Q1 2025 Xerox Holdings Corp Earnings Call
Welcome to the Xerox Holdings Corporation first quarter 2025 earnings release conference call. After the presentation there'll be a question and answer session to ask your questions at that time. Please press star one one at any time. During this call you can withdraw your question by pressing star one again.
Speaker Change: At this time I would like to turn the meeting over to Mr. David Michael.
This president and head of Investor Relations.
Speaker Change: Good morning, everyone I'm, David Duckworth, Vice President and head of Investor Relations at Xerox Holdings Corporation and welcome to the Xerox Holdings Corporation first quarter 2025 earnings release Conference call hosted by Steve <unk>, Chief Executive Officer. He is joined by John Bruno President and Chief.
Speaker Change: Officer, and Orlando get Tsai, Chief Financial Officer at.
Speaker Change: At the request of Xerox Holdings Corporation Today's conference call is being recorded other 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.
Speaker Change: Which by their nature address matters that are in the future and are uncertain.
Speaker Change: Actual future financial results may be materially different than those expressed herein at.
Speaker Change: At this time I would like to turn the meeting over to Mr. Bender Shack.
Bender Shack: Good morning, and thank you for joining our Q1 2025 earnings conference call.
Bender Shack: In the first quarter balanced execution, the benefits of last year's reinvention related organizational changes and ongoing reinvention initiatives resulted in an improved revenue trajectory and another quarter of double digit declines in operating expenses, excluding one time cost and savvy.
Bender Shack: Sales activity has normalized and the savvy integration and reinvention related cost reduction programs are running ahead of plan, placing us firmly on the path to a near term revenue stabilization and growth in adjusted operating income.
Bender Shack: Amid an increasingly uncertain and unprecedented operating environment, we remain focused on what we can control delivering industry, leading document workflow and it solutions to our more than 200000 clients and the successful execution of our reinvention I commend our team who are working.
Bender Shack: Tirelessly to navigate the nearly daily developments in trade policies to ensure we continue providing the workplace technologies, our clients need most and do so profitably all while implementing over 100 reinvention initiatives designed to further improve our core operations and drive additional op.
Bender Shack: Operating efficiencies.
Bender Shack: Summarizing our results for the quarter revenue of around $1 5 billion decreased 3% in actual currency and one 1% in constant currency inclusive of savvy.
Bender Shack: Adjusted operating income margin of one 5% was lower year over year by 70 basis points.
Bender Shack: Free cash flow and what is our seasonally lowest quarter of the year was a use of cash of $109 million compared to a use of $89 million in the prior year.
Bender Shack: And adjusted loss per share was <unk> 12 cents lower year over year.
Bender Shack: This quarter's year over year decline in revenue on a constant currency basis and the decline adjusted operating income margin, primarily reflects the mix of solution products and services billed in Q1 as well as higher than expected costs associated with the recent trade and Mac.
Bender Shack: Pro economic related disruptions.
Bender Shack: While the near term operating environment has been clouded by tariff and trade related uncertainty. It is increasingly clear that the benefits of our last year's organizational changes and the reinvention actions taken to date are delivering the intended improvements in <unk> operating results.
Bender Shack: This quarter, we saw improvements across a range of important operating metrics equipment revenue adjusted for currency backlog fluctuation and reinvention effects declined approximately 1% or 500 basis point improvement from the pace of decline in 2024.
Bender Shack: Equipment installation grew 24% the third consecutive quarter of double digit growth driven by initiatives to grow share in a four and with channel partners as well as the successful global launch of our new Prime linked product services renewal rates for large client contract.
Bender Shack: We're at a multiyear high and in the first full quarter. Following the acquisition of savvy synergy realization solutions order volumes and the cross sell opportunities between the print and solutions businesses are already ahead of plan.
Bender Shack: These improvements reflect the culmination of intentional often difficult decisions taken over the past two years to reengineer Xerox positioning the company to take advantage of favorable secular trends in and adjacent to print and it services with a streamlined and agile operating structure.
Bender Shack: In Q1, we made progress across each of our three strategic priorities for the year, starting with the execution of reinvention initiatives in Q1, Salesforce productivity advanced 13% year over year are key contributors to this quarter's improved equipment revenue trajectory.
Bender Shack: Sales productivity improvements reflect a reduce administrative burden on our sales force enabled by a host of simplification and optimization initiatives recently put in place.
Bender Shack: These initiatives include standardized bidding.
Bender Shack: Ordering and post signature processes, and AI enabled pricing tools, which helps our sales team optimized sales opportunities.
Bender Shack: We also implemented a refined approach to client segmentation, providing our sales organization with greater focus when serving clients and developing bids and.
Bender Shack: An example of refined client segmentation is the expansion of our inside sales organization to support small and medium businesses in the U S.
