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    XRX
    Earnings call· Jun 2026(Q2 FY26)

    Xerox Holdings Q2 FY26 earnings call XRX

    Jul 30, 2026 Source

    Executive summary

    Xerox Holdings Corporation Q2 FY26 — Lexmark Synergies and Debt Reduction Drive Improved Outlook

    Xerox delivered a mixed Q2 FY26, with strong reported revenue growth driven by the Lexmark acquisition and significant progress on debt reduction and synergy realization. While pro forma revenue declined, management expressed confidence in a second-half recovery for both Print and Other and IT Solutions, driven by new product launches and sales force ramp-up. The company is focused on stabilizing revenue, increasing profitability, and reducing leverage to navigate its debt maturities.

    Highlights

    5

    • Revenue of $1.92 billion increased 22% year-over-year, reflecting the Lexmark acquisition.

    • Adjusted operating margin rose to 10.6%, up 690 basis points year-over-year.

    • Total debt reduced by $223 million in Q2 FY26.

    • Lexmark integration synergy guidance raised to at least $350 million, a $50 million increase.

    • Full-year 2026 revenue guidance raised by approximately $100 million.

    Concerns

    4

    • Pro forma revenue declined nearly 7% year-over-year, mainly driven by softer mid-range and lower OEM sales.

    • IT Solutions GAAP revenue fell 9% in the quarter, with segment profit margin down 110 basis points due to sales force investments.

    • Higher memory and oil prices present a modest risk to updated profit and cash outlook if current levels persist.

    • Free cash flow guidance of $250 million for FY26 remains unchanged despite $80 million tariff receivable, due to offsets from restructuring, working capital, and TPG JV interest.

    Guidance & targets

    9
    CategoryTargetConfidence
    Lexmark integration synergy
    at least $350 million
    high materiality
    High
    Full-year 2026 revenue
    approximately $7.6 billion
    high materiality
    High
    Full-year 2026 revenue decline (H2)
    4% decline
    medium materiality
    High
    Q3 FY26 revenue trend
    stronger than Q2
    medium materiality
    High
    Q4 FY26 revenue trend
    stronger than Q3
    medium materiality
    High
    Full-year 2026 Adjusted operating income
    $555 million to $605 million
    high materiality
    High
    Full-year 2026 Free cash flow
    approximately $250 million
    high materiality
    High
    Year-end 2026 Gross leverage ratio
    under 5x
    high materiality
    High
    Year-end 2026 Net leverage ratio
    under 4x
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Print and Other
    Equipment revenue growth was driven by Lexmark contribution, but pro forma declined due to softer mid-range, lower OEM sales, and increased backlog for entry. Post-sale revenue decline pro forma was due to lower service rental, outsourcing, and financing income. Segment margin improved due to higher gross margin and integration savings.
    Equipment revenue: $387 millionEquipment revenue growth YoY: 15%Pro forma equipment revenue decline: 13%Post-sale revenue: $1.35 billionPost-sale revenue growth YoY: 31%Post-sale revenue growth constant currency: 30%Pro forma post-sale revenue decline: 4%Adjusted gross margin: 38.4%
    		———12.7%
    IT Solutions
    GAAP revenue declined due to reporting on a net basis for certain contracts. Gross billings grew, and the pipeline remains strong. Segment profit margin declined due to investments in the sales organization.
    Gross billings growth YoY: 4%Gross billings growth YTD: 11%Gross profit: $35 millionGross profit margin: 18%
    		—-9%—3.7%

    Operational metrics

    20
    Adjusted operating margin
    10.6%up 690 bps YoY
    Q2 FY26

    On a reported basis.

    Adjusted operating margin (excluding tariff receivables)
    5.1%up 140 bps YoY
    Q2 FY26

    Excluding the benefit of tariff receivables.

    Adjusted gross margin
    36.4%up 710 bps YoY
    Q2 FY26

    Driven by Lexmark contribution, tariff receivables, and transformation benefits, partially offset by higher incentive compensation, product cost, mix, and lower finance-related fees.

