just focusing on your core free cash flow just trying to maybe understand the timing of that or any factors that would help us help it back that and that's it for me. Thanks, so much.

Speaker Change: Next two years.

So when I think about sort of a trailing 12 months basis, we sold about 44% of total originations to our H B S partner.

Speaker Change: And that kind of like when you look at that rate in the next two years and what's to come we will review all that balanced we review our plans and we will be able to or if we could sell more finance receivables and benefit our free cash flow, but again, it's a four year program. We still have finance receivable that are planned to go.

John Bruno: Yeah, Thanks, Eric and you are correct right we.

John Bruno: Program four year program, and we expect our finance receivable a balance to be around $1 billion target with $3 6 billion. As you mentioned, we have done about close to $1 8 billion and right now we have about 100.

John Bruno: 8800 mean finance receivables that we think we will sell over the next two years.

Speaker Change: The forward flow program in the next two years 'twenty five 'twenty six.

Speaker Change: Okay Super helpful. Thank you so much guys.

John Bruno: So when I think about sort of a trailing 12 months basis, we sold about 44% of total originations to our H B S partner.

Speaker Change: Thank you and this does conclude the question and answer session of today's program I'd like to hand, the program back to Mr. <unk> for any further remarks.

John Bruno: And that kind of like when you look at that rate in the next two years and what's to come we will review all that balanced we review our plans and we will be able to or if we could sell more finance receivables and benefit our free cash flow, but again, it's a four year program. We still have finance receivable that are planned to go to.

Speaker Change: Thank you recapping today's call we ended the year with a solid execution and see steady progress for reinvention actions taken to date and.

In 2025, we expect these actions new initiatives focus on further optimization, our business and the benefits of acquisitions to drive growth in revenue and adjusted operating income.

John Bruno: The forward flow program in the next two years 'twenty five 'twenty six.

Speaker Change: I'd also like to wish Xavier highest our outgoing CFO the best of luck in his retirement.

John Bruno: Okay.

Speaker Change: Okay Super helpful. Thank you so much guys.

Speaker Change: Thank you and this does conclude the question and answer session of today's program I'd like to hand, the program back to Mr. <unk> for any further remarks.

Speaker Change: <unk> has been an impactful leader at Xerox more than 30 years. He is a champion of change rigorously dedicated to operating excellence and most importantly, a friend amounted to hundreds if not thousands of current and former Xerox employees.

Thank you recapping today's call we ended the year with a solid execution and see steady progress of reinvention actions taken to date and.

Speaker Change: On behalf of everyone at Xerox during his tenure, we thank you for your service and leadership.

Speaker Change: In 2025, we expect these actions new initiatives focus on further optimization, our business and the benefits of acquisitions to drive growth in revenue and adjusted operating income.

Speaker Change: Personal thanks to Xavier for helping me as I took the CEO role at the company, helping me get comfortable and get me up to speed and really helping me along the journey and I'm going to Miss him greatly as many many of my colleagues will as well. Thank you for today's call have a great day.

Speaker Change: I'd also like to wish Xavier <unk>, our outgoing CFO the best of luck in his retirement.

Speaker Change: There has been an impactful leader at Xerox more than 30 years. He is a champion of change rigorously dedicated to operating excellence and most importantly, a friend and mentor to hundreds if not thousands of current and former Xerox employees on behalf of everyone at Xerox. During his tenure, we thank you for your service and lead.

Speaker Change: Yes.

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

Speaker Change: The ship and my personal thanks to Xavier for helping me as I took the CEO role at the company, helping me get comfortable and get me up to speed and really helping me along the journey and I'm going to Miss him greatly as many many of my colleagues will as well.

Speaker Change: For today's call have a great day.

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

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Okay.

Speaker Change: [music].

Speaker Change: Hum.

Speaker Change: [music].

Speaker Change: Mhm.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].