In Q1, we refined our coverage model for 35000 small client accounts by adding support capacity through a centralized inside sales team.
Bender Shack: This team will focus on proactive customer support upsell and cross sell opportunities and the retention of clients with lower levels of existing revenue, allowing our field sales team to focus on providing improved service quality to large clients and the development of new businesses and new logo opportunities.
Bender Shack: <unk>.
One month into the expansion the inside sales team is seeing strong growth in pipeline and client engagement metrics and sales activity in the regions, where accounts with transferred is pacing, 10% higher year over year.
Bender Shack: We expect initiatives like these and others plan to drive further productivity gains and contribute to our goal of growing equipment share in 2025 and beyond.
Bender Shack: Moving to acquisition benefits the integration of savvy is running ahead of plan with our collective solutions strategies aligned and savvy people and operations now fully integrated.
Bender Shack: Systems and process integration is expected to be complete by Q3.
Bender Shack: The vast majority of the expected run rate synergies totaling more than $15 million have been implemented and are expected to contribute to improved <unk> solutions and total company profit in future periods.
Bender Shack: Through the design of it savvy integration. We also see early signs of success in the cross sell of it solutions to existing print clients a key tenant of our acquisition thesis and confirmation of the value we bring to clients when our industry, leading print and it solutions.
Bender Shack: Our combined Rolanda, who will provide additional color on early cross sell success and his contribution to <unk> solutions pipeline.
Bender Shack: Early integration planning for the <unk> acquisition is well underway.
Bender Shack: With it savvy integration expected to be complete by the time the lexmark deal closes we will focus our complete attention on the integration of <unk> operations in the second half of this year.
Bender Shack: Finally balance sheet strength.
Bender Shack: In Q1 when.
Bender Shack: When we excluded the impact of finance receivable benefits improved working capital drove an increase in free cash flow as a reminder, our top capital allocation priority is the repayment of debt in.
Bender Shack: In Q1, Xerox total debt balance decreased by around 100 million following the repayment of secured debt.
Bender Shack: In April we issued $800 million are secured notes a portion of which will be used to refinance existing debt and a portion of which will be used to fund the lexmark acquisition.
Bender Shack: Following the repayment of our 2025 notes and prepayment of our current term loan we have less than $200 million of debt obligations coming due until 2028, we will incur additional debt to fund the <unk> acquisition, but the level of acquired EBITDA is expected to result in a lower pro.
Bender Shack: Form a debt leverage level.
Bender Shack: I will now hand, the call over to John to discuss reinvention progress made in Q1 and provide an update on Lexmark acquisition. Thank you Steve as Steve noted, we exhibited greater stability in our business this quarter with sales activity normalized and execution more balanced our reinvention efforts have turned to the execution of more than 100 tactical and.
Bender Shack: <unk> to drive further revenue stabilization and improved profitability.
Bender Shack: These initiatives are grouped across four categories.
Bender Shack: Graphic simplification operational simplification commercial optimization and growth and the realization of acquisition benefits in this quarter, we made progress across each of these categories.
Bender Shack: The execution of our geographic simplification program is now largely complete bringing the total number of countries to 18, where direct operations were transitioned to partners are.
Bender Shack: Our focus in these countries now turns to maximizing profitability and the expansion of business with local and regional distribution partners.
Bender Shack: Our operational simplification efforts this quarter, we're focused on building scalable service capabilities within the global business service organization that leverage technology to drive sustainable cost reductions throughout the organization exam.
Bender Shack: Examples this quarter included the creation of an enterprise wide contract lifecycle management platform and the absorption of it service people and operations functions.
Bender Shack: We've addressed some of the sales productivity initiatives driving commercial optimization and growth and the quick wins associated with realizing the expected benefits of the savvy acquisition.
Bender Shack: I'll spend a few minutes now providing an update on the pending acquisition of lexmark.
Bender Shack: We continue to make progress toward the closing of this acquisition. We received several key regulatory approvals in the past few months, including clearance of HSR in the U S antitrust in UK, and Canada, and most major EU countries.
Bender Shack: Remaining approvals are expected by the end of June.
Outside of country specific approvals the last significant condition to close as the nine star shareholder vote, and Chinese Securities Exchange approval, both of which are expected to take place in the coming months as.
Bender Shack: As previously disclosed we secured 32% of the required shareholder vote as part of the acquisition agreement.
Bender Shack: We continue to expect over $1 a share of accretion associated with the lexmark transaction, despite a slightly higher than expected cost of funding and the potential for incremental tariff expenses.
Bender Shack: Importantly, based on U S. Tariffs currently in place, we expect little to no product cost impact from tariffs on lexmark branded business within a few quarters of acquisition close.