    Non-financing interest expense
    $100 millionup $45 million YoY
    Q2 FY26

    Mainly due to higher net interest expense associated with Lexmark acquisition and TPG JV financing.

    Non-GAAP adjusted tax rate
    —
    Q2 FY26

    Remains volatile due to valuation allowance against certain deferred tax assets; expected to normalize as profitability improves.

    Capital expenditures
    $26 million
    Q2 FY26

    Partially offset by $19 million from Lexmark working capital adjustment finalization.

    Financing activity cash flow
    $114 million use of cash
    Q2 FY26

    Reflecting paydown of bridge notes and partial payment of 2028 senior unsecured and second lien notes, partially offset by tariff receivables proceeds.

    Cash, cash equivalents and restricted cash
    $552 million
    Q2 FY26

    As of end of Q2 FY26.

    Total debt
    $4.2 billiondown $223 million sequentially
    Q2 FY26

    Approximately $1.3 billion supports finance assets, with $2.9 billion core debt attributable to non-financing business.

    Gross leverage ratio (TTM EBITDA)
    5.9xdown from 7x last quarter
    Q2 FY26

    Trailing 12 months EBITDA.

    Net leverage ratio (TTM EBITDA)
    5.1xdown from 6x last quarter
    Q2 FY26

    Trailing 12 months EBITDA.

    2028 maturity wall reduction
    nearly $200 millionmore than 25%
    H1 FY26

    Reduced during the first half of the year.

    Scheduled debt maturities (now to Dec 2027)
    less than $180 million
    now to Dec 2027

    Maturity ladder derisked in the near term.

    IEEPA tariff receivables recognized
    $105 million
    Q2 FY26

    Recognized in gross profit, representing recovery of previously absorbed costs.

    IEEPA tariff receivables sold
    $80 million
    Q2 FY26

    Sold to a third-party buyer for cash, recorded in financing cash flow.

    Debt repurchased (face value)
    $99 million
    Q2 FY26

    Repurchased in the open market.

    Cost to repurchase debt
    $57 million
    Q2 FY26

    Amount spent to repurchase $99 million face value of debt.

    Revenue
    $1.92 billionup 22% YoY
    Q2 FY26

    Reflecting Lexmark's contribution.

    Entry color printer and MFP lineup
    —
    June 2026

    First hardware launched under unified Xerox brand, targeting small work group segment. Entry color installs rose in the quarter despite recent availability.

    9 Series platform
    —
    current

    Internally built platform from Xerox and Lexmark combination, offering stronger economics and total cost of ownership advantage for clients.

    Industry KPIs

    4
    MetricValueDetails
    Capital return FCF$11 millionUSD
    Gross margin drivers36.4%%
    Component supply constraintshigher memory and oil prices
    Revenue mix by end market segmentPrint and Other: $1.737 billion; IT Solutions: $189 millionUSD

    Orderbook & backlog

    1
    Entry-level product backlogincreasedQ2 FY26 end

    Expected to work down over the second half of the year, converting to revenue.

    Product announcements

    3
    ProductTypeDetails
    Entry color printer and MFP lineuplaunch
    9 Series platformlaunch
    IJP 900 and Proficio PX300 and PX500launch

    Deals & partnerships

    1
    LexmarkIntegration of Lexmark operations into Xerox

    The Lexmark acquisition is a key driver of current revenue growth and synergy realization. The unified Xerox brand launched its first hardware products combining capabilities from both companies.

    Risks & headwinds

    5
    Softer mid-range and lower OEM salesQ2 FY26

    Main driver of nearly 7% pro forma revenue decline in Q2 FY26

    Mitigation: Building new products (9 Series) with stronger economics and TCO advantage to compete in the current environment.

    IT Solutions sales force transition frictionQ2 FY26, near-term

    Weighed on near-term signings and short-term operating profit (segment profit margin down 110 bps YoY)

    Mitigation: Rebuilding sales force, ramping seller productivity, adding technical sales engagement, sharpening cross-sell motion; expect Q4 billings ahead of Q3 and revenue tracking with billings next year.