<unk> has a large manufacturing facility in Juarez, Mexico that can support all expected imports of branded product into the U S market on a U S MCA compliant basis.
Bender Shack: In 2020 for Lexmark exhibited growth on the top and bottom lines confirming our acquisition thesis revenue grew 9% through share gains and branded a three and a four and the expansion of its OEM business into the <unk> category adjust.
Bender Shack: Adjusted operating income grew nearly 40% in 2024, reflecting operating leverage and its own cost reduction and efficiency initiatives.
Bender Shack: We are actively engaged with the lexmark team in integration planning and are excited to bring lexmark is leading a four platform under the <unk> umbrella and help expand its a three OEM business.
Speaker Change: Before I hand, the call to him Rolanda I wanted to address <unk> exposure to tariffs on products imported into the U S market.
Speaker Change: <unk> current exposure to purchase is subject to reciprocal tariffs in the U S. Excluding China is less than 10% of total company cost of sales.
Speaker Change: <unk> purchases imported to the U S that are subject to China tariffs are expected to be limited to a low single digit percentage of total company cost of sales by the end of 2025.
Speaker Change: Plans are in place today to shift most China produced goods to countries with lower tariffs.
Speaker Change: Our print services and financing business, which is more than 60% of the total print revenue has minimal reliance on imported products.
Speaker Change: In it solutions tariff exposure varies by OEM partner, and we expect associated costs to be passed through to end users through price increases or surcharges.
Speaker Change: Given the fluid and uncertain nature of tariff policies and rate proposals estimating <unk> ultimate exposure to tariff related costs remains difficult.
Speaker Change: Said I'll provide some details to help frame our potential exposures in 2025.
Speaker Change: Based on tariffs in place on May 1st the expected reduction in operating income net of price and supply chain mitigation measures already in place or planned would be around $50 million in 2025.
Speaker Change: If China tariffs are reduced from 145% to 60%, we expect to be able to offset the impact of tariffs through a comprehensive set of price increases surcharges geographic rebalancing in supply chain related mitigation efforts as well as incremental reinvention related savings. This.
Speaker Change: Is a very fluid environment and financial impacts are difficult to forecast, we will do our best to share further forecasted impacts and our mitigation plans as they evolve.
Speaker Change: I'll now turn the call over to Orlando to discuss the financial results in more detail.
Orlando: Thank you John and good morning, everyone as Steve noted the cumulative effect of reinvention initiatives implemented to date resulted in an improved trajectory in revenue and another quarter of double digit declines in operating expenses adjusting for reinvention costs and the inclusion of <unk> savi.
Orlando: In Q1 revenue declined 3% in actual currency or one 1% year over year in constant currency, including the benefit of a full quarter of <unk> Savi <unk>.
Orlando: Organic core revenue, which excludes IP savvy, they impact of backlog fluctuations and Brent mentioned actions declined a little more than 2% in constant currency this quarter, an improvement over prior year to 4% pace of decline and in line with our expectations for core revenue declines for the year.
Orlando: The improved trajectory in core revenue, primarily reflects lower declines in equipment sales and growth in legacy solutions bookings.
Orlando: Turning to profitability.
Orlando: Adjusted gross margins declined approximately 220 basis points year over year, reflecting higher product costs, the inclusion of IP savvy.
Orlando: Print volumes and finance receivable related fees and the initial impact of tariffs, partially offset by reinvention savings.
Orlando: First quarter results do not include any benefit from tariff related price increases.
Orlando: Surcharges or supply chain modifications, which we expect will help offset tariff related product cost increases in future periods.
Orlando: Adjusted operating margin of one 5% was 70 basis points lower year over year due to lower revenue and gross profit and higher advertising expense, partially offset by reinvention savings lower bad debt expense and the inclusion of savvy, which carries a lower <unk>.
Orlando: Great and expense base than our print business.
Orlando: <unk> focus on cost reduction resulted in a decline in operating expenses of $26 million.
Orlando: Included in operating expenses are $9 million of reinvention related costs and $12 million of IP savvy operating expenses.
Orlando: Excluding these impacts operating expenses declined $46 million, a reduction of 10% on a year over year basis.
Orlando: Adjusted other expenses net were $32 million 8 million higher year over year, due primarily to higher net interest expense.
Orlando: Adjusted tax rate of 60% compared to a negative 22% in the same quarter last year.
Orlando: The current year rate reflects lower benefits from certain current year losses and expenses, whereas the prior year rate reflected tax benefits from the re determination of certain unrecognized tax positions.
Orlando: Adjusted loss per share of <unk> 12 cents lower than prior year, reflecting lower adjusted operating income.
Orlando: Interest expense and unfavorable currency gap.
Orlando: GAAP loss per share of <unk>, 75, improved 19% year over year and includes a charge to tax expense related to the establishment of $59 million in valuation allowances totaling <unk> 47 per share.
Orlando: And after tax financing related charges associated with our recent debt offering of $14 million or <unk> 11 per share.
Orlando: The prior year quarter included after tax reinvention related charges of 100 million or <unk> 81 per share.
Orlando: Let me now review segment results, we have updated our segment reporting to reflect changes in our organizational structure and strategic priorities. Following the successful acquisition of <unk> in November 2024.
Orlando: Effective Q1, 2025, we introduced a new operating segment <unk> solutions to better reflect the contribution of <unk> solutions to the long term growth of Xerox.
Orlando: This new segment includes 80 savvy as well as <unk> related products and services.
Orlando: Honestly reported under the print and other segment, our former <unk> segment is now reported within print and other.
Orlando: Starting with print and other results.
Speaker Change: Q1 equipment sales of 284 million declined two 1% in actual currency and 0.7% in constant currency.
Speaker Change: A reduction in backlog in the current period offset the effects of reinvention related actions, resulting in a normalized or core equipment decline of around 1% an improvement trajectory over the prior year's core mid single digit pace of decline and better than what we believe is the underlying rate of decline.
Speaker Change: In the industry.
Speaker Change: For the third consecutive quarter.
Speaker Change: Total equipment installations grew at a double digit pace and exceeded equipment revenue declines entry installations grew about 33%, reflecting our efforts to gain share in the 84 category.
Speaker Change: Entry installations outpace revenue growth due to a higher mix of low end product and sales through indirect channels midrange installations in constant currency equipment revenue. Both grew mid single digits aided by the global launch of our Prime linked <unk> 90 to 100 series.
Speaker Change: As a reminder, improved entry and mid range installations will support wholesale trends in future periods.
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 simplification actions taken last year.
Speaker Change: Bring post sale revenue of around 1 billion declined 11, 2% in actual currency and nine 2% in constant currency.
Speaker Change: Excluding the effects of reinvention actions core print post sale revenue declined around 5% in constant currency, reflecting lower supply and page volumes offset by growth in digital services.
Speaker Change: <unk> segment adjusted gross margin of 31, 4% declined 140 basis points year over year due to higher product costs, lower print volumes and finance receivable related fees and the impact of tariffs, partially offset by reinvention savings.
Speaker Change: Print segment margin of three 2% declined 90 basis points due to lower revenue and gross profit, partially offset by reinvention savings.
Speaker Change: Turning to IP solutions in Q1 solutions revenue and gross profit increased more than 100% year over year, reflecting the inclusion of IP savvy in segment results.
Speaker Change: Pro forma for the acquisition of Hi Tech savvy solutions gross billings.
Speaker Change: A useful metric for understanding the volume of our business activity and a metric used internally to manage performance increased slightly year over year.
Speaker Change: The increase in pro forma gross billing reflects growth in infrastructure and networking products and associated advanced solutions offset by lower end points, reflecting the timing of large deals in the prior year.
Speaker Change: Despite an increasingly uncertain operating environment and elevated client caution observed at the end of the quarter.
Speaker Change: <unk> solutions order activity in Q1 was strong.
Speaker Change: Pro forma gross bookings a measure of signing activity increased 30% year over year with particular strength in infrastructure and networking endpoints and advanced solutions.
Speaker Change: Total IP solutions pipeline since the date of the acquisition.
Speaker Change: 26%, reflecting the same trends.
Speaker Change: An important contributor of expected growth for the solutions business.
Speaker Change: It's the ability to grow <unk> solutions penetrations of Xerox existent print client base, which is currently low single digits.
Speaker Change: Early cross sales traction is encouraging in the first quarter Nike solutions added more than 20 deals to its pipeline sourced from existing bank clients with a total signing value of over $20 million.
Speaker Change: <unk> solutions gross profit grew $18 million and gross margin of 17, 1% expanded 280 basis points year over year due primarily to the inclusion of high Tech savvy, which has a higher gross margin profiles in the legacy <unk> solutions business.
Speaker Change: Segment profit grew 6 million year over year due to the inclusion of savvy.
Speaker Change: As Steve noted the vast majority of run rate synergies expected from <unk> acquisition had been implemented accordingly, we expect IP solutions segment profitability to expand throughout the remainder of the year.
Speaker Change: Let's now review cash flow opt.
Speaker Change: Operating cash flow was a use of $89 million $10 million higher than the prior year quarter due to lower adjusted net income, partially offset by lower incentive compensation payments.
Lower proceeds from finance receivables were largely offset by improvements in working capital.
Speaker Change: Activity was a source of cash of $6 million compared to a use of cash of $17 million in the prior year due primarily to higher proceeds from the sale of assets.