    Credit profile friction for IT Solutionscurrent

    Modestly impacted working capital efficiency and created friction with partners

    Mitigation: Expected to ease as leverage is reduced; actively addressing these constraints.

    Higher memory and oil pricescurrent, ongoing

    More than offset incremental benefit from higher revenue and improved synergy since last update

    Mitigation: Monitoring closely; could present modest risk to updated profit and cash outlook if current levels persist or memory prices move higher.

    Working capital efficiencyQ2 FY26

    Modestly impacted by credit profile friction

    Mitigation: Actively addressing and expect constraints to ease as leverage is reduced.

    What to watch in Q3 FY26

    5

    IT Solutions gross billings growth

    Q4 FY26
    Current4% YoY (Q2 FY26)
    Targetstronger than Q3 YoY

    Why it matters

    Indicates the effectiveness of sales force investments and the recovery of the IT Solutions segment, which is key for addressable market expansion.

    We expect Q4 billings ahead of Q3 year-over-year and a better finish to the year as newer sellers build their books and deal conversion improves, and revenue should begin tracking more closely with billings as we move into next year.

    Q&A highlights

    5

    Why is the full-year free cash flow guidance unchanged at $250 million, despite the $80 million tariff receivable proceeds?

    The $80 million from tariff receivables is offset by additional restructuring costs, working capital drags, and additional interest related to the TPG JV, keeping the free cash flow guidance stable.

    “That $80 million was roughly offset by some additional restructuring costs, some working capital drags, which kind of roughly offset that $80 million and stay in the same ballpark or range. I did forget one point. There was a little additional interest related to the TPG JV in there as well. So those 3 items.”

    asked by Alek Valero · answered by Chuck Butler

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Priorities and Debt Management

    Xerox is focused on three core priorities: stabilizing revenue, increasing profitability, and reducing leverage, framed as 'hurdles' for its 2028, 2029, and 2030 debt maturities. The company made progress in Q2, reducing total debt by $223 million and improving gross and net leverage ratios. Management aims to continue opportunistic debt repurchases to lower future maturity walls.

    02

    Revenue Trajectory and Equipment Sales

    While reported revenue increased 22% due to the Lexmark acquisition, pro forma revenue declined nearly 7%. This was primarily driven by softer mid-range and lower OEM sales. However, demand for entry-level products outran supply, creating a backlog expected to convert in H2 FY26. The overall print pipeline remains strong, tracking ahead of last year.

    03

    Lexmark Integration and Synergy Expansion

    The Lexmark integration is progressing well, with synergy guidance raised by $50 million to at least $350 million. These synergies are driven by IT efficiencies, expanded sourcing, logistics benefits, and migration of service delivery to lower-cost operations. Half of these synergies are expected in 2026, with the remainder in 2027 and 2028, helping to offset higher memory and oil costs.

    04

    IT Solutions Performance and Outlook

    IT Solutions billings grew 4% year-over-year in Q2, but GAAP revenue fell 9%. This segment is undergoing a sales force rebuild and productivity ramp-up, which has weighed on near-term signings and operating profit. Management expects Q4 billings to be stronger than Q3 year-over-year, with revenue tracking more closely with billings into next year, driven by new products and improved deal conversion.

    05

    Production Business Investment

    Xerox is actively investing in its production business, contrary to competitor narratives. The company has launched new products like the IJP 900 and Proficio PX300/PX500, with more portfolio expansions and new product announcements expected in Q3. This strategic focus aims to reshape the portfolio towards higher-growth segments and new technology.

    06

    Impact of IEEPA Tariff Receivables

    The company recognized $105 million of IEEPA tariff receivables in gross profit this quarter, representing a recovery of previously absorbed costs. Xerox sold the receivable to a third party for $80 million cash, which was recorded in financing cash flow due to timing. This cash was partially used to repurchase debt at a discount, capturing $42 million of discount.

    AI-generated summary of the company’s earnings call. Not investment advice.