Speaker Change: Free cash flow was a use of $109 million compared to a use of $89 million in the prior year, reflecting the changes in operating cash flow previously noted and slightly higher capital expenditures Q.
Speaker Change: Q1, typically marks a seasonal low in free cash flow generation for Xerox. So it is not uncommon for free cash flow to be negative in the first quarter of the year.
Speaker Change: We expect seasonal improvements in operating income continued working capital discipline and additional proceeds from finance receivables to deliver positive free cash flow in quarters, two through four with quarter four being our seasonally strongest quarter of free cash flow generation.
Speaker Change: Importantly in Q1 free cash flow, excluding the benefits of finance receivables improved more than $60 million year over year, reflecting working capital discipline, partially offset by the items previously mentioned.
Speaker Change: Financing activity consumed $159 million this quarter, reflecting a $104 million of net debt repayments.
Speaker Change: Dividends of $39 million and $16 million of other financing cash outflows.
Speaker Change: Moving to capital structure, we ended Q1 with $319 million of cash cash equivalents and restricted cash total debt of $3 3 billion declined around $100 million from Q4 levels due to the repayment of secured debt.
Speaker Change: Round $1 7 billion of the remaining $3 3 billion of outstanding debt support our finance assets with remaining core debt of $1 6 billion related to the non financing business as Steve noted, we recently raised $800 million of debt repaid $95 million of our term loan b and the remaining portion of our <unk>.
Speaker Change: 2025 notes due in August as well as fund a portion of the lexmark purchase price.
Speaker Change: Following the repayment of the 2025 notes due in August and the prepayment of our term loan we only have around $200 million of debt coming due until August 2028.
Speaker Change: I will now provide an update on reinvention tailings.
Speaker Change: During the first quarter, we implemented initiatives with an expected $50 million of incremental gross cost savings increasing the amount of expected gross cost savings from actions currently in place to around $225 million. The full amount of which is expected to be realized by the end of 2026.
Speaker Change: In addition to a portion of the $175 million of savings from actions not yet implemented.
Speaker Change: We continue to expect more than $100 million of gross cost savings in 2025 and are regularly adding to our reinvention savings pipeline of more than $700 million.
Speaker Change: Finally, I will address guidance.
Speaker Change: Given the evolving and fluid nature of proposed tariff policies and the uncertain impact of future policy outcomes on macroeconomic conditions, we have not adjusted our full year outlook as.
Speaker Change: As such our guidance excludes the potential adverse effects of tariffs and any associated impact on the economy.
Speaker Change: Guidance also excludes any impact from the pending acquisition of Lexmark.
Speaker Change: We see no discernible effect on demand from prevailing concerns about the economy or the initial implementation of tariff related price increases.
Speaker Change: Therefore, we expect minimal tariff or macro related impacts to our financial results and Q2.
Speaker Change: In the second quarter we.
Speaker Change: We currently expect a revenue decline in constant currency consistent with that of the first quarter due in large part to the mix of solutions products and services expected to be built in Q2.
Speaker Change: Adjusted operating margin is expected to be between four and four 5% lower than the prior year quarter to account for the phasing of tariff related price increases relative to costs incurred and the timing of reinvention savings.
Speaker Change: For purposes of modeling adjusted earnings per share in quarter. Two we expect a similar adjusted tax rate to that realized in Q1 due.
Speaker Change: Due to lower allowed deductions of certain expenses, but no change in our cash taxes in the second quarter non financing interest expense net is expected to be slightly higher quarter over quarter.
Speaker Change: It is important to remember our business is naturally hedged to short term fluctuations in demand as more than 60% of Xerox revenues are derived from long term contracts and our suite of productivity solutions are designed to provide clients with it related cost savings.
Speaker Change: Further free cash flow tends to fluctuate less than adjusted operating income due to our ability to improve working capital and increased proceeds from finance receivables independently of operating results.
Speaker Change: We will provide updated 2025 guidance, including a more refined view of tariff related impacts on full year results. Following the transaction close.
Speaker Change: To recap our fluid tariff and trade policy environment has resulted in an increased level of near term operating uncertainty, particularly as it relates to product cost and the potential impact of higher product and services prices on demand.
Speaker Change: We are working actively with supplier partners to minimize tariff related cost increases and we will monitor client sentiment and demand in response to price increases and surcharges used to mitigate the potential financial impact of tariffs, we will manage through this period of uncertainty leveraging the improved.
Speaker Change: And flexibility.
Speaker Change: Predictability and cost efficiencies afforded by our reinvention strategy.
Speaker Change: We will now open the line for Q&A.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Okay.
Speaker Change: Our first question comes from Ananda Baruah with loop capital you May proceed.
Speaker Change: Yeah.
Ananda Baruah: Hey, guys good morning, Chris.
Speaker Change: Appreciate the questions.
Speaker Change: And all of the helpful context by the way that Lee.
Speaker Change: Is that really just allowed the waterfront so.
Speaker Change: Excuse me, let me just start with this.
Speaker Change: Not seeing any discernible impact.
Speaker Change: From macro yet are you getting I guess sort of Conversationally what is some of the kind of.
Speaker Change: Some of the communications and messaging that.
Speaker Change: Note that both here.
Speaker Change: Instead of large corporate customers you guys deal with directly.
Speaker Change: Arqiva. Thank you and then what are the var is telling you about SMB right now so to say some of the underlying costs actually I have a quick follow up thanks.
Speaker Change: Sure it's John.
Speaker Change: I'll kick it off and I'm sure Steve will add some commentary as well is we spent a lot of time with our teams in the field and what's in front of our clients.
Speaker Change: It is a volatile environment people are monitoring and looking at everything.
Speaker Change: You are correct, we have not seen and did not see.
Speaker Change: Real impact in Q1 other than kind of the tail off that Marilyn dimensions, with the fentanyl, China tariffs and before our price increases and so forth went out to mitigate them everyone is expecting similar type issues and everyone is in a similar boat I would say that was a more of an acute focus on some of the smbs and others. If they were dependent.
Speaker Change: <unk>.
Speaker Change: Previously I would say a month or so ago Doge and its related potential.
Speaker Change: Potential cuts in areas, if they were funded through government and other government related areas.
Speaker Change: Has died down quite a bit from where it was we just saw people wondering am I going to be funded if for certain upgrades and so forth and little bit trepidation as to holding back as to whether or not they could move forward, but we've seen that begin to ease off a bit it could heat up again, obviously as these things as these things are fluid and change, but thats kind of around the gas.
Speaker Change: And it's been very consistent between the reaction in SMB as well as an enterprise there's not been a discernible difference.
Speaker Change: Yes, and I'll add a couple of things on the macro trends right. As you think about just end points and Pcs and the overall windows elaborate upgrades and AI Pcs theres going to be a lot of spend in driving and refreshing those endpoints for security reasons for productivity reasons, we're seeing more and putting the infrastructure inside.
Speaker Change: Data centers that allow for the driving of AI implementation as customers are really trying to drive productivity. So we will see spending where it drives productivity and drives overall bottom line performance as well as we will see spending in areas where customers have to upgrade because of end of life or because of next generation.
Speaker Change: Asian, Microsoft a next generation endpoint devices.
Speaker Change: And just one point to make here is what we have seen in <unk>, yes. There was some delays and that's what we meant when we said the softening, but we have not seen cancellations as a result of what we are experiencing in the market right now.
Speaker Change: Got it that's all that's all really great context, I appreciate that I guess my quick follow up it sounds like.
Speaker Change: Savi high level metrics out sounds really positive.
Speaker Change: Any any I guess underlying contacts you can share about.
Speaker Change: Things that you.
Speaker Change: You did hear that occurred as you continue to integrate.
Speaker Change: Savi into <unk>.
Speaker Change: And to the broader corporate processes would be would be helpful. Thanks, Yes, we're very encouraged and we talked a little bit about this the total tam or the wallet share that we can go acquired by bringing.
Speaker Change: Savi as products and services into the existing account base that we have just to give you a data point, we penetrate literally just 5% of our existing accounts today with savvy and it solutions, we can double that business literally that's the type of opportunity we have in front of US we saw.
Speaker Change: Really good encouraging signs we talked about the pipeline build in Q1, we talk about the bookings in Q1, but more importantly, we're seeing the adoption of the conversations across our entire print sales team now having the conversations with our clients around what savi can bring with it solutions can bring in the future.
Speaker Change: So we're excited about that penetration, we've got a big opportunity out there in terms of expanding our wallet share in existing accounts by the way we're seeing it on the other side as well where we have savi.
Speaker Change: Savi, having their clients now adopting and driving print initiatives. So clearly the cross sell it's going to work we've got a long way to go to get full penetration, but the opportunity is very exciting we're starting to see early shoots of that I'll also indicate during an integration you normally see a slowdown.
Speaker Change: Pause of sales, we're actually seeing the opposite we're seeing acceleration of pipeline and we're seeing an acceleration of bookings. So we're very excited about what's going on right now and I will add color to that as to why we talked about this previously we did a reverse in this business we acquired an outstanding team.
Speaker Change: The Chief revenue Officer, the Chief Financial Officer, the CEO of the company.
Speaker Change: The head of sales the entire team has been incredibly effective and we put our business into their business and we've seen great collaboration between as Steve pointed out our print sales force and theirs. So other than coming together, they've done a tremendous job and exceeded expectations with regard to the speed in which not only they executed the beginning parts of their sins.
Speaker Change: He plans to control costs, but how collaboratively everyone is working to develop the pipeline look let's face it it's not the sexiest thing to sell all the time to the CIO as Steve pointed out many times over we've been able to change the conversation and dialogue and really strengthen our digital services discussions are print and document processing discussions and.
Speaker Change: <unk> it solutions, so theres more relevance in the discussions and there is excitement in the field to bring these teams together and I'm very pleased with the alignment and the execution under that team in the reverse in the way. We described it it's working as planned and remember we did have we did a study when we talked about before we were going to get into this business. We went in we put.
Speaker Change: All of our existing clients propensity to buy Xerox.
Speaker Change: Solutions overwhelmingly they said they trusted us right and we're seeing that play out they trust us in this environment and they like what we're bringing to them as offerings going forward.
Speaker Change: That's really great guys I really appreciate it thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Erik Woodring with Morgan Stanley You May proceed.
Erik Woodring: Hey, good morning, guys. Thank you for taking my questions maybe the first one for you in Rwanda was just.
Speaker Change: I understand you haven't necessarily seen an impact.
Erik Woodring: To demand.
Erik Woodring: Tariff situation remains fluid I'm just curious.
Erik Woodring: The thought process behind maintaining full year guidance as we sit here today, just I think there's a perception that growth is slowing I understand you have long term contracts, but at the same time, you noted 50 million that.
Erik Woodring: Actual tariff costs.
Erik Woodring: That are not included in your guidance and so just given how your stock has performed.
Erik Woodring: Why not set the bar lower rather than potentially incur.
Erik Woodring: I would call negative estimate revisions in the event tariff policy doesn't change and or demand slows and then I have a follow up please thank you.
Speaker Change: Alright. Thank you for the question so our thoughts around guidance is that as we mentioned.
Erik Woodring: <unk> are not enacted theyre not final it.
Erik Woodring: It could change tomorrow, our goal is to deliver and push for what we have put for ourselves to deliver for the year. So we maintained the guidance until the tariffs are final we gave the impact right. So the investors have an idea as to what that would be we felt that a change.
Erik Woodring: Change in the guidance now while tariffs are so fluid.
Erik Woodring: It was very helpful for the investors and also for us to keep ourselves accountable and be able to deliver what we have planned for 2025 and beyond.
Erik Woodring: Okay. Okay I appreciate that.
Erik Woodring: Then my follow up.
Speaker Change: For Steve John or you have a lot of it is just.
Speaker Change: I appreciate the new disclosures on ICT solutions, and if you could just think about the margin rates that we see for that business right. Now realizing that you can gain benefits of scale. Realizing that you should be able to capture synergies as you've mentioned how.
Speaker Change: How do I think if I look 123 years out for this business how do we think about the gross and operating margin rates for your <unk> solutions business, where can they go to as you sit here today and think about the initiatives and growth opportunities you have in place. Thanks, so much.
Speaker Change: Yeah. Thank you Eric a couple of things there.
Speaker Change: We'll look at how do we drive productivity and we can get to double digit operating profit in that space right well, it's got lower margins got lower SG&A and lower cost and so we're trying to drive that growth in that business and get to double digit operating profit. It has a lower SG&A will remember, we'll be able to take that.
Speaker Change: The entire portfolio run it through both our partner channel and our existing sales channel. So we will be able to hold our SG&A flat as we go drive the revenue on that business and we've discussed this in previous calls. This is a business that youre absolutely correct from a gross margin perspective. It doesn't have the same type of ambition is.
Speaker Change: We've had but from an operating profit it does because its mix of services in the company that we acquired when it's not.
Speaker Change: A reseller, it's more a value added reseller and points, although they are able to position and sell endpoints more profitably than Xerox has which is part of the reverse part of this and deal with the full lifecycle of those endpoints, including reclamation, they've been able to get good gross margins competitive with print in a commodity business in that space.
Speaker Change: That runs aligned with the industry and then on top of that all the additional cloud based services and all the trajectory that Microsoft AI enabled Pcs and security and all of that type of stuff that has very healthy operating margins associated with the flow through and Thats, where that mix within that business is positive as well as the overall mix shift of it.
Speaker Change: <unk> solutions to print.
Eric: Eric I'll say it is.
Eric: Margins from Q1 data just you look at our growth in entry and a four right that has lower margins on the product sales, but as you look at future quarters, we've pulled through suppliers, which has higher margins right and thats, a very strategic tactical thing for us to go grow that entry, which you saw a 33%.
Eric: Growth in our industry very strategic for us and that will have higher margins in the future as we pull through supply of cells.
Speaker Change: Awesome, Thanks, guys for all the color and good luck.
Eric: Thank you.
Eric: Thank you.
Speaker Change: Our next question comes from Cemig strategy with Jpmorgan you May proceed.
Speaker Change: Hi, good morning, and thanks for taking my question I guess for the first one if I can ask one we'll see.
Speaker Change: And I'm looking at the Q1 performance there where in constant currency the decline was about Miami Boston than.
Speaker Change: I know you don't really break out the impact of non strategic revenue and other green mentioned items to boost sales specifically, but.
Speaker Change: Just wondering directionally it looks like a mid single digit decline at least.
Speaker Change: Maybe if you can talk about the drivers there in terms of.
Speaker Change: What's what are you seeing in terms of the.
Speaker Change: What's driving the decline in the on an organic basis.
Speaker Change: We will sell revenue, where do you expect to exit the yard and in.
Speaker Change: In relation to sort of stabilization trends, what you're seeing on that wholesale revenue, particularly given that you.
Speaker Change: Youre, 100% correct.
Speaker Change: The decline in core print style revenue does reflect lower supplies managed print volumes and most of that has to do with just the number of machines. Because that is all derived by price per page number of pages printed number of machines in field and as of course, we normalize and rationalize that part of it out through the reinvention. That's exactly correct is what you saw as the nine 2% constant.
Speaker Change: 11, 2% in actual currency.
Speaker Change: Though we expect that core print post sale trend to improve.
Speaker Change: They're going to improve following a lot of the extended period of installation growth that we've had Steve just pointed out on entry mid supplies typically lag about six to nine months and then the services meant follows after that so that's that will stabilize and continue to improve.
Speaker Change: In relation to just print and other segment as it relates to post sale there in revenue.
Speaker Change: You asked about the one off items, if you were to exclude the backlog reinvention and intentional reduction of non strategic revenue that we took in 2024 does that impact would be about 4% decline. So.
Speaker Change: Constant currency seven six excluding the impact of 4% decline the trajectory is expected to improve and John mentioned all of the reasons around supplies around the installation base that has been growing double digit in the last three quarters.
Speaker Change: And our post sales usually follows six to nine months after those installations.
Speaker Change: Got it got it and quick.
Speaker Change: Quickly for my follow up.
Speaker Change: You mentioned in the prepared remarks that free cash flow was more.
Speaker Change: And then the operating profit performance and you mentioned sort of the.
Speaker Change: Sort of pull the lever on finance receivables can you just outline in terms of maintaining the free cash flow guide for your what are you seeing in terms of cash flow from the business.
Speaker Change: What are the incremental changes you're making on the finance receivables.
Speaker Change: I mean at the end.
Speaker Change: The free cash flow guidance.
Speaker Change: Yes, so as it relates to guidance correctly, we maintained the outlook for end.
Speaker Change: We're not including impacts of tariffs there, but as it relates to the cash flow for 2025, when we guided we said our free cash flow will be between $3 50, and $400 million and that would be lower than the prior year and the reasons why that's lower is related to a reduction in finance receivable forward flow benefits in 2025.
Speaker Change: Five.
Speaker Change: Will be offset by improved adjusted operating income and working capital we still expect those two to be the same in 2025 now beyond 2025 from a trend perspective, we expect our free cash flow to approach historical ranges of about 40% of adjusted operating income and as that operating income.
Speaker Change: Improved and working capital headwinds and reinvention abate Youll see those results improvement as it relates to the free cash flow Lexmark acquisition, just wanted to put it out there and bring it to everybody.
Speaker Change: Top of the top of the inbox.
Speaker Change: Expected to be accretive immediately as it relates to free cash flow with accretion after the 200 million of synergies that are realized within the two year period.
Speaker Change: Okay, maybe if I can just sneak a quick clarification here so in terms of the.
Speaker Change: Finance receivables in the benefit from that to free cash flow.
Speaker Change: That's largely unchanged from your prior expectation for 2020, that's correct.
Speaker Change: Okay, that's correct the Q1.
Speaker Change: We're starting Q1 is slightly lower than expected, but full year, we expect to have the same benefit from finance receivables in 2025.
Speaker Change: Thank you thanks for taking my questions.
Speaker Change: Thank you I would now like to turn the call back over to Steve <unk> for any closing remarks.
Speaker Change: Recapping today's call improved execution and cumulative benefits of reinvention actions taken to date drove stabilization in revenue and a double digit reduction in operating expense for the quarter.
Speaker Change: Overall revenue mix continues to improve led by growth in AI for equipment and solutions as we progress through the remainder of the year. We will continue to focus on what we can control and adapt as needed to changes in tariff policies dependent acquisition of <unk> is expected to further strengthen the momentum we currently see and operate.
Speaker Change: The results and contribute to our target of sustainable growth in revenue and adjusted operating income and free cash flow I. Thank everybody for joining today's earnings call.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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